VARIABLE ACCOUNT I OF AIG LIFE INS CO, 485BPOS, 1996-05-02

VARIABLE ACCOUNT I OF AIG LIFE INS CO
485BPOS, 1996-05-02

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 1996
FILE NO. 33-58504
811-5301

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
-----
Post - Effective Amendment No. 5 [X]
-----

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No [X]
-----
(Check appropriate box or boxes.)

VARIABLE ACCOUNT I
------------------
(Exact Name of Registrant)

AIG Life Insurance Company
--------------------------
(Name of Depositor)

One Alico Plaza, Wilmington, Delaware 19899
-------------------------------------------
(Address of Depositor's Principal Executive Offices) (Zip Code)

Depositor's Telephone Number, including Area Code (302) 594-2000

Robert Liguori, Esq.
AIG Life Insurance Company
One Alico Plaza
Wilmington, Delaware 19899
--------------------------
(Name and Address of Agent for Service)

Copies to:
Michael Berenson, Esq. Florence Davis, Esq.
Jorden Burt Berenson & Johnson LLP American International
Suite 400 East Group, Inc.
1025 Thomas Jefferson Street, N.W. 70 Pine Street
Washington, D.C. 20007-0805 New York, New York 10270
--------------------------- ------------------------

Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this filing.

It is proposed that this filing will become effective (check appropriate box)
X immediately upon filing pursuant to paragraph (b) of Rule 485
-----
on _____, pursuant to paragraph (b) of Rule 485
-----
60 days after filing pursuant to paragraph (a)(i) of Rule 485
-----
on pursuant to paragraph (a)(i) of Rule 485
----- -------------------
75 days after filing pursuant to paragraph (a)(ii)
-----
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.

Registrant has declared that it registered an indefinite number or amount of
securities in accordance with Rule 24f-2 under the Investment Company Act of
1940. Registrant filed a Rule 24f-2 notice for its most recent fiscal year on
February 26, 1996.

<PAGE>

CROSS REFERENCE SHEET
(required by Rule 495)

ITEM NO. LOCATION
PART A

Item 1. Cover Page..................................... Cover Page

Item 2. Definitions.................................... Definitions

Item 3. Synopsis....................................... Highlights

Item 4. Condensed Financial Information................ Condensed
Financial
Information

Item 5. General Description of Registrant,
Depositor, and Portfolio Companies............. The Variable
Account; The
Company;
Alliance
Variable
Products Series
Fund, Inc.

Item 6. Deductions and Expenses........................ Charges and
Deductions

Item 7. General Description of Variable Annuity
Contracts...................................... Purchasing a
Contract;
Rights under
the Contracts

Item 8. Annuity Period................................. Annuity Period

Item 9. Death Benefit.................................. Death Benefit

Item 10. Purchases and Contract Value................... Rights under
the Contracts;
Purchasing a
Contract

Item 11. Redemptions.................................... Withdrawals

Item 12. Taxes.......................................... Taxes

Item 13. Legal Proceedings.............................. Not Applicable

Item 14. Table of Contents of the Statement of
Additional Information......................... Table of
Contents of
the Statement
of Additional
Information

<PAGE>
ITEM NO. LOCATION
PART B

Item 15. Cover Page.................................... Cover Page

Item 16. Table of Contents............................. Table of
Contents

Item 17. General Information and History............... General
Information

Item 18. Services...................................... Services

Item 19. Purchase of Securities Being Offered.......... Purchasing a
Contract;
Charges and
Deductions
(Part A)

Item 20. Underwriters.................................. General
Information/
Distributor

Item 21. Calculation of Performance Data............... Calculation of
Performance
Related
Information

Item 22. Annuity Payments.............................. Annuity
Provisions

Item 23. Financial Statements.......................... Financial
Statements

PART C

Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.

<PAGE>

PROSPECTUS
FOR

INDIVIDUAL AND GROUP
SINGLE PREMIUM AND FLEXIBLE PREMIUM
DEFERRED
VARIABLE ANNUITY CONTRACTS

ISSUED BY

VARIABLE ACCOUNT I

AND

AIG LIFE INSURANCE COMPANY
ONE ALICO PLAZA
600 KING STREET
WILMINGTON, DELAWARE 19801

This Prospectus sets forth the information a prospective investor ought to
know before investing.

The Individual Deferred Variable Annuity Contracts (the "Individual
Contracts") and Group Deferred Variable Annuity Contracts ("Group Contracts")
(collectively, the "Contracts") described in this Prospectus provide for
accumulation of Contract Values and payment of monthly annuity payments. The
Contracts may be used in retirement plans which do not qualify for federal tax
advantages ("Non-Qualified Contracts") or in connection with retirement plans
which may qualify as Individual Retirement Annuities ("IRA") under Section 408
of the Internal Revenue Code of 1986, as amended (the "Code") or Section 403(b)
of the Code ("403(b) Plans"). The Contracts will not be available in connection
with retirement plans designed by AIG Life Insurance Company (the "Company")
which qualify for the federal tax advantages available under Sections 401 and
457 of the Code. Purchasers intending to use the Contracts in connection with an
IRA or 403(b) Plan should seek competent tax advice.

Premiums allocated among the Subaccounts of Variable Account I (the
"Variable Account") will be invested in shares of Alliance Variable Products
Series Fund, Inc. (the "Fund"). The Fund has made available sixteen
Portfolios: Money Market Portfolio; Short-Term Multi-Market Portfolio; Growth
Portfolio; Growth and Income Portfolio; International Portfolio; U.S.
Government/High Grade Securities Portfolio; North American Government Income
Portfolio; Global Dollar Government Portfolio; Utility Income Portfolio; Global
Bond Portfolio; Premier Growth Portfolio; Total Return Portfolio; Conservative
Investors Portfolio; Growth Investors Portfolio; Worldwide Privatization
Portfolio; and Technology Portfolio. (See "Alliance Variable Products Series
Fund, Inc. on Page .)

Additional information about the Contracts and the Variable Account is
contained in the "Statement of Additional Information" which is available upon
request at no charge by calling or writing AIG Life Insurance Company;
Attention: Variable Products, One Alico Plaza, Wilmington, Delaware 19801,
1-800-340-2765 or call the service office at 1-800-255-8402. The Statement of
Additional Information dated May 1, 1996, has been filed with the Securities and
Exchange Commission and is hereby incorporated by reference. The Table of
Contents for the Statement of Additional Information can be found on page of
this Prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.

THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.

Date of Prospectus: May 1, 1996

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Definitions................................................................................................ 3
Highlights................................................................................................. 4
Summary of Expenses........................................................................................ 6
Condensed Financial Information............................................................................ 8
Calculation of Performance Data.......................................................................... 10
The Company................................................................................................ 11
The Variable Account....................................................................................... 11
Alliance Variable Products Series Fund, Inc................................................................ 12
The Contract
Parties to the Contract.................................................................................. 15
How to Purchase a Contract............................................................................... 15
Discount Purchase Programs............................................................................... 16
Distributor.............................................................................................. 16
Administration of the Contracts.......................................................................... 17
Premium and Allocation to Your Investment Options........................................................ 17
Right to Examine Contract Period......................................................................... 17
Unit Value and Contract Value............................................................................ 18
Transfers................................................................................................ 18
Dollar Cost Averaging.................................................................................... 19
Asset Rebalancing Option................................................................................. 19
Charges and Deductions..................................................................................... 20
Annuity Benefits........................................................................................... 22
Death Benefit.............................................................................................. 23
Distributions Under the Contract........................................................................... 24
Taxes...................................................................................................... 27
Table of Contents of the Statement of Additional Information............................................... 31
Appendix -- General Account Option......................................................................... A-1
Guaranteed Account....................................................................................... A-1
Guarantee Periods........................................................................................ A-1
Market Value Adjustment.................................................................................. A-2
</TABLE>

<PAGE>

DEFINITIONS

ACCUMULATION UNIT -- An accounting unit of measure used to calculate the
Contract Value prior to the Annuity Date.

ADMINISTRATIVE OFFICE -- The Annuity Service Office of the Company: c/o Delaware
Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, PA
19312-0031.

ANNUITANT -- The person designated by the Owner upon whose continuation of life
any annuity payment involving life contingencies depends.

ANNUITY DATE -- The date on which annuity payments are to commence.

ANNUITY OPTION -- An arrangement under which annuity payments are made under
this Contract.

ANNUITY UNIT -- An accounting unit of measure used to calculate annuity payments
after the Annuity Date.

CONTRACT ANNIVERSARY -- An anniversary of the Effective Date of the Contract.

CONTRACT VALUE -- The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.

CONTRACT YEAR -- Each period of twelve (12) months commencing with the Effective
Date.

EFFECTIVE DATE -- The date on which the first Contract Year begins.

GUARANTEED ACCOUNT -- A part of our General Account, which earns a Guaranteed
Rate of interest.

MARKET VALUE ADJUSTMENT -- An adjustment applied as a result of a transfer or
surrender of an amount allocated to the Guaranteed Account which occurs on a
date prior to the end of an applicable Guarantee Period.

OWNER -- The person named in the Contract Schedule, unless changed, and who has
all rights under the Contract.

PREMIUM -- Purchase payments for the Contract are referred to as Premium.

PREMIUM YEAR -- Any period of twelve (12) months commencing with the date a
Premium payment is made and ending on the same date in each succeeding twelve
(12) month period thereafter.

SURRENDER CHARGE -- Contingent deferred sales charges are referred to as
Surrender Charges.

VALUATION DATE -- Each day that We and the New York Stock Exchange are open for
trading.

VALUATION PERIOD -- The period between the close of business on any Valuation
Date and the close of business for the next succeeding Valuation Date.

WE, OUR, US -- AIG Life Insurance Company.

YOU, YOUR -- The Owner of this Contract.

<PAGE>

HIGHLIGHTS

This Prospectus describes the Individual Contracts or Group Contracts
(collectively, the "Contracts") and a segregated investment account of AIG Life
Insurance Company (the "Company") which account has been designated Variable
Account I (the "Variable Account"). The Contracts are designed to assist in
financial planning by providing for the accumulation of capital on a
tax-deferred basis for retirement and other long-term purposes, and providing
for the payment of monthly annuity income. Contracts may be purchased by
qualified retirement plans or with the intent to qualify for special Federal
income tax treatment ("Qualified Contracts"), or as an Individual Retirement
Annuity ("IRA"). The Contract may also be purchased for retirement plans,
deferred compensation plans and other purposes which do not qualify for such
special Federal income tax treatment ("Non-Qualified Contracts"). (See "Taxes"
on page .)

A Contract is purchased with a minimum initial premium of $5,000 for
Non-qualified Contracts and $2,000 for a Qualified Contract. If you choose a
flexible premium Contract, additional premium is permitted at any time, subject
to certain limitations. (See "Premium and Allocation to Your Investment Options"
on page .) You, as the Owner of the Contract, may allocate your premium so
that it accumulates on a variable basis, a fixed basis or a combination of both.

Premium allocated among the Subaccounts of the Variable Account will be
invested in shares of one or more of the underlying portfolios of the Alliance
Variable Products Series Fund, Inc. (the "Fund"), and will accumulate on a
variable basis. There are currently 16 Subaccounts, each of which invests
exclusively in one of the following Portfolios: Money Market; Short-Term
Multi-Market; Growth; Growth and Income; International; U.S. Government/High
Grade Securities; North American Government Income; Global Dollar Government;
Utility Income; Global Bond; Premier Growth; Total Return; Conservative
Investors; Growth Investors; Worldwide Privatization; and Technology. (See
"Alliance Variable Products Series Fund, Inc. on Page .) Your value in any one
of these Subaccounts will vary according to the investment performance of the
underlying portfolio chosen by you. You bear the entire investment risk for all
premium allocated to the Variable Account.

The Company does not deduct Sales Charges from any premium received.
However, the Contracts provide for a Surrender Charge (contingent deferred sales
charge) that may be assessed in the event that an Owner surrenders all or a
portion of the Contract Value within seven contract years following payment of
any premium. The maximum Surrender Charge is 6% of premium to which the charge
is applicable for flexible premium contracts and 6% of the Contract Value for
single premium contracts. (See "Summary of Expenses" on page , and "Charges
and Deductions -- Deduction for Surrender Charge" on page .) Withdrawals and
Surrenders from the Guaranteed Account may be subject to a Market Value
Adjustment (See "Market Value Adjustment," Appendix , page .)

A penalty free withdrawal is available. Generally, there is no Surrender
Charge imposed on the greater of the Contract Value less premiums paid or the
portion of the withdrawal that does not exceed 10% of premium otherwise subject
to the Surrender Charge. (See "Withdrawals" on page .)

Surrenders and Withdrawals may be taxable and subject to a penalty tax. (See
"Taxes" beginning on page .)

The Company deducts daily a Mortality and Expense Risk Charge which is equal
on an annual basis to 1.25% of the average daily net asset value of the Variable
Account. There are no Mortality and Expense Risk Charges deducted for amounts in
the Guaranteed Account. (See "Charges and Deductions -- Deduction for Mortality
and Expense Risk Charge" on page .)

The Company deducts daily an Administrative Charge which is equal on an
annual basis to 0.15% of the average daily net asset value of the Variable
Account. The Administrative Charge is not assessed to the Guaranteed Account. In
addition, the Company deducts from the Contract Value, an annual Contract
Maintenance Fee which is $30 per year. The Contract Maintenance Fee is waived if
the Contract Value is greater than $50,000 on the date of the charge. These
Charges are designed to

4
<PAGE>
reimburse the Company for administrative expenses relating to maintenance of the
Contract and the Variable Account. (See "Charges and Deductions -- Deduction for
Administrative Charge and Contract Maintenance Fee" on page .)

There are deductions and expenses paid out of the assets of the Fund which
are described in the accompanying Prospectus for the Fund.

The Owner may return the Contract within ten (10) days (the "Right to
Examine Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA the Company will refund the greater of the Premium less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the premium paid less any withdrawals, the Company will refund such an
amount.

FEE TABLE

OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ALL
SUBACCOUNTS
-----
<S> <C>
Sales Load Imposed on Purchases................... None

Surrender Charge (as a percentage of amount
surrendered):

FLEXIBLE
PREMIUM
SINGLE PREMIUM CONTRACTS CONTRACTS
- -------------------------------------------------- -----
<S> <C> <C> <C>
Contract Year 1 Premium Year 1 6%
Contract Year 2 Premium Year 2 6%
Contract Year 3 Premium Year 3 5%
Contract Year 4 Premium Year 4 5%
Contract Year 5 Premium Year 5 4%
Contract Year 6 Premium Year 6 3%
Contract Year 7 Premium Year 7 2%
Contract Year 8 and thereafter Premium Year 8 and thereafter None

Exchange Fee:
First 12 Per Contract Year............................................... None
Thereafter............................................................... $10

Annual Contract Fee........................................................ $30

Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees.......................................... 1.25%
Account Fees and Expenses................................................ 0.15%
Total Separate Account Annual Expenses..................................... 1.40%
</TABLE>

5
<PAGE>
SUMMARY OF EXPENSES

ANNUAL FUND EXPENSES NET OF ANY EXPENSE REIMBURSEMENTS*

<TABLE>
<CAPTION>
TOTAL
OTHER PORTFOLIO
PORTFOLIO MANAGEMENT FEE EXPENSES EXPENSES
- ------------------------------------------------------------------------------ --------------- ----------- -----------
<S> <C> <C> <C>
Alliance Money Market......................................................... 0.38% 0.57% 0.95%
Alliance Short-Term Multi-Market.............................................. 0.20 0.75 0.95
Alliance Growth............................................................... 0.43 0.52 0.95
Alliance Growth and Income.................................................... 0.63 0.16 0.79
Alliance International........................................................ 0.00 0.95 0.95
Alliance U.S. Government/High Grade Securities................................ 0.00 0.95 0.95
Alliance North American Government Income..................................... 0.00 0.95 0.95
Alliance Global Dollar Government............................................. 0.00 0.95 0.95
Alliance Utility Income....................................................... 0.00 0.95 0.95
Alliance Global Bond.......................................................... 0.00 0.95 0.95
Alliance Premier Growth....................................................... 0.76 0.19 0.95
Alliance Total Return......................................................... 0.00 0.95 0.95
Alliance Conservative Investors............................................... 0.00 0.95 0.95
Alliance Growth Investors..................................................... 0.00 0.95 0.95
Alliance Worldwide Privatization.............................................. 0.00 0.95 0.95
Alliance Technology........................................................... 0.00 0.95 0.95
</TABLE>

The purpose of the table set forth above is to assist the Owner in
understanding the various costs and expenses that an Owner will bear directly or
indirectly. The table reflects expenses of the Variable Account as well as the
Fund. (See "Charges and Deductions" on page of this Prospectus and "Management
of the Fund" in the Fund Prospectus.)

No deduction will be made for any premium or other taxes levied by any State
unless imposed by the State where you reside. Premium taxes currently imposed on
the Contracts by various states range from 0% to 3.5% of premiums paid. (See
"Charges and Deductions -- Deduction for Premium and Other State Taxes" on page
.)

"Other Expenses" are based upon the expenses outlined under the section
entitled "Management of the Fund" in the Fund Prospectus.
- ------------------------
*Expense information for the Money Market Portfolio, Premier Growth
Portfolio, U.S. Government/ High Grade Securities Portfolio, Total Return
Portfolio, International Portfolio, Growth and Income Portfolio, Short-Term
Multi-Market Portfolio and Global Bond Portfolio have been restated to reflect
current fees. The expenses listed in the table for the Money Market Portfolio,
Premier Growth Portfolio, Growth and Income Portfolio, U.S. Government/High
Grade Securities Portfolio, Total Return Portfolio, International Portfolio,
Short-Term Multi-Market Portfolio, Global Bond Portfolio, North American
Government Income Portfolio, Global Dollar Government Portfolio, Utility Income
Portfolio, Conservative Investors Portfolio, Growth Investors Portfolio, Growth
Portfolio, Worldwide Privatization Portfolio and Technology Portfolio are net of
voluntary expense reimbursements, which are not required to be continued
indefinitely; however, the Advisor intends to continue such reimbursements for
the foreseeable future. The expenses of the following Portfolios, before expense
reimbursements, would be: Money Market Portfolio: Management Fees -- .50%, Other
Expenses -- .57% and Total Portfolio Operating Expenses -- 1.07%; Premier Growth
Portfolio: Management Fees -- 1.00%, Other Expenses -- .19% and Total Portfolio
Operating Expenses -- 1.19%; Growth and Income Portfolio: Management Fees --
.63%, Other Expenses -- .16% and Total Portfolio Operating Expenses -- .79%;
U.S. Government/High Grade Securities Portfolio: Management Fees -- .60%, Other
Expenses -- .98% and Total Portfolio Operating Expenses -- 1.58%; Total Return
Portfolio: Management Fees -- .63%, Other Expenses -- 3.86% and Total Portfolio
Operating Expenses -- 4.49%; International Portfolio: Management Fees -- 1.00%,
Other Expenses -- 1.99% and Total Portfolio Operating Expenses -- 2.99%;
Short-Term Multi-Market Portfolio: Management Fees -- .55%, Other Expenses --
.75% and Total Portfolio Operating Expenses -- 1.30%; Global Bond Portfolio:
Management Fees -- .65%, Other Expenses -- 1.12% and Total Portfolio Operating

6
<PAGE>
Expenses -- 1.77%; North American Government Income Portfolio: Management Fees
- -- .65%, Other Expenses -- 1.92% and Total Portfolio Operating Expenses --
2.57%; Global Dollar Government Portfolio: Management Fees -- .75%, Other
Expenses -- 4.07% and Total Portfolio Operating Expenses -- 4.82%; Utility
Income Portfolio: Management Fees -- .75%, Other Expenses -- 3.04% and Total
Portfolio Operating Expenses -- 3.79%; Worldwide Privatization Portfolio:
Management Fee -- 1.00%, Other Expenses -- 3.17% and Total Portfolio Operating
Expenses -- 4.17%; Conservative Investors Portfolio: Management Fees -- .75%,
Other Expenses -- 3.50% and Total Portfolio Operating Expenses -- 4.25%; Growth
Investors Portfolio: Management Fees -- .75%, Other Expenses -- 5.42% and Total
Portfolio Operating Expenses -- 6.17%; Growth Portfolio: Management Fees --
.75%, Other Expenses -- .52% and Total Portfolio Operating Expenses -- 1.27%.
The estimated expenses of the Technology Portfolios before expense
reimbursements would be: Technology Portfolio: Management Fees -- 1.0%, Other
Expenses -- 1.55% and Total Operating Expenses -- 2.55%. THE EXAMPLE SHOULD NOT
BE CONSIDERED REPRESENTATIVE OF FUTURE EXPENSES: ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.

EXPENSES ON A HYPOTHETICAL $1,000 POLICY, ASSUMING 5% GROWTH:
<TABLE>
<CAPTION>
IF YOU SURRENDER
--------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Alliance Money Market........................................................ $ 80 $ 124 $ 169 $ 275
Alliance Short Term Multi-Market............................................. 80 124 169 275
Alliance Growth.............................................................. 80 124 169 275
Alliance Growth and Income................................................... 78 119 162 258
Alliance International....................................................... 80 124 169 275
Alliance U.S. Gov't/High Grade Securities.................................... 80 124 169 275
Alliance North American Gov't Income......................................... 80 124 169 275
Alliance Global Dollar Government............................................ 80 124 169 275
Alliance Utility Income...................................................... 80 124 169 275
Alliance Global Bond......................................................... 80 124 169 275
Alliance Premier Growth...................................................... 80 124 169 275
Alliance Total Return........................................................ 80 124 169 275
Alliance Conservative Investors.............................................. 80 124 169 275
Alliance Growth Investors.................................................... 80 124 169 275
Alliance Worldwide Privatization............................................. 80 124 169 275
Alliance Technology.......................................................... 80 124 169 275

<CAPTION>
IF YOU ANNUITIZE OR
IF YOU DO NOT SURRENDER
--------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Alliance Money Market........................................................ $ 24 $ 75 $ 129 $ 275
Alliance Short Term Multi-Market............................................. 24 75 129 275
Alliance Growth.............................................................. 24 75 129 275
Alliance Growth and Income................................................... 23 70 120 258
Alliance International....................................................... 24 75 129 275
Alliance U.S. Gov't/High Grade Securities.................................... 24 75 129 275
Alliance North American Gov't Income......................................... 24 75 129 275
Alliance Global Dollar Government............................................ 24 75 129 275
Alliance Utility Income...................................................... 24 75 129 275
Alliance Global Bond......................................................... 24 75 129 275
Alliance Premier Growth...................................................... 24 75 129 275
Alliance Total Return........................................................ 24 75 129 275
Alliance Conservative Investors.............................................. 24 75 129 275
Alliance Growth Investors.................................................... 24 75 129 275
Alliance Worldwide Privatization............................................. 24 75 129 275
Alliance Technology.......................................................... 24 75 129 275
</TABLE>

The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.

7
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*

<TABLE>
<CAPTION>
1995 1994 1993 1992
--------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
ALLIANCE MONEY MARKET
Accumulation Unit Value
Beginning of Period................................ 10.26 10.08 10.00 N/A
End of Period...................................... 10.63 10.26 10.08 N/A
Accum Units o/s @ end of period...................... 1,856,020.37 431,319.86 8,487.20 N/A
ALLIANCE SHORT-TERM MULTI-MARKET
Accumulation Unit Value
Beginning of Period................................ 9.49 10.29 9.79 N/A
End of Period...................................... 9.99 9.49 10.29 N/A
Accum Units o/s @ end of period...................... 115,207.71 95,717.60 14,511.57 N/A
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period................................ 10.48 10.00 N/A N/A
End of Period...................................... 13.97 10.48 N/A N/A
Accum Units o/s @ end of period...................... 2,215,092.12 467,688.06 N/A N/A
ALLIANCE GROWTH & INCOME
Accumulation Unit Value
Beginning of Period................................ 11.67 11.88 10.78 10.00
End of Period...................................... 15.62 11.67 11.88 10.78
Accum Units o/s @ end of period...................... 1,554,549.81 438,680.32 28,041.82 800.00
ALLIANCE INTERNATIONAL
Accumulation Unit Value
Beginning of Period................................ 10.71 10.17 10.00 N/A
End of Period...................................... 11.60 10.71 10.17 N/A
Accum Units o/s @ end of period...................... 981,260.91 447,407.41 21,717.14 N/A
ALLIANCE U.S. GOVERNMENT/
HIGH GRADE
Accumulation Unit Value
Beginning of Period................................ 9.42 9.95 10.00 N/A
End of Period...................................... 11.07 9.42 9.95 N/A
Accum Units o/s @ end of period...................... 914,988.76 320,574.64 41,210.45 N/A
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME
Accumulation Unit Value
Beginning of Period................................ 8.70 10.00 N/A N/A
End of Period...................................... 10.53 8.70 N/A N/A
Accum Units o/s @ end of period...................... 531,374.67 340,817.36 N/A N/A
ALLIANCE GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period................................ 9.74 10.00 N/A N/A
End of Period...................................... 11.82 9.74 N/A N/A
Accum Units o/s @ end of period...................... 238,452.60 69,320.82 N/A N/A
</TABLE>

8
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992
--------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
ALLIANCE UTILITY INCOME
Accumulation Unit Value
Beginning of Period................................ 9.87 10.00 N/A N/A
End of Period...................................... 11.82 9.87 N/A N/A
Accum Units o/s @ end of period...................... 358,005.39 111,604.02 N/A N/A
ALLIANCE GLOBAL BOND
Accumulation Unit Value
Beginning of Period................................ 10.28 11.00 9.96 10.00
End of Period...................................... 12.64 10.28 11.00 9.96
Accum Units o/s @ end of period...................... 213,886.71 85,875.16 18,846.45 5,444.00
ALLIANCE PREMIER GROWTH
Accumulation Unit Value
Beginning of Period................................ 10.15 11.13 10.00 10.00
End of Period...................................... 14.54 10.15 11.13 10.00
Accum Units o/s @ end of period...................... 1,252,211.18 223,550.22 35,271.53 2,081.43
ALLIANCE TOTAL RETURN
Accumulation Unit Value
Beginning of Period................................ 9.65 10.00 N/A N/A
End of Period...................................... 11.78 9.65 N/A N/A
Accum Units o/s @ end of period...................... 328,256.04 34,684.53 N/A N/A
ALLIANCE CONSERVATIVE INVESTORS
Accumulation Unit Value
Beginning of Period................................ 10.02 10.00 N/A N/A
End of Period...................................... 11.57 10.02 N/A N/A
Accum Units o/s @ end of period...................... 405,192.27 62,868.02 N/A N/A
ALLIANCE GROWTH INVESTORS
Accumulation Unit Value
Beginning of Period................................ 9.81 10.00 N/A N/A
End of Period...................................... 11.65 9.81 N/A N/A
Accum Units o/s @ end of period...................... 292,173.06 29,492.78 N/A N/A
ALLIANCE WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period................................ 10.05 10.00 N/A N/A
End of Period...................................... 10.99 10.05 N/A N/A
Accum Units o/s @ end of period...................... 394,704.27 105,674.08 N/A N/A
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period................................ N/A N/A N/A N/A
End of Period...................................... N/A N/A N/A N/A
Accum Units o/s @ end of period...................... N/A N/A N/A N/A
</TABLE>

9
<PAGE>
*Funds were first invested in the Portfolios as listed below:

<TABLE>
<S> <C>
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 17, 1992
Short-Term Multi-Market Portfolio June 25, 1992
Global Bond Portfolio May 10, 1993
Money Market Portfolio May 13, 1993
International Portfolio June 1, 1993
U.S. Government/High Grade Securities Portfolio June 14, 1993
North American Government Income Portfolio April 11, 1994
Global Dollar Government Portfolio April 20, 1994
Utility Income Portfolio April 20, 1994
Conservative Investors Portfolio August 24, 1994
Growth Investors Portfolio August 16, 1994
Growth Portfolio August 16, 1994
Total Return Portfolio August 26, 1994
Worldwide Privatization Portfolio August 16, 1994
Technology Portfolio January 10, 1996
</TABLE>

CALCULATION OF PERFORMANCE DATA

The Company may, from time to time, advertise certain performance related
information concerning one or more of the Subaccounts, including information as
to total return and yield. Performance information about a Subaccount is based
on the Subaccount's past performance only and is not intended as an indication
of future performance.

When the Company advertises the average annual total return of a Subaccount,
it will usually be calculated for one, five, and ten year periods or, where a
Subaccount has been in existence for a period less than one, five or ten years,
for such lesser period. Average annual total return is measured by comparing the
value of the investment in a Subaccount at the beginning of the relevant period
to the value of the investment at the end of the period (assuming the deduction
of any Surrender Charge which would be payable if the account were redeemed at
the end of the period) and calculating the average annual compounded rate of
return necessary to produce the value of the investment at the end of the
period. The Company may simultaneously present returns that do not assume a
surrender and, therefore, do not deduct the Surrender Charge.

When the Company advertises the yield of a Subaccount it will be calculated
based upon a given 30-day period. The yield is determined by dividing the net
investment income earned per Accumulation Unit during the period by the value of
an Accumulation Unit on the last day of the period.

When the Company advertises the performance of the Money Market Subaccount
it may advertise in addition to the total return either the yield or the
effective yield. The yield of the Money Market Subaccount refers to the income
generated by an investment in that Subaccount over a seven-day period. The
income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized the income earned by an investment in
the Money Market Subaccount is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.

10
<PAGE>
Index, Dow Jones Industrial Average, Donoghue Money Market Institutional
Averages, indices measuring corporate bond and government security prices as
prepared by Lehman Brothers, Inc. and Salomon Brothers or other indices
measuring performance of a pertinent group of securities so that investors may
compare a Subaccount's results with those of a group of securities widely
regarded by investors as representative of the securities markets in general;
(ii) other variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services, a widely used independent research firm
which ranks mutual funds and other investment companies by overall performance,
investment objectives, and assets, or tracked by other ratings services,
companies, publications, or persons who rank separate accounts or other
investment products on overall performance or other criteria; (iii) the Consumer
Price Index (measure for inflation) to assess the real rate of return from an
investment in the Contract; and (iv) indices or averages of alternative
financial products available to prospective investors, including the Bank Rate
Monitor which monitors average returns of various bank instruments.

FINANCIAL DATA

Financial Statements of the Company and the Variable Account may be found in
the Statement of Additional Information.

THE COMPANY

The Company is a stock life insurance company domiciled in Delaware. The
Company provides a full range of life insurance and annuity plans. The Company
is a subsidiary of American International Group, Inc. ("AIG"), which serves as
the holding company for a number of companies engaged in the international
insurance business, both life and general, in approximately 130 countries and
jurisdictions around the world.

The Company may from time-to-time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A. M. Best Company,
Moody's, and Standard & Poor's. The purpose of the ratings is to reflect the
financial strength and/or claims-paying ability of the Company and should not be
considered as bearing on the investment performance of assets held in the
separate account. Each year the A. M. Best Company reviews the financial status
of thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect A. M. Best's current opinion of the relative financial strength
and operating performance of an insurance company in comparison to the norms of
the life/ health insurance industry. In addition, the claims-paying ability of
the Company as measured by Standard & Poor's Insurance Ratings Services, and the
financial strength of the Company as measured by Moody's Investors Services, may
be referred to in advertisements, sales literature or in reports to Owners.
These ratings are their opinions of an operating insurance company's financial
capacity to meet the obligations of its life insurance policies and annuity
contracts in accordance with their terms. In regard to their ratings of the
Company, these ratings are explicitly based on the existence of a Support
Agreement, dated as of December 31, 1991, between the Company and its parent
American International Group, Inc. ("AIG"), pursuant to which AIG has agreed to
cause the Company to maintain a positive net worth and to provide the Company
with funds on a timely basis sufficient to meet the Company's obligations to its
policyholders. The Support Agreement is not, however, a direct or indirect
guarantee by AIG to any person of the payment of any of the Company's
indebtedness, liabilities or other obligations (including obligations to the
Company's policyholders).

11
<PAGE>
organization if, in such organization's judgment, future circumstances relating
to the Support Agreement, such as a lowering of AIG's long-term debt rating, so
warrant. The ratings do not reflect the investment performance of the Variable
Account or the degree of risk associated with an investment in the Variable
Account.

THE VARIABLE ACCOUNT

The Company authorized the organization of the Variable Account in 1986. The
Variable Account is maintained pursuant to Delaware insurance law. The Company
has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940. The Variable Account meets the definition of a
"Separate Account" under Federal securities laws. The SEC does not supervise the
management or the investment practices of the Variable Account.

The Company owns the assets in the Variable Account and obligations under
the Contract are general corporate obligations. The Variable Account and each
Subaccount, however, are separate from the Company's other assets including
those of the General Account and from any other separate accounts. The assets of
the Variable Account, equal to the reserves and other contract liabilities with
respect to the Variable Account, are not chargeable with liabilities arising out
of any other business the Company may conduct. Investment income, as well as
both realized and unrealized gains and losses are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
income, gains or losses arising out of any other business of the Company. As a
result, the investment performance of each Subaccount and the Variable Account
is entirely independent of the investment performance of the General Account and
of any other separate account maintained by the Company.

The Variable Account is divided into Subaccounts, with the assets of each
Subaccount invested in shares of one portfolio of the Fund. The Company may,
from time to time, add additional portfolios of the Fund, and, when appropriate,
additional mutual funds to act as the funding vehicles for the Contracts. If
deemed to be in the best interests of persons having voting rights under the
Contract, the Variable Account may be operated as a management company under the
Investment Company Act of 1940, may be deregistered under such Act in the event
such registration is no longer required, or may be combined with one or more
other separate accounts. The Company may offer other variable annuity contracts
which also invest in Variable Account I, and are described in other
prospectuses.

THE FUND

Alliance Variable Products Series Fund, Inc., (the "Fund") will act as the
funding vehicle for the Contracts offered hereby. The Fund is managed by
Alliance Capital Management L.P., (the "Investment Manager"). The Fund is an
open-end, diversified management investment company, which is intended to meet
differing investment objectives. The Fund has made available the following
Portfolios: Money Market; Short-Term Multi-Market; Growth; Growth and Income;
International; U.S. Government/High Grade Securities; Global Bond; North
American Government Income; Global Dollar Government; Utility Income; Premier
Growth, Conservative Investors; Growth Investors; Total Return; Worldwide
Privatization; and Technology. The Investment Manager has entered into a sub-
advisory agreement with AIG Global Investors, Inc. (the "Sub-Adviser"), a
subsidiary of American International Group, Inc. and an affiliate of the
Company, to provide investment advice for the Global Bond Portfolio. A summary
of investment objectives for each portfolio is contained in the description of
the Fund below. More detailed information including the investment advisory fee
of each portfolio and other charges assessed by the Fund, may be found in the
current Prospectus for the Fund which contains a discussion of the risks
involved in investing in the Fund. The Prospectus for the Fund is included with
this Prospectus. Please read both Prospectuses carefully before investing.

The investment objectives of the portfolios are as follows:

12
<PAGE>
MONEY MARKET PORTFOLIO

This portfolio seeks safety of principal, maintenance of liquidity and
maximum current income by investing in a broadly diversified portfolio of money
market securities.

SHORT-TERM MULTI-MARKET PORTFOLIO

This portfolio seeks the highest level of current income, consistent with
what the Investment Manager 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.

GROWTH PORTFOLIO

This portfolio seeks growth of capital rather than current income. In
pursuing its investment objective, the Growth Portfolio will employ aggressive
investment policies. Since investments will be made based upon their potential
for capital appreciation, current income will be incidental to the objective of
capital growth. Because of the risks involved in any investment, the selection
of securities on the basis of their appreciation possibilities cannot ensure
against possible loss in value. Moreover, to the extent the portfolio seeks to
achieve its objective through such aggressive investment policies, the risk of
loss increases. The portfolio is therefore not intended for investors whose
principal objective is assured income or preservation of capital.

GROWTH AND INCOME PORTFOLIO

This portfolio seeks to balance the objectives of reasonable current income
and reasonable opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.

INTERNATIONAL PORTFOLIO

This portfolio seeks to obtain a total return on its assets from long-term
growth of capital and from income principally through a broad portfolio of
marketable securities of established non-United States companies (or United
States companies having their principal activities and interests outside the
United States), companies participating in foreign economies with prospects for
growth, and foreign government securities.

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO

This portfolio seeks the highest level of current income, consistent with
what the adviser considers to be prudent investment risk, that is available from
a portfolio of debt securities issued or guaranteed by the governments of the
United States, Canada and Mexico, their political subdivisions (including
Canadian Provinces but excluding the States of the United States), agencies,
instrumentalities or authorities. The portfolio seeks high current yields by
investing in government securities denominated in local currency and U.S.
Dollars. Normally, the portfolio expects to maintain at least 25% of its assets
in securities denominated in the U.S. Dollar.

GLOBAL DOLLAR GOVERNMENT PORTFOLIO

This portfolio seeks a high level of current income through investing
substantially all of its assets in U.S. and non-U.S. fixed income securities
denominated only in U.S. Dollars. As a secondary objective, the portfolio seeks
capital appreciation. Substantially all of the portfolio's assets will be
invested in high yield, high risk securities that are low-rated (i.e., below
investment grade), or of comparable quality and unrated, and that are considered
to be predominately speculative as regards the issuer's capacity to pay interest
and repay principal.

UTILITY INCOME PORTFOLIO

This portfolio seeks current income and capital appreciation by investing
primarily in the equity and fixed-income securities of companies in the
"utilities industry." The portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical performance of

13
<PAGE>
securities of utilities companies. The utilities industry consists of companies
engaged in the manufacture, production, generation, provision, transmission,
sale and distribution of gas, electric energy, and communications equipment and
services, and in the provision of other utility or utility-related goods and
services.

U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO

This portfolio seeks a high level of current income consistent with
preservation of capital by investing principally in a portfolio of U.S.
Government Securities, and other high grade debt securities.

GLOBAL BOND PORTFOLIO

This portfolio seeks to provide the highest level of current income
consistent with what the Fund's Adviser and Sub-Adviser consider to be prudent
investment risk that is available from a multi-currency portfolio of high
quality debt securities of varying maturities.

PREMIER GROWTH PORTFOLIO

This portfolio seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based on their
potential for capital appreciation, current income will be incidental to the
objective of capital growth. The portfolio is not intended for investors whose
principal objective is assured income or preservation of capital.

TOTAL RETURN PORTFOLIO

This portfolio seeks to achieve a high return through a combination of
current income and capital appreciation by investing in a diversified portfolio
of common and preferred stocks, senior corporate debt securities, and U.S.
Government and Agency obligations, bonds and senior debt securities.

CONSERVATIVE INVESTORS PORTFOLIO

This portfolio seeks the highest total return without, in the view of the
Fund's Adviser, undue risk to principal by investing in a diversified mix of
publicly traded equity and fixed-income securities.

GROWTH INVESTORS PORTFOLIO

This portfolio seeks the highest total return consistent with what the
Fund's Adviser considers to be reasonable risk by investing in a diversified mix
of publicly traded equity and fixed-income securities.

WORLDWIDE PRIVATIZATION PORTFOLIO

This portfolio seeks long-term capital appreciation by investing principally
in equity securities issued by enterprises that are undergoing, or have
undergone, privatization. The balance of the investment portfolio will include
equity securities of companies that are believed by the Fund's Adviser to be
beneficiaries of the privatization process.

TECHNOLOGY PORTFOLIO

This portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. The Technology portfolio
invests principally in a diversified portfolio of securities of companies which
use technology extensively in the development of new or improved products or
processes.

THERE IS NO ASSURANCE THAT ANY OF THESE PORTFOLIOS WILL ACHIEVE THEIR STATED
OBJECTIVES.

VOTING RIGHTS

As previously stated, all of the assets held in the Subaccounts of the
Variable Account will be invested in shares of a corresponding portfolio of the
Fund. Based on the Company's view of present

14
<PAGE>
applicable law, we will vote the portfolio shares held in the Variable Account
at meetings of shareholders in accordance with instructions received from Owners
having a voting interest in the portfolio. However, if the 1940 Act or its
regulations are amended, or if our interpretation of present law changes to
permit us to vote the portfolio shares in our own right, we may elect to do so.

Prior to the Annuity Date, the Owner holds a voting interest in each
portfolio in which there is value in the corresponding Subaccount. The number of
portfolio shares which are attributable to the Owner is determined by dividing
the corresponding value in a particular Subaccount by the net asset value of one
portfolio share. The number of votes which an Owner will have a right to cast
will be determined as of the record date established by each portfolio.

We will solicit voting instructions by mail prior to the shareholder
meetings. An Owner having a voting interest in a Subaccount will be sent proxy
material, reports and other materials as provided by the Fund, relating to the
appropriate portfolios. The Company will vote shares in accordance with
instructions received from the Owner having a voting interest. At the meeting,
the Company will vote shares for which it has received no instructions and any
shares not attributable to Owners in the same proportion as it votes shares for
which it has received instructions from Owners.

The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds allocated to the Guaranteed
Account.

Shares of the Fund may be sold only to separate accounts of life insurance
companies. The shares of the Fund will be sold to separate accounts of the
Company and its affiliate, American International Life Assurance Company of New
York, as well as to separate accounts of other affiliated or unaffiliated life
insurance companies to fund variable annuity contracts and variable life
insurance policies. It is conceivable that, in the future, it may be
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
the Company nor the Fund currently foresees any such disadvantages, either to
variable life insurance policyowners or to variable annuity Owners, the Fund's
Board of Directors will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response thereto. If a material irreconcilable
conflict were to occur, the Fund will take whatever steps it deems necessary, at
its expense, to remedy or eliminate the irreconcilable material conflict. If
such a conflict were to occur, one or more insurance company separate accounts
might withdraw its investments in the Fund. This might force the Fund to sell
securities at disadvantageous prices.

SUBSTITUTION OF SHARES

If the shares of the Fund (or any portfolio within the Fund) should no
longer be available for investment by the Variable Account or if, in the
judgment of the Company, further investment in such shares should become
inappropriate in view of the purpose of the Contracts, the Company may
substitute shares of another mutual fund (or portfolio within the fund) for Fund
shares already purchased or to be purchased in the future under the Contracts.
No substitution of securities may take place without any required prior approval
of the Securities and Exchange Commission and under such requirements as it may
impose.

THE CONTRACT

The Contract described in this Prospectus is a deferred variable annuity.
Single premium Contracts do not permit the payment of additional premiums after
the Contract Date. Flexible premium Contracts permit the payment of additional
Premiums at any time.

15
<PAGE>
PARTIES TO THE CONTRACT

OWNER

As the purchaser of the Contract, You may exercise all rights and privileges
provided in the Contract, subject to any rights that You, as Owner, may convey
to an irrevocable beneficiary. As Owner, You will also be the Annuitant, unless
You name in writing some other person as Annuitant.

ANNUITANT

The Annuitant is the person who receives annuity payments and upon the
continuance of whose life these payments are based. You may designate someone
other than yourself as Annuitant. If the Annuitant is a person other than the
Owner, and the Annuitant dies before the Annuity Date, You will become the
Annuitant unless you designate someone else as the new Annuitant.

BENEFICIARY

The Beneficiary You designate will receive the death proceeds if You die
prior to the Annuity Date. If no Beneficiary is living at that time, the death
proceeds are payable to Your estate. If the Annuitant dies after the Annuity
Date, the Beneficiary will receive any remaining guaranteed payments under an
Annuity Option. If no Beneficiary is living at that time, the remaining
guaranteed payments are payable to Your estate.

CHANGE OF ANNUITANT AND BENEFICIARY

Prior to the Annuity Date, You may change the Annuitant and Beneficiary by
making a written request to Our Administrative Office. After the Annuity Date
only a change of Beneficiary may be made. Once We have accepted Your written
request, any change will become effective on the date You signed it. However,
any change will be subject to any payment or other action taken by Us before We
record the change. If the Owner is not a natural person, under current Federal
tax law, the Contract may be subject to unintended and adverse tax consequences.
For possible tax considerations of these changes, see FEDERAL TAX MATTERS, page
.

HOW TO PURCHASE A CONTRACT

At the time of application, the Owner must pay at least the minimum Premium
required and provide instructions regarding the allocation of the Premium among
the Subaccounts. Acceptance of the Premium and form of application is subject to
Our requirements and We reserve the right to reject any Premium. If the
application and Premium are accepted in the form received, the Premium will be
credited and allocated to the Subaccounts within two business days of its
receipt. The date the Premium is credited to the Contract is the Effective Date.

If within five days of the receipt of the initial Premium We have not
received sufficient information to issue a Contract, You will be contacted. The
reason for the delay will be explained to You. If You consent We will retain the
Premium until the necessary requirements are fulfilled. Otherwise, the Premium
will be immediately refunded to You.

DISCOUNT PURCHASE PROGRAMS

Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families will not be subject to the Surrender Charge. Such purchases
include retirement accounts and must be for accounts in the name of the
individual or qualifying family member.

DISTRIBUTOR

AIG Equity Sales Corp. ("AESC"), 80 Pine Street, New York, New York, acts as
the distributor of the Contracts. AESC is a wholly-owned subsidiary of AIG, and
an affiliate of the Company. Commissions not to exceed 7% of Premiums will be
paid to entities which sell the Contract. Additional payments may be made for
other services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature and
similar services.

<PAGE>

Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
to be prohibited from performing certain agency or administrative services and
receiving fees from AESC, Owners who purchased Contracts through the bank would
be permitted to retain their Contracts and alternate means for servicing those
Owners would be sought. It is not expected, however, that Owners would suffer
any loss of services or adverse financial consequences as a result of any of
these occurrences.

ADMINISTRATION OF THE CONTRACTS

While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Owners' records. DVFS serves as the administrator to various
insurance companies offering variable contracts.

PREMIUM AND ALLOCATION TO YOUR INVESTMENT OPTIONS

The initial Premium must be at least $5,000 for Non-Qualified Contracts and
$2,000 for a Contract purchased in connection with an IRA or 403(b) Plan. If you
chose a Flexible Premium Contract, You may make additional payments of Premium
prior to the Annuity Date, in amounts of at least $1000. There is no maximum
limit on the additional Premiums You may pay or on the numbers of payments;
however, the Company reserves the right to reject any Premium on any Contract.
You specify at the time of issue or subsequently how the remaining amount, known
as Additional Premium will be allocated.

Except for any Contract issued as an IRA, the initial Premium is allocated
among the Subaccounts and Guaranteed Account on the Effective Date. For IRAs the
initial Premium will be allocated to the Money Market Subaccount until the end
of the Right to Examine Contract Period, after which Your value in the Money
Market Subaccount will then be reallocated among the Subaccounts and Guaranteed
Account in accordance with Your allocation instructions. (See "Right to Examine
Contract Period" on Page , and "Individual Retirement Annuities" on page .)

Your allocation instructions will specify what percentage of Your initial
Premium is to be credited to each Subaccount and to the Guaranteed Account.
Allocation instructions must be expressed in whole percentages of not less than
10%. Allocations for additional Premium will be made on the same basis as the
initial Premium unless We receive a written notice with new instructions.
Additional Premium will be credited to the Contract Value and allocated at the
close of the first Valuation Date on or after which the Additional Premium is
received at Our Administrative Office.

ALL PREMIUM TO QUALIFIED CONTRACTS MUST COMPLY WITH THE APPLICABLE
PROVISIONS IN THE CODE AND THE APPLICABLE PROVISIONS OF YOUR RETIREMENT PLAN.
ADDITIONAL PREMIUM COMMINGLED IN AN IRA WITH A ROLLOVER CONTRIBUTION FROM OTHER
RETIREMENT PLANS MAY RESULT IN UNFAVORABLE TAX CONSEQUENCES. YOU SHOULD SEEK
LEGAL COUNSEL AND TAX ADVICE REGARDING THE SUITABILITY OF THE CONTRACT FOR YOUR
SITUATION. (SEE "FEDERAL TAX MATTERS" ON PAGE .)

RIGHT TO EXAMINE CONTRACT PERIOD

The Contract provides a 10 day Right to Examine Contract Period giving You
the opportunity to cancel the Contract. You must return the Contract with
written notice to Us. If We receive the Contract and Your written notice within
10 days after it is received by You, the Contract will be voided. With the
exception of Contracts issued in connection with an IRA, in those states whose
laws do not require that We assume the risk of market loss during the Right to
Examine Contract Period, should You decide to cancel Your Contract, the amount
to be returned to You will be the Contract Value (on the day We receive the
Contract) plus any charges deducted for State Taxes, without imposition of the
Surrender Charge. The amount returned to you may be more or less than the
initial Premium. (See "Charges and Deductions" on page .) For Contracts issued
in those states that require we return the premium, we will do so. In the case
of Contracts issued in connection with an IRA, the Company will refund the
greater of the Premium, less any withdrawals, or the Contract Value.

17
<PAGE>
State laws governing the duration of the Right to Examine Contract Period
may vary from state to state. We will comply with the laws of the state in which
the Owner resides at the time the Contract is applied for. Federal laws
governing IRAs require a minimum seven day right of revocation. We provide 10
days from the date the Contract is received by you. (See "Individual Retirement
Annuities" on page .)

UNIT VALUE AND CONTRACT VALUE

After the deduction of certain changes and expenses, amounts which You
allocate to a Subaccount of the Variable Account are used to purchase
Accumulation Units in that Subaccount, not shares of the Portfolio in which that
Subaccount invest: The number of Accumulation Units you purchase will be
determined by dividing the amount allocated to each Subaccount by the Unit Value
of the Subaccount for the Valuation Period during which the amount was
allocated.

The Unit Value for each Subaccount will vary from one Valuation Period to
the next, based on the investment experience of the Portfolio in which the
Subaccount invests and the deduction of certain charges and expenses. The
Statement of Additional Information contains a detailed explanation of how
Accumulation Units are valued.

Your value in any given Subaccount is determined by multiplying the Unit
Value for the Subaccount by the number of Units You own. Your value within the
Variable Account is the sum of your values in all the Subaccounts. The total
value of your Contract, known as the Contract Value, equals your Value in the
Variable Account plus Your value in the Guaranteed Account.

TRANSFERS

Prior to the Annuity Date, You may make Transfers among the Subaccounts and
into and out of the Guaranteed Account subject to certain rules.

At the present time there is no limit on the number of transfers which can
be made among the Subaccounts and the Guaranteed Account in any one Contract
Year. We reserve the right to limit the number of transfers to 12 per Contract
Year. There are no fees for the first 12 transfers in any one Contract Year. For
each transfer in excess of 12 within one Contract Year, We impose a transfer fee
of $10. A transfer fee, if any, is deducted from the amount transferred.
Transfers of Contract Value in the Guaranteed Account may be subject to a Market
Value Adjustment. (See Appendix , "Guaranteed Account Transfers," page .)

Transfers may be made by written request or by telephone as described in the
Contract or specifically authorized in writing. The Company will undertake
reasonable procedures to confirm that instructions communicated by telephone are
genuine. All calls will be recorded. All transfers will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.

After the Annuity Date, the Owner may transfer the Contract Value allocated
to the Variable Account among the Subaccounts. However, the Company reserves the
right to refuse any more than one transfer per month. The transfer fee is the
same as before the Annuity Date. This transfer fee, if any, will be deducted
from the next annuity payment after the transfer. If following the transfer, the
Annuity Units remaining in the Subaccount would generate a monthly annuity
payment of less than $100, the Company will transfer the entire amount in the
Subaccount.

Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Subaccount. The number of Annuity Units for each
Subaccount will remain the same for the remainder of the payment period unless
the Owner requests another change.

The minimum amount which may be transferred at any one time is the lesser of
$1,000 or the value of the Subaccount or Guarantee Period from which the
transfer is made. However, the minimum amount for transfers under our Dollar
Cost Averaging program is $100 per Subaccount. (See "Dollar Cost Averaging") For
additional limitations regarding transfers out of the Guaranteed Account, see
"The Guaranteed Account" in the Appendix, page .)

18
<PAGE>
DOLLAR COST AVERAGING

The Company currently offers an option under which Owners may dollar cost
average their allocations in the Subaccounts under the contract by authorizing
the Company to make periodic allocations of Contract Value from any one
Subaccount to one or more of the other Subaccounts. Dollar cost averaging is a
systematic method of investing in which securities are purchased at regular
intervals in fixed dollar amounts so that the cost of the securities gets
averaged over time and possibly over various market cycles. The option will
result in the allocation of Contract Value to one or more Subaccounts, and these
amounts will be credited at the Accumulation Unit value as of the end of the
Valuation Dates on which the exchanges are effected. Amounts periodically
transferred under this option are not included in the 12 transfers per Contract
Year discussed under "Transfers" on page . Since the value of Accumulation
Units will vary, the amounts allocated to a Subaccount will result in the
crediting of a greater number of units when the Accumulation Unit value is low
and a lesser number of units when the Accumulation Unit value is high.
Similarly, the amounts exchanged from a Subaccount will result in a debiting of
a greater number of units when the Subaccount's Accumulation Unit value is low
and a lesser number of units when the Accumulation Unit value is high. Dollar
cost averaging does not guarantee profits, nor does it assure that an Owner will
not have losses.

A Dollar Cost Averaging Request form is available from the Administrative
Office upon request. On the form, the Owner must designate whether Contract
Value is to be exchanged on the basis of a specific dollar amount, a fixed
period or earnings only, the Subaccount or Subaccounts to and from which the
transfers will be made, the desired frequency of the transfers, which may be on
a monthly, quarterly, semiannual, or annual basis, and the length of time during
which the transfers shall continue or the total amount to be exchanged over
time. The Owner may specify that such transfers be made on any day of any month
with the exception of the 29th, 30th or 31st of a month.

To elect the Dollar Cost Averaging Option, the Owner's Contract Value must
be at least $12,000 ($2,000 for a Contract funding a Qualified Plan), and a
Dollar Cost Averaging Request in proper form must be received by the Company.
The Dollar Cost Averaging Request form will not be considered complete until the
Contract Value is at least the required amount. An Owner may not have in effect
at the same time Dollar Cost Averaging and Asset Rebalancing Options.

The Dollar Cost Averaging Option may be canceled at any time by written
request or if the Accumulation Unit value is less than $5,000, or such lower
amount as the Company may determine.

ASSET REBALANCING OPTION

The Company currently offers an option under which Owners may authorize the
Company to automatically exchange Contract Value each quarter to maintain a
particular percentage allocation among the Subaccounts as selected by the Owner.
The Contract Value allocated to each Subaccount will grow or decline in value at
different rates during the quarter, and Asset Rebalancing automatically
reallocates the Contract Value in the Subaccounts each quarter to the allocation
selected by the Owner. Asset Rebalancing is intended to exchange Contract Value
from those Subaccounts that have increased in value to those Subaccounts that
have declined in value. Over time, this method of investing may help an Owner
buy low and sell high,although there can be no assurance of this. This
investment method does not guarantee profits, nor does it assure that an Owner
will not have losses.

To elect the Asset Rebalancing Option, the Contract Value in the Contract
must be at least $12,000 ($2,000 for a Contract funding a Qualified Plan) and an
Asset Rebalancing Request in proper form must be received by the Company. An
Owner may not have in effect at the same time Dollar Cost Averaging and Asset
Rebalancing Options. An Asset Rebalancing Request form is available upon
request. On the form, the Owner must indicate the applicable Subaccounts and the
percentage of Contract Value which should be allocated to each of the applicable
Subaccounts each quarter under the Asset Rebalancing Option. If the Asset
Rebalancing Option is elected, all Contract Value allocated to the Subaccounts
must be included in the Asset Rebalancing Option.

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This option will result in the transfer of Contract Value to one or more of
the Subaccounts on the date specified by the Owner or, if no date is specified,
on the date of the Company's receipt of the Asset Rebalancing Request in proper
form and on each quarterly anniversary of the applicable date thereafter. The
amounts transferred will be credited to the Accumulation Unit Value as of the
end of the Valuation Dates on which the transfers are effected. Amounts
periodically transferred under this option are not included in the 12 transfers
per Contract Year discussed under "Transfers" on page .

An Owner may instruct the Company at any time to terminate this option by
written request. Once terminated, this Option may not be reselected during the
same Contract Year.

CHARGES AND DEDUCTIONS

Various charges and deductions are made from Premium, the Contract Value and
the Variable Account. These charges and deductions are as follows:

DEDUCTION FOR PREMIUM AND OTHER STATE TAXES

We do not deduct premium taxes unless assessed by the state of residence of
the Owner. Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged at Our discretion against either
Premium or Contract Value. Premium taxes currently imposed by certain states on
the Contracts range typically from 0% to 3.5% of premiums paid. Some states
assess premium taxes at the time Premium is received; others assess premium
taxes at the time of annuitization. Premium taxes are subject to being changed
or amended by state legislatures, administrative interpretations or judicial
acts.

The Company will also deduct from any amount payable under the Contracts any
income taxes a governmental authority requires the Company to withhold with
respect to that amount.

DEDUCTION FOR MORTALITY AND EXPENSE RISK CHARGE

The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. The mortality risks assumed by the Company arise
from its contractual obligation to make annuity payments after the Annuity Date
for the life of the Annuitant, to waive the Surrender Charge in the event of the
death of the Owner prior to the Annuity Date and to provide the death benefit.
The expense risk assumed by the Company is that the costs of administering the
Contracts and the Variable Account will exceed the amount received from
Administrative and Contract Maintenance Charges.

If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs, the loss will be borne by the Company. Conversely, if the amount deducted
proves more than sufficient, the excess will be profit to the Company. The
Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased. The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.

The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period -- Annuity Options" on page .) The
Company in its discretion may offer additional payment options which are not
based on a life contingency. If this should occur and if a Owner should elect a
payment option not based on a life contingency, the Mortality and Expense Risk
Charge is still deducted but the Owner receives no benefit from that portion of
the charge attributable to mortality risk.

DEDUCTION FOR ACCIDENTAL DEATH BENEFIT

If the Owner has elected the Accidental Death Benefit, the Company deducts
for each Valuation Period, an Accidental Death Benefit Charge equal on an annual
basis to 0.10% of the average daily net asset value in the Variable Account.

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DEDUCTION FOR SURRENDER (DEFERRED SALES) CHARGES

In the event that an Owner makes a withdrawal from or surrenders Contract
Value in excess of the Free Withdrawal Amount, a Surrender Charge may be
imposed. The Free Withdrawal Amount for a single premium Contract is equal to
10% of the Contract Value at the time of the withdrawal. The Free Withdrawal
Amount for a flexible premium Contract is equal to the greater of the Contract
Value less premiums paid or the portion of the withdrawal that does not exceed
10% of the total Premium otherwise subject to the Surrender Charge paid to the
time of withdrawal, less any prior withdrawals. In the case of flexible premium
Contracts, the Surrender Charge applies only to Premium received by the Company
within six (6) years of the date of the withdrawal and will vary in amount
depending upon the time which has elapsed since the date Premium was received.
In calculating the Surrender Charge, Premium is allocated to the amount
surrendered on a first-in, first out basis. In the case of single premium
Contracts, the Surrender Charge will vary in amount depending upon the number of
Contract Years that a Contract has been in effect. The amount of any withdrawal
which exceeds the Free Withdrawal Amount will be subject to the following
charges:

<TABLE>
<CAPTION>
APPLICABLE
SURRENDER
SINGLE PREMIUM CONTRACTS FLEXIBLE PREMIUM CONTRACTS CHARGE PERCENTAGE
- ------------------------------------ ------------------------------------- -------------------
<S> <C> <C>
Contract Year 1 Premium Year 1 6%
Contract Year 2 Premium Year 2 6%
Contract Year 3 Premium Year 3 5%
Contract Year 4 Premium Year 4 5%
Contract Year 5 Premium Year 5 4%
Contract Year 6 Premium Year 6 3%
Contract Year 7 Premium Year 7 2%
Contract Year 8 and thereafter Premium Year 8 and thereafter None
</TABLE>

No Surrender Charge is imposed against: (1) Transfers of Contract Value
under Dollar Cost Averaging, Asset Rebalancing, or Systematic Withdrawal
options; (2) Contract Value upon Annuitization; (3) a Death Benefit.

The Surrender Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Surrender Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.

Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify under Code Section 403(b) (a
"403(b) Plan"). (See "Taxes -- 403(b) Plans" on page .)

DEDUCTION FOR ADMINISTRATIVE CHARGES

The Company deducts for each Valuation Period a daily Administrative Charge
which is equal on an annual basis to .15% of the average daily net asset value
of the Variable Account. This charge is intended to reimburse Us for
administrative expenses, both during the accumulation period and following the
Annuity Date. We do not expect to recover an amount in excess of our accumulated
expenses through the deduction of the Administrative Charge.

DEDUCTION FOR CONTRACT MAINTENANCE CHARGE

The Company also deducts an annual Contract Maintenance Charge of $30 per
year, from the Contract Value on each Contract Anniversary. The Contract
Maintenance Fee is waived if the Contract Value is greater than $50,000 on the
date of deduction of the charge. These charges are designed to reimburse the
Company for the costs it incurs relating to maintenance of the Contract, the
Variable Account, and the Guaranteed Account. If the Contract is surrendered, we
will deduct the Contract Maintenance Charge at the time of surrender, pro-rata,
for the current Contract Year. The deduction will be made proportionally based
on your value in each Subaccount and the Guaranteed Account.

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After the Annuity Date, the Contract Maintenance Charge is deducted on a
pro-rata basis from each annuity income payment and is guaranteed to remain at
the same amount as at the Annuity Date. This charge is not expected to result in
a profit to the Company.

DEDUCTION FOR INCOME TAXES

The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any Federal income taxes.

OTHER EXPENSES

There are deductions from and expenses paid out of the assets of the Fund
which are described in the accompanying Prospectus for the Fund.

GROUP AND GROUP SPONSORED ARRANGEMENTS

In certain instances, we may reduce the Surrender Charge and the
Administrative Charge or change the minimum premium requirements for the sale of
Contracts to certain groups, including those in which a trustee or an employer,
for example, purchases Contracts covering a group of individuals on a group
basis.

Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
similar arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or group sponsored arrangements
that have been set up solely to buy Contracts or that have been in existence
less than six months will not qualify for reduced charges.

We will make any reductions according to our rules in effect when an
application or enrollment form for a Contract is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or Administrative
Charge will reflect differences in costs or services and will not be unfairly
discriminatory.

ANNUITY BENEFITS

ANNUITIZATION

Annuitization is an election you make to apply the Contract Value to an
Annuity Option in order to provide a series of annuity payments. The date the
Annuity Option becomes effective is the Annuity Date.

ANNUITY DATE

The latest Annuity Date is: (a) the first day of the calendar month
following the later of the Annuitant's 90th birthday; or (b) such earlier date
as may be set by applicable law.

The Owner may designate an earlier date or may change the Annuity Date by
making a written request at least thirty (30) days prior to the Annuity Date
being changed. However, any Annuity Date must be no later than the date defined
above; and, the first day of a calendar month.

Without the approval of the Company, the new Annuity Date cannot be earlier
than one year after the Effective Date. In addition, for Qualified Contracts,
certain provisions of your retirement plan or the Code may further restrict your
choice of an Annuity Date. (See "Federal Tax Matters," page ).

ANNUITY OPTIONS

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The Owner may not transfer Contract Values between the Guaranteed Account and
the Variable Account after the Annuity Date, but may, subject to certain
conditions, transfer Contract Values from one Subaccount to another Subaccount.
(See "Transfer of Contract Values" on page .)

If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the Guaranteed Account and the
Variable Account, respectively.

The annuity payment options are:

OPTION 1: LIFE INCOME. The Company will make annuity payments during the
lifetime of the Annuitant.

OPTION 2: LIFE INCOME WITH 10 YEARS OF PAYMENTS GUARANTEED. The Company
will make monthly annuity payments during the lifetime of the Annuitant. If, at
the death of the Annuitant, payments have been made for less than 10 years,
payments will be continued during the remainder of the period to the
Beneficiary.

OPTION 3: JOINT AND LAST SURVIVOR INCOME. The Company will make annuity
payments for as long as either the Annuitant or a Contingent Annuitant is alive.
In the event that the Contract is issued in connection with an IRA, the payments
in this Option will be made only to the Owner as Annuitant and the Owner's
spouse.

The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.

ANNUITY PAYMENTS

If the Contract Value applied to annuity payment options is less than
$2,000, the Company reserves the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company reserves the right to make payments semi-annually or annually.

If fixed annuity payments are selected, the amount of each fixed payment is
determined by multiplying the Contract Value allocated to purchase fixed annuity
payments by the factor shown in the annuity table specified in the Contract for
the option selected, divided by 1,000.

If variable annuity payments are selected, the Annuitant receives the value
of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Subaccount
selected; and (v) the pro-rata portion of the Contract Maintenance charge.

The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, variable annuity
payments will decrease.

DEATH BENEFIT

PRIOR TO THE ANNUITY DATE

In the event of Your death prior to the Annuity Date, a death benefit is
payable to the Beneficiary. The value of the death benefit will be determined as
of the date We receive proof of death in a form acceptable to Us. If there has
been a change of Owner, the death benefit will equal the Contract Value.
Otherwise, We will pay the death benefit equal to the greatest of: (a) the total
of all Premium, reduced proportionately by withdrawals and surrenders; (b) the
Contract Value; (c) the greatest of the Contract Value at the seventh Contract
Anniversary if attained prior to Owner's attained age 76 or at the Contract
Anniversary every seven years thereafter, plus any Premium paid and less any
surrenders subsequent to that Contract Anniversary.

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<PAGE>
The Beneficiary may elect the death benefit to be paid as follows: (a)
payment of the entire death benefit within 5 years of the date of the Owner's
death; or (b) payment over the lifetime of the designated Beneficiary with
distribution beginning within 1 year of the date of death of the Owner; or (c)
if the designated Beneficiary is Your spouse, he/she can continue the contract
in his/her own name.

If no payment option is elected, a single sum settlement will be made at the
end of the sixty (60) day period following receipt of proof of death.

AFTER THE ANNUITY DATE

If the Owner is a person other than the Annuitant, and if the Owner's death
occurs on or after the Annuity Date, no death benefit will be payable under this
contract, except that any guaranteed payments remaining unpaid will continue to
be paid to the Annuitant pursuant to the Annuity Option in force at the date of
the Owner's death.

ACCIDENTAL DEATH BENEFIT

If an Accidental Death Benefit has been elected, the cost of this benefit
will be equal on an annual basis to 0.10% of the average daily net assets in the
Variable Account.

The Accidental Death Benefit, if any, is equal to the lesser of the Contract
Value as of the date the death benefit is determined or $250,000. The Accidental
Death Benefit is payable if the death of the primary Owner occurs prior to the
Contract Anniversary next following his 75th birthday as a result of an Injury.
The death must also occur before the Annuity Date and within 365 days of the
date of the accident which caused the Injury. The Accidental Death Benefit is
paid to the Beneficiary.

The Accidental Death Benefit will not be paid for any death caused by or
resulting (in whole or in part) from the following:

(a) suicide or attempted suicide while sane or insane; intentionally
self-inflicted injuries;

(b) sickness, disease or bacterial infection of any kind, except pyogenic
infections which occur as a result of an injury or bacterial infections
which result from the accidental ingestion of contaminated substances;

(d) injury sustained as a consequence of riding in, including boarding or
alighting from, any vehicle or device used for aerial navigation except
if the Owner is a passenger on any aircraft licensed for the
transportation of passengers;

(e) declared or undeclared war or any act thereof; or

(f) service in the military, naval or air service of any country.

DEATH OF THE ANNUITANT

If the Annuitant is a person other than the Owner, and if the Annuitant dies
before the Annuity Date, a new Annuitant may be named by the Owner. If no new
Annuitant is named within sixty (60) days of Our receipt of proof of the
Annuitant's death, the Owner will be deemed the new Annuitant. If an Annuitant
dies after the Annuity Date, the remaining payments, if any, will be as
specified in the Annuity Option elected. We will require proof of the
Annuitant's death. Death benefits, if any, will be paid to the designated
Beneficiary at least as rapidly as under the method of distribution in effect at
the Annuitant's death.

DISTRIBUTIONS UNDER THE CONTRACT

WITHDRAWALS

The Owner may withdraw Contract Values prior to the Annuity Date. Any
withdrawal is subject to the following conditions:

(a) the Company must receive a written request;

24
<PAGE>
(b) the amount requested must be at least $500;

(d) the Contract Value will be reduced by the sum of the amount requested
plus the amount of any applicable Surrender Charge;

(e) the Company will deduct the amount requested plus any Surrender Charge
from each Subaccount of the Variable Account and from the Guaranteed
Account either as specified or in the proportion that each Subaccount and
the Guaranteed Account bears to the Contract Value; and

We reserve the right to consider any withdrawal request that would reduce
the Value of the Accumulation Account to less than $2,000 to be a request for
Surrender. In this event, the Surrender Value will be paid to You and the
Contract will terminate.

Each withdrawal is subject to Federal income taxes on the taxable portion.
Unless otherwise directed by You, We must withhold federal income taxes from
each withdrawal. In addition, a 10% penalty tax may be assessed on withdrawals
if You are under age 59 1/2. This includes withdrawals under the Systematic
Withdrawal program (described below) and withdrawals You may make to pay fees to
Your investment advisor, if any.

SYSTEMATIC WITHDRAWAL

The systematic withdrawal program involves making regularly scheduled
withdrawals from Your value in the Contract. In order to initiate the program,
your total Contract Value must be at least $24,000. The program allows You to
prearrange the withdrawal of a specified dollar amount of at least $200 per
withdrawal, on a monthly or quarterly payment basis. A maximum of 10% of the
Contract Value may be withdrawn in a Contract Year. Surrender Charges are not
imposed on withdrawals under this program. If you elect this program Surrender
Charges will be imposed on any withdrawal, other than withdrawals made under
Your systematic withdrawal program, when the withdrawal is from Premium paid in
the last six years. You may not elect this program if you have taken a prior
withdrawal during the same Contract Year. (See "Withdrawals" on page , and
"Surrender Charges" on page .)

Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. If the day You
designate is not a Valuation Date, the withdrawal will be made on the following
Valuation Date. In the event that Your value in a specified Subaccount or the
Guaranteed Account is not sufficient to deduct a withdrawal or if Your request
for systematic withdrawal does not specify the Guaranteed Account or from which
Subaccounts withdrawals are to be deducted, withdrawals will be deducted
proportionally based on Your value in each Subaccount and the Guaranteed
Account.

All parties to the Contract are cautioned that the rights of any person to
implement the systematic withdrawal program under Qualified Contracts may be
subject to the terms and conditions of the retirement plan, regardless of the
terms and conditions of the Qualified Contract issued in connection with such a
retirement plan. (See "Federal Tax Matters" on page .)

The systematic withdrawal program may be canceled at any time by written
request or automatically by Us should the Contract Value fall below $1,000. In
the event the systematic withdrawal program is canceled, the Owner may not elect
to participate in such program until the next Contract Anniversary.

An Owner may change once per Contract Year the amount or frequency of
withdrawals on a systematic basis.

25
<PAGE>
The Free Withdrawal Amount (see "Charges and Deductions -- Deduction for
Surrender Charge" on page ) is not available while an Owner is receiving
systematic withdrawals. An Owner will be entitled to the free withdrawal amount
on and after the Contract Anniversary next following the termination of the
systematic withdrawal program.

Implementation of the systematic withdrawal program may subject an Owner to
adverse tax consequences, including a 10% tax penalty. (See "Taxes -- Taxation
of Annuities in General" on page for a discussion of the tax consequences of
withdrawals.)

THE COMPANY RESERVES THE RIGHT TO DISCONTINUE THIS PROGRAM AT ANY TIME.

SURRENDER

Prior to the Annuity Date you may Surrender the Contract for the Surrender
Value by withdrawing the entire Contract Value. You must submit a written
request for Surrender and return the Contract to Us. The Surrender Value will be
based on the Contract Value at the end of the Valuation Period during which the
Surrender request is received as described below. The Contract may not be
surrendered after the Annuity Date.

SURRENDER VALUE

The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. Contract Value in
the Guaranteed Account may be subject to a Market Value Adjustment. (See "Market
Value Adjustment", Appendix .) The Surrender Value will be the Contract Value,
subject to any applicable Market Value Adjustment, as of the date the Company
receives Your surrender request, reduced by the following: (1) any applicable
taxes not previously deducted; (2) any applicable portion of the Contract
Maintenance Charge; and (3) any applicable Surrender Charge.

PAYMENT OF WITHDRAWALS AND SURRENDER VALUES

Payments of Withdrawals and Surrender Values will ordinarily be sent to the
Owner within seven (7) days of receipt of the written request, but see the
Deferment of Payment discussion below. (Also see Statement of Additional
Information -- "Delay of Payments.")

The Company reserves the right to ensure that an Owner's check or other form
of Premium has been cleared for payment prior to processing any withdrawal or
redemption request occurring shortly after a Premium payment.

If, at the time You make a request for a Withdrawal or a Surrender, You have
not provided Us with a written election not to have Federal income taxes
withheld, We must by law withhold such taxes from the taxable portion of Your
payment and remit that amount to the IRS. Mandatory withholding rules apply to
distributions from qualified plans and Code Section 403(b) annuities.
Additionally, the Code provides that a 10% penalty tax may be imposed on certain
early Withdrawals and Surrenders. (See "Federal Tax Matters" on page , and
"Qualified Contracts" on page .)

DEFERRAL OF PAYMENT

Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Variable Account will usually occur within seven days. We may be permitted to
defer such payment if: (1) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise restricted;
(2) an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; (3) the SEC permits a delay for protection of Owners; or (4) the
check used to pay any Premium has not cleared through the banking system (this
may take up to 15 days).

We may defer payment of any Withdrawal or Surrender from the Guaranteed
Account for up to six months from the date we receive Your written request.

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<PAGE>
TAXES

INTRODUCTION

The Contracts are designed to accumulate Contract Values for retirement
plans which, except for IRAs and 403(b) Plans, are generally not tax-qualified
plans ("Qualified Plans"). The ultimate effect of Federal income taxes on the
amounts held under a Contract, on annuity payments, and on the economic benefits
to the Owner, Annuitant or Beneficiary depend on the Company's tax status and
upon the tax status of the individual concerned. Accordingly, each potential
Owner should consult a competent tax adviser regarding the tax consequences of
purchasing a Contract.

The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Fund, please see the accompanying Prospectus for the Fund.

COMPANY TAX STATUS

The Company is taxed as a life insurance company under the Internal Revenue
Code of 1986, as amended (the "Code"). Since the Variable Account is not a
separate entity from the Company and its operations form a part of the Company,
it will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized capital gains on the
assets of the Variable Account are reinvested and taken into account in
determining the Contract Value. Under existing Federal income tax law, the
Variable Account's investment income, including realized net capital gains, is
not taxed to the Company. The Company reserves the right to make a deduction for
taxes from the assets of the Variable Account should they be imposed with
respect to such items in the future.

TAXATION OF ANNUITIES IN GENERAL -- NON-QUALIFIED PLANS

Code Section 72 governs the taxation of annuities. In general, an Owner is
not taxed on increases in value under a Contract until some form of withdrawal
or distribution is made under the Contract. However, under certain
circumstances, the increase in value may be subject to tax currently. (See
"Contracts Owned by Non-Natural Persons," and "Diversification Standards" on
page .)

WITHDRAWALS PRIOR TO THE ANNUITY DATE

Code Section 72 provides that a total or partial withdrawal from a Contract
prior to the Annuity Date will be treated as taxable income to the extent the
amounts held under the Contract on the date of the withdrawal exceed the
"investment in the contract," as that term is defined under the Code. The
"investment in the contract" can generally be described as the cost of the
Contract. It generally constitutes the sum of all purchase payments made for the
contract less any amounts received under the Contract that are excluded from
gross income. The taxable portion is taxed as ordinary income. For purposes of
this rule, a pledge or assignment of a Contract is treated as a payment received
on account of a partial withdrawal of a Contract.

WITHDRAWALS ON OR AFTER THE ANNUITY DATE

Upon receipt of a lump sum payment or an annuity payment under the Contract,
the recipient is taxed on the portion of the payment that exceeds the investment
in the Contract. Ordinarily, the taxable portion of payments under the Contract
will be taxed as ordinary income.

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<PAGE>
taxable portion is determined by a formula which establishes a specific dollar
amount of each payment that is not taxed. The dollar amount is determined by
dividing the investment in the Contract by the total number of expected periodic
payments. The remaining portion of each payment is taxed as ordinary income.

The Company is obligated to withhold Federal income taxes from certain
payments unless the recipient elects otherwise. Prior to the first payment, the
Company will notify the payee of the right to elect out of withholding and will
furnish a form on which the election may be made. The payee must properly notify
the Company of that election in advance of the payment in order to avoid
withholding.

PENALTY TAX ON CERTAIN WITHDRAWALS

With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a 10% penalty tax is imposed upon the portion of such amount which
is includable in gross income. However, the penalty tax will not apply to
withdrawals: (i) made on or after the death of the Owner (or where the Owner is
not an individual, the death of the "primary annuitant", who is defined as the
individual, the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the Contract); (ii)
attributable to the taxpayer's becoming totally disabled within the meaning of
Code Section 72(m)(7); (iii) which are part of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancies) of
the taxpayer and his beneficiary; (iv) allocable to investment in the Contract
before August 14, 1982; (v) under a qualified funding asset (as defined in Code
Section 130(d)); (vi) under an immediate annuity contract; or (vii) that are
purchased by an employer on termination of certain types of qualified plans and
which are held by the employer until the employee separates from service.

If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount equal to
the tax that would have been imposed but for item (iii) above as determined
under Treasury Regulations, plus interest for the deferral period. The foregoing
rule applies if the modification takes place: (a) before the close of the period
which is five years from the date of the first payment and after the taxpayer
attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.

ASSIGNMENTS

Any assignment or pledge of the Contract as collateral for a loan may result
in a taxable event and the excess of the Contract Value over total Premium will
be taxed to the assignor as ordinary income. Please consult your tax adviser
prior to making an assignment of the Contract.

DISTRIBUTION-AT-DEATH RULES

In order to be treated as an annuity contract for Federal income tax
purposes, a Contract must generally provide for the following two distribution
rules: (i) if the Owner dies on or after the Annuity Date, and before the entire
interest in the Contract has been distributed, the remaining portion of such
interest will be distributed at least as quickly as the method in effect on the
Owner's death; and (ii) if a Owner dies before the Annuity Date, the entire
interest must generally be distributed within five years after the date of
death. To the extent such interest is payable to a designated Beneficiary,
however, such interest may be annuitized over the life of that Beneficiary or
over a period not extending beyond the life expectancy of that Beneficiary, so
long as distributions commence within one year after the date of death. If the
Beneficiary is the spouse of the Owner, the Contract may be continued unchanged
in the name of the spouse as Owner.

If the Owner is not an individual, the "primary annuitant" (as defined under
the Code) is considered the Owner. In addition, when the Owner is not an
individual, a change in the primary annuitant is treated as the death of the
Owner.

28
<PAGE>
GIFTS OF CONTRACTS

Any transfer of a Contract prior to the Annuity Date for less than full and
adequate consideration will generally trigger tax on the gain in the Contract.
The transferee will receive a step-up in basis for the amount included in the
transferor's income. This provision, however, does not apply to those transfers
between spouses or incident to a divorce which are governed by Code Section
1041(a).

CONTRACTS OWNED BY NON-NATURAL PERSONS

If the Contract is held by a non-natural person (for example, a corporation
or trust) the Contract is generally not treated as an annuity contract for
Federal income tax purposes, and the income on the Contract (generally the
excess of the Contract Value over the purchase payments) is includable in income
each year. The rule does not apply where the non-natural person is only the
nominal owner such as a trust or other entity acting as an agent for a natural
person. The rule also does not apply when the Contract is acquired by the estate
of a decedent, when the Contract is held under certain qualified plans, when the
Contract is a qualified funding asset for structured settlements, when the
Contract is purchased on behalf of an employee upon termination of a qualified
plan, and in the case of an immediate annuity.

SECTION 1035 EXCHANGES

Code Section 1035 provides that no gain or loss shall be recognized on the
exchange of an annuity contract for another annuity contract. A replacement
contract obtained in a tax-free exchange of contracts succeeds to the status of
the surrendered contract. Special rules and procedures apply to Code Section
1035 transactions. Prospective owners wishing to take advantage of Code Section
1035 should consult their tax advisers.

MULTIPLE CONTRACTS

Annuity contracts that are issued by the Company (or affiliate) to the same
Owner during any calendar year will be treated as one annuity contract in
determining the amount includable in the taxpayer's gross income. Thus, any
amount received under any such contract prior to the contract's annuity starting
date will be taxable (and possibly subject to the 10% penalty tax) to the extent
of the combined income in all such contracts. The Treasury has broad regulatory
authority to prevent avoidance of the purposes of this aggregation rule. It is
possible that, under this authority, Treasury may apply this rule to amounts
that are paid as annuities (on or after the starting date) under annuity
contracts issued by the same company to the same Owner during any calendar year
period. In this case, annuity payments could be fully taxable (and possibly
subject to the 10% penalty tax) to the extent of the combined income in all such
contracts and regardless of whether any amount would otherwise have been
excluded from income. Owners should consult a tax adviser before purchasing more
than one Contract or other annuity contracts.

DIVERSIFICATION STANDARDS

To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up period,
each Subaccount is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Subaccount is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-through" rule applies so that an
investment in the Fund is not treated as one investment but is treated as an
investment in a pro-rata portion of each underlying asset of the Fund. All
securities of the same issuer are treated as a single investment. In the case of
government securities, each Government agency or instrumentality is treated as a
separate issuer.

29
<PAGE>
In connection with the issuance of the Diversification Regulations, Treasury
announced that such regulations do not provide guidance concerning the extent to
which Owners may direct their investments to particular divisions of a separate
account. It is possible that if and when additional regulations or IRS
pronouncements are issued, the Contract may need to be modified to comply with
such rules. For these reasons, the Company reserves the right to modify the
Contract, as necessary, to prevent the Owner from being considered the owner of
the assets of the Variable Account.

The Company intends to comply with the Diversification Regulations to assure
that the Contracts continue to be treated as annuity contracts for Federal
income tax purposes.

QUALIFIED PLANS

The Contracts may be used to create an IRA. The Contracts are also available
for use in connection with a previously established 403(b) Plan. No attempt is
made herein to provide more than general information about the use of the
Contracts with IRAs or 403(b) Plans. The information herein is not intended as
tax advice. A prospective Owner considering use of the Contract to create an IRA
or in connection with a 403(b) Plan should first consult a competent tax adviser
with regard to the suitability of the Contract as an investment vehicle for
their qualified plan.

A Contract may be used as the investment medium for several types of
retirement plans. Under amendments to the Internal Revenue Code which became
effective in 1993, distributions from a qualified plan (other than non-taxable
distributions representing a return of capital, distributions meeting the
minimum distribution requirement, distributions for the life or life expectancy
of the recipient(s) or distributions that are made over a period of more than 10
years) are eligible for tax-free rollover within 60 days of the date of
distribution, but are also subject to federal income tax withholding at a 20%
rate unless paid directly to another qualified plan. If the recipient is unable
to take full advantage of the tax-free rollover provisions, there may be taxable
income, and the imposition of a 10% penalty if the recipient is under age
59 1/2. We make no attempt to provide more than general information about use of
Qualified Contracts with the various types of retirement plans. Owners and
participants under retirement plans as well as Annuitants and Beneficiaries are
cautioned that the rights of any person to any benefits under Qualified
Contracts may be subject to the terms and conditions of the retirement plan,
regardless of the terms and conditions of the Qualified Contract issued in
connection with such a retirement plan. Purchasers of Qualified Contracts for
use with any retirement plan should consult their legal counsel and tax adviser
regarding the suitability of a Qualified Contract for their retirement plan.

INDIVIDUAL RETIREMENT ANNUITIES

Section 408 of the Code permits eligible individuals to contribute to an
IRA. Contracts issued in connection with an IRA are subject to limitations on
eligibility, maximum contributions, and time of distribution. Distributions from
certain retirement plans qualifying for federal tax advantages may be rolled
over into an IRA. Sales of the Contracts for use with IRAs are subject to
special requirements imposed by the Service, including the requirement that
informational disclosure be given to each person desiring to establish an IRA.
The IRAs offered by this Prospectus are not available in all states.

403(B) PLANS

Code Section 403(b)(11) imposes certain restrictions on an Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to Premium paid under a salary reduction agreement. Specifically, Code Section
403(b)(11) allows an Owner to make a surrender or partial withdrawal only (a)
when the employee attains age 59 1/2, separates from service, dies, or becomes
disabled (as defined in the Code), or (b) in the case of hardship. In the case
of hardship, only an amount equal to the purchase payments may be withdrawn. In
addition, under Code Section 403(b) the employer must comply with certain
non-discrimination requirements. Owners should consult their employers to
determine whether the employer has complied with these rules. The 403(b) Plan
offered by this Prospectus is not available in all states.

30
<PAGE>
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
General Information........................................................................................
The Company..............................................................................................
Independent Accountants..................................................................................
Legal Counsel............................................................................................
Distributor..............................................................................................
Calculation of Performance Related Information...........................................................
Delay of Payments........................................................................................
Transfers................................................................................................
Method of Determining Contract Values......................................................................
Annuity Provisions.........................................................................................
Annuity Benefits.........................................................................................
Annuity Options..........................................................................................
Variable Annuity Payment Values..........................................................................
Annuity Unit.............................................................................................
Net Investment Factor....................................................................................
Additional Provisions....................................................................................
Financial Statements.......................................................................................
</TABLE>

<PAGE>

APPENDIX

GUARANTEED ACCOUNT OPTION

Under this Guaranteed Account option, Contract Values are held in the
Company's General Account. The General Account includes all of Our assets,
except those assets segregated in Our separate accounts. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 nor is the General Account
registered as an investment company under the Investment Company Act of 1940.
The Company understands that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus relating to the Guaranteed
Account portion of the Contract. Disclosures regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses.

During the Accumulation Period the Owner may allocate amounts to the
Guaranteed Account. The initial Premium will be invested in the Guaranteed
Account if selected by the Owner at the time of application. Additional Premium
will be allocated in accordance with the selection made in the application or
the most recent instruction received at the Company Office. If the Owner elects
to withdraw amounts from the Guaranteed Account, such withdrawal, except as
otherwise provided in this Appendix, will be subject to the same conditions as
imposed on withdrawals from the Variable Account. The Company reserves the right
to delay any payment from the Guaranteed Account for up to six (6) months from
the date it receives such request at its Office.

GUARANTEE PERIODS

The period(s) for which a guaranteed interest rate is credited is called a
Guarantee Period. Guarantee Periods may be offered or withdrawn at the Company's
discretion. The initial guarantee period(s) and the guaranteed interest rate(s)
applicable to the initial Premium are as shown in the Contract. At least 15 days
but no more than 75 days prior to the expiration of a Guarantee Period, the
Owner will be mailed a notice of the guaranteed interest rate applicable to a
renewal of the Guarantee Period. At the expiration of any Guarantee Period
applicable to any portion of the Contract Value, that portion of the Contract
Value will be automatically renewed for another Guarantee Period for the same
duration as the expired Guarantee Period and will receive the guaranteed
interest rate then in effect for that Guarantee Period, unless other Guarantee
Periods or one or more Subaccounts are requested in writing by the Owner. All
requests to change a Guarantee Period at the end of an existing Guarantee Period
must be received in writing at the Company's Office within 30 days prior to the
end of that Guarantee Period.

ALLOCATIONS TO THE GUARANTEED ACCOUNT

The minimum amount that may be allocated to a Guarantee Period, either from
the initial or a subsequent Premium, is $3,000. Amounts invested in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guarantee rate. The effective guarantee rate is that rate
in effect when the Owner allocates or transfers amounts to the Guaranteed
Account. If the Owner has allocated or transferred amounts at different times to
the Guaranteed Account, each allocation or transfer may have a unique effective
guarantee rate and Guarantee Period associated with that amount. The effective
guarantee rate will not be changed more than once per year and the minimum rate
will not be less than 3%.

GUARANTEED ACCOUNT TRANSFERS

During the accumulation period the Owner may transfer, by written request or
telephone authorization, Contract Values to or from a subaccount of the Variable
Account to or from a Guarantee Period of the Guaranteed Account at any time,
subject to the conditions set out under Transfer of Contract Values Section.

Prior to the end of a Guarantee Period the Owner may specify the
subaccount(s) of the Variable Account or the applicable Guarantee Period of the
Guaranteed Account to which the Owner wants the amounts from the Guaranteed
Account transferred at the end of the Guarantee Period. If the Owner

A-1
<PAGE>
does not notify us prior to the end of the Guarantee Period, we will reapply
that amount to a new Guarantee Period of the same duration, provided it is
available. If a new Guarantee Period of the same duration is not available, that
portion of Your Contract Value shall be transferred to the Guarantee Period next
shortest in duration. The amount so applied is then subject to the same
conditions as the original Guarantee Period, including the condition that the
amount may not be transferred until the end of that Guarantee Period. In the
event of a non-specified renewal, there is a grace period of 30 days within
which the Owner can have transferred amounts reapplied. The effective guarantee
rate applicable to the new Guarantee Period may be different from the effective
guaranteed rate applicable to the original Guarantee Period. These transfers
will be handled at no charge to the Owner.

MARKET VALUE ADJUSTMENT

Unless accomplished on the expiration date of a Guarantee Period or during
the grace period, a transfer, withdrawal, surrender or annuitization of amounts
allocated to the Guaranteed Account may be subject to a Market Value Adjustment.
The adjusted value is determined by multiplying the amount to be transferred,
withdrawn, surrendered or annuitized from a Guarantee Period by the following
formula:

.75 X (A-B) X [N/12], where:

<TABLE>
<S> <C> <C>
A = The guaranteed interest rate applicable to a Guarantee Period for that portion of
proceeds being transferred, withdrawn, surrendered or annuitized.

B = The guaranteed interest rate currently available for the same length of Guarantee
Period as that remaining in the period applicable to that portion of proceeds
being transferred, withdrawn, surrendered or annuitized. If no such Guarantee
Period is then offered, the guaranteed interest rate will be calculated by
straight line interpolation of the guaranteed interest rates of available
Guarantee Periods.

N = The number of complete and partial months remaining to the end of the Guarantee
Period applicable to that portion of proceeds being transferred, withdrawn,
surrendered or annuitized.
</TABLE>

The Market Value Adjustment is not applicable on the date a Guarantee Period
expires; however, a Withdrawal or Surrender on such date may remain subject to
Surrender Charges. Applicable Surrender Charges will be applied after any Market
Value Adjustment to Guaranteed Account values.

MINIMUM SURRENDER VALUE

The minimum Surrender Value for amounts allocated to the Guaranteed Account
equals the amounts so allocated less withdrawals, with interest compounded
annually at the rate of 3%, reduced by any applicable Surrender Charge.

A-2

<PAGE>

PART B
STATEMENT OF ADDITIONAL INFORMATION

DEFERRED VARIABLE ANNUITY CONTRACTS

issued by

VARIABLE ACCOUNT I

and

AIG LIFE INSURANCE COMPANY

THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE DEFERRED VARIABLE
ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.

THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE
INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED MAY
1, 1996 CALL OR WRITE: AIG Life Insurance Company; Attention: Variable Products,
One Alico Plaza, Wilmington, Delaware 19801, 1-800-340-2765.

DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1, 1996

<PAGE>

TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

PAGE
General Information..................................................
The Company......................................................
Independent Accountants..........................................
Legal Counsel....................................................
Distributor......................................................
Calculation of Performance Related Information...................
Delay of Payments................................................
Transfers........................................................

Method of Determining Contract Values................................

Annuity Provisions...................................................

Annuity Benefits.....................................................
Annuity Options..................................................
Variable Annuity Payment Values..................................
Annuity Unit.....................................................
Net Investment Factor............................................
Additional Provisions............................................

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

B - 2

<PAGE>

GENERAL INFORMATION

THE COMPANY

A description of AIG Life Insurance Company (the "Company"), and its
ownership is contained in the Prospectus. The Company will provide for the
safekeeping of the assets of Variable Account I (the "Variable Account").

INDEPENDENT ACCOUNTANTS

The audited financial statements of the Company have been audited by
Coopers and Lybrand, L.L.P., independent certified public accountants, whose
offices are located in Philadelphia, Pennsylvania.

LEGAL COUNSEL

Legal matters relating to the Federal securities laws in connection
with the Contracts described herein and in the Prospectus are being passed upon
by the law firm of Jorden Burt Berenson & Johnson LLP, Washington, D.C..

DISTRIBUTOR

AIG Equity Sales Corp. ("AESC"), a wholly owned subsidiary of American
International Group, Inc. and an affiliate of the Company, acts as the
distributor. Commissions are paid by the Registrant directly to selling
dealers and representatives on behalf of the Distributor. Commissions retained
by the Distributor in 1995 were $27,878.

CALCULATION OF PERFORMANCE RELATED INFORMATION

A. YIELD AND EFFECTIVE YIELD QUOTATIONS FOR THE MONEY MARKET
SUBACCOUNT

The yield quotation for the Money Market Subaccount to be set forth in
the Prospectus will be for the seven days ended on the date of the most recent
balance sheet of the Variable Account included in the registration statement,
and will be computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one Accumulation Unit in the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by (365/7) with the resulting figure carried to at least
the nearest hundredth of one percent.

Any effective yield quotation for the Money Market Subaccount to be
set forth in the Prospectus will be for the seven days ended on the date of the
most recent balance sheet of the Variable Account included in the registration
statement, and will be carried at least to the nearest hundredth of one percent,
and will be computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one Accumulation Unit in the Money Market Subaccount at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising the sum to a power equal
to 365 divided by 7 and subtracting 1 from the result, according to the
following formula:

EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)to the power of 365/7]-1.

B - 3

<PAGE>

For purposes of the yield and effective yield computations, the
hypothetical charge reflects all deductions that are charged to all Owner
accounts in proportion to the length of the base period. For any fees that vary
with the size of the account, the account size is assumed to be the Money Market
Subaccount's mean account size. The yield and effective yield quotations do not
reflect the Surrender Charge that may be assessed at the time of withdrawal in
an amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Surrender Charge" on page of the Prospectus) No deductions or
sales loads are assessed upon annuitization under the Contracts. Realized gains
and losses from the sale of securities and unrealized appreciation and
depreciation of the Money Market Subaccount and the Fund are excluded from the
calculation of yield.

B. TOTAL RETURN QUOTATIONS

The total return quotations for all of the Subaccounts to be set forth
in the Prospectus will be average annual total return quotations for the one,
five, and ten year periods (or, where a Subaccount has been in existence for a
period of less than one, five or ten years, for such lesser period) ended on the
date of the most recent balance sheet of the Variable Account and for the period
from the date monies were first placed into the Subaccounts until the aforesaid
date. The quotations are computed by finding the average annual compounded
rates of return over the relevant periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:

P(1+T)to the power of n = ERV

Where: P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the particular
period at the end of the particular period.

For the purposes of the total return quotations for all of the
Subaccounts, the calculations take into effect all fees that are charged to all
Owner accounts. For any fees that vary with the size of the account, the
account size is assumed to be the respective Subaccount's mean account size.
The calculations also assume a total withdrawal as of the end of the particular
period.

B - 4

<PAGE>

Annualized total return for certain Subaccounts as of December 29, 1995,
were as follows:

ONE YEAR THREE YEARS INCEPTION TO DATE
-------- ----------- -----------------
<S> <C> <C> <C>
Money Market -1.91% N/A -2.56%
Premier Growth 37.85% N/A 10.02%
Growth & Income 28.44% 11.93% 10.09%
International 8.34% N/A 1.10%
Short Term Multi -0.19% -0.90% -5.04%
Global Bond 17.56% 6.92% 2.75%
US Gov't Securities 12.14% N/A -1.18%
Global Dollar Gov't 15.83% N/A 3.96%
North American Gov't 15.33% N/A -3.72%
Utility Income 14.32% N/A 3.95%
Conservative Investor 10.05% N/A 3.21%
Growth Investors 13.36% N/A 3.73%
Growth 7.91% N/A 19.96%
Total Return 16.50% N/A 4.69%
World Wide Privatization 3.88% N/A -1.13%
Technology Portfolio N/A N/A N/A

</TABLE>

*Funds were first invested in the Portfolios as listed below:

Short-Term Multi-Market Portfolio June 22, 1992
Global Bond Portfolio July 8, 1992
Growth & Income Portfolio July 8, 1992
Premier Growth Portfolio February 3, 1993
Money Market Portfolio February 3, 1993
US Government/High Grade Portfolio August 20, 1993
International Portfolio October 1, 1993
North American Government Income Portfolio April 11, 1994
Global Dollar Government Portfolio April 20, 1994
Utility Income Portfolio April 20, 1994
Worldwide Privatization Portfolio August 16, 1994
Growth Investors Portfolio August 16, 1994
Growth Portfolio August 16, 1994
Conservative Investors Portfolio August 24, 1994
Total Return Portfolio August 26, 1994
Technology Portfolio January 10, 1996

C. YIELD QUOTATIONS FOR THE SHORT-TERM MULTI-MARKET, U.S. GOVERNMENT/HIGH
GRADE SECURITIES AND GLOBAL BOND SUBACCOUNTS

The yield quotations for the Short-Term Multi-Market, U.S. Government/High
Grade Securities and Global Bond Subaccounts that will be set forth in the
Prospectus will be based on the thirty-day period ended on the date of the most
recent balance sheet of the Variable Account included in the registration
statement, and are computed by dividing the net investment income per
Accumulation Unit earned during the period by the maximum offering price per
unit on the last day of the period, according to the following formula:

Yield = 2[(a - b + 1)to the power of 6 - 1]
---------
cd

B-5

<PAGE>

Where: a = net investment income earned during the period by
the corresponding portfolios of the Fund
attributable to shares owned by the Subaccount.

b = expenses accrued for the period (net of
reimbursements).

c = the average daily number of Accumulation Units
outstanding during the period.

d = the maximum offering price per Accumulation Unit
on the last day of the period.

For the purposes of the yield quotations for the Short-Term Multi-
Market, U.S. Government/High Grade Securities and Global Bond Subaccounts, the
calculations take into effect all fees that are charged to all Owner accounts.
For any fees that vary with the size of the account, the account size is assumed
to be the respective Subaccount's mean account size. The calculations do not
take into account the Surrender Charge or any transfer charges.

A Surrender Charge may be assessed at the time of withdrawal in an
amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract, and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Surrender Charge" on page __ of the Prospectus) There is
currently a transfer charge of $10 per transfer after a specified number of
transfers in each Contract Year. (See "Alliance Variable Products Series Fund,
Inc., - Transfer of Contract Values" on page __ of the Prospectus)

D. NON - STANDARDIZED PERFORMANCE DATA

1. Total Return Quotations

P(1+T)to the power of n = ERV

Where: P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the particular
period at the end of the particular period.

B - 6

<PAGE>

assumed to be the respective Subaccount's mean account size. The calculations
do not, however, assume a total withdrawal as of the end of the particular
period and, therefore, no Surrender Charge is reflected.

Annualized total return quotations for certain Subaccounts as of December
31, 1995, were as follows:

One Year Three Years Inception to Date
-------- ----------- ----------------
<S> <C> <C> <C>
Money Market 3.55% N/A 2.11%
Premier Growth 43.31% 13.66% 13.78%
Growth & Income 33.90% 13.16% 13.69%
International 8.34% N/A 6.83%
Short Term Multi Market 5.27% 0.66% -0.04%
Global Bond 23.02% 8.27% 6.97%
US Gov't Securities 17.60% N/A 4.42%
Global Dollar Gov't 21.29% N/A 10.38%
North American Gov't 20.79% N/A 2.93%
Utility Income 19.78% N/A 7.10%
Conservative Investor 15.51% N/A 11.46%
Growth Investors 18.82% N/A 11.82%
Growth 33.37% N/A 27.65%
Total Return 21.96% N/A 12.94%
Worldwide Privatization 9.34% N/A 7.10%
Technology Portfolio N/A N/A N/A
</TABLE>

2. TAX DEFERRED ACCUMULATION

In reports or other communications to You or in advertising or sales
materials, the Company may also describe the effects of tax-deferred compounding
on the Variable Account's investment returns or upon returns in general. These
effects may be illustrated in charts or graphs and may include comparisons at
various points in time of returns under the Contract or in general on a tax-
deferred basis with the returns on a taxable basdis. Different tax rates may be
assumed.

In general, individuals who own annuity contracts are not taxed on inreases
in the value under the annuity contract until some form of distribution is made
from the contract. Thus, the annuity contract will benefit from tax deferral
during the accumulation period, which generally will have the effect of
permitting an investment in an annuity contract to grow more rapidly than a
comparable investment under which increases in value are taxed on a current
basis. The following chart illustrates this benefit by comparing accumulation
under the Contract with accumulation from an investment on which gains are taxed
on a current basis. The chart shows accumulations on an initial investment or
Premium payment of $25,000, assuming hypothetical gross annual return of 0%, 4%
and 8%, compounded annually, and a tax rate of 31%. The values shown for the
taxable investment do not include any deduction for management fees or other
expenses but assume that taxes are deducted annually from investment returns.
The values shown for the Contract reflect the deduction of contractual expenses
such as the 1.25% mortality and expense risk charge, the 0.15% Administrative
Charge and the $30 Contract Maintenance Charge, but not the expenses of an
underlying investment vehicle, such as the Fund. In addition, these values
assume that the Owner does not surrender the Contract or make any withdrawals
until the end of the period shown. The chart assumes a full withdrawal, at the
end of the period shown, of all contract value and the payment of taxes at the
31% rate on the amount in excess of the Premium payment.

The rates of return illustrated are hypothetical and are not an estimate or
guaranty of performance. Actual tax rates may vary for different taxpayers from
that illustrated and withdrawals by Owners who have not reached age 59 1/2 may
be subject to a tax penalty of 10%.

[INSERT CHART]

B - 7

<PAGE>

DELAY OF PAYMENTS

Any payments due under the Contracts will generally be sent to the Owner
within seven (7) days of a completed request for payment. However, the Company
has reserved the right to postpone any type of payment from the Variable Account
for any period when:

(a) the New York Stock Exchange is closed for other than
customary weekends and holidays, or trading on the Exchange
is otherwise restricted;

(b) an emergency exists as a result of which it is not
reasonably practicable to dispose of securities held in the
Variable Account or determine their value;

(d) the check used to pay any Premium has not cleared through
the banking system (this may take up to 15 days).

The applicable rules of the Securities and Exchange Commission shall
govern as to whether the conditions in (a) and (b) exist.

METHOD OF DETERMINING CONTRACT VALUES

The Contract Value will fluctuate in accordance with the investment
results of the underlying Portfolio of the Fund held within the Subaccount. In
order to determine how these fluctuations affect Contract Values, Accumulation
Units are utilized. The value of an Accumulation Unit applicable during any
Valuation Period is determined at the end of that period.

When the first shares of the respective Portfolios of the Fund were
purchased for the Subaccounts, the Accumulation Units for the Subaccounts were
valued at $10. The value of an Accumulation Unit for a Subaccount on any
Valuation Date thereafter is determined by dividing (a) by (b), where:

(a) is equal to:

(i) the total value of the net assets attributable to
Accumulation Units in the Subaccount, minus

(ii) the daily charge for assuming the risk of guaranteeing
mortality factors and expense charges which is equal on
an annual basis to 1.25% multiplied by the daily net
asset value of the Subaccount; minus

(iii) the daily charge for providing certain administrative
functions which is equal on an annual basis to 0.15%
multiplied by the daily net asset value of the
Subaccount; minus or plus

(iv) a charge or credit for any tax provision established
for the Subaccount. The Company is not currently
making any provision for taxes.

(b) is the total number of Accumulation Units applicable to that
Subaccount at the end of the Valuation Period.

B - 8

<PAGE>

The resulting value of each Subaccount Accumulation Unit is multiplied
by the respective number of Subaccount Accumulation Units for a Contract. The
Contract Value of the Variable Account is the sum of all Subaccount values for
the Contract.

An Accumulation Unit may increase or decrease in value from Valuation
Date to Valuation Date.

ANNUITY PROVISIONS

ANNUITY BENEFITS

A description of the Annuity Benefits and Annuity Options is provided
in the prospectus

VARIABLE ANNUITY PAYMENT VALUES

A Variable Annuity is an annuity with payments which (1) are not
predetermined as to dollar amount and (2) will vary in amount with the net
investment results of the applicable Subaccount(s) of the Variable Account. At
the Annuity Date the Contract Value in each Subaccount will be applied to the
applicable Annuity Tables contained in the Contract. The Annuity Table used
will depend upon the payment option chosen. The same Contract Value amount
applied to each payment option may produce a different initial annuity payment.
If, as of the Annuity Date, the then current annuity rates applicable to this
class of contracts will provide a larger income than that guaranteed for the
same form of annuity under the Contracts described herein, the larger amount
will be paid.

The first annuity payment for each Subaccount is determined by
multiplying the amount of the Contract Value allocated to that Subaccount by the
factor shown in the table for the option selected, divided by 1000.

The dollar amount of Subaccount annuity payments after the first is
determined as follows:

(a) The dollar amount of the first annuity payment is divided by
the value for the Subaccount Annuity Unit as of the Annuity
Date. This establishes the number of Annuity Units for each
monthly payment. The number of Annuity Units remains fixed
during the Annuity payment period, subject to any transfers.

(b) The fixed number of Annuity Units is multiplied by the
Annuity Unit value for the Valuation Period 14 days prior to
the date of payment.

The total dollar amount of each Variable Annuity payment is the sum of
all Subaccount variable annuity payments less the pro-rata amount of the annual
Administrative Charge.

ANNUITY UNIT

The value of an Annuity Unit for each Subaccount was arbitrarily set
initially at $10. This was done when the first Fund shares were purchased. The
Subaccount Annuity Unit value at the end of any subsequent Valuation Period is
determined by multiplying the Subaccount Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (a) and (b) where:

B - 9

<PAGE>

(a) is the net investment factor for the Valuation Period for which
the Subaccount Annuity Unit value is being determined; and

(b) is the assumed investment factor for such Valuation Period. The
assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for
any Valuation Period shall be the accumulated value, at the end
of such period, of $1.00 deposited at the beginning of such
period at the assumed investment rate of 5%.

NET INVESTMENT FACTOR

The net investment factor is used to determine how investment results
of the Fund affect the Subaccount Annuity Unit value from one Valuation Period
to the next. The net investment factor for each Subaccount for any Valuation
Period is determined by dividing (a) by (b) and subtracting (c) from the result,
where:

(a) is equal to:

(i) the net asset value per share of the Fund held in the
Subaccount determined at the end of that Valuation
Period; plus

(ii) the per share amount of any dividend or capital gain
distribution made by the Fund held in the Subaccount if
the "ex-dividend" date occurs during that same
Valuation Period; plus or minus

(iii) a per share charge or credit, which is determined by
the Company, for changes in tax reserves resulting from
investment operations of the Subaccount.

(b) is equal to:

(i) the net asset value per share of the Fund held in the
Subaccount determined as of the end of the prior
Valuation Period; plus or minus

(ii) the per share charge or credit for any change in tax
reserves for the prior Valuation Period.

(i) the percentage factor representing the Mortality and
Expense Risk Charge, plus

(ii) the percentage factor representing the daily
Administrative Charge.

The net investment factor may be greater or less than the assumed investment
factor; therefore, the Subaccount Annuity Unit value may increase or decrease
from Valuation Period to Valuation Period.

ADDITIONAL PROVISIONS

B - 10

<PAGE>

underpayments that may have been made will be paid in full with the next annuity
payment, including interest at the annual rate of 5%. Any overpayments,
including interest at the annual rate of 5%, unless repaid to the Company in one
sum, will be deducted from future annuity payments until the Company is repaid
in full.

If a Contract provision requires that a person be alive, the Company
may require due proof that the person is alive before the Company acts under
that provision.

The Company will give the payee under an annuity payment option a
settlement contract for the payment option.

You may assign this Contract prior to the Annuity Date. A written
request, dated and signed by you must be sent to our Administrative Office. A
duly executed copy of any assignment must be filed with our Administrative
Office. We are not responsible for the validity of any assignment.

FINANCIAL STATEMENTS

The financial statements of the Company included herein shall be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.

B - 11

<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, 1995, 1994 AND 1993

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
AIG Life Insurance Company:

We have audited the accompanying balance sheets of AIG Life Insurance
Company (a wholly-owned subsidiary of American International Group, Inc.) as of
December 31, 1995 and 1994, and the related statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AIG Life Insurance Company
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.

As discussed in Note 1 (h) to the financial statements, the Company changed
in 1993, its method of accounting for investments in certain fixed maturity
securities.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 22, 1996

<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
(IN THOUSANDS)
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value (cost: 1995 -- $1,823,860: 1994 --
$1,337,720)................................................................. $ 1,963,265 $ 1,308,564
Equity securities:
Common stock (cost: 1995 -- $1,916: 1994 -- $1,670).......................... 2,437 2,113
Non-redeemable preferred stocks (cost: 1995 -- $2,562:
1994 -- $2,000)............................................................. 2,553 2,000
Mortgage loans on real estate, net............................................... 239,127 177,377
Real estate, net of accumulated depreciation of $1,755 in 1995;
and $1,156 in 1994.............................................................. 10,864 11,441
Policy loans..................................................................... 2,961,726 1,372,224
Other invested assets............................................................ 68,252 62,620
Short-term investments........................................................... 202,652 87,120
Cash............................................................................. 785 4,368
------------- -------------
Total investments and cash................................................. 5,451,661 3,027,827
Amounts due from related parties................................................. 3,899 6,610
Investment income due and accrued................................................ 242,748 116,449
Premium and insurance balances receivable -- net................................. 28,189 20,476
Reinsurance assets............................................................... 207,827 207,626
Deferred policy acquisition cost................................................. 60,625 54,474
Deferred incomes taxes........................................................... -- 24,379
Separate and variable accounts................................................... 190,441 83,718
Other assets..................................................................... 7,509 2,909
------------- -------------
Total assets............................................................... $ 6,192,899 $ 3,544,468
------------- -------------
------------- -------------
</TABLE>

See accompanying notes to financial statements.

<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS (CONTINUED)

LIABILITIES

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT SHARE
AMOUNTS)

Policyholders' funds on deposit.................................................. $ 4,574,995 $ 2,525,030
Future policy benefits........................................................... 566,487 483,211
Reserve for unearned premiums.................................................... 47,590 48,591
Policy and contract claims....................................................... 177,540 114,608
Reserve for commissions, expenses and taxes...................................... 24,134 33,991
Insurance balances payable....................................................... 22,186 19,168
Deferred income taxes............................................................ 24,660 --
Amounts due to related parties................................................... 2,382 12,376
Federal income tax payable....................................................... 4,606 13,349
Separate and variable accounts................................................... 190,441 74,076
Other liabilities................................................................ 234,850 22,111
------------- -------------
Total Liabilities.......................................................... 5,869,871 3,346,511
------------- -------------

Commitments and contingencies (See Note 6)

STOCKHOLDERS' EQUITY

Common stock, $5 par value; 1,000,000 shares authorized; 976,703 shares issued
and outstanding............................................................... 4,884 4,884
Additional paid-in capital..................................................... 123,283 123,283
Unrealized appreciation (depreciation) of investments, net of future policy
benefits and taxes of $47,209 in 1995 and $(8,093) in 1994...................... 87,673 (15,029)
Retained Earnings................................................................ 107,188 84,819
------------- -------------
Total stockholders' equity................................................. 323,028 197,957
------------- -------------
Total liabilities and stockholders' equity....................................... $ 6,192,899 $ 3,544,468
------------- -------------
------------- -------------
</TABLE>

See accompanying notes to financial statements.

<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues:
Premiums................................................................. $ 364,502 $ 265,990 $ 168,547
Net investment income.................................................... 435,697 238,899 137,108
Realized capital (losses) gains.......................................... (417) 1,953 9,280
----------- ----------- -----------
Total revenues......................................................... 799,782 506,842 314,935
----------- ----------- -----------
Benefits and expenses:
Benefits to policyholders................................................ 202,105 196,175 135,309
Increase in future policy benefits and policyholders' funds on deposit... 392,592 158,935 81,908
Acquisition and insurance expenses....................................... 170,343 127,941 87,126
----------- ----------- -----------
Total benefits and expenses............................................ 765,040 483,051 304,343
----------- ----------- -----------
Income before income taxes................................................. 34,742 23,791 10,592
----------- ----------- -----------
Income taxes (benefits):
Current.................................................................. 18,637 27,958 23,425
Deferred................................................................. (6,264) (19,447) (20,991)
----------- ----------- -----------
Total income taxes..................................................... 12,373 8,511 2,434
----------- ----------- -----------
Net income................................................................. $ 22,369 $ 15,280 $ 8,158
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See accompanying notes to financial statements.

<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
COMMON STOCK
Balance at beginning of year............................................... $ 4,884 $ 4,884 $ 4,884
----------- ----------- -----------
Balance at end of year..................................................... 4,884 4,884 4,884
----------- ----------- -----------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year............................................... 123,283 123,283 98,283
Capital contribution....................................................... -- -- 25,000
----------- ----------- -----------
Balance at end of year..................................................... 123,283 123,283 123,283
----------- ----------- -----------
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS, NET
Balance at beginning of year............................................... (15,029) 40,159 146
Change during year......................................................... 170,003 (84,904) (60)
Changes due to deferred income tax (expense) benefit and future policy
benefits.................................................................. (67,301) 29,716 19
Cumulative effect of accounting change, net of taxes
of $21,568................................................................ -- -- 40,054
----------- ----------- -----------
Balance at end of year..................................................... 87,673 (15,029) 40,159
----------- ----------- -----------
RETAINED EARNINGS
Balance at beginning of year............................................... 84,819 69,539 61,381
Net income................................................................. 22,369 15,280 8,158
----------- ----------- -----------
Balance at end of year..................................................... 107,188 84,819 69,539
----------- ----------- -----------
Total stockholders' equity............................................. $ 323,028 $ 197,957 $ 237,865
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See accompanying notes to financial statements.

<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
-------------- -------------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities:
Net income.......................................................... $ 22,369 $ 15,280 $ 8,158
-------------- -------------- ------------
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.................................... 133,207 88,718 40,597
Change in premiums and insurance balances receivable and payable
-- net......................................................... (4,695) 11,668 (154)
Change in reinsurance assets.................................... (201) 5,553 4,201
Change in deferred policy acquisition costs..................... (6,151) (14,906) (462)
Change in investment income due and accrued..................... (126,299) (82,023) (14,070)
Realized capital gains.......................................... 417 (1,953) (9,280)
Change in current and deferred income taxes -- net.............. (15,005) (16,739) (18,513)
Change in reserves for commissions, expenses and taxes.......... (9,857) 23,055 5,406
Change in other assets and liabilities -- net................... (8,452) (2,479) (1,061)
-------------- -------------- ------------
Total adjustments............................................. (37,036) 10,894 6,664
-------------- -------------- ------------
Net cash (used in) provided by operating activities............. (14,667) 26,174 14,822
-------------- -------------- ------------
Cash flows from investing activities:
Cost of fixed maturities, at market sold.......................... 36,678 19,392 61,551
Cost of fixed maturities, at market matured or redeemed........... 76,989 85,628 154,564
Cost of equity securities sold.................................... 405 -- 2,930
Realized capital gains............................................ 582 3,176 11,925
Purchase of fixed maturities...................................... (590,864) (252,964) (304,771)
Purchase of equity securities..................................... (1,213) -- (2,757)
Mortgage loans granted............................................ (75,100) (53,977) (19,428)
Repayments of mortgage loans...................................... 12,406 16,464 22,623
Change in policy loans............................................ (1,589,502) (1,184,455) (150,953)
Change in short-term investments.................................. (115,532) 18,361 (93,752)
Change in other invested assets................................... (4,296) (6,652) (7,132)
Other -- net...................................................... (5,369) (1,309) (3,079)
-------------- -------------- ------------
Net cash used in investing activities........................... (2,254,816) (1,356,336) (328,279)
-------------- -------------- ------------
Cash flows from financing activities:
Change in policyholders' funds on deposit......................... 2,265,900 1,330,841 290,443
Proceeds from capital contribution................................ -- -- 25,000
-------------- -------------- ------------
Net cash provided by financing activities....................... 2,265,900 1,330,841 315,443
-------------- -------------- ------------
Change in cash...................................................... (3,583) 679 1,986
Cash at beginning of year........................................... 4,368 3,689 1,703
-------------- -------------- ------------
Cash at end of year................................................. $ 785 $ 4,368 $ 3,689
-------------- -------------- ------------
-------------- -------------- ------------
</TABLE>

See accompanying notes to statutory financial statements.

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The Company also files financial statements prepared in accordance with
statutory practices prescribed or permitted by the Insurance Department of the
State of Delaware. Financial statements prepared in accordance with generally
accepted accounting principles differ in certain respects from the practices
prescribed or permitted by regulatory authorities. The significant differences
are: (1) statutory financial statements do not reflect fixed maturities
available for sale at market value; (2) policy acquisition costs, charged
against operations as incurred for regulatory purposes, have been deferred and
are being amortized over the anticipated life of the contracts; (3) individual
life and annuity policy reserves based on statutory requirements have been
adjusted based upon mortality, lapse and interest assumptions applicable to
these coverages, including provisions for reasonable adverse deviations; these
assumptions reflect the Company's experience and industry standards; (4)
deferred income taxes not recognized for regulatory purposes have been provided
for temporary differences between the bases of assets and liabilities for
financial reporting purposes and tax purposes; (5) for regulatory purposes,
future policy benefits, policyholders' funds on deposit, policy and contract
claims and reserve for unearned premiums are presented net of ceded reinsurance;
and (6) an asset valuation reserve and interest maintenance reserve using
National Association of Insurance Commissioners (NAIC) formulas are set up for
regulatory purposes.

(b) INVESTMENTS: Fixed maturities available for sale, where the company
may not have the ability or positive intent to hold these securities until
maturity, are carried at market value. Included in fixed maturities available
for sale are collateralized mortgage obligations (CMOs). Premiums and discounts
arising from the purchase of CMO's are treated as yield adjustments over the
estimated life. Common and non-redeemable preferred stocks are carried at market
value. Short-term investments are carried at cost, which approximates market.

Unrealized gains and losses from investments in equity securities and fixed
maturities available for sale are reflected in stockholders' equity, net of
amounts recorded as future policy benefits and any related deferred income
taxes.

Realized capital gains and losses are determined principally by specific
identification. Where declines in values of securities below cost or amortized
cost are considered to be other than temporary, a charge is reflected in income
for the difference between cost or amortized cost and estimated net realizable
value.

Mortgage loans on real estate are carried at unpaid principal balance less
unamortized loan origination fees and costs less an allowance for uncollectible
loans.

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.

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity, net of
any related taxes. Also included in this category is an interest rate cap
agreement, which is carried at its amortized cost. The cost of the cap is being
amortized against investment income on a straight line basis over the life of
the cap.

(c) INCOME TAXES: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the Parent
have a written tax allocation agreement whereby the Parent agrees not to charge
the Company a greater portion of the consolidated tax liability than would have
been paid by the Company if it had filed a separate return. Additionally, the
Parent agrees to reimburse the Company for any tax benefits arising out of its
net losses within ninety days after the filing of that consolidated tax return
for the year in which these losses are utilized. Deferred federal income taxes
are provided for temporary differences related to the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns.

(d) PREMIUM RECOGNITION AND RELATED BENEFITS AND EXPENSES: Premiums on
traditional life insurance and life contingent annuity contracts are recognized
when due. Revenues for universal life and investment-type products consist of
policy charges for the cost of insurance, administration, and surrenders during
the period. Premiums on accident and health insurance are reported as earned
over the contract term. The portion of accident and health premiums which is not
earned at the end of a reporting period is recorded as unearned premiums.
Estimates of premiums due but not yet collected are accrued. Policy benefits and
expenses are associated with earned premiums on long-duration contracts
resulting in a level recognition of profits over the anticipated life of the
contracts.

Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the policy.
Deferred policy acquisition costs and policy initiation costs related to
universal life and investment-type products are amortized in relation to
expected gross profits over the life of the policies (see Note 3).

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.

(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.

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) ACCOUNTING STANDARDS:

In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of"
(FASB 121). This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable and an impairment loss must be recognized.

FASB 121 is effective for the Company commencing January 1, 1996. The
Company believes that the adoption of this statement in 1996 will have an
immaterial impact on the results of operations, financial condition and
liquidity.

In December 1995, FASB issued "Special Report, a Guide to the Implementation
of Statement No. 115 on Accounting for Certain Investments in Debt and Equity
Securities". Among other things, this guide provided for a transition provision
permitting a one-time transfer of debt securities from the held to maturity
classification to the available for sale classification. The Company did not
transfer any securities from the held to maturity classification to the
available for sale classification.

In 1994, the American Institute of Certified Public Accountants (AICPA)
issued a Statement of Position (SOP) 94-6 "Disclosure of Certain Significant
Risks and Uncertainties" (SOP 94-6). Pursuant to SOP 94-6, the Company has made
certain disclosures as to the use of estimates in the preparation of its 1995
financial statements. Certain other disclosures were not necessary as the
Company did not meet the required criteria.

In November of 1992, FASB issued Statement of Financial Accounting Standards
No. 112 "Employers' Accounting for Postemployment Benefits" (FASB 112). FASB 112
established accounting standards for employers who provide benefits to former or
inactive employees after employment but before retirement. FASB 112 was adopted
effective January 1, 1994, and had no significant effect on the Company's
results of operations, financial condition or liquidity.

In October 1994, FASB issued Statement of Financial Accounting Standards No.
118 "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures" (FASB 118). FASB 118 amends FASB 114 to allow a creditor to use
existing methods to recognize interest income on an impaired loan. FASB 118 also
amends certain disclosure requirements of FASB 114. The Company adopted FASB 114
and 118 effective December 31, 1994. The adoption of these statements did not
cause any significant impact on the Company's results of operations, financial
condition or liquidity.

In October 1994, FASB issued Statement of Financial Accounting Standards No.
119 "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments" (FASB 119). FASB 119 requires disclosure about derivative
financial instruments and amends FASB 105 "Disclosure of Information about
Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentrations of Credit Risk" (FASB 105) and Statement of Financial Accounting
Standards No. 107 "Disclosure about Fair Value of Financial Instruments".

FASB 119 requires disclosure about the amounts, nature and terms of
derivatives that are not subject to FASB 105. Also, FASB 119 requires disclosure
about financial instruments held or issued for trading purposes and purposes
other than trading. This statement was adopted by the Company effective December
31, 1994.

In May 1993, FASB issued Statement of Accounting Standards No. 115
"Accounting for Certain Investments on Debt and Equity Securities" (FASB 115)
and the Company adopted this standard at December 31, 1993. The pretax increase
in carrying value of fixed maturities available for sale as a

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
result of marking to market was $108,623,000. A portion was recorded as a
component of future policy benefits. Thus, the unrealized appreciation of
investments increased $40,054,000, net of taxes of $21,568,000.

2. INVESTMENT INFORMATION
(a) STATUTORY DEPOSITS: Securities with a carrying value of $2,639,000 and
$2,436,000 were deposited by the Company under requirements of regulatory
authorities as of December 31, 1995 and 1994, respectively.

(b) NET INVESTMENT INCOME: An analysis of net investment income is as
follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Fixed maturities................................................. $ 138,341 $ 109,826 $ 105,333
Equity securities................................................ 225 241 52
Mortgage loans................................................... 19,399 14,655 13,289
Real estate...................................................... 323 765 875
Policy loans..................................................... 268,454 108,453 16,504
Cash and short-term investments.................................. 4,336 1,679 1,112
Other invested assets............................................ 6,129 4,070 3,384
----------- ----------- -----------
Total investment income...................................... 437,207 239,689 140,549
Investment expenses.............................................. 1,510 790 3,441
----------- ----------- -----------
Net investment income........................................ $ 435,697 $ 238,899 $ 137,108
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

(c) INVESTMENT GAINS AND LOSSES: The net realized capital gains (losses)
and change in unrealized appreciation (depreciation) of investments for 1995,
1994 and 1993 are summarized below (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Net realized (losses) gains on investments:
Fixed maturities............................................... $ (166) $ (10) $ 7,842
Equity securities.............................................. 712 442 (2,768)
Mortgage loans................................................. (1,000) (1,223) (2,645)
Other invested assets.......................................... 37 2,744 6,851
----------- ---------- ---------
Net realized gains............................................. $ (417) $ 1,953 $ 9,280
----------- ---------- ---------
----------- ---------- ---------
Change in unrealized appreciation (depreciation) of investments:
Fixed maturities................................................. $ 168,561 $ (90,779) $ --
Equity securities................................................ 69 293 (59)
Other invested assets............................................ 1,373 5,582 (1)
Cumulative effect of accounting change........................... -- -- 61,623
----------- ---------- ---------
Net change in unrealized appreciation (depreciation) of
investments..................................................... $ 170,003 $ (84,904) $ 61,563
----------- ---------- ---------
----------- ---------- ---------
</TABLE>

Proceeds from the sale of investments in fixed maturities during 1995, 1994
and 1993 were $34,679,000, $17,431,000, and $59,251,000, respectively.

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. INVESTMENT INFORMATION (CONTINUED)
During 1995, 1994 and 1993, gross gains of $109,000, $394,000, and
$15,363,000, respectively, and gross losses of $275,000, $404,000, and
$7,520,000, respectively, were realized on dispositions of fixed maturity
investments.

During 1995, 1994 and 1993, gross gains of $712,000, $442,000, and $161,000,
respectively, and gross losses of $0, $0 and $2,929,000, respectively, were
realized on disposition of equity securities.

(d) MARKET VALUE OF FIXED MATURITIES AND UNREALIZED APPRECIATION OF
INVESTMENTS: At December 31, 1995 and 1994, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross gains
of $833,000 and $793,000 and gross losses of $320,000 and $349,000,
respectively.

The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1995 and 1994 are as follows (in thousands):

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
1995 COST GAINS LOSSES MARKET VALUE
- ---------------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government agencies and
authorities............................................ $ 45,872 $ 12,144 $ -- $ 58,016
States, municipalities and political subdivisions....... 345,049 22,975 24 368,000
Foreign governments..................................... 30,515 4,158 30 34,643
All other corporate..................................... 1,402,424 106,513 6,331 1,502,606
------------- ----------- ----------- -------------
Total fixed maturities................................ $ 1,823,860 $ 145,790 $ 6,385 $ 1,963,265
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
1994 COST GAINS LOSSES MARKET VALUE
- ---------------------------------------------------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government agencies and
authorities............................................ $ 44,107 $ 1,588 $ 1,184 $ 44,511
States, municipalities and political subdivisions....... 341,338 5,799 20,614 326,523
Foreign governments..................................... 15,431 683 956 15,158
All other corporate..................................... 936,844 20,536 35,008 922,372
------------- ----------- ----------- -------------
Total fixed maturities................................ $ 1,337,720 $ 28,606 $ 57,762 $ 1,308,564
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>

The amortized cost and estimated market value of fixed maturities, available
for sale at December 31, 1995, by contractual maturity, are shown below (in
thousands). Actual maturities could differ from contractual maturities because
certain borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
------------- -------------
<S> <C> <C>
Due in one year or less.......................................................... $ 77,667 $ 83,553
Due after one year through five years............................................ 470,775 500,396
Due after five years through ten years........................................... 671,788 724,559
Due after ten years.............................................................. 603,630 654,757
------------- -------------
$ 1,823,860 $ 1,963,265
------------- -------------
------------- -------------
</TABLE>

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. INVESTMENT INFORMATION (CONTINUED)
(e) CMO'S: CMO's are U.S. Government and Government agency backed and
triple A-rated securities. In the preceding table, CMO's are included in other
corporate fixed maturities. At December 31, 1995 and 1994, the market value of
the CMO portfolio was $457,111,000 and $419,148,000, respectively; the estimated
amortized cost was approximately $433,481,000 in 1995 and $427,409,000 in 1994.
The Company's CMO portfolio is readily marketable. There were no derivative
(high risk) CMO securities contained in the portfolio at December 31, 1995.

(f) FIXED MATURITIES BELOW INVESTMENT GRADE: At December 31, 1995 and
1994, the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $74,622,000 and $65,604,000, respectively,
and an aggregate market value of $73,894,000 and $61,946,000, respectively.

(g) NON-INCOME PRODUCING ASSETS: Non-income producing assets were
insignificant.

(h) INVESTMENTS GREATER THAN 10% EQUITY: The market value of investments
in the following companies and institutions exceeded 10% of the Company's total
stockholders' equity at December 31, 1995 (in thousands):

<TABLE>
<S> <C>
Fixed Maturities:
Ford Motor Credit Corporation........................................... $ 38,853
Morgan Stanley Group, Incorporated...................................... $ 35,157
Other Invested Assets:
Equity Linked Investors II, L.P......................................... $ 38,638
</TABLE>

3. DEFERRED POLICY ACQUISITION COSTS
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against future
income and the related current amortization charged to income, excluding certain
amounts deferred and amortized in the same period (in thousands). The 1995
amortization includes $9,455,000 to recognize excess loss experienced on credit
insurance.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Balance at beginning of year...................................... $ 54,474 $ 39,568 $ 39,106
Acquisition costs deferred........................................ 35,008 29,442 6,465
Amortization charged to income.................................... (28,857) (14,536) (6,003)
---------- ---------- -----------
Balance at end of year........................................ $ 60,625 $ 54,474 $ 39,568
---------- ---------- -----------
---------- ---------- -----------
</TABLE>

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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, 1995 and 1994 follows (in thousands):

<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Future Policy Benefits:
Long duration contracts.............................................. $ 556,669 $ 476,173
Short duration contracts............................................. 9,818 7,038
------------- -------------
$ 566,487 $ 483,211
------------- -------------
------------- -------------
Policyholders' funds on deposit:
Annuities............................................................ $ 944,629 $ 868,828
Universal life....................................................... 171,564 110,376
Guaranteed investment contracts (GICs)............................... 249,844 57,457
Corporate owned life insurance....................................... 3,204,912 1,483,882
Other investment contracts........................................... 4,046 4,487
------------- -------------
$ 4,574,995 $ 2,525,030
------------- -------------
------------- -------------
</TABLE>

(b) Long duration contract liabilities included in future policy benefits,
as presented in the table above, result from traditional life products. Short
duration contract liabilities are primarily accident and health products. The
liability for future policy benefits has been established based upon the
following assumptions:

(i) Interest rates for traditional life insurance products are 9.5
percent graded to 7.0 percent over 30 years. The liability for future policy
benefits for universal life insurance has been established using FASB 97 and
assumes a 1.0 percent investment margin. Interest rates (exclusive of
immediate/terminal funding annuities), which vary by year of issuance and
products, range from 3.0 percent to 10.0 percent. Interest rates on
immediate/terminal funding annuities are at a maximum of 12.2 percent and
grade to not greater than 7.5 percent.

(ii) Mortality and withdrawal rates are based upon actual experience
modified to allow for variations in policy form. The weighted average lapse
rate, including surrenders, for individual life approximated 2.5 percent.

(i) Interest rates credited on deferred annuities vary by year of
issuance and range from 4.0 percent to 8.3 percent. Credited interest rate
guarantees are generally for a period of one year. Withdrawal charges
generally range from 6.0 percent to 10.0 percent grading to zero over a
period of 6 to 10 years.

(ii) GICs have market value withdrawal provisions for any funds
withdrawn other than benefit responsive payments. Interest rates credited
generally range from 5.1 percent to 9.1 percent and maturities range from 2
to 7 years.

(iii) Interest rates on corporate-owned life insurance business are
guaranteed at 4.0 percent and the weighted average rate credited in 1995 was
10.5 percent.

(iv) The universal life funds, exclusive of corporate owned life
insurance business, have credited interest rates of 6.1 percent to 7.0
percent and guarantees ranging from 4.0 percent to 5.5

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. FUTURE POLICY BENEFITS AND POLICYHOLDERS' FUNDS ON DEPOSIT (CONTINUED)
percent depending on the year of issue. Additionally, universal life funds
are subject to surrender charges that amount to 7.5 percent of the fund
balance and grade to zero over a period not longer than 20 years.

5. INCOME TAXES

(a) The Federal income tax rate applicable to ordinary income is 35% for
1995, 1994 and 1993. Actual tax expense on income from operations differs from
the "expected" amount computed by applying the Federal income tax rate because
of the following (in thousands except percentages):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ----------------------
PERCENT OF PRE-TAX PERCENT OF PRE-TAX PERCENT OF PRE-TAX
OPERATING OPERATING OPERATING
---------------------- ---------------------- ----------------------
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax expense................. $ 12,160 35.0% $ 8,327 35.0% $ 3,707 35.0%
Prior year federal income tax benefit......... (782) (2.3) -- -- (1,404) (13.2)
State income tax.............................. 876 2.5 149 0.6 -- --
Other......................................... 119 0.3 35 .2 131 1.2
--------- --- --------- --- --------- -----
Actual income tax expense................. $ 12,373 35.5% $ 8,511 35.8% $ 2,434 23.0%
--------- --- --------- --- --------- -----
--------- --- --------- --- --------- -----
</TABLE>

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
1995 1994
--------- ----------
<S> <C> <C>
Deferred tax assets:
Adjustment to life reserves................................................ $ 24,940 $ 17,703
Adjustments to mortgage loans and investment income........................ 2,546 2,395
Unrealized depreciation on investments..................................... -- 8,093
Adjustment to policy and contract claims................................... 11,725 8,200
Other...................................................................... 1,157 521
--------- ----------
40,368 36,912
--------- ----------
Deferred tax liabilities:
Deferred policy acquisition costs.......................................... $ 13,040 $ 10,275
Unrealized appreciation on investments..................................... 47,209 --
Bond discount.............................................................. 3,458 1,906
Other...................................................................... 1,321 352
--------- ----------
65,028 12,533
--------- ----------
Net deferred tax (asset) liability......................................... $ 24,660 $ (24,379)
--------- ----------
--------- ----------
</TABLE>

(c) At December 31, 1995, 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 1995, 1994, and 1993 amounted to $26,030,000,
$25,052,000, and $17,669,000, respectively.

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

(a) Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of fair
value information about financial instruments for which it is practicable to
estimate such fair value. These financial instruments may or may not be
recognized in the balance sheet. In the measurement of the fair value of certain
of the financial instruments, quoted market prices were not available and other
valuation techniques were utilized. These derived fair value estimates are
significantly affected by the assumptions used. FASB 107 excludes certain
financial instruments, including those related to insurance contracts.

The following methods and assumptions were used by the Company in estimating
the fair value of the financial instruments presented:

CASH AND SHORT TERM INVESTMENTS: The carrying amounts reported in the
balance sheet for these instruments approximate fair values.

FIXED MATURITIES: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.

EQUITY SECURITIES: Fair values for equity securities were based upon
quoted market prices.

MORTGAGE AND POLICY LOANS: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type loans.
The fair value of the policy loans were not calculated as the Company
believes it would have to expend excessive costs for the benefits derived.
Therefore, the fair value of policy loans was estimated at carrying value.

INTEREST RATE CAP: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.

POLICYHOLDERS' FUNDS ON DEPOSIT: Fair value of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent with
those remaining for the contracts being valued.

(b) The fair value and carrying amounts of financial instruments is as
follows (in thousands):

<TABLE>
<CAPTION>
CARRYING
1995 FAIR VALUE AMOUNT
- ----------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Cash and short-term investments........................................ $ 203,437 $ 203,437
Fixed maturities....................................................... 1,963,265 1,963,265
Equity securities...................................................... 4,990 4,990
Mortgage and policy loans.............................................. 3,216,321 3,200,853
Interest rate cap...................................................... 144 170
Policyholders' funds on deposit........................................ $ 4,592,841 $ 4,574,995
</TABLE>

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

<TABLE>
<CAPTION>
CARRYING
1994 FAIR VALUE AMOUNT
- ----------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Cash and short-term investments........................................ $ 91,488 $ 91,488
Fixed maturities....................................................... 1,308,564 1,308,564
Equity securities...................................................... 4,113 4,113
Mortgage and policy loans.............................................. 1,551,831 1,549,601
Interest rate cap...................................................... 522 245
Policyholders' funds on deposit........................................ $ 2,524,273 $ 2,525,030
</TABLE>

8. STOCKHOLDERS' EQUITY

(a) The maximum stockholder dividend which can be paid without prior
regulatory approval is subject to restrictions relating to statutory surplus and
statutory net gain from operations. These restrictions limited payment of
dividends to $44,970,000 during 1995, however, no dividends were paid during the
year.

(b) The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $176,951,000 at December 31, 1995 and
$145,209,000 at December 31, 1994. Statutory net income amounted to $39,712,000,
$47,002,000, and $10,441,000 for 1995, 1994 and 1993, respectively.

9. EMPLOYEE BENEFITS

(a) The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by the
Parent. All qualified employees who have attained age 21 and completed twelve
months of continuous service are eligible to participate in this plan. An
employee with 5 or more years of service is entitled to pension benefits
beginning at normal retirement age 65. Benefits are based upon a percentage of
average final compensation multiplied by years of credited service limited to 44
years of credited service. Prior to January 1, 1996, the average final
compensation is subject to certain limitations. Annual funding requirements are
determined based on the "projected unit credit" cost method which attributes a
pro rata portion of the total projected benefit payable at normal retirement to
each year of credited service. Pension expense for current service costs,
retirement and termination benefits for the years ended December 31, 1995, 1994
and 1993 were approximately $304,000, $179,000, and $248,000, 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, 1995 by
$59,620,000.

(b) The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which, during the two years ended December 31, 1994, provided
for salary reduction contributions by employees and matching contributions by
the Parent of up to 2 percent of annual salary. Commencing January 1, 1995, the
401(k) plan provided for matching contributions by the Parent of up to 6 percent
of annual salary depending on the employee's years of service.

(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) Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plans, 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.

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. EMPLOYEE BENEFITS (CONTINUED)
In general, the stock purchase plans provide for eligible employees to receive
privileges to purchase AIG common stock at a price equal to 85% of the fair
market value on the date of grant of the purchase privilege.

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, 1995, the future minimum lease
payments under operating leases were as follows (in thousands):

<TABLE>
<CAPTION>
YEAR PAYMENT
- ------------------------------------------------------------------------- ---------
<S> <C>
1996..................................................................... $ 3,735
1997..................................................................... 3,180
1998..................................................................... 2,069
1999..................................................................... 1,443
2000..................................................................... 1,519
Remaining years after 2000............................................... 5,885
---------
Total................................................................ $ 17,831
---------
---------
</TABLE>

Rent expense approximated $3,764,000, $3,542,000, and $2,367,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.

(b) Sublease Income -- The Company does not participate in sublease
agreements.

11. REINSURANCE

(a) The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are reinsured
primarily under coinsurance and yearly renewable term treaties. Accident and
health insurance risks are reinsured primarily under coinsurance, excess of loss
and quota share treaties. Amounts recoverable from reinsurers are estimated in a
manner consistent with the assumptions used for the underlying policy benefits
and are presented as a component of reinsurance assets. A contingent liability
exists with respect to reinsurance ceded to the extent that any reinsurer is
unable to meet the obligations assumed under the reinsurance agreements.

The Company also reinsures portions of its life and accident and health
insurance risks with affiliated companies (see Note 12). The effect of all
reinsurance contracts, including reinsurance assumed, is as follows (in
thousands, except percentages):

<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT ASSUMED
DECEMBER 31, 1995 GROSS CEDED ASSUMED NET TO NET
- -------------------------------------- -------------- -------------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force............... $ 48,644,007 $ 16,635,298 $ 58,966 $ 32,067,675 0.2%
-------------- -------------- --------- --------------
-------------- -------------- --------- --------------
Premiums:
Life.............................. 184,981 33,768 1,670 152,883 1.1%
Accident and Health............... 72,473 16,800 93,060 148,733 62.6%
Annuity........................... 62,886 -- -- 62,886 --
-------------- -------------- --------- --------------
Total Premiums.................. $ 320,340 $ 50,568 $ 94,730 $ 364,502 26.0%
-------------- -------------- --------- --------------
-------------- -------------- --------- --------------
</TABLE>

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. REINSURANCE (CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT ASSUMED
DECEMBER 31, 1994 GROSS CEDED ASSUMED NET TO NET
- -------------------------------------- -------------- -------------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force............... $ 38,375,181 $ 16,500,870 $ 19,298 $ 21,893,609 0.1%
-------------- -------------- --------- --------------
-------------- -------------- --------- --------------
Premiums:
Life.............................. 130,716 7,233 (10) 123,473 --
Accident and Health............... 66,026 13,949 79,810 131,887 60.5%
Annuity........................... 10,630 -- -- 10,630 --
-------------- -------------- --------- --------------
Total Premiums.................. $ 207,372 $ 21,182 $ 79,800 $ 265,990 30.0%
-------------- -------------- --------- --------------
-------------- -------------- --------- --------------

PERCENTAGE OF
AMOUNT ASSUMED
DECEMBER 31, 1993 GROSS CEDED ASSUMED NET TO NET
- -------------------------------------- -------------- -------------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force............... $ 12,101,258 $ 1,824,238 $ 57,697 $ 10,334,717 0.6%
-------------- -------------- --------- --------------
-------------- -------------- --------- --------------
Premiums:
Life.............................. 54,475 6,115 604 48,964 1.2%
Accident and Health............... 59,363 14,777 69,388 113,974 60.9%
Annuity........................... 4,985 48 672 5,609 12.0%
-------------- -------------- --------- --------------
Total Premiums.................. $ 118,823 $ 20,940 $ 70,664 $ 168,547 41.9%
-------------- -------------- --------- --------------
-------------- -------------- --------- --------------
</TABLE>

(b) The maximum amount retained on any one life by the Company is $500,000.

(c) Reinsurance recoveries, which reduced death and other benefits,
approximated $51,264,000, $34,252,000, and $15,182,000, respectively, for each
of the years ended December 31, 1995, 1994 and 1993.

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 1995 amounted to $1,269,000 and $1,000,
respectively. Premium income and commission ceded for 1994 amounted to
$1,267,000 and $2,000, respectively. Premium income ceded to affiliates amounted
to $322,000 for the year ended December 31, 1993. There were no commissions
ceded to affiliates in 1993. Premium income and ceding commission expense
assumed from affiliates aggregated $90,688,000 and $23,422,000, respectively,
for 1995, compared to $75,005,000 and $20,374,000, respectively, for 1994, and
$69,076,000 and $19,469,000, respectively for 1993.

(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,
1995, 1994 and 1993, the Company was charged $23,193,000, $21,392,000, and
$19,961,000, respectively, for expenses attributed to the Company but incurred
by affiliates. During the same period, the Company received reimbursements from
affiliates aggregating $14,496,000, $13,383,000, and $12,210,000, respectively,
for costs incurred by the Company but attributable to affiliates.

<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
(c) During 1993, the Company received cash surplus contributions of
$25,000,000 from AIG, Inc., the Parent and Commerce & Industry Insurance
Company.

(d) During 1993, the Company sold a mortgage loan to Atlanta 17th Street,
Inc., for the aggregate unpaid principal balance of $17,500,000.

(e) During 1993, the Company entered into a loan agreement with AIG
Investment Company (AIGIC), an affiliated company. The purpose of the loan was
to fund the Company's investment in the separate account pension product. At
December 31, 1995 and 1994, amounts due to related parties include $2,000 and
$9,566,000, respectively, reflecting the loan balance under this agreement.

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Contract Owners of
AIG Life Insurance Company
Variable Account I

We have audited the accompanying statements of assets and liabilities of AIG
Life Insurance Company Variable Account I (the "Account") comprising the
Money Market, Premier Growth, Growth and Income, International, Short-Term
Multi-Market, Global Bond, U.S. Government/High Grade Securities, Global
Dollar Government, North American Government, Utility Income, Conservative
Investors, Growth Investors, Growth, Total Return, and Worldwide
Privatization Subaccount, as of December 31, 1995, and the related statement
of operations for the year then ended, and the statements of changes in net
assets for each of the two years in the period then ended. These financial
Statements are the responsibility of the management of Variable Account I.
Our responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments held as of December 31,
1995 by correspondence with the transfer agent. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIG Life Insurance Company
Variable Account I as of December 31, 1995, and the results of its operations
for the year then ended, and the changes in its net assets for each of the
two years in the period then ended, in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 19, 1996

<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995

Assets:
Investments at Market Value:
Alliance Variable Products Series Fund, Inc. Shares Cost
-------- -----
<S> <C> <C> <C>

Money Market Portfolio ....................... 19,642,344.000 $ 19,642,344 $ 19,642,344
Premier Growth Portfolio .................... 1,020,681.880 16,607,744 18,168,136
Growth & Income Portfolio .................... 1,537,763.760 21,422,124 24,281,289
International Portfolio ...................... 808,809.670 10,708,443 11,379,952
Short-Term Multi-Market Portfolio............. 108,752.580 1,116,260 1,150,602
Global Bond Portfolio ........................ 222,515.760 2,455,370 2,703,566
U.S. Government/High Grade
Securities Portfolio ....................... 869,020.910 9,328,907 10,132,784
Global Dollar Government Portfolio............ 235,846.390 2,486,276 2,818,363
North American Government Portfolo............ 533,873.600 5,116,377 5,594,995
Utility Income Portfolio ..................... 352,280.960 3,882,202 4,230,894
Conservative Investors Portfolio.............. 398,577.390 4,413,976 4,687,271
Growth Investors Portfolio.................... 286,861.090 3,206,307 3,405,040
Growth Portfolio.............................. 2,174,689.460 26,959,532 30,945,832
Total Return Portfolio........................ 302,011.740 3,610,049 3,865,750
Worldwide Privatization Portfolio............. 388,192.630 4,125,598 4,336,112
------------ ------------
Total Investments ......................... $135,081,509 147,342,930

Dividends Receivable ............................ 73,252
Receivable from AIG Life ........................ 49,202
------------
Total Assets .............................. $147,465,384
------------
------------

Equity:
Contract Owners' Equity ....................... $147,465,384
------------
Total Liabilities and Equity ................. $147,465,384
------------
------------

</TABLE>

See Notes to Financial Statements

<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995

MONEY PREMIER GROWTH & INTER- SHORT-TERM
MARKET GROWTH INCOME NATIONAL MULTI-MARKET
TOTAL PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>

Investment Income (Loss):
Dividends. . . . . . . . . . . . . . $ 1,072,873 $ 565,316 $ 30,520 $ 169,942 $ 36,275 $ -

Expenses:
Mortality & Expense Risk Fees. . . 928,566 143,279 85,960 138,497 89,127 9,662
Daily Adminstrative Charges. . . . 111,151 17,117 10,292 16,859 10,951 1,154
------------ --------- ----------- ----------- --------- --------
1,039,717 160,396 96,252 155,356 100,078 10,816
------------ --------- ----------- ----------- --------- --------
Net Investment Income (Loss) . . . 33,156 404,920 (65,732) 14,586 (63,803) (10,816)
------------ --------- ----------- ----------- --------- --------

Realized and Unrealized Gain (Loss)
on Investments:

Realized Gain (Loss) on Investment
Activity. . . . . . . . . . . . . . 227,794 - 92,209 30,936 29,327 (23,794)
Change in Unrealized Appreciation
(Depreciation). . . . . . . . . . . 12,845,829 - 1,577,208 2,933,771 737,015 66,442
------------ --------- ----------- ----------- --------- --------
Net Gain (Loss) on Investments . . 13,073,623 - 1,669,417 2,964,707 766,342 42,648

Increase (Decrease) in Net Assets
Resulting From Operations. . . . . . $ 13,106,779 $ 404,920 $ 1,603,685 $ 2,979,293 $ 702,539 $ 31,832
------------ --------- ----------- ----------- --------- --------
------------ --------- ----------- ----------- --------- --------

</TABLE>

See Notes to Financial Statements
<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(Continued)

GLOBAL U.S. GOV'T GLOBAL N.AMER. UTILITY
BOND HIGH GRD DOLLAR GOV'T GOV'T INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>

Investment Income (Loss):
Dividends. . . . . . . . . . . . . . $ 9,984 $ 87,891 $ 20,765 $ 114,967 $ 14,027

Expenses:
Mortality & Expense Risk Fees. . . 18,079 71,630 19,418 49,011 27,430
Daily Adminstrative Charges. . . . 1,676 8,564 2,322 5,858 3,279
--------- --------- --------- --------- ---------
19,755 80,194 21,740 54,869 30,709
--------- --------- --------- --------- ---------

Net Investment Income (Loss) . . . (9,771) 7,697 (975) 60,098 (16,682)
--------- --------- --------- --------- ---------

Realized and Unrealized Gain (Loss)
on Investments:

Realized Gain (Loss) on Investment
Activity. . . . . . . . . . . . . . (15,732) 40,450 8,612 (170,057) 33,618
Change in Unrealized Appreciation
(Depreciation). . . . . . . . . . . 291,336 850,195 347,878 905,309 371,845
--------- --------- --------- --------- ---------
Net Gain (Loss) on Investments . . 275,604 890,645 356,490 735,252 405,463

Increase (Decrease) in Net Assets
Resulting From Operations. . . . . . $ 265,833 $ 898,342 $ 355,515 $ 795,350 $ 388,781
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

</TABLE>

See Notes to Financial Statements
<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(Continued)
<TABLE>
<CAPTION>

CONSERVATIVE GROWTH TOTAL WORLDWIDE
INVESTORS INVESTORS GROWTH RETURN PRIVATIZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>

Investment Income (Loss):
Dividends. . . . . . . . . . . . . . $ 2,971 $ 733 $ 8,337 $ 5,444 $ 5,701

Expenses:
Mortality & Expense Risk Fees. . . 23,525 15,147 188,655 17,326 31,820
Daily Adminstrative Charges. . . . 2,816 1,814 22,569 2,075 3,805
--------- --------- ----------- --------- ---------
26,341 16,961 211,224 19,401 35,625
--------- --------- ----------- --------- ---------

Net Investment Income (Loss) . . . (23,370) (16,228) (202,887) (13,957) (29,924)
--------- --------- ----------- --------- ---------

Realized and Unrealized Gain (Loss)
on Investments:

Realized Gain (Loss) on Investment
Activity. . . . . . . . . . . . . . 22,158 14,539 142,991 16,746 5,791
Change in Unrealized Appreciation
(Depreciation). . . . . . . . . . . 269,922 201,543 3,832,350 257,274 203,741
--------- --------- ----------- --------- ---------
Net Gain (Loss) on Investments . . 292,080 216,082 3,975,341 274,020 209,532

Increase (Decrease) in Net Assets
Resulting From Operations. . . . . . $ 268,710 $ 199,854 $ 3,772,454 $ 260,063 $ 179,608
--------- --------- ----------- --------- ---------
--------- --------- ----------- --------- ---------

</TABLE>

See Notes to Financial Statements

<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1995 and December 31, 1994

1995

---------- --------- --------- ---------- --------- ------------
MONEY PREMIER GROWTH & INTER- SHORT-TERM
MARKET GROWTH INCOME NATIONAL MULTI-MARKET
TOTAL PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>

Increase (Decrease) in Net Assets
Operations:
Net Investment Incom (Loss). . . . . $ 33,156 $ 404,920 $ (65,732) $ 14,586 $ (63,803) $ (10,816)
Realized Gain (Loss) on Investment
Activity. . . . . . . . . . . . . . 227,794 - 92,209 30,936 29,327 (23,794)
Change in Unrealized Appreciation
(Depreciation) of Investments . . . 12,845,829 - 1,577,208 2,933,771 737,015 66,442
------------- ------------ ------------ ------------ ------------ -----------

Increase (Decrease) in Net Assets
Resulting from Operations. . . . . . 13,106,779 404,920 1,603,685 2,979,293 702,539 31,832
------------- ------------ ------------ ------------ ------------ -----------

Capital Transactions:
Contract Deposits. . . . . . . . . . 110,960,236 42,053,738 10,738,137 12,438,557 4,534,346 926,377
Transfers Between Funds. . . . . . . - (20,616,576) 3,750,242 4,463,538 1,557,208 (676,387)
Transfers From (To) AIG Life . . . . (4,604,746) (4,764,668) 50,512 7,068 142,335 (2,678)
Administrative Charges . . . . . . . (20,148) (1,483) (2,212) (3,747) (2,776) (232)
Death Benefits . . . . . . . . . . . (2,287,456) (1,099,777) (23,760) (243,637) (68,089) (1,048)
Contract Withdrawals . . . . . . . . (2,997,013) (663,922) (172,094) (470,143) (269,782) (35,410)
Deferred Sales Charges . . . . . . . (61,864) (17,679) (4,712) (7,203) (5,086) -
------------- ------------ ------------ ------------ ------------ -----------

Increase (Decrease) in Net Assets
Resulting from Capital
Transactions. . . . . . . . . . . . 100,989,009 14,889,633 14,336,113 16,184,433 5,888,156 210,622
------------- ------------ ------------ ------------ ------------ -----------

Total Increase (Decrease) in Net
Assets. . . . . . . . . . . . . . . . 114,095,788 15,294,553 15,939,798 19,163,726 6,590,695 242,454
Net Assets, at Beginning of Year . . . 33,369,596 4,426,412 2,269,769 5,117,686 4,789,392 908,042
------------- ------------ ------------ ------------ ------------ -----------

Net Assets, at End of Year . . . . . . $ 147,465,384 $ 19,720,965 $ 18,209,567 $ 24,281,412 $ 11,380,087 $ 1,150,496
------------- ------------ ------------ ------------ ------------ -----------
------------- ------------ ------------ ------------ ------------ -----------

<PAGE>

1994

Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) . . . . $ 36,680 $ 38,323 $ (11,079) $ 14,638 $ (14,680) $ 8,211
Realized Gain (Loss) on Investment
Activity. . . . . . . . . . . . . . (19,154) - 4,147 2,879 4,498 86
Change in Unrealized Appreciation
(Depreciation) of Investments . . . (595,557) - (21,343) (79,392) (68,691) (32,855)
------------ ----------- ----------- ----------- ----------- ---------

Increase (Decrease) in Net Assets
Resulting from Operations. . . . . . (578,031) 38,323 (28,275) (61,875) (78,873) (24,558)
------------ ----------- ----------- ----------- ----------- ---------

Capital Transactions:
Contract Deposits. . . . . . . . . . 34,923,601 12,769,522 1,647,838 3,463,022 3,606,659 346,929
Transfers Between Funds. . . . . . . - (6,081,820) 457,808 1,436,775 1,074,155 440,344
Transfer From (To) AIG Life. . . . . (2,196,064) (2,262,382) 15,998 21,514 24,038 -
Administrative Charges . . . . . . . (1,474) (23) (168) (291) (286) (77)
Death Benefits . . . . . . . . . . . (105,575) (105,575) - - - -
Contract Withdrawals . . . . . . . . (267,697) (17,149) (15,667) (73,276) (56,095) (3,990)
Deferred Sales Charges . . . . . . . (3,900) - (380) (1,208) (1,165) -
------------ ----------- ----------- ----------- ----------- ---------

Increase (Decrease) in Net Assets
Resulting from Capital
Transactions. . . . . . . . . . . . 32,348,891 4,302,573 2,105,429 4,846,536 4,647,306 783,206
------------ ----------- ----------- ----------- ----------- ---------

Total Increase (Decrease) in Net
Assets. . . . . . . . . . . . . . . . 31,770,860 4,340,896 2,077,154 4,784,661 4,568,433 758,648
Net Assets, at Beginning of Year . . . 1,598,736 85,516 192,615 333,025 220,959 149,394
------------ ----------- ----------- ----------- ----------- ---------

Net Assets, at End of Year . . . . . . $ 33,369,596 $ 4,426,412 $ 2,269,769 $ 5,117,686 $ 4,789,392 $ 908,042
------------ ----------- ----------- ----------- ----------- ---------
------------ ----------- ----------- ----------- ----------- ---------

</TABLE>

See Notes to Financial Statements
<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1995 and December 31, 1994

1995

--------- ---------- ------------ --------- ---------
GLOBAL U.S. GOV'T GLOBAL N.AMER. UTILITY
BOND HIGH GRD DOLLAR GOV'T GOV'T INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>

Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) . . . . $ (9,771) $ 7,697 $ (975) $ 60,098 $ (16,682)
Realized Gain (Loss) on Investment
Activity. . . . . . . . . . . . . . (15,732) 40,450 8,612 (170,057) 33,618
Change in Unrealized Appreciation
(Depreciation) of Investments . . . 291,336 850,195 347,878 905,309 371,845
----------- ------------ ----------- ----------- -----------

Increase (Decrease) in Net Assets
Resulting from Operations. . . . . . 265,833 898,342 355,515 795,350 388,781
----------- ------------ ----------- ----------- -----------

Capital Transactions:
Contract Deposits. . . . . . . . . . 1,117,003 5,364,390 1,202,676 2,579,730 2,546,126
Transfers Between Funds. . . . . . . 591,145 1,361,265 662,282 (396,005) 477,280
Transfers From (To) AIG Life . . . . (45,688) (14,266) - - (24,043)
Administrative Charges . . . . . . . (450) (1,450) (380) (1,573) (537)
Death Benefits . . . . . . . . . . . (7,371) (190,203) (32,866) (145,317) (107,631)
Contract Withdrawals . . . . . . . . (97,067) (301,386) (43,561) (199,515) (147,166)
Deferred Sales Charges . . . . . . . (2,793) (3,319) (784) (2,934) (3,000)
----------- ------------ ----------- ----------- -----------

Increase (Decrease) in Net Assets
Resulting from Capital
Transactions. . . . . . . . . . . . 1,554,779 6,215,031 1,787,367 1,834,386 2,741,029
----------- ------------ ----------- ----------- -----------

Total Increase (Decrease) in Net
Assets. . . . . . . . . . . . . . . . 1,820,612 7,113,373 2,142,882 2,629,736 3,129,810
Net Assets, at Beginning of Year . . . 882,982 3,018,486 675,482 2,965,066 1,101,098
----------- ------------ ----------- ----------- -----------

Net Assets, at End of Year . . . . . . $ 2,703,594 $ 10,131,859 $ 2,818,364 $ 5,594,802 $ 4,230,908
----------- ------------ ----------- ----------- -----------
----------- ------------ ----------- ----------- -----------

<PAGE>

1994

Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) . . . . $ 27,561 $ 19,721 $ (3,543) $ (19,548) $ (5,226)
Realized Gain (Loss) on Investment
Activity. . . . . . . . . . . . . . (5,329) (10,894) 47 (16,961) 1,704
Change in Unrealized Appreciation
(Depreciation) of Investments . . . (45,024) (42,340) (15,791) (426,693) (23,142)
--------- ----------- --------- ----------- -----------

Increase (Decrease) in Net Assets
Resulting from Operations. . . . . . (22,792) (33,513) (19,287) (463,202) (26,664)
--------- ----------- --------- ----------- -----------

Capital Transactions:
Contract Deposits. . . . . . . . . . 553,883 2,242,232 556,089 3,241,845 1,022,214
Transfers Between Funds. . . . . . . 165,632 421,682 160,981 233,697 109,771
Transfer From (To) AIG Life. . . . . - (2,455) (16,815) - -
Administrative Charges . . . . . . . (130) (368) - - -
Death Benefits . . . . . . . . . . . - - - - -
Contract Withdrawals . . . . . . . . (20,050) (18,733) (5,486) (47,274) (4,223)
Deferred Sales Charges . . . . . . . (772) (375) - - -
--------- ----------- --------- ----------- -----------

Increase (Decrease) in Net Assets
Resulting from Capital
Transactions. . . . . . . . . . . . 698,563 2,641,983 694,769 3,428,268 1,127,762
--------- ----------- --------- ----------- -----------

Total Increase (Decrease) in Net
Assets. . . . . . . . . . . . . . . . 675,771 2,608,470 675,482 2,965,066 1,101,098
Net Assets, at Beginning of Year . . . 207,211 410,016 - - -
--------- ----------- --------- ----------- -----------

Net Assets, at End of Year . . . . . . $ 882,982 $ 3,018,486 $ 675,482 $ 2,965,066 $ 1,101,098
--------- ----------- --------- ----------- -----------
--------- ----------- --------- ----------- -----------

</TABLE>

See Notes to Financial Statements
<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31, 1995 and December 31, 1994
<TABLE>
<CAPTION>

1995

------------ --------- --------- --------- -------------
CONSERVATIVE GROWTH TOTAL WORLDWIDE
INVESTORS INVESTORS GROWTH RETURN PRIVATIZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>

Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) . . . . $ (23,370) $ (16,228) $ (202,887) $ (13,957) $ (29,924)
Realized Gain (Loss) on Investment
Activity. . . . . . . . . . . . . . 22,158 14,539 142,991 16,746 5,791
Change in Unrealized Appreciation
(Depreciation) of Investments . . . 269,922 201,543 3,832,350 257,274 203,741
----------- ----------- ------------ ----------- -----------

Increase (Decrease) in Net Assets
Resulting from Operations. . . . . . 268,710 199,854 3,772,454 260,063 179,608
----------- ----------- ------------ ----------- -----------

Capital Transactions:
Contract Deposits. . . . . . . . . . 3,212,305 2,350,845 16,825,901 2,819,685 2,250,420
Transfers Between Funds. . . . . . . 797,350 665,831 5,917,824 566,214 878,789
Transfers From (To) AIG Life . . . . - - 43,380 3,302 -
Administrative Charges . . . . . . . (884) (195) (3,382) (112) (735)
Death Benefits . . . . . . . . . . . (135,759) (77,953) (83,793) (65,588) (4,664)
Contract Withdrawals . . . . . . . . (78,277) (22,616) (414,058) (53,176) (28,840)
Deferred Sales Charges . . . . . . . (3,357) (3) (10,734) (38) (222)
----------- ----------- ------------ ----------- -----------

Increase (Decrease) in Net Assets
Resulting from Capital
Transactions. . . . . . . . . . . . 3,791,378 2,915,909 22,275,138 3,270,287 3,094,748
----------- ----------- ------------ ----------- -----------

Total Increase (Decrease) in Net
Assets. . . . . . . . . . . . . . . . 4,060,088 3,115,763 26,047,592 3,530,350 3,274,356
Net Assets, at Beginning of Year . . . 629,981 289,282 4,899,287 334,870 1,061,761
----------- ----------- ------------ ----------- -----------

Net Assets, at End of Year . . . . . . $ 4,690,069 $ 3,405,045 $ 30,946,879 $ 3,865,220 $ 4,336,117
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------

<PAGE>

1994

Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) . . . . $ (1,594) $ (780) $ (12,496) $ (470) $ (2,358)
Realized Gain (Loss) on Investment
Activity. . . . . . . . . . . . . . (37) (375) 1,108 (28) 1
Change in Unrealized Appreciation
(Depreciation) of Investments . . . 3,373 (2,809) 153,950 (1,573) 6,773
--------- --------- ----------- --------- -----------

Increase (Decrease) in Net Assets
Resulting from Operations. . . . . . 1,742 (3,964) 142,562 (2,071) 4,416
--------- --------- ----------- --------- -----------

Capital Transactions:
Contract Deposits. . . . . . . . . . 549,380 222,714 3,506,333 294,209 900,732
Transfers Between Funds. . . . . . . 79,401 70,532 1,230,919 43,406 156,717
Transfer From (To) AIG Life. . . . . - - 24,038 - -
Administrative Charges . . . . . . . - - (131) - -
Death Benefits . . . . . . . . . . . - - - - -
Contract Withdrawals . . . . . . . . (542) - (4,434) (674) (104)
Deferred Sales Charges . . . . . . . - - - - -
--------- --------- ----------- --------- -----------

Increase (Decrease) in Net Assets
Resulting from Capital
Transactions. . . . . . . . . . . . 628,239 293,246 4,756,725 336,941 1,057,345
--------- --------- ----------- --------- -----------

Total Increase (Decrease) in Net
Assets. . . . . . . . . . . . . . . . 629,981 289,282 4,899,287 334,870 1,061,761
Net Assets, at Beginning of Year . . . - - - - -
--------- --------- ----------- --------- -----------

Net Assets, at End of Year . . . . . . $ 629,981 $ 289,282 $ 4,899,287 $ 334,870 $ 1,061,761
--------- --------- ----------- --------- -----------
--------- --------- ----------- --------- -----------

</TABLE>

See Notes to Financial Statements

<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

NOTES TO FINANCIAL STATEMENTS

1. HISTORY
Variable Account I (the "Account") is a separate investment account maintained
under the provisions of Delaware Insurance Law by AIG Life Insurance Company
(the "Company"), a subsidiary of American International Group, Inc. The Account
operates as a unit investment trust registered under the Investment Company Act
of 1940, as amended, and supports the operations of the Company's individual
single purchase payment deferred variable annuity contracts, individual flexible
premium deferred variable annuity contracts and group flexible premium deferred
variable annuity contracts (the "contracts"). The Account invests in shares of
Alliance Variable Products Series Fund, Inc. (the "Fund"). The Fund consists of
fifteen series: Money Market Portfolio; Short-Term Multi-Market Portfolio;
Premier Growth Portfolio (formerly the Growth Portfolio); Growth and Income
Portfolio; International Portfolio; Global Bond Portfolio; U.S. Government/High
Grade Securities Portfolio; Global Dollar Government Portfolio; North American
Government Portfolio; Utility Income Portfolio; Conservative Investors
Portfolio, Growth Investors Portfolio; Growth Portfolio; Total Return Portfolio
and World Privatization Portfolio. The Account invests in shares of other funds
which are not available to these contracts.

On June 22, 1992, the initial investment was made in the Fund.

The assets of the Account are the property of the Company. The portion of the
Account's assets applicable to the contracts are not chargeable with liabilities
arising out of any other business conducted by the Company.

In addition to the Account, a contract owner may also allocate funds 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 for a selected period. 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.

2. 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 as of December 31, 1995 and the reported amounts from operations and
policy transactions during 1995 and 1994. Actual results could differ from
those estimates.
<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. CONTRACT CHARGES
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 1.25% of the value of the contracts.

Daily charges for administrative expenses are assessed through the daily unit
value calculation and are equivalent on an annual basis to 0.15% of the value of
the contracts. In addition, an annual administrative expense charge of $30 is
assessed against each contract on its anniversary date by surrendering units.

The contracts provide that in the event that a contract owner withdraws all or a
portion of the contract value within six contract years of a premium payment,
they will be assessed a deferred sales charge. The deferred sales charge is
based on a table of charges, of which the maximum charge is 6% of the contract
value for single premium contracts and 6% of premiums paid for flexible premium
contracts, subject to a maximum of 8.5% of purchase payments.

Certain states impose premium taxes upon contracts. The Company intends to
advance premium taxes due until the contract is surrendered or annuitized.

<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

NOTES TO FINANCIAL STATEMENTS (continued)

4. PURCHASES OF INVESTMENTS
For the year ended December 31, 1995 , investment activity in the Fund was as
follows:

---------------- -----------------
COST OF PROCEEDS
SHARES OF PURCHASES FROM SALES
------------- ---------------- -----------------
<S> <C> <C>

Alliance Variable Product Series Fund, Inc.:
Money Market Portfolio .......................... $ 56,570,058 $ 41,329,450
Premier Growth Portfolio ........................ 14,640,694 406,155
Growth & Income Portfolio ....................... 16,709,417 507,421
International Portfolio ......................... 6,489,642 661,150
Short-Term Multi-Market Portfolio ............... 1,023,930 824,682
Global Bond Portfolio ........................... 1,794,840 250,848
U.S. Government/High Grade
Securities Portfolio ........................ 7,214,306 993,437
Global Dollar Government Portfolio .............. 1,943,805 158,164
North American Government Portfolio ............. 3,328,334 1,437,414
Utility Income Portfolio ........................ 3,187,048 463,917
Conservative Investors Portfolio................. 4,006,150 241,575
Growth Investors Portfolio....................... 3,089,209 189,823
Growth Portfolio................................. 22,675,221 608,865
Total Return Portfolio........................... 3,428,937 172,275
Worldwide Privatization Portfolio................ 3,135,858 72,161

</TABLE>

For the year ended December 31, 1994, investment activity in the Fund was as
follows:

---------------- -----------------
COST OF PROCEEDS
SHARES OF PURCHASES FROM SALES
----------- ---------------- -----------------
<S> <C> <C>

Alliance Variable Product Series Fund, Inc.:
Money Market Portfolio .......................... $ 11,080,085 $ 6,763,878
Premier Growth Portfolio ........................ 2,345,751 257,683
Growth & Income Portfolio ....................... 4,956,639 98,568
International Portfolio ......................... 4,705,426 77,095
Short-Term Multi-Market Portfolio ............... 891,499 99,428
Global Bond Portfolio ........................... 794,179 67,109
U.S. Government/High Grade
Securities Portfolio ........................ 2,858,253 193,599
Global Dollar Government Portfolio .............. 699,038 7,062
North American Government Portfolio ............. 3,931,308 518,821
Utility Income Portfolio ........................ 1,173,929 50,176
Conservative Investors Porfolio.................. 647,081 19,804
Growth Investors Portfolio....................... 311,192 18,434
Growth Portfolio................................. 4,790,036 40,898
Total Return Portfolio........................... 337,615 943
Worldwide Privatization Portfolio................ 1,056,582 474

</TABLE>

<PAGE>

AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I

NOTES TO FINANCIAL STATEMENTS (continued)

5. NET INCREASE (DECREASE) IN ACCUMULATION UNITS
For the year ended December 31, 1995, transactions in accumulation units of
the account were as follows:

MONEY PREMIER GROWTH & INTER- SHORT-TERM
MARKET GROWTH INCOME NATIONAL MULTI-MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>

Units Purchased. . . . . 4,012,569.68 768,078.72 845,677.91 410,788.96 94,571.35
Units Withdrawn. . . . . (167,658.14) (18,847.63) (41,612.69) (32,013.67) (3,733.94)
Units Transferred
Between Funds . . . . . (1,966,454.16) 276,223.82 311,870.32 142,761.07 (71,061.98)
Units Transferred
From (To) AIG
Life. . . . . . . . . . (453,756.87) 3,206.05 (66.05) 12,317.14 (285.32)
------------- ------------ ------------ ---------- -----------

Net Increase
(Decrease). . . . . . . 1,424,700.51 1,028,660.96 1,115,869.49 533,853.50 19,490.11
Units, at
Beginning of the
Year. . . . . . . . . . 431,319.86 223,550.22 438,680.32 447,407.41 95,717.60
------------- ------------ ------------ ---------- -----------

Units, at End of
the Year. . . . . . . . 1,856,020.37 1,252,211.18 1,554,549.81 981,260.91 115,207.71
------------- ------------ ------------ ---------- -----------
------------- ------------ ------------ ---------- -----------

Unit Value at
December 31, 1995 . . . $ 10.63 $ 14.54 $ 15.62 $ 11.60 $ 9.99
------------- ------------ ------------ ---------- -----------
------------- ------------ ------------ ---------- -----------

GLOBAL U.S. GOV'T GLOBAL N.AMER. UTILITY
BOND HIGH GRD DOLLAR GOV'T GOV'T INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>

Units Purchased. . . . . 93,649.22 515,038.50 114,782.36 276,497.06 229,837.58
Units Withdrawn. . . . . (9,211.58) (48,037.25) (8,457.65) (39,738.48) (24,022.41)
Units Transferred
Between Funds . . . . . 47,995.76 129,453.74 62,807.07 (46,201.27) 42,973.57
Units Transferred
From (To) AIG
Life. . . . . . . . . . (4,421.85) (2,040.87) - - (2,387.37)
------------- ------------ ------------ ---------- -----------

Net Increase
(Decrease). . . . . . . 128,011.55 594,414.12 169,131.78 190,557.31 246,401.37
Units, at
Beginning of the
Year. . . . . . . . . . 85,875.16 320,574.64 69,320.82 340,817.36 111,604.02
------------- ------------ ------------ ---------- -----------

Units, at End
of the Year . . . . . . 213,886.71 914,988.76 238,452.60 531,374.67 358,005.39
------------- ------------ ------------ ---------- -----------
------------- ------------ ------------ ---------- -----------

Unit Value at
December 31, 1995 . . . $ 12.64 $ 11.07 $ 11.82 $ 10.53 $ 11.82
------------- ------------ ------------ ---------- -----------
------------- ------------ ------------ ---------- -----------

CONSERVATIVE GROWTH TOTAL WORLD
INVESTORS INVESTORS GROWTH RETURN PRIVATIZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>

Units Purchased. . . . . 289,696.48 207,986.51 1,303,272.53 254,107.29 209,987.09
Units Withdrawn. . . . . (19,666.46) (9,435.63) (39,956.22) (11,270.64) (3,205.31)
Units Transferred
Between Funds . . . . . 72,294.23 64,129.40 480,924.78 50,436.18 82,248.41
Units Transferred
From (To) AIG
Life. . . . . . . . . . - - 3,162.97 298.68 -
------------- ------------ ------------ ---------- -----------

Net Increase
(Decrease). . . . . . . 342,324.25 262,680.28 1,747,404.06 293,571.51 289,030.19

Units, at
Beginning of the
Year. . . . . . . . . . 62,868.02 29,492.78 467,688.06 34,684.53 105,674.08
------------- ------------ ------------ ---------- -----------

Units, at End
of the Year . . . . . . 405,192.27 292,173.06 2,215,092.12 328,256.04 394,704.27
------------- ------------ ------------ ---------- -----------
------------- ------------ ------------ ---------- -----------

Unit Value at
December 31, 1995 . . . $ 11.57 $ 11.65 $ 13.97 $ 11.78 $ 10.99
------------- ------------ ------------ ---------- -----------
------------- ------------ ------------ ---------- -----------

</TABLE>

<PAGE>
AIG LIFE INSURANCE COMPANY
ONE ALICO PLAZA
WILMINGTON, DELAWARE 19899

INDIVIDUAL AND GROUP
SINGLE PREMIUM AND FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACTS

ISSUED BY

VARIABLE ACCOUNT I

AND

AIG LIFE INSURANCE COMPANY

Purchase payments for the Contracts will be allocated to a segregated
investment account of the Company which account has been designated Variable
Account I (the "Variable Account"). The Variable Account invests in shares of
Alliance Variable Products Series Fund, Inc. (the "Fund"). The Fund has made
available sixteen Portfolios: Money Market Portfolio; Short-Term Multi-Market
Portfolio; Growth Portfolio; Growth and Income Portfolio; International
Portfolio; U.S. Government/High Grade Securities Portfolio; North American
Government Income Portfolio; Global Dollar Government Portfolio; Utility Income
Portfolio; Global Bond Portfolio; Premier Growth Portfolio; Total Return
Portfolio; Conservative Investors Portfolio; Growth Investors Portfolio;
Worldwide Privatization Portfolio; and Technology Portfolio. (See "Alliance
Variable Products Series Fund, Inc. on Page .) The Fund consists of other
Portfolios which are not currently available for use by Variable Account I.

This Prospectus concisely sets forth the information a prospective investor
ought to know before investing. Additional information about the Contracts is
contained in the "Statement of Additional Information" which is available at no
charge. The Statement of Additional Information has been filed with the
Securities and Exchange Commission and is hereby incorporated by reference. The
Table of Contents of the Statement of Additional Information can be found on
page of this Prospectus. For the Statement of Additional Information dated May
1, 1996, call or write AIG Life Insurance Company; Attention: Variable Products,
One Alico Plaza, Wilmington, Delaware 19801, 1-800-340-2765.

INQUIRIES: Purchaser inquiries can be made by calling the service office at
1-800-255-8402.

PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE
REFERENCE.

THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.

Date of Prospectus: May 1, 1996

<PAGE>

TABLE OF CONTENTS

<PAGE>

DEFINITIONS

ACCUMULATION PERIOD -- The period prior to the Annuity Date.

ACCUMULATION UNIT -- Accounting unit of measure used to calculate the Contract
Value prior to the Annuity Date.

AGE -- Age means age last birthday.

ANNUITANT -- The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant is named in the application.

ANNUITY DATE -- The date at which annuity payments are to begin.

ANNUITY UNIT -- Accounting unit of measure used to calculate variable annuity
payments.

BENEFICIARY -- The person or persons named in the application who will receive
any benefit upon the death of the Owner (or Annuitant as applicable) prior to
the Annuity Date.

CONTINGENT OWNER -- The Contingent Owner, if any, must be the spouse of the
Purchaser as named in the application, unless changed.

CONTRACT ANNIVERSARY -- The same month and date as the Date of Issue in each
subsequent year of the Contract or Certificate.

CONTRACT VALUE -- The value of all amounts accumulated under the Contract or
Certificate.

CONTRACT YEAR -- Any period of twelve (12) months commencing with the Date of
Issue and each Contract or Certificate Anniversary thereafter.

DATE OF ISSUE -- The date when the initial purchase payment was invested.

DEFERRED SALES CHARGE -- The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within six years of a
purchase payment.

GENERAL ACCOUNT -- All of the Company's assets other than the assets of the
Variable Account and any other separate accounts of the Company.

OFFICE -- The Annuity Service Office of the Company: c/o Delaware Valley
Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031.

OWNER -- The person designated as contract owner or certificate owner in the
application, unless changed.

PREMIUM YEAR -- any period of 12 months commencing with the date a Purchase
Payment is made and ending on the same date in each succeeding 12 month period
thereafter.

VALUATION DATE -- Each day that the New York Stock Exchange is open for trading.

VALUATION PERIOD -- The period commencing as of the close of the New York Stock
Exchange (presently 4 P.M., New York time) on each Valuation Date and ending as
of the close of the New York Stock Exchange on the next succeeding Valuation
Date.

VARIABLE ACCOUNT -- A separate investment account of the Company, designated
Variable Account I, into which purchase payments will be allocated.

<PAGE>
HIGHLIGHTS

Purchase payments for the Individual Contracts or Group Contracts
(collectively, the "Contracts") will be allocated to a segregated investment
account of the Company which account has been designated Variable Account I (the
"Variable Account"). The Variable Account invests in shares of the Fund. (See
"Alliance Variable Product Series Fund, Inc." on page .)

The Contracts provide that in the event that an Owner withdraws all or a
portion of the Contract Value within the first six contract years there may be
assessed a Deferred Sales Charge. The Deferred Sales Charge is based on a table
of charges, of which the maximum charge is currently 6% of premium to which the
charge is applicable for flexible premium contracts, and 6% of the Contract
Value for single premium Contracts, subject to a maximum of 8.5% of purchase
payments. (See "Charges and Deductions -- Deduction for Deferred Sales Charge"
on page .)

Any premium or other taxes levied by any governmental entity with respect to
the Contracts will be charged against the purchase payments or Contract Value.
Premium taxes currently imposed by certain states on the Contracts range from 0%
to 3.5%. The Company will also deduct from any amount payable under the
Contracts any income taxes a governmental authority requires the Company to
withhold with respect to that amount. (See "Charges and Deductions -- Deduction
for Premium and Other Taxes" on page .)

The Company deducts for each Valuation Period an Administrative Charge which
is equal on an annual basis to 0.15% of the average daily net asset value of the
Variable Account. In addition, the Company deducts an annual Administrative
Charge which is currently $30 per year, from the Contract Value. The
Administrative Charges are designed to reimburse the Company for administrative
expenses relating to maintenance of the Contract and the Variable Account. The
Company may increase the annual Administrative Charge to an amount not to exceed
$100 per year. (See "Charges and Deductions -- Deduction for Administrative
Charge" on page .)

There are deductions and expenses paid out of the assets of the Fund which
are described in the accompanying Prospectus for the Fund.

There is a 10% tax penalty applied to the income portion of any premature
distribution from the Contracts. However, the penalty is not imposed on certain
distributions including but not limited to amounts received: (a) after the
taxpayer reaches age 59 1/2; (b) after the death of the Annuitant (or Owner, as
applicable); (c) if the taxpayer is totally disabled; (d) in a series of
substantially equal periodic payments made for the life of the taxpayer or for
the joint lives of the taxpayer and his beneficiary; (e) under an immediate
annuity; (f) which are allocable to purchase payments made prior to August 14,
1982; (g) under a qualified funding asset (as defined in Code Section 130(d));
or (h) that are purchased by an employer upon termination of certain types of
qualified plans and which are held by the employer until the employee separates
from service. Withdrawals are deemed to be on a last-in-first-out basis. (See
"Taxes -- Taxation of Annuities in General" on page )

The Owner may return the Contract within twenty (20) days (the "Free Look
Period") after it is received by delivering or mailing it to the Company's
Office. The return of the Contract by mail will be effective when the postmark
is affixed to a properly addressed and postage prepaid envelope. The Company
will refund the Contract Value. In the case of Contracts issued in connection
with an IRA the Company will refund the greater of the purchase payment, less
any withdrawals, or the Contract

4
<PAGE>
Value. However, if the laws of a state require that the Company refund, during
the Free Look Period, an amount equal to the purchase payment paid less any
withdrawals, the Company will refund such an amount.

SUMMARY OF EXPENSES

OWNER TRANSACTION EXPENSES

<TABLE>
<CAPTION>
ALL
SUB-ACCOUNTS
-----
<S> <C>
Sales Load Imposed on Purchases................... None
Deferred Sales Charge (as a percentage of amount
surrendered):
</TABLE>

<TABLE>
<CAPTION>
SINGLE PREMIUM CONTRACTS FLEXIBLE PREMIUM CONTRACTS
- ------------------------------------ -------------------------------------
<S> <C> <C>
Contract Year 1 Premium Year 1 6%
Contract Year 2 Premium Year 2 5%
Contract Year 3 Premium Year 3 4%
Contract Year 4 Premium Year 4 3%
Contract Year 5 Premium Year 5 2%
Contract Year 6 Premium Year 6 1%
Contract Year 7 and thereafter Premium Year 7 and thereafter None

Exchange Fee Currently:
First 12 Per Contract Year............................................... None
Thereafter............................................................... $10
Annual Contract Fee........................................................ $30

ANNUAL FUND EXPENSES NET OF ANY EXPENSE REIMBURSEMENTS*

<TABLE>
<CAPTION>
TOTAL
OTHER PORTFOLIO
PORTFOLIO MANAGEMENT FEE EXPENSES EXPENSES
- ------------------------------------------------------------------------------ --------------- ------------ ------------
<S> <C> <C> <C>
Alliance Money Market......................................................... 0.38% 0.57% 0.95%
Alliance Short-Term Multi-Market.............................................. 0.20 0.75 0.95
Alliance Growth............................................................... 0.43 0.52 0.95
Alliance Growth and Income.................................................... 0.63 0.16 0.79
Alliance International........................................................ 0.00 0.95 0.95
Alliance U.S. Government/High Grade Securities................................ 0.00 0.95 0.95
Alliance North American Government Income..................................... 0.00 0.95 0.95
Alliance Global Dollar Government............................................. 0.00 0.95 0.95
Alliance Utility Income....................................................... 0.00 0.95 0.95
Alliance Global Bond.......................................................... 0.00 0.95 0.95
Alliance Premier Growth....................................................... 0.76 0.19 0.95
Alliance Total Return......................................................... 0.00 0.95 0.95
Alliance Conservative Investors............................................... 0.00 0.95 0.95
Alliance Growth Investors..................................................... 0.00 0.95 0.95
Alliance Worldwide Privatization.............................................. 0.00 0.95 0.95
Alliance Technology........................................................... 0.00 0.95 0.95
</TABLE>

5
<PAGE>
The purpose of the table set forth above is to assist the Owner in
understanding the various costs and expenses that an Owner will bear directly or
indirectly. The table reflects expenses of the Variable Account as well as the
Fund. (See "Charges and Deductions" on page of this Prospectus and "Management
of the Fund" in the Fund Prospectus.)

Any premium or other taxes levied by any governmental entity with respect to
the Contracts will be charged against the purchase payments or Contract Value
based on a percentage of premiums paid. Premium taxes currently imposed by
certain states on the Contracts range from 0% to 3.5% of premiums paid. (See
"Charges and Deductions -- Deduction for Premium and Other Taxes" on page .)

"Other Expenses" are based upon the expenses outlined under the section
entitled "Management of the Fund" in the Fund Prospectus.
- ------------------------

*Expense information for the Money Market Portfolio, Premier Growth
Portfolio, U.S. Government/High Grade Securities Portfolio, Total Return
Portfolio, International Portfolio, Growth and Income Portfolio, Short-Term
Multi-Market Portfolio and Global Bond Portfolio have been restated to reflect
current fees. The expenses listed in the table for the Money Market Portfolio,
Premier Growth Portfolio, Growth and Income Portfolio, U.S. Government/High
Grade Securities Portfolio, Total Return Portfolio, International Portfolio,
Short-Term Multi-Market Portfolio, Global Bond Portfolio, North American
Government Income Portfolio, Global Dollar Government Portfolio, Utility Income
Portfolio, Conservative Investors Portfolio, Growth Investors Portfolio, Growth
Portfolio, Worldwide Privatization Portfolio and Technology Portfolio are net of
voluntary expense reimbursements, which are not required to be continued
indefinitely; however, the Advisor intends to continue such reimbursements for
the foreseeable future. The expenses of the following Portfolios, before expense
reimbursements, would be; Money Market Portfolio: Management Fees -- .50%, Other
Expenses -- .57% and Total Portfolio Operating Expenses -- 1.07%; Premier Growth
Portfolio: Management Fees -- 1.00%, Other Expenses -- .19% and Total Portfolio
Operating Expenses -- 1.19%; Growth and Income Portfolio: Management Fees --
.63%, Other Expenses -- .16% and Total Portfolio Operating Expenses -- .79%;
U.S. Government/High Grade Securities Portfolio: Management Fees -- .60%, Other
Expenses -- .98% and Total Portfolio Operating Expenses -- 1.58%; Total Return
Portfolio: Management Fees -- .63%, Other Expenses -- 3.86% and Total Portfolio
Operating Expenses -- 4.49%; International Portfolio: Management Fees -- 1.00%,
Other Expenses -- 1.99% and Total Portfolio Operating Expenses -- 2.99%;
Short-Term Multi-Market Portfolio: Management Fees -- .55%, Other Expenses --
.75% and Total Portfolio Operating Expenses -- 1.30%; Global Bond Portfolio:
Management Fees -- .65%, Other Expenses -- 1.12% and Total Portfolio Operating
Expenses -- 1.77%; North American Government Income Portfolio: Management Fees
- -- .65%, Other Expenses -- 1.92% and Total Portfolio Operating Expenses --
2.57%; Global Dollar Government Portfolio: Management Fees -- .75%, Other
Expenses -- 4.07% and Total Portfolio Operating Expenses -- 4.82%; Utility
Income Portfolio: Management Fees -- .75%, Other Expenses -- 3.04% and Total
Portfolio Operating Expenses -- 3.79%; Worldwide Privatization Portfolio:
Management Fees -- 1.00%, Other Expenses -- 3.17% and Total Portfolio Operating
Expenses -- 4.17%; Conservative Investors Portfolio: Management Fees -- .75%,
Other Expenses -- 3.50% and Total Portfolio Operating Expense -- 4.25%; Growth
Investors Portfolio: Management Fees -- .75%, Other Expenses -- 5.42% and Total
Portfolio Operating Expenses -- 6.17%; Growth Portfolio: Management Fees --
.75%, Other Expenses -- .52% and Total Portfolio Operating Expenses -- 1.27%.
The estimated expenses of the Technology Portfolios before expense
reimbursements would be: Technology Portfolio: Management Fees -- 1.0%, Other
Expenses -- 1.55% and Total Operating Expenses -- 2.55%. THE EXAMPLE SHOULD NOT
BE CONSIDERED REPRESENTATIVE OF FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.

6
<PAGE>
EXPENSES ON A HYPOTHETICAL $1,000 POLICY, ASSUMING 5% GROWTH:
<TABLE>
<CAPTION>
IF YOU SURRENDER
--------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Alliance Money Market......................................... $ 80 $ 114 $ 149 $ 275
Alliance Short Term Multi-Market.............................. 80 114 149 275
Alliance Growth............................................... 80 114 149 275
Alliance Growth and Income.................................... 78 109 141 258
Alliance International........................................ 80 114 149 275
Alliance U.S. Gov't/High Grade Securities..................... 80 114 149 275
Alliance North American Gov't Income.......................... 80 114 149 275
Alliance Global Dollar Government............................. 80 114 149 275
Alliance Utility Income....................................... 80 114 149 275
Alliance Global Bond.......................................... 80 114 149 275
Alliance Premier Growth....................................... 80 114 149 275
Alliance Total Return......................................... 80 114 149 275
Alliance Conservative Investors............................... 80 114 149 275
Alliance Growth Investors..................................... 80 114 149 275

IF YOU ANNUITIZE OR
IF YOU DO NOT SURRENDER
--------------------------------------------------
PORTFOLIO 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Alliance Money Market......................................... $ 24 $75 $ 129 $ 275
Alliance Short Term Multi-Market.............................. 24 75 129 275
Alliance Growth............................................... 24 75 129 275
Alliance Growth and Income.................................... 23 70 120 258
Alliance International........................................ 24 75 129 275
Alliance U.S. Gov't/High Grade Securities..................... 24 75 129 275
Alliance North American Gov't Income.......................... 24 75 129 275
Alliance Global Dollar Government............................. 24 75 129 275
Alliance Utility Income....................................... 24 75 129 275
Alliance Global Bond.......................................... 24 75 129 275
Alliance Premier Growth....................................... 24 75 129 275
Alliance Total Return......................................... 24 75 129 275
Alliance Conservative Investors............................... 24 75 129 275
Alliance Growth Investors..................................... 24 75 129 275
</TABLE>

The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.

<PAGE>

CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*

<PAGE>
*Funds were first invested in the Portfolios as listed below:

CALCULATION OF PERFORMANCE DATA

The Company may, from time to time, advertise certain performance related
information concerning one or more of the Sub-accounts, including information as
to total return and yield. Performance information about a Sub-account is based
on the Sub-account's past performance only and is not intended as an indication
of future performance.

When the Company advertises the average annual total return of a
Sub-account, it will usually be calculated for one, five, and ten year periods
or, where a Sub-account has been in existence for a period less than one, five
or ten years, for such lesser period. Average annual total return is measured by
comparing the value of the investment in a Sub-account at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming the deduction of any Deferred Sales Charge which would be payable if
the account were redeemed at the end of the period) and calculating the average
annual compounded rate of return necessary to produce the value of the
investment at the end of the period. The Company may simultaneously present
returns that do not assume a surrender and, therefore, do not deduct the
Deferred Sales Charge.

When the Company advertises the yield of a Sub-account it will be calculated
based upon a 30-day period ended on the date of the most recent balance sheet of
the Company included in its registration statement. The yield is determined by
dividing the net investment income per Accumulation Unit earned during the
period by the maximum offering price per unit on the last day of the period.

When the Company advertises the performance of the Money Market Sub-account
it may advertise in addition to the total return either the yield or the
effective yield. The yield of the Money Market Sub-account refers to the income
generated by an investment in that Sub-account over a seven-day period. The
income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized the income earned by an investment in
the Money Market Sub-account is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.

10
<PAGE>
Performance information for a Sub-account may be compared to: (i) the
Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue Money
Market Institutional Averages, indices measuring corporate bond and government
security prices as prepared by Lehman Brothers, Inc. and Salomon Brothers or
other indices measuring performance of a pertinent group of securities so that
investors may compare a Sub-account's results with those of a group of
securities widely regarded by investors as representative of the securities
markets in general; (ii) other variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by other ratings services, companies, publications, or persons who rank separate
accounts or other investment products on overall performance or other criteria;
(iii) the Consumer Price Index (measure for inflation) to assess the real rate
of return from an investment in the Contract; and (iv) indices or averages of
alternative financial products available to prospective investors, including the
BANK RATE MONITOR which monitors average returns of various bank instruments.

FINANCIAL DATA

Financial Statements of the Company and the Variable Account may be found in
the Statement of Additional Information.

THE COMPANY

The Company is a stock life insurance company which is organized under the
laws of the State of Delaware. The Company provides a full range of life
insurance and annuity plans. The Company is a subsidiary of American
International Group, Inc., which serves as the holding company for a number of
companies engaged in the international insurance business, both life and
general, in over 130 countries and jurisdictions around the world.

THE VARIABLE ACCOUNT

The Board of Directors of the Company adopted a resolution to establish the
Variable Account pursuant to Delaware insurance law. The Company has caused the
Variable Account to be registered with the Securities and Exchange Commission as
a unit investment trust pursuant to the provisions of the Investment Company Act
of 1940.

The assets of the Variable Account are the property of the Company. However,
the assets of the Variable Account, equal to the reserves and other contract
liabilities with respect to the Variable Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. Income,
gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. The Company's obligations arising
under the Contracts are general corporate obligations of the Company. The
Variable Account may be subject to liabilities arising from Sub-accounts whose
assets are attributable to other variable annuity contracts offered by the
Variable Account which are not described in this Prospectus.

The Variable Account is divided into Sub-accounts, with the assets of each
Sub-account invested in one Series of the Fund. The Company may, from time to
time, add additional series to the Fund, and, when appropriate, additional
mutual funds to act as the funding vehicles for the Contracts.

THE FUND

Alliance Variable Products Series Fund, Inc., (the "Fund") will act as the
funding vehicle for the Contracts offered hereby. The Fund is managed by
Alliance Capital Management L.P., (the "Investment Manager"). The Fund is an
open-end, diversified management investment company, which is intended to meet
differing investment objectives. The Fund has made available the following
Portfolios: Money Market Portfolio; Short-Term Multi-Market Portfolio; Growth
Portfolio; Growth and Income Portfolio; International Portfolio; U.S.
Government/High Grade Securities Portfolio; Global Bond Portfolio; North
American Government Income Portfolio; Global Dollar Government Portfolio;
Utility Income Portfolio; Premier Growth Portfolio; Total Return Portfolio;
Conservative Investors Portfolio; Growth Investors Portfolio; Worldwide
Privatization Portfolio; and Technology Portfolio. The fund includes other
portfolios which are not available for use by the Variable Account. The
Investment Manager has entered into a sub-advisory agreement with AIG Global
Investors, Inc. (the "Sub-Adviser"), a subsidiary of American International
Group, Inc. and an affiliate of the Company, to provide investment advice for
the Global Bond Portfolio. A summary of investment objectives is contained in
the description of the Fund below. More detailed information including the
investment advisory fee and other charges assessed by the Fund, may be found in
the current Prospectus for the Fund which contains a discussion of the risks
involved in investing in the Fund. The Prospectus for the Fund is included with
this Prospectus. Additional Prospectuses and the Statement of Additional
Information can be obtained by calling the number on the cover page of this
Prospectus. Please read both Prospectuses carefully before investing.

The investment objectives of the are as follows:

MONEY MARKET PORTFOLIO

This Portfolio seeks safety of principal, maintenance of liquidity and
maximum current income by investing in a broadly diversified portfolio of money
market securities.

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<PAGE>
SHORT-TERM MULTI-MARKET PORTFOLIO

This Portfolio seeks the highest level of current income, consistent with
what the Investment Manager 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.

GROWTH PORTFOLIO

This Portfolio seeks growth of capital rather than current income. In
pursuing its investment objective, the Growth Portfolio will employ aggressive
investment policies. Since investments will be made based upon their potential
for capital appreciation, current income will be incidental to the objective of
capital growth. Because of the risks involved in any investment, the selection
of securities on the basis of their appreciation possibilities cannot ensure
against possible loss in value. Moreover, to the extent the Portfolio seeks to
achieve its objective through such aggressive investment policies, the risk of
loss increases. The Portfolio is therefore not intended for investors whose
principal objective is assured income or preservation of capital.

GROWTH AND INCOME PORTFOLIO

This Portfolio seeks to balance the objectives of reasonable current income
and reasonable opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.

INTERNATIONAL PORTFOLIO

This Portfolio seeks to obtain a total return on its assets from long-term
growth of capital and from income principally through a broad portfolio of
marketable securities of established non-United States companies (or United
States companies having their principal activities and interests outside the
United States), companies participating in foreign economies with prospects for
growth, and foreign government securities.

NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO

This Portfolio seeks the highest level of current income, consistent with
what the adviser considers to be prudent investment risk, that is available from
a portfolio of debt securities issued or guaranteed by the governments of the
United States, Canada and Mexico, their political subdivisions (including
Canadian Provinces but excluding the States of the United States), agencies,
instrumentalities or authorities. The Portfolio seeks high current yields by
investing in government securities denominated in local currency and U.S.
Dollars. Normally, the Portfolio expects to maintain at least 25% of its assets
in securities denominated in the U.S. Dollar.

GLOBAL DOLLAR GOVERNMENT PORTFOLIO

This portfolio seeks a high level of current income through investing
substantially all of its assets in U.S. and non-U.S. fixed income securities
denominated only in U.S. Dollars. As a secondary objective, the Portfolio seeks
capital appreciation. Substantially all of the Portfolio's assets will be
invested in high yield, high risk securities that are low-rated (i.e., below
investment grade), or of comparable quality and unrated, and that are considered
to be predominately speculative as regards the issuer's capacity to pay interest
and repay principal.

UTILITY INCOME PORTFOLIO

This Portfolio seeks current income and capital appreciation by investing
primarily in the equity and fixed-income securities of companies in the
"utilities industry." The Portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical performance of
securities of utilities companies. The utilities industry consists of companies
engaged in the manufacture, production, generation, provision, transmission,
sale and distribution of gas, electric energy, and communications equipment and
services, and in the provision of other utility or utility-related goods and
services.

13
<PAGE>
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO

This Portfolio seeks a high level of current income consistent with
preservation of capital by investing principally in a portfolio of U.S.
Government Securities, and other high grade debt securities.

GLOBAL BOND PORTFOLIO

This Portfolio seeks to provide the highest level of current income
consistent with what the Fund's Adviser and Sub-Adviser consider to be prudent
investment risk that is available from a multi-currency portfolio of high
quality debt securities of varying maturities.

PREMIER GROWTH PORTFOLIO

This Portfolio seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based on their
potential for capital appreciation, current income will be incidental to the
objective of capital growth. The Portfolio is not intended for investors whose
principal objective is assured income or preservation of capital.

TOTAL RETURN PORTFOLIO

This Portfolio seeks to achieve a high return through a combination of
current income and capital appreciation by investing in a diversified portfolio
of common and preferred stocks, senior corporate debt securities, and U.S.
Government and Agency obligations, bonds and senior debt securities.

CONSERVATIVE INVESTORS PORTFOLIO

This Portfolio seeks the highest total return without, in the view of the
Fund's Adviser, undue risk to principal by investing in a diversified mix of
publicly traded equity and fixed-income securities.

GROWTH INVESTORS PORTFOLIO

This Portfolio seeks the highest total return consistent with what the
Fund's Adviser considers to be reasonable risk by investing in a diversified mix
of publicly traded equity and fixed-income securities.

WORLDWIDE PRIVATIZATION PORTFOLIO

This Portfolio seeks long-term capital appreciation by investing principally
in equity securities issued by enterprises that are undergoing, or have
undergone, privatization. The balance of the Portfolio's investment portfolio
will include equity securities of companies that are believed by the Fund's
Adviser to be beneficiaries of the privatization process.

TECHNOLOGY PORTFOLIO

This Portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. The Technology Portfolio
invests principally in a diversified portfolio of securities of companies which
use technology extensively in the development of new or improved products or
processes.

THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVES OF THE PORTFOLIOS WILL
BE MET.

VOTING RIGHTS

The Fund does not hold regular meetings of shareholders. The Directors of
the Fund may call Special Meetings of Shareholders for action by shareholder
vote as may be required by the Investment Company Act of 1940 or the Articles of
Incorporation of the Fund. In accordance with its view of present applicable
law, the Company will vote the shares of the Fund held in the Variable Account
at special meetings of the shareholders of the Fund in accordance with
instructions received from persons having the voting interest in the Variable
Account. The Company will vote shares for which it has not received instructions
from Owners and those shares which it owns in the same proportion as it votes
shares for which it has received instructions from Owners.

14
<PAGE>
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Company not more than sixty (60) days prior to
the meeting of the Fund. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to such meeting. The person
having such voting rights will be the Owner before the Annuity Date or the death
of the Annuitant (or Owner, as applicable), and thereafter, the payee entitled
to receive payments under the Contract. During the Annuity Period, voting rights
attributable to a Contract will generally decrease as the Contract Value
attributable to an Annuitant decreases.

The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds invested in the General
Account.

Shares of the Fund are sold only to separate accounts of life insurance
companies. The shares of the Fund will be sold to separate accounts of the
Company and its affiliate, American International Life Assurance Company of New
York, as well as to separate accounts of other affiliated or unaffiliated life
insurance companies to fund variable annuity contracts and/or variable life
insurance policies. It is conceivable that, in the future, it may be
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
the Company nor the Fund currently foresees any such disadvantages, either to
variable life insurance policyowners or to variable annuity Owners, the Fund's
Board of Directors will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response thereto. If a material irreconcilable
conflict were to occur, the relevant participating life insurance companies will
take whatever steps are necessary, at their expense, to remedy or eliminate the
irreconcilable material conflict. If such a conflict were to occur, one or more
insurance company separate accounts might withdraw its investments in the Fund.
This might force the Fund to sell securities at disadvantageous prices.

SUBSTITUTION OF SHARES

If the shares of the Fund (or any Series within the Fund) should no longer
be available for investment by the Variable Account or if, in the judgment of
the Company, further investment in such shares should become inappropriate in
view of the purpose of the Contracts, the Company may substitute shares of
another mutual fund (or Series within the Fund) for Fund shares already
purchased or to be purchased in the future by purchase payments under the
Contracts. No substitution of securities may take place without any required
prior approval of the Securities and Exchange Commission and under such
requirements as it may impose.

ALLOCATION OF PURCHASE PAYMENTS TO SUB-ACCOUNTS

Initial purchase payments are allocated to the Sub-account(s) selected by
the Owner in the application except that in those states which require the
Company to deduct premium taxes upon receipt of a purchase payment the Company
will deduct the premium tax prior to allocating the purchase payment to such
Sub-account(s). The selection must specify a percentage for each Sub-account
that is a whole number, and must be either 0% or a number equal to or greater
than 10%. Subsequent purchase payments under flexible premium Contracts may be
made at any time prior to the Annuity Date and will be allocated to the
Sub-accounts selected by the Owner. If no selection is made, subsequent purchase
payments will be allocated to the Sub-account(s) selected by the Owner according
to the most recent selection request received at the Company's Office. At the
time of the allocation the purchase payment is divided by the value of the
Accumulation Unit for the particular Sub-account for the Valuation Period during
which such allocation occurs to determine the number of Accumulation Units
attributable to the purchase payment.

The initial purchase payment under an IRA plan will be allocated to the
Money Market Sub-account until the expiration of twenty (20) days from the day
the Contract is mailed from the Company's office. Thereafter, the Contract Value
shall be reallocated in accordance with instructions specified in the
application. In the case of flexible premium Contracts, subsequent purchase
payments will be directly allocated to the Sub-account(s) selected by the Owner
according to the most recent selection request received at the Company's Office.

15
<PAGE>
TRANSFER OF CONTRACT VALUES

Before the Annuity Date, the Owner may transfer, by written request or
telephone authorization, Contract Values from one Sub-account to another
Sub-account, subject to the following conditions:

(a) the amount transferred from any Sub-account must be at least $1,000 (or
the entire Sub-account value, if less);

(b) if less than $1,000 would remain in the Sub-account after the transfer,
the Company will transfer the entire amount in the Sub-account;

(d) The Company will deduct any transfer charge assessed on the transaction.
The Company is currently not assessing a transfer fee for the first
twelve (12) transfers per Contract Year. The Company is assessing a
transfer fee of $10 per transfer thereafter. The Company may increase the
transfer fee to an amount not to exceed $30 per transfer. The transfer
fee will be deducted from either the Sub-account which is the source of
the transfer or from the amount transferred if the entire value in the
Sub-account is transferred. (See also "Appendix -- General Account").

Transfer by telephone is authorized by and described in the application for
the Contract. The Company will undertake reasonable procedures to confirm that
instructions communicated by telephone are genuine. All calls will be recorded.
All transfers performed by telephone authorization will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.

After the Annuity Date, the payee of the annuity payments may transfer the
Contract Value allocated to the Variable Account from one Sub-account to another
Sub-account. However, the Company reserves the right to refuse any more than one
transfer per month. The transfer fee is the same as before the Annuity Date.
This transfer fee will be deducted from the next annuity payment after the
transfer. If following the transfer, the units remaining in the Sub-account
would generate a monthly payment of less than $100, then the Company may
transfer the entire amount in the Sub-account.

Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Sub-account. The number of Annuity Units for each
Sub-account will remain the same for the remainder of the payment period unless
the payee requests another change.

CHARGES AND DEDUCTIONS

Various charges and deductions are made from Contract Values and the
Variable Account. These charges and deductions are as follows:

DEDUCTION FOR PREMIUM AND OTHER TAXES

Any premium or other taxes levied by any governmental entity with respect to
the Contracts will be charged against the purchase payments or Contract Value.
Premium taxes currently imposed by certain states on the Contracts range from 0%
to 3.5% of premiums paid. Some states assess premium taxes at the time purchase
payments are made; others assess premium taxes at the time of annuitization.
Premium taxes are subject to being changed or amended by state legislatures,
administrative interpretations or judicial acts.

The Company will also deduct from any amount payable under the Contracts any
income taxes a governmental authority requires the Company to withhold with
respect to that amount.

16
<PAGE>
DEDUCTION FOR MORTALITY AND EXPENSE RISK CHARGE

The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account (consisting of approximately .90% for mortality
risks and approximately .35% for expense risks). The mortality risks assumed by
the Company arise from its contractual obligation to make annuity payments after
the Annuity Date for the life of the Annuitant, to waive the Deferred Sales
Charge in the event of the death of the Annuitant and to provide the death
benefit prior to the Annuity Date. The expense risk assumed by the Company is
that the costs of administering the Contracts and the Variable Account will
exceed the amount received from any Administrative Charge.

The Mortality and Expense Risk Charge is guaranteed by the Company and
cannot be increased.

The Mortality and Expense Risk Charge is deducted during the Accumulation
Period and after the Annuity Date.

The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period -- Annuity Options" on page .) It is
possible that in the future the Company may offer additional payment options
which are not based on a life contingency. If this should occur and if a Owner
should elect a payment option not based on a life contingency, the Mortality and
Expense Risk Charge is still deducted but the Owner receives no benefit from it.

DEDUCTION FOR DEFERRED SALES CHARGE

In the event that an Owner makes a withdrawal in excess of the Free
Withdrawal Amount for the first withdrawal in a Contract Year, or makes
subsequent withdrawals in a Contract Year, other than by way of the Systematic
Withdrawal Program (See "Withdrawals -- Systematic Withdrawal Program" on page
), a Deferred Sales Charge may be imposed. The Free Withdrawal Amount for a
single premium Contract is equal to 10% of the Contract Value at the time of
withdrawal. The Free Withdrawal Amount for flexible premium Contracts is equal
to 10% of the purchase payments paid, less any prior withdrawals at the time of
withdrawal. In the case of flexible premium Contracts, the Deferred Sales Charge
applies only to those purchase payments received within six (6) years of the
date of surrender and will vary in amount depending upon the time which has
elapsed since the date on which a purchase payment was made. In calculating the
Deferred Sales Charge, Premium is allocated to the amount surrendered on a
first-in, first out basis. In the case of single premium Contracts, the Deferred
Sales Charge will vary in amount depending upon the number of Contract Years
that a Contract has been in effect. The amount of any withdrawal which exceeds
the Free Withdrawal Amount will be subject to the following charges:

<TABLE>
<CAPTION>
APPLICABLE DEFERRED
SALES CHARGE
SINGLE PREMIUM CONTRACTS FLEXIBLE PREMIUM CONTRACTS PERCENTAGE
- ------------------------------------ ------------------------------------- -------------------
<S> <C> <C>
Contract Year 1 Premium Year 1 6%
Contract Year 2 Premium Year 2 5%
Contract Year 3 Premium Year 3 4%
Contract Year 4 Premium Year 4 3%
Contract Year 5 Premium Year 5 2%
Contract Year 6 Premium Year 6 1%
Contract Year 7 and thereafter Premium Year 7 and thereafter None
</TABLE>

The aggregate Deferred Sales Charges paid with respect to a Contract shall
not exceed 8.5% of the purchase payments for such Contract.

The Deferred Sales Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Deferred Sales

<PAGE>
Charge to cover all distribution costs. To the extent such charge is
insufficient to cover all distribution costs, the Company may use any of its
corporate assets, including potential profit which may arise from the Mortality
and Expense Risk Charge, to make up any difference.

DEDUCTION FOR ADMINISTRATIVE CHARGE

The Company deducts for each Valuation Period a daily Administrative Charge
which is equal on an annual basis to .15% of the average daily net asset value
of the Variable Account. The Company also deducts an annual Administrative
Charge which is currently $30 per year, from the Contract Value. The Company may
increase the annual Administrative Charge to an amount not to exceed $100 per
year. The Administrative Charges are designed to reimburse the Company for the
costs it incurs relating to maintenance of the Contract and the Variable
Account.

The daily Administrative Charge is deducted during the Accumulation Period
and after the Annuity Date.

Prior to the Annuity Date, the annual Administrative Charge is deducted from
the Contract Value on each Contract Anniversary. If the Annuity Date is a date
other than a Contract Anniversary, the Company will also deduct a pro-rata
portion of the annual Administrative Charge from the Contract Value for the
fraction of the Contract Year preceding the Annuity Date.

The annual Administrative Charge is also deducted in full on the date of any
total withdrawal. The annual Administrative Charge will be deducted from each
Sub-account of the Variable Account in the proportion that the value of each
Sub-account attributable to the Contract bears to the total Contract Value.

After the Annuity Date, the annual Administrative Charge is deducted on a
pro-rata basis from each annuity payment and is guaranteed to remain at the same
amount as at the Annuity Date.

DEDUCTION FOR INCOME TAXES

OTHER EXPENSES

There are deductions from and expenses paid out of the assets of the Fund
which are described in the accompanying Prospectus for the Fund.

ADMINISTRATION OF THE CONTRACTS

RIGHTS UNDER THE CONTRACTS

The Owner has all rights and may receive all benefits under the Contract.
The Owner is named in the application. Ownership may be changed prior to the
Annuity Date through the submission of written notification of the change to the
Company on a form acceptable to the Company. On and after the Annuity Date, the
Annuitant and Owner shall be one in the same person , unless otherwise provided
for. In the case of Contracts issued in connection with an IRA, the Owner must
be the Annuitant.

18
<PAGE>
The Owner's spouse is the only person eligible to be the Contingent Owner.
(See "Death Benefit -- Death of the Owner" on page .) Any new choice of
Annuitant or Contingent Owner will automatically revoke any prior choices.

The Owner may, except in the case of a Contract issued in connection with
either an IRA or a 403(b) Plan, assign a Contract at any time before the Annuity
Date and while the Annuitant is alive. A copy of any assignment must be filed
with the Company. The Company is not responsible for the validity of any
assignment. If the Contract is assigned, the rights of the Owner and those of
any revocable Beneficiary will be subject to the assignment. An assignment will
not affect any payments the Company may make or action it may take before it is
recorded. Inasmuch as an assignment or change of ownership may be a taxable
event, Owners should consult competent tax advisers should they wish to assign
their Contracts.

The Contract may be modified only with the consent of the Owner, except as
may be required by applicable law.

ANNUITY PERIOD

ANNUITY BENEFITS

If the Annuitant and Owner are alive on the Annuity Date, the Company will
begin making payments to the Annuitant under the annuity option or options the
Owner has chosen.

The Owner may choose or change an annuity payment option by making a written
request at least thirty (30) days prior to the Annuity Date.

The amount of the payments will be determined by applying the Contract Value
on the Annuity Date. The amount of the annuity payments will depend on the age
of the payee at the time the settlement contract is issued. At the Annuity Date
the Contract Value in each Sub-account will be applied to the applicable annuity
tables contained in the Contract. The amount of the Sub-account annuity payments
are determined through a calculation described in the Section captioned "Annuity
Provisions" in the Statement of Additional Information.

ANNUITY DATE

The Annuity Date for the Annuitant is:

(a) the first day of the calendar month following the later of the
Annuitant's 85th birthday or the 10th Contract Anniversary; or

(b) such earlier date as may be set by applicable law.

The Owner may designate an earlier date in the application or may change the
Annuity Date by making a written request at least thirty (30) days prior to the
Annuity Date being changed. However, any Annuity Date must be:

(a) no later than the date defined in (a) above; and

(b) the first day of a calendar month.

ANNUITY OPTIONS

The Owner may choose to receive annuity payments which are fixed, or which
are based on the Variable Account, or a combination of the two. If the Owner
elects annuity payments which are based on the Variable Account, the amount of
the payments will be variable. The Owner may not transfer Contract Values
between the General Account and the Variable Account after the Annuity Date, but
may, subject to certain conditions, transfer Contract Values from one
Sub-account to another Sub-account. (See "Alliance Variable Products Series
Fund, Inc. -- Transfer of Contract Values" on page .)

19
<PAGE>
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the General Account and the
Variable Account, respectively.

The annuity payment options are:

OPTION 1: LIFE INCOME. The Company will pay an annuity during the lifetime
of the payee.

OPTION 2: LIFE INCOME WITH 10 YEARS OF PAYMENTS GUARANTEED. The Company
will pay an annuity during the lifetime of the payee. If, at the death of the
payee, payments have been made for less than 10 years:

(a) payments will be continued during the remainder of the period to the
successor payee;

(b) the successor payee may elect to receive in a lump sum the present value
of the remaining payments, commuted at the interest rate used to create
the annuity factor for this Option; or

(c) the guaranteed period will not in the case of Contracts issued in
connection with an IRA exceed the life expectancy of the Annuitant at the
time the first payment is due.

OPTION 3: JOINT AND LAST SURVIVOR INCOME. The Company will pay an annuity
for as long as either the payee or a designated second person is alive. In the
event that the Contract is issued in connection with an IRA, the payments in
this Option will be made only to the Annuitant and the Annuitant's spouse.

The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.

ANNUITY PAYMENTS

If the Contract Value applied to annuity payment options is less than
$2,000, the Company has the right to pay the amount in a lump sum in lieu of
annuity payments. The Company makes all other annuity payments monthly. However,
if the total monthly annuity payment would be less than $100 the Company has the
right to make payments semi-annually or annually.

If variable annuity payments are selected, the Annuitant receives the value
of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Sub-account
selected; and (v) the pro-rata portion of the annual Administrative charge.

DEATH BENEFIT

If the Annuitant (or Owner, if applicable) dies before the Annuity Date, the
Company will pay a death benefit equal to the greater of: (a) the purchase
payments paid less withdrawals; (b) the Contract Value; or, (c) the greatest
Contract Value at any sixth contract anniversary increment (i.e., sixth,
twelfth, eighteenth, etc.) plus any additional purchase payment paid less any
subsequent withdrawals.

20
<PAGE>
Before the Company will pay any death benefit, the Company will require due
proof of death. The Company will determine the value of the death benefit as of
the Valuation Period following receipt of due proof of death at the Company's
Office. The Company will pay the death benefit to the Beneficiary in accordance
with any applicable laws governing the payment of death proceeds.

Payment of the death benefit may be made in one lump sum or applied under
one of the annuity payment options. (See "Annuity Period -- Annuity Options" on
page .) The Owner may by written request elect that any death benefit of at
least $2,000 be received by the Beneficiary under an annuity payment option.
(See "Annuity Period -- Annuity Options" on page .) If no payment option had
been selected by the Owner, the Beneficiary has sixty (60) days in which to make
a written request to elect either a lump sum payment or any annuity payment
option. Any lump sum payment will be made within seven (7) days after the
Company has received due proof of death and the written election of the
Beneficiary, unless a delay of payments provision is in effect. (See Statement
of Additional Information -- "General Information -- Delay of Payments.")

DEATH OF THE OWNER

If an Owner dies before the Annuity Date, the entire Contract Value must be
distributed within five (5) years of the date of death, unless:

(a) it is payable over the lifetime of a designated Beneficiary with
distributions beginning within one (1) year of the date of death; or

(b) the Contingent Owner, if any, continues the Contract in his or her own
name.

In the case of Contracts issued in connection with an IRA plan, the
Beneficiary or Contingent Owner may elect to accelerate these payments. Any
method of acceleration chosen must be approved by the Company.

If the Owner dies after the Annuity Date, distribution will be as provided
in the annuity payment option selected.

PURCHASING A CONTRACT

APPLICATION

In order to acquire a Contract, an application provided by the Company must
be completed and submitted to the Company's Office for acceptance.

The Company must also receive the initial purchase payment. Upon acceptance,
the Contract is issued to the Owner and the purchase payment is then credited to
the Variable Account and converted into Accumulation Units, except in those
states where the applicable premium tax is deducted from the purchase payment.
(See "Alliance Variable Products Series Fund, Inc. -- Allocation of Purchase
Payment to Sub-accounts" on page .) If the application for a Contract is in
good order, the Company will apply the purchase payment to the Variable Account
and credit the Contract with Accumulation Units within two (2) business days of
receipt. In addition to the underwriting requirements of the Company, good order
means that the Company has received federal funds (monies credited to a bank's
account with its regional Federal Reserve Bank). If the application for a
Contract is not in good order, the Company will attempt to get it in good order
within five (5) business days or the Company will return the application and the
purchase payment, unless the prospective owner specifically consents to the
Company's retaining them until the application is made complete.

PURCHASE PAYMENTS

The minimum initial purchase payment is $5,000 for Non-Qualified Contracts
and $2,000 for a Contract purchased in connection with an IRA or 403(b) Plan.

Owners of flexible premium contracts may make additional purchase payments
prior to the Annuity Date. The minimum additional purchase payment the Company
will accept is $1,000. The Company reserves the right to refuse to accept any
additional purchase payments.

21
<PAGE>
DISCOUNT PURCHASE PROGRAMS

Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families will not be subject to the Deferred Sales Charge. (See
"Charges and Deductions -- Deduction for Deferred Sales Charge" on page .)
Such purchases include retirement accounts and must be for accounts in the name
of the individual or qualifying family member.

DISTRIBUTOR

AIG Equity Sales Corp. ("AESC"), formerly known as American International
Fund Distributors, Inc., 80 Pine Street, New York, New York, acts as the
distributor of the Contracts. AESC is a wholly-owned subsidiary of American
International Group, Inc. and an affiliate of the Company.

Commissions not to exceed 6% of purchase payments will be paid to entities
which sell the Contracts. Additional payments may be made for other services not
directly related to the sale of the Contracts, including the recruitment and
training of personnel, production of promotional literature, and similar
services.

Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
prohibited from performing certain agency or administrative services and
receiving fees from AESC, Owners who purchased Contracts through the bank would
be permitted to retain their Contracts and alternate means for servicing those
Owners would be sought. It is not expected, however, that Owners would suffer
any loss of services or adverse financial consequences as a result of any of
these occurrences.

CONTRACT VALUE

The Contract Value is the sum of the value of all Sub-account Accumulation
Units attributable to the Contract and amounts contributed to a guarantee period
of the General Account. (See "Appendix -- General Account Option"). The value of
an Accumulation Unit will vary from Valuation Period to Valuation Period. The
value of an Accumulation Unit is determined at the end of the Valuation Period
and reflects the investment earnings, or loss, and the deductions for the
Valuation Period.

WITHDRAWALS

PARTIAL WITHDRAWAL

The Owner may partially withdraw Contract Value from the Contract prior to
the Annuity Date. Any partial withdrawal is subject to the following conditions:

(a) the Company must receive a written request;

(b) the amount requested must be at least $500;

(d) the amount withdrawn will be the sum of the amount requested and the
amount of any applicable Deferred Sales Charge; and

(e) the Company will deduct the amount requested plus any Deferred Sales
Charge from each Sub-account of the Variable Account either as specified
or in the proportion that the Sub-account bears to the total Contract
Value.

SYSTEMATIC WITHDRAWAL PROGRAM

22
<PAGE>
$200 provided that the Contract Value is equal to or greater than $24,000 and
the amount to be withdrawn does not exceed the Free Withdrawal Amount.
Systematic withdrawals will be made without the imposition of the Deferred Sales
Charge. Systematic withdrawals may occur monthly or quarterly.

The systematic withdrawal program may be cancelled at any time by written
request or automatically should the Contract Value fall below $1,000. In the
event the systematic withdrawal program is cancelled, the Owner may not elect to
participate in such program until the next Contract Anniversary.

An Owner may change once per Contract Year the amount or frequency subject
to be withdrawn on a systematic basis.

The systematic withdrawal program is annually renewable, although the
limitations set forth above shall continue to apply.

The Free Withdrawal Amount (see "Charges and Deductions -- Deduction for
Deferred Sales Charge" on page ) and Dollar Cost Averaging (See Statement of
Additional Information -- "General Information -- Transfers") are not available
while a Owner is receiving systematic withdrawals. An Owner will be entitled to
the Free Withdrawal Amount and Dollar Cost Averaging on and after the Contract
Anniversary next following the termination of the systematic withdrawal program.

Implementation of the systematic withdrawal program may subject an Owner to
adverse tax consequences, including a 10% tax penalty tax. (See "Taxes --
Taxation of Annuities in General" on page for a discussion of the tax
consequences of withdrawals.)

TOTAL WITHDRAWAL

The Owner may withdraw the entire Contract Value prior to the Annuity Date.
A total withdrawal will cancel the Contract. The total withdrawal value is equal
to the Contract Value next calculated after receipt of the written withdrawal
request, less any applicable Deferred Sales Charge, less the annual
Administrative Charge and less any applicable premium taxes, and, less any
applicable charges assessed to amounts in the General Account. (See "Charges and
Deductions" on page and "Appendix -- General Account Option".)

PAYMENT OF WITHDRAWALS

Any Contract Values withdrawn will be sent to the Owner within seven (7)
days of receipt of the written request, unless the Delay of Payments provision
is in effect. (See Statement of Additional Information -- "General Information
- -- Delay of Payments.") (See "Taxes -- Taxation of Annuities in General" on page
for a discussion of the tax consequences of withdrawals.)

The Company reserves the right to ensure that an Owner's check or other form
of purchase payment has been cleared for payment prior to processing any
withdrawal or redemption request occurring shortly after a purchase payment.

Certain restrictions on withdrawals are imposed on Contracts issued in
connection with 403(b) Plans. (See "Taxes -- 403(b) Plans" on page .)

TAXES

INTRODUCTION

The Contracts are designed to accumulate Contract Values with retirement
plans which, except for IRAs and 403(b) Plans, are generally not tax-qualified
plans ("Qualified Plans"). The ultimate effect of Federal income taxes on the
amounts held under a Contract, on annuity payments, and on the economic benefits
to the Owner, Annuitant or Beneficiary depend on the Company's tax status and
upon the tax and employment status of the individual concerned. Accordingly,
each potential Owner should consult a competent tax adviser regarding the tax
consequences of purchasing a Contract.

23
<PAGE>
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service").
For a discussion of Federal income taxes as they relate to the Fund, please see
the accompanying Prospectus for the Fund.

COMPANY TAX STATUS

The Company is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code of 1986, as amended (the "Code"). Since the
Variable Account is not a separate entity from the Company and its operations
form a part of the Company, it will not be taxed separately as a "regulated
investment company" under Subchapter M of the Code. Investment income and
realized capital gains on the assets of the Variable Account are reinvested and
taken into account in determining the Contract Value. Under existing Federal
income tax law, the Variable Account's investment income, including realized net
capital gains, is not taxed to the Company. The Company reserves the right to
make a deduction for taxes from the assets of the Variable Account should they
be imposed with respect to such items in the future.

TAXATION OF ANNUITIES IN GENERAL -- NON-QUALIFIED PLANS

WITHDRAWALS PRIOR TO THE ANNUITY DATE

Code Section 72 provides that a total or partial withdrawal from a Contract
prior to the Annuity Date will be treated as taxable income to the extent the
amounts held under the Contract on the date of withdrawal exceed the "investment
in the contract," as that term is defined under the Code. The "investment in the
contract" can generally be described as the cost of the Contract. It generally
constitutes the sum of all purchase payments made for the contract less any
amounts received under the Contract that are excluded from gross income. The
taxable portion is taxed as ordinary income. For purposes of this rule, a pledge
or assignment of a Contract is treated as a payment received on account of a
partial withdrawal of a Contract.

WITHDRAWALS ON OR AFTER THE ANNUITY DATE

For fixed annuity payments, the taxable portion of each payment is generally
determined by using a formula known as the "exclusion ratio", which establishes
the ratio that the investment in the Contract bears to the total expected amount
of annuity payments for the term of the Contract. That ratio is then applied to
each payment to determine the nontaxable portion of the payment. The remaining
portion of each payment is taxed as ordinary income. For variable annuity
payments, the taxable portion is determined by a formula which establishes a
specific dollar amount of each payment that is not taxed. The dollar amount is
determined by dividing the investment in the Contract by the total number of
expected periodic payments. The remaining portion of each payment is taxed as
ordinary income.

24
<PAGE>
PENALTY TAX ON CERTAIN WITHDRAWALS

With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59, a 10% penalty tax is imposed upon the portion of such amount which is
includable in gross income. However, the penalty tax will not apply to
withdrawals: (i) made on or after the death of the Owner (or where the Owner is
not an individual, the death of the "primary annuitant", who is defined as the
individual, the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the Contract); (ii)
attributable to the taxpayer's becoming totally disabled within the meaning of
Code Section 72(m)(7); (iii) which are part of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancies) of
the taxpayer and his beneficiary; (iv) allocable to investment in the Contract
before August 14, 1982; (v) under a qualified funding asset (as defined in Code
Section 130(d)); (vi) under an immediate annuity contract; or (vii) that are
purchased by an employer on termination of certain types of qualified plans and
which are held by the employer until the employee separates from service.

ASSIGNMENTS

Any assignment or pledge of the Contract as collateral for a loan may result
in a taxable event and the excess of the Contract Value over purchase payments
will be taxed to the assignor as ordinary income. Please consult your tax
adviser prior to making an assignment of the Contract.

DISTRIBUTION-AT-DEATH RULES

In order to be treated as an annuity contract for Federal income tax
purposes, a Contract must generally provide for the following two distribution
rules: (i) if the Owner dies on or after the Annuity Date, and before the entire
interest in the Contract has been distributed, the remaining portion of such
interest will be distributed at least as quickly as the method in effect on the
Owner's death; and (ii) if an Owner dies before the Annuity Date, the entire
interest must generally be distributed within five years after the date of
death. To the extent such interest is payable to a designated Beneficiary,
however, such interest may be annuitized over the life of that Beneficiary or
over a period not extending beyond the life expectancy of that Beneficiary, so
long as distributions commence within one year after the date of death. If the
Beneficiary is the spouse of the Owner, the Contract may be continued unchanged
in the name of the spouse as Owner.

GIFTS OF CONTRACTS

CONTRACTS OWNED BY NON-NATURAL PERSONS

25
<PAGE>
such as a trust or other entity acting as an agent for a natural person. The
rule also does not apply when the Contract is acquired by the estate of a
decedent, when the Contract is held under certain qualified plans, when the
Contract is a qualified funding asset for structured settlements, when the
Contract is purchased on behalf of an employee upon termination of a qualified
plan, and in the case of an immediate annuity.

SECTION 1035 EXCHANGES

MULTIPLE CONTRACTS

Annuity contracts that are issued by the same company (or affiliate) to the
same Owner during any calendar year will be treated as one annuity contract in
determining the amount includable in the taxpayer's gross income. Thus, any
amount received under any such contract prior to the contract's annuity starting
date will be taxable (and possibly subject to the 10% penalty tax) to the extent
of the combined income in all such contracts. The Treasury has broad regulatory
authority to prevent avoidance of the purposes of this aggregation rule. It is
possible that, under this authority, Treasury may apply this rule to amounts
that are paid as annuities (on or after the starting date) under annuity
contracts issued by the same company to the same Owner during any calendar year
period. In this case, annuity payments could be fully taxable (and possibly
subject to the 10% penalty tax) to the extent of the combined income in all such
contracts and regardless of whether any amount would otherwise have been
excluded from income. Owners should consult a tax adviser before purchasing more
than one Contract or other annuity contracts.

DIVERSIFICATION STANDARDS

To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up period,
each Sub-account is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Sub-account is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-through" rule applies so that an
investment in the Fund is not treated as one investment but is treated as an
investment in a pro-rata portion of each underlying asset of the Fund. All
securities of the same issuer are treated as a single investment. In the case of
government securities, each Government agency or instrumentality is treated as a
separate issuer.

In connection with the issuance of the proposed and temporary version of the
Diversification Regulations, Treasury announced that such regulations do not
provide guidance concerning the extent to which Owners may direct their
investments to particular divisions of a separate account. It is possible that
if and when additional regulations or IRS pronouncements are issued, the
Contract may need to be modified to comply with such rules. For these reasons,
the Company reserves the right to modify the Contract, as necessary, to prevent
the Owner from being considered the owner of the assets of the Variable Account.

The Company intends to comply with the Diversification Regulations to assure
that the Contracts continue to be treated as annuity contracts for Federal
income tax purposes.

QUALIFIED PLANS

26
<PAGE>
is not intended as tax advice. A prospective Owner considering use of the
Contract to create an IRA or in connection with a 403(b) Plan should first
consult a competent tax adviser with regard to the suitability of the Contract
as an investment vehicle for their qualified plan.

While the Contract will not be available in connection with retirement plans
designed by the Company which qualify for the federal tax advantages available
under Sections 401 and 457 of the Code, a Contract can be used as the investment
medium for an individual Owner's separately qualified retirement plan. Under
amendments to the Internal Revenue Code which became effective in 1993,
distributions from a qualified plan (other than non-taxable distributions
representing a return of capital, distributions meeting the minimum distribution
requirement, distributions for the life or life expectancy of the recipient(s)
or distributions that are made over a period of more than 10 years) are eligible
for tax-free rollover within 60 days of the date of distribution, but are also
subject to federal income tax withholding at a 20% rate unless paid directly to
another qualified plan. If the recipient is unable to take full advantage of the
tax-free rollover provisions, there may be taxable income, and the imposition of
a 10% penalty if the recipient is under age 59 1/2. A prospective Owner
considering use of the Contract in this manner should consult a competent tax
adviser with regard to the suitability of the Contract for this purpose and for
information concerning the provisions of the Code applicable to qualified plans.

INDIVIDUAL RETIREMENT ANNUITIES

403(B) PLANS

Code Section 403(b)(11) imposes certain restrictions on an Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to purchase payments made under a salary reduction agreement. Specifically, Code
Section 403(b)(11) allows a Owner to make a surrender or partial withdrawal only
(a) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled (as defined in the Code), or (b) in the case of hardship. In
the case of hardship, only an amount equal to the purchase payments may be
withdrawn. In addition, under Code Section 403(b) the employer must comply with
certain non-discrimination requirements. Owners should consult their employers
to determine whether the employer has complied with these rules. The 403(b) Plan
offered by this Prospectus is not available in all states.

27
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
General Information........................................................................................
The Company..............................................................................................
Independent Accountants..................................................................................
Legal Counsel............................................................................................
Distributor..............................................................................................
Calculation of Performance Related Information...........................................................
Delay of Payments........................................................................................
Transfers................................................................................................
Method of Determining Contract Values......................................................................
Annuity Provisions.........................................................................................
Annuity Benefits...........................................................................................
Annuity Options..........................................................................................
Variable Annuity Payment Values..........................................................................
Annuity Unit.............................................................................................
Net Investment Factor....................................................................................
Additional Provisions....................................................................................
Financial Statements.......................................................................................
</TABLE>

28
<PAGE>
APPENDIX

GENERAL ACCOUNT OPTION

Under the General Account option, Contract Values are held in the Company's
General Account. Because of exemptive and exclusionary provisions, interests in
the General Account have not been registered under the Securities Act of 1933
nor is the General Account registered as an investment company under the
Investment Company Act of 1940. The Company understands that the staff of the
Securities and Exchange Commission has not reviewed the disclosures in this
Prospectus relating to the General Account portion of the Contract. Disclosures
regarding the General Account may, however, be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in prospectuses. The General Account option
is not available in all states.

During the Accumulation Period the Owner may allocate amounts to the General
Account. The General Account is an account maintained by us into which all of
our assets have been allocated other than the assets of the Variable Account and
any other separate accounts we maintain. The initial Purchase Payment will be
invested in the General Account in accordance with the selection made by the
Owner in the application. In the case of flexible premium contracts, additional
Purchase Payments will be allocated to General Account in accordance with the
selection made by the Owner in the application or the most recent selection
received at the Company Office, unless otherwise specified by the Owner. If the
Owner elects to withdrawal amounts from the General Account such withdrawal,
except as otherwise provided in this Appendix, will be subject to the same
conditions as imposed on withdrawals from the Variable Account. The Company
reserves the right to delay any payment from the General Account for up to six
(6) months from the date it receives such request at its Office.

INVESTMENTS IN THE GENERAL ACCOUNT

An allocation of the initial Purchase Payment to a guarantee period must
equal the greater of (a) or (b) where: (a) is a percentage that is a whole
number, equal to or greater than 10% and (b) is a dollar amount which is equal
to or greater than $3,000. Subsequent Purchase Payments under flexible premium
Contracts allocated to a guarantee period must be equal to or greater than
$3,000. Amounts invested in the General Account are credited with interest on a
daily basis at the then applicable effective guarantee rate. The effective
guarantee rate is that rate in effect when the Owner allocates or transfers
amounts to the General Account. If the Owner has allocated or transferred
amounts at different times to the General Account, each allocation or transfer
may have a unique effect guarantee rate and guarantee period associated with
that amount. We guarantee that the effective guarantee rate will not be changed
more than once per year and will not be less than 3%.

GENERAL ACCOUNT TRANSFERS

During the Accumulation Period the Owner may transfer, by written request or
telephone authorization, Contract Values to or from a sub-account of the
Variable Account to or from a guarantee period of the General Account at any
time, subject to the conditions set out under Transfer of Contract Values
Section.

Prior to the end of a guarantee period the Owner may specify the
sub-account(s) of the Variable Account or the applicable guarantee period of the
General Account to which the Owner wants the amounts from the General Account
transferred at the end of the guarantee period. If the Owner does not notify us
prior to the end of the guarantee period, we will apply that amount to a new
guarantee period in the General Account, which is then subject to the same
conditions as the original guarantee period, including the condition that the
amount cannot be transferred out of the General Account until the end of that
guarantee period. The effective guarantee rate applicable to the new guarantee
period may be different from the effective guarantee rate applicable to the
original guarantee period. These transfers will be handled at no charge to the
Owner.

A-1
<PAGE>
MARKET VALUE ADJUSTMENT

A transfer, withdrawal, payment of a death benefit, or annuitization of
amounts allocated to the General Account may be subject to a Market Value
Adjustment which will be applied to the amount transferred, withdrawn, paid or
annuitized. The Market Value Adjustment is made by multiplying the amount to be
transferred, withdrawn, paid or annuitized by the following formula:

1 + .75 X (A-B) X [N/12], where:

<TABLE>
<S> <C> <C>
A = The Guaranteed Interest Rate applicable
to the guarantee period of that portion
of proceeds being transferred,
withdrawn, paid or annuitized.
B = The Guaranteed Interest Rate currently
available for the same length of
guarantee period as that remaining in
the period applicable to that portion of
proceeds being transferred, withdrawn,
paid or annuitized. If no such guarantee
period exists, the Guaranteed Interest
Rate will be calculated by straight line
interpolation of the Guaranteed Interest
Rates of available guarantee periods.
N = The number of complete and partial
months remaining to the end of the
guarantee period applicable to that
portion of proceeds being transferred,
withdrawn, paid or annuitized.
</TABLE>

GUARANTEE PERIODS

The period(s) for which a Guaranteed Interest Rate is credited is called the
guarantee period. Guarantee periods may be offered or withdrawn at the Company's
discretion. The initial guarantee period(s) and the applicable Guaranteed
Interest Rate(s) applicable to the initial Purchase Payment is as shown on the
application, unless such purchase payment is made under an IRA plan. At the
expiration of any guarantee period applicable to all or a portion of the
Contract Value, that portion of the Contract Value will be automatically renewed
for another Guarantee Period for the same duration as the expired guarantee
period and will receive the Guaranteed Interest Rate then in effect for that
guarantee period, unless other guarantee periods are available and are requested
in writing by the Owner. All requests to change a guarantee period at the end of
an existing guarantee period must be received in writing at the Company's Office
no earlier than 30 days prior to the end of that guarantee period.

MINIMUM SURRENDER VALUE

The Minimum Surrender Value for amounts allocated to a guarantee period of
the General Account equals the amounts allocated to a guarantee period of the
General Account paid (less withdrawals) with interest compounded annually at the
rate of 3%, reduced by any applicable Deferred Sales Charge.

A-2
<PAGE>

PART B
STATEMENT OF ADDITIONAL INFORMATION

DEFERRED VARIABLE ANNUITY CONTRACTS

ISSUED BY

VARIABLE ACCOUNT I

AND

AIG LIFE INSURANCE COMPANY

THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE DEFERRED VARIABLE ANNUITY
CONTRACTS WHICH ARE REFERRED TO HEREIN.

THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED May 1, 1996,
CALL OR WRITE: AIG Life Insurance Company; Attention: Variable Products, One
Alico Plaza, Wilmington, Delaware 19801, 1-800-340-2765.

DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1, 1996.

<PAGE>
TABLE OF CONTENTS

PAGE
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Accountants. . . . . . . . . . . . . . . . . . . . . . . .
Legal Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Calculation of Performance Related Information . . . . . . . . . . . .
Delay of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Method of Determining Contract Values. . . . . . . . . . . . . . . . . . .
Annuity Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annuity Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annuity Options. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Variable Annuity Payment Values. . . . . . . . . . . . . . . . . . . .
Annuity Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Investment Factor. . . . . . . . . . . . . . . . . . . . . . . . .
Additional Provisions. . . . . . . . . . . . . . . . . . . . . . . . .

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

B - 2

<PAGE>
GENERAL INFORMATION

THE COMPANY

INDEPENDENT ACCOUNTANTS

The audited financial statements of the Company have been audited by
Coopers and Lybrand, L.L.P., independent certified public accountants, whose
offices are located in Philadelphia, Pennsylvania.

LEGAL COUNSEL

Legal matters relating to the Federal securities laws in connection with
the Contracts described herein and in the Prospectus are being passed upon by
the law firm of Jorden Burt Berenson & Johnson LLP, Washington, D.C..

DISTRIBUTOR

AIG Equity Sales Corp. ("AESC"), formerly known as American International
Fund Distributors, Inc., a wholly owned subsidiary of American International
Group, Inc. and an affiliate of the Company, acts as the distributor. The
offering is on a continuous basis. Commissions are paid by the Registrant
directly to selling dealers and representatives on behalf of the Distributor.
Commissions retained by the Distributor in 1995 were $27,878.

CALCULATION OF PERFORMANCE RELATED INFORMATION

A. YIELD AND EFFECTIVE YIELD QUOTATIONS FOR THE MONEY MARKET SUB-ACCOUNT

The yield quotation for the Money Market Sub-account to be set forth in the
Prospectus will be for the seven days ended on the date of the most recent
balance sheet of the Variable Account included in the registration statement,
and will be computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one Accumulation Unit in the Money Market Sub-account at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by (365/7) with the resulting figure carried to at least
the nearest hundredth of one percent.

Any effective yield quotation for the Money Market Sub-account to be set
forth in the Prospectus will be for the seven days ended on the date of the most
recent balance sheet of the Variable Account included in the registration
statement, and will be carried at least to the nearest hundredth of one percent,
and will be computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance of
one Accumulation Unit in the Money Market Sub-account at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from Owner
accounts, and dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
compounding the base period return by adding 1, raising

B - 3

<PAGE>

the sum to a power equal to 365 divided by 7 and subtracting 1 from the result,
according to the following formula:

EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) to the power of 365/7]-1.

For purposes of the yield and effective yield computations, the
hypothetical charge reflects all deductions that are charged to all Owner
accounts in proportion to the length of the base period. For any fees that vary
with the size of the account, the account size is assumed to be the Money Market
Sub-account's mean account size. The yield and effective yield quotations do
not reflect the Deferred Sales Charge that may be assessed at the time of
withdrawal in an amount ranging up to 6% of the requested withdrawal amount,
with the specific percentage applicable to a particular withdrawal depending on
the length of time the purchase payment was held under the Contract and whether
withdrawals had been previously made during that Contract Year. (See "Charges
and Deductions - Deduction for Deferred Sales Charge" on page of the
Prospectus) No deductions or sales loads are assessed upon annuitization under
the Contracts. Realized gains and losses from the sale of securities and
unrealized appreciation and depreciation of the Money Market Sub-account and the
Fund are excluded from the calculation of yield.

B. TOTAL RETURN QUOTATIONS

The total return quotations for all of the Sub-accounts to be set forth in
the Prospectus will be average annual total return quotations for the one, five,
and ten year periods (or, where a Sub-account has been in existence for a period
of less than one, five or ten years, for such lesser period) ended on the date
of the most recent balance sheet of the Variable Account and for the period from
the date monies were first placed into the Sub-accounts until the aforesaid
date. The quotations are computed by finding the average annual compounded
rates of return over the relevant periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:

P(1+T) to the power of n = ERV

Where: P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the particular
period at the end of the particular period.

For the purposes of the total return quotations for all of the
Sub-accounts, the calculations take into effect all fees that are charged to all
Owner accounts. For any fees that vary with the size of the account, the
account size is assumed to be the respective Sub-account's mean account size.
The calculations also assume a total withdrawal as of the end of the particular
period.

B - 4

<PAGE>

Annualized total return for certain Sub-accounts as of December 29, 1995,
were as follows:

One Year Three Years Inception to Date
-------- ----------- ----------------
<S> <C> <C> <C>
Money Market -1.91% N/A -2.23%
Premier Growth 37.85% N/A 10.28%
Growth & Income 28.44% 12.17% 10.50%
International 8.34% N/A 1.49%
Short Term Multi -0.19% -0.59% -4.46%
Global Bond 17.56% 7.19% 3.23%
Us Gov't High Grade 12.14% N/A -0.80%
Global Dollar Gov't 15.83% N/A 4.48%
North American Gov't 15.33% N/A -3.19%
Utility Income 14.32% N/A 4.47%
Conservative Investor 10.05% N/A 3.87%
Growth Investors 13.36% N/A 4.38%
Growth 27.91% N/A 20.57%
Total Return 16.50% N/A 5.35%
World Wide Privatization 3.88% N/A -0.47%
Technology Portfolio N/A N/A N/A

</TABLE>

*Funds were first invested in the Portfolios as listed below:

B - 5

<PAGE>

C. YIELD QUOTATIONS FOR THE SHORT-TERM MULTI-MARKET, U.S. GOVERNMENT/HIGH
GRADE SECURITIES AND GLOBAL BOND SUB-ACCOUNTS

The yield quotations for the Short-Term Multi-Market, U.S. Government/High
Grade Securities and Global Bond Sub-accounts that will be set forth in the
Prospectus will be based on the thirty-day period ended on the date of the most
recent balance sheet of the Variable Account included in the registration
statement, and are computed by dividing the net investment income per
Accumulation Unit earned during the period by the maximum offering price per
unit on the last day of the period, according to the following formula:

Yield = 2[(a - b + 1) to the power of 6 - 1]
---------
cd

Where: a = net investment income earned during the period by
the corresponding Series of the Fund attributable
to shares owned by the Sub-account.

b = expenses accrued for the period (net of
reimbursements).

c = the average daily number of Accumulation Units
outstanding during the period.

d = the maximum offering price per Accumulation Unit
on the last day of the period.

For the purposes of the yield quotations for the Short-Term Multi-Market,
U.S. Government/High Grade Securities and Global Bond Sub-accounts, the
calculations take into effect all fees that are charged to all Owner accounts.
For any fees that vary with the size of the account, the account size is assumed
to be the respective Sub-account's mean account size. The calculations do not
take into account the Deferred Sales Charge or any transfer charges.

A Deferred Sales Charge may be assessed at the time of withdrawal in an
amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract, and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Deferred Sales Charge" on page __ of the Prospectus) There is
currently a transfer charge of $10 per transfer after a specified number of
transfers in each Contract Year. (See "Alliance Variable Products Series Fund,
Inc., - Transfer of Contract Values" on page __ of the Prospectus.)

D. Non - Standardized Performance Data

1. Total Return Quotations
-----------------------

B - 6

<PAGE>

annual compounded rates of return over the relevant periods that would equate
the initial amount invested to the ending redeemable value, according to the
following formula:

P(1+T) to the power of n = ERV

Where: P = a hypothetical initial payment of $1,000

T = average annual total return

n = number of years

ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
particular period at the end of the
particular period.

For the purposes of the total return quotations, the calculations take into
effect all fees that are charged to all Owner accounts. For any fees that vary
with the size of the account, the account size is assumed to be the respective
Sub-account's mean account size. The calculations do not, however, assume a
total withdrawal as of the end of the particular period and therefore, no
Surrender Charge is reflected.

Annualized total return quotations for certain Sub-accounts as of December
29, 1995, were as follows:

ONE YEAR THREE YEARS INCEPTION TO DATE
-------- ----------- -----------------
<S> <C> <C> <C>
Money Market 3.55% N/A 2.11%
Premier Growth 43.31% 13.66% 13.78%
Growth & Income 33.90% 13.16% 13.69%
International 8.34% N/A 6.83%
Short Term Multi Market 5.27% 0.66% -0.04%
Global Bond 23.02% 8.27% 6.97%
US Gov't/High Grade 17.60% N/A 4.42%
Global Dollar Gov't 21.29% N/A 10.38%
North American Gov't 20.79% N/A 2.93%
Utility Income 19.78% N/A 7.10%
Conservative Investor 15.51% N/A 11/46%
Growth Investors 18.82% N/A 11.82%
Growth 33.37% N/A 27.65%
Total Return 21.96% N/A 12.94%
Worldwide Privatization 9.34% N/A 7.10%
Technology N/A N/A N/A

</TABLE>

B - 7
<PAGE>

2. TAX DEFERRED ACCUMULATION

In general, individuals who own annuity contracts are not taxed on inreases
in the value under the annuity contract until some form of distribution is made
from the contract. Thus, the annuity contract will benefit from tax deferral
during the accumulation period, which generally will have the effect of
permitting an investment in an annuity contract to grow more rapidly than a
comparable investment under which increases in value are taxed on a current
basis. The following chart illustrates this benefit by comparing accumulation
under the Contract with accumulations from an investment on which gains are
taxed on a current basis. The chart shows accumulations on an initial
investment or Purchase Payment of $25,000, assuming hypothetical gross annual
return of 0%, 4% and 8%, compounded annually, and a tax rate of 31%. The values
shown for the taxable investment do not include any deduction for management
fees or other expenses but assume that taxes are deducted annually from
investment returns. The values shown for the Contract reflect the deduction of
contractual expenses such as the 1.25% mortality and expense risk charge, the
0.15% Administrative Charge and the $30 Contract Maintenance Charge, but not the
expenses of an underlying investment vehicle. In addition, these values assume
that the Owner does not surrender the Contract or make any withdrawals until the
end of the period shown. The chart assumes a full withdrawal, at the end of the
period shown, of all contract value and the payment of taxes at the 31% rate on
the amount in excess of the Purchase Payment.

[INSERT CHART]

B - 8

<PAGE>

DELAY OF PAYMENTS

Any payments due under the Contracts will generally be sent to the
Owner within seven (7) days of a completed request for payment. However, the
Company has reserved the right to postpone any type of payment from the Variable
Account for any period when:

(a) the New York Stock Exchange is closed for other than
customary weekends and holidays;

(b) trading on the Exchange is restricted;

(c) an emergency exists as a result of which it is not
reasonably practicable to dispose of securities held in the
Variable Account or determine their value; or

(d) an order of the Securities and Exchange Commission permits
delay for the protection of security holders.

The applicable rules of the Securities and Exchange Commission shall govern
as to whether the conditions in (b) and (c) exists.

TRANSFERS

An Owner may deposit prior to the Annuity Date, all or part of his Contract
Value into the Money Market or Short-Term Multi-Market Sub-account (the Sending
Sub-account"), and then automatically transfer those assets into one or more of
the other Sub-accounts on a systematic basis. The amount transferred to the
Sending Sub-account must be at least $12,000 in order to initiate this option.
This process is called Automatic Dollar Cost Averaging.

The Automatic Dollar Cost Averaging option is available for use with any of
the investment options, other than the General Account.

Automatic Dollar Cost Averaging transfers may occur monthly or quarterly.
The Owner may designate the dollar amount to be transferred each month or elect
to have a percentage transferred each month, up to a maximum of 60 months.

The Company will make all Automatic Dollar Cost Averaging transfers on the
15th calendar day of each month, or the next day the New York Stock Exchange is
open for business if the 15th calendar day of the month should fall on a day the
New York Stock Exchange is closed. In order to process an Automatic Dollar Cost
Averaging transfer, the Company must have received a request in writing by no
later than the 6th calendar day of the month.

The Automatic Dollar Cost Averaging option may be cancelled at any time by
written request or automatically if the value of the Sending Sub-account subject
to the Automatic Dollar Cost Averaging option is less than $1,000.

An Owner may change his Automatic Dollar Cost Averaging investment
allocation only once during any 12 month period.

B - 9

<PAGE>

Any transfers made under this section are subject to the conditions of the
section entitled "Alliance Variable Products Series Fund, Inc. - Transfer of
Contract Values" on page 15 of the Prospectus, except that the Company will not
deem the election of the Automatic Dollar Cost Averaging option to count towards
a Owner's twelve (12) free transfers.

METHOD OF DETERMINING CONTRACT VALUES

The Contract Value will fluctuate in accordance with the investment results
of the underlying Portfolio of the Fund held within the Sub-account. In order
to determine how these fluctuations affect Contract Values, Accumulation Units
are utilized. The value of an Accumulation Unit applicable during any Valuation
Period is determined at the end of that period.

When the first shares of the respective Portfolios of the Fund were
purchased for the Sub-accounts, the Accumulation Units for the Sub-accounts were
valued at $10. The value of an Accumulation Unit for a Sub-account on any
Valuation Date thereafter is determined by dividing (a) by (b), where:

(a) is equal to:

(i) the total value of the net assets attributable to Accumulation
Units in the Sub-account, minus

(ii) the daily charge for assuming the risk of guaranteeing mortality
factors and expense charges which is equal on an annual basis to 1.25%
multiplied by the daily net asset value of the Sub-account; minus

(iii) the daily charge for providing certain administrative functions
which is equal on an annual basis to 0.15% multiplied by the daily net
asset value of the Sub-account; minus or plus

(iv) a charge or credit for any tax provision established for the
Sub-account. The Company is not currently making any provision for
taxes.

(b) is the total number of Accumulation Units applicable to that
Sub-account at the end of the Valuation Period.

The resulting value of each Sub-account Accumulation Unit is multiplied by
the respective number of Sub-account Accumulation Units for a Contract. The
Contract Value is the sum of all Sub-account values for the Contract.

An Accumulation Unit may increase or decrease in value from Valuation Date
to Valuation Date.

B - 10

<PAGE>

ANNUITY PROVISIONS

ANNUITY BENEFITS

If the Annuitant is alive on the Annuity Date the Company will begin making
payments to the Annuitant under the payment option or options selected. The
amount of the annuity payments will depend on the age of the payee at the time
the settlement contract is issued.

Annuity Options

The annuity options are as follows:

OPTION 1: LIFE INCOME. The Company will pay an annuity during the
lifetime of the payee.

OPTION 2: INCOME WITH 10 YEARS OF PAYMENTS GUARANTEED. The Company
will pay an annuity during the lifetime of the payee. If, at the
death of the payee, payments have been made for less than 10 years:

(a) payments will be continued during the remainder of the
period to the successor payee; or

(b) the successor payee may elect to receive in a lump sum the
present value of the remaining payments, commuted at the interest
rate used to create the annuity factor for this Option.

OPTION 3: JOINT AND LAST SURVIVOR INCOME. The Company will pay an
annuity for as long as either payee or a designated second person is
alive.

Annuity options are available on a fixed and/or a variable basis. The
Owner may allocate Contract Values to purchase only fixed annuity payments, or
to purchase only variable annuity payments, or to purchase a combination of the
two. Contract Values which purchase fixed annuity payments will be invested in
the General Account. Contract Values which purchase variable annuity payments
will be invested in the Variable Account. The Owner may make no transfers
between the General Account and the Variable Account after the Annuity Date.
The Company also may offer additional options at its discretion.

VARIABLE ANNUITY PAYMENT VALUES

A Variable Annuity is an annuity with payments which (1) are not
predetermined as to dollar amount and (2) will vary in amount with the net
investment results of the applicable Sub-account(s) of the Variable Account. At
the Annuity Date the Contract Value in each Sub-account will be applied to the
applicable Annuity Tables contained in the Contract. The Annuity Table used
will depend upon the payment option chosen. The same Contract Value amount
applied to each payment option may produce a different initial annuity payment.
If, as of the Annuity Date, the then current annuity rates applicable to this
class of contracts will provide a larger income than that guaranteed for the
same form of annuity under the Contracts described herein, the larger amount
will be paid.

B - 11

<PAGE>

The first annuity payment for each Sub-account is determined by multiplying
the amount of the Contract Value allocated to that Sub-account by the factor
shown in the table for the option selected, divided by 1000.

The dollar amount of Sub-account annuity payments after the first is
determined as follows:

(a) The dollar amount of the first annuity payment is divided by the
value for the Sub-account Annuity Unit as of the Annuity Date. This
establishes the number of Annuity Units for each monthly payment. The
number of Annuity Units remains fixed during the Annuity payment
period, subject to any transfers.

(b) The fixed number of Annuity Units is multiplied by the Annuity
Unit value for the Valuation Period 14 days prior to the date of
payment.

The total dollar amount of each Variable Annuity payment is the sum of all
Sub-account variable annuity payments less the pro-rata amount of the annual
Administrative Charge.

ANNUITY UNIT

The value of an Annuity Unit for each Sub-account was arbitrarily set
initially at $10. This was done when the first Fund shares were purchased. The
Sub-account Annuity Unit value at the end of any subsequent Valuation Period is
determined by multiplying the Sub-account Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (a) and (b) where:

(a) is the net investment factor for the Valuation Period for which
the Sub-account Annuity Unit value is being determined; and

(b) is the assumed investment factor for such Valuation Period. The
assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for any
Valuation Period shall be the accumulated value, at the end of such
period, of $1.00 deposited at the beginning of such period at the
assumed investment rate of 5%.

NET INVESTMENT FACTOR

The net investment factor is used to determine how investment results of
the Fund affect Variable Account Values within the Sub-accounts from one
Valuation Period to the next. The net investment factor for each Sub-account
for any Valuation Period is determined by dividing (a) by (b) and subtracting
(c) from the result, where:

(a) is equal to:

(i) the net asset value per share of the Fund held in the
Sub-account determined at the end of that Valuation Period; plus

(ii) the per share amount of any dividend or capital gain
distribution made by the Fund held in the Sub-account if the
"ex-dividend" date occurs during that same Valuation Period; plus or
minus

B - 12

<PAGE>

(iii) a per share charge or credit, which is determined by the
Company, for changes in tax reserves resulting from investment
operations of the Sub-account.

(b) is equal to:

(i) the net asset value per share of the Fund held in the
Sub-account determined as of the end of the prior Valuation Period;
plus or minus

(ii) the per share charge or credit for any change in tax
reserves for the prior Valuation Period.

(i) the percentage factor representing the Mortality and
Expense Risk Charge, plus

(ii) the percentage factor representing the daily
Administrative Charge.

The net investment factor may be greater or less than the assumed investment
factor; therefore, the Annuity Unit value may increase or decrease from
Valuation Period to Valuation

ADDITIONAL PROVISIONS

The Company may require proof of the age of the Annuitant before making any
life annuity payment provided for by the Contract. If the age of the Annuitant
has been misstated the Company will compute the amount payable based on the
correct age. If annuity payments have begun, any underpayments that may have
been made will be paid in full with the next annuity payment. Any overpayments,
unless repaid to the Company in one sum, will be deducted from future annuity
payments until the Company is repaid in full.

If a Contract provision requires that a person be alive, the Company may
require due proof that the person is alive before the Company acts under that
provision.

The Company will give the payee under an annuity payment option a
settlement contract for the payment option.

FINANCIAL STATEMENTS

The financial statements of the Company included herein shall be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.

B - 13