Filed with the Securities and Exchange Commission on May 1, 2000
Registration No. 33-90684
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form S-6
POST-EFFECTIVE AMENDMENT NO 7 TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: Variable Account II
B. Name of depositor: AIG Life Insurance Company
C. Complete address of depositor's principal executive offices:
One Alico Plaza, 600 King Street, Wilmington, DE 19801
D. Name and address of agent for service:
Kenneth D. Walma, Vice President and General Counsel
One Alico Plaza
600 King Street
Wilmington, DE 19801
COPIES TO:
Michael Berenson, Esq. and Ernest T. Patrikis, Esq.
Jorden Burt Boros Cicchetti 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 May 1, 2000 pursuant to paragraph (b) of Rule 485
- ----- ------------
___ 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
<PAGE>
Part I
<PAGE>
AIG Life Insurance Company
Variable Account II
One Alico Plaza
Wilmington, DE 19801
1-800-340-2765
Flexible Premium Variable Universal Life Policy
AIG Life Insurance Company is offering life insurance coverage under the policy
described in this prospectus. The policy is an individual flexible premium
variable universal life policy. The policy allows you, as the owner, 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 Account Value among the variable
investment options and the Guaranteed Account.
o Receive payments from your policy while the Insured is alive through loans,
partial surrenders or a full surrender.
This document contains information about the policy. You should read this
document carefully before you decide to purchase the policy. You should also
keep this document for future reference.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the policy or determined that this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
May 1, 2000
<PAGE>
Investment Options
Variable Investment Options
The Separate Account is divided into subaccounts. Each subaccount invests in
shares of a specific portfolio of the AIM Variable Insurance Funds, Inc.,
Alliance Variable Products Series Fund, Inc., Dreyfus Variable Investment Fund,
Dreyfus Stock Index Fund, Fidelity Variable Insurance Products Fund, Fidelity
Variable Insurance Products Fund II, and the Van Eck Worldwide Insurance Trust.
The portfolios of the funds which are available under the policy are named
below. The prospectuses for the funds contain information about each portfolio.
You should read the prospectus carefully.
AIM Variable Insurance Funds, Inc.
(managed by A I M 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 Global Bond Portfolio
o Growth Portfolio
o Growth and Income Portfolio
o Premier Growth
o Quasar Portfolio
o Technology Portfolio
Dreyfus Variable Investment Fund
(managed by The Dreyfus Corporation)
o Small Company Stock Portfolio
Dreyfus Stock Index Fund
(managed by The Dreyfus Corporation and Mellon Equity Associates)
Fidelity Variable Insurance Products Fund
(managed by Fidelity Management & Research Company)
o VIP Growth Portfolio
o VIP High Income Portfolio
o VIP Money Market Portfolio
Fidelity Variable Insurance Products Fund II
(managed by Fidelity Management & Research Company)
o VIP II Asset Manager Portfolio
o VIP II Contrafund Portfolio
o VIP II Investment Grade Bond Portfolio
Van Eck Worldwide Insurance Trust
(managed by Van Eck Associates Corporation)
o Worldwide Emerging Markets Portfolio
o Worldwide Hard Assets Portfolio
Guaranteed Investment Option
The Guaranteed Account is part of our general account. We will credit interest
equal to at least 4% per year, compounded annually on that portion of policy
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 Policy Account Value allocated to the
Variable Account.
<PAGE>
Table of Contents
Special Terms
Summary of the Policy
Overview
Applying for a Policy
Premium Payments
Policy Account Value
Death Benefit
Cash Benefits During the Life of the Insured
Expenses of the Policy
Federal Tax Considerations
Purchasing a Policy
Applying for a Policy
Your Right to Cancel the Policy
Premiums
Restrictions on Premiums
Minimum Initial Premium
Planned Periodic Premiums
Additional Premiums
Effect of Premium Payments
Grace Period
Premium Allocations
Crediting Premiums
The Investment Options
Investing Your Policy Account Value
Determining the Policy Account Value
Transfers
Dollar Cost Averaging
Death Benefit
Cash Benefits During the Insured's Life
Payment Options for Benefits
Expenses of the Policy
Supplemental Benefits and Riders
Other Policy Provisions
Performance Information
Federal Income Tax Considerations
Distribution of the Policy
About Us and the Accounts
Our Directors and Executive Officers
Other Information
Financial Statements
Appendices
<PAGE>
Special Terms
We have capitalized some special terms we use in this document. We have defined
these terms here.
Accounts. The Separate Account and the Guaranteed Account
Administrative Office. One Alico Plaza, P.O. Box 8718, Wilmington, DE 19801.
Attained Age. The Insured's age as of the Policy Date plus the number of full
years since the Policy Date.
Beneficiary. The person(s) entitled to the death benefit under the policy if the
Insured dies while coverage under the policy is in force.
Cash Surrender Value. The Policy Account Value less any surrender charge that
would be assessed if the policy were surrendered.
Code. The Internal Revenue Code of 1986, as amended.
Face Amount. The amount of insurance specified by the Owner and from which the
amount payable to a beneficiary will be determined.
Grace Period. The period of time that the policy continues to be in force while
the Net Cash Surrender Value is less than the total monthly deductions then due.
It begins on a Monthly Anniversary when the Net Cash Surrender Value is less
than the total monthly deduction then due.
Guaranteed Account. An account within the general account which consists of all
of our assets other than the assets of the Separate Account and any of our other
separate accounts.
Insured. A person whose life is covered under the policy. At the time of
application, the Insured must be 75 years of age or younger.
Issue Date. The date the policy is actually issued and from which we measure
contestability periods. It may be later than the Policy Date.
Loan Account. The portion of the Policy Account Value held in the Guaranteed
Account as collateral for 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.
Net Cash Surrender Value. The Cash Surrender Value less any outstanding Loans.
Net Premium. Any premium paid less any expense charges deducted from the premium
payment.
Owner. The person who purchased the policy as shown in the application, unless
later changed.
Policy Account Value. The total amount in the Accounts credited to your policy.
Policy Date. The date as of which we have received the initial premium and an
application in good order. Coverage begins on the Policy Date which is also the
date used to determine all anniversary dates.
Policy Year. Each period of twelve months commencing with the Policy Date.
Separate Account. Variable Account II, a separate investment account of ours.
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.
<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.
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 surrenders or a
full surrender. Unlike traditional life insurance, you may choose how to invest
your policy 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 will provide you with the flexibility to design an insurance product that
meets your specific needs.
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.
Applying for a Policy
When you apply for a policy, you must select the Face Amount. The Face Amount is
the initial amount of life insurance coverage on the Insured. It must be at
least $50,000 when you apply.
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your Right to Cancel the Policy
Once you receive your policy, you should read the policy. You have the right to
cancel the policy for any reason within the later of:
o 45 days after you sign Part I of the application.
o 10 days after you receive the policy. If required by the state where you
live, we will extend the time period to the number of days required by law.
Premium Payments
Before your policy is effective, you must pay the minimum initial premium. We
will calculate the initial minimum premium based on a number of factors, such as
the age, sex and underwriting rate class of the proposed Insured, the desired
Face Amount, and any supplemental benefits or riders applied for and whether
premiums will be paid by pre-authorized checking. A table is provided in
Appendix A.
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 pay this
premium amount. This may be monthly, quarterly, semiannually, or annually.
Pre-authorized checking may be required for monthly payments.
During the term of the policy, you may pay premiums at any time and in any
amount, within limits. Thus, you are not required to pay the planned periodic
premium and you may make payments in addition to the planned periodic premium.
Policy Account Value
We will measure your benefits under the policy by your Policy Account Value.
Your Policy Account Value will reflect:
o the premiums you pay;
o the returns earned by the subaccounts you select;
o the interest earned on the amount allocated to the Guaranteed Account;
o any loans or partial surrenders; and
o the policy charges and expenses we deduct.
Death Benefit
When you apply for a policy, you must select:
o The Face Amount.
o The death benefit option, which determines the manner in which we calculate
the death benefit for your policy.
You may select from two death benefit options. They are:
o Option I: Level Death Benefit Option. The basic death benefit will be the
greater of:
1. The Face Amount; or
2. Policy Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
o Option II: Increasing Death Benefit Option. The basic death benefit will be
the greater of:
1. The Face Amount plus the Policy Account Value; or
2. Policy Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
Within limits, you may change the death benefit option and, after the first
Policy Year, may change the Face Amount.
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 surrenders or a full 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 Surrender -- You may withdraw part of your Policy Account Value
after the first Policy Year. We may deduct an administrative charge. If you
make a partial surrender during the surrender charge period, we will deduct
a surrender charge. A partial surrender may result in a decrease in the
Face Amount of your policy depending upon your death benefit option.
o Full 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
We deduct expenses related to your policy. These deductions are made:
o from premium, your Policy Account Value and the assets of the subaccounts;
and
o upon certain transactions.
Deduction From Premium -- we will deduct 5% from your premium payments plus a
state specific percent of premium equal to the state and local premium tax rate
applicable to the policy. These deductions are for state premium taxes, federal
taxes, sales and other acquisition related expenses.
Monthly Deductions From Policy Account Value -- we will deduct on each Monthly
Anniversary charges for:
o The administration of your policy.
o The cost of insurance for your policy.
o The costs associated with acquiring and underwriting your policy.
o The cost of any supplemental benefits or riders.
The monthly deduction is deducted from your Accounts on a pro rata basis in the
same proportion as you have Policy Account Value in each Account.
Deductions from Subaccount Net Assets -- we will deduct a daily charge for the
mortality and expense risks we assume at an annual rate not to exceed 0.90% of
your Policy Account Value in the subaccounts.
Deductions Upon Certain Policy Transactions -- If you make a policy transaction,
a charge may apply. They are:
o Transfer Charge -- You may make twelve transfers from your subaccounts each
Policy Year free of charge. Thereafter, we will deduct a fee of $25 per
transfer from the transferred amount.
o Administrative Charge for Partial Surrenders - We currently deduct an
administrative charge of $25 upon a partial surrender. In certain states
the charge may be the lesser of $25 or 2% of the amount surrendered.
o Surrender Charge - A surrender charge for partial surrenders is equal to a
pro rata portion of the surrender charge that would apply to a full
surrender. This applies during the first 14 Policy Years and for the first
14 Policy Years immediately following an increase in Face Amount. If you
request a full surrender during the first 14 Policy Years, we may deduct a
surrender charge based on the initial Face Amount. If you request a
surrender within 14 years immediately following an 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.
o Surrender Charge for Face Amount Decreases -- We may also deduct a
surrender charge from the Policy Account Value upon a decrease in Face
Amount. If you request a decrease in Face Amount during the first 14 Policy
Years, we will deduct a surrender charge based on the initial Face Amount.
If you request a decrease within 14 years immediately following an increase
in Face Amount, we will deduct a surrender charge based on the increase in
Face Amount.
In addition, you will indirectly bear the costs of the investment management
fees and expenses paid from the assets of the portfolios you select.
The following tables are designed to help you understand the various fees and
expenses that you will bear directly or indirectly. The first table shows the
policy charges and deductions you will bear directly under the policy. The
second table shows the fees and expenses of the portfolios that you will bear
indirectly when you purchase a policy.
Policy Charges and Deductions
Transaction Charges
Sales and DAC Tax Charge 5% of each premium payment
Premium Tax Charge(1) 0.50% to 5% of each premium payment
Transfer Charge $25 for each transfer in excess of 12 each Policy Year
Surrender Charge During the first 14 Policy Years and the first years
immediately following an increase in Face Amount, there will be a surrender
charge of up to 25% of the first year premium paid up to a surrender charge
premium plus 4% of the first year premium paid in excess of the surrender
charge premium. (3)
Partial Surrender Administrative $25 per partial surrender - In certain
states the charge may Charge the lesser of $25 or 2% of the amount
surrendered.
Account Value Charges (deducted monthly)
Cost of Insurance Charge(2)
Current Guaranteed
Ranges from 0.04083 per Ranges from 0.05667 per
$1,000 of net amount at risk $1,000 of net amount at risk
to 58.95273 per $1,000 of net to 90.90909 per $1,000 of net
amount at risk(4) amount at risk(4)
Monthly Expense Charge Current Guaranteed
If the Face Amount is between $50,000 and $199,000 $ 7.50 $15.00
If the Face Amount is between $200,000 and $499,000 $ 5.00 $10.00
If the Face Amount is between $500,000 and greater $ 4.00 $10.00
First Year Additional Charge $ 20.00 $25.00
First Year Administrative Charge Up to $25 per month during the first
Policy Year and for 12 months following an increase in Face Amount
Annual Separate Account Charges (deducted daily and shown as an annualized
percentage of average net assets)
<TABLE>
Mortality and Expense Risk Charge Current Guaranteed
<S> <C> <C>
0.90% (policy years 1-10) 0.90%
0.50% (policy years 11+)
</TABLE>
(1) We deduct a premium tax charge equal to the actual state tax rate from each
premium payment. State and local premium tax rates range from 0.50% to 5%.
(2) The current cost of insurance charge will never exceed the guaranteed cost
of insurance charge shown in the policy. The net amount at risk is the
difference between the death benefit divided by 1.0032737 and the current
Policy Account Value. (See "Expenses of the Policy - Cost of Insurance
Charge.")
(3) A policy's surrender charge premium is based on the issue age, sex and
smoker status of the Insured and the Face Amount. For a 45 year old
non-smoking male purchasing $500,000 Face Amount the surrender charge
premium would be $8,530.00. For a 65 year old non-smoking male purchasing
$200,000 Face Amount, the surrender charge premium would be $10,762.00. The
lowest and highest maximum surrender charge will range from $5.60 to
$34.42 per $1,000 of Face Amount. (See Appendix B for additional examples
of surrender charge premiums.)
(4) Current and guaranteed cost of insurance charges are based on the issue age
(or Attained Age in the case of increase in Face Amount), sex, rate class
of the Insured, and Policy Year.
<PAGE>
Annual Portfolio Expenses
Before Waivers/Reimbursements
As of December 31, 1999
The purpose of this table is to assist the Owner in understanding the various
costs and expenses that will be incurred, directly or indirectly. It is based on
historical expenses as a percentage of net assets before waivers and/or
reimbursements, if applicable, for the year ended December 31, 1999, except as
indicated below. Expenses of the portfolios of the funds are not fixed or
specified under the terms of the policy. Actual expenses may vary.
<TABLE>
Management Other Total
Fees Expenses(1) Expenses
<S> <C> <C> <C>
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.73%
AIM V.I. International Equity Fund 0.75% 0.22% 0.97%
Alliance Variable Products Series Fund(2)
Global Bond Portfolio 0.65% 0.39% 1.04%
Growth Portfolio 0.75% 0.09% 0.84%
Growth and Income Portfolio 0.63% 0.08% 0.71%
Premier Growth Portfolio 1.00% 0.05% 1.05%
Quasar Portfolio 1.00% 0.19% 1.19%
Technology Portfolio 1.00% 0.12% 1.12%
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 0.75% 0.22% 0.97%
Dreyfus Stock Index Fund 0.25% 0.01% 0.26%
Fidelity Variable Insurance Products Fund(3)
VIP Growth Portfolio 0.58% 0.08% 0.66%
VIP High Income Portfolio 0.58% 0.11% 0.69%
VIP Money Market Portfolio 0.18% 0.09% 0.27%
Fidelity Variable Insurance Products Fund II(4)
VIP II Asset Manager Portfolio 0.53% 0.10% 0.63%
VIP II Contrafund Portfolio 0.58% 0.09% 0.67%
VIP II Investment Grade Bond Portfolio 0.43% 0.11% 0.54%
Van Eck Worldwide Insurance Trust(5)
Worldwide Emerging Markets Fund 1.00% 0.54% 1.54%
Worldwide Hard Assets Fund 1.00% 0.26% 1.26%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectuses
for the AIM Variable Insurance Funds, Inc., Alliance Variable Products
Series Fund, Dreyfus Variable Investment Fund, Dreyfus Stock Index
Fund, Fidelity Variable Insurance Products Fund, Fidelity Variable
Insurance Products Fund II, and Van Eck Worldwide Insurance Trust.
(2) Expenses for the following portfolios after waivers and reimbursement
by Alliance Capital Management for the year ended December 31, 1999,
were as follows:
Management Other Total
Fees Expenses Expenses
Global Bond Portfolio 0.65% 0.25% 0.90%
Quasar Portfolio 0.81% 0.14% 0.95%
Technology Portfolio 0.86% 0.09% 0.95%
(3) Expenses for the following portfolios after waivers and reimbursement
by the Fidelity Variable Insurance Products Fund's investment adviser
for the year ended December 31, 1999, were as follows:
Management Other Total
Fees Expenses Expenses
VIP Growth Portfolio 0.58% 0.07% 0.65%
(4) Expenses for the following portfolios after waivers and reimbursement
by the Fidelity Variable Insurance Products Fund II's investment
adviser for the year ended December 31, 1999, were as follows:
Management Other Total
Fees Expenses Expenses
VIP II Asset Manager
Portfolio 0.53% 0.09% 0.62%
VIP II Contrafund Portfolio 0.58% 0.07% 0.65%
(5) Expenses for the following portfolios after waivers and reimbursement
by the Van Eck Worldwide Insurance Trust's investment adviser for the
year ended December 31, 1999, were as follows:
Management Other Total
Fees Expenses Expenses
Worldwide Emerging
Markets Fund 1.00% 0.34% 1.34%
Federal Tax Considerations
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 death benefit will not be taxable income to the
Beneficiary. You will not be taxed as your Policy Account Value increases. Upon
a distribution from your policy, however, you may be taxed on any increase in
Policy Account Value.
Purchasing a 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 and supplemental benefit 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.
You may apply for a policy to cover a person who is younger than age 76. A
newborn may be an Insured. The minimum Face Amount is $50,000.
We require a minimum initial premium before we will issue the policy. You may
pay the minimum initial premium when you submit the application or at a later
date.
We will not issue a policy until we have accepted the application. We will
accept an application if it meets our underwriting rules. We reserve the right
to reject an application for any reason or "rate" an Insured as a substandard
risk.
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your Right to Cancel the Policy
Once you receive your policy, you should read the policy. You have the right to
cancel the policy for any reason within the later of:
o 45 days after you sign Part I of the application; or
o 10 days after you received the policy. If required by the state where you
live, we will extend the time period to the number of days required by law.
This is your "period to examine and cancel."
Your right to cancel also applies to the amount of any increase in Face Amount.
You may cancel the policy by returning it to our Administrative Office or to
your agent within the applicable time with a written request for cancellation.
We will refund you the premium paid on the policy. Thus, the amount we return
will not reflect the returns of the subaccounts you selected in your
application.
Premiums
The policy allows you to select the timing and amount of premium payments within
limits. Send premium payments to our Administrative Office.
Restrictions on Premiums. We may not accept any premium payment:
o If it is less than $50.
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
your 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.
Minimum Initial Premium. We will calculate the minimum initial premium. The
amount is based on a number of factors, including the age, sex and rating class
of the proposed Insured, the desired Face Amount and any supplemental benefits
or riders applied for and whether premiums will be paid by pre-authorized
checking.
Planned Periodic Premium. When you apply for a policy, you select a plan for
paying level premiums at specified intervals. The intervals may be monthly,
quarterly, semi-annually or annually, for the life of the policy. Pre-authorized
checking may be required for monthly payments. We will establish a minimum
amount that may be used as the planned periodic premium.
You are not required to pay premiums in accordance with this plan. Rather, you
can pay more or less than the planned periodic premium or skip a planned
periodic premium entirely. At any time you can change the amount and frequency
of planned periodic premium by sending a written notice to our Administrative
Office.
Additional Premiums. Additional premiums are premiums other than planned
premiums. Additional premiums may be paid in any amount and at any time subject
to the Code. Depending on the Policy 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.
Effect of Premium Payments. In general, paying all planned periodic premiums may
not prevent your policy from lapsing. In addition, if you fail to pay any
planned periodic premiums, your policy will not necessarily lapse.
Your policy will lapse only when the Net Cash Surrender Value on a Monthly
Anniversary is less than the amount of that date's monthly deduction. This could
happen if the Net Cash Surrender Value has decreased because:
o of the negative return or insufficient return earned by one or more of the
subaccounts you selected; or
o of any combination of the following -- you have outstanding loans, you have
taken partial surrenders, we have deducted policy expenses, or you have
made insufficient premium payments to offset the monthly deduction.
Grace Period. 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 for 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.
o The amount of premium required to prevent your policy from terminating.
This amount is equal to the amount needed to increase the Net Cash
Surrender Value sufficiently to cover total monthly deductions for the next
three (3) Monthly Anniversaries.
If the Insured dies during the Grace Period, we will still pay the death benefit
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.
Premium Allocations. In the application, you specify the percentage of Net
Premiums to be allocated to each subaccount or to the Guaranteed Account.
However, until the period to examine and cancel expires, we invest this amount
in the Money Market Subaccount. On the first business day after the period
expires, we will reallocate your Policy Account Value based on the premium
allocation percentages in your application.
For all subsequent premiums, we will use the allocation percentages you
specified in the application until you change them. You can change the
allocation percentages at any time by sending written notice to our
Administrative Office. The change will apply to all Premiums received with or
after your notice.
Allocation Rules. Your allocation instructions must meet the following
requirements:
o Each allocation percentage must be a whole number; and
o Any allocation to a subaccount must be at least 5%; and the sum of your
allocations must equal 100%.
Crediting Premiums. Your initial Net Premium will be credited to your Policy
Account Value as of the Policy Date. We will credit and invest subsequent Net
Premiums on the date we receive the premium or notice of deposit at our
Administrative Office.
If any premium requires us to accept additional risk, we will allocate this
amount to the Money Market Subaccount until we complete our underwriting. When
accepted, and at the end of the period to examine and cancel the policy, we will
allocate it in accordance with your allocation percentages.
<PAGE>
The Investment Options
You may allocate your Policy Account Value to:
o the subaccounts which invest in the variable investment options; or
o the Guaranteed Account.
Variable Investment Options
Under the policy, you may currently allocate your Policy Account Value into any
of the available subaccounts. Each subaccount invests in a distinct portfolio of
the AIM Variable Insurance Funds, Inc., Alliance Variable Products Series Fund,
Inc., Dreyfus Variable Investment Fund, Fidelity Investments Variable Insurance
Products Fund, Fidelity Investments Variable Insurance Products Fund II, or Van
Eck Worldwide Insurance Trust. These portfolios operate similarly to a mutual
fund but are only available through the purchase of certain insurance contracts.
The funds may also include other portfolios which are not available under the
policy.
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund - seeks to provide growth of capital through
investment in common stocks, with emphasis on medium and small-sized growth
companies.
AIM 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.
Alliance Variable Products Series Fund, Inc.
Global Bond Portfolio - seeks a high level of return from a combination of
current income and capital appreciation by investing in a globally diversified
portfolio of high-quality debt securities denominated in the U.S. Dollar and a
range of foreign currencies. The sub-adviser for this portfolio is AIGAM
International Limited, an affiliate of American International Group, Inc.
Growth Portfolio - seeks to provide long term growth of capital. Current income
is incidental to the Portfolio's objective.
Growth and Income Portfolio - seeks reasonable current income and reasonable
opportunity for appreciation through investments primarily in dividend-paying
common stocks of good quality.
Premier Growth Portfolio - seeks growth of capital by pursuing aggressive
investment policies.
Quasar Portfolio - seeks growth of capital by pursuing aggressive investment
policies. Current income is incidental to the Portfolio's objective.
Technology Portfolio - seeks growth of capital. Current income is incidental to
the Portfolio's objective.
Dreyfus Variable Investment Fund
Small Company Stock Portfolio - seeks investment returns (consisting of capital
appreciation and income) that are greater than the total return performance of
stocks as represented by the Russell 2500 TM Index. The portfolio normally
invests in a blended portfolio of growth and value stocks of small and mid-size
domestic companies, whose market values generally range between $500 million and
$5 billion.
Dreyfus Stock Index Fund - seeks to match the total return of the Standard &
Poor's 500 Composite Stock Price Index. The fund generally invests in all 500
stocks in the S&P 500 in proportion to their weighting in the index. The fund is
neither sponsored by nor affiliated with Standard & Poor's Corporation. The
Dreyfus Corporation has engaged its affiliate, Mellon Equity Associates, to
serve as the fund's index fund manager.
Fidelity Variable Insruance Products Fund (VIP)
VIP Growth Portfolio - seeks capital appreciation through investments primarily
in common stock.
VIP High Income Portfolio - seeks high current income by investing primarily in
income producing debt securities, preferred stocks and convertible securities,
with emphasis on lower-quality debt securities (commonly referred to as "junk
bonds"), while also considering growth of capital. The potential for high yield
is accompanied by higher risk. For a more detailed discussion of the investment
risks associated with such securities, please refer to the attached prospectus.
The sub-advisers for this portfolio is Fidelity Management & Research Far East
Inc. and Fidelity Management & Research (U.K.) Inc.
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. The
sub-adviser for this portfolio is Fidelity Investments Money Management, Inc., a
wholly owned subsidiary of Fidelity Management & Research Company.
Fidelity Variable Insurance Products Fund II (VIP II)
VIP II Asset Manager Portfolio - seeks to provide a high total return with
reduced risk over the long term by allocating its assets among stocks, bonds and
short-term money market instruments. The sub-advisers for this portfolio is
Fidelity Management & Research Far East Inc. and Fidelity Management & Research
(U.K.) Inc.
VIP II Contrafund(TM)Portfolio - seeks capital appreciation by investing in
securities of companies whose value the manager believes is not fully recognized
by the public. The sub-advisers for this portfolio is Fidelity Management &
Research Far East Inc. and Fidelity Management & Research (U.K.) Inc.
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. The portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less. The sub-adviser
for this portfolio is Fidelity Investments Money Management, Inc.
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund - seeks long-term capital appreciation by
investing primarily in equity securities in emerging markets around the world.
Worldwide Hard Assets Fund - seeks long-term capital appreciation by investing
primarily in "hard asset securities." Income is a secondary consideration. Hard
asset securities are the stocks, bonds, and other securities of companies that
derive at least 50% of gross revenue or profit from exploration, development,
production or distribution of (1) precious metals, (2) natural resources, (3)
real estate and (4) commodities.
<PAGE>
Guaranteed Investment Option
Under the policy, you may currently allocate your Policy Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part of
your Policy 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 Policy 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 4% per year compounded
annually. You assume the risk that interest credited may not exceed the
guaranteed minimum rate of 4% per year. The Loan Account portion of your Policy
Account Value may earn a different interest rate than the remaining portion of
your Policy Account Value in the Guaranteed Account.
Deductions from the Guaranteed Account. We will deduct any transfers, partial
surrenders or any policy expenses from the Guaranteed Account and your variable
investment options on a pro rata basis, unless you provide other directions. No
portion of the Loan Account may be used for this purpose.
The Loan Account will only increase or decrease in value when policy loans are
taken or repayments are made. If an amount is transferred from the Loan Account
to the remaining portion of the guaranteed Policy Account Value, it will be
treated as a new allocation to the Guaranteed Account and will be credited with
interest at the rate then in effect for Guaranteed Account allocations.
Payments from the Guaranteed Account. If we must pay any part of the proceeds
for a loan, partial surrender or full surrender from the Guaranteed Account, we
may defer the payment for up to six months from the date we receive the written
request. If we defer payment from the Guaranteed Account for 30 days or more, we
will pay interest on the amount we deferred at a rate of 4% per year, compounded
annually, until we make payment.
Investing Your Policy Account Value
The policy allows you to choose how to invest your Policy Account Value. Your
Policy 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 Policy Account Value. If
your Policy 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 be in default and a Grace Period will
begin.
Determining the Policy Account Value
On the Policy Date, your Policy Account Value is equal to your initial Net
Premium. If the Policy Date and the Issue Date are the same day, the Policy
Account Value is equal to your initial premium, less the premium expenses and
monthly deduction.
On each Valuation Date thereafter, your Policy Account Value is equal to:
o Your Policy Account Value held in the subaccounts; and
o Your Policy Account Value held in Guaranteed Account.
Your Policy Account Value will reflect:
o the premiums you pay;
o the returns earned by the subaccounts you select;
o the interest credited on amounts allocated to the Guaranteed Account;
o any loans or partial surrenders; and
o the policy expenses we deduct.
Policy Account Value in the Subaccounts. We measure your Policy Account Value in
the subaccounts by the value of the subaccounts' accumulation units we credit to
your policy. When you allocate premiums or transfer part of your Policy 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 loan is taken from the subaccount, an amount is
transferred from the subaccount, or a partial surrender, including the
partial surrender charge, is taken from the subaccount.
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.
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 Policy Account Value. On any Valuation Date, the Guaranteed Account
portion of your Policy 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 surrenders, including the partial surrender
charges, taken from the Guaranteed Account, and less
o the allocated portion of the monthly deduction deducted from the Guaranteed
Account, plus
o the amount of the Loan Account.
If you take a loan, we transfer the amount of the loan to the Loan Account held
in the Guaranteed Account. The value of your Loan Account includes transfers to
and from the Loan Account as you take and repay loans and interest credited on
the Loan Account.
Net Policy Account Value. The net Policy Account Value on a Valuation Date is
the Policy Account Value less outstanding loans on that date.
Cash Surrender Value. The Cash Surrender Value on a Valuation Date is the Policy
Account Value reduced by any surrender charge that would assessed if the policy
were surrendered on that date.
Net Cash Surrender Value. The Net Cash Surrender Value on a Valuation Date is
the amount you would receive on a surrender of your policy and is equal to:
o the Cash Surrender Value, less
o the outstanding loan on that date.
Transfers
You may transfer Policy Account Value among the subaccounts and to the
Guaranteed Account after the period to examine and cancel. All transfer requests
must satisfy the following requirements:
o Minimum amount of transfer -- You must transfer at least $250 or, the
balance in the subaccount or the Guaranteed Account, if less;
o Form of transfer request - Transfer requests must be in writing;
o Transfers from the Guaranteed Account -- The maximum you may transfer in a
Policy Year is equal to 25% of your guaranteed Policy Account Value that is
not in the Loan Account. Transfers may be made only during the 60-day
period within 30 days before and following the end of each Policy Year. The
amount transferred must be at least $250 or the Policy Account Value held
in the Guaranteed Account.
Date We Process Your Transfer Request. We must receive your transfer request at
our Administrative Office. We process transfers 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 Allowable Transfers/Transfer Charge. We do not currently limit the
number of transfers you may make. We will currently assess a $25 transfer
charge, however, for each transfer in excess of 12 during a Policy Year. All
transfers processed on the same business day will count as one transfer for
purposes of determining the number of transfers you have made in a Policy Year.
We reserve the right to increase or decrease the number of free transfers
allowed in any Policy Year.
We will confirm transfer requests received by fax before processing them. You
should review all confirmations to determine if there have been any unauthorized
transfers.
Dollar Cost Averaging
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.
Under this program we will automatically transfer monthly a portion of your
Money Market Subaccount value into other subaccounts or the Guaranteed Account
for a period not in excess of 24 months. We will allocate the transfers based on
your current premium allocation instructions. However, no less than 5% may be
allocated to any one subaccount or to the Guaranteed Account. There is no charge
for this option which can be elected at any time provided there is a minimum
balance of $2000 in the Money Market Subaccount. Transfers in connection with
the dollar cost averaging program will not count against the 12 free transfers
in a Policy Year.
Dollar Cost Averaging From a Subaccount. If you instruct us to make the
transfers from the Money Market Subaccount, you may request that we transfer:
o A specified dollar amount -- we will automatically transfer this amount in
accordance with your most current premium allocation instructions for a
specified period until your Policy Account Value in the transferring Money
Market Subaccount is depleted.
o A specified number of months-- we will automatically transfer over a
specific number of months an amount equal to one divided by the number of
months remaining in the period. For example, if you elect to transfer over
a 12 month period, the first transfer will be 1/12 of your Money Market
Subaccount value, the second transfer will be for 1/11, the third transfer
will be for 1/10 and so on until the end of the requested period.
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 requested the automatic transfers when you applied 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 transfers if:
o The funds in the Money Market Subaccount are depleted;
o We receive you 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 the 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.
Death Benefit
Death Benefit
During the policy term, we will pay the death benefit 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.
Payment of Death Benefit. We will pay the death benefit generally within seven
days after we receive the information we require. We will pay the death benefit
to the Beneficiary in one lump sum or, if elected, under a payment option.
Payment of the death benefit may also be affected by other provisions of the
policy.
We will pay interest on the death benefit from the date of the Insured's death
to the date of payment as required by applicable state law.
Amount of Death Benefit. We will determine the death benefit as of the date of
the Insured's death. The death benefit will equal:
o the death benefit amount determined according to the death benefit option
selected; plus
o any other benefits then due from riders to the policy; minus
o the outstanding loan, if any, and accrued loan interest; minus
o any overdue monthly deductions if the Insured dies during a Grace Period.
Death Benefit Options
You may select from two death benefit options.
Option I - Level Death Benefit Option. The basic death benefit will be the
greater of:
(1) the Face Amount; or
(2) Policy Account Value at date of death multiplied by the appropriate
minimum death benefit factor.
Option II - Increasing Death Benefits Option. The basic death benefit will be
the greater of:
(1) the Face Amount plus the Policy Account Value; or
(2) Policy Account Value at date of death multiplied by the appropriate
minimum death benefit factor.
Changes in Death Benefit Options
You may change your death benefit option by providing your agent with a written
request or by writing us at our Administrative Office. We may require that you
submit satisfactory evidence of insurability to us.
If you request a change from Option I to Option II, we will decrease the Face
Amount by an amount equal to your Policy Account Value on the date the change
takes effect. However, we reserve the right to decline to make such a change if
it would reduce the Face Amount below the minimum Face Amount.
If you request a change from Option II to Option I, we will increase the Face
Amount by an amount equal to your Policy 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 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.
The change will take effect on the next Monthly Anniversary that coincides with
or next follows the date we approve your request.
Changes in Face Amount
At any time after the first policy anniversary while the policy is in force you
may request a change in the Face Amount. We will not make a change in Face
Amount that causes your policy to fail to qualify as life insurance under of the
Code.
Increases in Face Amount. Any request for an increase:
o Must be for at least $10,000.
o May not be requested in the same Policy Year as another request for an
increase.
o May not be requested after the Insured is Attained Age 75.
A written application must be submitted to our Administration Office along with
satisfactory evidence of insurability. You must return the policy so we can
amend it to reflect the increase. The increase in Face Amount will become
effective on the Monthly Anniversary on or next following the date the increase
is approved, and the Policy Account Value will be adjusted to the extent
necessary to reflect a monthly deduction as of the effective date based on the
increase in Face Amount.
Decreases in Face Amount. Any request for a decrease:
o Must be at least $5,000.
o Must not cause the Face Amount after the decrease to be less than the
minimum Face Amount at which we would issue a policy.
o During the first 5 Policy Years, the Face Amount may not be decreased
by more than 10% of the initial Face Amount in any one Policy Year.
o No decrease may be made during the first 12 months following an
increase in Face Amount.
o If the Face Amount is decreased during the first 14 Policy Years or
within 14 Policy Years of an increase in Face Amount, a surrender
charge may be applicable.
Consequences of a Change in Face Amount. Both increases and decreases in Face
Amount may impact the surrender charge. In addition, an increase or decrease in
Face Amount may impact the status of the policy as a modified endowment
contract.
Cash Benefits During the Insured's Life
During the life of the Insured, your policy has cash benefits which you may
access within limits by taking loans, partial surrenders or a full surrender.
Policy Loans
You may request a loan against your policy at any time after the first Policy
Year or after the first 12 months following an increase in Face Amount while the
policy has a Net Cash Surrender Value. We limit the minimum and maximum amount
of loan you may take.
o Maximum Loan Amount. After First Policy Year -- The maximum loan
amount is:
o 90% of Your Net Cash Surrender Value, less
o Any outstanding loans
o Minimum Loan Amount -- $500
You must submit a written request for a loan to the Administrative Office. 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.
Interest. We charge interest daily on any outstanding loan at a declared annual
rate not in excess of 8%. The maximum net cost (the difference between the rate
of interest we charge on policy loans and the amount we credit on the equivalent
amount held in the Loan Account) of a loan is 2% per year. Interest is due and
payable at the end of each Policy Year while a 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.
For Policy Years 11 and later, a portion of the loanable amount may be available
on a preferred loan basis. The amount available on a preferred basis is the
excess, if any, of the Policy Account Value over the sum of the premiums paid.
For a preferred loan, the interest rate charged and credited to the preferred
portion of the loan value will be the same.
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 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 allocation percentages in effect at the time of repayment.
Effect of Loan. A loan, whether or not repaid, will have a permanent effect on
the death benefit and Policy Account Value because the investment results of the
subaccounts and current interest rates credited in the Guaranteed Account will
apply only to the non-loaned portion of the Policy 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 loan is outstanding, the effect could be favorable
or unfavorable.
In addition, loans from modified endowment contracts may be treated for tax
purposes as distributions of income.
If the death benefit becomes payable while a loan is outstanding, the
outstanding loan will be deducted in calculating the death benefit.
If the outstanding loan exceeds the Net Cash Surrender Value on any Monthly
Anniversary, the policy will be in default. We will send you, and any assignee
of record, notice of the default. You will have a 61-day Grace Period to submit
a sufficient payment to avoid termination. The notice will specify the amount
that must be repaid to prevent termination.
Outstanding Loan. The outstanding loan on a Valuation Date equals:
o All 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.
Partial Surrenders
You may request a partial surrender at any time after the first policy
anniversary. No more than two partial surrenders may be made during a Policy
Year.
We may limit the minimum and maximum amount of partial surrenders.
o Maximum Partial Surrender Amount - 90% of your policy's Net Cash Surrender
Value except that the partial surrender may not cause the Face Amount to be
less than the required minimum Face Amount.
o Minimum Partial Surrender Amount -- $500
In order to make a partial surrender, you must submit a written request to our
Administrative Office. We will reduce your Policy Account Value by the partial
surrender amount plus any applicable charges. When you request a partial
surrender, you may direct us to take the requested amount from any subaccount or
from the Guaranteed Account. If the Guaranteed Account or subaccount value is
insufficient to withdraw the amount requested, we will withdraw the difference
from the remaining Accounts on a pro rata basis unless you have provided
specific instructions to withdraw the amount from one or several Accounts.
We will process partial surrender requests at the price next computed after we
receive your written request at our Administrative Office. We will generally pay
partial surrenders within seven days.
Expenses for Partial Surrenders. We will deduct the applicable surrender charge
on a partial surrender. This charge will be deducted from your Policy Account
Value along with the amount requested to be surrendered and will be considered
part of the partial surrender (together, the "partial surrender amount").
Currently, we assess an administrative charge equal to the lesser of $25 of the
amount surrendered. In certain states the charge may be the lesser of $25 or 2%
of the amount surrendered.
Effect of Partial Surrender on Your Face Amount. The Face Amount of your policy
will also be reduced by the partial surrender amount if you selected Option I as
your death benefit.
We will reduce the Face Amount by the amount of the partial surrender in the
following order:
1. The most recent increase in the Face Amount, if any, will be reduced first.
2. The next most recent increases in the Face Amount, if any, will then be
successively decreased.
3. The initial Face Amount will then be decreased.
No partial surrender may be made that would reduce the Face Amount below the
minimum Face Amount.
Partial surrenders from your policy may have tax consequences.
Surrendering the Policy for Net Cash Surrender Value.
You may surrender your policy at any time for its Net Cash Surrender Value by
submitting a written request to our Administrative Office. We will require
return of the policy. A surrender charge may apply. We will process a surrender
request as of the date we receive your written request and all required
documents. Your surrender request generally will be paid within seven days. The
Net Cash Surrender Value may be taken in one sum or it may be applied to a
payment option. Your policy will terminate and cease to be in force if it is
surrendered for one sum. It cannot later be reinstated.
Payment Options for Benefits
We offer a wide variety of optional ways of receiving proceeds payable under the
policy, such as on a surrender or death, other than in a lump sum. Any agent
authorized to sell this policy can explain these options upon request. None of
these options vary with the investment performance of a separate account because
they are all forms of guaranteed benefit payments.
Expenses of the Policy
Periodically, we will deduct expenses related to your policy. We will deduct
these:
o from premium, Policy 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 on a current basis less than the guaranteed amount.
Deduction From Premium
We will deduct 5% plus a state specific percent of premium from each premium
payment. This charge is intended to provide for state premium taxes, DAC taxes
and for other expenses associated with acquiring and servicing a policy.
Monthly Deductions From Policy Account Value
On the Policy Date and each Monthly Anniversary thereafter, we make a deduction
from the Policy Account Value. On the Issue Date the amount deducted is for the
Policy Date and any Monthly Anniversaries that have elapsed since the Policy
Date. For this purpose, the Policy Date is treated as a Monthly Anniversary. We
will deduct charges on each Monthly Anniversary for:
o The administration of your policy.
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.
We will take the monthly deductions from your Policy Account Value and from each
subaccount on a pro rata basis.
Administrative Charge. This charge compensates us for administrative expenses
associated with the policy and the Separate Account. The policy refers to these
expenses as the "monthly expense charge" and the "additional first year
administrative charge."
Monthly Expense Charge. We will make a deduction from your Policy Account Value
for expenses such as premium billing and collection, record keeping, processing
claims, loans, policy changes, reporting and overhead costs, processing
applications and establishing policy records associated with the administration
of your policy. This charge will vary based on the Policy Face Amount. The chart
below reflects the current and guaranteed monthly expense charges:
Current Guaranteed
Monthly Expense Charge Per Policy Charge Charge
If the Face Amount is between $50,000 and $199,999 $ 7.50 $ 15.00
If the Face Amount is between $200,000 and $499,999 $ 5.00 $ 10.00
If the Face Amount is $500,000 or greater $ 4.00 $ 10.00
First Year Additional Charge $ 20.00 $ 25.00
First Year Administrative Charge. There is an additional monthly expense charge
during the first Policy Year and following an increase in Face Amount for our
expenses associated with the acquisition and underwriting of your policy. We
deduct a monthly charge, not to exceed $25, during the first 12 months after the
Policy Date and the 12 months immediately following a Face Amount increase.
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 described below on that
Monthly Anniversary.
The net amount at risk is calculated as (a) minus (b) where:
(a) is the current death benefit at the beginning of the policy month divided by
1.0032737; and (b) is the current total Policy Account Value.
Rate Classes for Insureds. We currently rate Insureds in one of following basic
rate classifications based on our underwriting:
o non-smoker standard
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. 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 a 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 a 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.
If there have been increases in the Face Amount, we may use different cost of
insurance rates for the increased portions of the Face Amount. For purposes of
calculating the cost of insurance charge after the Face Amount has been
increased, the Policy Account Value will be applied to the initial Face Amount
first and then to any subsequent increases in Face Amount. If at the time an
increase is requested, the Policy 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 Policy Account Value will cause an
automatic increase in the death benefit. The Attained Age and rate class for
such increase will be the same as that used for the most recent increase in Face
Amount (that has not been eliminated through a subsequent decrease in Face
Amount).
The guaranteed cost of insurance charges at any given time for a substandard
policy with flat extra charges will be based on the guaranteed maximum cost of
insurance rate for the policy (including table rating multiples, if applicable),
the current Net Amount at Risk at the time the deduction is made, plus the
actual dollar amount of the flat extra charge. Our current cost of insurance
rates may be less than the guaranteed rates. Our current cost of insurance rates
will be determined based on our expectations as to future mortality, investment,
expense and persistency experience. These rates may change from time to time. In
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 risk class are generally lower than rates for an Insured of the same
age and sex in a smoker risk class. Cost of insurance rates (whether guaranteed
or current) for an Insured in a nonsmoker or smoker risk class are generally
lower than rates for an Insured of the same age and sex and smoking status in a
substandard risk class.
Legal Considerations Relating to Sex-Distinct Premiums and Benefits. Mortality
tables for the policy generally distinguish between males and females. Thus,
premiums and benefits under the policy covering males and females of the same
age will generally differ. We do, however, also offer the policy based on unisex
mortality tables if required by state law. Employers and employee organizations
considering purchase of a policy should consult their legal advisers to
determine whether purchase of a policy based on sex-distinct actuarial tables is
consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Upon request, we may offer the policy with unisex mortality tables to such
prospective purchasers.
Deduction From Subaccount Assets
Mortality and Expense Risk Charge. We deduct a daily charge from your Policy
Account Value 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. The guaranteed and current charge is at an annual
rate of 0.90% of the subaccount assets. Although, the charge may be decreased to
not less than 0.50% in Policy Years 11 and later, it is guaranteed not to exceed
an annual rate of 0.90% of your Policy 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 death benefit
greater than anticipated. The expense risk we assume is that expenses incurred
in issuing and administering all Policies and the Separate Account will exceed
the amounts realized from the administrative charges assessed against all
Policies.
Deductions Upon Policy Transactions
Transfer Charge. We currently impose a $25 transfer charge on any transfer of
Policy Account Value among the subaccounts and the Guaranteed Account in excess
of the 12 free transfers permitted each Policy Year. When we impose the charge,
we deduct it from the amount requested to be transferred before allocation to
the new subaccount(s). We will show the transfer charge in the confirmation of
the transaction.
Surrender Charge. If the policy is surrendered or there is a decrease in Face
Amount during the first 14 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 14 years after an increase in Face Amount, we will deduct a
surrender charge based on the amount by which the Face Amount had been
increased. The surrender charge will be deducted before any surrender proceeds
are paid.
Surrender Charge Calculation. In general, the surrender charge is based on the
premiums you pay. The Surrender Charge will be no greater than the product of
(3) times the sum of (1) and (2) where:
(1) is equal to 25% of the first year paid premium up to the surrender charge
premium (see Appendix B); and (2) is equal to 4% of the first year paid premium
in excess of the surrender charge premium; and (3) is a factor based on the
Policy Year when the surrender occurs as described in the following table:
Policy
Year Factor
1 100%
2 100%
3 100%
4 100%
5 100%
6 90%
7 80%
8 70%
9 60%
10 50%
11 40%
12 30%
13 20%
14 10%
15+ 0%
Surrender Charge Based On An Increase Or Decrease In Face Amount. If you
increase the Face Amount of the policy, we will impose an additional surrender
charge during the 14 Policy Years immediately following the increase. The
additional surrender charge period will begin on the effective date of the
increase. If you reduce the Face Amount of the policy before the end of the 14th
Policy Year or within 14 years immediately following a Face Amount increase, we
may also deduct a pro rata share of any applicable surrender charge from your
Policy Account Value. Reductions will first be applied against the most recent
increase in the Face Amount of the policy. If you have made several increases in
Face Amount, we will apply the surrender charge to prior increases in Face
Amount of the policy in the reverse order in which such increases took place,
before applying the additional surrender charges to the initial Face Amount of
the policy.
Partial Surrender Charge. We may deduct a partial surrender charge:
o upon a partial surrender; and
o if you decrease your Policy's Face Amount.
The amount of the partial surrender charge is equal to a pro rata portion of the
surrender charge that would apply to a full surrender. We deduct the partial
surrender charge, proportionately, from the subaccounts or the Guaranteed
Account affected by your partial surrender.
Partial Surrender Charge Due to Decrease in Face Amount. We will 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 Surrender Administrative Charge. We currently deduct an administrative
charge of $25 upon a partial surrender. In certain states the charge may be the
lesser of $25 or 2% of the amount surrendered.
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 groups of individuals
in a manner that in our opinion results in expense savings. For purchases made
by our officers, directors and employees, those of 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.
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
Policy Account Value.
Accelerated Benefit Rider (ABR)
Accidental Death Benefit Rider (ADB)
Guaranteed Minimum Death Benefit (GMDB)
Child's Term Rider (CTR)
Other Insured Term Rider (OIR)
Primary Insured Term Rider (PIR)
Waiver of Monthly Deductions (WMD)
Waiver of Specified Premium (WSP)
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; 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 Policy Account Value to the Guaranteed Account. There is
no charge for this transfer. Once this option is exercised, the entire Policy
Account Value must remain in the Guaranteed Account for the remaining life of
the new Policy. The Face Amount in effect at the time of the exchange will
remain unchanged. The effective date, issue date and issue age of the Insured
will remain unchanged. The Owner and Beneficiary are the same as were recorded
immediately before the exchange.
Limits on our Rights to Contest the Policy
Incontestability. We will not contest the policy after it has been in force
during the Insured's lifetime for two years from the Issue Date. Any increase in
the Face Amount will be incontestable with respect to statements made in the
evidence of insurability for that increase after the increase has been in force
during the life of the Insured for two years after the effective date of the
increase.
Suicide Exclusion. If the Insured commits suicide (while sane or insane) within
two years (unless otherwise specified by state law) after the Issue Date, our
liability will be limited to the payment of a single sum. This sum will be equal
to the premiums paid, minus any loan and accrued loan interest, minus any
partial surrender, and minus the cost of any riders attached to the policy. If
the Insured commits suicide (while sane or insane) within two years (unless
otherwise specified by state law) after the effective date of an increase in the
Face Amount, then our liability as to the increase in amount will be limited to
the payment of a single sum equal to the monthly cost of insurance deductions
made for such increase plus the expense charge deducted for the increase.
Changes in the Policy or Benefits
Misstatement of Age or Sex. If an Insured's age or sex has been misstated in the
policy, the death benefit and any benefits provided by riders shall be those
which would be purchased at the then current cost of insurance charge for the
correct age and sex.
Other Changes. At any time we may make such changes in the policy as are
necessary to assure compliance at all times with the definition of life
insurance prescribed by the 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 any death benefit, loan proceeds or partial or full
surrender proceeds within seven days after receipt at our Administrative Office
of all the required documents. Other than the death benefit, which are
determined as of the date of death, the amount will be determined as of the date
we receive the required documents. However, we may delay making a payment or
processing a transfer request if:
(1) 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
(2) 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.
Reports to Owners
You will receive a confirmation within seven days of the transaction of:
o the receipt of any unplanned premium (and any premium received before
the Issue Date);
o any change of allocation of premiums;
o any transfer among subaccounts;
o any loan, interest repayment, or loan repayment;
o any partial surrender;
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 death benefit under the policy.
Within 30 days after each policy anniversary we will send you a statement. The
statement will show the death benefit currently payable, and the current Policy
Account Value, Cash Surrender Value, and the outstanding loan. The statement
will also show premiums paid, all charges deducted during the last Policy Year,
and all transactions. We will also send to you reports of the investments within
the Separate Account at least annually.
Assignment
You may assign the policy in accordance with its terms on a form provided by us.
We will not be deemed to know of an assignment unless we receive a copy of this
assignment form at our Administrative Office. We assume no responsibility for
the validity or sufficiency of any assignment. Any assignment or pledge of a
modified endowment contract as collateral for a loan may result in a taxable
event.
Reinstatement
If the policy has ended without value, you may reinstate policy benefits while
the Insured is alive if you:
1. Request 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) the total monthly
administrative charges from the beginning of the Grace Period to the
effective date of reinstatement; (ii) total monthly deductions for
three months, calculated from the effective date of reinstatement; and
(iii) the premium expense charge and any increase in surrender charges
associated with this payment. We will determine the amount of this
required payment as if no interest or investment performance were
credited to or charged against your Policy Account Value; and
4. Repay or reinstate any loan which existed on the date the policy
ended.
The effective date of the reinstatement of policy benefits will be the next
Monthly Anniversary which coincides with or next follows the date we approve
your request. From the required payment we will deduct the premium expenses. The
Policy Account Value, loan and surrender charges that will apply upon
reinstatement will be those that were in effect on the date the policy lapsed.
We will start to make monthly deductions again as of the effective date of
reinstatement. The monthly expense charge from the beginning of the Grace Period
to the effective date of reinstatement will be deducted from the Policy Account
Value as of the effective date of reinstatement. No other charges will accrue
for this period.
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 C 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: monthly
deductions; cost of insurance; surrender charges; sales loads; DAC taxes; and
any state or local premium taxes. If these charges were included, the total
return figures would be lower.
Performance information may be compared, in reports and promotional literature,
to: (i) the Standard & Poor's 500 Stock Index ("S & P 500"), Dow Jones
Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other
unmanaged indices so that investors may compare the Subaccount results with
those of a group of unmanaged securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
variable life separate accounts or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds and other investment products by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons, such as Morningstar, Inc., who rank such investment products on
overall performance or other criteria; or (iii) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Subaccount. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses. We may provide in advertising, sales literature, periodic publications
or other materials information on various topics of interest to Owners and
prospective Owners. These topics may include the relationship between sectors of
the economy and the economy as a whole and its effect on various securities
markets, investment strategies and techniques (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer and
account rebalancing), the advantages and disadvantages of investing in
tax-deferred and taxable investments, customer profiles and hypothetical
purchase and investment scenarios, financial management and tax and retirement
planning, and investment alternatives to certificates of deposit and other
financial instruments, including comparisons between the policy and the
characteristics of and market for such financial instruments.
Total return data may be advertised based on the period of time that the
portfolios have been in existence. The results for any period prior to the
policy being offered will be calculated as if the policy had been offered during
that period of time, with all charges assumed to be those applicable to the
policy. Performance information for any subaccount in any advertising will
reflect only the performance of a hypothetical investment in the subaccount
during the particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality 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.
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 tax adviser to discuss these risks.
The Company
We are taxed as a life insurance company under the Code. For federal tax
purposes, the Separate Account and its operations are considered to be part of
our operations and are not taxed separately.
Diversification and Investor Control
The Code requires that we diversify the investments underlying variable
insurance contracts. If the investments are not properly diversified and any
remedial period has passed, Section 817(h) of the Code provides in general the
contract is immediately disqualified from treatment as a life insurance contract
for federal income tax purposes. Disqualification of the policy as a life
insurance contract would result in taxable income to you at the time that we
allocate any earnings to your policy. You would have taxable income even though
you have not received any payments under the policy. To the extent that any
segregated asset account with respect to a variable life insurance contract
invests exclusively in securities issued by the U.S. Treasury, the
diversification standard is satisfied. A segregated asset account underlying
life insurance contracts such as the policy will also meet the diversification
requirements if, as of the close of each quarter:
o the regulated investment companies in which the segregated asset
account invest satisfy the diversification requirements described
below; and
o not more than 55 percent of the value of the assets of the account are
attributable to cash and cash items (including receivables),
government securities and securities of other regulated investment
companies.
Alternatively, 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.
There are several ways for investments to meet the diversification requirements.
Generally, each United States government agency or instrumentality is treated as
a separate issuer under these rules.
All securities of the same issuer are generally treated as a single investment.
We intend that each portfolio in which the subaccounts invest will be managed by
its investment adviser in compliance with these diversification requirements. 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 you're 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 premiums 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.
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 death benefit
under the policy should be excluded from the taxable gross income of the
Beneficiary. In addition, the increases in the Policy Account Value should not
be taxed until there has been a distribution from the policy such as a
surrender, partial surrender or lapse with loan.
Pre-Death Distribution
The tax treatment of any distribution you receive before the Insured's death
depends on whether the policy is classified as a modified endowment contract.
Policies Not Classified as Modified Endowment Contracts
o If you surrender the policy or allow it to lapse, you will not be taxed
except to the extent the amount you receive is in excess of the premiums
you paid less the untaxed portion of any prior withdrawals. For this
purpose, you will be treated as receiving any portion of the cash surrender
value policy debt. The tax consequences of a surrender may differ if you
take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premiums you paid for the policy less the untaxed
portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Policy Years, all or a portion of a
withdrawal may be taxed if the cash value exceeds the total premiums paid
less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums
o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the policy for the purposes of determining
whether a withdrawal is taxable.
o Loans you take against the policy are ordinarily treated as debt and are
not considered distributions subject to tax.
Modified Endowment Contracts
o The rules change if the policy is classified as a modified endowment
contract ("MEC"). The policy could be classified as a MEC if premiums
substantially in excess of scheduled premiums are paid or a decrease in the
face amount of insurance is made (or a rider removed). The addition of a
rider or an increase in the face amount of insurance may also cause the
policy to be classified as a MEC. The rules on whether a policy will be
treated as a MEC are very complex and cannot be fully described in this
summary. You should consult a qualified tax adviser to determine whether a
policy transaction will cause the policy to be classified as a MEC. We will
monitor your policy and will take steps reasonably necessary to notify you
on a timely basis if your policy is in jeopardy of becoming a MEC.
o If the policy is classified as a MEC, then amounts you receive under the
policy before the Insured's death, including loans and withdrawals, are
included in income to the extent that the cash value before surrender
charges exceeds the premiums paid for the policy increased by the amount of
any loans previously included in income and reduced by any untaxed amounts
previously received other than the amount of any loans excludable 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.
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 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 death benefit option, a loan, a partial surrender,
a surrender, a change in owners 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.
Possible Charge for the Company's Taxes
At the present time, we do not deduct any charges for any federal state or local
income taxes. However, we do currently deduct charges for state and federal
premium based taxes and the federal DAC tax. We reserve the right in the future
to deduct a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to the
Separate Account or to the policy.
Distribution of the Policy
The policy is sold by licensed insurance agents, where the policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The policy will be distributed through the principal underwriter for the
Separate Account, AIG Equity Sales Corp. (AIGESC) 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 premiums paid for
Policies sold. Other expense reimbursements, allowances, and overrides may also
be paid. Registered representatives who meet certain productivity and
profitability standards may be eligible for additional compensation. Additional
payments may be made for administrative or other services not directly related
to the sale of the policy.
Other Policies Issued by the Company
We may offer other policies similar to those offered herein.
About Us and the Accounts
AIG Life Insurance Company
We are a stock life insurance company initially organized under the laws of
Pennsylvania and reorganized under the laws of Delaware. We were 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 Separate Account
We established the Separate Account as a separate investment account on June 5,
1986. It is used to support the policy and other variable life insurance
policies, and may be used for other permitted purposes. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the federal securities laws and qualifies as a "separate account"
within the meaning of these laws.
Although you may have allocated your Policy Account Value to the subaccounts,
you do not own these assets. You only own your policy. We own the assets in the
Separate Account. The Separate Account may include other subaccounts which 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.
We have reserved certain rights regarding the Separate Account. We will exercise
these rights only in compliance with all applicable regulatory requirements. We
have the right to:
o Change, add or delete designated investment options.
o Add or remove subaccounts.
o Withdraw assets of a class of policies to which the policy belongs from a
subaccount and put them in another subaccount. o Combine any two or more
subaccounts.
o Register other separate accounts or deregister the Separate Account with
the Securities and Exchange Commission.
o Run the Separate Account under the direction of a committee, and discharge
such committee at any time.
o Restrict or eliminate any voting rights of Owners, or other persons who
have voting rights as to the Separate Account.
o Operate the Separate Account or one or more of the subaccounts making
direct investments or in any other form. If we do so, we may invest the
assets of the Separate Account or one or more of the Subaccounts in any
investments that are legal, as determined by our counsel.
We will not change an investment adviser or any investment of a subaccount of
our Separate Account unless approved by the Commissioner of Insurance of
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 a change. If you have value in that
subaccount:
o We will transfer it at your written direction from that subaccount (without
charge) to another subaccount or to the Guaranteed Account, and
o You may then change your premium allocation percentages
Voting Rights
We are the legal owner of shares held by the subaccounts and as such have the
right to vote on all matters submitted to shareholders of the portfolios.
However, as required by law, we will vote shares held in the subaccounts at
regular and special meetings of shareholders of the portfolios in accordance
with instructions we receive from Owners with Policy Account Value in the
subaccounts. If allowed by law or required by law we may vote shares of the
portfolios without obtaining instructions or in disregard to instructions we
have received. If we ever disregard voting instructions, we will advise you of
that action and our reasons for such action in the next semiannual report.
The Guaranteed Account
The Guaranteed Account is an account within the general account of the company.
Our general account assets are used to support our insurance and annuity
obligations other than those funded by separate accounts. Subject to applicable
law, we have sole discretion over the investment of the assets of the general
account.
We have not registered:
o interests in the Guaranteed Account under the Securities Act of 1933, and
o the Guaranteed Account as an investment company.
The staff of the Securities and Exchange Commission has not reviewed our
disclosure on the Guaranteed Account. Our disclosure regarding the Guaranteed
Account must comply with generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
Our Directors and Executive Officers
The directors and principal officers of the Company are listed below with their
current principal business affiliation and their principal occupations during
the past five (5) years. All officers have been affiliated with the Company
during the past five (5) years unless otherwise indicated.
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
Michele L. Abruzzo Director, Senior Exec. Senior Vice President
80 Pine Street Vice President
13th Floor
New York, NY 10005
James a. Bambrick Senior Vice President, Senior Vice President, A&H
One Alico Plaza Chief Operations Division
600 King Street Officer
Wilmington, DE 19801
Paul S. Bell Director, Senior Vice Senior Vice President
One Alico Plaza President, Chief Actuary
600 King Street Actuary
Wilmington DE 19801
Maurice R. Greenberg Director Director, Chairman and
70 Pine Street Chief Executive Officer of
New York, NY 10270 AIG, Inc.
Edward Easton Matthews Director, Senior Vice Chairman Investments and
70 Pine Street Vice President Financial Services, AIG, Inc.
New York, NY 10270
Jerome Thomas Muldowney Director, Senior Managing Director of
175 Water Street Senior Vice AIG Global Investment Corp.
New York, NY 10038 President
Robinson K. Nottingham Director, Chairman Chairman of the Board and
70 Pine Street of the Board Chief Executive Officer of
New York, NY 10270 American International Life
Insurance Company (ALICO)
John Oehmke Chief Financial Regional Vice President,
One Alico Plaza Officer, Controller American
600 King Street Vice President International Companies,
Wilmington, DE 19801 Japan and Korea
Nicholas A. O'Kulich Director, Vice Vice President, Senior Vice
70 Pine Street Chairman, Treasurer President, AIG, Inc.
New York, NY 10270
Howard Ian Smith Director Director, Executive Vice
70 Pine Street President, Chief Financial
New York, NY 10270 Officer and Comptroller,
AIG, Inc.
Edmund Sze-Wing Tse Director Vice Chairman, Life
AIA Bldg. Insurance, AIG, Inc.
70 Pine Street
New York, NY 10270
Elizabeth M. Tuck Secretary Secretary and Assistant
70 Pine Street Secretary of AIG, Inc.,
New York, NY 10270 and certain affiliates
Kenneth D. Walma Vice President, Assistant Secretary,
One Alico Plaza General Counsel Associate General Counsel
600 King Street
Wilmington, DE 19801
Gerald Walter Wyndorf Director, Chief Executive Vice President
80 Pine Street Executive Officer
13th Floor and President
New York, NY 10038
<PAGE>
Other Information
State Regulation
We are subject to the laws of Delaware governing insurance companies and to
regulation by the Delaware Insurance Department. We file an annual statement in
a prescribed form with the Insurance Department each year covering our operation
for the preceding year and our final condition as of the end of such year.
Regulation by the Insurance Department includes periodic examinations to
determine our policy liabilities and reserves so that the Insurance Department
may certify the items are correct. Our books and accounts are subject to review
by the Insurance Department at all times and a full examination of its
operations is conducted periodically by the staff of the Insurance Department
pursuant to the National Association of Insurance Commissioners. Such regulation
does not, however, involve any supervision of management or investment practices
or policies. In addition, we are subject to regulation under the insurance laws
of other jurisdictions in which we may operate.
Legal Proceedings
There are no legal proceedings to which the Separate Account or the principal
underwriter is a party. We are engaged in various kinds of routine litigation
which, in our opinion, are not of material importance in relation to our total
capital and surplus.
Experts
The financial statements which appear in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants, as stated
in its reports, and have been included in reliance upon the authority of such
firm as experts in accounting and auditing.
Legal Matters
Legal matters relating to the federal securities laws are being passed upon by
the firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP of Washington,
D.C.
Published Ratings
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to us by one or more independent rating
organizations such as A.M. Best Company, Moody's and Standard & Poor's . The
purpose of the ratings is to reflect the rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the Separate Account.
The ratings are not recommendations to purchase our life insurance or annuity
products or to hold or sell these products, and the ratings do not comment on
the suitability of such products for a particular investor. There can be no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn entirely by a rating
organization if, in such organization's judgment, future circumstances so
warrant. The ratings do not reflect the investment performance of the Separate
Account or the degree of risk associated with an investment in the Separate
Account.
Financial Statements
<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
(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>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
<TABLE>
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.
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
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
----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
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.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
<TABLE>
Years ended December 31,
1999 1998 1997
------------ -------- -------
Revenues:
<S> <C> <C> <C>
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.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL FUNDS
(in thousands)
<TABLE>
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.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
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.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
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.
<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.
<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.
<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.
<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):
<TABLE>
Years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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>
Years ended December 31,
1999 1998 1997
---------- ------- ------
Realized (losses) gains on investments:
<S> <C> <C> <C>
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>
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>
<PAGE>
2. Investment Information - (continued)
-----------------------------------
<TABLE>
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>
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.
<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).
<TABLE>
Years ended December 31,
1999 1998 1997
---------- ------ -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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):
<TABLE>
1999 1998
<S> <C> <C>
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
========= =========
</TABLE>
<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.
<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>
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>
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.
<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.
<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.
<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.
<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>
December 31, 1999
Percentage
of Amount
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>
<PAGE>
11. Reinsurance - (continued)
<TABLE>
December 31, 1998
Percentage
of Amount
Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $53,884,853 $19,921,930 $ 896,285 $34,859,208 2.6%
============= ========== ======== ==========
Premiums:
Life 184,487 54,134 2,022 132,375 1.5%
Accident and Health 155,199 82,614 142,878 215,463 66.3%
Annuity 269,126 - - 269,126 -
------------ ----------------- -------------- ----------
Total Premiums $ 608,812 $ 136,748 $ 144,900 $ 616,964 23.5%
============ =========== ======== ============
</TABLE>
<TABLE>
December 31, 1997
Percentage
of Amount
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.
<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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners of
AIG Life Insurance Company
Variable Account II
In our opinion, the accompanying statements of assets and liabilities of AIG
Life Insurance Company Variable Account II (comprising fifty-nine subaccounts,
hereafter collectively referred to as "Variable Account II") and the related
statements of operations and changes in net assets present fairly, in all
material respects, the financial position of Variable Account II at December 31,
1999, and the results of its operations and the changes in its net assets for
each of the three years in the period then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the management of Variable Account II; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
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.
March 10, 2000
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
ASSETS:
Investments at Market Value:
Shares Cost Market Value
--------------------------------------------------------------
<S> <C> <C> <C>
AIM
Capital Appreciation Fund 13,473.865 $ 334,855 $ 479,400
International Equity Fund 27,571.074 554,714 807,557
Alliance
Conservative Investors Portfolio 2,934.676 39,465 39,415
Global Bond Portfolio 1,392.310 15,739 15,665
Global Dollar Government Portfolio 19.951 191 214
Growth Portfolio 135,490.669 3,302,844 4,551,131
Growth & Income Portfolio 118,857.542 2,496,396 2,589,910
Growth Investors Portfolio 14,109.342 215,377 241,693
Money Market Portfolio 30,956.920 30,956 30,956
Premier Growth Portfolio 16,401.606 541,489 663,441
Technology Portfolio 130,454.729 3,342,191 4,384,584
Total Return Portfolio 139.972 2,413 2,448
Quasar Portfolio 100,273.238 1,262,932 1,303,552
U.S. Government/High Grade Securities Portfolio 76.713 935 858
Utility Income Portfolio 51.049 920 1,106
Anchor
Capital Appreciation Portfolio 1,452.187 74,567 82,804
Government & Quality Bond Portfolio 8,787.288 120,310 120,210
Growth Portfolio 799.586 28,845 30,800
Natural Resources Portfolio 741.289 11,134 12,023
Dreyfus
Small Company Stock Portfolio 23,570.817 340,290 393,399
Stock Index Portfolio 132,228.166 4,151,339 5,084,173
Zero Coupon 2000 Portfolio 1,409.864 17,499 17,156
Fidelity
Asset Manager Portfolio 64,730.820 1,113,633 1,208,521
Contrafund Portfolio 36,014.987 872,727 1,049,838
Growth Portfolio 109,646.236 4,509,339 6,022,870
High Income Portfolio 42,812.152 484,672 484,205
Investment Grade Bond Portfolio 40,457.261 498,052 491,961
Money Market Portfolio 1,761,346.140 1,761,346 1,761,346
Overseas Portfolio 24,504.130 495,219 672,397
SunAmerica
Alliance Growth Portfolio 20,057.491 690,507 769,605
Aggressive Growth Portfolio 6,244.706 119,770 145,877
Asset Allocation Portfolio 1,890.852 27,379 28,344
Cash Management Portfolio 169,827.747 1,835,840 1,849,423
Corporate Bond Portfolio 656.427 7,383 7,300
"Dogs" of Wall Street Portfolio 3,708.923 33,523 33,233
Emerging Markets Portfolio 3,590.599 32,978 39,819
Federated Value Portfolio 9,834.379 156,562 162,956
Global Bond Portfolio 295.259 3,194 3,190
Global Equities Portfolio 1,740.013 33,657 37,914
Growth-Income Portfolio 4,490.075 134,696 146,241
High-Yield Bond Portfolio 8,942.888 92,717 93,723
International Diversified Equities Portfolio 10,498.206 152,874 167,970
International Growth & Income Portfolio 9,380.240 127,027 120,911
MFS Growth & Income Portfolio 5,738.599 77,264 80,111
MFS Mid-Cap Growth Portfolio 5,802.442 87,737 94,347
MFS Total Return Portfolio 2,900.907 41,659 41,512
Putnam Growth Portfolio 4,928.449 128,633 138,932
Real Estate Portfolio 552.567 4,700 4,869
SunAmerica Balanced Portfolio 5,042.349 90,003 99,032
Utility Portfolio 752.833 10,771 10,827
Venture Value Portfolio 9,820.109 247,466 263,081
Worldwide High Income Portfolio 54.943 566 586
Van Eck
Worldwide Emerging Markets Portfolio 8,283.308 65,860 118,117
Worldwide Hard Assets Portfolio 6,542.928 65,819 71,708
Weiss,Peck & Greer
Tomorrow Long Term Portfolio 8,395.470 73,440 76,566
Tomorrow Medium Term Portfolio 536.633 4,911 4,841
Tomorrow Short Term Portfolio 817.802 8,678 8,186
-------------------- --------------------
Total Investments $ 30,976,003 $ 37,162,854
Total Assets $ 37,162,854
====================
EQUITY:
Policy Owners' Equity $ 37,162,854
---------------------
Total Equity $ 37,162,854
=====================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1999
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,332,831 $10,005 $26,327
Expenses:
Mortality & Expense Risk Fees 224,586 2,575 4,077
-------------- --------------- -------------
Net Investment Income (Loss) 1,108,245 7,430 22,250
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,688,244 9,467 (658)
Change in Unrealized Appreciation
(Depreciation) 4,216,974 118,713 245,104
-------------- --------------- -------------
Net Gain (Loss) on Investments 5,905,218 128,180 244,446
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $7,013,463 $135,610 $266,696
============== =============== =============
</TABLE>
<TABLE>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $3,311 $322 $31
Expenses:
Mortality & Expense Risk Fees 338 109 2
-------------- --------------- -------------
Net Investment Income (Loss) 2,973 213 29
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 332 (472) 1
Change in Unrealized Appreciation
(Depreciation) (1,782) (364) 15
-------------- --------------- -------------
Net Gain (Loss) on Investments (1,450) (836) 16
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,523 ($623) $45
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $270,895 $228,364 $22,202
Expenses:
Mortality & Expense Risk Fees 31,382 20,015 2,024
-------------- --------------- -------------
Net Investment Income (Loss) 239,513 208,349 20,178
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 153,081 59,630 11,353
Change in Unrealized Appreciation
(Depreciation) 690,619 (46,210) 700
-------------- --------------- -------------
Net Gain (Loss) on Investments 843,700 13,420 12,053
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,083,213 $221,769 $32,231
============== =============== =============
</TABLE>
<TABLE>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $30,720 $20,021 $4,775
Expenses:
Mortality & Expense Risk Fees 1,926 3,973 3,655
-------------- --------------- -------------
Net Investment Income (Loss) 28,794 16,048 1,120
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 322,423 0 896
Change in Unrealized Appreciation
(Depreciation) 0 0 105,394
-------------- --------------- -------------
Net Gain (Loss) on Investments 322,423 0 106,290
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $351,217 $16,048 $107,410
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $3,163 $230 $1,251
Expenses:
Mortality & Expense Risk Fees 16,479 22 5,084
-------------- --------------- -------------
Net Investment Income (Loss) (13,316) 208 (3,833)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 596,364 7 143,282
Change in Unrealized Appreciation
(Depreciation) 860,253 (78) 94,963
-------------- --------------- -------------
Net Gain (Loss) on Investments 1,456,617 (71) 238,245
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,443,301 $137 $234,412
============== =============== =============
</TABLE>
<TABLE>
Alliance
U.S.
Government/
High Alliance Anchor
Grade Utility Capital
Securities Income Appreciation
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $60 $44 $209
Expenses:
Mortality & Expense Risk Fees 8 10 71
-------------- --------------- -------------
Net Investment Income (Loss) 52 34 138
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (5) 10 5,385
Change in Unrealized Appreciation
(Depreciation) (78) 134 8,237
-------------- --------------- -------------
Net Gain (Loss) on Investments (83) 144 13,622
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations ($31) $178 $13,760
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Anchor
Government
& Anchor
Quality Anchor Natural
Bond Growth Resources
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,993 $116 $0
Expenses:
Mortality & Expense Risk Fees 145 50 10
-------------- --------------- -------------
Net Investment Income (Loss) 1,848 66 (10)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (1,988) 4,496 1
Change in Unrealized Appreciation
(Depreciation) (100) 1,955 890
-------------- --------------- -------------
Net Gain (Loss) on Investments (2,088) 6,451 891
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations ($240) $6,517 $881
============== =============== =============
</TABLE>
<TABLE>
Dreyfus Dreyfus
Small Dreyfus Zero
Company Stock Coupon
Stock Index 2000
Portfolio Fund Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $82,801 $930
Expenses:
Mortality & Expense Risk Fees 2,786 35,158 155
-------------- --------------- -------------
Net Investment Income (Loss) (2,786) 47,643 775
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (17,176) 143,876 (4)
Change in Unrealized Appreciation
(Depreciation) 49,961 534,775 (456)
-------------- --------------- -------------
Net Gain (Loss) on Investments 32,785 678,651 (460)
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $29,999 $726,294 $315
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Asset Fidelity Fidelity
Manager Contrafund Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $61,501 $13,299 $360,271
Expenses:
Mortality & Expense Risk Fees 9,130 5,958 40,086
-------------- --------------- -------------
Net Investment Income (Loss) 52,371 7,341 320,185
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (138) 16,695 225,037
Change in Unrealized Appreciation
(Depreciation) 50,732 139,635 916,601
-------------- --------------- -------------
Net Gain (Loss) on Investments 50,594 156,330 1,141,638
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $102,965 $163,671 $1,461,823
============== =============== =============
</TABLE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $25,817 $11,228 $104,828
Expenses:
Mortality & Expense Risk Fees 3,902 3,790 18,801
-------------- --------------- -------------
Net Investment Income (Loss) 21,915 7,438 86,027
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (12,925) (1,112) 0
Change in Unrealized Appreciation
(Depreciation) 17,353 (12,354) 0
-------------- --------------- -------------
Net Gain (Loss) on Investments 4,428 (13,466) 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $26,343 ($6,028) $86,027
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica SunAmerica
Fidelity Alliance Aggressive
Overseas Growth Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $16,156 $0 $0
Expenses:
Mortality & Expense Risk Fees 4,369 904 123
-------------- --------------- -------------
Net Investment Income (Loss) 11,787 (904) (123)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,460 5,669 1,932
Change in Unrealized Appreciation
(Depreciation) 173,424 79,099 26,106
-------------- --------------- -------------
Net Gain (Loss) on Investments 176,884 84,768 28,038
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $188,671 $83,864 $27,915
============== =============== =============
</TABLE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Asset Cash Corporate
Allocation Management Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $10,746 $0
Expenses:
Mortality & Expense Risk Fees 32 4,228 6
-------------- --------------- -------------
Net Investment Income (Loss) (32) 6,518 (6)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 77 4,159 24
Change in Unrealized Appreciation
(Depreciation) 965 13,584 (84)
-------------- --------------- -------------
Net Gain (Loss) on Investments 1,042 17,743 (60)
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,010 $24,261 ($66)
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica
"Dogs"
of SunAmerica SunAmerica
Wall Emerging Federated
Street Markets Value
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $0
Expenses:
Mortality & Expense Risk Fees 26 44 121
-------------- --------------- -------------
Net Investment Income (Loss) (26) (44) (121)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (403) 961 (71)
Change in Unrealized Appreciation
(Depreciation) (291) 6,842 6,394
-------------- --------------- -------------
Net Gain (Loss) on Investments (694) 7,803 6,323
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations ($720) $7,759 $6,202
============== =============== =============
</TABLE>
<TABLE>
SunAmerica SunAmerica
Global Global SunAmerica
Bond Equities Growth-Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $0
Expenses:
Mortality & Expense Risk Fees 4 64 182
-------------- --------------- -------------
Net Investment Income (Loss) (4) (64) (182)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 0 1,580 4,088
Change in Unrealized Appreciation
(Depreciation) (2) 4,258 11,546
-------------- --------------- -------------
Net Gain (Loss) on Investments (2) 5,838 15,634
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations ($6) $5,774 $15,452
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica
SunAmerica International
SunAmerica International Growth
High-Yield Diversified &
Bond Equities Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $10,764
Expenses:
Mortality & Expense Risk Fees 70 144 100
-------------- --------------- -------------
Net Investment Income (Loss) (70) (144) 10,664
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 315 (475) 48
Change in Unrealized Appreciation
(Depreciation) 1,005 15,097 (6,115)
-------------- --------------- -------------
Net Gain (Loss) on Investments 1,320 14,622 (6,067)
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,250 $14,478 $4,597
============== =============== =============
</TABLE>
<TABLE>
SunAmerica
MFS SunAmerica SunAmerica
Growth MFS MFS
& Mid-Cap Total
Income Growth Return
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $1,260 $0
Expenses:
Mortality & Expense Risk Fees 122 59 50
-------------- --------------- -------------
Net Investment Income (Loss) (122) 1,201 (50)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,481 3,519 513
Change in Unrealized Appreciation
(Depreciation) 2,847 6,611 (146)
-------------- --------------- -------------
Net Gain (Loss) on Investments 6,328 10,130 367
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $6,206 $11,331 $317
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Putnam Real SunAmerica
Growth Estate Balanced
<S> Portfolio Portfolio Portfolio
Investment Income (Loss): <C> <C> <C>
Dividends $0 $0 $0
Expenses:
Mortality & Expense Risk Fees 198 4 101
-------------- --------------- -------------
Net Investment Income (Loss) (198) (4) (101)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 6,536 0 214
Change in Unrealized Appreciation
(Depreciation) 10,300 168 9,028
-------------- --------------- -------------
Net Gain (Loss) on Investments 16,836 168 9,242
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $16,638 $164 $9,141
============== =============== =============
</TABLE>
<TABLE>
SunAmerica
SunAmerica Worldwide
SunAmerica Venture High
Utility Value Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $0
Expenses:
Mortality & Expense Risk Fees 5 227 0
-------------- --------------- -------------
Net Investment Income (Loss) (5) (227) 0
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 9 (263) 3
Change in Unrealized Appreciation
(Depreciation) 55 15,614 19
-------------- --------------- -------------
Net Gain (Loss) on Investments 64 15,351 22
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $59 $15,124 $22
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
VanEck VanEck WP&G
Worldwide Worldwide Tomorrow
Emerging Hard Long
Markets Assets Term
Fund Fund Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $544 $7,635
Expenses:
Mortality & Expense Risk Fees 562 405 607
-------------- --------------- -------------
Net Investment Income (Loss) (562) 139 7,028
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,139 (8,908) 692
Change in Unrealized Appreciation
(Depreciation) 49,606 18,485 (1,304)
-------------- --------------- -------------
Net Gain (Loss) on Investments 52,745 9,577 (612)
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $52,183 $9,716 $6,416
============== =============== =============
</TABLE>
<TABLE>
WP&G WP&G
Tomorrow Tomorrow
Medium Short
Term Term
Portfolio Portfolio
<S> <C> <C>
Investment Income (Loss):
Dividends $414 $598
Expenses:
Mortality & Expense Risk Fees 44 64
-------------- ---------------
Net Investment Income (Loss) 370 534
-------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 19 68
Change in Unrealized Appreciation
(Depreciation) (206) (543)
-------------- ---------------
Net Gain (Loss) on Investments (187) (475)
-------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $183 $59
============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1998
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $733,252 $5,326 $1,878
Expenses:
Mortality & Expense Risk Fees 106,392 694 1,405
-------------- --------------- ---------------
Net Investment Income (Loss) 626,860 4,632 473
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 519,608 (371) (22,044)
Change in Unrealized Appreciation
(Depreciation) 1,519,964 25,833 7,738
-------------- --------------- ---------------
Net Gain (Loss) on Investments 2,039,572 25,462 (14,306)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $2,666,432 $30,094 ($13,833)
============== =============== ===============
</TABLE>
<TABLE>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $2,086 $18 $0
Expenses:
Mortality & Expense Risk Fees 263 20 0
-------------- --------------- ---------------
Net Investment Income (Loss) 1,823 (2) 0
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,083 19 2
Change in Unrealized Appreciation
(Depreciation) 691 289 10
-------------- --------------- ---------------
Net Gain (Loss) on Investments 1,774 308 12
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $3,597 $306 $12
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $110,505 $111,284 $14,073
Expenses:
Mortality & Expense Risk Fees 16,449 10,688 1,473
-------------- --------------- ---------------
Net Investment Income (Loss) 94,056 100,596 12,600
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 36,650 55,743 3,763
Change in Unrealized Appreciation
(Depreciation) 394,461 63,586 17,434
-------------- --------------- ---------------
Net Gain (Loss) on Investments 431,111 119,329 21,197
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $525,167 $219,925 $33,797
============== =============== ===============
</TABLE>
<TABLE>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $2,482 $233
Expenses:
Mortality & Expense Risk Fees 334 482 2,105
-------------- --------------- ---------------
Net Investment Income (Loss) (334) 2,000 (1,872)
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 54,637 0 30,881
Change in Unrealized Appreciation
(Depreciation) 0 0 16,562
-------------- --------------- ---------------
Net Gain (Loss) on Investments 54,637 0 47,443
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $54,303 $2,000 $45,571
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $715 $0 $31,614
Expenses:
Mortality & Expense Risk Fees 5,537 1 3,978
-------------- --------------- ---------------
Net Investment Income (Loss) (4,822) (1) 27,636
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 171,268 0 31,274
Change in Unrealized Appreciation
(Depreciation) 197,601 112 (66,300)
-------------- --------------- ---------------
Net Gain (Loss) on Investments 368,869 112 (35,026)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $364,047 $111 ($7,390)
============== =============== ===============
</TABLE>
<TABLE>
Alliance
U.S.
Government/ Dreyfus
High Alliance Small
Grade Utility Company
Securities Income Stock
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $1,151
Expenses:
Mortality & Expense Risk Fees 0 0 1,653
-------------- --------------- ---------------
Net Investment Income (Loss) 0 0 (502)
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 0 0 (2,481)
Change in Unrealized Appreciation
(Depreciation) 0 52 8,859
-------------- --------------- ---------------
Net Gain (Loss) on Investments 0 52 6,378
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $0 $52 $5,876
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
Fund Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $30,188 $705 $60,993
Expenses:
Mortality & Expense Risk Fees 16,095 116 5,125
-------------- --------------- ---------------
Net Investment Income (Loss) 14,093 589 55,868
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 90,160 117 10,634
Change in Unrealized Appreciation
(Depreciation) 348,632 37 18,503
-------------- --------------- ---------------
Net Gain (Loss) on Investments 438,792 154 29,137
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $452,885 $743 $85,005
============== =============== ===============
</TABLE>
<TABLE>
Fidelity
Fidelity Fidelity High
Contrafund Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,859 $181,333 $33,968
Expenses:
Mortality & Expense Risk Fees 1,067 17,992 2,593
-------------- --------------- ---------------
Net Investment Income (Loss) 792 163,341 31,375
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,199 52,384 (5,310)
Change in Unrealized Appreciation
(Depreciation) 37,476 484,390 (31,433)
-------------- --------------- ---------------
Net Gain (Loss) on Investments 40,675 536,774 (36,743)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $41,467 $700,115 ($5,368)
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $9,614 $72,672 $29,556
Expenses:
Mortality & Expense Risk Fees 1,360 12,336 3,291
-------------- --------------- ---------------
Net Investment Income (Loss) 8,254 60,336 26,265
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (104) 0 22,548
Change in Unrealized Appreciation
(Depreciation) 2,966 0 1,403
-------------- --------------- ---------------
Net Gain (Loss) on Investments 2,862 0 23,951
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $11,116 $60,336 $50,216
============== =============== ===============
</TABLE>
<TABLE>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Fund Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $24,879 $0 $4,567
Expenses:
Mortality & Expense Risk Fees 466 80 292
-------------- --------------- ---------------
Net Investment Income (Loss) 24,413 (80) 4,275
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (10,944) (238) (4,776)
Change in Unrealized Appreciation
(Depreciation) (4,930) 2,653 (11,854)
-------------- --------------- ---------------
Net Gain (Loss) on Investments (15,874) 2,415 (16,630)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $8,539 $2,335 ($12,355)
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $948 $287 $318
Expenses:
Mortality & Expense Risk Fees 423 41 33
-------------- --------------- ---------------
Net Investment Income (Loss) 525 246 285
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,436 31 47
Change in Unrealized Appreciation
(Depreciation) 4,736 390 67
-------------- --------------- ---------------
Net Gain (Loss) on Investments 6,172 421 114
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $6,697 $667 $399
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1997
Alliance
Conservative Alliance
Investors Growth
Total Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $208,147 $306 $27,680
Expenses:
Mortality & Expense Risk Fees 41,401 139 6,211
-------------- --------------- ---------------
Net Investment Income (Loss) 166,746 167 21,469
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 206,207 600 37,620
Change in Unrealized Appreciation
(Depreciation) 366,321 586 138,629
-------------- --------------- ---------------
Net Gain (Loss) on Investments 572,528 1,186 176,249
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $739,274 $1,353 $197,718
============== =============== ===============
</TABLE>
<TABLE>
Alliance
Growth Alliance
& Growth Alliance
Income Investors Technology
Portfolio Portfolio Portfolio
<S> <C> <C>
Investment Income (Loss):
Dividends $27,385 $2,233 $544
Expenses:
Mortality & Expense Risk Fees 4,386 756 1,659
-------------- --------------- ---------------
Net Investment Income (Loss) 22,999 1,477 (1,115)
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 18,395 3,687 16,995
Change in Unrealized Appreciation
(Depreciation) 68,190 5,513 (15,270)
-------------- --------------- ---------------
Net Gain (Loss) on Investments 86,585 9,200 1,725
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $109,584 $10,677 $610
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Small Dreyfus
Alliance Company Stock
Quasar Stock Index
Portfolio Portfolio Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $114 $2,290 $30,945
Expenses:
Mortality & Expense Risk Fees 1,578 188 4,258
-------------- --------------- ---------------
Net Investment Income (Loss) (1,464) 2,102 26,687
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 9,057 (107) 41,444
Change in Unrealized Appreciation
(Depreciation) 11,871 (5,712) 41,726
-------------- --------------- ---------------
Net Gain (Loss) on Investments 20,928 (5,819) 83,170
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $19,464 ($3,717) $109,857
============== =============== ===============
</TABLE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Growth
Portfolio Portfolio Portfolio
<S> <C> <C>
Investment Income (Loss):
Dividends $584 $24,048 $29,644
Expenses:
Mortality & Expense Risk Fees 73 2,502 8,178
-------------- --------------- ---------------
Net Investment Income (Loss) 511 21,546 21,466
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (71) 8,600 55,366
Change in Unrealized Appreciation
(Depreciation) 83 19,239 90,042
-------------- --------------- ---------------
Net Gain (Loss) on Investments 12 27,839 145,408
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $523 $49,385 $166,874
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $4,849 $3,074 $38,596
Expenses:
Mortality & Expense Risk Fees 1,566 553 6,480
-------------- --------------- ---------------
Net Investment Income (Loss) 3,283 2,521 32,116
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 11,481 322 0
Change in Unrealized Appreciation
(Depreciation) 11,697 2,132 0
-------------- --------------- ---------------
Net Gain (Loss) on Investments 23,178 2,454 0
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $26,461 $4,975 $32,116
============== =============== ===============
</TABLE>
<TABLE>
VanEck
VanEck Worldwide
Fidelity Worldwide Hard
Overseas Balanced Assets
Portfolio Fund Fund
<S> <C> <C>
Investment Income (Loss):
Dividends $11,804 $832 $485
Expenses:
Mortality & Expense Risk Fees 2,117 489 166
-------------- --------------- ---------------
Net Investment Income (Loss) 9,687 343 319
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,460 856 165
Change in Unrealized Appreciation
(Depreciation) (3,697) 3,097 (1,231)
-------------- --------------- ---------------
Net Gain (Loss) on Investments (2,237) 3,953 (1,066)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $7,450 $4,296 ($747)
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $2,143 $335 $256
Expenses:
Mortality & Expense Risk Fees 85 4 13
-------------- --------------- ---------------
Net Investment Income (Loss) 2,058 331 243
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 303 2 32
Change in Unrealized Appreciation
(Depreciation) (304) (254) (16)
-------------- --------------- ---------------
Net Gain (Loss) on Investments (1) (252) 16
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $2,057 $79 $259
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1999
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,108,245 $7,430 $22,250
Realized Gain (Loss) on Investment Activity 1,688,244 9,467 (658)
Change in Unrealized Appreciation
(Depreciation) of Investments 4,216,974 118,713 245,104
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 7,013,463 135,610 266,696
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 16,057,267 191,533 350,534
Cost Of Insurance Charge (2,371,415) (34,739) (48,131)
Policy Loans (467,311) (6,129) (4,309)
Contract Withdrawals (1,231,246) (7,120) (1,849)
Death Benefits (19,183) (532) 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 11,968,112 143,013 296,245
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 18,981,575 278,623 562,941
Net Assets, at Beginning of Year 18,181,279 200,777 244,616
-------------- --------------- -------------
Net Assets, at End of Year $37,162,854 $479,400 $807,557
============== =============== =============
</TABLE>
<TABLE>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,973 $213 $29
Realized Gain (Loss) on Investment Activity 332 (472) 1
Change in Unrealized Appreciation
(Depreciation) of Investments (1,782) (364) 15
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,523 (623) 45
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 9,205 9,418 0
Cost Of Insurance Charge (3,200) (1,677) (53)
Policy Loans (1,019) 0 0
Contract Withdrawals (89) 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,897 7,741 (53)
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 6,420 7,118 (8)
Net Assets, at Beginning of Year 32,995 8,547 222
-------------- --------------- -------------
Net Assets, at End of Year $39,415 $15,665 $214
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $239,513 $208,349 $20,178
Realized Gain (Loss) on Investment Activity 153,081 59,630 11,353
Change in Unrealized Appreciation
(Depreciation) of Investments 690,619 (46,210) 700
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,083,213 221,769 32,231
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 1,119,286 155,452 44,115
Cost Of Insurance Charge (281,233) (202,332) (14,016)
Policy Loans (67,291) (39,707) (6,664)
Contract Withdrawals (128,553) (55,146) (9,348)
Death Benefits (1,534) (1,017) (273)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 640,675 (142,750) 13,814
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 1,723,888 79,019 46,045
Net Assets, at Beginning of Year 2,827,243 2,510,891 195,648
-------------- --------------- -------------
Net Assets, at End of Year $4,551,131 $2,589,910 $241,693
============== =============== =============
</TABLE>
<TABLE>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $28,794 $16,048 $1,120
Realized Gain (Loss) on Investment Activity 322,423 0 896
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 105,394
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 351,217 16,048 107,410
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers (348,680) 20,790 475,404
Cost Of Insurance Charge (2,537) (26,366) (64,005)
Policy Loans 0 0 (1,748)
Contract Withdrawals 0 0 (5,587)
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (351,217) (5,576) 404,064
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 0 10,472 511,474
Net Assets, at Beginning of Year 0 20,484 151,967
-------------- --------------- -------------
Net Assets, at End of Year $0 $30,956 $663,441
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($13,316) $208 ($3,833)
Realized Gain (Loss) on Investment Activity 596,364 7 143,282
Change in Unrealized Appreciation
(Depreciation) of Investments 860,253 (78) 94,963
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,443,301 137 234,412
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 2,359,314 0 804,931
Cost Of Insurance Charge (159,124) (219) (44,995)
Policy Loans (23,231) 0 (3,851)
Contract Withdrawals (43,776) 0 (10,477)
Death Benefits 0 0 (348)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 2,133,183 (219) 745,260
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 3,576,484 (82) 979,672
Net Assets, at Beginning of Year 808,100 2,530 323,880
-------------- --------------- -------------
Net Assets, at End of Year $4,384,584 $2,448 $1,303,552
============== =============== =============
</TABLE>
<TABLE>
Alliance
U.S.
Government/
High Alliance Anchor
Grade Utility Capital
Securities Income Appreciation
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $52 $34 $138
Realized Gain (Loss) on Investment Activity (5) 10 5,385
Change in Unrealized Appreciation
(Depreciation) of Investments (78) 134 8,237
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations (31) 178 13,760
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 0 0 72,791
Cost Of Insurance Charge (79) (92) (3,747)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (79) (92) 69,044
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets (110) 86 82,804
Net Assets, at Beginning of Year 968 1,020 0
-------------- --------------- -------------
Net Assets, at End of Year $858 $1,106 $82,804
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Anchor
Government
& Anchor
Quality Anchor Natural
Bond Growth Resources
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,848 $66 ($10)
Realized Gain (Loss) on Investment Activity (1,988) 4,496 1
Change in Unrealized Appreciation
(Depreciation) of Investments (100) 1,955 890
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations (240) 6,517 881
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 121,869 24,961 11,419
Cost Of Insurance Charge (1,419) (678) (277)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 120,450 24,283 11,142
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 120,210 30,800 12,023
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $120,210 $30,800 $12,023
============== =============== =============
</TABLE>
<TABLE>
Dreyfus Dreyfus
Small Dreyfus Zero
Company Stock Coupon
Stock Index 2000
Portfolio Fund Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($2,786) $47,643 $775
Realized Gain (Loss) on Investment Activity (17,176) 143,876 (4)
Change in Unrealized Appreciation
(Depreciation) of Investments 49,961 534,775 (456)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 29,999 726,294 315
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 160,056 2,254,428 5,613
Cost Of Insurance Charge (26,925) (411,576) (1,842)
Policy Loans (2,946) (54,271) 0
Contract Withdrawals (14,410) (143,533) (488)
Death Benefits (403) (2,534) (21)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 115,372 1,642,514 3,262
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 145,371 2,368,808 3,577
Net Assets, at Beginning of Year 248,028 2,715,365 13,579
-------------- --------------- -------------
Net Assets, at End of Year $393,399 $5,084,173 $17,156
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Asset Fidelity Fidelity
Manager Contrafund Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $52,371 $7,341 $320,185
Realized Gain (Loss) on Investment Activity (138) 16,695 225,037
Change in Unrealized Appreciation
(Depreciation) of Investments 50,732 139,635 916,601
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 102,965 163,671 1,461,823
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 422,099 673,063 2,250,185
Cost Of Insurance Charge (90,397) (68,090) (402,276)
Policy Loans (12,318) (960) (89,548)
Contract Withdrawals (3,454) (13,989) (239,317)
Death Benefits (4,218) (699) (6,501)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 311,712 589,325 1,512,543
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 414,677 752,996 2,974,366
Net Assets, at Beginning of Year 793,844 296,842 3,048,504
-------------- --------------- -------------
Net Assets, at End of Year $1,208,521 $1,049,838 $6,022,870
============== =============== =============
</TABLE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $21,915 $7,438 $86,027
Realized Gain (Loss) on Investment Activity (12,925) (1,112) 0
Change in Unrealized Appreciation
(Depreciation) of Investments 17,353 (12,354) 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 26,343 (6,028) 86,027
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 255,870 379,969 (421,803)
Cost Of Insurance Charge (32,070) (40,235) (183,797)
Policy Loans (4,373) (7,710) (2,013)
Contract Withdrawals (24,692) (42,753) (465,487)
Death Benefits (182) 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 194,553 289,271 (1,073,100)
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 220,896 283,243 (987,073)
Net Assets, at Beginning of Year 263,309 208,718 2,748,419
-------------- --------------- -------------
Net Assets, at End of Year $484,205 $491,961 $1,761,346
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica SunAmerica
Fidelity Alliance Aggressive
Overseas Growth Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $11,787 ($904) ($123)
Realized Gain (Loss) on Investment Activity 3,460 5,669 1,932
Change in Unrealized Appreciation
(Depreciation) of Investments 173,424 79,099 26,106
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 188,671 83,864 27,915
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 175,116 700,521 127,356
Cost Of Insurance Charge (47,710) (14,780) (5,960)
Policy Loans (7,700) 0 (3,434)
Contract Withdrawals (15,290) 0 0
Death Benefits (921) 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 103,495 685,741 117,962
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 292,166 769,605 145,877
Net Assets, at Beginning of Year 380,231 0 0
-------------- --------------- -------------
Net Assets, at End of Year $672,397 $769,605 $145,877
============== =============== =============
</TABLE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Asset Cash Corporate
Allocation Management Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($32) $6,518 ($6)
Realized Gain (Loss) on Investment Activity 77 4,159 24
Change in Unrealized Appreciation
(Depreciation) of Investments 965 13,584 (84)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,010 24,261 (66)
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 31,387 2,021,308 7,497
Cost Of Insurance Charge (619) (101,346) (131)
Policy Loans (3,434) (94,800) 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 27,334 1,825,162 7,366
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 28,344 1,849,423 7,300
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $28,344 $1,849,423 $7,300
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica
"Dogs"
of SunAmerica SunAmerica
Wall Emerging Federated
Street Markets Value
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($26) ($44) ($121)
Realized Gain (Loss) on Investment Activity (403) 961 (71)
Change in Unrealized Appreciation
(Depreciation) of Investments (291) 6,842 6,394
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations (720) 7,759 6,202
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 35,255 34,750 157,965
Cost Of Insurance Charge (1,302) (2,690) (1,211)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 33,953 32,060 156,754
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 33,233 39,819 162,956
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $33,233 $39,819 $162,956
============== =============== =============
</TABLE>
<TABLE>
SunAmerica SunAmerica
Global Global SunAmerica
Bond Equities Growth-Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($4) ($64) ($182)
Realized Gain (Loss) on Investment Activity 0 1,580 4,088
Change in Unrealized Appreciation
(Depreciation) of Investments (2) 4,258 11,546
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations (6) 5,774 15,452
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 3,222 33,441 151,611
Cost Of Insurance Charge (26) (1,301) (3,677)
Policy Loans 0 0 (17,145)
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 3,196 32,140 130,789
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 3,190 37,914 146,241
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $3,190 $37,914 $146,241
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica
SunAmerica International
SunAmerica International Growth
High-Yield Diversified &
Bond Equities Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($70) ($144) $10,664
Realized Gain (Loss) on Investment Activity 315 (475) 48
Change in Unrealized Appreciation
(Depreciation) of Investments 1,005 15,097 (6,115)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,250 14,478 4,597
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 93,353 161,448 118,221
Cost Of Insurance Charge (880) (1,101) (1,907)
Policy Loans 0 (6,855) 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 92,473 153,492 116,314
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 93,723 167,970 120,911
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $93,723 $167,970 $120,911
============== =============== =============
</TABLE>
<TABLE>
SunAmerica
MFS SunAmerica SunAmerica
Growth MFS MFS
& Mid-Cap Total
Income Growth Return
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($122) $1,201 ($50)
Realized Gain (Loss) on Investment Activity 3,481 3,519 513
Change in Unrealized Appreciation
(Depreciation) of Investments 2,847 6,611 (146)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 6,206 11,331 317
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 76,010 88,561 42,507
Cost Of Insurance Charge (2,105) (2,111) (1,312)
Policy Loans 0 (3,434) 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 73,905 83,016 41,195
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 80,111 94,347 41,512
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $80,111 $94,347 $41,512
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Putnam Real SunAmerica
Growth Estate Balanced
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($198) ($4) ($101)
Realized Gain (Loss) on Investment Activity 6,536 0 214
Change in Unrealized Appreciation
(Depreciation) of Investments 10,300 168 9,028
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 16,638 164 9,141
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 126,661 4,786 93,271
Cost Of Insurance Charge (4,367) (81) (3,380)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 122,294 4,705 89,891
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 138,932 4,869 99,032
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $138,932 $4,869 $99,032
============== =============== =============
</TABLE>
<TABLE>
SunAmerica
SunAmerica Worldwide
SunAmerica Venture High
Utility Value Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($5) ($227) $0
Realized Gain (Loss) on Investment Activity 9 (263) 3
Change in Unrealized Appreciation
(Depreciation) of Investments 55 15,614 19
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 59 15,124 22
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 11,073 253,251 620
Cost Of Insurance Charge (305) (5,294) (56)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 10,768 247,957 564
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 10,827 263,081 586
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $10,827 $263,081 $586
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 ($562) $139
Realized Gain (Loss) on Investment Activity 0 3,139 (8,908)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 49,606 18,485
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 52,183 9,716
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 0 43,593 39,406
Cost Of Insurance Charge 0 (7,198) (6,367)
Policy Loans 0 0 (298)
Contract Withdrawals 0 0 (5,309)
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 36,395 27,432
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 0 88,578 37,148
Net Assets, at Beginning of Year 0 29,539 34,560
-------------- --------------- -------------
Net Assets, at End of Year $0 $118,117 $71,708
============== =============== =============
</TABLE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $7,028 $370 $534
Realized Gain (Loss) on Investment Activity 692 19 68
Change in Unrealized Appreciation
(Depreciation) of Investments (1,304) (206) (543)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 6,416 183 59
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 20,325 557 2,373
Cost Of Insurance Charge (6,733) (365) (973)
Policy Loans (1,784) (339) 0
Contract Withdrawals (579) 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 11,229 (147) 1,400
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 17,645 36 1,459
Net Assets, at Beginning of Year 58,921 4,805 6,727
-------------- --------------- -------------
Net Assets, at End of Year $76,566 $4,841 $8,186
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1998
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $626,860 $4,632 $473
Realized Gain (Loss) on Investment Activity 519,608 (371) (22,044)
Change in Unrealized Appreciation
(Depreciation) of Investments 1,519,964 25,833 7,738
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,666,432 30,094 (13,833)
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 10,229,110 183,463 279,691
Cost Of Insurance Charge (1,571,906) (12,343) (20,406)
Policy Loans (212,191) 0 0
Contract Withdrawals (202,369) (437) (836)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 8,242,644 170,683 258,449
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 10,909,076 200,777 244,616
Net Assets, at Beginning of Year 7,272,203 0 0
-------------- --------------- ---------------
Net Assets, at End of Year $18,181,279 $200,777 $244,616
============== =============== ===============
</TABLE>
<TABLE>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,823 ($2) $0
Realized Gain (Loss) on Investment Activity 1,083 19 2
Change in Unrealized Appreciation
(Depreciation) of Investments 691 289 10
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 3,597 306 12
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 8,717 8,748 241
Cost Of Insurance Charge (2,651) (507) (31)
Policy Loans 0 0 0
Contract Withdrawals (740) 0 0
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 5,326 8,241 210
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 8,923 8,547 222
Net Assets, at Beginning of Year 24,072 0 0
-------------- --------------- ---------------
Net Assets, at End of Year $32,995 $8,547 $222
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $94,056 $100,596 $12,600
Realized Gain (Loss) on Investment Activity 36,650 55,743 3,763
Change in Unrealized Appreciation
(Depreciation) of Investments 394,461 63,586 17,434
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 525,167 219,925 33,797
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 1,465,361 1,726,082 67,671
Cost Of Insurance Charge (210,721) (152,262) (18,064)
Policy Loans (30,640) (25,729) (2,299)
Contract Withdrawals (44,972) (21,460) (2,915)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,179,028 1,526,631 44,393
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 1,704,195 1,746,556 78,190
Net Assets, at Beginning of Year 1,123,048 764,335 117,458
-------------- --------------- ---------------
Net Assets, at End of Year $2,827,243 $2,510,891 $195,648
============== =============== ===============
</TABLE>
<TABLE>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($334) $2,000 ($1,872)
Realized Gain (Loss) on Investment Activity 54,637 0 30,881
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 16,562
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 54,303 2,000 45,571
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers (46,424) 30,250 127,213
Cost Of Insurance Charge (7,879) (11,766) (19,989)
Policy Loans 0 0 (267)
Contract Withdrawals 0 0 (561)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (54,303) 18,484 106,396
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 0 20,484 151,967
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- ---------------
Net Assets, at End of Year $0 $20,484 $151,967
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($4,822) ($1) $27,636
Realized Gain (Loss) on Investment Activity 171,268 0 31,274
Change in Unrealized Appreciation
(Depreciation) of Investments 197,601 112 (66,300)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 364,047 111 (7,390)
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 280,314 2,477 144,506
Cost Of Insurance Charge (66,804) (58) (36,287)
Policy Loans (12,128) 0 (10,340)
Contract Withdrawals (12,390) 0 (8,285)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 188,992 2,419 89,594
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 553,039 2,530 82,204
Net Assets, at Beginning of Year 255,061 0 241,676
-------------- --------------- ---------------
Net Assets, at End of Year $808,100 $2,530 $323,880
============== =============== ===============
</TABLE>
<TABLE>
Alliance
U.S.
Government/ Dreyfus
High Alliance Small
Grade Utility Company
Securities Income Stock
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 ($502)
Realized Gain (Loss) on Investment Activity 0 0 (2,481)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 52 8,859
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 52 5,876
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 991 991 141,312
Cost Of Insurance Charge (23) (23) (22,440)
Policy Loans 0 0 (1,455)
Contract Withdrawals 0 0 (2,646)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 968 968 114,771
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 968 1,020 120,647
Net Assets, at Beginning of Year 0 0 127,381
-------------- --------------- ---------------
Net Assets, at End of Year $968 $1,020 $248,028
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
Fund Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $14,093 $589 $55,868
Realized Gain (Loss) on Investment Activity 90,160 117 10,634
Change in Unrealized Appreciation
(Depreciation) of Investments 348,632 37 18,503
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 452,885 743 85,005
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 1,648,311 4,317 385,929
Cost Of Insurance Charge (264,577) (2,247) (60,284)
Policy Loans (35,221) 0 (1,634)
Contract Withdrawals (30,468) 0 (3,078)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,318,045 2,070 320,933
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 1,770,930 2,813 405,938
Net Assets, at Beginning of Year 944,435 10,766 387,906
-------------- --------------- ---------------
Net Assets, at End of Year $2,715,365 $13,579 $793,844
============== =============== ===============
</TABLE>
<TABLE>
Fidelity
Fidelity Fidelity High
Contrafund Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $792 $163,341 $31,375
Realized Gain (Loss) on Investment Activity 3,199 52,384 (5,310)
Change in Unrealized Appreciation
(Depreciation) of Investments 37,476 484,390 (31,433)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 41,467 700,115 (5,368)
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 273,708 1,519,887 18,962
Cost Of Insurance Charge (18,289) (264,617) (31,215)
Policy Loans 0 (38,305) (541)
Contract Withdrawals (44) (32,651) (5,710)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 255,375 1,184,314 (18,504)
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 296,842 1,884,429 (23,872)
Net Assets, at Beginning of Year 0 1,164,075 287,181
-------------- --------------- ---------------
Net Assets, at End of Year $296,842 $3,048,504 $263,309
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $8,254 $60,336 $26,265
Realized Gain (Loss) on Investment Activity (104) 0 22,548
Change in Unrealized Appreciation
(Depreciation) of Investments 2,966 0 1,403
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 11,116 60,336 50,216
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 133,629 1,794,587 22,097
Cost Of Insurance Charge (15,077) (262,012) (46,489)
Policy Loans 0 (47,336) (4,988)
Contract Withdrawals (446) (23,046) (8,945)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 118,106 1,462,193 (38,325)
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 129,222 1,522,529 11,891
Net Assets, at Beginning of Year 79,496 1,225,890 368,340
-------------- --------------- ---------------
Net Assets, at End of Year $208,718 $2,748,419 $380,231
============== =============== ===============
</TABLE>
<TABLE>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $24,413 ($80) $4,275
Realized Gain (Loss) on Investment Activity (10,944) (238) (4,776)
Change in Unrealized Appreciation
(Depreciation) of Investments (4,930) 2,653 (11,854)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 8,539 2,335 (12,355)
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers (89,148) 28,877 22,362
Cost Of Insurance Charge (7,250) (1,673) (5,001)
Policy Loans 0 0 0
Contract Withdrawals (456) 0 (666)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (96,854) 27,204 16,695
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets (88,315) 29,539 4,340
Net Assets, at Beginning of Year 88,315 0 30,220
-------------- --------------- ---------------
Net Assets, at End of Year $0 $29,539 $34,560
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $525 $246 $285
Realized Gain (Loss) on Investment Activity 1,436 31 47
Change in Unrealized Appreciation
(Depreciation) of Investments 4,736 390 67
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 6,697 667 399
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 38,804 534 4,650
Cost Of Insurance Charge (9,742) (536) (643)
Policy Loans (1,308) 0 0
Contract Withdrawals (1,420) 0 (197)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 26,334 (2) 3,810
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 33,031 665 4,209
Net Assets, at Beginning of Year 25,890 4,140 2,518
-------------- --------------- ---------------
Net Assets, at End of Year $58,921 $4,805 $6,727
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1997
Alliance
Conservative Alliance
Investors Growth
Total Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $166,746 $167 $21,469
Realized Gain (Loss) on Investment Activity 206,207 600 37,620
Change in Unrealized Appreciation
(Depreciation) of Investments 366,321 586 138,629
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 739,274 1,353 197,718
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 5,563,491 15,647 816,168
Cost Of Insurance Charge (775,349) (2,705) (117,612)
Policy Loans (94,631) 0 (6,689)
Contract Withdrawals (82,467) (239) (19,879)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,611,044 12,703 671,988
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 5,350,318 14,056 869,706
Net Assets, at Beginning of Year 1,921,885 10,016 253,342
-------------- --------------- ---------------
Net Assets, at End of Year $7,272,203 $24,072 $1,123,048
============== =============== ===============
</TABLE>
<TABLE>
Alliance
Growth Alliance
& Growth Alliance
Income Investors Technology
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $22,999 $1,477 ($1,115)
Realized Gain (Loss) on Investment Activity 18,395 3,687 16,995
Change in Unrealized Appreciation
(Depreciation) of Investments 68,190 5,513 (15,270)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 109,584 10,677 610
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 574,019 64,609 274,635
Cost Of Insurance Charge (74,918) (11,672) (19,431)
Policy Loans (5,180) 0 (101)
Contract Withdrawals (5,967) (2,220) (8,527)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 487,954 50,717 246,576
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 597,538 61,394 247,186
Net Assets, at Beginning of Year 166,797 56,064 7,875
-------------- --------------- ---------------
Net Assets, at End of Year $764,335 $117,458 $255,061
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Small Dreyfus
Alliance Company Stock
Quasar Stock Index
Portfolio Portfolio Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($1,464) $2,102 $26,687
Realized Gain (Loss) on Investment Activity 9,057 (107) 41,444
Change in Unrealized Appreciation
(Depreciation) of Investments 11,871 (5,712) 41,726
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 19,464 (3,717) 109,857
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 236,458 133,412 781,031
Cost Of Insurance Charge (17,506) (2,314) (90,065)
Policy Loans (387) 0 (1,032)
Contract Withdrawals (1,093) 0 (7,423)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 217,472 131,098 682,511
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 236,936 127,381 792,368
Net Assets, at Beginning of Year 4,740 0 152,067
-------------- --------------- ---------------
Net Assets, at End of Year $241,676 $127,381 $944,435
============== =============== ===============
</TABLE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $511 $21,546 $21,466
Realized Gain (Loss) on Investment Activity (71) 8,600 55,366
Change in Unrealized Appreciation
(Depreciation) of Investments 83 19,239 90,042
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 523 49,385 166,874
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 11,738 288,591 496,116
Cost Of Insurance Charge (4,235) (42,651) (148,843)
Policy Loans 0 (167) (24,473)
Contract Withdrawals (171) (9,859) (19,994)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 7,332 235,914 302,806
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 7,855 285,299 469,680
Net Assets, at Beginning of Year 2,911 102,607 694,395
-------------- --------------- ---------------
Net Assets, at End of Year $10,766 $387,906 $1,164,075
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $3,283 $2,521 $32,116
Realized Gain (Loss) on Investment Activity 11,481 322 0
Change in Unrealized Appreciation
(Depreciation) of Investments 11,697 2,132 0
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 26,461 4,975 32,116
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 228,644 30,051 1,209,442
Cost Of Insurance Charge (23,779) (6,686) (159,431)
Policy Loans 0 0 (52,504)
Contract Withdrawals (2,049) (16) (1,225)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 202,816 23,349 996,282
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 229,277 28,324 1,028,398
Net Assets, at Beginning of Year 57,904 51,172 197,492
-------------- --------------- ---------------
Net Assets, at End of Year $287,181 $79,496 $1,225,890
============== =============== ===============
</TABLE>
<TABLE>
VanEck
VanEck Worldwide
Fidelity Worldwide Hard
Overseas Balanced Assets
Portfolio Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $9,687 $343 $319
Realized Gain (Loss) on Investment Activity 1,460 856 165
Change in Unrealized Appreciation
(Depreciation) of Investments (3,697) 3,097 (1,231)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 7,450 4,296 (747)
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 282,864 60,836 25,015
Cost Of Insurance Charge (34,464) (10,075) (4,740)
Policy Loans (4,098) 0 0
Contract Withdrawals (3,073) (712) (20)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 241,229 50,049 20,255
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 248,679 54,345 19,508
Net Assets, at Beginning of Year 119,661 33,970 10,712
-------------- --------------- ---------------
Net Assets, at End of Year $368,340 $88,315 $30,220
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,058 $331 $243
Realized Gain (Loss) on Investment Activity 303 2 32
Change in Unrealized Appreciation
(Depreciation) of Investments (304) (254) (16)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,057 79 259
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 27,235 4,185 2,795
Cost Of Insurance Charge (3,562) (124) (536)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 23,673 4,061 2,259
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 25,730 4,140 2,518
Net Assets, at Beginning of Year 160 0 0
-------------- --------------- ---------------
Net Assets, at End of Year $25,890 $4,140 $2,518
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
1. History
Variable Account II (the "Account") is a separate investment account established
under the provisions of Delaware Insurance Law by AIG Life Insurance Company
(the "Company"), a wholly-owned subsidiary of American International Group, Inc.
The Account operates as a unit investment trust registered under the Investment
Company Act of 1940, as amended, and supports the operations of the Company's
individual flexible premium variable universal life insurance policies (the
"policies"). The following products are offered by the Account: Vision, Gallery
Life, and Polaris Life.
The Account invests in shares of AIM Variable Insurance Fund ("AIM Fund"),
Alliance Variable Products Series Fund, Inc. ("Alliance Fund"), Dreyfus Variable
Investment Fund ("Dreyfus Fund"), Fidelity Investments Variable Insurance
Products Fund ("Fidelity Trust"), Fidelity Variable Insurance Products Fund II
("Fidelity Trust II"), Van Eck Investment Trust ("Van Eck Trust"), Weiss, Peck &
Greer ("WP&G Tomorrow Fund"), Anchor Series Trust ("Anchor"), and SunAmerica
Series Trust ("SunAmerica"). The assets in the policies may be invested in the
following subaccounts:
<TABLE>
<S> <C>
AIM Fund: Fidelity Trust II:
Capital Appreciation Fund Asset Manager Portfolio
International Equity Fund Contrafund Portfolio
Investment Grade Bond Portfolio
Alliance Fund:
Conservative Investors Portfolio SunAmerica:
Global Bond Portfolio Alliance Growth Portfolio
Global Dollar Government Portfolio Aggressive Growth Portfolio
Growth Portfolio Asset Allocation Portfolio
Growth & Income Portfolio Cash Management Portfolio
Growth Investors Portfolio Corporate Bond Portfolio
International Portfolio "Dogs" of Wall Street Portfolio
Money Market Portfolio Emerging Markets Portfolio
Premier Growth Portfolio Federated Value Portfolio
Quasar Portfolio Global Bond Portfolio
Technology Portfolio Global Equities Portfolio
Total Return Portfolio Growth-Income Portfolio
U.S. Government/High Grade Securities Portfolio High-Yield Bond Portfolio
Utility Income Portfolio International Diversified Equities Portfolio
International Growth & Income Portfolio
Anchor: MFS Growth & Income Portfolio
Capital Appreciation Portfolio MFS Mid-Cap Growth Portfolio
Government & Quality Bond Portfolio MFS Total Return Portfolio
Growth Portfolio Putnam Growth Portfolio
Natural Resources Portfolio Real Estate Portfolio
SunAmerica Balanced Portfolio
Dreyfus Fund: Utility Portfolio
Small Company Stock Portfolio Venture Value Portfolio
Stock Index Fund Worldwide High Income Portfolio
Zero Coupon 2000 Portfolio
Van Eck Trust:
Fidelity Trust: Worldwide Balanced Fund (Fund Closed 06/29/98)
Growth Portfolio Worldwide Emerging Markets Fund
High Income Portfolio Worldwide Hard Assets Fund
Money Market Portfolio
Overseas Portfolio WP&G Tomorrow Fund:
Tomorrow Long Term Portfolio
Tomorrow Medium Term Portfolio
Tomorrow Short Term Portfolio
</TABLE>
The Account commenced operations on May 4, 1995.
The assets of the Account are the property of the Company. The portion of the
Account's assets applicable to the policies are not chargeable with the
liabilities arising out of any other business conducted by the Company.
In addition to the Account, policy owners may also allocate assets of the
policies to the Guaranteed Account, which is part of the Company's general
account. Amounts allocated to the Guaranteed Account are credited with a
guaranteed rate of interest. Because of exemptive and exclusionary provisions,
interests in the Guaranteed Account have not been registered under the
Securities Act of 1933, and the Guaranteed Account has not been registered as an
investment company under the Investment Company Act of 1940.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Account in preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation - The investments in the Funds are stated at market
value which is the net asset value of each of the respective series as
determined at the close of business on the last business day of the period by
the Fund.
B. Accounting for Investments - Investment transactions are accounted for on the
date the investments are purchased or sold. Dividend income is recorded on the
ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations and is
not taxed separately. Under existing federal law, no taxes are payable on
investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required management
to make estimates and assumptions that affect the reported values of assets and
liabilities and the reported amounts from operations and policy transactions.
Actual results could differ from those estimates.
E. The financial statements for 1998 and 1997 have been reclassified to conform
to the 1999 presentation.
3. Contract Charges
Vision and Gallery Life Products
There are charges and deductions for which the Company will deduct from each
policy. The deductions from each premium payment are a sales charge of 5% plus
the state specific premium taxes.
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are equivalent on an
annual basis to .90% of the account value of the policies. This charge may be
decreased to not less than .50% in policy years eleven and greater.
On the policies' issue date and each monthly anniversary, the following
deductions are made from the policies' account value:
(a) administrative charges
(b) insurance charges
(c) supplemental benefit charges
(d) acquisition and underwriting charges
A transfer charge of $25.00 will be assessed for each transfer in excess of 12
each Policy year.
If the policy is surrendered during the first fourteen policy years, the Company
will deduct a surrender charge based on a percentage of first year premium. A
pro rata surrender charge will be deducted for any partial surrender. An
administrative charge upon partial surrender will be equal to the lessor of
$25.00 or 2% of the amount surrendered.
Polaris Life Product
There are charges and deductions for which the Company will deduct from each
policy. The current deductions from each premium payment are a sales charge of
5% for the first ten policy years, which will reduce to 3% in policy years
eleven and greater. The maximum that will be charged is 8% of the premium
payment.
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are currently equivalent,
on an annual basis, to .75% of the account value of the policies with a maximum
of .90%. This charge may be decreased to not less than .25% in policy years
eleven and greater. The maximum is guaranteed not to exceed an annual rate of
.90%.
On the policies' issue date and each monthly anniversary, the following
deductions are made from the policies' account value:
(a) administrative charges
(b) insurance charges
(c) supplemental benefit charges or riders
(d) acquisition and underwriting charges (first five policy years)
A transfer charge of $25.00 will be assessed for each transfer in excess of 12
each Policy year.
If the policy is surrendered during the first ten policy years or ten policy
years following a Face Amount increase, the Company will deduct a surrender
charge based on the initial Face Amount or the increase in Face Amount. A
surrender charge will also be deducted for a partial withdrawal or a decrease in
Face Amount.
For a partial withdrawal or a Face Amount Decrease, the surrender charge is
equal to the applicable surrender charge multiplied by a fraction (equal to the
amount of partial withdrawal plus any administrative charge, if applicable,
divided by the Net Cash Surrender Value immediately prior to the partial
withdraw). An administrative charge upon partial surrender may be equal to the
lessor of $25.00 or 2% of the amount surrendered.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
4. Purchases of Investments
For the year ended December 31, 1999, investment activity in the Fund was as
follows:
<TABLE>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
AIM Fund:
Capital Appreciation Fund $ 224,923 $ 74,481
International Equity Fund 367,455 48,960
Alliance Fund:
Conservative Investors Portfolio 13,451 5,581
Global Bond Portfolio 20,849 12,897
Global Dollar Government Portfolio 31 54
Growth Portfolio 5,099,952 4,219,764
Growth & Income Portfolio 4,629,933 4,564,336
Growth Investors Portfolio 89,948 55,956
International Portfolio 42,790,294 43,112,716
Money Market Portfolio 55,049,664 55,039,193
Premier Growth Portfolio 2,005,804 1,600,619
Technology Portfolio 77,489,023 75,369,157
Total Return Portfolio 229 241
Quasar Portfolio 30,368,359 29,626,932
U.S. Government/High Grade Securities Portfolio 59 87
Utility Income Portfolio 43 101
Anchor:
Capital Appreciation Portfolio 120,952 51,771
Government & Quality Bond Portfolio 164,460 42,161
Growth Portfolio 64,207 39,857
Natural Resources Portfolio 11,378 246
Dreyfus Fund:
Small Company Portfolio 229,583 116,998
Stock Index Fund 2,202,224 512,068
Zero Coupon 2000 Portfolio 7,085 3,048
Fidelity Trust:
Asset Manager Portfolio 495,994 131,911
Contrafund Portfolio 698,379 101,713
Growth Portfolio 2,741,221 908,496
High Income Portfolio 310,887 94,420
Investment Grade Bond Portfolio 402,048 105,340
Money Market Portfolio 3,705,690 4,692,763
Overseas Portfolio 181,549 66,269
Sun America:
Alliance Growth Portfolio 760,653 75,816
Aggressive Growth Portfolio 180,460 62,622
Asset Allocation Portfolio 81,049 53,747
Cash Management Portfolio 4,383,240 2,551,560
Corporate Bond Portfolio 14,726 7,367
"Dogs" of Wall Street Portfolio 42,758 8,833
Emerging Markets Portfolio 48,389 16,373
Federated Value Portfolio 160,428 3,796
Global Bond Portfolio 3,220 28
Global Equities Portfolio 46,606 14,530
Growth-Income Portfolio 414,879 284,271
High-Yield Bond Portfolio 108,048 15,646
International Diversified Equities Portfolio 255,839 102,490
International Growth & Income Portfolio 135,631 8,653
MFS Growth & Income Portfolio 139,771 65,987
MFS Mid-Cap Growth Portfolio 157,758 73,541
MFS Total Return Portfolio 72,858 31,714
Putnam Growth Portfolio 239,995 117,899
Real Estate Portfolio 4,718 19
SunAmerica Balanced Portfolio 102,293 12,503
Utility Portfolio 11,722 962
Venture Value Portfolio 259,867 12,138
Worldwide High Income Portfolio 617 55
Van Eck Trust:
Worldwide Emerging Markets Fund 51,310 15,476
Worldwide Hard Assets Fund 59,457 31,886
Worldwide Balanced Fund 0 0
</TABLE>
<PAGE>
<TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
4. Purchases of Investments (continued)
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
WP&G Tomorrow Fund:
Tomorrow Long Term Portfolio 27,015 8,757
Tomorrow Medium Term Portfolio 849 627
Tomorrow Short Term Portfolio 18,817 16,883
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
4. Purchases of Investments (continued)
For the year ended December 31, 1998, investment activity in the Fund was as
follows:
<TABLE>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
AIM Fund:
Capital Appreciation Fund $ 201,598 $ 26,283
International Equity Fund 499,113 240,193
Alliance Fund:
Conservative Investors Portfolio 17,668 10,521
Global Bond Portfolio 9,907 1,670
Global Dollar Government Portfolio 242 31
Growth Portfolio 1,434,835 161,751
Growth & Income Portfolio 7,118,210 5,490,984
Growth Investors Portfolio 83,359 26,366
International Portfolio 7,730,001 7,784,638
Money Market Portfolio 7,530,593 7,510,112
Premier Growth Portfolio 1,721,633 1,617,108
Technology Portfolio 9,312,917 9,128,748
Total Return Portfolio 2,439 21
Quasar Portfolio 9,870,359 9,753,129
U.S. Government/High Grade Securities Portfolio 976 8
Utility Income Portfolio 976 8
Dreyfus Fund:
Small Company Portfolio 277,608 163,341
Stock Index Fund 1,719,925 387,790
Zero Coupon 2000 Portfolio 7,868 5,215
Fidelity Trust:
Asset Manager Portfolio 637,629 260,827
Contrafund Portfolio 295,002 38,838
Growth Portfolio 1,684,130 336,475
High Income Portfolio 366,333 353,460
Investment Grade Bond Portfolio 252,481 126,121
Money Market Portfolio 3,777,754 2,255,231
Overseas Portfolio 240,411 252,471
Van Eck Trust:
Worldwide Emerging Markets Fund 31,817 4,692
Worldwide Hard Assets Fund 34,521 13,551
Worldwide Balanced Fund 43,581 115,939
WP&G Tomorrow Fund:
Tomorrow Long Term Portfolio 43,881 17,022
Tomorrow Medium Term Portfolio 1,311 1,067
Tomorrow Short Term Portfolio 4,968 873
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1999, transactions in accumulation units of the
account were as follows:
<TABLE>
AIM AIM Alliance
Capital International Conservative
Appreciation Equity Investors
1 Fund 1 Fund 3 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 11,820.14 15,051.27 735.54
Units Withdrawn (4,004.68) (4,365.68) (309.69)
Units Transferred Between Funds 3,934.12 13,591.17 (70.70)
Units Transferred From (To) AIG Life 4.63 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 11,754.21 24,276.76 355.15
Units, at Beginning of the Year 17,648.32 21,138.24 2,405.91
------------------- ---------------------- -------------------
Units, at End of the Year 29,402.53 45,415.00 2,761.06
=================== ====================== ===================
Unit Value at December 31, 1999 $ 16.30 $ 17.78 $ 14.27
=================== ====================== ===================
</TABLE>
<TABLE>
Alliance
Alliance Global
Global Dollar Alliance
Bond Government Growth
1 Portfolio 2 Portfolio 3 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 575.04 0.00 39,776.31
Units Withdrawn (159.18) (6.60) (19,671.92)
Units Transferred Between Funds 327.26 0.00 6,129.06
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 743.12 (6.60) 26,233.45
Units, at Beginning of the Year 766.18 29.13 126,178.00
------------------- ---------------------- -------------------
Units, at End of the Year 1,509.30 22.53 152,411.45
=================== ====================== ===================
Unit Value at December 31, 1999 $ 10.38 $ 9.55 $ 29.86
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
Alliance
Growth Alliance
& Growth Alliance
Income Investors International
3 Portfolio 3 Portfolio 2 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 30,461.06 2,631.85 0.00
Units Withdrawn (13,838.55) (1,720.71) (209.31)
Units Transferred Between Funds (24,624.69) (47.78) 209.31
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) (8,002.18) 863.36 0.00
Units, at Beginning of the Year 122,262.66 11,986.03 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 114,260.48 12,849.39 0.00
=================== ====================== ===================
Unit Value at December 31, 1999 $ 22.67 $ 18.81 $ 15.37
=================== ====================== ===================
</TABLE>
<TABLE>
Alliance Alliance Alliance
Money Premier Premier
Market Growth Growth
2 Portfolio 1 Portfolio 2 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 28,076.48 13,246.88 219.15
Units Withdrawn (2,456.46) (4,175.01) (59.22)
Units Transferred Between Funds (24,733.45) 13,952.49 305.94
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 886.57 23,024.36 465.87
Units, at Beginning of the Year 1,941.33 9,710.77 369.56
------------------- ---------------------- -------------------
Units, at End of the Year 2,827.90 32,735.13 835.43
=================== ====================== ===================
Unit Value at December 31, 1999 $ 10.95 $ 19.75 $ 20.26
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
3 Portfolio 2 Portfolio 1 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 28,350.64 0.00 13,753.83
Units Withdrawn (10,962.54) (17.38) (5,066.89)
Units Transferred Between Funds 80,037.83 0.00 1,179.61
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 97,425.93 (17.38) 9,866.55
Units, at Beginning of the Year 46,047.66 207.79 28,150.24
------------------- ---------------------- -------------------
Units, at End of the Year 143,473.59 190.41 38,016.79
=================== ====================== ===================
Unit Value at December 31, 1999 $ 30.56 $ 12.86 $ 13.15
=================== ====================== ===================
</TABLE>
<TABLE>
Alliance
U.S.
Government/
High Alliance
Alliance Grade Utility
Quasar Securities Income
2 Portfolio 2 Portfolio 2 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 55,757.99 0.00 0.00
Units Withdrawn (561.44) (7.28) (5.90)
Units Transferred Between Funds 19,980.30 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 75,176.85 (7.28) (5.90)
Units, at Beginning of the Year 523.73 87.06 70.48
------------------- ---------------------- -------------------
Units, at End of the Year 75,700.58 79.78 64.58
=================== ====================== ===================
Unit Value at December 31, 1999 $ 10.61 $ 10.75 $ 17.12
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
Anchor
Government
Anchor &
Capital Quality Anchor
Appreciation Bond Growth
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 3,087.57 535.06 3,649.48
Units Withdrawn (317.29) (140.82) (63.16)
Units Transferred Between Funds 2,983.66 11,532.73 (954.91)
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 5,753.94 11,926.97 2,631.41
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 5,753.94 11,926.97 2,631.41
=================== ====================== ===================
Unit Value at December 31, 1999 $ 14.39 $ 10.08 $ 11.70
=================== ====================== ===================
</TABLE>
<TABLE>
Dreyfus
Anchor Small Dreyfus
Natural Company Stock
Resources Stock Index
4 Portfolio 1 Portfolio 1 Fund
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 725.94 9,227.64 63,725.74
Units Withdrawn (27.11) (4,839.00) (26,081.49)
Units Transferred Between Funds 384.56 7,091.34 31,946.11
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 1,083.39 11,479.98 69,590.36
Units, at Beginning of the Year 0.00 25,681.64 122,837.64
------------------- ---------------------- -------------------
Units, at End of the Year 1,083.39 37,161.62 192,428.00
=================== ====================== ===================
Unit Value at December 31, 1999 $ 11.10 $ 10.59 $ 26.42
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Contrafund
1 Portfolio 1 Portfolio 1 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 597.22 20,837.92 23,741.45
Units Withdrawn (199.21) (6,305.74) (5,987.55)
Units Transferred Between Funds (118.80) 3,327.67 25,139.94
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 279.21 17,859.85 42,893.84
Units, at Beginning of the Year 1,158.47 46,661.29 22,912.64
------------------- ---------------------- -------------------
Units, at End of the Year 1,437.68 64,521.14 65,806.48
=================== ====================== ===================
Unit Value at December 31, 1999 $ 11.93 $ 18.73 $ 15.95
=================== ====================== ===================
</TABLE>
<TABLE>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
1 Portfolio 1 Portfolio 1 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 62,187.99 7,127.52 8,032.99
Units Withdrawn (31,295.73) (4,628.72) (7,463.52)
Units Transferred Between Funds 34,441.26 12,402.97 23,182.68
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 65,333.52 14,901.77 23,752.15
Units, at Beginning of the Year 145,023.28 20,823.30 16,922.34
------------------- ---------------------- -------------------
Units, at End of the Year 210,356.80 35,725.07 40,674.49
=================== ====================== ===================
Unit Value at December 31, 1999 $ 28.63 $ 13.55 $ 12.10
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
Fidelity SunAmerica
Money Fidelity Alliance
Market Overseas Growth
1 Portfolio 1 Portfolio 3 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 296,852.47 10,267.86 18,144.56
Units Withdrawn (54,093.36) (4,680.67) (1,330.02)
Units Transferred Between Funds (322,250.00) 1,268.85 46,463.38
Units Transferred From (To) AIG Life (10,676.10) 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) (90,166.99) 6,856.04 63,277.92
Units, at Beginning of the Year 234,124.50 27,306.95 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 143,957.51 34,162.99 63,277.92
=================== ====================== ===================
Unit Value at December 31, 1999 $ 12.24 $ 19.68 $ 12.16
=================== ====================== ===================
</TABLE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Aggressive Asset Cash
Growth Allocation Management
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 4,657.50 3,037.65 377,272.01
Units Withdrawn (795.85) (419.16) (19,378.82)
Units Transferred Between Funds 5,268.91 80.70 (176,841.62)
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 9,130.56 2,699.19 181,051.57
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 9,130.56 2,699.19 181,051.57
=================== ====================== ===================
Unit Value at December 31, 1999 $ 15.98 $ 10.50 $ 10.21
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
SunAmerica
"Dogs"
SunAmerica of SunAmerica
Corporate Wall Emerging
Bond Street Markets
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 724.19 1,668.19 872.79
Units Withdrawn (12.96) (142.27) (248.45)
Units Transferred Between Funds 15.91 2,212.54 2,399.71
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 727.14 3,738.46 3,024.05
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 727.14 3,738.46 3,024.05
=================== ====================== ===================
Unit Value at December 31, 1999 $ 10.04 $ 8.89 $ 13.17
=================== ====================== ===================
</TABLE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Federated Global Global
Value Bond Equities
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 1,006.86 276.98 1,535.29
Units Withdrawn (129.17) (2.51) (117.79)
Units Transferred Between Funds 15,996.89 44.15 1,647.90
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 16,874.58 318.62 3,065.40
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 16,874.58 318.62 3,065.40
=================== ====================== ===================
Unit Value at December 31, 1999 $ 9.66 $ 10.02 $ 12.37
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
SunAmerica
SunAmerica International
SunAmerica High-Yield Diversified
Growth-Income Bond Equities
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 14,384.17 1,529.97 3,783.70
Units Withdrawn (2,071.27) (88.19) (769.37)
Units Transferred Between Funds 201.87 7,829.61 10,963.49
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 12,514.77 9,271.39 13,977.82
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 12,514.77 9,271.39 13,977.82
=================== ====================== ===================
Unit Value at December 31, 1999 $ 11.69 $ 10.11 $ 12.02
=================== ====================== ===================
</TABLE>
<TABLE>
SunAmerica SunAmerica
International MFS SunAmerica
Growth Growth MFS
& & Mid-Cap
Income Income Growth
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 2,525.66 5,651.50 2,679.50
Units Withdrawn (179.23) (212.55) (479.49)
Units Transferred Between Funds 8,689.76 2,300.44 4,150.47
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 11,036.19 7,739.39 6,350.48
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 11,036.19 7,739.39 6,350.48
=================== ====================== ===================
Unit Value at December 31, 1999 $ 10.96 $ 10.35 $ 14.86
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
SunAmerica
MFS SunAmerica SunAmerica
Total Putnam Real
Return Growth Estate
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 2,758.75 5,169.67 535.79
Units Withdrawn (133.20) (398.54) (9.36)
Units Transferred Between Funds 1,555.02 6,397.61 14.33
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 4,180.57 11,168.74 540.76
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 4,180.57 11,168.74 540.76
=================== ====================== ===================
Unit Value at December 31, 1999 $ 9.93 $ 12.44 $ 9.00
=================== ====================== ===================
</TABLE>
<TABLE>
SunAmerica SunAmerica
SunAmerica SunAmerica Venture
Balanced Utility Value
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 2,025.43 940.53 2,388.04
Units Withdrawn (314.84) (30.75) (354.26)
Units Transferred Between Funds 6,861.07 182.90 14,867.32
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 8,571.66 1,092.68 16,901.10
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 8,571.66 1,092.68 16,901.10
=================== ====================== ===================
Unit Value at December 31, 1999 $ 11.55 $ 9.91 $ 15.57
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
SunAmerica Van Eck Van Eck
Worldwide Worldwide Worldwide
High Emerging Hard
Income Markets Assets
4 Portfolio 1 Fund 1 Fund
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 0.00 4,269.29 2,973.26
Units Withdrawn (5.36) (915.31) (1,397.63)
Units Transferred Between Funds 58.37 1,585.65 1,670.14
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 53.01 4,939.63 3,245.77
Units, at Beginning of the Year 0.00 4,869.09 4,444.97
------------------- ---------------------- -------------------
Units, at End of the Year 53.01 9,808.72 7,690.74
=================== ====================== ===================
Unit Value at December 31, 1999 $ 11.03 $ 12.04 $ 9.32
=================== ====================== ===================
</TABLE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
1 Portfolio 1 Portfolio 1 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 1,256.59 39.61 170.66
Units Withdrawn (684.64) (49.77) (71.65)
Units Transferred Between Funds 184.88 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 756.83 (10.16) 99.01
Units, at Beginning of the Year 3,957.97 341.05 497.25
------------------- ---------------------- -------------------
Units, at End of the Year 4,714.80 330.89 596.26
=================== ====================== ===================
Unit Value at December 31, 1999 $ 16.24 $ 14.63 $ 13.73
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
APPENDIX A
Minimum Premiums
The following table shows for Insureds of varying ages, the current minimum
initial Premium for a Policy with the Face Amount indicated. This table assumes
that the insured will be placed in a nonsmoker class and that no supplemental
benefits will be added to the base policy.
<TABLE>
Issue Policy Minimum Minimum Planned Periodic Premium
Age of Sex of Face Initial By Premium Payment Mode
Insured Insured Amount Premium Annual Semiannual Quarterly Monthly
<S> <C> <C> <C> <C> <C> <C>
25 Male $75,000 $102.08 $612.50 $306.25 $153.13 $51.04
30 Female $100,000 $107.33 $644.00 $322.00 $161.00 $53.67
35 Male $250,000 $175.42 $1,052.50 $526.25 $263.13 $87.71
40 Female $300,000 $227.83 $1,367.00 $683.50 $341.75 $113.92
45 Male $500,000 $476.67 $2,860.00 $1,430.00 $715.00 $238.33
50 Female $350,000 $427.50 $2,565.00 $1,282.50 $641.25 $213.75
55 Male $300,000 $686.33 $4,118.00 $2,059.00 $1,029.50 $343.17
60 Female $250,000 $620.83 $3,725.00 $1,862.50 $931.25 $310.42
65 Male $200,000 $1,185.67 $7,114.00 $3,557.00 $1,778.50 $592.83
70 Female $100,000 $670.50 $4,023.00 $2,011.50 $1,005.75 $335.25
75 Male $75,000 $1,210.71 $7,264.25 $3,632.13 $1,816.06 $605.35
</TABLE>
A-1
<PAGE>
APPENDIX B
Surrender Charge Premium
The surrender charge premium is an amount used to determine the sales charge
deducted on surrender of the policy. The surrender charge premium is calculated
for each Policy based on the issue age, sex, and smoker status of the Insured
and the Face Amount of the Policy.
The following table shows for Insureds of varying ages, the surrender charge
premium for a policy with the Face Amount indicated. This table assumes that the
Insured will be placed in a nonsmoker class.
Issue Policy Surrender
Age of Sex of Face Charge
Insured Insured Amount Premium
25 Male $75,000 $483.75
30 Female $100,000 $690.00
35 Male $250,000 $2,562.50
40 Female $300,000 $3,327.00
45 Male $500,000 $8,530.00
50 Female $350,000 $6,373.50
55 Male $300,000 $8,880.00
60 Female $250,000 $7,800.00
65 Male $200,000 $10,762.00
70 Female $100,000 $5,781.00
75 Male $75,000 $7,689.75
B-1
<PAGE>
APPENDIX C
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1999
<TABLE>
Portfolio Inception Date YTD 1 Year 3 Years 5 Years 10 Years Since
Annualized Annualized Annualized Inception
Annualized
AIM
<S> <C> <C> <C> <C> <C> <C> <C>
Capital Appreciation 05/05/1993 43.32% 43.32% 24.04% 24.43% N/A 21.11%
International Equity 05/07/1993 53.66% 53.66% 23.11% 20.75% N/A 17.63%
ALLIANCE
Global Bond 07/15/1991 -6.96% -6.96% -1.79% 2.16% N/A 0.68%
Growth 09/15/1994 33.27% 33.27% 29.88% 30.14% N/A 29.47%
Growth & Income 01/14/1991 10.37% 10.37% 19.06% 22.78% N/A 14.44%
Premier Growth 06/26/1992 31.13% 31.13% 35.43% 25.34% N/A 19.25%
Quasar 08/14/1996 16.03% 16.03% 8.88% N/A N/A 9.73%
Technology 01/11/1996 74.14% 74.14% 43.95% N/A N/A 34.69%
DREYFUS
Stock Index 09/29/1989 19.52% 19.52% 26.02% 26.42% 16.41% 16.19%
Zero Coupon 2000 08/31/1990 1.81% 1.81% 4.73% 6.22% N/A 7.76%
Small Company Stock 04/30/1996 9.61% 9.61% 7.22% N/A N/A 8.13%
FIDELITY
Asset Manager 09/06/1989 10.10% 10.10% 14.50% 14.58% 12.12% 11.79%
Contrafund 01/03/1995 23.14% 23.14% 23.28% 25.27% N/A 25.27%
Growth 10/09/1986 36.21% 36.21% 32.08% 28.54% 18.84% 17.70%
Investment Grade Bond 12/05/1988 -1.94% -1.94% 4.57% 6.33% 6.22% 6.50%
High Income 09/19/1985 7.19% 7.19% 5.82% 9.84% 11.39% 9.88%
Money Market 04/01/1982 4.23% 4.23% 4.43% 4.43% 4.29% 5.73%
VAN ECK
Emerging Markets 12/27/1995 98.49% 98.49% 4.22% N/A N/A 8.95%
Worldwide Hard Assets 09/01/1989 19.92% 19.92% -7.19% 0.39% 2.04% 2.77%
</TABLE>
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 and
the Policy's mortality and expense risk charge, except for this latter charge,
the performance results do not reflect charges deducted from premium, Account
Value, or Variable Account assets (for example, 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.
<PAGE>
[Back cover]
The Securities and Exchange Commission maintains an Internet Web site
(http://www.sec.gov.) That contains additional information about AIG Life
Insurance Company, the Policy and the Separate Account which may be of interest
to you. The Web site also contains additional information about the Policy's
variable investment options.
<PAGE>
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 Policy
AIG Life Insurance Company is offering life insurance coverage under the policy
described in this prospectus. The policy is an individual flexible premium
variable universal life policy. The policy allows you, as the owner, 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 Account Value among the variable
investment options and the Guaranteed Account.
o Receive payments from your policy while the Insured is alive through loans,
partial surrenders or a full surrender.
This document contains information about the policy. You should read this
document carefully before you decide to purchase the policy. You should also
keep this document for future reference.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the policy or determined that this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
May 1, 2000
<PAGE>
Investment Options
Variable Investment Options
The Separate Account is divided into Subaccounts. Each Subaccount invests in
shares of a specific portfolio of the Alliance Variable Products Series Fund,
Inc. The portfolios of the fund which are available under the policy are named
below. The prospectus for the fund contains information about each portfolio.
You should read these prospectus carefully.
Alliance Variable Products Series Fund, Inc.
(managed by Alliance Capital Management L.P.)
o Conservative Investors Portfolio
o Global Bond Portfolio
o Global Dollar Government Portfolio
o Growth Portfolio
o Growth and Income Portfolio
o Growth Investors Portfolio
o High-Yield Portfolio
o Money Market Portfolio
o North American Government Portfolio
o International Portfolio
o Premier Growth Portfolio
o Quasar Portfolio
o Real Estate Investors Portfolio
o Short-Term Multi-Market Portfolio
o Technology Portfolio
o Total Return Portfolio
o U.S. Government High Grade Portfolio
o Utility Income Portfolio
o Worldwide Privatization Portfolio
Guaranteed Investment Option
The Guaranteed Account is part of our general account. We will credit interest
equal to at least 4% per year, compounded annually on that portion of policy
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 Policy Account Value allocated to the
Variable Account.
<PAGE>
Table of Contents
Special Terms
Summary of the Policy
Overview
Applying for a Policy
Premium Payments
Policy Account Value
Death Benefit
Cash Benefits During the Life of the Insured
Expenses of the Policy
Federal Tax Considerations
Purchasing a Policy
Applying for a Policy
Your Right to Cancel the Policy
Premiums
Restrictions on Premiums
Minimum Initial Premium
Planned Periodic Premiums
Additional Premiums
Effect of Premium Payments
Grace Period
Premium Allocations
Crediting Premiums
The Investment Options
Investing Your Policy Account Value
Determining the Policy Account Value
Transfers
Dollar Cost Averaging
Death Benefit
Cash Benefits During the Insured's Life
Payment Options for Benefits
Expenses of the Policy
Supplemental Benefits and Riders
Other Policy Provisions
Performance Information
Federal Income Tax Considerations
Distribution of the Policy
About Us and the Accounts
Our Directors and Executive Officers
Other Information
Financial Statements
Appendices
<PAGE>
Special Terms
We have capitalized some special terms we use in this document. We have defined
these terms here.
Accounts. The Separate Account and the Guaranteed Account
Administrative Office. One Alico Plaza, P.O. Box 8718, Wilmington, DE 19801.
Attained Age. The Insured's age as of the Policy Date plus the number of full
years since the Policy Date.
Beneficiary. The person(s) entitled to the death benefit under the policy if the
Insured dies while coverage under the policy is in force.
Cash Surrender Value. The Policy Account Value less any surrender charge that
would be assessed if the policy were surrendered.
Code. The Internal Revenue Code of 1986, as amended.
Face Amount. The amount of insurance specified by the Owner and from which the
amount payable to a beneficiary will be determined.
Grace Period. The period of time that the policy continues to be in force while
the Net Cash Surrender Value is less than the total monthly deductions then due.
It begins on a Monthly Anniversary when the Net Cash Surrender Value is less
than the total monthly deduction then due.
Guaranteed Account. An account within the general account which consists of all
of our assets other than the assets of the Separate Account and any of our other
separate accounts.
Insured. A person whose life is covered under the policy. At the time of
application, the Insured must be 75 years of age or younger.
Issue Date. The date the policy is actually issued and from which we measure
contestability periods. It may be later than the Policy Date.
Loan Account. The portion of the Policy Account Value held in the Guaranteed
Account as collateral for 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.
Net Cash Surrender Value. The Cash Surrender Value less any outstanding Loans.
Net Premium. Any premium paid less any expense charges deducted from the premium
payment.
Owner. The person who purchased the policy as shown in the application, unless
later changed.
Policy Account Value. The total amount in the Accounts credited to your policy.
Policy Date. The date as of which we have received the initial premium and an
application in good order. Coverage begins on the Policy Date which is also the
date used to determine all anniversary dates.
Policy Year. Each period of twelve months commencing with the Policy Date.
Separate Account. Variable Account II, a separate investment account of ours.
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.
<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.
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 surrenders or a
full surrender. Unlike traditional life insurance, you may choose how to invest
your policy 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 will provide you with the flexibility to design an insurance product that
meets your specific needs.
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.
Applying for a Policy
When you apply for a policy, you must select the Face Amount. The Face Amount is
the initial amount of life insurance coverage on the Insured. It must be at
least $50,000 when you apply.
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your Right to Cancel the Policy
Once you receive your policy, you should read the policy. You have the right to
cancel the policy for any reason within the later of:
o 45 days after you sign Part I of the application.
o 10 days after you receive the policy. If required by the state where you
live, we will extend the time period to the number of days required by law.
Premium Payments
Before your policy is effective, you must pay the minimum initial premium. We
will calculate the initial minimum premium based on a number of factors, such as
the age, sex and underwriting rate class of the proposed Insured, the desired
Face Amount, and any supplemental benefits or riders applied for and whether
premiums will be paid by pre-authorized checking. A table is provided in
Appendix A.
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 pay this
premium amount. This may be monthly, quarterly, semiannually, or annually.
Pre-authorized checking may be required for monthly payments.
During the term of the policy, you may pay premiums at any time and in any
amount, within limits. Thus, you are not required to pay the planned periodic
premium and you may make payments in addition to the planned periodic premium.
Policy Account Value
We will measure your benefits under the policy by your Policy Account Value.
Your Policy Account Value will reflect:
o the premiums you pay;
o the returns earned by the subaccounts you select;
o the interest earned on the amount allocated to the Guaranteed Account;
o any loans or partial surrenders; and
o the policy charges and expenses we deduct.
Death Benefit
When you apply for a policy, you must select:
o The Face Amount.
o The death benefit option, which determines the manner in which we calculate
the death benefit for your policy.
You may select from two death benefit options. They are:
o Option I: Level Death Benefit Option. The basic death benefit will be the
greater of:
1. The Face Amount; or
2. Policy Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
o Option II: Increasing Death Benefit Option. The basic death benefit will be
the greater of:
1. The Face Amount plus the Policy Account Value; or
2. Policy Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.
Within limits, you may change the death benefit option and, after the first
Policy Year, may change the Face Amount.
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 surrenders or a full 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 Surrender -- You may withdraw part of your Policy Account Value
after the first Policy Year. We may deduct an administrative charge. If you
make a partial surrender during the surrender charge period, we will deduct
a surrender charge. A partial surrender may result in a decrease in the
Face Amount of your policy depending upon your death benefit option.
o Full 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
We deduct expenses related to your policy. These deductions are made:
o from premium, your Policy Account Value and the assets of the subaccounts;
and
o upon certain transactions.
Deduction From Premium -- we will deduct 5% from your premium payments plus a
state specific percent of premium equal to the state and local premium tax rate
applicable to the policy. These deductions are for state premium taxes, federal
taxes, sales and other acquisition related expenses.
Monthly Deductions From Policy Account Value -- we will deduct on each Monthly
Anniversary charges for:
o The administration of your policy.
o The cost of insurance for your policy.
o The costs associated with acquiring and underwriting your policy.
o The cost of any supplemental benefits or riders.
The monthly deduction is deducted from your Accounts on a pro rata basis in the
same proportion as you have Policy Account Value in each Account.
Deductions from Subaccount Net Assets -- we will deduct a daily charge for the
mortality and expense risks we assume at an annual rate not to exceed 0.90% of
your Policy Account Value in the subaccounts.
Deductions Upon Certain Policy Transactions -- If you make a policy transaction,
a charge may apply. They are:
o Transfer Charge -- You may make twelve transfers from your subaccounts each
Policy Year free of charge. Thereafter, we will deduct a fee of $25 per
transfer from the transferred amount.
o Administrative Charge for Partial Surrenders - We currently deduct an
administrative charge of $25 upon a partial surrender. In certain states
the charge may be the lesser of $25 or 2% of the amount surrendered.
o Surrender Charge - A surrender charge for partial surrenders is equal to a
pro rata portion of the surrender charge that would apply to a full
surrender. This applies during the first 14 Policy Years and for the first
14 Policy Years immediately following an increase in Face Amount. If you
request a full surrender during the first 14 Policy Years, we may deduct a
surrender charge based on the initial Face Amount. If you request a
surrender within 14 years immediately following an 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.
o Surrender Charge for Face Amount Decreases -- We may also deduct a
surrender charge from the Policy Account Value upon a decrease in Face
Amount. If you request a decrease in Face Amount during the first 14 Policy
Years, we will deduct a surrender charge based on the initial Face Amount.
If you request a decrease within 14 years immediately following an increase
in Face Amount, we will deduct a surrender charge based on the increase in
Face Amount.
In addition, you will indirectly bear the costs of the investment management
fees and expenses paid from the assets of the portfolios you select.
The following tables are designed to help you understand the various fees and
expenses that you will bear directly or indirectly. The first table shows the
policy charges and deductions you will bear directly under the policy. The
second table shows the fees and expenses of the portfolios that you will bear
indirectly when you purchase a policy.
Policy Charges and Deductions
Transaction Charges
Sales and DAC Tax Charge 5% of each premium payment
Premium Tax Charge(1) 0.50% to 5% of each premium payment
Transfer Charge $25 for each transfer in excess of 12 each Policy Year
Surrender Charge During the first 14 Policy Years and the first years
immediately following an increase in Face Amount, there will be a surrender
charge of up to 25% of the first year premium paid up to a surrender charge
premium plus 4% of the first year premium paid in excess of the surrender
charge premium. (3)
Partial Surrender Administrative $25 per partial surrender - In certain
states the charge may Charge the lesser of $25 or 2% of the amount
surrendered.
Account Value Charges (deducted monthly)
Cost of Insurance Charge(2)
Current Guaranteed
Ranges from 0.04083 per Ranges from 0.05667 per
$1,000 of net amount at risk $1,000 of net amount at risk
to 58.95273 per $1,000 of net to 90.90909 per $1,000 of net
amount at risk(4) amount at risk(4)
Monthly Expense Charge Current Guaranteed
If the Face Amount is between $50,000 and $199,000 $ 7.50 $15.00
If the Face Amount is between $200,000 and $499,000 $ 5.00 $10.00
If the Face Amount is between $500,000 and greater $ 4.00 $10.00
First Year Additional Charge $ 20.00 $25.00
First Year Administrative Charge Up to $25 per month during the first
Policy Year and for 12 months following an increase in Face Amount
Annual Separate Account Charges (deducted daily and shown as an annualized
percentage of average net assets)
<TABLE>
Mortality and Expense Risk Charge Current Guaranteed
<S> <C> <C>
0.90% (policy years 1-10) 0.90%
0.50% (policy years 11+)
</TABLE>
(1) We deduct a premium tax charge equal to the actual state tax rate from each
premium payment. State and local premium tax rates range from 0.50% to 5%.
(2) The current cost of insurance charge will never exceed the guaranteed cost
of insurance charge shown in the policy. The net amount at risk is the
difference between the death benefit divided by 1.0032737 and the current
Policy Account Value. (See "Expenses of the Policy - Cost of Insurance
Charge.")
(3) A policy's surrender charge premium is based on the issue age, sex and
smoker status of the Insured and the Face Amount. For a 45 year old
non-smoking male purchasing $500,000 Face Amount the surrender charge
premium would be $8,530.00. For a 65 year old non-smoking male purchasing
$200,000 Face Amount, the surrender charge premium would be $10,762.00. The
lowest and highest maximum surrender charge will range from $5.60 to
$34.42 per $1,000 of Face Amount. (See Appendix B for additional examples
of surrender charge premiums.)
(4) Current and guaranteed cost of insurance charges are based on the issue age
(or Attained Age in the case of increase in Face Amount), sex, rate class
of the Insured, and Policy Year.
<PAGE>
ANNUAL PORTFOLIO EXPENSES
Before Waivers/Reimbursement
As of December 31, 1999
The purpose of this table is to assist the Owner in understanding the various
costs and expenses that will be incurred, directly or indirectly. It is based on
historical expenses as a percentage of net assets before waivers and/or
reimbursements, if applicable, for the year ended December 31, 1999, except as
indicated below. Expenses of the portfolios of the Funds are not fixed or
specified under the terms of the Policy. Actual expenses may vary.
<TABLE>
Management Other Total
Fees Expenses(1) Expenses
Alliance Variable Products Series Fund(2)
<S> <C> <C> <C>
Conservative Investors Portfolio 0.75% 0.43% 1.18%
Global Bond Portfolio 0.65% 0.39% 1.04%
Global Dollar Government Portfolio 0.75% 1.54% 2.29%
Growth Portfolio 0.75% 0.09% 0.84%
Growth Investors Portfolio 0.75% 0.72% 1.47%
Growth and Income Portfolio 0.63% 0.08% 0.71%
High-Yield Portfolio 0.75% 0.65% 1.40%
International Portfolio 1.00% 0.36% 1.36%
Money Market Portfolio 0.50% 0.14% 0.64%
North American Government Income Portfolio 0.65% 0.55% 1.20%
Premier Growth Portfolio 1.00% 0.05% 1.05%
Quasar Portfolio 1.00% 0.19% 1.19%
Real Estate Investment Portfolio 0.90% 0.82% 1.72%
Short-Term Multi Market Portfolio 0.55% 2.10% 2.65%
Technology Portfolio 1.00% 0.12% 1.12%
Total Return Portfolio 0.63% 0.23% 0.86%
U.S. Government/High Grade Securities Portfolio 0.60% 0.26% 0.86%
Utility Income Portfolio 0.75% 0.39% 1.14%
Worldwide Privatization Portfolio 1.00% 0.46% 1.46%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectuses for
the Alliance Variable Products Series Funds.
(2) Expenses for the following portfolios after waivers and reimbursement by
the Alliance Variable Products Series Fund's investment adviser for the
year ended December 31, 1999, were as follows:
<TABLE>
Management Other Total
Fees Expenses Expenses
Alliance Variable Products Series Fund(2)
<S> <C> <C> <C>
Conservative Investors Portfolio 0.70% 0.25% 0.95%
Global Bond Portfolio 0.65% 0.25% 0.90%
Global Dollar Government Portfolio 0.12% 0.83% 0.95%
Growth Investors Portfolio 0.55% 0.40% 0.95%
High-Yield Portfolio 0.60% 0.35% 0.95%
International Portfolio 0.69% 0.26% 0.95%
Money Market Portfolio 0.50% 0.14% 0.64%
North American Government Income Portfolio 0.61% 0.34% 0.95%
Quasar Portfolio 0.81% 0.14% 0.95%
Real Estate Investment Portfolio 0.49% 0.46% 0.95%
Short-Term Multi Market Portfolio 0.55% 0.40% 0.95%
Technology Portfolio 0.71% 0.24% 0.95%
Utility Income Portfolio 0.72% 0.23% 0.95%
Worldwide Privatization Portfolio 0.63% 0.32% 0.95%
</TABLE>
<PAGE>
Federal Tax Considerations
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 death benefit will not be taxable income to the
Beneficiary. You will not be taxed as your Policy Account Value increases. Upon
a distribution from your policy, however, you may be taxed on any increase in
Policy Account Value.
Purchasing a 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 and supplemental benefit 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.
You may apply for a policy to cover a person who is younger than age 76. A
newborn may be an Insured. The minimum Face Amount is $50,000.
We require a minimum initial premium before we will issue the policy. You may
pay the minimum initial premium when you submit the application or at a later
date.
We will not issue a policy until we have accepted the application. We will
accept an application if it meets our underwriting rules. We reserve the right
to reject an application for any reason or "rate" an Insured as a substandard
risk.
Your policy will become effective after:
o We accept your application.
o We receive an initial premium payment in an amount we determine.
o We have completed our review of your application to our satisfaction.
Your Right to Cancel the Policy
Once you receive your policy, you should read the policy. You have the right to
cancel the policy for any reason within the later of:
o 45 days after you sign Part I of the application; or
o 10 days after you received the policy. If required by the state where you
live, we will extend the time period to the number of days required by law.
This is your "period to examine and cancel."
Your right to cancel also applies to the amount of any increase in Face Amount.
You may cancel the policy by returning it to our Administrative Office or to
your agent within the applicable time with a written request for cancellation.
We will refund you the premium paid on the policy. Thus, the amount we return
will not reflect the returns of the subaccounts you selected in your
application.
Premiums
The policy allows you to select the timing and amount of premium payments within
limits. Send premium payments to our Administrative Office.
Restrictions on Premiums. We may not accept any premium payment:
o If it is less than $50.
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
your 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.
Minimum Initial Premium. We will calculate the minimum initial premium. The
amount is based on a number of factors, including the age, sex and rating class
of the proposed Insured, the desired Face Amount and any supplemental benefits
or riders applied for and whether premiums will be paid by pre-authorized
checking.
Planned Periodic Premium. When you apply for a policy, you select a plan for
paying level premiums at specified intervals. The intervals may be monthly,
quarterly, semi-annually or annually, for the life of the policy. Pre-authorized
checking may be required for monthly payments. We will establish a minimum
amount that may be used as the planned periodic premium.
You are not required to pay premiums in accordance with this plan. Rather, you
can pay more or less than the planned periodic premium or skip a planned
periodic premium entirely. At any time you can change the amount and frequency
of planned periodic premium by sending a written notice to our Administrative
Office.
Additional Premiums. Additional premiums are premiums other than planned
premiums. Additional premiums may be paid in any amount and at any time subject
to the Code. Depending on the Policy 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.
Effect of Premium Payments. In general, paying all planned periodic premiums may
not prevent your policy from lapsing. In addition, if you fail to pay any
planned periodic premiums, your policy will not necessarily lapse.
Your policy will lapse only when the Net Cash Surrender Value on a Monthly
Anniversary is less than the amount of that date's monthly deduction. This could
happen if the Net Cash Surrender Value has decreased because:
o of the negative return or insufficient return earned by one or more of the
subaccounts you selected; or
o of any combination of the following -- you have outstanding loans, you have
taken partial surrenders, we have deducted policy expenses, or you have
made insufficient premium payments to offset the monthly deduction.
Grace Period. 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 for 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.
o The amount of premium required to prevent your policy from terminating.
This amount is equal to the amount needed to increase the Net Cash
Surrender Value sufficiently to cover total monthly deductions for the next
three (3) Monthly Anniversaries.
If the Insured dies during the Grace Period, we will still pay the death benefit
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.
Premium Allocations. In the application, you specify the percentage of Net
Premiums to be allocated to each subaccount or to the Guaranteed Account.
However, until the period to examine and cancel expires, we invest this amount
in the Money Market Subaccount. On the first business day after the period
expires, we will reallocate your Policy Account Value based on the premium
allocation percentages in your application.
For all subsequent premiums, we will use the allocation percentages you
specified in the application until you change them. You can change the
allocation percentages at any time by sending written notice to our
Administrative Office. The change will apply to all Premiums received with or
after your notice.
Allocation Rules. Your allocation instructions must meet the following
requirements:
o Each allocation percentage must be a whole number; and
o Any allocation to a subaccount must be at least 5%; and the sum of your
allocations must equal 100%.
Crediting Premiums. Your initial Net Premium will be credited to your Policy
Account Value as of the Policy Date. We will credit and invest subsequent Net
Premiums on the date we receive the premium or notice of deposit at our
Administrative Office.
If any premium requires us to accept additional risk, we will allocate this
amount to the Money Market Subaccount until we complete our underwriting. When
accepted, and at the end of the period to examine and cancel the policy, we will
allocate it in accordance with your allocation percentages.
<PAGE>
The Investment Options
You may allocate your Policy Account Value to:
o the Subaccounts which invest in the variable investment options; or
o the Guaranteed Account.
Variable Investment Options
Under the Policy, you may currently allocate your Policy Account Value into any
of the available Subaccounts. Each Subaccount invests in a distinct portfolio of
the Alliance Variable Products Series Fund. These portfolios operate similarly
to a mutual fund but are only available through the purchase of certain
insurance contracts.
Alliance Variable Products Series Fund, Inc.
Conservative Investors Portfolio - seeks to achieve a high total return without,
in the view of Alliance, undue risk to principal.
Global Bond Portfolio - seeks a high level of return from a combination of
current income and capital appreciation by investing in a globally diversified
portfolio of high-quality debt securities denominated in the U.S. Dollar and a
range of foreign currencies. The sub-adviser for this portfolio is AIGAM
International Limited, an affiliate of American International Group, Inc.
Global Dollar Government Portfolio - seeks a high level of current income and,
secondarily, capital appreciation.
Growth Portfolio - seeks to provide long term growth of capital. Current income
is incidental to the Portfolio's objective.
Growth and Income Portfolio - seeks reasonable current income and reasonable
opportunity for appreciation through investments primarily in dividend-paying
common stocks of good quality.
Growth Investors Portfolio - seeks to achieve the highest total return
consistent with what Alliance considers to be reasonable risk.
High-Yield Portfolio - seeks to earn the highest level of current income without
assuming undue risk by investing principally in high-yielding fixed income
securities rated Baa or lower by Moody's or BBB or lower by S&P, Duff & Phelps
or Fitch or, if unrated, of comparable quality.
Money Market Portfolio - seeks safety of principal, excellent liquidity and
maximum current income to the extent consistent with the first two objectives.
North American Government Income Portfolio - seeks the highest level of current
income, consistent with what Alliance considers to be prudent investment risk,
that is available from a portfolio of debt securities issued or guaranteed by
the United States, Canada and Mexico, their political subdivisions (including
Canadian provinces, but excluding the states of the United States), agencies,
instrumentalities or authorities.
International Portfolio - seeks to obtain a total return on its assets from
long-term growth of capital principally through a broad portfolio of marketable
securities of established non-U.S. companies (i.e., companies incorporated
outside the U.S.), companies participating in foreign economies with prospects
for growth, and foreign government securities.
Premier Growth Portfolio - seeks growth of capital by pursuing aggressive
investment policies.
Quasar Portfolio - seeks growth of capital by pursuing aggressive investment
policies. Current income is incidental to the Portfolio's objective.
Real Estate Investment Portfolio - seeks total return from long-term growth of
capital and from income principally through investing in equity securities of
companies that are primarily engaged in or related to the real estate industry.
Short-Term Multi Market Portfolio - seeks the highest level of current income,
consistent with what Alliance considers to be prudent investment risk, that is
available from a portfolio of high-quality debt securities having remaining
maturities of not more than three years.
Technology Portfolio - seeks growth of capital. Current income is incidental to
the Portfolio's objective.
Total Return Portfolio - seeks to achieve a high return through a combination of
current income and capital appreciation.
U.S. Government/High Grade Securities Portfolio - seeks high current income
consistent with preservation of capital.
Utility Income Portfolio - seeks current income and capital appreciation by
investing primarily in equity and fixed-income securities of companies in the
utilities industry.
Worldwide Privatization Portfolio - seeks long-term capital appreciation.
Guaranteed Investment Option
Under the policy, you may currently allocate your Policy Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part of
your Policy 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 Policy 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 4% per year compounded
annually. You assume the risk that interest credited may not exceed the
guaranteed minimum rate of 4% per year. The Loan Account portion of your Policy
Account Value may earn a different interest rate than the remaining portion of
your Policy Account Value in the Guaranteed Account.
Deductions from the Guaranteed Account. We will deduct any transfers, partial
surrenders or any policy expenses from the Guaranteed Account and your variable
investment options on a pro rata basis, unless you provide other directions. No
portion of the Loan Account may be used for this purpose.
The Loan Account will only increase or decrease in value when policy loans are
taken or repayments are made. If an amount is transferred from the Loan Account
to the remaining portion of the guaranteed Policy Account Value, it will be
treated as a new allocation to the Guaranteed Account and will be credited with
interest at the rate then in effect for Guaranteed Account allocations.
Payments from the Guaranteed Account. If we must pay any part of the proceeds
for a loan, partial surrender or full surrender from the Guaranteed Account, we
may defer the payment for up to six months from the date we receive the written
request. If we defer payment from the Guaranteed Account for 30 days or more, we
will pay interest on the amount we deferred at a rate of 4% per year, compounded
annually, until we make payment.
Investing Your Policy Account Value
The policy allows you to choose how to invest your Policy Account Value. Your
Policy 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 Policy Account Value. If
your Policy 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 be in default and a Grace Period will
begin.
Determining the Policy Account Value
On the Policy Date, your Policy Account Value is equal to your initial Net
Premium. If the Policy Date and the Issue Date are the same day, the Policy
Account Value is equal to your initial premium, less the premium expenses and
monthly deduction.
On each Valuation Date thereafter, your Policy Account Value is equal to:
o Your Policy Account Value held in the subaccounts; and
o Your Policy Account Value held in Guaranteed Account.
Your Policy Account Value will reflect:
o the premiums you pay;
o the returns earned by the subaccounts you select;
o the interest credited on amounts allocated to the Guaranteed Account;
o any loans or partial surrenders; and
o the policy expenses we deduct.
Policy Account Value in the Subaccounts. We measure your Policy Account Value in
the subaccounts by the value of the subaccounts' accumulation units we credit to
your policy. When you allocate premiums or transfer part of your Policy 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 loan is taken from the subaccount, an amount is
transferred from the subaccount, or a partial surrender, including the
partial surrender charge, is taken from the subaccount.
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.
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 Policy Account Value. On any Valuation Date, the Guaranteed Account
portion of your Policy 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 surrenders, including the partial surrender
charges, taken from the Guaranteed Account, and less
o the allocated portion of the monthly deduction deducted from the Guaranteed
Account, plus
o the amount of the Loan Account.
If you take a loan, we transfer the amount of the loan to the Loan Account held
in the Guaranteed Account. The value of your Loan Account includes transfers to
and from the Loan Account as you take and repay loans and interest credited on
the Loan Account.
Net Policy Account Value. The net Policy Account Value on a Valuation Date is
the Policy Account Value less outstanding loans on that date.
Cash Surrender Value. The Cash Surrender Value on a Valuation Date is the Policy
Account Value reduced by any surrender charge that would assessed if the policy
were surrendered on that date.
Net Cash Surrender Value. The Net Cash Surrender Value on a Valuation Date is
the amount you would receive on a surrender of your policy and is equal to:
o the Cash Surrender Value, less
o the outstanding loan on that date.
Transfers
You may transfer Policy Account Value among the subaccounts and to the
Guaranteed Account after the period to examine and cancel. All transfer requests
must satisfy the following requirements:
o Minimum amount of transfer -- You must transfer at least $250 or, the
balance in the subaccount or the Guaranteed Account, if less;
o Form of transfer request - Transfer requests must be in writing;
o Transfers from the Guaranteed Account -- The maximum you may transfer in a
Policy Year is equal to 25% of your guaranteed Policy Account Value that is
not in the Loan Account. Transfers may be made only during the 60-day
period within 30 days before and following the end of each Policy Year. The
amount transferred must be at least $250 or the Policy Account Value held
in the Guaranteed Account.
Date We Process Your Transfer Request. We must receive your transfer request at
our Administrative Office. We process transfers 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 Allowable Transfers/Transfer Charge. We do not currently limit the
number of transfers you may make. We will currently assess a $25 transfer
charge, however, for each transfer in excess of 12 during a Policy Year. All
transfers processed on the same business day will count as one transfer for
purposes of determining the number of transfers you have made in a Policy Year.
We reserve the right to increase or decrease the number of free transfers
allowed in any Policy Year.
We will confirm transfer requests received by fax before processing them. You
should review all confirmations to determine if there have been any unauthorized
transfers.
Dollar Cost Averaging
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.
Under this program we will automatically transfer monthly a portion of your
Money Market Subaccount value into other subaccounts or the Guaranteed Account
for a period not in excess of 24 months. We will allocate the transfers based on
your current premium allocation instructions. However, no less than 5% may be
allocated to any one subaccount or to the Guaranteed Account. There is no charge
for this option which can be elected at any time provided there is a minimum
balance of $2000 in the Money Market Subaccount. Transfers in connection with
the dollar cost averaging program will not count against the 12 free transfers
in a Policy Year.
Dollar Cost Averaging From a Subaccount. If you instruct us to make the
transfers from the Money Market Subaccount, you may request that we transfer:
o A specified dollar amount -- we will automatically transfer this amount in
accordance with your most current premium allocation instructions for a
specified period until your Policy Account Value in the transferring Money
Market Subaccount is depleted.
o A specified number of months-- we will automatically transfer over a
specific number of months an amount equal to one divided by the number of
months remaining in the period. For example, if you elect to transfer over
a 12 month period, the first transfer will be 1/12 of your Money Market
Subaccount value, the second transfer will be for 1/11, the third transfer
will be for 1/10 and so on until the end of the requested period.
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 requested the automatic transfers when you applied 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 transfers if:
o The funds in the Money Market Subaccount are depleted;
o We receive you 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 the 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.
Death Benefit
Death Benefit
During the policy term, we will pay the death benefit 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.
Payment of Death Benefit. We will pay the death benefit generally within seven
days after we receive the information we require. We will pay the death benefit
to the Beneficiary in one lump sum or, if elected, under a payment option.
Payment of the death benefit may also be affected by other provisions of the
policy.
We will pay interest on the death benefit from the date of the Insured's death
to the date of payment as required by applicable state law.
Amount of Death Benefit. We will determine the death benefit as of the date of
the Insured's death. The death benefit will equal:
o the death benefit amount determined according to the death benefit option
selected; plus
o any other benefits then due from riders to the policy; minus
o the outstanding loan, if any, and accrued loan interest; minus
o any overdue monthly deductions if the Insured dies during a Grace Period.
Death Benefit Options
You may select from two death benefit options.
Option I - Level Death Benefit Option. The basic death benefit will be the
greater of:
(1) the Face Amount; or
(2) Policy Account Value at date of death multiplied by the appropriate
minimum death benefit factor.
Option II - Increasing Death Benefits Option. The basic death benefit will be
the greater of:
(1) the Face Amount plus the Policy Account Value; or
(2) Policy Account Value at date of death multiplied by the appropriate
minimum death benefit factor.
Changes in Death Benefit Options
You may change your death benefit option by providing your agent with a written
request or by writing us at our Administrative Office. We may require that you
submit satisfactory evidence of insurability to us.
If you request a change from Option I to Option II, we will decrease the Face
Amount by an amount equal to your Policy Account Value on the date the change
takes effect. However, we reserve the right to decline to make such a change if
it would reduce the Face Amount below the minimum Face Amount.
If you request a change from Option II to Option I, we will increase the Face
Amount by an amount equal to your Policy 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 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.
The change will take effect on the next Monthly Anniversary that coincides with
or next follows the date we approve your request.
Changes in Face Amount
At any time after the first policy anniversary while the policy is in force you
may request a change in the Face Amount. We will not make a change in Face
Amount that causes your policy to fail to qualify as life insurance under of the
Code.
Increases in Face Amount. Any request for an increase:
o Must be for at least $10,000.
o May not be requested in the same Policy Year as another request for an
increase.
o May not be requested after the Insured is Attained Age 75.
A written application must be submitted to our Administration Office along with
satisfactory evidence of insurability. You must return the policy so we can
amend it to reflect the increase. The increase in Face Amount will become
effective on the Monthly Anniversary on or next following the date the increase
is approved, and the Policy Account Value will be adjusted to the extent
necessary to reflect a monthly deduction as of the effective date based on the
increase in Face Amount.
Decreases in Face Amount. Any request for a decrease:
o Must be at least $5,000.
o Must not cause the Face Amount after the decrease to be less than the
minimum Face Amount at which we would issue a policy.
o During the first 5 Policy Years, the Face Amount may not be decreased
by more than 10% of the initial Face Amount in any one Policy Year.
o No decrease may be made during the first 12 months following an
increase in Face Amount.
o If the Face Amount is decreased during the first 14 Policy Years or
within 14 Policy Years of an increase in Face Amount, a surrender
charge may be applicable.
Consequences of a Change in Face Amount. Both increases and decreases in Face
Amount may impact the surrender charge. In addition, an increase or decrease in
Face Amount may impact the status of the policy as a modified endowment
contract.
Cash Benefits During the Insured's Life
During the life of the Insured, your policy has cash benefits which you may
access within limits by taking loans, partial surrenders or a full surrender.
Policy Loans
You may request a loan against your policy at any time after the first Policy
Year or after the first 12 months following an increase in Face Amount while the
policy has a Net Cash Surrender Value. We limit the minimum and maximum amount
of loan you may take.
o Maximum Loan Amount. After First Policy Year -- The maximum loan
amount is:
o 90% of Your Net Cash Surrender Value, less
o Any outstanding loans
o Minimum Loan Amount -- $500
You must submit a written request for a loan to the Administrative Office. 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.
Interest. We charge interest daily on any outstanding loan at a declared annual
rate not in excess of 8%. The maximum net cost (the difference between the rate
of interest we charge on policy loans and the amount we credit on the equivalent
amount held in the Loan Account) of a loan is 2% per year. Interest is due and
payable at the end of each Policy Year while a 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.
For Policy Years 11 and later, a portion of the loanable amount may be available
on a preferred loan basis. The amount available on a preferred basis is the
excess, if any, of the Policy Account Value over the sum of the premiums paid.
For a preferred loan, the interest rate charged and credited to the preferred
portion of the loan value will be the same.
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 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 allocation percentages in effect at the time of repayment.
Effect of Loan. A loan, whether or not repaid, will have a permanent effect on
the death benefit and Policy Account Value because the investment results of the
subaccounts and current interest rates credited in the Guaranteed Account will
apply only to the non-loaned portion of the Policy 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 loan is outstanding, the effect could be favorable
or unfavorable.
In addition, loans from modified endowment contracts may be treated for tax
purposes as distributions of income.
If the death benefit becomes payable while a loan is outstanding, the
outstanding loan will be deducted in calculating the death benefit.
If the outstanding loan exceeds the Net Cash Surrender Value on any Monthly
Anniversary, the policy will be in default. We will send you, and any assignee
of record, notice of the default. You will have a 61-day Grace Period to submit
a sufficient payment to avoid termination. The notice will specify the amount
that must be repaid to prevent termination.
Outstanding Loan. The outstanding loan on a Valuation Date equals:
o All 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.
Partial Surrenders
You may request a partial surrender at any time after the first policy
anniversary. No more than two partial surrenders may be made during a Policy
Year.
We may limit the minimum and maximum amount of partial surrenders.
o Maximum Partial Surrender Amount - 90% of your policy's Net Cash Surrender
Value except that the partial surrender may not cause the Face Amount to be
less than the required minimum Face Amount.
o Minimum Partial Surrender Amount -- $500
In order to make a partial surrender, you must submit a written request to our
Administrative Office. We will reduce your Policy Account Value by the partial
surrender amount plus any applicable charges. When you request a partial
surrender, you may direct us to take the requested amount from any subaccount or
from the Guaranteed Account. If the Guaranteed Account or subaccount value is
insufficient to withdraw the amount requested, we will withdraw the difference
from the remaining Accounts on a pro rata basis unless you have provided
specific instructions to withdraw the amount from one or several Accounts.
We will process partial surrender requests at the price next computed after we
receive your written request at our Administrative Office. We will generally pay
partial surrenders within seven days.
Expenses for Partial Surrenders. We will deduct the applicable surrender charge
on a partial surrender. This charge will be deducted from your Policy Account
Value along with the amount requested to be surrendered and will be considered
part of the partial surrender (together, the "partial surrender amount").
Currently, we assess an administrative charge equal to the lesser of $25 of the
amount surrendered. In certain states the charge may be the lesser of $25 or 2%
of the amount surrendered.
Effect of Partial Surrender on Your Face Amount. The Face Amount of your policy
will also be reduced by the partial surrender amount if you selected Option I as
your death benefit.
We will reduce the Face Amount by the amount of the partial surrender in the
following order:
1. The most recent increase in the Face Amount, if any, will be reduced first.
2. The next most recent increases in the Face Amount, if any, will then be
successively decreased.
3. The initial Face Amount will then be decreased.
No partial surrender may be made that would reduce the Face Amount below the
minimum Face Amount.
Partial surrenders from your policy may have tax consequences.
Surrendering the Policy for Net Cash Surrender Value.
You may surrender your policy at any time for its Net Cash Surrender Value by
submitting a written request to our Administrative Office. We will require
return of the policy. A surrender charge may apply. We will process a surrender
request as of the date we receive your written request and all required
documents. Your surrender request generally will be paid within seven days. The
Net Cash Surrender Value may be taken in one sum or it may be applied to a
payment option. Your policy will terminate and cease to be in force if it is
surrendered for one sum. It cannot later be reinstated.
Payment Options for Benefits
We offer a wide variety of optional ways of receiving proceeds payable under the
policy, such as on a surrender or death, other than in a lump sum. Any agent
authorized to sell this policy can explain these options upon request. None of
these options vary with the investment performance of a separate account because
they are all forms of guaranteed benefit payments.
Expenses of the Policy
Periodically, we will deduct expenses related to your policy. We will deduct
these:
o from premium, Policy 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 on a current basis less than the guaranteed amount.
Deduction From Premium
We will deduct 5% plus a state specific percent of premium from each premium
payment. This charge is intended to provide for state premium taxes, DAC taxes
and for other expenses associated with acquiring and servicing a policy.
Monthly Deductions From Policy Account Value
On the Policy Date and each Monthly Anniversary thereafter, we make a deduction
from the Policy Account Value. On the Issue Date the amount deducted is for the
Policy Date and any Monthly Anniversaries that have elapsed since the Policy
Date. For this purpose, the Policy Date is treated as a Monthly Anniversary. We
will deduct charges on each Monthly Anniversary for:
o The administration of your policy.
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.
We will take the monthly deductions from your Policy Account Value and from each
subaccount on a pro rata basis.
Administrative Charge. This charge compensates us for administrative expenses
associated with the policy and the Separate Account. The policy refers to these
expenses as the "monthly expense charge" and the "additional first year
administrative charge."
Monthly Expense Charge. We will make a deduction from your Policy Account Value
for expenses such as premium billing and collection, record keeping, processing
claims, loans, policy changes, reporting and overhead costs, processing
applications and establishing policy records associated with the administration
of your policy. This charge will vary based on the Policy Face Amount. The chart
below reflects the current and guaranteed monthly expense charges:
Current Guaranteed
Monthly Expense Charge Per Policy Charge Charge
If the Face Amount is between $50,000 and $199,999 $ 7.50 $ 15.00
If the Face Amount is between $200,000 and $499,999 $ 5.00 $ 10.00
If the Face Amount is $500,000 or greater $ 4.00 $ 10.00
First Year Additional Charge $ 20.00 $ 25.00
First Year Administrative Charge. There is an additional monthly expense charge
during the first Policy Year and following an increase in Face Amount for our
expenses associated with the acquisition and underwriting of your policy. We
deduct a monthly charge, not to exceed $25, during the first 12 months after the
Policy Date and the 12 months immediately following a Face Amount increase.
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 described below on that
Monthly Anniversary.
The net amount at risk is calculated as (a) minus (b) where:
(a) is the current death benefit at the beginning of the policy month divided by
1.0032737; and (b) is the current total Policy Account Value.
Rate Classes for Insureds. We currently rate Insureds in one of following basic
rate classifications based on our underwriting:
o non-smoker standard
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. 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 a 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 a 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.
If there have been increases in the Face Amount, we may use different cost of
insurance rates for the increased portions of the Face Amount. For purposes of
calculating the cost of insurance charge after the Face Amount has been
increased, the Policy Account Value will be applied to the initial Face Amount
first and then to any subsequent increases in Face Amount. If at the time an
increase is requested, the Policy 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 Policy Account Value will cause an
automatic increase in the death benefit. The Attained Age and rate class for
such increase will be the same as that used for the most recent increase in Face
Amount (that has not been eliminated through a subsequent decrease in Face
Amount).
The guaranteed cost of insurance charges at any given time for a substandard
policy with flat extra charges will be based on the guaranteed maximum cost of
insurance rate for the policy (including table rating multiples, if applicable),
the current Net Amount at Risk at the time the deduction is made, plus the
actual dollar amount of the flat extra charge. Our current cost of insurance
rates may be less than the guaranteed rates. Our current cost of insurance rates
will be determined based on our expectations as to future mortality, investment,
expense and persistency experience. These rates may change from time to time. In
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 risk class are generally lower than rates for an Insured of the same
age and sex in a smoker risk class. Cost of insurance rates (whether guaranteed
or current) for an Insured in a nonsmoker or smoker risk class are generally
lower than rates for an Insured of the same age and sex and smoking status in a
substandard risk class.
Legal Considerations Relating to Sex-Distinct Premiums and Benefits. Mortality
tables for the policy generally distinguish between males and females. Thus,
premiums and benefits under the policy covering males and females of the same
age will generally differ. We do, however, also offer the policy based on unisex
mortality tables if required by state law. Employers and employee organizations
considering purchase of a policy should consult their legal advisers to
determine whether purchase of a policy based on sex-distinct actuarial tables is
consistent with Title VII of the Civil Rights Act of 1964 or other applicable
law. Upon request, we may offer the policy with unisex mortality tables to such
prospective purchasers.
Deduction From Subaccount Assets
Mortality and Expense Risk Charge. We deduct a daily charge from your Policy
Account Value 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. The guaranteed and current charge is at an annual
rate of 0.90% of the subaccount assets. Although, the charge may be decreased to
not less than 0.50% in Policy Years 11 and later, it is guaranteed not to exceed
an annual rate of 0.90% of your Policy 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 death benefit
greater than anticipated. The expense risk we assume is that expenses incurred
in issuing and administering all Policies and the Separate Account will exceed
the amounts realized from the administrative charges assessed against all
Policies.
Deductions Upon Policy Transactions
Transfer Charge. We currently impose a $25 transfer charge on any transfer of
Policy Account Value among the subaccounts and the Guaranteed Account in excess
of the 12 free transfers permitted each Policy Year. When we impose the charge,
we deduct it from the amount requested to be transferred before allocation to
the new subaccount(s). We will show the transfer charge in the confirmation of
the transaction.
Surrender Charge. If the policy is surrendered or there is a decrease in Face
Amount during the first 14 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 14 years after an increase in Face Amount, we will deduct a
surrender charge based on the amount by which the Face Amount had been
increased. The surrender charge will be deducted before any surrender proceeds
are paid.
Surrender Charge Calculation. In general, the surrender charge is based on the
premiums you pay. The Surrender Charge will be no greater than the product of
(3) times the sum of (1) and (2) where:
(1) is equal to 25% of the first year paid premium up to the surrender charge
premium (see Appendix B); and
(2) is equal to 4% of the first year paid premium in excess of the surrender
charge premium; and
(3) is a factor based on the Policy Year when the surrender occurs as described
in the following table:
Policy
Year Factor
1 100%
2 100%
3 100%
4 100%
5 100%
6 90%
7 80%
8 70%
9 60%
10 50%
11 40%
12 30%
13 20%
14 10%
15+ 0%
Surrender Charge Based On An Increase Or Decrease In Face Amount. If you
increase the Face Amount of the policy, we will impose an additional surrender
charge during the 14 Policy Years immediately following the increase. The
additional surrender charge period will begin on the effective date of the
increase. If you reduce the Face Amount of the policy before the end of the 14th
Policy Year or within 14 years immediately following a Face Amount increase, we
may also deduct a pro rata share of any applicable surrender charge from your
Policy Account Value. Reductions will first be applied against the most recent
increase in the Face Amount of the policy. If you have made several increases in
Face Amount, we will apply the surrender charge to prior increases in Face
Amount of the policy in the reverse order in which such increases took place,
before applying the additional surrender charges to the initial Face Amount of
the policy.
Partial Surrender Charge. We may deduct a partial surrender charge:
o upon a partial surrender; and
o if you decrease your Policy's Face Amount.
The amount of the partial surrender charge is equal to a pro rata portion of the
surrender charge that would apply to a full surrender. We deduct the partial
surrender charge, proportionately, from the subaccounts or the Guaranteed
Account affected by your partial surrender.
Partial Surrender Charge Due to Decrease in Face Amount. We will 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 Surrender Administrative Charge. We currently deduct an administrative
charge of $25 upon a partial surrender. In certain states the charge may be the
lesser of $25 or 2% of the amount surrendered.
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 groups of individuals
in a manner that in our opinion results in expense savings. For purchases made
by our officers, directors and employees, those of 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.
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
Policy Account Value.
Accelerated Benefit Rider (ABR)
Accidental Death Benefit Rider (ADB)
Guaranteed Minimum Death Benefit (GMDB)
Child's Term Rider (CTR)
Other Insured Term Rider (OIR)
Primary Insured Term Rider (PIR)
Waiver of Monthly Deductions (WMD)
Waiver of Specified Premium (WSP)
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; 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 Policy Account Value to the Guaranteed Account. There is
no charge for this transfer. Once this option is exercised, the entire Policy
Account Value must remain in the Guaranteed Account for the remaining life of
the new Policy. The Face Amount in effect at the time of the exchange will
remain unchanged. The effective date, issue date and issue age of the Insured
will remain unchanged. The Owner and Beneficiary are the same as were recorded
immediately before the exchange.
Limits on our Rights to Contest the Policy
Incontestability. We will not contest the policy after it has been in force
during the Insured's lifetime for two years from the Issue Date. Any increase in
the Face Amount will be incontestable with respect to statements made in the
evidence of insurability for that increase after the increase has been in force
during the life of the Insured for two years after the effective date of the
increase.
Suicide Exclusion. If the Insured commits suicide (while sane or insane) within
two years (unless otherwise specified by state law) after the Issue Date, our
liability will be limited to the payment of a single sum. This sum will be equal
to the premiums paid, minus any loan and accrued loan interest, minus any
partial surrender, and minus the cost of any riders attached to the policy. If
the Insured commits suicide (while sane or insane) within two years (unless
otherwise specified by state law) after the effective date of an increase in the
Face Amount, then our liability as to the increase in amount will be limited to
the payment of a single sum equal to the monthly cost of insurance deductions
made for such increase plus the expense charge deducted for the increase.
Changes in the Policy or Benefits
Misstatement of Age or Sex. If an Insured's age or sex has been misstated in the
policy, the death benefit and any benefits provided by riders shall be those
which would be purchased at the then current cost of insurance charge for the
correct age and sex.
Other Changes. At any time we may make such changes in the policy as are
necessary to assure compliance at all times with the definition of life
insurance prescribed by the 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 any death benefit, loan proceeds or partial or full
surrender proceeds within seven days after receipt at our Administrative Office
of all the required documents. Other than the death benefit, which are
determined as of the date of death, the amount will be determined as of the date
we receive the required documents. However, we may delay making a payment or
processing a transfer request if:
(1) 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
(2) 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.
Reports to Owners
You will receive a confirmation within seven days of the transaction of:
o the receipt of any unplanned premium (and any premium received before
the Issue Date);
o any change of allocation of premiums;
o any transfer among subaccounts;
o any loan, interest repayment, or loan repayment;
o any partial surrender;
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 death benefit under the policy.
Within 30 days after each policy anniversary we will send you a statement. The
statement will show the death benefit currently payable, and the current Policy
Account Value, Cash Surrender Value, and the outstanding loan. The statement
will also show premiums paid, all charges deducted during the last Policy Year,
and all transactions. We will also send to you reports of the investments within
the Separate Account at least annually.
Assignment
You may assign the policy in accordance with its terms on a form provided by us.
We will not be deemed to know of an assignment unless we receive a copy of this
assignment form at our Administrative Office. We assume no responsibility for
the validity or sufficiency of any assignment. Any assignment or pledge of a
modified endowment contract as collateral for a loan may result in a taxable
event.
Reinstatement
If the policy has ended without value, you may reinstate policy benefits while
the Insured is alive if you:
1. Request 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) the total monthly
administrative charges from the beginning of the Grace Period to the
effective date of reinstatement; (ii) total monthly deductions for
three months, calculated from the effective date of reinstatement; and
(iii) the premium expense charge and any increase in surrender charges
associated with this payment. We will determine the amount of this
required payment as if no interest or investment performance were
credited to or charged against your Policy Account Value; and
4. Repay or reinstate any loan which existed on the date the policy
ended.
The effective date of the reinstatement of policy benefits will be the next
Monthly Anniversary which coincides with or next follows the date we approve
your request. From the required payment we will deduct the premium expenses. The
Policy Account Value, loan and surrender charges that will apply upon
reinstatement will be those that were in effect on the date the policy lapsed.
We will start to make monthly deductions again as of the effective date of
reinstatement. The monthly expense charge from the beginning of the Grace Period
to the effective date of reinstatement will be deducted from the Policy Account
Value as of the effective date of reinstatement. No other charges will accrue
for this period.
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 C 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: monthly
deductions; cost of insurance; surrender charges; sales loads; DAC taxes; and
any state or local premium taxes. If these charges were included, the total
return figures would be lower.
Performance information may be compared, in reports and promotional literature,
to: (i) the Standard & Poor's 500 Stock Index ("S & P 500"), Dow Jones
Industrial Average ("DJIA"), Shearson Lehman Aggregate Bond Index or other
unmanaged indices so that investors may compare the Subaccount results with
those of a group of unmanaged securities widely regarded by investors as
representative of the securities markets in general; (ii) other groups of
variable life separate accounts or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mutual
funds and other investment products by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons, such as Morningstar, Inc., who rank such investment products on
overall performance or other criteria; or (iii) the Consumer Price Index (a
measure for inflation) to assess the real rate of return from an investment in
the Subaccount. Unmanaged indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses. We may provide in advertising, sales literature, periodic publications
or other materials information on various topics of interest to Owners and
prospective Owners. These topics may include the relationship between sectors of
the economy and the economy as a whole and its effect on various securities
markets, investment strategies and techniques (such as value investing, market
timing, dollar cost averaging, asset allocation, constant ratio transfer and
account rebalancing), the advantages and disadvantages of investing in
tax-deferred and taxable investments, customer profiles and hypothetical
purchase and investment scenarios, financial management and tax and retirement
planning, and investment alternatives to certificates of deposit and other
financial instruments, including comparisons between the policy and the
characteristics of and market for such financial instruments.
Total return data may be advertised based on the period of time that the
portfolios have been in existence. The results for any period prior to the
policy being offered will be calculated as if the policy had been offered during
that period of time, with all charges assumed to be those applicable to the
policy. Performance information for any subaccount in any advertising will
reflect only the performance of a hypothetical investment in the subaccount
during the particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality 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.
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 tax adviser to discuss these risks.
The Company
We are taxed as a life insurance company under the Code. For federal tax
purposes, the Separate Account and its operations are considered to be part of
our operations and are not taxed separately.
Diversification and Investor Control
The Code requires that we diversify the investments underlying variable
insurance contracts. If the investments are not properly diversified and any
remedial period has passed, Section 817(h) of the Code provides in general the
contract is immediately disqualified from treatment as a life insurance contract
for federal income tax purposes. Disqualification of the policy as a life
insurance contract would result in taxable income to you at the time that we
allocate any earnings to your policy. You would have taxable income even though
you have not received any payments under the policy. To the extent that any
segregated asset account with respect to a variable life insurance contract
invests exclusively in securities issued by the U.S. Treasury, the
diversification standard is satisfied. A segregated asset account underlying
life insurance contracts such as the policy will also meet the diversification
requirements if, as of the close of each quarter:
o the regulated investment companies in which the segregated asset
account invest satisfy the diversification requirements described
below; and
o not more than 55 percent of the value of the assets of the account are
attributable to cash and cash items (including receivables),
government securities and securities of other regulated investment
companies.
Alternatively, 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.
There are several ways for investments to meet the diversification requirements.
Generally, each United States government agency or instrumentality is treated as
a separate issuer under these rules.
All securities of the same issuer are generally treated as a single investment.
We intend that each portfolio in which the subaccounts invest will be managed by
its investment adviser in compliance with these diversification requirements. 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 you're 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 premiums 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.
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 death benefit
under the policy should be excluded from the taxable gross income of the
Beneficiary. In addition, the increases in the Policy Account Value should not
be taxed until there has been a distribution from the policy such as a
surrender, partial surrender or lapse with loan.
Pre-Death Distribution
The tax treatment of any distribution you receive before the Insured's death
depends on whether the policy is classified as a modified endowment contract.
Policies Not Classified as Modified Endowment Contracts
o If you surrender the policy or allow it to lapse, you will not be taxed
except to the extent the amount you receive is in excess of the premiums
you paid less the untaxed portion of any prior withdrawals. For this
purpose, you will be treated as receiving any portion of the cash surrender
value policy debt. The tax consequences of a surrender may differ if you
take the proceeds under an income payment settlement option.
o Generally, you will be taxed on a withdrawal to the extent the amount you
receive exceeds the premiums you paid for the policy less the untaxed
portion of any prior withdrawals. However, under some limited
circumstances, in the first 15 Policy Years, all or a portion of a
withdrawal may be taxed if the cash value exceeds the total premiums paid
less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums
o Extra premiums for optional benefits and riders generally do not count in
computing the premiums paid for the policy for the purposes of determining
whether a withdrawal is taxable.
o Loans you take against the policy are ordinarily treated as debt and are
not considered distributions subject to tax.
Modified Endowment Contracts
o The rules change if the policy is classified as a modified endowment
contract ("MEC"). The policy could be classified as a MEC if premiums
substantially in excess of scheduled premiums are paid or a decrease in the
face amount of insurance is made (or a rider removed). The addition of a
rider or an increase in the face amount of insurance may also cause the
policy to be classified as a MEC. The rules on whether a policy will be
treated as a MEC are very complex and cannot be fully described in this
summary. You should consult a qualified tax adviser to determine whether a
policy transaction will cause the policy to be classified as a MEC. We will
monitor your policy and will take steps reasonably necessary to notify you
on a timely basis if your policy is in jeopardy of becoming a MEC.
o If the policy is classified as a MEC, then amounts you receive under the
policy before the Insured's death, including loans and withdrawals, are
included in income to the extent that the cash value before surrender
charges exceeds the premiums paid for the policy increased by the amount of
any loans previously included in income and reduced by any untaxed amounts
previously received other than the amount of any loans excludable 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.
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 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 death benefit option, a loan, a partial surrender,
a surrender, a change in owners 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.
Possible Charge for the Company's Taxes
At the present time, we do not deduct any charges for any federal state or local
income taxes. However, we do currently deduct charges for state and federal
premium based taxes and the federal DAC tax. We reserve the right in the future
to deduct a charge for any such tax or other economic burden resulting from the
application of the tax laws that we determine to be properly attributable to the
Separate Account or to the policy.
Distribution of the Policy
The policy is sold by licensed insurance agents, where the policy may be
lawfully sold, who are registered representatives of broker-dealers which are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc.
The policy will be distributed through the principal underwriter for the
Separate Account, AIG Equity Sales Corp. (AIGESC) 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 premiums paid for
Policies sold. Other expense reimbursements, allowances, and overrides may also
be paid. Registered representatives who meet certain productivity and
profitability standards may be eligible for additional compensation. Additional
payments may be made for administrative or other services not directly related
to the sale of the policy.
Other Policies Issued by the Company
We may offer other policies similar to those offered herein.
About Us and the Accounts
AIG Life Insurance Company
We are a stock life insurance company initially organized under the laws of
Pennsylvania and reorganized under the laws of Delaware. We were 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 Separate Account
We established the Separate Account as a separate investment account on June 5,
1986. It is used to support the policy and other variable life insurance
policies, and may be used for other permitted purposes. The Separate Account is
registered with the Securities and Exchange Commission as a unit investment
trust under the federal securities laws and qualifies as a "separate account"
within the meaning of these laws.
Although you may have allocated your Policy Account Value to the subaccounts,
you do not own these assets. You only own your policy. We own the assets in the
Separate Account. The Separate Account may include other subaccounts which 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.
We have reserved certain rights regarding the Separate Account. We will exercise
these rights only in compliance with all applicable regulatory requirements. We
have the right to:
o Change, add or delete designated investment options.
o Add or remove subaccounts.
o Withdraw assets of a class of policies to which the policy belongs from a
subaccount and put them in another subaccount. o Combine any two or more
subaccounts.
o Register other separate accounts or deregister the Separate Account with
the Securities and Exchange Commission.
o Run the Separate Account under the direction of a committee, and discharge
such committee at any time.
o Restrict or eliminate any voting rights of Owners, or other persons who
have voting rights as to the Separate Account.
o Operate the Separate Account or one or more of the subaccounts making
direct investments or in any other form. If we do so, we may invest the
assets of the Separate Account or one or more of the Subaccounts in any
investments that are legal, as determined by our counsel.
We will not change an investment adviser or any investment of a subaccount of
our Separate Account unless approved by the Commissioner of Insurance of
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 a change. If you have value in that
subaccount:
o We will transfer it at your written direction from that subaccount (without
charge) to another subaccount or to the Guaranteed Account, and
o You may then change your premium allocation percentages
Voting Rights
We are the legal owner of shares held by the subaccounts and as such have the
right to vote on all matters submitted to shareholders of the portfolios.
However, as required by law, we will vote shares held in the subaccounts at
regular and special meetings of shareholders of the portfolios in accordance
with instructions we receive from Owners with Policy Account Value in the
subaccounts. If allowed by law or required by law we may vote shares of the
portfolios without obtaining instructions or in disregard to instructions we
have received. If we ever disregard voting instructions, we will advise you of
that action and our reasons for such action in the next semiannual report.
The Guaranteed Account
The Guaranteed Account is an account within the general account of the company.
Our general account assets are used to support our insurance and annuity
obligations other than those funded by separate accounts. Subject to applicable
law, we have sole discretion over the investment of the assets of the general
account.
We have not registered:
o interests in the Guaranteed Account under the Securities Act of 1933, and
o the Guaranteed Account as an investment company.
The staff of the Securities and Exchange Commission has not reviewed our
disclosure on the Guaranteed Account. Our disclosure regarding the Guaranteed
Account must comply with generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
Our Directors and Executive Officers
The directors and principal officers of the Company are listed below with their
current principal business affiliation and their principal occupations during
the past five (5) years. All officers have been affiliated with the Company
during the past five (5) years unless otherwise indicated.
Principal Business
Affiliations and
Principal Occupations
Name and Address Office During Past Five Years
Michele L. Abruzzo Director, Senior Exec. Senior Vice President
80 Pine Street Vice President
13th Floor
New York, NY 10005
James a. Bambrick Senior Vice President, Senior Vice President, A&H
One Alico Plaza Chief Operations Division
600 King Street Officer
Wilmington, DE 19801
Paul S. Bell Director, Senior Vice Senior Vice President
One Alico Plaza President, Chief Actuary
600 King Street Actuary
Wilmington DE 19801
Maurice R. Greenberg Director Director, Chairman and
70 Pine Street Chief Executive Officer of
New York, NY 10270 AIG, Inc.
Edward Easton Matthews Director, Senior Vice Chairman Investments and
70 Pine Street Vice President Financial Services, AIG, Inc.
New York, NY 10270
Jerome Thomas Muldowney Director, Senior Managing Director of
175 Water Street Senior Vice AIG Global Investment Corp.
New York, NY 10038 President
Robinson K. Nottingham Director, Chairman Chairman of the Board and
70 Pine Street of the Board Chief Executive Officer of
New York, NY 10270 American International Life
Insurance Company (ALICO)
John Oehmke Chief Financial Regional Vice President,
One Alico Plaza Officer, Controller American
600 King Street Vice President International Companies,
Wilmington, DE 19801 Japan and Korea
Nicholas A. O'Kulich Director, Vice Vice President, Senior Vice
70 Pine Street Chairman, Treasurer President, AIG, Inc.
New York, NY 10270
Howard Ian Smith Director Director, Executive Vice
70 Pine Street President, Chief Financial
New York, NY 10270 Officer and Comptroller,
AIG, Inc.
Edmund Sze-Wing Tse Director Vice Chairman, Life
AIA Bldg. Insurance, AIG, Inc.
70 Pine Street
New York, NY 10270
Elizabeth M. Tuck Secretary Secretary and Assistant
70 Pine Street Secretary of AIG, Inc.,
New York, NY 10270 and certain affiliates
Kenneth D. Walma Vice President, Assistant Secretary,
One Alico Plaza General Counsel Associate General Counsel
600 King Street
Wilmington, DE 19801
Gerald Walter Wyndorf Director, Chief Executive Vice President
80 Pine Street Executive Officer
13th Floor and President
New York, NY 10038
<PAGE>
Other Information
State Regulation
We are subject to the laws of Delaware governing insurance companies and to
regulation by the Delaware Insurance Department. We file an annual statement in
a prescribed form with the Insurance Department each year covering our operation
for the preceding year and our final condition as of the end of such year.
Regulation by the Insurance Department includes periodic examinations to
determine our policy liabilities and reserves so that the Insurance Department
may certify the items are correct. Our books and accounts are subject to review
by the Insurance Department at all times and a full examination of its
operations is conducted periodically by the staff of the Insurance Department
pursuant to the National Association of Insurance Commissioners. Such regulation
does not, however, involve any supervision of management or investment practices
or policies. In addition, we are subject to regulation under the insurance laws
of other jurisdictions in which we may operate.
Legal Proceedings
There are no legal proceedings to which the Separate Account or the principal
underwriter is a party. We are engaged in various kinds of routine litigation
which, in our opinion, are not of material importance in relation to our total
capital and surplus.
Experts
The financial statements which appear in this prospectus have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants, as stated
in its reports, and have been included in reliance upon the authority of such
firm as experts in accounting and auditing.
Legal Matters
Legal matters relating to the federal securities laws are being passed upon by
the firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP of Washington,
D.C.
Published Ratings
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to us by one or more independent rating
organizations such as A.M. Best Company, Moody's and Standard & Poor's . The
purpose of the ratings is to reflect the rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the Separate Account.
The ratings are not recommendations to purchase our life insurance or annuity
products or to hold or sell these products, and the ratings do not comment on
the suitability of such products for a particular investor. There can be no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn entirely by a rating
organization if, in such organization's judgment, future circumstances so
warrant. The ratings do not reflect the investment performance of the Separate
Account or the degree of risk associated with an investment in the Separate
Account.
Financial Statements
<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
(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>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
<TABLE>
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.
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
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
----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
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.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
<TABLE>
Years ended December 31,
1999 1998 1997
------------ -------- -------
Revenues:
<S> <C> <C> <C>
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.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL FUNDS
(in thousands)
<TABLE>
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.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
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.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
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.
<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.
<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.
<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.
<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):
<TABLE>
Years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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>
Years ended December 31,
1999 1998 1997
---------- ------- ------
Realized (losses) gains on investments:
<S> <C> <C> <C>
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>
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>
<PAGE>
2. Investment Information - (continued)
-----------------------------------
<TABLE>
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>
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.
<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).
<TABLE>
Years ended December 31,
1999 1998 1997
---------- ------ -------
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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):
<TABLE>
1999 1998
<S> <C> <C>
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
========= =========
</TABLE>
<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.
<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>
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>
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.
<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.
<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.
<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.
<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>
December 31, 1999
Percentage
of Amount
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>
<PAGE>
11. Reinsurance - (continued)
<TABLE>
December 31, 1998
Percentage
of Amount
Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $53,884,853 $19,921,930 $ 896,285 $34,859,208 2.6%
============= ========== ======== ==========
Premiums:
Life 184,487 54,134 2,022 132,375 1.5%
Accident and Health 155,199 82,614 142,878 215,463 66.3%
Annuity 269,126 - - 269,126 -
------------ ----------------- -------------- ----------
Total Premiums $ 608,812 $ 136,748 $ 144,900 $ 616,964 23.5%
============ =========== ======== ============
</TABLE>
<TABLE>
December 31, 1997
Percentage
of Amount
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.
<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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Policy Owners of
AIG Life Insurance Company
Variable Account II
In our opinion, the accompanying statements of assets and liabilities of AIG
Life Insurance Company Variable Account II (comprising fifty-nine subaccounts,
hereafter collectively referred to as "Variable Account II") and the related
statements of operations and changes in net assets present fairly, in all
material respects, the financial position of Variable Account II at December 31,
1999, and the results of its operations and the changes in its net assets for
each of the three years in the period then ended, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the management of Variable Account II; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
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.
March 10, 2000
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
ASSETS:
Investments at Market Value:
Shares Cost Market Value
--------------------------------------------------------------
<S> <C> <C> <C>
AIM
Capital Appreciation Fund 13,473.865 $ 334,855 $ 479,400
International Equity Fund 27,571.074 554,714 807,557
Alliance
Conservative Investors Portfolio 2,934.676 39,465 39,415
Global Bond Portfolio 1,392.310 15,739 15,665
Global Dollar Government Portfolio 19.951 191 214
Growth Portfolio 135,490.669 3,302,844 4,551,131
Growth & Income Portfolio 118,857.542 2,496,396 2,589,910
Growth Investors Portfolio 14,109.342 215,377 241,693
Money Market Portfolio 30,956.920 30,956 30,956
Premier Growth Portfolio 16,401.606 541,489 663,441
Technology Portfolio 130,454.729 3,342,191 4,384,584
Total Return Portfolio 139.972 2,413 2,448
Quasar Portfolio 100,273.238 1,262,932 1,303,552
U.S. Government/High Grade Securities Portfolio 76.713 935 858
Utility Income Portfolio 51.049 920 1,106
Anchor
Capital Appreciation Portfolio 1,452.187 74,567 82,804
Government & Quality Bond Portfolio 8,787.288 120,310 120,210
Growth Portfolio 799.586 28,845 30,800
Natural Resources Portfolio 741.289 11,134 12,023
Dreyfus
Small Company Stock Portfolio 23,570.817 340,290 393,399
Stock Index Portfolio 132,228.166 4,151,339 5,084,173
Zero Coupon 2000 Portfolio 1,409.864 17,499 17,156
Fidelity
Asset Manager Portfolio 64,730.820 1,113,633 1,208,521
Contrafund Portfolio 36,014.987 872,727 1,049,838
Growth Portfolio 109,646.236 4,509,339 6,022,870
High Income Portfolio 42,812.152 484,672 484,205
Investment Grade Bond Portfolio 40,457.261 498,052 491,961
Money Market Portfolio 1,761,346.140 1,761,346 1,761,346
Overseas Portfolio 24,504.130 495,219 672,397
SunAmerica
Alliance Growth Portfolio 20,057.491 690,507 769,605
Aggressive Growth Portfolio 6,244.706 119,770 145,877
Asset Allocation Portfolio 1,890.852 27,379 28,344
Cash Management Portfolio 169,827.747 1,835,840 1,849,423
Corporate Bond Portfolio 656.427 7,383 7,300
"Dogs" of Wall Street Portfolio 3,708.923 33,523 33,233
Emerging Markets Portfolio 3,590.599 32,978 39,819
Federated Value Portfolio 9,834.379 156,562 162,956
Global Bond Portfolio 295.259 3,194 3,190
Global Equities Portfolio 1,740.013 33,657 37,914
Growth-Income Portfolio 4,490.075 134,696 146,241
High-Yield Bond Portfolio 8,942.888 92,717 93,723
International Diversified Equities Portfolio 10,498.206 152,874 167,970
International Growth & Income Portfolio 9,380.240 127,027 120,911
MFS Growth & Income Portfolio 5,738.599 77,264 80,111
MFS Mid-Cap Growth Portfolio 5,802.442 87,737 94,347
MFS Total Return Portfolio 2,900.907 41,659 41,512
Putnam Growth Portfolio 4,928.449 128,633 138,932
Real Estate Portfolio 552.567 4,700 4,869
SunAmerica Balanced Portfolio 5,042.349 90,003 99,032
Utility Portfolio 752.833 10,771 10,827
Venture Value Portfolio 9,820.109 247,466 263,081
Worldwide High Income Portfolio 54.943 566 586
Van Eck
Worldwide Emerging Markets Portfolio 8,283.308 65,860 118,117
Worldwide Hard Assets Portfolio 6,542.928 65,819 71,708
Weiss,Peck & Greer
Tomorrow Long Term Portfolio 8,395.470 73,440 76,566
Tomorrow Medium Term Portfolio 536.633 4,911 4,841
Tomorrow Short Term Portfolio 817.802 8,678 8,186
-------------------- --------------------
Total Investments $ 30,976,003 $ 37,162,854
Total Assets $ 37,162,854
====================
EQUITY:
Policy Owners' Equity $ 37,162,854
---------------------
Total Equity $ 37,162,854
=====================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1999
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,332,831 $10,005 $26,327
Expenses:
Mortality & Expense Risk Fees 224,586 2,575 4,077
-------------- --------------- -------------
Net Investment Income (Loss) 1,108,245 7,430 22,250
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,688,244 9,467 (658)
Change in Unrealized Appreciation
(Depreciation) 4,216,974 118,713 245,104
-------------- --------------- -------------
Net Gain (Loss) on Investments 5,905,218 128,180 244,446
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $7,013,463 $135,610 $266,696
============== =============== =============
</TABLE>
<TABLE>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $3,311 $322 $31
Expenses:
Mortality & Expense Risk Fees 338 109 2
-------------- --------------- -------------
Net Investment Income (Loss) 2,973 213 29
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 332 (472) 1
Change in Unrealized Appreciation
(Depreciation) (1,782) (364) 15
-------------- --------------- -------------
Net Gain (Loss) on Investments (1,450) (836) 16
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,523 ($623) $45
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $270,895 $228,364 $22,202
Expenses:
Mortality & Expense Risk Fees 31,382 20,015 2,024
-------------- --------------- -------------
Net Investment Income (Loss) 239,513 208,349 20,178
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 153,081 59,630 11,353
Change in Unrealized Appreciation
(Depreciation) 690,619 (46,210) 700
-------------- --------------- -------------
Net Gain (Loss) on Investments 843,700 13,420 12,053
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,083,213 $221,769 $32,231
============== =============== =============
</TABLE>
<TABLE>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $30,720 $20,021 $4,775
Expenses:
Mortality & Expense Risk Fees 1,926 3,973 3,655
-------------- --------------- -------------
Net Investment Income (Loss) 28,794 16,048 1,120
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 322,423 0 896
Change in Unrealized Appreciation
(Depreciation) 0 0 105,394
-------------- --------------- -------------
Net Gain (Loss) on Investments 322,423 0 106,290
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $351,217 $16,048 $107,410
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $3,163 $230 $1,251
Expenses:
Mortality & Expense Risk Fees 16,479 22 5,084
-------------- --------------- -------------
Net Investment Income (Loss) (13,316) 208 (3,833)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 596,364 7 143,282
Change in Unrealized Appreciation
(Depreciation) 860,253 (78) 94,963
-------------- --------------- -------------
Net Gain (Loss) on Investments 1,456,617 (71) 238,245
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,443,301 $137 $234,412
============== =============== =============
</TABLE>
<TABLE>
Alliance
U.S.
Government/
High Alliance Anchor
Grade Utility Capital
Securities Income Appreciation
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $60 $44 $209
Expenses:
Mortality & Expense Risk Fees 8 10 71
-------------- --------------- -------------
Net Investment Income (Loss) 52 34 138
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (5) 10 5,385
Change in Unrealized Appreciation
(Depreciation) (78) 134 8,237
-------------- --------------- -------------
Net Gain (Loss) on Investments (83) 144 13,622
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations ($31) $178 $13,760
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Anchor
Government
& Anchor
Quality Anchor Natural
Bond Growth Resources
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,993 $116 $0
Expenses:
Mortality & Expense Risk Fees 145 50 10
-------------- --------------- -------------
Net Investment Income (Loss) 1,848 66 (10)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (1,988) 4,496 1
Change in Unrealized Appreciation
(Depreciation) (100) 1,955 890
-------------- --------------- -------------
Net Gain (Loss) on Investments (2,088) 6,451 891
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations ($240) $6,517 $881
============== =============== =============
</TABLE>
<TABLE>
Dreyfus Dreyfus
Small Dreyfus Zero
Company Stock Coupon
Stock Index 2000
Portfolio Fund Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $82,801 $930
Expenses:
Mortality & Expense Risk Fees 2,786 35,158 155
-------------- --------------- -------------
Net Investment Income (Loss) (2,786) 47,643 775
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (17,176) 143,876 (4)
Change in Unrealized Appreciation
(Depreciation) 49,961 534,775 (456)
-------------- --------------- -------------
Net Gain (Loss) on Investments 32,785 678,651 (460)
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $29,999 $726,294 $315
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Asset Fidelity Fidelity
Manager Contrafund Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $61,501 $13,299 $360,271
Expenses:
Mortality & Expense Risk Fees 9,130 5,958 40,086
-------------- --------------- -------------
Net Investment Income (Loss) 52,371 7,341 320,185
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (138) 16,695 225,037
Change in Unrealized Appreciation
(Depreciation) 50,732 139,635 916,601
-------------- --------------- -------------
Net Gain (Loss) on Investments 50,594 156,330 1,141,638
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $102,965 $163,671 $1,461,823
============== =============== =============
</TABLE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $25,817 $11,228 $104,828
Expenses:
Mortality & Expense Risk Fees 3,902 3,790 18,801
-------------- --------------- -------------
Net Investment Income (Loss) 21,915 7,438 86,027
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (12,925) (1,112) 0
Change in Unrealized Appreciation
(Depreciation) 17,353 (12,354) 0
-------------- --------------- -------------
Net Gain (Loss) on Investments 4,428 (13,466) 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $26,343 ($6,028) $86,027
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica SunAmerica
Fidelity Alliance Aggressive
Overseas Growth Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $16,156 $0 $0
Expenses:
Mortality & Expense Risk Fees 4,369 904 123
-------------- --------------- -------------
Net Investment Income (Loss) 11,787 (904) (123)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,460 5,669 1,932
Change in Unrealized Appreciation
(Depreciation) 173,424 79,099 26,106
-------------- --------------- -------------
Net Gain (Loss) on Investments 176,884 84,768 28,038
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $188,671 $83,864 $27,915
============== =============== =============
</TABLE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Asset Cash Corporate
Allocation Management Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $10,746 $0
Expenses:
Mortality & Expense Risk Fees 32 4,228 6
-------------- --------------- -------------
Net Investment Income (Loss) (32) 6,518 (6)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 77 4,159 24
Change in Unrealized Appreciation
(Depreciation) 965 13,584 (84)
-------------- --------------- -------------
Net Gain (Loss) on Investments 1,042 17,743 (60)
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,010 $24,261 ($66)
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica
"Dogs"
of SunAmerica SunAmerica
Wall Emerging Federated
Street Markets Value
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $0
Expenses:
Mortality & Expense Risk Fees 26 44 121
-------------- --------------- -------------
Net Investment Income (Loss) (26) (44) (121)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (403) 961 (71)
Change in Unrealized Appreciation
(Depreciation) (291) 6,842 6,394
-------------- --------------- -------------
Net Gain (Loss) on Investments (694) 7,803 6,323
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations ($720) $7,759 $6,202
============== =============== =============
</TABLE>
<TABLE>
SunAmerica SunAmerica
Global Global SunAmerica
Bond Equities Growth-Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $0
Expenses:
Mortality & Expense Risk Fees 4 64 182
-------------- --------------- -------------
Net Investment Income (Loss) (4) (64) (182)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 0 1,580 4,088
Change in Unrealized Appreciation
(Depreciation) (2) 4,258 11,546
-------------- --------------- -------------
Net Gain (Loss) on Investments (2) 5,838 15,634
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations ($6) $5,774 $15,452
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica
SunAmerica International
SunAmerica International Growth
High-Yield Diversified &
Bond Equities Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $10,764
Expenses:
Mortality & Expense Risk Fees 70 144 100
-------------- --------------- -------------
Net Investment Income (Loss) (70) (144) 10,664
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 315 (475) 48
Change in Unrealized Appreciation
(Depreciation) 1,005 15,097 (6,115)
-------------- --------------- -------------
Net Gain (Loss) on Investments 1,320 14,622 (6,067)
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,250 $14,478 $4,597
============== =============== =============
</TABLE>
<TABLE>
SunAmerica
MFS SunAmerica SunAmerica
Growth MFS MFS
& Mid-Cap Total
Income Growth Return
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $1,260 $0
Expenses:
Mortality & Expense Risk Fees 122 59 50
-------------- --------------- -------------
Net Investment Income (Loss) (122) 1,201 (50)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,481 3,519 513
Change in Unrealized Appreciation
(Depreciation) 2,847 6,611 (146)
-------------- --------------- -------------
Net Gain (Loss) on Investments 6,328 10,130 367
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $6,206 $11,331 $317
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Putnam Real SunAmerica
Growth Estate Balanced
<S> Portfolio Portfolio Portfolio
Investment Income (Loss): <C> <C> <C>
Dividends $0 $0 $0
Expenses:
Mortality & Expense Risk Fees 198 4 101
-------------- --------------- -------------
Net Investment Income (Loss) (198) (4) (101)
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 6,536 0 214
Change in Unrealized Appreciation
(Depreciation) 10,300 168 9,028
-------------- --------------- -------------
Net Gain (Loss) on Investments 16,836 168 9,242
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $16,638 $164 $9,141
============== =============== =============
</TABLE>
<TABLE>
SunAmerica
SunAmerica Worldwide
SunAmerica Venture High
Utility Value Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $0
Expenses:
Mortality & Expense Risk Fees 5 227 0
-------------- --------------- -------------
Net Investment Income (Loss) (5) (227) 0
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 9 (263) 3
Change in Unrealized Appreciation
(Depreciation) 55 15,614 19
-------------- --------------- -------------
Net Gain (Loss) on Investments 64 15,351 22
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $59 $15,124 $22
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
VanEck VanEck WP&G
Worldwide Worldwide Tomorrow
Emerging Hard Long
Markets Assets Term
Fund Fund Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $544 $7,635
Expenses:
Mortality & Expense Risk Fees 562 405 607
-------------- --------------- -------------
Net Investment Income (Loss) (562) 139 7,028
-------------- --------------- -------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,139 (8,908) 692
Change in Unrealized Appreciation
(Depreciation) 49,606 18,485 (1,304)
-------------- --------------- -------------
Net Gain (Loss) on Investments 52,745 9,577 (612)
-------------- --------------- -------------
Increase (Decrease) in Net Assets
Resulting From Operations $52,183 $9,716 $6,416
============== =============== =============
</TABLE>
<TABLE>
WP&G WP&G
Tomorrow Tomorrow
Medium Short
Term Term
Portfolio Portfolio
<S> <C> <C>
Investment Income (Loss):
Dividends $414 $598
Expenses:
Mortality & Expense Risk Fees 44 64
-------------- ---------------
Net Investment Income (Loss) 370 534
-------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 19 68
Change in Unrealized Appreciation
(Depreciation) (206) (543)
-------------- ---------------
Net Gain (Loss) on Investments (187) (475)
-------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $183 $59
============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1998
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $733,252 $5,326 $1,878
Expenses:
Mortality & Expense Risk Fees 106,392 694 1,405
-------------- --------------- ---------------
Net Investment Income (Loss) 626,860 4,632 473
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 519,608 (371) (22,044)
Change in Unrealized Appreciation
(Depreciation) 1,519,964 25,833 7,738
-------------- --------------- ---------------
Net Gain (Loss) on Investments 2,039,572 25,462 (14,306)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $2,666,432 $30,094 ($13,833)
============== =============== ===============
</TABLE>
<TABLE>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $2,086 $18 $0
Expenses:
Mortality & Expense Risk Fees 263 20 0
-------------- --------------- ---------------
Net Investment Income (Loss) 1,823 (2) 0
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,083 19 2
Change in Unrealized Appreciation
(Depreciation) 691 289 10
-------------- --------------- ---------------
Net Gain (Loss) on Investments 1,774 308 12
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $3,597 $306 $12
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $110,505 $111,284 $14,073
Expenses:
Mortality & Expense Risk Fees 16,449 10,688 1,473
-------------- --------------- ---------------
Net Investment Income (Loss) 94,056 100,596 12,600
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 36,650 55,743 3,763
Change in Unrealized Appreciation
(Depreciation) 394,461 63,586 17,434
-------------- --------------- ---------------
Net Gain (Loss) on Investments 431,111 119,329 21,197
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $525,167 $219,925 $33,797
============== =============== ===============
</TABLE>
<TABLE>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $2,482 $233
Expenses:
Mortality & Expense Risk Fees 334 482 2,105
-------------- --------------- ---------------
Net Investment Income (Loss) (334) 2,000 (1,872)
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 54,637 0 30,881
Change in Unrealized Appreciation
(Depreciation) 0 0 16,562
-------------- --------------- ---------------
Net Gain (Loss) on Investments 54,637 0 47,443
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $54,303 $2,000 $45,571
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $715 $0 $31,614
Expenses:
Mortality & Expense Risk Fees 5,537 1 3,978
-------------- --------------- ---------------
Net Investment Income (Loss) (4,822) (1) 27,636
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 171,268 0 31,274
Change in Unrealized Appreciation
(Depreciation) 197,601 112 (66,300)
-------------- --------------- ---------------
Net Gain (Loss) on Investments 368,869 112 (35,026)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $364,047 $111 ($7,390)
============== =============== ===============
</TABLE>
<TABLE>
Alliance
U.S.
Government/ Dreyfus
High Alliance Small
Grade Utility Company
Securities Income Stock
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $0 $1,151
Expenses:
Mortality & Expense Risk Fees 0 0 1,653
-------------- --------------- ---------------
Net Investment Income (Loss) 0 0 (502)
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 0 0 (2,481)
Change in Unrealized Appreciation
(Depreciation) 0 52 8,859
-------------- --------------- ---------------
Net Gain (Loss) on Investments 0 52 6,378
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $0 $52 $5,876
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
Fund Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $30,188 $705 $60,993
Expenses:
Mortality & Expense Risk Fees 16,095 116 5,125
-------------- --------------- ---------------
Net Investment Income (Loss) 14,093 589 55,868
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 90,160 117 10,634
Change in Unrealized Appreciation
(Depreciation) 348,632 37 18,503
-------------- --------------- ---------------
Net Gain (Loss) on Investments 438,792 154 29,137
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $452,885 $743 $85,005
============== =============== ===============
</TABLE>
<TABLE>
Fidelity
Fidelity Fidelity High
Contrafund Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,859 $181,333 $33,968
Expenses:
Mortality & Expense Risk Fees 1,067 17,992 2,593
-------------- --------------- ---------------
Net Investment Income (Loss) 792 163,341 31,375
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,199 52,384 (5,310)
Change in Unrealized Appreciation
(Depreciation) 37,476 484,390 (31,433)
-------------- --------------- ---------------
Net Gain (Loss) on Investments 40,675 536,774 (36,743)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $41,467 $700,115 ($5,368)
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $9,614 $72,672 $29,556
Expenses:
Mortality & Expense Risk Fees 1,360 12,336 3,291
-------------- --------------- ---------------
Net Investment Income (Loss) 8,254 60,336 26,265
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (104) 0 22,548
Change in Unrealized Appreciation
(Depreciation) 2,966 0 1,403
-------------- --------------- ---------------
Net Gain (Loss) on Investments 2,862 0 23,951
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $11,116 $60,336 $50,216
============== =============== ===============
</TABLE>
<TABLE>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Fund Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $24,879 $0 $4,567
Expenses:
Mortality & Expense Risk Fees 466 80 292
-------------- --------------- ---------------
Net Investment Income (Loss) 24,413 (80) 4,275
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (10,944) (238) (4,776)
Change in Unrealized Appreciation
(Depreciation) (4,930) 2,653 (11,854)
-------------- --------------- ---------------
Net Gain (Loss) on Investments (15,874) 2,415 (16,630)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $8,539 $2,335 ($12,355)
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $948 $287 $318
Expenses:
Mortality & Expense Risk Fees 423 41 33
-------------- --------------- ---------------
Net Investment Income (Loss) 525 246 285
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,436 31 47
Change in Unrealized Appreciation
(Depreciation) 4,736 390 67
-------------- --------------- ---------------
Net Gain (Loss) on Investments 6,172 421 114
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $6,697 $667 $399
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF OPERATIONS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1997
Alliance
Conservative Alliance
Investors Growth
Total Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $208,147 $306 $27,680
Expenses:
Mortality & Expense Risk Fees 41,401 139 6,211
-------------- --------------- ---------------
Net Investment Income (Loss) 166,746 167 21,469
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 206,207 600 37,620
Change in Unrealized Appreciation
(Depreciation) 366,321 586 138,629
-------------- --------------- ---------------
Net Gain (Loss) on Investments 572,528 1,186 176,249
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $739,274 $1,353 $197,718
============== =============== ===============
</TABLE>
<TABLE>
Alliance
Growth Alliance
& Growth Alliance
Income Investors Technology
Portfolio Portfolio Portfolio
<S> <C> <C>
Investment Income (Loss):
Dividends $27,385 $2,233 $544
Expenses:
Mortality & Expense Risk Fees 4,386 756 1,659
-------------- --------------- ---------------
Net Investment Income (Loss) 22,999 1,477 (1,115)
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 18,395 3,687 16,995
Change in Unrealized Appreciation
(Depreciation) 68,190 5,513 (15,270)
-------------- --------------- ---------------
Net Gain (Loss) on Investments 86,585 9,200 1,725
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $109,584 $10,677 $610
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Small Dreyfus
Alliance Company Stock
Quasar Stock Index
Portfolio Portfolio Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $114 $2,290 $30,945
Expenses:
Mortality & Expense Risk Fees 1,578 188 4,258
-------------- --------------- ---------------
Net Investment Income (Loss) (1,464) 2,102 26,687
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 9,057 (107) 41,444
Change in Unrealized Appreciation
(Depreciation) 11,871 (5,712) 41,726
-------------- --------------- ---------------
Net Gain (Loss) on Investments 20,928 (5,819) 83,170
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $19,464 ($3,717) $109,857
============== =============== ===============
</TABLE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Growth
Portfolio Portfolio Portfolio
<S> <C> <C>
Investment Income (Loss):
Dividends $584 $24,048 $29,644
Expenses:
Mortality & Expense Risk Fees 73 2,502 8,178
-------------- --------------- ---------------
Net Investment Income (Loss) 511 21,546 21,466
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (71) 8,600 55,366
Change in Unrealized Appreciation
(Depreciation) 83 19,239 90,042
-------------- --------------- ---------------
Net Gain (Loss) on Investments 12 27,839 145,408
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $523 $49,385 $166,874
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $4,849 $3,074 $38,596
Expenses:
Mortality & Expense Risk Fees 1,566 553 6,480
-------------- --------------- ---------------
Net Investment Income (Loss) 3,283 2,521 32,116
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 11,481 322 0
Change in Unrealized Appreciation
(Depreciation) 11,697 2,132 0
-------------- --------------- ---------------
Net Gain (Loss) on Investments 23,178 2,454 0
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $26,461 $4,975 $32,116
============== =============== ===============
</TABLE>
<TABLE>
VanEck
VanEck Worldwide
Fidelity Worldwide Hard
Overseas Balanced Assets
Portfolio Fund Fund
<S> <C> <C>
Investment Income (Loss):
Dividends $11,804 $832 $485
Expenses:
Mortality & Expense Risk Fees 2,117 489 166
-------------- --------------- ---------------
Net Investment Income (Loss) 9,687 343 319
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,460 856 165
Change in Unrealized Appreciation
(Depreciation) (3,697) 3,097 (1,231)
-------------- --------------- ---------------
Net Gain (Loss) on Investments (2,237) 3,953 (1,066)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $7,450 $4,296 ($747)
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $2,143 $335 $256
Expenses:
Mortality & Expense Risk Fees 85 4 13
-------------- --------------- ---------------
Net Investment Income (Loss) 2,058 331 243
-------------- --------------- ---------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 303 2 32
Change in Unrealized Appreciation
(Depreciation) (304) (254) (16)
-------------- --------------- ---------------
Net Gain (Loss) on Investments (1) (252) 16
-------------- --------------- ---------------
Increase (Decrease) in Net Assets
Resulting From Operations $2,057 $79 $259
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1999
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,108,245 $7,430 $22,250
Realized Gain (Loss) on Investment Activity 1,688,244 9,467 (658)
Change in Unrealized Appreciation
(Depreciation) of Investments 4,216,974 118,713 245,104
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 7,013,463 135,610 266,696
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 16,057,267 191,533 350,534
Cost Of Insurance Charge (2,371,415) (34,739) (48,131)
Policy Loans (467,311) (6,129) (4,309)
Contract Withdrawals (1,231,246) (7,120) (1,849)
Death Benefits (19,183) (532) 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 11,968,112 143,013 296,245
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 18,981,575 278,623 562,941
Net Assets, at Beginning of Year 18,181,279 200,777 244,616
-------------- --------------- -------------
Net Assets, at End of Year $37,162,854 $479,400 $807,557
============== =============== =============
</TABLE>
<TABLE>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,973 $213 $29
Realized Gain (Loss) on Investment Activity 332 (472) 1
Change in Unrealized Appreciation
(Depreciation) of Investments (1,782) (364) 15
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,523 (623) 45
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 9,205 9,418 0
Cost Of Insurance Charge (3,200) (1,677) (53)
Policy Loans (1,019) 0 0
Contract Withdrawals (89) 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,897 7,741 (53)
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 6,420 7,118 (8)
Net Assets, at Beginning of Year 32,995 8,547 222
-------------- --------------- -------------
Net Assets, at End of Year $39,415 $15,665 $214
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $239,513 $208,349 $20,178
Realized Gain (Loss) on Investment Activity 153,081 59,630 11,353
Change in Unrealized Appreciation
(Depreciation) of Investments 690,619 (46,210) 700
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,083,213 221,769 32,231
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 1,119,286 155,452 44,115
Cost Of Insurance Charge (281,233) (202,332) (14,016)
Policy Loans (67,291) (39,707) (6,664)
Contract Withdrawals (128,553) (55,146) (9,348)
Death Benefits (1,534) (1,017) (273)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 640,675 (142,750) 13,814
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 1,723,888 79,019 46,045
Net Assets, at Beginning of Year 2,827,243 2,510,891 195,648
-------------- --------------- -------------
Net Assets, at End of Year $4,551,131 $2,589,910 $241,693
============== =============== =============
</TABLE>
<TABLE>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $28,794 $16,048 $1,120
Realized Gain (Loss) on Investment Activity 322,423 0 896
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 105,394
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 351,217 16,048 107,410
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers (348,680) 20,790 475,404
Cost Of Insurance Charge (2,537) (26,366) (64,005)
Policy Loans 0 0 (1,748)
Contract Withdrawals 0 0 (5,587)
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (351,217) (5,576) 404,064
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 0 10,472 511,474
Net Assets, at Beginning of Year 0 20,484 151,967
-------------- --------------- -------------
Net Assets, at End of Year $0 $30,956 $663,441
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($13,316) $208 ($3,833)
Realized Gain (Loss) on Investment Activity 596,364 7 143,282
Change in Unrealized Appreciation
(Depreciation) of Investments 860,253 (78) 94,963
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,443,301 137 234,412
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 2,359,314 0 804,931
Cost Of Insurance Charge (159,124) (219) (44,995)
Policy Loans (23,231) 0 (3,851)
Contract Withdrawals (43,776) 0 (10,477)
Death Benefits 0 0 (348)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 2,133,183 (219) 745,260
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 3,576,484 (82) 979,672
Net Assets, at Beginning of Year 808,100 2,530 323,880
-------------- --------------- -------------
Net Assets, at End of Year $4,384,584 $2,448 $1,303,552
============== =============== =============
</TABLE>
<TABLE>
Alliance
U.S.
Government/
High Alliance Anchor
Grade Utility Capital
Securities Income Appreciation
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $52 $34 $138
Realized Gain (Loss) on Investment Activity (5) 10 5,385
Change in Unrealized Appreciation
(Depreciation) of Investments (78) 134 8,237
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations (31) 178 13,760
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 0 0 72,791
Cost Of Insurance Charge (79) (92) (3,747)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (79) (92) 69,044
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets (110) 86 82,804
Net Assets, at Beginning of Year 968 1,020 0
-------------- --------------- -------------
Net Assets, at End of Year $858 $1,106 $82,804
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Anchor
Government
& Anchor
Quality Anchor Natural
Bond Growth Resources
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,848 $66 ($10)
Realized Gain (Loss) on Investment Activity (1,988) 4,496 1
Change in Unrealized Appreciation
(Depreciation) of Investments (100) 1,955 890
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations (240) 6,517 881
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 121,869 24,961 11,419
Cost Of Insurance Charge (1,419) (678) (277)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 120,450 24,283 11,142
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 120,210 30,800 12,023
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $120,210 $30,800 $12,023
============== =============== =============
</TABLE>
<TABLE>
Dreyfus Dreyfus
Small Dreyfus Zero
Company Stock Coupon
Stock Index 2000
Portfolio Fund Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($2,786) $47,643 $775
Realized Gain (Loss) on Investment Activity (17,176) 143,876 (4)
Change in Unrealized Appreciation
(Depreciation) of Investments 49,961 534,775 (456)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 29,999 726,294 315
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 160,056 2,254,428 5,613
Cost Of Insurance Charge (26,925) (411,576) (1,842)
Policy Loans (2,946) (54,271) 0
Contract Withdrawals (14,410) (143,533) (488)
Death Benefits (403) (2,534) (21)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 115,372 1,642,514 3,262
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 145,371 2,368,808 3,577
Net Assets, at Beginning of Year 248,028 2,715,365 13,579
-------------- --------------- -------------
Net Assets, at End of Year $393,399 $5,084,173 $17,156
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Asset Fidelity Fidelity
Manager Contrafund Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $52,371 $7,341 $320,185
Realized Gain (Loss) on Investment Activity (138) 16,695 225,037
Change in Unrealized Appreciation
(Depreciation) of Investments 50,732 139,635 916,601
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 102,965 163,671 1,461,823
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 422,099 673,063 2,250,185
Cost Of Insurance Charge (90,397) (68,090) (402,276)
Policy Loans (12,318) (960) (89,548)
Contract Withdrawals (3,454) (13,989) (239,317)
Death Benefits (4,218) (699) (6,501)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 311,712 589,325 1,512,543
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 414,677 752,996 2,974,366
Net Assets, at Beginning of Year 793,844 296,842 3,048,504
-------------- --------------- -------------
Net Assets, at End of Year $1,208,521 $1,049,838 $6,022,870
============== =============== =============
</TABLE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $21,915 $7,438 $86,027
Realized Gain (Loss) on Investment Activity (12,925) (1,112) 0
Change in Unrealized Appreciation
(Depreciation) of Investments 17,353 (12,354) 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 26,343 (6,028) 86,027
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 255,870 379,969 (421,803)
Cost Of Insurance Charge (32,070) (40,235) (183,797)
Policy Loans (4,373) (7,710) (2,013)
Contract Withdrawals (24,692) (42,753) (465,487)
Death Benefits (182) 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 194,553 289,271 (1,073,100)
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 220,896 283,243 (987,073)
Net Assets, at Beginning of Year 263,309 208,718 2,748,419
-------------- --------------- -------------
Net Assets, at End of Year $484,205 $491,961 $1,761,346
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica SunAmerica
Fidelity Alliance Aggressive
Overseas Growth Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $11,787 ($904) ($123)
Realized Gain (Loss) on Investment Activity 3,460 5,669 1,932
Change in Unrealized Appreciation
(Depreciation) of Investments 173,424 79,099 26,106
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 188,671 83,864 27,915
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 175,116 700,521 127,356
Cost Of Insurance Charge (47,710) (14,780) (5,960)
Policy Loans (7,700) 0 (3,434)
Contract Withdrawals (15,290) 0 0
Death Benefits (921) 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 103,495 685,741 117,962
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 292,166 769,605 145,877
Net Assets, at Beginning of Year 380,231 0 0
-------------- --------------- -------------
Net Assets, at End of Year $672,397 $769,605 $145,877
============== =============== =============
</TABLE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Asset Cash Corporate
Allocation Management Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($32) $6,518 ($6)
Realized Gain (Loss) on Investment Activity 77 4,159 24
Change in Unrealized Appreciation
(Depreciation) of Investments 965 13,584 (84)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,010 24,261 (66)
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 31,387 2,021,308 7,497
Cost Of Insurance Charge (619) (101,346) (131)
Policy Loans (3,434) (94,800) 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 27,334 1,825,162 7,366
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 28,344 1,849,423 7,300
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $28,344 $1,849,423 $7,300
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica
"Dogs"
of SunAmerica SunAmerica
Wall Emerging Federated
Street Markets Value
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($26) ($44) ($121)
Realized Gain (Loss) on Investment Activity (403) 961 (71)
Change in Unrealized Appreciation
(Depreciation) of Investments (291) 6,842 6,394
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations (720) 7,759 6,202
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 35,255 34,750 157,965
Cost Of Insurance Charge (1,302) (2,690) (1,211)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 33,953 32,060 156,754
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 33,233 39,819 162,956
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $33,233 $39,819 $162,956
============== =============== =============
</TABLE>
<TABLE>
SunAmerica SunAmerica
Global Global SunAmerica
Bond Equities Growth-Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($4) ($64) ($182)
Realized Gain (Loss) on Investment Activity 0 1,580 4,088
Change in Unrealized Appreciation
(Depreciation) of Investments (2) 4,258 11,546
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations (6) 5,774 15,452
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 3,222 33,441 151,611
Cost Of Insurance Charge (26) (1,301) (3,677)
Policy Loans 0 0 (17,145)
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 3,196 32,140 130,789
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 3,190 37,914 146,241
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $3,190 $37,914 $146,241
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica
SunAmerica International
SunAmerica International Growth
High-Yield Diversified &
Bond Equities Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($70) ($144) $10,664
Realized Gain (Loss) on Investment Activity 315 (475) 48
Change in Unrealized Appreciation
(Depreciation) of Investments 1,005 15,097 (6,115)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,250 14,478 4,597
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 93,353 161,448 118,221
Cost Of Insurance Charge (880) (1,101) (1,907)
Policy Loans 0 (6,855) 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 92,473 153,492 116,314
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 93,723 167,970 120,911
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $93,723 $167,970 $120,911
============== =============== =============
</TABLE>
<TABLE>
SunAmerica
MFS SunAmerica SunAmerica
Growth MFS MFS
& Mid-Cap Total
Income Growth Return
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($122) $1,201 ($50)
Realized Gain (Loss) on Investment Activity 3,481 3,519 513
Change in Unrealized Appreciation
(Depreciation) of Investments 2,847 6,611 (146)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 6,206 11,331 317
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 76,010 88,561 42,507
Cost Of Insurance Charge (2,105) (2,111) (1,312)
Policy Loans 0 (3,434) 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 73,905 83,016 41,195
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 80,111 94,347 41,512
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $80,111 $94,347 $41,512
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Putnam Real SunAmerica
Growth Estate Balanced
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($198) ($4) ($101)
Realized Gain (Loss) on Investment Activity 6,536 0 214
Change in Unrealized Appreciation
(Depreciation) of Investments 10,300 168 9,028
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 16,638 164 9,141
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 126,661 4,786 93,271
Cost Of Insurance Charge (4,367) (81) (3,380)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 122,294 4,705 89,891
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 138,932 4,869 99,032
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $138,932 $4,869 $99,032
============== =============== =============
</TABLE>
<TABLE>
SunAmerica
SunAmerica Worldwide
SunAmerica Venture High
Utility Value Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($5) ($227) $0
Realized Gain (Loss) on Investment Activity 9 (263) 3
Change in Unrealized Appreciation
(Depreciation) of Investments 55 15,614 19
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 59 15,124 22
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 11,073 253,251 620
Cost Of Insurance Charge (305) (5,294) (56)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 10,768 247,957 564
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 10,827 263,081 586
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -------------
Net Assets, at End of Year $10,827 $263,081 $586
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 ($562) $139
Realized Gain (Loss) on Investment Activity 0 3,139 (8,908)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 49,606 18,485
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 52,183 9,716
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 0 43,593 39,406
Cost Of Insurance Charge 0 (7,198) (6,367)
Policy Loans 0 0 (298)
Contract Withdrawals 0 0 (5,309)
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 36,395 27,432
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 0 88,578 37,148
Net Assets, at Beginning of Year 0 29,539 34,560
-------------- --------------- -------------
Net Assets, at End of Year $0 $118,117 $71,708
============== =============== =============
</TABLE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $7,028 $370 $534
Realized Gain (Loss) on Investment Activity 692 19 68
Change in Unrealized Appreciation
(Depreciation) of Investments (1,304) (206) (543)
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Operations 6,416 183 59
-------------- --------------- -------------
Capital Transactions:
Contract Deposits and Transfers 20,325 557 2,373
Cost Of Insurance Charge (6,733) (365) (973)
Policy Loans (1,784) (339) 0
Contract Withdrawals (579) 0 0
Death Benefits 0 0 0
-------------- --------------- -------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 11,229 (147) 1,400
-------------- --------------- -------------
Total Increase (Decrease) in Net Assets 17,645 36 1,459
Net Assets, at Beginning of Year 58,921 4,805 6,727
-------------- --------------- -------------
Net Assets, at End of Year $76,566 $4,841 $8,186
============== =============== =============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1998
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $626,860 $4,632 $473
Realized Gain (Loss) on Investment Activity 519,608 (371) (22,044)
Change in Unrealized Appreciation
(Depreciation) of Investments 1,519,964 25,833 7,738
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,666,432 30,094 (13,833)
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 10,229,110 183,463 279,691
Cost Of Insurance Charge (1,571,906) (12,343) (20,406)
Policy Loans (212,191) 0 0
Contract Withdrawals (202,369) (437) (836)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 8,242,644 170,683 258,449
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 10,909,076 200,777 244,616
Net Assets, at Beginning of Year 7,272,203 0 0
-------------- --------------- ---------------
Net Assets, at End of Year $18,181,279 $200,777 $244,616
============== =============== ===============
</TABLE>
<TABLE>
Alliance
Alliance Alliance Global
Conservative Global Dollar
Investors Bond Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,823 ($2) $0
Realized Gain (Loss) on Investment Activity 1,083 19 2
Change in Unrealized Appreciation
(Depreciation) of Investments 691 289 10
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 3,597 306 12
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 8,717 8,748 241
Cost Of Insurance Charge (2,651) (507) (31)
Policy Loans 0 0 0
Contract Withdrawals (740) 0 0
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 5,326 8,241 210
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 8,923 8,547 222
Net Assets, at Beginning of Year 24,072 0 0
-------------- --------------- ---------------
Net Assets, at End of Year $32,995 $8,547 $222
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Growth Alliance
Alliance & Growth
Growth Income Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $94,056 $100,596 $12,600
Realized Gain (Loss) on Investment Activity 36,650 55,743 3,763
Change in Unrealized Appreciation
(Depreciation) of Investments 394,461 63,586 17,434
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 525,167 219,925 33,797
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 1,465,361 1,726,082 67,671
Cost Of Insurance Charge (210,721) (152,262) (18,064)
Policy Loans (30,640) (25,729) (2,299)
Contract Withdrawals (44,972) (21,460) (2,915)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,179,028 1,526,631 44,393
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 1,704,195 1,746,556 78,190
Net Assets, at Beginning of Year 1,123,048 764,335 117,458
-------------- --------------- ---------------
Net Assets, at End of Year $2,827,243 $2,510,891 $195,648
============== =============== ===============
</TABLE>
<TABLE>
Alliance Alliance
Alliance Money Premier
International Market Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($334) $2,000 ($1,872)
Realized Gain (Loss) on Investment Activity 54,637 0 30,881
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 16,562
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 54,303 2,000 45,571
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers (46,424) 30,250 127,213
Cost Of Insurance Charge (7,879) (11,766) (19,989)
Policy Loans 0 0 (267)
Contract Withdrawals 0 0 (561)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (54,303) 18,484 106,396
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 0 20,484 151,967
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- ---------------
Net Assets, at End of Year $0 $20,484 $151,967
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($4,822) ($1) $27,636
Realized Gain (Loss) on Investment Activity 171,268 0 31,274
Change in Unrealized Appreciation
(Depreciation) of Investments 197,601 112 (66,300)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 364,047 111 (7,390)
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 280,314 2,477 144,506
Cost Of Insurance Charge (66,804) (58) (36,287)
Policy Loans (12,128) 0 (10,340)
Contract Withdrawals (12,390) 0 (8,285)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 188,992 2,419 89,594
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 553,039 2,530 82,204
Net Assets, at Beginning of Year 255,061 0 241,676
-------------- --------------- ---------------
Net Assets, at End of Year $808,100 $2,530 $323,880
============== =============== ===============
</TABLE>
<TABLE>
Alliance
U.S.
Government/ Dreyfus
High Alliance Small
Grade Utility Company
Securities Income Stock
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 ($502)
Realized Gain (Loss) on Investment Activity 0 0 (2,481)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 52 8,859
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 52 5,876
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 991 991 141,312
Cost Of Insurance Charge (23) (23) (22,440)
Policy Loans 0 0 (1,455)
Contract Withdrawals 0 0 (2,646)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 968 968 114,771
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 968 1,020 120,647
Net Assets, at Beginning of Year 0 0 127,381
-------------- --------------- ---------------
Net Assets, at End of Year $968 $1,020 $248,028
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Dreyfus Zero Fidelity
Stock Coupon Asset
Index 2000 Manager
Fund Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $14,093 $589 $55,868
Realized Gain (Loss) on Investment Activity 90,160 117 10,634
Change in Unrealized Appreciation
(Depreciation) of Investments 348,632 37 18,503
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 452,885 743 85,005
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 1,648,311 4,317 385,929
Cost Of Insurance Charge (264,577) (2,247) (60,284)
Policy Loans (35,221) 0 (1,634)
Contract Withdrawals (30,468) 0 (3,078)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,318,045 2,070 320,933
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 1,770,930 2,813 405,938
Net Assets, at Beginning of Year 944,435 10,766 387,906
-------------- --------------- ---------------
Net Assets, at End of Year $2,715,365 $13,579 $793,844
============== =============== ===============
</TABLE>
<TABLE>
Fidelity
Fidelity Fidelity High
Contrafund Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $792 $163,341 $31,375
Realized Gain (Loss) on Investment Activity 3,199 52,384 (5,310)
Change in Unrealized Appreciation
(Depreciation) of Investments 37,476 484,390 (31,433)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 41,467 700,115 (5,368)
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 273,708 1,519,887 18,962
Cost Of Insurance Charge (18,289) (264,617) (31,215)
Policy Loans 0 (38,305) (541)
Contract Withdrawals (44) (32,651) (5,710)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 255,375 1,184,314 (18,504)
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 296,842 1,884,429 (23,872)
Net Assets, at Beginning of Year 0 1,164,075 287,181
-------------- --------------- ---------------
Net Assets, at End of Year $296,842 $3,048,504 $263,309
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Investment Fidelity
Grade Money Fidelity
Bond Market Overseas
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $8,254 $60,336 $26,265
Realized Gain (Loss) on Investment Activity (104) 0 22,548
Change in Unrealized Appreciation
(Depreciation) of Investments 2,966 0 1,403
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 11,116 60,336 50,216
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 133,629 1,794,587 22,097
Cost Of Insurance Charge (15,077) (262,012) (46,489)
Policy Loans 0 (47,336) (4,988)
Contract Withdrawals (446) (23,046) (8,945)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 118,106 1,462,193 (38,325)
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 129,222 1,522,529 11,891
Net Assets, at Beginning of Year 79,496 1,225,890 368,340
-------------- --------------- ---------------
Net Assets, at End of Year $208,718 $2,748,419 $380,231
============== =============== ===============
</TABLE>
<TABLE>
VanEck VanEck
VanEck Worldwide Worldwide
Worldwide Emerging Hard
Balanced Markets Assets
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $24,413 ($80) $4,275
Realized Gain (Loss) on Investment Activity (10,944) (238) (4,776)
Change in Unrealized Appreciation
(Depreciation) of Investments (4,930) 2,653 (11,854)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 8,539 2,335 (12,355)
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers (89,148) 28,877 22,362
Cost Of Insurance Charge (7,250) (1,673) (5,001)
Policy Loans 0 0 0
Contract Withdrawals (456) 0 (666)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (96,854) 27,204 16,695
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets (88,315) 29,539 4,340
Net Assets, at Beginning of Year 88,315 0 30,220
-------------- --------------- ---------------
Net Assets, at End of Year $0 $29,539 $34,560
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $525 $246 $285
Realized Gain (Loss) on Investment Activity 1,436 31 47
Change in Unrealized Appreciation
(Depreciation) of Investments 4,736 390 67
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 6,697 667 399
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 38,804 534 4,650
Cost Of Insurance Charge (9,742) (536) (643)
Policy Loans (1,308) 0 0
Contract Withdrawals (1,420) 0 (197)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 26,334 (2) 3,810
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 33,031 665 4,209
Net Assets, at Beginning of Year 25,890 4,140 2,518
-------------- --------------- ---------------
Net Assets, at End of Year $58,921 $4,805 $6,727
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1999, December 31, 1998 and December 31, 1997
<TABLE>
1997
Alliance
Conservative Alliance
Investors Growth
Total Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $166,746 $167 $21,469
Realized Gain (Loss) on Investment Activity 206,207 600 37,620
Change in Unrealized Appreciation
(Depreciation) of Investments 366,321 586 138,629
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 739,274 1,353 197,718
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 5,563,491 15,647 816,168
Cost Of Insurance Charge (775,349) (2,705) (117,612)
Policy Loans (94,631) 0 (6,689)
Contract Withdrawals (82,467) (239) (19,879)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,611,044 12,703 671,988
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 5,350,318 14,056 869,706
Net Assets, at Beginning of Year 1,921,885 10,016 253,342
-------------- --------------- ---------------
Net Assets, at End of Year $7,272,203 $24,072 $1,123,048
============== =============== ===============
</TABLE>
<TABLE>
Alliance
Growth Alliance
& Growth Alliance
Income Investors Technology
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $22,999 $1,477 ($1,115)
Realized Gain (Loss) on Investment Activity 18,395 3,687 16,995
Change in Unrealized Appreciation
(Depreciation) of Investments 68,190 5,513 (15,270)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 109,584 10,677 610
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 574,019 64,609 274,635
Cost Of Insurance Charge (74,918) (11,672) (19,431)
Policy Loans (5,180) 0 (101)
Contract Withdrawals (5,967) (2,220) (8,527)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 487,954 50,717 246,576
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 597,538 61,394 247,186
Net Assets, at Beginning of Year 166,797 56,064 7,875
-------------- --------------- ---------------
Net Assets, at End of Year $764,335 $117,458 $255,061
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Small Dreyfus
Alliance Company Stock
Quasar Stock Index
Portfolio Portfolio Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($1,464) $2,102 $26,687
Realized Gain (Loss) on Investment Activity 9,057 (107) 41,444
Change in Unrealized Appreciation
(Depreciation) of Investments 11,871 (5,712) 41,726
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 19,464 (3,717) 109,857
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 236,458 133,412 781,031
Cost Of Insurance Charge (17,506) (2,314) (90,065)
Policy Loans (387) 0 (1,032)
Contract Withdrawals (1,093) 0 (7,423)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 217,472 131,098 682,511
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 236,936 127,381 792,368
Net Assets, at Beginning of Year 4,740 0 152,067
-------------- --------------- ---------------
Net Assets, at End of Year $241,676 $127,381 $944,435
============== =============== ===============
</TABLE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $511 $21,546 $21,466
Realized Gain (Loss) on Investment Activity (71) 8,600 55,366
Change in Unrealized Appreciation
(Depreciation) of Investments 83 19,239 90,042
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 523 49,385 166,874
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 11,738 288,591 496,116
Cost Of Insurance Charge (4,235) (42,651) (148,843)
Policy Loans 0 (167) (24,473)
Contract Withdrawals (171) (9,859) (19,994)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 7,332 235,914 302,806
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 7,855 285,299 469,680
Net Assets, at Beginning of Year 2,911 102,607 694,395
-------------- --------------- ---------------
Net Assets, at End of Year $10,766 $387,906 $1,164,075
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Fidelity
Fidelity Investment Fidelity
High Grade Money
Income Bond Market
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $3,283 $2,521 $32,116
Realized Gain (Loss) on Investment Activity 11,481 322 0
Change in Unrealized Appreciation
(Depreciation) of Investments 11,697 2,132 0
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 26,461 4,975 32,116
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 228,644 30,051 1,209,442
Cost Of Insurance Charge (23,779) (6,686) (159,431)
Policy Loans 0 0 (52,504)
Contract Withdrawals (2,049) (16) (1,225)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 202,816 23,349 996,282
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 229,277 28,324 1,028,398
Net Assets, at Beginning of Year 57,904 51,172 197,492
-------------- --------------- ---------------
Net Assets, at End of Year $287,181 $79,496 $1,225,890
============== =============== ===============
</TABLE>
<TABLE>
VanEck
VanEck Worldwide
Fidelity Worldwide Hard
Overseas Balanced Assets
Portfolio Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $9,687 $343 $319
Realized Gain (Loss) on Investment Activity 1,460 856 165
Change in Unrealized Appreciation
(Depreciation) of Investments (3,697) 3,097 (1,231)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 7,450 4,296 (747)
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 282,864 60,836 25,015
Cost Of Insurance Charge (34,464) (10,075) (4,740)
Policy Loans (4,098) 0 0
Contract Withdrawals (3,073) (712) (20)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 241,229 50,049 20,255
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 248,679 54,345 19,508
Net Assets, at Beginning of Year 119,661 33,970 10,712
-------------- --------------- ---------------
Net Assets, at End of Year $368,340 $88,315 $30,220
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,058 $331 $243
Realized Gain (Loss) on Investment Activity 303 2 32
Change in Unrealized Appreciation
(Depreciation) of Investments (304) (254) (16)
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,057 79 259
-------------- --------------- ---------------
Capital Transactions:
Contract Deposits and Transfers 27,235 4,185 2,795
Cost Of Insurance Charge (3,562) (124) (536)
Policy Loans 0 0 0
Contract Withdrawals 0 0 0
-------------- --------------- ---------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 23,673 4,061 2,259
-------------- --------------- ---------------
Total Increase (Decrease) in Net Assets 25,730 4,140 2,518
Net Assets, at Beginning of Year 160 0 0
-------------- --------------- ---------------
Net Assets, at End of Year $25,890 $4,140 $2,518
============== =============== ===============
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
1. History
Variable Account II (the "Account") is a separate investment account established
under the provisions of Delaware Insurance Law by AIG Life Insurance Company
(the "Company"), a wholly-owned subsidiary of American International Group, Inc.
The Account operates as a unit investment trust registered under the Investment
Company Act of 1940, as amended, and supports the operations of the Company's
individual flexible premium variable universal life insurance policies (the
"policies"). The following products are offered by the Account: Vision, Gallery
Life, and Polaris Life.
The Account invests in shares of AIM Variable Insurance Fund ("AIM Fund"),
Alliance Variable Products Series Fund, Inc. ("Alliance Fund"), Dreyfus Variable
Investment Fund ("Dreyfus Fund"), Fidelity Investments Variable Insurance
Products Fund ("Fidelity Trust"), Fidelity Variable Insurance Products Fund II
("Fidelity Trust II"), Van Eck Investment Trust ("Van Eck Trust"), Weiss, Peck &
Greer ("WP&G Tomorrow Fund"), Anchor Series Trust ("Anchor"), and SunAmerica
Series Trust ("SunAmerica"). The assets in the policies may be invested in the
following subaccounts:
<TABLE>
<S> <C>
AIM Fund: Fidelity Trust II:
Capital Appreciation Fund Asset Manager Portfolio
International Equity Fund Contrafund Portfolio
Investment Grade Bond Portfolio
Alliance Fund:
Conservative Investors Portfolio SunAmerica:
Global Bond Portfolio Alliance Growth Portfolio
Global Dollar Government Portfolio Aggressive Growth Portfolio
Growth Portfolio Asset Allocation Portfolio
Growth & Income Portfolio Cash Management Portfolio
Growth Investors Portfolio Corporate Bond Portfolio
International Portfolio "Dogs" of Wall Street Portfolio
Money Market Portfolio Emerging Markets Portfolio
Premier Growth Portfolio Federated Value Portfolio
Quasar Portfolio Global Bond Portfolio
Technology Portfolio Global Equities Portfolio
Total Return Portfolio Growth-Income Portfolio
U.S. Government/High Grade Securities Portfolio High-Yield Bond Portfolio
Utility Income Portfolio International Diversified Equities Portfolio
International Growth & Income Portfolio
Anchor: MFS Growth & Income Portfolio
Capital Appreciation Portfolio MFS Mid-Cap Growth Portfolio
Government & Quality Bond Portfolio MFS Total Return Portfolio
Growth Portfolio Putnam Growth Portfolio
Natural Resources Portfolio Real Estate Portfolio
SunAmerica Balanced Portfolio
Dreyfus Fund: Utility Portfolio
Small Company Stock Portfolio Venture Value Portfolio
Stock Index Fund Worldwide High Income Portfolio
Zero Coupon 2000 Portfolio
Van Eck Trust:
Fidelity Trust: Worldwide Balanced Fund (Fund Closed 06/29/98)
Growth Portfolio Worldwide Emerging Markets Fund
High Income Portfolio Worldwide Hard Assets Fund
Money Market Portfolio
Overseas Portfolio WP&G Tomorrow Fund:
Tomorrow Long Term Portfolio
Tomorrow Medium Term Portfolio
Tomorrow Short Term Portfolio
</TABLE>
The Account commenced operations on May 4, 1995.
The assets of the Account are the property of the Company. The portion of the
Account's assets applicable to the policies are not chargeable with the
liabilities arising out of any other business conducted by the Company.
In addition to the Account, policy owners may also allocate assets of the
policies to the Guaranteed Account, which is part of the Company's general
account. Amounts allocated to the Guaranteed Account are credited with a
guaranteed rate of interest. Because of exemptive and exclusionary provisions,
interests in the Guaranteed Account have not been registered under the
Securities Act of 1933, and the Guaranteed Account has not been registered as an
investment company under the Investment Company Act of 1940.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Account in preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation - The investments in the Funds are stated at market
value which is the net asset value of each of the respective series as
determined at the close of business on the last business day of the period by
the Fund.
B. Accounting for Investments - Investment transactions are accounted for on the
date the investments are purchased or sold. Dividend income is recorded on the
ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations and is
not taxed separately. Under existing federal law, no taxes are payable on
investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required management
to make estimates and assumptions that affect the reported values of assets and
liabilities and the reported amounts from operations and policy transactions.
Actual results could differ from those estimates.
E. The financial statements for 1998 and 1997 have been reclassified to conform
to the 1999 presentation.
3. Contract Charges
Vision and Gallery Life Products
There are charges and deductions for which the Company will deduct from each
policy. The deductions from each premium payment are a sales charge of 5% plus
the state specific premium taxes.
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are equivalent on an
annual basis to .90% of the account value of the policies. This charge may be
decreased to not less than .50% in policy years eleven and greater.
On the policies' issue date and each monthly anniversary, the following
deductions are made from the policies' account value:
(a) administrative charges
(b) insurance charges
(c) supplemental benefit charges
(d) acquisition and underwriting charges
A transfer charge of $25.00 will be assessed for each transfer in excess of 12
each Policy year.
If the policy is surrendered during the first fourteen policy years, the Company
will deduct a surrender charge based on a percentage of first year premium. A
pro rata surrender charge will be deducted for any partial surrender. An
administrative charge upon partial surrender will be equal to the lessor of
$25.00 or 2% of the amount surrendered.
Polaris Life Product
There are charges and deductions for which the Company will deduct from each
policy. The current deductions from each premium payment are a sales charge of
5% for the first ten policy years, which will reduce to 3% in policy years
eleven and greater. The maximum that will be charged is 8% of the premium
payment.
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are currently equivalent,
on an annual basis, to .75% of the account value of the policies with a maximum
of .90%. This charge may be decreased to not less than .25% in policy years
eleven and greater. The maximum is guaranteed not to exceed an annual rate of
.90%.
On the policies' issue date and each monthly anniversary, the following
deductions are made from the policies' account value:
(a) administrative charges
(b) insurance charges
(c) supplemental benefit charges or riders
(d) acquisition and underwriting charges (first five policy years)
A transfer charge of $25.00 will be assessed for each transfer in excess of 12
each Policy year.
If the policy is surrendered during the first ten policy years or ten policy
years following a Face Amount increase, the Company will deduct a surrender
charge based on the initial Face Amount or the increase in Face Amount. A
surrender charge will also be deducted for a partial withdrawal or a decrease in
Face Amount.
For a partial withdrawal or a Face Amount Decrease, the surrender charge is
equal to the applicable surrender charge multiplied by a fraction (equal to the
amount of partial withdrawal plus any administrative charge, if applicable,
divided by the Net Cash Surrender Value immediately prior to the partial
withdraw). An administrative charge upon partial surrender may be equal to the
lessor of $25.00 or 2% of the amount surrendered.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
4. Purchases of Investments
For the year ended December 31, 1999, investment activity in the Fund was as
follows:
<TABLE>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
AIM Fund:
Capital Appreciation Fund $ 224,923 $ 74,481
International Equity Fund 367,455 48,960
Alliance Fund:
Conservative Investors Portfolio 13,451 5,581
Global Bond Portfolio 20,849 12,897
Global Dollar Government Portfolio 31 54
Growth Portfolio 5,099,952 4,219,764
Growth & Income Portfolio 4,629,933 4,564,336
Growth Investors Portfolio 89,948 55,956
International Portfolio 42,790,294 43,112,716
Money Market Portfolio 55,049,664 55,039,193
Premier Growth Portfolio 2,005,804 1,600,619
Technology Portfolio 77,489,023 75,369,157
Total Return Portfolio 229 241
Quasar Portfolio 30,368,359 29,626,932
U.S. Government/High Grade Securities Portfolio 59 87
Utility Income Portfolio 43 101
Anchor:
Capital Appreciation Portfolio 120,952 51,771
Government & Quality Bond Portfolio 164,460 42,161
Growth Portfolio 64,207 39,857
Natural Resources Portfolio 11,378 246
Dreyfus Fund:
Small Company Portfolio 229,583 116,998
Stock Index Fund 2,202,224 512,068
Zero Coupon 2000 Portfolio 7,085 3,048
Fidelity Trust:
Asset Manager Portfolio 495,994 131,911
Contrafund Portfolio 698,379 101,713
Growth Portfolio 2,741,221 908,496
High Income Portfolio 310,887 94,420
Investment Grade Bond Portfolio 402,048 105,340
Money Market Portfolio 3,705,690 4,692,763
Overseas Portfolio 181,549 66,269
Sun America:
Alliance Growth Portfolio 760,653 75,816
Aggressive Growth Portfolio 180,460 62,622
Asset Allocation Portfolio 81,049 53,747
Cash Management Portfolio 4,383,240 2,551,560
Corporate Bond Portfolio 14,726 7,367
"Dogs" of Wall Street Portfolio 42,758 8,833
Emerging Markets Portfolio 48,389 16,373
Federated Value Portfolio 160,428 3,796
Global Bond Portfolio 3,220 28
Global Equities Portfolio 46,606 14,530
Growth-Income Portfolio 414,879 284,271
High-Yield Bond Portfolio 108,048 15,646
International Diversified Equities Portfolio 255,839 102,490
International Growth & Income Portfolio 135,631 8,653
MFS Growth & Income Portfolio 139,771 65,987
MFS Mid-Cap Growth Portfolio 157,758 73,541
MFS Total Return Portfolio 72,858 31,714
Putnam Growth Portfolio 239,995 117,899
Real Estate Portfolio 4,718 19
SunAmerica Balanced Portfolio 102,293 12,503
Utility Portfolio 11,722 962
Venture Value Portfolio 259,867 12,138
Worldwide High Income Portfolio 617 55
Van Eck Trust:
Worldwide Emerging Markets Fund 51,310 15,476
Worldwide Hard Assets Fund 59,457 31,886
Worldwide Balanced Fund 0 0
</TABLE>
<PAGE>
<TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
4. Purchases of Investments (continued)
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
WP&G Tomorrow Fund:
Tomorrow Long Term Portfolio 27,015 8,757
Tomorrow Medium Term Portfolio 849 627
Tomorrow Short Term Portfolio 18,817 16,883
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
4. Purchases of Investments (continued)
For the year ended December 31, 1998, investment activity in the Fund was as
follows:
<TABLE>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
AIM Fund:
Capital Appreciation Fund $ 201,598 $ 26,283
International Equity Fund 499,113 240,193
Alliance Fund:
Conservative Investors Portfolio 17,668 10,521
Global Bond Portfolio 9,907 1,670
Global Dollar Government Portfolio 242 31
Growth Portfolio 1,434,835 161,751
Growth & Income Portfolio 7,118,210 5,490,984
Growth Investors Portfolio 83,359 26,366
International Portfolio 7,730,001 7,784,638
Money Market Portfolio 7,530,593 7,510,112
Premier Growth Portfolio 1,721,633 1,617,108
Technology Portfolio 9,312,917 9,128,748
Total Return Portfolio 2,439 21
Quasar Portfolio 9,870,359 9,753,129
U.S. Government/High Grade Securities Portfolio 976 8
Utility Income Portfolio 976 8
Dreyfus Fund:
Small Company Portfolio 277,608 163,341
Stock Index Fund 1,719,925 387,790
Zero Coupon 2000 Portfolio 7,868 5,215
Fidelity Trust:
Asset Manager Portfolio 637,629 260,827
Contrafund Portfolio 295,002 38,838
Growth Portfolio 1,684,130 336,475
High Income Portfolio 366,333 353,460
Investment Grade Bond Portfolio 252,481 126,121
Money Market Portfolio 3,777,754 2,255,231
Overseas Portfolio 240,411 252,471
Van Eck Trust:
Worldwide Emerging Markets Fund 31,817 4,692
Worldwide Hard Assets Fund 34,521 13,551
Worldwide Balanced Fund 43,581 115,939
WP&G Tomorrow Fund:
Tomorrow Long Term Portfolio 43,881 17,022
Tomorrow Medium Term Portfolio 1,311 1,067
Tomorrow Short Term Portfolio 4,968 873
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (continued)
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1999, transactions in accumulation units of the
account were as follows:
<TABLE>
AIM AIM Alliance
Capital International Conservative
Appreciation Equity Investors
1 Fund 1 Fund 3 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 11,820.14 15,051.27 735.54
Units Withdrawn (4,004.68) (4,365.68) (309.69)
Units Transferred Between Funds 3,934.12 13,591.17 (70.70)
Units Transferred From (To) AIG Life 4.63 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 11,754.21 24,276.76 355.15
Units, at Beginning of the Year 17,648.32 21,138.24 2,405.91
------------------- ---------------------- -------------------
Units, at End of the Year 29,402.53 45,415.00 2,761.06
=================== ====================== ===================
Unit Value at December 31, 1999 $ 16.30 $ 17.78 $ 14.27
=================== ====================== ===================
</TABLE>
<TABLE>
Alliance
Alliance Global
Global Dollar Alliance
Bond Government Growth
1 Portfolio 2 Portfolio 3 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 575.04 0.00 39,776.31
Units Withdrawn (159.18) (6.60) (19,671.92)
Units Transferred Between Funds 327.26 0.00 6,129.06
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 743.12 (6.60) 26,233.45
Units, at Beginning of the Year 766.18 29.13 126,178.00
------------------- ---------------------- -------------------
Units, at End of the Year 1,509.30 22.53 152,411.45
=================== ====================== ===================
Unit Value at December 31, 1999 $ 10.38 $ 9.55 $ 29.86
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
Alliance
Growth Alliance
& Growth Alliance
Income Investors International
3 Portfolio 3 Portfolio 2 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 30,461.06 2,631.85 0.00
Units Withdrawn (13,838.55) (1,720.71) (209.31)
Units Transferred Between Funds (24,624.69) (47.78) 209.31
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) (8,002.18) 863.36 0.00
Units, at Beginning of the Year 122,262.66 11,986.03 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 114,260.48 12,849.39 0.00
=================== ====================== ===================
Unit Value at December 31, 1999 $ 22.67 $ 18.81 $ 15.37
=================== ====================== ===================
</TABLE>
<TABLE>
Alliance Alliance Alliance
Money Premier Premier
Market Growth Growth
2 Portfolio 1 Portfolio 2 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 28,076.48 13,246.88 219.15
Units Withdrawn (2,456.46) (4,175.01) (59.22)
Units Transferred Between Funds (24,733.45) 13,952.49 305.94
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 886.57 23,024.36 465.87
Units, at Beginning of the Year 1,941.33 9,710.77 369.56
------------------- ---------------------- -------------------
Units, at End of the Year 2,827.90 32,735.13 835.43
=================== ====================== ===================
Unit Value at December 31, 1999 $ 10.95 $ 19.75 $ 20.26
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
Alliance
Alliance Total Alliance
Technology Return Quasar
3 Portfolio 2 Portfolio 1 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 28,350.64 0.00 13,753.83
Units Withdrawn (10,962.54) (17.38) (5,066.89)
Units Transferred Between Funds 80,037.83 0.00 1,179.61
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 97,425.93 (17.38) 9,866.55
Units, at Beginning of the Year 46,047.66 207.79 28,150.24
------------------- ---------------------- -------------------
Units, at End of the Year 143,473.59 190.41 38,016.79
=================== ====================== ===================
Unit Value at December 31, 1999 $ 30.56 $ 12.86 $ 13.15
=================== ====================== ===================
</TABLE>
<TABLE>
Alliance
U.S.
Government/
High Alliance
Alliance Grade Utility
Quasar Securities Income
2 Portfolio 2 Portfolio 2 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 55,757.99 0.00 0.00
Units Withdrawn (561.44) (7.28) (5.90)
Units Transferred Between Funds 19,980.30 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 75,176.85 (7.28) (5.90)
Units, at Beginning of the Year 523.73 87.06 70.48
------------------- ---------------------- -------------------
Units, at End of the Year 75,700.58 79.78 64.58
=================== ====================== ===================
Unit Value at December 31, 1999 $ 10.61 $ 10.75 $ 17.12
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
Anchor
Government
Anchor &
Capital Quality Anchor
Appreciation Bond Growth
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 3,087.57 535.06 3,649.48
Units Withdrawn (317.29) (140.82) (63.16)
Units Transferred Between Funds 2,983.66 11,532.73 (954.91)
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 5,753.94 11,926.97 2,631.41
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 5,753.94 11,926.97 2,631.41
=================== ====================== ===================
Unit Value at December 31, 1999 $ 14.39 $ 10.08 $ 11.70
=================== ====================== ===================
</TABLE>
<TABLE>
Dreyfus
Anchor Small Dreyfus
Natural Company Stock
Resources Stock Index
4 Portfolio 1 Portfolio 1 Fund
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 725.94 9,227.64 63,725.74
Units Withdrawn (27.11) (4,839.00) (26,081.49)
Units Transferred Between Funds 384.56 7,091.34 31,946.11
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 1,083.39 11,479.98 69,590.36
Units, at Beginning of the Year 0.00 25,681.64 122,837.64
------------------- ---------------------- -------------------
Units, at End of the Year 1,083.39 37,161.62 192,428.00
=================== ====================== ===================
Unit Value at December 31, 1999 $ 11.10 $ 10.59 $ 26.42
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
Dreyfus
Zero Fidelity
Coupon Asset Fidelity
2000 Manager Contrafund
1 Portfolio 1 Portfolio 1 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 597.22 20,837.92 23,741.45
Units Withdrawn (199.21) (6,305.74) (5,987.55)
Units Transferred Between Funds (118.80) 3,327.67 25,139.94
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 279.21 17,859.85 42,893.84
Units, at Beginning of the Year 1,158.47 46,661.29 22,912.64
------------------- ---------------------- -------------------
Units, at End of the Year 1,437.68 64,521.14 65,806.48
=================== ====================== ===================
Unit Value at December 31, 1999 $ 11.93 $ 18.73 $ 15.95
=================== ====================== ===================
</TABLE>
<TABLE>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
1 Portfolio 1 Portfolio 1 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 62,187.99 7,127.52 8,032.99
Units Withdrawn (31,295.73) (4,628.72) (7,463.52)
Units Transferred Between Funds 34,441.26 12,402.97 23,182.68
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 65,333.52 14,901.77 23,752.15
Units, at Beginning of the Year 145,023.28 20,823.30 16,922.34
------------------- ---------------------- -------------------
Units, at End of the Year 210,356.80 35,725.07 40,674.49
=================== ====================== ===================
Unit Value at December 31, 1999 $ 28.63 $ 13.55 $ 12.10
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
Fidelity SunAmerica
Money Fidelity Alliance
Market Overseas Growth
1 Portfolio 1 Portfolio 3 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 296,852.47 10,267.86 18,144.56
Units Withdrawn (54,093.36) (4,680.67) (1,330.02)
Units Transferred Between Funds (322,250.00) 1,268.85 46,463.38
Units Transferred From (To) AIG Life (10,676.10) 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) (90,166.99) 6,856.04 63,277.92
Units, at Beginning of the Year 234,124.50 27,306.95 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 143,957.51 34,162.99 63,277.92
=================== ====================== ===================
Unit Value at December 31, 1999 $ 12.24 $ 19.68 $ 12.16
=================== ====================== ===================
</TABLE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Aggressive Asset Cash
Growth Allocation Management
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 4,657.50 3,037.65 377,272.01
Units Withdrawn (795.85) (419.16) (19,378.82)
Units Transferred Between Funds 5,268.91 80.70 (176,841.62)
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 9,130.56 2,699.19 181,051.57
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 9,130.56 2,699.19 181,051.57
=================== ====================== ===================
Unit Value at December 31, 1999 $ 15.98 $ 10.50 $ 10.21
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
SunAmerica
"Dogs"
SunAmerica of SunAmerica
Corporate Wall Emerging
Bond Street Markets
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 724.19 1,668.19 872.79
Units Withdrawn (12.96) (142.27) (248.45)
Units Transferred Between Funds 15.91 2,212.54 2,399.71
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 727.14 3,738.46 3,024.05
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 727.14 3,738.46 3,024.05
=================== ====================== ===================
Unit Value at December 31, 1999 $ 10.04 $ 8.89 $ 13.17
=================== ====================== ===================
</TABLE>
<TABLE>
SunAmerica SunAmerica SunAmerica
Federated Global Global
Value Bond Equities
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 1,006.86 276.98 1,535.29
Units Withdrawn (129.17) (2.51) (117.79)
Units Transferred Between Funds 15,996.89 44.15 1,647.90
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 16,874.58 318.62 3,065.40
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 16,874.58 318.62 3,065.40
=================== ====================== ===================
Unit Value at December 31, 1999 $ 9.66 $ 10.02 $ 12.37
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
SunAmerica
SunAmerica International
SunAmerica High-Yield Diversified
Growth-Income Bond Equities
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 14,384.17 1,529.97 3,783.70
Units Withdrawn (2,071.27) (88.19) (769.37)
Units Transferred Between Funds 201.87 7,829.61 10,963.49
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 12,514.77 9,271.39 13,977.82
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 12,514.77 9,271.39 13,977.82
=================== ====================== ===================
Unit Value at December 31, 1999 $ 11.69 $ 10.11 $ 12.02
=================== ====================== ===================
</TABLE>
<TABLE>
SunAmerica SunAmerica
International MFS SunAmerica
Growth Growth MFS
& & Mid-Cap
Income Income Growth
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 2,525.66 5,651.50 2,679.50
Units Withdrawn (179.23) (212.55) (479.49)
Units Transferred Between Funds 8,689.76 2,300.44 4,150.47
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 11,036.19 7,739.39 6,350.48
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 11,036.19 7,739.39 6,350.48
=================== ====================== ===================
Unit Value at December 31, 1999 $ 10.96 $ 10.35 $ 14.86
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
SunAmerica
MFS SunAmerica SunAmerica
Total Putnam Real
Return Growth Estate
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 2,758.75 5,169.67 535.79
Units Withdrawn (133.20) (398.54) (9.36)
Units Transferred Between Funds 1,555.02 6,397.61 14.33
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 4,180.57 11,168.74 540.76
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 4,180.57 11,168.74 540.76
=================== ====================== ===================
Unit Value at December 31, 1999 $ 9.93 $ 12.44 $ 9.00
=================== ====================== ===================
</TABLE>
<TABLE>
SunAmerica SunAmerica
SunAmerica SunAmerica Venture
Balanced Utility Value
4 Portfolio 4 Portfolio 4 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 2,025.43 940.53 2,388.04
Units Withdrawn (314.84) (30.75) (354.26)
Units Transferred Between Funds 6,861.07 182.90 14,867.32
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 8,571.66 1,092.68 16,901.10
Units, at Beginning of the Year 0.00 0.00 0.00
------------------- ---------------------- -------------------
Units, at End of the Year 8,571.66 1,092.68 16,901.10
=================== ====================== ===================
Unit Value at December 31, 1999 $ 11.55 $ 9.91 $ 15.57
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
<TABLE>
SunAmerica Van Eck Van Eck
Worldwide Worldwide Worldwide
High Emerging Hard
Income Markets Assets
4 Portfolio 1 Fund 1 Fund
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 0.00 4,269.29 2,973.26
Units Withdrawn (5.36) (915.31) (1,397.63)
Units Transferred Between Funds 58.37 1,585.65 1,670.14
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 53.01 4,939.63 3,245.77
Units, at Beginning of the Year 0.00 4,869.09 4,444.97
------------------- ---------------------- -------------------
Units, at End of the Year 53.01 9,808.72 7,690.74
=================== ====================== ===================
Unit Value at December 31, 1999 $ 11.03 $ 12.04 $ 9.32
=================== ====================== ===================
</TABLE>
<TABLE>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Long Medium Short
Term Term Term
1 Portfolio 1 Portfolio 1 Portfolio
------------------- ---------------------- -------------------
<S> <C> <C> <C>
Units Purchased 1,256.59 39.61 170.66
Units Withdrawn (684.64) (49.77) (71.65)
Units Transferred Between Funds 184.88 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
------------------- ---------------------- -------------------
Net Increase (Decrease) 756.83 (10.16) 99.01
Units, at Beginning of the Year 3,957.97 341.05 497.25
------------------- ---------------------- -------------------
Units, at End of the Year 4,714.80 330.89 596.26
=================== ====================== ===================
Unit Value at December 31, 1999 $ 16.24 $ 14.63 $ 13.73
=================== ====================== ===================
</TABLE>
Footnote 1 are the Vision funds.
Footnote 2 are the Gallery Life funds.
Footnote 3 are Vision and Gallery Life combined.
Footnote 4 are the Polaris funds.
<PAGE>
APPENDIX A
Minimum Premiums
The following table shows for Insureds of varying ages, the current minimum
initial Premium for a Policy with the Face Amount indicated. This table assumes
that the insured will be placed in a nonsmoker class and that no supplemental
benefits will be added to the base policy.
<TABLE>
Issue Policy Minimum Minimum Planned Periodic Premium
Age of Sex of Face Initial By Premium Payment Mode
Insured Insured Amount Premium Annual Semiannual Quarterly Monthly
<S> <C> <C> <C> <C> <C> <C>
25 Male $75,000 $102.08 $612.50 $306.25 $153.13 $51.04
30 Female $100,000 $107.33 $644.00 $322.00 $161.00 $53.67
35 Male $250,000 $175.42 $1,052.50 $526.25 $263.13 $87.71
40 Female $300,000 $227.83 $1,367.00 $683.50 $341.75 $113.92
45 Male $500,000 $476.67 $2,860.00 $1,430.00 $715.00 $238.33
50 Female $350,000 $427.50 $2,565.00 $1,282.50 $641.25 $213.75
55 Male $300,000 $686.33 $4,118.00 $2,059.00 $1,029.50 $343.17
60 Female $250,000 $620.83 $3,725.00 $1,862.50 $931.25 $310.42
65 Male $200,000 $1,185.67 $7,114.00 $3,557.00 $1,778.50 $592.83
70 Female $100,000 $670.50 $4,023.00 $2,011.50 $1,005.75 $335.25
75 Male $75,000 $1,210.71 $7,264.25 $3,632.13 $1,816.06 $605.35
</TABLE>
A-1
<PAGE>
APPENDIX B
Surrender Charge Premium
The surrender charge premium is an amount used to determine the sales charge
deducted on surrender of the policy. The surrender charge premium is calculated
for each Policy based on the issue age, sex, and smoker status of the Insured
and the Face Amount of the Policy.
The following table shows for Insureds of varying ages, the surrender charge
premium for a policy with the Face Amount indicated. This table assumes that the
Insured will be placed in a nonsmoker class.
Issue Policy Surrender
Age of Sex of Face Charge
Insured Insured Amount Premium
25 Male $75,000 $483.75
30 Female $100,000 $690.00
35 Male $250,000 $2,562.50
40 Female $300,000 $3,327.00
45 Male $500,000 $8,530.00
50 Female $350,000 $6,373.50
55 Male $300,000 $8,880.00
60 Female $250,000 $7,800.00
65 Male $200,000 $10,762.00
70 Female $100,000 $5,781.00
75 Male $75,000 $7,689.75
B-1
<PAGE>
APPENDIX C
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1999
<TABLE>
Portfolio Inception Date YTD 1 Year 3 Years 5 Years 10 Years Since
Annualized Annualized Annualized Inception
Annualized
Equity Portfolios
<S> <C> <C> <C> <C> <C> <C> <C>
Growth 09/15/1994 33.27% 33.27% 29.88% 30.14% N/A 29.47%
Growth and Income 01/14/1991 10.37% 10.37% 19.06% 22.78% N/A 14.44%
International 12/28/1992 38.98% 38.98% 15.88% 12.05% N/A 12.17%
Premier Growth 06/26/1992 31.13% 31.13% 36.59% 25.99% N/A 19.62%
Quasar 08/14/1996 16.03% 16.03% 1.38% N/A N/A 2.99%
Technology 01/11/1996 74.14% 74.14% 43.95% N/A N/A 34.69%
Utility Income 05/10/1994 18.33% 18.33% 21.15% 17.34% N/A 15.03%
Worldwide Privitization 09/23/1994 57.41% 57.41% 22.83% 18.79% N/A 17.92%
Real Estate 01/09/1997 -5.96% -5.96% N/A N/A N/A -2.67%
Fixed Income Portfolios
Global Bond 07/15/1991 -6.96% -6.96% -0.47% 2.98% N/A 1.16%
Global Dollar Gov't 05/02/1994 24.95% 24.95% -0.57% 7.04% N/A 5.78%
North American Gov't 05/03/1994 7.93% 7.93% 4.94% 9.84% N/A 6.09%
U.S. Gov't/High Grade 09/17/1992 -3.33% -3.33% 2.09% 3.91% N/A 2.30%
High Yield 10/27/1997 -3.46% -3.46% N/A N/A N/A -2.40%
Asset Allocation Portfolios
Conservative Investors 10/28/1994 4.09% 4.09% 9.10% 9.13% N/A 8.93%
Growth Investors 10/28/1994 15.24% 15.24% 17.65% 15.81% N/A 14.89%
Total Return 12/28/1992 5.57% 5.57% 11.95% 14.13% N/A 10.25%
Short-Term Portfolios
Money Market 02/03/1993 3.74% 3.74% 3.98% 3.95% N/A 3.58%
Short-Term Multi-Market 11/28/1990 2.58% 2.58% 1.81% 2.33% N/A 0.77%
</TABLE>
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.
C-1
<PAGE>
[Back cover]
The Securities and Exchange Commission maintains an Internet Web site
(http://www.sec.gov.) That contains additional information about AIG Life
Insurance Company, the Policy and the Separate Account which may be of interest
to you. The Web site also contains additional information about the Policy's
<PAGE>
Part II - Other Information
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission theretofore or hereafter duly adopted pursuant to authority conferred
in that section.
REPRESENTATION
AIG Life Insurance Company represents that the fees and charges deducted under
the Policy covered by this registration statement, in the aggregate are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the Company.
INDEMNIFICATION
Under its Bylaws, the Company, to the full extent permitted by Delaware law
shall indemnify any person who was or is a party to any proceeding (whether
brought by or in right of the Company or otherwise) by reason of the fact that
he or she is or was a Director of the Company, or while a Director of the
Company, is or was serving at the request of the Company as a Director, Officer,
partner, Trustee, Employee, or Agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by him or her in connection with such proceeding.
The company shall extend such indemnification, as is provided to directors
above, to any person, not a director of the Company, who is or was an officer of
the Company or is or was serving at the request of the Company as a director,
officer, partner, trustee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan. In
addition, the Board of Directors of the Company may, by resolution, extend such
further indemnification to an officer or such other person as may to it seem
fair and reasonable in view of all relevant circumstances.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to such provision of the bylaws or statutes or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any such action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Policies issued by Variable Account II, the Company will
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in said Act and
will be governed by the final adjudication of such issue.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of ___ pages.
The undertaking to file reports.
Representation.
The signatures.
Written consents of the following persons:
Kenneth D. Walma
Jorden Burt Cicchetti Berenson & Johnson LLP
Michael Burns
PricewaterhouseCoopers, LLP
Powers of Attorney
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)**
(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*
(d) Restated By-Laws of AIG Life Insurance Company, dated March 2000
****
(7) N/A
(8) (a) Powers of Attorney;***
(b) Power of Attorney of Paul S. Bell(1);
(c) Power of Attorney of Michele L. Abruzzo(2);
(d) Power of Attorney of Robinson K. Nottingham(2);
(e) Power of Attorney of Edmund Sze-Wing Tse(2);
(f) Power of Attorney of Elizabeth M. Tuck(3);
(g) Power of Attorney of John Oehmke(3)
(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.
N/A
2. Opinion and Consent of Counsel as to legality of securities being
registered (filed electronically herewith).
3. Consent of Actuary (filed electronically herewith).
4. N/A
5. Consent of Independent Certified Public 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 15
filed on Form N-4 (File No. 33-39171), dated April 28,2000.
(1) Incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to
the Registration Statement on Form S-6 (File No. 333-85573) filed on
October 15, 1999.
(2) Incorporated by reference to Registrant's Registration Statement on Form
N-4 (File No. 333-93709) filed on December 28, 1999.
(3) Incorporated by reference to Registrant's Registration Statement on Form
N-4 (File No. 333-31972) filed on March 8, 2000.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, 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 1st day of May, 2000.
VARIABLE ACOUNT II
-------------------------------
(Registrant)
By: AIG LIFE INSURANCE COMPANY
--------------------------------
(Sponsor)
By: /s/ Kenneth D. Walma
--------------------------------
Kenneth D. Walma, Vice President and
General Counsel
<PAGE>
Pursuant to the requirements of the Securities and 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 May 1, 2000
- ------------------
/s/ Michele L. Abruzzo
Paul S. Bell* Director May 1, 2000
- ------------------
/s/ Paul Bell
Maurice R. Greenberg* Director May 1, 2000
- ------------------
/s/ Maurice R. Greenberg
Edward Easton Matthews* Director May 1, 2000
- ------------------
/s/ Edward Easton Matthews
Jerome T. Muldowney* Director May 1, 2000
- ------------------
/s/ Jerome T. Muldowney
Robinson K. Nottingham* Director May 1, 2000
- ------------------
/s/ Robinson K. Nottingham
John Oehmke* Chief Financial May 1, 2000
____________________ Officer
/s/ John Oehmke
Nicholas A. O'Kulich* Director May 1, 2000
- ------------------
/s/ Nicholas A. O'Kulich
Howard Ian Smith* Director May 1, 2000
- ------------------
/s/ Howard Ian Smith
Edmund Sze-Wing Tse* Director May 1, 2000
- ------------------
/s/ Edmund Sze-Wing Tse
Elizabeth M. Tuck* Secretary May 1, 2000
- ------------------
/s/ Elizabeth M. Tuck
Gerald Walter Wyndorf* Director May 1, 2000
- ------------------
/s/ Gerald Walter Wyndorf
By:/s/ Kenneth D. Walma
Kenneth D. Walma
Attorney in Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
2. Opinion of Counsel
3. Consent of Actuary
5. Consent of Independent Accountants
6. Consent of JordenBurt
OPINION OF COUNSEL
Ladies and Gentlemen:
I have made such examination of the law and have examined such Company
records and documents as in my judgment are necessary or appropriate to enable
me to render the opinion:
1. AIG Life Insurance Company is a valid and existing stock life
insurance company domiciled in the State of Delaware.
2. Variable Account II is a separate investment account AIG Life
Insurance Company validly existing pursuant to the Delaware Insurance
Laws and the Regulations thereunder.
3. All of the prescribed corporate procedures for the issuance of the
Flexible Premium Variable Universal Life Policies (the "Policy") have
been followed, and when such Contracts are issued in accordance with
the Prospectuses contained in the Registration Statement, all state
requirements relating to such Contracts will have been complied with.
4. Upon the acceptance of premiums made by Contract Owners pursuant to a
Contract issued in accordance with the Prospectuses contained in the
Registration Statement and upon compliance with applicable law, such
Contract Owner will have a legally-issued, fully-paid, nonassessable
interest in such Contract.
This opinion, or a copy thereof, may be used as an exhibit to or in connection
with the filing with the Securities and Exchange Commission of the Post
Effective Amendment No. 7 to the Registration Statement on Form S-6 (33-90684)
for the Contracts to be issued by American International Life Assurance Company
of New York and its separate account, Variable Account II.
/s/ Kenneth D. Walma
-----------------------
Kenneth D. Walma
Vice President and General Counsel
Dated: May 1, 2000
OPINION AND CONSENT OF ACTUARY
On behalf of AIG Life Insurance Company, I hereby consent to the inclusion
of the Tables entitled "Minimum Premium" and "Surrender Charge Premium" in a
Registration Statement on Form S-6 (No. 33-90684) registering Variable Life
Insurance Policies.
------------------------------
Michael J. Burns, FSA, MAAA
May 1, 2000
Exhibit D
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect of Post-effective Amendment No.
7 to the Registration Statement (No. 33-90684) on Form S-6 under the Securities
Act of 1933 of Variable Account II of AIG Life Insurance Company.
1. The inclusion in the Prospectus of Variable Account II of AIG Life
Insurance Company of our report dated February 3, 2000 relating to our
audits of the financial statements of AIG Life Insurance Company.
2. The inclusion in the Prospectus of Variable Account II of AIG Life
Insurance Company of our report dated February 3, 2000 relating to our
audit of the financial statements of Variable Account II.
3. The reference to our firm under the heading "Experts."
April 21, 2000
PricewaterhouseCoopers, LLP
[JordenBurt Letterhead]
May 1, 2000
AIG Life Insurance Company
One Alico Plaza
600 King Street
Wilmington, DE 19801
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Counsel" in the Statement of Additional Information contained in Post-Effective
Amendment No. 7 to the Registration Statement on Form S-6 (File No. 33-90684)
filed by AIG Life Insurance Company and Variable Account II with the Securities
and Exchange Commission under the Securities Act of 1933 and the Investment
Company Act of 1940 on or about May 1, 2000.
Very truly yours,
/s/Jorden Burt Boros Cicchetti Berenson & Johnson
Jorden Burt Boros Cicchetti Berenson & Johnson
