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Guide
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Great American Life®
Fixed-Indexed Annuities
What is a fixed-indexed annuity?
A fixed-indexed annuity from Great American Life Insurance
Company® is a single premium or flexible premium deferred
annuity with multiple interest crediting strategies.
Here’s what that means:
• Single premium and flexible premium annuities are contracts in which an insurance company will make a series of payments at regular intervals in exchange for one or more Purchase Payments that you have made;
• Deferred indicates that there is a period of time between when you make your Purchase Payments and the time when annuity benefit payments begin. This is commonly referred to as the contract’s accumulation period;
• Multiple interest crediting strategies indicates that you may, while in the deferred period, assign amounts among strategies that credit interest in various ways. Some strategies may have interest rates that are declared at the beginning of a term, fixed for that term and credited daily. Other strategies may be credited interest at rates determined, in part, by an external index, such as the S&P 500®1, and are credited at the end of the term.
When you buy a fixed-indexed annuity you own an insurance contract. You are not buying
shares of any stock or index.
Is a fixed-indexed annuity right for me?
A fixed-indexed annuity isn’t the right solution for everyone. However, there are many conditions that might make a fixed-indexed annuity appropriate for you. Learn more about
fixed-indexed annuities if:
• You are interested in the potential to earn rates higher than those traditionally available from fixed annuities.
• You like the idea of receiving interest at a rate determined, in part, by the growth of an index.
• You need a long-term financial vehicle.
• You would like to receive income that can be guaranteed to continue as long as you live.
“Standard & Poor’s®” and “S&P 500®” are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Great American Life Insurance Company®. Great American Life® products are not sponsored, endorsed, sold or promoted by Standard & Poor’s,
and Standard & Poor’s makes no representation regarding the advisability of purchasing this product. The S&P 500 Index is a market-value weighted price index which reflects capital growth only and does not include dividends paid on stock.
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What makes a fixed-indexed annuity unique?
A fixed-indexed annuity is a variation of a traditional fixed annuity. Both products credit interest
to the amounts held in the annuity contracts. The uniqueness associated with a fixed-indexed annuity is found in how the interest rate is determined.
A fixed-indexed annuity has two strategies for determining the crediting rate. Like a traditional
fixed annuity, a fixed-indexed annuity has a Declared Rate Strategy. A Declared Rate Strategy
is one where the Company announces the interest rate in advance, and it is credited daily
throughout the term.
A fixed-indexed annuity, however, also offers an Indexed
Strategy. An Indexed Strategy is one where the interest
crediting rate is determined according to a formula and is
applied on the last day of the term. It is referred to as an
Indexed Strategy because the formula is based, in part, on
the change in a referenced index.
Great American Life® fixed-indexed annuities give you
the opportunity to re-assign your Account Value by
selecting from among the available Declared Rate and
Indexed Strategies. With this opportunity, you have the
ability to make selections based on your financial needs.
Fixed-Indexed Strategy Selection
Declared Rate
Strategy
Indexed
Strategy
Credits interest
at a rate declared
in advance of
a term
Credits interest
at a rate based,
in part, on the growth of an
index during
a term
Can I lose money with a fixed-indexed annuity?
The value of your Great American Life fixed-indexed annuity will never fall below your
total Purchase Payments regardless of market conditions, unless you take withdrawals from or
surrender your contract. This means that your principal can remain protected; plus, you have the
opportunity to earn interest based, in part, on the performance of the S&P 500.
Even if the S&P 500 (or other referenced index) declines over a term, no loss will be incurred.
The Indexed Interest Rate will never fall below zero percent. In addition, fixed-indexed
annuities guarantee a minimum value that provides protection, even if the referenced index
declines over the course of several terms. The security of fixed-indexed annuities is made possible
due to the financial strength of the insurance company issuing the annuity contract.
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How is my interest rate determined?
Interest rates are an important feature of a fixed-indexed annuity. Interest is credited in various
ways, depending on the interest crediting strategies that you choose. Great American Life® currently offers a Declared Rate Strategy, which credits interest at a Declared Interest Rate, and an Indexed Strategy, which credits interest at an Indexed Interest Rate.
Great American Life Fixed-Indexed Annuity Series contracts are issued on the 6th and 20th of
each month. Regardless of when a Purchase Payment is received, no interest can be earned until
the contract is issued.
Declared Interest Rate
Interest is credited daily to the money held under a Declared Rate Strategy based on a rate set
at the start of the term by the Company. This rate can vary for subsequent terms; however, the
Declared Interest Rate will never be lower than the Guaranteed Minimum Declared Interest
Rate stated in your contract.
Indexed Interest Rate
Interest is determined and credited to the amount assigned to an Indexed Strategy on the last day of the term using a formula determined by which Index Strategy(ies) you choose. The
following Indexed Strategies are currently offered. Future strategies may offer other options.
Annual point-to-point strategy:
1.
2.
3.
Compare the value of the S&P 500 at the beginning of a term to the value of the S&P 500 at the end of the term to find Index Growth.
Next, you multiply the Index Growth by the Participation Rate. This strategy has a 100% Participation Rate.
The result becomes your Indexed Interest Rate, up to a maximum (called a Cap), but not less than a Base Interest Rate.
Monthly averaging (with Cap) strategy:
1.
2.
3.
The percentage by which the average of the last 12 monthly S&P 500 values exceeds the S&P 500 value on the first day of the term to find Index Growth.
Next, you multiply the Index Growth by the Participation Rate. This strategy has a 100% Participation Rate.
The result becomes your Indexed Interest Rate, up to a maximum (called a Cap), but not less than a Base Interest Rate.
Monthly averaging with Index Factor (no Cap) strategy:
1.
2.
3.
4.
The percentage by which the average of the last 12 monthly S&P 500 values exceeds the S&P 500 value on the first day of the term to find Index Growth.
Next, you deduct a percentage, called an Index Factor.
Then, you multiply the Index Growth by the Participation Rate. This strategy has a 100% Participation Rate.
The result becomes your Indexed Interest Rate, not less than a Base Interest Rate. This strategy does not have a Cap.
Please refer to page 6 for hypothetical examples of these strategies. Your Indexed Interest Rate,
no matter which Indexed Strategy or Strategies you choose, will never be negative.
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Index Methods
Point-to-point compares the value of the S&P 500
on the last day of the term to the first day of that
term to determine the Index Growth. This method
may be particularly beneficial when the index is
rising. Alternatively, this method may reduce the
amount of interest you would earn if the S&P 500
declines just before the end of a term.
Monthly averaging compares the average of the
S&P 500 value during the previous twelve months of
the term, if the term is one year, to the first day of
that term to determine the Index Growth. Averaging
at the end of the term protects you against severe
declines in the S&P 500. On the other hand,
averaging may reduce the amount of interest you
would earn when the index is rising.
Point-to-point
Monthly Averaging
Great American Life Fixed-Indexed Annuity Glossary
Base Interest Rate: The minimum interest rate an Indexed Strategy will credit for a term.
Cap: The maximum Indexed Interest Rate that can be credited during a term, or the
maximum change in the S&P 500® value credited for a month.
Declared Rate Strategy: Credits interest daily at a rate declared in advance of a term.
Index Factor: A percentage that may be deducted from the Index Growth when
determining the Indexed Interest Rate.
Index Growth: The percentage of change in the S&P 500 assigned to an Indexed Strategy
during a term.
Index Method: The method for measuring Index Growth.
Indexed Strategy: Determines and credits interest on the last day of a term at a rate
based, in part, on the growth of the S&P 500 during a term.
Participation Rate: The amount of Index Growth that will be used to calculate the
Indexed Interest Rate.
Term: For a Declared Rate Strategy, the period of time during which the interest rate
is declared and cannot be changed. For an Indexed Strategy, the period over which an
Indexed Interest Rate is calculated. Great American Life strategies currently offers terms of
one year.
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What is the value of my fixed-indexed annuity contract?
The Account Value of your annuity is equal to the sum of the Declared Rate Strategy Value and
each Indexed Strategy Value.
Declared Rate
Strategy
Value
+
Indexed
Strategy
Value
=
Account
Value
Here is how the Declared Rate Strategy Value is calculated:
1. Take 100% of the amount assigned to the Declared Rate Strategy;
2. Subtract any amounts withdrawn, including any early withdrawal charges;
3. Add interest credited daily at the Declared Interest Rate; and
4. Subtract any applicable premium taxes and other taxes required by your state.
Here is how the Indexed Strategy Value is calculated for each Indexed Strategy:
1. Take 100% of the amount assigned to the Indexed Strategy;
2. Subtract any amounts withdrawn, including any early withdrawal charges;
3. Add interest credited at the Indexed Interest Rate on the last day of the term; and
4. Subtract any applicable premium taxes and other taxes required by your state.
Calculation for Declared Rate Strategy Value and Indexed Strategy Value
1.
Amounts in
Strategy
4
-
2.
Withdrawals
3.
+
Interest
Credited
-
4.
Taxes
=
Strategy
Value
What is my Guaranteed Minimum Surrender Value?
The value of your annuity is guaranteed not to drop below a minimum surrender value. This
Guaranteed Minimum Surrender Value (GMSV) is equal to the Purchase Payment you have
made, multiplied by a GMSV Factor, which is specified in your annuity contract, minus any
withdrawals taken, plus interest credited daily at a minimum guaranteed rate (also found in your
annuity contract). In addition, the Guaranteed Minimum Surrender Value will not be less than
the minimum values required by your state.
(
Purchase
Payment
x
GMSV
Factor
)-
Withdrawals
+
Interest at
Minimum
Guaranteed
Rate
=
GMSV
Can I take withdrawals from my fixed-indexed annuity?
You can take withdrawals from most fixed-indexed annuities; however, there is often a charge if
amounts are withdrawn prior to the end of the early withdrawal charge period (referred to as
Surrender Charge period in your contract).
Great American Life® fixed-indexed annuities also have a Free Withdrawal Allowance, which
allows you to withdraw 10% of your Purchase Payments during the first contract year and,
thereafter, 10% of the Account Value as of the prior Contract Anniversary, plus any Purchase
Payments received since, without incurring an early withdrawal charge. However, you should
note that since Indexed Interest is credited only at the end of a term, amounts withdrawn before
the end of a term will not earn any Indexed Interest.
Through the Easy Systematic Payment (ESP) Program, you have the option to request regular
income payments from your annuity. During the first contract year, you may withdraw an
amount equal to the accrued interest through the Fixed Dollar Option. You may also select
the Life Distribution Option after the first contract year to help meet Required Minimum
Distribution (RMD) requirements imposed by IRS regulations.
Naturally, payments through ESP may affect your tax-deferred growth, and systematic
withdrawals will reduce the amount available under the 10% Penalty-Free Withdrawal Allowance.
Remember, the money you receive through these programs is subject to taxation at the time
of distribution. The ESP feature is available through current company practice and may be
discontinued or changed at any time.
Remember that fixed-indexed annuities are long-term retirement savings vehicles, and should
not be bought for short-term purposes. Withdrawal provisions are created to help you deal with
liquidity needs for unforeseen circumstances.
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Here’s How it Works
The interest crediting aspect of a fixed-indexed annuity is best illustrated by a hypothetical
situation. Let’s assume that you make a Purchase Payment of $10,000 into an annuity contract
on January 6. (Great American Life® Fixed-Indexed Annuity Series contracts are issued on the
6th and 20th of each month.)
In scenario A, you decide to hold $9,000 under an annual point-to-point Indexed Strategy, and
$1,000 under a Declared Strategy.
In scenario B, you decide to hold $9,000 under a monthly averaging (with Cap) Indexed Strategy,
and $1,000 under a Declared Rate Strategy.
In scenario C, you decide to hold $9,000 under a monthly averaging with Index Factor (no Cap)
Indexed Strategy, and $1,000 under a Declared Rate Strategy.
Hypothetical Example
The chart and graph below show hypothetical S&P 500 values at the close of the day for each
month during a hypothetical one-year term. Note: If the market is closed, the index value from
the most recent day that the market was open will be used.
Beginning Point
Jan. 6
Mar. 6 Apr. 6 May 4 June 4 July 6 Aug. 3 Sept. 6 Oct. 5 Nov. 6 Dec. 6 Jan. 4
Feb.5
End Point
1,150.50 1,210.65 1,256.65 1,212.25 1,122.50 1,235.45 1,063.97 1,260.89 1,142.05 1,250.25 1,210.88 1,199.89 1,203.03
1,300.00
1,250.00
1,200.00
1,150.00
1,100.00
1,050.00
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Jan. 4
Dec. 6
Nov. 6
Oct. 5
Sept. 6
Aug. 3
July 6
June 4
May 4
Apr. 6
Mar. 6
Feb. 5
Jan. 6
1,000.00
Scenario:
Indexed Strategy:
A.
Annual Point-to-Point
Term:
Index:
Participation Rate:
Cap:
1 year
None
100%
7%
Declared Rate Strategy:
Term:
Declared Rate:
1 year
3.00%
B.
Monthly Averaging
C.
Monthly Averaging
(with Cap)
with Index Factor (no Cap)
1 year
None
100%
10%
1 year
1.50%
100%
No Cap
1 year
3.00%
1 year
3.00%
The example below shows the Account Value calculation for each scenario.
Account Value Calculation
Scenario A
Indexed
Indexed
Declared
Indexed
Declared
$9,000
$1,000
$9,000
$1,000
$9,000
$1,000
---
3.00%
---
3.00%
---
3.00%
Declared Rate Interest = Indexed Amt. x Declared Rate
---
$30.00
---
$30.00
---
$30.00
4.57%
---
---
---
---
---
---
---
4.07%
---
4.07%
---
Index Growth
Annual Point-to-Point Index Growth
=(End Value - Beg. Value) / Beg. Value
=(1,203.03 - 1,150.50) / 1,150.50
Monthly Averaging Index Growth
=(Avg. - Beg. Value) / Beg. Value
=(1,197.37 - 1,150.50) / 1,150.50
Declared
Scenario C
Declared Rate
Purchase Payment
Scenario B
Indexed Interest Rate
---
---
---
---
1.50%
---
Participation Rate
100%
---
100%
---
100%
---
Indexed Interest Rate
4.57%
---
4.07%
---
2.57%
---
$411.30
---
$366.30
---
$231.30
---
$9,411.30
$1,030.00
$9,366.30
$1,030.00
9,231.30
$1,030.00
Index Factor
Interest Credited
Total Strategy Value
Account Value
$10,441.30
$10,396.30
$10,261.30
As you can see, scenario A, with the annual point-to-point Indexed Strategy, credited an Indexed
Interest Rate of 4.57%, which falls between that strategy’s Cap and zero. Scenario B, with the
monthly averaging (with Cap) Indexed Strategy, credited an Indexed Interest Rate of 4.07%, which
also falls between the Cap and zero. Scenario C, with the monthly averaging with Index Factor
(no Cap) Indexed Strategy, credited an Indexed Interest Rate of 2.57%.
At the end of this term, Scenario A had an Account Value of $10,441.30, scenario B had an Account
Value of $10,396.30 and Scenario C had an Account Value of $10,261.30.
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Example Guaranteed Minimum Surrender Value
Fixed-indexed annuities have a Guaranteed Minimum Surrender Value. Following the example
on the previous page, if the contract has a GMSV Factor of 90% and a GMSV Rate of 2.75%,
you can determine the GMSV. Remember that the GMSV will not be less than the minimum
values required by your state.
Guaranteed Minimum Surrender Value (GMSV)
$9,247.50
= (Purchase Payments x GMSV Factor) - Withdrawals + Interest at GMSV Rate
= ($10,000 x 90%) + ($9,000 x 2.75%)
How long is a term?
The length of the term is specified in your contract. It is specific to each Indexed or Declared
Rate Strategy as found in your contract. Great American Life strategies currently offer terms of
one year.
For a Declared Rate Strategy, a term is the period of time during which the interest rate is fixed.
For an Indexed Strategy, a term is the period of time over which the Indexed Interest Rate is
calculated.
Can I change my strategy selections?
One of the unique features of the Great American Life Fixed-Indexed Annuity Series is the
opportunity to annually re-select among Declared Rate and Indexed Strategies, and apply your
Account Value accordingly. The interest strategy period is the amount of time over which your
interest strategies selection remains unchanged.
You can make these changes at the end of each interest strategy period. The interest strategy
period is specified in your contract. Unless you make changes to your previous selections, each
interest strategy will automatically renew for a new term, as long as it is still offered by the
Company. You will receive correspondence from Great American Life regarding strategy selection
45 days in advance of the end of the interest strategy period.
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How can I receive payments from my annuity?
Annuities can provide an income you cannot outlive. Whether you need short-term, fixed period
or lifetime payments, annuity settlement options can give you a guaranteed retirement income.
Annuities offer a variety of settlement options.
Listed below are several of the most commonly elected retirement income settlement options
•
•
•
•
Income for a Fixed Period;
Life Annuity with Payments for at Least a Fixed Period;
Joint and One-Half Survivor; and
Income for a Fixed Period, Not to Exceed Life Expectancy.
Is Great American Life the right company for me?
At Great American Life Insurance Company®, we concentrate on one very important aspect
of your life—making your future years more secure. And because we specialize in annuities, we
understand how important long-term security is to your retirement. We are committed to
offering products that provide financial peace of mind with safety, stability and tax advantages.
Our company has one of the most solid investment portfolios in the insurance industry today. By
limiting our investment risk, we maximize the security of your retirement. As of June 17, 2005,
A.M. Best Company rates Great American Life® “A (Excellent)” for our financial strength, which
is the third highest of 16 possible ratings.
Great American Life is a subsidiary of GAFRI, which is publicly traded on the New York Stock
Exchange (NYSE: GFR). GAFRI and its family of life insurers have $11.9 billion of assets under
management as of September 30, 2005. Through its subsidiaries, GAFRI markets retirement
annuities and other life and supplemental health insurance.
Great American Life is licensed to sell products in all states (except New York), the District of
Columbia, Guam, Puerto Rico and the U.S. Virgin Islands.
How do I choose a fixed-indexed annuity product?
Talk with your Great American Life agent for more information about our fixed-indexed annuity
products. Your agent can help you find the product that meets your needs.
For use with contract form numbers P1029704NW, P1029804NW, P1029704OR, P1029804OR,
P1029904NW, P1030004NW, P1029904OR, P1030004OR, P1032905NW and P1033005NW.
Contract form numbers may vary by state.
9
This brochure is not intended or written to be used as legal or tax advice. It cannot be used by any
taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. It was written solely
to support the sale of annuity products. The taxpayer should seek advice on legal or tax questions based
on the taxpayer’s particular circumstances from an independent attorney or tax advisor.
A subsidiary of Great American Financial Resources®, Inc.
P.O. Box 5420
Cincinnati, Ohio 45201-5420
(800) 854-3649
www.galic.com
Copyright © 2005 by Great American Life Insurance Company®.
All rights reserved.
B1036505NW
(12/05)