<PAGE> 1
Filed pursuant to Rule 424(b)(2)
Registration No. 33-60827
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 20, 1996
U.S. $747,000,000
AMERICAN INTERNATIONAL GROUP, INC.
MEDIUM-TERM NOTES, SERIES E
DUE FROM 9 MONTHS TO 30 YEARS FROM DATE OF ISSUE
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American International Group, Inc. ("AIG") may offer from time to time its
Medium-Term Notes which are issuable in one or more series. The Medium-Term
Notes, Series E (the "Series E Notes") offered by this Prospectus Supplement are
offered at an aggregate initial offering price not to exceed U.S. $747,000,000
or its equivalent in another currency or composite currency. Each Series E Note
will mature on a business day from nine months to thirty years from its date of
issue, as selected by the investor and agreed to by AIG.
The Series E Notes may be denominated in U.S. dollars or in such foreign
currencies or composite currencies as may be designated by AIG at the time of
offering. The specific currency or composite currency, interest rate (if any),
issue price and maturity date of any Series E Note will be set forth in the
related Pricing Supplement to this Prospectus Supplement ("Pricing Supplement").
The Series E Notes may also be issued with the principal, interest and/or
premium, if any, to be determined by reference to an index (e.g., a currency
exchange rate or rates, the value of a particular security or commodity, a
securities or commodities exchange rate, or any other index or indices)
("Indexed Series E Notes"), as specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Series E Notes
denominated in other than U.S. dollars or a composite currency will not be sold
in, or to residents of, the country issuing the Specified Currency. See
"Description of Series E Notes".
The Series E Notes may not be redeemed by AIG prior to their Stated Maturity
unless a Redemption Commencement Date is specified in the applicable Pricing
Supplement. If a Redemption Commencement Date is so specified, the Series E
Notes will be redeemable at the option of AIG at any time on or after such date
as described herein. The Series E Notes will be issued in fully registered form
in denominations of $100,000 and integral multiples of $1,000 in excess thereof.
The authorized denominations of any Series E Note denominated in other than U.S.
dollars will be specified in the applicable Pricing Supplement. See "Description
of Series E Notes".
The interest rate on each Series E Note will be established by AIG at the
date of issuance of such Series E Note and will be specified in a Pricing
Supplement. Interest rates are subject to change by AIG, but no change will
affect any Series E Note already issued or which AIG has agreed to issue. Unless
otherwise specified in the applicable Pricing Supplement, each Series E Note
will bear interest at a fixed rate (the "Fixed Rate Notes") or at a variable
rate or rates determined by reference to an interest rate formula ("Floating
Rate Notes"), applicable to such Series E Note. See "Description of Series E
Notes".
Interest on Fixed Rate Notes will be payable each June 1 and December 1 and
at Maturity. Interest on Floating Rate Notes will be payable on the dates
specified therein and in the applicable Pricing Supplement. Zero Coupon Notes
will not bear interest.
Unless otherwise specified in the applicable Pricing Supplement, the Series
E Notes will be represented by one or more global securities registered in the
name of a nominee of The Depository Trust Company, as Depositary (the "Global
Notes"). Interests in the Global Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depositary and its
participants. So long as the Depositary or its nominee is the registered owner
of any global security, the Depositary or its nominee, as the case may be, will
be considered the sole owner or holder of the Global Note or Series E Notes
represented by such global security.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF ANY PRICING SUPPLEMENT,
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) AIG(2)(3)
------------------ ----------------------------- -------------------------------
<S> <C> <C> <C>
Per Series E Note................. 100% .125%-.750% 99.250%-99.875%
Total............................. U.S. $747,000,000 U.S. $933,750-$5,602,500 U.S. $741,397,500-$746,066,250
</TABLE>
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(1) Unless otherwise specified in the applicable Pricing Supplement, Series E
Notes will be issued at 100% of their principal amount.
(2) AIG will pay to each firm listed below (collectively, the "Agents") a
commission of .125% to .750%, depending upon maturity, of the principal
amount of any Series E Note sold through such firm as agent. AIG has agreed
to indemnify the Agents against certain liabilities, including liabilities
under the Securities Act of 1933. See "Plan of Distribution of Series E
Notes".
(3) Proceeds to AIG are before deducting other expenses payable by AIG,
estimated at up to U.S. $175,000, including reimbursement of the Agents'
expenses.
------------------
Offers to purchase Series E Notes are being solicited, on a best efforts
basis, from time to time by the Agents on behalf of AIG. Series E Notes may be
sold to each of the Agents on its own behalf at negotiated discounts. AIG
reserves the right to sell the Series E Notes directly on its own behalf. AIG
also reserves the right to withdraw, cancel or modify the offering contemplated
hereby without notice. No termination date for the offering of the Series E
Notes has been established. AIG or the soliciting Agent may reject any order as
a whole or in part. See "Plan of Distribution of Series E Notes". The Series E
Notes will not be listed on any securities exchange, and there can be no
assurance that the Series E Notes offered by this Prospectus Supplement will be
sold or that there will be a secondary market for the Series E Notes.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
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The date of this Prospectus Supplement is June 11, 1996.
<PAGE> 2
IN CONNECTION WITH THE DISTRIBUTION OF THE NOTES, THE AGENTS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS IN THE NOTES WITH A VIEW TO STABILIZING OR MAINTAINING
THE MARKET PRICE OF THE NOTES AT LEVELS OTHER THAN THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN ANY
OVER-THE-COUNTER MARKET OR OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
DESCRIPTION OF SERIES E NOTES
GENERAL
The following description of the particular terms of the Series E Notes
offered hereby (referred to in the Prospectus as "Offered Debt Securities")
supplements, and to the extent inconsistent therewith, replaces the description
of the general terms and provisions of Debt Securities set forth in the
Prospectus, to which description reference is hereby made. The terms and
conditions set forth below will apply to each Series E Note unless otherwise
specified herein or in the applicable Pricing Supplement.
The Series E Notes constitute a single series for purposes of the Indenture
(which term as used herein includes the Indenture, dated as of July 15, 1989, as
it may be amended and supplemented from time to time), which series is limited
to $747,000,000 aggregate principal amount. For a description of the rights
attaching to different series of Debt Securities under the Indenture, see
"Description of Debt Securities" in the Prospectus.
Unless a Series E Note is previously redeemed or its maturity is
accelerated, such Series E Note will mature on the date ("Stated Maturity") from
nine months to thirty years from its date of issue that is specified on the face
thereof and in the applicable Pricing Supplement or, if such Series E Note is a
Floating Rate Note and such specified date is not a Market Day with respect to
such Series E Note, the next succeeding Market Day (and no additional interest
shall accrue and be payable for the period from and after such specified date)
or, in the case of a LIBOR Note, if such next succeeding Market Day falls in the
next calendar month, the immediately preceding Market Day.
Each Series E Note will be denominated in a currency or composite currency
("Specified Currency") as specified on the face thereof and in the applicable
Pricing Supplement. Purchasers of the Series E Notes are required to pay for
them by delivery of the requisite amount of the Specified Currency to an Agent,
unless other arrangements have been made. Unless otherwise specified in the
applicable Pricing Supplement, payments on the Series E Notes will be made in
the applicable Specified Currency in the country issuing the Specified Currency
(or, in the case of European Currency Units ("ECUs"), in Brussels), provided
that, at the election of the Holder thereof and in certain circumstances at the
option of AIG, payments on Series E Notes denominated in a Specified Currency
other than U.S. dollars may be made in U.S. dollars. See "Payment of Principal
and Interest".
The Series E Notes will be represented by either a Global Note registered
in the name of a nominee of the Depositary or a certificate issued in definitive
registered form, without coupons ("Certificated Notes"), as set forth in the
applicable Pricing Supplement. Except as set forth under "Book-Entry System"
below, Global Notes will not be issuable in certificated form. So long as the
Depositary or its nominee is the registered owner of any global security, the
Depositary or its nominee, as the case may be, will be considered the sole owner
or holder of the Global Note or Series E Notes represented by such global
security for all purposes under the Indenture and the Global Notes. Series E
Notes not denominated in U.S. dollars ("Foreign Currency Notes") may be
represented either by Global Notes or by Certificated Notes, as specified in the
applicable Pricing Supplement. The authorized denominations of any Global Note
denominated in U.S. dollars will be $100,000 and integral multiples of $1,000 in
excess thereof. The authorized denominations of any Foreign Currency Note will
be specified in the applicable Pricing Supplement; however, no Series E Note
will be issued in an aggregate principal amount of less than U.S. $100,000 or
the equivalent thereof in other currencies or composite currencies.
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Series E Notes will be sold in individual issues of Series E Notes having
such interest rate or interest rate formula, if any, Stated Maturity, date of
original issuance and any additional terms as shall be selected by the initial
purchasers and agreed to by AIG. Unless otherwise indicated in the applicable
Pricing Supplement, each Series E Note, except any Zero Coupon Note, will bear
interest at a fixed rate or at a rate determined by reference to the Commercial
Paper Rate, the Prime Rate, LIBOR, the Treasury Rate, the CD Rate or the Federal
Funds Rate, as adjusted by the Spread or Spread Multiplier, if any, applicable
to such Series E Note. See "Interest Rate". A "Zero Coupon Note" is a Series E
Note which is issued at a discount from the principal amount payable at the
stated maturity thereof, on which Holders of Zero Coupon Notes will not receive
periodic payments of interest.
The Series E Notes may be issued as Original Issue Discount Notes. An
Original Issue Discount Note is a Series E Note, including any Zero Coupon Note,
which is issued at a price lower than the principal amount thereof and which
provides that upon redemption or acceleration of the maturity thereof an amount
less than the principal thereof shall become due and payable. In the event of
redemption or acceleration of the maturity of an Original Issue Discount Note,
the amount payable to the Holder of such Series E Note upon such redemption or
acceleration will be determined in accordance with the terms of such Series E
Note, but will be an amount less than the amount payable at the Stated Maturity
of such Series E Note. In addition, a Series E Note issued at a discount may,
for United States federal income tax purposes, be considered an original issue
discount note, regardless of the amount payable upon redemption or acceleration
of maturity of such Note. See "United States Taxation -- United States
Holders -- Original Issue Discount".
The Series E Notes may be issued with principal, interest and/or premium,
if any, to be determined with reference to an index (e.g., a currency exchange
rate or rates, the value of a particular security or commodity, a securities or
commodities exchange rate, or any other index or indices). A Pricing Supplement
relating to an Indexed Series E Note will set forth the index, the method by and
terms on which the amount of principal (payable at or prior to maturity),
interest and/or premium, if any, will be determined, significant United States
federal income tax consequences to holders of Indexed Series E Notes, a
description of certain risks associated with investments in Indexed Series E
Notes and other information relating to such Indexed Series E Notes.
The Series E Notes will not be subject to any sinking fund and, unless a
Redemption Commencement Date is specified in the applicable Pricing Supplement,
will not be redeemable prior to their Stated Maturity. If a Redemption
Commencement Date is so specified with respect to any Series E Note, the
applicable Pricing Supplement will also specify one or more redemption prices
(expressed as a percentage of the principal amount of such Series E Note)
("Redemption Prices") and the redemption period or periods ("Redemption
Periods") during which such Redemption Prices shall apply. Unless otherwise
specified in the Pricing Supplement, any such Series E Note shall be redeemable
at the option of AIG at any time on or after such specified Redemption
Commencement Date at the specified Redemption Price applicable to the Redemption
Period during which such Series E Note is to be redeemed, together with interest
accrued to the redemption date.
Certificated Series E Notes may be registered for transfer or exchange at
the Corporate Trust Office of The Bank of New York in the Borough of Manhattan,
The City of New York. The transfer or exchange of beneficial interests in Global
Notes will be effected as specified in "Book-Entry System" below.
Unless otherwise specified in the applicable Pricing Supplement, all Fixed
Rate Notes denominated in U.S. dollars will be subject to defeasance and
convenant defeasance as described in the Prospectus under "Description of Debt
Securities -- Defeasance and Covenant Defeasance".
INTEREST RATE
Each Series E Note, other than a Zero Coupon Note, will bear interest from
its date of issue or from the most recent Interest Payment Date (or, if such
Series E Note is a Floating Rate Note and
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the Interest Reset Dates are weekly, from the day following the most recent
Regular Record Date) to which interest on such Series E Note has been paid or
duly provided for at the fixed rate per annum, or at the rate per annum
determined pursuant to the interest rate formula, stated therein and in the
applicable Pricing Supplement until the principal thereof is paid or made
available for payment. Interest will be payable on each Interest Payment Date
and on the date on which the principal on such Series E Note becomes due and
payable, whether at Stated Maturity or by declaration of acceleration, call for
redemption or otherwise ("Maturity") as specified below under "Payment of
Principal and Interest".
Each Series E Note, other than a Zero Coupon Note, will bear interest at
either (a) a fixed rate (a "Fixed Rate Note") or (b) a variable rate determined
by reference to an interest rate formula (a "Floating Rate Note"), which may be
adjusted by adding or subtracting the Spread or multiplying by the Spread
Multiplier (each term as defined below). A Floating Rate Note may also have
either or both of the following: (a) a maximum numerical interest rate
limitation, or ceiling, on the rate of interest which may accrue during any
interest period (a "Maximum Rate"); and (b) a minimum numerical interest rate
limitation, or floor, on the rate of interest which may accrue during any
interest period (a "Minimum Rate"). The "Spread" is the number of basis points
specified in the applicable Pricing Supplement as being applicable to the
interest rate for such Series E Note and the "Spread Multiplier" is the
percentage specified in the applicable Pricing Supplement as being applicable to
the interest rate for such Series E Note. The term "Business Day", as used
herein with respect to any particular location, means each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking institutions
in such location are authorized or obligated by law or executive order to close.
"Market Day" means (a) with respect to any Series E Note (other than any LIBOR
Note), any Business Day in The City of New York, and (b) with respect to any
LIBOR Note, any such Business Day on which dealings in deposits in U.S. dollars
are transacted in the London interbank market. "Index Maturity" means, with
respect to a Floating Rate Note, the period on which the interest rate formula
is based, as specified in the applicable Pricing Supplement. Unless otherwise
provided in the applicable Pricing Supplement, The Bank of New York will be the
calculation agent (the "Calculation Agent") with respect to the Floating Rate
Notes. AIG or an affiliate thereof may also serve as the Calculation Agent.
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on such Fixed Rate Note.
The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate basis (the "Interest Rate Basis") for such Floating
Rate Note. The Interest Rate Basis for each Floating Rate Note will be based on
one of the following: (a) the Commercial Paper Rate, in which case such Series E
Note will be a Commercial Paper Rate Note; (b) the Prime Rate, in which case
such Series E Note will be a Prime Rate Note; (c) LIBOR, in which case such
Series E Note will be a LIBOR Note; (d) the Treasury Rate, in which case such
Series E Note will be a Treasury Rate Note; (e) the CD Rate, in which case such
Series E Note will be a CD Rate Note; (f) the Federal Funds Rate, in which case
such Series E Note will be a Federal Funds Rate Note; or (g) such other interest
rate formula as is set forth in such Pricing Supplement. The applicable Pricing
Supplement for a Floating Rate Note will specify the Interest Rate Basis and, if
applicable, the Calculation Agent, the Index Maturity, the Spread or Spread
Multiplier, the Maximum Rate, the Minimum Rate, the Initial Interest Rate, the
Interest Payment Dates, the Regular Record Dates, the Calculation Dates, the
Interest Determination Dates and the Interest Reset Dates with respect to such
Series E Note.
The rate of interest on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semi-annually, annually or otherwise as specified in
the applicable Pricing Supplement (each an "Interest Reset Date"). Unless
otherwise specified in the applicable Pricing Supplement, the Interest Reset
Date will be, in the case of Floating Rate Notes which reset daily, each Market
Day; in the case of Floating Rate Notes (other than Treasury Rate Notes) which
reset weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly (except as otherwise provided in the next succeeding
paragraph), the Tuesday of each week; in the case of
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Floating Rate Notes which reset monthly, the third Wednesday of each month; in
the case of Floating Rate Notes which reset quarterly, the third Wednesday of
March, June, September and December; in the case of Floating Rate Notes which
reset semi-annually, the third Wednesday of two months of each year as specified
in the applicable Pricing Supplement; and in the case of Floating Rate Notes
which reset annually, the third Wednesday of one month of each year as specified
in the applicable Pricing Supplement; provided, however, that (a) the interest
rate in effect from the date of issue to the first Interest Reset Date with
respect to a Floating Rate Note will be the Initial Interest Rate (as set forth
in the applicable Pricing Supplement) and (b) except as otherwise specified in
the applicable Pricing Supplement, with respect to Floating Rate Notes that
reset daily or weekly, the interest rate in effect for each day following the
second Market Day prior to an Interest Payment Date to, but excluding, such
Interest Payment Date, and for each day following the second Market Day prior to
the maturity date, shall be the rate in effect on such second Market Day. If any
Interest Reset Date for any Floating Rate Note would otherwise be a day that is
not a Market Day with respect to such Floating Rate Note, the Interest Reset
Date for such Floating Rate Note shall be postponed to the next day that is a
Market Day with respect to such Floating Rate Note, except that, in the case of
a LIBOR Note, if such Market Day is in the next succeeding calendar month, such
Interest Reset Date shall be the immediately preceding Market Day.
The Interest Determination Date pertaining to an Interest Reset Date for a
LIBOR Note (the "LIBOR Interest Determination Date") and for a CD Rate Note (the
"CD Rate Interest Determination Date") will be the second Market Day preceding
such Interest Reset Date. The Interest Determination Date pertaining to an
Interest Reset Date for a Commercial Paper Rate Note (the "Commercial Paper
Interest Determination Date"), for a Prime Rate Note (the "Prime Rate Interest
Determination Date"), and for a Federal Funds Rate Note (the "Federal Funds Rate
Interest Determination Date") will be the first Market Day preceding such
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for a Treasury Rate Note (the "Treasury Interest Determination Date")
will be the day of the week in which such Interest Reset Date falls on which
Treasury bills would normally be auctioned. Treasury bills are usually sold at
auction on the Monday of each week, unless that day is a legal holiday, in which
case the auction is usually held on the following Tuesday, except that such
auction may be held on the preceding Friday. If, as the result of a legal
holiday, an auction is so held on the preceding Friday, such Friday will be the
Treasury Interest Determination Date pertaining to the Interest Reset Date
occurring in the next succeeding week. If an auction date shall fall on any
Interest Reset Date for a Treasury Rate Note, then such Interest Reset Date
shall instead be the first Market Day immediately following such auction date.
All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point (e.g., 9.876541% (or .09876541)
being rounded to 9.87655% (or .0987655)), and all U.S. dollar amounts used in or
resulting from such calculations will be rounded to the nearest cent (with one
half cent being rounded upwards).
In addition to any maximum interest rate which may be applicable to any
Floating Rate Note pursuant to the above provisions, the interest rate on the
Floating Rate Notes will in no event be higher than the maximum rate permitted
by New York law, as the same may be modified by United States law of general
application. Under present New York law the maximum rate of interest is 25% per
annum on a simple interest basis, with certain exceptions. The limit does not
apply to Floating Rate Notes in which U.S. $2,500,000 or more has been invested.
Upon the request of the Holder of any Floating Rate Note, the Calculation
Agent will provide the interest rate then in effect, and, if determined, the
interest rate which will become effective on the next Interest Reset Date with
respect to such Floating Rate Note. The Calculation Agent's determination of any
interest rate will be final and binding in the absence of manifest error.
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FIXED RATE NOTES
Each Fixed Rate Note will bear interest from its date of issue at the
annual interest rate stated on the face thereof. The Interest Payment Dates for
the Fixed Rate Notes will be June 1 and December 1 of each year and the Regular
Record Dates will be May 15 and November 15 of each year. The first payment of
interest on any Fixed Rate Note originally issued between a Regular Record Date
and an Interest Payment Date shall be made on the Interest Payment Date
following the next succeeding Regular Record Date. Interest on Fixed Rate Notes
will be computed and paid on the basis of a 360-day year of twelve 30-day
months.
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
the Commercial Paper Rate Note and in the applicable Pricing Supplement. Unless
otherwise indicated in the applicable Pricing Supplement, the "Calculation Date"
pertaining to a Commercial Paper Interest Determination Date will be the tenth
day after such Commercial Paper Interest Determination Date or, if any such day
is not a Market Day, the next succeeding Market Day.
Unless otherwise indicated in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Reset Date, the
Money Market Yield (calculated as described below) of the per annum rate (quoted
on a bank discount basis) for the relevant Commercial Paper Interest
Determination Date for commercial paper having the specified Index Maturity as
published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates" or any successor
publication of the Board of Governors of the Federal Reserve System
("H.15(519)") under the heading "Commercial Paper". In the event that such rate
is not published prior to 9:00 A.M., New York City time, on the relevant
Calculation Date, then the Commercial Paper Rate with respect to such Interest
Reset Date shall be the Money Market Yield of such rate on such Commercial Paper
Interest Determination Date for commercial paper having the specified Index
Maturity as published by the Federal Reserve Bank of New York in its daily
statistical release, "Composite 3:30 P.M. Quotations for U.S. Government
Securities" or any successor publication published by the Federal Reserve Bank
of New York ("Composite Quotations") under the heading "Commercial Paper". If by
3:30 P.M., New York City time, on such Calculation Date such rate is not yet
published in Composite Quotations, the Commercial Paper Rate with respect to
such Interest Reset Date shall be calculated by the Calculation Agent and shall
be the Money Market Yield of the arithmetic mean of the offered per annum rates
(quoted on a bank discount basis), as of 11:00 A.M., New York City time, on such
Commercial Paper Interest Determination Date, of three leading dealers of
commercial paper in The City of New York selected by the Calculation Agent for
commercial paper of the specified Index Maturity placed for an industrial issuer
whose bond rating is "AA", or the equivalent, from a nationally recognized
statistical rating agency; provided, however, that if fewer than three dealers
selected as aforesaid by the Calculation Agent are quoting as mentioned in this
sentence, the Commercial Paper Rate with respect to such Interest Reset Date
will be the Commercial Paper Rate in effect on such Commercial Paper Interest
Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
<TABLE>
<C> <C> <S>
Money Market Yield = D X 360 X 100
-------------
360 - (D X M)
</TABLE>
where "D" refers to the per annum rate for the commercial paper, quoted on a
bank discount basis and expressed as a decimal; and "M" refers to the actual
number of days in the period from the Interest Reset Date to but excluding the
day that numerically corresponds to such Interest Reset Date (or, if there is
not any such numerically corresponding day, the last day) in the calendar month
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that is the number of months corresponding to the specified Index Maturity after
the month in which such Interest Reset Date falls.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rates (calculated with
reference to the Prime Rate and the Spread or Spread Multiplier, if any), and
will be payable on the dates, specified on the face of the Prime Rate Note and
in the applicable Pricing Supplement. Unless otherwise indicated in the
applicable Pricing Supplement, the "Calculation Date" pertaining to a Prime Rate
Interest Determination Date will be the tenth day after such Prime Rate Interest
Determination Date or, if any such day is not a Market Day, the next succeeding
Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Reset Date, the rate set forth for the
relevant Prime Rate Interest Determination Date in H.15(519) under the heading
"Bank Prime Loan". In the event that such rate is not published prior to 9:00
A.M., New York City time, on the relevant Calculation Date, then the Prime Rate
with respect to such Interest Reset Date will be the arithmetic mean of the
rates of interest publicly announced by each bank that appears on the display
designated as page "USPRIME 1" on the Reuters Monitor Money Rates Service (or
such other page as may replace the USPRIME 1 page on that service for the
purpose of displaying prime rates or base lending rates of major United States
banks) ("Reuters Screen USPRIME 1 Page") as such bank's prime rate or base
lending rate as in effect for such Prime Rate Interest Determination Date as
quoted on the Reuters Screen USPRIME 1 Page on such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME 1 Page on such Prime Rate Interest Determination Date, the Prime Rate
with respect to such Interest Reset Date will be the arithmetic mean of the
prime rates or base lending rates (quoted on the basis of the actual number of
days in the year divided by a 360-day year) as of the close of business on such
Prime Rate Interest Determination Date by three major banks in The City of New
York selected by the Calculation Agent; provided, however, that if fewer than
three banks selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the Prime Rate with respect to such Interest Reset
Date will be the Prime Rate in effect on such Prime Rate Interest Determination
Date.
LIBOR NOTES
LIBOR Notes will bear interest at the interest rates (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any) and will be
payable on the dates specified on the face of the LIBOR Note and in the
applicable Pricing Supplement. Unless otherwise indicated in the applicable
Pricing Supplement, the "Calculation Date" pertaining to a LIBOR Interest
Determination Date will be the tenth day after such LIBOR Interest Determination
Date or, if any such day is not a Market Day, the next succeeding Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR with
respect to any Interest Reset Date will be determined by the Calculation Agent
in accordance with the following provisions:
(i) On the relevant LIBOR Interest Determination Date, LIBOR will be
determined on the basis of the offered rate for deposits in U.S. dollars
having the specified Index Maturity, commencing on the second Market Day
immediately following such LIBOR Interest Determination Date, which appears
on the display designated as Page 3750 on the Dow Jones Telerate Service
(or such other page as may replace Page 3750 on that service for the
purpose of displaying London interbank offered rates of major banks)
("Telerate Page 3750") as of 11:00 A.M., London time. If no such offered
rate appears, LIBOR with respect to such Interest Reset Date will be
determined as described in (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which no
offered rate for the applicable Index Maturity appears on the Telerate Page
3750 as described in (i) above, LIBOR will be determined on the basis of
the rates at approximately 11:00 A.M., London time, on such LIBOR Interest
Determination Date at which deposits in U.S. dollars having the specified
Index
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Maturity are offered to prime banks in the London interbank market by four
major banks in the London interbank market selected by the Calculation
Agent commencing on the second Market Day immediately following such LIBOR
Interest Determination Date and in a principal amount equal to an amount of
not less than U.S. $1,000,000 that in the Calculation Agent's judgment is
representative for a single transaction in such market at such time (a
"Representative Amount"). The Calculation Agent will request the principal
London office of each of such banks to provide a quotation of its rate. If
at least two such quotations are provided, LIBOR with respect to such
Interest Reset Date will be the arithmetic mean of such quotations. If
fewer than two quotations are provided, LIBOR with respect to such Interest
Reset Date will be the arithmetic mean of the rates quoted at approximately
11:00 A.M., New York City time, on such LIBOR Interest Determination Date
by three major banks in The City of New York, selected by the Calculation
Agent, for loans in U.S. dollars to leading European banks having the
specified Index Maturity commencing on the Interest Reset Date and in a
Representative Amount; provided, however, that if fewer than three banks
selected as aforesaid by the Calculation Agent are quoting as mentioned in
this sentence, LIBOR with respect to such Interest Reset Date will be the
LIBOR in effect on such LIBOR Interest Determination Date.
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rates (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if any)
and will be payable on the dates specified on the face of the Treasury Rate Note
and in the applicable Pricing Supplement. Unless otherwise specified in the
applicable Pricing Supplement, the "Calculation Date" with respect to a Treasury
Interest Determination Date will be the tenth day after such Treasury Interest
Determination Date or, if any such day is not a Market Day, the next succeeding
Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Interest Reset Date, the rate for the auction
on the relevant Treasury Interest Determination Date of direct obligations of
the United States ("Treasury bills") having the specified Index Maturity as
published in H.15(519) under the heading "U.S. Government Securities/Treasury
Bills/Auction Average (Investment)" or, if not so published by 9:00 A.M., New
York City time, on the relevant Calculation Date, the auction average rate
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) for such auction as otherwise
announced by the United States Department of the Treasury. In the event that the
results of such auction of Treasury bills having the specified Index Maturity
are not published or reported as provided above by 3:00 P.M., New York City
time, on such Calculation Date, or if no such auction is held during such week,
then the Treasury Rate shall be the rate set forth in H.15(519) for the relevant
Treasury Interest Determination Date for the specified Index Maturity under the
heading "U.S. Government Securities/Treasury Bills/Secondary Market". In the
event such rate is not so published by 3:00 P.M., New York City time, on the
relevant Calculation Date, the Treasury Rate with respect to such Interest Reset
Date shall be calculated by the Calculation Agent and shall be a yield to
maturity (expressed as a bond equivalent, on the basis of a year of 365 or 366
days, as applicable, and applied on a daily basis) of the arithmetic mean of the
secondary market bid rates as of approximately 3:30 P.M., New York City time, on
such Treasury Interest Determination Date, of three primary United States
government securities dealers in The City of New York selected by the
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if fewer than
three dealers selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the Treasury Rate with respect to such Interest
Reset Date will be the Treasury Rate in effect on such Treasury Interest
Determination Date.
CD RATE NOTES
CD Rate Notes will bear interest at the interest rates (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any), and will
be payable on the dates, specified on the face
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of the CD Rate Note and in the applicable Pricing Supplement. Unless otherwise
indicated in the applicable Pricing Supplement, the "Calculation Date"
pertaining to a CD Interest Determination Date will be the tenth day after such
CD Interest Determination Date or, if any such day is not a Market Day, the next
succeeding Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Reset Date, the rate for the relevant CD
Interest Determination Date for negotiable certificates of deposit having the
specified Index Maturity as published in H.15(519) under the heading "CDs
(Secondary Market)". In the event that such rate is not published prior to 9:00
A.M., New York City time, on the relevant Calculation Date, then the CD Rate
with respect to such Interest Reset Date shall be the rate on such CD Rate
Interest Determination Date for negotiable certificates of deposit having the
specified Index Maturity as published in Composite Quotations under the heading
"Certificates of Deposit". If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in Composite Quotations, the CD Rate
with respect to such Interest Reset Date shall be calculated by the Calculation
Agent and shall be the arithmetic mean of the secondary market offered rates, as
of 10:00 A.M., New York City time, on such CD Rate Interest Determination Date,
of three leading nonbank dealers of negotiable U.S. dollar certificates of
deposit in The City of New York selected by the Calculation Agent for negotiable
certificates of deposit of major United States money market banks with a
remaining maturity closest to the specified Index Maturity in a denomination of
U.S. $5,000,000; provided, however, that if fewer than three dealers selected as
aforesaid by the Calculation Agent are quoting as mentioned in this sentence,
the CD Rate with respect to such Interest Reset Date will be the CD Rate in
effect on such CD Rate Interest Determination Date.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rates
(calculated with reference to the Federal Funds Rate and the Spread or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
the Federal Funds Rate Note and in the applicable Pricing Supplement. Unless
otherwise indicated in the applicable Pricing Supplement, the "Calculation Date"
pertaining to a Federal Funds Interest Determination Date will be the tenth day
after such Federal Funds Interest Determination Date or, if any such day is not
a Market Day, the next succeeding Market Day.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Interest Reset Date, the rate on the
relevant Federal Funds Interest Determination Date for Federal Funds as
published in H.15(519) under the heading "Federal Funds (Effective)". In the
event that such rate is not published prior to 9:00 A.M., New York City time, on
the relevant Calculation Date, then the Federal Funds Rate with respect to such
Interest Reset Date will be the rate on such Federal Funds Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate". If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not published in Composite Quotations, the Federal
Funds Rate with respect to such Interest Reset Date shall be calculated by the
Calculation Agent and shall be the arithmetic mean of the rates, as of 9:00
A.M., New York City time, on such Federal Funds Interest Determination Date, for
the last transaction in overnight Federal Funds arranged by three leading
brokers of Federal Funds transactions in The City of New York selected by the
Calculation Agent; provided, however, that if fewer than three brokers selected
as aforesaid by the Calculation Agent are quoting as mentioned in this sentence,
the Federal Funds Rate with respect to such Interest Reset Date will be the
Federal Funds Rate in effect on such Federal Funds Interest Determination Date.
BOOK-ENTRY SYSTEM
Upon issuance, all Fixed Rate Notes (except Series E Notes issued as
Certificated Notes) having the same original issuance date, redemption
provisions, if any, interest rate, Specified Currency and Stated Maturity and
other terms, if any, will be represented by a single Global Note. In
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addition, upon issuance, all Floating Rate Notes (except Series E Notes issued
as Certificated Notes) having the same original issuance date, interest rate
basis, Initial Interest Rate, Interest Reset Dates, Interest Payment Dates,
Index Maturity, maximum interest rate (if any), minimum interest rate (if any),
Spread (if any), Spread Multiplier (if any), Specified Currency, Stated Maturity
and other terms, if any, will be represented by a single Global Note. Each
Global Note will be deposited with, or on behalf of, The Depository Trust
Company, New York, New York (the "Depositary") and registered in the name of the
Depositary or a nominee of the Depositary. Except as set forth below, Global
Notes may be transferred, in whole and not in part, only to the Depositary or
another nominee of the Depositary.
The Depositary has advised AIG and the Agents as follows: The Depositary is
a limited-purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. The Depositary was created to hold securities of
institutions that have accounts with the Depositary or its nominee
("participants") and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly. The Depositary agrees with and
represents to its participants that it will administer its book-entry system in
accordance with its rules and by-laws and requirements of law.
Global Notes will be registered in the name of the Depositary or its
nominee. Upon the issuance of a Global Note, the Depositary for such Global Note
or its nominee will credit, on its book-entry registration and transfer system,
the respective principal amounts of the Series E Notes represented by such
Global Note to the accounts of the participants. The accounts to be credited
shall be designated by the Agents, or by AIG if such Series E Notes are offered
and sold directly by AIG. Ownership of beneficial interest in such Global Notes
will be limited to participants or persons that may hold interests through
participants. Ownership interests in such Global Notes will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depositary or its nominee (with respect to participants'
interests) and such participants (with respect to the owners of beneficial
interests in the Global Notes). The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer
beneficial interests in a Global Note.
So long as the Depositary for a Global Note, or its nominee, is the
registered holder of such Global Note, such Depositary or such nominee, as the
case may be, will be considered the sole owner and holder of the related Series
E Notes for all purposes of such Series E Notes and for all purposes under the
Indenture. Except as set forth below, owners of beneficial interest in any such
Global Notes will not be entitled to have the Series E Notes represented by such
Global Notes registered in their names, will not receive or be entitled to
receive physical delivery of Certificated Notes in definitive form and will not
be considered to be the owners or holders of any Series E Notes under the
Indenture or the Series E Notes. Accordingly, each person owning a beneficial
interest in a Global Note must rely on the procedures of the Depositary and, if
such person is not a participant, on the procedures of the participant through
which such person owns its interests, to exercise any rights of a holder of
Series E Notes under the Indenture or such Global Note. The Indenture provides
that the Depositary may grant proxies and otherwise authorize participants to
take any action which the Depositary, as the holder of such Global Note, is
entitled to take under the Indenture or such Global Note. AIG understands that
under existing industry practice, in the event AIG requests any
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action of holders of Notes or an owner of a beneficial interest in a Global Note
desires to take any action that the Depositary, as the holder of such Global
Note, is entitled to take, the Depositary would authorize the participants to
take such action and that the participants would authorize beneficial owners
owning through such participants to take such action or would otherwise act upon
the instructions of beneficial owners owning through them.
Payment of principal of, interest, if any, and premium, if any, on Series E
Notes represented by a Global Note registered in the name of or held by the
Depositary or its nominee will be made to the Depositary or its nominee, as the
case may be, as the registered owner or holder of such Global Note.
AIG expects that the Depositary for a Global Note, upon receipt of any
payment of principal, interest or premium or other amounts in respect of such
Global Note, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Note as shown on the records of such Depositary. AIG also
expects that payments by participants to owners of beneficial interests in such
Global Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants. Neither AIG nor the Trustee
will have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, beneficial ownership interests in a Global
Note or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between the Depositary and its participants or the relationship between such
participants and the owners of beneficial interests in a Global Note owning
through such participants.
With respect to any Global Note denominated in a Specified Currency other
than U.S. dollars, the Depositary currently has elected to have payments of
principal (and premium, if any) and interest on such Note made in U.S. dollars
unless notified by any of its participants through which an interest in such
Note is held that it elects to receive such payment of principal (or premium, if
any) or interest in such Specified Currency. Unless otherwise specified in the
applicable Pricing Supplement, a beneficial owner of Global Notes denominated in
a Specified Currency other than U.S. dollars electing to receive payments of
principal or any premium or interest in a currency other than U.S. dollars must
notify the participant through which its interest is held on or prior to the
applicable Record Date, in the case of a payment of interest, and on or prior to
the sixteenth day prior to the maturity date, in the case of principal or
premium, of such beneficial owner's election to receive all or a portion of such
payment in such Specified Currency. Such participant must notify the Depositary
of such election on or prior to the third Business Day after such Record Date or
after such sixteenth day. The Depositary will notify the Trustee of such
election on or prior to the fifth Business Day after such Record Date or after
such sixteenth day. If complete instructions are received by the participant and
forwarded by the participant to the Depositary, and by the Depositary to the
Trustee, on or prior to such dates, the beneficial owner will receive payments
in the Specified Currency.
Unless and until it is exchanged in whole or in part for Certificated Notes
in definitive form, a Global Note may not be transferred except as a whole by
the Depositary to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or nominee of
such successor.
The Series E Notes represented by one or more Global Notes are exchangeable
for Certificated Notes in definitive form of like tenor as such Series E Notes
if (i) the Depositary for such Global Notes notifies AIG that it is unwilling or
unable to continue as Depositary for such Global Notes or if at any time such
Depositary ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, (ii) AIG in its discretion at any time
determines not to have all of the Series E Notes of such series represented by
one or more Global Note and notifies the
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Trustee thereof, or (iii) an Event of Default has occurred and is continuing
with respect to the Series E Notes of such series. Any Series E Note that is
exchangeable pursuant to the preceding sentence is exchangeable for Certificated
Notes issuable in authorized denominations and registered in such names as the
Depositary holding such Global Notes shall direct. The authorized denominations
of the Series E Notes denominated in United States dollars will be $100,000 or
any greater amount that is an integral multiple of $1,000. The authorized
denominations of Series E Notes denominated in a Specified Currency other than
United States dollars will be set forth in the applicable Pricing Supplement.
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, payments
of principal of (and premium, if any) and interest on all Series E Notes will be
made in the applicable Specified Currency; provided, however, that payments of
principal of (and premium, if any) and interest on Series E Notes denominated in
other than U.S. dollars will nevertheless be made in U.S. dollars (i) at the
option of the Holders of Certificated Notes under the procedures described in
the two following paragraphs, (ii) in the case of Global Notes as described
under Book-Entry System and (iii) at the option of AIG in the case of imposition
of exchange controls or other circumstances beyond the control of AIG as
described in the last paragraph under this heading.
Unless otherwise specified in the applicable Pricing Supplement, and except
as provided in the next paragraph, payments of interest and principal (and
premium, if any) with respect to any Certificated Note denominated in other than
U.S. dollars will be made on the relevant Interest Payment Date and at Maturity
in U.S. dollars if the registered Holder of such Series E Note has transmitted a
written request for such payment in U.S. dollars to the Trustee at its Corporate
Trust Office in The City of New York on or prior to the relevant Regular Record
Date or the date 15 days prior to Maturity, as the case may be. Such request may
be in writing (mailed or hand delivered) or by cable, telex or other form of
facsimile transmission. Any such request made with respect to any Certificated
Note by a registered Holder will remain in effect with respect to any further
payments of interest and principal (and premium, if any) with respect to such
Certificated Note payable to such Holder, unless such request is revoked on or
prior to the relevant Regular Record Date or the date 15 days prior to Maturity,
as the case may be. Holders of Certificated Notes denominated in other than U.S.
dollars whose Series E Notes are registered in the name of a broker or nominee
should contact such broker or nominee to determine whether and how an election
to receive payments in U.S. dollars may be made.
The U.S. dollar amount to be received by a Holder of a Note, in either
Certificated or Global form, denominated in other than U.S. dollars who elects
to receive payment in U.S. dollars will be based on the highest bid quotation in
The City of New York received by the Exchange Rate Agent (as defined below) as
of 11:00 A.M. New York City time on the second Business Day next preceding the
applicable payment date from three recognized foreign exchange dealers (one of
which may be the Exchange Rate Agent) for the purchase by the quoting dealer of
the Specified Currency for U.S. dollars for settlement on such payment date in
the aggregate amount of the Specified Currency payable to all Holders of Series
E Notes electing to receive U.S. dollar payments and at which the applicable
dealer commits to execute a contract. If three such bid quotations are not
available on the second Business Day preceding the date of payment of principal
(and premium, if any) or interest with respect to any Series E Note, unless AIG
and the Holder of a Series E Note otherwise agree, such payment will be made in
the Specified Currency. All currency exchange costs associated with any payment
in U.S. dollars on any such Series E Note will be borne by the Holder thereof by
deductions from such payment. The Exchange Rate Agent (the "Exchange Rate
Agent"), if any, with respect to the Series E Notes will be named in the
applicable Pricing Supplement and may be AIG or an affiliate of AIG.
Interest will be payable to the person in whose name a Series E Note is
registered at the close of business on the Regular Record Date next preceding
each Interest Payment Date; provided,
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however, that interest payable at Maturity will be payable to the person to whom
principal shall be payable. The first payment of interest on any Series E Note
originally issued between a Regular Record Date and an Interest Payment Date
will be made on the Interest Payment Date following the next succeeding Regular
Record Date to the registered owner on such next succeeding Regular Record Date.
Unless otherwise indicated in the applicable Pricing Supplement, the "Regular
Record Dates" with respect to any Floating Rate Note shall be the dates 15
calendar days prior to each Interest Payment Date, whether or not such date
shall be a Business Day, and the "Regular Record Dates" with respect to any
Fixed Rate Note shall be the May 15 and November 15 next preceding the June 1
and December 1 Interest Payment Dates.
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable, in the case of Floating Rate Notes
which reset daily, on the dates specified in the applicable Pricing Supplement;
in the case of Floating Rate Notes which reset weekly, on the third Wednesday of
March, June, September and December of each year; in the case of Floating Rate
Notes which reset monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year (as indicated in
the applicable Pricing Supplement); in the case of Floating Rate Notes which
reset quarterly, on the third Wednesday of March, June, September and December
of each year; in the case of Floating Rate Notes which reset semi-annually, on
the third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and in the case of Floating Rate Notes which reset annually,
on the third Wednesday of the month specified in the applicable Pricing
Supplement (each an "Interest Payment Date"), and in each case, at Maturity. If
an Interest Payment Date with respect to any Floating Rate Note would otherwise
fall on a day that is not a Market Day with respect to such Series E Note, such
Interest Payment Date will be the next succeeding Market Day (or, in the case of
a LIBOR Note, if such day falls in the next calendar month, the immediately
preceding Market Day).
Payments of interest on any Fixed Rate Note or Floating Rate Note with
respect to any Interest Payment Date will include interest accrued to but
excluding such Interest Payment Date; provided, however, that if the Interest
Reset Dates with respect to any Floating Rate Note are weekly, interest payable
on such Note on any Interest Payment Date, other than interest payable on the
date on which principal on any such Series E Note is payable, will include
interest accrued to but excluding the day following the next preceding Regular
Record Date.
With respect to a Floating Rate Note, accrued interest from the date of
issue or from the last date to which interest has been paid is calculated by
multiplying the face amount of such Floating Rate Note by an accrued interest
factor. Such accrued interest factor is computed by adding the interest factor
calculated for each day from the date of issue, or from the last date to which
interest has been paid, to but excluding the date for which accrued interest is
being calculated. The interest factor (expressed as a decimal) for each such day
is computed by dividing the interest rate (expressed as a decimal) applicable to
such date by 360, in the case of Commercial Paper Rate Notes, Prime Rate Notes,
LIBOR Notes, CD Rate Notes or Federal Funds Rate Notes, or by the actual number
of days in the year, in the case of Treasury Rate Notes. Interest on Fixed Rate
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
Any payment on any Series E Note due on any day which is not a Business Day
in The City of New York (and, in the case of any Series E Note denominated in
other than U.S. dollars, in the capital or financial center in the country
issuing the Specified Currency (or, in the case of ECUs, in Brussels)) need not
be made on such day, but may be made on the next succeeding Business Day with
the same force and effect as if made on the due date, and no interest shall
accrue for the period from and after such date.
Payment of the principal of (and premium, if any) and any interest due with
respect to any Series E Note at Maturity to be made in U.S. dollars will be made
in immediately available funds upon surrender of such Series E Note at the
Corporate Trust Office of The Bank of New York, as Paying Agent, in the Borough
of Manhattan, The City of New York, provided that the Series E Note is
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presented to the Paying Agent in time for the Paying Agent to make such payments
in such funds in accordance with its normal procedures. Payments of interest to
be made in U.S. dollars other than at Maturity will be made by check mailed to
the address of the Person entitled thereto as it appears in the Security
Register.
Unless otherwise specified in the applicable Pricing Supplement, payments
of interest and principal (and premium, if any) with respect to any Series E
Note to be made in a Specified Currency other than U.S. dollars will be made by
wire transfer to such account with a bank located in the country issuing the
Specified Currency (or, with respect to Series E Notes denominated in ECUs, in
Brussels) or other jurisdiction acceptable to AIG and the Trustee as shall have
been designated at least 5 days prior to the Interest Payment Date or Maturity,
as the case may be, by the registered Holder of such Series E Note on the
relevant Regular Record Date or at Maturity, provided that, in the case of
payment of principal of (and premium, if any) and any interest due at Maturity,
the Series E Note is presented to the Paying Agent in time for the Paying Agent
to make such payments in such funds in accordance with its normal procedures.
Such designation shall be made by filing the appropriate information with the
Trustee at its Corporate Trust Office in The City of New York, and, unless
revoked, any such designation made with respect to any Series E Note by a
registered Holder will remain in effect with respect to any further payments
with respect to such Series E Note payable to such Holder. If a payment with
respect to any such Series E Note cannot be made by wire transfer because the
required designation has not been received by the Trustee on or before the
requisite date or for any other reason, a notice will be mailed to the Holder at
its registered address requesting a designation pursuant to which such wire
transfer can be made and, upon the Trustee's receipt of such a designation, such
payment will be made within 5 days of such receipt. AIG will pay any
administrative costs imposed by banks in connection with making payments by wire
transfer, but any tax, assessment or governmental charge imposed upon payments
will be borne by the Holders of the Series E Notes in respect of which payments
are made.
If the principal of (and premium, if any) or interest on any Series E Note
is payable in other than U.S. dollars and such Specified Currency is not
available due to the imposition of exchange controls or other circumstances
beyond the control of AIG, AIG will be entitled to satisfy its obligations to
Holders of the Series E Notes by making such payment in U.S. dollars on the
basis of the most recently available Exchange Rate. Any payment made under such
circumstances in U.S. dollars where the required payment is in other than U.S.
dollars will not constitute an Event of Default under the Indenture.
FOREIGN CURRENCY RISKS
GENERAL
Exchange Rates and Exchange Controls. An investment in Series E Notes that
are denominated in other than U.S. dollars or Indexed Series E Notes indexed to
a foreign currency or composite currency entails significant risks that are not
associated with a similar investment in an unindexed security denominated in
U.S. dollars. Such risks include, without limitation, the possibility of
significant changes in rates of exchange between the U.S. dollar and the various
foreign currencies or composite currencies and the possibility of the imposition
or modification of foreign exchange controls by either the U.S. or foreign
governments. Such risks depend on economic and political events over which AIG
has no control. In recent years, rates of exchange between the U.S. dollar and
certain foreign currencies have been highly volatile and such volatility may be
expected in the future. Fluctuations in any particular exchange rate that have
occurred in the past are not necessarily indicative, however, of fluctuations in
the rate that may occur during the term of any Series E Note. Depreciation of
the Specified Currency other than U.S. dollars against the U.S. dollar would
result in a decrease in the effective yield of such Series E Note below its
coupon rate, and in certain circumstances could result in a loss to the investor
on a U.S. dollar basis.
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Governments have imposed from time to time and may in the future impose
exchange controls which could affect exchange rates as well as the availability
of a specified foreign currency at Maturity of a Series E Note. Even if there
are not actual exchange controls, it is possible that the Specified Currency for
any particular Series E Note would not be available at Maturity of such Series E
Note. In that event, AIG will repay in U.S. dollars on the basis of the most
recently available Exchange Rate. See "Description of Series E Notes--Payment of
Principal and Interest".
THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS AND PRICING
SUPPLEMENT DO NOT DESCRIBE ALL THE RISKS OF AN INVESTMENT IN THE SERIES E NOTES
DENOMINATED IN OTHER THAN U.S. DOLLARS OR INDEXED TO A FOREIGN CURRENCY OR
COMPOSITE CURRENCY. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND
LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN SERIES E NOTES
DENOMINATED IN OTHER THAN U.S. DOLLARS OR INDEXED TO A FOREIGN CURRENCY OR
COMPOSITE CURRENCY. SERIES E NOTES DENOMINATED IN OTHER THAN U.S. DOLLARS OR
INDEXED TO A FOREIGN CURRENCY OR COMPOSITE CURRENCY ARE NOT AN APPROPRIATE
INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN
CURRENCY TRANSACTIONS.
Unless otherwise specified in the applicable Pricing Supplement, Series E
Notes denominated in other than U.S. dollars or ECUs will not be sold in, or to
residents of, the country issuing the Specified Currency in which particular
Series E Notes are denominated. The information set forth in this Prospectus
Supplement is directed to prospective purchasers who are United States
residents, and AIG disclaims any responsibility to advise prospective purchasers
who are residents of countries other than the United States with respect to any
matters that may affect the purchase, holding or receipt of payments of
principal (and premium, if any) of and interest on the Series E Notes. Such
persons should consult their own financial and legal advisors with regard to
such matters.
Governing Law and Judgments. The Series E Notes will be governed by and
construed in accordance with the laws of the State of New York. A judgment for
money in an action based on a Series E Note denominated in a foreign currency or
currency unit in a federal or state court in the United States ordinarily would
be enforced in the United States only in U.S. dollars. The date used to
determine the rate of conversion of the currency or currency unit in which any
particular Note is denominated into U.S. dollars will depend upon various
factors, including which court renders the judgment. Under Section 27 of the New
York Judiciary Law, a state court in the State of New York rendering a judgment
on a Note denominated in a foreign currency would be required to render such
judgment in the Specified Currency, and such judgment would be converted into
U.S. dollars at the exchange rate prevailing on the date of entry of the
judgment.
NOTES DENOMINATED IN ECUS
Except as otherwise provided below, the value of the ECU for the purpose of
any Series E Notes denominated in ECUs, as referred to in Article 109G and
109L.4 of the Treaty establishing the European Community, as amended (the "EC
Treaty"), is equal to the value of the ECU that is from time to time used as the
unit of account of the European Communities and which is valued on the basis of
specified amounts of the currencies of the member states of the European
Community as shown below.
Pursuant to Council Regulation (EC) No. 3320/94 of December 22, 1994, the
ECU is as of the date of this Prospectus Supplement defined as the sum of the
following components:
<TABLE>
<C> <S> <C> <C>
0.6242 German mark 0.130 Luxembourg franc
0.08784 Pound sterling 0.1976 Danish krone
1.332 French francs 0.008552 Irish pound
151.8 Italian lire 1.440 Greek drachmas
0.2198 Dutch guilder 6.885 Spanish pesetas
3.301 Belgian francs 1.393 Portuguese escudos
</TABLE>
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Article 109G of the EC Treaty, as amended by the Treaty on European Union
(the "Treaty") provides: "The currency composition of the ECU shall not be
changed. From the start of the third stage, the value of the ECU shall be
irrevocably fixed in accordance with Article 109L.4". Changes as to the nature
or composition of the ECU may be made by the European Community in conformity
with the provisions of the EC Treaty. Reference herein to the ECU shall be
deemed to be references to the ECU as so changed.
CHOICE OF COMPONENT CURRENCIES FOR FUTURE PAYMENTS
With respect to any payment date in respect of Series E Notes denominated
in ECUs on which the ECU is not available due to the imposition of exchange
controls or other circumstances beyond the control of AIG or the ECU is used
neither as the unit of account of the European Communities nor as a currency in
its own right, thereafter replacing some or all of the currencies of the member
states of the EC, the Exchange Rate Agent shall, without liability on its part,
choose a component currency of the ECU (the "chosen currency") in which all
payments due on that payment date with respect to such Series E Notes shall be
made. Notice of the chosen currency selected by the Exchange Rate Agent shall,
where practicable, be given to Holders of Series E Notes upon their request. The
amount of each payment in the chosen currency shall be computed on the basis of
the equivalent of the ECU in that currency, determined as set forth herein as of
the fourth Business Day prior to the date on which such payment is due.
CHOICE OF COMPONENT CURRENCY FOR PAYMENTS ALREADY DUE
On the first Business Day on which the ECU is not available due to the
imposition of exchange controls or other circumstances beyond the control of AIG
or the ECU is used neither as the unit of account of the European Communities
nor as a currency in its own right, thereafter replacing some or all of the
currencies of the member states of the EC, the Exchange Rate Agent shall,
without liability on its part, choose a component currency of the ECU (the
"chosen currency") in which all payments of principal, interest or other amounts
in respect of Series E Notes denominated in ECUs having a payment date prior
thereto but not yet presented for payment are to be made. The amount of each
payment in the chosen currency shall be computed on the basis of the equivalent
of the ECU in that currency, determined as set forth herein as of such first
Business Day.
DETERMINATION OF EQUIVALENT IN COMPONENT CURRENCY
The equivalent of the ECU in the relevant chosen currency as of any date
(the "Day of Valuation") shall be determined on the following basis by the
Exchange Rate Agent. The component currencies of the ECU for this purpose (the
"Components") shall be the currency amounts which were components of the ECU
when the ECU was most recently used as the unit of account of the European
Communities. The equivalent of the ECU in the chosen currency shall be
calculated by first aggregating the U.S. dollar equivalents of the Components
and then, using the rate used for determining the U.S. dollar equivalent of the
Component in the chosen currency as set forth below, calculating the equivalent
in the chosen currency of such aggregate amount in U.S. dollars.
U.S. DOLLAR EQUIVALENT OF COMPONENT CURRENCIES
The U.S. dollar equivalent of each of the Components shall be determined by
the Exchange Rate Agent, on the basis of the middle spot delivery quotations
prevailing at 2:30 p.m. (Luxembourg time) on the Day of Valuation of one or more
leading banks, as selected by the Exchange Rate Agent (following consultation,
if practicable, with AIG), in the country of issue of the Component in question.
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NO DIRECT QUOTATION FOR COMPONENT CURRENCY
If no direct quotations are available for a Component as of a Day of
Valuation from any of the banks selected by the Exchange Rate Agent for this
purpose because foreign exchange markets are closed in the country of issue of
that currency or for any other reason, the most recent direct quotations for
that currency obtained by the Exchange Rate Agent shall be used in computing the
equivalents of the ECU on such Day of Valuation; provided, however, that such
most recent quotations may be used only if they were prevailing in the country
of issue not more than two Business Days before such Day of Valuation. Beyond
such period of two Business Days, the Exchange Rate Agent shall determine the
U.S. dollar equivalent of such Component on the basis of cross rates derived
from the middle spot delivery quotations for such component currency and for the
U.S. dollar prevailing at 2:30 p.m., (Luxembourg time) on such Day of Valuation
of one or more leading banks, as selected by the Exchange Rate Agent (following
consultation, if practicable, with AIG), in a country other than the country of
issue of such Component. Within such period of two Business Days, the Exchange
Rate Agent shall determine the U.S. dollar equivalent of such Component on the
basis of such cross rates if the Exchange Rate Agent judges that the equivalent
so calculated is more representative than the U.S. dollar equivalent calculated
on the basis of such most recent direct quotations. Unless otherwise specified
by the Exchange Rate Agent, if there is more than one market for dealing in any
Component by reason of foreign exchange regulations or for any other reason, the
market to be referred to in respect of such currency shall be that upon which a
non-resident issuer of securities denominated in such currency would purchase
such currency in order to make payments in respect of such securities.
NOTES DENOMINATED IN CURRENCIES OF EC MEMBER STATES
If, pursuant to the Treaty, the ECU becomes a currency in its own right
(such new currency to be named the "Euro") and replaces some or all of the
currencies of the member states of the EC, the payment of principal of, or
interest on, Notes denominated or payable in such currencies shall be effected
in Euro in conformity with legally applicable measures taken pursuant to, or by
virtue of, the Treaty. As of the date hereof, the currencies of the member
states of the EC are the Austrian schilling, the Belgian franc, the Danish
krone, the Dutch guilder, the Finnish markka, the French franc, the German mark,
the Greek drachma, the Irish pound, the Italian lire, the Luxembourg franc, the
Portuguese escudo, the Spanish peseta, the Swedish krona and U.K. pound
sterling.
EXCHANGE RATE AGENT
All determinations made by the Exchange Rate Agent shall be at its sole
discretion (except to the extent expressly provided herein or in the applicable
Pricing Supplement that any determination is subject to approval by AIG) and, in
the absence of manifest error, shall be conclusive for all purposes and binding
on Holders of the Series E Notes and AIG, and the Exchange Rate Agent shall have
no liability therefor.
UNITED STATES TAXATION
The following summary of the principal United States federal income tax
consequences of ownership of Series E Notes is based upon the opinion of
Sullivan & Cromwell, counsel to AIG. It deals only with Series E Notes held as
capital assets by initial purchasers, and not with special classes of holders,
such as dealers in securities or currencies, banks, tax-exempt organizations,
life insurance companies, persons that hold Series E Notes that are a hedge or
that are hedged against currency risks or that are part of a straddle or
conversion transaction, or persons whose functional currency is not the U.S.
dollar. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as in effect on the date
of this Prospectus Supplement and all are subject to change at any time, perhaps
with retroactive effect. Additionally, the discussions
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below under "Original Issue Discount -- Notes Subject to Contingencies Including
Optional Redemption" and "Original Issue Discount -- Variable Rate Notes" take
into account Treasury regulations which were issued as final regulations on June
11, 1996 but which will not take effect until 60 days after their publication in
the Federal Register.
Prospective purchasers of Series E Notes should consult their own tax
advisors concerning the consequences, in their particular circumstances, under
the Code and the laws of any other taxing jurisdiction, of ownership of Series E
Notes.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Interest on a Series E Note, whether payable in U.S. dollars or a currency,
composite currency or basket of currencies other than U.S. dollars (a "foreign
currency"), other than interest on a "Discount Note" that is not "qualified
stated interest" (each as defined below under "Original Issue
Discount -- General"), will be taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes. A United States Holder is a beneficial owner who
or that is (i) a citizen or resident of the United States, (ii) a domestic
corporation or (iii) otherwise subject to United States federal income taxation
on a net income basis in respect of the Series E Note.
If an interest payment is denominated in, or determined by reference to, a
foreign currency, the amount of income recognized by a cash basis United States
Holder will be the U.S. dollar value of the interest payment, based on the
exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
An accrual basis United States Holder may determine the amount of income
recognized with respect to an interest payment denominated in, or determined by
reference to, a foreign currency in accordance with either of two methods. Under
the first method, the amount of income accrued will be based on the average
exchange rate in effect during the interest accrual period (or, with respect to
an accrual period that spans two taxable years, the part of the period within
the taxable year).
Under the second method, the United States Holder may elect to determine
the amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. Any such election will apply to all debt
instruments held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and will be irrevocable without the consent of the Internal
Revenue Service (the "Service").
Upon receipt of the interest payment (including a payment attributable to
accrued but unpaid interest upon the sale or retirement of a Series E Note)
denominated in, or determined by reference to, a foreign currency, the United
States Holder will recognize ordinary income or loss measured by the difference
between (x) the average exchange rate used to accrue interest income, or the
exchange rate as determined under the second method described above if the
United States Holder elects that method, and (y) the exchange rate in effect on
the date of receipt, regardless of whether the payment is in fact converted into
U.S. dollars.
ORIGINAL ISSUE DISCOUNT
General. A Series E Note, other than a Series E Note with a term of one
year or less (a "short-term Note"), will be treated as issued at an original
issue discount (a "Discount Note") if the excess of the "stated redemption price
at maturity" of the Series E Note over its issue price is more
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than a "de minimis amount" (as defined below). Generally, the issue price of a
Series E Note will be the first price at which a substantial amount of Series E
Notes included in the issue of which the Series E Note is a part is sold to
other than bond houses, brokers, or similar persons or organizations acting in
the capacity of underwriters, placement agents, or wholesalers. The stated
redemption price at maturity of a Series E Note is the total of all payments
provided by the Series E Note that are not payments of "qualified stated
interest". A qualified stated interest payment is generally any one of a series
of stated interest payments on a Series E Note that are unconditionally payable
at least annually at a single fixed rate (with certain exceptions for lower
rates paid during some periods) applied to the outstanding principal amount of
the Series E Note. Special rules for "Variable Rate Notes" (as defined below
under "Original Issue Discount -- Variable Rate Notes") are described below
under "Original Issue Discount -- Variable Rate Notes".
In general, if the excess of the stated redemption price of a Series E Note
at maturity over its issue price is less than 1/4 of 1 percent of the stated
redemption price of such Series E Note at maturity multiplied by the number of
complete years to its maturity (the "de minimis amount"), then such excess, if
any, constitutes "de minimis original issue discount" and the Series E Note is
not a Discount Note. Unless the election described below under "Election to
Treat All Interest as Original Issue Discount" is made, a United States Holder
of a Series E Note with de minimis original issue discount must include such de
minimis original issue discount in income as stated principal payments on the
Series E Note are made. The includible amount with respect to each such payment
will equal the product of the total amount of the de minimis original issue
discount of the Series E Note and a fraction, the numerator of which is the
amount of the principal payment made and the denominator of which is the stated
principal amount of the Series E Note.
United States Holders of Discount Notes having a maturity of more than one
year from their date of issue must, generally, include original issue discount
("OID") in income calculated on a constant-yield method before the receipt of
cash attributable to such income, and generally will have to include in income
increasingly greater amounts of OID over the life of the Discount Note. The
amount of OID includible in income by a United States Holder of a Discount Note
is the sum of the daily portions of OID with respect to the Discount Note for
each day during the taxable year or portion of the taxable year in which the
United States Holder holds such Discount Note ("accrued OID"). The daily portion
is determined by allocating to each day in any "accrual period" a pro rata
portion of the OID allocable to that accrual period. Accrual periods with
respect to a Discount Note may be of any length selected by the United States
Holder and may vary in length over the term of the Discount Note as long as (i)
no accrual period is longer than one year and (ii) each scheduled payment of
interest or principal on the Discount Note occurs on either the final or first
day of an accrual period. The amount of OID allocable to an accrual period
equals the excess of (a) the product of the adjusted issue price of the Discount
Note at the beginning of the accrual period and the yield to maturity of such
Discount Note (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period) over
(b) the sum of the payments of qualified stated interest on the Discount Note
allocable to the accrual period. The "adjusted issue price" of a Discount Note
at the beginning of any accrual period is the issue price of the Discount Note
increased by (x) the amount of accrued OID for each prior accrual period and
decreased by (y) the amount of any payments previously made on the Discount Note
that were not qualified stated interest payments. For purposes of determining
the amount of OID allocable to an accrual period, if an interval between
payments of qualified stated interest on the Discount Note contains more than
one accrual period, the amount of qualified stated interest payable at the end
of the interval (including any qualified stated interest that is payable on the
first day of the accrual period immediately following the interval) is allocated
pro rata on the basis of relative lengths to each accrual period in the
interval, and the adjusted issue price at the beginning of each accrual period
in the interval must be increased by the amount of any qualified stated interest
that has accrued prior to the first day of the accrual period but that is not
payable until the end of the interval. The amount of OID allocable to an initial
short accrual period may be computed using any reasonable method if all other
accrual periods other than a final short accrual period are of equal
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length. The amount of OID allocable to the final accrual period is the
difference between (x) the amount payable at the maturity of the Discount Note
(other than any payment of qualified stated interest) and (y) the adjusted issue
price of the Discount Note as of the beginning of the final accrual period.
Acquisition Premium. A United States Holder that purchases a Series E Note
for an amount less than or equal to the sum of all amounts payable on the Series
E Note after the purchase date other than payments of qualified stated interest
but in excess of its adjusted issue price (any such excess being "acquisition
premium") and that does not make the election described below under "Election to
Treat All Interest as Original Issue Discount" is permitted to reduce the daily
portions of OID by a fraction, the numerator of which is the excess of the
United States Holder's adjusted basis in the Series E Note immediately after its
purchase over the adjusted issue price of the Series E Note, and the denominator
of which is the excess of the sum of all amounts payable on the Series E Note
after the purchase date, other than payments of qualified stated interest, over
the adjusted issue price of the Series E Note.
Market Discount. A Series E Note, other than a short-term Note, will be
treated as purchased at a market discount (a "Market Discount Note") if (i) the
amount for which a United States Holder purchased the Series E Note is less than
the Series E Note's issue price (as determined above under "Original Issue
Discount -- General") and (ii) the stated redemption price of the Series E Note
at maturity or, in the case of a Discount Note, the "revised issue price" of the
Discount Note, exceeds the amount for which the United States Holder purchased
the Series E Note by at least 1/4 of 1 percent of the stated redemption price of
such Series E Note at maturity or its revised issue price, respectively,
multiplied by the number of complete years to the maturity of the Series E Note.
If such excess is not sufficient to cause the Series E Note to be a Market
Discount Note, then such excess constitutes "de minimis market discount". The
Code provides that, for these purposes, the "revised issue price" of a Series E
Note generally equals its issue price, increased by the amount of any OID that
has accrued on the Series E Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Market Discount Note. Alternatively,
a United States Holder of a Market Discount Note may elect to include market
discount in income currently over the life of the Market Discount Note. Such an
election shall apply to all debt instruments with market discount acquired by
the electing United States Holder on or after the first day of the first taxable
year to which the election applies. This election may not be revoked without the
consent of the Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the United States Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Market Discount
Note with respect to which it is made and may not be revoked. A United States
Holder of a Market Discount Note that does not elect to include market discount
in income currently generally will be required to defer deductions for interest
on borrowings allocable to such Market Discount Note in an amount not exceeding
the accrued market discount on such Market Discount Note until the maturity or
disposition of such Market Discount Note.
Pre-Issuance Accrued Interest. If (i) a portion of the initial purchase
price of a Series E Note is attributable to pre-issuance accrued interest, (ii)
the first stated interest payment on the Series E Note is to be made within one
year of the issue date of the Series E Note and (iii) the payment will equal or
exceed the amount of pre-issuance accrued interest, then the United States
Holder may elect to decrease the issue price of the Series E Note by the amount
of pre-issuance accrued interest. In that event, a portion of the first stated
interest payment will be treated as a return of the excluded pre-issuance
accrued interest and not as an amount payable on the Series E Note.
Series E Notes Subject to Contingencies Including Optional Redemption. In
general, if a Series E Note provides for an alternative payment schedule or
schedules applicable upon the occurrence of a contingency or contingencies and
the timing and amounts of the payments that comprise each
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payment schedule are known as of the issue date and one of such schedules is
significantly more likely than not to occur, the yield and maturity of the
Series E Note are determined by assuming that the payments will be made
according to that payment schedule.
Notwithstanding the general rules for determining yield and maturity in the
case of Series E Notes subject to contingencies, if AIG or the Holder has an
unconditional option or options that, if exercised, would require payments to be
made on the Series E Note under an alternative payment schedule or schedules,
then (i) in the case of an option or options of AIG, AIG will be deemed to
exercise or not exercise an option or combination of options in the manner that
minimizes the yield on the Series E Note and (ii) in the case of an option or
options of the Holder, the Holder will be deemed to exercise or not exercise an
option or combination of options in the manner that maximizes the yield on the
Series E Note. For purposes of those calculations, the yield on the Series E
Note is determined by using any date on which the Series E Note may be redeemed
or repurchased as the maturity date and the amount payable on such date in
accordance with the terms of the Series E Note as the principal amount payable
at maturity.
If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the
Series E Note is repaid as a result of the change in circumstances and solely
for purposes of the accrual of OID, the yield and maturity of the Series E Note
are redetermined by treating the Series E Note as reissued on the date of the
change in circumstances for an amount equal to the adjusted issue price of the
Series E Note on that date.
Election to Treat All Interest as Original Issue Discount. A United States
Holder may elect to include in gross income all interest that accrues on a
Series E Note using the constant-yield method described above under the heading
"Original Issue Discount -- General", with the modifications described below.
For purposes of this election, interest includes stated interest, OID, de
minimis original issue discount, market discount, de minimis market discount and
unstated interest, as adjusted by any amortizable bond premium (described below
under "Series E Notes Purchased at a Premium") or acquisition premium.
In applying the constant-yield method to a Series E Note with respect to
which this election has been made, the issue price of the Series E Note will
equal the electing United States Holder's adjusted basis in the Series E Note
immediately after its acquisition, the issue date of the Series E Note will be
the date of its acquisition by the electing United States Holder, and no
payments on the Series E Note will be treated as payments of qualified stated
interest. This election will generally apply only to the Series E Note with
respect to which it is made and may not be revoked without the consent of the
Service. If this election is made with respect to a Series E Note with
amortizable bond premium, then the electing United States Holder will be deemed
to have elected to apply amortizable bond premium against interest with respect
to all debt instruments with amortizable bond premium (other than debt
instruments the interest on which is excludible from gross income) held by the
electing United States Holder as of the beginning of the taxable year in which
the Series E Note with respect to which the election is made is acquired or
thereafter acquired. The deemed election with respect to amortizable bond
premium may not be revoked without the consent of the Service.
If the election to apply the constant-yield method to all interest on a
Series E Note is made with respect to a Market Discount Note, the electing
United States Holder will be treated as having made the election discussed above
under "Original Issue Discount -- Market Discount" to include market discount in
income currently over the life of all debt instruments held or thereafter
acquired by such United States Holder.
Variable Rate Notes. A "Variable Rate Note" is a Series E Note that: (i)
has an issue price that does not exceed the total noncontingent principal
payments by more than the lesser of (1) the product of (x) the total
noncontingent principal payments, (y) the number of complete years to maturity
from the issue date and (z) .015, or (2) 15 percent of the total noncontingent
principal
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payments, and (ii) does not provide for any stated interest other than stated
interest compounded or paid at least annually at (1) one or more "qualified
floating rates", (2) a single fixed rate and one or more qualified floating
rates, (3) a single "objective rate" or (4) a single fixed rate and a single
objective rate that is a "qualified inverse floating rate".
A qualified floating rate or objective rate in effect at any time during
the term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no earlier
than 3 months prior to the first day on which that value is in effect and no
later than 1 year following that first day.
A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Series E Note is denominated or (ii) it is equal to the product of such a rate
and either (a) a fixed multiple that is greater than .65 but not more than 1.35
or (b) a fixed multiple greater than .65 but not more than 1.35, increased or
decreased by a fixed rate. A rate is not a qualified floating rate, however, if
the rate is subject to certain restrictions (including caps, floors, governors,
or other similar restrictions) unless such restrictions are fixed throughout the
term of the Series E Note or are not reasonably expected to significantly affect
the yield on the Series E Note.
An "objective rate" is a rate, other than a qualified floating rate, that
is determined using a single, fixed formula and that is based on objective
financial or economic information which is not within the control of or unique
to the circumstances of the issuer or a related party. A variable rate is not an
objective rate, however, if it is reasonably expected that the average value of
the rate during the first half of the term of the Series E Note will be either
significantly less than or significantly greater than the average value of the
rate during the final half of the term of the Series E Note. An objective rate
is a "qualified inverse floating rate" if (i) the rate is equal to a fixed rate
minus a qualified floating rate, and (ii) the variations in the rate can
reasonably be expected to inversely reflect contemporaneous variations in the
qualified floating rate. Under these rules, Commercial Paper Rate Notes, Prime
Rate Notes, LIBOR Notes, Treasury Rate Notes, CD Rate Notes, and Federal Funds
Rate Notes will generally be treated as Variable Rate Notes.
In general, if a Variable Rate provides for stated interest at a single
qualified floating rate or objective rate, all stated interest on the Variable
Rate Note is qualified stated interest and the amount of OID, if any, is
determined by using, in the case of a qualified floating rate or qualified
inverse floating rate, the value as of the issue date of the qualified floating
rate or qualified inverse floating rate, or, in the case of any other objective
rate, a fixed rate that reflects the yield reasonably expected for the Variable
Rate Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or objective rate or at a fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and OID
accruals on the Variable Rate Note are generally determined by (i) determining a
fixed rate substitute for each variable rate provided under the Variable Rate
Note (generally, the value of each variable rate as of the issue date or, in the
case of an objective rate that is not a qualified inverse floating rate, a rate
that reflects the reasonably expected yield on the Variable Rate Note), (ii)
constructing the equivalent fixed rate debt instrument (using the fixed rate
substitute described above), (iii) determining the amount of qualified stated
interest and OID with respect to the equivalent fixed rate debt instrument, and
(iv) making the appropriate adjustments for actual variable rates during the
applicable accrual period.
If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and OID
accruals are determined as in the immediately preceding paragraph with the
modification that the Variable Rate Note is treated, for purposes of the first
three steps of the determination, as if it provided for a qualified floating
rate (or a qualified inverse floating rate, as the case may be) rather than the
fixed
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rate. The qualified floating rate (or qualified inverse floating rate) replacing
the fixed rate must be such that the fair market value of the Variable Rate Note
as of the issue date would be approximately the same as the fair market value of
an otherwise identical debt instrument that provides for the qualified floating
rate (or qualified inverse floating rate) rather than the fixed rate.
Short-Term Notes. In general, an individual or other cash basis United
States Holder of a short-term Note is not required to accrue OID (as specially
defined below for the purposes of this paragraph) for United States federal
income tax purposes unless it elects to do so (but may be required to include
any stated interest in income as the interest is received). Accrual basis United
States Holders and certain other United States Holders, including banks,
regulated investment companies, dealers in securities, common trust funds,
United States Holders who hold Series E Notes as part of certain identified
hedging transactions, certain pass-thru entities and cash basis United States
Holders who so elect, are required to accrue OID on short-term Notes on either a
straight-line basis or under the constant-yield method (based on daily
compounding), at the election of the United States Holder. In the case of a
United States Holder not required and not electing to include OID in income
currently, any gain realized on the sale or retirement of the short-term Note
will be ordinary income to the extent of the OID accrued on a straight-line
basis (unless an election is made to accrue the OID under the constant-yield
method) through the date of sale or retirement. United States Holders who are
not required and do not elect to accrue OID on short-term Notes will be required
to defer deductions for interest on borrowings allocable to short-term Notes in
an amount not exceeding the deferred income until the deferred income is
realized.
For purposes of determining the amount of OID subject to these rules, all
interest payments on a short-term Note, including stated interest, are included
in the short-term Note's stated redemption price at maturity.
Foreign Currency Discount Notes. OID for any accrual period on a Discount
Note that is denominated in, or determined by reference to, a foreign currency
will be determined in the foreign currency and then translated into U.S. dollars
in the same manner as stated interest accrued by an accrual basis United States
Holder, as described under "Payments of Interest". Upon receipt of an amount
attributable to OID (whether in connection with a payment of interest or the
sale or retirement of a Series E Note), a United States Holder may recognize
ordinary income or loss.
SERIES E NOTES PURCHASED AT A PREMIUM
A United States Holder that purchases a Series E Note for an amount in
excess of its principal amount may elect to treat such excess as "amortizable
bond premium", in which case the amount required to be included in the United
States Holder's income each year with respect to interest on the Series E Note
will be reduced by the amount of amortizable bond premium allocable (based on
the yield to maturity of the Series E Note) to such year. In the case of a
Foreign Currency Note, bond premium will be computed in units of foreign
currency, and amortizable bond premium will reduce interest income in units of
the foreign currency. At the time amortized bond premium offsets interest
income, exchange gain or loss (taxable as ordinary income or loss) is realized
measured by the difference between exchange rates at that time and at the time
of the acquisition of the Series E Notes. Any election to amortize bond premium
shall apply to all bonds (other than bonds the interest on which is excludible
from gross income) held by the United States Holder at the beginning of the
first taxable year to which the election applies or thereafter acquired by the
United States Holder, and is irrevocable without the consent of the Service. See
also "Original Issue Discount -- Election to Treat All Interest as Original
Issue Discount".
PURCHASE, SALE AND RETIREMENT OF THE SERIES E NOTES
A United States Holder's tax basis in a Series E Note will generally be its
U.S. dollar cost (as defined below), increased by the amount of any OID or
market discount included in the United States Holder's income with respect to
the Series E Note and the amount, if any, of income
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attributable to de minimis original issue discount and de minimis market
discount included in the United States Holder's income with respect to the
Series E Note, and reduced by (i) the amount of any payments that are not
qualified stated interest payments, and (ii) the amount of any amortizable bond
premium applied to reduce interest on the Series E Note. The U.S. dollar cost of
a Series E Note purchased with a foreign currency will generally be the U.S.
dollar value of the purchase price on the date of purchase or, in the case of
Series E Notes traded on an established securities market, as defined in the
applicable Treasury Regulations, that are purchased by a cash basis United
States Holder (or an accrual basis United States Holder that so elects), on the
settlement date for the purchase.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Series E Note equal to the difference between the amount
realized on the sale or retirement and the tax basis of the Series E Note. The
amount realized on a sale or retirement for an amount in foreign currency will
be the U.S. dollar value of such amount on (i) the date payment is received in
the case of a cash basis United States Holder, (ii) the date of disposition in
the case of an accrual basis United States Holder or (iii) in the case of Series
E Notes traded on an established securities market, as defined in the applicable
Treasury Regulations, sold by a cash basis United States Holder (or an accrual
basis United States Holder that so elects), on the settlement date for the sale.
Except to the extent described above under "Original Issue
Discount -- Short-Term Notes" or "Original Issue Discount -- Market Discount" or
described in the next succeeding paragraph or attributable to accrued but unpaid
interest, gain or loss recognized on the sale or retirement of a Series E Note
will be capital gain or loss and will be long-term capital gain or loss if the
Series E Note was held for more than one year.
Gain or loss recognized by a United States Holder on the sale or retirement
of a Series E Note that is attributable to changes in exchange rates will be
treated as ordinary income or loss. However, exchange gain or loss is taken into
account only to the extent of total gain or loss realized on the transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
Foreign currency received as interest on a Series E Note or on the sale or
retirement of a Series E Note will have a tax basis equal to its U.S. dollar
value at the time such interest is received or at the time of such sale or
retirement. Foreign currency that is purchased will generally have a tax basis
equal to the U.S. dollar value of the foreign currency on the date of purchase.
Any gain or loss recognized on a sale or other disposition of a foreign currency
(including its use to purchase Series E Notes or upon exchange for U.S. dollars)
will be ordinary income or loss.
INDEXED SERIES E NOTES
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to Series E Notes that are
not subject to the rules governing Variable Rate Notes payments or which are
determined by reference to any index.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
holder of a Series E Note who is (i) a nonresident alien individual or (ii) a
foreign corporation, partnership or estate or trust, in each case not subject to
United States federal income tax on a net income basis in respect of income or
gain from a Series E Note. This discussion assumes that the Series E Note is not
subject to the rules of Section 871(h)(4)(A) of the Code (relating to interest
payments that are determined by reference to the income, profits, changes in the
value of property or other attributes of the debtor or a related party).
Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below:
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(i) payments of principal, premium (if any) and interest, including
OID, by AIG or any of its paying agents to any holder of a Series E Note
that is a United States Alien Holder will not be subject to United
States federal withholding tax if, in the case of interest or OID, (a)
the beneficial owner of the Series E Note does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of AIG entitled to vote, (b) the beneficial owner of
the Series E Note is not a controlled foreign corporation that is
related to AIG through stock ownership, and (c) either (A) the
beneficial owner of the Series E Note certifies to AIG or its agent,
under penalties of perjury, that it is not a United States Holder and
provides its name and address or (B) a securities clearing organization,
bank or other financial institution that holds customers' securities in
the ordinary course of its trade or business (a "financial institution")
and holds the Series E Note certifies to AIG or its agent under
penalties of perjury that such statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof;
(ii) a United States Alien Holder of a Series E Note will not be
subject to United States federal withholding tax on any gain realized on
the sale or exchange of a Series E Note; and
(iii) a Series E Note held by an individual who at death is not a
citizen or resident of the United States will not be includible in the
individual's gross estate for purposes of the United States federal
estate tax as a result of the individual's death if (a) the individual
did not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of AIG entitled to vote and (b) the
income on the Series E Note would not have been effectively connected
with a United States trade or business of the individual at the
individual's death.
Recently proposed Internal Revenue Service Treasury regulations (the
"Proposed Regulations") would provide alternative methods for satisfying the
certification requirement described in clause (i)(c) above. The Proposed
Regulations also would require, in the case of Series E Notes held by a foreign
partnership, that (x) the certification described in clause (i)(c) above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. The Proposed Regulations are proposed to be effective for payments
made after December 31, 1997. There can be no assurance that the Proposed
Regulations will be adopted or as to the provisions that they will include if
and when adopted in temporary or final form.
BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Series E Note and the proceeds of the
sale of a Series E Note before maturity within the United States to, and to the
accrual of OID on a Discount Note with respect to, non-corporate United States
Holders, and "backup withholding" at a rate of 31% will apply to such payments
and to payments of OID if the United States Holder fails to provide an accurate
taxpayer identification number or to report all interest and dividends required
to be shown on its federal income tax returns.
UNITED STATES ALIEN HOLDERS
Under current law, information reporting on Internal Revenue Service Form
1099 and backup withholding will not apply to payments of principal, premium (if
any) and interest (including OID) made by AIG or a paying agent to a United
States Alien Holder on a Series E Note; provided, the certification described in
clause (i)(c) under "United States Alien Holders" in the third preceding
paragraph above is received; and provided further that the payor does not have
actual knowledge
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that the holder is a United States person. AIG or a paying agent, however, may
report (on Internal Revenue Service Form 1042S) payments of interest (including
OID) on Series E Notes. See the discussion in the third preceding paragraph
above under "United States Alien Holders" with respect to the rules applicable
to foreign partnerships under the Proposed Regulations.
Payments of the proceeds from the sale by a United States Alien Holder of a
Series E Note made to or through a foreign office of a broker will not be
subject to information reporting or backup withholding, except that if the
broker is a United States person, a controlled foreign corporation for United
States tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, information reporting may apply to such payments. Payments of
the proceeds from the sale of a Series E Note to or through the United States
office of a broker is subject to information reporting and backup withholding
unless the holder or beneficial owner certifies as to its non-United States
status or otherwise establishes an exemption from information reporting and
backup withholding.
PLAN OF DISTRIBUTION OF SERIES E NOTES
Subject to the terms and conditions set forth in the Distribution Agreement
(the "Distribution Agreement"), the Series E Notes are being offered on a
continuing basis by AIG through the Agents, who have agreed to use their best
efforts to solicit purchases of the Series E Notes. AIG will have the sole right
to accept offers to purchase Series E Notes and may reject any proposed purchase
of Series E Notes, as a whole or in part. The Agents shall have the right, in
their discretion reasonably exercised, to reject any offer to purchase Series E
Notes, as a whole or in part. AIG will pay the Agents a commission of from .125%
to .750% of the principal amount of Series E Notes, depending upon maturity, for
sales made through them as Agents.
AIG may also sell Series E Notes to the Agents as principals for their own
accounts at a discount to be agreed upon at the time of sale. Such Series E
Notes may be resold at prevailing market prices, or at prices related thereto,
at the time of such resale, as determined by the Agents. AIG reserves the right
to sell Series E Notes directly on its own behalf or through other brokers
identified in the Pricing Supplement relating to such notes. No commission will
be payable on any Series E Notes sold directly by AIG.
The Agents, as agents or principals, may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 (the "Act"). AIG has agreed to
indemnify the Agents against certain liabilities, including liabilities under
the Act. AIG has agreed to reimburse the Agents for certain expenses.
The Agents may sell Series E Notes to or through dealers who may resell
Series E Notes to investors. The Agents may pay all or part of their discount or
commission to such dealers. Such dealers may be deemed to be "underwriters"
within the meaning of the Act.
The Series E Notes are a new issue of securities with no established
trading market and will not be listed on any securities exchange. No assurance
can be given as to the existence or liquidity of the secondary market for the
Series E Notes.
VALIDITY OF SERIES E NOTES
The validity of the Series E Notes will be passed upon for AIG by Sullivan
& Cromwell, New York, New York, and for the Agents by Davis Polk & Wardwell, New
York, New York. The opinions of Sullivan & Cromwell and Davis Polk & Wardwell
will be conditioned upon, and subject to certain assumptions regarding, future
action required to be taken by AIG and the Trustee in connection with the
issuance and sale of any particular Series E Note, the specific terms of Series
E Notes and other matters which may affect the validity of Series E Notes but
which cannot be ascertained on the date of such opinions.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Series E Notes......... S-2
Foreign Currency Risks................ S-14
United States Taxation................ S-17
Plan of Distribution of Series E
Notes............................... S-26
Validity of Series E Notes............ S-26
PROSPECTUS
Available Information................. 2
Incorporation of Documents by
Reference........................... 2
American International Group, Inc..... 3
Use of Proceeds....................... 5
Ratio of Earnings to Fixed Charges.... 5
Description of Debt Securities........ 5
Plan of Distribution.................. 10
Validity of Debt Securities........... 11
Experts............................... 11
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</TABLE>
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U.S. $747,000,000
AMERICAN
INTERNATIONAL
GROUP, INC.
MEDIUM-TERM NOTES,
SERIES E
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PROSPECTUS SUPPLEMENT
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GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
SALOMON BROTHERS INC
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