497 1 l25893be497.htm ANNUITY INVESTORS VARIABLE ACCOUNT B 497 ANNUITY INVESTORS VARIABLE ACCOUNT B 497
Table of Contents

ANNUITY INVESTORS LIFE INSURANCE COMPANY®
ANNUITY INVESTORS® VARIABLE ACCOUNT B
THE COMMODORE SPIRIT®
INDIVIDUAL AND GROUP FLEXIBLE PREMIUM DEFERRED ANNUITIES
PROSPECTUS DATED MAY 1, 2007
This prospectus describes individual and group flexible premium deferred annuity contracts. The individual contracts and interests in the group contracts are referred to in this prospectus as the “Contracts”. Annuity Investors Life Insurance Company® (the “Company”) is the issuer of the Contracts.
The Contracts offer both variable and fixed investment options. The variable investment options under the Contracts are Subaccounts of Annuity Investors® Variable Account B (the “Separate Account”). The Contracts currently offer 46 Subaccounts. Each Subaccount is invested in shares of a registered investment company or a portfolio thereof (each, a “Portfolio”). The Portfolios are listed below.
AIM Variable Insurance Funds
-AIM V.I. Capital Development Fund-Series I Shares
-AIM V.I. Core Equity Fund-Series I Shares
-AIM V.I. Financial Services Fund-Series I Shares
-AIM V.I. Global Health Care Fund -Series I Shares
-AIM V.I. High Yield Fund-Series I Shares
-AIM V.I. Small Cap Equity Fund-Series I Shares
American Century Variable Portfolios
-American Century VP Large Company Value Fund-Class I
-American Century VP Mid Cap Value Fund-Class I
-American Century VP Ultraâ Fund-Class I
-American Century VP Vista SM Fund-Class I
Calamos® Advisors Trust
-Calamos Growth and Income Portfolio
Davis Variable Account Fund, Inc.
-Davis Value Portfolio
The Dreyfus Socially Responsible Growth Fund, Inc.-Initial Shares
Dreyfus Stock Index Fund, Inc.-Initial Shares
Dreyfus Investment Portfolios
-Dreyfus IP MidCap Stock Portfolio-Service Shares
-Dreyfus IP Technology Growth Portfolio-Initial Shares
Dreyfus Variable Investment Funds
-Dreyfus VIF Appreciation Portfolio-Initial Shares
-Dreyfus VIF Developing Leaders Portfolio-Initial Shares
-Dreyfus VIF Growth and Income Portfolio-Initial Shares
-Dreyfus VIF Money Market Portfolio
DWS Investments VIT Funds
-DWS Small Cap Index VIP-Class A
Financial Investors Variable Insurance Trust
-Ibbotson Balanced ETF Asset Allocation Portfolio-Class II
-Ibbotson Conservative ETF Asset Allocation Portfolio-Class II
-Ibbotson Growth ETF Asset Allocation Portfolio-Class II
-Ibbotson Income /Growth ETF Asset Allocation Portfolio-Class II
Franklin Templeton Variable Insurance Products Trust
-Templeton Foreign Securities Fund-Class 2
Janus Aspen Series
-Janus Aspen Series Balanced Portfolio-Institutional Shares
-Janus Aspen Series Forty Portfolio-Institutional Shares
-Janus Aspen Series International Growth Portfolio-Inst. Shares
-Janus Aspen Series Large Cap Growth Portfolio-Inst. Shares
-Janus Aspen Series Mid Cap Growth Portfolio-Inst. Shares
Oppenheimer Variable Account Funds
-Oppenheimer Balanced Fund/VA-Non-Service Shares
-Oppenheimer Capital Appreciation Fund/VA-NS Shares
-Oppenheimer Main Street Fund®/VA-Non-Service Shares
PIMCO Variable Insurance Trust
-PIMCO VIT Real Return Portfolio-Administrative Class
-PIMCO VIT Total Return Portfolio-Administrative Class
Van Kampen-The Universal Institutional Funds, Inc.
-Van Kampen UIF Core Plus Fixed Income Portfolio-Class I
-Van Kampen UIF Mid-Cap Growth Portfolio-Class I
-Van Kampen UIF U.S. Mid Cap Value Portfolio-Class I
-Van Kampen UIF U.S. Real Estate Portfolio-Class I
-Van Kampen UIF Value Portfolio-Class I
Wilshire Variable Insurance Trust
-Wilshire 2010 Moderate Fund
-Wilshire 2015 Moderate Fund
-Wilshire 2025 Moderate Fund
-Wilshire 2035 Moderate Fund
-Wilshire 2045 Moderate Fund

i


Table of Contents

The fixed investment options are provided through the Company’s Fixed Account. The Contracts currently offer 5 fixed investment options:
    Fixed Accumulation Account
 
    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 Contracts are available for tax-qualified and non-tax-qualified annuity purchases. All Contracts are designed to be eligible for tax-deferred treatment during the Accumulation Period. The tax treatment of annuities is discussed in the Federal Tax Matters section of this prospectus.
This prospectus includes information you should know before investing in the Contracts. This prospectus is not complete without the current prospectuses for the Portfolios. Please keep this prospectus and the Portfolio prospectuses for future reference.
A Statement of Additional Information (“SAI”), dated May 1, 2007, contains more information about the Separate Account and the Contracts. We filed the SAI with the Securities and Exchange Commission (“SEC”). It is part of this prospectus. For a free copy, complete and return the form on the last page of this prospectus, or call the Company at 1-800-789-6771. You may also access the SAI (as well as all other documents filed with the SEC with respect to the Contracts, the Separate Account or the Company) at the SEC’s web site: http://www.sec.gov. The registration number is 333-19725. The table of contents for the SAI is printed on the last page of this prospectus.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

These securities may be sold by a bank or credit union, but are not financial institution products.
  The Contracts are Not FDIC or NCUSIF Insured
 
  The Contracts are Obligations of the Company and Not of the Bank or Credit Union
 
  The Bank or Credit Union Does Not Guarantee the Company’s Obligations Under the Contracts
 
  The Contracts Involve Investment Risk and May Lose Value
 

ii


Table of Contents

TABLE OF CONTENTS
         
    1  
    3  
Contract Owner Transaction Expenses
    3  
 
       
Annual Contract Maintenance Fee
    3  
 
       
Separate Account Annual Expenses
    3  
 
       
Total Annual Portfolio Operating Expenses
    3  
 
       
Examples
    4  
 
       
    5  
Condensed Financial Information
    5  
 
       
Financial Statements
    5  
 
       
    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 Make Withdrawals or Surrender a Contract?
    6  
 
       
What Other Charges and Deductions Apply to the Contract?
    6  
 
       
How Do I Contact the Company?
    6  
 
       
    7  
Portfolios
    7  
 
       
Additions or Substitutions of Portfolios
    10  
 
       
    10  
Charges and Deductions by the Company
    10  
 
       
Contingent Deferred Sales Charge (“CDSC”)
    11  
Contract Maintenance Fee
    12  
Transfer Fee
    12  
Administration Charge
    12  
Mortality and Expense Risk Charge
    13  
Premium Taxes
    13  
Discretionary Waivers of Charges
    13  
Expenses of the Portfolios
    13  
 
       
    14  
Purchase Payments
    14  
 
       
Investment Options—Allocations
    14  
 
       
Principal Guarantee Program
    15  
 
       
Renewal of Fixed Account Guarantee Options
    15  
 
       
    16  
Transfers
    16  
 
       
Automatic Transfer Programs
    17  
Telephone, Facsimile or Internet Transfers
    18  
Changes in or Termination of Automatic Transfer Programs
    18  
Transfer Restrictions Related to Active Trading Strategies
    18  
 
       
    19  
Surrender and Withdrawals
    19  
 
       
Free Withdrawal Privilege
    19  
Long-Term Care Waiver Rider
    19  
Systematic Withdrawal
    20  

iii


Table of Contents

         
    20  
Contract Loans
    20  
 
     
    20  
Termination
    20  
 
     
    21  
Reports and Confirmations
    21  
 
     
Householding — Revocation of Consent
    21  
 
     
Electronic Delivery of Required Documents
    21  
 
     
Legal Proceedings
    21  
 
     
Voting Rights
    21  
 
     
    22  
Annuity Benefit
    22  
 
     
    23  
Death Benefit
    23  
 
     
Death Benefit Amount
    23  
Death Benefit Amount (Version 1)
    23  
Death Benefit Amount (Version 2)
    24  
Example of Determination of Death Benefit Amount (Version 1 and Version 2)
    25  
Death Benefit Amount (Version 3)
    25  
Payment of Benefits
    26  
 
     
    27  
Settlement Options
    27  
 
     
    28  
Right to Cancel
    28  
 
     
Persons With Rights Under a Contract
    28  
 
     
    30  
    30  
    31  
    32  
Tax Deferral on Annuities
    32  
 
     
Tax-Qualified Retirement Plans
    32  
 
     
Individual Retirement Annuities
    32  
Roth IRAs
    33  
Tax-Sheltered Annuities
    33  
Texas Optional Retirement Program
    33  
Pension, Profit—Sharing, and 401(k) Plans
    33  
Roth TSAs and Roth 401(k)s
    33  
Governmental Deferred Compensation Plans
    33  
Nonqualified Deferred Compensation Plans
    33  
 
     
Summary of Income Tax Rules
    34  

iv


Table of Contents

         
    35   
Calculation of Fixed Dollar Payments
    35   
 
       
Calculation of Variable Dollar Payments
    35   
 
       
Commuted Values
    35   
 
       
    36   
    37   
Yield Data
    37   
 
       
Total Return Data
    37   
 
       
Other Performance Measures
    37   
 
       
    38   
    39   
    40   
    47   
AIM Variable Insurance Funds
    47   
 
       
American Century Variable Portfolios, Inc.
    48   
 
       
Calamos® Advisors Trust
    49   
 
       
Davis Variable Account Fund, Inc.
    49   
 
       
Dreyfus Portfolios
    49   
 
       
DWS Investments VIT Funds (1)
    50   
 
       
Financial Investors Variable Insurance Trust
    51   
 
       
Franklin Templeton Variable Insurance Products Trust
    51   
 
       
Janus Aspen Series
    52   
 
       
Oppenheimer Variable Account Funds
    53   
 
       
PIMCO Variable Insurance Trust
    53   
 
       
Van Kampen-The Universal Institutional Funds, Inc.
    53   
 
       
Wilshire Variable Insurance Trust
    54   
 
       
    56   
Restrictions on Transfers; Disruptive Trading, Market Timing and Frequent Transfers
    56   
 
       
U.S. Mail Restrictions on Persons Engaged in Harmful Trading Practices
    56   
U.S Mail Restrictions on Managers of Multiple Contracts
    57   
Other Restrictions
    57   

v


Table of Contents

DEFINITIONS
The capitalized terms defined on this page will have the meanings given to them when used in this prospectus. Other terms that have a specific meaning under the Contracts, but which are not defined on this page, will be explained as they are used in this prospectus.
Account Value
The aggregate value of your interest in all of the Subaccounts and the Fixed Account options as of the end of any Valuation Period.
Accumulation Unit
A unit of measure used to calculate the value of a Subaccount before the Commencement Date. The value of an Accumulation Unit is referred to as the “Accumulation Unit Value.” See the Glossary of Financial Terms section of this prospectus for an explanation of how Accumulation Unit Values are calculated.
Annuitant
The natural person on whose life Annuity Benefit payments are based. More information about the Annuitant is included in the Contracts section of this prospectus.
Annuity Benefit
The payments that may be made under the Annuity Benefit section of the Contract.
Beneficiary
The person entitled to receive any Death Benefit under this Contract. More information about the Beneficiary is included in the Contract section of the prospectus.
Benefit Unit
A unit of measure used to determine the dollar value of any variable dollar payments after the Commencement Date. The value of a Benefit Unit is referred to as the “Benefit Unit Value.” See the Calculation of Benefit Payments and the Glossary of Financial Terms section of this prospectus for additional information about Benefit Units and an explanation of how Benefit Unit Values are calculated.
Contract Anniversary
The date in each year that is the annual anniversary of the Contract effective date. The Contract effective date is the date that the Contract is issued. The Contract effective date is set out on the Contract specifications page.
Contract Year
Each 12 month period that begins on the Contract effective date or on a Contract Anniversary.
Company
Annuity Investors Life Insurance Company®.
  Ø   The words “we” “us” and “our” in this prospectus also refer to Annuity Investors Life Insurance Company®.
Commencement Date
The Annuity Commencement Date if an Annuity Benefit is payable or the Death Benefit Commencement Date if a Death Benefit is payable.
    The Annuity Commencement Date is the first day of the first payment interval for which an Annuity Benefit payment is to be made. The Annuity Commencement Date is shown on the Contract specifications page.
 
    The Death Benefit Commencement Date is (1) the first day of the first payment interval for a Death Benefit that is paid as periodic payments or (2) the date of payment for a Death Benefit that is paid as a lump sum.
Contract
An individual contract or interest in a group contract described in this prospectus.

1


Table of Contents

Death Benefit
The benefit described in the Death Benefit section of the Contract.
Fixed Account
The Fixed Account is part of the Company’s general account. The Fixed Account options are listed in the “Allocations to Investment Options” section of this prospectus.
Owner
For purposes of this prospectus, references to Owner mean (1) the owner of an individual annuity contract or (2) the participant in a group annuity contract (even though the participant is not the owner of the group contract itself).
  Ø   The words “you” and “your” in this prospectus also refer to the Owner as defined above.
Portfolio
A registered investment company or a portfolio of a registered investment company in which the corresponding Subaccount invests. The Portfolios are listed on the cover page of this prospectus.
Purchase Payments
An amount paid to us for this Contract, less any fee charged by the person remitting payments and the deduction of applicable premium or other taxes.
Separate Account
Annuity Investors Variable Account B, which is an account that was established and is maintained by the Company.
Subaccount
A subdivision of the Separate Account. Each Subaccount invests in the shares of the corresponding Portfolio listed on the cover page of this Prospectus.
SEC
Securities and Exchange Commission.
Tax Qualified Contract
A contract that is intended to qualify for special tax treatment for retirement savings. The Contract specifications page indicates whether this Contract is a Tax-Qualified Contract.

2


Table of Contents

EXPENSE TABLES
These tables describe the fees and expenses that you will pay when you buy, hold or withdraw amounts from the Contract.
The first table describes the fees and expenses that you will pay at the time that you buy the Contract, withdrawal amounts from the Contract, surrender the Contract, transfer cash value between investment options or borrow money under the Contract. Premium taxes may also be deducted.
Contract Owner Transaction Expenses
                 
    Current     Maximum  
Maximum Contingent Deferred Sales Charge (applies to purchase payments only)
    8.00 %     8.00 %
Transfer Fee
  $ 25 *   $ 30  
Automatic Transfer Program Fee
  None   $ 30  
Systematic Withdrawal Fee
  None   $ 30  
 
*   This fee currently applies to transfers in excess of 12 in any Contract Year.
                 
Loan Interest Spread**
    3.00 %        
 
**   The Loan Interest Spread is the difference between the amount of interest we charge you for a loan and the amount of interest we credit to that portion of the Contract used to secure the loan.
The next table describes the fees and expenses that you will pay periodically during the time that you own the Contract, not including Portfolio fees and expenses.
         
Annual Contract Maintenance Fee
  $ 30  
Separate Account Annual Expenses
(as a percentage of the average value of the Owner’s interest in the Subaccounts)
                         
                    Enhanced Contracts
                    with Administration
    Standard Contracts   Enhanced Contracts   Charge Waived*
Mortality and Expense Risk Charge
    1.25 %     0.95 %     0.95 %
Administration Charge
    0.15 %     0.15 %     0.00 %
 
                       
Total Separate Account Annual Expenses
    1.40 %     1.10 %     0.95 %
 
*   When we also expect to incur reduced administrative expenses, we may waive the Administration Charge.
The next item shows the minimum and maximum total operating expenses charged by the Portfolios that you may pay periodically during the time that you own the Contract. More detail concerning each Portfolio’s fees and expenses is contained in the prospectus for each Portfolio.

3


Table of Contents

Total Annual Portfolio Operating Expenses
(expenses that are deducted from Portfolio assets, including management fees, distribution and service (12b-1) fees, acquired fund fees and expenses and other expenses)
                 
    Minimum   Maximum
Before any fee reduction or expense reimbursement
    0.27 %     10.73 %
After contractual fee reductions and/or expense reimbursements
    0.27 %     1.67 %
The information about Portfolio expenses that the Company used to prepare this table was provided to the us by the Portfolios. We have not independently verified the Portfolio expense information. The minimum and maximum expenses shown in the table are for the year ended December 31, 2006, except as noted below. Actual expenses of a Portfolio in future years may be higher or lower.
     The maximum expenses shown in the table are the expenses of the Wilshire 2045 Moderate Fund (the “Wilshire Fund”). The Wilshire Fund is structured as a “fund of funds” and invests in other investment companies (the “Acquired Funds”). As a result, the Wilshire Fund will likely incur higher expenses than funds that invest directly in securities. The expenses shown in the table for the Wilshire Fund include fees and expenses of the Acquired Funds. The Wilshire Fund’s expenses before any reduction or reimbursement reflect the small asset base of the Wilshire Fund, which commenced operations on May 1, 2006. The Wilshire Fund’s expenses after reductions and/or reimbursements reflect that (1) its adviser has contractually agreed to waive management fees and/or reimburse expenses through April 30, 2008, so that the Wilshire Fund’s expenses, excluding the fees and expenses of the Acquired Funds will not exceed 0.50% and (2) two components (other expenses and expense reimbursements) of the Wilshire Fund’s total expenses were calculated as of April 10, 2007 to reflect asset growth in the Wilshire Fund since December 31, 2006.

4


Table of Contents

Examples
These examples are intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include the Contract Owner transaction expenses (described in the first table above), the annual contract maintenance fee and the Separate Account annual expenses (described in the second table above), and Portfolio operating expenses (described in the third table above). Your actual costs may be higher or lower than the costs shown in the examples.
Assumptions
  You invest $10,000 in the Contract for the periods indicated and your investment has a 5% return each year.
 
  The annual contract maintenance fee of $30 and Separate Account annual expenses of 1.40% are incurred.
 
  The maximum Portfolio expenses before reimbursement (10.73%) or after reimbursement (1.67%) are incurred or the minimum Portfolio expenses (0.27%) are incurred.
 
  Table #1 assumes that you surrender your Contract at the end of the indicated period and the applicable contingent deferred sales charge is incurred.
 
  Table #2 assumes that you annuitize your Contract at the end of the indicated period or you keep your Contract and leave your money in your Contract for the entire period.
(1) If you surrender your Contract at the end of the period:
                                 
    1 year   3 years   5 years   10 years
Maximum portfolio expenses before reimbursement
  $ 1,879     $ 3,983     $ 6,043     $ 11,401  
Maximum portfolio expenses after reimbursement
  $ 1,045     $ 1,603     $ 2,259     $ 4,604  
Minimum portfolio expenses
  $ 903     $ 1,155     $ 1,477     $ 2,839  
(2) If you annuitize your Contract at the end of the period or keep your Contract for the entire period:
                                 
    1 year   3 years   5 years   10 years
Maximum portfolio expenses before reimbursement
  $ 1,179     $ 3,483     $ 5,743     $ 11,401  
Maximum portfolio expenses after reimbursement
  $ 345     $ 1,103     $ 1,959     $ 4,604  
Minimum portfolio expenses
  $ 203     $ 655     $ 1,177     $ 2,839  

5


Table of Contents

CONDENSED FINANCIAL INFORMATION
Condensed Financial Information
Condensed financial information for the Contracts is set forth in Appendix A to this prospectus. This information includes the following information for the standard Contracts and the enhanced Contracts:
  year-end accumulation unit values for each Subaccount from December 31, 1997 to December 31, 2006 (or from the end of the year of inception to December 31, 2006)
 
  number of accumulation units outstanding as of the end of each period.
Financial Statements
The financial statements and reports of the independent registered public accounting firm of the Company and of the Separate Account are included in the Statement of Additional Information.

OVERVIEW
What is the Separate Account?
The Separate Account is an account that was established and is maintained by the Company. It is a unit investment trust registered with the SEC under the Investment Company Act of 1940. The Separate Account is divided into Subaccounts. Each Subaccount invests in shares of the corresponding Portfolio listed on the cover page of this prospectus. If you choose a variable investment option, you are investing in a Subaccount, not directly in the corresponding Portfolio.
What Are the Contracts?
The Contracts are individual and group deferred annuities, which are insurance products. The Contracts are sold with either a standard or an enhanced fee structure, as described in the Expense Tables of this prospectus. The Contracts are available in both tax-qualified and non-tax-qualified forms, both of which are designed to be eligible for tax-deferred investment status. See the Federal Tax Matters section 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 then available variable investment options and Fixed Account options. The variable investment options are the Subaccounts 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 Subaccounts. The Fixed Account options earn a rate of interest declared from time to time by the Company, which will be no less than the minimum interest rate permitted under the law of the state when and where the Contract is issued. 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 and fixed dollar options. If a variable dollar option is selected, Benefit Units can be allocated to any of the Subaccounts that are then available.
How Do I Purchase or Cancel a Contract?
The requirements to purchase a Contract are explained in The Contracts section of this prospectus. You may purchase a Contract only through a licensed securities representative. You may cancel a Contract within twenty days after you receive it (the right to cancel may be longer in some states). In many states, you will bear the risk of investment gain or loss on any amounts allocated to the Subaccounts prior to cancellation. The right to cancel may not apply to group Contracts. The right to cancel is described in the Right to Cancel section of this prospectus.

6


Table of Contents

Will Any Penalties or Charges Apply If I Make Withdrawals or Surrender a Contract?
A contingent deferred sales charge (“CDSC”) may apply to amounts withdrawn or surrendered depending on the timing and amount of the withdrawal or 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. The CDSC will be waived in its entirety following the tenth Contract Anniversary for Contracts issued pursuant to Internal Revenue Code 403(b) (if the Contract is issued without an employer plan endorsement), including those issued to Contract Owners in the Texas Teachers Retirement System. Withdrawal and surrender procedures and the CDSC are described in the Surrender and Withdrawals section of this prospectus. A penalty tax may also be imposed at the time of a withdrawal or surrender depending on your age and other circumstances of the surrender. Tax consequences of a withdrawal and surrender are described in the Federal Tax Matters section of this prospectus. The right to make withdrawals or surrender may be restricted under certain tax-qualified retirement 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 reduces or waives the fee or charge as discussed in the Charges and Deductions section of this prospectus:
§   a transfer fee for certain transfers among investment options;
 
§   an annual contract maintenance fee, which is assessed only against investments in the Subaccounts;
 
§   a mortality and expense risk charge, which is an expense of the Separate Account and charged against all assets in the Subaccounts (this charge may never be entirely waived);
 
§   an administration charge, which is an expense of the Separate Account and charged against all assets in the Subaccounts; and
 
§   premium taxes, if any.
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 ended December 31, 2006 are included in the Expense Tables 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, 1-800-789-6771. Please include the Contract number and the Owner’s name. You may also contact us through our web site, www.gafri.com.

7


Table of Contents

THE PORTFOLIOS
Portfolios
The Separate Account currently is divided into 46 Subaccounts.. Each Subaccount invests in the corresponding Portfolio listed below. The current Portfolio prospectuses, which accompany this prospectus, contain additional information concerning the investment objectives, policies and practices of each Portfolio, the investment advisory services and administrative services of each Portfolio, and the expenses of each Portfolio.
You should read the Portfolio prospectuses carefully before making any decision concerning the allocation of Purchase Payments to, or transfers among, the Subaccounts.
There is no assurance that the Portfolios will achieve their stated objectives. The SEC does not supervise the management or the investment policies and/or practices of any of the Portfolios.
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 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 that 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.
     
Portfolio   Adviser and Type of Fund
AIM Variable Insurance Funds
   
AIM V.I. Capital Development Fund
  A I M Advisors, Inc.
Series I Shares
  Mid cap growth
AIM V.I. Core Equity Fund
  A I M Advisors, Inc.
Series I Shares
  Large cap blend
AIM V.I. Financial Services Fund
  A I M Advisors, Inc.
Series I Shares
  Sector
AIM V.I. Global Health Care Fund
  A I M Advisors, Inc.
Series I Shares
  Sector
AIM V.I. High Yield Fund
  A I M Advisors, Inc.
Series I Shares
  High yield bond
AIM V.I. Small Cap Equity Fund
  A I M Advisors, Inc.
Series I Shares
  Small cap blend
American Century Variable Portfolios, Inc.
   
American Century VP Large Company Value Fund
  American Century Investment Management, Inc.
Class I Shares
  Large cap value
American Century VP Mid Cap Value Fund
  American Century Investment Management, Inc.
Class I Shares
  Mid cap value
American Century VP Ultraâ Fund
  American Century Investment Management, Inc.
Class I Shares
  Large cap growth
American Century VP VistaSM Fund
  American Century Investment Management, Inc.
Class I Shares
  Mid cap growth
Calamosâ Advisors Trust
   
Calamos Growth and Income Portfolio
  Calamos Advisors LLC
 
  Convertibles

8


Table of Contents

     
Portfolio   Adviser and Type of Fund
Davis Variable Account Fund, Inc.
   
Davis Value Portfolio
  Davis Selected Advisers, L.P.
 
  Sub-Adviser—Davis Selected Advisers-NY, Inc.
 
  Large cap blend
Dreyfus Portfolios
   
Dreyfus Investment Portfolios MidCap Stock Portfolio
  The Dreyfus Corporation
Service Shares
  Mid cap blend
Dreyfus Investment Portfolio Technology Growth
Portfolio
  The Dreyfus Corporation
Initial Shares
  Sector
The Dreyfus Socially Responsible Growth Fund, Inc.
  The Dreyfus Corporation
Initial Shares
  Large cap growth
Dreyfus Stock Index Fund, Inc.
  The Dreyfus Corporation
Initial Shares
  Index Manager—Mellon Equity Associates (an affiliate of Dreyfus)
 
  Large cap blend
Dreyfus Variable Investment Fund Appreciation
Portfolio
  The Dreyfus Corporation
Initial Shares
  Sub-Adviser—Fayez Sarofim & Co
 
  Large cap blend
Dreyfus Variable Investment Fund Developing
Leaders Portfolio
Initial Shares
  The Dreyfus Corporation
Small cap blend
Dreyfus Variable Investment Fund Growth and Income Portfolio
Initial Shares
  The Dreyfus Corporation
Large cap blend
Dreyfus Variable Investment Fund Money Market
Portfolio
  The Dreyfus Corporation
Money market
DWS Investments VIT Funds
   
DWS Small Cap Index VIP
Class A
  Deutsche Asset Management, Inc.
Sub-Adviser—Northern Trust
Investments, N.A.
Small cap blend
Financial Investors Variable Insurance Trust
   
Ibbotson Balanced ETF Asset Allocation Portfolio
Class II
  ALPS Advisers, Inc.
Sub-Adviser—Ibbotson Associates, Inc.
Asset allocation
Ibbotson Conservative ETF Asset Allocation Portfolio
Class II
  ALPS Advisers, Inc.
Sub-Adviser—Ibbotson Associates, Inc.
Asset allocation
Ibbotson Growth ETF Asset Allocation Portfolio
Class II
  ALPS Advisers, Inc.
Sub-Adviser—Ibbotson Associates, Inc.
Asset allocation
Ibbotson Income and Growth ETF Asset Allocation Portfolio
Class II
  ALPS Advisers, Inc.
Sub-Adviser—Ibbotson Associates, Inc.
Asset allocation
Franklin Templeton Variable Insurance Products
Trust
   
Templeton Foreign Securities Fund
Class 2
  Advisor—Templeton Investment
Counsel, LLC
Sub-Advisor—Franklin Templeton
Investment Management Limited
Foreign large cap value

9


Table of Contents

     
Portfolio   Adviser and Type of Fund
Janus Aspen Series
   
Janus Aspen Series Balanced Portfolio
Institutional Shares
  Janus Capital Management LLC
Balanced
Janus Aspen Series Forty Portfolio
Institutional Shares
  Janus Capital Management LLC
Large cap growth
Janus Aspen Series International Growth Portfolio
Institutional Shares
  Janus Capital Management LLC
Foreign large cap growth
Janus Aspen Series Large Cap Growth Portfolio
Institutional Shares
  Janus Capital Management LLC
Large cap growth
Janus Aspen Series Mid Cap Growth Portfolio
Institutional Shares
  Janus Capital Management LLC
Mid cap growth
Oppenheimer Variable Account Funds
   
Oppenheimer Balanced Fund/VA
Non-Service Shares
  OppenheimerFunds
Balanced
Oppenheimer Capital Appreciation Fund/VA
Non-Service Initial Shares
  OppenheimerFunds
Large cap growth
Oppenheimer Main Street Fund®/VA
Non-Service Initial Shares
  OppenheimerFunds
Large cap blend
PIMCO Variable Insurance Trust
   
PIMCO VIT Real Return Portfolio
Administrative Class
  Pacific Investment Management
Company LLC
Inflation-indexed bond
PIMCO VIT Total Return Portfolio
Administrative Class
  Pacific Investment Management
Company LLC
Intermediate term bond
Van Kampen—The Universal Institutional Funds, Inc.
   
Van Kampen UIF Core Plus Fixed Income Portfolio
Class I
  Van Kampen(1)
Intermediate term bond
Van Kampen UIF Mid Cap Growth Portfolio
Class I
  Van Kampen(1)
Mid cap growth
Van Kampen UIF U.S. Mid Cap Value Portfolio
Class I
  Van Kampen(1)
Mid cap value
Van Kampen UIF U.S. Real Estate Portfolio
Class I
  Van Kampen(1)
Specialty-real estate
Van Kampen UIF Value Portfolio
Class I
  Van Kampen(1)
Large cap value
Wilshire Variable Insurance Trust
   
Wilshire 2010 Moderate Fund
  Wilshire Associates Incorporated
Target maturity
Wilshire 2015 Moderate Fund
  Wilshire Associates Incorporated
Target maturity
Wilshire 2025 Moderate Fund
  Wilshire Associates Incorporated
Target maturity
Wilshire 2035 Moderate Fund
  Wilshire Associates Incorporated
Target maturity
Wilshire 2045 Moderate Fund
  Wilshire Associates Incorporated
Target maturity
 
(1)   Morgan Stanley Investment Management Inc., which does business in certain instances using the name “Van Kampen,” serves as the investment advisor to the U.S. Mid Cap Value, Value, Core Plus Fixed Income and U.S. Real Estate Portfolios.
     Each Ibbotson Portfolio and each Wilshire Portfolio listed in the table above is structured as a “fund of funds.” A “fund of funds” attempts to achieve its investment objective by investing in other investment companies (each, an “Acquired Fund”), which in turn invest directly in securities. Each Ibbotson Portfolio and each Wilshire Portfolio indirectly incurs a proportionate share of the expenses of each Acquired Fund in which it invests. As a result of this fund of funds structure, the Ibbotson Portfolios and the Wilshire Portfolio will likely incur higher expenses than funds that invest directly in securities.

10


Table of Contents

Additions or Substitutions of Portfolios
New Subaccounts may be established when, in our sole discretion, marketing, tax, investment or other conditions warrant. Any new Subaccounts will be made available to existing Owners on a basis to be determined by us and that is not discriminatory. We do not guarantee that any of the Subaccounts or any of the Portfolios will always be available for allocation of Purchase Payments or variable dollar payments or for transfers. We may substitute the shares of a different portfolio or a different class of shares for shares held in a Portfolio.
In the event of any addition, merger, combination or substitution, we may make such changes in the Contract as may be necessary or appropriate to reflect such event. Additions, mergers, combinations or substitutions may be due to an investment decision by us, or due to an event not within our control, such as liquidation of a Portfolio or an irreconcilable conflict of interest between the Separate Account and another insurance company that offers the Portfolio. We will obtain approval of additions, mergers, combinations or substitution from the SEC to the extent required by the Investment Company Act of 1940, or other applicable law. We will also notify you before we make a substitution.

CHARGES AND DEDUCTIONS
Charges and Deductions by the Company
There are two types of charges and deductions by the Company. There are charges assessed to the Contract, which are reflected in the Account Value of the Contract, but not in Accumulation Unit Values (or Benefit Unit Values). These charges are the contingent deferred sales charge, the annual contract maintenance fee, transfer fees and premium taxes, where applicable. There are also charges assessed against the Separate Account. These charges are reflected in the Accumulation Unit Values (and Benefit Unit Values) of the Subaccounts. These charges are the mortality and expense risk charge and the administration charge.
Except as described below, the Company will never charge more to a Contract than the fees and charges described below, even if its actual expenses exceed the total fees and charges collected. If the fees and charges collected by the Company exceed the actual expenses it incurs, the excess will be profit to the Company and will not be returned to Owners.
The Company reserves the right to change the amount of the transfer fee in the future, or the number of transfers that can be made without incurring the transfer fee, and/or to charge fees for the automatic transfer programs described in the Transfers section of this prospectus, and/or for the systematic withdrawal program described in the Surrender and Withdrawals section 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. The maximum amount of these charges and fees is described below.

11


Table of Contents

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 withdrawn from the Contract depending on number of years elapsed since receipt of the purchase payment.
                                                                 
Number of full years elapsed between date of receipt of purchase payment and date request for withdrawal or surrender received
    0       1       2       3       4       5       6     7 or more
 
                                                               
CDSC as a percentage of purchase payment withdrawn or surrendered
    7 %     6 %     5 %     4 %     3 %     2 %     1 %     0 %
             
    When Assessed   On surrenders or withdrawals of purchase payments during the Accumulation Period.
 
           
    Assessed Against What   Purchase payments only, not earnings. See the Surrender and Withdrawals section of this prospectus for information on order of withdrawal of earnings and purchase payments.
 
           
 
  Waivers   §   Free withdrawal privilege. See the Surrender and Withdrawals section of this prospectus for information.
 
           
 
      §   In the Company’s discretion where the Company incurs reduced sales and servicing expenses.
 
           
 
      §   Upon separation from service if the Contract issued with employer plan endorsement or deferred compensation endorsement.
 
           
 
      §   If the 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 Contract has been in force for at least seven years; or (ii) after Contract has been in force ten years or more.
 
           
 
      §   Long-term care waiver rider. See the Surrender and Withdrawals section of this prospectus for information.
 
           
 
      §   If the Social Security Administration determines after the Contract is issued that the Owner is “disabled” as that term is defined in the Social Security Act of 1935, as amended.
 
           
 
      §   Successor Owner election. See the Account Value section of this prospectus for information.
 
           
 
      §   Where required to satisfy state law or required for participation in certain retirement plans.

12


Table of Contents

Contract Maintenance Fee
             
    Purpose of Charge   Offset expenses incurred in issuing the Contracts and in maintaining the Contracts and the Separate Account.
 
           
    Amount of Charge    $30.00 per year.
 
           
    When Assessed   During the Accumulation Period the charge is deducted on each anniversary of the effective date of the Contract, and at time of 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 Subaccounts. During the Accumulation Period, the charge is deducted pro rata from the Subaccounts in which the Contract has an interest on the date of the charge. During the Benefit Payment Period, a pro rata portion of the annual charge is deducted from each benefit payment from the variable account. The charge is not assessed against the Fixed Account options.
 
           
 
  Waivers   §   During Accumulation Period if the Account Value is at least $40,000 on the date the charge is due (individual contracts only).
 
           
 
      §   During Benefit Payment Period if the amount applied to a variable dollar benefit is at least $40,000 (individual contracts only).
 
           
 
      §   In the Company’s discretion where the Company incurs reduced sales and servicing expenses.
 
           
 
      §   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 contract year. The Company reserves the right to change the amount of this charge at any time, or the number of transfers which can be made without incurring the charge at any time.
 
       
 
  When Assessed   During the 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 free transfers permitted in a contract year. The Company reserves the right to eliminate this waiver at any time.
Administration Charge
         
 
  Purpose of Charge   Offset expenses incurred in administering the Contracts and the Separate Account.
 
       
 
  Amount of Charge   Daily charge equal to 0.000411% of the daily Net Asset Value for each Subaccount, which corresponds to an annual effective rate of 0.15%.
 
       
 
  When Assessed   During the Accumulation Period and during the Benefit Payment Period if a variable dollar benefit is elected.
 
       
 
  Assessed Against What   Amounts invested in the Subaccounts. Not assessed against the Fixed Account options.
 
       
 
  Waivers   May be waived or reduced in the Company’s discretion where the Company incurs reduced sales and servicing expenses.

13


Table of Contents

Mortality and Expense Risk Charge
         
 
  Purpose of Charge   Compensation for bearing certain mortality and expense risks under the Contract. Mortality risks arise from the Company’s obligation to make benefit payments during the Benefit Payment Period and to make the death benefit. The expense risk assumed by the Company is the risk that the Company’s actual expenses in administering the Contracts and the Separate Account will exceed the amount recovered through the contract maintenance fees, transfer fees and administration charges.
 
       
 
  Amount of Charge   Daily charge equal to 0.003446% of the daily Net Asset Value for each Subaccount, which corresponds to an effective annual rate of 1.25%.
 
       
 
  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 Subaccounts. 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 0.002615% of the daily Net Asset Value for each Subaccount, which corresponds to an effective annual rate of 0.95%.
Premium Taxes
Currently some state governments impose premium taxes on annuity purchase payments. These taxes currently range from zero to 3.5% depending upon the jurisdiction. A federal premium tax has been proposed but not enacted. The Company will deduct any applicable premium taxes from the Account Value either upon death, withdrawal, surrender, annuitization, or at the time purchase payments are made, but no earlier than when the Company incurs a tax liability under applicable 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. Portfolio expenses, like Separate Account expenses, are reflected in Accumulation Unit Values (or Benefit Unit Values).

14


Table of Contents

PURCHASE PAYMENTS AND ALLOCATIONS TO INVESTMENT OPTIONS
Purchase Payments
Purchase payments may be made at any time during the Accumulation Period. The current restrictions on purchase payment amounts are:
                 
    Tax-Qualified   Non-Tax-Qualified
Minimum initial purchase payment
  $ 2,000     $ 5,000  
Minimum monthly payment under periodic payment program
  $ 50     $ 100  
Minimum additional payments
  $ 50     $ 50  
Maximum single purchase payment
  $500,000 or Company approval   $500,000 or Company approval
The Company reserves the right to increase or decrease the minimum initial purchase payment or minimum purchase payment under a periodic payment program, the minimum allowable additional purchase payment, or the maximum single 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 or order ticket 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 or order ticket form is not in good order, the Company will attempt to get the application or order ticket form in good order within five business days. If the application or order ticket 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 gives the Company consent to keep the purchase payment until the application or order ticket form is in good order. Once the application or order ticket form is in good order, the purchase payment will be applied to the Owner’s account within two business days.
Each additional Purchase Payment is credited to a Contract as of the Valuation Date on which the Company receives the Purchase Payment and any related allocation instructions in good order. If any portion of the additional Purchase Payment is allocated to a Subaccount, it will be applied at the next Accumulation Unit Value calculated after the Company receives the Purchase Payment and related allocation instructions in good order.
The Company may, in its sole discretion, restrict or prohibit the credit of purchase payments to any Fixed Account option or any Subaccount from time to time on a nondiscriminatory basis.
Investment Options—Allocations
Purchase payments can be allocated in whole percentages to any of the available Subaccounts or Fixed Account options. See the Portfolios section of this prospectus for a listing and description of the currently available Subaccounts. The currently available Fixed Account options are:
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

15


Table of Contents

The current restrictions on allocations are:
     
    Tax-Qualified and Non-Tax-Qualified
Minimum allocation to any Subaccount
  $10
 
Minimum allocation to fixed accumulation account
  $10
 
Minimum allocation to Fixed Account guarantee period option
  $2,000
No amounts may be allocated to a guarantee period option that would extend beyond the Annuity Commencement Date.
 
Allocations to either Five-Year Guaranteed Interest Rate Option or Seven-Year Guaranteed Interest Rate Option
  For Contracts issued after May 1, 2004 for states where the Company has received regulatory approval, amounts may be allocated to the Five-Year Guaranteed Interest Rate Option and the Seven-Year Guaranteed Interest Rate Option only during the first contract year.
 
Allocation during right to cancel period
  No current restrictions, but the Company reserves the right to require that purchase payment(s) be allocated to the money market Subaccount or to the Fixed Accumulation Account option during the right to cancel period.
Interests in the Fixed Account options are not securities and are registered with the SEC. Amounts allocated to the Fixed Account options will receive interest at a rate no less than the minimum interest rate permitted under the law of the state when and where the Contract is issued. The interest rate credited to each purchase payment allocated to the Fixed Accumulation Account will not be changed for at least 12 months after its allocation. The interest rate credited to an amount that is held under a Fixed Account guaranteed interest rate option will not be changed with the end of the guarantee period. The guarantee period is measured from the date that the amount is allocated or transferred to that option. Interest on amounts allocated to the Fixed Account options is earned daily. Amounts allocated to the Fixed Account options and interest credited to the Fixed Account options are guaranteed by the Company. Your Contract contains more information about the Fixed Account options, including information about how and when interest rates are determined and changed and how and when interest is credited to amounts allocated to the Fixed Account options.
Interests in the Subaccounts are securities registered with the SEC. The Owner bears the risk of investment gain or loss on amounts allocated to the Subaccounts.
The Company may, in its sole discretion, restrict, delay or prohibit allocations to any Fixed Account option or any Subaccount from time to time on a nondiscriminatory basis.
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 Contract). The Company determines the portion of the purchase payment that must be allocated to the seven-year guarantee option such that, based on the interest rate then in effect, that account will grow to equal the full amount of the purchase payment after seven years. The remainder of the purchase payment will be allocated according to the Owner’s instructions. The minimum purchase payment eligible for the principal guarantee program is $5,000. The Principal Guarantee Program is only available during the first Contract year.
Renewal of Fixed Account Guarantee Options
An amount allocated or transferred to a Fixed Account guarantee interest rate option will mature at the end of the guarantee period. The Company will notify you of the date on which the amount matures and the Fixed Account options available at that time. When an amount matures, the Owner may elect to transfer it to any of the investment options then available under the Contract. Such an election must be made within the 30-day period ending on the date the amount matures. If the Owner does not transfer the amount, then it will be applied to a new guarantee period under the same Fixed Account guaranteed interest rate option, if available. The interest rate for the new guarantee period will be the then current rate for that option. If that option is not available, the amount will be allocated to the Fixed Accumulation Account option. Such a transfer or renewal will be effective on the day after the amount matures.

16


Table of Contents

TRANSFERS
Transfers
If allowed by the Company, in its sole discretion, during the Accumulation Period, an Owner may transfer amounts among Subaccounts, among Fixed Account options, and/or between Subaccounts and Fixed Account options by written request once each Valuation Period.
The current restrictions on transfers are:
     
    Tax-Qualified and Non-Tax-Qualified
Minimum transfer from any Subaccount
  $500 or balance of Subaccount, if less
 
Minimum transfer from Fixed Account option
  $500 or balance of Fixed Account option, if less
 
Minimum transfer to Fixed Account guarantee period option
  $2,000
No amounts may be transferred to a guarantee period option, that would extend beyond the Annuity Commencement Date.
 
   
Maximum transfer from Fixed Account option other than Fixed Account guarantee period option which is maturing
  During any contract year, 20% of the Fixed Account option’s value as of the most recent contract anniversary.
 
Transfers to either Five-Year Guaranteed Interest Rate Option or Seven-Year Guaranteed Interest Rate Option
  For Contracts issued after May 1, 2004 for states where the Company has received regulatory approval, amounts may be transferred to the Five-Year Guaranteed Interest Rate Option and the Seven-Year Guaranteed Interest Rate Option only during the first contract year.
 
Transfers from Fixed Account options
 
§ May not be made prior to first contract anniversary.
   
§ Amounts transferred from Fixed Account options to Subaccounts may not be transferred back to Fixed Account options for a period of 6 months from the date of the original transfer.
A transfer is effective on the Valuation Date during which the Company receives the request for transfer, and will be processed at the next Accumulation Unit Value calculated after the Company receives the transfer request in good order. The Company may, in its sole discretion, restrict, or prohibit transfers to any Fixed Account option or any Subaccount from time to time on a nondiscriminatory basis.

17


Table of Contents

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. There are risks involved in switching between investments available under the Contract.
Currently, the transfer fee does not apply to dollar cost averaging, portfolio rebalancing, or interest sweep transfers, and transfers under these programs will not count toward the twelve transfers permitted under the Contract without a transfer fee charge.
             
        Minimum Account    
Service   Description   Requirements   Limitations/Notes
Dollar Cost Averaging Dollar cost averaging requires regular investments regardless of fluctuating price levels and does not guarantee profits or prevent losses in a declining market. You should consider your financial ability to continue dollar cost averaging transfers through periods of changing price levels.
  Automatic transfers from the money market Subaccount to any other Subaccount(s), or from the Fixed Accumulation Account option (where available) to any Subaccount(s), on a monthly or quarterly basis.   Source of funds must be at least $10,000. Minimum transfer per month is $500. When balance of source of funds falls below $500, entire balance will be allocated according to dollar cost averaging instructions.   Dollar cost averaging transfers may not be made to any of the Fixed Account options. The dollar cost averaging transfers will take place on the last Valuation Date of each calendar month or quarter as requested by the Owner.
 
 Portfolio Rebalancing Portfolio rebalancing does not guarantee profits or prevent losses in a declining market.
  Automatically transfer amounts between the Subaccounts and the Fixed Accumulation Account option (where available) to maintain the percentage allocations selected by the Owner.   Minimum Account Value of $10,000.   Transfers will take place on the last Valuation Date of each calendar quarter. Portfolio rebalancing will not be available if the dollar cost averaging program or an interest sweep from the Fixed Accumulation Account option is being utilized.
 
           
Interest Sweep
  Automatic transfers of the income from any Fixed Account option(s) to any Subaccount(s).   Balance of each Fixed Account option selected must be at least $5,000. Maximum 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.   Interest sweep transfers will take place on the last Valuation Date of each calendar quarter. Interest sweep is not available from the Seven-Year Guaranteed Interest Rate Option if the Principal Guarantee Program is selected.

18


Table of Contents

Telephone, Facsimile or Internet Transfers
Currently, instead of placing a request in writing, an Owner may place a request for all or part of the Account Value to be transferred by telephone, facsimile or over the Internet. All transfers must be in accordance with the terms of the Contract. Transfer instructions are currently accepted once each Valuation Period. Transfer instructions currently may be placed by telephone at 1-800-789-6771, or via facsimile at 513-412-3766, or over the Internet through the Company’s web site at www.gafri.com, between 9:30 a.m. and 4:00 p.m. Once instructions have been accepted, they may not be rescinded; however, new instructions may be given the following Valuation Period. Access to these alternate methods of placing transfer requests, particularly through the Company’s web site, may be limited or unavailable during periods of peak demand, system upgrading and maintenance, or for other reasons. The Company may withdraw the right to make transfers by telephone, facsimile or over the Internet upon 10 days’ written notice to affected Contract Owners.
The Company will not be liable for complying with transfer instructions that the Company reasonably believes to be genuine, or for any loss, damage, cost or expense in acting on such instructions. In addition, the Company will not be liable for refusing to comply with transfer instructions that the Company reasonably believes are not genuine, or for any loss, damage, cost or expense for failing to act on such 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, facsimile or Internet 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 or requiring use of a unique password or other identifying information.
Changes in or Termination of Automatic 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 U.S. or overnight mail, or by facsimile at 513-412-3766. 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. Any such termination, suspension or modification will not affect automatic transfer programs already in place.
The Company may also impose an annual fee or increase the current annual fee, as applicable, for any of the foregoing automatic transfer programs in such amount(s) as the Company may then determine to be reasonable for participation in the service. The maximum amount of the annual fee that would be imposed for participating in each automatic transfer program is $30.
Transfer Restrictions Related to Active Trading Strategies
Neither the Contracts described in this prospectus nor the underlying Portfolios are designed to support active trading strategies that involve frequent movement between or among Subaccounts (sometimes referred to as “market-timing” or “short-term trading”). Persons who intend to use an active trading strategy should consult a financial advisor and request information on variable annuity contracts that offer underlying Portfolios designed specifically to support active trading strategies.
We have implemented several processes and/or restrictions aimed at eliminating the negative impact of active trading strategies. Appendix C to this prospectus contains more information about these processes and restrictions.

19


Table of Contents

WITHDRAWALS AND SURRENDERS
Surrender and Withdrawals
An Owner may surrender a Contract in full or take a partial withdrawal during the Accumulation Period. A CDSC may apply on any surrender or withdrawal. The restrictions and charges on surrenders and withdrawals are:
         
    Tax-Qualified   Non-Tax-Qualified
Minimum amount of withdrawal
  $500   $500
 
Minimum remaining Surrender Value
after withdrawal
  $500   $500
 
Amount available for surrender or withdrawal (valued as of end of Valuation Period in which request for surrender or withdrawal is received by the Company)
  Account Value subject to tax law or employer plan restrictions on withdrawals or surrenders   Account Value, subject to employer plan restrictions on withdrawals
 
Tax penalty for early withdrawal   When applicable, 10% of amount distributed before age 591/2 (25% for certain SIMPLE IRAs)
 
Contract maintenance fee on surrender   $30 (no CDSC applies to fee)
Contingent deferred sales charge
       
(“CDSC”)   Up to 7% of purchase payments
 
Order of withdrawal for purposes of CDSC (order may be different for tax purposes)   First from accumulated earnings (no CDSC applies) and then from purchase payments on “first-in, first-out” basis (CDSC may apply)
A surrender will terminate the Contract. Withdrawals are taken proportionally from all Subaccounts and Fixed Account options in which the Contract is invested on the date the Company receives the request, unless the Owner requests that the withdrawal be from a specific investment option.
A surrender or withdrawal is effective on the Valuation Date during which the Company receives the request, and will be processed at the next Accumulation Unit Value calculated after the Company receives the request in good order. Payment of the amount surrendered or withdrawn may be delayed if it includes an amount paid to the Company by a check that has not yet cleared. Processing and payment of the amount surrendered or withdrawn from a Fixed Account option may be delayed for up to six months after receipt of the request for surrender or withdrawals as allowed by state law. If the Company delays processing and payment, it will comply with the applicable state law. Payment of the amount surrendered or withdrawn from the Subaccounts may be delayed during any period the New York Stock Exchange is closed or trading is restricted, or when the SEC 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.
Free Withdrawal Privilege
The Company will waive the CDSC on a full or partial withdrawal during the first contract year, on an amount equal to not more than 10% of all purchase payments received. During the second and succeeding contract years, the Company will waive the CDSC 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 contract anniversary.
If the free withdrawal privilege is not exercised during a contract year, it does not carry over to the next contract 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, a surrender or withdrawal 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 contract anniversary. There is no charge for this rider, but it may not be available in all states.

20


Table of Contents

Systematic Withdrawal
During the Accumulation Period, an Owner may elect to automatically withdraw money from the Contract. The Account Value must be at least $10,000 in order to make a systematic withdrawal election. The minimum monthly amount that can be withdrawn is $100. Systematic withdrawals will be subject to the CDSC 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. If imposed, the fee will not exceed $30 annually.
Before electing a systematic withdrawal program, you should consult with a financial advisor. Systematic withdrawal is similar to annuitization, but will result in different taxation of payments and potentially different amount of total payments over the life of the Contract than if annuitization were elected.

21


Table of Contents

CONTRACT LOANS
Contract Loans
The Company may make loans to Owners of certain tax-qualified Contracts. Any such loans will be secured with an interest in the Contract, and the collateral for the loan will be moved from the Subaccounts you designate to the Fixed Accumulation Account option and earn a fixed rate of interest applicable to loan collateral. Loan amounts and repayment requirements are subject to provisions of the Internal Revenue Code, and default on a loan will result in a taxable event. You should consult a tax advisor prior to exercising loan privileges. If loans are available under a Contract, loan provisions are described in the loan endorsement to the Contract.
A loan, whether or not repaid, will have a permanent effect on the Account Value of a Contract because the collateral cannot be allocated to the Subaccounts 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.

30


Table of Contents

TERMINATION
Termination
The Company reserves the right to terminate any Contract at any time during the Accumulation Period if the Surrender Value is less than $500. In that case, the Contract will be involuntarily surrendered and the Company will pay the Owner the amount that 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.

OTHER INFORMATION AND NOTICES
Reports and Confirmations
At least once each Contract Year, we will mail reports of the Contract’s Account Value and any other information required by law to you. We will not send these reports after the Commencement Date or a full surrender of the Contract, whichever is first.
We will confirm receipt of any Purchase Payments made after the initial Purchase Payment in quarterly statements of account activity.
Householding — Revocation of Consent
Owners at a shared address who have consented to receive only one copy of each prospectus, annual report, or other required document per household (“householding”) may revoke their consent at any time, and may receive separate documents, by contacting the Company at 1-800-789-6771 or www.gafri.com.
Owners who are currently receiving multiple copies of required documents may contact the Company at 1-800-789-6771 or www.gafri.com for additional information about householding.
Electronic Delivery of Required Documents
Owners who wish to receive prospectuses, SAIs, annual reports, and other required documents only in electronic form must give their consent. Consent may be revoked at any time. Please contact the Company at 1-800-789-6771 or www.gafri.com for additional information about electronic delivery of documents.
Legal Proceedings
The Company and Great American Advisors®, Inc. are involved in various kinds of routine litigation which, in management’s judgment, are not of material importance to their assets or the Separate Account. There are no pending legal proceedings against the Separate Account.
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 Subaccount. 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 Subaccount. The number will be determined by applying the Owner’s percentage interest, if any, in a particular Subaccount to the total number of votes attributable to that Subaccount.

31


Table of Contents

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 Subaccount.
Each person or entity having a voting interest in a Subaccount 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.

ANNUITY BENEFIT
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 Annuity Commencement Date.
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 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 (or Surrender Value) to a fixed dollar benefit for the life of the Annuitant with 120 monthly payments assured, as described in the Settlement Options section of this prospectus.

32


Table of Contents

DEATH BENEFIT
Death Benefit
A death benefit will be paid under a Contract if the Owner dies during the Accumulation Period. If a surviving spouse becomes a Successor Owner of the Contract, the death benefit will be paid on the death of the Successor Owner if he or she dies during the Accumulation Period.
Death Benefit payments shall be made to the Beneficiary as payee. In lieu of that, after the death of the Owner, a Beneficiary which is a non-natural person may elect to have Death Benefit payments made to a payee to whom the Beneficiary is obligated to make corresponding payments of a death benefit. Any such election by a non-natural person as Beneficiary shall be by Written Request, and may be made or changed at any time.
The Beneficiary will be the person on whose life any Death Benefit payments under a settlement option are based. However, if the Beneficiary is a non-natural person, then any payments under a life option will be based on the life of a person to whom the Beneficiary is obligated, who must be designated by the Beneficiary by Written Request before the Death Benefit Commencement Date.
In any event, if the Beneficiary is a non-natural person, any Death Benefit amounts remaining payable on the death of the payee will be paid to any contingent payee designated by the Beneficiary by Written Request, or if none is surviving at the time payment is to be made, then to the Beneficiary.
Death Benefit Amount
The determination of the Death Benefit Amount depends on the form of Contract in effect in your state of residence when the Contract was issued. For example, in 2000 and again in 2003, the Company sought approval from the various states for an endorsement with revised provisions concerning the determination of the Death Benefit Amount (the “2000 Death Benefit Endorsement” and “2003 Death Benefit Endorsement,” respectively). Please contact the Company if you have questions as to how to determine the Death Benefit Amount under your Contract.
Death Benefit Amount (Version 1)

This Version 1 of the Death Benefit Amount applies to:
1)   all Group and Individual Contracts issued in any state after May 1, 2006 (except for Minnesota for Group and Individual Contracts until the 2003 Death Benefit Endorsement is approved for that Contract in that state); and
 
2)   all Group and Individual Contracts issued prior to May 1, 2006 but after the 2003 Death Benefit Endorsement was approved in the state where the Contract was issued.
Death Benefit Amount
The Death Benefit will equal the greatest of:
  1)   the Account Value on the Death Benefit Valuation Date; or
 
  2)   the total of all your purchase payments, reduced proportionally for partial surrenders; or
 
  3)   the Historic High Value.
The Historic High Value is equal to the lesser of (a) 200% of the total purchase payments, reduced proportionally for withdrawals and (b) the High Value, reduced proportionally for withdrawals taken after the High Value was reached. The High Value is the largest Account Value on the fifth or any subsequent Contract Anniversary, but before the Death Benefit Valuation Date and prior to Age 65. If the Contract was issued after the Owner’s 60th birthday, there is no High Value. If the Death Benefit Valuation Date is before the fifth Contract anniversary, then there is no High Value. If there is no High Value then there is no Historic High Value.

33


Table of Contents

The Death Benefit Amount will be reduced by any premium tax or other tax that is applicable. It will also be reduced by any outstanding loans. The reduction for withdrawals will be the same percentage as the percentage reduction in the Account Value. The Death Benefit Amount will be allocated among the Subaccounts and Fixed Account options. This allocation will occur as of the Death Benefit Valuation Date. It will be made in the same proportion as the value of each option bears to the total account value immediately before that date.
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 of this prospectus. There is no additional change associated with the form of Death Benefit election. 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 the 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.
Death Benefit Amount (Version 2)

This Version 2 of the Death Benefit Amount applies to:
1)   all Individual Contracts issued in Minnesota after the 2000 Death Benefit Endorsement was approved but before the 2003 Death Benefit Endorsement was approved; and
 
2)   all Individual Contracts issued in any state (except Oregon, South Carolina or Washington) after the 2000 Death Benefit Endorsement was approved, but before the 2003 Death Benefit Endorsement was approved in the state where the Contract was issued.
The Death Benefit will equal the greatest of:
  1)   the Account Value on the Death Benefit Valuation Date; or
 
  2)   the Minimum Death Benefit; or
 
  3)   the Historic High Value;
The Minimum Death Benefit is equal to total purchase payments, reduced proportionally for withdrawals, and increased by interest, if any. This reduction will be in the same proportion that the Account Value was reduced on the date of the withdrawal. If the Owner dies before Age 80, interest compounds daily, at an effective annual interest rate of 3%, to the Death Benefit Valuation Date. If the Owner dies on or after his 80th birthday, interest compounds daily, at an effective annual interest rate of 3%, to the Contract Anniversary prior to the 80th birthday. No interest will be added if the Owner was Age 80 before this Contract was issued.
The Historic High Value is equal to the High Value, reduced proportionally for withdrawals taken after the High Value was reached. This reduction will be in the same proportion that the Account Value was reduced on the date of the withdrawal. The High Value is the largest Account Value on the fifth or any subsequent Contract Anniversary, but before the Death Benefit Valuation Date and prior to Age 80. If this Contract was issued after the Owner’s 75th birthday, there is no High Value. This means there is no Historic High Value.
The death benefit will be allocated among the Subaccounts and the Fixed Account options. This allocation will occur as of the Death Benefit Valuation Date. It will be made in the same proportion as the value of each option bears to the total Account Value immediately before that date. Any applicable premium tax or other taxes not previously deducted, and any outstanding loans, will be deducted from the death benefit amount described above.
For all Contracts, the 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 of this prospectus. There is no additional change associated with the form of Death Benefit election. 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 the 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.

34


Table of Contents

Example of Determination of Death Benefit Amount (Version 1 and Version 2)
This example is intended to help you understand how a withdrawal impacts the Death Benefit amount.
Assuming your total Purchase Payments equal $100,000, your Account Value is $90,000, you withdraw $10,000 from the Contract, and you are left with an Account Value of $80,000.
 
Step One: Calculate the proportional reduction.
                     
1
    $80,000
 
$90,000
  Account Value immediately after withdrawal
Account Value immediately before withdrawal
  =  11.1111%   Percentage
Reduction
 
                     
$100,000
  Purchase
Payments
  x  11.1111%   Percentage
Reduction
  =  $11,111   Proportional
Reduction
 
Step Two: Calculate the reduced Purchase Payment amount.
         
     Purchase Payments
  $ 100,000  
     Less proportional reduction for withdrawals
    - 11,111  
 
       
     Purchase Payments reduced for withdrawals
  $ 88,889  
 
Step Three: Determine the Death Benefit amount.
      Immediately after the withdrawal, the reduced Purchase Payments of $88,889 is greater than the Account Value of $80,000, so the Death Benefit amount would be $88,889.
     
1998 Version
  The Death Benefit will be an amount equal to the greater of (1) the Account Value as of the Death Benefit Valuation Date and (2) 100% of the Purchase Payment(s) received by us, less any amounts returned to you.
The death benefit amount will be reduced by any applicable premium tax or other taxes not previously deducted and by any outstanding loans.
Death Benefit Amount (Version 3)

This Version 3 of the Death Benefit Amount applies to:
1)   all Individual Contracts issued in Oregon, South Carolina or Washington before the 2003 Death Benefit Endorsement was approved in those states;
 
2)   all Individual Contracts issued in all other states before the 2000 Death Benefit Endorsement was approved by those states; and
 
3)   all Group Contracts issued in any state before the 2003 Death Benefit Endorsement was approved in the state where the Contract was issued.
A death benefit will be paid under a Contract if the Owner dies during the Accumulation Period. If a surviving spouse becomes a successor Owner of the Contract, the death benefit will be paid on the death of the successor Owner if he or she dies during the Accumulation Period.
The death benefit will be an amount equal to the largest of the following three amounts:
  1)   The Account Value on the Death Benefit Valuation Date
 
  2)   The total purchase payment(s), with interest at three percent (3%) per year through the Death Benefit Valuation Date or the Owner’s 80th birthday if earlier, compounded annually, less any partial surrenders and any contingent deferred sales charges that applied to those amounts
 
  3)   The largest Account Value on any contract anniversary after the fourth contract anniversary and prior to the Death Benefit Valuation Date or the Owner’s 80th birthday if earlier, less any partial surrenders and any contingent deferred sales charges that applied to those amounts.
The death benefit will be allocated among the Subaccounts and the Fixed Account options. This allocation will occur as of the Death Benefit Valuation Date. It will be made in the same proportion as the value of each option bears to the total Account Value immediately before that date. 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 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 the 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.
Payment of Benefits
When a Contract is annuitized, or when a death benefit is applied to a settlement option, the Account Value or the death benefit, as the case may be, the Company promises to pay a stream of benefit payments for the duration of the settlement option selected. Upon annuitization, the Account Value is no longer available to the Owner. Benefit payments may be calculated and paid: (1) as a fixed dollar benefit; (2) as a variable dollar benefit; or (3) as a combination of both. 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 Subaccounts 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 Subaccounts during the Benefit Payment Period are set forth in the Statement of Additional Information.

35


Table of Contents

SETTLEMENT OPTIONS
Settlement Options
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 that is contingent on the life of a specified person or persons, the settlement option may not be changed or commuted (i.e., redeemed at present value). Other settlement options may be commuted as described in the Commuted Values section of this prospectus.
The dollar amount of benefit payments will vary with the frequency of the payment interval and the duration of the payments. Generally, each payment in a stream of payments will be lesser in amount as the frequency of payments increases, or as the length of the payment period increases, because more payments will be paid. For life contingent settlement options, each payment in the stream of payments will generally be lesser in amount as the life expectancy of the Annuitant or Beneficiary increases because more payments are expected to be paid.
Income for a Fixed Period: The Company will make periodic payments for a fixed period of 5 to 30 years. (Payment intervals of 1 to 4 years are available for death benefit settlement options only.)
Life Annuity with Payments for a Fixed Period: The Company will make periodic payments 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 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 until the death of the person on whose life the benefit payments are based.

36


Table of Contents

THE CONTRACTS
Each Contract is an agreement between the Company and the Owner. Values, benefits and charges are calculated separately for each Contract. In the case of a group Contract, the agreement is between the group Owner and the Company. An individual participant under a group Contract will receive a certificate of participation, which is evidence of the participant’s interest in the group Contract. A certificate of participation is not a Contract. Values, benefits and charges are calculated separately for each certificate issued under a Contract. The description of Contract provisions in this prospectus applies to the interests of certificate Owners, except where otherwise noted.
Because the Company is subject to the insurance laws and regulations of all the jurisdictions where it is licensed to operate, the availability of certain Contract rights and provisions in a given State may depend on that State’s approval of the Contracts. Where required by state law or regulation, the Contracts will be modified accordingly.
Right to Cancel
The Owner of an Individual Contract may cancel it before midnight of the twentieth day following the date the Owner receives the Contract. For a valid cancellation, the Contract must be returned to the Company, and written notice of cancellation must be given to the Company, or to the agent who sold the Contract, by that deadline. If mailed, the return of the Contract or the notice is effective on the date it is postmarked, with the proper address and with postage paid. If the Owner cancels the Contract, the Contract will be void and the Company will refund the purchase payment(s) paid for it, plus or minus any investment gains or losses under the Contract as of the end of the Valuation Period during which the returned Contract is received by the Company. When required by state or federal law, the Company will return the purchase payments without any investment gain or loss, during all or part of the right to cancel period. When required by state or federal law, the Company will return the Purchase Payments in full, without deducting any fees or charges, during the right to cancel period. When required by state law, the right to cancel period may be longer than 20 days. When required by state law, the right to cancel may apply to group Contracts. During the right to cancel period specified on the first page of the Contract, the Company reserves the right to allocate all purchase payments to either the Fixed Accumulation Account or a money market Subaccount, at our discretion. If we exercise this right, we will allocate the Account Value as of the end of the right to cancel period to the Fixed Account options and/or to the Subaccounts in the percentages that the Owner instructed.
Persons With Rights Under a Contract
Owner: The Owner is the person with authority to exercise rights and receive benefits under the Contract (e.g., make allocations among investment options, elect a settlement option, designate the Annuitant, Beneficiary and Payee). An Owner must ordinarily be a natural person, or a trust or other legal entity holding a contract for the benefit of a natural person. Ownership of a non-tax-qualified Contract may be transferred, but transfer may have adverse tax consequences. Ownership of a tax-qualified Contract may not be transferred. Unless otherwise elected or required by law, a transfer of Ownership will not automatically cancel a designation of an Annuitant or Beneficiary or any settlement options election previously made.
Joint Owners: There may be joint Owners of a non-tax-qualified Contract. Joint Owners may each exercise transfer rights and make purchase payment allocations independently. All other rights must be exercised by joint action. A surviving joint Owner who is not the spouse of a deceased Owner may not become a Successor Owner, but will be deemed to be the Beneficiary of the death benefit which becomes payable on the death of the first Owner to die, regardless of any Beneficiary designation.
Successor Owner: The surviving spouse of a deceased Owner may become a Successor Owner if the surviving spouse was either the joint Owner or sole surviving Beneficiary under the Contract. In order for a spouse to become a Successor Owner, the Owner must make an election prior to the Owner’s death, or the surviving spouse must make an election within one year of the Owner’s death.

37


Table of Contents

Annuitant: The Annuitant is the person whose life is the measuring life for life contingent annuity benefit payments. The Annuitant must be the same person as the Owner under a tax-qualified Contract. The Owner may designate or change an Annuitant under a non-tax-qualified Contract. Unless otherwise elected or required by law, a change of Annuitant will not automatically cancel a designation of a Beneficiary or any settlement option election previously made.
Beneficiary: The person entitled to receive the death benefit. The Owner may designate or change the Beneficiary, except that a surviving joint Owner will be deemed to be the Beneficiary regardless of any designation. Unless otherwise elected or required by law, a change of Beneficiary will not automatically cancel a designation of any Annuitant or any settlement option election previously made. If no Beneficiary is designated, and there is no surviving joint Owner, the Owner’s estate will be the Beneficiary. The Beneficiary will be the measuring life for life contingent death benefit payments.
Payee: Under a tax-qualified Contract, the Owner-Annuitant is the Payee of annuity benefits. Under a non-tax-qualified Contract, the Owner may designate the Annuitant or the Owner as the Payee of annuity benefits. Irrevocable naming of a Payee other than the Owner can have adverse tax consequences. The Beneficiary is the Payee of the death benefit.
Assignee: Under a tax-qualified Contract, assignment is not permitted. The Owner of a non-tax-qualified Contract may assign most of his/her rights or benefits under a Contract. Assignment of rights or benefits may have adverse tax consequences.

38


Table of Contents

ANNUITY INVESTORS LIFE INSURANCE COMPANY®
The Company is a stock life insurance company incorporated under the laws of the State of Ohio in 1981. The Company is principally engaged in the sale of variable and fixed annuity policies. The home office of the Company is located at 525 Vine Street, Cincinnati, Ohio 45202.
The Company is a wholly owned subsidiary of Great American Life Insurance CompanyÒ which is a wholly owned subsidiary of Great American Financial ResourcesÒ, Inc. (“GAFRI”), a publicly traded insurance holding company (NYSE: GFR). GAFRI 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 Fitch. 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 Company and Great American Advisors®, Inc., the principal underwriter of the Contracts, are involved in various kinds of routine litigation that, in management’s judgment, are not of material importance to their assets or the Separate Account. There are no pending legal proceedings against the Separate Account.

THE SEPARATE ACCOUNT
The Separate Account was established by the Company on December 19, 1996, as an insurance company separate account under the laws of the State of Ohio pursuant to resolution of the Company’s Board of Directors. The Separate Account is registered with the SEC under the 1940 Act as a unit investment trust. However, the SEC 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 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 issued by the Separate Account. The obligations under the Contracts are obligations of the Company.

39


Table of Contents

DISTRIBUTION OF VARIABLE ANNUITY CONTRACTS
Great American Advisors®, Inc. (“GAA”) is the principal underwriter of the contracts. Its business address is 525 Vine Street, Cincinnati, Ohio 45202. GAA is a wholly-owned subsidiary of Great American Financial Resources, Inc. and an affiliate of the Company.
The Contracts are sold by insurance agents who are also registered representatives of (1) GAA or (2) other broker-dealers that have entered into selling agreements with GAA. GAA and the other broker-dealers are registered under the Securities Exchange Act of 1934, and are members of the National Association of Securities Dealers, Inc. 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 annuity contracts.
The Company pays commissions to GAA for promotion and sale of the contracts. GAA retains the commissions for sales made through its registered representatives, or pays the commissions to other broker-dealers for sales made through their registered representatives. GAA and the other broker-dealers pay their registered representatives from their own funds. Commissions paid by us are calculated as a percentage of the purchase payments received for a contract or a percentage of the contract value (sometimes called a trail commission).
Commissions paid on the Contracts and payments for other services are not charged directly to you or your Account Value, but are charged indirectly through fees and charges imposed under the Contracts. If these fees and charges are not sufficient to cover the commissions and other payments, any deficiency will be made up from our general assets.
We paid the following amounts to GAA for the last three years: $1,757,857 for 2006, $1,995,224 for 2005, and $2,262,019 for 2004. These amounts include compensation related to other contracts issued through Annuity Investors Variable Account B.
A Portfolio may compensate the Company or GAA for the distribution and operational services that the Company or GAA provides and the costs that it incurs in providing these services. For example, each business day, we aggregate all purchase, redemption, and transfer requests from Contract owners with respect to a Portfolio and submit one request to the applicable Portfolio. As a result, the Portfolio does not incur the expenses related to processing individual requests from Contract owners. GAA also maintains the distribution network that supports the sale of our variable annuity products that invest in the Portfolios. Payments from a Portfolio to the Company or GAA for these services may be made pursuant to (1) the Portfolio’s Rule 12b-1 plan, in which case the payments are deducted from the Portfolio’s assets or (2) service, administration, sub-transfer or similar agreements between the Company or GAA and the Portfolio’s investment adviser or its affiliate.

40


Table of Contents

FEDERAL TAX MATTERS
This section provides a general description of federal income tax considerations relating to the Contracts. The purchase, holding and transfer 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 is not intended or written to be used as legal or tax advice. It is written solely to provide information related to the sale and holding of the Contracts. As a taxpayer, you cannot use it for the purpose of avoiding penalties that may be imposed under the tax laws. You should seek advice on legal or tax questions based on your particular circumstances from an independent attorney or tax advisor.
Tax Deferral on Annuities
Internal Revenue Code (“IRC”) Section 72 governs taxation of annuities in general. The income earned on a Contract is generally not included in income until it is withdrawn from the Contract. 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 retirement 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.
Tax-Qualified Retirement Plans
Annuities may also qualify for tax-deferred treatment, or serve as a funding vehicle, under tax-qualified retirement plans that are governed by other IRC provisions. 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 plans). Tax-deferral is generally also available under these tax-qualified retirement plans through the use of a trust or custodial account without the use of an annuity.
The tax law rules governing tax-qualified retirement plans and the treatment of amounts held and distributed under such plans are complex. If the Contract is to be used in connection with a tax-qualified retirement plan, including individual retirement annuities (“IRAs”), you should seek competent legal and tax advice regarding the suitability of the Contract for the situation involved and the requirements governing the distribution of benefits.
Contributions to a tax-qualified Contract are typically made with pre-tax dollars, while contributions to a non-tax-qualified Contract are typically made from after-tax dollars, though there are exceptions in either case. Tax-qualified Contracts may also be subject to restrictions on withdrawals that do not apply to non-tax-qualified Contracts. These restrictions may be imposed to meet the requirements of the IRC or of 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 arrangement known as an “Individual Retirement Annuity” or “IRA”. Under applicable limitations, an individual may claim a tax deduction for certain contributions to an IRA. Contributions made to an IRA for an employee under a Simplified Employee Pension (SEP) Plan or Savings Incentive Match Plan for Employees (SIMPLE) established by an employer will not be includable in the gross income of the employee until the employee receives distributions from the IRA. Distributions from an IRA are taxable to the extent that they represent contributions for which a tax deduction was claimed, contributions made under a SEP plan or SIMPLE, or income earned on the Contract.

41


Table of Contents

Roth IRAs
IRC Section 408A permits certain individuals to contribute to a Roth IRA. Contributions to a Roth IRA are not tax deductible. Tax-free distributions of contributions may be made at any time. Distributions of earnings are tax-free following the five-year period beginning with the first year for which a Roth IRA contribution was made if the Owner has attained age 591/2, become disabled, or died, or for qualified first-time homebuyer expenses.
Tax-Sheltered Annuities
IRC 403(b) of the Code permits contributions to a “tax-sheltered annuity” or “TSA” for the employees of public schools and certain charitable, religious, educational and scientific organizations described in IRC Section 501(c)(3). TSA contributions and Contract earnings are generally not included in the gross income of the employee until the employee receives distributions from the TSA. Amounts attributable to contributions made under a salary reduction agreement cannot be distributed until the employee attains age 591/2, severs employment, becomes disabled, incurs a hardship, or dies. The Texas ORP or any other plan under which the Contract was purchased may impose additional restrictions.
Texas Optional Retirement Program
The Texas Optional Retirement Program (“ORP”) provides for the purchase of IRC 403(b) Tax-Sheltered Annuities with fixed employer and employee contributions. Amounts attributable to such contributions cannot be distributed until the employee terminates employment from all Texas public institutions of higher education, retires, attains age 701/2, or dies. Amounts attributable to employer contributions vest after one year of participation. Distributions require written certification from the employer of the employee’s vesting status and, if the employee is living and under age 701/2, the employee’s retirement or other termination from employment.
Pension, Profit–Sharing, and 401(k) Plans
IRC Section 401 permits employers to establish various types of retirement plans for employees, and permits self-employed individuals to establish such plans for themselves and their employees. These plans may use annuity contracts to fund plan benefits. Generally, contributions are deductible to the employer in the year made, and contributions and earnings are generally not included in the gross income of the employee until the employee receives distributions from the plan. The IRC and the plan may impose restrictions on distributions. 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.
Roth TSAs and Roth 401(k)s
IRC Section 402A permits participants in certain TSA programs or 401(k) plans to designate some part or all of their future elective contributions as Roth contributions. Roth contributions to a TSA or 401(k) plan are included in the participant’s taxable income as earned. Distributions are considered to come proportionally from contributions and earnings. Distributions attributable to contributions are tax-free. Distributions attributable to earnings are tax-free following the five-year period beginning with the first year for which Roth contributions are made to the plan if the Owner has attained age 591/2, become disabled, or died. Amounts attributable to Roth TSA and Roth 401(k) contributions are subject to the same distribution restrictions that apply to other amounts attributable to TSA or 401(k) contributions made under a salary reduction agreement. The plan may impose additional restrictions.
Governmental Deferred Compensation Plans
State and local government employers may purchase annuity contracts to fund deferred compensation plans for the benefit of their employees described in IRC Section 457(b). Contributions and earnings are generally not included in the gross income of the employee until the employee receives distributions from the plan. Amounts cannot be distributed until the employee attains age 701/2, severs employment, becomes disabled, incurs an unforeseeable emergency, or dies. The plan may impose additional restrictions.
Nonqualified Deferred Compensation Plans
Employers may invest in annuity contracts in connection with unfunded deferred compensation plans for their employees. Such plans may include deferred compensation plans of non-governmental tax-exempt employers described in IRC Section 457(b); deferred compensation plans of both governmental and nongovernmental tax-exempt employers that are taxed under IRC Section 457(f) and subject to Section 409A; and nonqualified deferred compensation plans of for-profit employers subject to Section 409A. In most cases, these plans are designed so that amounts credited under the plan will not be includable in the employees’ gross income until paid under the plan. In these situations, the annuity contracts are not plan assets and are subject to the claims of the employer’s general

42


Table of Contents

creditors. Whether or not made from the Contract, benefits payments are subject to restrictions imposed by the IRC and the plan.

43


Table of Contents

Summary of Income Tax Rules
The following chart summarizes the basic income tax rules governing tax-qualified and non-tax-qualified Contracts.
         
    Tax-Qualified Contracts and Employer Plans   Basic Non-Tax-Qualified Contracts
Plan Types
 
     IRC §401 (Pension, Profit–Sharing, 401(k))
  IRC §72 only
 
       
 
 
     IRC §403(b) (Tax-Sheltered Annuities)
   
 
       
 
 
     IRC §408 (IRA, SEP, SIMPLE IRA)
   
 
       
 
 
     IRC §408A (Roth IRA)
   
 
       
 
 
     IRC §402A (Roth TSA or Roth 401(k))
   
 
       
 
 
     IRC §457
   
 
       
 
 
     IRC §409A (Nonqualified Deferred Compensation)
   
 
       
Who May Purchase
a Contract
  Natural person, employer, or employer plan. Nonqualified deferred compensation plans will generally lose tax-deferred status of Contract itself.   Anyone. Non-natural person may purchase but will generally lose tax-deferred status.
 
       
Restrictions on
Distributions
  Distributions from tax-qualified Contracts may be restricted to meet requirements of the Internal Revenue Code and/or terms of the retirement plan.   None.
 
       
Taxation of Surrenders
  If there is an after-tax “investment in the contract,” a pro rata portion of the amount surrendered is taxable income based on the ratio of “investment in the contract” to Account Value. Usually, 100% of distributions from a qualified plan must be included in taxable income because there were no after-tax contributions and therefore no “investment in the contract.” Distributions from §408A Roth IRA or §402A Roth TSA or Roth 401(k) are completely tax free if certain requirements are met.   Account Value in excess of “investment in the contract” is included in taxable income. Generally, the “investment in the contract” will equal the sum of all purchase payments less prior non-taxable withdrawals. Surrenders are deemed to come from earnings first, and “investment in the contract” last.

For a Contract purchased through a IRC §1035 exchange that includes contributions made before August 14, 1982, withdrawals are not taxable until those contributions have been returned in full.
 
       
Taxation of Benefit Payments (annuity benefit payments or death benefit payments)   For fixed dollar benefit payments, a percentage of each payment is tax free equal to the ratio of after-tax “investment in the contract” (if any) to the total expected payments, and the balance is included in taxable income. For variable dollar benefit payments, a specific dollar amount of each payment is tax free, as predetermined by a pro rata formula, rather than a percentage of each payment. In either case, once the after-tax “investment in the contract” has been recovered, the full amount of each benefit payment is included in taxable income. Distributions from a §408A Roth IRA or §402A Roth TSA or Roth 401(k) are completely tax free if certain requirements are met.
 
       
Taxation of Lump Sum Death Benefit   Taxed to recipient generally in same manner as full surrender.
 
       
Possible Penalty Taxes for Surrenders and Benefit Payments Before Age 591/2
  Taxable portion of payments made before age 591/2 may be subject to 10% penalty tax (or 25% for a SIMPLE IRA during the first two years of participation). Penalty taxes do not apply to payments after the participant’s death, or to §457 plans or §409A nonqualified deferred compensation plans. Other exceptions may apply.   Taxable portion of payments made before age 591/2 may be subject to a 10% penalty tax. Penalty taxes do not apply to payments after the Owner’s death. Other exceptions may apply.
 
       
Assignment of Contract/Transfer of Ownership
  Assignment and transfer of Ownership generally not permitted.   Generally, deferred earnings taxable to transferor on transfer or assignment; transferee’s “investment in the contract” is increased by same amount. Gift tax consequences are not discussed herein.
 
       
Federal Income Tax Withholding
  Eligible rollover distributions from §401, §403(b), and governmental §457(b) plan Contracts are subject to 20% mandatory withholding on taxable portion unless direct rollover. Distributions under nongovernmental §457(b) plan, 457(f) plan, and nonqualified deferred compensation plan are subject to wage withholding. For all other payments, Payee may elect to have taxes withheld or not.   Generally, Payee may elect to have taxes withheld or not.

44


Table of Contents

CALCULATION OF BENEFIT PAYMENTS
Calculation of Fixed Dollar 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.
For Contracts issued after May 1, 2004 in states where the Company has received regulatory approval, the Company generally guarantees minimum benefit payment factors based on annuity 2000 mortality tables for blended lives (60% female/40% male), with interest at 1% per year, compounded annually.
For all other Contracts, the Company guarantees minimum fixed dollar benefit payment factors based on 1983 annuity mortality tables for individuals or groups, as applicable, with interest at 3% per year, compounded annually. For group Contracts, individual tax-qualified Contracts and individual non-tax-qualified Internal Revenue Code (“IRC”) Section 457 Contracts, the Company uses tables for blended lives (60% female/40% male). For individual non-tax-qualified Contracts except IRC Section 457, the Company uses tables for male and female lives. Where required by state law, the Company uses blended tables for all Contracts. The minimum monthly payments per $1,000 of value for the Company’s standard settlement options are set forth in tables in the Contracts. Upon request, the Company will provide information about minimum monthly payments for ages or fixed periods not shown in the settlement option tables.
Calculation of Variable Dollar Payments
The variable dollar base payment is the amount it would be if it were a fixed dollar payment calculated at the Company’s minimum guaranteed settlement option factors.
The amount of each variable dollar payment will reflect the investment performance of the Subaccount(s) selected and may vary from payment to payment. For example, because the base payment includes a fixed rate of interest, payments will be less than the base payment if the net investment performance of the applicable Subaccounts is less than that rate of interest. Payments will be more than the base payment if the net investment performance of the applicable Subaccount(s) is greater than that rate of interest.
The amount of each payment is the sum of the payment due for each Subaccount selected. The payment due for a Subaccount equals the shares for that Subaccount, which are the Benefit Units, times their value, which is the Benefit Unit Value for that Subaccount as of the end of the fifth Valuation Period preceding the due date of the payment.
The number of Benefit Units for each Subaccount selected is determined by allocating the amount of the variable dollar basee payment among the Subaccount(s) selected in the percentages indicated by the Owner (or Payee). The dollar amount allocated to a Subaccount is divided by the Benefit Unit Value for that Subaccount 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 Subaccount at each payment interval. The number of Benefit Units remains fixed during the Benefit Payment Period, except as a result of any transfers among Subaccounts or as provided under the settlement option elected. An explanation of how Benefit Unit Values are calculated is included in the Glossary of Financial Terms of this prospectus.
Commuted Values
After receiving benefits under a Contract for at least 5 years, the person entitled to payments may elect to receive a lump-sum commuted value of the remaining benefit payments. The commuted value is less than the sum of the payments not made because those payments include interest. The commuted value at any time is an amount equal to the payments not yet made under the settlement option less interest from the date of each payment not yet made. The interest rate used to calculate the commuted value of payments may not be the same interest rate originally used to establish the payments under the settlement option. The Company will, upon request, provide information on the then current commuted value, if any, of any non-life contingent settlement option elected.
Payments contingent on life may not be commuted. A Beneficiary may not commute payments under a settlement option elected by the Owner.

45


Table of Contents

GLOSSARY OF FINANCIAL TERMS
The following financial terms explain how the variable portion of the Contracts is valued. Read these terms in conjunction with the Definitions section of this prospectus.
Accumulation Unit Value: The initial Accumulation Unit Value for each Subaccount other than the money market Subaccount was set at $10. The initial Accumulation Unit Value for the money market Subaccount was set at $1. The initial Accumulation Unit Value for a Subaccount was established at the inception date of the Separate Account, or on the date the Subaccount was established, if later. The Company establishes distinct Accumulation Unit Values for Contracts with different Separate Account fee structures, as described in the Expense Tables.
After the initial Accumulation Unit Value is established, the Accumulation Unit Value for a Subaccount 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 Subaccount 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. The Accumulation Unit Value will vary to reflect the investment experience of the applicable Portfolios.
Benefit Unit Value: The initial Benefit Unit Value for a Subaccount will be set equal to the Accumulation Unit Value for that Subaccount 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 Expense Tables.
The Benefit Unit Value for a Subaccount at the end of each Valuation Period after the first is the Benefit Unit Value at the end of the previous Valuation Period multiplied by the Net Investment Factor for that Subaccount for the current Valuation Period, and multiplied by a daily investment factor 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, which is already incorporated in the calculation of variable dollar payments.
Net Investment Factor: The Net Investment Factor for any Subaccount 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 (as well as the charges for any optional riders or endorsements) deducted from the Subaccount during that Valuation Period, where:
NAV1 is equal to the Net Asset Value for the Portfolio for the preceding Valuation Period; and
NAV2 is equal to the Net Asset Value for the Portfolio for the current Valuation Period plus the per share amount of any dividend or net capital gain distributions made by the Portfolio during the current Valuation Period, and plus or minus a per share charge or credit if the Company adjusts its tax reserves due to investment operations of the Subaccount 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.

46


Table of Contents

PERFORMANCE INFORMATION
From time to time, we may advertise yields and/or total returns for the Subaccounts. 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 Subaccount refers to the annualized income generated by an investment in that Subaccount over a specified seven-day period. The “effective yield” of the money market Subaccount is the same as the “yield” except that it assumes reinvestment of the income earned in that Subaccount. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. We only advertise yields for the money market Subaccount.
Total Return Data
We 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. Cumulative total return data is currently presented only in 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. “Non-standardized” total return data does not reflect the deduction of contract maintenance fees. Total return data that does not reflect contract maintenance fees will be higher than the total return realized by an Owner who incurs the charges.
“Average annual total return” is either hypothetical or actual return data that reflects performance of a Subaccount 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 Subaccount 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 Subaccount 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
We may include in reports and promotional literature rankings of the Subaccounts, the Separate Account or the Contracts, as published by any service, company, or person that 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.
We may also:
  compare the performance of a Subaccount with applicable indices and/or industry averages
 
  present performance information that reflects the effects of tax-deferred compounding on Subaccount investment returns
 
  compare investment return on a tax-deferred basis with currently taxable investment return
 
  illustrate investment returns by graphs, charts, or otherwise

47


Table of Contents

THE REGISTRATION STATEMENT
The Company filed a Registration Statement with the SEC under the Securities Act of 1933 relating to the Contracts offered by this prospectus. This prospectus was filed as a part of 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 SEC, located at 450 Fifth Street, N.W., Washington, D.C., and may also be accessed at the SEC’s web site: http://www.sec.gov. The registration number for the Registration Statement is 333-19725.

48


Table of Contents

STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information containing more details concerning the subjects discussed in this prospectus is available. The following is the table of contents for the Statement of Additional Information:
         
    Page  
ANNUITY INVESTORS LIFE INSURANCE COMPANY®
    3  
General Information and History
    3  
State Regulations
    3  
SERVICES
    3  
Safekeeping of Separate Account Assets
    3  
Records and Reports
    3  
Experts
    3  
DISTRIBUTION OF THE CONTRACTS
    4  
CALCULATION OF PERFORMANCE INFORMATION
    4  
Money Market Subaccount Standardized Yield Calculation
    4  
Average Annual Total Return Calculation
    5  
Cumulative Total Return Calculation
    6  
Standardized Average Annual Total Return Data
    7  
Non-Standardized Average Annual Total Return Data
    13  
OTHER PERFORMANCE MEASURES
    22  
BENEFIT UNITS-TRANSFER FORMULAS
    23  
FEDERAL TAX MATTERS
    24  
Taxation of Separate Account Income
    24  
Tax Deferred Status of Non Qualified Contracts
    25  
FINANCIAL STATEMENTS
    25  
Copies of the Statement of Additional Information dated May 1, 2007 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, and mail to: Annuity Investors Life Insurance Company, P.O. Box 5423, Cincinnati, Ohio 45201-5423. You may also call the Company at 1-800-789-6771, or visit us at our web site www.gafri.com to request a copy.
 
   Name:
 
   Address:
 
   City:
 
   State:
 
   Zip:
 

49


Table of Contents

APPENDIX A: CONDENSED FINANCIAL INFORMATION
                                                 
                                    Number of    
                            Enhanced with   Enhanced with    
    Number of           Number of   Administration   Administration    
    Standard           Enhanced   Charges   Charges Waived    
Standard   Accumulation   Enhanced   Accumulation   Waived   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
AIM V.I. Capital Development Fund-Series I Shares                
12.930724
    1,168,401.050       13.012710       6,948.243       13.053761       30.786       12/31/06  
11.254617
    16,459.887       11.291687       1,008.183       11.310210       0.000       12/31/05  
10.413665
    2,721.825       10.416351       0.000       10.417688       0.000       12/31/04  
AIM V.I. Core Equity Fund-Series I Shares                
10.812798
    946,182.515       10.834974       3,675.733       10.846037       0.000       12/31/06  
AIM V.I. Financial Services Fund-Series I Shares                
13.250780
    177,386.400       13.477974       2,490.821       13.592983       112.573       12/31/06  
11.540835
    198,663.153       11.703172       1,383.076       11.785233       75.651       12/31/05  
11.051409
    208,252.570       11.172949       256.950       11.234312       28.405       12/31/04  
10.313195
    157,061.561       10.395135       38.751       10.436461       0.000       12/31/03  
8.070175
    118,822.635       8.110243       0.000       8.130414       0.000       12/31/02  
9.616190
    71,816.401       9.635286       0.000       9.644875       0.000       12/31/01  
AIM V.I. Global Health Care Fund-Series I Shares                
11.212446
    367,788.244       11.404707       1,104.143       11.502013       305.222       12/31/06  
10.805644
    405,402.095       10.957652       948.050       11.034447       202.797       12/31/05  
10.132965
    382,011.757       10.244403       727.654       10.300635       77.557       12/31/04  
9.553444
    311,542.224       9.629350       552.891       9.667612       179.965       12/31/03  
7.580976
    210,450.701       7.618614       203.656       7.637544       0.000       12/31/02  
10.175290
    59,824.959       10.195475       0.000       10.205610       61.085       12/31/01  
AIM V.I. High Yield Fund-Series I Shares                
11.887590
    336,558.419       11.984482       257.915       12.033030       176.048       12/31/06  
10.886907
    350,885.548       10.942429       230.396       10.970185       115.761       12/31/05  
10.749148
    449,939.142       10.771273       214.851       10.782305       43.918       12/31/04  
10.095432
    859,221.923       10.290759       188.060       10.389982       0.001       12/31/03  
8.186958
    488,086.809       8.320679       169.835       8.388454       0.000       12/31/02  
8.410616
    546,183.962       8.522682       149.057       8.579354       0.000       12/31/01  
10.025816
    403,918.794       10.129146       121.262       10.181276       134.192       12/31/00  
11.510803
    221,636.210       11.595106       113.564       11.637523       0.000       12/31/99  
10.689459
    70,047.913       10.735898       7.556       10.759164       0.000       12/31/98  
10.687084
    10,260.821       10.701757       0.000       10.709127       0.000       12/31/97  
AIM V.I. Small Cap Equity Fund-Series I Shares                
12.572746
    59,594.167       12.652463       552.133       12.692358       0.000       12/31/06  
10.857407
    15,527.249       10.893167       559.580       10.911028       0.000       12/31/05  
10.184771
    48.134       10.187404       0.000       10.188714       0.000       12/31/04  
AIM V.I. Small Cap Growth Fund-Series I Shares                
10.356858
    145,499.534       10.534498       2,285.979       10.624408       0.000       12/31/06  
9.203351
    141,453.043       9.332860       465.384       9.398306       0.000       12/31/05  
8.873033
    123,848.236       8.970653       388.008       9.019944       0.000       12/31/04  
7.900935
    131,306.947       7.963751       34.809       7.995424       0.000       12/31/03  
6.004149
    155,173.901       6.033996       0.000       6.049012       0.000       12/31/02  
8.838420
    27,720.462       8.856003       0.000       8.864827       0.000       12/31/01  

50


Table of Contents

                                                 
                                    Number of    
                            Enhanced with   Enhanced with    
    Number of           Number of   Administration   Administration    
    Standard           Enhanced   Charges   Charges Waived    
Standard   Accumulation   Enhanced   Accumulation   Waived   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
American Century VP Large Company Value Fund-Class I Shares                
12.494572
    420,902.275       12.573776       280.955       12.613437       125.863       12/31/06  
10.560864
    99,384.541       10.595660       82.915       10.613037       0.000       12/31/05  
10.216542
    36,701.792       10.219180       0.000       10.220496       0.000       12/31/04  
American Century VPMid Cap Value Fu nd-Class I Shares                
13.320957
    911,824.088       13.405406       2,031.092       13.447669       0.000       12/31/06  
11.229852
    114,376.075       11.266849       132.931       11.285315       0.000       12/31/05  
10.395465
    24,970.228       10.398152       0.000       10.399486       0.000       12/31/04  
American Century VPUltra® Fund-Class I Shares
               
9.979396
    707,542.380       10.042693       8,378.330       10.074375       485.952       12/31/06  
10.463493
    32,615.015       10.497965       0.000       10.515180       411.819       12/31/05  
10.386756
    598.086       10.389435       0.000       10.390771       0.000       12/31/04  
American Century VP VistaSM Fund-Class I Shares                
11.918299
    976,806.445       11.993889       11,321.554       12.031706       181.135       12/31/06  
11.088360
    79,780.294       11.124884       0.000       11.143119       21.514       12/31/05  
10.399373
    4,938.285       10.402055       0.000       10.403392       21.514       12/31/04  
Dreyfus IP Technology Growth Portfolios-Initial Shares                
10.684409
    1,309,668.746       10.752145       7,254.620       10.786066       493.194       12/31/06  
10.388053
    32,100.558       10.422269       0.000       10.439369       20.730       12/31/05  
10.151024
    198.889       10.153642       0.000       10.154947       20.730       12/31/04  
The Dreyfus Socially Responsible Growth Fund, Inc.-Initial Shares                
11.353220
    701,011.037       11.678582       5,863.440       11.844662       0.000       12/31/06  
10.543914
    795,479.598       10.813247       5,790.816       10.950470       0.000       12/31/05  
10.320091
    913,267.538       10.551666       5,286.547       10.669460       0.000       12/31/04  
9.854396
    925,266.631       10.045110       4,815.599       10.141935       0.000       12/31/03  
7.930106
    960,232.146       8.059684       3,420.290       8.125307       0.000       12/31/02  
11.317226
    1,066,026.751       11.468022       1,578.746       11.544188       0.000       12/31/01  
14.823134
    894,007.973       14.975835       600.773       15.052735       29.856       12/31/00  
16.894039
    408,482.196       17.017705       351.586       17.079770       0.000       12/31/99  
13.169143
    140,614.024       13.226328       80.398       13.254881       0.000       12/31/98  
10.320883
    26,332.500       10.335055       0.000       10.342126       0.000       12/31/97  
Dreyfus Stock Index Fund, Inc.-Initial Shares                
15.179498
    4,190,418.249       15.614354       7,744.043       15.836519       532.986       12/31/06  
13.328744
    4,493,460.193       13.669089       6,535.021       13.842665       537.406       12/31/05  
12.911696
    4,792,865.682       13.201315       7,554.962       13.348780       680.516       12/31/04  
11.835440
    4,670,251.024       12.064404       9,003.839       12.180793       680.516       12/31/03  
9.349226
    4,454,143.840       9.501934       6,861.288       9.579380       3,171.095       12/31/02  
12.210993
    4,141,595.630       12.373650       4,522.004       12.455945       3,086.013       12/31/01  
14.100696
    3,598,196.884       14.245940       1,681.580       14.319249       3,844.565       12/31/00  
15.760394
    2,129,772.165       15.875757       616.234       15.933836       222.802       12/31/99  
13.250646
    779,485.606       13.308166       56.321       13.337028       0.000       12/31/98  
10.479569
    69,510.645       10.493943       0.000       10.501129       0.000       12/31/97  

51


Table of Contents

                                                 
                                    Number of    
                            Enhanced with   Enhanced with    
    Number of           Number of   Administration   Administration    
    Standard           Enhanced   Charges   Charges Waived    
Standard   Accumulation   Enhanced   Accumulation   Waived   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
Dreyfus VIF Appreciation Portfolio-Initial Shares                
15.017729
    946,182.350       15.447987       4,551.668       15.667624       0.000       12/31/06  
13.075735
    1,005,802.778       13.409645       4,744.717       13.579785       0.000       12/31/05  
12.704674
    1,036,367.953       12.989662       6,831.224       13.134636       150.958       12/31/04  
12.265787
    936,025.635       12.503079       8,455.513       12.623565       150.958       12/31/03  
10.264481
    821,738.414       10.432114       6,651.281       10.517029       150.958       12/31/02  
12.497173
    717,965.716       12.663627       5,276.343       12.747715       150.958       12/31/01  
13.974173
    649,590.073       14.118110       3,407.753       14.190622       155.216       12/31/00  
14.262203
    517,772.082       14.366606       2,156.774       14.419045       154.147       12/31/99  
12.975443
    170,523.015       13.031774       100.415       13.059918       0.000       12/31/98  
10.103905
    18,347.666       10.117776       0.000       10.124633       0.000       12/31/97  
Dreyfus VIF Developing Leaders Portfolio-Initial Shares                
15.049986
    807,530.215       15.481299       5,517.924       15.701713       516.548       12/31/06  
14.708620
    908,638.512       15.084331       6,468.518       15.276001       459.556       12/31/05  
14.099077
    919,021.905       14.415462       6,838.658       14.576616       548.248       12/31/04  
12.842412
    898,484.551       13.090970       9,249.068       13.217353       491.205       12/31/03  
9.888294
    887,931.962       10.049896       5,581.765       10.131883       471.199       12/31/02  
12.397758
    698,539.631       12.563024       2,568.238       12.646674       229.386       12/31/01  
13.391746
    482,890.909       13.529796       1,048.292       13.599519       375.159       12/31/00  
11.984035
    275,503.637       12.071820       486.764       12.116077       199.908       12/31/99  
9.867472
    171,968.905       9.910354       14.492       9.931930       0.000       12/31/98  
10.362314
    41,359.506       10.376538       0.000       10.383658       0.000       12/31/97  
Dreyfus VIF Growth and Income Portfolio-Initial Shares                
12.799045
    534,977.589       13.165752       3,400.363       13.353024       0.000       12/31/06  
11.335178
    573,338.603       11.624648       4,096.135       11.772215       0.000       12/31/05  
11.122877
    660,745.227       11.372419       5,058.158       11.499396       0.000       12/31/04  
10.496627
    594,854.140       10.699714       4,344.521       10.802876       0.000       12/31/03  
8.409071
    633,983.863       8.546428       2,655.811       8.616047       0.000       12/31/02  
11.419341
    646,842.656       11.571439       1,474.275       11.648352       0.000       12/31/01  
12.299306
    572,006.660       12.425981       906.280       12.489868       145.939       12/31/00  
12.961023
    331,756.261       13.055905       650.409       13.103601       0.000       12/31/99  
11.243790
    159,409.837       11.292611       5.049       11.251722       0.000       12/31/98  
10.196538
    32,231.762       10.210527       0.000       10.217481       0.000       12/31/97  
Dreyfus VIF Money Market Portfolio                
1.183188
    6,426,348.042       1.211707       35,651.958       1.227578       0.000       12/31/06  
1.152576
    6,753,332.466       1.177927       40,350.784       1.192295       0.000       12/31/05  
1.140557
    5,458,310.932       1.162738       4,618.151       1.175604       0.000       12/31/04  
1.146684
    11,398,828.937       1.165764       9,040.873       1.177135       0.000       12/31/03  
1.153638
    26,597,370.970       1.169798       23,476.567       1.179709       0.000       12/31/02  
1.153108
    17,775,594.379       1.166325       15,244.920       1.174767       0.036       12/31/01  
1.128116
    7,677,545.259       1.138355       12,985.570       1.145310       280,844.647       12/31/00  
1.083700
    2,638,837.162       1.090994       8,490.939       1.096462       0.000       12/31/99  
1.050876
    658,981.650       1.055214       555.360       1.059678       0.000       12/31/98  
1.016499
    0.000       1.017876       0.000       1.018560       0.000       12/31/97  

52


Table of Contents

                                                 
                                    Number of    
                            Enhanced with   Enhanced with    
    Number of           Number of   Administration   Administration    
    Standard           Enhanced   Charges   Charges Waived    
Standard   Accumulation   Enhanced   Accumulation   Waived   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
DWS Small Cap Index VIP Fund-Class A                
17.321028
    452,371.808       17.722591       276.237       17.926929       73.897       12/31/06  
14.951171
    417,983.505       15.251478       151.892       15.404037       57.528       12/31/05  
14.543337
    347,239.433       14.790573       44.787       14.915983       36.274       12/31/04  
12.525203
    434,240.830       12.699687       8.778       12.788062       144.907       12/31/03  
8.673629
    165,980.862       8.768488       0.000       8.816430       4.364       12/31/02  
11.074827
    153,151.939       11.162755       54.021       11.207088       272.943       12/31/01  
11.003134
    83,894.729       11.057432       8.017       11.084755       95.772       12/31/00  
11.606269
    15,259.149       11.629080       0.000       11.640544       0.000       12/31/99  
Janus Aspen Series Balanced Portfolio-Institutional Shares                
20.527683
    2,849,443.225       21.115777       10,256.899       21.416039       38.089       12/31/06  
18.802986
    3,224,954.488       19.283124       11,389.809       19.527811       39.724       12/31/05  
17.664922
    3,596,278.746       18.061165       13,350.072       18.262753       171.888       12/31/04  
16.507560
    3,685,075.400       16.826897       19,069.761       16.989064       171.888       12/31/03  
14.676594
    3,702,620.254       14.916257       13,120.266       15.037669       1,282.216       12/31/02  
15.907374
    3,578,735.833       16.119263       9,654.166       16.226337       1,282.216       12/31/01  
16.920712
    3,181,464.624       17.095024       6,533.026       17.182875       1,437.831       12/31/00  
17.556100
    1,571,579.505       17.684597       2,931.027       17.749154       111.555       12/31/99  
14.043929
    373,285.807       14.104892       214.770       14.135421       0.000       12/31/98  
10.604609
    30,519.754       10.619159       0.000       10.626394       0.000       12/31/97  
Janus Aspen Series Forty Portfolio-Institutional Shares                
11.403714
    1,272,789.383       11.668168       6,914.755       11.802739       238.337       12/31/06  
10.576925
    1,421,322.533       10.789432       8,924.998       10.897390       224.632       12/31/05  
9.505422
    1,369,066.381       9.667060       9,080.188       9.749062       369.844       12/31/04  
8.153727
    1,483,721.928       8.267358       11,535.264       8.324912       340.749       12/31/03  
6.859260
    1,548,077.357       6.934292       7,637.061       6.972208       1,816.324       12/31/02  
8.247987
    1,650,016.481       8.313484       4,570.921       8.346510       1,813.269       12/31/01  
10.678675
    1,384,637.536       10.731358       1,520.638       10.757867       1,957.004       12/31/00  
13.234548
    471,936.628       13.260556       4.141       13.273610       170.622       13/31/99  
Janus Aspen Series International Growth Portfolio-Institutional Shares                
27.500771
    1,183,279.918       28.288499       12,357.534       28.690648       56.867       12/31/06  
18.969977
    966,575.134       19.454325       10,632.810       19.701127       56.867       12/31/05  
14.542258
    681,071.772       14.868462       11,182.362       15.034373       22.784       12/31/04  
12.398800
    669,789.197       12.638673       15,388.121       12.760432       0.000       12/31/03  
9.318679
    678,787.112       9.470891       11,468.866       9.547961       0.000       12/31/02  
12.698027
    675,126.139       12.867174       7,907.782       12.952582       0.000       12/31/01  
16.774550
    620,740.857       16.947297       4,953.034       17.034254       245.673       12/31/00  
20.234788
    142,343.325       20.382770       2,330.619       20.457001       0.000       12/31/99  
11.256365
    45,382.775       11.305246       58.950       11.329668       0.000       12/31/98  
9.735841
    12,541.039       9.749214       0.000       9.755900       0.000       12/31/97  

53


Table of Contents

                                                 
                                    Number of    
                            Enhanced with   Enhanced with    
    Number of           Number of   Administration   Administration    
    Standard           Enhanced   Charges   Charges Waived    
Standard   Accumulation   Enhanced   Accumulation   Waived   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
Janus Aspen Series Large Cap Growth Portfolio-Institutional Shares                
13.332590
    1,661,699.848       13.714717       8,850.842       13.910006       0.000       12/31/06  
12.140136
    1,816,341.463       12.450279       12,118.207       12.608502       0.000       12/31/05  
11.805932
    1,963,661.008       12.070890       12,071.718       12.205852       128.720       12/31/04  
11.455733
    2,117,639.460       11.677475       17,617.840       11.790223       128.720       12/31/03  
8.817912
    2,338,003.425       8.962034       12,164.934       9.035150       128.720       12/31/02  
12.166993
    2,211,504.181       12.329165       7,211.443       12.411252       128.720       12/31/01  
16.393493
    1,792,958.592       16.562387       3,980.605       16.647684       269.822       12/31/00  
19.453513
    643,514.256       19.595874       1,374.992       19.667608       109.122       12/31/99  
13.699715
    172,190.630       13.759186       84.318       13.789099       0.000       12/31/98  
10.239960
    32,737.591       10.254006       0.000       10.261077       0.000       12/31/97  
Janus Aspen Series Mid Cap Growth Portfolio-Institutional Shares                
17.723408
    1,111,731.741       18.231471       15,635.292       18.490639       198.823       12/31/06  
15.820887
    1,192,692.579       16.225130       18,154.900       16.430939       174.191       12/31/05  
14.286652
    1,246,239.904       14.607357       18,555.090       14.770332       251.906       12/31/04  
11.999290
    1,291,553.100       12.231626       21,025.289       12.349444       218.778       12/31/03  
9.005921
    1,290,667.557       9.153163       14,073.466       9.227625       856.311       12/31/02  
12.672131
    1,215,838.484       12.841113       8,626.211       12.926320       832.210       12/31/01  
21.224171
    993,843.327       21.442894       3,573.726       21.552802       1,243.427       12/31/00  
31.565210
    329,807.902       31.796057       829.264       31.911561       159.044       12/31/99  
14.199318
    53,896.345       14.260947       36.621       14.291595       0.000       12/31/98  
10.723950
    2,830.076       10.738659       0.000       10.745938       0.000       12/31/97  
Oppenheimer Balanced Fund/VA-Initial Series                
11.545935
    284,653.565       11.619151       2,713.335       11.655797       21.039       12/31/06  
10.535194
    293,699.326       10.569900       1,006.485       10.587241       21.039       12/31/05  
10.284433
    3,001.731       10.287083       0.000       10.288407       21.039       12/31/04  
Oppenheimer Capital Appreciation Fund/VA-Initial Series                
11.380578
    206,005.347       11.452745       1,085.611       11.488852       0.000       12/31/06  
10.691883
    85,720.169       10.727101       453.514       10.587241       0.000       12/31/05  
10.317159
    581.341       10.319818       0.000       10.321144       0.000       12/31/04  
Oppenheimer Main Street Fund®/VA-Initial Series                
12.267378
    188,104.597       12.345144       2,240.578       12.384076       0.000       12/31/06  
10.816022
    161,384.797       10.851650       1,136.259       10.869450       0.000       12/31/05  
10.350617
    13,062.128       10.353285       0.000       10.354615       0.000       12/31/04  
PIMCO VIT Real Return Portfolio-Administrative Class                
10.154210
    212,006.902       10.218623       4,352.416       10.250872       0.000       12/31/06  
10.224854
    240,401.144       10.258560       2,314.795       10.275393       0.000       12/31/05  
10.156423
    10,066.473       10.159043       0.000       10.160349       0.000       12/31/04  
PIMCO VIT Total Return Portfolio-Administrative Class                
10.417487
    207,153.358       10.483551       1,880.102       10.516640       0.000       12/31/06  
10.173284
    199,476.486       10.206803       453.274       10.223567       0.000       12/31/05  
10.070332
    627.100       10.072934       0.000       10.074230       0.000       12/31/04  

54


Table of Contents

                                                 
                                    Number of    
                            Enhanced with   Enhanced with    
    Number of           Number of   Administration   Administration    
    Standard           Enhanced   Charges   Charges Waived    
Standard   Accumulation   Enhanced   Accumulation   Waived   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
Van Kampen UIF Core Plus Fixed Income Portfolio-Class I                
14.997858
    934,853.788       15.427535       4,516.328       15.647093       0.000       12/31/06  
14.663212
    1,031,163.550       15.037636       4,510.157       15.228624       0.000       12/31/05  
14.269584
    1,040,814.398       14.589653       5,455.212       14.752650       0.000       12/31/04  
13.866152
    1,111,500.860       14.134373       5,899.268       14.270730       0.000       12/31/03  
13.437077
    1,065,387.210       13.656469       3,834.895       13.767746       0.000       12/31/02  
12.694998
    713,042.852       12.864100       1,978.853       12.949664       0.000       12/31/01  
11.776122
    380,480.921       11.897491       1,180.235       11.958756       134.867       12/31/00  
10.749115
    279,193.758       10.827853       1,472.104       10.867507       0.000       12/31/99  
11.079965
    46,348.096       11.128092       30.906       11.152242       0.000       12/31/98  
10.412276
    4.653       10.426565       0.000       10.443738       0.000       12/31/97  
Van Kampen UIF U.S. Mid Cap Value Portfolio-Class I
               
23.159385
    581,474.070       23.822985       6,217.919       24.162157       0.000       12/31/06  
19.459486
    530,733.841       19.956509       5,226.294       20.210094       0.000       12/31/05  
17.572071
    467,487.388       17.966354       4,302.132       18.167210       0.000       12/31/04  
15.551851
    417,352.873       15.852805       3,927.983       16.005864       113.080       12/31/03  
11.143745
    383,714.571       11.325832       3,089.661       11.418226       28.150       12/31/02  
15.699340
    335,452.774       15.908551       1,648.470       16.014471       28.150       12/31/01  
16.438193
    253,713.630       16.607603       650.778       16.693197       46.034       12/31/00  
15.049488
    183,388.647       15.159702       827.448       15.215264       0.000       12/31/99  
12.705082
    111,076.120       12.760268       15.684       12.788027       0.000       12/31/98  
11.113227
    16,674.966       11.128478       0.000       11.136071       0.000       12/31/97  
Van Kampen UIF U.S. Real Estate Portfolio-Class I                
36.711245
    617,880.841       37.762738       6,918.700       38.299964       185.446       12/31/06  
26.969864
    638,271.701       27.658464       6,314.368       28.009655       166.868       12/31/05  
23.367170
    618,052.255       23.891270       4,374.554       24.158129       115.611       12/31/04  
17.374679
    549,927.036       17.710793       5,725.997       17.881625       69.022       12/31/03  
12.811814
    469,712.672       13.021061       3,710.088       13.127169       28.392       12/31/02  
13.094325
    269,466.499       13.268793       1,955.110       13.357067       215.533       12/31/01  
12.088940
    147,402.642       12.213548       1,151.970       12.276441       1.523       12/31/00  
9.482378
    86,941.426       9.551867       733.827       9.586849       0.000       12/31/99  
9.758808
    43,786.457       9.801228       10.564       9.822531       0.000       12/31/98  
11.101269
    7,200.060       11.116503       0.000       11.124047       0.000       12/31/97  
Van Kampen UIF Value Portfolio-Class I                
16.611311
    850,561.888       17.087197       6,292.311       17.330296       33.363       12/31/06  
14.412225
    863,389.460       14.780240       6,598.174       14.967892       33.363       12/31/05  
13.978413
    807,191.172       14.291958       5,717.704       14.451571       33.363       12/31/04  
12.030718
    620,028.974       12.263462       5,123.338       12.381730       33.363       12/31/03  
9.098209
    526,832.864       9.246820       3,689.937       9.322154       33.363       12/31/02  
11.851536
    401,628.667       12.009406       2,274.954       12.089242       124.533       12/31/01  
11.751659
    132,621.948       11.872734       1,233.392       11.933810       9.320       12/31/00  
9.536137
    78,330.649       9.605992       703.796       9.641132       0.000       12/31/99  
9.848411
    34,212.111       9.891198       23.284       9.912646       0.000       12/31/98  
10.204064
    9,944.401       10.218060       0.000       10.225073       0.000       12/31/97  

55


Table of Contents

The above table gives year-end Accumulation Unit information for each Subaccount from the end of the year of inception to December 31, 2006. 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 Subaccount shown other than the Dreyfus VIF Money Market Portfolio Subaccount was 10.00000 as of July 15, 1997 (the Separate Account commencement date) or as of May 1, 1999 (the effective date of the Subaccounts) for the Janus Aspen Series Forty Portfolio Subaccount and the DWS Small Cap Index VIP Fund Subaccount, or as of May 1, 2001 (the effective date of the Subaccount) for the AIM V.I. Global Health Care Fund Subaccount, AIM V.I. Financial Services Fund Subaccount, and AIM V.I. Small Company Growth Fund Subaccount or as of December 1, 2004 (the effective date of the Subaccounts) for AIM V.I. Capital Development Fund Subaccount, AIM V.I. Small Cap Equity Fund Subaccount, Dreyfus IP Technology Growth Portfolio Subaccount, the four American Century Variable Portfolio Subaccounts, the three Oppenheimer Variable Account Fund Subaccounts and the two PIMCO Variable Insurance Fund Subaccounts. The beginning Accumulation Unit Value for the Dreyfus VIF Money Market Portfolio Subaccount was 1.000000 as of July 15, 1997.

56


Table of Contents

APPENDIX B: PORTFOLIOS

     
Portfolio / Advisor   Investment Objective / Strategy
AIM Variable Insurance Funds
     
AIM V.I. Capital Development Fund – Series I Shares

Advisor — A I M Advisors, Inc.
  The fund’s investment objective is long-term growth of capital. The fund seeks to meet its objective by investing primarily in equity securities of mid-capitalization companies. The fund may also invest up to 25% of its total assets in foreign securities. Any percentage limitations with respect to assets of the fund are applied at the time of purchase.
 
   
AIM V.I. Core Equity Fund – Series I Shares

Advisor — A I M Advisors, Inc.
  The fund’s investment objective is growth of capital. The fund seeks to meet its objectives by investing, normally, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities including convertible securities, of established companies that have long-term above-average growth in earnings, and growth companies that the portfolio manager believes have the potential for above-average growth in earnings. In complying with this 80% investment requirement, the fund’s investments may include synthetic instruments. The fund may also invest up to 25% of its total assets in foreign securities. Any percentage limitations with respect to assets of the fund are applied at the time of purchase.
 
   
AIM V.I. Financial Services Fund – Series I Shares

Advisor — A I M Advisors, Inc.
  The fund seeks capital growth. It is actively managed. The fund invests primarily in equity securities that the Advisor believes will rise in price faster than other securities, as well as in options and other investments whose values are based upon the values of equity securities. The fund normally invests at least 80% of its net assets in the equity securities and equity-related instruments of companies involved in the financial services sector. The fund may invest up to 25% of its assets in securities of non-U.S. issuers. Securities of Canadian issuers and American Depositary Receipts are not subject to this 25% limitation.
 
   
AIM V.I. Global Health Care Fund – Series I Shares

Advisor — A I M Advisors, Inc.
  The fund’s investment objective is capital growth. The fund seeks to meet its objective by investing, normally, at least 80% of its assets in securities of health care industry companies. The fund may invest in debt securities issued by health care industry companies, or in equity and debt securities of other companies believed will benefit from developments in the health care industry. The fund will normally invest in securities of companies located in at least three different countries, including the United States and may invest a significant portion of its assets in the securities of U.S. issuers. However, the fund will invest no more than 50% of its total assets in the securities of issuers in any one country, other than the U.S. The fund may invest up to 20% of its total assets in companies located in developing countries, i.e., those countries that are in the initial stages of their industrial cycle. The fund may also invest up to 5% of its total assets in lower-quality debt securities, i.e., “junk bonds”. Any percentage limitations with respect to assets of the fund are applied at the time of purchase.

57


Table of Contents

     
Portfolio / Advisor   Investment Objective / Strategy
 
AIM V.I. High Yield Fund – Series I Shares

Advisor — A I M Advisors, Inc.
  The fund’s investment objective is to achieve a high level of current income. The fund seeks to meet its objective by investing, normally, at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in non-investment grade debt securities, i.e. “junk bonds”. In complying with this 80% investment requirement, the fund’s investments may include investments in synthetic instruments. The fund may invest up to 25% of its total assets in foreign securities. The fund may also invest in credit derivatives. Any percentage limitations with respect to assets of the fund are applied at the time of purchase.
 
   
AIM V.I. Small Cap Equity Fund – Series I Shares

Advisor — A I M Advisors, Inc.
  The fund’s investment objective is long-term growth of capital. The fund seeks to meet its objective by investing, normally, at least 80% of its assets in equity securities, including convertible securities, of small-capitalization companies. In complying with the 80% investment requirement, the fund’s investments may include synthetic instruments. The fund may also invest up to 25% of its total assets in foreign securities. Any percentage limitations with respect to assets of the fund are applied at the time of purchase.
 
   
American Century Variable Portfolios, Inc.
     
American Century VP Large Company Value Fund Class I Shares

Advisor — American Century Investment Management, Inc.
  The Fund seeks long-term capital growth. Income is a secondary objective. In selecting stocks for the Fund, its managers look for companies whose stock price may not reflect the companies’ value. The managers attempt to purchase the stocks of these undervalued companies and hold them until their stock price has increased to, or is higher than, a level the managers believe more accurately reflects the fair value of the company. The Fund invests primarily in larger companies. Under normal market conditions, the Fund will have at least 80% of its assets in equity securities of companies comprising the Russell 1000® Index.
 
   
American Century VP Mid Cap Value Fund Class I Shares

Advisor — American Century Investment Management, Inc.
  The Fund seeks long-term capital growth. Income is a secondary objective. Its managers look for stocks of companies that they believe are undervalued at the time of purchase. The managers use a value investment strategy that looks for companies that are temporarily out of favor in the market. The managers attempt to purchase the stocks of these undervalued companies and hold them until they have returned to favor in the market and their stock prices have gone up. The Fund will invest at least 80% of its assets in securities of companies whose market capitalization at the time of purchase is within the capitalization range of the Russell 3000® Index, excluding the largest 100 such companies. The managers intend to manage the Fund so that its weighted capitalization falls within the capitalization range of the members of the Russell Midcap® Index.
 
   
American Century VP Ultraâ Fund – Class I Shares

Advisor — American Century Investment Management, Inc.
  The Fund seeks long-term growth. Its managers look for stocks of large companies they believe will increase in value over time using a growth investment strategy developed by American Century. This strategy looks for companies with earnings and revenues that are not only growing, but growing at a successively faster, or accelerating, pace. This strategy is based on the premise that, over the long term, stocks of companies with accelerating earnings and revenues have a greater-than-average chance to increase in value.
 
   
American Century VP VistaSM Fund – Class I Shares

Advisor — American Century Investment Management, Inc.
  The Fund seeks long-term capital growth. Its managers look for stocks of medium-sized and smaller companies they believe will increase in value over time, using a growth investment strategy developed by American Century. This strategy looks for companies with earnings and revenues that are not only growing, but growing at a successively faster, or accelerating pace. This strategy is based on the premise that, over the long term, the stocks of companies with accelerating earnings and revenues have a greater-than-average chance to increase in value.

58


Table of Contents

     
Portfolio / Advisor   Investment Objective / Strategy
Calamos® Advisors Trust
     
Calamos Growth and Income Portfolio

Advisor — Calamos Advisors LLC
  The portfolio seeks high long-term return through growth and current income. The portfolio invests primarily in a diversified portfolio of convertible, equity and fixed-income securities. In seeking to meet its investment objective, the portfolio’s adviser utilizes highly disciplined institutional management strategies designed to help enhance investment returns while managing risk. As part of these strategies, an in-depth proprietary analysis is employed on an issuing company and its securities.
 
   
Davis Variable Account Fund, Inc.
     
Davis Value Portfolio

Advisor — Davis Selected Advisors, L.P.

Sub-Advisor — Davis Selected Advisers–NY, Inc.
  The fund’s investment objective is long-term growth of capital. The advisor uses the Davis Investment Discipline to invest the majority of the fund’s assets in equity securities issued by large companies with market capitalization of at least $10 billion. The advisor conducts extensive research to identify businesses that possess characteristics it believes foster the creation of long-term value, such as proven management, a durable franchise and business model, and sustainable competitive advantages. It aims to invest in such businesses when they are trading at a discount to their intrinsic value.
Dreyfus Portfolios
     
The Dreyfus Socially Responsible Growth Fund, Inc. – Initial Shares

Advisor — The Dreyfus Corporation
  The fund seeks to provide capital growth, with current income as a secondary goal. To pursue these goals, the fund, under normal circumstances, invests at least 80% of its assets in the common stocks of companies that, in the opinion of the fund’s management, meet traditional investment standards and conduct their business in a manner that contributes to the enhancement of the quality of life in America.
 
   
Dreyfus Stock Index Fund, Inc., – Initial Shares

Advisor — The Dreyfus Corporation

Index Sub-Investment Adviser — Mellon Equity Associates
  The fund seeks to match the total return of the Standard & Poor’s 500 Composite Stock Price Index. To pursue this goal, the fund generally invests in all 500 stocks in the S&P 500® in proportion to their weighting in the index.
 
   
Dreyfus Investment Portfolios MidCap Stock
Portfolio – Initial Shares


Advisor — The Dreyfus Corporation
  The portfolio seeks investment results that are greater than the total return performance of publicly traded common stocks of medium-size domestic companies in the aggregate, as represented by the Standard & Poor’s MidCap 400® Index (S&P 400). To pursue this goal, the portfolio normally invests at least 80% of its assets in stocks of midsize companies.
 
   
Dreyfus Investment Portfolios Technology
Growth Portfolio – Initial Shares


Advisor — The Dreyfus Corporation
  The portfolio seeks capital appreciation. To pursue this goal, the portfolio normally invests at least 80% of its assets in the stocks of growth companies of any size that Dreyfus believes to be leading producers or beneficiaries of technological innovation.

59


Table of Contents

     
Portfolio / Advisor   Investment Objective / Strategy
 
Dreyfus Variable Investment Fund (“VIF”) Appreciation Portfolio – Initial Shares

Advisor — The Dreyfus Corporation

Sub-Adviser — Fayez Sarofim & Co.
  The portfolio seeks long-term capital growth consistent with the preservation of capital. Its secondary goal is current income. To pursue these goals, the portfolio normally invests at least 80% of its assets in common stocks. The portfolio focuses on “blue chip” companies with total market capitalizations of more than $5 billion at the time of purchase, including multinational companies.
 
   
Dreyfus Variable Investment Fund (“VIF”) Developing Leaders Portfolio – Initial Shares

Advisor — The Dreyfus Corporation
  The portfolio seeks capital growth. To pursue this goal, the portfolio normally invests at least 80% of its assets in the stocks of companies Dreyfus believes to be developing leaders: companies characterized by new or innovative products, services or processes having the potential to enhance earnings or revenue growth. Based on current market conditions, the portfolio primarily invests in companies with total market values of less than $2 billion at the time of purchase.
 
   
Dreyfus Variable Investment Fund (“VIF”) Growth and Income Portfolio – Initial Shares

Advisor — The Dreyfus Corporation
  The portfolio seeks long-term capital growth, current income and growth of income consistent with reasonable investment risk. To pursue these goals, the portfolio invests primarily in stocks of domestic and foreign issuers. The portfolios stock investments may include common stocks, preferred stocks and convertible securities, including those purchased in initial public offerings.
 
   
Dreyfus Variable Investment Fund (“VIF”) Money Market Portfolio

Advisor — The Dreyfus Corporation
  The portfolio seeks as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. An investment in a money market portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation, or any other government agency. Although a money market portfolio seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market portfolio.
DWS Investments VIT Funds (1)
     
DWS Small Cap Index VIP- Class A

Advisor — Deutsche Investment Management Americas Inc.,

Subadvisor — Northern Trust Investments, N.A.
  The Portfolio seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Russell 2000 Index, which emphasizes stocks of small US companies. Under normal circumstances, the Portfolio intends to invest at least 80% of its assets, determined at the time of purchase, in stocks of companies included in the Russell 2000 Index and in derivative instruments, such as stock index futures contracts and options that provide exposure to the stocks of companies in the Russell 2000 Index.
 
(1)   DWS Scudder is part of Deutsche Asset Management, which is the marketing name in the U.S. for the asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
Financial Investors Variable Insurance Trust
     
Ibbotson Balanced ETF Asset Allocation Portfolio

Adviser — ALPS Advisers, Inc.

Subadviser — Ibbotson Associates, Inc.
  The Portfolio seeks to provide investors with capital appreciation and some current income. The Portfolio invests, under normal circumstances, at least 80% of its net assets plus the amount of any borrowings for investment purposes, in securities of exchange-traded funds (each, an “Underlying ETF” and collectively, the “Underlying ETFs”). The Portfolio will notify you in writing at least 60 days before making any changes to this policy. For the purposes of this 80% investment policy, assets are measured at the time of purchase.

60


Table of Contents

     
Portfolio / Advisor   Investment Objective / Strategy
 
Ibbotson Conservative ETF Asset Allocation Portfolio

Adviser — ALPS Advisers, Inc.

Subadviser — Ibbotson Associates, Inc.
  The Portfolio seeks to provide investors with current income and preservation of capital. The Portfolio invests, under normal circumstances, at least 80% of its net assets plus the amount of any borrowings for investment purposes, in securities of exchange-traded funds (each, an “Underlying ETF” and collectively, the “Underlying ETFs”). The Portfolio will notify you in writing at least 60 days before making any changes to this policy. For the purposes of this 80% investment policy, assets are measured at the time of purchase.
 
   
Ibbotson Growth ETF Asset Allocation Portfolio

Adviser — ALPS Advisers, Inc.

Subadviser — Ibbotson Associates, Inc.
  The Portfolio seeks to provide investors with capital appreciation. The Portfolio invests, under normal circumstances, at least 80% of its net assets plus the amount of any borrowings for investment purposes, in securities of exchange-traded funds (each, an “Underlying ETF” and collectively, the “Underlying ETFs”). The Portfolio will notify you in writing at least 60 days before making any changes to this policy. For the purposes of this 80% investment policy, assets are measured at the time of purchase.
 
   
Ibbotson Income and Growth ETF Asset Allocation Portfolio

Adviser — ALPS Advisers, Inc.

Subadviser — Ibbotson Associates, Inc.
  The Portfolio seeks to provide investors with current income and capital appreciation. The Portfolio invests, under normal circumstances, at least 80% of its net assets plus the amount of any borrowings for investment purposes, in securities of exchange-traded funds (each, an “Underlying ETF” and collectively, the “Underlying ETFs”). The Portfolio will notify you in writing at least 60 days before making any changes to this policy. For the purposes of this 80% investment policy, assets are measured at the time of purchase.
Franklin Templeton Variable Insurance Products Trust
     
Templeton Foreign Securities Fund – Class 2

Advisor — Templeton Investment Counsel, LLC
  Seeks long-term capital growth. The Fund normally invests at least 80% of its net assets in investments of issuers located outside the U.S., including those in emerging markets, and normally invests predominantly in equity securities.
Janus Aspen Series
     
Janus Aspen Series Balanced Portfolio – Institutional Shares

Advisor — Janus Capital Management LLC
  This diversified portfolio seeks long-term capital growth, consistent with preservation of capital and balanced by current income. The Portfolio normally invests 50-60% of its assets in equity securities selected primarily for their growth potential and 40-50% of its assets in securities selected primarily for their income potential. Within the parameters of its specific investment policies, the portfolio may invest in foreign equity and debt securities, which may include investments in emerging markets. The Portfolio will normally invest at least 25% of its assets in fixed-income senior securities. The portfolio will limit its investment in high-yield/high-risk (also called “junk bonds”) to 35% or less of its net assets.
 
   
Janus Aspen Series Forty Portfolio – Institutional Shares

Advisor — Janus Capital Management LLC
  This non-diversified portfolio seeks long-term growth of capital by normally investing primarily in a core group of 20-40 common stocks selected for their growth potential. The portfolio may invest in companies of any size, from larger, well-established companies to smaller, emerging growth companies. Within the parameters of its specific investment policies, the portfolio may invest in foreign equity and debt securities, which may include investments in emerging markets.

61


Table of Contents

     
Portfolio / Advisor   Investment Objective / Strategy
 
Janus Aspen Series International Growth Portfolio – Institutional Shares

Advisor — Janus Capital Management LLC
  This diversified portfolio seeks long-term growth of capital by investing, under normal circumstances, at least 80% of its net assets plus the amount of any borrowings for investment purposes, in securities of issuers from several different countries, excluding the United States. Although the portfolio intends to invest substantially all of its assets in issuers located outside the United States, it may at times invest in U.S. issuers, and it may, under unusual circumstances, invest all of its assets in a single country. The portfolio may have significant exposure to emerging markets. Within the parameters of its specific investment policies, the portfolio may invest in foreign equity and debt securities, which may include investments in emerging markets.
 
   
Janus Aspen Series Large Cap Growth Portfolio – Institutional Shares

Advisor — Janus Capital Management LLC
  This portfolio seeks long-term growth of capital in a manner consistent with the preservation of capital by investing, under normal circumstances, at least 80% of its net assets plus the amount of any borrowings for investment purposes, in common stocks of large-sized companies. Large sized companies are those whose market capitalization falls within the range of companies in the Russell 1000 Index at the time of purchase. Within the parameters of its specific investment policies, the portfolio may invest without limit in foreign equity and debt securities, which may include investments in emerging markets.
 
   
Janus Aspen Series Mid Cap Growth Portfolio – Institutional Shares

Advisor — Janus Capital Management LLC
  This diversified portfolio seeks long-term growth of capital by investing, under normal circumstances, at least 80% of its net assets plus the amount of any borrowings for investment purposes, in equity securities of mid -sized companies whose market capitalization falls, at the time of purchase, in the 12-month average of the capitalization range of the Russell Midcap Growth Index. Within the parameters of its specific investment policies, the portfolio may invest in foreign equity and debt securities, which may include investments in emerging markets.
 
   
Oppenheimer Variable Account Funds
     
Oppenheimer Balanced Fund/VA – Non-Service Shares

Advisor — OppenheimerFunds, Inc.
  The Fund seeks a high total investment return, which includes current income and capital appreciation in the value of its shares.
 
   
Oppenheimer Capital Appreciation Fund/VA – Non-Service Shares

Advisor — OppenheimerFunds, Inc.
  The Fund seeks capital appreciation by investing in securities of well-known, established companies.
 
   
Oppenheimer Main Street Fund®/VA – Non-Service Shares

Advisor — OppenheimerFunds, Inc.
  The Fund seeks high total return (which includes growth in the value of its shares as well as current income) from equity and debt securities.
PIMCO Variable Insurance Trust
     
PIMCO VIT Real Return Portfolio – Administrative Class

Advisor — Pacific Investment Management Company LLC
  The Portfolio seeks maximum real return consistent with preservation of real capital and prudent investment management. The Portfolio invests under normal circumstances at least 80% of its assets in inflation-indexed bonds of varying maturities issued by the U. S. and non-U. S. governments, their agencies or government-sponsored enterprises and corporations.

62


Table of Contents

     
Portfolio / Advisor   Investment Objective / Strategy
 
PIMCO VIT Total Return Portfolio – Administrative Class

Advisor — Pacific Investment Management Company LLC
  The Portfolio seeks maximum total return consistent with preservation of capital and prudent investment management. The Portfolio invests under normal circumstances at least 65% of its assets in a diversified Portfolio of Fixed Income Instruments of varying maturities. The Fund’s average portfolio duration normally varies within a three- to six-year time frame, based on the Advisor’s forecast for interest rates.
Van Kampen-The Universal Institutional Funds, Inc.
     
Van Kampen UIF Core Plus Fixed Income Portfolio – Class I

Adviser — Van Kampen(1)
  The investment objective of the Core Plus Fixed Income Portfolio is to seek above-average total return over a market cycle of three to five years by investing primarily in a diversified portfolio of fixed income securities. The Portfolio invests primarily in a diversified mix of dollar denominated investment grade fixed income securities, particularly U.S. Government, corporate and mortgage securities. The Portfolio will ordinarily seek to maintain an average weighted maturity between five and ten years. The Portfolio may invest opportunistically in non-dollar-denominated securities and high yield securities (commonly referred to as “junk bonds”). The Portfolio may invest over 50% of its assets in mortgage securities.
 
   
Van Kampen UIF Mid-Cap Growth Portfolio – Class I

Adviser—Van Kampen(1)
  The investment objective of the Mid Cap Growth Portfolio is to seek long-term capital growth by investing primarily in common stocks and toher equity securities. The portfolio invests primarily in growth-oriented equity securities of U.S. mid cap companies and foreign companies, including emerging market securities. The Adviser selects issues form a universe of mid cap companies, most with market capitalization of generally less than $35 billion. The Adviser seeks to invest in high quality companies it believes have sustainable competitive advantages and the ability to redeploy capital at high rates of return.
 
   
Van Kampen UIF U.S. Mid Cap Value Portfolio – Class I

Adviser — Van Kampen(1)
  The investment objective of the Mid Cap Value Portfolio is to seek above-average total return over a market cycle of three to five years by investing primarily in common stocks and equity securities. The Portfolio invests primarily in common stocks of companies traded on a U.S. securities exchange with capitalizations generally in the range of companies included in the Russell Midcap Value Index. The Adviser seeks attractively valued companies experiencing a change that is believed could have a positive impact on a company’s outlook, such as a change in management, industry dynamics or operational efficiency.
 
   
Van Kampen UIF U.S. Real Estate Portfolio – Class I

Adviser — Van Kampen(1)
  The investment objective of the U.S. Real Estate Portfolio is to seek above-average current income and long-term capital appreciation by investing primarily in equity securities of companies in the U.S. real estate industry, including real estate investment trusts (REITs).

63


Table of Contents

     
Portfolio / Advisor   Investment Objective / Strategy
 
Van Kampen UIF Value Portfolio – Class I

Adviser — Van Kampen(1)
  The investment objective of the Value Portfolio is to seek above-average total return over a market cycle of three to five years by investing primarily in common stocks and other equity securities. The Portfolio invests primarily in common stocks of companies with capitalizations generally greater than $1 billion. The Portfolio emphasizes a value style of investing seeking well established companies that appear undervalued and currently are not being recognized within the market place. The Portfolio may purchase stocks that do not pay dividends; and it may invest, to a limited extent, in foreign equity securities.
 
(1)   Morgan Stanley Investment Management Inc., which does business in certain instances using the name “Van Kampen,” serves as the investment advisor to the U.S. Mid Cap Value, Value, Core Plus Fixed Income and U.S. Real Estate Portfolios.
Wilshire Variable Insurance Trust
     
Wilshire 2010 Moderate Fund

Advisor — Wilshire Associates Incorporated
  The 2010 Moderate Fund’s investment objective is to provide high total return until its target retirement date. Thereafter, the 2010 Moderate Fund’s objective will be to seek high current income and, as a secondary objective, capital appreciation. The 2010 Moderate Fund operates under a fund of funds structure. The 2010 Moderate Fund invests in Underlying Funds according to a moderate asset allocation strategy designed for investors planning to retire in 2010, plus or minus two to three years. The 2010 Moderate Fund’s initial target allocation will be approximately 59% fixed income and 41% equity, with an increasing allocation to fixed income over time. Within 5 to 10 years after 2010, the 2010 Moderate Fund’s asset allocation should be approximately 80% investment in fixed income securities and the remaining 20% in equity securities.
 
   
Wilshire 2015 Moderate Fund

Advisor — Wilshire Associates Incorporated
  The 2015 Moderate Fund’s investment objective is to provide high total return until its target retirement date. Thereafter the 2015, Moderate Fund’s objective will be to seek high current income and, as a secondary objective, capital appreciation. The 2015 Moderate Fund operates under a fund of funds structure. The 2015 Moderate Fund invests in Underlying Funds according to a moderate asset allocation strategy designed for investors planning to retire in 2015, plus or minus two to three years. The 2015 Moderate Fund’s initial target allocation will be approximately 51% equity and 49% fixed income, with an increasing allocation to fixed income over time. Within 5 to 10 years after 2015, the 2015 Moderate Fund’s asset allocation should be approximately 80% investment in fixed income securities and the remaining 20% in equity securities.
 
   
Wilshire 2025 Moderate Fund

Advisor — Wilshire Associates Incorporated
  The 2025 Moderate Fund’s investment objective is to provide high total return until its target retirement date. Thereafter, the 2025 Moderate Fund’s objective will be to seek high current income and, as a secondary objective, capital appreciation. The 2025 Moderate Fund operates under a fund of funds structure. The 2025 Moderate Fund invests in Underlying Funds according to a moderate asset allocation strategy designed for investors planning to retire in 2025, plus or minus two to three years. The 2025 Moderate Fund’s initial target allocation will be approximately 72% equity and 28% fixed income, with an increasing allocation to fixed income over time. Within 5 to 10 years after 2025, the 2025 Moderate Fund’s asset allocation should be approximately 80% investment in fixed income securities and the remaining 20% in equity securities.

64


Table of Contents

     
Portfolio / Advisor   Investment Objective / Strategy
 
Wilshire 2035 Moderate Fund

Advisor — Wilshire Associates Incorporated
  The 2035 Moderate Fund’s investment objective is to provide high total return until its target retirement date. Thereafter, the 2035 Moderate Fund’s objective will be to seek high current income and, as a secondary objective, capital appreciation. The 2035 Moderate Fund operates under a fund of funds structure. The 2035 Moderate Fund invests in Underlying Funds according to a moderate asset allocation strategy designed for investors planning to retire in 2035, plus or minus two to three years. The 2035 Moderate Fund’s initial target allocation will be approximately 92% equity and 8% fixed income, with an increasing allocation to fixed income over time. Within 5 to 10 years after 2035, the 2035 Moderate Fund’s asset allocation should be approximately 80% investment in fixed income securities and the remaining 20% in equity securities.
 
   
Wilshire 2045 Moderate Fund

Advisor—Wilshire Associates Incorporated
  The 2045 Moderate Fund’s investment objective is to provide high total return until its target retirement date. Thereafter, the 2045 Moderate Fund’s objective will be to seek high current income and, as a secondary objective, capital appreciation. The 2045 Moderate Fund operates under a fund of funds structure. The 2045 Moderate Fund invests in Underlying Funds according to a moderate asset allocation strategy designed for investors planning to retire in 2045, plus or minus two to three years. The 2045 Moderate Fund’s initial target allocation will be approximately 100% equity, with an increasing allocation to fixed income over time. Within 5 to 10 years after 2045, the 2045 Moderate Fund’s asset allocation should be approximately 80% investment in fixed income securities and the remaining 20% in equity securities.

65


Table of Contents

APPENDIX C: TRANSFER RESTRICTIONS
Restrictions on Transfers; Disruptive Trading, Market Timing and Frequent Transfers
We discourage (and will take action to deter) short-term trading in the Contracts because the frequent movement between or among Subaccounts may negatively impact other Contract Owners, Annuitants and Beneficiaries. Short-term trading can result in:
    the dilution of Accumulation Unit Values or Portfolio net asset values
 
    Portfolio advisors taking actions that negatively impact performance such as keeping a larger portion of the Portfolio assets in cash or liquidating investments prematurely in order to support redemption requests
 
    increased administrative costs due to frequent purchases and redemptions
To help protect Contract Owners, Annuitants and Beneficiaries from the negative impact of these practices, we have implemented several processes and/or restrictions aimed at eliminating the negative impact of active trading strategies. There is no guarantee that we will be able to detect harmful trading practices, or, if it is detected, to prevent recurrences.
U.S. Mail Restrictions on Persons Engaged in Harmful Trading Practices
We monitor transfer activity in order to identify those who may be engaged in harmful trading practices and we produce and examine transaction reports. Generally, a Contract may appear on these reports if the Contract Owner (or a third party acting on their behalf) engages in a certain number of “transfer events” in a given period. A “transfer event” is any transfer, or combination of transfers, occurring on a given trading day (Valuation Date). For example, multiple transfers by a Contract Owner involving 10 underlying Portfolios in one day count as one transfer event. A single transfer occurring on a given trading day and involving only 2 underlying Portfolios (or one underlying Portfolio if the transfer is made to or from the Fixed Account options) will also count as one transfer event. A transfer event would not include a transfer made pursuant to one of the automatic transfer programs such as dollar cost averaging, portfolio rebalancing and interest sweep.
As a result of this monitoring process, we may restrict the method of communication by which transfer requests will be accepted. In general, we will adhere to the following guidelines:
     
Trading Behavior   Our Response
6 or more transfer
  We will mail a letter to the Contract Owner notifying the Contract Owner that:
events in one quarter of a Contract Year
 
(1) we have identified the Contract Owner as a person engaging in harmful trading practices; and
 
 
(2) if the Contract Owner’s transfer events exceed 12 in one Contract Year, we will automatically require the Contract Owner to submit transfer requests via regular first-class U.S. mail and we will not accept transfer requests from the Contract Owner that are sent by other means such as electronic means or overnight, priority or courier delivery.
 
   
More than 12 transfer events in one Contract Year
  We will automatically require the Contract Owner to submit transfer requests via regular first-class U.S. mail and we will not accept transfer requests from the Contract Owner that are sent by any other means.
On each Contract Anniversary, we will start the monitoring anew, so that each Contract starts with zero transfer events the first day of each new Contract Year. See, however, the “Other Restrictions” provision below.
U.S Mail Restrictions on Managers of Multiple Contracts
Some investment advisors/representatives manage the assets of multiple Contracts pursuant to trading authority granted or conveyed by multiple Contract Owners. We generally will require these multi-contract advisors to submit all transfers requests via regular first-class U.S. mail.

66


Table of Contents

Other Restrictions
We reserve the right to refuse or limit transfer requests, or take any other action we deem necessary, in order to protect Contract Owners, Annuitants, and Beneficiaries from the negative investment results that may result from short-term trading or other harmful investment practices employed by some Contract Owners (or third parties acting on their behalf). In particular, trading strategies designed to avoid or take advantage of our monitoring procedures (and other measures aimed at curbing harmful trading practices) that are nevertheless determined by us to constitute harmful trading practices, may be restricted. We will consider the following factors:
  the dollar amount involved in the transfer event
 
  the total assets of the Portfolio involved in the transfer event
 
  the number of transfer events completed in the current quarter of the Contract Year
 
  whether the transfer event is part of a pattern of transfer events designed to take advantage of short-term market fluctuations or market efficiencies
In addition, the Portfolios reserve the right, in their sole discretion and without prior notice, to reject, restrict or refuse purchase orders received from insurance company separate accounts that the Portfolios determine not to be in the best interest of their shareholders. We will apply such rejections, restrictions or refusals by the Portfolios uniformly and without exception.
The restrictions discussed above are designed to prevent harmful trading practices. Despite such transfer restrictions, there is a risk that such harmful trading practices could still occur. If we determine our goal of curtailing harmful trading practices is not being fulfilled, we may amend or replace the procedures described above without prior notice. We will consider waiving the procedures described above for unanticipated financial emergencies.

67


Table of Contents

ANNUITY INVESTORS LIFE INSURANCE COMPANY®
ANNUITY INVESTORS®VARIABLE ACCOUNT B
THE COMMODORE SPIRIT ®
GROUP AND INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITY
SUPPLEMENTAL PROSPECTUS DATED MAY 1, 2007
Annuity Investors Life Insurance Company (“the Company”) is providing you with this Supplemental Prospectus that supplements and should be read with the prospectus (“Contract Prospectus”) dated May 1, 2007, for The Commodore Spirit® Variable Annuity (the “Contract”). The Contract Prospectus contains details regarding your Contract. Please read the Contract Prospectus and this Supplemental Prospectus carefully and keep them for future reference. Unless otherwise indicated, terms used in this Supplemental Prospectus have the same meaning as in the Contract Prospectus.
THIS SUPPLEMENTAL PROSPECTUS PROVIDES INFORMATION YOU SHOULD KNOW REGARDING THE OPTIONAL ENHANCED DEATH BENEFIT RIDER IF YOU WERE A CONTRACT OWNER PRIOR TO MAY 1, 2003 AND YOU PURCHASED THE OPTIONAL ENHANCED DEATH BENEFIT RIDER.
The Statement of Additional Information (“SAI”) dated May 1, 2007, contains more information about the Company, the Separate Account and the Contracts, including the Subaccounts. The Company filed the SAI with the Securities and Exchange Commission (SEC) and it is legally part of the Contract Prospectus and this Supplemental Prospectus. The table of contents for the SAI is located on the last page of the Contract Prospectus. For a free copy, complete and return the form on the last page of the Contract Prospectus, or call the Company at 1-800-789-6771. You may also access the SAI and the other documents filed with the SEC about the Company, the Separate Account and the Contracts at the SEC’s website: http://www.sec.gov. The registration number for The Commodore Spirit® is 333-19725.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THE CONTRACT PROSPECTUS OR THIS SUPPLEMENTAL PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
You should rely only on the information contained in the Contract, the Contract Prospectus, this Supplemental Prospectus, the SAI, or our approved sales literature. The description of the Contract in the Contract Prospectus and this Supplemental Prospectus is subject to the specific terms of your Contract as it contains specific contractual provisions and conditions. If the terms of your Contract differ from those in the Contract Prospectus or this Supplemental Prospectus, you should rely on the terms in your Contract. No one is authorized to give any information or make any representation other than those contained in the Contract, the Contract Prospectus, this Supplemental Prospectus, the SAI or our approved sales literature.

These securities may be sold by a bank or credit union, but are not financial institution products.
  The contracts are not FDIC or NCUSIF insured.
 
  The contracts are obligations of the company and not of the bank or credit union.
 
  The bank or credit union does not guarantee the company’s obligations under the contracts.
 
  The contracts involve investment risk and may lose value.

1


Table of Contents

SECTIONS OF PROSPECTUS AMENDED OR REPLACED IN THEIR ENTIRETY
The “Separate Account Annual Expenses” and the “Examples” subsections of the “EXPENSE TABLES” section of the Contract Prospectus is deleted, and is replaced in its entirety by the following:
                         
            Optional Death   Optional Death
Separate Account Annual Expenses           Benefit Contracts   Benefit Contracts
(as a % of the average value of the           (Issue Age 65 and   (Issue Age over 65
Owner’s interest in the Subaccounts)   Standard Contracts   younger)   and under 79)
Mortality and Expense Risk Charge
    1.25 %     1.35 %     1.50 %
Administration Charge
    0.15 %     0.15 %     0.15 %
 
                       
Total Separate Account Annual Expenses
    1.40 %     1.50 %     1.65 %
Examples
These examples are intended to help you compare the cost of investing in the Contract with the cost of investing in other variable annuity contracts. These costs include the Contract Owner transaction expenses (described in the first table), the annual contract maintenance fee and the Separate Account expenses (described in the second table), and Portfolio fees and expenses (described in the third table).
Example 1: Contract with Highest Possible Separate Account Charges
Assumptions
  When you are over age 65, you invest $10,000 in a Contract with the Optional Death Benefit for the periods indicated and your investment has a 5% return each year.
 
  The annual contract maintenance fee of $30 and Separate Account annual expenses of 1.65% are incurred.
 
  The maximum Portfolio expenses before reimbursement (10.73%) or after reimbursement (1.67%) are incurred or the minimum Portfolio expenses (0.27%) are incurred.
 
  Table #1 assumes that you surrender your Contract at the end of the indicated period and the applicable contingent deferred sales charge is incurred.
 
  Table #2 assumes that you annuitize your Contract at the end of the indicated period or you keep your Contract and leave your money in your Contract for the entire period.
     (1) If you surrender your Contract at the end of the period:
                                 
    1 year   3 years   5 years   10 years
Maximum portfolio expenses before reimbursement
    1,902       4,043       6,130       11,523  
Maximum portfolio expenses after reimbursement
    1,070       1,680       2,392       4,892  
Minimum portfolio expenses
    928       1,236       1,619       3,171  
     (2) If you annuitize your Contract at the end of the period or keep your Contract for the entire period:
                                 
    1 year   3 years   5 years   10 years
Maximum portfolio expenses before reimbursement
    1,202       3,543       5,830       11,523  
Maximum portfolio expenses after reimbursement
    370       1,180       2,092       4,892  
Minimum portfolio expenses
    228       736       1,319       3,171  

2


Table of Contents

Example 2: Contract with Lowest Possible Separate Account Charges
Assumptions
  You invest $10,000 in a Contract with no optional features for the periods indicated and your investment has a 5% return each year.
 
  The annual contract maintenance fee of $30 and Separate Account annual expenses of 1.40% are incurred.
 
  The maximum Portfolio expenses before reimbursement (10.73%) or after reimbursement (1.67%) are incurred or the minimum Portfolio expenses (0.27%) are incurred.
 
  Table #1 assumes that you surrender your Contract at the end of the indicated period and the applicable contingent deferred sales charge is incurred.
 
  Table #2 assumes that you annuitize your Contract at the end of the indicated period or you keep your Contract and leave your money in your Contract for the entire period.
     (1) If you surrender your Contract at the end of the period:
                                 
    1 year   3 years   5 years   10 years
Maximum portfolio expenses before reimbursement
    1,879       3,983       6,043       11,401  
Maximum portfolio expenses after reimbursement
    1,045       1,603       2,259       4,604  
Minimum portfolio expenses
    903       1,155       1,477       2,839  
     (2) If you annuitize your Contract at the end of the period or keep your Contract for the entire period:
                                 
    1 year   3 years   5 years   10 years
Maximum portfolio expenses before reimbursement
    1,179       3,483       5,743       11,401  
Maximum portfolio expenses after reimbursement
    345       1,103       1,959       4,604  
Minimum portfolio expenses
    203       655       1,177       2,839  

3


Table of Contents

The “Mortality and Expense Risk Charge” subsection of the “CHARGES AND DEDUCTIONS” section of the Contract Prospectus is deleted, and is replaced in its entirety by the following:
Mortality and Expense Risk Charge
     
Purpose of Charge
  Compensation for bearing certain mortality and expense risks under the Contract. Mortality risks arise from the Company’s obligation to pay benefit payments during the Benefit Payment Period and to pay the death benefit. The expense risk assumed by the Company is the risk that the Company’s actual expenses in administering the Contracts and the Separate Account will exceed the amount recovered through the contract maintenance fees, transfer fees and administration charges.
 
   
Amount of Charge
  Daily charge equal to 0.003446% of the daily Net Asset Value for each Subaccount, which corresponds to an effective annual rate of 1.25%. Contracts with the 1.25% mortality and expense risk charge are referred to as “Standard Contracts.” For individual contracts with the optional Enhanced Death Benefit Amount, a daily charge equal to 0.003724% of the daily Net Asset Value for each Subaccount if issued to an Owner age 65 and younger, or 0.004141% of the daily Net Asset Value for each Subaccount if issued to an Owner over age 65 but under age 79, which correspond to an effective annual rate of 1.35% or 1.50%, respectively. Contracts with the optional Enhanced Death Benefit Amount are referred to as “Optional Death Benefit Contracts.” The optional Enhanced Death Benefit Amount is not available for Enhanced 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 Subaccounts. Not assessed against the Fixed Account options.
 
   
Waivers
  None.

4


Table of Contents

The “DEATH BENEFIT” section is amended by adding the following material:
Optional Enhanced Death Benefit Amount
If an Owner purchased an individual Contract that was issued before his 79th birthday, the Owner could have elected the optional Enhanced Death Benefit Amount. If elected, the additional charge for this benefit is included in the mortality and expense risk charge as described in the Charges and Deductions section of the Contract Prospectus. This benefit must have been elected before the Contract was issued. It cannot be discontinued after the Contract was issued. The optional Enhanced Death Benefit Amount was not available for Enhanced Contracts.
The Enhanced Death Benefit Amount will equal the greatest of:
  1)   the Account Value on the Death Benefit Valuation Date;
 
  2)   the Enhanced Minimum Death Benefit; or
 
  3)   the Enhanced Historic High Value.
The Enhanced Minimum Death Benefit is equal to total Purchase Payments, reduced proportionally for partial surrenders, and increased by interest, if any. This reduction will be in the same proportion that the Account Value was reduced on the date of the partial surrender. If the Owner dies before Age 80, interest compounds daily, at an effective annual interest rate of 5%, to the Death Benefit Valuation Date. If the Owner dies on or after his 80th birthday, interest compounds daily, at an effective annual interest rate of 5%, to the Contract Anniversary prior to the 80th birthday.
The Enhanced Historic High Value is equal to the Enhanced High Value, reduced proportionally for partial surrenders taken after that Enhanced High Value was reached. This reduction will be in the same proportion that the Account Value was reduced on the date of the partial surrender. The Enhanced High Value is the largest Account Value on any Contract Anniversary before the Death Benefit Valuation Date and prior to Age 80.
The death benefit will be allocated among the Subaccounts and Fixed Accounts options. This allocation will occur as of the Death Benefit Valuation Date. It will be made in the same proportion as the value of each option bears to the total Account Value immediately before that date.
Any applicable premium tax or other taxes not previously deducted, and any outstanding loans, will be deducted from the death benefit amounts 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 of the Contract 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.

5


Table of Contents

The “PERFORMANCE INFORMATION” section of the Contract Prospectus is deleted and is replaced in its entirety with the following:
From time to time, the Company may advertise yields and/or total returns for the Subaccounts. 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 SAI.
Yield Data
The “yield” of the money market Subaccount refers to the annualized income generated by an investment in that Subaccount over a specified seven-day period. The “effective yield” of the money market Subaccount is the same as the “yield” except that it assumes reinvestment of the income earned in that Subaccount. 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 Subaccount other than the money market Subaccount.
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 CDSC and contract 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. Total return data will be higher for a Contract without the Optional Death Benefit than for a Contract with this feature. If an Owner selects this feature, total return data will be higher if the Owner is age 65 or younger at issue than if the Owner is over age 65 at issue.
“Average annual total return” is either hypothetical or actual return data that reflects performance of a Subaccount 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 Subaccount 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 Subaccount 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 Subaccounts, 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:
    compare the performance of a Subaccount with applicable indices and/or industry averages;
 
    present performance information that reflects the effects of tax-deferred compounding on Subaccount investment returns;
 
    compare investment return on a tax-deferred basis with currently taxable investment return;
 
    illustrate investment returns by graphs, charts, or otherwise.

6


Table of Contents

“APPENDIX A—CONDENSED FINANCIAL INFORMATION” section of the Contract Prospectus is deleted, and is replaced in its entirety by the following:
                         
            Number of       Number of    
            Optional       Optional    
        Optional   Death Benefit   Optional   Death Benefit    
    Number of   Death Benefit   (issue age 65   Death Benefit   (issue age over    
    Standard   (issue age 65   and younger)   (issue age over   65/under 79)    
Standard   Accumulation   and younger)   Accumulation   65/under 79)   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
AIM V.I. Capital Development Fund-Series I Shares
12.930724
  1,168,401.050   12.903468   6,310.413   12.862718   0.000   12/31/06
11.254617
  16,459.887   11.242274   0.000   11.223784   0.000   12/31/05
10.413665
  2,721.825   10.412766   0.000   10.411424   0.000   12/31/04
AIM V.I. Core Equity Fund-Series I Shares
10.812798
  946,182.515   10.805412   0.000   10.794324   0.000   12/31/06
AIM V.I. Financial Services Fund-Series I Shares
13.250780
  177,386.400   13.175998   876.437   13.064550   0.000   12/31/06
11.540835
  198,663.153   11.487311   891.083   11.407448   0.000   12/31/05
11.051409
  208,252.570   11.011283   1,368.437   10.951339   0.000   12/31/04
10.313195
  157,061.561   10.286102   876.436   10.245574   0.000   12/31/03
8.070175
  118,822.635   8.056892   876.437   8.037010   0.000   12/31/02
9.616190
  71,816.401   9.609846   876.437   9.600337   0.000   12/31/01
AIM V.I. Global Health Care Fund-Series I Shares
11.212446
  367,788.244   11.149126   1,501.864   11.054841   0.000   12/31/06
10.805644
  405,402.095   10.755506   1,502.260   10.680752   0.000   12/31/05
10.132965
  382,011.757   10.096155   1,502.673   10.041208   0.000   12/31/04
9.553444
  311,542.224   9.528348   1,503.131   9.490821   0.000   12/31/03
7.580976
  210,450.701   7.568511   1,503.619   7.549835   0.000   12/31/02
10.175290
  59,824.959   10.168588   1,261.503   10.158532   0.000   12/31/01
AIM V.I. High Yield Fund-Series I Shares
11.887590
  336,558.419   11.855400   1,002.991   11.807325   0.000   12/31/06
10.886907
  350,885.548   10.868424   1,004.559   10.840779   0.000   12/31/05
10.749148
  449,939.142   10.741765   1,233.507   10.730713   0.000   12/31/04
10.095432
  859,221.923   10.031841   1,210.056   9.936502   0.000   12/31/03
8.186958
  488,086.809   8.143408   983.299   8.077935   0.000   12/31/02
8.410616
  546,183.962   8.374125   646.543   8.319082   0.000   12/31/01
10.025816
  403,918.794   N/A   N/A   N/A   N/A   12/31/00
11.510803
  221,636.210   N/A   N/A   N/A   N/A   12/31/99
10.689459
  70,047.913   N/A   N/A   N/A   N/A   12/31/98
10.687084
  10,260.821   N/A   N/A   N/A   N/A   12/31/97
AIM V.I. Small Cap Equity Fund-Series I Shares
12.572746
  59,594.167   12.546245   940.773   12.506629   0.000   12/31/06
10.857407
  15,527.249   10.845488   0.000   10.827663   0.000   12/31/05
10.184771
  48.134   10.183894   0.000   10.182575   0.000   12/31/04
AIM V.I. Small Cap Growth Fund-Series I Shares
10.356858
  145,499.534   10.298362   288.452   10.211231   0.000   12/31/06
9.203351
  141,453.043   9.160636   212.180   9.096934   0.000   12/31/05
8.873033
  123,848.236   8.840784   68.639   8.792640   0.000   12/31/04
7.900935
  131,306.947   7.880151   63.208   7.849089   0.000   12/31/03
6.004149
  155,173.901   5.994252   27.131   5.979440   0.000   12/31/02
8.838420
  27,720.462   8.832577   5.420   8.823828   0.000   12/31/01

7


Table of Contents

                         
            Number of       Number of    
            Optional       Optional    
        Optional   Death Benefit   Optional   Death Benefit    
    Number of   Death Benefit   (issue age 65   Death Benefit   (issue age over    
    Standard   (issue age 65   and younger)   (issue age over   65/under 79)    
Standard   Accumulation   and younger)   Accumulation   65/under 79)   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
American Century VP Large Company Value-Class I Shares
12.494572
  420,902.275   12.468255   1,522.201   12.428869   0.000   12/31/06
10.560864
  99,384.541   10.549289   0.000   10.531928   0.000   12/31/05
10.216542
  36,701.792   10.215664   0.000   10.214341   0.000   12/31/04
American Century VP Mid Cap Value-Class I Shares
13.320957
  911,824.088   13.292897   2,820.049   13.250911   0.000   12/31/06
11.229852
  114,376.075   11.217536   6.706   11.199085   0.000   12/31/05
10.395465
  24,970.228   10.394574   0.000   10.393228   0.000   12/31/04
American Century VP Ultra®-Class I Shares
9.979396
  707,542.380   9.958375   1,833.836   9.926893   457.152   12/31/06
10.463493
  32,615.015   10.452014   953.169   10.434817   0.000   12/31/05
10.386756
  598.086   10.385861   0.000   10.384520   0.000   12/31/04
American Century VP VistaSM-Class I Shares
11.918299
  976,806.445   11.893183   1,258.202   11.855601   0.000   12/31/06
11.088360
  79,780.294   11.076211   0.000   11.057991   0.000   12/31/05
10.399373
  4,938.285   10.398477   0.000   10.397136   0.000   12/31/04
Dreyfus IP Technology Growth Portfolio-Initial Shares
10.684409
  1,309,668.746   10.661865   836.015   10.628168   0.000   12/31/06
10.388053
  32,100.558   10.376648   0.000   10.359578   0.000   12/31/05
10.151024
  198.889   10.150148   0.000   10.148837   0.000   12/31/04
The Dreyfus Socially Responsible Growth Fund, Inc.-Initial Shares
11.353220
  701,011.037   11.246730   571.225   11.089206   0.000   12/31/06
10.543914
  795,479.598   10.455586   572.420   10.324804   0.000   12/31/05
10.320091
  913,267.538   10.243995   573.667   10.131229   0.000   12/31/04
9.854396
  925,266.631   9.791601   574.951   9.698454   0.000   12/31/03
7.930106
  960,232.146   7.887332   576.445   7.823843   0.000   12/31/02
11.317226
  1,066,026.751   11.267308   297.025   11.193188   0.000   12/31/01
14.823134
  894,007.973   N/A   N/A   N/A   N/A   12/31/00
16.894039
  408,482.196   N/A   N/A   N/A   N/A   12/31/99
13.169143
  140,614.024   N/A   N/A   N/A   N/A   12/31/98
10.320883
  26,332.500   N/A   N/A   N/A   N/A   12/31/97
Dreyfus Stock Index Fund, Inc.-Initial Shares
15.179498
  4,190,418.249   15.037150   8,606.065   14.826623   348.268   12/31/06
13.328744
  4,493,460.193   13.217108   10,752.810   13.051861   308.257   12/31/05
12.911696
  4,792,865.682   12.816515   10,754.602   12.675499   244.418   12/31/04
11.835440
  4,670,251.024   11.760043   10,627.818   11.648244   175.894   12/31/03
9.349226
  4,454,143.840   9.298818   10,366.380   9.224023   95.159   12/31/02
12.210993
  4,141,595.630   12.157172   6,156.673   12.077250   5.882   12/31/01
14.100696
  3,598,196.884   N/A   N/A   N/A   N/A   12/31/00
15.760394
  2,129,772.165   N/A   N/A   N/A   N/A   12/31/99
13.250646
  779,485.606   N/A   N/A   N/A   N/A   12/31/98
10.479569
  69,510.645   N/A   N/A   N/A   N/A   12/31/97

8


Table of Contents

                         
            Number of       Number of    
            Optional       Optional    
        Optional   Death Benefit   Optional   Death Benefit    
    Number of   Death Benefit   (issue age 65   Death Benefit   (issue age over    
    Standard   (issue age 65   and younger)   (issue age over   65/under 79)    
Standard   Accumulation   and younger)   Accumulation   65/under 79)   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
Dreyfus VIF Appreciation Portfolio-Initial Shares
15.017729
  946,182.350   14.876931   712.903   14.668611   0.000   12/31/06
13.075735
  1,005,802.778   12.966250   700.950   12.804099   0.000   12/31/05
12.704674
  1,036,367.953   12.611044   2,683.933   12.472252   0.000   12/31/04
12.265787
  936,025.635   12.187676   2,743.369   12.071769   0.000   12/31/03
10.264481
  821,738.414   10.209165   2,136.034   10.127012   0.000   12/31/02
12.497173
  717,965.716   12.442111   17.774   12.360270   0.000   12/31/01
13.974173
  649,590.073   N/A   N/A   N/A   N/A   12/31/00
14.262203
  517,772.082   N/A   N/A   N/A   N/A   12/31/99
12.975443
  170,523.015   N/A   N/A   N/A   N/A   12/31/98
10.103905
  18,347.666   N/A   N/A   N/A   N/A   12/31/97
Dreyfus VIF Developing Leaders Portfolio-Initial Shares
15.049986
  807,530.215   14.909246   2,001.076   14.700497   0.000   12/31/06
14.708620
  908,638.512   14.585834   1,862.093   14.403471   0.000   12/31/05
14.099077
  919,021.905   13.995525   1,884.890   13.841520   0.000   12/31/04
12.842412
  898,484.551   12.760941   1,500.700   12.639610   0.000   12/31/03
9.888294
  887,931.962   9.835242   1,414.885   9.756123   0.000   12/31/02
12.397758
  698,539.631   12.343426   1,920.104   12.262277   0.000   12/31/01
13.391746
  482,890.909   N/A   N/A   N/A   N/A   12/31/00
11.984035
  275,503.637   N/A   N/A   N/A   N/A   12/31/99
9.867472
  171,968.905   N/A   N/A   N/A   N/A   12/31/98
10.362314
  41,359.506   N/A   N/A   N/A   N/A   12/31/97
Dreyfus VIF Growth and Income Portfolio-Initial Shares
12.799045
  534,977.589   12.678713   5.035   12.501186   0.000   12/31/06
11.335178
  573,338.603   11.239975   26.192   11.099424   0.000   12/31/05
11.122877
  660,745.227   11.040630   15.504   10.919139   0.000   12/31/04
10.496627
  594,854.140   10.429505   36.570   10.330339   0.000   12/31/03
8.409071
  633,983.863   8.363529   16.060   8.296242   0.000   12/31/02
11.419341
  646,842.656   11.368715   0.881   11.293965   0.000   12/31/01
12.299306
  572,006.660   N/A   N/A   N/A   N/A   12/31/00
12.961023
  331,756.261   N/A   N/A   N/A   N/A   12/31/99
11.243790
  159,409.837   N/A   N/A   N/A   N/A   12/31/98
10.196538
  32,231.762   N/A   N/A   N/A   N/A   12/31/97
Dreyfus VIF Money Market Portfolio
1.183188
  6,426,348.042   1.175965   3,051.950   1.161351   0.000   12/31/06
1.152576
  6,753,332.466   1.146196   3,086.642   1.133280   0.000   12/31/05
1.140557
  5,458,310.932   1.135018   2,378.735   1.123802   0.000   12/31/04
1.146684
  11,398,828.937   1.142058   2,540.928   1.132483   0.000   12/31/03
1.153638
  26,597,370.970   1.150055   3,512.734   1.141986   0.000   12/31/02
1.153108
  17,775,594.379   1.150535   3,127.264   1.143962   0.000   12/31/01
1.128116
  7,677,545.259   N/A   N/A   N/A   N/A   12/31/00
1.083700
  2,638,837.162   N/A   N/A   N/A   N/A   12/31/99
1.050876
  658,981.650   N/A   N/A   N/A   N/A   12/31/98
1.016499
  0.000   N/A   N/A   N/A   N/A   12/31/97

9


Table of Contents

                         
            Number of       Number of    
            Optional       Optional    
        Optional   Death Benefit   Optional   Death Benefit    
    Number of   Death Benefit   (issue age 65   Death Benefit   (issue age over    
    Standard   (issue age 65   and younger)   (issue age over   65/under 79)    
Standard   Accumulation   and younger)   Accumulation   65/under 79)   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
DWS Small Cap Index VIP-Class A
17.321028
  452,371.808   17.188175   615.066   16.992513   0.000   12/31/06
14.951171
  417,983.505   14.851525   403.707   14.704769   0.000   12/31/05
14.543337
  347,239.433   14.461037   126.904   14.339865   0.000   12/31/04
12.525203
  434,240.830   12.466875   127.064   12.381113   0.000   12/31/03
8.673629
  165,980.862   8.641731   127.264   8.594957   0.000   12/31/02
11.074827
  153,151.939   11.045017   0.000   11.001506   0.000   12/31/01
11.003134
  83,894.729   N/A   N/A   N/A   N/A   12/31/00
11.606269
  15,259.149   N/A   N/A   N/A   N/A   12/31/99
Janus Aspen Series Balanced Portfolio-Institutional Shares
20.527683
  2,849,443.225   20.335245   6,361.876   20.050525   649.982   12/31/06
18.802986
  3,224,954.488   18.645582   7,364.516   18.412437   623.013   12/31/05
17.664922
  3,596,278.746   17.534778   9,505.263   17.341815   579.214   12/31/04
16.507560
  3,685,075.400   16.402460   10,198.846   16.246497   948.104   12/31/03
14.676594
  3,702,620.254   14.597522   9,029.715   14.480100   715.911   12/31/02
15.907374
  3,578,735.833   15.837295   3,807.168   15.733155   4.244   12/31/01
16.920712
  3,181,464.624   N/A   N/A   N/A   N/A   12/31/00
17.556100
  1,571,579.505   N/A   N/A   N/A   N/A   12/31/99
14.043929
  373,285.807   N/A   N/A   N/A   N/A   12/31/98
10.604609
  30,519.754   N/A   N/A   N/A   N/A   12/31/97
Janus Aspen Series Forty Portfolio-Institutional Shares
11.403714
  1,272,789.383   11.316239   4,556.601   11.187310   0.000   12/31/06
10.576925
  1,421,322.533   10.506419   5,189.417   10.402496   0.000   12/31/05
9.505422
  1,369,066.381   9.451611   5,783.288   9.372331   0.000   12/31/04
8.153727
  1,483,721.928   8.115731   6,352.318   8.059826   0.000   12/31/03
6.859260
  1,548,077.357   6.834023   6,699.916   6.796979   0.000   12/31/02
8.247987
  1,650,016.481   8.225736   6,505.660   8.193291   0.000   12/31/01
10.678675
  1,384,637.536   N/A   N/A   N/A   N/A   12/31/00
13.234548
  471,936.628   N/A   N/A   N/A   N/A   13/31/99
Janus Aspen Series International Growth Portfolio-Institutional Shares
27.500771
  1,183,279.918   27.242589   1,771.310   26.861241   0.000   12/31/06
18.969977
  966,575.134   18.810903   1,200.533   18.575740   0.000   12/31/05
14.542258
  681,071.772   14.434891   896.152   14.276054   0.000   12/31/04
12.398800
  669,789.197   12.319658   1,184.660   12.202513   0.000   12/31/03
9.318679
  678,787.112   9.268321   1,063.812   9.193752   0.000   12/31/02
12.698027
  675,126.139   12.641893   805.229   12.558761   0.000   12/31/01
16.774550
  620,740.857   N/A   N/A   N/A   N/A   12/31/00
20.234788
  142,343.325   N/A   N/A   N/A   N/A   12/31/99
11.256365
  45,382.775   N/A   N/A   N/A   N/A   12/31/98
9.735841
  12,541.039   N/A   N/A   N/A   N/A   12/31/97

10


Table of Contents

                         
            Number of       Number of    
            Optional       Optional    
        Optional   Death Benefit   Optional   Death Benefit    
    Number of   Death Benefit   (issue age 65   Death Benefit   (issue age over    
    Standard   (issue age 65   and younger)   (issue age over   65/under 79)    
Standard   Accumulation   and younger)   Accumulation   65/under 79)   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
Janus Aspen Series Large Cap Portfolio-Institutional Shares
13.332590
  1,661,699.848   13.207761   1,925.851   13.022784   0.000   12/31/06
12.140136
  1,816,341.463   12.038658   3,283.014   11.888075   0.000   12/31/05
11.805932
  1,963,661.008   11.719098   3,242.404   11.590074   0.000   12/31/04
11.455733
  2,117,639.460   11.382949   3,520.817   11.274648   0.000   12/31/03
8.817912
  2,338,003.425   8.770520   3,725.518   8.699912   0.000   12/31/02
12.166993
  2,211,504.181   12.113565   2,990.215   12.033855   0.000   12/31/01
16.393493
  1,792,958.592   N/A   N/A   N/A   N/A   12/31/00
19.453513
  643,514.256   N/A   N/A   N/A   N/A   12/31/99
13.699715
  172,190.630   N/A   N/A   N/A   N/A   12/31/98
10.239960
  32,737.591   N/A   N/A   N/A   N/A   12/31/97
Janus Aspen Series Mid Cap Growth Portfolio-Institutional Shares
17.723408
  1,111,731.741   17.557561   1,325.013   17.311683   0.000   12/31/06
15.820887
  1,192,692.579   15.688702   2,182.697   15.492497   0.000   12/31/05
14.286652
  1,246,239.904   14.181621   2,234.591   14.025527   0.000   12/31/04
11.999290
  1,291,553.100   11.923077   2,739.816   11.809676   0.000   12/31/03
9.005921
  1,290,667.557   8.957530   2,939.253   8.885444   0.000   12/31/02
12.672131
  1,215,838.484   12.616505   1,551.472   12.533526   0.000   12/31/01
21.224171
  993,843.327   N/A   N/A   N/A   N/A   12/31/00
31.565210
  329,807.902   N/A   N/A   N/A   N/A   12/31/99
14.199318
  53,896.345   N/A   N/A   N/A   N/A   12/31/98
10.723950
  2,830.076   N/A   N/A   N/A   N/A   12/31/97
Oppenheimer Balanced Fund/VA-Non-Service Shares
11.545935
  284,653.565   11.521604   5,109.117   11.485214   0.000   12/31/06
10.535194
  293,699.326   10.523629   5,886.900   10.506322   0.000   12/31/05
10.284433
  3,001.731   10.283548   3,000.955   10.282217   0.000   12/31/04
Oppenheimer Capital Appreciation Fund/VA-Non-Service Shares
11.380578
  206,005.347   11.356572   712.676   11.320712   0.000   12/31/06
10.691883
  85,720.169   10.680139   0.000   10.662581   0.000   12/31/05
10.317159
  581.341   10.316268   0.000   10.314940   0.000   12/31/04
Oppenheimer Main Street Fund®/VA-Non-Service Shares
12.267378
  188,104.597   12.241524   705.457   12.202856   0.000   12/31/06
10.816022
  161,384.797   10.804162   723.894   10.786384   0.000   12/31/05
10.350617
  13,062.128   10.349722   0.000   10.348387   0.000   12/31/04
PIMCO VIT Real Return Portfolio-Administrative Class
10.154210
  212,006.902   10.132796   776.634   10.100786   0.000   12/31/06
10.224854
  240,401.144   10.213640   1,087.656   10.196826   0.000   12/31/05
10.156423
  10,066.473   10.155546   0.000   10.154235   0.000   12/31/04
PIMCO VIT Total Return Portfolio-Administrative Class
10.417487
  207,153.358   10.395533   778.595   10.362666   0.000   12/31/06
10.173284
  199,476.486   10.162115   1,094.555   10.145382   0.000   12/31/05
10.070332
  627.100   10.069464   0.000   10.068162   0.000   12/31/04

11


Table of Contents

                         
            Number of       Number of    
            Optional       Optional    
        Optional   Death Benefit   Optional   Death Benefit    
    Number of   Death Benefit   (issue age 65   Death Benefit   (issue age over    
    Standard   (issue age 65   and younger)   (issue age over   65/under 79)    
Standard   Accumulation   and younger)   Accumulation   65/under 79)   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
Van Kampen UIF Core Plus Fixed Income Portfolio-Class I
14.997858
  934,853.788   14.857509   4,453.465   14.649487   0.000   12/31/06
14.663212
  1,031,163.550   14.540695   4,465.442   14.358886   0.000   12/31/05
14.269584
  1,040,814.398   14.164679   3,763.472   14.008815   0.000   12/31/04
13.866152
  1,111,500.860   13.778094   4,004.390   13.647097   0.000   12/31/03
13.437077
  1,065,387.210   13.364910   4,148.255   13.257429   0.000   12/31/02
12.694998
  713,042.852   12.639254   1,707.009   12.556166   0.000   12/31/01
11.776122
  380,480.921   N/A   N/A   N/A   N/A   12/31/00
10.749115
  279,193.758   N/A   N/A   N/A   N/A   12/31/99
11.079965
  46,348.096   N/A   N/A   N/A   N/A   12/31/98
10.412276
  4.653   N/A   N/A   N/A   N/A   12/31/97
Van Kampen UIF U.S. Mid Cap Value Portfolio-Class I
23.159385
  581,474.070   22.942807   2,843.512   22.621528   419.476   12/31/06
19.459486
  530,733.841   19.297021   1,880.959   19.055685   420.270   12/31/05
17.572071
  467,487.388   17.443007   1,490.867   17.251006   421.176   12/31/04
15.551851
  417,352.873   15.453181   1,480.972   15.306202   0.000   12/31/03
11.143745
  383,714.571   11.083937   1,481.185   10.994728   0.000   12/31/02
15.699340
  335,452.774   15.630514   1,469.904   15.527702   0.000   12/31/01
16.438193
  253,713.630   N/A   N/A   N/A   N/A   12/31/00
15.049488
  183,388.647   N/A   N/A   N/A   N/A   12/31/99
12.705082
  111,076.120   N/A   N/A   N/A   N/A   12/31/98
11.113227
  16,674.966   N/A   N/A   N/A   N/A   12/31/97
Van Kampen UIF U.S. Real Estate Portfolio-Class I
36.711245
  617,880.841   36.367906   678.325   35.858905   0.000   12/31/06
26.969864
  638,271.701   26.744644   587.744   26.410335   0.000   12/31/05
23.367170
  618,052.255   23.195474   782.152   22.940309   0.000   12/31/04
17.374679
  549,927.036   17.264400   958.761   17.100290   0.000   12/31/03
12.811814
  469,712.672   12.743027   1,071.599   12.640537   0.000   12/31/02
13.094325
  269,466.499   13.036863   14.584   12.951155   0.000   12/31/01
12.088940
  147,402.642   N/A   N/A   N/A   N/A   12/31/00
9.482378
  86,941.426   N/A   N/A   N/A   N/A   12/31/99
9.758808
  43,786.457   N/A   N/A   N/A   N/A   12/31/98
11.101269
  7,200.060   N/A   N/A   N/A   N/A   12/31/97
Van Kampen UIF Value Portfolio-Class I
16.611311
  850,561.888   16.455411   949.440   16.224970   0.000   12/31/06
14.412225
  863,389.460   14.291407   893.362   14.112678   0.000   12/31/05
13.978413
  807,191.172   13.875252   1,221.823   13.722542   0.000   12/31/04
12.030718
  620,028.974   11.953963   1,175.072   11.840261   0.000   12/31/03
9.098209
  526,832.864   9.049071   1,116.611   8.976240   0.000   12/31/02
11.851536
  401,628.667   11.799174   31.284   11.721567   0.000   12/31/01
11.751659
  132,621.948   N/A   N/A   N/A   N/A   12/31/00
9.536137
  78,330.649   N/A   N/A   N/A   N/A   12/31/99
9.848411
  34,212.111   N/A   N/A   N/A   N/A   12/31/98
10.204064
  9,944.401   N/A   N/A   N/A   N/A   12/31/97

12


Table of Contents

The above table gives year-end Accumulation Unit information for each Subaccount from the end of the year of inception to December 31, 2006. 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 Subaccount shown other than the Dreyfus VIF-Money Market Portfolio Subaccount was 10.00000 as of July 15, 1997 (the Separate Account commencement date) or as of May 1, 1999 (the effective date of the Subaccounts) for the Janus Aspen Series Forty Portfolio-Institutional Shares and the DWS Small Cap Index VIP, or as of May 1, 2001 (the effective date of the Subaccounts) for the AIM V.I. Global Health Care Fund, AIM V.I. Financial Services Fund, and AIM V.I. Small Company Growth Fund or as of November 1, 2004 (the effective date of the Subaccounts) for AIM V.I. Capital Development Fund, AIM V.I. Small Cap Equity Fund, Dreyfus IP Technology Growth Portfolio, the four American Century Variable Portfolios, the three Oppenheimer Variable Account Funds and the two PIMCO Variable Insurance Funds. The beginning Accumulation Unit Value for the Dreyfus VIF-Money Market Portfolio Subaccount was 1.000000 as of July 15, 1997.
If you have invested in a Subaccount that is closed to new investors, the consolidated financial information for such Subaccounts will be contained in a special Supplemental Prospectus dated May 1, 2007 for closed Subaccounts.

13


Table of Contents

ANNUITY INVESTORS LIFE INSURANCE COMPANYÒ
ANNUITY INVESTORSÒ VARIABLE ACCOUNT B
THE COMMODORE SPIRITÒ
THE COMMODORE ADVANTAGEÒ
AND THE COMMODORE INDEPENDENCEÒ
GROUP AND INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITIES
SUPPLEMENTAL PROSPECTUS DATED MAY 1, 2007
Annuity Investors Life Insurance Company (“the Company,” “we,” “our” or “us”) is providing you with this Supplemental Prospectus that supplements and should be read with the prospectus (“Contract Prospectus”) dated May 1, 2007, for either The Commodore Spirit®, The Commodore Advantage® or The Commodore Independence® Variable Annuity (the “Contract”). The Contract Prospectus contains details regarding your Contract. Please read the Contract Prospectus and this Supplemental Prospectus carefully and keep them for future reference. Unless otherwise indicated, terms used in this Supplemental Prospectus have the same meaning as in the Contract Prospectus.
This Supplemental Prospectus provides information you should know before making any decision to allocate purchase payments or transfer amounts to the subaccounts (collectively, the “Closed Subaccounts”) investing in the following Portfolios:
     
 
  AIM Variable Investment Funds
 
  -AIM V.I. Dynamics Fund-Series I Shares
 
   
 
  Janus Aspen Series
 
  -Janus Aspen Series Worldwide Growth Portfolio-Institutional Shares
 
   
 
  The Timothy Plan Variable Series
 
  -The Timothy Plan Conservative Growth Variable Series
 
  -The Timothy Plan Small-Cap Variable Series
 
  -The Timothy Plan Strategic Growth Variable Series
The Timothy Plan Small-Cap Variable Series Closed Subaccount is an additional investment option of the Contracts available only to Contract Owners who held Accumulation Units in that Subaccount on April 30, 2002. The AIM V.I. Dynamics Fund Closed Subaccount, the Janus Aspen Series Worldwide Growth Closed Subaccount, The Timothy Plan Conservative Growth Variable Series Closed Subaccount, and The Timothy Plan Strategic Growth Variable Series Closed Subaccount are additional investment options of the Contracts available only to Contract Owners who held Accumulation Units in these Subaccounts on November 30, 2004. Each of these investment options will become unavailable to you once you no longer have money in that Subaccount. Unless the context requires otherwise, all provisions of the Contract Prospectus are applicable to the Subaccounts described in this Supplemental Prospectus.
The Statement of Additional Information (“SAI”) dated May 1, 2007, contains more information about the Separate Account and the Contracts, including the Subaccounts. We filed the SAI with the Securities and Exchange Commission (SEC) and it is legally part of the Contract Prospectus and this Supplemental Prospectus. The table of contents for the SAI is located on the last page of the Contract Prospectus. For a free copy, complete and return the form on the last page of the Contract Prospectus, or call us at 1-800-789-6771. You may also access the SAI and the other documents filed with the SEC about the Company, the Separate Account and the Contracts at the SEC’s website: http://www.sec.gov. The registration number for The Commodore Spirit® is 333-19725; The Commodore Advantage® is 333-51971; and The Commodore Independence® is 333-51955.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THE CONTRACT PROSPECTUS OR THIS SUPPLEMENTAL PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

1


Table of Contents

You should rely only on the information contained in the Contract, the Contract Prospectus, this Supplemental Prospectus, the SAI, or our approved sales literature. The description of the Contract in the Contract Prospectus is subject to the specific terms of your Contract as it contains specific contractual provisions and conditions. If the terms of your Contract differ from those in the Contract Prospectus, you should rely on the terms in your Contract. No one is authorized to give any information or make any representation other than those contained in the Contract, the Contract Prospectus, this Supplemental Prospectus, the SAI or our approved sales literature.

These securities may be sold by a bank or credit union, but are not financial institution products.
§   The Contracts are not FDIC or NCUSIF insured
 
§   The Contracts are obligations of the Company and not of the bank or credit union
 
§   The bank or credit union does not guarantee the Company’s obligations under the Contracts
 
§   The Contracts involve investment risk and may lose value

2


Table of Contents

FINANCIAL INFORMATION
Condensed Financial Information
Appendix A to this Supplemental Prospectus provides condensed financial information for the Commodore Spirit®, the Commodore Advantage®, and the Commodore Independence® variable annuities with respect to each Closed Subaccount. This information includes the following information:
  year-end accumulation unit value for each Closed Subaccount from the end of the year of inception through December 31, 2006
  number of accumulation units outstanding as of the end of each period.
Financial Statements
The financial statements and reports of the independent registered public accounting firm of the Company and of the Separate Account are included in the Statement of Additional Information.
THE PORTFOLIOS
The Separate Account currently offers each of the Closed Subaccounts only to the Contract Onwers who held Accumulation Units in such Closed Subaccount on the date it was closed to new investors (as indicated on the first page of this Supplemental Prospectus). Each Closed Subaccount invests in the corresponding Portfolio listed below, which has its own investment objectives, policies and practices. The current Portfolio prospectuses, which accompany this Supplemental Prospectus, contain additional information concerning the investment objectives and policies of the Portfolios, the investment advisory services and administrative services of the Portfolios, and the charges of the Portfolios.
You should read the Portfolio prospectuses and this Supplemental Prospectus carefully before making any decision concerning allocating additional purchase payments or transferring amounts to any of these Closed Subaccounts or the Subaccounts.
There is no assurance that any Portfolio will achieve its stated objectives. The SEC does not supervise the management or the investment policies and/or practices and/or of any Portfolio.
All dividends and capital gains distributed by the Portfolios are reinvested in the Separate Account and reflected in Accumulation Unit Value. Portfolio dividends and net capital gains are not distributed to Owners.
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 the Portfolios will be the same or similar to the investment performance of any publicly available mutual fund.

3


Table of Contents

     
Portfolio   Adviser and Type of Fund
AIM Variable Investment Funds
   
 
   
AIM V.I. Dynamics Fund-Series I Shares
  A I M Advisors, Inc.
 
  Mid cap growth
 
   
Janus Aspen Series
   
 
   
Janus Aspen Series Worldwide Growth Portfolio – Service Shares
  Janus Capital Management LLC
World stock
 
   
The Timothy Plan Variable Series
   
 
   
The Timothy Plan Conservative Growth Variable Series
  Timothy Partners, Ltd.
Asset allocation
 
   
The Timothy Plan Small-Cap Variable Series
  Timothy Partners, Ltd.
Small cap value
 
   
The Timothy Plan Strategic Growth Variable Series
  Timothy Partners, Ltd.
Asset allocation
Expenses of the Portfolios
In addition to charges and deductions by us, there are Portfolio management fees and administration expenses. These fees and expenses are described in the prospectuses and statements of additional information for the Portfolios. Portfolio expenses, like Separate Account expenses, are reflected in Accumulation Unit Values (or Benefit Unit Values).
Investment Options-Allocations
You may allocate purchase payments in whole percentages to any of the currently available Subaccounts described in the Contract Prospectus or to any of the Fixed Account options.
You may allocate purchase payments to The Timothy Plan Small-Cap Variable Series Closed Subaccount only if you held Accumulation Units in that Closed Subaccount as of April 30, 2002. This investment option will become unavailable to you once you no longer have Accumulation Units in these Closed Subaccounts.
You may allocate purchase payments to any of the following Closed Subaccounts only if you held Accumulation Units in the respective Closed Subaccount as of November 30, 2004.
§   AIM V.I. Dynamics Fund Closed Subaccount
§   Janus Aspen Series Worldwide Growth Portfolio Closed Subaccount
§   The Timothy Plan Conservative Growth Variable Series Closed Subaccount
§   The Timothy Plan Strategic Growth Variable Series Closed Subaccount
Each of these investment options will become unavailable to you once you no longer have money in that Closed Subaccount.
Substitutions of Portolios
As described in the Contract Prospectus, we may substitute a new Portfolio or similar investment option for any Portfolio in which a Subaccount invests. We would make a substitution to ensure the underlying Portfolio continues to be a suitable investment, consistent with the protection of investors. A substitution may be triggered by unsatisfactory investment performance, a change in laws or regulations, a change in a Portfolio’s investment objectives or restrictions, a change in the availability of the Portfolio for investment, or any other reason. Before any substitution, we will obtain any required approvals, including approval from the SEC or from Contract Owners.

4


Table of Contents

APPENDIX A: CONDENSED FINANCIAL INFORMATION
The tables below give year-end Accumulation Unit Information for the Commodore Spirit, Commodore Advantage, and Commodore Independence variable annuities with respect to each Closed Subaccount from the end of the year of inception through December 31, 2006. It should be read in conjunction with the Separate Account financial statements, including the notes to those statements. The beginning Accumulation Unit Value for each Closed Subaccount shown was 10.00000 as of July 15, 1997 (the Separate Account commencement date) for the Janus Aspen Series Worldwide Growth Portfolio, or as of May 1, 1998 (the effective date of the Closed Subaccounts) for The Timothy Plan Small-Cap Variable Series, or as of May 1, 2001 (the effective date of the Closed Subaccounts) for the AIM V.I. Dynamics Fund — Series I Shares, or as of May 1, 2002 (the effective date of the Closed Subaccounts) for The Timothy Plan Conservative Growth Variable Series and The Timothy Plan Strategic Growth Variable Series.
The Commodore Spirit® (Current Contract)
                         
                    Number of    
                Enhanced with   Enhanced with    
    Number of       Number of   Administration   Administration    
    Standard       Enhanced   Charges   Charges Waived    
Standard   Accumulation   Enhanced   Accumulation   Waived   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
AIM V.I. Dynamics Fund-Series I Shares        
10.287076
  105,073.806   10.463499   0.000   10.552834   88.031   12/31/06
8.984924
  75,896.111   9.111342   0.000   9.175262   60.280   12/31/05
8.229888
  77,529.977   8.320433   0.000   8.366155   23.763   12/31/04
7.364205
  63,086.332   7.422756   0.000   7.452291   0.000   12/31/03
5.417943
  78,143.205   5.444887   0.000   5.458451   0.000   12/31/02
8.067308
  93,275.876   8.083372   0.000   8.091444   0.000   12/31/01
Janus Aspen Series Worldwide Growth Portfolio-Institutional Shares        
14.717387
  1,410,898.731   15.139123   8,089.661   15.354205   198.036   12/31/06
12.627182
  1,622,445.152   12.949718   9,847.675   13.113864   180.878   12/31/05
12.096493
  1,892,337.612   12.367909   10,895.424   12.505798   292.617   12/31/04
11.708282
  2,099,555.231   11.934844   14,464.542   12.049706   277.111   12/31/03
 9.574914
  2,438,561.261   9.731344   10,650.649   9.810429   2,191.502   12/31/02
13.032840
  2,364,153.929   13.206482   7,650.835   13.294015   2,191.502   12/31/01
17.039678
  2,082,293.354   17.215191   5,014.610   17.303370   3,484.654   12/31/00
20.488548
  1,026,072.851   20.638429   2,225.846   20.713399   151.550   12/31/99
12.632936
  402,131.168   12.687776   123.659   12.715080   0.000   12/31/98
9.935860
  56,665.753   9.949496   0.000   9.956287   0.000   12/31/97
The Timothy Plan Conservative Growth Variable Series        
12.081358
  512,762.391   12.252064   13.418   12.338233   0.000   12/31/06
11.224446
  572,609.363   11.348586   13.418   11.411149   0.000   12/31/05
10.806880
  586,564.485   10.893329   175.420   10.936855   0.000   12/31/04
10.342389
  348,794.768   10.393659   37.886   10.419451   0.000   12/31/03
8.916475
  167,693.588   8.934171   0.200   8.943061   0.000   12/31/02

5


Table of Contents

                         
                    Number of    
                Enhanced with   Enhanced with    
    Number of       Number of   Administration   Administration    
    Standard       Enhanced   Charges   Charges Waived    
Standard   Accumulation   Enhanced   Accumulation   Waived   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
The Timothy Plan Small-Cap Variable Series        
20.317413
  218,626.764   20.850379   1,655.833   21.035880   0.000   12/31/06
17.335322
  277,780.814   17.736216   2,457.919   17.867005   0.000   12/31/05
17.697722
  310,246.389   18.052188   2,782.088   18.157863   0.000   12/31/04
16.103370
  325,717.236   16.376328   2,478.777   16.447350   0.000   12/31/03
11.570446
  411,952.278   11.731810   1,895.369   11.765228   0.000   12/31/02
14.201161
  358,967.966   14.356543   1,265.216   14.376029   0.000   12/31/01
12.876042
  256,856.613   12.978169   676.849   12.976380   0.000   12/31/00
12.097693
  94,238.615   12.157659   374.501   12.137973   0.000   12/31/99
10.283942
  29,293.327   10.304332   17.653   N/A   N/A   12/31/98
The Timothy Plan Strategic Growth Variable Series        
12.181313
  629,515.069   12.352932   0.000   12.439564   0.000   12/31/06
11.247959
  673,218.784   11.371889   0.000   11.434368   0.000   12/31/05
10.772978
  687,211.128   10.858721   0.000   10.901897   0.000   12/31/04
10.104822
  408,637.294   10.154501   0.000   10.179502   0.000   12/31/03
8.194917
  159,507.218   8.210855   0.000   8.218868   0.000   12/31/02

6


Table of Contents

The Commodore Spirit® (Contract with Death Benefit Rider No Longer Available*)
 
*   See The Commodore Spirit® Supplemental Prospectus dated May 1, 2007 regarding the Cancelled Death Benefit Rider for more information.
                         
            Number of       Number of    
            Optional       Optional    
        Optional   Death Benefit   Optional   Death Benefit    
    Number of   Death Benefit   (issue age 65   Death Benefit   (issue age over    
    Standard   (issue age 65   and younger)   (issue age over   65/under 79)    
Standard   Accumulation   and younger)   Accumulation   65/under 79)   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
AIM V.I. Dynamics Fund-Series I Shares        
10.287076
  105,073.806   10.228974   157.523   10.142423   0.000   12/31/06
8.984924
  75,896.111   8.943219   130.974   8.881025   0.000   12/31/05
8.229888
  77,529.977   8.199982   100.281   8.155318   0.000   12/31/04
7.364205
  63,086.332   7.344844   64.658   7.315884   0.000   12/31/03
5.417943
  78,143.205   5.409027   24.686   5.395649   0.000   12/31/02
8.067308
  93,275.876   8.061982   0.000   8.053984   0.000   12/31/01
Janus Aspen Series Worldwide Growth Portfolio-Institutional Shares        
14.717387
  1,410,898.731   14.579256   2,270.609   14.375089   0.000   12/31/06
12.627182
  1,622,445.152   12.521328   2,340.830   12.364730   0.000   12/31/05
12.096493
  1,892,337.612   12.007224   2,503.457   11.875064   0.000   12/31/04
11.708282
  2,099,555.231   11.633594   2,809.923   11.522959   0.000   12/31/03
9.574914
  2,438,561.261   9.523209   2,621.610   9.446581   0.000   12/31/02
13.032840
  2,364,153.929   12.975281   1,362.573   12.889939   0.000   12/31/01
17.039678
  2,082,293.354   N/A   N/A   N/A   N/A   12/31/00
20.488548
  1,026,072.851   N/A   N/A   N/A   N/A   12/31/99
12.632936
  402,131.168   N/A   N/A   N/A   N/A   12/31/98
9.935860
  56,665.753   N/A   N/A   N/A   N/A   12/31/97
The Timothy Plan Conservative Growth Variable Series        
12.081358
  512,762.391   12.025018   9,153.898   11.940953   0.000   12/31/06
11.224446
  572,609.363   11.183411   4,407.021   11.122095   0.000   12/31/05
10.806880
  586,564.485   10.778271   4,590.387   10.735463   0.000   12/31/04
10.342389
  348,794.768   10.325409   7,343.039   10.299964   0.000   12/31/03
8.916475
  167,693.588   8.910599   1,125.801   8.901785   0.000   12/31/02
The Timothy Plan Small-Cap Variable Series        
20.317413
  218,626.764   20.143256   976.759   19.884612   0.000   12/31/06
17.335322
  277,780.814   17.204132   781.843   17.009020   0.000   12/31/05
17.697722
  310,246.389   17.581568   782.093   17.408569   0.000   12/31/04
16.103370
  325,717.236   16.013800   604.436   15.880218   0.000   12/31/03
11.570446
  411,952.278   11.517409   4,231.387   11.438200   0.000   12/31/02
14.201161
  358,967.966   14.150023   13.748   14.073530   0.000   12/31/01
12.876042
  256,856.613   N/A   N/A   N/A   N/A   12/31/00
12.097693
  94,238.615   N/A   N/A   N/A   N/A   12/31/99
10.283942
  29,293.327   N/A   N/A   N/A   N/A   12/31/98
The Timothy Plan Strategic Growth Variable Series        
12.181313
  629,515.069   12.124648   175.753   12.040151   0.000   12/31/06
11.247959
  673,218.784   11.206981   140.480   11.145787   0.000   12/31/05
10.772978
  687,211.128   10.744596   590.905   10.702146   0.000   12/31/04
10.104822
  408,637.294   10.088364   3,195.360   10.063711   0.000   12/31/03
8.194917
  159,507.218   8.189622   4,019.666   8.181687   0.000   12/31/02

7


Table of Contents

The Commodore Independence® (Current Contract)
                         
            Number of       Number of    
            Enhanced       Enhanced    
        Enhanced   (1.10% Total   Enhanced   (0.90% Total    
        (1.10% Total   Separate   (0.90% Total   Separate    
    Number of   Separate   Account   Separate   Account    
    Standard   Account   Expenses)   Account   Expenses)    
Standard   Accumulation   Expenses)   Accumulation   Expenses)   Accumulation    
Accumulation   Units   Accumulation   Units   Accumulation   Units    
Unit Value   Outstanding   Unit Value   Outstanding   Unit Value   Outstanding   Year
AIM V.I. Dynamics Fund-Series I Shares        
10.287076
  105,073.806   10.463499   0.000   10.582630   0.000   12/31/06
8.984924
  75,896.111   9.111342   0.000   9.196547   0.000   12/31/05
8.229888
  77,529.977   8.320433   0.000   8.381370   0.000   12/31/04
7.364205
  63,086.332   7.422756   0.000   7.462101   7.139   12/31/03
5.417943
  78,143.205   5.444887   0.000   5.462949   0.000   12/31/02
8.067308
  93,275.876   8.083372   0.000   8.094120   0.000   12/31/01
Janus Aspen Series Worldwide Growth Portfolio-Institutional Shares        
14.717387
  1,410,898.731   15.139123   8,089.661   11.768528   0.000   12/31/06
12.627182
  1,622,445.152   12.949718   9,847.675   10.046327   0.000   12/31/05
12.096493
  1,892,337.612   12.367909   10,895.424   9.575676   0.000   12/31/04
11.708282
  2,099,555.231   11.934844   14,464.542   9.221822   46,144.266   12/31/03
9.574914
  2,438,561.261   9.731344   10,650.649   7.504379   39,742.411   12/31/02
13.032840
  2,364,153.929   13.206482   7,650.835   10.164080   32,752.139   12/31/01
17.039678
  2,082,293.354   N/A   N/A   N/A   N/A   12/31/00
20.488548
  1,026,072.851   N/A   N/A   N/A   N/A   12/31/99
12.632936
  402,131.168   N/A   N/A   N/A   N/A   12/31/98
9.935860
  56,665.753   N/A   N/A   N/A   N/A   12/31/97
The Timothy Plan Conservative Growth Variable Series        
12.081358
  512,762.391   12.252064   13.418   12.367019   0.000   12/31/06
11.224446
  572,609.363   11.348586   13.418   11.432023   0.000   12/31/05
10.806880
  586,564.485   10.893329   175.420   10.951356   0.000   12/31/04
10.342389
  348,794.768   10.393659   37.886   10.428026   0.000   12/31/03
8.916475
  167,693.588   8.934171   0.200   8.946009   0.000   12/31/02
The Timothy Plan Small-Cap Variable Series        
20.317413
  218,626.764   20.850379   1,655.833   21.150591   0.000   12/31/06
17.335322
  277,780.814   17.736216   2,457.919   17.955404   0.000   12/31/05
17.697722
  310,246.389   18.052188   2,782.088   18.238528   0.000   12/31/04
16.103370
  325,717.236   16.376328   2,478.777   16.512134   0.000   12/31/03
11.570446
  411,952.278   11.731810   1,895.369   11.805762   0.000   12/31/02
14.201161
  385,967.966   14.356543   1,265.216   14.418440   0.000   12/31/01
12.876042
  256,856.613   12.978169   676.849   13.008207   0.000   12/31/00
12.097693
  94,238.615   12.157659   374.501   12.137973   0.000   12/31/99
10.283942
  29,293.327   10.304332   17.653   N/A   N/A   12/31/98
The Timothy Plan Strategic Growth Variable Series        
12.181313
  629,515.069   12.352932   0.000   12.468482   0.000   12/31/06
11.247959
  673,218.784   11.371889   0.000   11.455183   0.000   12/31/05
10.772978
  687,211.128   10.858721   0.000   10.916251   0.000   12/31/04
10.104822
  408,637.294   10.154501   0.000   10.187798   0.000   12/31/03
8.194917
  159,507.218   8.210855   0.000   8.221523   0.000   12/31/02

8


Table of Contents

                 
Enhanced with   Number of Enhanced   Enhanced with   Number of Enhanced    
Administration   with Administration   Administration   with Administration    
charges waived   charges waived   charges waived   charges waived    
(0.95% Total   (0.95% Total   (0.75% Total   (0.75% Total    
Separate Account   Separate Account   Separate Account   Separate Account    
Expenses)   Expenses)   Expenses)   Expenses)    
Accumulation Unit   Accumulation Units   Accumulation Unit   Accumulation Units    
Value   Outstanding   Value   Outstanding   Year
AIM V.I. Dynamics Fund-Series I Shares
10.552834
  88.031   10.672996   122.199   12/31/06
9.175262
  60.280   9.261113   111.545   12/31/05
8.366155
  23.763   8.427490   63.240   12/31/04
7.452291
  0.000   7.491858   57.208   12/31/03
5.458451
  0.000   5.476583   18.335   12/31/02
8.091444
  0.000   8.102202   0.000   12/31/01
Janus Aspen Series Worldwide Growth Portfolio-Institutional Shares
15.354205
  198.036   11.918070   2,527.467   12/31/06
13.113864
  180.878   10.158682   2,571.733   12/31/05
12.505798
  292.617   9.668184   2,190.387   12/31/04
12.049706
  277.111   9.296883   2,169.871   12/31/03
9.810429
  2,191.502   7.554217   1,573.229   12/31/02
13.294015
  2,191.502   10.216331   0.000   12/31/01
The Timothy Plan Conservative Growth Variable Series
12.338233
  0.000   12.453961   4,166.020   12/31/06
11.411149
  0.000   11.495051   2,663.055   12/31/05
10.936855
  0.000   10.995154   133.936   12/31/04
10.419451
  0.000   10.453956   6.078   12/31/03
8.943061
  0.000   8.954924   0.000   12/31/02
The Timothy Plan Small-Cap Variable Series
21.035880
  0.000   21.380470   758.101   12/31/06
17.867005
  0.000   18.123238   739.509   12/31/05
18.157863
  0.000   18.381300   565.694   12/31/04
16.447350
  0.000   16.616330   366.035   12/31/03
11.765228
  0.000   11.862623   528.208   12/31/02
14.376029
  0.000   14.466293   0.000   12/31/01
12.976380
  0.000   N/A   N/A   12/31/00
12.137973
  0.000   N/A   N/A   12/31/99
N/A
  N/A   N/A   N/A   12/31/98
The Timothy Plan Strategic Growth Variable Series
12.439564
  0.000   12.555889   182.582   12/31/06
11.434368
  0.000   11.518110   132.752   12/31/05
10.901897
  0.000   10.959701   70.404   12/31/04
10.179502
  0.000   10.212939   30.285   12/31/03
8.218868
  0.000   8.229559   0.000   12/31/02

9


Table of Contents

The Commodore Advantage® (Current Contract)
                 
            Number of    
        Standard with   Standard with    
    Number of   Administration   Administration    
Standard   Standard   Charges Waived   Charges Waived    
Accumulation Unit   Accumulation Units   Accumulation Unit   Accumulation Units    
Value   Outstanding   Value   Outstanding   Year
AIM V.I. Dynamics Fund-Series I Shares    
10.287076
  105,073.806   10.374943   0.000   12/31/06
8.984924
  75,896.111   9.047929   0.000   12/31/05
8.229888
  77,529.977   8.275039   0.000   12/31/04
7.364205
  63,086.331   7.393411   0.000   12/31/03
5.417943
  78,143.205   5.431395   0.000   12/31/02
8.067308
  93,275.876   8.075340   0.000   12/31/01
Janus Aspen Series Worldwide Growth Portfolio-Institutional Shares    
14.717387
  1,410,898.731   11.427272   9,745.222   12/31/06
12.627182
  1,622,445.152   9.789468   17,865.960   12/31/05
12.096493
  1,892,337.612   9.363811   18,261.241   12/31/04
11.708282
  2,099,555.231   9.049605   17,208.944   12/31/03
9.574914
  2,438,561.261   7.389719   10,530.938   12/31/02
13.032840
  2,364,153.929   10.043546   0.000   12/31/01
17.039678
  2,082,293.354   N/A   N/A   12/31/00
20.488548
  1,026,072.851   N/A   N/A   12/31/99
12.632936
  402,131.168   N/A   N/A   12/31/98
9.935860
  56,665.753   N/A   N/A   12/31/97
The Timothy Plan Conservative Growth Variable Series    
12.081358
  512,762.391   12.166498   0.000   12/31/06
11.224446
  572,609.363   11.286400   856.937   12/31/05
10.806880
  586,564.485   10.850052   619.421   12/31/04
10.342389
  348,794.768   10.368005   0.000   12/31/03
8.916475
  167,693.588   8.925318   0.000   12/31/02
The Timothy Plan Small-Cap Variable Series    
20.317413
  218,626.764   20.453106   0.000   12/31/06
17.335322
  277,780.814   17.424644   0.000   12/31/05
17.697722
  310,246.389   17.761935   0.000   12/31/04
16.103370
  325,717.236   16.137364   0.000   12/31/03
11.570446
  411,952.278   11.577730   0.000   12/31/02
14.201161
  358,967.966   14.189031   4.378   12/31/01
12.876042
  256,856.613   N/A   N/A   12/31/00
12.097693
  94,238.615   N/A   N/A   12/31/99
10.283942
  29,293.327   N/A   N/A   12/31/98
The Timothy Plan Strategic Growth Variable Series    
12.181313
  629,515.069   12.266874   0.000   12/31/06
11.247959
  673,218.784   11.309780   0.000   12/31/05
10.772978
  687,211.128   10.815763   0.000   12/31/04
10.104822
  408,637.294   10.129626   0.000   12/31/03
8.194917
  159,507.218   8.202876   0.000   12/31/02

10


Table of Contents

APPENDIX B: PORTFOLIOS
     
Portfolio / Adviser   Investment Objective / Strategy
AIM Variable Insurance Funds
   
 
   
AIM V.I. Dynamics Fund – Series I Shares

Advisor — A I M Advisors, Inc.
  The fund’s investment objective is long-term capital growth. The fund normally invests at least 65% of its net assets in common stocks of mid-size companies. The advisor actively manages the fund, focusing on mid-cap companies with high growth potential that also are favorably priced relative to the growth expectations for that company. The fund may invest up to 25% of its assets in securities of non-U.S. issuers. Securities of Canadian issuers and American Depositary Receipts are not subject to this 25% limitation. The fund also has the flexibility to invest in other types of securities including preferred stocks, convertible securities and bonds. Any percentage limitations with respect to assets of the fund are applied at the time of purchase.
 
   
Janus Aspen Series
   
 
   
Janus Aspen Series Worldwide Growth Portfolio-Institutional Shares

Advisor — Janus Capital Management LLC
  This diversified portfolio seeks long-term growth of capital in a manner consistent with the preservation of capital by investing primarily in common stocks of companies of any size located throughout the world. The portfolio normally invests in issuers from several different countries, including the U.S. The portfolio may, under unusual circumstances, invest in a single country. The portfolio may have significant exposure to emerging markets. Within the parameters of its specific investment policies, the portfolio may invest in foreign equity and debt securities, which may include investments in emerging markets.
 
   
The Timothy Plan Variable Series
   
 
   
The Timothy Plan Conservative Growth VS

Advisor — Timothy Partners, Ltd.
  The primary investment objective of the Timothy Plan Conservative Growth Variable Series is to seek moderate levels of long-term capital growth, with a secondary objective of current income. The Portfolio normally invests at least 75% in specific funds offered by the Timothy Plan family of funds. Fund investments are reallocated as new assets come into the Fund and at the end of each quarter, as needed to maintain the asset allocation. The securities in which the underlying funds shall be precluded from investing, by virtue of the funds’ and Portfolio’s ethical standards, are referred to as “excluded securities.”
 
   
The Timothy Plan Small-Cap Variable Series

Advisor — Timothy Partners, Ltd.
  The primary investment objective of the Timothy Plan Small-Cap Variable Series is to seek long-term capital growth, with a secondary objective of current income. The Portfolio seeks to achieve its objectives while abiding by ethical standards established for investments by the Portfolio. The securities in which the Portfolio is precluded from investing, by virtue of the Portfolio’s ethical standards, are referred to as excluded securities.

11


Table of Contents

     
Portfolio / Adviser   Investment Objective / Strategy
The Timothy Plan Strategic Growth VS

Advisor — Timothy Partners, Ltd.
  The primary investment objective of the Timothy Plan Strategic Growth Variable Series is to seek medium to high levels of long-term capital growth, with a secondary objective of current income. The Portfolio normally invests at least 75% in specific funds offered by the Timothy Plan family of funds. Fund investments are reallocated as new assets come into the Fund and at the end of each quarter, as needed to maintain the asset allocation. The securities in which the underlying funds shall be precluded from investing, by virtue of the funds’ and Portfolio’s ethical standards, are referred to as “excluded securities.”

12


Table of Contents

ANNUITY INVESTORS LIFE INSURANCE COMPANYÒ
ANNUITY INVESTORSÒ VARIABLE ACCOUNT B
THE COMMODORE SPIRITÒ
AND THE COMMODORE ADVANTAGEÒ
GROUP AND INDIVIDUAL FLEXIBLE PREMIUM DEFERRED ANNUITIES
Supplemental Prospectus dated May 1, 2007
Annuity Investors Life Insurance Company® (“the Company,” “we,” “our” and “us”) is providing you with this Supplemental Prospectus that supplements and should be read with the prospectus (“Contract Prospectus”) dated May 1, 2007, for either The Commodore Spirit® or The Commodore Advantage® Variable Annuity (the “Contract”). The Contract Prospectus contains details regarding your Contract. Please read the Contract Prospectus and this Supplemental Prospectus carefully and keep them for future reference. Unless otherwise indicated, terms used in this Supplemental Prospectus have the same meaning as in the Contract Prospectus.
THIS SUPPLEMENTAL PROSPECTUS PROVIDES INFORMATION YOU SHOULD KNOW REGARDING THE ONE-YEAR GUARANTEED INTEREST RATE OPTION. AS OF MAY 1, 2007, YOU WILL NOT BE ABLE TO ALLOCATE PURCHASE PAYMENTS OR TRANSFER AMOUNTS TO THE ONE-YEAR GUARANTEED INTEREST RATE OPTION. UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL PROVISIONS OF THE CONTRACT PROSPECTUS ARE APPLICABLE TO THE ONE-YEAR GUARANTEED INTEREST RATE OPTION DESCRIBED IN THIS SUPPLEMENTAL PROSPECTUS.
The Statement of Additional Information (“SAI”) dated May 1, 2007, contains more information about the Separate Account and the Contracts. We filed the SAI with the Securities and Exchange Commission (SEC) and it is legally part of the Contract Prospectus and this Supplemental Prospectus. The table of contents for the SAI is located on the last page of the Contract Prospectus. For a free copy, complete and return the form on the last page of the Contract Prospectus, or call us at 1-800-789-6771. You may also access the SAI and the other documents filed with the SEC about the Company, the Separate Account and the Contracts at the SEC’s website: http://www.sec.gov. The registration number for The Commodore Spirit® is 333-19725; and The Commodore Advantage® is 333-51971.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THE CONTRACT PROSPECTUS OR THIS SUPPLEMENTAL PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
You should rely only on the information contained in the Contract, the Contract Prospectus, this Supplemental Prospectus, the SAI, or our approved sales literature. The description of the Contract in the Contract Prospectus is subject to the specific terms of your Contract as it contains specific contractual provisions and conditions. If the terms of your Contract differ from those in the Contract Prospectus, you should rely on the terms in your Contract. No one is authorized to give any information or make any representation other than those contained in the Contract, the Contract Prospectus, this Supplemental Prospectus, the SAI or our approved sales literature.

These securities may be sold by a bank or credit union, but are not financial institution products.
§   The Contracts are not FDIC or NCUSIF insured
§   The Contracts are obligations of the Company and not of the bank or credit union
§   The bank or credit union does not guarantee the Company’s obligations under the Contracts
§   The Contracts involve investment risk and may lose value

13