Filed with the Securities and Exchange Commission on October 27, 1997.
Registration No. 333-34199
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
PRE-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
A. Exact name of trust: Variable Account II
B. Name of depositor: AIG Life Insurance Company
C. Complete address of depositor's principal executive offices:
One Alico Plaza, P.O. Box 667, Wilmington, Delaware 19899
D. Name and address of agent for service:
Robert Liguori, Vice President and General Counsel
AIG Life Insurance Company
One Alico Plaza
P.O. Box 667
Wilmington, DE 19899
<PAGE>
COPIES TO:
Michael Berenson, Esq. and Florence Davis, Esq.
Jorden Burt Berenson & Johnson LLP American International
Suite 400 East Group, Inc.
1025 Thomas Jefferson St., NW 70 Pine Street
Washington, D.C. 20007-0805 New York, N.Y. 10270
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
_____ on ____________, 1997, pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on _________ pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
_____ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
E. Title and amount of securities being registered:
Group Flexible Premium Variable Universal Life Insurance Policies.
F. N/A
G. Amount of Filing Fee:
Registrant has declared that it registered an indefinite number or
amount of securities in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Registrant filed a Rule 24f-2 notice for its most
recent fiscal year on February 28, 1997.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
1 . . . . . . . . . . . . . . . . . . . . . The Company, The Separate
Account
2 . . . . . . . . . . . . . . . . . . . . . The Company
3 . . . . . . . . . . . . . . . . . . . . . Not Applicable
4 . . . . . . . . . . . . . . . . . . . . . Distribution of Policy
5 . . . . . . . . . . . . . . . . . . . . . The Separate Account
6(a) . . . . . . . . . . . . . . . . . . . Not Applicable
6(b) . . . . . . . . . . . . . . . . . . . Not Applicable
9 . . . . . . . . . . . . . . . . . . . . . Legal Proceedings
10 . . . . . . . . . . . . . . . . . . . . The Policy
11 . . . . . . . . . . . . . . . . . . . . The Separate Account, The
Funds and the Investment
Advisors
12 . . . . . . . . . . . . . . . . . . . . The Separate Account, The
Funds and the Investment
Advisors
13 . . . . . . . . . . . . . . . . . . . . Charges and Deductions
14 . . . . . . . . . . . . . . . . . . . . The Policy
15 . . . . . . . . . . . . . . . . . . . . The Separate Account
16 . . . . . . . . . . . . . . . . . . . . The Separate Account, The
Funds and the Investment
Advisors
17 . . . . . . . . . . . . . . . . . . . . The Policy
18 . . . . . . . . . . . . . . . . . . . . The Policy
19 . . . . . . . . . . . . . . . . . . . . Not Applicable
20 . . . . . . . . . . . . . . . . . . . . Not Applicable
21 . . . . . . . . . . . . . . . . . . . . Not Applicable
22 . . . . . . . . . . . . . . . . . . . . Not Applicable
23 . . . . . . . . . . . . . . . . . . . . Not Applicable
24 . . . . . . . . . . . . . . . . . . . . Not Applicable
25 . . . . . . . . . . . . . . . . . . . . The Company
26 . . . . . . . . . . . . . . . . . . . . Not Applicable
27 . . . . . . . . . . . . . . . . . . . . The Company
28 . . . . . . . . . . . . . . . . . . . . The Company
29 . . . . . . . . . . . . . . . . . . . . The Company
30 . . . . . . . . . . . . . . . . . . . . The Company
31 . . . . . . . . . . . . . . . . . . . . Not Applicable
32 . . . . . . . . . . . . . . . . . . . . Not Applicable
33 . . . . . . . . . . . . . . . . . . . . Not Applicable
34 . . . . . . . . . . . . . . . . . . . . Not Applicable
<PAGE>
35 . . . . . . . . . . . . . . . . . . . . The Company
37 . . . . . . . . . . . . . . . . . . . . Not Applicable
38 . . . . . . . . . . . . . . . . . . . . Distribution of Policy
39 . . . . . . . . . . . . . . . . . . . . Distribution of Policy
40 . . . . . . . . . . . . . . . . . . . . Not Applicable
41(a) . . . . . . . . . . . . . . . . . . . Distribution of Policy
42 . . . . . . . . . . . . . . . . . . . . Not Applicable
43 . . . . . . . . . . . . . . . . . . . . Not Applicable
44 . . . . . . . . . . . . . . . . . . . . The Policy
45 . . . . . . . . . . . . . . . . . . . . Not Applicable
46 . . . . . . . . . . . . . . . . . . . . The Policy
47 . . . . . . . . . . . . . . . . . . . . Not Applicable
48 . . . . . . . . . . . . . . . . . . . . Not Applicable
49 . . . . . . . . . . . . . . . . . . . . Not Applicable
50 . . . . . . . . . . . . . . . . . . . . Not Applicable
51 . . . . . . . . . . . . . . . . . . . . The Company, The Policy
52 . . . . . . . . . . . . . . . . . . . . The Funds and the
Investment Advisors
53 . . . . . . . . . . . . . . . . . . . . Tax Considerations
54 . . . . . . . . . . . . . . . . . . . . Financial Statements
55 . . . . . . . . . . . . . . . . . . . . Not Applicable
<PAGE>
Group Flexible Premium Variable Universal Life Insurance Policies
VARIABLE ACCOUNT II
of AIG LIFE INSURANCE COMPANY
One Alico Plaza, P.O. Box 8718
Wilmington, DE 19899
1-800-340-2765
This prospectus describes a group flexible premium variable universal
life insurance policy (the "Policy") offered by AIG Life Insurance Company
(the "Company"). The Policy provides insurance protection for individuals
within groups under sponsored arrangements. Sponsored arrangements may
include, for example, those instances where an employer, a financial
institution, an association, or group otherwise permitted by state
insurance law, allows the Company to sell policies to, respectively, its
employees, depositors, or members. An Owner may be issued a certificate as
evidence of individual insured coverage under a group arrangement. The
description of the Policy in this Prospectus is fully applicable to any
certificate that may be issued under the Policy. As used herein the word
"Policy" includes any such certificate.
The Policy is designed to provide lifetime insurance protection on
the named Insured and at the same time provide flexibility to vary the
amount and timing of Premiums and to change the amount of Death Benefit
payable. This flexibility allows You as Owner to provide for changing
insurance needs under a single life insurance product.
You also have the opportunity to allocate Net Premiums and Account
Value to one or more Subaccounts of Variable Account II (the "Separate
Account") and the Company's general account (the "Guaranteed Account,"
collectively with the Separate Account, the "Accounts") within limits.
This Prospectus generally describes only that portion of the Account Value
allocated to the Separate Account. For a brief summary of the Guaranteed
Account, see "The Guaranteed Account," page ___.
The assets of each Subaccount are invested in a corresponding
portfolio as selected by the Owner from the following choices: the
Conservative Investors Portfolio, Growth Investors Portfolio, Growth
Portfolio, Quasar Portfolio, Technology Portfolio and Growth and Income
Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC. ("Alliance
Fund"); the VIP High Income Portfolio, VIP Growth Portfolio, VIP Money
Market Portfolio and VIP Overseas Portfolio of the FIDELITY INVESTMENTS
VARIABLE INSURANCE PRODUCTS FUND ("Fidelity Fund"); the VIP II Asset
Manager Portfolio and VIP II Investment Grade Bond Portfolio of the
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II ("Fidelity Fund
II"); the Small Company Stock Portfolio of the DREYFUS VARIABLE INVESTMENT
FUND ("Dreyfus Fund"); the Worldwide Hard Assets Fund and Worldwide
Balanced Fund of the VAN ECK INVESTMENT TRUST ("Van Eck Funds"); the Short-
Term Retirement Portfolio, Medium-Term Retirement Portfolio and Long-Term
Retirement Portfolio of the TOMORROW FUNDS RETIREMENT TRUST ("Tomorrow
Funds"); and the DREYFUS STOCK INDEX FUND.
5
<PAGE>
The accompanying prospectuses for Alliance Fund, Fidelity Fund,
Fidelity Fund II, Dreyfus Fund, Dreyfus Stock Index Fund, Tomorrow Funds
and Van Eck Funds (collectively, the "Funds") describe their respective
portfolios, including the risks of investing in the Funds, and provide
other information on the Funds and on their managers.
The Policy provides for a Net Cash Surrender Value that can be
obtained by surrender. Because this value is based on the investment
performance of the Subaccounts, to the extent of allocations to the
Separate Account, there is no guaranteed Net Cash Surrender Value. If the
Net Cash Surrender Value is insufficient to cover the charges due, coverage
will lapse without value. The Policy also provides for loans and permits
partial surrenders within limits.
It may not be advantageous to replace existing insurance with the
Policy. Within certain limits, you may return the Policy or exchange it
for another life insurance policy issued by the Company with benefits that
do not vary with the investment results of a separate account. A Policy
may be returned according to the terms of its Period to Examine and Cancel
(see "Period to Examine and Cancel Policy," page __), during which time Net
Premium payments allocated to the Separate Account will be invested in the
Money Market Subaccount.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF,
AND ARE NOT GUARANTEED OR ENDORSED BY, THE ADVISER OR ANY BANK OR BANK
AFFILIATE. INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. ANY INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK
WHICH MAY INCLUDE THE POSSIBLE LOSS OF PRINCIPAL.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY OR PRECEDED BY A
CURRENT PROSPECTUS FOR EACH OF THE ALLIANCE FUND, FIDELITY FUND, FIDELITY
FUND II, DREYFUS FUND, DREYFUS STOCK INDEX FUND, TOMORROW FUNDS AND VAN ECK
FUNDS, AS IDENTIFIED ABOVE.
THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
Date of Prospectus: _____________, 1997
Distributor:
AIG Equity Sales Corp.
Attention: Variable Products
80 Pine Street
New York, New York 10270
1-800-888-7485
6
<PAGE>
TABLE OF CONTENTS Page
DEFINITIONS OF TERMS . . . . . . . . . . . . . . . . . . . . . . . .
SUMMARY OF THE POLICY . . . . . . . . . . . . . . . . . . . . . . . .
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .
INFORMATION ABOUT THE COMPANY, THE SEPARATE ACCOUNT
AND THE FUNDS . . . . . . . . . . . . . . . . . . . . . . . .
PREMIUMS AND ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . .
GUARANTEED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . .
CHARGES AND DEDUCTION . . . . . . . . . . . . . . . . . . . . . . . .
SHOW YOUR ACCOUNT VALUE VARIES . . . . . . . . . . . . . . . . . . . . .
DEATH BENEFIT AND CHANGES IN FACE AMOUNT . . . . . . . . . . . . . . . .
CASH BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ILLUSTRATIONS OF ACCOUNT VALUES, NET CASH SURRENDER VALUES, DEATH . . .
BENEFITS AND ACCUMULATED PREMIUMS . . . . . . . . . . . . . . . . . . . .
OTHER POLICY BENEFITS AND PROVISIONS . . . . . . . . . . . . . . . . . .
TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUPPLEMENTAL BENEFITS AND RIDERS . . . . . . . . . . . . . . . . . . . .
MANAGEMENT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . .
DISTRIBUTION OF POLICY . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER POLICIES ISSUED BY THE COMPANY . . . . . . . . . . . . . . . . . .
STATE REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PUBLISHED RATINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . .
APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
<PAGE>
DEFINITIONS OF TERMS
Administrative Office. One Alico Plaza, Wilmington, DE 19801
Account Value. The total amount in the Accounts credited to a Policy. The
Account Value is described on page ___.
Allocation Date. The first business day after the Period to Examine and
Cancel expires. The Period to Examine and Cancel is described on page
_____.
Attained Age. The Insured's age on the Policy Date plus the number of full
years since the Policy Date.
Beneficiary. The person(s) who is entitled to the Insurance Benefit of
this Policy.
Cash Surrender Value. Account Value less any applicable surrender charge
that would be deducted upon surrender.
Company, We, Our, Us. AIG Life Insurance Company
Death Benefit. The amount of money payable to the Beneficiary if the
Insured dies while coverage is in force. The calculation of the Death
Benefit is described on page __.
Face Amount. The amount of insurance specified by the Owner and from which
the Death
Benefit will be determined. The initial Face Amount is shown in the Policy
application.
Grace Period. The period of time following a Monthly Anniversary during
which this Policy will continue in force while the Net Cash Surrender Value
is not sufficient to cover the total monthly deduction then due.
Guaranteed Account. An account within the general account which consists
of all of the Company's assets other than the assets of the Separate
Account and any other separate accounts of the Company.
Insured. The person whose life is covered by the Policy.
Issue Date. The date the Policy is issued. It may be a later date than
the Policy Date if the initial Premium is received at Our Administrative
Office and invested before underwriting has been completed. Once issued,
Policy coverage is retroactive to the Policy Date. The Issue Date is used
to measure contestability periods. See page __.
Loan Account. The portion of the Account Value held in the Guaranteed
Account as collateral for Policy loans. See page __.
Maturity Date. The first Policy Anniversary following the Insured's
attained age 99.
8
<PAGE>
Monthly Anniversary. The same day as the Policy Date for each succeeding
month. If the Policy Date is the 29th, 30th or 31st of a month, in any
month that has no such day, the Monthly Anniversary is deemed to be the
last day of that month. The monthly deduction is deducted on each Monthly
Anniversary.
Net Cash Surrender Value. The Cash Surrender Value less any Outstanding
Loans.
Net Premium. A Premium less any expense charges deducted from the Premium.
See page __.
Outstanding Loan. The total amount of Policy loans, including both
principal and accrued interest.
Owner, You, Your. The person who purchased the Policy as shown in the
application, unless later changed. The Owner may be someone other than the
Insured.
Planned Periodic Premium. The Premium designated at the time of
application as the amount planned to be paid at specific intervals until
the Maturity Date.
Policy. The Group Flexible Premium Variable Universal Life Insurance
contract issued by AIG Life Insurance Company.
Policy Anniversary. An anniversary of the Policy Date.
Policy Date. The first date as of which We have received the initial
Premium and an application in good order. If a Policy is issued, insurance
is effective as of the Policy Date.
Policy Month. The month commencing with the Policy Date and ending on the
day before the first Monthly Anniversary, or any following month commencing
with a Monthly Anniversary and ending on the day before the next Monthly
Anniversary.
Policy Year. The year commencing with the Policy Date and ending on the
day before the first Policy Anniversary, or any following year commencing
with a Policy Anniversary and ending on the day before the next Policy
Anniversary.
Premium. The total consideration paid by You in exchange for Our
obligations under the Policy.
Separate Account. Variable Account II, a separate investment account of
AIG Life Insurance Company.
Subaccount. A division of the Separate Account established to invest in
shares of a corresponding portfolio of a fund that is available for
investment under the Policy.
9
<PAGE>
Valuation Date. Each day the New York Stock Exchange is open for trading.
Valuation Period. A period commencing as of the close of the New York
Stock Exchange (presently 4 P.M., Eastern Time) on each Valuation Date and
ending as of the close of the New York Stock Exchange on the next
succeeding Valuation Date.
10
<PAGE>
SUMMARY OF THE POLICY
This summary is intended to provide a brief overview of the more
significant aspects of the Policy. Further detail is provided in this
prospectus and in the Policy. Unless the context indicates otherwise, the
discussion in this summary and the remainder of the prospectus relates to
the portion of the Policy involving the Separate Account. The Guaranteed
Account is briefly described under "THE GUARANTEED ACCOUNT" on page __ and
in the Policy.
Purpose of the Policy
The Policy offers an Owner insurance protection on the life of the
Insured through the Maturity Date for so long as the Policy is in force.
Like traditional life insurance, the Policy provides for an initial death
benefit equal to its Face Amount, accumulation of cash value, and surrender
and loan privileges. Unlike traditional life insurance, the Policy offers
a choice of investment alternatives and an opportunity for the Account
Value and, if elected by the Owner and under certain circumstances, its
Death Benefit to grow based on investment results. The Policy is a
flexible premium Policy, so that, unlike many other insurance policies and
subject to certain limitations, an Owner may choose the amount and
frequency of premium payments.
Policy Values
An Owner may allocate Net Premium payments among the various
Subaccounts that comprise the Separate Account and that invest in the
Dreyfus Stock Index Fund, or in corresponding portfolios of the Alliance
Fund, Fidelity Fund, Fidelity Fund II, Dreyfus Fund, Tomorrow Funds, or Van
Eck Funds. An Owner may also allocate Net Premium payments to the
Guaranteed Account.
Depending on the investment experience of the selected Subaccounts,
the Account Value may increase or decrease on any day. The Death Benefit
may or may not increase or decrease depending upon several factors,
including the Death Benefit Option selected by the Owner. There is no
guarantee that the Account Value and Death Benefit will increase. The
Owner bears the investment risk on that portion of the Net Premiums and
Account Value allocated to the Separate Account.
The Policy will remain in force until the earliest of the Maturity
Date, the death of the Insured, or a full surrender of the Policy, unless,
before any of these events, the Net Cash Surrender Value is insufficient to
pay the current monthly deduction on a Monthly Anniversary Date and a Grace
Period expires without sufficient additional premium payment or loan
repayment by the Owner.
Policy Charges
There are charges and deductions which the Company will deduct from
each Policy. The deductions from Premium are the sales charge of 5% plus
11
<PAGE>
the specific state and local premium tax (a typical state premium tax rate
would be in the range of 2% to 2.5%). (See "CHARGES AND DEDUCTIONS," page
__.)
On the Issue Date and each Monthly Anniversary, the following
deductions are made from the Account Value:
(a) administrative charges;
(b) insurance charges; and
(c) supplemental benefit charges.
The monthly deduction is made from the Subaccounts pro rata on the
basis of the portion of Account Value in each Subaccount. The
administrative charge varies by current Policy Face Amount. There is also
an additional monthly deduction during the first Policy Year and the 12
months immediately following an increase in Face Amount. (See "CHARGES AND
DEDUCTIONS," page __.)
Deductions are also made on a daily basis against the assets of each
Subaccount. Daily charges calculated at a current annual rate of 0.90% are
charged for mortality and expense risks. This charge may be decreased to
not less than 0.50% in Policy Years 11 and later. It is guaranteed not to
exceed 0.90% for the duration of the Policy.
If the Policy is surrendered during the first 14 Policy Years, We
will deduct a Surrender Charge for the initial Face Amount. If a Policy is
surrendered within 14 years immediately following an increase in Face
Amount, we will deduct a surrender charge for the increase in Face Amount.
The surrender charge will be deducted before any surrender proceeds are
paid.
A charge for partial surrenders is equal to a pro rata portion of the
surrender charge that would apply to a full surrender. A partial surrender
charge is also deducted from the Account Value upon a decrease in Face
Amount.
The administrative charge upon a partial surrender will be equal to
the lesser of $25 or 2% of the amount surrendered. (See "CHARGES AND
DEDUCTIONS," page __.)
Death Benefit
The Policy provides for the payment of benefits upon the death of the
Insured. Upon application for a Policy, the Owner designates a Planned
Periodic Premium. The Policy indicates the initial Face Amount of
insurance. The Owner also elects in the application to have the Death
Benefit determined under one of two available options. Under Option I, the
Death Benefit will equal the Face Amount on the date of the Insured's death
or, if greater, the Account Value on the date of the Insured's death
increased by the applicable percentage set forth in the Policy. Under
Option II, the Death Benefit will equal the Face Amount on the date of the
Insured's death plus the Account Value or, if greater, the Account Value on
12
<PAGE>
the date of the Insured's death increased by the applicable percentage set
forth in the Policy. (See "DEATH BENEFIT OPTIONS" and "CHANGES IN DEATH
BENEFIT OPTION," pages ___ and ___, respectively.)
Premium Features
A. Basic Minimum Premium
A Table of Basic Minimum Premiums for various ages, sex and
Face Amount in the nonsmoker class is provided in the Appendix.
The Premium for the initial Face Amount must be at least as
great as the Basic Minimum Premium at the time of application
adjusted for the Attained Age, any substandard Premium, and any
supplemental benefits riders.
B. Planned Periodic Premium
The Planned Periodic Premium is the Premium designated at the
time of application as the amount planned to be paid at
specific intervals until the Maturity Date.
C. Flexibility
In general Premiums are flexible as to both timing and amount.
If Premiums cease at any time, the insurance provided under the
Policy will continue for as long as the Net Cash Surrender
Value is sufficient to keep the Policy in force. (See
"PREMIUMS AND ALLOCATIONS," page __.)
When applying for a Policy, an Owner will determine a Planned
Periodic Premium that provides for the payment of level Premiums over a
specified period of time. Each Owner will receive a Premium reminder
notice on either an annual, semi-annual, quarterly, or monthly basis;
however, the Owner is not required to pay Planned Periodic Premiums.
Payment of the Planned Periodic Premiums will not guarantee that a
Policy will remain in force. Instead, the duration of the Policy depends
upon the Policy's Net Cash Surrender Value. Even if Planned Periodic
Premiums are paid, the Policy will lapse any time the Net Cash Surrender
Value is insufficient to pay the current monthly deduction and a Grace
Period expires without sufficient payment. Any payment of additional
Premium must be at least $50.00. The Company also may reject or limit any
Premium that would result in an immediate increase in the net amount at
risk under the Policy.
For information regarding the taxation of the Policy under federal
income tax law, (see "TAX CONSIDERATIONS," page ___.)
13
<PAGE>
PERFORMANCE INFORMATION
The Company from time to time may advertise the "total return" and
the "average annual total return" of the Subaccounts and the Funds. Both
total return and average total return figures are based on historical
earnings and are not intended to indicate future performance.
"Total Return" for a portfolio refers to the total of the income
generated by the portfolio net of total portfolio operating expenses plus
capital gains and losses, realized or unrealized. "Total Return" for the
Subaccounts refers to the total of the income generated by the portfolio
net of total portfolio operating expenses plus capital gains and losses,
realized or unrealized, and the monthly deduction charge. "Average Annual
Total Return" reflects the hypothetical annually compounded return that
would have produced the same cumulative return if a Fund's portfolio's or
Subaccount's performance had been constant over the entire period. Because
average annual total returns tend to smooth out variations in the return of
the portfolio, they are not the same as actual year-by-year results.
Performance information may be compared, in reports and promotional
literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P 500"), Dow
Jones Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond Index or
other unmanaged indices so that investors may compare the Subaccount
results with those of a group of unmanaged securities widely regarded by
investors as representative of the securities markets in general; (ii)
other groups of variable life separate accounts or other investment
products tracked by Lipper Analytical Services, a widely used independent
research firm which ranks mutual funds and other investment products by
overall performance, investment objectives, and assets, or tracked by other
services, companies, publications, or persons, such as Morningstar, Inc.,
who rank such investment products on overall performance or other criteria;
or (iii) the Consumer Price Index (a measure for inflation) to assess the
real rate of return from an investment in the Subaccount. Unmanaged
indices may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
The Company may provide in advertising, sales literature, periodic
publications or other materials information on various topics of interest
to Owners and prospective Owners. These topics may include the
relationship between sectors of the economy and the economy as a whole and
its effect on various securities markets, investment strategies and
techniques (such as value investing, market timing, dollar cost averaging,
asset allocation, constant ratio transfer and account rebalancing), the
advantages and disadvantages of investing in tax-deferred and taxable
investments, customer profiles and hypothetical purchase and investment
scenarios, financial management and tax and retirement planning, and
investment alternatives to certificates of deposit and other financial
instruments, including comparisons between the Policies and the
characteristics of and market for such financial instruments.
Total return data may be advertised based on the period of time that
the portfolios have been in existence. The results for any period prior to
14
<PAGE>
the Policies being offered will be calculated as if the Policies had been
offered during that period of time, with all charges assumed to be those
applicable to the Policies.
Performance information for any Subaccount in any advertising will
reflect only the performance of a hypothetical investment in the Subaccount
during the particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio in
which the Subaccount invests and the market conditions during the given
time period, and should not be considered as a representation of what may
be achieved in the future. Actual returns may be more or less than those
shown in any advertising and will depend on a number of factors, including
the investment allocations by an Owner and the different investment rates
of return for the portfolios.
15
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS*
As of
December 31, 1996
<TABLE>
<CAPTION>
Inception Since
Portfolio Date 1 Year 3 Years 5 Years 10 Years Inception
<S> <C> <C> <C> <C> <C> <C>
ALLIANCE
Conservative
Investors 10/28/94 2.85% N/A N/A N/A 8.69%
Growth
Investors 10/28/94 7.21% N/A N/A N/A 11.20%
Growth 09/15/94 27.34% N/A N/A N/A 28.94%
Growth &
Income 01/14/91 22.98% 17.77% 14.10% N/A 12.18%
Quasar 10/01/96 N/A N/A N/A N/A 6.04%
Technology 09/30/96 N/A N/A N/A N/A 9.43%
DREYFUS
Stock Index 09/29/89 21.35% 17.31% 13.17% N/A 12.36%
Small Company
Stock 2,3 04/30/9 N/A N/A N/A N/A 8.73%
FIDELITY
VIP II Asset
Manager 09/06/89 13.58% 7.01% 10.25% N/A 10.70%
VIP Growth 10/09/86 13.68% 14.73% 14.11% 14.11% 13.78%
VIP Overseas 01/28/87 12.20% 7.12% 8.15% N/A 6.92%
VIP II Investment
Grade Bond 12/05/88 2.26% 4.28% 5.68% N/A 7.23%
VIP High
Income 09/19/85 13.01% 9.57% 13.88% 10.10% 10.98%
VIP Money
Market 04/01/82 4.42% 4.06% 3.49% 4.95% 6.00%
TOMORROW FUNDS
Long-Term 04/1/96 N/A N/A N/A N/A 8.30%
Medium-Term 04/1/96 N/A N/A N/A N/A 7.56%
Short-Term 04/1/96 N/A N/A N/A N/A 7.23%
VAN ECK
Gold and
Natural
Resources1 09/01/89 15.90% 6.37% 13.31% N/A 7.15%
Worldwide
Balanced 12/23/94 10.66% N/A N/A N/A 4.61%
</TABLE>
--------------------
16
<PAGE>
(1) Effective May 1, 1997, the investment objectives and the name of the
Van Eck Gold and Natural Resources Fund have been changed. The new
name is Van Eck Worldwide Hard Assets Fund and its investment
objective are described in the section entitled "The Funds and the
Investment Advisors."
(2) Not annualized.
(3) Calculated based on net value on the close of business on May 1, 1996
(commencement of initial offering) to December 31, 1996.
* This performance information reflects the total of the income
generated by the portfolio net of the total portfolio operating
expenses, plus capital gains and losses, realized or unrealized, and
net of the mortality and expense risk charge. The performance
results do not reflect: monthly deductions; cost of insurance;
surrender charges; sales loads and any state or local premium taxes
(see charges and deductions in the prospectus). If these charges
were included, the total return figures would be lower. The data
assumes the Subaccounts under the Policy were in existence on the
portfolio's inception date. The policies funded by the Separate
Account were first offered in 1995.
17
<PAGE>
INFORMATION ABOUT THE COMPANY,
THE SEPARATE ACCOUNT AND THE FUNDS
The Company
AIG Life Insurance Company is a stock life insurance company
organized under the laws of the State of Delaware in 1962. The Company
provides a full range of individual and group life, disability, accidental
death and dismemberment policies and annuities. The Company is a
subsidiary of American International Group, Inc., which serves as the
holding company for a number of companies engaged in the international
insurance business, both life and general, in approximately 130 countries
and jurisdictions around the world.
The Separate Account
We established the Separate Account as a separate investment account
on June 5, 1986. It may be used to support the Policies as well as other
variable life insurance policies, and for other purposes permitted by law.
The Separate Account is registered with the Securities and Exchange
Commission as a unit investment trust under the Investment Company Act of
1940 (the "1940 Act") and qualifies as a "separate account" within the
meaning of the federal securities law.
We own the assets in the Separate Account. The Separate Account is
divided into Subaccounts. The Subaccounts available under the Policies
invest in shares of a specific series of the Alliance Fund, Fidelity Fund,
Fidelity Fund II, Dreyfus Fund, Dreyfus Stock Index Fund, Tomorrow Funds
and Van Eck Funds. The Separate Account may include other Subaccounts
which are not available under the Policies and are not otherwise discussed
in this Prospectus.
Income, gains and losses, realized or unrealized, of a Subaccount are
credited to or charged against the Subaccount without regard to any other
income, gains or losses of the Company. Assets equal to the reserves and
other contract liabilities with respect to each Subaccount are not
chargeable with liabilities arising out of any other business or account of
the Company. If the assets exceed the required reserves and other
liabilities, we may transfer the excess to our general account. We are
obligated to pay all benefits provided under the Policies.
Subject to compliance with all applicable regulatory requirements, we
have reserved certain rights. We have the right to change, add or delete
designated investment companies. We have the right to add or remove
Subaccounts. We have the right to withdraw assets of a class of policies
to which the Policy belongs from a Subaccount and put them in another
Subaccount. We also have the right to combine any two or more Subaccounts.
The term Subaccount in the Policy shall then refer to any other Subaccount
in which the assets of a class of policies to which the Policy belongs were
placed.
18
<PAGE>
We have the right to register other separate accounts or deregister
the Separate Account under the 1940 Act. We have the right to run the
Separate Account under the direction of a committee, and discharge such
committee at any time. We have the right to restrict or eliminate any
voting rights of Owners, or other persons who have voting rights as to the
Separate Account. We also have the right to operate the Separate Account
or one or more of the Subaccounts by making direct investments or in any
other form. If We do so, We may invest the assets of the Separate Account
or one or more of the Subaccounts in any legal investments. We will rely
upon Our own or outside counsel for advice in this regard. Also, unless
otherwise required by law or regulation, an investment advisor or any
investment of a Subaccount of Our Separate Account will not be changed by
Us unless approved by the Commissioner of Insurance of the State of
Delaware or deemed approved in accordance with such law or regulation. If
so required, the process for getting such approval is on file with the
insurance supervisory official of the jurisdiction in which this Policy is
delivered.
If any of these changes result in a material change in the underlying
investments of a Subaccount of Our Separate Account, We will notify You of
such change, as required by law. If You have value in that Subaccount, We
will transfer it at Your written direction from that Subaccount (without
charge) to another Subaccount of Our Separate Account or to Our Guaranteed
Account, and You may then change Your Premium allocation percentages.
The Funds and the Investment Advisors
Alliance Fund, Fidelity Fund, Fidelity Fund II, Dreyfus Fund,
Tomorrow Funds, and Van Eck Funds are each registered with the SEC as a
diversified open-end management investment company under the 1940 Act.
Each is a series-type mutual fund made up of different series, referred to
as portfolios. The Dreyfus Stock Index Fund (also a "Fund" herein) is an
open-end, non-diversified, management investment company, intended to be a
funding vehicle for separate accounts of life insurance companies. Shares
of the Funds are sold only to separate accounts of life insurance
companies. The investment objectives of each of the portfolios in which
Subaccounts invest are set forth below. The Fund prospectuses may include
portfolios or funds which are not available under this Policy.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Conservative Investors Portfolio -- seeks the highest total return without
undue risk to principal by investing in a diversified mix of publicly
traded equity and fixed-income securities.
Growth Investors Portfolio -- seeks the highest total return available with
reasonable risk by investing in a diversified mix of publicly traded equity
and fixed-income securities.
Growth Portfolio -- seeks the long term growth of capital by investing
primarily in common stocks and other equity securities.
19
<PAGE>
Growth and Income Portfolio -- seeks to balance the objectives of
reasonable current income and opportunities for appreciation through
investments primarily in dividend-paying common stocks of good quality.
Quasar Portfolio -- seeks growth of capital by pursuing aggressive
investment policies. The Portfolio invests principally in a diversified
portfolio of equity securities of any company and industry and in any type
of security which is believed to offer possibilities for capital
appreciation.
Technology Portfolio -- seeks growth of capital through investment in
companies expected to benefit from advances in technology. The Portfolio
invests principally in a diversified portfolio of securities of companies
which use technology extensively in the development of new or improved
products or processes.
The Alliance Fund is managed by Alliance Capital Management L.P.
("Alliance"). The Fund also includes other portfolios which are not
available for use by the Separate Account. More detailed information
regarding management of the portfolios, investment objectives, investment
advisory fees and other charges, may be found in the current Alliance Fund
prospectus which contains a discussion of the risks involved in investing.
The Alliance Fund prospectus is included with this Prospectus.
DREYFUS VARIABLE INVESTMENT FUND
Small Company Stock Portfolio -- seeks to provide investment results that
are greater than the total return performance of publicly-traded common
stocks in the aggregate, as represented by Russell 2500 TM Index.
DREYFUS STOCK INDEX FUND
The Fund seeks to provide investment results that correspond to the
price and yield performance of publicly traded common stocks in the
aggregate, as represented by the Standard & Poor's 500 Composite Stock
Price Index. In anticipation of taking a market position, the Fund is
permitted to purchase and sell stock index futures. The Fund is neither
sponsored by nor affiliated with Standard & Poor's Corporation.
The Dreyfus Corporation ("Dreyfus"), located at 200 Park Avenue, New
York, New York 10166, was formed in 1947 and serves as the investment
advisor for the Small Company Stock Portfolio, which is an available
portfolio of the Dreyfus Variable Investment Fund. Dreyfus is a wholly-
owned subsidiary of Mellon Bank, N.A. which is a wholly-owned subsidiary
of Mellon Bank Corporation ("Mellon"). As of March 31, 1997, Dreyfus
managed or administered approximately $82 billion in assets for
approximately 1.7 million investor accounts nationwide. The Fund also
includes other portfolios which are not available under this prospectus as
funding vehicles for the Policies. Dreyfus has engaged Mellon Equity,
located at 500 Grant Street, Pittsburgh, Pennsylvania 15258, to serve as
the Fund's index fund manager. Mellon Equity, a registered investment
advisor formed in 1957, is an indirect wholly-owned subsidiary of Mellon
20
<PAGE>
and, thus an affiliate of Dreyfus. As of December 31, 1996, Mellon Equity
and its employees managed approximately $11.3 billion in assets and served
as the investment advisor of 14 other investment companies. More detailed
information regarding management of the portfolios, investment objectives,
investment advisory fees and other charges assessed by the funds, are
contained in the prospectuses of the Dreyfus Variable Investment Fund and
of the Dreyfus Stock Index Fund, each of which is included with this
Prospectus.
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND
VIP Growth Portfolio -- seeks to aggressively achieve capital appreciation
through investments primarily in common stock.
VIP High Income Portfolio -- seeks to obtain a high level of current income
by investing primarily in high-yielding, lower-rated, fixed-income
securities, while also considering growth of capital.
VIP Overseas Portfolio -- seeks the long-term growth of capital primarily
through investments in securities of companies and economies outside of the
United States.
VIP Market Portfolio -- seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. The
portfolio will invest only in high quality U.S. dollar-denominated money
market securities of domestic and foreign issuers. An investment in the
Money Market Portfolio is neither insured nor guaranteed by the U.S.
government, and there can be no assurance that the portfolio will maintain
a stable $1.00 share price.
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II
VIP II Asset Manager Portfolio -- seeks to provide a high total return with
reduced risk over the long term by allocating its assets among stocks,
bonds and short-term income instruments.
VIP II Investment Grade Bond Portfolio -- seeks as high a level of current
income as in consistent with the preservation of capital by investing in a
broad range of investment-grade fixed-income securities. The fund will
maintain a dollar-weighted average portfolio maturity of ten years or less.
Fidelity Management & Research Company ("FMR") is the investment
advisor for both the Variable Insurance Products Fund and Variable
Insurance Products Fund II. FMR has entered into a sub-advisory agreement
with FMR Texas, Inc., on behalf of the Money Market Portfolio. On behalf
of the Overseas Portfolio, FMR has entered into sub-advisory agreements
with Fidelity Management & Research (U.K.) Inc. (FMR U.K.), Fidelity
Management & Research (Far East) Inc. (FMR Far East), and Fidelity
International Investment Advisors (FIIA). FMR U.K. and FMR Far East also
are sub-advisors to the Asset Manager Portfolio. Both Fidelity Fund and
Fidelity Fund II include other portfolios which are not available under
this prospectus as funding vehicles for the Policies. More detailed
21
<PAGE>
information regarding management of the portfolios, investment objectives,
investment advisory fees and other charges assessed by the Fidelity Fund,
are contained in the prospectuses of the Funds, each of which is included
with this Prospectus.
TOMORROW FUNDS RETIREMENT TRUST
Short-Term Retirement Fund -- seeks to satisfy the retirement goals of
investors who are currently between 51 and 65 years of age and with an
average remaining life expectancy in the range of 20-30 years.
Medium-Term Retirement Fund -- seeks to satisfy the retirement goals of
investors who are currently between 36 and 50 years of age and with an
average remaining life expectancy in the range of 35-50 years.
Long-Term Retirement Fund -- seeks to satisfy the retirement goals of
investors who are currently between 22 and 35 years of age and with an
average remaining life expectancy in the range of 50 years or more.
Each Tomorrow Funds portfolio invests its assets, in varying amounts,
in equity and fixed-income securities of all types. The amount of assets
allocated to equity securities is currently invested, in varying amounts,
among large capitalization stocks, medium capitalization stocks, small
capitalization stocks and, indirectly through other investment companies,
foreign securities. Typically, the longer the average life expectancy of
the target class of investors in a Tomorrow Funds portfolio, the greater
the allocation of assets of that portfolio to securities with high growth
potential and, correspondingly, more risk, such as small capitalization
stocks. Conversely, the shorter the average life expectancy of the target
class of investors in a Tomorrow Funds portfolio, the greater the emphasis
on current income and capital preservation of assets and, therefore, the
greater the allocation of assets of that portfolio to fixed-income
securities. Each Tomorrow Funds portfolio will be managed more
conservatively as the average age of its target class of investors
increases.
Weiss, Peck & Greer, L.L.C. is the investment adviser for the
Tomorrow Funds portfolios. Tomorrow Funds include other portfolios which
are not available under this Prospectus as funding vehicles for the
Contracts. More detailed information regarding management of the funds,
investment objectives, investment advisory fees and other charges assessed
by the Tomorrow Funds, is contained in the prospectuses of the Tomorrow
Funds, included with this Prospectus.
VAN ECK INVESTMENT TRUST
Worldwide Balanced Fund -- seeks long term capital appreciation together
with current income by investing its assets in the United States and other
countries throughout the world, and by allocating its assets among equity
securities, fixed-income securities and short-term instruments.
22
<PAGE>
Worldwide Hard Assets Fund* (formerly the Gold and Natural Resources
Fund) -- seeks long-term capital appreciation by investing globally,
primarily in equity and debt securities of companies engaged to a
significant extent in the exploration, development, production and
distribution of (1) precious metals; (2) ferrous and non-ferrous metals;
(3) oil and gas; (4) forest products; (5) real estate; and (6) other basic
non-agricultural commodities (collectively, "hard assets"). Income is a
secondary consideration.
*Effective May 1, 1997, the name and investment objectives of the Gold and
Natural Resources Fund were changed. The new name of the portfolio and its
investment objectives are described above.
Van Eck Associates Corporation is the investment adviser and manager
of the Van Eck Funds and has entered into sub-advisory agreements to
provide investment advice for certain portfolios. Fiduciary International
Inc. ("FII"), located at Two World Trade Center, New York, New York 10048,
is expected to serve as a sub-investment adviser to the Worldwide Balanced
Fund pursuant to a Sub-Investment Advisory Agreement with the Fund when the
portfolio's assets reach a level at which it is appropriate to use the sub-
investment adviser's services. FII will then be expected to manage the
investment operations of the Worldwide Balanced Fund and furnish it with a
continuous investment program including which securities should be bought,
sold, or held. At that time, the Adviser would manage and administer the
business and affairs of the portfolio. As compensation for its services,
FII will be paid a monthly fee at an annual rate of .50% of average daily
net assets by the Adviser from the advisory fee it receives from the
portfolio. FII serves as an investment adviser to other registered
investment companies.
The Van Eck Funds includes other portfolios which are not available
under this Prospectus as funding vehicles for the Policies. More detailed
information regarding management, investment objectives, and investment
advisory fees and other charges assessed by the Van Eck Funds, is contained
in the prospectus for the Fund included with this Prospectus.
There is no assurance that any of the portfolios will achieve their stated
objective.
The shares of the Funds are sold not only to the Separate Account,
but to other separate accounts of the Company that fund benefits under
variable annuity policies. The shares of the Funds are also sold to
separate accounts of other insurance companies. It is conceivable that in
the future it may become disadvantageous for variable life and variable
annuity policy separate accounts to invest in the same underlying mutual
fund. Although neither We nor the Funds currently perceive or anticipate
any such disadvantage, the Company will monitor events to determine whether
any material conflict between variable annuity owners and variable life
owners arises.
Material conflicts could result from such occurrences as (1) changes
in state insurance laws; (2) changes in federal income tax law; (3) changes
23
<PAGE>
in the investment management of any Fund; or (4) differences between voting
instructions given by variable annuity owners and those given by variable
life owners. In the event of a material irreconcilable conflict, We will
take the steps necessary to protect our variable annuity and variable life
owners. This could include discontinuance of investment in a Fund.
Each Fund sells and redeems its shares at Net Asset Value without any
sales charge. Any dividends or distributions from security transactions of
a Fund are reinvested at Net Asset Value in shares of the same Fund;
however, there are sales and additional charges associated with the
purchase of the Policies. (See "PREMIUMS AND ALLOCATIONS," page
___.)Further information about the Funds and the managers is contained in
the accompanying prospectuses, which You should read in conjunction with
this Prospectus.
Substitution of Securities
If investment in a Subaccount should no longer be possible or, if in
Our judgment, becomes inappropriate to the purposes of the Policies, or, if
in Our judgment, investment in another Subaccount or insurance company
separate account is in the interest of Owners, We may substitute another
Subaccount or insurance company separate account. No substitution may take
place without notice to Owners and prior approval of the SEC and insurance
regulatory authorities, to the extent required by the 1940 Act and
applicable law.
Voting Rights
We are the legal owner of shares held by the Subaccounts and as such
have the right to vote on all matters submitted to shareholders of the
Funds. However, as required by law, We will vote shares held in the
Subaccounts at regular and special meetings of shareholders of the Funds in
accordance with instructions received from Owners with Account Value in the
Subaccounts. Should the applicable federal securities laws, regulations or
interpretations thereof change so as to permit Us to vote shares of the
Funds in Our own right, We may elect to do so.
To obtain voting instructions from Owners, before a meeting We will
send Owners voting instruction material, a voting instruction form and any
other related material. The number of shares held by each Subaccount for
which an Owner may give voting instructions is currently determined by
dividing the portion of the Owner's Account Value in the Subaccount by the
Net Asset Value of one share of the applicable Fund. Fractional votes will
be counted. The number of votes for which an Owner may give instructions
will be determined as of a date chosen by the Company but not more than 90
days prior to the meeting of shareholders. Shares held by a Subaccount for
which no timely instructions are received will be voted by the Company in
the same proportion as those shares for which voting instructions are
received.
We may, if required by state insurance officials, disregard Owner
voting instructions if such instructions would require shares to be voted
24
<PAGE>
so as to cause a change in sub-classification or investment objectives of
one or more of the Funds, or to approve or disapprove an investment
advisory agreement. In addition, We may under certain circumstances
disregard voting instructions that would require changes in the investment
policy or investment adviser of one or more of the Funds, provided that We
reasonably disapprove of such changes in accordance with applicable federal
regulations. If We ever disregard voting instructions, We will advise
Owners of that action and of Our reasons for such action in the next
semiannual report. Finally, We reserve the right to modify the manner in
which We calculate the weight to be given to pass through voting
instructions where such a change is necessary to comply with current
federal regulations or the current interpretation thereof.
25
<PAGE>
PREMIUMS AND ALLOCATIONS
Applying for a Policy
If You want to purchase a Policy, You must complete an application
and submit it to one of Our authorized agents. The minimum Policy size
will be $50,000 of Face Amount at issue. You must pay an initial Premium
at least equal to the minimum required. (See "PREMIUMS," below.) Your
Premium may be submitted with the application or at a later date, but
Policy coverage will not become effective until the initial Premium is
received at Our Administrative Office.
We require satisfactory evidence of the Insured's insurability, which
may include a medical examination of the Insured. Generally, We will issue
a Policy covering an Insured up to age 75 if evidence of insurability
satisfies Our underwriting rules. Acceptance of an application depends on
Our underwriting rules. We reserve the right to reject an application for
any reason.
Period to Examine and Cancel Policy
The Policy provides for an initial period during which the Owner may
examine the Policy and cancel it for any reason (the "Period to Examine and
Cancel"). The Owner may cancel the Policy before the latest of: (a) 45 days
after Part I of the Application for the Policy is signed; (b) 10 days after
the Owner receives the Policy; and (c) 10 days after the Company mails or
personally delivers a Notice of Withdrawal Right to the Owner. The period
will be extended beyond 10 days after Policy delivery, if required by the
state where the Owner resides. Upon returning the Policy to the Administrative
Office or to an agent of the Company within such time with a written request
for cancellation, the Owner will receive a refund equal to the gross premium
paid on the Policy and will not reflect the investment experience of the
Separate Account.
The Period to Examine and Cancel also applies after a requested
increase in Face Amount as to the amount of the increase and the Premium
paid for the increased Face Amount.
Premiums
The minimum initial Premium required depends on a number of factors,
such as the age, sex and underwriting rate class of the proposed Insured,
the desired Face Amount ($50,000 minimum amount) and any supplemental
benefits. The minimum initial Premium must be at least equal to two
payments of the Planned Periodic Premium. (See "PLANNED PERIODIC
PREMIUMS," below.) Sample Basic Minimum Premiums are shown in the
Appendix.
Additional Premiums may be paid in any amount and at any time,
subject to the following limits. First, a Premium must be at least $50 and
must be sent to Our Administrative Office. We may require satisfactory
evidence of insurability before accepting any Premium which results in an
increase in the net amount at risk (defined on page __).
26
<PAGE>
In addition, total Premiums paid may not exceed guideline Premium
limitations for life insurance set forth in the Internal Revenue Code. We
will refund any portion of any Premium which is determined to be in excess
of the Premium limit established by law to qualify a Policy as a Policy for
life insurance. The amount refunded will be the excess Premium. In
addition, We will monitor Policies and will attempt to notify the Owner on
a timely basis if his or her Policy is in jeopardy of becoming a modified
endowment contract under the Internal Revenue Code. (See "TAX
CONSIDERATIONS," page __.)
Lastly, no Premium will be accepted after the Maturity Date.
Planned Periodic Premiums. When applying for a Policy, You select a
plan for paying level Premiums at specified intervals, e.g., monthly,
quarterly, semi-annually or annually, until the Maturity Date. You are not
required to pay Premiums in accordance with this plan; rather, You can pay
more or less than planned or skip a Planned Periodic Premium entirely. You
can change the amount and frequency of Planned Periodic Premiums whenever
You want by sending written notice to Our Administrative Office. However,
We reserve the right to limit the amount of a Premium or the total Premiums
paid, as discussed above.
The Planned Periodic Premium may be recalculated if the Policy Face
Amount is increased or decreased.
The first year minimum Premium payable must be at least as great as
the Planned Periodic Premium. If Premiums cease at any time, the insurance
provided under the Policy will continue for as long as the Net Cash
Surrender Value in the Policy is sufficient to keep it in force (See "GRACE
PERIOD" below).
We will send You a reminder notice for Your Planned Periodic
Premiums.
Premiums Upon Increase in Specified Face Amount. Depending on the
Account Value at the time of an increase in the Face Amount and the amount
of the increase requested, an additional Premium or change in the amount of
Planned Periodic Premiums may be advisable. (See "CHANGES IN FACE AMOUNT,"
page ___.)
Premiums to Prevent Lapse
Failure to pay Planned Periodic Premiums will not necessarily cause a
Policy to lapse. Conversely, paying all Planned Periodic Premiums will not
necessarily guarantee that a Policy will not lapse. Rather, whether a
Policy lapses depends on whether its Net Cash Surrender Value is
insufficient to cover the monthly deduction when due (see page ___).
If the Net Cash Surrender Value on a Monthly Anniversary is less than
the amount of the monthly deduction to be deducted on that date, the Policy
will be in default and a Grace Period will begin. This could happen if
investment experience has been sufficiently unfavorable that it has
27
<PAGE>
resulted in a decrease in the Net Cash Surrender Value or the Net Cash
Surrender Value has decreased because of any combination of the following:
Outstanding Loans, partial surrenders, expense charges, or insufficient
Premiums paid to offset the monthly deduction. A Policy that lapses with
an Outstanding Loan may have tax consequences. (See "TAX CONSIDERATIONS,"
page ___.)
Grace Period. If Your Policy goes into default, You will be allowed
a 61-day Grace Period to pay a Premium sufficient to keep the Policy in
force for 3 months. We will send notice of the amount required to be paid
during the Grace Period ("Grace Period Premium") to Your last known address
and to any assignee of record. The Grace Period will begin when the notice
is sent. Your Policy will remain in effect during the Grace Period. If
the Insured should die during the Grace Period or before the Grace Period
Premium is paid, the Death Benefit will still be payable to the
Beneficiary, although the amount paid will reflect a reduction for the
monthly deductions due on or before the date of the Insured's death. See
"Death Benefit," page ___. If the Grace Period Premium has not been paid
before the Grace Period ends, Your Policy will lapse. It will have no
value and no benefits will be payable. (See "REINSTATEMENT," page ___.)
A Grace Period may also begin if Outstanding Loans exceed the Policy
limit. (See "LOAN REPAYMENT; EFFECT IF NOT REPAID," page ___.)
Net Premium Allocations
In the application, You specify the percentage of a Net Premium to be
allocated to each Subaccount. This allocation must comply with the
allocation rules described in the following paragraph. However, until the
Period to Examine and Cancel expires, all Net Premiums received are
invested in the Money Market Subaccount. The first business day after the
period expires, the Account Value in the Money Market Subaccount is
transferred and allocated based on the Premium allocation percentages in
the application. (See "DETERMINING THE POLICY VALUE," page ___.)
The Premium allocation percentages specified in the application will
apply to subsequent Premiums until You change them. You can change the
allocation percentages at any time, subject to the rules below, by sending
written notice to Our Administrative Office. The change will apply to all
Premiums received with or after Your notice.
Dollar Cost Averaging
If elected, this option allows for automatic transfer from the Money
Market Subaccount into other Subaccounts for a specified dollar amount or
number of months not in excess of 24. This option can be elected at any
time provided there is a minimum balance of $2,000 in the Money Market
Subaccount at the time of election. The allocation to the Subaccounts will
be based on Your Premium allocation that is in effect at the time of each
transfer. The automatic transfers will begin on the first Monthly
Anniversary following the end of Your Free Look Period; or, if You elect
the option after Your application has been submitted, the automatic
28
<PAGE>
transfers will begin on the second Monthly Anniversary following the
receipt of Your request at Our Administrative Office.
If You elect to transfer a specific dollar amount each month, the
automatic transfers will continue until Your Money Market Subaccount is
depleted. If You elect to have Your funds transferred over a specific
number of months, We will transfer a fraction equal to one divided by the
number of months remaining in the period. For example, if You elect to
transfer over a 12 month period, the first transfer will be 1/12 of Your
Money Market Subaccount value, the second transfer will be for 1/11, the
third will be for 1/10 and so on until the end of the requested period.
Automatic transfers will remain in effect until one of the following
conditions occur:
1. The funds in the Money Market Subaccount are depleted;
2. We receive Your written request at Our Administrative Office to
cancel future transfers;
3. We receive notification of death of the Insured; or
4. The Policy lapses.
Use of Dollar Cost Averaging does not guarantee investment gains or
protect against loss in a declining market.
The allocation and transfer provisions discussed below do not apply
to transfers effected under the Dollar Cost Averaging Option.
Allocation Rules. No less than 5% of a Premium may be allocated to
any one Subaccount. The sum of Your allocations must equal 100% and each
allocation percentage must be a whole number.
Crediting Premiums
The initial Net Premium will be credited to the Policy as of the
Policy Date. Subsequent Planned Periodic Premiums and accepted unplanned
premiums will be credited to the Policy and the Net Premiums will be
invested as of the date the Premium or notification of deposit is received
at Our Administrative Office. However, any Net Premiums requiring
underwriting will be allocated to the Money Market Subaccount until
underwriting has been completed. When accepted or at the end of the Period
to Examine and Cancel, the Account Value in the Money Market Subaccount
attributable to the resulting Net Premium will be credited to the Policy
and allocated in accordance with the specified allocation percentages. Net
Premiums not requiring underwriting will be invested in the Subaccounts
according to the specified allocation percentages directly. If additional
Premium is rejected, We will refund the excess amount.
Transfers
You may transfer Account Value among the Subaccounts subject to the
following rules, some of which depend on whether Account Value is to be
transferred from a Subaccount or the Guaranteed Account. Transfer requests
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must be in writing. Transfers may not be requested until after the end of
the Period to Examine and Cancel (see page ___). A transfer will take
effect on the date the request is received at Our Administrative Office.
We may, however, defer transfers under the same conditions as described in
"WHEN PROCEEDS ARE PAID," page ___. There is no limit on the number of
transfers. However, after six (6) transfers have been made during a Policy
Year, We currently impose a $25 transfer charge on each subsequent
transfer. (See "TRANSFER CHARGE," page ___.) The Company reserves the
right to increase or decrease the number of "free" transfers allowed in any
Policy Year.
The minimum amount of Account Value that may be transferred is $250.
If less than the full amount of Account Value in a Subaccount is being
transferred from the Subaccount, the amount remaining must be at least
$250. If the amount remaining would be less than $250, the full amount of
the Account Value will be transferred.
Subaccount Transfer Rules. Transfers among Subaccounts and from
Subaccounts to the Guaranteed Account may be made at any time after the
Period to Examine and Cancel. All transfers processed on the same business
date will count as one transfer for purposes of determining whether the
transfer is free or may be subject to the $25 charge.
Guaranteed Account Transfer Rules. Account Value held in the
Guaranteed Account may be transferred to a Subaccount or Subaccounts only
during the 60-day period within 30 days before and following the end of
each Policy Year. The amount transferred must be at least $250, or the
Account Value held in the Guaranteed Account, whichever is less. If the
amount transferred is less than the Account Value then held in the
Guaranteed Account, at least $250 must remain in the Guaranteed Account.
The maximum allowable amount that can be transferred from the Guaranteed
Account, at any one time, is 25% of the unloaned portion of the Guaranteed
Account. (See "DEDUCTIONS FROM THE GUARANTEED ACCOUNT," page ___, for
additional rules and limits for the Guaranteed Account.)
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GUARANTEED ACCOUNT
Because of exemptive and exclusionary provisions, interests in the
Guaranteed Account have not been registered under the Securities Act of
1933 nor has the Guaranteed Account been registered as an investment
company under the Investment Company Act of 1940. Accordingly, neither the
Guaranteed Account nor any interests therein are subject to the provisions
of these Acts and, as a result, the staff of the Securities and Exchange
Commission has not reviewed the disclosure in this Prospectus relating to
the Guaranteed Account. The disclosure regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
The Guaranteed Account is an account within the general account of
the Company. It is part of Our general account assets. Our general
account assets are used to support Our insurance and annuity obligations
other than those funded by separate accounts. Subject to applicable law,
We have sole discretion over the investment of the assets of the general
account. The Loan Account is part of the Guaranteed Account.
Interest Credited on Policy Value in the Guaranteed Account
Net Premiums allocated to the Guaranteed Account and Account Value
transferred from the Subaccounts to the Guaranteed Account are credited to
the Guaranteed Account portion of the Account Value. We will credit
interest on these amounts at rates We determine in Our sole discretion, but
in no event will interest credited on these amounts be less than an
effective rate of at least 0.32737% per month, compounded monthly which
equates to 4% per year, compounded annually. The Loan Account portion of
the Guaranteed Account will be credited with interest at an annual rate
that is 2.0% less than the then current Policy loan interest rate.
However, if at the time of an allocation or transfer to the
Guaranteed Account, We are crediting a rate of interest higher than 4%, the
higher rate will apply to the amount from the date of its allocation or
transfer to the Guaranteed Account through the end of the period during
which the excess rate is effective. If a higher rate of interest is
credited, different rates of interest may apply to amounts allocated or
transferred at different times, and different rates of interest may apply
to amounts held in a Loan Account than to the remaining portion of Account
Value held in the Guaranteed Account. YOU ASSUME THE RISK THAT INTEREST
CREDITED MAY NOT EXCEED THE GUARANTEED MINIMUM RATE OF 4% PER YEAR.
Calculating Guaranteed Account Value
The Guaranteed Account Value is calculated daily. (See "GUARANTEED
ACCOUNT VALUE," page __.)
Deductions from the Guaranteed Account
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Amounts allocated to the Guaranteed Account at different times,
whether from Net Premiums or transfers, may be credited with different
rates of interest. Whenever a charge is deducted from the Account Value in
the Guaranteed Account, or an amount is withdrawn from the Account Value in
the Guaranteed Account to satisfy a partial surrender, transfer or Policy
loan request, the charge or withdrawal will be taken first from the amount
most recently allocated to the Guaranteed Account, then the amount next
most recently allocated, and so forth. See page ___ for limits and
restrictions on transfers of Account Value from the Guaranteed Account.
If there is any Account Value in the Loan Account, it is not
available for transfers, partial surrenders or Policy loans, nor any
charges deducted from this portion of Account Value. Amounts are
transferred to or from the Loan Account only when Policy loans are taken or
repayments made. If an amount is transferred from the Loan Account to the
remaining portion of the Guaranteed Account Value, it will be treated as a
new allocation to the Guaranteed Account and will be credited with interest
at the rate then in effect for Guaranteed Account allocations. (See "LOAN
ACCOUNT," page ___.)
Payments from the Guaranteed Account
We may defer payment of proceeds from the Guaranteed Account for a
partial surrender, surrender or Policy loan request for up to six months
from the date We receive the written request. If a payment from the
Guaranteed Account is deferred for 30 days or more, it will bear interest
at a rate of 4% per year compounded annually while it is deferred.
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CHARGES AND DEDUCTIONS
Periodically, the Company will deduct charges from the Account Value
and also from each Premium to cover certain expenses related to issuing and
administering the Policy. These charges and deductions are described in
the Policy as either guaranteed or current. The Company will never charge
more than the guaranteed amount; however, solely within the Company's
discretion, it may on a current basis charge less than the guaranteed
amount.
Premium Charges
We will deduct a charge from each Premium. This charge consists of a
5% sales charge plus an explicit percent of Premium equal to the state and
local premium tax rate applicable to the Policy (e.g., a typical state
premium tax rate would be in the range of 2% to 2.5%). An additional sales
charge may be deducted on a partial surrender or surrender of a Policy
during the first 14 Policy Years. (See "SURRENDER CHARGES," page ___.)
The 5% sales charge partially compensates Us for the expenses of
selling and distributing the Policies, including paying sales commissions,
printing prospectuses, preparing sales literature and paying for other
promotional activities.
Daily Mortality and Expense Risk Charge
We deduct a daily charge from assets in the Subaccounts attributable
to the Policies for assuming certain mortality and expense risks under the
Policy. This charge does not apply to Guaranteed Account assets
attributable to the Policies. The guaranteed and current charge is at an
annual rate of 0.90% of net assets. Although the charge may be decreased
to not less than 0.50% in Policy Years 11 and later, it is guaranteed not
to exceed 0.90% for the duration of a Policy. Starting in Policy Year 11,
if the current charge is less than .90%, We will notify You before We
increase this charge. We may realize a profit from this charge.
The mortality risk We assume is that the Insureds on the Policies may
die sooner than anticipated and that therefore the Company will pay an
aggregate amount of death benefits greater than anticipated. The expense
risk we assume is that expenses incurred in issuing and administering the
Policies and the Separate Account will exceed the amounts realized from the
administrative charges assessed against the Policies.
Monthly Deduction
On the Issue Date and each Monthly Anniversary, We deduct the monthly
deduction from the Account Value. The amount deducted on the Issue Date is
for the Policy Date and any Monthly Anniversaries that have elapsed since
the Policy Date. (For this purpose, the Policy Date is treated as a
Monthly Anniversary.) The monthly deduction consists of (1) administrative
charges (the "Monthly Expense Charge"), (2) insurance charges ("Cost of
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Insurance Charge"), and (3) any charges for additional benefits added by
supplemental agreement to a Policy ("Supplemental Benefit Charges"), as
described below. The monthly deduction is deducted from the Accounts pro
rata on the basis of the portion of Account Value in each Account. (See
"DEDUCTIONS FROM THE GUARANTEED ACCOUNT," page ___.)
Current and Guaranteed Expense Charges. The monthly expense charge
varies by current Policy Face Amount. There is also an additional monthly
charge (see "First Year Additional Charge" in table below) during the first
Policy year and the twelve months immediately following an increase in Face
Amount.
The monthly expense charges per Policy varying by the Policy Face
Amount and the additional monthly charge during the first Policy Year and
every twelve months immediately following an increase in Face Amount for
current and guaranteed expense charges are shown below:
Current Guaranteed
Monthly Expense Charge Per Policy Charge Charge
If Face Amount is between $50,000 and $7.50 $15.00
$199,99
If Face Amount is between $200,000 and $5.00 $10.00
$499,999
If Face Amount is $500,000 or greater $ 4.00 $10.00
First Year Additional Charge $20.00 $25.00
These charges compensate Us for administrative expenses associated
with the Policies and the Separate Account. These expenses relate to
Premium billing and collection, recordkeeping, processing Death Benefit
claims, Policy loans, Policy changes, reporting and overhead costs,
processing applications and establishing Policy records.
Cost of Insurance Charge. This charge compensates Us for providing
insurance coverage. The charge depends on a number of factors, such as
Attained Age, sex and rate class of the Insured, and therefore will vary
from Policy to Policy and from Monthly Anniversary to Monthly Anniversary.
For any Policy the cost of insurance on a Monthly Anniversary is calculated
by multiplying the cost of insurance rate for the Insured by the net amount
at risk under the Policy for that Monthly Anniversary.
The Net Amount at Risk is calculated as (a) minus (b) where
(a) is the current Death Benefit at the beginning of the Policy
month divided by 1.0032737.
(b) is current total Account Value.
The cost of insurance rate for a Policy is based on the Attained Age,
sex and rate class of the Insured, and therefore varies from time to time.
We currently place Insureds in one of three basic rate classifications,
based on Our underwriting: a smoker, a nonsmoker standard, or a rate class
involving a higher mortality risk (a "substandard class"). Insureds
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Attained Age 14 and under are placed in a rate class that does not
distinguish between smoker and nonsmoker, and are assigned to a smoker
class at Attained Age 15 unless they have provided satisfactory evidence
that they qualify for a nonsmoker class.
We place the Insured in a rate class when We issue the Policy based
on Our underwriting of the application. This original rate class applies
to the initial Face Amount. When an increase in Face Amount is requested,
We conduct underwriting before approving the increase (except as noted
below) to determine whether a different rate class will apply to the
increase. If the rate class for the increase has lower cost of insurance
rates than the original rate class, the rate class for the increase also
will be applied to the initial Face Amount. If the rate class for the
increase has higher cost of insurance rates than the original rate class,
the rate class for the increase will apply only to the increase in Face
Amount, and the original rate class will continue to apply to the initial
Face Amount.
If there have been increases in the Face Amount, we may use different
cost of insurance rates for the increased portions of the Policy Face
Amount. For purposes of calculating the cost of insurance charge after the
Face Amount has been increased, the Account Value will be applied to the
initial Face Amount first and then to any subsequent increases in Face
Amount. If at the time an increase is requested, the Account Value exceeds
the initial Face Amount (or any subsequently increased Face Amount) divided
by 1.0032737, the excess will then be applied to the subsequent increase in
Face Amount in the sequence of the increases.
If the Death Benefit equals the Account Value multiplied by the
applicable death benefit corridor percentage, any increase in Account Value
will cause an automatic increase in Death Benefit. The Attained Age and
underwriting class for such increase will be the same as that used for the
most recent increase in Face Amount (that has not been eliminated through a
subsequent decrease in Face Amount).
If there is a decrease in Face Amount after there had been prior
increases to the Face Amount, then for purposes of calculating the cost of
insurance charge, the decrease will first be applied to reduce any prior
increases in Face Amount, starting with the most recent increase in Face
Amount and then to each prior increase.
The guaranteed cost of insurance rates for substandard policies
issued on a table rated basis are based on multiples of the 1980 CSO
tables. The substandard multiple applicable depends on the substandard
underwriting classification assigned to the insured. Currently, multiples
range from 125% to 500% of the 1980 CSO tables.
The guaranteed cost of insurance charges at any given time for a
substandard policy with flat extra charges will be based on the guaranteed
maximum cost of insurance rate for the policy (including table rating
multiples, if applicable), the current net amount at risk at the time the
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deduction is made, plus the actual dollar amount of the flat extra charge.
Our current cost of insurance rates may be less than the guaranteed rates.
Our current cost of insurance rates will be determined based on Our
expectations as to future mortality, investment, expense and persistency
experience. These rates may change from time to time. In the Company's
discretion, the current charge may be increased in any amount up to the
maximum guaranteed charge shown in the table.
Cost of insurance rates (whether guaranteed or current) for an
Insured in a nonsmoker standard class are lower than guaranteed rates for
an Insured of the same age and sex in a smoker standard class. Cost of
insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker or smoker standard class are generally lower than guaranteed
rates for an Insured of the same age and sex and smoking status in a
substandard class.
We do not conduct underwriting for an increase in Face Amount if the
increase is requested as part of a conversion from a term policy issued by
the Company. (See "SUPPLEMENTAL BENEFITS," page ___.) In the case of a
term conversion, the rate class that applies to the increase is the same
rate class that applied to the term policy.
Legal Considerations Relating to Sex-Distinct Premiums and Benefits.
Mortality tables for the Policies generally distinguish between males and
females. Thus, Premiums and benefits under Policies covering males and
females of the same age will generally differ.
We do, however, also offer Policies based on unisex mortality tables
if required by state law. Employers and employee organizations considering
purchase of a Policy should consult their legal advisors to determine
whether purchase of a Policy based on sex-distinct actuarial tables is
consistent with Title VII of the Civil Rights Act of 1964 or other
applicable law. Upon request, We may offer Policies with unisex mortality
tables to such prospective purchasers.
Supplemental Benefit Charges. See "SUPPLEMENTAL BENEFITS," page ___.
Transfer Charge
We currently impose a $25 transfer charge on any transfer of Account
Value among the Subaccounts in excess of six free transfers permitted each
Policy Year. If the charge is imposed, it will be deducted from the amount
requested to be transferred before allocation to the new Subaccount(s) and
shown in the confirmation of the transaction. If an amount is being
transferred from more than one Subaccount, the transfer charge will be
deducted proportionately from the amount being transferred from each
Subaccount. This charge, if imposed, will reimburse Us for administrative
expenses incurred in effecting transfers.
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Surrender Charge
If the Policy is surrendered during the first 14 Policy Years, We
will deduct a surrender charge for the initial Face Amount. If a Policy is
surrendered within 14 years after an increase in Face Amount, We will
deduct a surrender charge for the increase in Face Amount. The surrender
charge will be deducted before any surrender proceeds are paid.
Surrender Charge for Initial Face Amount. The surrender charge for
the initial Face Amount will be no greater than the sum of (1) and (2)
times a duration factor (as shown in the table below), where:
(1) is equal to 25% of the first year paid Premium up to the
surrender charge premium (which is an amount calculated
separately for each Policy based on age, sex and
smoker/nonsmoker class and is provided in the Appendix); and
(2) is equal to 4% of the first year paid Premium in excess of the
surrender charge premium.
The following table lists the Policy duration factor as described
above:
Policy Surrender Charge
Duration Factor
-------- ----------------
1 100%
2 100%
3 100%
4 100%
5 100%
6 90%
7 80%
8 70%
9 60%
10 50%
11 40%
12 30%
13 20%
14 10%
15+ 0%
A Table of Surrender Charge Premiums for various ages, sex and Face
Amount in the nonsmoker class is shown in Appendix B.
An increase in the Face Amount of the Policy will result in an
additional surrender charge during the 14 years. The additional surrender
charge period will begin on the effective date of the increase.
If the Face Amount of the Policy is reduced before the end of the
14th Policy Year or within 14 years immediately following a Face Amount
increase, We may also deduct a pro rata share of any applicable surrender
charge from Your Account Value. Reductions will first be applied against
the most recent increase in the Face Amount of the Policy. They will then
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be applied to prior increases in the Face Amount of the Policy in the
reverse order in which such increases took place, and then to the original
Face Amount of the Policy.
Partial Surrender Charge
The partial surrender charge is equal to a pro rata portion of the
surrender charge that would apply to a full surrender, determined by
multiplying the applicable full surrender charge by a fraction (equal to
the partial surrender amount payable plus the partial surrender
administrative charge divided by the result of subtracting the applicable
surrender charge from the unloaned portion of the Account Value). This
amount is assessed against the Subaccounts or the Guaranteed Account in the
same manner as provided for with respect to the partial surrender amount
paid.
A partial surrender charge is also deducted from the Account Value
upon a decrease in Face Amount. The charge is equal to the applicable
surrender charge multiplied by a fraction (equal to the decrease in Face
Amount divided by the Face Amount of the Policy prior to the decrease).
Partial Surrender Administrative Charge
We will deduct an administrative charge upon a partial surrender.
This charge is $25. If required by the insurance regulations of any state,
the administrative charge for a partial surrender will be equal to the
lesser of $25 or 2% of the amount surrendered. This charge will be
deducted from the Account Value in addition to the amount requested to be
surrendered and will be considered to be part of the partial surrender
amount. (See page __ for rules for allocating the deduction and "Partial
Surrenders" on page __.)
Each partial surrender will reduce the Account Value by the amount of
partial surrender plus the proportional surrender charge and $25 fee. If
the Death Benefit coverage is the Level Death Benefit Option, the Face
Amount will also be reduced by the amount of the partial surrender in the
following order:
1. The most recent increase in the Face Amount, if any, will be
reduced first.
2. The next most recent increases in the Face Amount, if any, will
then be successively decreased.
3. The initial Face Amount will then be decreased.
Discount Purchase Programs
The amount of the surrender charge may be reduced or eliminated when
sales of the Policies are made to individuals or to groups of individuals
in a manner that, in the opinion of the Company, results in savings of
sales expenses. For purchases made by officers, directors and employees of
the Company, an affiliate, or any individual, firm, or company that has
executed the necessary agreements to sell the Policies, and members of the
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immediate families of such officers, directors, and employees, the Company
may reduce or eliminate the surrender charge.
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HOW YOUR ACCOUNT VALUE VARIES
There is no minimum guaranteed Account Value or Net Cash Surrender
Value. These values will vary with the investment experience of the
Subaccounts and/or the crediting of interest in the Guaranteed Account, and
will depend on the allocation of Account Value. If the Net Cash Surrender
Value on a Monthly Anniversary is less than the amount of the monthly
deduction to be deducted on that date (see page __), the Policy will be in
default and a Grace Period will begin.
Determining the Account Value
On the Policy Date the Account Value is equal to the initial Net
Premium. If the Policy Date and the Issue Date are the same day, the
Account Value is equal to the initial Net Premium, less the monthly
deduction. On each Valuation Date thereafter, the value is the aggregate
of the accumulation values in the Subaccounts and the Guaranteed Account
portion of the Account Value. The Account Value will vary to reflect the
performance of the Subaccounts to which amounts have been allocated,
interest credited on amounts allocated to the Guaranteed Account, charges,
transfers, withdrawals, Policy loans and Policy loan repayments.
Accumulation Unit Values. When You allocate an amount to a
Subaccount, either by Net Premium allocation or transfer of Account Value,
Your Policy is credited with accumulation units in that Subaccount. The
number of accumulation units is determined by dividing the amount allocated
to the Subaccount by the Subaccount's accumulation unit value for the
Valuation Date when the allocation is effected.
The number of Subaccount accumulation units credited to Your Policy
will increase when Net Premiums are allocated to the Subaccount, amounts
are transferred to the Subaccount and loan repayments are credited to the
Subaccount. The number of Subaccount accumulation units credited to a
Policy will decrease when the allocated portion of the monthly deduction is
taken from the Subaccount, a Policy loan is taken from the Subaccount, an
amount is transferred from the Subaccount, or a partial surrender,
including the partial surrender charge, is taken from the Subaccount.
A Subaccount's accumulation unit value varies to reflect the
investment experience of the underlying Portfolio, and may increase or
decrease from one Valuation Date to the next. The accumulation unit value
for each Subaccount was arbitrarily set at $10 when the Subaccount was
established. For each Valuation Period after the date of establishment,
the accumulation unit value is determined by multiplying the value of an
accumulation unit for a Subaccount for the prior valuation period by the
net investment factor for the Subaccount for the current valuation period.
Net Investment Factor. The net investment factor is an index used to
measure the investment performance of a Subaccount from one Valuation
Period to the next. It is based on the change in net asset value of the
Fund shares held by the Subaccount, and reflects any dividend or capital
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gain distributions on Fund shares and the deduction of the daily mortality
and expense risk charge.
Guaranteed Account Value. On any Valuation Date, the Guaranteed
Account portion of the Account Value of a Policy is the total of all Net
Premiums allocated to the Guaranteed Account, plus any amounts transferred
to the Guaranteed Account, plus interest credited on such Net Premiums and
amounts, less the amount of any transfers from the Guaranteed Account, less
the amount of any partial surrenders, including the partial surrender
charges, taken from the Guaranteed Account, and less the pro rata portion
of the monthly deduction deducted from the Guaranteed Account. If there
have been any Policy loans, the Guaranteed Account Value is further
adjusted to reflect the amount in the Loan Account held in the Guaranteed
Account, including transfers to and from the Loan Account as loans are
taken and repayments are made, and interest credited on the Loan Account.
Net Account Value
The Net Account Value on a Valuation Date is the Account Value less
Outstanding Loans on that date.
Cash Surrender Value
The Cash Surrender Value on a Valuation Date is the Account Value
reduced by any surrender charge that would be assessed if the Policy were
surrendered on that date. The Cash Surrender Value is used to calculate
the loan value and to determine whether Outstanding Loans exceed the Policy
limits (see page ___). The loan value may not exceed 90% of the Net Cash
Surrender Value at the time the loan is made.
Net Cash Surrender Value
The Net Cash Surrender Value on a Valuation Date is equal to the Net
Account Value reduced by any surrender charge that would be imposed if the
Policy were surrendered on that date. It is the amount received upon a
full surrender of the Policy.
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DEATH BENEFIT AND CHANGES IN FACE AMOUNT
As long as the Policy remains in force, We will pay the Death Benefit
upon receipt at Our Administrative Office of satisfactory proof of the
Insured's death. We will require return of the Policy. The Death Benefit
will be paid in a lump sum generally within seven days after We receive due
proof of the death of the Insured (see "WHEN PROCEEDS ARE PAID," page ___),
or, if elected, under a payment option (see "PAYMENT OPTIONS," page ___).
The Death Benefit will be paid to the Beneficiary. (See "SELECTING AND
CHANGING THE BENEFICIARY," page __.)
If part or all of the Death Benefit is paid in one sum, the Company
will pay interest on this sum from the date of the Insured's death to the
date of payment. We determine the interest rate, but it will not be less
than a rate of 3% per year compounded annually.
Death Benefit Options
The Policy Owner may choose one of two Death Benefit Options, which
will determine the Death Benefit. Under Option I, the Death Benefit is the
greater of the Face Amount or the applicable percentage of Account Value on
the date of the Insured's death. Under Option II, the Death Benefit is the
greater of the Face Amount plus the Account Value, or the applicable
percentage of the Account Value, on the date of the Insured's death.
If investment performance is favorable the amount of the Death
Benefit may increase. However, under Option I, the Death Benefit
ordinarily will not change for several years to reflect any favorable
investment performance and may not change at all, whereas under Option II,
the Death Benefit will vary directly with the investment performance of the
Account Value. To see how and when investment performance may begin to
affect the Death Benefit, please see the illustrations beginning on page
___.
The applicable percentage of Account Value is 250% when the Insured
is Attained Age 40 or less, and decreases each year thereafter to 100% when
the Insured is Attained Age 95. A table showing the applicable percentages
for Attained Ages 0 to 99 is shown below. The Internal Revenue Code
requires that the applicable percentage requirements be met in order for
the Policy to qualify under the Code as life insurance.
Table of Applicable Percentages
Percentage of Policy
Attained Age Account Value
------------ --------------------
Under 40 250%
45 215%
50 185%
55 150%
60 130%
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70 115%
75 through 90 105%
95 through 99 100%
The initial Face Amount is set at the time the Policy is issued. You
may increase or decrease the Face Amount from time to time, as discussed
below. You select from Options I or II when you apply for the Policy. You
also may change the Option, as discussed below.
Changes in Death Benefit Options
You can change Your Death Benefit Option on Your Policy subject to
the following rules. After any change, We may require that You submit
evidence, satisfactory to Us that the Insured is then insurable. If You
ask Us to change from Option I to Option II, We will decrease the Face
Amount of the Policy by the amount in Your Account Value on the date the
change takes effect. However, We reserve the right to decline to make such
change if it would reduce the Face Amount of this Policy below the minimum
Face Amount for which We would then issue the Policy under Our rules. If
You ask Us to change from Option II to Option I, We will increase the Face
Amount of this Policy by the amount in Your Account Value on the date the
change takes effect. Such decreases and increases in the Face Amount of
the Policy are made so that the Death Benefit remains the same on the date
the change takes effect. However, if Your Death Benefit is determined by a
percentage multiple of the Account Value, there may be an increase in the
Death Benefit.
The change will take effect at the beginning of the Policy Month that
coincides with or next follows the date We approve Your request.
We reserve the right to decline to make any change that We determine
would cause the Policy to fail to qualify as life insurance under
applicable tax law as interpreted by Us.
You may ask for a change by completing an Application For Change,
which You can get from Our agent or by writing to Us at Our Administrative
Office. A copy of Your Application For Change will be attached to the new
policy information section of the Policy that We will issue when the change
is made. The new section and the Application For Change will become a part
of the Policy. We may require You to return the Policy to Our
Administrative Office to make a Policy change.
Changes in Face Amount
At any time after the first Policy Year while the Policy is in force,
You may request a change in the Face Amount, subject to the following
conditions. No change will be permitted that would result in Your Policy's
Death Benefit not being excludable from gross income due to not satisfying
the requirements of Section 7702 of the Internal Revenue Code. (See "TAX
CONSIDERATIONS," page ___.)
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Any increase in the Face Amount must be at least $10,000, however,
the resulting Face Amount of the Policy after the increase may not be in
excess of twice the Face Amount of the Policy on the Issue Date. A written
application must be submitted to Our Administrative Office along with
evidence of insurability satisfactory to the Company. A change in the
Planned Periodic Premium may be advisable. (See "PREMIUMS UPON INCREASE IN
SPECIFIED FACE AMOUNT," page ___.) The increase in Face Amount will become
effective on the Monthly Anniversary on or next following the date the
increase is approved, and the Account Value will be adjusted to the extent
necessary to reflect a monthly deduction as of the effective date based on
the increase in Face Amount. You must return Your Policy so We can amend
the Policy to reflect the increase. There will be an additional $20 per
month in Monthly Expense Charges imposed on the contract for the next
twelve months immediately following the effective date of such an increase.
Any decrease in the Face Amount must be at least $5,000 and the Face
Amount after the decrease must be at least $50,000. In addition, no
decrease may be made in the first twelve months following the effective
date of an increase in Face Amount. During the first five Policy Years,
the Face Amount may not be decreased by more than 10 percent of the initial
Face Amount in any one Policy Year. A decrease in Face Amount will become
effective on the Monthly Anniversary that coincides with or next follows
Our receipt of a request at Our Administrative Office.
There is an impact on Surrender Charges for both increases and
decreases in Face Amount. (See "SURRENDER CHARGES," page __.) In
addition, an increase or decrease in Face Amount may impact the status of
the Policy as a Modified Endowment Contract. (See "TAX CONSIDERATIONS,"
page __.)
Selecting and Changing the Beneficiary
You select a Beneficiary in Your application. You may later change
the Beneficiary in accordance with the terms of the Policy. If the Insured
dies and there is no surviving Beneficiary, the Owner's estate will be the
Beneficiary.
CASH BENEFITS
Policy Loans
You may borrow up to the loan value of Your Policy at any time after
the first twelve months of the Policy, or after the first twelve months
following any increase in Face Amount, by submitting a written request to
Our Administrative Office. The minimum amount You may borrow is $500. The
loan value is 90% of Your Net Cash Surrender Value. Outstanding Loans
reduce the amount of the loan value available for new Policy loans. Policy
loans will be processed as of the date Your written request is received and
loan proceeds generally will be sent to You within seven days. (See "WHEN
PROCEEDS ARE PAID," page ___, and "PAYMENTS FROM THE GUARANTEED ACCOUNT,"
page ___.) In addition, loans from Modified Endowment Contracts may be
44
<PAGE>
treated for tax purposes as distributions of income. (See "TAX
CONSIDERATIONS," page ___.)
Interest. We will charge interest daily on any outstanding Policy
loan at a declared annual rate not in excess of 8.00%. The current rate,
subject to change by the Company, is 8.00%. Interest is due and payable at
the end of each Policy Year while a Policy loan is outstanding. If
interest is not paid when due, the amount of the interest is added to the
loan and becomes part of the outstanding Policy loan.
Outstanding Loans. Unrepaid Policy loans (including unpaid interest
added to the loan) plus accrued interest not yet due equals the Outstanding
Loans.
Loan Repayment; Effect if Not Repaid. You may repay all or part of
Your Outstanding Loan at any time while the Insured is living and the
Policy is in force. Loan repayments must be sent to Our Administrative
Office and will be credited as of the date received. If the Death Benefit
becomes payable while a Policy loan is outstanding, the Outstanding Loan
will be deducted in calculating the Death Benefit. If the Outstanding
Loans exceed the Net Cash Surrender Value on any monthly anniversary, the
Policy will be in default. We will send You, and any assignee of record,
notice of the default. You will have a 61-day Grace Period to submit a
sufficient payment to avoid termination. The notice will specify the
amount that must be repaid to prevent termination.
Loan Account. When a Policy loan is made, an amount equal to the
loan proceeds is withdrawn from the Account Value in the Subaccounts. This
withdrawal is made pro rata on the basis of the Account Value in each
Subaccount unless You direct a different allocation when requesting the
loan. The loan amount withdrawn is then transferred to the Loan Account in
the Guaranteed Account. Conversely, when a loan is repaid, an amount equal
to the repayment will be transferred from the Loan Account to the
Subaccounts in accordance with Your then effective Net Premium allocation
percentages. Thus, a loan or loan repayment will have no immediate effect
on the Account Value, but other Policy values, such as the Net Policy Value
and Net Cash Surrender Value, will be reduced or increased immediately by
the amount transferred to or from the Loan Account.
Policy Loan Net Cost. The maximum net cost of a loan is 2.00% per
year (the difference between the rate of interest We charge on Policy loans
and the amount We credit on the equivalent amount held in the Loan
Account). In addition, We currently intend to credit 6.00% on the amount
held in the Loan Account during the first 10 Policy Years. The net loan
cost during the first ten Policy Years will always be no more than 2.00%.
For Policy Years 11 and later, a portion of the maximum loanable
amount may be available on a preferred loan basis. The amount available on
a preferred basis is the excess, if any, of the Account Value over the sum
of the Premiums paid. For a preferred loan, the interest rate charged and
credited to the preferred portion of the loan value will be the same.
45
<PAGE>
Effect of Policy Loan. A Policy loan, whether or not repaid, will
have a permanent effect on the Death Benefit and Account Value because the
investment results of the Subaccounts and current interest rates credited
in the Guaranteed Account will apply only to the non-loaned portion of the
Account Value. The longer the loan is outstanding, the greater this effect
is likely to be. Depending on the investment results of the Subaccounts or
credited interest rates for the Guaranteed Account while the Policy loan is
outstanding, the effect could be favorable or unfavorable. Also, Policy
loans could, particularly if not repaid, make it more likely than otherwise
for a Policy to terminate.
Surrendering the Policy for Net Cash Surrender Value
You may surrender your Policy at any time for its Net Cash Surrender
Value by submitting a written request to Our Administrative Office. We
will require return of the Policy. A surrender charge may apply. (See
"SURRENDER CHARGES," page ___.) A surrender request will be processed as
of the date Your written request and all required documents are received
and generally will be paid within seven days. (See "WHEN PROCEEDS ARE
PAID," page ___, and "PAYMENTS FROM THE GUARANTEED ACCOUNT," page ___.)
The Net Cash Surrender Value may be taken in one sum or it may be applied
to a payment option. (See "PAYMENT OPTIONS," below.) Your Policy will
terminate and cease to be in force if it is surrendered for one sum. It
cannot later be reinstated.
Partial Surrenders
We will not allow a partial surrender during the first twelve months
of the Policy or during the first twelve Policy Months immediately
following an increase in the Face Amount of the Policy. After the first
Policy Year, You may make partial surrenders under Your Policy up to a
maximum of 90% of the Net Cash Surrender Value subject to the following
conditions. You must submit a written request to Our Administrative
Office. The Net Cash Surrender Value must exceed $500 after the partial
surrender is deducted from the Account Value. No more than two partial
surrenders may be made during a Policy Year, and each partial surrender
must be at least $500. A partial surrender charge and an administrative
charge will be assessed on a partial surrender. (See "PARTIAL SURRENDER
CHARGE," page __.) This charge will be deducted from Your Account Value
along with the amount requested to be surrendered and will be considered
part of the partial surrender (together, the "partial surrender amount").
Account Value will be reduced by the partial surrender amount.
When You request a partial surrender, You can direct how the partial
surrender amount will be deducted from Your Account Value in the Accounts.
If You provide no directions, the partial surrender amount will be deducted
from Your Account Value in the Accounts on a pro rata basis. (See
"PAYMENTS FROM THE GUARANTEED ACCOUNT," page __.)
If Option I is in effect, the Face Amount will also be reduced by the
partial surrender amount. If the Face Amount has been increased, the
partial surrender will reduce first the most recent increase, and then the
46
<PAGE>
next most recent increase, if any, in reverse order, and finally the
initial Face Amount. No partial surrender may be made that would reduce
the Face Amount to less than $50,000.
Partial surrender requests will be processed as of the date your
written request is received, and generally will be paid within seven days.
(See "WHEN PROCEEDS ARE PAID," page __, and "PAYMENTS FROM THE GUARANTEED
ACCOUNT," page __.)
Surrenders of all or part of a Policy may have tax consequences.
(See "TAX CONSIDERATIONS," page __.)
Maturity Benefit
The Maturity Date is the Policy Anniversary following Insured's
Attained Age 99 unless you requested an extended Maturity Date. If the
Policy is still in force on the Maturity Date, the Maturity Benefit will be
paid to You. The Maturity Benefit is equal to the Account Value less
Outstanding Loans on the Maturity Date. Maturity of a Policy may have tax
consequences. (See "TAX CONSIDERATIONS," page __.)
Payment Options
The Policy offers a wide variety of optional ways of receiving
proceeds payable under the Policy, such as on surrender, death or maturity,
other than in a lump sum. Any agent authorized to sell this Policy can
explain these options upon request. None of these options vary with the
investment performance of a separate account because they are all forms of
guaranteed benefit payments.
47
<PAGE>
ILLUSTRATIONS OF POLICY VALUES, NET CASH SURRENDER
VALUES, DEATH BENEFITS AND ACCUMULATED PREMIUMS
The following tables have been prepared to show how certain values
under a Policy change with investment performance over an extended period
of time. The tables illustrate how Account Value, Net Cash Surrender Value
and Death Benefit under a Policy covering an Insured of a given age on the
Issue Date, would vary over time if planned Premiums were paid annually and
the return on the assets in the selected Funds was an average rate of 0%,
6% or 12%. The tables also show Planned Periodic Premiums accumulated at
5% interest.
The tables reflect the fact that the net investment return on the
assets held in the subaccounts is lower than the gross after tax return of
the selected Funds. The tables assume an average annual expense ratio of
0.85% of the average daily net assets of the Funds available under the
Policies. This average annual expense ratio is based on the expense ratios
of each of the Funds for the last fiscal year, adjusted, as appropriate,
for any material changes in expenses effective for the current fiscal year
of a Fund. For information on Fund expenses, see the prospectuses for the
Funds accompanying this prospectus.
In addition, the tables reflect the daily charge to the Separate
Account for assuming mortality and expense risks, which is equivalent to an
effective annual charge at the guaranteed maximum rate of 0.90% which is
also the current rate. In Policy Years 11 and later, the Company may
reduce the effective annual charge to a current rate of no less than 0.50%.
After deduction of Fund expenses and the mortality and expense risk charge,
the illustrated gross annual investment rates of return of 0%, 6% and 12%
would correspond to approximate net annual rates of 1.74%, 4.26% and
10.26%.
The tables also reflect the deduction of the monthly expense charge
and the monthly cost of insurance charge for the hypothetical Insured. Our
current cost of insurance charges and the higher guaranteed maximum cost of
insurance charges We have the contractual right to charge are reflected in
separate tables on each of the following pages. All the tables reflect the
fact that no charges for federal income taxes are currently made against
the Separate Account and assume no Outstanding Loans or charges for
supplemental benefits. The tables also reflect a state premium tax rate of
2.00%.
The illustrations are based on Our sex distinct rates for nonsmokers.
Upon request, We will furnish a comparable illustration based upon the
proposed Insured's individual circumstances. Such illustrations may assume
different hypothetical rates of return than those illustrated in the
following tables.
48
<PAGE>
ILLUSTRATION OF POLICY VALUES
AIG LIFE INSURANCE COMPANY
Male Issue Age 40 Non Smoker
$3,200 Annual Premium
$250,000 Face Amount
Death Benefit Option (Level)
<TABLE>
<CAPTION>
Using Current Cost of Insurance Rates
-----------------------------------------------------------------------------------------------------------------
Premiums 0% Hypothetical 6% Hypothetical 12% Hypothetical
Accumulated Gross Investment Return Gross Investment Return Gross Investment Return
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
End of at 5.00% Policy Net Cash Policy Net Cash Policy Net Cash
Policy Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
1 $3,360 $2,205 $1,405 $250,000 $2,358 $1,558 $250,000 $2,511 $1,711 $250,000
2 $6,888 $4,595 $3,795 $250,000 $5,044 $4,244 $250,000 $5,511 $4,711 $250,000
3 $10,592 $6,932 $6,132 $250,000 $7,831 $7,031 $250,000 $8,804 $8,004 $250,000
4 $14,482 $9,215 $8,415 $250,000 $10,721 $9,921 $250,000 $12,416 $11,616 $250,000
5 $18,566 $11,431 $10,631 $250,000 $13,706 $12,906 $250,000 $16,367 $15,567 $250,000
6 $22,854 $13,543 $12,823 $250,000 $16,749 $16,029 $250,000 $20,651 $19,931 $250,000
7 $27,357 $15,565 $14,925 $250,000 $19,868 $19,228 $250,000 $25,317 $24,677 $250,000
8 $32,085 $17,503 $16,943 $250,000 $23,070 $22,510 $250,000 $30,412 $29,852 $250,000
9 $37,049 $19,396 $18,916 $250,000 $26,398 $25,918 $250,000 $36,019 $35,539 $250,000
10 $42,262 $21,215 $20,815 $250,000 $29,829 $29,429 $250,000 $42,164 $41,764 $250,000
11 $47,735 $23,026 $22,706 $250,000 $33,475 $33,155 $250,000 $49,072 $48,752 $250,000
12 $53,482 $24,746 $24,506 $250,000 $37,228 $36,988 $250,000 $56,665 $56,425 $250,000
13 $59,516 $26,389 $26,229 $250,000 $41,110 $40,950 $250,000 $65,034 $64,874 $250,000
14 $65,851 $27,955 $27,875 $250,000 $45,129 $45,049 $250,000 $74,268 $74,188 $250,000
15 $72,504 $29,422 $29,422 $250,000 $49,269 $49,269 $250,000 $84,446 $84,446 $250,000
16 $79,489 $30,743 $30,743 $250,000 $53,496 $53,496 $250,000 $95,644 $95,644 $250,000
17 $86,824 $31,934 $31,934 $250,000 $57,831 $57,831 $250,000 $108,000 $108,000 $250,000
18 $94,525 $32,965 $32,965 $250,000 $62,257 $62,257 $250,000 $121,635 $121,635 $250,000
19 $102,611 $33,818 $33,818 $250,000 $66,764 $66,764 $250,000 $136,703 $136,703 $250,000
20 $111,102 $34,532 $34,532 $250,000 $71,398 $71,398 $250,000 $153,409 $153,409 $250,000
25 $160,363 $35,929 $35,929 $250,000 $96,836 $96,836 $250,000 $268,563 $268,563 $327,647
30 $223,235 $31,985 $31,985 $250,000 $126,443 $126,443 $250,000 $456,374 $456,374 $529,394
</TABLE>
The above illustrations are based on the following:
(1) Assumes no policy loans have been made.
(2) Current values reflect current cost of insurance rates, a state
premium tax rate of 2.00%, a combined administrative charge of
49
<PAGE>
$25.00 per month in year 1 and $5.00 per month thereafter, and
a mortality and expense risk charge of 0.90% of assets for the
first 10 policy years and 0.50% for policy years eleven and later.
(3) Net investment returns are calculated as the hypothetical
gross investment returns less all charges and deductions shown
in the prospectus.
(4) Assumes that the premium is paid at the beginning of the policy
year. Values would be different if the premiums are paid with a
different frequency or in different amounts.
==========================================================================
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE AND ELSEWHERE IN
THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES
OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER
OF FACTORS INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING
RATES AND RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED
0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW
THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE
BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
50
<PAGE>
<TABLE>
<CAPTION>
Illustration of Policy Values
AIG Life Insurance Company
Male Issue Age 40 Non Smoker
$3,200 Annual Premium
$250,000 Face Amount
Death Benefit Option (Level)
Using Guaranteed Cost of Insurance Rates
--------------------------------------------------------------------------------------------------------
Premiums 0% Hypothetical 6% Hypothetical 12% Hypothetical
Accumulated Gross Investment Return Gross Investment Return Gross Investment Return
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
End of at 5.00% Policy Net Cash Policy Net Cash Policy Net Cash
Policy Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
1 $3,360 $1,927 $1,127 $250,000 $2,070 $1,270 $250,000 $2,215 $1,415 $250,000
2 $6,888 $4,079 $3,279 $250,000 $4,495 $3,695 $250,000 $4,928 $4,128 $250,000
3 $10,592 $6,154 $5,354 $250,000 $6,979 $6,179 $250,000 $7,875 $7,075 $250,000
4 $14,482 $8,148 $7,348 $250,000 $9,524 $8,724 $250,000 $11,074 $10,274 $250,000
5 $18,566 $10,060 $9,260 $250,000 $12,126 $11,326 $250,000 $14,549 $13,749 $250,000
6 $22,854 $11,883 $11,163 $250,000 $14,783 $14,063 $250,000 $18,322 $17,602 $250,000
7 $27,357 $13,616 $12,976 $250,000 $17,495 $16,855 $250,000 $22,423 $21,783 $250,000
8 $32,085 $15,256 $14,696 $250,000 $20,260 $19,700 $250,000 $26,883 $26,323 $250,000
9 $37,049 $16,799 $16,319 $250,000 $23,075 $22,595 $250,000 $31,736 $31,256 $250,000
10 $42,262 $18,239 $17,839 $250,000 $25,939 $25,539 $250,000 $37,020 $36,620 $250,000
11 $47,735 $19,568 $19,248 $250,000 $28,843 $28,523 $250,000 $42,773 $42,453 $250,000
12 $53,482 $20,775 $20,535 $250,000 $31,780 $31,540 $250,000 $49,038 $48,798 $250,000
13 $59,516 $21,846 $21,686 $250,000 $34,738 $34,578 $250,000 $55,862 $55,702 $250,000
14 $65,851 $22,766 $22,686 $250,000 $37,703 $37,623 $250,000 $63,295 $63,215 $250,000
15 $72,504 $23,522 $23,522 $250,000 $40,665 $40,665 $250,000 $71,401 $71,401 $250,000
16 $79,489 $24,099 $24,099 $250,000 $43,612 $43,612 $250,000 $80,249 $80,249 $250,000
17 $86,824 $24,484 $24,484 $250,000 $46,532 $46,532 $250,000 $89,924 $89,924 $250,000
18 $94,525 $24,669 $24,669 $250,000 $49,419 $49,419 $250,000 $100,526 $100,526 $250,000
19 $102,611 $24,632 $24,632 $250,000 $52,256 $52,256 $250,000 $112,164 $112,164 $250,000
20 $111,102 $24,348 $24,348 $250,000 $55,022 $55,022 $250,000 $124,962 $124,962 $250,000
25 $160,363 $17,985 $17,985 $250,000 $66,780 $66,780 $250,000 $212,469 $212,469 $259,213
30 $223,235 $0 $0 $0 $71,235 $71,235 $250,000 $353,973 $353,973 $410,609
</TABLE>
The above illustrations are based on the following:
(1) Assumes no policy loans have been made.
(2) Values reflect guaranteed cost of insurance rates, a state
premium tax rate of 2.00%, a combined administrative charge
of $35.00 per month in year 1 and $10.00 per month
thereafter,
51
<PAGE>
and a mortality and expense risk charge of 0.90% of assets
for all years.
(3) Net investment returns are calculated as the
hypothetical gross investment returns less all charges and
deductions shown in the prospectus.
(4) Assumes that the premium is paid at the beginning of
the policy year. Values would be different if the premiums
are paid with a different frequency or in different amounts.
==============================================================
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT
BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND
RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW
THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
52
<PAGE>
Illustration of Policy Values
AIG Life Insurance Company
$8,500 Annual Premium
$400,000 Face Amount
Death Benefit Option (Level)
Male Issue Age 50 Non Smoker
<TABLE>
<CAPTION>
Using Current Cost of Insurance
Rates
- -----------------------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums
Accumulated
Policy
End of at 5.00% Policy Net Cash Death Net Cash Policy Net Cash
Policy Interest Account Surrender Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
1 $8,925 $6,116 $3,991 $400,000 $6,530 $4,405 $400,000 $6,945 $4,820 $400,000
2 $18,296 $12,259 $10,134 $400,000 $13,471 $11,346 $400,000 $14,734 $12,609 $400,000
3 $28,136 $18,216 $16,091 $400,000 $20,624 $18,499 $400,000 $23,233 $21,108 $400,000
4 $38,468 $23,992 $21,867 $400,000 $28,001 $25,876 $400,000 $32,518 $30,393 $400,000
5 $49,316 $29,549 $27,424 $400,000 $35,573 $33,448 $400,000 $42,634 $40,509 $400,000
6 $60,707 $34,816 $32,903 $400,000 $43,275 $41,362 $400,000 $53,598 $51,685 $400,000
7 $72,667 $39,823 $38,123 $400,000 $51,144 $49,444 $400,000 $65,535 $63,835 $400,000
8 $85,226 $44,526 $43,039 $400,000 $59,146 $57,658 $400,000 $78,512 $77,024 $400,000
9 $98,412 $48,902 $47,627 $400,000 $67,263 $65,988 $400,000 $92,628 $91,353 $400,000
10 $112,258 $53,019 $51,957 $400,000 $75,575 $74,512 $400,000 $108,086 $107,023 $400,000
11 $126,796 $57,077 $56,227 $400,000 $84,401 $83,551 $400,000 $125,519 $124,669 $400,000
12 $142,060 $60,953 $60,316 $400,000 $93,559 $92,922 $400,000 $144,820 $144,182 $400,000
13 $158,088 $64,593 $64,168 $400,000 $103,024 $102,599 $400,000 $166,178 $165,753 $400,000
14 $174,918 $67,966 $67,754 $400,000 $112,793 $112,581 $400,000 $189,838 $189,625 $400,000
15 $192,589 $71,053 $71,053 $400,000 $122,877 $122,877 $400,000 $216,091 $216,091 $400,000
16 $211,143 $73,835 $73,835 $400,000 $133,290 $133,290 $400,000 $245,278 $245,278 $400,000
17 $230,625 $76,260 $76,260 $400,000 $144,025 $144,025 $400,000 $277,779 $277,779 $400,000
18 $251,082 $78,270 $78,270 $400,000 $155,075 $155,075 $400,000 $314,049 $314,049 $400,000
19 $272,561 $79,823 $79,823 $400,000 $166,453 $166,453 $400,000 $354,593 $354,593 $414,874
20 $295,114 $80,879 $80,879 $400,000 $178,183 $178,183 $400,000 $399,369 $399,369 $463,267
25 $425,964 $76,510 $76,510 $400,000 $243,201 $243,201 $400,000 $702,822 $702,822 $752,020
30 $592,967 $49,687 $49,687 $400,000 $326,223 $326,223 $400,000 $1,200,63 $1,200,630 $1,260,661
</TABLE>
The above illustrations are based on the following:
53
<PAGE>
(1) Assumes no policy loans have been made.
(2) Current values reflect current cost of insurance rates,
a state premium tax rate of 2.00%, a combined
administrative charge of $25.00 per month in year 1 and
$5.00 per month thereafter, and a mortality and expense
risk charge of 0.90% of assets for the
first 10 policy years and 0.50% for policy years eleven
and later.
(3) Net investment returns are calculated as the
hypothetical gross investment returns less all charges
and deductions shown in the prospectus.
(4) Assumes that the premium is paid at the beginning of
the policy year. Values would be different if the
premiums are paid with a different frequency or in
different amounts.
==============================================================
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT
BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND
RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%, OR 12% OVER A PERIOD OF YEARS BUT ALSO
FLUCTUATED ABOVE OR BELOW
THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
54
<PAGE>
Illustration of Policy Values
AIG Life Insurance Company
Male Issue Age 50 $8,500 Annual Premium
Non Smoker
$400,000 Face Amount
Death Benefit Option (Level)
<TABLE>
<CAPTION>
Using Guaranteed Cost of Insurance Rates
---------------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
-------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums
Accumulated
End of at 5.00% Policy Net Cash Policy Net Cash Policy Net Cash
Policy Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
1 $8,925 $5,360 $3,235 $400,000 $5,750 $3,625 $400,000 $6,141 $4,016 $400,000
2 $18,296 $10,772 $8,647 $400,000 $11,892 $9,767 $400,000 $13,061 $10,936 $400,000
3 $28,136 $15,916 $13,791 $400,000 $18,116 $15,991 $400,000 $20,504 $18,379 $400,000
4 $38,468 $20,771 $18,646 $400,000 $24,402 $22,277 $400,000 $28,506 $26,381 $400,000
5 $49,316 $25,319 $23,194 $400,000 $30,736 $28,611 $400,000 $37,108 $34,983 $400,000
6 $60,707 $29,541 $27,629 $400,000 $37,097 $35,185 $400,000 $46,360 $44,448 $400,000
7 $72,667 $33,421 $31,721 $400,000 $43,473 $41,773 $400,000 $56,322 $54,622 $400,000
8 $85,226 $36,951 $35,463 $400,000 $49,857 $48,370 $400,000 $67,073 $65,586 $400,000
9 $98,412 $40,102 $38,827 $400,000 $56,226 $54,951 $400,000 $78,688 $77,413 $400,000
10 $112,258 $42,843 $41,781 $400,000 $62,551 $61,489 $400,000 $91,247 $90,185 $400,000
11 $126,796 $45,135 $44,285 $400,000 $68,800 $67,950 $400,000 $104,849 $103,999 $400,000
12 $142,060 $46,938 $46,301 $400,000 $74,938 $74,300 $400,000 $119,606 $118,968 $400,000
13 $158,088 $48,184 $47,759 $400,000 $80,906 $80,481 $400,000 $135,636 $135,211 $400,000
14 $174,918 $48,806 $48,593 $400,000 $86,648 $86,435 $400,000 $153,090 $152,877 $400,000
15 $192,589 $48,735 $48,735 $400,000 $92,107 $92,107 $400,000 $172,156 $172,156 $400,000
16 $211,143 $47,904 $47,904 $400,000 $97,228 $97,228 $400,000 $193,070 $193,070 $400,000
17 $230,625 $46,241 $46,241 $400,000 $101,959 $101,959 $400,000 $216,125 $216,125 $400,000
18 $251,082 $43,674 $43,674 $400,000 $106,244 $106,244 $400,000 $241,681 $241,681 $400,000
19 $272,561 $40,101 $40,101 $400,000 $110,009 $110,009 $400,000 $270,173 $270,173 $400,000
20 $295,114 $35,382 $35,382 $400,000 $113,148 $113,148 $400,000 $302,126 $302,126 $400,000
25 $425,964 $0 $0 $0 $112,746 $112,746 $400,000 $526,573 $526,573 $563,433
30 $592,967 $0 $0 $0 $55,418 $55,418 $400,000 $886,643 $886,643 $930,975
</TABLE>
The above illustrations are based on the following:
(1) Assumes no policy loans have been made.
(2) Values reflect guaranteed cost of insurance rates, a state
55
<PAGE>
premium tax rate of 2.00%, a combined administrative charge of
$35.00 per month in year 1 and $10.00 per month thereafter,
and a mortality and expense risk charge of 0.90% of assets for
all years.
(3) Net investment returns are calculated as the hypothetical gross
investment returns less all charges and deductions shown in the
prospectus.
(4) Assumes that the premium is paid at the beginning of the policy
year. Values would be different if the premiums are paid with
a different frequency or in different amounts.
============================================================================
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND
RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD
BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%,
OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY THE
COMPANY OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED
FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
56
<PAGE>
Illustration of Policy Values
AIG Life Insurance Company
Male Issue Age 35 Non Smoker
$2,000 Annual Premium
$200,000 Face Amount
Death Benefit Option (Level)
<TABLE>
<CAPTION>
Using Current Cost of Insurance Rates
--------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums
Accumulated
End of at 5.00% Policy Net Cash Policy Net Cash Policy Net Cash
Policy Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
1 $2,100 $1,277 $777 $200,000 $1,369 $869 $200,000 $1,462 $962 $200,000
2 $4,305 $2,760 $2,260 $200,000 $3,030 $2,530 $200,000 $3,313 $2,813 $200,000
3 $6,620 $4,203 $3,703 $200,000 $4,748 $4,248 $200,000 $5,337 $4,837 $200,000
4 $9,051 $5,608 $5,108 $200,000 $6,523 $6,023 $200,000 $7,551 $7,051 $200,000
5 $11,604 $6,968 $6,468 $200,000 $8,351 $7,851 $200,000 $9,968 $9,468 $200,000
6 $14,284 $8,290 $7,840 $200,000 $10,242 $9,792 $200,000 $12,615 $12,165 $200,000
7 $17,098 $9,576 $9,176 $200,000 $12,199 $11,799 $200,000 $15,518 $15,118 $200,000
8 $20,053 $10,830 $10,480 $200,000 $14,230 $13,880 $200,000 $18,707 $18,357 $200,000
9 $23,156 $12,052 $11,752 $200,000 $16,336 $16,036 $200,000 $22,209 $21,909 $200,000
10 $26,414 $13,229 $12,979 $200,000 $18,508 $18,258 $200,000 $26,047 $25,797 $200,000
11 $29,834 $14,390 $14,190 $200,000 $20,803 $20,603 $200,000 $30,347 $30,147 $200,000
12 $33,426 $15,493 $15,343 $200,000 $23,163 $23,013 $200,000 $35,064 $34,914 $200,000
13 $37,197 $16,540 $16,440 $200,000 $25,596 $25,496 $200,000 $40,251 $40,151 $200,000
14 $41,157 $17,563 $17,513 $200,000 $28,134 $28,084 $200,000 $45,986 $45,936 $200,000
15 $45,315 $18,538 $18,538 $200,000 $30,760 $30,760 $200,000 $52,311 $52,311 $200,000
16 $49,681 $19,444 $19,444 $200,000 $33,459 $33,459 $200,000 $59,271 $59,271 $200,000
17 $54,265 $20,283 $20,283 $200,000 $36,236 $36,236 $200,000 $66,943 $66,943 $200,000
18 $59,078 $21,064 $21,064 $200,000 $39,107 $39,107 $200,000 $75,416 $75,416 $200,000
19 $64,132 $21,790 $21,790 $200,000 $42,076 $42,076 $200,000 $84,783 $84,783 $200,000
20 $69,439 $22,440 $22,440 $200,000 $45,132 $45,132 $200,000 $95,134 $95,134 $200,000
25 $100,227 $23,949 $23,949 $200,000 $61,395 $61,395 $200,000 $165,906 $165,906 $222,315
30 $139,522 $22,487 $22,487 $200,000 $79,945 $79,945 $200,000 $282,063 $282,063 $344,117
</TABLE>
The above illustrations are based on the following:
(1) Assumes no policy loans have been made.
(2) Current values reflect current cost of insurance rates, a
57
<PAGE>
state premium tax rate of 2.00%, a combined administrative
charge of $25.00 per month in year 1 and $5.00 per month
thereafter, and a mortality and expense risk charge of
0.90% of assets for the first 10 policy years and 0.50%
for policy years eleven and later.
(3) Net investment returns are calculated as the hypothetical
gross investment returns less all charges and deductions
shown in the prospectus.
(4) Assumes that the premium is paid at the beginning of the
policy year. Values would be different if the premiums
are paid with a different frequency or in different amounts.
==============================================================
THE HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT
BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE
SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND
RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A
POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF
RETURN AVERAGED 0%, 6%,
OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW
THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION
CAN BE MADE BY THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL
RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
58
<PAGE>
Illustration of Policy Values
AIG Life Insurance Company
Male Issue Age 35
Non Smoker
$2,000 Annual Premium
$200,000 Face Amount
Death Benefit Option (Level)
<TABLE>
<CAPTION>
Using Guaranteed Cost of Insurance Rates
-----------------------------------------------------------------------------------------------------------
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums
Accumulated
End of at 5.00% Policy Net Cash Policy Net Cash Policy Net Cash
Policy Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
1 $2,100 $1,073 $573 $200,000 $1,158 $658 $200,000 $1,244 $744 $200,000
2 $4,305 $2,409 $1,909 $200,000 $2,656 $2,156 $200,000 $2,914 $2,414 $200,000
3 $6,620 $3,701 $3,201 $200,000 $4,195 $3,695 $200,000 $4,730 $4,230 $200,000
4 $9,051 $4,948 $4,448 $200,000 $5,775 $5,275 $200,000 $6,707 $6,207 $200,000
5 $11,604 $6,150 $5,650 $200,000 $7,398 $6,898 $200,000 $8,860 $8,360 $200,000
6 $14,284 $7,301 $6,851 $200,000 $9,059 $8,609 $200,000 $11,200 $10,750 $200,000
7 $17,098 $8,401 $8,001 $200,000 $10,759 $10,359 $200,000 $13,747 $13,347 $200,000
8 $20,053 $9,449 $9,099 $200,000 $12,498 $12,148 $200,000 $16,522 $16,172 $200,000
9 $23,156 $10,443 $10,143 $200,000 $14,274 $13,974 $200,000 $19,544 $19,244 $200,000
10 $26,414 $11,380 $11,130 $200,000 $16,087 $15,837 $200,000 $22,837 $22,587 $200,000
11 $29,834 $12,255 $12,055 $200,000 $17,934 $17,734 $200,000 $26,426 $26,226 $200,000
12 $33,426 $13,067 $12,917 $200,000 $19,813 $19,663 $200,000 $30,339 $30,189 $200,000
13 $37,197 $13,812 $13,712 $200,000 $21,723 $21,623 $200,000 $34,610 $34,510 $200,000
14 $41,157 $14,488 $14,438 $200,000 $23,661 $23,611 $200,000 $39,275 $39,225 $200,000
15 $45,315 $15,089 $15,089 $200,000 $25,625 $25,625 $200,000 $44,371 $44,371 $200,000
16 $49,681 $15,607 $15,607 $200,000 $27,608 $27,608 $200,000 $49,942 $49,942 $200,000
17 $54,265 $16,035 $16,035 $200,000 $29,603 $29,603 $200,000 $56,034 $56,034 $200,000
18 $59,078 $16,359 $16,359 $200,000 $31,600 $31,600 $200,000 $62,697 $62,697 $200,000
19 $64,132 $16,568 $16,568 $200,000 $33,588 $33,588 $200,000 $69,989 $69,989 $200,000
20 $69,439 $16,649 $16,649 $200,000 $35,556 $35,556 $200,000 $77,979 $77,979 $200,000
25 $100,227 $14,717 $14,717 $200,000 $44,734 $44,734 $200,000 $131,626 $131,626 $200,000
30 $139,522 $6,922 $6,922 $200,000 $51,125 $51,125 $200,000 $219,379 $219,379 $267,643
</TABLE>
The above illustrations are based on the following:
(1) Assumes no policy loans have been made.
(2) Values reflect guaranteed cost of insurance rates, a state
premium tax rate of 2.00%, a combined administrative charge
59
<PAGE>
of $35.00 per month in year 1 and $10.00 per month
thereafter, and a mortality and expense risk charge of 0.90%
of assets for all years.
(3) Net investment returns are calculated as the hypothetical
gross investment returns less all charges and deductions
shown in the prospectus.
(4) Assumes that the premium is paid at the beginning of the
policy year. Values would be different if the premiums are
paid with a different frequency or in different amounts.
==============================================================
HYPOTHETICAL INVESTMENT RATE OF RETURN SHOWN ABOVE AND ELSEWHERE IN THIS
PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION
OF PAST OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS
INCLUDING THE INVESTMENT ALLOCATIONS MADE BY AN OWNER, PREVAILING RATES AND
RATES OF INFLATION. THE DEATH BENEFIT AND CASH VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL RATES OF RETURN AVERAGED 0%, 6%,
OR 12% OVER A PERIOD OF YEARS BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATION CAN BE MADE BY
THE COMPANY OR THE FUND THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
60
<PAGE>
OTHER POLICY BENEFITS AND PROVISIONS
Right to Convert
The Policy may be converted to a Policy of flexible premium fixed benefit
life insurance on the life of the Insured. This conversion may be made
either:
a. within 24 months after the Issue Date while the Policy is in
force or within 24 months of any increase in Face Amount, or
b. within 60 days of the effective date of a material change in the
investment policy of a Subaccount, or within 60 days of the
notification of such change, if later. In the event of such a
change, the Company will notify the Owner and give the Owner
information on the options available.
When such a conversion is made, no evidence of insurability is
required. When a conversion is requested, the Company accomplishes this by
transferring all of the Account Value to the Guaranteed Account. There is
no charge for this transfer. Once this option is exercised, the entire
Account Value must remain in the Guaranteed Account for the life of the
Policy. The Face Amount in effect at the time of the conversion remains
unchanged. The Effective Date, Date of Issue and Issue Age are unchanged.
The Owner and Beneficiary are the same as were recorded immediately before
the conversion.
Limits on Our Rights to Contest the Policy
Incontestability. We will not contest the Policy after it has been in
force during the Insured's lifetime for two years from the Issue Date. Any
increase in the Face Amount will be incontestable with respect to
statements made in the evidence of insurability for that increase after the
increase has been in force during the life of the Insured for two years
after the effective date of the increase.
Suicide Exclusion. If the Insured commits suicide (while sane or
insane) within two years after the Issue Date, Our liability will be
limited to the payment of a single sum. This sum will be equal to the
Premiums paid, minus any loan and accrued loan interest and minus any
partial surrender and minus the cost of any riders attached to the Policy.
If the Insured commits suicide (while sane or insane) within two years
after the effective date of an increase in the Face Amount, then Our
liability as to the increase in amount will be limited to the payment of a
single sum equal to the monthly cost of insurance deductions made for such
increase plus the expense charge deducted for the increase.
Changes in the Policy or Benefits
Misstatement of Age or Sex. If an Insured's age or sex has been
misstated in the Policy, the Death Benefit and any benefits provided by
61
<PAGE>
Riders to the Policy shall be those which would be purchased at the then
current cost of insurance charge for the correct age and sex.
Other Changes. At any time We may make such changes in the Policy as
are necessary to assure compliance at all times with the definition of life
insurance prescribed by the Internal Revenue Code or to make the Policy
conform with any law or regulation issued by any government agency to which
it is subject. Any such change, however, may be accepted or rejected by
the Owner.
When Proceeds Are Paid
We will ordinarily pay any Death Benefit, loan proceeds or partial or
full surrender proceeds within seven days after receipt at Our
Administrative Office of all the documents required for such a payment.
Other than the Death Benefit, which is determined as of the date of death,
the amount will be determined as of the date of receipt of required
documents. However, We may delay making a payment or processing a transfer
request if (1) the disposal or valuation of the Separate Account's assets
is not reasonably practicable because the New York Stock Exchange is closed
for other than a regular holiday or weekend, trading is restricted by the
SEC, or the SEC declares that an emergency exists; or (2) the SEC by order
permits postponement of payment to protect the Company's Owners. (See also
"PAYMENTS FROM THE GUARANTEED ACCOUNT," page ___.)
Reports to Policy Owners
You will receive a confirmation within seven days of the transaction
of: the receipt of any Premium (except Premiums received before the Issue
Date); any change of allocation of Premiums; any transfer between
Subaccounts; any loan, interest repayment, or loan repayment; any partial
surrender; or any return of Premium necessary to comply with applicable
maximum receipt of any Premium payment. You will also receive confirmation
within seven days of transaction of: (1) exercise of the Period to Examine
and Cancel; (2) an exchange of the Policy; (3) full surrender of the
Policy; and (4) payment of the Death Benefit under the Policy.
Within 30 days after each Policy Anniversary an annual statement will
be sent to each Owner. The statement will show the current amount of Death
Benefits payable under the Policy, the current Account Value, the current
Cash Surrender Value and current Outstanding Loans. The statement will
also show Premiums paid, all charges deducted during the Policy Year, and
all transactions. The Company will also send to Owners annual and semi-
annual report of the Separate Account.
Assignment
The Policy may be assigned in accordance with its terms on a form
provided by Us. We will not be deemed to know of an assignment unless We
receive a copy of it at Our Administrative Office. We assume no
responsibility for the validity or sufficiency of any assignment. Any
62
<PAGE>
assignment or pledge of a Modified Endowment Contract as collateral for a
loan may result in a taxable event. (See "TAX CONSIDERATIONS," page ___.)
Reinstatement
If the Policy has ended without value, You may reinstate Policy
benefits while the Insured is alive if You:
1. Ask for reinstatement of Policy benefits within 3 years from the
end of the Grace Period;
2. Provide evidence of insurability satisfactory to Us;
3. Make a payment of an amount sufficient to cover (i) the total
monthly administrative charges from the beginning of the Grace
Period to the effective date of reinstatement; (ii) total
monthly deductions for 3 months, calculated from the effective
date of reinstatement; and (iii) the charge for applicable
taxes, the Premium charge, and any increase in surrender charges
associated with this payment. We will determine the amount of
this required payment as if no interest or investment
performance were credited to or charged against Your Account
Value; and
4. Repay or reinstate any Policy loan which existed on the date the
Policy ended.
The effective date of the reinstatement of Policy benefits will be the
beginning of the Policy Month which coincides with or next follows the date
We approve Your request.
From the required payment We will deduct the charge for applicable
taxes and the premium charge. The Account Value, Policy loan and surrender
charges that will apply upon reinstatement will be those that were in
effect on the date the Policy lapsed.
We will start to make monthly deductions again as of the effective
date of reinstatement. The monthly expense charge from the beginning of
the Grace Period to the effective date of reinstatement will be deducted
from the Account Value as of the effective date of reinstatement. No other
charges will accrue for this period.
63
<PAGE>
TAX CONSIDERATIONS
The following description is based upon the Company's
understanding of current federal income tax law applicable to
life insurance in general. The Company cannot predict the
probability that any changes in such laws will be made.
Purchasers are cautioned to seek competent tax advice
regarding the possibility of such changes.
Section 7702 of the Internal Revenue Code of 1986, as
amended ("Code"), defines the term "life insurance contract"
for purposes of the Code. The Company believes that the
Policies to be issued will qualify as "life insurance
contracts" under Section 7702, but the Company does not
guarantee the tax status of the Policies. Purchasers bear the
complete risk that the Policies may not be treated as "life
insurance" under federal income tax laws. Purchasers should
consult their own tax advisers with regard to these risks.
Introduction
The discussion contained herein is general in nature and is
not intended as tax advice. Each person concerned should
consult a competent tax adviser. No attempt is made to
consider any applicable state or other tax laws. Moreover,
the discussion herein is based upon the Company's
understanding of current federal income tax laws and the
current interpretation of those laws. No representation is
made regarding the likelihood of continuation of those current
federal income tax laws or of the current interpretations by
the Internal Revenue Service.
The Company
The Company is taxed as a life insurance company under the
Code. For federal income tax purposes, the Separate Account
is not a separate entity from the Company and its operations
form a part of the Company.
Diversification
Section 817 (h) of the Code and the regulations prescribed
under that Section by the United States Treasury Department
("Treasury Department") impose certain diversification
standards on the investments underlying variable life
insurance contracts. Section 817(h) of the Code provides that
if the investment assets underlying a variable life insurance
contract are not properly diversified in accordance with the
Treasury regulations issued under that Section, then that
contract shall be immediately and permanently disqualified
from treatment as a life insurance contract for federal income
tax purposes. Disqualification of the Policy as a life
64
<PAGE>
insurance contract would result in imposition of federal
income tax on the Policy Owner with respect to earnings
allocable to the Policy prior to the receipt of payments under
the Policy.
Generally, for purposes of determining whether the
diversification standards imposed by Section 817(h) of the
Code on the underlying assets of variable contracts have been
met, "each United States government agency or instrumentality
shall be treated as a separate issuer." To the extent that
any segregated asset account with respect to a variable life
insurance contract is invested in securities issued by the
U.S. Treasury, the investments made by such accounts shall be
treated as adequately diversified. The Code also contains a
safe harbor provision which provides that a segregated asset
account underlying life insurance contracts such as the
Policies will meet the diversification requirements of Section
817(h) if, as of the close of each quarter, the underlying
assets of the account meet the diversification requirements
applicable to regulated investment companies and not more than
55 percent of the value of the assets of the account are
attributable to cash and cash items (including receivables),
Government securities and securities of other regulated
investment companies.
Treasury Regulation Section 1.817-5 establishes the
specific diversification requirements applicable to the
investment portfolios underlying variable life insurance
contracts such as the Policies, and provides alternatives to
the safe harbor provisions described above. Under this
Regulation, an investment portfolio will be deemed adequately
diversified if: (i) no more than 55% of the value of the total
assets of the portfolio is represented by any one investment;
(ii) no more than 70% of the value of the total assets of the
portfolio is represented by any two investments; (iii) no more
than 80% of the value of the total assets of the portfolio is
represented by any three investments; and (iv) no more than
90% of the value of the total assets of the portfolio is
represented by any four investments. For purposes of these
percentage tests, all securities of the same issuer are
generally treated as a single investment. The Regulation also
provides a remedial procedure pursuant to which some of the
adverse consequences of a violation of the diversification
requirements may be avoided. This procedure requires, among
other things, a tax penalty payment by the issuer of the
affected policies.
The Company intends that each Fund underlying the Policies
will be managed by its Investment Manager in such a manner as
to comply with these diversification requirements.
65
<PAGE>
When Regulations under Section 817(h) of the Code were
first proposed in 1989, the Treasury Department also indicated
that guidelines would be forthcoming under which a variable
life insurance Policy would not be treated as a life insurance
contract for tax purposes if the owner of the Policy had an
excessive degree of control over the investments underlying
the Policy (e.g., by being able to transfer values among Sub-
accounts with only limited restrictions). The issuance of
such guidelines could require the Company to impose
limitations on the rights of the Policy Owners to control
investment designations under the Policies. It is not
presently known whether any such guidelines will be issued or
whether any such guidelines would have retroactive effect.
Tax Treatment of the Policy
Section 7702 of the Code sets forth a detailed definition
of a life insurance contract for Federal tax purposes. The
Treasury Department is authorized to prescribe regulations
implementing Section 7702. While proposed regulations and
other interim guidance have been issued, final regulations
have not been adopted so that the extent of the official
guidance as to how Section 7702 is to be applied is quite
limited. If a Policy were determined not to be a life
insurance contract for purposes of Section 7702, that Policy
would not qualify for the favorable tax treatment normally
provided to a life insurance Policy.
With respect to a Policy issued on the basis of a standard
rate class, the Company believes (largely in reliance on IRS
Notice 88-128 and the proposed regulations under Section 7702,
issued on July 5, 1991) that such a Policy should meet the
Section 7702 definition of a life insurance contract.
With respect to a Policy that is issued on a substandard
basis (i.e., a premium class involving higher than standard
mortality risk), there is less certainty, in particular as to
how the mortality and other expense requirements of Section
7702 are to be applied in determining whether such a Policy
meets the definition of a life insurance contract set forth in
section 7702. Thus, it is not clear that such a Policy would
satisfy Section 7702, particularly if the Owner pays the full
amount of premiums permitted under the Policy.
If subsequent guidance issued under Section 7702 leads the
Company to conclude that a Policy does not (or may not)
satisfy Section 7702, the Company will take appropriate and
necessary steps for the purpose of causing such Policy to
comply with Section 7702, but the Company can give no
assurance that it will be possible to achieve that result.
The Company expressly reserves the right to restrict Policy
transactions if it determines such action to be necessary as
66
<PAGE>
part of an attempt by the Company to qualify the Policies as
life insurance contracts under Section 7702.
The discussion set forth below assumes that each Policy
will qualify as a life insurance contract for Federal income
tax purposes under Section 7702.
Tax Treatment of Policy Benefits In General
The Company believes that the Policy should be treated as a
life insurance contract for Federal income tax purposes.
Thus, the Death Benefit under the Policy should be excluded
from the gross income of the Beneficiary under Section
101(a)(1) of the Code. In addition, the cash value increases
of a Policy should not be taxed until there has been a
distribution from the Policy such as a surrender, partial
surrender, lapse with loan, or a payment of benefits at a
Policy's Maturity Date.
Upon a complete surrender or lapse of any Policy or upon a
payment of benefits at a Policy's Maturity Date, any excess of
the amount received plus the amount of Outstanding Loan over
the total investment in the Policy, will generally be treated
as ordinary income subject to tax. This treatment of
surrenders, lapses, and payments at a Policy's Maturity Date
applies whether the Policy is or is not treated as a Modified
Endowment Contract.
Investment in the Policy. The term "investment in the
Policy" means (i) the aggregate amount of any Premiums or
other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which is excluded
from gross income of the Owner (except that the amount of any
loan from, or secured by, a Policy that is a Modified
Endowment Contract, to the extent such amount is excluded from
gross income, will be disregarded), plus (iii) the amount of
any loan from, or secured by, a Policy that is a Modified
Endowment Contract to the extent that such amount is included
in the gross income of the Owner.
Distributions From Policies Not Classified as Modified
Endowment Contracts. Distributions from a Policy that is not
a Modified Endowment Contract, are generally treated first as
a recovery of the Owner's investment in the Policy and then,
but only after the return of all such investment in the
Policy, as a distribution of taxable income. An exception to
this general rule applies in the case of a decrease in the
Policy's Death Benefit or any other change that reduces
benefits under the Policy in the first fifteen years after the
Policy is issued and that results in a cash distribution to
the Owner, even where such a distribution must be made in
order for the Policy to continue complying with the
67
<PAGE>
definitional limits of Section 7702. Such a cash distribution
will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in
Section 7702.
Loans from, or secured by, a Policy that is not a Modified
Endowment Contract are not treated as distributions. Instead,
any such loan is generally treated as an Outstanding Loan of
the Owner.
Modified Endowment Contracts. Section 7702A of the Code
establishes a class of life insurance contracts designated as
"Modified Endowment Contracts," which applies to Policies
entered into or Policies with certain material changes after
June 20, 1988. Due to the Policy's flexibility,
classification as a Modified Endowment Contract will depend on
the individual circumstances of each Policy.
In general, a Policy will be a Modified Endowment Contract
if the accumulated Premiums paid at any time during the first
seven Policy Years exceed the sum of the net level Premiums
which would have been paid on or before such time if the
Policy provided for paid-up future benefits after the payment
of seven level annual Premiums. Whether a Policy will be a
Modified Endowment Contract after a material change generally
depends upon the relationship of the Death Benefit and Account
Value at the time of such change and the additional premiums
paid in the seven years following the material change.
The rules relating to whether a Policy will be treated as a
Modified Endowment Contract are extremely complex and cannot
be adequately described in the limited confines of this
summary. Therefore, a current or prospective Owner should
consult with a competent advisor to determine whether a Policy
transaction will cause the Policy to be treated as a Modified
Endowment Contract. The Company will, however, monitor
Policies and will take all steps reasonably necessary to
notify an Owner on a timely basis if his or her Policy is in
jeopardy of becoming a Modified Endowment Contract.
Distributions from Policies Classified as Modified
Endowment Contracts. Any Policies that are classified as
Modified Endowment Contracts will be subject to additional
adverse tax rules. Loans taken from, or secured by, such a
Policy will be treated as distributions from the Policy and
will be taxed accordingly. (Past due loan interest that is
added to the loan amount will also be treated as a loan for
this purpose.) In addition, all distributions, including any
loans and any distributions upon any full or partial
surrender, a lapse, or a payment of benefits at the Maturity
Date of such a Policy, will be treated as ordinary income to
the extent of the excess (if any) of the Account Value
68
<PAGE>
immediately before the distribution over the Owner's
investment in the Policy (described above) at such time.
These rules may also apply to Policies during the two-year
period prior to the Policy's classification as a Modified
Endowment Contract.
Penalties on Early Distributions from Policies Classified
as Modified Endowment Contracts. A ten percent additional
income tax may be imposed under Section 72(v) of the Code on
the portion of any distribution (or any loan) from a Policy
that is classified as a Modified Endowment Contract. This
additional tax applies to the full amount that is included in
the Owner's taxable income except where the distribution from
the Policy (including distributions upon surrender) or loan is
made from or secured by the Policy on or after the date that
the Owner attains age 59 1/2, is attributable to the Owner's
becoming disabled, or is part of a series of substantially
equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the Owner or the
joint lives (or joint life expectancies) of the Owner and the
Owner's Beneficiary. If a Policy is not a Modified Endowment
Contract, however, then neither distributions (including
distributions upon surrender) nor loans from, or secured by,
the Policy will be subject to the 10% additional tax.
Multiple Policies. Section 72(e)(11) of the Code provides
that if two or more Modified Endowment Contracts are issued
within the same calendar year to the same Owner by one company
or its affiliates, then all such contracts must be treated as
one Modified Endowment Contract for purposes of determining
the taxable portion of any loans or distributions. Such
treatment may result in adverse tax consequences including
more rapid taxation of the loans or other amounts distributed
from all such contracts. Owners should consult a tax adviser
prior to purchasing more than one Modified Endowment Contract
in any calendar year.
Interest on Policy Loans. Except in special circumstances,
interest paid on a loan under a Policy which is owned by an
individual is treated as personal interest under Section
163(h) of the Code and thus will not be tax deductible. In
addition, the deduction of interest that is incurred on any
loan under a Policy owned by a taxpayer and covering the life
of any individual who is an officer or employee of or who is
financially interested in the business carried on by that
taxpayer may also be subject to certain restrictions set forth
in Section 264 of the Code. Before taking a Policy loan, an
Owner should consult a tax adviser as to the tax consequences
of such a loan. (Also Section 264 of the Code may preclude
business Policy Owners from deducting premium payments.)
69
<PAGE>
Policy Exchanges and Modifications. Depending on the
circumstances, the exchange of a Policy, a change in the
Policy's Death Benefit option (e.g., a change from Option I to
Option II or vice versa), a Policy loan, a partial surrender,
a surrender, a change in ownership, or an assignment of the
Policy may have Federal income tax consequences. In addition,
the Federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds will
depend on the circumstances of each Owner or Beneficiary.
Withholding. The Company is required to withhold Federal
income taxes on the taxable portion of any amounts received
under the Policy unless You elect to not have any withholding
or in certain other circumstances. Special withholding rules
apply to payments made to non-resident aliens.
You are liable for payment of Federal income taxes on the
taxable portion of any amounts received under the Policy. You
may be subject to penalties under the estimated tax rules if
your withholding and estimated tax payments are not
sufficient.
Generation Skipping Transfer Tax. A transfer of the Policy
or the designation of a beneficiary who is either 37 1/2 years
younger than the Owner or a grandchild of the Owner may have
Generation Skipping Transfer Tax consequences.
Contracts Issued in Connection With Tax Qualified Pension
Plans. Prior to purchase of a Policy in connection with a
qualified plan, the applicable tax rules relating to such
plans and life insurance thereunder should be examined in
consultation with a qualified tax advisor.
Possible Charge for the Company's Taxes
At the present time, the Company makes no charge for any
Federal, state or local taxes (other than state premium taxes)
that it incurs that may be attributable to the Separate and
Guaranteed Accounts or to the Policies. The Company, however,
reserves the right in the future to make a charge for any such
tax or other economic burden resulting from the application of
the tax laws that it determines to be properly attributable to
the Separate Account or to the Policies.
SUPPLEMENTAL BENEFITS AND RIDERS
The Company intends to make available certain supplemental
benefits and riders which may be issued with the Policy. Any
monthly charges for these supplemental benefits and riders, as
listed below, will be deducted from the Account Value.
- Accidental Death Benefit (ADB)
70
<PAGE>
- Accelerated Benefits Rider
- Waiver of Monthly Deductions
- Waiver of Specified Premium
- Child's Term Rider
- Primary Insured Term Rider (PIR)
- Other Insured Term Rider (OIR)
- Minimum Guaranteed Death Benefit
For a complete description of these supplemental benefits
and riders, their costs, and any rules or limits applicable to
their issue, please contact Our Administrative Office or one
of Our authorized agents.
71
<PAGE>
MANAGEMENT OF THE COMPANY
The Directors and Principal Officers of the Company are
listed below with their current principal business affiliation
and their principal occupations during the past five (5)
years. All officers have been affiliated with the Company
during the past five (5) years unless otherwise indicated.
<TABLE>
<S> <C> <C>
Current Principal
Business Affiliations
and Principal
Occupations During
Name and Address Office Past Five Years
Robert John O'Connell Chief Executive Officer President and CEO AIG
80 Pine Street President and Director Life Companies. Senior
13th Floor Vice President - Life
New York, NY 10005 Insurance, AIG, Inc.
Nicholas Alexander Vice President Senior Vice President - Life
O'Kulich* Treasurer and Director Insurance, AIG, Inc.
Maurice Raymond Director Director, Chairman and
Greenberg* Chief Executive Officer,
AIG, Inc.
Edwin A. G. Manton* Director Senior Advisor, American
International Group, Inc.
Edward Easton Matthews* Senior Vice President Vice Chairman Investment and
and Vice Chairman Financial Services, AIG, Inc.
Formerly Vice Chairman
Investment - AIG
Jerome Thomas Muldowney* Senior Vice President Managing Director AIG
175 Water Street and Director Investments Corp.
25 Floor
New York, New York 10005
Win Jay Neuger* Director Senior Vice President and
175 Water Street Chief Investment Officer
25 Floor AIG, Inc. Formerly, Managing
New York, New York 10005 Director - Banker's Trust Co.
John Robert Skar Vice President Vice President and Chief
One Alico Plaza Actuary and Director Actuary AIG Domestic Life
P.O. Box 667 Companies. Formerly,
Wilmington DE 19899 Senior Vice President,
Fidelity Mutual Life
Insurance Company.
72
<PAGE>
Howard Ian Smith* Director Director, Executive Vice
President, Chief Financial
Officer and Comptroller, AIG,
Inc. Formerly Executive Vice
President and Comptroller,
AIG, Inc.
Ernest Edward Stempel* Director Senior Advisor AIG.
Chairman of the Board Formerly Director and
Vice Chairman - Life
Insurance AIG, Inc.
Elizabeth Margaret Tuck* Secretary Secretary and Assistant
Secretary of AIG, Inc. and
certain affiliates
Gerald Walter Wyndorf Director and Executive Executive Vice President-
80 Pine Street Vice President AIG Domestic Life Companies
13th Floor and formerly, Regional Vice
New York, NY 10038 President Mutual of NY.
Howard Earl Gunton Vice President and Vice President and
One Alico Plaza Comptroller Comptroller of AIG
Wilmington, DE 19899 Domestic Life Companies
</TABLE>
* Indicates the business address of the individual, which is 70 Pine
Street, New York, New York 10270.
73
<PAGE>
DISTRIBUTION OF POLICY
Where the Policy may be lawfully sold, the Policy is sold by licensed
insurance agents who are registered representatives of broker-dealers which
are registered under the Securities Exchange Act of 1934 and are members of
the National Association of Securities Dealers, Inc.
The Policy will be distributed through the principal underwriter for
the Separate Account, AIG Equity Sales Corp. (AESC), 80 Pine Street, New
York, New York, an affiliate of the Company. The Company pays commissions
on behalf of AESC to selling product dealers and registered
representatives.
Commissions may be paid to registered representatives based on
Premiums paid for Policies sold, in amounts up to 50% of first year
Premiums, 5% on Premiums paid during the 2nd through 10th Policy Years, and
2% on Premiums paid after the first ten Policy Years. Other expense
reimbursements, allowances, and overrides may also be paid. Registered
representatives who meet certain productivity and profitability standards
may be eligible for additional compensation. Additional payments may be
made for administrative or other services not directly related to the sale
of the Policies.
OTHER POLICIES ISSUED BY THE COMPANY
The Company may offer other policies similar to those offered herein.
STATE REGULATION
The Company is subject to the laws of Delaware governing insurance
companies and to regulation by the Delaware Insurance Department. An
annual statement in a prescribed form is filed with the Insurance
Department each year covering the operation of the Company for the
preceding year and its final condition as of the end of such year.
Regulation by the Insurance Department includes periodic examinations to
determine the Company's Policy liabilities and reserves so that the
Insurance Department may certify the items are correct. The Company's
books and accounts are subject to review by the Insurance Department at all
times and a full examination of its operations is conducted periodically by
the staff of the Insurance Department pursuant to the National Association
of Insurance Commissioners. Such regulation does not, however, involve any
supervision of management or investment practices or policies. In
addition, the Company is subject to regulation under the insurance laws of
other jurisdictions in which it may operate.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account or the
principal underwriter is a party. The Company is engaged in various kinds
74
<PAGE>
of routine litigation which, in the opinion of the Company, are not of
material importance in relation to the total capital and surplus of the
Company.
EXPERTS
The financial statements of the Company which appear in this
Prospectus have been audited by Coopers & Lybrand, independent certified
public accountants, as stated in their reports, and have been included in
reliance upon the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
Legal matters relating to the federal securities laws are being passed
upon by the firm of Jorden Burt Berenson & Johnson, LLP of Washington, D.C.
PUBLISHED RATINGS
The Company may from time to time publish in advertisements, sales
literature and reports to Owners, the ratings and other information
assigned to it by one or more independent rating organizations such as A.
M. Best Company, Moody's, and Standard & Poor's. The purpose of the
ratings is to reflect the financial strength and/or claims-paying ability
of the Company and should not be considered as bearing on the investment
performance of assets held in the separate account. Each year the A. M.
Best Company reviews the financial status of thousands of insurers,
culminating in the assignment of Best's Ratings. These ratings reflect A.
M. Best's current opinion of the relative financial strength and operating
performance of an insurance company in comparison to the norms of the
life/health insurance industry. In addition, the claims-paying ability of
the Company as measured by Standard & Poor's Insurance Ratings Services,
and the financial strength of the Company as measured by Moody's Investors
Services, may be referred to in advertisements, sales literature or in
reports to Owners. These ratings are their opinions of an operating
insurance company's financial capacity to meet the obligations of its life
insurance policies and annuity contracts in accordance with their terms.
In regard to their ratings of the Company, these ratings are explicitly
based on the existence of a Support Agreement, dated as of December 13,
1991, between the Company and its parent, American International Group,
Inc. ("AIG"), pursuant to which AIG has agreed to cause the Company to
maintain a positive net worth and to provide the Company with funds on a
timely basis sufficient to meet the Company's obligations to its
policyholders. The Support Agreement is not, however, a direct or indirect
guarantee by AIG to any person of the payment of any of the Company's
indebtedness, liabilities or other obligations (including obligations to
the Company's policyholders).
The ratings are not recommendations to purchase the Company's life
insurance or annuity products, or to hold or sell these products, and the
ratings do not comment on the suitability of such products for a particular
investor. There can be no assurance that any rating will remain in effect
75
<PAGE>
for any given period of time or that any rating will not be lowered or
withdrawn entirely by a rating organization if, in such organization's
judgment, future circumstances relating to the Support Agreement, such as a
lowering of AIG's long-term debt rating, so warrant. The ratings do not
reflect the investment performance of the separate account or the degree of
risk associated with an investment in the separate account.
FINANCIAL STATEMENTS
The financial statements of the Company and the Separate Account are
included herein.
76
<PAGE>
AIG LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
AIG Life Insurance Company:
We have audited the accompanying balance sheets of AIG Life Insurance Company (a
wholly-owned subsidiary of American International Group, Inc.) as of December
31, 1996 and 1995, and the related statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIG Life Insurance Company as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 22, 1997
F-2
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
December 31,
1996 1995
------------- ----------
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 2,271,326 $ 1,963,265
(cost: 1996 - $2,190,580: 1995 - $1,823,860)
Equity securities:
Common stock
(cost: 1996-$3,548: 1995 - $1,916) 5,578 2,437
Non-redeemable preferred stocks
(cost: 1996-$0: 1995 - $2,562) - 2,553
Mortgage loans on real estate, net 297,363 239,127
Real estate, net of accumulated
depreciation of $4,099 in 1996; and $1,755 in 1995 16,169 16,892
Policy loans 1,873,961 2,961,726
Other invested assets 64,109 68,252
Short -term investments 100,036 202,652
Cash 5,780 1,132
-------------- --------------
Total investments and cash 4,634,322 5,458,036
Amounts due from related parties 3,193 4,111
Investment income due and accrued 107,268 242,748
Premium and insurance balances receivable-net 36,357 28,189
Reinsurance assets 218,453 207,827
Deferred policy acquisition cost 84,287 60,625
Separate and variable accounts 644,980 190,441
Other assets 5,092 7,509
-------------- --------------
Total assets $ 5,733,952 $ 6,199,486
========== ==========
See accompanying notes to financial statements.
F-3
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
December 31,
1996 1995
-------------- ----------
Liabilities
Policyholders' funds on deposit $ 3,810,095 $ 4,574,995
Future policy benefits 630,520 566,487
Reserve for unearned premiums 29,911 47,590
Policy and contract claims 191,338 177,540
Reserve for commissions, expenses and taxes 2,860 24,134
Insurance balances payable 42,137 22,186
Deferred income taxes 5,713 24,585
Amounts due to related parties 5,921 2,380
Federal income tax payable 2,959 4,606
Separate and variable accounts 644,980 190,441
Minority interest 6,077 6,664
Other liabilities 30,932 234,850
------------ ------------
Total liabilities 5,403,443 5,876,458
----------- -----------
Commitments and contingencies (See Note 6)
Stockholders' Equity
Common stock, $5 par value; 1,000,000 shares
authorized; 976,703 shares issued and
outstanding 4,884 4,884
Additional paid-in capital 123,283 123,283
Unrealized appreciation of investments,
net of future policy benefits and taxes
of $33,823 in 1996 and $47,209 in 1995 62,814 87,673
Retained earnings 139,528 107,188
------------ ------------
Total stockholders' equity 330,509 323,028
<PAGE>
Total liabilities and stockholders' equity $ 5,733,952 $ 6,199,486
========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Revenues:
Premiums $ 394,480 $ 364,502 $ 265,990
Net investment income 504,661 435,683 239,212
Realized capital (losses) gains (51) (417) 1,953
------------- ------------- -----------
Total revenues 899,090 799,768 507,155
--------- --------- ---------
Benefits and expenses:
Benefits to policyholders 189,933 202,105 196,175
Increase in future policy benefits
and policyholders' funds on deposit495,529 392,592 158,935
Acquisition and insurance expenses 161,841 170,343 127,941
--------- -------- ---------
Total benefits and expenses 847,303 765,040 483,051
--------- -------- ---------
Income before income taxes 51,787 34,728 24,104
--------- ---------- ----------
Income taxes (benefits):
Current 25,087 18,709 28,115
Deferred (5,486) (6,339) (19,447)
----------- ----------- -----------
Total income taxes 19,601 12,370 8,668
--------- --------- -----------
Net income before minority interest 32,186 22,358 15,436
Minority interest income (loss) 154 11 (156)
----------- ------------ -------------
Net income $ 32,340 $ 22,369 $ 15,280
========= ========= ==========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 4,884 $ 4,884 $ 4,884
----------- ----------- -----------
Balance at end of year 4,884 4,884 4,884
------------ ----------- ------------
Additional paid-in capital
Balance at beginning of year: 123,283 123,283 123,283
---------- ---------- ----------
Balance at end of year 123,283 123,283 123,283
---------- ---------- ----------
Unrealized appreciation (depreciation)
of investments, net
Balance at beginning of year 87,673 (15,029) 40,159
Change during year (50,245) 170,003 (84,904)
Changes due to deferred income tax
(expense) benefit and future
policy benefits 25,386 (67,301) 29,716
---------- ------ ------
Balance at end of year 62,814 87,673 (15,029)
------------ ----------- ------------
Retained earnings
Balance at beginning of year 107,188 84,819 69,539
Net income 32,340 22,369 15,280
----------- ---------- -----------
Balance at end of year 139,528 107,188 84,819
---------- ---------- -----------
Total stockholders' equity$ 330,509 $ 323,028 $ 197,957
========= ========= ==========
See accompanying notes to financial statements
</TABLE>
F-6
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 32,340 $ 22,369 $15,280
--------- ----------- ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains
and losses included in income:
Change in insurance reserves 72,151 133,207 88,718
Change in premiums and insurance balances
receivable and payable -net 11,782 (4,695) 11,668
Change in reinsurance assets (10,627) (201) 5,553
Change in deferred policy acquisition costs (23,662) (6,151) (14,906)
Change in investment income due and accrued 135,480 (126,299) (82,023)
Realized capital gains 51 417 (1,953)
Change in current and deferred income taxes -net (7,133) (15,112) (16,708)
Change in reserves for commissions, expenses and taxes(21,274) (9,857) 23,055
Change in other assets and liabilities - net 11,852 (7,466) 6,815
-----------------------------------------
Total adjustments 168,620 (36,157) 20,219
Net cash (used in) provided 200,960 (13,788) 35,499
by operating activities
Cash flows from investing activities:
Cost of fixed maturities, at market sold 40,098 36,678 19,392
Cost of fixed maturities, at market matured or redeemed124,621 76,989 85,628
Cost of equity securities sold 2,607 405 -
Realized capital gains (51) 582 3,176
Purchase of fixed maturities (524,245) (590,864) (252,964)
Purchase of equity securities (1,678) (1,213) -
Mortgage loans granted (74,590) (75,100) (53,977)
Repayments of mortgage loans 16,416 12,406 16,464
Change in policy loans 1,087,765 (1,589,502) (1,184,455)
Change in short-term investments 102,616 (115,532) 18,361
Change in other invested assets 11,002 (4,296) (6,652)
Other - net (38) (6,042) (10,583)
Net cash used in investing activities 784,523 (2,255,489) (1,365,610)
------------- -------------------------
Cash flows from financing activities:
Change in policyholders' funds on deposit (980,835) 2,265,900 1,330,841
--------------------------- ----------
Net cash provided by financing activities (980,835) 2,265,900 1,330,841
-------------- ------------ ----------
Change in cash 4,648 (3,377) 730
Cash at beginning of year 1,132 4,509 3,779
--------------------------------------------
Cash at end of year $ 5,780$ 1,132$ 4,509
=============== =============== ==============
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a)Basis of Presentation: AIG Life Insurance Company (the Company) is a
wholly-owned subsidiary of American International Group, Inc. (the
Parent). The financial statements of the Company have been prepared on the
basis of generally accepted accounting principles (GAAP). The preparation
of financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates. The Company is licensed to sell life and accident and
health insurance in the District of Columbia and all states except for
Maine and New York.
The Company also files financial statements prepared in accordance with
statutory practices prescribed or permitted by the Insurance Department of
the State of Delaware. Financial statements prepared in accordance with
generally accepted accounting principles differ in certain respects from
the practices prescribed or permitted by regulatory authorities. The
significant differences are: (1) statutory financial statements do not
reflect fixed maturities available for sale at market value; (2) policy
acquisition costs, charged against operations as incurred for regulatory
purposes, have been deferred and are being amortized over the anticipated
life of the contracts; (3) individual life and annuity policy reserves
based on statutory requirements have been adjusted based upon mortality,
lapse and interest assumptions applicable to these coverages, including
provisions for reasonable adverse deviations; these assumptions reflect
the Company's experience and industry standards; (4) deferred income taxes
not recognized for regulatory purposes have been provided for temporary
differences between the bases of assets and liabilities for financial
reporting purposes and tax purposes; (5) for regulatory purposes, future
policy benefits, policyholders' funds on deposit, policy and contract
claims and reserve for unearned premiums are presented net of ceded
reinsurance; and (6) an asset valuation reserve and interest maintenance
reserve using National Association of Insurance Commissioners (NAIC)
formulas are set up for regulatory purposes.
(b)Investments: Fixed maturities available for sale, where the company may
not have the ability or positive intent to hold these securities until
maturity, are carried at market value. Included in fixed maturities
available for sale are collateralized mortgage obligations (CMOs).
Premiums and discounts arising from the purchase of CMO's are treated as
yield adjustments over the estimated life. Common and non-redeemable
preferred stocks are carried at market value. Short-term investments are
carried at cost, which approximates market.
F-8
<PAGE>
Unrealized gains and losses from investments in equity securities and
fixed maturities available for sale are reflected in stockholders' equity,
net of amounts recorded as future policy benefits and any related deferred
income taxes.
Realized capital gains and losses are determined principally by specific
identification. Where declines in values of securities below cost or
amortized cost are considered to be other than temporary, a charge is
reflected in income for the difference between cost or amortized cost and
estimated net realizable value.
Mortgage loans on real estate are carried at unpaid principal balance less
unamortized loan origination fees and costs less an allowance for
uncollectible loans.
F-9
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(b) Investments: (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments
are capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity,
net of any related taxes. Also included in this category is an interest
rate cap agreement, which is carried at its amortized cost. The cost of
the cap is being amortized against investment income on a straight line
basis over the life of the cap.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the
Parent have a written tax allocation agreement whereby the Parent agrees
not to charge the Company a greater portion of the consolidated tax
liability than would have been paid by the Company if it had filed a
separate return. Additionally, the Parent agrees to reimburse the Company
for any tax benefits arising out of its net losses within ninety days
after the filing of that consolidated tax return for the year in which
these losses are utilized. Deferred federal income taxes are provided for
temporary differences related to the expected future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns.
(d)Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident and
health insurance are reported as earned over the contract term. The
portion of accident and health premiums which is not earned at the end of
a reporting period is recorded as unearned premiums. Estimates of premiums
due but not yet collected are accrued. Policy benefits and expenses are
associated with earned premiums on long-duration contracts resulting in a
level recognition of profits over the anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized in
relation to expected gross profits over the life of the policies (see Note
3).
F-10
<PAGE>
The liability for future policy benefits and policyholders' contract
deposits is established using assumptions described in Note 4.
(e)Policy and Contract Claims: Policy and contract claims include amounts
representing: (1) the actual in-force amounts for reported life claims and
an estimate of incurred but unreported claims; and (2) an estimate, based
upon prior experience, for accident and health reported and incurred but
unreported losses. The methods of making such estimates and establishing
the resulting reserves are continually reviewed and updated and any
adjustments resulting therefrom are reflected in income currently.
F-11
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(f) Separate and Variable Accounts: These accounts represent funds for which
investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the
assets are carried at market value. The assets of each account are legally
segregated and are not subject to claims which arise out of any other
business of the Company.
(g) Reinsurance Assets: Reinsurance assets include the balances due from both
reinsurance and insurance companies under the terms of the Company's
reinsurance arrangements for ceded unearned premiums, future policy
benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It also
includes funds held under reinsurance treaties.
(h) Accounting Standards:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of" (FASB 121). This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and an impairment loss must be recognized.
FASB 121 was effective for the Company commencing January 1, 1996. The
adoption of this statement during 1996 had no significant effect on the
Company's result of operations, financial condition or liquidity.
In December 1995, FASB issued "Special Report, a Guide to the
Implementation of Statement No. 115 on Accounting for Certain Investments
in Debt and Equity Securities". Among other things, this guide provided
for a transition provision permitting a one-time transfer of debt
securities from the held to maturity classification to the available for
sale classification. The Company did not transfer any securities from the
held to maturity classification to the available for sale classification.
(i) During 1996, the Company changed it's method of accounting for a
subsidiary to reflect the minority interest. The financial statements for
1994 and 1995 have been reclassified to conform to this presentation.
2. Investment Information
a) Statutory Deposits: Securities with a carrying value of $2,460,000
and $2,639,000 were deposited by the Company under requirements of
regulatory authorities as of December 31, 1996 and 1995, respectively.
F-12
<PAGE>
2. Investment Information - (continued)
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Fixed maturities $164,548 138,341 $109,826
Equity securities 219 225 241
Mortgage loans 22,797 19,399 14,655
Real estate 2,125 997 1,584
Policy loans 314,020 268,454 108,453
Cash and short-term investments 2,924 4,348 1,684
Other invested assets 2,549 6,129 4,070
---------- ---------- ----------
Total investment income 509,182 437,893 240,513
Investment expenses 4,521 2,210 1,301
---------- ----------- -----------
Net investment income $504,661 $435,683 $239,212
======== ======== ========
(c) Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for 1996,
1995 and 1994 are summarized below (in thousands):
Years ended December 31,
-------------------------
1996 1995 1994
--------------------------
Net realized (losses) gains on investments:
Fixed maturities $ (79)$ (166) $ (10)
Equity securities 28 712 442
Mortgage loans - (1,000) (1,223)
Other invested assets - 37 2,744
------------- ----------- --------
Net realized gains $ (51) $ (417) $ 1,953
========== ========== =========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities $ (58,659) $168,561 $(90,779)
Equity securities 1,517 69 293
Other invested assets 6,897 1,373 5,582
----------- --------------------
Net change in unrealized appreciation
(depreciation) of investments $ (50,245) $170,003 $(84,904)
========== ======== =========
</TABLE>
F-13
<PAGE>
Proceeds from the sale of investments in fixed maturities during 1996,
1995 and 1994 were $40,098,000, $36,678,000, and $17,431,000,
respectively.
During 1996, 1995 and 1994, gross gains of $176,000, $109,000, and
$394,000, respectively, and gross losses of $255,000, $275,000, and
$404,000, respectively, were realized on dispositions of fixed maturity
investments.
F-14
<PAGE>
2. Investment Information - (continued)
During 1996, 1995 and 1994, gross gains of $28,000, $712,000, and
$442,000, respectively, were realized on disposition of equity securities.
(d)Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1996 and 1995, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $2,265,000 and $833,000 and gross losses of $235,000 and
$320,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1996 and 1995 are as follows (in thousands):
Gross Gross
1996 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----- --------- ---------- --------- ------
Fixed maturities:
U.S. Government and government
agencies and authorities $ 47,848 $ 7,814 $151 $55,511
States, municipalities and
political subdivisions 327,944 15,525 1,934 341,535
Foreign governments 33,340 2,855 113 36,082
All other corporate 1,781,448 71,994 15,244 1,838,198
--------- ---------- ---------- ----------
Total fixed maturities $2,190,580 $ 98,188 $ 17,442 $2,271,326
========= ========== ========== =========
Gross Gross
1995 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ------ --------- ---------- ---------- ------
Fixed maturities:
U.S. Government and government
agencies and authorities $ 45,872 $ 12,144 $ - $ 58,016
States, municipalities and
political subdivisions 345,049 22,975 24 368,000
Foreign governments 30,515 4,158 30 34,643
All other corporate 1,402,424 106,513 6,331 1,502,606
---------- --------- ---------- ---------
Total fixed maturities $1,823,860 $ 145,790 $ 6,385 $1,963,265
========= ========= ========== =========
F-15
<PAGE>
2. Investment Information - (continued)
The amortized cost and estimated market value of fixed maturities,
available for sale at December 31, 1996, by contractual maturity, are
shown below (in thousands). Actual maturities could differ from
contractual maturities because certain borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
Due in one year or less $ 74,325 $ 76,640
Due after one year through five years 598,151 615,822
Due after five years through ten years 818,547 849,841
Due after ten years 699,557 729,023
--------- ---------
$2,190,580 $2,271,326
(e)CMO's: CMO's are U.S. Government and Government agency backed and triple
A-rated securities. In the preceding table, CMO's are included in other
corporate fixed maturities. At December 31, 1996 and 1995, the market
value of the CMO portfolio was $435,313,000 and $457,111,000,
respectively; the estimated amortized cost was approximately $419,276,000
in 1996 and $433,481,000 in 1995. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities contained
in the portfolio at December 31, 1996.
(f)Fixed Maturities Below Investment Grade: At December 31, 1996 and 1995,
the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $136,502,000 and $74,622,000,
respectively, and an aggregate market value of $135,218,000 and
$73,894,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h)Investments Greater than 10% Equity: The market value of investments in
the following companies and institutions exceeded 10% of the Company's
total stockholders' equity at December 31, 1996 (in thousands):
Fixed Maturities:
Ford Motor Credit Corporation $ 38,202
GMAC $ 49,541
Other Invested Assets:
Equity Linked Investors II, L.P. $ 43,808
F-16
<PAGE>
3. Deferred Policy Acquisition Costs
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against
future income and the related current amortization charged to income,
excluding certain amounts deferred and amortized in the same period (in
thousands). The 1996 and 1995 amortization includes $6,096,000 and
$9,455,000, respectively, to recognize excess loss experienced on credit
insurance.
Years ended December 31,
---------------------------
1996 1995 1994
---------------------------
Balance at beginning of year $60,625 $54,474 $39,568
Acquisition costs deferred 43,534 35,008 29,442
Amortization charged to income (19,872) (28,857) (14,536)
------- -------- --------
Balance at end of year $84,287 $60,625 $54,474
======= ======= =======
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a)The analysis of the future policy benefits and policyholders' funds on
deposit at December 31, 1996 and 1995 follows (in thousands):
1996 1995
---------- --------
Future Policy Benefits:
Long duration contracts $ 624,659 $ 556,669
Short duration contracts 5,861 9,818
----------- ------------
$ 630,520 $ 566,487
========== ===========
Policyholders' funds on deposit:
Annuities $ 1,082,217 $ 944,629
Universal life 130,413 171,564
Guaranteed investment contracts (GICs) 278,680 249,844
Corporate owned life markets 2,314,149 3,204,912
Other investment contracts 4,636 4,046
------------- -----------
$3,810,095 $4,574,995
========= =========
F-17
<PAGE>
(b)Long duration contract liabilities included in future policy benefits, as
presented in the table above, result from traditional life products. Short
duration contract liabilities are primarily accident and health products.
The liability for future policy benefits has been established based upon
the following assumptions:
(i) Interest rates for traditional life insurance products are 9.5
percent graded to 7.0 percent over 30 years. The liability for future
policy benefits for universal life insurance has been established using
FASB 97 and assumes a 1.0 percent investment margin. Interest rates
(exclusive of immediate/terminal funding annuities), which vary by year
of issuance and products, range from 3.0 percent to 10.0 percent.
Interest rates on immediate/terminal funding annuities are at a maximum
of 12.2 percent and grade to not greater than 7.5 percent.
(ii) Mortality and withdrawal rates are based upon actual experience
modified to allow for variations in policy form. The weighted average
lapse rate, including surrenders, for individual life approximated 1.9
percent.
4. Future Policy Benefits and Policyholders' Funds on Deposit - (continued)
(c)The liability for policyholders' funds on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of
issuance and range from 3.0 percent to 8.0 percent. Credited interest
rate guarantees are generally for a period of one year. Withdrawal
charges generally range from 6.0 percent to 10.0 percent grading to zero
over a period of 6 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited generally
range from 4.7 percent to 8.1 percent and maturities range from 2 to 7
years.
(iii) Interest rates on corporate-owned life insurance business are
guaranteed at 4.0 percent and the weighted average rate credited in 1996
was 9.4 percent.
(iv) The universal life funds, exclusive of corporate owned life insurance
business, have credited interest rates of 5.9 percent to 7.5 percent and
guarantees ranging from 3.5 percent to 5.5 percent depending on the year
of issue. Additionally, universal life funds are subject to surrender
charges that amount to 10.0 percent of the fund balance and grade to zero
over a period not longer than 20 years.
F-18
<PAGE>
5. Income Taxes
(a)The Federal income tax rate applicable to ordinary income is 35% for
1996, 1995 and 1994. Actual tax expense on income from operations differs
from the "expected" amount computed by applying the Federal income tax
rate because of the following (in thousands except percentages):
Years ended December 31,
1996 1995 1994
Percent Percent Percent
of of of
pre-tax pre-tax pre-tax
operating operating operating
Amount Income Amount Income Amount Income
---------------- ---------------- --------------
"Expected" income tax
expense $ 18,125 35.0% $ 12,155 35.0% $ 8,436 35.0%
Prior year federal
income tax benefit (51) (0.1) (798) (2.3) - -
State income tax 850 1.6 894 2.6 197 0.8
Other 677 1.3 119 0.3 35 0.2
--------- ---- --------- ------ ------- -----
Actual income tax expense $19,601 37.8% $ 12,370 35.6% $ 8,668 36.0%
============= ======== ==== ======= ====
F-19
<PAGE>
5. Income Taxes - (continued)
(b) The components of the net deferred tax liability were as follows
(in thousands):
Years ended December 31,
1996 1995
Deferred tax assets:
Adjustment to life reserves $41,522 $24,940
Adjustments to mortgage loans and investment income 2,531 2,546
Adjustment to policy and contract claims 10,687 11,725
Other 2,585 1,232
57,325 40,443
--------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $ 23,047 $ 13,040
Unrealized appreciation on investments 33,823 47,209
Bond discount 4,085 3,458
Other 2,083 1,321
---------- ---------
63,038 65,028
--------- --------
Net deferred tax liability $ 5,713 $ 24,585
========== ========
(c)At December 31, 1996, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,204,000 of "Policyholders'
Surplus" as defined under the Code. Under provisions of the Code,
"Policyholders' Surplus" has not been currently taxed but would be taxed
at current rates if distributed to the Parent. There is no present
intention to make cash distributions from "Policyholders' Surplus" and
accordingly, no provision has been made for taxes on this amount.
(d)Income taxes paid in 1996, 1995, and 1994 amounted to $25,412,000,
$26,030,000, and $25,052,000, respectively.
6. Commitments and Contingencies
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
F-20
<PAGE>
7. Fair Value of Financial Instruments
(a)Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments may
or may not be recognized in the balance sheet. In the measurement of the
fair value of certain of the financial instruments, quoted market prices
were not available and other valuation techniques were utilized. These
derived fair value estimates are significantly affected by the assumptions
used. FASB 107 excludes certain financial instruments, including those
related to insurance contracts.
F-21
<PAGE>
7. Fair Value of Financial Instruments - (continued)
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair values.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair value of the policy loans were not calculated as the
Company believes it would have to expend excessive costs for the benefits
derived. Therefore, the fair value of policy loans was estimated at
carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair value of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
(b) The fair value and carrying amounts of financial instruments
is as follows (in thousands):
F-22
<PAGE>
1996 Fair Carrying
Value Amount
Cash and short-term investments $ 105,816 $ 105,816
Fixed maturities 2,271,326 2,271,326
Equity securities 5,578 5,578
Mortgage and policy loans 2,183,873 2,171,324
Interest rate cap 75 94
Policyholders' funds on deposit $ 3,832,601 $ 3,810,095
1995 Fair Carrying
Value Amount
Cash and short-term investments $ 203,784 $ 203,784
Fixed maturities 1,963,265 1,963,265
Equity securities 4,990 4,990
Mortgage and policy loans 3,216,321 3,200,853
Interest rate cap 144 170
Policyholders' funds on deposit $ 4,592,841 $ 4,574,995
F-23
<PAGE>
8. Stockholders' Equity
(a)The maximum stockholder dividend which can be paid without prior
regulatory approval is subject to restrictions relating to statutory
surplus and statutory net gain from operations. These restrictions limited
payment of dividends to $39,027,000 during 1996, however, no dividends
were paid during the year.
(b)The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $221,567,000 at December 31, 1996 and
$176,952,000 at December 31, 1995. Statutory net income amounted to
$47,074,000, $39,712,000, and $47,002,000 for 1996, 1995 and 1994,
respectively.
9. Employee Benefits
(a)The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and completed
twelve months of continuous service are eligible to participate in this
plan. An employee with 5 or more years of service is entitled to pension
benefits beginning at normal retirement age 65. Benefits are based upon a
percentage of average final compensation multiplied by years of credited
service limited to 44 years of credited service. Prior to January 1, 1996,
the average final compensation is subject to certain limitations. Annual
funding requirements are determined based on the "projected unit credit"
cost method which attributes a pro rata portion of the total projected
benefit payable at normal retirement to each year of credited service.
Pension expense for current service costs, retirement and termination
benefits for the years ended December 31, 1996, 1995 and 1994 were
approximately $400,000, $304,000, and $179,000, respectively. The Parent's
plans do not separately identify projected benefit obligations and plan
assets attributable to employees of participating affiliates. The
projected benefit obligations exceeded the plan assets at December 31,
1996 by $42,149,000.
(b)The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which, during the two years ended December 31, 1994,
provided for salary reduction contributions by employees and matching
contributions by the Parent of up to 2 percent of annual salary.
Commencing January 1, 1995, the 401(k) plan provided for matching
contributions by the Parent of up to 6 percent of annual salary depending
on the employee's years of service.
F-24
<PAGE>
(c)In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
(d)The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provide for eligible employees
to receive privileges to purchase AIG common stock at a price equal to 85%
of the fair market value on the date of grant of the purchase privilege.
The Parent has not recognized compensation costs for either plan. The
effect of the compensation costs, as determined consistent with
FASB 123, was not computed on a subsidiary basis, but rather on a
consolidated basis for all subsidiaries of the Parent and therefore are
not presented herein.
F-25
<PAGE>
10. Leases
(a)The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1996, the
future minimum lease payments under operating leases were as follows (in
thousands):
Year Payment
1997 $ 3,833
1998 2,785
1999 1,846
2000 1,596
2001 1,471
Remaining years after 2001 4,414
-------
Total $15,945
-------
-------
Rent expense approximated $4,263,000, $3,764,000, and $3,542,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
(b) Sublease Income -The Company does not participate in sublease agreements.
11. Reinsurance
(a)The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term treaties.
Accident and health insurance risks are reinsured primarily under
coinsurance, excess of loss and quota share treaties. Amounts recoverable
from reinsurers are estimated in a manner consistent with the assumptions
used for the underlying policy benefits and are presented as a component
of reinsurance assets. A contingent liability exists with respect to
reinsurance ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements.
F-26
<PAGE>
The Company also reinsures portions of its life and accident and health
insurance risks with affiliated companies (see Note 12). The effect of all
reinsurance contracts, including reinsurance assumed, is as follows (in
thousands, except percentages):
Percentage
of Amount
December 31, 1996 Assumed
Gross Ceded Assumed Net to Net
----- ----- ------- --- --------
Life Insurance
in Force $53,854,456 $17,392,184 $ 605,831 $37,068,103 1.6%
=========== ============ =========== =============
Premiums:
Life 187,886 49,150 327 139,063 -
Accident and Health 97,971 28,359 107,447 177,059 60.7%
Annuity 78,358 - - 78,358 -
--------------- --------- ---------- --------- ------
Total Premiums $ 364,215 $77,509 $ 107,774 $394,480 27.3%
============ ============ ============= =============
F-27
<PAGE>
11. Reinsurance - (continued)
Percentage
of Amount
December 31, 1995 Assumed
Gross Ceded Assumed Net to Net
Life Insurance
in Force $48,644,007 $16,635,298 $58,966 $32,067,675
=========== =========== ========== ========= 0.2%
Premiums:
Life 184,981 33,768 1,670 152,883 1.1%
Accident and Health 72,473 16,800 93,060 148,733 62.6%
Annuity 62,886 - - 62,886
-------------- ---------------------------------------
-
Total Premiums $ 320,340 $50,568 $ 94,730 $ 364,502 26.0%
========================== ========== =============
Percentage
of Amount
December 31, 1994 Assumed
Gross Ceded Assumed Net to Net
Life Insurance
in Force $38,375,181 $16,500,870 $ 19,298 $21,893,609 0.1%
=========== =========== ========== ===========
Premiums:
Life 130,716 7,233 (10) 123,473 -
Accident and
Health 66,026 13,949 79,810 131,887 60.5%
Annuity 10,630 - - 10,630 -
------------- ----------------------------------------
Total
Premiums $ 207,372$ 21,182 $ 79,800 $ 265,990 30.0%
========================== ========== ============
(b) The maximum amount retained on any one life by the Company is $1,000,000.
(c)Reinsurance recoveries, which reduced death and other benefits,
approximated $54,456,000, $51,264,000, and $34,252,000, respectively, for
each of the years ended December 31, 1996, 1995 and 1994.
The Company's reinsurance arrangements do not relieve the Company from its
direct obligation to its insureds.
F-28
<PAGE>
12. Transactions with Related Parties
(a)The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance risks.
Premium income and commission ceded for 1996 amounted to $1,345,000 and
$0, respectively. Premium income and commission ceded for 1995 amounted to
$1,269,000 and $1,000, respectively. Premium income and commission ceded
to affiliates amounted to $1,267,000 and $2,000 for the year ended
December 31, 1994. Premium income and ceding commission expense assumed
from affiliates aggregated $103,885,000 and $27,609,000, respectively, for
1996, compared to $90,688,000 and $23,422,000, respectively, for 1995, and
$75,005,000 and $20,374,000, respectively for 1994.
F-29
<PAGE>
12. Transactions with Related Parties - (continued)
(b)The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional cost
allocation basis which management believes to be reasonable. For the years
ended December 31, 1996, 1995 and 1994, the Company was charged
$28,277,000, $23,193,000, and $21,392,000, respectively, for expenses
attributed to the Company but incurred by affiliates. During the same
period, the Company received reimbursements from affiliates aggregating
$17,598,000, $14,496,000, and $13,383,000, respectively, for costs
incurred by the Company but attributable to affiliates.
(c) During 1996, the Company purchased 1,500,000 shares of AIG Life Ireland,
LTD., a subsidiary.
F-30
<PAGE>
Intentionally left blank
F-31
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE SEPARATE ACCOUNT II
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
AIG Life Insurance Company
Variable Separate Account II
We have audited the accompanying statement of assets and liabilities of AIG
Life Insurance Company Variable Separate Account II comprising the
Fidelity Money Market, Asset Manager, Growth, Overseas, Investment Grade
Bond, High Income; the Dreyfus Stock and Zero Coupon 2000; the Alliance Growth
and Income, Conservative Investors, Growth, Growth Investors, Technology,
Quasar; the Van Eck Gold and Natural Resources, Worldwide Balanced;
and the Weiss, Peck and Greer Tomorrow Long-Term Subaccounts as of
December 31, 1996 and the related statement of operations for the year
then ended, and the statement of changes in net assets for each of the
two years then added. These financial statements are the are the
responsibility of the management of Variable Separate Account II.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments held at
December 31, 1996 by correspondence with the transfer agent.
An audit also includes assessing the accounting principles used an
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of AIG Life
Insurance Company Variable Separate Account II as of December 31, 1996,
and the results of its operations for the year then ended, and the changes
in its net assets for each of the two years then ended, in conformity
with generally accepted accounting principles.
/s/Coopers & Lybrand
- - ---------------------
Coopers & Lybrand
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 20, 1997
F-32
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31,1996
<TABLE>
<CAPTION>
Shares Cost Market Value
<S> <C> <C> <C>
ASSETS:
Investments at Market Value:
Fidelity
Money Market Portfolio ............................ 194,167.350 $ 194,167 $ 194,167
Asset Manager Portfolio ........................... 6,060.588 96,188 102,607
Growth Portfolio .................................. 22,298.291 671,874 694,368
Overseas Portfolio ................................ 6,345.325 113,501 119,545
Investment Grade Bond Portfolio ................... 4,190.269 50,125 51,289
High Income Portfolio ............................. 4,624.980 55,989 57,904
Dreyfus
Stock Index Portfolio ............................. 7,498.224 144,363 152,067
Zero Coupon 2000 Portfolio ........................ 236.783 2,915 2,911
Alliance
Growth & Income Portfolio ......................... 10,171.309 158,865 166,810
Conservative Investors Portfolio .................. 829.803 9,565 10,016
Growth Portfolio .................................. 14,137.183 228,759 253,338
Growth Investors Portfolio ........................ 4,661.979 56,725 59,393
Technology Portfolio .............................. 713.319 8,067 7,875
Quasar Portfolio .................................. 445.525 4,654 4,740
Van Eck
Gold & Natural Resources Portfolio ................ 640.690 10,221 10,713
Worldwide Balanced Portfolio ...................... 3,049.662 32,141 33,973
Weiss,Peck & Greer
Tomorrow Long Term Portfolio ...................... 22.621 159 160
------------- ---------------
Total Investments ................................................. $ 1,838,278 1,921,876
Receivable from AIG Life .................................................................. 9
---------------
Total Assets ...................................................................$ 1,921,885
===============
EQUITY:
Contract Owners' Equity ...................................................................$ 1,921,885
---------------
Total Equity ...................................................................$ 1,921,885
===============
See Notes to Financial Statements
</TABLE>
F-33
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For the Year Ended December 31,1996
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset Fidelity
Market Manager Growth
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends ........................................$ 27,488 $ 7,200 $ 220 $ 2,350
Expenses:
Mortality & Expense Risk Fees .................... 7,704 1,251 306 2,743
-------------- ------------- -------------- ----------------
Net Investment Income (Loss) ......................... 19,784 5,949 (86) (393)
-------------- ------------- -------------- ----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ..................................... 11,950 0 316 1,315
Change in Unrealized Appreciation
(Depreciation) ............................... 82,087 0 6,323 22,682
-------------- ------------- -------------- ----------------
Net Gain (Loss) on Investments ....................... 94,037 0 6,639 23,997
-------------- ------------- -------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations ........................$ 113,821 $ 5,949 $ 6,553 $ 23,604
============== ============= ============== ================
Fidelity
Investment Fidelity Dreyfus
Fidelity Grade High Stock
Overseas Bond Income Index
Portfolio Portfolio Portfolio Portfolio
Investment Income (Loss):
Dividends ........................................$ 146 $ 37 $ 155 $ 3,510
Expenses:
Mortality & Expense Risk Fees .................... 454 130 167 516
-------------- ------------- -------------- ----------------
Net Investment Income (Loss) ......................... (308) (93) (12) 2,994
-------------- ------------- -------------- ----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ..................................... 936 39 111 2,229
Change in Unrealized Appreciation
(Depreciation) ............................... 5,923 1,154 1,903 7,602
-------------- ------------- -------------- ----------------
Net Gain (Loss) on Investments ....................... 6,859 1,193 2,014 9,831
-------------- ------------- -------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations ........................$ 6,551 $ 1,100 $ 2,002 $ 12,825
============== ============= ============== ================
</TABLE>
F-34
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For the Year Ended December 31,1996
<TABLE>
<CAPTION>
Dreyfus Alliance
Zero Growth Alliance
Coupon & Conservative Alliance
2000 Income Investors Growth
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends ........................................$ 83 $ 12,382 $ 56 $ 1,252
Expenses:
Mortality & Expense Risk Fees .................... 11 682 44 1,001
-------------- ------------- -------------- ----------------
Net Investment Income (Loss) ......................... 72 11,700 12 251
-------------- ------------- -------------- ----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ..................................... (14) (800) 9 7,049
Change in Unrealized Appreciation
(Depreciation) ............................... (7) 7,238 442 23,960
-------------- ------------- -------------- ----------------
Net Gain (Loss) on Investments ....................... (21) 6,438 451 31,009
-------------- ------------- -------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations ........................$ 51 $ 18,138 $ 463 $ 31,260
============== ============= ============== ================
Van Eck
Alliance Gold &
Growth Alliance Alliance Natural
Investors Technology Quasar Resources
Portfolio Portfolio Portfolio Portfolio
Investment Income (Loss):
Dividends ........................................$ 84 $ 0 $ 0 $ 8
Expenses:
Mortality & Expense Risk Fees .................... 254 6 4 27
-------------- ------------- -------------- ----------------
Net Investment Income (Loss) ......................... (170) (6) (4) (19)
-------------- ------------- -------------- ----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ..................................... 492 0 0 44
Change in Unrealized Appreciation
(Depreciation) ............................... 2,647 (192) 86 494
-------------- ------------- -------------- ----------------
Net Gain (Loss) on Investments ....................... 3,139 (192) 86 538
-------------- ------------- -------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations ........................$ 2,969 $ (198) $ 82 $ 519
============== ============= ============== ================
</TABLE>
F-35
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For the Year Ended December 31,1996
<TABLE>
<CAPTION>
Van Eck Tomorrow
Worldwide Long
Balanced Term
Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends ........................................$ 4 $ 1
Expenses:
Mortality & Expense Risk Fees .................... 108 0
-------------- -------------
Net Investment Income (Loss) ......................... (104) 1
-------------- -------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ..................................... 224 0
Change in Unrealized Appreciation
(Depreciation) ............................... 1,832 0
-------------- -------------
Net Gain (Loss) on Investments ....................... 2,056 0
-------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations ........................$ 1,952 $ 1
============== =============
</TABLE>
See Notes to Financial Statements
F-36
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31,1995
<TABLE>
<CAPTION>
1996
Fidelity Fidelity
Money Asset Fidelity
Market Manager Growth
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) .....................$ 19,784 $ 5,949 $ (86) $ (393)
Realized Gain (Loss) on Investment Activity ...... 11,950 0 316 1,315
Change in Unrealized Appreciation
(Depreciation) of Investments ................ 82,087 0 6,323 22,682
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Operations .................................. 113,821 5,949 6,553 23,604
------------- -------------- --------------- ------------
Capital Transactions:
Contract Deposits ................................ 1,958,603 217,631 102,840 725,685
Cost Of Insurance Charges ........................ (230,327) (47,650) (9,663) (66,331)
Contract Withdrawals ............................. (31,077) (5,236) (110) (14,713)
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Capital Transactions ........................ 1,697,199 164,745 93,067 644,641
------------- -------------- --------------- ------------
Total Increase (Decrease) in Net Assets .............. 1,811,020 170,694 99,620 668,245
Net Assets, at Beginning of Year ..................... 110,865 26,798 2,987 26,150
------------- -------------- --------------- ------------
Net Assets, at End of Year ...........................$ 1,921,885 $ 197,492 $ 102,607 $ 694,395
============= ============== =============== ============
F-37
<PAGE>
1995
Fidelity Fidelity
Money Asset Fidelity
Market Manager Growth
Total Portfolio Portfolio Portfolio
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) .....................$ 160 $ 244 $ (5) $ (41)
Realized Gain (Loss) on Investment Activity ...... (55) 0 18 (291)
Change in Unrealized Appreciation
(Depreciation) of Investments ................ 1,511 0 94 (187)
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Operations .................................. 1,616 244 107 (519)
------------- -------------- --------------- ------------
Capital Transactions:
Contract Deposits ................................ 133,550 80,546 1,541 18,203
Transfers Between Funds .......................... 0 (44,242) 2,186 12,969
Transfers From (To) AIG Life ..................... (872) (872) 0 0
Cost Of Insurance Charges ........................ (23,429) (8,878) (847) (4,503)
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Capital Transactions ........................ 109,249 26,554 2,880 26,669
------------- -------------- --------------- ------------
Total Increase (Decrease) in Net Assets .............. 110,865 26,798 2,987 26,150
Net Assets, at Beginning of Year ..................... 0 0 0 0
------------- -------------- --------------- ------------
Net Assets, at End of Year ...........................$ 110,865 $ 26,798 $ 2,987 $ 26,150
============= ============== =============== ============
</TABLE>
F-38
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31,1995
<TABLE>
<CAPTION>
1996
Fidelity
Investment Fidelity Dreyfus
Fidelity Grade High Stock
Overseas Bond Income Index
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) .....................$ (308) $ (93) $ (12) $ 2,994
Realized Gain (Loss) on Investment Activity ...... 936 39 111 2,229
Change in Unrealized Appreciation
(Depreciation) of Investments ................ 5,923 1,154 1,903 7,602
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Operations .................................. 6,551 1,100 2,002 12,825
------------- -------------- --------------- ------------
Capital Transactions:
Contract Deposits ................................ 118,360 52,569 60,255 151,297
Cost Of Insurance Charges ........................ (10,379) (3,096) (5,660) (15,661)
Contract Withdrawals ............................. (107) (15) (15) (50)
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Capital Transactions ........................ 107,874 49,458 54,580 135,586
------------- -------------- --------------- ------------
Total Increase (Decrease) in Net Assets .............. 114,425 50,558 56,582 148,411
Net Assets, at Beginning of Year ..................... 5,236 614 1,322 3,656
------------- -------------- --------------- ------------
Net Assets, at End of Year ...........................$ 119,661 $ 51,172 $ 57,904 $ 152,067
============= ============== =============== ============
1995
Fidelity
Investment Fidelity Dreyfus
Fidelity Grade High Stock
Overseas Bond Income Index
Portfolio Portfolio Portfolio Portfolio
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) .....................$ (9) $ (1) $ (1) $ 48
Realized Gain (Loss) on Investment Activity ...... (14) 6 0 49
Change in Unrealized Appreciation
(Depreciation) of Investments ................ 122 10 13 99
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Operations .................................. 99 15 12 196
------------- -------------- --------------- ------------
Capital Transactions:
Contract Deposits ................................ 1,799 356 89 1,751
Transfers Between Funds .......................... 4,158 393 1,343 2,651
Transfers From (To) AIG Life ..................... 0 0 0 0
Cost Of Insurance Charges ........................ (820) (150) (122) (942)
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Capital Transactions ........................ 5,137 599 1,310 3,460
------------- -------------- --------------- ------------
Total Increase (Decrease) in Net Assets .............. 5,236 614 1,322 3,656
Net Assets, at Beginning of Year ..................... 0 0 0 0
------------- -------------- --------------- ------------
Net Assets, at End of Year ...........................$ 5,236 $ 614 $ 1,322 $ 3,656
============= ============== =============== ============
</TABLE>
F-39
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31,1995
<TABLE>
<CAPTION>
1996
Dreyfus Alliance
Zero Growth Alliance
Coupon & Conservative Alliance
2000 Income Investors Growth
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) .....................$ 72 $ 11,700 $ 12 $ 251
Realized Gain (Loss) on Investment Activity ...... (14) (800) 9 7,049
Change in Unrealized Appreciation
(Depreciation) of Investments ................ (7) 7,238 442 23,960
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Operations .................................. 51 18,138 463 31,260
------------- -------------- --------------- ------------
Capital Transactions:
Contract Deposits ................................ 4,192 154,585 10,554 240,796
Cost Of Insurance Charges ........................ (1,635) (18,387) (1,411) (36,923)
Contract Withdrawals ............................. (15) (3,803) (64) (5,885)
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Capital Transactions ........................ 2,542 132,395 9,079 197,988
------------- -------------- --------------- ------------
Total Increase (Decrease) in Net Assets .............. 2,593 150,533 9,542 229,248
Net Assets, at Beginning of Year ..................... 318 16,264 474 24,094
------------- -------------- --------------- ------------
Net Assets, at End of Year ...........................$ 2,911 $ 166,797 $ 10,016 $ 253,342
============= ============== =============== ============
F-40
<PAGE>
1995
Dreyfus Alliance
Zero Growth Alliance
Coupon & Conservative Alliance
2000 Income Investors Growth
Portfolio Portfolio Portfolio Portfolio
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) .....................$ 2 $ (30) $ (1) $ (43)
Realized Gain (Loss) on Investment Activity ...... (1) 79 6 80
Change in Unrealized Appreciation
(Depreciation) of Investments ................ 3 707 9 620
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Operations .................................. 4 756 14 657
------------- -------------- --------------- ------------
Capital Transactions:
Contract Deposits ................................ 98 11,299 460 15,441
Transfers Between Funds .......................... 324 6,137 211 11,912
Transfers From (To) AIG Life ..................... 0 0 0 0
Cost Of Insurance Charges ........................ (108) (1,928) (211) (3,916)
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Capital Transactions ........................ 314 15,508 460 23,437
------------- -------------- --------------- ------------
Total Increase (Decrease) in Net Assets .............. 318 16,264 474 24,094
Net Assets, at Beginning of Year ..................... 0 0 0 0
------------- -------------- --------------- ------------
Net Assets, at End of Year ...........................$ 318 $ 16,264 $ 474 $ 24,094
============= ============== =============== ============
</TABLE>
F-41
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31,1995
1996
<TABLE>
<CAPTION>
Van Eck
Alliance Gold &
Growth Alliance Alliance Natural
Investors Technology Quasar Resources
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) .....................$ (170) $ (6) $ (4) $ (19)
Realized Gain (Loss) on Investment Activity ...... 492 0 0 44
Change in Unrealized Appreciation
(Depreciation) of Investments ................ 2,647 (192) 86 494
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Operations .................................. 2,969 (198) 82 519
------------- -------------- --------------- ------------
Capital Transactions:
Contract Deposits ................................ 61,331 8,268 4,913 11,121
Cost Of Insurance Charges ........................ (8,832) (195) (255) (1,173)
Contract Withdrawals ............................. (979) 0 0 (20)
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Capital Transactions ........................ 51,520 8,073 4,658 9,928
------------- -------------- --------------- ------------
Total Increase (Decrease) in Net Assets .............. 54,489 7,875 4,740 10,447
Net Assets, at Beginning of Year ..................... 1,575 0 0 265
------------- -------------- --------------- ------------
Net Assets, at End of Year ...........................$ 56,064 $ 7,875 $ 4,740 $ 10,712
============= ============== =============== ============
F-42
<PAGE>
1995
Van Eck
Alliance Gold &
Growth Alliance Alliance Natural
Investors Technology Quasar Resources
Portfolio Portfolio Portfolio Portfolio
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) .....................$ (2) $ 0 $ 0 $ 0
Realized Gain (Loss) on Investment Activity ...... 15 0 0 (2)
Change in Unrealized Appreciation
(Depreciation) of Investments ................ 22 0 0 (2)
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Operations .................................. 35 0 0 (4)
------------- -------------- --------------- ------------
Capital Transactions:
Contract Deposits ................................ 1,326 0 0 256
Transfers Between Funds .......................... 916 0 0 113
Transfers From (To) AIG Life ..................... 0 0 0 0
Cost Of Insurance Charges ........................ (702) 0 0 (100)
Increase (Decrease) in Net Assets Resulting ------------- -------------- --------------- ------------
From Capital Transactions ........................ 1,540 0 0 269
------------- -------------- --------------- ------------
Total Increase (Decrease) in Net Assets .............. 1,575 0 0 265
Net Assets, at Beginning of Year ..................... 0 0 0 0
------------- -------------- --------------- ------------
Net Assets, at End of Year ...........................$ 1,575 $ 0 $ 0 $ 265
============= ============== =============== ============
</TABLE>
F-43
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31,1995
<TABLE>
<CAPTION>
1996
Van Eck Tomorrow
Worldwide Long
Balanced Term
Portfolio Portfolio
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) .....................$ (104) $ 1
Realized Gain (Loss) on Investment Activity ...... 224 0
Change in Unrealized Appreciation
(Depreciation) of Investments ................ 1,832 0
Increase (Decrease) in Net Assets Resulting ------------- --------------
From Operations .................................. 1,952 1
------------- --------------
Capital Transactions:
Contract Deposits ................................ 34,041 165
Cost Of Insurance Charges ........................ (3,070) (6)
Contract Withdrawals ............................. (65) 0
Increase (Decrease) in Net Assets Resulting ------------- --------------
From Capital Transactions ........................ 30,906 159
------------- --------------
Total Increase (Decrease) in Net Assets .............. 32,858 160
Net Assets, at Beginning of Year ..................... 1,112 0
------------- --------------
Net Assets, at End of Year ...........................$ 33,970 $ 160
============= ==============
F-44
<PAGE>
1995
Van Eck Tomorrow
Worldwide Long
Balanced Term
Portfolio Portfolio
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) .....................$ (1) $ 0
Realized Gain (Loss) on Investment Activity ...... 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments ................ 1 0
Increase (Decrease) in Net Assets Resulting ------------- --------------
From Operations .................................. 0 0
------------- --------------
Capital Transactions:
Contract Deposits ................................ 385 0
Transfers Between Funds .......................... 929 0
Transfers From (To) AIG Life ..................... 0 0
Cost Of Insurance Charges ........................ (202) 0
Increase (Decrease) in Net Assets Resulting ------------- --------------
From Capital Transactions ........................ 1,112 0
------------- --------------
Total Increase (Decrease) in Net Assets .............. 1,112 0
Net Assets, at Beginning of Year ..................... 0 0
------------- --------------
Net Assets, at End of Year ...........................$ 1,112 $ 0
============= ==============
</TABLE>
See Notes to Financial Statements
F-45
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
1. History
Variable Account II (the "Account") is a separate investment account maintained
under the provisions of Delaware Insurance Law by AIG Life Insurance Company
(the "Company"), a subsidiary of American International Group, Inc. The Account
operates as a unit investment trust registered under the Investment Company Act
of 1940, as amended, and supports the operations of the Company's individual
flexible premium variable universal life insurance policies (the "policies").
The Account invests in shares of Alliance Variable Products Series Fund, Inc.
("Alliance Fund"), Dreyfus Variable Investment Fund ("Dreyfus Fund"), Dreyfus
Stock Index Fund, Fidelity Investments Variable Insurance Products Fund
("Fidelity Trust"), Fidelity Variable Insurance Products Fund II ("Fidelity
Trust II"), Van Eck Investment Trust ("Van Eck Trust") and Weiss, Peck & Greer
("Tomorrow Funds"). The assets in the policies may be invested in the following
subaccounts:
Alliance Fund: Fidelity Trust:
Growth & Income Portfolio Money Market Portfolio
Conservative Investors Portfolio High IncomePortfolio
Growth Portfolio Growth Portfolio
Growth Investors Portfolio Overseas Portfolio
Quasar Portfolio
Technology Portfolio
Dreyfus Fund: Fidelity Trust II:
Zero Coupon 2000 Portfolio Investment Grade Bond Portfolio
Stock Index Portfolio Asset Manager Portfolio
Van Eck Trust: Weiss,Peck & Greer
Tomorrow Funds:
Gold & Natural Resources Portfolio Tomorrow Long Term
Worldwide Balanced Portfolio Tomorrow Medium Term
Tomorrow Short Term
The Account commenced operations on May 4, 1995.
The assets of the Account are the property of the Company. The portion of the
Account's assets applicable to the policies are not chargeable with the
liabilities arising out of any other business conducted by the Company.
In addition to the Account, policy owners may also allocate assets of the
policies to the Guaranteed Account, which is part of the Company's general
account. Amounts allocated to the Guaranteed Account are credited with a
guaranteed rate of interest. Because of exemptive and exclusionary provisions,
interests in the Guaranteed Account have not been registered under the
Securities Act of 1933, and the Guaranteed Account has not been registered as an
investment company under the Investment Company Act of 1940.
F-46
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Account in preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation - The investments in the Funds are stated at market
value which is the net asset value of each of the respective series as
determined at the close of business on the last business day of the period by
the Fund.
B. Accounting for Investments - Investment transactions are
accounted for on the date the investments are purchased or sold.
Dividend income is recorded on the ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations and is
not taxed separately. Under existing federal law, no taxes are payable on
investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required management
to make estimates and assumptions that affect the reported values of assets and
liabilities and the reported amounts from operations and policy transactions.
Actual results could differ from those estimates.
3. Contract Charges
There are charges and deductions which the Company will deduct from each policy.
The deductions from premium are a sales charge of 5% plus the state specific
premium taxes.
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are equivalent on an
annual basis to .90% of the account value of the policies. This charge may be
decreased to not less than .50% in policy years eleven and greater.
On the policies' issue date and each monthly anniversary, the following
deductions are made from the policies' account value:
(a) administrative charges
(b) insurance charges
(c) supplemental benefit charges
If the policy is surrendered during the first fourteen policy years, the Company
will deduct a surrender charge based on a percentage of first year premium. A
pro rata surrender charge will be deducted for any partial surrender. An
administrative charge upon partial surrender will be equal to the lessor of
$25.00 or 2% of the amount surrendered.
F-47
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
4. Purchases of Investments
For the year ended December 31, 1996, investment activity
in the Fund was as follows:
Cost of Proceeds
Purchases From Sales
Shares of
Fidelity Trust Funds:
Money Market Portfolio ................... $ 1,073,092 $ 905,561
Asset Manager Portfolio .................. 104,160 11,157
Growth Portfolio ......................... 834,904 191,222
Overseas Portfolio........................ 128,897 21,393
Investment Grade Bond Portfolio........... 52,886 3,404
High Income Portfolio..................... 61,293 6,725
Dreyfus:
Stock Index Portfolio..................... 173,308 34,688
Zero Coupon 2000 Portfolio................ 6,037 3,426
Alliance Funds:
Growth & Income Portfolio ................ 174,195 30,132
Conservative Investors Portfolio.......... 10,787 1,692
Growth Portfolio.......................... 256,993 58,688
Growth Investors Portfolio................ 71,324 16,643
Technology Portfolio...................... 8,088 21
Quasar Portfolio.......................... 4,766 112
Van Eck:
Gold & Natural Resources Portfolio........ 11,855 1,938
Worldwide Balanced Portfolio.............. 35,032 4,226
Weiss, Peck, & Greer Tomorrow Funds:
Tomorrow Long Term Portfolio.............. 163 4
For the year ended December 31, 1995, investment activity
in the Fund was as follows:
F-48
<PAGE>
Cost of Proceeds
Purchases From Sales
Shares of
Fidelity Trust Funds:
Money Market Portfolio ................... $ 79,323 $ 52,686
Asset Manager Portfolio .................. 3,611 760
Growth Portfolio ......................... 44,248 16,780
Overseas Portfolio........................ 5,767 692
Investment Grade Bond Portfolio........... 889 291
High Income Portfolio..................... 1,361 52
Dreyfus:
Stock Index Portfolio..................... 4,255 790
Zero Coupon 2000 Portfolio................ 421 105
Alliance Funds:
Growth & Income Portfolio ................ 17,402 1,878
Conservative Investors Portfolio.......... 672 217
Growth Portfolio.......................... 26,173 2,850
Growth Investors Portfolio................ 2,011 474
Van Eck:
Gold & Natural Resources Portfolio........ 361 102
Worldwide Balanced Portfolio.............. 1,440 331
F-49
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1996, transactions in accumulation
units of the account were as follows:
<TABLE>
<CAPTION>
Fidelity
Fidelity Fidelity Investment
Money Asset Fidelity Fidelity Grade
Market Manager Growth Overseas Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- ------------- ------------- ------------ -------------
<S> <C> <C>
VARIABLE UNIVERSAL LIFE
Units Purchased ............................. 96,350.61 2,591.56 37,503.48 3,749.09 4,033.53
Units Withdrawn ............................. (5,294.89) (829.91) (6,918.88) (1,001.87) (303.80)
Units Transferred Between Funds ............. (75,597.53) 6,187.57 22,839.59 7,337.92 1,059.20
Units Transferred From (To) AIG Life ........ 0.00 0.00 0.00 0.00 0.00
-------------- ------------- ------------- ------------ -------------
Net Increase (Decrease) ..................... 15,458.19 7,949.22 53,424.19 10,085.14 4,788.93
Units, at Beginning of the Year ............. 2,613.20 273.10 2,457.41 520.81 59.34
-------------- ------------- ------------- ------------ -------------
Units, at End of the Year ................... 18,071.39 8,222.32 55,881.60 10,605.95 4,848.27
============== ============= ============= ============ =============
Unit Value at December 31, 1996 ............. $ 10.74 $ 12.48 $ 12.43 $ 11.27 $ 10.58
========== ========= ========= ======== =========
Dreyfus Alliance
Fidelity Dreyfus Zero Growth Alliance
High Stock Coupon & Conservative
Income Index 2000 Income Investors
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- ------------- ------------- ------------ -------------
Units Purchased ............................. 3,558.70 5,255.44 372.27 7,525.87 691.18
Units Withdrawn ............................. (556.36) (1,261.30) (162.07) (1,938.87) (138.83)
Units Transferred Between Funds ............. 1,930.06 7,186.07 39.06 5,344.61 314.46
Units Transferred From (To) AIG Life ........ 0.00 0.00 0.00 0.00 0.00
-------------- ------------- ------------- ------------ -------------
Net Increase (Decrease) ..................... 4,932.40 11,180.21 249.26 10,931.61 866.81
Units, at Beginning of the Year ............. 130.66 337.14 30.83 1,489.45 44.30
-------------- ------------- ------------- ------------ -------------
Units, at End of the Year ................... 5,063.06 11,517.35 280.09 12,421.06 911.11
============== ============= ============= ============ =============
Unit Value at December 31, 1996 ............. $ 11.44 $ 13.20 $ 10.39 $ 13.43 $ 10.99
========== ========= ========= ======== =========
F-50
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1996, transactions in accumulation
units of the account were as follows:
Van Eck
Alliance Gold &
Alliance Growth Alliance Alliance Natural
Growth Investors Technology Quasar Resources
Portfolio Portfolio Portfolio Portfolio Portfolio
-------------- ------------- ------------- ------------ -------------
Units Purchased ............................. 10,212.03 1,818.45 642.41 305.92 716.36
Units Withdrawn ............................. (3,531.42) (588.89) (16.62) (25.45) (103.45)
Units Transferred Between Funds ............. 9,659.34 3,766.51 142.81 184.80 279.13
Units Transferred From (To) AIG Life ........ 0.00 0.00 0.00 0.00 0.00
-------------- ------------- ------------- ------------ -------------
Net Increase (Decrease) ..................... 16,339.95 4,996.07 768.60 465.27 892.04
Units, at Beginning of the Year ............. 2,245.78 146.15 0.00 0.00 26.34
-------------- ------------- ------------- ------------ -------------
Units, at End of the Year ................... 18,585.73 5,142.22 768.60 465.27 918.38
============== ============= ============= ============ =============
Unit Value at December 31, 1996 ............. $ 13.63 $ 11.55 $ 10.25 $ 10.19 $ 11.66
============== ============= ============= ============ =============
Van Eck Tomorrow
Worldwide Long
Balanced Term
Portfolio Portfolio
-------------- -------------
Units Purchased ............................. 2,698.78 9.77
Units Withdrawn ............................. (323.82) (0.61)
Units Transferred Between Funds ............. 596.23 6.10
Units Transferred From (To) AIG Life ........ 0.00 0.00
-------------- -------------
Net Increase (Decrease) ..................... 2,971.19 15.26
Units, at Beginning of the Year ............. 111.95 0.00
-------------- -------------
Units, at End of the Year ................... 3,083.14 15.26
============== =============
Unit Value at December 31, 1996 ............. $ 11.02 $ 10.45
========== =========
</TABLE>
F-51
<PAGE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30,1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS:
Investments at Market Value:
Shares Cost Market Value
<S> <C> <C> <C>
Fidelity
Money Market Portfolio ........ 732,148.240 $ 732,148 $ 732,148
Asset Manager Portfolio ....... 14,700.028 289,249 288,840
Growth Portfolio .............. 25,466.746 814,659 870,963
Overseas Portfolio ............ 10,132.114 182,173 203,048
Investment Grade Bond Portfolio 4,566.662 54,529 54,069
High Income Portfolio ......... 7,664.705 93,155 95,272
Dreyfus
Stock Index Portfolio ......... 20,906.072 475,912 506,554
Zero Coupon 2000 Portfolio .... 736.453 8,958 9,029
Alliance
Growth & Income Portfolio ..... 272,366.236 469,414 484,382
Conservative Investors Portfoli 1,048.062 12,350 13,006
Growth Portfolio .............. 38,949.933 701,560 741,609
Growth Investors Portfolio .... 5,580.339 72,035 75,558
Technology Portfolio .......... 16,187.824 181,549 187,131
Quasar Portfolio .............. 14,246.109 157,900 164,827
Van Eck
Worldwide Hard Assets Portfolio 1,155.794 18,041 18,423
Worldwide Balanced Portfolio .. 4,456.010 48,564 52,715
Weiss,Peck & Greer
Tomorrow Short Term Portfolio . 229.498 2,235 2,304
Tomorrow Long Term Portfolio .. 845.291 6,071 6,669
Total Investments ................ $ 4,320,502 4,506,547
Total Assets ................ $ 4,506,547
LIABILITIES:
Payable to AIG Life Insurance Company ... $ 2,368
EQUITY:
Contract Owners' Equity ............................................ 4,504,179
Total Equity ............................................ $ 4,506,547
</TABLE>
See accompanying notes to financial statements (unaudited).
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset
Market Manager
Total Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends ........................... $151,320 $15,293 $24,048
Expenses:
Mortality & Expense Risk Fees ....... 15,386 $2,604 $960
Daily Administrative Charges ........ 0 0 0
Net Investment Income (Loss) ............ 135,934 12,689 23,088
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ........................ 108,074 ($3,149) $8,045
Change in Unrealized Appreciation
(Depreciation) .................. 102,451 0 (6,826)
Net Gain (Loss) on Investments ...... 210,525 (3,149) 1,219
Increase (Decrease) in Net Assets
Resulting From Operations ........... 346,459 9,540 24,307
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Investment
Fidelity Fidelity Grade
Growth Overseas Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends ........................... $29,644 $11,804 $3,074
Expenses:
Mortality & Expense Risk Fees ....... $3,708 $724 $233
Daily Administrative Charges ........ 0 0 0
Net Investment Income (Loss) ............ 25,936 11,080 2,841
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ........................ $39,220 ($2) $2
Change in Unrealized Appreciation
(Depreciation) .................. 33,809 14,830 (1,624)
Net Gain (Loss) on Investments ...... 73,029 14,828 (1,622)
Increase (Decrease) in Net Assets
Resulting From Operations ........... 98,965 25,908 1,219
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Fidelity Dreyfus Zero
High Stock Coupon
Income Index 2000
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends ........................... $4,849 $2,875 $154
Expenses:
Mortality & Expense Risk Fees ....... $315 $1,241 $28
Daily Administrative Charges ........ 0 0 0
Net Investment Income (Loss) ............ 4,534 1,634 126
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ........................ $173 $25,909 ($86)
Change in Unrealized Appreciation
(Depreciation) .................. 201 22,941 76
Net Gain (Loss) on Investments ...... 374 48,850 (10)
Increase (Decrease) in Net Assets
Resulting From Operations ........... 4,908 50,484 116
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Growth & Conservative Alliance
Income Investors Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends ........................... $27,385 $306 $27,680
Expenses:
Mortality & Expense Risk Fees ....... $1,543 $50 $2,073
Daily Administrative Charges ........ 0 0 0
Net Investment Income (Loss) ............ 25,842 256 25,607
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ........................ $14,411 $95 $23,142
Change in Unrealized Appreciation
(Depreciation) .................. 7,023 206 15,468
Net Gain (Loss) on Investments ...... 21,434 301 38,610
Increase (Decrease) in Net Assets
Resulting From Operations ........... 47,276 557 64,217
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance Alliance
Investors Technology Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends ........................... $2,233 $544 $114
Expenses:
Mortality & Expense Risk Fees ....... $287 $719 $632
Daily Administrative Charges ........ 0 0 0
Net Investment Income (Loss) ............ 1,946 (175) (518)
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ........................ $3,092 ($2,895) ($270)
Change in Unrealized Appreciation
(Depreciation) .................. 854 5,774 6,842
Net Gain (Loss) on Investments ...... 3,946 2,879 6,572
Increase (Decrease) in Net Assets
Resulting From Operations ........... 5,892 2,704 6,054
</TABLE>
<TABLE>
<CAPTION>
VanEck
Worldwide VanEck Tomorrow
Hard Worldwide Short
Assets Balanced Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends ........................... $485 $832 $0
Expenses:
Mortality & Expense Risk Fees ....... $63 $188 $2
Daily Administrative Charges ........ 0 0 0
Net Investment Income (Loss) ............ 422 644 (2)
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ........................ ($69) $462 $1
Change in Unrealized Appreciation
(Depreciation) .................. (109) 2,318 69
Net Gain (Loss) on Investments ...... (178) 2,780 70
Increase (Decrease) in Net Assets
Resulting From Operations ........... 244 3,424 68
</TABLE>
<TABLE>
<CAPTION>
Tomorrow
Long
Term
Portfolio
<S> <C>
Investment Income (Loss):
Dividends ........................... $0
Expenses:
Mortality & Expense Risk Fees ....... $16
Daily Administrative Charges ........ 0
Net Investment Income (Loss) ............ (16)
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ........................ ($7)
Change in Unrealized Appreciation
(Depreciation) .................. 599
Net Gain (Loss) on Investments ...... 592
Increase (Decrease) in Net Assets
Resulting From Operations ........... 576
</TABLE>
See accompanying notes to financial statements (unaudited).
<PAGE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For the Six Months Ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset
Market Manager
Total Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ........ $135,934 $12,689 $23,088
Realized Gain (Loss) on Investment Act $108,074 (3,149) 8,045
Change in Unrealized Appreciation
(Depreciation) of Investments ... 102,451 0 (6,826)
Increase (Decrease) in Net Assets Resulting
From Operations ..................... 346,459 9,540 24,307
Capital Transactions:
Contract Deposits ................... 2,608,137 645,041 179,528
Cost Of Insurance Charge ............ (308,731) (66,512) (16,949)
Administrative Charges .............. 0 0 0
Policy Loans ........................ (52,504) (52,504) 0
Transfers Between Funds ............. 0 0 0
Contract Withdrawals ................ (11,067) 0 (601)
Deferred Sales Charges .............. 0 0 0
Death Benefits ...................... 0 0 0
Increase (Decrease) in Net Assets Resulting
From Capital Transactions ........... 2,235,835 526,025 161,978
Total Increase (Decrease) in Net Assets . 2,582,294 535,565 186,285
Net Assets, at Beginning of Year ........ 1,921,885 197,492 102,607
Net Assets, at June 30,1997 ............. 4,504,179 733,057 288,892
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Investment
Fidelity Fidelity Grade
Growth Overseas Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ........ $25,936 $11,080 $2,841
Realized Gain (Loss) on Investment Act 39,220 (2) 2
Change in Unrealized Appreciation
(Depreciation) of Investments ... 33,809 14,830 (1,624)
Increase (Decrease) in Net Assets Resulting
From Operations ..................... 98,965 25,908 1,219
Capital Transactions:
Contract Deposits ................... 151,037 70,404 4,057
Cost Of Insurance Charge ............ (69,078) (12,653) (2,508)
Administrative Charges .............. 0 0 0
Policy Loans ........................ 0 0 0
Transfers Between Funds ............. 0 0 0
Contract Withdrawals ................ (2,749) (364) 0
Deferred Sales Charges .............. 0 0 0
Death Benefits ...................... 0 0 0
Increase (Decrease) in Net Assets Resulting
From Capital Transactions ........... 79,210 57,387 1,549
Total Increase (Decrease) in Net Assets . 178,175 83,295 2,768
Net Assets, at Beginning of Year ........ 694,395 119,661 51,172
Net Assets, at June 30,1997 ............. 872,570 202,956 53,940
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Fidelity Dreyfus Zero
High Stock Coupon
Income Index 2000
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ........ $4,534 $1,634 $126
Realized Gain (Loss) on Investment Act 173 25,909 (86)
Change in Unrealized Appreciation
(Depreciation) of Investments ... 201 22,941 76
Increase (Decrease) in Net Assets Resulting
From Operations ..................... 4,908 50,484 116
Capital Transactions:
Contract Deposits ................... 40,096 333,398 8,526
Cost Of Insurance Charge ............ (7,041) (29,025) (2,374)
Administrative Charges .............. 0 0 0
Policy Loans ........................ 0 0 0
Transfers Between Funds ............. 0 0 0
Contract Withdrawals ................ 0 (1,175) (171)
Deferred Sales Charges .............. 0 0 0
Death Benefits ...................... 0 0 0
Increase (Decrease) in Net Assets Resulting
From Capital Transactions ........... 33,055 303,198 5,981
Total Increase (Decrease) in Net Assets . 37,963 353,682 6,097
Net Assets, at Beginning of Year ........ 57,904 152,067 2,911
Net Assets, at June 30,1997 ............. 95,867 505,749 9,008
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Growth & Conservative Alliance
Income Investors Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ........ $25,842 $256 $25,607
Realized Gain (Loss) on Investment Act 14,411 95 23,142
Change in Unrealized Appreciation
(Depreciation) of Investments ... 7,023 206 15,468
Increase (Decrease) in Net Assets Resulting
From Operations ..................... 47,276 557 64,217
Capital Transactions:
Contract Deposits ................... 300,135 3,689 477,211
Cost Of Insurance Charge ............ (27,853) (1,209) (48,714)
Administrative Charges .............. 0 0 0
Policy Loans ........................ 0 0 0
Transfers Between Funds ............. 0 0 0
Contract Withdrawals ................ (2,790) 0 (2,949)
Deferred Sales Charges .............. 0 0 0
Death Benefits ...................... 0 0 0
Increase (Decrease) in Net Assets Resulting
From Capital Transactions ........... 269,492 2,480 425,548
Total Increase (Decrease) in Net Assets . 316,768 3,037 489,765
Net Assets, at Beginning of Year ........ 166,797 10,016 253,342
Net Assets, at June 30,1997 ............. 483,565 13,053 743,107
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance Alliance
Investors Technology Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ........ $1,946 ($175) ($518)
Realized Gain (Loss) on Investment Act 3,092 (2,895) (270)
Change in Unrealized Appreciation
(Depreciation) of Investments ... 854 5,774 6,842
Increase (Decrease) in Net Assets Resulting
From Operations ..................... 5,892 2,704 6,054
Capital Transactions:
Contract Deposits ................... 15,177 181,449 160,113
Cost Of Insurance Charge ............ (4,847) (6,503) (6,321)
Administrative Charges .............. 0 0 0
Policy Loans ........................ 0 0 0
Transfers Between Funds ............. 0 0 0
Contract Withdrawals ................ 0 0 0
Deferred Sales Charges .............. 0 0 0
Death Benefits ...................... 0 0 0
Increase (Decrease) in Net Assets Resulting
From Capital Transactions ........... 10,330 174,946 153,792
Total Increase (Decrease) in Net Assets . 16,222 177,650 159,846
Net Assets, at Beginning of Year ........ 56,064 7,875 4,740
Net Assets, at June 30,1997 ............. 72,286 185,525 164,586
</TABLE>
<TABLE>
<CAPTION>
VanEck
Worldwide VanEck Tomorrow
Hard Worldwide Short
Assets Balanced Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ........ $422 $644 ($2)
Realized Gain (Loss) on Investment Act (69) 462 1
Change in Unrealized Appreciation
(Depreciation) of Investments ... (109) 2,318 69
Increase (Decrease) in Net Assets Resulting
From Operations ..................... 244 3,424 68
Capital Transactions:
Contract Deposits ................... 9,615 19,893 2,280
Cost Of Insurance Charge ............ (2,165) (4,406) (44)
Administrative Charges .............. 0 0 0
Policy Loans ........................ 0 0 0
Transfers Between Funds ............. 0 0 0
Contract Withdrawals ................ 0 (268) 0
Deferred Sales Charges .............. 0 0 0
Death Benefits ...................... 0 0 0
Increase (Decrease) in Net Assets Resulting
From Capital Transactions ........... 7,450 15,219 2,236
Total Increase (Decrease) in Net Assets . 7,694 18,643 2,304
Net Assets, at Beginning of Year ........ 10,712 33,970 0
Net Assets, at June 30,1997 ............. 18,406 52,613 2,304
</TABLE>
<TABLE>
<CAPTION>
Tomorrow
Long
Term
Portfolio
<S> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ........ ($16)
Realized Gain (Loss) on Investment Act (7)
Change in Unrealized Appreciation
(Depreciation) of Investments ... 599
Increase (Decrease) in Net Assets Resulting
From Operations ..................... 576
Capital Transactions:
Contract Deposits ................... 6,488
Cost Of Insurance Charge ............ (529)
Administrative Charges .............. 0
Policy Loans ........................ 0
Transfers Between Funds ............. 0
Contract Withdrawals ................ 0
Deferred Sales Charges .............. 0
Death Benefits ...................... 0
Increase (Decrease) in Net Assets Resulting
From Capital Transactions ........... 5,959
Total Increase (Decrease) in Net Assets . 6,535
Net Assets, at Beginning of Year ........ 160
Net Assets, at June 30,1997 ............. 6,695
</TABLE>
See accompanying notes to financial statements (unaudited).
<PAGE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (Continued)
JUNE 30,1997
(Unaudited)
4. Purchases of Investments
For the six months ended June 30, 1997, investment activity in the Fund was
as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sales
Shares of
Fidelity Trust Funds:
<S> <C> <C>
Money Market Portfolio ............... $ 1,717,839 $ 1,195,150
Asset Manager Portfolio .............. 266,406 105,430
Growth Portfolio ..................... 788,670 713,210
Overseas Portfolio.................... 127,141 70,202
Investment Grade Bond Portfolio....... 5,342 4,014
High Income Portfolio................. 44,063 11,957
Dreyfus:
Stock Index Portfolio................. 500,279 197,854
Zero Coupon 2000 Portfolio............ 12,548 6,570
Alliance Funds:
Growth & Income Portfolio ............ 405,787 136,782
Conservative Investors Portfolio...... 3,816 1,431
Growth Portfolio...................... 596,828 174,422
Growth Investors Portfolio............ 68,637 58,834
Technology Portfolio.................. 383,317 208,230
Quasar Portfolio...................... 316,172 162,900
Van Eck:
Gold & Natural Resources Portfolio.... 10,635 3,232
Worldwide Balanced Portfolio.......... 20,638 5,512
Weiss, Peck, & Greer Tomorrow Funds:
Tomorrow Short Term Portfolio......... 2,280 46
Tomorrow Medium Term Portfolio........ -
Tomorrow Long Term Portfolio.......... 7,370 1,563
</TABLE>
<PAGE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
(UNAUDITED)
5. Net Increase (Decrease) in Accumulation Units
For the period ended June 30, 1997, transactions in accumulation units
of the account were as follows:
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset Fidelity
Market Manager Growth
Portfolio Portfolio Portfolio
VARIABLE ANNUITY ------------------ ------------------ -----------------
<S> <C> <C> <C>
Units Purchased ....................... 157,384.66 3,077.19 27,068.25
Units Withdrawn ....................... (10,973.96) (1,372.91) (5,661.77)
Units Transferred Between Funds ....... (97,788.81) 10,980.65 (15,434.27)
Units Transferred From (To) AI Life ...
------------------ ------------------ -----------------
Net Increase (Decrease) ............... 48,621.89 12,684.93 5,972.21
Units, at Beginning of the Year ....... 18,071.39 8,222.32 55,881.60
------------------ ------------------ -----------------
Units, as of June 30,1997 ............. 66,693.28 20,907.25 61,853.81
================== ================== =================
Unit Value as of June 30, 1997 ........ $ 10.98 $ 13.82 $ 14.08
================== ================== =================
</TABLE>
<TABLE>
<CAPTION>
Fidelity Fidelity
Fidelity Investment High
Overseas Grade Bond Income
Portfolio Portfolio Portfolio
------------------ ------------------ -----------------
<S> <C> <C> <C>
Units Purchased ....................... 3,397.96 371.83 2,871.47
Units Withdrawn ....................... (1,170.32) (236.47) (649.09)
Units Transferred Between Funds ....... 2,707.06 10.08 483.81
Units Transferred From (To) AI Life ...
------------------ ------------------ -----------------
Net Increase (Decrease) ............... 4,934.70 145.44 2,706.19
Units, at Beginning of the Year ....... 10,605.95 4,848.27 5,063.06
------------------ ------------------ -----------------
Units, as of June 30,1997 ............. 15,540.65 4,993.71 7,769.25
================== ================== =================
Unit Value as of June 30, 1997 ........ $ 13.07 $ 10.83 $ 12.26
================== ================== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus Dreyfus Alliance
Stock Zero Coupon Growth &
Index 2000 Income
Portfolio Portfolio Portfolio
------------------ ------------------ -----------------
<S> <C> <C> <C>
Units Purchased ....................... 7,726.11 549.81 5,929.24
Units Withdrawn ....................... (2,104.99) (244.68) (2,237.17)
Units Transferred Between Funds ....... 14,859.02 268.76 15,560.84
Units Transferred From (To) AI Life ...
------------------ ------------------ -----------------
Net Increase (Decrease) ............... 20,480.14 573.89 19,252.91
Units, at Beginning of the Year ....... 11,517.35 280.09 12,421.06
------------------ ------------------ -----------------
Units, as of June 30,1997 ............. 31,997.49 853.98 31,673.97
================== ================== =================
Unit Value as of June 30, 1997 ........ $ 15.83 $ 10.57 $ 15.29
================== ================== =================
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Conservative Alliance Growth
Investors Growth Investors
Portfolio Portfolio Portfolio
------------------ ------------------ -----------------
<S> <C> <C> <C>
Units Purchased ....................... 300.60 11,262.39 1,109.16
Units Withdrawn ....................... (113.35) (3,858.16) (418.62)
Units Transferred Between Funds ....... 29.66 23,504.30 165.89
Units Transferred From (To) AI Life ...
------------------ ------------------ -----------------
Net Increase (Decrease) ............... 216.91 30,908.53 856.43
Units, at Beginning of the Year ....... 911.11 18,585.73 5,142.22
------------------ ------------------ -----------------
Units, as of June 30,1997 ............. 1,128.02 49,494.26 5,998.65
================== ================== =================
Unit Value as of June 30, 1997 ........ $ 11.53 $ 14.98 $ 12.60
================== ================== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Van Eck
Alliance Alliance Worldwide
Technology Quasar Hard Assets
Portfolio Portfolio Portfolio
------------------ ------------------ -----------------
<S> <C> <C> <C>
Units Purchased ....................... 2,036.57 1,906.36 570.09
Units Withdrawn ....................... (660.62) (625.81) (191.77)
Units Transferred Between Funds ....... 15,329.27 13,187.51 294.65
Units Transferred From (To) AI Life ...
------------------ ------------------ -----------------
Net Increase (Decrease) ............... 16,705.22 14,468.06 672.97
Units, at Beginning of the Year ....... 768.60 465.27 918.38
------------------ ------------------ -----------------
Units, as of June 30,1997 ............. 17,473.82 14,933.33 1,591.35
================== ================== =================
Unit Value as of June 30, 1997 ........ $ 10.71 $ 11.04 $ 11.58
================== ================== =================
</TABLE>
<TABLE>
<CAPTION>
Van Eck Tomorrow Tomorrow
Worldwide Short Long
Balanced Term Term
Portfolio Portfolio Portfolio
------------------ ------------------ -----------------
<S> <C> <C> <C>
Units Purchased ....................... 1,160.14 0.00 112.79
Units Withdrawn ....................... (412.46) (3.95) (47.24)
Units Transferred Between Funds ....... 594.54 210.10 491.87
Units Transferred From (To) AI Life ...
------------------ ------------------ -----------------
Net Increase (Decrease) ............... 1,342.22 206.15 557.42
Units, at Beginning of the Year ....... 3,083.14 0.00 15.26
------------------ ------------------ -----------------
Units, as of June 30,1997 ............. 4,425.36 206.15 572.68
================== ================== =================
Unit Value as of June 30, 1997 ........ $ 11.91 $ 11.18 $ 11.65
================== ================== =================
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
<PAGE>
PART II - OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and
periodic information, documents, and reports as may be prescribed by any
rule or regulation of the Commission theretofore or hereafter duly adopted
pursuant to authority conferred in that section.
REPRESENTATION
AIG Life Insurance Company represents that the fees and charges
deducted under the policies covered by this registration statement, in the
aggregate are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by the Company.
INDEMNIFICATION
Under its Bylaws, the Company, to the full extent permitted by
Delaware law shall indemnify any person who was or is a party to any
proceeding (whether brought by or in the right of the Company or otherwise)
by reason of the fact that he or she is or was a Director of the Company,
or while a Director of the Company, is or was serving at the request of the
Company as a Director, Officer, Partner, Trustee, Employee, or Agent of
another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by him or her
in connection with such proceeding.
The Company shall extend such indemnification, as is provided to
directors above, to any person, not a director of the Company, who is or
was an officer of the Company or is or was serving at the request of the
Company as a director, officer, partner, trustee, or agent of another
foreign or domestic corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan. In addition, the Board of Directors of
the Company may, by resolution, extend such further indemnification to an
officer or such other person as may to it seem fair and reasonable in view
of all relevant circumstances.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to such provisions of the
bylaws or statutes or otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any such action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the Policies issued by the Variable Account, the Company will, unless
1
<PAGE>
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public Policy as expressed in
said Act and will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and
documents:
The facing sheet.
The Prospectus consisting of 72 pages.
The undertaking to file reports.
Representation.
The signatures.
Written consents of the following persons:
Kenneth D. Walma
Jorden Burt Berenson & Johnson, LLP
Michael Burns
The following exhibits:
A. Copies of all exhibits required by paragraph A of instructions for
Exhibits in Form N-8B-2.
1. Resolution of the Board of Directors of the Company*
2. Not Applicable
3. a. Principal Underwriter's Agreement***
b. Registered Representative's Agreement***
4. Not Applicable
5. a. Group Flexible Premium Variable Universal Life
Insurance Policy*****
b. Flexible Premium Variable Life Insurance Certificate*****
6. a. Articles of Incorporation of the Company**
b. By-Laws of the Company**
7. Not Applicable
8. Not Applicable
9. Not Applicable
10. Form of Policy Application*****
2
<PAGE>
11. Powers of Attorney****
B. Opinion and Consent of Counsel*****
C. Opinion and Consent of Actuary*****
D. Consent of Independent Certified Public Accountants
E. Consent of Jorden Burt Berenson & Johnson LLP*****
F. Memorandum Regarding Administrative Procedures***
- ------------------
* Incorporated by reference to Registrant's Form N-8B-2.
** Incorporated by reference to Registrant's Pre-Effective Amendment No.
1 to Form N-8B-2.
*** Incorporated by reference to Registrant's filing on Form S-6, March
28, 1995 (File No. 33-90684).
**** Incorporated by reference to Registrant's Post-Effective Amendment
No. 2 filed on Form S-6, May 1, 1997 (File No. 33-90684).
***** Incorporated by reference to Registrant's filing on Form S-6, August
22, 1997 (File No. 333-34199).
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has caused this Registration
Statement to be signed on its behalf, in the City of Wilmington, and State
of Delaware on this 24th day of October, 1997.
VARIABLE ACCOUNT II
(Registrant)
By: AIG LIFE INSURANCE COMPANY
(Sponsor)
By:/s/Kenneth D. Walma
Kenneth D. Walma, Assistant
Secretary
ATTEST:
/s/ Robert Liguori
Robert Liguori, Vice President
and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Howard E. Gunton, Jr.*
- ------------------------ Chief Accounting October 24, 1997
Howard E. Gunton, Jr. Officer
/s/ Nicholas A. O'Kulich*
- ------------------------ Director October 24, 1997
Nicholas A. O'Kulich
/s/ Maurice R. Greenberg*
- ------------------------ Director October 24, 1997
Maurice R. Greenberg
/s/ Edwin A. G. Manton*
- ---------------------- Director October 24, 1997
Edwin A. G. Manton
/s/ Edward E. Matthews*
- ---------------------- Director October 24, 1997
Edward E. Matthews
/s/ Jerome T. Muldowney*
- ----------------------- Director October 24, 1997
Jerome T. Muldowney
/s/ Win J. Neuger*
- ---------------------- Director October 24, 1997
Win J. Neuger
/s/ John R. Skar*
- ---------------------- Director October 24, 1997
John R. Skar
/s/ Howard I. Smith*
- ---------------------- Director October 24, 1997
Howard I. Smith
/s/ Ernest E. Stempel*
- ---------------------- Director October 24, 1997
Ernest E. Stempel
/s/ Gerald W. Wyndorf*
- ---------------------- Director October 24, 1997
Gerald W. Wyndorf
/s/ Robert J. O'Connell*
- ----------------------- Director October 24, 1997
Robert J. O'Connell
/s/Kenneth D. Walma
*By:--------------------------------
Kenneth D. Walma
Attorney in Fact
</TABLE>
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
A. Consent of Independent Certified Public Accountants
<PAGE>
EXHIBIT A
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect to Pre-Effective
Amendment No. 1 to the Registration Statement (No. 333-34199) on
Form S-6 under the Securities Act of 1933 of Variable Account II
of AIG Life Insurance Company.
1. The inclusion in the Prospectus of Variable
Account II of AIG Life Insurance Company of our
report dated February 22, 1997 relating to our
audits of the financial statements of AIG Life
Insurance Company.
2. The inclusion in the Prospectus of Variable
Account II of AIG Life Insurance Company of our
report dated February 20, 1997 relating to our
audit of the financial statements of Variable
Account II.
3. The reference to our firm under the heading
"Experts."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 24, 1997
<PAGE>
