PART A
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
available the following Portfolios: Money Market Portfolio; Growth Portfolio;
Growth and Income Portfolio; High-Yield 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; Worldwide
Privatization Portfolio; Quasar Portfolio; Real Estate Investment Portfolio;
Conservative Investors Portfolio; Growth Investors Portfolio; Short-Term Multi
Market Portfolio and Technology Portfolio. (See "Alliance Variable Products
Series Fund, Inc." on Page __.) The Fund consists of other portfolios which are
not currently available as investment options under the Contracts.
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, 1998, 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 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.
REPLACEMENT OF AN EXISTING LIFE INSURANCE POLICY OR ANNUITY CONTRACT MAY
NOT BE TO YOUR ADVANTAGE.
THE CONTRACTS OFFERED BY THIS PROSPECTUS ARE NOT AVAILABLE IN ALL STATES.
Date of Prospectus: May 1, 1998
as amended as of June 11, 1998
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..............................
Legal Matters..................................
Table of Contents of the Statement of Additional Information.........
Appendix - General Account Option...............
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
Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031.
Owner - The person designated as contract owner or certificate owner in the
application, unless changed.
Premium Year - Any period of 12 months commencing with the date a Purchase
Payment is made and ending on the same date in each succeeding 12 month period
thereafter.
Valuation Date - Each day that the New York Stock Exchange is open for trading.
Valuation Period - The period commencing as of the close of the New York Stock
Exchange (presently 4 P.M., 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)
Mortality and Expense Risk Fees 1.25%
Account Fees and Expenses 0.15%
Total Separate Account Annual Expenses 1.40%
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Portfolio Fee Expenses* Expenses**
- - --------- --------- --------- ---------
<S> <C> <C> <C>
Money Market 0.50% 0.14% 0.64%
Growth 0.75 0.09 0.84
Growth and Income 0.63 0.09 0.72
International 0.53 0.42 0.95
U.S. Government/High Grade Securities 0.60 0.24 0.84
North American Government Investors 0.56 0.39 0.95
Global Dollar Government 0.41 0.54 0.95
Utility Income 0.62 0.33 0.95
Global Bond 0.56 0.38 0.94
Premier Growth 1.00 0.08 1.08
Total Return 0.63 0.25 0.88
Worldwide Privatization 0.40 0.55 0.95
Technology 0.76 0.19 0.95
Quasar 0.58 0.37 0.95
Real Estate Investment(1) 0.00 0.95 0.95
High Yield(1) 0.00 0.95 0.95
Conservative Investors 0.75 0.20 0.95
Growth Investors 0.75 0.20 0.95
Short-Term Multi Market 0.55 0.39 0.94
</TABLE>
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.) The table does not reflect the
charges applicable to certain death benefit options offered under the Contracts.
(See "Charges and Deductions -- Deduction for Equity Assurance Plan" on page
____; "Charges and Deductions -- Deductions for the Enhanced Equity Assurance
Plan" on page ___; Charges and Deductions -- Deductions for the Annual Rachet
Plan" on page ____; "Charges and Deductions -- Deductions for the Accidental
Death Benefit" on page _____.)
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 State Premium Taxes" on page
____.)
- - ----------
(1) The expense percentages for the High-Yield and Real Estate Investment
Portfolios have been annualized because as of December 31, 1997, the
Portfolios had not been in existence for a full year.
* "Other Expenses" are based upon the expenses outlined under the section
entitled "Management of the Fund" in the Fund's Prospectus.
** "Total Portfolio Expenses" for the following Portfolios before
reimbursement by the Fund's investment advisor, for the period ended
December 31, 1997, were as follows:
1.10% for Premier Growth; 1.03% for Global Bond; 1.55% for Worldwide
Privatization; 2.31% for Real Estate Investment; 8.26% for High Yield;
1.42% for International; 1.04% for North American Government Income; 1.29%
for Global Dollar Government; 1.08% for Utility Income; 1.37% for Quasar;
1.33% for Conservative Investors; 1.70 for Growth Investors; 1.42 for
Short-Term Multi Market and 1.19% for Technology, of average daily net
assets. For the year ended December 31, 1997 expenses of the Premier Growth
Portfolio were capped at .95%. Effective May 1, 1998 Alliance discontinued
expense reimbursement with respect to the Premier Growth Portfolio.
In the event that an Owner withdraws all or a portion of the Contract Value
in excess of the Free Withdrawal Amount fo rht first withdrawal in a Contract
Year, or makes subsequent withdrawals in a Contract Year, a Deferred Sales
Charge may be imposed. The Free Withdrawal in a Contract year, a Deferred Sales
Charge may be imposed. The Free Withdrawal Amount is equal to 10% of the Premium
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
<TABLE>
<CAPTION>
Portfolio 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Money Market 77 105 134 243
Growth 79 111 144 264
Growth and Income 78 107 138 251
High Yield 80 114 149 275
International 80 114 149 275
U.S. Gov't/High Grade Securities 79 111 144 264
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 81 115 155 288
Total Return 79 112 146 268
Worldwide Privatization 80 114 149 275
Technology 80 114 149 275
Quasar 80 114 149 275
Real Estate Investment 80 114 149 275
Conservative Investors 80 114 149 275
Growth Investors 80 114 149 275
Short-Term Multi Market 80 114 149 274
</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 75 102 131 243
Growth 77 108 141 264
Growth and Income 76 104 135 251
International 78 111 147 275
U.S. Gov't/High Grade Securities 77 108 141 264
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
High Yield 78 111 147 275
Premier Growth 80 115 153 288
Total Return 78 109 143 268
Worldwide Privatization 78 111 147 275
Technology 78 111 147 275
Quasar 78 111 147 275
Real Estate Investment 78 111 147 275
Conservative Investors 78 111 147 275
Growth Investors 78 111 147 275
Short-Term Multi Market 78 111 146 274
</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 21 66 113 243
Growth 23 72 123 264
Growth and Income 22 68 117 251
High Yield 24 75 129 275
International 24 75 129 275
U.S. Gov't/High Grade Securities 23 72 123 264
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 26 79 135 288
Total Return 24 73 125 268
Worldwide Privatization 24 75 129 275
Technology 24 75 129 275
Quasar 24 75 129 275
Real Estate Investment 24 75 129 275
Conservative Investors 24 75 129 275
Growth Investors 24 75 129 275
Short-Term Multi Market 24 75 128 274
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
CONDENSED FINANCIAL INFORMATION
<TABLE>
ACCUMULATION UNIT VALUES*
<CAPTION>
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET
Accumulation Unit Value
Beginning of Period 10.97 10.63 10.26 10.08 10.00 N/A
End of Period 11.37 10.97 10.63 10.26 10.08 N/A
Accum Units o/s @ end of period 4,291,499.61 4,320,223.01 1,856,020.37 431,319.86 8,487.20 N/A
GROWTH
Accumulation Unit Value
Beginning of Period 17.70 13.97 10.48 10.00 N/A N/A
End of Period 22.70 17.70 13.97 10.48 N/A N/A
Accum Units o/s @ end of period 8,054,584.57 5,856,812.02 2,215,092.12 467,688.06 N/A N/A
GROWTH & INCOME
Accumulation Unit Value
Beginning of Period 19.11 15.62 11.67 11.88 10.78 10.00
End of Period 24.27 19.11 15.62 11.67 11.88 10.78
Accum Units o/s @ end of period 7,258,107.19 4,509,118.40 1,554,549.81 438,680.32 28,041.82 800.00
INTERNATIONAL
Accumulation Unit Value
Beginning of Period 12.26 11.60 10.71 10.17 10.00 N/A
End of Period 12.50 12.26 11.60 10.71 10.17 N/A
Accum Units o/s @ end of period 3,700,183.10 2,718,751.84 981,260.91 447,407.41 21,717.14 N/A
U.S. GOVERNMENT HIGH GRADE SECURITIES
Accumulation Unit Value
Beginning of Period 11.20 11.07 9.42 9.95 10.00 N/A
End of Period 12.00 11.20 11.07 9.42 9.95 N/A
Accum Units o/s @ end of period 2,190,735.81 1,838,415.41 914,988.76 320,574.64 41,210.45 N/A
NORTH AMERICAN GOVERNMENT INCOME
Accumulation Unit Value
Beginning of Period 12.33 10.53 8.70 10.00 N/A N/A
End of Period 13.32 12.33 10.53 8.70 N/A N/A
Accum Units o/s @ end of period 1,790,540.24 1,047,240.17 531,374.67 340,817.36 N/A N/A
GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period 14.56 11.82 9.74 10.00 N/A N/A
End of Period 16.25 14.56 11.82 9.74 N/A N/A
Accum Units o/s @ end of period 714,986.09 469,801.08 238,452.60 69,320.82 N/A N/A
UTILITY INCOME
Accumulation Unit Value
Beginning of Period 12.57 11.82 9.87 10.00 N/A N/A
End of Period 15.58 12.57 11.82 9.87 N/A N/A
Accum Units o/s @ end of period 910,470.43 812,579.02 358,005.39 111,604.02 N/A N/A
GLOBAL BOND
Accumulation Unit Value
Beginning of Period 13.24 12.64 10.28 11.00 9.96 10.00
End of Period 13.14 13.24 12.64 10.28 11.00 9.96
Accum Units o/s @ end of period 708,242.42 579,082.99 213,886.71 85,875.16 18,846.45 5,444.00
PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 17.59 14.54 10.15 11.13 10.00 10.00
End of Period 23.22 17.59 14.54 10.15 11.13 10.00
Accum Units o/s @ end of period 6,662.866.85 3,971,452.13 1,252,211.18 223,550.22 35,271.53 2081.43
TOTAL RETURN
Accumulation Unit Value
Beginning of Period 13.37 11.78 9.65 10.00 N/A N/A
End of Period 15.97 13.37 11.78 9.65 N/A N/A
Accum Units o/s @ end of period 1,780,440.77 1,155,818.92 328,256.04 34,684.53 N/A N/A
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period 12.84 10.99 10.05 10.00 N/A N/A
End of Period 14.02 12.84 10.99 10.05 N/A N/A
Accum Units o/s @ end of period 2,391,217.59 1,135,168.22 394,704.27 105,674.08 N/A N/A
TECHNOLOGY
Accumulation Unit Value
Beginning of Period 10.89 10.00 N/A N/A N/A N/A
End of Period 11.43 10.89 N/A N/A N/A N/A
Accum Units o/s @ end of period 4,818,385.19 2,127,691.68 N/A N/A N/A N/A
QUASAR
Accumulation Unit Value
Beginning of Period 10.58 10.00 N/A N/A N/A N/A
End of Period 12.37 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period 3,991,205.09 649,902.74 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 N/A
End of Period N/A 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 N/A
HIGH YIELD
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A
End of Period N/A 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 N/A
CONSERVATIVE INVESTORS
Accumulation Unit Value
Beginning of Period 11.84 11.57 10.02 10.00 N/A N/A
End of Period 12.99 11.84 11.57 10.02 N/A N/A
Accum Units o/s @ end of period 1,584,750.70 1,109,173.48 405,192.27 62,828.02 N/A N/A
GROWTH INVESTORS
Accumulation Unit Value
Beginning of Period 12.43 11.65 9.81 10.00 N/A N/A
End of Period 14.26 12.43 11.65 9.81 N/A N/A
Accum Units o/s @ end of period 824,606.48 609,405.23 292,173.06 29,492.78 N/A N/A
SHORT-TERM MULTI MARKET
Accumulation Unit Value
Beginning of Period 10.79 9.99 9.49 10.29 9.79 N/A
End of Period 11.13 10.79 9.99 9.49 10.29 N/A
Accum Units o/s @ end of period 418,440.83 461,069.70 115,207.71 95,717.71 14,511.57 N/A
</TABLE>
*Funds were first invested in the Portfolios as listed below:
Money Market Portfolio May 13, 1993
Growth Portfolio August 12, 1994
Growth & Income Portfolio April 16, 1992
International Portfolio June 1, 1993
U.S. Government/High Grade 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
Global Bond Portfolio May 10, 1993
Premier Growth Portfolio December 7, 1992
Total Return Portfolio September 12,1994
Worldwide Privatization Portfolio October 17, 1994
Technology Portfolio January 22, 1996
Quasar Portfolio August 15, 1996
Real Estate Investment Portfolio January 7, 1997
High Yield Portfolio September 9, 1997
Conservative Investors Portfolio September 9, 1994
Growth Investors Portfolio August 16, 1994
Short-Term Multi Market Portfolio June 25, 1992
<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
charge (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 "Advisor"). 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;
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; Worldwide Privatization; Technology;
Quasar; Real Estate Investment; Conservative Investors; Growth Investors;
Short-Term Multi Market and High Yield. The Advisor has entered into a
sub-advisory agreement with AIGAM International Limited (the "Sub-Advisor"), a
wholly-owned subsidiary of AIG 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 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 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.
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.
High Yield Portfolio
This portfolio seeks the highest level of current income available without
assuming undue risk by investing principally in high-yielding fixed income
securities. As a secondary objective, this Portfolio seeks capital appreciation
where consistent with its primary objective. Many of the high-yielding
securities in which the High-Yield Portfolio invests are rated in the lower
rating categories (i.e. below investment grade) by nationally recognized rating
services. These securities, which are often referred to as "junk bonds", are
subject to greater risk loss of principal and interest than higher rated
securities and are considered to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal.
International Portfolio
This Portfolio seeks to obtain a total return on its assets from long-term
growth of capital and from income principally through a broad portfolio of
marketable securities of established non-United States companies (or United
States companies having their principal activities and interests outside the
United States), companies participating in foreign economies with prospects for
growth, and foreign government securities.
North American Government Income Portfolio
This Portfolio seeks the highest level of current income, consistent with
what the adviser considers to be prudent investment risk, that is available from
a portfolio of debt securities issued or guaranteed by the governments of the
United States, Canada and Mexico, their political subdivisions (including
Canadian Provinces but excluding the States of the United States), agencies,
instrumentalities or authorities. The Portfolio seeks high current yields by
investing in government securities denominated in local currency and U.S.
Dollars. Normally, the Portfolio expects to maintain at least 25% of its assets
in securities denominated in the U.S. Dollar.
Global Dollar Government Portfolio
This portfolio seeks a high level of current income through investing
substantially all of its assets in U.S. and non-U.S. fixed income securities
denominated only in U.S. Dollars. As a secondary objective, the Portfolio seeks
capital appreciation. Substantially all of the Portfolio's assets will be
invested in high yield, high risk securities that are low-rated (i.e., below
investment grade), or of comparable quality and unrated, and that are considered
to be predominately speculative as regards the issuer's capacity to pay interest
and repay principal.
Utility Income Portfolio
This Portfolio seeks current income and capital appreciation by investing
primarily in the equity and fixed-income securities of companies in the
"utilities industry." The Portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical performance of
securities of utilities companies. The utilities industry consists of companies
engaged in the manufacture, production, generation, provision, transmission,
sale and distribution of gas, electric energy, and communications equipment and
services, and in the provision of other utility or utility-related goods and
services.
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.
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.
Conservative Investors Portfolio
This portfolio seeks the highest total return without, in the view of the
Fund's Adviser, undue risk to the 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.
Short-Term Multi Market Portfolio
This Portfolio seeks the highest level of current income, consistent with
what the Fund's Adviser considers to be prudent investment risk, that is
available from a portfolio of high-quality debt securities denominated in U.S.
dollars and selected foreign currencies and having remaining maturities of not
more than three years.
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:
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. ("AIGESC"), formerly known as American International
Fund Distributors, Inc., 80 Pine Street, New York, New York, acts as the
distributor of the Contracts. AIGESC 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 AIGESC, 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
By attachment of an endorsement that reflects the limits of Code section
408(b), the Contracts may be used as 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. Section 408A of the Code
provides special rules for "Roth IRAs." The basic distinction between a Roth IRA
and a regular IRA is that contributions to a Roth IRA are not deductible and
"qualified distributions" from a Roth IRA are not includible in gross income for
federal income tax purposes. Other differences include the ability to make
contributions to a Roth IRA after age 70 1/2 and to defer distributions beyond
age 70 1/2. Taxpayers whose adjusted gross incomes exceed certain levels are not
eligible for Roth IRAs. 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 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
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, Boros, Cicchetti, Berenson & Johnson LLP, Washington D.C.
32
<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...
Annuity Provisions..................................
Variable Annuity Payments........................
Annuity Unit.....................................
Net Investment Factor............................
Additional Provisions............................
Financial Statements................................
<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 the General Account Option
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 the General Account Option 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 the General Account Option
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.
MINIMUM SURRENDER VALUE
The Minimum Surrender Value for amounts allocated to the General Account
equals the amounts allocated (less withdrawals) with interest compounded
annually at the rate of 3%, reduced by any applicable Deferred Sales Charge.
