As filed with the Securities and Exchange Commission on April 29, 1997
File No. 33-65409
File No. 811-07299
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-effective Amendment No. ___ ( )
Post-effective Amendment No. _1_ ( )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 ( )
Amendment No. _3_ (X)
(Check appropriate box or boxes)
ANNUITY INVESTORS(REGISTERED TRADEMARK) VARIABLE ACCOUNT A
(Exact Name of Registrant)
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
(Name of Depositor)
P.O. Box 5423
Cincinnati, Ohio 45201-5423
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code:
(800) 789-6771
Mark F. Muething, Esq.
Senior Vice President, Secretary and General Counsel
Annuity Investors Life Insurance Company
P.O. Box 5423
Cincinnati, Ohio 45201-5423
(Name and Address of Agent for Service)
Copy to:
Catherine S. Bardsley, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
It is proposed that this filing will become effective:
/_/ Immediately upon filing pursuant to Rule 485(b)
/X/ On MAY 1, 1997 pursuant to Rule 485(b)
/_/ 60 days after filing pursuant to Rule 485(a)(i)
/_/ On pursuant to Rule 485(a)(i)
/_/ 75 days after filing pursuant to Rule 485 (a)(ii)
/_/ On pursuant to Rule 485(a)9ii)
Registrant has filed a declaration pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The notice required by such rule for the most recent fiscal
year was filed on March 3, 1997.
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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CROSS REFERENCE SHEET
Showing Location in Part A (Prospectus),
Part B (Statement of Additional Information) and Part C
of Registration Statement Information Required by Form N-4
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
---------------- ------------------
<S> <C> <C> <C>
1. Cover Page.............................. Cover Page
2. Definitions............................. Definitions
3. Synopsis................................ Highlights
4. Condensed Financial Information
(a) Accumulation Unit Values.......... Condensed Financial Information
(b) Performance Data.................. Performance Information
(c) Financial Statements.............. Financial Statements (Statements in SAI)
5. General Description of Registrant,
Depositor and Portfolio Companies
(a) Depositor......................... Annuity Investors Life Insurance Company
(b) Registrant........................ The Separate Account
(c) Portfolio Company................. The Funds
(d) Fund Prospectus................... The Funds
(e) Voting Rights..................... Voting Rights
6. Deductions and Expenses
(a) General........................... Charges and Deductions
(b) Sales Load %...................... Contingent Deferred Sales Charge
(c) Special Purchase Plan............. Contingent Deferred Sales Charge
(d) Commissions....................... Distribution of the Contract
(e) Fund Expenses..................... The Funds
(f) Operating Expenses................ Summary of Expenses
7. Contracts
(a) Persons with Rights............... The Contract; Surrenders; Contract
Loans; Death Benefit; Voting Rights
(b) (i) Allocation of Premium Payments. Purchase Payments
(ii) Transfers...................... Transfers
(iii) Exchanges ..................... Additions, Deletions or Substitutions
(c) Changes........................... Changes - Waivers
(d) Inquiries......................... Contacting the Company
8. Annuity Period.......................... Settlement Options
9. Death Benefit........................... Death Benefit
10. Purchases and Contract Values
(a) Purchases......................... Purchase Payments
(b) Valuation......................... Fixed Account Value; Variable Account Value
(c) Daily Calculation................. Accumulation Unit Value; Net Investment Factor
(d) Underwriter....................... Distribution of the Contract
11. Redemptions
(a) By Owner.......................... Surrender Value; Systematic Withdrawal
By Annuitant...................... Not Applicable
(b) Texas ORP......................... Texas Optional Retirement Program
(c) Check Delay....................... Suspension or Delay in Payment of Surrender Value
(d) Free Look......................... Right to Cancel
12. Taxes................................... Federal Tax Matters
13. Legal Proceedings....................... Legal Proceedings
14. Table of Contents for the Statement of
Additional Information.................. Statement of Additional Information
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PART B
Statement of Additional
ITEM OF FORM N-4 INFORMATION CAPTION
---------------- -------------------
15. Cover Page.............................. Cover Page
16. Table of Contents....................... Table of Contents
17. General Information and History......... General Information and History
18. Services
(a) Fees and Expenses of Registrant... (Prospectus) Summary of Expenses
(b) Management Contracts.............. Not Applicable
(c) Custodian......................... Not Applicable
Independent Auditors.............. Experts
(d) Assets of Registrant.............. Not Applicable
(e) Affiliated Person................. Not Applicable
(f) Principal Underwriter............. Not Applicable
19. Purchase of Securities Being Offered.... (Prospectus) Distribution of the Contract
Offering Sales Load..................... (Prospectus) Contingent Deferred Sales Charge
20. Underwriters............................ Distribution of the Contract
21. Calculation of Performance Data
(a) Money Market Funded Sub Accounts.. Money Market Sub-Account Standardized Yield Calculation
(b) Other Sub-Accounts................ Other Sub-Account Standardized Yield Calculations
22. Annuity Payments........................ (Prospectus) Fixed Dollar Benefit; Variable Dollar Benefit
23. Financial Statements.................... Financial Statements
</TABLE>
PART C- OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
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ANNUITY INVESTORS(REGISTERED TRADEMARK) VARIABLE ACCOUNT A
OF
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
PROSPECTUS
FOR THE
COMMODORE AMERICUS(SERVICE MARK)
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 Americus(SERVICE MARK) Individual
Flexible Premium Deferred Annuity Contracts (each, a "Contract") issued by
Annuity Investors Life Insurance Company(REGISTERED TRADEMARK) (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"), and 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. Non-Qualified Contracts were formerly
known as The Commodore Mariner(SERVICE MARK) Flexible Premium Deferred Annuity
Contracts.
The Contracts provide for the accumulation of an Account Value on a fixed or
variable basis, or a combination of both. The Contracts also provide 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) Dreyfus
Variable Investment Fund-Capital Appreciation Portfolio; (5) Dreyfus Variable
Investment Fund-Growth & Income Portfolio; (6) Dreyfus Variable Investment
Fund-Small Cap Portfolio (7) The Dreyfus Socially Responsible Growth Fund, Inc.;
(8) Dreyfus Stock Index Fund; (9) Merrill Lynch Variable Series Funds, Inc.
Basic Value Focus Fund; (10) Merrill Lynch Variable Series Funds, Inc. Global
Strategy Focus Fund; (11) Merrill Lynch Variable Series Funds, Inc. High Current
Income Fund; (12) Merrill Lynch Variable Series Funds, Inc. Domestic Money
Market Fund; (13) PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio;
(14) PBHG Insurance Series Fund, Inc.-PBHG Technology & Communications
Portfolio; (15) Morgan Stanley Universal Funds Inc.-U.S. Real Estate Portfolio;
(16) Morgan Stanley Universal Funds Inc.-Fixed Income Portfolio; and (17) Strong
Special Fund II, Inc.
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 Contracts 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.
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* * *
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES REGULATORY AUTHORITIES
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Please Read this Prospectus Carefully and
Retain It for Future Reference.
The Date of this Prospectus is May 1, 1997.
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESPERSON, 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.
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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.
Page 2
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TABLE OF CONTENTS
Page
DEFINITIONS...................................................................7
HIGHLIGHTS...................................................................10
The Contract...........................................................10
The Separate Account...................................................10
The Fixed Account......................................................11
Transfers Before the Annuity Commencement Date.........................11
Surrenders.............................................................11
Contingent Deferred Sales Charge ("CDSC")..............................11
Other Charges and Deductions...........................................11
Annuity Benefits.......................................................12
Death Benefit..........................................................12
Federal Income Tax Consequences........................................12
Right to Cancel........................................................12
Contacting the Company.................................................12
CONDENSED FINANCIAL INFORMATION..............................................13
SUMMARY OF EXPENSES..........................................................15
Owner Transaction Expenses.............................................15
Examples...............................................................18
FINANCIAL STATEMENTS.........................................................20
THE FUNDS....................................................................20
Janus Aspen Series.....................................................20
Aggressive Growth Portfolio......................................20
Worldwide Growth Portfolio.......................................20
Balanced Portfolio...............................................20
Dreyfus Funds..........................................................21
Capital Appreciation Portfolio...................................21
Growth and Income Portfolio......................................21
Small Cap Portfolio..............................................21
The Dreyfus Socially Responsible Growth Fund, Inc................21
Dreyfus Stock Index Fund.........................................21
Merrill Lynch Variable Series Funds, Inc...............................22
Basic Value Focus Fund...........................................22
Global Strategy Focus Fund.......................................22
High Current Income Fund.........................................22
Domestic Money Market Fund.......................................22
Strong Variable Insurance Funds, Inc...................................22
Strong Special Fund II...........................................22
Morgan Stanley Universal Funds Inc.....................................23
U.S. Real Estate Portfolio.......................................23
Fixed Income Portfolio...........................................23
Page 3
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PBHG Insurance Series Fund, Inc:.......................................23
PBHG Growth II Portfolio.........................................23
PBHG Technology & Communications Portfolio.......................23
Additions, Deletions, or Substitutions.................................24
PERFORMANCE INFORMATION......................................................24
Yield Data.............................................................24
Total Return Data......................................................25
ANNUITY INVESTORS LIFE INSURANCE COMPANY AND THE SEPARATE ACCOUNT............26
Annuity Investors Life Insurance Company(REGISTERED TRADEMARK).........26
Published Ratings......................................................26
The Separate Account...................................................26
THE FIXED ACCOUNT............................................................27
Fixed Account Options..................................................27
Renewal of Fixed Account Options.......................................27
THE CONTRACTS................................................................28
Right to Cancel........................................................28
PURCHASE PAYMENTS............................................................29
Purchase Payments......................................................29
Allocation of Purchase Payments........................................29
ACCOUNT VALUE................................................................29
Fixed Account Value....................................................30
Variable Account Value.................................................30
Accumulation Unit Value................................................31
Net Investment Factor..................................................31
TRANSFERS....................................................................32
Telephone Transfers....................................................32
Dollar Cost Averaging..................................................32
Portfolio Rebalancing..................................................33
Interest Sweep.........................................................33
Changes By the Company.................................................33
SURRENDERS...................................................................34
Surrender Value........................................................34
Suspension or Delay in Payment of Surrender Value......................34
Free Withdrawal Privilege..............................................35
Systematic Withdrawal..................................................35
CONTRACT LOANS...............................................................35
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DEATH BENEFIT................................................................36
When A Death Benefit Will Be Paid......................................36
Death Benefit Values...................................................37
Death Benefit Commencement Date........................................37
Form of Death Benefit..................................................37
Beneficiary............................................................38
CHARGES AND DEDUCTIONS.......................................................38
Contingent Deferred Sales Charge ("CDSC")..............................38
Maintenance and Administrative Charges.................................40
Mortality and Expense Risk Charge......................................40
Premium Taxes..........................................................41
Transfer Fee...........................................................41
Fund Expenses..........................................................41
SETTLEMENT OPTIONS...........................................................41
Annuity Commencement Date..............................................41
Election of Settlement Option..........................................41
Benefit Payments.......................................................42
Fixed Dollar Benefit...................................................42
Variable Dollar Benefit................................................42
Transfers After the Annuity Commencement Date..........................43
Annuity Transfer Formula...............................................43
Settlement Options.....................................................44
Minimum Amounts........................................................44
Settlement Option Tables...............................................45
GENERAL PROVISIONS...........................................................45
Non-participating......................................................45
Misstatement...........................................................45
Proof of Existence and Age.............................................45
Discharge of Liability.................................................45
Transfer of Ownership..................................................45
Non-Qualified Contract...........................................45
Qualified Contract...............................................46
Assignment.............................................................46
Non-Qualified Contract...........................................46
Qualified Contract...............................................46
Annual Report..........................................................46
Incontestability.......................................................46
Entire Contract........................................................46
Changes -- Waivers.....................................................47
Notices and Directions.................................................47
FEDERAL TAX MATTERS..........................................................47
Introduction...........................................................47
Taxation of Annuities In General.......................................48
Surrenders.............................................................48
Qualified Contracts..............................................48
Non-Qualified Contracts..........................................48
Annuity Benefit Payments...............................................48
Page 5
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Penalty Tax............................................................49
Taxation of Death Benefit Proceeds.....................................49
Transfers, Assignments, or Exchanges of the Contract...................49
Qualified Contracts - General..........................................49
Texas Optional Retirement Program......................................49
Individual Retirement Annuities........................................49
Tax-Sheltered Annuities................................................50
Pension and Profit Sharing Plans.......................................50
Certain Deferred Compensation Plans....................................50
Withholding............................................................50
Possible Changes in Taxation...........................................50
Other Tax Consequences.................................................51
General................................................................51
DISTRIBUTION OF THE CONTRACT.................................................52
LEGAL PROCEEDINGS............................................................52
VOTING RIGHTS................................................................52
AVAILABLE INFORMATION........................................................53
STATEMENT OF ADDITIONAL INFORMATION..........................................53
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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.
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.
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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
(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.
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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.
Page 9
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HIGHLIGHTS
THE CONTRACT
The Commodore Americus(SERVICE MARK) Contracts described in this
Prospectus are available 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, as well as for arrangements that qualify for favorable
tax treatment under Sections 401, 403 or 408 of the Code. Non-qualified
annuity purchases were previously known as The Commodore Mariner(SERVICE
MARK).
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 Variable Account A is a Separate Account of the Company
that is divided into Sub-Accounts. (See "The Separate Account," page 26.)
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) Dreyfus Variable
Investment Fund-Capital Appreciation Portfolio; (5) Dreyfus Variable
Investment Fund-Growth & Income Portfolio; (6) Dreyfus Variable Investment
Fund-Small Cap Portfolio; (7) The Dreyfus Socially Responsible Growth
Fund, Inc.; (8) Dreyfus Stock Index Fund; (9) Merrill Lynch Variable
Series Funds, Inc. Basic Value Focus Fund; (10) Merrill Lynch Variable
Series Funds, Inc. Global Strategy Focus Fund; (11) Merrill Lynch Variable
Series Funds, Inc. High Current Income Fund; (12) Merrill Lynch Variable
Series Funds, Inc. Domestic Money Market Fund; (13) PBHG Insurance Series
Fund, Inc.-PBHG Growth II Portfolio; (14) PBHG Insurance Series Fund,
Inc.-PBHG Technology & Communications Portfolio; (15) Morgan Stanley
Universal Funds Inc.-U.S. Real Estate Portfolio; (16) Morgan Stanley
Universal Funds Inc.-Fixed Income Portfolio; and (17) Strong Special Fund
II, Inc.
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 38. For more information about the Funds, see "THE FUNDS," page 20,
and the accompanying Funds' prospectuses.
Page 10
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THE FIXED ACCOUNT
The Fixed Account is an account within the Company's general account.
There are currently five Fixed Account options available under the Fixed
Account: a Fixed Accumulation Account option and four 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 27.)
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 among the Sub-Accounts, by Written Request to the Company or
by telephone in accordance with the Company's telephone transfer rules.
(See "TRANSFERS," page 32.)
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 32.)
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 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 47.)
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 38.)
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 ("Enhanced Contract"). (See "CHARGES AND DEDUCTIONS," page
38.)
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 38.)
Page 11
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
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 38.)
ANNUITY BENEFITS
Annuity Benefits are paid on a fixed or variable basis, or a combination
of both. (See "Benefit Payments," page 42.)
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 36.)
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 47.)
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 28.)
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 A 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 47.)
Page 12
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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CONDENSED FINANCIAL INFORMATION
The following table gives per unit information about the financial history
of each Sub-Account of the Separate Account from inception to December 31,
1996. This information should be read in conjunction with the Separate
Account financial statements (including the notes thereto) included in the
Statement of Additional Information. (No Enhanced Contracts were issued in
the year ended December 31, 1996.)
ACCUMULATION UNIT VALUES AND UNITS OUTSTANDING
1996 1995
-------- ----
DREYFUS VARIABLE INVESTMENT
FUND-CAPITAL APPRECIATION
Accumulation UV - beginning 9.944353 10.000000*
Accumulation UV - ending 12.330543 9.944353
Accumulated units at year end 33,424.286 0.000
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
Accumulation UV - beginning 9.960199 10.000000*
Accumulation UV - ending 11.924561 9.960199
Accumulated units at year end 15,316.028 0.000
DREYFUS STOCK INDEX FUND
Accumulation UV - beginning 9.992509 10.000000*
Accumulation UV - ending 12.092195 9.992509
Accumulated units at year end 29,203.177 0.000
JANUS ASPEN SERIES
AGGRESSIVE GROWTH
Accumulation UV - beginning 10.299246 10.000000*
Accumulation UV - ending 10.979832 10.299246
Accumulated units at year end 52,219.342 0.000
WORLDWIDE GROWTH
Accumulation UV - beginning 10.239284 10.000000*
Accumulation UV - ending 13.048360 10.239284
Accumulated units at year end 50,730.352 0.000
BALANCED
Accumulation UV - beginning 10.171211 10.000000*
Accumulation UV - ending 11.670308 10.171211
Accumulated units at year end 49,603.384 0.000
SHORT-TERM BOND**
Accumulation UV - beginning 10.061754 10.000000*
Accumulation UV - ending 10.332080 10.061754
Accumulated units at year end 4,216.270 0.000
Page 13
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
MERRILL LYNCH VARIABLE SERIES
FUNDS, INC.
BASIC VALUE FOCUS
Accumulation UV - beginning 10.147434 10.000000*
Accumulation UV - ending 12.094664 10.147434
Accumulated units at year end 6,820.503 0.000
GLOBAL STRATEGY FOCUS
Accumulation UV - beginning 10.105242 10.000000*
Accumulation UV - ending 11.294096 10.105242
Accumulated units at year end 2,114.707 0.000
HIGH CURRENT INCOME
Accumulation UV - beginning 10.118436 10.000000*
Accumulation UV - ending 11.119068 10.118436
Accumulated units at year end 6,837.357 0.000
DOMESTIC MONEY MARKET
Accumulation UV - beginning 1.002475 1.000000*
Accumulation UV - ending 1.041216 1.002475
Accumulated units at year end 325,331.820 0.000
* Effective December 7, 1995 on Separate Account commencement date.
** Because this Sub-Account has been eliminated, effective May 1, 1997,
Purchase Payments are no longer allocable to it.
Page 14
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
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 Fee2 $25
____________________-
1 The first twelve transfers in a Contract year are free. Thereafter, a $25
fee will be charged on each subsequent transfer.
2 The Company will waive the Contract Maintenance Fee if the Account Value
is equal to or greater than $30,000 on the date the Contract Maintenance
Fee would otherwise be assessed.
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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<TABLE>
<CAPTION>
SEPARATE ACCOUNT DREYFUS
ANNUAL EXPENSES3/ JANUS A.S. JANUS A.S. V.I.F. V.I.F. DREYFUS V.I.F.
(as a percentage of AGGRESSIVE WORLDWIDE JANUS A.S. GROWTH DREYFUS CAPITAL
average Separate GROWTH GROWTH BALANCED INCOME SMALL CAP APPRECIATION
Account assets) PORTFOLIO5/ PORTFOLIO5/ PORTFOLIO5/ PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mortality and 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Expense Risk
Charge
Administration
Charge 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Fees and 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Expenses of the
Separate Account
Total 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Separate
Account Annual
Expenses
FUND ANNUAL Expenses4/
(as a percentage of
Fund average net
assets after fee
waiver and/or
expense reimburse-
ment, if any)
Management Fees 0.72% 0.66% 0.79% 0.75% 0.75% 0.75%
Other Expenses 0.04% 0.14% 0.15% 0.08% 0.04% 0.09%
Total Fund Annual 0.76% 0.80% 0.94% 0.83% 0.79% 0.84%
Expenses
SEPARATE ACCOUNT MERRILL MERRILL MERRILL
ANNUAL EXPENSES3/ THE DREYFUS LYNCH LYNCH LYNCH
(as a percentage of SOCIALLY V.S.F. V.S.F. V.S.F. MERRILL LYNCH
average Separate RESPONSIBLE BASIC GLOBAL HIGH V.S.F.
Account assets) GROWTH DREYFUS VALUE STRATEGY CURRENT DOMESTIC
FUND, STOCK FOCUS FOCUS INCOME MONEY MARKET
INC.6/ INDEX FUND FUND FUND FUND FUND
------ ---------- ---- ------ -------- ------------
Mortality and 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Expense Risk Charge
Administration 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Charge
Other Fees and 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Expenses of the
Separate Account
Total Separate 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Account Annual
Expenses
</TABLE>
FUND ANNUAL Expenses4/
as a percentage of
Fund average net assets
after fee waiver and/or
expense reimbursement,
if any)
Management Fees 0.72% 0.245% 0.60% 0.65% 0.49% 0.50%
Other Expenses 0.24% 0.055% 0.06% 0.06% 0.05% 0.04%
Total Fund Annual 0.96% 0.30 % 0.66% 0.71% 0.54% 0.54%
Expenses
Page 16
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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<TABLE>
<CAPTION>
PBHG INSURANCE
SEPARATE ACCOUNT MORGAN PBHG INSURANCE SERIES FUND,
ANNUAL EXPENSES3/ STRONG STANLEY MORGAN SERIES FUND, INC. - PBHG
(as a percentage of SPECIAL U.S. REAL STANLEY - INC. - PBHG TECHNOLOGY &
average Separate FUND II, ESTATE FIXED INCOME GROWTH II COMMUNICATIONS
Account assets) INC. PORTFOLIO PORTFOLIO PORTFOLIO7/ PORTFOLIO7/
---- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Mortality and 1.25% 1.25% 1.25% 1.25% 1.25%
Expense Risk
Charge
Administration 0.00% 0.00% 0.00% 0.00% 0.00%
Charge
Other Fees and 0.00% 0.00% 0.00% 0.00% 0.00%
Expenses of the
Separate Account
Total Separate 1.25% 1.25% 1.25% 1.25% 1.25%
Account Annual
Expenses
Fund Annual
Expenses4/as a
percentage of Fund
average net assets
after fee waiver
and/or expense
reimbursement, if any)
Management Fees 1.00% 0.80% 0.40% 0.85% 0.61%
Other Expenses 0.17% 0.30% 0.30% 0.30% 0.59%
Total Fund Annual 1.17% 1.10% 0.70% 1.15% 1.20%
Expenses
</TABLE>
3 Annual expenses are the same for each Sub-Account. These expenses are based on
expenses incurred for the fiscal year ended December 31, 1996.
4 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, 1996. Actual expenses
in future years may be higher or lower.
5 The fees and expenses in the table above are based on gross expenses of the
shares of each Portfolio before expense offset arrangements for the fiscal year
ended December 31, 1996. The information for each Portfolio is net of fee
waivers or reductions from Janus Corporation. Fee reductions for the Aggressive
Growth, Worldwide Growth and Balanced Portfolios reduce the management fee to
the level of the corresponding Janus retail fund. Other waivers, if applicable,
are first applied against the management fee and then against other expenses.
Without such waivers and reductions, the Management Fee, Other Expenses and
Total Operating Expenses for the Portfolios would have been 0.79%, 0.04% and
0.83%, respectively, for Aggressive Growth Portfolio, 0.77%, 0.14% and 0.91%,
respectively, for Worldwide Growth Portfolio and 0.92%, 0.15% and 1.07%,
respectively, for Balanced Portfolio. Janus Corporation may modify or terminate
the waivers or reductions at any time upon at least 90 days' notice to the
Trustees of a Portfolio.
6 Fund expenses are net of management fees and other expenses waived and/or
reimbursed. In the absence of such fee waivers and/or expense reimbursements,
Management Fees, Other Expenses and Total Portfolio Expenses for The Dreyfus
Socially Responsible Growth Fund, Inc. would have been 0.75%, 0.24% and 0.99%
for the fiscal year ended December 31, 1996.
7 The adviser has voluntarily agreed to waive or limit its fees or assume other
expenses of the PBHG Insurance Series Fund, Inc.--PBHG Technology &
Communications Portfolio and PBHG Growth II Portfolio through December 31, 1997,
so that total operating expenses of each Portfolio will not exceed 1.20% of
average daily net assets. Such waiver or expense reimbursements by the adviser
are subject to repayment by the Portfolio in future years if such repayment can
be achieved without an increase in the total operating expenses of the Portfolio
above 1.20% of average daily net assets. Absent such fee waiver or expense
reimbursement, the estimated Management Fees and Total Operating Expenses for
the PBHG Technology & Communication Portfolio would be 0.85% and 1.44%,
respectively. Given the projected asset size of the PBHG Growth II Portfolio, no
expense reimbursement or fee waiver is anticipated with respect to it.
Page 17
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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EXAMPLES
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 5 Years 10 Years
- ----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Janus Aspen Series-Aggressive Growth $92 $120 $157 $307
Portfolio
Janus Aspen Series-Worldwide Growth Portfolio $92 $122 $159 $312
Janus Aspen Series-Balanced Portfolio $94 $126 $167 $330
Dreyfus Variable Investment Fund-Capital $93 $123 $161 $317
Appreciation Portfolio
The Dreyfus Socially Responsible Growth $94 $127 $168 $333
Fund, Inc.
Dreyfus Variable Investment Fund-Growth & $92 $123 $161 $316
Income Portfolio
Dreyfus Variable Investment Fund-Small Cap $92 $121 $158 $311
Portfolio
Dreyfus Stock Index Fund $87 $105 $130 $244
Merrill Lynch Variable Series Funds, $91 $117 $151 $293
Inc.-Basic Value Focus Fund
Merrill Lynch Variable Series Funds, $91 $119 $154 $300
Inc.-Global Strategy Focus Fund
Merrill Lynch Variable Series Funds, $90 $113 $144 $277
Inc.-High Current Income Fund
Merrill Lynch Variable Series Funds, $90 $113 $144 $277
Inc.-Domestic Money Market Fund
Strong Special Fund II, Inc. $96 $134 $180 $359
Morgan Stanley Universal Funds-U.S. Real $95 $131 $176 $351
Estate Portfolio
Morgan Stanley Universal Funds-Fixed Income $91 $119 $153 $299
Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth $96 $133 $179 $357
II Portfolio
PBHG Insurance Series Fund, $96 $135 $182 $363
Inc.-PBHGTechnology & Communications
Portfolio
</TABLE>
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
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 5 Years 10 Years
- ----------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Janus Aspen Series-Aggressive Growth Portfolio $22 $70 $127 $307
Janus Aspen Series-Worldwide Growth Portfolio $22 $72 $129 $312
Janus Aspen Series-Balanced Portfolio $24 $76 $137 $330
Dreyfus Variable Investment Fund-Capital $23 $73 $140 $317
Appreciation Portfolio
The Dreyfus Socially Responsible Growth Fund, $24 $77 $138 $333
Inc.
Dreyfus Variable Investment Fund-Growth & $22 $73 $131 $316
Income Portfolio
Dreyfus Variable Investment Fund-Small Cap $22 $71 $128 $311
Portfolio
Dreyfus Stock Index Fund $17 $55 $100 $244
Merrill Lynch Variable Series Funds, $21 $67 $121 $293
Inc.-Basic Value Focus Fund
Merrill Lynch Variable Series Funds, $21 $69 $124 $300
Inc.-Global Strategy Focus Fund
Merrill Lynch Variable Series Funds, $20 $63 $114 $277
Inc.-High Current Income Fund
Merrill Lynch Variable Series Funds, $20 $63 $114 $277
Inc.-Domestic Money Market Fund
Strong Special Fund II, Inc. $26 $84 $150 $359
Morgan Stanley Universal Funds-U.S. Real $25 $81 $146 $351
Estate Portfolio
Morgan Stanley Universal Funds-Fixed Income $21 $69 $123 $299
Portfolio
PBHG Insurance Series Fund, Inc.-PBGH Growth $26 $83 $149 $357
II Portfolio
PBHG Insurance Series Fund, Inc.-PBGH $26 $85 $152 $363
Technology & Communications Portfolio
</TABLE>
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
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.
The purpose of the Examples 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 38 of this Prospectus and the accompanying
prospectus for the applicable Fund for a more complete description of the
various costs and expenses.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR ANNUAL RATES OF RETURN OF ANY SUB-ACCOUNT OR FUND. ACTUAL EXPENSES
AND ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR THE
PURPOSE OF THE EXAMPLES. THE $25 CONTRACT MAINTENANCE FEE IS REFLECTED IN THE
EXAMPLES AS A CHARGE OF $1.00.
The fee table and Examples do not include charges to the Owner for premium
taxes.
FINANCIAL STATEMENTS
The financial statements and reports of independent public accountants for the
Company and the Separate Account are contained in the Statement of Additional
Information.
THE FUNDS
The Separate Account currently has seventeen 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 certain
investment 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 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.
Page 20
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
Janus 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.
GROWTH AND INCOME PORTFOLIO The Growth and Income Portfolio's goal is to
provide long-term capital growth, current income and growth of income,
consistent with reasonable investment risk. This Portfolio invests
primarily in equity securities, debt securities and money market
instruments of domestic and foreign issuers.
SMALL CAP PORTFOLIO (Dreyfus Variable Investment Fund). (Dreyfus Variable
Investment Fund). The Small Cap Portfolio's goal is to maximize capital
appreciation. This Portfolio invests primarily in common stocks of
domestic and foreign issuers. This Portfolio will be particularly alert to
companies that The Dreyfus Corporation considers to be emerging
smaller-sized companies which are believed to be characterized by new or
innovative products, services or processes which should enhance prospects
for growth in future earnings.
The Dreyfus Corporation serves as investment adviser to the Growth and
Income and Small Cap Portfolios.
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.
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
of Dreyfus located at 500 Grant Street, Pittsburgh, Pennsylvania 15258, is
the index manager.
Page 21
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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, the Far East and Latin America. Geographical allocation of
the Fund's investments is not limited, and will be made primarily on the
basis of anticipated total return from investments, considering various
factors including economic, financial, social, national, and political
factors. Investing on an international basis involves special
considerations. See the attached Prospectus for the Fund.
HIGH CURRENT INCOME FUND. The primary 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. As a secondary
objective, the Fund seeks capital appreciation when consistent with its
primary 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. Investment in such securities
entails relatively greater risk of loss of income or principal. An
investment in this Fund may not be appropriate as the exclusive investment
to fund a Contract. See the attached Prospectus for the Fund.
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.
STRONG SPECIAL FUND II, INC.
STRONG SPECIAL FUND II, INC. The investment objective of the Strong
Special Fund II is to seek capital growth. It currently emphasizes
medium-sized companies that the Fund's adviser believes are
under-researched and attractively valued.
Strong Capital Management, Inc. serves as the investment adviser to this
Fund.
Page 22
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
MORGAN STANLEY UNIVERSAL FUNDS INC. :
U.S. REAL ESTATE PORTFOLIO. The investment objective of the U.S. Real
Estate Portfolio is above average current income and long-term capital
appreciation by investing primarily in equity securities of U.S. and
non-U.S. companies principally engaged in the U.S. real estate industry,
including Real Estate Investment Trusts (REITs).
Morgan Stanley Asset Management Inc. (a wholly owned subsidiary of Morgan
Stanley Group, Inc.) serves as investment adviser to the U.S. Real Estate
Portfolio.
FIXED INCOME PORTFOLIO. The investment objective of the Fixed Income
Portfolio is to seek above-average total return over a market cycle of
three to five years by investing primarily in a diversified portfolio of
securities issued by the U.S. Government and its Agencies, Corporate
Bonds, Mortgage-Backed Securities, Foreign Bonds and other Fixed Income
Securities.
Miller Anderson & Sherrard, LLP (an indirect wholly owned subsidiary of
Morgan Stanley Group, Inc.) serves as the investment adviser to the Fixed
Income Portfolio.
PBHG INSURANCE SERIES FUND, INC:
PBHG GROWTH II PORTFOLIO. The investment objective of PBHG Growth II
Portfolio is to seek capital appreciation by investing primarily in common
stocks and convertible securities of small and medium size growth
companies (market capitalization or annual revenue of up to $4 billion)
that are considered to have an outlook for strong earnings growth and the
potential for significant capital appreciation.
PBHG TECHNOLOGY & COMMUNICATIONS PORTFOLIO. The investment objective of
the PBHG Technology & Communications Portfolio is to seek long-term growth
of capital by investing primarily in common stocks of companies which rely
extensively on technology or communications in their product development
or operations, or which may be experiencing exceptional growth in sales
and earnings driven by technology or communications-related products and
services.
Pilgrim Baxter & Associates, Ltd. serves as the investment adviser to each
of these Portfolios.
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.
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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.
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.
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 performance data and 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
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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 standardized average annual total return quotations reflect the
deduction of all applicable charges except for premium taxes. In addition to
standardized 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
charges will be higher 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.
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ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
AND THE SEPARATE ACCOUNT
ANNUITY INVESTORS LIFE INSURANCE COMPANY(REGISTERED TRADEMARK)
Annuity Investors Life Insurance Company(REGISTERED TRADEMARK) (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 TRADEMARK)
Life Insurance CompanY which is a wholly owned subsidiary of American Annuity
Group, Inc., a publicly traded insurance holding company. That company is in
turn indirectly controlled by American Financial Group, Inc., a publicly traded
holding company.
The home office of the Company is located at 250 East Fifth Street, Cincinnati,
Ohio 45202.
PUBLISHED RATINGS
The Company may from time to time publish in advertisements, sales literature
and reports to 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 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 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.
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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The Separate Account is divided into Sub-Accounts, each of which invests solely
in a specific corresponding Fund. (See "THE FUNDS," page 20.) Changes to the
Sub-Accounts may be made at the discretion of the Company. (See "Additions,
Deletions, or Substitutions," page 24.)
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.
FIXED ACCOUNT OPTIONS
There are currently five 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, Five-Year, and Seven-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
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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.
THE CONTRACTS
Each Contract is an individual flexible premium deferred annuity. The rights and
benefits are described below and in each 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
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. Where required by state law, the right to cancel provision of a
Contract may provide for refund of a different amount, or a right to cancel for
a different period of time, than described above.
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PURCHASE PAYMENTS
PURCHASE PAYMENTS
The minimum initial Purchase Payment for Qualified Contracts purchased under a
periodic payment program is $50; for other Qualified contracts, $2,000; for
Non-Qualified Contracts purchased under a periodic payment program, $100; and
for other Non-Qualified Contracts, $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 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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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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.
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.
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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
(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.
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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.
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.
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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 or 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.
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.
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.
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.
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.
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
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described above without prior notice to Owners, as permitted by applicable law.
The Company may also impose an annual fee or increase the current annual fee, as
applicable, for any of the foregoing services in amount(s) as the Company may
then determine to be reasonable for participation in the service.
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:
(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 38.)
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 47.)
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 the greater of: (a) accumulated earnings as of the last
Contract Anniversary (Account Value in excess of Purchase Payments); or (b) 10%
of the Account Value as of the last Contract Anniversary.
If the Free Withdrawal Privilege is not exercised during a Contract Year, it
does not carry over to the next Contract Year.
SYSTEMATIC WITHDRAWAL
Prior to the applicable Commencement Date, the Owner, by Written Request to the
Administrative Office, may elect to withdraw money automatically 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 withdrawn exceeds the Free
Withdrawal Privilege (See "CHARGES AND DEDUCTIONS," page 38.) 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.
Systematic withdrawals may have tax consequences or may be limited by tax law
restrictions. (See "FEDERAL TAX MATTERS," page 47.)
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.
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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;
(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
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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;
(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 41.)
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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 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 deemed to be withdrawn first from
accumulated earnings (which may be surrendered without charge) and then to
Purchase Payments on a first-in, first-out basis.
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Number of Full Years Elapsed Between Contingent Deferred Sales
Date of Receipt of Purchase Payment Charge as a Percentage of
and Date Written Request for Surrender Associated Purchase Payment
Received Payment Surrendered
- --------------------------------------- ---------------------------
0 7%
===============================================================================
1 6%
===============================================================================
2 5%
===============================================================================
3 4%
===============================================================================
4 3%
===============================================================================
5 2%
===============================================================================
6 1%
===============================================================================
7 or more 0%
===============================================================================
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 35.)
No CDSC is assessed upon payment of the Death Benefit.
The CDSC will be waived upon surrender if 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.
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 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.
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The CDSC may be reduced or waived on partial or full surrenders from a Fixed
Account option to the extent required to satisfy state 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. 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.
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 Contracts 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 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 Contracts 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 a Contract.
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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 are made to a
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 20.)
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.
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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.
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.
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.
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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), 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.
TRANSFERS AFTER THE ANNUITY COMMENCEMENT DATE
After the Annuity Commencement Date, no transfers between the Fixed Account and
the Separate Account are permitted. However, after a Variable Dollar Annuity
Benefit has been paid for at least twelve months, the Participant may, by
Written Request to the Administrative Office, transfer Annuity Units between
Sub-Accounts no more than once during a twelve-month period.
ANNUITY TRANSFER FORMULA
Transfers after the Annuity Commencement Date are implemented according to the
following formulas:
(1) Determine the number of units to be transferred from the Sub-Account
as follows:
= AT/AUV1
(2) Determine the number of Annuity Units remaining in such Sub-Account
(after the transfer):
=UNIT1-AT/AUV1
(3) Determine the number of Annuity Units in the transferee Sub-Account
(after the transfer):
=UNIT2 + AT/AUV2
(4) Subsequent Variable Dollar Annuity Benefit payments will reflect the
changes in Annuity Units in each Sub-Account as of the next Variable Dollar
Annuity Benefit payment's due date.
Where:
(AUV1) is the Annuity Unit Value of the Sub-Account that the transfer is being
made from as of the end of the Valuation Period in which the transfer request is
received.
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(AUV2) is the Annuity Unit Value of the Sub-Account that the transfer is being
made from as of the end of the Valuation Period in which the transfer request is
received.
(UNIT1) is the number of Annuity Units in the Sub-Account that the transfer is
being made from, before the transfer.
(UNIT2) is the number of Annuity Units in the Sub-Account that the transfer is
being made to, before the transfer.
(AT) is the dollar amount being transferred from the Sub-Account.
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 Tables apply 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 Tables apply to this Option.
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
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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.
GENERAL PROVISIONS
NON-PARTICIPATING
The Contracts do 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 Death Benefit Commencement Date.
INCONTESTABILITY
No Contract shall be contestable by the Company.
ENTIRE CONTRACT
The Company issues the Contracts 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.
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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 a Contract. Any person concerned about tax implications should consult a
competent tax advisor before initiating any transaction. This discussion is
based upon the Company's understanding of the present federal income tax laws as
they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of the continuation of the present
federal income tax laws or of the current interpretation by the Internal Revenue
Service. Moreover, no attempt has been made to consider any applicable state or
other tax laws.
A 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.
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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 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, other than Systematic Withdrawal
Option payments treated as Annuity Benefit Payments for tax purposes, 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 and/or non-excludable 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 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. In either case, 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.
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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. A 25% premature distribution penalty applies to certain distributions
from a Savings Incentive Match Plan for Employees (SIMPLE) IRA described in
Section 408(p) of the Code.
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.
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)
attainment of age 70 1/2; or (4) death. Section 830.205 of the Texas Government
Code provides that benefits under the optional retirement program ("ORP") vest
after one year of participation. Accordingly, an Account Value cannot be
withdrawn or distributed without written certification from the employer of the
ORP participant's vesting status and, if the participant is living and under age
70 1/2, the participant's retirement or other termination from employment.
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 a Simplified Employee Pension (SEP) Plan or Savings Incentive Match
Plan for Employees (SIMPLE) to provide IRA contributions on behalf of their
employees.
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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. Subject to
certain limits, such contributions are not includable in the gross income of the
employee until the employee receives distributions under the Contract. Amounts
attributable to contributions made under a salary reduction agreement cannot be
distributed until the employee attains age 59 1/2, separates from service,
becomes disabled, incurs a hardship or dies.
PENSION AND PROFIT SHARING 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. Purchasers of a Contract for use with such plans should seek competent
advice regarding the suitability of the proposed plan documents and the Contract
for their specific needs.
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).
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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.
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.
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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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, 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 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.
The Company or AAG Securities may pay commissions to registered representatives
of AAG securities and other broker-dealers of up to 8.5% of Purchase Payments
made under the Contracts ("Commissions"). These Commissions are reduced by
one-half for contracts issued to Owners over age 75. When permitted by state law
and in exchange for lower initial Commissions, AAG Securities and/or the Company
may pay trail commissions to registered representatives of AAG Securities and to
other broker-dealers. Trail commissions are not expected to exceed 1% of the
Account Value of a Contract on an annual basis. To the extent permissible under
current law, the company and/or AAG Securities may pay production, persistency
and managerial bonuses as well as other promotional incentives, in cash or other
compensation, to registered representatives of AAG Securities and/or other
broker-dealers.
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
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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Commencement Date, the number of votes decreases as Annuity Payments are made
and as the number of Accumulation Units for a Contract decreases.
The number of votes of a Fund will be determined as of the date coincident with
the date established by that Fund for shareholders eligible to vote at the
meeting of the Fund. Voting instructions will be solicited by written
communication prior to such meeting in accordance with procedures established by
the respective Funds.
Shares as to which no timely instructions are received and shares held by the
Company as to which 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.
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:
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TABLE OF CONTENTS
PAGE
ANNUITY INVESTORS - LIFE INSURANCE COMPANY(REGISTERED TRADEMARK) 1
General Information and History 2
State Regulation 2
SERVICES 3
Safekeeping of Separate Account Assets 3
Records and Reports 3
Experts 3
DISTRIBUTION OF THE CONTRACTS 3
CALCULATION OF PERFORMANCE INFORMATION 4
Money Market Sub-Account Standardized Yield Calculation 4
Other Sub-Account Standardized Yield Calculation 5
Standardized Total Return Calculation 6
Hypothetical Performance Data 7
Other Performance Data 8
FEDERAL TAX MATTERS 10
Taxation of the Company 10
Tax Status of the Contract 11
FINANCIAL STATEMENTS 12
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
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--------------------------------------------------------------------------
Copies of the Statement of Additional Information dated May 1, 1997 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, 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 Terms Terms
of of of
Pay- Semi Quar- Pay- Semi Quar- Pay- Semi- Quar-
ments Annual Annual terly Monthly ments Annual Annual terly Monthly ments Annual Annual terly Monthly
- ----------------------------------------------------------------------------------------------------------------
Years Years Years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 184.60 91.62 45.64 15.18 11 108.08 53.64 26.72 8.88 16 79.61 39.51 19.68 6.54
7 160.51 79.66 39.68 13.20 12 100.46 49.86 24.84 8.26 17 75.95 37.70 18.78 6.24
8 142.46 70.70 35.22 11.71 13 94.03 46.67 23.25 7.73 18 72.71 36.09 17.98 5.98
9 128.43 63.74 31.75 10.56 14 88.53 43.94 21.89 7.28 19 69.81 34.65 17.26 5.74
10 117.23 58.18 28.98 9.64 15 83.77 41.57 20.71 6.89 20 67.22 33.36 16.62 5.53
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
OPTION B TABLES - LIFE ANNUITY
With Payments For At Least A Fixed Period
------------------------------------------------
60 MONTHS 120 180 240 MONTHS
MONTHS 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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OPTION C TABLE - JOINT AND ONE-HALF SURVIVOR ANNUITY Monthly
payments for each $1,000 of proceeds by ages of persons named*.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------
</TABLE>
*Payments after the death of the Primary Payee will be one-half of the amount
shown.
NON-QUALIFIED CONTRACTS
OPTION A TABLE - INCOME FOR A FIXED PERIOD Payments for
fixed number of years for each $1,000 applied.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Terms Terms Terms
of of of
Pay- Semi Quar- Pay- Semi Quar- Pay- Semi- Quar-
ments Annual Annual terly Monthly ments Annual Annual terly Monthly ments Annual Annual terly Monthly
- ----------------------------------------------------------------------------------------------------------------
Years Years Years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 184.60 91.62 45.64 15.18 11 108.08 53.64 26.72 8.88 16 79.61 39.51 19.68 6.54
7 160.51 79.66 39.68 13.20 12 100.46 49.86 24.84 8.26 17 75.95 37.70 18.78 6.24
8 142.46 70.70 35.22 11.71 13 94.03 46.67 23.25 7.73 18 72.71 36.09 17.98 5.98
9 128.43 63.74 31.75 10.56 14 88.53 43.94 21.89 7.28 19 69.81 34.65 17.26 5.74
10 117.23 58.18 28.98 9.64 15 83.77 41.57 20.71 6.89 20 67.22 33.36 16.62 5.53
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
OPTION B TABLES - LIFE ANNUITY
With Payments For At Least A Fixed Period
------------------------------------------------
60 120 180 240
MALE MONTHS MONTHS MONTHS 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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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
OPTION B TABLES (CONTINUED)
-------------------------------------------------
60 120 180 240
FEMALE MONTHS MONTHS MONTHS 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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INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY PROSPECTUS
- --------------------------------------------------------------------------------
OPTION C TABLE - JOINT AND ONE-HALF SURVIVOR ANNUITY Monthly
payments for each $1,000 of proceeds by ages of persons named*.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
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> <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
------------------------------------------------------------------------------------
</TABLE>
*Payments after the death of the Primary Payee will be one-half of the amount
shown.
Monthly payments for each $1,000 of proceeds by ages of persons named*.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
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> <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
------------------------------------------------------------------------------------
</TABLE>
*Payments after the death of the Primary Payee will be one-half of the amount
shown.
Page 61
<PAGE>
ANNUITY INVESTORS[REGISTERED TRADEMARK] VARIABLE ACCOUNT A
OF
ANNUITY INVESTORS LIFE INSURANCE COMPANY[REGISTERED TRADEMARK]
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
COMMODORE NAUTICUS[REGISTERED TRADEMARK] GROUP
FLEXIBLE PREMIUM DEFERRED ANNUITY
AND THE
COMMODORE AMERICUSSM
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 Nauticus[REGISTERED TRADEMARK] Group
Flexible Premium Deferred Variable Annuity Contract and the current Prospectus
for The Commodore Americus[SERVICEMARK] Individual Flexible Premium Deferred
Variable Annuity Contracts (each, the "Contract") offered by Annuity Investors
Life Insurance Company[REGISTERED TRADEMARK]. A copy of either Prospectus dated
May 1, 1997, 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 each 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 APPLICABLE CONTRACT.
Dated May 1, 1997
<PAGE>
The following information supplements the information in the
Prospectuses about the Contracts and Certificates. Terms used in this Statement
of Additional Information have the same meaning as to a Contract as in the
Prospectus for that Contract.
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,
Inc. ("AAG") a Delaware corporation that is a publicly traded insurance holding
company. Great American 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.
STATE REGULATION
The Company is subject to the insurance laws and regulations of all the
jurisdictions where it is licensed to operate. The availability of certain
Contract rights and provisions depends on state approval and/or filing and
review processes in each such jurisdiction. Where required by law or regulation,
the Contracts will be modified accordingly.
-2-
<PAGE>
SERVICES
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
Title to assets of the Separate Account is held by the Company. The
Separate Account assets are kept separate and apart from the Company's general
account assets. Records are maintained of all purchases and redemptions of Fund
shares held by each of the Sub-Accounts.
Title to assets of the Fixed Account is held by the Company together
with the Company's general account assets.
RECORDS AND REPORTS
All records and accounts relating to the Fixed Account and the Separate
Account will be maintained by the Company. As presently required by the
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 of record.
EXPERTS
The financial statements of the Separate Account and 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 reports thereon also appearing elsewhere herein. Such
financial statements have been included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
DISTRIBUTION OF THE CONTRACTS
The offering of the Contracts is expected to be continuous, 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.
During the fiscal year ended December 31, 1996, AAG Securities, Inc.
("AAG Securities"), the principal underwriter and distributor of the Contracts,
received $192,085 in commissions with respect to the Contracts, of which $4,538
was retained by AAG Securities.
-3-
<PAGE>
CALCULATION OF PERFORMANCE INFORMATION
MONEY MARKET SUB-ACCOUNT STANDARDIZED YIELD CALCULATION
In accordance with rules and regulations adopted by the Securities and
Exchange Commission, the Company computes the Money Market Sub-Account's current
annualized yield for a seven-day period in a manner which does not take into
consideration any realized or unrealized gains or losses on shares of the Money
Market Fund or on its portfolio securities. This current annualized yield is
computed by determining the net change (exclusive of realized gains and losses
on the sale of securities and unrealized appreciation and depreciation) in the
value of a hypothetical account having a balance of one unit of the Money Market
Sub-Account at the beginning of such seven-day period, dividing such net change
in the value of the hypothetical account by the value of the hypothetical
account at the beginning of the period to determine the base period return and
annualizing this quotient on a 365-day basis. The net change in the value of the
hypothetical account reflects the deductions for the Mortality and Expense Risk
and Administration Charges and income and expenses accrued during the period.
Because of these deductions, the yield for the Money Market Sub-Account of the
Separate Account will be lower than the yield for the Money Market Fund or any
comparable substitute funding vehicle.
The Securities and Exchange Commission also permits the Company to
disclose the effective yield of the Money Market Sub-Account for the same
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 effective yield and yields for the Money Market Sub-Account for the
seven-day period ended December 31, 1996 are as follows:
MONEY MARKET SUB-ACCOUNT YIELD EFFECTIVE YIELD
------------------------ ----- ---------------
Standard Contract 3.81% 3.88%
Enhanced Contract 4.10% 4.19%
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
-4-
<PAGE>
by he 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 CALCULATIONS
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:
a - b 6
YIELD= 2[----- + 1) -1]
cd
Where:
a = net investment income earned during the period by the Portfolio
attributable to the shares owned by the Sub-Account.
b = expenses for the Sub-Account accrued for the period (net of
reimbursements).
c = the average daily number of Accumulation Units outstanding during
the period.
d = the maximum offering price per Accumulation Unit on the last day
of the period.
Net investment income will be determined in accordance with rules and
regulations established by the Securities and Exchange Commission. Accrued
expenses will include all recurring fees that are charged to all Contracts. The
yield calculations do not reflect the effect of any CDSC that may be applicable
to a particular Contract. CDSCs range from 7% to 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
-5-
<PAGE>
or representation of future yields or rates of return. The Sub-Account's actual
yield will be affected by the types and quality of portfolio securities held by
the Fund and its operating expenses.
STANDARDIZED TOTAL RETURN CALCULATION
The Company may from time to time also disclose average annual total
returns for one or more of the Sub-Accounts for various periods of time. Average
annual total return quotations are computed by finding the average annual
compounded rates of return over one-, five- and ten-year periods that would
equal the initial amount invested to the ending redeemable value, according to
the following formula:
n
P(1 + T) = ERV
Where
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = "ending redeemable value" of a hypothetical $1,000 payment
made at the beginning of the one-, five- or ten-year period
at the end of the one-, five-, or ten-year period (or
fractional portion thereof).
All recurring fees that are charged to each type of Contract 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 for that type of Contract.
-6-
<PAGE>
STANDARDIZED ANNUAL TOTAL RETURN
1 Year 1 Year
(to 12/31/96)1/ (to 12/31/96)2/
EQUITY SUB-ACCOUNTS
Janus Aspen Worldwide Growth Portfolio 18.94% 19.32%
Janus Aspen Aggressive Growth Portfolio -1.88% -1.57%
Dreyfus Variable Investment Fund - Capital 15.50% 15.87%
Appreciation Portfolio
The Dreyfus Socially Responsible Growth
Fund, Inc. 11.23% 11.59%
Dreyfus Stock Index Fund 12.52% 12.88%
Merrill Lynch Basic Value Focus Fund 10.70% 11.05%
BALANCED SUB-ACCOUNTS
Merrill Lynch Global Strategy Focus Portfolio 3.27% 3.60%
Janus Aspen Balanced Portfolio 6.24% 6.58%
INCOME SUB-ACCOUNTS
Merrill Lynch High Current Income Portfolio 1.40% 1.72%
Janus Aspen Short-Term Bond Portfolio -5.81% -5.50%
1/ Standard Contract; annual mortality and expense risk charge of 1.25% of
daily net asset value.
2/ Enhanced Contract; annual mortality and expense risk charge of 0.95% of
daily net asset value.
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 the
level of Contract charges currently in effect. The Fund used for these
calculations will be the actual Fund in which the Sub-Account invests.
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).
-7-
<PAGE>
OTHER PERFORMANCE DATA
The Company also may from time to time refer in advertisements to total
return performance data that are not calculated according to the formula set
forth above ("non-standardized return"). Non-standardized return may, for
example, reflect no CDSC and no Contract Maintenance Fee and may present
performance data for a period of time other than that required by the
standardized format. The Company may from time to time also disclose cumulative
total return calculated using the following formula assuming that the CDSC
percentage is 0%:
CTR = (ERV/P) - 1
Where:
CTR = the cumulative total return net of Sub-Account recurring
charges, other than the Contract Maintenance Fee, for the
period.
ERV = ending redeemable value of a hypothetical $1,000 payment at
the beginning of the one-, five- or ten-year period at the end
of the one, five or ten-year period (or fractional portion
thereof).
P = a hypothetical initial payment of $1,000.
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 a Contract, whether allocated to the Fixed Account or a
Sub-Account, are FDIC-insured.
Advertising materials for the Contracts may, from time to time, address
retirement needs and investing for retirement, the usefulness of a tax-qualified
retirement plan, saving for college, or other investment goals. Advertising
materials for the Contracts may discuss, generally, the advantages of investing
in a variable annuity and the Contract's particular features and their
desirability and may compare Contract features with those of other variable
annuities and investment products of other issuers. Advertising materials may
-8-
<PAGE>
also include a discussion of the balancing of risk and return in connection with
the selection of investment options under the Contracts and investment
alternatives generally, as well as a discussion of the risks and attributes
associated with the investment options under the Contracts. A description of the
tax advantages associated with the Contracts, including the effects of
tax-deferral under a variable annuity or retirement plan generally, may be
included as well. Advertising materials for 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 a 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
-9-
<PAGE>
compare a sub-account's, or its underlying fund's, historical share price
fluctuations or total returns to those of a benchmark. Measures of benchmark
correlation indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical data.
FEDERAL TAX MATTERS
The Contracts and any Certificates thereunder are 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, 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, the Beneficiary and/or Participant 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.
-10-
<PAGE>
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
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 and participants under group variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate accounts used to support their contracts. In those circumstances,
income and gains from the separate account assets would be 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 or Participant), rather than the insurance company, to be treated as
the owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular 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 Contracts are similar to, but different
in certain respects from, those described by the Internal Revenue Service in
rulings in which it was determined that contract owners were not owners of
separate account assets. For example, the Owner or Participant has additional
flexibility in allocating Purchase Payments and Account Value. These differences
could result in an Owner's or Participant's being treated as the owner of a
pro-rata portion of the assets of the Separate Account and/or Fixed Account. In
addition, the Company does not know what standards will be set forth, if any, in
the regulations or rulings which the Treasury Department has stated it expects
to issue. The Company therefore reserves the right to modify the Contracts as
necessary to attempt to prevent an Owner or Participant from being considered
the owner of a pro-rata share of the assets of the Separate Account.
-11-
<PAGE>
FINANCIAL STATEMENTS
The audited financial statements of the Separate Account for the year
ended December 31, 1996 and the Company's audited statutory-basis financial
statements for the years ended December 31, 1996 and 1995 are included herein.
The financial statements of the Company included in this Statement of Additional
Information should be considered only as bearing on the ability of the Company
to meet its obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account.
-12-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
CONTENTS
Report of Independent Auditors
Audited Financial Statements
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
<PAGE>
ERNST & YOUNG LLP 1300 Chiquita Center Phone: 513 621 6454
6454
250 East Fifth Street
Cincinnati, Ohio 45202
Report of Independent Auditors
Contractholders of Annuity Investors Variable Account A
and
Board of Directors of Annuity Investors Life Insurance Company
We have audited the accompanying statement of assets and liabilities of the
Annuity Investors Variable Account A (comprised of the Dreyfus Variable
Investment Fund Capital Appreciation Portfolio, Dreyfus Socially Responsible
Growth Fund, Inc., Dreyfus Stock Index Fund, Janus Aspen Series Aggressive
Growth Portfolio, Janus Aspen Series Worldwide Growth Portfolio, Janus Aspen
Series Balanced Portfolio, Janus Aspen Series Short-Term Bond Portfolio, Merrill
Lynch Variable Series Funds, Inc. Basic Value Focus Fund, Merrill Lynch Variable
Series Funds, Inc. Global Strategy Focus Fund, Merrill Lynch Variable Series
Funds, Inc. High Current Income Fund, and Merrill Lynch Variable Series Funds,
Inc. Domestic Money Market Fund Sub-Accounts) as of December 31, 1996, and the
related statements of operations and changes in net assets for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
sub-accounts constituting the Annuity Investors Variable Account A as of
December 31, 1996, and the results of their operations and changes in their net
assets for the year then ended in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Cincinnati, Ohio
February 28, 1997
-14-
<PAGE>
<TABLE>
<CAPTION>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
YEAR ENDED DECEMBER 31, 1996
===================================================================================================================
<S> <C> <C>
Assets:
Investments in portfolio shares, at net asset value (Note 2)
Dreyfus Variable Investment Funds:
Capital Appreciation Portfolio, 18,967.336 shares (cost $406,745)........... $ 416,902
Socially Responsible Growth Fund, Inc., 9,116.438 shares (cost-$183,359).... 183,149
Stock Index Fund, 17,818.125 shares (cost-$353,102) ........................ 361,352
Janus Aspen Series:
Aggressive Growth Portfolio, 32,665.778 shares (cost- $599,092) ............ 595,824
Worldwide Growth Portfolio, 34,327.515 shares (cost- $643,967) ............. 667,326
Balanced Portfolio, 40,102.354 shares (cost -$583,384) ..................... 592,312
Short-Term Bond Portfolio, 4,399.742 shares (cost-$44,349) ................. 43,865
Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Fund, 5,695.788 shares (cost-$79,600) .................... 83,956
Global Strategy Focus Fund, 1,754.771 shares (cost-$22,862) ................ 24,339
High Current Income Fund, 6,938.501 shares (cost-$78,251) .................. 79,030
Domestic Money Market Fund, 340,994.99 shares (cost-$341,054) .............. 341,054
Total assets.......................................................... 3,389,109
Liabilities:
Amount due to Annuity Investors Life Insurance Company (Note 4) ...................... 8,687
Net assets............................................................ $3,380,422
=================================================================================================================
Net assets attributable to variable annuity contract holders (Note 2): Units Unit Value
----------------------------
Dreyfus Variable Investment Funds:
Capital Appreciation Portfolio - Basic contract...... 33,424.286 $12.330543 $ 412,140
Capital Appreciation Portfolio- Enhanced contract.... 313.603 12.369954 3,879
Socially Responsible Growth Fund, Inc. -Basic 15,316.028 11.924561 182,637
contract
Socially Responsible Growth Fund, Inc.-Enhanced 0.000 11.962818 0
contract
Stock Index Fund-Basic contract...................... 29,203.177 12.092195 353,131
Stock Index Fund-Enhanced contract................... 600.306 12.130821 7,282
Janus Aspen Series:
Aggressive Growth Portfolio-Basic contract........... 52,219.342 10.979832 573,359
Aggressive Growth Portfolio-Enhanced contract........ 1,910.271 11.015008 21,042
Worldwide Growth Portfolio-Basic contract............ 50,730.352 13.048360 661,947
Worldwide Growth Portfolio-Enhanced contract......... 272.267 13.090061 3,564
Balanced Portfolio-Basic contract.................... 49,603.384 11.670308 578,886
Balanced Portfolio-Enhanced contract................. 1,024.467 11.707739 11,994
Short-term Bond Portfolio-Basic contract............. 4,216.270 10.332080 43,563
Short-term Bond Portfolio-Enhanced contract.......... 17.440 10.365199 181
Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Fund-Basic contract................ 6,820.503 12.094664 82,492
Basic Value Focus Fund-Enhanced contract............. 96.296 12.133199 1,168
Global Strategy Focus Fund-Basic contract............ 2,114.707 11.294096 23,884
Global Strategy Focus Fund-Enhanced contract......... 30.061 11.330202 341
High Current Income Fund-Basic contract.............. 6,837.357 11.119068 76,025
High Current Income Fund-Enhanced contract........... 255.389 11.148637 2,847
Domestic Money Market-Fund Basic contract............ 325,331.820 1.041216 338,741
Domestic Money Market Fund-Enhanced contract......... 1,260.991 1.045819 1,319
--------------------------------------------------------------------------------------------------------------
Net Assets attributable to variable annuity contract holders...................... 3,380,422
==============================================================================================================
Net Assets........................................................................ 3,380,422
==============================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
Dreyfus Variable Investment Funds Janus Aspen Series
------------------------------------- ---------------------------------------------
Variable Socially Short-
Capital Responsible Stock Aggressive Worldwide Term
Appreciation Growth Index Growth Growth Balanced Bond
Portfolio Fund, Inc. Fund Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends from investments in
portfolio shares 3,207 6,574 5,938 638 4,200 6,684 980
Expenses:
Mortality and expense risk
fees (Note 4) 883 512 939 1,423 1,815 1,431 122
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income 2,324 6,062 4,999 (785) 2,385 5,253 858
Net realized gain (loss) and unrealized
appreciation (deprecation) on investments:
Net realized gain (loss) on sale of
investments in portfolio shares 90 289 512 173 2,393 711 (0)
Net change in unrealized appreciation
(depreciation) of investments in
portfolio shares 10,517 (209) 8,250 (3,268) 23,360 8,927 (484)
- -----------------------------------------------------------------------------------------------------------
Net gain (loss) on investments
in portfolio shares 10,247 80 8,762 (3,095) 25,753 9,638 (484)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 12,571 6,142 13,761 (3,880) 28,138 14,891 374
- --------------------------------------------------------------------------------------------------------------------------
Merril Lynch Variable Series Fund, Inc.
-------------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund Total
- ----------------------------------------------------------------------------------------------------------
Investment income:
Dividends from investments in
portfolio shares 93 0 862 4,007 33,183
Expenses:
Mortality and expense risk
fees (Note 4) 296 114 157 995 8,687
- ----------------------------------------------------------------------------------------------------------
Net investment income (203) (114) 705 3,012 24,496
Net realized gain (loss) and unrealized
appreciation (deprecation) on investments:
Net realized gain (loss) on sale of
investments in portfolio shares 496 0 (10) 0 4,654
Net change in unrealized appreciation
(depreciation) of investments in
portfolio shares 4,356 1,476 778 0 53,343
- ----------------------------------------------------------------------------------------------------------
Net gain (loss) on investments
in portfolio shares 4,852 1,476 768 0 57,997
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations 4,649 1,362 1,473 3,012 82,493
- ----------------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
Dreyfus Variable Investment Funds Janus Aspen Series
------------------------------------- ---------------------------------------------
Variable Socially Short-
Capital Responsible Stock Aggressive Worldwide Term
Appreciation Growth Index Growth Growth Balanced Bond
Portfolio Fund, Inc. Fund Portfolio Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Changes from operations:
Net investment income $ 2,324 $ 6,062 4,999 (785) 2,385 $5,253 858
Net realized gain (loss) on sale
of investments in portfolio shares 90 289 512 173 2,393 711 (0)
Net change in unrealized appreciation
(depreciation) of investments
in portfolio shares 10,157 (209) 8,250 (3,268) 23,360 8,927 (484)
- -------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 12,571 6,142 3,761 (3,880) 28,138 14,891 374
Changes from principal transactions:
Contract purchase payments 412,062 171,247 339,471 586,354 631,446 571,341 43,280
Contract redemptions (457) (1,164) (1,044) (2,136) (1,623) (476) 0
Net transfers (to) from fixed account (8,157) 6,412 8,225 14,063 7,550 5,124 90
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
principal transactions 403,448 176,495 346,652 598,281 637,373 575,989 43,370
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 416,019 182,637 360,413 594,401 665,511 590,880 43,744
Net assets, beginning of period 0 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period 416,019 182,637 360,413 594,401 665,511 590,880 43,744
- -------------------------------------------------------------------------------------------------------------------------------
Merril Lynch Variable Series Fund, Inc.
----------------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund Total
- -------------------------------------------------------------------------------------------------------
Changes from operations:
Net investment income (203) (114) 705 3,012 24,496
Net realized gain (loss) on sale
of investments in portfolio shares 496 0 (10) 0 4,654
Net change in unrealized appreciation
(depreciation) of investments
in portfolio shares 4,356 1,476 778 0 53,343
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations 4,649 1,362 1,473 3,012 82,493
Changes from principal transactions:
Contract purchase payments 80,350 22,977 76,120 403,339 3,337,987
Contract redemptions (166) (52) (252) 0 (7,370)
Net transfers (to) from fixed account (1,173) (62) 1,531 (66,291) (32,688)
- -------------------------------------------------------------------------------------------------------
Net increase in net assets from
principal transactions 79,011 22,863 77,399 337,048 3,297,929
- -------------------------------------------------------------------------------------------------------
Net increase in net assets 83,660 24,225 78,872 340,060 3,380,422
Net assets, beginning of period 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------
Net assets, end of period $ 83,660 $ 24,225 $ 78,872 $ 340,060 $ 380,422
- -------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
Year Ended December 31, 1996
Basic Contracts
- -------------------------------------------------------------------------------------------------------------------
Dreyfus Variable investment Funds Janus Aspen Series
------------------------------------ -----------------------------------------------
Variable Socially
Capital Responsible Stock Aggressive Worldwide Short-
Appreciation Growth Index Growth Growth Balanced Term
Portfolio Fund, Inc. Fund Portfolio Portfolio Portfolio Bond
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding, 0.000 0.000 0.000 0.000 0.000 0.000 0.000
December 31, 1995
Units purchased 34,422.778 15,640.606 29,479.189 52,474.764 51,619.416 50,768.075 4,216.270
Units redeemed (998.492) (324.578) (276.012) (255.422) (889.064) (1,164.691) 0.000
Units outstanding
December 31, 1996 33,424.286 15,316.028 29,203.177 52,219.342 50,730.352 49,603.384 4,216.270
- -------------------------------------------------------------------------------------------------------------------
Basic Contracts
- --------------------------------------------------------------------------------
Merrill Lynch Variable Series Funds, Inc.
-----------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
Units outstanding, 0.000 0.000 0.000 0.000
December 31, 1995
Units purchased 6,930.204 2,124.185 6,860.213 391,560.413
Units redeemed (109.701) (9.478) (22.856) (66,228.583)
Units outstanding
December 31, 1996 6,820.503 2,114.707 6,837.357 325,331.820
- --------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Enhanced Contracts
- ----------------------------------------------------------------------------------------------------------------------
Dreyfus Variable investment Funds Janus Aspen Series
------------------------------------ -------------------------------------------------
Variable Socially
Capital Responsible Stock Aggressive Worldwide Short-
Appreciation Growth Index Growth Growth Balanced Term
Portfolio Fund, Inc. Fund Portfolio Portfolio Portfolio Bond
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Units outstanding, 0.000 0.000 0.000 0.000 0.000 0.000 0.000
December 31, 1995
Units purchased 313,603 0.000 600.306 1,910.271 272.267 1,024.467 17.440
Units redeemed 0.000 0.000 0.000 0.000 0.000 0.000 0.000
Units outstanding
December 31, 1996 313.603 0.000 600.306 1,910.271 272.267 1,024.467 17.440
- ----------------------------------------------------------------------------------------------------------------------
Enhanced Contracts
- --------------------------------------------------------------------------------
Merrill Lynch Variable Series Funds, Inc.
-----------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
Units outstanding, 0.000 0.000 0.000 0.000
December 31, 1995
Units purchased 96.296 30.061 255.389 1,260.991
Units redeemed 0.000 0.000 0.000 0.000
Units outstanding
December 31, 1996 96.296 30.061 255.389 1,260.991
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
-19-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) GENERAL
Annuity Investors Variable Account A (the "Account") is registered under
the Investment Company Act of 1940, as amended, as a unit investment
trust. The Account was established on May 26, 1995 and commenced
operations on December 7, 1995 as a segregated investment account for
individual and group variable annuity contracts which are registered
under the Securities Act of 1933. The operations of the Account are
included in the operations of Annuity Investors Life Insurance Company
(the "Company") pursuant to the provisions of the Ohio Insurance Code.
The Company is an indirect wholly-owned subsidiary of American Annuity
Group, Inc., ("AAG"), a publicly traded insurance holding company listed
on the New York Stock Exchange. The Company is licensed in 44 states
with the majority of the production in the Midwest.
Comparative financial statements are not presented as the Account did
not have any financial activity in 1995.
At December 31, 1996, the following investment options were available:
THE DREYFUS VARIABLE INVESTMENT FUNDS:
Capital Appreciation Portfolio
Socially Responsible Growth Fund, Inc.
Stock Index Fund
JANUS ASPEN SERIES:
Aggressive Growth Portfolio
Worldwide Growth Portfolio
Balanced Portfolio
Short-Term Bond Portfolio
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. :
Domestic Money Market Fund
Basic Value Focus Fund
Global Strategy Focus Fund
High Current Income Fund
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements
and accompanying notes. Changes in circumstances could cause actual
results to differ materially from those estimates.
-20-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996
INVESTMENTS
-----------
Investments are valued using the net asset value of the respective
portfolios at the end of each business day of the New York Stock
Exchange, with the exception of business holidays. Investment
transactions are accounted for on the trade date (the date the order to
buy or sell is executed). The cost of investments sold is determined on
a specific identification basis. The Account does not hold any
investments which are restricted as to resale.
Net investment income, net realized gain (loss) and unrealized
appreciation (depreciation) on investments are allocated to the
contracts on each valuation date based on each contract's pro rata share
of the assets of the Account as of the beginning of the valuation date.
FEDERAL INCOME TAXES
--------------------
No provision for federal income taxes has been made in the accompanying
financial statements because the operations of the Account are included
in the total operations of the Company, which is treated as a life
insurance company for federal income tax purposes under Subchapter L of
the Internal Revenue Code. Net investment income and realized gains
(losses) will be retained in the Account and will not be taxable until
received by the contract owner or beneficiary in the form of annuity
payments or other distributions.
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT HOLDERS
------------------------------------------------------------
The variable annuity contract reserves are comprised of net contract
purchase payments less redemptions and benefits. These reserves are
adjusted daily for the net investment income and net realized gain
(loss) and unrealized appreciation (depreciation) on investments.
-21-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996
(3) PURCHASES AND SALES OF INVESTMENTS IN PORTFOLIO SHARES
The aggregate cost of purchases and proceeds from sales of investments
in all portfolio shares for the twelve months ended December 31, 1996
are as follows:
Proceeds
Cost of from
Purchases Sales
------------- ---------
Dreyfus Variable Investment Funds:
Variable Capital Appreciation Portfolio $ 416,285 9,630
Socially Responsible Growth Fund, Inc. 187,037 3,968
Stock Index Fund 359,968 7,377
Janus Aspen Series:
Aggressive Growth Portfolio 600,450 1,531
Worldwide Growth Portfolio 658,159 16,587
Balanced Portfolio 600,469 17,796
Short-Term Bond Portfolio 44,403 53
Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Fund 86,446 7,342
Global Strategy Focus Fund 22,875 13
High Current Income Fund 79,869 1,608
Domestic Money Market Fund 420,222 79,168
---------- --------
Total $3,476,183 $145,073
========== ========
(4) DEDUCTIONS AND EXPENSES
Although periodic annuitization payments to contract owners vary
according to the investment performance of the sub-accounts, such
payments are not affected by mortality or expense experience because the
Company assumes the mortality risk and expense risk under the contracts.
The mortality risk assumed by the Company results from the life annuity
payment option in the contracts, in which the Company agrees to make
annuity payments regardless of how long a particular annuitant or other
payee lives. The annuity payments are determined in accordance with
annuity purchase rate provisions established at the time the contracts
are issued. Based on the actuarial determination of expected mortality,
the Company is required to fund any deficiency in the annuity payment
reserves from its general account assets.
The expense risk assumed by the Company is the risk that the deductions
for sales and administrative expenses may prove insufficient to cover
the actual sales and administrative expenses. Under the Basic Contract,
the Company deducts a fee from the Account each day for assuming the
mortality and expense risks. This fee is equal on an annual basis to
1.25 percent of the daily value of the total investments of the Account.
These fees aggregated $8,622 for the twelve months ended December 31,
1996 and are included in the amounts due to the Company.
-22-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996
In connection with certain contracts in which the Company incurs reduced
sales and servicing expenses, such as contracts offered to active
employees of the Company or any of its subsidiaries and/or affiliates,
the Company may offer an Enhanced Contract. Under the Enhanced Contract,
the Company deducts a fee from the Account each day for assuming the
mortality and expense risks. This fee is equal on an annual basis to
0.95 percent of the daily value of the total investments of the Account.
These fees aggregated $65 for the twelve months ended December 31, 1996
and are included in the amounts due to the Company.
Pursuant to an administrative agreement between AAG and the Company, AAG
subsidiaries provide sales and administrative services to the Company
and the Account. The Company may deduct a percentage of purchase
payments surrendered to cover sales expenses. The percentage decreases
to 0 percent from a maximum of 7.0 percent based upon the number of
years the purchase payment has been held.
In addition, the Company may deduct units from contracts annually and
upon full surrender to cover an administrative fee of $25. These
expenses totaled $175 for the twelve months ended December 31, 1996.
(5) OTHER TRANSACTIONS WITH AFFILIATES
AAG Securities, Inc., an affiliate of the Company, is the principal
underwriter and performs all variable annuity sales functions on behalf
of the Company.
(6) NET ASSETS
Net assets consisted of the following at December 31, 1996:
Proceeds from the sales of units since
organization, less cost of units redeemed $3,297,929
Undistributed net investment income 24,496
Undistributed net realized gains on
sale of investments 4,654
Net unrealized appreciation of investments 53,343
----------
Net assets $3,380,422
-23-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
STATUTORY-BASIS FINANCIAL STATEMENTS
AND OTHER FINANCIAL INFORMATION
YEARS ENDED DECEMBER 31, 1996 AND 1995
CONTENTS
Report of Independent Auditors
Audited Statutory-Basis Financial Statements
Balance Sheets - Statutory-Basis
Statements of Operations - Statutory-Basis
Statements of Changes in Capital and Surplus - Statutory-Basis
Statements of Cash Flows - Statutory-Basis
Notes to Statutory-Basis Financial Statements
Other Financial Information
Supplemental Schedule of Selected Statutory-Basis Financial Data
Note to Supplemental Schedule of Selected Statutory-Basis Financial Data
-24-
<PAGE>
ERNST & YOUNG LLP 1300 Chiquita Center Phone: 513 621
645
250 East Fifth Street
Cincinnati, Ohio 45202
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Annuity Investors Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Annuity
Investors Life Insurance Company ("the Company") as of December 31, 1996 and
1995, 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.
As described in Notes B and J to the financial statements, the Company presents
its financial statements in conformity with the accounting practices prescribed
or permitted by the Ohio Insurance Department, which practices differ from
generally accepted accounting principles. The variances between such practices
and generally accepted accounting principles and the effects on the accompanying
financial statements are described in Notes B and J.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Annuity Investors Life Insurance Company at December 31, 1996 and 1995, or
the results of its operations or its cash flows for the years then ended.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Annuity Investors Life
Insurance Company at December 31, 1996 and 1995, 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 Ohio Insurance Department.
Our audits were conducted for the purpose of forming an opinion on the
statutory-basis financial statements taken as a whole. The accompanying
supplemental schedule of selected statutory-basis financial data is presented to
comply with the National Association of Insurance Commissioners' Annual
Statement Instructions and is not a required part of the statutory-basis
financial statements. Such information has been subjected to the auditing
procedures applied in our audit of the statutory-basis financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
statutory-basis financial statements taken as a whole.
Cincinnati, Ohio ERNST & YOUNG LLP
February 28, 1997
-25-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
STATUTORY-BASIS
December 31
--------------------------
1996 1995
----------- -----------
ADMITTED ASSETS
Cash and investments:
Fixed maturities - at amortized cost
(market value - $22,445,536 and $8,648,412) $22,996,685 $ 8,554,641
Policy loans 41,190 --
Short-term investments 841,000 15,169,930
Cash 475,770 93,584
Other invested assets 75,000 --
----------- -----------
Total cash and investments 24,429,645 23,818,155
Investment income due and accrued 437,051 220,028
Federal income tax recoverable 392,995 --
Separate Account assets 3,389,109 --
----------- -----------
TOTAL ADMITTED ASSETS $28,648,800 $24,038,183
=========== ===========
LIABILITIES, CAPITAL AND SURPLUS
Annuity reserves $ 3,676,377 $ 2,842,013
Commissions due and accrued 53,746 966
General expenses due and accrued 26,759 7,000
Transfers to Separate Accounts due
and accrued (net) (206,980) --
Taxes, licenses and fees due and accrued 1,900 3,000
Federal income tax payable -- 8,952
Asset valuation reserve 58,437 2,848
Payable to parent and affiliates 303,718 58,423
Other liabilities 9,402 --
Separate Account liabilities 3,389,109 --
----------- -----------
TOTAL LIABILITIES 7,312,468 2,923,202
----------- -----------
Common stock, par value- $125 and $100:
- 25,000 shares authorized
- 20,000 shares issued and outstanding 2,500,000 2,000,000
Gross paid-in and contributed surplus 17,550,000 18,050,000
Unassigned surplus 1,286,332 1,064,981
----------- -----------
TOTAL CAPITAL AND SURPLUS 21,336,332 21,114,981
------------ ------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 28,648,800 $ 24,038,183
============ ============
See notes to statutory financial statements
-26-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
STATUTORY-BASIS
December 31
--------------------------
1996 1995
----------- -----------
REVENUES
Premiums and annuity considerations $ 38,838 $ 58,695
Deposit-type funds 4,355,900 16,107
Net investment income 1,500,424 552,141
Other income (expense) (639) --
----------- -----------
Total revenue 5,894,523 626,943
BENEFITS AND EXPENSES
Increase in aggregate reserves 834,364 157,637
Policyholders' benefits 408,089 109,607
Commissions on premiums, annuity
considerations and deposit-type funds 257,666 966
Commissions and expense allowances on
reinsurance assumed 48,353 48,689
General insurance expenses 1,138,281 34,588
Taxes, licenses and fees 103,174 53,577
Net transfers to Separate Accounts 3,090,948 --
----------- -----------
Total benefits and expenses 5,880,875 405,064
----------- -----------
Gain from operations before federal income taxes 13,648 221,879
Provision for federal income taxes 2,280 74,941
----------- -----------
Gain from operations after federal income
taxes before net realized capital gains 11,368 146,938
Net realized capital gains (losses)
Gross realized capital gains (losses) (26,813) 15
Capital gains tax expense -- (5)
Interest maintenance reserve transfer
(net of tax) 17,428 (8)
----------- -----------
Net realized capital gains (losses)
after transfer to IMR (9,385) 2
----------- -----------
NET INCOME $ 1,983 $ 146,940
=========== ===========
See notes to statutory financial statements
-27-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
STATUTORY-BASIS
YEAR ENDED DECEMBER 31
-----------------------------
1996 1995
------------ -------------
COMMON STOCK
Balance at beginning of year $ 2,000,000 $ 2,000,000
Transfer from gross paid in and
contributed surplus 500,000 --
------------ ------------
Balance at end of year $ 2,500,000 $ 2,000,000
============ ============
GROSS PAID-IN AND CONTRIBUTED SURPLUS
Balance at beginning of year $ 18,050,000 $ 3,350,000
Capital contribution -- 14,700,000
Transfer to common stock (500,000) --
------------ ------------
Balance at end of year $ 17,550,000 $ 18,050,000
============ ============
UNASSIGNED FUNDS
Balance at beginning of year $ 1,064,981 $ 920,890
Net income 1,983 146,940
Increase in non-admitted assets (85,271) --
Increase in asset valuation reserve (55,589) --
Adjustment for prior year taxes 360,228 (2,849)
------------ ------------
Balance at end of year $ 1,286,332 $ 1,064,981
============ ============
TOTAL CAPITAL AND SURPLUS $ 21,336,332 $ 21,114,981
============ ============
See notes to statutory financial statements
-28-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
STATUTORY-BASIS
YEAR ENDED DECEMBER 31
1996 1995
------------- -------------
OPERATIONS:
Premiums and annuity considerations $ 38,838 $ 58,695
Deposit-type funds 4,355,900 16,107
Net investment income 1,365,858 512,777
Net increase in policy loans (41,190) --
Policyholder benefits paid (408,089) (109,607)
Commissions, expenses and premium and
other taxes paid (1,479,640) (128,854)
Net transfers to Separate Accounts (3,297,928) --
Federal income taxes paid (44,000) (42,813)
Other cash provided 186,214 47,151
------------ ------------
Net cash provided by operations 675,963 353,456
INVESTING ACTIVITIES:
Sale, maturity or repayment of bonds 2,383,321 1,167,103
Purchase of bonds (16,931,028) (1,462,567)
Other cash applied (75,000) --
------------ ------------
Net cash used in investment activities (14,622,707) (295,464)
FINANCING AND MISCELLANEOUS ACTIVITIES:
Capital contribution -- 14,700,000
----------- ------------
Net cash provided by financing and
miscellaneous activities -- 14,700,000
------------- -----------
Net (decrease) increase in cash and
short-term investments $ (13,946,744) $ 14,757,992
============= ============
RECONCILIATION BETWEEN YEARS
Cash and short-term investments
at beginning of year $ 15,263,514 $ 505,522
Net (decrease) increase in cash
and short-term investments (13,946,744) 14,757,992
------------- ------------
Cash and short-term investments
at end of year $ 1,316,770 $ 15,263,514
============= ============
See notes to statutory financial statements
-29-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
A. GENERAL
Annuity Investors Life Insurance Company ("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 Insurance Company, a wholly-owned subsidiary of AFG.
AILIC's primary product is the variable annuity sold to both the individual and
group markets. This product is marketed to hospitals, 501(c)(3) organizations,
public education institutions and other qualified and non-qualified markets.
B. ACCOUNTING POLICIES
BASIS OF PRESENTATION 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 Ohio Insurance
Department, which vary in some respects from generally accepted accounting
principles ("GAAP"). The more significant of these differences are as follows:
(a) annuity receipts and deposit-type funds 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;
(d) investments in bonds considered "available for sale" (as defined by GAAP)
are generally recorded at amortized cost versus market;
(e) certain general expenses and commissions relating to the acquisition of new
business are capitalized to Deferred Acquisition Costs ("DAC") and amortized for
GAAP; and
(f) the cost of certain assets designated as "non-admitted assets" (principally
advance commissions paid to agents), is charged against surplus.
Preparation of the financial statements 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.
Certain reclassifications have been made to the prior year financial statements
to conform to the current year's presentation.
INVESTMENTS Asset values are generally stated as follows: Bonds not backed by
other loans, where permitted, at amortized cost using the interest method;
loan-backed bonds and structured securities, where permitted, at amortized cost
using the interest method; short-term investments at cost; and policy loans at
unpaid balances.
-30-
<PAGE>
Prepayment assumptions for loan-backed bonds and structured securities were
obtained from broker dealer survey values or internal estimates. These
assumptions are consistent with the current interest rate and economic
environment. Significant changes in estimated cash flows from the original
purchase assumptions are accounted for on a prospective basis.
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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 Securities Valuation Office. Those values generally
represent quoted market value prices for securities traded in the public
marketplace or analytically determined values by the Securities Valuation
Office.
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.
The carrying values of cash and short-term investments approximate their fair
values.
Gains or losses on sales of securities are recognized at the time of disposition
with the amount of gain or loss determined on the specific identification basis.
The IMR applies to interest-related realized capital gains and losses (net of
tax) and is intended to defer realized gains and losses resulting from changes
in the general level of interest rates. The IMR is amortized into investment
income over the approximate remaining life of the investments sold.
The AVR provides for possible credit-related losses on securities and is
calculated according to a specified formula as prescribed by the NAIC for the
purpose of stabilizing surplus against fluctuations in the market value of
investment securities. Changes in the required reserve balances are made by
direct credits or charges to surplus.
PREMIUMS Annuity premiums and deposit-type funds are recognized as revenue when
due.
SEPARATE ACCOUNTS Separate account assets and liabilities reported in the
accompanying balance sheets represent funds that are separately administered,
principally for annuity contracts, and for which the contractholder, rather than
AILIC, bears the investment risk. Separate account contractholders have no claim
against the assets of the general account of AILIC. Separate account assets are
reported at market value. The operations of the separate accounts are not
included in the accompanying financial statements. Fees charged on separate
account policyholder deposits are included in other income.
ANNUITY RESERVES Annuity reserves are developed by actuarial methods and are
determined based on published tables using statutory 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.
-31-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996 AND 1995
C. INVESTMENTS
At December 31, 1996, fixed maturity investments in U.S. Government and
government agencies and authorities had a carrying value of $9.0 million and a
market value of $8.7 million, gross unrealized gains of $42,370 and gross
unrealized losses of ($361,158). All other corporate fixed maturity investments
at December 31, 1996, had a carrying value of $13.9 million, market value of
$13.7 million, gross unrealized gains of $111,747 and gross unrealized losses of
($344,107). 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).
Proceeds from sales of fixed maturity investments were $2.4 million in 1996 and
$1.2 million in 1995. Gross realized gains of $3,525 and $18 and gross realized
losses of $30,338 and $3 were realized on those sales during 1996 and 1995,
respectively.
U.S. Treasury Notes with a carrying value of $6.1 million at December 31, 1996,
were on deposit as required by the insurance departments of various states.
The table below sets forth the scheduled maturities of AILIC's fixed maturity
investments as of December 31, 1996:
Carrying Market
Value Value
Bonds by maturity:
Due within 1 year or less $ 100,629 $ 102,406
Over 1 year through 5 years 5,968,341 5,886,647
Over 5 years through 10 years 12,735,872 12,421,027
Over 10 years through 20 years 3,655,618 3,500,404
Over 20 years 536,225 535,052
----------- -----------
Total bonds by maturity $22,996,685 $22,445,536
=========== ===========
Net investment income consisted
of the following:
1996 1995
---- ----
Bonds $ 1,369,442 $ 447,488
Short-term investments 159,533 72,980
Cash on hand and on deposit 1,250 41,582
Policy loans 1,153 -
Aggregate write-ins for investment
income 54 -
---------- -------------
Gross investment income 1,531,432 562,050
Investment expenses (31,008) (9,909)
---------- -------------
Net investment income $1,500,424 $ 552,141
========== =============
-32-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996 AND 1995
D. FEDERAL INCOME TAXES
AILIC's amount of federal income taxes incurred for recoupement in the event of
future losses is approximately $2,000 in 1996.
E. RELATED PARTY TRANSACTIONS
On December 30, 1993, AILIC entered into a reinsurance agreement with Great
American 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. Premiums of $38,838 in 1996 and $58,695
in 1995 consisted of assumed reinsurance from GALIC in accordance with the
agreement. The reinsurance agreement will be terminated as of January 1, 1997
and an equal amount of assets and annuity reserves will be transferred to GALIC.
AILIC has an agreement with American Money Management, Inc. (an affiliate),
subject to the direction of the Finance Committee of AILIC, whereby American
Money Management, Inc., provides investment management services. In 1996 and
1995, AILIC paid $15,095 and $11,666, respectively, in management fees.
AILIC has an agreement with AAG Securities, Inc., a wholly-owned subsidiary of
AAG, whereby AAG Securities is the principal underwriter and distributor of
AILIC's variable contracts. AILIC pays AAG Securities for acting as underwriter
under a distribution agreement. In 1996 and 1995, AILIC paid $257,666 and $966,
respectively, in commissions.
Certain administrative, management, accounting, data processing, underwriting,
claim, collection and investment services are provided under agreements between
AILIC and affiliates at charges not unfavorable to AILIC or insurance
affiliates. In 1996 and 1995, AILIC paid $277,505 and $0, respectively, in fees
to affiliates.
F. 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 $1.3 million in dividends in
1997 based on capital and surplus, without prior approval.
G. ANNUITY RESERVES, EXCLUDING SEPARATE ACCOUNTS
At December 31, 1996, $2.7 million or 72.2% of AILIC's annuity reserves,
excluding Separate Accounts, were subject to discretionary withdrawal without
adjustment, and $1.0 million or 27.8% were subject to discretionary withdrawal
at book value less surrender charges of 5% or more. As of 1995, there were no
purchase payments allocated or investments held in the Separate Account.
-33-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996 AND 1995
H. SEPARATE ACCOUNT
The Company writes individual and group non-guaranteed variable annuities. In
1996, the General Account had net transfers to the Separate Account of
$3,090,948, consisting of transfers to the Separate Account of $3,337,987 and
transfers from the Separate Account of $247,039, including contingent deferred
sales charges of $198,353. In 1995, there were no transfers to or from the
Separate Account.
All Separate Account reserves are non-guaranteed and subject to discretionary
withdrawal at market value. In 1995, there were no reserves in the Separate
Account. In 1996, funds in the Separate Account had a total market value of
$3,389,109 and amortized cost of $3,335,765, resulting in net unrealized gains
of $53,344, consisting of gross unrealized gains of $57,307 and gross unrealized
losses of ($3,963).
I. 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 E.
The Company increased the par value on the authorized shares of common stock
from $100 a share to $125 a share during 1996. This resulted in a
reclassification between gross paid in and contributed surplus and common stock.
J. VARIANCES FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
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 Ohio Insurance Department, which vary
in some respects from generally accepted accounting principles ("GAAP"). 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, 1996 and 1995:
-34-
<PAGE>
<TABLE>
<CAPTION>
NET INCOME CAPITAL AND SURPLUS
---------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
As reported on a statutory basis $ 1,983 $ 146,940 $ 21,336,332 $ 21,114,981
Commissions capitalized to DAC 257,666 954 257,666 954
General expenses capitalized to DAC 569,139 -- 569,139 --
Taxes, licenses and fees capitalized to DAC 51,587 -- 51,587 --
Amortization of DAC (51,969) -- (51,969) --
Capital gains transferred to IMR, net of tax (17,428) 8 (17,428) 8
Amortization of IMR, net of tax 814 -- 814 --
Contingent deferred sales charge (262,297) -- (262,297) --
Federal income taxes (190,841) (3,051) (190,841) (3,051)
Unrealized gain (loss) adjustment -- -- (352,697) 38,109
AVR adjustment -- -- 55,589 2,848
Non-admitted assets adjustment -- -- 85,271 --
Prior year tax adjustment -- -- (360,228) --
Prior year stat to GAAP cumulative adjustments -- -- 38,868 --
------------ ------------ ------------
Total GAAP adjustments 356,671 (2,089) (176,526) 38,868
------------ ------------ ------------ ------------
GAAP basis $ 358,654 $ 144,851 $ 21,159,806 $ 21,153,849
============ ============ ============ ============
</TABLE>
-35-
<PAGE>
OTHER FINANCIAL INFORMATION
-36-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF SELECTED STATUTORY-BASIS FINANCIAL DATA
DECEMBER 31, 1996
Investment income earned:
Bonds $ 1,369,442
Short-term investments 159,533
Cash on hand and on deposit 1,250
Policy loans 1,153
Aggregate write-ins for investment income 54
-------------
Gross investment income $ 1,531,432
============
Bonds and short-term investments by class (statement value):
Class "1" $19,566,716
Class "2" 2,334,053
Class "3" 1,126,918
Class "4" 809,998
-------------
Total bonds and short-term investments by class $23,837,685
===========
Bonds traded:
Publicly $22,665,384
Privately 331,301
Total bonds traded $22,996,685
Short-term investments (book value) $ 841,000
=============
Cash on deposit $ 475,770
=============
Group annuities not fully paid--account balance $ 3,676,377
============
Bonds and short-term investments by maturity (statement value):
Due within 1 year or less $ 941,629
Over 1 year through 5 years 5,968,341
Over 5 years through 10 years 12,735,872
Over 10 years through 20 years 3,655,618
Over 20 years 536,225
-------------
Total by maturity $23,837,685
NOTE--BASIS OF PRESENTATION
The accompanying schedule presents selected statutory-basis financial data as of
December 31, 1996 and for the year 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
1996 Statutory Annual Statement as filed with the Ohio Insurance Department.
-37-
<PAGE>
PART C
Other Information
Item 24. Financial Statements and Exhibits
(a) Financial Statements
All required financial statements are included in Parts A
or B of this Registration Statement.
(b) Exhibits
(1) Resolution of the Board of Directors of Annuity Investors Life
Insurance Company authorizing establishment of Annuity Investors
Variable Account A.1/
(2) Not Applicable.
(3) (a) Distribution Agreement between Annuity Investors Life
Insurance Company and AAG Securities, Inc.2/ -
(b) Form of Selling Agreement between Annuity Investors Life
Insurance Company, AAG Securities, Inc. and another
Broker-Dealer.2/
(4) (a) Individual Contract Forms.
(i) Form of Qualified Individual Flexible Premium
Deferred Annuity Contract.2/
(ii) Form of Non-Qualified Individual Contract.2/
(b) Endorsements to Individual Contracts.
(i) Form of Loan Endorsement to Individual Contract.2/
(ii) Form of Tax Sheltered Annuity Endorsement to
Individual Contract.2/
(iii) Form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Qualified Individual Contract.2/
(iv) Form of Employer Plan Endorsement to Individual
Contract.2/
(v) Form of Individual Retirement Annuity Endorsement to
Individual Contract.2/
(vi) Form of Texas Optional Retirement Program Endorsement
to Individual Contract.2/
<PAGE>
(vii) Form of Long-Term Care Waiver Rider to Individual
Contract (filed herewith).
(viii) Form of SIMPLE IRA Endorsement (filed herewith).
(5) (a) Form of Application for Individual Flexible Premium
Deferred Annuity Contract (filed herewith).
(6) (a) Articles of Incorporation of Annuity Investors Life
Insurance Company.1/
(i) Amendment to Articles of Incorporation, adopted April
9, 1996 and approved by Secretary of State of State
of Ohio on July 11, 1996 (filed herewith).
(ii) Amendment to Articles of Incorporation, adopted
August 9, 1996 and approved by Secretary of State of
State of Ohio on December 23, 1996 (filed herewith).
(b) Code of Regulations of Annuity Investors Life Insurance
Company.1/
(7) Not applicable.
(8) (a) Participation Agreement between Annuity Investors Life
Insurance Company and Dreyfus Variable Investment Fund.1/ -
(b) Participation Agreement between Annuity Investors Life
Insurance Company and Dreyfus Stock Index Fund.1/
(c) Participation Agreement between Annuity Investors Life
Insurance Company and The Dreyfus Socially Responsible
Fund, Inc.1/
(d) Participation Agreement between Annuity Investors Life
Insurance Company and Janus Aspen Series.2/
(e) Amended and Restated Participation Agreement between
Annuity Investors Life Insurance Company and Merrill Lynch
Variable Series Funds, Inc.2/
(f) Agreement between Annuity Investors Life Insurance Company
and Merrill Lynch Asset Management, L.P.2/
(g) Service Agreement between Annuity Investors Life Insurance
Company and American Annuity Group, Inc.1/
(h) Agreement between AAG Securities, Inc. and AAG Insurance
Agency, Inc.1/
(i) Investment Service Agreement between Annuity Investors Life
Insurance Company and American Annuity Group, Inc.1/
- 2 -
<PAGE>
(j) Participation Agreement between Annuity Investors Life
Insurance Company and Morgan Stanley Universal Funds, Inc.
(filed herewith).
(k) Participation Agreement between Annuity Investors Life
Insurance Company and Strong Special Fund II, Inc. (filed
herewith).
(l) Participation Agreement between Annuity Investors Life
Insurance Company and PBHG Insurance Series Fund, Inc.
(filed herewith).
(m) Amended and Restated Agreement between The Dreyfus
Corporation and Annuity Investors Life Insurance Company
(filed herewith).
(n) Service Agreement between Annuity Investors Life Insurance
Company and Janus Capital Corporation (filed herewith).
(9) Opinion and Consent of Counsel.1/
(10) Consent of Independent Auditors (filed herewith).
(11) No financial statements are omitted from Item 23.
(12) Not Applicable.
(13) Schedule for Computation of Performance Quotations (filed herewith).
(14) Financial Data Schedule (filed herewith).
_________________
1/ Filed with Form N-4 on December 27, 1995.
2/ Filed with Pre-Effective Amendment No. 1 on July 26, 1996.
- 3 -
<PAGE>
Item 25. Directors and Officers of Annuity Investors Life Insurance Company
Principal
Business Positions and Offices
Name Address With the Company
- ---- ------- ---------------------
Robert Allen Adams (1) President, Director
Stephen Craig Lindner (1) Director
William Jack Maney, II (1) Assistant Treasurer and
Director
James Michael Mortensen (1) Executive Vice President,
Assistant Secretary and
Director
Mark Francis Muething (1) Senior Vice President,
Secretary, General Counsel and
Director
Jeffrey Scott Tate (1) Director
Thomas Kevin Liguzinski (1) Senior Vice President
Charles Kent McManus (1) Senior Vice President
Robert Eugene Allen (1) Vice President and Treasurer
Arthur Ronald Greene, III (1) Vice President
Betty Marie Kasprowicz (1) Vice President and Assistant
Secretary
Michael Joseph O'Connor (1) Vice President and Chief
Actuary
Lynn Edward Laswell (1) Assistant Vice President and
Assistant Treasurer
(1) P.O. Box 5423, Cincinnati, Ohio 45201-5423.
Item 26. Persons Controlled by or Under Common Control With the Depositor or
Registrant.
The Depositor, Annuity Investors Life Insurance Company, is a wholly owned
subsidiary of Great American Life Insurance Company, which is a wholly
owned subsidiary of American Annuity Group, Inc. The Registrant, Annuity
Investors Separate Account A, is a segregated asset account of Annuity
Investors Life Insurance Company. The following chart shows the
affiliations among Annuity Investors Life Insurance Company and its
parent, subsidiary and affiliated entities.
- 4 -
<PAGE>
<TABLE>
<CAPTION>
==============================
AMERICAN FINANCIAL GROUP, INC.
============================== % OF STOCK OWNED(1)
STATE OF DATE OF BY IMMEDIATE
DOMICILE INCORP. PARENT COMPANY NATURE OF BUSINESS
-------- ------- -------------- ------------------
<S> <C> <C> <C> <C>
AHH Holdings, Inc. Florida 12/27/95 49 Holding Company
Columbia Financial Company Florida 10/26/93 100 Real Estate Holding Company
American Heritage Holding Corporation Delaware 11/02/94 100 Home Builder
Heritage Homes Realty, Inc. Florida 07/20/93 100 Home Sales
Southeast Title, Inc. Florida 05/16/95 100 Title Company
Heritage Home Finance Corporation Florida 02/10/94 100 Finance Company
American Financial Capital Trust I Delaware 09/14/96 100 Statutory Business Trust
American Financial Corporation Ohio 11/15/55 100 Holding Company
AFC Coal Properties, Inc. Ohio 12/18/96 100 Real Estate Holding Company
American Barge & Towing Company Ohio 03/25/82 100 Inactive
Spartan Transportation Corporation Ohio 07/19/83 100 Mgmt-River Transportation
Equipment
American Financial Corporation Ohio 08/27/63 100 Inactive
American Money Management Corporation Ohio 03/01/73 100 Investment Management
American Money Management International, N.V Netherland 05/10/85 100 Securities Management
Antilles
American Premier Underwriters, Inc. Pennsylvania 1846 100(2) Diversified
The Ann Arbor Railroad Company Michigan 09/21/1895 99 Inactive
The Associates of the Jersey Company New Jersey 11/10/1804 100 Inactive
Cal Coal, Inc. Illinois 05/30/79 100 Inactive
The Indianapolis Union Railway Company Indiana 11/19/1872 100 Inactive
Lehigh Valley Railroad Company Pennsylvania 04/21/1846 100 Inactive
Millennium Dynamics, Inc. Ohio 07/31/95 100 Design, Marketing &Servicing
of Comp. Software
The New York and Harlem Railroad Company New York 04/25/1831 97 Inactive
The Owasco River Railway, Inc. New York 06/02/1881 100 Inactive
PCC Real Estate, Inc. New York 12/15/86 100 Holding Company
PCC Chicago Realty Corp. New York 12/23/86 100 Real Estate Developer
PCC Gun Hill Realty Corp. New York 12/18/85 100 Real Estate Developer
PCC Michigan Realty, Inc. Michigan 11/09/87 100 Real Estate Developer
PCC Scarsdale Realty Corp. New York 06/01/86 100 Real Estate Developer
Scarsdale Depot Associates, L.P. Delaware 05/05/89 80 Real Estate Developer
Penn Central Energy Management Company Delaware 05/11/87 100 Energy Operations Manager
Pennsylvania Company Delaware 12/05/58 100 Holding Company
Atlanta Casualty Company Illinois 06/13/72 100(2) Property/Casualty Insurance
American Premier Insurance Company Indiana 11/30/89 100 Property/Casualty Insurance
Atlanta Specialty Insurance Company Iowa 02/06/74 100 Property/Casualty Insurance
Mr. Agency of Georgia, Inc. Georgia 04/01/77 100 Insurance Agency
Atlanta Casualty General Agency, Inc. Texas 03/15/61 100 Managing General Agency
Atlanta Insurance Brokers, Inc. Georgia 02/06/71 100 Insurance Agency
Treaty House, Ltd. (d/b/a Mr. Budget) Nevada 11/02/71 100 Insurance Premium Finance
Penn Central U.K. Limited United Kingdom 10/28/92 100 Insurance Holding Company
Insurance (GB) Limited United Kingdom 05/13/92 100 Property/Casualty Insurance
Delbay Corporation Delaware 12/27/62 100 Inactive
- 5 -
<PAGE>
==============================================================
AMERICAN FINANCIAL GROUP, INC.
==============================================================
American Financial Corporation % OF STOCK OWNED(1)
American Premier Underwriters, Inc. STATE OF DATE OF BY IMMEDIATE
Pennsylvania Company DOMICILE INCORP. PARENT COMPANY NATURE OF BUSINESS
-------- ------- ----------------- ------------------
Great Southwest Corporation Delaware 10/25/78 100 Real Estate Developer
World Houston, Inc. Delaware 05/30/74 100 Real Estate Developer
Hangar Acquisition Corp. Ohio 10/06/95 100 Aircraft Investment
Infinity Insurance Company Florida 07/09/55 100 Property/Casualty Insurance
Infinity Agency of Texas, Inc. Texas 07/15/92 100 Managing General Agency
The Infinity Group, Inc. Indiana 07/22/92 100 Insurance Holding Company
Infinity Select Insurance Company Indiana 06/11/91 100 Property/Casualty Insurance
Infinity Southern Insurance Corporation Alabama 08/05/92 100 Property/Casualty Insurance
Leader National Insurance Company Ohio 03/20/63 100 Property/Casualty Insurance
Budget Insurance Premiums, Inc. Ohio 02/14/64 100 Premium Finance Company
Leader National Agency, Inc. Ohio 04/05-63 100 Brokering Agent
Leader National Agency of Texas, Inc. Texas 01/25/94 100 Managing General Agency
Leader National Insurance Agency of Arizona Arizona 12/05/73 100 Brokering Agent
Leader Preferred Insurance Company Ohio 11/07/94 100 Property/Casualty Insurance
Leader Specialty Insurance Company Indiana 03/10/94 100 Property/Casualty Insurance
PCC Technical Industries, Inc. California 03/07/55 100 Holding Company
ESC, Inc. California 11/02/62 100 Connector Accessories
Marathon Manufacturing Companies, Inc. Delaware 11/18/83 100 Holding Company
Marathon Manufacturing Company Delaware 12/07/79 100 Inactive
PCC Maryland Realty Corp. Maryland 08/18/93 100 Real Estate Holding Company
Penn Camarillo Realty Corp. California 11/24/92 100 Real Estate Holding Company
Penn Towers, Inc. Pennsylvania 08/01/58 100 Inactive
Republic Indemnity Company of America California 12/05/72 100 Workers' Compensation Ins.
Republic Indemnity Company of California California 10/13/82 100 Workers' Compensation Ins.
Republic Indemnity Medical Management, Inc. California 03/25/96 100 Medical Bill Review
Timberglen Limited United Kingdom 10/28/92 100 Investments
Risico Management Corporation Delaware 01/10/89 100 Risk Management
Windsor Insurance Company Indiana 11/05/87 100(2) Property/Casualty Insurance
American Deposit Insurance Company Oklahoma 12/28/66 100 Property/Casualty Insurance
Granite Finance Co., Inc. Texas 11/09/65 100 Premium Financing
Coventry Insurance Company Ohio 09/05/89 100 Property/Casualty Insurance
El Aguila Compania de Seguros, S.A. de C.V. Mexico 11/24/94 100(2) Property/Casualty Insurance
Moore Group Inc. Georgia 12/19/62 100 Insurance Holding Company/
Agency
Casualty Underwriters, Inc. Georgia 10/01/54 51 Insurance Agency
Dudley L. Moore Insurance, Inc. Louisiana 03/30/78 beneficial interest Insurance Agency
Hallmark General Insurance Agency, Inc. Oklahoma 06/16/72 beneficial interest Insurance Agency
Middle Tennessee Underwriters, Inc. Tennessee 11/14/69 100 Insurance Agency
Insurance Finance Company Tennessee 01/03/62 100 Premium Financing
Windsor Group, Inc. Georgia 05/23/91 100 Insurance Holding Company
Regal Insurance Company Indiana 11/05/87 100 Property/Casualty Insurance
Texas Windsor Group, Inc. Texas 06/23/88 100 Insurance Agency
Pennsylvania-Reading Seashore Lines New Jersey 06/14/01 66.67 Inactive
Pittsburgh and Cross Creek Railroad Company Pennsylvania 08/14/70 83 Inactive
<PAGE>
==============================================================
AMERICAN FINANCIAL GROUP, INC.
==============================================================
American Financial Corporation
American Premier Underwriters, Inc. % OF STOCK OWNED(1)
STATE OF DATE OF BY IMMEDIATE
DOMICILE INCORP. PARENT COMPANY NATURE OF BUSINESS
-------- ------- ----------------- ------------------
Terminal Realty Penn Co. District of 09/23/68 100 Inactive
United Railroad Corp. Delaware 11/25/81 100 Inactive
Detroit Manufacturers Railroad Company Michigan 01/30/02 82 Inactive
Waynesburg Southern Railroad Company Pennsylvania 09/01/66 100 Inactive
Chiquita Brands International, Inc. (and subsidiaries) New Jersey 03/30/99 43.09(2) Production/Processing/
Distribution of Food
Products
Dixie Terminal Corporation Ohio 04/23/70 100 Commercial Leasing
Fairmont Holdings, Inc. Ohio 12/15/83 100 Holding Company
FWC Corporation Ohio 03/16/83 100 Financial Services
Great American Holding Corporation Ohio 11/30/77 100 Holding Company
Great American Insurance Company Ohio 3/7/1872 100 Property/Casualty Insurance
A B I Group, Inc. Minnesota 07/27/78 100 Inactive
American Business Risk Services, Inc. Minnesota 04/19/78 100 Inactive
American Insurance Management Agency, Inc. Minnesota 11/16/82 100 Inactive
Consolidated Underwriters, Inc. Texas 10/14/80 100 Inactive
Agricultural Excess and Surplus Insurance Company Delaware 02/28/79 100 Excess & Surplus Lines Ins.
Agricultural Insurance Company Ohio 03/23/05 100 Property/Casualty Insurance
American Alliance Insurance Company Arizona 09/11/45 100 Property/Casualty Insurance
American Annuity Group, Inc. Delaware 05/15/87 81.38(2) Holding Company
AAG Holding Company, Inc. Ohio 09/11/96 100 Holding Company
American Annuity Group Capital Trust I Delaware 09/13/96 100 Financing Vehicle
American Annuity Group Capital Trust II Delaware 03/11/97 100 Financing Vehicle
Great American Life Insurance Company Ohio 12/15/59 100 Life Insurance Company
Annuity Investors Life Insurance Company Ohio 11/31/81 100 Life Insurance Company
Assured Security Life Insurance Company, Inc. South Dakota 05/12/78 100 Life Insurance Company
CHATBAR, Inc. Massachusetts 11/02/93 100 Hotel Operator
Driskill Holding, Inc. Texas 06/07/95 beneficial interest Hotel Management
GALIC Brothers, Inc. Ohio 11/12/93 80 Real Estate Management
GALIC Life Insurance Company Ohio 06/21/94 100 Life Ins. Co. (Lic. Pending)
Great American Life Assurance Company Ohio 08/10/67 100 Life Insurance Company
Loyal American Life Insurance Company Alabama 05/18/55 100 Life Insurance Company
ADL Financial Services, Inc. North Carolina 09/10/70 100 Marketing Services
Purity Financial Corporation Florida 12/21/91 100 Marketing Services
Prairie National Life Insurance Company South Dakota 02/11/76 100 Life Insurance Company
American Memorial Life Insurance Company South Dakota 03/18/59 100 Life Insurance Company
Great Western Life Insurance Company Montana 05/01/80 100 Life Insurance Company
Rushmore National Life Insurance Company South Dakota 04/16/37 100 Life Insurance Company
AAG Insurance Agency, Inc. Kentucky 12/06/94 100 Life Insurance Agency
AAG Insurance Agency of Massachusetts, Inc. Massachusetts 05/25/95 100 Insurance Agency
AAG Securities, Inc. Ohio 12/10/93 100 Broker-Dealer
American DataSource, Inc. Delaware 06/15/90 100 Pre-need Trust Services
American Memorial Marketing Services, Inc. Washington 06/19/80 100 Marketing Services
-7-
<PAGE>
==============================================================
AMERICAN FINANCIAL GROUP, INC.
==============================================================
American Financial Corporation % OF STOCK OWNED(1)
Great American Holding Corporation STATE OF DATE OF BY IMMEDIATE
Great American Insurance Company DOMICILE INCORP. PARENT COMPANY NATURE OF BUSINESS
-------- ------- ----------------- ------------------
American Annuity Group, Inc.
CSW Management Services, Inc. Texas 06/27/85 100 Pre-need Trust Admin.
Services
GALIC Disbursing Company Ohio 05/31/94 100 Payroll Servicer
Keyes-Graham Insurance Agency, Inc. Massachusetts 12/23/87 100 Insurance Agency
International Funeral Associates, Inc. Delaware 05/07/86 100 Coop. Buying Funeral Dirs.
Laurentian Credit Services Corporation Delaware 10/07/94 100 Inactive
Laurentian Marketing Services, Inc. Delaware 12/23/87 100 Marketing Services
Laurentian Securities Corporation Delaware 01/30/90 100 Inactive
Lifestyle Financial Investments, Inc. Ohio 12/29/93 100 Marketing Services
Lifestyle Financial Investments Agency of Ohio 03/07/94 beneficial interest Life Insurance Agency
Ohio, Inc.
Lifestyle Financial Investments of Indiana, Indiana 02/24/94 100 Life Insurance Agency
Inc.
Lifestyle Financial Investments of Kentucky, Kentucky 10/03/94 100 Insurance Agency
Inc.
Lifestyle Financial Investments of the Minnesota 06/10/85 100 Insurance Agency
Northwest, Inc.
Lifestyle Financial Investments of the North Carolina 07/13/94 100 Insurance Agency
Southeast, Inc.
Loyal Marketing Services, Inc. Alabama 07/20/90 100 Marketing Services
Purple Cross Insurance Agency, Inc. Delaware 11/07/89 100 Insurance Agency
Retirement Resource Group, Inc. Indiana 02/07/95 100 Insurance Agency
RRG of Alabama, Inc. Alabama 09/22/95 100 Life Insurance Agency
RRG of Ohio, Inc. Ohio 02/20/96 beneficial interest Insurance Agency
RRG of Texas, Inc. Texas 06/02/95 100 Life Insurance Agency
SPELCO (UK) Ltd. United Kingdom 00/00/00 99 Inactive
SWTC, Inc. Delaware 00/00/00 100 Inactive
SWTC Hong Kong Ltd. Hong Kong 00/00/00 100 Inactive
Technomil Ltd. Delaware 00/00/00 100 Inactive
American Custom Insurance Services, Inc. Ohio 07/27/83 100 Management Holding Company
American Custom Insurance Services California, California 05/18/92 100 Insurance Agency & Brokerage
Inc.
Eden Park Insurance Brokers, Inc. California 02/13/90 100 Wholesale Brokerage for
Surplus Lines
Professional Risk Brokers, Inc. Illinois 03/01/90 100 Insurance Agency
Professional Risk Brokers Insurance, Inc. Massachusetts 04/19/94 100 Surplus Lines Brokerage
Professional Risk Brokers of Connecticut, Inc. Connecticut 07/09/92 100 Insurance Agency & Brokerage
Professional Risk Brokers of Ohio, Inc. Ohio 12/17/86 100 Insurance Agency & Brokerage
Utility Insurance Services, Inc. Texas 04/06/95 100(2) Texas Local Recording Agency
Utility Management Services, Inc. Texas 09/07/65 100 Texas Managing Gen. Agency
American Custom Insurance Services Illinois, Inc. Illinois 07/08/92 100 Underwriting Office
American Dynasty Surplus Lines Insurance Company Delaware 01/12/82 100 Excess & Surplus Lines Ins.
American Eagle Group, Inc. Delaware 10/03/86 48.6(3) Holding Company
AE Insurance Agency, Inc. California 12/17/91 100 Inactive
AOA Corporation Texas 11/12/91 100 Inactive
American Eagle Insurance Company Texas 12/07/84 100 Property/Casualty Insurer
American Eagle Reinsurance Organization, Inc. Texas 08/31/70 100 Inactive
American Meridian Insurance Company Limited Bermuda 01/01/81 100 Inactive
- 8 -
<PAGE>
==============================================================
AMERICAN FINANCIAL GROUP, INC.
==============================================================
American Financial Corporation % OF STOCK OWNED(1)
Great American Holding Corporation STATE OF DATE OF BY IMMEDIATE
Great American Insurance Company DOMICILE INCORP. PARENT COMPANY NATURE OF BUSINESS
-------- ------- ----------------- ------------------
American Eagle Group, Inc.
Aviation Adjustment Bureau, Inc. Texas 05/08/79 100 Claims Servicing
Aviation Elite Reinsurance Organization, Inc. Texas 11/22/72 100 Inactive
Aviation Office of America, Inc. Texas 02/15/77 100 Insurance Agency
American Empire Surplus Lines Insurance Company Delaware 07/15/77 100 Excess & Surplus Lines Ins.
American Empire Insurance Company Ohio 11/26/79 100 Property/Casualty Insurance
American Signature Underwriters, Inc. Ohio 04/08/96 100 Insurance Agency
Specialty Underwriters, Inc. Texas 05/19/76 100 Insurance Agency
Fidelity Excess and Surplus Insurance Company Ohio 06/30/87 100 Property/Casualty Insurance
American Financial Enterprises, Inc. Connecticut 1871 82.62(2) Closed End Investment Co.
American Insurance Agency, Inc. Kentucky 07/27/67 100 Insurance Agency
American National Fire Insurance Company New York 08/22/47 100 Property/Casualty Insurance
American Special Risk, Inc. Illinois 12/29/81 100 Insurance Broker/Managing
General Agency
American Special Risk I of Arizona, Inc. Arizona 02/06/90 100 Inactive
American Spirit Insurance Company Indiana 04/05/88 100 Property/Casualty Insurance
Brothers Property Corporation Ohio 09/08/87 80 Real Estate Investment
Brothers Barrington Corporation Oklahoma 03/18/94 100 Real Estate Holding Corp.
Brothers Cincinnatian Corporation Ohio 01/25/94 100 Hotel Manager
Brothers Columbine Corporation Oklahoma 03/18/94 100 Real Estate Holding Corp.
Brothers Landing Corporation Louisiana 02/24/94 100 Real Estate Holding Corp.
Brothers Pennsylvanian Corporation Pennsylvania 12/23/94 100 Real Estate Holding Corp.
Brothers Port Richey Corporation Florida 12/06/93 100 Apartment Manager
Brothers Property Management Corporation Ohio 09/25/87 100 Real Estate Management
Brothers Railyard Corporation Texas 12/14/93 100 Apartment Manager
Contemporary American Insurance Company Illinois 04/16/96 100 Property/Casualty Insurance
Crop Managers Insurance Agency, Inc. Kansas 08/09/89 100 Insurance Agency
Dempsey & Siders Agency, Inc. Ohio 05/09/56 100 Insurance Agency
Eagle American Insurance Company Ohio 07/01/87 100 Property/Casualty Insurance
Eden Park Insurance Company Indiana 01/08/90 100 Special Risk Surplus Lines
FCIA Management Company, Inc. New York 09/17/91 79 Servicing Agent
The Gains Group, Inc. Ohio 01/26/82 100 Marketing of Advertising
Great American Lloyd's, Inc. Texas 08/02/83 100 Attorney-in-Fact - Texas
Lloyd's Company
Great American Lloyd's Insurance Company Texas 10/09/79 beneficial interest Lloyd's Plan Insurer
Great American Management Services, Inc. Ohio 12/05/74 100 Data Processing and
Equipment Leasing
American Payroll Services, Inc. Ohio 02/20/87 100 Payroll Services
Great American Re Inc. Delaware 05/14/71 100 Reinsurance Intermediary
Great American Risk Management, Inc. Ohio 04/21/80 100 Insurance Risk Management
Great Texas County Mutual Insurance Company Texas 04/29/54 beneficial interest Property/Casualty Insurance
Grizzly Golf Center, Inc. Ohio 11/08/93 100 Operate Golf Courses
Homestead Snacks Inc. California 03/02/79 100(2) Meat Snack Distribution
Giant Snacks, Inc. Delaware 07/06/89 100 Meat Snack Distribution
- 9 -
<PAGE>
==============================================================
AMERICAN FINANCIAL GROUP, INC.
==============================================================
American Financial Corporation % OF STOCK OWNED(1)
Great American Holding Corporation STATE OF DATE OF BY IMMEDIATE
Great American Insurance Company DOMICILE INCORP. PARENT COMPANY NATURE OF BUSINESS
-------- ------- ----------------- ------------------
Key Largo Group, Inc. Florida 07/28/81 100 Land Developer & Resort
Operator
Key Largo Group Utility Company Florida 11/26/84 100 Water & Sewer Utility
Mid-Continent Casualty Company Oklahoma 02/26/47 100 Property/Casualty Insurance
Mid-Continent Insurance Company Oklahoma 08/13/92 100 Property/Casualty Insurance
Oklahoma Surety Company Oklahoma 08/05/68 100 Property/Casualty Insurance
National Interstate Corporation Ohio 01/26/89 52.15 Holding Company
American Highways Insurance Agency California 05/05/94 100 Insurance Agency
National Interstate Insurance Agency of Texas, Texas 06/07/89 beneficial interest Insurance Agency
Inc.
National Interstate Insurance Agency, Inc. Ohio 02/13/89 100 Insurance Agency
National Interstate Insurance Company Ohio 02/10/89 100 Property/Casualty Insurance
Safety, Claims & Litigation Services, Inc. Pennsylvania 06/23/95 90 Claims Third Party
Administrator
North America Livestock, Inc. Florida 12/03/82 100 Managing General Agency
OBGC Corporation Florida 11/23/77 80 Real Estate Development
Pointe Apartments, Inc. Minnesota 06/24/93 100 Real Estate Holding Corp.
Seven Hills Insurance Company New York 06/30/32 100 Property/Casualty
Reinsurance
Stonewall Insurance Company Alabama 02/1866 100 Property/Casualty Insurance
Stone Mountain Professional Liability Agency, Inc. Georgia 08/07/95 100 Insurance Agency
Tamarack American, Inc. Delaware 06/10/86 100 Management Holding Company
Transport Insurance Company Ohio 05/25/76 100 Property/Casualty Insurance
American Commonwealth Development Company Texas 07/23/63 100 Real Estate Development
ACDC Holdings Corporation Texas 05/04/81 100 Real Estate Development
Instech Corporation Texas 09/02/75 100 Claim & Claim Adjustment
Services
TICO Insurance Company Ohio 06/03/80 100 Property/Casualty Insurance
Transport Managing General Agency, Inc. Texas 05/19/89 100 Managing General Agency
Transport Insurance Agency, Inc. Texas 08/21/89 beneficial interest Insurance Agency
Transport Underwriters Association California 05/11/45 100 Holding Company/Agency
One East Fourth, Inc. Ohio 02/03/64 100 Commercial Leasing
PCC 38 Corp. Illinois 12/23/96 100 Real Estate Holding Company
Pioneer Carpet Mills, Inc. Ohio 04/29/76 100 Carpet Manufacturing
TEJ Holdings, Inc. Ohio 12/04/84 100 Real Estate Holdings
Three East Fourth, Inc. Ohio 08/10/66 100 Commercial Leasing
(1) Except Director's Qualifying Shares.
(2) Total percentage owned by parent shown and by other affiliated company(ies).
(3) Convertible Preferred Stock.
</TABLE>
- 10 -
<PAGE>
Item 27. Number of Contract Owners
As of March 31, 1997, there were 417 Contract Owners.
Item 28. Indemnification
(a) The Code of Regulations of Annuity Investors Life Insurance Company provides
in Article V as follows:
The Corporations shall, to the full extent permitted by the General
Corporation Law of Ohio, indemnify any person who is or was a director
or officer of the Corporation and whom it may indemnify pursuant
thereto. The Corporation may, within the sole discretion of the Board
of Directors, indemnify in whole or in part any other persons whom it
may indemnify pursuant thereto.
Insofar as indemnification for liability arising under the Securities Act of
1933 ("1933 Act") may be permitted to directors, officers and controlling
persons of the Depositor pursuant to the foregoing provisions, or otherwise, the
Depositor has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Depositor of expenses incurred or paid by the director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Depositor will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
(b) The directors and officers of Annuity Investors Life Insurance Company are
covered under a Directors and Officers Reimbursement Policy. Under the
Reimbursement Policy, directors and officers are indemnified for loss arising
from any covered claim by reason of any Wrongful Act in their capacities as
directors or officers, except to the extent the Company has indemnified them. In
general, the term "loss" means any amount which the directors or officers are
legally obligated to pay for a claim for Wrongful Acts. In general, the term
"Wrongful Acts" means any breach of duty, neglect, error, misstatement,
misleading statement, omission or act by a director or officer while acting
individually or collectively in their capacity as such claimed against them
solely by reason of their being directors and officers. The limit of liability
under the program is $20,000,000 for the policy year ending September 1, 1997.
The primary policy under the program is with National Union Fire Insurance
Company of Pittsburgh, PA. in the name of American Premier Underwriters, Inc.
- 11 -
<PAGE>
Item 29. Principal Underwriter
AAG Securities, Inc. is the underwriter and distributor of the Contracts as
defined in the Investment Company Act of 1940 ("1940 Act"). It is also the
underwriter and distributor of Annuity Investors(REGISTERED TRADEMARK) Variable
Account B.
(a) AAG Securities, Inc. does not act as a principal underwriter, depositor,
sponsor or investment adviser for any investment company other than Annuity
Investors Variable Account A.
(b) Directors and Officers of AAG Securities, Inc.
Name and Principal Position with
Business Address AAG Securities, Inc.
- ------------------ --------------------
Thomas Kevin Liguzinski (1) Chief Executive Officer and Director
Charles Kent McManus Senior Vice President
Mark Francis Muething (1) Vice President, Secretary and
Director
William Jack Maney, II (1) Director
Jeffrey Scott Tate (1) Director
James Lee Henderson (1) President
Andrew Conrad Bambeck, III (1) Vice President
William Claire Bair, Jr. (1) Treasurer
(1) 250 East Fifth Street, Cincinnati, Ohio 45202
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the 1940
Act and the rules under it are maintained by Lynn E. Laswell, Assistant Vice
President of the Company, at the Administrative Office.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to this
registration statement as frequently as necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a Contract offered by the Prospectus, a space that an
-12-
<PAGE>
applicant can check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information.
(c) Registrant undertakes to deliver any Prospectus and Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request to the Company at the address or
phone number listed in the Prospectus.
(d) Registrant represents that the fees and charges deducted under the
Contracts, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred and the risks assumed by the
Company.
- 13 -
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it has caused this Post- Effective Amendment
No. 1 to its Registration Statement to be signed on its behalf by the
undersigned in the City of Cincinnati, State of Ohio on the 28th day of April,
1997.
ANNUITY INVESTORS VARIABLE
ACCOUNT A
(REGISTRANT)
/s/ Robert Allen Adams
By:__________________________________
Robert Allen Adams
Chairman of the Board, President
and Director, Annuity Investors
Life Insurance Company
ANNUITY INVESTORS LIFE INSURANCE
COMPANY
(DEPOSITOR)
/s/ Robert Allen Adams
By:__________________________________
Robert Allen Adams
Chairman of the Board, President
and Director
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
/s/ Robert Allen Adams
___________________________ April 28, 1997
Robert Allen Adams Principal Executive
Officer, Director
/s/ Robert Eugene Allen
___________________________ April 28, 1997
Robert Eugene Allen Principal Financial
Officer
/s/ Lynn E. Laswell
___________________________ April 28, 1997
Lynn Edward Laswell Principal Accounting
Officer
- 14 -
<PAGE>
/s/ Stephen Craig Lindner
___________________________ April 28, 1997
Stephen Craig Lindner Director
/s/ William J. Maney, II
___________________________ April 28, 1997
William Jack Maney, II Director
/s/ James M. Mortensen
___________________________ April 28, 1997
James Michael Mortensen Director
/s/ Mark F. Muething
___________________________ April 28, 1997
Mark Francis Muething Director
/s/ Jeffrey Scott Tate
___________________________ April 28, 1997
Jeffrey Scott Tate Director
- 15 -
<PAGE>
EXHIBIT INDEX
-----------
Exhibit No. Description of Exhibit
- ----------- ----------------------
(1) Resolution of the Board of Directors of Annuity
Investors Life Insurance Company authorizing
establishment of Annuity Investors Variable
Account A.1/
(3)(a) Distribution Agreement between Annuity Investors
Life Insurance Company and AAG Securities, Inc.1/
(3)(b) Form of Selling Agreement between Annuity
Investors Life Insurance Company, AAG Securities,
Inc. and another Broker-Dealer.2/
(4)(a)(i) Form of Qualified Individual Flexible Premium
Deferred Annuity Contract.2/
(4)(a)(ii) Form of Non-Qualified Individual Contract.2/
--
(4)(b)(i) Form of Loan Endorsement to Individual Contract.2/
(4)(b)(ii) Form of Tax Sheltered Annuity Endorsement to
Individual Contract.2/
(4)(b)(iii) Form of Qualified Pension, Profit Sharing and
Annuity Plan Endorsement to Qualified Individual
Contract.2/
(4)(b)(iv) Form of Employer Plan Endorsement to Individual
Contract.2/
(4)(b)(v) Form of Individual Retirement Annuity Endorsement
to Individual Contract.2/
(4)(b)(vi) Form of Texas Optional Retirement Program
Endorsement to Individual Contract.2/
(4)(b)(vii) Form of Long-Term Care Waiver Rider to Individual
Contract (filed herewith).
(4)(b)(viii) Form of SIMPLE IRA Endorsement (filed herewith).
(5)(a) Form of Application for Individual Flexible Premium
Deferred Annuity Contract (filed herewith).
(6)(a) Articles of Incorporation of Annuity Investors Life
Insurance Company.1/
(6)(a)(i) Amendment to Articles of Incorporation, adopted
April 9, 1996 and approved by Secretary of State of
State of Ohio on July 11, 1996 (filed herewith).
(6)(a)(ii) Amendment to Articles of Incorporation, adopted
August 9, 1996 and approved by Secretary of State
of State of Ohio on December 3, 1996 (filed
herewith).
(6)(b) Code of Regulations of Annuity Investors Life
Insurance Company.1/
(8)(a) Participation Agreement between Annuity Investors
Life Insurance Company and Dreyfus Variable
Investment Fund.1/
(8)(b) Participation Agreement between Annuity Investors
Life Insurance Company and Dreyfus Stock Index
Fund.1/
- 16 -
<PAGE>
(8)(c) Participation Agreement between Annuity Investors
Life Insurance Company and The Dreyfus Socially
Responsible Fund.1/
(8)(d) Participation Agreement between Annuity Investors
Life Insurance Company and Janus Aspen Series.2/
(8)(e) Amended and Restated Participation Agreement
between Annuity Investors Life Insurance Company
and Merrill Lynch Variable Series Funds, Inc.2/
(8)(f) Agreement between Annuity Investors Life Insurance
Company and Merrill Lynch Asset Management,
L.P.2/
(8)(g) Service Agreement between Annuity Investors Life
Insurance Company and American Annuity Group,
Inc.1/
(8)(h) Agreement between AAG Securities, Inc. and AAG
Insurance Agency, Inc.1/
(8)(i) Investment Service Agreement between Annuity
Investors Life Insurance Company and American
Annuity Group, Inc.1/
(8)(j) Participation Agreement between Annuity Investors
Life Insurance Company and Morgan Stanley
Universal Funds, Inc. (filed herewith)
(8)(k) Participation agreement between Annuity Investors
Life Insurance Company and Strong Special Fund II,
Inc. (filed herewith)
(8)(l) Participation Agreement between Annuity Investors
Life Insurance Company and PBHG Insurance Series
Fund, Inc. (filed herewith).
(8)(m) Amended and Restated Agreement between The Dreyfus
Corporation and Annuity Investors Life Insurance
Company (filed herewith).
(8)(n) Service Agreement between Annuity Investors Life
Insurance Company and Janus Capital Corporation
(filed herewith).
(9) Opinion and Consent of Counsel.1/
(10) Consent of Independent Auditors (filed herewith).
(11) No financial statements are omitted from Item 23.
(12) Not Applicable.
(13) Schedule for Computation of Performance Quotations (filed
herewith).
(14) Financial Data Schedule (filed herewith).
- -----------------------
1/ Filed with Form N-4 on December 27, 1995.
2/ Filed with Pre-Effective Amendment No. 1 on July 26, 1996.
- 17 -
Exhibit 4(b)(vii)
LONG-TERM CARE WAIVER RIDER
This rider is part of your Contract. The words "we," "us" and "our" refer to
Annuity Investors Life Insurance Company. The words "you" and "your" refer to
the Owner of the Contract, or the joint owner, if any. If both the Owner and
joint owner, if any, are non-natural person(s) the words "you" and "your" refer
to the Annuitant. BENEFIT. We will waive the Contingent Deferred Sales Charge
under the Contract if you meet all of the following conditions:
1 You are confined to a Long-Term Care Facility or Hospital for at least
ninety (90) days in a row.
2 A Physician prescribes the confinement and it is Medically Necessary.
3 The first day of confinement is more than one (1) year after the
Contract Effective Date.
4 We receive a Written Request to surrender or to start distributions
under the Contract and satisfactory proof of your confinement. We must
receive the Written Request and proof of confinement no more than
ninety (90) days after you are discharged from the Long-Term Care
Facility or Hospital, and before this rider terminates.
DEFINITIONS. Capitalized terms have the meanings given to them in the Contract,
except as shown below.
"LONG-TERM CARE FACILITY" means a Skilled Nursing Facility or an Intermediate
Care Facility. "Long-Term Care Facility" does not mean any of the following:
1 A place that primarily treats drug addicts or alcoholics.
2 A home for the aged or mentally ill, a community living center, or a
place that primarily provides residential care or retirement care.
3 A place owned or operated by a member of your Immediate Family.
"SKILLED NURSING FACILITY" means a facility that meets all of the following
conditions:
1 It is in the United States or its territories.
2 It maintains a license and operates as a Skilled Nursing Facility
under the laws of the State or territory in which it is located.
3 It provides skilled nursing care under the supervision of a licensed
Physician.
4 It provides nursing services twenty-four (24) hours a day by, or under
the supervision of, a registered graduate professional nurse (R.N.).
5 It maintains a daily medical record of each patient.
<PAGE>
"INTERMEDIATE CARE FACILITY" means a facility that meets all of the following
conditions:
1 It is in the United States or its territories.
2 It maintains a license and operates as an Intermediate Care Facility
under the laws of the State or territory in which it is located.
3 It provides nursing services twenty-four (24) hours a day by, or under
the supervision of, a registered graduate professional nurse (R.N.) or
a licensed practical nurse (L.P.N.).
4 It maintains a daily medical record of each patient.
"HOSPITAL" means a facility that meets all of the following conditions:
1 It is in the United States or its territories.
2 It maintains a license as a hospital under the laws of the State or
territory in which it is located.
3 A staff of licensed Physicians supervises it.
4 It provides nursing services twenty-four (24) hours a day by, or under
the supervision of, a registered graduate professional nurse (R.N.).
5 It operates primarily for the care and treatment of sick and injured
persons as inpatients for a charge.
6 It maintains, or has access to, medical, diagnostic and major surgical
facilities.
"PHYSICIAN" means a licensed medical doctor (M.D.) or a licensed doctor of
osteopathy (D.O.) practicing within the scope of his or her license. The term
"Physician" does not include you, or a member of your Immediate Family. In the
case of a non-natural person Owner, or joint owner, if any, the term "Physician"
does not include an employee, officer, director, or agent of the Owner, or joint
owner, if any.
"MEDICALLY NECESSARY" means appropriate and consistent with the diagnosis of a
Physician and with accepted standards of practice, and which could not have been
omitted without adversely affecting your condition.
"IMMEDIATE FAMILY" means any spouse, children, parents, grandparents,
grandchildren, siblings, or in-laws.
TERMINATION. This rider will terminate and shall have no value when the
Contingent Deferred Sales Charge imposed under the Contract equals 0%, or on the
date distributions start under the Contract, or on the date the Contract is
terminated, whichever comes first. The Company reserves the right to terminate
this rider and the benefits under it at anytime if ownership of the Contract is
changed.
This rider is not a separate contract. This rider changes your Contract only as
and to the extent stated. In the case of conflict with other terms of the
Contract, the terms of this rider shall control.
Signed for us at our office as of the date of issue.
/s/ Betty Kasprowicz /s/ James M. Mortenson
- ------------------------- -------------------------
Betty Kasprowicz James M. Mortenson
Secretary Executive Vice President
Exhibit 4(b)(viii)
ANNUITY INVESTORS(SERVICEMARK)
LIFE INSURANCE COMPANY
A Stock Insurance Company
Domicile Address: 580 Walnut Street, Cincinnati, Ohio 45202
Administrative Office:
P. O. Box 5423, Cincinnati, Ohio 45201-5423
SIMPLE IRA ENDORSEMENT
The policy is changed as set out below to make it a SIMPLE Individual Retirement
Annuity.
ADDITIONAL TAX LAW RESTRICTIONS. This policy is intended to receive premiums
under a Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE")
that qualifies under Internal Revenue Code ("IRC") Section 408(p). It is
restricted as required by federal tax law. We may change the terms of this
policy or administer this policy at any time as needed to comply with that law.
Any such change may be applied retroactively.
ADDITIONAL PREMIUM REQUIREMENTS. This policy will accept premiums contributed on
behalf of an employee by his or her employer under the terms of a SIMPLE plan
described in IRC Section 408(p). In addition, this policy will accept transfers
or rollovers from other SIMPLE Individual Retirement Annuities or SIMPLE
Individual Retirement Accounts of the employee. No other premiums will be
accepted. The $2,000 limitation on premiums stated in the IRA provisions of this
policy shall not apply.
This is part of your policy. It is not a separate contract. It changes the
policy only as and to the extent stated. In all cases of conflict with the other
terms of the policy, the provisions of this Endorsement shall control.
Signed for us at our office as of the date of issue.
/s/ Betty Kasprowicz /s/ James M. Mortensen
-------------------- ----------------------
Betty Kasprowicz James M. Mortensen
Assistant Secretary Executive Vice President
EXHIBIT 5(a)
ANNUITY INVESTORS(SERVICEMARK)
LIFE INSURANCE COMPANY
P.O. BOX 5423, CINCINNATI, OH 45201-5423 (800) 789-6771
INDIVIDUAL CONTRACT APPLICATION
<TABLE>
<CAPTION>
OWNER/ANNUITANT INFORMATION
- ------------------------------------------------------------------------------------------------------------
CONTRACT OWNER
<S> <C>
Name___________________________________________ Sex: M /_/ F /_/
Address________________________________________ Date of Birth: ______________________________________
City, State Zip________________________________ Daytime Phone # (___________)___________________________
Social Security #______________________________ Evening Phone # (___________)___________________________
JOINT CONTRACT OWNER (IF APPLICABLE)
Name___________________________________________ Sex: M /_/ F /_/
Social Security #______________________________ Date of Birth: ______________________________________
ANNUITANT (IF OTHER THAN OWNER)
Name____________________________________________ Sex: M F Date of Birth: _______________________________
PRIMARY BENEFICIARY CONTINGENT BENEFICIARY
Name ___________________________________________ Name ___________________________________________________
Address ________________________________________ Address ________________________________________________
City, State Zip_________________________________ City, State Zip_________________________________________
Relationship to Owner:__________________________ Relationship to Owner:__________________________________
PURCHASE PAYMENTS
- ------------------------------------------------------------------------------------------------------------
/_/ Single Premium Amount $_______________________
/_/ Salary Reduction/Flex Premium First Payment Date ________Frequency ______Modal Payment $____________
Name of Employer (TSA/SEP-IRA Only)_____________________________________ Case Number_______________________
Tax Qualification /_/ TSA /_/ IRA /_/ SEP-IRA /_/ Nonqualified /_/ Other ____________________________
PURCHASE PAYMENT ALLOCATION: (PLEASE CHECK THE SELECTED ACCOUNT(S). ALLOCATIONS MUST BE WHOLE PERCENTAGES.)
- ------------------------------------------------------------------------------------------------------------
VARIABLE ACCOUNTS: ALLOCATION ALLOCATION
[DREYFUS CORPORATION] [MORGAN STANLEY UNIVERSAL FUNDS, INC.]
/_/ [Small Cap Portfolio-VIF] ___________% /_/ [U.S. Real Estate Portfolio] ___________%
/_/ [Capital Appreciation Portfolio-VIF] ___________% /_/ [Fixed Income Portfolio] ___________%
/_/ [The Socially Responsible Growth Fund] ___________% [PBHG INSURANCE SERIES FUND, INC.]
/_/ [Dreyfus Stock Index Fund] ___________% /_/ [Technology & Communications Portfolio] ___________%
/_/ [Growth and Income Portfolio-VIF] ___________% /_/ [Growth II Portfolio] ___________%
[JANUS CORPORATION (ASPEN SERIES)] [STRONG CAPITAL MANAGEMENT, INC.]
/_/ [Worldwide Growth] ___________% /_/ [Strong Special Fund II] ___________%
/_/ [Aggressive Growth] ___________% FIXED ACCOUNTS:
/_/ [Balanced] ___________% /_/ [Fixed Accumulation Account] ___________%
[MERRILL LYNCH VARIABLE SERIES] /_/ [Fixed Option 1-Year Guarantee] ___________%
/_/ [Basic Value Focus] ___________% /_/ [Fixed Option 3-Year Guarantee] ___________%
/_/ [Global Strategy Focus] ___________% /_/ [Fixed Option 5-Year Guarantee] ___________%
/_/ [High Current Income] ___________% /_/ [Fixed Option 7-Year Guarantee] ___________%
/_/ [Domestic Money Market Fund] ___________%
TOTAL ALLOCATION ___100%___
</TABLE>
<PAGE>
REPLACEMENT
- -------------------------------------------------------------------------------
Will the proposed contract replace any existing annuity or life insurance
contract or certificate? /_/ Yes /_/ No
SUITABILITY REVIEW (TO BE COMPLETED BY THE OWNER)
- --------------------------------------------------------------------------------
SEC/NASD rules require that all registered representatives have reasonable
grounds for believing that an investment is suitable for you. This decision is
made upon the facts disclosed by you. If you are not certain of a particular
value, please make a reasonable estimate.
Tax Bracket: ___% Investment Risk Tolerance: /_/ Low /_/ Moderate /_/ High
Investment Objectives: /_/ Growth /_/ Income /_/ Growth and Income
/_/ Capital Preservation
Purpose of Investment: /_/ Retirement /_/ Diversification /_/
Other (Specify)__________________________________________
Aggregate Family Net Worth (Excluding Real Estate and Furnishings): $___________
Annual Family Income: $_____________
THE INFORMATION AS STATED ABOVE IS TRUE TO THE BEST OF MY KNOWLEDGE.
________________________________________________________
AGENT'S SIGNATURE (Agent must sign here)
I UNDERSTAND THE REPRESENTATIVE HAS REQUESTED SUITABILITY INFORMATION AS
REQUIRED BY THE SEC, BUT I CHOOSE NOT TO PROVIDE IT.
___________________________________________________________________________
SIGNATURE OF OWNER (Owner must sign if Suitability Review is not completed)
SIGNATURE
________________________________________________________________________________
I hereby apply for the individual annuity contract as set forth above. I have
read and understand each of the statements and answers on this form. I HAVE
RECEIVED CURRENT PROSPECTUSES FOR ANNUITY INVESTORS VARIABLE ACCOUNT A AND THE
FUNDS. I UNDERSTAND THAT ANNUITY PAYMENTS OR SURRENDER VALUES, WHEN BASED UPON
THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, ARE VARIABLE AND NOT
GUARANTEED AS TO DOLLAR AMOUNT.
SIGNED AT: ____________________________, this__ day of________________, 19___
City State
_________________________________ ________________________________________
Signature of Owner Signature of Joint Owner (If Applicable)
AGENT'S STATEMENT
- --------------------------------------------------------------------------------
To the best of my knowledge and belief, the annuity applied for /_/ is /_/ is
not intended to replace insurance or an annuity on the proposed Owner with this
or any other company. I also certify that an appropriate exclusion allowance was
calculated (if applicable) for the named Owner, in accordance with current tax
laws and regulations.
Signature of Agent __________________ Agent Name (Please Print) ________________
Agent Number ________________________ Agent Phone Number _______________________
Date ______________________ Principal Signature ______________________
------------------------------------------------------------------------------
/ FOR HOME OFFICE USE ONLY: /
/ /
/ /
/ /
/ /
/ /
-----------------------------------------------------------------------------
AA800(SP/FP 96)-3 AP aiapp
Exhibit 6 (a)(i)
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
ANNUITY INVESTORS LIFE INSURANCE COMPANY
The undersigned President and Senior Vice President and Secretary of
Annuity Investors Life Insurance Company, an Ohio corporation for profit (the
"Corporation"), do hereby certify that in a writing dated as of April 9, 1996
signed by the sole shareholder of the Corporation, the following resolution to
amend the Articles of Incorporation of the Corporation was adopted:
"RESOLVED: That the Articles of Incorporation, as amended, of the
Corporation be amended by deleting Article FOURTH in its entirety
and replacing therefor the following:
Fourth. The number of shares which the Corporation is authorized
to have outstanding is Fifteen Thousand (15,000), all of which
shall be Common Shares, par value One Hundred Twenty Five
Dollars ($125)."
IN WITNESS WHEREOF, the undersigned have hereunto subscribed their
names as of the 19th day of April, 1996.
/s/ Robert A. Adams
------------------------------------------
Robert A. Adams
President
/s/ Mark F. Muething
-----------------------------------------
Mark F. Muething
Senior Vice President and Secretary
Exhibit 6(a)(ii)
CERTIFICATE OF AMENDMENT TO THE
ARTICLES OF INCORPORATION OF
ANNUITY INVESTORS LIFE INSURANCE COMPANY
The undersigned President and Senior Vice President and Secretary of
Annuity Investors Life Insurance Company, an Ohio corporation for profit (the
"Corporation), do hereby certify that in a writing dated as of August 9, 1996
signed by the sole shareholder of the Corporation, the following resolution to
amend the Articles of Incorporation of the Corporation was adopted:
"RESOLVED: That the Articles of Incorporation, as amended, of the
Corporation be amended by deleting Article FOURTH in its entirety
and replacing therefor the following:
Fourth. The number of shares which the Corporation is authorized
to have outstanding is Twenty Five Thousand (25,000), all of
which shall be Common Shares, par value One Hundred Twenty Five
Dollars ($125)."
IN WITNESS WHEREOF, the undersigned have hereunto subscribed their
names as of the 14th day of August, 1996.
/s/ Robert A. Adams
-----------------------------------
Robert A. Adams
President
/s/ Mark F. Muething
-----------------------------------
Senior Vice President and Secretary
Exhibit (8)(j)
PARTICIPATION AGREEMENT
AMONG
MORGAN STANLEY UNIVERSAL FUNDS, INC.,
MORGAN STANLEY ASSET MANAGEMENT INC.
MILLER ANDERSON & SHERRERD, LLP
AND
ANNUITY INVESTORS LIFE INSURANCE COMPANY
DATED AS OF
MAY 1, 1997
<PAGE>
TABLE OF CONTENTS
- -----------------
PAGE
ARTICLE I. Purchase of Fund Shares 2
ARTICLE II Representations and Warranties 5
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 6
ARTICLE IV. Sales Material and Information 8
ARTICLE V Fees and Expenses 10
ARTICLE VI. Diversification 10
ARTICLE VII. Potential Conflicts 11
ARTICLE VIII. Indemnification 13
ARTICLE IX. Applicable Law 19
ARTICLE X. Termination 19
ARTICLE XI. Notices 21
ARTICLE XII. Miscellaneous 22
SCHEDULE A Portfolios of Morgan Stanley Universal Funds A-1
Available for Purchase by Annuity Investors
Life Insurance Company
SCHEDULE B Separate Accounts and Contracts B-1
SCHEDULE C Proxy Voting Procedures
<PAGE>
THIS AGREEMENT, made and entered into as of the 1st day of May 1997
by and among ANNUITY INVESTORS LIFE INSURANCE COMPANY (hereinafter the
"Company"), an Ohio corporation, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule B hereto as may be
amended from time to time (each such account hereinafter referred to as
the "Account"), and MORGAN STANLEY UNIVERSAL FUNDS, INC. (hereinafter the
"Fund"), a Maryland corporation, and MORGAN STANLEY ASSET MANAGEMENT INC.
and MILLER ANDERSON & SHERRERD, LLP (hereinafter collectively the
"Advisers" and individually the "Adviser"), a Delaware corporation and a
Pennsylvania limited liability partnership, respectively.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Contracts enter into participation
agreements with the Fund and the Advisers (the "Participating Insurance
Companies");
WHEREAS, shares of the Fund are divided into several series of shares,
each representing the interest in a particular managed portfolio of securities
and other assets, any one or more of which may be made available under this
Agreement, as may be amended from time to time by mutual agreement of the
parties hereto (each such series hereinafter referred to as a "Portfolio"); and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule A (each such series hereinafter referred to as a "Portfolio"), as may
be amended from time to time by mutual agreement of the parties hereto, under
this Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 19, 1996 (File No. 812-10118), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
<PAGE>
necessary to permit shares of the Fund to be sold to and held by Variable
Annuity Product separate accounts of both affiliated and unaffiliated life
insurance companies and Qualified Plans (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, each Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
WHEREAS, each Adviser manages certain Portfolios of the Fund; and
WHEREAS, Morgan Stanley & Co. Incorporated (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule B
hereto, to set aside and invest assets attributable to the aforesaid Variable
Insurance Product; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Variable Insurance Products and
the Underwriter is authorized to sell such shares to each such Account at net
asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. PURCHASE OF FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
2
<PAGE>
by the Fund or its designee of such order. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Eastern time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the Securities and Exchange
Commission.
1.2. The Fund, so long as this Agreement is in effect, agrees to make its
shares available indefinitely for purchase at the applicable net asset value per
share by the Company and its Accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the Securities and Exchange Commission
and the Fund shall use reasonable efforts to calculate such net asset value on
each day which the New York Stock Exchange is open for trading. Notwithstanding
the foregoing, the Board of Directors of the Fund (hereinafter the "Board") may
refuse to permit the Fund to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans. No shares of any Portfolio will be sold to the general public.
1.4. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Variable Insurance Products issued
by the Company, under which amounts may be invested in the Fund (hereinafter the
"Contracts"), are listed on Schedule B attached hereto and incorporated herein
3
<PAGE>
by reference, as such Schedule B may be amended from time to time by mutual
written agreement of all of the parties hereto. The Company will give the Fund
and the Adviser 45 days written notice of its intention to make available in the
future, as a funding vehicle under the Contracts, any other investment company
with an investment objective substantially similar to that of any of the Funds
Portfolios offered by the Company.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purposes of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time.
4
<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 3907.15 of the Ohio Revised Code and has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund.
2.3 The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
5
<PAGE>
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Maryland and the Fund represents that their respective operations are
and shall at all times remain in material compliance with the laws of the State
of Maryland to the extent required to perform this Agreement.
2.7. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.8. Each Adviser represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
compliance in all material respects with the laws of its state of domicile and
any applicable state and federal securities laws.
2.9. The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid blanket fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less than the minimum coverage
required currently by Rule 17g-(1) of the 1940 Act or related provisions as may
be promulgated from time to time. The aforesaid includes coverage for larceny
and embezzlement is issued by a reputable bonding company. The Company agrees to
make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the Company,
in lieu of providing printed copies the Fund shall provide camera-ready film or
computer diskettes containing the Fund's prospectus and statement of additional
information, and such other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus and/or
6
<PAGE>
statement of additional information for the Fund is amended during the year) to
have the prospectus for the Contracts and the Fund's prospectus printed together
in one document, and to have the statement of additional information for the
Fund and the statement of additional information for the Contracts printed
together in one document. Alternatively, the Company may print the Fund's
prospectus and/or its statement of additional information in combination with
other fund companies' prospectuses and statements of additional information.
3.2. Except as provided in this Section 3.2., all expenses of printing and
distributing Fund prospectuses and statements of additional information shall be
the expense of the Company. For prospectuses and statements of additional
information provided by the Company to its existing owners of Contracts in order
to update disclosure as required by the 1933 Act and/or the 1940 Act, the cost
of printing shall be borne by the Fund. If the Company chooses to receive
camera-ready film or computer diskettes in lieu of receiving printed copies of
the Fund's prospectus, the Fund will reimburse the Company in an amount equal to
the product of x and y where x is the number of such prospectuses distributed to
owners of the Contracts, and y is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's statement of additional information. The Company agrees to
provide the Fund or its designee with such information as may be reasonably
requested by the Fund to assure that the Fund's expenses do not include the cost
of printing any prospectuses or statements of additional information other than
those actually distributed to existing owners of the Contracts.
3.3. The Fund's statement of additional information shall be obtainable
from the Fund, the Company or such other person as the Fund may designate, as
agreed upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and statements of additional information, which are covered in
section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.5. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
7
<PAGE>
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
Portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Fund and the Company shall follow the procedures, and shall have the
corresponding responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.6. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
3.7. The Fund shall use reasonable efforts to provide Fund prospectuses,
reports to shareholders, proxy materials and other Fund communications (or
camera-ready equivalents) to the Company sufficiently in advance of the
Company's mailing dates to enable the Company to complete, at reasonable cost,
the printing, assembling and/or distribution of the communications in accordance
with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or the Adviser(s) is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund or its
designee reasonably objects to such use within ten Business Days after receipt
of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
8
<PAGE>
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its Account(s) is named
at least ten Business Days prior to its use.
No such material shall be used if the Company or its designee
reasonably objects to such use within ten Business Days after receipt of such
material.
4.4. The Fund and the Advisers shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in the Fund under the Contracts, contemporaneously with the filing of such
document with the Securities and Exchange Commission or other regulatory
authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (I.E., any written communication distributed or made generally
9
<PAGE>
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund shall pay no fee or other compensation to the Company under
this Agreement, except that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution expenses, then the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
10
<PAGE>
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by Variable Insurance Product owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
Board shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (I.E., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
11
<PAGE>
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
12
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
------------------------------
8.1(a) The Company agrees to indemnify and hold harmless the Fund and each
member of the Board and officers, and each Adviser and each director and officer
of each Adviser, and each person, if any, who controls the Fund or the Adviser
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including reasonable legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in the registration statement or prospectus for the
Contracts or contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to the Company by or on behalf of the
Fund for use in the registration statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment
or supplement) or otherwise for use in connection with the sale of
the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained
in the registration statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control and
other than statements or representations authorized by the Fund or
an Adviser) or unlawful conduct of the Company or persons under its
control, with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii) arise out of or as a result of any untrue
statement or alleged untrue statement of a material fact contained
in a registration statement, prospectus, or sales literature of the
13
<PAGE>
Fund or any amendment thereof or supplement thereto or the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance upon
and in conformity with information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any failure by the
Company to provide the services and furnish the materials under
the terms of this Agreement; or
(v) arise out of or result from any material
breach of any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
Each of sub-section (i) through (v) of this
Section 8.1(a) is limited by and in accordance with the provisions
of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Company of any such
claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in
14
<PAGE>
the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Fund shares or
the Contracts or the operation of the Fund.
8.2. INDEMNIFICATION BY THE ADVISERS
8.2(a). Each Adviser agrees, with respect to each Portfolio
that it manages, to indemnify and hold harmless the Company and each
of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually,
"Indemnified Party," for purposes of this Section 8.2) against any
and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Adviser) or litigation
(including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of shares of the
Portfolio that it manages or the Contracts and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material
fact contained in the registration statement or
prospectus or sales literature of the Fund (or any
amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Fund
by or on behalf of the Company for use in the
15
<PAGE>
registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration statement,
prospectus or sales literature for the Contracts not
supplied by the Fund or persons under its control and
other than statements or representations authorized by
the Company) or unlawful conduct of the Fund, Adviser(s)
or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or
Portfolio shares; or
(iii) arise out of or as a result of any untrue
statement or alleged untrue statement of a material fact
contained in a registration statement, prospectus, or
sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission
or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon
information furnished to the Company by or on behalf of
the Fund; or
(iv) arise as a result of any failure by the
Fund to provide the services and furnish the
materials under the terms of this Agreement; or
(v) arise out of or result from any material
breach of any representation and/or warranty made by the
Adviser in this Agreement or arise out of or result from
any other material breach of this Agreement by the
Adviser; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). An Adviser shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as such may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties
under this Agreement.
16
<PAGE>
8.2(c). An Adviser shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Adviser in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Adviser of any such
claim shall not relieve the Adviser from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Adviser will be entitled to participate, at its own expense, in the
defense thereof. The Adviser also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's
election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it,
and the Adviser will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Adviser of
the commencement of any litigation or proceedings against it or any
of its officers or directors in connection with the issuance or sale
of the Contracts or the operation of each Account.
8.3. INDEMNIFICATION BY THE FUND
---------------------------
8.3(a). The Fund agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person, if
any, who controls the Company within the meaning of Section 15 of
the 1933 Act (hereinafter collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section
8.3) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of
the Fund) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under
any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith
or willful misconduct of the Board or any member thereof, are
related to the operations of the Fund and:
17
<PAGE>
(i) arise as a result of any failure by
the Fund to provide the services and furnish the
materials under the terms of this Agreement; or
(ii) arise out of or result from any
material breach of any representation and/or warranty
made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement
by the Fund;
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against an
Indemnified Party as may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of
such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this
Agreement.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Fund in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Fund of any such
claim shall not relieve the Fund from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the Fund
will be entitled to participate, at its own expense, in the defense
thereof. The Fund also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Fund of the
commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this
Agreement, the issuance or sale of the Contracts, with respect to
the operation of either Account, or the sale or acquisition of
shares of the Fund.
18
<PAGE>
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the
State of New York.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the Securities and Exchange Commission may grant
(including, but not limited to, the Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and
effect until the first to occur of:
(a) termination by any party for any reason by sixty (60)
days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio is not
reasonably available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any of
the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment media
of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund may
fail to so qualify; or
19
<PAGE>
(e) termination by the Company by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that such
Portfolio falls to meet the diversification requirements specified
in Article VI hereof; or
(f) termination by either the Fund by written notice to the
Company if the Fund shall determine, in its sole judgment exercised
in good faith, that the Company has suffered a material adverse
change in its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material
adverse publicity, or
(g) termination by the Company by written notice to the Fund
and the Adviser, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Fund or the
Adviser has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(h) termination by the Fund or the Adviser by written notice
to the Company, if the Company gives the Fund and the Adviser the
written notice specified in Section 1.6 hereof and at the time such
notice was given there was no notice of termination outstanding
under any other provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective forty five
(45) days after the notice specified in Section 1.6 was given.
10.2. Notwithstanding any termination of this Agreement, the
Fund shall at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions
of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as
"Existing, Contracts"). Specifically, without limitation, the owners
of the Existing Contracts shall be permitted to direct reallocation
of investments in the Fund, redemption of investments in the Fund
and/or investment in the Fund upon the making of additional purchase
payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII
and the effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to
the Contracts (as distinct from Fund shares attributable to the
Company's assets held in the Account) except (i) as necessary to
implement Contract Owner initiated or approved transactions, or (ii)
as required by state and/or federal laws or regulations or judicial
or other legal precedent of general application (hereinafter
20
<PAGE>
referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the Securities and Exchange Commission
pursuant to Section 26(b) of the 1940 Act. Upon request, the Company
will promptly furnish to the Fund the opinion of counsel for the
Company (which counsel shall be reasonably satisfactory to the Fund)
to the effect that any redemption pursuant to clause (ii) above is a
Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not
prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the
Fund 90 days prior written notice of its intention to do so.
ARTICLE . NOTICES
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party at the address of such party
set forth below or at such other address as such party may from time
to time specify in writing to the other party.
If to the Fund:
Morgan Stanley Universal Funds, Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Morgan Stanley Asset Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to Adviser:
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
Attention: Lorraine Truten
21
<PAGE>
If to the Company:
Annuity Investors Life Insurance Company
250 East Fifth Street
Cincinnati, Ohio 45202
Attention: Mark F. Muething, Esq.
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to
the property of the Fund for the enforcement of any claims against
the Fund as neither the Board, officers, agents or shareholders
assume any personal liability for obligations entered into on behalf
of the Fund.
12.2. Subject to the requirements of legal process and
regulatory authority, each party hereto shall treat as confidential
the names and addresses of the owners of the Contracts and all
information reasonably identified as confidential in writing by any
other party hereto and, except as permitted by this Agreement, shall
not disclose, disseminate or utilize such names and addresses and
other confidential information until such time as it may come into
the public domain without the express written consent of the
affected party.
12.3. The captions in this Agreement are included for
convenience of reference only and in no way define or delineate any
of the provisions hereof or otherwise affect their construction or
effect.
12.4. This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one
and the same instrument.
12.5. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party
and all appropriate governmental authorities (including without
limitation the Securities and Exchange Commission, the National
Association of Securities Dealers and state insurance regulators)
and shall permit such authorities reasonable access to its books and
records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto
further agrees to furnish the Ohio Insurance Commissioner with any
22
<PAGE>
information or reports in connection with services provided under
this Agreement which such Commissioner may request in order to
ascertain whether the insurance operations of the Company are being
conducted in a manner consistent with the Ohio Insurance Regulations
and any other applicable law or regulations.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights,
remedies and obligations at law or in equity, which the parties
hereto are entitled to under state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written
consent of all parties hereto; provided, however, that an Adviser
may assign this Agreement or any rights or obligations hereunder to
any affiliate of or company under common control with the Adviser,
if such assignee is duly licensed and registered to perform the
obligations of the Adviser under this Agreement.
12..9 The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following
reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report (prepared
under generally accepted accounting principles ("GAAP"), if
any), as soon as practical and in any event within 90 days
after the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45
days after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or
report of the Company sent to stockholders and/or
policyholders, as soon as practical after the delivery thereof
to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as soon
as practical after the filing thereof;
(e) any other report submitted to the Company by
independent accountants in connection with any annual, interim
or special audit made by them of the books of the Company, as
soon as practical after the receipt thereof.
23
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly
authorized representative and its seal to be hereunder affixed
hereto as of the date specified above.
ANNUITY INVESTORS LIFE INSURANCE COMPANY
By: ______________________________
NAME:
TITLE:
MORGAN STANLEY UNIVERSAL FUNDS, INC.
By: ______________________________
NAME:
TITLE:
MORGAN STANLEY ASSET MANAGEMENT INC.
By: ______________________________
NAME:
TITLE:
MILLER ANDERSON & SHERRERD, LLP
By: ______________________________
NAME:
TITLE:
<PAGE>
SCHEDULE A
PORTFOLIOS OF MORGAN STANLEY UNIVERSAL FUNDS
AVAILABLE FOR PURCHASE BY ANNUITY INVESTORS
LIFE INSURANCE COMPANY UNDER THIS AGREEMENT
FIXED INCOME
MID CAP VALUE
VALUE
U.S. REAL ESTATE
EMERGING MARKETS EQUITY
A-1
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND FORM NUMBER AND NAME OF CONTRACT
DATE ESTABLISHED BY BOARD OF DIRECTORS FUNDED BY SEPARATE ACCOUNT
- -------------------------------------- --------------------------------
<S> <C>
ANNUITY INVESTORS VARIABLE ACCOUNT A - A800(NQ96)-3 INDIVIDUAL FLEXIBLE PREMIUM
MAY 26, 1995 DEFERRED ANNUITY CONTRACT
A800(Q96)-3 INDIVIDUAL FLEXIBLE PREMIUM
DEFERRED ANNUITY
G800(95)-3 GROUP FLEXIBLE PREMIUM
DEFERRED ANNUITY
ANNUITY INVESTORS VARIABLE ACCOUNT B - A801-BD INDIVIDUAL FLEXIBLE PREMIUM
DECEMBER 19, 1996 (NQ REV. 3/97)-3 DEFERRED ANNUITY
A801-BD INDIVIDUAL FLEXIBLE PREMIUM
(Q REV. 3/97)-3 DEFERRED ANNUITY
G801-BD(97)-3 GROUP FLEXIBLE PREMIUM
DEFERRED ANNUITY
</TABLE>
B-1
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
-----------------------
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund , as soon as possible, but no later
than two weeks after the Record Date.
. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting,
instruction solicitation material. The Fund will provide the last Annual
Report to the Company pursuant to the terms of Section 3.3 of the
Agreement to which this Schedule relates.
. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
C-1
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name (legal name as found on account registration)
. address
. fund or account number
. coding to state number of units
. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
. Voting Instruction Card(s)
. One proxy notice and statement (one document)
. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but NOT
including,) the meeting, counting backwards.
. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
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Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be NOT RECEIVED for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of SHARES.) The Fund must
review and approve tabulation format.
. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
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. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
C-4
EXHIBIT (8)(k)
PARTICIPATION AGREEMENT
THIS AGREEMENT, is made as of April 25, 1997, by and among Annuity
Investors Life Insurance Company ("Company"), on its own behalf and on behalf of
each separate account of the Company set forth on Exhibit A-1 to this Agreement,
as may be amended from time to time (collectively, "Account"), Strong Variable
Insurance Funds, Inc. ("Strong Variable") on behalf of the Portfolios of Strong
Variable listed on the attached Exhibit A as such Exhibit may be amended from
time to time (the "Designated Portfolios"), Strong Special Fund II, Inc.
("Special Fund"), Strong Capital Management, Inc. (the "Adviser"), the
investment adviser and transfer agent for the Special Fund and Strong Variable,
and Strong Funds Distributors, Inc. ("Distributors"), the distributor for Strong
Variable and the Special Fund (each, a "Party" and collectively, the "Parties").
WHEREAS, beneficial interests in Strong Variable are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (each, a "Portfolio");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of Special Fund and the
Designated Portfolios ("Fund" or "Funds" shall be deemed to refer to each
Designated Portfolio and the Special Fund to the extent the context requires),
on behalf of the Account to fund the variable annuity contracts that use the
Funds as an underlying investment medium (the "Contracts");
WHEREAS, the Company, Adviser and Distributors desire to facilitate the
purchase and redemption of shares of the Funds by the Company for the Account
through one account in each Fund (each an "Omnibus Account") to be maintained of
record by the Company, subject to the terms and conditions of this Agreement;
WHEREAS, the Company desires to provide administrative services and
functions (the "Services") for purchasers of Contracts ("Owners") on the terms
and conditions set forth herein;
WHEREAS, the Company has registered or will register certain variable life
insurance policies and/or variable annuity contracts under the Securities Act of
1933, as amended (the "1933 Act");
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Company desires to utilize shares of one or more Portfolios
as an investment vehicle of the Account.
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the Company, Funds, Adviser and Distributors agree as follows:
1. PERFORMANCE OF SERVICES. Company agrees to perform the administrative
functions and services specified in Exhibit B attached hereto with respect to
the shares of the Funds included in the Account.
2. THE OMNIBUS ACCOUNTS.
2.1 Each Omnibus Account will be opened based upon the information
contained in Exhibit C hereto. In connection with each Omnibus Account, Company
represents and warrants that it is authorized to act on behalf of each Owner
effecting transactions in the Omnibus Account and that the information specified
on Exhibit C hereto is correct.
2.2 Each Fund shall designate each Omnibus Account with an account number.
These account numbers will be the means of identification when the Parties are
transacting in the Omnibus Accounts. The assets in the Accounts are segregated
from the Company's own assets. The Adviser agrees to cause the Omnibus Accounts
to be kept open on each Fund's books, as applicable, regardless of a lack of
activity or small position size except to the extent the Company takes specific
action to close an Omnibus Account or to the extent a Fund's prospectus reserves
the right to close accounts which are inactive or of a small position size. In
the latter two cases, the Adviser will give prior notice to the Company before
closing an Omnibus Account.
2.3 The Company agrees to provide Adviser such information as Adviser or
Distributors may reasonably request concerning Owners as may be necessary or
advisable to enable Company and Distributors to comply with applicable laws,
including state "Blue Sky" laws relating to the sales of shares of the Funds to
the Accounts.
3. FUND SHARES TRANSACTIONS.
3.1 IN GENERAL. Shares of the Funds shall be sold on behalf of the Funds
by Distributors and purchased by Company for the Account and, indirectly for the
appropriate subaccount thereof at the net asset value next computed after
receipt by Distributors of each order of the Company or its designee, in
accordance with the provisions of this Agreement, the then current prospectuses
of the Funds, and the Contracts. The Board of Directors of each Fund
("Directors") may refuse to sell shares of the applicable Fund to any person, or
suspend or terminate the offering of shares of the Fund if such action is
required by law or by regulatory authorities having jurisdiction. Company agrees
2
<PAGE>
to purchase and redeem the shares of the Funds in accordance with the provisions
of this Agreement, of the Contracts and of the then current prospectuses for the
Contracts and Funds. Except as necessary to implement transactions as specified
in the Contracts or as initiated by the Owners, or as otherwise permitted by
state or federal laws or regulations, Company shall not redeem shares of Funds
attributable to the Contracts.
3.2 PURCHASE AND REDEMPTION ORDERS. On each day that a Fund is open for
business (a "Business Day"), the Company shall aggregate and calculate the net
purchase or redemption order resulting from investment in and redemptions under
the Contracts for shares of the Fund that it received prior to the close of
trading on the New York Stock Exchange (the "NYSE") (i.e. 3:00 p.m., Central
time, unless the NYSE closes at an earlier time in which case such earlier time
shall apply) and communicate to Distributors, by telephone or facsimile (or by
such other means as the Parties hereto may agree to in writing), the net
aggregate purchase or redemption order (if any) for the Omnibus Account for such
Business Day (such Business Day is sometimes referred to herein as the "Trade
Date"). The Company will communicate such orders to Distributors prior to 8:00
a.m., Central time, on the next Business Day following the Trade Date. All
trades communicated to Distributors by the foregoing deadline shall be treated
by Distributors as if they were received by Distributors prior to the close of
trading on the Trade Date.
3.3 SETTLEMENT OF TRANSACTIONS.
(a) PURCHASES. Company will wire, or arrange for the wire of, the
purchase price of each purchase order to the custodian for the Fund in
accordance with written instructions provided by Distributors to the
Company so that either (1) such funds are received by the custodian for
the Fund prior to 12:00 (noon), Central time, on the next Business Day
following the Trade Date, or (2) Distributors is provided with a Federal
Funds wire system reference number prior to such 12:00 noon deadline
evidencing the entry of the wire transfer of the purchase price to the
applicable custodian into the Federal Funds wire system prior to such
time. Company agrees that if it fails to provide funds to the Fund's
custodian by the close of business on the next Business Day following the
Trade Date, then, at the option of Distributors, (i) the transaction may
be canceled, or (ii) the transaction may be processed at the
next-determined net asset value for the applicable Fund after purchase
order funds are received. In such event, the Company shall indemnify and
hold harmless Distributors, Adviser and the Funds from any liabilities,
costs and damages either may suffer as a result of such failure.
(b) REDEMPTIONS. The Adviser will use its best efforts to cause to
be transmitted to such custodial account as Company shall direct in
writing, the proceeds of all redemption orders placed by Company by 8:00
a.m., Central time, on the Business Day immediately following the Trade
Date, by wire transfer on that Business Day. Should Company need to extend
the settlement on a trade, it will contact Adviser to discuss the
extension. For purposes of determining the length of settlement, Adviser
agrees to treat the Account no less favorably than other shareholders of
the Funds. Each wire transfer of redemption proceeds shall indicate, on
3
<PAGE>
the Federal Funds wire system, the amount thereof attributable to each
Fund; PROVIDED, HOWEVER, that if the number of entries would be too great
to be transmitted through the Federal Funds wire system, the Adviser
shall, on the day the wire is sent, fax such entries to Company or if
possible, send via direct or indirect systems access until otherwise
directed by the Company in writing.
(c) AUTHORIZED PERSONS. The following persons are each duly
authorized to act on behalf of the Company and the Account under this
Agreement. The Funds, Adviser and Distributors are entitled to
conclusively rely on verbal or written instructions that Adviser or
Distributors reasonably believes were originated by any one of said
persons. The Company shall inform Adviser and Distributors of additions to
or subtractions from this list of authorized persons pursuant to Section
13, hereof:
Lynn Laswell Laura Lally
Brian Sponaugle Chris Accurso
Todd Gayhart John Burress
3.4 BOOK ENTRY ONLY. Issuance and transfer of shares of a Fund will be by
book entry only. Stock certificates will not be issued to the Company or the
Account. Shares of the Funds ordered from Distributors will be recorded in the
appropriate book entry title for the Account.
3.5 DISTRIBUTION INFORMATION. The Adviser or Distributors shall provide
the Company with all distribution announcement information as soon as it is
announced by the Funds. The distribution information shall set forth, as
applicable, ex-dates, record date, payable date, distribution rate per share,
record date share balances, cash and reinvested payment amounts and all other
information reasonably requested by the Company. Where possible, the Adviser or
Distributors shall provide the Company with direct or indirect systems access to
the Adviser's systems for obtaining such distribution information.
3.6 REINVESTMENT. All dividends and capital gains distributions will be
automatically reinvested on the payable date in additional shares of the
applicable Fund at net asset value in accordance with each Fund's then current
prospectus.
3.7 PRICING INFORMATION. Distributors shall use its best efforts to
furnish to the Company prior to 6:00 p.m., Central time, on each Business Day
each Fund's closing net asset value for that day, and for those Funds for which
such information is calculated, the daily accrual for interest rate factor (mil
rate). Such information shall be communicated via fax, or indirect or direct
systems access acceptable to the Company.
3.8 PRICE ERRORS.
(a) In the event adjustments are required to correct any error in
the computation of the net asset value of shares of a Fund, the Fund or
Adviser shall promptly notify Company after discovering the need for those
adjustments which result in a reimbursement to an Account in accordance
4
<PAGE>
with such Fund's then current policies on reimbursement. Notification may
be made orally or via direct or indirect systems access. Any such
notification shall be promptly followed by a letter written on Fund or
Adviser letterhead and shall state for each day for which an error
occurred the incorrect price, the correct price, and, to the extent
communicated to the Fund's shareholder, the reason for the price change.
Funds and Adviser agree that Company may send this writing, or derivation
thereof (so long as such derivation is approved in advance by Funds or
Adviser, which approval shall not be unreasonably withheld) to Owners that
are affected by the price change.
(b) If the Account received amounts in excess of the amounts to
which it otherwise would have been entitled prior to an adjustment for an
error, Company, when requested by Funds or Adviser, will use its best
efforts to collect such excess amounts from the Account. In no event,
however, shall Company be liable to Funds or Adviser for any such amounts.
(c) If an adjustment is to be made in accordance with subsection (a)
above to correct an error which has caused the Account to receive an
amount less than that to which it is entitled, Funds or Adviser shall make
all necessary adjustments (within the parameters specified in subsection
(a)) to the number of shares owned in the Account and distribute to the
Company the amount of such underpayment for credit to the Account.
3.9 AGENCY. Distributors hereby appoints the Company as its agent for the
limited purpose of accepting purchase and redemption instructions pursuant to
Sections 3.1, 3.2 and 3.3..
3.10 QUARTERLY REPORTS. Adviser agrees to provide Company a statement of
Fund assets as soon as practicable and in any event within 30 days after the end
of each fiscal year quarter, and a statement certifying the compliance by the
Funds during that fiscal quarter with the diversification requirements and
qualification as a regulated investment company. In the event of a breach of
Section 6.4(a), Adviser will take all reasonable steps (a) to notify Company of
such breach and (b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.
4. PROXY SOLICITATIONS AND VOTING. The Company shall, at its expense, distribute
or arrange for the distribution of all proxy materials furnished by the Funds to
the Account and shall: (i) solicit voting instructions from Owners; (ii) vote
the Fund shares in accordance with instructions received from Owners; and (iii)
vote the Fund shares for which no instructions have been received, as well as
shares attributable to it, in the same proportion as Fund shares for which
instructions have been received from Owners, so long as and to the extent that
the Securities and Exchange Commission (the "SEC") continues to interpret the
1940 Act, to require pass-through voting privileges for various contract owners.
The Company and its agents will not recommend action in connection with, or
oppose or interfere with, the solicitation of proxies for the Fund shares held
for Owners.
5
<PAGE>
5. CUSTOMER COMMUNICATIONS.
-----------------------
5.1 PROSPECTUSES. The Adviser or Distributors, at its expense, will
provide the Company with as many copies of the current prospectus for the Funds
as the Company may reasonably request for distribution, at the Company's
expense, to existing or prospective Owners.
5.2 SHAREHOLDER MATERIALS. The Adviser and Distributors shall, as
applicable, provide in bulk to the Company or its authorized representative, at
a single address and at no expense to the Company, the following shareholder
communications materials prepared for circulation to Owners in quantities
requested by the Company which are sufficient to allow mailing thereof by the
Company and, to the extent required by applicable law, to all Owners: proxy or
information statements, annual reports, semi-annual reports, and all initial and
updated prospectuses, supplements and amendments thereof. None of the Funds, the
Adviser or Distributors shall be responsible for the cost of distributing such
materials to Owners.
6. REPRESENTATIONS AND WARRANTIES.
6.1 The Company represents and warrants that:
(a) It is an insurance company duly organized and in good standing
under the laws of the State of Ohio and that it has legally and validly
established the Account prior to any issuance or sale thereof as a
segregated asset account and that the Company has and will maintain the
capacity to issue all Contracts that may be sold; and that it is and will
remain duly registered, licensed, qualified and in good standing to sell
the Contracts in all the jurisdictions in which such Contracts are to be
offered or sold;
(b) It is and will remain duly registered and licensed in all
material respects under all applicable federal and state securities and
insurance laws and shall perform its obligations hereunder in compliance
in all material respects with any applicable state and federal laws;
(c) The Contracts are and will be registered under the 1933 Act, and
are and will be registered and qualified for sale in the states where so
required; and the Account is and will be registered as a unit investment
trust in accordance with the 1940 Act and shall be a segregated investment
account for the Contracts;
(d) The Contracts are currently treated as annuity contracts, under
applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), and the Company will maintain such treatment and will notify
Adviser, Distributors and Funds promptly upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future;
6
<PAGE>
(e) It is registered as a transfer agent pursuant to Section 17A of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), or is
not required to be registered as such;
(f) The arrangements provided for in this Agreement will be
disclosed to the Owners; and
(g) It is registered as a broker-dealer under the 1934 Act and any
applicable state securities laws, including as a result of entering into
and performing the Services set forth in this Agreement, or is not
required to be registered as such.
6.2 The Funds each represent and warrant that Fund shares sold
pursuant to this Agreement are and will be registered under the 1933 Act
and the Fund is and will be registered as a registered investment company
under the Investment Company Act of 1940, in each case, except to the
extent the Company is so notified in writing;
6.3 Distributors represents and warrants that:
(a) It is and will be a member in good standing of the NASD and
is and will be registered as a broker-dealer with the SEC; and
(b) It will sell and distribute Fund shares in accordance with all
applicable state and federal laws and regulations.
6.4 Adviser represents and warrants that:
(a) It will cause each Fund to invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
annuity contracts under the Code and the regulations issued thereunder,
and that each Fund will comply with Section 817(h) of the Code as amended
from time to time and with all applicable regulations promulgated
thereunder;
(b) It is and will remain duly registered and licensed in all
material respects under all applicable federal and state securities and
insurance laws and shall perform its obligations hereunder in compliance
in all material respects with any applicable state and federal laws; and
7
<PAGE>
6.5 Each of the Parties hereto represents and warrants to the others
that:
(a) It has full power and authority under applicable law, and has
taken all action necessary, to enter into and perform this Agreement and
the person executing this Agreement on its behalf is duly authorized and
empowered to execute and deliver this Agreement;
(b) This Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms and it
shall comply in all material respects with all laws, rules and regulations
applicable to it by virtue of entering into this Agreement;
(c) No consent or authorization of, filing with, or other act by or
in respect of any governmental authority, is required in connection with
the execution, delivery, performance, validity or enforceability of this
Agreement;
(d) The execution, performance and delivery of this Agreement will
not result in it violating any applicable law or breaching or otherwise
impairing any of its contractual obligations;
(e) Each Party hereto is entitled to rely on any written
records or instructions provided to it by another Party; and
(f) Its directors, officers, employees, and investment advisers, and
other individuals/entities dealing with the money or securities of a Fund
are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount not less
than the amount required by the applicable rules of the National
Association of Securities Dealers, Inc. ("NASD") and the federal
securities laws, which bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
7. SALES MATERIAL AND INFORMATION
------------------------------
7.1 NASD FILINGS. The Company shall promptly inform Distributors as to the
status of all sales literature filings pertaining to the Funds and shall
promptly notify Distributors of all approvals or disapprovals of sales
literature filings with the NASD. For purposes of this Section 7, the phrase
"sales literature or other promotional material" shall be construed in
accordance with all applicable securities laws and regulations.
7.2 COMPANY REPRESENTATIONS. The Company shall not make any material
representations concerning the Adviser, the Distributors, or a Fund other than
the information or representations contained in: (a) a registration statement of
the Fund or prospectus of a Fund, as amended or supplemented from time to time;
(b) published reports or statements of the Funds which are in the public domain
8
<PAGE>
or are approved by Distributors or the Funds; or (c) sales literature or other
promotional material of the Funds.
7.3 ADVISER, DISTRIBUTORS AND FUND REPRESENTATIONS. None of Adviser,
Distributors or any Fund shall make any material representations concerning the
Company other than the information or representations contained in: (a) a
registration statement or prospectus for the Contracts, as amended or
supplemented from time to time; (b) published reports or statements of the
Contracts or the Account which are in the public domain or are approved by the
Company; or (c) sales literature or other promotional material of the Company.
7.4 TRADEMARKS, ETC. Except to the extent required by applicable law, no
Party shall use any other Party's names, logos, trademarks or service marks,
whether registered or unregistered, without the prior consent of such Party.
7.5 INFORMATION FROM DISTRIBUTORS AND ADVISER. Upon request, Distributors
or Adviser will provide to Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, solicitations for voting instructions, applications
for exemptions, requests for no action letters, and all amendments to any of the
above, that relate to the Funds, in final form as filed with the SEC, NASD and
other regulatory authorities.
7.6 INFORMATION FROM COMPANY. Company will provide to Distributors at
least one complete copy of all registration statements, prospectuses, Statements
of Additional Information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters and all amendments to any of the above, that
relate to a Fund and the Contracts, in final form as filed with the SEC, NASD
and other regulatory authorities.
7.7 REVIEW OF MARKETING MATERIALS. If so requested by Company, the Adviser
or Distributors will use its best efforts to review sales literature and other
marketing materials prepared by Company which relate to the Funds, the Adviser
or Distributors for factual accuracy as to such entities, provided that the
Adviser or Distributors is provided at least five (5) Business Days to review
such materials. Neither the Adviser nor Distributors will review such materials
for compliance with applicable laws. Company shall provide the Adviser with
copies of all sales literature and other marketing materials which refer to the
Funds, the Company or Distributors within five (5) Business Days after their
first use, regardless of whether the Adviser or Distributors has previously
reviewed such materials. If so requested by the Adviser or Distributors, Company
shall cease to use any sales literature or marketing materials which refer to
the Funds, the Adviser or Distributors that the Adviser or Distributors
determines to be inaccurate, misleading or otherwise unacceptable.
9
<PAGE>
8. FEES AND EXPENSES.
-----------------
8.1 FUND REGISTRATION EXPENSES. Fund or Distributors shall bear the cost
of registration and qualification of Fund shares; preparation and filing of Fund
prospectuses and registration statements, proxy materials and reports;
preparation of all other statements and notices relating to the Fund or
Distributors required by any federal or state law; payment of all applicable
fees, including, without limitation, any fees due under Rule 24f-2 of the 1940
Act, relating to a Fund; and all taxes on the issuance or transfer of Fund
shares on the Fund's records.
8.2 CONTRACT REGISTRATION EXPENSES. The Company shall bear the expenses
for the costs of preparation and filing of the Company's prospectus and
registration statement with respect to the Contracts; preparation of all other
statements and notices relating to the Account or the Contracts required by any
federal or state law; expenses for the solicitation and sale of the Contracts
including all costs of printing and distributing all copies of advertisements,
prospectuses, Statements of Additional Information, proxy materials, and reports
to Owners or potential purchasers of the Contracts as required by applicable
state and federal law; payment of all applicable fees relating to the Contracts;
all costs of drafting, filing and obtaining approvals of the Contracts in the
various states under applicable insurance laws; filing of annual reports on form
N-SAR, and all other costs associated with ongoing compliance with all such laws
and its obligations hereunder.
9. INDEMNIFICATION.
---------------
9.1 INDEMNIFICATION BY COMPANY.
(a) Company agrees to indemnify and hold harmless the Funds, Adviser
and Distributors and each of their directors, officers, employees and
agents, and each person, if any, who controls any of them within the
meaning of Section 15 of the 1933 Act (each, an "Indemnified Party" and
collectively, the "Indemnified Parties" for purposes of this Section 9.1)
from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of
Company), and expenses (including reasonable legal fees and expenses), to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise (collectively, hereinafter
"Losses"), insofar as such Losses:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or sales literature for the
Contracts or contained in the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, PROVIDED that this paragraph
9.1(a) shall not apply as to any Indemnified Party if such statement
or omission or such alleged statement or omission was made in
reliance upon and in conformity with written information furnished
10
<PAGE>
to Company by or on behalf of a Fund, Distributors or Adviser for
use in the registration statement or prospectus for the Contracts or
in the Contracts (or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Company or its agents, with
respect to the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering a Fund or any amendment
thereof or supplement thereto, or the omission or alleged omission
to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, if such a
statement or omission was made in reliance upon written information
furnished to a Fund, Adviser or Distributors by or on behalf of
Company; or
(iv) arise out of, or as a result of, any failure by Company
or persons under its control to provide the Services and furnish the
materials contemplated under the terms of this Agreement; or
(v) arise out of, or result from, any material breach of any
representation or warranty made by Company or persons under its
control in this Agreement or arise out of or result from any other
material breach of this Agreement by Company or persons under its
control; as limited by and in accordance with the provisions of
Sections 9.1(b) and 9.1(c) hereof; or
(vi) arise out of, or as a result of, adherence by Adviser or
Distributors to instructions that it reasonably believes were
originated by persons specified in Section 3.2(c), hereof.
This indemnification provision is in addition to any liability which
the Company may otherwise have.
(b) Company shall not be liable under this indemnification provision
with respect to any Losses to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
(c) Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
11
<PAGE>
Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify
Company of any such claim shall not relieve Company from any liability
which it may have to the Indemnified Party otherwise than on account of
this indemnification provision. In case any such action is brought against
any Indemnified Party, and it notified the indemnifying Party of the
commencement thereof, the indemnifying Party will be entitled to
participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party.
After notice from the indemnifying Party of its intention to assume the
defense of an action, the Indemnified Party shall bear the expenses of any
additional counsel obtained by it, and the indemnifying Party shall not be
liable to such Indemnified Party under this Section for any legal or other
expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof other than reasonable costs of investigation. The
Indemnified Party may not settle any action without the written consent of
the indemnifying Party. The indemnifying Party may not settle any action
without the written consent of the Indemnified Party unless such
settlement completely and finally releases the Indemnified Party from any
and all liability. In either event, consent shall not be unreasonably
withheld.
(d) The Indemnified Parties will promptly notify Company of the
commencement of any litigation or proceedings against the Indemnified
Parties in connection with the issuance or sale of Fund shares or the
Contracts or the operation of a Fund.
9.2 INDEMNIFICATION BY ADVISER AND DISTRIBUTORS.
-------------------------------------------
(a) Adviser and Distributors agrees to indemnify and hold harmless
Company and each of its directors, officers, employees and agents and each
person, if any, who controls Company within the meaning of Section 15 of
the 1933 Act (each, and "Indemnified Party" and collectively, the
"Indemnified Parties" for purposes of this Section 9.2) against any and
all Losses to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such Losses:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of a Fund
(or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, PROVIDED
that this Section 9.2(a) shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with written information
furnished to a Fund, Adviser or Distributors by or on behalf of
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<PAGE>
Company for use in the registration statement or prospectus for a
Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Adviser or Distributors or
persons under its control, with respect to the sale or distribution
of Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading,
if such statement or omission was made in reliance upon written
information furnished to Company by or on behalf of Adviser or
Distributors; or
(iv) arise out of, or as a result of, any failure by Adviser
or Distributors or persons under its control to provide the services
and furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation or warranty made by Adviser or Distributors or
persons under its control in this Agreement or arise out of or
result from any other material breach of this Agreement by Adviser
or Distributors or persons under its control; as limited by and in
accordance with the provisions of Sections 9.2(b) and 9.2(c) hereof.
This indemnification provision is in addition to any liability which
Adviser and Distributors may otherwise have.
(b) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any Losses to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under
this Agreement or to Company.
(c) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
Adviser and Distributors in writing within a reasonable time after the
summons or other first legal process giving information of the nature of
the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Adviser and Distributors of any
such claim shall not relieve Adviser and Distributors from any liability
13
<PAGE>
which it may have to the Indemnified Party otherwise than on account of
this indemnification provision. In case any such action is brought against
any Indemnified Party, and it notified the indemnifying Party of the
commencement thereof, the indemnifying Party will be entitled to
participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party.
After notice from the indemnifying Party of its intention to assume the
defense of an action, the Indemnified Party shall bear the expenses of any
additional counsel obtained by it, and the indemnifying Party shall not be
liable to such Indemnified Party under this Section for any legal or other
expenses subsequently incurred by such Indemnified Party in connection
with the defense thereof other than reasonable costs of investigation. The
Indemnified Party may not settle any action without the written consent of
the indemnifying Party. The indemnifying Party may not settle any action
without the written consent of the Indemnified Party unless such
settlement completely and finally releases the Indemnified Party from any
and all liability. In either event, consent shall not be unreasonably
withheld.
(d) The Indemnified Parties will promptly notify Adviser and
Distributors of the commencement of any litigation or proceedings against
the Indemnified Parties in connection with the issuance or sale of the
Contracts or the operation of the Account.
10. POTENTIAL CONFLICTS.
-------------------
10.1 MONITORING BY DIRECTORS FOR CONFLICTS OF INTEREST. The Directors of
each Fund will monitor the Fund for any potential or existing material
irreconcilable conflict of interest between the interests of the contract owners
of all separate accounts investing in the Fund, including such conflict of
interest with any other separate account of any other insurance company
investing in the Fund. An irreconcilable material conflict may arise for a
variety of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretive letter, or any similar action by insurance, tax or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of the Fund are
being managed; (e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by contract
owners of different life insurance companies utilizing the Fund; or (f) a
decision by Company to disregard the voting instructions of Owners. The
Directors shall promptly inform the Company, in writing, if they determine that
an irreconcilable material conflict exists and the implications thereof.
10.2 MONITORING BY THE COMPANY FOR CONFLICTS OF INTEREST. The Company will
promptly notify the Directors, in writing, of any potential or existing material
irreconcilable conflicts of interest, as described in Section 10.1 above, of
which it is aware. The Company will assist the Directors in carrying out their
responsibilities under any applicable provisions of the federal securities laws
and any exemptive orders granted by the SEC ("Exemptive Order"), by providing
14
<PAGE>
the Directors, in a timely manner, with all information reasonably necessary for
the Directors to consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Directors whenever Owner voting
instructions are disregarded.
10.3 REMEDIES. If it is determined by a majority of the Directors, or a
majority of disinterested Directors, that a material irreconcilable conflict
exists, as described in Section 10.1 above, the Company shall, at its own
expense take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including, but not limited to: (a),
withdrawing the assets allocable to some or all of the separate accounts from
the applicable Fund and reinvesting such assets in a different investment
medium, including (but not limited to) another fund managed by the Adviser, or
submitting the question whether such segregation should be implemented to a vote
of all affected Owners and, as appropriate, segregating the assets of any
particular group that votes in favor of such segregation, or offering to the
affected owners the option of making such a change; and (b), establishing a new
registered management investment company or managed separate account.
10.4 CAUSES OF CONFLICTS OF INTEREST.
(a) STATE INSURANCE REGULATORS. If a material irreconcilable
conflict arises because a particular state insurance regulator's decision
applicable to the Company conflicts with the majority of other state
regulators, then the Company will withdraw the affected Account's
investment in the applicable Fund and terminate this Agreement with
respect to such Account within the period of time permitted by such
decision, but in no event later than six months after the Directors inform
the Company in writing that it has determined that such decision has
created an irreconcilable material conflict; PROVIDED, HOWEVER, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of
the disinterested Directors. Until the end of the foregoing period, the
Distributors and Funds shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund to the
extent such actions do not violate applicable law.
(b) DISREGARD OF OWNER VOTING. If a material irreconcilable conflict
arises because of Company's decision to disregard Owner voting
instructions and that decision represents a minority position or would
preclude a majority vote, Company may be required, at the applicable
Fund's election, to withdraw the Account's investment in said Fund. No
charge or penalty will be imposed against the Account as a result of such
withdrawal.
10.5 LIMITATIONS ON CONSEQUENCES. For purposes of Sections 10.3 through
10.5 of this Agreement, a majority of the disinterested Directors shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict. In no event will a Fund, the Adviser or the Distributors be
required to establish a new funding medium for any of the Contracts. The Company
shall not be required by Section 10.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of Owners
affected by the irreconcilable material conflict. In the event that the
15
<PAGE>
Directors determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the Account's
investment in the applicable Fund and terminate this Agreement as quickly as may
be required to comply with applicable law, but in no event later than six (6)
months after the Directors inform the Company in writing of the foregoing
determination, PROVIDED, HOWEVER, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict.
10.6 CHANGES IN LAWS. If and to the extent that Rule 6e-2 and Rule 6e-3(T)
are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to mixed
or shared funding (as defined in the Funds' Exemptive Order) on terms and
conditions materially different from those contained in the Funds' Exemptive
Order, then (a) the Funds and/or the Company, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
10.1, 10.2, 10.3 and 10.4 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
11. MAINTENANCE OF RECORDS.
----------------------
(a) Recordkeeping and other administrative services to Owners shall
be the responsibility of the Company and shall not be the responsibility
of the Funds, Adviser or Distributors. None of the Funds, the Adviser or
Distributors shall maintain separate accounts or records for Owners.
Company shall maintain and preserve all records as required by law to be
maintained and preserved in connection with providing the Services and in
making shares of the Funds available to the Account.
(b) Upon the request of the Adviser or Distributors, the Company
shall provide copies of all the historical records relating to
transactions between the Funds and the Account, written communications
regarding the Funds to or from the Account and other materials, in each
case (1) as are maintained by the Company in the ordinary course of its
business and in compliance with applicable law, and (2) as may reasonably
be requested to enable the Adviser and Distributors, or its
representatives, including without limitation its auditors or legal
counsel, to (A) monitor and review the Services, (B) comply with any
request of a governmental body or self-regulatory organization or the
Owners, (C) verify compliance by the Company with the terms of this
Agreement, (D) make required regulatory reports, or (E) perform general
customer supervision. The Company agrees that it will permit the Adviser
and Distributors or such representatives of either to have reasonable
access to its personnel and records in order to facilitate the monitoring
of the quality of the Services.
(c) Upon the request of the Company, the Adviser and Distributors
shall provide copies of all the historical records relating to
transactions between the Funds and the Account, written communications
16
<PAGE>
regarding the Funds to or from the Account and other materials, in each
case (1) as are maintained by the Adviser and Distributors, as the case
may be, in the ordinary course of its business and in compliance with
applicable law, and (2) as may reasonably be requested to enable the
Company, or its representatives, including without limitation its auditors
or legal counsel, to (A) comply with any request of a governmental body or
self-regulatory organization or the Owners, (B) verify compliance by the
Adviser and Distributors with the terms of this Agreement, (C) make
required regulatory reports, or (D) perform general customer supervision.
(d) The Parties agree to cooperate in good faith in providing
records to one another pursuant to this Section 11.
12. TERM AND TERMINATION.
--------------------
12.1 TERM AND TERMINATION WITHOUT CAUSE. The initial term of this
Agreement shall be for a period of one year from the date hereof. Unless
terminated as to any Fund upon not less than thirty (30) days prior written
notice to the other Parties, this Agreement shall thereafter automatically renew
for the remaining Funds from year to year, subject to termination at the next
applicable renewal date upon not less than 30 days prior written notice. Any
Party may terminate this Agreement as to any Fund following the initial term
upon six (6) months advance written notice to the other Parties.
12.2 TERMINATION BY FUND, DISTRIBUTORS OR ADVISER FOR CAUSE. Adviser, Fund
or Distributors may terminate this Agreement by written notice to the Company,
if any of them shall determine, in its sole judgment exercised in good faith,
that (a) the Company has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or (b) any of the Contracts are
not registered, issued or sold in accordance with applicable state and federal
law or such law precludes the use of Fund shares as the underlying investment
media of the Contracts issued or to be issued by the Company.
12.3 TERMINATION BY COMPANY FOR CAUSE. Company may terminate this
Agreement by written notice to the Adviser, Funds and Distributors in the event
that (a) any of the Fund shares are not registered, issued or sold in accordance
with applicable state or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts issued or to be
issued by the Company; (b) the Funds cease to qualify as Regulated Investment
Companies under Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Funds may fail to so
qualify; or (c) a Fund fails to meet the diversification requirements specified
in Section 6.4(a).
12.4 TERMINATION BY ANY PARTY. This Agreement may be terminated as to any
Fund by any Party at any time (A) by giving 30 days' written notice to the other
Parties in the event of a material breach of this Agreement by the other Party
17
<PAGE>
or Parties that is not cured during such 30-day period, and (B) (i) upon
institution of formal proceedings relating to the legality of the terms and
conditions of this Agreement against the Account, Company, Funds, Adviser or
Distributors by the NASD, the SEC or any other regulatory body provided that the
terminating Party has a reasonable belief that the institution of formal
proceedings is not without foundation and will have a material adverse impact on
the terminating Party, (ii) by the non-assigning Party upon the assignment of
this Agreement in contravention of the terms hereof, or (iii) as is required by
law, order or instruction by a court of competent jurisdiction or a regulatory
body or self-regulatory organization with jurisdiction over the terminating
Party.
12.5 LIMIT ON TERMINATION. Notwithstanding the termination of this
Agreement with respect to any or all Funds, for so long as any Contracts remain
outstanding and invested in a Fund each Party hereto shall continue to perform
such of its duties hereunder as are necessary to ensure the continued tax
deferred status thereof and the payment of benefits thereunder, except to the
extent proscribed by law, the SEC or other regulatory body. Notwithstanding the
foregoing, nothing in this Section 12.5 obligates a Fund to continue in
existence. In the event that any Fund elects to terminate its operations, the
Company shall, as soon as practicable, obtain an exemptive order or order of
substitution from the SEC to remove all Owners from the applicable Fund.
13. NOTICES.
-------
All notices hereunder shall be given in writing (and shall be deemed to
have been duly given upon receipt) by delivery in person, by facsimile, by
registered or certified mail or by overnight delivery (postage prepaid, return
receipt requested) to the respective Parties as follows:
If to Strong Variable:
Strong Variable Insurance Funds, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Special Fund:
Strong Special Fund II, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
18
<PAGE>
If to Adviser:
Strong Capital Management, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Distributors:
Strong Funds Distributors, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Company:
Annuity Investors Life Insurance Company
250 East Fifth Street
Cincinnati, OH 45202
Attention: Mark F. Muething
Facsimile No.: (513) 357-3397
14. MISCELLANEOUS.
-------------
14.1. CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way affect the construction or effect
of any provisions hereof.
14.2. ENFORCEABILITY. If any portion of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of the Agreement shall not be affected thereby.
14.3. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which taken together shall constitute one
and the same instrument.
14.4. REMEDIES NOT EXCLUSIVE. The rights, remedies and obligations
contained in this Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the Parties
hereto are entitled to under state and federal laws.
14.5. CONFIDENTIALITY. Subject to the requirements of legal process and
regulatory authority, the Funds and Distributors shall treat as confidential the
names and addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by the Company hereto and,
except as permitted by this Agreement, shall not disclose, disseminate or
utilize such names and addresses and other confidential information without the
express written consent of the Company until such time as it may come into the
public domain.
19
<PAGE>
14.6. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of Wisconsin
applicable to agreements fully executed and to be performed therein;
exclusive of conflicts of laws.
14.7. SURVIVABILITY. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5 hereof
shall survive termination of this Agreement. In addition, all provisions of this
Agreement shall survive termination of this Agreement in the event that any
Contracts are invested in a Fund at the time the termination becomes effective
and shall survive for so long as such Contracts remain so invested.
14.8. AMENDMENT AND WAIVER. No modification of any provision of this
Agreement will be binding unless in writing and executed by the Party to be
bound thereby. No waiver of any provision of this Agreement will be binding
unless in writing and executed by the Party granting such waiver.
Notwithstanding anything in this Agreement to the contrary, the Company may
unilaterally amend Exhibit A hereto to add additional series of Strong Variable
Funds ("New Funds") as Funds by sending to the Company a written notice of the
New Funds Any valid waiver of a provision set forth herein shall not constitute
a waiver of any other provision of this Agreement. In addition, any such waiver
shall constitute a present waiver of such provision and shall not constitute a
permanent future waiver of such provision.
14.9. ASSIGNMENT. This Agreement shall be binding upon and shall inure to
the benefit of the Parties and their respective successors and assigns;
PROVIDED, HOWEVER, that neither this Agreement nor any rights, privileges,
duties or obligations of the Parties may be assigned by any Party without the
written consent of the other Parties or as expressly contemplated by this
Agreement.
14.10. ENTIRE AGREEMENT. This Agreement contains the full and complete
understanding between the Parties with respect to the transactions covered and
contemplated hereunder, and supersedes all prior agreements and understandings
between the Parties relating to the subject matter hereof, whether oral or
written, express or implied.
14.11. RELATIONSHIP OF PARTIES; NO JOINT VENTURE, ETC. Except for the
limited purpose provided in Section 3.8, it is understood and agreed that the
Company shall be acting as an independent contractor and not as an employee or
agent of the Adviser, Distributors or the Funds, and none of the Parties shall
hold itself out as an agent of any other Party with the authority to bind such
Party. Neither the execution nor performance of this Agreement shall be deemed
to create a partnership or joint venture by and among any of the Company, Funds,
Adviser, or Distributors.
14.12. EXPENSES. All expenses incident to the performance by each
Party of its respective duties under this Agreement shall be paid by that
Party.
14.13. TIME OF ESSENCE. Time shall be of the essence in this
Agreement.
20
<PAGE>
14.14. NON-EXCLUSIVITY. Each of the Parties acknowledges and
agrees that this Agreement and the arrangements described herein are intended
to be non-exclusive and that each of the Parties is free to enter into
similar agreements and arrangements with other entities.
14.15. OPERATIONS OF FUNDS. In no way shall the provisions of this
Agreement limit the authority of the Funds, the Company or Distributors to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of such Fund and the sale of its shares. In no
way shall the provisions of this Agreement limit the authority of the Company to
take such action as it may deem appropriate or advisable in connection with all
matters relating to the provision of Services or the shares of funds other than
the Funds offered to the Account.
IN WITNESS WHEREOF, each of the Parties hereto has caused this Agreement
to be duly executed as of the date first above written.
ANNUITY INVESTORS LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
Title:
STRONG CAPITAL MANAGEMENT, INC.
By: -----------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
STRONG FUNDS DISTRIBUTORS, INC.
By:
----------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
STRONG VARIABLE INSURANCE FUNDS, INC.
on behalf of the Designated Portfolios
By: ----------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
STRONG SPECIAL FUND II, INC.
By:
-----------------------------------
Name: Stephen J. Shenkenberg
Title: Vice President
21
<PAGE>
EXHIBIT A-1
SEPARATE ACCOUNTS
Annuity Investors Variable Account A
Annuity Investors Variable Account B
22
<PAGE>
EXHIBIT A
The following is a list of Designated Portfolios under this Agreement:
Strong Growth Fund II
23
<PAGE>
EXHIBIT B
THE SERVICES
Company shall perform the following services. Such services shall be
the responsibility of the Company and shall not be the responsibility of the
Funds, Adviser or Distributors.
1. Maintain separate records for each Account, which records shall reflect
Fund shares ("Shares") purchased and redeemed, including the date and price for
all transactions, Share balances, and the name and address of each Owner,
including zip codes and tax identification numbers.
2. Credit contributions to individual Owner accounts and invest such
contributions in shares of the Funds to the extent so designated by the Owner.
3. Disburse or credit to the Owners, and maintain records of, all proceeds
of redemptions of Fund shares and all other distributions not reinvested in
shares.
4. Prepare and transmit to the Owners, periodic account statements
showing, among other things, the total number of Fund shares owned as of the
statement closing date, purchases and redemptions of shares during the period
covered by the statement, the net asset value of the Funds as of a recent date,
and the dividends and other distributions paid during the statement period
(whether paid in cash or reinvested in shares).
5. Transmit to the Owners, as required by applicable law, prospectuses,
proxy materials, shareholder reports, and other information provided by the
Adviser, Distributors or Funds and required to be sent to shareholders under the
Federal securities laws.
6. Transmit to Distributors purchase orders and redemption requests placed
by the Account and arrange for the transmission of funds to and from the Funds.
7. Transmit to Distributors such periodic reports as Distributors shall
reasonably conclude is necessary to enable the Funds to comply with applicable
Federal securities and state Blue Sky requirements.
8. Transmit to the each Account confirmations of purchase orders and
redemption requests placed by each Account.
24
<PAGE>
9. Maintain all account balance information for the Account and daily and
monthly purchase summaries expressed in shares and dollar amounts.
10. Prepare, transmit and file any Federal, state and local government
reports and returns as required by law with respect to each account maintained
on behalf of the Account.
11. Respond to Owners' inquiries regarding, among other things, share
prices, account balances, dividend options, dividend amounts, and dividend
payment dates.
25
<PAGE>
EXHIBIT C
ACCOUNT INFORMATION
1. Entity in whose name each Account will be opened:
Annuity Investors Life Insurance Company
Mailing address: P.O. Box 5423
Cincinnati, OH 45201-5423t
2. Employer ID number (For internal use only): 31-1021738
3. Authorized contact persons: The following persons are authorized on behalf of
the Company to effect transactions in each Account:
Lynn Laswell 513-333-6281
Brian Sponaugle 513-357-3396
Todd Gayhart 513-333-6005
Laura Lally 513-333-6217
Chris Accurso 513-357-3261
John Burress 513-357-3194
4. Will the Accounts have telephone exchange? ___ Yes __X__ No
(THIS OPTION LETS COMPANY REDEEM SHARES BY TELEPHONE AND APPLY THE PROCEEDS
FOR PURCHASE IN ANOTHER IDENTICALLY REGISTERED STRONG FUNDS ACCOUNT.)
5. Will the Accounts have telephone redemption? ___ Yes __X__ No
(THIS OPTION LETS COMPANY SELL SHARES BY TELEPHONE. THE PROCEEDS WILL BE
WIRED TO THE BANK ACCOUNT SPECIFIED BELOW.)
6. All dividends and capital gains will be reinvested automatically.
26
<PAGE>
7. Instructions for all outgoing wire transfers: The Provident Bank
Cincinnati, OH 45202
ABA # 042000424
For the Account of Annuity
Investors Life Insurance
Company Depository Account
Account # 0697-394
Amount:
Attn.: Wire Transfer Department
8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account Information
Form as of the date set forth below and acknowledges the agreements and
representations set forth in the Participation Agreement between the Company,
the Funds, Adviser and Distributors:
-------------------------------------- ---------------------
(SIGNATURE OF AUTHORIZED OFFICER) (DATE)
9. Company represents under penalty of perjury that:
(i) The employer ID number on this form is correct; and
(ii) Company is not subject to backup withholding because (a) Company is
exempt from backup withholding, (b) Company has not been notified by the IRS
that it is subject to backup withholding as a result of failure to report all
interest or dividends, or (c) the IRS has notified the Company that it is no
longer subject to backup withholding. (Cross out (ii) if Company has been
notified by the IRS that it is subject to backup withholding because of
underreporting interest or dividends on its tax return.)
PLEASE NOTE: DISTRIBUTORS EMPLOYS REASONABLE PROCEDURES TO CONFIRM THAT
INSTRUCTIONS COMMUNICATED BY TELEPHONE ARE GENUINE AND MAY NOT BE LIABLE FOR
LOSSES DUE TO UNAUTHORIZED OR FRAUDULENT INSTRUCTIONS. PLEASE SEE THE PROSPECTUS
FOR THE APPLICABLE FUND FOR MORE INFORMATION ON THE TELEPHONE EXCHANGE AND
REDEMPTION PRIVILEGES.
FOR STRONG INTERNAL USE: THIS ACCOUNT INFORMATION FORM MAY BE A COPY. THE
ORIGINAL ACCOUNT INFORMATION FORM IS ATTACHED TO THE PARTICIPATION AGREEMENT
WITH THE ADVISER AND RETAINED IN THE LEGAL DEPARTMENT.
27
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April 25, 1997
Annuity Investors Life Insurance Company
250 East Fifth Street
Cincinnati, OH 45202
Attention: Mark F. Muething
Dear Mark: Re: Fee Letter Relating to the Annuity Investors Life
Insurance Company Participation Agreement.
Pursuant to the Participation Agreement by and among Strong Capital
Management, Inc. ("Strong"), Annuity Investors Life Insurance Company (the
"Company"), Strong Variable Insurance Funds, Inc., Strong Special Fund II, Inc.
and Strong Funds Distributors, Inc. ("Distributors") dated as April 25, 1997
(the "Participation Agreement"), the Company will provide certain administrative
services on behalf of the registered investment companies or series thereof
specified in Exhibit A (each a "Fund" and collectively the "Funds").
In recognition of the reduction in administrative expenses that derives
from the performance of said administrative services, Strong agrees to pay the
Company the fee specified below for each Fund specified in Exhibit A hereto.
(a) For average aggregate amounts (as calculated in paragraph (b),
below) invested through variable insurance products issued by the Company
with the Funds, the monthly fee shall equal the percentage (calculated in
paragraph (b), below) of the applicable annual fee for each Fund specified
in Exhibit A.
(b) For purposes of computing the fee contemplated in paragraph (a)
above, Strong shall calculate and pay to the Company an amount with
respect to each Fund equal to the product of: (a) the product of (i) the
number of calendar days in the applicable month divided by the number of
calendar days in that year (365 or 366 as applicable) and (ii) the
applicable percentage specified in Exhibit A, hereto, multiplied by (b)
the average daily market value of the investments held in such Fund
pursuant to the Participation Agreement computed by totaling the aggregate
investment (share net asset value multiplied by the total number of shares
held) on each day during the calendar month and dividing by the total
number of days during such month.
(c) Strong shall calculate the amount of the payment to be made
pursuant to this Letter Agreement at the end of each calendar month and
will make such payment to the Company within 30 days after receiving the
report referenced in paragraph (e), below. Fees will be paid, at Strong's
election, by wire transfer or by check. All payments hereunder shall be
considered final unless disputed by the Company in writing within 60 days
of receipt.
(d) The parties agree that the fees contemplated herein are solely
for shareholder servicing and other administrative services provided by
the Company and do not constitute payment in any manner for investment
advisory, distribution, trustee, or custodial services.
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(e) The Company agrees to provide Strong by the 15th day of each
month with a report which indicates the number of Owners that hold through
a Contract interests in each Account as of the last day of the prior
month.
(f) If requested in writing by Strong, and at Strong's expense, the
Company shall provide to Strong, by February 14th of each year, a "Special
Report" from a nationally recognized accounting firm reasonably acceptable
to Strong which substantiates for each month of the prior calendar year:
(a) the number of Owners that hold, through an Account, interests in each
Account maintained by the Company on the last day of each month which held
shares for which the fee provided for in this Letter Agreement was
received by the Company, (b) that any fees billed to Strong for such month
were accurately determined in accordance with this Letter Agreement, and
(c) such other information in connection with this Agreement and the
Participation Agreement as may be reasonably requested by Strong.
(g) The parties hereto agree that Strong may unilaterally amend
Schedule A hereto to add additional investment companies or series thereof
("New Funds") as Funds subject to the provisions of this Letter Agreement
by sending to the Company a written notice of the New Funds and indicating
therein the fees to be paid to the Company with respect to the
administrative services provided pursuant to the Participation Agreement
in connection with such New Funds.
(h) This Letter Agreement shall terminate upon termination of the
Participation Agreement. Accordingly, all payments pursuant to this Letter
Agreement shall cease upon termination of the Participation Agreement.
(i) Capitalized terms not otherwise defined herein shall have the
meaning assigned to them in the Participation Agreement.
If you are in agreement with the foregoing, please sign and date below
where indicated and return one copy of this signed letter agreement to me.
Very truly yours,
Stephen J. Shenkenberg
Vice President
Accepted and agreed as of April 25, 1997 by
Annuity Investors Life Insurance Company
- ---------------------------------------
By:
Name and Title:
29
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EXHIBIT A TO LETTER DATED APRIL 25, 1997
The Funds subject to this Agreement and applicable annual fees are as follows:
FUND ANNUAL FEE
Strong Special Fund II, Inc. .20%
Strong Variable Insurance Funds, Inc.
Strong Growth Fund II .20%
30
EXHIBIT 8(l)
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 1st day of May, 1997, by and among the PBHG
INSURANCE SERIES FUND, INC. ("FUND"), a Maryland corporation, PILGRIM BAXTER &
ASSOCIATES, LTD. ("Adviser"), a Delaware corporation, ANNUITY INVESTORS LIFE
INSURANCE COMPANY ("LIFE COMPANY"), a life insurance company organized under the
laws of the State of Ohio.
WHEREAS, FUND is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "`40 Act"), as
an open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several
Portfolios ("Portfolios"), with those currently available being listed on
Appendix A hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts ("Separate
Accounts") of such life insurance companies ("Participating Insurance
Companies"); and
WHEREAS, FUND may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, FUND will apply for an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the `40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the FUND to be sold to and held by Variable Contract separate
accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having FUND as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser under
the Investment Advisers Act of 1940 and as a broker-dealer under the Securities
Exchange Act of 1934, as amended and acts as the FUND's investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares to
LIFE COMPANY at net asset value;
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
FUND, and ADVISER agree as follows:
Article I. SALE OF FUND SHARES
1.1 FUND agrees to make available to the Separate Accounts of LIFE COMPANY
shares of the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in FUND's Registration Statement.
1.2 FUND agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of FUND which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by FUND or its designee
of the order for the shares of FUND. For purposes of this Section 1.2, LIFE
COMPANY shall be the designee of FUND for receipt of such orders from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and FUND receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as FUND and LIFE COMPANY may agree in writing) of such
order by 8:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which FUND calculates its net asset value pursuant to the rules of the
SEC.
1.3 FUND agrees to redeem on LIFE COMPANY's request, any full or
fractional shares of FUND held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by FUND or its
designee of the request for redemption, in accordance with the provisions of
this agreement and FUND's Registration Statement. For purposes of this Section
1.3, LIFE COMPANY shall be the designee of FUND for receipt of requests for
redemption from the designated Separate Account and receipt by such designee
shall constitute receipt by FUND; provided that LIFE COMPANY receives the
request for redemption by 4:00 p.m. New York time and FUND receives notice from
LIFE COMPANY by telephone or facsimile (or by such other means as FUND and LIFE
COMPANY may agree in writing) of such request for redemption by 8:30 a.m. New
York time on the next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to LIFE
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolio of FUND. LIFE COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. FUND shall notify LIFE COMPANY or
its designee of the number of shares so issued as payment of such dividends and
distributions.
1.5 FUND shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
2
<PAGE>
best efforts to make such net asset value available by 7:00 p.m. New York time.
The FUND shall provide such net asset values to LIFE COMPANY by facsimile
transmission or in such other manner as FUND and LIFE COMPANY may agree. If FUND
provides LIFE COMPANY with materially incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any material
error in the calculation of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of FUND shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined shall
be transmitted to FUND by LIFE COMPANY by 8:30 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and premiums
in accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of FUND shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, FUND shall use its best efforts
to wire the redemption proceeds to LIFE COMPANY by the next Business Day. In any
event, proceeds shall be wired to LIFE COMPANY within three Business Days or
such longer period permitted by the '40 Act or the rules, orders or regulations
thereunder and FUND shall notify the person designated in writing by LIFE
COMPANY as the recipient for such notice of such delay by 3:00 p.m. New York
Time the same Business Day that LIFE COMPANY transmits the redemption order to
FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be sold
only to Participating Insurance Companies which have agreed to participate in
FUND to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h) of the Internal Revenue Code
of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
Portfolios of FUND will not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any Portfolio of
FUND if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Directors of the FUND
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
3
<PAGE>
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY or the Separate Accounts.
Shares ordered from Portfolio will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Ohio and that
it has legally and validly established each Separate Account as a segregated
asset account under such laws, and that AAG Securities, Inc., the principal
underwriter for the Variable Contracts, is registered as a broker-dealer under
the Securities Exchange Act of 1934 (the "'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the `40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933 (the "`33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and further that the sale of the Variable Contracts shall comply in all material
respects with applicable state insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and FUND shall be
registered under the `40 Act prior to and at the time of any issuance or sale of
such shares. FUND, subject to Section 1.9 above, shall amend its registration
statement under the `33 Act and the `40 Act from time to time as required in
order to effect the continuous offering of its shares. FUND shall register and
qualify its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
4
<PAGE>
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance.
2.7 FUND represents and warrants that each Portfolio invested in by the
Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment for
each taxable year and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8. ADVISER represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
-------------------------------
3.1 FUND shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND. FUND
shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 At least annually, FUND or its designee shall provide LIFE COMPANY,
free of charge, with as many copies of the current prospectus for the shares of
the Portfolios as LIFE COMPANY may reasonably request for distribution to
existing Variable Contract owners whose Variable Contracts are funded by such
shares. FUND or its designee shall provide LIFE COMPANY, at LIFE COMPANY's
expense, with as many copies of the current prospectus for the shares as LIFE
COMPANY may reasonably request for distribution to prospective purchasers of
Variable Contracts. If requested by LIFE COMPANY in lieu thereof, FUND or its
designee shall provide such documentation (including a "camera ready" copy of
the new prospectus as set in type or, at the request of LIFE COMPANY, as a
diskette in the form sent to the financial printer) and other assistance as is
reasonably necessary in order for the parties hereto once a year (or more
frequently if the prospectus for the shares is supplemented or amended) to have
the prospectus for the Variable Contracts and the prospectus for the FUND shares
printed together in one document. The expenses of such printing will be
apportioned between (a) LIFE COMPANY and (b) FUND in proportion to the number of
pages of the Variable Contract and FUND's prospectus, taking account of other
relevant factors affecting the expense of printing, such as covers, columns,
graphs and charts; FUND to bear the cost of printing the FUND's prospectus
portion of such document for distribution only to owners of existing Variable
Contracts funded by the FUND's shares and LIFE COMPANY to bear the expense of
5
<PAGE>
printing the portion of such documents relating to the Separate Account;
provided, however, LIFE COMPANY shall bear all printing expenses of such
combined documents where used for distribution to prospective purchasers or to
owners of existing Variable Contracts not funded by the FUND's shares. In the
event that LIFE COMPANY requests that FUND or its designee provide FUND's
prospectus in a "camera ready" or diskette format, FUND shall be responsible for
providing the prospectus in the format in which it is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (e.g. typesetting expenses), and LIFE COMPANY shall bear the expense of
adjusting or changing the format to conform with any of its prospectuses.
3.3 FUND will provide LIFE COMPANY with at least one complete copy of all
exemptive applications and all amendments or supplements to any of the above
that relate to the Portfolios promptly after the filing of each such document
with the SEC or other regulatory authority. FUND, at its expense, will provide
LIFE COMPANY with as many copies of its proxy statement, annual and semi-annual
reports to shareholders as LIFE COMPANY may reasonably require for distribution
to existing Variable Contract owners. LIFE COMPANY will provide FUND with at
least one complete copy of all prospectuses, statements of additional
information, annual and semi-annual reports, proxy statements, exemptive
applications and all amendments or supplements to any of the above that relate
to a Separate Account promptly after the filing of each such document with the
SEC or other regulatory authority.
Article IV. SALES MATERIALS
---------------
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to FUND and
ADVISER, each piece of sales literature or other promotional material in which
FUND or ADVISER is named, at least fifteen (15) Business Days prior to its
intended use. No such material will be used if FUND or ADVISER reasonably
objects to its use in writing within ten (10) Business Days after receipt of
such material.
4.2 FUND and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY or its Separate Accounts are named, at least fifteen (15) Business
Days prior to its intended use. No such material will be used if LIFE COMPANY
reasonably objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.3 FUND and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission of
LIFE COMPANY.
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4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND or concerning FUND
other than the information or representations contained in a registration
statement or prospectus for FUND, as such registration statement and prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by FUND or its designee, except with the
written permission of FUND.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. ("NASD")
rules, the `40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
-------------------
5.1 The parties acknowledge that FUND will be filing an application with
the SEC to request an order granting relief from various provisions of the '40
Act and the rules thereunder to the extent necessary to permit FUND shares to be
sold to and held by Variable Contract separate accounts of both affiliated and
unaffiliated Participating Insurance Companies and Qualified Plans. It is
anticipated that the Exemptive Order, when and if issued, shall require FUND and
each Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Section 5. If the Exemptive Order imposes
conditions materially different from those provided for in this Section 5, the
conditions and undertakings imposed by the Exemptive Order shall govern this
Agreement and the parties hereto agree to amend this Agreement consistent with
the Exemptive Order. The Fund will not enter into a participation agreement with
any other Participating Insurance Company unless it imposes the same conditions
and undertakings as are imposed on LIFE COMPANY hereby.
5.2 The Board will monitor FUND for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts investing in FUND. An irreconcilable material conflict may
arise for a variety of reasons, which may include: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
7
<PAGE>
letter ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of FUND are being managed;
(e) a difference in voting instructions given by Variable Contract owners; (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of Variable Contract owners and (g) if applicable, a decision by a
Qualified Plan to disregard the voting instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts to the
Board. LIFE COMPANY will be responsible for assisting the Board in carrying out
its duties in this regard by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. The responsibility
includes, but is not limited to, an obligation by the LIFE COMPANY to inform the
Board whenever it has determined to disregard Variable Contract owner voting
instructions. These responsibilities of LIFE COMPANY will be carried out with a
view only to the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested Directors,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Directors), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from FUND or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of FUND, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group (i.e
variable annuity or variable life insurance Contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected Variable Contract owners the option of making such a
change; and (c) establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of LIFE COMPANY's decision to disregard Variable
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, LIFE COMPANY may be required, at the
election of FUND, to withdraw the Separate Account's investment in FUND, and no
charge or penalty will be imposed as a result of such withdrawal. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict but in no event will
FUND or ADVISER (or any other investment adviser of FUND) be required to
establish a new funding medium for any Variable Contract. Further, LIFE COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
8
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5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
------
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the `40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. LIFE COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
FUND calculates voting privileges in a manner consistent with other
Participating Insurance Companies. LIFE COMPANY will vote shares for which it
has not received timely voting instructions, as well as shares it owns, in the
same proportion as its votes those shares for which it has received voting
instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the `40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the Exemptive
Order, then FUND, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
---------------
7.1 INDEMNIFICATION BY LIFE COMPANY. LIFE COMPANY agrees to indemnify and
hold harmless FUND, ADVISER and each of their directors, principals, officers,
employees and agents and each person, if any, who controls FUND or ADVISER
within the meaning of Section 15 of the `33 Act (collectively, the "Indemnified
Parties" for purposes of this Article VII) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of LIFE COMPANY, which consent shall not be unreasonably withheld) or
litigation (including reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of FUND's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
Registration Statement or prospectus for the Variable Contracts
or contained in the Variable Contracts (or any amendment or
9
<PAGE>
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to LIFE COMPANY by or on
behalf of FUND for use in the registration statement or
prospectus for the Variable Contracts or in the Variable
Contracts or sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the
Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of FUND
not supplied by LIFE COMPANY, or persons under its control) or
wrongful conduct of LIFE COMPANY or persons under its control,
with respect to the sale or distribution of the Variable
Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature of FUND or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to FUND by or on behalf
of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the
terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in this
Agreement or arise out of or result from any other material
breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
10
<PAGE>
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.4 INDEMNIFICATION BY ADVISER. ADVISER agrees to indemnify and hold
harmless LIFE COMPANY and each of its directors, officers, employees, and agents
and each person, if any, who controls LIFE COMPANY within the meaning of Section
15 of the `33 Act (collectively, the "Indemnified Parties" for the purposes of
this Article VII) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of ADVISER which
consent shall not be unreasonably withheld) or litigation (including reasonable
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of FUND's shares or the
Variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of
FUND (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to ADVISER or FUND
by or on behalf of LIFE COMPANY for use in the registration
statement or prospectus for FUND or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Variable Contracts or FUND shares; or
11
<PAGE>
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Variable Contracts not supplied by ADVISER or persons under its
control) or wrongful conduct of FUND or ADVISER or persons
under their control, with respect to the sale or distribution
of the Variable Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable
Contracts, or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
LIFE COMPANY for inclusion therein by or on behalf of FUND; or
(d) arise as a result of (i) a failure by FUND to provide
substantially the services and furnish the materials under the
terms of this Agreement; or (ii) a failure by a Portfolio(s)
invested in by the Separate Account to comply with the
diversification requirements of Section 817(h) of the Code; or
(iii) a failure by a Portfolio(s) invested in by the Separate
Account to qualify as a "regulated investment company" under
Subchapter M of the Code; or
(e) arise as a result of any failure by FUND or ADVISER to provide
substantially the services and furnish the materials under the
terms of this Agreement; or
(f) arise out of or result from any material breach of any
representation and/or warranty made by ADVISER in this
Agreement or arise out of or result from any other material
breach of this Agreement by ADVISER.
7.5 ADVISER shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
7.6 ADVISER shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified ADVISER in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
12
<PAGE>
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify ADVISER of any such claim shall not relieve
ADVISER from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
ADVISER shall be entitled to participate at its own expense in the defense
thereof. ADVISER also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from ADVISER
to such party of ADVISER's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and ADVISER will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
Article VIII. TERM; TERMINATION
-----------------
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or FUND at any time from the date
hereof upon 60 days' notice, unless a shorter time is agreed to
by the parties;
(b) At the option of LIFE COMPANY, if FUND shares are not
reasonably available to meet the requirements of the Variable
Contracts as determined by LIFE COMPANY. Prompt notice of
election to terminate shall be furnished by LIFE COMPANY, said
termination to be effective ten days after receipt of notice
unless FUND makes available a sufficient number of shares to
reasonably meet the requirements of the Variable Contracts
within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against FUND by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in LIFE COMPANY's reasonable
judgment, materially impair FUND's ability to meet and perform
FUND's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by LIFE COMPANY with
said termination to be effective upon receipt of notice;
(d) At the option of FUND, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the NASD, or any
other regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in FUND's reasonable
judgment, materially impair LIFE COMPANY's ability to meet and
perform its obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by FUND with said
termination to be effective upon receipt of notice;
13
<PAGE>
(e) In the event FUND's shares are not registered, issued or sold
in accordance with applicable state or federal law, or such law
precludes the use of such shares as the underlying investment
medium of Variable Contracts issued or to be issued by LIFE
COMPANY. Termination shall be effective upon such occurrence
without notice;
(f) At the option of FUND if the Variable Contracts cease to
qualify as annuity contracts or life insurance contracts, as
applicable, under the Code, or if FUND reasonably believes that
the Variable Contracts may fail to so qualify. Termination
shall be effective upon receipt of notice by LIFE COMPANY;
(g) At the option of LIFE COMPANY, upon FUND's breach of any
material provision of this Agreement, which breach has not been
cured to the satisfaction of LIFE COMPANY within ten days after
written notice of such breach is delivered to FUND;
(h) At the option of FUND, upon LIFE COMPANY's breach of any
material provision of this Agreement, which breach has not been
cured to the satisfaction of FUND within ten days after written
notice of such breach is delivered to LIFE COMPANY;
(i) At the option of FUND, if the Variable Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law. Termination shall be effective
immediately upon such occurrence without notice;
(j) In the event this Agreement is assigned without the prior
written consent of LIFE COMPANY, FUND, and ADVISER, termination
shall be effective immediately upon such occurrence without
notice.
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.2 hereof, FUND shall, at the option of LIFE COMPANY, continue to make
available additional FUND shares, as provided below, pursuant to the terms and
conditions of this Agreement, for all Variable Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
14
<PAGE>
"Existing Contracts"). Specifically, without limitation, if LIFE COMPANY so
elects, the owners of the Existing Contracts or LIFE COMPANY, whichever shall
have legal authority to do so, shall be permitted to reallocate investments in
FUND, redeem investments in FUND and/or invest in FUND upon the payment of
additional premiums under the Existing Contracts. In the event of a termination
of this Agreement pursuant to Section 8.2 hereof, LIFE COMPANY, as promptly as
is practicable under the circumstances, shall notify FUND and ADVISER whether
LIFE COMPANY elects to continue to make FUND shares available after such
termination. If FUND shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either FUND or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 8.3, upon sixty (60) days prior written
notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified FUND of its intention to do so.
Article IX. NOTICES
-------
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to FUND:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerrr, Esq.
If to the ADVISER:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerr, Esq.
15
<PAGE>
If to LIFE COMPANY:
Annuity Investors Life Insurance Company
250 East Fifth Street
Cincinnati, OH 45202
Attention: Mark E. Muething
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
-------------
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Pennsylvania. It shall also be subject to the provisions of the federal
securities laws and the rules and regulations thereunder and to any orders of
the SEC granting exemptive relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Directors or officers of FUND or
any Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with FUND or a
Portfolio must look solely to the property of FUND or that Portfolio,
respectively, for enforcement of any claims against FUND or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.8 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by FUND,
ADVISER and the LIFE COMPANY.
16
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
PBHG INSURANCE SERIES FUND, INC.
By:
-----------------------------
Name:
Title:
PILGRIM BAXTER & ASSOCIATES, LTD.
By:
-----------------------------
Name:
Title:
ANNUITY INVESTORS
LIFE INSURANCE COMPANY
By:
-----------------------------
Name:
Title:
17
<PAGE>
APPENDIX A
PBHG INSURANCE SERIES FUND, INC. - PORTFOLIOS
- ---------------------------------------------
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
PBHG Technology & Communications Portfolio
<PAGE>
APPENDIX B
SEPARATE ACCOUNTS SELECTED PORTFOLIOS
- ----------------- -------------------
Annuity Investors Variable PBHG Growth II Portfolio
Account A PBHG Technology and Communications Portfolio
Annuity Investors Variable PBHG Growth II Portfolio
Account B PBHG Technology and Communications Portfolio
PBHG Large Cap Growth Portfolio
Exhibit (8)(m)
AMENDED AND RESTATED AGREEMENT
AGREEMENT made as of the 24th day of April, 1997 by and
between (i) The Dreyfus Corporation ("Dreyfus"), a New York corporation; and
(ii) Annuity Investors Life Insurance Company ("Client"), an Ohio corporation.
WITNESSETH:
WHEREAS, each of the investment companies listed on Schedule A hereto as such
Schedule may be amended from time to time (collectively the "Dreyfus Funds,"
each a "Fund") are investment companies registered under the Investment Company
Act of 1940, as amended (the "Act"); and
WHEREAS, Client has entered into a Fund Participation Agreement (the
"Participation Agreement") with each of the Dreyfus Funds listed on Schedule A
hereto; and
WHEREAS, Dreyfus provides investment advisory and/or administrative services to
the Dreyfus Funds; and
WHEREAS, Premier Mutual Fund Services, Inc. ("Premier") is the distributor for
the Dreyfus Funds; and
WHEREAS, the parties hereto have agreed to arrange separately for the
performance of sub-accounting services for owners of shares of the Dreyfus Funds
who maintain their shares in a variable annuity account with Client; and
WHEREAS, Dreyfus desires Client to perform such services and Client is willing
and able to furnish such services on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees as follows:
1. Client agrees to perform the administrative services specified in Exhibit A
hereto (the "Administrative Services") for the benefit of the shareholders of
the Dreyfus Funds who maintain their shares of any such Dreyfus Funds in
variable annuity and variable life insurance accounts with Client and whose
shares are included in the master account ("Master Account") referred to in
paragraph 1 of Exhibit A (collectively, the "Client Customers").
2. Client represents and agrees that it will maintain and preserve all records
as required by law to be maintained and preserved in connection with providing
<PAGE>
the Administrative Services, and will otherwise comply with all laws, rules and
regulations applicable to the Administrative Services. Upon the request of
Dreyfus or its representatives, Client shall provide copies of all the
historical records relating to transactions between the Dreyfus Funds and Client
Customers, and written communications regarding the Fund(s) to or from such
Customers and other materials, in each case as may reasonably be requested to
enable Dreyfus or its representatives, including without limitation its
auditors, legal counsel or distributor, to monitor and review the Administrative
Services, or to comply with any request of the board of directors, or trustees
or general partners (collectively, the "Directors") of any Fund or of a
governmental body, self-regulatory organization or a shareholder. Client agrees
that it will permit Dreyfus, the Dreyfus Funds or their representatives to have
reasonable access to its personnel and records in order to facilitate the
monitoring of the quality of services.
3. Client may, with the consent of Dreyfus, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of Client required by the Agreement, provided that
Client shall be fully responsible for the acts and omissions of such other
parties.
4. Client hereby agrees to notify Dreyfus promptly if for any reason it is
unable to perform fully and promptly any of its obligations under this
Agreement.
5. Client hereby represents and covenants that it does not, and will not, own or
hold or control with power to vote any shares of the Dreyfus Funds which are
registered in the name of Client or the name of its nominee and which are
maintained in Client variable annuity accounts. Client represents further that
it is registered as a broker-dealer under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and any applicable state securities laws, and as a
transfer agent under the 1934 Act, or is not required to be so registered,
including as a result of entering into this Agreement and performing the
Administrative Services.
6. The provisions of the Agreement shall in no way limit the authority of
Dreyfus, or any Dreyfus Fund or Premier to take such action as any of such
parties may deem appropriate or advisable in connection with all matters
relating to the operations of any of such funds and/or sale of its shares.
7. In consideration of the performance of the Administrative Services by Client,
Dreyfus agrees to pay Client a monthly fee at an annual rate which shall equal
.20 of 1% of the value of each Fund's (except Dreyfus Stock Index Fund) average
daily net assets maintained in the Master Account for Client Customers. The
payments by Dreyfus to Client relate solely to administrative services only and
do not constitute payment in any manner for administrative services provided by
Client to Client Customers or any separate account organized by Client, for any
investment advisory services or for costs of distribution of any variable
insurance contracts.
2
<PAGE>
8. Client shall indemnify and hold harmless the Dreyfus Funds, The Dreyfus
Corporation, Dreyfus Service Corporation ("DSC"), Premier, and each of their
respective officers, directors, employees and agents from and against any and
all losses, claims, damages, expenses, or liabilities that any one or more of
them may incur including without limitation reasonable attorneys' fees, expenses
and costs arising out of or related to the performance or non-performance of
Client of its responsibilities under this Agreement.
9. This Agreement may be terminated without penalty at any time by Client or by
Dreyfus as to all of the Dreyfus Funds collectively, upon 180 days written
notice to the other party. The provisions of paragraphs 2, 8, and 10 shall
continue in full force and effect after termination of this Agreement.
Notwithstanding the foregoing, this Agreement shall not require Client to
preserve any records (in any medium or format) relating to this Agreement beyond
the time periods otherwise required by the laws to which Client or the Dreyfus
Funds are subject provided that such records shall be offered to the Dreyfus
Funds in the event Client decides to no longer preserve such records following
such time periods.
10. After the date of any termination of this Agreement in accordance with
paragraph 9, no fee will be due with respect to any amounts first placed in the
Master Account for Client Customers after the date of such termination. However,
notwithstanding any such termination, Dreyfus will remain obligated to pay
Client the fee specified in paragraph 7 with respect to the value of each Fund's
average daily net assets maintained in the Master Account as of the date of such
termination, for so long as such amounts are held in the Master Account and
Client continues to provide the Administrative Services with respect to such
amounts in conformity with this Agreement. This Agreement, or any provision
hereof, shall survive termination to the extent necessary for each party to
perform its obligations with respect to amounts for which a fee continues to be
due subsequent to such termination.
11. Client understands and agrees that the obligations of Dreyfus under this
Agreement are not binding upon any of the Dreyfus Funds, upon any of their Board
members or upon any shareholder of any of the Funds.
12. It is understood and agreed that in performing the services under this
Agreement Client, acting in its capacity described herein, shall at no time be
acting as an agent for Dreyfus, or DSC, or Premier or any of the Dreyfus Funds.
Client agrees, and agrees to cause its agents, not to make any representations
concerning a Fund except those contained in the Fund's then-current prospectus,
in current sales literature furnished by the Fund, Dreyfus or Premier to Client,
or in the then-current prospectus for a variable annuity contract or variable
life insurance policy issued by Client, or then current sales literature with
respect to such variable annuity contract or variable life insurance policy,
approved by Dreyfus.
3
<PAGE>
13. This Agreement, including the provisions set forth herein in Section 7, may
only be amended pursuant to a written instrument signed by the party to be
charged. This Agreement may not be assigned by a party hereto, by operation of
law or otherwise, without the prior, written consent of the other party.
14. This Agreement shall be governed by the laws of the State of New York,
without giving effect to the principles of conflicts of law of such
jurisdiction.
15. This Agreement, including its Exhibit and Schedule, constitutes the entire
agreement between the parties with respect to the matters dealt with herein, and
supersedes any previous agreements and documents with respect to such matters.
IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement
as of the date first above written.
ANNUITY INVESTORS LIFE INSURANCE COMPANY
Print or Type Name of Client
By: /s/ Mark F. Muething
-------------------------------
Authorized Signatory
Mark F. Muething, Senior Vice President
----------------------------------------
Print or Type Name
THE DREYFUS CORPORATION
By: /s/ Lawrence S. Kash
-------------------------------
Authorized Signatory
Lawrence S. Kash
-------------------------------
Print or Type Name
4
<PAGE>
SCHEDULE A
Annuity Investors Variable Account A (May 26, 1995)
Fund Code Fund Name
112 Dreyfus Variable Investment Fund, Capital Appreciation Portfolio
108 Dreyfus Variable Investment Fund, Growth and Income Portfolio
121 Dreyfus Variable Investment Fund, Small Cap Portfolio
111 The Dreyfus Socially Responsible Growth Fund, Inc.
763 Dreyfus Stock Index Fund
Annuity Investors Variable Account B (December 19, 1996)
Fund Code Fund Name
112 Dreyfus Variable Investment Fund, Capital Appreciation Portfolio
108 Dreyfus Variable Investment Fund, Growth and Income Portfolio
121 Dreyfus Variable Investment Fund, Small Cap Portfolio
117 Dreyfus Variable Investment Fund, Money Market Portfolio
111 The Dreyfus Socially Responsible Growth Fund, Inc.
763 Dreyfus Stock Index Fund
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, Client shall perform
the following Administrative Services:
1. Maintain separate records for each Client Customer, which records shall
reflect shares purchased and redeemed and share balances. Client shall maintain
the Master Account with the transfer agent of the Fund on behalf of Client
Customers and such Master Account shall be in the name of Client or its nominee
as the record owner of the shares owned by such Client Customers.
2. For each Fund, disburse or credit to Client Customers all proceeds of
redemptions of shares of the Fund and all dividends and other distributions not
reinvested in shares of the Fund.
3. Prepare and transmit to Client Customers periodic account statements showing
the total number of shares owned by the Customer as of the statement closing
date, purchases and redemptions of Fund shares by the Customer during the period
covered by the statement, and the dividends and other distributions paid to the
Customer during the statement period (whether paid in cash or reinvested in Fund
shares).
4. Transmit to Client Customers proxy materials and reports and other
information received by Client from any of the Funds and required to be sent to
shareholders under the federal securities laws and, upon request of the Fund's
transfer agent, transmit to Client Customers material fund communications deemed
by the Fund, through its Board of Directors or other similar governing body, to
be necessary and proper for receipt by all fund beneficial shareholders.
5. Transmit to the Fund's transfer agent purchase and redemption orders on
behalf of Client Customers.
6. Provide to the Funds, or to the transfer agent for any of the Funds, or any
of the agents designated by any of them, such periodic reports as shall
reasonably be concluded to be necessary to enable each of the Funds and its
distributor to comply with State Blue Sky requirements.
Exhibit (8)(n)
JANUS CAPITAL CORPORATION
December 6, 1996
Mr. Mark F. Muething
Senior Vice President
Annuity Investors Life Insurance Company
10th Floor, Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
Dear Mr. Muething:
This letter sets forth the agreement between Annuity Investors Life
Insurance Company (the "Company"), and Janus Capital Corporation (the
"Adviser"), concerning certain administrative services.
1. ADMINISTRATIVE SERVICES AND EXPENSES. Administrative services for the
separate accounts of the Company (the "Accounts") which invest in one or more
portfolios (collectively, the "Portfolios") of Janus Aspen Series (the
"Trust") pursuant to the Participation Agreement between the Company and the
Trust dated September 1, 1995 (the "Participation Agreement"), and for
purchasers of variable annuity or life insurance contracts (the "Contracts")
issued through the Accounts are the responsibility of the Company.
Administrative services for the Portfolios, in which the Accounts invest, and
for purchasers of shares of the Portfolios, are the responsibility of the
Trust. These administrative services the Company intends to provide to the
Trust and its Portfolios are set forth in Schedule A attached to this letter
agreement, which may be amended from time to time.
2. SERVICE FEE. In consideration of the anticipated administrative expense
savings resulting to the Trust from the Company's services, the Adviser
agrees to pay the Company a fee ("Service Fee"), computed daily and paid
monthly in arrears, at an annual rate equal to fifteen (15) basis points
(0.15%) of the average monthly value of the shares of the Portfolios held in
the Accounts, such payments to commence following the month in which the
average monthly value of investments by the Accounts reaches $50 million. The
Service Fee will be correspondingly suspended if the average monthly value of
such investments drops below $50 million in any month.
For purposes of this Paragraph 2, the average monthly value of the shares of
the Portfolios will be based on the sum of the daily net asset values
calculated by the Portfolios in a month divided by the number of days in the
month.
100 Fillmore Street, Suite 300
Denver, Colorado 80206-4923
303/333-3863
<PAGE>
3. NATURE OF PAYMENTS. The parties to this letter agreement recognize and agree
that the Adviser's payments to the Company relate to administrative services
only and do not constitute payment in any manner for administrative services
provided by the Company to the Account or to the Contracts, for investment
advisory services or for costs of distribution of Contracts or of shares of
the Portfolios, and that these payments are not otherwise related to
investment advisory or distribution services or expenses.
4. REPRESENTATIONS AND WARRANTIES.
a. The Adviser represents and warrants that in the event the Trustees of the
Trust approve the payment of all or any portion of the Service Fee by the
Trust, the Trust will calculate in the same manner the Service Fee to all
insurance companies that have entered into Service Fee arrangements with
the Adviser and/or the Trust (the "Participating Insurance Companies").
b. The Company represents and warrants that: (1) it and its employees and
agents meet the requirements of applicable law, including but not limited
to federal and state securities law and state insurance law, for the
performance of services contemplated herein; and (2) it will not purchase
Trust shares of the Portfolios with Account assets derived from
tax-qualified retirement plans except indirectly, through Contracts
purchased in connection with such plans and that the Service Fee does not
include any payment to the Company that is prohibited under the Employee
Retirement Income Securities Act of 1974 ("ERISA") with respect to any
assets of a Contract owner invested in a Contract using the Portfolios as
investment vehicles.
c. The Company represents, warrants and agrees that: (1) the payment of the
Service Fee by the Adviser is designed to reimburse the Company for
providing administrative services to the Trust that the Trust would
customarily pay and does not represent reimbursement to the Company for
providing administrative services to the Contract or Account as described
in Section 26 of the Investment Company Act of 1940 (the "!940 Act") and
the rules and regulations thereunder; (2) no portion of the Service Fee
will be rebated by the Company to any Contract owner; and (3) if required
by applicable law, the Company will disclose to each Contract owner the
existence of the Service Fee received by the Company pursuant to this
letter agreement in a form consistent with the requirements of applicable
law and will disclose the amount of the Service Fee, if any, that is paid
by the Trust.
5. INDEMNIFICATION
a. The Company agrees to indemnify and hold harmless the Adviser and its
directors, officers, and employees from any and all loss, liability and
expense resulting from any gross negligence or willful wrongful act of the
Company in performing its services under this letter agreement, from the
inaccuracy or breach of any representation made in this letter agreement,
or from a breach of a material provision of this letter agreement, except
to the extent such loss, liability or expense is the result of the
Adviser's willful misfeasance, bad faith or gross negligence in the
performance of its duties.
2
<PAGE>
b. The Adviser agrees to indemnify and hold harmless the Company and its
directors, officers, agents and employees from any and all loss, liability
and expense resulting from any gross negligence or willful wrongful act of
the Adviser in performing its services under this letter agreement, from
the inaccuracy or breach of any representation made in this letter
agreement, or from a breach of a material provision of this letter
agreement, except to the extent such loss, liability or expense is the
result of the Company's willful misfeasance, bad faith or gross negligence
in the performance of its duties.
6. TERMINATION.
a. Either party may terminate this letter agreement, without penalty, on
sixty (60) days' written notice to the other party.
b. This letter agreement will terminate at the option of either party in the
event of the termination of the Participation Agreement.
c. This letter agreement will terminate immediately upon the determination of
either party, with the advice of counsel, that the payment of the Service
Fee is in conflict with applicable law.
7. AMENDMENT. This letter agreement may be amended only upon mutual agreement of
the parties hereto in writing.
8. CONFIDENTIALITY. The terms of this letter agreement will be treated as
confidential and will not be disclosed to the public or any outside party
except with each party's prior written consent, as required by law or
judicial process or as provided in paragraph 4c herein.
9. ASSIGNMENT. This letter agreement may not be assigned (as that term is
defined in the 1940 Act) by either party without the prior written approval
of the other party, which approval will not be unreasonably withheld, except
that the Adviser may assign its obligations under this letter agreement,
including the payment of all or any portion of the Service Fee, to the Trust
upon thirty (30) days' written notice to the Company.
10.GOVERNING LAW. This letter agreement will be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of
Colorado.
11.COUNTERPARTS. This letter agreement may be executed in counterparts, each of
which will be deemed an original but all of which will together constitute
one and the same instrument.
If this letter agreement is consistent with your understanding of the matters we
discussed concerning administrative expense payments, kindly sign below and
return a signed copy to us.
Very truly yours,
JANUS CAPITAL CORPORATION
By: /S/ DAVID W. AGOSTINE
---------------------------
Name: DAVID W. AGOSTINE
Title: VICE PRESIDENT
ANNUITY INVESTORS LIFE INSURANCE COMPANY
By: /S/ MARK F. MUETHING
----------------------------
Name: MARK F. MUETHING
Title: SENIOR VICE PRESIDENT
Attachment: Schedule A
3
<PAGE>
Schedule A
Pursuant to the letter agreement to which this Schedule is attached, the Company
will perform administrative services including, but not limited to, the
following:
1. Print and mail to Contract owners copies of the Portfolios'
prospectuses, proxy materials, periodic fund reports to shareholders and other
materials that the Trust is required by law or otherwise to provide to its
shareholders.
2. Provide Contract owner services including, but not limited to,
financial consultants' advice with respect to inquiries related to the
Portfolios (not including information about performance or related to sales) and
communicating with Contract owners about Portfolio (and subaccount) performance.
3. Provide other administrative support for the Trust as mutually
agreed to by the Company and the Adviser and relieve the Trust of other usual or
incidental administrative services provided to individual Contract owners.
EXHIBIT (10)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February, 28, 1997, with respect to the financial
statements of Annuity Investors Life Insurance Company and Annuity Investors
Variable Account A included in the Post-effective Amendment No. 1 to the
Registration Statement (Form N-4 File Nos. 33-65409 and 811-07299) and related
Statement of Additional Information of Annuity Investors Variable Account A.
/s/ Ernst & Young LLP
------------------------------------
Ernst & Young LLP
Cincinnati, Ohio
April 25, 1997
Exhibit (13)
ANNUITY INVESTORS LIFE INSURANCE COMPANY
Standardized Performance
N-4 Part C, Exhibit 13
December 31, 1996
n
P(1+T) =ERV
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-year period.
DREYFUS VARIABLE INVESTMENT FUNDS, INC.
<TABLE>
<CAPTION>
VARIABLE CAPITAL
BASIC CONTRACTS: APPRECIATION SOCIALLY RESPONSIBLE GROWTH STOCK INDEX
- ---------------- ---------------- --------------------------- -----------
<S> <C> <C> <C>
n 1 1 1
P(1+T) = ERV 1,000.00(1+T) =1,154.95 1,000.00(1+T) =1,112.30 1,000.00(1+T) =1,125.23
n 1 1 1
(1+T) =ERV/P (1+T) =1.1550 (1+T) 1=1.1123 (1+T) =1.1252
T=(ERV/P)-1 T=1.1550-1 T=1.1123-1 T=1.1252-1
T= 0.1550 0.1123 0.1252
or T= 15.50% 11.23% 12.52%
ENHANCED CONTRACTS:
- -------------------
n 1 1 1
P(1+T) =ERV 1,000.00(1+T) =1,158.7 1,000.00(1+T) =1,115.85 1,000.00(1+T) =1,128.77
n 1 1 1
(1+T) =ERV/P (1+T) =1.1587 (1+T) =1.1159 (1+T) =1.1288
T=(ERV/P)-1 T=1.1587-1 T=1.1159-1 T=1.1288-1
T= 0.1587 0.1159 0.1288
or T= 15.87% 11.59% 12.88%
</TABLE>
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
Standardized Performance
N-4 Part C, Exhibit 13
December 31, 1996
n
P(1+T) = ERV
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-year period.
<TABLE>
<CAPTION>
JANUS ASPEN SERIES
------------------
BASIC CONTRACTS: AGGRESSIVE GROWTH FUND WORLDWIDE GROWTH FUND BALANCED FUND SHORT-TERM BOND PORTFOLIO
- ---------------- ---------------------- --------------------- ------------- -------------------------
<S> <C> <C> <C> <C> <C>
n 1 1 1 1
P(1+T) =ERV 1,000.00(1+T) =981.20 1,000.00(1+T) =1,189.44 1,000.00(1+T) =1,062.39 1,000.00(1+T) =941.87
n 1 1 1 1
(1+T) =ERV/P (1+T) =.9812 (1+T) =1.1894 (1+T) =1.06239 (1+T) =.9419
T=(ERV/P)-1 T=.9812-1 T=1.1894-1 T=1.06239-1 T=.9419-1
T= (0.0188) 0.1894 0.0624 (0.0581)
orT= -1.88% 18.94% 6.24% -5.81%
ENHANCED CONTRACTS
- ------------------
n 1 1 1 1
P(1+T) =ERV 1,000.00(1+T) =984.31 1,000.00(1+T) =1,193.19 1,000.00(1+T) =1,065.84 1,000.00(1+T) =944.97
n 1 1 1 1
(1+T) =ERV/P (1+T) =.9843 (1+T) =1.1932 (1+T) =1.0658 (1+T) =.9450
T=(ERV/P)-1 T=.9843-1 T=1.1932-1 T=1.0658-1 T=.9450-1
T= (0.0157) 0.1932 0.0658 (0.0550)
or T= -1.57% 19.32% 6.58% -5.50%
</TABLE>
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
Standardized Performance
N-4 Part C, Exhibit 13
December 31, 1996
n
P(1+T) = ERV
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-year period.
MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
-----------------------------------------
<TABLE>
<CAPTION>
BASIC CONTRACTS: BASIC VALUE FOCUS GLOBAL STRATEGY FOCUS HIGH CURRENT INCOME
- ---------------- ----------------- --------------------- -------------------
<S> <C> <C> <C>
n 1 1 1
P(1+T) =ERV 1,000,00(1+T) =1,106.99 1,000.00(1+T) =1,032.69 1,000.00(1+T) =1,013.99
n 1 1 1
(1+T) =ERV/P (1+T) =1.1070 (1+T) =1.0327 (1+T) =1.0140
T=(ERV/P)-1 T=1.1070-1 T=1.0327-1 T=1.0140-1
T= 0.1070 0.0327 0.0140
or T= 10.70% 3.27% 1.40%
ENHANCED CONTRACTS:
- -------------------
n 1 1 1
P(1 +T) =ERV 1,000.00(1 +T) =1,110.49 1,000.00(1 +T) =1,036.02 1,000.00(1 +T) =1,017.24
n 1 1 1
(1+T) =ERV/P (1+T) =1.1105 (1+T) =1.0360 (1+T) =1.017.24
T=(ERV/P)-1 T=1.1105-1 T=1.0360-1 T=1.0172-1
T= 0.1105 0.0360 0.0172
or T= 11.05% 3.60% 1.72%
</TABLE>
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
Standardized Performance
N-4 Part C, Exhibit 13
December 31, 1996
YIELD AND EFFECTIVE YIELD FOR MERRILL LYNCH VARIABLE SERIES FUNDS DOMESTIC MONEY
MARKET SUB-ACCOUNTS
------------------------------------------------------------------------------
YIELD
-----
<TABLE>
<CAPTION>
BASIC CONTRACTS:
----------------
<S> <C>
((((Ending UV/Beginning UV)-1)/7)*365) ((((1.157043/1.156199)-1)/7)*365)
(((1.000730-1)/7)*365)
((.00730/7)*365)
(.000104)*365)
.0381
or 3.81%
ENHANCED CONTRACTS:
-------------------
((((Ending UV/Beginning UV)-1)/7)*365) ((((1.173866/1.172943)-1)/7)*365)
(((1.000787-1)/7)*365)
((0.000787/7)*365)
(.000112)*365)
.0410
or 4.10%
EFFECTIVE YIELD
---------------
BASIC CONTRACTS:
----------------
(365/7) (365/7)
(((Ending UV/Beg. UV) -1)*100) (((1.157043/1.156199) -1)*100)
(52.143)
(((1.000730) -1)*100)
((1.0388-1)*100)
(0.0388*100)
.0388
or 3.88%
ENHANCED CONTRACTS:
-------------------
(365/7) (365/7)
(((Ending UV/Beg. UV) -1)*100) (((1.173866/1.172943) -1)*100)
(52.143)
(((1 .000787) -1)*100)
((1.0419-1)*100)
(.0419*100)
.0419
or 4.19%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<INVESTMENTS-AT-COST> 3,335,765
<INVESTMENTS-AT-VALUE> 3,389,109
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,389,109
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 8,687
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 581,599
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,380,422
<DIVIDEND-INCOME> 33,183
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 8,687
<NET-INVESTMENT-INCOME> 24,496
<REALIZED-GAINS-CURRENT> 4,654
<APPREC-INCREASE-CURRENT> 53,343
<NET-CHANGE-FROM-OPS> 82,493
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 651,877
<NUMBER-OF-SHARES-REDEEMED> 70,279
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 581,598
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
