AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May1, 1997
File No. 33-39171
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 10 [ X ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No.25 [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) immediately upon filing pursuant to paragraph (b)
of Rule 485
X on May 1, 1997 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 28, 1997.
<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; The
Fund
Item 6. Deductions and Expenses........................ Charges and
Deductions
Item 7. General Description of Variable
Annuity Contracts........................... The Contract;
Parties to the
Contract; How
to Purchase a
Contract
Item 8. Annuity Period................................. Annuity Benefits
Item 9. Death Benefit.................................. Death Benefit
Item 10. Purchases and Contract Value................... How to Purchase
a Contract;
Premium and
Allocation of
Your Investment
Options
Item 11. Redemptions.................................... Distributions
Under the
Contract
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>
PART A
<PAGE>
PROSPECTUS
for
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 "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 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; 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; Quasar Portfolio; Real Estate
Investment 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 _________, 1997, 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.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE
NOT GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
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, 1997
2
<PAGE>
TABLE CONTENTS
PAGE
Definitions....................................................
Highlights.....................................................
Summary of Expenses............................................
Condensed Financial Information................................
The Company....................................................
The Variable Account...........................................
Alliance Variable Products Series Fund, Inc....................
The Contract
Charges and Deductions.........................................
Annuity Benefits...............................................
Death Benefit..................................................
Distributions Under the Contract...............................
Taxes..........................................................
Appendix - General Account Option..............................
Table of Contents of the Statement of Additional Information...
3
<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.
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.
4
<PAGE>
HIGHLIGHTS
This Prospectus describes 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 in
connection with a retirement plan which may qualify as a 403 (b) Plan 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 $2,000. 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. Each Subaccount 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; Quasar; Real
Estate Investment; 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
Separate 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.
(See "Summary of Expenses" on page ____, and "Charges and Deductions - Deduction
for Surrender Charge" on 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
.)
5
<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 $50,000 on the date of the charge. These Charges are
designed to reimburse the Company for administrative expenses relating to
maintenance of the Contract and the Variable Account. (See "Charges and
Deductions - Deduction for Administrative Charge and Contract Maintenance Fee"
on page .)
There are deductions and expenses paid out of the assets of the Fund which are
described in the accompanying Prospectus for the Fund.
The Owner may return the Contract within ten (10) days (the "Right to Examine
Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA the Company will refund the greater of the Premium less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the premium paid less any withdrawals, the Company will refund such an
amount.
6
<PAGE>
FEE TABLE
OWNER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
ALL SUBACCOUNTS
<S> <C>
Sales Load Imposed on Purchases............................... None
Surrender Charge (as a percentage of amount surrendered):
Premium Year 1 6%
Premium Year 2 6%
Premium Year 3 5%
Premium Year 4 5%
Premium Year 5 4%
Premium Year 6 3%
Premium Year 7 2%
Premium Year 8 and thereafter None
Exchange Fee:
First 12 Per Contract Year.....................................None
Thereafter....................................................$ 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>
7
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses Net of Any Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Fee Expenses Expenses
----------------------------------
<S> <C> <C> <C>
Alliance Portfolios
Alliance Money Market 0.50% 0.19% 0.69%
Alliance Short-Term Multi-Market 0.00% 0.95% 0.95%
Alliance Growth 0.74% 0.19% 0.95%
Alliance Growth and Income 0.63% 0.19% 0.82
Alliance International 0.04% 0.91% 0.95%
Alliance U.S. Government
/High Grade Securities 0.54% 0.36% 0.92%
Alliance North American Government Income 0.19% 0.95% 0.95%
Alliance Global Dollar Government 0.00% 0.95% 0.95%
Alliance Utility Income 0.19% 0.76% 0.95%
Alliance Global Bond 0.44% 0.50% 0.94%
Alliance Premier Growth 0.72% 0.23% 0.95%
Alliance Total Return 0.46% 0.49% 0.95%
Alliance Conservative Investors 0.30% 0.65% 0.95%
Alliance Growth Investors 0.74% 0.19% 0.93%
Alliance Worldwide Privatization 0.10% 0.85% 0.95%
Alliance Technology* 0.33% 0.52% 0.95%
Alliance Quasar 0.00% 0.95% 0.95%
Alliance Real Estate Investment** 0.00% 0.95% 0.95%
</TABLE>
* The expense percentages for the Technology and Quasar Portfolio have been
annualized for both portfolios have not been in existence for a full year.
** Expense percentages for the Real Estate Investment Portfolio has been
estimated.
The purpose of the table set forth above is to assist the Purchaser 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 StatePremium Taxes" on page .)
"Other Expenses" are based upon the expenses outlined under the section
entitled "Management of the Fund" in the Fund Prospectus.
Fund operating expenses for each Series before reimbursement by the
Fund's investment adviser were estimated to be .69% for the Money Market; 2.09 %
for the Short-Term Multi-Market; .93% for the Growth; 1.91% for International;
.98% for the U.S. Government/High Grade Securities; 1.15% for the Global Bond;
1.41% for the North American Government Income; 1.97% for the Global Dollar
Government; 1.51% for the Utility Income; 1.23% for the Premier Growth; 1.12%
for the Total Return;1.40 % for the Conservative Investors; 1.85% for the Growth
Investors; 1.85% for the Worldwide Privatization; 4.44% for the Quasar ; 6.00%
for the Real Estate Investment ; and 1.62 % for the Technology Portfolio, of
the average daily net assets.
8
<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>
Money Market 76 112 151 248
Short Term Multi-Market 78 120 165 275
Growth 78 120 164 273
Growth and Income 77 116 158 262
International 78 120 165 275
A U.S. Gov't/High Grade Securities 78 119 163 272
North American Gov't Income 78 120 165 275
Global Dollar Government 78 120 165 275
Utility Income 78 120 165 275
Global Bond 78 120 164 274
Premier Growth 78 120 165 275
Total Return 78 120 165 275
Conservative Investors 78 120 165 275
Growth Investors 78 120 165 275
Worldwide Privatization 78 120 165 275
Technology 78 120 165 275
Quasar 78 120 165 275
Real Estate Investment 78 120 165 275
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
9
<PAGE>
If you annuitize or
if you do not surrender
Portfolio 1 Year 3 Years 5 Years 10 Years
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market 22 67 115 274
Short Term Multi-Market 24 75 129 275
Growth 24 75 128 273
Growth and Income 23 71 122 262
International 24 75 129 275
U.S. Gov't/High Grade Securities 24 74 127 272
North American Gov't Income 24 75 129 275
Global Dollar Government 24 75 129 275
Utility Income 24 75 129 275
Global Bond 24 75 128 274
Premier Growth 24 75 129 275
Total Return 24 75 129 275
Conservative Investors 24 75 129 275
Growth Investors 24 75 129 275
Worldwide Privatization 24 75 129 275
Technology 24 75 129 275
Quasar 24 75 129 275
Real Estate Investment 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.
10
<PAGE>
CONDENSED FINANCIAL INFORMATION
<TABLE>
ACCUMULATION UNIT VALUES*
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
ALLIANCE MONEY MARKET
Accumulation Unit Value
Beginning of Period 10.63 10.26 10.08 10.00 N/A
End of Period 10.97 10.63 10.26 10.08 N/A
Accum Units o/s @ end of period 4,320,223.01 1,856,020.37 431,319.86 8,487.20 N/A
ALLIANCE SHORT-TERM MULTI-MARKET
Accumulation Unit Value
Beginning of Period 9.99 9.49 10.29 9.79 N/A
End of Period 10.79 9.99 9.49 10.29 N/A
Accum Units o/s @ end of period 461,069.70 115,207.71 95,717.60 14,511.57 N/A
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period 13.97 10.48 10.00 N/A N/A
End of Period 17.70 13.97 10.48 N/A N/A
Accum Units o/s @ end of period 5,856,812.02 2,215,092.12 467,688.06 N/A N/A
ALLIANCE GROWTH & INCOME
Accumulation Unit Value
Beginning of Period 15.62 11.67 11.88 10.78 10.00
End of Period 19.11 15.62 11.67 11.88 10.78
Accum Units o/s @ end of period4,509,118.40 1,554,549.81 438,680.3228,041.82 800.00
ALLIANCE INTERNATIONAL
Accumulation Unit Value
Beginning of Period 11.60 10.71 10.17 10.00 N/A
End of Period 12.26 11.60 10.71 10.17 N/A
Accum Units o/s @ end of period 2,718,751.84 981,260.91 447,407.4121,717.14 N/A
ALLIANCE U.S. GOVERNMENT HIGH GRADE
Accumulation Unit Value
Beginning of Period 11.07 9.42 9.95 10.00 N/A
End of Period 11.20 11.07 9.42 9.95 N/A
Accum Units o/s @ end of period1,838,415.41 914,988.76 320,574.6441,210.45 N/A
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME
Accumulation Unit Value
Beginning of Period 10.53 8.70 10.00 N/A N/A
End of Period 12.33 10.53 8.70 N/A N/A
Accum Units o/s @ end of period 1,047,240.17 531,374.67 340,817.36 N/A N/A
ALLIANCE GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period 11.82 9.74 10.00 N/A N/A
End of Period 14.56 11.82 9.74 N/A N/A
Accum Units o/s @ end of period 469,801.08 238,452.60 69,320.82 N/A N/A
ALLIANCE UTILITY INCOME
Accumulation Unit Value
Beginning of Period 11.82 9.87 10.00 N/A N/A
End of Period 12.57 11.82 9.87 N/A N/A
Accum Units o/s @ end of period 812,579.02 358,005.39 111,604.02 N/A N/A
ALLIANCE GLOBAL BOND
Accumulation Unit Value
Beginning of Period 12.64 10.28 11.00 9.96 10.00
End of Period 13.24 12.64 10.28 11.00 9.96
Accum Units o/s @ end of period 579,082.99 213,886.71 85,875.16 18,846.45 5,444.00
ALLIANCE PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 14.54 10.15 11.13 10.00 10.00
End of Period 17.59 14.54 10.15 11.13 10.00
Accum Units o/s @ end of period 3,971,452.13 1,252,211.18 223,550.22 35,271.53 2081.43
ALLIANCE TOTAL RETURN
Accumulation Unit Value
Beginning of Period 11.78 9.65 10.00 N/A N/A
End of Period 13.37 11.78 9.65 N/A N/A
Accum Units o/s @ end of period 1,155,818.92 328,256.04 34,684.53 N/A N/A
ALLIANCE CONSERVATIVE INVESTORS
Accumulation Unit Value
Beginning of Period 11.57 10.02 10.00 N/A N/A
End of Period 11.84 11.57 10.02 N/A N/A
Accum Units o/s @ end of period 1,109,173.48 405,192.27 62,868.02 N/A N/A
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
ALLIANCE GROWTH INVESTORS
Accumulation Unit Value
Beginning of Period 11.65 9.81 10.00 N/A N/A
End of Period 12.43 11.65 9.81 N/A N/A
Accum Units o/s @ end of period 609,405.23 292,173.06 29,492.78 N/A N/A
ALLIANCE WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period 10.99 10.05 10.00 N/A N/A
End of Period 12.84 10.99 10.05 N/A N/A
Accum Units o/s @ end of period1,135,168.22 394,704.27 105,674.08 N/A N/A
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A N/A N/A
End of Period 10.89 N/A N/A N/A N/A
Accum Units o/s @ end of period 2,127,691.68 N/A N/A N/A N/A
ALLIANCE QUASAR
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A N/A N/A
End of Period 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period 649,902.74 N/A N/A N/A N/A
ALLIANCE REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period N/A N/A N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A N/A N/A
</TABLE>
13
<PAGE>
*Funds were first invested in the Portfolios as listed below:
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 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 Yield
Securities Portfolio June 14, 1993
North American Government
Income Portfolio April 8, 1994
Global Dollar
Government Portfolio May 26 , 1994
Utility Income Portfolio June 15, 1994
Conservative Investors Portfolio September 8,1994
Growth Investors Portfolio August 16, 1994
Growth Portfolio August 12, 1994
Total Return Portfolio September 12,1994
Worldwide Privatization Portfolio October 17,1994
Technology Portfolio January22,1996
Quasar Portfolio August 15,1996
Real Estate Investment Portfolio January 7,1997
14
<PAGE>
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.
Total return at the Variable Account level is reduced by all
contract charges: sales charges, mortality and expense risk charges, and
the administrative charges, and is therefore lower than the total return
at a Fund level, which has no comparable charges. Likewise, yield and
effective yield at the Variable Account level take into account all
recurring charges (except sales charges), and are therefore lower than the
yield and effective yield at a Fund level, which has no comparable
charges. Performance information for a Subaccount 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 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.
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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 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; Quasar; Real Estate
Investment; 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.
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The investment objectives of the portfolios 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.
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.
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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.
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.
Quasar Portfolio
This portfolio seeks growth of capital by pursuing aggressive
investment policies. The Portfolio invests principally in a diversified
portfolio of equity securities of any company and industry and in any
type of security which is believed to offer possibilities for capital
appreciation.
Real Estate Investment Portfolio
This portfolio seeks a total return on its assets from long-term growth of
capital and from income principally through investing in a portfolio of equity
securities of issuers that are primarily engaged in or related to the
real estate industry.
THERE IS NO ASSURANCE THAT ANY OF THESE PORTFOLIOS WILL ACHIEVE
THEIR STATED OBJECTIVES.
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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 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.
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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.
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 TAXES, page .
How to Purchase a Contract
At the time of application, the Purchaser 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 may 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.
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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 6 1/2% 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.
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 Owner's 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 $2,000. You may make additional
payments of Premium prior to the Annuity Date, in amounts of at least
$1000 or $100 as part of an automatic investment plan. 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.
The initial Premium is allocated among the Subaccounts and
Guaranteed Account on the Effective Date. 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. 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 PREMIUMS TO IRA OR 403 (B) PLAN 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 "TAXES" ON PAGE .)
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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.
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 charges 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. (See Appendix , "Guaranteed Account
Transfers," page___.)
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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 ____.)
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.
To elect the Dollar Cost Averaging Option, the Owner's Contract
Value must be at least $12,000, 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.
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Asset Rebalancing Option
The Company currently offers an option under which Owners may
authorize the Company to automatically exchange Contract Value
periodically 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 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 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. If the Asset Rebalancing Option is elected, all Contract Value
allocated to the Subaccounts must be included in the Asset Rebalancing
Option.
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 State Premium 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.
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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.
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 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; however, the Surrender Charge applies only to Premium
received by the Company within seven (7) years of the date of the
withdrawal.
The Surrender Charge 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. The amount of any withdrawal which exceeds the
Free Withdrawal Amount will be subject to the following charges:
<PAGE>
<TABLE>
<CAPTION>
Applicable Surrender
Charge Percentage
<S> <C>
Premium Year 1 6%
Premium Year 2 6%
Premium Year 3 5%
Premium Year 4 5%
Premium Year 5 4%
Premium Year 6 3%
Premium Year 7 2%
Premium Year 8 and thereafter None
</TABLE>
No Surrender Charge is imposed against: (1) 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 as a 403 (b) Plan or IRA
(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.
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 for the current Contract Year. The deduction will be
made proportionally based on Your value in each Subaccount and the
Guaranteed Account. After the Annuity Date, the Contract Maintenance
Charge is deducted on a pro-rata basis from each annuity income payment.
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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. (See also "Taxes" beginning on page .)
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 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, forIRA or 403
(b) Plan Contracts, certain provisions of your retirement plan or the Code
may further restrict your choice of an Annuity Date. (See "Taxes ," page
____).
26
<PAGE>
Annuity Options
The Owner may choose annuity payments which are fixed, or which are
based on the Variable Account, or a combination of the two. The Owner may,
upon at least 30 days prior written notice to us, at any time prior to the
Annuity Date, select or change an Annuity Option. If the Owner elects
annuity payments which are based on the Variable Account, the amount of
the payments will be variable. The amount of the annuity payment based on
the value of a Subaccount is determined through a calculation described in
the Statement of Additional Information, under the caption "Annuity
Provisions". 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.
27
<PAGE>
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.
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.
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<PAGE>
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;
(c) 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;
(d) declared or undeclared war or any act thereof; or
(e) 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;
(b) the amount requested must be at least $500;
(c) any applicable Surrender Charge will be deducted;
(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.
Withdrawals (including systematic withdrawals discussed below may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page .)
29
<PAGE>
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 seven 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. 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 Contracts issued in connection
with IRAs or 403(b) Plans may be subject to the terms and conditions of the
retirement plan, regardless of the terms and conditions of the Qualified
Contract (See " Taxes" 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.
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. A surrender may be taxable and subject to a
tax penalty. (See "Taxes" discussed on page .)
30
<PAGE>
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value as of the date the Company receives Your surrender
request, reduced by the following: (1) any applicable taxes not previously
deducted; (2) 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
certain distributions from 403(b) Plan Contracts. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See "Taxes" on page , and " Tax-Favored Plans" 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.
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 .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.
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<PAGE>
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 on full surrender of the
Contract, the recipient is taxed on the portion of the payment that
exceeds the investment in the Contract. The taxable portion is taxed as
ordinary income.
If the recipient receives annuity payments rather than a lump sum
payment, a portion of the payment is included in taxable income when
received. 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.
The recipient is able to exclude a portion of the payments received
from taxable income until the investment in the Contract is fully
recovered. Annuity payments are fully taxable after the investment in the
Contract is recovered. If the recipient dies before the investment in the
Contract is recovered, the recipient's estate is allowed a deduction for
the remainder.
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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.
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Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who
is either 37 1/2 years younger than the Owner or a grandchild of the Owner
may have Generation Skipping Transfer Tax consequences.
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. The designated beneficiary is
the person to whom ownership of the contract passes by reason of death and
must be a natural person. 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.
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 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity
contract unless money is distributed as part of the exchange. 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.
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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.
Withholding
The Company is required to withhold Federal income taxes on
withdrawals, lump sum distributions, and annuity payments that include
taxable income unless the payee elects to not have any withholding or in
certain other circumstances. Special withholding rules apply to payments
made to non-resident aliens.
Lump-sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of any
withdrawal or lump sum distribution unless You elect out of withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments based
on a withholding certificate You file with the Company. If you do not file
a certificate, You will be treated, for purposes of determining your
withholding rates, as a married person with three exemptions.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated
tax payments are not sufficient.
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.
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.
35
<PAGE>
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.
Tax Favored 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.
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 401 retirement plan.
Distributions from a 401 qualified plan or 403(b) 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, 403(b) Plan or an IRA. 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 tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Owner considering use of the Contract in this
manner should consult a competent tax advisor with regard to the suitability of
the Contract of this purpose and for information concerning the provisions of
the Code applicable to qualified plans, 403(b) Plans, and IRAs.
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. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. 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. Contracts offered in connection with an IRA by this
Prospectus are not available in all states.
<PAGE>
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, 403(b) Plans are subject to additional requirements, including:
eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403(b) Plan by this Prospectusare not available in all states.
36
<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................................................
A-1
<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 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.
A-2
<PAGE>
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.
<PAGE>
PART B
<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, 1997CALL 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, 1997
ALLIANCE.NEW
B-2
<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-3
<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 1996 were $83,483.
Calculation Of Performance Related Information
A. Yield and Effective Yield Quotations for the Money Market
Subaccount
The yield quotation for the Money Market Subaccount
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)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
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-4
<PAGE>
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)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. No Subaccount performance information has been refected as
as of the date of this Prospectus for the Subaccounts were not yet in
operation and consequently had no assets invested in the underlying portfolios.
B-5
<PAGE>
*Funds were first invested in the Portfolios as listed below:
<TABLE>
<CAPTION>
<S> <C>
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 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 Yield
Securities Portfolio June 14, 1993
North American Government
Income Portfolio April 8, 1994
Global Dollar
Government Portfolio May 26 , 1994
Utility Income Portfolio June 15, 1994
Conservative Investors Portfolio September 8,1994
Growth Investors Portfolio August 16, 1994
Growth Portfolio August 12, 1994
Total Return Portfolio September 12,1994
Worldwide Privatization Portfolio October 17,1994
Technology Portfolio January22,1996
Quasar Portfolio August 15,1996
Real Estate Investment Portfolio January 7,1997
</TABLE>
B-6
<PAGE>
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)6 - 1]
cd
<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
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)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value ofa 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 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. No Subaccount performance information has
been refected as of the date of this Prospectus for the Subaccounts were not
yet in operation and consequently had no assets invested in the underlying
portfolios.
B-7
<PAGE>
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 separate 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 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 variable annuity reflect the deduction of contractual expenses
such as the mortality and expense risk charge, the Administrative Fee and the
Annual Fee, 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.
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-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, 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;
(c) an order of the Securities and Exchange Commission
permits delay for the protection of security holders; or
(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.
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.
B-9
<PAGE>
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:
(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.
(c) is equal to:
(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
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, 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 are included herein
and shall be considered only as bearing upon the ability of the
Company to meet its obligations under the Contracts. No Financials for the
Separate Account have been provided as no contracts governed by this Prospectus
were issued during the reporting period.
F-1
<PAGE>
AIG LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
AIG Life Insurance Company:
We have audited the accompanying balance sheets of AIG Life Insurance Company (a
wholly-owned subsidiary of American International Group, Inc.) as of December
31, 1996 and 1995, and the related statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIG Life Insurance Company as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 22, 1997
F-3
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
December 31,
1996 1995
------------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 2,271,326 $ 1,963,265
(cost: 1996 - $2,190,580: 1995 - $1,823,860)
Equity securities:
Common stock
(cost: 1996-$3,548: 1995 - $1,916) 5,578 2,437
Non-redeemable preferred stocks
(cost: 1996-$0: 1995 - $2,562) - 2,553
Mortgage loans on real estate, net 297,363 239,127
Real estate, net of accumulated
depreciation of $4,099 in 1996; and $1,755 in 1995 16,169 16,892
Policy loans 1,873,961 2,961,726
Other invested assets 64,109 68,252
Short -term investments 100,036 202,652
Cash 5,780 1,132
-------------- --------------
Total investments and cash 4,634,322 5,458,036
Amounts due from related parties 3,193 4,111
Investment income due and accrued 107,268 242,748
Premium and insurance balances receivable-net 36,357 28,189
Reinsurance assets 218,453 207,827
Deferred policy acquisition cost 84,287 60,625
Separate and variable accounts 644,980 190,441
Other assets 5,092 7,509
-------------- --------------
Total assets $ 5,733,952 $ 6,199,486
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
December 31,
1996 1995
-------------- ----------
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 3,810,095 $ 4,574,995
Future policy benefits 630,520 566,487
Reserve for unearned premiums 29,911 47,590
Policy and contract claims 191,338 177,540
Reserve for commissions, expenses and taxes 2,860 24,134
Insurance balances payable 42,137 22,186
Deferred income taxes 5,713 24,585
Amounts due to related parties 5,921 2,380
Federal income tax payable 2,959 4,606
Separate and variable accounts 644,980 190,441
Minority interest 6,077 6,664
Other liabilities 30,932 234,850
------------ ------------
Total liabilities 5,403,443 5,876,458
----------- -----------
Commitments and contingencies (See Note 6)
Stockholders' Equity
Common stock, $5 par value; 1,000,000 shares
authorized; 976,703 shares issued and
outstanding 4,884 4,884
Additional paid-in capital 123,283 123,283
Unrealized appreciation of investments,
net of future policy benefits and taxes
of $33,823 in 1996 and $47,209 in 1995 62,814 87,673
Retained earnings 139,528 107,188
------------ ------------
Total stockholders' equity 330,509 323,028
Total liabilities and stockholders' equity $ 5,733,952 $ 6,199,486
</TABLE>
========== ==========
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
-----------------------------------
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Revenues:
Premiums $ 394,480 $ 364,502 $ 265,990
Net investment income 504,661 435,683 239,212
Realized capital (losses) gains (51) (417) 1,953
------------- ------------- -----------
Total revenues 899,090 799,768 507,155
--------- --------- ---------
Benefits and expenses:
Benefits to policyholders 189,933 202,105 196,175
Increase in future policy benefits
and policyholders' funds on deposit495,529 392,592 158,935
Acquisition and insurance expenses 161,841 170,343 127,941
--------- -------- ---------
Total benefits and expenses 847,303 765,040 483,051
--------- -------- ---------
Income before income taxes 51,787 34,728 24,104
--------- ---------- ----------
Income taxes (benefits):
Current 25,087 18,709 28,115
Deferred (5,486) (6,339) (19,447)
----------- ----------- -----------
Total income taxes 19,601 12,370 8,668
--------- --------- -----------
Net income before minority interest 32,186 22,358 15,436
Minority interest income (loss) 154 11 (156)
----------- ------------ -------------
Net income $ 32,340 $ 22,369 $ 15,280
========= ========= ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Years ended December 31,
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 4,884 $ 4,884 $ 4,884
----------- ----------- -----------
Balance at end of year 4,884 4,884 4,884
------------ ----------- ------------
Additional paid-in capital
Balance at beginning of year: 123,283 123,283 123,283
---------- ---------- ----------
Balance at end of year 123,283 123,283 123,283
---------- ---------- ----------
Unrealized appreciation (depreciation)
of investments, net
Balance at beginning of year 87,673 (15,029) 40,159
Change during year (50,245) 170,003 (84,904)
Changes due to deferred income tax
(expense) benefit and future
policy benefits 25,386 (67,301) 29,716
---------- ------ ------
Balance at end of year 62,814 87,673 (15,029)
------------ ----------- ------------
Retained earnings
Balance at beginning of year 107,188 84,819 69,539
Net income 32,340 22,369 15,280
----------- ---------- -----------
Balance at end of year 139,528 107,188 84,819
---------- ---------- -----------
Total stockholders' equity$ 330,509 $ 323,028 $ 197,957
========= ========= ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
---------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 32,340 $ 22,369 $15,280
--------- ----------- ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains
and losses included in income:
Change in insurance reserves 72,151 133,207 88,718
Change in premiums and insurance balances
receivable and payable -net 11,782 (4,695) 11,668
Change in reinsurance assets (10,627) (201) 5,553
Change in deferred policy acquisition costs (23,662) (6,151) (14,906)
Change in investment income due and accrued 135,480 (126,299) (82,023)
Realized capital gains 51 417 (1,953)
Change in current and deferred income taxes -net (7,133) (15,112) (16,708)
Change in reserves for commissions, expenses and taxes(21,274) (9,857) 23,055
Change in other assets and liabilities - net 11,852 (7,466) 6,815
-----------------------------------------
Total adjustments 168,620 (36,157) 20,219
Net cash (used in) provided 200,960 (13,788) 35,499
by operating activities
Cash flows from investing activities:
Cost of fixed maturities, at market sold 40,098 36,678 19,392
Cost of fixed maturities, at market matured or redeemed124,621 76,989 85,628
Cost of equity securities sold 2,607 405 -
Realized capital gains (51) 582 3,176
Purchase of fixed maturities (524,245) (590,864) (252,964)
Purchase of equity securities (1,678) (1,213) -
Mortgage loans granted (74,590) (75,100) (53,977)
Repayments of mortgage loans 16,416 12,406 16,464
Change in policy loans 1,087,765 (1,589,502) (1,184,455)
Change in short-term investments 102,616 (115,532) 18,361
Change in other invested assets 11,002 (4,296) (6,652)
Other - net (38) (6,042) (10,583)
Net cash used in investing activities 784,523 (2,255,489) (1,365,610)
------------- -------------------------
Cash flows from financing activities:
Change in policyholders' funds on deposit (980,835) 2,265,900 1,330,841
--------------------------- ----------
Net cash provided by financing activities (980,835) 2,265,900 1,330,841
-------------- ------------ ----------
Change in cash 4,648 (3,377) 730
Cash at beginning of year 1,132 4,509 3,779
--------------------------------------------
Cash at end of year $ 5,780$ 1,132$ 4,509
=============== =============== ==============
</TABLE>
See accompanying notes to financial statements
F-8
<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.
F-9
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(b) Investments: (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments
are capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity,
net of any related taxes. Also included in this category is an interest
rate cap agreement, which is carried at its amortized cost. The cost of
the cap is being amortized against investment income on a straight line
basis over the life of the cap.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the
Parent have a written tax allocation agreement whereby the Parent agrees
not to charge the Company a greater portion of the consolidated tax
liability than would have been paid by the Company if it had filed a
separate return. Additionally, the Parent agrees to reimburse the Company
for any tax benefits arising out of its net losses within ninety days
after the filing of that consolidated tax return for the year in which
these losses are utilized. Deferred federal income taxes are provided for
temporary differences related to the expected future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns.
(d)Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident and
health insurance are reported as earned over the contract term. The
portion of accident and health premiums which is not earned at the end of
a reporting period is recorded as unearned premiums. Estimates of premiums
due but not yet collected are accrued. Policy benefits and expenses are
associated with earned premiums on long-duration contracts resulting in a
level recognition of profits over the anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized in
relation to expected gross profits over the life of the policies (see Note
3).
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-10
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(f)Separate and Variable Accounts: These accounts represent funds for which
investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the
assets are carried at market value. The assets of each account are legally
segregated and are not subject to claims which arise out of any other
business of the Company.
(g)Reinsurance Assets: Reinsurance assets include the balances due from both
reinsurance and insurance companies under the terms of the Company's
reinsurance arrangements for ceded unearned premiums, future policy
benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It also
includes funds held under reinsurance treaties.
(h) Accounting Standards:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of" (FASB 121). This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and an impairment loss must be recognized.
FASB 121 was effective for the Company commencing January 1, 1996. The
adoption of this statement during 1996 had no significant effect on the
Company's result of operations, financial condition or liquidity.
In December 1995, FASB issued "Special Report, a Guide to the
Implementation of Statement No. 115 on Accounting for Certain Investments
in Debt and Equity Securities". Among other things, this guide provided
for a transition provision permitting a one-time transfer of debt
securities from the held to maturity classification to the available for
sale classification. The Company did not transfer any securities from the
held to maturity classification to the available for sale classification.
(i)During 1996, the Company changed it's method of accounting for a
subsidiary to reflect the minority interest. The financial statements for
1994 and 1995 have been reclassified to conform to this presentation.
2. Investment Information
a) Statutory Deposits: Securities with a carrying value of $2,460,000
and $2,639,000 were deposited by the Company under requirements of
regulatory authorities as of December 31, 1996 and 1995, respectively.
F-11
<PAGE>
2. Investment Information - (continued)
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Fixed maturities $164,548 138,341 $109,826
Equity securities 219 225 241
Mortgage loans 22,797 19,399 14,655
Real estate 2,125 997 1,584
Policy loans 314,020 268,454 108,453
Cash and short-term investments 2,924 4,348 1,684
Other invested assets 2,549 6,129 4,070
---------- ---------- ----------
Total investment income 509,182 437,893 240,513
Investment expenses 4,521 2,210 1,301
---------- ----------- -----------
Net investment income $504,661 $435,683 $239,212
======== ======== ========
</TABLE>
(c) Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for 1996,
1995 and 1994 are summarized below (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1996 1995 1994
--------------------------
<S> <C> <C> <C>
Equity securities 28 712 442
Mortgage loans - (1,000) (1,223)
Other invested assets - 37 2,744
------------- ----------- --------
Net realized gains $ (51) $ (417) $ 1,953
========== ========== =========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities $ (58,659) $168,561 $(90,779)
Equity securities 1,517 69 293
Other invested assets 6,897 1,373 5,582
----------- --------------------
Net change in unrealized appreciation
(depreciation) of investments $ (50,245) $170,003 $(84,904)
========== ======== =========
</TABLE>
Proceeds from the sale of investments in fixed maturities during 1996,
1995 and 1994 were $40,098,000, $36,678,000, and $17,431,000,
respectively.
During 1996, 1995 and 1994, gross gains of $176,000, $109,000, and
$394,000, respectively, and gross losses of $255,000, $275,000, and
$404,000, respectively, were realized on dispositions of fixed maturity
investments.
F-12
<PAGE>
2. Investment Information - (continued)
During 1996, 1995 and 1994, gross gains of $28,000, $712,000, and
$442,000, respectively, were realized on disposition of equity securities.
(d)Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1996 and 1995, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $2,265,000 and $833,000 and gross losses of $235,000 and
$320,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
1996 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----- --------- ---------- --------- ------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 47,848 $ 7,814 $151 $55,511
States, municipalities and
political subdivisions 327,944 15,525 1,934 341,535
Foreign governments 33,340 2,855 113 36,082
All other corporate 1,781,448 71,994 15,244 1,838,198
--------- ---------- ---------- ----------
Total fixed maturities $2,190,580 $ 98,188 $ 17,442 $2,271,326
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
1995 Amortized Unrealized Unrealized Market
Cost Gains Losses 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>
F-13
<PAGE>
2. Investment Information - (continued)
The amortized cost and estimated market value of fixed maturities,
available for sale at December 31, 1996, by contractual maturity, are
shown below (in thousands). Actual maturities could differ from
contractual maturities because certain borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $ 74,325 $ 76,640
Due after one year through five years 598,151 615,822
Due after five years through ten years 818,547 849,841
Due after ten years 699,557 729,023
--------- ---------
$2,190,580 $2,271,326
</TABLE>
(e)CMO's: CMO's are U.S. Government and Government agency backed and triple
A-rated securities. In the preceding table, CMO's are included in other
corporate fixed maturities. At December 31, 1996 and 1995, the market
value of the CMO portfolio was $435,313,000 and $457,111,000,
respectively; the estimated amortized cost was approximately $419,276,000
in 1996 and $433,481,000 in 1995. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities contained
in the portfolio at December 31, 1996.
(f)Fixed Maturities Below Investment Grade: At December 31, 1996 and 1995,
the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $136,502,000 and $74,622,000,
respectively, and an aggregate market value of $135,218,000 and
$73,894,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h)Investments Greater than 10% Equity: The market value of investments in
the following companies and institutions exceeded 10% of the Company's
total stockholders' equity at December 31, 1996 (in thousands):
Fixed Maturities:
Ford Motor Credit Corporation $ 38,202
GMAC $ 49,541
Other Invested Assets:
Equity Linked Investors II, L.P. $ 43,808
F-14
<PAGE>
3. Deferred Policy Acquisition Costs
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against
future income and the related current amortization charged to income,
excluding certain amounts deferred and amortized in the same period (in
thousands). The 1996 and 1995 amortization includes $6,096,000 and
$9,455,000, respectively, to recognize excess loss experienced on credit
insurance.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Balance at beginning of year $60,625 $54,474 $39,568
Acquisition costs deferred 43,534 35,008 29,442
Amortization charged to income (19,872) (28,857) (14,536)
------- -------- --------
Balance at end of year $84,287 $60,625 $54,474
======= ======= =======
</TABLE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a)The analysis of the future policy benefits and policyholders' funds on
deposit at December 31, 1996 and 1995 follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Future Policy Benefits:
Long duration contracts $ 624,659 $ 556,669
Short duration contracts 5,861 9,818
----------- ------------
$ 630,520 $ 566,487
========== ===========
Policyholders' funds on deposit:
Annuities $ 1,082,217 $ 944,629
Universal life 130,413 171,564
Guaranteed investment contracts (GICs) 278,680 249,844
Corporate owned life markets 2,314,149 3,204,912
Other investment contracts 4,636 4,046
------------- -----------
$3,810,095 $4,574,995
========= =========
</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 1.9
percent.
F-15
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit - (continued)
(c)The liability for policyholders' funds on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of
issuance and range from 3.0 percent to 8.0 percent. Credited interest
rate guarantees are generally for a period of one year. Withdrawal
charges generally range from 6.0 percent to 10.0 percent grading to zero
over a period of 6 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited generally
range from 4.7 percent to 8.1 percent and maturities range from 2 to 7
years.
(iii) Interest rates on corporate-owned life insurance business are
guaranteed at 4.0 percent and the weighted average rate credited in 1996
was 9.4 percent.
(iv) The universal life funds, exclusive of corporate owned life insurance
business, have credited interest rates of 5.9 percent to 7.5 percent and
guarantees ranging from 3.5 percent to 5.5 percent depending on the year
of issue. Additionally, universal life funds are subject to surrender
charges that amount to 10.0 percent of the fund balance and grade to zero
over a period not longer than 20 years.
5. Income Taxes
(a)The Federal income tax rate applicable to ordinary income is 35% for
1996, 1995 and 1994. Actual tax expense on income from operations differs
from the "expected" amount computed by applying the Federal income tax
rate because of the following (in thousands except percentages):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
Percent Percent Percent
of of of
pre-tax pre-tax pre-tax
operating operating operating
Amount Income Amount Income Amount Income
---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $ 18,125 35.0% $ 12,155 35.0% $ 8,436 35.0%
Prior year federal
income tax benefit (51) (0.1) (798) (2.3) - -
State income tax 850 1.6 894 2.6 197 0.8
Other 677 1.3 119 0.3 35 0.2
--------- ---- --------- ------ ------- -----
Actual income tax expense $19,601 37.8% $ 12,370 35.6% $ 8,668 36.0%
============= ======== ==== ======= ====
</TABLE>
F-16
<PAGE>
5. Income Taxes - (continued)
(b) The components of the net deferred tax liability were as follows
(in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Adjustment to life reserves $41,522 $24,940
Adjustments to mortgage loans and investment income 2,531 2,546
Adjustment to policy and contract claims 10,687 11,725
Other 2,585 1,232
57,325 40,443
--------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $ 23,047 $ 13,040
Unrealized appreciation on investments 33,823 47,209
Bond discount 4,085 3,458
Other 2,083 1,321
---------- ---------
63,038 65,028
--------- --------
Net deferred tax liability $ 5,713 $ 24,585
========== ========
</TABLE>
(c)At December 31, 1996, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,204,000 of "Policyholders'
Surplus" as defined under the Code. Under provisions of the Code,
"Policyholders' Surplus" has not been currently taxed but would be taxed
at current rates if distributed to the Parent. There is no present
intention to make cash distributions from "Policyholders' Surplus" and
accordingly, no provision has been made for taxes on this amount.
(d)Income taxes paid in 1996, 1995, and 1994 amounted to $25,412,000,
$26,030,000, and $25,052,000, respectively.
6. Commitments and Contingencies
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
7. Fair Value of Financial Instruments
(a)Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments may
or may not be recognized in the balance sheet. In the measurement of the
fair value of certain of the financial instruments, quoted market prices
were not available and other valuation techniques were utilized. These
derived fair value estimates are significantly affected by the assumptions
used. FASB 107 excludes certain financial instruments, including those
related to insurance contracts.
F-17
<PAGE>
7. Fair Value of Financial Instruments - (continued)
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair values.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair value of the policy loans were not calculated as the
Company believes it would have to expend excessive costs for the benefits
derived. Therefore, the fair value of policy loans was estimated at
carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair value of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
(b) The fair value and carrying amounts of financial instruments
is as follows (in thousands):
<TABLE>
<CAPTION>
1996 Fair Carrying
Value Amount
<S> <C> <C>
Cash and short-term investments $ 105,816 $ 105,816
Fixed maturities 2,271,326 2,271,326
Equity securities 5,578 5,578
Mortgage and policy loans 2,183,873 2,171,324
Interest rate cap 75 94
Policyholders' funds on deposit $ 3,832,601 $ 3,810,095
1995 Fair Carrying
Value Amount
Cash and short-term investments $ 203,784 $ 203,784
Fixed maturities 1,963,265 1,963,265
Equity securities 4,990 4,990
Mortgage and policy loans 3,216,321 3,200,853
Interest rate cap 144 170
Policyholders' funds on deposit $ 4,592,841 $ 4,574,995
</TABLE>
F-18
<PAGE>
8. Stockholders' Equity
(a)The maximum stockholder dividend which can be paid without prior
regulatory approval is subject to restrictions relating to statutory
surplus and statutory net gain from operations. These restrictions limited
payment of dividends to $39,027,000 during 1996, however, no dividends
were paid during the year.
(b)The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $221,567,000 at December 31, 1996 and
$176,952,000 at December 31, 1995. Statutory net income amounted to
$47,074,000, $39,712,000, and $47,002,000 for 1996, 1995 and 1994,
respectively.
9. Employee Benefits
(a)The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and completed
twelve months of continuous service are eligible to participate in this
plan. An employee with 5 or more years of service is entitled to pension
benefits beginning at normal retirement age 65. Benefits are based upon a
percentage of average final compensation multiplied by years of credited
service limited to 44 years of credited service. Prior to January 1, 1996,
the average final compensation is subject to certain limitations. Annual
funding requirements are determined based on the "projected unit credit"
cost method which attributes a pro rata portion of the total projected
benefit payable at normal retirement to each year of credited service.
Pension expense for current service costs, retirement and termination
benefits for the years ended December 31, 1996, 1995 and 1994 were
approximately $400,000, $304,000, and $179,000, respectively. The Parent's
plans do not separately identify projected benefit obligations and plan
assets attributable to employees of participating affiliates. The
projected benefit obligations exceeded the plan assets at December 31,
1996 by $42,149,000.
(b)The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which, during the two years ended December 31, 1994,
provided for salary reduction contributions by employees and matching
contributions by the Parent of up to 2 percent of annual salary.
Commencing January 1, 1995, the 401(k) plan provided for matching
contributions by the Parent of up to 6 percent of annual salary depending
on the employee's years of service.
(c)In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
(d)The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provide for eligible employees
to receive privileges to purchase AIG common stock at a price equal to 85%
of the fair market value on the date of grant of the purchase privilege.
The Parent has not recognized compensation costs for either plan. The
effect of the compensation costs, as determined consistent with
FASB 123, was not computed on a subsidiary basis, but rather on a
consolidated basis for all subsidiaries of the Parent and therefore are
not presented herein.
F-19
<PAGE>
10. Leases
(a)The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1996, the
future minimum lease payments under operating leases were as follows (in
thousands):
Year Payment
1997 $ 3,833
1998 2,785
1999 1,846
2000 1,596
2001 1,471
Remaining years after 2001 4,414
-------
Total $15,945
-------
-------
Rent expense approximated $4,263,000, $3,764,000, and $3,542,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
(b) Sublease Income -The Company does not participate in sublease agreements.
11. Reinsurance
(a)The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term treaties.
Accident and health insurance risks are reinsured primarily under
coinsurance, excess of loss and quota share treaties. Amounts recoverable
from reinsurers are estimated in a manner consistent with the assumptions
used for the underlying policy benefits and are presented as a component
of reinsurance assets. A contingent liability exists with respect to
reinsurance ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements.
The Company also reinsures portions of its life and accident and health
insurance risks with affiliated companies (see Note 12). The effect of all
reinsurance contracts, including reinsurance assumed, is as follows (in
thousands, except percentages):
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1996 Assumed
Gross Ceded Assumed Net to Net
----- ----- ------- --- --------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $53,854,456 $17,392,184 $ 605,831 $37,068,103 1.6%
=========== ============ =========== =============
Premiums:
Life 187,886 49,150 327 139,063 -
Accident and Health 97,971 28,359 107,447 177,059 60.7%
Annuity 78,358 - - 78,358 -
--------------- --------- ---------- ---------- ----------
Total Premiums $ 364,215 $77,509 $ 107,774 $394,480 27.3%
============ ============ ============= =============
</TABLE>
F-20
<PAGE>
11. Reinsurance - (continued)
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1995 Assumed
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>
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1994 Assumed
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%
========================== ========== ============
</TABLE>
(b) The maximum amount retained on any one life by the Company is $1,000,000.
(c)Reinsurance recoveries, which reduced death and other benefits,
approximated $54,456,000, $51,264,000, and $34,252,000, respectively, for
each of the years ended December 31, 1996, 1995 and 1994.
The Company's reinsurance arrangements do not relieve the Company from its
direct obligation to its insureds.
12. Transactions with Related Parties
(a)The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance risks.
Premium income and commission ceded for 1996 amounted to $1,345,000 and
$0, respectively. Premium income and commission ceded for 1995 amounted to
$1,269,000 and $1,000, respectively. Premium income and commission ceded
to affiliates amounted to $1,267,000 and $2,000 for the year ended
December 31, 1994. Premium income and ceding commission expense assumed
from affiliates aggregated $103,885,000 and $27,609,000, respectively, for
1996, compared to $90,688,000 and $23,422,000, respectively, for 1995, and
$75,005,000 and $20,374,000, respectively for 1994.
F-21
<PAGE>
12. Transactions with Related Parties - (continued)
(b)The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional cost
allocation basis which management believes to be reasonable. For the years
ended December 31, 1996, 1995 and 1994, the Company was charged
$28,277,000, $23,193,000, and $21,392,000, respectively, for expenses
attributed to the Company but incurred by affiliates. During the same
period, the Company received reimbursements from affiliates aggregating
$17,598,000, $14,496,000, and $13,383,000, respectively, for costs
incurred by the Company but attributable to affiliates.
(c) During 1996, the Company purchased 1,500,000 shares of AIG Life Ireland,
LTD., a subsidiary.
<PAGE>
PART A
<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
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) Plan"). 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.
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
availablethe 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; 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; Quasar Portfolio; Real Estate Investment
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, 1997, 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.
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.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE
NOT GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
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, 1997
2
<PAGE>
TABLE CONTENTS
PAGE
Definitions....................................
Highlights.....................................
Summary of Expenses............................
Condensed Financial Information................
The Company....................................
The Variable Account...........................
The Fund.......................................
Charges and Deductions.........................
Administration of the Contracts................
Rights under the Contracts.....................
Annuity Period.................................
Death Benefit..................................
Purchasing a Contract..........................
Contract Value.................................
Withdrawals....................................
Taxes..........................................
Legal
Proceedings...........................................
Appendix - General Account Option......................
Table of Contents of the Statement of Additional Information.........
3
<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 on 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
FinancialServices, 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., Eastern Standard Time (EST) ) 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.
4
<PAGE>
HIGHLIGHTS
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 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 years of a premium payment 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%. (See "Charges and Deductions - Deduction for State Premium Taxes" on
page .)
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 income taxes. (See "Charges
and Deductions - Deduction for Income Taxes" on page .)
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. (See "Charges and Deductions - Deduction for
Mortality and Expense Risk Charge" 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. (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.
Surrenders and withdrawals may be taxable and subject to a penalty tax. (See
"Taxes" beginning 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. Single Premium free look period is 10 days. 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 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.
5
<PAGE>
SUMMARY OF EXPENSES
Owner Transaction Expenses
All Sub-Accounts
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of amount surrendered):
Single Premium Contracts Flexible Premium Contracts
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
Separate Account Expenses
(as a percentage of average account value) 1.25%
Mortality and Expense Risk Fees 0.15%
Account Fees and Expenses
1.40%
Total Separate Account Annual Expenses
<PAGE>
Annual Fund Expenses Net of Any Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Fee Expenses Expenses
----------------------------------
<S> <C> <C> <C>
Alliance Portfolios
Alliance Money Market 0.50% 0.19% 0.69%
Alliance Short-Term Multi-Market 0.00% 0.95% 0.95%
Alliance Growth 0.74% 0.19% 0.95%
Alliance Growth and Income 0.63% 0.19% 0.82
Alliance International 0.04% 0.91% 0.95%
Alliance U.S. Government
/High Grade Securities 0.54% 0.36% 0.92%
Alliance North American Government Income 0.19% 0.95% 0.95%
Alliance Global Dollar Government 0.00% 0.95% 0.95%
Alliance Utility Income 0.19% 0.76% 0.95%
Alliance Global Bond 0.44% 0.50% 0.94%
Alliance Premier Growth 0.72% 0.23% 0.95%
Alliance Total Return 0.46% 0.49% 0.95%
Alliance Conservative Investors 0.30% 0.65% 0.95%
Alliance Growth Investors 0.74% 0.19% 0.93%
Alliance Worldwide Privatization 0.10% 0.85% 0.95%
Alliance Technology(1) 0.33% 0.52% 0.95%
Alliance Quasar 0.00% 0.95% 0.95%
Alliance Real Estate Investment(2) 0.00% 0.95% 0.95%
<FN>
(1) The expense percentages for the Technology and Quasar Portfolio have been
annualized for both portfolios have not been in existence for a full year.
(2) Expense percentages for the Real Estate Investment Portfolio has been
estimated.
</FN>
</TABLE>
The purpose of the table set forth above is to assist the Purchaser 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 StatePremium Taxes" on page .)
"Other Expenses" are based upon the expenses outlined under the section
entitled "Management of the Fund" in the Fund Prospectus.
Fund operating expenses for each Series before reimbursement by the
Fund's investment adviser were estimated to be .69% for the Money Market; 2.09 %
for the Short-Term Multi-Market; .93% for the Growth; 1.91% for International;
.98% for the U.S. Government/High Grade Securities; 1.15% for the Global Bond;
1.41% for the North American Government Income; 1.97% for the Global Dollar
Government; 1.51% for the Utility Income; 1.23% for the Premier Growth; 1.12%
for the Total Return;1.40 % for the Conservative Investors; 1.85% for the Growth
Investors; 1.85% for the Worldwide Privatization; 4.44% for the Quasar ; 6.00%
for the Real Estate Investment ; and 1.62 % for the Technology Portfolio, of
the average daily net assets.
In the event that an Owner withdraws all or a portion of the Contract
Value in excess of the Free Withdrawal Amount for the first withdrawal in a
Contract Year, or makes subsequent withdrawals in a Contract Year, a Deferred
Sales Charge may be imposed. The Free Withdrawal Amount is equal to 10% of the
Purchase Payment paid, less any prior withdrawals at the time of withdrawal.
(See "Charges and Deductions - Deduction for Deferred Sales Charge" on page .)
6
<PAGE>
Expenses on a hypothetical $1,000 Single Premium policy, assuming 5% growth :
If you surrender Single Premium
<TABLE>
<CAPTION>
Portfolio 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Money Market 77 106 136 248
Short Term Multi-Market 80 114 149 275
Growth 80 113 148 273
Growth and Income 79 110 143 262
International 80 114 149 275
A U.S. Gov't/High Grade Securities 80 113 148 272
North American Gov't Income 80 114 149 275
Global Dollar Government 80 114 149 275
Utility Income 80 114 149 275
Global Bond 80 114 149 274
Premier Growth 80 114 149 275
Total Return 80 114 149 275
Conservative Investors 80 114 149 275
Growth Investors 80 114 149 275
Worldwide Privatization 80 114 149 275
Technology 80 114 149 275
Quasar 80 114 149 275
Real Estate Investment 80 114 149 275
</TABLE>
7
<PAGE>
Expenses on a hypothetical $1,000 Flexible Premium policy, assuming 5% growth :
<TABLE>
<CAPTION>
If you surrender
Portfolio 1 Year 3 Years 5 Years 10Years
- --------- ------ ----------- ------- --
<S> <C> <C> <C> <C>
Money Market 76 103 133 248
Short Term Multi-Market 78 111 147 275
Growth 78 111 146 273
Growth and Income 77 107 140 262
International 78 111 147 275
A U.S. Gov't/High Grade Securities 78 110 145 272
North American Gov't Income 78 111 147 275
Global Dollar Government 78 111 147 275
Utility Income 78 111 147 275
Global Bond 78 111 146 274
Premier Growth 78 111 147 275
Total Return 78 111 147 275
Conservative Investors 78 111 147 275
Growth Investors 78 111 147 275
Worldwide Privatization 78 111 147 275
Technology 78 111 147 275
Quasar 78 111 147 275
Real Estate Investment 78 111 147 275
</TABLE>
Expenses on a hypothetical $1,000 Single or Flexible Premium policy,
assuming 5% growth :
<TABLE>
<CAPTION>
If you annuitize or
if you do not surrender
Portfolio 1 Year 3 Years 5 Years 10 Years
- --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market 22 67 115 248
Short Term Multi-Market 24 75 129 275
Growth 24 75 128 273
Growth and Income 23 71 122 262
International 24 75 129 275
U.S. Gov't/High Grade Securities 24 74 127 272
North American Gov't Income 24 75 129 275
Global Dollar Government 24 75 129 275
Utility Income 24 75 129 275
Global Bond 24 75 128 274
Premier Growth 24 75 129 275
Total Return 24 75 129 275
Conservative Investors 24 75 129 275
Growth Investors 24 75 129 275
Worldwide Privatization 24 75 129 275
Technology 24 75 129 275
Quasar 24 75 129 275
Real Estate Investment 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.
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
<CAPTION>
ALLIANCE PORTFOLIOS 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
MONEY MARKET
Accumulation Unit Value
Beginning of Period 10.63 10.26 10.08 10.00 N/A
End of Period 10.97 10.63 10.26 10.08 N/A
Accum Units o/s @ end of period 4,320,223.01 1,856,020.37 431,319.86 8,487.20 N/A
SHORT-TERM MULTI-MARKET
Accumulation Unit Value
Beginning of Period 9.99 9.49 10.29 9.79 N/A
End of Period 10.79 9.99 9.49 10.29 N/A
Accum Units o/s @ end of period 461,069.70 115,207.71 95,717.60 14,511.57 N/A
GROWTH
Accumulation Unit Value
Beginning of Period 13.97 10.48 10.00 N/A N/A
End of Period 17.70 13.97 10.48 N/A N/A
Accum Units o/s @ end of period 5,856,812.02 2,215,092.12 467,688.06 N/A N/A
GROWTH & INCOME
Accumulation Unit Value
Beginning of Period 15.62 11.67 11.88 10.78 10.00
End of Period 19.11 15.62 11.67 11.88 10.78
Accum Units o/s @ end of period4,509,118.40 1,554,549.81 438,680.32 28,041.82 800.00
INTERNATIONAL
Accumulation Unit Value
Beginning of Period 11.60 10.71 10.17 10.00 N/A
End of Period 12.26 11.60 10.71 10.17 N/A
Accum Units o/s @ end of period2,718,751.84 981,260.91 447,407.41 21,717.14 N/A
U.S. GOVERNMENT/ HIGH GRADE
Accumulation Unit Value
Beginning of Period 11.07 9.42 9.95 10.00 N/A
End of Period 11.20 11.07 9.42 9.95 N/A
Accum Units o/s @ end of period 1,838,415.41 914,988.76 320,574.64 41,210.45 N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE PORTFOLIOS 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NORTH AMERICAN
GOVERNMENT INCOME
Accumulation Unit Value
Beginning of Period 10.53 8.70 10.00 N/A N/A
End of Period 12.33 10.53 8.70 N/A N/A
Accum Units o/s @ end of period 1,047,240.17 531,374.67 340,817.36 N/A N/A
GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period 11.82 9.74 10.00 N/A N/A
End of Period 14.56 11.82 9.74 N/A N/A
Accum Units o/s @ end of period 469,801.08 238,452.60 69,320.82 N/A N/A
UTILITY INCOME
Accumulation Unit Value
Beginning of Period 11.82 9.87 10.00 N/A N/A
End of Period 12.57 11.82 9.87 N/A N/A
Accum Units o/s @ end of period 812,579.02 358,005.39 111,604.02 N/A N/A
GLOBAL BOND
Accumulation Unit Value
Beginning of Period 12.64 10.28 11.00 9.96 10.00
End of Period 13.24 12.64 10.28 11.00 9.96
Accum Units o/s @ end of period 579,082.99 213,886.71 85,875.16 18,846.45 5,444.00
PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 14.54 10.15 11.13 10.00 10.00
End of Period 17.59 14.54 10.15 11.13 10.00
Accum Units o/s @ end of period 3,971,452.13 1,252,211.18 223,550.22 35,271.53 2081.43
TOTAL RETURN
Accumulation Unit Value
Beginning of Period 11.78 9.65 10.00 N/A N/A
End of Period 13.37 11.78 9.65 N/A N/A
Accum Units o/s @ end of period 1,155,818.92 328,256.04 34,684.53 N/A N/A
CONSERVATIVE INVESTORS
Accumulation Unit Value
Beginning of Period 11.57 10.02 10.00 N/A N/A
End of Period 11.84 11.57 10.02 N/A N/A
Accum Units o/s @ end of period 1,109,173.48 405,192.27 62,868.02 N/A N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ALLIANCE PORTFOLIOS 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
GROWTH INVESTORS
Accumulation Unit Value
Beginning of Period 11.65 9.81 10.00 N/A N/A
End of Period 12.43 11.65 9.81 N/A N/A
Accum Units o/s @ end of period 609,405.23 292,173.06 29,492.78 N/A N/A
WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period 10.99 10.05 10.00 N/A N/A
End of Period 12.84 10.99 10.05 N/A N/A
Accum Units o/s @ end of period1,135,168.22 394,704.27 105,674.08 N/A N/A
TECHNOLOGY
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A N/A N/A
End of Period 10.89 N/A N/A N/A N/A
Accum Units o/s @ end of period 2,127,691.68 N/A N/A N/A N/A
QUASAR
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A N/A N/A
End of Period 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period 649,902.74 N/A N/A N/A N/A
REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period N/A N/A N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A N/A N/A
</TABLE>
*Funds were first invested in the Portfolios as listed below:
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 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 Yield
Securities Portfolio June 14, 1993
North American Government
Income Portfolio April 8, 1994
Global Dollar
Government Portfolio May 26 , 1994
Utility Income Portfolio June 15, 1994
Conservative Investors Portfolio September 8,1994
Growth Investors Portfolio August 16, 1994
Growth Portfolio August 12, 1994
Total Return Portfolio September 12,1994
Worldwide Privatization Portfolio October 17,1994
Technology Portfolio January22,1996
Quasar Portfolio August 15,1996
Real Estate Investment Portfolio January 7,1997
<PAGE>
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.
Total return at the Variable Account level is reduced by all
contract charges: sales charges, mortality and expense risk charges, and
the administrative charges, and is therefore lower than the total return
at the Fund level, which has no comparable charges. Likewise, yield and
effective yield at the Variable Account level take into account all
recurring charges (except sales charges), and are therefore lower than the
yield and effective yield at the Fund level, which has no comparable
charges.
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.
<PAGE>
THE COMPANY
The Company is a stock life insurance company which is organized
under the laws of the State of Delaware in 1962. 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. 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; Quasar Portfolio; Real
Estate Investment 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.
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
int he "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.
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.
Quasar Portfolio
This portfolio seeks growth of capital by pursuing
aggressive investment policies. The Portfolio invests principally
in a diversified portfolio of equity securities of any
company and industry and in any type of security which
is believed to offer possibilities for capital appreciation.
Real Estate Investment Portfolio
This portfolio seeks a total return on its assets from long-term growth of
capital and from income principally through investing in a portfolio of equity
securities of issuers that are primarily engaged in or related to the
real estate industry.
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.
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. Single Premium
free look period is 10 days.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.
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;
(c) the Company may reject any more than twelve (12) transfer
requests per Contract Year; and
(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 Contract 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.
<PAGE>
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 State Premium 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.
.
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.
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 .)
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 flexible premium Contracts is equal to 10% of the
purchase payments paid, less any prior withdrawals at the time of
withdrawal; however, the Deferred Sales Charge applies only to those
purchase payments received within six (6) years of the date of surrender.
(See, however, "Purchasing a Contract - Discount Purchase Programs" on
page ____.) The Free Withdrawal Amount for a Single Premium Contract is
equal to 10% of the Contract Value at the time of withdrawal.
The Deferred Sales Charge 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. The amount of any
withdrawal which exceeds the Free Withdrawal Amount will be subject to the
following charges:
Applicable Deferred
Sales Charge
Single Premium Contracts Flexible Premium Contracts
Percentage
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 Premium Year 7
and thereafter and thereafter None
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 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 as a 403(b) Plans or IRA.
(See "Taxes - 403(b) Plans" on page .)
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 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
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
income taxes. Surrenders and withdrawals may be taxable and subject to a
penalty tax. (See "Taxes" beginning on page .)
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
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 Owner's records. DVFS serves as the
administrator to various insurance companies offering variable 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.
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.
In addition, for IRA and 403(b) Plan Contracts, certain provisions
of your retirement plan or the Code may further restrict your choice of an
Annuity Date. (See "Taxes - 403(b) Plans" on page , and "Taxes Individual
Retirement Annuities" on page .)
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 .)
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 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 Sub-account selected; and (v) the pro-rata portion of
the annual Administrative 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%,
annuity payments will decrease.
DEATH BENEFIT
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.
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 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.
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 7% 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;
(c) any applicable Deferred Sales Charge will be deducted;
(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.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page
.)
Systematic Withdrawal Program
During the Accumulation Period an Owner may at any time elect in
writing to take systematic withdrawals from one or more of the
Sub-accounts or from a guarantee period of the General Account (See
"Appendix-General Account Option") for a period of time not to exceed 12
months. In order to initiate this program, the amount to be systematically
withdrawn must be equal to or greater than $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.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.
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
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".)
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
Upon receipt of a lump sum payment on full surrender of the
Contract, the recipient is taxed on the portion of the payment that
exceeds the investment in the contract. The taxable portion is taxed as
ordinary income.
If the recipient receives annuity payments rather than a lump sum
payment, a portion of the payment is included in taxable income when
received. 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.
The recipient is able to exclude a portion of the payments received
from taxable income until the investment in the Contract is fully
recovered. Annuity payments are fully taxable after the investment in
the Contract is recovered. If the recipient dies before the investment
in the Contract is recovered, the recipient's estate is allowed a
deduction for the remainder.
.
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 purchase payments will be taxed to the assignor as
ordinary income. Please consult your tax adviser prior to making an
assignment of the Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary
who is either 37 1/2 years younger than the Owner or a grandchild of the
Owner may have Generation Skipping Transfer Tax consequences.
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. The designated
Beneficiary is the person whom ownership of the Contract passes by
reason of death, and must be a natural person.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.
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 generally provides that no gain or loss shall
be recognized on the exchange of an annuity contract for another
annuity contract, unless money is distributed as part of the
exchange. 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 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.
Withholding
The Company is required to withhold Federal income taxes on
withdrawals, lump sum distributions, and annuity payments that
include taxable income unless the payee elects to not have any
withholding or in certain other circumstances. Special withholding
rules apply to payments made to non-resident aliens.
Lump-sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of
any withdrawal or lump sum distribution unless You elect out of
withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity
payments based on a withholding certificate You file with the
Company. If you do not file a certificate, You will be treated,
for purposes of determining your withholding rates, as a married
person with three exemptions.
You are liable for payment of Federal income taxes on the
taxable portion of any withdrawal, distribution, or annuity
payment. You may be subject to penalties under the estimated tax
rules if your withholding and estimated tax payments are not
sufficient.
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.
Tax-Favored 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.
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 401 retirement plan. Distributions from a 401 qualified plan or
403(b) 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, 403(b) Plan or an IRA. 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 tax if the recipient is under age 59 1/2 (unless another exception
applies under Code Section 72(t)). A prospective Owner considering use of
the Contract in this manner should consult a competent tax advisor with
regard to the suitability of the Contract of this purpose and for
information concerning the provisions of the Code applicable to qualified
plans, 403(b) Plans, and IRAs.
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. In addition,
distributions from an IRA may be rolled over to another IRA, provided
certain conditions are met. 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. Contracts offered in connection with an IRA by this
Prospectus are not available in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on a 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,
403(b) Plans are subject to additional requirements, including:
eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and
their employers are responsible for compliance with these rules. Contracts
offered in connection with a 403(b) Plan by this Prospectus not available
in all states.
LEGAL PROCEEDINGS
The Company knows of no legal proceeding pending to which the
Variable Account is a party or which would materially affect the Variable
Account.
Legal matters relating to the federal securities laws in connection with
the Contracts described herein are being passed upon by the law firm of
Jorden, Burt, Berenson & Johnson LLP, Washington D.C. .
<PAGE>
34
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..........................................................
A-1
<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 effective 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.
.
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.
A-2
<PAGE>
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.
<PAGE>
PART B
<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, 1997, 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, 1997.
B-2
<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-3
<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"), 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 1996 were
$83,483.
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 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 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)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 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)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 31, 1996,
were as follows:
<TABLE>
<CAPTION>
1 Year 3 Years Inception to Date
<S> <C> <C> <C>
Money Market -2.23% 1.67% 1.68%
Premier Growth 15.53% 17.33% 15.05%
Growth & Income 16.90% 16.25% 15.25%
International 0.29% 5.29% 5.69%
Short Term Multi 2.58% .34% 1.25%
Global Bond -0.73% 5.25% 6.08%
US Gov't Securities -4.35% 2.84% 2.60%
Global Dollar Gov't 17.70% N/A 13.80%
North American Gov't 11.83% N/A 6.75%
Utility Income 0.91% N/A 7.61%
Conservative Investor -3.16% N/A 5.97%
Growth Investors 1.21% N/A 8.17%
Growth 21.24% N/A 25.99%
Total Return 8.10% N/A 11.79%
Worldwide Privatization 11.40% N/A 9.69%
Technology N/A N/A 3.45%
Quasar N/A N/A 0.33%
*Real Estate Investment N/A N/A N/A
* Performance results not reflected as portfolio was not in existence as
of 12/31/96.
</TABLE>
B-5
<PAGE>
*Funds were first invested in the Portfolios as listed below:
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 1992
Short-Term Multi-MarketPortfolio June 25, 1992
Global Bond Portfolio May 10, 1993
Money Market Portfolio May 13,1993
International Portfolio June 1, 1993
U.S. Government/High Yield
Securities Portfolio June 14, 1993
North American Government
Income Portfolio April 8, 1994
Global Dollar
Government Portfolio May 26 , 1994
Utility Income Portfolio June 15, 1994
Conservative Investors Portfolio September 8,1994
Growth Investors Portfolio August 16, 1994
Growth Portfolio August 12, 1994
Total Return Portfolio September 12,1994
Worldwide Privatization Portfolio October 17,1994
Technology Portfolio January22,1996
Quasar Portfolio August 15,1996
Real Estate Investment Portfolio January 7,1997
B-6
<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 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)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 17 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 15 of the Prospectus.)
D. Non - Standardized Performance Data
1. Total Return Quotations
The total return quotations for all of the Sub-accounts 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)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.
B-7
<PAGE>
Annualized total return quotations for certain Sub-accounts as of December
31, 1996, were as follows:
<TABLE>
<CAPTION>
1 Year 3Years Inception toDate
<S> <C> <C> <C>
Money Market 3.23% 2.87% 2.39%
Premier Growth 20.99% 18.24% 15.55%
Growth & Income 22.36% 17.17% 15.54%
International 5.75% 6.42% 6.48%
Short Term Multi Market 8.04% 1.57% 1.69%
Global Bond 4.73% 6.37% 6.45%
US Gov't Securities 1.11% 4.01% 3.41%
Global Dollar Gov't 23.16% N/A 14.91%
North American Gov't 17.29% N/A 7.97%
Utility Income 6.37% N/A 8.84%
Conservative Investor 2.30% N/A 7.44%
Growth Investors 6.67% N/A 9.58%
Growth 26.70% N/A 27.14%
Total Return 13.56% N/A 13.16%
Worldwide Privatization 16.86% N/A 11.08%
Technology Portfolio N/A N/A 8.91%
Quasar N/A N/A 5.79%
Real Estate Investment N/A N/A N/A
</TABLE>
B-8
<PAGE>
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 separate 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 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 variable annuity reflect the deduction of contractual expenses
such as the mortality and expense risk charge, the Administrative Fee and the
Annual Fee, 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.
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-9
<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.
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.
B-10
<PAGE>
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-11
<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.
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%.
B-12
<PAGE>
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
(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.
(c) is equal to:
(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 and the Variable Account
included herein shall be considered only as bearing upon the ability of the
Company to meet its obligations under the Contracts.
<PAGE>
F-1
<PAGE>
AIG LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
AIG Life Insurance Company:
We have audited the accompanying balance sheets of AIG Life Insurance Company (a
wholly-owned subsidiary of American International Group, Inc.) as of December
31, 1996 and 1995, and the related statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIG Life Insurance Company as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 22, 1997
F-3
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
December 31,
1996 1995
------------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 2,271,326 $ 1,963,265
(cost: 1996 - $2,190,580: 1995 - $1,823,860)
Equity securities:
Common stock
(cost: 1996-$3,548: 1995 - $1,916) 5,578 2,437
Non-redeemable preferred stocks
(cost: 1996-$0: 1995 - $2,562) - 2,553
Mortgage loans on real estate, net 297,363 239,127
Real estate, net of accumulated
depreciation of $4,099 in 1996; and $1,755 in 1995 16,169 16,892
Policy loans 1,873,961 2,961,726
Other invested assets 64,109 68,252
Short -term investments 100,036 202,652
Cash 5,780 1,132
-------------- --------------
Total investments and cash 4,634,322 5,458,036
Amounts due from related parties 3,193 4,111
Investment income due and accrued 107,268 242,748
Premium and insurance balances receivable-net 36,357 28,189
Reinsurance assets 218,453 207,827
Deferred policy acquisition cost 84,287 60,625
Separate and variable accounts 644,980 190,441
Other assets 5,092 7,509
-------------- --------------
Total assets $ 5,733,952 $ 6,199,486
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
December 31,
1996 1995
-------------- ----------
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 3,810,095 $ 4,574,995
Future policy benefits 630,520 566,487
Reserve for unearned premiums 29,911 47,590
Policy and contract claims 191,338 177,540
Reserve for commissions, expenses and taxes 2,860 24,134
Insurance balances payable 42,137 22,186
Deferred income taxes 5,713 24,585
Amounts due to related parties 5,921 2,380
Federal income tax payable 2,959 4,606
Separate and variable accounts 644,980 190,441
Minority interest 6,077 6,664
Other liabilities 30,932 234,850
------------ ------------
Total liabilities 5,403,443 5,876,458
----------- -----------
Commitments and contingencies (See Note 6)
Stockholders' Equity
Common stock, $5 par value; 1,000,000 shares
authorized; 976,703 shares issued and
outstanding 4,884 4,884
Additional paid-in capital 123,283 123,283
Unrealized appreciation of investments,
net of future policy benefits and taxes
of $33,823 in 1996 and $47,209 in 1995 62,814 87,673
Retained earnings 139,528 107,188
------------ ------------
Total stockholders' equity 330,509 323,028
Total liabilities and stockholders' equity $ 5,733,952 $ 6,199,486
</TABLE>
========== ==========
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
-----------------------------------
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Revenues:
Premiums $ 394,480 $ 364,502 $ 265,990
Net investment income 504,661 435,683 239,212
Realized capital (losses) gains (51) (417) 1,953
------------- ------------- -----------
Total revenues 899,090 799,768 507,155
--------- --------- ---------
Benefits and expenses:
Benefits to policyholders 189,933 202,105 196,175
Increase in future policy benefits
and policyholders' funds on deposit495,529 392,592 158,935
Acquisition and insurance expenses 161,841 170,343 127,941
--------- -------- ---------
Total benefits and expenses 847,303 765,040 483,051
--------- -------- ---------
Income before income taxes 51,787 34,728 24,104
--------- ---------- ----------
Income taxes (benefits):
Current 25,087 18,709 28,115
Deferred (5,486) (6,339) (19,447)
----------- ----------- -----------
Total income taxes 19,601 12,370 8,668
--------- --------- -----------
Net income before minority interest 32,186 22,358 15,436
Minority interest income (loss) 154 11 (156)
----------- ------------ -------------
Net income $ 32,340 $ 22,369 $ 15,280
========= ========= ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Years ended December 31,
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 4,884 $ 4,884 $ 4,884
----------- ----------- -----------
Balance at end of year 4,884 4,884 4,884
------------ ----------- ------------
Additional paid-in capital
Balance at beginning of year: 123,283 123,283 123,283
---------- ---------- ----------
Balance at end of year 123,283 123,283 123,283
---------- ---------- ----------
Unrealized appreciation (depreciation)
of investments, net
Balance at beginning of year 87,673 (15,029) 40,159
Change during year (50,245) 170,003 (84,904)
Changes due to deferred income tax
(expense) benefit and future
policy benefits 25,386 (67,301) 29,716
---------- ------ ------
Balance at end of year 62,814 87,673 (15,029)
------------ ----------- ------------
Retained earnings
Balance at beginning of year 107,188 84,819 69,539
Net income 32,340 22,369 15,280
----------- ---------- -----------
Balance at end of year 139,528 107,188 84,819
---------- ---------- -----------
Total stockholders' equity$ 330,509 $ 323,028 $ 197,957
========= ========= ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
---------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 32,340 $ 22,369 $15,280
--------- ----------- ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains
and losses included in income:
Change in insurance reserves 72,151 133,207 88,718
Change in premiums and insurance balances
receivable and payable -net 11,782 (4,695) 11,668
Change in reinsurance assets (10,627) (201) 5,553
Change in deferred policy acquisition costs (23,662) (6,151) (14,906)
Change in investment income due and accrued 135,480 (126,299) (82,023)
Realized capital gains 51 417 (1,953)
Change in current and deferred income taxes -net (7,133) (15,112) (16,708)
Change in reserves for commissions, expenses and taxes(21,274) (9,857) 23,055
Change in other assets and liabilities - net 11,852 (7,466) 6,815
-----------------------------------------
Total adjustments 168,620 (36,157) 20,219
Net cash (used in) provided 200,960 (13,788) 35,499
by operating activities
Cash flows from investing activities:
Cost of fixed maturities, at market sold 40,098 36,678 19,392
Cost of fixed maturities, at market matured or redeemed124,621 76,989 85,628
Cost of equity securities sold 2,607 405 -
Realized capital gains (51) 582 3,176
Purchase of fixed maturities (524,245) (590,864) (252,964)
Purchase of equity securities (1,678) (1,213) -
Mortgage loans granted (74,590) (75,100) (53,977)
Repayments of mortgage loans 16,416 12,406 16,464
Change in policy loans 1,087,765 (1,589,502) (1,184,455)
Change in short-term investments 102,616 (115,532) 18,361
Change in other invested assets 11,002 (4,296) (6,652)
Other - net (38) (6,042) (10,583)
Net cash used in investing activities 784,523 (2,255,489) (1,365,610)
------------- -------------------------
Cash flows from financing activities:
Change in policyholders' funds on deposit (980,835) 2,265,900 1,330,841
--------------------------- ----------
Net cash provided by financing activities (980,835) 2,265,900 1,330,841
-------------- ------------ ----------
Change in cash 4,648 (3,377) 730
Cash at beginning of year 1,132 4,509 3,779
--------------------------------------------
Cash at end of year $ 5,780$ 1,132$ 4,509
=============== =============== ==============
</TABLE>
See accompanying notes to financial statements
F-8
<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.
F-9
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(b) Investments: (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments
are capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity,
net of any related taxes. Also included in this category is an interest
rate cap agreement, which is carried at its amortized cost. The cost of
the cap is being amortized against investment income on a straight line
basis over the life of the cap.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the
Parent have a written tax allocation agreement whereby the Parent agrees
not to charge the Company a greater portion of the consolidated tax
liability than would have been paid by the Company if it had filed a
separate return. Additionally, the Parent agrees to reimburse the Company
for any tax benefits arising out of its net losses within ninety days
after the filing of that consolidated tax return for the year in which
these losses are utilized. Deferred federal income taxes are provided for
temporary differences related to the expected future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns.
(d)Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident and
health insurance are reported as earned over the contract term. The
portion of accident and health premiums which is not earned at the end of
a reporting period is recorded as unearned premiums. Estimates of premiums
due but not yet collected are accrued. Policy benefits and expenses are
associated with earned premiums on long-duration contracts resulting in a
level recognition of profits over the anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized in
relation to expected gross profits over the life of the policies (see Note
3).
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-10
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(f)Separate and Variable Accounts: These accounts represent funds for which
investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the
assets are carried at market value. The assets of each account are legally
segregated and are not subject to claims which arise out of any other
business of the Company.
(g)Reinsurance Assets: Reinsurance assets include the balances due from both
reinsurance and insurance companies under the terms of the Company's
reinsurance arrangements for ceded unearned premiums, future policy
benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It also
includes funds held under reinsurance treaties.
(h) Accounting Standards:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of" (FASB 121). This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and an impairment loss must be recognized.
FASB 121 was effective for the Company commencing January 1, 1996. The
adoption of this statement during 1996 had no significant effect on the
Company's result of operations, financial condition or liquidity.
In December 1995, FASB issued "Special Report, a Guide to the
Implementation of Statement No. 115 on Accounting for Certain Investments
in Debt and Equity Securities". Among other things, this guide provided
for a transition provision permitting a one-time transfer of debt
securities from the held to maturity classification to the available for
sale classification. The Company did not transfer any securities from the
held to maturity classification to the available for sale classification.
(i)During 1996, the Company changed it's method of accounting for a
subsidiary to reflect the minority interest. The financial statements for
1994 and 1995 have been reclassified to conform to this presentation.
2. Investment Information
a) Statutory Deposits: Securities with a carrying value of $2,460,000
and $2,639,000 were deposited by the Company under requirements of
regulatory authorities as of December 31, 1996 and 1995, respectively.
F-11
<PAGE>
2. Investment Information - (continued)
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Fixed maturities $164,548 138,341 $109,826
Equity securities 219 225 241
Mortgage loans 22,797 19,399 14,655
Real estate 2,125 997 1,584
Policy loans 314,020 268,454 108,453
Cash and short-term investments 2,924 4,348 1,684
Other invested assets 2,549 6,129 4,070
---------- ---------- ----------
Total investment income 509,182 437,893 240,513
Investment expenses 4,521 2,210 1,301
---------- ----------- -----------
Net investment income $504,661 $435,683 $239,212
======== ======== ========
</TABLE>
(c) Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for 1996,
1995 and 1994 are summarized below (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1996 1995 1994
--------------------------
<S> <C> <C> <C>
Net realized (losses) gains on investments:
Fixed maturities $ (79)$ (166) $ (10)
Equity securities 28 712 442
Mortgage loans - (1,000) (1,223)
Other invested assets - 37 2,744
------------- ----------- --------
Net realized gains $ (51) $ (417) $ 1,953
========== ========== =========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities $ (58,659) $168,561 $(90,779)
Equity securities 1,517 69 293
Other invested assets 6,897 1,373 5,582
----------- --------------------
Net change in unrealized appreciation
(depreciation) of investments $ (50,245) $170,003 $(84,904)
========== ======== =========
</TABLE>
Proceeds from the sale of investments in fixed maturities during 1996,
1995 and 1994 were $40,098,000, $36,678,000, and $17,431,000,
respectively.
During 1996, 1995 and 1994, gross gains of $176,000, $109,000, and
$394,000, respectively, and gross losses of $255,000, $275,000, and
$404,000, respectively, were realized on dispositions of fixed maturity
investments.
F-12
<PAGE>
2. Investment Information - (continued)
During 1996, 1995 and 1994, gross gains of $28,000, $712,000, and
$442,000, respectively, were realized on disposition of equity securities.
(d)Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1996 and 1995, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $2,265,000 and $833,000 and gross losses of $235,000 and
$320,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
1996 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----- --------- ---------- --------- ------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 47,848 $ 7,814 $151 $55,511
States, municipalities and
political subdivisions 327,944 15,525 1,934 341,535
Foreign governments 33,340 2,855 113 36,082
All other corporate 1,781,448 71,994 15,244 1,838,198
--------- ---------- ---------- ---------
Total fixed maturities $2,190,580 $ 98,188 $ 17,442 $2,271,326
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
1995 Amortized Unrealized Unrealized Market
Cost Gains Losses 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>
F-13
<PAGE>
2. Investment Information - (continued)
The amortized cost and estimated market value of fixed maturities,
available for sale at December 31, 1996, by contractual maturity, are
shown below (in thousands). Actual maturities could differ from
contractual maturities because certain borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $ 74,325 $ 76,640
Due after one year through five years 598,151 615,822
Due after five years through ten years 818,547 849,841
Due after ten years 699,557 729,023
--------- ---------
$2,190,580 $2,271,326
</TABLE>
(e)CMO's: CMO's are U.S. Government and Government agency backed and triple
A-rated securities. In the preceding table, CMO's are included in other
corporate fixed maturities. At December 31, 1996 and 1995, the market
value of the CMO portfolio was $435,313,000 and $457,111,000,
respectively; the estimated amortized cost was approximately $419,276,000
in 1996 and $433,481,000 in 1995. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities contained
in the portfolio at December 31, 1996.
(f)Fixed Maturities Below Investment Grade: At December 31, 1996 and 1995,
the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $136,502,000 and $74,622,000,
respectively, and an aggregate market value of $135,218,000 and
$73,894,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h)Investments Greater than 10% Equity: The market value of investments in
the following companies and institutions exceeded 10% of the Company's
total stockholders' equity at December 31, 1996 (in thousands):
Fixed Maturities:
Ford Motor Credit Corporation $ 38,202
GMAC $ 49,541
Other Invested Assets:
Equity Linked Investors II, L.P. $ 43,808
F-14
<PAGE>
3. Deferred Policy Acquisition Costs
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against
future income and the related current amortization charged to income,
excluding certain amounts deferred and amortized in the same period (in
thousands). The 1996 and 1995 amortization includes $6,096,000 and
$9,455,000, respectively, to recognize excess loss experienced on credit
insurance.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Balance at beginning of year $60,625 $54,474 $39,568
Acquisition costs deferred 43,534 35,008 29,442
Amortization charged to income (19,872) (28,857) (14,536)
------- -------- --------
Balance at end of year $84,287 $60,625 $54,474
======= ======= =======
</TABLE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a)The analysis of the future policy benefits and policyholders' funds on
deposit at December 31, 1996 and 1995 follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Future Policy Benefits:
Long duration contracts $ 624,659 $ 556,669
Short duration contracts 5,861 9,818
----------- ------------
$ 630,520 $ 566,487
========== ===========
Policyholders' funds on deposit:
Annuities $ 1,082,217 $ 944,629
Universal life 130,413 171,564
Guaranteed investment contracts (GICs) 278,680 249,844
Corporate owned life markets 2,314,149 3,204,912
Other investment contracts 4,636 4,046
------------- -----------
$3,810,095 $4,574,995
========= =========
</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 1.9
percent.
F-15
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit - (continued)
(c)The liability for policyholders' funds on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of
issuance and range from 3.0 percent to 8.0 percent. Credited interest
rate guarantees are generally for a period of one year. Withdrawal
charges generally range from 6.0 percent to 10.0 percent grading to zero
over a period of 6 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited generally
range from 4.7 percent to 8.1 percent and maturities range from 2 to 7
years.
(iii) Interest rates on corporate-owned life insurance business are
guaranteed at 4.0 percent and the weighted average rate credited in 1996
was 9.4 percent.
(iv) The universal life funds, exclusive of corporate owned life insurance
business, have credited interest rates of 5.9 percent to 7.5 percent and
guarantees ranging from 3.5 percent to 5.5 percent depending on the year
of issue. Additionally, universal life funds are subject to surrender
charges that amount to 10.0 percent of the fund balance and grade to zero
over a period not longer than 20 years.
5. Income Taxes
(a)The Federal income tax rate applicable to ordinary income is 35% for
1996, 1995 and 1994. Actual tax expense on income from operations differs
from the "expected" amount computed by applying the Federal income tax
rate because of the following (in thousands except percentages):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
Percent Percent Percent
of of of
pre-tax pre-tax pre-tax
operating operating operating
Amount Income Amount Income Amount Income
---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $ 18,125 35.0% $ 12,155 35.0% $ 8,436 35.0%
Prior year federal
income tax benefit (51) (0.1) (798) (2.3) - -
State income tax 850 1.6 894 2.6 197 0.8
Other 677 1.3 119 0.3 35 0.2
--------- ---- --------- ------ ------- -----
Actual income tax expense $19,601 37.8% $ 12,370 35.6% $ 8,668 36.0%
============= ======== ==== ======= ====
</TABLE>
F-16
<PAGE>
5. Income Taxes - (continued)
(b) The components of the net deferred tax liability were as follows
(in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Adjustment to life reserves $41,522 $24,940
Adjustments to mortgage loans and investment income 2,531 2,546
Adjustment to policy and contract claims 10,687 11,725
Other 2,585 1,232
57,325 40,443
--------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $ 23,047 $ 13,040
Unrealized appreciation on investments 33,823 47,209
Bond discount 4,085 3,458
Other 2,083 1,321
---------- ---------
63,038 65,028
--------- --------
Net deferred tax liability $ 5,713 $ 24,585
========== ========
</TABLE>
(c)At December 31, 1996, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,204,000 of "Policyholders'
Surplus" as defined under the Code. Under provisions of the Code,
"Policyholders' Surplus" has not been currently taxed but would be taxed
at current rates if distributed to the Parent. There is no present
intention to make cash distributions from "Policyholders' Surplus" and
accordingly, no provision has been made for taxes on this amount.
(d)Income taxes paid in 1996, 1995, and 1994 amounted to $25,412,000,
$26,030,000, and $25,052,000, respectively.
6. Commitments and Contingencies
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
7. Fair Value of Financial Instruments
(a)Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments may
or may not be recognized in the balance sheet. In the measurement of the
fair value of certain of the financial instruments, quoted market prices
were not available and other valuation techniques were utilized. These
derived fair value estimates are significantly affected by the assumptions
used. FASB 107 excludes certain financial instruments, including those
related to insurance contracts.
F-17
<PAGE>
7. Fair Value of Financial Instruments - (continued)
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair values.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair value of the policy loans were not calculated as the
Company believes it would have to expend excessive costs for the benefits
derived. Therefore, the fair value of policy loans was estimated at
carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair value of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
(b) The fair value and carrying amounts of financial instruments
is as follows (in thousands):
<TABLE>
<CAPTION>
1996 Fair Carrying
Value Amount
<S> <C> <C>
Cash and short-term investments $ 105,816 $ 105,816
Fixed maturities 2,271,326 2,271,326
Equity securities 5,578 5,578
Mortgage and policy loans 2,183,873 2,171,324
Interest rate cap 75 94
Policyholders' funds on deposit $ 3,832,601 $ 3,810,095
1995 Fair Carrying
Value Amount
Cash and short-term investments $ 203,784 $ 203,784
Fixed maturities 1,963,265 1,963,265
Equity securities 4,990 4,990
Mortgage and policy loans 3,216,321 3,200,853
Interest rate cap 144 170
Policyholders' funds on deposit $ 4,592,841 $ 4,574,995
</TABLE>
F-18
<PAGE>
8. Stockholders' Equity
(a)The maximum stockholder dividend which can be paid without prior
regulatory approval is subject to restrictions relating to statutory
surplus and statutory net gain from operations. These restrictions limited
payment of dividends to $39,027,000 during 1996, however, no dividends
were paid during the year.
(b)The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $221,567,000 at December 31, 1996 and
$176,952,000 at December 31, 1995. Statutory net income amounted to
$47,074,000, $39,712,000, and $47,002,000 for 1996, 1995 and 1994,
respectively.
9. Employee Benefits
(a)The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and completed
twelve months of continuous service are eligible to participate in this
plan. An employee with 5 or more years of service is entitled to pension
benefits beginning at normal retirement age 65. Benefits are based upon a
percentage of average final compensation multiplied by years of credited
service limited to 44 years of credited service. Prior to January 1, 1996,
the average final compensation is subject to certain limitations. Annual
funding requirements are determined based on the "projected unit credit"
cost method which attributes a pro rata portion of the total projected
benefit payable at normal retirement to each year of credited service.
Pension expense for current service costs, retirement and termination
benefits for the years ended December 31, 1996, 1995 and 1994 were
approximately $400,000, $304,000, and $179,000, respectively. The Parent's
plans do not separately identify projected benefit obligations and plan
assets attributable to employees of participating affiliates. The
projected benefit obligations exceeded the plan assets at December 31,
1996 by $42,149,000.
(b)The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which, during the two years ended December 31, 1994,
provided for salary reduction contributions by employees and matching
contributions by the Parent of up to 2 percent of annual salary.
Commencing January 1, 1995, the 401(k) plan provided for matching
contributions by the Parent of up to 6 percent of annual salary depending
on the employee's years of service.
(c)In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
(d)The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provide for eligible employees
to receive privileges to purchase AIG common stock at a price equal to 85%
of the fair market value on the date of grant of the purchase privilege.
The Parent has not recognized compensation costs for either plan. The
effect of the compensation costs, as determined consistent with
FASB 123, was not computed on a subsidiary basis, but rather on a
consolidated basis for all subsidiaries of the Parent and therefore are
not presented herein.
F-19
<PAGE>
10. Leases
(a)The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1996, the
future minimum lease payments under operating leases were as follows (in
thousands):
Year Payment
1997 $ 3,833
1998 2,785
1999 1,846
2000 1,596
2001 1,471
Remaining years after 2001 4,414
-------
Total $15,945
-------
-------
Rent expense approximated $4,263,000, $3,764,000, and $3,542,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
(b) Sublease Income -The Company does not participate in sublease agreements.
11. Reinsurance
(a)The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term treaties.
Accident and health insurance risks are reinsured primarily under
coinsurance, excess of loss and quota share treaties. Amounts recoverable
from reinsurers are estimated in a manner consistent with the assumptions
used for the underlying policy benefits and are presented as a component
of reinsurance assets. A contingent liability exists with respect to
reinsurance ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements.
The Company also reinsures portions of its life and accident and health
insurance risks with affiliated companies (see Note 12). The effect of all
reinsurance contracts, including reinsurance assumed, is as follows (in
thousands, except percentages):
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1996 Assumed
Gross Ceded Assumed Net to Net
----- ----- ------- --- --------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $53,854,456 $17,392,184 $ 605,831 $37,068,103 1.6%
=========== ============ =========== =============
Premiums:
Life 187,886 49,150 327 139,063 -
Accident and Health 97,971 28,359 107,447 177,059 60.7%
Annuity 78,358 - - 78,358 -
--------------- --------- ---------- ---------- ----------
Total Premiums $ 364,215 $77,509 $ 107,774 $394,480 27.3%
============ ============ ============= =============
</TABLE>
F-20
<PAGE>
11. Reinsurance - (continued)
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1995 Assumed
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>
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1994 Assumed
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%
========================== ========== ============
</TABLE>
(b) The maximum amount retained on any one life by the Company is $1,000,000.
(c)Reinsurance recoveries, which reduced death and other benefits,
approximated $54,456,000, $51,264,000, and $34,252,000, respectively, for
each of the years ended December 31, 1996, 1995 and 1994.
The Company's reinsurance arrangements do not relieve the Company from its
direct obligation to its insureds.
12. Transactions with Related Parties
(a)The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance risks.
Premium income and commission ceded for 1996 amounted to $1,345,000 and
$0, respectively. Premium income and commission ceded for 1995 amounted to
$1,269,000 and $1,000, respectively. Premium income and commission ceded
to affiliates amounted to $1,267,000 and $2,000 for the year ended
December 31, 1994. Premium income and ceding commission expense assumed
from affiliates aggregated $103,885,000 and $27,609,000, respectively, for
1996, compared to $90,688,000 and $23,422,000, respectively, for 1995, and
$75,005,000 and $20,374,000, respectively for 1994.
F-21
<PAGE>
12. Transactions with Related Parties - (continued)
(b)The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional cost
allocation basis which management believes to be reasonable. For the years
ended December 31, 1996, 1995 and 1994, the Company was charged
$28,277,000, $23,193,000, and $21,392,000, respectively, for expenses
attributed to the Company but incurred by affiliates. During the same
period, the Company received reimbursements from affiliates aggregating
$17,598,000, $14,496,000, and $13,383,000, respectively, for costs
incurred by the Company but attributable to affiliates.
(c) During 1996, the Company purchased 1,500,000 shares of AIG Life Ireland,
LTD., a subsidiary.
F-22
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
AIG Life Insurance Company
Variable Account I
We have audited the accompanying statement 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, Worldwide
Privatization, Technology and Quasar Subaccounts, as of December 31, 1996 and
the related statement of operations for the year then ended, and the
statement of changes in net assets for each of the two years then added.
These financial statements are the are the responsibility of the
management of Variable 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 ofinvestments held at December 31,
1996 by correspondence with the transfer agent. An audit also includes
assessing the accounting principles used an significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AIG Life Insurance
Company Variable Account I as of December 31, 1996, and the results of its
operations for the year then ended, and the changes in its net assets for
each of the two years then ended, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand
- ---------------------
Coopers & Lybrand
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 20, 1997
F-23
<PAGE>
AIG LIFE INSURANCE COMPANY (AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31,1996
<TABLE>
<CAPTION>
Market
Shares Cost Value
<S> <C> <C> <C>
ASSETS:
Investments at Market Value:
Alliance Variable Products Series Fund, Inc.:
Money Market Portfolio .................... 47,386,157.640 $ 47,386,157 $ 47,386,157
Premier Growth Portfolio .................. 4,450,620.422 70,726,542 69,874,740
Growth & Income Portfolio ................. 5,254,776.935 79,369,646 86,178,341
International Portfolio ................... 2,239,296.730 31,599,640 33,343,127
Short-Term Multi-Market Portfolio ......... 463,620.484 4,905,312 4,974,647
Global Bond Portfolio ..................... 652,968.868 7,550,276 7,665,854
U.S. Government/High Grade
Securities Portfolio ................. 1,786,810.058 19,996,799 20,584,053
Global Dollar Government Portfolio ........ 477,572.777 5,816,147 6,838,841
North American Government Portfolio ....... 1,042,650.611 11,195,815 12,908,015
Utility Income Portfolio .................. 804,924.882 9,461,191 10,214,507
Conservative Investors Portfolio .......... 1,088,167.769 12,537,951 13,134,185
Growth Investors Portfolio ................ 594,626.423 7,076,598 7,575,544
Growth Portfolio .......................... 5,785,284.557 84,436,521 103,672,299
Total Return Portfolio .................... 1,056,451.732 13,803,128 15,455,885
Worldwide Privatization Portfolio ......... 1,109,889.866 13,084,244 14,572,855
Technology Portfolio ...................... 2,098,914.714 21,680,167 23,172,018
Quasar Portfolio .......................... 646,154.311 6,718,670 6,875,082
------------- ---------------
Total Investments ........................................... $ 447,344,804 484,426,150
---------------
Total Assets ............................................ ............ $ 484,426,150
===============
EQUITY:
Contract Owners' Equity ......................................................... $ 484,426,150
---------------
Total Equity ......................................................... $ 484,426,150
</TABLE>
See Notes to Financial Statements
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Growth
Money Premier &
Market Growth Income
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ......................... $ 25,460,298 $ 1,723,662 $ 12,056,499 $ 8,187,563
Expenses:
Mortality & Expense Risk Fees ..... 3,883,434 477,195 540,236 655,716
Daily Administrative Charges ...... 465,811 56,499 64,874 78,289
------------- ------------------- -------------- -----------------
Net Investment Income (Loss) .......... 21,111,053 1,189,968 11,451,389 7,453,558
------------- ------------------- -------------- -----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ...................... 2,242,088 0 84,696 118,675
Change in Unrealized Appreciation
(Depreciation) ................ 24,819,919 0 (2,412,194) 3,949,531
------------- ------------------- -------------- -----------------
Net Gain (Loss) on Investments ........ 27,062,007 0 (2,327,498) 4,068,206
------------- ------------------- -------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations ......... $ 48,173,060 $ 1,189,968 $ 9,123,891 $ 11,521,764
============= =================== =============== =================
</TABLE>
<TABLE>
<CAPTION>
US
Gov't/
Short-term Global High
International Multi-Market Bond Grade
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ......................... $ 289,276 $ 198,880 $ 485,096 $ 628,703
Expenses:
Mortality & Expense Risk Fees ..... 280,298 37,388 67,041 201,693
Daily Administrative Charges ...... 33,524 4,485 8,044 24,623
------------- ------------------- -------------- -----------------
Net Investment Income (Loss) .......... (24,546) 157,007 410,011 402,387
------------- ------------------- -------------- -----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ...................... 61,622 34,922 50,794 303,912
Change in Unrealized Appreciation
(Depreciation) ................ 1,071,980 34,992 (132,618) (216,624)
------------- ------------------- -------------- -----------------
Net Gain (Loss) on Investments ........ 1,133,602 69,914 (81,824) 87,288
------------- ------------------- -------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations ......... $ 1,109,056 $ 226,921 $ 328,187 $ 489,675
============= =================== =============== =================
</TABLE>
F-24
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Global N.
Dollar Amer. Utility Conservative
Gov't Gov't Income Investors
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ......................... $ 157,480 $ 40,868 $ 156,599 $ 100,316
Expenses:
Mortality & Expense Risk Fees ..... 54,518 106,719 94,461 113,546
Daily Administrative Charges ...... 6,520 13,200 11,332 13,486
------------- ------------------- -------------- -----------------
Net Investment Income (Loss) .......... 96,442 (79,051) 50,806 (26,716)
------------- ------------------- -------------- -----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ...................... 180,711 215,181 128,528 129,961
Change in Unrealized Appreciation
(Depreciation) ................ 690,608 1,233,584 404,614 322,938
------------- ------------------- -------------- -----------------
Net Gain (Loss) on Investments ........ 871,319 1,448,765 533,142 452,899
------------- ------------------- -------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations ......... $ 967,761 $ 1,369,714 $ 583,948 $ 426,183
============= =================== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Growth Total Worldwide
Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ......................... $ 45,536 $ 1,248,537 $ 72,334 $ 68,949
Expenses:
Mortality & Expense Risk Fees ..... 73,835 814,349 113,637 110,653
Daily Administrative Charges ...... 8,840 97,273 14,546 13,189
------------- ------------------- -------------- -----------------
Net Investment Income (Loss) .......... (37,139) 336,915 (55,849) (54,893)
------------- ------------------- -------------- -----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ...................... 215,321 466,277 109,865 86,127
Change in Unrealized Appreciation
(Depreciation) ................ 300,210 15,249,478 1,397,060 1,278,096
------------- ------------------- -------------- -----------------
Net Gain (Loss) on Investments ........ 515,531 15,715,755 1,506,925 1,364,223
------------- ------------------- -------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations ......... $ 478,392 $ 16,052,670 $ 1,451,076 $ 1,309,330
============= =================== =============== =================
</TABLE>
F-25
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Technology Quasar
Portfolio Portfolio
<S> <C> <C>
Investment Income (Loss):
Dividends ......................... $ 0 $ 0
Expenses:
Mortality & Expense Risk Fees ..... 129,149 13,000
Daily Administrative Charges ...... 15,532 1,555
------------- ------------------- -------------- -----------------
Net Investment Income (Loss) .......... (144,681) (14,555)
------------- ------------------- -------------- -----------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ...................... 55,493 3
Change in Unrealized Appreciation
(Depreciation) ................ 1,491,852 156,412
------------- ------------------- -------------- -----------------
Net Gain (Loss) on Investments ........ 1,547,345 156,415
------------- ------------------- -------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations ......... $ 1,402,664 $ 141,860
============= =================== =============== =================
</TABLE>
See Notes to Financial Statements
F-26
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31,1995
1996
<TABLE>
<CAPTION>
Growth
Money Premier &
Market Growth Income
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 21,111,053 $ 1,189,968 $ 11,451,389 $ 7,453,558
Realized Gain (Loss) on Investment Activity . 2,242,088 0 84,696 118,675
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 24,819,919 0 (2,412,194) 3,949,531
Increase (Decrease) in Net Assets Resulting ------------------ ------------------- ------------------ -----------------
From Operations ............................. 48,173,060 1,189,968 9,123,891 11,521,764
------------------ ------------------- ------------------ -----------------
Capital Transactions:
Contract Deposits ........................... 303,903,508 95,035,811 32,551,159 38,513,090
Administrative Charges ...................... (79,529) (5,786) (11,424) (12,981)
Transfers Between Funds ..................... 6,320,503 (60,701,039) 11,691,930 14,538,664
Contract Withdrawals ........................ (15,765,479) (6,362,545) (1,281,044) (1,819,114)
Deferred Sales Charges ...................... (380,704) (176,941) (30,465) (32,545)
Death Benefits .............................. (5,210,593) (1,314,276) (378,874) (811,949)
Increase (Decrease) in Net Assets Resulting ------------------ ------------------- ------------------ -----------------
From Capital Transactions ................... 288,787,706 26,475,224 42,541,282 50,375,165
------------------ ------------------- ------------------ -----------------
Total Increase (Decrease) in Net Assets ......... 336,960,766 27,665,192 51,665,173 61,896,929
Net Assets, at Beginning of Year ................ 147,465,384 19,720,965 18,209,567 24,281,412
------------------ ------------------- ------------------ -----------------
Net Assets, at End of Year ......................$ 484,426,150 $ 47,386,157 $ 69,874,740 $ 86,178,341
================== =================== ================== ==============
1995
</TABLE>
<TABLE>
<CAPTION>
Money Premier Growth &
Market Growth Income
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 33,156 $ 404,920 $ (65,732) $ 14,586
Realized Gain (Loss) on Investment Activity . 227,794 0 92,209 30,936
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 12,845,829 0 1,577,208 2,933,771
Increase (Decrease) in Net Assets Resulting ------------------ ------------------- ------------------ -----------------
From Operations ............................. 13,106,779 404,920 1,603,685 2,979,293
------------------ ------------------- ------------------ -----------------
Capital Transactions:
Contract Deposits ........................... 110,960,236 42,053,738 10,738,137 12,438,557
Transfers Between Funds ..................... 0 (20,616,576) 3,750,242 4,463,538
Transfers From (To) AIG Life ................ (4,604,746) (4,764,668) 50,512 7,068
Administrative Charges ...................... (20,148) (1,483) (2,212) (3,747)
Death Benefits .............................. (2,287,456) (1,099,777) (23,760) (243,637)
Contract Withdrawals ........................ (2,997,013) (663,922) (172,094) (470,143)
Deferred Sales Charges ...................... (61,864) (17,679) (4,712) (7,203)
Increase (Decrease) in Net Assets Resulting ------------------ ------------------- ------------------ -----------------
From Capital Transactions ................... 100,989,009 14,889,633 14,336,113 16,184,433
------------------ ------------------- ------------------ -----------------
Total Increase (Decrease) in Net Assets ......... 114,095,788 15,294,553 15,939,798 19,163,726
Net Assets, at Beginning of Year ................ 33,369,596 4,426,412 2,269,769 5,117,686
------------------ ------------------- ------------------ -----------------
Net Assets, at End of Year ......................$ 147,465,384 $ 19,720,965 $ 18,209,567 $ 24,281,412
================== =================== ================== =================
</TABLE>
F-27
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31,1995
<TABLE>
<CAPTION>
1996
US
Gov't/
Short-term Global High
International Multi-Market Bond Grade
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (24,546) $ 157,007 $ 410,011 $ 402,387
Realized Gain (Loss) on Investment Activity . 61,622 34,922 50,794 303,912
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 1,071,980 34,992 (132,618) (216,624)
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Operations ............................. 1,109,056 226,921 328,187 489,675
---------------- --------------- --------------- ---------------
Capital Transactions:
Contract Deposits ........................... 15,497,251 3,535,318 2,965,502 10,728,863
Administrative Charges ...................... (6,467) (658) (1,533) (4,992)
Transfers Between Funds ..................... 6,319,550 150,744 1,918,259 539,517
Contract Withdrawals ........................ (686,795) (62,197) (204,154) (880,807)
Deferred Sales Charges ...................... (16,028) (1,087) (4,666) (16,309)
Death Benefits .............................. (253,527) (24,890) (39,335) (403,753)
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Capital Transactions ................... 20,853,984 3,597,230 4,634,073 9,962,519
---------------- --------------- --------------- ---------------
Total Increase (Decrease) in Net Assets ......... 21,963,040 3,824,151 4,962,260 10,452,194
Net Assets, at Beginning of Year ................ 11,380,087 1,150,496 2,703,594 10,131,859
---------------- --------------- --------------- ---------------
Net Assets, at End of Year ......................$ 33,343,127 $ 4,974,647 $ 7,665,854 $ 20,584,053
================ =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
1995
US
Gov't/
Short-term Global High
International Multi-Market Bond Grade
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (63,803) $ (10,816) $ (9,771) $ 7,697
Realized Gain (Loss) on Investment Activity . 29,327 (23,794) (15,732) 40,450
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 737,015 66,442 291,336 850,195
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Operations ............................. 702,539 31,832 265,833 898,342
---------------- --------------- --------------- ---------------
Capital Transactions:
Contract Deposits ........................... 4,534,346 926,377 1,117,003 5,364,390
Transfers Between Funds ..................... 1,557,208 (676,387) 591,145 1,361,265
Transfers From (To) AIG Life ................ 142,335 (2,678) (45,688) (14,266)
Administrative Charges ...................... (2,776) (232) (450) (1,450)
Death Benefits .............................. (68,089) (1,048) (7,371) (190,203)
Contract Withdrawals ........................ (269,782) (35,410) (97,067) (301,386)
Deferred Sales Charges ...................... (5,086) 0 (2,793) (3,319)
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Capital Transactions ................... 5,888,156 210,622 1,554,779 6,215,031
---------------- --------------- --------------- ---------------
Total Increase (Decrease) in Net Assets ......... 6,590,695 242,454 1,820,612 7,113,373
Net Assets, at Beginning of Year ................ 4,789,392 908,042 882,982 3,018,486
---------------- --------------- --------------- ---------------
Net Assets, at End of Year ......................$ 11,380,087 $ 1,150,496 $ 2,703,594 $ 10,131,859
================ =============== =============== ===============
</TABLE>
F-28
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31, 1995
<TABLE>
<CAPTION>
1996
Global N.
Dollar Amer. Utility Conservative
Gov't Gov't Income Investors
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 96,442 $ (79,051) $ 50,806 $ (26,716)
Realized Gain (Loss) on Investment Activity . 180,711 215,181 128,528 129,961
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 690,608 1,233,584 404,614 322,938
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Operations ............................. 967,761 1,369,714 583,948 426,183
---------------- --------------- --------------- ---------------
Capital Transactions:
Contract Deposits ........................... 2,406,515 6,159,973 4,137,659 6,884,955
Administrative Charges ...................... (1,213) (2,485) (2,077) (2,289)
Transfers Between Funds ..................... 1,040,481 610,451 1,611,229 1,626,943
Contract Withdrawals ........................ (308,516) (536,764) (250,771) (371,748)
Deferred Sales Charges ...................... (16,223) (14,601) (2,098) (3,819)
Death Benefits .............................. (68,328) (273,075) (94,291) (116,109)
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Capital Transactions ................... 3,052,716 5,943,499 5,399,651 8,017,933
---------------- --------------- --------------- ---------------
Total Increase (Decrease) in Net Assets ......... 4,020,477 7,313,213 5,983,599 8,444,116
Net Assets, at Beginning of Year ................ 2,818,364 5,594,802 4,230,908 4,690,069
---------------- --------------- --------------- ---------------
Net Assets, at End of Year ......................$ 6,838,841 $ 12,908,015 $ 10,214,507 $ 13,134,185
================ =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
1995
Global N.
Dollar Amer. Utility Conservative
Gov't Gov't Income Investors
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (975) $ 60,098 $ (16,682) $ (23,370)
Realized Gain (Loss) on Investment Activity . 8,612 (170,057) 33,618 22,158
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 347,878 905,309 371,845 269,922
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Operations ............................. 355,515 795,350 388,781 268,710
---------------- --------------- --------------- ---------------
Capital Transactions:
Contract Deposits ........................... 1,202,676 2,579,730 2,546,126 3,212,305
Transfers Between Funds ..................... 662,282 (396,005) 477,280 797,350
Transfers From (To) AIG Life ................ 0 0 (24,043) 0
Administrative Charges ...................... (380) (1,573) (537) (884)
Death Benefits .............................. (32,866) (145,317) (107,631) (135,759)
Contract Withdrawals ........................ (43,561) (199,515) (147,166) (78,277)
Deferred Sales Charges ...................... (784) (2,934) (3,000) (3,357)
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Capital Transactions ................... 1,787,367 1,834,386 2,741,029 3,791,378
---------------- --------------- --------------- ---------------
Total Increase (Decrease) in Net Assets ......... 2,142,882 2,629,736 3,129,810 4,060,088
Net Assets, at Beginning of Year ................ 675,482 2,965,066 1,101,098 629,981
---------------- --------------- --------------- ---------------
Net Assets, at End of Year ......................$ 2,818,364 $ 5,594,802 $ 4,230,908 $ 4,690,069
================ =============== =============== ===============
</TABLE>
F-29
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31, 1995
<TABLE>
<CAPTION>
1996
Growth Total Worldwide
Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (37,139) $ 336,915 $ (55,849) $ (54,893)
Realized Gain (Loss) on Investment Activity . 215,321 466,277 109,865 86,127
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 300,210 15,249,478 1,397,060 1,278,096
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Operations ............................. 478,392 16,052,670 1,451,076 1,309,330
---------------- --------------- --------------- ---------------
Capital Transactions:
Contract Deposits ........................... 3,457,199 45,760,038 8,048,133 6,615,023
Administrative Charges ...................... (1,672) (20,050) (2,152) (2,506)
Transfers Between Funds ..................... 612,926 13,984,438 2,568,470 2,575,271
Contract Withdrawals ........................ (259,364) (2,021,823) (213,664) (226,493)
Deferred Sales Charges ...................... (6,376) (45,403) (2,683) (6,165)
Death Benefits .............................. (110,606) (984,450) (258,515) (27,722)
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Capital Transactions ................... 3,692,107 56,672,750 10,139,589 8,927,408
---------------- --------------- --------------- ---------------
Total Increase (Decrease) in Net Assets ......... 4,170,499 72,725,420 11,590,665 10,236,738
Net Assets, at Beginning of Year ................ 3,405,045 30,946,879 3,865,220 4,336,117
---------------- --------------- --------------- ---------------
Net Assets, at End of Year ......................$ 7,575,544 $ 103,672,299 $ 15,455,885 $ 14,572,855
================ =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
1995
Growth Total Worldwide
Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (16,228) $ (202,887) $ (13,957) $ (29,924)
Realized Gain (Loss) on Investment Activity . 14,539 142,991 16,746 5,791
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 201,543 3,832,350 257,274 203,741
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Operations ............................. 199,854 3,772,454 260,063 179,608
---------------- --------------- --------------- ---------------
Capital Transactions:
Contract Deposits ........................... 2,350,845 16,825,901 2,819,685 2,250,420
Transfers Between Funds ..................... 665,831 5,917,824 566,214 878,789
Transfers From (To) AIG Life ................ 0 43,380 3,302 0
Administrative Charges ...................... (195) (3,382) (112) (735)
Death Benefits .............................. (77,953) (83,793) (65,588) (4,664)
Contract Withdrawals ........................ (22,616) (414,058) (53,176) (28,840)
Deferred Sales Charges ...................... (3) (10,734) (38) (222)
Increase (Decrease) in Net Assets Resulting ---------------- --------------- --------------- ---------------
From Capital Transactions ................... 2,915,909 22,275,138 3,270,287 3,094,748
---------------- --------------- --------------- ---------------
Total Increase (Decrease) in Net Assets ......... 3,115,763 26,047,592 3,530,350 3,274,356
Net Assets, at Beginning of Year ................ 289,282 4,899,287 334,870 1,061,761
---------------- --------------- --------------- ---------------
Net Assets, at End of Year ......................$ 3,405,045 $ 30,946,879 $ 3,865,220 $ 4,336,117
================ =============== =============== ===============
</TABLE>
F-30
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended December 31,1996 and December 31, 1995
<TABLE>
<CAPTION>
1996
Technology Quasar
Portfolio Portfolio
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (144,681) $ (14,555)
Realized Gain (Loss) on Investment Activity . 55,493 3
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 1,491,852 156,412
Increase (Decrease) in Net Assets Resulting ---------------- ---------------
From Operations ............................. 1,402,664 141,860
---------------- ---------------
Capital Transactions:
Contract Deposits ........................... 17,192,089 4,414,930
Administrative Charges ...................... (606) (638)
Transfers Between Funds ..................... 4,880,120 2,352,549
Contract Withdrawals ........................ (246,071) (33,609)
Deferred Sales Charges ...................... (5,285) (10)
Death Benefits .............................. (50,893) 0
Increase (Decrease) in Net Assets Resulting ---------------- ---------------
From Capital Transactions ................... 21,769,354 6,733,222
Total Increase (Decrease) in Net Assets ......... 23,172,018 6,875,082
---------------- ---------------
Net Assets, at Beginning of Year ................ 0 0
---------------- ---------------
Net Assets, at End of Year ......................$ 23,172,018 $ 6,875,082
================ ===============
</TABLE>
<TABLE>
<CAPTION>
1995
Technology Quasar
Portfolio Portfolio
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 0 $ 0
Realized Gain (Loss) on Investment Activity . 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 0 0
Increase (Decrease) in Net Assets Resulting ---------------- ---------------
From Operations ............................. 0 0
---------------- ---------------
Capital Transactions:
Contract Deposits ........................... 0 0
Transfers Between Funds ..................... 0 0
Transfers From (To) AIG Life ................ 0 0
Administrative Charges ...................... 0 0
Death Benefits .............................. 0 0
Contract Withdrawals ........................ 0 0
Deferred Sales Charges ...................... 0 0
Increase (Decrease) in Net Assets Resulting ---------------- ---------------
From Capital Transactions ................... 0 0
---------------- ---------------
Total Increase (Decrease) in Net Assets ......... 0 0
Net Assets, at Beginning of Year ................ 0 0
---------------- ---------------
Net Assets, at End of Year ......................$ 0 $ 0
================ ===============
</TABLE>
F-31
<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
seventeen 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;
World Privatization Portfolio; Quasar Portfolio and Technology Portfolio. The
Account invests in shares of other funds which are not available to these
contracts.
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. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Account in preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation - The investments in the Funds are stated at market
value which is the net asset value of each of the respective series as
determined at the close of business on the last business day of the period by
the Fund.
B. Accounting for Investments - Investment transactions are accounted for on
the date the investments are purchased or sold. Dividend income is recorded on
the ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations and is
not taxed separately. Under existing federal law, no taxes are payable on
investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required management
to make estimates and assumptions that affect the reported values of assets and
liabilities and the reported amounts from operations and policy transactions
during. Actual results could differ from those estimates.
F-32
<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.
F-33
<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, 1996, investment activity in the Fund was
as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
Alliance Variable Product Series Fund, Inc.:
Money Market Portfolio ................... $ 124,219,021 $ 96,475,207
Premier Growth Portfolio ................. 54,607,443 573,341
Growth & Income Portfolio ................ 58,328,638 499,791
International Portfolio .................. 21,439,246 609,672
Short-Term Multi-Market Portfolio ........ 5,858,005 2,103,874
Global Bond Portfolio .................... 5,428,581 384,469
U.S. Government/High Grade
Securities Portfolio ................. 13,226,814 2,862,834
Global Dollar Government Portfolio ....... 3,979,512 830,352
North American Government Portfolio ...... 7,768,254 1,904,000
Utility Income Portfolio ................. 6,308,123 857,662
Conservative Investors Portfolio.......... 9,327,023 1,333,009
Growth Investors Portfolio................ 5,072,368 1,417,398
Growth Portfolio.......................... 58,532,808 1,522,096
Total Return Portfolio.................... 10,622,604 539,390
Worldwide Privatization Portfolio......... 9,357,325 484,806
Technology Portfolio...................... 22,557,083 932,410
Quasar Portfolio.......................... 6,719,429 762
</TABLE>
For the year ended December 31, 1995, investment activity in the Fund was
as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
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>
See Notes to Financial Statements
F-34
<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, 1996, transactions in accumulation units
of the account were as follows:
<TABLE>
<CAPTION>
Money Premier Growth & Inter- Short-Term
Market Growth Income national Multi-Market
Portfolio Portfolio Portfolio Portfolio Portfolio
------------------ --------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY
Units Purchased ....................... 8,796,365.86 2,084,711.01 2,260,624.63 1,290,635.49 340,721.53
Units Withdrawn ....................... (723,239.50) (108,678.76) (156,458.14) (80,833.03) (8,846.25)
Units Transferred Between Funds ....... (6,016,679.85) 721,775.80 833,136.97 496,947.61 11,939.69
Units Transferred From (To) AIG Life .. 407,756.13 21,432.90 17,265.13 30,740.86 2,047.02
------------------ --------------- ------------- ---------------- ---------------
Net Increase (Decrease) ............... 2,464,202.64 2,719,240.95 2,954,568.59 1,737,490.93 345,861.99
Units, at Beginning of the Year ....... 1,856,020.37 1,252,211.18 1,554,549.81 981,260.91 115,207.71
------------------ --------------- ------------- ---------------- ---------------
Units, at End of the Year ............. 4,320,223.01 3,971,452.13 4,509,118.40 2,718,751.84 461,069.70
================== =============== ============= ================ ===============
Unit Value at December 31, 1996 .......$ 10.97 $ 17.59 $ 19.11 $ 12.26 $ 10.79
================= =============== ============= ================ ==============
</TABLE>
<TABLE>
<CAPTION>
US
Gov't/ Global
Global High Dollar N. Amer. Utility
Bond Grade Gov't Gov't Income
Portfolio Portfolio Portfolio Portfolio Portfolio
------------------ --------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Units Purchased ....................... 233,692.55 996,252.44 182,535.05 536,416.92 348,379.61
Units Withdrawn ....................... (19,741.90) (120,056.65) (44,624.47) (73,167.16) (30,038.55)
Units Transferred Between Funds ....... 150,059.95 49,854.06 85,441.22 47,546.87 132,563.25
Units Transferred From (To) AIG Life .. 1,185.68 (2,623.20) 7,996.68 5,068.87 3,669.32
------------------ --------------- ------------- ---------------- ---------------
Net Increase (Decrease) ............... 365,196.28 923,426.65 231,348.48 515,865.50 454,573.63
Units, at Beginning of the Year ....... 213,886.71 914,988.76 238,452.60 531,374.67 358,005.39
------------------ --------------- ------------- ---------------- ---------------
Units, at End of the Year ............. 579,082.99 1,838,415.41 469,801.08 1,047,240.17 812,579.02
================== ============================= ================ ===============
Unit Value at December 31, 1996 .......$ 13.24 $ 11.20 $ 14.56 $ 12.33 $ 12.57
================ ============== ============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
Conservative Growth Total Worldwide
Investors Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio Portfolio
------------------ --------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Units Purchased ....................... 604,571.89 294,102.58 2,953,000.53 656,076.82 549,440.85
Units Withdrawn ....................... (43,485.65) (31,374.03) (193,755.79) (38,002.90) (21,898.01)
Units Transferred Between Funds ....... 108,787.09 46,862.27 858,524.80 208,144.59 211,012.83
Units Transferred From (To) AIG Life .. 34,107.88 7,641.35 23,950.36 1,344.37 1,908.28
------------------ --------------- ------------- ---------------- ---------------
Net Increase (Decrease) ............... 703,981.21 317,232.17 3,641,719.90 827,562.88 740,463.95
Units, at Beginning of the Year ....... 405,192.27 292,173.06 2,215,092.12 328,256.04 394,704.27
------------------ --------------- ------------- ---------------- ---------------
Units, at End of the Year ............. 1,109,173.48 609,405.23 5,856,812.02 1,155,818.92 1,135,168.22
================== =============== ============= ================ ===============
Unit Value at December 31, 1996 ....... $ 11.84 $ 12.43 $ 17.70 $ 13.37 $ 12.84
================ ============== ============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
Technology Quasar
Portfolio Portfolio
------------------ ---------------
<S> <C> <C>
Units Purchased ....................... 1,682,807.82 426,068.24
Units Withdrawn ....................... (28,774.63) (3,269.47)
Units Transferred Between Funds ....... 462,461.23 226,953.08
Units Transferred From (To) AIG Life .. 11,197.26 150.89
------------------ ---------------
Net Increase (Decrease) ............... 2,127,691.68 649,902.74
Units, at Beginning of the Year ....... 0.00 0.00
------------------ ---------------
Units, at End of the Year ............. 2,127,691.68 649,902.74
================== ===============
Unit Value at December 31, 1996 .......$ 10.89 $ 10.58
============ =========
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
One Alico Plaza
Wilmington, Delaware 19899
PROSPECTUS FOR
INDIVIDUAL AND GROUP SINGLE PREMIUM
AND FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT I
and
AIG LIFE INSURANCE COMPANY
The Individual Deferred Variable Annuity Contracts (the "Individual
Contracts") and Group Deferred Variable Annuity Contracts ("the 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) Plan"). 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.
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 assets of each sub-account within the
Variable Account are invested in a corresponding portfolio as selected by the
Owner from the following choices: the Conservative Investors Portfolio, Growth
Investors Portfolio, Growth Portfolio, Quasar Portfolio, Technology Portfolio,
or Growth and Income Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES FUND,
INC. ("Alliance Funds"); the VIP High Income Portfolio, VIP Growth Portfolio,
VIP Money Market Portfolio, VIP Overseas Portfolio, VIP II Asset Manager
Portfolio, or VIP II Investment Grade Bond Portfolio of the FIDELITY INVESTMENTS
VARIABLE INSURANCE PRODUCTS FUNDS ("Fidelity Funds"); the Zero Coupon 2000
Portfolio of the DREYFUS VARIABLE INVESTMENT FUND ("Dreyfus Fund"); the
Worldwide Hard Assets Portfolio, or Worldwide Balanced Portfolio of the VAN ECK
WORLDWIDE INSURANCE TRUST ("Van Eck Funds"); the DREYFUS STOCK INDEX FUND; or
the Short-Term Retirement Portfolio, Medium-Term Retirement Portfolio or the
Long-Term Retirement Portfolio of the TOMORROW FUNDS RETIREMENT TRUST ("Tomorrow
Funds").
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 datedMay 1, 1997, 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
1-800-340-2765.
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.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE NOT
GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
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, 1997
2
<PAGE>
TABLE CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions....................................
Highlights.....................................
Fee
Table.............................................
Summary of Expenses............................
Condensed Financial Information................
The Company....................................
The Variable Account...........................
The Funds......................................
Charges and Deductions.........................
Administration of the Contracts................
Rights under the Contracts.....................
Annuity Period.................................
Death Benefit..................................
Purchasing a Contract..........................
Contract Value.................................
Withdrawals....................................
Taxes..........................................
Appendix - General Account Option..............
Table of Contents of the Statement of Additional Information.....
</TABLE>
3
<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 on 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 Contract 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 191312-0031.
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., Eastern Standard 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.
4
<PAGE>
HIGHLIGHTS
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 invests in shares of the Portfolios of the available Funds.
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 of a premium payment
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%. (See "Charges and Deductions - Deduction for State Premium Taxes on
page _____.)
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 income taxes. (See "Charges
and Deductions - Deduction for Income Taxes" on page ______.)
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. (See "Charges and Deductions Deduction for
Mortality and Expense Risk Charge" 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. (See "Charges
and Deductions - Deduction for Administrative Charge" on page ______.)
There are deductions and expenses paid out of the assets of the Funds which are
described in the accompanying Prospectuses for the Funds.
Surrenders and withdrawals may be taxable and subject to a penalty tax. (See
"Taxes" beginning 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 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.
5
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
Owner Transaction Expenses
All Sub-Accounts
<S> <C>
Sales Load Imposed on Purchases.......................................None
</TABLE>
Surrender Charge (as a percentage of amount surrendered):
<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 Premium Year 7 None
and thereafter and thereafter
Exchange Fee Currently:
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>
6
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Portfolio Fee Expenses Expenses
<S> <C> <C> <C>
Alliance Conservative Investors 0.30% 0.65% 0.95(1)
Alliance Growth Investors 0.00% 0.95% 0.95%(1)
Alliance Growth 0.74% 0.19% 0.93%(1)
Alliance Growth and Income 0.63% 0.19% 0.82%(1)
+Alliance Quasar 0.00% 0.95% 0.95%(1)
+Alliance Technology 0.33% 0.62% 0.95%(1)
Fidelity VIP High Income 0.59% 0.12% 0.71%(4)
Fidelity VIP Growth 0.61% 0.08% 0.69%(4)
Fidelity VIP Money Market 0.21% 0.09% 0.30%(4)
Fidelity VIP Overseas 0.76% 0.17% 0.93%(4)
Fidelity VIP II Asset Manager 0.64% 0.10% 0.74%(4)
Fidelity VIP II
Investment Grade Bond 0.45% 0.13% 0.58%(4)
+Van Eck Worldwide Hard Assets 1.00% 0.23% 1.23%(5)
Van Eck Worldwide Balanced 0.00% 0.00% 0.00%(5)
Dreyfus Zero Coupon 2000 0.45% 0.21% 0.66%(3)
Dreyfus Stock Index 0.245% 0.055% 0.30%(3)
Tomorrow Short-Term Retirement 0.00% 1.50% 1.50%(2)
Tomorrow Medium-Term Retirement 0.00% 1.50% 1.50%(2)
Tomorrow Long-Term Retirement 0.00% 1.50% 1.50%(2)
The purpose of the table set forth above is to assist the Owner in understanding
the various costs and expense 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 each Fund's Prospectus
for further information.)
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 .)
<FN>
*"Other Expenses" are based upon the expenses outlined under the section
discussing the management of the Fund in each Fund's attached Prospectus.
+The Operating Expenses for the Quasar, Technology and Worldwide Hard Assets
Portfolio set forth above have been annualized for those portfolios have not
been in effect for a full year.
++ As of May 1, 1997 the Van Eck Gold and Natural Resources Portfolio will no
longer be offered. The Van Eck Gold and Natural Resources Portfolio has been
replaced by with the Van Eck Worldwide Hard Assets Fund for which expenses have
been described above.
*Operating Expenses for the following Portfolios before reimbursement by the
relevant Fund's investment advisor, for the period ending December 31, 1996,
were as follows:
(1) Alliance Variable Product Series Funds: 1.40% for Conservative Investors;
1.85%for Growth Investors; 0.93%for Growth; 4.44% for Quasar; and 1.62% for
Technology, of average daily net assets;
(2) Tomorrow Retirement Funds- 19.10% for the Short-Term Retirement, 20.86%
for the Medium Term Retirement and 40.49% for the Long-Term Retirement, of
average daily net assets;
(3) Regarding the Dreyfus Fund, the expenses set forth above are the actual
total expenses without any expense reimbusement;
(4) With respect to the Fidelity VIP and VIP II funds, the expenses set forth
above are actual total expenses. However a portion of the brokerahge commission
that certain funds pay was used to reduce fund expenses. In addition, certain
funds have entered into arrangements with their custodian and transfer agent
wheby interest earned on univested cash balances was used to reduce custodian
and transfer agent expenses. Including thesereductions, the total operating
expenses presented in the table would have been .67% for the Growth Portfolio,
.92% for the Overseas Portfolio, and .73% for the Asset Manager Portfolio;
(5) The Van Eck Funds: 2.49% for the Worldwide Balance Fund and 1.24% for the
Worldwide Hard Assets Fund. The fee respecting In addition Van Eck has disclosed
that with respect to the Hard Assets Fund, the Fund directs certain portfolio
trades to a broker that, in turn pays a portion of the Fund's operating
expenses. For the year ended December 31, 1996, the Fund's expenses were
redueced by $7,290 under this arrangement. The Fund could have invested the
assets used in connection with the directed brokerage arrangement in an income
producing asset if it had not entered in to such an arrangement.
</FN>
</TABLE>
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
7
<PAGE>
Expenses on a hypothetical $1,000 Single Premuim policy, assuming 5% growth:
<TABLE>
<CAPTION>
If you surrender
Portfolios 1 Year 3 Years 5 Years 10 Years
- ---------------------------
<S> <C> <C> <C> <C>
Alliance Conservative Investors 80 114 149 275
Alliance Growth Investors 80 114 149 275
Alliance Growth 80 113 148 273
Alliance Growth and Income 79 110 143 262
Alliance Quasar 80 114 149 275
Alliance Technology 80 114 149 275
Fidelity VIP High Income 78 107 137 250
Fidelity VIP Growth 77 106 136 248
Fidelity VIP Money Market 74 95 117 207
Fidelity VIP Overseas 80 113 148 272
Fidelity VIP II Asset Manager 78 108 139 253
Fidelity VIP II Investment Grade Bond 76 103 131 237
Dreyfus Zero Coupon 2000 77 106 135 245
Dreyfus Stock Index 74 95 117 207
Van Eck Worldwide Hard Assets 82 122 163 302
Van Eck Worldwide Balanced 71 86 101 175
Tomorrow Short-Term Retirement 85 130 176 328
Tomorrow Medium-Term Retiremenet 85 130 176 328
Tomorrow Long-Term Retirement 85 130 176 328
</TABLE>
8
<PAGE>
Expenses on a hypothetical $1,000 Flexible Premuim policy, assuming 5%
growth:
<TABLE>
<CAPTION>
If you surrender
Portfolios 1 Year 3 Years 5 Years 10 Years
- ---------------------------
<S> <C> <C> <C> <C>
Alliance Conservative Investors 78 111 147 275
Alliance Growth Investors 78 111 147 275
Alliance Growth 78 111 146 273
Alliance Growth and Income 77 107 140 262
Alliance Quasar 78 111 147 275
Alliance Technology 78 111 147 275
Fidelity VIP High Income 76 104 134 250
Fidelity VIP Growth 76 103 133 248
Fidelity VIP Money Market 72 91 113 207
Fidelity VIP Overseas 78 110 145 272
Fidelity VIP II Asset Manager 76 105 136 253
Fidelity VIP II Investment Grade Bond 75 100 128 237
Dreyfus Zero Coupon 2000 76 102 132 245
Dreyfus Stock Index 72 91 113 207
Van Eck Worldwide Hard Assets 81 120 160 302
Van Eck Worldwide Balanced 69 82 98 175
Tomorrow Short-Term Retirement 84 128 174 328
Tomorrow Medium-Term Retiremenet 84 128 174 328
Tomorrow Long-Term Retirement 84 128 174 328
</TABLE>
9
<PAGE>
Expenses on a hypothetical $1,000 Single and Flexible Premuim policy, assuming
5% growth:
<TABLE>
<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 Conservative Investors 24 75 129 275
Alliance Growth Investors 24 75 129 275
Alliance Growth 24 75 128 273
Alliance Growth and Income 23 71 122 262
Alliance Quasar 24 75 129 275
Alliace Technology 24 75 129 275
Fidelity VIP High Income 22 68 116 250
Fidelity VIP Growth 22 67 115 248
Fidelity VIP Money Market 18 55 95 207
Fidelity VIP Overseas 24 74 127 272
Fidelity VIP II Asset Manager 22 69 118 253
Fidelity VIP II Investment Grade Bond 21 64 110 237
Dreyfus Zero Coupon 2000 22 66 114 245
Dreyfus Stock Index 18 55 95 207
Van Eck Worldwide Hard Assets 27 84 142 302
Van Eck Worldwide Balanced 15 46 80 175
Tomorrow Short-Term Retirement 30 92 156 328
Tomorrow Medium-Term Retiremenet 30 92 156 328
Tomorrow Long-Term Retirement 30 92 156 328
</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.
10
<PAGE>
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ACCUMULATION UNIT VALUES*
<S> <C>
ALLIANCE CONSERVATIVE INVESTORS 1996
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.55
Accum Units o/s @ end of period 15,705.94
ALLIANCE GROWTH INVESTORS
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.77
Accum Units o/s @ end of period 21,208.38
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period 10.00
End of Period 12.24
Accum Units o/s @ end of period 123,814.87
ALLIANCE GROWTH & INCOME
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.85
Accum Units o/s @ end of period 116,342.75
ALLIANCE QUASAR
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.28
Accum Units o/s @ end of period 4,796.29
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.54
Accum Units o/s @ end of period 15,829.55
FIDELITY VIP MONEY MARKET
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.29
Accum Units o/s @ end of period 385,238.57
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FIDELITY VIP GROWTH
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.92
Accum Units o/s @ end of period 149,722.06
FIDELITY VIP HICH INCOME
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.90
Accum Units o/s @ end of period 55,015.77
FIDELITY VIP OVERSEAS
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.77
Accum Units o/s @ end of period 31,269.77
FIDELITY VIP II INVESTMENT GRADE BOND
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.49
Accum Units o/s @ end of period 40,777.94
FIDELITY VIP II ASSET MANAGER
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.12
Accum Units o/s @ end of period 56,345.46
*VAN ECK GOLD AND NATURAL RESOURCES
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.17
Accum Units o/s @ end of period 11,530.80
VAN ECK WORLDWIDE BALANCE
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.83
Accum Units o/s @ end of period 8,944.65
DREYFUS ZERO COUPON 2000
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.44
Accum Units o/s @ end of period 16,124.79
DREYFUS STOCK INDEX
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.74
Accum Units o/s @ end of period 113,481.41
TOMORROW SHORT -TERM
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.75
Accum Units o/s @ end of period 11,681.33
TOMORROW MEDIUM-TERM
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.67
Accum Units o/s @ end of period 8,703.52
TOMORROW LONG-TERM
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.04
Accum Units o/s @ end of period 18,501.53
</TABLE>
* As of May 1, 1997 the Van Eck Gold and Natural Resources
Fund will no longer be available. The portfolio has been replaced by the Van Eck
Worldwide Hard Assets Fund, whose investment objective is described in the
section entitled "the Funds" of this Prospectus.
12
<PAGE>
Funds were first invested in the Portfolios as listed below:
<TABLE>
<CAPTION>
<S> <C>
Alliance Growth and Income January 14, 1991
Alliance Growth Investors October 28, 1994
Alliance Growth September 15, 1994
Alliance Conservative
Investors October 28, 1994
Alliance Quasar August 15,1996
Alliance Technology January 22,1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Overseas January 28, 1987
Fidelity Asset Manager September 9, 1989
Fidelity Investment
Grade Bond December 5, 1988
Dreyfus Zero Coupon 2000 September 29, 1989
Dreyfus Stock Index August 31, 1990
Van Eck Gold and Natural Res. September 1, 1989
Van Eck Worldwide Balance December 23, 1994
Tomorrow Short-Term Retirement April 1, 1996
Tomorrow Medium-Term Retirement April 1, 1996
Tomorrow Long-Term Retirement April 1, 1996
</TABLE>
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 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
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.
Total return at the Variable Account level is reduced by all contract
charges: sales charges, mortality and expense risk charges, and the
administrative charges, and is therefore lower than the total return at a Fund
level, which has no comparable charges. Likewise, yield and effective yield at
the Variable Account level take into account all recurring charges (except sales
charges), and are therefore lower than the yield and effective yield at a Fund
level, which has no comparable charges.
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.
13
<PAGE>
THE COMPANY
The Company is a stock life insurance company which is organized under the
laws of the State of Delaware in 1962. 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 maintain 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 shares of a corresponding portfolio of the available
Funds. The Company may, from time to time, add additional Portfolios of a Fund,
and, when appropriate, additional Funds to act as the funding vehicles for the
Contracts.
THE FUNDS
Alliance Funds, Fidelity Funds, Dreyfus Funds, Van Eck Funds, and Tomorrow
Funds (collectively, the "Funds") are each registered with the SEC as a
diversified open-end management investment company under the 1940 Act. Each
includes different series funds or Portfolios ("Portfolios"). The Dreyfus Stock
Index Fund (also a "Fund" herein) is an open-end, non-diversified management
investment company, intended to be a funding vehicle for separate accounts of
life insurance companies. Shares of the Funds are sold to separate accounts of
life insurance companies and may also be sold to qualified plans. The investment
objectives of each of the Portfolios in which Subaccounts invest are set forth
below. There is, of course, no assurance that these objectives will be met. The
Fund prospectuses may include series or Portfolios which are not available under
this Contract.
14
<PAGE>
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Conservative Investors Portfolio
This Portfolio seeks the highest total return without undue risk to
principal by investing in a diversified mix of publicly traded equity and
fixed-income securities.
Growth Investors Portfolio
This Portfolio seeks the highest total return available with reasonable
risk by investing in a diversified mix of publicly traded equity and
fixed-income securities.
Growth Portfolio
This Portfolio seeks the long term growth of capital by investing
primarily in common stocks and other equity securities.
Growth and Income Portfolio
This Portfolio seeks to balance the objectives of reasonable current
income and opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
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.
Quasar Portfolio
This portfolio seeks growth of capital by pursuing
aggressiveinvestment policies. The Portfolio invests principally in
a diversified portfolio of equity securities of any company and industry
and in any type of security which is believed to offer possibilities for
capital appreciation.
Alliance Variable Products Series Fund, Inc., is managed by Alliance
Capital Management L.P., ("Alliance"). The fund also includes other portfolios
which are not available for use by the Separate Account. More detailed
information regarding management of the funds, investment objectives, investment
advisory fees and other charges, may be found in the current Alliance Funds
Prospectus which contains a discussion of the risks involved in investing. The
Alliance Funds Prospectus is included with this Prospectus.
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 Portfolio
This Portfolio seeks to provide as high an investment return as is
consistent with the preservation of capital. This portfolio invests primarily in
debt obligations of the U.S. Treasury that have been stripped of their unmatured
interest coupons, interest coupons that have been stripped from debt obligations
issued by the U.S. Treasury, receipts and certificates for such stripped debt
obligations, and stripped coupons and zero coupon securities issued by domestic
corporations. This portfolio's assets will consist primarily of portfolio
securities which will mature on or about December 31, 2000, at which time the
portfolio will be liquidated. Prior to December 31, 2000, you will be offered
the opportunity to exchange your investment to another Subaccount.
DREYFUS STOCK INDEX FUND
This Fund seeks to provide investment results that correspond to the price
and yield performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index. In
anticipation of taking a market position, the fund is permitted to purchase and
sell stock index futures. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation.
The Dreyfus Corporation serves as the investment advisor for the Zero
Coupon 2000 Portfolio which is the available portfolio of the Dreyfus Variable
Investment Fund. The fund also includes other portfolios which are not available
under this prospectus as funding vehicles for the Contract. Wells Fargo Nikko
Investment Advisers ("WFNIA") serves as the index fund manager of the Dreyfus
Stock Index Fund. More detailed information regarding management of the funds,
investment objectives, investment advisory fees and other charges assessed by
the funds, are contained in the prospectuses of the Dreyfus Variable Investment
Fund and of the Dreyfus Stock Index Fund, each of which is included with this
Prospectus.
FIDELITY INVESTMENT VARIABLE INSURANCE PRODUCTS FUNDS
VIP Growth Portfolio
This Portfolio seeks to aggressively achieve capital appreciation through
investments primarily in common stock.
VIP High Income Portfolio
This Portfolio seeks to obtain a high level of current income by investing
primarily in high-yielding, high-risk, lower-rated, fixed-income securities
(commonly referred to as "junk bonds"), while also considering the potential for
growth of capital. The potential for high yield is accompanied by a higher risk.
For a more detailed discussion of the investment risks associated with such
securities, please refer to the relevant Fund's attached prospectus.
VIP Overseas Portfolio
This Portfolio seeks the long-term growth of capital primarily through
investments in securities of companies and economies outside the United States.
VIP Money Market Portfolio
This Portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The fund will invest
only in high quality U.S. dollar-denominated money market securities of domestic
and foreign issuers. An investment in Money Market Portfolio is neither insured
nor guaranteed by the U.S. government, and there can be no assurance that the
fund will maintain a stable $1.00 share price.
VIP II Asset Manager Portfolio
This Portfolio seeks to provide a high total return with reduced risk over
the long term by allocating its assets among stocks, bonds and short-term income
instruments.
VIP II Investment Grade Bond Portfolio
This Portfolio seeks as high a level of current income as is consistent
with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities. The Portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less.
Fidelity Management & Research Company ("FMR") is the investment advisor
for the Variable Insurance Products Funds. FMR has entered into a sub-advisory
agreement with FMR Texas, Inc., on behalf of the Money Market Portfolio. On
behalf of the Overseas Portfolio, FMR has entered into sub-advisory agreements
with Fidelity Management & Research (U.K.) Inc., (FMR U.K.), Fidelity Management
& Research (Far East) Inc. (FMR Far East), and Fidelity International Investment
Advisors (FIIA). FMR U.K. and FMR Far East also are sub-advisors to the Asset
Manager Portfolio. Fidelity Funds include other portfolios which are not
available under this prospectus as funding vehicles for the Contracts. More
detailed information regarding management of the funds, investment objectives,
investment advisory fees and other charges assessed by the Fidelity Funds, are
contained in the prospectuses of the funds, included with this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Balanced Fund
This Portfolio seeks long term capital appreciation together with current
income by investing its assets in the United States and other countries
throughout the world, and by allocating its assets among equity securities,
fixed-income securities and short-term instruments.
15
<PAGE>
*Worldwide Hard Assets Fund
This Portfolio seeks long-term capital appreciation by investing globally,
primarily in equity and debt secutities of companies engaged in the exploration,
development, production and distribution of (1) precious metals; (2) ferrous and
non -ferrous metals; (3) oil and gas; (4) forest products; (5) real estate; and
(6) other basic non-agricultural commodities (collectively, "Hard Assets")
Income is a secondary consideration.
* As of May 1, 1997 the Gold and Natural Resources Fund will
no longer be offered. The Gold and Natural Resources Portfolio has been
replaced by the Van Eck Worldwide Hard Assets Fund, which is the investment
option described above.
Van Eck Associates Corporation is the investment advisor and manager of
The Van Eck Worldwide Insurance Trust ("Van Eck Funds"). Van Eck Associates
Corporation serves as investment advisor to the Worldwide Hard AssetsFund, and
has entered into sub-advisory agreements to provide investment advice for
certain portfolios. Fiduciary International Inc. ("FII") serves as a sub-advisor
to the Worldwide Balanced Fund. Van Eck Funds include other portfolios which are
not available under this prospectus as funding vehicles for the Contracts. More
detailed information regarding management of the funds, investment objectives,
investment advisory fees and other charges assessed by the Van Eck Funds, are
contained in the prospectus for the funds included with this Prospectus.
TOMORROW FUNDS RETIREMENT TRUST
Short-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors who are
currently between 51 and 65 years of age and with an average remaining life
expectancy in the range of 20-30 years.
Medium-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors who are
currently between 36 and 50 years of age and with an average remaining life
expectancy in the range of 35-50 years.
Long-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors who are
currently between 22 and 35 years of age and with an average remaining life
expectancy in the range of 50 years or more.
Each Tomorrow Funds portfolio invests its assets, in varying amonts, in
equity and fixed-income securities of all types. The amount of assets allocated
to equity securities is currently invested, in varying amounts, among large
capitalization stocks, medium capitalization stocks, small capitalization stocks
and, indirectly through other investment companies, foreign securities.
Typically, the longer the average life expectancy of the target class of
investors in a Tomorrow Funds portfolio, the greater the allocation of assets of
that portfolio to securities with higher growth potential and, correspondingly,
more risk, such as small capitalization stocks. Conversely, the shorter the
average life expectancy of the target class of investors in a Tomorrow Funds
portfolio, the greater the emphasis on current income and capital preservation
of assets and, therefore, the greater the allocation of assets of that portfolio
to fixed-income securities. Each Tomorrow Funds portfolio will be managed more
conservatively as the average age of its target class of investors increases.
Weiss, Peck & Greer, L.L.C. is the investment adviser for the Tomorrow
Funds portfolios. Tomorrow Funds include other portfolios which are not
available under this Prospectus as funding vehicles for the Contracts. More
detailed information regarding management of the funds, investment objectives,
investment advisory fees and other charges assesed by the Tomorrow Funds, are
contained in the prospectuses of the Tomorrow Funds, included with this
Prospectus.
THERE IS NO ASSURANCE THAT THE INVESTMENT OBJECTIVE OF THE PORTFOLIOS WILL BE
MET.
The shares of Alliance Funds, Fidelity Funds, Dreyfus Fund, the Dreyfus
Stock Index Fund, the Tomorrow Funds, and Van Eck Funds are sold not only to the
Variable Account, but may be sold to other separate accounts of the Company that
fund benefits under variable annuity and variable life policies. The shares of
the Funds are also sold to separate accounts of other insurance companies. It is
conceivable that in the future it may become disadvantageous for variable life
and variable annuity separate accounts to invest in the same underlying mutual
fund. Although neither we nor Alliance Funds, Fidelity Funds, Dreyfus Fund, the
Dreyfus Stock Index Fund, the Tomorrow Funds, and Van Eck Funds currently
perceive or anticipate any such disadvantage, the Funds will monitor events to
determine whether any material conflict exists between variable annuity Owners
and variable life Owners.
Material conflicts could result from such occurrences as: (1) changes in
state insurance laws; (2) changes in federal income tax law; (3) changes in the
investment management of any Fund; or (4) differences between voting
instructions given by variable annuity Owners and those given by variable life
Owners. In the event of a material irreconcilable conflict, we will take the
steps necessary to protect our variable annuity and variable life Owners. This
could include discontinuance of investment in a Fund.
Each Fund sells and redeems its shares at Net Asset Value without any
sales charge. Any dividends or distributions from security transactions of a
Fund are reinvested at Net Asset Value in shares of the same Portfolio; however,
there are sales and additional charges associated with the purchase of the
Contracts.
Further information about the Funds and the managers is contained in the
accompanying prospectuses, which You should read in conjunction with this
prospectus.
16
<PAGE>
Substitution of Securities
If the shares of a Fund (or any Portfolio within a 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 Fund ( or Portfolio with in 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 notice to the Owners, any
required approval by the Securities Exchange Commission (SEC) and the insurance
regulatory authorities.
Voting Rights
The Funds do not hold regular meetings of shareholders. The Directors of a
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 a Fund. In accordance with its view of present applicable law,
the Company will vote the shares of a 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.
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 a 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, 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 Funds are sold only to separate accounts of life insurance
companies. The shares of the Funds will be sold to separate accounts of the
Company, its affiliate, AIG Life Insurance Company and 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 Contract 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
under their agreements governing participation in the Funds 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 a Fund. This might
force the Fund to sell securities at disadvantageous prices.
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.
17
<PAGE>
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.
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;
(c) the Company may reject any more than twelve (12) transfer
requests per Contract Year; and
(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.
18
<PAGE>
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 State Premium 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.
.
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.
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 .) 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
flexible premium Contracts is equal to 10% of the purchase payments paid, less
any prior withdrawals at the time of withdrawal; however, the Deferred Sales
Charge applies only to those purchase payments received within six (6) years of
the date of surrender. (See, however, "Purchasing a Contract - Discount Purchase
Programs" on page ____.) The Free Withdrawal Amount for a single premium
Contract is equal to 10% of the Contract Value at the time of withdrawal.
19
<PAGE>
The Deferred Sales Charge will vary in amount depending upon the time
which has elapsed since the date on which the purchase payment was made. In
calculating the Deferred Sales Charge purchase payments are allocated to the
amount surrendered on a first-in, first out basis. The amount of any withdrawal
which exceeds the Free Withdrawal Amount will be subject to the following
charge:
<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 Premium Year 7 None
and thereafter and thereafter
</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 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 as a 403(b) Plan or IRA. (See
"Taxes - 403(b) Plans" on page .)
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
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 income taxes. Surrenders
and withdrawals may be taxable and subject to a Penalty Tax. (See "Taxes"
beginning on page ___.)
Other Expenses
There are deductions from and expenses paid out of the assets of the Fund
which are described in the accompanying Prospectuses for the Funds.
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 Contract Owners' records. DVFS serves as the administrator to
various insurance companies offering variable 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.
The Owner's spouse is the only person eligible to be the Contingent
Owner. (See "Death Benefit - Death of 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.
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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.
In addition, for IRA and 403(b) Plan Contracts, certain provisions of your
retirement plan or the Code may further restrict your choice of an Annuity Date.
(See "Taxes - 403(b) Plans" on page , and "Taxes Individual Retirement
Annuities" on page .)
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 "The Funds - 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 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.
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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 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 Sub-account
selected; and (v) the pro-rata portion of the annual Administrative 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%, annuity payments will
decrease.
DEATH BENEFIT
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.
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 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 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.
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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
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.
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"), 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 7% of purchase payments will be paid to
registered representatives of AESC and other 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.
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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;
(c) any applicable Deferred Sales Charge will be deducted;
(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.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page .)
Systematic Withdrawal Program
During the Accumulation Period an Owner may at any time elect in writing
to take systematic withdrawals from one or more of the Sub-accounts or from a
guarantee period of the General Account (See "Appendix-General Account Option")
for a period of time not to exceed 12 months. In order to initiate this program,
the amount to be systematically withdrawn must be equal to or greater than $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 canceled at any time by written
request or automatically 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 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
an 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 .)
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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 (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.
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
Code Section 72 governs the taxation of annuities. In general, a 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".)
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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
Upon receipt of a lump sum payment on full surrender of the
Contract, the recipient is taxed on the portion of the payment that
exceeds the investment in the contract. The taxable portion is taxed as
ordinary income.
If the recipient receives annuity payments rather than a lump sum
payment, a portion of the payment is included in taxable income when
received. 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.
The recipient is able to exclude a portion of the payments received
from taxable income until the investment in the Contract is fully
recovered. Annuity payments are fully taxable after the investment in
the Contract is recovered. If the recipient dies before the investment
in the Contract is recovered, the recipient's estate is allowed a
deduction for the remainder.
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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 purchase
payments will be taxed to the assignor as ordinary income. Please consult
your tax adviser prior to making an assignment of the Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who
is either 37 1/2 years younger than the Contract Owner or a grandchild of the
Contract Owner may have Generation Skipping Transfer Tax consequences.
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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. The designated beneficiary is the person to
whom ownership of the contract passes by reason of death, and must be a
natural person. 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.
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 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity
contract unless money is distributed as part of the exchange. 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.
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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.
Withholding
The Company is required to withhold Federal income taxes on withdrawals,
lump sum distributions, and annuity payments that include taxable income unless
the payee elects to not have any withholding or in certain other circumstances.
Special withholding rules apply to payments made to non-resident aliens.
Lump-Sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of
any withdrawal or lump sum distribution unless you elect out of
withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity
payments based on a withholding certificate you file with the
Company. If you do not file a certificate, you will be treated,
for purposes of determining your withholding rates, as a married
person with three exemptions.
You are liable for payment of Federal income taxes on the
taxable portion of any withdrawal, distribution, or annuity
payment. You may be subject to penalties under the estimated tax
rules if your withholding and estimated tax payments are not
sufficient.
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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.
Tax-Favored 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.
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 Contract Owner's separately qualified 401
retirement plan. Distributions from a 401 qualified plan or 403(b) 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, 403(b) Plan or an
IRA. 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 tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Contract Owner considering use of the
Contract in this manner should consult a competent tax advisor with regard to
the suitability of the Contract of this purpose and for information concerning
the provisions of the Code applicable to qualified plans, 403(b) Plans, and
IRAs.
31
<PAGE>
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. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. 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. Contracts offered by this Prospectus in connection with an
IRA are not available in all states.
403(b) Plans
Code Section 403(b)(11) imposes certain restrictions on a 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, 403(b) Plans are subject to additional requirements,
including: eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403(b) Plan offered by this Prospectus, are not available in
all states.
LEGAL PROCCEDINGS
The Company knows of no legal proceeding pending to which the Variable
Account is a party or which would materially affect the Variable Account.
Legal matters relating to the federal securities laws in connection with the
Contracts described herein are being passed upon by the law firm of Jorden,
Burt, Berenson & Johnson LLP, Washington D.C.
32
<PAGE>
TABLE OF CONTENTS FOR 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................................
A-1
<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.
A-2
<PAGE>
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.
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. All requests to change a Guarantee Period must be
received in writing at the Company's Office no earlier than 30 days prior to the
end of the Guarantee Period from which the transfer will be made.
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.
<PAGE>
PART B
<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 , CALL OR WRITE: AIG Life Insurance Company; Attention: Variable
Products, One Alico Plaza, 600 King Street, P.O. Box 8718, Wilmington,
Delaware 19899, 1-800-340-2765.
DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1, 1997
MULTI-MANAGER
B-3
<PAGE>
TABLE OF CONTENTS FOR 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-4
<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"), 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 Company directly to selling dealers and representatives on behalf of
Distributor. Commissions retained by the Distributor in 1996 were $83,483.
Calculation Of Performance Related Information
A. Yield and Effective Yield Quotations for the VIP Money Market
Sub-account
The yield quotation for the VIPMoney Market Sub-account will be for a
given seven day period, 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 VIP 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 VIP Money Market Sub-account will
be for a given seven day period, 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 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)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 VIP 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 purchase payments withdrawn,
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 VIP Money Market Sub-account and the Fund
are excluded from the calculation of yield.
B-5
<PAGE>
B. Standardized Total Return Quotations
The standardized total return quotations for all of the Sub-accounts 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 a given date, 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)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.
Annualized total return for certain Sub-accounts as of December 31,1996 were as
follows:
<TABLE>
<CAPTION>
One Year Three Years Inception to Date
<S> <C> <C> <C>
ALLIANCE
Conservative Investors -4.26% N/A 5.99%
Growth Investors 1.20% N/A 9.09%
Growth 21.23% N/A 27.09%
Growth and Income 16.88% 16.25% 11.50%
Quasar N/A N/A -2.50%
Technology N/A N/A -1.69%
DREYFUS
Stock Index 15.36% 16.04% 11.86%
Zero Coupon 2000 -4.75% 3.67% 9.37%
FIDELITY
Asset Manager 7.49% 5.33% 10.10%
Growth 6.74% 12.88% 13.11%
Overseas 6.12% 5.45% 6.35%
Investment Grade Bond -3.76% 2.56% 6.64%
High Income 6.06% 7.71% 10.34%
Money Market -1.21% 3.79% 5.73%
TOMORROW FUNDS
Long-Term N/A N/A 2.67%
Medium-Term N/A N/A 1.95%
Short-Term N/A N/A 1.63%
VAN ECK
(1)Gold & Natural Resources 10.94% 5.02% 6.70%
Worldwide Balanced 4.61% N/A 2.26%
<FN>
(1) Effective May 1, 1997 the Gold and Natural Resources portfolios will no
longer be offered. The Portfolio is being replaced with the Van Eck Worldwide
Hard Assets Fund.
</FN>
</TABLE>
B-6
<PAGE>
*Funds were first invested in the Portfolios as listed below:
Alliance Growth and Income January 14, 1991
Alliance Growth Investors October 28, 1994
Alliance Growth September 15, 1994
Alliance Conservative
Investors October 28, 1994
Alliance Quasar August 15,1996
Alliance Technology January 22,1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Overseas January 28, 1987
Fidelity Asset Manager September 9, 1989
Fidelity Investment
Grade Bond December 5, 1988
Dreyfus Zero Coupon 2000 September 29, 1989
Dreyfus Stock Index August 31, 1990
* Van Eck Gold and Natural Res. September 1, 1989
Van Eck Worldwide Balance December 23, 1994
Tomorrow Short-Term Retirement April 1, 1996
Tomorrow Medium-Term Retirement April 1, 1996
Tomorrow Long-Term Retirement April 1, 1996
* Effective May 1, 1997 the Gold and Natural Resources portfolios will no
longer be offered. The Portfolio is being replaced with the Van Eck Worldwide
Hard Assets Fund.
B-7
<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 will be based on a thirty-day
period. The computation is made by dividing the net investment income per
Accumulation Unit earned during the period by the Unit Value on the last day of
the period, according to the following formula:
Yield = 2[(a - b + 1)6 - 1]
cd
Where: a = net investment income earned during the period
by the corresponding Portfolio attributable to
shares owned by the corresponding 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 Unit Value on the last day of the
period.
For the purposes of the yield quotations for 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 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 from 6% to 0% of the Purchase Payments withdrawn, 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 Transfer of Contract Values" on page ___
of the Prospectus)
B-8
<PAGE>
D. Non - Standardized Performance Data
1. Non-Standardized Total Return Quotations
The non-standardized total return quotations for all of the Sub-accounts
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 a given date 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)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.
B-9
<PAGE>
Annualized total return quotations for certain Sub-accounts as of December 31,
1996 follows:
<TABLE>
<CAPTION>
One Year Three Years Inception to
Date
<S> <C> <C> <C>
Conservative Investors 1.20% N/A 7.60%
Growth Investors 6.66% N/A 10.64%
Growth 26.69% N/A 28.29%
Growth and Income 22.34% 17.17% 11.62%
Quasar N/A N/A 2.96%
Technology N/A N/A 3.77%
DREYFUS
Stock Index 20.82% 16.96% 11.89%
Zero Coupon 2000 0.71% 4.83% 9.41%
FIDELITY
Asset Manager 12.95% 6.45% 10.14%
Growth 12.20% 13.86% 13.13%
Overseas 11.58% 6.57% 6.38%
Investment Grade Bond 1.70% 3.75% 6.69%
High Income 11.52% 8.78% 10.36%
Money Market 4.25% 4.94% 5.76%
TOMORROW FUNDS
Long-Term N/A N/A 8.13%
Medium-Term N/A N/A 7.41%
Short-Term N/A N/A 7.09%
VAN ECK
Gold & Natural Resources 16.40% 6.15% 6.74%
Worldwide Balanced 10.07% N/A 4.07%
<FN>
(1) Effective May 1, 1997 the Gold and Natural Resources portfolios will no
longer be offered. The Portfolio is being replaced with the Van Eck Worldwide
Hard Assets Fund described in the Prospectus.
</FN>
</TABLE>
B-10
<PAGE>
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 separate 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 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 variable annuity reflect the deduction of contractual expenses
such as the mortality and expense risk charge, the Administrative Fee and the
Annual Fee, 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 Purchase
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-11
<PAGE>
Delay of Payment
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 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 canceled 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.
Any transfers made under this section are subject to the conditions of the
section entitled "Transfer of Contract Values" on page __ 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.
B-12
<PAGE>
METHOD OF DETERMINING CONTRACT VALUES
The Contract Value will fluctuate in accordance with the investment
results of the underlying Portfolio 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 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-13
<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.
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.
B-14
<PAGE>
Annuity Unit
The value of an Annuity Unit for each Sub-account was arbitrarily set
initially at $10. This was done when the first Portfolio 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 Portfolio 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 to the Portfolio 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 Sub-account.
(b) is equal to:
(i) the net asset value per share of the Portfolio 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.
(c) is equal to:
(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
B-15
<PAGE>
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 and the Variable Account included
herein shall be considered only as bearing upon the ability of the Company to
meet its obligations under the Contracts.
F-1
<PAGE>
AIG LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
AIG Life Insurance Company:
We have audited the accompanying balance sheets of AIG Life Insurance Company (a
wholly-owned subsidiary of American International Group, Inc.) as of December
31, 1996 and 1995, and the related statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIG Life Insurance Company as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 22, 1997
F-3
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
December 31,
1996 1995
------------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 2,271,326 $ 1,963,265
(cost: 1996 - $2,190,580: 1995 - $1,823,860)
Equity securities:
Common stock
(cost: 1996-$3,548: 1995 - $1,916) 5,578 2,437
Non-redeemable preferred stocks
(cost: 1996-$0: 1995 - $2,562) - 2,553
Mortgage loans on real estate, net 297,363 239,127
Real estate, net of accumulated
depreciation of $4,099 in 1996; and $1,755 in 1995 16,169 16,892
Policy loans 1,873,961 2,961,726
Other invested assets 64,109 68,252
Short -term investments 100,036 202,652
Cash 5,780 1,132
-------------- --------------
Total investments and cash 4,634,322 5,458,036
Amounts due from related parties 3,193 4,111
Investment income due and accrued 107,268 242,748
Premium and insurance balances receivable-net 36,357 28,189
Reinsurance assets 218,453 207,827
Deferred policy acquisition cost 84,287 60,625
Separate and variable accounts 644,980 190,441
Other assets 5,092 7,509
-------------- --------------
Total assets $ 5,733,952 $ 6,199,486
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
December 31,
1996 1995
-------------- ----------
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 3,810,095 $ 4,574,995
Future policy benefits 630,520 566,487
Reserve for unearned premiums 29,911 47,590
Policy and contract claims 191,338 177,540
Reserve for commissions, expenses and taxes 2,860 24,134
Insurance balances payable 42,137 22,186
Deferred income taxes 5,713 24,585
Amounts due to related parties 5,921 2,380
Federal income tax payable 2,959 4,606
Separate and variable accounts 644,980 190,441
Minority interest 6,077 6,664
Other liabilities 30,932 234,850
------------ ------------
Total liabilities 5,403,443 5,876,458
----------- -----------
Commitments and contingencies (See Note 6)
Stockholders' Equity
Common stock, $5 par value; 1,000,000 shares
authorized; 976,703 shares issued and
outstanding 4,884 4,884
Additional paid-in capital 123,283 123,283
Unrealized appreciation of investments,
net of future policy benefits and taxes
of $33,823 in 1996 and $47,209 in 1995 62,814 87,673
Retained earnings 139,528 107,188
------------ ------------
Total stockholders' equity 330,509 323,028
Total liabilities and stockholders' equity $ 5,733,952 $ 6,199,486
</TABLE>
========== ==========
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
-----------------------------------
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Revenues:
Premiums $ 394,480 $ 364,502 $ 265,990
Net investment income 504,661 435,683 239,212
Realized capital (losses) gains (51) (417) 1,953
------------- ------------- -----------
Total revenues 899,090 799,768 507,155
--------- --------- ---------
Benefits and expenses:
Benefits to policyholders 189,933 202,105 196,175
Increase in future policy benefits
and policyholders' funds on deposit495,529 392,592 158,935
Acquisition and insurance expenses 161,841 170,343 127,941
--------- -------- ---------
Total benefits and expenses 847,303 765,040 483,051
--------- -------- ---------
Income before income taxes 51,787 34,728 24,104
--------- ---------- ----------
Income taxes (benefits):
Current 25,087 18,709 28,115
Deferred (5,486) (6,339) (19,447)
----------- ----------- -----------
Total income taxes 19,601 12,370 8,668
--------- --------- -----------
Net income before minority interest 32,186 22,358 15,436
Minority interest income (loss) 154 11 (156)
----------- ------------ -------------
Net income $ 32,340 $ 22,369 $ 15,280
========= ========= ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Years ended December 31,
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 4,884 $ 4,884 $ 4,884
----------- ----------- -----------
Balance at end of year 4,884 4,884 4,884
------------ ----------- ------------
Additional paid-in capital
Balance at beginning of year: 123,283 123,283 123,283
---------- ---------- ----------
Balance at end of year 123,283 123,283 123,283
---------- ---------- ----------
Unrealized appreciation (depreciation)
of investments, net
Balance at beginning of year 87,673 (15,029) 40,159
Change during year (50,245) 170,003 (84,904)
Changes due to deferred income tax
(expense) benefit and future
policy benefits 25,386 (67,301) 29,716
---------- ------ ------
Balance at end of year 62,814 87,673 (15,029)
------------ ----------- ------------
Retained earnings
Balance at beginning of year 107,188 84,819 69,539
Net income 32,340 22,369 15,280
----------- ---------- -----------
Balance at end of year 139,528 107,188 84,819
---------- ---------- -----------
Total stockholders' equity$ 330,509 $ 323,028 $ 197,957
========= ========= ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
---------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 32,340 $ 22,369 $15,280
--------- ----------- ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains
and losses included in income:
Change in insurance reserves 72,151 133,207 88,718
Change in premiums and insurance balances
receivable and payable -net 11,782 (4,695) 11,668
Change in reinsurance assets (10,627) (201) 5,553
Change in deferred policy acquisition costs (23,662) (6,151) (14,906)
Change in investment income due and accrued 135,480 (126,299) (82,023)
Realized capital gains 51 417 (1,953)
Change in current and deferred income taxes -net (7,133) (15,112) (16,708)
Change in reserves for commissions, expenses and taxes(21,274) (9,857) 23,055
Change in other assets and liabilities - net 11,852 (7,466) 6,815
-----------------------------------------
Total adjustments 168,620 (36,157) 20,219
Net cash (used in) provided 200,960 (13,788) 35,499
by operating activities
Cash flows from investing activities:
Cost of fixed maturities, at market sold 40,098 36,678 19,392
Cost of fixed maturities, at market matured or redeemed124,621 76,989 85,628
Cost of equity securities sold 2,607 405 -
Realized capital gains (51) 582 3,176
Purchase of fixed maturities (524,245) (590,864) (252,964)
Purchase of equity securities (1,678) (1,213) -
Mortgage loans granted (74,590) (75,100) (53,977)
Repayments of mortgage loans 16,416 12,406 16,464
Change in policy loans 1,087,765 (1,589,502) (1,184,455)
Change in short-term investments 102,616 (115,532) 18,361
Change in other invested assets 11,002 (4,296) (6,652)
Other - net (38) (6,042) (10,583)
Net cash used in investing activities 784,523 (2,255,489) (1,365,610)
------------- -------------------------
Cash flows from financing activities:
Change in policyholders' funds on deposit (980,835) 2,265,900 1,330,841
--------------------------- ----------
Net cash provided by financing activities (980,835) 2,265,900 1,330,841
-------------- ------------ ----------
Change in cash 4,648 (3,377) 730
Cash at beginning of year 1,132 4,509 3,779
--------------------------------------------
Cash at end of year $ 5,780$ 1,132$ 4,509
=============== =============== ==============
</TABLE>
See accompanying notes to financial statements
F-8
<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.
F-9
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(b) Investments: (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments
are capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity,
net of any related taxes. Also included in this category is an interest
rate cap agreement, which is carried at its amortized cost. The cost of
the cap is being amortized against investment income on a straight line
basis over the life of the cap.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the
Parent have a written tax allocation agreement whereby the Parent agrees
not to charge the Company a greater portion of the consolidated tax
liability than would have been paid by the Company if it had filed a
separate return. Additionally, the Parent agrees to reimburse the Company
for any tax benefits arising out of its net losses within ninety days
after the filing of that consolidated tax return for the year in which
these losses are utilized. Deferred federal income taxes are provided for
temporary differences related to the expected future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns.
(d)Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident and
health insurance are reported as earned over the contract term. The
portion of accident and health premiums which is not earned at the end of
a reporting period is recorded as unearned premiums. Estimates of premiums
due but not yet collected are accrued. Policy benefits and expenses are
associated with earned premiums on long-duration contracts resulting in a
level recognition of profits over the anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized in
relation to expected gross profits over the life of the policies (see Note
3).
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-10
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(f)Separate and Variable Accounts: These accounts represent funds for which
investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the
assets are carried at market value. The assets of each account are legally
segregated and are not subject to claims which arise out of any other
business of the Company.
(g)Reinsurance Assets: Reinsurance assets include the balances due from both
reinsurance and insurance companies under the terms of the Company's
reinsurance arrangements for ceded unearned premiums, future policy
benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It also
includes funds held under reinsurance treaties.
(h) Accounting Standards:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of" (FASB 121). This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and an impairment loss must be recognized.
FASB 121 was effective for the Company commencing January 1, 1996. The
adoption of this statement during 1996 had no significant effect on the
Company's result of operations, financial condition or liquidity.
In December 1995, FASB issued "Special Report, a Guide to the
Implementation of Statement No. 115 on Accounting for Certain Investments
in Debt and Equity Securities". Among other things, this guide provided
for a transition provision permitting a one-time transfer of debt
securities from the held to maturity classification to the available for
sale classification. The Company did not transfer any securities from the
held to maturity classification to the available for sale classification.
(i)During 1996, the Company changed it's method of accounting for a
subsidiary to reflect the minority interest. The financial statements for
1994 and 1995 have been reclassified to conform to this presentation.
2. Investment Information
a) Statutory Deposits: Securities with a carrying value of $2,460,000
and $2,639,000 were deposited by the Company under requirements of
regulatory authorities as of December 31, 1996 and 1995, respectively.
F-11
<PAGE>
2. Investment Information - (continued)
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Fixed maturities $164,548 138,341 $109,826
Equity securities 219 225 241
Mortgage loans 22,797 19,399 14,655
Real estate 2,125 997 1,584
Policy loans 314,020 268,454 108,453
Cash and short-term investments 2,924 4,348 1,684
Other invested assets 2,549 6,129 4,070
---------- ---------- ----------
Total investment income 509,182 437,893 240,513
Investment expenses 4,521 2,210 1,301
---------- ----------- -----------
Net investment income $504,661 $435,683 $239,212
======== ======== ========
</TABLE>
(c) Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for 1996,
1995 and 1994 are summarized below (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1996 1995 1994
--------------------------
<S> <C> <C> <C>
Net realized (losses) gains on investments:
Fixed maturities $ (79)$ (166) $ (10)
Equity securities 28 712 442
Mortgage loans - (1,000) (1,223)
Other invested assets - 37 2,744
------------- ----------- --------
Net realized gains $ (51) $ (417) $ 1,953
========== ========== =========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities $ (58,659) $168,561 $(90,779)
Equity securities 1,517 69 293
Other invested assets 6,897 1,373 5,582
----------- --------------------
Net change in unrealized appreciation
(depreciation) of investments $ (50,245) $170,003 $(84,904)
========== ======== =========
</TABLE>
Proceeds from the sale of investments in fixed maturities during 1996,
1995 and 1994 were $40,098,000, $36,678,000, and $17,431,000,
respectively.
During 1996, 1995 and 1994, gross gains of $176,000, $109,000, and
$394,000, respectively, and gross losses of $255,000, $275,000, and
$404,000, respectively, were realized on dispositions of fixed maturity
investments.
F-12
<PAGE>
2. Investment Information - (continued)
During 1996, 1995 and 1994, gross gains of $28,000, $712,000, and
$442,000, respectively, were realized on disposition of equity securities.
(d)Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1996 and 1995, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $2,265,000 and $833,000 and gross losses of $235,000 and
$320,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
1996 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----- --------- ---------- --------- -------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 47,848 $ 7,814 $151 $55,511
States, municipalities and
political subdivisions 327,944 15,525 1,934 341,535
Foreign governments 33,340 2,855 113 36,082
All other corporate 1,781,448 71,994 15,244 1,838,198
--------- ---------- ---------- ----------
Total fixed maturities $2,190,580 $ 98,188 $ 17,442 $2,271,326
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
1995 Amortized Unrealized Unrealized Market
Cost Gains Losses 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>
F-13
<PAGE>
2. Investment Information - (continued)
The amortized cost and estimated market value of fixed maturities,
available for sale at December 31, 1996, by contractual maturity, are
shown below (in thousands). Actual maturities could differ from
contractual maturities because certain borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $ 74,325 $ 76,640
Due after one year through five years 598,151 615,822
Due after five years through ten years 818,547 849,841
Due after ten years 699,557 729,023
--------- ---------
$2,190,580 $2,271,326
</TABLE>
(e)CMO's: CMO's are U.S. Government and Government agency backed and triple
A-rated securities. In the preceding table, CMO's are included in other
corporate fixed maturities. At December 31, 1996 and 1995, the market
value of the CMO portfolio was $435,313,000 and $457,111,000,
respectively; the estimated amortized cost was approximately $419,276,000
in 1996 and $433,481,000 in 1995. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities contained
in the portfolio at December 31, 1996.
(f)Fixed Maturities Below Investment Grade: At December 31, 1996 and 1995,
the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $136,502,000 and $74,622,000,
respectively, and an aggregate market value of $135,218,000 and
$73,894,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h)Investments Greater than 10% Equity: The market value of investments in
the following companies and institutions exceeded 10% of the Company's
total stockholders' equity at December 31, 1996 (in thousands):
Fixed Maturities:
Ford Motor Credit Corporation $ 38,202
GMAC $ 49,541
Other Invested Assets:
Equity Linked Investors II, L.P. $ 43,808
F-14
<PAGE>
3. Deferred Policy Acquisition Costs
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against
future income and the related current amortization charged to income,
excluding certain amounts deferred and amortized in the same period (in
thousands). The 1996 and 1995 amortization includes $6,096,000 and
$9,455,000, respectively, to recognize excess loss experienced on credit
insurance.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Balance at beginning of year $60,625 $54,474 $39,568
Acquisition costs deferred 43,534 35,008 29,442
Amortization charged to income (19,872) (28,857) (14,536)
------- -------- --------
Balance at end of year $84,287 $60,625 $54,474
======= ======= =======
</TABLE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a)The analysis of the future policy benefits and policyholders' funds on
deposit at December 31, 1996 and 1995 follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Future Policy Benefits:
Long duration contracts $ 624,659 $ 556,669
Short duration contracts 5,861 9,818
----------- ------------
$ 630,520 $ 566,487
========== ===========
Policyholders' funds on deposit:
Annuities $ 1,082,217 $ 944,629
Universal life 130,413 171,564
Guaranteed investment contracts (GICs) 278,680 249,844
Corporate owned life markets 2,314,149 3,204,912
Other investment contracts 4,636 4,046
------------- -----------
$3,810,095 $4,574,995
========= =========
</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 1.9
percent.
F-15
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit - (continued)
(c)The liability for policyholders' funds on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of
issuance and range from 3.0 percent to 8.0 percent. Credited interest
rate guarantees are generally for a period of one year. Withdrawal
charges generally range from 6.0 percent to 10.0 percent grading to zero
over a period of 6 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited generally
range from 4.7 percent to 8.1 percent and maturities range from 2 to 7
years.
(iii) Interest rates on corporate-owned life insurance business are
guaranteed at 4.0 percent and the weighted average rate credited in 1996
was 9.4 percent.
(iv) The universal life funds, exclusive of corporate owned life insurance
business, have credited interest rates of 5.9 percent to 7.5 percent and
guarantees ranging from 3.5 percent to 5.5 percent depending on the year
of issue. Additionally, universal life funds are subject to surrender
charges that amount to 10.0 percent of the fund balance and grade to zero
over a period not longer than 20 years.
5. Income Taxes
(a)The Federal income tax rate applicable to ordinary income is 35% for
1996, 1995 and 1994. Actual tax expense on income from operations differs
from the "expected" amount computed by applying the Federal income tax
rate because of the following (in thousands except percentages):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
Percent Percent Percent
of of of
pre-tax pre-tax pre-tax
operating operating operating
Amount Income Amount Income Amount Income
---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $ 18,125 35.0% $ 12,155 35.0% $ 8,436 35.0%
Prior year federal
income tax benefit (51) (0.1) (798) (2.3) - -
State income tax 850 1.6 894 2.6 197 0.8
Other 677 1.3 119 0.3 35 0.2
--------- ---- --------- ------ ------- -----
Actual income tax expense $19,601 37.8% $ 12,370 35.6% $ 8,668 36.0%
============= ======== ==== ======= ====
</TABLE>
F-16
<PAGE>
5. Income Taxes - (continued)
(b) The components of the net deferred tax liability were as follows
(in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Adjustment to life reserves $41,522 $24,940
Adjustments to mortgage loans and investment income 2,531 2,546
Adjustment to policy and contract claims 10,687 11,725
Other 2,585 1,232
57,325 40,443
--------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $ 23,047 $ 13,040
Unrealized appreciation on investments 33,823 47,209
Bond discount 4,085 3,458
Other 2,083 1,321
---------- ---------
63,038 65,028
--------- --------
Net deferred tax liability $ 5,713 $ 24,585
========== ========
</TABLE>
(c)At December 31, 1996, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,204,000 of "Policyholders'
Surplus" as defined under the Code. Under provisions of the Code,
"Policyholders' Surplus" has not been currently taxed but would be taxed
at current rates if distributed to the Parent. There is no present
intention to make cash distributions from "Policyholders' Surplus" and
accordingly, no provision has been made for taxes on this amount.
(d)Income taxes paid in 1996, 1995, and 1994 amounted to $25,412,000,
$26,030,000, and $25,052,000, respectively.
6. Commitments and Contingencies
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
7. Fair Value of Financial Instruments
(a)Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments may
or may not be recognized in the balance sheet. In the measurement of the
fair value of certain of the financial instruments, quoted market prices
were not available and other valuation techniques were utilized. These
derived fair value estimates are significantly affected by the assumptions
used. FASB 107 excludes certain financial instruments, including those
related to insurance contracts.
F-17
<PAGE>
7. Fair Value of Financial Instruments - (continued)
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair values.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair value of the policy loans were not calculated as the
Company believes it would have to expend excessive costs for the benefits
derived. Therefore, the fair value of policy loans was estimated at
carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair value of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
(b) The fair value and carrying amounts of financial instruments
is as follows (in thousands):
<TABLE>
<CAPTION>
1996 Fair Carrying
Value Amount
<S> <C> <C>
Cash and short-term investments $ 105,816 $ 105,816
Fixed maturities 2,271,326 2,271,326
Equity securities 5,578 5,578
Mortgage and policy loans 2,183,873 2,171,324
Interest rate cap 75 94
Policyholders' funds on deposit $ 3,832,601 $ 3,810,095
1995 Fair Carrying
Value Amount
Cash and short-term investments $ 203,784 $ 203,784
Fixed maturities 1,963,265 1,963,265
Equity securities 4,990 4,990
Mortgage and policy loans 3,216,321 3,200,853
Interest rate cap 144 170
Policyholders' funds on deposit $ 4,592,841 $ 4,574,995
</TABLE>
F-18
<PAGE>
8. Stockholders' Equity
(a)The maximum stockholder dividend which can be paid without prior
regulatory approval is subject to restrictions relating to statutory
surplus and statutory net gain from operations. These restrictions limited
payment of dividends to $39,027,000 during 1996, however, no dividends
were paid during the year.
(b)The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $221,567,000 at December 31, 1996 and
$176,952,000 at December 31, 1995. Statutory net income amounted to
$47,074,000, $39,712,000, and $47,002,000 for 1996, 1995 and 1994,
respectively.
9. Employee Benefits
(a)The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and completed
twelve months of continuous service are eligible to participate in this
plan. An employee with 5 or more years of service is entitled to pension
benefits beginning at normal retirement age 65. Benefits are based upon a
percentage of average final compensation multiplied by years of credited
service limited to 44 years of credited service. Prior to January 1, 1996,
the average final compensation is subject to certain limitations. Annual
funding requirements are determined based on the "projected unit credit"
cost method which attributes a pro rata portion of the total projected
benefit payable at normal retirement to each year of credited service.
Pension expense for current service costs, retirement and termination
benefits for the years ended December 31, 1996, 1995 and 1994 were
approximately $400,000, $304,000, and $179,000, respectively. The Parent's
plans do not separately identify projected benefit obligations and plan
assets attributable to employees of participating affiliates. The
projected benefit obligations exceeded the plan assets at December 31,
1996 by $42,149,000.
(b)The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which, during the two years ended December 31, 1994,
provided for salary reduction contributions by employees and matching
contributions by the Parent of up to 2 percent of annual salary.
Commencing January 1, 1995, the 401(k) plan provided for matching
contributions by the Parent of up to 6 percent of annual salary depending
on the employee's years of service.
(c)In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
(d)The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provide for eligible employees
to receive privileges to purchase AIG common stock at a price equal to 85%
of the fair market value on the date of grant of the purchase privilege.
The Parent has not recognized compensation costs for either plan. The
effect of the compensation costs, as determined consistent with
FASB 123, was not computed on a subsidiary basis, but rather on a
consolidated basis for all subsidiaries of the Parent and therefore are
not presented herein.
F-19
<PAGE>
10. Leases
(a)The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1996, the
future minimum lease payments under operating leases were as follows (in
thousands):
Year Payment
1997 $ 3,833
1998 2,785
1999 1,846
2000 1,596
2001 1,471
Remaining years after 2001 4,414
-------
Total $15,945
-------
-------
Rent expense approximated $4,263,000, $3,764,000, and $3,542,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
(b) Sublease Income -The Company does not participate in sublease agreements.
11. Reinsurance
(a)The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term treaties.
Accident and health insurance risks are reinsured primarily under
coinsurance, excess of loss and quota share treaties. Amounts recoverable
from reinsurers are estimated in a manner consistent with the assumptions
used for the underlying policy benefits and are presented as a component
of reinsurance assets. A contingent liability exists with respect to
reinsurance ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements.
The Company also reinsures portions of its life and accident and health
insurance risks with affiliated companies (see Note 12). The effect of all
reinsurance contracts, including reinsurance assumed, is as follows (in
thousands, except percentages):
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1996 Assumed
Gross Ceded Assumed Net to Net
----- ----- ------- --- --------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $53,854,456 $17,392,184 $ 605,831 $37,068,103 1.6%
=========== ============ =========== =============
Premiums:
Life 187,886 49,150 327 139,063 -
Accident and Health 97,971 28,359 107,447 177,059 60.7%
Annuity 78,358 - - 78,358 -
--------------- --------- ---------- ---------- ----------
Total Premiums $ 364,215 $77,509 $ 107,774 $394,480 27.3%
============ ============ ============= =============
</TABLE>
F-20
<PAGE>
11. Reinsurance - (continued)
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1995 Assumed
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>
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1994 Assumed
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%
========================== ========== ============
</TABLE>
(b) The maximum amount retained on any one life by the Company is $1,000,000.
(c)Reinsurance recoveries, which reduced death and other benefits,
approximated $54,456,000, $51,264,000, and $34,252,000, respectively, for
each of the years ended December 31, 1996, 1995 and 1994.
The Company's reinsurance arrangements do not relieve the Company from its
direct obligation to its insureds.
12. Transactions with Related Parties
(a)The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance risks.
Premium income and commission ceded for 1996 amounted to $1,345,000 and
$0, respectively. Premium income and commission ceded for 1995 amounted to
$1,269,000 and $1,000, respectively. Premium income and commission ceded
to affiliates amounted to $1,267,000 and $2,000 for the year ended
December 31, 1994. Premium income and ceding commission expense assumed
from affiliates aggregated $103,885,000 and $27,609,000, respectively, for
1996, compared to $90,688,000 and $23,422,000, respectively, for 1995, and
$75,005,000 and $20,374,000, respectively for 1994.
F-21
<PAGE>
12. Transactions with Related Parties - (continued)
(b)The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional cost
allocation basis which management believes to be reasonable. For the years
ended December 31, 1996, 1995 and 1994, the Company was charged
$28,277,000, $23,193,000, and $21,392,000, respectively, for expenses
attributed to the Company but incurred by affiliates. During the same
period, the Company received reimbursements from affiliates aggregating
$17,598,000, $14,496,000, and $13,383,000, respectively, for costs
incurred by the Company but attributable to affiliates.
(c) During 1996, the Company purchased 1,500,000 shares of AIG Life Ireland,
LTD., a subsidiary.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
AIG Life Insurance Company
Variable Account I
We have audited the accompanying statement of assets and liabilities of AIG Life
Insurance Company Variable Account I comprising the Fidelity Money Market, Asset
Manager, Growth, High Income, Investment Grade Bond, Overseas; the Alliance
Conservative Investors, Growth and Income, Growth Investors, Growth, Technology,
Quasar; the Dreyfus Stock Index and Zero Coupon 2000; the Van Eck Gold and
Natural Resources, Worldwide Balanced; and the Weiss, Peck and Greer Tomorrow
Short-Term, Tomorrow Medium-Term and Tomorrow Long-Term Subaccounts as of
December 31, 1996 and the related statement of operations for the year then
ended, and the statement of changes in net assets for each of the two years then
added. These financial statements are the are the responsibility of the
management of Variable 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 at December 31, 1996 by correspondence with the
transfer agent. An audit also includes assessing the accounting principles used
an significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIG Life Insurance Company
Variable Account I as of December 31, 1996, and the results of its operations
for the year then ended, and the changes in its net assets for each of the two
years then ended, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand
- ----------------------
Coopers & Lybrand
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 20, 1997
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31,1996
<TABLE>
<CAPTION>
Shares Cost Market Value
<S> <C> <C> <C>
ASSETS:
Investments at Market Value:
Profile Variable Products Series Fund, Inc.:
Fidelity
Money Market Portfolio ........................... 3,963,487.460 $ 3,963,487 $ 3,963,487
Asset Manager Portfolio .......................... 37,011.989 600,306 626,613
Growth Portfolio ................................. 52,518.048 1,608,910 1,635,412
High Income Portfolio ............................ 47,899.815 583,689 599,706
Investment Grade Bond Portfolio .................. 34,933.375 422,789 427,585
Overseas Portfolio ............................... 17,871.782 321,135 336,704
Alliance
Conservative Investors Portfolio ................. 13,726.914 161,852 165,684
Growth & Income Portfolio ........................ 84,098.987 1,287,462 1,379,223
Growth Investors Portfolio ....................... 17,920.758 223,443 228,310
Growth Portfolio ................................. 84,550.253 1,408,596 1,515,141
Technology Portfolio ............................. 15,111.490 170,236 166,831
Quasar Portfolio ................................. 4,634.598 48,517 49,312
Dreyfus
Stock Index Portfolio ............................ 65,668.622 1,284,134 1,331,760
Zero Coupon 2000 Portfolio ....................... 13,696.980 167,288 168,336
Van Eck
Gold & Natural Resources Portfolio ............... 7,016.864 110,838 117,321
Worldwide Balanced Portfolio ..................... 8,698.585 90,980 96,902
Weiss,Peck & Greer
Tomorrow Short Term Portfolio .................... 13,636.905 118,526 125,596
Tomorrow Medium Term Portfolio ................... 11,809.833 91,508 92,826
Tomorrow Long Term Portfolio ..................... 28,966.470 200,113 204,214
------------- ---------------
Total Investments ................................................. $ 12,863,809 13,230,963
---------------
Total Assets ............................................................... $ 13,230,963
===============
LIABILITIES:
Payable to AIG Life ................................................................... $ 4
EQUITY:
Contract Owners' Equity ............................................................... $ 13,230,959
---------------
Total Liabilities & Equity ................................................. $ 13,230,963
===============
</TABLE>
See Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset Fidelity
Market Manager Growth
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ...................................$ 118,895 $ 57,540 $ 0 $ 0
Expenses:
Mortality & Expense Risk Fees ............... 39,495 13,591 1,349 4,694
Daily Administrative Charges ................ 5,075 1,686 218 650
------------- ------------ ------------ --------------
Net Investment Income (Loss) .................... 74,325 42,263 (1,567) (5,344)
------------- ------------ ------------ --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 6,188 0 19 5,396
Change in Unrealized Appreciation
(Depreciation) .......................... 367,150 0 26,307 26,502
------------- ------------ ------------ --------------
Net Gain (Loss) on Investments .................. 373,338 0 26,326 31,898
------------- ------------ ------------ --------------
Increase (Decrease) in Net Assets
Resulting From Operations ...................$ 447,663 $ 42,263 $ 24,759 $ 26,554
============= ============ ============ ==============
</TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Fidelity
Fidelity Investment Alliance
High Grade Fidelity Conservative
Income Bond Overseas Investors
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ...................................$ 0 $ 0 $ 0 $ 0
Expenses:
Mortality & Expense Risk Fees ............... 1,357 964 1,632 444
Daily Administrative Charges ................ 164 116 195 53
------------- ------------ ------------ --------------
Net Investment Income (Loss) .................... (1,521) (1,080) (1,827) (497)
------------- ------------ ------------ --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 130 0 1,917 10
Change in Unrealized Appreciation
(Depreciation) .......................... 16,017 4,795 15,569 3,832
------------- ------------ ------------ --------------
Net Gain (Loss) on Investments .................. 16,147 4,795 17,486 3,842
------------- ------------ ------------ --------------
Increase (Decrease) in Net Assets
Resulting From Operations ...................$ 14,626 $ 3,715 $ 15,659 $ 3,345
============= ============ ============ ==============
</TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Alliance
Growth Alliance
& Growth Alliance Alliance
Income Investors Growth Technology
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ...................................$ 25,163 $ 34 $ 3,241 $ 0
Expenses:
Mortality & Expense Risk Fees ............... 4,437 515 4,374 173
Daily Administrative Charges ................ 530 61 554 25
------------- ------------ ------------ --------------
Net Investment Income (Loss) .................... 20,196 (542) (1,687) (198)
------------- ------------ ------------ --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ (3,083) 20 1,649 11
Change in Unrealized Appreciation
(Depreciation) .......................... 91,762 4,866 106,545 (3,406)
------------- ------------ ------------ --------------
Net Gain (Loss) on Investments .................. 88,679 4,886 108,194 (3,395)
------------- ------------ ------------ --------------
Increase (Decrease) in Net Assets
Resulting From Operations ...................$ 108,875 $ 4,344 $ 106,507 $ (3,593)
============= ============ ============ ==============
</TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Dreyfus Van Eck
Dreyfus Zero Gold &
Alliance Stock Coupon Natural
Quasar Index 2000 Resources
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ...................................$ 0 $ 24,871 $ 3,071 $ 7
Expenses:
Mortality & Expense Risk Fees ............... 104 3,703 88 368
Daily Administrative Charges ................ 9 481 84 44
------------- ------------ ------------ --------------
Net Investment Income (Loss) .................... (113) 20,687 2,899 (405)
------------- ------------ ------------ --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ (72) 86 4 (8)
Change in Unrealized Appreciation
(Depreciation) .......................... 795 47,626 1,047 6,483
------------- ------------ ------------ --------------
Net Gain (Loss) on Investments .................. 723 47,712 1,051 6,475
------------- ------------ ------------ --------------
Increase (Decrease) in Net Assets
Resulting From Operations ...................$ 610 $ 68,399 $ 3,950 $ 6,070
============= ============ ============ ==============
</TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Van Eck Tomorrow Tomorrow Tomorrow
Worldwide Short Medium Long
Balanced Term Term Term
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Investment Income (Loss):
Dividends ...................................$ 4 $ 0 $ 3,582 $ 1,382
Expenses:
Mortality & Expense Risk Fees ............... 407 440 408 447
Daily Administrative Charges ................ 49 53 49 54
------------- ------------ ------------ --------------
Net Investment Income (Loss) .................... (452) (493) 3,125 881
------------- ------------ ------------ --------------
Realized and Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ................................ 21 27 13 48
Change in Unrealized Appreciation
(Depreciation) .......................... 5,922 7,070 1,317 4,101
------------- ------------ ------------ --------------
Net Gain (Loss) on Investments .................. 5,943 7,097 1,330 4,149
------------- ------------ ------------ --------------
Increase (Decrease) in Net Assets
Resulting From Operations ...................$ 5,491 $ 6,604 $ 4,455 $ 5,030
============= ============ ============ ==============
</TABLE>
See Notes to Financial Statements
<PAGE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset Fidelity
Market Manager Growth
Total Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 74,325 $ 42,263 $ (1,567) $ (5,344)
Realized Gain (Loss) on Investment Activity . 6,188 0 19 5,396
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 367,150 0 26,307 26,502
Increase (Decrease) in Net Assets Resulting --------------- --------------- ------------- -------------
From Operations ............................. 447,663 42,263 24,759 26,554
--------------- --------------- ------------- -------------
Capital Transactions:
Contract Deposits ........................... 12,978,254 8,824,400 231,094 873,806
Transfers Between Funds ..................... (34,151) (4,876,868) 372,288 772,758
Contract Withdrawals ........................ (160,764) (26,308) (1,528) (37,701)
Deferred Sales Charges ...................... (43) 0 0 (5)
Increase (Decrease) in Net Assets Resulting --------------- --------------- ------------- -------------
From Capital Transactions ................... 12,783,296 3,921,224 601,854 1,608,858
Total Increase (Decrease) in Net Assets ......... 13,230,959 3,963,487 626,613 1,635,412
--------------- --------------- ------------- -------------
Net Assets, at Beginning of Year ................ 0 0 0 0
--------------- --------------- ------------- -------------
Net Assets, at End of Year ......................$ 13,230,959 $ 3,963,487 $ 626,613 $ 1,635,412
=============== =============== ============= =============
</TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Fidelity
Fidelity Investment Alliance
High Grade Fidelity Conservative
Income Bond Overseas Investors
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (1,521) $ (1,080) $ (1,827) $ (497)
Realized Gain (Loss) on Investment Activity . 130 0 1,917 10
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 16,017 4,795 15,569 3,832
Increase (Decrease) in Net Assets Resulting --------------- --------------- ------------- -------------
From Operations ............................. 14,626 3,715 15,659 3,345
--------------- --------------- ------------- -------------
Capital Transactions:
Contract Deposits ........................... 171,003 155,298 181,145 125,062
Transfers Between Funds ..................... 415,670 268,572 175,593 37,277
Contract Withdrawals ........................ (1,593) 0 (35,693) 0
Deferred Sales Charges ...................... 0 0 0 0
Increase (Decrease) in Net Assets Resulting --------------- --------------- ------------- -------------
From Capital Transactions ................... 585,080 423,870 321,045 162,339
--------------- --------------- ------------- -------------
Total Increase (Decrease) in Net Assets ......... 599,706 427,585 336,704 165,684
Net Assets, at Beginning of Year ................ 0 0 0 0
--------------- --------------- ------------- -------------
Net Assets, at End of Year ......................$ 599,706 $ 427,585 $ 336,704 $ 165,684
=============== =============== ============= =============
</TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Alliance
Growth Alliance
& Growth Alliance Alliance
Income Investors Growth Technology
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ 20,196 $ (542) $ (1,687) $ (198)
Realized Gain (Loss) on Investment Activity . (3,083) 20 1,649 11
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 91,762 4,866 106,545 (3,406)
Increase (Decrease) in Net Assets Resulting --------------- --------------- ------------- -------------
From Operations ............................. 108,875 4,344 106,507 (3,593)
--------------- --------------- ------------- -------------
Capital Transactions:
Contract Deposits ........................... 572,119 63,126 688,597 134,570
Transfers Between Funds ..................... 751,633 160,840 722,129 35,854
Contract Withdrawals ........................ (53,402) 0 (2,090) 0
Deferred Sales Charges ...................... (2) 0 (2) 0
Increase (Decrease) in Net Assets Resulting --------------- --------------- ------------- -------------
From Capital Transactions ................... 1,270,348 223,966 1,408,634 170,424
--------------- --------------- ------------- -------------
Total Increase (Decrease) in Net Assets ......... 1,379,223 228,310 1,515,141 166,831
Net Assets, at Beginning of Year ................ 0 0 0 0
--------------- --------------- ------------- -------------
Net Assets, at End of Year ......................$ 1,379,223 $ 228,310 $ 1,515,141 $ 166,831
=============== =============== ============= =============
</TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Dreyfus Van Eck
Dreyfus Zero Gold &
Alliance Stock Coupon Natural
Quasar Index 2000 Resources
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (113) $ 20,687 $ 2,899 $ (405)
Realized Gain (Loss) on Investment Activity . (72) 86 4 (8)
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 795 47,626 1,047 6,483
Increase (Decrease) in Net Assets Resulting --------------- --------------- ------------- -------------
From Operations ............................. 610 68,399 3,950 6,070
--------------- --------------- ------------- -------------
Capital Transactions:
Contract Deposits ........................... 13,225 604,826 102,235 57,057
Transfers Between Funds ..................... 35,477 660,699 62,151 54,338
Contract Withdrawals ........................ 0 (2,164) 0 (148)
Deferred Sales Charges ...................... 0 0 0 0
Increase (Decrease) in Net Assets Resulting --------------- --------------- ------------- -------------
From Capital Transactions ................... 48,702 1,263,361 164,386 111,247
--------------- --------------- ------------- -------------
Total Increase (Decrease) in Net Assets ......... 49,312 1,331,760 168,336 117,317
Net Assets, at Beginning of Year ................ 0 0 0 0
--------------- --------------- ------------- -------------
Net Assets, at End of Year ......................$ 49,312 $ 1,331,760 $ 168,336 $ 117,317
=============== =============== ============= =============
</TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For the Period April 1 to December 31, 1996
<TABLE>
<CAPTION>
Van Eck Tomorrow Tomorrow Tomorrow
Worldwide Short Medium Long
Balanced Term Term Term
Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ................$ (452) $ (493) $ 3,125 $ 881
Realized Gain (Loss) on Investment Activity . 21 27 13 48
Change in Unrealized Appreciation
(Depreciation) of Investments ........... 5,922 7,070 1,317 4,101
Increase (Decrease) in Net Assets Resulting --------------- --------------- ------------- -------------
From Operations ............................. 5,491 6,604 4,455 5,030
--------------- --------------- ------------- -------------
Capital Transactions:
Contract Deposits ........................... 29,229 77,645 26,701 47,116
Transfers Between Funds ..................... 62,182 41,347 61,670 152,239
Contract Withdrawals ........................ 0 0 0 (137)
Deferred Sales Charges ...................... 0 0 0 (34)
Increase (Decrease) in Net Assets Resulting --------------- --------------- ------------- -------------
From Capital Transactions ................... 91,411 118,992 88,371 199,184
--------------- --------------- ------------- -------------
Total Increase (Decrease) in Net Assets ......... 96,902 125,596 92,826 204,214
Net Assets, at Beginning of Year ................ 0 0 0 0
--------------- --------------- ------------- -------------
Net Assets, at End of Year ......................$ 96,902 $ 125,596 $ 92,826 $ 204,214
=============== =============== ============= =============
</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. ("Alliance Fund"), Dreyfus Variable
Investment Fund ("Dreyfus Fund"), Dreyfus Stock Index Fund, Fidelity Investments
Variable Insurance Products Fund ("Fidelity Trust"), Fidelity Variable Insurance
Products Fund II ("Fidelity Trust II"), Van Eck Investment Trust ("Van Eck
Trust") and Weiss, Peck & Greer ("Tomorrow Funds"). The assets in the policies
may be invested in the following subaccounts:
Alliance Fund: Fidelity Trust:
Growth & Income Portfolio Money Market Portfolio
Conservative Investors Portfolio High Income Portfolio
Growth Portfolio Growth Portfolio
Growth Investors Portfolio Overseas Portfolio
Quasar Portfolio
Technology Portfolio
Dreyfus Fund: Fidelity Trust II:
Zero Coupon 2000 Portfolio Investment Grade Bond Portfolio
Stock Index Portfolio Asset Manager Portfolio
Van Eck Trust: Weiss, Peck & Greer Tomorrow Funds:
Gold & Natural Resources Portfolio Tomorrow Long Term
Worldwide Balanced Portfolio Tomorrow Medium Term
Tomorrow Short Term
The 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.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Account in preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation - The investments in the respective funds and trusts 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 onthe ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations and is
not taxed separately. Under existing federal law, no taxes are payable on
investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required management
to make estimates and assumptions that affect the reported values of assets and
liabilities and the reported amounts from operations and policy transactions.
Actual results could differ from those estimates.
3. Contract Charges
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 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 subject to a maximum of 8.5% of premiums and 6% of
premiums, paid for flexible premium contracts.
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 period ended April 1 to December 31, 1996, investment activity
in the Fund was as follows:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
Fidelity Trust Funds:
Money Market Portfolio ................... $ 7,370,819 $ 3,407,332
Asset Manager Portfolio .................. 600,819 532
Growth Portfolio ......................... 1,651,679 48,165
High Income Portfolio..................... 588,327 4,768
Investment Grade Bond Portfolio........... 423,058 269
Overseas Portfolio........................ 361,770 42,552
Alliance Funds:
Conservative Investors Portfolio.......... 162,112 270
Growth & Income Portfolio ................ 1,342,544 52,000
Growth Investors Portfolio................ 223,801 376
Growth Portfolio.......................... 1,428,720 21,773
Technology Portfolio...................... 170,428 203
Quasar Portfolio.......................... 59,597 11,008
Dreyfus:
Stock Index Portfolio..................... 1,299,097 15,049
Zero Coupon 2000 Portfolio................ 167,953 668
Van Eck:
Gold & Natural Resources Portfolio........ 111,353 507
Worldwide Balanced Portfolio.............. 91,350 391
Weiss, Peck, & Greer:
Tomorrow Short Term Portfolio............. 118,992 493
Tomorrow Medium Term Portfolio............ 91,972 477
Tomorrow Long Term Portfolio.............. 200,689 624
</TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
5. Net Increase (Decrease) in Accumulation Units
For the period ended April 1 to December 31, 1996, transactions in accumulation
units of the account were as follows:
<TABLE>
<CAPTION>
Fidelity
Fidelity Fidelity Fidelity Investment
Money Asset Fidelity High Grade
Market Manager Growth Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY
Units Purchased ............................. 865,960.46 21,909.46 80,653.27 16,258.42 14,993.63
Units Withdrawn ............................. (2,560.51) (141.69) (3,416.67) (149.35) 0.00
Units Transferred Between Funds ............. (478,161.38) 34,577.69 72,485.46 38,906.70 25,784.31
Units Transferred From (To) AIG Life ........ 0.00 0.00 0.00 0.00 0.00
------------ ------------- ----------- ----------- -----------
Net Increase (Decrease) ..................... 385,238.57 56,345.46 149,722.06 55,015.77 40,777.94
Units, at Beginning of the Year ............. 0.00 0.00 0.00 0.00 0.00
------------ ------------- ----------- ----------- -----------
Units, at End of the Year ................... 385,238.57 56,345.46 149,722.06 55,015.77 40,777.94
============ ============= =========== =========== ===========
Unit Value at December 31, 1996 ............. $ 10.29 $ 11.12 $ 10.92 $ 10.90 $ 10.49
============ ============= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Alliance
Alliance Growth Alliance
Fidelity Conservative & Growth Alliance
Overseas Investors Income Investors Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Units Purchased ............................. 17,639.41 12,149.66 52,421.63 6,107.64 60,392.36
Units Withdrawn ............................. (3,368.45) 0.00 (4,622.18) 0.00 (180.32)
Units Transferred Between Funds ............. 16,998.81 3,556.28 68,543.29 15,100.74 63,602.83
Units Transferred From (To) AIG Life ........ 0.00 0.00 0.00 0.00 0.00
------------ ------------- ----------- ----------- -----------
Net Increase (Decrease) ..................... 31,269.77 15,705.94 116,342.75 21,208.38 123,814.87
Units, at Beginning of the Year ............. 0.00 0.00 0.00 0.00 0.00
------------ ------------- ----------- ----------- -----------
Units, at End of the Year ................... 31,269.77 15,705.94 116,342.75 21,208.38 123,814.87
============ ============= =========== =========== ===========
Unit Value at December 31, 1996 ............. 10.77 $ 10.55 $ 11.85 $ 10.77 $ 12.24
============ ============= =========== =========== ===========
</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 period ended April 1 to December 31, 1996, transactions in accumulation
units of the account were as follows:
<TABLE>
<CAPTION>
Dreyfus Van Eck
Dreyfus Zero Gold &
Alliance Alliance Stock Coupon Natural
Technology Quasar Index 2000 Resources
Portfolio Portfolio Portfolio Portfolio Portfolio
------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Units Purchased ............................. 12,476.90 1,300.69 54,122.62 10,143.57 5,955.00
Units Withdrawn ............................. 0.00 0.00 (190.58) 0.00 (14.93)
Units Transferred Between Funds ............. 3,352.64 3,495.59 59,549.37 5,981.22 5,590.73
Units Transferred From (To) AIG Life ........ 0.00 0.00 0.00 0.00 0.00
------------ ------------- ----------- ----------- -----------
Net Increase (Decrease) ..................... 15,829.55 4,796.29 113,481.41 16,124.79 11,530.80
Units, at Beginning of the Year ............. 0.00 0.00 0.00 0.00 0.00
------------ ------------- ----------- ----------- -----------
Units, at End of the Year ................... 15,829.55 4,796.29 113,481.41 16,124.79 11,530.80
============ ============= =========== =========== ===========
Unit Value at December 31, 1996 ............. 10.54 $ 10.28 $ 11.74 $ 10.44 $ 10.17
============ ============= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Van Eck Tomorrow Tomorrow Tomorrow
Worldwide Short Medium Long
Balanced Term Term Term
Portfolio Portfolio Portfolio Portfolio
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Units Purchased ............................. 2,828.59 7,529.77 2,603.67 4,598.13
Units Withdrawn ............................. 0.00 0.00 0.00 (16.20)
Units Transferred Between Funds ............. 6,116.06 4,151.56 6,099.85 13,919.60
Units Transferred From (To) AIG Life ........ 0.00 0.00 0.00 0.00
------------ ------------- ----------- -----------
Net Increase (Decrease) ..................... 8,944.65 11,681.33 8,703.52 18,501.53
Units, at Beginning of the Year ............. 0.00 0.00 0.00 0.00
------------ ------------- ----------- -----------
Units, at End of the Year ................... 8,944.65 11,681.33 8,703.52 18,501.53
============ ============= =========== ===========
Unit Value at December 31, 1996 ............. 10.83 $ 10.75 $ 10.67 $ 11.04
============ ============= =========== ===========
</TABLE>
<PAGE>
<PAGE>
PART
A
<PAGE>
PROSPECTUS
for
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 "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 corresponding portfolios as
selected by the Owner from the following choices: the Conservative Investors
Portfolio, Growth Investors Portfolio, Growth Portfolio, , Quasar Portfolio,
Technology Portfolio, or Growth and Income Portfolio of the ALLIANCE VARIABLE
PRODUCTS SERIES FUND, INC.; the VIP High Income Portfolio, VIP Growth Portfolio,
VIP Money Market Portfolio, VIP Overseas Portfolio, VIP IIAsset Manager
Portfolio or VIP II Investment Grade Bond Portfolio of the FIDELITY INVESTMENTS
VARIABLE INSURANCE PRODUCTS FUNDS; the Zero Coupon Portfolio of the DREYFUS
VARIABLE INVESTMENT FUND; the Hard Assets Portfolio or Worldwide Balanced
Portfolio, of the VAN ECK WORLDWIDE INSURANCE TRUST; the DREYFUS STOCK INDEX
FUND; or the Short-Term Retirement Portfolio, Medium-Term Retirement Portfolio
or the Long-Term Retirement Portfolio of the TOMORROW FUNDS RETIREMENT TRUST.
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 _________, 1997, 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.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE
NOT GUARANTEED OR ENDORSED BY, THE ADVISER OF ANY BANK OR BANK AFFILIATE.
INVESTMENTS ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. ANY
INVESTMENT IN THE CONTRACT INVOLVES CERTAIN INVESTMENT RISK WHICH MAY INCLUDE
THE POSSIBLE LOSS OF PRINCIPAL.
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, 1997
2
<PAGE>
TABLE CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions......................................................
Highlights.......................................................
Summary of Expenses..............................................
Condensed Financial Information..................................
The Company......................................................
The Variable Account.............................................
The Funds........................................................
The Contract
Charges and Deductions...........................................
Annuity Benefits.................................................
Death Benefit....................................................
Distributions Under the Contract.................................
Taxes............................................................
Appendix - General Account Option................................
Table of Contents of the Statement of Additional Information.....
</TABLE>
3
<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.
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.
4
<PAGE>
HIGHLIGHTS
This Prospectus describes 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 in
connection with a retirement plan which may qualify as 403 (b) Plan 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 $2,000. 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 accumulate
on a variable basis and will be invested in shares of one or more of the
following underlying portfolios: the Conservative Investors Portfolio, Growth
Investors Portfolio, Growth Portfolio, Quasar Portfolio, Technology Portfolio,
or Growth and Income Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES FUND,
INC. ("Alliance Funds"); the VIP High Income Portfolio, VIP Growth Portfolio,
VIP Money Market Portfolio, VIP Overseas Portfolio, VIP II Asset Manager
Portfolio, or VIP II Investment Grade Bond Portfolio of the FIDELITY INVESTMENTS
VARIABLE INSURANCE PRODUCTS FUNDS ("Fidelity Funds"); the Zero Coupon Portfolio
of the DREYFUS VARIABLE INVESTMENT FUND ("Dreyfus Fund"); the Hard Assets
Portfolio or Worldwide Balanced Portfolio, of the VAN ECK WORLDWIDE INSURANCE
TRUST ("Van Eck Funds"); the DREYFUS STOCK INDEX FUND; or the Short-Term
Retirement Portfolio, Medium-Term Retirement Portfolio or the Long-Term
Retirement Portfolio of the TOMORROW FUNDS RETIREMENT TRUST ("Tomorrow Funds").
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 Separate 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.
(See "Summary of Expenses" on page ____, and "Charges and Deductions - Deduction
for Surrender Charge" on 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 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 each of the Funds
which are described in the accompanying Prospectuses for the Funds.
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.
5
<PAGE>
FEE TABLE
Contract Owner Transaction Expenses
All Subaccounts
Sales Load Imposed on Purchases.....................................None
Surrender Charge (as a percentage of amount surrendered):
Premium Year 1 6%
Premium Year 2 6%
Premium Year 3 5%
Premium Year 4 5%
Premium Year 5 4%
Premium Year 6 3%
Premium Year 7 2%
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%
6
<PAGE>
Annual Fund Expenses After Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Portfolio Fee Expenses Expenses
<S> <C> <C> <C>
Alliance Conservative Investors 0.30% 0.65% 0.95(1)
Alliance Growth Investors 0.00% 0.95% 0.95%(1)
Alliance Growth 0.74% 0.19% 0.93%(1)
Alliance Growth and Income 0.63% 0.19% 0.82%(1)
+Alliance Quasar 0.00% 0.95% 0.95%(1)
+Alliance Technology 0.33% 0.62% 0.95%(1)
Fidelity VIP High Income 0.59% 0.12% 0.71%(4)
Fidelity VIP Growth 0.61% 0.08% 0.69%(4)
Fidelity VIP Money Market 0.21% 0.09% 0.30%(4)
Fidelity VIP Overseas 0.76% 0.17% 0.93%(4)
Fidelity VIP II Asset Manager 0.64% 0.10% 0.74%(4)
Fidelity VIP II
Investment Grade Bond 0.45% 0.13% 0.58%(4)
+Van Eck Worldwide Hard Assets 1.00% 0.23% 1.23%(5)
Van Eck Worldwide Balanced 0.00% 0.00% 0.00%(5)
Dreyfus Zero Coupon 2000 0.45% 0.21% 0.66%(3)
Dreyfus Stock Index 0.245% 0.055% 0.30%(3)
Tomorrow Short-Term Retirement 0.00% 1.50% 1.50%(2)
Tomorrow Medium-Term Retirement 0.00% 1.50% 1.50%(2)
Tomorrow Long-Term Retirement 0.00% 1.50% 1.50%(2)
The purpose of the table set forth above is to assist the Contract Owner
in understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The table reflects expenses of the Variable Account as
well as the Funds. The Annual Administrative Charge for purposes of the Expense
Table, above, was based upon the assessment of a $30 charge on a Contract Value
of $5,000. (See "Charges and Deductions" on page ___ of this Prospectus and each
Fund's Prospectus for further information.)
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 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 s outoutlined
under the section discussing the management of the Funds in each Fund's
Prospectus attached.
<FN>
*"Other Expenses" are based upon the expenses outlined under the section
discussing the management of the Fund in each Fund's attached Prospectus.
+The Operating Expenses for the Quasar, Technology and Worldwide Hard Assets
Portfolio set forth above have been annualized for those portfolios have not
been in effect for a full year.
++ As of May 1, 1997 the Van Eck Gold and Natural Resources Portfolio will no
longer be offered. The Van Eck Gold and Natural Resources Portfolio has been
replaced by with the Van Eck Worldwide Hard Assets Fund for which expenses have
been described above.
*Operating Expenses for the following Portfolios before reimbursement by the
relevant Fund's investment advisor, for the period ending December 31, 1996,
were as follows:
(1) Alliance Variable Product Series Funds: 1.40% for Conservative Investors;
1.85%for Growth Investors; 0.93%for Growth; 4.44% for Quasar; and 1.62% for
Technology, of average daily net assets;
(2) Tomorrow Retirement Funds- 19.10% for the Short-Term Retirement, 20.86%
for the Medium Term Retirement and 40.49% for the Long-Term Retirement, of
average daily net assets;
(3) Regarding the Dreyfus Fund, the expenses set forth above are the actual
total expenses without any expense reimbusement;
(4) With respect to the Fidelity VIP and VIP II funds, the expenses set forth
above are actual total expenses. However a portion of the brokerage commission
that certain funds pay was used to reduce fund expenses. In addition, certain
funds have entered into arrangements with their custodian and transfer agent
whereby interest earned on univested cash balances was used to reduce custodian
and transfer agent expenses. Including these reductions, the total operating
expenses presented in the table would have been .67% for the Growth Portfolio,
.92% for the Overseas Portfolio, and .73% for the Asset Manager Portfolio;
(5) The Van Eck Funds: 2.49% for the Worldwide Balance Fund and 1.24% for the
Worldwide Hard Assets Fund. The fee respecting In addition Van Eck has disclosed
that with respect to the Hard Assets Fund, the Fund directs certain portfolio
trades to a broker that, in turn pays a portion of the Fund's operating
expenses. For the year ended December 31, 1996, the Fund's expenses were
reduced by $7,290 under this arrangement. The Fund could have invested the
assets used in connection with the directed brokerage arrangement in an income
producing asset if it had not entered in to such an arrangement.
</FN>
</TABLE>
7
<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 Conservative Investors 78 120 165 275
Alliance Growth Investors 78 120 165 275
Alliance Growth 78 120 164 273
Alliance Growth and Income 77 116 158 262
Alliance Quasar 78 120 165 275
Alliance Technology 78 120 165 275
Fidelity VIP High Income 76 113 152 250
Fidelity VIP Growth 76 112 152 248
Fidelity VIP Money Market 72 100 151 207
Fidelity VIP Overseas 78 119 183 272
Fidelity VIP II Asset Manager 76 114 154 253
Fidelity VIP II Investment Grade Bond 75 109 146 237
Dreyfus Zero Coupon 76 111 150 145
Van Eck Hard Assets 81 129 178 302
Van Eck Worldwide Balanced 69 91 116 175
Dreyfus Stock Index 72 100 131 207
Tomorrow Short-Term Retirement 84 137 192 328
Tomorrow Medium-Term Retiremenet 84 137 192 328
Tomorrow Long-Term Retirement 84 137 192 328
</TABLE>
8
<PAGE>
<TABLE>
<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 Conservative Investors 24 75 129 275
Alliance Growth Investors 24 75 129 275
Alliance Growth 24 75 128 273
Alliance Growth and Income 23 71 122 262
Alliance Quasar 24 75 129 275
Alliace Technology 24 75 129 275
Fidelity VIP High Income 22 68 116 250
Fidelity VIP Growth 22 67 115 248
Fidelity VIP Money Market 18 55 95 207
Fidelity VIP Overseas 24 74 127 272
Fidelity VIP II Asset Manager 22 69 118 253
Fidelity VIP II Investment Grade Bond 21 64 110 237
Dreyfus Zero Coupon 22 66 114 245
Dreyfus Stock Index 18 55 95 207
Van Eck Hard Assets 27 84 142 302
Van Eck Worldwide Balanced 15 46 80 175
Tomorrow Short-Term Retirement 30 92 158 328
Tomorrow Medium-Term Retirement 30 92 158 328
Tomorrow Long-Term Retirement 30 92 158 328
</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.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1996
-------------------
<S> <C>
Alliance Conservative Investors
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.55
Accum Units o/s @ end of period 15,705.94
Alliance Growth & Income
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.85
Accum Units o/s @ end of period 116,342.75
Alliance Growth Investor
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.77
Accum Units o/s @ end of period 21,208.38
Alliance Growth
Accumulation Unit Value
Beginning of Period 10.00
End of Period 12.24
Accum Units o/s @ end of period 123,814.87
Alliance Technology
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.54
Accum Units o/s @ end of period 15,829.55
Alliance Quasar
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.28
Accum Units o/s @ end of period 4,796.29
Fidelity VIP Money Market
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.29
Accum Units o/s @ end of period 385,238.57
Fidelity VIP II Asset Manager
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.12
Accum Units o/s @ end of period 56,345.46
</TABLE>
10
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1996
-------------------
<S> <C>
Fidelity VIP Growth
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.92
Accum Units o/s @ end of period 149,722.06
Fidelity VIP High Income
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.90
Accum Units o/s @ end of period 55,015.77
Fidelity VIP II Inv. Grade Bond
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.49
Accum Units o/s @ end of period 40,777.94
Fidelity VIP Overseas
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.77
Accum Units o/s @ end of period 31,269.77
Van Eck Gold and Natural Resources
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.17
Accum Units o/s @ end of period 11,530.80
Van Eck World Wide Balance
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.83
Accum Units o/s @ end of period 8,944.65
Dreyfus Stock Index
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.74
Accum Units o/s @ end of period 113,481.41
Dreyfus Zero Coupon 2000
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.44
Accum Units o/s @ end of period 16,124.79
</TABLE>
11
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
1996
-------------------
<S> <C>
Tomorrow Short-Term
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.75
Accum Units o/s @ end of period 11,681.33
Tomorrow Medium-Term
Accumulation Unit Value
Beginning of Period 10.00
End of Period 10.67
Accum Units o/s @ end of period 8,703.52
Tomorrow Long-Term
Accumulation Unit Value
Beginning of Period 10.00
End of Period 11.04
Accum Units o/s @ end of period 18,501.53
* As of May 1, 1997 the Van Eck Gold and Natural Resources
Fund will no longer be available. The portfolio has been replaced by the Van Eck
Worldwide Hard Assets Fund, whose investment objective is described in the
section entitled "the Funds" of this Prospectus.
</TABLE>
*Funds were first invested in the Portfolios as listed below:
Alliance Growth and Income January 14, 1991
Alliance Growth Investors October 28, 1994
Alliance Growth September 15, 1994
Alliance Conservative Inv. October 28, 1994
Alliance Quasar August 15,1996
Alliance Technology January 22,1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Overseas January 28, 1987
Fidelity Asset Manager September 9, 1989
Fidelity Investment
Grade Bond December 5, 1988
Dreyfus Zero Coupon 2000 September 29, 1989
Dreyfus Stock Index August 31, 1990
Van Eck Gold and Natural Res. September 1, 1989
Van Eck Worldwide Balance December 23, 1994
Tomorrow Short-Term Retirement April 1, 1996
Tomorrow Medium-Term Retirement April 1, 1996
Tomorrow Long-Term Retirement April 1, 1996
12
<PAGE>
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.
13
<PAGE>
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.
Total return at the Variable Account level is reduced by all contract
charges: sales charges, mortality and expense risk charges, and the
administrative charges, and is therefore lower than the total return at a Fund
level, which has no comparable charges. Likewise, yield and effective yield at
the Variable Account level take into account all recurring charges (except sales
charges), and are therefore lower than the yield and effective yield at a Fund
level, which has no comparable charges. Performance information for a Subaccount
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 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.
14
<PAGE>
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 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 a corresponding portfolio of the available
Funds. The Company may, from time to time, add additional portfolios of a Fund,
and, when appropriate, additional 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.
15
<PAGE>
THE FUNDS
Alliance Funds, Fidelity Funds, Dreyfus Funds, Van Eck Funds and Tomorrow
Funds (collectively, the "Funds") are each registered with the SEC as a
diversified open-end management investment company under the 1940 Act. Each is
made up of different series funds or Portfolios ("Portfolios"). The Dreyfus
Stock Index Fund (also a "Fund" herein) is an open-end, non-diversified
management investment company. A summary of the investment objectives for each
portfolio is contained in the description of the Funds below. More detailed
information, including the advisory fee of each portfolio and other charges
assessed by each Fund, may be found in the relevant Fund prospectus, which
contains a discussion of the risks involved in investing in such Fund. The
prospectuses for each Fund are included with this Prospectus. The investment
objectives of the portfolios are as follows:
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Conservative Investors Portfolio
This portfolio seeks the highest total return without undue risk to
principal by investing in a diversified mix of publicly traded equity and
fixed-income securities.
Growth Investors Portfolio
This portfolio seeks the highest total reaturn available with reasonable
risk by investing in a diversified mix of publicly traded equity and
fixed-income securities.
Growth Portfolio
This portfolio seeks the long term growth of capital by investing
primarily in comon stocks and other equity securities.
Growth and Income Portfolio
This portfolio seeks to balance the objectives of reasonable current
income and opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
Technology Portfolio
This Portfolio seeks growth of capital through investment in companies expected
to benefit from advances in technology. This Portfolio invests principally in
diversified portfolio of securities of companies which use technogy extensively
in the development of new or improved products or processes
Quasar Portfolio
This portfolio seeks growth of capital by pursuing aggressiveinvestment
policies. The Portfolio invests principally in a diversified portfolio of
equity securities of any company and industry and in any type of security which
is believed to offer possibilities for capital appreciation.
Alliance Variable Products Series Fund, Inc., is managed by Alliance
Capital Management L.P., ("Alliance"). The fund also includes other portfolios
which are not available for use by the Separate Account. More detailed
information regarding management of the funds, investment objectives, investment
advisory fees and other charges, may be found in the current Alliance Fund
prospectus which contains a discussion of the risks involved in investing. The
Alliance Fund prospectus is included with this Prospectus.
16
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 Portfolio
This portfolio seeks to provide as high an investment return as is
consistent with the preservation of capital. This portfolio invests primarily in
debt obligations of the U.S. Treasury that have been stripped of their unmatured
interest coupons, interest coupons that have been stripped from debt obligations
issued by the U.S. Treasury, receipts and certificates for such stripped debt
obligations, and stripped coupons and zero coupon securities issued by domestic
corporations. This portfolio's assets will consist primarily of portfolio
securities which will mature on or about December 31, 2000, at which time the
portfolio will be liquidated. Prior to December 31, 2000, you will be offered
the opportunity to exchange your investment to another Subaccount. The Dreyfus
Corporation serves as this portfolio's investment adviser.
DREYFUS STOCK INDEX FUND
This Fund seeks to provide investment results that correspond to the price
and yield performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index. In
anticipation of taking a market position, the Fund is permitted to purchase and
sell stock index futures. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation. Wells Fargo Nikko Investment Advisers ("WFNIA")
serves as the index fund manager of the Dreyfus Stock Index Fund.
FIDELITY INVESTMENT VARIABLE INSURANCE PRODUCTS FUNDS
VIP Growth Portfolio
This portfolio seeks to aggressively achieve capital appreciation through
investments primarily in common stock.
VIP High Income Portfolio
This portfolio seeks to obtain a high level of current income by investing
primarily in high-yielding, high-risk, lower-rated, fixed-income securities
(commonly referred to as "junk bonds"), while also considering growth of
capital. The potential for high yield is accompanied by higher risk. For a more
detailed discussion of the investment risks associated with such securities,
please refer to the Fidelity Fund's attached prospectus.
VIP Overseas Portfolio
This portfolio seeks the long-term growth of capital primarily through
investments in securities of companies and economies outside the United States.
VIP Money Market Portfolio
This portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The portfolio will
invest only in high quality U.S. dollar-denominated money market securities of
domestic and foreign issuers. An investment in the VIP Money Market Portfolio is
neither insured nor guaranteed by the U.S. government, and there can be no
assurance that the portfolio will maintain a stable $1.00 share price.
VIP II Asset Manager Portfolio
This portfolio seeks to provide a high total return with reduced risk over
the long term by allocating its assets among stocks, bonds and short-term income
instruments.
VIP II Investment Grade Bond Portfolio
This portfolio seeks as high a level of current income as is consistent
with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities. The portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less.
Fidelity Management & Research Company ("FMR") is the investment advisor
for the Variable Insurance Products Funds. FMR has entered into a sub-advisory
agreement with FRM Texas, Inc., on behalf of the VIP Money Market Portfolio. On
behalf of the VIP Overseas Portfolio, FMR has entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., (FMR U.K.), Fidelity
Management & Research (Far East) Inc. (FMR Far East), and Fidelity International
Investment Advisors (FIIA). FMR U.K. and FMR Far East also are sub-advisors to
the VIP II Asset Manager Portfolio. Fidelity Funds include other portfolios
which are not available under this Prospectus as funding vehicles for the
Contracts. More detailed information regarding management of the funds,
investment objectives, investment advisory fees and other charges assesed by the
Fidelity Funds, are contained in the prospectuses of the Fidelity Funds,
included with this Prospectus.
17
<PAGE>
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Balanced Fund
This portfolio seeks long term capital appreciation together with current
income by investing its assets in the United States and other countries
throughout the world, and by allocating its assets among equity securities,
fixed-income securities and short-term instruments.
Worldwide Hard Assets Fund
This Portfolio seeks long-term capital appreciation by investing in
equity and debt securities of companies engaged to a significant extent in
the exploration, development, production,and distribution of (1) precious
metals; (2) ferrous and non-ferrous metals;(3) oil and gas; (4) forest
products; (5) real estate; and (6) other basic non-agricultual commodities
(collectively, " Hard Assets").
* As of May 1, 1997 the Van Eck Gold and Natural Resources Portfolio
is no longer being offered. The Portfolio will be replaced by the Van Eck
Worldwide Hard Assets Fund described above.
Van Eck Associates Corporation is the investment advisor and manager of
Van Eck Funds. Van Eck Associates Corporation has entered into sub-advisory
agreements to provide investment advice for certain portfolios of the Van Eck
Funds. Fiduciary International Inc. ("FII") serves as a sub-advisor to the
Worldwide Balanced Fund. Van Eck Funds include other portfolios which are not
available under this prospectus as funding vehicles for the Contracts. More
detailed information regarding management of the funds, investment objectives,
investment advisory fees and other charges assessed by the Van Eck Funds, are
contained in the relevant Fund prospectus included with this Prospectus.
TOMORROW FUNDS RETIREMENT TRUST
Short-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors who are
currently between 51 and 65 years of age and with an average remaining life
expectancy in the range of 20-30 years.
Medium-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors who are
currently between 36 and 50 years of age and with an average remaining life
expectancy in the range of 35-50 years.
Long-Term Retirement Fund
This portfolio seeks to satisfy the retirement goals of investors who are
currently between 22 and 35 years of age and with an average remaining life
expectancy in the range of 50 years or more.
Each Tomorrow Funds portfolio invests its assets, in varying amonts, in
equity and fixed-income securities of all types. The amount of assets allocated
to equity securities is currently invested, in varying amounts, among large
capitalization stocks, medium capitalization stocks, small capitalization stocks
and, indirectly through other investment companies, foreign securities.
Typically, the longer the average life expectancy of the target class of
investors in a Tomorrow Funds portfolio, the greater the allocation of assets of
that portfolio to securities with higher growth potential and, correspondingly,
more risk, such as small capitalization stocks. Conversely, the shorter the
average life expectancy of the target class of investors in a Tomorrow Funds
portfolio, the greater the emphasis on current income and capital preservation
of assets and, therefore, the greater the allocation of assets of that portfolio
to fixed-income securities. Each Tomorrow Funds portfolio will be managed more
conservatively as the average age of its target class of investors increases.
Weiss, Peck & Greer, L.L.C. is the investment adviser for the Tomorrow
Funds portfolios. Tomorrow Funds include other portfolios which are not
available under this Prospectus as funding vehicles for the Contracts. More
detailed information regarding management of the funds, investment objectives,
investment advisory fees and other charges assesed by the Tomorrow Funds, are
contained in the prospectuses of the Tomorrow Funds, included with this
Prospectus.
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE THEIR STATED
OBJECTIVES.
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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
relevant Fund. Based on the Company's view of present 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 relevant 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 Funds may be sold to separate accounts of life insurance
companies. The shares of the Funds 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 Funds simultaneously. Although
neither the Company nor the Funds currently foresee any such disadvantages,
either to variable life insurance policyowners or to variable annuity Owners,
each 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, each 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 such Fund. This
might force such Fund to sell securities at disadvantageous prices.
Substitution of Shares
If the shares of a Fund (or any portfolio within a 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.
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THE CONTRACT
The Contract described in this Prospectus is a deferred variable annuity.
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, seeTaxes, page .
How to Purchase a Contract
At the time of application, the Purchaser 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 may 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.
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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 6 1/2% 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.
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 Owner's 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 $2,000.You may make additional
payments of Premium prior to the Annuity Date, in amounts of at least $1000 or
$100 as part of an automatic investment plan. 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.
The initial Premium is allocated among the Subaccounts and Guaranteed
Account 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.
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 PREMIUMS TO IRA OR 403 (B) PLAN 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 "TAXES " ON PAGE .)
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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.
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 was mailed or otherwise delivered to you. (See
"Individual Retirement Annuities" on page .)
Unit Value and Contract Value
After the deduction of certain charges 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 invests. 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. (See
Appendix , "Guaranteed Account Transfers," page___.)
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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 ____.)
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 A Dollar Cost Averaging
Request form is available from the Administrative Office upon request.
To elect the Dollar Cost Averaging Option, the Owner's Contract Value must
be at least $12,000 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.
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Asset Rebalancing Option
The Company currently offers an option under which Owners may authorize
the Company to automatically exchange Contract Value periodically 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 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 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. If the Asset Rebalancing Option is
elected, all Contract Value allocated to the Subaccounts must be included in the
Asset Rebalancing Option.
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 State Premium 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.
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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.
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 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; however, the Surrender Charge
applies only to Premium received by the Company within seven (7) years of the
date of the withdrawal.
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The Surrender Charge 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. The amount of any withdrawal which exceeds the Free Withdrawal Amount
will be subject to the following charges:
Applicable Deferred
Sales Charge Percentage
Premium Year 1 6%
Premium Year 2 6%
Premium Year 3 5%
Premium Year 4 5%
Premium Year 5 4%
Premium Year 6 4%
Premium Year 7 2%
Premium Year 8
and thereafter None
No Surrender Charge is imposed against: (1) 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 as a 403 (b) Plan or
IRA. (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.
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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 for the
current Contract Year. The deduction will be made proportionally based on Your
value in each Subaccount and the Guaranteed Account. After the Annuity Date, the
Contract Maintenance Charge is deducted on a pro-rata basis from each annuity
income payment.
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.
(See also "Taxes" beginning on page .)
Other Expenses
There are deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying Prospectuses for each Fund.
Group and 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.
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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: the later of (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 IRA or 403 (b)
Plan Contracts, certain provisions of your retirement plan or the Code may
further restrict your choice of an Annuity Date. (See "Taxes ," page ____).
Annuity Options
The Owner may choose annuity payments which are fixed, or which are based
on the Variable Account, or a combination of the two. The Owner may, upon at
least 30 days prior written notice to us, at any time prior to the Annuity Date,
select or change an Annuity Option. If the Owner elects annuity payments which
are based on the Variable Account, the amount of the payments will be variable.
The amount of the annuity payment based on the value of a Subaccount is
determined through a calculation described in the Statement of Additional
Information, under the caption "Annuity Provisions". 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.
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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.
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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.
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.
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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;
(c) 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;
(d) declared or undeclared war or any act thereof; or
(e) service in the military, naval or air service of any country.
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<PAGE>
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;
(b) the amount requested must be at least $500;
(c) any applicable Surrender Charge will be deducted;
(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.
Withdrawals (including systematic withdrawals discussed below) may be taxable
and subject to a penalty tax. (See "Taxes" beginning on Page .)
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 seven 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 .)
32
<PAGE>
Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. 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 Contracts may be subject to
the terms and conditions of the retirement plan, regardless of the terms and
conditions of the Qualifiedissued in connection with IRAs or 403(b) Plans
Contract. (See "Taxes " 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.
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.
33
<PAGE>
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. A Surrender may be taxable and subject to a
tax penalty. (See "Taxes" discussed on page .)
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value as of the date the Company receives Your surrender
request, reduced by the following: (1) any applicable taxes not previously
deducted; (2) 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
certain distributions from 403(b) Plans Contracts. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See "Withholding" on page , and "Tax-Favored Plans" 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.
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.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 Funds, please see the accompanying relevant Fund Prospectus.
34
<PAGE>
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".)
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
Upon receipt of a lump sum payment on full surrender of the
Contract, the recipient is taxed on the portion of the payment that
exceeds the investment in the contract. The taxable portion is taxed as
ordinary income.
If the recipient receives annuity payments rather than a lump sum
payment, a portion of the payment is included in taxable income when
received. 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.
The recipient is able to exclude a portion of the payments received
from taxable income until the investment in the Contract is fully
recovered. Annuity payments are fully taxable after the investment in
the Contract is recovered. If the recipient dies before the investment
in the Contract is recovered, the recipient's estate is allowed a
deduction for the remainder.
35
<PAGE>
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.
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<PAGE>
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who
is either 37 1/2 years younger than the Owner or a grandchild of the Owner
may have Generation Skipping Transfer Tax consequences.
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. The designated
Beneficiary is the person to whom ownership of the contract passes by
reason of death, and must be a natural person. 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.
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 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity
contract unless money is distributed as part of the exchange. 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.
37
<PAGE>
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.
Withholding
The Company is required to withhold Federal income taxes on
withdrawals, lump sum distributions, and annuity payments that include
taxable income unless the payee elects to not have any withholding or in
certain other circumstances. Special withholding rules apply to payments
made to non-resident aliens.
Lump-sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of any
withdrawal or lump sum distribution unless You elect out of
withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments
based on a withholding certificate You file with the Company. If you do
not file a certificate, You will be treated, for purposes of
determining your withholding rates, as a married person with three
exemptions.
You are liable for payment of Federal income taxes on the taxable
portion of any withdrawal, distribution, or annuity payment. You may be
subject to penalties under the estimated tax rules if your withholding
and estimated tax payments are not sufficient.
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 a Fund is not treated as one investment but is treated as an
investment in a pro-rata portion of each underlying asset of such 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.
38
<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.
Tax-Favored 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.
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 401 retirement
plan. Distributions from a 401 qualified plan or 403(b) 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, 403(b) Plan or an
IRA. 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 tax
if the recipient is under age 59 1/2 (unless another exception applies under
Code Section 72(t)). A prospective Owner considering use of the Contract in this
manner should consult a competent tax advisor with regard to the suitability of
the Contract of this purpose and for information concerning the provisions of
the Code applicable to qualified plans, 403(b) Plans, and IRAs. .
39
<PAGE>
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. In addition, distributions from an IRA may be rolled over to
another IRA, provided certain conditions are met. 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. Contracts offered in connection with an IRA 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, 403(b) Plans are subject to additional requirements, including:
eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403 (b) Plan by this Prospectus are not available in all
states.
40
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
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>
A-1
<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%.
A-2
<PAGE>
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 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.
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.
<PAGE>
PART B
<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, 1997CALL 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, 1997
MULTIMANAGER NEW
B-2
<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-3
<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. The offering is on a continuous basis. Commissions in the
amount of $83,483 were retained by the Distributor.
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)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
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-4
<PAGE>
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)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.
Subaccount performance information has not been provided, because, for the
fiscal year ending December 31, 1996, no contracts were issued.
B-5
<PAGE>
*Funds were first invested in the Portfolios as listed below:
Alliance Growth and Income January 14, 1991
Alliance Growth Investors October 28, 1994
Alliance Growth September 15, 1994
Alliance Conservative
Investors October 28, 1994
Alliance Quasar August 15,1996
Alliance Technology January 22,1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Overseas January 28, 1987
Fidelity Asset Manager September 9, 1989
Fidelity Investment
Grade Bond December 5, 1988
Dreyfus Zero Coupon 2000 September 29, 1989
Dreyfus Stock Index August 31, 1990
Van Eck Gold and Natural Res. September 1, 1989
Van Eck Worldwide Balance December 23, 1994
Tomorrow Short-Term Retirement April 1, 1996
Tomorrow Medium-Term Retirement April 1, 1996
Tomorrow Long-Term Retirement April 1, 1996
*Effective May 1, 1997 the Gold and Natural Resources portfolios will no
longer be offered. The Portfolio is being replaced with the Van Eck Worldwide
Hard Assets Fund.
B-6
<PAGE>
C. Yield Quotations for each Subaccount other than the Money Market Subaccount
The yield quotations for each Subaccount other than the Money Market
Subaccount will be based on a thirty-day period. The computation is made by
dividing the net investment income per Accumulation Unit earned during the
period by the Unit Value on the last day of the period, according to the
following formula:
Yield = 2[(a - b + 1)6 - 1]
cd
Where: a = net investment income earned during the period by the
corresponding portfolios of the Funds 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 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 Deferred Sales 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 Transfer of Contract Values" on page 15 of
the Prospectus)
D. Non - Standardized Performance Data
1. 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)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
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. Subaccount performance information has not been provided,
because, for the fiscal year ending December 31, 1996, no contracts were issued.
B-7
<PAGE>
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 separate 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 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 variable annuity reflect the deduction of contractual expenses
such as the mortality and expense risk charge, the Administrative Fee and the
Annual Fee, 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 Purchase
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-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, 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;
(c) an order of the Securities and Exchange Commission permits delay for
the protection of security holders; or
(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.
B-9
<PAGE>
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 Funds 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.
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.
B-10
<PAGE>
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:
(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%.
B-11
<PAGE>
Net Investment Factor
The net investment factor is used to determine how investment results
of a 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 relevant
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 such 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 relevant
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.
(c)is equal to:
(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
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, 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 and the Variable Account
included herein shall be considered only as bearing upon the ability of the
Company to meet its obligations under the Contracts.
F-1
<PAGE>
AIG LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
AIG Life Insurance Company:
We have audited the accompanying balance sheets of AIG Life Insurance Company (a
wholly-owned subsidiary of American International Group, Inc.) as of December
31, 1996 and 1995, and the related statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIG Life Insurance Company as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 22, 1997
F-3
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
December 31,
1996 1995
------------- ----------
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 2,271,326 $ 1,963,265
(cost: 1996 - $2,190,580: 1995 - $1,823,860)
Equity securities:
Common stock
(cost: 1996-$3,548: 1995 - $1,916) 5,578 2,437
Non-redeemable preferred stocks
(cost: 1996-$0: 1995 - $2,562) - 2,553
Mortgage loans on real estate, net 297,363 239,127
Real estate, net of accumulated
depreciation of $4,099 in 1996; and $1,755 in 1995 16,169 16,892
Policy loans 1,873,961 2,961,726
Other invested assets 64,109 68,252
Short -term investments 100,036 202,652
Cash 5,780 1,132
-------------- --------------
Total investments and cash 4,634,322 5,458,036
Amounts due from related parties 3,193 4,111
Investment income due and accrued 107,268 242,748
Premium and insurance balances receivable-net 36,357 28,189
Reinsurance assets 218,453 207,827
Deferred policy acquisition cost 84,287 60,625
Separate and variable accounts 644,980 190,441
Other assets 5,092 7,509
-------------- --------------
Total assets $ 5,733,952 $ 6,199,486
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
December 31,
1996 1995
-------------- ----------
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 3,810,095 $ 4,574,995
Future policy benefits 630,520 566,487
Reserve for unearned premiums 29,911 47,590
Policy and contract claims 191,338 177,540
Reserve for commissions, expenses and taxes 2,860 24,134
Insurance balances payable 42,137 22,186
Deferred income taxes 5,713 24,585
Amounts due to related parties 5,921 2,380
Federal income tax payable 2,959 4,606
Separate and variable accounts 644,980 190,441
Minority interest 6,077 6,664
Other liabilities 30,932 234,850
------------ ------------
Total liabilities 5,403,443 5,876,458
----------- -----------
Commitments and contingencies (See Note 6)
Stockholders' Equity
Common stock, $5 par value; 1,000,000 shares
authorized; 976,703 shares issued and
outstanding 4,884 4,884
Additional paid-in capital 123,283 123,283
Unrealized appreciation of investments,
net of future policy benefits and taxes
of $33,823 in 1996 and $47,209 in 1995 62,814 87,673
Retained earnings 139,528 107,188
------------ ------------
Total stockholders' equity 330,509 323,028
Total liabilities and stockholders' equity $ 5,733,952 $ 6,199,486
</TABLE>
========== ==========
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
-----------------------------------
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C>
Revenues:
Premiums $ 394,480 $ 364,502 $ 265,990
Net investment income 504,661 435,683 239,212
Realized capital (losses) gains (51) (417) 1,953
------------- ------------- -----------
Total revenues 899,090 799,768 507,155
--------- --------- ---------
Benefits and expenses:
Benefits to policyholders 189,933 202,105 196,175
Increase in future policy benefits
and policyholders' funds on deposit495,529 392,592 158,935
Acquisition and insurance expenses 161,841 170,343 127,941
--------- -------- ---------
Total benefits and expenses 847,303 765,040 483,051
--------- -------- ---------
Income before income taxes 51,787 34,728 24,104
--------- ---------- ----------
Income taxes (benefits):
Current 25,087 18,709 28,115
Deferred (5,486) (6,339) (19,447)
----------- ----------- -----------
Total income taxes 19,601 12,370 8,668
--------- --------- -----------
Net income before minority interest 32,186 22,358 15,436
Minority interest income (loss) 154 11 (156)
----------- ------------ -------------
Net income $ 32,340 $ 22,369 $ 15,280
========= ========= ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Years ended December 31,
1996 1995 1994
------------ ------------ ---------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 4,884 $ 4,884 $ 4,884
----------- ----------- -----------
Balance at end of year 4,884 4,884 4,884
------------ ----------- ------------
Additional paid-in capital
Balance at beginning of year: 123,283 123,283 123,283
---------- ---------- ----------
Balance at end of year 123,283 123,283 123,283
---------- ---------- ----------
Unrealized appreciation (depreciation)
of investments, net
Balance at beginning of year 87,673 (15,029) 40,159
Change during year (50,245) 170,003 (84,904)
Changes due to deferred income tax
(expense) benefit and future
policy benefits 25,386 (67,301) 29,716
---------- ------ ------
Balance at end of year 62,814 87,673 (15,029)
------------ ----------- ------------
Retained earnings
Balance at beginning of year 107,188 84,819 69,539
Net income 32,340 22,369 15,280
----------- ---------- -----------
Balance at end of year 139,528 107,188 84,819
---------- ---------- -----------
Total stockholders' equity$ 330,509 $ 323,028 $ 197,957
========= ========= ==========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE>
<TABLE>
<CAPTION>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
---------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 32,340 $ 22,369 $15,280
--------- ----------- ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains
and losses included in income:
Change in insurance reserves 72,151 133,207 88,718
Change in premiums and insurance balances
receivable and payable -net 11,782 (4,695) 11,668
Change in reinsurance assets (10,627) (201) 5,553
Change in deferred policy acquisition costs (23,662) (6,151) (14,906)
Change in investment income due and accrued 135,480 (126,299) (82,023)
Realized capital gains 51 417 (1,953)
Change in current and deferred income taxes -net (7,133) (15,112) (16,708)
Change in reserves for commissions, expenses and taxes(21,274) (9,857) 23,055
Change in other assets and liabilities - net 11,852 (7,466) 6,815
-----------------------------------------
Total adjustments 168,620 (36,157) 20,219
Net cash (used in) provided 200,960 (13,788) 35,499
by operating activities
Cash flows from investing activities:
Cost of fixed maturities, at market sold 40,098 36,678 19,392
Cost of fixed maturities, at market matured or redeemed124,621 76,989 85,628
Cost of equity securities sold 2,607 405 -
Realized capital gains (51) 582 3,176
Purchase of fixed maturities (524,245) (590,864) (252,964)
Purchase of equity securities (1,678) (1,213) -
Mortgage loans granted (74,590) (75,100) (53,977)
Repayments of mortgage loans 16,416 12,406 16,464
Change in policy loans 1,087,765 (1,589,502) (1,184,455)
Change in short-term investments 102,616 (115,532) 18,361
Change in other invested assets 11,002 (4,296) (6,652)
Other - net (38) (6,042) (10,583)
Net cash used in investing activities 784,523 (2,255,489) (1,365,610)
------------- -------------------------
Cash flows from financing activities:
Change in policyholders' funds on deposit (980,835) 2,265,900 1,330,841
--------------------------- ----------
Net cash provided by financing activities (980,835) 2,265,900 1,330,841
-------------- ------------ ----------
Change in cash 4,648 (3,377) 730
Cash at beginning of year 1,132 4,509 3,779
--------------------------------------------
Cash at end of year $ 5,780$ 1,132$ 4,509
=============== =============== ==============
</TABLE>
See accompanying notes to financial statements
F-8
<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.
F-9
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(b) Investments: (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments
are capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity,
net of any related taxes. Also included in this category is an interest
rate cap agreement, which is carried at its amortized cost. The cost of
the cap is being amortized against investment income on a straight line
basis over the life of the cap.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and the
Parent have a written tax allocation agreement whereby the Parent agrees
not to charge the Company a greater portion of the consolidated tax
liability than would have been paid by the Company if it had filed a
separate return. Additionally, the Parent agrees to reimburse the Company
for any tax benefits arising out of its net losses within ninety days
after the filing of that consolidated tax return for the year in which
these losses are utilized. Deferred federal income taxes are provided for
temporary differences related to the expected future tax consequences of
events that have been recognized in the Company's financial statements or
tax returns.
(d)Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident and
health insurance are reported as earned over the contract term. The
portion of accident and health premiums which is not earned at the end of
a reporting period is recorded as unearned premiums. Estimates of premiums
due but not yet collected are accrued. Policy benefits and expenses are
associated with earned premiums on long-duration contracts resulting in a
level recognition of profits over the anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized in
relation to expected gross profits over the life of the policies (see Note
3).
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-10
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(f)Separate and Variable Accounts: These accounts represent funds for which
investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the
assets are carried at market value. The assets of each account are legally
segregated and are not subject to claims which arise out of any other
business of the Company.
(g)Reinsurance Assets: Reinsurance assets include the balances due from both
reinsurance and insurance companies under the terms of the Company's
reinsurance arrangements for ceded unearned premiums, future policy
benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It also
includes funds held under reinsurance treaties.
(h) Accounting Standards:
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed
Of" (FASB 121). This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and an impairment loss must be recognized.
FASB 121 was effective for the Company commencing January 1, 1996. The
adoption of this statement during 1996 had no significant effect on the
Company's result of operations, financial condition or liquidity.
In December 1995, FASB issued "Special Report, a Guide to the
Implementation of Statement No. 115 on Accounting for Certain Investments
in Debt and Equity Securities". Among other things, this guide provided
for a transition provision permitting a one-time transfer of debt
securities from the held to maturity classification to the available for
sale classification. The Company did not transfer any securities from the
held to maturity classification to the available for sale classification.
(i)During 1996, the Company changed it's method of accounting for a
subsidiary to reflect the minority interest. The financial statements for
1994 and 1995 have been reclassified to conform to this presentation.
2. Investment Information
a) Statutory Deposits: Securities with a carrying value of $2,460,000
and $2,639,000 were deposited by the Company under requirements of
regulatory authorities as of December 31, 1996 and 1995, respectively.
F-11
<PAGE>
2. Investment Information - (continued)
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Fixed maturities $164,548 138,341 $109,826
Equity securities 219 225 241
Mortgage loans 22,797 19,399 14,655
Real estate 2,125 997 1,584
Policy loans 314,020 268,454 108,453
Cash and short-term investments 2,924 4,348 1,684
Other invested assets 2,549 6,129 4,070
---------- ---------- ----------
Total investment income 509,182 437,893 240,513
Investment expenses 4,521 2,210 1,301
---------- ----------- -----------
Net investment income $504,661 $435,683 $239,212
======== ======== ========
</TABLE>
(c) Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for 1996,
1995 and 1994 are summarized below (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1996 1995 1994
--------------------------
<S> <C> <C> <C>
Net realized (losses) gains on investments:
Fixed maturities $ (79)$ (166) $ (10)
Equity securities 28 712 442
Mortgage loans - (1,000) (1,223)
Other invested assets - 37 2,744
------------- ----------- --------
Net realized gains $ (51) $ (417) $ 1,953
========== ========== =========
Change in unrealized appreciation
(depreciation) of investments:
Fixed maturities $ (58,659) $168,561 $(90,779)
Equity securities 1,517 69 293
Other invested assets 6,897 1,373 5,582
----------- --------------------
Net change in unrealized appreciation
(depreciation) of investments $ (50,245) $170,003 $(84,904)
========== ======== =========
</TABLE>
Proceeds from the sale of investments in fixed maturities during 1996,
1995 and 1994 were $40,098,000, $36,678,000, and $17,431,000,
respectively.
During 1996, 1995 and 1994, gross gains of $176,000, $109,000, and
$394,000, respectively, and gross losses of $255,000, $275,000, and
$404,000, respectively, were realized on dispositions of fixed maturity
investments.
F-12
<PAGE>
2. Investment Information - (continued)
During 1996, 1995 and 1994, gross gains of $28,000, $712,000, and
$442,000, respectively, were realized on disposition of equity securities.
(d)Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1996 and 1995, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $2,265,000 and $833,000 and gross losses of $235,000 and
$320,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
1996 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----- --------- ---------- --------- ------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 47,848 $ 7,814 $151 $55,511
States, municipalities and
political subdivisions 327,944 15,525 1,934 341,535
Foreign governments 33,340 2,855 113 36,082
All other corporate 1,781,448 71,994 15,244 1,838,198
--------- ---------- ---------- ---------
Total fixed maturities $2,190,580 $ 98,188 $ 17,442 $2,271,326
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
1995 Amortized Unrealized Unrealized Market
Cost Gains Losses 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>
F-13
<PAGE>
2. Investment Information - (continued)
The amortized cost and estimated market value of fixed maturities,
available for sale at December 31, 1996, by contractual maturity, are
shown below (in thousands). Actual maturities could differ from
contractual maturities because certain borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $ 74,325 $ 76,640
Due after one year through five years 598,151 615,822
Due after five years through ten years 818,547 849,841
Due after ten years 699,557 729,023
--------- ---------
$2,190,580 $2,271,326
</TABLE>
(e)CMO's: CMO's are U.S. Government and Government agency backed and triple
A-rated securities. In the preceding table, CMO's are included in other
corporate fixed maturities. At December 31, 1996 and 1995, the market
value of the CMO portfolio was $435,313,000 and $457,111,000,
respectively; the estimated amortized cost was approximately $419,276,000
in 1996 and $433,481,000 in 1995. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities contained
in the portfolio at December 31, 1996.
(f)Fixed Maturities Below Investment Grade: At December 31, 1996 and 1995,
the fixed maturities held by the Company that were below investment grade
had an aggregate amortized cost of $136,502,000 and $74,622,000,
respectively, and an aggregate market value of $135,218,000 and
$73,894,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h)Investments Greater than 10% Equity: The market value of investments in
the following companies and institutions exceeded 10% of the Company's
total stockholders' equity at December 31, 1996 (in thousands):
Fixed Maturities:
Ford Motor Credit Corporation $ 38,202
GMAC $ 49,541
Other Invested Assets:
Equity Linked Investors II, L.P. $ 43,808
F-14
<PAGE>
3. Deferred Policy Acquisition Costs
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against
future income and the related current amortization charged to income,
excluding certain amounts deferred and amortized in the same period (in
thousands). The 1996 and 1995 amortization includes $6,096,000 and
$9,455,000, respectively, to recognize excess loss experienced on credit
insurance.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1996 1995 1994
---------------------------
<S> <C> <C> <C>
Balance at beginning of year $60,625 $54,474 $39,568
Acquisition costs deferred 43,534 35,008 29,442
Amortization charged to income (19,872) (28,857) (14,536)
------- -------- --------
Balance at end of year $84,287 $60,625 $54,474
======= ======= =======
</TABLE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a)The analysis of the future policy benefits and policyholders' funds on
deposit at December 31, 1996 and 1995 follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Future Policy Benefits:
Long duration contracts $ 624,659 $ 556,669
Short duration contracts 5,861 9,818
----------- ------------
$ 630,520 $ 566,487
========== ===========
Policyholders' funds on deposit:
Annuities $ 1,082,217 $ 944,629
Universal life 130,413 171,564
Guaranteed investment contracts (GICs) 278,680 249,844
Corporate owned life markets 2,314,149 3,204,912
Other investment contracts 4,636 4,046
------------- -----------
$3,810,095 $4,574,995
========= =========
</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 1.9
percent.
F-15
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit - (continued)
(c)The liability for policyholders' funds on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of
issuance and range from 3.0 percent to 8.0 percent. Credited interest
rate guarantees are generally for a period of one year. Withdrawal
charges generally range from 6.0 percent to 10.0 percent grading to zero
over a period of 6 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited generally
range from 4.7 percent to 8.1 percent and maturities range from 2 to 7
years.
(iii) Interest rates on corporate-owned life insurance business are
guaranteed at 4.0 percent and the weighted average rate credited in 1996
was 9.4 percent.
(iv) The universal life funds, exclusive of corporate owned life insurance
business, have credited interest rates of 5.9 percent to 7.5 percent and
guarantees ranging from 3.5 percent to 5.5 percent depending on the year
of issue. Additionally, universal life funds are subject to surrender
charges that amount to 10.0 percent of the fund balance and grade to zero
over a period not longer than 20 years.
5. Income Taxes
(a)The Federal income tax rate applicable to ordinary income is 35% for
1996, 1995 and 1994. Actual tax expense on income from operations differs
from the "expected" amount computed by applying the Federal income tax
rate because of the following (in thousands except percentages):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
Percent Percent Percent
of of of
pre-tax pre-tax pre-tax
operating operating operating
Amount Income Amount Income Amount Income
---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $ 18,125 35.0% $ 12,155 35.0% $ 8,436 35.0%
Prior year federal
income tax benefit (51) (0.1) (798) (2.3) - -
State income tax 850 1.6 894 2.6 197 0.8
Other 677 1.3 119 0.3 35 0.2
--------- ---- --------- ------ ------- -----
Actual income tax expense $19,601 37.8% $ 12,370 35.6% $ 8,668 36.0%
============= ======== ==== ======= ====
</TABLE>
F-16
<PAGE>
5. Income Taxes - (continued)
(b) The components of the net deferred tax liability were as follows
(in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
<S> <C> <C>
Deferred tax assets:
Adjustment to life reserves $41,522 $24,940
Adjustments to mortgage loans and investment income 2,531 2,546
Adjustment to policy and contract claims 10,687 11,725
Other 2,585 1,232
57,325 40,443
--------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $ 23,047 $ 13,040
Unrealized appreciation on investments 33,823 47,209
Bond discount 4,085 3,458
Other 2,083 1,321
---------- ---------
63,038 65,028
--------- --------
Net deferred tax liability $ 5,713 $ 24,585
========== ========
</TABLE>
(c)At December 31, 1996, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,204,000 of "Policyholders'
Surplus" as defined under the Code. Under provisions of the Code,
"Policyholders' Surplus" has not been currently taxed but would be taxed
at current rates if distributed to the Parent. There is no present
intention to make cash distributions from "Policyholders' Surplus" and
accordingly, no provision has been made for taxes on this amount.
(d)Income taxes paid in 1996, 1995, and 1994 amounted to $25,412,000,
$26,030,000, and $25,052,000, respectively.
6. Commitments and Contingencies
The Company, in common with the insurance industry in general, is subject
to litigation, including claims for punitive damages, in the normal course
of their business. The Company does not believe that such litigation will
have a material effect on its operating results and financial condition.
7. Fair Value of Financial Instruments
(a)Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments may
or may not be recognized in the balance sheet. In the measurement of the
fair value of certain of the financial instruments, quoted market prices
were not available and other valuation techniques were utilized. These
derived fair value estimates are significantly affected by the assumptions
used. FASB 107 excludes certain financial instruments, including those
related to insurance contracts.
F-17
<PAGE>
7. Fair Value of Financial Instruments - (continued)
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair values.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair value of the policy loans were not calculated as the
Company believes it would have to expend excessive costs for the benefits
derived. Therefore, the fair value of policy loans was estimated at
carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair value of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
(b) The fair value and carrying amounts of financial instruments
is as follows (in thousands):
<TABLE>
<CAPTION>
1996 Fair Carrying
Value Amount
<S> <C> <C>
Cash and short-term investments $ 105,816 $ 105,816
Fixed maturities 2,271,326 2,271,326
Equity securities 5,578 5,578
Mortgage and policy loans 2,183,873 2,171,324
Interest rate cap 75 94
Policyholders' funds on deposit $ 3,832,601 $ 3,810,095
1995 Fair Carrying
Value Amount
Cash and short-term investments $ 203,784 $ 203,784
Fixed maturities 1,963,265 1,963,265
Equity securities 4,990 4,990
Mortgage and policy loans 3,216,321 3,200,853
Interest rate cap 144 170
Policyholders' funds on deposit $ 4,592,841 $ 4,574,995
</TABLE>
F-18
<PAGE>
8. Stockholders' Equity
(a)The maximum stockholder dividend which can be paid without prior
regulatory approval is subject to restrictions relating to statutory
surplus and statutory net gain from operations. These restrictions limited
payment of dividends to $39,027,000 during 1996, however, no dividends
were paid during the year.
(b)The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $221,567,000 at December 31, 1996 and
$176,952,000 at December 31, 1995. Statutory net income amounted to
$47,074,000, $39,712,000, and $47,002,000 for 1996, 1995 and 1994,
respectively.
9. Employee Benefits
(a)The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and completed
twelve months of continuous service are eligible to participate in this
plan. An employee with 5 or more years of service is entitled to pension
benefits beginning at normal retirement age 65. Benefits are based upon a
percentage of average final compensation multiplied by years of credited
service limited to 44 years of credited service. Prior to January 1, 1996,
the average final compensation is subject to certain limitations. Annual
funding requirements are determined based on the "projected unit credit"
cost method which attributes a pro rata portion of the total projected
benefit payable at normal retirement to each year of credited service.
Pension expense for current service costs, retirement and termination
benefits for the years ended December 31, 1996, 1995 and 1994 were
approximately $400,000, $304,000, and $179,000, respectively. The Parent's
plans do not separately identify projected benefit obligations and plan
assets attributable to employees of participating affiliates. The
projected benefit obligations exceeded the plan assets at December 31,
1996 by $42,149,000.
(b)The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which, during the two years ended December 31, 1994,
provided for salary reduction contributions by employees and matching
contributions by the Parent of up to 2 percent of annual salary.
Commencing January 1, 1995, the 401(k) plan provided for matching
contributions by the Parent of up to 6 percent of annual salary depending
on the employee's years of service.
(c)In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
(d)The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provide for eligible employees
to receive privileges to purchase AIG common stock at a price equal to 85%
of the fair market value on the date of grant of the purchase privilege.
The Parent has not recognized compensation costs for either plan. The
effect of the compensation costs, as determined consistent with
FASB 123, was not computed on a subsidiary basis, but rather on a
consolidated basis for all subsidiaries of the Parent and therefore are
not presented herein.
F-19
<PAGE>
10. Leases
(a)The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1996, the
future minimum lease payments under operating leases were as follows (in
thousands):
Year Payment
1997 $ 3,833
1998 2,785
1999 1,846
2000 1,596
2001 1,471
Remaining years after 2001 4,414
-------
Total $15,945
-------
-------
Rent expense approximated $4,263,000, $3,764,000, and $3,542,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
(b) Sublease Income -The Company does not participate in sublease agreements.
11. Reinsurance
(a)The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term treaties.
Accident and health insurance risks are reinsured primarily under
coinsurance, excess of loss and quota share treaties. Amounts recoverable
from reinsurers are estimated in a manner consistent with the assumptions
used for the underlying policy benefits and are presented as a component
of reinsurance assets. A contingent liability exists with respect to
reinsurance ceded to the extent that any reinsurer is unable to meet the
obligations assumed under the reinsurance agreements.
The Company also reinsures portions of its life and accident and health
insurance risks with affiliated companies (see Note 12). The effect of all
reinsurance contracts, including reinsurance assumed, is as follows (in
thousands, except percentages):
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1996 Assumed
Gross Ceded Assumed Net to Net
----- ----- ------- --- --------
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $53,854,456 $17,392,184 $ 605,831 $37,068,103 1.6%
=========== ============ =========== =============
Premiums:
Life 187,886 49,150 327 139,063 -
Accident and Health 97,971 28,359 107,447 177,059 60.7%
Annuity 78,358 - - 78,358 -
--------------- --------- ---------- ---------- ----------
Total Premiums $ 364,215 $77,509 $ 107,774 $394,480 27.3%
============ ============ ============= =============
</TABLE>
F-20
<PAGE>
11. Reinsurance - (continued)
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1995 Assumed
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>
<TABLE>
<CAPTION>
Percentage
of Amount
December 31, 1994 Assumed
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%
========================== ========== ============
</TABLE>
(b) The maximum amount retained on any one life by the Company is $1,000,000.
(c)Reinsurance recoveries, which reduced death and other benefits,
approximated $54,456,000, $51,264,000, and $34,252,000, respectively, for
each of the years ended December 31, 1996, 1995 and 1994.
The Company's reinsurance arrangements do not relieve the Company from its
direct obligation to its insureds.
12. Transactions with Related Parties
(a)The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance risks.
Premium income and commission ceded for 1996 amounted to $1,345,000 and
$0, respectively. Premium income and commission ceded for 1995 amounted to
$1,269,000 and $1,000, respectively. Premium income and commission ceded
to affiliates amounted to $1,267,000 and $2,000 for the year ended
December 31, 1994. Premium income and ceding commission expense assumed
from affiliates aggregated $103,885,000 and $27,609,000, respectively, for
1996, compared to $90,688,000 and $23,422,000, respectively, for 1995, and
$75,005,000 and $20,374,000, respectively for 1994.
F-21
<PAGE>
12. Transactions with Related Parties - (continued)
(b)The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional cost
allocation basis which management believes to be reasonable. For the years
ended December 31, 1996, 1995 and 1994, the Company was charged
$28,277,000, $23,193,000, and $21,392,000, respectively, for expenses
attributed to the Company but incurred by affiliates. During the same
period, the Company received reimbursements from affiliates aggregating
$17,598,000, $14,496,000, and $13,383,000, respectively, for costs
incurred by the Company but attributable to affiliates.
(c) During 1996, the Company purchased 1,500,000 shares of AIG Life Ireland,
LTD., a subsidiary.
<PAGE>
PART C
<PAGE>
II-1
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
a. Financial Statements (filed herewith electronically)
b. Exhibits
1. Resolution of Board of Directors of the Company
authorizing the establishment of the Variable Account*
2. Not Applicable
3.(i) Principal Underwriter's Agreement**
(ii) Broker-Dealer Agreement**
(iii) General Agency Agreement***
(iv) Distribution Agreement***
(v) Buy-Sell Agreement #
4. Form of Annuity Contract
(i) Old Contract #
(ii) New Contract ####
5. Application for Annuity Contract#
6.(i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company*
7. Not Applicable
8. Administrative Agreement* (filed confidentially)
9. Opinion of Counsel (filed herewith electronically)
10.(i) Consent of Counsel (filed herewith electronically)
(ii) Consent of Independent Accountants (filed herewith
electronically)
11. Not Applicable
12. Agreement Governing Contribution*
13. Performance Data##
14. Financial Data Schedule (not applicable)
15. Powers of Attorney(filed herewith electronically)
* Incorporated by reference to initial filing on Form N-4, (File No.
33-16708) filed on October 7, 1986.
** Incorporated by reference to Post-Effective Amendment No. 3 to Form
N-4 (File No. 33-16708), filed on May 1, 1989.
*** Incorporated by reference to Post-Effective Amendment No. 4 to Form
N-4 (File No. 33-16708), filed on May 1, 1990.
# Incorporated by reference to Registrant's Post-Effective Amendment
No. 2 to Form N-4 (File No. 33-39171) filed on April 30, 1992.
## Incorporated by reference to Registrant's Post-Effective Amendment
No. 3 to Form N-4 (File No. 33-39171) filed on May 1, 1993.
### Incorporated by reference to Post-Effective Amendment No. 7 for
Variable Account II on Form S-6 (File No. 33-18301) filed on December
8, 1994.
#### Incorporated by reference to Post-Effective Amendment No. 9 for
Variable Account I on Form N-4 (FileNo. 33-19171) filed
on May 1, 1996
II-2
<PAGE>
Item 25. Directors and Officers of the Depositor.
The following are the Officers and Directors of the Company:
Officers:
Name and Principal Position and Offices
Business Address with the Company
Ernest E. Stempel(1) Director &Chairman of the Board
Robert J. O'Connell(2) Director, Chief Executive Officer
&President
Michele L. Abruzzo(2) Senior Vice President
James A. Bambrick(2) Senior Vice President
Howard Gunton(3) Vice President & Comptroller
Jeffrey M. Kestenbaum(2) Senior Vice President
Robert Liguori(3) Vice President and Counsel
Edward E. Matthews(1) Director, Senior Vice President -
Finance
Jerome T. Muldowney(4) Director, Vice President -
Domestic Investments
Michael Mullin(3) VicePresident
Nicholas A. O'Kulich(1) Director, Vice President & Treasurer
John R. Skar(3) Director,Vice President Chief Actuary
Gerald W. Wyndorf(2) Director& Executive VicePresident
Elizabeth M. Tuck(1) Secretary - Corporate
Maurice R.Greenerg(1) Director
Edwin A.G Manton (1) Director
Win J. Neuger (1) Director
Howard I. Smith (1) Director
(1) Business address is: 70 Pine Street, New York, New York 10270
(2) Business address is: 80 Pine Street, New York, New York 10005
(3) Business address is: One Alico Plaza, Wilmington, Delaware 19801
(4) Business address is: One Chase Plaza, New York, New York 10005
II-3
<PAGE>
Directors:
Name Address
M.R. Greenberg American International Group, Inc.
70 Pine Street
New York, New York 10270
Edwin A.G. Manton American International Group, Inc.
70 Pine Street
New York, New York 10270
Edward E. Matthews American International Group, Inc.
70 Pine Street
New York, New York 10270
Jerome T. Muldowney American International Group, Inc.
One Chase Plaza
New York, New York 10005
Win J. Neuger American International Group, Inc.
70 Pine Street
New York, New York 10270
Robert J. O'Connell American International Group, Inc.
80 Pine Street
New York, New York 10005
Nicholas A. O'Kulich American International Group, Inc.
70 Pine Street
New York, New York 10270
John R. Skar AIG Life Insurance Company
One Alico Plaza
Wilmington, DE 19801
Howard I. Smith AmericanInternational Group, Inc.
70 Pine Street
New York, New York 10270
Ernest E. Stempel American International Companies
70 Pine Street
New York, New York 10270
Gerald W. Wyndorf American International Companies
80 Pine Street
New York, New York 10005
II-4
<PAGE>
Item 26. Persons Controlled by or Under Common Control with the
Depositor or Registrant
See Chart of Ownership, Exhibit C26
Item 27. Number of Contract Owners.
There were approximately 9,910 contractholders as of March 31, 1997
Item 28. Indemnification
Incorporated by reference to initial Form N-4 (File No. 33-9144) filed on
October 7, 1986, by American International Life Assurance Company of New
York, an affiliate of Registrant.
Item 29. Principal Underwriter
a. AIG Equity Sales Corp. also acts as the principal underwriter
for other separate accounts of the Depositor, as well as the
separate accounts of American International Life Assurance
Company of New York, and for the AIG All Ages Funds, Inc. These
are affiliated companies.
b. The following information is provided for each director and
officer of the Principal Underwriter:
Name and Principal Positions and Offices
Business Address with Underwriter
Michele L. Abruzzo(1) Director and President
Kevin Clowe (2) Director and Vice President
Edward E. Matthews(1) Director and Chairman of the Board
Jerome T. Muldowney(3) Director
Robert J. O'Connell(1) Director
Ernest E. Stempel(2) Director
Kenneth F. Judkowitz(1) Treasurer,Comptroller, VicePresident
Philomena Scamardella(1) Vice President and Senior
Compliance Officer
Florence Davis(2) Director and General Counsel
Elizabeth M. Tuck(2) Secretary
Daniel Keith Kingsbury(2) Vice President
(1) Business address is: 80 Pine Street, New York, N Y 10270.
(2) Business address is: 70 Pine Street, New York, NY 10270
(3) Business address is: One Chase Manhattan Plaza, 57th Flr,
New York, NY 10005
II-5
<PAGE>
>
c.
Name of Underwriting
Principal Discounts Compensation on Brokerage
Underwriter and Commissions Redemptions Commissions Compensation
AIG Equity Sales $83,483 $0 $0 $0
Corp.
Item 30. Location of Accounts and Records.
Kenneth F. Judkowitz, Assistant Vice President of the Company, whose address
is 80 Pine Street, New York, New York 10005, maintains physical possession of
the accounts, books or documents of the Variable Account required to be
maintained by Section 31(a) of Investment Act of 1940 and the rules promulgated
thereunder.
Item 31. Management Services.
Not Applicable
II-3
<PAGE>
Item 32. Undertakings.
a. Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never
more than sixteen (16) months old for so long as payments under the
variable annuity contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a Contract offered by the Prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a postcard or similar written communication affixed
to or included in the Prospectus that the applicant can remove to send
for a Statement of Additional Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request.
d. Registrant represents that in connection with 403(b) Plans, it is
relying on the November 28, 1988 no-action letter issued by the SEC to
the American Council of Life Insurance.
e. Registrant represents that Variable Account I meets the definition of a
separate account under the federal securities laws.
f. Registrant represents that the fees and charges deducted under the
contracts covered by this registration statement, in the aggregate are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by the company.
II-4
<PAGE>
Subsidiaries of American International Group, Inc.
<TABLE>
<CAPTION>
% of Voting
Securities
Owned by its
Jurisdiction of Immediate
Name of Corporation Incorporation Parent(1)
<S> <C> <C>
Starr Delaware (2)
SICO Panama (2)
AIG (Registrant)(3) Delaware (4)
AICCO New Hampshire 100%
AIG Asset Management Group, Inc. Delaware 100%
AIG Aviation, Inc. Georgia 100%
AIG Capital Corp. Delaware 100%
AIG Capital Management Corp. Delaware 100%
AIG Capital Partners, Inc. Delaware 100%
AIG Claim Services, Inc. Delaware 100%
AIG Consumer Finance, Inc. Delaware 100%
AIG Financial Products Corp. Delaware 100%
AIG Funding, Inc. Delaware 100%
AIG Global Investment Group, Inc. Delaware 100%
AIG Global Trade & Political Risk Insurance Company New Jersey 100%
AIG Life Insurance Company Delaware 78.9%(5)
AIG Life Insurance Company of Puerto Rico Puerto Rico 100%
AIG Marketing, Inc. Delaware 100%
AIG Realty, Inc. New Hampshire (6)
American International Realty Corp. Delaware 100%
AIG Risk Management, Inc. New York 100%
AIG Trading Group Inc. Delaware 80%
AIU Insurance Company New York 52%(7)
AIU North America, Inc. New York 100%
American Home New York 100%
AIG Hawaii Insurance Company, Inc. Hawaii 100%
American International Insurance Company New York 100%
American International Insurance Company of Californ California 100%
American International Insurance Company of New Jersey NewJersey 100%
Minnesota Insurance Company Minnesota 100%
Transatlantic Holdings, Inc. Delaware 34.02%(8)
American International Group Data Center, Inc. New Hampshire 100%
American International Life Assurance Company of New York New York 77.52%(9)
American International Reinsurance Company Limited Bermuda 100%
AIA Hong Ko 100%
Australian American Assurance Company Limited Australia 100%
American International Assurance Company (Bermuda) LimitBermuda 100%
Nan Shan Life Insurance Company, Ltd. Taiwan 94.12%
American International Underwriters Corporation New York 100%
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Subsidiaries of Registrant-- (continued)
% of Voting
Securities
Owned by its
Jurisdiction of Immediate
Name of Corporation Incorporation Parent (1)
<S> <C> <C>
AIUO Bermuda 100%
AIG Europe (Ireland) Ltd. Ireland 100%
Universal Insurance Co., Ltd. Thailand 100%
Interamericana Compania de Seguros Gerais (Brazil) Brazil 100%
La Seguridad de Centroamerica, Compania de Seguros, Sociedad AnonimaGuatemala 100%
American International Insurance Company of Puerto Rico Puerto Rico 100%
La Interamerica Compania de Seguros Generales S.A. Colombia 100%
American International Underwriters G.m.b.H. Germany 100%
Underwriters Adjustment Company, Inc. Panama 100%
American Life Insurance Company Delaware 100%
Kenya American Insurance Company Limited Kenya 100%
ALICO France 89%
Birmingham Fire Insurance Company of Pennsylvania Pennsylvania 100%
China America Insurance Company, Ltd. Delaware 50%
Commerce and Industry Insurance Company New York 100%
Commerce and Industry Insurance Company of Canada Ontario 100%
Delaware American Life Insurance Company Delaware 100%
Hawaii Insurance Consultants, Ltd. Hawaii 100%
The Insurance Company of the State of Pennsylvania Pennsylvania 100%
Landmark Insurance Company California 100%
Le Metropolitana de Seguros, C. por A. DominicanRepublic100%
Mt. Mansfield Company, Inc. Vermont 100%
National Union Pennsylvania 100%
American International Specialty Lines Insurance Company Alaska 70%(10)
International Lease Finance Corporation California 100%
Lexington Delaware 70%(10)
Jl Accident & Fire Insurance Co. Ltd. Japan 50%
National Union Fire Insurance Company of Louisiana Louisiana 100%
NHIG Holding Corp. Delaware 100%
Audubon Insurance Company Louisiana 100%
Audubon Indemnity Company Mississippi 100%
Agency Management Corporation Louisiana 100%
The Gulf Agency, Inc. Alabama 100%
New Hampshire Pennsylvani 100%
AlG Europe, S.A. France (11)
A.I. Network Corporation New Hampshire 100%
Marketpac International, Inc. Delaware 100%
American International Pacific Insurance Company Colorado 100%
American International South Insurance Company Pennsylvania 100%
Granite State Insurance Company Pennsylvania 100%
New Hampshire Indemnity Company, Inc. Pennsylvania 100%
</TABLE>
II-6
<PAGE>
Subsidiaries of Registrant-- (continued)
<TABLE>
<CAPTION>
% of Voting
Securities
Owned by its
Jurisdiction of Immediate
Name of Corporation Incorporation Parent (1)
<S> <C> <C>
Illinois National Insurance Co. Illinois 100%
New Hampshire Insurance Services, Inc. New Hampshire 100%
PHILAM Philippines 99%
Pacific Union Assurance Company California 100%
The Philippine American General Insurance Company, Inc. Philippines 100%
Philam Insurance Company, Inc. Philippines 100%
The Philippine American Assurance Company, Inc. Philippines 25%
Risk Specialist Companies, Inc. Delaware 100%
Ticino Societa d' Assicurazioni Sulla Vita Switzerland 99.8%
20th Century Insurance Company of Arizona Arizona 51%
UeberseeBank, AG Switzerland 100%
UGC North Carolina 36.31%(12)
United Guaranty Insurance Company North Carolina 100%
United Guaranty Mortgage Insurance Company North Carolina 100%
United Guaranty Mortgage Insurance Company of North Carolina North Carolina 100%
United Guaranty Residential Insurance Company of North Carolina North Carolina 100%
United Guaranty Residential Insurance Company North Carolina 75%(13)
United Guaranty Commercial Insurance Company of North Carolina North Carolina 100%
United Guaranty Commercial Insurance Company North Carolina 100%
United Guaranty Credit Insurance Company North Carolina 100%
United Guaranty Services, Inc. North Carolina 100%
<FN>
(1) Percentages include directors' qualifying shares.
(2) The Directors and officers of AIG own 94.51 percent
of the voting common stock of Starr and 81.82% of
the voting stock of SICO. Six directors of AIG also serve
as directors of Starr and 81.82 percent of the voting stock of SICO.
6 directors also serve as directors of Starr and SICO.
(3) All subsidiaries listed except for minority owned
Transatlantic Holdings, Inc. which is included under
the equity method, are consolidated in the accompanying
financial statemens. Certain subsidiaries have been omitted from
the tabulation. The omitted subsidiaries, when considered in
the aggregate as a single subsidiary, do not constitute a
significant subsidiary.
(4) The common stock is owned 16.1 percent by SICO, 2.4 percent by
Starr and 3.4 percent by the Starr foundation.
(5) Also owned 21.1% by Commerce & Industry Insurance Company.
(6) Owned by 13 AIG subsidiaries.
(7) Also owned 8% by The Insurance Company of the State of Pennsylvania,
32 % by National Union, and 8% by Birmingham.
(8) Also owned 15.05% by American International Group.
(9) Also owned 22.48% by American Home.
(10)Also owned 20% by the Insurance Company of the State of Pennsylvania
and 10% by Birmingham.
(11)100% to be held with other AIG companies.
(12)Also owned 45.88% by National Union, 16.95% by New Hampshire and
0.86%by the Insurance Company of the State of Pennsylvania.
(13)Also owned 25% by United Guaranty Residential Insurance Company of
North Carolina.
</FN>
</TABLE>
II-7
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of the Securities
Exchange Act Rule 485(b)for effectiveness of this registrationStatement
and has caused this Registration Statement to be signed on its
behalf, in the City of Wilmington, and State of Delaware on this 26th day of
April, 1997.
Variable Account I
Registrant
By: Kenneth D. Walma
----------------------
Kenneth D. Walma, Assistant Secretary and Counsel
By: AIG Life Insurance Company
Depositor
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
Howard E. Gunton, Jr.* Chief Accounting April 15, 1997
--------------------- Officer
Howard E. Gunton, Jr.
Nicholas A. O'Kulich*
------------------------- Director April 24,1997
Nicholas A.O'Kulich
Maurice R. Greenberg* Director April 14, 1997
------------------------
Maurice R. Greenberg
Edwin A.G.Manton* Director April 16, 1997
----------------
Edwin A.G.Manton
Edward E. Matthews* Director April 15, 1997
-------------------
Edward E. Matthews
Jerome T. Muldowney* Director April 15, 1997
-------------------
Jerome T. Muldowney
Win J. Neuger* Director April 15, 1997
-------------
Win J. Neuger
John R. Skar* Director April 14, 1997
-------------
John R. Skar
Howard I. Smith* Director April 15, 1997
----------------
Howard I. Smith
Ernest E.Stempel* Director April 15, 1997
---------------------
Ernest E. Stempel
Gerald W. Wyndorf* Director April 15, 1997
---------------------
Gerald W. Wyndorf
Robert J. O'Connell* Director April 16, 1997
---------------------
Robert J. O'Connell
*By:/s/ Kenneth D. Walma
-----------------------
Kenneth D. Walma
Attorney in Fact
<PAGE>
EXHIBITS TO
AMENDMENT NUMBER TO
FORM N-4
FOR VARIABLE
ACCOUNT I
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
9 Opinion of Counsel
10 (i) Consent of Counsel
10 (ii) Consent of Independent Accountants
14 Powers of Attorneys
<PAGE>
EXHIBIT 9
Opinion of Counsel
<PAGE>
OPINION OF COUNSEL
I have made such examination of the law and have examined such records and
documents as in my judgment are necessary or appropriate to enable me to render
the opinions expressed below.
I am of the following opinions:
1. AIG Life Insurance Company is a valid and existing stock life insurance
company domiciled in the State of Delaware.
2. Variable Account I is a separate investment account of AIG Life
Insurance Company validly existing pursuant to the Delaware Insurance
Laws and the Regulations thereunder.
3. All of the prescribed corporate procedures for the issuance of the
Individual and Group Single and Flexible Premium Deferred Variable
Annuity Contracts (the "Contracts") have been followed, and, when such
Contracts are issued in accordance with the Prospectuses contained in
the Registration Statement, all state requirements relating to such
Contracts will have been complied with.
4. Upon the acceptance of premiums made by Contract Owners pursuant to a
Contract issued in accordance with the Prospectuses contained in the
Registration Statement and upon compliance with applicable law, such
Contract Owner will have a legally-issued, fully paid, nonassessable
interest in such Contract.
This opinion, or a copy hereof, may be used as an exhibit to or in connection
with the filing with the Securities and Exchange Commission of the
Post-Effective Amendment No.10 to the Registration Statement on Form N-4 for the
Contracts to be issued by AIG Life Insurance Company and its separate account,
Variable Account I.
/s/ Kenneth D. Walma
Kenneth D. Walma
Assistant Secretary and AssociateCounsel
Dated: April 26, 1997
<PAGE>
EXHIBIT 10(i)
Consent of Counsel
<PAGE>
[LETTERHEAD]
AIG Life Insurance Company
One Alico Plaza
600 King Street
Wilmington, Delaware 19801
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Counsel in the Statement of Additional Information Contained in Post Effective
Amendment No. 10 to the Registration Statement on Form N-4(File No. 33-39171)
filed by AIG Life Insurance Company and Variable Account I with the Securities
and Exchange Commission under the Securities Act of 1933 and the Investment
Company Act of 1940.
Very Truly Yours,
/s/ Jorden Burt Berenson & Johnson LLP
Jorden Burt Berenson & Johnson
<PAGE>
EXHIBIT 10(ii)
Consent of Independent Accountants
<PAGE>
Exhibit 10 (ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect of Post-effective Amendment No.
10 to the Registration Statement (No. 33-39171) on Form N-4 under the Securities
Act of 1933 of Variable Account I of AIG Life Insurance Company.
1. The inclusion of our report dated February 20, 1997 relating to our
audits of the financial statements of AIG Life Insurance Company in the
Statement of Additional Information.
2. The inclusion of our report dated February 20, 1997 relating to our
audits of the financial statements of Variable Account I in the Statement
of Additional Information.
3. The incorporation by reference into theProspectus of our report
dated February 20, 1997 relating to our audits of
the financial statements of AIG Life Insurance Company and Variable
Account I.
4. The reference to our firm under the heading "General Information -
Independent Accountants" in the Statement of Additional Information.
/s/Coopers & Lybrand L.L.P
- ---------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 22, 1997
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, MAURICE R. GREENBERG, a
Director of AIG Life Insurance Company, a corporation duly organized under the
laws of the State of Delaware, do hereby appoint Kenneth D. Walma as my
attorney and agent, for me, and in my name as a Director of this Company on
behalf of the company or otherwise, with full power to execute, delivery and
file with the Securities and Exchange Commission all documents required for
registration of a security under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and to do and perform each and every
act that said attorney may deem necessary or advisable to comply with the intent
of the aforesaid Acts.
WITNESS my hand and seal this 14th day of April, 1997
WITNESS:
/s/ Carolyn Grossi /s/ Maurice R. Greenberg
- ------------------ ------------------------
Carolyn Grossi Maurice R. Greenberg
<PAGE>
KNOW ALL MEN BY THESE PRESENT, that I, NICHOLAS A.O'KULICH., a
Director of AIG Life Insurance Company, a corporation duly organized under the
laws of the State of Delaware, do hereby appoint Kenneth D. Walma as my
attorney and agent, for me, and in my name as a Director of this Company on
behalf of the company or otherwise, with full power to execute, delivery and
file with the Securities and Exchange Commission all documents required for
registration of a security under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and to do and perform each and every
act that said attorney may deem necessary or advisable to comply with the intent
of the aforesaid Acts.
WITNESS my hand and seal this 24th day of April, 1997
WITNESS:
/s/ Carolyn Grossi /s/ Nicholas A. O'Kulich
- ------------------ ------------------------
Carolyn Grossi Nicholas A. O'Kulich
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, EDWIN A.G. MANTON, a Director
of AIG Life Insurance Company, a corporation duly organized under the laws of
the State of Delaware, do hereby appoint Kenneth D. Walma as my attorney and
agent, for me, and in my name as a Director of this Company on behalf of the
company or otherwise, with full power to execute, delivery and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 16th day of April, 1997
WITNESS:
/s/ Judith Caruso /s/ Edwin A.G. Manton
- ----------------- ----------------------
Judith Caruso Edwin A. G. Manton
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, EDWARD E. MATTHEWS, a Director
of AIG Life Insurance Company, a corporation duly organized under the laws of
the State of Delaware, do hereby appoint Kenneth D. Walma as my attorney and
agent, for me, and in my name as a Director of this Company on behalf of the
company or otherwise, with full power to execute, delivery and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997
WITNESS:
/s/ Carolyn Grossi /s/ Edward E. Matthews
- ------------------ ----------------------
Carolyn Grossi Edward E. Matthews
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, JEROME T. MULDOWNEY, a
Director of AIG Life Insurance Company, a corporation duly organized under the
laws of the State of Delaware, do hereby appoint Kenneth D. Walma as my
attorney and agent, for me, and in my name as a Director of this Company on
behalf of the company or otherwise, with full power to execute, delivery and
file with the Securities and Exchange Commission all documents required for
registration of a security under the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, and to do and perform each and every
act that said attorney may deem necessary or advisable to comply with the intent
of the aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997
WITNESS:
/s/ Carolyn Grossi /s/ Jerome T. Muldowney
- ------------------ -----------------------
Carolyn Grossi Jerome T. Muldowney
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, WIN J. NEUGER, a Director of
AIG Life Insurance Company, a corporation duly organized under the laws of the
State of Delaware, do hereby appoint Kenneth D. Walma as my attorney and agent,
for me, and in my name as a Director of this Company on behalf of the company or
otherwise, with full power to execute, delivery and file with the Securities and
Exchange Commission all documents required for registration of a security under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997
WITNESS:
/s/ Carolyn Grossi /s/ Win J. Neuger
- ------------------- -----------------
Carolyn Grossi Win J. Neuger
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, ROBERT J. O'CONNELL, Director
Chief Executive Officer, and President of AIG Life Insurance Company, a
corporation duly organized under the laws of the State of Delaware, do hereby
appoint Kenneth D. Walma as my attorney and agent, for me, and in my name as
a Director of this Company on behalf of the company or otherwise, with full
power to execute, delivery and file with the Securities and Exchange
Commission all documents required for registration of a security under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 16th day of April, 1997
WITNESS:
/s/ Carolyn Grossi /s/ Robert J. O'Connell
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Carolyn Grossi Robert J. O'Connell
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, JOHN R. SKAR, a Director
of AIG Life Insurance Company, a corporation duly organized under the laws
of the State of Delaware, do hereby appoint Kenneth D. Walma as my attorney
and agent, for me, and in my name as a Director of this Company on behalf of
the company or otherwise, with full power to execute, delivery and file
with the Securities and Exchange Commission all documents required for
registration of a security under the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 14th day of April, 1997
WITNESS:
/s/ Carol L. Norris /s/ John R. Skar
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Carol L. Norris John R. Skar
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, HOWARD I. SMITH, a Director of
AIG Life Insurance Company, a corporation duly organized under the laws of the
State of Delaware, do hereby appoint Kenneth D. Walma as my attorney and agent,
for me, and in my name as a Director of this Company on behalf of the company or
otherwise, with full power to execute, delivery and file with the Securities and
Exchange Commission all documents required for registration of a security under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, and to do and perform each and every act that said attorney may deem
necessary or advisable to comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 14th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Howard I. Smith
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Carolyn Grossi Howard I. Smith
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, ERNEST E. STEMPEL, a Director
of AIG Life Insurance Company, a corporation duly organized under the laws of
the State of Delaware, do hereby appoint Kenneth D. Walmna as my attorney and
agent, for me, and in my name as a Director of this Company on behalf of the
company or otherwise, with full power to execute, delivery and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Ernest E. Stempel
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Carolyn Grossi Ernest E. Stempel
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, GERALD W. WYNDORF, a Director
of AIG Life Insurance Company, a corporation duly organized under the laws of
the State of Delaware, do hereby appoint Kenneth D. Walma as my attorney and
agent, for me, and in my name as a Director of this Company on behalf of the
company or otherwise, with full power to execute, delivery and file with the
Securities and Exchange Commission all documents required for registration of a
security under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, and to do and perform each and every act that
said attorney may deem necessary or advisable to comply with the intent of the
aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997.
WITNESS:
/s/ Carolyn Grossi /s/ Gerald W. Wyndorf
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Carolyn Grossi Gerald W. Wyndorf
<PAGE>
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that I, HOWARD E. GUNTON, JR.
a Chief Accounting Officer of AIG Life Insurance Company, a corporation duly
organized under the laws of the State of Delaware, do hereby appoint Kenneth D.
Walma as my attorney and agent, for me, and in my name as a Director of this
Company on behalf of the company or otherwise, with full power to execute,
delivery and file with the Securities and Exchange Commission all documents
required for registration of a security under the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, and to do and
perform each and every act that said attorney may deem necessary or advisable to
comply with the intent of the aforesaid Acts.
WITNESS my hand and seal this 15th day of April, 1997.
WITNESS:
/s/ Kathleen E. Baker /s/ Howard E.Gunton, Jr.
- ---------------------- ------------------------
Kathleen E. Baker Howard E.Gunton, Jr.
