As filed with the Securities and Exchange Commission on April 28, 1999
File No. 33-59861
File No. 811-07299
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-effective Amendment No. ( )
Post-effective Amendment No. 4 ( X )
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 ( )
Pre-effective Amendment No. ( )
Post-effective Amendment No. 9 ( X )
(Check appropriate box or boxes)
-----------------------------
ANNUITY INVESTORSREGISTERED VARIABLE ACCOUNT A
(Exact Name of Registrant)
ANNUITY INVESTORS LIFE INSURANCE COMPANYREGISTERED
(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
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Mark F. Muething, Esq.
Senior Vice President, Secretary and General Counsel
Annuity Investors Life Insurance Company
P.O. Box 5423
Cincinnati, Ohio 45201-5423
(Name and Address of Agent for Service)
Copy to:
John P. Gruber, Esq.
Assistant Vice President
Annuity Investors Life Insurance Company
P.O. Box 5423
Cincinnati, Ohio 45201-5423
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It is proposed that this filing will become effective:
________Immediately upon filing pursuant to Rule 485(b)
___ X___On May 1, 1999 pursuant to Rule 485(b)
________60 days after filing pursuant to Rule 485(a)(1)
________On____________ pursuant to Rule 485(a)(1)
________75 days after filing pursuant to Rule 485 (a)(2)
________On pursuant to Rule 485(a)(2)
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CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
(Commodore NauticusREGISTERED)
Showing Location in Part A (Prospectus),
Part B (Statement of Additional Information) and Part C (Other Information)
of Registration Statement Information Required by Form N-4
PART A
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Item of Form N-4 Prospectus Caption
1. Cover Page.................................... Cover Page
2. Definitions................................... Definitions, Glossary of Financial Terms
3. Synopsis...................................... Overview
4. Condensed Financial Information
(a) Accumulation Unit Values............... Condensed Financial Information
(b) Performance Data....................... Performance Information
(c) Financial Statements................... Financial Statements
5. General Description of Registrant, Depositor
and Portfolio Companies
(a) Depositor.............................. Annuity Investors Life Insurance
CompanyREGISTERED
(b) Registrant............................. The Separate Account
(c) Portfolio Companies.................... The Portfolios
(d) Portfolio Prospectuses................. The Portfolios
(e) Voting Rights.......................... Voting Rights
6. Deductions and Expenses
(a) General................................ Charges and Deductions
(b) Sales Load %........................... Contingent Deferred Sales Charge
(c) Special Purchase Plan.................. Contingent Deferred Sales Charge
(d) Commissions............................ AAG Securities, Inc.
(e) Portfolio Expenses..................... Fee Table
(f) Operating Expenses..................... Fee Table
7. Contracts
(a) Persons with Rights.................... Persons with Rights Under a Contract;
Voting Rights
(b)(i) Allocation of Premium Payments........ Purchase Payments
(ii) Transfers............................ Transfers
(iii) Exchanges............................ Additions, Deletions or Substitutions
(c) Changes................................ Not Applicable
(d) Inquiries.............................. How Do I Contact the Company
8. Annuity Period................................ Benefit Payment Period
9. Death Benefit................................. Death Benefit
10. Purchases and Contract Values
(a) Purchases.............................. Purchase Payments; Investment
Options--Allocations
(b) Valuation.............................. Account Value; Definitions
(c) Daily Calculation...................... Account Value; Accumulation Units;
Definitions
(d) Underwriter............................ AAG Securities, Inc.
11. Redemptions
(a) By Owner............................... Surrenders
By Annuitant........................... Not Applicable
(b) Texas ORP.............................. Texas Optional Retirement Program
(c) Check Delay............................ Surrenders
(d) Free Look.............................. Right to Cancel
12. Taxes......................................... Federal Tax Matters
13. Legal Proceedings............................. Legal Proceedings
14. Table of Contents for the Statement of
Additional Statement of Additional Information
Information...................................
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PART B
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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) Fee Table
(b) Management Contracts................... Not Applicable
(c) Custodian.............................. Not Applicable
Independent Auditors................... Experts
(d) Assets of Registrant................... Not Applicable
(e) Affiliated Person...................... Not Applicable
(f) Principal Underwriter.................. Not Applicable
19. Purchase of Securities Being Offered.......... (Prospectus) AAG Securities, Inc.
Offering Sales Load........................... (Prospectus) Contingent Deferred Sales
Charge
20. Underwriters.................................. AAG Securities, Inc.
21. Calculation of Performance Data
(a) Money Market Funded Sub-Accounts....... Money Market Sub-Account Standardized
Yield
Calculation
(b) Other Sub-Accounts..................... Not Applicable
22. Annuity Payments.............................. (Prospectus) Fixed Dollar Benefit;
Variable Dollar Benefit; (SAI) Benefit
Units--Transfer Formulas
23. Financial Statements.......................... Financial Statements
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PART C
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Item of Form N-4 Part C Caption
24. Financial Statements and Exhibits............. Financial Statements and Exhibits
(a) Financial Statements................... Financial Statements
(b) Exhibits............................... Exhibits
25. Directors and Officers of the Depositor....... Directors and Officers of Annuity
Investors Life
Insurance CompanyREGISTERED
26. Persons Controlled By or Under Common Control Persons Controlled By Or Under Common
With the Registrant........................... Control With the Depositor or Registrant
27. Number of Owners.............................. Number of Owners
28. Indemnification............................... Indemnification
29. Principal Underwriters........................ Principal Underwriter
30. Location of Accounts and
Records....................................... Location of Accounts and Records
31. Management Services........................... Management Services
32. Undertakings.................................. Undertakings
Signature Page................................ Signature Page
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ANNUITY INVESTORS LIFE INSURANCE COMPANYREGISTERED
ANNUITY INVESTORSREGISTERED VARIABLE ACCOUNT A
PROSPECTUS for
The Commodore NauticusREGISTERED
Group Flexible Premium Deferred Annuities
May 1, 1999
This prospectus describes The Commodore NauticusREGISTERED group flexible
premium deferred annuity contracts (the "Contracts"). Annuity Investors Life
Insurance CompanyREGISTERED (the "Company") is the issuer of the Contracts. The
interests of individual participants under a Contract are evidenced by
certificates of participation. The description of Contract provisions and values
in this prospectus applies to the interests of certificate owners. The Contracts
are available for tax-qualified and non-tax-qualified annuity purchases. All
Contracts qualify for tax-deferred treatment during the Accumulation Period. The
tax treatment of annuities is discussed in the Federal Tax Matters section of
this prospectus.
The Contracts offer both variable and fixed investment options. The variable
investment options under the Contracts are Sub-Accounts of Annuity
InvestorsREGISTERED Variable Account A (the "Separate Account"). The Contracts
currently offer 21 Sub-Accounts. Each Sub-Account is invested in shares of a
registered investment company or a portfolio thereof (each, a "Portfolio"). The
Portfolios are listed below.
Janus Aspen Series (4 Portfolios)
-Aggressive Growth Portfolio
-Worldwide Growth Portfolio
-Balanced Portfolio
-Capital Appreciation Portfolio
Dreyfus Variable Investment Fund (3 Portfolios)
-Capital Appreciation Portfolio
-Growth and Income Portfolio
-Small Cap Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.
Dreyfus Stock Index Fund
PBHG Insurance Series Fund, Inc. (2 Portfolios)
-PBHG Growth II Portfolio
-PBHG Technology & Communications Portfolio
Merrill Lynch Variable Series Funds, Inc. (4 Portfolios)
-Basic Value Focus Fund
-Global Strategy Focus Fund
-High Current Income Fund
-Domestic Money Market Fund
Morgan Stanley Dean Witter Universal Funds, Inc. (2 Portfolios)
-Fixed Income Portfolio
-U.S. Real Estate Portfolio
BT Insurance Funds Trust (3 Portfolios)
-EAFEREGISTERED Equity Index Fund
-Equity 500 Index Fund
-Small Cap Index Fund
Strong Opportunity Fund II, Inc.
This prospectus includes information you should know before investing in The
Commodore NauticusREGISTERED. This prospectus is not complete without the
current prospectuses for the Portfolios. Please keep this prospectus and the
Portfolio prospectuses for future reference.
A statement of additional information, dated May 1, 1999, contains more
information about the Separate Account and the Contracts. The Company filed the
statement of additional information with the Securities and Exchange Commission.
It is part of this prospectus. For a free copy, complete and return the form on
page 39 of this prospectus, or call the Company at 1-800-789-6771. You may also
access the statement of additional information (as well as all other documents
filed with the Securities and Exchange Commission with respect to the Contracts,
the Separate Account or the Company) at the Securities and Exchange Commission's
Web site: http://www.sec.gov. The table of contents for the statement of
additional information is printed on the last page of this prospectus.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
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These securities may be sold by a bank or credit union, but are not financial
institution products.
o The Contracts are Not FDIC or NCUSIF Insured
o The Contracts are Obligations of the Company and Not of the Bank or Credit
Union
o The Bank or Credit Union Does Not Guarantee the Company's Obligations Under
the Contracts
o The Contracts Involve Investment Risk and May Lose Value
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TABLE OF CONTENTS
Page
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DEFINITIONS...............................................................................................4
OVERVIEW..................................................................................................5
What is the Separate Account?..........................................................................5
What Are the Contracts?................................................................................5
How Do I Purchase or Cancel a Contract?................................................................5
Will Any Penalties or Charges Apply If I Surrender a Contract?.........................................5
What Other Charges and Deductions Apply to the Contract?...............................................5
How Do I Contact the Company?..........................................................................5
FEE TABLE.................................................................................................6
Owner Transaction Expenses.............................................................................6
Separate Account Annual Expenses.......................................................................6
Portfolio Annual Expenses (After Expense Reimbursement) for Year Ended 12/31/981.......................6
Examples...............................................................................................8
CONDENSED FINANCIAL INFORMATION..........................................................................10
Financial Statements..................................................................................12
Performance Information...............................................................................13
Yield Data...........................................................................................13
Total Return Data....................................................................................13
Other Performance Measures...........................................................................13
THE PORTFOLIOS...........................................................................................14
Janus Aspen Series....................................................................................14
Dreyfus Portfolios....................................................................................15
Strong Opportunity Fund II, Inc.......................................................................16
BT Insurance Funds Trust..............................................................................16
Merrill Lynch Variable Series Fund, Inc...............................................................17
Morgan Stanley Dean Witter Universal Funds, Inc.......................................................18
PBHG Insurance Series Fund, Inc.......................................................................18
Additions, Deletions, or Substitutions................................................................19
Voting Rights.........................................................................................19
ANNUITY INVESTORS LIFE INSURANCE COMPANYREGISTERED.......................................................20
THE SEPARATE ACCOUNT.....................................................................................20
AAG SECURITIES, INC......................................................................................20
CHARGES AND DEDUCTIONS...................................................................................21
Charges and Deductions By the Company.................................................................21
Contingent Deferred Sales Charge ("CDSC")............................................................21
Certificate Maintenance Fee..........................................................................22
Transfer Fee.........................................................................................22
Administration Charge................................................................................22
Mortality and Expense Risk Charge....................................................................23
Premium Taxes........................................................................................23
Discretionary Waivers of Charges.....................................................................23
Expenses of the Portfolios............................................................................23
THE CONTRACTS............................................................................................24
Right to Cancel.......................................................................................24
Persons With Rights Under a Contract..................................................................24
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ACCUMULATION PERIOD......................................................................................25
Account Statements....................................................................................25
Account Value.........................................................................................25
Purchase Payments.....................................................................................26
Investment Options--Allocations.......................................................................26
Transfers.............................................................................................27
Surrenders............................................................................................29
Contract Loans........................................................................................30
Termination...........................................................................................30
BENEFIT PAYMENT PERIOD...................................................................................31
Annuity Benefit.......................................................................................31
Death Benefit.........................................................................................31
Settlement Options....................................................................................31
Form of Settlement Option............................................................................32
Calculation of Fixed Dollar Benefit Payments.........................................................32
Calculation of Variable Dollar Benefit Payments......................................................32
FEDERAL TAX MATTERS......................................................................................34
Tax Deferral On Annuities.............................................................................34
Tax-Qualified Plans...................................................................................35
Individual Retirement Annuities......................................................................35
Roth IRAs............................................................................................35
Tax-Sheltered Annuities..............................................................................35
Texas Optional Retirement Program....................................................................35
Pension and Profit Sharing Plans.....................................................................35
Governmental Deferred Compensation Plans.............................................................35
Nonqualified Deferred Compensation Plans..............................................................35
Summary of Income Tax Rules...........................................................................36
GLOSSARY OF FINANCIAL TERMS..............................................................................37
THE REGISTRATION STATEMENT...............................................................................38
OTHER INFORMATION........................................................................................38
Year 2000.............................................................................................38
Legal Proceedings.....................................................................................38
STATEMENT OF ADDITIONAL INFORMATION......................................................................39
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DEFINITIONS
The capitalized terms defined on this page will have the meanings given to them
when used in this prospectus.
Other terms which may have a specific meaning under the Contracts, but which are
not defined on this page, will be explained as they are used in this prospectus.
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Account Value: The value of a certificate during the Accumulation Period. It is
equal to the sum of the value of the owner's interest in the Sub-Accounts and
the owner's interest in the fixed account options.
Accumulation Period: The period during which purchase payments are invested
according to the investment options elected and accumulated on a tax-deferred
basis. The Accumulation Period ends when a certificate is annuitized or
surrendered in full, or on the Death Benefit Valuation Date.
Accumulation Unit: A share of a Sub-Account that an owner purchases during the
Accumulation Period.
Accumulation Unit Value: The value of an Accumulation Unit at the end of a
Valuation Period. See the Glossary of Financial Terms on page 37 of this
prospectus for an explanation of how Accumulation Unit Values are calculated.
Benefit Payment Period: The period during which either annuity benefit or death
benefit payments are paid under a settlement option. The Benefit Payment Period
begins on the first day of the first payment interval in which a benefit payment
will be paid.
Benefit Unit: A share of a Sub-Account that is used to determine the amount of
each variable dollar benefit payment after the first variable dollar benefit
payment during the Benefit Payment Period.
Benefit Unit Value: The value of a Benefit Unit at the end of a Valuation
Period. See the Glossary of Financial Terms on page 37 of this prospectus for an
explanation of how Benefit Unit Values are calculated.
Death Benefit Valuation Date: The date the death benefit is valued. It is the
date that the Company receives both proof of the death of the owner and
instructions as to how the death benefit will be paid. If instructions are not
received within one year of the date of death, the Death Benefit Valuation Date
will be one year after the date of death. The Death Benefit Valuation Date may
never be later than five years after the date of death.
Net Asset Value: The price computed by or for each Portfolio, no less frequently
than each Valuation Period, at which the Portfolio's shares or units are
redeemed in accordance with the rules of the Securities and Exchange Commission.
Net Investment Factor: The factor that represents the percentage change in the
Accumulation Unit Values and Benefit Unit Values from one Valuation Period to
the next. See the Glossary of Financial Terms on page 37 of this prospectus for
an explanation of how the Net Investment Factor is calculated.
Valuation Date: A day on which Accumulation Unit Values and Benefit Unit Values
can be calculated. Each day the New York Stock Exchange is open for business is
a Valuation Date.
Valuation Period: The period starting at the close of regular trading on the New
York Stock Exchange on any Valuation Date and ending at the close of trading on
the next succeeding Valuation Date.
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OVERVIEW
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What is the Separate Account?
The Separate Account is a unit investment trust registered with the Securities
and Exchange Commission under the Investment Company Act of 1940. The Separate
Account is divided into Sub-Accounts, each of which is invested in one of the
Portfolios listed on page 1 of this prospectus. If you choose a variable
investment option, you are investing in the Sub-Accounts, not directly in the
Portfolios.
What Are the Contracts?
The Contracts are group deferred annuities, which are insurance products. The
Contracts are sold with either a standard or enhanced fee structure as described
in the Fee Table on page 6 of this prospectus. The Contracts are available in
both tax-qualified and non-tax-qualified forms, both of which qualify for
tax-deferred investment status. See the Federal Tax Matters section beginning on
page 34 of this prospectus for more information about tax qualifications and
taxation of annuities in general. During the Accumulation Period, the amounts
you contribute can be allocated among any of the 21 variable investment options
and five fixed account options. The variable investment options are the
Sub-Accounts of the Separate Account, each of which is invested in a Portfolio.
The owner bears the risk of any investment gain or loss on amounts allocated to
the Sub-Accounts. The fixed account options earn a fixed rate of interest
declared by the Company, which will be no less than 3% per year. The Company
guarantees amounts invested in the fixed account options and the earnings
thereon so long as those amounts remain in the fixed account.
During the Benefit Payment Period, payments can be allocated between variable
dollar benefit and fixed dollar benefit options. If a variable dollar benefit is
selected, Benefit Units can be allocated to any of the same Sub-Accounts that
are available during the Accumulation Period.
How Do I Purchase or Cancel a Contract?
The requirements to purchase a Contract are explained in The Contracts section
beginning on page 24 of this prospectus. You may purchase a Contract only
through a licensed securities representative. Where required by state law,
Contracts may include a right to cancel provision. The owner will bear the risk
of investment gain or loss on amounts allocated to the Sub-Accounts prior to
cancellation. The right to cancel is described in the Right to Cancel Section on
page 24 of this prospectus.
Will Any Penalties or Charges Apply If I Surrender a Contract?
A contingent deferred sales charge ("CDSC") may apply to amounts surrendered
depending on the timing and amount of the surrender. The maximum CDSC is 7% for
each purchase payment. The CDSC percentage decreases by 1% annually to 0% after
seven years from the date of receipt of each purchase payment. Surrender
procedures and the CDSC are described in the Surrenders section beginning on
page 29 of this prospectus. A penalty tax may also be imposed at the time of a
surrender depending on your age and other circumstances of the surrender. Tax
consequences of a surrender are described in the Federal Tax Matters section on
page 34 of this prospectus. The right to surrender may be restricted under
certain tax-qualified plans.
What Other Charges and Deductions Apply to the Contract?
Other than the CDSC, the Company will charge the fees and charges listed below
unless the Company waives the fee or charge as discussed in the Charges and
Deductions section beginning on page 21 of this prospectus:
o a transfer fee for certain transfers between investment options;
o an annual certificate maintenance fee, which is assessed only against
investments in the Sub-Accounts; o a mortality and expense risk charge, which is
an expense of the Separate Account and charged against
all assets in the Sub-Accounts (this charge may never be waived); and o
premium taxes in some States (where taxes apply, they may never be waived).
In addition to charges and deductions under the Contracts, the Portfolios incur
expenses that are passed through to owners. Portfolio expenses for the fiscal
year ending December 31, 1998 are included in the Fee Table on page 6 of this
prospectus and are described in the prospectuses and statements of additional
information for the Portfolios.
How Do I Contact the Company?
Any questions or inquiries should be directed to the Company's Administrative
Office, P.O. Box 5423, Cincinnati, Ohio 45201-5423, (800) 789-6771. Please
include the certificate number and the owner's name.
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FEE TABLE
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Owner Transaction Expenses
Maximum Contingent Deferred Sales Charge (applies to purchase payments only) 7%
Transfer Fee (applies to transfers in excess of 12 in any certificate year) $25
Annual Certificate Maintenance Fee (not assessed against fixed account options) $25
Separate Account Annual Expenses
(As a percentage of the average value of the owner's interest in the Sub-Accounts)
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Standard Contracts Enhanced Contracts
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Mortality and Expense Risk Charge 1.25% 0.95%
Administration Charge 0.00% 0.00%
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Total Separate Account Annual Expenses 1.25% 0.95%
Portfolio Annual Expenses (After Expense Reimbursement) for Year Ended 12/31/981
(As a percentage of Portfolio average net assets)
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Sub-Account Management Other Total
Fees Expenses Expenses
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Janus A.S.-Aggressive Growth Portfolio 0.72 0.03 0.75
Janus A.S.-Worldwide Growth Portfolio 0.65 0.07 0.72
Janus A.S.-Balanced Portfolio 0.72 0.02 0.74
Janus A.S.-Capital Appreciation Portfolio 0.70 0.22 0.92
Dreyfus V.I.F.-Capital Appreciation Portfolio 0.75 0.06 0.81
Dreyfus V.I.F.-Growth and Income Portfolio 0.75 0.03 0.78
Dreyfus V.I.F.-Small Cap Portfolio 0.75 0.02 0.77
The Dreyfus Socially Responsible Growth Fund, Inc. 0.75 0.05 0.80
Dreyfus Stock Index Fund 0.25 0.01 0.26
Strong Opportunity Fund II, Inc. 1.00 0.16 1.16
BT Insurance Funds Trust-EAFEREGISTERED Equity Index Fund 0.00 0.65 0.65
BT Insurance Funds Trust-Equity 500 Index Fund 0.00 0.30 0.30
BT Insurance Funds Trust-Small Cap Index Fund 0.00 0.45 0.45
Merrill Lynch V.S.F.-Basic Value Focus Fund 0.60 0.06 0.66
Merrill Lynch V.S.F.-Global Strategy Focus Fund 0.65 0.07 0.72
Merrill Lynch V.S.F.-High Current Income Fund 0.47 0.06 0.53
Merrill Lynch V.S.F.-Domestic Money Market Fund 0.50 0.06 0.56
Morgan Stanley Dean Witter Universal Funds, Inc.-Fixed Income 0.06 0.64 0.70
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc.-U.S. Real Estate 0.17 0.93 1.10
Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio 0.85 0.69 1.20
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio 0.85 0.71 1.20
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The purpose of the Fee Table is to assist the owner in understanding the various
costs and expenses that an owner will bear directly or indirectly. The Fee Table
reflects expenses of the Separate Account as well as of the Portfolios. The
Separate Account expenses are discussed more fully in the Charges and Deductions
section beginning on page 21 of this prospectus. The Portfolio expenses are
discussed more fully in the Portfolio prospectuses. Premium taxes may also
apply.
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1 Data for each Portfolio are for its fiscal year ended December 31, 1998.
Actual expenses in future years may be higher or lower. Portfolios may have
agreements with their advisors to cap or waive fees, and/or to reduce or waive
expenses or to reimburse expenses. The specific terms of such waivers,
reductions or reimbursements are discussed in the Portfolio prospectuses. Fees
and expenses shown below are actual fees and expenses before any applicable fee
waivers or reductions or expense reimbursements.
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Sub-Account Management Other Total
Fees Expenses Expenses
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Janus A.S.-Aggressive Growth Portfolio 0.72 0.03 0.75
Janus A.S.-Worldwide Growth Portfolio 0.67 0.07 0.74
Janus A.S.-Balanced Portfolio 0.72 0.02 0.74
Janus A.S.-Capital Appreciation Portfolio 0.75 0.22 0.97
Dreyfus V.I.F.-Capital Appreciation Portfolio 0.75 0.09 0.84
Dreyfus V.I.F.-Growth and Income Portfolio 0.75 0.08 0.83
Dreyfus V.I.F.-Small Cap Portfolio 0.75 0.36 1.11
The Dreyfus Socially Responsible Growth Fund, Inc. 0.75 0.20 0.95
Dreyfus Stock Index Fund 0.25 0.02 0.27
Strong Opportunity Fund II, Inc. 1.00 0.16 1.16
BT Insurance Funds Trust-EAFEREGISTERED Equity Index Fund 0.45 1.21 1.66
BT Insurance Funds Trust-Equity 500 Index Fund 0.20 0.99 1.19
BT Insurance Funds Trust-Small Cap Index Fund 0.35 1.23 1.58
Merrill Lynch V.S.F.-Basic Value Focus Fund 0.60 0.06 0.66
Merrill Lynch V.S.F.-Global Strategy Focus Fund 0.65 0.07 0.72
Merrill Lynch V.S.F.-High Current Income Fund 0.47 0.06 0.53
Merrill Lynch V.S.F.-Domestic Money Market Fund 0.50 0.06 0.56
Morgan Stanley Dean Witter Universal Funds, Inc.-Fixed Income 0.40 0.64 1.04
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc.-U.S. Real Estate 0.80 0.93 1.73
Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio 0.51 0.69 1.54
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio 0.49 0.71 1.56
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Examples Example #1--Assuming Surrender Example #2--Assuming No Surrender
Standard Contracts
If the owner surrenders his or her If the owner does not surrender his or
certificate at the end of the her certificate, or if it is
applicable time period, the following annuitized, the following expenses
expenses would be charged on a $1,000 would be charged on a $1,000 investment
investment: at the end of the applicable time
period:
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Sub-Account 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years
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Janus A.S.-Aggressive Growth Portfolio $ 91 $119 $155 $302 $ 21 $ 69 $125 $302
Janus A.S.-Worldwide Growth Portfolio $ 91 $118 $153 $298 $ 21 $ 68 $123 $298
Janus A.S.-Balanced Portfolio $ 91 $119 $154 $301 $ 21 $ 69 $124 $301
Janus A.S.-Capital Appreciation Portfolio $ 93 $125 $164 $325 $ 23 $ 75 $134 $325
Dreyfus V.I.F.-Capital Appreciation Portfolio $ 92 $121 $158 $310 $ 22 $ 71 $128 $310
Dreyfus V.I.F.-Growth and Income Portfolio $ 92 $120 $156 $306 $ 22 $ 70 $126 $306
Dreyfus V.I.F.-Small Cap Portfolio $ 92 $120 $156 $305 $ 22 $ 70 $126 $305
The Dreyfus Socially Responsible Growth Fund, Inc. $ 92 $121 $158 $309 $ 22 $ 71 $128 $309
Dreyfus Stock Index Fund $ 86 $103 $126 $236 $ 16 $ 53 $ 96 $236
Strong Opportunity Fund II, Inc. $ 96 $133 $178 $355 $ 26 $ 83 $148 $355
BT Insurance Funds Trust-EAFEREGISTERED Equity Index Fund $ 90 $116 $149 $289 $ 20 $ 66 $119 $289
BT Insurance Funds Trust-Equity 500 Index Fund $ 87 $105 $129 $241 $ 17 $ 55 $ 99 $241
BT Insurance Funds Trust-Small Cap Index Fund $ 88 $110 $137 $262 $ 18 $ 60 $107 $262
Merrill Lynch V.S.F.-Basic Value Focus Fund $ 91 $116 $150 $290 $ 21 $ 66 $120 $290
Merrill Lynch V.S.F.-Global Strategy Focus Fund $ 91 $118 $153 $298 $ 21 $ 68 $123 $298
Merrill Lynch V.S.F.-High Current Income Fund $ 89 $112 $142 $273 $ 19 $ 62 $112 $273
Merrill Lynch V.S.F.-Domestic Money Market Fund $ 89 $113 $144 $277 $ 19 $ 63 $114 $277
Morgan Stanley Dean Witter Universal Funds, Inc.-Fixed Income $ 91 $118 $152 $296 $ 21 $ 68 $122 $296
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc.-U.S. Real Estate $ 95 $131 $175 $348 $ 25 $ 81 $145 $348
Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio $ 96 $134 $180 $360 $ 26 $ 84 $150 $360
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio $ 96 $134 $180 $360 $ 26 $ 84 $150 $360
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Enhanced Contracts Example #1--Assuming Surrender Example #2--Assuming No Surrender
If the owner surrenders his or her If the owner does not surrender his
certificate at the end of the or her certificate, or if it is
applicable time period, the following annuitized, the following expenses
expenses would be charged on a $1,000 would be charged on a $1,000
investment: investment at the end of the
applicable time period:
- -------------------------------------------------------------------- ---------------------------------------- ----------------------
Sub-Account 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years
- -------------------------------------------------------------------- --------- ---------- --------- --------- ---------- --------- -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Janus A.S.-Aggressive Growth Portfolio $ 88 $110 $138 $262 $ 18 $ 60 $108 $262
Janus A.S.-Worldwide Growth Portfolio $ 88 $109 $136 $258 $ 18 $ 59 $106 $258
Janus A.S.-Balanced Portfolio $ 88 $109 $137 $261 $ 18 $ 59 $107 $261
Janus A.S.-Capital Appreciation Portfolio $ 90 $115 $147 $285 $ 20 $ 65 $117 $285
Dreyfus V.I.F.-Capital Appreciation Portfolio $ 89 $112 $141 $270 $ 19 $ 62 $111 $270
Dreyfus V.I.F.-Growth and Income Portfolio $ 89 $111 $139 $266 $ 19 $ 61 $109 $266
Dreyfus V.I.F.-Small Cap Portfolio $ 89 $110 $139 $265 $ 19 $ 60 $109 $265
The Dreyfus Socially Responsible Growth Fund, Inc. $ 89 $111 $140 $269 $ 19 $ 61 $110 $269
Dreyfus Stock Index Fund $ 83 $ 93 $109 $194 $ 13 $ 43 $ 79 $194
Strong Opportunity Fund II, Inc. $ 93 $123 $161 $317 $ 23 $ 73 $131 $317
BT Insurance Funds Trust-EAFEREGISTERED Equity Index Fund $ 87 $106 $132 $249 $ 17 $ 56 $102 $249
BT Insurance Funds Trust-Equity 500 Index Fund $ 84 $ 95 $111 $199 $ 14 $ 45 $ 81 $199
BT Insurance Funds Trust-Small Cap Index Fund $ 85 $100 $120 $221 $ 15 $ 50 $ 90 $221
Merrill Lynch V.S.F.-Basic Value Focus Fund $ 87 $107 $132 $250 $ 17 $ 57 $102 $250
Merrill Lynch V.S.F.-Global Strategy Focus Fund $ 88 $109 $136 $258 $ 18 $ 59 $106 $258
Merrill Lynch V.S.F.-High Current Income Fund $ 86 $102 $125 $232 $ 16 $ 52 $ 95 $232
Merrill Lynch V.S.F.-Domestic Money Market Fund $ 86 $103 $126 $236 $ 16 $ 53 $ 96 $236
Morgan Stanley Dean Witter Universal Funds, Inc.-Fixed Income $ 88 $108 $135 $255 $ 18 $ 58 $105 $255
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc.-U.S. Real Estate $ 92 $121 $158 $309 $ 22 $ 71 $128 $309
Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio $ 93 $124 $163 $322 $ 23 $ 74 $133 $322
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio $ 93 $124 $163 $322 $ 23 $ 74 $133 $322
</TABLE>
The examples are not indicative of past or future expenses or annual rates of
return of any Portfolio. Actual expenses and annual rates of return may be more
or less than those assumed in the examples. The examples assume the reinvestment
of all dividends and distributions, no transfers among Sub-Accounts or between
the fixed account options and the Sub-Accounts and a 5% annual rate of return.
The certificate maintenance fee is reflected in the examples as a charge of
$0.74 per year based on the ratio of actual certificate maintenance fees
collected for the year ended 12/31/98 to total net assets as of 12/31/98. The
examples do not include charges for premium taxes.
-9-
<PAGE>
<TABLE>
<CAPTION>
CONDENSED FINANCIAL INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------------
Sub-Account Standard Contracts
12/31/95 12/31/96 12/31/97 12/31/98
- --------------- --------------------------------------------- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Janus Aggressive Growth Portfolio
Aspen Accumulation Unit Value 10.299246 10.979832 12.217744 16.201176
Series Accumulation Units Outstanding 0.000 52,219.342 207,227.419 276,028.214
--------------------------------------------- ---------------- ----------------- ----------------- ----------------
Worldwide Growth Portfolio
Accumulation Unit Value 10.239284 13.048360 15.742391 20.045287
Accumulation Units Outstanding 0.000 50,730.352 425,739.592 689,148.869
--------------------------------------------- ---------------- ----------------- ----------------- ----------------
Balanced Portfolio
Accumulation Unit Value 10.171211 11.670308 14.073772 18.665828
Accumulation Units Outstanding 0.000 49,603.384 409,917.307 765,170.784
--------------------------------------------- ---------------- ----------------- ----------------- ----------------
Capital Appreciation Portfolio
Accumulation Unit Value N/A N/A N/A N/A
Accumulation Units Outstanding N/A N/A N/A N/A
- --------------- --------------------------------------------- ---------------- ----------------- ----------------- ----------------
Dreyfus Capital Appreciation Portfolio
Variable Accumulation Unit Value 9.944353 12.330543 15.594553 20.056205
Investment Accumulation Units Outstanding 0.000 33,424.286 247,118.575 445,340.210
Fund --------------------------------------------- ---------------- ----------------- ----------------- ----------------
Growth and Income Portfolio
Accumulation Unit Value N/A N/A 11.475350 12.672693
Accumulation Units Outstanding N/A N/A 48,865.286 153,859.242
--------------------------------------------- ---------------- ----------------- ----------------- ----------------
Small Cap Portfolio
Accumulation Unit Value N/A N/A 12.145032 11.582209
Accumulation Units Outstanding N/A N/A 86,150.930 256,140.224
- ------------------------------------------------------------- --------------------------------------------- ---------------- -------
The Dreyfus Socially Responsible Growth Fund, Inc.
Accumulation Unit Value 9.960199 11.924561 15.126449 19.329493
Accumulation Units Outstanding 0.000 15,316.028 132,957.488 229,710.625
- ------------------------------------------------------------- ---------------- ----------------- ----------------- ----------------
Dreyfus Stock Index Fund
Accumulation Unit Value 9.992509 12.092195 15.879169 20.107787
Accumulation Units Outstanding 0.000 29,203.177 324,713.323 665,996.241
- ------------------------------------------------------------- ---------------- ----------------- ----------------- ----------------
Strong Opportunity Fund II, Inc.
Accumulation Unit Value N/A N/A 12.311565 13.806405
Accumulation Units Outstanding N/A N/A 35,542.297 120,817.718
- --------------- --------------------------------------------- ---------------- ----------------- ----------------- ----------------
BT Insurance EAFEREGISTERED Equity Index Fund
Funds Trust Accumulation Unit Value N/A N/A N/A N/A
Accumulation Units Outstanding N/A N/A N/A N/A
--------------------------------------------- ---------------- ----------------- ----------------- ----------------
Equity 500 Index Fund
Accumulation Unit Value N/A N/A N/A N/A
Accumulation Units Outstanding N/A N/A N/A N/A
--------------------------------------------- ---------------- ----------------- ----------------- ----------------
Small Cap Index Fund
Accumulation Unit Value N/A N/A N/A N/A
Accumulation Units Outstanding N/A N/A N/A N/A
- --------------- --------------------------------------------- ---------------- ----------------- ----------------- ----------------
Merrill Lynch Basic Value Focus Fund
Variable Accumulation Unit Value 10.147434 12.094664 14.408954 15.575121
Series Fund, Accumulation Units Outstanding 0.000 6,820.503 68,181.594 154,675.988
Inc. --------------------------------------------- ---------------- ----------------- ----------------- ----------------
Global Strategy Focus Fund
Accumulation Unit Value 10.105242 11.294096 12.486612 13.426667
Accumulation Units Outstanding 0.000 2,114.707 17,615.512 25,160.717
--------------------------------------------- ---------------- ----------------- ----------------- ----------------
High Current Income Fund
Accumulation Unit Value 10.118436 11.119068 12.189961 11.667978
Accumulation Units Outstanding 0.000 6,837.357 65,756.981 119,716.657
--------------------------------------------- ---------------- ----------------- ----------------- ----------------
Domestic Money Market Fund
Accumulation Unit Value 1.002475 1.041216 1.079946 1.118170
Accumulation Units Outstanding 0.000 325,331.820 697,535.841 876,845.270
- ------------------------------------------------------------ ---------------- ----------------- ----------------- ----------------
Morgan Fixed Income Portfolio
Stanley Accumulation Unit Value N/A N/A 10.740991 11.446708
Dean Witter Accumulation Units Outstanding N/A N/A 7,144.949 67,599.236
Universal --------------------------------------------- ---------------- ----------------- ----------------- ----------------
Funds, Inc. U.S. Real Estate Portfolio
Accumulation Unit Value N/A N/A 12.291156 10.820841
Accumulation Units Outstanding N/A N/A 19,438.406 61,094.222
- ------------------------------------------------------------ ---------------- ----------------- ----------------- ----------------
PBHG PBHG Growth II Portfolio
Series Accumulation Unit Value N/A N/A 10.661135 11.391453
Insurance Accumulation Units Outstanding N/A N/A 15,905.540 27,306.830
Fund, Inc. -------------------------------------------- ---------------- ---------------- ----------------- ----------------- -
PBHG Technology & Communications Portfolio
Accumulation Unit Value N/A N/A 10.323925 13.480010
Accumulation Units Outstanding N/A N/A 51,276.959 112,549.063
- --------------- --------------------------------------------- ---------------- ----------------- ----------------- ----------------
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Sub-Account Enhanced Contracts
12/31/95 12/31/96 12/31/97 12/31/98
- ---------------- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Janus Aggressive Growth Portfolio
Aspen Accumulation Unit Value 10.301075 11.015008 12.293313 16.349773
Series Accumulation Units Outstanding 0.000 1,910.271 1,754.459 3,311.189
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Worldwide Growth Portfolio
Accumulation Unit Value 10.241132 13.090061 15.839608 20.228946
Accumulation Units Outstanding 0.000 272.267 3,070.952 14,225.653
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Balanced Portfolio
Accumulation Unit Value 10.173040 11.707739 14.160835 18.837059
Accumulation Units Outstanding 0.000 1,024.467 8,896.063 12,092.854
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Capital Appreciation Portfolio
Accumulation Unit Value N/A N/A N/A N/A
Accumulation Units Outstanding N/A N/A N/A N/A
- ---------------- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
Dreyfus Capital Appreciation Portfolio
Variable Accumulation Unit Value 9.946124 12.369954 15.690822 20.239919
Investment Accumulation Units Outstanding 0.000 313.603 3,990.613 20,198.098
Fund -------------------------------------------- ----------------- ---------------- ----------------- ----------------
Growth and Income Portfolio
Accumulation Unit Value N/A N/A 11.498113 12.735544
Accumulation Units Outstanding N/A N/A 5.708 11,391.202
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Small Cap Portfolio
Accumulation Unit Value N/A N/A 12.169119 11.639676
Accumulation Units Outstanding N/A N/A 1,993.698 13,863.364
- ------------------------------------------------------------- ----------------- ---------------- ----------------- ----------------
The Dreyfus Socially Responsible Growth Fund, Inc.
Accumulation Unit Value 9.962000 11.962818 15.220020 19.506808
Accumulation Units Outstanding 0.000 0.000 5,460.625 5,962.423
- ------------------------------------------------------------- ----------------- ---------------- ----------------- ----------------
Dreyfus Stock Index Fund
Accumulation Unit Value 9.994303 12.130821 15.977173 20.291951
Accumulation Units Outstanding 0.000 600.306 4,263.339 31,533.165
- ------------------------------------------------------------- ----------------- ---------------- ----------------- ----------------
Strong Opportunity Fund II, Inc.
Accumulation Unit Value N/A N/A 12.335975 13.874874
Accumulation Units Outstanding N/A N/A 0.000 3,173.858
- ---------------- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
BT Insurance EAFEREGISTERED Equity Index Fund
Funds Trust Accumulation Unit Value N/A N/A N/A N/A
Accumulation Units Outstanding N/A N/A N/A N/A
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Equity 500 Index Fund
Accumulation Unit Value N/A N/A N/A N/A
Accumulation Units Outstanding N/A N/A N/A N/A
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Small Cap Index Fund
Accumulation Unit Value N/A N/A N/A N/A
Accumulation Units Outstanding N/A N/A N/A N/A
- ---------------- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
Merrill Lynch Basic Value Focus Fund
Variable Accumulation Unit Value 10,149258 12.133299 14.497904 15.717824
Series Fund, Accumulation Units Outstanding 0.000 96.296 2,123.159 7,075.336
Inc. -------------------------------------------- ----------------- ---------------- ----------------- ----------------
Global Strategy Focus Fund
Accumulation Unit Value 10.107054 11.330202 12.563763 13.549756
Accumulation Units Outstanding 0.000 30.061 1,186.434 1,230.646
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
High Current Income Fund
Accumulation Unit Value 10.120248 11.148637 12.258690 11.768629
Accumulation Units Outstanding 0.000 255.389 1,036.359 3,945.423
-------------------------------------------- ----------------- ---------------- ----------------- ----------------
Domestic Money Market Fund
Accumulation Unit Value 1.002655 1.045819 1.087469 1.128613
Accumulation Units Outstanding 0.000 1,260.991 10,686.456 15,490.877
- ------------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Morgan Fixed Income Portfolio
Stanley Accumulation Unit Value N/A N/A 10.762308 11.503500
Dean Witter Accumulation Units Outstanding N/A N/A 0.000 706.067
Universal -------------------------------------------- ----------------- ---------------- ----------------- ----------------
Funds, Inc. U.S. Real Estate Portfolio
Accumulation Unit Value N/A N/A 12.315552 10.874562
Accumulation Units Outstanding N/A N/A 0.000 365.320
- ------------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
PBHG PBHG Growth II Portfolio
Insurance Accumulation Unit Value N/A N/A 10.682296 11.447984
Series Accumulation Units Outstanding N/A N/A 496.211 763.702
Fund, Inc. -------------------------------------------- ----------------- ---------------- ----------------- ----------------
PBHG Technology & Communications Portfolio
Accumulation Unit Value N/A N/A 10.344412 13.546872
Accumulation Units Outstanding N/A N/A 156.518 2,340.838
- ---------------- -------------------------------------------- ----------------- ---------------- ----------------- ----------------
</TABLE>
-11-
<PAGE>
The above table gives year-end Accumulation Unit information for each
Sub-Account from the end of the year of inception to December 31, 1998. This
information should be read in conjunction with the Separate Account financial
statements, including the notes to those statements. The beginning Accumulation
Unit Value for each Sub-Account other than the Merrill Lynch Domestic Money
Market Fund Sub-Account was 10.000000 as of December 7, 1995 (the Separate
Account commencement date), or as of May 1, 1997 (the effective date of the
Sub-Account), for all of the PBHG, Morgan Stanley Dean Witter and Strong
Portfolio Sub-Accounts and for the Dreyfus Growth and Income and Small Cap
Portfolio Sub-Accounts, or as of May 1, 1999 (the effective date of the
Sub-Account) for the Janus Capital Appreciation Portfolio and all of the BT
Insurance Funds Trust Portfolios. The beginning Accumulation Unit Value for the
Merrill Lynch Domestic Money Market Fund Sub-Account was 1.000000 as of December
7, 1995.
Financial Statements
The financial statements and reports of independent auditors for the Company and
for the Separate Account are included in the statement of additional
information.
-12-
<PAGE>
Performance Information
From time to time, the Company may advertise yields and/or total returns for the
Sub-Accounts. These figures are based on historical information and are not
intended to indicate future performance. Performance data and a more detailed
description of the methods used to determine yield and total return are included
in the statement of additional information.
Yield Data
The "yield" of the money market Sub-Account refers to the annualized income
generated by an investment in that Sub-Account over a specified seven-day
period. The "effective yield" of the money market Sub-Account is the same as the
"yield" except that it assumes reinvestment of the income earned in that
Sub-Account. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment. The Company does not
advertise yields for any Sub-Account other than the money market Sub-Account.
Total Return Data
The Company may advertise two types of total return data: "average annual total
return" and "cumulative total return." Average annual total return is presented
in both standardized and non-standardized form. "Standardized" total return data
reflects the deduction of all charges that apply to all Contracts of that type,
except for premium taxes. The contingent deferred sales charge ("CDSC")
reflected in standardized total return is the percentage CDSC that would apply
at the end of the period presented, assuming the purchase payment was received
on the first day of the period presented. "Non-standardized" total return data
does not reflect the deduction of CDSCs and certificate maintenance fees.
Cumulative total return data is currently presented only in non-standardized
form.
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.
"Average annual total return" is either hypothetical or actual return data that
reflects performance of a Sub-Account for a one year period or for an average of
consecutive one year periods. If average annual total return data is
hypothetical, it reflects performance for a period of time before the Separate
Account commenced operations. When a Sub-Account has been in operation for one,
five and ten years, average annual total return will be presented for these
periods, although other periods may be presented as well.
"Cumulative total return" is either hypothetical or actual return data that
reflects the performance of a Sub-Account from the beginning of the period
presented to the end of the period presented. If cumulative total return data is
hypothetical, it reflects performance for a period of time before the Separate
Account commenced operations.
Other Performance Measures
The Company may include in reports and promotional literature rankings of the
Sub-Accounts, the Separate Account or the Contracts, as published by any
service, company, or person who ranks separate accounts or other investment
products on overall performance or other criteria. Examples of companies that
publish such rankings are Lipper Analytical Services, Inc., VARDS,
IBC/Donoghue's Money Fund Report, Financial Planning Magazine, Money Magazine,
Bank Rate Monitor, Standard & Poor's Indices, Dow Jones Industrial Average, and
Morningstar.
The Company may also:
o compare the performance of a Sub-Account with applicable indices and/or
industry averages;
o present performance information that reflects the effects of tax-deferred
compounding on Sub-Account investment returns;
o compare investment return on a tax-deferred basis with currently taxable
investment return;
o illustrate investment returns by graphs, charts, or otherwise.
-13-
<PAGE>
THE PORTFOLIOS
- --------------------------------------------------------------------------------
The Separate Account is currently divided into 21 Sub-Accounts. Each Sub-Account
is invested in a Portfolio. Each Portfolio has its own investment objectives and
policies. The current Portfolio prospectuses which accompany this prospectus
contain additional information concerning the investment objectives and policies
of each Portfolio, the investment advisory services and administrative services
of each Portfolio and the charges of each Portfolio. There is no assurance that
the Portfolios will achieve their stated objectives. You should read the
Portfolio prospectuses carefully before making any decision concerning the
allocation of purchase payments to, or transfers among, the Sub-Accounts.
All dividends and capital gains distributed by the Portfolios are reinvested in
the Separate Account and reflected in Accumulation Unit Values. Portfolio
dividends and net capital gains are not distributed to owners.
The Securities and Exchange Commission does not supervise the management or the
investment practices and/or policies of any of the Portfolios.
The Portfolios are available only through insurance company separate accounts
and certain qualified retirement plans. Though a Portfolio may have a name
and/or investment objectives which are similar to those of a publicly available
mutual fund, and/or may be managed by the same investment advisor that manages a
publicly available mutual fund, the performance of the Portfolio is entirely
independent of the performance of any publicly available mutual fund. Neither
the Company nor the Portfolios make any representations or assurances that the
investment performance of any Portfolio will be the same or similar to the
investment performance of any publicly available mutual fund.
Janus Aspen Series
<TABLE>
<CAPTION>
<S> <C>
Advisor: Aggressive Growth Portfolio
Janus Capital Corporation A nondiversified portfolio that seeks long-term growth of capital by investing primarily
in common stocks with an emphasis on securities issued by medium-sized companies.
Advisor: Worldwide Growth Portfolio
Janus Capital Corporation A diversified portfolio that seeks long-term growth of capital by investing primarily in
common stocks of foreign and domestic issuers. International investing may present special
risks, including currency fluctuations and social and political developments. For further
discussion of the risks associated with international investing, please see the attached
Janus Aspen Series prospectus.
Advisor: Balanced Portfolio
Janus Capital Corporation A diversified portfolio that seeks long-term growth of capital balanced by current
income. The Portfolio normally invests 40-60% of its assets in securities selected
primarily for their growth potential and 40-60% of its assets in securities selected
primarily for their income potential.
Advisor: Capital Appreciation Portfolio
Janus Capital Corporation A nondiversified portfolio that seeks long-term growth of capital by investing primarily
in common stocks of issuers of any size.
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Dreyfus Portfolios
<S> <C>
Advisor: Dreyfus Variable Investment Fund-Capital Appreciation Portfolio
The Dreyfus Corporation The Capital Appreciation Portfolio's primary investment objective is to provide long-term
capital growth consistent with the preservation of capital. Current income is a secondary
Sub-Advisor: goal. It seeks to achieve its goals by investing in common stocks.
Fayez Sarofim & Co.
Advisor: Dreyfus Variable Investment Fund-Growth and Income Portfolio
The Dreyfus Corporation The Growth and Income Portfolio's goal is to provide long-term capital growth, current
income and growth of income, consistent with reasonable investment risk. This Portfolio
invests primarily in equity securities, debt securities and money market instruments of
domestic and foreign issuers.
Advisor: Dreyfus Variable Investment Fund-Small Cap Portfolio
The Dreyfus Corporation The Small Cap Portfolio's goal is to maximize capital appreciation. This Portfolio invests
primarily in common stocks of domestic and foreign issuers. This Portfolio seeks companies
characterized by new or innovative products or services which should enhance prospects for
growth in future earnings.
Advisor: The Dreyfus Socially Responsible Growth Fund, Inc.
The Dreyfus Corporation The Dreyfus Socially Responsible Growth Fund, Inc.'s primary goal is to provide capital
growth. It seeks to achieve this goal by investing principally in common stocks, or
Sub-Advisor: securities convertible into common stock, of companies which, in the opinion of the
NCM Capital Management Group, Inc. Portfolio'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.
Advisor: Dreyfus Stock Index Fund
The Dreyfus Corporation The Dreyfus Stock Index Fund's investment objective is to provide investment results that
correspond to the price and yield performance of publicly traded common stocks in the
Index Manager: aggregate, as represented by the Standard & Poor's 500 Composite Stock Price Index. The
Mellon Equity Associates (an affiliate Stock Index Fund is neither sponsored, endorsed, sold or promoted by, nor affiliated with,
of Dreyfus) Standard & Poor's Corporation or The McGraw-Hill Companies, Inc.
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Strong Opportunity Fund II, Inc.
<S> <C>
Advisor: Strong Opportunity Fund II, Inc.
Strong Capital Management, Inc. The investment objective of the Strong Opportunity Fund II is to seek capital growth. It
currently emphasizes medium-sized companies that the Portfolio's adviser believes are
under-researched and attractively valued.
BT Insurance Funds Trust
Advisor: EAFEREGISTERED Equity Index Fund
Bankers Trust Company The EAFEREGISTERED Equity Index Fund seeks to replicate as closely as possible (before
deduction of expenses) the total return of the Europe, Australia, Far East Index (the
"EAFEREGISTERED Index"), a capitalization-weighted index containing approximately 1,100
equity securities of companies located outside the United States. The Portfolio will be
invested primarily in equity securities of business enterprises organized and domiciled
outside of the United States or for which the principal trading market is outside the
United States. Statistical methods will be employed to replicate the EAFEREGISTERED Index
by buying most of the EAFEREGISTERED Index securities. Securities purchased for the
Portfolio will generally, but not necessarily, be traded on a foreign securities exchange.
Advisor: Equity 500 Index Fund
Bankers Trust Company The Equity 500 Index Fund seeks to replicate as closely as possible (before deduction of
expenses) the total return of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500"), an index emphasizing large-capitalization stocks. The Portfolio will include
the common stock of those companies included in the S&P 500, other than the Bankers Trust
Corporation, selected on the basis of computer generated statistical data, that are deemed
representative of the industry diversification of the entire S&P 500.
Advisor: Small Cap Index Fund
Bankers Trust Company The Small Cap Index Fund seeks to replicate as closely as possible (before deduction of
expenses) the total return of the Russell 2000 Small Stock Index (the "Russell 2000"), an
index consisting of 2,000 small-capitalization common stocks. The Portfolio will include
the common stock of companies included in the Russell 2000, on the basis of
computer-generated statistical data, that are deemed representative of the industry
diversification of the entire Russell 2000.
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Merrill Lynch Variable Series Fund, Inc.
<S> <C>
Advisor: Basic Value Focus Fund
Merrill Lynch Asset Management, L.P. The investment objective of the Basic Value Focus Fund is to seek capital appreciation
and, secondarily, income by investing in securities, primarily equities, that management
of the Portfolio believes are undervalued and therefore represent basic investment value.
The Portfolio 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. See the attached prospectus for the Portfolio.
Advisor: Global Strategy Focus Fund
Merrill Lynch Asset Management, L.P. The investment objective of the Global Strategy Focus 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 Portfolio
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 Portfolio 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
Portfolio.
Advisor: High Current Income Fund
Merrill Lynch Asset Management, L. P. The primary investment objective of the High Current Income Fund is to obtain a high level
of current income. As a secondary objective, the Portfolio seeks capital appreciation
when consistent with its primary objective. The Portfolio primarily invests in
fixed-income securities with lower credit quality, which means credit quality equivalent
to or below the fourth highest rating level of recognized rating agencies, or in unrated
securities of comparable quality. The Portfolio also invests in junk bonds. Investments
in these securities entail relatively greater risk of loss of income or principal. An
investment in this Portfolio may not be appropriate as the exclusive investment to fund a
Certificate. See the attached prospectus for the Portfolio.
Advisor: Domestic Money Market Fund
Merrill Lynch Asset Management, L.P. The investment objectives of the Domestic Money Market 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. The Portfolio's goals are to produce current income while attempting to
maintain a share value of $1.00. See the attached prospectus for the Portfolio.
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Morgan Stanley Dean Witter Universal Funds, Inc.
<S> <C>
Advisor: Fixed Income Portfolio
Miller Anderson & Sherrerd, LLP (an The investment objective of the Fixed Income Portfolio is to seek above-average total
indirect wholly owned subsidiary of return over a market cycle of three to five years by investing primarily in a diversified
Morgan Stanley Dean Witter & Co.) portfolio of fixed income securities, including securities issued by the U.S. Government
and its Agencies, Corporate Bonds, Mortgage-Backed Securities, Foreign Bonds, other Fixed
Income Securities and Derivatives, and to a limited extent junk bonds.
Advisor: U.S. Real Estate Portfolio
Morgan Stanley Dean Witter Investment The investment objective of the U.S. Real Estate Portfolio is above-average current income
Management Inc. (a wholly owned and long-term capital appreciation by investing primarily in equity securities of U.S. and
subsidiary of Morgan Stanley Dean non-U.S. companies engaged in the U.S. real estate industry, including Real Estate
Witter & Co.) Investment Trusts (REITs).
PBHG Insurance Series Fund, Inc.
Advisor: PBHG Growth II Portfolio
Pilgrim Baxter & Associates, Ltd. The investment objective of the PBHG Insurance Series Growth II Portfolio is to seek
capital appreciation. The Portfolio invests primarily in common stocks and convertible
securities of small and medium sized growth companies (market capitalization or annual
revenues between $500 million and $10 billion) that, in the adviser's opinion, are
considered to have an outlook for strong earnings growth and potential for significant
capital appreciation.
Advisor: PBHG Technology & Communications Portfolio
Pilgrim Baxter & Associates, Ltd. The investment objective of the PBHG Insurance Series Technology & Communications
Portfolio is to seek long-term growth of capital. Current income is incidental to the
Portfolio's objective. The Portfolio invests primarily in common stocks of companies
which rely extensively on technology or communications in their product development or
operations, or which are expected to benefit from technological advances and improvements,
and that may be experiencing exceptional growth in sales and earnings driven by technology
or communications-related products and services.
</TABLE>
-18-
<PAGE>
Additions, Deletions, or Substitutions
The Company may add or delete Sub-Accounts at any time, or may substitute one
Portfolio for another, at any time. The Company does not guarantee that any of
the Sub-Accounts or any of the Portfolios will always be available for
allocation of purchase payments or transfers. In the event of any substitution
or change, the Company may make such changes in the Contract as may be necessary
or appropriate to reflect such substitution or change.
Additions, deletions or substitutions of Sub-Accounts or Portfolios may be due
to an investment decision by the Company, or due to an event not within the
Company's control, such as liquidation of a Portfolio or an irreconcilable
conflict of interest between the Separate Account and another insurance company
which offers a Portfolio. The Portfolio prospectuses describe the possibility of
material conflict of interest in greater detail.
If the Company eliminates a Sub-Account or substitutes the shares of another
investment company for the shares of any Portfolio, the Company will first
obtain approval of the Securities and Exchange Commission to the extent required
by the Investment Company Act of 1940, as amended ("1940 Act"), or other
applicable law. The Company will also notify owners before it eliminates a
Sub-Account or substitutes a Portfolio.
New Sub-Accounts may be established when, in the sole discretion of the Company,
marketing, tax, investment or other conditions so warrant. Any new Sub-Accounts
will be made available to existing owners on a basis to be determined by the
Company.
If deemed to be in the best interests of persons having voting rights under the
Contracts, the Separate Account may be operated as a management company under
the 1940 Act or any other form permitted by law, may be de-registered under the
1940 Act in the event such registration is no longer required, or may be
combined with one or more separate accounts.
Voting Rights
To the extent required by law, all Portfolio shares held in the Separate Account
will be voted by the Company at regular and special shareholder meetings of the
respective Portfolios in accordance with instructions received from persons
having voting interests in the corresponding Sub-Account. During the
Accumulation Period, the Company will vote Portfolio shares according to
instructions of owners, unless the Company is permitted to vote shares in its
own right.
The number of votes that an owner may vote will be calculated separately for
each Sub-Account. The number will be determined by applying the owner's
percentage interest, if any, in a particular Sub-Account to the total number of
votes attributable to that Sub-Account.
The owner's percentage interest and the total number of votes will be determined
as of the record date established by that Portfolio for voting purposes. Voting
instructions will be solicited by written communication in accordance with
procedures established by the respective Portfolios.
The Company will vote or abstain from voting shares for which it receives no
timely instructions and shares it holds as to which owners have no beneficial
interest (including shares held by the Company as reserves for benefit
payments*). The Company will vote or abstain from voting such shares in
proportion to the voting instructions it receives from owners of all Contracts
participating in the Sub-Account.
Each person or entity having a voting interest in a Sub-Account will receive
proxy material, reports and other material relating to the appropriate
Portfolio. The Portfolios are not required to hold annual or other regular
meetings of shareholders.
*Neither the owner nor payee has any interest in the Separate Account during the
Benefit Payment Period. Benefit Units are merely a measure of the amount of the
payment the Company is obligated to pay on each payment date.
-19-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANYREGISTERED
- --------------------------------------------------------------------------------
Annuity Investors Life Insurance Company(R) (the "Company") is a stock life
insurance company. It was incorporated under the laws of the State of Ohio in
1981. The Company is principally engaged in the sale of variable and fixed
annuity policies. The home office of the Company is located at 250 East Fifth
Street, Cincinnati, Ohio 45202.
The Company is a wholly owned subsidiary of Great American Life Insurance
Company(R), which is a wholly owned subsidiary of American Annuity Group(R),
Inc., ("AAG") a publicly traded insurance holding company (NYSE: AAG). AAG is in
turn indirectly controlled by American Financial Group, Inc., a publicly traded
holding company (NYSE: AFG).
The Company may from time to time publish in advertisements, sales literature
and reports to owners the ratings and other information assigned to it by one or
more independent rating organizations such as A.M. Best Company, Standard &
Poor's, and Duff & Phelps. The purpose of the ratings is to reflect the
financial strength and/or claims-paying ability of the Company. Each year A.M.
Best Company reviews the financial status of thousands of insurers, culminating
in the assignment of Best's Ratings. These ratings reflect A.M. Best Company's
opinion of the relative financial strength and operating performance of an
insurance company in comparison to the norms of the life/health insurance
industry. Ratings of the Company do not reflect the investment performance of
the Separate Account or the degree of risk associated with an investment in the
Separate Account.
THE SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
Annuity InvestorsREGISTERED 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 resolution of the Company's Board of Directors. The
Separate Account is registered with the Securities and Exchange Commission under
the 1940 Act as a unit investment trust. However, the Securities and Exchange
Commission does not supervise the management or the investment practices or
policies of the Separate Account.
The assets of the Separate Account are owned by the Company, but they are held
separately from the other assets of the Company. Under Ohio law, the assets of a
separate account are not chargeable with liabilities incurred in any other
business operation of the Company. Income, gains and losses incurred on the
assets in the Separate Account, whether realized or not, are credited to or
charged against the Separate Account, without regard to other income, gains or
losses of the Company. Therefore, the investment performance of the Separate
Account is entirely independent of the investment performance of the Company's
general account assets or any other separate account maintained by the Company.
The assets of the Separate Account will be held for the exclusive benefit of
owners of, and the persons entitled to payment under, the Contracts offered by
this prospectus and all other contracts that invest in the Separate Account.
AAG SECURITIES, INC.
- --------------------------------------------------------------------------------
AAG Securities, Inc. ("AAGS"), an affiliate of the Company, is the principal
underwriter and distributor of the Contracts. AAG Securities is a wholly owned
subsidiary of AAG. AAGS is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc. ("NASD"). Its principal offices are located at 250 East
Fifth Street, Cincinnati, Ohio 45202. The Company pays AAGS for acting as
underwriter according to the terms of a distribution agreement.
AAGS sells Contracts through its registered representatives. In addition, AAGS
may enter into sales agreements with other broker-dealers to solicit
applications for the Contracts through its registered representatives. These
broker-dealers are registered with the Securities and Exchange Commission and
are members of the NASD. All registered representatives who sell the Contracts
are appointed by the Company as insurance agents and are authorized under
applicable state insurance regulations to sell variable annuities.
The Company or AAGS may pay commissions to registered representatives of AAGS
and other broker-dealers of up to 8.5% of purchase payments made under the
Contracts. These commissions are reduced by one-half for Contracts issued to
owners over age 75. When permitted by state law and in exchange for lower
initial commissions, AAGS and/or the Company may pay trail commissions to
registered representatives of AAGS and to other broker-dealers. Trail
commissions are not expected to exceed 1% of the Account Value of a Contract on
an annual basis. To the extent permitted under current law, the Company and/or
AAGS may pay production, persistency and managerial bonuses as well as other
promotional incentives, in cash or other compensation, to registered
representatives of AAGS and/or other broker-dealers.
-20-
<PAGE>
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
Charges and Deductions By the Company
There are two types of charges and deductions by the Company. There are charges
assessed to the certificates which are reflected in the Account Value of the
certificates, but not in Accumulation Unit Values (or Benefit Unit Values).
These charges are the contingent deferred sales charge, the annual certificate
maintenance fee, premium taxes where applicable and transfer fees. There are
also charges assessed against the Separate Account. These charges are reflected
in the Accumulation Unit Values (and Benefit Unit Values) of the Sub-Accounts.
These charges are the mortality and expense risk charge and the administration
charge.
The Company will never charge more to a certificate than the fees and charges
described below, even if its actual expenses exceed the total fees and charges
collected. If the fees and charges collected by the Company exceed the actual
expenses it incurs, the excess will be profit to the Company and will not be
returned to owners.
Notwithstanding the above, the Company reserves the right to increase the amount
of the transfer fee in the future, and/or to charge fees for the automatic
transfer programs described in the Transfers section beginning on page 27 of
this prospectus, and/or for the systematic withdrawal program described in the
Surrenders section on page 29 of this prospectus, if in the Company's
discretion, it determines such charges are necessary to offset the costs of
administering transfers or systematic withdrawals.
Contingent Deferred Sales Charge ("CDSC")
Purpose of Charge Offset expenses incurred by the Company in the sale of the
Contracts, including commissions paid and costs of sales
literature.
Amount of Charge Up to 7% of each purchase payment depending on number of
years elapsed since receipt of the
purchase payment.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
===================================== ====== ====== ====== ====== ======= ====== ====== ======
Number of full years elapsed
between date of receipt of purchase 0 1 2 3 4 5 6 7 or
payment and date request for more
surrender received
===================================== ====== ====== ====== ====== ======= ====== ====== ======
CDSC as a percentage of purchase
payment surrendered 7% 6% 5% 4% 3% 2% 1% 0%
===================================== ====== ====== ====== ====== ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
When Assessed On partial or full surrenders of purchase payments during Accumulation Period.
Assessed Against What Purchase payments only, not earnings. See the Surrenders section of this prospectus for
information on order of withdrawal of earnings and purchase payments.
Waivers o Free withdrawal privilege. See the Surrenders section for information.
o In the Company's discretion where the Company incurs reduced sales and servicing
expenses.
o Upon separation from service if Contract issued with employer plan endorsement or
deferred compensation endorsement.
o If Contract is issued with a tax sheltered annuity endorsement (and without an employer
plan endorsement):
(i) upon separation from service if owner has attained age 55 and certificate has been in
force for at least seven years; or
(ii) after certificate has been in force fifteen years or more.
o Long term care waiver rider. See the Surrenders section for information.
o If the Social Security Administration determines after the certificate is issued that
the owner is "disabled" as that term is defined in the Social Security Act of 1935, as
amended.
o Successor Owner endorsement. See the Account Value section for information.
o Where required to satisfy state law.
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
Certificate Maintenance Fee
<S> <C>
Purpose of Charge Offset expenses incurred in issuing the Contracts and in maintaining the Contracts and the
Separate Account.
Amount of Charge $25.00 per year.
When Assessed During the Accumulation Period the charge is deducted on each anniversary of the effective date
of the certificate, and at time of full surrender. During the Benefit Payment Period a portion
of the charge is deducted from each variable dollar benefit payment.
Assessed Against What Amounts invested in the Sub-Accounts. During the Accumulation Period, the charge is deducted
pro-rata from the Sub-Accounts in which the certificate has an interest on the date of the
charge. During the Benefit Payment Period, a pro-rata portion of the annual charge is deducted
from each benefit payment from the variable account. The charge is not assessed against the
fixed account options.
Waivers o In the Company's discretion where the Company incurs reduced sales and servicing
expenses.
o During Benefit Payment Period where required to satisfy state law.
Transfer Fee
Purpose of Charge Offset cost incurred in administering the Contracts.
Amount of Charge $25 for each transfer in excess of 12 in any certificate year. The Company reserves the right
to change the amount of this charge at any time.
When Assessed During Accumulation Period.
Assessed Against What Deducted from amount transferred.
Waivers Currently, the transfer fee does not apply to transfers associated with the dollar cost
averaging, interest sweep and portfolio rebalancing programs. Transfers associated with these
programs do not count toward the 12 free transfers permitted in a certificate year. The Company
reserves the right to eliminate this waiver at any time.
Administration Charge
Purpose of Charge Offset expenses incurred in administering the Contracts and the Separate Account.
Amount of Charge The Company has not imposed an administration charge.
When Assessed During the Accumulation Period and during the Benefit Payment Period if a variable dollar
benefit is elected.
Assessed Against What Amounts invested in the Sub-Accounts. Not assessed against the fixed account options.
Waivers Not applicable.
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
Mortality and Expense Risk Charge
<S> <C>
Purpose of Charge Compensation for bearing certain mortality and expense risks under the Contract. Mortality
risks arise from the Company's obligation to pay benefit payments during the Benefit Payment
Period and to pay the death benefit. The expense risk assumed by the Company is the risk that
the Company's actual expenses in administering the Contracts and the Separate Account will
exceed the amount recovered through the certificate maintenance fees, transfer fees and
administration charges.
Amount of Charge Daily charge equal to .003403% of the daily Net Asset Value for each Sub-Account, which
corresponds to an effective annual rate of 1.25%. The Company estimates that the mortality risk
component of this charge is 0.75% and the expense risk component is 0.50%. Contracts with the
1.25% mortality and expense risk charge are referred to as "Standard Contracts."
When Assessed During the Accumulation Period, and during the Benefit Payment Period if a variable dollar
benefit is elected.
Assessed Against What Amounts invested in the Sub-Accounts. Not assessed against the fixed account options.
Waivers When the Company expects to incur reduced sales and servicing expenses, it may issue a Contract
with a reduced mortality and expense risk charge. These Contracts are referred to as "Enhanced
Contracts." The mortality and expense risk charge under an Enhanced Contract is a daily charge
of 0.002590% of the daily Net Asset Value for each Sub-Account, which corresponds to an
effective annual rate of 0.95%.The Company estimates that for Enhanced Contracts, the mortality
risk component of this charge is 0.75% and the expense risk component is 0.20%.
</TABLE>
Premium Taxes
Certain state and local governments impose premium taxes. These taxes currently
range up to 5.0% depending upon the jurisdiction. The Company will deduct any
applicable premium taxes from the Account Value either upon death, surrender,
annuitization, or at the time purchase payments are made, but no earlier than
when the Company has a tax liability under state law.
Discretionary Waivers of Charges
The Company will look at the following factors to determine if it will waive a
charge, in part or in full, due to reduced sales and servicing expenses: (1) the
size and type of the group to which sales are to be made; (2) the total amount
of purchase payments to be received; and (3) any prior or existing relationship
with the Company. The Company would expect to incur reduced sales and servicing
expenses in connection with Contracts offered to employees of the Company, its
subsidiaries and/or affiliates. There may be other circumstances, of which the
Company is not presently aware, which could result in reduced sales and
servicing expenses. In no event will the Company waive a charge where such
waiver would be unfairly discriminatory to any person.
Expenses of the Portfolios
In addition to charges and deductions by the Company, there are Portfolio
management fees and administration expenses which are described in the
prospectus and statement of additional information for each Portfolio. The
actual Portfolio fees and expenses for the prior calendar year are included in
the Fee Table on page 6 of this prospectus. Portfolio expenses, like Separate
Account expenses, are reflected in Accumulation Unit Values (or Benefit Unit
Values).
-23-
<PAGE>
THE CONTRACTS
- --------------------------------------------------------------------------------
Each Contract is an agreement between the Company and the group Contract owner.
An individual participant under a group Contract will receive a certificate of
participation, which is evidence of the participant's interest in the group
Contract. A certificate of participation is not a contract. Values, benefits and
charges are calculated separately for each certificate issued under a Contract.
The description of Contract provisions in this prospectus applies to the
interests of certificate owners, except where otherwise noted.
Because the Company is subject to the insurance laws and regulations of all the
jurisdictions where it is licensed to operate, the availability of certain
Contract rights and provisions in a given State may depend on that State's
approval of the Contracts. Where required by state law or regulation, the
Contracts will be modified accordingly.
Right to Cancel
Where required by state law, the owner of a certificate may cancel it before
midnight of the twentieth day following the date the owner receives the
certificate. For a valid cancellation, the certificate must be returned to the
Company, and written notice of cancellation must be given to the Company, or to
the agent who sold the Contract, by that deadline. If mailed, the return of the
certificate or the notice is effective on the date it is postmarked, with the
proper address and with postage paid. If the owner cancels the certificate, the
certificate will be void and the Company will refund the purchase payment(s)
paid for it plus or minus any investment gains or losses under the Contract as
of the end of the Valuation Period during which the returned Contract is
received by the Company. When required by state or federal law, the Company will
return the purchase payments without any investment gain or loss, during all or
part of the right to cancel period. When required by state law, the right to
cancel period may be longer than 20 days.
Persons With Rights Under a Contract
Owner: The group Contract owner holds the Contract for the benefit of
participants. A participant is the owner of his or her participation interest
under the Contract, and is the person with authority to exercise rights and
receive benefits under the Contract (e.g., make allocations among investment
options, elect settlement option, designate annuitant, beneficiary and payee).
References to "owner" in this prospectus refer to the owners of participation
interests. The rights of an owner may be restricted by the terms of an employer
plan. Ownership of a non-tax-qualified certificate may be transferred, but
transfer may have adverse tax consequences. Ownership of a tax-qualified
certificate may not be transferred.
Joint Owners: There may be joint owners of a non-tax-qualified certificate.
Joint owners may each exercise transfer rights and make purchase payment
allocations independently. All other rights must be exercised by joint action. A
surviving joint owner who is not the spouse of a deceased owner may not become a
successor owner, but will be deemed to be the beneficiary of the death benefit
which becomes payable on the death of the first owner to die, regardless of any
beneficiary designation.
Successor Owner: The surviving spouse of a deceased owner may become a successor
owner if the surviving spouse was either the joint owner or sole surviving
beneficiary under the certificate. In order for a spouse to become a successor
owner, the owner must make an election prior to the owner's death, or the
surviving spouse must make an election within one year of the owner's death.
Annuitant: The annuitant is the person whose life is the measuring life for life
contingent annuity benefit payments. The annuitant is the same person as the
owner under a tax-qualified certificate. The owner may designate an annuitant
under a non-tax-qualified certificate.
Beneficiary: The person entitled to receive the death benefit. The owner may
designate the beneficiary, except that a surviving joint owner will be deemed to
be the beneficiary regardless of any designation. If no beneficiary is
designated, and there is no surviving joint owner, the owner's estate will be
the beneficiary. The beneficiary will be the measuring life for life contingent
death benefit payments.
Payee: Under a tax-qualified certificate, the owner-annuitant is the payee of
annuity benefits. Under a non-tax-qualified certificate, the owner may designate
the payee of annuity benefits. Irrevocable naming of a payee other than the
owner can have adverse tax consequences. During the Benefit Payment Period, the
beneficiary is the payee.
Assignee: Under a tax-qualified certificate, assignment is not permitted. The
owner of a non-tax-qualified certificate may assign most of his/her rights or
benefits under a certificate. Assignment of rights or benefits may have adverse
tax consequences.
-24-
<PAGE>
ACCUMULATION PERIOD
- --------------------------------------------------------------------------------
Each certificate allows for an Accumulation Period during which purchase
payments are invested according to the owner's instructions. During the
Accumulation Period, the owner can control the allocation of investments through
telephone transfers or through the following investment programs offered by the
Company: dollar cost averaging, portfolio rebalancing and interest sweep. These
programs and telephone transfer procedures are described in the Transfers
section beginning on page 27 of this prospectus. The owner can access the
Account Value during the Accumulation Period through surrenders, systematic
withdrawal, or contract loans, if available. These withdrawal features are
described more fully in the Surrenders and Contract Loans sections on pages 29
and 30 of this prospectus.
Account Statements
During the Accumulation Period, the Company will provide a report at least once
each certificate year of the certificate's Account Value, and any other
information required by law. The Company will confirm receipt of any purchase
payments made after the initial purchase payment in quarterly statements of
account activity.
Account Value
The value of a certificate during the Accumulation Period is referred to as the
"Account Value." The Account Value at any given time is the sum of: (1) amounts
invested in the fixed investment options plus the fixed rate(s) of interest
earned on those amounts as of that time; and (2) the value of the owner's
interest in the Sub-Accounts as of that time. The value of the owner's interest
in the Sub-Accounts at any time is equal to the sum of the number of
Accumulation Units for each Sub-Account attributable to that certificate
multiplied by the Accumulation Unit Value for the applicable Sub-Account at the
end of the preceding Valuation Period. The Account Value at any time is net of
any charges, deductions, surrenders, and/or outstanding loans incurred prior to
or as of the end of that Valuation Period.
Accumulation Units
Amounts allocated or transferred to a Sub-Account are converted into
Accumulation Units. The number of Accumulation Units credited is determined by
dividing the dollar amount directed to the Sub-Account by the Accumulation Unit
Value for that Sub-Account as of the end of the Valuation Period in which the
amount allocated is received by the Company, or as of the end of the Valuation
Period in which the transfer is made.
Accumulation Units will be canceled as of the end of the Valuation Period during
which one of the following events giving rise to cancellation occurs:
o transfer from a Sub-Account
o full or partial surrender from the Sub-Accounts
o payment of a death benefit
o application of the amounts in the Sub-Accounts to a settlement option
o deduction of the certificate maintenance fee
o deduction of any transfer fee
Successor Owner Endorsement
If the Contract is modified by the Successor Owner endorsement, and the
surviving spouse of a deceased owner becomes a successor owner of a certificate,
the Account Value will be stepped-up to equal the death benefit which otherwise
would have been payable, as of what would have been the Death Benefit Valuation
Date. In addition, contingent deferred sales charges will be waived on the
entire stepped-up Account Value as of that date, but will apply to any purchase
payments applied to the certificate after that date.
For purposes of determining what would have been the Death Benefit Valuation
Date, the election to become successor owner will be deemed to be instructions
as to the form of death benefit. The election to become successor owner must be
made within one year of the date of the owner's death.
The Successor Owner endorsement may not be available in all States.
-25-
<PAGE>
Purchase Payments
Purchase payments may be made at any time during the Accumulation Period. The
current restrictions on purchase payment amounts are as follows:
<TABLE>
<CAPTION>
Tax-Qualified Non-Tax-Qualified
- --------------------------------------------------------- ---------------------------- ----------------------------
- --------------------------------------------------------- ---------------------------- ----------------------------
<S> <C> <C>
Minimum single purchase payment $2,000 $5,000
- --------------------------------------------------------- ---------------------------- ----------------------------
- --------------------------------------------------------- ---------------------------- ----------------------------
Minimum monthly under periodic payment program $50 $100
- --------------------------------------------------------- ---------------------------- ----------------------------
- --------------------------------------------------------- ---------------------------- ----------------------------
Minimum additional payments $50 $50
- --------------------------------------------------------- ---------------------------- ----------------------------
- --------------------------------------------------------- ---------------------------- ----------------------------
Maximum single purchase payment $500,000 or Company $500,000 or Company
approval approval
</TABLE>
The Company reserves the right to increase or decrease the minimum allowable
single purchase payment or minimum purchase payment under a periodic payment
program, or the minimum allowable additional purchase payment, at its discretion
and at any time, where permitted by law.
Each purchase payment will be applied by the Company to the credit of the
owner's account. If the application form is in good order, the Company will
apply the initial purchase payment to an account for the owner within two
business days of receipt of the purchase payment. If the application form is not
in good order, the Company will attempt to get the application form in good
order within five business days. If the application form is not in good order at
the end of this period, the Company will inform the applicant of the reason for
the delay and that the purchase payment will be returned immediately unless he
or she specifically consents to the Company keeping the purchase payment until
the application form is in good order. Once the application form is in good
order, the purchase payment will be applied to the owner's account within two
business days.
Each additional purchase payment is credited to a certificate as of the
Valuation Date on which the Company receives the purchase payment. If the
purchase payment is allocated to a Sub-Account, it will be applied at the
Accumulation Unit Value calculated at the end of the Valuation Period in which
that Valuation Date occurs.
Investment Options--Allocations
Purchase payments can be allocated in whole percentages to any of the available
Sub-Accounts or fixed account options. See The Portfolios section beginning on
page 14 of this prospectus for a listing and description of the currently
available Sub-Accounts. The currently available fixed account options are as
follows:
Fixed Accumulation Account Option
One Year Guaranteed Interest Rate Option
Three Year Guaranteed Interest Rate Option
Five Year Guaranteed Interest Rate Option
Seven Year Guaranteed Interest Rate Option
The current restrictions on allocations are as follows:
<TABLE>
<CAPTION>
Tax-Qualified and Non-Tax-Qualified
- -------------------------------------------------------- ---------------------------------------------------
- -------------------------------------------------------- ---------------------------------------------------
<S> <C>
Minimum allocation to any Sub-Account $10
- -------------------------------------------------------- ---------------------------------------------------
- -------------------------------------------------------- ---------------------------------------------------
Minimum allocation to fixed accumulation account $10
- -------------------------------------------------------- ---------------------------------------------------
- -------------------------------------------------------- ---------------------------------------------------
Minimum allocation to fixed account guarantee option $2,000
No amounts may be
allocated to a
guarantee period option
which would extend
beyond the owner's 85th
birthday or 5 years
after the effective
date of the
certificate, if later.
- -------------------------------------------------------- ---------------------------------------------------
- -------------------------------------------------------- ---------------------------------------------------
Allocation during right to cancel period No current restrictions, however, the Company
reserves the right to require that purchase
payment(s) be allocated to the money market
Sub-Account or to the fixed accumulation account
option during the right to cancel period, if any.
</TABLE>
-26-
<PAGE>
Interests in the fixed account options are not securities and are not registered
with the Securities and Exchange Commission. Amounts allocated to the fixed
account options will receive a stated rate of interest of at least 3% per year.
Amounts allocated to the fixed account options and interest credited to the
fixed account options are guaranteed by the Company. Interests in the
Sub-Accounts are securities registered with the Securities and Exchange
Commission. The owner bears the risk of investment gain or loss on amounts
allocated to the Sub-Accounts.
Principal Guarantee Program
An owner may elect to have the Company allocate a portion of a purchase payment
to the seven-year guaranteed interest rate option such that, at the end of the
seven-year guarantee period, that account will grow to an amount equal to the
total purchase payment (so long as there are no surrenders or loans from the
certificate). The Company determines the portion of the purchase payment that
must be allocated to the seven-year guarantee option such that, based on the
interest rate then in effect, that account will grow to equal the full amount of
the purchase payment after seven years. The remainder of the purchase payment
will be allocated according to the owner's instructions. The minimum purchase
payment eligible for the principal guarantee program is $5,000.
Renewal of Fixed Account Guarantee Options
At the end of a guarantee period, and for 30 days preceding the end of such
guarantee period, the owner may elect to allocate the amount maturing to any of
the available investment options under the certificate. If the owner does not
make a reallocation election, the amount maturing will be allocated to the
guarantee period option with the same number of years as the period expiring, or
the next shortest period as may be required to comply with the restriction on
allocation to guarantee period options as described in the Investment
Options-Allocations section on page 26 of this prospectus. If a guarantee period
is unavailable due to this restriction, the amount maturing will be allocated to
the fixed accumulation account option.
Transfers
During the Accumulation Period, an owner may transfer amounts between
Sub-Accounts, between fixed account options, and/or between Sub-Accounts and
fixed account options.
The current restrictions on transfers are as follows:
<TABLE>
<CAPTION>
Tax-Qualified and Non-Tax-Qualified
- -------------------------------------------------------- ---------------------------------------------------
- -------------------------------------------------------- ---------------------------------------------------
<S> <C>
Minimum transfer from any Sub-Account $500 or balance of Sub-Account if less
- -------------------------------------------------------- ---------------------------------------------------
- -------------------------------------------------------- ---------------------------------------------------
Minimum transfer from fixed account option $500 or balance of fixed account option if less
- -------------------------------------------------------- ---------------------------------------------------
- -------------------------------------------------------- ---------------------------------------------------
Minimum transfer to fixed account guarantee option $2,000
No amounts may be
transferred to a
guarantee period option
which would extend
beyond the owner's 85th
birthday or 5 years
after the effective
date of the
certificate, if later.
- -------------------------------------------------------- ---------------------------------------------------
- -------------------------------------------------------- ---------------------------------------------------
Maximum transfer from fixed account option other than During any certificate year, 20% of the fixed
fixed account guarantee option which is maturing account option's value as of the most recent
certificate anniversary.
- -------------------------------------------------------- ---------------------------------------------------
- -------------------------------------------------------- ---------------------------------------------------
Transfers from fixed account options o May not be made prior to first
certificate anniversary.
o Amounts transferred from fixed account
options to Sub-Accounts may not be
transferred back to fixed account options for
a period of 6 months from the date of the
original transfer.
</TABLE>
A transfer is effective on the Valuation Date during which the Company receives
the request for transfer, and will be processed at the Accumulation Unit Value
for the end of the Valuation Period in which that Valuation Date occurs.
-27-
<PAGE>
Automatic Transfer Programs
During the Accumulation Period, the Company offers the automatic transfer
services described below. To enroll in one of these programs, you will need to
complete the appropriate authorization form, which you can obtain from the
Company by calling 1-800-789-6771.
Currently, the transfer fee does not apply to dollar cost averaging, portfolio
rebalancing, or interest sweep transfers, and transfers under these programs
will not count toward the twelve transfers permitted under a certificate without
a transfer fee charge. However, the Company reserves the right to impose a fee
in such amount as the Company may then determine to be reasonable for
participation in automatic transfer programs.
<TABLE>
<CAPTION>
Service Description Minimum Account Limitations/Notes
Requirements
- ----------------------------- --------------------------- -------------------------- ---------------------------
- ----------------------------- --------------------------- -------------------------- ---------------------------
<S> <C> <C> <C>
Dollar Cost Averaging Automatic transfers from Source of funds must be Dollar cost averaging
There are risks involved in the money market at least $10,000. transfers may not be made
switching between Sub-Account to any other to any of the fixed
investments available under Sub-Account(s), or from Minimum transfer per account options. The
the Contract. Dollar cost the fixed accumulation month is $500. When dollar cost averaging
averaging requires regular account option to any balance of source of transfers will take place
investment changes Sub-Account(s), on a funds falls below $500, on the last Valuation
regardless of fluctuating monthly or quarterly entire balance will be Date of each calendar
price levels and does not basis. allocated according to month or quarter as
guarantee profits or dollar cost averaging requested by the owner.
prevent losses in a instructions.
declining market. You
should consider your
financial ability to
continue dollar cost
averaging transfers through
periods of changing price
levels.
- ----------------------------- --------------------------- -------------------------- ---------------------------
- ----------------------------- --------------------------- -------------------------- ---------------------------
Portfolio Rebalancing Automatically transfer Minimum Account Value of Transfers will take place
amounts between the $10,000. on the last Valuation
Sub-Accounts and the Date of each calendar
fixed accumulation quarter. Portfolio
account option to rebalancing will not be
maintain the percentage available if the dollar
allocations selected by cost averaging program or
the owner. an interest sweep from
the fixed accumulation
account option is being
utilized.
- ----------------------------- --------------------------- -------------------------- ---------------------------
- ----------------------------- --------------------------- -------------------------- ---------------------------
Interest Sweep Automatic transfers of Balance of each fixed Interest sweep transfers
the income from any fixed account option selected will take place on the
account option(s) to any must be at least last Valuation Date of
Sub-Account(s). $5,000. Maximum each calendar quarter.
transfer from each
fixed account option
selected is 20% of
such fixed account
option's value per
year. Amounts
transferred under the
interest sweep program
will reduce the 20%
maximum transfer
amount otherwise
allowed.
</TABLE>
-28-
<PAGE>
Telephone Transfers
An owner may place a request for all or part of the Account Value to be
transferred by telephone. All transfers must be in accordance with the terms of
the Contract. Transfer instructions are currently accepted on each Valuation
Date between 9:30 a.m. and 4:00 p.m. Eastern Time at (800) 789-6771. Once
instructions have been accepted, they may not be rescinded; however, new
telephone instructions may be given the following day.
The Company will not be liable for complying with telephone instructions which
the Company reasonably believes to be genuine, or for any loss, damage, cost or
expense in acting on such telephone instructions. The owner or person with the
right to control payments will bear the risk of such loss. The Company will
employ reasonable procedures to determine that telephone instructions are
genuine. If the Company does not employ such procedures, the Company may be
liable for losses due to unauthorized or fraudulent instructions. These
procedures may include, among others, tape recording telephone instructions.
Termination of Transfer Programs
The owner may terminate any of the automatic transfer programs at any time, but
must give the Company at least 30 days notice to change any automatic transfer
instructions that are already in place. Termination and change instructions will
be accepted by telephone at (800) 789-6771. The Company may terminate, suspend
or modify any aspect of the transfer programs described above without prior
notice to owners, as permitted by applicable law. The Company may also impose an
annual fee or increase the current annual fee, as applicable, for any of the
foregoing services in such amount(s) as the Company may then determine to be
reasonable for participation in the service.
Surrenders
An owner may surrender a certificate either in full or in part during the
Accumulation Period. A contingent deferred sales charge ("CDSC") may apply on
surrender. The restrictions and charges on surrenders are as follows:
<TABLE>
<CAPTION>
Tax-Qualified Non-Tax-Qualified
- --------------------------------------------------------- ---------------------------- ----------------------------
- --------------------------------------------------------- ---------------------------------------------------------
<S> <C>
Minimum amount of partial surrender $500
- --------------------------------------------------------- ---------------------------------------------------------
Minimum remaining Account Value after partial surrender $500
- --------------------------------------------------------- ---------------------------------------------------------
- --------------------------------------------------------- ---------------------------- ----------------------------
Amount available for surrender (valued as of end of Account Value less Account Value less
Valuation Period in which request for surrender is applicable CDSC, subject applicable CDSC, subject
received by the Company) to tax law or employer to employer plan
plan restrictions on restrictions on withdrawals
withdrawals
- --------------------------------------------------------- ---------------------------- ----------------------------
- --------------------------------------------------------- ---------------------------------------------------------
Tax penalty for early withdrawal Up to 10% of Account Value before age 59 1/2
- --------------------------------------------------------- ---------------------------------------------------------
- --------------------------------------------------------- ---------------------------------------------------------
Certificate maintenance fee on full surrender $25 (no CDSC applies)
- --------------------------------------------------------- ---------------------------------------------------------
- --------------------------------------------------------- ---------------------------------------------------------
Contingent deferred sales charge ("CDSC") Up to 7% of purchase payments
- --------------------------------------------------------- ---------------------------------------------------------
- --------------------------------------------------------- ---------------------------------------------------------
- --------------------------------------------------------- ---------------------------------------------------------
Order of withdrawal for purposes of CDSC (order may be First from accumulated earnings (no CDSC applies) and
different for tax purposes) then from purchase payments on "first-in, first-out"
basis (CDSC may apply)
</TABLE>
A full surrender will terminate a certificate. Partial surrenders are withdrawn
proportionally from all Sub-Accounts and fixed account options in which the
certificate is invested on the date the Company receives the surrender request
unless the owner requests that the surrender be withdrawn from a specific
investment option. A surrender is effective on the Valuation Date during which
the Company receives the request for surrender, and will be processed at the
Accumulation Unit Value for the end of the Valuation Period in which that
Valuation Date occurs. Payment of a surrendered amount may be delayed if the
amount surrendered was paid to the Company by a check that has not yet cleared.
Surrenders from a fixed account option may be delayed for up to six months after
receipt of a surrender request as allowed by state law. Surrenders from the
Sub-Accounts may be delayed during any period the New York Stock Exchange is
closed or trading is restricted, or when the Securities and Exchange Commission
either: 1) determines that there is an emergency which prevents valuation or
disposal of securities held in the Separate Account; or 2) permits a delay in
payment for the protection of security holders.
-29-
<PAGE>
Free Withdrawal Privilege
The Company will waive the CDSC on full or partial surrenders during the second
and succeeding certificate years on an amount equal to not more than the greater
of: (a) accumulated earnings (Account Value in excess of purchase payments); or
(b) 10% of the Account Value as of the last certificate anniversary.
If the free withdrawal privilege is not exercised during a certificate year, it
does not carry over to the next certificate year. The free withdrawal privilege
may not be available under some group Contracts.
Long Term Care Waiver Rider
If a Contract is modified by the Long Term Care Waiver Rider, surrenders may be
made free of any CDSC if the owner has been confined in a qualifying licensed
hospital or long-term care facility for at least 90 days beginning on or after
the first certificate anniversary. This rider may not be available in all
States.
Systematic Withdrawal
During the Accumulation Period, an owner may elect to automatically withdraw
money from a certificate. The Account Value must be at least $10,000 in order to
make a systematic withdrawal election. The minimum monthly amount that can be
withdrawn is $100. Systematic withdrawals will be subject to the contingent
deferred sales charge to the extent the amount withdrawn exceeds the free
withdrawal privilege. The owner may begin or discontinue systematic withdrawals
at any time by request to the Company, but at least 30 days notice must be given
to change any systematic withdrawal instructions that are currently in place.
The Company reserves the right to discontinue offering systematic withdrawals at
any time. Currently, the Company does not charge a fee for systematic withdrawal
services. However, the Company reserves the right to impose an annual fee in
such amount as the Company may then determine to be reasonable for participation
in the systematic withdrawal program.
Before electing a systematic withdrawal program, you should consult with a
financial adviser. Systematic withdrawal is similar to annuitization, but will
result in different taxation of payments and potentially different amount of
total payments over the life of the certificate than if annuitization were
elected.
Contract Loans
The Company may make loans to owners of tax-qualified certificates. Any such
loans will be secured with an interest in the Contract, and the collateral for
the loan will be moved to the fixed accumulation account option and earn a fixed
rate of interest applicable to loan collateral. Loan amounts and repayment
requirements are subject to provisions of the Internal Revenue Code, and default
on a loan will result in a taxable event. You should consult a tax adviser prior
to exercising loan privileges. Loan provisions are described in the loan
endorsement to the Contract.
A loan, whether or not repaid, will have a permanent effect on the Account Value
of a certificate because the collateral cannot be allocated to the Sub-Accounts
or fixed account guarantee periods. The longer the loan is outstanding, the
greater the effect is likely to be. The effect could be favorable or
unfavorable. If the investment results are greater than the rate being credited
on collateral while the loan is outstanding, the Account Value will not increase
as rapidly as it would if no loan were outstanding. If investment results are
below that rate, the Account Value will be higher than it would have been if no
loan had been outstanding.
Termination
The Company reserves the right to terminate any certificate at any time during
the Accumulation Period if the Account Value is less than $500. In that case,
the certificate will be involuntarily surrendered and the Company will pay the
owner the amount which would be due the owner on a full surrender. A group
Contract may be terminated on 60 days advance notice, in which case participants
will be entitled to continue their interests on a deferred, paid-up basis,
subject to the Company's involuntary surrender right as described above.
-30-
<PAGE>
BENEFIT PAYMENT PERIOD
- --------------------------------------------------------------------------------
Annuity Benefit
An owner may designate the date that annuity payments will begin, and may change
the date up to 30 days before annuity payments are scheduled to begin. Unless
the Company agrees otherwise, the first day of a Benefit Payment Period in which
annuity payments are paid cannot be later than the certificate anniversary
following the 85th birthday of the eldest owner, or five years after the
effective date of the certificate, whichever is later.
The amount applied to a settlement option will be the Account Value as of the
end of the Valuation Period immediately preceding the first day of the Benefit
Payment Period. The owner may select any form of settlement option which is
currently available. The standard forms of settlement options are described in
the Settlement Options section beginning on page 31 of this prospectus.
If the owner has not previously made an election as to the form of settlement
option, the Company will contact the owner to ascertain the form of settlement
option to be paid. If the owner does not select a settlement option, such as a
specific fixed dollar benefit payment, a variable dollar benefit payment, or a
combination of a variable and fixed dollar benefit payment, the Company will
apply the Account Value to a fixed dollar benefit for the life of the annuitant
with 120 monthly payments assured, as described in the Settlement Options
section beginning on page 31 of this prospectus.
Death Benefit
A death benefit will be paid under a certificate if the owner dies during the
Accumulation Period. If a surviving spouse becomes a successor owner of the
certificate, the death benefit will be paid on the death of the successor owner
if he or she dies during the Accumulation Period.
The death benefit will be an amount equal to the largest of the following three
amounts:
o The Account Value on the Death Benefit Valuation Date.
o The total purchase payment(s), less any partial surrenders and any
contingent deferred sales charges that applied to those amounts.
o The largest Account Value on any certificate anniversary which is an exact
multiple of five and prior to the owner's death or the owner's 75th birthday
if earlier, less any partial surrenders and any contingent deferred sales
charges that applied to those amounts.
Any applicable premium tax or other taxes not previously deducted, and any
outstanding loans, will be deducted from the death benefit amount described
above.
An owner may elect the form of payment of the death benefit at any time before
his or her death. The form of payment may be a lump sum, or any available form
of settlement option. The standard forms of settlement options are described in
the Settlement Options section beginning on page 31 of this prospectus. If the
owner does not make an election as to the form of death benefit, the beneficiary
may make an election within one year after the owner's death. If no election as
to form of settlement option is made, the Company will apply the death benefit
to a fixed dollar benefit for a period certain of 48 months. The first day of
the Benefit Payment Period in which a death benefit is paid may not be more than
one year after the owner's death; the day a death benefit is paid in a lump sum
may not be more than five years after the owner's date of death.
Settlement Options
When a certificate is annuitized, or when a death benefit is applied to a
settlement option, the Account Value or the death benefit, as the case may be,
is surrendered to the Company in exchange for a promise to pay a stream of
benefit payments for the duration of the settlement option selected. Benefit
payments may be calculated and paid: (1) as a variable dollar benefit; (2) as a
fixed dollar benefit; or (3) as a combination of both. The stream of payments,
whether variable dollar or fixed dollar, is an obligation of the Company's
general account. However, only the amount of fixed dollar benefit payments is
guaranteed by the Company. The owner (or payee) bears the risk that any variable
dollar benefit payment may be less than the initial variable dollar benefit
payment, or that it may decline to zero, if Benefit Unit Values for that payment
decrease sufficiently. Transfers between a variable dollar benefit and a fixed
dollar benefit are not permitted, but transfers of Benefit Units among
Sub-Accounts are permitted once each 12 months after a variable dollar benefit
has been paid for at least 12 months. The formulas for transferring Benefit
Units among Sub-Accounts during the Benefit Payment Period are set forth in the
statement of additional information.
-31-
<PAGE>
Form of Settlement Option
The Company will make periodic payments in any form of settlement option that is
acceptable to it at the time of an election. The standard forms of settlement
options are described below. Payments under any settlement option may be in
monthly, quarterly, semi-annual or annual payment intervals. If the amount of
any regular payment under the form of settlement option elected would be less
than $50, an alternative form of settlement option will have to be elected. The
Company, in its discretion, may require benefit payments to be made by direct
deposit or wire transfer to the account of a designated payee.
The Company may modify minimum amounts, payment intervals and other terms and
conditions at any time without prior notice to owners. If the Company changes
the minimum amounts, the Company may change any current or future payment
amounts and/or payment intervals to conform with the change. More than one
settlement option may be elected if the requirements for each settlement option
elected are satisfied. Once payment begins under a settlement option, the
settlement option may not be changed or commuted.
The dollar amount of benefit payments will vary with the frequency of the
payment interval and the duration of the payments. Generally, each payment in a
stream of payments will be lesser in amount as the frequency of payment
increases, or as the length of the payment period increases, because more
payments will be paid. For life contingent settlement options, each payment in
the stream of payments will generally be lesser in amount as the life expectancy
of the annuitant or beneficiary increases because more payments are expected to
be paid.
Income for a Fixed Period: The Company will make periodic payments at the end of
each payment interval for a fixed period of 5 to 30 years. (Periods of 1-4 years
are available for death benefit settlement options only.)
Life Annuity with Payments for at Least a Fixed Period: The Company will make
periodic payments at the beginning of each payment interval for a fixed period,
or until the death of the person on whose life benefit payments are based if he
or she lives longer than the fixed period.
Joint and One-Half Survivor Annuity: The Company will make periodic payments at
the beginning of each payment interval until the death of the primary person on
whose life benefit payments are based; thereafter, the Company will make
one-half of the periodic payment until the death of the secondary person on
whose life benefit payments are based.
Life Annuity: The Company will make periodic payments at the beginning of each
payment interval until the death of the person on whose life benefit payments
are based.
Calculation of Fixed Dollar Benefit Payments
Fixed dollar benefit payments are determined by multiplying the amount applied
to the fixed dollar benefit (expressed in thousands of dollars and after
deduction of any fees and charges, loans, or applicable premium taxes) by the
amount of the payment per $1,000 of value which the Company is currently paying
for settlement options of that type. Fixed dollar benefit payments will remain
level for the duration of the Benefit Payment Period.
The Company guarantees minimum fixed dollar benefit payment factors based on
1983 group annuity mortality tables, for blended lives (60% female/40% male)
with interest at 3% per year, compounded annually. The minimum monthly payments
per $1,000 of value for the Company's standard settlement options are set forth
in tables in the Contracts. Upon request, the Company will provide minimum
monthly payments for ages or fixed periods not shown in the settlement option
tables.
Calculation of Variable Dollar Benefit Payments
The first variable dollar benefit payment is the amount it would be if it were a
fixed dollar benefit payment calculated at the Company's minimum guaranteed
settlement option factors, reduced by a pro rata portion of the certificate
maintenance fee, equal to the amount of the fee divided by the number of
payments to be made over a 12-month period.
The amount of each subsequent variable dollar benefit payment will reflect the
investment performance of the Sub-Account(s) selected and may vary from payment
to payment. For example, because the first benefit payment includes a 3% rate of
interest, subsequent benefit payments will be less than the first payment if the
net investment performance of the applicable Sub-Account(s) is less than 3%.
The amount of each subsequent payment is the sum of the payment due for each
Sub-Account selected, less a pro rata portion of the certificate maintenance
fee, as described above. The payment due for a Sub-Account equals the shares for
that Sub-Account, which are the Benefit Units, times their value, which is the
Benefit Unit Value for that Sub-Account as of the end of the fifth Valuation
Period preceding the due date of the payment.
The number of Benefit Units for each Sub-Account selected is determined by
allocating the amount of the first variable dollar benefit payment (before
-32-
<PAGE>
deduction of the pro rata portion of the certificate maintenance fee) among the
Sub-Account(s) selected in the percentages indicated by the owner (or payee).
The dollar amount allocated to a Sub-Account is divided by the Benefit Unit
Value for that Sub-Account as of the first day of the Benefit Payment Period.
The result is the number of Benefit Units that the Company will pay for that
Sub-Account at each payment interval. The number of Benefit Units for each
Sub-Account remains fixed during the Benefit Payment Period, except as a result
of any transfers among Sub-Accounts. An explanation of how Benefit Unit Values
are calculated is included in the Glossary of Financial Terms on page 37 of this
prospectus.
-33-
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
This section provides a general description of federal income tax considerations
relating to the Contracts. The purchase of a Contract may have federal estate
and gift tax consequences in addition to income tax consequences. Estate and
gift taxation is not discussed in this prospectus or in the statement of
additional information. State taxation will vary depending on the State in which
you reside, and is not discussed in this prospectus or in the statement of
additional information.
The tax information provided in the prospectus and statement of additional
information should not be used as tax advice. Federal income tax laws are
subject to interpretation by the IRS and may be changed by future legislation.
You should consult a competent tax advisor to discuss how current tax laws
affect your particular situation.
Tax Deferral On Annuities
Internal Revenue Code ("IRC") Section 72 governs taxation of annuities in
general. The income earned during the Accumulation Period of a certificate is
generally not includable in income until it is withdrawn. In other words, a
Contract is a tax-deferred investment. The Contracts must meet certain
requirements in order to qualify for tax-deferred treatment under IRC Section
72. These requirements are discussed in the statement of additional information.
In addition, tax deferral is not available for a Contract when the owner is not
a natural person unless the Contract is part of a tax-qualified plan or the
owner is a mere agent for a natural person. For a nonqualified deferred
compensation plan, this rule means that the employer as owner of the Contract
will generally be taxed currently on any increase in the Account Value, although
the plan itself may provide a tax deferral to the participating employee. For a
group nonqualified Contract where the owner has no rights over the separate
interests, this rule is applied to each participant who is not a natural person.
-34-
<PAGE>
Tax-Qualified Plans
Annuities may also qualify for tax-deferred treatment under other IRC provisions
governing tax-qualified retirement plans. These provisions include IRC Sections
401 (pension and profit sharing plans), 403(b) (tax-sheltered annuities), 408
and 408A (individual retirement annuities), and 457(g) (governmental deferred
compensation). Contributions to a tax-qualified Contract are typically made with
pre-tax dollars, while contributions to a non-tax-qualified Contract are
typically made from after-tax dollars, though there are exceptions in either
case. Tax-qualified Contracts may also be subject to restrictions on withdrawals
which do not apply to non-tax-qualified Contracts. These restrictions may be
imposed by the IRC or by an employer plan. Following is a brief description of
the types of tax-qualified retirement plans for which the Contracts are
available.
Individual Retirement Annuities
IRC Sections 219 and 408 permit individuals or their employers to contribute to
an individual retirement program known as an "Individual Retirement Annuity" or
"IRA". Under applicable limitations, certain amounts may be contributed to an
IRA that are deductible from an individual's gross income. Employers also may
establish a Simplified Employee Pension (SEP) Plan or Savings Incentive Match
Plan for Employees (SIMPLE) to provide IRA contributions on behalf of their
employees.
Roth IRAs
IRC Section 408A permits certain individuals to contribute to a Roth IRA.
Contributions are not deductible. Tax-free distributions may be made after five
years once the owner attains age 59 1/2, becomes disabled, or dies, or for
qualified first-time homebuyer expenses.
Tax-Sheltered Annuities
IRC 403(b) of the Code permits the purchase of "tax-sheltered annuities" by
public schools and certain charitable, religious, educational and scientific
organizations described in IRC Section 501(c)(3). These qualifying employers may
make contributions to the Contracts for the benefit of their employees. Subject
to certain limits, such contributions are not includable in the gross income of
the employee until the employee receives distributions under the Contract.
Amounts attributable to contributions made under a salary reduction agreement
cannot be distributed until the employee attains age 59 1/2, separates from
service, becomes disabled, incurs a hardship, or dies.
Texas Optional Retirement Program
The Texas Optional Retirement Program ("ORP") provides for the purchase of
tax-sheltered annuities with fixed employer and employee contributions. Under
Section 830.105 of the Texas Government Code, amounts cannot be distributed from
a Contract issued under the ORP until the employee terminates employment from
all Texas public institutions of higher education, retires, attains age 70 1/2,
or dies. Section 830.205 of the Texas Government Code provides that
employer-provided ORP benefits vest after one year of participation.
Accordingly, no distribution can be made without written certification from the
employer of the ORP participant's vesting status and, if the participant is
living and under age 70 1/2, the participant's retirement or other termination
from employment.
Pension and Profit Sharing Plans
IRC Section 401 permits employers to establish various types of retirement plans
for employees, and permits self-employed individuals to establish retirement
plans for themselves and their employees. These retirement plans may permit the
purchase of annuity contracts to accumulate retirement savings under the plans.
Purchasers of a Contract for use with such plans should seek competent advice
regarding the suitability of the proposed plan documents and the Contract for
their specific needs.
Governmental Deferred Compensation Plans
State and local government employers may purchase annuity contracts to fund
deferred compensation plans for the benefit of their employees under IRC Section
457(g).
Nonqualified Deferred Compensation Plans
Governmental and other tax-exempt employers may invest in annuity contracts in
connection with nonqualified deferred compensation plans established for the
benefit of their employees under IRC Section 457 (other than 457(g)). Other
employers may invest in annuity contracts in connection with nonqualified
deferred compensation plans established for the benefit of their employees. In
most cases, these plans are designed so that contributions made for the benefit
of the employees generally will not be includable in the employees' gross income
until distributed from the plan. In these situations, the Contract is usually
owned by the employer and is subject to the claims of its general creditors.
-35-
<PAGE>
Summary of Income Tax Rules
The following chart summarizes the basic income tax rules governing
tax-qualified and non-tax-qualified Contracts:
<TABLE>
<CAPTION>
- --------------------------- ------------------------------------------- ------------------------------------------
Tax-Qualified Plans Basic Non-Tax-Qualified Contracts
Nonqualified Deferred Compensation Plans
- --------------------------- ------------------------------------------- ------------------------------------------
- --------------------------- ------------------------------------------- ------------------------------------------
<S> <C> <C>
Plan Types o IRC ss401 (Pension and Profit o IRC ss72 only
Sharing)
o IRC ss403 (Tax-Sheltered
Annuities)
o IRC ss408 (IRA, SIMPLE IRA)
o IRC ss408A (Roth IRA)
o IRC ss457
o Nonqualified Deferred Compensation
- --------------------------- ------------------------------------------- ------------------------------------------
- --------------------------- ------------------------------------------- ------------------------------------------
- --------------------------- ------------------------------------------- ------------------------------------------
Who May Purchase Contract Natural person, employer, or employer Anyone. Non-natural person may purchase
plan. Nonqualified deferred compensation but will generally lose tax-deferred
plans will generally lose tax-deferred status.
status.
- --------------------------- ------------------------------------------- ------------------------------------------
- --------------------------- ------------------------------------------- ------------------------------------------
Taxation of Surrenders If there is an after-tax "investment in Account Value in excess of investment in
the contract," a pro-rata portion of the contract is taxable. Generally, the
amount surrendered is taxable based on "investment in the contract" will equal
ratio of "investment in the contract" to the sum of all purchase payments.
Account Value. Usually, 100% of Surrenders are deemed to come from
distributions from a qualified plan will earnings first, and purchase payments
be taxed because there was no after-tax last.
contribution and therefore no "investment
in the contract." Qualified For a Contract purchased as part of an
distributions from ss408A Roth IRA may be IRC Section 1035 exchange which includes
completely tax-free. contributions made before August 14,
1982 ("pre-TEFRA contributions") partial
Surrenders prior to age 59 1/2 may be withdrawals are not taxable until the
subject to 10% or greater tax penalty pre-TEFRA contributions have been
depending on the type of qualified plan. returned.
Surrenders from tax-qualified Contracts The taxable portion of any surrenders
may be restricted by the Internal Revenue prior to age 59 1/2 may be subject to a
Code or by the terms of a retirement plan. 10% tax penalty.
- --------------------------- ------------------------------------------- ------------------------------------------
- --------------------------- --------------------------------------------------------------------------------------
Taxation of Benefit May vary depending on type of settlement option selected, but generally, for fixed
Payments (annuity benefit dollar benefit payments, a pro-rata portion of each payment equal to [100% -
payments or death benefit (investment in contract/total expected payments)] is subject to income tax. For
payments) variable dollar benefit payments, a specific dollar amount of each payment is
taxable, as predetermined by a pro-rata formula, rather than subjecting a percentage
of each payment to taxation. Once the investment in the contract has been
recovered, the full amount of each benefit payment is taxable. Qualified
distributions from a ss408A Roth IRA may be completely tax-free.
- --------------------------- --------------------------------------------------------------------------------------
- --------------------------- --------------------------------------------------------------------------------------
Taxation of Lump Sum Taxed to recipient generally in same manner as full surrender. Tax penalties do not
Death Benefit Payment apply to death benefit distributions.
- --------------------------- --------------------------------------------------------------------------------------
- --------------------------- ------------------------------------------- ------------------------------------------
Assignment of Assignment and transfer of ownership Generally, deferred earnings become
Contract/Transfer of generally not permitted. taxable to transferor at time of
Ownership transfer and transferee receives an
investment in the contract equal to the
Account Value at that time. Gift tax
consequences not discussed herein.
- --------------------------- ------------------------------------------- ------------------------------------------
- --------------------------- ------------------------------------------- ------------------------------------------
Withholding Eligible rollover distributions from Generally, payee may elect to have taxes
ss401 and ss403(b) Contracts subject to withheld or not.
20% mandatory withholding on taxable
portion unless direct rollover. Section
457 plan benefits and nonqualified
deferred compensation plan benefits
subject to wage withholding. For all
other payments, payee may elect to have
taxes withheld or not.
- --------------------------- ------------------------------------------- ------------------------------------------
- --------------------------- ------------------------------------------- ------------------------------------------
Who May Purchase Contract Natural person, employer, or employer Anyone. Non-natural person may purchase
plan. Nonqualified deferred compensation but will generally lose tax-deferred
plans will generally lose tax-deferred status.
status.
- --------------------------- ------------------------------------------- ------------------------------------------
- --------------------------- ------------------------------------------- ------------------------------------------
Taxation of Surrenders If there is an after-tax "investment in Account Value in excess of investment in
the contract," a pro-rata portion of the contract is taxable. Generally, the
amount surrendered is taxable based on "investment in the contract" will equal
ratio of "investment in the contract" to the sum of all purchase payments.
Account Value. Usually, 100% of Surrenders are deemed to come from
distributions from a qualified plan will earnings first, and purchase payments
be taxed because there was no after-tax last.
contribution and therefore no "investment
in the contract." Qualified For a Contract purchased as part of an
distributions from ss408A Roth IRA may be IRC Section 1035 exchange which includes
completely tax-free. contributions made before August 14,
1982 ("pre-TEFRA contributions") partial
Surrenders prior to age 59 1/2 may be withdrawals are not taxable until the
subject to 10% or greater tax penalty pre-TEFRA contributions have been
depending on the type of qualified plan. returned.
Surrenders from tax-qualified Contracts The taxable portion of any surrenders
may be restricted by the Internal Revenue prior to age 59 1/2 may be subject to a
Code or by the terms of a retirement plan. 10% tax penalty.
- --------------------------- ------------------------------------------- ------------------------------------------
- --------------------------- --------------------------------------------------------------------------------------
Taxation of Benefit May vary depending on type of settlement option selected, but generally, for fixed
Payments (annuity benefit dollar benefit payments, a pro-rata portion of each payment equal to [100% -
payments or death benefit (investment in contract/total expected payments)] is subject to income tax. For
payments) variable dollar benefit payments, a specific dollar amount of each payment is
taxable, as predetermined by a pro-rata formula, rather than subjecting a percentage
of each payment to taxation. Once the investment in the contract has been
recovered, the full amount of each benefit payment is taxable. Qualified
distributions from a ss408A Roth IRA may be completely tax-free.
- --------------------------- --------------------------------------------------------------------------------------
- --------------------------- --------------------------------------------------------------------------------------
Taxation of Lump Sum Taxed to recipient generally in same manner as full surrender. Tax penalties do not
Death Benefit Payment apply to death benefit distributions.
- --------------------------- --------------------------------------------------------------------------------------
- --------------------------- ------------------------------------------- ------------------------------------------
Assignment of Assignment and transfer of ownership Generally, deferred earnings become
Contract/Transfer of generally not permitted. taxable to transferor at time of
transfer and transferee receives an
investment in the contract equal to the
Account Value at that time. Gift tax
consequences not discussed herein.
- --------------------------- ------------------------------------------- ------------------------------------------
- --------------------------- ------------------------------------------- ------------------------------------------
Withholding Eligible rollover distributions from Generally, payee may elect to have taxes
ss401 and ss403(b) Contracts subject to withheld or not.
20% mandatory withholding on taxable
portion unless direct rollover. Section
457 plan benefits and nonqualified
deferred compensation plan benefits
subject to wage withholding. For all
other payments, payee may elect to have
taxes withheld or not.
- --------------------------- ------------------------------------------- ------------------------------------------
</TABLE>
-36-
<PAGE>
GLOSSARY OF FINANCIAL TERMS
- --------------------------------------------------------------------------------
The following financial terms explain how the variable portion of a certificate
is valued. Read these terms in conjunction with the Definitions on page 4 of
this prospectus.
Accumulation Unit Value: The initial Accumulation Unit Value for each
Sub-Account other than the money market Sub-Account was set at $10. The initial
Accumulation Unit Value for the money market Sub-Account was set at $1. The
initial Accumulation Unit Value for a Sub-Account was established at the
inception date of the Separate Account, or on the date the Sub-Account was
established, if later. The Company establishes distinct Accumulation Unit Values
for Contracts with different Separate Account fee structures, as described in
the Fee Table.
After the initial Accumulation Unit Value is established, the Accumulation Unit
Value for a Sub-Account at the end of each Valuation Period is the Accumulation
Unit Value at the end of the previous Valuation Period multiplied by the Net
Investment Factor for that Sub-Account for the current Valuation Period.
A Net Investment Factor of 1 produces no change in the Accumulation Unit Value
for that Valuation Period. A Net Investment Factor of more than 1 or less than 1
produces an increase or a decrease, respectively, in the Accumulation Unit Value
for that Valuation Period.
Benefit Unit Value: The initial Benefit Unit Value for a Sub-Account will be set
equal to the Accumulation Unit Value for that Sub-Account at the end of the
first Valuation Period in which a variable dollar benefit is established by the
Company. The Company will establish distinct Benefit Unit Values for Contracts
with different Separate Account fee structures, as described in the Fee Table.
After the first Valuation Period, the Benefit Unit Value for each Sub-Account at
the end of each Valuation Period is determined by multiplying the Benefit Unit
Value at the end of the previous Valuation Period by the Net Investment Factor
for the applicable Sub-Account for the current Valuation Period, and by a daily
investment factor (0.99991781) for each day in the Valuation Period. The daily
investment factor reduces the previous Benefit Unit Value by the daily amount of
the assumed interest rate (3% per year, compounded annually) which was
incorporated in the calculation of the initial benefit payment.
Net Investment Factor: The Net Investment Factor for any Sub-Account for any
Valuation Period is determined by dividing NAV2 by NAV1 and subtracting a factor
representing the mortality and expense risk charge and the administration charge
deducted from the Sub-Account during that Valuation Period, where:
NAV1is equal to the Net Asset Value for the Portfolio for the preceding
Valuation Period; and
NAV2 is equal to the Net Asset Value for the Portfolio for the current Valuation
Period plus the per share amount of any dividend or net capital gain
distributions made by the Portfolio during the current Valuation Period, and
plus or minus a per share charge or credit if the Company adjusts its tax
reserves due to investment operations of the Sub-Account or changes in tax law.
In other words, the Net Investment Factor represents the percentage change in
the total value of assets invested by the Separate Account in a Portfolio. That
percentage is then applied to Accumulation Unit Values and Benefit Unit Values
as described in the discussion of those terms in this section of the prospectus.
-37-
<PAGE>
THE REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
The Company filed a Registration Statement with the Securities and Exchange
Commission under the Securities Act of 1933 relating to the Contracts offered by
this prospectus. This prospectus was filed as an annual amendment to the
Registration Statement, but it does not constitute the complete Registration
Statement. The Registration Statement contains further information relating to
the Company and the Contracts. Statements in this prospectus discussing the
content of the Contracts and other legal instruments are summaries. The actual
documents are filed as exhibits to the Registration Statement. For a complete
statement of the terms of the Contracts or any other legal document, refer to
the appropriate exhibit to the Registration Statement. The Registration
Statement and the exhibits thereto may be inspected and copied at the office of
the Securities and Exchange Commission, located at 450 Fifth Street, N.W.,
Washington, D.C., and may also be accessed at the Securities and Exchange
Commission's Web site http:\\www.sec.gov. The registration number for the
Registration Statement is 33-59861.
OTHER INFORMATION
- --------------------------------------------------------------------------------
Year 2000
The Company is developing plans to modify or replace software used in
administering variable contracts so that its computer systems will function
properly with respect to dates in the year 2000 and beyond. Should software
modifications and new software installations not be completed on a timely basis,
there could be disruptions in the ability of the Company to administer the
Contracts.
The Portfolios' preparations for the year 2000 are described in the Portfolio
prospectuses.
Legal Proceedings
The Company is involved in various kinds of routine litigation which, in
management's judgment, are not of material importance to the Company's assets or
the Separate Account. There are no pending legal proceedings against the
Separate Account or AAG Securities, Inc.
-38
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
A statement of additional information is available which contains more details
concerning the subjects discussed in this prospectus. The following is the table
of contents for the statement of additional information:
Page
ANNUITY INVESTORS LIFE INSURANCE COMPANYREGISTERED..........................3
General Information and History.....................................3
State Regulation....................................................3
SERVICES....................................................................3
Safekeeping of Separate Account Assets..............................3
Records and Reports.................................................3
Experts.............................................................3
DISTRIBUTION OF THE CONTRACTS...............................................3
CALCULATION OF PERFORMANCE INFORMATION......................................4
Money Market Sub-Account Standardized Yield Calculation.............4
Average Annual Total Return Calculation.............................5
Cumulative Total Return Calculation.........................................5
Standardized Average Annual Total Return Data.......................6
Non-Standardized Average Annual Total Return Data...................7
Other Performance Measures..........................................8
BENEFIT UNITS--TRANSFER FORMULAS.............................................9
FEDERAL TAX MATTERS.........................................................10
Taxation of Separate Account Income.................................10
Tax Deferred Status of Non-Qualified Contracts......................10
FINANCIAL STATEMENTS........................................................11
Copies of the statement of additional information dated May 1, 1999 are
available without charge. To request a copy, please clip this coupon on the
dotted line below, enter your name and address in the spaces provided below, and
mail to: Annuity Investors Life Insurance CompanyREGISTERED, P.O. Box 5423,
Cincinnati, Ohio 45201-5423.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Name:---------------------------------------------------------------------------
Address:------------------------------------------------------------------------
City:---------------------------------------------------------------------------
State:--------------------------------------------------------------------------
Zip:----------------------------------------------------------------------------
-39-
<PAGE>
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANYREGISTERED
ANNUITY INVESTORSREGISTERED VARIABLE ACCOUNT A
STATEMENT OF ADDITIONAL INFORMATION for
The Commodore NauticusREGISTERED
Group Flexible Premium Deferred Annuities
The Commodore AmericusREGISTERED
Individual Flexible Premium Deferred Annuities
May 1, 1999
This statement of additional information supplements the current prospectuses
for The Commodore NauticusREGISTERED Group Flexible Premium Deferred Annuity
Contracts and The Commodore Americus(R) Individual Flexible Premium Deferred
Annuity Contracts (collectively, the "Contracts") offered by Annuity Investors
Life Insurance CompanyREGISTERED. This statement of additional information is
not a prospectus and should be read only in conjunction with the prospectus for
the applicable Contract. Terms used in this statement of additional information
have the same meaning as in the prospectuses.
A copy of either of the prospectuses dated May 1, 1999, as supplemented from
time to time, may be obtained free of charge by writing to Annuity Investors
Life Insurance Company, Administrative Office, P.O. Box 5423, Cincinnati, Ohio
45201-5423. Terms used in the current prospectuses for the Contracts are
incorporated in this statement of additional information.
-1-
<PAGE>
TABLE OF CONTENTS
Page
ANNUITY INVESTORS LIFE INSURANCE COMPANYREGISTERED.............................3
GENERAL INFORMATION AND HISTORY.............................................3
STATE REGULATION............................................................3
SERVICES.......................................................................3
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS......................................3
RECORDS AND REPORTS.........................................................3
EXPERTS.....................................................................3
DISTRIBUTION OF THE CONTRACTS..................................................3
CALCULATION OF PERFORMANCE INFORMATION.........................................4
MONEY MARKET SUB-ACCOUNT STANDARDIZED YIELD CALCULATION.....................4
AVERAGE ANNUAL TOTAL RETURN CALCULATION.....................................5
CUMULATIVE TOTAL RETURN CALCULATION.........................................5
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN DATA...............................6
NON-STANDARDIZED AVERAGE ANNUAL TOTAL RETURN DATA...........................7
OTHER PERFORMANCE MEASURES..................................................8
BENEFIT UNITS--TRANSFER FORMULAS...............................................9
FEDERAL TAX MATTERS...........................................................10
TAXATION OF SEPARATE ACCOUNT INCOME........................................10
TAX DEFERRAL ON NONQUALIFIED CONTRACTS.....................................10
FINANCIAL STATEMENTS..........................................................11
-2-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANYREGISTERED
- --------------------------------------------------------------------------------
General Information and History
Annuity Investors Life Insurance CompanyREGISTERED (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 GroupREGISTERED,
Inc. ("AAG") a Delaware corporation that is a publicly traded insurance holding
company. Great AmericanREGISTERED Insurance Company ("GAIC"), an Ohio
corporation, owns more than 80% of the common stock of AAG. GAIC is a multi-line
insurance carrier and a wholly owned subsidiary of Great AmericanREGISTERED
Holding Company ("GAHC"), an Ohio corporation. GAHC is a wholly owned subsidiary
of American Financial Corporation ("AFC"), an Ohio corporation. AFC is a wholly
owned subsidiary of American Financial Group, Inc. ("AFG"), an Ohio corporation
that owns 1% of the common stock of AAG. AFG is a publicly traded holding
company which is engaged, through its subsidiaries, in financial businesses that
include annuities, insurance and portfolio investing, and non-financial
businesses.
State Regulation
The Company is subject to the insurance laws and regulations of all the
jurisdictions where it is licensed to operate. The availability of certain
Contract rights and provisions depends on state approval and/or filing and
review processes in each such jurisdiction. Where required by law or regulation,
the Contracts will be modified accordingly.
SERVICES
- --------------------------------------------------------------------------------
Safekeeping of Separate Account Assets
Title to assets of the Separate Account is held by the Company. The Separate
Account assets are segregated from the Company's general account assets. Records
are maintained of all purchases and redemptions of Portfolio shares held by each
of the Sub-Accounts.
Title to assets invested in the fixed account options is held by the Company
together with the Company's general account assets.
Records and Reports
All records and accounts relating to the fixed account options and the Separate
Account will be maintained by the Company. As presently required by the
provisions of the Investment Company Act of 1940, as amended ("1940 Act"), and
rules and regulations promulgated thereunder which pertain to the Separate
Account, reports containing such information as may be required under the 1940
Act or by other applicable law or regulation will be sent to each owner of an
individual Contract and to each group Contract owner semi-annually at the
owner's last known address.
Experts
The financial statements of the Separate Account and the statutory-basis
financial statement of the Company as of December 31, 1998 and 1997, and for the
years then ended, appearing in this Statement of Additional Information have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
DISTRIBUTION OF THE CONTRACTS
- --------------------------------------------------------------------------------
The offering of the Contracts is expected to be continuous. Although the Company
does not anticipate discontinuing the offering of the Contracts, the Company
reserves the right to discontinue offering any one or both of the Contracts.
The approximate commissions received and retained by AAG Securities, Inc. ("AAG
Securities") for sale of the Contracts for each of the last three fiscal years
are as follows:
- ----------------- ------------ ------------ -----------
Year Ended 12/31/98 12/31/97 12/31/96
- ----------------- ------------ ------------ -----------
Nauticus
Received $1,049,047 $747,200 $92,201
Retained $56,023 $46,400 $2,178
- ----------------- ------------ ------------ -----------
Americus (8/16 to
12/31)
Received $1,309,956 $1,120,800 $99,884
Retained $69,467 $69,600 $2,360
- ----------------- ------------ ------------ -----------
-3-
<PAGE>
CALCULATION OF PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
Money Market Sub-Account Standardized Yield Calculation
In accordance with rules and regulations adopted by the Securities and Exchange
Commission, the Company computes the money market Sub-Account's current
annualized yield for a seven-day period in a manner which does not take into
consideration any realized or unrealized gains or losses on shares of the money
market Portfolio or on its portfolio securities. This current annualized yield
is calculated according to the following formula:
YIELD = (BASE PERIOD RETURN/7)*365
Where:
BASE PERIOD RETURN = The percentage (or net) change in the
Accumulation Unit Value for the money market
Sub-Account ("AUV") over a 7 day period
determined as follows:
AUV at end of 7 day period - AUV at beginning of 7 day period
AUV at beginning of 7 day period
Because the Net Asset Value of the money market Portfolio rarely deviates from
1.000000 per unit, the change in the Accumulation Unit Value for the money
market Sub-Account (the numerator of the above fraction) is ordinarily
attributable exclusively to dividends paid and reinvested over the 7 day period
less mortality and expense risk charges deducted from the Sub-Account over the 7
day period. Because of the deductions for mortality and expense risk charges,
the yield for the money market Sub-Account of the Separate Account will be lower
than the yield for the money market Portfolio or any comparable substitute
funding vehicle.
The Securities and Exchange Commission also permits the Company to disclose the
effective yield of the money market Sub-Account for the same seven-day period,
which is yield determined on a compounded basis. The effective yield is
calculated according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7] - 1
The yields and effective yields for the money market Sub-Account for the
seven-day period ended December 31, 1998 are as follows:
Money Market Sub-Account Yield Effective Yield
Standard Nauticus Contracts 3.47% 3.53%
Enhanced Nauticus Contracts 3.76% 3.84%
Americus Contracts 3.47% 3.53%
The yield on amounts held in the money market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given past
period is not an indication or representation of future yields. The money market
Sub-Account's actual yield is affected by changes in interest rates on money
market securities, average portfolio maturity of the money market Portfolio or
substitute funding vehicle, the types and quality of portfolio securities held
by the money market Portfolio or substitute funding vehicle, and operating
expenses. IN ADDITION, THE YIELD FIGURES DO NOT REFLECT THE EFFECT OF ANY
CONTINGENT DEFERRED SALES CHARGE OR CONTRACT (OR CERTIFICATE) MAINTENANCE FEES
THAT MAY BE APPLICABLE ON SURRENDER UNDER ANY CONTRACT.
-4-
<PAGE>
Average Annual Total Return Calculation
The Company may from time to time disclose average annual total returns for one
or more of the Sub-Accounts for various periods of time. Average annual total
return quotations are computed by finding the average annual compounded rates of
return over one-, five- and ten-year periods that would equal the initial amount
invested to the ending redeemable value, according to the following formula:
P(1 + T)n = ERV
Where:
P......= a hypothetical initial payment of $1,000
T......= average annual total return
n......= number of years
ERV = "ending redeemable value" of a hypothetical $1,000
payment made at the beginning of the one-, five- or
ten-year period at the end of the one-, five- or ten-year
period (or fractional portion thereof)
Average annual total return may be presented in either standardized or
non-standardized form. Average annual total return data may be either actual
return or hypothetical return. It will be hypothetical if it reflects
performance for a period of time before the Separate Account commenced
operations. The ERV for standardized data reflects the deduction of all
recurring fees, such as contract (or certificate) maintenance fees, contingent
deferred sales charges and mortality and expense risk charges, which are charged
to all Contracts of that type. The ERV for nonstandardized data reflects the
deduction of mortality and expense risk charges, but not contract (or
certificate) maintenance fees or contingent deferred sales charges.
Non-standardized performance data will be advertised only if the requisite
standardized performance data is also disclosed.
Cumulative Total Return Calculation
The Company may from time to time disclose cumulative total return for various
periods of time. Cumulative total return reflects the performance of a
Sub-Account over the entire period presented. Cumulative total return may be
either actual return or hypothetical return. It will be hypothetical if it
reflects performance for a period of time before the Separate Account commenced
operations. Cumulative total return is calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = the cumulative total return net of Sub-Account recurring
charges, other than the contract (or certificate)
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
Although cumulative total return can be presented in either standardized or
non-standardized form, the Company currently advertises only non-standardized
cumulative total return, which assumes a contingent deferred sales charge of 0%,
and no contract (or certificate) maintenance fee. Non-standardized cumulative
total return can only be advertised if standardized average annual total return
is also disclosed.
-5-
<PAGE>
Standardized Average Annual Total Return Data
<TABLE>
<CAPTION>
(Data reflects deduction of all recurring charges including
contingent deferred sales charges and contract (or Nauticus Standard Contracts Nauticus
certificate) maintenance fees - data is the same for and Enhanced Contracts2/
Nauticus Standard Contracts and Americus Contracts) Americus Contracts1/
- ------------------------------------------------------------------------------------------------------------------------------------
1 Year Life of Separate 1 Year Life of Separate
All Periods Account3/ Account3/
Ending 12/31/98
- --------------------------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
Janus A.S.-Aggressive Growth Portfolio 24.10% 13.64% 24.50% 14.01%
Janus A.S.-Worldwide Growth Portfolio 18.83% 22.53% 19.21% 22.92%
Janus A.S.- Balanced Portfolio 24.13% 19.50% 24.52% 19.88%
Janus A.S.-Capital Appreciation Portfolio 47.66% 44.54%4/ 48.13% 45.00%4/
Dreyfus V.I.F.-Capital Appreciation Portfolio 20.11% 22.55% 20.49% 22.94%
Dreyfus V.I.F.-Growth and Income Portfolio 1.93% 11.83% 2.26% 12.20%
Dreyfus V.I.F.-Small Cap Portfolio -13.13% 4.76% -12.85% 5.10%
The Dreyfus Socially Responsible Growth Fund, Inc. 19.28% 20.97% 19.66% 21.36%
Dreyfus Stock Index Fund 18.13% 22.66% 18.51% 23.05%
Strong Opportunity Fund II, Inc. 3.64% 13.97% 3.97% 14.34%
BT Insurance Funds Trust-EAFEREGISTERED Equity Index Fund 11.71% 0.49%5/ 12.07% 0.83%5/
BT Insurance Funds Trust-Equity 500 Index Fund 18.62% 14.27%6/ 19.00% 14.64%6/
BT Insurance Funds Trust-Small Cap Index Fund -11.89% -7.39%7/ -11.60% -7.08%7/
Merrill Lynch V.S.F.-Basic Value Focus Fund -0.41% 12.05% -0.09% 12.42%
Merrill Lynch V.S.F.-Global Strategy Focus Fund 0.97% 6.20% -0.65% 6.56%
Merrill Lynch V.S.F.-High Current Income Fund -12.78% 0.87% -12.50% 1.19%
Merrill Lynch V.S.F.-Domestic Money Market Fund -5.46% -0.72% -5.17% -0.37%
Morgan Stanley Dean Witter Universal Funds, Inc.-Fixed Income -1.93% 2.33%8/ -1.61% 2.67%8/
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc.-U.S. Real -20.46% -4.57%9/ -20.20% -4.26%9/
Estate Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio -1.65% 1.74%4/ -1.33% 2.08%4/
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio 22.07% 13.68%4/ 22.46% 14.05%4/
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Non-Standardized Average Annual Total Return Data
(Data reflects deduction of all recurring charges except Nauticus Standard Contracts Nauticus
contingent deferred sales charges and contract (or and Enhanced Contracts2/
certificate) maintenance fees - data is the same for Nauticus Americus Contracts1/
Standard Contracts and Americus Contracts)
- ------------------------------------------------------------------------------------------------------ -----------------------------
1 Year Life of Separate 1 Year Life of Separate
All Periods Account3/ Account3/
Ending 12/31/98
- ------------------------------------------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Janus A.S.-Aggressive Growth Portfolio 32.60% 17.04% 33.00% 17.39%
Janus A.S.-Worldwide Growth Portfolio 27.33% 25.46% 27.71% 25.83%
Janus A.S.- Balanced Portfolio 32.63% 22.57% 33.02% 22.94%
Janus A.S.-Capital Appreciation Portfolio 56.16% 49.64%4/ 56.63% 50.08%4/
Dreyfus V.I.F.-Capital Appreciation Portfolio 28.61% 25.48% 28.99% 25.85%
Dreyfus V.I.F.-Growth and Income Portfolio 10.43% 15.34% 10.76% 15.68%
Dreyfus V.I.F.-Small Cap Portfolio -4.63% 8.74% -4.35% 9.07%
The Dreyfus Socially Responsible Growth Fund, Inc. 27.78% 23.98% 28.16% 24.35%
Dreyfus Stock Index Fund 26.63% 25.58% 27.01% 25.96%
Strong Opportunity Fund II, Inc. 12.14% 17.35% 12.47% 17.70%
BT Insurance Funds Trust-EAFEREGISTERED Equity Index Fund 20.21% 8.47%5/ 20.57% 8.79%5/
BT Insurance Funds Trust-Equity 500 Index Fund 27.12% 22.71%6/ 27.50% 23.08%6/
BT Insurance Funds Trust-Small Cap Index Fund -3.39% 0.80%7/ -3.10% 1.10%7/
Merrill Lynch V.S.F.-Basic Value Focus Fund 8.09% 15.55% 8.41% 15.89%
Merrill Lynch V.S.F.-Global Strategy Focus Fund 7.53% 10.09% 7.85% 10.41%
Merrill Lynch V.S.F.-High Current Income Fund -4.28% 5.16% -4.00% 5.45%
Merrill Lynch V.S.F.-Domestic Money Market Fund 3.04% 3.71% 3.33% 4.02%
Morgan Stanley Dean Witter Universal Funds, Inc.-Fixed Income 6.57% 7.59%8/ 6.89% 7.91%8/
Portfolio
Morgan Stanley Dean Witter Universal Funds, Inc.-U.S. Real -11.96% 1.53%9/ -11.70% 1.83%9/
Estate Portfolio
PBHG Insurance Series Fund, Inc.-PBHG Growth II Portfolio 6.85% 8.14%4/ 7.17% 8.47%4/
PBHG Insurance Series Fund, Inc.-PBHG Tech. & Comm. Portfolio 30.57% 19.65%4/ 30.96% 20.01%4/
1/ Annual mortality and expense risk charge of 1.25% of daily net asset value.
2/ Annual mortality and expense risk charge of 0.95% of daily net asset value.
3/ From Separate Account commencement date (12/7/95) to 12/31/98 unless otherwise noted.
4/ From inception date of Portfolio (5/1/97) to 12/31/98.
5/ From inception date of Portfolio (8/22/97) to 12/31/98.
6/ From inception date of Portfolio (10/1/97) to 12/31/98.
7/ From inception date of Portfolio (8/25/97) to 12/31/98.
8/ From inception date of Portfolio (1/2/97) to 12/31/98.
9/ From inception date of Portfolio (3/3/97) to 12/31/98.
</TABLE>
-7-
<PAGE>
Other Performance Measures
Any of the Contracts may be compared in advertising materials to certificates of
deposit ("CDs") or other investments issued by banks or other depository
institutions. Variable annuities differ from bank investments in several
respects. For example, variable annuities may offer higher potential returns
than CDs. However, unless you have elected to invest in only the fixed account
options, the Company does not guarantee your return. Also, none of your
investments under the Contract, whether allocated to the fixed account options
or to a Sub-Account, are FDIC-insured.
Advertising materials for any of the Contracts may, from time to time, address
retirement needs and investing for retirement, the usefulness of a tax-qualified
retirement plan, saving for college, or other investment goals. Advertising
materials for any of the Contracts may discuss, generally, the advantages of
investing in a variable annuity and the Contracts' particular features and their
desirability and may compare Contract features with those of other variable
annuities and investment products of other issuers. Advertising materials may
also include a discussion of the balancing of risk and return in connection with
the selection of investment options under the Contracts and investment
alternatives generally, as well as a discussion of the risks and attributes
associated with the investment options under the Contracts. A description of the
tax advantages associated with the Contracts, including the effects of
tax-deferral under a variable annuity or retirement plan generally, may be
included as well. Advertising materials for any of the Contracts may quote or
reprint financial or business publications and periodicals, including model
portfolios or allocations, as they relate to current economic and political
conditions, management and composition of the underlying Portfolios, investment
philosophy, investment techniques, the desirability of owning the Contract and
other products and services offered by the Company or AAG Securities, Inc. ("AAG
Securities").
The Company or AAG Securities may provide information designed to help
individuals understand their investment goals and explore various financial
strategies. Such information may include: information about current economic,
market and political conditions; materials that describe general principles of
investing, such as asset allocation, diversification, risk tolerance and goal
setting; questionnaires designed to help create a personal financial profile;
worksheets used to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and alternative investment strategies and plans.
Ibbotson Associates of Chicago, Illinois ("Ibbotson"), provides historical
returns of the capital markets in the United States, including common stocks,
small capitalization stocks, long-term corporate bonds, intermediate-term
government bonds, long-term government bonds, Treasury bills, the U.S. rate of
inflation (based on the Consumer Price Index), and combinations of various
capital markets. The performance of these capital markets is based on the
returns of different indices.
Advertising materials for any of the Contracts may use the performance of these
capital markets in order to demonstrate general risk-versus-reward investment
scenarios. Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risk associated with the
security types in any capital market may or may not correspond directly to those
of the Sub-Accounts and the Portfolios. Advertising materials may also compare
performance to that of other compilations or indices that may be developed and
made available in the future.
In addition, advertising materials may quote various measures of volatility and
benchmark correlations for the Sub-Accounts and the respective Portfolios and
compare these volatility measures and correlations with those of other separate
accounts and their underlying funds. Measures of volatility seek to compare a
Sub-Account's, or its underlying Portfolio's, historical share price
fluctuations or total returns to those of a benchmark. Measures of benchmark
correlation indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical data.
-8-
<PAGE>
BENEFIT UNITS--TRANSFER FORMULAS
- --------------------------------------------------------------------------------
Transfers of a Contract owner's Benefit Units between Sub-Accounts during the
Benefit Payment Period are implemented according to the following formulas:
(1) The number of Benefit Units to be transferred from a given
Sub-Account is BU1(trans).
(2) The number of the Contract owner's Benefit Units remaining in such
Sub-Account (after the transfer)
= UNIT1 - BU1(trans).
(3) The number of Benefit Units transferred to the new Sub-Account is
BU2(trans).
BU2(trans) = BU1(trans) * BUV1/BUV2.
(4) The number of the Contract owner's Benefit Units in the new
Sub-Account (after the transfer)
= UNIT2 + BU2(trans).
(5) Subsequent variable dollar benefit payments will be based on the
number of the Contract owner's Benefit Units in each Sub-Account
(after the transfer) as of the next variable dollar benefit
payment's due date.
Where:
BU1(trans) is the number of the Contract owner's Benefit Units
transferred from a given Sub-Account. BUV1 is the Benefit Unit
Value of the Sub-Account from which the transfer is being made as
of the end of the Valuation Period in which the transfer request
was received. BU2(trans) is the number of the Contract owner's
Benefit Units transferred into the new Sub-Account. BUV2 is the
Benefit Unit Value of the Sub-Account to which the transfer is
being made as of the end of the Valuation Period in which the
transfer request was received. UNIT1 is the number of the Contract
owner's Benefit Units in the Sub-Account from which the transfer is
being made, before the transfer. UNIT2 is the number of the
Contract owner's Benefit Units in the Sub-Account to which the
transfer is being made, before the transfer.
-9-
<PAGE>
FEDERAL TAX MATTERS
- --------------------------------------------------------------------------------
The following discussion supplements the discussion of federal tax matters in
the prospectuses for the Contracts. This discussion is general and is not
intended as tax advice. Federal income tax laws or the interpretation of those
laws by the Internal Revenue Service may change at any time.
Taxation of Separate Account Income
The Company is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code ("IRC"). Since the Separate Account is not an entity
separate from the Company, and its operations form a part of the Company, it
will not be taxed separately as a "regulated investment company" under
Subchapter M of the IRC. Investment income and realized capital gains are
automatically applied to increase reserves under the Contracts. Under existing
federal income tax law, the Company believes that it will not be taxed on the
Separate Account investment income and realized net capital gains to the extent
that such income and gains are applied to increase the reserves under the
Contracts.
Accordingly, the Company does not anticipate that it will incur any federal
income tax liability attributable to the Separate Account and, therefore, the
Company does not intend to make provisions for any such taxes. However, if
changes in the federal tax laws or interpretations thereof result in the Company
being taxed on income or gains attributable to the Separate Account, then the
Company may impose a charge against the Separate Account (with respect to some
or all Contracts) in order to set aside provisions to pay such taxes.
In certain circumstances, owners of individual variable annuity contracts and
participants under group variable annuity contracts may be considered the
owners, for federal income tax purposes, of the assets of the separate accounts
used to support their contracts. In those circumstances, income and gains from
the separate account assets would be included in the owner's gross income. The
Internal Revenue Service has stated in published rulings that a variable
contract owner will be considered the owner of separate account assets if the
owner possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets.
The Treasury Department has also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
owner or participant), rather than the insurance company, to be treated as the
owner of the assets in the account." This announcement also stated that guidance
would be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular sub-accounts without
being treated as owners of the underlying assets." As of the date of this
statement of additional information, no guidance has been issued.
The ownership rights under the Contracts are similar to, but different in
certain respects from, those described by the Internal Revenue Service in
rulings in which it was determined that contract owners were not owners of
separate account assets. For example, the owner of a Contract has more
flexibility in allocating purchase payments and Account Value than was
contemplated in the rulings. These differences could result in an owner or
participant being treated as the owner of a pro rata portion of the assets of
the Separate Account and/or Fixed Account. In addition, the Company does not
know what standards will be set forth, if any, in the regulations or rulings
which the Treasury Department has stated it expects to issue. The Company
therefore reserves the right to modify the Contracts as necessary to attempt to
prevent an owner or participant from being considered the owner of a pro rata
share of the assets of the Separate Account.
Tax Deferral On Nonqualified Contracts
Section 817(h) of the Code requires that with respect to nonqualified Contracts,
the investments of the Portfolios be "adequately diversified" in accordance with
Treasury regulations in order for the Contracts to qualify as annuity contracts
under federal tax law. The Separate Account, through the Portfolios, intends to
comply with the diversification requirements prescribed by the Treasury in Reg.
Sec. 1.817-5, which affect how the Portfolios' assets may be invested. Failure
of a Portfolio to meet the diversification requirement would result in loss of
tax deferred status to owners of nonqualified Contracts.
-10-
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The audited financial statements of the Separate Account for the years ended
December 31, 1998 and 1997 and the Company's audited statutory-basis financial
statements for the years ended December 31, 1998 and 1997 are included herein.
The financial statements of the Company included in this statement of additional
information should be considered only as bearing on the ability of the Company
to meet its obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account.
-11-
<PAGE>
ANNUITY INVESTORS
VARIABLE ACCOUNT A
Financial Statements
Years ended December 31, 1998 and 1997
With Report of Independent Auditors
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
Financial Statements
Years ended December 31, 1998 and 1997
Contents
Report of Independent Auditors.............................................1
Audited Financial Statements
Statement of Assets and Liabilities - Current Year.........................2
Statement of Assets and Liabilities - Prior Year...........................4
Statements of Operations - Current Year....................................6
Statements of Operations - Prior Year......................................7
Statements of Changes in Net Assets - Current Year.........................8
Statements of Changes in Net Assets - Prior Year..........................11
Notes to Financial Statements.............................................14
<PAGE>
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 statements of assets and liabilities of the
Annuity Investors Variable Account A (comprised of the Dreyfus Variable
Investment Fund Capital Appreciation Portfolio, Dreyfus Variable Investment Fund
Growth and Income Portfolio, Dreyfus Variable Investment Fund Small Cap
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, Merrill Lynch Variable Series Funds, Inc. Domestic Money Market
Fund, Morgan Stanley Universal Funds, Inc. Fixed Income Portfolio, Morgan
Stanley Universal Funds, Inc. U.S. Real Estate Portfolio, PBHG Insurance Series
Fund, Inc. Growth II Portfolio, PBHG Insurance Series Fund, Inc. Technology &
Communications Portfolio and Strong Funds Opportunity Fund II Sub-Accounts) as
of December 31, 1998 and 1997, and the related statements of operations and
changes in net assets 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, 1998 and 1997, 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
audits provide 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, 1998 and 1997, and the results of their operations and changes in
their net assets for the years then ended in conformity with generally accepted
accounting principles.
/s/--------------------
Ernst & Young LLP
Cincinnati, Ohio
February 4, 1999
-1-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
====================================================================================================================================
Market
Shares Cost Value
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Investments in portfolio shares, at net asset value (Note 2):
Dreyfus Variable Investment Fund:
Capital Appreciation Portfolio .............................. 258,671.915 $ 7,472,994 $ 9,340,643
Growth and Income Portfolio ................................. 92,571.106 1,995,497 2,094,884
Small Cap Portfolio ......................................... 58,023.275 3,253,489 3,128,035
Dreyfus Funds:
Socially Responsible Growth Fund, Inc. ...................... 146,605.458 3,755,062 4,556,498
Stock Index Fund ............................................ 431,475.411 11,687,152 14,031,580
Janus Aspen Series:
Aggressive Growth Portfolio ................................. 164,049.255 3,156,609 4,526,119
Worldwide Growth Portfolio .................................. 484,769.907 11,693,725 14,101,957
Balanced Portfolio .......................................... 644,903.995 11,536,564 14,510,340
Short-Term Bond Portfolio ................................... 0.000 0 0
Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Fund ...................................... 171,800.005 2,508,822 2,520,306
Global Strategy Focus Fund .................................. 26,435.460 365,698 354,500
High Current Income Fund .................................... 142,758.018 1,603,907 1,443,283
Domestic Money Market Fund .................................. 997,945.322 997,945 997,945
Morgan Stanley Universal Funds, Inc.:
Fixed Income Portfolio ...................................... 73,075.791 797,468 781,911
U.S. Real Estate Portfolio .................................. 67,863.625 722,850 665,064
PBHG Insurance Series Fund, Inc.:
Growth II Portfolio ......................................... 27,498.480 302,292 319,807
Technology & Communications Portfolio ....................... 112,563.486 1,228,252 1,548,873
Strong Funds:
Opportunity Fund II ......................................... 78,825.745 1,676,372 1,712,095
-----------
Total cost................................................................. $64,754,695
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets.............................................................................. 76,633,840
Liabilities:
Amounts due to Annuity Investors Life Insurance Company (Note 4)........................................... 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets................................................................................ $76,633,840
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
Market
Units Unit Value Value
----------- ------------ -------------
<S> <C> <C> <C>
Net assets attributable to variable annuity contract holders (Note 2):
Dreyfus Variable Investment Fund:
Capital Appreciation Portfolio - Basic contract ......................... 445,340.210 $ 20.056205 $ 8,931,835
Capital Appreciation Portfolio - Enhanced contract ...................... 20,198.098 20.239919 408,808
Growth and Income Portfolio - Basic contract ............................ 153,859.242 12.672693 1,949,811
Growth and Income Portfolio - Enhanced contract ......................... 11,391.202 12.735544 145,073
Small Cap Portfolio - Basic contract .................................... 256,140.224 11.582209 2,966,670
Small Cap Portfolio - Enhanced contract ................................. 13,863.364 11.639676 161,365
Dreyfus Funds:
Socially Responsible Growth Fund, Inc. - Basic contract ................. 229,710.625 19.329493 4,440,190
Socially Responsible Growth Fund, Inc. - Enhanced contract .............. 5,962.423 19.506808 116,308
Stock Index Fund - Basic contract ....................................... 665,996.241 20.107787 13,391,711
Stock Index Fund - Enhanced contract .................................... 31,533.165 20.291951 639,869
Janus Aspen Series:
Aggressive Growth Portfolio - Basic contract ............................ 276,028.214 16.201176 4,471,982
Aggressive Growth Portfolio - Enhanced contract ......................... 3,311.189 16.349773 54,137
Worldwide Growth Portfolio - Basic contract ............................. 689,148.869 20.045287 13,814,187
Worldwide Growth Portfolio - Enhanced contract .......................... 14,225.653 20.228946 287,770
Balanced Portfolio - Basic contract ..................................... 765,170.784 18.665828 14,282,546
Balanced Portfolio - Enhanced contract .................................. 12,092.854 18.837059 227,794
Short-Term Bond Portfolio - Basic contract .............................. 0.000 0.000000 0
Short-Term Bond Portfolio - Enhanced contract ........................... 0.000 0.000000 0
Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Fund - Basic contract ................................. 154,675.988 15.575121 2,409,097
Basic Value Focus Fund - Enhanced contract .............................. 7,075.336 15.717824 111,209
Global Strategy Focus Fund - Basic contract ............................. 25,160.717 13.426667 337,825
Global Strategy Focus Fund - Enhanced contract .......................... 1,230.646 13.549756 16,675
High Current Income Fund - Basic contract ............................... 119,716.657 11.667978 1,396,851
High Current Income Fund - Enhanced contract ............................ 3,945.423 11.768629 46,432
Domestic Money Market Fund - Basic contract ............................. 876,845.270 1.118170 980,462
Domestic Money Market Fund - Enhanced contract .......................... 15,490.877 1.128613 17,483
Morgan Stanley Universal Funds, Inc.:
Fixed Income Portfolio - Basic contract ................................. 67,599.236 11.446708 773,789
Fixed Income Portfolio - Enhanced contract .............................. 706.067 11.503500 8,122
U.S. Real Estate Portfolio - Basic contract ............................. 61,094.222 10.820841 661,091
U.S. Real Estate Portfolio - Enhanced contract .......................... 365.320 10.874562 3,973
PBHG Insurance Series Fund, Inc.:
Growth II Portfolio - Basic contract .................................... 27,306.830 11.391453 311,064
Growth II Portfolio - Enhanced contract ................................. 763.702 11.447984 8,743
Technology & Communications Portfolio - Basic contract .................. 112,549.063 13.480010 1,517,162
Technology & Communications Portfolio - Enhanced contract ............... 2,340.838 13.546872 31,711
Strong Funds:
Opportunity Fund II - Basic contract .................................... 120,817.718 13.806405 1,668,058
Opportunity Fund II - Enhanced contract ................................. 3,173.858 13.874874 44,037
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable annuity contract holders......................................... 76,633,840
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets........................................................................................... $ 76,633,840
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
=================================================================================================================================
Market
Shares Cost Value
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Investments in portfolio shares, at net asset value (Note 2):
Dreyfus Variable Investment Fund:
Capital Appreciation Portfolio ....................................... 140,369.889 $ 3,586,392 $ 3,916,320
Growth and Income Portfolio .......................................... 26,988.061 585,651 560,812
Small Cap Portfolio .................................................. 18,735.866 1,118,725 1,070,567
Dreyfus Funds:
Socially Responsible Growth Fund, Inc. ............................... 83,872.063 1,957,506 2,094,285
Stock Index Fund ..................................................... 202,885.198 4,860,174 5,224,294
Janus Aspen Series:
Aggressive Growth Portfolio .......................................... 124,254.001 2,247,391 2,553,420
Worldwide Growth Portfolio ........................................... 288,619.142 6,340,150 6,750,802
Balanced Portfolio ................................................... 337,438.946 5,473,066 5,895,058
Short-Term Bond Portfolio ............................................ 7,446.572 74,035 66,126
Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Fund ............................................... 63,965.078 955,064 1,013,207
Global Strategy Focus Fund ........................................... 15,966.291 234,211 234,864
High Current Income Fund ............................................. 70,683.985 812,648 814,279
Domestic Money Market Fund ........................................... 764,922.240 764,922 764,922
Morgan Stanley Universal Funds, Inc.:
Fixed Income Portfolio ............................................... 7,372.126 79,156 76,744
U.S. Real Estate Portfolio ........................................... 20,939.568 231,982 238,921
PBHG Insurance Series Fund, Inc.:
Growth II Portfolio .................................................. 16,267.143 180,184 174,872
Technology & Communications Portfolio ................................ 51,008.507 547,507 530,999
Strong Funds:
Opportunity Fund II .................................................. 20,165.037 430,658 437,581
-----------
Total cost.............................................................................. $30,479,422
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets........................................................................................... 32,418,073
Liabilities:
Amounts due to Annuity Investors Life Insurance Company (Note 4)............................................ 0
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................................................ $32,418,073
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENT OF ASSETS AND LIABILITIES (CONTINUED)
December 31, 1997
<TABLE>
<CAPTION>
==================================================================================================================================
Market
Units Unit Value Value
----------- ----------- -----------
<S> <C> <C> <C>
Net assets attributable to variable annuity contract holders (Note 2):
Dreyfus Variable Investment Fund:
Capital Appreciation Portfolio - Basic contract ...................... 247,118.575 $ 15.594553 $ 3,853,704
Capital Appreciation Portfolio - Enhanced contract ................... 3,990.613 15.690822 62,616
Growth and Income Portfolio - Basic contract ......................... 48,865.286 11.475350 560,746
Growth and Income Portfolio - Enhanced contract ...................... 5.708 11.498113 66
Small Cap Portfolio - Basic contract ................................. 86,150.930 12.145032 1,046,306
Small Cap Portfolio - Enhanced contract .............................. 1,993.698 12.169119 24,261
Dreyfus Funds:
Socially Responsible Growth Fund, Inc. - Basic contract .............. 132,957.488 15.126449 2,011,174
Socially Responsible Growth Fund, Inc. - Enhanced contract ........... 5,460.625 15.220020 83,111
Stock Index Fund - Basic contract .................................... 324,713.323 15.879169 5,156,178
Stock Index Fund - Enhanced contract ................................. 4,263.339 15.977173 68,116
Janus Aspen Series:
Aggressive Growth Portfolio - Basic contract ......................... 207,227.419 12.217744 2,531,852
Aggressive Growth Portfolio - Enhanced contract ...................... 1,754.459 12.293313 21,568
Worldwide Growth Portfolio - Basic contract .......................... 425,739.592 15.742391 6,702,159
Worldwide Growth Portfolio - Enhanced contract ....................... 3,070.952 15.839608 48,643
Balanced Portfolio - Basic contract .................................. 409,917.307 14.073772 5,769,083
Balanced Portfolio - Enhanced contract ............................... 8,896.063 14.160835 125,975
Short-Term Bond Portfolio - Basic contract ........................... 3,967.559 10.890671 43,210
Short-Term Bond Portfolio - Enhanced contract ........................ 2,091.259 10.958058 22,916
Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Fund - Basic contract .............................. 68,181.594 14.408954 982,426
Basic Value Focus Fund - Enhanced contract ........................... 2,123.159 14.497904 30,781
Global Strategy Focus Fund - Basic contract .......................... 17,615.512 12.486612 219,958
Global Strategy Focus Fund - Enhanced contract ....................... 1,186.434 12.563763 14,906
High Current Income Fund - Basic contract ............................ 65,756.981 12.189961 801,575
High Current Income Fund - Enhanced contract ......................... 1,036.359 12.258690 12,704
Domestic Money Market Fund - Basic contract .......................... 697,535.841 1.079946 753,301
Domestic Money Market Fund - Enhanced contract ....................... 10,686.456 1.087469 11,621
Morgan Stanley Universal Funds, Inc.:
Fixed Income Portfolio - Basic contract .............................. 7,144.949 10.740991 76,744
Fixed Income Portfolio - Enhanced contract ........................... 0.000 10.762308 0
U.S. Real Estate Portfolio - Basic contract .......................... 19,438.406 12.291156 238,921
U.S. Real Estate Portfolio - Enhanced contract ....................... 0.000 12.315552 0
PBHG Insurance Series Fund, Inc.:
Growth II Portfolio - Basic contract ................................. 15,905.540 10.661135 169,571
Growth II Portfolio - Enhanced contract .............................. 496.211 10.682296 5,301
Technology & Communications Portfolio - Basic contract ............... 51,276.959 10.323925 529,380
Technology & Communications Portfolio - Enhanced contract ............ 156.518 10.344412 1,619
Strong Funds:
Opportunity Fund II - Basic contract ................................. 35,542.297 12.311565 437,581
Opportunity Fund II - Enhanced contract .............................. 0.000 12.335975 0
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets attributable to variable annuity contract holders................................................ 32,418,073
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets.................................................................................................. $32,418,073
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
====================================================================================================================================
Dreyfus Variable Investment Fund
----------------------------------------------------
Growth
Capital and Small
Appreciation Income Cap
Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C>
Investment income:
Dividends from investments in portfolio shares .................... $ 52,299 $ 35,426 $ 48,600
Expenses:
Mortality and expense risk fees (Note 4) .......................... 79,803 17,591 25,657
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ................................. (27,504) 17,835 22,943
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares 80,800 (7,622) (18,401)
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. 1,537,721 124,226 (77,296)
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ........... 1,618,521 116,604 (95,697)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ... $ 1,591,017 $ 134,439 $ (72,754)
====================================================================================================================================
<CAPTION>
================================================================================================================
Dreyfus Funds
--------------------------------
Socially
Responsible Stock
Growth Index
Fund, Inc. Fund
================================================================================================================
<S> <C> <C>
Investment income:
Dividends from investments in portfolio shares .................... $ 171,025 $ 157,506
Expenses:
Mortality and expense risk fees (Note 4) .......................... 39,072 115,315
- ----------------------------------------------------------------------------------------------------------------
Net investment income (loss) ................................. 131,953 42,191
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares 33,516 179,958
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. 664,657 1,980,383
- ----------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ........... 698,173 2,160,341
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ... $ 830,126 $ 2,202,532
================================================================================================================
<CAPTION>
====================================================================================================================================
Janus Aspen Series
----------------------------------------------------------
Short-
Aggressive Worldwide Term
Growth Growth Balanced Bond
Portfolio Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C> <C>
Investment income:
Dividends from investments in portfolio shares .................... $ 0 $ 403,005 $ 454,882 $ 591
Expenses:
Mortality and expense risk fees (Note 4) .......................... 40,580 130,289 119,952 308
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ................................. (40,580) 272,716 334,930 283
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares 29,417 94,500 54,985 (7,029)
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. 1,063,481 1,997,580 2,551,784 7,834
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ........... 1,092,898 2,092,080 2,606,769 805
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ... $ 1,052,318 $ 2,364,796 $ 2,941,699 $ 1,088
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Merrill Lynch Variable Series Funds, Inc.
---------------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund
====================================================================================================================================
<S> <C> <C> <C> <C>
Investment income:
Dividends from investments in portfolio shares .................... $ 157,272 $ 38,481 $ 120,440 $ 42,570
Expenses:
Mortality and expense risk fees (Note 4) .......................... 23,055 3,765 15,221 13,362
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ................................. 134,217 34,716 105,219 29,208
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares (837) (2,908) (15,007) 0
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. (46,659) (11,851) (162,254) 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ........... (47,496) (14,759) (177,261) 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ... $ 86,721 $ 19,957 $ (72,042) $ 29,208
====================================================================================================================================
<CAPTION>
====================================================================================================================================
Morgan Stanley PBHG Insurance
Universal Funds, Inc. Series Fund, Inc.
---------------------------------------------------------
U.S. Technology
Fixed Real Growth and
Income Estate II Communications
Portfolio Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C> <C>
Investment income:
Dividends from investments in portfolio shares .................... $ 35,969 $ 22,092 $ 0 $ 157
Expenses:
Mortality and expense risk fees (Note 4) .......................... 4,817 5,856 2,974 12,134
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ................................. 31,152 16,236 (2,974) (11,977)
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares 5,008 (4,878) 596 4,399
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. (13,145) (64,725) 22,827 337,130
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ........... (8,137) (69,603) 23,423 341,529
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ... $ 23,015 $ (53,367) $ 20,449 $ 329,552
====================================================================================================================================
<CAPTION>
===================================================================================================================
Strong
Funds
------------
Opportunity
Fund
II Total
===================================================================================================================
<S> <C> <C>
Investment income:
Dividends from investments in portfolio shares .................... $ 93,328 $ 1,833,643
Expenses:
Mortality and expense risk fees (Note 4) .......................... 13,265 663,016
- -------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ................................. 80,063 1,170,627
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares (3,881) 422,616
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. 28,800 9,940,493
- -------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ........... 24,919 10,363,109
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ... $ 104,982 $11,533,736
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
====================================================================================================================================
Dreyfus Variable Investment Fund
----------------------------------------------------
Growth
Capital and Small
Appreciation Income Cap
Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C>
Investment income:
Dividends from investments in portfolio shares ......................... $ 31,931 $ 35,214 $ 53,513
Expenses:
Mortality and expense risk fees (Note 4) ............................... 24,987 1,729 2,571
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)....................................... 6,944 33,485 50,942
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares .... 10,026 1,311 10
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares ................................... 319,771 (24,839) (48,158)
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ................ 329,797 (23,528) (48,148)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ........ $ 336,741 $ 9,957 $ 2,794
====================================================================================================================================
<CAPTION>
================================================================================================================
Dreyfus Funds
--------------------------------
Socially
Responsible Stock
Growth Index
Fund, Inc. Fund
================================================================================================================
<S> <C> <C>
Investment income:
Dividends from investments in portfolio shares .......................... $ 65,284 $ 167,780
Expenses:
Mortality and expense risk fees (Note 4) ................................ 13,118 29,248
- ----------------------------------------------------------------------------------------------------------------
Net investment income (loss)........................................ 52,166 138,532
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares ..... 8,354 3,459
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .................................... 136,989 355,870
- ----------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ................. 145,343 359,329
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ......... $ 197,509 $ 497,861
================================================================================================================
<CAPTION>
====================================================================================================================================
Janus Aspen Series
--------------------------------------------------------
Short-
Aggressive Worldwide Term
Growth Growth Balanced Bond
Portfolio Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C> <C>
Investment income:
Dividends from investments in portfolio shares ....................... $ 0 $ 60,959 $ 113,010 $ 11,320
Expenses:
Mortality and expense risk fees (Note 4) ............................. 20,223 44,109 36,816 746
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)..................................... (20,223) 16,850 76,194 10,574
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares .. 1,204 9,006 9,629 158
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares ................................. 309,297 387,292 413,065 (7,425)
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares .............. 310,501 396,298 422,694 (7,267)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ...... $ 290,278 $ 413,148 $ 498,888 $ 3,307
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Merrill Lynch Variable Series Funds, Inc.
---------------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund
====================================================================================================================================
<S> <C> <C> <C> <C>
Investment income:
Dividends from investments in portfolio shares .................... $ 9,192 $ 1,268 $ 33,292 $ 41,589
Expenses:
Mortality and expense risk fees (Note 4) .......................... 6,537 1,537 4,852 11,904
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ................................. 2,655 (269) 28,440 29,685
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares 3,825 2,375 471 0
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. 53,787 (823) 853 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ........... 57,612 1,552 1,324 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ... $ 60,267 $ 1,283 $ 29,764 $ 29,685
====================================================================================================================================
<CAPTION>
====================================================================================================================================
Morgan Stanley PBHG Insurance
Universal Funds, Inc. Series Fund, Inc.
---------------------------------------------------------
U.S. Technology
Fixed Real Growth and
Income Estate II Communications
Portfolio Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C> <C>
Investment income:
Dividends from investments in portfolio shares .................... $ 4,192 $ 7,455 $ 0 $ 0
Expenses:
Mortality and expense risk fees (Note 4) .......................... 217 727 767 2,092
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ................................. 3,975 6,728 (767) (2,092)
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares 186 448 109 898
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. (2,412) 6,939 (5,312) (16,509)
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ........... (2,226) 7,387 (5,203) (15,611)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ... $ 1,749 $ 14,115 $ (5,970) $ (17,703)
====================================================================================================================================
<CAPTION>
=======================================================================================================================
Strong
Funds
------------
Opportunity
Fund
II Total
=======================================================================================================================
<S> <C> <C>
Investment income:
Dividends from investments in portfolio shares .................... $ 407 $ 636,406
Expenses:
Mortality and expense risk fees (Note 4) .......................... 948 203,128
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (loss) ................................. (541) 433,278
Net realized gain (loss) and unrealized appreciation (depreciation)
on investments:
Net realized gain (loss) on sale of investments in portfolio shares 483 51,952
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. 6,923 1,885,308
- -----------------------------------------------------------------------------------------------------------------------
Net gain (loss) on investments in portfolio shares ........... 7,406 1,937,260
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ... $ 6,865 $2,370,538
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
====================================================================================================================================
Dreyfus Variable Investment Fund
----------------------------------------------------
Growth
Capital and Small
Appreciation Income Cap
Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C>
Changes from operations:
Net investment income (loss) ...................................... $ (27,504) $ 17,835 $ 22,943
Net realized gain (loss) on sale of investments in portfolio shares 80,800 (7,622) (18,401)
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. 1,537,721 124,226 (77,296)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ........ 1,591,017 134,439 (72,754)
Changes from principal transactions:
Contract purchase payments ........................................ 3,493,049 1,319,418 1,968,291
Contract redemptions .............................................. (283,084) (37,005) (62,726)
Net transfers (to) from fixed account ............................. 623,341 117,220 224,657
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal transactions ....... 3,833,306 1,399,633 2,130,222
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets .............................. 5,424,323 1,534,072 2,057,468
Net assets, beginning of period ........................................ 3,916,320 560,812 1,070,567
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period .............................................. $ 9,340,643 $ 2,094,884 $ 3,128,035
====================================================================================================================================
<CAPTION>
================================================================================================================
Dreyfus Funds
--------------------------------
Socially
Responsible Stock
Growth Index
Fund, Inc. Fund
================================================================================================================
<S> <C> <C>
Changes from operations:
Net investment income (loss) ...................................... $ 131,953 $ 42,191
Net realized gain (loss) on sale of investments in portfolio shares 33,516 179,958
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. 664,657 1,980,383
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ........ 830,126 2,202,532
Changes from principal transactions:
Contract purchase payments ........................................ 1,499,937 6,196,975
Contract redemptions .............................................. (122,782) (315,162)
Net transfers (to) from fixed account ............................. 254,932 722,941
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal transactions ....... 1,632,087 6,604,754
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets .............................. 2,462,213 8,807,286
Net assets, beginning of period ........................................ 2,094,285 5,224,294
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period .............................................. $ 4,556,498 $ 14,031,580
================================================================================================================
<CAPTION>
====================================================================================================================================
Janus Aspen Series
----------------------------------------------------------------
Short-
Aggressive Worldwide Term
Growth Growth Balanced Bond
Portfolio Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income (loss) ................................. $ (40,580) $ 272,716 $ 334,930 $ 283
Net realized gain (loss) on sale of investments in
portfolio shares ........................................ 29,417 94,500 54,985 (7,029)
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares ......................... 1,063,481 1,997,580 2,551,784 7,834
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ... 1,052,318 2,364,796 2,941,699 1,088
Changes from principal transactions:
Contract purchase payments ................................... 1,211,114 4,957,213 5,335,110 3,730
Contract redemptions ......................................... (200,425) (384,734) (361,309) (5)
Net transfers (to) from fixed account ........................ (90,308) 413,880 699,782 (70,939)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal transactions .. 920,381 4,986,359 5,673,583 (67,214)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets ......................... 1,972,699 7,351,155 8,615,282 (66,126)
Net assets, beginning of period ................................... 2,553,420 6,750,802 5,895,058 66,126
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ......................................... $ 4,526,119 $ 14,101,957 $ 14,510,340 $ 0
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Merrill Lynch Variable Series Funds, Inc.
---------------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund
====================================================================================================================================
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income (loss) ...................................... $ 134,217 $ 34,716 $ 105,219 $ 29,208
Net realized gain (loss) on sale of investments in portfolio shares (837) (2,908) (15,007) 0
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. (46,659) (11,851) (162,254) 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ........ 86,721 19,957 (72,042) 29,208
Changes from principal transactions:
Contract purchase payments ........................................ 1,501,132 113,474 720,476 1,401,235
Contract redemptions .............................................. (65,000) (9,043) (60,276) (24,217)
Net transfers (to) from fixed account ............................. (15,754) (4,752) 40,846 (1,173,203)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal transactions ....... 1,420,378 99,679 701,046 203,815
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets .............................. 1,507,099 119,636 629,004 233,023
Net assets, beginning of period ........................................ 1,013,207 234,864 814,279 764,922
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period .............................................. $ 2,520,306 $ 354,500 $ 1,443,283 $ 997,945
====================================================================================================================================
<CAPTION>
====================================================================================================================================
Morgan Stanley PBHG Insurance
Universal Funds, Inc. Series Fund, Inc.
---------------------------------------------------------
U.S. Technology
Fixed Real Growth and
Income Estate II Communications
Portfolio Portfolio Portfolio Portfolio
====================================================================================================================================
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income (loss) ...................................... $ 31,152 $ 16,236 $ (2,974) $ (11,977)
Net realized gain (loss) on sale of investments in portfolio shares 5,008 (4,878) 596 4,399
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. (13,145) (64,725) 22,827 337,130
Net increase (decrease) in net assets from operations ........ 23,015 (53,367) 20,449 329,552
Changes from principal transactions:
Contract purchase payments ........................................ 354,893 455,030 121,131 644,581
Contract redemptions .............................................. (6,605) (11,846) (2,291) (38,053)
Net transfers (to) from fixed account ............................. 333,864 36,326 5,646 81,794
Net increase in net assets from principal transactions ....... 682,152 479,510 124,486 688,322
Net increase in net assets .............................. 705,167 426,143 144,935 1,017,874
Net assets, beginning of period ........................................ 76,744 238,921 174,872 530,999
Net assets, end of period .............................................. $ 781,911 $ 665,064 $ 319,807 $ 1,548,873
====================================================================================================================================
<CAPTION>
=======================================================================================================================
Strong
Funds
------------
Opportunity
Fund
II Total
=======================================================================================================================
<S> <C> <C>
Changes from operations:
Net investment income (loss) ...................................... $ 80,063 $ 1,170,627
Net realized gain (loss) on sale of investments in portfolio shares (3,881) 422,616
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares .............................. 28,800 9,940,493
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ........ 104,982 11,533,736
Changes from principal transactions:
Contract purchase payments ........................................ 1,062,529 32,359,318
Contract redemptions .............................................. (24,103) (2,008,666)
Net transfers (to) from fixed account ............................. 131,106 2,331,379
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal transactions ....... 1,169,532 32,682,031
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets .............................. 1,274,514 44,215,767
Net assets, beginning of period ........................................ 437,581 32,418,073
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period .............................................. $ 1,712,095 $ 76,633,840
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
Basic Contracts
<TABLE>
<CAPTION>
==================================================================================================================================
Dreyfus Variable Investment Fund Dreyfus Funds
------------------------------------------------- ------------------------------
Growth Socially
Capital and Small Responsible Stock
Appreciation Income Cap Growth Index
Portfolio Portfolio Portfolio Fund, Inc. Fund
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Units outstanding, December 31, 1997 247,118.575 48,865.286 86,150.930 132,957.488 324,713.323
Units purchased 213,653.289 109,141.805 173,379.161 104,886.187 367,351.643
Units redeemed (15,431.654) (4,147.849) (3,389.867) (8,133.050) (26,068.725)
----------- ----------- ----------- ----------- -----------
Units outstanding December 31, 1998 445,340.210 153,859.242 256,140.224 229,710.625 665,996.241
=========== =========== =========== =========== ===========
==================================================================================================================================
<CAPTION>
===============================================================================================================
Janus Aspen Series
-------------------------------------------------------------------
Short-
Aggressive Worldwide Term
Growth Growth Balanced Bond
Portfolio Portfolio Portfolio Portfolio
===============================================================================================================
<S> <C> <C> <C> <C>
Units outstanding, December 31, 1997 207,227.419 425,739.592 409,917.307 3,967.559
Units purchased 94,553.109 284,041.016 382,195.992 343.698
Units redeemed (25,752.314) (20,631.739) (26,942.515) (4,311.257)
----------- ----------- ----------- -----------
Units outstanding December 31, 1998 276,028.214 689,148.869 765,170.784 0.000
=========== =========== =========== ===========
===============================================================================================================
<CAPTION>
===============================================================================================================
Merrill Lynch Variable Series Funds, Inc.
--------------------------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund
===============================================================================================================
<S> <C> <C> <C> <C>
Units outstanding, December 31, 1997 68,181.594 17,615.512 65,756.981 697,535.841
Units purchased 92,801.588 10,410.160 65,161.945 1,617,996.547
Units redeemed (6,307.194) (2,864.955) (11,202.269) (1,438,687.11)
------------- ------------- ------------- ------------
Units outstanding December 31, 1998 154,675.988 25,160.717 119,716.657 876,845.270
============= ============= ============= ============
===============================================================================================================
<CAPTION>
Morgan Stanley PBHG Insurance Strong
Universal Funds, Inc. Series Fund, Inc. Funds
------------------------------ ------------------------------------------------
U.S. Technology
Fixed Real Growth and Opportunity
Income Estate II Communications Fund
Portfolio Portfolio Portfolio Portfolio II
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
Units outstanding, December 31, 1997 7,144.949 19,438.406 15,905.540 51,276.959 35,542.297
Units purchased 61,069.161 42,714.635 11,981.263 64,689.186 87,196.634
Units redeemed (614.874) (1,058.819) (579.973) (3,417.082) (1,921.213)
------------- ------------ ------------- ------------- -------------
Units outstanding December 31, 1998 67,599.236 61,094.222 27,306.830 112,549.063 120,817.718
============= ============ ============= ============= =============
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-9-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1998
Enhanced Contracts
<TABLE>
<CAPTION>
============================================================================================================================
Dreyfus Variable Investment Fund Dreyfus Funds
---------------------------------------------- ---------------------------
Growth Socially
Capital and Small Responsible Stock
Appreciation Income Cap Growth Index
Portfolio Portfolio Portfolio Fund, Inc. Fund
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Units outstanding, December 31, 1997 3,990.613 5.708 1,993.698 5,460.625 4,263.339
Units purchased 16,725.218 11,512.717 11,955.075 2,403.284 27,564.885
Units redeemed (517.733) (127.223) (85.409) (1,901.486) (295.059)
---------- ---------- ---------- ---------- ----------
Units outstanding December 31, 1998 20,198.098 11,391.202 13,863.364 5,962.423 31,533.165
========== ========== ========== ========== ==========
============================================================================================================================
<CAPTION>
===========================================================================================================
Janus Aspen Series
----------------------------------------------------------------
Short-
Aggressive Worldwide Term
Growth Growth Balanced Bond
Portfolio Portfolio Portfolio Portfolio
===========================================================================================================
<S> <C> <C> <C> <C>
Units outstanding, December 31, 1997 1,754.459 3,070.952 8,896.063 2,091.259
Units purchased 1,793.596 12,038.103 4,583.881 8.386
Units redeemed (236.866) (883.402) (1,387.090) (2,099.645)
---------- ---------- ---------- ----------
Units outstanding December 31, 1998 3,311.189 14,225.653 12,092.854 0.000
========== ========== ========== ==========
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===========================================================================================================
Merrill Lynch Variable Series Funds, Inc.
----------------------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund
===========================================================================================================
<S> <C> <C> <C> <C>
Units outstanding, December 31, 1997 2,123.159 1,186.434 1,036.359 10,686.456
Units purchased 6,275.039 127.248 2,949.347 55,490.063
Units redeemed (1,322.862) (83.036) (40.283) (50,685.642)
---------- ---------- ---------- ----------
Units outstanding December 31, 1998 7,075.336 1,230.646 3,945.423 15,490.877
========== ========== ========== ==========
===========================================================================================================
<CAPTION>
============================================================================================================================
Morgan Stanley PBHG Insurance Strong
Universal Funds, Inc. Series Fund, Inc. Funds
---------------------------- ------------------------------ -----------
U.S. Technology
Fixed Real Growth and Opportunity
Income Estate II Communications Fund
Portfolio Portfolio Portfolio Portfolio II
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Units outstanding, December 31, 1997 0.000 0.000 496.211 156.518 0.000
Units purchased 706.067 401.140 371.465 2,184.320 3,455.369
Units redeemed 0.000 (35.820) (103.974) 0.000 (281.511)
---------- ---------- ---------- ---------- ---------
Units outstanding December 31, 1998 706.067 365.320 763.702 2,340.838 3,173.858
========== ========== ========== ========== =========
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-10-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
=================================================================================================================================
Dreyfus Variable Investment Fund
-------------------------------------------------
Growth
Capital and Small
Appreciation Income Cap
Portfolio Portfolio Portfolio
=================================================================================================================================
<S> <C> <C> <C>
Changes from operations:
Net investment income (loss) ....................................... $ 6,944 $ 33,485 $ 50,942
Net realized gain (loss) on sale of
investments in portfolio shares .................................. 10,026 1,311 10
Net change in unrealized appreciation
(depreciation) of investments in portfolio shares ................. 319,771 (24,839) (48,158)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ......... 336,741 9,957 2,794
Changes from principal transactions:
Contract purchase payments ......................................... 2,587,775 473,969 833,543
Contract redemptions ............................................... (114,166) (18,372) (3,025)
Net transfers (to) from fixed account .............................. 689,951 95,258 237,255
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
principal transactions ...................................... 3,163,560 550,855 1,067,773
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets ............................... 3,500,301 560,812 1,070,567
Net assets, beginning of period ......................................... 416,019 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ............................................... $ 3,916,320 $ 560,812 $ 1,070,567
=================================================================================================================================
<CAPTION>
===============================================================================================================
Dreyfus Funds
-------------------------------
Socially
Responsible Stock
Growth Index
Fund, Inc. Fund
===============================================================================================================
<S> <C> <C>
Changes from operations:
Net investment income (loss) ....................................... $ 52,166 $ 138,532
Net realized gain (loss) on sale of
investments in portfolio shares .................................. 8,354 3,459
Net change in unrealized appreciation
(depreciation) of investments in portfolio shares ................. 136,989 355,870
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations ......... 197,509 497,861
Changes from principal transactions:
Contract purchase payments ......................................... 1,445,588 3,887,862
Contract redemptions ............................................... (51,480) (82,415)
Net transfers (to) from fixed account .............................. 320,031 560,574
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets from
principal transactions ...................................... 1,714,139 4,366,020
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets ............................... 1,911,648 4,863,881
Net assets, beginning of period ......................................... 182,637 360,413
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period ............................................... $ 2,094,285 $ 5,224,294
===============================================================================================================
<CAPTION>
==================================================================================================================================
Janus Aspen Series
--------------------------------------------------------------------
Short-
Aggressive Worldwide Term
Growth Growth Balanced Bond
Portfolio Portfolio Portfolio Portfolio
==================================================================================================================================
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income (loss) ...........................$ (20,223) $ 16,850 $ 76,194 $ 10,574
Net realized gain (loss) on sale of
investments in portfolio shares ...................... 1,204 9,006 9,629 158
Net change in unrealized appreciation
(depreciation) of investments in portfolio shares ..... 309,297 387,292 413,065 (7,425)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from operations ................................. 290,278 413,148 498,888 3,307
Changes from principal transactions:
Contract purchase payments ............................. 1,590,929 4,759,590 4,181,625 29,866
Contract redemptions ................................... (57,933) (153,014) (140,016) (283)
Net transfers (to) from fixed account .................. 135,745 1,065,566 763,682 (10,508)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
principal transactions .......................... 1,668,741 5,672,143 4,805,290 19,075
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets ................... 1,959,019 6,085,291 5,304,178 22,382
Net assets, beginning of period ............................. 594,401 665,511 590,880 43,744
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ...................................$ 2,553,420 $ 6,750,802 $ 5,895,058 $ 66,126
==================================================================================================================================
<CAPTION>
====================================================================================================================================
Merrill Lynch Variable Series Funds, Inc.
---------------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund
====================================================================================================================================
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income (loss)......................................... $ 2,655 $ (269) $ 28,440 $ 29,685
Net realized gain (loss) on sale of investments in portfolio shares . 3,825 2,375 471 0
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares ................................ 53,787 (823) 853 0
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations .......... 60,267 1,283 29,764 29,685
Changes from principal transactions:
Contract purchase payments .......................................... 782,172 182,783 646,791 1,766,603
Contract redemptions ................................................ (34,859) (11,021) (8,576) (28,653)
Net transfers (to) from fixed account ............................... 121,967 37,593 67,428 (1,342,773)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal transactions ......... 869,280 209,356 705,643 395,177
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets ................................ 929,547 210,639 735,407 424,862
Net assets, beginning of period .......................................... 83,660 24,225 78,872 340,060
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period................................................. $ 1,013,207 $ 234,864 $ 814,279 $ 764,922
====================================================================================================================================
<CAPTION>
====================================================================================================================================
Morgan Stanley PBHG Insurance
Universal Funds, Inc. Series Fund, Inc.
--------------------------------------------------------
U.S. Technology
Fixed Real Growth and
Income Estate II Communications
Portfolio Portfolio Portfolio Portfolio
===================================================================================================================================
<S> <C> <C> <C> <C>
Changes from operations:
Net investment income (loss)......................................... $ 3,975 $ 6,728 $ (767) $ (2,092)
Net realized gain (loss) on sale of investments in portfolio shares . 186 448 109 898
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares ................................ (2,412) 6,939 (5,312) (16,509)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations .......... 1,749 14,115 (5,970) (17,703)
Changes from principal transactions:
Contract purchase payments .......................................... 60,217 158,252 158,200 315,811
Contract redemptions ................................................ (2,721) (3,572) 0 (10,266)
Net transfers (to) from fixed account ............................... 17,500 70,126 22,642 243,157
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal transactions ......... 74,995 224,806 180,842 548,702
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets ................................ 76,744 238,921 174,872 530,999
Net assets, beginning of period .......................................... 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period................................................. $ 76,744 $ 238,921 $ 174,872 $ 530,999
===================================================================================================================================
<CAPTION>
=======================================================================================================================
Strong
Funds
------------
Opportunity
Fund
II Total
=======================================================================================================================
<S> <C> <C>
Changes from operations:
Net investment income (loss)................................................. $ (541) $ 433,278
Net realized gain (loss) on sale of investments in portfolio shares ......... 483 51,952
Net change in unrealized appreciation (depreciation) of
investments in portfolio shares ........................................ 6,923 1,885,308
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations .................. 6,865 2,370,538
Changes from principal transactions:
Contract purchase payments .................................................. 346,824 24,208,399
Contract redemptions ........................................................ 0 (720,373)
Net transfers (to) from fixed account ....................................... 83,892 3,179,086
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets from principal transactions ................. 430,716 26,667,113
- -----------------------------------------------------------------------------------------------------------------------
Net increase in net assets ........................................ 437,581 29,037,651
Net assets, beginning of period .................................................. 0 3,380,422
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period......................................................... $ 437,581 $ 32,418,073
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-11-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
Basic Contracts
<TABLE>
<CAPTION>
================================================================================================================================
Dreyfus Variable Investment Fund Dreyfus Funds
------------------------------------------------ ------------------------------
Growth Socially
Capital and Small Responsible Stock
Appreciation Income Cap Growth Index
Portfolio Portfolio Portfolio Fund, Inc. Fund
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Units outstanding, December 31, 1996 33,424.286 0.000 0.000 15,316.028 29,203.177
Units purchased 224,280.056 50,518.305 86,407.351 122,765.393 302,515.480
Units redeemed (10,585.767) (1,653.019) (256.421) (5,123.933) (7,005.334)
----------- ----------- ----------- ----------- -----------
Units outstanding December 31, 1997 247,118.575 48,865.286 86,150.930 132,957.488 324,713.323
=========== =========== =========== =========== ===========
================================================================================================================================
<CAPTION>
=============================================================================================================
Janus Aspen Series
------------------------------------------------------------------
Short-
Aggressive Worldwide Term
Growth Growth Balanced Bond
Portfolio Portfolio Portfolio Portfolio
=============================================================================================================
<S> <C> <C> <C> <C>
Units outstanding, December 31, 1996 52,219.342 50,730.352 49,603.384 4,216.270
Units purchased 177,772.496 390,022.123 379,211.522 772.196
Units redeemed (22,764.419) (15,012.883) (18,897.599) (1,020.907)
----------- ----------- ----------- -----------
Units outstanding December 31, 1997 207,227.419 425,739.592 409,917.307 3,967.559
=========== =========== =========== ===========
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=============================================================================================================
Merrill Lynch Variable Series Funds, Inc.
------------------------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund
=============================================================================================================
<S> <C> <C> <C> <C>
Units outstanding, December 31, 1996 6,820.503 2,114.707 6,837.357 325,331.820
Units purchased 63,713.297 16,649.421 60,146.745 1,834,941.088
Units redeemed (2,352.206) (1,148.616) (1,227.121) (1,462,737.067)
----------- ------------- ------------- -------------
Units outstanding December 31, 1997 68,181.594 17,615.512 65,756.981 697,535.841
=========== ============= ============= =============
=============================================================================================================
<CAPTION>
================================================================================================================================
Morgan Stanley PBHG Insurance Strong
Universal Funds, Inc. Series Fund, Inc. Funds
------------------------------ ------------------------------- -------------
U.S. Technology
Fixed Real Growth and Opportunity
Income Estate II Communications Fund
Portfolio Portfolio Portfolio Portfolio II
================================================================================================================================
<S> <C> <C> <C> <C> <C>
Units outstanding, December 31, 1996 0.000 0.000 0.000 0.000 0.000
Units purchased 7,618.399 19,733.721 15,908.128 53,379.692 36,045.579
Units redeemed (473.450) (295.315) (2.588) (2,102.733) (503.282)
----------- ------------- ------------- ------------- -------------
Units outstanding December 31, 1997 7,144.949 19,438.406 15,905.540 51,276.959 35,542.297
=========== ============= ============= ============= =============
================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-12-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
Enhanced Contracts
<TABLE>
<CAPTION>
========================================================================================================================
Dreyfus Variable Investment Fund Dreyfus Funds
-------------------------------------------- ---------------------------
Growth Socially
Capital and Small Responsible Stock
Appreciation Income Cap Growth Index
Portfolio Portfolio Portfolio Fund, Inc. Fund
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Units outstanding, December 31, 1996 313.603 0.000 0.000 0.000 600.306
Units purchased 3,924.489 5.708 1,993.698 5,841.203 3,940.642
Units redeemed (247.479) 0.000 0.000 (380.578) (277.609)
--------- --------- --------- --------- ---------
Units outstanding December 31, 1997 3,990.613 5.708 1,993.698 5,460.625 4,263.339
========= ========= ========= ========= =========
========================================================================================================================
<CAPTION>
=======================================================================================================
Janus Aspen Series
------------------------------------------------------------
Short-
Aggressive Worldwide Term
Growth Growth Balanced Bond
Portfolio Portfolio Portfolio Portfolio
=======================================================================================================
<S> <C> <C> <C> <C>
Units outstanding, December 31, 1996 1,910.271 272.267 1,024.467 17.440
Units purchased 1,568.503 2,943.182 8,513.034 2,073.819
Units redeemed (1,724.315) (144.497) (641.438) 0.000
--------- --------- --------- ---------
Units outstanding December 31, 1997 1,754.459 3,070.952 8,896.063 2,091.259
========= ========= ========= =========
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================================
Merrill Lynch Variable Series Funds, Inc.
------------------------------------------------------------
Basic Global High Domestic
Value Strategy Current Money
Focus Focus Income Market
Fund Fund Fund Fund
=======================================================================================================
<S> <C> <C> <C> <C>
Units outstanding, December 31, 1996 96.296 30.061 255.389 1,260.991
Units purchased 2,026.863 1,253.336 1,020.714 10,698.722
Units redeemed 0.000 (96.963) (239.744) (1,273.257)
---------- --------- --------- ----------
Units outstanding December 31, 1997 2,123.159 1,186.434 1,036.359 10,686.456
========== ========= ========= ==========
=======================================================================================================
<CAPTION>
=========================================================================================================================
Morgan Stanley PBHG Insurance Strong
Universal Funds, Inc. Series Fund, Inc. Funds
-------------------------- --------------------------- ----------
U.S. Technology
Fixed Real Growth and Opportunity
Income Estate II Communications Fund
Portfolio Portfolio Portfolio Portfolio II
=========================================================================================================================
<S> <C> <C> <C> <C> <C>
Units outstanding, December 31, 1996 0.000 0.000 0.000 0.000 0.000
Units purchased 0.000 0.000 496.211 469.962 0.000
Units redeemed 0.000 0.000 0.000 (313.444) 0.000
---------- ---------- ---------- ---------- ----------
Units outstanding December 31, 1997 0.000 0.000 496.211 156.518 0.000
========== ========== ========== ========== ==========
=========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-13-
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
(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 47 states.
At December 31, 1998, the following investment options were available:
The Dreyfus Variable Investment Fund:
o Capital Appreciation Portfolio
o Growth and Income Portfolio
o Small Cap Portfolio
Dreyfus Funds:
o Socially Responsible Growth Fund, Inc.
o Stock Index Fund
Janus Aspen Series:
o Aggressive Growth Portfolio
o Worldwide Growth Portfolio
o Balanced Portfolio
Merrill Lynch Variable Series Funds, Inc.:
o Domestic Money Market Fund
o Basic Value Focus Fund
o Global Strategy Focus Fund
o High Current Income Fund
Morgan Stanley Universal Funds, Inc.:
o Fixed Income Portfolio
o U.S. Real Estate Portfolio
PBHG Insurance Series Fund, Inc.:
o Growth II Portfolio
o Technology & Communications Portfolio
Strong Funds:
o Opportunity Fund II
Effective September 29, 1998, the Janus Aspen Series Short-Term Bond
Portfolio was closed and all remaining shares were transferred to the
Merrill Lynch Variable Series Funds, Inc. Domestic Money Market Funds.
No other sub-accounts were added to or deleted from the Account in 1998.
(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.
14
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998
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 first-in, first-out basis. The Account does not hold any investments
which are restricted as to resale.
Net investment income (loss), 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 (loss) 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 (loss), net realized gain
(loss) and unrealized appreciation (depreciation) on investments.
15
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998
(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 years ended December 31, 1998 and 1997 are as follows:
1998
Proceeds
Cost of from
Purchases Sales
The Dreyfus Variable Investment Fund:
Capital Appreciation Portfolio $ 4,034,231 $ 228,430
Growth and Income Portfolio 1,524,741 107,273
Small Cap Portfolio 2,260,574 107,409
Dreyfus Funds:
Socially Responsible Growth Fund, Inc. 1,871,366 107,326
Stock Index Fund 7,277,529 630,583
Janus Aspen Series:
Aggressive Growth Portfolio 1,072,550 192,749
Worldwide Growth Portfolio 5,552,839 293,764
Balanced Portfolio 6,229,950 221,437
Short-Term Bond Portfolio 4,336 71,267
Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Fund 1,665,199 110,605
Global Strategy Focus Fund 175,584 41,189
High Current Income Fund 1,094,117 287,852
Domestic Money Market Fund 2,329,571 2,096,548
Morgan Stanley Universal Funds, Inc.:
Fixed Income Portfolio 852,047 138,743
U.S. Real Estate Portfolio 559,465 63,719
PBHG Insurance Series Fund, Inc.:
Growth II Portfolio 147,611 26,098
Technology & Communications Portfolio 709,264 32,918
Strong Funds:
Opportunity Fund II 1,340,045 90,450
------------ ------------
Total $38,701,019 $4,848,360
=========== ==========
16
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998
(3) PURCHASES AND SALES OF INVESTMENTS IN PORTFOLIO SHARES (Continued)
1997
Proceeds
Cost of from
Purchases Sales
The Dreyfus Variable Investment Fund:
Capital Appreciation Portfolio $ 3,205,485 $ 35,865
Growth and Income Portfolio 606,028 21,688
Small Cap Portfolio 1,118,851 136
Dreyfus Funds:
Socially Responsible Growth Fund, Inc. 1,799,223 33,431
Stock Index Fund 4,519,615 15,987
Janus Aspen Series:
Aggressive Growth Portfolio 1,811,011 163,917
Worldwide Growth Portfolio 5,714,442 27,266
Balanced Portfolio 4,962,560 82,509
Short-Term Bond Portfolio 51,886 22,434
Merrill Lynch Variable Series Funds, Inc.:
Basic Value Focus Fund 909,483 37,844
Global Strategy Focus Fund 224,738 15,765
High Current Income Fund 752,313 18,387
Domestic Money Market Fund 1,914,332 1,490,464
Morgan Stanley Universal Funds, Inc.:
Fixed Income Portfolio 84,163 5,193
U.S. Real Estate Portfolio 234,705 3,171
PBHG Insurance Series Fund, Inc.:
Growth II Portfolio 181,137 1,063
Technology & Communications Portfolio 562,830 16,221
Strong Funds:
Opportunity Fund II 436,177 6,002
------------- -------------
Total $29,088,979 $1,997,343
=========== ==========
17
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998
(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% of the daily value of the total investments of the Account. These
fees aggregated $648,745 and $199,272 for the years ended December 31,
1998 and 1997, respectively.
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% of the daily value of the total investments of the Account. These
fees aggregated $14,271 and $3,856 for the years ended December 31, 1998
and 1997, respectively.
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% from a maximum of 7.0% 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 $62,799 and $7,275 for the years ended December 31,
1998 and 1997, respectively.
(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.
18
<PAGE>
ANNUITY INVESTORS VARIABLE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1998
(6) NET ASSETS
The following is a reconciliation of net assets at December 31, 1998:
1998
Proceeds from the sales of units since organization,
less cost of units redeemed $62,647,073
Undistributed net investment income 1,628,401
Undistributed net realized gains on sale of investments 479,222
Net unrealized appreciation of investments 11,879,144
------------
Net assets, end of period $76,633,840
(7) YEAR 2000 (Unaudited)
To date, the Company has completed its assessment and remediation of all
systems that could be significantly affected by the Year 2000. The
Company is currently testing its software and hardware for Year 2000
readiness. It is anticipated that this process will be completed in a
timely manner. However, if testing is not completed timely, the Year
2000 Issue could have an impact on the operations of the Company.
The Company's operations could also be affected by the inability of
third parties to become Year 2000 compliant. Various investment advisors
who are not affiliated with the Company manage the investment
sub-accounts included in Separate Account A. Like most financial
organizations, investment advisors have been working diligently to
address Year 2000 issues. The Company does not expect any of the
investment advisors to provide Year 2000 assurance on the various
sub-accounts before the second quarter of 1999. The inability of third
parties to complete the Year 2000 resolution process in a timely fashion
could materially impact the Company. The effect of non-compliance by
significant third parties is not determinable.
19
<PAGE>
ANNUITY INVESTORS LIFE
INSURANCE COMPANY
Statutory-Basis Financial Statements
and Other Financial Information
Years ended December 31, 1998 and 1997
With Report of Independent Auditors
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
Statutory-Basis Financial Statements
and Other Financial Information
Years ended December 31, 1998 and 1997
Contents
Report of Independent Auditors.............................................1
Audited Statutory-Basis Financial Statements
Balance Sheets - Statutory-Basis...........................................2
Statements of Operations - Statutory-Basis.................................3
Statements of Changes in Capital and Surplus -
Statutory-Basis............................................................4
Statements of Cash Flows - Statutory-Basis.................................5
Notes to Statutory-Basis Financial Statements..............................6
<PAGE>
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, 1998 and
1997, 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 I 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 I.
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, 1998 and 1997, or
the results of its operations or its cash flows for the years then ended.
However, 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, 1998 and 1997, 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.
Cincinnati, Ohio
February 4, 1999
-1-
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
BALANCE SHEETS
STATUTORY-BASIS
<TABLE>
<CAPTION>
December 31
1998 1997
<S> <C> <C>
ADMITTED ASSETS
Cash and investments
Fixed maturities - at amortized cost
(market value - $105,451,926 and $33,661,758) $104,080,672 $33,176,305
Policy loans 1,293,252 281,758
Short-term investments 15,489,533 7,612,000
Cash 4,400,560 1,021,733
------------- ---------
Total cash and investments 125,264,017 42,091,796
Investment income due and accrued 1,787,577 523,546
Federal income tax recoverable - 148,476
Reinsurance ceded receivable 36,505 -
Other admitted assets 67,656 22,691
--------------- -------------
Total General Account admitted assets 127,155,755 42,786,509
Separate Account assets 120,049,207 37,248,224
------------ -----------
Total admitted assets $247,204,962 $80,034,733
============ ===========
LIABILITIES, CAPITAL AND SURPLUS
Annuity reserves $106,630,855 $23,186,988
Policy and contract claims 1,190,191 -
Commissions due and accrued 312,211 109,180
General expenses due and accrued 258,781 201,989
Transfers to Separate Accounts due and
accrued (contingent deferred sales charges) (6,469,163) (2,170,871)
Taxes, licenses and fees due and accrued 79,500 15,368
Asset valuation reserve 370,700 126,076
Reinsurance ceded payable 416,051 -
Payable to parent and affiliates 288,222 446,637
Payable for securities 2,005,397 -
Other liabilities 724,463 976,052
-------------- ------------
Total General Account liabilities 105,807,208 22,891,419
Separate Account liabilities 120,049,207 37,248,224
------------ -----------
Total liabilities 225,856,415 60,139,643
------------ -----------
Common stock, par value- $125:
- 25,000 shares authorized
- 20,000 shares issued and outstanding 2,500,000 2,500,000
Gross paid-in and contributed surplus 24,550,000 17,550,000
Unassigned deficit (5,701,453) (154,910)
------------- ------------
Total capital and surplus 21,348,547 19,895,090
------------- -----------
Total liabilities, capital and surplus $247,204,962 $80,034,733
============ ===========
</TABLE>
See notes to statutory-basis financial statements
2
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS
STATUTORY-BASIS
<TABLE>
<CAPTION>
Year ended December 31
1998 1997
<S><C> <C> <C>
Revenues
Premiums and annuity considerations $ 72,586,568 $12,878,897
Deposit-type funds 89,221,073 43,367,003
Net investment income 4,811,248 1,789,590
Amortization of interest maintenance reserve (2,884) (2,195)
Commission and expense allowance on reinsurance ceded 36,505 -
Contract charges - Separate Accounts 938,114 213,854
Other income 175,491 31,884
-------------- -------------
Total revenue 167,766,115 58,279,033
Benefits and expenses
Increase in aggregate reserves 83,443,867 19,510,611
Increase in policy and contract claim
reserves 1,190,191 -
Policyholders' benefits 6,298,169 1,207,596
Commissions 12,860,357 3,722,847
General insurance expenses 5,805,845 2,928,646
Taxes, licenses and fees 437,001 213,167
Net transfers to Separate Accounts 62,546,680 29,514,423
Reserve adjustment on termination of
reinsurance assumed - 2,654,548
------------------ ------------
Total benefits and expenses 172,582,110 59,751,838
------------ -----------
Loss from operations before federal income taxes (4,815,995) (1,472,805)
Benefit for federal income taxes - 37,876
------------------ -------------
Loss from operations after federal income taxes before
net realized capital losses (4,815,995) (1,434,929)
Net realized capital losses
Net realized capital losses before
federal income taxes and transfer to IMR (2,828) (9,212)
Capital loss tax benefit - -
Interest maintenance reserve transfer
(net of tax) 1,838 5,988
Net realized capital losses after transfer to IMR (990) (3,224)
---------------- ------------
Net loss $ (4,816,985) $(1,438,153)
============= ===========
</TABLE>
See notes to statutory-basis financial statements
3
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
STATUTORY-BASIS
<TABLE>
<CAPTION>
Year ended December 31
1998 1997
<S> <C> <C> <C>
Common stock
Balance at beginning and ending of year $ 2,500,000 $ 2,500,000
============= =============
Gross paid-in and contributed surplus
Balance at beginning of year $ 17,550,000 $ 17,550,000
Surplus contribution 7,000,000 -
------------- -------------
Balance at end of year $ 24,550,000 $ 17,550,000
============= =============
Unassigned funds
Balance at beginning of year $ (154,910) $ 1,286,332
Net loss (4,816,985) (1,438,153)
Increase in non-admitted assets (336,458) (31,801)
Increase in asset valuation reserve (244,624) (67,639)
Adjustment for prior year taxes (148,476) 96,351
------------- -------------
Balance at end of year $ (5,701,453) $ (154,910)
============= =============
Total capital and surplus $ 21,348,547 $ 19,895,090
============= =============
</TABLE>
See notes to statutory-basis financial statements
4
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
STATUTORY-BASIS
<TABLE>
<CAPTION>
Year ended December 31
1998 1997
-------------- -------------
<S> <C> <C> <C>
Operations:
Premiums and annuity considerations $ 72,586,568 $ 12,878,897
Deposit-type funds 89,221,073 43,367,003
Net investment income 3,673,508 1,788,231
Net increase in policy loans (1,011,494) (240,568)
Policyholder benefits paid (6,298,169) (1,207,596)
Commissions, expenses and other taxes paid (18,779,248) (6,614,922)
Net transfers to Separate Accounts (66,844,972) (31,478,317)
Federal income taxes recovered - 378,749
Contract charges - Separate Accounts 938,114 213,854
Other cash used (200,930) (1,563,792)
-------------- -------------
Net cash provided by operations 73,284,450 17,521,539
Investing activities:
Sale, maturity or repayment of fixed maturities 4,617,366 2,491,585
Purchase of fixed maturities (75,650,853) (12,771,161)
Cash provided from receivable/payable for securities 2,005,397 75,000
------------- -------------
Net cash used in investment activities (69,028,090) (10,204,576)
Financing activities:
Surplus paid in 7,000,000 -
------------- --------------
Net cash provided by financing activities 7,000,000 -
------------- -------------
Net increase in cash and short-term investments 11,256,360 7,316,963
Cash and short-term investments at beginning of year 8,633,733 1,316,770
------------- -------------
Cash and short-term investments at end of year $ 19,890,093 $ 8,633,733
============= =============
</TABLE>
See notes to statutory-basis financial statements
5
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
A. GENERAL
Annuity Investors Life Insurance Company ("AILIC" or "the Company"), a stock
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") owned
82% as of December 31, 1998.
AILIC's products are variable and fixed annuities. The variable annuities are
reported as deposit-type funds and are marketed to hospitals, educational
institutions and other qualified and non-qualified markets. During 1997, AILIC
also began writing individual fixed annuity products produced by one large
agency, primarily in the western part of the United States. In 1998, the
individual fixed annuity products grew to approximately 45% of total production.
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) costs incurred in the acquisition of new business such as commissions,
underwriting and policy issuance costs are expensed at the time incurred
versus being capitalized;
(c) reserves established for annuity reserves are calculated using more
conservative assumptions for mortality and interest rates than would be
used under GAAP;
(d) an Interest Maintenance Reserve ("IMR") is provided whereby portions of
realized gains and losses from fixed income investments are deferred and
amortized into investment income as prescribed by the NAIC;
(e) investments in fixed maturity securities considered "available for sale"
(as defined by GAAP) are generally recorded at amortized cost versus
market;
(f) an Asset Valuation Reserve ("AVR") is provided which reclassifies a portion
of surplus to liabilities; and
(g) 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 with current year presentation.
INVESTMENTS Asset values are generally stated as follows: Bonds not backed by
other loans, where permitted, are carried at amortized cost using the interest
method; loan-backed bonds and structured securities, where permitted, are
carried at amortized cost using the interest method; short-term investments are
carried at cost; and policy loans are carried at the aggregate unpaid balance.
The Company uses dealer modeled prepayment assumptions to determine effective
yields for loan-backed bonds and structured securities. 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.
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.
6
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
INVESTMENTS (continued)
Short-term investments having original maturities of three months or less when
purchased are considered to be cash equivalents for purposes of the
statutory-basis 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. AILIC has an
IMR asset which is non-admitted and charged against surplus.
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
received.
SEPARATE ACCOUNTS Separate account assets and liabilities reported in the
accompanying statutory-basis balance sheets represent funds that are separately
administered, principally for annuity contracts, and for which the
contractholder, rather than AILIC, bears the investment risk. Assets of the
separate accounts are not chargeable with liabilities incurred in any other
business operation of AILIC. Separate account assets are reported at market
value. The operations of the separate accounts are not included in the
accompanying statutory-basis 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 value of the liability for annuities in the payout phase is assumed to
be the present value of the anticipated cash flows, discounted at current
interest rates. Fair value of annuities in the accumulation phase is assumed to
be no more than the policyholders' cash surrender amount. The aggregate fair
value of all reserve liabilities was approximately $106.6 million and $23.2
million at December 31, 1998 and 1997, respectively.
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. AILIC remains obligated for amounts
ceded in the event that the reinsurers do not meet their obligations.
FEDERAL INCOME TAXES AILIC files a separate company federal income tax return.
BENEFIT PLAN All employees meeting minimum requirements are eligible to
participate in an Employee Stock Ownership Retirement Plan ("ESORP") established
by AAG. The ESORP is a noncontributory, trusteed plan which invests primarily in
securities of AAG for the benefit of the employees of AAG and its subsidiaries.
Contributions are discretionary by the Board of Directors of AAG and are charged
against earnings in the year for which they are declared. Qualified employees
having vested rights are entitled to benefit payments at age 60.
7
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
C. INVESTMENTS
Fixed maturity investments at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998
Carrying Market Gross Unrealized
Value Value Gains Losses
<S> <C> <C> <C> <C> <C>
U.S. Government and government
agencies and authorities $ 11,468,057 $ 11,725,221 $ 257,164 $ -
Public utilities 3,515,521 3,572,345 56,824 -
Mortgage-backed securities 36,024,471 35,613,490 241,662 652,643
All other corporate 53,072,623 54,540,870 1,485,224 16,977
------------- ------------- ---------- ---------
Total fixed maturity investments $104,080,672 $105,451,926 $2,040,874 $669,620
============ ============ ========== ========
1997
Carrying Market Gross Unrealized
Value Value Gains Losses
U.S. Government and government
agencies and authorities $ 9,326,347 $ 9,345,879 $ 61,757 $ 42,225
All other corporate 23,849,958 24,315,879 546,439 80,518
----------- ----------- -------- ---------
Total fixed maturity investments $33,176,305 $33,661,758 $608,196 $122,743
=========== =========== ======== ========
</TABLE>
The table below sets forth the scheduled maturities of AILIC's fixed maturity
investments as of December 31, 1998:
<TABLE>
<CAPTION>
Carrying Market
Value Value
<S> <C> <C> <C>
Bonds by maturity:
Due within 1 year or less $ 199,770 $ 200,001
Over 1 year through 5 years 15,066,302 15,306,238
Over 5 years through 10 years 50,686,547 51,306,332
Over 10 years through 20 years 25,961,283 26,264,049
Over 20 years 12,166,770 12,375,306
------------- -------------
Total bonds by maturity $104,080,672 $105,451,926
============ ============
</TABLE>
The expected maturities in the foregoing table may differ from the contractual
maturities because certain borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
Proceeds from sales of fixed maturity investments were $4.6 million in 1998 and
$2.5 million in 1997. Gross realized gains of $6,993 and $17,374 and gross
realized losses of $9,821 and $26,586 were realized on those sales during 1998
and 1997, respectively.
U.S. Treasury Notes with a carrying value of $6.8 million and $6.6 million at
December 31, 1998 and 1997, respectively, were on deposit as required by the
insurance departments of various states.
8
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
Net investment income consisted of the following:
1998 1997
----------- -----------
Bonds $4,421,263 $1,642,923
Short-term investments 455,230 182,085
Cash on hand and on deposit 1,965 837
Policy loans 32,876 7,605
Miscellaneous 6,776 6,648
------------ ------------
Gross investment income 4,918,110 1,840,098
Investment expenses (106,862) (50,508)
----------- ------------
Net investment income $4,811,248 $1,789,590
========== ==========
D. FEDERAL INCOME TAXES
AILIC has no federal income taxes available for recoupement in the event of
future losses. AILIC has approximately $4.2 million and $1.9 million in loss
carryforwards derived from year ended December 31, 1998 and 1997, respectively,
to offset future year's taxable income. These loss carryforwards will expire in
the year 2018 and 2012, respectively. Loss carryforwards derived prior to 1998
will expire in 15 years, and those derived in 1998 or after, per new IRS
regulations, will expire in 20 years.
E. RELATED PARTY TRANSACTIONS
On December 30, 1993, AILIC entered into a reinsurance agreement with Great
American Life Insurance Company ("GALIC"), 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. The reinsurance
agreement was terminated January 1, 1997 and reserves of $2.7 million were
transferred back to GALIC along with assets equal to the reserves transferred.
On December 31, 1998 for all policies issued by AILIC on or after August 1,
1998, a co-insurance agreement was entered into with GALIC to reinsure all of
AILIC's equity indexed annuity premiums, benefits and expenses with GALIC. As of
December 31, 1998, AILIC transferred $0.4 million of premiums and reserves to
GALIC.
AILIC has an agreement with AAG, subject to the direction of the Finance
Committee of AILIC, whereby AAG, along with services provided by American Money
Management, Inc. (an affiliate), provides for management and accounting services
related to the investment portfolio. In 1998 and 1997, AILIC paid $90,300 and
$41,743 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 1998 and 1997, AILIC paid $2.1 million and
$2.2 million, respectively, in commissions to AAG Securities.
Certain administrative, management, accounting, actuarial, data processing,
collection and investment services are provided under agreements between AILIC
and affiliates at charges not unfavorable to AILIC or insurance affiliates. In
1998 and 1997, AILIC paid $2.4 million and $0.7 million, respectively, for
services 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. The maximum amount of dividends payable in 1999 without
prior approval is $0.
9
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
G. ANNUITY RESERVES, EXCLUDING SEPARATE ACCOUNTS
At December 31, 1998, AILIC's annuity reserves that are subject to discretionary
withdrawal (with adjustment), subject to discretionary withdrawal (without
adjustment), and not subject to discretionary withdrawal are summarized as
follows (in millions):
<TABLE>
<CAPTION>
Amount Percent
<S> <C> <C> <C>
Subject to discretionary withdrawal (with adjustment):
With market value adjustment $ - -%
At book value less current surrender charge of 5% or more 98.8 92
At market value - -
------- -----
Total with adjustment or at market value 98.8 92
Subject to discretionary withdrawal (without adjustment) at
book value with minimal or no charge or adjustment 2.0 2
Not subject to discretionary withdrawal 6.2 6
------ -----
Total annuity reserves--before reinsurance 107.0 100%
=====
Less reinsurance ceded (0.4)
Net annuity reserves $106.6
Reconciliation to policy benefit reserves for life policies and
contracts:
Net annuity reserves $106.6
Net life reserves -
Miscellaneous other reserves -
-------
Total policy benefit reserves for life policies and contracts $106.6
======
</TABLE>
10
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
H. SEPARATE ACCOUNTS
The Company writes individual and group non-guaranteed variable annuities. Net
transfers to (from) the Separate Accounts for the years ended December 31, 1998
and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C> <C>
Transfers to Separate Accounts - deposit-type funds $ 64,500,892 $28,769,832
Transfers to Separate Accounts - withdrawals and other transfers, net 2,344,080 2,717,108
Transfers from Separate Accounts - contingent deferred sales charges (4,298,292) (1,972,517)
------------ ------------
Net transfers to Separate Accounts $ 62,546,680 $29,514,423
============ ===========
</TABLE>
All Separate Account reserves are non-guaranteed and subject to discretionary
withdrawal at market value. Investments in the Separate Accounts at December 31
consisted of the following:
<TABLE>
1998
Market Gross Unrealized
Cost Value Gains Losses
<S> <C> <C> <C> <C> <C>
Separate Account A $ 64,754,695 $ 76,633,840 $12,249,838 $370,693
Separate Account B 39,705,022 43,415,367 3,876,131 165,786
------------- ------------- ------------ --------
Total Separate Accounts $104,459,717 $120,049,207 $16,125,969 $536,479
============ ============ =========== ========
</TABLE>
<TABLE>
<CAPTION>
1997
Market Gross Unrealized
Cost Value Gains Losses
<S> <C> <C> <C> <C> <C>
Separate Account A $30,479,421 $32,418,073 $2,043,790 $105,138
Separate Account B 4,933,281 4,830,151 12,568 115,698
------------ ------------ ------------ ---------
Total Separate Accounts $35,412,702 $37,248,224 $2,056,358 $220,836
=========== =========== ========== ========
</TABLE>
11
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
I. VARIANCES FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The accompanying financial statements have been prepared in conformity with
accounting practices prescribed or permitted by the NAIC and the Ohio Insurance
Department, which vary in some respects from 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, 1998 and 1997:
<TABLE>
<CAPTION>
Net Income Capital and Surplus
------------------------------ -------------------------------
1998 1997 1998 1997
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
As reported on a statutory basis $ (4,816,985) $(1,438,153) $ 21,348,547 $19,895,090
Commissions capitalized to DAC 12,860,357 3,722,847 12,860,357 3,722,847
General expenses capitalized to DAC 4,064,093 2,046,618 4,064,093 2,046,618
Taxes, licenses and fees capitalized to DAC 262,200 127,900 262,200 127,900
Amortization of DAC (752,613) (169,695) (752,613) (169,695)
Capital gains transferred to IMR, net of tax (1,838) (5,988) (1,838) (5,988)
Amortization of IMR, net of tax 2,884 2,195 2,884 2,195
Contingent deferred sales charge (11,897,631) (3,693,287) (11,897,631) (3,693,287)
Federal income taxes 184,404 (226,161) 184,404 (226,161)
Deferred gain on intercompany sales - (17,011) - (17,011)
Unrealized gain (loss) adjustment - - 460,852 578,256)
AVR adjustment - - 244,624 67,639
Non-admitted assets adjustment - - 336,457 31,801
Prior year tax adjustment - - 148,476 (96,351)
Prior year stat to GAAP cumulative adjustments - - 2,192,237 (176,526)
------------- ------------ ------------- -------------
Total GAAP adjustments 4,721,856 1,787,418 8,104,502 2,192,237
------------- ------------ ------------- ------------
GAAP basis $ (95,129) $ 349,265 $ 29,453,049 $22,087,327
============= ============ ============= ===========
</TABLE>
J. CODIFIED STATUTORY ACCOUNTING PRINCIPLES
In 1998, the NAIC adopted codified statutory accounting principles
("Codification"). Codification will likely change, to some extent, prescribed
statutory accounting practices and may result in changes to the accounting
practices that AILIC uses to prepare its statutory-basis financial statements.
Codification will require adoption by the various states before it becomes the
prescribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
AILIC, the Ohio Insurance Department must adopt Codification as the prescribed
basis of accounting on which domestic insurers must report their statutory-basis
results to the Insurance Department. At this time it is anticipated that the
Ohio Insurance Department will adopt Codification. However, based on current
guidance, management believes that the impact of Codification will not be
material to AILIC's statutory-basis financial statements.
12
<PAGE>
ANNUITY INVESTORS LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1998 AND 1997
K. YEAR 2000 STATUS (Unaudited)
The Company is included in AAG's Year 2000 Project which is a corporate-wide
program designed to ensure that its computer hardware and software systems,
telecommunications and other business activities function properly in the Year
2000. The Project also encompasses communicating with agents, vendors, financial
institutions and others with which the AAG and GALIC companies conduct business
to determine their Year 2000 readiness and resulting effects on AAG. As part of
the project, the Company is also developing contingency plans for the systems
and procedures deemed most critical to the Company. AAG's Year 2000 Project is
being coordinated by a team of individuals from a variety of disciplines in the
organization which monitors the work being performed by the various business
units and reports frequently to senior management. AAG's internal audit staff
reports at least quarterly to the Audit Committee of the Board of Directors on
the Company's Year 2000 progress.
To address its Year 2000 issue, AAG's operations have been divided into separate
systems groups. At December 31, 1998, these groups were in the process of either
(i) testing internally developed and third party software applications believed
to be Year 2000 compliant without need for any modifications; (ii) modifying and
testing other software applications or (iii) replacing software with new
applications that are Year 2000 compliant, and testing those replacements for
operational acceptance and Year 2000 compliance.
Approximately 40% of the operating units are currently on target with their
internal plans to be completed in the second quarter of 1999. Approximately 50%
of the operating units have experienced some delay and their overall projects
are running behind schedule on internally established timelines. These groups
are expected to be complete in the third quarter of 1999. One important
replacement application experienced a significant delay from its original
targeted completion date. This project was reorganized and restaffed in the
fourth quarter of 1998, and management believes the project has made significant
progress. This application is currently involved in testing and is expected to
be completed and in operation in the third quarter of 1999.
Contingency plans provide a documented order of actions necessary to keep the
Company's business functions operating and mitigate the extent of any potential
disruptions. The Company expects to complete the contingency planning process
for all mission critical software applications and operational processes in the
second quarter of 1999, and for less significant software applications and
operational processes in the third quarter of 1999. These plans will be tested
through the balance of the year.
Many of the systems being replaced were planned replacements, which were
accelerated due to Year 2000 considerations. A significant portion of AAG's Year
2000 Project is being completed using internal staff. Therefore, cost estimates
for the Year 2000 Project do not represent solely incremental costs. Since the
beginning of 1997, AAG has incurred an estimated $13 million in Year 2000 costs,
including capitalized costs of $10 million for new systems; AAG has expensed
$3.0 million in Year 2000 costs in 1998. AAG estimates it will spend an
additional $9 million in connection with the Year 2000 Project in 1999, of which
$5 million is expected to be expensed. Projected Year 2000 costs and completion
dates are based on management's best estimates. There can be no assurance that
these estimates will be achieved.
AAG believes it has reasonable plans in place to ensure business activities
function properly in the Year 2000. However, should software modifications and
new software installations not be completed on a timely basis, the resulting
disruptions could have a material adverse impact on operations. AAG's operations
could also be materially adversely affected by the inability of third parties
such as agents, vendors and policyholders' employers to also function properly
in the Year 2000.
13
<PAGE>
PART C
Other Information - Nauticus
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(R) 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.
(b) Form of Selling Agreement between Annuity Investors Life
Insurance Company, AAG Securities, Inc. and another
Broker-Dealer. 2/
(c) Revised Form of Selling Agreement between Annuity Investors
Life Insurance Company, AAG Securities, Inc. and another
Broker-Dealer. 3/
(4) Group Contract Forms Certificate Forms and Endorsements.
(a) Group Contract Forms and Endorsements.
(i) Form of Group Flexible Premium Deferred Annuity
Contract. 1/
(ii) Form of Enhanced Group Flexible Premium Deferred
Annuity Contract. 1/
(iii) Form of Loan Endorsement to Group Contract. 1/
(iv) Form of Employer Plan Endorsement to Group Contract. 1/
(v) Form of Tax Sheltered Annuity Endorsement to Group
Contract. 1/
(vi) Form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Group Contract. 1/
(vii)Form of Long-Term Care Waiver Rider to Group Contract.
1/
(viii) Form of Section 457 Plan/Deferred Compensation
Endorsement to Group Contract . 4/
(ix) Revised form of Employer Plan Endorsement to Group
Contract . 4/
(x) Revised form of Tax Sheltered Annuity Endorsement to
Group Contract . 4/
(xi) Revised form of Qualified Pension, Profit Sharing and
Annuity Plan Endorsement to Group Contract . 4/
(xii)Form of Governmental Section 457 Plan Endorsement to
Group Contract. 4/
(b) Certificate of Participation Forms and Endorsements.
(i) Form of Certificate of Participation. 1/
(ii) Form of Certificate of Participation under Enhanced
Contract. 1/
(iii) Form of Loan Endorsement to Certificate. 1/
(iv) Form of Employer Plan Endorsement to Certificate. 1/
(v) Form of Tax Sheltered Annuity Endorsement to
Certificate. 1/
(vi) Form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Certificate. 1/
(vii) Form of Long-Term Care Waiver Rider to Certificate. 1/
(viii) Form of Deferred Compensation Endorsement to
Certificate.5/
(ix) Revised form of Employer Plan Endorsement to
Certificate. 4/
(x) Revised form of Tax Sheltered Annuity Endorsement to
Certificate. 4/
(xi) Revised form of Qualified Pension, Profit Sharing and
Annuity Plan Endorsement to Certificate. 4/
(xii)Form of Governmental Section 457 Plan Endorsement to
Certificate. 4/
(c) Group Contract Form and Certificate of Participation Form
for use in South Dakota.1/
(i) Form of Group Flexible Premium Deferred Annuity
Contract for use in South Dakota. 6/
(ii) Form of Certificate of Participation for use in South
Dakota. 6/
(d) Group Contract Form and Certificate of Participation Form
for use in Wisconsin.
(i) Form of Group Flexible Premium Deferred Annuity
Contract for use in Wisconsin. 6/
(ii) Form of Certificate of Participation for use in
Wisconsin. 6/
(e) Certificate of Participation Form for use in North Dakota.
(i) Form of Certificate of Participation for use in North
Dakota. 6/
(f) Form of Endorsements for use in Virginia.
(i) Form of Employer Plan Endorsement to Group Contract for
use in Virginia.6/
(ii) Form of Employer Plan Endorsement to Certificate of
Participation for use in Virginia. 6/
(iii)Form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Group Contract for use in Virginia.
6/
(iv) Form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Certificate of Participation for
use in Virginia. 6/
(v) Form of Tax Sheltered Annuity Endorsement to Group
Contract for use in Virginia. 6/ (g) Form of Successor
Owner Endorsement to Group Contract. 8/
(h) Form of Successor Owner Endorsement to Certificate of
Participation under a Group Contract. 8/
(i) Form of Texas Optional Retirement Program Endorsement to
Group Contract. 10
(j) Form of Texas Optional Retirement Program Endorsement to
Certificate of Participation under a Group Contract. 10/
(k) Form of Individual Retirement Annuity Endorsement to Group
Contract. 11
(l) Form of Individual Retirement Annuity Endorsement to
Certificate of Participation under a Group Contract. 11
(m) Form of SIMPLE Individual Retirement Annuity Endorsement to
Group Contract. 11
(n) Form of SIMPLE Individual Retirement Annuity Endorsement to
Certificate of Participation under a Group
Contract. 11
(o) Form of Roth Individual Retirement Annuity Endorsement to
Group Contract. 11
(p) Form of Roth Individual Retirement Annuity Endorsement to
Certificate of Participation under a Group
Contract. 11
(5) (a) Form of Application for Group Flexible Premium Deferred
Annuity Contract. 1/
(i) Alternative Form of Application 7
(ii) Alternative Form of Application.4/
(b) Form of Participant Enrollment Form under Group Flexible
Premium Deferred Annuity Contract (ERISA). 1/
(c) Form of Participant Enrollment Form under Group Flexible
Premium Deferred Annuity Contract
(Non-ERISA). 7/
(6) (a) Articles of Incorporation of Annuity Investors Life
Insurance Company. 6/
(i) Amendment to Articles of Incorporation, adopted April
9, 1996 and approved by Secretary
of State of Ohio on July 11, 1996. 7/
(ii) Amendment to Articles of Incorporation adopted August
9, 1996 and approved by Secretary of State of Ohio on
December 3, 1996. 7/
(b) Code of Regulations of Annuity Investors Life Insurance
Company. 6/
(7) Not Applicable.
(8 (a) Participation Agreement between Annuity Investors Life
Insurance Company and Dreyfus Variable Investment Fund. 2/
(b) Participation Agreement between Annuity Investors Life
Insurance Company and Dreyfus Stock Index Fund. 2/
(c) Participation Agreement between Annuity Investors Life
Insurance Company and The Dreyfus Socially Responsible
Growth Fund, Inc. 2/
(d) Participation Agreement between Annuity Investors Life
Insurance Company and Janus Aspen Series. 2/
(e) Participation Agreement with Merrill Lynch Variable Series
Funds, Inc.
(i) Participation Agreement between Annuity Investors Life
Insurance Company and Merrill
Lynch Variable Series Funds, Inc. 2/
(ii) Amended and Restated Participation Agreement between
Annuity Investors Life Insurance Company and Merrill
Lynch Variable Series Funds, Inc. 6/
(f) Service Agreement between Annuity Investors Life Insurance
Company and American Annuity Group, Inc. 2/
(g) Agreement between AAG Securities, Inc. and AAG Insurance
Agency, Inc. 2/
(h) Investment Service Agreement between Annuity Investors Life
Insurance Company and American Annuity Group, Inc. 2/
(i) Agreement between Annuity Investors Life Insurance Company
and Merrill Lynch Asset Management, L.P.6/
(j) Participation Agreement between Annuity Investors Life
Insurance Company and Morgan Stanley Universal Funds, Inc.
7/
(k) Participation agreement between Annuity Investors Life
Insurance Company and Strong Special Fund II, Inc. 7/
(l) Participation Agreement between Annuity Investors Life
Insurance Company and PBHG Insurance Series Fund, Inc. 7/
(m) Amended and Restated Agreement between The Dreyfus
Corporation and Annuity Investors Life Insurance Company.7/
(n) Service Agreement between Annuity Investors Life Insurance
Company and Janus Capital Corporation. 7/
(o) Service Agreement between Annuity Investors Life Insurance
Company and Strong Capital Management, Inc. 4/
(p) Service Agreement between Annuity Investors Life Insurance
Company and Pilgrim Baxter & Associates, Ltd. 4/
(q) Service Agreement between Annuity Investors Life Insurance
Company and Morgan Stanley Asset Management, Inc. 4/
(r) Participation Agreement between BT Insurance Funds Trust and
Annuity Investors Life Insurance Company. 9
(s) Service Agreement between Bankers Trust Company and Annuity
Investors Life Insurance Company. 9
(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. 7/
(14) Not Applicable.
(15) Powers of Attorney (filed herewith).
- ----------------
1/ Filed with Pre-Effective Amendment No. 2 to Form N-4 on November 8, 1995.
2/ Filed with Pre-Effective Amendment No. 3 to Form N-4 on December 4, 1995.
3/ Incorporated by reference to Post-Effective Amendment No. 3, filed on
behalf of Annuity Investors Variable Account B, SEC File No. 333-19725
on November 17, 1998.
4/ Filed with Post-Effective Amendment No. 3 to Form N-4 on April 6, 1998
5/ Filed with Form N-4 on June 2, 1995.
6/ Filed with Post-Effective Amendment No. 1 to Form N-4 on April 26, 1996.
7/ Filed with Post-Effective Amendment No. 2 to Form N-4 on April 29, 1997.
8/ Incorporated by reference to Post-Effective Amendment No. 5, filed on
behalf of Annuity Investors Variable Account B, SEC File No. 333-19725
on February 26, 1999.
9/ Incorporated by reference to Post-Effective Amendment No. 3, filed on
behalf of Annuity Investors Variable Account A, SEC File Nos. 33-65409
and 811-08017 on February 26, 1999.
10/ Incorporated by reference to Pre-Effective Amendment No. 1, filed on
behalf of Annuity Investors Variable Account B, SEC '33 Act File No.
333-19725, '40 Act File No. 811-08017, on June 3, 1997.
11/ Incorporated by reference to Post-Effective Amendment No. 5, filed on
behalf of Annuity investors Variable Account B, SEC '33 Act File No.
333-19725, '40 Act File No. 811-08017, on February 1, 1999.
<PAGE>
Item 25. Directors and Officers of Annuity Investors Life Insurance Company
Principal Positions and Offices
Name Business Address With the Company
Robert Allen Adams (1) President, Director
Stephen Craig Lindner (1) Director
William Jack Maney, II (1) Assistant Treasurer and
Director
James Michael Mortensen (1) Executive Vice President,
Assistant Secretary and
Director
Mark Francis Muething (1) Senior Vice President, Secretary,
General Counsel and Director
Jeffrey Scott Tate (1) Director
Thomas Kevin Liguzinski (1) Senior Vice President
Charles Kent McManus (1) Senior Vice President
Arthur Ronald Greene, III (1) Vice President
Betty Marie Kasprowicz (1) Vice President and Assistant
Secretary
Michael Joseph O'Connor (1) Senior Vice President
Lynn Edward Laswell (1) Vice President, Treasurer and
Controller
Vincent J. Graneri (1) Vice President and Chief Actuary
David Shipley (1) Vice President
Thomas E. Mischell (1) Assistant Treasurer
(1) P.O. Box 5423, Cincinnati, Ohio 45201-5423.
Item 26. Persons Controlled by or Under Common Control With the Depositor or
Registrant.
The Depositor, Annuity Investors Life Insurance Company(R), is a wholly
owned subsidiary of Great American(R) Life Insurance Company, which is a
wholly owned subsidiary of American Annuity Group,SM Inc. The
Registrant, Annuity Investors(R) Variable Account A, is a segregated
asset account of Annuity Investors Life Insurance Company.
The following chart indicates the persons controlled by or under common
control with the Company.
<PAGE>
<TABLE>
<CAPTION>
AMERICAN FINANCIAL GROUP, INC. % OF STOCK OWNED (1)
| STATE OF DATE OF BY IMMEDIATE
| DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
-------- ------------- -------------- ------------------
|
<S> <C> <C> <C> <C>
|_AFC Holding Company Ohio 12/09/94 100 Holding Company
|_AHH Holdings, Inc. Florida 12/27/95 49 Holding Company
| |_Columbia Financial Company Florida 10/26/93 100 Real Estate Holding Company
| |_American Heritage Holding Corporation Delaware 11/02/94 100 Home Builder
| | |_Heritage Homes Realty, Inc. Florida 07/20/93 100 Home Sales
| | |_Southeast Title, Inc. Florida 05/16/95 100 Title Company
| |_Heritage Home Finance Corporation Florida 02/10/94 100 Finance Company
|_American Financial Capital Trust I Delaware 09/14/96 100 Statutory Business Trust
|_American Financial Corporation Ohio 11/15/55 100 Holding Company
| |_AFC Acquisition Ohio 06/26/97 100 Transitory Holding Company
Corp.
| |_AFC Coal Properties, Inc. Ohio 12/18/96 100 Real Estate Holding Company
| |_American Barge & Towing Ohio 03/25/82 Inactive
Company 100
| | |_Spartan Transportation Ohio 7/19/1983 Mgmt-River Transportation Equipment
Corporation 100
| |_American Financial Corporation Ohio 08/27/63 100 Inactive
| |_American Money Management Corporation Ohio 03/01/73 100 Investment Management
| |_American Money Management International, N.V Netherland 05/10/85 100 Securities Management
| | Antilles
| |_American Premier Underwriters, Inc. Pennsylvania 1846 100(2) Diversified
| | |_The Ann Arbor Railroad Company Michigan 09/21/1895 99 Inactive
| | |_The Associates of the Jersey Company New Jersey 11/10/1804 100 Inactive
| | |_Cal Coal, Inc. Illinois 05/30/79 100 Inactive
| | |_Canadian Lease Insurance Services, Ltd. Washington 02/28/91 100 Insurance Agency
| | |_The Indianapolis Union Railway Company Indiana 11/19/1872 100 Inactive
| | |_Leased Equipment Reinsurance Company, Ltd. Bermuda 09/18/89 100 Reinsurance Company
| | |_Lease Insurance Agency Services Corporation Washington 12/27/83 100 Insurance Agency
| | |_Lease Insurance Services, Ltd. Washington 05/14/90 100 Insurance Agency
| | |_Lehigh Valley Railroad Company Pennsylvania 04/21/1846 100 Inactive
| | |_The New York and Harlem Railroad Company New York 04/25/1831 97 Inactive
| | |_The Owasco River Railway, Inc. New York 06/02/1881 100 Inactive
| | |_PCC Real Estate, Inc. New York 12/15/86 100 Holding Company
| | | |_PCC Chicago Realty Corp. New York 12/23/86 100 Real Estate Developer
| | | |_PCC Gun Hill Realty Corp. New York 12/18/85 100 Real Estate Developer
| | | |_PCC Michigan Realty, Inc. Michigan 11/09/87 100 Real Estate Developer
| | | |_PCC Scarsdale Realty Corp. New York 06/01/86 100 Real Estate Developer
| | | | |_Scarsdale Depot Associates, L.P. Delaware 05/05/89 80 Real Estate Developer
| | |_Penn Central Energy Management Company Delaware 05/11/87 100 Energy Operations Manager
| | |_Pennsylvania Company Delaware 12/05/58 100 Holding Company
| | | |_Atlanta Casualty Company Illinois 06/13/72 100 (2) Property/Casualty Insurance
| | | | |_American Premier Insurance Company Indiana 11/30/89 100 Property/Casualty Insurance
| | | | |_Atlanta Specialty Insurance Company Ohio 02/06/74 100 Property/Casualty Insurance
| | | | |_Atlanta Casualty Group, Inc. Georgia 04/01/77 100 Insurance Agency
| | | | | |_Atlanta Casualty General Agency, Inc. Texas 03/15/61 100 Managing General Agency
| | | | | |_Atlanta Insurance Brokers, Inc. Georgia 02/06/71 100 Insurance Agency
| | | | | |_Treaty House, Ltd. (d/b/a Mr. Budget) Nevada 11/02/71 100 Insurance Premium Finance
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN FINANCIAL GROUP, INC.
<S> <C> <C> <C> <C>
|_AFC Holding Company
|_American Financial Corporation % OF STOCK OWNED (1)
| |_American Premier Underwriters, Inc. STATE OF DATE OF BY IMMEDIATE
| | |_Pennsylvania Company DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
-------- ------------- -------------- ------------------
|
| | | | |_Penn Central U.K. Limited United 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
| | | |_Great Southwest Corporation Delaware 10/25/78 100 Real Estate Developer
| | | | |_World Houston, Inc. Delaware 05/30/74 100 Real Estate Developer
| | | |_Hangar Acquisition Corp. Ohio 10/06/95 100 Aircraft Investment
| | | |_Infinity Insurance Company Indiana 07/09/55 100 Property/Casualty Insurance
| | | | |_Infinity Agency of Texas, Inc. Texas 07/15/92 100 Managing General Agency
| | | | |_The Infinity Group, Inc. Indiana 07/22/92 100 Services Provider
| | | | |_Infinity National Insurance Company Indiana 08/05/92 100 Property/Casualty Insurance
| | | | |_Infinity Select Insurance Company Indiana 06/11/91 100 Property/Casualty Insurance
| | | | |_Leader National Insurance Company Ohio 03/20/63 100 Property/Casualty Insurance
| | | | | |_Budget Insurance Premiums, Inc. Ohio 02/14/64 100 Premium Finance Company
| | | | | |_Leader National Agency, Inc. Ohio 04/05-63 100 Brokering Agent
| | | | | |_Leader National Agency of Texas, Inc. Texas 01/25/94 100 Managing General Agency
| | | | | |_Leader National Insurance Agency of Arizona Arizona 12/05/73 100 Brokering Agent
| | | | | |_Leader Preferred Insurance Company Ohio 11/07/94 100 Property/Casualty Insurance
| | | | | |_Leader Specialty Insurance Company Indiana 03/10/94 100 Property/Casualty Insurance
| | | | | |_TALON Group, Inc. Ohio 12/12/97 100 Services Provider
| | | |_PCC Technical Industries, Inc. California 03/07/55 100 Holding Company
| | | | |_ESC, Inc. California 11/02/62 100 Connector Accessories
| | | | |_Marathon Manufacturing Companies, Inc. Delaware 11/18/83 100 Holding Company
| | | | | |_Marathon Manufacturing Company Delaware 12/07/79 100 Inactive
| | | | |_PCC Maryland Realty Corp. Maryland 08/18/93 100 Real Estate Holding Company
| | | | |_Penn Camarillo Realty Corp. California 11/24/92 100 Real Estate Holding Company
| | | |_Penn Towers, Inc. Pennsylvania 08/01/58 100 Inactive
| | | |_Republic Indemnity Company of America California 12/05/72 100 Workers' Compensation Insur.
| | | | |_Republic Indemnity Company of California California 10/13/82 100 Workers' Compensation Insur.
| | | | |_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 Insurance Agency
interest
| | | | | |_Hallmark General Insurance Agency, Inc. Oklahoma 06/16/72 beneficial Insurance Agency
interest
| | | | | |_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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMERICAN FINANCIAL GROUP, INC.
| |_AFC Holding Company
| |_American Financial Corporation
| | |_American Premier Underwriters, Inc. % OF STOCK OWNED (1)
| STATE OF DATE OF BY IMMEDIATE
| DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
|-
| | |_Pennsylvania-Reading Seashore Lines New Jersey 06/14/01 66.67 Inactive
| | |_Pittsburgh and Cross Creek Railroad Company Pennsylvania 08/14/70 83 Inactive
| | |_Terminal Realty Penn Co. District of 09/23/68 100 Inactive
| | |_United Railroad Corp. Delaware 11/25/81 100 Inactive
| | | |_Detroit Manufacturers Railroad Company Michigan 01/30/02 82 Inactive
| | |_Waynesburg Southern Railroad Company Pennsylvania 09/01/66 100 Inactive
| |_Chiquita Brands International, Inc. (and subsidiaries) New Jersey 03/30/99 40.41 (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
| | | |_Agricultural Excess and Surplus Insurance Company Delaware 02/28/79 100 Excess & Surplus
Lines Insurance
| | | |_Agricultural Insurance Company Ohio 03/23/05 100 Property/Casualty
Insurance
| | | |_American Alliance Insurance Company Arizona 09/11/45 100 Property/Casualty
Insurance
| | | |_American Annuity Group, Inc. Delaware 05/15/87 81.13 (2) Holding Company
| | | | |_AAG Holding Company, Inc. Ohio 09/11/96 100 Holding Company
| | | | | |_American Annuity Group Capital Trust I Delaware 09/13/96 100 Financing Vehicle
| | | | | |_American Annuity Group Capital Trust II Delaware 03/11/97 100 Financing Vehicle
| | | | | |_American Annuity Group Capital Trust III Delaware 05/27/97 100 Financing Vehicle
| | | | | |_Great American Life Insurance Company Ohio 12/15/59 100 Life Insurance Company
| | | | | | |_Annuity Investors Life Insurance Company Ohio 11/31/81 100 Life Insurance Company
| | | | | | |_Assured Security Life Insurance Company, 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 Hotel Management
interest
| | | | | | |_First Benefit Insurance Company Arizona 01/03/95 100 Life Insurance Company
| | | | | | |_GALIC Brothers, Inc. Ohio 11/12/93 80 Real Estate Management
| | | | | | |_Great American Life Assurance Company Ohio 08/10/67 100 Life Insurance Company
| | | | | | |_Loyal American Life Insurance Company Alabama 05/18/55 100 Life Insurance Company
| | | | | | | |_ADL Financial Services, Inc. North 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMERICAN FINANCIAL GROUP, INC.
| |_AFC Holding Company
| |_American Financial Corporation
| | |_Great American Holding Corporation % OF STOCK OWNED (1)
| | | |_Great American Insurance Company STATE OF DATE OF BY IMMEDIATE
| | | | |_American Annuity Group, Inc. DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
-------- ------------- -------------- ------------------
| | | | |_CSW Management Services, Inc. Texas 06/27/85 100 Pre-need Trust Admin. Services
| | | | |_GALIC Disbursing Company Ohio 05/31/94 100 Payroll Servicer
| | | | |_General Accident Life Assurance Company of Puerto Rico 07/01/64 99 Life Insurance Company
Puerto Rico, Inc.
| | | | |_Keyes-Graham Insurance Agency, Inc. Massachusetts 12/23/87 100 Insurance Agency
| | | | |_International Funeral Associates, Inc. Delaware 05/07/86 100 Coop. Buying Funeral Dirs.
| | | | |_Laurentian Credit Services Corporation Delaware 10/07/94 100 Inactive
| | | | |_Laurentian Marketing Services, Inc. Delaware 12/23/87 100 Marketing Services
| | | | |_Laurentian Securities Corporation Delaware 01/30/90 100 Inactive
| | | | |_Lifestyle Financial Investments, Inc. Ohio 12/29/93 100 Marketing Services
| | | | | |_Lifestyle Financial Investments Agency of Ohio 03/07/94 beneficial Life Insurance Agenc
Ohio, Inc. interest
| | | | | |_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
| | | | |_New Energy Corporation Indiana 01/08/97 49 Holding Company
| | | | |_Purple Cross Insurance Agency, Inc. Delaware 11/07/89 100 Insurance Agency
| | | | |_Retirement Resource Group, Inc. Indiana 02/07/95 100 Insurance Agency
| | | | | |_RRG of Alabama, Inc. Alabama 09/22/95 100 Life Insurance Agency
| | | | | |_RRG of Ohio, Inc. Ohio 02/20/96 beneficial Insurance Agency
interest
| | | | | |_AAG Insurance Agency 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 and Brokerage
| | | |_American Custom Insurance Services Illinois, Inc. Illinois 07/08/92 100 Underwriting Office
| | | |_American Dynasty Surplus Lines Insurance Company Delaware 01/12/82 100 Excess & Surplus Lines Insur.
| | | | |_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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMERICAN FINANCIAL GROUP, INC.
| |_AFC Holding Company
| |_American Financial Corporation
| | |_Great American Holding Corporation % OF STOCK OWNED (1)
| | | |_Great American Insurance Company STATE OF DATE OF BY IMMEDIATE
|_ DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
| | | |_American Financial Enterprises, Inc. Connecticut 1871 100 (2) Closed End Investment Company
| | | |_American Insurance Agency, Inc. Kentucky 07/27/67 100 Insurance Agency
| | | |_American National Fire Insurance Company New York 08/22/47 100 Property/Casualty Insurance
| | | |_American Special Risk, Inc. Illinois 12/29/81 100 Insurance Broker/Managing General
Agency
| | | | |_American Special Risk I of Arizona, Inc. Arizona 02/06/90 100 Inactive
| | | |_American Spirit Insurance Company Indiana 04/05/88 100 Property/Casualty Insurance
| | | |_Brothers Property Corporation Ohio 09/08/87 80 Real Estate Investment
| | | | |_Brothers Barrington Corporation Oklahoma 03/18/94 100 Real Estate Holding Corporation
| | | | |_Brothers Cincinnatian Corporation Ohio 01/25/94 100 Hotel Manager
| | | | |_Brothers Columbine Corporation Oklahoma 03/18/94 100 Real Estate Holding Corporation
| | | | |_Brothers Landing Corporation Louisiana 02/24/94 100 Real Estate Holding Corporation
| | | | |_Brothers Pennsylvanian Corporation Pennsylvania 12/23/94 100 Real Estate Holding Corporation
| | | | |_Brothers Port Richey Corporation Florida 12/06/93 100 Apartment Manager
| | | | |_Brothers Property Management Corporation Ohio 09/25/87 100 Real Estate Management
| | | | |_Brothers Railyard Corporation Texas 12/14/93 100 Apartment Manager
| | | |_Consolidated Underwriters, Inc. Texas 10/14/80 100 Inactive
| | | |_Contemporary American Insurance Company Illinois 04/16/96 100 Property/Casualty Insurance
| | | |_Crop Managers Insurance Agency, Inc. Kansas 08/09/89 100 Insurance Agency
| | | |_Dempsey & Siders Agency, Inc. Ohio 05/09/56 100 Insurance Agency
| | | |_Eagle American Insurance Company Ohio 07/01/87 100 Property/Casualty Insurance
| | | |_Eden Park Insurance Company Indiana 01/08/90 100 Special Risk Surplus Lines
| | | |_FCIA Management Company, Inc. New York 09/17/91 79 Servicing Agent
| | | |_The Gains Group, Inc. Ohio 01/26/82 100 Marketing of Advertising
| | | |_Great American Lloyd's, Inc. Texas 08/02/83 100 Attorney-in-Fact - Texas Lloyd's
Company
| | | |_Great American Lloyd's Insurance Company Texas 10/09/79 beneficial Lloyd's Plan Insurer
interest
| | | |_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 Property/Casualty Insurance
interest
| | | |_Grizzly Golf Center, Inc. Ohio 11/08/93 100 Operate Golf Courses
| | | |_Homestead Snacks Inc. California 03/02/79 100 (2) Meat Snack Distribution
| | | | |_Giant Snacks, Inc. Delaware 07/06/89 100 Meat Snack Distribution
| | | |_Key Largo Group, Inc. Florida 07/28/81 100 Land Developer & Resort Operator
| | | | |_Key Largo Group Utility Company Florida 11/26/84 100 Water & Sewer Utility
| | | |_Mid-Continent Casualty Company Oklahoma 02/26/47 100 Property/Casualty Insurance
| | | | |_Mid-Continent Insurance Company Oklahoma 08/13/92 100 Property/Casualty Insurance
| | | | |_Oklahoma Surety Company Oklahoma 08/05/68 100 Property/Casualty Insurance
| | | |_National Interstate Corporation Ohio 01/26/89 52.15 Holding Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
AMERICAN FINANCIAL GROUP, INC.
| |_AFC Holding Company
| |_American Financial Corporation % OF STOCK OWNED (1)
| | |_Great American Holding Corporation STATE OF DATE OF BY IMMEDIATE
| | | |_Great American Insurance Company DOMICILE INCORPORATION PARENT COMPANY NATURE OF BUSINESS
-------- ------------- -------------- ------------------
| | | | |_American Highways Insurance Agency California 05/05/94 100 Insurance Agency
| | | | |_Explorer Insurance Agency, Inc. Ohio 07/17/97 beneficial Insurance Agency
interest
| | | | |_National Interstate Insurance Agency of Texas 06/07/89 beneficial Insurance Agency
Texas, Inc. interest
| | | | |_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 06/23/95 100 Claims Third Party
Administrator
| | | |_OBGC Corporation Florida 11/23/77 80 Real Estate Development
| | | |_Pointe Apartments, Inc. Minnesota 06/24/93 100 Real Estate Holding Corp.
| | | |_Seven Hills Insurance Agency, Inc. Ohio 12/22/97 100 Insurance Agency
| | | |_Seven Hills Insurance Company New York 06/30/32 100 Property/Casualty Reinsurance
| | | |_Stonewall Insurance Company Alabama 02/1866 100 Property/Casualty Insurance
| | | |_Stone Mountain Professional Liability Georgia 08/07/95 100 Insurance Agency
Agency, Inc.
| | | |_Tamarack American, Inc. Delaware 06/10/86 100 Management Holding Company
| | | |_Transport Insurance Company Ohio 05/25/76 100 Property/Casualty 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 Insurance Agency
interest
| | | |_Transport Underwriters Association California 05/11/45 100 Holding Company/Agency
| | | |_Utility Insurance Services, Inc. Texas 04/06/95 100 (2) Texas Local Recording Agency
| | | |_Utility Management Services, Inc. Texas 09/07/65 100 Texas Managing General Agency
|_One East Fourth, Inc. Ohio 02/03/64 100 Commercial Leasing
|_PCC 38 Corp. Illinois 12/23/96 100 Real Estate Holding Company
|_Pioneer Carpet Mills, Inc. Ohio 04/29/76 100 Carpet Manufacturing
|_TEJ Holdings, Inc. Ohio 12/04/84 100 Real Estate Holdings
|_Three East Fourth, Inc. Ohio 08/10/66 100 Commercial Leasing
</TABLE>
(1) Except Director's Qualifying Shares.
(2) Total percentage owned by parent shown and by other affiliated company(ies).
(3) Convertible Preferred Stock.
<PAGE>
Item 27. Number of Certificate Owners
As of March 31, 1999 there were 8,088 Participants (Certificate Owners)
in 192 Standard Contracts, and 1,039 Participants
in 8 Enhanced Contracts.
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, 1999. The primary policy under the program is with
National Union Fire Insurance Company of Pittsburgh, PA. in the name of
American Premier Underwriters, Inc.
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(R)
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 and Annuity Investors
Variable Account B.
(b) Directors and Officers of AAG Securities, Inc.
Name and Principal Position with
Business Address AAG Securities, Inc.
Thomas Kevin Liguzinski (1) Chief Executive Officer and Director
Charles Kent McManus (1) Senior Vice President
Mark Francis Muething (1) Vice President, Secretary and
Director
William Jack Maney, II (1) Director
Jeffrey Scott Tate (1) Director
James Lee Henderson (1) President
James T. McVey (1) Vice President
William Claire Bair, Jr. (1) Treasurer
Thomas E. Mischell (1) Assistant Treasurer
Fred J. Runk (1) Assistant Treasurer
(1) 250 East Fifth Street, Cincinnati, Ohio 45202
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of
the 1940 Act and the rules under it are maintained by Lynn E. Laswell,
Vice President, Treasurer and Controller of the Company, at the
Administrative Office.
Item 31. Management Services
Not applicable.
Items 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 Certificate offered
by the Prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or
included in the Prospectus that the applicant can remove
to send for a Statement of Additional Information.
(c) Registrant undertakes to deliver any Prospectus and
Statement of Additional Information and any financial
statements required to be made available under this Form
promptly upon written or oral request to the Company at
the address or phone number listed in the Prospectus.
(d) The Company represents that the fees and charges deducted
under the Contract, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected
to be incurred and the risks assumed by the Company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it has caused this
Post-Effective Amendment No. 4 to its Registration Statement to be
signed on its behalf by the undersigned in the City of Cincinnati, State
of Ohio on the 15th day of April, 1999.
ANNUITY INVESTORS VARIABLE ACCOUNT A
(REGISTRANT)
By: /s/Robert Allen Adams
Robert Allen Adams
Chairman of the Board, President
and Director, Annuity Investors
Life Insurance Company
ANNUITY INVESTORS LIFE INSURANCE COMPANY
(DEPOSITOR)
By:/s/ Robert Allen Adams
Robert Allen Adams
Chairman of the Board, President
and Director
As required by the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 4 to the Registration Statement has been
signed by the following persons in the capacities and on the dates
indicated.
/s/ Robert Allen Adams
------------------------------ April 15, 1999
Robert Allen Adams* Principal Executive
Officer, Director
/s/ Lynn Edward Laswell
----------------------------- April 15, 1999
Lynn Edward Laswell* Principal Financial
Officer, Principal Accounting
Officer
/s/ Stephen Craig Lindner
---------------------------- April 15,1999
Stephen Craig Lindner* Director
<PAGE>
/s/ William Jack Maney, II
---------------------------- April 15, 1999
William Jack Maney, II* Director
/s/ James Michael Mortensen
---------------------------- April 15, 1999
James Michael Mortensen* Director
Mark Francis Muething
---------------------------- April 15, 1999
Mark Francis Muething* Director
/s/ Jeffrey Scott Tate
---------------------------- April 15, 1999
Jeffrey Scott Tate* Director
* Executed by Tina K. Manning on behalf of those indicated pursuant to
Power of Attorney.
<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.
(3)(b) Form of Selling Agreement between Annuity Investors
Life Insurance Company, AAG Securities, Inc. and
another Broker-Dealer 2/
(3)(c) Revised Form of Selling Agreement between Annuity
Investors Life Insurance Company, AAG Securities, Inc.
and another Broker-Dealer3.
(4)(a)(i) Form of Group Flexible Premium Deferred Annuity
Contract 1
(4)(a)(ii) Form of Enhanced Group Flexible Premium Deferred
Annuity Contract.1/
(4)(a)(iii) Form of Loan Endorsement to Group Contract 1/
(4)(a)(iv) Form of Employer Plan Endorsement to Group Contract 1/
(4)(a)(v) Form of Tax Sheltered Annuity Endorsement to Group
Contract 1/
(4)(a)(vi) Form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Group Contract 1/
(4)(a)(vii) Form of Long-Term Care Waiver Rider to Group Contract
1/
(4)(a)(viii) Form of Section 457 Plan/Deferred Compensation
Endorsement to Group Contract4
(4)(a)(ix) Revised form of Employer Plan Endorsement to Group
Contract4
(4)(a)(x) Revised form of Tax Sheltered Annuity Endorsement to
Group Contract4
(4)(a)(xi) Revised form of Qualified Pension, Profit Sharing and
Annuity Plan Endorsement to Group Contract4
(4)(a)(xii) Form of Governmental Section 457 Plan Endorsement to
Group Contract 4
(4)(b)(i) Form of Certificate of Participation 1/
(4)(b)(ii) Form of Certificate of Participation under Enhanced
Contract 1/
(4)(b)(iii) Form of Loan Endorsement to Certificate 1/
(4)(b)(iv) Form of Employer Plan Endorsement to Certificate 1/
(4)(b)(v) Form of Tax Sheltered Annuity Endorsement to
Certificate 1/
(4)(b)(vi) Form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Certificate 1/
(4)(b)(vii) Form of Long-Term Care Waiver Rider to Certificate1/
(4)(b)(viii) Form of Deferred Compensation Endorsement to
Certificate. 5/
(4)(b)(ix) Revised form of Employer Plan Endorsement to
Certificate 4
(4)(b)(x) Revised form of Tax Sheltered Annuity Endorsement to
Certificate 4
(4)(b)(xi) Revised form of Qualified Pension, Profit Sharing and
Annuity Plan Endorsement to Certificate4
(4)(b)(xii) Form of Governmental Section 457 Plan Endorsement to
Certificate4
(4)(c)(i) Form of Group Flexible Premium Deferred Annuity
Contract for use in South Dakota. 6
(4)(c)(ii) Form of Certificate of Participation for use in South
Dakota. 6
(4)(d)(i) Form of Group Flexible Premium Deferred Annuity
Contract for use in Wisconsin. 4/
(4)(d)(ii) Form of Certificate of Participation for use in
Wisconsin. 6
(4)(e)(i) Form of Certificate of Participation for use in North
Dakota. 6
(4)(f)(i) Form of Employer Plan Endorsement to Group Contract
for use in Virginia. 6
(4)(f)(ii) Form of Employer Plan Endorsement to Certificate of
Participation for use in Virginia. 6
(4)(f)(iii) Form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Group Contract for use in
Virginia. 6
(4)(f)(iv) Form of Qualified Pension, Profit Sharing and Annuity
Plan Endorsement to Certificate of Participation for
use in Virginia. 6
(4)(f)(v) Form of Tax Sheltered Annuity Endorsement to Group
Contract for use in Virginia. 6
(4)(g) Form of Successor Owner Endorsement to Group Contract.8
(4)(h) Form of Successor Owner Endorsement to Certificate of
Participation under a Group Contract. 8
(4)(i) Form of Texas Optional Retirement Program Endorsement
to Group Contract.
(4)(j) Form of Texas Optional Retirement Program Endorsement
to Certificate of Participation under a Group Contract.
Form of Individual Retirement Annuity Endorsement to
(4)(k) Group Contract.
Form of Individual Retirement Annuity Endorsement to
(4)(l) Certificate of Participation under a Group Contract.
Form of SIMPLE Individual Annuity Endorsement to
(4)(m) Group Contract.
Form of SIMPLE Individual Annuity Endorsement to
(4)(n) Certificate of Participation under a Group Contract.
Form of Roth Individual Retirement Annuity Endorsement
(4)(o) to Group Contract.
Form of Roth Individual Retirement Annuity Endorsement
(4)(p) to Certificate of Participation under a Group Contract.
(5)(a) Form of Application for Group Flexible Premium
Deferred Annuity Contract 1/
(5)(a)(i) Alternative Form of Application7
(5)(a)(i) Alternative Form of Application 4
(5)(b) Form of Participant Enrollment Form under Group
Flexible Premium Deferred Annuity Contract (ERISA) 1/
(5)(c) Form of Participant Enrollment Form under Group
Flexible Premium Deferred Annuity Contract (Non-ERISA) 7
(6)(a) Articles of Incorporation of Annuity Investors Life
Insurance Company 6
(6)(a)(i) Amendment to Articles of Incorporation, adopted April
9, 1996 and approved by Secretary of State of Ohio on
July 11, 19967.
(6)(a)(ii) Amendment to Articles of Incorporation adopted August
9, 1996 and approved by Secretary of State of Ohio on
December 3, 19967.
(6)(b) Code of Regulations of Annuity Investors Life
Insurance Company 6
(8)(a) Participation Agreement between Annuity Investors Life
Insurance Company and Dreyfus Variable Investment Fund
2/
(8)(b) Participation Agreement between Annuity Investors Life
Insurance Company and Dreyfus Stock Index Fund 2/
(8)(c) Participation Agreement between Annuity Investors Life
Insurance Company and The Dreyfus Socially Responsible
Growth Fund, Inc. 2/
(8)(d) Participation Agreement between Annuity Investors Life
Insurance Company and Janus Aspen Series 2/
8(e)(i) Participation Agreement between Annuity Investors Life
Insurance Company and Merrill Lynch Variable Series
Funds, Inc. 2/
8(e)(ii) Amended and Restated Participation Agreement between
Annuity Investors Life Insurance Company and Merrill
Lynch Variable Series Funds, Inc. 6
(8)(f) Service Agreement between Annuity Investors Life
Insurance Company and American Annuity Group, Inc. 2/
(8)(g) Agreement between AAG Securities Inc. and AAG
Insurance Agency, Inc. 2/
(8)(h) Investment Service Agreement between Annuity Investors
Life Insurance Company and American Annuity Group,
Inc. 2/
(8)(i) Agreement between Annuity Investors Life Insurance
Company and Merrill Lynch Asset Management, L.P.6
(8)(j) Participation Agreement between Annuity Investors Life
Insurance Company and Morgan Stanley Universal Funds,
Inc. 7
8(k) Participation agreement between Annuity Investors Life
Insurance Company and Strong Special Fund II, Inc. 7.
8(l) Participation Agreement between Annuity Investors Life
Insurance Company and PBHG Insurance Series Fund, Inc.
7.
(8)(m) Amended and Restated Agreement between The Dreyfus
Corporation and Annuity Investors Life Insurance
Company7.
(8)(n) Service Agreement between Annuity Investors Life
Insurance Company and Janus Capital Corporation7.
(8)(o) Service Agreement between Annuity Investors Life
Insurance Company and Strong Capital Management, Inc. 4
(8)(p) Service Agreement between Annuity Investors Life
Insurance Company and Pilgrim Baxter & Associates,
Ltd. . 4
(8)(q) Service Agreement between Annuity Investors Life
Insurance Company and Morgan Stanley Asset Management,
Inc4
(8)(r) Participation Agreement between BT Insurance Funds
Trust and Annuity Investors Life Insurance Company. 9
(8)(s) Service Agreement between Bankers Trust Company and
Annuity Investors Life Insurance Company9
(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. 7
(14) Not Applicable
(15) Powers of Attorney (filed herewith).
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Financial Statements" and to the use of our reports dated February 4, 1999,
with respect to the statutory-basis financial statements of Annuity Investors
Life Insurance Company and the financial statements of Annuity Investors
Variable Account A, in Post-effective Amendment No. 4 to the Registration
Statement (Form N-4 No. 33-59861) and Post-effective Amendment No. 9 to the
Registration Statement (Form N-4 No. 811-07299) and related Statement of
Additional Information of Annuity Investors Variable Account A dated May 1,
1999.
Ernst & Young LLP
Cincinnati, Ohio
April 27, 1999
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints Mark F. Muething, John P. Gruber and Tina K. Manning,
and each of them, severally, his true and lawful attorneys and agents in his
name, place and stead and on his behalf (a) to sign and cause to be filed
registration statements of Annuity Investors(R) Variable Account A under the
Securities Act of 1933 and the Investment Company Act of 1940, and all
amendments, consents and exhibits thereto; (b) to withdraw such statements or
any amendments or exhibits and make requests for acceleration in connection
therewith; (c) to take all other action of whatever kind or nature in connection
with such registration statements which said attorneys may deem advisable; and
(d) to make, file, execute, amend and withdraw documents of every kind, and to
take other action of whatever kind they may elect, for the purpose of complying
with the laws of any state relating to the sale of securities of Annuity
Investors(R) Variable Account A, hereby ratifying and confirming all actions of
any of said attorneys and agents hereunder. Said attorneys or agents may act
jointly or severally, and the action of one shall bind the undersigned as fully
as if two or more had acted together.
Date April 15, 1999 /s/ Robert Allen Adams
------------------------------- --------------------------------------
Robert Allen Adams
Principal Executive Officer, Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints Mark F. Muething, John P. Gruber and Tina K. Manning,
and each of them, severally, his true and lawful attorneys and agents in his
name, place and stead and on his behalf (a) to sign and cause to be filed
registration statements of Annuity Investors(R) Variable Account A under the
Securities Act of 1933 and the Investment Company Act of 1940, and all
amendments, consents and exhibits thereto; (b) to withdraw such statements or
any amendments or exhibits and make requests for acceleration in connection
therewith; (c) to take all other action of whatever kind or nature in connection
with such registration statements which said attorneys may deem advisable; and
(d) to make, file, execute, amend and withdraw documents of every kind, and to
take other action of whatever kind they may elect, for the purpose of complying
with the laws of any state relating to the sale of securities of Annuity
Investors(R) Variable Account A, hereby ratifying and confirming all actions of
any of said attorneys and agents hereunder. Said attorneys or agents may act
jointly or severally, and the action of one shall bind the undersigned as fully
as if two or more had acted together.
Date April 15, 1999 /s/ Lynn Edward Laswell
------------------ --------------------------------------------
Lynn Edward Laswell
Vice President, Treasurer and Controller
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints Mark F. Muething, John P. Gruber and Tina K. Manning,
and each of them, severally, his true and lawful attorneys and agents in his
name, place and stead and on his behalf (a) to sign and cause to be filed
registration statements of Annuity Investors(R) Variable Account A under the
Securities Act of 1933 and the Investment Company Act of 1940, and all
amendments, consents and exhibits thereto; (b) to withdraw such statements or
any amendments or exhibits and make requests for acceleration in connection
therewith; (c) to take all other action of whatever kind or nature in connection
with such registration statements which said attorneys may deem advisable; and
(d) to make, file, execute, amend and withdraw documents of every kind, and to
take other action of whatever kind they may elect, for the purpose of complying
with the laws of any state relating to the sale of securities of Annuity
Investors(R) Variable Account A, hereby ratifying and confirming all actions of
any of said attorneys and agents hereunder. Said attorneys or agents may act
jointly or severally, and the action of one shall bind the undersigned as fully
as if two or more had acted together.
Date April 15, 1999 /s/ Stephen Craig Lindner
------------------------------- --------------------------
Stephen Craig Lindner, Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints Mark F. Muething, John P. Gruber and Tina K. Manning,
and each of them, severally, his true and lawful attorneys and agents in his
name, place and stead and on his behalf (a) to sign and cause to be filed
registration statements of Annuity Investors(R) Variable Account A under the
Securities Act of 1933 and the Investment Company Act of 1940, and all
amendments, consents and exhibits thereto; (b) to withdraw such statements or
any amendments or exhibits and make requests for acceleration in connection
therewith; (c) to take all other action of whatever kind or nature in connection
with such registration statements which said attorneys may deem advisable; and
(d) to make, file, execute, amend and withdraw documents of every kind, and to
take other action of whatever kind they may elect, for the purpose of complying
with the laws of any state relating to the sale of securities of Annuity
Investors(R) Variable Account A, hereby ratifying and confirming all actions of
any of said attorneys and agents hereunder. Said attorneys or agents may act
jointly or severally, and the action of one shall bind the undersigned as fully
as if two or more had acted together.
Date April 15, 1999 /s/ William Jack Maney, II
---------------------- -----------------------------------
William Jack Maney, II
Director and Assistant Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints Mark F. Muething, John P. Gruber and Tina K. Manning,
and each of them, severally, his true and lawful attorneys and agents in his
name, place and stead and on his behalf (a) to sign and cause to be filed
registration statements of Annuity Investors(R) Variable Account A under the
Securities Act of 1933 and the Investment Company Act of 1940, and all
amendments, consents and exhibits thereto; (b) to withdraw such statements or
any amendments or exhibits and make requests for acceleration in connection
therewith; (c) to take all other action of whatever kind or nature in connection
with such registration statements which said attorneys may deem advisable; and
(d) to make, file, execute, amend and withdraw documents of every kind, and to
take other action of whatever kind they may elect, for the purpose of complying
with the laws of any state relating to the sale of securities of Annuity
Investors(R) Variable Account A, hereby ratifying and confirming all actions of
any of said attorneys and agents hereunder. Said attorneys or agents may act
jointly or severally, and the action of one shall bind the undersigned as fully
as if two or more had acted together.
Date April 15, 1999 /s/ James Michawl Mortensen
------------------ --------------------------------------------
James Michael Mortensen, Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints John P. Gruber and Tina K. Manning, and each of them,
severally, his true and lawful attorneys and agents in his name, place and stead
and on his behalf (a) to sign and cause to be filed registration statements of
Annuity Investors(R) Variable Account A under the Securities Act of 1933 and the
Investment Company Act of 1940, and all amendments, consents and exhibits
thereto; (b) to withdraw such statements or any amendments or exhibits and make
requests for acceleration in connection therewith; (c) to take all other action
of whatever kind or nature in connection with such registration statements which
said attorneys may deem advisable; and (d) to make, file, execute, amend and
withdraw documents of every kind, and to take other action of whatever kind they
may elect, for the purpose of complying with the laws of any state relating to
the sale of securities of Annuity Investors(R) Variable Account A, hereby
ratifying and confirming all actions of any of said attorneys and agents
hereunder. Said attorneys or agents may act jointly or severally, and the action
of one shall bind the undersigned as fully as if two or more had acted together.
Date April 15, 1999 /s/Mark Francis Muething
- --------------------------- --------------------------------
Mark Francis Muething, Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby makes,
constitutes and appoints Mark F. Muething, John P. Gruber and Tina K.Manning,
and each of them, severally, his true and lawful attorneys and agents in his
name, place and stead and on his behalf (a) to sign and cause to be filed
registration statements of Annuity Investors(R) Variable Account A under the
Securities Act of 1933 and the Investment Company Act of 1940, and all
amendments, consents and exhibits thereto; (b) to withdraw such statements or
any amendments or exhibits and make requests for acceleration in connection
therewith; (c) to take all other action of whatever kind or nature in connection
with such registration statements which said attorneys may deem advisable; and
(d) to make, file, execute, amend and withdraw documents of every kind, and to
take other action of whatever kind they may elect, for the purpose of complying
with the laws of any state relating to the sale of securities of Annuity
Investors(R) Variable Account A, hereby ratifying and confirming all actions of
any of said attorneys and agents hereunder. Said attorneys or agents may act
jointly or severally, and the action of one shall bind the undersigned as fully
as if two or more had acted together.
Date April 15 1999 /s/ Jeffrey Scott Tate
- ------------------------------- --------------------------------------------
Jeffrey Scott Tate, Director
