As filed with the Securities and Exchange Commission on April 30, 2012

Registration Nos. 333-22375

and 811-3199

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933	¨
Pre-Effective Amendment No.	¨
Post-Effective Amendment No. 23	x
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY	x
ACT OF 1940
Amendment No. 120

ZALICO VARIABLE ANNUITY SEPARATE ACCOUNT

(Exact Name of Registrant)

ZURICH AMERICAN LIFE INSURANCE COMPANY

(Name of Depositor)

1400 American Lane, Schaumburg, Illinois 60196

(Address of Depositor’s Principal Executive Offices)

Depositor’s Telephone Number, including Area Code:

(425) 577-5100

Name and Address of Agent for Service:	Copy to:
Juanita M. Thomas, Esq.	Richard T. Choi, Esq.
1114 Georgia Street	Jorden Burt LLP
Louisiana, MO 63353	1025 Thomas Jefferson Street, N.W., Suite 400 East
	Washington, DC 20007-5208

It is proposed that this filing will become effective:

¨ Immediately upon filing pursuant to paragraph (b) of Rule 485

x On May 1, 2012, pursuant to paragraph (b) of Rule 485

¨ 60 days after filing pursuant to paragraph (a) of Rule 485

¨ On                      pursuant to paragraph (a) of Rule 485

Title of securities being registered:

Units of interest in a separate account under individual and group variable, fixed and market value adjusted deferred

annuity contracts.

Individual and Group Variable, Fixed, and Market Value Adjusted Deferred Annuity Contracts Issued by Zurich American Life Insurance Company Through ZALICO Variable Annuity Separate Account		Prospectus May 1, 2012 Scudder DestinationsSM Annuity
Home Office 1400 American Lane Schaumburg, Illinois 60196	Service Center Scudder DestinationsSM Service Team PO Box 19097 Greenville, SC 29602-9097 Phone: 1-800-449-0523 (toll free) 8:30 a.m. to 6:00 p.m. Eastern Time M-F
www.zurichamericanlifeinsurance.com

This Prospectus describes the Scudder Destinations^SM Annuity, a variable, fixed and market value adjusted deferred annuity contract (the “Contract”) offered by Zurich American Life Insurance Company (“we” or “ZALICO”). The Contract is designed to provide annuity benefits for retirement that may or may not qualify for certain federal tax advantages. Depending on particular state requirements, the Contract may have been issued on a group or individual basis. The Contract is currently not being issued.

Investing in this Contract involves risk, including possible loss of some or all of your investment.

You may allocate Purchase Payments to one or more of the variable options or the Fixed Account Option, or the Market Value Adjustment (“MVA”) Option (the “MVA Option”) in states where an MVA is authorized. The availability of the Fixed Account Option and the MVA Option may be restricted in some states. The Contract currently offers 21 variable options, each of which is a Subaccount of ZALICO Variable Annuity Separate Account that invests solely in shares of one of the Portfolios listed below. Currently, you may choose to invest among the following Portfolios:

• AIM Variable Insurance Funds (Invesco Variable Insurance Funds) (Series I Shares):

• Invesco V.I. Utilities Fund

• The Alger Portfolios (Class I-2 Shares):

• Alger Balanced Portfolio

• Alger Capital Appreciation Portfolio

• Dreyfus Investment Portfolios (Initial Share Class):

• Dreyfus Investment Portfolios, MidCap Stock Portfolio

• The Dreyfus Socially Responsible Growth Fund, Inc. (Initial Share Class)

• DWS Investments VIT Funds (Class A Shares):

• DWS Equity 500 Index VIP

• DWS Variable Series I (Class A Shares):

• DWS Bond VIP ¹

• DWS Capital Growth VIP

• DWS Global Small Cap Growth VIP

• DWS Core Equity VIP (formerly DWS Growth & Income VIP) ²

• DWS International VIP

• DWS Variable Series II (Class A Shares):

• DWS Global Income Builder VIP (formerly DWS Balanced VIP) ³

• DWS Diversified International Equity VIP

• DWS Dreman Small Mid Cap Value VIP

• DWS Global Thematic VIP

• DWS Government & Agency Securities VIP

• DWS High Income VIP

• DWS Large Cap Value VIP

• DWS Money Market VIP

• DWS Small Mid Cap Growth VIP

• DWS Unconstrained Income VIP (formerly DWS Strategic Income VIP)⁴

¹ On or about May 1, 2012, DWS Bond VIP acquired DWS Core Fixed Income VIP.

² Effective May 1, 2012, DWS Growth & Income VIP changed its name to DWS Core Equity VIP. DWS Growth & Income also acquired DWS Blue Chip VIP on or about May 1, 2012.

³ Effective May 1, 2012, DWS Balanced VIP changed its name to DWS Global Income Builder VIP.

⁴ Effective on or about September 22, 2011, DWS Strategic Income VIP changed its name to DWS Unconstrained Income VIP.

We may add or delete Subaccounts and Portfolios in the future. The Contract Value that you allocate to any of the Subaccounts will vary, reflecting the investment experience of the Portfolio in which the selected Subaccount invests. The Contract Value that you allocate to the Fixed Account or one or more Guarantee Periods of the MVA Option accumulates interest at rates set in advance by ZALICO.

Please be aware that Market Value Adjustments are sensitive to changes in interest rates. If you withdraw money from a Guarantee Period before its term has expired, and during a period of rising interest rates, you likely will be assessed a negative Market Value Adjustment. In times of rising interest rates, the negative Market Value Adjustment could result in a substantial downward adjustment to vour Contract Value. Before you take a withdrawal from a Guarantee Period, you should know its expiration date, and ask the Service Center to calculate whether a Market Value Adjustment will apply and how much it will be.

The Contracts are not insured by the FDIC. They are obligations of the issuing insurance company and not a deposit of, or guaranteed by, any bank or savings institution and are subject to risks, including possible loss of principal.

This Prospectus contains important information about the Contracts that you should know before investing. You should read it before investing and keep it for future reference. We have filed a Statement of Additional Information (“SAI”) with the Securities and Exchange Commission. The current SAI has the same date as this Prospectus and is incorporated by reference in this Prospectus. You may obtain a free copy by contacting the Service Center. A table of contents for the SAI appears at the end of this Prospectus. You may also find this Prospectus and other information about the Separate Account required to be filed with the Securities and Exchange Commission (“SEC”) at the SEC’s web site at http://www.sec.gov.

The date of this Prospectus is May 1, 2012.

The Securities and Exchange Commission has not approved or disapproved the Contract or

determined that this Prospectus is accurate or complete.

Anyone who tells you otherwise is committing a U.S. Federal crime.

    Not FDIC Insured         May Lose Value         No Bank Guarantee    

TABLE OF CONTENTS

Page
DEFINITIONS	1
SUMMARY	4
SUMMARY OF EXPENSES	7
EXAMPLE	10
REDEMPTION FEES	11
DISTRIBUTION COSTS	11
CONDENSED FINANCIAL INFORMATION	11
ZALICO, THE MVA OPTION, THE SEPARATE ACCOUNT AND THE FUNDS	11
A. Zurich American Life Insurance Company	11
B. Risks of Managing General Account Assets	12
C. Financial Condition of the Company	12
D. The Guarantee Periods of the MVA Option	13
E. The Separate Account	14
F. The Funds	15
G. Selection of Funds	19
H. Change of Investments	20
FIXED ACCOUNT OPTION	21
THE CONTRACTS	21
A. General Information	21
B. The Accumulation Period	22
1. Application of Purchase Payments	22
2. Accumulation Unit Value	23
3. Guarantee Periods of the MVA Option	23
4. Establishment of Guaranteed Interest Rates	24
5. Contract Value	25
6. Transfers During the Accumulation Period	25
7. Policy and Procedures Regarding Disruptive Trading and Market Timing 8. Withdrawals During the Accumulation Period	27 30
9. Market Value Adjustment	32
l0. Guaranteed Death Benefit	33
CONTRACT CHARGES AND EXPENSES	34
A. Charges Against The Separate Account	34
1. Mortality and Expense Risk Charge	34
2. Administration Charge	35
3. Records Maintenance Charge	35
4. Withdrawal Charge	35
5. Optional Guaranteed Retirement Income Benefit (“GRTB”) Rider Charge	36
6. Transfer Charge	37
7. Investment Management Fees and Other Expenses 8. State and Local Government Premium Taxes	37 37
9. Exceptions	37
THE ANNUITY PERIOD	38
A. Annuity Payments	38
B. Annuity Options	38
C. Transfers During the Annuity Period	40
D. Annuity Unit Value Under Variable Annuity	40

i

TABLE OF CONTENTS (CONTINUED)

Page
E. First Periodic Payment Under Variable Annuity	41
F. Subsequent Periodic Payments Under Variable Annuity	41
G. Fixed Annuity Payments	41
H. Death Benefit Proceeds	41
I.   GRIB Rider	42
FEDERAL TAX CONSIDERATIONS	42
A. Taxation of Non-Qualified Plan Contracts	42
B. Taxation of Qualified Plan Contracts	44
1. Qualified Plan Types	44
2. Withdrawals	46
3. Direct Rollovers	46
C. Tax Status of the Contracts	47
FEDERAL INCOME TAX WITHHOLDING	48
OTHER TAX ISSUES	48
A. Our Taxes	48
B. Federal Estate Taxes	49
C. Generation-Skipping Transfer Tax	49
D. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010	49
E. Medicare Tax	49
F. Federal Defense of Marriage Act	50
G. Annuity Purchases by Residents of Puerto Rico	50
H. Annuity Purchases by Nonresident Aliens and Foreign Corporations	50
I.   Foreign Tax Credits	50
J.  Possible Tax Law Changes	50
SENDING FORMS AND WRITTEN REQUESTS IN GOOD ORDER SIGNATURE GUARANTEES	50 51
DISTRIBUTION OF CONTRACTS	51
VOTING RIGHTS	53
REPORTS TO CONTRACT OWNERS AND INQUIRIES DOLLAR COST AVERAGING	53 53
SYSTEMATIC WITHDRAWAL PLAN	54
EXPERTS	54
LEGAL PROCEEDINGS	54
FINANCIAL STATEMENTS	54
CONTRACTS ISSUED BEFORE NOVEMBER 12, 2001	55
A. Guaranteed Retirement Income Benefit: General	55
B. Annuity Payments with GRIB	55
C. Commutable Annuitization Option	57
D. Effect of Death of Owner or Annuitant on GRIB	58
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS	59
APPENDIX A ILLUSTRATION OF THE “FLOOR” ON THE DOWNWARD MARKET VALUE ADJUSTMENT (MVA)	A-l
APPENDIX B ZURICH AMERICAN LIFE INSURANCE COMPANY DEFERRED FIXED AND VARIABLE ANNUITY IRA, ROTH IRA AND SIMPLE IRA DISCLOSURE STATEMENT	B-l
APPENDIX C CONDENSED FINANCIAL INFORMATION	C-l

ii

DEFINITIONS

The following terms as used in this Prospectus have the indicated meanings:

Accumulated Guarantee Period Value—The sum of your Guarantee Period Values.

Accumulation Period—The period between the Date of Issue of a Contract and the Annuity Date.

Accumulation Unit—A unit of measurement used to determine the value of each Subaccount during the Accumulation Period.

Annuitant—The person designated to receive or who is actually receiving annuity payments and upon the continuation of whose life annuity payments involving life contingencies depend.

Annuity Date—The date on which annuity payments are to commence.

Annuity Option—One of several methods by which annuity payments can be made.

Annuity Period—The period starting on the Annuity Date.

Annuity Unit—A unit of measurement used to determine the amount of Variable Annuity payments.

Beneficiary—The person designated to receive any benefits under a Contract upon the death of the Annuitant or the Owner prior to the Annuity Period.

Company (“we”, “us”, “our”, “ZALICO”)—Zurich American Life Insurance Company. Our Home Office is located at 1400 American Lane, Schaumburg, Illinois 60196. For Contract services, you may contact the Service Center at Scudder Destinations^SM Service Team, PO Box 19097, Greenville, South Carolina, 29602-9097 or 1-800-449-0523.

Contract—A Variable, Fixed and Market Value Adjusted Annuity Contract offered on an individual or group basis. Contracts issued on a group basis are represented by a certificate. Contracts issued on an individual basis are represented by an individual annuity contract.

Contract Value—The sum of the values of your Separate Account Contract Value, Accumulated Guarantee Period Value and Fixed Account Contract Value.

Contract Year—Period between anniversaries of the Contract’s Date of Issue.

Contract Quarter—Periods between quarterly anniversaries of the Contract’s Date of Issue.

Contribution Year—Each one year period following the date a Purchase Payment is made.

Date of Issue—The date on which the first Contract Year commences.

Effective Date—The date that the endorsement to your Contract adding enhancements to the MVA Option (the “MVA Endorsement”) became effective, which is April 1, 2005.

Fixed Account—The General Account of ZALICO to which you may allocate all or a portion of Purchase Payments or Contract Value. We guarantee a minimum rate of interest on Purchase Payments allocated to the Fixed Account.

1

Fixed Account Contract Value—The value of your Contract interest in the Fixed Account.

Fixed Annuity—An annuity under which we guarantee the amount of each annuity payment; it does not vary with the investment experience of a Subaccount.

Fund or Funds—AIM Variable Insurance Funds (Invesco Variable Insurance Funds), The Alger Portfolios, Dreyfus Investment Portfolios, The Dreyfus Socially Responsible Growth Fund, Inc., DWS Investments VIT Funds, DWS Variable Series I and DWS Variable Series II, including any Portfolios thereunder.

General Account—All our assets other than those allocated to any separate account.

Guaranteed Interest Rate—The rate of interest we establish for a given Guarantee Period.

Guarantee Period—The time during which we credit your allocation with a Guaranteed Interest Rate. Guarantee Periods may range from one to ten years, at our option. If you withdraw money from a Guarantee Period before its term has expired, you will be assessed a Market Value Adjustment.

Guarantee Period Value—The value of your Contract Value in a Guarantee Period is the sum of your: (1) Purchase Payment allocated or amount transferred to a Guarantee Period; plus (2) interest credited; minus (3) withdrawals, previously assessed Withdrawal Charges and transfers; and (4) as adjusted for any applicable Market Value Adjustment previously made.

Home Office—The address of our Home Office is 1400 American Lane, Schaumburg, Illinois 60196.

Market Adjusted Value—A Guarantee Period Value adjusted by the Market Value Adjustment formula on any date prior to the end of a Guarantee Period.

Market Value Adjustment (“MVA”)—An adjustment of amounts held in a Guarantee Period that we compute in accordance with the Market Value Adjustment formula in your Contract if you take a withdrawal prior to the end of that Guarantee Period. The adjustment reflects the change in the value of the Guarantee Period Value due to changes in interest rates since the date the Guarantee Period started. Any downward Market Value Adjustment is subject to the MVA Floor described in the MVA Endorsement issued on April 1, 2005 and described herein.

Non-Qualified Plan Contract—A Contract which does not receive favorable tax treatment under Sections 401, 403, 408, 408A or 457 of the Internal Revenue Code.

Owner (“you”, “your”, “yours”)—The person designated in the Contract as having the privileges of ownership defined in the Contract.

Portfolio—A series of a Fund with its own objective and policies, which represents shares of beneficial interest in a separate portfolio of securities and other assets. Portfolio is sometimes referred to herein as a Fund.

Purchase Payments—Amounts paid to us by you or on your behalf.

Qualified Plan Contract—A Contract issued in connection with a retirement plan which receives favorable tax treatment under Sections 401, 403, 408, 408A or 457 of the Internal Revenue Code.

Separate Account—The ZALICO Variable Annuity Separate Account.

2

Separate Account Contract Value—The sum of your Subaccount Values.

Service Center—The address of our Service Center is Scudder Destinations^SM Service Team, PO Box 19097, Greenville, South Carolina, 29602-9097. The overnight address is: Scudder Destinations^SM Service Team, 2000 Wade Hampton Boulevard, Greenville, SC 29615-1064. IBM Business Transformation Outsourcing Insurance Service Corporation is the administrator of the Contract. You can call the Service Center toll-free at 1-800-449-0523.

Start Date—The later of the Effective Date of the MVA Endorsement or the beginning of a new Guarantee Period.

Subaccounts—-The twenty-one subdivisions of the Separate Account, the assets of which consist solely of shares of the corresponding Portfolios or Funds.

Subaccount Value—The value of your interest in each Subaccount.

Valuation Date—Each day when the New York Stock Exchange is open for trading, as well as each day otherwise required.

Valuation Period—The interval of time between two consecutive Valuation Dates.

Variable Annuity—An annuity with payments varying in amount in accordance with the investment experience of the Subaccount(s) in which you have an interest.

Withdrawal Charge—The “contingent deferred sales charge” assessed against certain withdrawals of Contract Value in the first seven Contribution Years after a Purchase Payment is made or against certain annuitizations of Contract Value in the first seven Contribution Years after a Purchase Payment is made.

Withdrawal Value—Contract Value, plus or minus any applicable Market Value Adjustment, less any premium tax payable if the Contract is being annuitized, minus any Withdrawal Charge applicable to that Contract.

3

SUMMARY

Because this is a summary, it does not contain all of the information that may be important. Read the entire Prospectus and Contract before deciding to invest.

The Contracts provide for investment on a tax-deferred basis and for payment of annuity benefits. Both Non-Qualified Plan and Qualified Plan Contracts are described in this Prospectus. The Contract was available to be purchased by natural persons, or by trusts or custodial accounts which hold the Contract as agent for and for the sole benefit of a natural person. The Contract is not available for sale to other types of purchasers without our prior approval. The Contract is currently not being issued.

Subject to certain exceptions, the minimum subsequent Purchase Payment is $500. Any allocation you make to a Subaccount, Fixed Account or Guarantee Period must be at least $500. Our prior approval is required for Purchase Payments over $1,000,000.

Investment Options. The Contract permits you to allocate your Purchase Payments and transfer Contract Value to one or more Subaccounts listed on the cover page of this Prospectus. Each Subaccount invests in shares of a corresponding Portfolio or Fund. Contract Value that you allocate to a Subaccount varies with the investment experience of the Portfolio in which Subaccount invests.

You may also allocate Purchase Payments and transfer Contract Value into the Fixed Account. We guarantee that Purchase Payments allocated to the Fixed Account will earn no less than the minimum guaranteed rate. In our discretion, we may credit interest in excess of the minimum guaranteed rate.

The Contract also permits you to allocate your Purchase Payments and transfer Contract Value to one or more Guarantee Periods under the MVA Option. Amounts you allocate to one or more Guarantee Period will earn a guaranteed interest rate, but will be subject to a market value adjustment (MVA) and a possible surrender charge if you take a withdrawal before the end of the Guarantee Period. Please be aware that Market Value Adjustments are sensitive to changes in interest rates.

If you withdraw money from a Guarantee Period under the MVA Option before its term has expired, and during a period of rising interest rates, you likely will be assessed a negative Market Value Adjustment. In times of rising interest rates, the negative Market Value Adjustment could result in a substantial downward adjustment to your Contract Value. Before you take a withdrawal from a Guarantee Period, you should know its expiration date, and ask the Service Center to calculate whether a Market Value Adjustment will apply and how much it will be.

The MVA Option may not be available in all states. The MVA Option is only available during the Accumulation Period. We may limit the number of Guarantee Periods we offer at our discretion. We credit interest daily to amounts allocated to the MVA Option. We declare the rate at our sole discretion. We guarantee amounts allocated to the MVA Option at Guaranteed Interest Rates for the Guarantee Periods you select. These guaranteed amounts are subject to any applicable Withdrawal Charge, Market Value Adjustment or Records Maintenance Charge. We will not change a Guaranteed Interest Rate for the duration of the Guarantee Period. However, Guaranteed Interest Rates for subsequent Guarantee Periods are set at our discretion. At the end of a Guarantee Period, a new Guarantee Period for the same duration starts, unless you timely elect another Guarantee Period. The interests under the Contract relating to the MVA Option are not registered under the Securities Act of 1933 (“1933 Act”) and the insulated, nonunitized separate account supporting the MVA Option is not registered as an investment company under the Investment Company Act of 1940 (“1940 Act”).

4

You bear the investment risk under the Contracts, including possible loss of principal, unless you allocate Contract Values to:

• the MVA Option. Under the MVA Option, you are guaranteed to receive the Guaranteed Interest Rate over the duration of the Guarantee Period, unless you take a withdrawal before the end of the Guarantee Period. In case of premature withdrawal, you will be assessed a Market Value Adjustment, which, in times of rising interest rates, could have a substantial negative impact on your Contract Value.

• the Fixed Account Option, wherein you are guaranteed to earn interest at a rate not less than the minimum guaranteed rate (See “Fixed Account Option”).

Transfers. The Contract permits you to transfer Contract Value between the Subaccounts before and after annuitization, subject to certain limitations. A transfer from a Guarantee Period is subject to a Market Value Adjustment unless effected within 30 days after the existing Guarantee Period ends. Restrictions apply to transfers out of the Fixed Account.

Withdrawals and Withdrawal Charges. You may withdraw Contract Value subject to Withdrawal Charges, any applicable Market Value Adjustment and other specified conditions. We do not deduct sales charges from Purchase Payments.

Each Contract Year, you may withdraw or surrender the Contract, without Withdrawal Charge, up to the greater of:

• the excess of Contract Value over total Purchase Payments subject to Withdrawal Charges, minus prior withdrawals that were previously assessed a Withdrawal Charge, or

• 10% of Contract Value. If you withdraw a larger amount, the excess Purchase Payments withdrawn are subject to a Withdrawal Charge.

The Withdrawal Charge is:

• 7% in the first Contribution Year,

• 6% in the second Contribution Year,

• 5% in the third and fourth Contribution Years,

• 4% in the fifth Contribution Year,

• 3% in the sixth Contribution Year,

• 2% in the seventh Contribution Year, and

• 0% in the eighth Contribution Year and thereafter.

The Withdrawal Charge also applies at the annuitization of Accumulation Units in their seventh Contribution Year or earlier, except as set forth under “Withdrawal Charge.” Withdrawals may be subject to income tax, a 10% penalty tax, and other tax consequences. Withdrawals from Qualified Plan Contracts may be limited by the Internal Revenue Code (the “Code”).

Contract Charges. Contract charges include:

• mortality and expense risk charge,

• administration charge,

• records maintenance charge,

• Withdrawal Charge,

• Guaranteed Retirement Income Benefit Rider Charge, if selected,

• transfer charge,

5

• investment management fees and other expenses, and

• applicable state premium taxes.

In addition, the investment advisers to the Funds deduct varying charges from the assets of the Funds for which they provide investment advisory services.

The Contract may be purchased in connection with retirement plans qualifying either under Section 401 or 403(b) of the Code or as individual retirement annuities including Roth IRAs. We may limit Purchase Payments under qualified plans, other than IRAs, to lump-sum rollovers and transfers. The Contract is also available in connection with state and municipal deferred compensation plans and non-qualified deferred compensation plans.

6

SUMMARY OF EXPENSES

The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the Contract. The first table describes the fees and expenses that you will pay at the time that you buy the Contract, take a partial withdrawal, annuitize the Contract, surrender the Contract, or transfer cash value between and among the Subaccounts, the Fixed Account, and the Guarantee Periods. State premium taxes may also be deducted.

Contract Owner Transaction Expenses

Sales Load Imposed on Purchases (as a percentage of Purchase Payments):	None
Maximum Withdrawal Charge1 (as a percentage of Purchase Payments)	7%

Year of Withdrawal after Purchase Payments Made	Withdrawal Charge
First year		7.00%
Second year		6.00%
Third year		5.00%
Fourth year		5.00%
Fifth year		4.00%
Sixth year		3.00%
Seventh year		2.00%
Eighth year and following		0.00%

Maximum Transfer Fee     $   25²

¹  A Contract Owner may withdraw up to the greater of (i) the excess of Contract Value over total Purchase Payments subject to a Withdrawal Charge less prior withdrawals that were previously assessed a Withdrawal Charge and (ii) 10% of the Contract Value in any Contract Year without assessment of any Withdrawal Charge. In certain circumstances we may reduce or waive the Withdrawal Charge. See “Withdrawal Charge.”

²  We reserve the right to charge a fee of $25 for each transfer of Contract Value in excess of 12 transfers per calendar year. See “Transfers During the Accumulation Period.”

The next table describes the fees and expenses that you will pay periodically during the time that you own the Contract, not including Fund fees and expenses.

Periodic Charges other than Portfolio Expenses

	Current
Annual Records Maintenance Charge3	$	30

Separate Account Annual Expenses (as a percentage of average Separate Account Contract Value)

With the Standard Death Benefit Only

Mortality and Expense Risk Charge	1.25%
Administration Charge	0.15%
Total Separate Account Annual Expense Charges4	1.40%

7

With the Optional Guaranteed Retirement Income Benefit

Mortality and Expense Risk Charge	1.25%
Optional Guaranteed Retirement Income Benefit5	0.25%
Administration Charge	0.15%
Total Separate Account Annual Expense Charges	1.65%

³  The records maintenance charge applies to Contracts with Contract Value less than $50,000 on the date of assessment. In certain circumstances we may reduce or waive the annual records maintenance charge. See “Records Maintenance Charge.”

⁴  If you annuitize the Contract on a variable basis, we will assess a daily Mortality and Expense Risk Charge and Administration Charge at an annual rate of 1.40% on the assets held in the Separate Account.

⁵  We no longer offer the Guaranteed Retirement Income Benefit rider. If you have elected the Guaranteed Retirement Income Benefit rider and your rider remains in force, the 0.25% rider charge will continue to be deducted on the last business day of each contract quarter. The rider charge will be deducted prorata as a percentage of Contract Value from each Subaccount, Guarantee Period, and the Fixed Account in which you have Contract Value until you annuitize or surrender the Contract or the Annuitant reaches age 91, whichever comes first.

The following table shows the range of Fund fees and expenses for the fiscal year ended December 31, 2011. Expenses of the Funds may be higher or lower in the future. You can obtain more detailed information concerning each Fund’s fees and expenses in the prospectus for each Fund.

Range of Annual Operating Expenses for the Funds During 2011¹

	Lowest	Highest
Total Annual Fund Operating Expenses (total of all expenses that are deducted from Fund assets, including management fees, 12b-l fees, and other expenses, before any contractual waivers or reimbursements of fees and expenses)	0.33%	1.37%
Net Total Annual Fund Operating Expenses After Reimbursements and Waivers (total of all expenses that are deducted from Fund assets, including management fees, 12b-l fees, and other expenses, after any contractual waivers or reimbursements of fees and expenses)2	0.33%	1.07%

¹  The Fund expenses used to prepare this table were provided to us by the Fund(s). We have not independently verified such information. The expenses shown are those incurred for the year ended December 31,2011. Current or future expenses may be greater or less than those shown.

²  The range of Net Total Annual Fund Operating Expenses After Reimbursements and Waivers takes into account contractual arrangements for those Funds that require a Fund’s investment adviser to reimburse or waive Fund expenses for a limited period of time ending no earlier than September 30, 2012. For more information about these arrangements, consult the prospectuses for the Funds.

The next table shows the fees and expenses charged by each Fund for the fiscal year ended December 31, 2011.

8

Annual Fund Operating Expenses (expenses that are deducted from Portfolio assets)

(as a percentage of average daily net assets in the Funds as of December 31, 2011):

Name of Fund	Management Fees			12b-1 Fees	Other Expenses			Gross Total Annual Expenses			Contractual Waiver or Expense Reimburse- ment		Net Total Annual Expenses
AIM Variable Insurance Funds (Invesco Variable Insurance Funds) ( Series I Shares)
Invesco V.I. Utilities Fund		0.60	%	N/A		0.44	%		1.04	%		N/A		1.04	%
The Alger Portfolios (Class I-2 Shares)
Alger Balanced Portfolio		0.71	%	N/A		0.22	%		0.93	%		N/A		0.93	%
Alger Capital Appreciation Portfolio		0.81	%	N/A		0.16	%		0.97	%		N/A		0.97	%
Dreyfus Investment Portfolios (Initial Share Class)
Dreyfus Investment Portfolios, Mid Cap Stock Portfolio		0.75	%	N/A		0.11	%		0.86	%		N/A		0.86	%
The Dreyfus Socially Responsible Growth Fund, Inc. (Initial Share Class)
		0.75	%	N/A		0.10	%		0.85	%		N/A		0.85	%
DWS Investments VIT Funds (Class A Shares)
DWS Equity 500 Index VIP		0.20	%	N/A		0.13	%		0.33	%		N/A		0.33	%
DWS Variable Series I (Class A Shares)
DWS Bond VIP		0.39	%	N/A		0.23	%		0.62	%		N/A		0.62	%
DWS Capital Growth VIP		0.37	%	N/A		0.13	%		0.50	%		N/A		0.50	%
DWS Global Small Cap Growth VIP		0.89	%	N/A		0.23	%		1.12	%		N/A		1.12	%
DWS Core Equity VIP (formerly DWS Growth & Income VIP)		0.39	%	N/A		0.24	%		0.63	%		N/A		0.63	%
DWS International VIP		0.79	%	N/A		0.21	%		1.00	%		N/A		1.00	%
DWS Variable Series II (Class A Shares)
DWS Global Income Builder VIP (formerly DWS Balanced VIP)1		0.37	%	N/A		0.25	%		0.62	%		N/A		0.62	%
DWS Diversified International Equity VIP1		0.65	%	N/A		0.42	%		1.07	%		N/A		1.07	%
DWS Dreman Small Mid Cap Value VIP1		0.65	%	N/A		0.25	%		0.90	%		N/A		0.90	%
DWS Global Thematic VIP2		0.92	%	N/A		0.45	%		1.37	%		.35%		1.02	%
DWS Government & Agency Securities VIP3		0.45	%	N/A		0.22	%		0.67	%		.01%		0.66	%
DWS High Income VIP		0.50	%	N/A		0.22	%		0.72	%		N/A		0.72	%
DWS Large Cap Value VIP		0.64	%	N/A		0.15	%		0.79	%		N/A		0.79	%
DWS Money Market VIP		0.29	%	N/A		0.22	%		0.51	%		N/A		0.51	%
DWS Small Mid Cap Growth VIP		0.55	%	N/A		0.18	%		0.73	%		N/A		0.73	%
DWS Unconstrained Income VIP4 (formerly DWS Strategic Income VIP)		0.55	%	N/A		0.44	%		0.99	%		.21%		0.78	%

¹  The “Other Expenses” for DWS Global Income Builder VIP, DWS Diversified International Equity VIP and DWS Dreman Small Cap Value VIP include expenses of 0.04%, 0.04% and 0.09%, respectively, for acquired fund fees and expenses. “Acquired fund fees and expenses” are not fees and expenses incurred by the Funds directly, but are expenses of the investment companies in which the Funds invest. You incur these fees and expenses indirectly through the valuation of the Funds’ investment in those investment companies.

²  Through April 30, 2013, the adviser has contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the portfolio to the extent necessary to maintain the portfolio’s total annual operating expenses at ratios no higher than 1.02% for Class A shares, excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest. The agreement may only be terminated with the consent of the fund’s Board.

9

³  Through April 30, 2013, the adviser has contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the portfolio to the extent necessary to maintain the portfolio’s total annual operating expenses at ratios no higher than 0.66% for Class A shares, excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest. The agreement may only be terminated with the consent of the fund’s Board.

⁴  Through April 30, 2013, the adviser has contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of the portfolio to the extent necessary to maintain the portfolio’s total annual operating expenses at ratios no higher than 0.78% for Class A shares, excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest. The agreement may only be terminated with the consent of the fund’s Board.

The expenses shown above are deducted by each underlying Fund or Portfolio before the Fund or Portfolio provides us with its daily net asset value. We then deduct applicable Separate Account charges from the net asset value to calculate the unit value of the corresponding Subaccount. The management fees and other expenses are more fully described in the prospectus for each underlying Portfolio.

The advisers and/or other service providers of certain Funds have agreed to reduce their fees and/or reimburse the Funds’ expenses in order to keep the Funds’ expenses below specified limits. The expenses of certain Funds are reduced by contractual fee reduction and expense reimbursement arrangements that will remain in effect until at least September 30, 2012. Other Funds have voluntary fee reduction and/or expense reimbursement arrangements that may be terminated at any time. The minimum and maximum Net Total Annual Fund Operating Expenses for all Funds after each fee reduction and/or expense reimbursement arrangement is described in the relevant Fund’s prospectus.

THE FUNDS’ ADVISER PROVIDED THE ABOVE EXPENSES FOR THE FUNDS. WE HAVE NOT INDEPENDENTLY VERIFIED THE ACCURACY OF THE ABOVE INFORMATION.

EXAMPLE

This Example is 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 Contract Owner transaction expenses, Contract fees, Separate Account annual expenses, and Fund fees and expenses.

The Example assumes that you invest $10,000 in the Contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year and assumes the maximum fees and expenses of any of the Funds prior to any fee waivers or expense reimbursements. In addition, this Example assumes no transfers were made and no premium taxes were deducted. If these arrangements were considered, the expenses shown would be higher. This Example also does not take into consideration any fee waiver or expense reimbursement arrangements of the Funds. If these arrangements were taken into consideration, the expenses shown would be lower.

Although your actual costs may be higher or lower, based on these assumptions, your costs would be:

(1)        If you surrender your Contract at the end of the applicable time period:

		1 year	3 years	5 years	10 years
		$1,011	$1,444	$2,012	$3,365
(2)	a.	If you annuitize your Contract at the end of the available time period under Annuity Option 2, 3, 4, or under Annuity Option 1 for a period of five years or more*:

1 year	3 years	5 years	10 years
$286	$889	$1,536	$3,365

10

b. If you annuitize your Contract at the end of the available time period under Annuity Option 1 for a period of less than five years*:

1 year	3 years	5 years	10 years
$1,011	$1,444	$2,012	$3,365

(3) If you do not surrender or annuitize your Contract at the end of the applicable time period:

1 year	3 years	5 years	10 years
$286	$889	$1,536	$3,365

* Withdrawal Charges do not apply if the Contract is annuitized under Annuity Option 2, 3 or 4, or under Annuity Option 1 for a period of five years or more. Withdrawal Charges do apply if the Contract is annuitized under Annuity Option 1 for a period of less than five years.

The Example is an illustration and does not represent past or future expenses and charges of the Subaccounts. Your actual expenses may be greater or less than those shown. Similarly, your rate of return may be more or less than the 5% assumed rate in the Example.

The Example does not include the deduction of premium taxes, which may be assessed before or upon annuitization or any taxes or penalties you may be required to pay if you surrender your Contract.

The Record Maintenance Charge of $30 is reflected as an annual charge of 0.040% that is determined by dividing total Record Maintenance Charges collected during 2011 ($639,415) by total average net assets attributable to the Contract during 2011 ($1,586,595,232).

REDEMPTION FEES

A Fund or Portfolio may assess a redemption fee of up to 2% on Subaccount assets that are redeemed out of the Fund or Portfolio in connection with a withdrawal or transfer. Each Fund or Portfolio determines the amount of the redemption fee and when the fee is imposed. The redemption fee will reduce your Contract Value. For more information, see the Fund or Portfolio prospectus.

DISTRIBUTION COSTS

For information concerning the compensation we pay in relation to prior sale of the Contracts, see “Distribution of Contracts.”

CONDENSED FINANCIAL INFORMATION

In Appendix C, we have included a financial history of the accumulation unit values for the Subaccounts available under the Contract.

ZALICO, THE MVA OPTION, THE SEPARATE ACCOUNT AND THE FUNDS

A. Zurich American Life Insurance Company

We were organized in 1947 and are a stock life insurance company organized under the laws of the State of Illinois. Our home office is located at 1400 American Lane, Schaumburg, Illinois 60196. For Contract services, you may contact us at the Service Center at Scudder Destinations^SM Service Team, PO Box 19097, Greenville, South Carolina, 29602-9097. We offer annuity and life insurance products and are admitted to do business in the District of Columbia and all states except New York. We are a wholly-owned subsidiary of Zurich American Corporation, a non-operating holding company. Zurich American Corporation is an indirect wholly-owned subsidiary of Zurich Insurance Group Ltd. (formerly Zurich Financial Services), a Swiss holding company.

11

Effective August 22, 2010, Kemper Investors Life Insurance Company (“KILICO”), the insurance company that issued your Contract, changed its name to Zurich American Life Insurance Company, or ZALICO. The change in the name of the insurance company from KILICO to ZALICO does not change or alter any of the terms or provisions of your Contract. ZALICO will continue to honor all its obligations under your Contract. ZALICO remains organized under the laws of the State of Illinois. ZALICO continues to be a wholly-owned subsidiary of Zurich American Corporation and an indirect wholly-owned subsidiary of Zurich Insurance Group Ltd. (formerly Zurich Financial Services).

Effective September 3, 2003 (the “Closing Date”), ZALICO transferred certain of its business, as well as the capital stock of its wholly-owned subsidiaries, to its former affiliate, Federal Kemper Life Assurance Company (“FKLA”). In a contemporaneous transaction, FKLA and ZALICO entered into a coinsurance agreement under which FKLA administers the business and the records of, and 100% reinsures, certain lines of business issued by ZALICO, including certain registered variable annuity contracts that are funded through the ZALICO Variable Annuity Separate Account (the “Separate Account”). These transfers were part of a larger transaction under which the capital stock of FKLA was sold to Bank One Insurance Holdings, Inc. (“Bank One”). On July 1, 2004, Bank One merged into JP Morgan Chase & Co., and FKLA changed its name to Chase Insurance Life and Annuity Company (“Chase Insurance”).

On July 3, 2006, Protective Life Insurance Company of Birmingham, Alabama (“Protective Life”), purchased Chase Insurance from JP Morgan Chase & Co. Effective April 1, 2007, Chase Insurance merged with and into Protective Life. Protective Life has reinsured 100% of the variable annuity business of Chase Insurance to Commonwealth Annuity and Life Insurance Company (formerly Allmerica Financial Life Insurance and Annuity Company), a subsidiary of The Goldman Sachs Group, Inc.

These acquisitions, transfers and the coinsurance agreement do not relate directly to the Contracts, although certain other contracts issued by ZALICO and administered by Protective Life are supported by the Separate Account. Your rights and benefits and our obligations under the Contracts are not changed by these transactions and agreements.

Effective September 7, 2004, we transferred our customer services operations and the administration of the Contracts to IBM Business Transformation Outsourcing Insurance Service Corporation (“IBM Outsourcing”), in Greenville, South Carolina. IBM Outsourcing provides all of the services required for complete support and administration of your Contract, including processing all premium payments and all requests for transfers, partial withdrawals, surrenders and death benefits, responding to inquiries, and calculating accumulation unit values for your Contract and the Separate Account.

B. Risks of Managing General Account Assets

The assets we hold in our General Account are used to support the payment of the death benefit under the Contracts, as well as to support payments under the optional Guaranteed Retirement Income Benefit (“GRIB rider”), as applicable. To the extent that ZALICO is required to pay you amounts under the death benefit or GRIB rider that are in addition to your Contract Value in the Separate Account, such amounts will come from our General Account assets. You should be aware that the General Account is exposed to the risks normally associated with a portfolio of fixed-income securities, including interest rate, liquidity and credit risks. The Company’s financial statements contained in the Statement of Additional Information include a further discussion of the risks inherent in the General Account’s investments.

C. Financial Condition of the Company

The benefits under the Contract are paid by ZALICO from its General Account assets and from your Contract Value held in the Separate Account. It is important that you understand that payment of the benefits is not assured and depends upon certain factors discussed below.

12

Assets in the Separate Account.  You assume all of the investment risk for your Contract Value that you allocate to the Subaccounts of the Separate Account. Your Contract Value in those Subaccounts constitutes a portion of the assets of the Separate Account. These assets are segregated and insulated from our General Account, and may not be charged with liabilities arising from any other business that we may conduct (See ‘The Separate Account”).

Assets in the General Account.  Allocations you make to the MVA Option and the Fixed Account are supported by the assets in our General Account (See “The MVA Option” and “Fixed Account Option”). Any guarantees under the Contract that exceed your Separate Account Contract Value, such as those associated with the death benefit and the GRIB rider, are paid from our General Account. Therefore, any benefits that we may be obligated to pay under the Contract in excess of Separate Account Contract Value are subject to our financial strength and claims-paying ability and our long-term ability to make such payments. The assets of the Separate Account, however, are also available to cover the liabilities of our General Account, but only to the extent that the Separate Account assets exceed the Separate Account liabilities arising under the Contract supported by it. We issue other types of insurance policies and financial products as well, and we also pay our obligations under these products from our assets in the General Account.

Our Financial Condition.  As an insurance company, we are required by state insurance regulation to hold a specified amount of reserves in order to meet all the contractual obligations of our General Account to our Contract Owners. We monitor our reserves so that we hold sufficient amounts to cover actual or expected Contract and claims payments. However, it is important to note that there is no assurance that we will always be able to meet our claims-paying obligations, and that there are risks to purchasing and owning any insurance product.

State insurance regulators also require insurance companies to maintain a minimum amount of capital, which acts as a cushion in the event that the insurer suffers a financial impairment, based on the inherent risks in the insurer’s operations. These risks include those associated with losses that we may incur as the result of defaults on the payment of interest or principal on our General Account assets, as well as the loss in market value of these investments. We may also experience liquidity risk if our General Account assets cannot be readily converted into cash to meet obligations to our Contract Owners or to provide collateral necessary to finance our business operations.

How to Obtain More Information.  We encourage our Contract Owners to read and understand our financial statements. We prepare our financial statements on a statutory basis. Our financial statements, which are presented in conformity with accounting practices prescribed or permitted by the Illinois Department of Financial and Professional Regulations – Division of Insurance, as well as the financial statements of the Separate Account (which are prepared in accordance with generally accepted accounting principles), are located in the Statement of Additional Information (“SAI”). The SAI is available at no charge by writing to our Service Center at the address on the cover page of this Prospectus, or by calling us at (800) 449-0523, or by visiting our website www.zurichamericanlifeinsurance.com (formerly www.kemperinvestors.com). In addition, the SAI is available on the SEC’s website at http://www. sec.gov.

D. The Guarantee Periods of the MVA Option

During the Accumulation Period, you may allocate Purchase Payments and Contract Value to one or more Guarantee Periods of the MVA Option with durations generally of one to ten years. You may choose a different Guarantee Period by pre-authorized telephone instructions or by giving us written notice (See “Guarantee Periods of the MVA Option”). The MVA Option may not be available in all states. At our discretion, we may offer additional Guarantee Periods or limit the number of Guarantee Periods available to three.

The amounts you allocate to the MVA Option are invested under the laws regulating our General Account. Assets supporting the amounts allocated to Guarantee Periods are held in a “nonunitized” separate

13

account. A non-unitized separate account is a separate account in which you do not participate in the performance of the assets held in the separate account. The assets of the non-unitized separate account are held to fund our guaranteed obligations. The “nonunitized” separate account is insulated, so that the assets of the separate account are not chargeable with liabilities arising out of the business conducted by any other separate account or out of any other business we may conduct. In addition, our General Account assets are available to fund benefits under the Contracts.

State insurance laws concerning the nature and quality of investments regulate our General Account investments and any non-unitized separate account investments. These laws generally permit investment in federal, state and municipal obligations, preferred and common stocks, corporate bonds, real estate mortgages, real estate and certain other investments.

We consider the return available on the instruments in which Contract proceeds are invested when establishing Guaranteed Interest Rates. This return is only one of many factors considered in establishing Guaranteed Interest Rates. (See “The Accumulation Period-4. Establishment of Guaranteed Interest Rates.”)

Our investment strategy for the non-unitized separate account is generally to match Guarantee Period liabilities with assets, such as debt instruments. We expect to invest in debt instruments such as:

• securities issued by the United States Government or its agencies or instrumentalities, which issues may or may not be guaranteed by the United States Government;

• debt securities which have an investment grade, at the time of purchase, within the four highest grades assigned by Moody’s Investors Services, Inc. (“Moody’s”) (Aaa, Aa, A or Baa), Standard & Poor’s Corporation (“Standard & Poor’s”) (AAA, AA, A or BBB), or any other nationally recognized rating service;

• other debt instruments including issues of or guaranteed by banks or bank holding companies and corporations, which obligations, although not rated by Moody’s or Standard & Poor’s, are deemed by our management to have an investment quality comparable to securities which may be otherwise purchased; and

• options and futures transactions on fixed income securities.

We are not obligated to invest the amounts allocated to the MVA Option according to any particular strategy, except as state insurance laws may require.

E. The Separate Account

We established the ZALICO Variable Annuity Separate Account (formerly KILICO Variable Annuity Separate Account) on May 29, 1981, pursuant to Illinois law as the KILICO Money Market Separate Account. The SEC does not supervise the management, investment practices or policies of the Separate Account or ZALICO.

As a result of KILICO changing its name to ZALICO in August 2010, on November 2, 2010, ZALICO changed the name of KILICO Variable Annuity Separate Account, the separate account supporting your Contract, to ZALICO Variable Annuity Separate Account. The change in the name of the Separate Account does not change the status, duties, or obligations of the ZALICO Variable Annuity Separate Account under federal or state laws. ZALICO Variable Annuity Separate Account remains registered with the SEC as a unit investment trust and remains subject to the same duties, obligations, and restrictions under the 1940 Act and state insurance laws.

Benefits provided under the Contracts are our obligations. Although the assets in the Separate Account are our property, they are held separately from our other assets and are not chargeable with liabilities arising out

14

of any other business we may conduct. Income, capital gains and capital losses, whether or not realized, from the assets allocated to the Separate Account are credited to or charged against the Separate Account without regard to the income, capital gains and capital losses arising out of any other business we may conduct.

Twenty-one Subaccounts of the Separate Account are currently available. Each Subaccount invests exclusively in shares of one of the corresponding Funds or Portfolios. We may add or delete Subaccounts in the future. Not all Subaccounts may be available in all jurisdictions or under all Contracts.

The Separate Account purchases and redeems shares from the Funds at net asset value. We redeem shares of the Funds as necessary to provide benefits, to deduct Contract charges and to transfer assets from one Subaccount to another as you request. All dividends and capital gains distributions received by the Separate Account from a Fund or Portfolio are reinvested in that Fund or Portfolio at net asset value and retained as assets of the corresponding Subaccount.

The Separate Account’s financial statements appear in the Statement of Additional Information.

The Portfolios, which sell their shares to the Subaccounts, may discontinue offering their shares to the Subaccounts. We will not discontinue a Subaccount available for investment without receiving the necessary approvals, if any, from the SEC and applicable state insurance departments. We will notify you of any changes. We reserve the right to make other structural and operational changes affecting the Separate Account.

F. The Funds

The Separate Account invests in shares of the following Funds:

• AIM Variable Insurance Funds (Invesco Variable Insurance Funds)

• The Alger Portfolios

• Dreyfus Investment Portfolios

• The Dreyfus Socially Responsible Growth Fund, Inc.

• DWS Investments VIT Funds

• DWS Variable Series I

• DWS Variable Series II

The Funds provide investment vehicles for variable life insurance and variable annuity contracts. Shares of the Funds are sold only to insurance company separate accounts and qualified retirement plans. Shares of the Funds may be sold to separate accounts of other insurance companies, whether or not affiliated with us. It is conceivable that in the future it may be disadvantageous for variable life insurance separate accounts and variable annuity separate accounts of companies unaffiliated with us, or for variable life insurance separate accounts, variable annuity separate accounts and qualified retirement plans to invest simultaneously in the accounts, variable annuity separate accounts and qualified retirement plans to invest simultaneously in the Funds. Currently, we do not foresee disadvantages to variable life insurance owners, variable annuity owners or qualified retirement plans from these arrangements. The Funds monitor events for material conflicts between owners and determine what action, if any, should be taken. In addition, if we believe that a Fund’s response to any of those events or conflicts insufficiently protects Owners, we will take appropriate action.

There can be no assurance that the DWS Money Market VIP portfolio will be able to maintain a stable net asset value per share. During extended periods of low interest rates, and partly as a result of insurance charges, the yield on the DWS Money Market VIP Subaccount may become extremely low and possibly negative. You could lose money when invested in the DWS Money Market VIP Subaccount.

A Fund may consist of separate Portfolios. The assets of each Portfolio are held separate from the assets of the other Portfolios, and each Portfolio has its own distinct investment objective and policies. Each Portfolio operates as a separate investment fund, and the investment performance of one Portfolio has no effect on the investment performance of any other Portfolio.

15

The following table summarizes each Fund/Portfolio’s investment objective and provides the name of each investment adviser.

Fund/Portfolio	Investment Objective and Investment Adviser
Alger Balanced Portfolio (Class I-2 Shares)	Seeks current income and long term capital appreciation by investing in stocks of companies with growth potential and fixed-income securities, with emphasis on income-producing securities, which appear to have some potential for capital appreciation. The Portfolio’s investment adviser is Fred Alger Management, Inc.
Alger Capital Appreciation Portfolio (Class I-2 Shares)	Seeks long term capital appreciation by investing at least 85% of its net assets in equity securities of companies of all market capitalizations that demonstrate promising growth potential. The Portfolio’s investment adviser is Fred Alger Management, Inc.
Dreyfus Investment Portfolios, MidCap Stock Portfolio (Initial Share Class)	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). The Portfolio’s investment adviser is The Dreyfus Corporation.
DWS Global Income Builder VIP (Class A Shares) (formerly DWS Balanced VIP) 1	Seeks to maximize income while maintaining prospects for capital appreciation. The Portfolio invests in a broad range of both traditional asset classes (such as equity and fixed income investments) and alternative asset classes (such as real estate, infrastructure, convertibles, commodities, currencies and absolute return strategies). The Portfolio can buy many types of securities, among them common stocks, convertible securities, corporate bonds, government bonds, inflation-indexed bonds, mortgage- and asset-backed securities and exchange-traded funds (ETFs). The Portfolio can invest in securities of any size, investment style category, or credit quality, and from any country (including emerging markets). The Portfolio will generally invest in at least three different countries and will normally have investment exposure to foreign securities, foreign currencies and other foreign investments equal to at least 40% of the Portolio’s net assets. The Portfolio invests at least 25% of its net assets in fixed income senior securities. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc.
DWS Bond VIP (Class A Shares) 2	Seeks to maximize total return consistent with preservation of capital and prudent investment management, by investing for both current income and capital appreciation. Under normal circumstances, the Portfolio invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in bonds of any maturity. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc.
DWS Capital Growth VIP (CIass A Shares)	Seeks to provide long-term growth of capital. The Portfolio normally invests at least 65% of its total assets in equities, mainly common stocks of US companies. The Portfolio generally focuses on established companies that are similar in size to the companies in the S&P 500® Index (generally 500 of the largest companies in the US) or the Russell 1000® Growth Index (generally those stocks among the 1,000 largest US companies that have above-average price-to-earnings ratios). The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc.

16

DWS Diversified International Equity VIP (Class A Shares)

Seeks capital appreciation. Under normal circumstances, the Portfolio invests at least 80% of its assets, determined at the time of purchase, in equity securities and other securities with equity characteristics. In addition to common stock, other securities with equity characteristics include preferred stock, convertible securities, warrants and exchange-traded funds (ETFs). The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc. The Portfolio’s subadviser is QS Investors.

DWS Dreman Small Mid Cap Value VIP (Class A Shares)

Seeks long-term capital appreciation. Under normal circumstances, the Portfolio invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in undervalued common stocks of small and mid-size US companies. The Portfolio’s investment adviser is Deutsche Investment Management Americas. The Portfolio’s subadviser is Dreman Value Management L.L.C.

¹  Effective May 1, 2012, DWS Balanced VIP changed its name to DWS Global Income Builder VIP.

²  On or about May 1, 2012, DWS Bond VIP acquired DWS Core Fixed Income VIP.

DWS Equity 500 Index VIP (Class A Shares) *	Seeks to replicate, as closely as possible, before the deduction of expenses, the performance of the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500® Index”), which emphasizes stocks of large 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 S&P 500® Index and in derivative instruments, such as futures contracts and options, that provide exposure to the stocks of companies in the S&P 500® Index. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc. The Portfolio’s subadviser is Northern Trust Investments, N.A. (“NTI”).
DWS Global Small Cap Growth VIP (Class A Shares)	Seeks above-average capital appreciation over the long term. The Portfolio invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in common stocks and other equities of small companies throughout the world (companies with market values similar to the smallest 30% of the companies in the S&P Developed Broad Market Index). The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc.
DWS Global Thematic VIP (Class A Shares)	Seeks long-term capital growth. Under normal circumstances, the Portfolio invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in common stocks and other equities of companies throughout the world that portfolio management considers to be “blue chip” companies. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc. The Portfolio’s subadviser is Global Thematic Partners, LLC (“GTP”).
DWS Government & Agency Securities VIP (Class A Shares)	Seeks high current income consistent with preservation of capital. Under normal circumstances, the Portfolio invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in US government securities and repurchase agreements of US government securities. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc.

17

DWS Core Equity VIP (Class A Shares) (formerly DWS Growth & Income VIP) 3

Seeks long-term growth of capital, current income and growth of income. Under normal circumstances, the Portfolio invests at least 80% of its total assets, determined at the time of purchase, in equities, mainly common stocks. Although the Portfolio can invest in companies of any size and from any country, it invests primarily in large US companies. Portfolio management may favor securities from different industries and companies at different times. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc. The Portfolio’s subadviser is QS Investors.

DWS High Income VIP (Class A Shares)

Seeks to provide a high level of current income. Under normal circumstances, the Portfolio generally invests at least 65% of its net assets, plus the amount of any borrowings for investment purposes, in junk bonds, which are those rated below the fourth highest credit rating category (that is, grade BB/Ba and below). The Portfolio may invest up to 50% of its total assets in bonds denominated in US dollars or foreign currencies from foreign issuers. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc.

³  Effective May 1, 2012, DWS Growth & Income VIP changed its name to DWS Core Equity VIP. DWS Growth & Income also acquired DWS Blue Chip VIP on or about May 1, 2012.

DWS International VIP (Class A Shares)	Seeks long-term growth of capital. Although the Portfolio can invest in companies of any size and from any country, it invests mainly in common stocks of established companies in countries with developed economies (other than the United States). The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc.
DWS Large Cap Value VIP (Class A Shares)	Seeks to achieve a high rate of total return. Under normal circumstances, the Portfolio invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in common stocks and other equity securities of large US companies that are similar in size to the companies in the Russell 1000® Value Index and that portfolio management believes are undervalued. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc.
DWS Money Market VIP (Class A Shares)	Seeks maximum current income to the extent consistent with stability of principal. The Portfolio pursues its objective by investing in high quality, short-term securities, as well as repurchase agreements that are backed by high-quality securities. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc.
DWS Small Mid Cap Growth VIP (Class A Shares)	Seeks long-term capital appreciation. Under normal circumstances, the Portfolio invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in common stocks and other equity securities of small and mid-sized US companies. The Portfolio defines small companies as those that are similar in market capitalization to those in the Russell 2000® Growth Index. The Portfolio defines mid-sized companies as those that are similar in market capitalization to those in the Russell Midcap® Growth Index. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc.

18

DWS Unconstrained Income VIP (Class A Shares) (formerly DWS Strategic Income VIP) 4	Seeks a high total return. The Portfolio’s investment adviser is Deutsche Investment Management Americas Inc. The Portfolio’s subadviser is QS Investors.
Invesco V.I. Utilities Fund (Series I Shares)	Seeks long-term growth of capital, and, secondarily, current income. The Portfolio’s investment adviser is Invesco Advisers, Inc.
The Dreyfus Socially Responsible Growth Fund, Inc. (Initial Share Class)	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 net 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. The Portfolio’s investment adviser is The Dreyfus Corporation.

⁴  Effective on or about September 22, 2011, DWS Strategic Income VIP changed its name to DWS Unconstrained Income VIP.

* “Standard & Poor’s^®, ” “S&P^®, ” “S&P 500^®, ” “Standard & Poor’s^® 500, ” “Standard and Poor’s MidCap 400^®, ” and “500” are trademarks of The McGraw-Hill Companies, Inc., and have been licensed for use by Deutsche Investment Management Americas Inc. the DWS Index 500 Portfolio is not sponsored, endorsed, sold or promoted by Standard & Poor’s^®, and Standard & Poor’s^® makes no representation regarding the advisability of investing in the Portfolio. Additional information may be found in the Portfolio’s statement of additional information.

The Portfolios may not achieve their stated objective. More detailed information, including a description of risks, fees and expenses involved in investing in the Portfolios is found in the Portfolios’ prospectuses accompanying this Prospectus and in the Portfolios’ statements of additional information, available from us upon request. You should read the Portfolio prospectuses carefully.

G. Selection of Funds

The Funds or Portfolios offered through the Contracts are selected by ZALICO, and ZALICO may consider various factors, including, but not limited to asset class coverage, the strength of the investment adviser’s (and/or subadviser’s) reputation and tenure, brand recognition, performance, and the capability and qualification of each investment firm. We also consider whether the Fund or Portfolio or one of its service providers (e.g., the investment adviser, administrator and/or distributor) will make payments to us in connection with certain administrative, marketing, and support services, or whether the Funds or Portfolios adviser was an affiliate. We review the Portfolios periodically and may remove a Portfolio, or limit its availability to new premiums and/or transfers of Contract Value if we determine that a Portfolio no longer satisfies one or more of the selection criteria and/or if the Portfolio has not attracted significant allocations from Contract Owners.

You are responsible for choosing to invest in the Subaccounts that, in turn, invest in the Funds or Portfolios. You are also responsible for choosing the amounts allocated to each Subaccount that are appropriate for your own individual circumstances and your investment goals, financial situation, and risk tolerance. Since you bear the investment risk of investing in the Subaccounts, you should carefully consider any decisions regarding allocations of Purchase Payments and Contract Value to each Subaccount.

In making your investment selections, we encourage you to thoroughly investigate all of the information regarding the Funds or Portfolios that is available to you, including each Fund or Portfolio’s prospectus, statement of additional information, and annual and semi-annual reports. Other sources such as the Fund or Portfolio’s website or newspapers and financial and other magazines provide more current information, including information about any regulatory actions or investigations relating to a Fund or Portfolio. After you select Subaccounts in which to allocate Purchase Payments or Contract Value, you should monitor and periodically re-evaluate your investment allocations to determine if they are still appropriate.

19

You bear the risk that the Contract Value of your Contract may decline as a result of negative investment performance of the Subaccounts you have chosen.

We do not provide investment advice and we do not recommend or endorse any of the particular Funds or Portfolios available as variable options in the Contract.

Administrative, Marketing, and Support Services Fees. The Funds and Portfolios currently available for investment under the Contract do not charge 12b-l fees.

We may receive payments from some of the Funds’ service providers in connection with certain administrative and other services we perform and expenses we incur. The amount of the payment is based on a percentage of the assets of the particular Funds attributable to the Contract and/or to certain other variable insurance products that we issue. These percentages currently range from .085% to .25%. Some service providers pay us more than others.

The chart below provides the current maximum percentages of fees that we anticipate will be paid to us on an annual basis:

Incoming Payments to ZALICO
From the following Funds or their Service Providers:	Maximum % of assets*	From the following Funds or their Service Providers:	Maximum % of assets*
AIM	.25%	Dreyfus Socially Responsible Growth	.25%
Alger	.25%	DWS	.085%

* Payments are based on a percentage of the average assets of each Fund owned by the Subaccounts available under this Contract and/or under certain other variable insurance products offered by our affiliates and us.

We may directly or indirectly receive additional amounts or different percentages of assets under management from some of the Funds’ service providers with regard to other variable insurance products we issue. These payments may be derived, in whole or in part, from the profits the investment adviser or sub-adviser realizes from the advisory fee deducted from Portfolio assets. Contract Owners, through their indirect investment in the Funds, bear the costs of these advisory fees. Certain investment advisers or their affiliates may provide us and/or selling firms with wholesaling services to assist us in servicing the Contract, may pay us and/or certain affiliates and/or selling firms amounts to participate in sales meetings or may reimburse our sales costs, and may provide us and/or certain affiliates and/or selling firms with occasional gifts, meals, tickets or other compensation. The amounts in the aggregate may be significant and may provide the investment adviser (or other affiliates) with increased access to us and to our affiliates.

Proceeds from these payments by the Funds or their service providers may be used for any corporate purpose, including payment of expenses that we and/or our affiliates incur in distributing and administering the Contracts, and that we incur, in our role as intermediary, in marketing and administering the underlying Portfolios. We and our affiliates may profit from these payments.

For further details about the compensation payments we make in connection with the sale of the Contracts, see “Distribution of Contracts” in this Prospectus.

H. Change of Investments

We reserve the right to make additions to, deletions from, or substitutions for the shares held by the Separate Account or that the Separate Account may purchase. We may eliminate the shares of any of the Funds or Portfolios and substitute shares of another portfolio or of another investment company, if the shares of a Fund

20

or Portfolio are no longer available for investment, or if in our judgment further investment in any Fund or Portfolio becomes inappropriate in view of the purposes of the Separate Account. We will not substitute any shares attributable to your interest in a Subaccount without prior notice and the SEC’s prior approval, if required. The Separate Account may purchase other securities for other series or classes of contracts, or may permit a conversion between series or classes of contracts on the basis of requests made by Owners.

We may establish additional subaccounts of the Separate Account, each of which would invest in a new portfolio of the Funds, or in shares of another investment company. New subaccounts may be established when, in our discretion, marketing needs or investment conditions warrant. New subaccounts may be made available to existing Owners as we determine. We may also eliminate or combine one or more subaccounts, transfer assets, or substitute one subaccount for another subaccount, if, in our discretion, marketing, tax, or investment conditions warrant. We will notify all Owners of any such changes.

If we deem it to be in the best interests of persons having voting rights under the Contract, the Separate Account may be: (a) operated as a management company under the 1940 Act; (b) deregistered under the 1940 Act in the event such registration is no longer required; or (c) combined with our other separate accounts. To the extent permitted by law, we may transfer the assets of the Separate Account to another separate account or to the General Account.

FIXED ACCOUNT OPTION

Amounts allocated or transferred to the Fixed Account are part of our General Account, supporting insurance and annuity obligations. Interests in the Fixed Account are not registered under the 1933 Act, and the Fixed Account is not registered as an investment company under the 1940 Act. Accordingly, neither the Fixed Account nor any interests therein generally are subject to the provisions of the 1933 or 1940 Acts. We have been advised that the staff of the SEC has not reviewed the disclosures in this Prospectus relating to the Fixed Account. Disclosures regarding the Fixed Account, however, may be subject to the general provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses.

Under the Fixed Account Option, we pay a fixed interest rate for stated periods. This Prospectus describes only the aspects of the Contract involving the Separate Account and the MVA Option, unless we refer to fixed accumulation and annuity elements.

We guarantee that payments allocated to the Fixed Account earn a minimum fixed interest rate not less than the minimum rate allowed by state law. At our discretion, we may credit interest in excess of the minimum guaranteed rate. We reserve the right to change the rate of excess interest credited. We also reserve the right to declare different rates of excess interest depending on when amounts are allocated or transferred to the Fixed Account. As a result, amounts at any designated time may be credited with a different rate of excess interest than the rate previously credited to such amounts and to amounts allocated or transferred at any other designated time.

THE CONTRACTS

A. General Information.

This Contract is no longer offered for sale, although we continue to accept additional Purchase Payments under the Contract. The minimum additional Purchase Payment is $500 ($50 or more for IRAs). The minimum additional Purchase Payment is $100 if you authorize us to draw on an account via check or electronic debit. Cumulative Purchase Payments in excess of $1,000,000 require our prior approval. The Internal Revenue Code may also limit the maximum annual amount of Purchase Payments. An allocation to a Subaccount, the Fixed Account or a Guarantee Period must be at least $500.

Contracts issued on a group basis are represented by a certificate. Contracts issued on an individual basis are represented by an individual annuity contract. For purposes of this Prospectus, the term “Contract” refers

21

both to certificates and to individual annuity contracts. The Contract was available to be purchased by natural persons, or by trusts or custodial accounts which hold the Contract as agent for and for the sole benefit of a natural person.

We may, at any time, amend the Contract in accordance with changes in the law, including applicable tax laws, regulations or rulings, and for other purposes.

During the Accumulation Period, you may assign the Contract or change a Beneficiary at any time by signing our form and sending our form back to the Service Center completed and in good order. No assignment or Beneficiary change is binding on us until we receive our form in good order. We reserve the right, except to the extent prohibited by applicable laws, regulations, or actions of the State insurance commissioner, to require that the assignment will be effective only upon acceptance by us, and to refuse assignments or transfers at any time on a non-discriminatory basis. We assume no responsibility for the validity of the assignment or Beneficiary change. An assignment may subject you to immediate tax liability and a 10% tax penalty.

Amounts payable during the Annuity Period may not be assigned or encumbered. In addition, to the extent permitted by law, annuity payments are not subject to levy, attachment or other judicial process for the payment of the Annuitant’s debts or obligations.

You designate the Beneficiary. If you or the Annuitant die, and no designated Beneficiary or contingent beneficiary is alive at that time, we will pay your or the Annuitant’s estate.

Under a Qualified Plan Contract, the provisions of the applicable plan may prohibit a change of Beneficiary. Generally, an interest in a Qualified Plan Contract may not be assigned.

B. The Accumulation Period.

1. Application of Purchase Payments.

You select how to allocate your Purchase Payments among the Subaccount(s), Guarantee Periods, and/or Fixed Account. The amount of each Purchase Payment allocated to a Subaccount is based on the value of an Accumulation Unit, as next computed after we receive the Purchase Payment in good order at the Service Center or the bank we have designated to receive Purchase Payments (“the bank”). Generally, we determine the value of an Accumulation Unit as of 4:00 p.m. Eastern Time on each day that the New York Stock Exchange (“NYSE”) is open for trading. Purchase Payments that we receive at the Service Center in good order after 4:00 p.m. Eastern Time will be priced using the Accumulation Unit values next determined at the end of the next regular trading session of the NYSE. Electronic payments received by wire or through electronic credit or debit transactions at the bank in good order after 4:00 p.m. Eastern Time will be priced using the Accumulation Unit values next determined at the end of the next regular trading session of the NYSE. Please contact the Service Center for wiring instructions or instructions on automatic electronic debiting.

Purchase Payments allocated to a Guarantee Period or to the Fixed Account begin earning interest one day after we receive them in good order at the Service Center or the bank. Upon receipt of a Purchase Payment in good order, we determine the number of Accumulation Units credited by dividing the Purchase Payment allocated to a Subaccount by the Subaccount’s Accumulation Unit value, as next computed after we receive the Purchase Payment.

Some of the Funds reserve the right to delay or refuse purchase requests from the Separate Account, as further described in their prospectuses and/or statements of additional information. Therefore, if you request a transaction under your Contract that is part of a purchase request delayed or refused by a Fund, we will be unable to process your request. In that event, we will notify you promptly in writing or by telephone.

The number of Accumulation Units will not change due to investment experience. Accumulation Unit value varies to reflect the investment experience of the Subaccount and the assessment of charges against the

22

Subaccount, other than the Withdrawal Charge, the Records Maintenance Charge and Guaranteed Retirement Income Benefit Charge (See “CONTRACTS ISSUED BEFORE NOVEMBER 12, 2001”). The number of Accumulation Units is reduced when the Records Maintenance Charge and Guaranteed Retirement Income Benefit Charge are assessed.

2. Accumulation Unit Value.

Each Subaccount has an Accumulation Unit value. When Purchase Payments or other amounts are allocated to a Subaccount, the number of units purchased is based on the Subaccount’s Accumulation Unit value at the end of the current Valuation Period. When amounts are transferred out of or deducted from a Subaccount, units are redeemed in a similar manner.

The Accumulation Unit value for each subsequent Valuation Period is the investment experience factor for that Valuation Period times the Accumulation Unit value for the preceding Valuation Period. Each Valuation Period has a single Accumulation Unit value which applies to each day in the Valuation Period.

Each Subaccount has its own investment experience factor. The investment experience of the Separate Account is calculated by applying the investment experience factor to the Accumulation Unit value in each Subaccount during a Valuation Period.

The investment experience factor of a Subaccount for any Valuation Period is determined by the following formula:

(a divided by b) minus c, where:

“a” is:

• the net asset value per share of the Portfolio held in the Subaccount as of the end of the current Valuation Period; plus

• the per share amount of any dividend or capital gain distributions made by the Portfolio held in the Subaccount, if the “ex-dividend” date occurs during the current Valuation Period; plus or minus

• a credit or charge for any taxes reserved for the current Valuation Period which we determine have resulted from the investment operations of the Subaccount;

“b” is the net asset value per share of the Portfolio held in the Subaccount as of the end of the preceding Valuation Period; and

“c” is the factor representing asset-based charges (the mortality and expense risk and administration charges).

3. Guarantee Periods of the MVA Option.

You may allocate Purchase Payments to one or more Guarantee Periods with durations of one to ten years. Each Guarantee Period has a Guaranteed Interest Rate that will not change during the Guarantee Period. Interest is credited daily at the effective annual rate.

The following example illustrates how we credit Guarantee Period interest.

EXAMPLE OF GUARANTEED INTEREST RATE ACCUMULATION

Purchase Payment	$40,000.00
Guarantee Period	5 Years
Guaranteed Interest Rate	3.00% Effective Annual Rate

23

Year	Interest Credited During Year	Cumulative Interest Credited
1	$1,200.00	$1,200.00
2	1,236.00	2,436.00
3	1,273.08	3,709.08
4	1,311.27	5,020.35
5	1,350.61	6,370.96

Accumulated value at the end of 5 years is:

$40,000.00 + $6,370.96 = $46,370.96

Note: This example assumes that no withdrawals or transfers are made during the five-year period. If you make withdrawals or transfers during this period, Market Value Adjustments and Withdrawal Charges apply.

The hypothetical interest rate is not intended to predict future Guaranteed Interest Rates. Actual Guaranteed Interest Rates for any Guarantee Period may be more than those shown.

At the end of any Guarantee Period, we send written notice of the beginning of a new Guarantee Period. A new Guarantee Period for the same duration starts unless you elect another Guarantee Period within 30 days after the end of the terminating Guarantee Period. You may choose a different Guarantee Period by calling the Service Center or by mailing us written notice in good order. You should not select a new Guarantee Period extending beyond the Annuity Date. Otherwise, the Guarantee Period amount available for annuitization will be subject to Market Value Adjustments and may be subject to Withdrawal Charges. In a rising interest rate environment, the Market Value Adjustment could result in a substantial downward adjustment to your Contract Value. (See “Market Value Adjustment” and “Withdrawal Charge” below.)

The amount reinvested at the beginning of a new Guarantee Period is the Guarantee Period Value for the Guarantee Period just ended. The Guaranteed Interest Rate in effect when the new Guarantee Period begins applies for the duration of the new Guarantee Period.

You may call or write us at the Service Center for the new Guaranteed Interest Rates.

4. Establishment of Guaranteed Interest Rates.

We declare the Guaranteed Interest Rates for each of the durations of Guarantee Periods from time to time at our discretion. Once established, rates are guaranteed for the respective Guarantee Periods. We advise you of the Guaranteed Interest Rate for a chosen Guarantee Period when we receive a Purchase Payment, when a transfer is effectuated or when a Guarantee Period renews. Withdrawals of Accumulated Guarantee Period Value are subject to Withdrawal Charges and Records Maintenance Charges and may be subject to a Market Value Adjustment. (See “Market Value Adjustment” below.)

We have no specific formula for establishing the Guaranteed Interest Rates. The determination may be influenced by, but not necessarily correspond to, the current interest rate environment. (See “The MVA Option”.) We may also consider, among other factors, the duration of a Guarantee Period, regulatory and tax requirements, sales commissions and administrative expenses we bear, and general economic trends.

We make the final determination of the Guaranteed Interest Rates to be declared. We cannot predict or guarantee the level of future Guaranteed Interest Rates.

24

5. Contract Value.

On any Valuation Date, Contract Value equals the total of:

• the number of Accumulation Units credited to each Subaccount, times

• the value of a corresponding Accumulation Unit for each Subaccount, plus

• your Accumulated Guarantee Period Value in the MVA Option, plus

• your interest in the Fixed Account.

6. Transfers During the Accumulation Period.

During the Accumulation Period, you may transfer the Contract Value among the Subaccounts, the Guarantee Periods and the Fixed Account subject to the following provisions:

• the amount transferred must be at least $100 unless the total Contract Value attributable to a Subaccount, Guarantee Period or Fixed Account is transferred;

• the Contract Value remaining in a Subaccount, Guarantee Period or Fixed Account must be at least $500 unless the total value is transferred;

• transfers may not be made from any Subaccount to the Fixed Account over the six months following any transfer from the Fixed Account into one or more Subaccounts;

• transfers from the Fixed Account may be made one time during the Contract Year during the 30 days following an anniversary of a Contract Year; and

• transfer requests we receive must be in good order.

We may charge a $25 fee for each transfer in excess of 12 transfers per calendar year. However, transfers made pursuant to the Asset Allocation and Dollar Cost Averaging programs do not count toward these 12 transfers. In addition, transfers of Guarantee Period Value are subject to Market Value Adjustment unless the transfer is made within 30 days of the end of the Guarantee Period. Because a transfer before the end of a Guarantee Period is subject to a Market Value Adjustment, the amount transferred from the Guarantee Period may be more or less than the requested dollar amount.

We will make transfers pursuant to your mailed, faxed or telephone instructions that specify in detail the requested changes and are in good order. Transfers involving a Subaccount are based upon the Accumulation Unit values, as next calculated after we receive transfer instructions in good order at the Service Center. We may suspend, modify or terminate the transfer provision. We disclaim all liability if we follow in good faith instructions you give to us in accordance with our procedures, including requests for personal identifying information, that are designed to limit unauthorized use of the privilege. Therefore, you bear the risk of loss in the event of a fraudulent telephone transfer.

Mail, Fax, and Telephone Access. You may request transfers in writing by mailing your request (in good order) to our Service Center, or by faxing your request (in good order) to our Service Center at 1-864-609-3962. You may also request transfers by telephone by calling our Service Center at 1-800-449-0523 and providing us with all required information.

Website Access. You may request transfers through our website. Our website address at www.zurichamericanlifeinsurance.com is available 24 hours a day. Our website will allow you to request transfers among the Subaccounts, Fixed Account, and the Guarantee Periods and inquire about your Contract. To use the website for access to your Contract information or to request transfers, you must enter your Contract number and Personal Identification Number (PIN), which you can obtain from our Service Center.

Pricing of Transfers. We will price any transfer request that we receive in good order at the Service Center (by mail, fax, or telephone) or through our website address before the NYSE closes for regular trading (usually, 4:00 p.m. Eastern Time) using the Accumulation Unit values next determined at the end of that regular trading session of the NYSE.

25

And we will price any transfer request that we receive in good order at the Service Center (by mail, fax, or telephone) or through our website after the close of the regular business session of the NYSE, on any day the NYSE is open for regular trading, using the Accumulation Unit values next determined at the end of the next regular trading session of the NYSE.

E-mail Access. Currently, we do not allow transfer requests or withdrawals by e-mail. You may e-mail us through our website to request an address change or to inquire about your Contract. Please identify your Contract number in any transaction request or correspondence sent to us by e-mail.

Limitations on Transfers. The following transfers must be requested through standard first-class United States mail and must have an original signature:

• transfers in excess of $250,000, per Contract, per day, and

• transfers into and out of the DWS Global Thematic VIP, the DWS Global Small Cap Growth VIP, the DWS International VIP or the DWS Diversified International Equity VIP Subaccounts in excess of $50,000, per Contract, per day.

These administrative procedures have been adopted under the Contract to protect the interests of the remaining Contract Owners from the adverse effects of frequent and large transfers into and out of variable annuity Subaccounts that can adversely affect the investment management of the underlying Funds or Portfolios.

We reserve the right to further amend the transfer procedures in the interest of protecting remaining Contract Owners.

Some of the Funds reserve the right to delay or refuse purchase requests from the Separate Account, as further described in their prospectuses and/or statements of additional information. Therefore, if you request a transaction under your Contract that is part of a purchase request delayed or refused by a Fund, we will be unable to process your request. In that event, we will notify you promptly in writing or by telephone.

Additional Telephone, Fax, and Online Access Rules and Conditions. We will employ reasonable procedures to confirm that telephone, fax, e-mail and website instructions are genuine. Such procedures may include confirming that instructions are in good order, requiring forms of personal identification prior to acting upon any telephone, fax, e-mail and website instructions, providing written confirmation of transactions to you, and/or tape recording telephone instructions and saving fax, e-mail and website instructions received from you. We disclaim all liability if we follow in good faith instructions given in accordance with our procedures that are designed to limit unauthorized use of the telephone, fax, e-mail and website privileges. Therefore, you bear the risk of loss in the event of a fraudulent telephone, fax, e-mail and website request.

In order to access our website or our automated customer response system, you will need to obtain a PIN by calling into the Service Center. You should protect your PIN, because the automated customer response system will be available to your representative of record and to anyone who provides your PIN. We will not be able to verify that the person providing electronic instructions is you or authorized by you.

We cannot guarantee that our telephone, fax, e-mail and website services will always be available. For example, our Service Center may be closed during severe weather emergencies or there may be interruptions in telephone or fax service or problems with computer systems that are beyond our control. Outages or slowdowns may prevent or delay our receipt of your request. If the volume of requests is unusually high, we might not be able to receive your order. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your request or correspond in writing to our mailing address.

26

Transfer requests made in writing, by phone, by fax, or through our website must comply with our transfer provisions stated in this Prospectus. Any transfer requests that are not in good order or are not in compliance with these provisions will not be considered received at our Service Center. We reserve the right to modify, restrict, suspend or eliminate the transfer privileges (including the telephone, fax, and website transfer privilege) at any time, for any class of Contracts, for any reason.

Third Party Transfers. If you authorize a third party to transact transfers on your behalf, we will reallocate the Contract Value pursuant to the authorized asset allocation program. However, we do not offer or participate in any asset allocation program and we take no responsibility for any third party asset allocation program. We may suspend or cancel acceptance of a third party’s instructions at any time and may restrict the variable options available for transfer under third party authorizations.

Automatic Account Rebalancing. You may elect to have transfers made automatically among the Subaccounts on an annual, semiannual or quarterly basis so that Contract Value is reallocated to match the percentage allocations in your predefined allocation elections. Transfers under this program are not subject to the $100 minimum transfer limitation. Your election to participate in the automatic asset reallocation program must be in writing on our form and returned to us in good order.

7. Policy and Procedures Regarding Disruptive Trading and Market Timing.

Statement of Policy. This Contract is not designed for use by organizations or individuals engaged in market timing or for use by investors who make frequent transfers, programmed transfers, transfers into and then out of a Subaccount in a short period of time, or transfers of large amounts at one time (“Disruptive Trading”).

Market timing and other kinds of Disruptive Trading can increase your investment risks and have harmful effects for you, for other Contract Owners, for the underlying Portfolios, and for other persons who have material rights under the Contract, such as insureds and beneficiaries. These risks and harmful effects include:

• dilution of the interests of long-term investors in a Subaccount if market timers manage to transfer into an underlying Portfolio at prices that are below the true value or to transfer out of the underlying Portfolio at prices that are above the true value of the underlying Portfolio’s investments (some market timers attempt to do this through methods known as “time-zone arbitrage” and “liquidity arbitrage”); and

• reduced investment performance due to adverse effects on Portfolio management by:

^¡   impeding a Portfolio manager’s ability to sustain an investment objective;

^¡   causing the underlying Portfolio to maintain a higher level of cash than would otherwise be the case; or

^¡   causing an underlying Portfolio to liquidate investments prematurely (or otherwise at an inopportune time) in order to pay withdrawals or transfers out of the underlying Portfolio;and

^¡   increased costs to you in the form of increased brokerage and administrative expenses.These costs are borne by all Contract Owners invested in those Subaccounts, not just those making the transfers.

Policy Against Disruptive Trading. We have adopted policies and procedures that are intended to detect and deter market timing and other forms of Disruptive Trading in the Contract. We do not make special arrangements or grant exceptions or waivers to accommodate any persons or class of persons with regard to these policies and procedures.

Do not invest with us if you intend to engage in market timing or potentially Disruptive Trading.

For these purposes, we do not include transfers made pursuant to Dollar Cost Averaging.

27

Detection. We monitor the transfer activities of Owners in order to detect market timing and other forms of Disruptive Trading activity. However, despite our monitoring we may not be able to detect or halt all Disruptive Trading activity. Our ability to detect Disruptive Trading may be limited by operational or technological systems, as well as by our ability to predict strategies employed by market timers to avoid detection. As a result, despite our efforts, there is no assurance that we will be able to identify and curtail all Disruptive Trading by such Contract Owners or intermediaries acting on their behalf.

In addition, because other insurance companies (and retirement plans) with different market timing policies and procedures may invest in the underlying Portfolios, we cannot guarantee that all harmful trading will be detected or that an underlying Portfolio will not suffer harm from Disruptive Trading in the subaccounts of variable products issued by these other insurance companies (or retirement plans) that invest in the underlying Portfolios.

As a result, to the extent we are not able to detect Disruptive Trading activity, or other insurance companies (or retirement plans) fail to detect such activity, it is possible that a market timer may be able to engage in Disruptive Trading transactions that may interfere with underlying Portfolio management and cause you to experience detrimental effects such as increased costs, lower performance and a dilution of your interest in a underlying Portfolio.

Deterrence. We impose limits on transfer activity within the Contract in order to deter Disruptive Trading.

We will accept the following transfers only if the order is sent to us with an original signature and by first class U.S. Mail:

• transfers in excess of $250,000 per Contract, per day; and

• transfers in excess of $50,000 per Contract, per day, into or out any of the following Subaccounts:

^¡   DWS Global Thematic VIP,

^¡   DWS Global Small Cap Growth VIP,

^¡   DWS International VIP, or

^¡   DWS Diversified International Equity VIP.

If you send a transfer request in excess of these restrictions by any other method (such as fax, phone, or overnight mail), we will not honor your request.

If we identify suspicious transfer activity, we will advise you in writing that we are monitoring your transfer activity and that we will impose restrictions if we identify a pattern of Disruptive Trading activity. If we identify such a pattern as a result of continued monitoring, we will notify you in writing that all future transfers must be requested through first class U.S. Mail with an original signature. This means that we would accept only written transfer requests with an original signature transmitted to us only by U.S. mail. We may also restrict the transfer privileges of others acting on your behalf, including your registered representative or an asset allocation or investment advisory service.

To further deter any market timing and Disruptive Trading activities, we may at any time and without prior notice:

• terminate all telephone, website, email or fax transfer privileges;

• limit the total number of transfers;

• place further limits on the dollar amount that may be transfer;

• require a minimum period of time between transfers; or

• refuse transfer requests from intermediaries acting on behalf of you.

28

Our ability to impose these restrictions in order to discourage market timing and other forms of Disruptive Trading may be limited by provisions of your Contract. As a result, to the extent the provisions of your Contract limit our actions, some Contract Owners may be able to market time through the Contract, while others would bear the harm associated with the timing.

We reserve the right to reject any premium payment or transfer request from any person without prior notice, if, in our judgment, (1) the payment or transfer, or series of transfers, would have a negative impact on an underlying Portfolio’s operations, (2) if an underlying Portfolio would reject or has rejected our purchase order, or has instructed us not to allow that purchase or transfer, or (3) because of a history of large or frequent transfers. We may impose other restrictions on transfers, or even prohibit transfers for any Owner who, in our view, has abused, or appears likely to abuse, the transfer privilege. We also reserve the right to reverse a potentially harmful transfer if an underlying Portfolio refuses or reverses our order; in such instances some Contract Owners may be treated differently than others. For all of these purposes, we may aggregate two or more variable insurance products that we believe are connected.

In addition to our internal policies and procedures, we will administer your Contract to comply with any applicable state, federal, and other regulatory requirements concerning transfers. We reserve the right to implement, administer, and charge you for any fee or restriction, including redemption fees, imposed by any underlying Portfolio. To the extent permitted by law, we also reserve the right to defer the transfer privilege at any time that we are unable to purchase or redeem shares of any of the underlying Portfolios.

Under our current policies and procedures, we do not:

• impose redemption fees on transfers;

• expressly limit the number, size or frequency of transfers in a given period (except for certain Subaccounts listed above where transfers that exceed a certain size are prohibited); or

• allow a certain number of transfers in a given period.

Redemption fees, other transfer limits, and other procedures or restrictions may be more or less successful than ours in deterring market timing or other forms of Disruptive Trading and in preventing or limiting harm from such trading.

Please note that the limits and restrictions described herein are subject to our ability to monitor transfer activity. Our ability to detect market timing and other Disruptive Trading may be limited by operational and technological systems, as well as by our ability to predict strategies employed by Contact Owners (or those acting on their behalf) to avoid detection. As a result, despite our efforts to prevent harmful trading activity among the Subaccounts available under the Contract, there is no assurance that we will be able to deter or detect market timing or Disruptive Trading by such Contract Owners or intermediaries acting on their behalf. Moreover, our ability to discourage and restrict market timing or Disruptive Trading may be limited by decisions of state regulatory bodies and court order which we cannot predict.

We may revise our policies and procedures in our sole discretion at any time and without prior notice, as we deem necessary or appropriate (1) to better detect and deter market timing or other Disruptive Trading if we discover that our current procedures do not adequately curtail such activity, (2) to comply with state or federal regulatory requirements, or (3) to impose additional or alternative restrictions on Owners engaging in frequent transfer activity among the underlying Portfolios under the Contract. The actions we take will be based on policies and procedures that we apply uniformly to all Contract Owners.

Underlying Portfolio Frequent Trading Policies. The underlying Portfolios may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the underlying Portfolios describe any such policies and procedures. The frequent trading policies and procedures of one underlying Portfolio may be different, and more or less restrictive, than the

29

frequent trading policies and procedures of another underlying Portfolios and the policies and procedures we have adopted for the Contract to discourage market timing and other programmed, large, frequent, or short-term transfers.

You should be aware that, as required by SEC regulation, we have entered into a written agreement with each underlying Fund or principal underwriter that obligates us to provide the Fund, upon written request, with information about you and your trading activities in the Fund’s Portfolios. In addition, we are obligated to execute instructions from the Funds that may require us to restrict or prohibit your investment in a specific Portfolio if the Fund identifies you as violating the frequent trading policies that the Fund has established for that Portfolio.

If we receive a premium payment from you with instructions to allocate it into a Fund that has directed us to restrict or prohibit your trades into the Fund, then we will request new allocation instructions from you. If you request a transfer into a Fund that has directed us to restrict or prohibit your trades, then we will not effect the transfer.

Omnibus Order. Contract Owners and other persons with material rights under the Contract also should be aware that the purchase and redemption orders received by the underlying Portfolios generally are “omnibus” orders from intermediaries such as retirement plans and separate accounts funding variable insurance products. The omnibus orders reflect the aggregation and netting of multiple orders from individual retirement plan participants and individual owners of variable insurance products. The omnibus nature of these orders may limit the underlying Portfolios’ ability to apply their respective frequent trading policies and procedures. We cannot guarantee that the underlying Portfolios will not be harmed by transfer activity relating to the retirement plans or other insurance companies that may invest in the underlying Portfolios. These other insurance companies are responsible for their own policies and procedures regarding frequent transfer activity. If their policies and procedures fail to successfully discourage harmful transfer activity, it will affect other owners of underlying Portfolio shares, as well as the owners of all of the variable annuity or life insurance policies, including ours, whose variable options correspond to the affected underlying Portfolios. In addition, if an underlying Portfolio believes that an omnibus order we submit may reflect one or more transfer requests from Owners engaged in market timing and other programmed, large, frequent, or short-term transfers, the underlying Portfolio may reject the entire omnibus order and thereby delay or prevent us from implementing your request.

8. Withdrawals During the Accumulation Period.

You may redeem some or all of the Contract Value, subject to any applicable Market Value Adjustment and minus any Withdrawal Charge. In a rising interest rate environment, the Market Value Adjustment could result in a substantial downward adjustment to your Contract Value.

Withdrawals will have tax consequences. (See “Federal Tax Considerations.”) A withdrawal of the entire Contract Value is called a surrender.

In any Contract Year, you may withdraw or surrender the Contract, without Withdrawal Charge, up to the greater of:

• the excess of Contract Value over total Purchase Payments subject to Withdrawal Charges, minus prior withdrawals that were previously assessed a Withdrawal Charge, or

• 10% of the Contract Value.

See “Contract Charges and Expenses-Withdrawal Charge” for a discussion of the charges we deduct from partial withdrawals and surrenders.

If your Contract Value is allocated to more than one Subaccounts, you must specify the Subaccount(s) from which you want us to take the partial withdrawal. If you do not specify the Subaccount(s), we will redeem

30

Accumulation Units on a pro rata basis from all Subaccount(s) in which you have an interest. Accumulation Units attributable to the earliest Contribution Years are redeemed first.

Partial withdrawals are subject to the following:

• Partial withdrawals are not permitted from the Fixed Account in the first Contract Year.

• The minimum withdrawal is $ 100 (before any Market Value Adjustment), or your entire interest in the variable option(s) from which withdrawal is requested.

• You must leave at least $500 in each Subaccount from which the withdrawal is requested, unless the total value is withdrawn.

A request to withdraw shall be made in writing (in good order) to us at the Service Center and should be accompanied by the Contract if surrender is requested. You may request a surrender or partial withdrawal in writing by mailing your request (in good order) to our Service Center, or by faxing your request (in good order) to our Service Center at 1-864-609-3962.

Withdrawal requests are processed only on days when the New York Stock Exchange is open. The Withdrawal Value attributable to the Subaccounts is determined on the basis of the Accumulation Unit values, as calculated after we receive the request. We will price any partial withdrawal or surrender request that we receive in good order at the Service Center before the NYSE closes for regular trading (usually 4:00 p.m. Eastern Time) using the Accumulation Unit values next determined at the end of that regular trading session of the NYSE. We will price any partial withdrawal or surrender request that we receive in good order at the Service Center after the NYSE closes for regular trading (usually 4:00 p.m. Eastern Time), using the Accumulation Unit values next determined at the end of the next regular trading session of the NYSE. The Withdrawal Value attributable to the Subaccounts is paid within seven days after we receive the request. However, we may suspend withdrawals or delay payment:

• during any period when the New York Stock Exchange is closed,

• when trading in a Fund or Portfolio is restricted or the SEC determines that an emergency exists, or

• as the SEC by order may permit.

If, pursuant to SEC rules, the DWS Money Market VIP Portfolio suspends payment of redemption proceeds in connection with a liquidation of the Portfolio, we will delay payment of any transfer, partial withdrawal, surrender, loan, or death benefit from the DWS Money Market VIP Sub- account until the Portfolio no longer suspends such payments.

For withdrawal requests from the MVA Option and the Fixed Account, we may defer any payment for up to six months, as permitted by state law. During the deferral period, we will continue to credit interest at the current Guaranteed Interest Rate for the same Guarantee Period.

Withdrawals are permitted from Contracts issued in connection with Section 403(b) Qualified Plans only under limited circumstances. If your Contract was issued pursuant to a 403(b) plan, we generally are required to confirm, with your 403(b) plan sponsor or otherwise, that surrenders, withdrawals or transfers you request comply with applicable tax requirements and to decline requests that are not in compliance. We will defer such payments you request until all information required under the tax law has been received. By requesting a surrender, withdrawal or transfer, you consent to the sharing of confidential information about you, your Contract, and transactions under your Contract and any other 403(b) contracts or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or recordkeeper, and other product providers. (See “Federal Tax Considerations.”)

A participant in the Texas Optional Retirement Program (“ORP”) must obtain a certificate of termination from the participant’s employer before a Contract can be redeemed. The Attorney General of Texas has ruled that participants in the ORP may redeem their interest in a Contract issued pursuant to the ORP only upon termination

31

of employment in Texas public institutions of higher education, or upon retirement, death or total disability. In those states adopting similar requirements for optional retirement programs, we will follow similar procedures.

Other types of Qualified Plan Contracts also may be subject to withdrawal restrictions under the Code or the terms of the Qualified Plan. You should consult your tax adviser and your plan sponsor regarding such restrictions. To the extent that you request a transaction with respect to your Qualified Plan Contract that requires us to share confidential information about you in order to comply with the rules under the Code or the plan governing your Qualified Contract, you consent to such information sharing by requesting the transaction.

9. Market Value Adjustment.

Any withdrawal, transfer or annuitization of Guarantee Period Values, unless effected within 30 days after a Guarantee Period ends, may be adjusted up or down by a Market Value Adjustment. We calculate and apply the Market Value Adjustment before we calculate and deduct the Withdrawal Charge.

The Market Value Adjustment reflects the relationship between (a) the currently established interest rate (“Current Interest Rate”) for a Guarantee Period equal to the remaining length of the Guarantee Period, rounded to the next higher number of complete years, and (b) the Guaranteed Interest Rate applicable to the amount being withdrawn. Generally, if the Guaranteed Interest Rate is the same or lower than the applicable Current Interest Rate, the Market Value Adjustment reduces Guarantee Period Value and results in a lower payment. Conversely, if the Guaranteed Interest Rate is higher than the applicable Current Interest Rate, the Market Value Adjustment increases Guarantee Period Value and results in a higher payment.

Please be aware that Market Value Adjustments are sensitive to changes in interest rates. If you withdraw money from a Guarantee Period before its term has expired, and during a period of rising interest rates, you likely will be assessed a negative Market Value Adjustment. In times of rising interest rates, the negative Market Value Adjustment could result in a substantial downward adjustment to your Contract Value. Before you take a withdrawal from a Guarantee Period, you should know its expiration date, and ask the Service Center to calculate whether a Market Value Adjustment will apply and how much it will be.

MVA Endorsement Adding the MVA Floor. Effective April 1, 2005 (the “Effective Date”), we amended your Contract or certificate by putting a “floor” on the Market Value Adjustment feature and increasing the Guaranteed Interest Rate to 3% on all Guarantee Period Values. For this to occur, we issued an endorsement to your Contract or certificate (the “MVA Endorsement”).

The MVA Endorsement enhanced the MVA formula for your Contract by limiting (i.e., putting a “floor” on) any downward Market Value Adjustment that might be applied after the Effective Date of the MVA Endorsement. The “floor” ensures that, regardless of any changes in interest rates, if you withdraw or transfer money from a Guarantee Period before it expires and after the Start Date, then you will receive a return on your Guarantee Period Value as of the Start Date (before any deductions for Contract charges) that will not be less than the Contract’s new minimum Guaranteed Interest Rate of 3% per annum. The Start Date is the later of the Effective Date of the MVA Endorsement or the beginning of a new Guarantee Period.

In applying the MVA formula, each amount allocated to a different Guarantee Period or allocated at different times will be considered separately.

The specific terms of this change to your Contract are described in the MVA Endorsement.

As a result of the issuance of the MVA Endorsement, the interests under the Contract relating to the MVA Option are no longer securities registered under the Securities Act of 1933.

32

The Market Value Adjustment (MVA) uses this formula:

Where: MVA = GPV x ₍ 1 + I 1 + J ₎ ^{t / 365  –1}

“I” is the Guaranteed Interest Rate being credited to the Guarantee Period Value (GPV) subject to the Market Value Adjustment,

“J” is the Current Interest Rate we declare, as of the effective date of the application of the Market Value Adjustment, for current allocations to a Guarantee Period the length of which is equal to the balance of the Guarantee Period for the Guarantee Period Value subject to the Market Value Adjustment, rounded to the next higher number of complete years, and

“t” is the number of days remaining in the Guarantee Period.

Any downward Market Value Adjustment is limited by the MVA “floor” described above.

For an illustration of the new “floor” on a downward Market Value Adjustment, as well as an upward Market Value Adjustment, see Appendix A.

10. Guaranteed Death Benefit.

We pay a death benefit to the Beneficiary if any of the following occurs during the Accumulation Period:

• the Owner, or a joint owner, dies,

• the Annuitant dies with no living contingent annuitant, or

• the contingent annuitant dies after the Annuitant.

Each Beneficiary or contingent beneficiary will bear the investment risk (i.e., receive any gains or bear any losses) on investments held in the Subaccounts until the payment of the death benefit. The amount of the death benefit depends on the age of the deceased Owner or Annuitant when the death benefit becomes payable.

If the deceased Owner or Annuitant dies before age 91, we will pay the Beneficiary the greatest of the following less debt:

• Contract Value,

• Purchase Payments minus previous withdrawals, accumulated at 5.00% interest per year to the earlier of the deceased’s age 80 or the date of death, plus Purchase Payments minus all withdrawals from age 80 to the date of death, or

• the greatest anniversary value before death.

The greatest anniversary value equals:

• the highest of the Contract Values on each Contract anniversary prior to the deceased’s age 81, plus the dollar amount of any Purchase Payments made since that anniversary, minus

• withdrawals since that anniversary.

We pay Contract Value to the Beneficiary if an Owner or Annuitant dies after age 91. The Owner or Beneficiary (unless the Owner has already elected an Annuity Option), as appropriate, may elect to have all or a part of the death benefit proceeds paid to the Beneficiary under one of the Annuity Options described under “Annuity Options” below. The death benefit must be distributed within five years after the date of death unless an Annuity Option is elected or a surviving spouse elects to continue the Contract in accordance with the provisions described below.

33

Note: The right of a spouse to continue the Contract and all Contract provisions relating to spousal continuation are available only to a person who meets the definition of “spouse” under the Federal Defense of Marriage Act, or any other applicable Federal law. Under current Federal law, a prospective or current Owner who has entered into or is contemplating a civil union or a same sex marriage should be aware that the rights of the spouse under the spousal continuation provisions of this Contract will not be available to such partner or same sex marriage spouse.

For Non-Qualified Plan Contracts or Individual Retirement Annuities, if the Beneficiary is the Owner’s surviving spouse (as defined under Federal law) (or the Annuitant’s surviving spouse if the Owner is not a natural person), the surviving spouse may elect to continue the Contract in lieu of taking a death benefit distribution.

The spouse will become the successor Owner of the Contract subject to the following:

• The Contract Value will be increased to reflect the amount of the death benefit. The difference will be credited to the DWS Money Market VIP Subaccount.

• No Withdrawal Charges will apply on existing values in the Contract. However, Purchase Payments made after the original owner’s death are subject to Withdrawal Charges.

• Upon the death of the surviving spouse, the death benefit will be calculated from the time that the election to continue the Contract is made. A subsequent spouse of the surviving spouse will not be able to continue the Contract.

The above option is subject to availability of this feature in your state.

As an alternative to the above election, the surviving spouse may elect to continue a Non-Qualified Plan Contract or an Individual Retirement Annuity without receiving the increase in Contract Value attributable to the death benefit. In this case, all rights, benefits and charges under the Contract will continue including any applicable Withdrawal Charges.

CONTRACT CHARGES AND EXPENSES

This section describes the charges and deductions that we make under the Contract to compensate for: (1) the services and benefits we provide; (2) the costs and expenses we incur; and (3) the risks we assume. The fees and charges we deduct under the Contract may result in a profit to us.

We deduct the following charges and expenses:

• mortality and expense risk charge,

• administration charge,

• records maintenance charge,

• Withdrawal Charge,

• Guaranteed Retirement Income Benefit Rider Charge, if any,

• transfer charge,

• investment management fees and other expenses, and

• applicable state premium taxes.

Subject to certain expense limitations, you indirectly bear investment management fees and other Fund expenses.

A. Charges Against The Separate Account.

1. Mortality and Expense Risk Charge.

We assess each Subaccount a daily asset charge for mortality and expense risks at a rate of 1.25% per annum. Variable Annuity payments reflect the investment experience of each Subaccount but are not affected by

34

changes in actual mortality experience or by actual expenses we incur. If you annuitize the Contract on a variable basis, we will continue to assess a daily Mortality and Expense Risk Charge at an annual rate of 1.25% against the assets you hold in the Separate Account.

The mortality risk we assume arises from two contractual obligations. First, if you or the Annuitant die before age 91 and before the Annuity Date, we may, in some cases, pay more than Contract Value. (See “Guaranteed Death Benefit”, above.) Second, when Annuity Options involving life contingencies are selected, we assume the risk that Annuitants will live beyond actuarial life expectancies.

We also assume an expense risk. Actual expenses of administering the Contracts may exceed the amounts we recover from the Records Maintenance Charge or the administrative cost portion of the daily asset charge.

2. Administration Charge.

We assess each Subaccount a daily administration charge at a rate of 0.15% per annum. This charge reimburses us for expenses incurred for administering the Contracts. These expenses include Owner inquiries, changes in allocations, Owner reports, Contract maintenance costs, and data processing costs. The administration charge covers the average anticipated administrative expenses incurred while the Contracts are in force. There is not necessarily a direct relationship between the amount of the charge and the administrative costs of a particular Contract. If you annuitize the Contract on a variable basis, we will continue to assess a daily Administration Charge at an annual rate of 0.15% against the assets you hold in the Separate Account.

3. Records Maintenance Charge.

We deduct an annual Records Maintenance Charge of $30 during the Accumulation Period. The charge is assessed:

• at the end of each Contract Year,

• on Contract surrender, and

• upon annuitization.

However, we do not deduct the Records Maintenance Charge for Contracts with Contract Value of at least $50,000 on the assessment date.

This charge reimburses us for the expenses of establishing and maintaining Contract records. The Records Maintenance Charge reduces the net assets of each Subaccount, Guarantee Period and the Fixed Account.

The Records Maintenance Charge is assessed equally among all Subaccounts in which you have an interest.

4. Withdrawal Charge.

We deduct a Withdrawal Charge to cover Contract sales expenses, including commissions and other promotion and acquisition expenses.

Each Contract Year, you may withdraw or surrender the Contract, without Withdrawal Charge, up to the greater of:

• the excess of Contract Value over total Purchase Payments subject to Withdrawal Charges, minus prior withdrawals that were previously assessed a Withdrawal Charge, or

• 10% of the Contract Value.

35

If you withdraw a larger amount, the excess Purchase Payments withdrawn are subject to a Withdrawal Charge. The Withdrawal Charge applies in the first seven Contribution Years following each Purchase Payment as follows:

Contribution Year	Withdrawal Charge
First		7	%
Second		6	%
Third		5	%
Fourth		5	%
Fifth		4	%
Sixth		3	%
Seventh		2	%
Eighth and following		0	%

Purchase Payments are deemed surrendered in the order in which they were received.

When a withdrawal is requested in good order, you receive a check in the amount requested. If a Withdrawal Charge applies, Contract Value is reduced by the Withdrawal Charge, plus the dollar amount sent to you.

Because Contribution Years are based on the date each Purchase Payment is made, you may be subject to a Withdrawal Charge, even though the Contract may have been issued many years earlier. (For additional details, see “Withdrawals During the Accumulation Period.”)

Subject to certain exceptions and state approvals, Withdrawal Charges are not assessed on withdrawals:

• after you have been confined in a hospital or skilled health care facility for at least 30 days and you remain confined at the time of the request;

• within 30 days following your discharge from a hospital or skilled health care facility after a confinement of at least 30 days; or

• if you or the Annuitant become disabled after the Contract is issued and before age 65.

Restrictions and provisions related to the nursing care or hospitalization disability waivers are described in Contract endorsements.

The Withdrawal Charge compensates us for Contract distribution expenses, which include the payment of on-going trail commissions to selling firms (See “Distribution of Contracts”). Currently, we anticipate Withdrawal Charges will not fully cover distribution expenses. We may use our general assets to pay distribution expenses. Those assets may include proceeds from the mortality and expense risk charge.

The Withdrawal Charge also applies at annuitization to amounts attributable to Purchase Payments in their seventh Contribution Year or earlier. No Withdrawal Charge applies upon annuitization if you select Annuity Options 2, 3 or 4 or if payments under Annuity Option 1 are scheduled to continue for at least five years. See “The Annuity Period-Annuity Options” for a discussion of the Annuity Options available.

5. Optional Guaranteed Retirement Income Benefit (“GRIB”) Rider Charge.

If you have selected the GRIB rider and it is in force, we will deduct an annual charge of 0.25% of Contract Value for this rider. We deduct a prorata portion of the charge on the last business day of each calendar quarter. This quarterly charge is deducted from each Subaccount, each Guarantee Period and the Fixed Account in which you have value based on the proportion that the value you have in each account bears to your total Contract Value. If the GRIB rider is not exercised by the Annuitant’s age 91, the GRIB terminates without value on that date. Contract Owners must exercise the GRIB rider no later than the Contract anniversary before the Annuitant’s age 91. We do not charge for this rider after the Annuitant’s 91^st birthday. We do not assess the GRIB Charge after you annuitize your Contract.

36

6. Transfer Charge.

We currently allow you to make unlimited transfers without charge. We reserve the right to assess a transfer fee of $25 for the thirteenth and each subsequent transfer during a Contract Year.

7. Investment Management Fees and Other Expenses.

Each Fund or Portfolio’s net asset value may reflect the deduction of investment management fees, Rule 12b-l fees and general operating expenses. Subject to limitations, you indirectly bear these fees and expenses. (See “Summary of Expenses.”) For 2011, total annual investment management fees and expenses for the Funds and Portfolios offered through the Contracts ranged from 0.33% to 1.07% of average daily Portfolio assets. Further detail is provided in the attached prospectuses for the Funds or Portfolios and the Portfolios’ or Funds’ statements of additional information.

Redemption Fees. A Fund or Portfolio may assess a redemption fee of up to 2% on Subaccount assets that are redeemed out of the Fund or Portfolio in connection with a withdrawal or transfer. Each Fund or Portfolio determines the amount of the redemption fee and when the fee is imposed. The redemption fee is retained by or paid to the Fund or Portfolio and is not retained by us. The redemption fee will be deducted from your Contract Value. For more information on each Fund or Portfolio’s redemption fee, see the Fund or Portfolio prospectus.

8. State and Local Government Premium Taxes.

Certain state and local governments impose a premium tax of up to 3.5% of Purchase Payments which, depending on the state, is paid by us at the time we receive a Purchase Payment from you or at the time you annuitize your Contract. If you live in a state where we pay premium tax at the time we receive a Purchase Payment from you (Maine, South Dakota, West Virginia, and Wyoming), we reserve the right to deduct the amount of the premium tax payable from your Contract Value at the time we receive your Purchase Payment. If you live in a state where we pay premium tax when you annuitize your Contract (California and Nevada), we will deduct the amount of the premium tax payable from your Contract Value (if you annuitize under the standard feature in your Contract) or from your GRIB base (if you annuitize under the GRIB rider). We will take this deduction at the time of annuitization of your Contract. In no event will this deduction for premium tax exceed the amount of your Contract Value at the time of annuitization. The charge we deduct for premium tax will never exceed the amount of premium tax we have paid to your state on your Purchase Payments. See “Appendix A-State and Local Government Premium Tax Chart” in the Statement of Additional Information.

9. Exceptions.

We may decrease the mortality and expense risk charge, the administration charge, and the Records Maintenance Charge without notice. However, we guarantee that they will not increase. We bear the risk that those charges will not cover our costs. On the other hand, should the charges exceed our costs, we will not refund any charges. Any profit is available for corporate purposes including, among other things, payment of distribution expenses.

We may also reduce or waive charges, including but not limited to, the Records Maintenance Charge, the Withdrawal Charge, and mortality and expense risk and administration charges, for certain sales that may result in cost savings, such as those where we incur lower sales expenses or perform fewer services because of economies due to the size of a group, the average contribution per participant, or the use of mass enrollment procedures. We may also reduce or waive charges and/or credit additional amounts on Contracts issued to:

• employees and registered representatives (and their families) of broker-dealers (or their affiliated financial institutions) that have entered into selling group agreements with Synergy Investment Group, LLC (“Synergy”), or its predecessor, and

37

• officers, directors and employees (and their families) of ZALICO, DWS Investments VIT Funds, and DWS Variable Series I and II, their investment advisers and principal underwriter or certain affiliated companies, or to any trust, pension, profit-sharing or other benefit plan for such persons.

Reductions in these charges will not unfairly discriminate against any Owner.

THE ANNUITY PERIOD

Contracts may be annuitized under one of several Annuity Options. Annuity payments begin on the Annuity Date and under the selected Annuity Option. The Annuity Date must be at least one year after the Date of Issue. Subject to state variation, the Annuity Date may not be deferred beyond the later of the Annuitant’s 91st birthday (100th birthday if the Contract is part of a Charitable Remainder Trust) or ten years after the Date of Issue. However, annuitization will be delayed beyond the Annuity Date if we are making systematic withdrawals based on your life expectancy. In this case, annuitization begins when life expectancy withdrawals are stopped.

You may elect to receive annuity payments on a fixed or variable basis, or a combination. Keep in mind that, on the Annuity Date, any of your Contract Value being held in the Fixed Account or allocated to a Guarantee Period will be annuitized on a fixed basis. (The MVA Option is not available during the Annuity Period.) Any of your Contract Value being held in the Separate Account will be annuitized on a variable basis. If you annuitize on a variable basis, we will assess a daily mortality and expense risk charge and an administration charge at an annual rate of 1.40% against your assets invested in the Separate Account.

Special annuitization rules apply if you purchased the GRIB rider. (See “CONTRACTS ISSUED BEFORE NOVEMBER 12, 2001” below.)

A. Annuity Payments.

Annuity payments are based on:

• the annuity table specified in the Contract,

• the selected Annuity Option, and

• the investment performance of the selected Subaccount(s) (if variable annuitization is elected).

Under variable annuitization, the Annuitant receives the value of a fixed number of Annuity Units each month. An Annuity Unit’s value reflects the investment performance of the Subaccount(s) selected. The amount of each annuity payment varies accordingly. If you annuitize under Option 1 for a period of less than 5 years, your annuity payments will be subject to a Withdrawal Charge. (For additional details, see “Withdrawal Charge.”)

B. Annuity Options.

You may elect one of the Contract’s Annuity Options. You may decide at any time (subject to the provisions of your retirement plan, if applicable, and state variations) to begin annuity payments before the Annuitant’s 91st birthday (100th birthday if the Contract is part of a Charitable Remainder Trust) or within ten years after the Date of Issue, whichever is later. You may change the Annuity Option before the Annuity Date. If you do not elect an Annuity Option, we will make monthly annuity payments in accordance with Option 3 below with a ten year period certain. Generally, annuity payments are made in monthly installments. However, you must select a payment frequency that results in an annuity payment of at least $50. If the amount falls below $50, we have the right to change the payment frequency to bring the annuity payment up to at least $50.

38

The amount of periodic annuity payments may depend upon:

• the Annuity Option selected;

• the age and sex of the Annuitant; and

• the investment experience of the selected Subaccount(s).

For example:

• If Option 1, income for a specified period, is selected, shorter periods result in fewer payments with higher values.

• If Option 2, life income, is selected, it is likely that each payment will be smaller than would result if income for a short period were specified.

• If Option 3, life income with installments guaranteed, is selected, each payment will probably be smaller than would result if the life income option were selected.

• If Option 4, the joint and survivor annuity, is selected, each payment is smaller than those measured by an individual life income option.

The age of the Annuitant also influences the amount of periodic annuity payments because an older Annuitant is expected to have a shorter life span, resulting in larger payments. The sex of the Annuitant influences the amount of periodic payments because females generally live longer than males, resulting in smaller payments. Finally, if you participate in a Subaccount with higher investment performance, it is likely you will receive a higher periodic payment, and conversely, you will likely receive a lower periodic payment if you participate in Subaccounts with lower investment performance.

If you die before the Annuity Date, available Annuity Options are limited. Unless you have imposed restrictions, the Annuity Options available are:

• Option 2, or

• Option 1 or 3 for a period no longer than the life expectancy of the Beneficiary (but not less than five years from your death).

If the Beneficiary is not an individual, the entire interest must be distributed within five years of your death. The death benefit distribution must begin no later than one year from your death, unless a later date is prescribed by federal regulation.

For Qualified Plan Contracts, the period certain elected cannot be longer than the Owner’s life expectancy, in order to satisfy minimum required distribution rules.

Option 1—Income for Specified Period.

Option 1 provides an annuity payable monthly for a selected number of years ranging from five to thirty. Upon the Annuitant’s death, if the Beneficiary is an individual, we automatically continue payments to the Beneficiary for the remainder of the period specified. If the Beneficiary is not an individual (e.g., an estate or trust), we pay the discounted value of the remaining payments in the specified period. Although there is no life contingency risk associated with Option 1, we continue to deduct the mortality and expense risk and administration charge.

If you elect variable annuitization under Option 1, the Annuitant may elect to cancel all or part of the variable annuity payments remaining due. We will then pay the discounted value of the remaining payments calculated as of the date we receive your request in good order at the Service Center.

39

Option 2—Life Income.

Option 2 provides for an annuity payable monthly over the lifetime of the Annuitant. If Option 2 is elected, annuity payments terminate automatically and immediately on the Annuitant’s death without regard to the number or total amount of payments made. Thus, it is possible for an individual to receive only one payment if death occurred prior to the date the second payment was due.

Option 3—Life Income with Installments Guaranteed.

Option 3 provides an annuity payable monthly during the Annuitant’s lifetime. However, Option 3 also provides for the automatic continuation of payments for the remainder of the specified period if the Beneficiary is an individual and payments have been made for less than the specified period. The period specified may be five, ten, fifteen or twenty years. If the Beneficiary is not an individual, we pay the discounted value of the remaining payments in the specified period.

Option 4—Joint and Survivor Annuity.

Option 4 provides an annuity payable monthly while either Annuitant is living. Upon either Annuitant’s death, the monthly income payable continues over the life of the surviving Annuitant at a percentage specified when Option 4 is elected. Annuity payments terminate automatically and immediately upon the surviving Annuitant’s death without regard to the number or total amount of payments received.

C. Transfers During the Annuity Period.

During the Annuity Period, the Annuitant may, by sending a written request (in good order) to the Service Center, transfer Subaccount Value from one Subaccount to another Subaccount or to the Fixed Account, subject to the following limitations:

• Transfers to a Subaccount are prohibited during the first year of the Annuity Period; subsequent transfers are limited to one per year.

• All interest in a Subaccount must be transferred.

• If we receive notice of transfer to a Subaccount more than seven days before an annuity payment date, the transfer is effective during the Valuation Period after the date we receive the notice.

• If we receive notice of transfer to a Subaccount less than seven days before an annuity payment date, the transfer is effective during the Valuation Period after the annuity payment date.

• Transfers to the Fixed Account are available only on an anniversary of the first Annuity Date. We must receive notice at least 30 days prior to the anniversary.

• Transfers are not allowed from the Fixed Account to the Subaccounts.

A Subaccount’s Annuity Unit value is determined at the end of the Valuation Period preceding the effective date of the transfer. We may suspend, change or terminate the transfer privilege at any time.

A payee may not have more than three Subaccounts after any transfer.

You may request transfers in writing by mailing your request (in good order) to our Service Center, or by faxing your request (in good order) to our Service Center at 1-864-609-3962.

D. Annuity Unit Value Under Variable Annuity.

Annuity Unit value is determined independently for each Subaccount.

40

Annuity Unit value for any Valuation Period is:

• Annuity Unit value for the preceding Valuation Period, times

• the net investment factor for the current Valuation Period, times

• an interest factor which offsets the 2.5% per annum rate of investment earnings assumed by the Contract’s annuity tables.

The net investment factor for a Subaccount for any Valuation Period is:

• the Subaccount’s Annuity Unit value at the end of the current Valuation Period, plus or minus the per share charge or credit for taxes reserved; divided by

• the Subaccount’s Annuity Unit value at the end of the preceding Valuation Period, plus or minus the per share charge or credit for taxes reserved.

E. First Periodic Payment Under Variable Annuity.

When annuity payments begin, the value of your Contract interest is:

• Accumulation Unit values at the end of the Valuation Period falling on the 20th or 7th day of the month before the first annuity payment is due, times

• the number of Accumulation Units credited at the end of the Valuation Period, minus

• any applicable premium taxes and Withdrawal Charges.

The first annuity payment is determined by multiplying the benefit per $1,000 of value shown in the applicable annuity table by the number of thousands of dollars of Contract Value (or GRIB base, if applicable), after the deduction of any Withdrawal Charges and any premium taxes from Contract Value (or the GRIB base, if applicable).

A 2.5% per annum rate of investment earnings is assumed by the Contract’s annuity tables. If the actual net investment earnings rate exceeds 2.5% per annum, payments increase accordingly. Conversely, if the actual rate is less than 2.5% per annum, annuity payments decrease.

F. Subsequent Periodic Payments Under Variable Annuity.

Subsequent annuity payments are determined by multiplying the number of Annuity Units by the Annuity Unit value at the Valuation Period before each annuity payment is due. The first annuity payment is divided by the Annuity Unit value as of the Annuity Date to establish the number of Annuity Units representing each annuity payment. This number does not change.

G. Fixed Annuity Payments.

Each Fixed Annuity payment is determined from tables we prepare. These tables show the monthly payment for each $1,000 of Contract Value allocated to a Fixed Annuity. Payment is based on the Contract Value at the date before the annuity payment is due. Fixed Annuity payments do not change regardless of investment, mortality or expense experience.

H. Death Benefit Proceeds.

If the Annuitant dies after the Annuity Date while the Contract is in force, the death benefit proceeds, if any, depend upon the form of annuity payment in effect at the time of death. (See “Annuity Options.”)

41

I. GRIB Rider.

If you purchased a GRIB rider with your Contract, additional annuitization rights apply. (See “CONTRACTS ISSUED BEFORE NOVEMBER 12, 2001” below.)

FEDERAL TAX CONSIDERATIONS

The following discussion is general in nature and is not intended as tax advice. Each person concerned should consult a competent tax adviser. No attempt is made to consider any applicable state or other income tax or other tax laws, any state and local estate or inheritance tax, or other tax consequences or ownership or receipt of distribution under a Contract.

We believe that our Contracts will qualify as annuity contracts for Federal income tax purposes and the following discussion assumes that they will so qualify.

When you invest in an annuity contract, you usually do not pay taxes on your investment gains until you withdraw the money – generally for retirement purposes. In this way, annuity contracts have been recognized by the tax authorities as a legitimate means of deferring tax on investment income.

If you invest in an annuity as part of an IRA, Roth IRA, SIMPLE IRA or SEP IRA program, or in connection with a qualified employer-sponsored pension or profit sharing plan or eligible deferred compensation plan, your Contract is called a Qualified Plan Contract. If your annuity is independent of any formal retirement or pension plan, it is called a Non-Qualified Plan Contract.

We believe that if you are a natural person you will not be taxed on increases in the Contract Value of your Contract until a distribution occurs or until annuity payments begin. (The agreement to assign or pledge any portion of a Contract’s accumulation value generally will be treated as a distribution.) When annuity payments begin on a Non-Qualified Plan Contract, you will be taxed only on the investment gains you have earned and not on the payments you made to purchase the Contract. Generally, withdrawals from your annuity should only be made once the taxpayer reaches age 59 ¹/2, dies or is disabled, otherwise a tax penalty of ten percent of the amount treated as income could be applied against any amounts included in income, in addition to the tax otherwise imposed on such amounts.

A. Taxation of Non-Qualified Plan Contracts

Non-Natural Person. If a non-natural person (such as a corporation or a trust) owns a nonqualified annuity contract, the owner generally must include in income any increase in the excess of the accumulation value over the investment in the contract (generally, the Purchase Payments or other consideration paid for the contract) during the taxable year. There are some exceptions to this rule and a prospective owner that is not a natural person should discuss these with a tax adviser.

The following discussion generally applies to Contracts owned by natural persons.

Withdrawals. When a withdrawal from a Non-Qualified Plan Contract occurs, the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the accumulation value immediately before the distribution over the owner’s investment in the Contract (generally, the Purchase Payments or other consideration paid for the Contract, reduced by any amount previously distributed from the Contract that was not subject to tax) at that time. In the case of a surrender under a Non-Qualified Plan Contract, the amount received generally will be taxable only to the extent it exceeds the owner’s investment in the contract.

If the Contract includes the GRIB rider and it is in force, and the Guaranteed Retirement Income base is greater than the Contract Value, it is possible that the IRS could take the view that the “income on the contract”

42

is a greater amount than would otherwise be the case. This could result in a larger amount being included in gross income in connection with a partial withdrawal, assignment, pledge, or other transfer.

There is also some uncertainty regarding the treatment of the MVA for purposes of determining the income on the Contract. Resolution of the uncertainty could result in the income on the Contract being a greater (or lesser) amount.

Penalty Tax on Certain Withdrawals. In the case of a distribution from a Contract, there may be imposed a Federal tax penalty equal to ten percent of the amount treated as income. In general, however, there is no penalty on distributions:

• made on or after the taxpayer reaches age 59 ¹/2;

• made on or after the death of an owner;

• attributable to the taxpayer’s becoming disabled; or

• made as part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer.

Other exceptions may apply under certain circumstances and special rules may apply in connection with the exceptions enumerated above. Additional exceptions apply to distributions from a Qualified Plan Contract. You should consult a tax adviser with regard to exceptions from the penalty tax.

Annuity Payments. Although tax consequences may vary depending on the annuity option elected under an annuity contract, a portion of each annuity payment is generally not taxed and the remainder is taxed as ordinary income. The non-taxable portion of an annuity payment is generally determined in a manner that is designed to allow you to recover your investment in the contract ratably on a tax-free basis over the expected stream of annuity payments, as determined when annuity payments start. Once your investment in the contract has been fully recovered, however, the full amount of each annuity payment is subject to tax as ordinary income.

With respect to a Contract issued with the GRIB rider, the annuitant may elect to receive a lump sum payment after the Annuity Date. In the case of a Non-Qualified Plan Contract, the Company will treat a portion of such a lump sum payment as includible in income, and will determine the taxable portion of subsequent periodic payments by applying an exclusion ratio to the periodic payments. However, the Federal income tax treatment of such a lump sum payment, and of the periodic payments made thereafter, is uncertain. It is possible the Internal Revenue Service (“IRS”) could take a position that greater amounts are includible in income than the Company currently believes is the case. Prior to electing a lump sum payment after the Annuity Date, you should consult a tax adviser about the tax implications of making such an election.

Partial Annuitization. Under a new tax provision enacted in 2010, if part of an annuity contract’s value is applied to an annuity option that provides payments for one or more lives or for a period of at least ten years, those payments may be taxed as annuity payments instead of withdrawals. Currently, we do not allow partial annuitizations under your Contract.

Taxation of Death Benefit Proceeds. Amounts may be distributed from a Contract because of your death or the death of the annuitant. Generally, such amounts are includible in the income of the recipient as follows: (i) if distributed in a lump sum, they are taxed in the same manner as a surrender of the Contract, or (ii) if distributed under an annuity option, they are taxed in the same way as annuity payments.

Transfers, Assignments or Exchanges of a Contract. A transfer or assignment of ownership of a Contract, the designation of an annuitant or payee other than an owner, the selection of certain annuity start dates, or the exchange of a Contract may result in certain tax consequences to you that are not discussed herein. An owner contemplating any such transfer, assignment, designation or exchange, should consult a tax adviser as to the tax consequences.

43

Withholding. Annuity distributions are generally subject to withholding for the recipient’s Federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions.

Multiple Contracts. All non-qualified deferred annuity contracts that are issued by us (or our affiliates) to the same owner during any calendar year are treated as one annuity contract for purposes of determining the amount includible in such owner’s income when a taxable withdrawal occurs.

Rider Charges. It is possible that the IRS may take a position that rider charges are deemed to be taxable distributions to you. Although we do not believe that a rider charge under the Contract should be treated as a taxable withdrawal, you should consult your tax adviser prior to selecting any rider or endorsement under the Contract.

B. Taxation of Qualified Plan Contracts

The tax rules that apply to Qualified Plan Contracts vary according to the type of retirement plan and the terms and conditions of the plan. Your rights under a Qualified Plan Contract may be subject to the terms of the retirement plan itself, regardless of the terms of the Qualified Plan Contract. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions with respect to the Contract comply with the law. Qualified Plan Contracts are subject to minimum distribution rules that govern the timing and amount of distributions. You should refer to your retirement plan, adoption agreement, or consult a tax adviser for more information about these distribution rules.

1. Qualified Plan Types

Individual Retirement Annuities (IRAs). IRAs, as defined in Section 408 of the Tax Code, permit individuals to make annual contributions of up to the lesser of $5,000 for 2012 ($6,000 if age 50 or older by the end of 2012) or 100% of the compensation included in your income for the year. The contributions may be deductible in whole or in part, depending on the individual’s income. Distributions from certain pension plans may be “rolled over” into an IRA on a tax-deferred basis without regard to these limits. Amounts in the IRA (other than nondeductible contributions) are taxed when distributed from the IRA. A 10% penalty tax generally applies to distributions made before age 59 ¹/2, unless certain exceptions apply. The Contract has been approved as to form for use as an IRA, Roth IRA or a SIMPLE IRA by the IRS. Such approval by the IRS is a determination only as to form of the Contract, and does not represent a determination on the merits of the Contract.

SIMPLE IRAs. Simple IRAs permit certain small employers to establish SIMPLE plans as provided by Section 408(p) of the Code, under which employees may elect to defer to a SIMPLE IRA a percentage of compensation up to a limit specified in the Code (as increased for cost of living adjustments). The sponsoring employer is required to make matching or non-elective contributions on behalf of the employees. Distributions from SIMPLE IRAs are subject to the same restrictions that apply to IRA distributions and are taxed as ordinary income. Subject to certain exceptions, premature distributions prior to age 59 ¹/2 are subject to a 10% penalty tax, which is increased to 25% if the distribution occurs within the first two years after the commencement of the employee’s participation in the plan.

Roth IRAs. Roth IRAs, as described in Code section 408A, permit certain eligible individuals to make non-deductible contributions to a Roth IRA up to a limit specified in the Code or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA is generally subject to tax based on the fair market value of the IRA. In some cases, the fair market value of a Qualified Plan Contract purchased as an IRA may exceed the Contract Value, such as where the Qualified Plan Contract has an enhanced death benefit or was issued with the GRIB rider. In such cases, a conversion of the IRA to a Roth IRA may result in higher taxes than a surrender of the Contract. The owner may wish to consult a tax adviser before combining any converted amounts with any other Roth IRA contributions, including any other conversion amounts from other tax years. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made

44

(1) before age 59 ¹/2 (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA. A 10% penalty tax may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years beginning with the year in which the conversion was made. Unlike the traditional IRA, there are no minimum required distributions during the owner’s lifetime; however, required distributions at death are generally the same.

SEP IRAs. SEP IRAs, as described in Code section 408(k), permit employers to make contributions to IRAs on behalf of their employees. SEP IRAs generally are subject to the same tax rules and limitations regarding distributions as IRAs, and they are subject to additional requirements regarding plan participation and limits on contributions.

Corporate and Self-Employed (“H.R. 10” and “Keogh”) Pension and Profit-Sharing Plans.

The Code permits corporate employers to establish various types of tax-favored retirement plans for employees. The Self-Employed Individuals’ Tax Retirement Act of 1962, as amended, commonly referred to as “H.R. 10” or “Keogh”, permits self-employed individuals also to establish such tax-favored retirement plans for themselves and their employees. Such retirement plans may permit the purchase of the Contracts in order to provide benefits under the plans. The Contract provides a death benefit that in certain circumstances may exceed the greater of the Purchase Payments and the Contract Value. It is possible that such death benefit could be characterized as an incidental death benefit. There are limitations on the amount of incidental benefits that may be provided under pension and profit sharing plans. In addition, the provision of such benefits may result in current taxable income to participants. The Code also restricts when amounts can be distributed from Qualified Plan Contracts that are issued in connection with such retirement plans. Adverse tax consequences to the retirement plan, the participant or both may result if the Contract is transferred to any individual as a means to provide benefit payments, unless the plan complies with all requirements applicable to such benefits prior to transferring the Contract. Other rules and limitations also may apply to such Qualified Plan Contracts under the Code and the retirement plans governing the Contracts. In addition, a 10% penalty tax generally applies to distributions made before age 59 ¹/2, unless certain exceptions apply. Employers intending to use the Contract in connection with such plans should seek competent advice.

Tax-Sheltered Annuities. Code Section 403(b) permits public school employees and employees of certain types of charitable, educational and scientific organizations to have their employers purchase annuity contracts for them and, subject to certain limitations, to exclude the amount of purchase payments from taxable gross income. Purchase payments may be subject to FICA (social security) tax. These annuity contracts are commonly referred to as “tax-sheltered annuities”. If you purchase a Contract for such purposes, you should seek competent advice as to eligibility, limitations on permissible amounts of purchase payments and other tax consequences associated with the Contracts. In particular, you should consider that the Contract provides a death benefit that in certain circumstances may exceed the greater of the Purchase Payments and the Contract Value. It is possible that such death benefit could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in currently taxable income to you. In addition, there are limitations on the amount of incidental benefits that may be provided under a tax-sheltered annuity. Even if the death benefit under the Contract were characterized as an incidental death benefit, it is unlikely to violate those limits unless you also purchase a life insurance contract as part of your tax-sheltered annuity plan.

Generally, a 10% penalty tax applies to distributions made before age 59 ¹/2, unless certain exceptions apply. In addition, tax-sheltered annuity contracts must contain restrictions on withdrawals of:

• contributions made pursuant to a salary reduction agreement in years beginning after December 31, 1988,

• earnings on those contributions, and

• earnings after December 31, 1988 on amounts attributable to salary reduction contributions held as of December 31, 1988.

45

These amounts can be paid only if you have reached age 59 ¹/2, severed employment, died, or become disabled (within the meaning of the tax law), or in the case of hardship (within the meaning of the tax law). Amounts permitted to be distributed in the event of hardship are limited to actual contributions; earnings thereon cannot be distributed on account of hardship. Amounts subject to the withdrawal restrictions applicable to Code Section 403(b)(7) custodial accounts may be subject to more stringent restrictions. (These limitations on withdrawals generally do not apply to the extent you direct us to transfer some or all of the Contract Value to the issuer of another tax-sheltered annuity or into a Code Section 403(b)(7) custodial account, as permitted by law.) Additional restrictions may be imposed by the plan sponsor. Pursuant to new tax regulations, we generally are required to confirm, with your 403(b) plan sponsor or otherwise, that surrenders, withdrawals or transfers you request from an existing 403(b) contract comply with applicable tax requirements before we process your request. We will defer such payments you request until all information required under the tax law has been received. By requesting a surrender or transfer, you consent to the sharing of confidential information about you, the Contract, and transactions under the Contract and any other 403(b) contracts or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or recordkeeper, and other product providers.

Deferred Compensation Plans of State and Local Governments and Tax-Exempt Organizations. The Code permits employees of state and local governments and tax-exempt organizations to defer a portion of their compensation without paying current taxes. The employees must be participants in an eligible deferred compensation plan. Generally, a Contract purchased by a state or local government or a tax-exempt organization will not be treated as an annuity contract for Federal income tax purposes unless it meets certain conditions set forth in the Code. In addition, in some cases involving rollovers to such Contracts, distributions from the Contracts may be subject to a 10% penalty tax unless an exception applies. Under a non-govemmental plan, all investments are owned by and are subject to, the claims of the general creditors of the sponsoring employer. Those who intend to use the Contracts in connection with such plans should seek competent advice.

2. Withdrawals

In the case of a withdrawal under a Qualified Plan Contract, a ratable portion of the amount received is taxable, generally based on the ratio of the “investment in the contract” to the individual’s total account balance or accrued benefit under the retirement plan. The “investment in the contract” generally equals the amount of any non-deductible Purchase Payments paid by or on behalf of any individual. In many cases, the “investment in the contract” under a Qualified Plan Contract can be zero.

3. Direct Rollovers

If the Contract is used in connection with a retirement plan that is qualified under Sections 401(a), 403(a), or 403(b) of the Code or with an eligible government deferred compensation plan that is qualified under Code Section 457(b), any “eligible rollover distribution” from the Contract will be subject to mandatory withholding requirements. An eligible rollover distribution generally is any taxable distribution from such a qualified retirement plan, excluding certain amounts such as:

• Hardship distributions,

• minimum distributions required under Section 401(a)(9) of the Code, and

• certain distributions for life, life expectancy, or for ten years or more which are part of a “series of substantially equal periodic payments.”

Under these requirements, Federal income tax equal to 20% of the taxable eligible rollover distribution will be withheld from the amount of the distribution. Unlike withholding on certain other amounts distributed from the Contract, discussed below, you cannot elect out of withholding with respect to an eligible rollover distribution. However, this 20% withholding will not apply if, (i) you (or your spouse or former spouse as a beneficiary or alternate payee) chooses a “direct rollover” from the plan to a tax qualified plan, IRA, Roth IRA or tax-sheltered annuity or to a governmental 457 plan that agrees to separately account for rollover contributions; or (ii) your non-spouse beneficiary

46

chooses a “direct rollover” from the plan to an IRA established by the direct rollover. Prior to receiving an eligible rollover distribution, a notice will be provided explaining generally the direct rollover and mandatory withholding requirements and how to avoid the 20% withholding by electing a direct rollover.

As indicated above, any distribution that is a minimum distribution required under Code section 401(a)(9) is not an eligible rollover distribution. There is some uncertainty regarding how the minimum distribution requirements apply to a Qualified Plan Contract issued with a GRIB rider. As a result, you should consult your tax adviser regarding the interaction between the minimum distribution requirements and the eligible rollover distribution requirements in the context of a Qualified Contract issued with a GRIB rider, including in connection with any lump sum payment after annuity income payments have commenced under the GRIB rider.

C. Tax Status of the Contracts

Tax law imposes several requirements that variable annuities must satisfy in order to receive the tax treatment normally accorded to annuity contracts.

Diversification Requirements. The Code requires that the investments of each investment division of the variable account underlying the Non-Qualified Plan Contracts be “adequately diversified” in order for the Contracts to be treated as annuity contracts for Federal income tax purposes. It is intended that each investment division, through the fund in which it invests, will satisfy these diversification requirements.

Owner Control. In some circumstances, owners of variable annuity contracts who retain excessive control over the investment of the underlying portfolio assets of the variable account may be treated as the owners of those assets and may be subject to tax on income produced by those assets. Although there is limited published guidance in this area and it does not address certain aspects of the Contracts, we believe that the owner of a Contract should not be treated as the owner of the underlying assets. We reserve the right to modify the Contracts to bring them into conformity with applicable standards should such modification be necessary to prevent owners of the Contracts from being treated as the owners of the underlying portfolio assets of the variable account.

Required Distributions from Non-Qualified Plan Contracts. In order to be treated as an annuity contract for Federal income tax purposes, section 72(s) of the Code requires any Non-Qualified Plan Contract to contain certain provisions specifying how your interest in the Contract will be distributed in the event of the death of a holder of the Contract. Specifically, section 72(s) requires that (a) if any owner dies on or after the annuity starting date, but prior to the time the entire interest in the Contract has been distributed, the entire interest in the Contract will be distributed at least as rapidly as under the method of distribution being used as of the date of such owner’s death; and (b) if any owner dies prior to the annuity start date, the entire interest in the Contract will be distributed within five years after the date of such owner’s death. These requirements will be considered satisfied as to any portion of an owner’s interest which is payable to or for the benefit of a designated beneficiary and which is distributed over the life of such designated beneficiary or over a period not extending beyond the life expectancy of that beneficiary, provided that such distributions begin within one year of the owner’s death. The designated beneficiary refers to a natural person designated by the owner as a beneficiary and to whom ownership of the Contract passes by reason of death. However, if the designated beneficiary is the surviving spouse of the deceased owner, the Contract may be continued with the surviving spouse as the new owner.

The Non-Qualified Plan Contracts contain provisions that are intended to comply with these Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise.

Required Distributions from Qualified Plan Contracts. Qualified Plan Contracts are subject to special rules governing the time at which distributions must begin and the amount that must be distributed each year. In the case of IRAs, distributions of minimum amounts must generally begin by April 1 of the calendar year

47

following the calendar year in which the owner attains age 70 ¹/2. For other types of Qualified Plan Contracts, minimum distributions generally must commence by April 1 following the later of (1) the calendar year the owner attains age 70 ¹/2, and (2) the calendar year in which the owner retires. In general, periodic distributions in the form of annuity payments will satisfy the minimum distribution rules only if they meet certain requirements in the regulations under Code section 401(a)(9), including that the annuity payments be nonincreasing and made at least annually over a period permitted in the regulations. Annuity payments generally must meet these requirements even if they commence earlier than otherwise required under the Code.

If you purchased a Qualified Plan Contract with a GRIB rider, you should consult a tax adviser about the implications under the minimum distribution requirements of Code section 401(a)(9). For example, prior to the date a Qualified Plan Contract is “annuitized,” the amount of each annual required minimum distribution is determined by dividing the entire interest in the Contract by the applicable distribution period determined under IRS regulations. For this purpose, the entire interest in the Qualified Plan Contract includes the amount credited under the Contract (i.e., the Contract Value), plus the “actuarial present value” of any additional benefits provided under the Contract (such as certain enhanced death benefits or GRIB values). As a result, your required minimum distribution could be significantly larger than it would be absent such additional benefits, and could even exceed your Contract Value. Only the Contract Value is available for withdrawal from a Qualified Plan Contract that has not been annuitized. If the Contract Value is insufficient to support a required minimum distribution from a Qualified Plan Contract, it is possible that the minimum distribution requirements will not be met.

In addition, if you annuitize a Qualified Plan Contract by exercising the GRIB rider, and later elect to receive a lump sum payment in lieu of some or all of the future guaranteed installments, it is possible that the remaining annuity installments will not satisfy the minimum distribution requirements. You should consult a tax adviser about the implications under the minimum distribution requirements of taking a lump sum payment under the GRIB rider. (See “C. Commutable Annuitization Option” below.)

If the Qualified Plan Contract is an IRA, there may be circumstances in which you can satisfy the minimum distribution requirements for the Qualified Plan Contract by taking a distribution from other IRAs that you own. You should consult your tax adviser regarding the availability of this rule in your particular circumstances.

A failure to satisfy the minimum distribution requirements with respect to a Qualified Plan Contract may result in a 50% excise tax and could cause the Qualified Plan to violate the Code provisions governing its “qualified” status. In light of these potential tax consequences and the uncertainty as to how the minimum distribution requirements apply to a Qualified Plan Contract in certain circumstances, you should consult a tax adviser to ensure that those requirements are satisfied with respect to your Qualified Plan Contract.

FEDERAL INCOME TAX WITHHOLDING

We withhold and send to the U.S. Government a part of the taxable portion of each distribution unless the annuitant notifies us before distribution of an available election not to have any amounts withheld. In certain circumstances, we may be required to withhold tax. The withholding rates for the taxable portion of periodic annuity payments are the same as the withholding rates for wage payments. In addition, the withholding rate for the taxable portion of non-periodic payments (including withdrawals prior to the maturity date and conversions of, or rollovers from, non-Roth IRAs to Roth IRAs) is 10%. The withholding rate for eligible rollover distributions is 20%.

OTHER TAX ISSUES

A. Our Taxes

At the present time, we make no charge for any Federal, state or local taxes (other than the charge for state and local premium taxes) that we incur that may be attributable to the subaccounts of the variable account

48

or to the Contracts. We do have the right in the future to make additional charges for any such tax or other economic burden resulting from the application of the tax laws that we determine is attributable to the subaccounts of the variable account or the Contracts.

Under current laws in several states, we may incur state and local taxes (in addition to premium taxes). These taxes are not now significant and we are not currently charging for them. If they increase, we may deduct charges for such taxes.

B. Federal Estate Taxes

While no attempt is being made to discuss the Federal estate tax implications of the Contract, a purchaser should keep in mind that the value of an annuity contract owned by a decedent and payable to a beneficiary by virtue of surviving the decedent is included in the decedent’s gross estate. Depending on the terms of the annuity contract, the value of the annuity included in the gross estate may be the value of the lump sum payment payable to the designated beneficiary or the actuarial value of the payments to be received by the beneficiary. You should consult an estate planning adviser for more information.

C. Generation-Skipping Transfer Tax

Under certain circumstances, the Code may impose a “generation skipping transfer tax” when all or part of an annuity contract is transferred to, or a death benefit is paid to, an individual two or more generations younger than the owner. Regulations issued under the Code may require us to deduct the tax from your Contract, or from any applicable payment, and pay it directly to the IRS.

D. Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “2010 Act”) increases the federal estate tax exemption to $5,000,000 and reduces the federal estate tax rate to 35%; increases the Federal gift tax exemption to $5,000,000 and retains the federal gift tax rate at 35%; and increases the generation-skipping transfer tax exemption to $5,000,000 and reduces the generation-skipping transfer tax rate to 35%. Commencing in 2012, these exemption amounts will be indexed for inflation.

The estate, gift, and generation-skipping transfer provisions of the 2010 Act are only effective until December 31, 2012. Unless extended by Congress, these estate, gift and generation-skipping tax provisions of the 2010 Act will return to their pre-2001 levels, resulting in significantly lower exemptions and significantly higher tax rates. Between now and the end of 2012, Congress may make these provisions of the 2010 Act permanent, or they may do nothing and allow these 2010 Act provisions to sunset, or they may alter the exemptions and/or applicable tax rates.

The uncertainty as to how the current law might be modified in coming years underscores the importance of seeking guidance from a qualified adviser to help ensure that your estate plan adequately addresses your needs and that of your beneficiaries under all possible scenarios.

E. Medicare Tax

Beginning in 2013, distributions from non-qualified annuity contracts will be considered “investment income” for purposes of the newly enacted Medicare tax on investment income. Thus, in certain circumstances, a 3.8% tax may be applied to some or all of the taxable portion of distributions (e.g., earnings) to individuals whose income exceeds certain threshold amounts ($200,000 for filing single, $250,000 for married filing jointly and $125,000 for married filing separately.) Please consult a tax adviser for more information.

49

F. Federal Defense of Marriage Act

The Contract provides that upon your death, a surviving spouse may have certain continuation rights that he or she may elect to exercise for the Contract’s death benefit and/or for any joint-life coverage under an optional living benefit. All Contract provisions relating to spousal continuation are available only to a person who meets the definition of “spouse” under federal law. The federal Defense of Marriage Act currently does not recognize same-sex marriages or civil unions, even those which are permitted under individual state laws. Therefore, spousal continuation provisions in this Contract will not be available to such partners or same-sex marriage spouses. Consult a tax adviser for more information on this subject.

G. Annuity Purchases by Residents of Puerto Rico

The IRS has announced that income received by residents of Puerto Rico under life insurance or annuity contracts issued by a Puerto Rico branch of a United States Life Insurance Company is U.S.-source income that is generally subject to United States Federal income tax.

H. Annuity Purchases by Nonresident Aliens and Foreign Corporations

The discussion above provides general information regarding U.S. Federal income tax consequences to annuity purchasers that are U.S. citizens or residents. Purchasers that are not U.S. citizens or residents will generally be subject to U.S. Federal withholding tax on taxable distributions from annuity contracts at a 30% rate, unless a lower treaty rate applies. In addition, purchasers may be subject to state and/or municipal taxes and taxes that may be imposed by the purchaser’s country of citizenship or residence. Prospective purchasers are advised to consult with a qualified tax adviser regarding U.S. state, and foreign taxation with respect to an annuity contract purchase.

I. Foreign Tax Credits

We may benefit from any foreign tax credits attributable to taxes paid by certain portfolios to foreign jurisdictions to the extent permitted under federal tax law.

J. Possible Tax Law Changes

Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Contracts could change by legislation or otherwise. Consult a tax adviser with respect to legislative developments and their effect on the Contract.

We have the right to modify the Contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity contract owners currently receive. We make no guarantee regarding the tax status of any Contract and do not intend the above discussion as tax advice.

SENDING FORMS AND WRITTEN REQUESTS IN GOOD ORDER

We cannot process your instructions to effect a transaction relating to the Contract until we have received your instructions in good order at our Service Center or at our website, as appropriate. “Good order” means the actual receipt by us of the instructions relating to a transaction in writing (or by telephone or electronically, as appropriate), along with all forms, information and supporting legal documentation (including any required spousal or joint owner’s consents) that we require in order to effect the transaction. To be in “good order,” instructions must be sufficiently clear so that we do not need to exercise any discretion to follow such instructions.

50

SIGNATURE GUARANTEES

Signature guarantees are relied upon as a means of preventing the perpetuation of fraud in financial transactions, including the disbursement of funds or assets from a victim’s account with a financial institution or a provider of financial services. They provide protection to investors by, for example, making it more difficult for a person to take another person’s money by forging a signature on a written request for the disbursement of funds.

As a protection against fraud, we require a Medallion signature guarantee for any disbursement to another carrier in connection with the exchange of one annuity contract for another in a “tax-free exchange” under Section 1035 of the Internal Revenue Code.

An investor can obtain a signature guarantee from more than 7,000 financial institutions across the United States and Canada that participate in a Medallion signature guarantee program. This includes many:

• national and state banks;

• savings banks and savings and loan associations;

• securities brokers and dealers; and

• credit unions.

The best source of a signature guarantee is a bank, savings and loan association, brokerage firm, or credit union with which you do business. Guarantor firms may, but frequently do not, charge a fee for their services.

A notary public cannot provide a signature guarantee. Notarization will not substitute for a signature guarantee.

DISTRIBUTION OF CONTRACTS

Distribution and Principal Underwriting Agreement. Upon approval by the Illinois Department of Insurance, anticipated in or about May, 2012, ZALICO will enter into a Principal Underwriter Agreement with BFP Securities, LLC (“BFPS”). Zurich Benefit Finance LLC and Bancorp Services, L.L.C. each own a 50% interest in Benefit Finance Partners, LLC. Benefit Finance Partners owns 100% of BFP Securities. Zurich Benefit Finance and ZALICO have the same ultimate corporate parent. BFPS is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended, as well as with the securities commissions in the states in which it operates, and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

Synergy Investment Group, LLC (“Synergy”), located at 8320 University Executive Park Drive, Suite 112, NC 28262, currently serves as principal underwriter for the Contracts. Upon approval by the Illinois Department of Insurance, anticipated in or about May, 2012, ZALICO will terminate its Principal Underwriter Agreement with Synergy and Synergy will assign all selling group agreements pertaining to the Contracts to BFPS.

The Contracts are no longer offered for sale to the public.

Special Compensation Paid to the Principal Underwriter. We pay compensation to Synergy in the amount of $3,500.00 per month to compensate it for serving as principal underwriter for the Contracts. We will pay BFPS compensation in the amount of $3,500.00 per month when BFPS begins serving as principal underwriter for the Contracts.

Compensation to Broker-Dealers Selling the Contracts. The Contracts were offered to the public through broker-dealers (“selling firms”) that are licensed under the federal securities laws and state insurance laws. The selling firms originally entered into written selling agreements with Synergy or its predecessor; Synergy will assign those selling agreements to BFPS in or about May, 2012, upon approval by the Illinois

51

Department of Insurance. We pay commissions directly to certain selling firms for their past sales of the Contracts.

The selling firms that have selling agreements with Synergy or its predecessor are paid commissions for the promotion and sale of the Contracts according to one or more schedules. The amount and timing of commissions varies depending on the selling agreement, but the maximum commission paid to selling firms is 6.75% of additional Purchase Payments, plus a trail commission option of up to 1.00% of additional Purchase Payments paid quarterly on Purchase Payments that have been held in the Contract for at least twelve months.

With respect to Contracts issued on or after April 20, 2000 with the GRIB rider, annuitization compensation of 2% is paid on Contracts that are seven years old or older and that are annuitized for a period of five or more years. Ask your sales representative for further information about what your sales representative and the selling firm for which he or she works may receive in connection with your purchase and annuitization of a Contract.

Additional Compensation Paid to Selected Selling Firms. We have paid and may pay certain selling firms additional cash amounts for “preferred product” treatment of the Contracts in their marketing programs based on past sales of the Contracts and other criteria in order to receive enhanced marketing services and increased access to their sales representatives. In addition to access to their distribution network, such selling firms have received separate compensation or reimbursement for, among other things, the hiring and training of sales personnel, marketing, sponsoring of conferences and seminars, and/or other services they provided to us. These special compensation arrangements were not offered to all selling firms and the terms of such arrangements differed between selling firms.

We had entered into such “preferred product” arrangements with the following selling firms: AG Edwards; CSN Insurance Agency; Compass Bancshares Insurance Agency, FL; Compass Brokerage Inc.; PFIC; ABN AMRO; WM Financial Services, Inc.; Michigan National Bank; and Standard Investment Services.

The amounts paid during 2011 to such selling firms under such arrangements ranged from 25 to 75 basis points of Contract Value, equivalent to from $25.00 to $75.00 on a $10,000 investment.

During the last fiscal year, we paid the following selling firms the amounts shown below in addition to sales commissions.

Name of Firm and Principal Business Address	Aggregate Amount  Paid During Last Fiscal Year
WS Insurance Services LLC (Formerly AG Edwards) 1 North Jefferson Suite 960 St. Louis, Missouri 63103	$2,324.35

No specific charge is assessed directly to Contract Owners or the Separate Account to cover commissions and other incentives or payments we pay in connection with the distribution of the Contracts. However, we intend to recoup commissions and other sales expenses and incentives we pay through the fees and charges we deduct under the Contract and through other corporate revenue.

You should be aware that any selling firm or its sales representatives may receive different compensation or incentives for selling one product over another. As such, they may be inclined to favor or disfavor one product over another due to differing rates of compensation. You may wish to take such payments into account when considering and evaluating any recommendation relating to the Contracts.

52

VOTING RIGHTS

Proxy materials in connection with any Fund shareholder meeting are delivered to each Owner with Subaccount interests invested in the Fund as of the record date. Proxy materials include a voting instruction form. We vote all Fund shares proportionately in accordance with instructions received from Owners. We will also vote any Fund shares attributed to amounts we have accumulated in the Subaccounts in the same proportion that Owners vote.

A Fund is not required to hold annual shareholders’ meetings. Funds hold special meetings as required or deemed desirable for such purposes as electing trustees, changing fundamental policies or approving an investment advisory agreement.

Owners have voting rights in a Fund or Portfolio based upon the Owner’s proportionate interest in the corresponding Subaccount as measured by units. Owners have voting rights before surrender, the Annuity Date or the death of the Annuitant. Thereafter, the Annuitant entitled to receive Variable Annuity payments has voting rights. During the Annuity Period, Annuitants’ voting rights decrease as Annuity Units decrease.

REPORTS TO CONTRACT OWNERS AND INQUIRIES

After each Contract anniversary, we send you a statement showing amounts credited to each Subaccount, to the Fixed Account option and to the Guarantee Period Value. In addition, if you transfer amounts among the variable options or make additional payments, you receive written confirmation of these transactions. We will also send a current statement upon your request. We also send you annual and semi-annual reports for the Funds or Portfolios that correspond to the Subaccounts in which you invest and a list of the securities held by that Fund or Portfolio.

You may direct inquiries to the selling agent or may contact the Service Center.

DOLLAR COST AVERAGING

Under our Dollar Cost Averaging program, a predesignated portion of Subaccount Value is automatically transferred monthly, quarterly, semiannually or annually for a specified duration to other Subaccounts, Guarantee Periods and the Fixed Account. The DCA theoretically gives you a lower average cost per unit over time than you would receive if you made a one time purchase of the selected Subaccounts. There is no guarantee that DCA will produce that result. There is currently no charge for this service. The Dollar Cost Averaging program is available only during the Accumulation Period. You may also elect transfers from the Fixed Account on a monthly or quarterly basis for a minimum duration of one year. You may enroll any time by completing our Dollar Cost Averaging form. Transfers are made based on the date you specify. We must receive the enrollment form in good order at least five business days before the transfer date.

The minimum transfer amount is $100 per Subaccount, Guarantee Period or Fixed Account. The total Contract Value in an account at the time Dollar Cost Averaging is elected must be at least equal to the amount designated to be transferred on each transfer date times the duration selected.

Dollar Cost Averaging ends if:

• the number of designated monthly transfers has been completed,

• Contract Value in the transferring account is insufficient to complete the next transfer (the remaining amount is transferred),

• we receive the Owner’s written termination at least five business days before the next transfer date, or

• the Contract is surrendered or annuitized.

53

If the Fixed Account balance is at least $10,000, you may elect automatic calendar quarter transfers of interest accrued in the Fixed Account to one or more of the Subaccounts or Guarantee Periods. You may enroll in this program any time by completing our Dollar Cost Averaging form. Transfers are made within five business days of the end of the calendar quarter. We must receive the enrollment form at least ten days before the end of the calendar quarter.

Dollar Cost Averaging is not available during the Annuity Period.

SYSTEMATIC WITHDRAWAL PLAN

We offer a Systematic Withdrawal Plan (“SWP”) allowing you to pre-authorize periodic withdrawals during the Accumulation Period. You instruct us to withdraw selected amounts, or amounts based on your life expectancy, from the Fixed Account, or from any of the Subaccounts or Guarantee Periods on a monthly, quarterly, semi-annual or annual basis. The SWP is available when you submit a written request (in good order) to the Service Center for a minimum $100 periodic payment. A Market Value Adjustment applies to any withdrawals under the SWP from a Guarantee Period, unless effected within 30 days after the Guarantee Period ends. SWP withdrawals from the Fixed Account are not available in the first Contract Year and are limited to the amount not subject to Withdrawal Charges. If the amounts distributed under the SWP from the Subaccounts or Guarantee Periods exceed the free withdrawal amount, the Withdrawal Charge is applied on any amounts exceeding the free withdrawal amount. Withdrawals taken under the SWP may be subject to the 10% tax penalty on early withdrawals and to income taxes and withholding. If you are interested in SWP, you may obtain an application and information concerning this program and its restrictions from us or your agent. We give 30 days’ notice if we amend the SWP. The SWP may be terminated at any time by you or us.

EXPERTS

The statutory financial statements and schedules of Zurich American Life Insurance Company as of December 31, 2011 and 2010 and for each of the three years ended December 31, 2011 (prepared in conformity with accounting practices prescribed or permitted by the Illinois Department of Financial and Professional Regulations-Division of Insurance) and the U.S. GAAP statement of assets, liabilities, and contract owners’ equity of ZALICO Variable Annuity Separate Account as of December 31, 2011 and the related statement of operations for the year then ended and the statement of changes in contract owners’ equity for each of periods presented included in the Statement of Additional Information, have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

LEGAL PROCEEDINGS

ZALICO has been named as defendant in certain lawsuits incidental to our insurance business. Our management believes that the resolution of these various lawsuits will not result in any material adverse effect on the Separate Account, on our consolidated financial position, or on our ability to meet our obligations under the Contracts. As of the date of this Prospectus, it also appears that there are no pending or threatened lawsuits that are likely to have a material adverse impact on Synergy’s ability to perform its obligations under its principal underwriting agreement.

FINANCIAL STATEMENTS

The financial statements of ZALICO and the Separate Account are set forth in the Statement of Additional Information. The financial statements of ZALICO should be considered primarily as bearing on our ability to meet our obligations under the Contracts. The Contracts are not entitled to participate in our earnings, dividends or surplus.

54

CONTRACTS ISSUED BEFORE NOVEMBER 12, 2001

A. Guaranteed Retirement Income Benefit: General

The Guaranteed Retirement Income Benefit (“GRIB”) rider was an optional Contract benefit available under Contracts issued before November 12, 2001. GRIB is not offered on Contracts issued on or after November 12, 2001. We reserve the right to begin offering GRIB at any time.

GRIB provides a minimum fixed annuity guaranteed lifetime income to the Annuitant as described below. Requests to exercise the GRIB must be received by us in good order. GRIB may be exercised only within 30 days after the seventh Contract anniversary and within 30 days before and 30 days after later Contract anniversaries. We will not accept requests to exercise the GRIB option outside of these 30-day and 60-day windows. In addition, GRIB must be exercised between the Annuitant’s 60th and 91st birthdays. However, if the Annuitant is age 44 or younger on the Date of Issue, GRIB may be exercised after the Contract’s 15th Anniversary, even though the Annuitant is not yet 60 years old. GRIB may not be appropriate for Annuitants age 80 and older. State premium taxes may be assessed when you exercise GRIB.

If you elected GRIB, the charge is 0.25% of Contract Value. We deduct a pro rata portion of the charge from each Subaccount, each Guarantee Period and the Fixed Account in which you have value on the last business day of each calendar quarter. If the GRIB rider is not exercised by the Annuitant’s age 91, the GRIB terminates without value on that date. Contract Owners must exercise the GRIB rider no later than the Contract anniversary before the Annuitant’s age 91. We no longer charge for GRIB after the Annuitant’s 91st birthday. We do not assess the GRIB charge after you annuitize. The GRIB charge is in addition to the Contract fees and expenses appearing in the “Summary of Expenses”. You may cancel the GRIB rider at any time by written notice to us. Once discontinued, GRIB may not be elected again. Since any guaranteed benefits under GRIB will be lost, you should carefully consider your decision to cancel GRIB.

GRIB only applies to the determination of income payments upon annuitization in the circumstances described in this section of the Prospectus. It is not a guarantee of Contract Value or performance. This benefit does not enhance the amounts paid in partial withdrawals, surrenders, or death benefits. If you surrender your Contract, you will not receive any benefit under this optional benefit.

B. Annuity Payments with GRIB

Annuity payments are based on the greater of:

• the income provided by applying the GRIB base to the guaranteed annuity factors, and

• the income provided by applying the Contract Value to the current annuity factors.

The GRIB base is the greatest of:

• Contract Value,

• Purchase Payments minus previous withdrawals, accumulated at 5.00% interest per year to the earlier of the Annuitant’s age 80 or the GRIB exercise date plus Purchase Payments minus all withdrawals from age 80 to the GRIB exercise date (the “Purchase Payment Roll-Up Value”), and

• the greatest anniversary value before the exercise date.

The greatest anniversary value equals:

• the highest of the Contract Values on each Contract anniversary prior to the Annuitant’s age 81, plus

• the dollar amount of any Purchase Payments made since that anniversary, minus

• withdrawals since that anniversary.

55

We determine your greatest anniversary value solely to calculate your GRIB base. Your greatest anniversary value is not a cash value or surrender value; it is not available for withdrawal; it is not a minimum return for any Subaccount; and it is not a guarantee of any Contract Value. Your greatest anniversary value is a hypothetical value that you may never realize unless and until: (a) you annuitize your Contract, (b) you exercise the GRIB, and (c) the greatest anniversary value on the Exercise Date is greater than either the Contract Value or the Purchase Payment Roll-Up Value on the Exercise Date. When you exercise the GRIB, we will calculate the GRIB base, in part, by using your greatest anniversary value as calculated on your Exercise Date. Calculation of the greatest anniversary value on any date other than the Exercise Date is subject to recalculation and you are not entitled to any interim value of the greatest anniversary value.

Applying additional Purchase Payments to your Contract may increase your interim greatest anniversary value, which in turn may appear to increase your GRIB base. However, in some instances when you apply additional Purchase Payments to your Contract, your hypothetical greatest anniversary value, as calculated on the Contract anniversary date immediately subsequent to the Purchase Payments, may be less than the interim greatest anniversary value and your GRIB base calculation may appear to be negatively impacted.

The guaranteed annuity factors are based on the 1983a table projected using projection scale G, with interest at 2.5% (the “Annuity 2000” table). However, if GRIB is exercised on or after the 10th Contract anniversary, interest at 3.5% is assumed. Contracts issued in the state of Montana or in connection with certain employer-sponsored employee benefit plans are required to use unisex annuity factors. In such cases, the guaranteed annuity factors will be based on unisex rates.

Because GRIB is based on conservative actuarial factors, the income guaranteed may often be less than the income provided under the regular provisions of the Contract. If the regular annuitization provisions would provide a greater benefit than GRIB, the greater amount will be paid.

GRIB is paid for the life of a single Annuitant or the lifetimes of two Annuitants. If paid for the life of a single Annuitant, GRIB is paid in the amount determined above. If paid for the lifetimes of two Annuitants, GRIB is paid in the amount determined above, but the age of the older Annuitant is used to determine the GRIB base.

If you elect GRIB payable for the life of a single Annuitant, you may elect a period certain of 5, 10, 15, or 20 years. If the Annuitant dies before GRIB has been paid for the period elected, the remaining GRIB payments are paid as they fall due to the Beneficiary, if the Beneficiary is a natural person. If the Beneficiary is not a natural person, the remaining payments may be commuted at a minimum 2.5% interest rate and paid in a lump sum.

If you elect GRIB payable for the lifetimes of two Annuitants, the period certain is 5, 10, 15, 20, or 25 years. The full GRIB is payable as long as at least one of the two Annuitants is alive, but for no less than 25 years. If both Annuitants die before GRIB has been paid for the period elected, the remaining GRIB payments are paid as they fall due to the Beneficiary, if the Beneficiary is a natural person. If the Beneficiary is not a natural person, the remaining payments may be commuted at a minimum 2.5% interest rate and paid in a lump sum.

For Qualified Plan Contracts, the period certain elected cannot be longer than the Owner’s life expectancy, in order to satisfy minimum required distribution rules.

GRIB payments are also available on a quarterly, semi-annual or annual basis. We may make other annuity options available.

We may deduct premium taxes at the time of annuitization from Contract Value (or from the GRIB base, if applicable).

56

C. Commutable Annuitization Option

If you purchased your Contract on or after August 24, 1999, and you exercise the GRIB option to receive guaranteed benefits, you may elect to have payments made under a commutable annuitization option. Under the commutable annuitization option, partial lump sum payments are permitted, subject to the following general requirements:

• At the time you exercise the GRIB option, you must elect the commutable annuitization option in order to be eligible for the lump sum payments.

• Lump sum payments are available only during the period certain applicable under the payout option you elected. For example, lump sum payments can be elected only during the 5, 10, 15, or 20 year certain period that applies to the payout.

• Lump sum payments are available once in each calendar year and may not be elected until one year after annuitization has started. We reserve the right to make exceptions.

If you select a commutation option in connection with your GRIB rider, you may be subject to additional tax risks. You should consult a tax adviser before selecting any commutation options in connection with your GRIB rider. (See “Required Distributions from Qualified Plan Contracts” above.)

1. Original Commutation Option.

The commutable annuitization option originally allowed the Annuitant to elect a lump sum payment in lieu of receiving some or all of the guaranteed installment payments remaining in the period certain under the Contract. There is some uncertainty regarding how the required minimum distribution rules of Code section 401(a)(9) apply to a Qualified Plan Contract after such a commutation is elected. As a result, you should consult a tax adviser before doing so. The original commutation option is summarized as follows:

• The Annuitant may elect to receive a partial lump sum payment of the present value of the remaining payments in the period certain, subject to the restrictions described below. If a partial lump sum payment is elected, the remaining payments in the period certain will be reduced based on the ratio of the amount of the partial withdrawal to the amount of the present value of the remaining installments in the period certain prior to the withdrawal. If the Annuitant is still living after the period certain is over, the Annuitant will begin receiving the original annuitization payment amount again.

• Each time that a partial lump sum payment is made, we will determine the percentage that the payment represents of the present value of the remaining installments in the period certain. For Non-Qualified Plan Contracts, the sum of these percentages over the life of the Contract generally cannot exceed 75%. For Qualified Plan Contracts, partial lump sum payments of up to 100% of the present value of the remaining installments in the period certain may be made.

• In determining the amount of the lump sum payment that is available, the present value of the remaining installments in the period certain will be calculated based on an interest rate equal to the GRIB annuity factor interest rate (3.5% if GRIB was exercised on or after the 10th Contract anniversary; 2.5% if exercised before that date) plus an interest rate adjustment that has the effect of reducing the amount of the lump sum payment. The interest rate adjustment is equal to the following:

Number of years remaining in the period certain	Interest rate Adjustment
15 or more years		1.00	%
10 or more, but less than 15, years		1.50	%
less than 10 years		2.00	%

57

2. Additional Commutation Options.

As described in the FEDERAL TAX CONSIDERATIONS section of this Prospectus, there is some uncertainty about how the minimum distribution requirements in Code section 401(a)(9) apply to your Contract after a lump sum payment is elected under the commutable annuitization option. In particular, there is uncertainty regarding how to treat options that allow a commutation of the guaranteed installments remaining to be made in a period certain but not the life-contingent payments that could remain payable after the period certain (which we call the “Life Income Payments”). The following two commutation options are intended to provide access to the Life Income Payments through a commutation.

• Lump Sum Option: Under this option, we will pay a lump sum distribution reflecting our calculation of the present value of your remaining guaranteed installments (if any) and the actuarial present value of your future contingent Life Income Payments. Once we pay the lump sum, no further payments will be made and your Contract will terminate. This option is also available in connection with Non-Qualified Plan Contracts.

• Level Lifetime Payment Option: Under this option, we will pay a lump sum distribution reflecting our calculation of the present value of your remaining guaranteed installments (if any), followed by life-contingent periodic payments for life (which we call the “New Level Lifetime Payments”). The New Level Lifetime Payments will commence immediately after this option is elected (rather than at the end of the originally-scheduled period certain). The New Level Lifetime Payments will continue for as long as the Annuitant (or the original joint Annuitant, if any) live, but with no period certain. The New Level Lifetime Payments will be made in lieu of any Life Income Payments that otherwise might become payable following the original period certain. The New Level Lifetime Payments will be calculated based on our calculation of the actuarial present value of your future contingent Life Income Payments as of the election date, which are discounted for mortality and other relevant factors. The New Level Lifetime Payments will be lower in amount compared to your original Life Income Payments, primarily because they will commence before the end of your original period certain. Once the New Level Lifetime Payments begin, they cannot be accelerated or paid out in a lump sum. The New Level Lifetime Payments do not include a period certain, meaning they will cease, and your Contract will terminate, upon the later of the Annuitant’s death or the death of the last surviving joint Annuitant, if any.

D. Effect of Death of Owner or Annuitant on GRIB

The GRIB terminates upon the death of the Owner or the Annuitant (if the Owner is not a natural person) unless the Owner’s or Annuitant’s surviving spouse elects to continue the Contract as described in “Guaranteed Death Benefit” Section above. A spouse may continue only a Non-Qualified Plan Contract or an Individual Retirement Annuity.

If the spouse elects to continue the Contract as the new Owner and receive any increase in Contract Value attributable to the death benefit, the GRIB is modified as follows:

The GRIB base is calculated from the time the election to continue the Contract is made and reflects the increase, if any, in Contract Value attributable to the death benefit. GRIB may not be exercised or canceled prior to the seventh Contract Year anniversary date following the spouse’s election to continue the Contract. However, we will waive all other age restrictions that would apply to exercising GRIB. The spouse may also elect to discontinue GRIB within 30 days of the date the election to continue the Contract is made.

If the spouse elects to continue the Contract without receiving any increase in Contract Value attributable to the death benefit, all rights, benefits and charges under the Contract, including the GRIB charge and the right to exercise GRIB based on the existing exercise period, will continue unchanged.

58

STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS

The SAI contains additional information about the Contract and the Separate Account. You can obtain the SAI (at no cost) by contacting us at the Service Center. Please read the SAI in conjunction with this Prospectus. The following is the Table of Contents for the SAI.

SPECIAL CONSIDERATIONS	2
SERVICES TO THE SEPARATE ACCOUNT	2
VOTING RIGHTS	4
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS	4
STATE REGULATION	4
LEGAL MATTERS	5
EXPERTS	5
FINANCIAL STATEMENTS	5
APPENDIX A - STATE AND LOCAL GOVERNMENT PREMIUM TAX CHART	A-l
APPENDIX F - INDEX TO FINANCIAL STATEMENTS	F-l

59

APPENDIX A

ILLUSTRATION OF THE “FLOOR” ON THE DOWNWARD MARKET VALUE ADJUSTMENT (MVA)

Purchase Payment	$40,000
Guarantee Period	5 Years
Guaranteed Interest Rate	5% Annual Effective Rate

The following examples illustrate how the “floor” on a downward MVA, that was added to your Contract effective April 1, 2005, may affect the values of your Contract upon a withdrawal. In these examples, the Guarantee Period starts on the Effective Date of the MVA Endorsement (i.e., the Start Date); a withdrawal occurs one year after the Start Date. The MVA operates in a similar manner for transfers. No Withdrawal Charge applies to transfers.

In these examples, the Guarantee Period Value for the $40,000.00 Purchase Payment is guaranteed to equal $51,051.26 at the end of the five-year Guarantee Period. After one year, when the first withdrawals occur in these examples, the Guarantee Period Value is $42,000.00. It is also assumed, for the purposes of these examples, that no prior partial withdrawals or transfers have occurred.

A downward MVA results when you take a full or partial withdrawal during periods of rising interest rates. Assume in this example that, one year after the Purchase Payment, the interest rate on a four-year Guarantee Period rose to 6.5% .

In this example, the MVA will be based on the hypothetical interest rate we are crediting at the time of the withdrawal on new money allocated to a Guarantee Period with a duration equal to the time remaining in your Guarantee Period rounded to the next higher number of complete years. One year after the Purchase Payment there would have been four years remaining in your Guarantee Period, so the hypothetical crediting rate for a four-year Guarantee Period will be used (6.5%). These examples also show how the Withdrawal Charge (if any) would be calculated separately after the MVA.

Note:  We declare interest rates on the MVA Options at our sole discretion. The interest rates used in this example are hypothetical and do not reflect current interest rates being credited by us, and the interest rates do not represent any of our intentions regarding future interest crediting rates.

Example of Full Withdrawal

Upon a full withdrawal, the market value adjustment factor would be:

*  Actual calculation utilizes 10 decimal places.

The downward MVA is subject to a “floor” so that the downward MVA can remove only interest credited in excess of 3% on the Guarantee Period Value from the Start Date. The “floor” in this example is calculated as:

-$800.00 = $40,000.00 x (1 + .03) - $40,000.00 x (1 + .05)

A-1

The Market Adjusted Value after applying the floored downward MVA would be:

$41,200.00 = $42,000.00 - $800.00

A Withdrawal Charge of 6% would be assessed against the Purchase Payments subject to a Withdrawal Charge in excess of the amount available as a free withdrawal. In this case, there are no prior withdrawals, so 10% of the Contract Value is not subject to a Withdrawal Charge.

The Withdrawal Charge on a full withdrawal is:

$2,148.00 = ($40,000.00 – (.10 x $42,000.00)) x .06

Thus, the amount payable on a full withdrawal after the application of the MVA floor would be:

$39,052.00 = $41,200.00 - $2,148.00

Example of Partial Withdrawal of 50% of Guarantee Period Value

If instead of a full withdrawal, assume that 50% of the Guarantee Period Value ($21,000.00) was withdrawn from the Contract (partial withdrawal of 50%) after the first year.

The downward MVA is subject to the floor of -$800.00 described above. In this example, this means that only the interest credited on the entire Guarantee Period Value for the one-year period between the Start Date and the date of withdrawal that was in excess of 3% (i.e., the difference between 5% interest and 3% interest) can be removed at the time of the partial withdrawal. The partial withdrawal will have the impact of reducing the return, to date, in the Guarantee Period to the minimum guaranteed interest rate of 3% per annum.

The Market Adjusted Value after applying the floored downward MVA would be:

$20,200.00 = $21,000.00 - $800.00

A Withdrawal Charge of 6% would be assessed against the Purchase Payments subject to a Withdrawal Charge in excess of the amount available as a free withdrawal. In this case, there are no prior withdrawals, so 10% of the Contract Value is not subject to a Withdrawal Charge.

$888.00 = ($19,000.00 – (.10 x $42,000.00)) x .06

Thus, the amount payable, net of Withdrawal Charges, on this partial withdrawal after the application of the MVA floor would be:

$19,312.00 = $20,200.00 - $888.00

Example of a Second Withdrawal of the Remaining Guarantee Period Value

Assume that the owner took a second withdrawal of the remaining balance after the second year and the hypothetical crediting rate for a three-year Guarantee Period was 6.5% at that time.

After the second year, the Guaranteed Period Value ($21,000) would have been credited with 5% interest and would have increased by $1,050 to $22,050.

A-2

Upon a full withdrawal, the market value adjustment factor would be:

The downward MVA is subject to a “floor” discussed above. In this example, the downward MVA can remove only interest credited in excess of 3% (i.e., the difference between 5% interest and 3% interest) on the remaining Guarantee Period Value for the one-year period from the time of the prior withdrawal. The “floor” in this example is calculated as:

-$420.00 = $21,000.00 x (1 + .03) - $21,000.00 x (1 + .05)

The Market Adjusted Value after applying the floored downward MVA would be:

$21,630.00 = $22,050.00 - $420.00

A Withdrawal Charge of 5% would be assessed against the Purchase Payments subject to a Withdrawal Charge in excess of the amount available as a free withdrawal. In this case, 10% of the Contract Value is not subject to a Withdrawal Charge.

The Withdrawal Charge is thus:

$939.75 = ($21,000.00 - (.10 x $22,050.00)) x .05

Thus, the amount payable on a full withdrawal after the application of the MVA floor would be:

$20,690.25 = $21,630.00 - $939.75

ILLUSTRATION OF AN UPWARD MARKET VALUE ADJUSTMENT

An upward Market Value Adjustment results from a withdrawal that occurs when interest rates have decreased. Assume interest rates have decreased one year later and we are then crediting 4% for a four-year Guarantee Period. Upon a full withdrawal, the market value adjustment factor would be:

The Market Value Adjustment is an increase of $1638.83 to the Guarantee Period Value:

$1,638.83 = $42,000.00 x .0390198

The Market Adjusted Value would be:

$43,638.83 = $42,000.00 + $1,638.83

A Withdrawal Charge of 6% would apply to the Market Adjusted Value being withdrawn, less 10% of the Contract Value, as there were no prior withdrawals:

$2,366.33 = ($43,638.83 - .10 x 42,000) x .06

A-3

Thus, the amount payable on withdrawal would be:

$41,272.50 = $43,638.83 - $2,366.33

If instead of a full withdrawal, 50% of the Guarantee Period Value was withdrawn (partial withdrawal of 50%), the Market Value Adjustment would be:

$819.42 = $21,000.00 x .0390198

The Market Adjusted Value of $21,000.00 would be:

$21,819.42 = $21,000.00 + $819.42

The Withdrawal Charge of 6% would apply to the Market Adjusted Value being withdrawn, less 10% of the full Market Adjusted Value as there are no prior withdrawals:

$1,057.17 = ($21,819.42 -.1 x $42,000) x .06

Thus, the amount payable, net of Withdrawal Charges, on this partial withdrawal would be:

$20,762.25 = $21,819.42 - $1,057.17

Actual Market Value Adjustment may have a greater or lesser impact than that shown in the Examples, depending on the actual change in interest crediting rates and the timing of the withdrawal or transfer in relation to the time remaining in the Guarantee Period.

A-4

APPENDIX B

ZURICH AMERICAN LIFE INSURANCE COMPANY

DEFERRED FIXED AND VARIABLE ANNUITY IRA, ROTH IRA AND

SIMPLE IRA DISCLOSURE STATEMENT

This Disclosure Statement describes the statutory and regulatory provisions applicable to the operation of traditional Individual Retirement Annuities (IRAs), Roth Individual Retirement Annuities (Roth IRAs) and Simple Individual Retirement Annuities (SIMPLE IRAs). Internal Revenue Service regulations require that this be given to each person desiring to establish an IRA, Roth IRA or a SIMPLE IRA. Except where otherwise indicated, IRA discussion includes Simplified Employee Pension IRAs (SEP IRAs). Further information can be obtained from Zurich American Life Insurance Company and from any district office of the Internal Revenue Service. Also, see IRS Publication 590, Individual Retirement Arrangements (IRAs).

This Disclosure Statement is for your general information and is not intended to be exhaustive or conclusive, to apply to any particular person or situation, or to be used as a substitute for qualified legal or tax advice.

Please note that the information contained herein is based on current Federal income tax law, income tax regulations, and other guidance provided by the IRS. Hence, this information is subject to change upon an amendment of the law or the issuance of further regulations or other guidance. Also, you should be aware that state tax laws may differ from Federal tax laws governing such arrangements. You should consult your tax adviser about any state tax consequences of your IRA, Roth IRA or SIMPLE IRA, whichever is applicable.

A. REVOCATION

Within seven days of the date you signed your enrollment application, you may revoke the Contract and receive back 100% of your money. To do so, write the Service Center.

Notice of revocation will be deemed mailed on the date of the postmark (or if sent by certified or registered mail, the date of the certification or registration) if it is deposited in the mail in the United States in an envelope, or other appropriate wrapper, first class postage prepaid, properly addressed.

B. STATUTORY REQUIREMENTS

This Contract is intended to meet the requirements of Section 408(b) of the Internal Revenue Code (Code) for use as an IRA, Section 408A of the Code for use as a Roth IRA, or of Section 408(p) of the Code for use as a SIMPLE IRA, whichever is applicable. The Contract has been approved as to form for use as an IRA, Roth IRA or a SIMPLE IRA by the Internal Revenue Service. Such approval by the Internal Revenue Service is a determination only as to form of the Contract, and does not represent a determination on the merits of the Contract.

1.        The amount in your IRA, Roth IRA, and SIMPLE IRA, whichever is applicable, must be fully vested at all times and the entire interest of the owner must be nonforfeitable.

2.        The Contract must be nontransferable by the owner.

3.        The Contract must have flexible premiums.

4.        For IRAs and SIMPLE IRAs, you must start receiving distributions on or before April 1 of the year following the year in which you reach age 70 ¹/2 (the required beginning date)(See “Required Distributions”).

B-1

If you die before the date on which you are required to begin distributions from your Contract, any remaining interest in the Contract must be distributed to your designated beneficiary (within the meaning of Section 401(a)(9) of the Code) either (i) by December 31 of the calendar year containing the fifth anniversary of your death, or (ii) over his or her life, or over a period certain not extending beyond his or her life expectancy, commencing on or before December 31 of the calendar year immediately following the calendar year in which you die. If you die after distributions have begun but before your entire interest in your Contract is distributed, unless otherwise permitted under applicable law, any remaining interest in the Contract must be distributed to your beneficiary at least as rapidly as under the method of distribution in effect as of your date of death.

If the sole designated beneficiary is your spouse, he or she may elect to treat the Contract as his or her own IRA, or, where applicable, Roth IRA whether you die before or after the distributions have begun.

Section 401(a)(9)(A) of the Code (relating to minimum distributions required to commence at age 70 ¹/2), and the incidental death benefit requirements of Section 401(a) of the Code, do not apply to Roth IRAs.

5.        Except in the case of a rollover contribution or a direct transfer (See “Rollovers and Direct Transfers”), or a contribution made in accordance with the terms of a Simplified Employee Pension (SEP), all contributions to an IRA, Roth and SIMPLE IRA must be cash contributions which do not exceed certain limits.

6.        The Contract must be for the exclusive benefit of you and your beneficiaries.

C. ROLLOVERS AND DIRECT TRANSFERS FOR IRAS AND SIMPLE IRAS

1.        A rollover is a tax-free transfer from one retirement program to another that you cannot deduct on your tax return. There are two kinds of tax-free rollover payments to an IRA. In one, you transfer amounts from another IRA. With the other, you transfer amounts from a qualified plan under Section 401(a) of the Code, a qualified annuity under Section 403(a) of the Code, a tax-sheltered annuity or custodial account under Section 403(b) of the Code, or a governmental plan under Section 457(b) of the Code (collectively referred to as “qualified employee benefit plans”). Tax-free rollovers can be made from a SIMPLE IRA or to a SIMPLE Individual Retirement Account under Section 408(p) of the Code. An individual can make a tax-free rollover to an IRA from a SIMPLE IRA, or vice-versa, after a two-year period has expired since the individual first participated in a SIMPLE plan.

2.        You must complete the rollover by the 60th day after the day you receive the distribution from your IRA or other qualified employee benefit plan or SIMPLE IRA. The failure to satisfy this 60-day requirement may be waived by the Internal Revenue Service in certain circumstances. Amounts distributed as required minimum distributions are not eligible for treatment as a rollover.

3.        A rollover distribution may be made to you only once a year. The one-year period begins on the date you receive the rollover distribution, not on the date you roll it over (reinvest it).

4.        A trustee-to-trustee transfer to an IRA of funds in an IRA from one trustee or insurance company to another is not a rollover. It is a transfer that is not affected by the one-year waiting period.

5.        All or a part of the premium for this Contract used as an IRA may be paid from a rollover from an IRA or qualified employee benefit plan or from a trustee-to-trustee transfer from another IRA. All or part of the premium for this Contract used as a SIMPLE IRA may be paid from a rollover from a SIMPLE Individual Retirement Account or, to the extent permitted by law, from a direct transfer from a SIMPLE IRA.

6.        A distribution that is eligible for rollover treatment from a qualified employee benefit plan will be subject to twenty percent (20%) withholding by the Internal Revenue Service even if you roll the distribution over within the 60-day rollover period. One way to avoid this withholding is to make the distribution as a direct transfer to the IRA trustee or insurance company.

B-2

D. CONTRIBUTION LIMITS AND ALLOWANCE OF DEDUCTION FOR IRAs

1.        In general, the amount you can contribute each year to an IRA is the lesser of (1) 100% of your compensation includible in your gross income, or (2) the maximum annual contributions under Section 219(b) of the Code, including “catchup” contributions for certain individuals age 50 and older. The maximum annual contribution limit for IRA contributions is equal to $5,000 for 2011. After 2011, the limit may be indexed annually in $500 increments, except as otherwise provided by law. An individual who has attained age 50 may make additional “catch-up” IRA contributions. The maximum annual contribution limit for the individual is increased by $1,000 for 2011 and thereafter, except as otherwise provided by law. If you have more than one IRA, the limit applies to the total contributions made to your own IRAs for the year. Generally, if you work the amount that you earn is compensation. Wages, salaries, tips, professional fees, bonuses and other amounts you receive for providing personal services are compensation. If you own and operate your own business as a sole proprietor, your net earnings reduced by your deductible contributions on your behalf to self-employed retirement plans are compensation. If you are an active partner in a partnership and provide services to the partnership, your share of partnership income reduced by deductible contributions made on your behalf to qualified retirement plans is compensation. All taxable alimony and separate maintenance payments received under a decree of divorce or separate maintenance are compensation.

2.        In the case of a married couple filing a joint return, up to the maximum annual contribution can be contributed to each spouse’s IRA, even if one spouse has little or no compensation. This means that the total combined contributions that can be made to both IRAs can be as much as $10,000 for the year (plus an additional $2,000 in catch-up contributions).

3.        In the case of a married couple with unequal compensation who file a joint return, the limit on the deductible contributions to the IRA of the spouse with less compensation is the smaller of:

a.        the maximum annual contribution, or

b.        The total compensation of both spouses, reduced by any deduction allowed for contributions to IRAs of the spouse with more compensation.

The deduction for contributions to both spouses’ IRAs may be further limited if either spouse is covered by an employer retirement plan.

4.        If either you or your spouse is an active participant in an employer-sponsored plan and have a certain level of income, the amount of the contribution to your IRA that is deductible is phased out, and in some cases eliminated. If you are an active participant in an employer-sponsored plan, the deductibility of your IRA contribution will be phased out, depending on your adjusted gross income, or combined adjusted gross income in the case of a joint tax return, as follows:

Joint Returns

Taxable year beginning in:	Phase-out range
2012	$	92,000-$112,000

Single Taxpayers

Taxable year beginning in:	Phase-out range
2012	$	58,000-$68,000

The phase-out range for married individuals filing separately is $0-$10,000. If you file a joint tax return and are not an active participant in an employer-sponsored plan, but your spouse is, the amount of the deductible IRA contribution is phased out for adjusted gross income between $173,000 and $183,000.

B-3

To designate a contribution as nondeductible, you must file IRS Form 8606, Nondeductible IRAs. You may have to pay a penalty if you make nondeductible contributions to an IRA and you do not file Form 8606 with your tax return, or if you overstate the amount of nondeductible contributions on your Form 8606. If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible, and all distributions from your IRA will be taxed, unless you can show, with satisfactory evidence, that nondeductible contributions were made.

5.        Contributions to your IRA for a year can be made at any time up to April 15 of the following year. If you make the contribution between January 1 and April 15, however, you may elect to treat the contribution as made either in that year or in the preceding year. You may file a tax return claiming a deduction for your IRA contribution before the contribution is actually made. You must, however, make the contribution by the due date of your return not including extensions.

6.        You cannot make a contribution other than a rollover or transfer contribution to your IRA for the year in which you reach age 70 ¹/2 or thereafter.

7.        A taxpayer may qualify for a tax credit for contributions to an IRA, depending on the taxpayer’s adjusted gross income.

E. SEP IRAs

1.        SEP IRA rules concerning eligibility and contributions are governed by Code Section 408(k). The maximum deductible contribution for a SEP IRA is the lesser of $50,000 (indexed for cost-of-living increases after 2012) or 25% of compensation.

2.        A SEP must be established and maintained by an employer (corporation, partnership, sole proprietor).

F. SIMPLE IRAs

1.        A SIMPLE IRA must be established with your employer using a qualified salary reduction agreement.

2.        You may elect to have your employer contribute to your SIMPLE IRA, under a qualified salary reduction agreement, an amount (expressed as a percentage of your compensation) not to exceed $11,500 for 2012. After 2012, the limit may be indexed annually, except as otherwise provided by law. An individual who has attained age 50 may make additional “catch-up” IRA contributions. The maximum annual contribution limit for the individual is increased by $2,500 for 2012 and thereafter, except as otherwise provided by law. In addition to these employee elective contributions, your employer is required to make each year either (1) a matching contribution equal to up to 3 percent, and not less than 1 percent, of your SIMPLE IRA contribution for the year, or (2) a nonelective contribution equal to 2 percent of your compensation for the year (up to $250,000 of compensation, as adjusted for inflation). No other contributions may be made to a SIMPLE IRA.

3.        Employee elective contributions and employer contributions (i.e., matching contributions and nonelective contributions) to your SIMPLE IRA are excluded from your gross income.

4.        To the extent an individual with a SIMPLE IRA is no longer participating in a SIMPLE plan (e.g., the individual has terminated employment), and two years have passed since the individual first participated in the plan, the individual may treat the SIMPLE IRA as an IRA.

B-4

G. TAX STATUS OF THE CONTRACT AND DISTRIBUTIONS FOR IRAs AND SIMPLE IRAs

1.        Earnings of your IRA annuity contract are not taxed until they are distributed to you.

2.        In general, taxable distributions are included in your gross income in the year you receive them.

3.        Distributions under your IRA are non-taxable to the extent they represent a return of non-deductible contributions (if any). The non-taxable percentage of a distribution is determined generally by dividing your total undistributed, non-deductible IRA contributions by the value of all your IRAs (including SEPs and rollovers).

4.        You cannot choose the special five-year or ten-year averaging that may apply to lump sum distributions from qualified employer plans.

H. REQUIRED DISTRIBUTIONS FOR IRAs AND SIMPLE IRAs

You must start receiving minimum distributions required under the Contract and Section 401(a)(9) of the Code from your IRA and SIMPLE IRA starting with the year you reach age 70 ¹/2 (your 70 ¹/2 year). Ordinarily, the required minimum distribution for a particular year must be received by December 31 of that year. However, you may delay the required minimum distribution for the year you reach age 70 ¹/2 until April 1 of the following year (i.e., the required beginning date).

Annuity payments which begin by April 1 of the year following your 70 ¹/2 year satisfy the minimum distribution requirement if they provide for non-increasing payments over your life or the lives of you and your designated beneficiary (within the meaning of Section 401(a)(9) of the Code), provided that, if installments are guaranteed, the guaranty period does not exceed the applicable life or joint life expectancy.

The applicable life expectancy is your remaining life expectancy or the remaining joint life and last survivor expectancy of you and your designated beneficiary, determined as set forth in applicable federal income tax regulations.

If you have more than one IRA, you must determine the required minimum distribution separately for each IRA; however, you can take the actual distributions of these amounts from any one or more of your IRAs.

In addition, the after-death minimum distribution requirements described generally in section B. STATUTORY REQUIREMENTS apply to IRAs and SIMPLE IRAs.

If the actual distribution from your Contract is less than the minimum amount that should be distributed in accordance with the minimum distribution requirements mentioned above, the difference generally is an excess accumulation. There is a 50% excise tax on any excess accumulations. If the excess accumulation is due to reasonable error, and you have taken (or are taking) steps to remedy the insufficient distribution, you can request that this 50% excise tax be excused by filing with your tax return an IRS Form 5329, together with a letter of explanation and the excise tax payment.

I. ROTH IRAs

1.        If your Contract is a special type of individual retirement plan known as a Roth IRA, it will be administered in accordance with the requirements of section 408A of the Code. (Except as otherwise indicated, references herein to an “IRA” are to an “individual retirement plan,” within the meaning of Section 7701(a)(37) of the Code, other than a Roth IRA.) Roth IRAs are treated the same as other IRAs, except as described here.

B-5

2.        If your Contract is a Roth IRA, we will send you a Roth IRA endorsement to be attached to, and to amend, your Contract. The Company reserves the right to amend the Contract as necessary or advisable from time to time to comply with future changes in the Internal Revenue Code, regulations or other requirements imposed by the IRS to obtain or maintain its approval of the annuity as a Roth IRA.

3.        Earnings in your Roth IRA are not taxed until they are distributed to you, and will not be taxed if they are paid as a “qualified distribution,” as described to you in section L, below.

4.        The minimum distribution requirements that apply to IRAs do not apply to Roth IRAs while the owner is alive. However, after the death of a Roth IRA owner, the after-death minimum distribution rules that apply to IRAs also apply to Roth IRAs as though the Roth IRA owner died before his or her required beginning date. You may not use your Roth IRA to satisfy minimum distribution requirements for traditional IRAs. Nor may you use distributions from an IRA for required distributions from a Roth IRA.

J. ELIGIBILITY AND CONTRIBUTIONS FOR ROTH IRAs

1.        Generally, you are eligible to establish or make a contribution to your Roth IRA only if you meet certain income limits. No deduction is allowed for contributions to your Roth IRA. Contributions to your Roth IRA may be made even after you attain age 70 ¹/2.

2.        The maximum aggregate amount of contributions for any taxable year to all IRAs, including all Roth IRAs, maintained for your benefit (the “contribution limit”) generally is the lesser of (1) 100% of your compensation includible in gross income, or (2) the maximum annual contributions under Section 219(b) of the Code, including “catchup” contributions for certain individuals age 50 and older (as discussed in section D, above).

The contribution limit for any taxable year is reduced (but not below zero) by the amount which bears the same ratio to such amount as:

• the excess of (i) your adjusted gross income for the taxable year, over (ii) the “applicable dollar amount,” bears to $15,000 (or $10,000 if you are married).

For this purpose, “adjusted gross income” is determined in accordance with Section 219(g)(3) of the Code and (1) excludes any amount included in gross income as a result of any rollover from, transfer from, or conversion of an IRA to a Roth IRA, and (2) is reduced by any deductible IRA contribution. In addition, the “applicable dollar amount” is equal to $169,000 for a married individual filing a joint return, $0 for a married individual filing a separate return, and $107,000 for any other individual.

A “qualified rollover contribution” (discussed in section K, below), and a non-taxable transfer from another Roth IRA, are not taken into account for purposes of determining the contribution limit.

K. ROLLOVERS, TRANSFERS AND CONVERSIONS TO ROTH IRAs

1.        Rollovers and Transfers—A rollover may be made to a Roth IRA only if it is a “qualified rollover contribution.” A “qualified rollover contribution” is a rollover to a Roth IRA from another Roth IRA or from an IRA or other Qualified Plan, but only if such rollover contribution also meets the rollover requirements for IRAs under Section 408(d)(3). In addition, a transfer may be made to a Roth IRA directly from another Roth IRA or from an IRA.

The rollover requirements of Section 408(d)(3) are complex and should be carefully considered before you make a rollover. One of the requirements is that the amount received be paid into another IRA (or Roth IRA) within 60 days after receipt of the distribution. The failure to satisfy this 60-day requirement may be waived by

B-6

the Internal Revenue Service in certain circumstances. In addition, a rollover contribution from a Roth IRA may be made by you only once a year. The one-year period begins on the date you receive the Roth IRA distribution, not on the date you roll it over (reinvest it) into another Roth IRA. If you withdraw assets from a Roth IRA, you may roll over part of the withdrawal tax-free into another Roth IRA and keep the rest of it. A portion of the amount you keep may be included in your gross income.

2.        Taxation of Rollovers and Transfers to Roth IRAs—A qualified rollover contribution or transfer from a Roth IRA maintained for your benefit to another Roth IRA maintained for your benefit which meets the rollover requirements for IRAs under Section 408(d)(3) is tax-free.

In the case of a qualified rollover contribution or a transfer from an IRA maintained for your benefit to a Roth IRA maintained for your benefit, any portion of the amount rolled over or transferred which would be includible in your gross income were it not part of a qualified rollover contribution or a nontaxable transfer will be includible in your gross income. However, Code Section 72(t) (relating to the 10% penalty tax on premature distributions) will generally not apply unless the amounts rolled over or transferred are withdrawn within the five-year period beginning with the taxable year in which such contribution was made.

3.        Transfers of Excess IRA Contributions to Roth IRAs—If, before the due date of your federal income tax return for any taxable year (not including extensions), you transfer, from an IRA, contributions for such taxable year (and earnings thereon) to a Roth IRA, such contributions will not be includible in gross income to the extent that no deduction was allowed with respect to such amount.

4.        Taxation of Conversions of IRAs to Roth IRAs—All or part of amounts in an IRA maintained for your benefit may be converted into a Roth IRA maintained for your benefit. A conversion typically will result in the inclusion of some or all of your IRA’s value in gross income, as described above.

A conversion of an IRA to a Roth IRA can be made without taking an actual distribution from your IRA. For example, an individual may make a conversion by notifying the IRA issuer or trustee, whichever is applicable.

UNDER SOME CIRCUMSTANCES, IT MIGHT NOT BE ADVISABLE TO ROLLOVER, TRANSFER, OR CONVERT ALL OR PART OF AN IRA TO A ROTH IRA. WHETHER YOU SHOULD DO SO WILL DEPEND ON YOUR PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING, BUT NOT LIMITED TO, SUCH FACTORS AS WHETHER YOU QUALIFY TO MAKE SUCH A ROLLOVER, TRANSFER, OR CONVERSION, YOUR FINANCIAL SITUATION, AGE, CURRENT AND FUTURE INCOME NEEDS, YEARS TO RETIREMENT, CURRENT AND FUTURE TAX RATES, YOUR ABILITY AND DESIRE TO PAY CURRENT INCOME TAXES WITH RESPECT TO AMOUNTS ROLLED OVER, TRANSFERRED, OR CONVERTED, AND WHETHER SUCH TAXES MIGHT NEED TO BE PAID WITH WITHDRAWALS FROM YOUR ROTH IRA (SEE DISCUSSION BELOW OF “NONQUALIFIED DISTRIBUTIONS”). YOU SHOULD CONSULT A QUALIFIED TAX ADVISER BEFORE ROLLING OVER, TRANSFERRING, OR CONVERTING ALL OR PART OF AN IRA TO A ROTH IRA.

5.        Separate Roth IRAs—Due to the complexity of, and proposed changes to, the tax law, it may be advantageous to maintain amounts rolled over, transferred, or converted from an IRA in separate Roth IRAs from those containing regular Roth IRA contributions. These considerations should be balanced against the additional costs you may incur from maintaining multiple Roth IRAs. You should consult your tax adviser if you intend to contribute rollover, transfer, or conversion amounts to your Contract, or if you intend to roll over or transfer amounts from your Contract to another Roth IRA maintained for your benefit.

B-7

L. INCOME TAX CONSEQUENCES OF ROTH IRAs

1.        Qualified Distributions—Any “qualified distribution” from a Roth IRA is excludible from gross income. A “qualified distribution” is a payment or distribution which satisfies two requirements. First, the payment or distribution must be (a) made after you attain age 59 ¹/2, (b) made after your death, (c) attributable to your being disabled, or (d) a “qualified special purpose distribution” (i.e., a qualified first-time homebuyer distribution under Section 72(t)(2)(F) of the Code). Second, the payment or distribution must be made in a taxable year that is at least five years after (1) the first taxable year for which a contribution was made to any Roth IRA established for you, or (2) in the case of a rollover from, or a conversion of, an IRA to a Roth IRA, the taxable year in which the rollover or conversion was made if the payment or distribution is allocable (as determined in the manner set forth in guidance issued by the IRS) to the rollover contribution or conversion (or to income allocable thereto).

2.        Nonqualified Distributions—A distribution from a Roth IRA which is not a qualified distribution is taxed under Section 72 (relating to annuities), except that such distribution is treated as made first from contributions to the Roth IRA to the extent that such distribution, when added to all previous distributions from the Roth IRA, does not exceed the aggregate amount of contributions to the Roth IRA. For purposes of determining the amount taxed, (a) all Roth IRAs established for you will be treated as one contract, (b) all distributions during any taxable year from Roth IRAs established for you will be treated as one distribution, and (c) the value of the contract, income on the contract, and investment in the contract, if applicable, will be computed as of the close of the calendar year in which the taxable year begins.

An additional tax of 10% is imposed on nonqualified distributions (including amounts deemed distributed as the result of a prohibited loan or use of your Roth IRA as security for a loan) made before the benefited individual has attained age 59 ¹/2, unless one of the exceptions discussed in Section N applies.

M. TAX ON EXCESS CONTRIBUTIONS

1.        You must pay a 6% excise tax each year on excess contributions that remain in your Contract. Generally, an excess contribution is the amount contributed to your Contract that is more than you can contribute. The excess is taxed for the year of the excess contribution and for each year after that until you correct it.

If contributions to your IRA for a year are more than the contribution limit, you can apply the excess contribution in one year to a later year if the contributions for that later year are less than the maximum allowed for that year.

2.        You will not have to pay the 6% excise tax if you withdraw the excess amount by the date your tax return is due including extensions for the year of the contribution. You do not have to include in your gross income an excess contribution that you withdraw from your Contract before your tax return is due if the income earned on the excess was also withdrawn and no deduction was allowed for the excess contribution. You must include in your gross income the income earned on the excess contribution.

N. TAX ON PREMATURE DISTRIBUTIONS

There is an additional tax on premature distributions from your IRA, Roth IRA, or SIMPLE IRA, equal to 10% of the taxable amount. For premature distributions from a SIMPLE IRA made within the first two years you participate in a SIMPLE plan, the additional tax is equal to 25% of the amount of the premature distribution that

B-8

must be included in gross income. Premature distributions are generally amounts you withdraw before you are age 59 ¹/2. However, the tax on premature distributions does not apply generally:

1.        To amounts that are rolled over or transferred tax-free;

2.        To a distribution that is made on or after your death, or on account of you being disabled within the meaning of Code Section 72(m)(7);

3.        To a distribution that is part of a series of substantially equal periodic payments (made at least annually) over your life or your life expectancy or the joint life or joint life expectancy of you and your beneficiary; or

4.        To a distribution that is used for qualified first-time homebuyer expenses, qualified higher education expenses, certain medical expenses, by an unemployed individual to pay health insurance premiums, or a qualified reservist as a qualified reservist distribution.

O. EXCISE TAX REPORTING

Use Form 5329, Additional Taxes Attributable to Qualified Retirement Plans (Including IRAs), Annuities, and Modified Endowment Contracts, to report the excise taxes on excess contributions, premature distributions, and excess accumulations. If you do not owe any IRA, SIMPLE IRA or Roth IRA excise taxes, you do not need Form 5329. Further information can be obtained from any district office of the Internal Revenue Service.

P. BORROWING

If you borrow money against your Contract or use it as security for a loan, the Contract will lose its classification as an IRA, Roth IRA, or SIMPLE IRA, whichever is applicable, and you must include in gross income the fair market value of the Contract as of the first day of your tax year. In addition, you may be subject to the tax on premature distributions described above. (Note: This Contract does not allow borrowings against it, nor may it be assigned or pledged as collateral for a loan.)

Q. REPORTING

We will provide you with any reports required by the Internal Revenue Service.

R. ESTATE TAX

Generally, the value of your IRA, including your Roth IRA, is included in your gross estate for federal estate tax purposes.

S. FINANCIAL DISCLOSURE

If contributions to the Contract are made by other than rollover contributions and direct transfers, the following information based on the charts shown on the next pages, which assumes you were to make a level

B-9

contribution to the fixed account at the beginning of each year of $1,000 must be completed prior to your signing the enrollment application.

End of Year	Lump Sum Termination Value of Contract*	At Age		Lump Sum Termination Value of Contract*
1			60
2			65
3			70
4
5

If contributions to the Contract are made by rollover contributions and/or direct transfers, the following information, based on the charts shown on the next page, and all of which assumes you make one contribution to the fixed account of $1,000 at the beginning of this year, must be completed prior to your signing the enrollment application.

End of Year	Lump Sum Termination Value of Contract*	At Age		Lump Sum Termination Value of Contract*
1			60
2			65
3			70
4
5

^*  Includes applicable withdrawal charges as described in Item T below.

T. FINANCIAL DISCLOSURE FOR THE SEPARATE ACCOUNT (VARIABLE ACCOUNT)

1.         If on the enrollment application you indicated an allocation to a Subaccount or if you transfer Contract Value to a Subaccount, a daily charge of an amount which will equal an aggregate of 1.40% per annum will be assessed against Separate Account Value.

2.         An annual records maintenance charge of $30.00 will be assessed ratably each quarter against the Separate Account, Fixed Account and Guarantee Periods.

3.         Withdrawal (early annuitization) charges will be assessed based on the years elapsed since the Purchase Payments (in a given Contract Year) were received by ZALICO; under one year, 7%; over one to two years, 6%; over two to three years, 5%; over three to four years, 5%; over four to five years, 4%; over five to six years, 3%; over six to seven years, 2%; over seven years and thereafter, 0%.

4.         The method used to compute and allocate the annual earnings is contained in the Prospectus under the heading “Accumulation Unit Value.”

5.         The growth in value of your Contract is neither guaranteed nor projected but is based on the investment experience of the Separate Account.

B-10

GUARANTEED LUMP SUM TERMINATION OF DEFERRED FIXED AND VARIABLE ANNUITY COMPLETELY ALLOCATED TO THE GENERAL ACCOUNT WITH 3% GUARANTEED EACH YEAR. (TERMINATION VALUES ARE BASED ON $1,000 ANNUAL CONTRIBUTIONS AT THE BEGINNING OF EACH YEAR.)

End of Year	Termination Values*		End of Year		Termination Values*		End of Year		Termination Values*		End of Year		Termination Values*
1		$937.00		14		$16,798.32		27		$40,421.63		40		$75,113.26
2		1,913.00		15		18,310.91		28		42,642.92		41		78,375.30
3		2,928.90		16		19,868.88		29		44,930.85		42		81,735.20
4		3,976.63		17		21,473.59		30		47,287.42		43		85,195.89
5		5,066.14		18		23,126.44		31		49,714.68		44		88,760.41
6		6,198.41		19		24,828.87		32		52,214.76		45		92,431.86
7		7,374.46		20		26,582.37		33		54,789.84		46		96,213.46
8		8,604.34		21		28,388.49		34		57,442.18		47		100,108.50
9		9,871.11		22		30,248.78		35		60,174.08		48		104,120.40
10		11,175.88		23		32,164.88		36		62,987.94		49		108,252.65
11		12,519.80		24		34,138.47		37		65,886.22		50		112,508.87
12		13,904.03		25		36,171.26		38		68,871.45
13		15,329.79		26		38,265.04		39		71,946.23

GUARANTEED LUMP SUM TERMINATION OF DEFERRED FIXED AND VARIABLE ANNUITY COMPLETELY ALLOCATED TO THE GENERAL ACCOUNT WITH 3% GUARANTEED EACH YEAR. (TERMINATION VALUES ARE BASED ON $1,000 SINGLE PREMIUM.)

End of Year	Termination Values*		End of Year		Termination Values*		End of Year		Termination Values*		End of Year		Termination Values*
1		$937		14		$1,000		27		$1,000		40		$1,000
2		946		15		1,000		28		1,000		41		1,000
3		955		16		1,000		29		1,000		42		1,000
4		955		17		1,000		30		1,000		43		1,000
5		964		18		1,000		31		1,000		44		1,000
6		973		19		1,000		32		1,000		45		1,000
7		982		20		1,000		33		1,000		46		1,000
8		1,000		21		1,000		34		1,000		47		1,000
9		1,000		22		1,000		35		1,000		48		1,000
10		1,000		23		1,000		36		1,000		49		1,000
11		1,000		24		1,000		37		1,000		50		1,000
12		1,000		25		1,000		38		1,000
13		1,000		26		1,000		39		1,000

* Includes applicable withdrawal charges.

B-11

APPENDIX C

CONDENSED FINANCIAL INFORMATION

The following tables of condensed financial information show accumulation unit values for each Subaccount for the period since the Subaccount started operation. An accumulation unit value is the unit we use to calculate the value of your interest in a Subaccount. The accumulation unit values shown in the tables reflect the Separate Account Annual Expenses of 1.40% listed in the “Fee Table” in this Prospectus. The accumulation unit value does not reflect the deduction of charges such as the Record Maintenance Charge that we subtract from your Contract Value by redeeming units. The data used in the tables below is obtained from the audited financial statement of the Separate Account that can be found in the SAI. Please review the condensed financial information in conjunction with the financial statements, related notes, and other financial information included in the SAI. In the tables below, no number is shown when there were fewer than 1,000 accumulation units outstanding at the end of a period.

Selected data for accumulation units outstanding as of the year ended December 31st for each period (reflects Separate Account Annual Expenses of 1.40%):

AIM Variable Insurance Funds: Invesco V.I. Utilities Subaccount (Series I Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	10.135	11.639	1,696
2010	9.667	10.135	1,662
2009	8.529	9.667	1,908
2008	12.786	8.529	2,792
2007	10.748	12.786	3,997
2006	8.686	10.748	4,057
2005	7.538	8.686	3,734
2004	6.186	7.538	2,550
2003	5.340	6.186	1,996
2002	6.796	5.340	1,638

The Alger Portfolios: Alger Balanced Subaccount (Class I-2 Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	12.246	12.081	3,048
2010	11.255	12.246	3,447
2009	8.830	11.255	4,038
2008	13.121	8.830	5,039
2007	11.841	13.121	7,039
2006	11.465	11.841	8,396
2005	10.722	11.465	9,551
2004	10.397	10.722	10,696
2003	8.857	10.397	10,639
2002	10.240	8.857	10,165

^(l)         The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-1

The Alger Portfolios: Alger Capital Appreciation Subaccount (Class I-2 Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	11.866	11.668	4,593
2010	10.552	11.866	4,578
2009	7.081	10.552	5,052
2008	13.088	7.081	6,678
2007	9.939	13.088	9,245
2006	8.450	9.939	8,586
2005	7.487	8.450	8,648
2004	7.017	7.487	9,465
2003	5.281	8.784*	10,008
2002	8.103	5.281	9,225

* The 2003 end of period Accumulation Unit value represents an average of the Accumulation Unit value and the Annuity Unit value at the end of the period. If Accumulation Unit value only had been shown, the Accumulation Unit value at the end of 2003 would have been $7.017. In future periods, only Accumulation Unit value will be shown.

Dreyfus Investment Portfolios: Dreyfus MidCap Stock Subaccount (Initial Share Class)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	15.973	15.815	3,228
2010	12.743	15.973	3,677
2009	9.536	12.743	4,049
2008	16.230	9.536	6,003
2007	16.216	16.230	8,727
2006	15.260	16.216	10,467
2005	14.173	15.260	11,800
2004	12.554	14.173	11,759
2003	9.664	12.554	11,190
2002	11.199	9.664	10,436

Dreyfus Socially Responsible Growth Fund, Inc., Subaccount (Initial Share Class)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	7.793	7.755	374
2010	6.883	7.793	420
2009	5.218	6.883	465
2008	8.069	5.218	565
2007	7.591	8.069	788
2006	7.049	7.591	1,264
2005	6.898	7.049	1,169
2004	6.585	6.898	1,417
2003	5.299	6.585	1,509
2002	7.563	5.299	1,546

^(l)         The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-2

DWS Investments VIT Funds: DWS Equity 500 Index VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (l)
2011	10.515	10.561	6,280
2010	9.296	10.515	7,267
2009	7.462	9.296	8,076
2008	12.039	7.462	10,621
2007	11.595	12.039	15,232
2006	10.177	11.595	17,666
2005	8.699	10.177	19,101
2004	7.991	8.699	25,782
2003	6.334	7.991	25,461
2002	8.270	6.334	23,118

DWS Variable Series I: DWS Bond VIP Subaccount (Class A Shares)(1)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	10.020	10.444	1,419
2010	9.514	10.020	1,488
2009	8.765	9.514	1,542
2008	10.679	8.765	871
2007	10.395	10.679	676
2006	10.066	10.395	298
2005*	10.000	10.066	75

(1) On or about May 1, 2012, DWS Bond VIP acquired DWS Core Fixed Income VIP.

* Commencement of offering on May 2, 2005.

DWS Variable Series I: DWS Capital Growth VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted)(1)
2011	11.538	10.870	17,107
2010	10.024	11.538	13,997
2009	8.012	10.024	16,624
2008	12.123	8.012	17,327
2007	10.919	12.123	24,258
2006	10.201	10.919	29,857
2005	9.493	10.201	18,643
2004	8.914	9.493	5,701
2003	7.124	8.914	5,318
2002	10.201	7.124	4,949

^(l)         The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-3

DWS Variable Series I: DWS Global Small Cap Growth VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	21.976	19.527	3,047
2010	17.596	21.976	3,382
2009	12.039	17.596	3,731
2008	24.400	12.039	5,128
2007	22.631	24.400	7,461
2006	18.797	22.631	8,689
2005	16.127	18.797	8,850
2004	13.257	16.127	7,838
2003	9.017	13.257	7,393
2002	11.412	9.017	7,117

DWS Variable Series I: DWS Core Equity VIP (formerly DWS Growth & Income VIP) Subaccount (Class A Shares)(1)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of  accumulation units outstanding at end of period (000’s omitted) (l)
2011	9.338	9.196	2,425
2010	8.277	9.338	2,674
2009	6.257	8.277	3,106
2008	10.285	6.257	4,077
2007	10.290	10.285	5,894
2006	9.182	10.290	7,235
2005	8.778	9.182	8,612
2004	8.080	8.778	5,555
2003	6.464	8.080	5,681
2002	8.527	6.464	5,647

(1) DWS Growth & Income acquired DWS Blue Chip VIP on or about May 1, 2012.

DWS Variable Series I: DWS Health Care VIP Subaccount (Class A Shares)*
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (l)
2011	13.882	N/A	N/A
2010	13.015	13.882	2,229
2009	10.801	13.015	2,578
2008	14.262	10.801	3,921
2007	12.776	14.262	5,172
2006	12.202	12.776	6,151
2005	11.403	12.202	6,994
2004	10.551	11.403	7,279
2003	8.002	10.551	7,056
2002	10.551	8.002	6,232

* Effective May 1, 2011, DWS Health Care VIP merged into DWS Capital Growth VIP, pursuant to shareholder approval on April 11, 2011.

⁽¹⁾        The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-4

DWS Variable Series I: DWS International VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	9.967	8.190	3,464
2010	9.945	9.967	3,837
2009	7.552	9.945	4,471
2008	14.789	7.552	6,444
2007	13.088	14.789	9,517
2006	10.540	13.088	10,753
2005	9.199	10.540	10,915
2004	8.005	9.199	10,684
2003	6.354	8.005	10,652
2002	7.892	6.354	10,313

DWS Variable Series II: DWS Blue Chip VIP Subaccount (Class A Shares)*
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (I)
2011	12.130	11.902	4,178
2010	10.811	12.130	4,693
2009	8.183	10.811	5,497
2008	13.491	8.183	7,475
2007	13.218	13.491	10,990
2006	11.590	13.218	12,986
2005	10.677	11.590	13,710
2004	9.330	10.677	14,410
2003	7.435	9.330	14,179
2002	9.680	7.435	9,733

* DWS Growth & Income acquired DWS Blue Chip VIP on or about May 1, 2012. Effective May 1, 2012, DWS Growth & Income VIP changed its name to DWS Core Equity VIP.

DWS Variable Series II: DWS Core Fixed Income VIP Subaccount (Class A Shares)*
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (l)
2011	12.239	12.844	2,575
2010	11.651	12.239	2,970
2009	10.968	11.651	3,418
2008	13.786	10.968	4,232
2007	13.420	13.786	5,574
2006	13.052	13.420	5,807
2005	12.943	13.052	5,880
2004	12.556	12.943	6,170
2003	12.110	12.556	6,697
2002	11.369	12.110	6,990

* On or about May 1, 2012, DWS Bond VIP acquired DWS Core Fixed Income VIP.

⁽¹⁾        The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-5

DWS Variable Series II: DWS Global Income Builder VIP (formerly DWS Balanced VIP Subaccount) (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	12.035	11.700	3,259
2010	10.971	12.035	3,718
2009	9.013	10.971	4,218
2008	12.577	9.013	5,515
2007	12.165	12.577	7,454
2006	11.189	12.165	8,791
2005	10.878	11.189	10,111
2004	10.329	10.878	10,863
2003	8.880	10.329	11,274
2002	10.615	8.880	11,368

DWS Variable Series II: DWS Diversified International Equity VIP Subaccount (Class A Shares)*
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	11.438	9.919	2,921
2010	10.455	11.438	3,077
2009	8.196	10.455	3,418
2008	16.236	8.196	5,438
2007	14.107	16.236	7,666
2006	11.392	14.107	7,838
2005	10.087	11.392	7,765
2004	8.650	10.087	7,008
2003	6.756	8.650	5,691
2002	7.918	6.756	4,842

DWS Variable Series II: DWS Dreman Small Mid Cap Value VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (l)
2011	21.518	19.931	3,939
2010	17.729	21.518	4,456
2009	13.860	17.729	5,151
2008	21.110	13.860	7,809
2007	20.772	21.110	12,839
2006	16.841	20.772	15,122
2005	15.489	16.841	16,286
2004	12.462	15.489	16,463
2003	8.897	12.462	14,637
2002	10.177	8.897	12,826

⁽¹⁾        The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-6

DWS Variable Series II: DWS Global Thematic VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	16.044	13.547	2,156
2010	14.314	16.044	2,422
2009	10.092	14.314	2,753
2008	19.587	10.092	3,794
2007	18.686	19.587	5,496
2006	14.559	18.686	5,030
2005	12.007	14.559	3,685
2004	10.609	12.007	2,996
2003	8.331	10.609	2,916
2002	10.029	8.331	2,745

DWS Variable Series II: DWS Government & Agency Securities VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	16.470	17.456	3,704
2010	15.665	16.470	3,822
2009	14.697	15.665	4,091
2008	14.202	14.697	6,075
2007	13.593	14.202	5,132
2006	13.232	13.593	5,570
2005	13.080	13.232	6,211
2004	12.784	13.080	6,585
2003	12.676	12.784	7,918
2002	11.896	12.676	12,527

DWS Variable Series II: DWS High Income VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted) (1)
2011	15.352	15.721	3,442
2010	13.655	15.352	4,259
2009	9.891	13.655	4,588
2008	13.186	9.891	4,730
2007	13.245	13.186	6,436
2006	12.157	13.245	8,060
2005	11.866	12.157	9,092
2004	10.703	11.866	10,449
2003	8.709	10.703	11,164
2002	8.857	8.709	8,371

⁽¹⁾        The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-7

DWS Variable Series II: DWS Large Cap Value VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted)(1)
2011	14.052	13.849	15,408
2010	12.863	14.052	7,789
2009	10.404	12.863	9,113
2008	16.587	10.404	4.713
2007	14.866	16.587	5,986
2006	13.061	14.866	7,036
2005	12.988	13.061	8,028
2004	11.965	12.988	8,972
2003	9.150	11.965	8,446
2002	10.913	9.150	7,780

DWS Variable Series II: DWS Mid Cap Growth VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at  end of period (000’s omitted)(1)
2011	10.812	N/A	N/A
2010	8.568	10.812	1,554
2009	6.072	8.568	1,658
2008	12.324	6.072	1,905
2007	11.534	12.324	2,841
2006	10.540	11.534	3,091
2005	9.290	10.540	3,549
2004	9.066	9.290	3,662
2003	6.853	9.772 *	3,913
2002	10.022	6.853	4,070

* The 2003 end of period Accumulation Unit value represents an average of the Accumulation Unit value and the Annuity Unit value at the end of the period. If Accumulation Unit value only had been shown, the Accumulation Unit value at the end of 2003 would have been $9.066. In future periods, only Accumulation Unit value will be shown.

DWS Variable Series II: DWS Money Market VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at  end of period (000’s omitted)(1)
2011	11.966	11.802	6,370
2010	12.132	11.966	5,223
2009	12.261	12.132	7,729
2008	12.114	12.261	14,070
2007	11.700	12.114	11,917
2006	11.337	11.700	9,082
2005	11.181	11.337	8,700
2004	11.235	11.181	8,764
2003	11.311	11.235	11,843
2002	11.315	11.311	18,002

⁽¹⁾         The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-8

DWS Variable Series II: DWS Small Mid Cap Growth VIP Subaccount (Class A Shares)
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at  end of period (000’s omitted)(1)
2011	8.657	8.204	9,598
2010	6.782	8.657	4,235
2009	4.891	6.782	5,003
2008	9.822	4.891	6,535
2007	9.378	9.822	8,837
2006	9.033	9.378	10,840
2005	8.555	9.033	12,543
2004	7.813	8.555	10,299
2003	5.959	7.813	10,075
2002	9.082	5.959	8,221

DWS Variable Series II: DWS Unconstrained Income VIP (formerly DWS Strategic Income VIP Subaccount) (Class A Shares)*
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at  end of period (000’s omitted)(1)
2011	17.675	18.357	2,263
2010	16.286	17.675	2,507
2009	13.455	16.286	2,677
2008	14.790	13.455	3,425
2007	14.225	14.790	4,290
2006	13.235	14.225	3,567
2005	13.108	13.235	2,848
2004	12.239	13.108	2,294
2003	11.507	12.239	2,269
2002	10.483	11.507	2,105

* Effective on or about September 22, 2011, DWS Strategic Income VIP changed its name to DWS Unconstrained Income VIP.

DWS Variable Series II: DWS Strategic Value VIP Subaccount (Class A Shares)*
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted)(1)
2011	12.366	N/A	N/A
2010	11.143	12.366	11,908
2009	9.018	11.143	14,241
2008	16.929	9.018	21,151
2007	17.493	16.929	31,241
2006	14.938	17.493	37,022
2005	14.036	14.938	35,320
2004	12.479	14.036	35,325
2003	9.591	12.479	34,780
2002	11.865	9.591	32,960

* Effective May 1, 2011, DWS Strategic Value VIP merged into DWS Large Cap Value VIP, pursuant to shareholder approval on April 11, 2011.

⁽¹⁾        The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-9

DWS Variable Series II: DWS Technology VIP Subaccount (Class A Shares)*
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted)(1)
2011	9.439	N/A	N/A
2010	8.066	9.439	4,572
2009	5.099	8.066	5,491
2008	9.614	5.099	6,909
2007	8.529	9.614	10,093
2006	8.584	8.529	12,562
2005	8.390	8.584	14,667
2004	8.347	8.390	16,401
2003	5.773	8.347	17,585
2002	9.079	5.773	24,909

* Effective May 1, 2011, DWS Technology VIP (DWS Variable Series II) merged into DWS Capital Growth VIP (DWS Variable Series I), pursuant to shareholder approval on April 11, 2011.

DWS Variable Series II: DWS Turner Mid Cap Growth VIP Subaccount (Class A Shares)*
	Accumulation unit value at beginning of period	Accumulation unit value at end of period	Number of accumulation units outstanding at end of period (000’s omitted)(1)
2011	12.611	N/A	N/A
2010	9.913	12.611	3,490
2009	6.701	9.913	3,818
2008	13.453	6.701	5,865
2007	10.849	13.453	7,910
2006	10.327	10.849	8,696
2005	9.369	10.327	9,411
2004	8.556	9.369	10,137
2003	5.842	8.556	9,948
2002	8.748	5.842	7,947

* Effective May 1, 2011, DWS Turner Mid Cap Growth VIP merged into DWS Small Mid Cap Growth VIP (formerly DWS Small Cap Growth VIP), pursuant to shareholder approval on April 11, 2011.

⁽¹⁾        The number of accumulation units outstanding at the end of 2004 and the years thereafter include only Accumulation Units that correspond to Contracts in their Accumulation Period. The number of accumulation units outstanding at the end of prior periods may include Annuity Units that correspond to Contracts in their Annuity Period.

C-10

STATEMENT OF ADDITIONAL INFORMATION

May 1, 2012

INDIVIDUAL AND GROUP VARIABLE, FIXED AND MARKET VALUE

ADJUSTED DEFERRED ANNUITY CONTRACTS

SCUDDER DESTINATIONS^SM ANNUITY

and

FARMERS VARIABLE ANNUITY I

Issued By

ZURICH AMERICAN LIFE INSURANCE COMPANY

(formerly Kemper Investors Life Insurance Company)

and

ZALICO VARIABLE ANNUITY SEPARATE ACCOUNT

(formerly KILICO Variable Annuity Separate Account)

HOME OFFICE: 1400 American Lane, Schaumburg, Illinois 60196

SERVICE CENTER: Scudder Destinations^SM Service Team, PO Box, 19097, Greenville, SC 29602-9097

Phone: 1-800-449-0523 (toll-free)

Website: www.zurichamericanlifeinsurance.com (formerly www.kemperinvestors.com)

This Statement of Additional Information is not a prospectus. This Statement of Additional Information should be read in conjunction with the Prospectus for the Scudder Destinations^SM Annuity dated May 1, 2012 and with the Prospectus for the Farmers Variable Annuity I dated May 1, 2005 (the Scudder Destinations^SM Annuity and the Farmers Variable Annuity are each referred to herein as a “Contract” and together, the “Contracts”). The Prospectuses may be obtained from Zurich American Life Insurance Company (“ZALICO” or “us”) by contacting the Service Center at the address, website, or telephone number listed above.

TABLE OF CONTENTS

Page  

SPECIAL CONSIDERATIONS	2
SERVICES TO THE SEPARATE ACCOUNT	2
VOTING RIGHTS	4
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS	4
STATE REGULATION	4
LEGAL MATTERS	5
EXPERTS	5
FINANCIAL STATEMENTS	5
APPENDIX A STATE AND LOCAL GOVERNMENT PREMIUM TAX CHART	A-1
APPENDIX F INDEX TO FINANCIAL STATEMENTS	F-1

SPECIAL CONSIDERATIONS

We reserve the right to amend the Contract to meet the requirements of federal or state laws or regulations. We will notify you in writing of these amendments.

Your rights under a Contract may be assigned as provided by law. An assignment will not be binding upon us until we receive a written copy of the assignment. You are solely responsible for the validity or effect of any assignment. You, therefore, should consult a qualified tax adviser regarding the tax consequences, as an assignment may be a taxable event.

SERVICES TO THE SEPARATE ACCOUNT

Recordkeepers and Independent Registered Public Accounting Firm for the ZALICO Variable Annuity Separate Account

Effective September 3, 2003 (the “Closing Date”), ZALICO transferred certain of its business, as well as the capital stock of its wholly-owned subsidiaries, to its former affiliate, Federal Kemper Life Assurance Company (“FKLA”). In a contemporaneous transaction, FKLA and ZALICO entered into a coinsurance agreement under which FKLA administers the business and the records of, and 100% reinsures, certain lines of business issued by ZALICO, including certain registered variable annuity contracts that are funded through the ZALICO Variable Annuity Separate Account (the “Separate Account”). These transfers were part of a larger transaction under which the capital stock of FKLA was sold to Bank One Insurance Holdings, Inc. (“Bank One”). On July 1, 2004, Bank One merged into JP Morgan Chase & Co., and FKLA changed its name to Chase Insurance Life and Annuity Company (“Chase Insurance”).

On July 3, 2006, Protective Life Insurance Company of Birmingham, Alabama (“Protective Life”), purchased Chase Insurance from JP Morgan Chase & Co. Effective April 1, 2007, Chase Insurance merged with and into Protective Life. Protective Life has reinsured 100% of the variable annuity business of Chase Insurance to Commonwealth Annuity and Life Insurance Company (formerly Allmerica Financial Life Insurance and Annuity Company), a subsidiary of The Goldman Sachs Group, Inc.

These acquisitions, transfers and the coinsurance agreement do not relate directly to the Contracts, although certain other contracts issued by ZALICO that are administered by Protective Life are supported by the Separate Account. Your rights and benefits and our obligations under the Contracts are not changed by these transactions and agreements.

As required by law, ZALICO is responsible for the maintenance of the books and records of the Separate Account, and it has outsourced the recordkeeping function to its third party administrator, IBM Outsourcing (see below), and Protective Life. ZALICO owns the assets of the Separate Account.

The independent registered public accounting firm for the Separate Account and ZALICO is PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, New York 10017 for the years ended December 31, 2011, 2010 and 2009 The firm has performed the annual audit of the financial statements of the Separate Account and ZALICO for the years ended December 31, 2011, 2010 and 2009.

Third Party Administrator

ZALICO has entered into an Insurance Administrative Services Agreement (the “Agreement”) with IBM Business Transformation Outsourcing Insurance Service Corporation (“IBM Outsourcing”), a corporation organized and existing under the laws of South Carolina. The Agreement, as amended, is included as an exhibit to the Registration Statement for the Contracts. IBM Outsourcing has its principal business address at 2000 Wade Hampton Boulevard, Greenville, South Carolina 29615-1064. Under the Agreement, IBM Outsourcing, provides,

2

at the Contact Center, significant administrative services for the Contracts and the Separate Account, including the processing of all Purchase Payments, requests for transfers, partial withdrawals, and surrenders, and the calculation of accumulation unit values for each Contract and the Separate Account.

Distribution of the Contracts

Upon approval by the Illinois Department of Insurance, anticipated in or about May, 2012, ZALICO will enter into a Principal Underwriter Agreement with BFP Securities, LLC (“BFPS”), and BFPS will begin serving as principal underwriter for the Contracts. BFPS’ home office is located at 6 CityPlace, Suite 400, St. Louis, MO 63141. Zurich Benefit Finance LLC and Bancorp Services, L.L.C. each own a 50% interest in Benefit Finance Partners, LLC. Benefit Finance Partners, LLC owns 100% of BFP Securities. Zurich Benefit Finance LLC and ZALICO have the same ultimate corporate parent. BFPS is registered as a broker-dealer with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934, as amended, as well as with the securities commissions in the states in which it operates, and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

Synergy Investment Group, LLC (“Synergy”), located at 8320 University Executive Park Drive, Suite 112, NC 28262, currently serves as principal underwriter for the Contracts. Upon approval by the Illinois Department of Insurance, anticipated in or about May, 2012, ZALICO will terminate its Principal Underwriting Agreement with Synergy and Synergy will assign all selling group agreements pertaining to the Contracts to BFPS.

The Contracts are no longer offered for sale to the public.

The selling firms that have selling agreements with Synergy or its predecessor are paid commissions for the promotion and sale of the Contracts according to one or more schedules. The amount and timing of commissions varies depending on the selling agreement, but the maximum commission paid to selling firms is 6.75% of additional Purchase Payments, plus a trail commission option of up to 1.00% of additional Purchase Payments paid quarterly on Purchase Payments that have been held in the Contract for at least twelve months. During 2010 and 2009, ZALICO paid gross commissions on additional Purchase Payments of approximately $0.5 million and $1.9 million, respectively, to selling firms on behalf of Synergy’s predecessor, Investment Brokerage Services, Inc. (“IBS”), and paid trail commissions of approximately $2.7 million and $10.9 million, respectively, to selling firms on behalf of IBS. During 2011 and 2010, ZALICO paid gross commissions on additional Purchase Payments of approximately $1.1 and $1.1 million, respectively, to selling firms on behalf of Synergy and paid trail commissions of approximately $8.0 million and $11.3 million, respectively, to selling firms on behalf of Synergy. Neither Synergy nor IBS retained any portion of these commissions.

Compensation accrues to Synergy at the rate of $3,500.00 per month. During 2011, ZALICO paid compensation to Synergy in the amount of $42,000.00. Compensation will accrue to BFPS at the rate of $3,500.00 per month when BFPS begins serving as principal underwriter for the Contracts.

3

During 2011, the top ten (10) selling firms received commissions from ZALICO as follows:

Selling Firm	Commission Amount
Huckin Financial Group, Inc.	$	189,477.62
Raymond James	$	186,281.31
LINSCO/Private Ledger Financial Services	$	110,582.73
HD Vest Insurance Agency, LLC	$	87,163.33
WS Insurance Services LLC	$	78,456.98
Centaurus Financial, Inc.	$	68,667.94
H Beck, Inc.	$	44,820.86
Lincoln Financial Advisors	$	35,736.56
NFP Securities, Inc.	$	35,624.67
Signator Investors, Inc	$	34,724.96

VOTING RIGHTS

Proxy materials in connection with any Fund shareholder meeting are delivered to each Owner with Subaccount interests invested in the Fund as of the record date. Proxy materials include a voting instruction form. We vote all Fund shares proportionately in accordance with instructions received from Owners. We will also vote any Fund shares attributed to amounts we have accumulated in the Subaccounts in the same proportion that Owners vote.

A Fund is not required to hold annual shareholders’ meetings. Funds hold special meetings as required or deemed desirable for such purposes as electing trustees, changing fundamental policies or approving an investment advisory agreement.

Owners have voting rights in a Fund or Portfolio based upon the Owner’s proportionate interest in the corresponding Subaccount as measured by units. Owners have voting rights before surrender, the Annuity Date or the death of the Annuitant. Thereafter, the Annuitant entitled to receive Variable Annuity payments has voting rights. During the Annuity Period, Annuitants’ voting rights decrease as Annuity Units decrease.

SAFEKEEPING OF SEPARATE ACCOUNT ASSETS

We hold title to the assets of the Separate Account. The assets are kept physically segregated and held separate and apart from our general account assets and from the assets in any other separate account. We and our agents, IBM Outsourcing and Protective Life, maintain the records of all purchases and redemptions of portfolio shares held by each of the Subaccounts. Fidelity insurance coverage for the assets of the Separate Account is provided by a Form 25 Bond issued by Liberty Mutual Insurance Company providing aggregate coverage of $9.5 million (subject to a $500,000 each loss deductible) for Zurich Holding Company of America and its subsidiaries, including ZALICO.

STATE REGULATION

ZALICO is subject to the laws of Illinois governing insurance companies and to regulation by the Illinois Department of Insurance. An annual statement in a prescribed form is filed with the Illinois Department of Insurance each year. ZALICO's books and accounts are subject to review by the Department of Insurance at all times, and a full examination of its operations is conducted periodically. In addition, ZALICO is subject to regulation under the insurance laws of other jurisdictions in which it may operate.

4

LEGAL MATTERS

Legal matters with respect to our organization, our authority to issue annuity contracts and the validity of the Contract have been passed upon by Juanita M. Thomas, Esq., Senior Assistant General Counsel. Jorden Burt LLP of Washington, D.C., has provided advice on certain matters relating to the federal securities laws.

EXPERTS

The statutory financial statements and schedules of Zurich American Life Insurance Company as of December 31, 2011 and 2010 and for each of the three years ended December 31, 2011 (prepared in conformity with accounting practices prescribed or permitted by the Illinois Department of Financial and Professional Regulations—Division of Insurance) and the U.S. GAAP statement of assets, liabilities, and contract owners' equity of ZALICO Variable Annuity Separate Account as of December 31, 2011 and the related statement of operations for the year then ended and the statement of changes in contract owners' equity for each of periods presented included in the Statement of Additional Information, have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

FINANCIAL STATEMENTS

This Statement of Additional Information contains financial statements for ZALICO and the Separate Account. The financial statements of ZALICO should be considered primarily as bearing on our ability to meet our obligations under the Contract. The Contracts are not entitled to participate in our earnings, dividends or surplus. The financial statements for the Separate Account reflect assets attributable to the Contracts and also assets attributable to other variable annuity contracts offered by ZALICO through the Separate Account.

5

APPENDIX A

STATE AND LOCAL GOVERNMENT PREMIUM TAX CHART

	Rate of Tax
State	Qualified Plans		Non-Qualified Plans
California*		0.50%		2.35%
Maine**		—		2.00%
Nevada*		—		3.50%
South Dakota**		—		1.25%	***
West Virginia**		1.00%		1.00%
Wyoming**		—		1.00%

* In California and Nevada, we pay premium taxes when you annuitize your Contract. We deduct the amount of the premium tax payable from your Contract Value (if you annuitize under the standard feature in your Contract) or from your GRIB Base (if you annuitize under the GRIB rider). We will take this deduction at the time of annuitization of your Contract.

** In Maine, South Dakota, West Virginia, and Wyoming, we pay premium taxes at the time we receive a Purchase Payment from you. In those four states, we reserve the right to deduct the amount of the premium tax payable from your Contract Value at the time we receive your Purchase Payment.

*** In South Dakota, we pay a 1.25% premium tax on the first $500,000 for each Non-Qualified Plan Contract and a 0.08% premium tax on any premium amount thereafter.

A-1

APPENDIX F

INDEX TO FINANCIAL STATEMENTS

Zurich American Life Insurance Company

Report of Independent Auditors

Statutory Statements of Admitted Assets, Liabilities, and Capital and Surplus as of December 31, 2011 and 2010

Statutory Statements of Operations For the Years Ended December 31, 2011, 2010 and 2009

Statutory Statements of Changes in Capital and Surplus for the Years Ended December 31, 2011, 2010 and 2009

Statutory Statements of Cash Flows For the Years Ended December 31, 2011, 2010 and 2009

Notes to Financial Statements

Supplemental Schedule of Assets and Liabilities as of December 31, 2011 and For the Year Then Ended

Supplemental Summary Investment Schedule and Investment Risk Interrogatories as of December 31, 2011 and for the Year Then Ended

ZALICO Variable Annuity Separate Account

Report of Independent Registered Public Accounting Firm

Statement of Assets, Liabilities and Contract Owners’ Equity, December 31, 2011

Statement of Operations for the year ended December 31, 2011

Statement of Changes in Contract Owners’ Equity for the year ended December 31, 2011

Statement of Changes in Contract Owners’ Equity for the year ended December 31, 2010

Notes to Financial Statements

F-1

Zurich American Life

Insurance Company

Statutory Financial Statements and

Supplemental Schedules

December 31, 2011, 2010 and 2009

Zurich American Life Insurance Company

Index

December 31, 2011, 2010 and 2009

	Page(s)
Report of Independent Auditors		1-2
Statutory Financial Statements
Statements of Admitted Assets, Liabilities and Capital and Surplus		3
Statements of Operations		4
Statements of Changes in Capital and Surplus		5
Statements of Cash Flows		6
Notes to Financial Statements		7-45
Supplemental Schedules
Supplemental Schedule of Assets and Liabilities		47-48
Supplemental Summary Investment Schedule		49
Supplemental Investment Risks Interrogatories		50-52

Report of Independent Auditors

To the Board of Directors and Stockholder of

Zurich American Life Insurance Company

We have audited the accompanying statutory statements of admitted assets, liabilities and capital and surplus of Zurich American Life Insurance Company (the “Company”) as of December 31, 2011 and 2010, and the related statutory statements of operations, of changes in capital and surplus and of cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 2 to the financial statements, the Company prepared these financial statements using accounting practices prescribed or permitted by the Illinois Department of Financial and Professional Regulations, Division of Insurance (“IDOI”), which practices differ from accounting principles generally accepted in the United States of America. The effects on the financial statements of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material.

In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the Company as of December 31, 2011 and 2010, or the results of its operations or its cash flows for each of the three years in the period ended December 31, 2011.

In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities and capital and surplus of the Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, on the basis of accounting described in Note 2.

As disclosed in the notes to the financial statements, the Company has significant transactions with Zurich Financial Services and its affiliates. Because of these relationships, it is possible that the terms of the transactions are not the same as those that would result from transactions with wholly unrelated parties.

As discussed in Note 2 to the financial statements, the Company received permission from the IDOI in 1995 to reset its unassigned surplus to zero with an equal and offsetting entry to gross paid-in capital and contributed surplus; under prescribed statutory accounting practices the aforementioned reclassification would not have been recorded. As of December 31, 2011 and 2010, the permitted practice had no impact on statutory surplus.

Our audit was conducted for the purpose of forming an opinion on the basic statutory basis financial statements taken as a whole. The accompanying Supplemental Schedules of Assets and Liabilities, Summary Investment Schedule, and Investment Risks Interrogatories (collectively referred to as the “supplemental schedules”) of the Company as of December 31, 2011 and for the year then ended are presented for purposes of additional analysis and are not a required part of the basic statutory financial

1

statements. The effects on the supplemental schedules of the variances between the statutory basis of accounting and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. As a consequence, the supplemental schedules do not present fairly, in conformity with accounting principles generally accepted in the United States of America, such information of the Company as of December 31, 2011 and for the year then ended. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic statutory basis financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic statutory basis financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

New York, New York

April 25, 2012

2

Zurich American Life Insurance Company

Statutory Statements of Admitted Assets, Liabilities and Capital and Surplus

December 31, 2011, 2010 and 2009

(in thousands of dollars)	2011				2010
Admitted Assets
Cash and invested assets
Fixed Maturities, at amortized cost (fair value of $471,556 and $462,645, respectively)		$	436,652			$	436,763
Investment in subsidiary			21,118				-
Contract loans			64,544				65,909
Cash, cash equivalents and short-term investments			32,359				20,195
Total cash and invested assets			554,673				522,867
Amounts recoverable from reinsurers			24,646				33,983
Other amounts receivable under reinsurance contracts			22,786				17,716
Federal income tax recoverable			-				5,781
Net deferred tax asset			10,846				11,860
Investment income due and accrued			7,381				5,385
Guaranty funds receivable or on deposit			1,078				1,521
Receivable from separate accounts			1,217				17,687
Receivables from parent, subsidiaries and affiliates			381				-
Other assets			302				347
Separate account assets			12,073,782				12,590,999
Total admitted assets		$	12,697,092			$	13,208,146
Liabilities and Capital and Surplus
Liabilities
Life and annuity reserves		$	407,271			$	378,471
Deposit-type funds
Supplemental contracts without life contingencies			5,720				3,126
Claims and benefits payable to policyholders			567				304
Total policy liabilities			413,558				381,901
Interest maintenance reserve			1,114				972
General expenses due or accrued			3,826				3,740
Taxes, licenses and fees due or accrued			22,851				18,265
Federal Income tax payable			1,636				-
Asset valuation reserve			1,150				747
Payable to affiliates			5,774				19,870
Funds held under coinsurance			434				1,727
Commission to agents due or accrued			3,189				3,882
Other liabilities			1,419				1,882
Separate account liabilities			12,073,782				12,590,999
Total liabilities			12,528,733				13,023,985
Capital and surplus
Capital stock ($10 par value – 300,000 authorized shares; 250,000 shares issued and outstanding at 2011 and 2010)			2,500				2,500
Paid-in capital			673,845				673,845
Aggregate write-ins for special surplus funds			6,766				6,649
Unassigned deficit			(514,752	)			(498,832	)
Total capital and surplus			168,359				184,161
Total liabilities and capital and surplus		$	12,697,092			$	13,208,146

The accompanying notes are an integral part of these statutory financial statements.

3

Zurich American Life Insurance Company

Statutory Statements of Operations

Years Ended December 31, 2011, 2010 and 2009

(in thousands of dollars)	2011				2010				2009
Income
Premium and annuity considerations		$	(137,217	)		$	(127,759	)		$	(132,031	)
Considerations for supplemental contracts with life contingencies			43,170				38,495				73,254
Net investment income			23,564				24,605				25,263
Amortization of interest maintenance reserve			6				(128	)			(46	)
Separate accounts fees			327,913				254,862				196,480
Assumed modco reserve adjustment			47,347				26,383				46,609
Separate accounts-related (expenses) income, net			(13	)			922				2,393
Reinsurance ceding commissions and allowances			20,013				20,659				24,057
Ceded miscellaneous fees			(14	)			(117	)			65
Other income			(408	)			(1	)			1,240
Total income			324,361				237,921				237,284
Benefits and Expenses
Death benefits			35,006				38,306				25,707
Annuity benefits			293,233				312,043				646,952
Disability benefits			26				-				-
Surrender benefits			52,244				107,268				718,616
Interest and adjustments on policy or deposit-type contracts			3,583				277				4,933
Payments on supplementary contracts with life contingencies			24,334				32,430				20,720
Increase in aggregate reserves for life policies and contracts			28,808				22,589				21,649
Commissions			22,761				18,011				16,487
Commissions and expense allowances on reinsurance assumed			3,649				5,191				3,635
General expenses			39,527				31,106				20,091
Insurance taxes, licenses and fees			2,884				1,252				482
Net transfers from separate accounts			(346,626	)			(501,048	)			(1,398,044	)
Reinsured fees associated with separate accounts			42,456				45,110				-
Net change in termination value of separate accounts			2,783				2,651				11,177
Ceded change in termination value of separate accounts			(2,757	)			(2,625	)			(2,214	)
Ceded fixed/variable expense			136,879				132,715				131,457
Other expenses			(184	)			1,031				2,375
Total benefits and expenses			338,606				246,307				224,023
Net (loss) income from operations before federal income tax benefit and realized capital gains (losses)			(14,245	)			(8,386	)			13,261
Federal income tax benefit			(7,106	)			(12,477	)			(6,684	)
Net (loss) income from operations before realized capital gains (losses)			(7,139	)			4,091				19,945
Net realized capital gains (losses)			148				(27	)			(4,406	)
Related federal income tax benefits			(495	)			(1,227	)			(998	)
Realized gain (loss) transferred to the interest maintenance reserve			148				516				(868	)
Total realized capital gains (losses)			495				684				(2,540	)
Net (loss) income		$	(6,644	)		$	4,775			$	17,405

The accompanying notes are an integral part of these statutory financial statements.

4

Zurich American Life Insurance Company

Statutory Statements of Changes in Capital and Surplus

Years Ended December 31, 2011, 2010 and 2009

(in thousands of dollars)	Common Capital Stock			Gross Paid-in and Contributed Surplus			Unassigned Surplus				Total Capital and Surplus
Balances at December 31, 2008		$	2,500		$	673,845		$	(509,482	)		$	166,863
Net income			-			-			17,405				17,405
Change in net unrealized capital gains and losses, net of tax			-			-			78				78
Change in nonadmitted assets			-			-			6,254				6,254
Change in net deferred tax asset			-			-			(7,803	)			(7,803	)
Change in asset valuation reserve			-			-			(14	)			(14	)
Change in surplus as a result of reinsurance			-			-			(1,611	)			(1,611	)
Interest maintenance reserve generated by transferred coinsurance assets			-			-			(2,076	)			(2,076	)
Cumulative effect of change in accounting principle
SSAP 10R net deferred tax			-			-			8,380				8,380
SSAP 43R recovery of other than temporary impairments (net of tax)			-			-			19				19
Balances at December 31, 2009			2,500			673,845			(488,850	)			187,495
Net income			-			-			4,775				4,775
Change in nonadmitted assets			-			-			2,573				2,573
Change in net deferred tax asset			-			-			(6,927	)			(6,927	)
Change in asset valuation reserve			-			-			(732	)			(732	)
Change in surplus as a result of reinsurance			-			-			(1,321	)			(1,321	)
Interest maintenance reserve generated by transferred coinsurance assets			-			-			(1,703	)			(1,703	)
Balances at December 31, 2010			2,500			673,845			(492,185	)			184,160
Net loss			-			-			(6,644	)			(6,644	)
Change in net unrealized capital gains (losses), net of tax			-			-			28				28
Change in nonadmitted assets			-			-			(8,199	)			(8,199	)
Change in net deferred tax asset			-			-			1,774				1,774
Change in asset valuation reserve			-			-			(403	)			(403	)
Change in surplus as a result of reinsurance			-			-			(1,030	)			(1,030	)
Interest maintenance reserve generated by transferred coinsurance assets			-			-			(1,327	)			(1,327	)
Balances at December 31, 2011		$	2,500		$	673,845		$	(507,986	)		$	168,359

The accompanying notes are an integral part of these statutory financial statements.

5

Zurich American Life Insurance Company

Statutory Statements of Cash Flows

December 31, 2011, 2010 and 2009

(in thousands of dollars)	2011				2010				2009
Cash from operations
Premiums collected, net of reinsurance		$	(94,054	)		$	(89,249	)		$	(58,769	)
Net investment income			21,123				25,515				27,633
Miscellaneous income			394,838				302,710				270,844
Benefits and loss related payments			(398,826	)			(498,450	)			(1,428,279	)
Net transfers from separate accounts			346,626				501,048				1,406,591
Commissions, expenses paid and aggregate write-ins for deductions			(248,248	)			(223,208	)			(188,658	)
Federal and foreign income taxes recovered			15,017				8,387				25,580
Net cash provided by operations			36,476				26,753				54,942
Cash from investments
Proceeds from investments sold, matured or repaid
Fixed Maturities			72,873				106,356				79,577
Miscellaneous proceeds			-				150				-
Total investment proceeds			72,873				106,506				79,577
Cost of investments acquired
Fixed Maturities			72,568				122,510				126,600
Stocks			21,090				-				-
Miscellaneous applications			-				-				150
Total investments acquired			93,658				122,510				126,750
Net (decrease) increase in contract loans			(1,365	)			11,505				(16,208	)
Net cash used in investments			(19,420	)			(27,509	)			(30,965	)
Cash from financing and miscellaneous sources
Net deposits on deposit-type funds and other liabilities			2,594				(921	)			3,173
Other applications			(7,486	)			(7,285	)			(3,638	)
Net cash used in financing and miscellaneous sources			(4,892	)			(8,206	)			(465	)
Net change in cash, cash equivalents and short-term investments			12,164				(8,962	)			23,512
Cash, cash equivalents and short-term investments
Beginning of year			20,195				29,157				5,645
End of year		$	32,359			$	20,195			$	29,157

The accompanying notes are an integral part of these statutory financial statements.

6

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

1. The Company and Nature of Operations

Organization and Description of Business

Zurich American Life Insurance Company (“ZALICO” or the “Company”) is a stock life insurance company founded in 1947. The Company is incorporated under the insurance laws of the State of Illinois and is licensed in the District of Columbia and all states, with the exception of New York.

The Company is a wholly owned subsidiary of Zurich American Corporation (“ZAC”), formerly Kemper Corporation, a nonoperating holding company. ZAC is a direct wholly owned subsidiary of Zurich Holding Company of America, Inc. (“ZHCA”). ZHCA is an indirect wholly owned subsidiary of Zurich Financial Services Ltd. (“ZFS” or the “Parent’).

On July 6, 2010 the Company’s sole shareholder (ZAC, then Kemper Corporation) approved that the name of the Company be changed from Kemper Investors Life Insurance Company to Zurich American Life Insurance Company, and that an amendment of the Company’s Articles of Incorporation be made to effect such name change, with such amendment being subject to the approval of the Illinois Department of Insurance, (“IDOI”). This change aligns the name of the Company with the Zurich Financial Services (“Zurich”) brand. The IDOI approved the Company’s amended Articles of Incorporation reflecting this name change on Aug 23, 2010 and, accordingly, amended the Company’s Certificate of Authority. All other state regulatory notifications have been made.

On September 2, 2010, the Company established a new subsidiary, Zurich American Life Insurance Company of New York (“ZALICONY”). In September 2011, ZALICO invested $6,250,000 in ZALICONY which consisted of $2,000,000 in common stock (20,000 shares at $100 per share) and $4,250,000 in paid in capital. In November 2011, the Company invested another $14,840,000 in ZALICONY as paid in capital. ZALICONY issued its stock to ZALICO to make the Company the sole shareholder of ZALICONY. A license to operate as an insurance company was granted by the New York State Department of Insurance on January 1, 2012.

Purchase Agreement

On May 29, 2003, Kemper Corporation (now ZAC) entered into a stock and asset purchase agreement (the “Purchase Agreement”) with Bank One Insurance Holdings, Inc. (“BOIH” or “Bank One”) which, in conjunction with then-associated and subsequent transactions, has resulted in the following:

• The Company ceded, through a coinsurance agreement, 100% of its general account liabilities to Protective Life Insurance Company (“PLICO”) with the exception of those relating to the DESTINATIONS product, supplemental contracts arising from the DESTINATIONS product, and business-owned life insurance (“BOLI”) contracts. These general account liabilities included all of the Company’s gross liabilities and obligations, including benefits, claims, taxes, commissions and assessments for certain types of existing individual and group life insurance policies and annuity contracts (collectively referred to as the “Reinsured Policies”). The Reinsured Policies also included certain policies written for a period of twelve months subsequent to the Closing. The Company or the reinsurer under the coinsurance agreement are accepting renewal premium for all of its products.

7

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

• The Company ceded on a modified coinsurance basis its separate account liabilities that are related to the Reinsured Policies. As of December 31, 2011 and 2010, the Company’s separate account reserves subject to the coinsurance agreement with PLICO were approximately $1,066,000,000 and $1,292,000,000, respectively.

• PLICO assumed administration of the Reinsured Policies and BOLI contracts of the Company on a long-term basis subject to the oversight of the Company. This included, but was not limited to, policy and policyholder administration, separate account administration, preparing accounting and actuarial information and certain aspects of legal compliance.

• Federal Kemper Life Assurance Company (“FKLA”) established a trust account (the “Security Trust Account”) for the exclusive benefit of the Company. The Security Trust Account is funded with assets equal to the general account statutory reserves adjusted for policy loans and interest maintenance reserves reinsured by FKLA, adjusted on a quarterly basis. FKLA is required to maintain the Security Trust Account until the Company’s general account statutory reserves of the Reinsured Policies are $400,000,000 or less. As of December 31, 2011 and 2010, the Company’s general account statutory reserves subject to the coinsurance agreement with FKLA were approximately $1,890,107,000 and $1,926,797,000, respectively. The balance in the Security Trust Account was approximately $1,937,756,000 and $1,941,151,000 as of December 31, 2011 and 2010, respectively.

Nature of Operations

As of the BOIH Purchase Agreement closing, the Company’s direct retained business consisted primarily of the DESTINATIONS product. The Company also ceased issuing new business with the exception of renewal business and certain policies to be written and reinsured pursuant to the coinsurance agreement with PLICO. The Company agreed that for a period of three years following the Closing Date, it would not, except under limited circumstances, issue any new BOLI policies. Nearly all of the Company’s BOLI policies are reinsured to Zurich Insurance Company, Bermuda Branch (“ZIBB”). The account values of these ceded BOLI policies are included in the separate account assets and liabilities on the balance sheet.

Synergy Investment Group, LLC (“Synergy”), an unaffiliated broker/dealer, and Investment Distributors, Inc. (“IDI”), an affiliate of PLICO, are the principal underwriters for the ZALICO separate account. BFP Securities LLC (“BFP”), an affiliate of the Company, is the primary wholesaling distributor of the Company’s BOLI products.

During 2009, the Company transferred its marketing function to Zurich Global Life North America (“GLNA”), which has responsibility for life insurance new business generation in the U.S. GLNA is identifying and implementing strategic opportunities designed to achieve profitable new business growth for the Company. Also during 2009, the Company began implementation of a target operating model for legal entity and legacy product management that transitions responsibility for these activities to center of excellence groups at affiliated companies. The transition was completed in 2010.

DESTINATIONS Product

DESTINATIONS is a registered individual and group variable, fixed and market value adjusted deferred annuity product. DESTINATIONS currently offers 30 variable subaccount investment options with various investment managers, a number of different guaranty periods, a fixed account option, dollar cost averaging, a guaranteed minimum death benefit (“GMDB”) option and a guaranteed retirement income benefit (“GRIB”) option.

8

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

The GMDB and GRIB options subject the Company to market risk as the beneficiary or contract holder may receive, due to product guarantees, benefits that exceed the investment performance associated with their account balance. The GMDB and GRIB benefit is the greatest of: i) the contract value (account value); ii) the greatest anniversary value before the exercise (annuitization date or date of death), reset up to age 80 minus previous withdrawals; or iii) purchase payments minus previous withdrawals, accumulated at 5% per annum to age 80.

The GRIB option is a rider to the DESTINATIONS base contract that was available to be purchased at the time the contract was issued. If purchased and later exercised, the GRIB option allows a policyholder to receive a payment stream that may have value in excess of what would otherwise have been generated, without GRIB, by annuitization of their contract value (due to benefit guarantees associated with the GRIB option). For contracts with the GRIB option, the guaranteed value may begin to be realized after seven or more years from contract issue, depending upon issue age. The amount of excess of the GRIB value over the contract value can fluctuate on a daily basis with changes in equity market returns. As such, the ultimate amount paid by the Company, if any, is uncertain and could be significantly more or less than the net amount at risk (as disclosed in Note 8).

On November 17, 2006, the Company entered into a reinsurance agreement with Zurich Insurance Company Ltd. (“ZIC”; “ZIC Agreement”) to reinsure the net amounts at risk for GMDB and GRIB options on policies issued from May 1, 2000 through February 28, 2003. Subsequently, on December 22, 2008 the Company and ZIC entered into Amendment No.1 to the ZIC Agreement (“Amendment”). Under terms of the Amendment, the Company paid a premium to ZIC of $10,000,000 in consideration for changes in the operation of the ZIC Agreement, for the benefit of the Company, under forecast scenarios where a significant further decline in equity market levels was projected. See Note 9 for a more detailed discussion of the ZIC Agreement and Amendment.

Business Owned Life Insurance (BOLI)

From 1997 to the effective date of the Purchase Agreement, the Company marketed BOLI policies. BOLI is a form of group life insurance which enables clients to buy variable life insurance on key employees. The policies remain in force until the last insured dies or the policy is surrendered or exchanged. The policyholder has flexibility regarding premiums and the right to allocate premiums to various divisions with differing investment objectives. The policyholders may also borrow from the investment value of the policies, surrender the policies for their cash surrender values or in some cases, make partial withdrawals from the cash surrender values. Death benefits on the life of any insured are at least equal to the face amount on the individual insured provided the cash value relating to the insured is greater than zero.

ZIBB reinsures 98% of the mortality risk and 98% of the net amount at risk of the BOLI policies. ZIBB offered a stable value protection (“SVP”) option in conjunction with the BOLI policies. The SVP option allows purchasers of the option to make payments into SVP divisions in the Company’s separate accounts. These SVP divisions purchase value protection from a stable value provider which offers smooth or stabilized investment returns over a specified period of time.

Separate Account Business

The Company maintains separate account assets and liabilities, which are reported at fair value. Separate accounts reflect two categories of risk assumption: non-guaranteed separate accounts, wherein the contract holder assumes the investment risk, and guaranteed separate accounts, wherein the Company contractually guarantees either a minimum return or account

9

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

value to the contract holder. Non-guaranteed separate account assets are segregated from other investments, and investment income and gains and losses accrue directly to the contract holder. Mortality, policy administration, and surrender charges to all accounts are included in the revenues of the Company. Changes in liabilities for minimum guarantees are included in the increase in aggregate reserves for life policies and contracts line item in the financial statements.

Group Term Life Insurance

During the second half of 2006, the Company began marketing and sales of a group term life insurance product (“Group Life”). Group Life is marketed through the agency force of Farmers Group, Inc. (“FGI”), an affiliated company. The Group Life product is yearly renewable term life insurance for employers to make available as a part of their employee benefits package. Group Life provides guaranteed issue in limited amounts to group members and allows for conversion to an individual term life policy when a member leaves the group. The Company continues to sell the Group Life product introduced in 2006 and marketed through the agency force of FGI.

Group Term Life/AD&D and Group L-T Disability Insurance

During the second half of 2010, the Company began marketing and sales of its group term life insurance product (“Group Life II”) with accidental death and dismemberment (“AD&D”) rider marketed to U.S. expatriates. This was followed by the introduction of the group long-term disability (“Group L-T Disability”) product. The Group Life w/AD&D rider and the Group L-T Disability products are yearly renewable group term insurance products made available to U.S. – base companies as part of their employee benefits package. Group Life II provides guaranteed issue in limited amounts to group members and allows for conversion to an individual term life policy when a member leaves the group. Group L-T Disability provides monthly income benefit percentages up to a designated maximum amount and age upon completion of a disability elimination period.

Guaranteed Death Benefit Insurance

During the second half of 2010, the Company began marketing and sales of an individual no-lapse guarantee protection product (“NLG”) marketed to the affluent U.S. life insurance market segment. The NLG product is intended to serve the wealth transfer, estate tax planning, and business insurance needs of this market segment. The NLG is flexible premium adjustable life insurance and provides coverage guarantees, death benefit options, a policy loan feature, and three riders.

Private Placement Variable UniversalLife

During the second half of 2011, the Company began marketing and sales of a Private Placement Variable Universal Life Insurance (“PPVUL”) product through its Separate Accounts. The PPVUL is a form of flexible premium group variable life insurance purchased on certain eligible employees where the beneficiary is the corporation. PPVUL is generally purchased by corporations on their key/officer level employees. PPVUL is designed to assist clients in meeting their commitment to their employees and fund long term employee benefit obligations. The PPVUL policies are reinsured by Zurich Insurance Company Ltd. Bermuda Branch (“ZIBB”), an affiliate.

10

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

2. Summary of Significant Accounting Policies

Basis of Presentation

The financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Illinois Department of Insurance (“IDOI”).

The IDOI recognizes only Statements of Statutory Accounting Principles (“SSAP”) prescribed or permitted by the State of Illinois for determining and reporting the financial condition and results of operations of an insurance company, for determining its solvency under the Illinois Insurance Law. The National Association of Insurance Commissioners’ (“NAIC”) Accounting Practices and Procedures Manual version effective January 1, 2001 (“NAIC AP&P”) has been adopted as a component of prescribed or permitted practices by the State of Illinois.

Statutory accounting practices differ from accounting principles generally accepted in the United States of America (“GAAP”) in the following respects:

Investments

Investments in fixed maturities are stated at amortized cost or at values required by the NAIC. Under GAAP, fixed maturities are carried at fair value or amortized cost based upon management’s intent as to whether fixed maturities are available for sale or will be held until maturity.

In determining fair market value, for the majority of securities, quotes were obtained from third party sources. If quotes from these sources were not available, a broker estimate was used. Changes between cost and admitted asset investment carrying amounts are credited and charged directly to unassigned surplus rather than to a separate component of stockholder’s equity and other comprehensive income.

Asset Valuation Reserve

The asset valuation reserve (“AVR”) is determined by NAIC prescribed formulas, which establish a provision for the risk of asset defaults, and is reported as a liability with changes recorded directly to unassigned surplus. Under GAAP, no such liability is established.

Interest Maintenance Reserve

An interest maintenance reserve (“IMR”) is provided as required by the IDOI in order to defer certain realized investment gains and losses, net of tax, related to interest rate fluctuations, and to amortize such gains and losses through operating income over the remaining life of the securities sold. Any net unamortized deferred losses are nonadmitted and charged directly to unassigned surplus. No such reserve is required by GAAP.

Life Policy and Contract Reserves

Life policy and contract reserves under statutory accounting practices are based on statutory mortality, morbidity, and interest requirements without consideration of withdrawals and Company experience.

GAAP requires that policy reserves for traditional products be based upon the net level premium method utilizing management’s best estimate of mortality, interest, and withdrawals prevailing when the policies were sold; for interest sensitive products, the GAAP policy reserve is determined using the retrospective deposit method and is equal to the policy fund balance, before surrender charges.

11

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

Acquisition Costs

Under statutory accounting practices, costs of acquiring new business are charged to operations in the year such costs are incurred. Under GAAP, such costs are deferred and amortized over the premium-paying period of the policies for traditional products, or as a level percentage of gross profits for interest sensitive products.

Recognition of Revenue and Related Expenses

Under statutory accounting practices, premiums are recognized as revenues when due. For GAAP purposes, premiums for traditional life insurance products, which include those products with fixed and guaranteed premiums and benefits and consist principally of whole and term life insurance policies, are recognized as revenues when due. Revenues for universal life insurance policies and for investment products consist of policy charges for the cost of insurance, interest earned, policy administration charges, and surrender charges assessed against policyholder account balances during the year. Expenses related to these products include interest credited to policy account balances, benefit claims incurred in excess of policy account balances and commissions and expense allowances on reinsurance assumed. Revenues also include commissions and expense allowances on reinsurance ceded and reserve adjustments on reinsurance ceded. Under statutory accounting practices, deferred premiums, representing gross premiums less loading, are reported as an admitted asset. Under GAAP, uncollected premiums are stated at gross amounts and deferred premiums are reflected as a reduction of the related aggregate reserve.

Reinsurance

Reserves and reinsurance recoverable on unpaid claims on reinsured business are netted with aggregate reserves and the liability for life policy claims, respectively. Under GAAP, these reinsured amounts are reflected as an asset.

Federal Income Taxes

Deferred income taxes are provided for temporary differences between the financial statement and tax bases of assets and liabilities at the end of each year based on enacted tax rates. Net deferred tax assets are limited to their admissible amount according to a prescribed formula, which includes a valuation allowance element. Changes in deferred income tax assets and liabilities are reported as adjustments to surplus. Under GAAP, changes in deferred income taxes are included in income tax expense or benefit and are allocated to continuing operations, discontinued operations, extraordinary items and items charged directly to shareholders’ equity. Additionally, under GAAP, deferred income tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Nonadmitted Assets

Certain assets are considered nonadmitted assets for statutory purposes and any changes in such assets are credited or charged directly to unassigned surplus. There are no nonadmitted assets for GAAP purposes.

Statement of Cash Flows

The statutory basis statement of cash flows is presented as required and differs from the GAAP presentation.

Permitted Accounting Practice

In anticipation of the Zurich acquisition in 1996, the Company sold, primarily through a bulk sale, approximately $284,000,000 in real estate-related investments during 1995 as part of a strategic

12

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

effort to reduce overall exposure to real estate. As a result of these sales, the Company incurred realized capital losses that were required to be transferred to the Interest Maintenance Reserve (“IMR”). However, as a result of the transfer of these realized capital losses, the IMR became negative. In connection with the sale of the real estate-related investments and the acquisition of the Company’s parent, the IDOI permitted the Company to reset the IMR to zero at December 31, 1995. This treatment permits the Company to proceed as if it had been legally reorganized through a procedure known as “quasi-reorganization”.

This procedure allows the Company a “fresh start” by resetting the negative unassigned surplus to zero and reducing gross paid-in and contributed surplus by the same amount. Although this treatment does not change the Company’s total amount of reported capital and surplus as of December 31, 2011 and 2010, it did favorably impact the 2011, 2010 and 2009 net (loss) income from operations. If the Company had not been permitted to reset the IMR to zero as of December 31, 1995, the Company’s statutory net (loss) gain from operations would have decreased by approximately $1,444,000, $1,394,000 and $1,326,000 for the years ended December 31, 2011, 2010 and 2009, respectively. Capital and surplus would have increased by like amounts through a credit to the change in nonadmitted assets and related items. If the Company had not been able to reset the negative unassigned surplus to zero, paid-in surplus and unassigned surplus (deficit) would have been approximately $729,254,000 and $(550,804,000), respectively as of December 31, 2011, and approximately $729,254,000 and $(533,557,000), respectively, as of December 31, 2010.

Changes in Accounting Principles

In September 2009, the NAIC issued SSAP No. 43R, “Loan-backed and Structured Securities” (“SSAP No. 43R”), an amendment of SSAP No. 43, “Loan-backed and Structured Securities”, replacing SSAP No. 98 “Treatment of Cash Flows When Quantifying Changes in Valuation and Impairments, an Amendment of SSAP No. 43-Loan-backed and Structured Securities”. SSAP No. 43R provides that for loan-backed and structured securities for which (i) fair value is less than cost (ii) the Company does not intend to sell the security and (iii) the Company has the intent and ability to hold the security until recovery, the Company should determine if there is a noninterest related impairment by comparing the present value of the cash flows expected to be collected to the amortized cost basis. If the net present value of the cash flows expected to be collected is less than amortized cost, the security is impaired, and the difference is recorded as a realized loss in net income. The new cost basis of the security is the previous amortized cost basis less the noninterest impairment recognized in net income.

If fair value is less than amortized cost and the Company (i) has the intent to sell the security, or (ii) does not have the intent and ability to retain the security until recovery of its carrying value, the security is written down to fair value with the associated realized loss reported in net income. The noninterest portion of the realized loss is recognized in the Asset Valuation Reserve (“AVR”), and the interest portion in the IMR. The fair value at the time of the impairment becomes the security’s new cost basis.

SSAP No. 43R requires that for beneficial interests in securitized financial assets that are not of high credit quality or can contractually be prepaid or otherwise settled in such a way that the reporting entity would not recover substantially all of its recorded amount, determined at acquisition, if fair value is less than amortized cost and there has been a negative change in cash flows, an other-than-temporary impairment (“OTTI”) must be taken. The amount of the impairment is based upon the criteria discussed above. The carrying value of these securities is determined using the prospective yield method.

13

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

The Company adopted SSAP No. 43R effective July 1, 2009. In 2009, the cumulative effect of this change is $29,000 and is reported in the Statutory Statement of Changes in Capital and Surplus, in the amount of $19,000 net of tax.

In October 2010, the NAIC revised Statement of Statutory Accounting Principle (“SSAP”) No. 5, “Liabilities, Contingencies and Impairments of Assets”. The revisions require the reporting entity to recognize, at the inception of a guarantee, the fair value of a liability for the obligations it has undertaken in issuing the guarantee, even if the likelihood of having to make payments under the guarantee is remote. This includes related party guarantees, except when the transaction is considered an “unlimited guarantee,” such as a rating agency requirement to provide a commitment to support a subsidiary, or a guarantee made on behalf of a wholly owned subsidiary. The guidance also requires new disclosures for the reporting entity’s guarantees. This guidance applies to all guarantees issued and outstanding as of December 31, 2011. The Company adopted the change effective December 31, 2011 with no material effect on the financial statements.

New Accounting Pronouncements

The Company adopted SSAP No. 100, “Fair Value Measurements”, (“SSAP 100”) effective December 31, 2010 and thereafter. SSAP 100 defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements but does not change existing guidance about whether an asset or liability is carried at fair value. See Note 5 for disclosures related to SSAP No. 100.

In October 2010, the NAIC revised guidance pertaining to disclosure of withdrawal characteristics. These revisions expand the disclosure requirements for annuity actuarial services and deposit liabilities by withdrawal characteristics in accordance with the following categories: general account, separate account with guarantees, separate account nonguaranteed and the total. This guidance was effective January 1, 2011. Please refer to Note 8.

In October 2010, the NAIC adopted substantive revisions to SSAP No. 35, “Guaranty Fund and Other Assessments”. The revised SSAP modifies the conditions required before recognizing liabilities for insurance-related assessments. The accounting for guaranty fund assessments would be determined in accordance with the type of guaranty assessment imposed, and would incorporate the concept of an “obligating event” for prospective-based premium assessments in determining whether a liability should be accrued. The adoption did not have a material effect on the financial statements of the Company.

In September 2009, the NAIC adopted revisions to SSAP No. 56, “Separate Accounts” (“SSAP 56”), which has been updated to include new disclosures related to separate accounts. These enhanced disclosure requirements are intended to provide regulators with an increased understanding of the reporting entity’s separate account activity as well as how the separate account activity could affect the general account. The new disclosures are effective December 31, 2010. See Note 12.

In May 2010, the NAIC modified SSAP No. 91R, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SSAP 91R”), effective for December 31, 2010. This statement addresses collateral requirements for securities lending transactions and repurchase agreements by (1) clarifying that collateralization should be measured as the fair value of the collateral obtained, (2) defining when collateral is on or off balance sheet in

14

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

securities lending transactions, and (3) clarifying that the change in fair value of reinvested collateral represents a separate risk and should be evaluated for other-than-temporary impairments. There were no securities on loan as of December 31, 2011 and 2010.

Future Adoption of New Accounting Pronouncements

In March 2010, the NAIC revised SSAP 100 to require a gross presentation of purchases, sales, issuance and settlement within the reconciliation for fair value measurements categorized within Level 3 of the fair value hierarchy. This amended guidance also requires all investments that are disclosed but not measured at fair value to be reported within the fair value hierarchy, as well as additional qualitative disclosures. The new disclosures are effective January 1, 2012.

On November 6, 2011, SSAP No. 101, Income Taxes, A replacement of SSAP No. 10R and SSAP No. 10 was adopted by the NAIC. SSAP No. 101 contains changes to accounting for current and deferred federal and foreign income taxes, which is effective January 1, 2012. This guidance provides that the deferred tax asset admissibility would no longer be elective, and the reversal and surplus limitation parameters in the admissibility tests are determined based on the risk-based capital levels. It also requires gross deferred tax assets to be reduced by a statutory valuation allowance if it is more likely that not that some portion or all of the gross deferred tax assets will not be realized. The cumulative effect of adopting this announcement will decrease surplus by $10,800,000 at January 1, 2012 and will be reported as a specific change in accounting principle in Statutory Statements of Changes in Surplus.

Use of Estimates

The preparation of financial statements in conformity with accounting practices prescribed or permitted by the IDOI requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company is liable for guaranty fund assessments related to certain unaffiliated life insurance companies that have become insolvent during the years 2011 and prior. The Company’s financial statements include provisions for all known assessments that are expected to be levied against the Company as well as an estimate of amounts (net of expected future premium tax recoveries) that the Company believes will be assessed in the future. According to SSAP No. 35R, “Guaranty Fund and Other Assessments”, guaranty fund assessment (“GFA”) liabilities and estimated premium tax credits as well as the estimated GFA recoverable for the ceded portion of the future liabilities, are to be presented separately in the balance sheet. The majority of the GFA liability is ceded as a result of the Purchase Agreement.

Business Risks

The Company operates in a business environment that is subject to various risks and uncertainties, including but not limited to, mortality risk, interest rate risk and legal and regulatory changes. The Company is subject to various state and federal regulatory authorities. The potential exists for changes in laws or regulations that can result in additional, unanticipated expense to the Company. Existing federal laws and regulations affect the taxation of life insurance products and insurance companies. There can be no assurance as to whether future legislation might be enacted, or if enacted that would include provisions with possible negative effects on the Company’s life and annuity products.

15

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

3. Accounting Policies

Investments

Investments are valued as prescribed by the NAIC and as required by the IDOI. All security transactions are recorded on a trade date basis. Investments are recorded on the following bases:

• Fixed maturities – At cost, adjusted for amortization of premium or discount. Fixed maturities with NAIC designations of 6 are reported at the lower of amortized cost or fair value. Discount or premium on fixed maturities is amortized using the interest method on a retrospective basis. A yield to worst amortization method is used to take into consideration any fixed maturity call or sinking fund feature.

• Loan-backed securities – Are amortized using the interest method including anticipated prepayments at the date of purchase. Prepayment assumptions for single class and multi-class mortgage-backed/asset-backed securities were obtained from the respective managers and the prepayment windows and/or cashflows were obtained from Bloomberg. The Company has elected to use the book value as of January 1, 1994 as the cost for applying the retrospective adjustment method to securities purchased prior to that date. Loan-backed securities with evidence of deterioration of credit quality for which it is probable that the Company will be unable to collect all contractually required payments receivable are written down to the present value of expected cash flows to be received.

• Preferred Stocks – At lower of cost, amortized cost or fair value. Preferred stocks with NAIC designations of 1 through 3 with characteristics of debt securities are reported at cost or amortized cost. All other preferred stocks are reported at the lower of cost, amortized cost or fair value.

• Common stocks of nonaffiliates – At fair value.

• Common stocks of subsidiaries, controlled and affiliated entities – Accounted for pursuant to SSAP No. 97 “Investments in Subsidiary, Controlled and Affiliated Entities, A Replacement of SSAP No. 88”.

• Short-term investments – At cost or amortized cost.

• Other invested assets – These balances consist of venture capital and real estate joint venture partnerships. They are carried at cost plus equity in undistributed earnings or losses for participants, net of a valuation allowance.

• Contract loans are carried at the aggregate of the unpaid balance provided the unpaid balance does not exceed either cash surrender value of the policy or the policy reserves. The excess of the unpaid loan balance over the cash surrender value is nonadmitted and reflected as an unrealized capital loss.

Upon default or indication of potential default by an issuer of fixed maturity securities, other than mortgage-backed securities, the issue(s) of such issuer would be analyzed for possible write-down. Any such issue would be written down to its net realizable value during the fiscal year in which the impairment was determined to have become other than temporary. Thereafter, each issue is regularly reviewed and additional write-downs may be taken in light of later developments. Write-downs are included as part of net realized capital gains (losses). The Company recorded $0, $0, and $290,000, respectively, fixed maturity write-downs on securities

16

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

other than loan-backed securities for the periods ended December 31, 2011, 2010 and 2009. All loan-backed and structured securities were reviewed to determine if there were any indications of potential for OTTI classification. Where such an indication existed, cash flow and credit support analyses were performed. If it was determined that the Company was to receive less than 100% of contractual cash flows, the OTTI impact was measured and recorded in accordance with SSAP 43R Loan-Backed and Structured Securities. The Company recorded $0, $2,280,000 and $1,820,000, respectively, fixed maturity write-downs on loan-backed and structured securities for the periods ended December 31, 2011, 2010 and 2009.

Investment Income and Realized Gains and Losses

Investment income is recorded when earned. All investment income due and accrued amounts that are over 90 days past due, are excluded from surplus. The Company had no investment income due and accrued that was over 90 days past due at December 31, 2011, 2010 and 2009.

Realized gains or losses on sales of investments, determined on the basis of identifiable cost on the disposition of the respective investment, which are not transferred to the IMR and write-downs are credited or charged to income, net of applicable federal income tax. Unrealized gains and losses, including changes in real estate-related reserves, are credited or charged to surplus, net of deferred tax.

Securities Lending

The Company has entered into a securities lending agreement with a lending agent. The agreement authorizes the agent to lend securities held in the Company’s portfolio to a list of authorized borrowers. Concurrent with delivery of the securities, the borrower provides the Company with cash collateral equal to at least 102% of the fair value of domestic loaned securities and 105% of the fair value of foreign loaned securities.

The securities are marked-to-market on a daily basis, and the collateral is adjusted on the next business day. The collateral is invested in overnight repurchases in U.S. governmental and Agency securities. Income earned from the security lending arrangement is shared 25% and 75% between the lending agent and the Company, respectively. Income earned by the Company was approximately $2,000, $3,000 and $0 in 2011, 2010 and 2009, respectively. There were no securities on loan as of December 31, 2011 and 2010.

Income and Expenses

Revenue for annuities, variable life insurance and interest-sensitive life insurance products consists of premiums and annuity considerations, investment income and policy charges and fees. Expenses consist of benefits, changes in aggregate reserves and policy maintenance costs.

Life and interest-sensitive life insurance contract premiums are recognized as income when due, while annuity contract premiums are recognized as income when received. Expenses, including acquisition costs related to acquiring new and renewal business, such as commissions, are charged to operations as incurred.

During 2008 the Company’s third party administrator recorded considerations for supplemental contracts not involving life contingencies but did not notify the Company of such recordings in 2008 per agreed procedures. As such, because the associated increase in reserves was not recorded as an expense in the same period, the recording of these considerations served to increase the Company’s 2008 net gain from operations before federal income taxes by

17

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

$3,456,000. This error in notification was discovered by the Company in late January 2009 through its reconciliations, was investigated, and in March 2009 the Company recorded the then current value for the increase in associated reserves, $3,329,000, which served to reduce the Company’s 2009 net gain from operations before federal income taxes by the same amount.

Correction of this out-of-period error from 2008 in March 2009 had the impact of increasing interest and adjustments on policy or deposit-type contracts recorded in the 2009 Statutory Statement of Operations, an expense, from $1,605,000 to $4,933,000, decreasing net gain from operations before federal income taxes from $16,590,000 to $13,261,000, decreasing federal income taxes incurred from ($5,519,000) to ($6,684,000), and decreasing net income from $19,568,000 to $17,405,000. The correction of this error had no impact on ending capital and surplus of $187,496,000 reported in the 2009 Statement of Changes in Capital and Surplus.

Policy Liabilities and Other Policyholders’ Funds

Liabilities for policy reserves on annuity contracts are calculated based on the Commissioner’s Annuity Reserve Valuation Method (“CARVM”). Interest crediting rates under the contracts’ accumulation periods range from 2.15% to 7.00%. Guarantee periods range from one to ten years with minimum interest rate guarantees ranging from 2.0% to 4.5%.

Liabilities for life policy reserves and interest-sensitive life insurance contracts are based on statutory mortality and interest requirements without consideration of withdrawals. Liabilities for the majority of these contracts are calculated based on the 1980 Commissioner’s Standard Ordinary (“CSO”) table assuming interest rates ranging from 4.5% to 6.0%.

The Company waives deduction of deferred fractional premiums upon death of the insured and returns the portion of the final premium paid beyond the policy month of death. Surrender values promised in excess of the legally computed reserves, if any, would be included as a component of reserves.

Extra premiums are charged for policies issued on substandard lives according to underwriting classifications. Final reserves are determined by computing the mid-terminal reserve for the plan and holding an additional one half of the net valuation premium for the modal period.

Separate Accounts Business

The assets of the separate accounts represent segregated funds administered and invested by the Company for purposes of funding variable annuity and variable life insurance contracts for the exclusive benefit of variable annuity and variable life insurance contract holders. The Company receives administrative fees from the separate accounts and retains varying amounts of withdrawal charges to cover expenses in the event of early withdrawals by contract holders.

The assets and liabilities of the separate accounts are carried at the fair value of the underlying contracts. The difference between the fair values of the contracts, and their termination value, is recorded as a negative liability for transfers to separate accounts due or accrued. Changes in termination value of the contracts are recognized through the Company’s net loss from operations as a component of net transfers to (from) the separate accounts rather than directly to surplus. The assets are invested primarily in a series of mutual funds managed by DWS Investments, and other unaffiliated mutual fund managers.

Reinsurance

In the ordinary course of business, the Company enters into reinsurance agreements to diversify risk and limit its overall financial exposure to certain blocks of annuities and to individual death

18

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

claims. Although these reinsurance agreements contractually obligate the reinsurers to reimburse the Company, they do not discharge the Company from its primary liabilities and obligations to policyholders. An additional protection is the existence of a security trust. Several of the Company’s reinsurance contracts require that the reinsurer fund a trust, with the fair value of the assets at least equal to the book value of the statutory liabilities reinsured.

Federal Income Taxes

The Company has applied the NAIC Statement of Statutory Accounting Principles No. 10R, “Income taxes – Revised, A Temporary Replacement of SSAP No. 10”. Income tax incurred is recognized by applying the enacted income tax law. Deferred income taxes are provided for temporary differences between the financial statement and tax bases of assets and liabilities at the end of each year based on enacted tax rates. Changes in admitted deferred income tax assets and liabilities are recognized as adjustments to surplus. Deferred tax assets are first subjected to a valuation allowance assessment and then are admitted to the extent they meet specific criteria but are limited to the amount of gross deferred tax assets expected to be reversed within a limited time period and adjusted surplus. Companies that meet the risk-based capital trend-test may elect to admit additional deferred tax assets under the provisions of paragraph 10.e, which provides expanded time periods and surplus limitations. The Company qualifies for and has elected to apply the expanded provisions.

The Company records interest and penalties related to income tax contingencies as a component of income tax expense.

Nonadmitted Assets

Certain assets, designated as “nonadmitted assets”, have been excluded from the statutory statements of admitted assets, liabilities and capital and surplus through a direct charge against unassigned surplus.

Statement of Cash Flows

The Company defines cash as cash in banks and money market accounts and considers all highly liquid investments, with maturity of one year or less when purchased, to be short-term investments.

4. Investments

The components of investment income by type of investment for the years ended December 31, 2011, 2010 and 2009 are as follows:

(in thousands of dollars)	2011				2010				2009
Fixed Maturities		$	20,328			$	21,377			$	20,903
Contract loans			2,937				3,339				3,611
Short-term investments			40				57				89
Other			1,555				557				1,574
Gross investment income		$	24,860			$	25,330			$	26,177
Less: Investment expenses			(1,297	)			(725	)			(915	)
Net investment income		$	23,564			$	24,605			$	25,262

In 2011, 2010 and 2009, the Company’s investment expenses included fees of approximately $238,000, $232,000 and $204,000, respectively, to Deutsche Investment Management Americas, Inc.

19

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

In 2011, 2010 and 2009, the Company’s investment expenses included fees of approximately $123,000, $112,000 and $108,000, respectively, to Zurich Investment Services.

The Company also incurred investment fees in 2011, 2010 and 2009 of approximately $689,000, $489,000 and $240,000, respectively, to Zurich Global Investment Management (“ZGIM”), an affiliate of Zurich Financial Services.

The Company owns one low income housing tax credit (“LIHTC”) property, National Equity Fund. There are zero remaining years left of unexpired federal tax credits but the required holding period for the LIHTC investment is three years.

Realized Gains and Losses

Realized gains and losses on sales, redemptions and impairments of investments are determined based on the actual cost of the securities based on specific identification.

Realized investment gains and losses for the years ended December 31, 2011, 2010 and 2009 are as follows:

(in thousands of dollars)	2011				2010				2009
Fixed Maturities		$	148			$	2,253			$	(2,296	)
Transfer to (from) interest maintenance reserve			(148	)			(516	)			868
Add: Tax impact from net realized gains and losses			495				1,227				998
		$	495			$	2,964			$	(430	)

Impairment losses for the years ended December 31, 2011, 2010 and 2009 are as follows:

(in thousands of dollars)	2011			2010				2009
Fixed Maturities		$	-		$	(2,280	)		$	(2,110	)
		$	-		$	(2,280	)		$	(2,110	)

20

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

Unrealized Gains and Losses on Fixed Maturities and Preferred Stocks

Amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of fixed maturities and preferred stocks, as of December 31, 2011 and 2010 are as follows:

(in thousands of dollars)	Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses				Estimated Fair Value
2011
Fixed maturities
U.S. government		$	41,121		$	1,112		$	-			$	42,233
Other governments			1,345			35							1,380
Special revenue and special assessment obligations and all nonguaranteed obligations of agencies and authorities of governments and their political subdivisions			26,668			3,022			-				29,690
Industrial and miscellaneous (unaffiliated)			367,518			32,716			(1,981	)			398,253
Total fixed maturities		$	436,652		$	36,885		$	(1,981	)		$	471,556
2010
Fixed maturities
U.S. government		$	50,193		$	1,051		$	(17	)		$	51,227
Other governments			1,352			66			-				1,418
Special revenue and special assessment obligations and all nonguaranteed obligations of agencies and authorities of governments and their political subdivisions			31,611			1,250			(423	)			32,438
Industrial and miscellaneous (unaffiliated)			353,606			25,935			(1,979	)			377,562
Total fixed maturities		$	436,762		$	28,302		$	(2,419	)		$	462,645

21

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

Unrealized Losses on Fixed Maturities

The Company has a security monitoring process overseen by a committee of investment and accounting professionals that, on a monthly basis, identifies securities in an unrealized loss position that could potentially be other-than-temporarily impaired. The Company believes that the prices of the securities in the sector identified in the tables below were temporarily depressed as of December 31, 2011 and 2010 due to the issuers’ continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that they will continue to do so, and management’s intent and ability to hold these securities for a period of time sufficient to allow for a recovery of fair value.

Fair value and gross unrealized losses of fixed maturities as of December 31, 2011 and 2010 were as follows:

	Unrealized Losses Less Than 12 Months							Unrealized Losses Greater Than 12 Months
(in thousands of dollars)	Estimated Fair Value			Gross Unrealized Losses				Gross Estimated Fair Value			Estimated Unrealized Losses
2011
Fixed maturities
U.S. government		$	-		$	-			$	-		$	-
Special revenue and special assessment obligations and all nonguaranteed obligations of agencies and authorities of governments and their political subdivisions			-			-				-			-
Industrial and miscellaneous (unaffiliated)			25,068			(779	)			4,565			(1,202	)
Total fixed maturities		$	25,068		$	(779	)		$	4,565		$	(1,202	)
2010
Fixed maturities
U.S. government		$	9,977		$	(17	)		$	-		$	-
Special revenue and special assessment obligations and all nonguaranteed obligations of agencies and authorities of governments and their political subdivisions			7,052			(423	)			-			-
Industrial and miscellaneous (unaffiliated)			32,340			(713	)			11,322			(1,266	)
Total fixed maturities		$	49,369		$	(1,153	)		$	11,322		$	(1,266	)

As of December 31, 2011, fixed maturities represented 100% of the Company’s total unrealized loss amount, which was comprised of 30 securities. As of December 31, 2011, there was one security with a fair value less than 80% of the security’s amortized cost for greater than 12 continuous months.

Fixed maturities in an unrealized loss position for less than 12 months were comprised of 26 securities, of which 71%, or fair value $17,846,000, were comprised of securities with fair value to amortized cost ratios at or greater than 95%. The majority of these securities are investment grade fixed maturities depressed due to changes in interest rates from the date of purchase.

22

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

Fixed maturities in an unrealized loss position for greater than 12 months as of December 31, 2011, were comprised of 4 securities with a total fair value of $4,565,000. The unrealized loss of $1,202,000 relates to industrial and miscellaneous securities. The decline in fair value for these securities is primarily attributable to changes in interest rates. A variety of data is reviewed, including the aging and severity of unrealized losses, watch lists distributed by the asset managers, deviations in market prices between months, and results of tests indicating if any fixed maturity securities with unrealized losses have a credit rating below investment grade for 12 consecutive months. Fixed maturities, except mortgage-backed securities, classified as noninvestment grade (NAIC designation 3 or below) and for which it is determined that the collection of all contractual cash flows are not probable, are written down to fair value and a loss is recognized. Mortgage-backed securities with evidence of deterioration of credit quality for which it is probable that the Company will be unable to collect all contractually required payments receivable, are written down to the present value of expected cash flows to be received.

Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the decline in fair value is attributable to changes in interest rates and not credit quality and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired at December 31, 2011.

Concentrations of Credit Risk

The Company is not exposed to any significant concentration of credit risk of a single or group non governmental issuer. Concentration of credit risk could exist when changes in economic, industry or geographic factors similarly affect groups of counter-parties whose aggregate credit exposure is material in relation to the Company’s total exposure.

Loan-Backed Securities

Prepayment assumptions for loan-backed securities were obtained from broker dealer survey values. These assumptions are consistent with the current interest rate and economic environment.

In accordance with SSAP No. 43R, effective July 1, 2009, loan-backed securities with fair value less than amortized cost and the Company (i) has the intent to sell the security, or (ii) inability or lack of intent to retain the security for a period of time sufficient to recover the amortized cost basis, the security is written down to fair value with the associated realized loss reported in net income. For the year ended, there were no loan-backed securities impaired due to intent to sell or inability or lack of intent to retain the security for a period of time sufficient to recover the amortized cost basis.

Loan-backed securities with evidence of deterioration of credit quality for which it is probable that the Company will be unable to collect all contractually required payments receivable, are written down to the present value of expected cash flows to be received. Loan-backed securities

23

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

impaired to their present value of projected cash flows that are still held as of December 31, 2011 consisted of the following:

(in thousands of dollars)

Cusip	Cost Amortized Before Current Period OTTI			Present Value of Projected Cash Flows			Recognized Other-Than- Temporary- Impairment				Amortized Cost After Other-Than- Temporary- Impairment			Fair Value at Time of OTTI			Date of Financial Statement Where Reported
46630JAQ2		$	1,962		$	1,419		$	(543	)		$	1,419		$	489		12/31/2009
46630JAQ2			1,419			303			(1,116	)			303			549		6/30/2010
		$	3,381		$	1,722		$	(1,659	)		$	1,722		$	1,038

In determining the impairments for loan-backed securities, a review of default rate, credit support and other key assumptions was made on the securities. Where it was determined that less than 100% of contractual cash flows would be received, the impairment was measured by discounting the projected cash flows and comparing that discounted cash flows to the amortized cost basis of the securities in accordance to SSAP 43R.

The roll-forward of the amount related to credit losses recognized in earnings in 2011 and 2010 were as follows:

2011
(in thousands of dollars)
Beginning balance of credit losses on debt securities	$	(1,659	)
Additions not previously recognized		-
Reduction for securities sold during the period		-
Impairment on intent to sell securities		-
Additional OTTI on previously impaired securities		-
Reductions for increases in cash flows expected to be collected		-
Ending balance for securities owned as of December 31, 2011	$	(1,659	)
2010
Beginning balance of credit losses on debt securities	$	(1,070	)
Additions not previously recognized		(1,223	)
Reduction for securities sold during the period		1,691
Impairment on intent to sell securities		(1,057	)
Additional OTTI on previously impaired securities		-
Reductions for increases in cash flows expected to be collected		-
Ending balance for securities owned as of December 31, 2010	$	(1,659	)

24

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

Maturities of Fixed maturities

The amortized cost and estimated fair value of fixed maturities, by contractual maturity, at December 31, 2011 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties and because mortgage-backed and asset-backed securities provide for periodic payments throughout their life.

(in thousands of dollars)	Amortized Cost			Estimated Fair Value
2011
Due in 1 year or less		$	64,741		$	65,383
Due after 1 year through 5 years			136,663			142,248
Due after 5 years through 10 years			58,272			66,206
Due after 10 years			49,685			62,004
			309,361			335,841
Mortgage-backed securities			127,291			135,715
		$	436,652		$	471,556

Proceeds from sales of fixed maturities and gross realized gains (losses) on such sales and impairments for the years ended December 31, 2011, 2010, and 2009 are as follows:

(in thousands of dollars)	Gross Gains			Gross Losses				Proceeds
2011
Fixed Maturities		$	640		$	(492	)		$	72,873
2010
Fixed Maturities		$	2,911		$	(2,938	)		$	106,356
2009
Fixed Maturities		$	1,351		$	(5,757	)		$	79,577

Fixed maturities with an amortized cost of approximately $3,467,000 and $3,466,000 were on deposit with regulatory authorities at December 31, 2011 and 2010, respectively, to satisfy regulatory requirements. The fair value of these securities was approximately $3,549,000 and $3,696,000 as of December 31, 2011 and 2010, respectively.

5. Fair Value of Financial Instruments

The Company’s financial assets and liabilities carried at fair value have been classified, for disclosure purposes, based on a hierarchy defined by SSAP 100. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset’s or liability’s classification is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows:

• Level 1    Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasury securities, money market funds, certain mortgage backed securities, and exchange traded equity and derivative securities.

25

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

• Level 2    Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:

a. Quoted prices for similar assets or liabilities in active markets

b. Quoted prices for identical or similar assets or liabilities in nonactive markets

c. Inputs other than quoted market prices that are observable

d. Inputs that are derived principally from or corroborated by observable market data through correlation or other means

• Level 3    Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These measurements include circumstances in which there is little, if any, market activity for the asset or liability and reflect management’s own judgments about the assumptions a market participant would use in pricing the asset or liability.

At the end of each reporting period, the Company evaluates whether or not an event has occurred that would transfer any of these securities between Level 1 and Level 2. This policy also applies to transfers in and out of Level 3.

Assets Measured at Fair Value

The following tables provide information as of December 31, 2011 and December 31, 2010 about the Company’s financial assets measured at fair value:

(in thousands of dollars)	Quoted Prices Active Markets for Identical Assets			Significant Observable Inputs Level			Significant Unobservable Inputs Level
Asset	Level 1			Level 2			Level 3			Total
2011
Separate account assets		$	2,538,123		$	5,114,878		$	4,420,781		$	12,073,782
		$	2,538,123		$	5,114,878		$	4,420,781		$	12,073,782

2010
Separate account assets	$	3,022,375	$	5,135,486	$	4,433,138	$	12,590,999
	$	3,022,375	$	5,135,486	$	4,433,138	$	12,590,999

The Separate Account determines the fair values of certain financial assets based on quoted market prices. All of the open-ended mutual funds are included in Level 1. The open-ended mutual funds are valued at the net asset values of the respective portfolios as of December 31, 2011. There are no restrictions on purchases or sales of these open-ended mutual funds. Some of the privately managed funds assets are categorized in Level 2 or 3 based on the criteria defined above. The fixed maturities are classified into Level 1, 2 or 3, based on the availability of quoted prices or valuation techniques utilized. The short-term investments are included in Level 1. The investment income due and accrued amount is allocated to the same level as the associated security for which it is due. The stable value asset is categorized as Level 2.

26

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

Changes in Level 3 Assets Measured at Fair Value

The following table summarizes the changes in assets classified as Level 3 for the years ended December 31, 2011. Gains and losses reported in this table may include changes in fair value that are attributable to both observable and unobservable inputs:

(in thousands of dollars)	Beginning Fair Value			Total Gains/ (Losses) Included in Net Income			Purchases/ Issuance and Sales/ Settlements, Net				Transfer into/ of (out) Level 3				Ending Fair Value
2011
Separate account assets		$	4,433,138		$	278,540		$	(290,897	)		$	-	(1)		$	4,420,781
2010
Separate account assets		$	4,447,082		$	152,009		$	(165,856	)		$	(97	)(1)		$	4,433,138

(1) Net transfers into Level 3 are primarily due to a change in the information available to the Company when pricing the underlying securities, changing the significant inputs used in the valuation of the underlying securities to unobservable inputs, and consequently to a Level 3 classification.

Methods and Assumptions to Estimate Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of financial instruments as of December 31, 2011 and 2010:

Fixed Maturities

The estimated fair values of fixed maturities is valued in accordance with the NAIC’s Purposes and Procedures Manual of the Securities Valuation Office (“SVO”). In those instances where fair value is not available from the SVO then fair value is based upon quoted market prices, dealer quotes, and prices obtained from independent pricing services, generally broker dealers. Unless representative trades of securities actually occurred at year end, these quotes are generally estimates of fair value based on an evaluation of appropriate factors such as trading in similar securities, yields, credit quality, coupon rate, maturity, type of issues and other market data.

Contract Loans

The carrying amounts of these items approximate fair market values because interest rates are generally variable and based on current market rates.

Cash, Cash Equivalents and Short-term Investments

The carrying amounts of these items approximate fair value.

The carrying value and estimated fair value of the Company’s financial instruments as of December 31, 2011 and 2010 were as follows:

(in thousands of dollars)	2011						2010
	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
Financial instruments recorded as assets
Fixed Maturities		$	436,652		$	471,556		$	436,763		$	462,645
Common stocks			21,118			21,118			-			-
Contract loans			64,544			64,544			65,909			65,909
Cash, cash equivalents and short-term investments			32,359			32,359			20,195			20,195
Other invested assets			-			-			-			-
Securities lending collateral			-			-			-			-
Separate account assets			12,073,782			12,073,782			12,590,999			12,590,999

27

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

6. Income Taxes

Components of Deferred Tax Assets (“DTAs”) and Deferred Tax Liabilities (“DTLs”):

	2011
(in thousands of dollars)	Ordinary			Capital			Total
Gross deferred tax assets		$	38,990		$	1,406		$	40,396
Adjusted gross deferred tax assets			38,990			1,406			40,396
Deferred tax liabilities			648			-			648
Net deferred tax assets			38,342			1,406			39,748
Deferred tax assets nonadmitted			27,496			1,406			28,902
Net admitted adjusted deferred tax assets		$	10,846		$	-		$	10,846

	2010
(in thousands of dollars)	Ordinary			Capital			Total
Gross deferred tax assets		$	36,978		$	1,467		$	38,445
Adjusted gross deferred tax assets			36,978			1,467			38,445
Deferred tax liabilities			472			-			472
Net deferred tax assets			36,506			1,467			37,973
Deferred tax assets nonadmitted			24,647			1,467			26,114
Net admitted adjusted deferred tax assets		$	11,859		$	-		$	11,859

	Change
(in thousands of dollars)	Ordinary				Capital				Total
Gross deferred tax assets		$	2,012			$	(61	)		$	1,951
Adjusted gross deferred tax assets			2,012				(61	)			1,951
Deferred tax liabilities			176				-				176
Net deferred tax assets			1,836				(61	)			1,775
Deferred tax assets nonadmitted			2,849				(61	)			2,788
Net admitted adjusted deferred tax assets		$	(1,013	)		$	-			$	(1,013	)

The Company has elected to admit DTAs pursuant to paragraph 10.e. for all years presented.

The Company recorded an increase in admitted DTAs as the result of its election to employ the provisions of paragraph 10.e. as follows:

(in thousands of dollars)	2011
	Ordinary			Capital			Total
Deferred tax assets admitted through potential carryback (10.e.i)		$	-		$	-		$	-
Deferred tax assets admitted through future realization (10.e.ii)			6,766			-			6,766
Deferred tax assets admitted through offset of deferred tax liability (10.e.iii)			-			-			-

28

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

(in thousands of dollars)	2010
	Ordinary			Capital			Total
Deferred tax assets admitted through potential carryback (10.e.i)		$	-		$	-		$	-
Deferred tax assets admitted through future realization (10.e.ii)			6,649			-			6,649
Deferred tax assets admitted through offset of deferred tax liability (10.e.iii)			-			-			-

(in thousands of dollars)	Change
	Ordinary			Capital			Total
Deferred tax assets admitted through potential carryback (10.e.i)		$	-		$	-		$	-
Deferred tax assets admitted through future realization (10.e.ii)			117			-			117
Deferred tax assets admitted through offset of deferred tax liability (10.e.iii)			-			-			-

The SSAP No. 10R Admission calculation components are as follows:

(in thousands of dollars)	2011
	Ordinary			Capital			Total
SSAP No. 10R, Paragraph 10.a.		$	-		$	-		$	-
SSAP No. 10R, Paragraph 10.b. (the lesser of 10.b.i and 10.b.ii below)			4,080			-			4,080
SSAP No. 10R, Paragraph 10.b.i.			4,080			-			4,080
SSAP No. 10R, Paragraph 10.b.ii			-			-			17,069
SSAP No. 10R, Paragraph 10.c.			648			-			648
Total (paragraph 10.a. + 10.b. + 10.c.)		$	4,728		$	-		$	4,728
SSAP No. 10R, Paragraph 10.e.i.		$	-		$	-		$	-
SSAP No. 10R, Paragraph10.e.ii. (the lesser of 10.e.ii.a. and 10.e.ii.b. below)			10,846			-			10,846
SSAP No. 10R, Paragraph10.e.ii.a.			10,846			-			10,846
SSAP No. 10R, Paragraph10.e.ii.b.			-			-			25,602
SSAP No. 10R, Paragraph10.e.iii.			648			-			648
Total (10.e.i. + 10.e.ii. + 10.e.iii.)		$	11,494		$	-		$	11,494
Used in SSAP No. 10R, Paragraph 10.d.
Total Adjusted Capital									162,743
Authorized Control Level									832%

(in thousands of dollars)	2010
	Ordinary			Capital			Total
SSAP No. 10R, Paragraph 10.a.		$	-		$	-		$	-
SSAP No. 10R, Paragraph 10.b. (the lesser of 10.b.i and 10.b.ii below)			5,211			-			5,211
SSAP No. 10R, Paragraph 10.b.i.			5,211			-			5,211
SSAP No. 10R, Paragraph 10.b.ii			-			-			17,673
SSAP No. 10R, Paragraph 10.c.			472			-			472
Total (paragraph 10.a. + 10.b. + 10.c.)		$	5,683		$	-		$	5,683

29

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

(in thousands of dollars)	2010
	Ordinary			Capital			Total
SSAP No. 10R, Paragraph 10.e.i.		$	-		$	-		$	-
SSAP No. 10R, Paragraph10.e.ii. (the lesser of 10.e.ii.a. and 10.e.ii.b. below)			11,860			-			11,860
SSAP No. 10R, Paragraph10.e.ii.a.			11,860			-			11,860
SSAP No. 10R, Paragraph10.e.ii.b.			-			-			26,510
SSAP No. 10R, Paragraph10.e.iii.			472			-			472
Total (10.e.i. + 10.e.ii. + 10.e.iii.)		$	12,332		$	-		$	12,332
Used in SSAP No. 10R, Paragraph 10.d.
Total Adjusted Capital									178,259
Authorized Control Level									836%

(in thousands of dollars)	Change
	Ordinary				Capital			Total
SSAP No. 10R, Paragraph 10.a.		$	-			$	-		$	-
SSAP No. 10R, Paragraph 10.b. (the lesser of 10.b.i and 10.b.ii below)			(1,131	)			-			(1,131	)
SSAP No. 10R, Paragraph 10.b.i.			(1,131	)			-			(1,131	)
SSAP No. 10R, Paragraph 10.b.ii			-				-			(604	)
SSAP No. 10R, Paragraph 10.c.			176				-			176
Total (paragraph 10.a. + 10.b. + 10.c.)		$	(955	)		$	-		$	(955	)
SSAP No. 10R, Paragraph 10.e.i.		$	-			$	-		$	-
SSAP No. 10R, Paragraph10.e.ii. (the lesser of 10.e.ii.a. and 10.e.ii.b. below)			(1,014	)			-			(1,014	)
SSAP No. 10R, Paragraph10.e.ii.a.			(1,014	)			-			(1,014	)
SSAP No. 10R, Paragraph10.e.ii.b.			-				-			(908	)
SSAP No. 10R, Paragraph10.e.iii.			176				-			176
Total (10.e.i. + 10.e.ii. + 10.e.iii.)		$	(838	)		$	-		$	(838	)
Used in SSAP No. 10R, Paragraph 10.d.
Total Adjusted Capital										(15,516	)
Authorized Control Level										(4)%

The following table provides information about the admitted DTA, admitted assets, statutory surplus and total capital in the risk based calculation resulting from the calculation in paragraph 10a, 10b, 10c of SSAP No. 10R, and the increased amount of DTAs, admitted assets and surplus as a result of the application of paragraph 10.e. of SSAP No. 10R.

	2011
(in thousands of dollars)	Ordinary			Capital			Total
SSAP No. 10R, Paragraphs 10.a., 10.b., and 10.c.
Admitted deferred tax assets		$	4,728		$	-		$	4,728
Admitted assets			-			-			12,690,325
Adjusted statutory capital and surplus*			-			-			170,681
Total adjusted capital from DTAs			-			-			162,743
Increases due to SSAP No. 10R, Paragraph 10.e.
Admitted deferred tax assets			6,766			-			6,766
Admitted assets			6,766			-			6,766
Statutory surplus			6,766			-			6,766

30

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

	2010
(in thousands of dollars)	Ordinary			Capital			Total
SSAP No. 10R, Paragraphs 10.a., 10.b., and 10.c.
Admitted deferred tax assets		$	5,683		$	-		$	5,683
Admitted assets			-			-			13,201,497
Adjusted statutory capital and surplus*			-			-			176,731
Total adjusted capital from DTAs			-			-			178,259
Increases due to SSAP No. 10R, Paragraph 10.e.
Admitted deferred tax assets			6,649			-			6,649
Admitted assets			6,649			-			6,649
Statutory surplus			6,649			-			6,649

	Change
(in thousands of dollars)	Ordinary				Capital			Total
SSAP No. 10R, Paragraphs 10.a., 10.b., and 10.c.
Admitted deferred tax assets		$	(955	)		$	-		$	(955	)
Admitted assets			-				-			(511,172	)
Adjusted statutory capital and surplus*			-				-			(6,050	)
Total adjusted capital from DTAs			-				-			(15,516	)
Increases due to SSAP No. 10R, Paragraph 10.e.
Admitted deferred tax assets			117				-			117
Admitted assets			117				-			117
Statutory surplus			117				-			117

* As reported on the statutory balance sheet for the most recently filed statement with the domiciliary state commissioner adjusted in accordance with SSAP No. 10R, Paragraph 10.b.ii

The impact of Tax Planning Strategies includes:

	2011
	Ordinary		Capital		Total
Adjusted gross DTAs
(% of total adjusted gross DTAs)		0.0%		3.5%		3.5%
Net admitted adjusted gross DTAs
(% of total net admitted adjusted gross DTAs)		0.0%		0.0%		0.0%

	2010
	Ordinary		Capital		Total
Adjusted gross DTAs
(% of total adjusted gross DTAs)		0.0%		3.8%		3.8%
Net admitted adjusted gross DTAs
(% of total net admitted adjusted gross DTAs)		0.0%		0.0%		0.0%

	Change
	Ordinary		Capital		Total
Adjusted gross DTAs
(% of total adjusted gross DTAs)		0.0%		(0.3)%		(0.3)%
Net admitted adjusted gross DTAs
(% of total net admitted adjusted gross DTAs)		0.0%		0.0%		0.0%

31

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

The Company is currently recognizing all deferred tax liabilities.

Current income taxes incurred consist of the following major components:

(in thousands of dollars)

Description	2011				2010				2009
Current income tax expense (benefit) – operations		$	(7,106	)		$	(12,477	)		$	(6,684	)
Current income tax expense (benefit) – capital gains			(495	)			(1,227	)			(998	)
Federal income taxes incurred		$	(7,601	)		$	(13,704	)		$	(7,682	)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:

(in thousands of dollars)	2011			2010			Change
Deferred Tax Assets
Ordinary
Life insurance reserves		$	12,452		$	12,246		$	206
Deferred acquisition costs			20,388			20,997			(609	)
Nonadmitted assets			2,348			454			1,894
Compensation and benefits accrual			807			390			417
Tax credit carryforward			2,825			2,834			(9	)
Other			170			57			113
			38,990			36,978			2,012
Statutory Valuation Allowance Adjustment						-			-
Nonadmitted Deferred Tax Assets			27,496			24,647			2,849
Admitted Ordinary Deferred Tax Assets		$	11,494		$	12,331		$	(837	)
Capital
Unrealized losses		$	-		$	-		$	-
Fixed Maturity write-downs			1,232			1,207			25
Partnerships			174			260			(86	)
			1,406			1,467			(61	)
Statutory Valuation Allowance Adjustment						-			-
Nonadmitted Deferred Tax Assets			1,406			1,467			(61	)
Admitted Capital Deferred Tax Assets		$	-		$	-		$	-
Admitted Deferred Tax Assets		$	11,494		$	12,331		$	(837	)
Deferred Tax Liabilities
Ordinary
Market discount on fixed maturities		$	648		$	471		$	177
Depreciation/amortization			-			1			(1	)
Other			-			-			-
Total Deferred Tax Liabilities		$	648		$	472		$	176
Net Admitted Deferred Tax Assets/Liabilities		$	10,846		$	11,859		$	(1,013	)

32

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

The change in net deferred income taxes is composed of the following:

(in thousands of dollars)	2011			2010			Change
Total deferred tax assets		$	40,396		$	38,446		$	1,950
Total deferred tax liabilities			648			472			176
Net deferred tax asset		$	39,748		$	37,974			1,774
Tax effect of unrealized (gains) losses									-
Change in net deferred income tax benefit (charge)								$	1,774

Reconciliation of Federal Income Tax Rate to Actual Effective Rate

The provision for federal income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate at 35% to income before income taxes. The significant items causing this difference are as follows:

(in thousands of dollars)	2011				2010				2009
Provision computed at statutory rate		$	(4,934	)		$	(2,944	)		$	3,099
Amortization of interest maintenance reserve			(2	)			45				16
Separate accounts dividend received deduction			(1,245	)			(1,870	)			(1,747	)
Ceding commission included in surplus			(825	)			(1,058	)			(1,290	)
Nonadmitted assets			(1,894	)			(163	)			591
Other			(474	)			(786	)			(548	)
		$	(9,374	)		$	(6,776	)		$	121
Federal income tax incurred		$	(7,105	)		$	(12,477	)		$	(6,684	)
Tax on capital gains (losses)			(495	)			(1,227	)			(998	)
Less: Change in net deferred income tax			(1,774	)			6,928				7,803
Total statutory income taxes		$	(9,374	)		$	(6,776	)		$	121

As of December 31, 2011 the Company did not have any operating loss carryforwards.

The following are income taxes incurred in the current and prior years that will be available for recoupment in the event of future net losses:

2011	$	-
2010	$	-
2009	$	-
Deposits admitted under IRC §6603		None

33

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

The Company’s federal income tax return is consolidated with the following entities, with Zurich Holding Company of America, Inc. as the parent:

American Guarantee and Liability Insurance Company American Zurich Insurance Company Assurance Company of America Colonial American Casualty & Surety Company Empire Fire and Marine Insurance Company Empire Indemnity Insurance Company Fidelity & Deposit Company of Maryland Maryland Casualty Company Maunalua Associates, Inc. Northern Insurance Company of New York South County Services Company Inc. Steadfast Insurance Company The Zurich Services Corporation Universal Underwriters Acceptance Corporation Universal Underwriters Insurance Company Universal Underwriters Insurance Services, Inc. Universal Underwriters Life Insurance Company Universal Underwriters of Texas Insurance Company Universal Underwriters Service Corporation UUBVI, Limited Vehicle Dealer Solutions, Inc. Zurich Agency Services, Inc. Zurich Alternative Asset Management, LLC Zurich American Insurance Company Zurich American Insurance Company of Illinois Zurich American Corporation Zurich American Life Insurance Company of New York Zurich CZI Management Holding, Ltd. Zurich E & S Insurance Brokerage, Inc. Zurich Finance (USA), Inc. Zurich Global, Ltd. Zurich Global Investment Management Inc. Zurich Holding Company of America, Inc. Zurich Latin America Corporation Zurich Realty, Inc. Zurich Warranty Solutions, Inc.

A written agreement sets out the method of allocating tax between the companies. In general, the allocation is based upon a separate return calculation with an immediate benefit for a taxable loss. Intercompany tax balances are settled within thirty days after the filing of the consolidated federal income tax return, the payment of an estimated payment, an additional assessment of the consolidated tax liability, a refund of the consolidated tax liability or any other reduction to the member’s apportioned tax liability in accordance with the tax sharing agreement.

The Company’s significant tax jurisdiction is U.S. Federal tax. The statutes of limitations for all tax returns through the year ended December 31, 2004 are closed. During the first quarter of 2011, ZHCA reached a settlement in principle with the Appeals Division of the IRS with respect to tax years 2005 to 2006 and is in the process of determining additional taxes due for those years. The 2005 and 2006 Separate account received deduction disallowance attributable to the Company was fully conceded by the IRS in 2010. In 2011, the IRS completed its examination for the tax years 2007 and 2008, and ZHCA protested certain disputed amounts. ZHCA is seeking resolution of these disputed tax matters through the Appeals Division of the IRS. In September 2011, the IRS commenced its examination of tax year 2009. The IRS expects to conclude its field work by June 30, 2013. The Company believes the ultimate liability for the matters referred to above is not likely to have a material adverse affest on the Company’s financial position; however, it is possible the effect could be material to the Company’s results of operations for an individual future reporting period.

The Company did not accrue any interest and penalties related to income tax contingencies.

34

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

7. Information Concerning Parent, Subsidiaries and Affiliates

On September 2, 2010, the Company established a new subsidiary, Zurich American Life Insurance Company of New York (“ZALICONY”). The carrying value of ZALICONY as of December 31, 2011 is $21,118,000. The Company held no investments in parents, affiliates or subsidiaries as of the year ended December 31, 2010. The Company has related party services agreements and reinsurance agreements.

At December 31, 2011 and 2010, the Company reported the following amounts due from or to related parties:

(in thousands of dollars)	2011				2010
Universal Underwriters Life Insurance Company		$	242			$	-
Zurich American Life Insurance Company of New York			129				-
ZFUS Services LLC			10				-
Receivable from related party		$	381			$	-
Zurich American Insurance Company		$	(5,397	)		$	(472	)
Farmers New World Life Insurance Company			(376	)			(247	)
Universal Underwriters Insurance Company			(1	)			-
Zurich Insurance Company – Bermuda Branch			-				(16,064	)
ZFUS Services LLC			-				(1,818	)
Centre Group Holdings (US) Limited			-				(989	)
Universal Underwriters Life Insurance Company			-				(280	)
Payable to related party		$	(5,774	)		$	(19,870	)
Net payable to related party		$	(5,393	)		$	(19,870	)

For the years 2011, 2010 and 2009, the Company incurred the following amounts of expense in association with services provided by related parties:

(in thousands of dollars)	2011			2010			2009
ZFUS Services LLC		$	14,745		$	13,212		$	168
Farmers New World Life Insurance Company			2,832			2,523			1,550
Centre Group Holdings (US) Limited			369			3,374			956
		$	17,946		$	19,109		$	2,674

Services provided by affiliated companies include, but are not limited to, management, administrative and general services, data processing, financial services, investment services, investment advisory, investment accounting and financial reporting. Related party receivables and payables are settled as provided in its agreements, generally within 45 days from date of invoice.

The Company has a service agreement with its affiliate, Zurich American Life Insurance Company of New York (“ZALICONY”) for the Company to perform administrative services reasonably necessary in the ordinary course of business, including but not limited to data processing, financial services, investment services, and certain other services as deemed necessary.

The Company has a paymaster agreement with Farmers New World Life (“FNWL”), Universal Underwriters Life Insurance Company (“UULIC”), Farmers Group, Inc. and MI Administrators,

35

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

LLC, wherein MI Administrators, LLC acts an agent for the transfer of funds on behalf of the affiliated parties to the agreement for the costs and employees shared by the parties. The Company has no guarantees or undertakings for the benefit of an affiliate that would result in a material contingent exposure.

8. Life Reserves

Reserves for Life Contracts and Deposit-Type Contracts

The Company waives deduction of deferred fractional premiums upon death of the insured and returns the portion of the final premium paid beyond the policy month of death. The Company reserves for surrender values promised in excess of the legally computed reserves.

Extra premiums are charged for policies issued on substandard lives according to underwriting classifications. Final reserves are determined by computing the mid-terminal reserve for the plan and holding, in addition, one half of the net valuation premium for the modal period.

The tabular interest, tabular less actual reserve released and tabular cost have been determined by formulas in accordance with the NAIC Annual Statement Instructions.

For the determination of Tabular Interest on funds not involving life contingencies for each valuation rate of interest, the tabular interest is calculated as one hundredth of the product of such valuation rate of interest times the mean of the amount of funds subject to such valuation rate of interest held at the beginning and end of the year of valuation.

Variable Annuities With Guaranteed Living Benefits

The Company’s variable annuities with guaranteed living benefits at December 31, 2011 and 2010 are as follows:

(in thousands of dollars)	Guaranteed Living Benefits
	Subjected Account Value			Amount of Reserve Held-Net			Reinsurance Reserve Credit
Benefit and Type of Risk
December 31, 2011
Guaranteed retirement income benefit (“GRIB”) (Waiting period 7, 10 or 15 years)		$	1,364,441		$	24,905		$	1,483,670
December 31, 2010
Guaranteed retirement income benefit (“GRIB”) (Waiting period 7, 10 or 15 years)		$	1,605,369		$	24,632		$	1,104,045

Note:    GRIB base is greatest of account value, greatest anniversary value or net deposits accumulated at 5%.

Effective December 31, 2009, the Company adopted the Actuarial Guideline XLIII reserve basis. This change in reserve methodology was included in the Company’s Life and annuity reserves as shown on page 3 of these financial statements with no impact to the net retained reserve. The December 31, 2011 reserves for GMDB and GRIB meet the requirements of Actuarial Guideline XLIII. The Company also calculates the GMDB and GRIB reserves using the Actuarial Guideline XXXIII/Actuarial Guideline XXXIV reserve basis, and holds the higher of the two reserves basis in Exhibit 5 of the Annual Statement.

36

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

Analysis of Annuity Actuarial Reserves and Deposit Liabilities by Withdrawal Characteristics

Annuity actuarial reserves and deposit-type contract funds and other liabilities without life or disability contingencies by withdrawal characteristics as of December 31, 2011 and 2010 were as follows:

(in thousands of dollars)		General Account			Separate Account with Guarantees		Separate Account Nonguaranteed		Total			% of Total
2011
A.	Subject to discretionary withdrawal:
	1. With fair value adjustment	$	124,954		$	15,528	$	-	$	140,482			2.25%
	2. At book value less surrender charge of 5% or more		9,989			-		-		9,989			0.16%
	3. At fair value		-			-		2,314,744		2,314,744			37.09%
	4. Total with adjustment or at market value (total of 1 through 3)		134,943			15,528		2,314,744		2,465,215			39.50%
	5. At book value without adjustment (minimal or no charge or adjustment)		1,693,139			-		-		1,693,139			27.14%
B.	Not subject to discretionary withdrawal		2,077,165			-		4,937		2,082,102			33.36%
C.	Total (gross: direct + assumed)		3,905,247			15,528		2,319,681		6,240,456			100.00%
D.	Reinsurance Ceded		(3,570,565	)		-		-		(3,570,565	)
E.	Total (net) * (C)-(D)	$	334,682		$	15,528	$	2,319,681	$	2,669,891

2010
A.	Subject to discretionary withdrawal:
	1. With fair value adjustment	$	140,462		$	17,358	$	-	$	157,820		2.51%
	2. At book value less surrender charge of 5% or more		10,793			-		-		10,793		0.17%
	3. At fair value		-			-		2,730,578		2,730,578		43.46%
	4. Total with adjustment or at market value (total of 1 through 3)		151,255			17,358		2,730,578		2,899,191		46.14%
	5. At book value without adjustment (minimal or no charge or adjustment)		1,704,659			-		-		1,704,659		27.13%
B.	Not subject to discretionary withdrawal		1,672,068			-		6,891		1,678,959		26.73%
C.	Total (gross: direct + assumed)		3,527,982			17,358		2,737,469		6,282,809		100.00%
D.	Reinsurance Ceded		(3,213,807	)		-		-		(3,213,807	)
E.	Total (net) * (C)-(D)	$	314,175		$	17,358	$	2,737,469	$	3,069,002

37

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

Reconciliation of total annuity actuarial reserves and deposit fund liabilities as of December 31, 2011 and 2010 were as follows:

(in thousands of dollars)	2011			2010
Life and accident and health annual statement
Annuities (excluding supplementary contracts)		$	146,391		$	148,688
Supplementary contracts with life contingencies			182,572			162,362
Liability for deposit-type contracts			5,720			3,126
Total annuity and deposit-type contracts			334,683			314,176
Separate accounts annual statement
Annuities (excluding supplementary contracts)			2,330,271			2,747,935
Supplementary contracts including life contingencies			3,104			3,688
Liability for deposit-type contracts			1,833			3,203
Total separate accounts			2,335,208			2,754,826
Total annuity actuarial reserves and deposit-type contract liabilities		$	2,669,891		$	3,069,002

9. Reinsurance

The Company has assumed and ceded business using yearly renewable term contracts, accidental death and disability contracts and coinsurance contracts. The Company remains primarily responsible to its policyholders for all future claims and policyholder benefits related to the blocks of business ceded and is not relieved of its obligations to the extent any reinsurer does not meet its obligation to the Company.

Failure of the reinsurers to honor their obligations could result in losses to the Company; consequently, estimates are established for amounts deemed or estimated to be uncollectible. To minimize its exposure to significant losses from reinsurance insolvencies, the Company utilizes several reinsurers to minimize concentration of credit risk, and evaluates the financial condition of its reinsurers and concentration of credit risk of its reinsurers. Several reinsurance contracts require the reinsurer to maintain assets in a security trust whose market value matches or exceeds the book value of the reinsured liability.

PLICO

The initial ceding commission on the coinsurance agreement with PLICO was $120 million. This initial ceding commission was not transferred to the Company from PLICO, but rather was withheld from the investment assets transferred from the Company to PLICO as part of the transferred coinsurance assets. This initial ceding commission, net of tax, and the IMR related to the transferred coinsurance assets reflected in surplus are being amortized into operations. Amortization of the initial ceding commission was approximately $1.0 million, $1.3 million and $1.6 million for the years ended December 31, 2011, 2010 and 2009, respectively. Amortization of the IMR related to the transferred coinsurance assets was approximately $1.3 million, $1.7 million and $2.1 million for the years ended December 31, 2011, 2010 and 2009, respectively.

As part of the coinsurance agreement with PLICO (Note 1), most reinsurance agreements with outside reinsurers were novated to PLICO as part of the Purchase Agreement. As of December 31, 2011 and 2010, the Company’s separate account assets subject to the coinsurance agreement with PLICO were approximately $1.1 billion and $1.3 billion, respectively.

38

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

FNWL

The Company entered into a modified coinsurance agreement on December 1, 2003 with an affiliate, FNWL. FNWL is a Washington domiciled stock life insurance company. Initially, the Company assumed all existing nonqualified individual flexible payment fixed deferred (“NQ-FPDA”) and nonqualified individual single premium fixed deferred (“NQ-SPDA”) annuities from FNWL. In exchange, the Company paid an initial ceding commission of $36.5 million. No portion of the assets constituting the consideration was transferred to the Company. These assets consist principally of a portfolio of fixed income financial instruments. The values of these assets may fluctuate with changes in interest rates and other market conditions, and these fluctuations may be significant. The Company is at risk for such fluctuations. The reserve balances under this modified coinsurance agreement were approximately $653.5 million and $665.7 million as of December 31, 2011 and 2010, respectively. Subsequent new issues by FNWL of NQ-FPDA and NQ-SPDA annuities are assumed by the Company. In exchange, the Company receives all premiums and pays benefits to the policyholders relating to these contracts. The Company has a management and service agreement with FNWL to receive necessary services pursuant to this agreement.

FLA

As of December 31, 2011 and 2010, the reinsurance reserve credit from FLA related to fixed-rate annuity liabilities ceded to FLA amounted to approximately $134.5 million and $139.5 million, respectively.

Transamerica Re

The net amount at risk of the GMDB and GRIB on certain variable annuity contracts issued between March 1, 1997 and April 30, 2000 was ceded to Transamerica Re. As of December 31, 2011 and 2010, the reinsurance reserve credit related to reinsuring the net amount at risk on these contracts amounted to approximately $248.9 million and $176.2 million, respectively.

ZIC

On November 17, 2006, the Company entered into a reinsurance agreement (the “ZIC Agreement”) with ZIC, an affiliate. The Company ceded 100% of the net amounts at risk for GMDB and GRIB related to the Company’s DESTINATIONS contracts issued from May 1, 2000 through February 28, 2003. In accordance with Section 131.20a of the Illinois Insurance Code (the ”Code”), the Company submitted Form D-1, reporting a proposed reinsurance contract and requested approval of the contract and the Form D-1 filing under Section 174 of the Code. In connection with the Form D-1 filing, the IDOI approved the transaction on November 3, 2006, as submitted by the Company, which incorporated pro forma accounting treatment including reserve credits proposed under the reinsurance contract. In addition, the IDOI approved the reserve credit calculation methodology and the accounting as prescribed.

The Company’s most significant policy risks prior to the ZIC Agreement were the GMDB and GRIB risks. The net amount at risk for the GMDB is defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. For GRIB, the net amount at risk is defined as the current guaranteed annuitization benefit, in excess of the current account balance at the balance sheet date. As a result of the ZIC Agreement, the Company ceded $813,875,000 of GMDB net amount at risk and $784,178,000 of GRIB net amount at risk at December 31, 2011 and $779,632,000 of GMDB net amount at risk and $752,181,000 of GRIB net amount at risk at December 31, 2010.

39

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

The ceding premium paid to ZIC in exchange for reinsurance of GMDB and GRIB net amounts at risk for contracts issued after April 30, 2000 was $1,008,700,000. In addition, the ZIC Agreement called for the Company to pay interest of 5.25% on the initial ceding premium from September 1, 2006 until the effective date of the ZIC Agreement. The interest paid, in accordance with the ZIC Agreement, was $11,090,000.

On December 22, 2008 the Company and ZIC entered into Amendment No. 1 to the ZIC Agreement (“Amendment”). Under terms of the Amendment, the Company paid a premium to ZIC of $10,000,000 in consideration for changes in the operation of the ZIC Agreement, for the benefit of the Company, under forecast scenarios where a significant further decline in equity market levels was projected. Interest accrued from the effective date of the Amendment to December 23, 2008 at an annual rate of 5.25% was paid in the amount of $1,438 along with the premium on December 23, 2008.

Pursuant to the ZIC Agreement, ZIC established a security trust account for the exclusive benefit of the Company. The Bank of New York is the trustee. The trust account is funded with assets equal to at least 102% of the statutory reserve credit assumed by ZIC. At December 31, 2011 and December 31, 2010, 102% of the statutory reserve credit assumed by ZIC was $1,582,321,000 and $1,259,452,000, respectively. The associated letters of credit and trust asset balances at December 31, 2011 and December 31, 2010, were $1,670,045,000 and $1,402,370,000, respectively.

ZIBB

The Company entered into a reinsurance treaty with ZIBB, an affiliate, in June 2002. A trust account (the “ZIBB Reinsurance Trust” or the “Trust”) was established as security for three reinsurance agreements which include the Second Amended and Restated Group Variable Life Program Yearly Renewable Term Reinsurance Agreement, the Second Amended and Restated Individual Variable Life Program Yearly Renewable Term Reinsurance Agreement and the Amended and Restated Group Variable Life Program 2000 Yearly Renewable Term Reinsurance Agreement. State Street Bank is the “Trustee”, Fund Accountant and Custodian. At December 31, 2011 and December 31, 2010, reinsurance recoverables totaling approximately $307.4 million and approximately $271.5 million, respectively, were secured by the Trust, which was supported by cash and invested assets with a fair value of approximately $360.2 million and $307.9 million at December 31, 2011 and 2010, respectively.

As of December 31, 2011, 2010 and 2009, amounts associated with reinsurance assumed from affiliated insurance companies for life and annuity products were as follows:

(in thousands of dollars)	2011			2010			2009
Premiums assumed from affiliated insurance companies		$	26,801		$	43,590		$	26,937
Benefits assumed from affiliated insurance companies		$	61,510		$	62,681		$	61,715

40

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

As of December 31, 2011, 2010 and 2009, amounts associated with reinsurance ceded to affiliated and unaffiliated insurance companies for life, annuity and disability products were as follows:

(in thousands of dollars)	2011			2010			2009
Reserves ceded to affiliated insurance companies		$	1,567,615		$	1,249,378		$	1,323,721
Reserves ceded to unaffiliated insurance companies			2,458,116			2,440,524			2,557,450
Total reserves ceded		$	4,025,731		$	3,689,902		$	3,881,171
Premiums ceded to affiliated insurance companies		$	275,468		$	199,104		$	186,753
Premiums ceded to unaffiliated insurance companies			94,633			86,696			93,728
Total premiums ceded		$	370,101		$	285,800		$	280,481
Benefits ceded to affiliated insurance companies		$	248,420		$	265,294		$	361,225
Benefits ceded to unaffiliated insurance companies			379,351			422,733			596,179
Total benefits ceded		$	627,771		$	688,027		$	957,404

Such amounts related to life insurance in force at December 31, 2011 and 2010 were as follows:

(in thousands of dollars)	2011			2010
Direct and assumed		$	59,834,500		$	60,135,263
Ceded to
Affiliated insurance companies		$	47,987,442		$	48,740,781
Unaffiliated insurance companies			1,684,282			2,006,169
Total ceded		$	49,671,724		$	50,746,950

10. Capital and Surplus

The amount of dividends that can be paid by the Company to its stockholder without prior approval of the IDOI is limited to the greater of (i) 10% of its statutory unassigned surplus or (ii) statutory net income from the preceding calendar year. A dividend paid that does not meet the above specifications is defined as an “extraordinary dividend” and requires advance approval from the IDOI. Due to the fact that statutory unassigned surplus is also negative, the Company cannot pay a regular dividend in 2012. No cash dividends were paid in 2011 or 2010.

11. Retirement Plans and Other Postretirement Benefit Plans

Consolidated/Holding Company Plans

In 2004, the Company began participating in a qualified, noncontributory defined benefit pension plan, which is sponsored by an affiliated entity, Farmers Group, Inc. (“FGI”). Effective January 1, 2009 the Company transitioned to a Cash Balance Program. However, vested employees who were age 40 and over or who had 10 or more years of service as of December 31, 2008 were “grandfathered” in the previous Pension Program. This approach helps employees closer to retirement to maintain the full value of their anticipated pension benefit. Benefits under the Pension Program are based on an employee’s years of service and compensation during the

41

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

last five years of employment. The FGI funding policy is to make sufficient contributions to the pension plan to fully provide for employees’ benefits at the time of retirement. Under the Cash Balance Program, FGI makes regular contributions to the employee’s account. The amount of these contributions is based on a percentage of an employee’s base pay and will vary depending on an employee’s age and length of service.

In addition, the Company provides postretirement benefits to retired employees through a plan also sponsored by FGI.

The Company has no legal obligation for benefits under these plans. FGI charges the affiliate, FNWL, an allocated share of such contributions based on characteristics of the population of plan participants. These charges are then included in the overhead and administrative charges paid by the Company to FNWL. The Company has no pension plan liability as of December 31, 2011 and 2010. The Company’s share of pension costs was approximately $0, $311,000 and $428,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

Defined Contribution Plans

Effective January 1, 2009 the Company transitioned from a deferred profit sharing plan to a 401(k) Savings Plan which includes a dollar-for-dollar Company match up to 6% of employees’ earned base pay. All employees, including new hires, are vested in the 401(k) Savings Plan immediately. The cost to the Company for the 401(k) Savings Plan is included in the overhead and administrative charges paid by the Company to FNWL. Additionally, the Company’s contribution to the newly adopted 401(k) Savings Plan totaled $2,000 and $143,000 for the year ended December 31, 2011 and 2010, respectively.

12. Separate Accounts

General Nature and Characteristics of Separate Accounts Business

The assets and liabilities of the Company’s Separate Accounts represent segregated funds administered and invested by the Company for purposes of funding flexible payment, individual and group, variable annuity contracts, market value adjusted deferred annuity contracts, variable supplemental contracts and individual and group variable life insurance contracts for the exclusive benefit of variable annuity and variable life insurance contract holders.

The Company receives fees from the Separate Accounts which consist of charges for mortality and expense risk, certain minimum guaranteed death benefits, certain guaranteed retirement benefits, record maintenance fees and other administrative charges. The Company also retains varying amounts of withdrawal charges to cover expenses in the event of early withdrawals by contract holders. The assets and liabilities of the Separate Accounts are carried at current market value, which is based on upon the closing bid price, net asset value. The negative liability for transfers to Separate Accounts due or accrued represents the Commissioners Annuity.

The Company has marketed non-registered individual and group variable BOLI contracts and a series of individual variable life contracts. The Company received approximately $0.6 million, $2.1 million and $0.5 million of renewal premium on existing BOLI contracts during 2011, 2010 and 2009, respectively. This business impacted premiums, separate accounts fees, net transfers to separate accounts, insurance taxes, licenses and fees and income tax expense. The BOLI products also have premium tax and deferred acquisition costs (“DAC”) tax expense load charges which are deducted from the contract holder’s premiums to compensate the

42

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

Company for premium taxes and DAC tax expenses incurred by the Company related to the BOLI products. No commissions are paid on BOLI product sales.

Separate accounts fees and miscellaneous income were comprised of the following for the years ended December 31, 2011, 2010 and 2009:

(in thousands of dollars)	2011				2010				2009
Separate accounts fees on non BOLI variable life and annuities		$	11,947			$	13,569			$	15,272
BOLI cost of insurance charges and fees1			273,996				197,951				184,659
BOLI tax benefits2			(498	)			(845	)			(1,058	)
Total separate accounts fees and miscellaneous income		$	285,445			$	210,675			$	198,873

(1) The Company ceded approximately $274.4 million, $199.1 million and $186.8 million of such charges, as a reduction to premiums, to a Zurich affiliated company, ZIBB, during 2011, 2010 and 2009, respectively.

(2) The Company paid approximately $0.5 million, $0.8 million and $1.1 million in DAC tax allowances to ZIBB in 2011, 2010 and 2009, respectively, for certain contracts in which the DAC tax loads received by the Company are collected over time as opposed to receiving the entire load up front.

Under statutory accounting, transfers to the separate accounts are reported net of premium and DAC tax loads. There is a corresponding offset to the premium tax load in insurance taxes, licenses and fees.

Information regarding the reserves included in the separate accounts of the Company as of December 31, 2011 were as follows:

(in thousands of dollars)	Nonindexed Guarantee Less Than/ Equal to 4%			Nonindexed Guarantee More Than 4%			Nonguaranteed Separate Accounts			Total
Premiums, considerations or deposits for year ended December 31,2011		$	121		$	-		$	117,827		$	117,948
Reserves at December 31, 2011		$	14,649		$	547		$	12,049,432		$	12,064,628
For accounts with assets at
Market value		$	14,649		$	547		$	12,049,432		$	12,064,628
Total reserves		$	14,649		$	547		$	12,049,432		$	12,064,628
By withdrawal characteristics
With market value adjustment		$	14,649		$	547		$	-		$	15,196
At market value			-			-			12,049,432			12,049,432
		$	14,649		$	547		$	12,049,432		$	12,064,628

43

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

The following is a reconciliation of net transfers from the Company’s separate accounts for the years ended December 31, 2011, 2010 and 2009:

(in thousands of dollars)	2011				2010				2009
Transfers as reported in the summary of operations of the separate accounts annual statement
Transfers to separate accounts		$	181,346			$	112,140			$	111,727
Transfers from separate accounts			(474,738	)			(548,403	)			(1,450,570	)
Net transfers from separate accounts		$	(293,392	)		$	(436,263	)		$	(1,338,843	)
Reconciling adjustments
Experience rated refunds reinvested in separate accounts			(57,458	)			(55,816	)			(43,320	)
Change in termination value of separate accounts			(2,783	)			(2,651	)			(11,177	)
Separate accounts trading gain			8,993				37				69
SVP Surrender			1				(1,039	)			(5,419	)
Transfers required to support benefits			(2,184	)			(2,780	)			(4,385	)
Terminated policy refunds			348				255				1,530
Funding of MVA settlement			-				(1,233	)			4,591
Ceded transfers			-				(1,558	)			-
Other			(151	)			-				(1,090	)
Net transfers from separate accounts as reported in the statement of operations		$	(346,626	)		$	(501,048	)		$	(1,398,044	)

13. Commitments and Contingencies

The Company is subject to lawsuits arising from the normal course of its business activities. These actions are in various stages of discovery and development, and some seek punitive as well as compensatory damages. In the opinion of management, the Company has not engaged in any conduct that should warrant the award of any material punitive or compensatory damages. Acting on the advice of counsel, the Company intends to defend vigorously its position in each case, and management believes that, while it is not possible to predict the outcome of such matters with absolute certainty, ultimate disposition of these proceedings should not have a material adverse effect on the Company’s financial position.

In 1997, the Company entered into an agreement with a third party to guaranty certain indemnity obligations of an investment property, including environmental claims over a period of 20 years and income tax liability claims over a period of 7 years. The maximum liability exposure under this guaranty would not exceed $4,000,000. The Company was fully insured for losses and liabilities related to the potential environmental claims for a period of 10 years. The insurance expired in 2007. Additionally, Zurich American Corporation, the Company’s parent, has agreed to guaranty and indemnify the Company from all liabilities and costs incurred related to this transaction. While the Company currently has not experienced any claims, including environmental claims or threatened environmental claims related to this transaction, it is reasonably possible that the results of ongoing environmental studies or other factors could alter this expectation and may require recording of a liability and cause the Company future cash

44

Zurich American Life Insurance Company

Notes to Statutory Financial Statements

December 31, 2011, 2010 and 2009

outlays. The extent or amount of such events, if any, cannot be estimated with certainty at this time. However, management expects this to have no material impact on the financial position or liquidity for the years ended December 31, 2011, 2010 and 2009.

Rent paid, including allocations of rent from third-party administrators, was approximately $474,000, $448,000 and $546,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

The three year sublease term for the Bellevue, WA, administrative office ended as of August 31, 2010. Effective July 20, 2010, the Company moved its administrative office to leased space in Jersey City, NJ. The lease agreement for the Jersey City, NJ administrative office had commenced on June 1, 2010, for a term of 11 months renewable for 12 months with 60-days notice from end date. It was renewed for a 12 months period, starting on May 1, 2011 and will terminate on April 30, 2012. The Company will continue to pay the Jersey City lease through April, 2012. However, during 2011, the Company updated its plan of recordkeeping and in January 2012 provided termination notice to the Jersey City landlord. The Company has moved its administrative office from the leased space in Jersey City, NJ, to space within a Zurich insurance operations facility in Overland Park, KS.

14. Subsequent Events

As of April 25, 2012, the date the financial statements were available to be issued, there have been no events occurring subsequent to the close of the Company’s books or accounts for the accompanying financial statements that would have a material effect on the financial condition of the Company.

45

SUPPLEMENTAL SCHEDULES

Zurich American Life Insurance Company

Supplemental Schedule of Assets and Liabilities

December 31, 2011

The following is a summary of certain financial data included in exhibits and schedules subjected to audit procedures by independent accountants and utilized by actuaries in the determination of reserves.

	2011
Investment income earned
U.S. government fixed maturities		$	779,111
Other fixed maturities (unaffiliated)			19,548,970
Contract loans			2,937,278
Cash, cash equivalents and short-term investments			39,626
Other invested assets			(262	)
Aggregate write-ins for investment income			1,555,638
Gross investment income		$	24,860,361

	2011
Fixed Maturities and short-term investments, by class and maturity
Fixed Maturities by maturity – statement value
Due within 1 year or less		$	120,099,586
Over 1 year through 5 years			212,060,315
Over 5 years through 10 years			76,230,138
Over 10 years through 20 years			7,055,297
Over 20 years			45,668,266
Total by maturity		$	461,113,602
Fixed Maturities by class – statement value
Class 1		$	395,961,183
Class 2			61,323,572
Class 3			679,852
Class 4			3,148,807
Class 5			-
Class 6			188
Total by class		$	461,113,602
Total fixed maturities publicly traded		$	426,868,514
Total fixed maturities privately traded		$	34,245,088
Short-term investments – book value		$	24,461,894
Cash on deposit		$	7,897,132

47

Zurich American Life Insurance Company

Supplemental Schedule of Assets and Liabilities

December 31, 2011

	2011
Life insurance in force
Industrial		$	-
Ordinary		$	11,313,000
Credit life		$	-
Group life		$	10,151,465,000
Amount of additional accidental death benefits in force under ordinary policies		$	200,000
Supplemental contracts in force
Ordinary – not involving life contingencies
Amount on deposit		$	-
Income payable		$	11,331,519
Ordinary – involving life contingencies
Income payable		$	51,725,027
Group – not involving life contingencies
Amount on deposit		$	-
Income payable		$	-
Group – involving life contingencies
Income payable		$	-
Annuities
Ordinary
Immediate – amount of income payable		$	-
Deferred – fully paid – account balance		$	240,885,374
Deferred – not fully paid – account balance		$	2,449,168,219
Group
Amount of income payable		$	-
Fully paid – account balance		$	-
Not fully paid – account balance		$	1,398,319,079
Deposit funds and dividend accumulations
Deposit funds – account balance		$	19,176,941
Dividend accumulations – account balance		$	-

48

Zurich American Life Insurance Company

Supplemental Summary Investment Schedule

December 31, 2011

The Company’s gross investment holdings as filed with the 2011 Annual Statement are $554,673,323.

	Gross Investment Holdings					Admitted Assets as Reported in the Annual Statement
Investment Categories	Amount			Percentage		Amount			Percentage
2011
Fixed Maturities
U.S. treasury securities		$	26,940,571		4.86%		$	26,940,571		4.86%
U.S. government agency obligations
Issued by U.S. government sponsored agencies			10,708,730		1.93%			10,708,730		1.93%
Foreign government (including Canada, excluding mortgage-backed securities)			1,344,720		0.24%			1,344,720		0.24%
Securities issued by states, territories and possessions and political subdivisions in the U.S.
Political subdivisions of state, territories and possessions general obligations			4,033,154		0.73%			4,033,154		0.73%
Revenue and assessment obligations			7,053,000		1.27%			7,053,000		1.27%
Mortgage-backed securities
Pass-through securities
Guaranteed by GNMA			1,851,695		0.33%			1,851,695		0.33%
Issued by FNMA and FHLMC			4,351,949		0.79%			4,351,949		0.79%
CMOs and REMICs
Issued by FNMA and FHLMC			11,011,698		1.99%			11,011,698		1.99%
All other privately issued			110,076,055		19.84%			110,076,055		19.84%
Other debt and other fixed income securities (excluding short-term)
Unaffiliated domestic securities (includes credit tenant loans rated by the SVO)			215,952,753		38.93%			215,952,753		38.93%
Unaffiliated foreign securities			43,327,383		7.81%			43,327,383		7.81%
Other equity securities: Affiliated			21,118,349		3.81%			21,118,349		3.81%
Contract loans			64,544,240		11.64%			64,544,240		11.64%
Cash, cash equivalents and short-term investments			32,359,026		5.83%			32,359,026		5.83%
Other invested assets
Total invested assets		$	554,673,323		100.00%		$	554,673,323		100.00%

49

Zurich American Life Insurance Company

Supplemental Investment Risks Interrogatories

December 31, 2011

The Company’s total admitted assets, excluding separate account assets, as filed in the 2011 Annual Statement were $623,309,915.

The Company’s 10 largest exposures to a single issuer/borrower/investment, excluding U.S. government, U.S. government agency securities and those U.S. government money market funds listed in the Appendix to the NAIC SVO Purposes and Procedures Manual as exempt, property occupied by the Company and policy loans are as follows:

Investments	Amount			Percentage of Total Admitted Assets
Zurich American Life Insurance Company of New York		$	21,118,349		3.39%
Citigroup Inc			7,954,649		1.28%
General Electric Co			7,375,516		1.18%
Bank of America Corp			7,286,128		1.17%
DESF 2001-01 A6 ABS			5,704,718		0.92%
CSFB 2005-C6/C5 Aj CMBS			5,607,329		0.90%
CCCIT 2009-A5/A4 A5/A4 ABS			5,336,502		0.86%
GNR 2009-77 PA			4,407,696		0.71%
Wal-Mart Stores Inc			4,383,810		0.70%
CSMC 2007-C5 A2 CMBS			4,261,991		0.68%

The amounts and percentages of the Company’s total admitted assets held in fixed maturities and preferred stocks by NAIC rating are as follows:

	Fixed Maturities
	Amount			Percentage
NAIC – 1		$	395,961,183		63.53%
NAIC – 2			61,323,572		9.84%
NAIC – 3			679,852		0.11%
NAIC – 4			3,148,807		0.51%
NAIC – 5			-		0.00%
NAIC – 6			188		0.00%
		$	461,113,602

	Preferred Stocks
	Amount			Percentage
P/RP – 1		$	-		0.00%
P/RP – 2			-		0.00%
P/RP – 3			-		0.00%
P/RP – 4			-		0.00%
P/RP – 5			-		0.00%
P/RP – 6			-		0.00%
		$	-

The Company holds admitted assets in foreign investments of $36,699,166 or 5.89% of total admitted assets.

The amounts and percentages of the Company’s total admitted assets held in aggregate foreign investment exposures categorized by NAIC sovereign rating are as follows:

	Amount			Percentage of Total Admitted Assets
Countries rated NAIC – 1		$	32,535,201		5.22%
Countries rated NAIC – 2			-		0.00%
Countries rated NAIC – 3 or below			4,163,965		0.67%

50

Zurich American Life Insurance Company

Supplemental Investment Risks Interrogatories

December 31, 2011

The Company’s two largest foreign investment exposures to a single country, categorized by the country’s NAIC sovereign rating:

	Amount			Percentage of Total Admitted Assets
Countries Rated NAIC – 1
United Kingdom		$	6,015,204		0.97%
Luxembourg			3,802,168		0.61%
Countries Rated NAIC – 3 or below
Curacao		$	2,697,959		0.43%
Multinational			1,466,006		0.24%

Questions 7 through 9 are not applicable as the Company does not have unhedged foreign currency exposure.

The Company’s 10 largest nonsovereign foreign issues and related percentages of total admitted assets are listed below:

NAIC Rating		Amount		Percentage Total Assets
1FE	BARCLAYS PLC	$	2,644,233		0.42%
1FE	CODELCO INC		2,498,068		0.40%
1FE	ANZ NATL BANK INTL LTD		2,399,011		0.38%
1FE	UBS AG STAMFORD CT		2,076,054		0.33%
1FE	TEVA PHARMACEUT FIN BV		1,998,365		0.32%
1FE	ROYAL BK OF SCOTLAND		1,961,900		0.31%
1FE	BHP BILLITON FINANCE		1,872,184		0.30%
1FE	CREDIT SUISSE NEW YORK		1,634,151		0.26%
1FE	ENEL FINANCE INTERNATION		1,499,268		0.24%
2FE	TELEFONCIA SA		1,471,117		0.24%

The Company does have Canadian investments of $7,972,937 or 1.28% of total admitted assets, which is below the threshold of 2.5%.

Question 12 is not applicable as the Company does not hold any investments with contractual sales restrictions.

The Company’s 10 largest equity interests and related percentages of total admitted assets are listed below:

Issuer	Amount			Percentage Total Assets
Zurich American Life Insurance Company of New York		$	21,118,349		3.39%

Question 14 is not applicable as the Company does not hold any investments in nonaffiliated, privately placed equity securities.

Question 15 is not applicable as the Company does not hold any investments in general partnership interests.

Questions 16 and 17 are not applicable as the Company does not hold any mortgage loans.

51

Zurich American Life Insurance Company

Supplemental Investment Risks Interrogatories

December 31, 2011

Question 18 is not applicable as the Company does not hold any real estate investments.

Question 19 is not applicable as the Company does not hold any investments in mezzanine real estate loans.

Question 20, the Company holds the following amounts in securities lending arrangements as of:

Date	Amount			Percentage of Total Admitted Assets
March 31, 2011 (unaudited)		$	-		Not Applicable
June 30, 2011 (unaudited)			-		Not Applicable
September 30, 2011 (unaudited)			-		Not Applicable
December 31, 2011			-		0.00%

Question 21 is not applicable as the Company does not hold any warrants not attached to other financial instruments, options, caps or floors.

Questions 22 and 23 are not applicable as the Company holds no investments in collars, swaps, forwards, or future contracts.

52

ZALICO VARIABLE ANNUITY SEPARATE ACCOUNT

OF ZURICH AMERICAN LIFE INSURANCE COMPANY

REPORT ON AUDIT OF FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2011

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Index	Page(s)
Report of Independent Registered Public Accounting Firm		1
Statement of Assets, Liabilities and Contract Owners’ Equity, December 31, 2011		2-13
Statement of Operations for the year ended December 31, 2011		14-25
Statement of Changes in Contract Owners’ Equity for the year ended December 31, 2011		26-37
Statement of Changes in Contract Owners’ Equity for the year ended December 31, 2010		38-50
Notes to Financial Statements		51-88

Report of Independent Registered Public Accounting Firm

To the Contract Owners of ZALICO Variable Annuity Separate Account

and the Board of Directors of Zurich American Life Insurance Company

In our opinion, the accompanying statement of assets, liabilities and contract owners’ equity and the related statements of operations and of changes in contract owners’ equity present fairly, in all material respects, the financial position of each of the subaccounts listed in Note 1 of the ZALICO Variable Annuity Separate Account at December 31, 2011, and the results of each of their operations and the changes in each of their contract owners’ equity for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of Zurich American Life Insurance Company. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of fund shares owned at December 31, 2011 by correspondence with the transfer agents of the investee mutual funds, provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

New York, New York

April 25, 2012

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	Alger Portfolios														American Century Variable Portfolios, Inc.
	Alger Balanced O Subaccount		Alger Capital Appreciation  O Subaccount		Alger Capital Appreciation  S Subaccount		Alger Large Cap Growth I-2 Subaccount		Alger Mid Cap Growth I-2 Subaccount		Alger Mid Cap Growth S Subaccount		Alger Small Cap Growth I-2 Subaccount		American Century VP Income & Growth Subaccount		American Century VP Income & Growth II Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	36,818,903		53,587,986		–		9,888,921		10,167,983		11,801		7,864,146		8,973,334		9,018
Dividends and other receivables		–		–		–		–		–		–		–		–		–
Total assets		36,818,903		53,587,986		–		9,888,921		10,167,983		11,801		7,864,146		8,973,334		9,018
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–		–		–		–		–		–		–		–		–
Contract owners’ equity	$	36,818,903		53,587,986		–		9,888,921		10,167,983		11,801		7,864,146		8,973,334		9,018
Accumulation period	$	36,818,903		53,587,985		–		9,875,531		10,167,983		11,801		7,853,070		8,973,334		9,018
Annuity period		–		1		–		13,390		–		–		11,076		–		–
Total Contract Owners’ Equity	$	36,818,903		53,587,986		–		9,888,921		10,167,983		11,801		7,864,146		8,973,334		9,018
Units Outstanding		3,047,631		4,592,925		–		184,550		319,262		842		164,626		1,228,252		693
Shares Owned in each Portfolio		3,258,310		1,031,530		–		229,335		872,040		1,046		253,437		1,461,455		1,469
Fair Value per Share	$	11.30		51.95		–		43.12		11.66		11.28		31.03		6.14		6.14

See accompanying notes to financial statements

2

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	American Century Variable  Portfolios, Inc.				Credit Suisse Trust		Dreyfus Investment Portfolios				The Dreyfus Socially Responsible Growth Fund, Inc.				DWS Variable Series I
	American Century VP Value Subaccount		American Century VP Value II Subaccount		Credit  Suisse Trust International Equity Flex III Subaccount		Dreyfus I.P. Mid Cap Stock A Subaccount		Dreyfus I.P. Mid Cap Stock SC Subaccount		Dreyfus  Socially Responsible Growth A Subaccount		Dreyfus  Socially Responsible Growth SC Subaccount		DWS Bond VIP A Subaccount		DWS Capital Growth VIP A Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	18,151,810		3,886		–		51,046,312		1,649,284		5,170,678		2,059		23,053,508		244,875,630
Dividends and other receivables		–		–		–		–		–		–		–		–		–
Total assets		18,151,810		3,886		–		51,046,312		1,649,284		5,170,678		2,059		23,053,508		244,875,630
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–		–		–		–		–		–		–		–		132
Contract owners’ equity	$	18,151,810		3,886		–		51,046,312		1,649,284		5,170,678		2,059		23,053,508		244,875,498
Accumulation period	$	18,115,584		3,886		–		51,046,311		1,649,284		5,170,678		2,059		23,052,916		244,265,456
Annuity period		36,226		–		–		1		–		–		–		592		610,042
Total Contract Owners’ Equity	$	18,151,810		3,886		–		51,046,312		1,649,284		5,170,678		2,059		23,053,508		244,875,498
Units Outstanding		1,768,944		272		–		3,227,689		105,356		455,861		164		2,348,431		20,049,138
Shares Owned in each Portfolio		3,129,622		670		–		3,878,899		125,516		172,875		69		4,030,334		13,179,528
Fair Value per Share	$	5.80		5.80		–		13.16		13.14		29.91		29.74		5.72		18.58

See accompanying notes to financial statements

3

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	DWS Variable Series I
	DWS Capital Growth VIP B Subaccount		DWS Global Small Cap Growth VIP A Subaccount(a)		DWS Global Small Cap Growth VIP B Subaccount(b)		DWS Growth &  Income VIP A Subaccount		DWS Growth &  Income VIP B Subaccount		DWS Health Care VIP A Subaccount		DWS Health Care VIP B Subaccount		DWS International VIP A Subaccount		DWS International VIP B Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	135,124		59,496,556		1,799		27,228,363		56,024		–		–		31,125,632		40,948
Dividends and other receivables		–		–		–		–		–		–		–		–		–
Total assets		135,124		59,496,556		1,799		27,228,363		56,024		–		–		31,125,632		40,948
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–		–		–		–		–		–		–		147		–
Contract owners’ equity	$	135,124		59,496,556		1,799		27,228,363		56,024		–		–		31,125,485		40,948
Accumulation period	$	135,124		59,496,556		1,799		27,183,319		56,024		–		–		31,104,783		40,948
Annuity period		–		–		–		45,044		–		–		–		20,702		–
Total Contract Owners’ Equity	$	135,124		59,496,556		1,799		27,228,363		56,024		–		–		31,125,485		40,948
Units Outstanding		10,189		3,046,824		95		2,870,145		4,466		–		–		3,717,993		3,823
Shares Owned in each Portfolio		7,300		4,695,861		144		3,649,915		7,520		–		–		4,618,046		6,066
Fair Value per Share	$	18.51		12.67		12.45		7.46		7.45		–		–		6.74		6.75
		(a)    Effective May 2, 2011 name changed from DWS Global Opportunities VIP A Subaccount. (b)    Effective May 2, 2011 name changed from DWS Global Opportunities VIP B Subaccount.

See accompanying notes to financial statements

4

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	DWS Variable Series II
	DWS Balanced VIP A Subaccount		DWS Blue Chip VIP A Subaccount		DWS Blue Chip VIP B Subaccount		DWS Core  Fixed Income VIP A Subaccount		DWS Diversified International Equity VIP A Subaccount		DWS Dreman Small Mid Cap Value VIP A Subaccount		DWS Dreman Small Mid Cap Value VIP B Subaccount		DWS Global Thematic VIP A Subaccount		DWS Global Thematic VIP B Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	155,960,717		50,818,281		31,518		43,379,745		47,497,958		107,906,690		152,843		29,211,715		36,211
Dividends and other receivables		–		–		–		–		–		–		–		–		–
Total assets		155,960,717		50,818,281		31,518		43,379,745		47,497,958		107,906,690		152,843		29,211,715		36,211
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–		–		–		–		–		391		–		–		–
Contract owners’ equity	$	155,960,717		50,818,281		31,518		43,379,745		47,497,958		107,906,299		152,843		29,211,715		36,211
Accumulation period	$	154,652,861		50,818,274		31,518		43,325,391		47,423,060		107,796,120		152,843		29,211,715		36,211
Annuity period		1,307,856		7		–		54,354		74,898		110,179		–		–		–
Total Contract Owners’ Equity	$	155,960,717		50,818,281		31,518		43,379,745		47,497,958		107,906,299		152,843		29,211,715		36,211
Units Outstanding		21,315,309		4,930,486		2,279		9,678,869		12,342,974		14,981,404		8,243		2,156,332		2,550
Shares Owned in each Portfolio		7,257,362		4,844,450		2,999		4,793,342		6,804,866		9,498,828		13,454		3,697,685		4,578
Fair Value per Share	$	21.49		10.49		10.51		9.05		6.98		11.36		11.36		7.90		7.91

See accompanying notes to financial statements

5

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	DWS Variable Series II
	DWS Government  & Agency Securities VIP A Subaccount		DWS Government  & Agency Securities VIP B Subaccount		DWS High  Income VIP A Subaccount		DWS High  Income VIP B Subaccount		DWS Large Cap Value VIP A Subaccount		DWS Large Cap Value VIP B Subaccount		DWS Mid Cap Growth VIP A Subaccount		DWS Money  Market VIP Subaccount		DWS Small Mid Cap Growth VIP A Subaccount(c)
ASSETS
Investments in underlying portfolio funds, at fair value	$	86,559,230		181,796		102,719,589		84,668		233,221,769		211,789		–		99,787,103		97,871,180
Dividends and other receivables		514		–		209		–		–		–		–		928		–
Total assets		86,559,744		181,796		102,719,798		84,668		233,221,769		211,789		–		99,788,031		97,871,180
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–		–		–		–		137		–		–		–		–
Contract owners’ equity	$	86,559,744		181,796		102,719,798		84,668		233,221,632		211,789		–		99,788,031		97,871,180
Accumulation period	$	86,003,715		181,796		102,127,115		84,668		233,098,085		211,789		–		99,651,616		97,825,529
Annuity period		556,029		–		592,683		–		123,547		–		–		136,415		45,651
Total Contract Owners’ Equity	$	86,559,744		181,796		102,719,798		84,668		233,221,632		211,789		–		99,788,031		97,871,180
Units Outstanding		11,412,959		13,856		10,623,956		4,971		23,675,856		16,468		–		18,215,743		19,451,065
Shares Owned in each Portfolio		6,597,502		13,878		15,658,474		12,848		20,174,894		18,305		–		99,787,111		7,392,083
Fair Value per Share	$	13.12		13.10		6.56		6.59		11.56		11.57		–		1.00		13.24
		(c)    Effective May 2, 2011 name changed from DWS Small Cap Growth VIP A Subaccount.

See accompanying notes to financial statements

6

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

DWS Variable Series II

DWS Investments VIT Funds

Fidelity Variable Insurance Products Funds

DWS Strategic Value VIP A Subaccount

DWS Strategic Value VIP B Subaccount

DWS Technology VIP A Subaccount

DWS Technology VIP B Subaccount

DWS Turner Mid Cap Growth VIP A Subaccount

DWS Unconstrained Income VIP A Subaccount(d)

DWS Equity 500 Index VIP A Subaccount

DWS Equity 500 Index VIP B2 Subaccount

Fidelity VIP Asset Manager Subaccount

ASSETS

Investments in underlying portfolio funds, at fair value

$

–

–

–

–

–

42,148,627

66,320,475

18,505

4,190,246

Dividends and other receivables

–

–

–

–

–

241

–

–

–

Total assets

–

–

–

–

–

42,148,868

66,320,475

18,505

4,190,246

LIABILITIES AND CONTRACT OWNERS’ EQUITY

Liabilities – other payables

–

–

–

–

–

–

–

–

–

Contract owners’ equity

$

–

–

–

–

–

42,148,868

66,320,475

18,505

4,190,246

Accumulation period

$

–

–

–

–

–

42,141,145

66,320,475

18,505

4,171,846

Annuity period

–

–

–

–

–

7,723

–

–

18,400

Total Contract Owners’ Equity

$

–

–

–

–

–

42,148,868

66,320,475

18,505

4,190,246

Units Outstanding

–

–

–

–

–

2,552,940

6,279,883

1,831

141,952

Shares Owned in each Portfolio

–

–

–

–

–

3,541,901

5,024,278

1,404

303,641

Fair Value per Share

$

–

–

–

–

–

11.90

13.20

13.18

13.80

(d)    Effective September 22, 2011 name changed from DWS Strategic Income VIP A Subaccount.

See accompanying notes to financial statements

7

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	Fidelity Variable Insurance Products Funds														Franklin Templeton Variable Insurance Products Trust
	Fidelity VIP Contrafund Subaccount		Fidelity VIP Contrafund -Service 2 Subaccount		Fidelity VIP Equity  Income Subaccount		Fidelity  VIP Equity Income - Service 2 Subaccount		Fidelity  VIP Growth Subaccount		Fidelity VIP Index  500 Subaccount		Fidelity VIP Index 500 - SC Subaccount		Franklin  Rising Dividends Securities Subaccount		Franklin Small  Cap Value Securities Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	60,017,474		16,094		23,405,822		5,722		22,215,325		52,966,895		3,228,569		6,186,868		5,736,649
Dividends and other receivables		–		–		–		–		–		–		–		–		–
Total assets		60,017,474		16,094		23,405,822		5,722		22,215,325		52,966,895		3,228,569		6,186,868		5,736,649
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–		–		–		–		–		–		–		–		–
Contract owners’ equity	$	60,017,474		16,094		23,405,822		5,722		22,215,325		52,966,895		3,228,569		6,186,868		5,736,649
Accumulation period	$	59,910,362		16,094		23,384,799		5,722		22,196,221		52,847,971		3,228,569		6,170,220		5,736,649
Annuity period		107,112		–		21,023		–		19,104		118,924		–		16,648		–
Total Contract Owners’ Equity	$	60,017,474		16,094		23,405,822		5,722		22,215,325		52,966,895		3,228,569		6,186,868		5,736,649
Units Outstanding		1,491,660		985		668,410		447		444,257		347,647		22,741		394,833		294,576
Shares Owned in each Portfolio		2,607,188		711		1,252,318		311		602,205		409,548		25,176		314,853		369,391
Fair Value per Share	$	23.02		22.64		18.69		18.41		36.89		129.33		128.24		19.65		15.53

See accompanying notes to financial statements

8

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	Franklin Templeton Variable Insurance Products Trust										ING Global Resources Trust		ING Investors Trust		Invesco Variable Insurance Funds
	Franklin  Strategic Income Securities Subaccount		Franklin  U.S. Government Subaccount		Mutual Global Discovery Securities Subaccount		Mutual Shares Securities Subaccount		Templeton Developing Markets Securities Subaccount		ING Global Resources Subaccount		ING  JPMorgan Emerging Markets Equity Subaccount		Invesco V.I. Dividend Growth Services Subaccount		Invesco V.I. Financial Services Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	10,326,322		4,898,336		19,299,947		5,629,362		5,705,576		8,694,110		7,251,092		812,428		–
Dividends and other receivables		–		–		–		–		–		–		–		–		–
Total assets		10,326,322		4,898,336		19,299,947		5,629,362		5,705,576		8,694,110		7,251,092		812,428		–
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–		–		–		–		–		–		–		–		–
Contract owners’ equity	$	10,326,322		4,898,336		19,299,947		5,629,362		5,705,576		8,694,110		7,251,092		812,428		–
Accumulation period	$	10,320,748		4,898,336		19,292,458		5,629,355		5,640,083		8,690,043		7,168,346		812,428		–
Annuity period		5,574		–		7,489		7		65,493		4,067		82,746		–		–
Total Contract Owners’ Equity	$	10,326,322		4,898,336		19,299,947		5,629,362		5,705,576		8,694,110		7,251,092		812,428		–
Units Outstanding		651,022		375,018		956,401		392,249		206,862		716,924		340,459		127,085		–
Shares Owned in each Portfolio		841,591		365,003		1,000,516		366,018		605,688		447,458		402,615		57,865		–
Fair Value per Share	$	12.27		13.42		19.29		15.38		9.42		19.43		18.01		14.04		–

See accompanying notes to financial statements

9

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	Invesco Variable Insurance Funds						Janus Aspen Series
	Invesco  V.I. Global Health  Care Subaccount		Invesco  V.I. Global Real  Estate Subaccount		Invesco  V.I. Utilities Subaccount		Janus Aspen Balanced I-S Subaccount		Janus Aspen Enterprise I-S Subaccount		Janus Aspen Forty I-S Subaccount		Janus Aspen Janus I-S Subaccount		Janus  Aspen Perkins Mid Cap Value Subaccount		Janus Aspen Worldwide I-S Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	1,464,556		5,717,733		23,274,135		68,462,770		39,820,596		924,997		23,231,230		4,508,376		36,035,512
Dividends and other receivables		–		–		–		–		–		–		–		–		–
Total assets		1,464,556		5,717,733		23,274,135		68,462,770		39,820,596		924,997		23,231,230		4,508,376		36,035,512
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–		–		76		–		–		–		–		–		–
Contract owners’ equity	$	1,464,556		5,717,733		23,274,059		68,462,770		39,820,596		924,997		23,231,230		4,508,376		36,035,512
Accumulation period	$	1,464,556		5,717,399		23,265,508		68,022,128		39,783,471		924,997		23,155,015		4,508,376		35,974,759
Annuity period		–		334		8,551		440,642		37,125		–		76,215		–		60,753
Total Contract Owners’ Equity	$	1,464,556		5,717,733		23,274,059		68,462,770		39,820,596		924,997		23,231,230		4,508,376		36,035,512
Units Outstanding		100,764		289,430		1,856,012		1,615,242		1,022,865		75,996		951,974		218,534		1,313,732
Shares Owned in each Portfolio		84,315		470,983		1,390,331		2,570,889		1,043,243		27,845		1,017,129		296,994		1,395,103
Fair Value per Share	$	17.37		12.14		16.74		26.63		38.17		33.22		22.84		15.18		25.83

See accompanying notes to financial statements

10

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	Janus Aspen Series		JPMorgan Insurance  Trust
	Janus Aspen Worldwide S-C Subaccount		JP Morgan Insurance  Trust Core Bond Subaccount		JP Morgan Insurance Trust Equity Index Subaccount		JP Morgan Insurance Trust International Equity Subaccount		JP Morgan Insurance Trust Intrepid Growth Subaccount		JP Morgan Insurance Trust Intrepid MidCap Subaccount		JP Morgan Insurance Trust Mid Cap Growth Subaccount		JP Morgan Insurance Trust Mid Cap Value Subaccount		JP Morgan Insurance Trust Small Cap Core Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	2		1,303,722		144,177		7,679,459		–		2,784,619		1,020,354		6,833,141		4,069,381
Dividends and other receivables		–		–		–		–		–		–		–		–		–
Total assets		2		1,303,722		144,177		7,679,459		–		2,784,619		1,020,354		6,833,141		4,069,381
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–		–		–		–		–		–		–		–		–
Contract owners’ equity	$	2		1,303,722		144,177		7,679,459		–		2,784,619		1,020,354		6,833,141		4,069,381
Accumulation period	$	2		1,303,722		144,177		7,679,459		–		2,784,619		1,020,354		6,833,140		4,059,916
Annuity period		–		–		–		–		–		–		–		1		9,465
Total Contract Owners’ Equity	$	2		1,303,722		144,177		7,679,459		–		2,784,619		1,020,354		6,833,141		4,069,381
Units Outstanding		–		95,613		12,137		492,013		–		198,546		72,304		482,150		225,629
Shares Owned in each Portfolio		–		111,334		13,191		864,804		–		182,478		64,295		996,085		286,173
Fair Value per Share	$	–		11.71		10.93		8.88		–		15.26		15.87		6.86		14.22

See accompanying notes to financial statements

11

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	JPMorgan Insurance Trust		Oppenheimer Variable Account Funds														PIMCO Variable Insurance Trust
	JP Morgan Insurance Trust US Equity Subaccount		Oppenheimer Capital Appreciation Subaccount		Oppenheimer Global Securities Subaccount		Oppenheimer Global Strategic Income VA Subaccount		Oppenheimer High Income Subaccount		Oppenheimer Main Street Subaccount		Oppenheimer Main Street Small & Mid Cap Subaccount(e)		Oppenheimer Small Mid Cap Growth Subaccount		PIMCO Foreign  Bond Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	391,155		2,066,938		20,071,399		8,459,750		748,449		4,763,547		6,443,936		1,026,608		99,205
Dividends and other receivables		–		–		–		–		–		–		–		–		–
Total assets		391,155		2,066,938		20,071,399		8,459,750		748,449		4,763,547		6,443,936		1,026,608		99,205
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–		–		–		–		–		–		–		–		–
Contract owners’ equity	$	391,155		2,066,938		20,071,399		8,459,750		748,449		4,763,547		6,443,936		1,026,608		99,205
Accumulation period	$	391,155		2,066,930		20,071,396		8,459,750		748,449		4,763,547		6,443,935		1,026,608		99,205
Annuity period		–		8		3		–		–		–		1		–		–
Total Contract Owners’ Equity	$	391,155		2,066,938		20,071,399		8,459,750		748,449		4,763,547		6,443,936		1,026,608		99,205
Units Outstanding		31,147		161,308		1,063,753		570,132		207,268		351,155		347,513		75,738		6,045
Shares Owned in each Portfolio		25,700		52,460		737,648		1,540,938		391,858		232,029		378,610		22,395		9,604
Fair Value per Share	$	15.22		39.40		27.21		5.49		1.91		20.53		17.02		45.84		10.33
		(e)    Effective April 29, 2011 name changed from Oppenheimer Main Street Small Cap Subaccount.

See accompanying notes to financial statements

12

ZALICO Variable Annuity Separate Account

Statement of Assets, Liabilities and Contract Owners’ Equity

December 31, 2011

	PIMCO Variable Insurance Trust
	PIMCO Low Duration Subaccount
ASSETS
Investments in underlying portfolio funds, at fair value	$	118,508
Dividends and other receivables		–
Total assets		118,508
LIABILITIES AND CONTRACT OWNERS’ EQUITY
Liabilities – other payables		–
Contract owners’ equity	$	118,508
Accumulation period	$	118,508
Annuity period		–
Total Contract Owners’ Equity	$	118,508
Units Outstanding		7,929
Shares Owned in each Portfolio		11,417
Fair Value per Share	$	10.38

See accompanying notes to financial statements

13

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	Alger Portfolios																					American Century Variable Portfolios, Inc.
	Alger Balanced O Subaccount			Alger Capital Appreciation O Subaccount			Alger Capital Appreciation S Subaccount			Alger Large Cap Growth I-2 Subaccount			Alger Mid Cap Growth I-2 Subaccount			Alger Mid Cap Growth S Subaccount			Alger Small Cap Growth I-2 Subaccount			American Century VP Income & Growth Subaccount			American Century VP Income  & Growth II Subaccount
REVENUE
Dividend income	$	1,121,149			60,206			–			111,030			41,951			–			–			149,779			120
EXPENSES
Mortality and expense risk charges		566,125			786,210			32			152,426			171,874			249			113,405			134,655			152
Net investment income (loss)	$	555,024			(726,004	)		(32	)		(41,396	)		(129,923	)		(249	)		(113,405	)		15,124			(32	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	(1,220,571	)		1,361,285			242			281,507			(1,640,279	)		(7	)		311,410			(786,491	)		29
Capital gain distributions		–			–			–			–			–			–			–			–			–
Net realized gain (loss) on investments		(1,220,571	)		1,361,285			242			281,507			(1,640,279	)		(7	)		311,410			(786,491	)		29
Change in unrealized appreciation (depreciation) of investments		190,788			(1,553,181	)		(277	)		(436,124	)		674,051			(1,106	)		(624,685	)		952,622			105
Net realized and unrealized gain (loss) on investments	$	(1,029,783	)		(191,896	)		(35	)		(154,617	)		(966,228	)		(1,113	)		(313,275	)		166,131			134
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	(474,759	)		(917,900	)		(67	)		(196,013	)		(1,096,151	)		(1,362	)		(426,680	)		181,255			102

See accompanying notes to financial statements

14

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	American Century Variable Portfolios, Inc.						Credit Suisse Trust			Dreyfus Investment Portfolios						The Dreyfus Socially Responsible Growth Fund, Inc.						DWS Variable Series I
	American Century VP Value Subaccount			American Century VP Value II Subaccount			Credit Suisse Trust International Equity Flex III Subaccount			Dreyfus I.P. Mid Cap Stock A Subaccount			Dreyfus I.P. Mid Cap Stock SC Subaccount			Dreyfus Socially Responsible Growth A Subaccount			Dreyfus Socially Responsible Growth SC Subaccount			DWS Bond VIP A Subaccount			DWS Capital Growth VIP A Subaccount
REVENUE
Dividend income	$	295,463			73			1,169,754			290,192			7,572			49,511			14			980,492			1,679,817
EXPENSES
Mortality and expense risk charges		229,816			65			456,871			801,636			27,800			77,936			37			320,177			3,626,244
Net investment income (loss)	$	65,647			8			712,883			(511,444	)		(20,228	)		(28,425	)		(23	)		660,315			(1,946,427	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	240,907			(19	)		(2,063,375	)		(3,444,280	)		157,239			182,099			6			(104,351	)		3,687,837
Capital gain distributions		–			–			–			–			–			–			–			–			–
Net realized gain (loss) on investments		240,907			(19	)		(2,063,375	)		(3,444,280	)		157,239			182,099			6			(104,351	)		3,687,837
Change in unrealized appreciation (depreciation) of investments		(1,244,592	)		(21	)		(5,261,350	)		3,393,900			(161,408	)		(152,904	)		(7	)		376,251			(23,259,368	)
Net realized and unrealized gain (loss) on investments	$	(1,003,685	)		(40	)		(7,324,725	)		(50,380	)		(4,169	)		29,195			(1	)		271,900			(19,571,531	)
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	(938,038	)		(32	)		(6,611,842	)		(561,824	)		(24,397	)		770			(24	)		932,215			(21,517,958	)

See accompanying notes to financial statements

15

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	DWS Variable Series I
	DWS Capital Growth VIP B Subaccount			DWS Global Small Cap Growth VIP A Subaccount			DWS Global Small Cap Growth VIP B Subaccount			DWS Growth & Income VIP A Subaccount			DWS Growth & Income VIP B Subaccount			DWS Health Care VIP A Subaccount			DWS Health Care VIP B Subaccount			DWS International VIP A Subaccount			DWS International VIP B Subaccount
REVENUE
Dividend income	$	714			1,206,484			50			399,155			1,170			169,796			21			687,099			1,005
EXPENSES
Mortality and expense risk charges		3,176			982,285			80			425,550			1,613			144,903			73			527,976			1,123
Net investment income (loss)	$	(2,462	)		224,199			(30	)		(26,395	)		(443	)		24,893			(52	)		159,123			(118	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	5,256			(777,753	)		(448	)		(1,242,734	)		(9,319	)		(9,058,688	)		(3,388	)		(3,588,987	)		(15,691	)
Capital gain distributions		–			–			–			–			–			10,233,311			4,062			–			–
Net realized gain (loss) on investments		5,256			(777,753	)		(448	)		(1,242,734	)		(9,319	)		1,174,623			674			(3,588,987	)		(15,691	)
Change in unrealized appreciation (depreciation) of investments		(13,913	)		(7,148,798	)		49			862,651			10,884			2,588,988			787			(3,454,445	)		6,503
Net realized and unrealized gain (loss) on investments	$	(8,657	)		(7,926,551	)		(399	)		(380,083	)		1,565			3,763,611			1,461			(7,043,432	)		(9,188	)
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	(11,119	)		(7,702,352	)		(429	)		(406,478	)		1,122			3,788,504			1,409			(6,884,309	)		(9,306	)

See accompanying notes to financial statements

16

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	DWS Variable Series II
	DWS Balanced VIP A Subaccount			DWS Blue Chip VIP A Subaccount			DWS Blue Chip VIP B Subaccount			DWS Core Fixed Income VIP A Subaccount			DWS Diversified International Equity VIP A Subaccount			DWS Dreman Small Mid Cap Value VIP A Subaccount			DWS Dreman Small Mid Cap Value VIP B Subaccount			DWS Global Thematic VIP A Subaccount			DWS Global Thematic VIP B Subaccount
REVENUE
Dividend income	$	2,717,387			631,745			1,333			1,237,540			1,079,662			1,330,973			1,529			228,212			96
EXPENSES
Mortality and expense risk charges		2,310,987			804,418			2,143			625,750			752,978			1,713,449			3,883			492,833			700
Net investment income (loss)	$	406,400			(172,673	)		(810	)		611,790			326,684			(382,476	)		(2,354	)		(264,621	)		(604	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	2,338,421			(4,092,880	)		(23,710	)		(2,701,234	)		(3,527,089	)		(2,668,130	)		(54,368	)		(4,572,227	)		(422	)
Capital gain distributions		–			–			–			–			–			–			–			–			–
Net realized gain (loss) on investments		2,338,421			(4,092,880	)		(23,710	)		(2,701,234	)		(3,527,089	)		(2,668,130	)		(54,368	)		(4,572,227	)		(422	)
Change in unrealized appreciation (depreciation) of investments		(7,207,718	)		3,247,645			29,959			4,214,506			(3,886,862	)		(6,185,065	)		41,511			(600,016	)		(5,773	)
Net realized and unrealized gain (loss) on investments	$	(4,869,297	)		(845,235	)		6,249			1,513,272			(7,413,951	)		(8,853,195	)		(12,857	)		(5,172,243	)		(6,195	)
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	(4,462,897	)		(1,017,908	)		5,439			2,125,062			(7,087,267	)		(9,235,671	)		(15,211	)		(5,436,864	)		(6,799	)

See accompanying notes to financial statements

17

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	DWS Variable Series II
	DWS Government & Agency Securities VIP A Subaccount			DWS Government & Agency Securities VIP B Subaccount			DWS High Income VIP A Subaccount			DWS High Income VIP B Subaccount			DWS Large Cap Value VIP A Subaccount			DWS Large Cap Value VIP B Subaccount			DWS Mid Cap Growth VIP A Subaccount			DWS Money Market VIP Subaccount			DWS Small Mid Cap Growth VIP A Subaccount
REVENUE
Dividend income	$	3,455,382			8,399			10,007,316			11,863			2,639,298			2,898			–			9,552			338,320
EXPENSES
Mortality and expense risk charges		1,168,314			3,608			1,466,357			2,338			3,008,006			4,039			79,508			1,366,784			1,313,779
Net investment income (loss)	$	2,287,068			4,791			8,540,959			9,525			(368,708	)		(1,141	)		(79,508	)		(1,357,232	)		(975,459	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	1,341,244			3,355			2,115,925			(12,780	)		8,933,959			(25,899	)		3,456,620			–			3,969,538
Capital gain distributions		1,309,344			3,475			–			–			–			–			–			–			–
Net realized gain (loss) on investments		2,650,588			6,830			2,115,925			(12,780	)		8,933,959			(25,899	)		3,456,620			–			3,969,538
Change in unrealized appreciation (depreciation) of investments		(242,533	)		(1,297	)		(7,695,442	)		5,737			(22,794,497	)		15,348			(1,439,292	)		–			(16,108,334	)
Net realized and unrealized gain (loss) on investments	$	2,408,055			5,533			(5,579,517	)		(7,043	)		(13,860,538	)		(10,551	)		2,017,328			–			(12,138,796	)
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	4,695,123			10,324			2,961,442			2,482			(14,229,246	)		(11,692	)		1,937,820			(1,357,232	)		(13,114,255	)

See accompanying notes to financial statements

18

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	DWS Variable Series II																		DWS Investments VIT Funds						Fidelity Variable  Insurance Products Funds
	DWS Strategic Value VIP A Subaccount			DWS Strategic Value VIP B Subaccount			DWS Technology VIP A Subaccount			DWS Technology VIP B Subaccount			DWS Turner Mid Cap Growth VIP A Subaccount			DWS Unconstrained Income VIP A Subaccount			DWS Equity 500 Index VIP A Subaccount			DWS Equity 500 Index VIP B2 Subaccount			Fidelity VIP Asset Manager Subaccount
REVENUE
Dividend income	$	2,419,524			1,405			–			–			–			2,433,758			1,262,571			233			87,011
EXPENSES
Mortality and expense risk charges		693,091			952			223,026			109			214,234			608,867			1,040,649			331			66,297
Net investment income (loss)	$	1,726,433			453			(223,026	)		(109	)		(214,234	)		1,824,891			221,922			(98	)		20,714
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	(52,071,847	)		(44,074	)		12,169,492			4,579			4,179,218			145,359			(573,569	)		(9	)		(2,540	)
Capital gain distributions		–			–			–			–			4,827,560			–			–			–			21,406
Net realized gain (loss) on investments		(52,071,847	)		(44,074	)		12,169,492			4,579			9,006,778			145,359			(573,569	)		(9	)		18,866
Change in unrealized appreciation (depreciation) of investments		61,803,635			53,899			(8,923,814	)		(3,541	)		(3,243,000	)		(351,876	)		273,955			36			(212,053	)
Net realized and unrealized gain (loss) on investments	$	9,731,788			9,825			3,245,678			1,038			5,763,778			(206,517	)		(299,614	)		27			(193,187	)
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	11,458,221			10,278			3,022,652			929			5,549,544			1,618,374			(77,692	)		(71	)		(172,473	)

See accompanying notes to financial statements

19

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	Fidelity Variable Insurance Products Funds																					Franklin Templeton Variable Insurance Products Trust
	Fidelity VIP Contrafund Subaccount			Fidelity VIP Contrafund -Service 2 Subaccount			Fidelity VIP Equity Income Subaccount			Fidelity VIP Equity Income - Service 2 Subaccount			Fidelity VIP Growth Subaccount			Fidelity VIP Index 500 Subaccount			Fidelity VIP Index 500 - SC Subaccount			Franklin Rising Dividends Securities Subaccount		Franklin Small Cap Value Securities Subaccount
REVENUE
Dividend income	$	645,604			134			610,127			136			86,893			1,063,901			57,443			95,391		43,155
EXPENSES
Mortality and expense risk charges		898,406			282			345,359			97			340,179			765,832			53,945			85,710		83,378
Net investment income (loss)	$	(252,802	)		(148	)		264,768			39			(253,286	)		298,069			3,498			9,681		(40,223	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	(3,019,536	)		71			(1,213,533	)		(12	)		1,149,498			1,755,058			(55,743	)		35,658		670
Capital gain distributions		–			–			–			–			84,632			1,364,242			87,767			–		–
Net realized gain (loss) on investments		(3,019,536	)		71			(1,213,533	)		(12	)		1,234,130			3,119,300			32,024			35,658		670
Change in unrealized appreciation (depreciation) of investments		845,885			(664	)		900,958			(86	)		(1,223,610	)		(2,981,212	)		(17,472	)		224,215		(299,676	)
Net realized and unrealized gain (loss) on investments	$	(2,173,651	)		(593	)		(312,575	)		(98	)		10,520			138,088			14,552			259,873		(299,006	)
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	(2,426,453	)		(741	)		(47,807	)		(59	)		(242,766	)		436,157			18,050			269,554		(339,229	)

See accompanying notes to financial statements

20

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	Franklin Templeton Variable Insurance Products Trust														ING Global  Resources Trust			ING Investors Trust			Invesco Variable Insurance Funds
	Franklin Strategic Income Securities Subaccount			Franklin U.S. Government Subaccount		Mutual Global Discovery Securities Subaccount			Mutual Shares Securities Subaccount			Templeton Developing Markets Securities Subaccount			ING Global Resources Subaccount			ING JPMorgan Emerging Markets Equity Subaccount			Invesco V.I. Dividend Growth Services Subaccount			Invesco V.I. Financial Services Subaccount
REVENUE
Dividend income	$	617,396			130,245		470,702			145,136			67,858			54,208			99,028			–			1,785
EXPENSES
Mortality and expense risk charges		145,631			59,151		285,020			86,748			94,722			133,744			118,648			7,104			4,462
Net investment income (loss)	$	471,765			71,094		185,682			58,388			(26,864	)		(79,536	)		(19,620	)		(7,104	)		(2,677	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	179,151			28,625		163,523			(182,252	)		(326,320	)		(341,869	)		548,409			(14,521	)		215,929
Capital gain distributions		–			–		441,913			–			–			–			292,442			–			–
Net realized gain (loss) on investments		179,151			28,625		605,436			(182,252	)		(326,320	)		(341,869	)		840,851			(14,521	)		215,929
Change in unrealized appreciation (depreciation) of investments		(523,094	)		80,631		(1,694,503	)		(27,530	)		(938,452	)		(632,392	)		(2,675,474	)		(46,964	)		(159,273	)
Net realized and unrealized gain (loss) on investments	$	(343,943	)		109,256		(1,089,067	)		(209,782	)		(1,264,772	)		(974,261	)		(1,834,623	)		(61,485	)		56,656
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	127,822			180,350		(903,385	)		(151,394	)		(1,291,636	)		(1,053,797	)		(1,854,243	)		(68,589	)		53,979

See accompanying notes to financial statements

21

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	Invesco Variable Insurance Funds									Janus Aspen Series
	Invesco V.I. Global Health Care Subaccount			Invesco V.I. Global Real Estate Subaccount			Invesco V.I. Utilities Subaccount			Janus Aspen Balanced I-S Subaccount			Janus Aspen Enterprise I-S Subaccount			Janus Aspen Forty I-S Subaccount			Janus Aspen Janus I-S Subaccount			Janus Aspen Perkins Mid Cap Value Subaccount			Janus Aspen Worldwide I-S Subaccount
REVENUE
Dividend income	$	–			244,776			676,684			1,771,114			–			4,017			151,979			28,893			246,909
EXPENSES
Mortality and expense risk charges		21,533			89,236			289,896			981,751			607,971			16,399			359,860			67,808			590,973
Net investment income (loss)	$	(21,533	)		155,540			386,788			789,363			(607,971	)		(12,382	)		(207,881	)		(38,915	)		(344,064	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	(61,169	)		(1,510,774	)		(2,367,481	)		2,515,070			3,775,911			77,543			1,521,077			(23,246	)		1,293,046
Capital gain distributions		–			–			–			3,829,805			–			–			–			–			–
Net realized gain (loss) on investments		(61,169	)		(1,510,774	)		(2,367,481	)		6,344,875			3,775,911			77,543			1,521,077			(23,246	)		1,293,046
Change in unrealized appreciation (depreciation) of investments		120,146			858,858			4,878,066			(6,835,942	)		(4,316,603	)		(154,298	)		(3,009,772	)		(139,959	)		(7,523,689	)
Net realized and unrealized gain (loss) on investments	$	58,977			(651,916	)		2,510,585			(491,067	)		(540,692	)		(76,755	)		(1,488,695	)		(163,205	)		(6,230,643	)
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	37,444			(496,376	)		2,897,373			298,296			(1,148,663	)		(89,137	)		(1,696,576	)		(202,120	)		(6,574,707	)

See accompanying notes to financial statements

22

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	Janus Aspen Series		JPMorgan Insurance Trust
	Janus Aspen Worldwide S-C Subaccount		JP Morgan Insurance Trust Core Bond Subaccount			JP Morgan Insurance Trust Equity Index Subaccount			JP Morgan Insurance Trust International Equity Subaccount			JP Morgan Insurance Trust Intrepid Growth Subaccount			JP Morgan Insurance Trust Intrepid MidCap Subaccount			JP Morgan Insurance Trust Mid Cap Growth Subaccount			JP Morgan Insurance Trust Mid Cap Value Subaccount			JP Morgan Insurance Trust Small Cap Core Subaccount
REVENUE
Dividend income	$	–		87,304			5,780			170,867			73			26,989			–			98,647			5,868
EXPENSES
Mortality and expense risk charges		–		21,769			3,593			125,612			53			40,902			16,326			98,193			62,531
Net investment income (loss)	$	–		65,535			2,187			45,255			20			(13,913	)		(16,326	)		454			(56,663	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	–		58,169			32,602			(641,027	)		327			(53,977	)		128,716			126,084			49,830
Capital gain distributions		–		–			–			–			–			–			–			–			–
Net realized gain (loss) on investments		–		58,169			32,602			(641,027	)		327			(53,977	)		128,716			126,084			49,830
Change in unrealized appreciation (depreciation) of investments		–		(41,258	)		(24,275	)		(529,230	)		(690	)		13			(213,182	)		(72,730	)		(264,007	)
Net realized and unrealized gain (loss) on investments	$	–		16,911			8,327			(1,170,257	)		(363	)		(53,964	)		(84,466	)		53,354			(214,177	)
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	–		82,446			10,514			(1,125,002	)		(343	)		(67,877	)		(100,792	)		53,808			(270,840	)

See accompanying notes to financial statements

23

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	JPMorgan Insurance Trust			Oppenheimer Variable Account Funds																					PIMCO Variable Insurance Trust
	JP Morgan Insurance Trust US Equity Subaccount			Oppenheimer Capital Appreciation Subaccount			Oppenheimer Global Securities Subaccount			Oppenheimer Global Strategic Income VA Subaccount			Oppenheimer High Income Subaccount			Oppenheimer Main Street Subaccount			Oppenheimer Main Street Small & Mid Cap Subaccount			Oppenheimer Small Mid Cap Growth Subaccount			PIMCO Foreign Bond Subaccount
REVENUE
Dividend income	$	5,231			2,541			273,359			277,432			63,508			31,785			29,163			–			2,508
EXPENSES
Mortality and expense risk charges		5,818			30,668			331,695			129,619			11,592			71,145			97,441			14,244			1,715
Net investment income (loss)	$	(587	)		(28,127	)		(58,336	)		147,813			51,916			(39,360	)		(68,278	)		(14,244	)		793
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	4,142			43,295			(462,113	)		50,127			(106,743	)		(150,427	)		(161,446	)		130,197			(43	)
Capital gain distributions		–			–			–			120,712			–			–			–			–			971
Net realized gain (loss) on investments		4,142			43,295			(462,113	)		170,839			(106,743	)		(150,427	)		(161,446	)		130,197			928
Change in unrealized appreciation (depreciation) of investments		(16,542	)		(66,590	)		(1,745,085	)		(361,281	)		5,783			102,666			(10,006	)		(201,779	)		4,101
Net realized and unrealized gain (loss) on investments	$	(12,400	)		(23,295	)		(2,207,198	)		(190,442	)		(100,960	)		(47,761	)		(171,452	)		(71,582	)		5,029
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	(12,987	)		(51,422	)		(2,265,534	)		(42,629	)		(49,044	)		(87,121	)		(239,730	)		(85,826	)		5,822

See accompanying notes to financial statements

24

ZALICO Variable Annuity Separate Account

Statement of Operations

For the year ended December 31, 2011

	PIMCO Variable  Insurance Trust
	PIMCO Low Duration Subaccount
REVENUE
Dividend income	$	2,236
EXPENSES
Mortality and expense risk charges		1,889
Net investment income (loss)	$	347
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sale of investments	$	305
Capital gain distributions		–
Net realized gain (loss) on investments		305
Change in unrealized appreciation (depreciation) of investments		(1,005	)
Net realized and unrealized gain (loss) on investments	$	(700	)
Net Increase (Decrease) in Contract Owners’ Equity Resulting from Operations	$	(353	)

See accompanying notes to financial statements

25

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	Alger Portfolios																					American Century Variable Portfolios, Inc.
	Alger Balanced  O Subaccount			Alger Capital Appreciation O Subaccount			Alger Capital Appreciation S Subaccount			Alger Large Cap Growth I-2 Subaccount			Alger Mid Cap Growth I-2 Subaccount			Alger Mid Cap Growth S Subaccount			Alger Small Cap Growth I-2 Subaccount			American Century VP Income & Growth Subaccount			American Century VP Income & Growth II Subaccount
OPERATIONS
Net investment income (loss)	$	555,024			(726,004	)		(32	)		(41,396	)		(129,923	)		(249	)		(113,405	)		15,124			(32	)
Net realized gain (loss) on investments		(1,220,571	)		1,361,285			242			281,507			(1,640,279	)		(7	)		311,410			(786,491	)		29
Change in unrealized appreciation (depreciation) of investments		190,788			(1,553,181	)		(277	)		(436,124	)		674,051			(1,106	)		(624,685	)		952,622			105
Net increase (decrease) in contract owners’ equity resulting from operations		(474,759	)		(917,900	)		(67	)		(196,013	)		(1,096,151	)		(1,362	)		(426,680	)		181,255			102
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		324,296			1,567,133			–			346,509			472,080			–			271,371			314,031			–
Net transfer (to) from affiliate and subaccounts		(78,439	)		3,597,100			5			(187,051	)		(840,223	)		(1	)		238,784			(314,364	)		(1	)
Payments for redemptions		(5,080,437	)		(4,843,594	)		(1,474	)		(1,416,344	)		(1,865,403	)		–			(783,353	)		(1,627,171	)		–
Guaranteed retirement income benefit, maintenance fees, and other fees		(95,342	)		(135,733	)		–			–			–			–			–			–			–
Annuity payout reserve adjustment		(12,858	)		–			–			23			–			–			83			(1	)		–
Net increase (decrease) from contract owners’ equity transactions		(4,942,780	)		184,906			(1,469	)		(1,256,863	)		(2,233,546	)		(1	)		(273,115	)		(1,627,505	)		(1	)
Total increase (decrease) in contract owners’ equity		(5,417,539	)		(732,994	)		(1,536	)		(1,452,876	)		(3,329,697	)		(1,363	)		(699,795	)		(1,446,250	)		101
CONTRACT OWNERS’ EQUITY
Beginning of period		42,236,442			54,320,980			1,536			11,341,797			13,497,680			13,164			8,563,941			10,419,584			8,917
End of period	$	36,818,903			53,587,986			–			9,888,921			10,167,983			11,801			7,864,146			8,973,334			9,018

See accompanying notes to financial statements

26

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	American Century Variable Portfolios, Inc.						Credit Suisse Trust			Dreyfus Investment Portfolios						The Dreyfus Socially Responsible Growth Fund, Inc.						DWS Variable Series I
	American Century VP Value Subaccount			American Century VP Value II Subaccount			Credit Suisse Trust International Equity Flex III Subaccount			Dreyfus I.P. Mid Cap Stock A Subaccount			Dreyfus I.P. Mid Cap Stock SC Subaccount			Dreyfus Socially Responsible Growth A Subaccount			Dreyfus Socially Responsible Growth SC Subaccount			DWS Bond VIP A Subaccount			DWS Capital Growth VIP A Subaccount
OPERATIONS
Net investment income (loss)	$	65,647			8			712,883			(511,444	)		(20,228	)		(28,425	)		(23	)		660,315			(1,946,427	)
Net realized gain (loss) on investments		240,907			(19	)		(2,063,375	)		(3,444,280	)		157,239			182,099			6			(104,351	)		3,687,837
Change in unrealized appreciation (depreciation) of investments		(1,244,592	)		(21	)		(5,261,350	)		3,393,900			(161,408	)		(152,904	)		(7	)		376,251			(23,259,368	)
Net increase (decrease) in contract owners’ equity resulting from operations		(938,038	)		(32	)		(6,611,842	)		(561,824	)		(24,397	)		770			(24	)		932,215			(21,517,958	)
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		452,821			–			1,215,574			899,915			53,204			83,737			–			301,856			2,953,116
Net transfer (to) from affiliate and subaccounts		(490,592	)		(1	)		(35,632,616	)		(1,155,692	)		(164,909	)		145,361			55			173,207			63,674,633
Payments for redemptions		(1,681,152	)		–			(2,818,052	)		(6,729,618	)		(224,676	)		(776,130	)		–			(2,758,041	)		(29,074,707	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–			–			(65,088	)		(137,445	)		–			(7,338	)		–			(33,404	)		(465,133	)
Annuity payout reserve adjustment		86			–			(14,819	)		(7,768	)		–			–			–			1			(64,252	)
Net increase (decrease) from contract owners’ equity transactions		(1,718,837	)		(1	)		(37,315,001	)		(7,130,608	)		(336,381	)		(554,370	)		55			(2,316,381	)		37,023,657
Total increase (decrease) in contract owners’ equity		(2,656,875	)		(33	)		(43,926,843	)		(7,692,432	)		(360,778	)		(553,600	)		31			(1,384,166	)		15,505,699
CONTRACT OWNERS’ EQUITY
Beginning of period		20,808,685			3,919			43,926,843			58,738,744			2,010,062			5,724,278			2,028			24,437,674			229,369,799
End of period	$	18,151,810			3,886			–			51,046,312			1,649,284			5,170,678			2,059			23,053,508			244,875,498

See accompanying notes to financial statements

27

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	DWS Variable Series I
	DWS Capital Growth VIP B Subaccount			DWS Global Small Cap Growth VIP A Subaccount			DWS Global Small Cap Growth VIP B Subaccount			DWS Growth & Income VIP A Subaccount			DWS Growth & Income VIP B Subaccount			DWS Health Care VIP A Subaccount			DWS Health Care VIP B Subaccount			DWS International VIP A Subaccount			DWS International VIP B Subaccount
OPERATIONS
Net investment income (loss)	$	(2,462	)		224,199			(30	)		(26,395	)		(443	)		24,893			(52	)		159,123			(118	)
Net realized gain (loss) on investments		5,256			(777,753	)		(448	)		(1,242,734	)		(9,319	)		1,174,623			674			(3,588,987	)		(15,691	)
Change in unrealized appreciation (depreciation) of investments		(13,913	)		(7,148,798	)		49			862,651			10,884			2,588,988			787			(3,454,445	)		6,503
Net increase (decrease) in contract owners’ equity resulting from operations		(11,119	)		(7,702,352	)		(429	)		(406,478	)		1,122			3,788,504			1,409			(6,884,309	)		(9,306	)
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		11			1,315,788			1			326,891			2,473			76,719			–			499,941			–
Net transfer (to) from affiliate and subaccounts		28,699			(1,478,083	)		–			390,477			5,119			(33,774,174	)		(12,783	)		(149,382	)		639
Payments for redemptions		(59,365	)		(6,795,830	)		(1,330	)		(3,972,270	)		(59,559	)		(1,014,428	)		(176	)		(4,400,157	)		(22,005	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–			(163,425	)		–			(57,917	)		–			(18,556	)		–			(80,161	)		–
Annuity payout reserve adjustment		–			–			–			20,962			–			7			–			(25,114	)		–
Net increase (decrease) from contract owners’ equity transactions		(30,655	)		(7,121,550	)		(1,329	)		(3,291,857	)		(51,967	)		(34,730,432	)		(12,959	)		(4,154,873	)		(21,366	)
Total increase (decrease) in contract owners’ equity		(41,774	)		(14,823,902	)		(1,758	)		(3,698,335	)		(50,845	)		(30,941,928	)		(11,550	)		(11,039,182	)		(30,672	)
CONTRACT OWNERS’ EQUITY
Beginning of period		176,898			74,320,458			3,557			30,926,698			106,869			30,941,928			11,550			42,164,667			71,620
End of period	$	135,124			59,496,556			1,799			27,228,363			56,024			–			–			31,125,485			40,948

See accompanying notes to financial statements

28

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	DWS Variable Series II
	DWS Balanced VIP A Subaccount			DWS Blue Chip VIP A Subaccount			DWS Blue Chip VIP B Subaccount			DWS Core Fixed Income VIP A Subaccount			DWS Diversified International Equity VIP A Subaccount			DWS Dreman Small Mid Cap Value VIP A Subaccount			DWS Dreman Small Mid Cap Value VIP B Subaccount			DWS Global Thematic VIP A Subaccount			DWS Global Thematic VIP B Subaccount
OPERATIONS
Net investment income (loss)	$	406,400			(172,673	)		(810	)		611,790			326,684			(382,476	)		(2,354	)		(264,621	)		(604	)
Net realized gain (loss) on investments		2,338,421			(4,092,880	)		(23,710	)		(2,701,234	)		(3,527,089	)		(2,668,130	)		(54,368	)		(4,572,227	)		(422	)
Change in unrealized appreciation (depreciation) of investments		(7,207,718	)		3,247,645			29,959			4,214,506			(3,886,862	)		(6,185,065	)		41,511			(600,016	)		(5,773	)
Net increase (decrease) in contract owners’ equity resulting from operations		(4,462,897	)		(1,017,908	)		5,439			2,125,062			(7,087,267	)		(9,235,671	)		(15,211	)		(5,436,864	)		(6,799	)
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		1,553,562			543,992			–			435,695			566,479			1,760,883			–			522,949			3,297
Net transfer (to) from affiliate and subaccounts		(3,203,554	)		11,705			(2,217	)		(582,481	)		214,897			(3,635,731	)		3,217			(718,849	)		–
Payments for redemptions		(18,648,828	)		(6,835,448	)		(138,294	)		(6,398,904	)		(5,187,987	)		(12,792,497	)		(70,555	)		(3,931,726	)		–
Guaranteed retirement income benefit, maintenance fees, and other fees		(91,738	)		(127,000	)		–			(81,116	)		(77,743	)		(215,235	)		–			(82,715	)		–
Annuity payout reserve adjustment		6,481			(29,211	)		–			(14,867	)		3,244			(3,428	)		–			(3,085	)		–
Net increase (decrease) from contract owners’ equity transactions		(20,384,077	)		(6,435,962	)		(140,511	)		(6,641,673	)		(4,481,110	)		(14,886,008	)		(67,338	)		(4,213,426	)		3,297
Total increase (decrease) in contract owners’ equity		(24,846,974	)		(7,453,870	)		(135,072	)		(4,516,611	)		(11,568,377	)		(24,121,679	)		(82,549	)		(9,650,290	)		(3,502	)
CONTRACT OWNERS’ EQUITY
Beginning of period		180,807,691			58,272,151			166,590			47,896,356			59,066,335			132,027,978			235,392			38,862,005			39,713
End of period	$	155,960,717			50,818,281			31,518			43,379,745			47,497,958			107,906,299			152,843			29,211,715			36,211

See accompanying notes to financial statements

29

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	DWS Variable Series II
	DWS Government & Agency Securities VIP A Subaccount			DWS Government & Agency Securities VIP B Subaccount			DWS High Income VIP A Subaccount			DWS High Income VIP B Subaccount			DWS Large Cap Value VIP A Subaccount			DWS Large Cap Value VIP B Subaccount			DWS Mid Cap  Growth VIP A Subaccount			DWS Money Market VIP Subaccount			DWS Small Mid Cap Growth VIP A Subaccount
OPERATIONS
Net investment income (loss)	$	2,287,068			4,791			8,540,959			9,525			(368,708	)		(1,141	)		(79,508	)		(1,357,232	)		(975,459	)
Net realized gain (loss) on investments		2,650,588			6,830			2,115,925			(12,780	)		8,933,959			(25,899	)		3,456,620			–			3,969,538
Change in unrealized appreciation (depreciation) of investments		(242,533	)		(1,297	)		(7,695,442	)		5,737			(22,794,497	)		15,348			(1,439,292	)		–			(16,108,334	)
Net increase (decrease) in contract owners’ equity resulting from operations		4,695,123			10,324			2,961,442			2,482			(14,229,246	)		(11,692	)		1,937,820			(1,357,232	)		(13,114,255	)
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		667,399			5,770			930,713			–			1,842,151			(1	)		143,338			2,428,322			1,642,574
Net transfer (to) from affiliate and subaccounts		8,126,087			4,843			(6,494,011	)		2,688			139,475,195			116,237			(18,475,643	)		44,838,995			60,023,713
Payments for redemptions		(13,958,941	)		(47,700	)		(13,607,768	)		(64,662	)		(24,256,133	)		(62,385	)		(426,882	)		(40,012,299	)		(9,633,864	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(150,654	)		–			(126,659	)		–			(486,964	)		–			(9,639	)		(171,518	)		(182,471	)
Annuity payout reserve adjustment		(121,149	)		–			34,512			–			(216,235	)		–			–			13,491			(2,763	)
Net increase (decrease) from contract owners’ equity transactions		(5,437,258	)		(37,087	)		(19,263,213	)		(61,974	)		116,358,014			53,851			(18,768,826	)		7,096,991			51,847,189
Total increase (decrease) in contract owners’ equity		(742,135	)		(26,763	)		(16,301,771	)		(59,492	)		102,128,768			42,159			(16,831,006	)		5,739,759			38,732,934
CONTRACT OWNERS’ EQUITY
Beginning of period		87,301,879			208,559			119,021,569			144,160			131,092,864			169,630			16,831,006			94,048,272			59,138,246
End of period	$	86,559,744			181,796			102,719,798			84,668			233,221,632			211,789			–			99,788,031			97,871,180

See accompanying notes to financial statements

30

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	DWS Variable Series II																		DWS Investments VIT Funds						Fidelity Variable Insurance Products Funds
	DWS Strategic Value VIP A Subaccount			DWS Strategic Value VIP B Subaccount			DWS Technology VIP A Subaccount			DWS Technology VIP B Subaccount			DWS Turner Mid Cap Growth VIP A Subaccount			DWS Unconstrained Income VIP A Subaccount			DWS Equity 500 Index VIP A Subaccount			DWS Equity 500 Index VIP B2 Subaccount			Fidelity VIP Asset Manager Subaccount
OPERATIONS
Net investment income (loss)	$	1,726,433			453			(223,026	)		(109	)		(214,234	)		1,824,891			221,922			(98	)		20,714
Net realized gain (loss) on investments		(52,071,847	)		(44,074	)		12,169,492			4,579			9,006,778			145,359			(573,569	)		(9	)		18,866
Change in unrealized appreciation (depreciation) of investments		61,803,635			53,899			(8,923,814	)		(3,541	)		(3,243,000	)		(351,876	)		273,955			36			(212,053	)
Net increase (decrease) in contract owners’ equity resulting from operations		11,458,221			10,278			3,022,652			929			5,549,544			1,618,374			(77,692	)		(71	)		(172,473	)
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		908,401			1			449,313			–			468,153			157,919			665,428			1			82,565
Net transfer (to) from affiliate and subaccounts		(153,591,904	)		(119,065	)		(48,179,604	)		(16,700	)		(48,850,982	)		1,252,953			(2,926,788	)		340			(70,947	)
Payments for redemptions		(6,587,779	)		(43,756	)		(1,542,305	)		–			(1,163,581	)		(5,662,605	)		(7,581,652	)		–			(927,912	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(87,035	)		–			(25,722	)		–			(28,491	)		(103,675	)		(173,423	)		–			–
Annuity payout reserve adjustment		1,446			–			267			–			29			(75,316	)		(13,731	)		–			559
Net increase (decrease) from contract owners’ equity transactions		(159,356,871	)		(162,820	)		(49,298,051	)		(16,700	)		(49,574,872	)		(4,430,724	)		(10,030,166	)		341			(915,735	)
Total increase (decrease) in contract owners’ equity		(147,898,650	)		(152,542	)		(46,275,399	)		(15,771	)		(44,025,328	)		(2,812,350	)		(10,107,858	)		270			(1,088,208	)
CONTRACT OWNERS’ EQUITY
Beginning of period		147,898,650			152,542			46,275,399			15,771			44,025,328			44,961,218			76,428,333			18,235			5,278,454
End of period	$	–			–			–			–			–			42,148,868			66,320,475			18,505			4,190,246

See accompanying notes to financial statements

31

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	Fidelity Variable Insurance Products Funds																					Franklin Templeton Variable Insurance Products Trust
	Fidelity VIP Contrafund Subaccount			Fidelity VIP Contrafund -Service 2 Subaccount			Fidelity VIP Equity Income Subaccount			Fidelity VIP Equity Income - Service 2 Subaccount			Fidelity VIP Growth Subaccount			Fidelity VIP Index 500 Subaccount			Fidelity VIP Index 500 - SC Subaccount			Franklin Rising Dividends Securities Subaccount			Franklin Small Cap Value Securities Subaccount
OPERATIONS
Net investment income (loss)	$	(252,802	)		(148	)		264,768			39			(253,286	)		298,069			3,498			9,681			(40,223	)
Net realized gain (loss) on investments		(3,019,536	)		71			(1,213,533	)		(12	)		1,234,130			3,119,300			32,024			35,658			670
Change in unrealized appreciation (depreciation) of investments		845,885			(664	)		900,958			(86	)		(1,223,610	)		(2,981,212	)		(17,472	)		224,215			(299,676	)
Net increase (decrease) in contract owners’ equity resulting from operations		(2,426,453	)		(741	)		(47,807	)		(59	)		(242,766	)		436,157			18,050			269,554			(339,229	)
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		1,834,275			(1	)		704,996			–			626,283			1,532,855			69,616			219,737			177,925
Net transfer (to) from affiliate and subaccounts		(2,724,119	)		–			(1,057,631	)		–			(506,899	)		(2,237,111	)		4,695			(124,031	)		52,367
Payments for redemptions		(7,338,778	)		–			(3,461,144	)		–			(2,829,649	)		(5,833,966	)		(562,533	)		(811,865	)		(521,903	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–			–			–			–			–			–			–			–			–
Annuity payout reserve adjustment		(25,233	)		–			163			–			202			893			–			161			–
Net increase (decrease) from contract owners’ equity transactions		(8,253,855	)		(1	)		(3,813,616	)		–			(2,710,063	)		(6,537,329	)		(488,222	)		(715,998	)		(291,611	)
Total increase (decrease) in contract owners’ equity		(10,680,308	)		(742	)		(3,861,423	)		(59	)		(2,952,829	)		(6,101,172	)		(470,172	)		(446,444	)		(630,840	)
CONTRACT OWNERS’ EQUITY
Beginning of period		70,697,782			16,836			27,267,245			5,781			25,168,154			59,068,067			3,698,741			6,633,312			6,367,489
End of period	$	60,017,474			16,094			23,405,822			5,722			22,215,325			52,966,895			3,228,569			6,186,868			5,736,649

See accompanying notes to financial statements

32

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	Franklin Templeton Variable Insurance Products Trust															ING Global Resources Trust			ING Investors Trust			Invesco Variable Insurance Funds
	Franklin Strategic Income Securities Subaccount			Franklin U.S. Government Subaccount			Mutual Global Discovery Securities Subaccount			Mutual Shares Securities Subaccount			Templeton Developing Markets Securities Subaccount			ING Global Resources Subaccount			ING JPMorgan Emerging Markets Equity Subaccount			Invesco V.I. Dividend Growth Services Subaccount			Invesco V.I. Financial Services Subaccount
OPERATIONS
Net investment income (loss)	$	471,765			71,094			185,682			58,388			(26,864	)		(79,536	)		(19,620	)		(7,104	)		(2,677	)
Net realized gain (loss) on investments		179,151			28,625			605,436			(182,252	)		(326,320	)		(341,869	)		840,851			(14,521	)		215,929
Change in unrealized appreciation (depreciation) of investments		(523,094	)		80,631			(1,694,503	)		(27,530	)		(938,452	)		(632,392	)		(2,675,474	)		(46,964	)		(159,273	)
Net increase (decrease) in contract owners’ equity resulting from operations		127,822			180,350			(903,385	)		(151,394	)		(1,291,636	)		(1,053,797	)		(1,854,243	)		(68,589	)		53,979
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		277,031			145,613			764,293			224,018			198,169			239,705			154,639			22,091			14,984
Net transfer (to) from affiliate and subaccounts		1,058,257			594,559			(224,598	)		(391,039	)		(1,190,779	)		(246,385	)		(979,011	)		915,221			(953,406	)
Payments for redemptions		(2,098,297	)		(425,469	)		(2,881,877	)		(899,696	)		(712,116	)		(1,034,052	)		(871,303	)		(56,295	)		(60,809	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–			–			–			–			(6	)		–			–			–			–
Annuity payout reserve adjustment		149			–			(52	)		(19	)		911			216			1,099			–			–
Net increase (decrease) from contract owners’ equity transactions		(762,860	)		314,703			(2,342,234	)		(1,066,736	)		(1,703,821	)		(1,040,516	)		(1,694,576	)		881,017			(999,231	)
Total increase (decrease) in contract owners’ equity		(635,038	)		495,053			(3,245,619	)		(1,218,130	)		(2,995,457	)		(2,094,313	)		(3,548,819	)		812,428			(945,252	)
CONTRACT OWNERS’ EQUITY
Beginning of period		10,961,360			4,403,283			22,545,566			6,847,492			8,701,033			10,788,423			10,799,911			–			945,252
End of period	$	10,326,322			4,898,336			19,299,947			5,629,362			5,705,576			8,694,110			7,251,092			812,428			–

See accompanying notes to financial statements

33

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	Invesco Variable Insurance Funds									Janus Aspen Series
	Invesco V.I. Global Health Care Subaccount			Invesco V.I. Global Real Estate Subaccount			Invesco V.I. Utilities Subaccount			Janus Aspen Balanced I-S Subaccount			Janus Aspen Enterprise I-S Subaccount			Janus Aspen Forty I-S Subaccount			Janus Aspen Janus I-S Subaccount			Janus Aspen Perkins Mid Cap Value Subaccount			Janus Aspen Worldwide I-S Subaccount
OPERATIONS
Net investment income (loss)	$	(21,533	)		155,540			386,788			789,363			(607,971	)		(12,382	)		(207,881	)		(38,915	)		(344,064	)
Net realized gain (loss) on investments		(61,169	)		(1,510,774	)		(2,367,481	)		6,344,875			3,775,911			77,543			1,521,077			(23,246	)		1,293,046
Change in unrealized appreciation (depreciation) of investments		120,146			858,858			4,878,066			(6,835,942	)		(4,316,603	)		(154,298	)		(3,009,772	)		(139,959	)		(7,523,689	)
Net increase (decrease) in contract owners’ equity resulting from operations		37,444			(496,376	)		2,897,373			298,296			(1,148,663	)		(89,137	)		(1,696,576	)		(202,120	)		(6,574,707	)
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		41,774			243,306			351,971			1,669,366			881,290			4,268			562,182			132,264			1,206,446
Net transfer (to) from affiliate and subaccounts		(18,548	)		(144,391	)		2,933,441			(2,004,502	)		(2,124,168	)		(148,543	)		(899,122	)		(65,425	)		(1,875,488	)
Payments for redemptions		(171,109	)		(674,764	)		(2,806,772	)		(7,563,459	)		(4,836,706	)		(46,107	)		(3,084,655	)		(419,762	)		(4,563,288	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–			–			(44,439	)		–			–			(1,324	)		–			–			–
Annuity payout reserve adjustment		–			1			(353	)		(29,222	)		364			–			742			–			621
Net increase (decrease) from contract owners’ equity transactions		(147,883	)		(575,848	)		433,848			(7,927,817	)		(6,079,220	)		(191,706	)		(3,420,853	)		(352,923	)		(5,231,709	)
Total increase (decrease) in contract owners’ equity		(110,439	)		(1,072,224	)		3,331,221			(7,629,521	)		(7,227,883	)		(280,843	)		(5,117,429	)		(555,043	)		(11,806,416	)
CONTRACT OWNERS’ EQUITY
Beginning of period		1,574,995			6,789,957			19,942,838			76,092,291			47,048,479			1,205,840			28,348,659			5,063,419			47,841,928
End of period	$	1,464,556			5,717,733			23,274,059			68,462,770			39,820,596			924,997			23,231,230			4,508,376			36,035,512

See accompanying notes to financial statements

34

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	Janus Aspen Series			JPMorgan Insurance Trust
	Janus Aspen Worldwide S-C Subaccount			JP Morgan Insurance Trust Core Bond Subaccount			JP Morgan Insurance Trust Equity Index Subaccount			JPMorgan Insurance Trust International Equity Subaccount			JP Morgan Insurance Trust Intrepid Growth Subaccount			JP Morgan Insurance Trust Intrepid MidCap Subaccount			JP Morgan Insurance Trust Mid Cap Growth Subaccount			JP Morgan Insurance Trust Mid Cap Value Subaccount			JPMorgan Insurance Trust Small Cap Core Subaccount
OPERATIONS
Net investment income (loss)	$	–			65,535			2,187			45,255			20			(13,913	)		(16,326	)		454			(56,663	)
Net realized gain (loss) on investments		–			58,169			32,602			(641,027	)		327			(53,977	)		128,716			126,084			49,830
Change in unrealized appreciation (depreciation) of investments		–			(41,258	)		(24,275	)		(529,230	)		(690	)		13			(213,182	)		(72,730	)		(264,007	)
Net increase (decrease) in contract owners’ equity resulting from operations		–			82,446			10,514			(1,125,002	)		(343	)		(67,877	)		(100,792	)		53,808			(270,840	)
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		–			14,873			5,620			389,383			–			165,098			45,298			273,610			132,738
Net transfer (to) from affiliate and subaccounts		(1	)		(305,683	)		(188,214	)		(433,061	)		771			(259,982	)		153,132			(575,831	)		(131,122	)
Payments for redemptions		–			(171,088	)		(33,703	)		(1,399,137	)		(2,539	)		(371,440	)		(74,502	)		(787,502	)		(458,844	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–			–			–			–			–			–			–			–			–
Annuity payout reserve adjustment		–			–			–			–			–			–			–			–			101
Net increase (decrease) from contract owners’ equity transactions		(1	)		(461,898	)		(216,297	)		(1,442,815	)		(1,768	)		(466,324	)		123,928			(1,089,723	)		(457,127	)
Total increase (decrease) in contract owners’ equity		(1	)		(379,452	)		(205,783	)		(2,567,817	)		(2,111	)		(534,201	)		23,136			(1,035,915	)		(727,967	)
CONTRACT OWNERS’ EQUITY
Beginning of period		3			1,683,174			349,960			10,247,276			2,111			3,318,820			997,218			7,869,056			4,797,348
End of period	$	2			1,303,722			144,177			7,679,459			–			2,784,619			1,020,354			6,833,141			4,069,381

See accompanying notes to financial statements

35

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	JPMorgan Insurance Trust			Oppenheimer Variable Account Funds																					PIMCO Variable Insurance Trust
	JP Morgan Insurance Trust US Equity Subaccount			Oppenheimer Capital Appreciation Subaccount			Oppenheimer Global Securities Subaccount			Oppenheimer Global Strategic Income VA Subaccount			Oppenheimer High Income Subaccount			Oppenheimer Main Street Subaccount			Oppenheimer Main Street Small & Mid Cap Subaccount			Oppenheimer Small Mid Cap Growth Subaccount			PIMCO Foreign Bond Subaccount
OPERATIONS
Net investment income (loss)	$	(587	)		(28,127	)		(58,336	)		147,813			51,916			(39,360	)		(68,278	)		(14,244	)		793
Net realized gain (loss) on investments		4,142			43,295			(462,113	)		170,839			(106,743	)		(150,427	)		(161,446	)		130,197			928
Change in unrealized appreciation (depreciation) of investments		(16,542	)		(66,590	)		(1,745,085	)		(361,281	)		5,783			102,666			(10,006	)		(201,779	)		4,101
Net increase (decrease) in contract owners’ equity resulting from operations		(12,987	)		(51,422	)		(2,265,534	)		(42,629	)		(49,044	)		(87,121	)		(239,730	)		(85,826	)		5,822
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		10,686			74,874			729,620			334,453			43,705			151,580			274,849			26,124			745
Net transfer (to) from affiliate and subaccounts		1,986			(145,479	)		(2,012,121	)		(213,576	)		209,615			(171,222	)		(377,953	)		522,632			(31,552	)
Payments for redemptions		(48,005	)		(194,172	)		(3,483,126	)		(1,679,825	)		(192,176	)		(832,388	)		(935,731	)		(122,273	)		(870	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–			–			–			–			–			–			–			–			(132	)
Annuity payout reserve adjustment		–			–			(18	)		–			–			–			–			–			–
Net increase (decrease) from contract owners’ equity transactions		(35,333	)		(264,777	)		(4,765,645	)		(1,558,948	)		61,144			(852,030	)		(1,038,835	)		426,483			(31,809	)
Total increase (decrease) in contract owners’ equity		(48,320	)		(316,199	)		(7,031,179	)		(1,601,577	)		12,100			(939,151	)		(1,278,565	)		340,657			(25,987	)
CONTRACT OWNERS’ EQUITY
Beginning of period		439,475			2,383,137			27,102,578			10,061,327			736,349			5,702,698			7,722,501			685,951			125,192
End of period	$	391,155			2,066,938			20,071,399			8,459,750			748,449			4,763,547			6,443,936			1,026,608			99,205

See accompanying notes to financial statements

36

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2011

	PIMCO Variable Insurance Trust
	PIMCO Low Duration Subaccount
OPERATIONS
Net investment income (loss)	$	347
Net realized gain (loss) on investments		305
Change in unrealized appreciation (depreciation) of investments		(1,005	)
Net increase (decrease) in contract owners’ equity resulting from operations		(353	)
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		53
Net transfer (to) from affiliate and subaccounts		(18,496	)
Payments for redemptions		(651	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(191	)
Annuity payout reserve adjustment		–
Net increase (decrease) from contract owners’ equity transactions		(19,285	)
Total increase (decrease) in contract owners’ equity		(19,638	)
CONTRACT OWNERS’ EQUITY
Beginning of period		138,146
End of period	$	118,508

See accompanying notes to financial statements

37

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	Alger Portfolios																								American Century Variable Portfolios, Inc.
	Alger Balanced O Subaccount			Alger Balanced S Subaccount			Alger Capital Appreciation O Subaccount			Alger Capital Appreciation S Subaccount			Alger Large Cap Growth I-2 Subaccount			Alger Mid Cap Growth I-2 Subaccount			Alger Mid Cap Growth S Subaccount			Alger Small Cap Growth I-2 Subaccount			American Century VP Income & Growth Subaccount
OPERATIONS
Net investment income (loss)	$	475,936			205			(527,929	)		(76	)		(71,825	)		(176,869	)		(226	)		(109,956	)		11,746
Net realized gain (loss) on investments		(1,543,441	)		2,020			1,878,448			728			352,718			(2,101,827	)		(34	)		591,375			(825,175	)
Change in unrealized appreciation (depreciation) of investments		4,655,964			(1,886	)		4,564,542			247			947,407			4,350,810			2,134			1,251,931			1,998,524
Net increase (decrease) in contract owners’ equity resulting from operations		3,588,459			338			5,915,061			900			1,228,301			2,072,114			1,875			1,733,350			1,185,094
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		298,220			–			1,299,689			–			362,833			443,596			25			276,566			291,495
Net transfer (to) from affiliate and subaccounts		(1,310,362	)		(48,578	)		(908,806	)		(746	)		(549,177	)		(695,547	)		–			(622,314	)		(634,612	)
Payments for redemptions		(5,713,928	)		(8,058	)		(5,170,351	)		–			(1,280,640	)		(1,474,867	)		–			(1,207,599	)		(1,432,234	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(101,257	)		–			(121,333	)		–			–			–			–			–			–
Annuity payout reserve adjustment		(1,406	)		–			–			–			(2	)		–			–			(4	)		(1	)
Net increase (decrease) from contract owners’ equity transactions		(6,828,733	)		(56,636	)		(4,900,800	)		(746	)		(1,466,986	)		(1,726,819	)		25			(1,553,351	)		(1,775,352	)
Total increase (decrease) in contract owners’ equity		(3,240,274	)		(56,298	)		1,014,261			154			(238,685	)		345,295			1,900			179,999			(590,258	)
CONTRACT OWNERS’ EQUITY
Beginning of period		45,476,716			56,298			53,306,719			1,382			11,580,482			13,152,385			11,264			8,383,941			11,009,842
End of period	$	42,236,442			–			54,320,980			1,536			11,341,797			13,497,680			13,164			8,563,941			10,419,584

See accompanying notes to financial statements

38

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	American Century Variable Portfolios, Inc.									Credit Suisse Trust					Dreyfus Investment Portfolios						The Dreyfus Socially Responsible Growth Fund, Inc.
	American Century VP Income & Growth II Subaccount			American Century VP Value Subaccount			American Century VP Value II Subaccount			Credit Suisse Trust International Equity Flex II Subaccount		Credit Suisse Trust International Equity Flex III Subaccount			Dreyfus I.P. MidCap Stock A Subaccount			Dreyfus I.P. MidCap Stock SC Subaccount			Dreyfus Socially Responsible Growth A Subaccount			Dreyfus Socially Responsible Growth SC Subaccount
OPERATIONS
Net investment income (loss)	$	(33	)		198,398			14			–		(569,182	)		(232,322	)		(11,413	)		(30,136	)		(21	)
Net realized gain (loss) on investments		13			(4,889,898	)		(24	)		–		(843,827	)		(5,007,041	)		(311,940	)		123,633			2
Change in unrealized appreciation (depreciation) of investments		972			6,474,590			403			–		5,514,222			17,225,220			667,080			571,637			245
Net increase (decrease) in contract owners’ equity resulting from operations		952			1,783,089			393			–		4,101,212			11,985,857			343,727			665,134			225
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		–			894,772			–			–		1,076,089			638,183			63,087			153,389			–
Net transfer (to) from affiliate and subaccounts		–			4,606,631			–			–		(3,392,683	)		195,163			428,238			(104,105	)		55
Payments for redemptions		–			(2,253,560	)		–			–		(5,115,511	)		(5,556,850	)		(219,757	)		(696,305	)		–
Guaranteed retirement income benefit, maintenance fees, and other fees		–			–			–			–		(93,792	)		(127,311	)		–			(7,385	)		–
Annuity payout reserve adjustment		–			16			–			–		60			(668	)		–			–			–
Net increase (decrease) from contract owners’ equity transactions		–			3,247,859			–			–		(7,525,838	)		(4,851,484	)		271,568			(654,406	)		55
Total increase (decrease) in contract owners’ equity		952			5,030,949			393			–		(3,424,626	)		7,134,373			615,295			10,728			280
CONTRACT OWNERS’ EQUITY
Beginning of period		7,964			15,777,736			3,525			–		47,351,470			51,604,371			1,394,767			5,713,550			1,748
End of period	$	8,917			20,808,685			3,919			–		43,926,844			58,738,744			2,010,062			5,724,278			2,028

See accompanying notes to financial statements

39

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	DWS Variable Series I
	DWS Bond VIP Subaccount			DWS Capital Growth VIP A Subaccount			DWS Capital Growth VIP B Subaccount			DWS Global Opportunities VIP A Subaccount			DWS Global Opportunities VIP B Subaccount			DWS Growth & Income VIP A Subaccount			DWS Growth & Income VIP B Subaccount			DWS Health Care VIP A Subaccount			DWS Health Care VIP B Subaccount
OPERATIONS
Net investment income (loss)	$	730,271			(1,086,926	)		(2,144	)		(671,896	)		(71	)		77,392			(484	)		(455,178	)		(215	)
Net realized gain (loss) on investments		(713,319	)		(713,341	)		(517	)		(1,327,532	)		(30	)		(1,686,012	)		(2,311	)		1,124,963			899
Change in unrealized appreciation (depreciation) of investments		1,295,982			32,412,552			25,100			16,823,104			773			5,146,965			14,457			1,254,568			(77	)
Net increase (decrease) in contract owners’ equity resulting from operations		1,312,933			30,612,285			22,439			14,823,676			672			3,538,346			11,662			1,924,353			606
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		321,752			2,138,524			–			1,476,302			–			250,057			2,473			700,056			–
Net transfer (to) from affiliate and subaccounts		1,325,695			(11,063,254	)		(7,849	)		(908,638	)		–			(1,249,188	)		(856	)		(1,672,006	)		–
Payments for redemptions		(3,589,119	)		(24,898,250	)		(3,220	)		(6,559,951	)		–			(3,234,136	)		(14,568	)		(3,483,361	)		(750	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(36,775	)		(361,387	)		–			(156,846	)		–			(55,534	)		–			(75,388	)		–
Annuity payout reserve adjustment		1			(35,255	)		–			(267	)		–			(335	)		–			(27	)		–
Net increase (decrease) from contract owners’ equity transactions		(1,978,447	)		(34,219,622	)		(11,070	)		(6,149,400	)		–			(4,289,136	)		(12,951	)		(4,530,726	)		(750	)
Total increase (decrease) in contract owners’ equity		(665,513	)		(3,607,337	)		11,370			8,674,276			672			(750,790	)		(1,289	)		(2,606,373	)		(144	)
CONTRACT OWNERS’ EQUITY
Beginning of period		25,103,188			232,977,134			165,528			65,646,182			2,885			31,677,487			108,158			33,548,300			11,694
End of period	$	24,437,674			229,369,796			176,898			74,320,458			3,557			30,926,698			106,869			30,941,928			11,550

See accompanying notes to financial statements

40

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	DWS Variable Series I						DWS Variable Series II
	DWS International VIP A Subaccount			DWS International VIP B Subaccount			DWS Balanced VIP Subaccount			DWS Blue Chip VIP A Subaccount			DWS Blue Chip VIP B Subaccount			DWS Core Fixed Income VIP A Subaccount			DWS Davis Venture Value VIP Subaccount		DWS Diversified International Equity VIP Subaccount			DWS Dreman Small Mid Cap Value VIP A Subaccount
OPERATIONS
Net investment income (loss)	$	341,277			(52	)		3,262,793			36,977			(1,170	)		2,413,470			–		513,222			(106,359	)
Net realized gain (loss) on investments		(2,500,902	)		(2,391	)		1,632,443			(6,074,750	)		(1,461	)		(7,744,969	)		–		(9,228,353	)		(5,211,311	)
Change in unrealized appreciation (depreciation) of investments		1,809,833			2,083			11,632,735			12,394,087			19,765			7,943,839			–		13,584,603			29,075,981
Net increase (decrease) in contract owners’ equity resulting from operations		(349,792	)		(360	)		16,527,970			6,356,314			17,134			2,612,340			–		4,869,472			23,758,311
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		430,714			–			1,139,298			456,832			–			409,666			–		434,765			1,988,430
Net transfer (to) from affiliate and subaccounts		(1,987,840	)		2,568			(1,575,280	)		(2,342,907	)		(1,129	)		1,588,890			–		(447,433	)		(5,656,011	)
Payments for redemptions		(5,135,436	)		(7,998	)		(20,046,147	)		(6,840,413	)		(13,379	)		(8,444,205	)		–		(5,997,858	)		(12,679,754	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(90,812	)		–			(96,672	)		(125,350	)		–			(94,475	)		–		(78,013	)		(212,802	)
Annuity payout reserve adjustment		(757	)		–			(1,260	)		(1,614	)		–			14,805			–		1,587			(1,347	)
Net increase (decrease) from contract owners’ equity transactions		(6,784,132	)		(5,430	)		(20,580,062	)		(8,853,451	)		(14,508	)		(6,525,319	)		–		(6,086,952	)		(16,561,483	)
Total increase (decrease) in contract owners’ equity		(7,133,924	)		(5,790	)		(4,052,091	)		(2,497,138	)		2,627			(3,912,979	)		–		(1,217,481	)		7,196,828
CONTRACT OWNERS’ EQUITY
Beginning of period		49,298,591			77,410			184,859,782			60,769,289			163,963			51,809,335			–		60,283,816			124,831,149
End of period	$	42,164,667			71,620			180,807,691			58,272,151			166,590			47,896,356			–		59,066,335			132,027,978

See accompanying notes to financial statements

41

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	DWS Variable Series II
	DWS Dreman Small Mid Cap Value VIP B Subaccount			DWS Global Thematic VIP A Subaccount			DWS Global Thematic VIP B Subaccount			DWS Government & Agency Securities VIP A Subaccount			DWS Government & Agency Securities VIP B Subaccount			DWS High Income VIP A Subaccount			DWS High Income VIP B Subaccount			DWS Janus Growth & Income VIP Subaccount		DWS Large Cap Value VIP A Subaccount
OPERATIONS
Net investment income (loss)	$	(2,209	)		(164,713	)		(415	)		2,863,704			5,291			7,578,483			8,670			–		835,755
Net realized gain (loss) on investments		(21,867	)		(6,552,668	)		(412	)		2,422,191			827			(931,905	)		(5,587	)		–		(4,108,882	)
Change in unrealized appreciation (depreciation) of investments		66,138			10,844,182			4,832			(599,907	)		2,679			6,807,205			12,722			–		14,427,100
Net increase (decrease) in contract owners’ equity resulting from operations		42,062			4,126,801			4,004			4,685,988			8,797			13,453,783			15,805			–		11,153,973
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		–			758,866			3,297			699,613			5,769			809,350			–			–		1,828,945
Net transfer (to) from affiliate and subaccounts		(7,466	)		(1,375,763	)		(1	)		6,692,491			2,432			780,787			(8,849	)		–		(7,078,622	)
Payments for redemptions		(13,087	)		(3,975,663	)		–			(14,291,058	)		(12,154	)		(12,957,565	)		(13,402	)		–		(13,764,406	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–			(87,648	)		–			(156,144	)		–			(147,642	)		–			–		(258,007	)
Annuity payout reserve adjustment		–			(431	)		–			5,591			–			10,476			–			–		(5,712	)
Net increase (decrease) from contract owners’ equity transactions		(20,553	)		(4,680,639	)		3,296			(7,049,507	)		(3,952	)		(11,504,594	)		(22,250	)		–		(19,277,804	)
Total increase (decrease) in contract owners’ equity		21,509			(553,838	)		7,300			(2,363,519	)		4,845			1,949,189			(6,445	)		–		(8,123,831	)
CONTRACT OWNERS’ EQUITY
Beginning of period		213,882			39,415,843			32,413			89,665,398			203,715			117,072,380			150,605			–		139,216,695
End of period	$	235,392			38,862,005			39,713			87,301,879			208,559			119,021,569			144,160			–		131,092,864

See accompanying notes to financial statements

42

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	DWS Variable Series II
	DWS Large Cap Value VIP B Subaccount			DWS Mid Cap Growth VIP Subaccount			DWS Money Market VIP Subaccount			DWS Small Cap Growth VIP Subaccount			DWS Strategic Income VIP Subaccount			DWS Strategic Value VIP A Subaccount			DWS Strategic Value VIP B Subaccount			DWS Technology VIP A Subaccount			DWS Technology VIP B Subaccount
OPERATIONS
Net investment income (loss)	$	(213	)		(204,069	)		(1,584,100	)		(746,355	)		2,268,038			846,404			(438	)		(615,974	)		(417	)
Net realized gain (loss) on investments		(14,630	)		(214,355	)		–			442,125			238,415			(21,780,279	)		(35,849	)		1,281,736			150
Change in unrealized appreciation (depreciation) of investments		28,459			3,760,777			–			13,424,591			1,144,239			35,705,709			50,053			5,930,796			3,408
Net increase (decrease) in contract owners’ equity resulting from operations		13,616			3,342,354			(1,584,100	)		13,120,361			3,650,691			14,771,834			13,767			6,596,559			3,140
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		–			116,766			2,180,906			961,366			236,098			1,783,652			–			701,823			–
Net transfer (to) from affiliate and subaccounts		(767	)		630,187			15,866,342			(2,039,868	)		2,454,673			(11,122,963	)		64			(3,912,164	)		(11,152	)
Payments for redemptions		(21,206	)		(1,460,405	)		(50,486,824	)		(6,260,498	)		(5,476,646	)		(16,527,325	)		(31,853	)		(4,431,697	)		(719	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–			(33,206	)		(179,947	)		(78,591	)		(106,497	)		(342,564	)		–			(96,102	)		–
Annuity payout reserve adjustment		–			–			(25,338	)		(153	)		308			(7,221	)		–			(1,254	)		–
Net increase (decrease) from contract owners’ equity transactions		(21,973	)		(746,658	)		(32,644,861	)		(7,417,743	)		(2,892,065	)		(26,216,421	)		(31,789	)		(7,739,393	)		(11,871	)
Total increase (decrease) in contract owners’ equity		(8,357	)		2,595,696			(34,228,961	)		5,702,618			758,627			(11,444,586	)		(18,023	)		(1,142,835	)		(8,731	)
CONTRACT OWNERS’ EQUITY
Beginning of period		177,987			14,235,310			128,277,232			53,435,628			44,202,592			159,343,237			170,565			47,418,234			24,501
End of period	$	169,630			16,831,006			94,048,272			59,138,246			44,961,218			147,898,651			152,542			46,275,399			15,771

See accompanying notes to financial statements

43

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	DWS Variable Series II			DWS Investments VIT Funds						Fidelity Variable Insurance Products Funds
	DWS Turner Mid Cap Growth VIP Subaccount			DWS Equity 500 Index VIP A Subaccount			DWS Equity 500 Index VIP B2 Subaccount			Fidelity VIP Asset Manager Subaccount			Fidelity VIP Contrafund Subaccount			Fidelity VIP Contrafund 2 Subaccount			Fidelity VIP Equity Income Subaccount			Fidelity VIP Equity Income 2 Subaccount			Fidelity VIP Growth Subaccount
OPERATIONS
Net investment income (loss)	$	(538,348	)		356,014			(66	)		15,268			(92,831	)		(97	)		107,407			(1	)		(256,223	)
Net realized gain (loss) on investments		(2,592,413	)		(1,112,192	)		(468	)		(40,108	)		(2,675,170	)		47			(1,540,608	)		(22	)		1,083,625
Change in unrealized appreciation (depreciation) of investments		12,602,383			9,796,696			2,524			639,022			12,474,690			2,243			4,762,032			689			3,823,082
Net increase (decrease) in contract owners’ equity resulting from operations		9,471,622			9,040,518			1,990			614,182			9,706,688			2,193			3,328,831			665			4,650,484
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		1,211,584			720,495			–			88,386			1,753,896			–			747,105			–			606,603
Net transfer (to) from affiliate and subaccounts		(1,270,071	)		(869,170	)		188			(141,600	)		(4,382,132	)		–			(1,211,199	)		–			(2,462,750	)
Payments for redemptions		(3,152,467	)		(7,379,761	)		(2,531	)		(769,139	)		(7,644,987	)		–			(3,489,946	)		–			(2,905,212	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(93,505	)		(174,332	)		–			–			–			–			–			–			–
Annuity payout reserve adjustment		(940	)		(741	)		–			651			1,625			–			258			–			75
Net increase (decrease) from contract owners’ equity transactions		(3,305,399	)		(7,703,508	)		(2,344	)		(821,701	)		(10,271,598	)		–			(3,953,782	)		–			(4,761,284	)
Total increase (decrease) in contract owners’ equity		6,166,223			1,337,010			(353	)		(207,519	)		(564,910	)		2,193			(624,951	)		665			(110,800	)
CONTRACT OWNERS’ EQUITY
Beginning of period		37,859,105			75,091,323			18,588			5,485,972			71,262,692			14,643			27,892,197			5,116			25,278,954
End of period	$	44,025,328			76,428,333			18,235			5,278,454			70,697,782			16,836			27,267,245			5,781			25,168,154

See accompanying notes to financial statements

44

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	Fidelity Variable Insurance Products Funds						Franklin Templeton Variable Insurance Products Trust																		Franklin Templeton Variable Insurance Products Trust
	Fidelity VIP Index 500 Subaccount			Fidelity VIP Index 500 SC Subaccount			Franklin Rising Dividends Securities Subaccount			Franklin Small Cap Value Securities Subaccount			Franklin Strategic Income Securities Subaccount			Franklin U.S. Government Subaccount			Franklin Zero Coupon 2010 Subaccount			Mutual Global Discovery Securities Subaccount			Mutual Shares Securities Subaccount
OPERATIONS
Net investment income (loss)	$	301,208			3,967			16,479			(32,003	)		358,111			93,284			496,198			(17,925	)		9,989
Net realized gain (loss) on investments		2,898,657			(14,932	)		(132,743	)		(409,693	)		78,326			84,082			(608,098	)		239,662			(636,066	)
Change in unrealized appreciation (depreciation) of investments		3,961,486			440,074			1,192,891			1,705,466			520,837			8,526			34,564			1,965,290			1,222,699
Net increase (decrease) in contract owners’ equity resulting from operations		7,161,351			429,109			1,076,627			1,263,770			957,274			185,892			(77,336	)		2,187,027			596,621
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		1,455,473			61,922			159,891			199,727			360,478			138,680			143,803			728,157			258,957
Net transfer (to) from affiliate and subaccounts		(1,740,654	)		(627,068	)		411,246			714,680			1,703,622			109,952			(6,121,759	)		316,005			357,589
Payments for redemptions		(6,937,960	)		(361,711	)		(806,555	)		(511,663	)		(2,086,413	)		(703,074	)		(1,154,248	)		(2,989,815	)		(1,000,185	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–			–			–			–			–			–			–			–			–
Annuity payout reserve adjustment		(3,920	)		–			290			–			184			–			–			235			(21	)
Net increase (decrease) from contract owners’ equity transactions		(7,227,061	)		(926,857	)		(235,128	)		402,743			(22,129	)		(454,442	)		(7,132,204	)		(1,945,417	)		(383,661	)
Total increase (decrease) in contract owners’ equity		(65,710	)		(497,748	)		841,499			1,666,513			935,145			(268,550	)		(7,209,540	)		241,610			212,960
CONTRACT OWNERS’ EQUITY
Beginning of period		59,133,776			4,196,489			5,791,813			4,700,975			10,026,216			4,671,833			7,209,540			22,303,957			6,634,532
End of period	$	59,068,067			3,698,741			6,633,312			6,367,489			10,961,360			4,403,283			–			22,545,566			6,847,492

See accompanying notes to financial statements

45

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	Franklin Templeton Variable Insurance Products Trust			ING Global Resources Trust			ING Investors Trust			Invesco Variable Insurance Funds (d)												Janus Aspen Series
	Templeton Developing Markets Securities Subaccount			ING Global  Resources Trust Subaccount			ING JPMorgan Emerging Markets Equity Subaccount			Invesco Financial Services Fund Subaccount			Invesco Global Health Care Subaccount			Invesco Global Real Estate Subaccount			Invesco Utilities Subaccount			Janus Aspen Balanced Subaccount			Janus Aspen Enterprise - Institutional Subaccount
OPERATIONS
Net investment income (loss)	$	17,118			(35,296	)		(58,896	)		(10,715	)		(22,298	)		233,415			439,503			1,112,738			(556,303	)
Net realized gain (loss) on investments		(545,051	)		(579,732	)		1,243,208			68,569			(143,164	)		(1,887,662	)		(3,368,449	)		2,648,444			3,026,222
Change in unrealized appreciation (depreciation) of investments		1,710,372			2,354,484			539,295			(26,597	)		221,355			2,616,179			3,779,768			1,316,116			6,877,511
Net increase (decrease) in contract owners’ equity resulting from operations		1,182,439			1,739,455			1,723,606			31,258			55,893			961,932			850,822			5,077,299			9,347,430
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		196,647			262,719			141,080			56,706			43,115			227,979			318,171			1,869,002			931,676
Net transfer (to) from affiliate and subaccounts		189,348			(76,814	)		(129,006	)		255,652			(30,449	)		(307,703	)		(852,850	)		(732,558	)		(622,084	)
Payments for redemptions		(788,039	)		(1,018,347	)		(1,362,103	)		(122,156	)		(179,429	)		(831,422	)		(2,508,062	)		(10,019,170	)		(5,426,809	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(6	)		–			–			–			–			–			(39,399	)		–			–
Annuity payout reserve adjustment		265			(25	)		493			–			–			(5	)		(437	)		20,408			208
Net increase (decrease) from contract owners’ equity transactions		(401,786	)		(832,467	)		(1,349,537	)		190,202			(166,763	)		(911,151	)		(3,082,576	)		(8,862,317	)		(5,117,010	)
Total increase (decrease) in contract owners’ equity		780,653			906,988			374,069			221,460			(110,870	)		50,780			(2,231,754	)		(3,785,018	)		4,230,420
CONTRACT OWNERS’ EQUITY
Beginning of period		7,920,380			9,881,435			10,425,842			723,792			1,685,866			6,739,176			22,174,592			79,877,309			42,818,059
End of period	$	8,701,033			10,788,423			10,799,911			945,252			1,574,995			6,789,957			19,942,838			76,092,291			47,048,479

See accompanying notes to financial statements

46

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	Janus Aspen Series																	JPMorgan Insurance Trust
	Janus Aspen Forty Subaccount			Janus Aspen Janus - Institutional Subaccount			Janus Aspen Perkins Mid Cap Value Subaccount			Janus Aspen Perkins Small Company Value Subaccount		Janus Aspen Worldwide Institutional Subaccount			Janus Aspen Worldwide Service Subaccount			JPMorgan Insurance Trust Balanced Subaccount			JPMorgan Insurance Trust Core Bond Subaccount			JPMorgan Insurance Trust Equity Index Subaccount
OPERATIONS
Net investment income (loss)	$	(13,201	)		(83,132	)		(42,442	)		–		(352,278	)		(10	)		(321	)		31,967			(41	)
Net realized gain (loss) on investments		27,577			1,259,140			(176,021	)		–		858,505			(36	)		3,824			16,328			7,344
Change in unrealized appreciation (depreciation) of investments		46,466			2,143,444			855,811			–		5,590,300			56			703			58,978			20,724
Net increase (decrease) in contract owners’ equity resulting from operations		60,842			3,319,451			637,347			–		6,096,528			10			4,206			107,273			28,027
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		4,906			595,789			129,612			–		1,124,814			–			–			12,321			2,402
Net transfer (to) from affiliate and subaccounts		9,641			(683,946	)		(87,311	)		–		(1,261,866	)		–			(68,158	)		326,272			204,092
Payments for redemptions		(65,126	)		(3,567,910	)		(480,601	)		–		(5,095,975	)		(1,095	)		–			(199,009	)		(6,570	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(1,462	)		–			–			–		–			–			–			–			–
Annuity payout reserve adjustment		–			7,116			–			–		1,580			–			–			–			–
Net increase (decrease) from contract owners’ equity transactions		(52,041	)		(3,648,952	)		(438,300	)		–		(5,231,447	)		(1,095	)		(68,158	)		139,584			199,924
Total increase (decrease) in contract owners’ equity		8,801			(329,501	)		199,047			–		865,081			(1,085	)		(63,952	)		246,856			227,951
CONTRACT OWNERS’ EQUITY
Beginning of period		1,197,039			28,678,159			4,864,372			–		46,976,847			1,087			63,952			1,436,317			122,009
End of period	$	1,205,840			28,348,659			5,063,419			–		47,841,928			3			–			1,683,174			349,960

See accompanying notes to financial statements

47

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	JPMorgan Insurance Trust
	JPMorgan Insurance Trust Government Bond Subaccount		JPMorgan Insurance Trust International Equity Subaccount			JPMorgan Insurance Trust Intrepid Growth Subaccount			JPMorgan Insurance Trust Intrepid Mid Cap Subaccount			JPMorgan Insurance Trust Mid Cap Growth Subaccount			JPMorgan Insurance Trust Mid Cap Value Subaccount			JPMorgan Insurance Trust Small Cap Core Subaccount			JPMorgan Insurance Trust U.S. Equity Subaccount			JPMorgan International Equity Subaccount
OPERATIONS
Net investment income (loss)	$	–		(115,917	)		9			(258	)		(12,687	)		(7,229	)		(62,591	)		(1,234	)		–
Net realized gain (loss) on investments		–		(555,718	)		(456	)		(225,565	)		(78,080	)		(37,984	)		(186,440	)		(70,816	)		–
Change in unrealized appreciation (depreciation) of investments		–		1,147,606			(119	)		726,499			298,490			1,566,446			1,249,737			123,322			–
Net increase (decrease) in contract owners’ equity resulting from operations		–		475,971			(566	)		500,675			207,722			1,521,234			1,000,706			51,272			–
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		–		346,022			–			75,324			44,218			173,969			138,048			16,154			–
Net transfer (to) from affiliate and subaccounts		–		(690,308	)		–			(77,439	)		56,733			(769,373	)		(270,956	)		(10,646	)		–
Payments for redemptions		–		(1,517,781	)		(13,867	)		(336,674	)		(92,667	)		(787,722	)		(575,657	)		(98,393	)		–
Guaranteed retirement income benefit, maintenance fees, and other fees		–		–			–			–			–			–			–			–			–
Annuity payout reserve adjustment		–		1			–			–			–			–			33			–			–
Net increase (decrease) from contract owners’ equity transactions		–		(1,862,065	)		(13,867	)		(338,789	)		8,283			(1,383,127	)		(708,532	)		(92,885	)		–
Total increase (decrease) in contract owners’ equity		–		(1,386,094	)		(14,433	)		161,887			216,006			138,108			292,174			(41,613	)		–
CONTRACT OWNERS’ EQUITY
Beginning of period		–		11,633,370			16,544			3,156,933			781,212			7,730,949			4,505,174			481,088			–
End of period	$	–		10,247,276			2,111			3,318,820			997,218			7,869,056			4,797,348			439,475			–

See accompanying notes to financial statements

48

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	JPMorgan Series Trust II				Oppenheimer Variable Account Funds
	JPMorgan MidCap Value Subaccount		JPMorgan Small Company Subaccount		Oppenheimer Capital Appreciation Subaccount			Oppenheimer Global Securities Subaccount			Oppenheimer Global Strategic Income Fund VA Service Subaccount			Oppenheimer High Income Subaccount			Oppenheimer Main Street Subaccount			Oppenheimer Main Street Small Cap Subaccount			Oppenheimer Small-MidCap Growth Fund VA Series Subaccount
OPERATIONS
Net investment income (loss)	$	–		–		(34,470	)		(17,568	)		609,036			43,815			(25,328	)		(70,588	)		(7,355	)
Net realized gain (loss) on investments		–		–		(72,584	)		(1,356,704	)		(83,364	)		(438,674	)		(292,963	)		(416,753	)		(61,036	)
Change in unrealized appreciation (depreciation) of investments		–		–		268,524			4,830,405			592,587			488,352			1,038,365			1,885,730			197,175
Net increase (decrease) in contract owners’ equity resulting from operations		–		–		161,470			3,456,133			1,118,258			93,494			720,074			1,398,389			128,785
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		–		–		81,064			740,931			336,124			33,616			150,061			279,094			25,196
Net transfer (to) from affiliate and subaccounts		–		–		(525,137	)		(2,157,482	)		1,771,987			(220,674	)		(251,143	)		(432,886	)		119,207
Payments for redemptions		–		–		(333,026	)		(3,365,617	)		(1,810,499	)		(58,755	)		(825,195	)		(922,670	)		(120,676	)
Guaranteed retirement income benefit, maintenance fees, and other fees		–		–		–			–			–			–			–			–			–
Annuity payout reserve adjustment		–		–		–			42			–			–			–			–			–
Net increase (decrease) from contract owners’ equity transactions		–		–		(777,098	)		(4,782,126	)		297,612			(245,814	)		(926,277	)		(1,076,462	)		23,727
Total increase (decrease) in contract owners’ equity		–		–		(615,628	)		(1,325,993	)		1,415,870			(152,319	)		(206,203	)		321,927			152,511
CONTRACT OWNERS’ EQUITY
Beginning of period		–		–		2,998,764			28,428,572			8,645,456			888,668			5,908,902			7,400,574			533,440
End of period	$	–		–		2,383,137			27,102,578			10,061,327			736,349			5,702,698			7,722,501			685,951

See accompanying notes to financial statements

49

ZALICO Variable Annuity Separate Account

Statement of Changes in Contract Owners’ Equity

For the year ended December 31, 2010

	PIMCO Variable Insurance Trust
	PIMCO Foreign Bond Subaccount			PIMCO Low Duration Subaccount
OPERATIONS
Net investment income (loss)	$	500			265
Net realized gain (loss) on investments		3,469			666
Change in unrealized appreciation (depreciation) of investments		4,334			4,157
Net increase (decrease) in contract owners’ equity resulting from operations		8,303			5,088
CONTRACT OWNERS’ EQUITY TRANSACTIONS
Proceeds from sales		1,266			72
Net transfer (to) from affiliate and subaccounts		(186	)		3,011
Payments for redemptions		(7,695	)		(9,486	)
Guaranteed retirement income benefit, maintenance fees, and other fees		(145	)		(200	)
Annuity payout reserve adjustment		–			–
Net increase (decrease) from contract owners’ equity transactions		(6,760	)		(6,603	)
Total increase (decrease) in contract owners’ equity		1,543			(1,515	)
CONTRACT OWNERS’ EQUITY
Beginning of period		123,650			139,660
End of period	$	125,192			138,146

See accompanying notes to financial statements

50

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(1) Organization:

ZALICO Variable Annuity Separate Account (the “Separate Account”), is a unit investment trust registered under the Investment Company Act of 1940, as amended, was established by Zurich American Life Insurance Company (“ZALICO” or the “Company”). ZALICO is a stock life insurance company founded in 1947. The Company is incorporated under the insurance laws of the State of Illinois and is licensed in the District of Columbia and all states, with the exception of New York.

The Company is a wholly owned subsidiary of Zurich American Corporation (“Zurich”), a non-operating holding company. Zurich is a direct wholly owned subsidiary of Zurich Holding Company of America, Inc. (“ZHCA”). ZHCA is an indirect wholly owned subsidiary of Zurich Insurance Group Ltd (formerly known as Zurich Financial Services Ltd) ( “ZIG” or “Parent”).

Under applicable insurance law, the assets and liabilities of the Separate Account are clearly identified and distinguished from ZALICO’s other assets and liabilities. The portion of the Separate Account’s assets applicable to the variable annuity contracts is not chargeable with liabilities arising out of any other business ZALICO may conduct.

The Separate Account is used to fund contracts or certificates (collectively referred to as “Contracts”) for Zurich Advantage III periodic and flexible payment variable annuity contracts (“Zurich Advantage III”), Zurich Passport individual and group variable, fixed and market value adjusted deferred annuity contracts (“Zurich Passport”), Scudder Destinations individual and group variable, fixed and market value adjusted deferred annuity contracts (“Scudder Destinations”), Farmers Variable Annuity I individual and group variable, fixed and market value adjusted deferred annuity contracts (“Farmers Variable Annuity I”), Zurich Preferred individual and group variable and market value adjusted deferred annuity contracts (“Zurich Preferred”), Zurich Preferred Plus individual and group variable and market value adjusted deferred annuity contracts (“Zurich Preferred Plus”), Zurich ZS4 individual and group variable and market value adjusted deferred annuity contracts (“Zurich ZS4”) and Zurich Archway individual and group variable and market value adjusted deferred annuity contracts (“Zurich Archway”). The Separate Account is divided into a total of ninety subaccounts with various subaccount options available to contract owners depending upon their respective Contracts. During the year ended December 31, 2011, assets were invested in one hundered of the subaccount options.

The Zurich Advantage III contracts have fifty-eight subaccount options available to contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger Portfolios, the American Century Variable Portfolios, Inc., the Credit Suisse Trust, the Dreyfus Investment Portfolios, the Dreyfus Socially Responsible Growth Fund, Inc., the Dreyfus Variable Investment Fund, the DWS Variable Series I, the DWS Variable Series II, the Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, the ING Global Resources Trust, the ING Investors Trust, the Invesco Variable Insurance Funds, the Janus Aspen Series, the JPMorgan Insurance Trust, the JPMorgan Series Trust II and the Oppenheimer Variable Account Funds, all of which are open-end management investment companies.

The Zurich Passport contracts have thirteen subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the DWS Variable Series II, an open-end management investment company.

The Scudder Destinations contracts have twenty-three subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger Portfolios, the Credit Suisse Trust, the Dreyfus Investment Portfolios, the Dreyfus Socially Responsible Growth Fund, Inc., the DWS Variable Series I, the DWS Variable Series II, the DWS Investments VIT Funds, and the Invesco Variable Insurance Funds, all of which are open-end management investment companies.

The Zurich Preferred and Zurich Preferred Plus contracts have fifty-three subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger

51

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(1) Organization: (continued)

Portfolios, the American Century Variable Portfolios, Inc., the Credit Suisse Trust, the Dreyfus Investment Portfolios, the Dreyfus Socially Responsible Growth Fund, Inc., the Dreyfus Variable Investment Fund, the DWS Variable Series I, the DWS Variable Series II, the Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, the Invesco Variable Insurance Funds, the Janus Aspen Series, the JPMorgan Insurance Trust, the JPMorgan Series Trust II and the Oppenheimer Variable Account Funds, all of which are open-end management investment companies.

The Zurich ZS4 contracts have twenty-one subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger Portfolios, the Credit Suisse Trust, the Dreyfus Investment Portfolios, the Dreyfus Socially Responsible Growth Fund, Inc., the DWS Variable Series I, the DWS Variable Series II, the DWS Investments VIT Funds, and the Invesco Variable Insurance Funds, all of which are open-end management investment companies.

The Zurich Archway contracts have fifty-two subaccount options available to the contract owners and each subaccount invests exclusively in the shares of a corresponding portfolio in the Alger Portfolios, the American Century Variable Portfolios, Inc., the Credit Suisse Trust, the Dreyfus Investment Portfolios, The Dreyfus Socially Responsible Growth Fund, Inc., the Dreyfus Variable Investment Fund, the DWS Variable Series I, the DWS Variable Series II, the Fidelity Variable Insurance Products Fund, the Franklin Templeton Variable Insurance Products Trust, the Invesco Variable Insurance Funds, the Janus Aspen Series, the JPMorgan Insurance Trust, the JPMorgan Series Trust II and the Oppenheimer Variable Account Funds, all of which are open-end management investment companies.

At December 31, 2011, the Separate Account was comprised of ninety subaccounts as follows:

Alger Balanced O

Alger Balanced S (a)

Alger Capital Appreciation O

Alger Capital Appreciation S

Alger Large Cap Growth I-2

Alger Mid Cap Growth I-2

Alger Mid Cap Growth S

Alger Small Cap Growth I-2

American Century VP Income & Growth

American Century VP Income & Growth II

American Century VP Value

American Century VP Value II

Credit Suisse Trust International Equity Flex III (b)

Dreyfus I.P. Mid Cap Stock A

Dreyfus I.P. Mid Cap Stock SC

Dreyfus Socially Responsible Growth A

Dreyfus Socially Responsible Growth SC

DWS Balanced VIP A

DWS Blue Chip VIP A

DWS Blue Chip VIP B

DWS Bond VIP A

DWS Capital Growth VIP A

DWS Capital Growth VIP B

DWS Core Fixed Income VIP A

DWS Diversified International Equity VIP A

DWS Dreman Small Mid Cap Value VIP A

DWS Dreman Small Mid Cap Value VIP B

DWS Equity 500 Index VIP A

DWS Equity 500 Index VIP B2

DWS Global Small Cap Growth VIP A

DWS Global Small Cap Growth VIP B

DWS Global Thematic VIP A

DWS Global Thematic VIP B

DWS Government & Agency Securities VIP A

DWS Government & Agency Securities VIP B

DWS Growth & Income VIP A

DWS Growth & Income VIP B

DWS Health Care VIP A (c)

DWS Health Care VIP B (c)

DWS High Income VIP A

DWS High Income VIP B

DWS International VIP A

DWS International VIP B

DWS Large Cap Value VIP A

DWS Large Cap Value VIP B

DWS Mid Cap Growth VIP A (c)

DWS Money Market VIP

DWS Small Mid Cap Growth VIP A

52

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(1) Organization: (continued)

DWS Strategic Value VIP A (c)

DWS Strategic Value VIP B (c)

DWS Technology VIP A (c)

DWS Technology VIP B (c)

DWS Turner Mid Cap Growth VIP A (c)

DWS Unconstrained Income VIP A

Fidelity VIP Asset Manager

Fidelity VIP Contrafund

Fidelity VIP Contrafund -Service 2

Fidelity VIP Equity Income

Fidelity VIP Equity Income - Service 2

Fidelity VIP Growth

Fidelity VIP Index 500

Fidelity VIP Index 500 - SC

Franklin Rising Dividends Securities

Franklin Small Cap Value Securities

Franklin Strategic Income Securities

Franklin U.S. Government

Franklin Zero Coupon - 2010 (a)

ING Global Resources

ING JPMorgan Emerging Markets Equity

Invesco V.I. Dividend Growth Services

Invesco V.I. Financial Services (c)

Invesco V.I. Global Health Care

Invesco V.I. Global Real Estate

Invesco V.I. Utilities

Janus Aspen Balanced I-S

Janus Aspen Enterprise I-S

Janus Aspen Forty I-S

Janus Aspen Janus I-S

Janus Aspen Perkins Mid Cap Value

Janus Aspen Worldwide I-S

Janus Aspen Worldwide S-C

JP Morgan Insurance Trust Balanced (a)

JP Morgan Insurance Trust Core Bond

JP Morgan Insurance Trust Equity Index

JP Morgan Insurance Trust International Equity

JP Morgan Insurance Trust Intrepid Growth

JP Morgan Insurance Trust Intrepid MidCap

JP Morgan Insurance Trust Mid Cap Growth

JP Morgan Insurance Trust Mid Cap Value

JP Morgan Insurance Trust Small Cap Core

JP Morgan Insurance Trust US Equity

Mutual Global Discovery Securities

Mutual Shares Securities

Oppenheimer Capital Appreciation

Oppenheimer Global Securities

Oppenheimer Global Strategic Income VA

Oppenheimer High Income

Oppenheimer Main Street

Oppenheimer Main Street Small & Mid Cap

Oppenheimer Small Mid Cap Growth

PIMCO Foreign Bond

PIMCO Low Duration

Templeton Developing Markets Securities

(a) Subaccounts ceased operations during 2010.

(b) Subaccounts ceased operations on October 21, 2011 and merged into DWS Money Market VIP subaccount.

(c) Subaccounts ceased operations on April 29, 2011 and merged into the subaccounts as indicated below.

Closed Subaccount	Merged Subaccount
DWS Health Care VIP A	DWS Capital Growth VIP A
DWS Health Care VIP B	DWS Capital Growth VIP B
DWS Mid Cap Growth VIP A	DWS Small Mid Cap Growth VIP A
DWS Strategic Value VIP A	DWS Large Cap Value VIP A
DWS Strategic Value VIP B	DWS Large Cap Value VIP B
DWS Technology VIP A	DWS Capital Growth VIP A
DWS Technology VIP B	DWS Capital Growth VIP B
DWS Turner Mid Cap Growth VIP A	DWS Small Mid Cap Growth VIP A
Invesco V.I. Financial Services	Invesco V.I. Dividend Growth Services

See respective contract Prospectus of each product for further description and benefits.

The remainder of this page is intentionally left blank

53

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(2) Significant Accounting Policies:

Investments

Investments are made in the various portfolios in accordance with selections made by the contract owners. Such investments are made at the net asset value per share, reported by the respective portfolios.

Security transactions and investment income

Security transactions are generally accounted for on the trade date (date the order to buy or sell is executed). Dividend income is recorded as income on the ex-dividend date. Realized gains and losses from sales of investment shares are generally reported on a first in, first out (FIFO) cost basis. Capital gain distributions are included in realized gains (losses) on investments.

Accumulation unit valuation

On each day the New York Stock Exchange (the “Exchange”) is open for trading, the accumulation unit value is determined as of the earlier of 3:00 p.m. (CST) or the close of the Exchange by dividing the total value of each subaccount’s investments and other assets, less liabilities, by the number of accumulation units outstanding in the respective subaccount.

Federal income taxes

The results of the operations of the Separate Account are included in the federal income tax return of ZALICO. Under the provisions of the contracts, ZALICO has the right to charge the Separate Account for federal income tax attributable to the Separate Account. No charge has been made against the Separate Account for such tax. Management will periodically review the contract in the event of changes in tax law. Accordingly, a charge may be made in future years for any federal income taxes that would be attributable to the contracts.

Net transfers (to) from affiliate or subaccounts

Net transfers (to) from affiliate or subaccounts include transfers of all or part of the contract owners’ interest to or from another eligible subaccount or to the general account of ZALICO.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that could affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets or liabilities at the date of the financial statements. As a result, actual results reported as revenue and expenses could differ from the estimates reported in the accompanying financial statements.

Risks and Uncertainties

The Separate Account provides for various investment options in any combination of the available open-end management investment companies. Generally, all investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the value of investments, it is at least reasonably possible that changes in risks in the near term could materially affect investment balances, the amounts reported in the Statement of Assets, Liabilities and Contract Owners’ Equity and the amounts reported in the Statement of Changes in Contract Owners’ Equity.

54

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(2) Significant Accounting Policies: (continued)

Annuity Payouts

Net assets allocated to contracts in the annuity payout period are computed according to the 1983a Individual Annuitant Mortality Table with projections. Unless the annuitant elects otherwise, the assumed investment return is 2.5% for most products (i.e. Destinations, Farmers Variable Annuity, Archway, ZS4, Preferred, Preferred Plus, most Advantage III policies), or 4.0% for Passport and some Advantage III contracts. The mortality risk is fully borne by ZALICO and may result in additional amounts being transferred into the Separate Account by ZALICO to cover greater longevity of annuitants than expected. Conversely, if amounts allocated exceed amounts required, transfers may be made to the insurance company.

Accounting Pronouncements Recently Adopted

Accounting Standard Update (“ASU” or “Update”) No. 2010-06 — Fair Value Measurements and Disclosures — Improving Disclosures about Fair Value Measurements.

In January of 2010, Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-06 — Fair Value Measurements and Disclosures — Improving Disclosure about Fair Value Measurements. This Update provides amendments to Subtopic 820-10 that requires the following new disclosures: 1) A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; 2) In the reconciliation for fair value measurements using significant unobservable inputs (Level 3), a reporting entity should present separately information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). In addition, this Update provides amendments to clarify existing fair value measurement disclosures with respect to the required level of detail (i.e. class of assets and liabilities) and inputs and valuation techniques used for Level 2 and Level 3 investments. This Update became effective for the Separate Account in 2010, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures were effective in 2011 and were adopted by the Separate Account as of December 31, 2011. This adoption did not have an impact on the Separate Account’s financial statements.

Fair Value Measurements

The Separate Account determined the fair value of its financial instruments based on the fair value hierarchy established in FASB guidance referenced in the Fair Value Measurements and Disclosure Topic which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Separate Account has categorized its financial instruments based on the priority of the inputs to the valuation technique, into the three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the Statement of Assets, Liabilities and Contract Owners’ Equity are categorized as follows:

• Level 1: Unadjusted quoted prices for identical assets or liabilities in an active market.

• Level 2: Quoted prices in markets that are not active or significant inputs that are observable either directly or indirectly. Level 2 inputs include the following:

a) Quoted prices for similar assets or liabilities in active markets

55

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(2) Significant Accounting Policies: (continued)

b) Quoted prices for identical or similar assets or liabilities in non-active markets

c) Inputs other than quoted market prices that are observable

d) Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

• Level 3: Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. They reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Determination of Fair Values

The valuation methodologies used to determine the fair values of assets and liabilities under the FASB guidance referenced in the Fair Value Measurements and Disclosure Topic reflect market participation assumptions and are based on the application of the fair value hierarchy that prioritizes observable market inputs over unobservable inputs. The Separate Account determines the fair values of certain financial assets based on quoted market prices. All of the investments in the subaccounts of the Separate Account are classified as Level 1 in the fair value hierarchy and consist of open-end management investment companies. Participants may, without restriction, transact at the daily net asset value (“NAV”) of the investment companies. The NAV represents the daily per share value of the portfolio of investments of the mutual funds, at which sufficient volumes of transactions occur.

The remainder of this page is intentionally left blank

56

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(3) Purchase and Sales of Investments:

The cost of purchases and proceeds from sales of investments, excluding distributions received and reinvested, for the year ended December 31, 2011, are as follows:

	Purchases		Sales
The Alger Portfolios:
Alger Balanced O	$	2,771,277	$	7,159,032
Alger Capital Appreciation O		6,712,124		7,253,221
Alger Capital Appreciation S		–		1,501
Alger Large Cap Growth I-2		1,343,261		2,641,520
Alger Mid Cap Growth I-2		742,210		3,105,679
Alger Mid Cap Growth S		–		249
Alger Small Cap Growth I-2		982,376		1,368,895
American Century Variable Portfolios, Inc.:
American Century VP Income & Growth		650,140		2,262,521
American Century VP Income & Growth II		120		152
American Century VP Value		24,939,438		26,592,628
American Century VP Value II		73		65
Credit Suisse Trust:
Credit Suisse Trust International Equity Flex III		3,402,722		40,004,841
Dreyfus Investment Portfolios:
Dreyfus I.P. Mid Cap Stock A		3,459,444		11,101,496
Dreyfus I.P. Mid Cap Stock SC		496,969		853,578
Dreyfus Socially Responsible Growth Fund, Inc.:
Dreyfus Socially Responsible Growth A		606,701		1,189,496
Dreyfus Socially Responsible Growth SC		67		35
DWS Variable Series I:
DWS Bond VIP A		5,396,406		7,052,473
DWS Capital Growth VIP A		83,896,652		48,819,419
DWS Capital Growth VIP B		36,426		95,293
DWS Global Small Cap Growth VIP A		3,964,371		10,861,723
DWS Global Small Cap Growth VIP B		50		1,410
DWS Growth & Income VIP A		3,278,159		6,596,409
DWS Growth & Income VIP B		10,120		62,531
DWS Health Care VIP A		10,771,630		35,243,859
DWS Health Care VIP B		4,083		4,083
DWS International VIP A		2,758,405		6,754,155
DWS International VIP B		1,622		23,106
DWS Variable Series II:
DWS Balanced VIP A		5,408,752		25,386,429
DWS Blue Chip VIP A		3,345,386		9,954,021
DWS Blue Chip VIP B		1,609		142,930
DWS Core Fixed Income VIP A		4,392,086		10,421,969
DWS Diversified International Equity VIP A		4,866,027		9,020,453

57

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(3) Purchase and Sales of Investments: (continued)

	Purchases		Sales
DWS Variable Series II:
DWS Dreman Small Mid Cap Value VIP A	$	5,671,375	$	20,939,858
DWS Dreman Small Mid Cap Value VIP B		6,988		76,680
DWS Global Thematic VIP A		2,476,719		6,954,765
DWS Global Thematic VIP B		3,275		582
DWS Government & Agency Securities VIP A		33,041,235		34,882,080
DWS Government & Agency Securities VIP B		21,669		50,491
DWS High Income VIP A		48,049,975		58,772,230
DWS High Income VIP B		20,866		73,315
DWS Large Cap Value VIP A		156,494,665		40,505,360
DWS Large Cap Value VIP B		123,277		70,566
DWS Mid Cap Growth VIP A		624,840		19,473,175
DWS Money Market VIP		94,735,184		88,995,424
DWS Small Mid Cap Growth VIP A		70,609,111		19,737,385
DWS Strategic Value VIP A		2,782,117		160,412,555
DWS Strategic Value VIP B		2,115		164,483
DWS Technology VIP A		1,737,871		51,258,949
DWS Technology VIP B		6,192		6,192
DWS Turner Mid Cap Growth VIP A		6,852,994		51,814,539
DWS Unconstrained Income VIP A		6,203,609		8,809,442
DWS Investments VIT Funds:
DWS Equity 500 Index VIP A		10,675,547		20,483,791
DWS Equity 500 Index VIP B2		533		291
Fidelity Variable Insurance Products Funds:
Fidelity VIP Asset Manager		390,653		1,264,267
Fidelity VIP Contrafund		2,621,355		11,128,013
Fidelity VIP Contrafund — Service 2		134		282
Fidelity VIP Equity Income		1,262,831		4,811,678
Fidelity VIP Equity Income — Service 2		136		97
Fidelity VIP Growth		1,390,201		4,268,918
Fidelity VIP Index 500		3,313,893		8,188,910
Fidelity VIP Index 500 — SC		456,617		853,574
Franklin Templeton Variable Insurance Products Trust:
Franklin Rising Dividends Securities		1,325,691		2,032,008
Franklin Small Cap Value Securities		857,010		1,188,844
Franklin Strategic Income Securities		2,427,699		2,718,794
Franklin U.S. Government		1,419,466		1,033,668
Mutual Global Discovery Securities		2,257,001		3,971,641
Mutual Shares Securities		867,717		1,876,064
Templeton Developing Markets Securities		625,114		2,355,799
ING Global Resources Trust:
ING Global Resources		1,493,236		2,613,289

58

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(3) Purchase and Sales of Investments: (continued)

	Purchases		Sales
ING Investors Trust:
ING JPMorgan Emerging Markets Equity	$	809,751	$	2,231,504
Invesco Variable Insurance Funds:
Invesco V.I. Dividend Growth Services		1,207,240		333,326
Invesco V.I. Financial Services		274,834		1,276,742
Invesco V.I. Global Health Care		206,775		376,192
Invesco V.I. Global Real Estate		881,872		1,302,179
Invesco V.I. Utilities		5,794,675		4,974,041
Janus Aspen Series:
Janus Aspen Balanced I-S		6,838,666		10,147,315
Janus Aspen Enterprise I-S		583,204		7,270,394
Janus Aspen Forty I-S		12,236		216,324
Janus Aspen Janus I-S		693,597		4,322,331
Janus Aspen Perkins Mid Cap Value		813,762		1,205,601
Janus Aspen Worldwide I-S		678,087		6,253,861
Janus Aspen Worldwide S-C		–		–
JP Morgan Insurance Trust:
JP Morgan Insurance Trust Core Bond		309,405		705,767
JP Morgan Insurance Trust Equity Index		57,810		271,919
JP Morgan Insurance Trust International Equity		574,116		1,971,675
JP Morgan Insurance Trust Intrepid Growth		7,569		9,317
JP Morgan Insurance Trust Intrepid MidCap		298,558		778,795
JP Morgan Insurance Trust Mid Cap Growth		497,865		390,262
JP Morgan Insurance Trust Mid Cap Value		489,721		1,578,991
JP Morgan Insurance Trust Small Cap Core		286,446		800,236
JP Morgan Insurance Trust US Equity		57,009		92,929
Oppenheimer Variable Account Funds:
Oppenheimer Capital Appreciation		151,897		444,802
Oppenheimer Global Securities		891,230		5,715,211
Oppenheimer Global Strategic Income VA		1,402,746		2,693,169
Oppenheimer High Income		633,072		520,012
Oppenheimer Main Street		416,411		1,307,802
Oppenheimer Main Street Small & Mid Cap		370,023		1,477,136
Oppenheimer Small Mid Cap Growth		1,400,420		988,182
PIMCO Variable Insurance Trust:
PIMCO Foreign Bond		8,914		38,960
PIMCO Low Duration		4,279		23,216

59

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(4) Expenses and Related Party Transactions:

The following is a summary of Separate Account expense charges which are assessed either as a direct reduction in unit values or through a redemption of units for all contracts contained within the Separate Account:

Contract Charges	Range
Mortality and Expense Risk Charge
Each Subaccount is assessed a daily asset charge for mortality and expense risks through a reduction in unit values. The mortality and expense risk charge covers certain insurance benefits available under the contracts and certain expenses the Company expects to incur. It also covers the risk that charges will not be sufficient to cover costs associated with the contracts and to provide contractual benefits.	0-1.25%
Administration Charge
Each Subaccount is assessed a daily administration charge through a reduction in unit values. This charge reimburses us for expenses incurred for administering the Contracts. These expenses include Owner inquiries, changes in allocations, Owner reports, Contract maintenance costs, and data processing costs. The administrative charge covers the average anticipated administrative expenses incurred while the Contracts are in force.	0-.50%
Records Maintenance Charge
An annual Records Maintenance Charge is assessed during the Accumulation Period through the redemption of units and is assessed equally among all Subaccounts in which the Contract Holder has an interest. The charge is assessed at the end of each Contract year, on Contract surrender and upon annuitization. However, the Separate Account does not deduct the Records Maintenance Charge for Contracts with Contract Value of at least $50,000 on the assessment date. This charge reimburses the Separate Account for the expenses of establishing and maintaining Contract records.	0-$30
Withdrawal Charge
Withdrawal Charges are applicable only during the first seven Contribution Years following each purchase payment. When a withdrawal is requested in good order, and a Withdrawal Charge applies, the Contract Value is reduced by the amount of the Withdrawal Charge through the redemption of units. This charge is subject to certain exceptions. The Withdrawal Charge compensate the Company for Contract distribution expenses, which include the payment of commissions and other promotion and acquisition expenses.	0-8%
Optional Benefit Fees
Optional benefits may be elected by contractholders. These benefits include death benefits and living benefits through the purchase of riders, such as Guaranteed Retirement Income Benefit Rider (“GRIB”), Guaranteed Minimum Death Benefit Rider (“GMDB”), Earnings Based Death Benefit Rider (“EBDB”), Safeguard Enhanced Death Benefit Rider and/or Safeguard Plus Enhanced Death Benefit Rider. The fees for such benefits are deducted monthly and assessed through redemption of units. These fees are calculated on an “Asset Base” basis.	0.15-0.35%
Transfer Charge
The Company currently allows unlimited transfers without charge. The Company reserves the right to assess a transfer fee for the thirteenth and each subsequent transfer during a Contract Year. The charge would be assessed through the redemption of units.	0-$25
Investment Management Fees and other expenses
In some cases, the value of the net assets of each Subaccount is reduced by the Investment Management, 12b-1 fees and service fees and other expenses incurred by the corresponding portfolio in which the Subaccount invests. These fees and expenses are paid indirectly by the Contract Holder through the reduction of unit values.	0-0.25%

60

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(4) Expenses and Related Party Transactions: (continued)

Contract Charges	Range
Redemption Fees
A Fund or Portfolio may assess a redemption fee on Subaccount assets that are redeemed out of the Fund or Portfolio in connection with a withdrawal or transfer. Each Fund or Portfolio determines the amount of the redemption fee and when the fee is imposed. The redemption fee is retained by or paid to the Fund or Portfolio and is not retained by the Company. The redemption fee is deducted from the Contract Value through the redemption of units.	0-2%
Applicable State Premium Taxes
Certain state and local governments impose a premium tax on Purchase Payments which, depending on the state, is paid by the Company at the time a Purchase Payment is received from the Contract Holder or at the time the Contract is annuitized. If the Contract Holder lives in a state where premium taxes are paid at the time a Purchase Payment is received, the Company reserves the right to deduct the amount of the premium tax payable from the Contract Value at the time the Purchase Payment is received. If the Contract Holder lives in a state where premium taxes are paid at time of annuitization, the amount of the premium tax payable will be deducted from the Contract Value.	0-3.5%

Synergy Investment Group, LLC (“Synergy”), an unaffiliated broker/dealer, and Investment Distributors, Inc. (“IDI”), an affiliate of PLICO, are the principal underwriters for the ZALICO separate account. Synergy serves as the principal underwriter for the Scudder Destinations and Farmers Variable Annuity I contracts. IDI serves as the principal underwriter for the remainder of the variable annuity contracts funded through the separate account. BFP Securities LLC, an affiliate of the Company, is also the primary wholesaling distributor of the Company’s BOLI products.

(5) Changes in Units Outstanding:

The changes in units outstanding for the years ended December 31, 2011 and 2010 were as follows:

	Units Issued		Units Redeemed		Net Increase  / (Decrease)
The Alger Portfolios:
Alger Balanced O
2011		293,427		694,658		(401,231	)
2010		301,902		893,726		(591,824	)
Alger Balanced S
2011		–		–		–
2010		–		4,670		(4,670	)
Alger Capital Appreciation O
2011		1,046,061		1,030,840		15,221
2010		829,395		1,303,350		(473,955	)
Alger Capital Appreciation S
2011		797		880		(83	)
2010		473		474		(1	)
Alger Large Cap Growth I-2
2011		32,351		56,612		(24,261	)
2010		24,648		54,208		(29,560	)
Alger Mid Cap Growth I-2
2011		43,047		107,580		(64,533	)
2010		46,235		102,606		(56,371	)

61

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)

	Units Issued		Units Redeemed		Net Increase  / (Decrease)
The Alger Portfolios: (continued)
Alger Mid Cap Growth S
2011		–		2		(2	)
2010		2		2		–
Alger Small Cap Growth I-2
2011		31,680		39,940		(8,260	)
2010		40,181		85,375		(45,194	)
American Century Variable Portfolios, Inc.:
American Century VP Income & Growth
2011		140,534		362,110		(221,576	)
2010		109,634		386,912		(277,278	)
American Century VP Income & Growth II
2011		–		–		–
2010		–		–		–
American Century VP Value
2011		2,490,443		2,742,485		(252,042	)
2010		2,468,350		2,167,498		300,852
American Century VP Value II
2011		–		–		–
2010		–		–		–
Credit Suisse Trust:
Credit Suisse Trust International Equity Flex III
2011		224,932		2,401,041		(2,176,109	)
2010		557,559		978,042		(420,483	)
Dreyfus Investment Portfolios:
Dreyfus I.P. Mid Cap Stock A
2011		509,356		959,033		(449,677	)
2010		564,511		936,642		(372,131	)
Dreyfus I.P. Mid Cap Stock SC
2011		35,819		57,419		(21,600	)
2010		80,861		63,879		16,982
The Dreyfus Socially Responsible Growth Fund, Inc:
Dreyfus Socially Responsible Growth A
2011		102,124		154,256		(52,132	)
2010		55,795		115,029		(59,234	)
Dreyfus Socially Responsible Growth SC
2011		4		–		4
2010		5		–		5

62

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)

	Units Issued		Units Redeemed		Net Increase  / (Decrease)
DWS Variable Series I:
DWS Bond VIP A
2011		566,689		826,932		(260,243	)
2010		660,551		887,664		(227,113	)
DWS Capital Growth VIP A
2011		7,300,679		4,473,841		2,826,838
2010		762,687		3,804,274		(3,041,587	)
DWS Capital Growth VIP B
2011		3,595		5,882		(2,286	)
2010		90		942		(852	)
DWS Global Small Cap Growth VIP A
2011		412,370		747,486		(335,116	)
2010		618,434		967,283		(348,849	)
DWS Global Small Cap Growth VIP B
2011		–		70		(70	)
2010		–		1		(1	)
DWS Growth & Income VIP A
2011		489,379		825,724		(336,345	)
2010		298,305		799,767		(501,462	)
DWS Growth & Income VIP B
2011		732		4,692		(3,960	)
2010		304		1,441		(1,137	)
DWS Health Care VIP A
2011		57,488		2,286,484		(2,228,996	)
2010		298,090		646,726		(348,636	)
DWS Health Care VIP B
2011		–		655		(655	)
2010		–		45		(45	)
DWS International VIP A
2011		525,182		942,525		(417,343	)
2010		417,555		1,121,282		(703,727	)
DWS International VIP B
2011		50		1,712		(1,663	)
2010		309		716		(407	)
DWS Variable Series II:
DWS Balanced VIP A
2011		699,379		3,435,723		(2,736,344	)
2010		702,014		3,739,005		(3,036,991	)

63

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)

	Units Issued		Units Redeemed		Net Increase  / (Decrease)
DWS Variable Series II: (continued)
DWS Blue Chip VIP A
2011		579,416		1,230,636		(651,220	)
2010		455,547		1,367,752		(912,205	)
DWS Blue Chip VIP B
2011		25		9,411		(9,386	)
2010		167		1,283		(1,116	)
DWS Core Fixed Income VIP A
2011		1,570,376		3,234,585		(1,664,209	)
2010		3,701,741		4,878,788		(1,177,047	)
DWS Diversified International Equity VIP A
2011		1,014,904		2,292,309		(1,277,405	)
2010		994,786		2,659,564		(1,664,778	)
DWS Dreman Small Mid Cap Value VIP A
2011		1,434,255		3,572,251		(2,137,995	)
2010		1,722,220		4,001,299		(2,279,079	)
DWS Dreman Small Mid Cap Value VIP B
2011		1,008		4,431		(3,423	)
2010		481		1,573		(1,092	)
DWS Global Thematic VIP A
2011		384,552		650,363		(265,811	)
2010		404,407		735,873		(331,466	)
DWS Global Thematic VIP B
2011		204		–		204
2010		215		–		215
DWS Government & Agency Securities VIP A
2011		2,630,896		4,037,738		(1,406,842	)
2010		3,538,234		4,781,760		(1,243,526	)
DWS Government & Agency Securities VIP B
2011		855		3,796		(2,942	)
2010		735		1,054		(319	)
DWS High Income VIP A
2011		3,515,095		5,334,595		(1,819,500	)
2010		5,609,636		7,242,330		(1,632,694	)
DWS High Income VIP B
2011		1,522		5,128		(3,606	)
2010		145		1,551		(1,406	)
DWS Large Cap Value VIP A
2011		11,450,072		4,732,282		6,717,790
2010		1,278,428		3,613,707		(2,335,279	)

64

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)

	Units Issued		Units Redeemed		Net Increase  / (Decrease)
DWS Variable Series II: (continued)
DWS Large Cap Value VIP B
2011		8,600		4,995		3,605
2010		225		2,018		(1,793	)
DWS Mid Cap Growth VIP A
2011		–		1,555,860		(1,555,860	)
2010		420,164		524,830		(104,666	)
DWS Money Market VIP
2011		16,381,465		18,650,770		(2,269,305	)
2010		16,394,118		20,061,285		(3,667,167	)
DWS Small Mid Cap Growth VIP A
2011		8,498,722		4,297,451		4,201,271
2010		1,563,231		3,516,507		(1,953,276	)
DWS Strategic Value VIP A
2011		236,883		12,197,491		(11,960,608	)
2010		773,361		3,112,889		(2,339,528	)
DWS Strategic Value VIP B
2011		62		13,373		(13,311	)
2010		279		3,370		(3,091	)
DWS Technology VIP A
2011		505,610		8,286,574		(7,780,964	)
2010		2,456,018		3,932,205		(1,476,187	)
DWS Technology VIP B
2011		2,679		3,805		(1,125	)
2010		636		1,521		(885	)
DWS Turner Mid Cap Growth VIP A
2011		267,437		3,758,127		(3,490,690	)
2010		611,720		940,032		(328,312	)
DWS Unconstrained Income VIP A
2011		472,704		704,882		(232,178	)
2010		688,564		846,435		(157,871	)
DWS Investments VIT Funds:
DWS Equity 500 Index VIP A
2011		1,484,615		2,472,974		(988,359	)
2010		1,019,310		1,829,186		(809,876	)
DWS Equity 500 Index VIP B2
2011		34		2		32
2010		37		303		(266	)

65

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)

	Units Issued		Units Redeemed		Net Increase  / (Decrease)
Fidelity Variable Insurance Products Funds:
Fidelity VIP Asset Manager
2011		16,845		46,917		(30,072	)
2010		13,711		43,386		(29,675	)
Fidelity VIP Contrafund
2011		173,874		370,155		(196,281	)
2010		151,317		432,661		(281,344	)
Fidelity VIP Contrafund — Service 2
2011		–		–		–
2010		–		–		–
Fidelity VIP Equity Income
2011		51,507		159,337		(107,830	)
2010		55,932		181,665		(125,733	)
Fidelity VIP Equity Income — Service 2
2011		–		–		–
2010		–		–		–
Fidelity VIP Growth
2011		55,872		109,350		(53,478	)
2010		50,345		164,602		(114,257	)
Fidelity VIP Index 500
2011		27,209		71,856		(44,646	)
2010		25,289		82,986		(57,697	)
Fidelity VIP Index 500 — SC
2011		3,017		6,373		(3,357	)
2010		1,262		5,890		(4,628	)
Franklin Templeton Variable Insurance Products Trust:
Franklin Rising Dividends Securities
2011		111,846		159,775		(47,930	)
2010		95,654		113,269		(17,615	)
Franklin Small Cap Value Securities
2011		55,376		71,403		(16,027	)
2010		106,673		85,791		20,882
Franklin Strategic Income Securities
2011		165,124		213,771		(48,647	)
2010		227,077		227,503		(426	)
Franklin U.S. Government
2011		119,872		96,745		23,128
2010		116,618		152,638		(36,020	)

66

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)

	Units Issued		Units Redeemed		Net Increase  / (Decrease)
Franklin Templeton Variable Insurance Products Trust: (continued)
Franklin Zero Coupon 2010
2011		–		–		–
2010		41,760		662,059		(620,299	)
Mutual Global Discovery Securities
2011		144,003		257,552		(113,548	)
2010		170,797		270,323		(99,526	)
Mutual Shares Securities
2011		83,885		158,157		(74,272	)
2010		150,017		179,034		(29,017	)
Templeton Developing Markets Securities
2011		33,060		88,649		(55,589	)
2010		64,040		78,667		(14,627	)
ING Global Resources Trust:
ING Global Resources
2011		162,818		243,749		(80,932	)
2010		150,499		230,188		(79,689	)
ING Investors Trust:
ING JPMorgan Emerging Markets Equity
2011		32,988		102,780		(69,791	)
2010		51,427		112,819		(61,392	)
Invesco Variable Insurance Funds:
Invesco V.I. Dividend Growth Services
2011		177,734		50,649		127,085
2010		–		–		–
Invesco V.I. Financial Services
2011		41,297		183,840		(142,544	)
2010		93,359		69,708		23,651
Invesco V.I. Global Health Care
2011		17,294		27,699		(10,405	)
2010		14,776		27,277		(12,501	)
Invesco V.I. Global Real Estate
2011		47,235		74,504		(27,269	)
2010		44,183		92,174		(47,991	)
Invesco V.I. Utilities
2011		663,201		630,685		32,516
2010		258,536		546,715		(288,179	)

67

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)

	Units Issued		Units Redeemed		Net Increase  / (Decrease)
Janus Aspen Series:
Janus Aspen Balanced I-S
2011		118,806		304,864		(186,058	)
2010		143,642		364,960		(221,318	)
Janus Aspen Enterprise I-S
2011		52,563		207,720		(155,157	)
2010		67,944		220,116		(152,172	)
Janus Aspen Forty I-S
2011		1,002		16,170		(15,168	)
2010		2,376		6,486		(4,110	)
Janus Aspen Janus I-S
2011		56,235		190,392		(134,157	)
2010		61,366		217,391		(156,025	)
Janus Aspen Perkins Mid Cap Value
2011		47,728		64,037		(16,309	)
2010		55,909		77,863		(21,954	)
Janus Aspen Worldwide I-S
2011		73,578		245,690		(172,112	)
2010		72,177		256,032		(183,855	)
Janus Aspen Worldwide S-C
2011		–		–		–
2010		–		103		(103	)
JPMorgan Insurance Trust:
JP Morgan Insurance Trust Balanced
2011		–		–		–
2010		1,375		7,109		(5,734	)
JP Morgan Insurance Trust Core Bond
2011		18,388		53,537		(35,150	)
2010		38,782		28,058		10,724
JP Morgan Insurance Trust Equity Index
2011		4,640		22,336		(17,696	)
2010		22,252		4,065		18,187
JP Morgan Insurance Trust International Equity
2011		59,895		141,939		(82,045	)
2010		50,541		165,029		(114,488	)
JP Morgan Insurance Trust Intrepid Growth
2011		626		811		(185	)
2010		–		1,471		(1,471	)

68

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)

	Units Issued		Units Redeemed		Net Increase  / (Decrease)
JPMorgan Insurance Trust: (continued)
JP Morgan Insurance Trust Intrepid MidCap
2011		25,337		57,040		(31,703	)
2010		38,220		66,150		(27,930	)
JP Morgan Insurance Trust Mid Cap Growth
2011		34,553		27,755		6,798
2010		35,540		33,705		1,835
JP Morgan Insurance Trust Mid Cap Value
2011		49,605		127,413		(77,808	)
2010		54,761		165,395		(110,634	)
JP Morgan Insurance Trust Small Cap Core
2011		24,925		49,460		(24,535	)
2010		45,559		90,337		(44,778	)
JP Morgan Insurance Trust US Equity
2011		5,096		7,830		(2,734	)
2010		17,538		25,241		(7,703	)
Oppenheimer Variable Account Funds:
Oppenheimer Capital Appreciation
2011		17,572		37,312		(19,740	)
2010		30,250		95,457		(65,207	)
Oppenheimer Global Securities
2011		112,655		346,432		(233,777	)
2010		139,996		396,777		(256,781	)
Oppenheimer Global Strategic Income VA
2011		110,434		213,936		(103,502	)
2010		237,438		218,997		18,441
Oppenheimer High Income
2011		169,367		158,472		10,895
2010		41,459		114,020		(72,561	)
Oppenheimer Main Street
2011		50,548		112,616		(62,068	)
2010		39,220		115,011		(75,791	)
Oppenheimer Main Street Small & Mid Cap
2011		40,174		94,073		(53,899	)
2010		62,444		127,907		(65,463	)
Oppenheimer Small Mid Cap Growth
2011		101,884		76,513		25,371
2010		20,113		18,914		1,199

69

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(5) Changes in Units Outstanding: (continued)

	Units Issued		Units Redeemed		Net Increase  / (Decrease)
PIMCO Variable Insurance Trust:
PIMCO Foreign Bond
2011		373		2,360		(1,987	)
2010		461		916		(455	)
PIMCO Low Duration
2011		146		1,433		(1,287	)
2010		424		882		(458	)

70

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights:

A summary of the units outstanding, unit fair values, net assets for variable annuity contracts, net investment income ratios, the expense ratios, excluding expenses of the underlying funds, and total returns for each of the five years in the period ended December 31, 2011, were as follows.

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
Alger Portfolios:
Alger Balanced O
2011		3,048	$	12.081	$	12.081	$	36,819		2.84	%		1.40	%		1.40	%		-1.35	%		-1.35	%
2010		3,449		12.246		12.246		42,236		2.49	%		1.40	%		1.40	%		8.81	%		8.81	%
2009		4,041		11.255		11.255		45,477		3.20	%		1.40	%		1.40	%		27.46	%		27.46	%
2008		5,045		8.830		8.830		44,546		2.80	%		1.40	%		1.40	%		-32.71	%		-32.71	%
2007		7,050		13.121		13.121		92,499		2.14	%		1.40	%		1.40	%		10.81	%		10.81	%
Alger Balanced S
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		5		11.753		12.059		56		3.88	%		1.70	%		2.05	%		25.92	%		26.35	%
2008		3		9.334		9.544		26		N/A			1.70	%		2.05	%		-33.27	%		-33.04	%
2007		3		13.987		14.253		45		N/A			1.70	%		2.05	%		12.18	%		12.56	%
Alger Capital Appreciation O
2011		4,593		11.668		11.668		53,588		0.11	%		1.40	%		1.40	%		-1.68	%		-1.68	%
2010		4,578		11.866		11.866		54,321		0.38	%		1.40	%		1.40	%		12.45	%		12.45	%
2009		5,052		10.552		10.552		53,307		N/A			1.40	%		1.40	%		49.02	%		49.02	%
2008		6,678		7.081		7.081		47,288		N/A			1.40	%		1.40	%		-45.90	%		-45.90	%
2007		9,245		13.088		13.088		121,007		0.06	%		1.40	%		1.40	%		31.68	%		31.68	%
Alger Capital Appreciation S
2011		–		17.783		18.372		–		N/A			1.70	%		2.05	%		-2.62	%		-2.28	%
2010		–		18.262		18.802		2		0.19	%		1.70	%		2.05	%		11.35	%		11.73	%
2009		–		16.401		16.828		1		N/A			1.70	%		2.05	%		47.66	%		48.17	%
2008		–		11.107		11.357		1		N/A			1.70	%		2.05	%		-46.37	%		-46.18	%
2007		–		20.709		21.102		3		0.20	%		1.70	%		2.05	%		30.51	%		30.96	%
Alger Large Cap Growth I-2
2011		185		39.958		57.163		9,889		1.05	%		1.00	%		2.25	%		-2.54	%		-1.33	%
2010		209		40.998		57.935		11,342		0.73	%		1.00	%		2.25	%		10.89	%		12.26	%
2009		238		36.970		51.606		11,580		0.61	%		1.00	%		2.25	%		44.33	%		46.11	%
2008		266		25.616		35.319		8,887		0.23	%		1.00	%		2.25	%		-47.34	%		-46.69	%
2007		293		48.646		66.251		18,402		0.33	%		1.00	%		2.25	%		17.29	%		18.75	%
Alger Mid Cap Growth I-2
2011		319		29.331		33.249		10,168		0.35	%		1.00	%		2.25	%		-10.29	%		-9.18	%
2010		384		32.696		36.610		13,498		N/A			1.00	%		2.25	%		16.76	%		18.20	%
2009		440		28.003		30.973		13,152		N/A			1.00	%		2.25	%		48.37	%		50.20	%
2008		495		18.874		20.620		9,911		0.17	%		1.00	%		2.25	%		-59.28	%		-58.77	%
2007		572		46.347		50.013		27,876		N/A			1.00	%		2.25	%		28.65	%		30.25	%
Alger Mid Cap Growth S
2011		1		13.570		14.020		12		N/A			1.70	%		2.05	%		-10.42	%		-10.12	%
2010		1		15.150		15.597		13		N/A			1.70	%		2.05	%		16.50	%		16.90	%
2009		1		13.004		13.343		11		N/A			1.70	%		2.05	%		48.27	%		48.78	%
2008		1		8.770		8.968		7		N/A			1.70	%		2.05	%		-59.31	%		-59.17	%
2007		1		21.554		21.963		17		N/A			1.70	%		2.05	%		28.62	%		29.07	%

71

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
Alger Portfolios: (continued)
Alger Small Cap Growth I-2
2011		165	$	24.847	$	54.134	$	7,864		N/A			1.00	%		2.25	%		-5.31	%		-4.14	%
2010		173		20.930		56.472		8,564		N/A			1.00	%		2.25	%		22.43	%		24.05	%
2009		218		17.095		45.522		8,384		N/A			1.00	%		2.25	%		42.17	%		44.07	%
2008		185		12.024		31.598		5,170		N/A			1.00	%		2.25	%		-47.78	%		-47.13	%
2007		182		23.026		59.766		9,698		N/A			1.00	%		2.25	%		14.58	%		16.07	%
American Century Variable Portfolios, Inc.:
American Century VP Income & Growth
2011		1,228		6.702		7.579		8,973		1.54	%		1.00	%		2.25	%		0.85	%		2.09	%
2010		1,450		6.645		7.423		10,420		1.44	%		1.00	%		2.25	%		11.64	%		13.02	%
2009		1,727		5.953		6.568		11,010		4.57	%		1.00	%		2.25	%		15.50	%		16.93	%
2008		2,046		5.154		5.617		11,188		2.16	%		1.00	%		2.25	%		-36.03	%		-35.24	%
2007		2,932		8.057		8.674		24,831		2.01	%		1.00	%		2.25	%		-2.28	%		-1.06	%
American Century VP Income & Growth II
2011		1		12.594		13.011		9		1.34	%		1.70	%		2.05	%		0.79	%		1.14	%
2010		1		12.495		12.864		9		1.23	%		1.70	%		2.05	%		11.57	%		11.96	%
2009		1		11.199		11.490		8		4.05	%		1.70	%		2.05	%		15.41	%		15.81	%
2008		1		9.703		9.922		7		1.78	%		1.70	%		2.05	%		-36.04	%		-35.82	%
2007		1		15.172		15.460		11		1.64	%		1.70	%		2.05	%		-2.44	%		-2.11	%
American Century VP Value
2011		1,769		9.012		10.709		18,152		1.52	%		1.00	%		2.25	%		-1.20	%		0.02	%
2010		2,021		9.122		10.707		20,809		2.39	%		1.00	%		2.25	%		10.93	%		12.30	%
2009		1,720		8.223		9.534		15,778		5.38	%		1.00	%		2.25	%		17.23	%		18.68	%
2008		2,072		7.015		8.034		16,036		2.54	%		1.00	%		2.25	%		-28.39	%		-27.50	%
2007		2,614		9.796		11.081		28,023		1.72	%		1.00	%		2.25	%		-7.24	%		-6.08	%
American Century VP Value II
2011		–		13.852		14.310		4		1.87	%		1.70	%		2.05	%		-1.16	%		-0.82	%
2010		–		14.014		14.428		4		2.00	%		1.70	%		2.05	%		10.77	%		11.15	%
2009		–		12.652		12.981		4		4.96	%		1.70	%		2.05	%		17.32	%		17.72	%
2008		–		10.784		11.027		3		2.31	%		1.70	%		2.05	%		-28.28	%		-28.03	%
2007		–		15.036		15.322		4		2.44	%		1.70	%		2.05	%		-7.22	%		-6.90	%
Credit Suisse Trust:
Credit Suisse Trust International Equity Flex II
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		1,193		6.170		8.786		7,359		1.63	%		1.40	%		2.05	%		-47.83	%		-47.49	%
2007		2,070		11.751		16.782		24,325		N/A			1.40	%		2.05	%		-5.90	%		-5.29	%
Credit Suisse Trust International Equity Flex III
2011(5)		–		15.058		18.986		–		5.33	%		1.00	%		2.25	%		-17.08	%		-16.25	%
2010		2,176		18.159		22.796		43,927		0.09	%		1.00	%		2.25	%		9.76	%		11.12	%
2009		2,596		16.543		20.656		47,351		2.23	%		1.00	%		2.25	%		48.28	%		50.12	%
2008		2,762		11.157		13.855		33,670		1.92	%		1.00	%		2.25	%		-55.80	%		-55.25	%
2007		4,089		25.242		31.179		111,926		1.45	%		1.00	%		2.25	%		26.58	%		28.15	%

72

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
Dreyfus Investment Portfolios:
Dreyfus I.P. Mid Cap Stock A
2011		3,228	$	15.815	$	15.815	$	51,046		0.53	%		1.40	%		1.40	%		-0.99	%		-0.99	%
2010		3,677		15.973		15.973		58,739		0.94	%		1.40	%		1.40	%		25.34	%		25.34	%
2009		4,049		12.743		12.743		51,604		1.43	%		1.40	%		1.40	%		33.64	%		33.64	%
2008		6,004		9.536		9.536		58,261		1.04	%		1.40	%		1.40	%		-41.25	%		-41.25	%
2007		8,728		16.230		16.230		143,605		0.44	%		1.40	%		1.40	%		0.09	%		0.09	%
Dreyfus I.P. Mid Cap Stock SC
2011		105		14.524		16.254		1,649		0.41	%		1.00	%		2.25	%		-2.00	%		-0.79	%
2010		127		14.792		16.384		2,010		0.78	%		1.00	%		2.25	%		24.15	%		25.69	%
2009		110		11.891		13.035		1,395		0.95	%		1.00	%		2.25	%		32.35	%		33.99	%
2008		119		8.967		9.729		117		8.06	%		1.00	%		2.25	%		-41.76	%		-41.04	%
2007		135		15.366		16.499		230		2.88	%		1.00	%		2.25	%		-0.86	%		0.38	%
The Dreyfus Socially Responsible Growth Fund, Inc.:
Dreyfus Socially Responsible Growth A
2011		456		7.755		28.930		5,171		0.91	%		1.00	%		2.25	%		-1.31	%		-0.10	%
2010		508		7.793		28.958		5,724		0.85	%		1.00	%		2.25	%		12.29	%		13.68	%
2009		567		6.883		25.473		5,714		0.94	%		1.00	%		2.25	%		30.81	%		32.43	%
2008		676		5.218		19.235		5,007		0.81	%		1.00	%		2.25	%		-35.87	%		-35.07	%
2007		906		8.069		29.627		9,740		0.51	%		1.00	%		2.25	%		5.40	%		6.71	%
Dreyfus Socially Responsible Growth SC
2011		–		12.154		12.556		2		0.69	%		1.70	%		2.05	%		-1.37	%		-1.03	%
2010		–		12.323		12.687		2		0.60	%		1.70	%		2.05	%		12.25	%		12.63	%
2009		–		10.978		11.264		2		0.60	%		1.70	%		2.05	%		30.76	%		31.21	%
2008		–		8.396		8.585		1		0.52	%		1.70	%		2.05	%		-35.90	%		-35.68	%
2007		–		13.098		13.346		3		0.14	%		1.70	%		2.05	%		5.32	%		5.69	%
DWS Variable Series I:
DWS Bond VIP A
2011		2,348		7.833		13.323		23,054		4.13	%		1.00	%		2.25	%		3.37	%		4.64	%
2010		2,609		7.578		12.782		24,438		4.37	%		1.00	%		2.25	%		4.44	%		5.73	%
2009		2,836		7.255		12.137		25,103		7.39	%		1.00	%		2.25	%		7.65	%		38.47	%
2008		2,373		6.740		11.181		18,767		6.26	%		1.00	%		2.25	%		-18.60	%		-17.59	%
2007		2,888		8.280		13.623		27,128		4.11	%		1.00	%		2.25	%		1.87	%		3.14	%
DWS Capital Growth VIP A
2011		20,049		10.870		22.849		244,875		0.71	%		1.00	%		2.25	%		-6.57	%		-5.42	%
2010		17,222		11.538		24.158		229,370		0.88	%		1.00	%		2.25	%		14.14	%		15.55	%
2009		20,264		10.024		20.906		232,977		1.17	%		1.00	%		2.25	%		24.08	%		25.61	%
2008		21,447		8.012		16.643		198,670		1.17	%		1.00	%		2.25	%		-34.46	%		-33.65	%
2007		29,000		12.123		25.082		397,489		0.63	%		1.00	%		2.25	%		10.10	%		11.47	%

73

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
DWS Variable Series I: (continued)
DWS Capital Growth VIP B
2011		10	$	13.055	$	13.487	$	135		0.46	%		1.70	%		2.05	%		-6.67	%		-6.35	%
2010		12		13.987		14.401		177		0.54	%		1.70	%		2.05	%		14.00	%		14.39	%
2009		13		12.270		12.589		166		1.47	%		1.70	%		2.05	%		23.95	%		24.37	%
2008		33		9.900		10.122		332		0.67	%		1.70	%		2.05	%		-34.55	%		-34.32	%
2007		35		15.125		15.413		530		0.29	%		1.70	%		2.05	%		9.91	%		10.29	%
DWS Global Small Cap Growth VIP A (6)
2011		3,047		19.527		19.527		59,497		1.80	%		1.40	%		1.40	%		-11.14	%		-11.14	%
2010		3,382		21.976		21.976		74,320		0.38	%		1.40	%		1.40	%		24.89	%		24.89	%
2009		3,731		17.596		17.596		65,646		1.61	%		1.40	%		1.40	%		46.16	%		46.16	%
2008		5,128		12.039		12.039		61,738		0.29	%		1.40	%		1.40	%		-50.66	%		-50.66	%
2007		7,462		24.400		24.400		182,071		1.28	%		1.40	%		1.40	%		7.81	%		7.81	%
DWS Global Small Cap Growth VIP B (7)
2011		–		18.772		19.394		2		1.87	%		1.70	%		2.05	%		-11.89	%		-11.58	%
2010		–		21.305		21.934		4		0.08	%		1.70	%		2.05	%		23.85	%		24.27	%
2009		–		17.202		17.650		3		1.36	%		1.70	%		2.05	%		44.69	%		45.19	%
2008		–		11.889		12.156		2		N/A			1.70	%		2.05	%		-51.17	%		-51.00	%
2007		–		24.345		24.808		7		1.39	%		1.70	%		2.05	%		6.72	%		7.09	%
DWS Growth & Income VIP A
2011		2,870		9.196		11.447		27,228		1.37	%		1.00	%		2.05	%		-2.15	%		-1.13	%
2010		3,206		9.338		11.578		30,927		1.61	%		1.00	%		2.05	%		12.10	%		13.26	%
2009		3,707		8.277		10.223		31,677		1.98	%		1.00	%		2.05	%		31.45	%		34.87	%
2008		4,829		6.257		7.697		31,155		2.14	%		1.00	%		2.05	%		-39.55	%		-38.92	%
2007		6,915		10.285		12.602		71,600		1.28	%		1.00	%		2.05	%		-0.69	%		0.35	%
DWS Growth & Income VIP B
2011		4		12.151		12.554		56		1.44	%		1.70	%		2.05	%		-2.39	%		-2.06	%
2010		8		12.449		12.817		107		1.37	%		1.70	%		2.05	%		11.83	%		12.21	%
2009		10		11.133		11.422		108		1.80	%		1.70	%		2.05	%		30.95	%		31.40	%
2008		10		8.501		8.693		83		1.70	%		1.70	%		2.05	%		-39.53	%		-39.32	%
2007		10		14.059		14.326		138		0.83	%		1.70	%		2.05	%		-1.04	%		-0.70	%
DWS Health Care VIP A
2011(8)		–		15.631		15.631		–		1.10	%		1.40	%		1.40	%		12.60	%		12.60	%
2010		2,229		13.882		13.882		30,942		N/A			1.40	%		1.40	%		6.66	%		6.66	%
2009		2,578		13.015		13.015		33,548		1.28	%		1.40	%		1.40	%		20.50	%		20.50	%
2008		3,922		10.801		10.801		42,357		0.35	%		1.40	%		1.40	%		-24.27	%		-24.27	%
2007		5,172		14.262		14.262		73,767		N/A			1.40	%		1.40	%		11.63	%		11.63	%
DWS Health Care VIP B
2011(9)		–		19.563		20.163		–		0.36	%		1.70	%		2.05	%		12.27	%		12.39	%
2010		1		17.425		17.940		12		N/A			1.70	%		2.05	%		5.52	%		5.88	%
2009		1		16.513		16.943		12		1.01	%		1.70	%		2.05	%		19.36	%		19.77	%
2008		1		13.835		14.147		11		N/A			1.70	%		2.05	%		-25.04	%		-24.78	%
2007		1		18.457		18.807		16		N/A			1.70	%		2.05	%		10.60	%		10.98	%

74

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
DWS Variable Series I: (continued)
DWS International VIP A
2011		3,718	$	8.190	$	11.577	$	31,125		1.88	%		1.00	%		2.25	%		-18.50	%		-17.50	%
2010		4,135		9.967		14.032		42,165		2.09	%		1.00	%		2.25	%		-0.61	%		0.62	%
2009		4,839		9.945		13.946		49,299		4.23	%		1.00	%		2.25	%		30.58	%		32.20	%
2008		6,889		7.552		10.550		53,129		1.50	%		1.00	%		2.25	%		-49.36	%		-48.73	%
2007		10,049		14.789		20.575		151,122		2.56	%		1.00	%		2.25	%		12.05	%		13.45	%
DWS International VIP B
2011		4		10.531		10.880		41		1.79	%		1.70	%		2.05	%		-18.45	%		-18.16	%
2010		5		12.913		13.295		72		1.79	%		1.70	%		2.05	%		-0.70	%		-0.36	%
2009		6		13.004		13.343		77		3.85	%		1.70	%		2.05	%		30.22	%		30.66	%
2008		7		9.987		10.211		72		1.02	%		1.70	%		2.05	%		-49.29	%		-49.12	%
2007		6		19.694		20.068		128		2.15	%		1.70	%		2.05	%		11.95	%		12.33	%
DWS Variable Series II:
DWS Balanced VIP A
2011		21,315		2.168		12.075		155,961		1.61	%		1.00	%		2.25	%		-3.59	%		-2.40	%
2010		24,052		2.227		12.457		180,808		3.12	%		1.00	%		2.25	%		8.78	%		10.12	%
2009		27,088		2.027		10.971		184,860		3.73	%		1.00	%		2.25	%		20.72	%		22.21	%
2008		31,704		1.663		9.388		177,453		4.22	%		1.00	%		2.25	%		-29.10	%		-28.05	%
2007		38,891		2.317		13.196		303,165		3.37	%		1.00	%		2.25	%		2.32	%		3.80	%
DWS Blue Chip VIP A
2011		4,930		1.453		11.902		50,818		1.16	%		1.25	%		1.40	%		-1.88	%		-1.74	%
2010		5,582		1.479		12.130		58,272		1.44	%		1.25	%		1.40	%		12.20	%		12.37	%
2009		6,493		1.316		10.811		60,769		1.91	%		1.25	%		1.40	%		32.12	%		32.32	%
2008		8,657		0.995		8.183		62,370		1.92	%		1.25	%		1.40	%		-39.35	%		-39.26	%
2007		12,533		1.637		13.491		150,847		1.13	%		1.25	%		1.40	%		2.06	%		2.22	%
DWS Blue Chip VIP B
2011		2		13.763		14.218		32		1.35	%		1.70	%		2.05	%		-2.85	%		-2.51	%
2010		12		14.166		14.584		167		1.16	%		1.70	%		2.05	%		11.27	%		11.65	%
2009		13		12.731		13.063		164		1.52	%		1.70	%		2.05	%		30.78	%		31.23	%
2008		14		9.735		9.954		133		1.44	%		1.70	%		2.05	%		-39.72	%		-39.51	%
2007		15		16.149		16.455		241		0.77	%		1.70	%		2.05	%		1.07	%		1.42	%
DWS Core Fixed Income VIP A
2011		9,679		1.180		12.844		43,380		2.71	%		1.00	%		2.25	%		4.08	%		5.36	%
2010		11,343		1.133		12.239		47,896		6.32	%		1.00	%		2.25	%		1.73	%		5.46	%
2009		12,520		1.088		11.651		51,809		8.71	%		1.00	%		2.25	%		4.73	%		6.65	%
2008		14,587		1.033		10.968		59,265		8.47	%		1.00	%		2.25	%		-21.32	%		-20.13	%
2007		20,126		1.309		13.786		99,451		4.26	%		1.00	%		2.25	%		1.65	%		3.13	%
DWS Davis Venture Value VIP
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		11,803		8.207		9.702		96,901		1.65	%		1.40	%		2.05	%		-41.97	%		-41.06	%
2007		17,010		13.924		16.662		236,921		0.72	%		1.40	%		2.05	%		2.04	%		3.01	%

75

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
DWS Variable Series II: (continued)
DWS Diversified International Equity VIP A
2011		12,343	$	1.816	$	12.858	$	47,498		2.03	%		1.00	%		2.05	%		-13.84	%		-12.94	%
2010		13,620		2.108		14.871		59,066		2.16	%		1.00	%		2.05	%		8.70	%		9.83	%
2009		15,285		1.939		10.455		60,284		5.87	%		1.00	%		2.05	%		26.76	%		28.08	%
2008		18,966		1.530		10.701		66,546		1.10	%		1.00	%		2.05	%		-50.09	%		-49.32	%
2007		23,672		3.050		21.368		175,919		2.69	%		1.00	%		2.05	%		13.85	%		15.55	%
DWS Dreman Small Mid Cap Value VIP A
2011		14,981		2.360		22.107		107,906		1.11	%		1.00	%		2.25	%		-8.14	%		-7.01	%
2010		17,119		2.565		23.832		132,028		1.25	%		1.00	%		2.25	%		20.36	%		21.85	%
2009		19,398		2.127		19.606		124,831		1.82	%		1.00	%		2.25	%		26.85	%		28.42	%
2008		24,074		1.673		15.305		138,065		1.87	%		1.00	%		2.25	%		-34.89	%		-34.08	%
2007		32,070		2.565		23.275		324,747		1.05	%		1.00	%		2.25	%		0.78	%		2.03	%
DWS Dreman Small Mid Cap Value VIP B
2011		8		18.301		20.629		153		0.79	%		1.70	%		2.05	%		-8.21	%		-7.89	%
2010		12		19.938		22.397		235		0.88	%		1.70	%		2.05	%		20.20	%		20.61	%
2009		13		16.587		18.569		214		1.60	%		1.70	%		2.05	%		26.68	%		27.12	%
2008		14		13.093		14.608		187		1.33	%		1.70	%		2.05	%		-35.01	%		-34.79	%
2007		15		20.146		22.399		307		0.65	%		1.70	%		2.05	%		0.59	%		0.94	%
DWS Global Thematic VIP A
2011		2,156		13.547		13.547		29,212		0.67	%		1.40	%		1.40	%		-15.57	%		-15.57	%
2010		2,422		16.044		16.044		38,862		0.93	%		1.40	%		1.40	%		12.09	%		12.09	%
2009		2,754		14.314		14.314		39,416		1.49	%		1.40	%		1.40	%		41.84	%		41.84	%
2008		3,795		10.092		10.092		38,297		1.72	%		1.40	%		1.40	%		-48.48	%		-48.48	%
2007		5,497		19.587		19.587		107,675		0.66	%		1.40	%		1.40	%		4.82	%		4.82	%
DWS Global Thematic VIP B
2011		3		13.860		14.319		36		0.25	%		1.70	%		2.05	%		-16.38	%		-16.09	%
2010		2		16.575		17.065		40		0.55	%		1.70	%		2.05	%		10.97	%		11.35	%
2009		2		14.936		15.325		32		1.36	%		1.70	%		2.05	%		40.36	%		40.84	%
2008		3		10.642		10.881		29		1.45	%		1.70	%		2.05	%		-48.92	%		-48.75	%
2007		2		20.835		21.231		35		0.32	%		1.70	%		2.05	%		3.71	%		4.06	%
DWS Government & Agency Securities VIP A
2011		11,413		1.644		17.456		86,560		3.97	%		1.00	%		2.25	%		5.11	%		6.40	%
2010		12,820		1.564		16.470		87,302		4.70	%		1.00	%		2.25	%		4.27	%		5.56	%
2009		14,063		1.500		15.665		89,665		5.13	%		1.00	%		2.25	%		3.11	%		7.01	%
2008		16,804		1.419		14.697		115,382		4.97	%		1.00	%		2.25	%		2.63	%		6.98	%
2007		17,111		1.383		14.202		100,962		5.02	%		1.00	%		2.25	%		3.61	%		4.90	%
DWS Government & Agency Securities VIP B
2011		14		12.824		13.249		182		4.30	%		1.70	%		2.05	%		5.01	%		5.37	%
2010		17		12.213		12.574		209		4.44	%		1.70	%		2.05	%		4.10	%		4.46	%
2009		17		11.731		12.037		204		4.73	%		1.70	%		2.05	%		5.53	%		5.90	%
2008		22		11.116		11.366		246		4.75	%		1.70	%		2.05	%		2.42	%		2.77	%
2007		21		10.854		11.060		231		4.65	%		1.70	%		2.05	%		3.39	%		3.75	%

76

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
DWS Variable Series II: (continued)
DWS High Income VIP A
2011		10,624	$	1.315	$	16.454	$	102,720		9.03	%		1.00	%		2.25	%		1.56	%		2.81	%
2010		12,443		1.294		16.067		119,022		7.75	%		1.00	%		2.25	%		11.49	%		12.87	%
2009		14,076		1.161		14.291		117,072		10.56	%		1.00	%		2.25	%		36.91	%		44.49	%
2008		15,199		0.848		10.352		90,235		11.98	%		1.00	%		2.25	%		-25.61	%		-24.69	%
2007		18,561		1.140		13.801		150,259		8.52	%		1.00	%		2.25	%		-1.28	%		-0.05	%
DWS High Income VIP B
2011		5		16.915		17.475		85		10.37	%		1.70	%		2.05	%		1.49	%		1.84	%
2010		9		16.667		17.160		144		7.82	%		1.70	%		2.05	%		11.36	%		11.74	%
2009		10		14.967		15.357		151		11.18	%		1.70	%		2.05	%		36.84	%		37.31	%
2008		12		10.938		11.184		135		13.03	%		1.70	%		2.05	%		-25.65	%		-25.39	%
2007		18		14.712		14.991		262		8.52	%		1.70	%		2.05	%		-1.49	%		-1.15	%
DWS Janus Growth and Income VIP
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		8,715		5.801		12.112		50,555		1.26	%		1.40	%		2.05	%		-42.11	%		-19.46	%
2007		12,233		10.020		15.037		122,577		0.60	%		1.40	%		2.05	%		4.07	%		5.11	%
DWS Large Cap Value VIP A
2011		23,676		2.140		13.849		233,222		1.45	%		1.00	%		2.05	%		-8.31	%		-1.06	%
2010		16,958		2.186		14.052		131,093		1.98	%		1.00	%		2.05	%		8.55	%		9.67	%
2009		19,293		2.014		12.863		139,217		1.59	%		1.00	%		2.05	%		22.85	%		24.13	%
2008		16,234		1.639		10.404		69,079		2.27	%		1.00	%		2.05	%		-37.68	%		-37.03	%
2007		19,729		2.630		16.587		137,245		1.77	%		1.00	%		2.05	%		10.86	%		12.02	%
DWS Large Cap Value VIP B
2011		16		12.670		13.089		212		1.52	%		1.70	%		2.05	%		-2.36	%		-2.02	%
2010		13		12.976		13.360		170		1.67	%		1.70	%		2.05	%		8.31	%		8.68	%
2009		15		11.980		12.292		178		1.33	%		1.70	%		2.05	%		22.35	%		22.77	%
2008		7		9.792		10.012		67		1.79	%		1.70	%		2.05	%		-37.92	%		-37.71	%
2007		7		15.773		16.072		113		1.50	%		1.70	%		2.05	%		10.49	%		10.87	%
DWS Mid Cap Growth VIP A
2011(10)		–		16.145		16.641		–		N/A			1.70	%		2.05	%		11.84	%		11.97	%
2010		1,556		10.812		14.862		16,831		N/A			1.40	%		2.05	%		25.39	%		26.19	%
2009		1,661		8.568		11.812		14,235		N/A			1.40	%		2.05	%		40.80	%		41.28	%
2008		1,908		6.072		8.361		11,591		N/A			1.40	%		2.05	%		-51.27	%		-50.73	%
2007		2,844		12.324		17.097		35,059		N/A			1.40	%		2.05	%		5.74	%		6.86	%
DWS Money Market VIP
2011		18,216		0.967		18.767		99,788		0.01	%		0.00	%		2.25	%		-2.18	%		0.02	%
2010		20,485		0.989		19.121		94,048		0.01	%		1.00	%		2.25	%		-2.19	%		0.02	%
2009		24,152		1.011		14.254		128,277		0.37	%		1.00	%		2.25	%		-1.87	%		0.34	%
2008		37,384		1.030		14.207		219,798		2.70	%		1.00	%		2.25	%		0.37	%		2.63	%
2007		31,600		1.027		13.842		189,703		4.84	%		1.00	%		2.25	%		2.66	%		5.00	%

77

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
DWS Variable Series II: (continued)
DWS Small Mid Cap Growth VIP A (11)
2011		19,451	$	1.052	$	12.815	$	97,871		0.43	%		1.00	%		2.25	%		-6.02	%		-4.86	%
2010		15,250		1.120		13.562		59,138		N/A			1.00	%		2.25	%		26.59	%		28.16	%
2009		17,203		0.885		6.980		53,436		N/A			1.00	%		2.25	%		37.51	%		42.72	%
2008		19,872		0.643		7.715		47,318		N/A			1.00	%		2.25	%		-50.62	%		-49.87	%
2007		24,131		1.303		15.392		122,143		N/A			1.00	%		2.25	%		3.67	%		5.14	%
DWS Strategic Value VIP A
2011(12)		–		13.348		13.348		–		3.27	%		1.40	%		1.40	%		9.72	%		9.72	%
2010		11,961		12.166		12.366		147,899		1.93	%		1.40	%		1.40	%		10.97	%		10.97	%
2009		14,300		10.963		11.143		159,343		4.39	%		1.40	%		1.40	%		21.57	%		23.57	%
2008		21,217		9.018		9.018		191,335		3.40	%		1.40	%		1.40	%		-46.73	%		-45.85	%
2007		31,308		16.655		16.929		530,007		1.53	%		1.40	%		1.40	%		-3.23	%		-3.23	%
DWS Strategic Value VIP B
2011(13)		–		12.167		12.540		–		1.84	%		1.70	%		2.05	%		7.63	%		7.76	%
2010		13		11.304		11.638		153		1.70	%		1.70	%		2.05	%		9.88	%		10.26	%
2009		16		10.287		10.555		171		4.23	%		1.70	%		2.05	%		22.43	%		22.85	%
2008		20		8.403		8.592		166		2.78	%		1.70	%		2.05	%		-47.25	%		-47.06	%
2007		31		15.928		16.230		505		0.61	%		1.70	%		2.05	%		-4.16	%		-3.83	%
DWS Technology VIP A
2011(14)		–		0.948		1.068		–		N/A			1.00	%		2.25	%		6.36	%		6.79	%
2010		7,781		0.892		9.439		46,275		0.04	%		1.00	%		2.25	%		16.05	%		17.49	%
2009		9,257		0.768		8.066		47,418		N/A			1.00	%		2.25	%		56.89	%		58.83	%
2008		10,288		0.490		5.099		37,004		N/A			1.00	%		2.25	%		-47.41	%		-46.75	%
2007		13,857		0.931		9.614		100,765		N/A			1.00	%		2.25	%		11.77	%		13.16	%
DWS Technology VIP B
2011(15)		–		14.872		15.329		–		N/A			1.70	%		2.05	%		6.28	%		6.40	%
2010		1		13.993		14.407		16		N/A			1.70	%		2.05	%		15.59	%		15.99	%
2009		2		12.106		12.421		25		N/A			1.70	%		2.05	%		56.72	%		57.26	%
2008		2		7.725		7.898		15		N/A			1.70	%		2.05	%		-47.52	%		-47.34	%
2007		2		14.719		14.998		30		N/A			1.70	%		2.05	%		11.54	%		11.92	%
DWS Turner Mid Cap Growth VIP A
2011(16)		–		20.895		21.536		–		N/A			1.70	%		2.05	%		12.37	%		12.49	%
2010		3,491		12.611		19.145		44,025		0.01	%		1.40	%		2.05	%		26.42	%		27.22	%
2009		3,819		9.913		15.092		37,859		N/A			1.40	%		2.05	%		-34.89	%		47.59	%
2008		5,867		10.001		15.224		39,314		N/A			1.40	%		2.05	%		-51.54	%		13.16	%
2007		7,913		13.453		21.029		106,465		N/A			1.40	%		2.05	%		22.60	%		24.01	%
DWS Unconstrained Income VIP A (17)
2011		2,553		1.946		18.357		42,149		5.59	%		1.25	%		2.05	%		3.20	%		4.01	%
2010		2,785		1.871		17.675		44,961		6.51	%		1.25	%		2.05	%		7.84	%		8.69	%
2009		2,943		1.721		16.286		44,203		5.14	%		1.25	%		2.05	%		21.04	%		21.22	%
2008		3,747		1.420		13.455		46,678		7.20	%		1.25	%		2.05	%		-9.02	%		-8.36	%
2007		4,690		1.558		14.790		64,242		5.82	%		1.25	%		2.05	%		2.95	%		4.13	%

78

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
DWS Investments VIT Funds:
DWS Equity 500 Index VIP A
2011		6,280	$	10.561	$	10.561	$	66,320		1.77	%		1.40	%		1.40	%		0.43	%		0.43	%
2010		7,268		10.515		10.515		76,428		1.86	%		1.40	%		1.40	%		13.12	%		13.12	%
2009		8,078		9.296		9.296		75,091		2.68	%		1.40	%		1.40	%		24.58	%		24.58	%
2008		10,627		7.462		7.462		79,299		2.73	%		1.40	%		1.40	%		-38.02	%		-38.02	%
2007		15,244		12.039		12.039		183,529		1.54	%		1.40	%		1.40	%		3.83	%		3.83	%
DWS Equity 500 Index VIP B2
2011		2		9.907		10.123		19		1.27	%		1.70	%		2.05	%		-0.61	%		-0.27	%
2010		2		9.968		10.151		18		1.54	%		1.70	%		2.05	%		12.00	%		12.38	%
2009		2		8.900		9.032		19		2.33	%		1.70	%		2.05	%		23.26	%		23.69	%
2008		2		7.220		7.302		15		1.33	%		1.70	%		2.05	%		-38.62	%		-38.41	%
2007		5		11.763		11.856		63		1.46	%		1.70	%		2.05	%		2.73	%		3.09	%
DWS RREEF Real Estate Securities VIP
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2007		2		19.118		19.427		33		N/A			1.70	%		2.05	%		-18.03	%		-17.74	%
Fidelity Variable Insurance Products Fund:
Fidelity VIP Asset Manager
2011		142		27.338		30.890		4,190		1.84	%		1.00	%		2.05	%		-4.51	%		-3.52	%
2010		172		28.631		32.019		5,278		1.58	%		1.00	%		2.05	%		11.97	%		13.13	%
2009		202		25.570		28.301		5,486		2.27	%		1.00	%		2.05	%		26.52	%		27.83	%
2008		235		20.210		22.139		5,016		2.68	%		1.00	%		2.05	%		-30.15	%		-29.42	%
2007		265		28.935		31.370		8,022		6.03	%		1.00	%		2.05	%		13.17	%		14.35	%
Fidelity VIP Contrafund
2011		1,492		29.314		42.865		60,017		0.99	%		1.00	%		2.25	%		-4.67	%		-3.49	%
2010		1,688		30.749		44.415		70,698		1.14	%		1.00	%		2.25	%		14.64	%		16.06	%
2009		1,969		26.822		38.270		71,263		1.33	%		1.00	%		2.25	%		32.72	%		34.37	%
2008		2,168		20.209		28.482		58,200		0.96	%		1.00	%		2.25	%		-43.78	%		-43.08	%
2007		2,513		35.948		50.042		119,129		0.96	%		1.00	%		2.25	%		14.99	%		16.42	%
Fidelity VIP Contrafund -Service 2
2011		1		15.817		16.340		16		0.81	%		1.70	%		2.05	%		-4.73	%		-4.41	%
2010		1		16.603		17.094		17		0.99	%		1.70	%		2.05	%		14.58	%		14.97	%
2009		1		14.490		14.867		15		1.14	%		1.70	%		2.05	%		32.75	%		33.20	%
2008		1		10.916		11.161		11		0.83	%		1.70	%		2.05	%		-43.84	%		-43.65	%
2007		1		19.438		19.808		20		0.04	%		1.70	%		2.05	%		14.93	%		15.33	%
Fidelity VIP Equity Income
2011		668		24.360		38.173		23,406		2.41	%		1.00	%		2.25	%		-1.25	%		-0.03	%
2010		776		24.667		38.183		27,267		1.69	%		1.00	%		2.25	%		12.62	%		14.01	%
2009		902		21.903		33.491		27,892		2.09	%		1.00	%		2.25	%		27.34	%		28.92	%
2008		1,075		17.200		25.978		25,783		2.30	%		1.00	%		2.25	%		-43.92	%		-43.22	%
2007		1,365		30.671		45.755		57,697		1.93	%		1.00	%		2.25	%		-0.72	%		0.52	%

79

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
Fidelity Variable Insurance Products Fund: (continued)
Fidelity VIP Equity Income — Service 2
2011		–	$	12.389	$	12.799	$	6		2.36	%		1.70	%		2.05	%		-1.36	%		-1.02	%
2010		–		12.560		12.932		6		1.59	%		1.70	%		2.05	%		12.61	%		13.00	%
2009		–		11.154		11.444		5		2.03	%		1.70	%		2.05	%		27.27	%		27.71	%
2008		–		8.764		8.961		4		2.43	%		1.70	%		2.05	%		-43.96	%		-43.77	%
2007		–		15.639		15.936		7		0.04	%		1.70	%		2.05	%		-0.77	%		-0.43	%
Fidelity VIP Growth
2011		444		30.881		53.724		22,215		0.37	%		1.00	%		2.25	%		-2.00	%		-0.79	%
2010		498		12.727		54.150		25,168		0.25	%		1.00	%		2.25	%		21.38	%		22.94	%
2009		612		10.486		44.044		25,279		0.42	%		1.00	%		2.25	%		25.39	%		27.02	%
2008		670		8.362		34.676		21,552		0.81	%		1.00	%		2.25	%		-48.37	%		-47.69	%
2007		768		16.196		66.292		47,306		0.81	%		1.00	%		2.25	%		24.10	%		25.70	%
Fidelity VIP Index 500
2011		348		146.014		164.989		52,967		1.90	%		1.00	%		2.05	%		-0.01	%		1.03	%
2010		392		146.024		163.306		59,068		1.82	%		1.00	%		2.05	%		12.71	%		13.88	%
2009		450		129.552		143.395		59,134		2.38	%		1.00	%		2.05	%		24.06	%		25.35	%
2008		509		104.425		114.393		53,466		2.10	%		1.00	%		2.05	%		-38.27	%		-37.62	%
2007		590		169.154		183.390		101,561		3.70	%		1.00	%		2.05	%		3.31	%		4.39	%
Fidelity VIP Index 500 - SC
2011		23		13.106		146.228		3,229		1.66	%		1.25	%		2.25	%		-0.45	%		0.53	%
2010		26		13.140		145.457		3,699		1.51	%		1.25	%		2.25	%		12.21	%		13.31	%
2009		31		11.688		128.367		4,196		1.95	%		1.25	%		2.25	%		23.52	%		24.74	%
2008		35		9.444		102.906		3,877		1.67	%		1.25	%		2.25	%		-38.54	%		-37.94	%
2007		44		15.336		165.805		7,091		1.81	%		1.25	%		2.25	%		2.85	%		3.88	%
Franklin Templeton Variable Insurance Products Trust:
Franklin Rising Dividends Securities
2011		395		14.500		16.131		6,187		1.49	%		1.00	%		2.25	%		3.67	%		4.95	%
2010		443		13.986		15.370		6,633		1.60	%		1.00	%		2.25	%		17.99	%		19.45	%
2009		460		11.854		12.867		5,792		1.38	%		1.00	%		2.25	%		14.76	%		16.18	%
2008		520		10.329		11.075		5,650		1.85	%		1.00	%		2.25	%		-28.71	%		-27.82	%
2007		701		14.488		15.344		10,599		2.55	%		1.00	%		2.25	%		-4.84	%		-3.66	%
Franklin Small Cap Value Securities
2011		295		18.046		20.077		5,737		0.71	%		1.00	%		2.25	%		-5.87	%		-4.71	%
2010		311		19.172		21.069		6,367		0.76	%		1.00	%		2.25	%		25.40	%		26.95	%
2009		290		15.288		16.596		4,701		1.55	%		1.00	%		2.25	%		26.31	%		27.88	%
2008		340		12.103		12.978		4,322		1.32	%		1.00	%		2.25	%		-34.49	%		-33.68	%
2007		328		18.477		19.569		6,313		0.70	%		1.00	%		2.25	%		-4.54	%		-3.35	%
Franklin Strategic Income Securities
2011		651		14.704		16.358		10,326		5.80	%		1.00	%		2.25	%		0.32	%		1.56	%
2010		700		14.656		16.106		10,961		4.82	%		1.00	%		2.25	%		8.47	%		9.82	%
2009		700		13.511		14.666		10,026		7.55	%		1.00	%		2.25	%		22.98	%		24.50	%
2008		602		10.986		11.780		6,957		8.65	%		1.00	%		2.25	%		-13.19	%		-12.12	%
2007		735		12.655		13.404		9,688		5.19	%		1.00	%		2.25	%		3.57	%		4.86	%

80

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
Franklin Templeton Variable Insurance Products Trust: (continued)
Franklin U.S. Government
2011		375	$	12.061	$	13.418	$	4,898		2.80	%		1.00	%		2.25	%		3.36	%		4.64	%
2010		352		11.669		12.824		4,403		3.47	%		1.00	%		2.25	%		2.97	%		4.24	%
2009		388		11.333		12.302		4,672		4.33	%		1.00	%		2.25	%		0.83	%		2.07	%
2008		387		11.240		12.052		4,573		4.72	%		1.00	%		2.25	%		5.22	%		6.52	%
2007		263		10.682		11.314		2,921		4.88	%		1.00	%		2.25	%		4.25	%		5.55	%
Franklin Zero Coupon 2010
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		620		10.950		11.886		7,210		4.29	%		1.00	%		2.25	%		-2.05	%		-0.84	%
2008		827		11.179		11.987		9,721		4.50	%		1.00	%		2.25	%		4.87	%		6.17	%
2007		900		10.660		11.290		10,008		6.11	%		1.00	%		2.25	%		6.01	%		7.33	%
Mutual Global Discovery Securities
2011		956		18.655		20.754		19,300		2.25	%		1.00	%		2.25	%		-5.09	%		-3.92	%
2010		1,070		19.656		21.601		22,546		1.23	%		1.00	%		2.25	%		9.50	%		10.85	%
2009		1,169		17.951		19.486		22,304		1.14	%		1.00	%		2.25	%		20.60	%		22.09	%
2008		1,274		14.885		15.960		19,958		2.24	%		1.00	%		2.25	%		-30.03	%		-29.16	%
2007		1,448		21.273		22.531		32,125		1.50	%		1.00	%		2.25	%		9.37	%		10.74	%
Mutual Shares Securities
2011		392		13.278		14.772		5,629		2.33	%		1.00	%		2.25	%		-3.22	%		-2.02	%
2010		467		13.719		15.076		6,847		1.47	%		1.00	%		2.25	%		8.75	%		10.09	%
2009		496		12.615		13.694		6,635		1.84	%		1.00	%		2.25	%		23.27	%		24.80	%
2008		556		10.233		10.973		5,983		3.24	%		1.00	%		2.25	%		-38.50	%		-37.73	%
2007		526		16.638		17.622		9,125		1.54	%		1.00	%		2.25	%		1.19	%		2.45	%
Templeton Developing Markets Securities
2011		207		24.936		28.383		5,706		0.94	%		1.00	%		2.25	%		-17.71	%		-16.69	%
2010		262		30.049		34.068		8,701		1.51	%		1.00	%		2.25	%		15.00	%		16.42	%
2009		277		25.913		29.262		7,920		3.73	%		1.00	%		2.25	%		68.80	%		70.88	%
2008		266		15.224		17.124		4,477		2.71	%		1.00	%		2.25	%		-53.75	%		-53.17	%
2007		374		32.643		36.570		13,472		2.36	%		1.00	%		2.25	%		25.94	%		27.50	%
ING Global Resources Trust:
ING Global Resources
2011		717		11.689		12.306		8,694		0.56	%		1.00	%		2.05	%		-10.98	%		-10.05	%
2010		798		13.131		13.681		10,788		0.87	%		1.00	%		2.05	%		19.20	%		20.44	%
2009		878		11.015		11.359		9,881		0.30	%		1.00	%		2.05	%		34.75	%		36.15	%
2008		1,023		8.175		8.343		8,489		1.90	%		1.00	%		2.05	%		-42.19	%		-41.59	%
2007		1,265		14.140		14.283		18,012		0.02	%		1.00	%		2.05	%		37.98	%		39.36	%
ING Investors Trust:
ING JPMorgan Emerging Markets Equity
2011		340		20.360		21.682		7,251		1.10	%		1.00	%		2.05	%		-19.70	%		-18.86	%
2010		410		25.353		26.722		10,800		0.70	%		1.00	%		2.05	%		18.21	%		19.44	%
2009		472		21.448		22.373		10,426		1.54	%		1.00	%		2.05	%		68.56	%		70.31	%
2008		482		12.724		13.136		6,274		2.68	%		1.00	%		2.05	%		-52.14	%		-51.64	%
2007		583		26.584		27.162		15,741		1.15	%		1.00	%		2.05	%		36.00	%		37.43	%

81

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
Invesco Variable Insurance Funds
Invesco V.I. Dividend Growth Services
2011(18)		127	$	5.918	$	6.584	$	812		N/A			1.00	%		2.25	%		-9.06	%		-8.31	%
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2007		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
Invesco V.I. Financial Services
2011(19)		–		6.508		7.181		–		0.38	%		1.00	%		2.25	%		5.30	%		5.72	%
2010		143		6.180		6.792		945		0.11	%		1.00	%		2.25	%		7.89	%		9.22	%
2009		119		5.728		6.219		724		2.62	%		1.00	%		2.25	%		24.62	%		26.17	%
2008		167		4.596		4.929		805		4.84	%		1.00	%		2.25	%		-60.34	%		-59.85	%
2007		67		11.590		12.134		807		2.08	%		1.00	%		2.25	%		-23.94	%		-23.18	%
Invesco V.I. Global Health Care
2011		101		13.462		14.977		1,465		N/A			1.00	%		2.25	%		1.67	%		2.92	%
2010		111		13.241		14.552		1,575		N/A			1.00	%		2.25	%		2.98	%		4.25	%
2009		124		12.858		13.958		1,686		0.29	%		1.00	%		2.25	%		24.87	%		26.41	%
2008		163		10.298		11.042		1,765		N/A			1.00	%		2.25	%		-30.19	%		-29.33	%
2007		173		14.752		15.445		2,654		N/A			1.00	%		2.25	%		9.38	%		10.47	%
Invesco V.I. Global Real Estate
2011		289		18.300		20.360		5,718		3.91	%		1.00	%		2.25	%		-8.56	%		-7.43	%
2010		317		20.014		21.995		6,790		4.76	%		1.00	%		2.25	%		14.93	%		16.35	%
2009		365		17.414		18.904		6,739		N/A			1.00	%		2.25	%		28.63	%		30.22	%
2008		415		13.538		14.516		5,908		5.16	%		1.00	%		2.25	%		-45.87	%		-45.20	%
2007		566		25.009		26.487		14,760		5.10	%		1.00	%		2.25	%		-7.63	%		-6.48	%
Invesco V.I. Utilities
2011		1,856		11.639		22.782		23,274		3.13	%		1.00	%		2.25	%		13.89	%		15.30	%
2010		1,823		10.135		19.759		19,943		3.44	%		1.00	%		2.25	%		3.96	%		5.25	%
2009		2,111		9.667		18.774		22,175		3.92	%		1.00	%		2.25	%		12.40	%		13.79	%
2008		3,062		8.529		16.499		28,176		2.47	%		1.00	%		2.25	%		-33.85	%		-33.03	%
2007		4,322		12.786		24.634		58,941		1.98	%		1.00	%		2.25	%		17.98	%		19.44	%
Janus Aspen Series:
Janus Aspen Balanced I-S
2011		1,615		32.727		44.846		68,463		2.45	%		1.00	%		2.25	%		-0.59	%		0.63	%
2010		1,801		15.388		44.563		76,092		2.75	%		1.00	%		2.25	%		5.95	%		7.31	%
2009		2,023		14.524		41.526		79,877		2.89	%		1.00	%		2.25	%		23.06	%		24.64	%
2008		2,288		11.802		33.317		72,750		2.69	%		1.00	%		2.25	%		-17.75	%		-16.67	%
2007		2,598		14.349		39.983		99,395		2.50	%		1.00	%		2.25	%		8.06	%		9.44	%
Janus Aspen Enterprise I-S
2011		1,023		32.174		41.086		39,821		N/A			1.00	%		2.25	%		-3.59	%		-2.39	%
2010		1,178		20.605		42.093		47,048		0.06	%		1.00	%		2.25	%		23.00	%		24.60	%
2009		1,330		16.752		33.782		42,818		N/A			1.00	%		2.25	%		41.54	%		43.39	%
2008		1,473		11.835		23.559		33,159		0.26	%		1.00	%		2.25	%		-44.99	%		-44.28	%
2007		1,702		21.514		42.281		68,855		0.22	%		1.00	%		2.25	%		19.28	%		20.83	%

82

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
Janus Aspen Series: (continued)
Janus Aspen Forty I-S
2011		76	$	12.172	$	12.172	$	925		0.38	%		1.40	%		1.40	%		-7.98	%		-7.98	%
2010		91		13.227		13.227		1,206		0.34	%		1.40	%		1.40	%		5.28	%		5.28	%
2009		95		12.564		12.564		1,197		N/A			1.40	%		1.40	%		44.31	%		44.31	%
2008		104		8.706		8.706		905		0.15	%		1.40	%		1.40	%		-44.93	%		-44.93	%
2007		111		15.808		15.808		1,753		0.35	%		1.40	%		1.40	%		35.09	%		35.09	%
Janus Aspen Janus I-S
2011		952		19.003		25.654		23,231		0.59	%		1.00	%		2.25	%		-7.38	%		-6.24	%
2010		1,086		13.244		27.360		28,349		1.04	%		1.00	%		2.25	%		11.96	%		13.38	%
2009		1,242		11.829		24.130		28,678		0.51	%		1.00	%		2.25	%		33.28	%		35.00	%
2008		1,377		8.875		17.874		23,602		0.74	%		1.00	%		2.25	%		-41.08	%		-40.32	%
2007		1,560		15.063		29.949		44,950		0.71	%		1.00	%		2.25	%		12.48	%		13.95	%
Janus Aspen Perkins Mid Cap Value
2011		219		19.089		21.237		4,508		0.60	%		1.00	%		2.25	%		-5.11	%		-3.94	%
2010		235		20.118		22.108		5,063		0.49	%		1.00	%		2.25	%		12.83	%		14.22	%
2009		257		17.831		19.356		4,864		0.34	%		1.00	%		2.25	%		29.99	%		31.60	%
2008		281		13.716		14.707		4,052		0.42	%		1.00	%		2.25	%		-29.49	%		-28.61	%
2007		298		19.452		20.602		6,052		1.24	%		1.00	%		2.25	%		4.80	%		6.11	%
Janus Aspen Perkins Small Company Value
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		422		10.703		11.476		4,727		N/A			1.00	%		2.25	%		-37.33	%		-36.55	%
2007		547		17.078		18.088		9,704		0.92	%		1.00	%		2.25	%		-8.19	%		-7.05	%
Janus Aspen Worldwide I-S
2011		1,314		22.929		28.858		36,036		0.59	%		1.00	%		2.25	%		-15.64	%		-14.59	%
2010		1,486		27.179		33.789		47,842		0.59	%		1.00	%		2.25	%		13.29	%		14.69	%
2009		1,670		23.991		29.461		46,977		1.36	%		1.00	%		2.25	%		34.67	%		36.34	%
2008		1,848		17.815		21.609		38,235		1.20	%		1.00	%		2.25	%		-45.88	%		-45.21	%
2007		2,097		32.919		39.441		79,571		0.79	%		1.00	%		2.25	%		7.20	%		8.54	%
Janus Aspen Worldwide S-C
2011		–		9.934		10.263		–		N/A			1.70	%		2.05	%		-15.71	%		-15.42	%
2010		–		11.786		12.134		–		0.78	%		1.70	%		2.05	%		13.20	%		13.59	%
2009		–		10.412		10.683		1		1.24	%		1.70	%		2.05	%		34.64	%		35.11	%
2008		–		7.733		7.907		1		1.05	%		1.70	%		2.05	%		-45.92	%		-45.73	%
2007		–		14.298		14.570		1		0.67	%		1.70	%		2.05	%		7.15	%		7.53	%
JPMorgan Insurance Trust:
JP Morgan Insurance Trust Balanced
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		6		10.645		11.296		64		2.30	%		1.25	%		2.25	%		21.72	%		22.92	%
2008		2		8.746		9.190		23		7.23	%		1.25	%		2.25	%		-25.98	%		-25.24	%
2007		5		11.815		12.293		60		1.74	%		1.25	%		2.25	%		3.79	%		4.82	%

83

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
JPMorgan Insurance Trust: (continued)
JP Morgan Insurance Trust Core Bond
2011		96	$	12.837	$	13.892	$	1,304		5.85	%		1.25	%		2.25	%		5.10	%		6.13	%
2010		131		11.209		12.687		1,683		3.53	%		1.25	%		2.25	%		-3.40	%		7.41	%
2009		120		11.433		12.133		1,436		1.08	%		1.25	%		2.25	%		7.23	%		8.29	%
2008		4		10.662		11.203		48		2.47	%		1.25	%		2.25	%		-0.92	%		0.06	%
2007		3		10.761		11.197		33		4.65	%		1.25	%		2.25	%		3.95	%		4.99	%
JP Morgan Insurance Trust Equity Index
2011		12		11.028		12.174		144		2.34	%		1.00	%		2.25	%		-0.53	%		0.70	%
2010		30		11.086		12.089		350		0.90	%		1.00	%		2.25	%		11.89	%		13.28	%
2009		12		9.908		10.672		122		2.61	%		1.00	%		2.25	%		23.66	%		25.19	%
2008		22		8.013		8.525		185		1.73	%		1.00	%		2.25	%		-38.59	%		-37.83	%
2007		12		13.048		13.712		162		1.41	%		1.00	%		2.25	%		2.77	%		4.05	%
JP Morgan Insurance Trust Government Bond
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		53		11.760		12.357		648		5.67	%		1.25	%		2.25	%		7.61	%		8.67	%
2007		15		10.929		11.371		163		5.42	%		1.25	%		2.25	%		5.11	%		6.16	%
JP Morgan Insurance Trust International Equity
2011		492		14.487		16.118		7,679		1.91	%		1.00	%		2.25	%		-13.40	%		-12.32	%
2010		574		16.728		18.383		10,247		0.24	%		1.00	%		2.25	%		4.80	%		6.10	%
2009		689		15.961		17.327		11,633		2.87	%		1.00	%		2.25	%		38.53	%		39.71	%
2008		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2007		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
JP Morgan Insurance Trust Intrepid Growth
2011		–		10.810		11.699		–		6.92	%		1.25	%		2.25	%		-0.38	%		0.60	%
2010		–		10.852		11.629		2		1.69	%		1.25	%		2.25	%		13.55	%		14.67	%
2009		2		9.557		10.142		17		N/A			1.25	%		2.25	%		31.36	%		32.66	%
2008		2		7.275		7.645		12		N/A			1.25	%		2.25	%		-40.56	%		-39.97	%
2007		–		12.239		12.735		–		N/A			1.25	%		2.25	%		9.08	%		10.16	%
JP Morgan Insurance Trust Intrepid MidCap
2011		199		13.018		14.370		2,785		0.88	%		1.00	%		2.25	%		-3.69	%		-2.50	%
2010		230		13.516		14.738		3,319		1.29	%		1.00	%		2.25	%		16.90	%		18.34	%
2009		258		11.562		12.454		3,157		1.47	%		1.00	%		2.25	%		32.68	%		34.32	%
2008		296		8.715		9.272		2,705		0.59	%		1.00	%		2.25	%		-40.17	%		-39.42	%
2007		339		14.564		15.306		5,123		0.65	%		1.00	%		2.25	%		0.59	%		1.84	%
JP Morgan Insurance Trust Mid Cap Growth
2011		72		13.095		14.456		1,020		N/A			1.00	%		2.25	%		-8.21	%		-7.08	%
2010		66		14.267		15.557		997		N/A			1.00	%		2.25	%		22.87	%		24.39	%
2009		64		11.611		12.507		781		N/A			1.00	%		2.25	%		39.89	%		41.62	%
2008		79		8.300		8.831		683		N/A			1.00	%		2.25	%		-45.03	%		-44.34	%
2007		83		15.098		15.867		1,301		N/A			1.00	%		2.25	%		14.65	%		16.07	%

84

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
JPMorgan Insurance Trust: (continued)
JP Morgan Insurance Trust Mid Cap Value
2011		482	$	13.165	$	14.533	$	6,833		1.34	%		1.00	%		2.25	%		-0.08	%		1.15	%
2010		560		13.176		14.367		7,869		1.20	%		1.00	%		2.25	%		20.74	%		22.23	%
2009		671		10.912		11.754		7,731		0.40	%		1.00	%		2.25	%		25.08	%		26.63	%
2008		76		8.724		9.282		693		1.51	%		1.00	%		2.25	%		-36.91	%		-36.12	%
2007		99		13.828		14.532		1,425		2.10	%		1.00	%		2.25	%		-1.32	%		-0.09	%
JP Morgan Insurance Trust Small Cap Core
2011		226		14.968		18.866		4,069		0.13	%		1.00	%		2.25	%		-6.86	%		-5.71	%
2010		250		16.040		20.009		4,797		N/A			1.00	%		2.25	%		24.33	%		25.87	%
2009 (20)		295		12.876		15.897		4,505		0.44	%		1.00	%		2.25	%		27.16	%		30.78	%
2008		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2007		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
JP Morgan Insurance Trust US Equity
2011		31		11.662		12.874		391		1.26	%		1.00	%		2.25	%		-4.02	%		-2.84	%
2010		34		12.151		13.250		439		1.18	%		1.00	%		2.25	%		11.08	%		12.45	%
2009		42		10.939		11.783		481		N/A			1.00	%		2.25	%		30.74	%		32.36	%
2008		54		8.367		8.902		471		N/A			1.00	%		2.25	%		-36.24	%		-35.45	%
2007		89		13.122		13.790		1,217		1.35	%		1.00	%		2.25	%		8.01	%		9.35	%
JPMorgan Series Trust II:
JP Morgan International Equity
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		852		12.097		12.971		10,816		1.82	%		1.00	%		2.25	%		-42.65	%		-41.93	%
2007		1,152		21.092		22.339		25,246		1.24	%		1.00	%		2.25	%		6.91	%		8.24	%
JP Morgan Mid Cap Value
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		538		11.581		12.418		6,565		1.11	%		1.00	%		2.25	%		-34.68	%		-33.87	%
2007		700		17.731		18.779		12,949		0.97	%		1.00	%		2.25	%		0.19	%		1.43	%
JP Morgan Small Company
2011		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2010		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2009		N/A		N/A		N/A		N/A		N/A			N/A			N/A			N/A			N/A
2008		367		10.720		13.098		4,615		0.19	%		1.00	%		2.25	%		-33.49	%		-32.66	%
2007		421		16.085		19.451		7,925		0.01	%		1.00	%		2.25	%		-7.76	%		-6.61	%
Oppenheimer Variable Account Funds:
Oppenheimer Capital Appreciation
2011		161		11.845		13.179		2,067		0.11	%		1.00	%		2.25	%		-3.54	%		-2.35	%
2010		181		12.280		13.496		2,383		N/A			1.00	%		2.25	%		6.74	%		8.06	%
2009		246		11.504		12.489		2,999		N/A			1.00	%		2.25	%		40.98	%		42.72	%
2008		246		8.160		8.750		2,116		N/A			1.00	%		2.25	%		-46.86	%		-46.20	%
2007		271		15.356		16.264		4,339		N/A			1.00	%		2.25	%		11.34	%		12.73	%

85

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
Oppenheimer Variable Account Funds: (continued)
Oppenheimer Global Securities
2011		1,064	$	17.492	$	19.461	$	20,071		1.16	%		1.00	%		2.25	%		-10.54	%		-9.43	%
2010		1,298		19.553		21.487		27,103		1.23	%		1.00	%		2.25	%		13.16	%		14.56	%
2009		1,554		17.279		18.757		28,429		1.86	%		1.00	%		2.25	%		36.29	%		37.97	%
2008		1,798		12.678		13.594		23,933		1.34	%		1.00	%		2.25	%		-41.65	%		-40.92	%
2007		2,170		21.727		23.011		49,069		1.05	%		1.00	%		2.25	%		3.73	%		5.03	%
Oppenheimer Global Strategic Income VA
2011		570		13.743		15.289		8,460		3.00	%		1.00	%		2.25	%		-1.56	%		-0.34	%
2010		674		13.961		15.342		10,061		7.87	%		1.00	%		2.25	%		12.25	%		13.64	%
2009		655		12.437		13.501		8,645		0.25	%		1.00	%		2.25	%		15.80	%		17.24	%
2008		790		10.740		11.516		8,917		6.25	%		1.00	%		2.25	%		-16.37	%		-15.33	%
2007		699		12.842		13.602		9,350		3.10	%		1.00	%		2.25	%		7.13	%		8.46	%
Oppenheimer High Income
2011		207		3.343		3.719		748		8.55	%		1.00	%		2.25	%		-4.70	%		-3.52	%
2010		196		3.507		3.855		736		6.73	%		1.00	%		2.25	%		11.92	%		13.31	%
2009		269		3.134		3.402		889		N/A			1.00	%		2.25	%		23.18	%		24.70	%
2008		168		2.544		2.728		449		8.90	%		1.00	%		2.25	%		-79.05	%		-78.79	%
2007		231		12.141		12.859		2,923		7.04	%		1.00	%		2.25	%		-2.67	%		-1.46	%
Oppenheimer Main Street
2011		351		12.599		14.017		4,764		0.61	%		1.00	%		2.25	%		-2.50	%		-1.30	%
2010		413		12.922		14.201		5,703		0.88	%		1.00	%		2.25	%		13.28	%		14.68	%
2009		489		11.408		12.383		5,909		1.60	%		1.00	%		2.25	%		25.18	%		26.73	%
2008		621		9.113		9.772		5,935		1.31	%		1.00	%		2.25	%		-39.98	%		-39.23	%
2007		795		15.183		16.081		12,555		1.02	%		1.00	%		2.25	%		1.85	%		3.11	%
Oppenheimer Main Street Small & Mid Cap (21)
2011		348		17.202		19.138		6,444		0.41	%		1.00	%		2.25	%		-4.53	%		-3.35	%
2010		401		18.018		19.801		7,723		0.41	%		1.00	%		2.25	%		20.35	%		21.84	%
2009		467		14.971		16.252		7,401		0.64	%		1.00	%		2.25	%		33.87	%		35.53	%
2008		545		11.183		11.992		6,392		0.28	%		1.00	%		2.25	%		-39.37	%		-38.62	%
2007		728		18.446		19.536		13,975		0.15	%		1.00	%		2.25	%		-3.57	%		-2.37	%
Oppenheimer Small Mid Cap Growth
2011		76		12.537		13.947		1,027		N/A			1.00	%		2.25	%		-1.38	%		-0.16	%
2010		50		12.712		13.970		686		N/A			1.00	%		2.25	%		24.37	%		25.90	%
2009		49		10.221		11.096		533		N/A			1.00	%		2.25	%		29.35	%		30.95	%
2008		45		7.902		8.473		371		N/A			1.00	%		2.25	%		-50.33	%		-49.72	%
2007		52		15.910		16.850		859		N/A			1.00	%		2.25	%		3.69	%		4.98	%
PIMCO Variable Insurance Trust:
PIMCO Foreign Bond
2011		6		16.412		16.412		99		2.24	%		1.40	%		1.40	%		5.29	%		5.29	%
2010		8		15.587		15.587		125		1.85	%		1.40	%		1.40	%		6.99	%		6.99	%
2009		8		14.569		14.569		124		3.20	%		1.40	%		1.40	%		14.00	%		14.00	%
2008		10		12.779		12.779		126		3.51	%		1.40	%		1.40	%		-3.75	%		-3.75	%
2007		12		13.277		13.277		159		2.93	%		1.40	%		1.40	%		2.19	%		2.19	%

86

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

	At December 31,								For the year ended December 31,
	Units (000s)		Unit Fair Value				Net  Assets (1) (000s)		Investment Income Ratio (2)			Expense Ratio (3)						Total Return (4)
			Lowest		Highest							Lowest			Highest			Lowest			Highest
PIMCO Variable Insurance Trust: (continued)
PIMCO Low Duration
2011		8	$	14.948	$	14.948	$	119		1.74	%		1.40	%		1.40	%		-0.28	%		-0.28	%
2010		9		14.990		14.990		138		1.58	%		1.40	%		1.40	%		3.84	%		3.84	%
2009		10		14.437		14.437		140		3.80	%		1.40	%		1.40	%		11.76	%		11.76	%
2008		9		12.918		12.918		123		4.41	%		1.40	%		1.40	%		-1.80	%		-1.80	%
2007		11		13.154		13.154		149		4.91	%		1.40	%		1.40	%		5.87	%		5.87	%

(1) Net Assets equals Contract Owners’ Equity.

(2) This ratio represents dividends recorded by the subaccount from the underlying mutual fund divided by the average net assets. This ratio excludes the Expense Ratio. N/A is noted if the fund did not pay any dividends.

(3) This ratio represents the annualized contract expenses of the separate account, resulting in a direct reduction of unit values, consisting primarily of mortality and expense charges. Charges that require redemption of contract owner units are excluded.

(4) Total return is calculated using the beginning and ending unit value (before rounding for this presentation), which reflects the changes in the underlying fund values and reductions related to the Expense Ratio, for the period indicated. The Archway product has total returns outside the ranges provided that do not correspond to the minimum or maximum expense ratio. This product invests in shares at the fund level that typically experience additional expenses. This can result in a lower subaccount total return than another product with a higher rider expense ratio.

(5) For the period (cessation of operations): January 1, 2011 to October 21, 2011—Credit Suisse Trust International Equity Flex III. Subaccount merged with DWS Money Market VIP Subaccount.

(6) Effective May 2, 2011 name changed from DWS Global Opportunities VIP A Subaccount.

(7) Effective May 2, 2011 name changed from DWS Global Opportunities VIP B Subaccount.

(8) For the period (cessation of operations): January 1, 2011 to April 29, 2011—DWS Health Care VIP A. Subaccount merged with DWS Capital Growth VIP A Subaccount.

(9) For the period (cessation of operations): January 1 2011 to April 29, 2011—DWS Health Care VIP B. Subaccount merged with DWS Capital Growth VIP B Subaccount.

(10) For the period (cessation of operations): January 1 2011 to April 29, 2011—DWS Mid Cap Growth VIP A. Subaccount merged with DWS Small Cap Growth VIP A Subaccount.

(11) Effective May 2, 2011 name changed from DWS Small Cap Growth VIP A Subaccount.

(12) For the period (cessation of operations): January 1, 2011 to April 29, 2011—DWS Strategic Value VIP A. Subaccount merged with DWS Large Cap Value VIP A Subaccount.

(13) For the period (cessation of operations): January 1, 2011 to April 29, 2011—DWS Strategic Value VIP B. Subaccount merged with DWS Large Cap Value VIP B Subaccount.

(14) For the period (cessation of operations): January 1, 2011 to April 29, 2011—DWS Technology VIP A. Subaccount merged with DWS Capital Growth VIP A Subaccount.

(15) For the period (cessation of operations): January 1, 2011 to April 29, 2011—DWS Technology VIP B. Subaccount merged with DWS Capital Growth VIP B Subaccount.

87

ZALICO Variable Annuity Separate Account

of Zurich American Life Insurance Company

Notes to Financial Statements

(6) Unit Values and Financial Highlights: (continued)

(16) For the period (cessation of operations ): January 1, 2011 to April 29, 2011—DWS Turner Mid Cap Growth VIP A. Subaccount merged with DWS Small Cap Growth VIP A Subaccount.

(17) Effective September 22, 2011 name changed from DWS Strategic Income VIP A Subaccount.

(18) For the period (commencement of operations): April 29, 2011 to December 30, 2011—Invesco Dividend Growth Services Subaccount.

(19) For the period (cessation of operations): January 1, 2011 to April 29, 2011—Invesco V.I Financial Services. Subaccount merged with Invesco Dividend Growth Services Subaccount.

(20) For the period (commencement of operations): May 1, 2009 to December 31, 2009—JPMorgan Insurance Trust Small Cap Core Subaccount.

(21) Effective April 29, 2011, name was changed from Oppenheimer Main Street Small Cap Subaccount.

(7) Subsequent Events:

The Separate Account has evaluated the effects of events subsequent to December 31, 2011, and through the financial statement issuance date. All accounting and disclosure requirements related to subsequent events are included in our financial statements.

88

PART C

OTHER INFORMATION

Item 24. Financial Statement and Exhibits

(a) Financial Statements included in Part B:

All required financial statements are included in Part B of this registration statement.

(b) Exhibits:

1.1	A copy of resolution of the Board of Directors of Kemper Investors Life Insurance Company dated September 13, 1977. 4
1.2	A copy of Record of Action of Kemper Investors Life Insurance Company dated May 29, 1981. 19
2	Not Applicable.
3.1	Distribution Agreement between Investors Brokerage Services, Inc. and Kemper Investors Life Insurance Company. 3
3.2	Addendum to Selling Group Agreement of Kemper Financial Services, Inc. 1
3.3	Selling Group Agreement of Investors Brokerage Services, Inc. 2
3.4	Principal Underwriter Agreement, dated February 3, 2009, By and Between Kemper Investors Life Insurance Company and Synergy Investment Group, LLC. 22
3.5	Amendment of Distribution Agreement, dated April 1, 2010, By and Between Investors Brokerage Services, Inc. and Kemper Investors Life Insurance Company. 23
3.6	Assignment of Selling Agreements, dated April 1, 2010, By and Between Investors Brokerage Services, Inc. and Synergy Investment Group, LLC. 23
4.1	Form of Group Variable, Fixed and Market Value Adjusted Annuity Contract. 7
4.2	Form of Certificate to Group Variable, Fixed and Market Value Adjusted Annuity Contract. 7
4.3	Form of Individual Variable, Fixed and Market Value Adjusted Annuity Contract. 7
4.4	Endorsement to Group Variable, Fixed and Market Value Adjusted Annuity Contract. 16
4.5	Endorsement to Certificate to Group Variable, Fixed and Market Value Adjusted Annuity Contract. 16
4.6	Endorsement to Individual Variable, Fixed and Market Value Adjusted Annuity Contract.16
4.7	403(b) Qualified Plan Supplemental Rider. 23

C-1

4.8	403(b) Qualified Plan Supplemental Group Contract Rider. 23
4.9	403(b) Qualified Plan Supplemental Certificate Rider. 23
5	Form of Application. 7
6.1	Kemper Investors Life Insurance Company Articles of Incorporation and By-laws. 3
6.2	Zurich American Life Insurance Company Amended Articles of Incorporation and By-laws. 24
7.1	Coinsurance Agreement between Kemper Investors Life Insurance Company and Federal Kemper Life Assurance Company, dated May 29, 2003. 15
7.2	MVA Agreement and First Amendment to Coinsurance Agreement between Kemper Investors Life Insurance Company and Chase Insurance Life and Annuity Company, f/k/a/ Federal Kemper Life Assurance Company. 16
7.3	Automatic Annuity Reinsurance Agreement effective May 1, 1998 (redacted). 18
7.4(a)	Variable Annuity Reinsurance Contract Issued to Kemper Investors Life Insurance Company effective November 17, 2006 (redacted). 19
7.4(b)	Amendment No. 1 to Variable Annuity Reinsurance Contract, dated December 15, 2008, By and Between Kemper Investors Life Insurance Company and Zurich Insurance Company. 22
8.1(a)	Fund Participation Agreement among Kemper Investors Life Insurance Company, Janus Aspen Series and Janus Capital Corporation. 2
8.1(b)	Service Agreement between Kemper Investors Life Insurance Company and Janus Capital Corporation. 5
8.1(c)	Rule 22c-2 Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company, Janus Aspen Series, Janus Capital Management LLC, and Janus Distributors LLC. 24
8.1(d)	Form of Amendment No. 8 to Fund Participation Agreement By and Between Zurich American Life Insurance Company, Janus Aspen Series, and Janus Capital Management LLC (formerly Janus Capital Corporation). 24
8.2(a)	Participation Agreement By and Among Kemper Investors Life Insurance Company and Warburg, Pincus Trust and Credit Suisse Asset Management, LLC (successor to Warburg Pincus Asset Management, Inc.) and Credit Suisse Asset Management Securities, Inc. (f/k/a Counsellors Securities Inc.). 8
8.2(b)	Service Agreement between Credit Suisse Asset Management, LLC (successor to Warburg Pincus Asset Management, Inc.) and Federal Kemper Life Assurance Company and Kemper Investors Life Insurance Company. 6
8.2(c)	Restatement of Participation Agreement among Counsellors Securities Inc., Warburg Pincus Asset Management, Inc. and/or the Warburg Pincus Funds and Kemper Investors Life Insurance Company. 10

C-2

8.2(d)	Rule 22c-2 Shareholder Information Agreement, dated October 16, 2007, By and Between Kemper Investors Life Insurance Company and Credit Suisse Asset Management Securities, Inc. 22
8.3(a)	Fund Participation Agreement among Kemper Investors Life Insurance Company, Kemper Investors Fund (now known as DWS Variable Series II), Zurich Kemper Investments, Inc., and Kemper Distributors, Inc., dated January 1, 1999. 8
8.3(b)	Supplement to Participation Agreement among Kemper Investors Life Insurance Company, DWS Variable Series II (formerly Kemper Investors Fund), Deutsche Investment Management Americas Inc. (formerly Zurich Kemper Investments, Inc.), and DWS Scudder Distributors, Inc (formerly Kemper Distributors, Inc.).19
8.3(c)	Supplement to Participation Agreement among Kemper Investors Life Insurance Company, DWS Variable Series II, Deutsche Investment Management Americas Inc., and DWS Scudder Distributors, Inc.20
8.3(d)	Administrative Services Agreement, dated November 5, 1997, By and Between Kemper Investors Life Insurance Company and Zurich Kemper Investments, Inc. 21
8.3(e)	Amendment to November 5, 1997 Services Agreement, dated March 4, 2008, By and Between Kemper Investors Life Insurance Company and Deutsche Investment Management Americas Inc. 22
8.3(f)	Rule 22c-2 Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company and DWS Scudder Distributors, Inc. 22
8.3(g)	Amendment to Participation Agreement Dated as of January 1, 1997, Between DWS Variable Series II, Deutsche Investment Management Americas Inc., DWS Investments Distributors, Inc. (formerly, DWS Scudder Distributors, Inc.), and Zurich American Life Insurance Company, dated April 11, 2011. 24
8.3(h)	Supplement to Participation Agreement Dated January 1, 1997, Among Zurich American Life Insurance Company, DWS Variable Series II, Deutsche Investment Management Americas Inc., and DWS Investments Distributors, Inc., dated April 29, 2011. 24
8.4(a)	Participation Agreement between Kemper Investors Life Insurance Company and Scudder Variable Life Investment Fund (now known as DWS Variable Series I), dated June 26, 1998. 9
8.4(b)	Participating Contract and Policy Agreement between Kemper Investors Life Insurance Company and Scudder Kemper Investments, Inc. 9
8.4(c)	Indemnification Agreement between Kemper Investors Life Insurance Company and Scudder Kemper Investments, Inc. 9
8.4(d)	Amendment to Participation Agreement between Scudder Variable Series I and Kemper Investors Life Insurance Company. 16

C-3

8.4(e)	Supplement for Participation Agreement Dated as of June 26, 1998, dated August 1, 2008, By and Between Kemper Investors Life Insurance Company and DWS Variable Series I (formerly Scudder Variable Series I). 22
8.4(f)	Amendment to June 26, 1998 Indemnification Agreement, dated August 28, 2008, By and Between Kemper Investors Life Insurance Company and Deutsche Investment Management Americas, Inc. (formerly Scudder Kemper Investments, Inc.). 22
8.4(g)	Amendment to Participation Agreement Dated as of June 26, 1998, Between Zurich American Life Insurance Company and DWS Variable Series I (formerly, Scudder Variable Life Investment Fund and Scudder Variable Series I), dated April 11, 2011. 24
8.5(a)	Participation Agreement Among Kemper Investors Life Insurance Company, PIMCO Variable Insurance Trust, and PIMCO Funds Distributors LLC. 9
8.5(b)	Services Agreement between Pacific Investment Management Company and Kemper Investors Life Insurance Company. 9
8.5(c)	Rule 22c-2 Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company and Allianz Global Investors Distributors LLC. 24
8.5(d)	Form of Novation of and Amendment to Participation Agreement, By and Among Allianz Global Investors Distributors LLC, PIMCO Investments LLC, PIMCO Variable Insurance Trust, and Zurich American Life Insurance Company. 24
8.5(e)	Form of Amendment to Participation Agreement Dated January 5, 1999, By and Among Zurich American Life Insurance Company, PIMCO Variable Insurance Trust, and Allianz Global Investors Distributors LLC (formerly PIMCO Funds Distributors, LLC).24
8.6(a)	Participation Agreement Among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc. and Kemper Investors Life Insurance Company. 11
8.6(b)	Shareholder Information Agreement, Franklin Templeton Variable Insurance Products Trust, Dated April 16, 2007, By and Among Kemper Investors Life Insurance Company and Franklin/Templeton Distributors, Inc. 24
8.7(a)	Fund Participation Agreement between Kemper Investors Life Insurance Company and The Dreyfus Socially Responsible Growth Fund, Inc. 11
8.7(b)	November 1, 1999 Amendment to Fund Participation Agreement between Kemper Investors Life Insurance Company and The Dreyfus Socially Responsible Growth Fund, Inc. 12
8.7(c)	Administrative Services Agreement by and between The Dreyfus Corporation and Kemper Investors Life Insurance Company (redacted). 10
8.7(d)	November 1, 1999 Amendment to Administrative Services Agreement by and between The Dreyfus Corporation and Kemper Investors Life Insurance Company (redacted). 10
8.7(e)	Supplemental Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company and Dreyfus Service Corporation. 22

C-4

8.7(f)	Amendment No.2 to Fund Participation Agreement Dated April 27, 1999, Between Zurich American Life Insurance Company, The Dreyfus Socially Responsible Growth Fund, Inc., Dreyfus Investment Portfolios, Dreyfus Variable Investment Fund, and Dreyfus Life and Annuity Index Fund, Inc. (d/b/a Dreyfus Stock Index Fund), dated April 8, 2011. 24
8.8(a)	Fund Participation Agreement by and among The Alger American Fund, Kemper Investors Life Insurance Company and Fred Alger & Company Incorporated. 12
8.8(b)	Service Agreement between Fred Alger Management, Inc. and Kemper Investors Life Insurance Company (redacted). 12
8.8(c)	Rule 22c-2 Agreement, dated April 16, 2007, By and Between Kemper Investors Life Insurance Company and Fred Alger & Company, Incorporated. 22
8.8(d)	Amendment No. 1 to Participation Agreement Dated May 1, 1999, Between Zurich American Life Insurance Company, The Alger Portfolios (formerly The Alger American Fund), and Fred Alger & Company Incorporated, dated April 1, 2011. 24
8.9(a)	Fund Participation Agreement, dated April 30, 2004, by and among Kemper Investors Life Insurance Company, AIM Variable Insurance Funds, and AIM Distributors, Inc. 24
8.9(b)	Administrative Services Agreement, dated July 1, 2005 Between Kemper Investors Life Insurance Company and AIM Advisors, Inc. 24
8.9(c)	AIM Funds Intermediary Agreement Regarding Compliance with SEC Rule 22c-2, dated April 11, 2007, By and Between Kemper Investors Life Insurance Company and AIM Investment Services, Inc. 22
8.9(d)	Amendment No. 1 to the Participation Agreement Dated April 30, 2004, Between Kemper Investors Life Insurance Company, AIM Variable Insurance Funds, and AIM Distributors, Inc., dated May 28, 2008. 24
8.9(e)	Amendment No. 2 to the Participation Agreement Dated April 30, 2004, Between Kemper Investors Life Insurance Company, AIM Variable Insurance Funds, and AIM Distributors, Inc., dated April 30, 2010. 24
8.9(f)	Form of Amendment No. 3 to Participation Agreement Dated April 30, 2004, Between Zurich American Life Insurance Company, AIM Variable Insurance Funds (Invesco Variable Insurance Funds), and Invesco Distributors, Inc. 24
8.10(a)	Insurance Administrative Services Agreement, dated September 7, 2004, between Kemper Investors Life Insurance Company and Liberty Insurance Services Corporation (now known as IBM Business Transformation Outsourcing Insurance Service Corporation). 13
8.10(b)	Amendment No. 1 to The Insurance Administrative Services Agreement, dated April 26, 2005, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation (formerly Liberty Insurance Services Corporation). 21

C-5

8.10(c)	Amendment No. 2 to The Insurance Administrative Services Agreement, dated May 16, 2006, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. 21
8.10(d)	Amendment No. 3 to The Insurance Administrative Services Agreement, dated August 23, 2006, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. 21
8.10(e)	Amendment No. 4 to Third-Party Insurance Administrative Services Agreement, dated February 22, 2007, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. 21
8.10(f)	Redacted Amendment No. 5 to Third-Party Insurance Administrative Services Agreement, dated June 1, 2008, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. 21
8.10(g)	Amendment No. 6 to Third-Party Insurance Administrative Services Agreement, dated May 15, 2009, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. 23
8.10(h)	Amendment No. 7 to Third-Party Insurance Administrative Services Agreement, dated February 22, 2010, By and Between Kemper Investors Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. 23
8.10(i)	Amendment No. 8 to Third-Party Insurance Administrative Services Agreement, dated as of April 3, 2012, By and Between Zurich American Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation. 25
8.11(a)	Fund Participation Agreement by and among Kemper Investors Life Insurance Company, Deutsche Asset Management VIT Funds (now known as DWS Investments VIT Funds), and Deutsche Asset Management, Inc. 17
8.11(b)	Administrative Services Agreement between Kemper Investors Life Insurance Company and Deutsche Asset Management, Inc. (redacted). 17
8.11(c)	Amendment to administrative services agreement between Kemper Investors Life Insurance Company and Deutsche Asset Management, Inc. 18
8.11(d)	Amendment to Fund Participation Agreement Dated as of October 21, 2001, By and Among Kemper Investors Life Insurance Company, Scudder Investments VIT Funds (formerly Deutsche Asset Management VIT Funds), and Deutsche Asset Management, Inc., dated August 1, 2005. 24
8.11(e)	Amendment to Fund Participation Agreement Dated as of October 22, 2001, Between Zurich American Life Insurance Company, DWS Investments VIT Funds (formerly, Deutsche Asset Management VIT Funds and Scudder Investments VIT Funds), and Deutsche Investment Management Americas Inc. (formerly, Deutsche Asset Management, Inc.), dated April 11, 2011. 24
9	Opinion and Consent of Juanita M. Thomas, Esq. 25
10(a)	Consent of independent registered public accounting firm. 25
10(b)	Consent of Jorden Burt LLP. 25
11	Not Applicable.

C-6

12	Not Applicable
13	Schedules for Computation of Performance Calculations. 4
14	Not Applicable.
15	Powers of Attorney for Kevin T. Hogan, Nicolas A. Burnet, Richard J. Hauser, Barry S. Paul, Linda L. Swanson, Patricia Aprill, Marcia Scheiner, and Jeffrey S. Horton. 23
15(a)	Powers of Attorney for Simon Lodge and David Dietz. 24
15(b)	Powers of Attorney for David Dietz, Simon Lodge, Barry S. Paul, Richard J. Hauser, Dawn Cummings-Fritz and Nicolas A. Burnet. 25
17.1	Schedule III: Supplementary Insurance Information (years ended December 31, 2004, 2003 and 2002). 13
17.2	Schedule IV: Reinsurance (year ended December 31, 2004, 2003 and 2002). 13
17.3	Schedule V: Valuation and qualifying accounts (year ended December 31, 2004, 2003 and 2002). 13

¹  Incorporated by reference to Post-Effective Amendment No. 22 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 27, 1995.

²  Incorporated by reference to Post-Effective Amendment No. 23 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about September 14, 1995.

³  Incorporated by reference to Exhibits filed with the Registration Statement on Form S-1 for Kemper Investors Life Insurance Company (File No. 333-02491) filed on or about April 12, 1996.

⁴  Incorporated by reference to the Registration Statement on Form N-4 for the Registrant (File No. 333-22375) filed on or about February 26, 1997.

⁵  Incorporated by reference to Post-Effective Amendment No. 25 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 28, 1997.

⁶  Incorporated by reference to Post-Effective Amendment No. 4 to the Registration Statement on Form S-6 (File No. 33-79808) filed on or about April 30, 1997.

⁷  Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 (File No. 333-22375) filed on or about November 3, 1997.

⁸  Incorporated by reference to Amendment No. 3 to the Registration Statement on Form S-1 (File No. 333-22389) filed on or about April 8, 1998.

⁹  Incorporated by reference to Amendment No. 5 to the Registration Statement on Form S-1 (File No. 333-22389) filed on or about April 20, 1999.

¹⁰  Incorporated by reference to Post-Effective Amendment No. 6 to the Registration Statement on Form N-4 (File No. 333-22375) filed on or about September 14, 1999.

C-7

¹¹  Incorporated by reference to Post-Effective Amendment No. 28 to the Registration Statement on Form N-4 (File No. 2-72671) filed on or about April 28, 1999.

¹²  Incorporated by reference to Amendment No. 6 to the Registration Statement on Form S-1 (File No. 333-22389) filed on or about April 17, 2000.

¹³  Incorporated by reference to Form 10-K for Kemper Investors Life Insurance Company for fiscal year ended December 31, 2004 filed on or about March 30, 2005.

¹⁴  Incorporated by reference to Post-Effective Amendment No. 14 to the Registration Statement on Form N-4 (File No. 
333-22375) filed on or about April 28, 2004.

¹⁵  Incorporated by reference to exhibits filed with Form 10-Q for Kemper Investors Life Insurance Company (now Zurich American Life Insurance Company) (File No. 033-43462) for the quarterly period ended June 30, 2003 filed on or about August 14, 2003.

¹⁶  Incorporated by reference to Amendment No. 6 to the Registration Statement on Form N-4 (File No. 333-22375) filed on April 28, 2005.

¹⁷  Incorporated by reference to Amendment No. 3 to the Registration Statement on Form S-6 (File No. 333-88845) filed on April 30, 2002.

¹⁸  Incorporated by reference to Post-Effective Amendment No. 17 to the Registration Statement on Form N-4 (File No. 
333-22375) filed on or about May 1, 2006.

¹⁹  Incorporated by reference to Post-Effective Amendment No. 18 to the Registration Statement on Form N-4 (File No. 
333-22375) filed on April 27, 2007.

²⁰  Incorporated by reference to Post-Effective Amendment No. 19 to the Registration Statement on Form N-4 (File No. 
333-22375) filed on April 29, 2008.

²¹  Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 (File No. 
333-148489) filed on August 8, 2008.

²²  Incorporated by reference to Post-Effective Amendment No. 20 to the Registration Statement on Form N-4 (File No.
 333-22375) filed on April 29, 2009.

²³  Incorporated by reference to Post-Effective Amendment No. 21 to the Registration Statement on Form N-4 (File No. 
333-22375) filed on April 30, 2010.

²⁴  Incorporated by reference to Post-Effective Amendment No. 22 to the Registration Statement on Form N-4 (File No. 
333-22375) filed on April 29, 2011.

²⁵ Filed herewith.

Item 25. Directors and Officers of Zurich American Life Insurance Company (“ZALICO”)

The directors and officers of ZALICO are listed below together with their current positions.

C-8

Name	Office with ZALICO
David Dietz2	President , Chief Executive Officer and Director
Richard Grilli2	Senior Vice President and Chief Operating Officer
Simon Lodge2	Senior Vice President and Chief Financial Officer
Barry S. Paul1	Director and Assistant Treasurer
Richard J. Hauser1	Director and Assistant Treasurer
Nicolas A. Burnet3	Director
Michael Rohwetter2	Vice President and Chief Investment Officer
Richard Persaud2	Vice President and Chief Risk Officer
Patrick J. Carty2	Vice President, General Counsel and Corporate Secretary
Jeffrey S. Horton2	Senior Vice President-Finance and Treasurer
Catherine Ehrlich2	Vice President, Chief Actuary and “Appointed Actuary”
Sherif Zakhary2	Vice President
Dennis Roberts2	Vice President
Michael DeStasi2	Assistant Vice President and Controller
Dawn Cummings-Fritz1	Director and Assistant Vice President
Margaret Labno1	Assistant Vice President
David Dampman5	Assistant Secretary
Craig Toffolo2	Assistant Secretary
Jon Nagel2	Assistant Secretary

Juanita M. Thomas, Esq.² serves as the Chief Compliance Officer for the Registrant.

¹  The principal business address is 1400 American Lane, Schaumburg, IL 60196.

²  The principal business address is 105 E. 17^th Street, New York, NY 10003.

³  The principal business address is Mythenquai 2, 8022, Zurich, Switzerland.

⁴  The principal business address is 200 Sam Houston Parkway, Suite 1300, Houston, TX 77042.

⁵  The principal business address is 7045 College Blvd., Overland Park, KS 66211.

Item 26. Persons Controlled by or Under Common Control with the Insurance Company or Registrant

Organizations Affiliated with Zurich U.S. Insurance Group

Company	Domicile	Ownership	%
17-40 Direct Limited	GB	Endsleigh Insurance Services Limited	100.00
Access Franchise Management Limited	GB	Zurich Assurance Ltd	100.00
ACN 000 141 051 Ltd.	AU	Zurich Financial Services Australia Limited	100.00
Activita Care Management AG	CH	Zurich Versicherungs-Gesellschaft AG	30.00
ADAC Autoversicherung AG	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	51.00
Afterland Limited	GB	Zurich Assurance Ltd	100.00
AG Haus der Wirtschaft	DE	Zurich Versicherungs-Gesellschaft AG	8.16
AIDE Asistencia Seguros y Reaseguros, S.A. - Sociedad Uniper	ES	Zurich Insurance plc, Sucursal en Espana	100.00

C-9

Albert Road 1 UK Limited	GB	Zurich Assurance Ltd	100.00
Albert Road 2 UK Limited	GB	Zurich Assurance Ltd	100.00
Allied Dunbar (Staff Pension Plan) Trustee Limited	GB	Allied Dunbar Assurance plc	100.00
Allied Dunbar Asset Management plc	GB	Allied Dunbar Assurance plc	99.99
Allied Dunbar Asset Management plc	GB	Zurich Trustee Company (UK) Limited	0.01
Allied Dunbar Assurance plc	GB	Zurich Financial Services (UKISA) Limited	100.00
Allied Dunbar Financial Services Limited	GB	Allied Dunbar Assurance plc	100.00
Allied Dunbar Healthcare Marketing Limited	GB	Allied Dunbar Assurance plc	100.00
Allied Dunbar International Fund Managers Limited	IM	Zurich Versicherungs-Gesellschaft AG	100.00
Allied Dunbar International Nominees Limited	IM	Allied Dunbar International Fund Managers Limited	100.00
Allied Dunbar Mortgages Limited	GB	Allied Dunbar Assurance plc	100.00
Allied Dunbar Property Services Limited	GB	Allied Dunbar Assurance plc	100.00
Allied Dunbar Provident plc	GB	Allied Dunbar Assurance plc	99.99
Allied Dunbar Provident plc	GB	Zurich Trustee Company (UK) Limited	0.001
Allied Zurich Holdings Limited	JE	Zurich Versicherungs-Gesellschaft AG	100.00
Allied Zurich Limited	GB	Zurich Financial Services AG	100.00
American Guarantee and Liability Insurance Company	US	Zurich American Insurance Company	100.00
American Zurich Insurance Company	US	Steadfast Insurance Company	100.00
Anglo American Insurance Company Limited	GB	Anglo American Insurance Group (UK) Limited	0.001
Anglo American Insurance Company Limited	GB	Anglo American Insurance Holdings Limited	99.99
Anglo American Insurance Group (UK) Limited	GB	CMSH Limited	100.00
Anglo American Insurance Holdings Limited	GB	Anglo American Insurance Group (UK) Limited	100.00
Aquarius Underwriting Managers (Pty) Ltd	ZA	Zurich Insurance Company South Africa Limited	30.00
Ashdale Land and Property Company Limited	GB	Zurich Insurance plc	100.00
Associated Marine Insurers Agents Pty. Limited	AU	Zurich Financial Services Australia Limited	100.00
Assurance Company of America	US	Maryland Casualty Company	100.00
Baden-Badener Versicherung Aktiengesellschaft	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	100.00
Ballykilliane Holdings Limited	IE	Zurich Insurance plc	100.00
Bansabadell Pensiones, E.G.F.P, S.A.	ES	Zurich Vida, Companía de Seguros y Reaseguros, S.A. - Socied	50.00
Bansabadell Seguros Generales, S.A. de Seguros y Reaseguros	ES	Zurich Versicherungs-Gesellschaft AG	50.00
Bansabadell Vida S.A. de Seguros y Reaseguros	ES	Zurich Vida, Companía de Seguros y Reaseguros, S.A. - Socied	50.00
Benefit Finance Partners, L.L.C.	US	Zurich Benefit Finance LLC	50.00
BFP Securities LLC	US	Benefit Finance Partners, L.L.C.	100.00
Bizerba GmbH & Co. KG	DE	Zurich Deutscher Herold Lebensversicherung Aktiengesellschaf	10.00
Bonner Akademie Gesellschaft fur DV- und Management-Training	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	100.00
Bonnfinanz Aktiengesellschaft fur Vermogensberatung und Verm	DE	Deutscher Herold Aktiengesellschaft	100.00
Bonus Pensionskassen Aktiengesellschaft	AT	Zurich Versicherungs-Aktiengesellschaft	87.50
BONUS Vorsorgekasse AG	AT	Zurich Versicherungs-Aktiengesellschaft	50.00
Bristlecourt Limited	GB	Zurich Assurance Ltd	100.00
CAN Seguros Generales SA	ES	Zurich Versicherungs-Gesellschaft AG	50.00
Cayley Aviation Ltd.	BM	Zurich Insurance Company Ltd, Bermuda Branch	100.00
Centre Financial Services Holdings Limited	BM	Centre Group Holdings Limited	100.00
Centre Group Holdings (U.S.) Limited	US	Centre Solutions (Bermuda) Limited	100.00

C-10

Centre Group Holdings Limited	BM	CMSH Limited	100.00
Centre Insurance Company	US	Centre Solutions (U.S.) Limited	100.00
Centre Insurance International Company	IE	Centre Solutions (Bermuda) Limited	100.00
Centre Kate Inc. 1	US	Zurich Structured Finance, Inc.	100.00
Centre Kate Inc. 2	US	Zurich Structured Finance, Inc.	100.00
Centre Life Insurance Company	US	Centre Solutions (U.S.) Limited	100.00
Centre Reinsurance (U.S.) Limited	BM	Centre Group Holdings (U.S.) Limited	100.00
Centre Reinsurance International Company	IE	Centre Solutions (Bermuda) Limited	99.99
Centre Reinsurance International Company	IE	Orange Stone Reinsurance	0.002
Centre Solutions (Bermuda) Limited	BM	Centre Group Holdings Limited	100.00
Centre Solutions (U.S.) Limited	BM	Centre Group Holdings (U.S.) Limited	100.00
Chilena Consolidada Seguros de Vida S.A.	CL	Inversiones Suizo Chilena S.A.	98.98
Chilena Consolidada Seguros Generales S.A.	CL	Chilena Consolidada Seguros de Vida S.A.	7.41
Chilena Consolidada Seguros Generales S.A.	CL	Inversiones Suizo Chilena S.A.	82.73
City of London Insurance Company Limited	GB	Eagle Star Insurance Company Limited	100.00
CMSH Limited	BM	Zurich Insurance Company Ltd, Bermuda Branch	35.30
CMSH Limited	BM	Zurich Versicherungs-Gesellschaft AG	64.70
COFITEM-COFIMUR	FR	Zurich Versicherungs-Gesellschaft AG	12.41
Colonial American Casualty and Surety Company	US	Fidelity and Deposit Company of Maryland	100.00
Community Trust Services Limited	GB	Zurich Community Trust (UK) Limited	99.00
Community Trust Services Limited	GB	Zurich Financial Services (UKISA) Nominees Limited	1.00
Concisa Vorsorgeberatung und Management AG	AT	Bonus Pensionskassen Aktiengesellschaft	100.00
Concourse Skelmersdale Limited	GB	Zurich Financial Services (UKISA) Limited	100.00
Conduit Street Properties Limited	GB	Zurich Assurance Ltd	100.00
Consultores de Pensiones Grupo Zurich, S.A. - Sociedad Unipe	ES	Zurich Vida, Companía de Seguros y Reaseguros, S.A. - Socied	100.00
CP Holding Limited	VG	Zurich Insurance Company Ltd, Bermuda Branch	100.00
Cramson (Malaysia) Bhd	MY	MCIS Zurich Insurance Berhad	100.00
Crimpland Limited	GB	Zurich Assurance Ltd	100.00
Crown Management Services Limited	US	CMSH Limited	100.00
CTH Affordable Housing Corporation	US	Zurich Structured Finance, Inc.	100.00
CTH Affordable Housing Investor, Inc.	US	CTH Affordable Housing Corporation	100.00
CTH AHP Corporation	US	CTH Affordable Housing Corporation	100.00
CTH MHP, L.L.C.	US	CTH Affordable Housing Investor, Inc.	100.00
CTH Special General Partner, Inc.	US	CTH Affordable Housing Corporation	100.00
CTH WNC, Inc.	US	CTH Affordable Housing Corporation	100.00
CTH/Landmark SLP, Inc.	US	CTH Affordable Housing Corporation	100.00
Cursud N.V.	AN	Zurich Versicherungs-Gesellschaft AG	100.00
DA Deutsche Allgemeine Versicherung Aktiengesellschaft	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	100.00
DB Vita S.A.	LU	Deutscher Herold Aktiengesellschaft	25.00
Delta Wetlands Properties	US	KLMLP 2, LLC	50.00
Delta Wetlands Properties	US	KLMLP 3, LLC	50.00
Deutsche Wohnen AG	DE	Zurich Deutscher Herold Lebensversicherung Aktiengesellschaf	5.75
Deutsche Zurich Pensiones, Entidad Gestora de Fondos de Pens	ES	Zurich Vida, Companía de Seguros y Reaseguros, S.A. - Socied	50.00
Deutscher Herold Aktiengesellschaft	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	79.83
Deutscher Pensionsfonds Aktiengesellschaft	DE	Deutscher Herold Aktiengesellschaft	74.90
Deutsches Institut fur Altersvorsorge GmbH	DE	Deutscher Herold Aktiengesellschaft	22.00

C-11

Disability Management Services, Inc.	US	Centre Group Holdings (U.S.) Limited	40.00
Dunbar Assets plc	GB	Zurich Bank	100.00
Dunbar Nominees Limited	GB	Dunbar Assets plc	100.00
Dunbar Sports and Social Club Limited	GB	Allied Dunbar Assurance plc	100.00
Eagle Properties (Benoni) (Proprietary) Limited	ZA	Zurich Insurance Company South Africa Limited	100.00
Eagle Star (Fund Management) Limited	GB	Eagle Star Holdings Limited	100.00
Eagle Star (Leasing) Limited	GB	Zurich Assurance Ltd	100.00
Eagle Star (Malta) Limited	MT	Zurich Assurance Ltd	100.00
Eagle Star Computer Services Limited	GB	Zurich Assurance Ltd	100.00
Eagle Star Direct (Camberley) Limited	GB	Zurich Insurance Company (U.K.) Limited	100.00
Eagle Star Direct Services Limited	GB	Zurich UK General Services Limited	100.00
Eagle Star Estates Limited	GB	Zurich Assurance Ltd	100.00
Eagle Star European Life Assurance Company Limited	IE	Zurich Life Assurance plc	100.00
Eagle Star Executives Pension Trustee Limited	GB	Zurich Financial Services (UKISA) Limited	100.00
Eagle Star Farms Limited	GB	Zurich Assurance Ltd	100.00
Eagle Star Forests Limited	GB	Zurich Assurance Ltd	100.00
Eagle Star Fund Services Limited	IE	Zurich Life Assurance plc	100.00
Eagle Star Group Holdings Limited	GB	Eagle Star Holdings Limited	100.00
Eagle Star Group Services Limited	GB	Eagle Star Holdings Limited	100.00
Eagle Star Holding Company of Ireland	IE	Eagle Star Group Holdings Limited	0.001
Eagle Star Holding Company of Ireland	IE	Zurich Assurance Ltd	99.99
Eagle Star Holdings Limited	GB	Zurich Financial Services (UKISA) Limited	100.00
Eagle Star Insurance Company Limited	GB	Zurich Insurance plc	100.00
Eagle Star International Services (Ireland) Limited	IE	Eagle Star Holding Company of Ireland	0.0015
Eagle Star International Services (Ireland) Limited	IE	Eagle Star Holdings Limited	99.99
Eagle Star Loans Limited	GB	Zurich Assurance Ltd	100.00
Eagle Star Mortgages Limited	GB	Zurich Assurance Ltd	100.00
Eagle Star Securities Limited	GB	Zurich Insurance plc	100.00
Eagle Star Software Development Company Limited	IE	Zurich Life Assurance plc	100.00
Edilspettacolo SRL	IT	Zurich Insurance Company Ltd - Rappresentanza Generale per l	35.71
Empire Fire and Marine Insurance Company	US	Zurich American Insurance Company	100.00
Empire Indemnity Insurance Company	US	Zurich American Insurance Company	100.00
Employee Services Limited	GB	Allied Dunbar Financial Services Limited	100.00
Endsleigh Communications Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh Developments Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh General Trading Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh Independent Financial Services Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh Insurance Services Limited	GB	Endsleigh Limited	100.00
Endsleigh Insurances (Brokers) Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh Law Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh Leasing Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh Life & Pensions Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh Limited	GB	Zurich Holdings (UK) Limited	100.00
Endsleigh Pension Trustee Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh Promotions Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh Shopfitting Limited	GB	Endsleigh Insurance Services Limited	100.00
Endsleigh Trustee Services Limited	GB	Endsleigh Insurance Services Limited	100.00
ES (Leeds) Nominee Limited	GB	Zurich Assurance Ltd	100.00
ES (Walsall) Nominee Limited	GB	Zurich Assurance Ltd	100.00

C-12

ES Camberley Nominee 1 Limited	GB	Zurich Assurance Ltd	100.00
ES Camberley Nominee 2 Limited	GB	Zurich Assurance Ltd	100.00
ES Cannock Nominee 1 Limited	GB	Zurich Assurance Ltd	100.00
ES Cannock Nominee 2 Limited	GB	Zurich Assurance Ltd	100.00
ES Coventry Nominee 1 Limited	GB	Zurich Assurance Ltd	100.00
ES Coventry Nominee 2 Limited	GB	Zurich Assurance Ltd	100.00
ES Dudley Nominee 1 Limited	GB	Zurich Assurance Ltd	100.00
ES Dudley Nominee 2 Limited	GB	Zurich Assurance Ltd	100.00
ES Hoddesdon Nominee 1 Limited	GB	Zurich Assurance Ltd	100.00
ES Hoddesdon Nominee 2 Limited	GB	Zurich Assurance Ltd	100.00
ES Plympton Nominee 1 Limited	GB	Zurich Assurance Ltd	100.00
ES Plympton Nominee 2 Limited	GB	Zurich Assurance Ltd	100.00
ES Ramsgate Nominee 1 Limited	GB	Zurich Assurance Ltd	100.00
ES Ramsgate Nominee 2 Limited	GB	Zurich Assurance Ltd	100.00
Escape Premium Collection (Pty) Ltd	ZA	Zurich Insurance Company South Africa Limited	100.00
ESI Financing Limited	GB	Eagle Star Insurance Company Limited	0.001
ESI Financing Limited	GB	Zurich Versicherungs-Gesellschaft AG	99.99
Extremus Versicherung-Aktiengesellschaft	DE	Zurich Insurance plc Niederlassung fur Deutschland	5.00
F.I.G. Holding Company	US	Fire Underwriters Association	69.99
F.I.G. Holding Company	US	Truck Underwriters Association	30.00
F.I.G. Holding Company	US	Farmers Group, Inc.	100.0
Farmers Family Fund	US	Farmers Group, Inc.	100.0
Farmers Group, Inc.	US	Zurich Versicherungs-Gesellschaft AG	87.90
Farmers Group, Inc.	US	Zurich Financial Services AG	12.10
Farmers New World Life Insurance Company	US	Farmers Group, Inc.	100.00
Farmers Reinsurance Company	US	Farmers Group, Inc.	100.00
Farmers Services Corporation	US	Farmers Group, Inc.	100.00
Farmers Services, LLC	US	ZFUS Services, LLC	100.00
Farmers Underwriters Association	US	Farmers Group, Inc.	100.00
Farmers Value Added, Inc.	US	Farmers Group, Inc.	100.00
Fidelity and Deposit Company of Maryland	US	Zurich American Insurance Company	100.00
FIG Holding Company	US	Farmers Group, Inc.	100.00
FIG Leasing Co., Inc.	US	Farmers Group, Inc.	100.00
Fire Underwriters Association	US	Farmers Group, Inc.	100.00
Futuro de Bolivia S.A. Administradora de Fondos de Pensiones	BO	Zurich Boliviana Seguros Personales S.A.	8.42
Futuro de Bolivia S.A. Administradora de Fondos de Pensiones	BO	Zurich South America Invest AB	71.58
General Surety & Guarantee Co Limited	GB	Zurich Insurance Company (U.K.) Limited	100.00
Genevoise, Compagnie Immobiliere SA	CH	Zurich Lebensversicherungs-Gesellschaft AG	100.00
Greycaines 1 Jersey Limited	JE	Zurich Assurance Ltd	100.00
Greycaines 2 Jersey Limited	JE	Zurich Assurance Ltd	100.00
Groomlink Limited	GB	Zurich Assurance Ltd	100.00
Grovewood Engineering Limited	GB	Zurich Assurance Ltd	100.00
Grovewood Property Holdings Limited	GB	Eagle Star Holdings Limited	100.00
Hawkcentral Limited	GB	Zurich Assurance Ltd	100.00
Home & Overseas Insurance Company Limited	GB	Eagle Star Insurance Company Limited	100.00
IDI Technology Solutions (Pty) Ltd	ZA	Zurich Insurance Company South Africa Limited	36.63
Innovaconsulting S.r.I.	IT	Zuritel S.p.A.	40.00
INTEGRA Versicherungsdienst GmbH	AT	Zurich Versicherungs-Aktiengesellschaft	100.00
Inversiones Suizo Chilena S.A.	CL	Inversiones Suizo-Argentina S.A.	0.0001

C-13

Inversiones Suizo Chilena S.A.	CL	Zurich Versicherungs-Gesellschaft AG	99.99
Inversiones Suizo-Argentina S.A.	AR	Zurich Lebensversicherungs-Gesellschaft AG	5.00
Inversiones Suizo-Argentina S.A.	AR	Zurich Versicherungs-Gesellschaft AG	95.00
Inversiones ZS America Dos Limitada	CL	Inversiones ZS America SpA	100.00
Inversiones ZS America SpA	CL	ZS Insurance America, S.L.	100.00
Inversiones ZS America Tres SpA	CL	ZS Insurance America, S.L.	100.00
Inversora Alpina, C.A.	VE	Zurich Seguros, S.A.	100.00
Ipsley Street 1 UK Limited	GB	Zurich Assurance Ltd	100.00
Ipsley Street 2 UK Limited	GB	Zurich Assurance Ltd	100.00
Irish National Insurance Company p.l.c.	IE	Zurich Insurance plc	99.99
Isis S.A.	AR	Inversiones Suizo-Argentina S.A.	60.50
Isis S.A.	AR	Zurich Versicherungs-Gesellschaft AG	39.50
IT Innovation Holdings AG	CH	Zurich Versicherungs-Gesellschaft AG	100.00
Jas. W. King & Co. Limited	GB	Eagle Star Holdings Limited	100.00
Jewell Insurance Agency Ltd	GB	Woodstock Insurance Brokers Limited	100.00
Kennet Road 1 UK Limited	GB	Zurich Assurance Ltd	100.00
Kennet Road 2 UK Limited	GB	Zurich Assurance Ltd	100.00
KLMLP 2, LLC	US	KLMLP, L.P.	100.00
KLMLP 3, LLC	US	KLMLP 2, LLC	100.00
KLMLP, L.P.	US	Zurich American Corporation	75.00
L&L PARK 80 INVESTORS LLC	US	ZI PARK 80 WEST LLC	90.00
Leschi Life Assurance Company	US	Farmers New World Life Insurance Company	100.00
Liquid Underwriting Managers (Pty) Limited	ZA	Zurich Insurance Company South Africa Limited	30.00
Logobrook Limited	GB	Zurich Assurance Ltd	100.00
Lordbourne Limited	GB	Zurich Assurance Ltd	100.00
MAAGNET SYSTEMS SDN BHD	MY	Zurich Versicherungs-Gesellschaft AG	100.00
MAAGNET-SSMS SDN BHD	MY	MAAGNET SYSTEMS SDN BHD	100.00
MALAYSIAN ALLIANCE PROPERTY SERVICES SDN BHD	MY	Zurich Versicherungs-Gesellschaft AG	100.00
Malaysian Assurance Alliance Berhad	MY	Zurich Versicherungs-Gesellschaft AG	100.00
Manon Vision Co., Ltd.	TH	Centre Group Holdings Limited	0.0057
Manon Vision Co., Ltd.	TH	CMSH Limited	0.0066
Manon Vision Co., Ltd.	TH	Zurich Versicherungs-Gesellschaft AG	99.99
Maryland Casualty Company	US	Zurich American Insurance Company	100.00
Maunalua Associates, Inc.	US	Zurich American Corporation	100.00
Mauritian Eagle Insurance Company Limited	MU	Zurich Insurance Company South Africa Limited	15.00
MCIS Zurich Insurance Berhad	MY	Zurich Asia Holdings Ltd.	40.00
Medidata AG	CH	Zurich Versicherungs-Gesellschaft AG	8.85
Mentionland Limited	GB	Zurich Assurance Ltd	100.00
Meritclass Investments Limited	GB	Zurich Assurance Ltd	100.00
MI Administrators, LLC	US	FIG Leasing Co., Inc.	100.00
Minas Brasil Promotora de Servicos S/A	BR	Zurich Minas Brasil Seguros S.A,	100.00
MULTIOTO SERVICES SDN BHD	MY	Zurich Versicherungs-Gesellschaft AG	100.00
Navigators and General Insurance Company Limited	GB	Zurich Insurance plc	100.00
Nearheath Limited	GB	Zurich Assurance Ltd	100.00
New China Life Insurance Company Limited	CA	Zurich Versicherungs-Gesellschaft AG	12.51
NK Zurich Risk Service Co., Ltd.	JP	Zurich Insurance Company Limited	10.00
Northern Insurance Company of New York	US	Maryland Casualty Company	100.00
Oldco B Member Holdings, LLC	US	Centre Group Holdings (U.S.) Limited	100.00
Omnis Investments Limited	GB	Openwork Holdings Limited	90.00
OOO"TPK"	RU	Zurich Insurance Company Ltd.	100.00

C-14

Openwork Access Limited	GB	Openwork Holdings Limited	100.00
Openwork Holdings Limited	GB	Allied Zurich Holdings Limited	99.99
Openwork Independent Solutions Limited	GB	Openwork Holdings Limited	100.00
Openwork Limited	GB	Openwork Holdings Limited	100.00
Openwork Market Solutions Limited	GB	Openwork Holdings Limited	100.00
Openwork Services Limited	GB	Openwork Holdings Limited	100.00
Orange Stone Holdings	IE	CMSH Limited	100.00
Orange Stone Reinsurance	IE	Crown Management Services Limited	100.00
Orion Rechtsschutz-Versicherung AG	CH	Zurich Versicherungs-Gesellschaft AG	78.00
Parcelgate Limited	GB	Zurich Assurance Ltd	100.00
Perils AG	CH	Zurich Versicherungs-Gesellschaft AG	11.11
Prematic Service Corporation (California)	US	Farmers Group, Inc.	100.00
Prematic Service Corporation (Nevada)	US	Prematic Service Corporation (California)	100.00
Protektor Lebensversicherungs-AG	DE	Zurich Deutscher Herold Lebensversicherung Aktiengesellschaf	5.16
PT Zurich Insurance Indonesia	ID	Zurich Asia Holdings Ltd.	4.31
PT Zurich Insurance Indonesia	ID	Zurich Versicherungs-Gesellschaft AG	91.52
PT Zurich Topas Life	ID	Zurich Versicherungs-Gesellschaft AG	80.00
Real Garant Espana S.L.	ES	Real Garant GmbH Garantiesysteme	100.00
Real Garant GmbH Garantiesysteme	DE	Real Garant Versicherung Aktiengesellschaft	100.00
Real Garant Versicherung Aktiengesellschaft	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	100.00
Red Ruff LLC	US	ZCM Asset Holding Company (Bermuda) Limited	100.00
SA Fire House Limited	ZA	Zurich Versicherungs-Gesellschaft AG	100.00
Sackville Street Limited	GB	Zurich Financial Services (UKISA) Limited	100.00
Santander Brasil Seguros S.A.	BR	Santander Seguros S.A.	100.00
Santander Rio Seguros S.A.	AR	Inversiones ZS America SpA	4.00
Santander Rio Seguros S.A.	AR	ZS Insurance America, S.L.	96.00
Santander Seguros de Vida S.A.	CL	Inversiones ZS America Dos Limitada	99.78
Santander Seguros de Vida S.A.	CL	Inversiones ZS America SpA	0.22
Santander Seguros Generales S.A.	CL	Inversiones ZS America Dos Limitada	99.51
Santander Seguros Generales S.A.	CL	Inversiones ZS America SpA	0.49
Santander Seguros S.A.	BR	ZS Insurance America, S.L.	100.00
Santander Seguros Sociedad Anónima	UY	ZS Insurance America, S.L.	100.00
SARL Marofinac	MA	Zurich Versicherungs-Gesellschaft AG	100.00
Saudi National Insurance Company	BH	Zurich Insurance Services (Middle East) EC	5.00
Sceptre Trust Limited	BS	Eagle Star Holdings Limited	0.0002
Sceptre Trust Limited	BS	Eagle Star Insurance Company Limited	99.99
Serviaide Assistencia e Servicos, Lda.	PT	AIDE Asistencia Seguros y Reaseguros, S.A. - Sociedad Uniper	95.00
Serviaide Assistencia e Servicos, Lda.	PT	Serviaide, S.A. - Sociedad Unipersonal	4.99
Serviaide, S.A. - Sociedad Unipersonal	ES	AIDE Asistencia Seguros y Reaseguros, S.A. - Sociedad Uniper	100.00
Servizurich S.A. - Sociedad Unipersonal	ES	Zurich Insurance plc, Sucursal en Espana	100.00
Shire Park Limited	GB	Zurich Assurance Ltd	12.42
Societe Continentale d'Investissement Immobilier SA	FR	Zurich Assurance Ltd	100.00
Solentbar Property Investment Limited	GB	Zurich Assurance Ltd	100.00
South African Nucleare Pool Administrators (Property) Limite	ZA	Zurich Insurance Company South Africa Limited	25.00
South County Services Co., Inc.	US	Sterling Forest LLC	100.00
Spirecharm Limited	GB	Zurich Assurance Ltd	100.00

C-15

Staple Inn Holborn Limited	GB	Zurich Financial Services (UKISA) Limited	100.00
Stareagle Limited	GB	Zurich Assurance Ltd	100.00
Starpatch Investments Limited	GB	Zurich Assurance Ltd	100.00
Steadfast Insurance Company	US	Zurich American Insurance Company	100.00
Steadfast Santa Clarita Holdings LLC	US	Steadfast Insurance Company	100.00
Sterling Forest LLC	US	Zurich American Insurance Company	99.93
Sterling ISA Managers (Nominees) Limited	GB	Sterling ISA Managers Limited	100.00
Sterling ISA Managers Limited	GB	Zurich Financial Services (UKISA) Limited	100.00
Sunley Homes Limited	GB	Zurich Insurance plc	100.00
Swaziland Royal Insurance Corporation	SZ	Zurich Insurance Company South Africa Limited	9.00
Swiss Insurance Management (Hong Kong) Limited	HK	Zurich Insurance Holdings (Hong Kong) Limited	99.50
Swiss Insurance Management (Hong Kong) Limited	HK	Zurich Services (Hong Kong) Limited	0.50
TCS Loss Adjusters Limited	GB	Endsleigh Insurance Services Limited	100.00
TDG Tele Dienste GmbH	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	100.00
Techlink Interactive Limited	GB	Technical Connection Limited	100.00
Technical Connection Limited	GB	Zurich Employment Services Limited	51.00
The Liverpool Reversionary Company Limited	GB	Eagle Star Insurance Company Limited	100.00
The Trust Company of Scotland Limited	GB	Zurich Insurance plc	100.00
The Zurich Services Corporation	US	Zurich Holding Company of America, Inc.	100.00
TopReport Schadenbesichtigungs GmbH	AT	Zurich Versicherungs-Aktiengesellschaft	14.29
Toscana Uno SRL	IT	Zurich Insurance Company Ltd - Rappresentanza Generale per l	50.00
Truck Underwriters Assocation	US	Farmers Group, Inc.	100.00
Truck Underwriters Association	US	Farmers Group, Inc.	100.00
Turegum Immobilien AG	CH	Zurich Versicherungs-Gesellschaft AG	100.00
Universal Underwriters Insurance Company	US	Zurich American Insurance Company	100.00
Universal Underwriters Insurance Services, Inc.	US	Zurich Holding Company of America, Inc.	100.00
Universal Underwriters Life Insurance Company	US	Universal Underwriters Insurance Company	100.00
Universal Underwriters of Texas Insurance Company	US	Universal Underwriters Insurance Company	100.00
Universal Underwriters Service Corporation	US	Zurich Holding Company of America, Inc.	100.00
UUBVI Limited	VG	Universal Underwriters Insurance Services, Inc.	0.0050
UUBVI Limited	VG	Universal Underwriters Service Corporation	99.99
Vehicle Dealer Solutions, Inc.	US	The Zurich Services Corporation	100.00
Vita Lebensversicherungs-Gesellschaft AG	CH	Zurich Versicherungs-Gesellschaft AG	100.00
Wing Hang Zurich Insurance Company Limited	HK	Zurich Insurance Holdings (Hong Kong) Limited	35.00
Women on Wheels Limited	GB	Endsleigh Insurance Services Limited	100.00
Woodstock Insurance Brokers Limited	GB	Endsleigh Insurance Services Limited	100.00
World Travel Protection Canada Inc.	CN	Zurich Canadian Holdings Limited	100.00
Wren Investments Limited	GB	Zurich Whiteley Trust Limited	100.00
Wrightway Underwriting Limited	IE	Ballykilliane Holdings Limited	100.00
Z flex Gesellschaft fur Personaldienstleistungen mbH	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	100.00
Z Nominees Limited	JE	Zurich Trust Limited	100.00
Z Secretaries Limited	JE	Zurich Trust Limited	100.00
ZCM (U.S.) Limited	US	ZCM Holdings (Bermuda) Limited	100.00
ZCM Asia Holdings Pty Limited	AU	Zurich Versicherungs-Gesellschaft AG	100.00
ZCM Asset Holding Company (Bermuda) Limited	BM	ZCM Holdings (Bermuda) Limited	100.00
ZCM Holdings (Bermuda) Limited	BM	CMSH Limited	24.29
ZCM Holdings (Bermuda) Limited	BM	CMSH Limited	75.71
ZCM Matched Funding (Bermuda) Limited	BM	ZCM Holdings (Bermuda) Limited	100.00

C-16

ZCM Matched Funding Corp.	US	ZCM (U.S.) Limited	100.00
ZCMC II Holdings Limited	IE	ZCM Asset Holding Company (Bermuda) Limited	0.20
ZCMC II Holdings Limited	IE	Zurich Financial Services EUB Holdings Limited	99.80
ZFS Finance (USA) LLC II	US	Zurich Holding Company of America, Inc.	100.00
ZFS Finance (USA) LLC IV	US	Zurich Holding Company of America, Inc.	100.00
ZFS Finance (USA) LLC V	US	Zurich Holding Company of America, Inc.	100.00
ZFUS Services, LLC	US	Zurich Holding Company of America, Inc.	100.00
ZG Investments Ltd.	BM	Zurich Versicherungs-Gesellschaft AG	100.00
ZGEE2 Limited	GB	Eagle Star Holdings Limited	100.00
ZGEE3 Limited	GB	Zurich Insurance Company (U.K.) Limited	100.00
ZI Park 80 West LLC	US	Zurich American Insurance Company	100.00
ZKS Real Estate Partners, L.L.C.	US	Zurich American Corporation	41.67
ZNA Services, LLC	US	ZFUS Services, LLC	100.00
Zolmec Limited	JE	Zurich Trust Limited	100.00
ZPC Capital Limited	GB	Zurich Holdings (UK) Limited	100.00
ZS Insurance America, S.L.	ES	Zurich Latin America Holding S.L. - Sociedad Unipersonal	51.00
ZSF 00-1, Inc.	US	CTH Affordable Housing Corporation	100.00
ZSF 02-1, Inc.	US	CTH Affordable Housing Corporation	100.00
ZSF 99-2 Tyler House, Inc.	US	CTH Affordable Housing Corporation	100.00
ZSF 99-3 Aurora, Inc.	US	CTH Affordable Housing Corporation	100.00
ZSF 99-4, Inc.	US	CTH Affordable Housing Corporation	100.00
ZSF Apollo Corporation	US	CTH Affordable Housing Corporation	100.00
ZSF Blairville, Inc.	US	CTH Affordable Housing Corporation	100.00
ZSF Boston Store, Inc.	US	CTH Affordable Housing Corporation	100.00
ZSF Grant Park, Inc.	US	CTH Affordable Housing Corporation	100.00
ZSF Idlewild, Inc.	US	CTH Affordable Housing Corporation	100.00
ZSF Landmark Corporation	US	CTH Affordable Housing Corporation	100.00
ZSF Newport I Corporation	US	CTH Affordable Housing Corporation	100.00
ZSFH LLC	US	Zurich Holding Company of America, Inc.	100.00
ZSG Kfz-ZulassungsservicegesmbH	AT	Zurich Versicherungs-Aktiengesellschaft	33.33
ZSL Financing Limited	GB	Zurich Holdings (UK) Limited	1.00
ZSL Financing Limited	GB	Zurich Specialties London Limited	99.00
Zurich - Companhia de Seguros Vida S.A.	PT	Zurich Finanz-Gesellschaft AG	0.0002
Zurich - Companhia de Seguros Vida S.A.	PT	Zurich Investments Life S.p.A.	0.0002
Zurich - Companhia de Seguros Vida S.A.	PT	Zurich Lebensversicherungs-Gesellschaft AG	99.99
Zurich - Companhia de Seguros Vida S.A.	PT	Zurich Versicherungs-Gesellschaft AG	0.00002
Zurich - Companhia de Seguros Vida S.A.	PT	Zurich Vida, Companía de Seguros y Reaseguros, S.A. - Socied	0.0002
Zurich (Sales Management Pension Plan) Trustee Limited	GB	Allied Dunbar Assurance plc	100.00
Zurich Administradora General de Fondos S.A.	CL	Chilena Consolidada Seguros de Vida S.A.	99.97
Zurich Administradora General de Fondos S.A.	CL	Inversiones Suizo Chilena S.A.	0.030
Zurich Advice Limited	HK	Zurich Insurance Holdings (Hong Kong) Limited	100.00
Zurich Advice Network Limited	GB	Allied Dunbar Assurance plc	100.00
Zurich Advisory (HK) Limited	HK	Zurich Assurance Ltd	100.00
Zurich Agency Services Inc.	US	Maryland Casualty Company	100.00
Zurich Alternative Asset Management, LLC	US	Zurich Holding Company of America, Inc.	100.00
Zurich American Corporation	US	Zurich Holding Company of America, Inc.	100.00
Zurich American Insurance Company	US	Zurich Holding Company of America, Inc.	100.00
Zurich American Insurance Company of Illinois	US	American Zurich Insurance Company	100.00

C-17

Zurich American Life Insurance Company	US	Zurich American Corporation	100.00
Zurich American Life Insurance Company of New York	US	Zurich American Life Insurance Company	100.00
Zurich Argentina Cia. de Seguros S.A.	AR	Inversiones Suizo-Argentina S.A.	55.46
Zurich Argentina Cia. de Seguros S.A.	AR	Zurich Versicherungs-Gesellschaft AG	44.54
Zurich Argentina Companía de Seguros de Retiro S.A.	AR	Zurich Argentina Cia. de Seguros S.A.	46.64
Zurich Argentina Companía de Seguros de Retiro S.A.	AR	Zurich Versicherungs-Gesellschaft AG	53.36
Zurich Asia Holdings Ltd.	BM	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Asset Management Gerente de Fondos Comunes de Inversi	AR	Inversiones Suizo-Argentina S.A.	90.00
Zurich Asset Management Gerente de Fondos Comunes de Inversi	AR	Isis S.A.	10.00
Zurich Assurance (2004) plc	GB	Zurich Assurance Ltd	100.00
Zurich Assurance Ltd	GB	Eagle Star Holdings Limited	100.00
ZURICH Assurances Maroc	MA	SARL Marofinac	30.10
ZURICH Assurances Maroc	MA	Zurich Versicherungs-Gesellschaft AG	67.63
Zurich Australia Limited	AU	Zurich Financial Services Australia Limited	100.00
Zurich Australian Insurance Limited	AU	Zurich Financial Services Australia Limited	100.00
Zurich Australian Insurance Properties Pty Limited	AU	Zurich Australia Limited	40.00
Zurich Australian Insurance Properties Pty Limited	AU	Zurich Australian Insurance Limited	60.00
Zurich Australian Superannuation Pty Limited	AU	Zurich Financial Services Australia Limited	100.00
Zurich Aviation Underwriting Managers SA (Pty) Ltd	ZA	Zurich Insurance Company South Africa Limited	50.00
Zurich Bank	IE	ZCM Holdings (Bermuda) Limited	0.037
Zurich Bank	IE	ZCMC II Holdings Limited	99.96
Zurich Bank International Limited	IM	Zurich Bank	100.00
Zurich Benefit Finance LLC	US	Zurich Holding Company of America, Inc.	100.00
Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	DE	Zurich IT Service AG Niederlassung fur Deutschland	82.62
Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	DE	Zurich Leben Service AG Niederlassung fur Deutschland	17.38
Zurich Building Control Services Limited	GB	Zurich Holdings (UK) Limited	100.00
Zurich Canadian Holdings Limited	CN	Zurich Insurance Company Ltd, Canadian Branch	68.82
Zurich Canadian Holdings Limited	CN	Zurich Versicherungs-Gesellschaft AG	31.18
Zurich Capital Markets Inc.	US	ZCM (U.S.) Limited	100.00
Zurich Community Trust (UK) Limited	GB	Zurich Financial Services (UKISA) Limited	50.00
Zurich Community Trust (UK) Limited	GB	Zurich Financial Services (UKISA) Nominees Limited	50.00
Zurich Computer Services Limited	GB	Allied Dunbar Assurance plc	100.00
Zurich Consortium Societa Consortile a Responsabilita Limit	IT	Zurich Insurance plc - Rappresentanza Generale per l'Italia	99.95
Zurich Consortium Societa Consortile a Responsabilita Limit	IT	Zurich Investments Life S.p.A.	0.01
Zurich Consortium Societa Consortile a Responsabilita Limit	IT	Zurich Life and Pensions S.p.A.	0.01
Zurich Consortium Societa Consortile a Responsabilita Limit	IT	Zurich Life Assurance plc - Rappresentanza Generale per l'It	0.01
Zurich Consortium Societa Consortile a Responsabilita Limit	IT	Zurich Life Insurance Italia S.p.A.	0.01
Zurich Consortium Societa Consortile a Responsabilita Limit	IT	Zuritel S.p.A.	0.01
Zurich Consultancy Limited	HK	Zurich Insurance Holdings (Hong Kong) Limited	100.00
Zurich Consultoria de Riesgos, C.A.	VE	Zurich Seguros, S.A.	99.99
Zurich Corredora de Bolsa S.A.	CL	Inversiones Suizo Chilena S.A.	99.00

C-18

Zurich Corredora de Bolsa S.A.	CL	Zurich Investments Chile S.A.	0.99
Zurich CZI Management Holding Ltd.	US	Zurich Global Investment Management Inc.	100.00
Zurich Deutscher Herold Lebensversicherung Aktiengesellschaf	DE	Deutscher Herold Aktiengesellschaft	67.54
Zurich Deutscher Herold Lebensversicherung Aktiengesellschaf	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	32.46
Zurich Direct Agency Limited	HK	Zurich Advice Limited	100.00
Zurich Distribuidora de Mexico, S.A. de C.V.	MX	Zurich Versicherungs-Gesellschaft AG	99.99
Zurich Distribuidora de Mexico, S.A. de C.V.	MX	Zurich Vida, Companía de Seguros, S.A.	0.002
Zurich E&S Insurance Brokerage, Inc.	US	Zurich American Insurance Company	100.00
Zurich Employment Services Limited	GB	Zurich Financial Services (UKISA) Limited	100.00
Zurich Eurolife S.A.	LU	Zurich Lebensversicherungs-Gesellschaft AG	90.00
Zurich Eurolife S.A.	LU	Zurich Versicherungs-Gesellschaft AG	10.000
Zurich Finance (Bermuda) Ltd.	BM	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Finance (Luxembourg) S.A.	LU	Zurich Lebensversicherungs-Gesellschaft AG	0.08
Zurich Finance (Luxembourg) S.A.	LU	Zurich Versicherungs-Gesellschaft AG	99.92
Zurich Finance (UK) plc	GB	Zurich Financial Services (UKISA) Limited	99.99
Zurich Finance (UK) plc	GB	Zurich Financial Services (UKISA) Nominees Limited	0.002
Zurich Finance (USA), Inc.	US	Zurich Holding Company of America, Inc.	100.00
Zurich Financial Management Limited	GB	Allied Dunbar Assurance plc	100.00
Zurich Financial Services (Channel Islands) Limited	JE	Zurich Financial Services (UKISA) Limited	99.91
Zurich Financial Services (Channel Islands) Limited	JE	Zurich Financial Services (UKISA) Nominees Limited	0.09
Zurich Financial Services (Isle of Man) Group Services Limited	IM	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Financial Services (Isle of Man) Holdings Limited	IM	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Financial Services (Isle of Man) Insurance Manager Ltd	IM	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Financial Services (Isle of Man) Reinsurance Company	IM	Zurich Financial Services (Isle of Man) Holdings Limited	100.00
Zurich Financial Services (UKISA) Group Services Limited	GB	Zurich Financial Services (UKISA) Limited	100.00
Zurich Financial Services (UKISA) Limited	GB	Allied Zurich Holdings Limited	90.32
Zurich Financial Services (UKISA) Limited	GB	Zurich Insurance plc	9.68
Zurich Financial Services (UKISA) Nominees Limited	GB	Zurich Financial Services (UKISA) Limited	100.00
Zurich Financial Services Australia Limited	AU	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Financial Services EUB Holdings Limited	IE	ZCM Holdings (Bermuda) Limited	0.08
Zurich Financial Services EUB Holdings Limited	IE	Zurich Financial Services AG	99.92
Zurich Financial Services UK Pension Trustee Limited	GB	Zurich Financial Services (UKISA) Limited	99.00
Zurich Finanz-Gesellschaft AG	CH	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Global Corporate UK Limited	GB	Zurich Specialties London Limited	100.00
Zurich Global Energy Limited	BM	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Global Funding	IE	Zurich Finanz-Gesellschaft AG	0.100
Zurich Global Funding	IE	Zurich Versicherungs-Gesellschaft AG	99.90
Zurich Global Investment Management Inc.	US	Zurich Holding Company of America, Inc.	100.00
Zurich Global, Ltd.	BM	Zurich Holding Company of America, Inc.	100.00
Zurich Group Funding Luxembourg S.A.	LU	Zurich Lebensversicherungs-Gesellschaft AG	0.02
Zurich Group Funding Luxembourg S.A.	LU	Zurich Versicherungs-Gesellschaft AG	99.98

C-19

Zurich GSG Limited	GB	Zurich GSH Limited	100.00
Zurich GSH Limited	GB	Zurich Holdings (UK) Limited	100.00
Zurich Holding Company of America, Inc.	US	Crown Management Services Limited	0.13
Zurich Holding Company of America, Inc.	US	Zurich Versicherungs-Gesellschaft AG	99.87
Zurich Holding Ireland Limited	IE	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Holdings (UK) Limited	GB	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Immobilien Liegenschaftsverwaltungs-GesmbH	AT	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich IMRE AG	CH	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Independent Wealth Management Limited	GB	Allied Dunbar Assurance plc	100.00
Zurich Insurance (Taiwan) Ltd.	TW	Zurich Asia Holdings Ltd.	51.10
Zurich Insurance (Taiwan) Ltd.	TW	Zurich Versicherungs-Gesellschaft AG	48.63
Zurich Insurance Brokers (Beijing) Company Limited	CA	Zurich Insurance Holdings (Hong Kong) Limited	24.51
Zurich Insurance Company (U.K.) Limited	GB	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Insurance Company Botswana Ltd	BW	Zurich Insurance Company South Africa Limited	100.00
Zurich Insurance Company Escritorio de Representacao no Bras	BR	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Insurance Company Ltd.	RU	Zurich Interholding Limited	100.00
Zurich Insurance Company Ltd., Beijing Representative Office	CA	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Insurance Company Ltd., Shanghai Representative Offic	CA	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Insurance Company Representative Office - Moscow	RU	Zurich Insurance Company Ltd.	100.00
Zurich Insurance Company South Africa Limited	ZA	SA Fire House Limited	58.95
Zurich Insurance Holding (Cyprus) Ltd	CY	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Insurance Holdings (Hong Kong) Limited	HK	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Insurance Middle East S.A.L.	LB	Zurich Versicherungs-Gesellschaft AG	99.54
Zurich Insurance plc	IE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	25.07
Zurich Insurance plc	IE	Zurich Holding Ireland Limited	70.41
Zurich Insurance plc	IE	Zurich Insurance Company Ltd - Rappresentanza Generale per l	4.52
Zurich Insurance Services (Middle East) EC	BH	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Interholding Limited	RU	Zurich Insurance Holding (Cyprus) Ltd	99.90
Zurich Interholding Limited	RU	Zurich Versicherungs-Aktiengesellschaft	0.10
Zurich Intermediary Group Limited	GB	Zurich Financial Services (UKISA) Limited	99.99
Zurich Intermediary Group Limited	GB	Zurich Financial Services (UKISA) Nominees Limited	0.005
Zurich Internacional de Venezuela, C.A. de Corretaje de Reas	VE	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich International (Bermuda) Ltd.	BM	Zurich Insurance Company Ltd, Bermuda Branch	29.27
Zurich International (Bermuda) Ltd.	BM	Zurich Versicherungs-Gesellschaft AG	70.73
Zurich International (UK) Limited	GB	Zurich Specialties London Limited	100.00
Zurich International Life Limited	IM	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich International Services (Luxembourg) S.A.	LU	Zurich Eurolife S.A.	0.04
Zurich International Services (Luxembourg) S.A.	LU	Zurich Versicherungs-Gesellschaft AG	99.96
Zurich International Solutions Limited	GB	Zurich Assurance Ltd	100.00
Zurich Invest AG	CH	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Investment Management AG	CH	Prematic Service Corporation (Nevada)	80.00
Zurich Investment Management AG	CH	Zurich Versicherungs-Gesellschaft AG	20.00
Zurich Investment Management Limited	AU	Zurich Australia Limited	100.00

C-20

Zurich Investment Services Limited	BM	CMSH Limited	100.00
Zurich Investments Chile S.A.	CL	Chilena Consolidada Seguros de Vida S.A.	0.084
Zurich Investments Chile S.A.	CL	Inversiones Suizo Chilena S.A.	99.99
Zurich Investments Life S.p.A.	IT	Zurich Insurance Company Ltd - Rappresentanza Generale per l	100.00
Zurich Kunden Center GmbH	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	100.00
Zurich Latin America Corporation	US	The Zurich Services Corporation	100.00
Zurich Latin America Holding S.L. - Sociedad Unipersonal	ES	Zurich Lebensversicherungs-Gesellschaft AG	100.00
Zurich Latin American Services S.A.	AR	Inversiones Suizo-Argentina S.A.	6.32
Zurich Latin American Services S.A.	AR	Zurich Versicherungs-Gesellschaft AG	93.68
Zurich Lebensversicherungs-Gesellschaft AG	CH	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Legal Expenses Underwriting Managers SA (Pty) Ltd	ZA	Zurich Insurance Company South Africa Limited	100.00
Zurich Leisure Services Limited	GB	Allied Dunbar Assurance plc	100.00
Zurich Life and Pensions S.p.A.	IT	Zurich Investments Life S.p.A.	100.00
Zurich Life Assurance plc	IE	Zurich Holding Ireland Limited	100.00
Zurich Life Insurance (Singapore) Pte Ltd	SG	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Life Insurance Italia S.p.A.	IT	Zurich Investments Life S.p.A.	100.00
Zurich Life SA Ltd	ZA	Zurich Insurance Company South Africa Limited	100.00
Zurich Management Services Limited	GB	Zurich Holdings (UK) Limited	100.00
Zurich Minas Brasil Seguros S.A,	BR	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Pension Trustees Ireland Limited	IE	Zurich Insurance plc	50.00
Zurich Pension Trustees Ireland Limited	IE	Zurich Trustee Services Limited	50.00
Zurich Pension Trustees Limited	GB	Zurich Assurance Ltd	100.00
Zurich Pension Trustees No 2 Company Limited	GB	Zurich Assurance Ltd	100.00
Zurich Pensions Management Limited	GB	Allied Dunbar Assurance plc	100.00
Zurich Pensionskassen-Beratung AG	CH	Zurich Lebensversicherungs-Gesellschaft AG	100.00
Zurich Professional Limited	GB	Zurich Holdings (UK) Limited	49.00
Zurich Professional Limited	GB	Zurich Specialties London Limited	51.00
Zurich Properties (Pty) Limited	BW	Zurich Insurance Company Botswana Ltd	100.00
Zurich Properties Pty Limited	AU	Zurich Australia Limited	40.00
Zurich Properties Pty Limited	AU	Zurich Australian Insurance Limited	60.00
Zurich Realty, Inc.	US	The Zurich Services Corporation	100.00
Zurich Rechtsschutz-Schadenservice GmbH	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	100.00
Zurich Reliable Insurance Limited	RU	Zurich Insurance Company Ltd.	99.90
Zurich Reliable Insurance Limited	RU	Zurich Interholding Limited	0.10
Zurich Risk Financing SA Limited	ZA	Zurich Insurance Company South Africa Limited	99.99
Zurich Risk Management Services (India) Private Limited	IN	Zurich Asia Holdings Ltd.	1.00
Zurich Risk Management Services (India) Private Limited	IN	Zurich Versicherungs-Gesellschaft AG	99.00
Zurich Risk Services Asia Pacific Sdn Bhd	MY	Zurich Management Services Limited	100.00
Zurich Ruckversicherungs-Gesellschaft AG	CH	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Santander Seguros Mexico, S.A.	MX	Inversiones ZS America SpA	0.0053
Zurich Santander Seguros Mexico, S.A.	MX	ZS Insurance America, S.L.	99.99
Zurich Seguros, S.A.	VE	Cursud N.V.	69.21
Zurich Service GmbH	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	100.00
Zurich Service GmbH	DE	Zurich Versicherungs-Aktiengesellschaft	100.00

C-21

Zurich Services (Hong Kong) Limited	HK	Swiss Insurance Management (Hong Kong) Limited	0.029
Zurich Services (Hong Kong) Limited	HK	Zurich Insurance Holdings (Hong Kong) Limited	99.99
Zurich Services A.I.E.	ES	AIDE Asistencia Seguros y Reaseguros, S.A. - Sociedad Uniper	0.00008
Zurich Services A.I.E.	ES	Bansabadell Pensiones, E.G.F.P, S.A.	0.00008
Zurich Services A.I.E.	ES	Bansabadell Seguros Generales, S.A. de Seguros y Reaseguros	0.008
Zurich Services A.I.E.	ES	Bansabadell Vida S.A. de Seguros y Reaseguros	0.008
Zurich Services A.I.E.	ES	CaixaSabadell Companyia d'Assegurances Generals, S.A.	0.008
Zurich Services A.I.E.	ES	CAN Seguros Generales SA	0.008
Zurich Services A.I.E.	ES	Zurich Insurance plc, Sucursal en Espana	97.18
Zurich Services A.I.E.	ES	Zurich Vida, Companía de Seguros y Reaseguros, S.A. - Socied	2.82
Zurich Services Canada Inc.	CN	Zurich Canadian Holdings Limited	100.00
ZURICH SERVIZI ITALIA S.p.A.	IT	Zurich Investments Life S.p.A.	100.00
Zurich Shared Services Ireland Limited	IE	Zurich Holding Ireland Limited	100.00
Zurich Shared Services S.A.	CL	Inversiones Suizo Chilena S.A.	99.99
Zurich Shared Services S.A.	CL	Zurich Investments Chile S.A.	0.013
Zurich Sigorta A.S.	TR	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich South America Invest AB	SE	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Specialties London Limited	GB	Zurich Holdings (UK) Limited	100.00
Zurich Structured Finance, Inc.	US	Centre Financial Services Holdings Limited	100.00
Zurich Technical and Consulting Services (Beijing) Co. Ltd.	CA	Zurich Insurance Holdings (Hong Kong) Limited	100.00
Zurich Training and Development Services Limited	GB	Allied Dunbar Assurance plc	100.00
Zurich Transitional Services Limited	GB	Zurich Holdings (UK) Limited	100.00
Zurich Treasury Services Limited	IE	Zurich Financial Services EUB Holdings Limited	100.00
Zurich Trust Limited	JE	Zurich Financial Services (Isle of Man) Holdings Limited*	100.00
Zurich Trustee Company (UK) Limited	GB	Allied Dunbar Assurance plc	100.00
Zurich Trustee Services Limited	IE	Zurich Life Assurance plc	100.00
Zurich UK General Employee Services Limited	GB	Zurich UK General Services Limited	100.00
Zurich UK General Services Limited	GB	Zurich Holdings (UK) Limited	100.00
Zurich Vermogensverwaltungs GmbH	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	99.00
Zurich Versicherungs-Aktiengesellschaft	AT	Zurich Versicherungs-Gesellschaft AG	99.98
Zurich Versicherungs-Gesellschaft AG	CH	Zurich Financial Services AG	100.00
Zurich Vertriebs GmbH	DE	Zurich Beteiligungs-Aktiengesellschaft (Deutschland)	100.00
Zurich Vida e Previdencia S.A.	BR	Zurich Minas Brasil Seguros S.A,	100.00
Zurich Vida, Companía de Seguros y Reaseguros, S.A. - Socied	ES	Zurich Lebensversicherungs-Gesellschaft AG	100.00
Zurich Vida, Companía de Seguros, S.A.	MX	Zurich Versicherungs-Gesellschaft AG	100.00
Zurich Warranty Solutions, Inc.	US	American Zurich Insurance Company	100.00
Zurich Whiteley Investment Trust Limited	GB	Zurich Insurance plc	100.00
Zurich Whiteley Trust Limited	GB	Zurich Whiteley Investment Trust Limited	100.00
Zurich, Companía de Seguros, S.A.	MX	Zurich Versicherungs-Gesellschaft AG	99.88
Zuritel S.p.A.	IT	Zurich Insurance Company Ltd - Rappresentanza Generale per l	99.99
Zuritel S.p.A.	IT	Zurich Versicherungs-Gesellschaft AG	0.07

C-22

Farmers Insurance Exchange	US	See Note 2
Fire Insurance Exchange	US	See Note 5
Truck Insurance Exchange	US	See Note 8

Note 2: Farmers Insurance Exchange is a California “interinsurance exchange” owned by its policyholders. Its attorney-in-fact is Farmers Group, Inc, dba Farmers Underwriters Association, which is a subsidiary of Zurich Financial Services AG

Note 5: Fire Insurance Exchange is a California “interinsurance exchange” owned by its policyholders. Its attorney-in-fact is Fire Underwriters Association, which is a subsidiary of Zurich Financial Services AG

Note 8: Truck Insurance Exchange is a California “interinsurance exchange” owned by its policyholders. Its attorney-in-fact is Truck Underwriters Association, which is a subsidiary of Zurich Financial Services AG

Country Code Key

AN	Netherlands Antilles	DE	Germany	MU	Mauritius
AR	Argentina	ES	Spain	MX	Mexico
AT	Austria	FR	France	MY	Malaysia
AU	Australia	GB	United Kingdom	PT	Portugal
BH	Bahrain	HK	Hong Kong	RU	Russian Federation
BM	Bermuda	ID	Indonesia	SG	Singapore
BO	Bolivia	IE	Ireland	SZ	Swaziland
BR	Brazil	IM	Isle of Man	TH	Thailand
BS	Bahamas	IN	India	TW	Taiwan
BW	Botswana	IT	Italy	US	United States
CA	Canada	JE	Channel Islands	UY	Uruguay
CH	Switzerland	JP	Japan	VE	Venezuela
CL	Chile	LB	Lebanon	VG	Virgin Islands
CN	China	LU	Luxembourg	ZA	South Africa
CY	Cyprus	MT	Malta

Organizations Affiliated with Farmers Insurance Group

Company	Domicile	Ownership	%
20th Century Insurance Services, Inc.	NV	21st Century Insurance Group	100.00
21st Century Casualty Company	CA	21st Century Insurance Group	100.00
21st Century Insurance and Financial Services, Inc.	DE	Farmers Insurance Exchange	80.00
21st Century Insurance and Financial Services, Inc.	DE	Fire Insurance Exchange	10.00
21st Century Insurance and Financial Services, Inc.	DE	Truck Insurance Exchange	10.00
21st Century Insurance Company	CA	21st Century Insurance Group	100.00
21st Century Insurance Company of the Southwest	TX	21st Century Insurance Group	100.00
21st Century Insurance Group	DE	Farmers Insurance Exchange	80.00
21st Century Insurance Group	DE	Fire Insurance Exchange	10.00
21st Century Insurance Group	DE	Truck Insurance Exchange	10.00
50th State Risk Management Services, Inc.	HI	Hawaii Insurance Consultants, Ltd.	100.00
21st Century Advantage Insurance Company	MN	21st Century North America Insurance Company	100.00
21st Century Auto Insurance Company of New Jersey	NJ	21st Century Centennial Insurance Company	100.00
21st Century Centennial Insurance Company	PA	Farmers Insurance Exchange	80.00
21st Century Centennial Insurance Company	PA	Fire Insurance Exchange	10.00
21st Century Centennial Insurance Company	PA	Truck Insurance Exchange	10.00
21st Century Indemnity Insurance Company	PA	21st Century Premier Insurance Company	100.00
21st Century National Insurance Company, Inc.	NY	21st Century Security Insurance Company	100.00
21st Century Preferred Insurance Company	PA	21st Century Centennial Insurance Company	100.00
21st Century Premier Insurance Company	PA	21st Century Centennial Insurance Company	100.00

C-23

American Federation Insurance Company	MI	Foremost Insurance Company Grand Rapids, Michigan	100.00
21st Century North America Insurance Company	NY	Farmers Insurance Exchange	80.00
21st Century North America Insurance Company	NY	Fire Insurance Exchange	10.00
21st Century North America Insurance Company	NY	Truck Insurance Exchange	10.00
21st Century Superior Insurance Company.	CA	21st Century North America Insurance Company	100.00
21st Century Assurance Company	DE	Farmers Insurance Exchange	80.00
21st Century Assurance Company	DE	Fire Insurance Exchange	10.00
21st Century Assurance Company	DE	Truck Insurance Exchange	10.00
21st Century Pinnacle Insurance Company	NJ	21st Century North America Insurance Company	100.00
21st Century Pacific Insurance Company	CO	Farmers Insurance Exchange	80.00
21st Century Pacific Insurance Company	CO	Fire Insurance Exchange	10.00
21st Century Pacific Insurance Company	CO	Truck Insurance Exchange	10.00
American Pacific Insurance Company, Inc.	HI	Farmers Insurance Hawaii, Inc.	100.00
APEX Adjustment Bureau, Inc.	FL	Bristol West Holdings, Inc.	100.00
Bayview Adjustment Bureau, Inc.	CA	Bristol West Holdings, Inc.	100.00
Bristol West Casualty Insurance Company	OH	Coast National Insurance Company	100.00
Bristol West Holdings, Inc.	DE	Farmers Insurance Exchange	42.00
Bristol West Holdings, Inc.	DE	Fire Insurance Exchange	3.75
Bristol West Holdings, Inc.	DE	Mid-Century Insurance Company	47.50
Bristol West Holdings, Inc.	DE	Truck Insurance Exchange	6.75
Bristol West Insurance Company	OH	Coast National Insurance Company	100.00
Bristol West Insurance Services of California, Inc.	CA	Bristol West Holdings, Inc.	100.00
Bristol West Insurance Services of Georgia, Inc.	GA	Bristol West Holdings, Inc.	100.00
Bristol West Insurance Services of Pennsylvania, Inc.	PA	Bristol West Holdings, Inc.	100.00
Bristol West Insurance Services of Texas, Inc.	TX	Bristol West Holdings, Inc.	100.00
Bristol West Insurance Services, Inc. of Florida	FL	Bristol West Holdings, Inc.	100.00
Bristol West Preferred Insurance Company	MI	Bristol West Holdings, Inc.	100.00
Civic Property & Casualty Co.	CA	Fire Insurance Exchange	80.00
Civic Property & Casualty Co.	CA	Truck Insurance Exchange	20.00
Coast National General Agency, Inc.	TX	Bristol West Holdings, Inc.	100.00
Coast National Holding Company	CA	Bristol West Holdings, Inc.	100.00
Coast National Insurance Company	CA	Coast National Holding Company	100.00
Exact Property & Casualty Co.	CA	Fire Insurance Exchange	80.00
Exact Property & Casualty Co.	CA	Truck Insurance Exchange	20.00
Farmers Financial Solutions, LLC	NV	FFS Holding, LLC	100.00
Farmers Insurance Co. of Arizona	AZ	Farmers Insurance Exchange	70.00
Farmers Insurance Co. of Arizona	AZ	Truck Insurance Exchange	20.00
Farmers Insurance Co. of Arizona	AZ	Fire Insurance Exchange	10.00
Farmers Insurance Co. of Idaho	ID	Farmers Insurance Exchange	80.05
Farmers Insurance Co. of Idaho	ID	Truck Insurance Exchange	13.30
Farmers Insurance Co. of Idaho	ID	Fire Insurance Exchange	6.65
Farmers Insurance Co. of Oregon	OR	Farmers Insurance Exchange	80.00
Farmers Insurance Co. of Oregon	OR	Truck Insurance Exchange	20.00
Farmers Insurance Co. of Washington	WA	Fire Insurance Exchange	80.00
Farmers Insurance Co. of Washington	WA	Truck Insurance Exchange	20.00
Farmers Insurance Co., Inc.	KS	Farmers Insurance Exchange	90.00
Farmers Insurance Co., Inc.	KS	Fire Insurance Exchange	10.00
Farmers Insurance Exchange	CA	Interinsurance Exchange
Farmers Insurance Hawaii, Inc.	HI	Farmers Insurance Exchange	80.00
Farmers Insurance Hawaii, Inc.	HI	Fire Insurance Exchange	10.00
Farmers Insurance Hawaii, Inc.	HI	Truck Insurance Exchange	10.00
Farmers Insurance of Columbus, Inc.	OH	Farmers Insurance Exchange	100.00
Farmers New Century Insurance Company	IL	Illinois Farmers Insurance Co.	100.00
Farmers Services Insurance Agency	CA	Truck Insurance Exchange	100.00
Farmers Texas County Mutual Insurance Company	TX	See Note 1
Farmers Value Added, Inc.	NV	Farmers Group, Inc.	100.00
FCOA, LLC	DE	Foremost Insurance Company Grand Rapids, MI	100.00

C-24

FFS Holding, LLC	NV	Mid Century Ins. Co.	100.00
F.I.G. Holding Company	CA	Fire Underwriters Association	70.00
F.I.G. Holding Company	CA	Truck Underwriters Association	30.00
FIG Leasing Company, Inc.	CA	Farmers Group, Inc.	95.20
FIG Leasing Company, Inc.	CA	Truck Underwriters Association	3.10
FIG Leasing Company, Inc.	CA	Fire Underwriters Association	1.70
Fire Insurance Exchange	CA	Interinsurance Exchange
Fire Underwriters Association	CA	Farmers Group, Inc.	100.00
Foremost County Mutual Insurance Company	TX	See Note 2
Foremost Express Insurance Agency, Inc.	MI	FCOA, LLC	100.00
Foremost Financial Services Corporation	DE	FCOA, LLC	100.00
Foremost Insurance Company Grand Rapids, Michigan	MI	Farmers Insurance Exchange	80.00
Foremost Insurance Company Grand Rapids, Michigan	MI	Fire Insurance Exchange	10.00
Foremost Insurance Company Grand Rapids, Michigan	MI	Truck Insurance Exchange	10.00
Foremost Lloyds of Texas	TX	See Note 3
Foremost Property and Casualty Insurance Company	MI	Foremost Insurance Company Grand Rapids, Michigan	100.00
Foremost Signature Insurance Company	MI	Foremost Insurance Company Grand Rapids, Michigan	100.00
GP, LLC	DE	Bristol West Holdings, Inc.	100.00
Hawaii Insurance Consultants, Ltd.	HI	Farmers Insurance Exchange	80.00
Hawaii Insurance Consultants, Ltd.	HI	Fire Insurance Exchange	10.00
Hawaii Insurance Consultants, Ltd.	HI	Truck Insurance Exchange	10.00
i21 Insurance Services	CA	21st Century Insurance Group	100.00
Illinois Farmers Insurance Co.	IL	Farmers Insurance Exchange	100.00
Insurance Data Systems, G.P.	FL	GP, LLC	0.10
Insurance Data Systems, G.P.	FL	Bristol West Holdings, Inc.	99.90
Kraft Lake Insurance Agency	MI	FCOA, LLC	100.00
Leschi Life Assurance Company	SC	Farmers New World Life Insurance Company	100.00
MI Administrators, LLC	DE	FIG Leasing Company, Inc.	100.00
Mid Century Insurance Company	CA	Farmers Insurance Exchange	80.00
Mid Century Insurance Company	CA	Fire Insurance Exchange	12.50
Mid Century Insurance Company	CA	Truck Insurance Exchange	7.50
Mid Century Insurance Company of Texas	TX	Farmers Insurance Exchange	100.00
Neighborhood Spirit Property & Casualty Co.	CA	Fire Insurance Exchange	80.00
Neighborhood Spirit Property & Casualty Co.	CA	Truck Insurance Exchange	20.00
21st Century Security Insurance Company	PA	Farmers Insurance Exchange	80.00
21st Century Security Insurance Company	PA	Fire Insurance Exchange	10.00
21st Century Security Insurance Company	PA	Truck Insurance Exchange	10.00
Security National Insurance Company	FL	Bristol West Holdings, Inc.	75.00
Security National Insurance Company	FL	Insurance Data Systems, G.P.	25.00
Texas Farmers Insurance Co.	TX	Farmers Insurance Exchange	86.30
Texas Farmers Insurance Co.	TX	Mid Century Ins. Co.	13.70
Truck Insurance Exchange	CA	Interinsurance Exchange
Veyond Pacific Technology, Inc.	HI	Veyond Pacific Technology Solutions, LLC	100.00
Veyond Pacific Technology Solutions, LLC	HI	Farmers Insurance Hawaii, Inc.	99.92
Veyond Pacific Technology Solutions, LLC	HI	American Pacific Insurance Company, Inc.	0.08
Veyond Technology Solutions, LLC	HI	Farmers Insurance Hawaii, Inc.	92.50
Veyond Technology Solutions, LLC	HI	American Pacific Insurance Company, Inc.	7.50
Veyond Technology, Inc.	HI	Veyond Technology Solutions, LLC	100.00
Western Star Underwriters, Inc.	TX	FCOA, Inc.	100.00

Note 1: Farmers Group Inc., as attorney-in-fact for Farmers Insurance Exchange, provides management services to Farmers Texas County Mutual Insurance Company.

Note 2: Foremost County Mutual Insurance Company is a Texas County mutual insurance company managed by Foremost Insurance Company Grand Rapids, Michigan.

Note 3: Foremost Lloyds of Texas underwriters are officers and/or directors of Foremost Insurance Company Grand Rapids, Michigan.

C-25

Zurich Financial Services conducts its primary insurance operations in the United States through two property/casualty groups, each operating independently with its own staff:

Zurich U.S. Insurance Group

Farmers Insurance Group

Item 27. Number of Contract Owners

At March 31, 2012, the Registrant had approximately 20,748 qualified and 13,030 non-qualified Scudder Destinations/ Farmers VA I Contract Owners.

Item 28. Indemnification

To the extent permitted by law of the State of Illinois and subject to all applicable requirements thereof, Article VI of the By-Laws of Zurich American Life Insurance Company (formerly Kemper Investors Life Insurance Company) (“ZALICO”) provides for the indemnification of any person against all expenses (including attorneys fees), judgments, fines, amounts paid in settlement and other costs actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative in which he is a party or is threatened to be made a party by reason of his being or having been a director, officer, employee or agent of ZALICO, or serving or having served, at the request of ZALICO, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or by reason of his holding a fiduciary position in connection with the management or administration of retirement, pension, profit sharing or other benefit plans including, but not limited to, any fiduciary liability under the Employee Retirement Income Security Act of 1974 and any amendment thereof, if he acted in good faith and in a manner he reasonably believed to be in and not opposed to the best interests of ZALICO, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that he did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of ZALICO, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. No indemnification shall be made in respect of any claim, issue or matter as to which a director or officer shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the company, unless and only to the extent that the court in which such action or suit was brought or other court of competent jurisdiction shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, he is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, employees or agents of ZALICO pursuant to the foregoing provisions, or otherwise, ZALICO has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by ZALICO of expenses incurred or paid by a director, officer, employee of agent of ZALICO in the successful defense of any action, suit or proceeding) is asserted by such director, officer, employee or agent of ZALICO in connection with variable annuity contracts, ZALICO will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by ZALICO is against public policy as expressed in that Act and will be governed by the final adjudication of such issue.

C-26

Item 29.(a) Principal Underwriter

Synergy Investment Group, LLC (“Synergy”) currently acts as principal underwriter for the Scudder Destinations^SM Annuity and the Farmers Variable Annuity I (each a “Contract” and together, the “Contracts”), that are supported by the ZALICO Variable Annuity Separate Account. It is anticipated that BFP Securities, LLC (“BFPS”) will begin serving as principal underwriter in or about May, 2012. Until April 1, 2010, Investors Brokerage Services, Inc. (“IBS”), acted as principal underwriter for the Contracts. IBS also acted as principal underwriter for certain other annuity contracts supported by the ZALICO Variable Annuity Separate Account, and for the Protective Acquired Variable Annuity Separate Account and ZALICO Variable Annuity Account C. On January 18, 2011, IBS dissolved as a business entity and no longer operates as a broker-dealer.

Item 29.(b) Information Regarding Principal Underwriters

For Synergy (Current principal underwriter for the Contracts):

Name and Principal Business Address	Position and Offices with Underwriter
Jeffrey D. Jones	President
Tracy VanHamme	Chief Financial Officer
8320 University Executive Park Drive
Suite 112
Charlotte, NC 28262

For BFPS (Principal underwriter for the Contracts in or about May, 2012):

Name and Principal Business Address	Position and Offices with Underwriter
Daniel F. Nickel	President and Chief Compliance Officer
6 CityPlace Dr.
Suite 400
St. Louis, MO 63141

Item 29.(c) Compensation From the Registrant. The following commissions and other compensation were received by the principal underwriter, directly or indirectly, from the Registrant during the Registrant’s last fiscal year.

(1) Name of Principal Underwriter	(2) Net Underwriting Discounts and Commissions	(3) Compensation  on Redemption	(4) Brokerage Commissions	(5) Other Compensation
SYNERGY	$0	$0	$1.1 million	$11.3 million

C-27

Item 30. Location of Accounts and Records

Accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder (including Rule 38a-1) are maintained by Zurich American Life Insurance Company at its home office at 1400 American Lane, Schaumburg, Illinois 60196, or at 3003 77^th Ave, SE, Mercer Island, Washington 98040, or at 105 E. 17^th Street, New York, NY 10003, or at IBM Business Transformation Outsourcing Insurance Service Corporation at 2000 Wade Hampton Boulevard, Greenville, South Carolina 29615-1064, or at Protective Life Insurance Company at 1707 North Randall Road, Suite 310, Elgin, IL 60123-9409, or at Se2 Service Center at PO Box 758557, Topeka, KS 66675-8557, or at the home office of Synergy Investment Group, LLC at 8320 University Executive Park Drive, Suite 112, Charlotte, NC 28262.

Item 31. Management Services

Not Applicable.

Item 32. Undertakings and Representations

a. Registrant hereby undertakes to file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than sixteen (16) months old for so long as payment under the variable annuity contracts may be accepted.

b. Registrant hereby undertakes to include either (1) as part of any application to purchase a contract offered by the Prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a postcard or similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information.

c. Registrant hereby undertakes to deliver any Statement of Additional Information and any financial statement required to be made available under this Form promptly upon written or oral request.

Representation Regarding Fees and Charges Pursuant to Section 26 of the Investment Company Act of 1940

Zurich American Life Insurance Company (“ZALICO”) represents that the fees and charges deducted under the Contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by ZALICO.

C-28

Representation Regarding Contracts Issued to Participants in the Texas Optional Retirement Program

ZALICO, depositor and sponsor of Registrant, ZALICO Variable Annuity Separate Account and Investors Brokerage Services, Inc. (“IBS”), the former principal underwriter of the Contracts issued by Registrant, have issued the Contracts to participants in the Texas Optional Retirement Program (the “Program”) in reliance upon, and in compliance with, Rule 6c-7 of the Investment Company Act of 1940, and have represented that they would:

1. Include appropriate disclosure regarding the restrictions on redemptions imposed by the Program in each registration statement, including the prospectus, used in connection with the Program;

2. Include appropriate disclosure regarding the restrictions on redemptions imposed by the Program in any sales literature used in connection with the offer of Contracts to Program participants;

3. Instruct salespeople who solicit Program participants to purchase Contracts specifically to bring the restrictions on redemption imposed by the Program to the attention of potential Program participants; and

4. Obtain from each Program participant who purchases a Contract in connection with the Program, prior to or at the time of such purchase, a signed statement acknowledging the restrictions on redemption imposed by the Program.

Representation Regarding Contracts Issued to Participants of Tax-Sheltered Annuity Programs

ZALICO, depositor and sponsor of Registrant, ZALICO Variable Annuity Separate Account (the “Separate Account”), and Investors Brokerage Services, Inc. (“IBS”), the former principal underwriter of Contracts issued by Registrant, have issued the Contracts to participants in IRC 403(b) Tax-Sheltered Annuity Programs in reliance upon, and in compliance with, the no-action letter dated November 28, 1988 to American Council of Life Insurance. In connection therewith, ZALICO, the Separate Account and IBS have represented that they would:

1. Include appropriate disclosure regarding the restrictions on redemptions imposed by IRC Section 403(b)(11) in each registration statement, including the prospectus, used in connection with IRC 403(b) Tax-Sheltered Annuity Programs;

2. Include appropriate disclosure regarding the restrictions on redemptions imposed by IRC Section 403(b)(11) in any sales literature used in connection with the offer of Contracts to 403(b) participants;

3. Instruct salespeople who solicit participants to purchase Contracts specifically to bring the restrictions on redemption imposed by 403(b)(11) to the attention of potential participants; and

4. Obtain from each participant who purchases an IRC Section 403(b) annuity contract, prior to or at the time of such purchase, a signed statement acknowledging the restrictions on redemption imposed by IRC Section 403(b) and the investment alternatives available under the employer’s IRC Section 403(b) arrangement, to which the participant may elect to transfer his or her contract value.

C-29

[Space Intentionally Left Blank]

C-30

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant hereby certifies that this Post-Effective Amendment No. 23 to the Registration Statement meets all the requirements for effectiveness under Rule 485(b) and has caused this Post-Effective Amendment No. 23 to the Registration Statement to be signed on its behalf, in the City of New York, and State of New York, on April 30, 2012.

		ZALICO VARIABLE ANNUITY SEPARATE ACCOUNT (Registrant)
Attest:	/s/ Patrick J. Carty	/s/ Richard Grilli
	Patrick J. Carty, Vice President, General Counsel and Corporate Secretary	By: Richard Grilli, Senior Vice President and Chief Operating Officer (Principal Executive Officer) (Signature)
		ZURICH AMERICAN LIFE INSURANCE COMPANY (Depositor)
Attest:	/s/ Patrick J. Carty	/s/ Richard Grilli
	Patrick J. Carty, Vice President, General Counsel and Corporate Secretary	By: Richard Grilli, Senior Vice President and Chief Operating Officer (Principal Executive Officer) (Signature)

As required by the Securities Act of 1933, this Post-Effective Amendment No. 23 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
	President, Chief Executive Officer and     Director (Principal Executive Officer)	April 30, 2012
David Dietz*/
/s/ Richard Grilli                             Richard W. Grilli	Senior Vice President and Chief Operating Officer	April 30, 2012
Simon Lodge*/	Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	April 30, 2012

C-31

Richard J. Hauser */	Director and Assistant Treasurer	April 30, 2012
Barry S. Paul */	Director and Assistant Treasurer	April 30, 2012
Dawn Cummings-Fritz*/	Director and Assistant Vice President	April 30, 2012
Nicolas A. Burnet */	Director	April 30, 2012
/s/ Richard Grilli             */ By: Richard W. Grilli	On April 30, 2012 as Attorney-in-Fact pursuant to powers of attorney filed herewith.

C-32

EXHIBIT INDEX

The following exhibits are filed herewith:

Exhibit Number	Title	Sequentially Numbered Pages
8(10)(i)	Amendment No. 8 to Third-Party Insurance Administrative Services Agreement, dated as of April 30, 2012, By and Between Zurich American Life Insurance Company and IBM Business Transformation Outsourcing Insurance Services Corporation.
9	Opinion and Consent of Juanita M. Thomas, Esq.
10(a)	Consent of independent registered public accounting firm.
10(b)	Consent of Jorden Burt LLP.
15(b)	Powers of Attorney for David Dietz, Simon Lodge, Barry S. Paul, Richard J. Hauser, Dawn Cummings-Fritz and Nicolas A. Burnet.

C-33