VARIABLE ACCOUNT II AIG LIFE INSURANCE CO
485BPOS, 2000-12-29
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          Filed with the Securities and Exchange Commission on December 29, 2000

                                                      Registration No. 333-71753

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    Form S-6

                        POST-EFFECTIVE AMENDMENT NO. 3 TO
        FOR REGISTRATION 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            Senior Vice President and General Counsel
Berenson & Johnson, LLP                American International Group, Inc.
Suite 400 East                         70 Pine Street
1025 Thomas Jefferson Street, NW       New York, NY  10270
Washington, DC  20007-0805

It is proposed that this filing will become effective (check appropriate box)

_______ immediately upon filing pursuant to paragraph (b) of Rule 485

  X   on December 29, 2000  pursuant to paragraph (b) of Rule 485
-----    ------------------

<PAGE>

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

_______ on ______ pursuant to paragraph (a)(i) of Rule 485

___ on _____ pursuant to paragraph (a)(ii) 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 Life Insurance Policies.

F. Approximate date of proposed public offering:

   As soon as practicable after the effective date of this Registration
   Statement.

G. Amount of Filing Fee: N/A

This post-effective amendment no. 3 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>

                                     Part I

[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 is offering life insurance coverage under Gemstone
VUL to individuals and to groups. The description of the policy applies equally
to an individual policy, a group policy, and a certificate issued under a group
policy. The policy is a flexible premium variable universal life insurance
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 premium 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 policy nor shares of the portfolios are deposits or obligations of,
or guaranteed or endorsed by, a bank and they are not federally insured by the
Federal Deposit Insurance Corporation or any other government agency.

The Securities and Exchange Commission has not approved or disapproved the
policy or passed on the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.

                                December 29, 2000
<PAGE>

                              Investment Options

---------------------   The Variable Account is divided into 33 subaccounts.
                        Each Investment subaccount invests in shares of a
                        portfolio of the AIM Variable Options Insurance Funds,
                        Alliance Variable Products Series Fund, Inc., American
                        Century Portfolios, Inc., Anchor Series Trust, Dreyfus
                        Stock Index Fund, Dreyfus Variable Investment Fund,
  VARIABLE              Fidelity Variable Insurance Products Fund, Fidelity
  INVESTMENT            Variable Insurance Products Fund II, Franklin Templeton
  OPTIONS               Variable Insurance Products Trust (VIP), J.P. Morgan
                        Series Trust II, Neuberger Berman Advisers Management
                        Trust, Oppenheimer Variable Account Funds, or SunAmerica
                        Series Trust. Each portfolio is named below. The
                        prospectuses for these mutual funds contain information
                        about their respective portfolios. You should read these
---------------------   prospectuses carefully.

AIM Variable Insurance Funds
   Managed by AIM Advisors, Inc.
      o  V.I. Capital Appreciation Fund
      o  V.I. International Equity Fund

Alliance Variable Products Series Fund, Inc.
   Managed by Alliance Capital Management L.P.
      o  Premier Growth Portfolio
      o  Real Estate Investment Portfolio
      o  Technology Portfolio
      o  Utility Income Portfolio

American Century Variable Portfolios, Inc.
   Managed by American Century Investment Management, Inc.
      o  VP Capital Appreciation Fund
      o  VP Income & Growth Fund

Anchor Series Trust
   Managed by Wellington Management Company, LLP
      o  Capital Appreciation Portfolio
      o  Growth Portfolio
      o  Natural Resources Portfolio

Dreyfus Stock Index Fund
   Managed by The Dreyfus Corporation and Mellon Equity Associates

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

Franklin Templeton Variable Insurance Products Trust (VIP)
   Managed by Templeton Investment Counsel, Inc.
     o  Templeton Asset Allocation Fund - Class 1

J.P. Morgan Series Trust II
   Managed by J.P. Morgan Investment Management Inc.
      o  Bond Portfolio
      o  Disciplined Equity Portfolio

Neuberger Berman Advisers Management Trust
   Managed by Neuberger Berman Management Inc.
      o  AMT Partners Portfolio
      o  AMT Limited Maturity Bond Portfolio

Oppenheimer Variable Account Funds
   Managed by OppenheimerFunds, Inc.
     o  Oppenheimer Global Securities Fund/VA
     o  Oppenheimer Main Street Growth & Income Fund/VA

SunAmerica Series Trust
   Managed by SunAmerica Asset Management Corp.
     o  Alliance Growth Portfolio
     o  Growth-Income Portfolio
     o  Global Bond Portfolio
     o  MFS Mid-Cap Growth Portfolio
     o  Aggressive Growth Portfolio
     o  SunAmerica Balanced Portfolio
     o  Marsico Growth Portfolio

---------------------   You may allocate your Account Value to the Guaranteed
                        Account. The Guaranteed Account is part of our general
  Guaranteed            account. We will credit interest equal to at least an
  Investment            effective rate of 4% per year, compounded annually on
  Option                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 Variable Account.

<PAGE>

================================================================================

                                Table of Contents

================================================================================

Special Terms.................................................................

Summary of the Policy.........................................................
   Overview...................................................................
   Applying for a Policy......................................................
   Premium Payments...........................................................
   Account Value..............................................................
   Death Benefit..............................................................
   Cash Benefits During the Life of the Insured...............................
   Expenses of the Policy.....................................................
   Federal Tax Considerations.................................................

Purchasing a Gemstone VUL Policy..............................................
   Applying for a Policy......................................................
   Your Right to Cancel the Policy............................................
   Premium....................................................................
      Restrictions on Premium.................................................
      Minimum Initial Premium.................................................
      Planned Periodic Premium................................................
      Additional Premium......................................................
      Effect of Premium Payments..............................................
      No Lapse Provision......................................................
      Grace Period............................................................
      Premium Allocations.....................................................
      Crediting Premium.......................................................

The Investment Options........................................................
   Variable Investment Options................................................
   Guaranteed Investment Option...............................................

Investing Your Account Value..................................................
   Determining the Account Value..............................................
   Transfers..................................................................
   Dollar Cost Averaging (DCA)................................................
   Automatic Rebalancing......................................................

Death Benefit.................................................................
   Life Insurance Proceeds....................................................
   Death Benefit Options......................................................
   Changes in Death Benefit Options...........................................
   Changes in Face Amount.....................................................
   Changes in Owner or Beneficiary............................................

Cash Benefits During the Insured's Life ......................................
   Policy Loans...............................................................
   Partial Withdrawals........................................................
   Systematic Withdrawal Program..............................................
   Surrendering the Policy for Net Cash Surrender Value.......................
<PAGE>

Payment Options for Benefits..................................................

Expenses of the Policy........................................................
   Deductions From Premium....................................................
   Monthly Deductions From Account Value......................................
   Deduction From Variable Account Assets.....................................
   Deductions Upon Policy Transactions .......................................

Supplemental Benefits and Riders..............................................

Other Policy Provisions.......................................................
   Right to Exchange or Convert...............................................
   Incontestability...........................................................
   Suicide Exclusion..........................................................
   Misstatement of Age or Sex.................................................
   Changes in the Policy or Benefits..........................................
   When Proceeds Are Paid.....................................................
   Reports to Owners..........................................................
   Assignment.................................................................
   Reinstatement..............................................................

Performance Information.......................................................

Federal Income Tax Considerations.............................................

Distribution of the Policy....................................................

About Us and the Accounts.....................................................
   The Company................................................................
   The Variable Account.......................................................
   The Guaranteed Account.....................................................

Our Directors and Executive Officers..........................................

Other Information.............................................................
   State Regulation...........................................................
   Legal Proceedings..........................................................
   Legal Matters..............................................................
   Published Ratings..........................................................

Financial Statements..........................................................

Appendix A....................................................................

Appendix B....................................................................
<PAGE>

================================================================================

                                 Special Terms

================================================================================

We have capitalized some special terms we use in this document. We have defined
these terms here.

We use Account Value to
determine your policy benefits.

Account Value. The total amount in the Variable Account and the Guaranteed
Account attributable 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, Delaware
19801.

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.

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.

Death Benefit. The amount of life insurance coverage, which is based upon the
death benefit option you select.

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 beginning on a Monthly Anniversary during which
the policy will continue in force even though your Net Cash Surrender Value is
less than the total monthly deduction then due.

Guaranteed Account. An account within the general account that consists of all
of our assets other than the assets of the Variable Account and any of our other
separate investment accounts.

Insured. A person whose life is covered under the policy.


                                      1
<PAGE>

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.

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.

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.

Variable Account. Variable Account II, a separate investment account of ours.


                                        2
<PAGE>

================================================================================

                              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 age 85 or
younger.

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.

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.


                                        3
<PAGE>

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 it carefully. You have the right
to cancel the policy for any reason within 10 days after you receive it. 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
premium 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 premium 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.

Account Value

We will measure your benefits under the policy by your Account Value. Your
Account Value will reflect:

o     the premium 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.


                                        4
<PAGE>

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 determine 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 three death benefit options:

      Level Death Benefit
      Option.

o     Level Death Benefit Option

      The Death Benefit will be the greater of:

      (1)   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

      The Death Benefit will be the greater of:

      (1)   Face Amount plus Account Value; or

      (2)   Account Value on the date of death multiplied by the appropriate
            minimum death benefit factor.

      Premium Recovery Death
      Benefit Option.

o     Premium Recovery Death Benefit Option

      The Death Benefit will be the greater of:

      (1)   Face Amount plus premium paid until the policy anniversary prior to
            the date of death minus partial withdrawals; or

      (2)   Account Value on the date of death multiplied by the appropriate
            minimum death benefit factor.

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:


                                        5
<PAGE>

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 Level
Death Benefit Option, the Variable Death Benefit Option, and the Face Amount.
You may not change the Premium Recovery Death Benefit Option or 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.

Expenses of the Policy

Expenses reduce your
returns under the policy.


                                        6
<PAGE>

Deductions from Premium

For state premium taxes and other sales expenses, we currently charge 5% of each
premium payment up to the target premium amount and 2% of any premium paid in
excess of the target premium amount for policy years 1-10.(1) Beginning in
policy year 11, we currently charge 3% of each premium payment up to the target
premium amount and 2% of any premium paid in excess of the target premium
amount. The maximum we will charge in any policy year is 8%.

Account Value Charges

(deducted monthly)

<TABLE>
<CAPTION>
   Cost of Insurance Charge(2)                 Current                          Guaranteed
                                               -------                          ----------
                                     <S>                                 <C>
                                     Ranges from 0.00542 per             Ranges from 0.05667 per
                                     $1,000 of net amount at risk        $1,000 of net amount risk
                                     to 83.33333 per $1,000 of net       to 83.33333 per $1,000 of net
                                     amount at risk(3)                   amount at risk(3)

<CAPTION>
   Administrative Charge                       Current                          Guaranteed
                                               -------                          ----------
<S>                                            <C>                                  <C>
      Policy Years 1-5                         $15.00                               $15.00
      Policy Years 6+                          $ 7.50                               $15.00
</TABLE>

      Acquisition Charge

During the first 5 policy years, and 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.

Variable Account Charges

(deducted daily and shown as an annualized percentage of average net assets)

<TABLE>
<CAPTION>
   Mortality and Expense
   Risk Charge                                 Current                          Guaranteed
                                               -------                          ----------
<S>                                            <C>                                  <C>
      Policy Years 1-10                        0.75%                                0.90%
      Policy Years 11-20                       0.25%                                0.90%
      Policy Years 21+                         0.10%                                0.90%
</TABLE>

Transaction Charges

      Transfer Charge

$25 for each transfer in excess of 12 each policy year.


                                        7
<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. The lowest and highest initial surrender
charges are $3.59 and $34.34 per $1,000 of the Face Amount, respectively.(4)

     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, 4 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)   A policy's target premium is based on the issue age, sex, and smoker
      status of the Insured and the Face Amount.

(2)   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, the Face Amount plus Account Value, or the Face Amount
      plus premium paid until the most recent policy anniversary minus partial
      withdrawals, 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 - Monthly Deductions From
      Account Value.")

(3)   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.

(4)   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 $4,960.00. For a 65 year old non-smoking male purchasing a
      policy with a $200,000 Face Amount, the initial surrender charge would be
      $4,482.00. (See Appendix A for the Table of Initial Surrender Charges.)


                                        8
<PAGE>

Expenses of the variable
investment options also reduce
your returns.

In addition, you will indirectly bear the costs of the management fees and other
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

The purpose of this table is to assist you in understanding the various costs
and expenses that you will incur indirectly as an owner of the policy. It is
based on historical portfolio expenses as a percentage of net assets before
waivers and/or reimbursements, if applicable, for the fiscal year ended December
31, 1999, unless stated otherwise. Portfolio expenses are not fixed or specified
under the terms of the policy. Actual expenses may vary.

<TABLE>
<CAPTION>
                                                                                    Annual
                                                          Management     Other     Operating
                                                             Fees       Expenses   Expenses
                                                             ----       --------   --------
<S>                                                          <C>          <C>       <C>
AIM Variable Insurance Funds
  AIM Advisors, Inc.
   V.I. Capital Appreciation Fund                             .62%        .11%       .73%
   V.I. International Equity Fund                             .75%        .22%       .97%

Alliance Variable Products Series Fund, Inc.
  Alliance Capital Management L.P.
   Premier Growth Portfolio                                  1.00%        .05%      1.05%
   Real Estate Investment Portfolio(1)                        .90%        .82%      1.72%
   Technology Portfolio(1)                                   1.00%        .12%      1.12%
   Utility Income Portfolio(1)                                .75%        .39%      1.14%

American Century Variable Portfolios, Inc.
  American Century Investment Management, Inc.
   VP Capital Appreciation Fund                              1.00%        .00%      1.00%
   VP Income & Growth Portfolio                               .70%        .00%       .70%

Anchor Series Trust
  Wellington Management Company, LLP
   Capital Appreciation Portfolio(2)                          .70%        .04%       .74%
   Growth Portfolio                                           .68%        .05%       .73%
   Natural Resources Portfolio                                .75%        .25%      1.00%

Dreyfus Stock Index Fund                                      .25%        .01%       .26%
  The Dreyfus Corporation

Dreyfus Variable Investment Fund
  The Dreyfus Corporation
   Small Company Stock Portfolio                              .75%        .22%       .97%
</TABLE>


                                        9
<PAGE>

<TABLE>
<S>                                                           <C>         <C>      <C>
Fidelity Variable Insurance Products Fund
  Fidelity Management & Research Company
   VIP Growth Portfolio: Initial Class(3)                     .58%        .08%       .66%
   VIP High Income Portfolio: Initial Class                   .58%        .11%       .69%
   VIP Money Market Portfolio: Initial Class                  .18%        .09%       .27%

Fidelity Variable Insurance Products Fund II
  Fidelity Management & Research Company
   VIP II Asset Manager Portfolio: Initial Class(4)           .53%        .10%       .63%
   VIP II Contrafund(R) Portfolio: Initial Class(4)           .58%        .09%       .67%
   VIP II Investment Grade Bond Portfolio: Initial Class      .43%        .11%       .54%

Franklin Templeton Variable Insurance Products Trust (VIP)
  Templeton Investment Counsel, Inc.
   Templeton Asset Allocation Fund - Class 1                  .60%        .18%       .78%

J.P. Morgan Series Trust II
  J.P. Morgan Investment Management, Inc.
   Bond Portfolio                                             .30%        .45%       .75%
   Disciplined Equity Portfolio(5)                            .35%        .52%       .87%

Neuberger Berman Advisers Management Trust(6)
  Neuberger Berman Management Inc.
   AMT Partners Portfolio                                     .80%        .07%       .87%
   AMT Limited Maturity Bond Portfolio                        .65%        .11%       .76%

Oppenheimer Variable Account Funds
  OppenheimerFunds, Inc.
   Oppenheimer Global Securities Fund/VA                      .67%        .02%       .69%
   Oppenheimer Main Street Growth & Income Fund/VA            .73%        .05%       .78%

SunAmerica Series Trust(7)
  SunAmerica Asset Management Corp.
   Alliance Growth Portfolio                                  .60%        .03%       .63%
   Growth-Income Portfolio                                    .53%        .03%       .56%
   Global Bond Portfolio                                      .69%        .15%       .84%
   MFS Mid-Cap Growth Portfolio(8)                            .75%        .42%      1.17%
   Aggressive Growth Portfolio                                .70%        .05%       .75%
   SunAmerica Balanced Portfolio                              .62%        .04%       .66%
   Marsico Growth Portfolio(9)                                .85%        .15%      1.00%
</TABLE>

--------------------

(1)   After waivers and reimbursements by Alliance Capital Management L.P.,
      expenses for the following portfolios for the year ended December 31,
      1999, were as follows:

                                                                        Annual
                                            Management      Other      Operating
                                               Fees        Expenses    Expenses
                                               ----        --------    --------

Real Estate Investment Portfolio               .49%         .46%        .95%
Technology Portfolio                           .86%         .09%        .95%
Utility Income Portfolio                       .72%         .23%        .95%


                                       10
<PAGE>

(2)   Expenses for this portfolio are restated to reflect current expenses. On
      July 19, 2000, the portfolio's shareholders approved a fee increase
      effective August 1, 2000. Management fees, other expenses, and annual
      operating expenses for the Capital Appreciation Portfolio for the year
      ended December 31, 1999, were .62%, .05%, and .67%, respectively.

(3)   After waivers and reimbursements by Fidelity Management & Research
      Company, management fees, other expenses, and annual operating expenses
      for the VIP Growth Portfolio: Initial Class for the year ended December
      31, 1999, were .58%, .07%, and .65%, respectively.

(4)   After waivers and reimbursements by Fidelity Management & Research
      Company, expenses for the following portfolios for the year ended December
      31, 1999, were as follows:

<TABLE>
<CAPTION>
                                                                                        Annual
                                                      Management       Other           Operating
                                                         Fees         Expenses         Expenses
                                                         ----         --------         --------
<S>                                                      <C>            <C>              <C>
     VIP II Asset Manager Portfolio: Initial Class       .53%           .09%             .62%
     VIP II Contrafund(R) Portfolio: Initial Class       .58%           .07%             .65%
</TABLE>

(5)   After waivers and reimbursements by J.P. Morgan Investment Management
      Inc., management fees, other expenses, and annual operating expenses for
      the Disciplined Equity Portfolio for the year ended December 31, 1999,
      were .35%, .50%, and .85%, respectively.

(6)   Neuberger Berman Advisers Management Trust is divided into portfolios,
      each of which invests all of its net investable assets in a corresponding
      series of Advisors Managements Trust. The figures reported under
      "Management 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.

(7)   The expense information for the SunAmerica Series Trust is provided as of
      the twelve-month period ended January 31, 2000, in accordance with its
      fiscal year.

(8)   The expenses for this portfolio are annualized. The investment adviser has
      voluntarily agreed to waive fees or reimburse expenses, if necessary, to
      keep annual operating expenses of MFS Mid-Cap Growth Portfolio at or below
      1.15% of its average net assets. For the fiscal year ended January 31,
      2000, the amount voluntarily waived or reimbursed was $4,045.

(9)   This portfolio's inception date is December 29, 2000. The figure reported
      under "Other Expenses" is based on estimated amounts for the current
      fiscal year. The investment adviser has voluntarily agreed to waive fees
      or reimburse expenses, if necessary, to keep annual operating expenses of
      Marsico Growth Portfolio at or below 1.00% of its average net assets.


                                       11
<PAGE>

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.


                                       12
<PAGE>

================================================================================

                        Purchasing a Gemstone VUL Policy

================================================================================

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 age 85 or younger. 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.

You must pay a minimum initial premium in order for the policy to become
effective or for us to 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 to "rate" an Insured as a substandard
risk.

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.


                                       13
<PAGE>

Your Right to Cancel the Policy

Period to Examine and Cancel.

Once you receive your policy, you should read it carefully. You have the right
to cancel the policy for any reason within 10 days after you receive it. 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 your premium payments. Thus, the amount we return will not reflect
the returns of the subaccounts or the Guaranteed Account that you selected in
your application.

Premium

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 Premium. We may not accept a premium payment:

o     If it is less than $25.

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.


                                       14
<PAGE>

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 premium will be paid by pre-authorized checking.

We establish a minimum
planned periodic premium.

Planned Periodic Premium. When you apply for a policy, you select a plan for
paying level premium 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 premium 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.

Additional Premium. Additional premium is premium other than planned premium.
Additional premium may be paid in any amount and at any time subject to the Code
and our restrictions on premium.

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 premium 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 premium may not prevent your policy from
lapsing. In addition, if you fail to pay any planned periodic premium, 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


                                       15
<PAGE>

o     of any combination of the following -- you have Outstanding Loans, you
      have made 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 first five policy years, if you pay a
sufficient amount of premium, 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.

o     All your premium paid to date, reduced by any partial withdrawal and
      Outstanding Loan, 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 premium if such premium 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 upon your Account
Value becoming 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.


                                       16
<PAGE>

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 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.
Please consult your tax adviser before taking a loan.

Premium Allocations. In the application, you specify the percentage of Net
Premium 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 subsequent premium, 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 premium 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 1% and the sum of your allocations must equal 100%.


                                       17
<PAGE>

Crediting Premium. 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 Premium 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.


                                       18
<PAGE>

================================================================================

                             The Investment Options

================================================================================

You may allocate your Account Value to:

o     the subaccounts (which invest in the variable investment options offered
      under the policy); or

o     the Guaranteed Account.

Variable Investment Options

Under the policy, you may currently allocate your Account Value to any of the
available subaccounts. Each subaccount invests in a specified portfolio of the
AIM Variable Insurance Funds, Alliance Variable Products Series Fund, Inc.,
American Century Portfolios, Inc., Anchor Series Trust, Dreyfus Index Funds,
Inc., Dreyfus Variable Investment Fund, Fidelity Variable Insurance Products
Fund, Fidelity Variable Insurance Products Fund II, Franklin Templeton Variable
Insurance Products Trust (VIP), J.P. Morgan Series Trust II, Neuberger Berman
Advisers Management Trust, Oppenheimer Variable Account Funds, or SunAmerica
Series Trust. These portfolios operate similarly to a publicly-available mutual
fund but are only available through the purchase of certain insurance contracts.

These portfolios may 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 among contract owners.

Managed by AIM Advisors,
Inc.

AIM Variable Insurance Funds

The V.I. Capital Appreciation Fund seeks growth of capital through investment in
common stocks, with emphasis on medium- and small-sized growth companies.


                                       19
<PAGE>

The V.I. International Equity Fund seeks to provide long-term growth of capital
by investing in a diversified portfolio of international equity securities whose
issuers are considered to have strong earnings momentum.

Managed by Alliance Capital
Management L.P.

Alliance Variable Products Series Fund, Inc.

The Premier Growth Portfolio seeks growth of capital. 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 Investment 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.

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 that use
technology extensively in the development of new or improved products or
processes.

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 the provision of other utility or utility-related goods and
services.


                                       20
<PAGE>

Managed by American Century
Investment Management, Inc.

American Century Variable Portfolios, Inc.

The VP Capital Appreciation Fund seeks capital growth through the use of a
growth investment strategy developed by America Century to invest in stocks of
companies that it believes will increase in value over time. The strategy uses a
bottom-up approach to selecting stocks. That means American Century first looks
for strong, growing companies to invest in, rather than simply buying any
company in a growing industry sector.

The VP Income & Growth Fund seeks long-term capital growth by investing in
common stocks. Income is a secondary objective. American Century selects
primarily from the largest 1,500 publicly traded U.S. companies and uses
quantitative, computer-driven models to construct the portfolio of stocks.

Managed by Wellington
Management Company, LLP

Anchor Series Trust

The Capital Appreciation Portfolio seeks long-term capital appreciation. The
portfolio invests in growth equity securities, which are widely diversified by
industry and company.

The Growth Portfolio seeks capital appreciation primarily through investments in
core equity securities that are widely diversified by industry and company.

The Natural Resources Portfolio seeks a total return in excess of the U.S. rate
of inflation as represented by the Consumer Price Index. This portfolio invests
primarily in equity securities of U.S. or foreign companies that are expected to
provide favorable returns in periods of rising inflation.

Managed by The Dreyfus
Corporation and Mellon Equity
Associates

Dreyfus Stock Index Fund

The Dreyfus Stock Index Fund seeks to match the total return of the Standard &
Poor's 500 Composite Stock Price Index. To pursue this goal, the fund generally
invests in all 500 Stocks in the S&P 500(R) in proportion to their weighting in
the index.

The S&P 500 is an unmanaged index of 500 common stocks chosen to reflect the
industries of the U.S. economy and is often considered a proxy for the stock
market in general. Each stock is weighted by its market capitalization, which
means larger companies have greater representation in the index than smaller
ones. For example, as of March 31, 2000, the fund's 10 largest holdings
represented more than 25% of its total assets, consistent with the composition
of the index.


                                       21
<PAGE>

Managed by The Dreyfus
Corporation

Dreyfus Variable Investment Fund

The portfolio seeks investment returns (consisting of capital appreciation and
income) that are greater than the total return performance of stocks represented
by the Russell 2500(TM) Stock Index ("Russell 2500"). To pursue this goal, the
portfolio normally invests in a blended portfolio of growth and value stocks of
small and midsize domestic companies, whose market values generally range
between $500 million and $5 billion. Stocks are chosen through a disciplined
process combining computer modeling techniques, fundamental analysis and risk
management. Consistency of returns and stability of the portfolio's share price
compared to the Russell 2500 are primary goals of the investment process.

Managed by Fidelity
Management & Research
Company

Fidelity Variable Insurance Products Fund

The VIP Growth Portfolio seeks capital appreciation through investment primarily
in common stock.

Subadvised by Fidelity
Management & Research Far
East Inc. and Fidelity
Management & Research
(U.K.), Inc.

The VIP High Income Portfolio 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.

Subadvised by Fidelity
Investments Money
Management, Inc.

The VIP Money Market Portfolio seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. The portfolio
will invest only in high quality U.S. dollar denominated money market securities
of domestic and foreign issuers. An investment in the VIP Money Market Portfolio
is neither insured nor guaranteed by the U.S. Government and there can be no
assurance that the portfolio will maintain a stable $1.00 share price.

Managed by Fidelity
Management & Research
Company

      Subadvised by Fidelity
      Management & Research Far
      East, Inc. and Fidelity
      Management & Research
      (U.K.) Inc.

Fidelity Variable Insurance Products Fund II

The VIP II Asset Manager Portfolio seeks to provide a high total return with
reduced risk over the long term by allocating its assets among stocks, bonds and
short-term money market instruments.

      Subadvised by Fidelity
      Management & Research Far
      East, Inc. and Fidelity
      Management & Research
      (U.K.) Inc.

The VIP II Contrafund(R) Portfolio seeks long-term capital appreciation by
investing in securities of companies whose value the manager believes is not
fully recognized by the public.


                                       22
<PAGE>

      Subadvised by Fidelity
      Investments Money
      Management, Inc.

The VIP II Investment Grade Bond Portfolio 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.

Managed by Templeton
Investment Counsel, Inc.

Franklin Templeton Variable Insurance Products Trust (VIP)

The Templeton Asset Allocation Fund seeks high total return by investing in
equity securities of companies in any nation, debt securities of companies and
governments of any nation, including emerging markets, and money market
instruments.

Managed by J.P. Morgan
Investment Management, Inc.

J.P. Morgan Series Trust II

The Bond Portfolio seeks to provide high total return consistent with moderate
risk of capital and maintenance of liquidity. The portfolio invests primarily in
fixed income securities, including U.S. government and agency securities,
corporate bonds, private placements, asset-backed and mortgage-backed
securities, that J.P Morgan believes have the potential to provide a high total
return over time.

The Disciplined Equity Portfolio seeks to provide high total return from a
portfolio of selected equity securities. The portfolio invests primarily in
large- and medium-capitalization U.S. companies.

Managed by Neuberger Berman
Management Inc.

Neuberger Berman Advisers Management Trust

The AMT Partners Portfolio seeks to achieve growth of capital by investing
mainly in stocks of mid- to large-capitalization companies. Neuberger Berman
looks 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. Neuberger Berman looks 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.


                                       23
<PAGE>

Managed by
OppenheimerFunds, Inc.

Oppenheimer Variable Account Funds

The Oppenheimer Global Securities Fund/VA seeks long-term capital appreciation
by investing a substantial portion of assets in securities of foreign issuers,
"growth-type" companies, cyclical industries and special situations that are
considered to have appreciation possibilities.

The Oppenheimer Main Street Growth & Income Fund/VA seeks high total return,
which includes growth in the value of its shares as well as current income, from
equity and debt securities.

Managed by SunAmerica Asset
Management Corp.

SunAmerica Series Trust

The Aggressive Growth Portfolio seeks capital appreciation by investing
primarily in equity securities of high growth companies including small and mid
growth companies with market capitalization of $1.5 billion to $10 billion.

The SunAmerica Balanced Portfolio seeks conservation of principal and capital
appreciation by maintaining, at all times, a balanced portfolio of stocks and
bonds with at least 25% invested in fixed income securities.

Subadvised by Alliance
Capital Management L.P.

The Alliance Growth Portfolio seeks long-term growth of capital by investing
primarily in common stocks and other equity securities.

Subadvised by Alliance
Capital Management L.P.

The Growth-Income Portfolio seeks growth of capital and income through
investment primarily in dividend-paying common stocks of good quality.

Subadvised by Goldman
Sachs Asset Management
International

The Global Bond Portfolio seeks high total return, emphasizing current income
and, to a lesser extent, capital appreciation, by investing in high fixed income
securities of U.S. and foreign issuers and transactions in foreign currencies.

Subadvised by Massachusetts
Financial Services Company

The MFS Mid-Cap Growth Portfolio seeks long-term growth of capital by investing
primarily in equity securities of medium-sized companies, generally with market
capitalization between $1 billion and $5 billion, that its subadviser believes
have above-average growth potential.


                                       24
<PAGE>

Subadvised by Marsico
Capital Management, LLC

The Marsico Growth Portfolio seeks long-term growth of capital by investing
under normal circumstances at least 65% in equity securities of large companies
with a general core position of 20 to 30 common stocks.

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 and policy expenses from the Guaranteed Account and the subaccounts
on a pro rata basis, unless you tell us otherwise. 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 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, partial withdrawal or surrender from the Guaranteed Account, we may
defer 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.


                                       25
<PAGE>

================================================================================

                          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     that portion of your Account Value held in the subaccounts, plus

o     that portion of your Account Value held in the Guaranteed Account.


                                       26
<PAGE>

Your Account Value will reflect:

o     the premium 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.

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 premium 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 charge, 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.


                                       27
<PAGE>

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 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
      charge, taken from the Guaranteed Account, 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. 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.

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:


                                       28
<PAGE>

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 Account Value in the Guaranteed
      Account (not including 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 assuming the New York Stock Exchange is 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
under "Other Policy Provisions - When Proceeds Are Paid."

Number of Permitted Transfers/Transfer Charge. We do not currently limit the
number of transfers you may make. However, for each transfer in excess of 12
during a policy year, we will assess a $25 transfer charge. 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 programs
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.


                                       29
<PAGE>

We reserve the right to suspend telephone transfer privileges at any time.

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.

If you select this program, we will automatically transfer monthly a portion of
your Account Value. Unless you tell us otherwise, we will allocate the transfer
as you have specified in your most current premium allocation instructions.
However, not less than 1% 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. There is no charge for this program.

Dollar Cost Averaging From the Guaranteed Account with Six Month Bonus Rate (DCA
Plus Program). We may make available a six-month bonus interest rate if you use
the dollar cost averaging feature from the Guaranteed Account. We will credit
the Net Premium to the DCA Plus Guaranteed Account. This dollar cost averaging
option must be elected at the time of application and only applies to premium
received during the initial six months following the Policy Date. We will
transfer monthly one-sixth of your Account Value in the DCA Plus Guaranteed
Account over a period of six months.

During this period, we may credit an interest rate in addition to the interest
rate that we are crediting on allocations or transfers to the Guaranteed Account
at that time. Additional amounts may not be allocated to the DCA Plus Guaranteed
Account after the six-month period.

If you terminate dollar cost averaging while your Account Value includes amounts
in the DCA Plus Guaranteed Account, we will transfer that amount to the
Guaranteed Account. It will earn interest at the current rate we are crediting
on allocations or transfers to the Guaranteed Account.


                                       30
<PAGE>

We reserve the right to establish dollar cost averaging transfer limits, to
restrict the subaccounts from which dollar cost averaging transfers may be made,
and to eliminate this option all together.

Processing Your Automatic DCA Transfers. We will begin to process your automatic
transfers:

o     On the first Monthly Anniversary following the end of the period to
      examine and cancel if you request the automatic DCA transfers when you
      apply for your policy.

o     On the second Monthly Anniversary following the receipt of your request at
      our Administrative Office if you elect the option after you applied for
      the policy.

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.


                                       31
<PAGE>

Automatic Rebalancing

We may offer an automatic rebalancing program that rebalances 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 reset your Account Value in 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 the appropriate day, we
will rebalance your Account Value by reallocating it according to your most
recent allocation instructions.

There is no charge for this program. We will not count transfers resulting from
automatic rebalancing against your free transfers.

We will stop processing automatic rebalancing transfers if:

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.

We reserve the right to suspend or modify automatic rebalancing or to charge an
administrative fee for excessive election or allocation changes. Automatic
rebalancing is not available if the Grace Period has commenced.


                                       32
<PAGE>

================================================================================

                                  Death Benefit

================================================================================

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     the policy.

The Beneficiary may receive
the Life Insurance Proceeds in
one lump sum or under any
available payment option.

Payment of Life Insurance Proceeds. We will pay the Life Insurance Proceeds
generally within seven days after we receive the required information. 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.


                                       33
<PAGE>

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 select and will equal:

o     the amount of the Death Benefit 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.

Death Benefit Options

You may select from three death benefit options.

Level Death Benefit Option.

o     Level Death Benefit Option

The Death Benefit will be the greater of:

      (1)   Face Amount; or

      (2)   Account Value on the date of death multiplied by the appropriate
            minimum death benefit factor

You should consider this death benefit option if you want to minimize your cost
of insurance.


                                       34
<PAGE>

Variable Death Benefit
Option.

o     Variable Death Benefit Option

      The Death Benefit will be the greater of:

      (1)   Face Amount plus Account Value on the date of death; or

      (2)   Account Value on the date of death multiplied by the appropriate
            minimum death benefit factor.

      You should consider this death benefit option if you want your Death
      Benefit to vary with your Account Value. Premium Recovery Death Benefit
      Option.

o     Premium Recovery Death Benefit Option

      The Death Benefit will be the greater of:

      (1)   Face Amount plus premium paid until the policy anniversary prior to
            the date of death minus partial withdrawals; or

      (2)   Account Value on the date of death multiplied by the appropriate
            minimum death benefit factor.

      You should consider this death benefit if you want your Death Benefit to
      include your premium paid.

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 your policy.

The two tax qualification options are:

Guideline Premium/Cash
Value Corridor Test.

o     Guideline Premium/Cash Value Corridor Test.


                                       35
<PAGE>

Cash Value Accumulation
Test.

o     Cash Value Accumulation Test. This tax qualification option should be
      considered if you want to maximize the premium 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

Unless you select the Premium Recovery Death Benefit Option, you may request a
change in death benefit option at any time after the first policy anniversary
while your policy is in force.

How to request a change.

You may change your death benefit option by providing your agent with a written
request or by writing to 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.

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.


                                       36
<PAGE>

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, subject to any
evidence of insurability requirements. 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 at least 30 days written notice 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.


                                       37
<PAGE>

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 Administrative Office along with
satisfactory evidence of insurability. You must return the policy so we can
amend it 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 made after the first policy anniversary.

o     Must be for 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.

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.


                                       38
<PAGE>

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, will cause the termination of the policy's no
lapse provision. A decrease in the Face Amount will 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.


                                       39
<PAGE>

================================================================================

                     Cash Benefits During the Insured's Life

================================================================================

During the life of the Insured, your policy has cash benefits that you may
access within limits by taking loans or making a partial withdrawal or
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

(l)   During the first policy year, you may take a loan so long as the
      Outstanding Loan (including the loan at issue) does not exceed 75% of the
      Cash Surrender Value.

(2)   After the first policy year, the maximum loan amount you may take is:

      (a)   Your Net Cash Surrender Value, less

      (b)   Loan interest to the next policy anniversary on the loan amount you
            are currently requesting, less

      (c)   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. We reserve the right to defer any loan payment for up to six months.


                                       40
<PAGE>

Interest. We charge interest daily on any Outstanding Loan at a declared annual
rate not to exceed 6%. 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 until the tenth policy
anniversary. Currently, after the tenth policy anniversary, the net cost is 0%.
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 to 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. You should consult your tax adviser before
taking a loan.

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.


                                       41
<PAGE>

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. The notice will specify the amount that must be
repaid to prevent termination. You will have the opportunity during the Grace
Period to submit sufficient payment to avoid 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. This does not include withdrawals made as part of 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 Face Amount to be less than
      the required minimum Face Amount.

o     Minimum Partial Withdrawal Amount - $250. This limit does not apply to
      withdrawals under the systematic withdrawal program.


                                       42
<PAGE>

o     Maximum Partial Withdrawal From the Guaranteed Account - during any policy
      year you may only withdraw from the Guaranteed Account 25% of your Account
      Value in the Guaranteed Account (not including 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     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:

      (1)   25% of your Account Value in the Guaranteed Account (not including
            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

      (2)   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 or if the Account Value in the subaccount or Guaranteed Account is
insufficient to withdraw the amount requested, we will withdraw all or the
difference from the remaining subaccounts 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 withdrawn
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.


                                       43
<PAGE>

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 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 may request to participate in the
systematic withdrawal program at any time after the first policy anniversary.

You have the option to switch to borrowing from your Account Value once a
specified amount of withdrawals has been reached or at any time after the first
policy anniversary. 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 or loans may be taxable. Please consult your tax adviser before
requesting a withdrawal or a loan.


                                       44
<PAGE>

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 lump 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. Your policy cannot
later be reinstated.


                                       45
<PAGE>

================================================================================

                          Payment Options for Benefits

================================================================================

We offer a wide variety of optional ways of receiving proceeds payable under the
policy, such as upon 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 the Variable Account
because they are all forms of guaranteed benefit payments.


                                       46
<PAGE>

================================================================================

                             Expenses of the Policy

================================================================================

Periodically, we will deduct expenses related to your policy. We will deduct
these:

o     from premium, 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 Premium

We will deduct up to a maximum of 8% from each premium payment to provide for
state premium taxes, DAC taxes and for other expenses associated with acquiring
and servicing a policy. Currently, the deduction is 5% of each premium payment
up to the target premium amount and 2% of any premium paid in excess of the
target premium amount for policy years 1-10. Beginning in policy year 11, we
currently charge 3% of each premium payment up to the target premium amount and
2% of any premium paid in excess of the target premium amount.

Monthly Deductions From Account Value

On the Policy Date and each Monthly Anniversary thereafter, we make a deduction
from your 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.

On each Monthly Anniversary we will deduct charges for:

o     The administration of your policy.


                                       47
<PAGE>

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 Account Value allocated to the Guaranteed Account (not including the Loan
Account) or 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 Variable 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.
Currently, after the fifth policy year the charge is $7.50 per month.

Acquisition Charge. We will make a deduction from your 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.


                                       48
<PAGE>

Net Amount at Risk.

If the Death Benefit is equal to the Face Amount, the Face Amount plus Account
Value, or the Face Amount plus premium paid until the policy anniversary prior
to the date of death minus partial withdrawals, 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 the following
basic rate classifications based on our underwriting:

o     preferred plus nonsmoker;

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.


                                       49
<PAGE>

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.


                                       50
<PAGE>

Legal Considerations Relating to Sex-Distinct Premium and Benefits. Mortality
tables for the policy generally distinguish between males and females. Thus,
premium 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 Variable Account 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, 0.25% for policy years 11 through 20, and 0.10%
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 Insured 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 Variable
Account will exceed the amounts realized from the administrative charges
assessed against all policies.


                                       51
<PAGE>

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 applicable, we will deduct the
charge from the amount you transfer before allocation to the new subaccount(s)
or to the Guaranteed Account. The confirmation of the transaction will show the
transfer charge, if any.

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 have elapsed
      since the Policy Date or requested increase in Face Amount, as described
      in the following table:


                                       52
<PAGE>

             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.


                                       53
<PAGE>

Surrender Charge 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 Face Amount.

We deduct the surrender charge from the subaccounts and 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 the
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 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.

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.


                                       54
<PAGE>

================================================================================

                        Supplemental Benefits and Riders

================================================================================

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
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)

Primary Insured Rider (PIR)

Waiver of Monthly Deductions Rider (WMD)

Waiver of Specified Premium Rider (WSP)


                                       55
<PAGE>

================================================================================

                             Other Policy Provisions

================================================================================

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 Policy 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.

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.


                                       56
<PAGE>

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 premium
paid, minus any loan and accrued loan interest, any partial withdrawal, and 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.

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.

Changes in the Policy or Benefits

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.

When Proceeds Are Paid

We will ordinarily pay Life Insurance Proceeds, loan proceeds, and partial
withdrawal or 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:


                                       57
<PAGE>

(2)   the disposal or valuation of the Variable 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
      Securities and Exchange Commission, or the Securities and Exchange
      Commission declares that an emergency exists; or

(3)   the Securities and Exchange Commission 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.


                                       58
<PAGE>

Reports to Owners

We will send you a confirmation within seven days of the following transactions:

o     the receipt of any unplanned premium (and any premium received before the
      Issue Date);

o     any change of allocation of premium;

o     any transfer among 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 premium paid, all charges deducted during the policy
year, and all transactions. We will also send to you annual and semi-annual
reports for the Variable Account.


                                       59
<PAGE>

Assignment

You may assign the policy, if we agree, in accordance with its terms by using 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 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 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. We will deduct the premium expenses from the required payment. The
monthly expense charges, Account Value, Outstanding Loan and surrender charge
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.


                                       60
<PAGE>

================================================================================

                             Performance Information

================================================================================

From time to time we may advertise the total return and the average annual total
return of the subaccounts and the portfolios. 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 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 premium, Account Value, or Variable Account assets (for example,
mortality and expense risk charge, monthly deductions, cost of insurance,
surrender charge, sales load, DAC taxes, and any state or local premium taxes).
If these charges were included, the total return figures would be lower.


                                       61
<PAGE>

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.


                                       62
<PAGE>

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 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.


                                       63
<PAGE>

================================================================================

                        Federal Income Tax Considerations

================================================================================

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 Variable 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.


                                       64
<PAGE>

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% 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 U.S. 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.


                                       65
<PAGE>

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, we
believe 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 premium permitted under the policy.

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.


                                       66
<PAGE>

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 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 premium
      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 premium 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 premium paid
      less the untaxed portions of any prior withdrawals, even if total
      withdrawals do not exceed total premium paid.

o     Extra premium for optional benefits and riders generally do not count in
      computing the premium 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.


                                       67
<PAGE>

Modified Endowment Contracts

o     The rules change if the policy is classified as a modified endowment
      contract ("MEC"). The policy could be classified as a MEC if premium
      substantially in excess of scheduled premium is 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 premium 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.

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.


                                       68
<PAGE>

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.

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.


                                       69
<PAGE>

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 Variable Account or to the policy.


                                       70
<PAGE>

================================================================================

                           Distribution of the Policy

================================================================================

Where the policy may be lawfully sold, it is sold by licensed insurance agents
who are registered representatives of broker-dealers registered under the
Securities Exchange Act of 1934. The broker-dealers are also members of the
National Association of Securities Dealers, Inc.

The policy will be distributed through the principal underwriter for the
Variable Account, AIG Equity Sales Corp. ("AIGESC"), 70 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 premium 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

We may offer other policies similar to those offered herein.


                                       71
<PAGE>

================================================================================

                            About Us and the Accounts

================================================================================

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.

The Variable Account

We established the Variable 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 Variable Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the federal securities laws.

Although you may have
allocated your Account Value
to the subaccounts, you do not
own these assets. You only
own your policy.

We own the assets in the Variable Account. The Variable Account is divided into
subaccounts. The subaccounts available under the policy invest in shares of a
specific portfolio of a mutual fund. The Variable Account may include other
subaccounts that are not available under the policy.

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 Variable Account. We will exercise
these rights only in compliance with all applicable regulatory requirements. We
have the right to:


                                       72
<PAGE>

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 Variable Account with
      the Securities and Exchange Commission.

o     run the Variable 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 Variable Account.

o     operate the Variable 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 Variable Account or one or more of the subaccounts in any
      investments that are legal, as determined by our own or outside counsel.

We will not change an investment adviser or any investment of a subaccount of
our Variable 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.


                                       73
<PAGE>

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
corresponding 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 our general account. Our general
account assets are used to support our insurance and annuity obligations other
than those funded by separate investment accounts. Subject to applicable law, we
have sole discretion over the investment of the assets of the general account.

We have not registered interests in the Guaranteed Account under the Securities
Act of 1933 or the Guaranteed Account as an investment company under the
Investment Company Act of 1940.

The staff of the Securities and Exchange Commission has not reviewed our
disclosure regarding 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.


                                       74
<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 years. All officers have been affiliated with the company during
the past five years unless otherwise indicated.

<TABLE>
<CAPTION>
                                                                             Principal Business
                                                                             Affiliations and
                                                                             Principal Occupations
Name and Address                    Office                                   During Past Five Years
----------------                    ------                                   ----------------------
<S>                                 <C>                                      <C>
Michele L. Abruzzo                  Director, Senior Executive Vice          Senior Vice President
80 Pine Street                      President
13th Floor
New York, NY 10005

James A. Bambrick                   Senior Vice President,                   Senior Vice President, A&H
One Alico Plaza                     Chief Operations Officer                 Division
600 King Street
Wilmington, DE 19801

Paul S. Bell                        Director, Senior Vice                    Senior Vice President, Actuary
One Alico Plaza                     President, Chief
600 King Street                     Actuary
Wilmington, DE 19801

Maurice R. Greenberg                Director                                 Director, Chairman and Chief
70 Pine Street                                                               Executive Officer of AIG, Inc.
New York, NY 10270

Edward Easton Matthews              Director, Senior Vice President          Vice Chairman Investments and
70 Pine Street                                                               Financial Services, AIG, Inc.
New York, NY 10270

Jerome Thomas Muldowney             Director, Senior Vice President          Senior Managing Director of AIG
175 Water Street                                                             Global Investment Corp.
New York, NY 10038
</TABLE>


                                       75
<PAGE>

<TABLE>
<CAPTION>
                                                                             Principal Business
                                                                             Affiliations and
                                                                             Principal Occupations
Name and Address                    Office                                   During Past Five Years
----------------                    ------                                   ----------------------
<S>                                 <C>                                      <C>
Robinson K. Nottingham              Director, Chairman of the Board          Chairman of the Board and Chief
70 Pine Street                                                               Executive Officer of American
New York, NY 10270                                                           International Life Insurance
                                                                             Company (ALICO)

John Oehmke                         Chief Financial Officer,                 Regional Vice President, Controller,
One Alico Plaza                     Vice President                           American International Companies,
600 King Street                                                              Japan and Korea
Wilmington, DE 19801

Nicholas A. O'Kulich                Director, Vice Chairman,                 Vice President, Senior Vice
70 Pine Street                      Treasurer                                President, AIG, Inc.
New York, NY 10270

Howard Ian Smith                    Director                                 Director, Executive Vice President,
70 Pine Street                                                               Chief Financial Officer and
New York, NY 10270                                                           Comptroller, AIG, Inc.

Edmund Sze-Wing Tse                 Director                                 Vice Chairman, Life Insurance,
70 Pine Street                                                               AIG, Inc.
New York, NY 10270

Elizabeth M. Tuck                   Secretary                                Secretary and Assistant Secretary of
70 Pine Street                                                               AIG, Inc. and certain affiliates
New York, NY 10270

Kenneth D. Walma                    Vice President, General Counsel          Assistant Secretary, Associate
One Alico Plaza                                                              General Counsel
600 King Street
Wilmington, DE 19801

Gerald Walter Wyndorf               Director, Chief Executive                Executive Vice President
80 Pine Street                      Officer, President
New York, NY 10038
</TABLE>


                                       76
<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 Variable 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.

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 Variable Account.


                                       77
<PAGE>

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 Variable
Account or the degree of risk associated with an investment in the Variable
Account.


                                       78
<PAGE>

================================================================================

                              Financial Statements

================================================================================

Our financial statements (AIG Life Insurance Company for the years ended
December 31, 1999, 1998 and 1997) have been audited by PricewaterhouseCoopers
LLP, independent certified public accountants, as stated in their report, and
have been included in this prospectus in reliance upon the authority of such
firm as experts in accounting and auditing. Financial statements of the Variable
Account are not included because no policies have been issued using the
subaccounts described in this prospectus.


                                       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, 1999, 1998 AND 1997

<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,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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 3, 2000
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                                 BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                         December 31,   December 31,
                                                            1999           1998
                                                         ----------     ----------
<S>                                                      <C>            <C>
Assets

Investments and cash:
   Fixed maturities:
     Bonds available for sale, at market value           $4,702,879     $4,238,045
     (cost: 1999 - $4,890,022; 1998 - $4,081,008)
   Equity securities:
     Common stock
     (cost: 1999-$892; 1998 - $901)                           2,233          2,410
     Non-redeemable preferred stock
     (cost: 1999 - $50,794; 1998 - $18,250)                  49,377         19,338
Mortgage loans on real estate, net                          345,253        468,342
Real estate, net of accumulated
 depreciation of $5,041 in 1999 and $4,351 in 1998           12,543         13,002
Policy loans                                                643,815      1,010,969
Other invested assets                                        77,845         81,916
Short-term investments                                      222,677        163,704
Cash                                                             86          4,788
                                                         ----------     ----------

     Total investments and cash                           6,056,708      6,002,514

Amounts due from related parties                              5,465         17,330
Investment income due and accrued                            93,183         94,029
Premium and insurance balances receivable                    64,359         56,583
Reinsurance assets                                           99,850         72,044
Deferred policy acquisition costs                           220,672        167,840
Federal income tax receivable                                 9,611          4,207
Deferred income taxes                                        63,568             --
Separate and variable accounts                            3,220,806      1,971,280
Other assets                                                  5,363          6,228
                                                         ----------     ----------

                                Total assets             $9,839,585     $8,392,055
                                                         ==========     ==========
</TABLE>

                 See accompanying notes to financial statements.


                                       2
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                                 BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                          December 31,   December 31,
                                                              1999          1998
                                                          -----------    ----------
<S>                                                       <C>            <C>
Liabilities

  Policyholders' funds on deposit                         $ 4,612,363    $4,472,854
  Future policy benefits                                    1,284,568     1,002,244
  Reserve for unearned premiums                                21,100        21,468
  Policy and contract claims                                  212,627       200,193
  Reserve for commissions, expenses and taxes                  19,390        25,702
  Insurance balances payable                                   60,642        56,263
  Amounts due to related parties                                6,821         4,119
  Deferred income taxes                                            --        56,519
  Separate and variable accounts                            3,220,806     1,971,280
  Minority interest                                             5,837         5,987
  Other liabilities                                            75,039        59,189
                                                          -----------    ----------

                                Total liabilities           9,519,193     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                                           283,908       236,521
  Accumulated other comprehensive income                     (121,683)      121,549
                                                          -----------    ----------

                                Total capital funds           320,392       516,237
                                                          -----------    ----------

Total liabilities and capital funds                       $ 9,839,585    $8,392,055
                                                          ===========    ==========
</TABLE>

                 See accompanying notes to financial statements.


                                       3
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                              STATEMENTS OF INCOME
                                 (in thousands)

<TABLE>
<CAPTION>
                                                          Years ended December 31,
                                                  ---------------------------------------
                                                      1999          1998           1997
                                                  -----------    -----------    ---------
<S>                                               <C>            <C>            <C>
Revenues:
  Premiums                                        $   712,920    $   616,964    $ 437,650
  Net investment income                               443,863        457,148      381,868
  Realized capital losses                             (11,240)          (334)      (3,025)
                                                  -----------    -----------    ---------

                  Total revenues                    1,145,543      1,073,778      816,493
                                                  -----------    -----------    ---------

Benefits and expenses:
  Benefits to policyholders                           329,888        272,368      188,969
  Increase in future policy benefits
   and policyholders' funds on deposit                539,457        547,100      397,481
  Acquisition and insurance expenses                  202,678        168,075      163,533
                                                  -----------    -----------    ---------

                  Total benefits and expenses       1,072,023        987,543      749,983
                                                  -----------    -----------    ---------

Income before income taxes                             73,520         86,235       66,510
                                                  -----------    -----------    ---------

Income taxes:
   Current                                             15,055         16,218       20,059
   Deferred                                            10,884         15,220        3,964
                                                  -----------    -----------    ---------

      Total income taxes                               25,939         31,438       24,023
                                                  -----------    -----------    ---------

Net income before minority interest                    47,581         54,797       42,487

Minority interest income                                 (194)          (163)        (128)
                                                  -----------    -----------    ---------

Net income                                        $    47,387    $    54,634    $  42,359
                                                  ===========    ===========    =========
</TABLE>

                 See accompanying notes to financial statements.


                                       4
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                           STATEMENTS OF CAPITAL FUNDS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                   Years ended December 31,
                                              -----------------------------------
                                                1999          1998         1997
                                              ---------    ---------    ---------
<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      153,283      123,283
Capital contributions                                --           --       30,000
                                              ---------    ---------    ---------
Balance at end of year                          153,283      153,283      153,283
                                              ---------    ---------    ---------

Retained earnings
  Balance at beginning of year                  236,521      181,887      139,528
  Net income                                     47,387       54,634       42,359
                                              ---------    ---------    ---------

  Balance at end of year                        283,908      236,521      181,887
                                              ---------    ---------    ---------

Accumulated other comprehensive income

 Balance at beginning of year                   121,549      114,490       62,814
 Unrealized appreciation (depreciation) of
   investments - net of reclassification
   adjustments                                 (374,203)      10,860       79,497
  Deferred income tax benefit (expense) on
      changes                                   130,971       (3,801)     (27,821)
                                              ---------    ---------    ---------

  Balance at end of year                       (121,683)     121,549      114,490
                                              ---------    ---------    ---------

             Total capital funds              $ 320,392    $ 516,237    $ 454,544
                                              =========    =========    =========
</TABLE>

                 See accompanying notes to financial statements.


                                       5
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                Years ended December 31,
                                                                         ---------------------------------------
                                                                            1999            1998         1997
                                                                         -----------    -----------    ---------
<S>                                                                      <C>            <C>            <C>
Cash flows from operating activities:
 Net income                                                              $    47,387    $    54,634    $  42,359

 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                                                294,389        250,810      121,325
 Change in premiums and insurance balances
  receivable and payable -net                                                 (3,398)          (753)      (5,346)
 Change in reinsurance assets                                                (27,806)       (11,301)     157,710
 Change in deferred policy acquisition costs                                 (52,832)       (49,305)     (34,248)
 Change in investment income due and accrued                                     846         (8,894)      22,133
 Realized capital losses                                                      11,240            334        3,025
 Change in current and deferred income taxes -net                              5,480          9,330        2,689
 Change in reserves for commissions, expenses and taxes                       (6,312)         9,599       13,243
 Change in other assets and liabilities - net                                 26,888        (61,575)      69,582
                                                                         -----------    -----------    ---------
     Total adjustments                                                       248,495        138,245      350,113
                                                                         -----------    -----------    ---------
 Net cash provided by operating activities                                   295,882        192,879      392,472
                                                                         -----------    -----------    ---------

Cash flows from investing activities:
 Cost of fixed maturities, at market, sold                                   564,697        282,756       23,816
 Cost of fixed maturities, at market, matured or redeemed                    318,833        340,435      153,963
 Cost of equity securities sold                                                1,032          1,039        3,676
 Cost of real estate sold                                                         --          2,585           --
 Realized capital losses                                                     (11,240)         1,666        1,975
 Purchase of fixed maturities                                             (1,685,038)    (1,865,768)    (804,262)
 Purchase of equity securities                                               (33,567)       (18,559)      (1,750)
 Purchase of real estate                                                          --           (341)        (413)
 Mortgage loans granted                                                     (134,988)      (202,484)     (87,690)
 Repayments of mortgage loans                                                258,159         83,035       29,298
 Change in policy loans                                                      367,154        485,868      377,124
 Change in short-term investments                                            (58,973)       504,208     (567,876)
 Change in other invested assets                                             (23,336)       (11,706)       6,294
 Other - net                                                                  (2,826)       (27,908)      11,917
                                                                         -----------    -----------    ---------
  Net cash used in investing activities                                     (440,093)      (425,174)    (853,928)
                                                                         -----------    -----------    ---------

Cash flows from financing activities:
 Change in policyholders' funds on deposit                                   139,509        231,951      430,808
  Proceeds from capital contribution                                              --             --       30,000
                                                                         -----------    -----------    ---------
   Net cash provided by financing activities                                 139,509        231,951      460,808
                                                                         -----------    -----------    ---------

Change in cash                                                                (4,702)          (344)        (648)
Cash at beginning of period                                                    4,788          5,132        5,780
                                                                         -----------    -----------    ---------
Cash at end of period                                                    $        86    $     4,788    $   5,132
                                                                         ===========    ===========    =========
</TABLE>

                 See accompanying notes to financial statements.


                                       6
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                       STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)

<TABLE>
<CAPTION>
                                                   Years ended December 31,
                                              ---------------------------------
                                                 1999        1998        1997
                                              ---------    --------    --------
<S>                                           <C>          <C>         <C>
Comprehensive income

Net income                                    $  47,387    $ 54,634    $ 42,359
                                              ---------    --------    --------

Other comprehensive income

Unrealized appreciation (depreciation) of
  investments - net of reclassification
  adjustments                                  (374,203)     10,860      79,497
 Changes due to deferred income tax benefit
    (expense) on changes                        130,971      (3,801)    (27,821)
                                              ---------    --------    --------

  Other comprehensive income                   (243,232)      7,059      51,676
                                              ---------    --------    --------

 Comprehensive income                         $(195,845)   $ 61,693    $ 94,035
                                              =========    ========    ========
</TABLE>

                 See accompanying notes to financial statements.


                                       7
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                          NOTES TO FINANCIAL STATEMENTS

1.    Summary of Significant Accounting Policies

      (a)   Basis of Presentation: AIG Life Insurance Company (the Company) is a
            wholly owned subsidiary of American International Group, Inc. (the
            Parent). The financial statements of the Company have been prepared
            on the basis of generally accepted accounting principles (GAAP). The
            preparation of financial statements in conformity with GAAP requires
            management to make estimates and assumptions that affect the
            reported amounts of assets and liabilities and disclosure of
            contingent assets and liabilities at the date of the financial
            statements and the reported amounts of revenues and expenses during
            the reporting periods. Actual results could differ from those
            estimates. The Company is licensed to sell life and accident and
            health insurance in the District of Columbia and all states except
            for Maine and New York.

            The Company also files financial statements prepared in accordance
            with statutory practices prescribed or permitted by the Insurance
            Department of the State of Delaware. Financial statements prepared
            in accordance with GAAP 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 current 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 lives. 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 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.


                                       8
<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 partnerships,
            which are recorded using either the cost or the equity method
            depending on the type of partnership and the Company's related
            ownership percentage.

      (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 for
            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.


                                       9
<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 131 establishes standards for the way the Company is required
            to disclose information about its operating segments in its annual
            financial statements and selected information in its 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 was
            effective 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 the
            Company to revise its 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, 2001.

            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. This
            statement was effective for the year commencing January 1, 1999 and
            has been adopted herein. SOP 97-3 did not have a material impact on
            the Company's results of operations, financial condition or
            liquidity.


                                       10
<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.

2.    Investment Information

      (a)   Statutory Deposits: Securities with a carrying value of $2,540,000
            and $2,448,000 were deposited by the Company under requirements of
            regulatory authorities as of December 31, 1999 and 1998,
            respectively.

      (b)   Net Investment Income: An analysis of net investment income is as
            follows (in thousands):

                                                  Years ended December 31,
                                              ----------------------------------
                                                1999         1998         1997
                                              --------     --------     --------
Fixed maturities                              $330,806     $284,267     $200,097
Equity securities                                1,670          622           58
Mortgage loans                                  37,255       36,464       28,714
Real estate                                      2,253        2,406        2,254
Policy loans                                    55,832      120,927      148,555
Cash and short-term investments                  7,349        9,346        3,582
  Other invested assets                         15,141        8,015        2,380
                                              --------     --------     --------
          Total investment income              450,306      462,047      385,640
Investment expenses                              6,443        4,899        3,772
                                              --------     --------     --------

          Net investment income               $443,863     $457,148     $381,868
                                              ========     ========     ========


                                       11
<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 1999, 1998 and 1997 are summarized below (in thousands):

<TABLE>
<CAPTION>
                                                                       Years ended December 31,
                                                                   ---------------------------------
                                                                      1999        1998        1997
                                                                   ---------    --------    --------
<S>                                                                <C>          <C>         <C>
    Realized (losses) gains on investments:
        Fixed maturities                                           $ (11,100)   $     --    $     --
        Equity securities                                                 86          84       1,975
        Mortgage loans                                                    --      (2,000)     (5,000)
        Real estate                                                       --       1,561          --
        Other invested assets                                           (226)         21          --
                                                                   ---------    --------    --------
        Realized losses                                            $ (11,240)   $   (334)   $ (3,025)
                                                                   =========    ========    ========

    Change in unrealized appreciation (depreciation)
    of investments:
        Fixed maturities                                           $(344,180)   $ (1,131)   $ 77,422
        Equity securities                                             (2,673)      1,203        (626)
        Other invested assets                                        (27,350)     10,788       2,701
                                                                   ---------    --------    --------
        Change in unrealized appreciation
        (depreciation) of investments                              $(374,203)   $ 10,860    $ 79,497
                                                                   =========    ========    ========
</TABLE>

            Proceeds from the sale of investments in fixed maturities during
            1999, 1998 and 1997 were $564,697,000, $282,756,000, and
            $23,816,000, respectively.

            During 1999, 1998 and 1997, gross gains of $8,603,000, $0, and $0,
            respectively, and gross losses of $19,703,000, $0, and $0,
            respectively, were realized on dispositions of fixed maturity
            investments.

            During 1999, 1998 and 1997, gross gains of $87,000, $84,000, and
            $1,975,000, respectively, and gross losses of $1,000, $0, and $0,
            respectively, were realized on disposition of equity securities.

      (d)   Market Value of Fixed Maturities and Unrealized Appreciation of
            Investments: At December 31, 1999 and 1998, unrealized appreciation
            of investments in equity securities (before applicable taxes)
            included gross gains of $3,635,000 and $2,854,000 and gross losses
            of $3,711,000 and $257,000, respectively.

            The amortized cost and estimated market values of investments in
            fixed maturities at December 31, 1999 and 1998 are as follows (in
            thousands):

<TABLE>
<CAPTION>
                                                 Gross        Gross     Estimated
1999                               Amortized   Unrealized   Unrealized    Market
----                                  Cost       Gains        Losses      Value
                                   ----------   -------      --------   ----------
<S>                                <C>          <C>          <C>        <C>
Fixed maturities:
  U.S. Government and government
    agencies and authorities       $   54,114   $10,611      $    549   $   64,176
  States, municipalities and
    political subdivisions            298,831     8,474         2,777      304,528
  Foreign governments                  20,242       947           109       21,080
  All other corporate               4,516,835    30,080       233,820    4,313,095
                                   ----------   -------      --------   ----------

Total fixed maturities             $4,890,022   $50,112      $237,255   $4,702,879
                                   ==========   =======      ========   ==========
</TABLE>


                                       12
<PAGE>

2.    Investment Information - (continued)

<TABLE>
<CAPTION>
                                                  Gross        Gross     Estimated
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>

            The amortized cost and estimated market value of fixed maturities,
            available for sale at December 31, 1999, 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>
<CAPTION>
                                                                       Estimated
                                                      Amortized         Market
                                                         Cost            Value
                                                      ----------      ----------
<S>                                                   <C>             <C>
Due in one year or less                               $  320,364      $  310,060
Due after one year through five years                  1,431,252       1,385,475
Due after five years through ten years                 1,788,798       1,708,343
Due after ten years                                    1,349,608       1,299,001
                                                      ----------      ----------

                                                      $4,890,022      $4,702,879
                                                      ==========      ==========
</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, 1999 and 1998, the market value of
            the CMO portfolio was $577,112,000 and $522,844,000, respectively;
            the estimated amortized cost was approximately $586,925,000 in 1999
            and $504,077,000 in 1998. The Company's CMO portfolio is readily
            marketable. There were no derivative (high risk) CMO securities
            contained in the portfolio at December 31, 1999 and 1998.

      (f)   Fixed Maturities Below Investment Grade: At December 31, 1999 and
            1998, the fixed maturities held by the Company that were below
            investment grade had an aggregate amortized cost of $368,018,000 and
            $344,609,000, respectively, and an aggregate market value of
            $326,989,000 and $327,217,000, respectively.

      (g)   Non-income Producing Assets: Non-income producing assets were
            insignificant.


                                       13
<PAGE>

2.    Investment Information - (continued)

      (h)   Investments Greater than 10% Equity: The market value of investments
            in the following companies exceeded 10% of the Company's total
            capital funds at December 31, 1999 (in thousands):

        Bankers Trust                                                 $  35,126
        Camden Property                                                  38,782
        Countrywide                                                      39,621
        Fort James                                                       36,202
        GMAC                                                             34,375
        Lehman Brothers                                                  35,698
        Morgan Stanley Capital                                           37,532
        Morgan Stanley Group                                             40,665
        RFCO                                                             33,501
        Simon Debartolo                                                  41,138
        Tower Funding                                                    49,489

        Other Invested Assets:
        Equity Linked Investors II, L.P.                              $   36,852

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,
                                          -------------------------------------
                                             1999          1998          1997
                                          ---------     ---------     ---------
Balance at beginning of year              $ 167,840     $ 118,535     $  84,287
Acquisition costs deferred                   73,097        71,430        50,927
Amortization charged to income              (20,265)      (22,125)      (16,679)
                                          ---------     ---------     ---------
Balance at end of year                    $ 220,672     $ 167,840     $ 118,535
                                          =========     =========     =========

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, 1999 and 1998 follows (in thousands):

                                                         1999            1998
                                                      ----------      ----------
Future Policy Benefits:
Long duration contracts                               $1,255,606      $  987,503
Short duration contracts                                  28,962          14,741
                                                      ----------      ----------
                                                      $1,284,568      $1,002,244
                                                      ==========      ==========

Policyholders' funds on deposit:
Annuities                                             $1,598,685      $1,385,203
Universal life                                           212,907         184,460
Guaranteed investment contracts (GICs)                   976,517         669,035
Corporate owned life insurance                         1,816,969       2,229,843
Other investment contracts                                 7,285           4,313
                                                      ----------      ----------

                                                      $4,612,363      $4,472,854
                                                      ==========      ==========


                                       14
<PAGE>

4.    Future Policy Benefits and Policyholders' Funds on Deposit - (continued)

      (b)   Long duration contract liabilities included in future policy
            benefits, as presented in the table above, result from traditional
            life and annuity 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 7.6 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 7.4 percent.

      (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 7.5 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 4.9 percent to 8.1 percent
                  and maturities range from 3 to 7 years.

            (iii) Interest rates on corporate-owned life insurance business are
                  guaranteed at 4.0 percent and the weighted average rate
                  credited in 1999 was 6.7 percent.

            (iv)  The universal life funds, exclusive of corporate-owned life
                  insurance business, have credited interest rates of 5.4
                  percent to 7.1 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.


                                       15
<PAGE>

5.    Income Taxes

      (a)   The Federal income tax rate applicable to ordinary income is 35% for
            1999, 1998 and 1997. 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>
<CAPTION>
                                                  Years ended December 31,
                            --------------------------------------------------------------------
                                   1999                     1998                   1997
                            --------------------     -------------------    --------------------
                                  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                  $ 25,732        35.0%    $ 30,183       35.0%   $ 23,279        35.0%
Prior year federal
   income tax benefit            109         0.1          268        0.3          (6)         --
State income tax                 198         0.3          599        0.7         673         1.0
Other                           (100)       (0.1)         388        0.5          77         0.1
                            --------    --------     --------   --------    --------    --------
Actual income tax expense   $ 25,939        35.3%    $ 31,438       36.5%   $ 24,023        36.1%
                            ========    ========     ========   ========    ========    ========
</TABLE>

      (b)   The components of the net deferred tax liability were as follows (in
            thousands):

<TABLE>
<CAPTION>
                                                         Years ended December 31,
                                                         -----------------------
                                                            1999          1998
                                                         ---------      --------
<S>                                                      <C>            <C>
Deferred tax assets:
    Adjustment to life policy reserves                   $  74,579      $ 59,903
    Unrealized depreciation of investments                  65,527            --
    Adjustments to mortgage loans and
       investment income due and accrued                     5,009         4,913
    Adjustment to policy and contract claims                 1,959         5,456
    Other                                                    2,521         2,406
                                                         ---------      --------
                                                           149,595        72,678
                                                         ---------      --------
Deferred tax liabilities:
    Deferred policy acquisition costs                    $  74,247      $ 55,308
    Unrealized appreciation on investments                      --        65,445
    Fixed maturities discount                                7,744         4,911
    Other                                                    4,036         3,533
                                                         ---------      --------
                                                            86,027       129,197
                                                         ---------      --------

    Net deferred tax (asset) liability                   $ (63,568)     $ 56,519
                                                         =========      ========
</TABLE>

      (c)   At December 31, 1999, 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 1999, 1998, and 1997 amounted to $20,156,000,
            $21,184,000, and $20,311,000, respectively.


                                       16
<PAGE>

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. As of December 31, 1999, the
            Company's unused capital commitment was $5,086,000. Contributions
            totaling $19,872,000 have been made through December 31, 1999.

            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 $2,250,000 have been made through December
            31, 1999.

            During 1999, the Company entered into a partnership agreement with
            G2 Opportunity Fund, L.P. The agreement requires the Company to make
            capital contributions totaling $12,500,000. Contributions totaling
            $11,515,000 have been made through December 31, 1999.

            During 1999, the Company entered into a partnership agreement with
            CVC Capital Funding LLC. The agreement requires the Company to make
            capital contributions totaling $10,000,000. No contributions have
            been made as of December 31, 1999.

            During 1999, the Company entered into a partnership agreement with
            Private Equity Investors, IV L.P. The agreement requires the Company
            to make capital contributions totaling $73,000,000. No contributions
            have been made as of December 31, 1999.

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.


                                       17
<PAGE>

7.    Fair Value of Financial Instruments - (continued)

            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):

1999                                                    Fair           Carrying
----                                                    Value           Amount
                                                     ----------       ----------
Cash and short-term investments                      $  222,763       $  222,763
Fixed maturities                                      4,702,879        4,702,879
Equity securities                                        51,610           51,610
Mortgage and policy loans                               994,825          989,068

Policyholders' funds on deposit                      $4,627,170       $4,612,363

1998                                                     Fair          Carrying
----                                                     Value          Amount
                                                     ----------       ----------
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

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 $29,805,000 during 1999, however, no
            dividends were paid during the year.

      (b)   The Company's capital funds as determined in accordance with
            statutory accounting practices was $298,955,000 at December 31, 1999
            and $298,047,000 at December 31, 1998. Statutory net income amounted
            to $23,517,000, $28,789,000 and $35,350,000 for 1999, 1998 and 1997,
            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
            $(11,240,000), $(334,000) and $(3,025,000) for December 31, 1999,
            1998 and 1997, respectively.


                                       18
<PAGE>

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, 1999, 1998 and 1997 were
            approximately $89,000, $272,000, and $373,000, 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, 1999 by $36,000,000.

            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, 1999, 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.

      (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 provides 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.


                                       19
<PAGE>

10.   Leases

      (a)   The Company occupies leased space in many locations under various
            long-term leases and has entered into various leases covering the
            long-term use of data processing equipment. At December 31, 1999,
            the future minimum lease payments under operating leases were as
            follows (in thousands):

Year                                                                     Payment
----                                                                     -------

2000                                                                     $ 4,714
2001                                                                       4,250
2002                                                                       3,773
2003                                                                       3,451
2004                                                                       1,831
Remaining years after 2004                                                    --
                                                                         -------

Total                                                                    $18,019
                                                                         =======

            Rent expense approximated $4,983,000, $4,450,000, and $3,881,000 for
            the years ended December 31, 1999, 1998 and 1997, respectively.

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.

            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>
<CAPTION>
                                                                                   Percentage
                                                                                   of Amount
December 31, 1999                                                                   Assumed
-----------------            Gross         Ceded        Assumed         Net          to Net
                          -----------   -----------   -----------   -----------   -----------
<S>                       <C>           <C>           <C>           <C>                  <C>
Life Insurance in Force   $55,097,927   $19,275,199   $   850,313   $36,673,041           2.3%
                          ===========   ===========   ===========   ===========

  Premiums:
    Life                      241,419        52,217         2,449       191,651           1.3%
    Accident and Health       210,592       112,162       171,794       270,224          63.6%
    Annuity                   251,045            --            --       251,045            --
                          -----------   -----------   -----------   -----------

  Total Premiums          $   703,056   $   164,379   $   174,243   $   712,920          24.4%
                          ===========   ===========   ===========   ===========
</TABLE>


                                       20
<PAGE>

11.   Reinsurance - (continued)

<TABLE>
<CAPTION>
                                                                                  Percentage
                                                                                   of Amount
December 31, 1998                                                                   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%
                          ===========   ===========   ===========   ===========

<CAPTION>
                                                                                  Percentage
                                                                                   of Amount
December 31, 1997                                                                   Assumed
-----------------            Gross         Ceded         Assumed        Net          to Net
                          -----------   -----------   -----------   -----------   -----------
<S>                       <C>           <C>           <C>           <C>                  <C>
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%
                          ===========   ===========   ===========   ===========
</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 $147,882,000, $111,580,000, and $100,029,000,
            respectively, for each of the years ended December 31, 1999, 1998
            and 1997.

            The Company's reinsurance arrangements do not relieve the Company
            from its direct obligation to its insureds.

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 1999 amounted to
            $1,194,000 and $1,000, respectively. Premium income and commission
            ceded for 1998 amounted to $1,237,000 and $1,000, respectively.
            Premium income and commission ceded to affiliates amounted to
            $1,251,000 and $1,000 for the year ended December 31, 1997. Premium
            income and ceding commission expense assumed from affiliates
            aggregated $158,579,000 and $31,710,000, respectively, for 1999,
            compared to $131,771,000 and $31,584,000, respectively, for 1998,
            and $110,529,000 and $24,853,000, respectively for 1997.


                                       21
<PAGE>

12.   Transactions with Related Parties - (continued)

      (b)   The Company is party to several cost sharing agreements with its
            affiliates. Generally, these agreements provide for the allocation
            of costs upon either the specific identification basis or a
            proportional cost allocation basis which management believes to be
            reasonable. For the years ended December 31, 1999, 1998 and 1997,
            the Company was charged $38,845,000, $40,417,000 and $37,846,000,
            respectively, for expenses attributed to the Company but incurred by
            affiliates. During the same period, the Company received
            reimbursements from affiliates aggregating $20,604,000, $23,132,000
            and $18,134,000, 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.


                                       22
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                         (a wholly-owned subsidiary of
                       American International Group, Inc.

                         UNAUDITED FINANCIAL STATEMENTS

                     DECEMBER 31, 1999 - SEPTEMBER 30, 2000

<PAGE>

                           AIG LIFE INSURANCE COMPANY
                                 BALANCE SHEETS
                                 (in thousands)

                                                     September 30,  December 31,
                                                          2000          1999
                                                      -----------   -----------
                                                            (unaudited)
Assets

Investments and cash:
     Fixed maturities:
        Bonds available for sale, at market value     $ 5,316,909   $ 4,702,879
        (cost: 2000 - $5,485,656: 1999 - $4,890,022)
     Equity securities:
        Common stock
        (cost: 2000-$1,142: 1999 - $892)                    2,882         2,233
     Preferred stock
        (cost: 2000 - $48,618 : 1999 - $50,794)            48,437        49,377
Mortgage loans on real estate, net                        353,747       345,253
Real estate, net of accumulated
 depreciation of $5,519 in 2000; and $5,041 in 1999        12,168        12,543
Policy loans                                              605,467       643,815
Other invested assets                                     101,709        77,845
Short-term investments                                    217,611       222,677
Cash                                                        4,689            86
                                                      -----------   -----------

   Total investments and cash                           6,663,619     6,056,708

Amounts due from related parties                           12,947         5,465
Investment income due and accrued                         136,156        93,183
Premium and insurance balances receivable-net             119,876        64,359
Reinsurance assets                                         90,101        99,850
Deferred policy acquisition costs                         255,267       220,672
Federal income tax receivable                               3,098         9,611
Deferred income taxes                                      35,404        63,568
Separate and variable accounts                          3,544,168     3,220,806
Other assets                                                5,345         5,363
                                                      -----------   -----------

                             Total assets             $10,865,981   $ 9,839,585
                                                      ===========   ===========

                 See accompanying notes to financial statements.


                                       1
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                                 BALANCE SHEETS
                      (in thousands, except share amounts)

                                                   September 30,    December 31,
                                                       2000             1999
                                                   ------------    ------------
                                                               (unaudited)
Liabilities

  Policyholders' funds on deposit                  $  4,859,552    $  4,612,363
  Future policy benefits                              1,655,602       1,284,568
  Reserve for unearned premiums                          25,415          21,100
  Policy and contract claims                            154,769         212,627
  Reserve for commissions, expenses and taxes            26,463          19,390
  Insurance balances payable                             89,326          60,642
  Amounts due to related parties                          1,892           6,821
  Deferred income taxes                                      --              --
  Separate and variable accounts                      3,544,168       3,220,806
  Minority interest                                       5,694           5,837
  Other liabilities                                     134,604          75,039
                                                   ------------    ------------

                             Total liabilities       10,497,485       9,519,193
                                                   ------------    ------------

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                                     318,993         283,908
  Accumulated other comprehensive income               (108,664)       (121,683)
                                                   ------------    ------------

                             Total capital funds        368,496         320,392
                                                   ------------    ------------

Total liabilities and capital funds                $ 10,865,981    $  9,839,585
                                                   ============    ============

                 See accompanying notes to financial statements.


                                       2
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                              STATEMENTS OF INCOME
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                  For the nine months ended September 30,
                                                  ---------------------------------------
                                                         2000                 1999
                                                     -----------          -----------
<S>                                                      <C>                  <C>
Revenues:
  Premiums                                           $   749,230          $   469,400
  Net investment income                                  361,746              330,085
  Realized capital losses                                (22,788)              (1,877)
                                                     -----------          -----------

                  Total revenues                       1,088,188              797,608
                                                     -----------          -----------

Benefits and expenses:
  Benefits to policyholders                              288,993              242,697
  Increase in future policy benefits
   and policyholders' funds on deposit                   575,083              345,363
  Acquisition and insurance expenses                     166,167              149,690
                                                     -----------          -----------

                 Total benefits and expenses           1,030,243              737,750
                                                     -----------          -----------

Income before income taxes                                57,945               59,858
                                                     -----------          -----------

Income taxes:
   Current                                                  (773)              14,239
   Deferred                                               21,153                6,810
                                                     -----------          -----------

     Total income taxes                                   20,380               21,049
                                                     -----------          -----------

Net income before minority interest                       37,565               38,809

Minority interest income                                    (115)                (142)
                                                     -----------          -----------

Net income                                           $    37,450          $    38,667
                                                     ===========          ===========
</TABLE>

                 See accompanying notes to financial statements


                                       3
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                           STATEMENTS OF CAPITAL FUNDS
                                 (in thousands)

                                                     September 30,  December 31,
                                                         2000           1999
                                                      ---------      ---------
                                                               (unaudited)
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                          283,908        236,521
  Net income                                             37,450         47,387
  Dividends                                              (2,365)            --
                                                      ---------      ---------

  Balance at end of year                                318,993        283,908
                                                      ---------      ---------

Accumulated other comprehensive income

 Balance at beginning of year                          (121,683)       121,549
 Unrealized appreciation (depreciation) of
      investments - net of reclassification
      adjustments                                        20,030       (374,203)
  Deferred income tax benefit (expense) on
      changes                                            (7,011)       130,971
                                                      ---------      ---------

 Balance at end of year                                (108,664)      (121,683)
                                                      ---------      ---------

            Total capital funds                       $ 368,496      $ 320,392
                                                      =========      =========

                 See accompanying notes to financial statements


                                       4
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                            STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                             For nine months ended September 30,
                                                                             -----------------------------------
                                                                                   2000                 1999
                                                                               -----------          -----------
<S>                                                                            <C>                  <C>
Cash flows from operating activities:
 Net income                                                                    $    37,450          $    38,667

 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                                                      317,492              158,642
 Change in premiums and insurance balances
  receivable and payable - net                                                     (26,833)             (17,228)
 Change in reinsurance assets                                                        9,749              (29,791)
 Change in deferred policy acquisition costs                                       (34,595)             (40,983)
 Change in investment income due and accrued                                       (42,973)             (26,353)
 Realized capital losses                                                              (312)               1,877
 Change in current and deferred income taxes - net                                  27,666                7,173
 Change in reserves for commissions, expenses and taxes                              7,073               (9,337)
 Change in other assets and liabilities - net                                      (44,317)              16,011
                                                                               -----------          -----------
         Total adjustments                                                         212,950               60,011
                                                                               -----------          -----------
 Net cash provided by operating activities                                         250,400               98,678
                                                                               -----------          -----------

Cash flows from investing activities:
 Cost of fixed maturities, at market, sold                                         235,644              445,589
 Cost of fixed maturities, at market, matured or redeemed                          314,147              259,037
 Cost of equity securities sold                                                      2,251                1,032
 Realized capital losses                                                               312               (1,877)
 Purchase of fixed maturities                                                   (1,161,653)          (1,271,396)
 Purchase of equity securities                                                        (325)              (3,024)
 Mortgage loans granted                                                            (75,850)             (54,167)
 Repayments of mortgage loans                                                       67,361              116,601
 Change in policy loans                                                             38,348              364,125
 Change in short-term investments                                                    5,067               13,912
 Change in other invested assets                                                   (23,876)             (20,512)
 Other - net                                                                       107,953                7,017
                                                                               -----------          -----------
  Net cash used in investing activities                                           (490,621)            (143,663)
                                                                               -----------          -----------

Cash flows from financing activities:
 Change in policyholders' funds on deposit                                         247,189               80,290
 Dividends                                                                          (2,365)                  --
                                                                               -----------          -----------
   Net cash provided by financing activities                                       244,824               80,290
                                                                               -----------          -----------

Change in cash                                                                       4,603               35,305
Cash at beginning of period                                                             86                4,788
                                                                               -----------          -----------
Cash at end of period                                                          $     4,689          $    40,093
                                                                               ===========          ===========
</TABLE>

                 See accompanying notes to financial statements


                                       5
<PAGE>

                           AIG LIFE INSURANCE COMPANY
                       STATEMENTS OF COMPREHENSIVE INCOME
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                 For nine months ended September 30,
                                                 -----------------------------------
                                                       2000               1999
                                                    ---------          ---------
<S>                                                 <C>                <C>
Comprehensive income

Net income                                          $  37,450          $  38,667
                                                    ---------          ---------

Other comprehensive income

Unrealized appreciation (depreciation) of
  investments - net of reclassification
  adjustments                                          20,030           (262,335)
 Changes due to deferred income tax benefit
       (expense) on changes                            (7,011)            91,817
                                                    ---------          ---------

 Other comprehensive income                            13,019           (170,518)
                                                    ---------          ---------

 Comprehensive income                               $  50,469          $(131,851)
                                                    =========          =========
</TABLE>

                 See accompanying notes to financial statements.


                                       6
<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. All other data has
      been derived from the books and records of the Company and has not been
      subject to audit.

<PAGE>

                                   APPENDIX A
                                  Gemstone VUL
                   Guaranteed Monthly Cost of Insurance Rates
                        Per $1,000 of Net Amount at Risk
                           Male (Age Nearest Birthday)

<TABLE>
<CAPTION>
-------------------------------------------------------  ------------------------------------------------------
                              Monthly COI Rate                                        Monthly COI Rate
    Attained     --------------------------------------      Attained    --------------------------------------
      Age             Nonsmoker*            Smoker             Age            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
       45                    0.27674            0.52277        95                   28.27411           28.27411
-------------------------------------------------------  ------------------------------------------------------
</TABLE>


                                       A-1
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------  ------------------------------------------------------
                              Monthly COI Rate                                        Monthly COI Rate
    Attained     --------------------------------------      Attained    --------------------------------------
      Age             Nonsmoker*            Smoker             Age            Nonsmoker*            Smoker
=======================================================  ======================================================
<S>                          <C>                <C>            <C>                   <C>                <C>
       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
-------------------------------------------------------  ------------------------------------------------------
</TABLE>

*     Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
      Nonsmoker Risks.


                                       A-2
<PAGE>

                                  Gemstone VUL
                   Guaranteed Monthly Cost of Insurance Rates
                        Per $1,000 of Net Amount at Risk
                          Female (Age Nearest Birthday)

<TABLE>
<CAPTION>
-------------------------------------------------------  ------------------------------------------------------
                              Monthly COI Rate                                        Monthly COI Rate
    Attained     --------------------------------------      Attained    --------------------------------------
      Age             Nonsmoker*            Smoker             Age            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
-------------------------------------------------------  ------------------------------------------------------
       45                    0.24923            0.38431        95                    27.16158            27.16158
       46                    0.25690            0.41267        96                    32.32378            32.32378
</TABLE>


                                       A-3
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------  ------------------------------------------------------
                              Monthly COI Rate                                        Monthly COI Rate
    Attained     --------------------------------------      Attained    --------------------------------------
      Age             Nonsmoker*            Smoker             Age            Nonsmoker*            Smoker
=======================================================  ======================================================
<S>                          <C>                <C>            <C>                   <C>                <C>
       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 Plus, Preferred, Standard Plus, and Standard
      Nonsmoker Risks.


                                       A-4
<PAGE>

                                  Gemstone VUL
               Table of Monthly Charges Per $1,000 of Face Amount
                    (Applicable During First 5 Policy Years*)
                                      Male

<TABLE>
<CAPTION>
-------------------------------------------------  ----------------------------------------------------
                        Per Unit Charge                                       Per Unit Charge
-------------------------------------------------  ----------------------------------------------------
  Issue Age      Nonsmoker**         Smoker           Issue Age        Nonsmoker**         Smoker
=================================================  ====================================================
<S>                         <C>              <C>          <C>                    <C>               <C>
      0                      N/A             0.12         41                     0.25              0.37
      1                      N/A             0.12         42                     0.27              0.39
      2                      N/A             0.13         43                     0.28              0.41
      3                      N/A             0.13         44                     0.30              0.42
      4                      N/A             0.13         45                     0.31              0.44
      5                      N/A             0.13         46                     0.33              0.46
      6                      N/A             0.14         47                     0.35              0.48
      7                      N/A             0.14         48                     0.37              0.50
      8                      N/A             0.14         49                     0.39              0.52
      9                      N/A             0.15         50                     0.41              0.54
      10                     N/A             0.15         51                     0.43              0.56
      11                     N/A             0.15         52                     0.45              0.58
      12                     N/A             0.15         53                     0.47              0.60
      13                     N/A             0.16         54                     0.49              0.62
      14                     N/A             0.16         55                     0.51              0.64
      15                    0.10             0.16         56                     0.54              0.68
      16                    0.10             0.16         57                     0.58              0.72
      17                    0.11             0.17         58                     0.61              0.77
      18                    0.11             0.17         59                     0.64              0.81
      19                    0.11             0.17         60                     0.68              0.85
      20                    0.12             0.18         61                     0.71              0.89
      21                    0.12             0.18         62                     0.74              0.93
      22                    0.12             0.18         63                     0.77              0.98
      23                    0.12             0.18         64                     0.81              1.02
      24                    0.13             0.19         65                     0.84              1.06
      25                    0.13             0.19         66                     0.88              1.08
      26                    0.13             0.20         67                     0.93              1.10
      27                    0.14             0.21         68                     0.97              1.12
      28                    0.14             0.21         69                     1.01              1.14
      29                    0.15             0.22         70                     1.06              1.17
      30                    0.15             0.23         71                     1.10              1.19
      31                    0.15             0.24         72                     1.14              1.21
      32                    0.16             0.25         73                     1.18              1.23
      33                    0.16             0.25         74                     1.23              1.23
      34                    0.17             0.26         75                     1.27              1.27
      35                    0.17             0.27         76                     1.27              1.27
      36                    0.18             0.29         77                     1.27              1.27
      37                    0.20             0.30         78                     1.27              1.27
      38                    0.21             0.32         79                     1.27              1.27
      39                    0.23             0.34         80                     1.27              1.27
      40                    0.24             0.36      81 - 85                   1.27              1.27
-------------------------------------------------  ----------------------------------------------------
</TABLE>

*     Also applicable on the Increase Amount during the first 5 years following
      an applied for increase in Face Amount.
**    Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
      Nonsmoker Risks.


                                       A-5
<PAGE>

                                  Gemstone VUL
               Table of Monthly Charges Per $1,000 of Face Amount
                    (Applicable During First 5 Policy Years*)
                                     Female

<TABLE>
<CAPTION>
-------------------------------------------------  ----------------------------------------------------
                        Per Unit Charge                                       Per Unit Charge
-------------------------------------------------  ----------------------------------------------------
  Issue Age      Nonsmoker**         Smoker           Issue Age        Nonsmoker**         Smoker
=================================================  ====================================================
<S>                         <C>              <C>          <C>                    <C>               <C>
      0                      N/A             0.10         41                     0.19              0.27
      1                      N/A             0.10         42                     0.20              0.28
      2                      N/A             0.10         43                     0.21              0.29
      3                      N/A             0.11         44                     0.22              0.30
      4                      N/A             0.11         45                     0.23              0.31
      5                      N/A             0.11         46                     0.25              0.33
      6                      N/A             0.11         47                     0.27              0.34
      7                      N/A             0.12         48                     0.28              0.36
      8                      N/A             0.12         49                     0.30              0.37
      9                      N/A             0.12         50                     0.32              0.39
      10                     N/A             0.12         51                     0.34              0.41
      11                     N/A             0.13         52                     0.36              0.42
      12                     N/A             0.13         53                     0.37              0.44
      13                     N/A             0.13         54                     0.39              0.45
      14                     N/A             0.13         55                     0.41              0.47
      15                    0.09             0.14         56                     0.44              0.50
      16                    0.09             0.14         57                     0.46              0.53
      17                    0.09             0.14         58                     0.49              0.55
      18                    0.10             0.14         59                     0.51              0.58
      19                    0.10             0.15         60                     0.54              0.61
      20                    0.10             0.15         61                     0.56              0.64
      21                    0.10             0.15         62                     0.59              0.67
      22                    0.10             0.15         63                     0.61              0.69
      23                    0.11             0.16         64                     0.64              0.72
      24                    0.11             0.16         65                     0.66              0.75
      25                    0.11             0.16         66                     0.72              0.80
      26                    0.11             0.17         67                     0.78              0.85
      27                    0.11             0.17         68                     0.84              0.91
      28                    0.11             0.18         69                     0.90              0.96
      29                    0.11             0.18         70                     0.96              1.01
      30                    0.12             0.19         71                     1.01              1.06
      31                    0.12             0.20         72                     1.07              1.11
      32                    0.12             0.20         73                     1.13              1.17
      33                    0.12             0.21         74                     1.19              1.22
      34                    0.12             0.21         75                     1.25              1.27
      35                    0.12             0.22         76                     1.25              1.25
      36                    0.13             0.23         77                     1.25              1.25
      37                    0.14             0.24         78                     1.26              1.26
      38                    0.15             0.25         79                     1.26              1.26
      39                    0.16             0.26         80                     1.26              1.26
      40                    0.18             0.27      81 - 85                   1.27              1.27
-------------------------------------------------  ----------------------------------------------------
</TABLE>

*     Also applicable on the Increase Amount during the first 5 years following
      an applied for increase in Face Amount.
**    Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
      Nonsmoker Risks.


                                       A-6
<PAGE>

                                  Gemstone VUL
                       Table of Initial Surrender Charges
                            Per $1,000 of Face Amount
                                      Male

<TABLE>
<CAPTION>
------------------  -------------------  -------------------  ------------------  -------------------  -------------------
     Issue Age          Nonsmoker*             Smoker             Issue Age           Nonsmoker*             Smoker
==================  ===================  ===================  ==================  ===================  ===================
<S>                                <C>                  <C>           <C>                       <C>                  <C>
        0                           N/A                 5.64          45                         9.92                17.23
        1                           N/A                 5.64          46                        10.37                17.40
        2                           N/A                 5.65          47                        10.82                17.56
        3                           N/A                 5.72          48                        11.26                17.73
        4                           N/A                 5.80          49                        11.71                17.89
        5                           N/A                 5.87          50                        12.16                18.06
        6                           N/A                 5.92          51                        12.61                18.22
        7                           N/A                 6.01          52                        13.06                18.39
        8                           N/A                 6.11          53                        13.50                18.55
        9                           N/A                 6.17          54                        13.95                18.72
        10                          N/A                 6.27          55                        14.40                18.88
        11                          N/A                 6.39          56                        15.20                19.85
        12                          N/A                 6.51          57                        16.00                20.83
        13                          N/A                 6.59          58                        16.80                21.80
        14                          N/A                 6.71          59                        17.60                22.78
        15                         3.76                 6.84          60                        18.41                23.75
        16                         3.82                 6.97          61                        19.21                24.72
        17                         3.85                 7.06          62                        20.01                25.70
        18                         3.91                 7.19          63                        20.81                26.67
        19                         3.97                 7.32          64                        21.61                27.65
        20                         4.01                 7.41          65                        22.41                28.62
        21                         4.07                 7.56          66                        23.60                29.35
        22                         4.14                 7.70          67                        24.80                30.10
        23                         4.22                 7.86          68                        25.99                30.86
        24                         4.27                 7.99          69                        27.18                31.64
        25                         4.35                 8.17          70                        28.38                32.44
        26                         4.36                 8.46          71                        29.57                33.26
        27                         4.36                 8.74          72                        30.76                34.11
        28                         4.37                 9.03          73                        31.95                34.34
        29                         4.37                 9.31          74                        33.15                34.34
        30                         4.38                 9.60          75                        34.34                34.34
        31                         4.39                 9.88          76                        34.34                34.34
        32                         4.39                10.17          77                        34.34                34.34
        33                         4.40                10.45          78                        34.34                34.34
        34                         4.40                10.74          79                        34.34                34.34
        35                         4.41                11.02          80                        34.34                34.34
        36                         4.96                11.64          81                        34.34                34.34
        37                         5.51                12.26          82                        34.34                34.34
        38                         6.06                12.88          83                        34.34                34.34
        39                         6.61                13.50          84                        34.34                34.34
        40                         7.17                14.13          85                        34.34                34.34
        41                         7.72                14.75
        42                         8.27                15.37
        43                         8.82                15.99
        44                         9.37                16.61
------------------  -------------------  -------------------  ------------------  -------------------  -------------------
</TABLE>

*     Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
      Nonsmoker Risks.


                                       A-7
<PAGE>

                                  Gemstone VUL
                       Table of Initial Surrender Charges
                            Per $1,000 of Face Amount
                                     Female

<TABLE>
<CAPTION>
------------------  -------------------  -------------------  ------------------  -------------------  -------------------
     Issue Age          Nonsmoker*             Smoker             Issue Age           Nonsmoker*             Smoker
==================  ===================  ===================  ==================  ===================  ===================
<S>                                <C>                  <C>           <C>                       <C>                  <C>
        0                           N/A                 5.06          45                         8.11                12.65
        1                           N/A                 5.06          46                         8.67                13.19
        2                           N/A                 5.11          47                         9.23                13.73
        3                           N/A                 5.13          48                         9.79                14.27
        4                           N/A                 5.18          49                        10.35                14.81
        5                           N/A                 5.24          50                        10.91                15.35
        6                           N/A                 5.30          51                        11.47                15.88
        7                           N/A                 5.33          52                        12.03                16.42
        8                           N/A                 5.40          53                        12.59                16.96
        9                           N/A                 5.47          54                        13.15                17.50
        10                          N/A                 5.54          55                        13.71                18.04
        11                          N/A                 5.58          56                        14.10                18.24
        12                          N/A                 5.67          57                        14.48                18.45
        13                          N/A                 5.75          58                        14.87                18.65
        14                          N/A                 5.85          59                        15.25                18.85
        15                         3.59                 5.90          60                        15.64                19.06
        16                         3.64                 6.00          61                        16.02                19.26
        17                         3.69                 6.09          62                        16.41                19.46
        18                         3.72                 6.20          63                        16.79                19.66
        19                         3.78                 6.27          64                        17.18                19.87
        20                         3.84                 6.38          65                        17.56                20.07
        21                         3.90                 6.49          66                        19.18                21.50
        22                         3.96                 6.62          67                        20.79                22.92
        23                         4.01                 6.71          68                        22.41                24.35
        24                         4.08                 6.84          69                        24.02                25.78
        25                         4.15                 6.98          70                        25.64                27.21
        26                         4.15                 7.20          71                        27.26                28.63
        27                         4.15                 7.43          72                        28.87                30.06
        28                         4.16                 7.65          73                        30.49                31.49
        29                         4.16                 7.88          74                        32.10                32.91
        30                         4.16                 8.10          75                        33.72                34.34
        31                         4.16                 8.32          76                        34.34                34.34
        32                         4.16                 8.55          77                        34.34                34.34
        33                         4.17                 8.77          78                        34.34                34.34
        34                         4.17                 9.00          79                        34.34                34.34
        35                         4.17                 9.22          80                        34.34                34.34
        36                         4.56                 9.56          81                        34.34                34.34
        37                         4.96                 9.91          82                        34.34                34.34
        38                         5.35                10.25          83                        34.34                34.34
        39                         5.75                10.59          84                        34.34                34.34
        40                         6.14                10.94          85                        34.34                34.34
        41                         6.53                11.28
        42                         6.93                11.62
        43                         7.32                11.96
        44                         7.72                12.31
------------------  -------------------  -------------------  ------------------  -------------------  -------------------
</TABLE>

*     Applicable to Preferred Plus, Preferred, Standard Plus, and Standard
      Nonsmoker Risks.


                                       A-8
<PAGE>

                                   APPENDIX B

                          AVERAGE ANNUAL TOTAL RETURNS
                             As of December 31, 1999

<TABLE>
<CAPTION>
                                                              Inception                             10 Years or
                                                                Date      1 Year     5 Years    Since Inception(1)
                                                                ----      ------     -------    ------------------
<S>                                                          <C>          <C>         <C>             <C>
AIM Variable Insurance Funds
   AIM Advisors, Inc.
     V.I. Capital Appreciation Fund                            5/5/93     44.61%      25.59%          22.33%
     V.I. International Equity Fund                            5/7/93     55.04%      21.93%          18.82%

Alliance Variable Products Series Fund, Inc.
   Alliance Capital Management L.P.
     Premier Growth Portfolio                                  6/26/92    32.32%      36.03%          26.31%
     Real Estate Investment Portfolio                          1/9/97     -5.11%        n/a           -1.79%
     Technology Portfolio                                      1/11/96    75.71%        n/a           35.93%
     Utility Income Portfolio                                  5/10/94    19.40%      19.50%          16.99%

American Century Variable Portfolios, Inc.
   American Century Investment Management, Inc.
     VP Capital Appreciation Fund                             11/20/87    64.52%      14.32%          12.06%
     VP Income & Growth Fund                                  10/30/97    18.02%        n/a           24.69%

Anchor Series Trust
   Wellington Management Company, LLP
     Capital Appreciation Portfolio                            3/23/87    67.58%      34.03%          20.08%
     Growth Portfolio                                          9/5/84     26.94%      27.52%          16.80%
     Natural Resources Portfolio                               1/4/88     41.51%       7.46%           7.50%

Dreyfus Stock Index Fund                                       9/29/89    20.60%      28.07%          17.70%
   The Dreyfus Corporation

Dreyfus Variable Investment Fund
   The Dreyfus Corporation
     Small Company Stock Portfolio                              5/1/96    10.60%        n/a            9.11%

Fidelity Variable Insurance Products Fund
   Fidelity Management & Research Company
     VIP Growth Portfolio: Initial Class                       10/9/86    37.44%      29.74%          19.94%
     VIP High Income Portfolio: Initial Class                  9/19/85     8.25%      10.90%          12.49%
     VIP Money Market Portfolio: Initial Class                 4/1/82      5.17%       5.48%           5.28%

Fidelity Variable Insurance Products Fund II
   Fidelity Management & Research Company
     VIP II Asset Manager Portfolio: Initial Class             9/6/89     11.09%      15.63%          13.14%
     VIP II Contrafund(R) Portfolio: Initial Class             1/3/95     24.25%        n/a           27.73%
     VIP II Investment Grade Bond Portfolio:                   12/5/88    -1.05%       7.30%           7.19%
        Initial Class
</TABLE>


                                       B-1
<PAGE>

<TABLE>
<S>                                                          <C>          <C>         <C>             <C>
Franklin Templeton Variable Products Series Fund
   Templeton Investment Counsel, Inc.
     Asset Allocation Fund - Class 1                          8/24/88     22.86%      17.08%          13.08%

J.P. Morgan Series Trust II
   J.P. Morgan Investment Management Inc.
     Bond Portfolio                                           12/31/94    -1.13%       6.86%           6.86%
     Disciplined Equity Portfolio                             12/31/94    18.54%      24.76%          24.76%

Neuberger Berman Advisers Management Trust
   Neuberger Berman Management Inc.
     AMT Partners Portfolio                                   3/22/94      7.37%      21.03%          17.47%
     AMT Limited Maturity Bond Portfolio                      9/10/84      1.48%       5.52%           5.86%

Oppenheimer Variable Account Funds
   OppenheimerFunds, Inc.
     Oppenheimer Global Securities Fund/VA                    11/12/90    58.48%      21.67%          16.79%
     Oppenheimer Main Street Growth & Income                  7/5/95      21.71%        n/a           25.80%
         Fund/VA

SunAmerica Series Trust
   SunAmerica Asset Management Corp.
     Alliance Growth Portfolio                                2/9/93      33.07%      37.66%          27.69%
     Growth-Income Portfolio                                  2/9/93      30.04%      30.52%          22.22%
     Global Bond Portfolio                                    7/1/93       8.09%       9.20%           6.99%
     MFS Mid-Cap Growth Portfolio                             4/1/99        n/a         n/a           64.96%
     Aggressive Growth Portfolio                              6/3/96      84.66%        n/a           30.10%
     SunAmerica Balanced Portfolio                            6/3/96      21.40%        n/a           22.67%
     Marsico Growth Portfolio                                 12/29/00      n/a         n/a             n/a
</TABLE>

----------

(1)   This column shows performance data for a 10-year period or since
      inception, whichever is earlier.

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
expenses), plus capital gains and losses, realized or unrealized. The
performance results do not reflect charges deducted from premium, Account Value,
or Variable Account assets (for example, the mortality and expense risk charge,
monthly deductions, cost of insurance, surrender charge, sales load, DAC taxes,
and any state or local premium taxes). If these charges were included, the total
return figures would be lower.


                                       B-2
<PAGE>

                                  [Back cover]

The Securities and Exchange Commission maintains a web site at
http://www.sec.gov that contains additional information about AIG Life Insurance
Company, Variable Account II, and the policy, 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 of Delaware 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
            Christine E. Dugan
            PricewaterhouseCoopers LLP
            Jorden Burt Boros Cicchetti Berenson & Johnson LLP

The following exhibits:

1.    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)   (a)   Form of Flexible Premium Variable Life Insurance Policy
                  (1VUL1294)*

            (b)   Form of Group Flexible Variable Universal Life Policy
                  (11GVUL0597)*

            (c)   Form of Certificate of Group Flexible Variable Universal Life
                  (16GVUL0597)*

            (d)   Form of Group Flexible Variable Life Insurance Policy
                  (11GVULD997)**

            (e)   Form of Certificate of Group Flexible Variable Universal Life
                  (16GVULD997)**

            (f)   Form of Flexible Premium Variable Life Insurance Policy
                  (11VUL800) (filed electronically herewith)

      (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)   (a)   Powers of Attorney;***
            (b)   Power of Attorney ****

      (9)   N/A

      (10)  (a)   Form of Life Insurance Application (14APP0396)*

            (b)   Form of Supplemental Application (14SGVUL0597NJ)*

            (c)   Form of Group Life Insurance Application (14GAPP0397NJ)*

            (d)   Form of Group Life Insurance Application (14GVAPP997)**

      (11)  Code of Ethics.

2.    Opinion and Consent of Counsel as to legality of securities being
      registered (filed electronically herewith).

3.    Opinion and Consent of Actuary (filed electronically herewith).

4.    N/A

5.    Consent of Independent Accountants (filed electronically herewith).

6.    Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP (filed
      electronically herewith).

7.    Memorandum Regarding Administrative Procedures.*

* Incorporated by reference to Registrant's Post-Effective Amendment, No. 4
filed on Form S-6 (File No. 33-90684), dated October 27, 1998.

**Incorporated by reference to Registrant's Post-Effective Amendment No. 1 filed
on Form S-6 (File No. 333-34199), dated March 13, 1998.

*** Incorporated by reference to Registrant's Post-Effective Amendment, No 2
filed on Form S-6 (File No. 33-90684), dated May 1, 1997.

****Incorporated by reference to Registrant's Post-Effective Amendment, No. 2
filed on Form S-6 (File No. 333-71753), dated May 1, 2000.

<PAGE>

                                   SIGNATURES

      As required by the Securities Act of 1933, the Registrant certifies that
it meets the requirements of Securities Act Rule 485(b) for effectiveness of
this Registration Statement and has caused this Registration Statement to be
signed on its behalf, in the City of Wilmington, and State of Delaware on this
29th day of December, 2000.

                              VARIABLE ACOUNT II
                              ------------------
                                 (Registrant)

                              By: AIG LIFE INSURANCE COMPANY
                              ------------------------------------
                                    (Sponsor)

                              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

Michele L. Abruzzo*           Director                December 29, 2000
---------------------------
/s/ Michele L. Abruzzo

Paul S. Bell*                 Director                December 29, 2000
---------------------------
/s/ Paul Bell

Maurice R. Greenberg*         Director                December 29, 2000
---------------------------
/s/ Maurice R. Greenberg

Edward Easton Matthews*       Director                December 29, 2000
---------------------------
/s/ Edward Easton Matthews

Jerome T. Muldowney*          Director                December 29, 2000
---------------------------
/s/ Jerome T. Muldowney

Robinson K. Nottingham*       Director                December 29, 2000
---------------------------
/s/ Robinson K. Nottingham

John Oehmke*                  Chief Financial         December 29, 2000
---------------------------   Officer
/s/ John Oehmke

Nicholas A. O'Kulich*         Director                December 29, 2000
---------------------------
/s/ Nicholas A. O'Kulich

Howard Ian Smith*             Director                December 29, 2000
---------------------------
/s/ Howard Ian Smith

Edmund Sze-Wing Tse*          Director                December 29, 2000
---------------------------
/s/ Edmund Sze-Wing Tse

Elizabeth M. Tuck*            Secretary               December 29, 2000
---------------------------
/s/ Elizabeth M. Tuck

Gerald Walter Wyndorf*        Director                December 29, 2000
---------------------------
/s/ Gerald Walter Wyndorf

By: /s/ Kenneth D. Walma
    -----------------------
    Kenneth D. Walma
    Attorney in Fact

<PAGE>

                                INDEX TO EXHIBITS

EXHIBIT

1.    (5) (f) Form of Flexible Premium Variable Life Insurance Policy

2.    Opinion and Consent of Counsel

3.    Opinion and Consent of Actuary

5.    Consent of Independent Accountants

6.    Consent of JordenBurt



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