Filed with the Securities and Exchange Commission on November 5, 1999
Registration No. 333-71753
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-6
POST-EFFECTIVE AMENDMENT NO 1 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM
N-8B-2
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, 600 King Street, Wilmington, DE 19801
D. Name and address of agent for service:
Kenneth D. Walma, Vice President and General Counsel
One Alico Plaza
600 King Street
Wilmington, DE 19801
COPIES TO:
Michael Berenson, Esq. and Ernest T. Patrikis, Esq.
Jorden Burt Boros Cicchetti American International Group, Inc.
Berenson & Johnson, LLP 70 Pine Street
Suite 400 East New York, NY 10270
1025 Thomas Jefferson Street, NW
Washington, DC 20007-0805
It is proposed that this filing will become effective:
X
____ immediately upon filing pursuant to paragraph (b) of Rule 485
____ on _________ 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:
Flexible Premium Variable Universal Life Group Insurance Policies and
Certificates and Individual Insurance Policies.
F. Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration
Statement.
<PAGE>
This post-effective amendment no. 1 to the registration statement on Form
S-6 (File No. 333-71753) is being filed pursuant to Rule 485(b) under the
Securities Act of 1933, as amended, to supplement the registration statement
with an additional prospectus and related documents. This amendment relates only
to the prospectus and documents included herein and does not otherwise delete,
amend, or supersede any information contained in the registration statement.
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
1 About Us and the Accounts, The Separate Account
2 About Us and the Accounts
3 Not Applicable
4 Distribution of the Policy
5 The Separate Account
6(a) Not Applicable
6(b) Not Applicable
9 Legal Proceedings
10 Purchasing a Policy
11 The Separate Account, The Investment Options
12 The Separate Account, The Investment Options
13 Expenses of the Policy
14 Purchasing a Gemstone VUL Policy
15 The Separate Account
16 The Separate Account, The Investment Options
17 Purchasing a Gemstone VUL Policy
18 Investing Your Account Value
19 Purchasing a Gemstone VUL Policy, Investing Your Account Value
20 Not Applicable
21 Cash Benefits During the Insured's Lifetime
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 About Us and the Accounts
26 Not Applicable
27 About Us and the Accounts
28 About Us and the Accounts
29 About Us and the Accounts
30 About Us and the Accounts
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Distribution of the Policy
35 About Us and the Accounts
37 Not Applicable
38 Distribution of the Policy
39 Distribution of the Policy
40 Not Applicable
41(a) Distribution of the Policy
42 Not Applicable
43 Not Applicable
44 Purchasing a Gemstone VUL Policy
45 Not Applicable
46 Purchasing a Gemstone VUL Policy
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Purchasing a Gemstone VUL Policy
About Us and the Accounts
52 The Investment Options
53 Federal Income Tax Considerations
54 Financial Statements
55 Not Applicable
<PAGE>
Part I
<PAGE>
[Gemstone VUL Logo] AIG Life Insurance Company
Variable Account II
One Alico Plaza
600 King Street
Wilmington, Delaware 19801
1-800-340-2765
Flexible Premium Variable Universal Life Group and Individual Policies
AIG Life Insurance Company ("we," "our" or "us"), is offering life insurance
coverage under the Gemstone VUL policy (the "Policy"). The Policy is a flexible
premium variable universal life policy that allows "you," the owner of the
Policy, within limits, to:
o Select the face amount of life insurance. You may within
limits change your initial selection as your insurance
needs change.
o Select the amount and timing of premiums payments. You may
make more premium payments than scheduled or stop making
premium payments.
o Allocate premium payments and your Policy's Account Value
among the variable investment options and the guaranteed
investment option.
o Receive payments from your Policy while the Insured is
alive through loans, partial withdrawals or a total
surrender.
This document contains information about the Policy. You should read this
document carefully before you decide to purchase the Policy. You should also
keep this document for future reference.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the Policy or determined that this document is accurate
or complete. Any representation to the contrary is a criminal offense.
Prospectus _________, 1999
<PAGE>
Investment Options
Variable Investment Options
The Separate Account is divided into 30 Subaccounts. Each Subaccount invests in
shares of one portfolio of the Alliance Variable Products Series Fund, Anchor
Series Trust, Dreyfus Stock Index Fund, Dreyfus Variable Investment Fund,
Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance Products
Fund II, Goldman Sachs Variable Insurance Trust, Neuberger Berman Advisers
Management Trust, SunAmerica Series Trust, or Templeton Variable Products Series
Fund. Each portfolio is named below. The prospectuses for each Trust contain
information about each portfolio. You should read these prospectuses carefully.
Alliance Variable Products Series Fund
Managed by Alliance Capital Management L.P.
o Growth Portfolio
o Growth and Income Portfolio
o High-Yield Portfolio
o International Portfolio
o Premier Growth Portfolio
o Real Estate Portfolio
o Technology Portfolio
o Total Return Portfolio
o Utility Income Portfolio
Anchor Series Trust
Managed by Wellington Management Company, LLP
o Capital Appreciation Portfolio
o Government & Quality Bond Portfolio
Dreyfus Stock Index Fund
Managed by The Dreyfus Corporation and Mellon Equity Associates
o Stock Index Fund
Dreyfus Variable Investment Fund
Managed by The Dreyfus Corporation
o Small Company Stock Portfolio
Fidelity Variable Insurance Products Fund
Managed by Fidelity Management & Research Company
o VIP Growth Portfolio: Initial Class
o VIP High Income Portfolio: Initial Class
o VIP Money Market Portfolio: Initial Class
<PAGE>
Fidelity Variable Insurance Products Fund II
Managed by Fidelity Management & Research Company
o VIP II Asset Manager Portfolio: Initial Class
o VIP II Contrafund(R) Portfolio: Initial Class
o VIP II Investment Grade Bond Portfolio: Initial Class
Goldman Sachs Variable Insurance Trust
Managed by Goldman Sachs Asset Management/Goldman Sachs Asset Management
International
o Capital Growth Fund
o Global Income Fund
o Mid-Cap Value Fund
Neuberger Berman Advisers Management Trust
Managed by Neuberger Berman Management Inc.
o AMT Partners Portfolio
o AMT Limited Maturity Bond Portfolio
SunAmerica Series Trust
Managed by Davis Selected Advisers, L.P.
o Venture Value Portfolio
Managed by SunAmerica Asset Management Corp.
o "Dogs" of Wall Street Portfolio
o SunAmerica Balanced Portfolio
Templeton Variable Products Series Fund
Managed by Templeton Asset Management Ltd.
o Templeton Developing Markets Fund - Class 1
Managed by Templeton Investment Counsel, Inc.
o Templeton Asset Allocation Fund - Class 1
o Templeton International Fund - Class 1
Guaranteed Investment Option
You may allocate your Account Value to the Guaranteed Account. The Guaranteed
Account is part of our general account. We will credit interest equal to at
least an effective rate of 4% per year, compounded annually on that portion of
Account Value that you allocate to the Guaranteed Account. We may, in our
discretion, elect to credit a higher rate of interest. This document generally
describes only that portion of the Account Value allocated to the Separate
Account.
<PAGE>
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Table of Contents
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Special Terms used in this Document............................................I
Summary of the Policy..........................................................1
Overview..................................................................1
Applying for a Policy.....................................................1
Premium Payments..........................................................2
Account Value.............................................................3
Death Benefit.............................................................3
Cash Benefits During the Life of the Insured..............................4
Expenses of the Policy....................................................5
Federal Tax Considerations................................................9
Purchasing a Gemstone VUL Policy..............................................10
Applying for a Policy....................................................10
Your Right to Cancel the Policy..........................................11
Premiums.................................................................11
Restrictions on Premiums.............................................11
Minimum Initial Premium..............................................12
Planned Periodic Premiums............................................12
Additional Premiums..................................................12
Effect of Premium Payments...........................................12
No Lapse Provision...................................................13
Grace Period.........................................................13
Premium Allocations..................................................14
Crediting Premiums...................................................15
The Investment Options........................................................16
Variable Investment Options..............................................16
Guaranteed Investment Option.............................................20
Investing Your Account Value..................................................22
Determining the Account Value............................................22
Transfers................................................................25
Dollar Cost Averaging (DCA)..............................................26
Automatic Rebalancing....................................................28
Death Benefits................................................................29
Life Insurance Proceeds..................................................29
Death Benefit Options....................................................30
Changes in Death Benefit Options.........................................31
Changes in Face Amount...................................................32
Changes in Owner or Beneficiary..........................................34
Cash Benefits During the Insured's Life ......................................35
Policy Loans.............................................................35
Partial Withdrawals......................................................37
Systematic Withdrawal Program............................................39
<PAGE>
Surrendering the Policy for Net Cash Surrender Value.....................40
Payment Options for Benefits..................................................41
Expenses of the Policy........................................................42
Deductions From Premiums.................................................42
Monthly Deductions From Account Value....................................42
Deduction From Subaccount Assets.........................................46
Deductions Upon Policy Transactions .....................................46
Supplemental Benefits and Riders.............................................51
Other Policy Provisions.......................................................52
Performance Information.......................................................57
Federal Income Tax Considerations.............................................60
Distribution of the Policy....................................................67
About Us and the Accounts.....................................................68
The Company..............................................................68
The Separate Account.....................................................69
The Guaranteed Account...................................................71
Our Directors and Executive Officers..........................................73
Other Information.............................................................75
State Regulation.........................................................75
Legal Proceedings........................................................75
Experts..................................................................75
Legal Matters............................................................76
Published Ratings........................................................76
Financial Statements..........................................................77
Appendix A...................................................................A-1
Appendix B...................................................................B-1
<PAGE>
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Special Terms used in this Document
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We have capitalized some special terms we use in this document. We have
defined these terms here.
Accounts. The Separate Account and the Guaranteed Account of
the Company.
We use Account Value to determine your Policy benefits. How we determine Account
Value is described on page __.
Account Value. The total amount in the Accounts credited to your
Policy.
If you have a request, please write to us at this address.
Administrative Office. One Alico Plaza, P.O. Box 8718, Wilmington, DE 19801.
Age. The Insured's age as of his or her nearest birthday on the Policy Date.
Attained Age. The Insured's Age as of the Policy Date plus the number of
completed Policy years since the Policy Date.
Beneficiary. The person(s) who is (are) entitled to the Life Insurance Proceeds
under the Policy.
How we determine the Cash Surrender Value is shown on page ____.
Cash Surrender Value. The Account Value less any applicable surrender charge
that would be deducted upon surrender.
Code. The Internal Revenue Code of 1986, as amended.
Company, we, our, us. AIG Life Insurance Company.
Death Benefit. The amount of life insurance coverage which is based upon the
death benefit option you select and the Face Amount.
i
<PAGE>
You will specify the initial Face Amount in your Policy application. The Policy
will also show the initial Face Amount.
Face Amount. The amount of insurance specified by the Owner and the base for
calculating the Death Benefit.
Grace Period. The period of time during which this Policy will continue in force
even though your Net Cash Surrender Value is insufficient. It begins on a
monthly anniversary when the Net Cash Surrender Value is less than the total
monthly deduction then due.
Guaranteed Account. An account within the general account which consists of all
of our assets other than the assets of the Separate Account and any of our other
separate accounts.
Insured. A person whose life is covered under the Policy.
We measure contestability periods from the Issue Date.
Issue Date. The date the Policy is actually issued. It may be later than the
Policy Date.
Life Insurance Proceeds. The amount payable to a Beneficiary if the Insured dies
while life insurance coverage under the Policy is in force.
Loan Account. The portion of the Account Value held in the Guaranteed Account as
collateral for Policy loans.
Monthly Anniversary. The same day as the Policy Date for each succeeding month.
If the day of the monthly anniversary is the 29th, 30th or 31st and a month has
no such day, the monthly anniversary is deemed to be the last day of that month.
We use this value to determine if your Policy is in force.
Net Cash Surrender Value. The Cash Surrender Value less any Outstanding Loan.
Net Premium. Any premium paid less any expense charges deducted from the premium
payment.
Outstanding Loan. The total amount of Policy loans, including both principal and
accrued interest.
ii
<PAGE>
You may be an Owner even if you are not the Insured.
Owner, you, your. The person who purchased the Policy as shown in the
application, unless later changed.
Policy. The flexible premium variable universal life insurance coverage we
issue. We may issue coverage on the Insured under an individual contract or
under a certificate issued under a group contract. The term Policy includes the
individual contract and the certificate and group contract.
We use the Policy Date as the date coverage begins and to determine all
anniversary dates.
Policy Date. The date as of which we have received the initial premium and an
application in good order. If a policy is issued life insurance coverage is
effective as of the Policy Date.
Separate Account. Variable Account II, a separate investment account of ours.
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.
Valuation Date. Each day the New York Stock Exchange is open for trading.
Valuation Period. A period commencing with the close of trading on the New York
Stock Exchange (currently 4 P.M., Eastern Time) on any Valuation Date and ending
as of the close of the New York Stock Exchange on the next succeeding Valuation
Date.
iii
<PAGE>
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Summary of the Policy
- --------------------------------------------------------------------------------
Because this is a summary, it does not contain all the information that may
be important to you. You should read this entire document carefully before you
decide to purchase a Policy.
If you select any variable investment options, your Policy benefits will vary
based upon the returns earned by those variable investment options. The returns
may be zero or negative and you bear this risk.
Overview
The Policy is a flexible premium variable universal life policy. Like
traditional life insurance, the Policy provides an initial minimum death benefit
and cash benefits that you can access through loans, partial withdrawals or a
surrender. Unlike traditional life insurance, you may choose how to invest your
Account Value.
The Policy allows you to make certain choices that will tailor the Policy to
your needs. When you apply for the Policy, we will ask you to make some of these
choices. You may also change your choices to meet your changing insurance needs.
In addition, we may in the future offer several riders to the Policy. These
riders provide you with the flexibility to design an insurance product that
meets your specific needs.
Applying for a Policy
You may apply for a Policy to cover a person, the "Insured," who is younger than
Age 81.
Amount of life insurance benefits.
When you apply for a Policy, you must select the Face Amount. The Face Amount
must be at least:
o $25,000, for Insureds Age 17 and younger.
o $50,000, for Insureds older than Age 17.
1
<PAGE>
When your coverage will become effective. Your policy will become effective
after:
o We accept your application.
o We receive an initial premium payment, in an amount we determine.
o We have completed our review of your application to our
satisfaction.
Your right to cancel the Policy.
Once you receive your Policy, you should read the Policy. You have the right to
cancel the Policy for any reason within the later of:
o 45 days after you sign Part I of the Policy application.
o 10 days after you received the Policy. If required by the state where you
live, we will extend the 10 days to the number required by law.
Premium Payments
Minimum initial premium.
Before your Policy is effective, you must pay the minimum initial premium. We
will calculate the initial minimum premium based on a number of factors, such as
the Age, sex and underwriting rate class of the proposed Insured, the desired
Face Amount, and any supplemental benefits or riders applied for and whether
premiums will be paid by pre-authorized checking.
Planned periodic premium.
When you apply for a Policy you will select the amount of premium payments you
plan to pay during the term of the Policy. We will establish a minimum for this
amount. You will also select intervals when you plan to pay this premium amount.
This may be monthly, quarterly, semiannually, or annually. Pre-authorized
checking may be required for monthly payments. Flexibility in premium payments.
During the term of the Policy, you may pay premiums at any time and in any
amount, within limits. Thus, you are not required to pay the planned periodic
premium and you may make payments in addition to the planned periodic premium.
2
<PAGE>
Account Value
We will measure your benefits under the Policy by your Account Value. Your
Account Value will reflect:
o the premiums you pay;
o the returns earned by the Subaccounts you select;
o the interest credited on amounts allocated to the Guaranteed Account;
o any loans or partial withdrawals; and
o the Policy charges and expenses we deduct.
Death Benefit
Death Benefit Selections.
When you apply for a Policy, you must select:
o The Face Amount.
o The death benefit option, which will be the manner in which we calculate
the death benefit for your Policy.
o The tax qualification option, which will determine the manner in which we
test your Policy under the Code for meeting the definition of life
insurance.
Death Benefit Options.
You may select from two death benefit options. They are:
Level Death Benefit Option.
o Level Death Benefit Option (Option I)
The basic Death Benefit will be the greater of:
(1) The Face Amount; or
(2) Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
Variable Death Benefit Option.
o Variable Death Benefit Option (Option II)
The basic Death Benefit will be the greater of:
(1) The Face Amount plus the Account Value; or
(2) Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
3
<PAGE>
The minimum death benefit factors we use are based upon the tax qualification
option you select and the Attained Age, sex and rate class of the Insured.
Tax Qualification Options.
You may select from two tax qualification options. They are:
o Guideline Premium/Cash Value Corridor Test. The minimum death benefit
factors are based upon the Code.
o Cash Value Accumulation Test. The minimum death benefit factors are based
upon the 1980 Commissioners Standard Ordinary Mortality Tables and a 4%
effective annual interest rate.
Changes You May Make.
Within limits, after the first Policy anniversary, you may change the death
benefit option and may make changes to the Face Amount. You may not change the
tax qualification option.
Cash Benefits During the Life of the Insured
During the life of the Insured, your Policy has cash benefits that you can
access within limits through loans, partial withdrawals or a surrender.
o Loans -- You may borrow against your Net Cash Surrender Value at any time.
If your Policy is a modified endowment contract, the Code may treat the
loan as a taxable distribution of income.
o Partial Withdrawal -- You may withdraw part of your Net Cash Surrender
Value after the first Policy year. We may deduct an administrative charge.
If you make a partial withdrawal during the surrender charge period, we may
deduct a surrender charge. A partial withdrawal may result in a decrease in
the Face Amount of your Policy, depending upon your death benefit option.
o Surrender -- You may surrender your Policy for its Net Cash Surrender
Value. If you surrender your Policy during the surrender charge period, we
will deduct a surrender charge. A surrender will terminate your Policy.
4
<PAGE>
Expenses of the Policy
Expenses reduce your
returns under the Policy.
Deductions from Premiums
For state premium taxes, DAC taxes and other sales expenses, we currently charge
5% of each premium payment for Policy years 1- 10 which will reduce to 3% in
Policy years 11+. The maximum we will charge is 8%.
Account Value Charges (deducted monthly)
Cost of Insurance Charge(1)
Current Guaranteed
Ranges from 0.01609 per Ranges from 0.05667 per
$1,000 of net amount at risk $1,000 of net amount risk
to 71.15029 per $1,000 of net to 83.33333 per $1,000 of net
amount at risk(2) amount at risk(2)
Monthly Administrative Charge
Current Guaranteed
Policy Years 1-5 $15.00 $15.00
Policy Years 6+ $ 7.50 $15.00
Acquisition Charge
During the first 5 Policy years or the first 5 Policy years after a Face Amount
increase there will be a charge for each $1,000 in Face Amount based on the
Insured's Age, sex and rate class.
Separate Account Charges
(deducted daily and shown as an annualized percentage of average net assets)
Mortality and Expense
Risk Charge
Current Guaranteed
Policy Years 1-10 0.75% 0.90%
Policy Years 11+ 0.25% 0.90%
Transaction Charges
Transfer Charge
$25 for each transfer in excess of 12 each Policy year.
5
<PAGE>
Surrender Charge
During the first 10 Policy years and for 10 Policy years following a Face Amount
increase there will be a surrender charge based on the initial Face Amount or
the increase in Face Amount. (3)
Surrender Charge on Partial Withdrawal
The surrender charge on a partial withdrawal is equal to the applicable
surrender charge multiplied by a fraction (equal to the amount of partial
withdrawal plus any administrative charge, if applicable, for the partial
withdrawal, divided by the Net Cash Surrender Value immediately prior to the
partial withdrawal).
Surrender Charge on Decrease in Face Amount
The surrender charge on a decrease in Face Amount 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 Withdrawal Administrative Charge
Currently, four partial withdrawals are allowed per year. We may charge a $25
administrative charge per partial withdrawal. In certain states the charge may
be the lesser of $25 or 2% of the amount withdrawn.
(1) The current cost of insurance charge will never exceed the guaranteed cost
of insurance charge shown in the policy. If the Death Benefit is equal to
the Face Amount or the Face Amount plus Account Value, the net amount at
risk is the difference between the Death Benefit divided by 1.0032737 and
the current Account Value. Otherwise, the net amount at risk is the
difference between the Death Benefit and the Account Value. (See "Expenses
of the Policy - Cost of Insurance Charge.")
(2) Current and guaranteed cost of insurance rates are based on the Age (or
Attained Age in the case of increase in Face Amount), sex, rate class of
the Insured, and Policy Year.
(3) A policy's surrender charge is based on the Age, sex and smoker status of
the Insured and the Face Amount. For a 45 year old non-smoking male
purchasing a Policy with a $500,000 Face Amount the initial surrender
charge would be $11,560.00. For a 65 year old non-smoking male purchasing a
Policy with a $200,000 Face Amount, the initial surrender charge would be
$6,868.00. The lowest and highest surrender charge are $11.02 and $34.34
per $1,000 of the Face Amount, respectively. (See Appendix A for the Table
of Initial Surrender Charges.)
6
<PAGE>
Expenses of the variable investment options also reduce your returns.
In addition, you will indirectly bear the costs of the investment management
fees and expenses paid from the assets of the portfolios you select. The annual
portfolio expenses of the variable investment options are set forth below.
PORTFOLIO EXPENSES BEFORE WAIVERS AND/OR REIMBURSEMENTS
As of June 30, 1999
The purpose of this table is to assist the you in understanding the various
costs and expenses that will be incurred, directly or indirectly. It is based on
historical expenses as a percentage of net assets before waivers and/or
reimbursements, if applicable, for the period ended June 30, 1999, except as
indicated below. Expenses of the portfolios are not fixed or specified under the
terms of the Policy. Actual expenses may vary.
<TABLE>
Total
Management Other Operating
Fees Expenses(1) Expenses
<S> <C> <C> <C>
Alliance Variable Products Series Fund
Alliance Capital Management, L.P.
Growth Portfolio .75% .12% .87%
Growth and Income Portfolio .63% .10% .73%
High-Yield Portfolio(2) .75% 1.05% 1.80%
International Portfolio(2) 1.00% .37% 1.37%
Premier Growth Portfolio(2) 1.00% .09% 1.09%
Real Estate Portfolio(2) .90% .87% 1.77%
Technology Portfolio(2) 1.00% .20% 1.20%
Total Return Portfolio(2) .63% .32% .95%
Utility Income Portfolio(2) .75% .60% 1.35%
Anchor Series Trust
Wellington Management Company, LLP
Capital Appreciation Portfolio .63% .04% .67%
Government & Quality Bond Portfolio .60% .05% .65%
Dreyfus Stock Index Fund
The Dreyfus Corporation and Mellon Equity Associates
Stock Index Fund .25% .01% .26%
Dreyfus Variable Investment Fund
The Dreyfus Corporation
Small Company Stock Portfolio .75% .19% .94%
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C>
Fidelity Variable Insurance Products Fund
Fidelity Management & Research Company
VIP Growth Portfolio: Initial Class(3) .59% .08% .67%
VIP High Income Portfolio: Initial Class .59% .10% .69%
VIP Money Market Portfolio: Initial Class .17% .08% .25%
Fidelity Variable Insurance Products Fund II
Fidelity Management & Research Company
VIP II Asset Manager Portfolio: Initial Class(4) .54% .10% .64%
VIP II Contrafund(R)Portfolio: Initial Class(4) .59% .10% .69%
VIP II Investment Grade Bond Portfolio:Initial Class .43% .11% .54%
Goldman Sachs Variable Insurance Trust
Goldman Sachs Asset Management/Goldman Sachs Asset Management International
Capital Growth Fund(5) .75% 2.29% 3.04%
Global Income Fund(5) .90% 2.33% 3.23%
Mid Cap Value Fund(5) .80% 1.65% 2.45%
Neuberger Berman Advisers Management Trust
Neuberger Berman Management Inc.
AMT Partners Portfolio(6) .78% .06% .84%
AMT Limited Maturity Bond Portfolio(6) .65% .11% .76%
SunAmerica Series Trust
Davis Selected Advisers, L.P.
Venture Value Portfolio .71% .03% .74%
SunAmerica Asset Management Corp.
"Dogs" of Wall Street Portfolio .60% .07% .67%
SunAmerica Balanced Portfolio .64% .04% .68%
Templeton Variable Products Series Fund
Templeton Asset Management Ltd.
Templeton Developing Markets Fund - Class 1 1.25% .41% 1.66%
Templeton Investment Counsel, Inc..
Templeton Asset Allocation Fund - Class 1 .60% .18% .78%
Templeton International Fund - Class 1 .69% .17% .86%
</TABLE>
- -------------------------------------
(1) Other expenses are based on the expenses outlined in the prospectuses for
the Alliance Variable Products Series Fund, Anchor Series Trust, Dreyfus Stock
Index Fund, Dreyfus Variable Investment Fund, Fidelity Variable Insurance
Products Fund, Fidelity Variable Insurance Products Fund II, Goldman Sachs
Variable Insurance Trust, Neuberger Berman Advisers Management Trust, SunAmerica
Series Trust, Templeton Variable Products Series Fund.
(2) Expenses for the following portfolios after waivers and reimbursement by the
Alliance Variable Products Series Fund's investment adviser for the period ended
June 30, 1999, were as follows:
8
<PAGE>
<TABLE>
<S> <C> <C> <C>
High-Yield Portfolio .50% .45% .95%
International Portfolio .60% .35% .95%
Premier Growth Portfolio 1.00% .06% 1.06%
Real Estate Portfolio .46% .49% .95%
Technology Portfolio .87% .08% .95%
Total Return Portfolio .63% .21% .84%
Utility Income Portfolio .60% .35% .95%
(3) Expenses for the following portfolios after waivers and reimbursement by the
Fidelity Variable Insurance Products Fund's investment adviser for the period
ended June 30, 1999, were as follows:
VIP Growth Portfolio: Initial Class .59% .07% .66%
(4) Expenses for the following portfolios after waivers and reimbursement by the
Fidelity Variable Insurance Products Fund II's investment adviser for the period
ended June 30, 1999, were as follows:
VIP II Asset Manager Portfolio: Initial Class .54% .09% .63%
VIP II Contrafund(R)Portfolio: Initial Class .59% .07% .66%
(5) The expenses disclosed are annualized. The Investment Advisers to the
Goldman Sachs Variable Insurance Trust Capital Income Fund, Global Income Fund
and Mid Cap Value Fund have voluntarily agreed to reduce or limit certain "Other
Expenses" of such Funds (excluding management fees, taxes, interest, brokerage
fees, litigation, indemnification and other extraordinary expenses) to the
extent such expenses exceed 0.15% per annum of each Fund's respective average
daily net assets. The annualized expenses shown below for the period ended June
30, 1999 include this reimbursement. The reductions or limits may be
discontinued or modified by the investment advisers in their discretion at any
time.
Capital Growth Fund .75% .15% .90%
Global Income Fund .90% .15% 1.05%
Mid-Cap Value Fund .80% .15% .95%
(6) Neuberger Berman Advisers Management Trust is divided into portfolios
("Portfolios"), each of which invests all of its net investable assets in a
corresponding series ("Series") of Advisers Management Trust. The figures
reported under "Investment Management and Administrative Fees" include the
aggregate of the administration fees paid by the Portfolio and the management
fees paid by its corresponding Series. Similarly, "Other Expenses" includes all
other expenses of the Portfolio and its corresponding Series.
</TABLE>
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Federal Tax Considerations
You should consider the impact of the Code.
Your purchase of, and transactions under, your Policy may have tax consequences
that you should consider before purchasing the Policy. You may wish to consult a
tax adviser. In general, the Life Insurance Proceeds will not be taxable income
to the Beneficiary. You will not be taxed as your Account Value increases. Upon
a distribution from your Policy, however, you may be taxed on your Account Value
increases.
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Purchasing a Gemstone VUL Policy
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Applying for a Policy
To purchase a Policy, you must complete an application and submit it to us. You
must specify certain information in the application, including the Face Amount,
the death benefit option, tax qualification option and supplemental benefits and
riders, if any. We may also require information to determine if the Insured is
an acceptable risk to us. We may require a medical examination of the Insured
and ask for additional information.
Our age requirement for the Insured.
You may apply for a Policy to cover a person who is younger than Age 81. A
newborn may be an Insured.
The minimum Face Amount.
The Face Amount must be at least:
o $25,000, for Insureds Age 17 and younger.
o $50,000, for Insureds older than Age 17.
We require a minimum initial premium.
We require that you pay a minimum initial premium before the policy is effective
and we will issue the Policy. You may pay the minimum initial premium when you
submit the application or at a later date.
We will not issue a Policy until we have accepted the application. We will
accept an application if it meets our underwriting rules. We reserve the right
to reject an application for any reason or "rate" an Insured as a substandard
risk.
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When your coverage will be effective.
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment, in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your Right to Cancel the Policy
Period to Examine and Cancel.
Once you receive your Policy, you should read the Policy. You have the right to
cancel the Policy for any reason within the later of:
o 45 days after you sign Part I of the Policy application; or
o 10 days after you receive the Policy. If required by the state where you
live, we will extend the 10 days to the number required by law.
This is your "Period to Examine and Cancel."
Your right to cancel also applies to the amount of any requested increase in
Face Amount. This does not apply to any increase in Face Amount under the
Automatic Face Amount Increase Option.
How to cancel your policy.
You may cancel the Policy by returning it to our Administrative Office or to our
agent within the applicable time with a written request for cancellation. We
will refund you the premium paid on the Policy. Thus, the amount we return will
not reflect the returns of the Subaccounts or the Guaranteed Account that you
selected in your application.
Premiums
The Policy allows you to select the timing and amount of premium payments within
limits. You should send premium payments to our Administrative Office. All your
premium payments must comply with our requirements. Restrictions on Premiums. We
may not accept any premium payment:
o If it is less than $25.
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o If the premium would cause the Policy to fail to qualify as a life insurance
contract as defined in Section 7702 of the Code. We will refund any portion
of any premium that causes the Policy to fail. In addition, we will monitor
the Policy and will attempt to notify you on a timely basis if a Policy is in
jeopardy of becoming a modified endowment contract under the Code.
o If the premium would increase the amount of our risk under your Policy by an
amount greater than that premium amount. In such cases, we may require
satisfactory evidence of insurability before accepting that premium.
Types of premium payments.
Minimum Initial Premium. We will calculate the minimum initial premium. The
amount is based on a number of factors, including the Age, sex and rate class of
the proposed Insured, the desired Face Amount and any supplemental benefits or
riders applied for and whether premiums will be paid by pre-authorized checking.
We establish a minimum planned periodic premium.
Planned Periodic Premiums. When you apply for a Policy, you select a plan for
paying level premiums at specified intervals. The intervals may be monthly,
quarterly, semi-annually or annually, for the life of the Policy. Pre-authorized
checking may be required for monthly payments. We will establish a minimum
amount that may be used as the planned periodic premium.
You are not required to pay premiums in accordance with this plan. Rather, you
can pay more or less than the planned periodic premium or skip a planned
periodic premium entirely.
At any time you may request a change in the amount and frequency of planned
periodic premium by sending a written notice to our Administrative Office.
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Additional Premiums. Additional premiums are premiums other than planned
premiums. Additional premiums may be paid in any amount and at any time subject
to the Code and our restrictions on premiums.
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 may be needed to
prevent your Policy from terminating.
Paying premiums may not ensure that your Policy remains in force.
Effect of Premium Payments. In general, unless the no-lapse provision is in
effect, paying all planned periodic premiums may not prevent your Policy from
lapsing. In addition, if you fail to pay any planned periodic premiums, your
Policy will not necessarily lapse.
Your Policy will lapse only when the Net Cash Surrender Value on a monthly
anniversary is less than the amount of that date's monthly deduction. This could
happen if the Net Cash Surrender Value has decreased because:
o of the negative return or insufficient return earned by one or more of the
Subaccounts or the Guaranteed Account you selected; or
o of any combination of the following -- you have Outstanding Loans, you have
taken partial withdrawals, we have deducted Policy expenses, or you have
made insufficient premium payments to offset the monthly deduction.
No lapse premium guarantee.
No Lapse Provision. In general, during the no lapse period, which is currently
the first five Policy years, if you pay a sufficient amount of premiums, your
Policy will not lapse even if your Net Cash Surrender Value is insufficient to
pay the monthly deductions then due. You will be eligible for the no lapse
premium guarantee if:
o You have not increased the Face Amount, except under the Automatic Face
Amount Increase Option.
o You have not added any riders to your Policy since it was issued.
o Your Policy has not been reinstated.
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o All your premiums paid to date, reduced by any partial withdrawals and
Outstanding Loans, are at least equal to the product of the minimum premium
shown in your Policy Information Section multiplied by the number of months
that have elapsed since the Policy Date.
If you have requested a decrease in the Face Amount, we may not be able to
accept any subsequent premiums if these premiums would cause the Policy to fail
to qualify as a life insurance contract under the Code. In this event, the no
lapse provision will end.
Your Policy will not terminate immediately after your Account Value is
insufficient.
Grace Period. Unless the no lapse provision is in effect, in order for insurance
coverage to remain in force, the Net Cash Surrender Value on each monthly
anniversary must be equal to or greater than the total monthly deductions to be
charged on that monthly anniversary. If it is not, you have a Grace Period of 61
days during which the Policy will continue in force. The Grace Period begins on
the monthly anniversary that the Net Cash Surrender Value is less than the total
monthly deductions then due. If we do not receive a sufficient premium before
the end of the Grace Period, the Policy will terminate without value.
We will send you a written notice within 30 days of the beginning of any Grace
Period. The notice will state:
o A Grace Period of 61 days has begun.
How much you must pay to prevent your policy from terminating.
o The amount of premium required to prevent your Policy from terminating.
This amount is equal to the amount needed to increase the Net Cash
Surrender Value sufficiently to cover total monthly deductions for the next
three (3) monthly anniversaries.
If the Insured dies during the Grace Period, we will still pay the Life
Insurance Proceeds to the Beneficiary. The amount we pay will reflect a
reduction for the unpaid monthly deductions due on or before the date of the
Insured's death.
If your Policy lapses with an Outstanding Loan, you may have taxable income.
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Premium Allocations. In the application, you specify the percentage of Net
Premiums to be allocated to each Subaccount and to the Guaranteed Account.
However, until the Period to Examine and Cancel expires, we invest this amount
in the Money Market Subaccount. The first business day after this period
expires, we will reallocate your Account Value in the Money Market Subaccount
based on the premium allocation percentages in your application.
For all subsequent premiums, we will use the allocation percentages you
specified in the application until you change them. You can change the
allocation percentages at any time, by sending written notice to our
Administrative Office. The change will apply to all premiums received with or
after your notice.
Allocation Rules. Your allocation instructions must meet the following
requirements:
o Each allocation percentage must be a whole number; and
o Any allocation to a Subaccount or to the Guaranteed Account must be at
least 5%; and the sum of your allocations must equal 100%.
Crediting Premiums. Your initial Net Premium, will be credited to your Account
Value as of the Policy Date. On the first business day after the Period to
Examine and Cancel expires, we will allocate it in accordance with your
allocation percentages. We will credit and invest subsequent Net Premiums on the
date we receive the premium or notice of deposit at our Administrative Office.
If any premium requires us to accept additional risk, we may allocate this
amount to the Money Market Subaccount until we complete our underwriting.
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The Investment Options
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You may allocate your Account Value to:
o the Subaccounts which invest in the variable investment options; or
o the Guaranteed Account.
Variable Investment Options
Under the Policy, you may currently allocate your Account Value into any of the
available Subaccounts. Each Subaccount invests in shares of a portfolio of the
Alliance Variable Products Series Fund, Anchor Series Trust, Dreyfus Stock Index
Fund, Dreyfus Variable Investment Fund, Fidelity Variable Insurance Products
Fund, Fidelity Variable Insurance Products Fund II, Goldman Sachs Variable
Insurance Trust, Neuberger Berman Advisers Management Trust, SunAmerica Series
Trust or Templeton Variable Products Series Fund. These portfolios operate
similarly to a mutual fund but are only available through the purchase of
certain insurance contracts.
Alliance Capital Management L.P., Davis Selected Advisers, L.P., The Dreyfus
Corporation, Mellon Equity Associates, Fidelity Management and Research Company,
Goldman Sachs Asset Management, Goldman Sachs Asset Management International,
Neuberger Berman Management, Inc., SunAmerica Asset Management Corp., Templeton
Asset Management Ltd., Templeton Investment Counsel, Inc. and Wellington
Management Company, LLP are the investment advisers to the portfolios. The
portfolios serve as the underlying investment vehicles for other variable
insurance contracts issued by us and other affiliated/unaffiliated insurance
companies. We do not believe that offering these portfolios in this manner is
disadvantageous to you. The portfolios' management monitors the portfolios for
any conflicts between contract owners.
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Alliance Variable Products Series Fund
Portfolios Managed by Alliance Capital Management L.P.
The Growth Portfolio seeks long-term growth of capital by investing primarily in
common stocks and other equity securities.
The Growth and Income Portfolio seeks to balance the objectives of reasonable
current income and reasonable opportunities for appreciation through investments
primarily in dividend-paying common stocks of good quality.
The High-Yield Portfolio seeks the highest level of current income available
without assuming undue risk by investing principally in high-yielding fixed
income securities. As a secondary objective, this portfolio seeks capital
appreciation where consistent with its primary objective. Many of the
high-yielding securities in which the High Yield Portfolio invests are rated in
the lower rating categories (i.e., below investment grade) by the nationally
recognized rating services. These securities, which are often referred to as
"junk bonds," are subject to greater risk of loss of principal and interest than
higher rated securities and are considered to be predominately speculative with
respect to the issuer's capacity to pay interest and repay principal.
The International Portfolio seeks to obtain a total return on its assets from
long-term growth of capital and from income principally through a broad
portfolio of marketable securities of established non-United States companies
(or United States companies having their principal activities and interests
outside the United States), companies participating in foreign economies with
prospects for growth, and foreign government securities.
The Premier Growth Portfolio seeks growth of capital rather than current income.
In pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based on their
potential for capital appreciation, current income will be incidental to the
objective of capital growth. The portfolio is not intended for investors whose
principal objective is assured income or preservation of capital.
The Real Estate Portfolio seeks a total return on its assets from long-term
growth of capital and income primarily by investing in the equity securities of
companies primarily engaged in, or related to, the real estate industry.
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The Technology Portfolio seeks growth of capital through investments 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 Total Return Portfolio seeks to achieve a high return through a combination
of current income and capital appreciation by investing in a diversified
portfolio of common and preferred stocks, senior corporate debt securities, and
U.S. Government and agency obligations, bonds and senior debt securities.
The Utility Income Portfolio seeks current income and capital appreciation by
investing primarily in the equity and fixed-income securities of companies in
the "utilities industry." The portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical performance of
securities of utilities companies. The utilities industry consists of companies
engaged in the manufacture, production, generation, provision, transmission,
sale and distribution of gas, electric energy, and communications equipment and
services, and in the provision of other utility or utility-related goods and
services.
Anchor Series Trust
Portfolios Managed by Wellington Management Company, LLP
Wellington Management Company, LLP serves as subadviser to the Anchor Series
Trust Portfolios. Anchor Series Trust has additional Portfolios which are not
available for allocations under your Policy. The investment objectives of the
available portfolios are set forth below.
The Capital Appreciation Portfolio seeks long-term capital appreciation. This
Portfolio invests in growth equity securities which are widely diversified by
industry and company.
The Government and Quality Bond Portfolio seeks relatively high current income,
liquidity and security of principal. This Portfolio invests in obligations
issued, guaranteed or insured by the U.S. Government, its agencies or
instrumentatilies and in investment grade corporate debt securities.
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Portfolio Managed by The Dreyfus Corporation and Mellon Equity Associates
Dreyfus Stock Index Fund
The Dreyfus Stock Index 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. The fund attempts to be fully invested at all times in the stocks that
comprise the index and stock index futures. The fund is neither sponsored by nor
affiliated with Standard & Poor's Corporation. The Dreyfus Corporation has
engaged its affiliate, Mellon Equity Associates, to serve as the fund's index
fund manager.
Portfolio Managed by The Dreyfus Corporation
Dreyfus Variable Investment Fund
The Small Company Stock Portfolio seeks 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. The portfolio invests primarily in
equity securities of the small to medium-sized domestic issuers that are
considered by The Dreyfus Corporation to offer above-average growth potential.
Fidelity Variable Insurance Products Fund
Portfolios Managed by Fidelity Management & Research Company
The VIP Growth Portfolio: Initial Class seeks capital appreciation through
investments primarily in common stock.
The VIP High Income Portfolio: Initial Class seeks a high level of current
income by investing primarily in income producing debt securities, preferred
stocks and convertible securities, with emphasis on lower-quality debt
securities (commonly referred to as "junk-bonds"), while also considering growth
of capital. The potential for high yield is accompanied by higher risk. For a
more detailed discussion of the investment risks associated with such
securities, please refer to the attached prospectus. The sub- advisers for this
portfolio are Fidelity Management & Research Far East Inc. and Fidelity
Management & Research (U.K.) Inc.
The VIP Money Market Portfolio: Initial Class 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 VIP
Money
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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. The sub-adviser for this portfolio is Fidelity Investments Money
Management, Inc. a wholly owned subsidiary of Fidelity Management & Research
Company.
Fidelity Variable Insurance Products Fund II
The VIP II Asset Manager Portfolio: Initial Class seeks to provide a high total
return with reduced risk over the long term by allocating its assets among
stocks, bonds and short- term money market instruments. The sub-advisers for
this portfolio are Fidelity Management & Research Far East, Inc. and Fidelity
Management & Research (U.K.) Inc.
The VIP II Contrafund(R) Portfolio: Initial Class seeks long- term capital
appreciation by investing in securities of companies whose value the manager
believes is not fully recognized by the public. The sub-advisers for this
portfolio are Fidelity Management & Research Far East Inc. and Fidelity
Management & Research (U.K.) Inc.
The VIP II Investment Grade Bond Portfolio: Initial Class seeks as high a level
of current income as is consistent with the preservation of capital by investing
in U.S. dollar-denominated investment-grade bonds. The sub-adviser for this
portfolio is Fidelity Investments Money Management, Inc.
Goldman Sachs Variable Insurance Trust
Portfolios Managed by Goldman Sachs Asset Management ("GSAM")/Goldman Sachs
Asset Management International ("GSAMI")
The Capital Growth Fund seeks long-term growth of capital. The Fund invests,
under normal circumstances, at least 90% of its total assets in equity
securities. The Fund seeks to achieve its investment objective by investing in a
diversified portfolio of equity securities that are considered by the Investment
Advisor to have long-term capital appreciation potential. Although the Fund
invests primarily in publicly traded U.S. securities, it may invest up to 10% of
it's total assets in foreign securities, including securities of issuers in
emerging countries and securities quoted in foreign currencies. GSAM serves as
the Fund's adviser.
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The Global Income Fund seeks high total return, emphasizing current income, and
to a lesser extent, providing opportunities for capital appreciation, by
investing primarily in a portfolio of high quality fixed income securities of
U.S. and foreign issuers and foreign currencies. GSAMI serves as the fund's
advisor.
The Mid Cap Value Fund seeks long-term capital appreciation by investing in
mid-capitalization U.S. stocks that are believed to be undervalued or
undiscovered by the marketplace. GSAM serves as this fund's advisor.
Neuberger Berman Advisers Management Trust
Portfolios Managed by Neuberger Berman Management Inc.
Each portfolio of Neuberger Berman Advisers Management Trust invests its assets
in a corresponding series of the Neuberger Berman Advisers Managers Trust
("Managers Trust"), which is also an open-end management investment company
registered under the 1940 Act and is organized as a New York common law trust.
The investment performance of the Advisers Management Trust Partners and Limited
Maturity Bond Portfolios will directly correspond with the investment
performance of the corresponding series of Managers Trust. This "Master/Feeder
Fund" structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities.
The investments for the Portfolios are managed by the same portfolio manager(s)
who manage one or more other mutual funds that have similar names, investment
objectives and investment styles as the Portfolio that are offered directly to
the public by means of separate prospectuses. You should be aware that the
portfolio is likely to differ from the other mutual funds in size, cash flow
pattern and tax matters and may differ in risk/return characteristics.
Accordingly, the holdings and the performance of the Portfolio can be expected
to vary from those of the other mutual funds.
Neuberger Berman Management, Inc. serves as the investment manager of each
series of Managers Trust and as distributor of the shares of and administrator
of each portfolio of Neuberger Berman Advisers Trust. Neuberger Berman, LLC
serves as the sub-adviser for each series of Managers Trust.
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The AMT Partners Portfolio seeks to achieve growth of capital by investing
mainly in stocks of mid- to large capitalization companies. The managers look
for well-managed companies whose stock prices are undervalued.
The AMT Limited Maturity Bond Portfolio seeks the highest available current
income consistent with liquidity and low risk to principal; total return is a
secondary goal. The managers look for securities that appear underpriced
compared to securities of similar structure and credit quality and securities
that appear likely to have their credit ratings raised.
SunAmerica Series Trust
Various subadvisers provide investment advice for the SunAmerica Series Trust
portfolios. SunAmerica Series Trust has additional Portfolios which are not
available for allocations under your Policy. The available portfolios, the
investment objectives of each and the subadvisers are:
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Portfolio Managed by Davis Selected Advisers, L.P.
The Venture Value Portfolio seeks growth of capital by investing primarily in
common stocks of companies with market capitalizations of at least $5 billion.
Portfolios Managed by SunAmerica Asset Management Corp.
The "Dogs" of Wall Street Portfolio seeks total return (including capital
appreciation and current income) primarily through the annual selection of
thirty high dividend yielding common stocks from the Dow Jones Industrial
Average and the broader market.
The SunAmerica Balanced Portfolio seeks to conserve principal by maintaining, at
all times, a balanced portfolio of stocks and bonds, with at least 25% invested
in fixed income securities.
Templeton Variable Products Series Fund
Templeton Asset Management Ltd. serves as the investment manager to the
Templeton Developing Markets Fund and Templeton Investment Counsel, Inc. serves
as the investment manager to the Templeton International Fund and Templeton
Asset Allocation Fund. Only Class 1 shares of Templeton Developing Markets Fund,
Templeton International Fund and Templeton Asset Allocation Fund are available
under the Policy.
Portfolios Managed by Templeton Asset Management Ltd
The Templeton Developing Markets Fund - Class 1 seeks long-term capital
appreciation. The fund invests primarily in emerging market equity securities.
Portfolios Managed by Templeton Investment Counsel, Inc.
The Templeton Asset Allocation Fund - Class 1 seeks high total return. The fund
invests in equity securities of companies in any nation, debt securities of
companies and governments of any nation including emerging markets, and in money
market instruments.
The Templeton International Fund - Class 1 seeks long-term capital growth. The
fund invests primarily in the equity securities of companies located outside the
U.S., including emerging markets.
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Guaranteed Investment Option
Under the Policy, you may currently allocate your Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part of
your Account Value to the Loan Account which is part of the Guaranteed Account.
We treat each allocation and transfer separately for purposes of crediting
interest and making deductions from the Guaranteed Account.
Interest Credited On the Guaranteed Account. All of your Account Value held in
the Guaranteed Account will earn interest at a rate we determine, in our sole
discretion. This rate will never be less than an effective rate of 4% per year
compounded annually. The Loan Account portion of your Account Value may earn a
different interest rate than the remaining portion of your Account Value in the
Guaranteed Account.
Deductions from the Guaranteed Account. We will deduct any transfers, partial
withdrawals or any Policy expenses from the Guaranteed Account and the
Subaccounts on a pro rata basis, unless you provide other directions. No portion
of the Loan Account may be used for this purpose.
We treat amounts transferred from the Loan Account to the remaining portion of
the Guaranteed Account Value as a new allocation to the Guaranteed Account. We
will credit this transfer with interest at the rate then in effect for
Guaranteed Account allocations.
Payments from the Guaranteed Account. If we must pay any part of the proceeds
for a loan or partial withdrawal or surrender from the Guaranteed Account, we
may defer the payment for up to six months from the date we receive the written
request. If we defer payment from the Guaranteed Account for 30 days or more, we
will pay interest on the amount we deferred at an effective rate of 4% per year,
compounded annually, until we make payment.
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Investing Your Account Value
- -------------------------------------------------------------------------------
The Policy allows you to choose how to invest your Account Value. Your Account
Value will increase or decrease based on:
o The returns earned by the Subaccounts you select.
o Interest credited on amounts allocated to the Guaranteed Account.
We will determine your Policy benefits based upon your Account Value. If your
Account Value is insufficient, your Policy may terminate. If the Net Cash
Surrender Value on a monthly anniversary is less than the amount of that date's
monthly deduction, the Policy will lapse and a Grace Period will begin.
Determining the Account Value
On the Policy Date, your Account Value is equal to your initial Net Premium. If
the Policy Date and the Issue Date are the same day, the Account Value is equal
to your initial premium, less the premium expenses and monthly deduction we
deduct.
On each Valuation Date thereafter, your Account Value is equal to:
o Your Account Value held in the Subaccounts; and
o Your Account Value held in the Guaranteed Account.
Your Account Value will reflect:
o the premiums you pay;
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o the returns earned by the Subaccounts you select;
o the interest credited on amounts allocated to the Guaranteed Account;
o any loans or partial withdrawals; and
o the Policy charges and expenses we deduct.
Account Value in the Subaccounts. We measure your Account Value in the
Subaccounts by the value of the Subaccounts' accumulation units we credit to
your Policy. When you allocate premiums or transfer part of your Account Value
to a Subaccount, we credit your Policy with accumulation units in that
Subaccount. The number of accumulation units equals the amount allocated to the
Subaccount divided by that Subaccount's accumulation unit value for the
Valuation Date when the allocation is effected.
The number of Subaccount accumulation units we credit to your Policy will:
o increase -- when Net Premium is allocated to the Subaccount, amounts are
transferred to the Subaccount and loan repayments are credited to the
Subaccount.
o 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 withdrawal, including the
partial withdrawal charges, is taken from the Subaccount.
Accumulation Unit Values. A Subaccount's accumulation unit value varies to
reflect the return of the portfolio, and may increase or decrease from one
Valuation Date to the next. We arbitrarily set the accumulation unit value for
each Subaccount at $10 when the Subaccount was established. Thereafter, the
accumulation unit value equals the accumulation unit value for the prior
Valuation Period multiplied by the net investment factor for the current
Valuation Period.
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Net Investment Factor. The net investment factor is an index we use to measure
the investment return earned by a Subaccount during a Valuation Period. It is
based on the change in net asset value of the portfolio shares held by the
Subaccount, and reflects any dividend or capital gain distributions on the
portfolio shares and the deduction of the daily mortality and expense risk
charge.
Guaranteed Account Value. On any Valuation Date, the Guaranteed Account portion
of your Policy's Account Value equals:
o the total of all Net Premium, allocated to the Guaranteed Account, plus
o any amounts transferred to the Guaranteed Account, plus
o interest credited on the amounts allocated and transferred to the
Guaranteed Account, less
o the amount of any transfers from the Guaranteed Account, less
o the amount of any partial withdrawals, including the partial withdrawal
charges, taken from the Guaranteed Account, and less
o the allocated portion of the monthly deductions, if any, deducted from the
Guaranteed Account, plus
o the amount of the Loan Account. If you take a Policy loan, we transfer the
amount of the loan to the Loan Account held in the Guaranteed Account. The
value of your Loan Account includes transfers to and from the Loan Account
as you take and repay loans, and interest, charged and credited on the Loan
Account.
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.
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The amount you would receive on a Surrender of your Policy.
Net Cash Surrender Value. The Net Cash Surrender Value on a Valuation Date is
equal to:
o the Cash Surrender Value, less
o any Outstanding Loan on that date.
Transfers
You may transfer Account Value among the Subaccounts and to and from the
Guaranteed Account after the Period to Examine and Cancel. All transfer
requests, except for those made under the Dollar Cost Averaging, Automatic
Rebalancing and Systematic Withdrawal programs, must satisfy the following
requirements:
o Minimum amount of transfer -- You must transfer at least $250 or, the balance
in the Subaccount or the Guaranteed Account, if less;
o Form of transfer request -- You must make a written request unless you have
established prior authorization to make telephone transfers or by other means
we make available;
o Transfers from the Guaranteed Account -- The maximum you may transfer in a
Policy year is equal to 25% of your Guaranteed Account value that is not in
the Loan Account on the most recent Policy anniversary reduced by all prior
partial withdrawals and transfers taken from the Guaranteed Account during
that Policy year.
Date We Process Your Transfer Request. We must receive your transfer request at
our Administrative Office. We process transfers on the same date we receive your
transfer request subject to the NYSE being open for trading. The transfer will
be made at the price next computed after we receive your transfer request. We
may, however, defer transfers under the same conditions as described in "When
Proceeds Are Paid," page ___.
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Number of Allowable Transfers/Transfer Fee. We do not currently limit the number
of transfers you may make. We will currently assess a $25 transfer fee, however,
for each transfer in excess of 12 during a Policy year. All transfers processed
on the same business day will count as one transfer for purposes of determining
the number of transfers you have made in a Policy year. Transfers in connection
with the Dollar Cost Averaging and Automatic Rebalancing features will not count
against the 12 free transfers in a Policy year. We reserve the right to increase
the number of "free" transfers allowed in any Policy year.
Telephone Transfers. If you have completed an authorization form allowing
telephone transfers, you may request transfers by telephone. We confirm all
telephone transfers in writing. You should review all confirmations to determine
if there have been any unauthorized transfers.
We will use reasonable procedures to confirm that telephone transfer requests
are genuine. We will not be liable for any loss due to unauthorized or
fraudulent instructions.
We reserve the right to suspend telephone transfer privileges at any time, for
some or all Policies.
Dollar Cost Averaging (DCA)
Dollar Cost Averaging is a systematic method of investing at regular intervals.
By investing at regular intervals, the cost of the securities is averaged over
time and perhaps over various market cycles.
You may request Dollar Cost Averaging. Under this program we will automatically
transfer monthly a portion of your Account Value. Unless you give us other
instructions, we will allocate the transfer as you have specified in your most
current premium allocation instructions. However, not less than 5% may be
allocated to any Subaccount or to the Guaranteed Account. You may instruct us to
make the transfers from any Subaccount or the Guaranteed Account so long as the
Account Value in that Account is initially at least $2,000. There is no charge
for this option.
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Dollar Cost Averaging From the Guaranteed Account with Six Month Bonus Rate. We
may make available a six-month bonus interest rate if you use the dollar cost
averaging feature from the Guaranteed Account. For the bonus interest rate to
apply, an initial premium payment of at least $2,000 made in connection with the
purchase of a Policy is eligible for dollar cost averaging with a bonus rate of
interest. We will credit the Net Premiums to the 6-month DCA Guaranteed Account.
This dollar cost averaging option must be elected at the time of application and
only applies to the initial premium payment. We will transfer monthly, one-sixth
of your Account Value in the 6-month DCA Guaranteed Account over a period of six
months. The sixth transfer from the 6- month DCA Guaranteed Account will include
interest earnings for the six-month period.
During this period, we may credit an additional interest rate over the interest
rate that we are crediting on allocations or transfers to the Guaranteed Account
made at that time. Additional amounts may not be allocated to the 6-month DCA
Guaranteed Account.
If you terminate the dollar cost averaging while your Account Value includes
amounts in the 6-month DCA Guaranteed Account, we will transfer this amount to
the Guaranteed Account. It will earn interest at the rate we are crediting on
allocations or transfers to the Guaranteed Account made at that time.
We reserve the right to establish transfer limits, to restrict the Subaccounts
from which transfers may be made, and to eliminate this feature all together.
When We will Process your Automatic DCA Transfers. We will begin to process your
automatic transfers:
o If you requested the automatic DCA transfers when you applied for your Policy
-- on the first monthly anniversary following the end of the Period to
Examine and Cancel.
o If you elect the option after you applied for the Policy -- on the second
monthly anniversary following the receipt of your request at our
Administrative Office.
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We will stop processing automatic DCA transfers if:
o The funds in the transferring Subaccount or the Guaranteed Account have
been depleted;
o We receive your written request at our Administrative Office to cancel
future transfers;
o We receive notification of death of the Insured; or
o Your Policy goes into a Grace Period.
Dollar Cost Averaging may lessen the impact of market fluctuations on your
investment. Using Dollar Cost Averaging does not guarantee investment gains or
protect against loss in a declining market.
Automatic Rebalancing
We may offer an Automatic Rebalancing program to rebalance your Account Value to
match your allocation instructions.
This program is offered because the Account Value in the Guaranteed Account and
the Subaccounts will accumulate at different rates as a result of different
investment returns. Automatic Rebalancing will restate the Account Value of the
Guaranteed Account and the Subaccounts to your most recent allocation
instructions. You may elect the frequency (monthly, quarterly, semi-annually, or
annually) as measured from the Policy anniversary. On each date elected, we will
rebalance the Account Value by generating transfers to reallocate the Account
Values according to your most recent allocation instructions.
Transfers resulting from Automatic Rebalancing will not be counted against the
total number of transfers allowed before a change is applied.
We reserve the right to suspend or modify Automatic Rebalancing or to change an
administrative fee for excessive election or allocation changes. Automatic
Rebalancing is not available if the grace period has commenced.
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Death Benefits
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Life Insurance Proceeds
During the Policy term, we will pay the Life Insurance Proceeds to the
Beneficiary after the Insured's death. To make payment, we must receive at our
Administrative Office:
o satisfactory proof of the Insured's death; and
o return of the Policy.
The Beneficiary may receive the Life Insurance Proceeds in one lump sum or under
any other payment option available.
Payment of Life Insurance Proceeds. We will pay the Life Insurance Proceeds
generally within seven days after we receive the information we require. We will
pay the Life Insurance Proceeds to the Beneficiary in one lump sum or, if
elected, under an available payment option. Payment of the Life Insurance
Proceeds may also be affected by other provisions of the Policy.
We will pay interest on the Life Insurance Proceeds from the date of the
Insured's death to the date of payment as required by applicable state law.
Amount of Life Insurance Proceeds. We will determine the Life Insurance Proceeds
as of the date of the Insured's death. The Life Insurance Proceeds will depend
on the tax qualification option that you selected and will equal:
o the Death Benefit amount determined according to the death benefit option
selected; plus
o any other benefits then due from riders to the Policy; minus
o the Outstanding Loan, if any, minus
o any overdue monthly deductions if the Insured dies during a Grace Period.
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Death Benefit Options
You may select from two death benefit options. They are:
Level Death Benefit Option.
o Level Death Benefit Option (Option I)
The basic Death Benefit will be the greater of:
(1) The Face Amount; or
(2) Account Value at date of death multiplied by the appropriate minimum
death benefit factor
This death benefit option should be considered if you want to minimize your cost
of insurance.
Variable Death Benefit Option.
o Variable Death Benefit Option (Option II)
The basic Death Benefit will be the greater of:
(1) The Face Amount plus the Account Value; or
(2) Account Value at date of death multiplied by the appropriate minimum
death benefit factor.
This death benefit option should be considered if you want your Death Benefit to
vary with your Policy's Account Value.
Tax Qualification Options.
Section 7702 of the Code provides alternative testing procedures for meeting the
definition of life insurance. Each Policy must qualify under one of these two
tests and you may select the test we use for ensuring your Policy meets the
definition of life insurance.
For both tests under Section 7702, there is a minimum Death Benefit required at
all times. This is equal to the Account Value multiplied by the appropriate
minimum death benefit factor. These factors depend on the tax qualification
option and will be based on the Attained Age and sex of the Insured. A table of
the applicable factors is located in the Policy.
The two tax qualification options are:
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Guideline Premium/Cash Value Corridor Test.
o Guideline Premium/Cash Value Corridor Test.
Cash Value Accumulation Test.
o Cash Value Accumulation Test. This tax qualification option should be
considered if you want to maximize the premiums permitted for your Policy.
Once you have selected the tax qualification option for your Policy, it may not
be changed.
Changes in Death Benefit Options
At any time after the first Policy anniversary while your Policy is in force,
you may request a change in death benefit option. If you have selected the Level
Death Benefit Option, you may change to the Variable Death Benefit Option. You
may also change from the Variable Death Benefit Option to the Level Death
Benefit Option.
How to request a change.
You may change your death benefit option by providing your Agent with a written
request or by writing us at our Administrative Office. We may require that you
submit satisfactory evidence of insurability to us.
If you request a change from the Level Death Benefit Option to the Variable
Death Benefit Option, we will decrease the Face Amount by an amount equal to
Your Account Value on the date the change takes effect. However, we will not
allow such a change if it would reduce the Face Amount below the minimum Face
Amount. This change will also cancel all future Face Amount increases under the
Automatic Face Amount Increase Option.
If you request a change from the Variable Death Benefit Option to the Level
Death Benefit Option, we will increase the Face Amount by an amount equal to
your Account Value on the date the change takes effect. Such decreases and
increases in the Face Amount are made so that the Death Benefit remains the same
on the date the change takes effect.
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Once a change is approved, we will issue new Policy information pages and attach
a copy of your application for change. 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 changes that
we determine would cause the Policy to fail to qualify as life insurance under
our interpretation of the Code.
Changes in Face Amount
When you apply for a Policy, you may select the Automatic Face Amount Increase
Option. In addition, you may request a change in the Face Amount at any time
after the first Policy anniversary while the Policy is in force. We will not
make a change in Face Amount that causes your Policy to fail to qualify as life
insurance under the Code.
Automatic Face Amount Increase Option. Under the Automatic Face Amount Increase
Option, the Face Amount will be automatically increased on specified Policy
anniversaries, up to a maximum total for all increases that is twice the initial
Face Amount. You may select the Automatic Face Amount Increase Option only if
you also select the Level Death Benefit Option. When you select this option, you
must specify:
o the Policy anniversaries on which the Face Amount increase will begin. The
increase must begin no later than the tenth Policy anniversary.
o the amount of increase, which may be no less than 1% and no more than 6% of
the initial Face Amount.
You may elect to cancel the automatic increase. If you do so, we will cancel all
future increases. We require written notice of at least 30 days before the
effective date of an increase. In addition, any request to decrease the Face
Amount or change from the Level Death Benefit Option to the Variable Death
Benefit Option, will cancel all future automatic increases.
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Requested Increases in Face Amount. Any request for an increase:
o Must be made after the first Policy anniversary.
o Must be for at least $10,000.
o May not be requested more than once each Policy year.
o May not be requested after the Insured's Attained Age 85.
A written application must be submitted to our Administration Office along with
satisfactory evidence of insurability. You must return the Policy so we can
amend the Policy to reflect the increase. The requested 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 of the
increase in Face Amount.
Decreases in Face Amount. Any request for a decrease:
o Must be at least $5,000.
o Must not cause the Face Amount after the decrease to be less than the
minimum Face Amount at which we would issue a Policy.
o We do not allow a decrease in the first Policy year. During the second
through the fifth Policy years, you may decrease the Face Amount by up to
25% of the initial Face Amount each Policy Year. The decreases may be
cumulative. If the Face Amount is decreased during the first 10 Policy
years or within 10 Policy years of an increase in Face Amount, a surrender
charge will be applicable.
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Consequences of a Change in Face Amount. Both requested increases and decreases
in Face Amount may impact the surrender charge. In addition, a requested
increase or decrease in Face Amount may impact the status of the Policy as a
modified endowment contract. An increase in Face Amount, other than as a result
of a scheduled automatic increase, and a decrease in Face Amount, will cause the
termination of the Policy's no-lapse provision. A decrease in the Face Amount
will also cancel the Automatic Face Amount Increase Option.
Changes in Owner or Beneficiary
While the Insured is living, you may request a change in the Owner or
Beneficiary. The change will take effect on the date you sign the notice, but
will not apply to any payment we make or other action we take before we receive
the notice.
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Cash Benefits During the Insured's Life
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During the life of the Insured, your Policy has cash benefits which you may
access within limits by taking loans, partial withdrawals or a surrender.
Policy Loans
You may request a loan against your Policy at any time while the Policy has a
Net Cash Surrender Value. We limit the minimum and maximum amount of a loan you
may take as follows:
o Maximum Loan Amount
During the first Policy year, you may take a loan so long as the total
Outstanding Loan after taking into account the loan does not exceed 50% of the
Cash Surrender Value.
After the first Policy Year, the maximum loan amount you may take is:
* Your Net Cash Surrender Value, less
* Loan interest to the next Policy anniversary on the loan amount you are
currently requesting , less
* The amount we calculate for the monthly deductions for each monthly
anniversary up to the next Policy anniversary.
o Minimum Loan Amount -- $500.
How to request a loan.
You must submit a written request for a loan to the Administrative Office.
Policy loans will be processed as of the date we receive the request at our
Administrative Office. Loan proceeds generally will be sent to you within seven
days.
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Interest. We charge interest daily on any Outstanding Loan at a declared annual
rate not in excess of 8%. The maximum net cost (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) of a loan is 2% per year . Currently, after the
tenth Policy anniversary, the net cost is 0.25%. 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 Loan.
Loan Account. You may direct us to take an amount equal to the loan proceeds and
any amount attributed to unpaid interest from any Subaccount or from the
Guaranteed Account. Otherwise, we will withdraw this amount from each Subaccount
and Guaranteed Account on a pro rata basis. We transfer this amount to the Loan
Account in the Guaranteed Account.
When a loan is repaid, an amount equal to the repayment will be transferred from
the Loan Account to the Subaccounts and Guaranteed Account in accordance with
your premium allocation percentages in effect at the time of repayment.
Effect of Policy Loan. A Policy loan, whether or not repaid, will have a
permanent effect on the Life Insurance Proceeds 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.
In addition, loans from modified endowment contracts may be treated for tax
purposes as distributions of income.
If the Life Insurance Proceeds become payable while a Policy loan is
outstanding, the Outstanding Loan will be deducted in calculating the Life
Insurance Proceeds.
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If the Outstanding Loan exceeds the Net Cash Surrender Value on any monthly
anniversary, the Policy will lapse. We will send you, and any assignee of
record, notice of the lapse. 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.
Outstanding Loan. The Outstanding Loan on a Valuation Date equals:
o All Policy loans that have not been repaid (including past due unpaid
interest added to the loan), plus
o accrued interest not yet due.
Loan Repayment. 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.
You must indicate that the amount paid is for a loan repayment.
Partial Withdrawals
Requirements for Partial Withdrawals.
You may request a partial withdrawal at any time after the first Policy
anniversary. Currently, we limit the number of partial withdrawals to four each
Policy year unless made under the systematic withdrawal program. We may limit
the minimum and maximum amount of withdrawals.
o Maximum Partial Withdrawal Amount -- Your Policy's Net Cash Surrender Value
except that the withdrawal may not cause the Policy Face Amount to be less
than the required minimum Face Amount.
o Minimum Partial Withdrawal Amount -- $250. This limit is waived for
withdrawals under the systematic withdrawal program.
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o Maximum Partial Withdrawal from the Guaranteed Account -- during any Policy
year you may only withdraw from the Guaranteed Account 25% of your net
Guaranteed Account value that is not in the Loan Account on the most recent
Policy anniversary reduced by all prior partial withdrawals and transfers
from the Guaranteed Account during that Policy year.
o The Maximum Partial Withdrawal from the Guaranteed Account if you are a
participant in the systematic withdrawal program -- under this circumstance
during any Policy year you may only withdraw the greater of:
* 25% of your net Guaranteed Account value that is not in the Loan
Account on the most recent Policy anniversary reduced by all prior
partial withdrawals and transfers from the Guaranteed Account during
that Policy year; or
* The maximum amount you may have withdrawn from the Guaranteed Account
in any of the prior Policy years.
How to request a partial withdrawal.
You must submit a written request to our Administrative Office. We will reduce
your Account Value by the partial withdrawal amount plus any applicable charges.
When you request a partial withdrawal, you may direct us to take the requested
amount from any Subaccount or from the Guaranteed Account. If you do not direct
us of if the Guaranteed Account or Subaccount value is insufficient to withdraw
the amount requested, we will withdraw all or the difference from the remaining
Accounts on a pro rata basis.
We will process partial withdrawal requests at the price next computed after we
receive your written request at our Administrative Office. We will generally pay
partial withdrawals within seven days.
Expenses for Partial Withdrawal. During the first ten Policy years or for the
ten Policy years following a requested increase in Face Amount, we will deduct
the applicable surrender charge on a partial withdrawal. 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 withdrawal (together, the
"partial withdrawal amount"). Currently, we do not assess a processing fee for
partial withdrawals. However, we reserve the right to assess a $25 processing
charge for each withdrawal.
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Effect of Partial Withdrawal on your Face Amount. The Face Amount of your Policy
will also be reduced by the partial withdrawal amount if you selected the Level
Death Benefit Option.
We will reduce the Face Amount by the amount of the partial withdrawal 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.
No partial withdrawal may be made that would reduce the Face Amount below the
minimum Face Amount.
Partial withdrawals from your Policy may have tax consequences.
Systematic Withdrawal Program
You may request the systematic withdrawal program at any time after the first
Policy anniversary. You may access your Account Value by electing the systematic
withdrawal program. This program allows you to automatically receive payments on
a monthly, quarterly, semi-annual or annual basis.
You have the option to switch to borrowing from your Account Value once a
specified amount of withdrawals has been reached. You may also elect to borrow
the interest due on your outstanding loan balance in order to continue to
receive a steady stream of income. Loans taken under this program are not
subject to the minimum loan amount.
Some withdrawals may be taxable.
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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 the
return of the Policy. A surrender charge may apply. We will process a surrender
request as of the date we receive your written request and all required
documents. Your surrender request generally will be paid within seven days. The
Net Cash Surrender Value may be taken in one sum or it may be applied to a
payment option. Your Policy will terminate and cease to be in force if it is
surrendered and no life insurance proceeds will be payable. It cannot later be
reinstated.
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Payment Options for Benefits
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We offer a wide variety of optional ways of receiving proceeds payable under the
Policy, such as on a surrender or death, 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.
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Expenses of the Policy
- --------------------------------------------------------------------------------
Periodically, we will deduct expenses related to your Policy. We will deduct
these:
o from premiums, Account Value and from Subaccount assets; and
o upon certain transactions.
The amount of these expenses are described in your Policy as either guaranteed
or current. We will never charge more than the guaranteed amount. We may in our
discretion deduct expenses on a current basis that is less than the guaranteed
amount.
Deductions From Premiums
We will deduct up to a maximum of 8% from each premium payment. This charge is
intended to provide for state premium taxes, DAC taxes and for other expenses
associated with acquiring and servicing a Policy. Currently, the deduction is 5%
for the first ten Policy years and 3% thereafter.
Monthly Deductions From Account Value
On the Policy Date and each monthly anniversary thereafter, we make a 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.
We will deduct on each monthly anniversary charges for:
o The administration of your Policy.
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o The acquisition and underwriting costs of your Policy.
o The cost of insurance for your Policy.
o The cost of any supplemental benefits or riders.
Subject to our approval, you may request us to take the monthly deductions from
your un-loaned Account Value allocated to the Money Market Subaccount,
Guaranteed Account or a specified Subaccounts. Otherwise, we will take the
monthly deductions from each Subaccount and the Guaranteed Account on a pro rata
basis.
Administrative Charge. This charge compensates us for administrative expenses
associated with the Policy and the Separate Account. These expenses relate to
premium billing and collection, record keeping, processing claims, Policy loans,
Policy changes, reporting and overhead costs, processing applications and
establishing Policy records. This charge will be no more than $15 per month for
all Policy years. Currently, after the fifth Policy year the charge is $7.50 per
month.
Acquisition Charge. We will make a deduction from your Policy Account Value for
expenses associated with the acquisition and underwriting costs to issue your
Policy. This charge will vary based on the Insured's Age, sex and rate class. We
deduct an amount per $1,000 of Face Amount as shown in Appendix A. The charge is
assessed for the first five Policy years and if you request an increase in the
Face Amount, for the first five years following that increased Face Amount.
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 month to month. 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 on that monthly anniversary.
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Net Amount at Risk.
If the Death Benefit is equal to the Face Amount, or the Face Amount plus the
Account Value, then 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; and
(b) is the current total Account Value.
If the Death Benefit is equal to the Account Value multiplied by the appropriate
minimum death benefit factor, then 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; and
(b) is the current total Account Value
Rate Classes for Insureds. We currently rate Insureds in one of following basic
rate classifications, based on our underwriting:
o preferred nonsmoker;
o standard plus nonsmoker;
o standard nonsmoker;
o smoker;
o substandard for those involving a higher mortality risk.
We place the Insured in a rate class when we issue the Policy based on our
underwriting determination. This original rate class applies to the initial Face
Amount, as well as subsequent automatic increases in Face Amount under the
Automatic Face Amount Increase Option under the Policy. 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 guaranteed 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 guaranteed 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 and to automatic increases in the Face Amount.
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If there have been requested increases in the Face Amount, we may use different
cost of insurance rates for the requested increased portions of the 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 requested 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.
In order to maintain the Policy in compliance with Section 7702 of the Code,
under certain circumstances an increase in Account Value will cause an automatic
increase in the Death Benefit. The Attained Age and rate class for such
requested 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).
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 then current Net Amount at Risk, 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 our 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 rate class are generally lower than rates for an Insured of the same
age and sex in a smoker rate class. Cost of insurance rates (whether guaranteed
or current) for an Insured in a nonsmoker or smoker rate class are generally
lower than rates for an Insured of the same age and sex and smoking status in a
substandard rate class.
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Legal Considerations Relating to Sex-Distinct Premiums and Benefits. Mortality
tables for the Policy generally distinguish between males and females. Thus,
premiums and benefits under the Policy covering males and females of the same
age will generally differ.
We may also offer the Policy based on unisex mortality tables if required by
state law. Employers and employee organizations considering the purchase of a
Policy should consult their legal advisers 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
the Policy with unisex mortality tables to such prospective purchasers.
Deduction From Subaccount Assets
Mortality and Expense Risk Charge. We deduct a daily charge from the net assets
in the Subaccounts for assuming certain mortality and expense risks under the
Policy. This charge does not apply to the amounts you allocate to the Guaranteed
Account. Currently, we charge an annual rate of 0.75% of the Subaccount assets
for the first 10 Policy years and 0.25% thereafter. The guaranteed charge is at
an annual rate of 0.90%. Although the charge may be increased or decreased in
our sole discretion, it is guaranteed not to exceed an annual rate of 0.90% of
your Account Value in the Subaccounts for the duration of a Policy.
The mortality risk we assume is that the Insureds under a Policy may die sooner
than anticipated, and therefore we will pay an aggregate amount of Life
Insurance Proceeds greater than anticipated. The expense risk we assume is that
expenses incurred in issuing and administering all Policies and the Separate
Account will exceed the amounts realized from the administrative charges
assessed against all Policies.
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Deductions Upon Policy Transactions
Transfer Charge. We currently impose a $25 transfer charge on any transfer of
Account Value among the Subaccounts and the Guaranteed Account in excess of the
12 free transfers permitted each Policy year. If the charge is imposed, we will
deduct it from the amount requested to be transferred before allocation to the
new Subaccount(s) or Guaranteed Account and shown in the confirmation of the
transaction.
Surrender Charge. If the Policy is surrendered or there is a decrease in Face
Amount during the first 10 Policy years, we will deduct a surrender charge based
on the initial Face Amount. If a Policy is surrendered or there is a decrease in
Face Amount within 10 years after a requested increase in Face Amount, we will
deduct a surrender charge based on the increase in Face Amount. The surrender
charge will be deducted before any surrender proceeds are paid.
Surrender Charge Calculation. In general, the surrender charge is based on the
Face Amount. The Surrender Charge will be no greater than the product of (1)
times (2) times (3) where:
(1) is equal to the Face Amount divided by $1,000;
(2) is equal to a surrender charge factor per $1,000 based on the Insured's
Age, sex and rate class; and
(3) is equal to the factor based upon the number of years that has elapsed
since the Policy Date or requested increase in Face Amount, as described in
the following table:
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Year Factor
1...................... 100%
2...................... 90%
3...................... 80%
4...................... 70%
5...................... 60%
6...................... 50%
7...................... 40%
8...................... 30%
9...................... 20%
10...................... 10%
11+...................... 0%
The product of (1) and (2) will be capped at a level not to exceed a maximum
surrender charge based on a rate per $1,000 of Face Amount. A table of surrender
charge factors per $1,000 of Face Amount is shown in Appendix A.
Surrender Charge Based On An Increase Or Decrease In Face Amount. A requested
increase in Face Amount of the Policy will result in an additional surrender
charge during the 10 Policy years immediately following the requested increase.
The additional surrender charge period will begin on the effective date of the
requested increase. If the Face Amount of the Policy is reduced before the end
of the 10th Policy year or within 10 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 requested increase in the Face Amount of the Policy. They will then be
applied to prior requested increases in Face Amount of the Policy in the reverse
order in which such increases took place, and then to the initial Face Amount of
the Policy.
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Surrender Charges Upon Partial Withdrawal. During the surrender charge period we
will deduct a surrender charge:
o Upon a partial withdrawal; and
o If you decrease your Policy Face Amount.
We deduct the surrender charge from the Subaccounts or the Guaranteed Account in
the same proportion as we deduct the amounts for your partial withdrawal.
Surrender Charge Due to Partial Withdrawal. We deduct an amount equal to the
applicable surrender charge multiplied by a fraction (equal to the amount of
partial withdrawal plus any administrative charge, if applicable, for the
partial withdrawal, divided by the Net Cash Surrender Value immediately prior to
the partial withdrawal).
Surrender Charge Due to A Decrease in Face Amount. We deduct an amount 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 Withdrawal Administrative Charge. We reserve the right to deduct an
administrative charge upon a partial withdrawal of up to $25 per partial
withdrawal. Currently, we do not assess an administrative charge for partial
withdrawals. In certain states the charge may be the lesser of $25 or 2% of the
amount withdrawn.
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Discount Purchase Programs
The amount of the surrender charge and other charges under the Policy may be
reduced or eliminated when sales of the Policy are made to individuals or to
groups of individuals in a manner that in our opinion results in expense
savings. For purchases made by officers, directors and employees of the Company,
an affiliate, or any individual, firm, or a company that has executed the
necessary agreements to sell the Policy, and members of the immediate families
of such officers, directors, and employees, we may reduce or eliminate the
surrender charge. Any variation in charges under the Policy, including the
surrender charge, administrative charge or mortality and expense risk charge,
will reflect differences in costs or services and will not be unfairly
discriminatory.
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Supplemental Benefits and Riders
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We intend to make available certain supplemental benefits and riders which may
in the future be issued with the Policy. Any monthly charges for these
supplemental benefits and riders, as listed below, will be deducted from the
Policy Account Value. The addition of riders may affect the cost of insurance.
Accelerated Benefit Rider (ABR)
Accidental Death Benefit Rider (ADB)
Child's Term Rider (CTR)
Other Insured Term Rider (OIR)
Waiver of Monthly Deductions Rider (WMD)
Waiver of Specified Premium Rider (WSP)
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Other Policy Provisions
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Right to Exchange or Convert
You may exchange or convert this Policy to a flexible premium fixed benefit life
insurance policy on the life of the Insured, without evidence of insurability.
This exchange may be made:
(a) within 24 months after the Issue Date while the Policy is in
force;
(b) within 24 months of any increase in Face Amount of the Policy, other than
under the Automatic Face Amount Increase Option; or
(c) 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, we will notify you and
give you information on the options available.
When an exchange or conversion is requested, we accomplish the exchange 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 remaining life of the
policy. The Face Amount in effect at the time of the exchange will remain
unchanged. The Effective Date, Issue Date and Issue Age of the Insured will
remain unchanged. The Owner and Beneficiary are the same as were recorded
immediately before the exchange.
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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 (unless otherwise specified by state law) 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 withdrawal and minus the cost of any riders attached to the Policy. If
the Insured commits suicide (while sane or insane) within two years (unless
otherwise specified by state law) after the effective date of a requested
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 riders shall be those
which would be purchased at the most recent monthly deduction for the 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 Code or to make the Policy conform with any law or
regulation issued by any government agency to which it is subject.
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When Proceeds Are Paid
We will ordinarily pay any Life Insurance Proceeds, loan proceeds or partial or
full surrender proceeds within seven days after receipt at our Administrative
Office of all the required documents. Other than the Life Insurance Proceeds,
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 for your protection.
In addition we may delay making deductions from the Guaranteed Account for up to
6 months after we receive your request.
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Reports to Owners
You will receive a confirmation within seven days of the transaction of:
o the receipt of any unplanned premium (and any premium received before the
Issue Date);
o any change of allocation of premiums;
o any transfer between Subaccounts;
o any loan, interest repayment, or loan repayment;
o any partial withdrawal;
o any return of premium necessary to comply with applicable maximum receipt
of any premium payment;
o any exercise of your right to cancel;
o an exchange of the Policy;
o full surrender of the Policy; or
o payment of the Life Insurance Proceeds under the Policy.
Within 30 days after each Policy anniversary we will send you an annual
statement. The statement will show the Death Benefit currently payable, and the
current Account Value, Cash Surrender Value, and the Outstanding Loan. The
statement will also show premiums paid, all charges deducted during the Policy
year, and all transactions. We will also send to you annual and semi-annual
reports of the Separate Account.
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Assignment
You may assign the Policy, if we agree, 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 this assignment form at our Administrative Office. We assume no
responsibility for the validity or sufficiency of any assignment. Any assignment
or pledge of a modified endowment contract as collateral for a loan may result
in a taxable event.
Reinstatement
If the Policy has ended without value, you may reinstate Policy benefits while
the Insured is alive if you:
1. Request in writing a reinstatement of Policy benefits within three (3)
years (unless otherwise specified by state law) 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) total monthly
deductions for three (3) months, calculated from the effective date of
reinstatement; and (ii) the premium expense charge. 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 Outstanding Loan which existed on the date the
Policy ended.
The effective date of the reinstatement of Policy benefits will be the next
monthly anniversary which coincides with or next follows the date we approve
your request. From the required payment we will deduct the premium expenses. The
monthly expense charges, Account Value, Outstanding 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.
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Performance Information
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From time to time we 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
mortality and expense risk 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.
The performance information set forth in Appendix B reflects the total of the
income generated by the portfolio net of the total portfolio operating expenses
(i.e., management fees and other portfolio expenses), plus capital gains and
losses, realized or unrealized. The performance results do not reflect charges
deducted from premiums, contract values or separate account assets, including,
mortality and expense risk deductions, monthly deductions, cost of insurance,
surrender charges, sales loads, DAC taxes, and any state or local premium taxes.
If these charges were included, the total return figures would be lower.
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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.
We 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 Policy 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 the
Policy being offered will be calculated as if the Policy had been offered during
that period of time, with all charges assumed to be those applicable to the
Policy. 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
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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.
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Federal Income Tax Considerations
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The following summarizes the current federal income tax law that applies to life
insurance in general. This summary does not cover all situations. This summary
is based upon our understanding of the current federal income tax laws and
current interpretations by the Internal Revenue Service. We cannot predict
whether the Code will change. You should speak to a competent tax adviser to
discuss how the purchase of a Policy and the transactions you make under the
Policy will impact your federal tax liability.
Tax Status of the Policy
A Policy has certain tax advantages when it is treated as a "life insurance
contract" under the Code. We believe that the Policy meets the definition of a
life insurance contract under Section 7702 of the Code. You bear the risk that
the Policy may not meet the definition of a life insurance contract. You should
consult your own tax advisers to discuss these risks.
The Company
We are taxed as a life insurance company under the Code. For federal tax
purposes, the Separate Account and its operations are considered to be part of
our operations and are not taxed separately.
Diversification and Investor Control
The Code requires that we diversify the investments underlying variable
insurance contracts. If the investments are not properly diversified and any
remedial period has passed, Section 817(h) of the Code provides in general the
contract is immediately disqualified from treatment as a life insurance contract
for federal income tax purposes. Disqualification of the Policy as a life
insurance contract would result in taxable income to you at the time that we
allocate any earnings to your Policy. You would have taxable income even though
you have not received any payments under the Policy.
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To the extent that any segregated asset account with respect to a variable life
insurance contract invests exclusively in securities issued by the U.S.
Treasury, the diversification standard is satisfied. A segregated asset account
underlying life insurance contracts such as the Policy will also meet the
diversification requirements if, as of the close of each quarter:
o the regulated investment companies in which the segregated asset
account invest satisfy the diversification requirements described
below; and
o 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.
The diversification requirements may be met for each if:
o no more than 55% of the value of the total assets of the
portfolio is represented by any one investment;
o no more than 70% of the value of the total assets of the
portfolio is represented by any two investments;
o no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and
o no more than 90% of the value of the total assets of the portfolio is
represented by any four investments.
Generally, each United States government agency or instrumentality is treated as
a separate issuer under these rules.
All securities of the same issuer are generally treated as a single investment.
We intend that each portfolio in which the Subaccounts invest will be managed by
its investment adviser in compliance with these diversification requirements.
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A variable life insurance policy could fail to be treated as a life insurance
contract for tax purposes if the owner of the policy has such control over the
investments underlying the policy (e.g., by being able to transfer values among
subaccounts with only limited restrictions) so as to be considered the owner of
the underlying investments. There is some uncertainty on this point because no
guidelines have been issued by the Treasury Department. If and when guidelines
are issued, we may be required to impose limitations on your rights to control
investment designations under the Policy. We do not know whether any such
guidelines will be issued or whether any such guidelines would have retroactive
effect. We, therefore, reserve the right to make changes that we deem necessary
to insure that the Policy qualifies as a life insurance contract.
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 has not issued final
regulations 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 contract.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes 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 you pay the
full amount of premiums permitted under the Policy.
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If subsequent guidance issued under Section 7702 leads us to conclude that a
Policy does not (or may not) satisfy Section 7702, we will take appropriate and
necessary steps for the purpose of bringing the Policy into compliance, but we
can give no assurance that it will be possible to achieve that result. We
expressly reserve the right to restrict Policy transactions if we determine such
action to be necessary to qualify the Policy as a life insurance contracts under
Section 7702.
Tax Treatment of Policy Benefits In General
This discussion assumes that each Policy will qualify as a life insurance
contract for federal income tax purposes under Section 7702. The Life Insurance
Proceeds under the Policy should be excluded from the taxable gross income of
the Beneficiary. In addition, the increases in a Policy's Account Value should
not be taxed until there has been a distribution from the Policy such as a
surrender, partial surrender or lapse with outstanding loan.
Pre-Death Distribution
The tax treatment of any distribution you receive before the insured's death
depends on whether the Policy is classified as a modified endowment contract.
Policies Not Classified as Modified Endowment Contracts
o If you surrender the Policy or allow it to lapse, you will not
be taxed except to the extent the amount you receive is in
excess of the premiums you paid less the untaxed portion of
any prior withdrawals. For this purpose, you will be treated
as receiving any portion of the cash surrender value used to
repay Policy debt. The tax consequences of a surrender may
differ if you take the proceeds under an income payment
settlement option.
o Generally, you will be taxed on a withdrawal to the extent
the amount you receive exceeds the premiums you paid for
the Policy less the untaxed portion of any prior withdrawals.
However, under some limited circumstances, in the first 15
Policy years, all or a portion of a withdrawal may be taxed if
the cash value exceeds the total premiums paid less the
untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid.
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o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the Policy for the purposes of determining
whether a withdrawal is taxable.
o Loans you take against the Policy are ordinarily treated as debt and are
not considered distributions subject to tax.
Modified Endowment Contracts
o The rules change if the Policy is classified as a modified
endowment contract (or "MEC"). The Policy could be
classified as a MEC if premiums substantially in excess of
scheduled premiums are paid or a decrease in the face
amount of insurance is made (or a rider removed). The
addition of a rider or an increase in the face amount of
insurance may also cause the Policy to be classified as a
MEC. The rules on whether a Policy will be treated as a
MEC are very complex and cannot be fully described in this
summary. You should consult a qualified tax adviser to
determine whether a Policy transaction will cause the Policy
to be classified as a MEC. We will monitor your Policy and
will take steps reasonably necessary to notify you on a timely
basis if your Policy is in jeopardy of becoming a MEC.
o If the Policy is classified as a MEC, then amounts you
receive under the Policy before the insured's death, including
loans and withdrawals, are included in income to the extent
that the cash value before surrender charges exceeds the
premiums paid for the Policy increased by the amount of any
loans previously included in income and reduced by any
untaxed amounts previously received other than the amount
of any loans excludible from income. An assignment of a
MEC is taxable in the same way. These rules also apply to
pre-death distributions, including loans, made during the
two-year period before the time that the Policy became a
MEC.
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o Any taxable income on pre-death distributions (including full surrenders)
is subject to a penalty of 10% unless the amount is received on or after
age 59 1/2, on account of your becoming disabled or as a life annuity. It
is presently unclear how the penalty tax provisions apply to the Policies
owned by businesses.
o All MECs issued by us to you during the same calendar year are treated as a
single Policy for purposes of applying these rules.
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 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, you should consult a tax adviser as to the
tax consequences of such a loan. (Also Section 264 of the Code may preclude
business Owners from deducting premium payments.)
Policy Exchanges and Modifications. Depending on the circumstances, the exchange
of a Policy, a change in the Policy's death benefit option, 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. We are 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. You are not permitted to
elect out of withholding if you do not provide a social security number or other
taxpayer identification number. 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.
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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, you should examine the
applicable tax rules relating to such plans and life insurance thereunder in
consultation with a qualified tax adviser.
Possible Charge for the Company's Taxes
At the present time, we do not deduct any charges for any federal, state or
local income taxes. However, we do currently deduct charges for state and
federal premium based taxes and the federal DAC tax. We reserve the right in the
future to deduct a charge for any such tax or other economic burden resulting
from the application of the tax laws that we determine to be properly
attributable to the Separate Account or to the Policy.
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Distribution of the Policy
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The Policy is sold by licensed insurance agents, where the Policy may be
lawfully sold, 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. (AIGESC) 80 Pine Street, New York, New
York, an affiliate of ours. AIGESC may also enter into selling agreements with
other broker dealers that will offer the policy.
Commissions may be paid to registered representatives based on premiums paid for
Policies sold. 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.
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About Us and the Accounts
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The Company
We are a member of the American International Group, Inc.
AIG Life Insurance Company is a stock life insurance company operating under the
laws of the State of Delaware. It was incorporated in 1962. We provide a full
range of individual and group life, disability, accidental death and
dismemberment policies and annuities. We are a subsidiary of American
International Group, Inc., which is a 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.
Year 2000.
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the year 2000, causing
disruption of our operations and of our lessees, vendors, or business partners.
We have developed a plan to address the Year 2000 issue as it affects our
internal IT and non-IT systems, and to assess Year 2000 issues relating to third
parties with whom we have critical relationships.
Our plan for addressing internal systems includes:
o an assessment of internal IT and non-IT systems and equipment affected by
the Year 2000 issue;
o definition of strategies to address affected systems and equipment;
o remediation of identified affected systems and equipment; and
o internal certification that each internal system is Year 2000 compliant.
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We have remediated, tested and returned to production substantially all of our
internal IT systems. We continue to remediate and test internal non-IT systems
and expect to complete our remediation in 1999.
We have also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with us. Currently, we
are unable to ascertain whether all such third parties will successfully address
the Year 2000 issue, particularly those third parties outside the United States
where it is believed that remediation efforts relating to the Year 2000 issue
may be less advanced. While we expect to have no interruption of operations as a
result of internal IT and non-IT systems, significant uncertainties remain about
the effect on us of third parties who are not Year 2000 compliant. We will
continue to monitor third party Year 2000 issue readiness to determine whether
additional or alternative measures may be necessary. Such measures may include
selecting alternate third parties or other actions designed to mitigate the
effects of a third party's lack of preparedness. There can be no assurance that
unresolved Year 2000 issues of third parties will not have a material adverse
impact on our results of operations, financial condition or liquidity. We are
considering the effects of Year 2000 related failures on our business and, as
the most reasonably likely worst case scenarios become more clearly identified,
we will develop appropriate contingency plans.
The Separate Account
We established the Separate Account as a separate investment account on June 5,
1986. It may be used to support the Policy and other variable life insurance
policies, and used for other permitted purposes. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the federal securities laws and qualifies as a "separate account"
within the meaning of these laws.
Although you may have allocated your Account Values to the Subaccounts, you do
not own these assets. You only own your Policy.
We own the assets in the Separate Account. The Separate Account is divided
into Subaccounts. The Subaccounts available under the Policy invest in shares of
a specific portfolio of the Alliance Variable Products Series Fund, Anchor
Series Trust, Dreyfus Stock Index Fund, Dreyfus Variable Investment Fund,
Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance Products
Fund II, Goldman Sachs Variable Insurance Trust, Neuberger Berman Advisers
Management Trust, SunAmerica Series Trust and Templeton Variable Products Series
Fund. The Separate Account may include other Subaccounts which are not available
under the Policy.
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Income, gains and losses, realized or unrealized, of a Subaccount are credited
to or charged against the Subaccount without regard to any of our other income,
gains or losses. Assets equal to the reserves and other contract liabilities
with respect to each Subaccount are not chargeable with liabilities arising out
of any of our other businesses or separate accounts. 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 Policy.
Rights we have reserved.
We have reserved certain rights regarding the Separate Account. We will exercise
these rights only in compliance with all applicable regulatory requirements. We
have the right to:
o Change, add or delete designated investment options.
o Add or remove Subaccounts.
o Withdraw assets of a class of policies to which the Policy belongs from a
Subaccount and put them in another Subaccount.
o Combine any two or more Subaccounts.
o Register other separate accounts or deregister the Separate Account with
the Securities and Exchange Commission.
o Run the Separate Account under the direction of a committee, and discharge
such committee at any time.
o Restrict or eliminate any voting rights of Owners, or other persons who
have voting rights as to the Separate Account.
o 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
investments that are legal, as determined by our own or outside counsel.
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<PAGE>
We will not change an investment adviser or any investment of a Subaccount of
our Separate Account unless approved by the Commissioner of Insurance of the
State of Delaware or deemed approved in accordance with such law or regulation.
Any approval process is on file with the insurance supervisory official of the
jurisdiction in which this Policy is delivered.
If any change we make results in a material change in the underlying investments
of a Subaccount, we will notify you of such change. If you have value in that
Subaccount:
o We will transfer it at your written direction from that Subaccount (without
charge) to another Subaccount or to the Guaranteed Account, and
o You may then change your premium allocation percentages.
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 portfolios.
However, as required by law, we will vote shares held in the Subaccounts at
regular and special meetings of shareholders of the portfolios in accordance
with instructions we receive from Owners with Account Value in the Subaccounts.
If allowed by law or required by law we may vote shares of the portfolios
without obtaining instructions or in disregard to instructions we have received.
If we ever disregard voting instructions, we will advise you of that action and
our reasons for such action in the next semiannual report.
The Guaranteed Account
The Guaranteed Account is an account within the general account of the Company.
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.
74
<PAGE>
We have not registered:
o Interests in the Guaranteed Account under the Securities Act of 1933, and
o the Guaranteed Account as an investment company.
The staff of the Securities and Exchange Commission has not reviewed our
disclosure on the Guaranteed Account. Our disclosure regarding the Guaranteed
Account must comply with generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
75
<PAGE>
- --------------------------------------------------------------------------------
Our Directors and Executive Officers
- --------------------------------------------------------------------------------
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>
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
<S> <C> <C>
Michele L. Abruzzo Director, Senior Senior Vice President of
80 Pine Street Executive American International
New York, NY 10005 Vice President Life Assurance Company
of New York
Paul S. Bell Director, Sr. Vice Sr. Vice President and
One Alico Plaza President and Chief Actuary of American
600 King Street Actuary International Life
Wilmington, DE 19801 Assurance Company of
New York
Maurice R. Greenberg Director Director, Chairman and
70 Pine Street Chief Executive Officer
New York, NY 10270 AIG, Inc.
Edward Easton Matthews Director, Senior Vice Vice Chairman of
70 Pine Street President Investments and Financial
New York, NY 10270 Services of AIG, Inc.
Jerome T. Muldowney Director, Senior Vice Senior Vice President of
175 Water Street President American International
New York, NY 10038 Life Assurance Company
of New York, Senior
Managing Director of AIG
Global Investment Corp.
</TABLE>
76
<PAGE>
<TABLE>
<S> <C> <C>
Robinson K. Nottingham Director, Chairman of the Chairman of the Board and
70 Pine Street Board Chief Executive Officer of
New York, NY 10270 American International
Life Insurance Company
(ALICO)
Nicholas A. O'Kulich Director, Vice Chairman, Vice President, Senior Vice
70 Pine Street Treasurer President of AIG, Inc.
New York, NY 10270
Howard Ian Smith Director Director, Executive Vice
70 Pine Street President, Chief Financial
New York, NY 10270 Officer and Comptroller of
AIG, Inc.
Edmund Sze-Wing Tse Director Vice Chairman of AIG,
70 Pine Street Inc.
New York, NY 10270
Elizabeth M. Tuck Secretary Secretary and Assistant
70 Pine Street Secretary of AIG, Inc., and
New York, NY 10270 certain affiliates
Kenneth D. Walma General Counsel and Assistant Secretary and
One Alico Plaza Vice President Associate General Counsel
600 King Street
Wilmington, DE 19801
Stephen M. White Deputy Comptroller and Assistant Controller of
One Alico Plaza Vice President American International
600 King Street Life Assurance Company
Wilmington, DE 19801 of New York
Gerald Walter Wyndorf Director, Chief Executive Executive Vice President
80 Pine Street Officer and President of American International
New York, NY 10038 Life Assurance Company
of New York
</TABLE>
77
<PAGE>
- --------------------------------------------------------------------------------
Other Information
- --------------------------------------------------------------------------------
State Regulation
We are subject to the laws of Delaware governing insurance companies and to
regulation by the Delaware Insurance Department. We file an annual statement in
a prescribed form with the Insurance Department each year covering our operation
for the preceding year and our final condition as of the end of such year.
Regulation by the Insurance Department includes periodic examinations to
determine our Policy liabilities and reserves so that the Insurance Department
may certify the items are correct. Our 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, we are subject to regulation under the insurance laws
of other jurisdictions in which we may operate.
Legal Proceedings
There are no legal proceedings to which the Separate Account or the principal
underwriter is a party. We are engaged in various kinds of routine litigation
which, in our opinion, are not of material importance in relation to our total
capital and surplus.
Experts
Our financial statements (AIG Life Insurance Company as of December 31, 1998 and
1997 and for the years ended December 31, 1998, 1997 and 1996; and AIG Life
Insurance Company Variable Account II as of December 31, 1998 and for the years
ended December 31, 1998 and 1997)which appear in this Prospectus have been
audited by PricewaterhouseCoopers LLP, 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.
78
<PAGE>
Legal Matters
Legal matters relating to the federal securities laws are being passed upon by
the firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP of Washington,
D.C.
Published Ratings
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to us 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 rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the Separate Account.
The ratings are not recommendations to purchase our 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 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 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
- --------------------------------------------------------------------------------
79
<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, 1998, 1997 AND 1996
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors
AIG Life Insurance Company
In our opinion, the accompanying balance sheets and the related statements of
income, capital funds, cash flows, and comprehensive income present fairly, in
all material respects, the financial position of AIG Life Insurance Company (a
wholly-owned subsidiary of American International Group, Inc.) at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
February 5, 1999
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
<TABLE>
December31, December 31,
1998 1997
Assets
<S> <C> <C>
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 4,238,045 $ 2,984,255
(cost: 1998 - $4,081,008: 1997 - $2,826,088)
Equity securities:
Common stock
(cost: 1998 - $901: 1997 - $1,381) 2,410 2,775
Preferred stock
(cost: 1998 - $18,250 : 1997 - $250) 19,338 250
Mortgage loans on real estate, net 468,342 350,823
Real estate, net of accumulated
depreciation of $4,351 in 1998; and $4,740 in 1997 13,002 15,940
Policy loans 1,010,969 1,496,837
Other invested assets 81,916 56,219
Short-term investments 163,704 667,912
Cash 4,788 5,132
-------------- -------------
Total investments and cash 6,002,514 5,580,143
Amounts due from related parties 17,330 11,446
Investment income due and accrued 94,029 85,135
Premium and insurance balances receivable-net 56,583 46,937
Reinsurance assets 72,044 60,744
Deferred policy acquisition costs 167,840 118,535
Federal income tax receivable 4,207 -
Separate and variable accounts 1,971,280 1,204,643
Other assets 6,228 4,855
-------------- -------------
Total assets $ 8,392,055 $ 7,112,438
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
December 31, December 31,
1998 1997
Liabilities
<S> <C> <C>
Policyholders' funds on deposit $ 4,472,854 $ 3,745,902
Future policy benefits 1,002,244 749,918
Reserve for unearned premiums 21,468 24,108
Policy and contract claims 200,193 199,069
Reserve for commissions, expenses and taxes 25,702 16,103
Insurance balances payable 56,263 47,372
Amounts due to related parties 4,119 3,945
Federal income tax payable - 1,684
Deferred income taxes 56,519 37,498
Separate and variable accounts 1,971,280 1,204,643
Minority interest 5,987 6,067
Other liabilities 59,189 621,585
------------- ------------
Total liabilities 7,875,818 6,657,894
----------- -----------
Capital funds
Common stock, $5 par value; 1,000,000 shares
authorized; 976,703 shares issued and
outstanding 4,884 4,884
Additional paid-in capital 153,283 153,283
Retained earnings 236,521 181,887
Accumulated other comprehensive income 121,549 114,490
------------ -------------
Total capital funds 516,237 454,544
------------ ------------
Total liabilities and capital funds $ 8,392,055 $ 7,112,438
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
<TABLE>
Years ended December 31,
1998 1997 1996
--------- -------------- -------------
<S> <C> <C> <C>
Revenues:
Premiums $ 616,964 $ 437,650 $ 394,480
Net investment income 457,148 381,868 504,661
Realized capital (losses) (334) (3,025) (51)
------------- ------------- -------------
Total revenues 1,073,778 816,493 899,090
--------- ----------- ----------
Benefits and expenses:
Benefits to policyholders 272,368 188,969 189,933
Increase in future policy benefits
and policyholders' funds on deposit 547,100 397,481 495,529
Acquisition and insurance expenses 168,075 163,533 161,841
---------- ----------- ----------
Total benefits and expenses 987,543 749,983 847,303
---------- ----------- ----------
Income before income taxes 86,235 66,510 51,787
----------- ------------ ----------
Income taxes (benefits):
Current 16,218 20,059 25,087
Deferred 15,220 3,964 (5,486)
----------- ------------- -----------
Total income taxes 31,438 24,023 19,601
----------- ----------- ----------
Net income before minority interest 54,797 42,487 32,186
Minority interest income (loss) (163) (128) 154
------------ ------------- ------------
Net income $ 54,634 $ 42,359 $ 32,340
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL FUNDS
(in thousands)
<TABLE>
Years ended December 31,
1998 1997 1996
------------ ------------ -------------
<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: 153,283 123,283 123,283
Capital contribution - 30,000 -
--------------- ---------- --------------
Balance at end of year 153,283 153,283 123,283
--------- --------- ---------
Retained earnings
Balance at beginning of year 181,887 139,528 107,188
Net income 54,634 42,359 32,340
---------- ---------- -----------
Balance at end of year 236,521 181,887 139,528
--------- --------- ----------
Accumulated other comprehensive income
Balance at beginning of year 114,490 62,814 87,673
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments 10,860 79,497 (50,245)
Deferred income tax (expense) benefit on
changes (3,801) (27,821) 25,386
----------- ---------- ----------
Balance at end of year 121,549 114,490 62,814
--------- --------- ----------
Total capital funds $ 516,237 $ 454,544 $ 330,509
========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Years ended December 31,
1998 1997 1996
----------- ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 54,634 $ 42,359 $ 32,340
--------- ----------- ------------
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 250,810 121,325 72,151
Change in premiums and insurance balances
receivable and payable -net (753) (5,346) 11,782
Change in reinsurance assets (11,301) 157,710 (10,627)
Change in deferred policy acquisition costs (49,305) (34,248) (23,662)
Change in investment income due and accrued (8,894) 22,133 135,480
Realized capital losses 334 3,025 51
Change in current and deferred income taxes -net 9,330 2,689 (7,133)
Change in reserves for commissions, expenses and taxes 9,599 13,243 (21,274)
Change in other assets and liabilities - net (61,575) 69,582 12,733
----------- ----------- ------------
Total adjustments 138,245 350,113 169,501
--------- ---------- -----------
Net cash provided by operating activities 192,879 392,472 201,841
--------- ---------- -----------
Cash flows from investing activities:
Cost of fixed maturities at market, sold 282,756 23,816 40,098
Cost of fixed maturities at market, matured or redeemed 340,435 153,963 124,621
Cost of equity securities sold 1,039 3,676 2,607
Cost of real estate sold 2,585 - -
Realized capital gains 1,666 1,975 (51)
Purchase of fixed maturities (1,865,768) (804,262) (524,245)
Purchase of equity securities (18,559) (1,750) (1,678)
Purchase of real estate (341) (413) (881)
Mortgage loans granted (202,484) (87,690) (74,590)
Repayments of mortgage loans 83,035 29,298 16,416
Change in policy loans 485,868 377,124 1,087,765
Change in short-term investments 504,208 (567,876) 102,616
Change in other invested assets (11,706) 6,294 11,002
Other - net (27,908) 11,917 (38)
---------- ----------- --------------
Net cash (used in) provided by investing activities (425,174) (853,928) 783,642
---------- ----------- ----------
Cash flows from financing activities:
Change in policyholders' funds on deposit 231,951 430,808 (980,835)
Proceeds from capital contribution - 30,000 -
--------------- ----------- -----------------
Net cash provided by (used in) financing activities 231,951 460,808 (980,835)
--------- ---------- ------------
Change in cash (344) (648) 4,648
Cash at beginning of year 5,132 5,780 1,132
------------ ------------ -------------
Cash at end of year $ 4,788 $ 5,132 $ 5,780
=========== ============ =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
Years ended December 31,
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Comprehensive income
Net income $ 54,634 $ 42,359 $ 32,340
------------ ------------ -----------
Other comprehensive income
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments 10,860 79,497 (50,245)
Changes due to deferred income tax benefit
(expense) on changes and
future policy benefits (3,801) (27,821) 25,386
------------ ------------- -----------
Other comprehensive income 7,059 51,676 (24,859)
------------ ------------ -----------
Comprehensive income $ 61,693 $ 94,035 $ 7,481
=========== =========== ============
</TABLE>
See accompanying notes to financial statements.
<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. Interest income with
respect to fixed maturity securities is accrued currently. Included in
fixed maturities available for sale are collateralized mortgage
obligations (CMOs). Premiums and discounts arising from the purchase
of CMOs are treated as yield adjustments over their estimated life.
Common and non-redeemable preferred stocks are carried at current
market value. Dividend income is generally recognized when receivable.
Short-term investments are carried at cost, which approximates market.
Unrealized gains and losses from investments in equity securities and
fixed maturities available for sale are reflected as a separate
component of comprehensive income, net of deferred income taxes and
future policy benefits in capital funds currently.
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. Interest income on such loans is accrued
currently.
<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 as a
separate component of comprehensive income, net of deferred income
taxes in capital funds currently.
(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).
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) 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.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(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 June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" (FASB 130) and Statement of Financial Accounting
Standards No. 131 "Disclosure about Segments of an Enterprise and
Related Information" (FASB 131).
FASB 130 establishes standards for reporting comprehensive income and
its components in a full set of general purpose financial statements.
FASB 130 was effective for the Company as of January 1, 1998. FASB 130
had no impact on the Company's results of operations, financial
condition or liquidity.
FASB 131 establishes standards for the way companies are required to
disclose information about their operating segments in annual
financial statements and in interim financial statements. FASB 131
establishes, where practicable, standards with respect to geographic
areas, among other things. Certain descriptive information is also
required. FASB 131 has been adopted for the year ended December 31,
1998 by the Parent, whose operations are conducted principally through
three business segments: General Insurance, Life Insurance and
Financial Services. All operations of the Company fall within the Life
Insurance segment.
In February 1998, FASB issued Statement of Financial Accounting
Standards No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (FASB 132). This statement requires revised
disclosures about pension and other postretirement benefit plans and
does not change the measurement or recognition of these plans. Also,
FASB 132 requires additional information on changes in the benefit
obligations and fair values of plan assets. FASB 132 was effective for
the year ended December 31, 1998 and has been adopted by the Parent.
Information regarding the pension and postretirement benefit plans is
not computed on a subsidiary basis, but rather on a consolidated basis
for all subsidiaries of the Parent and, accordingly, is not presented
herein.
In June 1998, FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities"
(FASB 133). This statement requires the Company to recognize all
derivatives in the consolidated balance sheet measuring these
derivatives at fair value. The recognition of the change in the fair
value of a derivative depends on a number of factors, including the
intended use of the derivative. The Company believes that the impact
of FASB 133 on its results of operations, financial condition or
liquidity will not be significant. FASB 133 is effective for the year
commencing January 1, 2000.
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AcSEC) issued
Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." This statement
provides guidance for the recording of a liability for
insurance-related assessments. The statement requires that a liability
be recognized in certain defined circumstances. The Company believes
that the impact of this statement on its results of operations,
financial condition or liquidity will not be significant. This
statement is effective for the year commencing January 1, 1999.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(h) Accounting Standards - (continued):
In October 1998, AcSEC issued SOP 98-7, "Deposit Accounting:
Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk." This statement identifies several methods of
deposit accounting and provides guidance on the application of each
method. This statement classifies insurance and reinsurance contracts
for which the deposit method is appropriate as contracts that (i)
transfer only significant timing risk, (ii) transfer only significant
underwriting risk, (iii) transfer neither significant timing nor
underwriting risk, and (iv) have an indeterminate risk. The Company
believes that the impact of this statement on its results of
operations, financial condition or liquidity will not be significant.
This statement is effective for the year commencing January 1, 2000.
Restatement of previously issued financial statements is not
permitted.
(i) The financial statements for 1997 and 1996 have been reclassified to
conform to the 1998 presentation.
2. Investment Information
(a) Statutory Deposits: Securities with a carrying value of $2,448,000 and
$2,454,000 were deposited by the Company under requirements of
regulatory authorities as of December 31, 1998 and 1997, respectively.
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Fixed maturities $284,267 $200,097 $164,548
Equity securities 622 58 219
Mortgage loans 36,464 28,714 22,797
Real estate 2,406 2,254 2,125
Policy loans 120,927 148,555 314,020
Cash and short-term investments 9,346 3,582 2,924
Other invested assets 8,015 2,380 2,549
--------- --------- ---------
Total investment income 462,047 385,640 509,182
Investment expenses 4,899 3,772 4,521
--------- --------- ---------
Net investment income $457,148 $381,868 $504,661
======= ======= =======
</TABLE>
<PAGE>
2. Investment Information - (continued)
(c) Investment Gains and Losses: The net realized capital gains (losses)
and change in unrealized appreciation (depreciation) of investments
for 1998, 1997 and 1996 are summarized below (in thousands):
<TABLE>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net realized (losses) gains on investments:
Fixed maturities $ - $ - $ (79)
Equity securities 84 1,975 28
Mortgage loans (2,000) (5,000) -
Real estate 1,561 - -
Other invested assets 21 - -
--------- ----------- ------------
Net realized gains $ (334) $ (3,025) $ (51)
======= ======= ==========
Change in unrealized appreciation (depreciation) of investments:
Fixed maturities $ (1,131) $77,422 $(58,659)
Equity securities 1,203 (626) 1,517
Other invested assets 10,788 2,701 6,897
--------- ------- ---------
Net change in unrealized appreciation
(depreciation) of investments $ 10,860 $79,497 $(50,245)
======== ====== =======
</TABLE>
Proceeds from the sale of investments in fixed maturities during 1998, 1997
and 1996 were $282,756,000, $23,816,000, and $40,098,000, respectively.
During 1998, 1997 and 1996, gross gains of $0, $0, and $176,000,
respectively, and gross losses of $0, $0, and $255,000, respectively, were
realized on dispositions of fixed maturity investments.
During 1998, 1997 and 1996, gross gains of $84,000, $1,975,000, and
$28,000, respectively, were realized on disposition of equity securities.
(d) Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1998 and 1997, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $2,854,000 and $1,530,000 and gross losses of $257,000 and
$136,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
Gross Gross
1998 Amortized Unrealized Unrealized Market
---- Cost Gains Losses Value
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 50,617 $ 19,220 $ 10 $ 69,827
States, municipalities and
political subdivisions 370,790 23,962 4,961 389,791
Foreign governments 30,431 7,201 - 37,632
All other corporate 3,629,170 156,316 44,691 3,740,795
--------- ---------- --------- ---------
Total fixed maturities $4,081,008 $ 206,699 $ 49,662 $4,238,045
========= ========== ========= =========
</TABLE>
<PAGE>
2. Investment Information - (continued)
<TABLE>
Gross Gross
1997 Amortized Unrealized Unrealized Market
---- Cost Gains Losses Value
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 42,866 $ 14,667 $ - $ 57,533
States, municipalities and
political subdivisions 371,477 21,481 252 392,706
Foreign governments 30,168 4,887 - 35,055
All other corporate 2,381,577 125,382 7,998 2,498,961
--------- ---------- ---------- ---------
Total fixed maturities $2,826,088 $ 166,417 $ 8,250 $2,984,255
========= ========== ========== =========
</TABLE>
The amortized cost and estimated market value of fixed maturities,
available for sale at December 31, 1998, 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.
<TABLE>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $ 139,701 $ 144,918
Due after one year through five years 1,097,111 1,136,468
Due after five years through ten years 1,538,510 1,586,346
Due after ten years 1,305,686 1,370,313
---------- ---------
$ 4,081,008 $4,238,045
========= =========
</TABLE>
(e) CMOs: CMOs are U.S. Government and Government agency backed and triple
A-rated securities. CMOs are included in other corporate fixed
maturities. At December 31, 1998 and 1997, the market value of the CMO
portfolio was $522,844,000 and $445,739,000, respectively; the
estimated amortized cost was approximately $504,077,000 in 1998 and
$426,760,000 in 1997. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities
contained in the portfolio at December 31, 1998.
(f) Fixed Maturities Below Investment Grade: At December 31, 1998 and
1997, the fixed maturities held by the Company that were below
investment grade had an aggregate amortized cost of $344,609,000 and
$242,573,000, respectively, and an aggregate market value of
$327,217,000 and $244,417,000, 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 company exceeded 10% of the Company's total capital
funds at December 31, 1998 (in thousands):
Other Invested Assets:
Equity Linked Investors II, L.P. $ 60,271
<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).
Years ended December 31,
1998 1997 1996
Balance at beginning of year $118,535 $84,287 $60,625
Acquisition costs deferred 71,430 50,927 43,534
Amortization charged to income (22,125) (16,679) (19,872)
-------- -------- ------
Balance at end of year $167,840 $118,535 $84,287
======= ======= ======
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, 1998 and 1997 follows (in thousands):
<TABLE>
1998 1997
----------- ----------
<S> <C> <C>
Future Policy Benefits:
Long duration contracts $ 987,503 $ 740,969
Short duration contracts 14,741 8,949
----------- ------------
$1,002,244 $ 749,918
========= ==========
Policyholders' funds on deposit:
Annuities $ 1,385,203 $ 1,265,490
Universal life 184,460 149,202
Guaranteed investment contracts (GICs) 669,035 379,049
Corporate owned life insurance 2,229,843 1,948,558
Other investment contracts 4,313 3,603
------------ ------------
$ 4,472,854 $ 3,745,902
============ ============
</TABLE>
(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 (exclusive of immediate/terminal funding
annuities), which vary by year of issuance and products, range
from 3.0 percent to 10.0 percent within the first 20 years.
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 surrender 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 10.1 percent.
<PAGE>
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 7.1 percent. Credited
interest rate guarantees are generally for a period of one year.
Withdrawal charges generally range from 3.0 percent to 10.0
percent grading to zero over a period of 5 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 1 to 20 years.
(iii)Interest rates on corporate-owned life insurance business are
guaranteed at 4.0 percent and the weighted average rate credited
in 1998 was 7.0 percent.
(iv) The universal life funds, exclusive of corporate owned life
insurance business, have credited interest rates of 5.6 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 11.0
percent of the fund balance and grade to zero over a period not
longer than 20 years.
5. Income Taxes
(a) The Federal income tax rate applicable to ordinary income is 35%
for 1998, 1997 and 1996. 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):
<TABLE>
Years ended December 31,
-------------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- ------------------------
Percent Percent Percent
of of of
pre-tax pre-tax pre-tax
operating operating operating
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $ 30,183 35.0% $ 23,279 35.0% $ 18,125 35.0%
Prior year federal
income tax benefit 268 0.3 (6) - (51) (0.1)
State income tax 599 0.7 673 1.0 850 1.6
Other 388 0.5 77 0.1 677 1.3
-------- ------- ---------- ----- --------- -----
Actual income tax expense $31,438 36.5% $ 24,023 36.1% $ 19,601 37.8%
====== ====== ======= ==== ======= ====
</TABLE>
<PAGE>
5. Income Taxes - (continued)
(b) The components of the net deferred tax liability were as follows (in
thousands):
<TABLE>
Years ended December 31,
1998 1997
<S> <C> <C>
Deferred tax assets:
Adjustment to life reserves $ 59,903 $ 51,992
Adjustments to mortgage loans and
investment income due and accrued 4,913 4,250
Adjustment to policy and contract claims 5,456 8,816
Other 2,406 4,292
---------- ---------
72,678 69,350
--------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $ 55,308 $ 37,559
Unrealized appreciation on investments 65,445 61,644
Bond discount 4,911 4,843
Other 3,533 2,802
---------- -----------
129,197 106,848
-------- ---------
Net deferred tax liability $ 56,519 $ 37,498
========= =========
</TABLE>
(c) At December 31, 1998, 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 1998, 1997, and 1996 amounted to $21,184,000,
$20,311,000, and $25,412,000, 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.
During 1997, the Company entered into a partnership agreement with Private
Equity Investors III, L.P. The agreement requires the Company to make
capital contributions totaling $50,000,000. Contributions totaling
$10,963,000 have been made through December 31, 1998.
During 1998, the Company entered into a partnership agreement with Sankaty
High Yield Asset Partners, L.P. The agreement requires the Company to make
capital contributions totaling $2,500,000. Contributions totaling
$1,868,000 have been made through December 31, 1998.
<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.
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.
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):
<TABLE>
1998 Fair Carrying
Value Amount
<S> <C> <C>
Cash and short-term investments $ 168,492 $ 168,492
Fixed maturities 4,238,045 4,238,045
Equity securities 21,748 21,748
Mortgage and policy loans 1,500,447 1,479,311
Policyholders' funds on deposit $ 4,554,644 $ 4,472,854
1997 Fair Carrying
Value Amount
Cash and short-term investments $ 673,044 $ 673,044
Fixed maturities 2,984,255 2,984,255
Equity securities 3,025 3,025
Mortgage and policy loans 1,868,449 1,847,660
Interest rate cap - 19
Policyholders' funds on deposit $ 3,777,435 $ 3,745,902
</TABLE>
<PAGE>
8. Capital Funds
(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 $35,350,000 during 1998, however, no
dividends were paid during the year.
(b) The Company's capital funds as determined in accordance with statutory
accounting practices was $298,047,000 at December 31, 1998 and
$285,350,000 at December 31, 1997. Statutory net income amounted to
$28,789,000, $35,350,000 and $47,074,000 for 1998, 1997 and 1996,
respectively.
(c) During 1997, the Company received a $30,000,000 surplus contribution
from American International Group Inc., the parent.
(d) Statement of Accounting Standards No. 130 "Comprehensive Income" (FASB
130) was adopted by the Company effective January 1, 1998. FASB 130
establishes standards for reporting comprehensive income and its
components as part of capital funds. The reclassification adjustments
with respect to available for sale securities were $(334,000),
$(3,025,000) and $(51,000) for December 31, 1998, 1997 and 1996,
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. 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, 1998, 1997 and 1996 were approximately $272,000,
$373,000, and $400,000, 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, 1998 by
$100,000,000.
The Parent has adopted a Supplemental Executive Retirement Program
(Supplemental Plan) to provide additional retirement benefits to
designated executives and key employees. Under the Supplemental Plan,
the annual benefit, not to exceed 60 percent of average final
compensation, accrues at a percentage of average final pay multiplied
for each year of credited service reduced by any benefits from the
current and any predecessor retirement plans, Social Security, if any,
and from any qualified pension plan of prior employers. The
Supplemental Plan also provides a benefit equal to the reduction in
benefits payable under the AIG retirement plan as a result of Federal
limitations on benefits payable thereunder. Currently, the
Supplemental Plan is unfunded.
(b) The Parent also sponsors a voluntary savings plan for domestic
employees (a 401(k) plan), which, during the three years ended
December 31, 1998, provided for salary reduction contributions by
employees and matching contributions by the Parent of up to 6 percent
of annual salary depending on the employees' years of service.
<PAGE>
9. Employee Benefits - (continued)
(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 stock
based compensation 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.
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, 1998, the
future minimum lease payments under operating leases were as follows
(in thousands):
Year Payment
1999 $ 4,251
2000 2,980
2001 2,530
2002 2,380
2003 1,870
Remaining years after 2003 1,571
-------
Total $ 15,582
Rent expense approximated $4,450,000, $3,881,000, and $4,263,000 for
the years ended December 31, 1998, 1997 and 1996, 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.
<PAGE>
11. Reinsurance - (continued)
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):
<TABLE>
Percentage
December 31, 1998 of Amount
Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $53,884,853 $19,921,930 $ 896,285 $34,859,208 2.6%
============= ========== ======== ==========
Premiums:
Life 184,487 54,134 2,022 132,375 1.5%
Accident and Health 155,199 82,614 142,878 215,463 66.3%
Annuity 269,126 - - 269,126 -
------------ ----------------- -------------- ------------
Total Premiums $ 608,812 $ 136,748 $ 144,900 $ 616,964 23.5%
============ =========== ======== ============
Percentage
of Amount
December 31, 1997 Assumed
Gross Ceded Assumed Net to Net
Life Insurance in Force $52,183,971 $18,779,228 $ 935,975 $34,340,718 2.7%
============= ========== ======== ==========
Premiums:
Life 200,926 67,350 2,389 135,965 1.8%
Accident and Health 118,663 59,550 115,573 174,686 66.2%
Annuity 126,999 - - 126,999 -
------------ ----------------- -------------- ------------
Total Premiums $ 446,588 $ 126,900 $ 117,962 $ 437,650 27.0%
============ =========== ======== ============
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%
============ ============== ======== ============
</TABLE>
(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 $111,580,000, $100,029,000, and $54,456,000,
respectively, for each of the years ended December 31, 1998, 1997 and
1996.
The Company's reinsurance arrangements do not relieve the Company from
its direct obligation to its insureds.
<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 1998 amounted to
$1,237,000 and $1,000, respectively. Premium income and commission
ceded for 1997 amounted to $1,251,000 and $1,000, respectively.
Premium income and commission ceded to affiliates amounted to
$1,345,000 and $0 for the year ended December 31, 1996. Premium income
and ceding commission expense assumed from affiliates aggregated
$131,771,000 and $31,584,000, respectively, for 1998, compared to
$110,529,000 and $24,853,000, respectively, for 1997, and $103,885,000
and $27,609,000, respectively for 1996.
(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, 1998, 1997 and 1996, the Company was
charged $40,417,000, $37,846,000 and $28,277,000, respectively, for
expenses attributed to the Company but incurred by affiliates. During
the same period, the Company received reimbursements from affiliates
aggregating $23,132,000, $18,134,000 and $17,598,000, respectively,
for costs incurred by the Company but attributable to affiliates.
(c) During 1997, a reinsurance agreement covering certain annuity policies
was terminated. Upon cancellation, assets totaling $164,895,000 were
transferred to the Company from Delaware American Life Insurance
Company.
(d) During 1996, the Company purchased 1,500,000 shares of AIG Life
Ireland, LTD., a subsidiary.
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(unaudited)
Assets
<S> <C> <C>
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 4,539,466 $ 4,238,045
(cost: 1999 - $4,563,445: 1998 - $4,081,008)
Equity securities:
Common stock
(cost: 1999-$2,608: 1998 - $901) 2,608 2,410
Preferred stock
(cost: 1999 - $20,252 : 1998 - $18,250) 20,416 19,338
Mortgage loans on real estate, net 435,517 468,342
Real estate, net of accumulated
depreciation of $4,683 in 1999; and $4,351 in 1998 12,860 13,002
Policy loans 635,774 1,010,969
Other invested assets 87,916 81,916
Short-term investments 70,814 163,704
Cash 4,191 4,788
-------------- -------------
Total investments and cash 5,809,562 6,002,514
Amounts due from related parties 7,575 17,330
Investment income due and accrued 107,353 94,029
Premium and insurance balances receivable-net 70,564 56,583
Reinsurance assets 115,276 72,044
Deferred policy acquisition costs 192,311 167,840
Federal income tax receivable 936 4,207
Deferred income taxes 7,231 -
Separate and variable accounts 2,599,917 1,971,280
Other assets 5,751 6,228
-------------- -------------
Total assets $ 8,916,476 $ 8,392,055
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(unaudited)
Liabilities
<S> <C> <C>
Policyholders' funds on deposit $ 4,377,132 $ 4,472,854
Future policy benefits 1,098,017 1,002,244
Reserve for unearned premiums 19,018 21,468
Policy and contract claims 189,467 200,193
Reserve for commissions, expenses and taxes 12,338 25,702
Insurance balances payable 59,998 56,263
Amounts due to related parties 8,378 4,119
Deferred income taxes - 56,519
Separate and variable accounts 2,599,917 1,971,280
Minority interest 5,996 5,987
Other liabilities 127,408 59,189
------------ -----------
Total liabilities 8,497,669 7,875,818
----------- -----------
Capital Funds
Common stock, $5 par value; 1,000,000 shares
authorized; 976,703 shares issued and
outstanding 4,884 4,884
Additional paid-in capital 153,283 153,283
Retained earnings 262,392 236,521
Accumulated other comprehensive income (1,752) 121,549
-------------- ------------
Total capital funds 418,807 516,237
------------ ------------
Total liabilities and capital funds $ 8,916,476 $ 8,392,055
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
<S> <C> <C>
1999 1998
Revenues:
Premiums $ 301,096 $ 309,585
Net investment income 219,644 230,579
Realized capital (losses) (1,837) -
----------- -------------
Total revenues 518,903 540,164
-------- --------
Benefits and expenses:
Benefits to policyholders 154,238 122,614
Increase in future policy benefits
and policyholders' funds on deposit 225,875 294,553
Acquisition and insurance expenses 98,771 81,806
--------- --------
Total benefits and expenses 478,884 498,973
-------- --------
Income before income taxes 40,019 41,191
--------- ---------
Income taxes (benefits):
Current 11,409 11,934
Deferred 2,643 2,976
---------- ----------
Total income taxes 14,152 14,910
--------- ---------
Net income before minority interest 25,967 26,281
Minority interest income 96 87
------------ ------------
Net income $ 25,871 $ 26,194
========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL FUNDS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- ------------------
(unaudited)
<S> <C> <C>
Common Stock
Balance at beginning of year $ 4,884 $ 4,884
----------- -----------
Balance at end of year 4,884 4,884
----------- -----------
Additional paid-in capital
Balance at beginning of year: 153,283 153,283
--------- ---------
Balance at end of year 153,283 153,283
--------- ---------
Retained earnings
Balance at beginning of year 236,521 181,887
Net income 25,871 54,634
---------- ----------
Balance at end of year 262,392 236,521
--------- ---------
Accumulated other comprehensive income
Balance at beginning of year 121,549 114,490
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments (189,694) 10,860
Deferred income tax benefit (expense) on
changes 66,393 (3,801)
---------- ----------
Balance at end of year (1,752) 121,549
----------- ---------
Total capital funds $ 418,807 $ 516,237
========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For six months ended June 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 25,871 $ 26,194
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 82,598 160,672
Change in premiums and insurance balances
receivable and payable -net (10,246) (6,301)
Change in reinsurance assets (43,233) 3,816
Change in deferred policy acquisition costs (24,471) (28,584)
Change in investment income due and accrued (13,324) (61,375)
Realized capital gains 1,837 -
Change in current and deferred income taxes -net 5,913 1,330
Change in reserves for commissions, expenses and taxes (13,364) 12,002
Change in other assets and liabilities - net 45,704 (72,158)
------- ------------
Total adjustments 31,414 9,402
-------- -------------
Net cash provided by operating activities 57,285 35,596
-------- ------------
Cash flows from investing activities:
Cost of fixed maturities, at market sold 401,435 105,330
Cost of fixed maturities, at market matured or redeemed 212,993 213,083
Cost of equity securities sold 1,020 579
Realized capital gains (1,837) -
Purchase of fixed maturities (1,092,475) (1,202,140)
Purchase of equity securities (3,023) (10,579)
Mortgage loans granted (49,000) (40,477)
Repayments of mortgage loans 81,865 32,912
Change in policy loans 375,195 (23,658)
Change in short-term investments 92,889 505,795
Change in other invested assets (13,930) (5,556)
Other - net 32,708 (8,597)
---------- -------------
Net cash provided by (used in) investing activities 37,840 (433,308)
---------- -----------
Cash flows from financing activities:
Change in policyholders' funds on deposit (95,722) 401,502
------------ -----------
Net cash (used in) provided by financing activities (95,722) 401,502
------------ ----------
Change in cash (597) 3,790
Cash at beginning of year 4,788 5,132
------------ ------------
Cash at end of year $ 4,191 $ 8,922
=========== ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(unaudited)
<S> <C> <C>
Comprehensive income
Net income $ 25,871 $ 54,634
------------ ------------
Other comprehensive income
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments (189,694) 10,860
Changes due to deferred income tax benefit
(expense) on changes 66,393 (3,801)
----------- -------------
Other comprehensive income (123,301) 7,059
---------- -------------
Comprehensive income $ (97,430) $ 61,693
===========- ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation: The year-end balance sheet data was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
AIG Life Insurance Company
Variable Account II
In our opinion, the accompanying statements of assets and liabilities of AIG
Life Insurance Company Variable Account II (comprising twenty-seven subaccounts,
hereafter collectively referred to as "Variable Account II") and the related
statements of operations and changes in net assets present fairly, in all
material respects, the financial position of Variable Account II at December 31,
1998, and the results of its operations for the year then ended and the changes
in its net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the management of Variable Account II; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
March 12, 1999
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments at Market Value:
Shares Cost Market Value
------------------------------------------------------------------------
------------------------------------------------------------------------
<S> <C> <C> <C>
Aim
Capital Appreciation Portfolio 7,967.361 $ 174,945 $ 200,777
International Equity Portfolio 12,467.656 236,877 244,616
Alliance
Conservative Investors Portfolio 2,351.573 31,263 32,995
Global Bond Portfolio 688.066 8,257 8,547
Global Dollar Government Portfolio 21.880 212 222
Growth Portfolio 103,752.036 2,269,574 2,827,243
Growth & Income Portfolio 114,967.436 2,371,168 2,510,891
Growth Investors Portfolio 11,980.789 170,031 195,648
Money Market Portfolio 20,485.370 20,484 20,484
Premier Growth Portfolio 4,897.459 135,406 151,967
Technology Portfolio 42,154.382 625,961 808,100
Total Return Portfolio 140.114 2,418 2,530
Quasar Portfolio 29,073.531 378,222 323,880
U.S. Government High Grade Portfolio 78.903 967 968
Utility Income Portfolio 53.953 967 1,020
Dreyfus
Small Company Stock Portfolio 16,436.564 244,881 248,028
Stock Index Portfolio 83,498.512 2,317,307 2,715,365
Zero Coupon 2000 Portfolio 1,086.434 13,465 13,579
Fidelity
Asset Manager Portfolio 43,714.023 749,687 793,844
Contrafund Portfolio 12,145.716 259,365 296,842
Growth Portfolio 67,940.819 2,451,577 3,048,504
High Income Portfolio 22,836.942 281,130 263,309
Investment Grade Bond Portfolio 16,104.772 202,456 208,718
Money Market Portfolio 2,748,418.390 2,748,419 2,748,419
Overseas Portfolio 18,964.028 376,478 380,231
Van Eck
Worldwide Emerging Markets Portfolio 4,148.930 26,887 29,539
Worldwide Hard Assets Portfolio 3,756.723 47,156 34,560
Weiss,Peck & Greer
Tomorrow Long Term Portfolio 6,383.661 54,490 58,921
Tomorrow MediumTerm Portfolio 509.549 4,670 4,805
Tomorrow Short Term Portfolio 638.247 6,677 6,727
---------------------- -----------------------
Total Investments $ 16,211,397 18,181,279
Total Assets $ 18,181,279
=======================
Contract Owners' Equity $ 18,181,279
-----------------------
Total Equity $ 18,181,279
=======================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
Aim Aim
Capital International
Appreciation Equity
Total Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $733,252 $5,326 $1,878
Expenses:
Mortality & Expense Risk Fees 106,392 694 1,405
--------------- ---------------- ----------------
Net Investment Income (Loss) 626,860 4,632 473
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 519,608 (371) (22,044)
Change in Unrealized Appreciation
(Depreciation) 1,519,964 25,833 7,738
--------------- ---------------- ----------------
Net Gain (Loss) on Investments 2,039,572 25,462 (14,306)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $2,666,432 $30,094 ($13,833)
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $2,086 $18 $0
Expenses:
Mortality & Expense Risk Fees 263 20 0
--------------- ---------------- ----------------
Net Investment Income (Loss) 1,823 (2) 0
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,083 19 2
Change in Unrealized Appreciation
(Depreciation) 691 289 10
--------------- ---------------- ----------------
Net Gain (Loss) on Investments 1,774 308 12
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $3,597 $306 $12
=============== ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $110,505 $111,284 $14,073
Expenses:
Mortality & Expense Risk Fees 16,449 10,688 1,473
--------------- ---------------- ----------------
Net Investment Income (Loss) 94,056 100,596 12,600
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 36,650 55,743 3,763
Change in Unrealized Appreciation
(Depreciation) 394,461 63,586 17,434
--------------- ---------------- ----------------
Net Gain (Loss) on Investments 431,111 119,329 21,197
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $525,167 $219,925 $33,797
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $2,482 $233
Expenses:
Mortality & Expense Risk Fees 334 482 2,105
--------------- ---------------- ----------------
Net Investment Income (Loss) (334) 2,000 (1,872)
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 54,637 0 30,881
Change in Unrealized Appreciation
(Depreciation) 0 0 16,562
--------------- ---------------- ----------------
Net Gain (Loss) on Investments 54,637 0 47,443
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $54,303 $2,000 $45,571
=============== ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $715 $0 $31,614
Expenses:
Mortality & Expense Risk Fees 5,537 1 3,978
--------------- ---------------- ----------------
Net Investment Income (Loss) (4,822) (1) 27,636
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 171,268 0 31,274
Change in Unrealized Appreciation
(Depreciation) 197,601 112 (66,300)
--------------- ---------------- ----------------
Net Gain (Loss) on Investments 368,869 112 (35,026)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $364,047 $111 ($7,390)
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Alliance
U.S. Dreyfus
Government Small
High Alliance Company
Grade Utility Stock
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $1,151
Expenses:
Mortality & Expense Risk Fees 0 0 1,653
--------------- ---------------- ----------------
Net Investment Income (Loss) 0 0 (502)
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 0 0 (2,481)
Change in Unrealized Appreciation
(Depreciation) 0 52 8,859
--------------- ---------------- ----------------
Net Gain (Loss) on Investments 0 52 6,378
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $0 $52 $5,876
=============== ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $30,188 $705 $60,993
Expenses:
Mortality & Expense Risk Fees 16,095 116 5,125
--------------- ---------------- ----------------
Net Investment Income (Loss) 14,093 589 55,868
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 90,160 117 10,634
Change in Unrealized Appreciation
(Depreciation) 348,632 37 18,503
--------------- ---------------- ----------------
Net Gain (Loss) on Investments 438,792 154 29,137
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $452,885 $743 $85,005
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Fidelity High
Contrafund Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,859 $181,333 $33,968
Expenses:
Mortality & Expense Risk Fees 1,067 17,992 2,593
--------------- ---------------- ----------------
Net Investment Income (Loss) 792 163,341 31,375
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,199 52,384 (5,310)
Change in Unrealized Appreciation
(Depreciation) 37,476 484,390 (31,433)
--------------- ---------------- ----------------
Net Gain (Loss) on Investments 40,675 536,774 (36,743)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $41,467 $700,115 ($5,368)
=============== ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $9,614 $72,672 $29,556
Expenses:
Mortality & Expense Risk Fees 1,360 12,336 3,291
--------------- ---------------- ----------------
Net Investment Income (Loss) 8,254 60,336 26,265
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (104) 0 22,548
Change in Unrealized Appreciation
(Depreciation) 2,966 0 1,403
--------------- ---------------- ----------------
Net Gain (Loss) on Investments 2,862 0 23,951
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $11,116 $60,336 $50,216
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $24,879 $0 $4,567
Expenses:
Mortality & Expense Risk Fees 466 80 292
--------------- ---------------- ----------------
Net Investment Income (Loss) 24,413 (80) 4,275
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (10,944) (238) (4,776)
Change in Unrealized Appreciation
(Depreciation) (4,930) 2,653 (11,854)
--------------- ---------------- ----------------
Net Gain (Loss) on Investments (15,874) 2,415 (16,630)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $8,539 $2,335 ($12,355)
=============== ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $948 $287 $318
Expenses:
Mortality & Expense Risk Fees 423 41 33
--------------- ---------------- ----------------
Net Investment Income (Loss) 525 246 285
--------------- ---------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,436 31 47
Change in Unrealized Appreciation
(Depreciation) 4,736 390 67
--------------- ---------------- ----------------
Net Gain (Loss) on Investments 6,172 421 114
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $6,697 $667 $399
=============== ================ ================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998
Aim Aim
Capital International
Appreciation Equity
Total Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $626,860 $4,632 $473
Realized Gain (Loss) on Investment Activity 519,608 (371) (22,044)
Change in Unrealized Appreciation
(Depreciation) of Investments 1,519,964 25,833 7,738
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,666,432 30,094 (13,833)
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits 10,210,370 185,128 275,137
Cost Of Insurance Charge (1,571,906) (12,343) (20,406)
Policy Loans (212,191) 0 0
Transfers Between Funds 18,740 (1,665) 4,554
Contract Withdrawals (202,369) (437) (836)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 8,242,644 170,683 258,449
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets 10,909,076 200,777 244,616
Net Assets, at Beginning of Year 7,272,203 0 0
--------------- ---------------- ----------------
Net Assets, at End of Year $18,181,279 $200,777 $244,616
=============== ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,823 ($2) $0
Realized Gain (Loss) on Investment Activity 1,083 19 2
Change in Unrealized Appreciation
(Depreciation) of Investments 691 289 10
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 3,597 306 12
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits 9,551 8,736 241
Cost Of Insurance Charge (2,651) (507) (31)
Policy Loans 0 0 0
Transfers Between Funds (834) 12 0
Contract Withdrawals (740) 0 0
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 5,326 8,241 210
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets 8,923 8,547 222
Net Assets, at Beginning of Year 24,072 0 0
--------------- ---------------- ----------------
Net Assets, at End of Year $32,995 $8,547 $222
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $94,056 $100,596 $12,600
Realized Gain (Loss) on Investment Activity 36,650 55,743 3,763
Change in Unrealized Appreciation
(Depreciation) of Investments 394,461 63,586 17,434
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 525,167 219,925 33,797
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits 1,469,752 1,709,454 67,574
Cost Of Insurance Charge (210,721) (152,262) (18,064)
Policy Loans (30,640) (25,729) (2,299)
Transfers Between Funds (4,391) 16,628 97
Contract Withdrawals (44,972) (21,460) (2,915)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,179,028 1,526,631 44,393
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets 1,704,195 1,746,556 78,190
Net Assets, at Beginning of Year 1,123,048 764,335 117,458
--------------- ---------------- ----------------
Net Assets, at End of Year $2,827,243 $2,510,891 $195,648
=============== ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($334) $2,000 ($1,872)
Realized Gain (Loss) on Investment Activity 54,637 0 30,881
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 16,562
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 54,303 2,000 45,571
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits (48,815) 30,048 122,585
Cost Of Insurance Charge (7,879) (11,766) (19,989)
Policy Loans 0 0 (267)
Transfers Between Funds 2,391 202 4,628
Contract Withdrawals 0 0 (561)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (54,303) 18,484 106,396
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets 0 20,484 151,967
Net Assets, at Beginning of Year 0 0 0
--------------- ---------------- ----------------
Net Assets, at End of Year $0 $20,484 $151,967
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($4,822) ($1) $27,636
Realized Gain (Loss) on Investment Activity 171,268 0 31,274
Change in Unrealized Appreciation
(Depreciation) of Investments 197,601 112 (66,300)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 364,047 111 (7,390)
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits 274,264 2,477 152,103
Cost Of Insurance Charge (66,804) (58) (36,287)
Policy Loans (12,128) 0 (10,340)
Transfers Between Funds 6,050 0 (7,597)
Contract Withdrawals (12,390) 0 (8,285)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 188,992 2,419 89,594
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets 553,039 2,530 82,204
Net Assets, at Beginning of Year 255,061 0 241,676
--------------- ---------------- ----------------
Net Assets, at End of Year $808,100 $2,530 $323,880
=============== ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
U.S. Dreyfus
Government Small
High Alliance Company
Grade Utility Stock
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 ($502)
Realized Gain (Loss) on Investment Activity 0 0 (2,481)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 52 8,859
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 52 5,876
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits 991 991 139,298
Cost Of Insurance Charge (23) (23) (22,440)
Policy Loans 0 0 (1,455)
Transfers Between Funds 0 0 2,014
Contract Withdrawals 0 0 (2,646)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 968 968 114,771
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets 968 1,020 120,647
Net Assets, at Beginning of Year 0 0 127,381
--------------- ---------------- ----------------
Net Assets, at End of Year $968 $1,020 $248,028
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $14,093 $589 $55,868
Realized Gain (Loss) on Investment Activity 90,160 117 10,634
Change in Unrealized Appreciation
(Depreciation) of Investments 348,632 37 18,503
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 452,885 743 85,005
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits 1,652,138 4,327 384,610
Cost Of Insurance Charge (264,577) (2,247) (60,284)
Policy Loans (35,221) 0 (1,634)
Transfers Between Funds (3,827) (10) 1,319
Contract Withdrawals (30,468) 0 (3,078)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,318,045 2,070 320,933
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets 1,770,930 2,813 405,938
Net Assets, at Beginning of Year 944,435 10,766 387,906
--------------- ---------------- ----------------
Net Assets, at End of Year $2,715,365 $13,579 $793,844
=============== ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Fidelity High
Contrafund Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $792 $163,341 $31,375
Realized Gain (Loss) on Investment Activity 3,199 52,384 (5,310)
Change in Unrealized Appreciation
(Depreciation) of Investments 37,476 484,390 (31,433)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 41,467 700,115 (5,368)
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits 274,009 1,511,553 20,065
Cost Of Insurance Charge (18,289) (264,617) (31,215)
Policy Loans 0 (38,305) (541)
Transfers Between Funds (301) 8,334 (1,103)
Contract Withdrawals (44) (32,651) (5,710)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 255,375 1,184,314 (18,504)
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets 296,842 1,884,429 (23,872)
Net Assets, at Beginning of Year 0 1,164,075 287,181
--------------- ---------------- ----------------
Net Assets, at End of Year $296,842 $3,048,504 $263,309
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $8,254 $60,336 $26,265
Realized Gain (Loss) on Investment Activity (104) 0 22,548
Change in Unrealized Appreciation
(Depreciation) of Investments 2,966 0 1,403
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 11,116 60,336 50,216
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits 133,257 1,798,436 25,198
Cost Of Insurance Charge (15,077) (262,012) (46,489)
Policy Loans 0 (47,336) (4,988)
Transfers Between Funds 372 (3,849) (3,101)
Contract Withdrawals (446) (23,046) (8,945)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 118,106 1,462,193 (38,325)
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets 129,222 1,522,529 11,891
Net Assets, at Beginning of Year 79,496 1,225,890 368,340
--------------- ---------------- ----------------
Net Assets, at End of Year $208,718 $2,748,419 $380,231
=============== ================ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $24,413 ($80) $4,275
Realized Gain (Loss) on Investment Activity (10,944) (238) (4,776)
Change in Unrealized Appreciation
(Depreciation) of Investments (4,930) 2,653 (11,854)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 8,539 2,335 (12,355)
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits (87,825) 28,761 22,441
Cost Of Insurance Charge (7,250) (1,673) (5,001)
Policy Loans 0 0 0
Transfers Between Funds (1,323) 116 (79)
Contract Withdrawals (456) 0 (666)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (96,854) 27,204 16,695
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets (88,315) 29,539 4,340
Net Assets, at Beginning of Year 88,315 0 30,220
--------------- ---------------- ----------------
Net Assets, at End of Year $0 $29,539 $34,560
=============== ================ ================
</TABLE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $525 $246 $285
Realized Gain (Loss) on Investment Activity 1,436 31 47
Change in Unrealized Appreciation
(Depreciation) of Investments 4,736 390 67
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Operations 6,697 667 399
--------------- ---------------- ----------------
Capital Transactions:
Contract Deposits 38,701 534 4,650
Cost Of Insurance Charge (9,742) (536) (643)
Policy Loans (1,308) 0 0
Transfers Between Funds 103 0 0
Contract Withdrawals (1,420) 0 (197)
--------------- ---------------- ----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 26,334 (2) 3,810
--------------- ---------------- ----------------
Total Increase (Decrease) in Net Assets 33,031 665 4,209
Net Assets, at Beginning of Year 25,890 4,140 2,518
--------------- ---------------- ----------------
Net Assets, at End of Year $58,921 $4,805 $6,727
=============== ================ ================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1998 and December 31, 1997
1997
<TABLE>
<CAPTION>
Aim Aim
Capital International
Appreciation Equity
Total Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $166,746 $0 $0
Realized Gain (Loss) on Investment Activity 206,207 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 366,321 0 0
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 739,274 0 0
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 5,544,641 0 0
Cost Of Insurance Charge (775,349) 0 0
Policy Loans (94,631) 0 0
Transfers Between Funds 18,850 0 0
Contract Withdrawals (82,467) 0 0
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,611,044 0 0
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 5,350,318 0 0
Net Assets, at Beginning of Year 1,921,885 0 0
---------------- ----------------- ---------------
Net Assets, at End of Year $7,272,203 $0 $0
================ ================= ===============
</TABLE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $167 $0 $0
Realized Gain (Loss) on Investment Activity 600 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 586 0 0
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,353 0 0
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 15,627 0 0
Cost Of Insurance Charge (2,705) 0 0
Policy Loans 0 0 0
Transfers Between Funds 20 0 0
Contract Withdrawals (239) 0 0
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 12,703 0 0
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 14,056 0 0
Net Assets, at Beginning of Year 10,016 0 0
---------------- ----------------- ---------------
Net Assets, at End of Year $24,072 $0 $0
================ ================= ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $21,469 $22,999 $1,477
Realized Gain (Loss) on Investment Activity 37,620 18,395 3,687
Change in Unrealized Appreciation
(Depreciation) of Investments 138,629 68,190 5,513
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 197,718 109,584 10,677
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 814,495 571,454 61,194
Cost Of Insurance Charge (117,612) (74,918) (11,672)
Policy Loans (6,689) (5,180) 0
Transfers Between Funds 1,673 2,565 3,415
Contract Withdrawals (19,879) (5,967) (2,220)
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 671,988 487,954 50,717
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 869,706 597,538 61,394
Net Assets, at Beginning of Year 253,342 166,797 56,064
---------------- ----------------- ---------------
Net Assets, at End of Year $1,123,048 $764,335 $117,458
================ ================= ===============
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 $0
Realized Gain (Loss) on Investment Activity 0 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 0
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0 0
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 0 0 0
Cost Of Insurance Charge 0 0 0
Policy Loans 0 0 0
Transfers Between Funds 0 0 0
Contract Withdrawals 0 0 0
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0 0
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 0 0 0
Net Assets, at Beginning of Year 0 0 0
---------------- ----------------- ---------------
Net Assets, at End of Year $0 $0 $0
================ ================= ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($1,115) $0 ($1,464)
Realized Gain (Loss) on Investment Activity 16,995 0 9,057
Change in Unrealized Appreciation
(Depreciation) of Investments (15,270) 0 11,871
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 610 0 19,464
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 270,239 0 232,934
Cost Of Insurance Charge (19,431) 0 (17,506)
Policy Loans (101) 0 (387)
Transfers Between Funds 4,396 0 3,524
Contract Withdrawals (8,527) 0 (1,093)
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 246,576 0 217,472
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 247,186 0 236,936
Net Assets, at Beginning of Year 7,875 0 4,740
---------------- ----------------- ---------------
Net Assets, at End of Year $255,061 $0 $241,676
================ ================= ===============
</TABLE>
<TABLE>
<CAPTION>
Alliance
U.S. Dreyfus
Government Small
High Alliance Company
Grade Utility Stock
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 $2,102
Realized Gain (Loss) on Investment Activity 0 0 (107)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 (5,712)
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0 (3,717)
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 0 0 135,191
Cost Of Insurance Charge 0 0 (2,314)
Policy Loans 0 0 0
Transfers Between Funds 0 0 (1,779)
Contract Withdrawals 0 0 0
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0 131,098
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 0 0 127,381
Net Assets, at Beginning of Year 0 0 0
---------------- ----------------- ---------------
Net Assets, at End of Year $0 $0 $127,381
================ ================= ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $26,687 $511 $21,546
Realized Gain (Loss) on Investment Activity 41,444 (71) 8,600
Change in Unrealized Appreciation
(Depreciation) of Investments 41,726 83 19,239
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 109,857 523 49,385
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 778,061 11,713 287,927
Cost Of Insurance Charge (90,065) (4,235) (42,651)
Policy Loans (1,032) 0 (167)
Transfers Between Funds 2,970 25 664
Contract Withdrawals (7,423) (171) (9,859)
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 682,511 7,332 235,914
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 792,368 7,855 285,299
Net Assets, at Beginning of Year 152,067 2,911 102,607
---------------- ----------------- ---------------
Net Assets, at End of Year $944,435 $10,766 $387,906
================ ================= ===============
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Fidelity High
Contrafund Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $21,466 $3,283
Realized Gain (Loss) on Investment Activity 0 55,366 11,481
Change in Unrealized Appreciation
(Depreciation) of Investments 0 90,042 11,697
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 166,874 26,461
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 0 492,521 226,949
Cost Of Insurance Charge 0 (148,843) (23,779)
Policy Loans 0 (24,473) 0
Transfers Between Funds 0 3,595 1,695
Contract Withdrawals 0 (19,994) (2,049)
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 302,806 202,816
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 0 469,680 229,277
Net Assets, at Beginning of Year 0 694,395 57,904
---------------- ----------------- ---------------
Net Assets, at End of Year $0 $1,164,075 $287,181
================ ================= ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,521 $32,116 $9,687
Realized Gain (Loss) on Investment Activity 322 0 1,460
Change in Unrealized Appreciation
(Depreciation) of Investments 2,132 0 (3,697)
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 4,975 32,116 7,450
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 29,955 1,214,777 281,913
Cost Of Insurance Charge (6,686) (159,431) (34,464)
Policy Loans 0 (52,504) (4,098)
Transfers Between Funds 96 (5,335) 951
Contract Withdrawals (16) (1,225) (3,073)
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 23,349 996,282 241,229
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 28,324 1,028,398 248,679
Net Assets, at Beginning of Year 51,172 197,492 119,661
---------------- ----------------- ---------------
Net Assets, at End of Year $79,496 $1,225,890 $368,340
================ ================= ===============
</TABLE>
<TABLE>
<CAPTION>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $343 $0 $319
Realized Gain (Loss) on Investment Activity 856 0 165
Change in Unrealized Appreciation
(Depreciation) of Investments 3,097 0 (1,231)
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 4,296 0 (747)
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 60,650 0 24,911
Cost Of Insurance Charge (10,075) 0 (4,740)
Policy Loans 0 0 0
Transfers Between Funds 186 0 104
Contract Withdrawals (712) 0 (20)
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 50,049 0 20,255
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 54,345 0 19,508
Net Assets, at Beginning of Year 33,970 0 10,712
---------------- ----------------- ---------------
Net Assets, at End of Year $88,315 $0 $30,220
================ ================= ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,058 $331 $243
Realized Gain (Loss) on Investment Activity 303 2 32
Change in Unrealized Appreciation
(Depreciation) of Investments (304) (254) (16)
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,057 79 259
---------------- ----------------- ---------------
Capital Transactions:
Contract Deposits 27,159 4,178 2,793
Cost Of Insurance Charge (3,562) (124) (536)
Policy Loans 0 0 0
Transfers Between Funds 76 7 2
Contract Withdrawals 0 0 0
---------------- ----------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 23,673 4,061 2,259
---------------- ----------------- ---------------
Total Increase (Decrease) in Net Assets 25,730 4,140 2,518
Net Assets, at Beginning of Year 160 0 0
---------------- ----------------- ---------------
Net Assets, at End of Year $25,890 $4,140 $2,518
================ ================= ===============
</TABLE>
See Accompanying Notes to Financial Statements
<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 established
under the provisions of Delaware Insurance Law by AIG Life Insurance Company
(the "Company"), a wholly-owned 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 following products are offered by the Account: Vision and
Gallery Life.
The Account invests in shares of AIM Variable Insurance Fund ("AIM Fund"),
Alliance Variable Products Series Fund, Inc. ("Alliance Fund"), Dreyfus Variable
Investment Fund ("Dreyfus 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:
AIM Fund: Fidelity Trust:
International Equity Portfolio Money Market Portfolio
Capital Appreciation Portfolio High Income Portfolio
Growth Portfolio
Alliance Fund: Overseas Portfolio
Growth & Income Portfolio Contrafund Portfolio
Conservative Investors Portfolio
Growth Portfolio Fidelity Trust II:
Growth Investors Portfolio Investment Grade Bond Portfolio
Quasar Portfolio Asset Manager Portfolio
Technology Portfolio
Global Bond Portfolio Van Eck Trust:
Premier Growth Portfolio Worldwide Hard Assets Portfolio
Money Market Portfolio Worldwide Emerging Markets Portfolio
Worldwide Balanced Portfolio
(Fund closed 06/29/98)
Dreyfus Fund:
Dreyfus Zero Coupon 2000 Portfolio Weiss, Peck & Greer Tomorrow Fund:
Stock Index Portfolio Tomorrow Long Term Portfolio
Small Company Stock Portfolio Tomorrow Medium Term Portfolio
Stock Index Portfolio Tomorrow Short Term Portfolio
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.
<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.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
4. Purchases of Investments
For the year ended December 31, 1998, investment activity in the Fund was as
follows:
Cost of Proceeds
Purchases From Sales
Shares of
<S> <C> <C>
Aim
Capital Appreciation Portfolio $ 201,598 $ 26,283
International Equity Portfolio 499,113 240,193
Alliance Funds:
Conservative Investors Portfolio 17,668 10,521
Global Bond Portfolio 9,907 1,670
Global Dollar Government Portfolio 242 31
Growth Portfolio 1,434,835 161,751
Growth & Income Portfolio 7,118,210 5,490,984
Growth Investors Portfolio 83,359 26,366
International Portfolio 7,730,001 7,784,638
Money Market Portfolio 7,530,593 7,510,112
Premier Growth Portfolio 1,721,633 1,617,108
Technology Portfolio 9,312,917 9,128,748
Total Return Portfolio 2,439 21
Quasar Portfolio 9,870,359 9,753,129
U.S. Government High Grade Portfolio 976 8
Utility Income Portfolio 976 8
Dreyfus:
Small Company Portfolio 277,608 163,341
Stock Index Portfolio 1,719,925 387,790
Zero Coupon 2000 Portfolio 7,868 5,215
Fidelity Trust Funds:
Asset Manager Portfolio 637,629 260,827
Contrafund Portfolio 295,002 38,838
Growth Portfolio 1,684,130 336,475
High Income Portfolio 366,333 353,460
Investment Grade Bond Portfolio 252,481 126,121
Money Market Portfolio 3,777,754 2,255,231
Overseas Portfolio 240,411 252,471
Van Eck:
Worldwide Emerging Markets Portfolio 31,817 4,692
Worldwide Hard Assets Portfolio 34,521 13,551
Worldwide Balanced Portfolio 43,581 115,939
Weiss, Peck, & Greer Tomorrow Funds:
Tomorrow Long Term Portfolio 43,881 17,022
Tomorrow Medium Term Portfolio 1,311 1,067
Tomorrow Short Term Portfolio 4,968 873
</TABLE>
For the year ended December 31, 1997, investment activity in the Fund was as
follows: Cost of Proceeds Purchases From Sales
<TABLE>
<S> <C> <C>
Shares of
Alliance Funds:
Conservative Investors Portfolio $ 18,544 $ 5,676
Growth Portfolio 974,204 280,744
Growth & Income Portfolio 674,003 163,065
Growth Investors Portfolio 111,960 63,096
Technology Portfolio 570,493 325,032
Quasar Portfolio 469,753 253,745
Dreyfus:
Small Company Stock Portfolio 134,522 1,321
Stock Index Portfolio 1,010,647 301,445
Zero Coupon 2000 Portfolio 17,381 9,537
Fidelity Trust Funds:
Asset Manager Portfolio 386,303 128,841
Growth Portfolio 1,207,119 882,821
High Income Portfolio 338,288 132,191
Investment Grade Bond Portfolio 36,324 10,571
Money Market Portfolio 2,898,075 1,866,353
Overseas Portfolio 339,597 88,568
Van Eck:
Worldwide Emerging Markets Portfolio 4 4
Worldwide Hard Assets Portfolio 28,081 7,507
Worldwide Balanced Portfolio 58,655 8,264
Weiss, Peck, & Greer Tomorrow Funds:
Tomorrow Long Term Portfolio 28,487 2,754
Tomorrow Medium Term Portfolio 4,465 72
Tomorrow Short Term Portfolio 2,909 406
</TABLE>
<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, 1998, transactions in accumulation units of the
account were as follows:
<TABLE>
Aim Aim Alliance
Capital International Conservative
Appreciation Equity Investors
Portfolio Portfolio Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 10,966.16 17,130.11 519.94
Units Withdrawn (1,282.07) (1,912.12) (252.21)
Units Transferred Between Funds 7,964.24 5,920.24 151.60
Units Transferred From (To) AI Life 0.00 0.00 0.00
---------- ---------- ---------
Net Increase (Decrease) 17,648.33 21,138.23 419.33
Units, at Beginning of the Year 0.00 0.00 1,986.58
---------- ---------- ---------
Units, at End of the Year 17,648.33 21,138.23 2,405.91
========== ========== =========
Unit Value at December 31, 1998 $ 11.38 $ 11.57 $ 13.71
========== ========== =========
</TABLE>
<TABLE>
Alliance
Alliance Global
Global Dollar Alliance
Bond Government Growth
Portfolio Portfolio Portfolio
- - -
<S> <C> <C> <C>
Units Purchased 274.70 0.00 48,680.75
Units Withdrawn (47.46) (4.05) (14,982.74)
Units Transferred Between Funds 538.94 33.17 28,539.15
Units Transferred From (To) AI Life 0.00 0.00 0.00
------- ------ -----------
Net Increase (Decrease) 766.18 29.12 62,237.16
Units, at Beginning of the Year 0.00 0.00 63,940.84
------- ------ -----------
Units, at End of the Year 766.18 29.12 126,178.00
======= ====== ===========
Unit Value at December 31, 1998 $ 11.15 $ 7.65 $ 22.41
======= ====== ===========
</TABLE>
<TABLE>
Alliance
Growth Alliance
& Growth Alliance
Income Investors International
Portfolio Portfolio Portfolio
- - -
<S> <C> <C> <C>
Units Purchased 33,634.28 4,748.04 0.00
Units Withdrawn (10,914.51) (1,602.25) (789.39)
Units Transferred Between Funds 54,953.57 19.95 789.39
Units Transferred From (To) AI Life 0.00 0.00 0.00
----------- ---------- -------
Net Increase (Decrease) 77,673.34 3,165.74 0.00
Units, at Beginning of the Year 44,589.32 8,820.29 0.00
----------- ---------- -------
Units, at End of the Year 122,262.66 11,986.03 0.00
=========== ========== =======
Unit Value at December 31, 1998 $ 20.54 $ 16.32 $ 11.06
=========== ========== =======
</TABLE>
Footnote 1 are all funds except for IVUL 2.
Footnote 2 are the IVUL 2 funds.
<PAGE>
<TABLE>
Alliance Alliance Alliance
Money Premier Premier
Market Growth Growth
Portfolio 1 Portfolio 2 Portfolio
- - -
<S> <C> <C> <C>
Units Purchased 76,950.50 14,340.65 368.47
Units Withdrawn (1,125.28) (1,636.22) (15.78)
Units Transferred Between Funds (73,883.89) (2,993.66) 16.87
Units Transferred From (To) AI Life 0.00 0.00 0.00
---------- ---------- -------
Net Increase (Decrease) 1,941.33 9,710.77 369.56
Units, at Beginning of the Year 0.00 0.00 0.00
---------- ---------- -------
Units, at End of the Year 1,941.33 9,710.77 369.56
========== ========== =======
Unit Value at December 31, 1998 $ 10.55 $ 15.06 $ 15.45
========== ========== =======
</TABLE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio 1 Portfolio
- - -
<S> <C> <C> <C>
Units Purchased 35,545.90 212.77 16,965.13
Units Withdrawn (7,116.84) (4.98) (4,825.62)
Units Transferred Between Funds (5,978.18) 0.00 (4,170.54)
Units Transferred From (To) AI Life 0.00 0.00 0.00
---------- ------- ----------
Net Increase (Decrease) 22,450.88 207.79 7,968.97
Units, at Beginning of the Year 23,596.78 0.00 20,181.26
---------- ------- ----------
Units, at End of the Year 46,047.66 207.79 28,150.23
========== ======= ==========
Unit Value at December 31, 1998 $ 17.55 $ 12.18 $ 11.34
========== ======= ==========
</TABLE>
<TABLE>
Alliance
U.S.
Government
Alliance High Alliance
Quasar Grade Utility
2 Portfolio Portfolio Portfolio
- - -
<S> <C> <C> <C>
Units Purchased 531.58 89.14 72.17
Units Withdrawn (11.11) (2.08) (1.69)
Units Transferred Between Funds 3.26 0.00 0.00
Units Transferred From (To) AI Life 0.00 0.00 0.00
------- ------ ------
Net Increase (Decrease) 523.73 87.06 70.48
Units, at Beginning of the Year 0.00 0.00 0.00
------- ------ ------
Units, at End of the Year 523.73 87.06 70.48
======= ====== ======
Unit Value at December 31, 1998 $ 9.15 $ 11.12 $ 14.47
======= ====== ======
</TABLE>
Footnote 1 are all funds except for IVUL 2.
Footnote 2 are the IVUL 2 funds.
<PAGE>
<TABLE>
Dreyfus Dreyfus
Small Dreyfus Zero
Company Stock Coupon
Stock Index 2000
Portfolio Portfolio Portfolio
- - -
<S> <C> <C> <C>
Units Purchased 15,130.34 64,100.90 653.34
Units Withdrawn (2,752.76) (17,133.95) (197.62)
Units Transferred Between Funds 1,013.09 21,583.46 (273.54)
Units Transferred From (To) AI Life 0.00 0.00 0.00
---------- ----------- ---------
Net Increase (Decrease) 13,390.67 68,550.41 182.18
Units, at Beginning of the Year 12,290.97 54,287.23 976.29
---------- ----------- ---------
Units, at End of the Year 25,681.64 122,837.64 1,158.47
========== =========== =========
Unit Value at December 31, 1998 $ 9.66 $ 22.11 $ 11.72
========== =========== =========
</TABLE>
<TABLE>
Fidelity
Asset Fidelity Fidelity
Manager Contrafund Growth
Portfolio Portfolio Portfolio
- - -
<S> <C> <C> <C>
Units Purchased 18,697.45 13,543.93 71,686.34
Units Withdrawn (4,063.22) (1,631.36) (19,446.08)
Units Transferred Between Funds 6,029.71 11,000.06 16,228.87
Units Transferred From (To) AI Life 0.00 0.00 0.00
---------- ---------- -----------
Net Increase (Decrease) 20,663.94 22,912.63 68,469.13
Units, at Beginning of the Year 25,997.34 0.00 76,554.16
---------- ---------- -----------
Units, at End of the Year 46,661.28 22,912.63 145,023.29
========== ========== ===========
Unit Value at December 31, 1998 $ 17.01 $ 12.96 $ 21.02
========== ========== ===========
</TABLE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
- - -
<S> <C> <C> <C>
Units Purchased 9,445.60 13,513.40 259,198.27
Units Withdrawn (2,853.91) (1,307.38) (28,981.43)
Units Transferred Between Funds (7,301.62) (2,236.28) (105,109.51)
Units Transferred From (To) AI Life 0.00 0.00 (147.07)
---------- ---------- -----------
Net Increase (Decrease) (709.93) 9,969.74 124,960.26
Units, at Beginning of the Year 21,533.23 6,952.60 109,164.24
---------- ---------- -----------
Units, at End of the Year 20,823.30 16,922.34 234,124.50
========== ========== ===========
Unit Value at December 31, 1998 $ 12.64 $ 12.33 $ 11.74
========== ========== ===========
</TABLE>
Footnote 1 are all funds except for IVUL 2.
Footnote 2 are the IVUL 2 funds.
<PAGE>
<TABLE>
Van Eck
Van Eck Worldwide
Fidelity Worldwide Emerging
Overseas Balanced Markets
Portfolio Portfolio Portfolio
- - -
<S> <C> <C> <C>
Units Purchased 11,785.44 951.45 1,277.13
Units Withdrawn (4,501.28) (606.33) (278.62)
Units Transferred Between Funds (9,535.93) (7,669.26) 3,870.58
Units Transferred From (To) AI Life 0.00 0.00 0.00
---------- --------- ---------
Net Increase (Decrease) (2,251.77) (7,324.14) 4,869.09
Units, at Beginning of the Year 29,558.72 7,324.14 0.00
---------- --------- ---------
Units, at End of the Year 27,306.95 0.00 4,869.09
========== ========= =========
Unit Value at December 31, 1998 $ 13.92 $ 13.05 $ 6.07
========== ========= =========
</TABLE>
<TABLE>
Van Eck WP&G WP&G
Worldwide Tomorrow Tomorrow
Hard Long Medium
Assets Term Term
Portfolio Portfolio Portfolio
- - -
<S> <C> <C> <C>
Units Purchased 1,987.17 3,171.98 96.93
Units Withdrawn (614.56) (914.92) (41.35)
Units Transferred Between Funds 411.71 (301.20) (53.41)
Units Transferred From (To) AI Life 0.00 0.00 0.00
--------- -------- -------
Net Increase (Decrease) 1,784.32 1,955.86 2.17
Units, at Beginning of the Year 2,660.66 2,002.12 338.89
--------- --------- -------
Units, at End of the Year 4,444.98 3,957.98 341.06
========= ========= =======
Unit Value at December 31, 1998 $ 7.78 $ 14.89 $ 14.09
========= ========= =======
</TABLE>
<TABLE>
WP&G
Tomorrow
Short
Term
Portfolio
-
<S> <C>
Units Purchased 355.59
Units Withdrawn (66.23)
Units Transferred Between Funds 0.00
Units Transferred From (To) AI Life 0.00
-------
Net Increase (Decrease) 289.36
Units, at Beginning of the Year 207.88
-------
Units, at End of the Year 497.24
=======
Unit Value at December 31, 1998 $ 13.53
=======
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments at Market Value:
Shares Cost Market Value
-------------------------------------------------------------------
-------------------------------------------------------------------
<S> <C> <C> <C>
Aim
Capital Appreciation Portfolio 10,805.488 $ 249,819 $ 298,233
International Equity Portfolio 20,496.370 391,703 419,972
Alliance
Conservative Investors Portfolio 2,927.800 39,325 38,008
Global Bond Portfolio 917.299 10,918 10,118
Global Dollar Government Portfolio 21.679 207 199
Growth Portfolio 125,732.125 2,913,012 3,613,542
Growth & Income Portfolio 105,558.666 2,199,332 2,366,630
Growth Investors Portfolio 15,147.517 227,200 234,485
International Portfolio 77,466.493 1,266,448 1,267,351
Money Market Portfolio 18,894.760 18,894 18,894
Premier Growth Portfolio 12,701.909 398,621 439,232
Technology Portfolio 57,463.815 968,037 1,268,800
Total Return Portfolio 146.582 2,527 2,596
Quasar Portfolio 34,113.346 431,357 403,561
U.S. Government High Grade Portfolio 80.333 979 894
Utility Income Portfolio 53.460 963 1,096
Dreyfus
Small Company Stock Portfolio 20,832.049 304,387 322,063
Stock Index Portfolio 112,926.188 3,354,848 4,077,763
Zero Coupon 2000 Portfolio 1,421.146 17,643 17,522
Fidelity
Asset Manager Portfolio 59,137.949 1,015,942 1,046,147
Contrafund Portfolio 26,674.610 626,598 696,208
Growth Portfolio 101,729.251 4,011,783 4,652,079
High Income Portfolio 42,882.754 491,124 484,145
Investment Grade Bond Portfolio 36,337.125 449,167 438,953
Money Market Portfolio 2,135,704.870 2,135,705 2,135,705
Overseas Portfolio 23,221.474 459,413 483,010
Van Eck
Worldwide Emerging Markets Portfolio 6,067.441 43,166 63,039
Worldwide Hard Assets Portfolio 3,933.951 39,070 42,131
Weiss,Peck & Greer
Tomorrow Long Term Portfolio 7,003.469 60,351 68,282
Tomorrow MediumTerm Portfolio 523.557 4,803 5,074
Tomorrow Short Term Portfolio 807.668 8,611 8,666
---------------------- ---------------------
====================== ---------------------
Total Investments $ 22,141,953 $ 24,924,398
======================
======================
Total Assets $ 24,924,398
=====================
=====================
EQUITY:
Contract Owners' Equity $ 24,924,398
---------------------
=====================
Total Equity $ 24,924,398
=====================
=====================
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For The Six Months Ended June 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Aim Aim
Capital International
Appreciation Equity
Total Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,156,716 $0 $0
Expenses:
Mortality & Expense Risk Fees 95,246 1,003 1,515
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) 1,061,470 (1,003) (1,515)
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 508,874 2,472 (2,086)
Change in Unrealized Appreciation
(Depreciation) 812,559 22,580 20,530
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments 1,321,433 25,052 18,444
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $2,382,903 $24,049 $16,929
================ ================= ================
================ ================= ================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $3,311 $322 $31
Expenses:
Mortality & Expense Risk Fees 161 39 1
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) 3,150 283 30
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 250 62 2
Change in Unrealized Appreciation
(Depreciation) (3,050) (1,090) (18)
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments (2,800) (1,028) (16)
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $350 ($745) $14
================ ================= ================
================ ================= ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $270,895 $228,364 $22,202
Expenses:
Mortality & Expense Risk Fees 14,062 9,000 962
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) 256,833 219,364 21,240
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 42,071 45,713 6,259
Change in Unrealized Appreciation
(Depreciation) 142,860 27,574 (18,333)
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments 184,931 73,287 (12,074)
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $441,764 $292,651 $9,166
================ ================= ================
================ ================= ================
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $30,720 $9,337 $4,775
Expenses:
Mortality & Expense Risk Fees 621 1,935 1,206
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) 30,099 7,402 3,569
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 89,322 0 3,188
Change in Unrealized Appreciation
(Depreciation) 904 0 24,050
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments 90,226 0 27,238
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $120,325 $7,402 $30,807
================ ================= ================
================ ================= ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $3,163 $230 $1,251
Expenses:
Mortality & Expense Risk Fees 6,236 11 1,941
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) (3,073) 219 (690)
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 155,237 7 33,648
Change in Unrealized Appreciation
(Depreciation) 118,625 (44) 26,546
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments 273,862 (37) 60,194
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $270,789 $182 $59,504
================ ================= ================
================ ================= ================
</TABLE>
<TABLE>
<CAPTION>
Alliance
U.S. Dreyfus
Government Small
High Alliance Company
Grade Utility Stock
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $60 $44 $0
Expenses:
Mortality & Expense Risk Fees 4 5 1,212
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) 56 39 (1,212)
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (1) 5 (4,381)
Change in Unrealized Appreciation
(Depreciation) (86) 80 14,529
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments (87) 85 10,148
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations ($31) $124 $8,936
================ ================= ================
================ ================= ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $34,929 $367 $61,501
Expenses:
Mortality & Expense Risk Fees 15,127 74 4,090
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) 19,802 293 57,411
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 37,382 8 62
Change in Unrealized Appreciation
(Depreciation) 324,858 (235) (13,951)
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments 362,240 (227) (13,889)
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $382,042 $66 $43,522
================ ================= ================
================ ================= ================
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Fidelity High
Contrafund Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $13,299 $360,271 $25,817
Expenses:
Mortality & Expense Risk Fees 2,211 17,101 1,749
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) 11,088 343,170 24,068
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 8,175 105,690 (7,194)
Change in Unrealized Appreciation
(Depreciation) 32,133 43,368 10,843
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments 40,308 149,058 3,649
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $51,396 $492,228 $27,717
================ ================= ================
================ ================= ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $11,228 $57,899 $16,156
Expenses:
Mortality & Expense Risk Fees 1,568 10,734 1,955
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) 9,660 47,165 14,201
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (175) 0 (850)
Change in Unrealized Appreciation
(Depreciation) (16,477) 0 19,843
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments (16,652) 0 18,993
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations ($6,992) $47,165 $33,194
================ ================= ================
================ ================= ================
</TABLE>
<TABLE>
<CAPTION>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $544
Expenses:
Mortality & Expense Risk Fees 0 205 191
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) 0 (205) 353
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 0 2,401 (8,601)
Change in Unrealized Appreciation
(Depreciation) 0 17,222 15,657
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments 0 19,623 7,056
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $0 $19,418 $7,409
================ ================= ================
================ ================= ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $0
Expenses:
Mortality & Expense Risk Fees 279 22 26
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Investment Income (Loss) (279) (22) (26)
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 132 2 74
Change in Unrealized Appreciation
(Depreciation) 3,502 135 4
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Net Gain (Loss) on Investments 3,634 137 78
---------------- ----------------- ----------------
---------------- ----------------- ----------------
Increase (Decrease) in Net Assets
Resulting From Operations $3,355 $115 $52
================ ================= ================
================ ================= ================
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For The Six Months Ended June 30, 1999 and June 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999
Aim Aim
Capital International
Appreciation Equity
Total Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,061,470 ($1,003) ($1,515)
Realized Gain (Loss) on Investment Activity 508,874 2,472 (2,086)
Change in Unrealized Appreciation
(Depreciation) of Investments 812,559 22,580 20,530
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,382,903 24,049 16,929
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 5,722,064 91,862 183,148
Cost Of Insurance Charge (1,039,582) (16,325) (21,491)
Policy Loans (146,563) (4,390) (2,936)
Transfers 9,636 4,687 831
Contract Withdrawals (185,339) (2,427) (1,125)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,360,216 73,407 158,427
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 6,743,119 97,456 175,356
Net Assets, at Beginning of Year 18,181,279 200,777 244,616
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $24,924,398 $298,233 $419,972
=============== =============== ===============
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $3,150 $283 $30
Realized Gain (Loss) on Investment Activity 250 62 2
Change in Unrealized Appreciation
(Depreciation) of Investments (3,050) (1,090) (18)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
350 (745) 14
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 6,361 3,017 0
Cost Of Insurance Charge (1,619) (686) (37)
Policy Loans 0 0 0
Transfers 10 (15) 0
Contract Withdrawals (89) 0 0
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,663 2,316 (37)
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 5,013 1,571 (23)
Net Assets, at Beginning of Year 32,995 8,547 222
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $38,008 $10,118 $199
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $256,833 $219,364 $21,240
Realized Gain (Loss) on Investment Activity 42,071 45,713 6,259
Change in Unrealized Appreciation
(Depreciation) of Investments 142,860 27,574 (18,333)
--------------- --------------- ---------------
---------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 441,764 292,651 9,166
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 552,278 (296,632) 39,410
Cost Of Insurance Charge (131,720) (92,576) (7,893)
Policy Loans (29,702) (19,241) (1,507)
Transfers (2,095) 1,005 211
Contract Withdrawals (44,226) (29,468) (550)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 344,535 (436,912) 29,671
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 786,299 (144,261) 38,837
Net Assets, at Beginning of Year 2,827,243 2,510,891 195,648
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $3,613,542 $2,366,630 $234,485
=============== =============== ===============
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $30,099 $7,402 $3,569
Realized Gain (Loss) on Investment Activity 89,322 0 3,188
Change in Unrealized Appreciation
(Depreciation) of Investments 904 0 24,050
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 120,325 7,402 30,807
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 1,150,203 5,538 278,594
Cost Of Insurance Charge 0 (14,523) (25,155)
Policy Loans 0 0 (569)
Transfers (3,177) (7) 5,087
Contract Withdrawals 0 0 (1,499)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,147,026 (8,992) 256,458
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 1,267,351 (1,590) 287,265
Net Assets, at Beginning of Year 0 20,484 151,967
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $1,267,351 $18,894 $439,232
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($3,073) $219 ($690)
Realized Gain (Loss) on Investment Activity 155,237 7 33,648
Change in Unrealized Appreciation
(Depreciation) of Investments 118,625 (44) 26,546
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 270,789 182 59,504
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 286,213 0 45,407
Cost Of Insurance Charge (68,064) (116) (20,228)
Policy Loans (14,138) 0 (2,780)
Transfers (10,382) 0 (120)
Contract Withdrawals (3,718) 0 (2,102)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 189,911 (116) 20,177
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 460,700 66 79,681
Net Assets, at Beginning of Year 808,100 2,530 323,880
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $1,268,800 $2,596 $403,561
=============== =============== ===============
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Alliance
U.S. Dreyfus
Government Small
High Alliance Company
Grade Utility Stock
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $56 $39 ($1,212)
Realized Gain (Loss) on Investment Activity (1) 5 (4,381)
Change in Unrealized Appreciation
(Depreciation) of Investments (86) 80 14,529
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations (31) 124 8,936
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 0 0 77,630
Cost Of Insurance Charge (43) (48) (11,603)
Policy Loans 0 0 0
Transfers 0 0 (908)
Contract Withdrawals 0 0 (20)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (43) (48) 65,099
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets (74) 76 74,035
Net Assets, at Beginning of Year 968 1,020 248,028
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $894 $1,096 $322,063
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $19,802 $293 $57,411
Realized Gain (Loss) on Investment Activity 37,382 8 62
Change in Unrealized Appreciation
(Depreciation) of Investments 324,858 (235) (13,951)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 382,042 66 43,522
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 1,219,319 4,833 256,536
Cost Of Insurance Charge (184,621) (956) (44,559)
Policy Loans (25,151) 0 (6,948)
Transfers (1,950) 0 5,187
Contract Withdrawals (27,241) 0 (1,435)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 980,356 3,877 208,781
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 1,362,398 3,943 252,303
Net Assets, at Beginning of Year 2,715,365 13,579 793,844
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $4,077,763 $17,522 $1,046,147
=============== =============== ===============
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Fidelity High
Contrafund Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $11,088 $343,170 $24,068
Realized Gain (Loss) on Investment Activity 8,175 105,690 (7,194)
Change in Unrealized Appreciation
(Depreciation) of Investments 32,133 43,368 10,843
--------------- --------------- ---------------
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 51,396 492,228 27,717
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 375,596 1,360,060 214,420
Cost Of Insurance Charge (28,039) (181,621) (16,444)
Policy Loans 0 (32,378) (1,388)
Transfers 3,721 14,984 1,288
Contract Withdrawals (3,308) (49,698) (4,757)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 347,970 1,111,347 193,119
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 399,366 1,603,575 220,836
Net Assets, at Beginning of Year 296,842 3,048,504 263,309
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $696,208 $4,652,079 $484,145
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $9,660 $47,165 $14,201
Realized Gain (Loss) on Investment Activity (175) 0 (850)
Change in Unrealized Appreciation
(Depreciation) of Investments (16,477) 0 19,843
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations (6,992) 47,165 33,194
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 256,598 (520,179) 97,031
Cost Of Insurance Charge (15,837) (126,422) (19,725)
Policy Loans 0 (1,476) (2,826)
Transfers 11 (8,399) 71
Contract Withdrawals (3,545) (3,403) (4,966)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 237,227 (659,879) 69,585
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 230,235 (612,714) 102,779
Net Assets, at Beginning of Year 208,718 2,748,419 380,231
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $438,953 $2,135,705 $483,010
=============== =============== ===============
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 ($205) $353
Realized Gain (Loss) on Investment Activity 0 2,401 (8,601)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 17,222 15,657
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 19,418 7,409
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 0 17,834 4,291
Cost Of Insurance Charge 0 (3,079) (2,503)
Policy Loans 0 0 0
Transfers 0 (673) 32
Contract Withdrawals 0 0 (1,658)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 14,082 162
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 0 33,500 7,571
Net Assets, at Beginning of Year 0 29,539 34,560
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $0 $63,039 $42,131
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($279) ($22) ($26)
Realized Gain (Loss) on Investment Activity 132 2 74
Change in Unrealized Appreciation
(Depreciation) of Investments 3,502 135 4
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 3,355 115 52
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 10,036 335 2,325
Cost Of Insurance Charge (2,982) (181) (486)
Policy Loans (1,133) 0 0
Transfers 189 0 48
Contract Withdrawals (104) 0 0
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 6,006 154 1,887
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 9,361 269 1,939
Net Assets, at Beginning of Year 58,921 4,805 6,727
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $68,282 $5,074 $8,666
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For The Six Months Ended June 30, 1999 and June 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1998
Aim Aim
Capital International
Appreciation Equity
Total Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $620,103 ($141) ($143)
Realized Gain (Loss) on Investment Activity 90,940 239 558
Change in Unrealized Appreciation
(Depreciation) of Investments 479,873 3,664 2,791
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,190,916 3,762 3,206
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 4,180,989 60,258 75,808
Cost Of Insurance Charge (677,153) (1,960) (3,222)
Policy Loans (92,940) 0 0
Transfers 20,633 30 (48)
Contract Withdrawals (72,915) 0 (586)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 3,358,614 58,328 71,952
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 4,549,530 62,090 75,158
Net Assets, at Beginning of Year 7,272,203 0 0
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $11,821,733 $62,090 $75,158
=============== =============== ===============
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,954 $16 $0
Realized Gain (Loss) on Investment Activity 278 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments (134) (12) 0
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,098 4 0
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 9,476 1,000 0
Cost Of Insurance Charge (1,942) (103) 0
Policy Loans 0 0 0
Transfers (1) 2 0
Contract Withdrawals (49) 0 0
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 7,484 899 0
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 9,582 903 0
Net Assets, at Beginning of Year 24,072 0 0
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $33,654 $903 $0
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $103,935 $106,829 $13,388
Realized Gain (Loss) on Investment Activity 7,627 17,209 1,713
Change in Unrealized Appreciation
(Depreciation) of Investments 147,554 (8,204) 4,029
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 259,116 115,834 19,130
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 774,253 430,609 48,696
Cost Of Insurance Charge (92,573) (70,238) (9,803)
Policy Loans (4,363) (16,339) (1,148)
Transfers (277) 1,618 238
Contract Withdrawals (23,231) (2,734) (1,423)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 653,809 342,916 36,560
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 912,925 458,750 55,690
Net Assets, at Beginning of Year 1,123,048 764,335 117,458
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $2,035,973 $1,223,085 $173,148
=============== =============== ===============
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $2 ($319)
Realized Gain (Loss) on Investment Activity 0 0 1,349
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 16,402
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 2 17,432
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 0 2,325 239,765
Cost Of Insurance Charge 0 0 (4,886)
Policy Loans 0 0 (122)
Transfers 0 7 2,287
Contract Withdrawals 0 0 (486)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 2,332 236,558
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 0 2,334 253,990
Net Assets, at Beginning of Year 0 0 0
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $0 $2,334 $253,990
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($1,274) $0 $30,035
Realized Gain (Loss) on Investment Activity 18,667 0 7,898
Change in Unrealized Appreciation
(Depreciation) of Investments 76,056 0 (1,127)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 93,449 0 36,806
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 222,857 0 181,742
Cost Of Insurance Charge (26,342) 0 (18,284)
Policy Loans (306) 0 (27)
Transfers 3,117 0 746
Contract Withdrawals (5,990) 0 (6,366)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 193,336 0 157,811
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 286,785 0 194,617
Net Assets, at Beginning of Year 255,061 0 241,676
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $541,846 $0 $436,293
=============== =============== ===============
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Alliance
U.S. Dreyfus
Government Small
High Alliance Company
Grade Utility Stock
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 ($269)
Realized Gain (Loss) on Investment Activity 0 0 (279)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 4,132
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0 3,584
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 0 0 112,792
Cost Of Insurance Charge 0 0 (10,791)
Policy Loans 0 0 (1,446)
Transfers 0 0 320
Contract Withdrawals 0 0 0
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0 100,875
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 0 0 104,459
Net Assets, at Beginning of Year 0 0 127,381
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $0 $0 $231,840
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $6,790 $239 $58,821
Realized Gain (Loss) on Investment Activity 24,151 81 (1,580)
Change in Unrealized Appreciation
(Depreciation) of Investments 172,347 (34) (13,576)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 203,288 286 43,665
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 802,182 2,321 159,012
Cost Of Insurance Charge (106,448) (1,120) (27,167)
Policy Loans (15,535) 0 (471)
Transfers 8,369 (11) 1,519
Contract Withdrawals (11,677) 0 (1,183)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 676,891 1,190 131,710
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 880,179 1,476 175,375
Net Assets, at Beginning of Year 944,435 10,766 387,906
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $1,824,614 $12,242 $563,281
=============== =============== ===============
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Fidelity High
Contrafund Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,608 $174,038 $32,520
Realized Gain (Loss) on Investment Activity 443 9,309 (55)
Change in Unrealized Appreciation
(Depreciation) of Investments 6,291 88,810 (19,696)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 8,342 272,157 12,769
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 126,109 733,715 69,718
Cost Of Insurance Charge (2,866) (117,408) (16,936)
Policy Loans 0 (16,149) 0
Transfers (261) 9,306 (33)
Contract Withdrawals 0 (12,187) (707)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 122,982 597,277 52,042
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 131,324 869,434 64,811
Net Assets, at Beginning of Year 0 1,164,075 287,181
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $131,324 $2,033,509 $351,992
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $8,965 $26,531 $27,871
Realized Gain (Loss) on Investment Activity (251) 0 15,743
Change in Unrealized Appreciation
(Depreciation) of Investments (4,486) 0 15,046
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 4,228 26,531 58,660
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 54,855 138,831 (28,697)
Cost Of Insurance Charge (7,114) (115,215) (26,303)
Policy Loans 0 (36,983) (51)
Transfers 410 (3,986) (2,219)
Contract Withdrawals (109) (618) (4,234)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 48,042 (17,971) (61,504)
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 52,270 8,560 (2,844)
Net Assets, at Beginning of Year 79,496 1,225,890 368,340
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $131,766 $1,234,450 $365,496
=============== =============== ===============
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $24,499 ($7) $4,424
Realized Gain (Loss) on Investment Activity (10,944) (63) (2,096)
Change in Unrealized Appreciation
(Depreciation) of Investments (4,930) (549) (7,300)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 8,625 (619) (4,972)
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits (88,747) 4,387 13,876
Cost Of Insurance Charge (7,520) (327) (3,022)
Policy Loans 0 0 0
Transfers (130) (175) (238)
Contract Withdrawals (456) 0 (341)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (96,853) 3,885 10,275
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets (88,228) 3,266 5,303
Net Assets, at Beginning of Year 88,315 0 30,220
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $87 $3,266 $35,523
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($176) ($21) ($12)
Realized Gain (Loss) on Investment Activity 919 0 24
Change in Unrealized Appreciation
(Depreciation) of Investments 2,228 398 173
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,971 377 185
--------------- --------------- ---------------
--------------- --------------- ---------------
Capital Transactions:
Contract Deposits 30,651 871 2,325
Cost Of Insurance Charge (4,898) (303) (362)
Policy Loans 0 0 0
Transfers 43 0 0
Contract Withdrawals (341) 0 (197)
--------------- --------------- ---------------
--------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 25,455 568 1,766
--------------- --------------- ---------------
--------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 28,426 945 1,951
Net Assets, at Beginning of Year 25,890 4,140 2,518
--------------- --------------- ---------------
=============== =============== ===============
Net Assets, at End of Year $54,316 $5,085 $4,469
=============== =============== ===============
=============== =============== ===============
</TABLE>
<PAGE>
<TABLE>
APPENDIX A
Gemstone Variable Universal Life
Guaranteed Monthly Cost Insurance Rates
Per $1,000 of Net Amount at Risk
Male (Age Nearest Birthday)
Attained Monthly COI Rate Attained Monthly COI Rate
Age Age
Nonsmoker* Smoker Nonsmoker* Smoker
================ =================== ================== ================ =================== ==================
<S> <C> <C> <C> <C> <C>
0 N/A 0.34845 50 0.40933 0.79730
1 N/A 0.08917 51 0.44603 0.87076
2 N/A 0.08251 52 0.48857 0.95257
3 N/A 0.08167 53 0.53612 1.04609
4 N/A 0.07917 54 0.59118 1.15132
5 N/A 0.07501 55 0.65209 1.26326
6 N/A 0.07167 56 0.71968 1.38441
7 N/A 0.06667 57 0.79146 1.50978
8 N/A 0.06334 58 0.86909 1.64353
9 N/A 0.06167 59 0.95675 1.78234
10 N/A 0.06084 60 1.05444 1.93624
11 N/A 0.06417 61 1.16302 2.10944
12 N/A 0.07084 62 1.28665 2.30447
13 N/A 0.08251 63 1.42787 2.52553
14 N/A 0.09584 64 1.58752 2.76931
15 0.10751 0.13752 65 1.76394 3.03334
16 0.11918 0.15586 66 1.95381 3.30841
17 0.12835 0.17086 67 2.15965 3.59706
18 0.13335 0.18003 68 2.38065 3.89427
19 0.13835 0.18837 69 2.62186 4.21099
20 0.14002 0.19254 70 2.89419 4.56071
21 0.13919 0.19420 71 3.25305 4.94853
22 0.13669 0.19170 72 3.55929 5.38973
23 0.13418 0.18837 73 3.96902 5.88695
24 0.13085 0.18420 74 4.42953 6.42941
25 0.12668 0.17837 75 4.92413 7.02991
26 0.12335 0.17336 76 5.45122 7.64974
27 0.12168 0.17170 77 6.00585 8.27796
28 0.12001 0.17003 78 6.58221 8.90442
29 0.12001 0.17170 79 7.19473 9.54780
30 0.12001 0.17503 80 7.86724 10.23622
31 0.12252 0.18087 81 8.61695 10.98690
32 0.12502 0.18670 82 9.46542 11.82145
33 0.12918 0.19587 83 10.42336 12.74626
34 0.13418 0.20671 84 11.47263 13.72670
35 0.14085 0.21921 85 12.58987 14.73050
36 0.14752 0.23422 86 13.75325 15.72512
37 0.15669 0.25340 87 14.95279 16.69584
38 0.16669 0.27508 88 16.16464 17.75732
39 0.17837 0.30009 89 17.40526 18.80718
40 0.19087 0.32844 90 18.69215 19.86094
41 0.20588 0.36180 91 20.04733 20.93947
42 0.22088 0.39599 92 21.51567 22.08818
43 0.23839 0.43519 93 23.16008 23.56765
44 0.25590 0.47606 94 25.25984 25.47888
A-1
<PAGE>
Attained Monthly COI Rate Attained Monthly COI Rate
Age Age
Nonsmoker* Smoker Nonsmoker* Smoker
================ =================== ================== ================ =================== ==================
45 0.27674 0.52277 95 28.27411 28.27411
- ---------------- -------------- ------------------ ---------------- ------------------- ------------------
46 0.29926 0.56949 96 33.10677 33.10677
47 0.32344 0.62038 97 41.68475 41.68475
48 0.34929 0.67379 98 58.01259 58.01259
49 0.37848 0.73387 99 83.33333 83.33333
- ---------------- -------------- ------------------ ---------------- ------------------- ------------------
* Applicable to Preferred and Standard Nonsmoker Risks.
</TABLE>
A-2
<PAGE>
APPENDIX A
Gemstone Variable Universal Life
Guaranteed Monthly Cost Insurance Rates
Per $1,000 of Net Amount at Risk
Female (Age Nearest Birthday)
<TABLE>
Attained Monthly COI Rate Attained Monthly COI Rate
Age Age
Nonsmoker* Smoker Nonsmoker* Smoker
================ =================== ================== ================ =================== ==================
<S> <C> <C> <C> <C> <C>
0 N/A 0.24089 50 0.34929 0.54530
1 N/A 0.07251 51 0.37514 0.58367
2 N/A 0.06750 52 0.40433 0.62706
3 N/A 0.06584 53 0.43853 0.67796
4 N/A 0.06417 54 0.47356 0.72970
5 N/A 0.06334 55 0.51109 0.78395
6 N/A 0.06084 56 0.54947 0.83820
7 N/A 0.06000 57 0.58785 0.88996
8 N/A 0.05834 58 0.62456 0.93838
9 N/A 0.05750 59 0.66377 0.98848
10 N/A 0.05667 60 0.70967 1.04359
11 N/A 0.05750 61 0.76392 1.11457
12 N/A 0.06000 62 0.83236 1.20061
13 N/A 0.06250 63 0.91834 1.31673
14 N/A 0.06667 64 1.02021 1.44626
15 0.07000 0.07834 65 1.13044 1.59170
16 0.07334 0.08251 66 1.24906 1.73551
17 0.07667 0.08667 67 1.36937 1.88521
18 0.07917 0.09084 68 1.49055 2.02074
19 0.08167 0.09418 69 1.62012 2.17305
20 0.08417 0.09668 70 1.76979 2.33460
21 0.08501 0.09834 71 1.94879 2.54396
22 0.08667 0.10084 72 2.17053 2.80367
23 0.08751 0.10251 73 2.44094 3.12054
24 0.09001 0.10584 74 2.75926 3.49047
25 0.09084 0.10751 75 3.11970 3.90183
26 0.09334 0.11168 76 3.51565 4.34547
27 0.09501 0.11501 77 3.94131 4.81137
28 0.09751 0.11835 78 4.39675 5.29708
29 0.10001 0.12335 79 4.89467 5.81782
30 0.10334 0.12918 80 5.45628 6.39564
31 0.10584 0.13418 81 6.10032 7.04935
32 0.10918 0.14002 82 6.84571 7.79699
33 0.11251 0.14585 83 7.70559 8.64662
34 0.11835 0.15502 84 8.66019 9.64633
35 0.12252 0.16169 85 9.70835 10.64717
36 0.13002 0.17420 86 10.83105 11.78647
37 0.13919 0.19004 87 12.03563 12.88645
38 0.14919 0.20754 88 13.30897 14.13279
39 0.16086 0.22755 89 14.67130 15.32034
40 0.17336 0.25006 90 16.12162 16.69153
41 0.18837 0.27758 91 17.68913 18.15714
42 0.20337 0.30343 92 19.41995 19.76127
43 0.21838 0.33011 93 21.39829 21.58524
44 0.23339 0.35679 94 23.83051 23.83051
- ---------------- --------------- ------------------ ---------------- -------------------- ------------------
</TABLE>
A-3
<PAGE>
<TABLE>
Attained Monthly COI Rate Attained Monthly COI Rate
Age Age
Nonsmoker* Smoker Nonsmoker* Smoker
================ =================== ================== ================ =================== ==================
<S> <C> <C> <C> <C> <C> <C>
45 0.24923 0.38431 95 27.16158 27.16158
46 0.25690 0.41267 96 32.32378 32.32378
47 0.28425 0.44270 97 41.21204 41.21204
48 0.30426 0.47356 98 57.81394 57.81394
49 0.32511 0.50692 99 83.33333 83.33333
- ---------------- ------------- ------------------ ---------------- -------------------- ------------------
</TABLE>
* Applicable to Preferred and Standard Nonsmoker Risks.
A-4
<PAGE>
<TABLE>
APPENDIX A
Gemstone Variable Universal Life
Table of Acquisition Expenses Per $1,000 of Face Amount
(Applicable During First 5 Policy Years*)
Issue Age Female Male Issue Female Male
Age
================= =================== ================= =============== ======================= ==================
<S> <C> <C> <C> <C> <C>
0 0.18 0.21 33 0.38 0.45
1 0.18 0.21 34 0.39 0.47
2 0.19 0.21 35 0.40 0.49
3 0.19 0.21 36 0.41 0.50
4 0.19 0.22 37 0.43 0.52
5 0.19 0.22 38 0.44 0.54
6 0.20 0.22 39 0.46 0.56
7 0.20 0.23 40 0.47 0.59
8 0.20 0.23 41 0.49 0.61
9 0.21 0.24 42 0.51 0.64
10 0.21 0.25 43 0.52 0.66
11 0.22 0.25 44 0.54 0.69
12 0.22 0.26 45 0.56 0.72
13 0.23 0.26 46 0.58 0.75
14 0.23 0.27 47 0.61 0.78
15 0.24 0.28 48 0.63 0.82
16 0.24 0.28 49 0.65 0.85
17 0.25 0.29 50 0.68 0.89
18 0.25 0.30 51 0.71 0.93
19 0.26 0.30 52 0.73 0.97
20 0.26 0.31 53 0.76 1.02
21 0.27 0.32 54 0.80 1.07
22 0.28 0.33 55 0.83 1.12
23 0.28 0.33 56 0.86 1.17
24 0.29 0.34 57 0.90 1.23
25 0.30 0.35 58 0.94 1.25
26 0.31 0.36 59 0.98 1.25
27 0.32 0.37 60 1.03 1.25
28 0.32 0.38 61 1.08 1.25
29 0.33 0.40 62 1.13 1.25
30 0.34 0.41 63 1.19 1.25
31 0.35 0.42 64 - 85 1.25 1.25
32 0.36 0.44
- ----------------- ------------ ----------------- --------------- ----------------- ------------------
*Also applicable on the Increase Amount during the first 5 years following an
applied for increase in Face Amount.
</TABLE>
A-5
<PAGE>
APPENDIX A
Gemstone Variable Universal Life
Table of Initial Surrender Charges
Per $1,000 of Face Amount
Male
<TABLE>
Issue Age Nonsmoker* Smoker Issue Nonsmoker* Smoker
Age
================= ==================== ==================== =============== ===================== ====================
<S> <C> <C> <C> <C> <C>
0 N/A 11.76 29 15.53 18.42
1 N/A 11.76 30 15.86 18.90
2 N/A 11.91 31 16.22 19.40
3 N/A 12.07 32 16.51 19.86
4 N/A 12.16 33 16.92 20.44
5 N/A 12.34 34 17.26 20.96
6 N/A 12.52 35 17.64 21.53
7 N/A 12.65 36 18.13 22.22
8 N/A 12.86 37 18.57 22.88
9 N/A 13.00 38 19.04 23.57
10 N/A 13.16 39 19.54 24.32
11 N/A 13.41 40 20.01 25.04
12 N/A 13.60 41 20.59 25.88
13 N/A 13.87 42 21.13 26.70
14 N/A 14.06 43 21.80 27.66
15 12.61 14.26 44 22.44 28.60
16 12.82 14.54 45 23.12 29.60
17 12.94 14.74 46 23.86 30.67
18 13.08 14.95 47 24.67 31.82
19 13.31 15.24 48 25.44 32.95
20 13.46 15.46 49 26.39 34.26
21 13.62 15.70 50 27.30 34.34
22 13.80 15.96 51 28.31 34.34
23 14.08 16.31 52 29.41 34.34
24 14.28 16.61 53 30.51 34.34
25 14.51 16.93 54 31.71 34.34
26 14.75 17.29 55 33.01 34.34
27 15.02 17.66 56-85 34.34 34.34
28 15.31 18.07
- ----------------- -------------------- -------------------- --------------- --------------------- --------------------
* Applicable to Preferred and Standard Nonsmoker Risks.
</TABLE>
A-6
<PAGE>
<TABLE>
APPENDIX A
Gemstone Variable Universal Life
Table of Initial Surrender Charges
Per $1,000 of Face Amount
Female
Issue Age Nonsmoker* Smoker Issue Nonsmoker* Smoker
Age
=================== ==================== ===================== =============== ==================== ====================
<S> <C> <C> <C> <C> <C>
0 N/A 11.02 31 15.38 16.99
1 N/A 11.04 32 15.70 17.36
2 N/A 11.07 33 15.94 17.69
3 N/A 11.20 34 16.29 18.12
4 N/A 11.32 35 16.66 18.58
5 N/A 11.46 36 17.05 19.07
6 N/A 11.52 37 17.38 19.49
7 N/A 11.67 38 17.83 20.04
8 N/A 11.83 39 18.22 20.52
9 N/A 11.91 40 18.72 21.13
10 N/A 12.09 41 19.16 21.68
11 N/A 12.18 42 19.63 22.26
12 N/A 12.38 43 20.22 22.95
13 N/A 12.49 44 20.76 23.60
14 N/A 12.71 45 21.33 24.29
15 12.05 12.84 46 21.95 25.02
16 12.24 13.06 47 22.52 25.70
17 12.35 13.20 48 23.23 26.52
18 12.55 13.45 49 23.99 27.40
19 12.68 13.61 50 24.70 28.25
20 12.89 13.88 51 25.49 29.15
21 13.04 14.06 52 26.42 30.21
22 13.20 14.26 53 27.32 31.25
23 13.45 14.57 54 28.22 32.27
24 13.63 14.80 55 29.27 33.46
25 13.82 15.04 56 30.40 34.34
26 14.03 15.30 57 31.53 34.34
27 14.25 15.59 58 32.76 34.34
28 14.58 15.96 59 34.12 34.34
29 14.83 16.28 60-85 34.34 34.34
30 15.10 16.62
- ------------------- -------------------- --------------------- --------------- -------------------- --------------------
</TABLE>
* Applicable to Preferred and Standard Nonsmoker Risks.
A-7
<PAGE>
<TABLE>
APPENDIX B
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1998
Inception Since
Date 1 Year 3 Years 5 Years 10 Years Inception
---- ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alliance Variable Products Series Fund
Alliance Capital Management L.P.
Growth Portfolio 9/94 24.66% 30.27% N/A N/A 30.07%
Growth-Income Portfolio 1/91 21.78% 26.43% 25.15% N/A 16.87%
High-Yield Portfolio 10/97 -12.95% N/A N/A N/A -1.65%
International Portfolio 12/92 2.73% 7.19% 7.42% N/A 10.19%
Premier Growth Portfolio 6/92 30.38% 36.37% 32.57% N/A 25.64%
Real Estate Portfolio 1/97 -8.26% N/A N/A N/A 2.34%
Technology Portfolio 1/96 47.23% 30.89% N/A N/A 25.88%
Total Return Portfolio 12/92 14.73% 19.08% 16.94% N/A 13.63%
Utility Income Portfolio 5/94 27.21% 22.50% 17.63% N/A 17.56%
Anchor Series Trust
Wellington Management Company, LLP
Capital Appreciation Portfolio 3/23/87 28.50% 25.58% 27.89% 20.51% 18.08%
Government & Quality Bond Portfolio 9/5/84 2.82% 7.23% 7.89% 7.88% 9.33%
Dreyfus Stock Index Fund
Dreyfus Corporation and Mellon Equity Associates
Dreyfus Stock Index Fund 9/29/89 22.36% 28.67% 27.36% N/A 17.57%
Dreyfus Variable Investment Fund
The Dreyfus Corporation
Small Company Stock Portfolio 5/1/96 -6.76% 8/62% N/A N/A 8.00%
Fidelity Variable Insurance Products Fund
Fidelity Management & Research Company
VIP Growth Portfolio: Initial Class 10/9/86 33.98% 26.86% 27.63% 19.21% 17.86%
VIP High Income Portfolio: Initial Class 9/19/85 -1.44% 8.91% 10/80% 11.37% 11.29%
VIP Money Market Portfolio: Initial Class 4/1/82 5.17% 5.39% 5.43% 5.45% 6.75%
Fidelity Variable Insurance Products Fund II
Fidelity Management & Research Company
VIP II Asset Manager: Growth Portfolio: Initial Class 9/6/89 10.81% 16.54% 14.30% N/A 12.87%
VIP II Contrafund(R)Portfolio: Initial Class 1/3/95 23.87% 26.23% N/A N/A 28.10%
VIP II Investment Grade Bond Portfolio: Initial Class 12/5/88 2.99% 6.94% 7.25% 7.54% 7.76%
</TABLE>
B-1
<PAGE>
<TABLE>
Inception Since
Date 1 Year 3 Years 5 Years 10 Years Inception
---- ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Goldman Sachs Variable Insurance Trust
Goldman Sachs Asset Management/
Goldman Sachs Asset Management International
Capital Growth Fund 4/30/98 24.65% N/A N/A N/A 28.14%
Global Income Fund 1/12/98 3.91% N/A N/A N/A 6.71%
Mid-Cap Value Fund 5/1/98 7.30% N/A N/A N/A 0.86%
Neuberger Berman Advisers Management Trust
Neuberger Berman Management Inc.
AMT Partners Portfolio 3/22/94 11.39% 21.34% 23.68% N/A 20.51%
AMT Limited Maturity Bond Portfolio 9/10/84 2.18% 5.15% 5.49% 6.19% 7.64%
SunAmerica Series Trust
Davis Selected Advisers, L.P.
Venture Value Portfolio 10/28/94 18.41% 26.79% N/A N/A 26.34%
SunAmerica Asset Management Corp.
"Dogs" of Wall Street Portfolio 4/1/98 9.48% N/A N/A N/A 4.93%
SunAmerica Balanced Portfolio 6/3/96 18.51% 22.71% N/A N/A 22.91%
Templeton Variable Products Series Fund
Templeton Asset Management Ltd.
Templeton Developing Markets Fund - Class 1(1) 3/1/96 47.76% -8.32% N/A N/A -8.10%
Templeton Investment Counsel, Inc.
Templeton Asset Allocation Fund - Class 1 8/24/88 8.18% 14.45% 15.12% 12.87% 12.52%
Templeton International Fund - Class 1 5/1/92 5.39% 15.41% 15.27% N/A 14.69%
(1) Past reductions by the manager increased returns.
This portfolio performance information is for illustrative purposes only and is
not intended to indicate or predict future performance.
The performance information reflects the total of the income generated by the
portfolio net of the total portfolio operating expenses (i.e., management fees
and other portfolio expenses), plus capital gains and losses, realized or
unrealized. The performance results do not reflect charges deducted from
premiums, contract values or separate account assets, including, mortality and
expense risk deductions, monthly deductions, cost of insurance; surrender
charges. sales loads, DAC taxes and any state or local premium taxes. If these
charges were included, the total return figures would be lower.
</TABLE>
B-2
<PAGE>
[Back cover]
The Securities and Exchange Commission maintains an Internet Web site
(http://www.sec.gov.) That contains additional information about AIG Life
Insurance Company, the Policy and the Separate Account which may be of interest
to you. The Web site also contains additional information about the Policy's
variable investment options.
Investment Company Act File Number 811-4687.
<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 Policy 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 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 provision 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 Variable Account II, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in said Act and
will be governed by the final adjudication of such issue.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of ___ pages.
The undertaking to file reports.
Representation.
The signatures
Written consents of the following persons:
Kenneth D. Walma, Esquire
Michael J. Burns, FSA, MAAA
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
PricewaterhouseCoopers LLP
The following exhibits:
A. Copies of all exhibits required by paragraph A of instructions for Exhibits
in Form N-8B-2, unless indicated otherwise.
1. Certificate of Resolution for AIG Life Insurance Company dated June 5,
1986, authorizing the issuance and sale of variable life contracts.*
2. N/A
3. Principal Underwriter's Agreement between AIG Life Insurance Company
and American International Fund Distributors, dated August 15, 1989;*
4. N/A
5. Form of Flexible Premium Variable Universal Life Insurance Policy
(11VUL399) ****
6. (a) By-Laws of AIG Life Insurance Company as amended through
December 31, 1991;*
(b) Certificate of Incorporation of AIG Life Insurance Company,
dated December 31, 1991*
(c) Restated Certificate of Incorporation, of AIG Life Insurance
Company, dated December 31, 1991. The original Certificate of
Incorporation was filed in Pennsylvania on June 18, 1962*
7. N/A.
8. N/A.
9. N/A.
10. Form of Life Insurance Application (14APP0396)*
11. (a) Power of Attorney**
(b) Power of Attorney for Paul S. Bell***
(c) Power of Attorney for Stehen M. White (filed electronically
herewith)
B. Opinion and Consent of Counsel (filed electronically herewith)
C. Opinion and Consent of Actuary (filed electronically herewith)
D. Consent of Independent Certified Public Accountants (filed electronically
herewith)
E. Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP (filed
electronically herewith)
F. Memorandum Regarding Administrative Procedures*
* Incorporated by reference to Registrant's Post-Effective Amendment No. 4,
to the Registration Statement on Form S-6 (File No. 33-90684), dated
October 27, 1998.
** Incorporated by reference to Registrant's Post-Effective Amendment No. 2,
to the Registration Statement on Form S-6 (File No. 33-90684), dated May 1,
1997.
*** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1, to
the Registration Statement on Form S-6 (File No. 333-85573), dated October
15, 1999.
**** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1, to
the Registration Statement on Form S-6 (File No. 333-71753), dated May 25,
1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Wilmington and State of
Delaware on this 5th day of November, 1999.
VARIABLE ACOUNT II
-------------------------------
(Registrant)
By: AIG LIFE INSURANCE COMPANY
--------------------------------------------
(Depositor)
By: /s/ Kenneth D. Walma
--------------------------------------------
Kenneth D. Walma, Vice President and
General Counsel
Attest: /s/ James A. Bambrick
________________
(Name)
Chief Operating Officer
________________
(Title)
<PAGE>
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:
Signature Title Date
Gerald Walter Wyndorf* Chief Executive Officer November 5, 1999
- ------------------ and Director
Gerald Walter Wyndorf
Stephen M. White* Deputy Comptroller November 5, 1999
__________________
Stephen M. White
Paul S. Bell* Director November 5, 1999
- ------------------
Paul Bell
Maurice R. Greenberg* Director November 5, 1999
- ------------------
Maurice R. Greenberg
Edward Easton Matthews* Director November 5, 19999
- ------------------
Edward Easton Matthews
Jerome T. Muldowney* Director November 5, 1999
- ------------------
Jerome T. Muldowney
Nicholas A. O'Kulich* Director November 5, 1999
- ------------------
Nicholas A. O'Kulich
Howard Ian Smith* Director November 5, 1999
- ------------------
Howard Ian Smith
/s/ Kenneth D. Walma
*By: ___________________
Kenneth D. Walma
Attorney in Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
A.11(c) Power of Attorney of Stephen M. White
B. Opinion and Consent of Counsel
C. Opinion and Consent of Actuary
D. Consent of Independent Accountants
E. Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP
LIMITED POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENT, that I, Stephen M. White, Deputy
Comptroller of AIG Life Insurance Company, a corporation duly organized under
the laws of the State of Delaware, do hereby appoint Kenneth D. Walma as my
attorney and agent, for me, and in my name as a Director of the Company on
behalf of the Company or otherwise, with full power to execute, deliver and file
with the Securities and Exchange Commission all documents required for
registration of a security under the Securities Act of 1933 as amended, and the
Investment Company Act of 1940, as amended, and to do and perform each and every
act that said attorney may deem necessary or advisable to comply with the intent
of the aforesaid Acts. WITNESS my hand and seal this 5th day of November, 1999.
WITNESS:
/s/ Cheryl Gerkens /s/ Stephen M. White
- ------------------------- ---------------------------------
Stephen M. White
EXHIBIT B
OPINION AND CONSENT OF COUNSEL
Ladies and Gentlemen:
I have made such examination of the law and have examined such Company
records and documents as in my judgment are necessary or appropriate to enable
me to render the opinion:
1. AIG Life Insurance Company is a valid and existing stock life
insurance company domiciled in the State of Delaware.
2. Variable Account II is a separate investment account of AIG Life
Insurance Company validly existing pursuant to the Delaware Insurance Laws and
the Regulations thereunder.
3. All of the prescribed corporate procedures for the issuance of the
Flexible Premium Variable Universal Life Individual and Group Policies (the
"Policy") have been followed, and when such Contracts are issued in accordance
with the Prospectuses contained in the Registration Statement, all state
requirements relating to such Contracts will have been complied with.
4. Upon the acceptance of premiums made by Contract Owners pursuant to
a Contract issued in accordance with the Prospectuses contained in the
Registration Statement and upon compliance with applicable law, such Contract
Owner will have a legally-issued, fully-paid, nonassessable interest in such
Contract.
This opinion, or a copy thereof, may be used as an exhibit to or in connection
with the filing with the Securities and Exchange Commission of the
Post-Effective Amendment No. 1 to the Registration Statement on Form S-6 for the
Contracts to be issued by AIG Life Insurance Company and its separate account,
Variable Account II.
/s/ Kenneth D. Walma
-----------------------
Kenneth D. Walma
Vice President and
General Counsel
Dated: November 5, 1999
<PAGE>
EXHIBIT C
OPINION AND CONSENT OF ACTUARY
On behalf of AIG Life Insurance Company, I hereby consent to the inclusion
of the Table of Guaranteed Monthly Cost of Insurance Rates, Table of Acquisition
Expenses Per $1,000 of Face Amount and Table of Initial Surrender Charges
containted Post-Effective Amendment No. 1 to the Registration Statement of Form
S-6 (File No. 333-71753) registering Flexible Premium Variable Universal Life
Group and Individual Policies.
/s/ Michael J. Burns, FSA, MAAA
-------------------------------
Michael J. Burns, FSA, MAAA
Dated: November 5, 1999
<PAGE>
EXHIBIT D
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect to Post-effective Amendment
No. 1 to the Registration Statement (No. 333-71753) 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 AIG Life Insurance Company of our
report dated February 5, 1999 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 March 12, 1999 relating to our
audits of the financial statements of Variable Account II.
3. The reference to our firm under the heading "Experts."
/s/ PricewaterhouseCoopers LLP
- ------------------
PricewaterhouseCoopers LLP
November 5, 1999
<PAGE>
JORDEN BURT BOROS CICCHETTI BERENSON & JOHNSON LLP
SUITE 400 EAST
1025 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 2007-0805
TELECOPIER (202) 965-8104
AIG Life Insurance Company
One Alico Plaza
600 King Street
Wilmington, DE 19801
November 5, 1999
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus contained in Post-Effective Amendment No. 1 to the
Registration Statement on Form S-6 (File No. 333-71753) filed by AIG Life
Insurance Company and Variable Account II with the Securities and Exchange
Commission under the Securities Act of 1933 on or about November 5, 1999.
Very truly yours,
/s/Jorden Burt Boros Cicchetti Berenson & Johnson LLP
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
