AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 1, 1998
File No. 33-58504
811-5301
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 8 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29 [X]
---
(Check appropriate box or boxes.)
VARIABLE ACCOUNT I
(Exact Name of Registrant)
AIG Life Insurance Company
(Name of Depositor)
600 King Street, Wilmington, DE 19801
(Address of Depositor's Principal Executive Offices) (Zip Code)
Depositor's Telephone Number, including Area Code (302) 594-2978
Robert Liguori, Esq.
AIG Life Insurance Company
One Alico Plaza
Wilmington, Delaware 19899
(Name and Address of Agent for Service)
Copies to:
Michael Berenson, Esq. and Florence Davis, Esq.
Jorden Burt Boros Cicchetti American International
Berenson & Johnson Group, Inc.
Suite 400 East 70 Pine Street
1025 Thomas Jefferson Street, N.W. New York, New York 10270
Washington, D.C. 20007-0805
Approximate Date of Proposed Public Offering: As soon as practicable
after the effective date of this filing.
It is proposed that this filing will become effective
(check appropriate box)
X immediately upon filing pursuant to paragraph (b) of Rule 485
on __________ pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a)(i) of Rule 485
on _________ pursuant to paragraph (a)(i) of Rule 485
75 days after filing pursuant to paragraph (a)(ii) on pursuant to
paragraph (a)(ii) of rule 485.
If appropriate, check the following box: this post-effective amendment
designates a new effective date for a previously filed post-effective
amendment.
<PAGE>
<TABLE>
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
PART A
<S> <C> <C>
Item 1. Cover Page..................................... Cover Page
Item 2. Definitions.................................... Definitions
Item 3. Synopsis....................................... Highlights
Item 4. Condensed Financial Information................ Condensed Financial Information
Item 5. General Description of Registrant,
Depositor, and Portfolio Companies............. The Variable
Account; The
Company; The Fund
Item 6. Deductions and Expenses........................ Charges and Deductions
Item 7. General Description of Variable
Annuity Contracts.............................. Purchasing a
Contract; Rights
under the
Contracts
Item 8. Annuity Period................................. Annuity
Period
Item 9. Death Benefit.................................. Death Benefit
Item 10 Purchases and Contract Value................... Rights under the
Contracts; Purchasing
a Contract
Item 11. Redemptions................................ Withdrawals
Item 12. Taxes...................................... Taxes
Item 13. Legal Proceedings.......................... Legal Proceedings
Item 14. Table of Contents of the Statement of
Additional Information..................... Table of
Contents of the
Statement of
Additional
Information
</TABLE>
<PAGE>
PART B
<TABLE>
<S> <C> <C>
Item 15. Cover Page.................................... Cover Page
Item 16. Table of Contents............................. Table of
Contents
Item 17. General Information and History............... General
Information
Item 18. Services...................................... Services
Item 19. Purchase of Securities Being Offered.......... Purchasing
a Contract;
Charges and
Deductions
(Part A)
Item 20. Underwriters.................................. General
Information/
Distributor
Item 21. Calculation of Performance Data............... Calculation
of
Performance
Related
Information
Item 22. Annuity Payments.............................. Annuity
Provisions
Item 23. Financial Statements.......................... Financial
Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
<PAGE>
VARIABLE ACCOUNT I
and
AIG LIFE INSURANCE COMPANY
One Alico Plaza
600 King Street
Wilmington, Delaware 19801
This Prospectus sets forth the information a prospective investor ought to
know before investing.
The individual deferred variable annuity contracts and group flexible
premium deferred variable annuity contracts (together "The Contracts") described
in this Prospectus provide for accumulation of Contract Value and payment of
monthly annuity payments. The Contracts may be used in retirement plans which do
not qualify for federal tax advantages ("Non-Qualified Contracts") or in
connection with retirement plans which may qualify as Individual Retirement
Annuities ("IRA") under Section 408 of the Internal Revenue Code of 1986, as
amended (the "Code") or Section 403(b) of the Code ("403(b) Plans"). The
Contracts will not be available in connection with retirement plans designed by
AIG Life Insurance Company (the "Company") which qualify for the federal tax
advantages available under Sections 401 and 457 of the Code. Purchasers
intending to use the Contracts in connection with an IRA or 403(b) Plan should
seek competent tax advice. An owner may be issued a certificate as evidence of
individual participation under a group arrangement. The description of the
Contract in this prospectus is fully applicable to any certificate that may be
issued under the group contract.
Premiums allocated among the Subaccounts of Variable Account I (the
"Variable Account") will be invested in shares of corresponding portfolios of
the Alliance Variable Products Series Fund, Inc. (the "Fund"). The Fund has made
available the following portfolios: Growth & Income Portfolio; Growth Portfolio;
Technology Portfolio; Premier Growth Portfolio; Real Estate Investment
Portfolio; International Portfolio; Worldwide Privatization Portfolio; Total
Return Portfolio; Quasar Portfolio; North American Government Income Portfolio;
U.S. Government/High Grade Securities Portfolio; Global Bond Portfolio; Utility
Income Portfolio; Money Market Portfolio; Global Dollar Government Portfolio and
High Yield Portfolio. (See "The Fund" on page ___.)
Additional information about the Contracts and the Variable Account is
contained in the Statement of Additional Information which is available upon
request at no charge by calling or writing AIG Life Insurance Company,
Attention: Variable Products, One Alico Plaza, Wilmington, Delaware 19801,
1-800-340-2765 or calling the service office at 1-800-255-8402. The Statement of
Additional Information dated May 1, 1998, 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.
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
<PAGE>
TABLE CONTENTS
Page
----
Definitions................................................................
Highlights.................................................................
Summary of Expenses........................................................
Condensed Financial Information............................................
The Company................................................................
The Variable Account.......................................................
The Funds..................................................................
The Contract...............................................................
Charges and Deductions.....................................................
Annuity Benefits...........................................................
Death Benefit..............................................................
Distributions Under the Contract...........................................
Taxes......................................................................
Legal Proceedings..........................................................
Legal Matters..............................................................
Table of Contents of the Statement of Additional Information...............
Appendix-- General Account Option..........................................
<PAGE>
DEFINITIONS
Accumulation Unit -- An accounting unit of measure used to calculate the
Contract Value prior to the Annuity Date.
Administrative Office -- The Annuity Service Office of the Company: c/o Delaware
Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, PA
19312-0031.
Annuitant -- The person designated by the Owner upon whose continuation of life
any annuity payment involving life contingencies depends.
Annuity Date -- The date on which annuity payments are to commence.
Annuity Option -- An arrangement under which annuity payments are made under
this Contract.
Annuity Unit -- An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary -- An anniversary of the Effective Date of the Contract.
Contract Value -- The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
Contract Year -- Each period of twelve (12) months commencing with the Effective
Date.
Effective Date -- The date on which the first Contract Year begins.
Guaranteed Account -- A part of our General Account, which earns a Guaranteed
Rate of interest.
Owner -- The person named in the Contract Schedule, unless changed, and who has
all rights under the Contract.
Premium -- Purchase payments for the Contract are referred to as Premium.
Premium Year -- Any period of twelve (12) months commencing with the date a
Premium payment is made and ending on the same date in each succeeding twelve
(12) month period thereafter.
Surender Charge -- The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within 7 years of purchase
payments.
Valuation Date -- Each day that We and the New York Stock Exchange are open for
trading.
Valuation Period -- The period between the close of business on any Valuation
Date and the close of business for the next succeeding Valuation Date.
We, Our, Us -- AIG Life Insurance Company.
You, Your -- The Owner of this Contract.
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contracts and a segregated investment account
of AIG Life Insurance Company (the "Company") which account has been designated
Variable Account I (the "Variable Account"). The Contracts are designed to
assist in financial planning by providing for the accumulation of capital on a
tax-deferred basis for retirement and other long-term purposes, and providing
for the payment of monthly annuity income. Contracts may be purchased in
connection with a retirement plan which may qualify as 403 (b) Plan or as an
Individual Retirement Annuity ("IRA"). The Contract may also be purchased for
retirement plans, deferred compensation plans and other purposes which do not
qualify for such special Federal income tax treatment ("Non-Qualified
Contracts"). (See "Taxes" on page ___.)
A Contract is purchased with a minimum initial Premium of $2,000.
Additional Premium is permitted at any time, subject to certain limitations.
(See "Premium and Allocation to Your Investment Options" on page ___.) You, as
the Owner of the Contract, may allocate your Premium so that it accumulates on a
variable basis, a fixed basis or a combination of both.
Premium allocated among the Subaccounts of the Variable Account will
accumulate on a variable basis and will be invested in shares of one or more of
the following underlying portfolios of the Fund. Each Subaccount invests
exclusively in one of the following portfolios: Money Market; Growth; Growth &
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 and High Yield. (See "The Fund" on page ___.) Your value in
any one of these Subaccounts will vary according to the investment performance
of the underlying portfolio chosen by you. You bear the entire investment risk
for all Premium allocated to the Variable Account.
The Company does not deduct sales charges from any Premium received.
However, the Contracts provide for a Surrender Charge (contingent deferred sales
charge) that may be assessed in the event that an Owner surrenders all or a
portion of the Contract Value within seven contract years following payment of
any Premium. The maximum Surrender Charge is 6% of Premium to which the charge
is applicable. (See "Summary of Expenses" on page ___, and "Charges and
Deductions - -- Deduction for Surrender Charge" on page ____.)
A penalty free withdrawal is available. Generally, there is no Surrender
Charge imposed on the greater of the Contract Value less Premium paid or the
portion of the withdrawal that does not exceed 10% of Premium otherwise subject
to the Surrender Charge. (See "Withdrawals" on page _____.)
Surrenders and withdrawals may be taxable and subject to a penalty tax.
(See "Taxes" beginning on page ____.)
The Company deducts daily a Mortality and Expense Risk Charge which is
equal on an annual basis to 1.25% of the average daily net asset value of the
Variable Account. There is no Mortality and Expense Risk Charges deducted for
amounts in the Guaranteed Account. (See "Charges and Deductions --Deduction for
Mortality and Expense Risk Charge" on page ____.)
A penalty free withdrawal is available. Generally, there is no Surrender
Charge imposed on the greater of the Contract Value less premiums paid or the
portion of the withdrawal that does not exceed 10% of premium otherwise subject
to the Surrender Charge. (See "Withdrawals" on page ____.)
Surrenders and Withdrawals may be taxable and subject to a penalty tax.
(See "Taxes" beginning on page ____.)
The Company deducts daily a Mortality and Expense Risk Charge which is
equal on an annual basis to 1.25% of the average daily net asset value of the
Variable Account. There are no Mortality and Expense Risk Charges deducted for
amounts in the Guaranteed Account. (See "Charges and Deductions --Deduction for
Mortality and Expense Risk Charge" on page ____.)
<PAGE>
The Company deducts daily an Administrative Charge which is equal on an
annual basis to 0.15% of the average daily net asset value of the Variable
Account. The Administrative Charge is not assessed to the Guaranteed Account. In
addition, the Company deducts, from the Contract Value, an annual Contract
Maintenance Fee which is $30 per year. The Contract Maintenance Fee is waived if
the Contract Value is greater than $50,000 on the date of the charge. These
Charges are designed to reimburse the Company for administrative expenses
relating to maintenance of the Contract and the Variable Account. (See "Charges
and Deductions -- Deduction for Administrative Charge and Contract Maintenance
Fee" on page ____.)
There are deductions and expenses paid out of the assets of each Fund which
are described in the accompanying Prospectuses for the Fund.
The Owner may return the Contract within ten (10) days (the "Right to
Examine Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA the Company will refund the greater of the Premium less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the Premium paid less any withdrawals, the Company will refund such an
amount.
FEE TABLE
Contract Owner Transaction Expenses
All Subaccounts
---------------
Sales Load Imposed on Purchases.......................... None
Surrender Charge
(as a percentage of amount surrendered):
Premium Year 1 ........................................ 6%
Premium Year 2 ........................................ 6%
Premium Year 3 ........................................ 5%
Premium Year 4 ........................................ 5%
Premium Year 5 ........................................ 4%
Premium Year 6 ........................................ 3%
Premium Year 7 ........................................ 2%
Premium Year 8 and thereafter.......................... None
Exchange Fee:
First 12 Per Contract Year ............................ None
Thereafter ............................................ $10
Annual Contract Fee ..................................... $30
(waived for contracts with account value
of $50,000 or greater)
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 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
</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 relevant 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; 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, the investment adiser discontinued expense reimbursement with respect to
the Premier Growth Portfolio.
<PAGE>
Expenses on a hypothetical $1,000 policy, assuming 5% growth:
<TABLE>
<CAPTION>
If you surrender
---------------------------------------------------
Portfolio 1 Year 3 Years 5 Years 10 Years
- - --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market....................................... $75 $111 $149 $243
Growth............................................. 77 117 159 264
Growth and Income.................................. 76 113 153 251
International...................................... 78 120 165 275
U.S. Government/High Grade Securities.............. 77 117 159 264
North American Government Income................... 78 120 165 275
Global Dollar Government........................... 78 120 165 275
Utility Income..................................... 78 120 165 275
Global Bond........................................ 78 120 164 274
Premier Growth..................................... 80 124 171 288
Total Return....................................... 78 118 161 268
Worldwide Privatization............................ 78 120 165 275
Technology......................................... 78 120 165 275
Quasar............................................. 78 120 165 275
Real Estate Investment............................. 78 120 165 275
High Yield......................................... 78 120 165 275
</TABLE>
<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
International...................................... 24 75 129 275
U.S. Government/High Grade Securities.............. 23 72 123 264
North American Government 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
High Yield......................................... 24 75 129 275
</TABLE>
The Example should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
<PAGE>
CONDENSED FINANCIAL INFORMATION
<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>
<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
ALLIANCE 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
</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
<PAGE>
Calculation of Performance Data
The Company may, from time to time, advertise certain performance related
information concerning one or more of the Subaccounts, including information as
to total return and yield. Performance information about a Subaccount is based
on the Subaccount's past performance only and is not intended as an indication
of future performance.
When the Company advertises the average annual total return of a
Subaccount, it will usually be calculated for one, five, and ten year periods
or, where a Subaccount has been in existence for a period less than one, five or
ten years, for such lesser period. Average annual total return is measured by
comparing the value of the investment in a Subaccount at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming the deduction of any Surrender Charge which would be payable if the
account were redeemed at the end of the period) and calculating the average
annual compounded rate of return necessary to produce the value of the
investment at the end of the period. The Company may simultaneously present
returns that do not assume a surrender and, therefore, do not deduct the
Surrender Charge.
When the Company advertises the yield of a Subaccount it will be calculated
based upon a given 30-day period. The yield is determined by dividing the net
investment income earned per Accumulation Unit during the period by the value of
an Accumulation Unit on the last day of the period.
When the Company advertises the performance of the Money Market Subaccount
it may advertise in addition to the total return either the yield or the
effective yield. The yield of the Money Market Subaccount refers to the income
generated by an investment in that Subaccount over a seven-day period. The
income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized the income earned by an investment in
the Money Market Subaccount is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all contract
charges (sales charges, mortality and expense risk charges, and the
administrative charges) and is therefore lower than the total return at 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 a Fund
level, which has no comparable charges. Performance information for a Subaccount
may be compared to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, Donoghue Money Market Institutional Averages, indices
measuring corporate bond and government security prices as prepared by Lehman
Brothers, Inc. and Salomon Brothers or other indices measuring performance of a
pertinent group of securities so that investors may compare a Subaccount's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract;
and (iv) indices or averages of alternative financial products available to
prospective investors, including the Bank Rate Monitor which monitors average
returns of various bank instruments.
Financial Data
Financial statements of the Company may be found in the Statement of
Additional Information. No financial statements for the Variable Account have
been provided in the Statement of Additional Information because as of the date
of the reporting period no Contracts had been issued.
<PAGE>
THE COMPANY
AIG Life Insurance Company is a stock life insurance company which was
organized under the laws 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. ("AIG"), which serves as the holding company for a
number of companies engaged in the international insurance business, both life
and general, in approximately 130 countries and jurisdictions around the world.
Ratings
The Company may from time-to-time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A. M. Best Company,
Moody's, and Standard & Poor's. The purpose of the ratings is to reflect the
financial strength and/or claims-paying ability of the Company and should not be
considered as bearing on the investment performance of assets held in the
separate account. Each year the A. M. Best Company reviews the financial status
of thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect A. M. Best's current opinion of the relative financial strength
and operating performance of an insurance company in comparison to the norms of
the life insurance industry. In addition, the claims-paying ability of the
Company as measured by Standard & Poor's Insurance Ratings Services, and the
financial strength of the Company as measured by Moody's Investors Services, may
be referred to in advertisements, sales literature or in reports to Owners.
These ratings are their opinion of an operating insurance company's financial
capacity to meet the obligations of its life insurance policies and annuity
contracts in accordance with their terms. In regard to their ratings of the
Company, these ratings are explicitly based on the existence of a Support
Agreement, dated as of December 31, 1991, between the Company and its parent,
AIG, pursuant to which AIG has agreed to cause the Company to maintain a
positive net worth and to provide the Company with funds on a timely basis
sufficient to meet the Company's obligations to its policyholders. The Support
Agreement is not, however, a direct or indirect guarantee by AIG to any person
of the payment of any of the Company's indebtedness, liabilities or other
obligations (including obligations to the Company's policyholders).
The ratings are not recommendations to purchase the Company's life
insurance or annuity products, or to hold or sell these products, and the
ratings do not comment on the suitability of such products for a particular
investor. There can be no assurance that any rating will remain in effect for
any given period of time or that any rating will not be lowered or withdrawn
entirely by a rating organization if, in such organization's judgment, future
circumstances relating to the Support Agreement, such as a lowering of AIG's
long-term debt rating, so warrant. The ratings do not reflect the investment
performance of the Variable Account or the degree of risk associated with an
investment in the Variable Account.
THE VARIABLE ACCOUNT
The Company authorized the organization of the Variable Account in 1986.
The Variable Account is maintained pursuant to Delaware insurance law. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"). The Variable
Account meets the definition of a "Separate Account" under Federal securities
laws. The SEC does not supervise the management or the investment practices of
the Variable Account.
The Company owns the assets in the Variable Account and obligations under
the Contract are general corporate obligations. The Variable Account and each
Subaccount, however, are separate from the Company's other assets including
those of the General Account and from any other separate accounts. The assets of
the Variable Account, equal to the reserves and other contract liabilities with
respect to the Variable Account, are not chargeable with liabilities arising out
of any other business the Company may conduct. Investment income, as well as
both realized and unrealized gains and losses are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
income, gains
<PAGE>
or losses arising out of any other business of the Company. As a result, the
investment performance of each Subaccount and the Variable Account is entirely
independent of the investment performance of the General Account and of any
other separate account maintained by the Company.
The Variable Account is divided into Subaccounts, with the assets of each
Subaccount invested in shares of a corresponding portfolio of the Fund. The
Company may, from time to time, add additional portfolios of the Fund, and, when
appropriate, additional funds to act as the funding vehicles for the Contracts.
If deemed to be in the best interests of persons having voting rights under the
Contract, the Variable Account may be operated as a management company under the
1940 Act, may be deregistered under such Act in the event such registration is
no longer required, or may be combined with one or more other separate accounts.
The Company may offer other variable annuity contracts which also invest in the
Variable Account, and are described in other prospectuses.
<PAGE>
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; 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.
Shares of the Fund may be sold to separate accounts of life insurance
companies. The shares of the Fund will be sold to separate accounts of the
Company and its affiliate, AIG Life Insurance Company, as well as to separate
accounts of other affiliated or unaffiliated life insurance companies to fund
variable annuity contracts and variable life insurance policies. It is
conceivable that, in the future, it may be disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
the Fund simultaneously. Although neither the Company nor the Fund currently
foresees any such disadvantages, either to variable life insurance policy owners
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, we will take whatever steps
it deems necessary, at its expense, to remedy or eliminate the irreconcilable
material conflict. If such a conflict were to occur, one or more insurance
company separate accounts might withdraw its investments in the Fund. This might
force the Fund to sell securities at disadvantageous prices.
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 Fund Prospectus which contains a discussion of
the risks involved in investing in the Fund. The Prospectus for the Fund is
included with this Prospectus. Please read both Prospectuses carefully before
investing.
The investment objectives of the portfolios are as follows:
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. An investment in the money market portfolio is neither
insured nor guaranteed by the U.S. Government. There can be no assurance that
the Portfolio will be able to maintain a stable net asset value of $1.00 per
share, although it expects to do so.
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 opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
International Portfolio
This portfolio seeks to obtain a total return on its assets from long-term
growth of capital and from income principally through a broad portfolio of
marketable securities of established non-United States companies (or United
States companies having their principal activities and interests outside the
United States), companies participating in foreign economies with prospects for
growth, and foreign government securities.
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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.
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 U.S. Dollars.
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.
Global Bond Portfolio
This portfolio seeks to provide the highest level of current income
consistent with what the Fund's Advisor and Sub-Advisor 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.
<PAGE>
Worldwide Privatization Portfolio
This portfolio seeks long-term capital appreciation by investing
principally in equity securities issued by enterprises that are undergoing, or
have undergone, privatization. The balance of the investment portfolio will
include equity securities of companies that are believed by the Fund's Advisor
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 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.
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 of loss of principal and interest than higher rated
securities and are considered to be predominately speculative with respect to
the issuer's capacity to pay interest and repay principal.
Voting Rights
As previously stated, all of the assets held in the Subaccounts of the
Variable Account will be invested in shares of a corresponding portfolio of the
Fund. Based on the Company's view of present applicable law, we will vote the
portfolio shares held in the Variable Account at meetings of shareholders in
accordance with instructions received from Owners having a voting interest in
the portfolio. However, if the 1940 Act or its regulations are amended, or if
our interpretation of present law changes to permit us to vote the portfolio
shares in our own right, we may elect to do so.
Prior to the Annuity Date, the Owner holds a voting interest in each
portfolio in which there is value in the corresponding Subaccount. The number of
portfolio shares which are attributable to the Owner is determined by dividing
the corresponding value in a particular Subaccount by the net asset value of one
portfolio share. The number of votes which an Owner will have a right to cast
will be determined as of the record date established by each portfolio.
We will solicit voting instructions by mail prior to the shareholder
meetings. An Owner having a voting interest in a Subaccount will be sent proxy
material, reports and other materials as provided by the Fund, relating to the
appropriate portfolios. The Company will vote
<PAGE>
shares in accordance with instructions received from the Owner having a voting
interest. At the meeting, the Company will vote shares for which it has received
no instructions and any shares not attributable to Owners in the same proportion
as it votes shares for which it has received instructions from Owners.
The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds allocated to the Guaranteed
Account.
Substitution of Shares
If the shares of the Fund (or any portfolio within the Fund) should no
longer be available for investment by the Variable Account or if, in the
judgment of the Company, further investment in such shares should become
inappropriate in view of the purpose of the Contracts, the Company may
substitute shares of another fund (or portfolio within the fund) for Fund shares
already purchased or to be purchased in the future under the Contracts. No
substitution of securities may take place without any required prior approval of
the Securities and Exchange Commission and under such requirements as it may
impose.
<PAGE>
THE CONTRACT
The Contract described in this Prospectus is a deferred variable annuity.
Parties to the Contract
Owner
As the purchaser of the Contract, You may exercise all rights and
privileges provided in the Contract, subject to any rights that You, as Owner,
may convey to an irrevocable beneficiary. As Owner, You will also be the
Annuitant, unless You name in writing some other person as Annuitant.
Annuitant
The Annuitant is the person who receives annuity payments and upon the
continuance of whose life these payments are based. You may designate someone
other than yourself as Annuitant. If the Annuitant is a person other than the
Owner, and the Annuitant dies before the Annuity Date, You will become the
Annuitant unless you designate someone else as the new Annuitant.
Beneficiary
The Beneficiary You designate will receive the death proceeds if You die
prior to the Annuity Date. If no Beneficiary is living at that time, the death
proceeds are payable to Your estate. If the Annuitant dies after the Annuity
Date, the Beneficiary will receive any remaining guaranteed payments under an
Annuity Option. If no Beneficiary is living at that time, the remaining
guaranteed payments are payable to Your estate.
Change of Annuitant and Beneficiary
Prior to the Annuity Date, You may change the Annuitant and Beneficiary by
making a written request to Our Administrative Office. After the Annuity Date
only a change of Beneficiary may be made. Once We have accepted Your written
request, any change will become effective on the date You signed it. However,
any change will be subject to any payment or other action taken by Us before We
record the change. If the Owner is not a natural person, under current Federal
tax law, the Contract may be subject to unintended and adverse tax consequences.
For possible tax considerations of these changes, see "Taxes", page ____.
How to Purchase a Contract
At the time of application, the Purchaser must pay at least the minimum
Premium required and provide instructions regarding the allocation of the
Premium among the Subaccounts. Acceptance of the Premium and form of application
is subject to Our requirements and We reserve the right to reject any Premium.
If the application and Premium are accepted in the form received, the Premium
will be credited and allocated to the Subaccounts within two business days of
its receipt. The date the Premium is credited to the Contract is the Effective
Date.
If within five days of the receipt of the initial Premium We have not
received sufficient information to issue a Contract, You will be contacted. The
reason for the delay will be explained to You. If You consent We will retain the
Premium until the necessary requirements are fulfilled. Otherwise, the Premium
will be immediately refunded to You.
Discount Purchase Programs
Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families may not be subject to the Surrender Charge.
<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"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AIGESC is a wholly-owned subsidiary of AIG,
and an affiliate of the Company. Commissions not to exceed 6.5% of Premiums will
be paid to entities which sell the Contract. Additional payments may be made for
other services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature and
similar services.
Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
to be prohibited from performing certain agency or administrative services and
receiving fees from 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.
Administration of the Contracts
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Owner's records. DVFS serves as the administrator to various
insurance companies offering variable contracts.
Premium and Allocation to Your Investment Options
The initial Premium must be at least $2,000. You may make additional
payments of Premium prior to the Annuity Date, in amounts of at least $1,000 or
$100 as part of an automatic investment plan. There is no maximum limit on the
additional Premiums You may pay or on the numbers of payments; however, the
Company reserves the right to reject any Premium on any Contract. You specify at
the time of issue or subsequently how the remaining amount, known as Additional
Premium will be allocated.
The initial Premium is allocated among the Subaccounts and Guaranteed
Account on the Effective Date. Your allocation instructions will specify what
percentage of Your initial Premium is to be credited to each Subaccount and to
the Guaranteed Account. Allocation instructions must be expressed in whole
percentages. Allocations for additional Premium will be made on the same basis
as the initial Premium unless We receive a written notice with new instructions.
Additional Premium will be credited to the Contract Value and allocated at the
close of the first Valuation Date on or after which the Additional Premium is
received at Our Administrative Office.
All premiums to IRA or 403 (b) Plan Contracts must comply with the
applicable provisions in the Code and the applicable provisions of your
retirement plan. Additional premium commingled in an IRA with a rollover
contribution from other retirement plans may result in unfavorable tax
consequences. You should seek legal counsel and tax advice regarding the
suitability of the contract for your situation. (See "Taxes" on page _____.)
Right to Examine Contract Period
The Contract provides a 10 day Right to Examine Contract Period giving You
the opportunity to cancel the Contract. You must return the Contract with
written notice to Us. If We receive the Contract and Your written notice within
10 days after it is received by You, the Contract will be voided. With the
exception of Contracts issued in connection with an IRA, in those states whose
laws do not require that We assume the risk of market loss during the Right to
Examine Contract Period, should You decide
<PAGE>
to cancel Your Contract, the amount to be returned to You will be the
Contract Value (on the day We receive the Contract) plus any charges deducted
for state taxes, without imposition of the Surrender Charge. The amount returned
to you may be more or less than the initial Premium. (See "Charges and
Deductions" on page ____.) For Contracts issued in those states that require we
return the premium, we will do so. In the case of Contracts issued in connection
with an IRA, the Company will refund the greater of the Premium, less any
withdrawals, or the Contract Value.
State laws governing the duration of the Right to Examine Contract Period
may vary from state to state. We will comply with the laws of the state in which
the Owner resides at the time the Contract is applied for. Federal laws
governing IRAs require a minimum seven day right of revocation. We provide 10
days from the date the Contract was mailed or otherwise delivered to you. (See
"Individual Retirement Annuities" on page ____.)
Unit Value and Contract Value
After the deduction of certain charges and expenses, amounts which You
allocate to a Subaccount of the Variable Account are used to purchase
Accumulation Units in that Subaccount, not shares of the Portfolio in which that
Subaccount invests. The number of Accumulation Units you purchase will be
determined by dividing the amount allocated to each Subaccount by the Unit Value
of the Subaccount for the Valuation Period during which the amount was
allocated.
The Unit Value for each Subaccount will vary from one Valuation Period to
the next, based on the investment experience of the Portfolio in which the
Subaccount invests and the deduction of certain charges and expenses. The
Statement of Additional Information contains a detailed explanation of how
Accumulation Units are valued.
Your value in any given Subaccount is determined by multiplying the Unit
Value for the Subaccount by the number of Units You own. Your value within the
Variable Account is the sum of your values in all the Subaccounts. The total
value of your Contract, known as the Contract Value, equals your Value in the
Variable Account plus Your value in the Guaranteed Account.
Transfers
Prior to the Annuity Date, You may make Transfers among the Subaccounts and
into and out of the Guaranteed Account subject to certain rules.
At the present time there is no limit on the number of transfers which can
be made among the Subaccounts and the Guaranteed Account in any one Contract
Year. We reserve the right to limit the number of transfers to 12 per Contract
Year. There are no fees for the first 12 transfers in any one Contract Year. For
each transfer in excess of 12 within one Contract Year, We impose a transfer fee
of $10. A transfer fee, if any, is deducted from the amount transferred. (See
Appendix, "Guaranteed Account Transfers," page A-1.)
Transfers may be made by written request or by telephone as described in
the Contract or specifically authorized in writing. The Company will undertake
reasonable procedures to confirm that instructions communicated by telephone are
genuine. All calls will be recorded. All transfers will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
After the Annuity Date, the Owner may transfer the Contract Value allocated
to the Variable Account among the Subaccounts. However, the Company reserves the
right to refuse any more than one transfer per month. The transfer fee is the
same as before the Annuity Date. This transfer fee, if any, will be deducted
from the next annuity payment after the transfer. If following the transfer, the
Annuity Units remaining in the Subaccount would generate a monthly annuity
payment of less than $100, the Company will transfer the entire amount in the
Subaccount.
<PAGE>
Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Subaccount. The number of Annuity Units for each
Subaccount will remain the same for the remainder of the payment period unless
the Owner requests another change.
The minimum amount which may be transferred at any one time is the lesser
of $1,000 or the value of the Subaccount or Guarantee Period from which the
transfer is made. However, the minimum amount for transfers under our Dollar
Cost Averaging program is $100 per Subaccount. (See "Dollar Cost Averaging.")
For additional limitations regarding transfers out of the Guaranteed Account,
see "The Guaranteed Account" in the Appendix, page A-1.)
Dollar Cost Averaging
The Company currently offers an option under which Owners may dollar cost
average their allocations in the Subaccounts under the contract by authorizing
the Company to make periodic allocations of Contract Value from either the Money
Market Subaccount or the Guaranteed Account to one or more of the other
Subaccounts. Dollar Cost Averaging is a systematic method of investing in which
securities are purchased at regular intervals in fixed dollar amounts so that
the cost of the securities gets averaged over time and possibly over various
market cycles. The option will result in the allocation of Contract Value to one
or more Subaccounts, and these amounts will be credited at the Accumulation Unit
value as of the end of the Valuation Dates on which the exchanges are effected.
Amounts periodically transferred under this option are not included in the 12
transfers per Contract Year discussed under "Transfers" on page ____. Since the
value of Accumulation Units will vary, the amounts allocated to a Subaccount
will result in the crediting of a greater number of units when the Accumulation
Unit value is low and a lesser number of units when the Accumulation Unit value
is high. Similarly, the amounts exchanged from a Subaccount will result in a
debiting of a greater number of units when the Subaccount's Accumulation Unit
value is low and a lesser number of units when the Accumulation Unit value is
high. Dollar Cost Averaging does not guarantee profits, nor does it assure that
an Owner will not have losses.
To elect Dollar Cost Averaging, the Owner's Contract Value must be at least
$12,000 and a Dollar Cost Averaging Request in proper form must be received by
the Company. The Dollar Cost Averaging Request form will not be considered
complete until the Contract Value is at least the required amount. A Dollar Cost
Averaging Request form is available from the Administrative Office upon
request.An Owner may not have in effect at the same time Dollar Cost Averaging
and Asset Rebalancing.
Asset Rebalancing
The Company currently offers an option under which Owners may authorize the
Company to automatically exchange Contract Value periodically to maintain a
particular percentage allocation among the Subaccounts as selected by the Owner.
The Contract Value allocated to each Subaccount will grow or decline in value at
different rates during the quarter, and Asset Rebalancing automatically
reallocates the Contract Value in the Subaccounts to the allocation selected by
the Owner. Asset Rebalancing is intended to exchange Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help an Owner buy low and sell
high, although there can be no assurance of this. This investment method does
not guarantee profits, nor does it assure that an Owner will not have losses.
To elect Asset Rebalancing, the Contract Value in the Contract must be at
least $12,000 and an Asset Rebalancing Request in proper form must be received
by the Company. An Owner may not have in effect at the same time Dollar Cost
Averaging and Asset Rebalancing. If the Asset Rebalancing is elected, all
Contract Value allocated to the Subaccounts must be included in the Asset
Rebalancing.
<PAGE>
The amounts transferred will be credited to the Accumulation Unit Value as
of the end of the Valuation Dates on which the transfers are effected. Amounts
periodically transferred under this option are not included in the 12 transfers
per Contract Year discussed under "Transfers" on page _____.
An Owner may instruct the Company at any time to terminate this option by
written request. Once terminated, this option may not be reselected during the
same Contract Year.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Premium, the Contract Value
and the Variable Account. These charges and deductions are as follows:
Deduction for State Premium Taxes
We do not deduct premium taxes unless assessed by the state of residence of
the Owner. Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged at Our discretion against either
Premium or Contract Value. Premium taxes currently imposed by certain states on
the Contracts range typically from 0% to 3.5% of premiums paid. Some states
assess premium taxes at the time Premium is received; others assess premium
taxes at the time of annuitization. Premium taxes are subject to being changed
or amended by state legislatures, administrative interpretations or judicial
acts.
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. The mortality risks assumed by the Company arise
from its contractual obligation to make annuity payments after the Annuity Date
for the life of the Annuitant, to waive the Surrender Charge in the event of the
death of the Owner prior to the Annuity Date and to provide the death benefit.
The expense risk assumed by the Company is that the costs of administering the
Contracts and the Variable Account will exceed the amount received from
Administrative and Contract Maintenance Charges.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased. The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period --Annuity Options" on page ___.) The
Company in its discretion may offer additional payment options which are not
based on a life contingency. If this should occur and if an Owner should elect a
payment option not based on a life contingency, the Mortality and Expense Risk
Charge is still deducted but the Owner receives no benefit from that portion of
the charge attributable to mortality risk.
Deduction for Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Equity Assurance
Plan charge for each Valuation Period will equal on an annual basis to .07% of
the average daily net asset value of the Variable Account for Owners attained
age 0-59 and .20% of the average daily net asset value of the Variable Account
for Owners attained age 60 and above.
Deduction for Enhanced Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Enhanced Equity
Assurance Plan charge for each Valuation Period will equal on an annual basis to
.17% of the average daily net asset value of the Variable Account for Owners
attained age 0-59 and .30% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
<PAGE>
Deduction for Annual Ratchet Plan
If the Owner has elected the Annual Ratchet Plan, the Annual Ratchet Plan
charge for each Valuation Period will equal on an annual basis to .10% of the
average daily net asset value of the Variable Account.
Deduction for Accidental Death Benefit
If the Owner has elected the Accidental Death Benefit, the Company deducts
for each Valuation Period an Accidental Death Benefit Charge equal on an annual
basis to .05% of the average daily net asset value in the Variable Account.
Deduction for Surrender Charge
In the event that an Owner makes a withdrawal from or surrenders Contract
Value in excess of the Free Withdrawal Amount, a Surrender Charge may be
imposed. The Free Withdrawal Amount is equal to the greater of the Contract
Value less premiums paid or the portion of the withdrawal that does not exceed
10% of the total Premium otherwise subject to the Surrender Charge paid to the
time of withdrawal, less any prior withdrawalsand less any accured charges for
option death benefits; however, the Surrender Charge applies only to Premium
received by the Company within seven (7) years of the date of the withdrawal.
The Surrender Charge will vary in amount depending upon the time which has
elapsed since the date Premium was received. In calculating the Surrender
Charge, Premium is allocated to the amount surrendered on a first-in, first-out
basis. The amount of any withdrawal which exceeds the Free Withdrawal Amount
will be subject to the following charges:
Surrender
Charge Percentage
-----------------
Premium Year 1 ................................... 6%
Premium Year 2 ................................... 6%
Premium Year 3 ................................... 5%
Premium Year 4 ................................... 5%
Premium Year 5 ................................... 4%
Premium Year 6 ................................... 4%
Premium Year 7 ................................... 2%
Premium Year 8 and thereafter..................... None
No Surrender Charge is imposed against: (1) Systematic Withdrawal options;
(2) Contract Value upon Annuitization; (3) a Death Benefit.
The Surrender Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Surrender Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403 (b) Plan or IRA. (See
"Taxes -- 403(b) Plans" on page ____.)
<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. This charge is intended to reimburse Us for
administrative expenses, both during the accumulation period and following the
Annuity Date.
Deduction for Contract Maintenance Charge
The Company also deducts an annual Contract Maintenance Charge of $30 per
year, from the Contract Value on each Contract Anniversary. The Contract
Maintenance Fee is waived if the Contract Value is greater than $50,000 on the
date of deduction of the charge. These charges are designed to reimburse the
Company for the costs it incurs relating to maintenance of the Contract, the
Variable Account, and the Guaranteed Account. If the Contract is surrendered, we
will deduct the Contract Maintenance Charge at the time of surrender for the
current Contract Year. The deduction will be made proportionally based on Your
value in each Subaccount and the Guaranteed Account. After the Annuity Date, the
Contract Maintenance Charge is deducted on a pro-rata basis from each annuity
income payment.
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any Federal income taxes. (See
also "Taxes" beginning on page ____.)
Other Expenses
There are deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying Prospectuses for each Fund.
Group and Sponsored Arrangements
In certain instances, we may reduce the Surrender Charge and the
Administrative Charge or change the minimum premium requirements for the sale of
Contracts to certain groups, including those in which a trustee or an employer,
for example, purchases Contracts covering a group of individuals on a group
basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
similar arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or group sponsored arrangements
that have been set up solely to buy Contracts or that have been in existence
less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Contract is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or Administrative
Charge will reflect differences in costs or services and will not be unfairly
discriminatory.
ANNUITY BENEFITS
Annuitization
Annuitization is an election you make to apply the Contract Value to an
Annuity Option in order to provide a series of annuity payments. The date the
Annuity Option becomes effective is the Annuity Date.
<PAGE>
Annuity Date
The latest Annuity Date is: the later of (a) the first day of the calendar
month following the later of the Annuitant's 90th birthday; or (b) such earlier
date as may be set by applicable law.
The Owner may designate an earlier date or may change the Annuity Date by
making a written request at least thirty (30) days prior to the Annuity Date
being changed. However, any Annuity Date must be no later than the date defined
above; and, the first day of a calendar month.
Without the approval of the Company, the new Annuity Date cannot be earlier
than one year after the Effective Date. In addition, for IRA or 403 (b) Plan
Contracts, certain provisions of your retirement plan or the Code may further
restrict your choice of an Annuity Date. (See "Taxes," page ____.)
Annuity Options
The Owner may choose annuity payments which are fixed or which are based on
the Variable Account or a combination of the two. The Owner may, upon at least
30 days prior written notice to us, at any time prior to the Annuity Date,
select or change an Annuity Option. If the Owner elects annuity payments which
are based on the Variable Account, the amount of the payments will be variable.
The amount of the annuity payment based on the value of a Subaccount is
determined through a calculation described in the Statement of Additional
Information, under the caption "Annuity Provisions". The Owner may not transfer
Contract Values between the Guaranteed Account and the Variable Account after
the Annuity Date, but may, subject to certain conditions, transfer Contract
Values from one Subaccount to another Subaccount. (See "Transfer of Contract
Values" on page ____.)
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the Guaranteed Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will make annuity payments during the
lifetime of the Annuitant.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will make monthly annuity payments during the lifetime of the Annuitant. If, at
the death of the Annuitant, payments have been made for less than 10 years,
payments will be continued during the remainder of the period to the
Beneficiary.
Option 3: Joint and Last Survivor Income. The Company will make annuity
payments for as long as either the Annuitant or a Contingent Annuitant is alive.
In the event that the Contract is issued in connection with an IRA, the payments
in this Option will be made only to the Owner as Annuitant and the Owner's
spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company reserves the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company reserves the right to make payments semi-annually or annually.
<PAGE>
If fixed annuity payments are selected, the amount of each fixed payment
is determined by multiplying the Contract Value allocated to purchase fixed
annuity payments by the factor shown in the annuity table specified in the
Contract for the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the
value of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Subaccount
selected; and (v) the pro-rata portion of the Contract Maintenance charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, variable annuity
payments will decrease.
DEATH BENEFIT
Prior to the Annuity Date
In the event of an Owner's death (or the death of the first joint Owner to
die) prior to the Annuity Date, a death benefit is payable to the Beneficiary.
The value of the death benefit will be determined as of the date We receive
proof of death in a form acceptable to Us. If there has been a change of Owner
from one natural person to another natural person, the death benefit will equal
the Contract Value, unless the change in ownership results from the election,
made by a surviving spouse as designated beneficiary, to continue the contract.
Otherwise, the death benefit will be calculated in accordance with the terms of
one of the options described below, as designated by the Owner at the time of
application. All death benefit options may not be available in all states.
Traditional Death Benefit
Under the Traditional Death Benefit, We will pay a death benefit equal to
the greatest of:
1. the total of all Premiums paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was reduced
on the date of a surrender; or
2. the Contract Value; or
3. the greatest of the Contract Value at any seventh Contract Anniversary
reduced proportionally by any surrender subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a surrender, plus any Premium paid subsequent to that
Contract Anniversary.
The Traditional Death Benefit will be in effect if no other Death Benefit
is in effect.
Optional Death Benefit
Prior to determining the amount of any of the following Optional Death
Benefits the Contract Value will be reduced by the accrued charges for the
optional death benefit, if as of the date of death, the accured charges had not
yet been deducted from the Variable Account.
Annual Ratchet Plan
If at the time of application, the Owner has selected a death benefit under
the terms of the Annual Ratchet Plan, We will pay a death benefit equal to the
greatest of:
1. the total of all Premium paid, reduced proportionally by withdrawals
and surrenders;
2. the Contract Value; or
3. the greatest Contract Value at any Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a surrender, plus any Premium paid subsequent to that
Contract Anniversary.
The charge for the Annual Ratchet Plan is equal on an annual basis to .10%
of the average daily net asset value of the Variable Account.
The Annual Ratchet Plan will be in effect if:
1. the Owner designates this option on the Application; and
2. the Annual Ratchet Plan charge is shown on the Contract Schedule.
<PAGE>
The Annual Ratchet Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it.
Equity Assurance Plan
If at the time of application the Owner has selected a death benefit under
the terms of the Equity Assurance Plan, We will pay a death benefit equal to the
greatest of:
1. the Contract Value;
2. the greatest of the Contract Value on any seventh Contract Anniversary
plus any Premiums subsequent to the Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a surrender; or
3. an amount equal to a) plus b) where:
a) is equal to the total of all Premiums paid on or before the first
Contract Anniversary following Your 85th birthday, adjusted for
surrenders described below and then accumulated at the compound
interest rates shown below for the number of complete years, not to
exceed 10, from the date of receipt of each Premium to the earlier of
the date of death or the first Contract Anniversary following Your
85th birthday:
0% per annum if death occurs during the 1st through 24th month from
the date of Premium payment;
2% per annum if death occurs during the 25th through 48th month from
the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd month from
the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th month from
the date of Premium payment;
8% per annum if death occurs during the 97th through 120th month from
the date of Premium payment;
10% per annum (for a maximum of 10 years) if death occurs more than
120 months from the date of Premium payment; and
b) is equal to all Premiums paid after the first Contract Anniversary
following Your 85th birthday, adjusted for surrenders as described
below.
The charge for the Equity Assurance Plan is equal on an annual basis to
.07% of the average daily net asset value of the Variable Account for Owners
attained ages 0-59 and .20% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
Adjustment for surrender. In the determination of the death benefit, for
each surrender a proportionate reduction will be made to each Premium paid prior
to the surrender. The proportion is determined by dividing the amount of the
Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application; and
2. the charge for the Equity Assurance Plan is shown on the Contract
Schedule or upon the allocation of Contract Values to either the Money
Market Subaccount or Guaranteed Account unless such allocation is
made, part if Dollar Cost Averaging.
The Equity Assurance Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it or upon the allocation
of Contract Values to either the Money Market Subaccount or Guaranteed Account,
unless such allocation is made as part of Dollar Cost Averaging.
<PAGE>
Enhanced Equity Assurance Plan
If at the time of application the Owner has selected a death benefit under
the terms of the Enhanced Equity Assurance Plan, We will pay a death benefit
equal to the greatest of:
1. the Contract Value; or
2. the greatest Contract Value on any Contract Anniversary plus any
Premiums subsequent to the Contract Anniversary reduced proportionally
by any surrenders subsequent to that Contract Anniversary in the same
proportion that the Contract Value was reduced on the date of a
surrender; or
3. an amount equal to a) plus b) where:
a) is equal to the total of all Premiums paid on or before the first
Contract Anniversary following Your 85th birthday, adjusted for
surrenders as described below and then accumulated at the
compound interest rates shown below for the number of complete
years, not to exceed 10, from the date of receipt of each Premium
to the earlier of the date of death or the first Contract
Anniversary following Your 85th birthday:
0% per annum if death occurs during the 1st through 24th month
from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th month
from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd month
from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th month
from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th month
from the date of Premium payment;
10% per annum (for a maximum of 10 years) if death occurs more
than 120 months from the date of Premium payment; and
b) is equal to all Premiums paid after the first Contract
Anniversary following Your 85th birthday, adjusted for surrenders
as described below.
The charge for the Enhanced Equity Assurance Plan is equal on an annual
basis to .17% of the average daily net asset value of the Variable Account for
Owners attained ages 0-59 and .30% of the average daily net asset value of the
Varialbe Account for Owners attained age 60 and above.
Adjustment for surrenders. In the determination of the death benefit, for
each surrender a proportionate reduction will be made to each Premium paid prior
to the surrender. The proportion is determined by dividing the amount of the
Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Enhanced Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application; and
2. the charge for this Rider is shown on the Contract Schedule.
The Enhanced Equity Assurance Plan will cease to be in effect upon receipt
by the Company of the Owner's written request to discontinue it or upon the
allocation of Contract Values to either the Money Market Subaccount or
Guaranteed Account, unless such allocation is made as part of Dollar Cost
Averaging.
<PAGE>
Accidental Death Benefit
The Owner may select the Accidental Death Benefit in addition to any of the
death benefit options. The Accidental Death Benefit is not available if the
Contract is used as an IRA. If at the time of application the Owner selected the
Accidental Death Benefit, the death benefit payable under this option will be
equal to the lesser of:
1. the Contract Value as of the date the death benefit is determined; or
2. $250,000.
The Company deducts for each Valuation Period a daily charge for the
Accidental Death Benefit which is equal on an annual basis to .05% of the
average daily net asset value of the Variable Account.
The Accidental Death Benefit is payable if the death of the primary Owner
occurs prior to the Contract Anniversary next following his/her 75th birthday as
a result of an injury. The death must also occur before the Annuity Date and
within 365 days of the date of the accident which caused the injury.
The Accidental Death Benefit will not be paid for any death caused by or
resulting in whole or in part from the following:
1. suicide or attempted suicide while sane or insane;
2. intentionally self-inflicted injuries;
3. sickness, disease or bacterial infection of any kind, except pyogenic
infections which occur as a result of an injury or bacterial
infections which result from the accidental ingestion of contaminated
substances;
4. injury sustained as a consequence of riding in, including boarding or
alighting from, any vehicle or device used for aerial navigation
except if the Owner is a passenger on any aircraft licensed for the
transportation of passengers;
5. declared or undeclared war or any act thereof; or
6. service in the military, naval or air service of any country.
The Accidental Death Benefit will be in effect if the Accidental Death
Benefit charge is shown on the Contract Schedule.
The Accidental Death Benefit will cease to be in effect upon receipt by the
Company the Owner's written request to discontinue it.
Payment to Beneficiary
Upon the death of the Owner prior to the Annuity Date, the Beneficiary may
elect the death benefit to be paid as follows:
1. payment of the entire death benefit within 5 years of the date of the
Owner's death; or
2. Payment over the lifetime of the designated Beneficiary with
distribution beginning within 1 year of the date of death of the Owner
(see Annuity Options section of this contract); or
3. if the designated Beneficiary is Your spouse, he/she can continue the
contract in his/her own name.
If no payment option is elected within 60 days of Our receipt of proof of
the Owner's death, a single sum settlement will be made at the end of the sixty
(60) day period following such receipt. Upon payment of the death benefit, this
Contract will end.
<PAGE>
After the Annuity Date
If the Owner is a person other than the Annuitant, and if the Owner's death
occurs on or after the Annuity Date, no death benefit will be payable under this
contract. Any guaranteed payments remaining unpaid will continue to be paid to
the Annuitant pursuant to the Annuity Option in force at the date of the Owner's
death. If the Owner is not an individual, the Annuitant shall be treated as the
Owner and any change of such first named Annuitant, will be treated as if the
Owner died.
Death of the Annuitant
If the Annuitant is a person other than the Owner, and if the Annuitant
dies before the Annuity Date, a new Annuitant may be named by the Owner. If no
new Annuitant is named within sixty (60) days of Our receipt of proof of the
Annuitant's death, the Owner will be deemed the new Annuitant. If an Annuitant
dies after the Annuity Date, the remaining payments, if any will be as specified
in the Annuity Option elected. We will require proof of the Annuitant's death.
Death benefits, if any, will be paid to the designated Beneficiary at least as
rapidly as under the method of distribution in effect at the Annuitant's death.
DISTRIBUTIONS UNDER THE CONTRACT
Withdrawals
The Owner may withdraw Contract Value prior to the Annuity Date. Any
withdrawal is subject to the following conditions:
(a) the Company must receive a written request;
(b) the amount requested must be at least $500;
(c) any applicable Surrender Charge will be deducted;
(d) the Contract Value will be reduced by the sum of the amount requested
plus the amount of any applicable Surrender Charge;
(e) the Company will deduct the amount requested plus any accrued charges
for optional death benefits and any Surrender Charge from each
Subaccount of the Variable Account and from the Guaranteed Account
either as specified or in the proportion that each Subaccount and the
Guaranteed Account bears to the Contract Value; and
We reserve the right to consider any withdrawal request that would reduce
the Value of the Accumulation Account to less than $2,000 to be a request for
surrender. In this event, the Surrender Value will be paid to You and the
Contract will terminate.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on Page ____.)
Systematic Withdrawal
The systematic withdrawal program involves making regularly scheduled
withdrawals from Your value in the Contract. In order to initiate the program,
your total Contract Value must be at least $24,000. The program allows You to
prearrange the withdrawal of a specified dollar amount of at least $200 per
withdrawal, on a monthly or quarterly payment basis. A maximum of 10% of the
Contract Value may be withdrawn in a Contract Year. Surrender Charges are not
imposed on withdrawals under this program. If you elect this program Surrender
Charges will be imposed on any withdrawal, other than withdrawals made under
Your systematic withdrawal program, when the withdrawal is from Premium paid in
the last seven years. You may not elect this program if you have taken a prior
withdrawal during the same Contract Year. (See "Withdrawals" on page ____, and
"Surrender Charges" on page _____.)
<PAGE>
Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. In the event that
Your value in a specified Subaccount or the Guaranteed Account is not sufficient
to deduct a withdrawal or if Your request for systematic withdrawal does not
specify the Guaranteed Account or from which Subaccounts withdrawals are to be
deducted, withdrawals will be deducted proportionally based on Your value in
each Subaccount and the Guaranteed Account.
All parties to the Contract are cautioned that the rights of any person to
implement the systematic withdrawal program under Contracts may be subject to
the terms and conditions of the retirement plan, regardless of the terms and
conditions of the Qualified issued in connection with IRAs or 403(b) Plans
Contract. (See "Taxes" on page _____.)
The systematic withdrawal program may be canceled at any time by written
request or automatically by Us should the Contract Value fall below $1,000. In
the event the systematic withdrawal program is canceled, the Owner may not elect
to participate in such program until the next Contract Anniversary.
An Owner may change once per Contract Year the amount or frequency of
withdrawals on a systematic basis.
The Free Withdrawal Amount (see "Charges and Deductions -- Deduction for
Surrender Charge" on page _____) is not available while an Owner is receiving
systematic withdrawals. An Owner will be entitled to the free withdrawal amount
on and after the Contract Anniversary next following the termination of the
systematic withdrawal program.
Implementation of the systematic withdrawal program may subject an Owner to
adverse tax consequences, including a 10% tax penalty. (See "Taxes -- Taxation
of Annuities in General" on page ____ for a discussion of the tax consequences
of withdrawals.)
The Company reserves the right to discontinue this program at any time.
Surrender
Prior to the Annuity Date you may surrender the Contract for the Surrender
Value by withdrawing the entire Contract Value. You must submit a written
request for surrender and return the Contract to Us. The Surrender Value will be
based on the Contract Value at the end of the Valuation Period during which the
surrender request is received as described below. The Contract may not be
surrendered after the Annuity Date. A surrender may be taxable and subject to a
tax penalty. (See "Taxes" discussed on page _____.)
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value as of the date the Company receives Your surrender
request, reduced by the following: (1) any applicable taxes not previously
deducted; (2) any applicable accrued charges for optional death benefits; (3)
the Contract Maintenance Charge; and (4) any applicable Surrender Charge.
Payment of Withdrawals and Surrender Values
Payments of withdrawals and Surrender Values will ordinarily be sent to the
Owner within seven (7) days of receipt of the written request, but see the
Deferment of Payment discussion below. (Also see Statement of Additional
Information -- "Delay of Payments.")
The Company reserves the right to ensure that an Owner's check or other
form of Premium has been cleared for payment prior to processing any withdrawal
or redemption request occurring shortly after a Premium payment.
If, at the time You make a request for a withdrawal or a surrender, You
have not provided Us with a written election not to have Federal income taxes
withheld, We must by law withhold such taxes from the taxable portion of Your
payment and remit that amount to the IRS. Mandatory withholding rules apply to
certain distributions from 403(b) Plans Contracts. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See "Withholding" on page ____, and "Tax-Favored Plans" on page
____.) <PAGE>
Deferral of Payment
Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Variable Account will usually occur within seven days. We may be permitted to
defer such payment if: (1) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise restricted;
(2) an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; (3) the SEC permits a delay for protection of Owners; or (4) the
check used to pay any Premium has not cleared through the banking system (this
may take up to 15 days).
We may defer payment of any withdrawal or surrender from the Guaranteed
Account for up to six months from the date we receive Your written request.
TAXES
Introduction
The Contracts are designed to accumulate Contract Values for retirement
plans which, except for IRAs and 403(b) Plans, are generally not tax-qualified
plans. The ultimate effect of Federal income taxes on the amounts held under a
Contract, on annuity payments, and on the economic benefits to the Owner,
Annuitant or Beneficiary depend on the Company's tax status and upon the tax
status of the individual concerned. Accordingly, each potential Owner should
consult a competent tax adviser regarding the tax consequences of purchasing a
Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Funds, please see the accompanying relevant Fund Prospectus.
Company Tax Status
The Company is taxed as a life insurance company under 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 Person," and "Diversification Standards".)
<PAGE>
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a Contract
prior to the Annuity Date will be treated as taxable income to the extent the
amounts held under the Contract on the date of 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
<PAGE>
period which is five years from the date of the first payment and after the
taxpayer attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan may
result in a taxable event and the excess of the Contract Value over total
Premium will be taxed to the assignor as ordinary income. Please consult your
tax adviser prior to making an assignment of the Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who is
either 37 1/2 years younger than the Owner or a grandchild of the Owner may have
Generation Skipping Transfer Tax consequences.
Distribution-at-Death Rules
In order to be treated as an annuity contract for Federal income tax
purposes, a Contract must generally provide for the following two distribution
rules: (i) if the Owner dies on or after the Annuity Date, and before the entire
interest in the Contract has been distributed, the remaining portion of such
interest will be distributed at least as quickly as the method in effect on the
Owner's death; and (ii) if a Owner dies before the Annuity Date, the entire
interest must generally be distributed within five years after the date of
death. To the extent such interest is payable to a designated Beneficiary,
however, such interest may be annuitized over the life of that Beneficiary or
over a period not extending beyond the life expectancy of that Beneficiary, so
long as distributions commence within one year after the date of death. The
designated Beneficiary is the person to whom ownership of the contract passes by
reason of death, and must be a natural person. If the Beneficiary is the spouse
of the Owner, the Contract may be continued unchanged in the name of the spouse
as Owner.
If the Owner is not an individual, the "primary annuitant" (as defined
under the Code) is considered the Owner. In addition, when the Owner is not an
individual, a change in the primary annuitant is treated as the death of the
Owner.
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than full and
adequate consideration will generally trigger tax on the gain in the Contract.
The transferee will receive a step-up in basis for the amount included in the
transferor's income. This provision, however, does not apply to those transfers
between spouses or incident to a divorce which are governed by Code Section
1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a corporation
or trust) the Contract is generally not treated as an annuity contract for
Federal income tax purposes, and the income on the Contract (generally the
excess of the Contract Value over the purchase payments) is includable in income
each year. The rule does not apply where the non-natural person is only the
nominal owner such as a trust or other entity acting as an agent for a natural
person. The rule also does not apply when the Contract is acquired by the estate
of a decedent, when the Contract is held under certain qualified plans, when the
Contract is a qualified funding asset for structured settlements, when the
Contract is purchased on behalf of an employee upon termination of a qualified
plan, and in the case of an immediate annuity.
Section 1035 Exchanges
Code Section 1035 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity contract
unless money is distributed as part of the exchange. A replacement contract
obtained in a tax-free exchange of contracts succeeds to the status of the
surrendered
<PAGE>
contract. Special rules and procedures apply to Code Section 1035 transactions.
Prospective owners wishing to take advantage of Code Section 1035 should consult
their tax advisers.
Multiple Contracts
Annuity contracts that are issued by the Company (or affiliate) to the same
Owner during any calendar year will be treated as one annuity contract in
determining the amount includable in the taxpayer's gross income. Thus, any
amount received under any such contract prior to the contract's annuity starting
date will be taxable (and possibly subject to the 10% penalty tax) to the extent
of the combined income in all such contracts. The Treasury has broad regulatory
authority to prevent avoidance of the purposes of this aggregation rule. It is
possible that, under this authority, Treasury may apply this rule to amounts
that are paid as annuities (on or after the starting date) under annuity
contracts issued by the same company to the same Owner during any calendar year
period. In this case, annuity payments could be fully taxable (and possibly
subject to the 10% penalty tax) to the extent of the combined income in all such
contracts and regardless of whether any amount would otherwise have been
excluded from income. Owners should consult a tax adviser before purchasing more
than one Contract or other annuity contracts.
Withholding
The Company is required to withhold Federal income taxes on withdrawals,
lump sum distributions, and annuity payments that include taxable income unless
the payee elects to not have any withholding or in certain other circumstances.
Special withholding rules apply to payments made to non-resident aliens.
Lump-sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of any
withdrawal or lump sum distribution unless You elect out of withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments based
on a withholding certificate You file with the Company. If you do not file a
certificate, You will be treated, for purposes of determining your withholding
rates, as a married person with three exemptions.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
Diversification Standards
To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up period,
each Subaccount is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Subaccount is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-through" rule applies so that an
investment in a Fund is not treated as one investment but is treated as an
investment in a pro-rata portion of each underlying asset of such Fund. All
securities of the same issuer are treated as a single investment. In the case of
government securities, each Government agency or instrumentality is treated as a
separate issuer.
In connection with the issuance of the Diversification Regulations,
Treasury announced that such regulations do not provide guidance concerning the
extent to which Owners may direct their investments to particular divisions of a
separate account. It is possible that if and when additional regulations or IRS
pronouncements are issued, the Contract may need to be modified to comply with
such rules. For these
<PAGE>
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 an Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to Premium paid under a salary reduction agreement. Specifically, Code Section
403(b)(11) allows an Owner to make a surrender or partial withdrawal only (a)
when the employee attains age 59 1/2, separates from service, dies, or becomes
disabled (as defined in the Code), or (b) in the case of hardship. In the case
of hardship, only an amount equal to the purchase payments may be withdrawn. In
addition, 403(b) Plans are subject to additional requirements, including:
eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403 (b) Plan by this Prospectus are not available in all
states.
<PAGE>
LEGAL PROCEEDINGS
The Company knows of no legal proceeding pending to which the Variable
Account is a party or which would materially affect the Variable Account.
LEGAL MATTERS
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.
<PAGE>
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
General Information
The Company
Independent Accountants
Legal Counsel
Distributor
Calculation of Performance Related Information
Delay of Payments
Transfers
Method of Determining Contract Values
Annuity Provisions
Annuity Benefits
Annuity Options
Variable Annuity Payment Values
Annuity Unit
Net Investment Factor
Additional Provisions
Financial Statements
<PAGE>
Guaranteed Account Option
Under this Guaranteed Account option, Contract Values are held in the
Company's General Account. The General Account includes all of Our assets,
except those assets segregated in Our separate accounts. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 nor is the General Account
registered as an investment company under the Investment Company Act of 1940.
The Company understands that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus relating to the Guaranteed
Account portion of the Contract. Disclosures regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses. The Guaranteed Account option may not be available in all
states.
During the Accumulation Period the Owner may allocate amounts to the
Guaranteed Account. The initial Premium will be invested in the Guaranteed
Account if selected by the Owner at the time of application. Additional Premium
will be allocated in accordance with the selection made in the application or
the most recent instruction received at the Company Office. If the Owner elects
to withdraw amounts from the Guaranteed Account, such withdrawal, except as
otherwise provided in this Appendix, will be subject to the same conditions as
imposed on withdrawals from the Variable Account. The Company reserves the right
to delay any payment from the Guaranteed Account for up to six (6) months from
the date it receives such request at its Office.
Allocations To The Guaranteed Account
The minimum amount that may be allocated to the Guaranteed Account, either
from the initial or a subsequent Premium, is $3,000. Amounts invested in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guarantee rate. The effective guarantee rate is that rate
in effect when the Owner allocates or transfers amounts to the Guaranteed
Account. If the Owner has allocated or transferred amounts at different times to
the Guaranteed Account, each allocation or transfer may have a unique effective
guarantee rate associated with that amount. The effective guarantee rate will
not be changed more than once per year and the minimum rate will not be less
than 3%.
Guaranteed Account Transfers
During the accumulation period the Owner may transfer, by written request
or telephone authorization, Contract Values to or from a subaccount of the
Variable Account to or from the Guaranteed 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 Guaranteed
Account equals the amounts so allocated less withdrawals, with interest
compounded annually at the rate of 3%, reduced by any applicable Surrender
Charge.
A-1
PROSPECTUS
for
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT I
and
AIG LIFE INSURANCE COMPANY
One Alico Plaza
600 King Street
Wilmington, Delaware 19801
This Prospectus sets forth the information a prospective investor ought to
know before investing. The individual deferred variable annuity contracts and
group flexible premium deferred variable annuity contracts (together "the
Contracts") described in this Prospectus provide for accumulation of Contract
Values and payment of monthly annuity payments. The Contracts may be used in
retirement plans which do not qualify for federal tax advantages ("Non-Qualified
Contracts") or in connection with retirement plans which may qualify as
Individual Retirement Annuities ("IRA") under Section 408 of the Internal
Revenue Code of 1986, as amended (the "Code") or Section 403(b) of the Code
("403(b) Plans"). The Contracts will not be available in connection with
retirement plans designed by AIG Life Insurance Company (the "Company") which
qualify for the federal tax advantages available under Sections 401 and 457 of
the Code. Purchasers intending to use the Contracts in connection with an IRA or
403(b) Plan should seek competent tax advice. An Owner may be issued a
certificate as evidence of individual participation under a group arrangement.
The description of the Contract in this prospectus is fully applicable to any
certificate that may be issued under the group contract.
Premiums allocated among the Subaccounts of Variable Account I (the
"Variable Account") will be invested in shares of corresponding portfolios as
selected by the Owner from the following choices: Growth Portfolio, Quasar
Portfolio, Technology Portfolio, Growth and Income Portfolio, Global Bond
Portfolio or Premier Growth Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES
FUND, INC.; the VIP High Income Portfolio, VIP Growth Portfolio, VIP Money
Market Portfolio, of the FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS;
VIP II Asset Manager Portfolio, VIP II Contrafund Portfolio or VIP II Investment
Grade Bond Portfolio of the FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS
FUNDS II; the Small Company Stock Portfolio of the DREYFUS VARIABLE INVESTMENT
FUND; the Worldwide Hard Assets Fund or Worldwide Emerging Markets Fund, of the
VAN ECK WORLDWIDE INSURANCE TRUST; the DREYFUS STOCK INDEX FUND; or the Capital
Appreciation Fund and International Equity Fund of the AIM VARIABLE INSURANCE
FUNDS, INC.
Additional information about the Contracts and the Variable Account is
contained in the Statement of Additional Information which is available upon
request at no charge by calling or writing AIG Life Insurance Company,
Attention: Variable Products, One Alico Plaza, Wilmington, Delaware 19801,
1-800-340-2765 or calling the service office at 1-800-255-8402. The Statement of
Additional Information dated May 1, 1998, 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.
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
<PAGE>
TABLE CONTENTS
Page
---
Definitions............................................................
Highlights.............................................................
Summary of Expenses....................................................
Condensed Financial Information........................................
The Company............................................................
The Variable Account...................................................
The Funds..............................................................
The Contract...........................................................
Charges and Deductions.................................................
Annuity Benefits.......................................................
Death Benefit..........................................................
Distributions Under the Contract.......................................
Taxes..................................................................
Legal Proceedings......................................................
Legal Matters..........................................................
Table of Contents of the Statement of Additional Information...........
Appendix-- General Account Option......................................
<PAGE>
DEFINITIONS
Accumulation Unit -- An accounting unit of measure used to calculate the
Contract Value prior to the Annuity Date.
Administrative Office -- The Annuity Service Office of the Company: c/o Delaware
Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, PA
19312-0031.
Annuitant -- The person designated by the Owner upon whose continuation of life
any annuity payment involving life contingencies depends.
Annuity Date -- The date on which annuity payments are to commence.
Annuity Option -- An arrangement under which annuity payments are made under
this Contract.
Annuity Unit -- An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary -- An anniversary of the Effective Date of the Contract.
Contract Value -- The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
Contract Year -- Each period of twelve (12) months commencing with the Effective
Date.
Effective Date -- The date on which the first Contract Year begins.
Guaranteed Account -- A part of our General Account, which earns a Guaranteed
Rate of interest.
Owner -- The person named in the Contract Schedule, unless changed, and who has
all rights under the Contract.
Premium -- Purchase payments for the Contract are referred to as Premium.
Premium Year -- Any period of twelve (12) months commencing with the date a
Premium payment is made and ending on the same date in each succeeding twelve
(12) month period thereafter.
Surrender Charge -- The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within 7 years of purchase
payments.
Valuation Date -- Each day that We and the New York Stock Exchange are open for
trading.
Valuation Period -- The period between the close of business on any Valuation
Date and the close of business for the next succeeding Valuation Date.
We, Our, Us -- AIG Life Insurance Company.
You, Your -- The Owner of this Contract.
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contracts and a segregated investment account
of AIG Life Insurance Company (the "Company") which account has been designated
Variable Account I (the "Variable Account"). The Contracts are designed to
assist in financial planning by providing for the accumulation of capital on a
tax-deferred basis for retirement and other long-term purposes, and providing
for the payment of monthly annuity income. Contracts may be purchased in
connection with a retirement plan which may qualify as 403 (b) Plan or as an
Individual Retirement Annuity ("IRA"). The Contract may also be purchased for
retirement plans, deferred compensation plans and other purposes which do not
qualify for such special Federal income tax treatment ("Non-Qualified
Contracts"). (See "Taxes" on page ____.)
A Contract is purchased with a minimum initial Premium of $2,000.
Additional Premium is permitted at any time, subject to certain limitations.
(See "Premium and Allocation to Your Investment Options" on page ____.) You, as
the Owner of the Contract, may allocate your Premium so that it accumulates on a
variable basis, a fixed basis or a combination of both.
Premium allocated among the Subaccounts of the Variable Account will
accumulate on a variable basis and will be invested in shares of one or more of
the following underlying portfolios: the Global Bond Portfolio, Premier Growth
Portfolio, Growth Portfolio, Quasar Portfolio, Technology Portfolio, or Growth
and Income Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
("Alliance Funds"); the VIP High Income Portfolio, VIP Growth Portfolio, VIP
Money Market Portfolio, VIP II Contrafund Portfolio, VIP II Asset Manager
Portfolio, or VIP II Investment Grade Bond Portfolio of the FIDELITY INVESTMENTS
VARIABLE INSURANCE PRODUCTS FUNDS ("Fidelity Funds"); the Small Company Stock
Portfolio of the DREYFUS VARIABLE INVESTMENT FUND ("Dreyfus Fund"); the
Worldwide Hard Assets Portfolio or Worldwide Emerging Markets Portfolio, of the
VAN ECK WORLDWIDE INSURANCE TRUST ("Van Eck Funds"); the DREYFUS STOCK INDEX
FUND; or the Capital Appreciation Fund or the International Equity Fund of AIM
VARIABLE INSURANCE FUNDS, INC. ("AIM Funds"). Your value in any one of these
Subaccounts will vary according to the investment performance of the underlying
portfolio chosen by you. You bear the entire investment risk for all Premium
allocated to the Variable Account.
The Company does not deduct sales charges from any Premium received.
However, the Contracts provide for a Surrender Charge (contingent deferred sales
charge) that may be assessed in the event that an Owner surrenders all or a
portion of the Contract Value within seven contract years following payment of
any Premium. The maximum Surrender Charge is 6% of Premium to which the charge
is applicable. (See "Summary of Expenses" on page ____, and "Charges and
Deductions - -- Deduction for Surrender Charge" on page _____.)
A penalty free withdrawal is available. Generally, there is no Surrender
Charge imposed on the greater of the Contract Value less Premium paid or the
portion of the withdrawal that does not exceed 10% of premium otherwise subject
to the Surrender Charge. (See "Withdrawals" on page ____.)
Surrenders and withdrawals may be taxable and subject to a penalty tax.
(See "Taxes" beginning on page ____.)
The Company deducts daily a Mortality and Expense Risk Charge which is
equal on an annual basis to 1.25% of the average daily net asset value of the
Variable Account. There is no Mortality and Expense Risk Charge deducted for
amounts in the Guaranteed Account. (See "Charges and Deductions --Deduction for
Mortality and Expense Risk Charge" on page _____.)
The Company deducts daily an Administrative Charge which is equal on an
annual basis to 0.15% of the average daily net asset value of the Variable
Account. The Administrative Charge is not assessed to the Guaranteed Account. In
addition, the Company deducts, from the Contract Value, an annual Contract
Maintenance Fee which is $30 per year. The Contract Maintenance Fee is waived if
the Contract Value
<PAGE>
is greater than $50,000 on the date of the charge. These Charges are designed to
reimburse the Company for administrative expenses relating to maintenance of the
Contract and the Variable Account. (See "Charges and Deductions -- Deduction for
Administrative Charge and Contract Maintenance Fee" on page _____.)
There are deductions and expenses paid out of the assets of the Fund which
are described in the accompanying Prospectuses for the Fund.
The Owner may return the Contract within ten (10) days (the "Right to
Examine Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA the Company will refund the greater of the Premium less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the Premium paid less any withdrawals, the Company will refund such an
amount.
FEE TABLE
Contract Owner Transaction Expenses
All Subaccounts
-----------
Sales Load Imposed on Purchases........................ None
Surrender Charge
(as a percentage of amount surrendered):
Premium Year 1 ...................................... 6%
Premium Year 2 ...................................... 6%
Premium Year 3 ...................................... 5%
Premium Year 4 ...................................... 5%
Premium Year 5 ...................................... 4%
Premium Year 6 ...................................... 3%
Premium Year 7 ...................................... 2%
Premium Year 8 and thereafter........................ None
Exchange Fee:
First 12 Per Contract Year .......................... None
Thereafter .......................................... $10
Annual Contract Fee ................................... $30
(waived for contracts with account value
of $50,000 or greater)
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>
Alliance Global Bond................................................ 0.56% 0.38% 0.94%(1)
Alliance Premier Growth............................................. 1.00 0.08 1.08(1)
Alliance Growth..................................................... 0.75 0.09 0.84(1)
Alliance Growth and Income.......................................... 0.63 0.09 0.72(1)
Alliance Quasar..................................................... 0.58 0.37 0.95(1)
Alliance Technology................................................. 0.76 0.19 0.95(1)
AIM V.I. Capital Appreciation Fund.................................. 0.63 0.05 0.68(2)
AIM V.I. International Equity Fund.................................. 0.75 0.18 0.93(2)
Fidelity VIP High Income............................................ 0.59 0.12 0.71(4)
Fidelity VIP Growth................................................. 0.60 0.09 0.69(4)
Fidelity VIP Money Market........................................... 0.21 0.10 0.31(4)
Fidelity VIP II Contrafund.......................................... 0.60 0.11 0.71(4)
Fidelity VIP II Asset Manager....................................... 0.55 0.10 0.65(4)
Fidelity VIP II Investment Grade Bond............................... 0.44 0.14 0.58(4)
Van Eck Worldwide Hard Assets....................................... 1.00 0.17 1.17(5)
Van Eck Worldwide Emerging Markets.................................. 1.00 (0.20) 0.80(5)
Dreyfus Small Company Stock......................................... 0.75 0.37 1.12(3)
Dreyfus Stock Index................................................. 0.25 0.03 0.28(3)
</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
- ------.)
* "Other Expenses" are based upon the expenses outlined under the section
discussing the management of the Funds in each Fund's Prospectus attached.
** "Total Portfolio Expenses" for the following Portfolios before
reimbursement by the relevant Fund's investment advisor, for the period
ended December 31, 1997, were as follows:
(1) Alliance Variable Product Series Funds: 1.10% for Premier Growth; 1.03% for
Global Bond; 1.37% for Quasar; 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, the investment
adviser discontinued expense reimbursement with respect to the Premier
Growth Portfolio;
<PAGE>
(2) Regarding the AIM Funds, A I M Advisors, Inc. ("AIM") May from time to time
voluntarily waive or reduce its respective fees. Effective May 1, 1998, the
Funds reimburse AIM in an amount up to 0.25% of the average net asset value
of each Fund, for expenses incurred in providing, or assuring that
participating insurance companies provide, certain administrative services.
Currently, the fee only applies to the average net asset value of each Fund
in excess of the net asset value of each Fund as calculated on April 30,
1998;
(3) Regarding the Dreyfus Fund, the expenses set forth above are the actual
total expenses without any expense reimbursement;
(4) With respect to the Fidelity VIP and VIP II Funds, the expenses set forth
above are actual total expenses. However a portion of the brokerage
commission that certain funds pay was used to reduce fund expenses. In
addition, certain funds have entered into arrangements with their custodian
and transfer agent whereby interest earned on uninvested cash balances was
used to reduce custodian and transfer agent expenses. Including these
reductions, the total operating expenses presented in the table would have
been .69% for the VIP Growth Portfolio, and .65% for the VIP II Asset
Manager Portfolio;
(5) The Van Eck Funds: For the Worldwide Hard Assets Fund, Other expenses are
net of soft dollor credits. Without such credits, Other Expenses would have
been 0.18% and Total Fund Operating Expenses would have been 1.18%. For
Worldwide Emerging Markets, Other Expenses are net of the reduction of the
Fund's operating fees in connection with a fee arrangement, based on cash
balances left on deposit with the custodian, and net of the waiver or
assumption by Van Eck Associates Corporation of certain fees and expenses.
Without such fee arrangement and, to a lesser extent, the
waiver/assumption, Other Expenses would have been 0.34% and Total Fund
Operation Expenses would have been 1.34%. Van Eck Associates Corporation is
no longer waiving or assuming fees and expenses.
Expenses on a hypothetical $1,000 policy, assuming 5% growth:
<TABLE>
<CAPTION>
If you surrender
---------------------------------------------------
Portfolio 1 Year 3 Years 5 Years 10 Years
- - --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Global Bond............................... 78 120 164 274
Alliance Premier Growth............................ 80 124 171 288
Alliance Growth ................................... 77 117 159 264
Alliance Growth and Income ........................ 76 113 153 251
Alliance Quasar ................................... 78 120 165 275
Alliance Technology ............................... 78 120 165 275
Fidelity VIP High Income .......................... 76 113 152 250
Fidelity VIP Growth ............................... 76 112 151 248
Fidelity VIP Money Market ......................... 72 101 132 208
Fidelity VIP II Contrafund......................... 76 113 152 250
Fidelity VIP II Asset Manager ..................... 75 111 149 244
Fidelity VIP II Investment Grade Bond ............. 75 109 146 237
Dreyfus Small Company Stock........................ 80 125 173 291
Dreyfus Stock Index ............................... 72 100 130 205
Van Eck Worldwide Hard Assets ..................... 81 127 176 296
Van Eck Worldwide Emerging Markets................. 77 116 157 260
AIM V.I. Capital Appreciation Fund................. 76 112 151 247
AIM V.I. International Equity Fund................. 78 120 164 273
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
If you annuitize or if you do not surrender
---------------------------------------------------
Portfolio 1 Year 3 Years 5 Years 10 Years
- - --------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Global Bond............................... 24 75 128 274
Alliance Premier Growth............................ 26 79 135 288
Alliance Growth ................................... 23 72 123 264
Alliance Growth and Income ........................ 22 68 117 251
Alliance Quasar ................................... 24 75 129 275
Alliance Technology ............................... 24 75 129 275
Fidelity VIP High Income .......................... 22 68 116 250
Fidelity VIP Growth ............................... 22 67 115 248
Fidelity VIP Money Market ......................... 18 56 96 208
Fidelity VIP II Contrafund......................... 22 68 116 250
Fidelity VIP II Asset Manager ..................... 21 66 113 244
Fidelity VIP II Investment Grade Bond.............. 21 64 110 237
Dreyfus Small Company Stock........................ 26 80 137 291
Dreyfus Stock Index ............................... 18 55 94 205
Van Eck Worldwide Hard Assets ..................... 27 82 140 296
Van Eck Worldwide Emerging Markets................. 23 71 121 260
AIM V.I. Capital Appreciation Fund................. 22 67 115 247
AIM V.I. International Equity Fund................. 24 74 127 272
</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>
<TABLE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
1997 1996
--------- ---------
<S> <C> <C>
ALLIANCE GROWTH & INCOME
Accumulation Unit Value
Beginning of Period ...................................... 11.85 10.00
End of Period ............................................ 15.06 11.85
Accum Units o/s @ end of period............................. 547,915.82 116,342.75
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period ...................................... 12.24 10.00
End of Period ............................................ 15.69 12.24
Accum Units o/s @ end of period............................. 333,114.57 123,814.87
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period ...................................... 10.54 10.00
End of Period ............................................ 11.07 10.54
Accum Units o/s @ end of period............................. 143,999.25 15,829.55
ALLIANCE QUASAR
Accumulation Unit Value
Beginning of Period ...................................... 10.28 10.00
End of Period ............................................ 12.02 10.28
Accum Units o/s @ end of period............................. 94,929.55 4,796.29
FIDELITY VIP MONEY MARKET
Accumulation Unit Value
Beginning of Period ...................................... 10.29 10.00
End of Period ............................................ 10.70 10.29
Accum Units o/s @ end of period............................. 944,656.53 385,238.57
FIDELITY VIP II ASSET MANAGER
Accumulation Unit Value
Beginning of Period ...................................... 11.12 10.00
End of Period ............................................ 13.23 11.12
Accum Units o/s @ end of period............................. 239,825.14 56,345.46
FIDELITY VIP GROWTH
Accumulation Unit Value
Beginning of Period ...................................... 10.92 10.00
End of Period ............................................ 13.30 10.92
Accum Units o/s @ end of period............................. 468,339.86 149,722.06
FIDELITY VIP HIGH INCOME
Accumulation Unit Value
Beginning of Period ...................................... 10.90 10.00
End of Period ............................................ 12.65 10.90
Accum Units o/s @ end of period............................. 185,484.29 55,015.77
FIDELITY VIP II INVESTMENT GRADE BOND
Accumulation Unit Value
Beginning of Period ...................................... 10.49 10.00
End of Period ............................................ 11.28 10.49
Accum Units o/s @ end of period............................. 221,696.39 40,777.94
VAN ECK WORLDWIDE HARD ASSETS
Accumulation Unit Value
Beginning of Period ...................................... 10.17 10.00
End of Period ............................................ 9.86 10.17
Accum Units o/s @ end of period............................. 22,196.30 11,530.80
DREYFUS STOCK INDEX
Accumulation Unit Value
Beginning of Period ...................................... 11.74 10.00
End of Period ............................................ 15.39 11.74
Accum Units o/s @ end of period............................. 490,227.53 113,481.41
</TABLE>
<PAGE>
*Funds were first invested in the Portfolios as listed below:
Alliance Growth and Income January 14, 1991
Alliance Global Bond May 10, 1993
Alliance Growth September 15, 1994
Alliance Premier Growth December 7, 1992
Alliance Quasar August 15, 1996
Alliance Technology January 22, 1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Contrafund January 3, 1995
Fidelity Asset Manager September 9, 1989
Fidelity Investment Grade Bond December 5, 1988
Dreyfus Small Company Stock May 1, 1996
Dreyfus Stock Index August 31, 1990
Van Eck Worldwide Hard Assets September 1, 1989
Van Eck Worldwide Emerging Markets December 21, 1995
AIM Capital Appreciation May 5, 1993
AIM International Equity May 5, 1993
Calculation of Performance Data
The Company may, from time to time, advertise certain performance related
information concerning one or more of the Subaccounts, including information as
to total return and yield. Performance information about a Subaccount is based
on the Subaccount's past performance only and is not intended as an indication
of future performance.
When the Company advertises the average annual total return of a
Subaccount, it will usually be calculated for one, five, and ten year periods
or, where a Subaccount has been in existence for a period less than one, five or
ten years, for such lesser period. Average annual total return is measured by
comparing the value of the investment in a Subaccount at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming the deduction of any Surrender Charge which would be payable if the
account were redeemed at the end of the period) and calculating the average
annual compounded rate of return necessary to produce the value of the
investment at the end of the period. The Company may simultaneously present
returns that do not assume a surrender and, therefore, do not deduct the
Surrender Charge.
When the Company advertises the yield of a Subaccount it will be calculated
based upon a given 30-day period. The yield is determined by dividing the net
investment income earned per Accumulation Unit during the period by the value of
an Accumulation Unit on the last day of the period.
<PAGE>
When the Company advertises the performance of the Money Market Subaccount
it may advertise in addition to the total return either the yield or the
effective yield. The yield of the Money Market Subaccount refers to the income
generated by an investment in that Subaccount over a seven-day period. The
income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized the income earned by an investment in
the Money Market Subaccount is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all contract
charges (sales charges, mortality and expense risk charges, and the
administrative charges) and is therefore lower than the total return at 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 a Fund
level, which has no comparable charges. Performance information for a Subaccount
may be compared to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, Donoghue Money Market Institutional Averages, indices
measuring corporate bond and government security prices as prepared by Lehman
Brothers, Inc. and Salomon Brothers or other indices measuring performance of a
pertinent group of securities so that investors may compare a Subaccount's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract;
and (iv) indices or averages of alternative financial products available to
prospective investors, including the Bank Rate Monitor which monitors average
returns of various bank instruments.
Financial Data
Financial statements of the Company may be found in the Statement of
Additional Information. No financial statements for the Variable Account have
been provided in the Statement of Additional Information because as of the date
of the reporting period no Contracts had been issued. <PAGE>
THE COMPANY
AIG Life Insurance Company is a stock life insurance company which was
organized under the laws 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. ("AIG"), which serves as the holding company for a
number of companies engaged in the international insurance business, both life
and general, in approximately 130 countries and jurisdictions around the world.
Ratings
The Company may from time-to-time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A. M. Best Company,
Moody's, and Standard & Poor's. The purpose of the ratings is to reflect the
financial strength and/or claims-paying ability of the Company and should not be
considered as bearing on the investment performance of assets held in the
separate account. Each year the A. M. Best Company reviews the financial status
of thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect A. M. Best's current opinion of the relative financial strength
and operating performance of an insurance company in comparison to the norms of
the life insurance industry.
In addition, the claims-paying ability of the Company as measured by
Standard & Poor's Insurance Ratings Services, and the financial strength of the
Company as measured by Moody's Investors Services, may be referred to in
advertisements, sales literature or in reports to Owners. These ratings are
their opinion of an operating insurance company's financial capacity to meet the
obligations of its life insurance policies and annuity contracts in accordance
with their terms. In regard to their ratings of the Company, these ratings are
explicitly based on the existence of a Support Agreement, dated as of December
31, 1991, between the Company and its parent, AIG, pursuant to which AIG has
agreed to cause the Company to maintain a positive net worth and to provide the
Company with funds on a timely basis sufficient to meet the Company's
obligations to its policyholders. The Support Agreement is not, however, a
direct or indirect guarantee by AIG to any person of the payment of any of the
Company's indebtedness, liabilities or other obligations (including obligations
to the Company's policyholders).
The ratings are not recommendations to purchase the Company's life
insurance or annuity products, or to hold or sell these products, and the
ratings do not comment on the suitability of such products for a particular
investor. There can be no assurance that any rating will remain in effect for
any given period of time or that any rating will not be lowered or withdrawn
entirely by a rating organization if, in such organization's judgment, future
circumstances relating to the Support Agreement, such as a lowering of AIG's
long-term debt rating, so warrant. The ratings do not reflect the investment
performance of the Variable Account or the degree of risk associated with an
investment in the Variable Account.
THE VARIABLE ACCOUNT
The Company authorized the organization of the Variable Account in 1986.
The Variable Account is maintained pursuant to Delaware insurance law. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended (the "1940 Act"). The Variable
Account meets the definition of a "Separate Account" under Federal securities
laws. The SEC does not supervise the management or the investment practices of
the Variable Account.
The Company owns the assets in the Variable Account and obligations under
the Contract are general corporate obligations. The Variable Account and each
Subaccount, however, are separate from the Company's other assets including
those of the General Account and from any other separate accounts. The assets of
the Variable Account, equal to the reserves and other contract liabilities with
respect to the Variable Account, are not chargeable with liabilities arising out
of any other business the Company may conduct. Investment income, as well as
both realized and unrealized gains and losses are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
income, gains or losses arising out of any other business of the Company. As a
result, the investment performance of each Subaccount and the Variable Account
is entirely independent of the investment performance of the General Account and
of any other separate account maintained by the Company.
The Variable Account is divided into Subaccounts, with the assets of each
Subaccount invested in shares of a corresponding portfolio of the Fund. The
Company may, from time to time, add additional portfolios of the Fund, and, when
appropriate, additional funds to act as the funding vehicles for the Contracts.
If deemed to be in the best interests of persons having voting rights under the
Contract, the Variable Account may be operated as a management company under the
1940 Act, may be deregistered under such Act in the event such registration is
no longer required, or may be combined with one or more other separate accounts.
The Company may offer other variable annuity contracts which also invest in the
Variable Account, and are described in other prospectuses.
<PAGE>
THE FUNDS
Alliance Funds, Fidelity Funds, Dreyfus Funds, Van Eck Funds and AIM Funds
(collectively, the "Funds") are each registered with the SEC as a diversified
open-end management investment company under the 1940 Act. Each is made up of
different series funds or Portfolios ("Portfolios"). The Dreyfus Stock Index
Fund (also a "Fund" herein) is an open-end, non-diversified management
investment company.
Shares of the Fund may be sold to separate accounts of life insurance
companies. The shares of the Fund will be sold to separate accounts of the
Company and its affiliate, AIG Life Insurance Company, as well as to separate
accounts of other affiliated or unaffiliated life insurance companies to fund
variable annuity contracts and variable life insurance policies. It is
conceivable that, in the future, it may be disadvantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
the Fund simultaneously. Although neither the Company nor the Fund currently
foresees any such disadvantages, either to variable life insurance policy owners
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, we will take whatever steps
it deems necessary, at its expense, to remedy or eliminate the irreconcilable
material conflict. If such a conflict were to occur, one or more insurance
company separate accounts might withdraw its investments in the Fund. This might
force the Fund to sell securities at disadvantageous prices.
A summary of the 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 Fund prospectus, which contains a discussion
of the risks involved in investing in the Fund. The prospectuses for the Fund
are included with this Prospectus. Please read the Prospectus carefully before
investing.
The investment objectives of the portfolios are as follows:
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Global Bond Portfolio
This portfolio seeks a high level of return from a combination of current
income and capital appreciation by investing in a globally diversified portfolio
of high quality debt securities denominated in the U.S. Dollar and a range of
foreign currencies.
Premier Growth Portfolio
This portfolio seeks growth of capital rather than current income. In
pursuing its investment objectives, the Premier Growth Portfolio will employ
aggressive investment policies. Since investment will be made based upon 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.
Growth Portfolio
This portfolio seeks the long term growth of capital by investing primarily
in common stocks and other equity securities.
Growth and Income Portfolio
This portfolio seeks to balance the objectives of reasonable current income
and opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
Technology Portfolio
This portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. This portfolio invests
principally in 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.
Alliance Variable Products Series Fund, Inc., is managed by Alliance
Capital Management L.P., ("Alliance"). The fund also includes other portfolios
which are not available for use by the Separate Account. More detailed
information regarding management of the funds, investment objectives, investment
advisory fees and other charges, may be found in the current Alliance Fund
prospectus which contains a discussion of the risks involved in investing. The
Alliance Fund prospectus is included with this Prospectus.
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND
Small Company Stock Portfolio
This portfolio seeks investment results that are greater than the total
return performance of publicly-traded common stock in the aggregate, as
represented by Russel 2500 TM Index.
DREYFUS STOCK INDEX FUND
This Fund seeks to provide investment results that correspond to the price
and yield performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index. In
anticipation of taking a market position, the Fund is permitted to purchase and
sell stock index futures. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation. Dreyfus has engaged Mellon Equity, located at 500
Grant Street, Pittsburgh, Pennsylvania 15258, to serve as the Fund's index fund
manager. Mellon Equity, a registered investment adviser formed in 1957, is an
indirect wholly-owned subsidiary of Mellon and, thus, an affiliate of Dreyfus.
As of March 31, 1998, Mellon Equity and its employees managed approximately
$19.9 billion in assets and served as the investment adviser of 2 other
investment companies
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS (VIP)
VIP Growth Portfolio
This portfolio seeks capital appreciation through investments primarily in
common stock.
VIP High Income Portfolio
This portfolio seeks high current income by investing primarily in
high-yielding, lower-rated, fixed-income securities (commonly referred to as
"junk bonds"), while also considering growth of capital. The potential for high
yield is accompanied by higher risk. For a more detailed discussion of the
investment risks associated with such securities, please refer to the Fidelity
Fund's attached prospectus.
VIP Money Market Portfolio
This portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The portfolio will
invest only in high quality U.S. dollar-denominated money market securities of
domestic and foreign issuers. An investment in the VIP Money Market Portfolio is
neither insured nor guaranteed by the U.S. government, and there can be no
assurance that the portfolio will maintain a stable $1.00 share price.
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
VIP II Asset Manager Portfolio
This portfolio seeks to provide a high total return with reduced risk over
the long term by allocating its assets among stocks, bonds and short-term money
market instruments.
VIP II Contrafund Portfolio
This portfolio seeks capital appreciation by investing in securities of
companies whose value the manager believes is not fully recognized by the
public.
VIP II Investment Grade Bond Portfolio
This portfolio seeks as high a level of current income as is consistent
with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities. The portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less.
<PAGE>
Fidelity Management & Research Company ("FMR") is the investment advisor
for the Variable Insurance Products Funds. FMR has entered into a sub-advisory
agreement with Fidelity Investments Money Management, Inc. ("FIMM"), on behalf
of the VIP Money Market Portfolio. On behalf of the VIP Overseas Portfolio, FMR
has entered into sub-advisory agreements with Fidelity Management & Research
(U.K.) Inc., (FMR U.K.), Fidelity Management & Research (Far East) Inc. (FMR Far
East), and Fidelity International Investment Advisors (FIIA). FMR U.K. and FMR
Far East also are sub-advisors to the VIP II Asset Manager Portfolio. Fidelity
Funds include other portfolios which are not available under this Prospectus as
funding vehicles for the Contracts. More detailed information regarding
management of the funds, investment objectives, investment advisory fees and
other charges assessed by the Fidelity Funds, are contained in the prospectuses
of the Fidelity Funds, included with this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Emerging Markets Fund
This portfolio seeks long-term capital appreciation by investing primarily
in equity securities in emerging markets around the world.
Worldwide Hard Assets Fund
This portfolio seeks long-term capital appreciation by investing in equity
and debt securities of companies engaged to a significant extent in the
exploration, development, production, or distribution of (1) precious metals;
(2) ferrous and non-ferrous metals; (3) oil and gas; (4) forest products; (5)
real estate; and (6) other basic non-agricultural commodities (collectively,
"Hard Assets"), and in securities whose value is linked to the price of a Hard
Asset commodity or a commodity index. Income is a secondary consideration.
Van Eck Associates Corporation is the investment advisor and manager of
Worldwide Hard Assets Fund. Van Eck Global Asset Management (Asia) Limited, a
wholly-owned investment adviser subsidiary of Van Eck Associates Corporation, is
the investment adviser to Worldwide Emerging Markets Fund. Van Eck Worldwide
Insurance Trust includes other portfolios which are not available under this
prospectus as funding vehicles for the Contracts. More detailed information
regarding management of the funds, investment objectives, investment advisory
fees and other charges assessed by the Van Eck Worldwide Insurance Trust, are
contained in the relevant Fund prospectus included with this Prospectus.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
This Fund seeks capital appreciation through investments in common stock,
with emphasis on medium-sized and smaller emerging growth companies.
AIM V.I. International Equity Fund
This Fund seeks to provide long-term growth of capital by investing in a
diversified portfolio of international equity securities, the issuers of which
are considered by AIM to have strong earnings momentum.
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, TX 77046-1173,
serves as the investment advisor to each Fund, pursuant to a master investment
advisory agreement. More detailed information regarding management of the Funds,
investment objectives, investment advisory fees and other charges assessed by
the AIM Funds are contained in the prospectus for the Funds included with this
Prospectus.
There is no assurance that any of the Portfolios will achieve their stated
objectives.
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Voting Rights
As previously stated, all of the assets held in the Subaccounts of the
Variable Account will be invested in shares of a corresponding portfolio of the
Fund. Based on the Company's view of present applicable law, we will vote the
portfolio shares held in the Variable Account at meetings of shareholders in
accordance with instructions received from Owners having a voting interest in
the portfolio. However, if the 1940 Act or its regulations are amended, or if
our interpretation of present law changes to permit us to vote the portfolio
shares in our own right, we may elect to do so.
Prior to the Annuity Date, the Owner holds a voting interest in each
portfolio in which there is value in the corresponding Subaccount. The number of
portfolio shares which are attributable to the Owner is determined by dividing
the corresponding value in a particular Subaccount by the net asset value of one
portfolio share. The number of votes which an Owner will have a right to cast
will be determined as of the record date established by each portfolio.
We will solicit voting instructions by mail prior to the shareholder
meetings. An Owner having a voting interest in a Subaccount will be sent proxy
material, reports and other materials as provided by the Fund, relating to the
appropriate portfolios. The Company will vote shares in accordance with
instructions received from the Owner having a voting interest. At the meeting,
the Company will vote shares for which it has received no instructions and any
shares not attributable to Owners in the same proportion as it votes shares for
which it has received instructions from Owners.
The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds allocated to the Guaranteed
Account.
Substitution of Shares
If the shares of the Fund (or any portfolio within the Fund) should no
longer be available for investment by the Variable Account or if, in the
judgment of the Company, further investment in such shares should become
inappropriate in view of the purpose of the Contracts, the Company may
substitute shares of another fund (or portfolio within the fund) for Fund shares
already purchased or to be purchased in the future under the Contracts. No
substitution of securities may take place without any required prior approval of
the Securities and Exchange Commission and under such requirements as it may
impose.
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THE CONTRACT
The Contract described in this Prospectus is a deferred variable annuity.
Parties to the Contract
Owner
As the purchaser of the Contract, You may exercise all rights and
privileges provided in the Contract, subject to any rights that You, as Owner,
may convey to an irrevocable beneficiary. As Owner, You will also be the
Annuitant, unless You name in writing some other person as Annuitant.
Annuitant
The Annuitant is the person who receives annuity payments and upon the
continuance of whose life these payments are based. You may designate someone
other than yourself as Annuitant. If the Annuitant is a person other than the
Owner, and the Annuitant dies before the Annuity Date, You will become the
Annuitant unless you designate someone else as the new Annuitant.
Beneficiary
The Beneficiary You designate will receive the death proceeds if You die
prior to the Annuity Date. If no Beneficiary is living at that time, the death
proceeds are payable to Your estate. If the Annuitant dies after the Annuity
Date, the Beneficiary will receive any remaining guaranteed payments under an
Annuity Option. If no Beneficiary is living at that time, the remaining
guaranteed payments are payable to Your estate.
Change of Annuitant and Beneficiary
Prior to the Annuity Date, You may change the Annuitant and Beneficiary by
making a written request to Our Administrative Office. After the Annuity Date
only a change of Beneficiary may be made. Once We have accepted Your written
request, any change will become effective on the date You signed it. However,
any change will be subject to any payment or other action taken by Us before We
record the change. If the Owner is not a natural person, under current Federal
tax law, the Contract may be subject to unintended and adverse tax consequences.
For possible tax considerations of these changes, see "Taxes", page ____.
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How to Purchase a Contract
At the time of application, the Purchaser must pay at least the minimum
Premium required and provide instructions regarding the allocation of the
Premium among the Subaccounts. Acceptance of the Premium and form of application
is subject to Our requirements and We reserve the right to reject any Premium.
If the application and Premium are accepted in the form received, the Premium
will be credited and allocated to the Subaccounts within two business days of
its receipt. The date the Premium is credited to the Contract is the Effective
Date.
If within five days of the receipt of the initial Premium We have not
received sufficient information to issue a Contract, You will be contacted. The
reason for the delay will be explained to You. If You consent We will retain the
Premium until the necessary requirements are fulfilled. Otherwise, the Premium
will be immediately refunded to You.
Discount Purchase Programs
Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families may not be subject to the Surrender Charge.
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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"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AIGESC is a wholly-owned subsidiary of AIG,
and an affiliate of the Company. Commissions not to exceed 6.5% of Premiums will
be paid to entities which sell the Contract. Additional payments may be made for
other services not directly related to the sale of the Contract, including the
recruitment and training of personnel, production of promotional literature and
similar services.
Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
to be prohibited from performing certain agency or administrative services and
receiving fees from 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.
Administration of the Contracts
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Owner's records. DVFS serves as the administrator to various
insurance companies offering variable contracts.
Premium and Allocation to Your Investment Options
The initial Premium must be at least $2,000. You may make additional
payments of Premium prior to the Annuity Date, in amounts of at least $1,000 or
$100 as part of an automatic investment plan. There is no maximum limit on the
additional Premiums You may pay or on the numbers of payments; however, the
Company reserves the right to reject any Premium on any Contract. You specify at
the time of issue or subsequently how the remaining amount, known as Additional
Premium will be allocated.
The initial Premium is allocated among the Subaccounts and Guaranteed
Account on the Effective Date. Your allocation instructions will specify what
percentage of Your initial Premium is to be credited to each Subaccount and to
the Guaranteed Account. Allocation instructions must be expressed in whole
percentages. Allocations for additional Premium will be made on the same basis
as the initial Premium unless We receive a written notice with new instructions.
Additional Premium will be credited to the Contract Value and allocated at the
close of the first Valuation Date on or after which the Additional Premium is
received at Our Administrative Office.
All premiums to IRA or 403 (b) Plan Contracts must comply with the
applicable provisions in the Code and the applicable provisions of your
retirement plan. Additional premium commingled in an IRA with a rollover
contribution from other retirement plans may result in unfavorable tax
consequences. You should seek legal counsel and tax advice regarding the
suitability of the contract for your situation. (See "Taxes" on page ____.)
Right to Examine Contract Period
The Contract provides a 10 day Right to Examine Contract Period giving You
the opportunity to cancel the Contract. You must return the Contract with
written notice to Us. If We receive the Contract and Your written notice within
10 days after it is received by You, the Contract will be voided. With the
exception of Contracts issued in connection with an IRA, in those states whose
laws do not require that We assume the risk of market loss during the Right to
Examine Contract Period, should You decide to
<PAGE>
cancel Your Contract, the amount to be returned to You will be the Contract
Value (on the day We receive the Contract) plus any charges deducted for state
taxes, without imposition of the Surrender Charge. The amount returned to you
may be more or less than the initial Premium. (See "Charges and Deductions" on
page _____.) For Contracts issued in those states that require we return the
premium, we will do so. In the case of Contracts issued in connection with an
IRA, the Company will refund the greater of the Premium, less any withdrawals,
or the Contract Value.
State laws governing the duration of the Right to Examine Contract Period
may vary from state to state. We will comply with the laws of the state in which
the Owner resides at the time the Contract is applied for. Federal laws
governing IRAs require a minimum seven day right of revocation. We provide 10
days from the date the Contract was mailed or otherwise delivered to you. (See
"Individual Retirement Annuities" on page _____.)
Unit Value and Contract Value
After the deduction of certain charges and expenses, amounts which You
allocate to a Subaccount of the Variable Account are used to purchase
Accumulation Units in that Subaccount, not shares of the Portfolio in which that
Subaccount invests. The number of Accumulation Units you purchase will be
determined by dividing the amount allocated to each Subaccount by the Unit Value
of the Subaccount for the Valuation Period during which the amount was
allocated.
The Unit Value for each Subaccount will vary from one Valuation Period to
the next, based on the investment experience of the Portfolio in which the
Subaccount invests and the deduction of certain charges and expenses. The
Statement of Additional Information contains a detailed explanation of how
Accumulation Units are valued.
Your value in any given Subaccount is determined by multiplying the Unit
Value for the Subaccount by the number of Units You own. Your value within the
Variable Account is the sum of your values in all the Subaccounts. The total
value of your Contract, known as the Contract Value, equals your Value in the
Variable Account plus Your value in the Guaranteed Account.
Transfers
Prior to the Annuity Date, You may make Transfers among the Subaccounts and
into and out of the Guaranteed Account subject to certain rules.
At the present time there is no limit on the number of transfers which can
be made among the Subaccounts and the Guaranteed Account in any one Contract
Year. We reserve the right to limit the number of transfers to 12 per Contract
Year. There are no fees for the first 12 transfers in any one Contract Year. For
each transfer in excess of 12 within one Contract Year, We impose a transfer fee
of $10. A transfer fee, if any, is deducted from the amount transferred. (See
Appendix, "Guaranteed Account Transfers," page A-1.)
Transfers may be made by written request or by telephone as described in
the Contract or specifically authorized in writing. The Company will undertake
reasonable procedures to confirm that instructions communicated by telephone are
genuine. All calls will be recorded. All transfers will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
After the Annuity Date, the Owner may transfer the Contract Value allocated
to the Variable Account among the Subaccounts. However, the Company reserves the
right to refuse any more than one transfer per month. The transfer fee is the
same as before the Annuity Date. This transfer fee, if any, will be deducted
from the next annuity payment after the transfer. If following the transfer, the
Annuity Units remaining in the Subaccount would generate a monthly annuity
payment of less than $100, the Company will transfer the entire amount in the
Subaccount.
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Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Subaccount. The number of Annuity Units for each
Subaccount will remain the same for the remainder of the payment period unless
the Owner requests another change.
The minimum amount which may be transferred at any one time is the lesser
of $1,000 or the value of the Subaccount or Guarantee Period from which the
transfer is made. However, the minimum amount for transfers under our Dollar
Cost Averaging program is $100 per Subaccount. (See "Dollar Cost Averaging.")
For additional limitations regarding transfers out of the Guaranteed Account,
see "The Guaranteed Account" in the Appendix, page A-1.)
Dollar Cost Averaging
The Company currently offers an option under which Owners may dollar cost
average their allocations in the Subaccounts under the contract by authorizing
the Company to make periodic allocations of Contract Value from either the Money
Market Subaccount or the Guaranteed Account to one or more of the other
Subaccounts. Dollar Cost Averaging is a systematic method of investing in which
securities are purchased at regular intervals in fixed dollar amounts so that
the cost of the securities gets averaged over time and possibly over various
market cycles. The option will result in the allocation of Contract Value to one
or more Subaccounts, and these amounts will be credited at the Accumulation Unit
value as of the end of the Valuation Dates on which the exchanges are effected.
Amounts periodically transferred under this option are not included in the 12
transfers per Contract Year discussed under "Transfers" on page ____. Since the
value of Accumulation Units will vary, the amounts allocated to a Subaccount
will result in the crediting of a greater number of units when the Accumulation
Unit value is low and a lesser number of units when the Accumulation Unit value
is high. Similarly, the amounts exchanged from a Subaccount will result in a
debiting of a greater number of units when the Subaccount's Accumulation Unit
value is low and a lesser number of units when the Accumulation Unit value is
high. Dollar Cost Averaging does not guarantee profits, nor does it assure that
an Owner will not have losses.
To elect Dollar Cost Averaging, the Owner's Contract Value must be at least
$12,000 and a Dollar Cost Averaging Request in proper form must be received by
the Company. The Dollar Cost Averaging Request form will not be considered
complete until the Contract Value is at least the required amount. A Dollar Cost
Averaging Request form is available from the Administrative Office upon
request.An Owner may not have in effect at the same time Dollar Cost Averaging
and Asset Rebalancing.
Asset Rebalancing
The Company currently offers an option under which Owners may authorize the
Company to automatically exchange Contract Value periodically to maintain a
particular percentage allocation among the Subaccounts as selected by the Owner.
The Contract Value allocated to each Subaccount will grow or decline in value at
different rates during the quarter, and Asset Rebalancing automatically
reallocates the Contract Value in the Subaccounts to the allocation selected by
the Owner. Asset Rebalancing is intended to exchange Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help an Owner buy low and sell
high, although there can be no assurance of this. This investment method does
not guarantee profits, nor does it assure that an Owner will not have losses.
To elect Asset Rebalancing, the Contract Value in the Contract must be at
least $12,000 and an Asset Rebalancing Request in proper form must be received
by the Company. An Owner may not have in effect at the same time Dollar Cost
Averaging and Asset Rebalancing. If the Asset Rebalancing is elected, all
Contract Value allocated to the Subaccounts must be included in the Asset
Rebalancing.
<PAGE>
The amounts transferred will be credited to the Accumulation Unit Value as
of the end of the Valuation Dates on which the transfers are effected. Amounts
periodically transferred under this option are not included in the 12 transfers
per Contract Year discussed under "Transfers" on page ____.
An Owner may instruct the Company at any time to terminate this option by
written request. Once terminated, this option may not be reselected during the
same Contract Year.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Premium, the Contract Value
and the Variable Account. These charges and deductions are as follows:
Deduction for State Premium Taxes
We do not deduct premium taxes unless assessed by the state of residence of
the Owner. Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged at Our discretion against either
Premium or Contract Value. Premium taxes currently imposed by certain states on
the Contracts range typically from 0% to 3.5% of premiums paid. Some states
assess premium taxes at the time Premium is received; others assess premium
taxes at the time of annuitization. Premium taxes are subject to being changed
or amended by state legislatures, administrative interpretations or judicial
acts.
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. The mortality risks assumed by the Company arise
from its contractual obligation to make annuity payments after the Annuity Date
for the life of the Annuitant, to waive the Surrender Charge in the event of the
death of the Owner prior to the Annuity Date and to provide the death benefit.
The expense risk assumed by the Company is that the costs of administering the
Contracts and the Variable Account will exceed the amount received from
Administrative and Contract Maintenance Charges.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased. The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period -- Annuity Options" on page ____.) The
Company in its discretion may offer additional payment options which are not
based on a life contingency. If this should occur and if an Owner should elect a
payment option not based on a life contingency, the Mortality and Expense Risk
Charge is still deducted but the Owner receives no benefit from that portion of
the charge attributable to mortality risk.
Deduction for Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Equity Assurance
Plan charge for each Valuation Period will equal on an annual basis to .07% of
the average daily net asset value of the Variable Account for Owners attained
age 0-59 and .20% of the average daily net asset value of the Variable Account
for Owners attained age 60 and above.
Deduction for Enhanced Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Enhanced Equity
Assurance Plan charge for each Valuation Period will equal on an annual basis to
.17% of the average daily net asset value of the Variable Account for Owners
attained age 0-59 and .30% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
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Deduction for Annual Ratchet Plan
If the Owner has elected the Annual Ratchet Plan, the Annual Ratchet Plan
charge for each Valuation Period will equal on an annual basis to .10% of the
average daily net asset value of the Variable Account.
Deduction for Accidental Death Benefit
If the Owner has elected the Accidental Death Benefit, the Company deducts
for each Valuation Period an Accidental Death Benefit Charge equal on an annual
basis to .05% of the average daily net asset value in the Variable Account.
Deduction for Surrender Charge
In the event that an Owner makes a withdrawal from or surrenders Contract
Value in excess of the Free Withdrawal Amount, a Surrender Charge may be
imposed. The Free Withdrawal Amount is equal to the greater of the Contract
Value less premiums paid or the portion of the withdrawal that does not exceed
10% of the total Premium otherwise subject to the Surrender Charge paid to the
time of withdrawal, less any prior withdrawals and less any accrued charges for
option death benefits; however, the Surrender Charge applies only to Premium
received by the Company within seven (7) years of the date of the withdrawal.
The Surrender Charge will vary in amount depending upon the time which has
elapsed since the date Premium was received. In calculating the Surrender
Charge, Premium is allocated to the amount surrendered on a first-in, first-out
basis. The amount of any withdrawal which exceeds the Free Withdrawal Amount
will be subject to the following charges:
Surrender
Charge Percentage
-----------------
Premium Year 1 .......................... 6%
Premium Year 2 .......................... 6%
Premium Year 3 .......................... 5%
Premium Year 4 .......................... 5%
Premium Year 5 .......................... 4%
Premium Year 6 .......................... 4%
Premium Year 7 .......................... 2%
Premium Year 8 and thereafter............ None
No Surrender Charge is imposed against: (1) Systematic Withdrawal options;
(2) Contract Value upon Annuitization; (3) a Death Benefit.
The Surrender Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Surrender Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403 (b) Plan or IRA. (See
"Taxes -- 403(b) Plans" on page _____.)
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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. This charge is intended to reimburse Us for
administrative expenses, both during the accumulation period and following the
Annuity Date.
Deduction for Contract Maintenance Charge
The Company also deducts an annual Contract Maintenance Charge of $30 per
year, from the Contract Value on each Contract Anniversary. The Contract
Maintenance Fee is waived if the Contract Value is greater than $50,000 on the
date of deduction of the charge. These charges are designed to reimburse the
Company for the costs it incurs relating to maintenance of the Contract, the
Variable Account, and the Guaranteed Account. If the Contract is surrendered, we
will deduct the Contract Maintenance Charge at the time of surrender for the
current Contract Year. The deduction will be made proportionally based on Your
value in each Subaccount and the Guaranteed Account. After the Annuity Date, the
Contract Maintenance Charge is deducted on a pro-rata basis from each annuity
income payment.
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any Federal income taxes. (See
also "Taxes" beginning on page _____.)
Other Expenses
There are deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying Prospectuses for each Fund.
Group and Sponsored Arrangements
In certain instances, we may reduce the Surrender Charge and the
Administrative Charge or change the minimum premium requirements for the sale of
Contracts to certain groups, including those in which a trustee or an employer,
for example, purchases Contracts covering a group of individuals on a group
basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
similar arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or group sponsored arrangements
that have been set up solely to buy Contracts or that have been in existence
less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Contract is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or Administrative
Charge will reflect differences in costs or services and will not be unfairly
discriminatory.
ANNUITY BENEFITS
Annuitization
Annuitization is an election you make to apply the Contract Value to an
Annuity Option in order to provide a series of annuity payments. The date the
Annuity Option becomes effective is the Annuity Date.
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Annuity Date
The latest Annuity Date is: the later of (a) the first day of the calendar
month following the later of the Annuitant's 90th birthday; or (b) such earlier
date as may be set by applicable law.
The Owner may designate an earlier date or may change the Annuity Date by
making a written request at least thirty (30) days prior to the Annuity Date
being changed. However, any Annuity Date must be no later than the date defined
above; and, the first day of a calendar month.
Without the approval of the Company, the new Annuity Date cannot be earlier
than one year after the Effective Date. In addition, for IRA or 403 (b) Plan
Contracts, certain provisions of your retirement plan or the Code may further
restrict your choice of an Annuity Date. (See "Taxes," page ____.)
Annuity Options
The Owner may choose annuity payments which are fixed or which are based on
the Variable Account or a combination of the two. The Owner may, upon at least
30 days prior written notice to us, at any time prior to the Annuity Date,
select or change an Annuity Option. If the Owner elects annuity payments which
are based on the Variable Account, the amount of the payments will be variable.
The amount of the annuity payment based on the value of a Subaccount is
determined through a calculation described in the Statement of Additional
Information, under the caption "Annuity Provisions". The Owner may not transfer
Contract Values between the Guaranteed Account and the Variable Account after
the Annuity Date, but may, subject to certain conditions, transfer Contract
Values from one Subaccount to another Subaccount. (See "Transfer of Contract
Values" on page ____.)
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the Guaranteed Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will make annuity payments during the
lifetime of the Annuitant.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will make monthly annuity payments during the lifetime of the Annuitant. If, at
the death of the Annuitant, payments have been made for less than 10 years,
payments will be continued during the remainder of the period to the
Beneficiary.
Option 3: Joint and Last Survivor Income. The Company will make annuity
payments for as long as either the Annuitant or a Contingent Annuitant is alive.
In the event that the Contract is issued in connection with an IRA, the payments
in this Option will be made only to the Owner as Annuitant and the Owner's
spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company reserves the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company reserves the right to make payments semi-annually or annually.
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If fixed annuity payments are selected, the amount of each fixed payment
is determined by multiplying the Contract Value allocated to purchase fixed
annuity payments by the factor shown in the annuity table specified in the
Contract for the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the
value of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Subaccount
selected; and (v) the pro-rata portion of the Contract Maintenance charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, variable annuity
payments will decrease.
DEATH BENEFIT
Prior to the Annuity Date
In the event of an Owner's death (or the death of the first joint Owner to
die) prior to the Annuity Date, a death benefit is payable to the Beneficiary.
The value of the death benefit will be determined as of the date We receive
proof of death in a form acceptable to Us. If there has been a change of Owner
from one natural person to another natural person, the death benefit will equal
the Contract Value, unless the change in ownership results from the election,
made by a surviving spouse as designated beneficiary, to continue the contract.
Otherwise, the death benefit will be calculated in accordance with the terms of
one of the options described below, as designated by the Owner at the time of
application. All death benefit options may not be available in all states.
Traditional Death Benefit
Under the Traditional Death Benefit, We will pay a death benefit equal to
the greatest of:
1. the total of all Premiums paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was reduced
on the date of a surrender; or
2. the Contract Value; or
3. the greatest of the Contract Value at any seventh Contract Anniversary
reduced proportionally by any surrender subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a surrender, plus any Premium paid subsequent to that
Contract Anniversary.
The Traditional Death Benefit will be in effect if no other Death Benefit
is in effect.
Optional Death Benefit
Prior to determining the amount of any of the following Optional Death
Benefits the Contract Value will be reduced by the accrued charges for the
optional death benefit, if as of the date of death, the accured charges had not
yet been deducted from the Variable Account.
Annual Ratchet Plan
If at the time of application, the Owner has selected a death benefit under
the terms of the Annual Ratchet Plan, We will pay a death benefit equal to the
greatest of:
1. the total of all Premium paid, reduced proportionally by withdrawals
and surrenders;
2. the Contract Value; or
3. the greatest Contract Value at any Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a surrender, plus any Premium paid subsequent to that
Contract Anniversary.
The charge for the Annual Ratchet Plan is equal on an annual basis to .10%
of the average daily net asset value of the Variable Account.
The Annual Ratchet Plan will be in effect if:
1. the Owner designates this option on the Application; and
2. the Annual Ratchet Plan charge is shown on the Contract Schedule.
<PAGE>
The Annual Ratchet Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it.
Equity Assurance Plan
If at the time of application the Owner has selected a death benefit under
the terms of the Equity Assurance Plan, We will pay a death benefit equal to the
greatest of:
1. the Contract Value;
2. the greatest of the Contract Value on any seventh Contract Anniversary
plus any Premiums subsequent to the Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a surrender; or
3. an amount equal to a) plus b) where:
a) is equal to the total of all Premiums paid on or before the first
Contract Anniversary following Your 85th birthday, adjusted for
surrenders described below and then accumulated at the compound
interest rates shown below for the number of complete years, not
to exceed 10, from the date of receipt of each Premium to the
earlier of the date of death or the first Contract Anniversary
following Your 85th birthday:
0% per annum if death occurs during the 1st through 24th month
from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th month
from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd month
from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th month
from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th month
from the date of Premium payment;
10% per annum (for a maximum of 10 years) if death occurs more
than 120 months from the date of Premium payment; and
b) is equal to all Premiums paid after the first Contract
Anniversary following Your 85th birthday, adjusted for surrenders
as described below.
The charge for the Equity Assurance Plan is equal on an annual basis to
.07% of the average daily net asset value of the Variable Account for Owners
attained ages 0-59 and .20% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
Adjustment for surrender. In the determination of the death benefit, for
each surrender a proportionate reduction will be made to each Premium paid prior
to the surrender. The proportion is determined by dividing the amount of the
Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application; and
2. the charge for the Equity Assurance Plan is shown on the Contract
Schedule.
The Equity Assurance Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it or upon the allocation
of Contract Values to either the Money Market Subaccount or Guaranteed Account
unless such allocation is made as part of Dollar Cost Averaging.
<PAGE>
Enhanced Equity Assurance Plan
If at the time of application the Owner has selected a death benefit under
the terms of the Enhanced Equity Assurance Plan, We will pay a death benefit
equal to the greatest of:
1. the Contract Value; or
2. the greatest Contract Value on any Contract Anniversary plus any
Premiums subsequent to the Contract Anniversary reduced proportionally
by any surrenders subsequent to that Contract Anniversary in the same
proportion that the Contract Value was reduced on the date of a
surrender; or
3. an amount equal to a) plus b) where:
a) is equal to the total of all Premiums paid on or before the first
Contract Anniversary following Your 85th birthday, adjusted for
surrenders as described below and then accumulated at the
compound interest rates shown below for the number of complete
years, not to exceed 10, from the date of receipt of each Premium
to the earlier of the date of death or the first Contract
Anniversary following Your 85th birthday:
0% per annum if death occurs during the 1st through 24th month
from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th month
from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd month
from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th month
from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th month
from the date of Premium payment;
10% per annum (for a maximum of 10 years) if death occurs more
than 120 months from the date of Premium payment; and
b) is equal to all Premiums paid after the first Contract
Anniversary following Your 85th birthday, adjusted for surrenders
as described below.
The charge for the Enhanced Equity Assurance Plan is equal on an annual
basis to .17% of the average daily net asset value of the Variable Account for
Owners attained ages 0-59 and .30% of the average daily net asset value of the
Varialbe Account for Owners attained age 60 and above.
Adjustment for surrenders. In the determination of the death benefit, for
each surrender a proportionate reduction will be made to each Premium paid prior
to the surrender. The proportion is determined by dividing the amount of the
Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Enhanced Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application; and
2. the charge for this Rider is shown on the Contract Schedule.
The Enhanced Equity Assurance Plan will cease to be in effect upon receipt
by the Company of the Owner's written request to discontinue it or upon the
allocation of Contract Values to either the Money Market Subaccount or
Guaranteed Account unless such allocation is made as part of Dollar Cost
Averaging.
<PAGE>
Accidental Death Benefit
The Owner may select the Accidental Death Benefit in addition to any of the
death benefit options. The Accidental Death Benefit is not available if the
Contract is used as an IRA. If at the time of application the Owner selected the
Accidental Death Benefit, the death benefit payable under this option will be
equal to the lesser of:
1. the Contract Value as of the date the death benefit is determined; or
2. $250,000.
The Company deducts for each Valuation Period a daily charge for the
Accidental Death Benefit which is equal on an annual basis to .05% of the
average daily net asset value of the Variable Account.
The Accidental Death Benefit is payable if the death of the primary Owner
occurs prior to the Contract Anniversary next following his/her 75th birthday as
a result of an injury. The death must also occur before the Annuity Date and
within 365 days of the date of the accident which caused the injury.
The Accidental Death Benefit will not be paid for any death caused by or
resulting in whole or in part from the following:
1. suicide or attempted suicide while sane or insane;
2. intentionally self-inflicted injuries;
3. sickness, disease or bacterial infection of any kind, except pyogenic
infections which occur as a result of an injury or bacterial
infections which result from the accidental ingestion of contaminated
substances;
4. injury sustained as a consequence of riding in, including boarding or
alighting from, any vehicle or device used for aerial navigation
except if the Owner is a passenger on any aircraft licensed for the
transportation of passengers;
5. declared or undeclared war or any act thereof; or
6. service in the military, naval or air service of any country.
The Accidental Death Benefit will be in effect if the Accidental Death
Benefit charge is shown on the Contract Schedule.
The Accidental Death Benefit will cease to be in effect upon receipt by the
Company the Owner's written request to discontinue it.
Payment to Beneficiary
Upon the death of the Owner prior to the Annuity Date, the Beneficiary may
elect the death benefit to be paid as follows:
1. payment of the entire death benefit within 5 years of the date of the
Owner's death; or
2. Payment over the lifetime of the designated Beneficiary with
distribution beginning within 1 year of the date of death of the Owner
(see Annuity Options section of this contract); or
3. if the designated Beneficiary is Your spouse, he/she can continue the
contract in his/her own name.
If no payment option is elected within 60 days of Our receipt of proof of
the Owner's death, a single sum settlement will be made at the end of the sixty
(60) day period following such receipt. Upon payment of the death benefit, this
Contract will end.
After the Annuity Date
If the Owner is a person other than the Annuitant, and if the Owner's death
occurs on or after the Annuity Date, no death benefit will be payable under this
contract. Any guaranteed payments remaining unpaid will continue to be paid to
the Annuitant pursuant to the Annuity Option in force at the date of the
<PAGE>
Owner's death. If the Owner is not an individual, the Annuitant shall be treated
as the Owner and any change of such first named Annuitant, will be treated as if
the Owner died.
Death of the Annuitant
If the Annuitant is a person other than the Owner, and if the Annuitant
dies before the Annuity Date, a new Annuitant may be named by the Owner. If no
new Annuitant is named within sixty (60) days of Our receipt of proof of the
Annuitant's death, the Owner will be deemed the new Annuitant. If an Annuitant
dies after the Annuity Date, the remaining payments, if any will be as specified
in the Annuity Option elected. We will require proof of the Annuitant's death.
Death benefits, if any, will be paid to the designated Beneficiary at least as
rapidly as under the method of distribution in effect at the Annuitant's death.
DISTRIBUTIONS UNDER THE CONTRACT
Withdrawals
The Owner may withdraw Contract Value prior to the Annuity Date. Any
withdrawal is subject to the following conditions:
(a) the Company must receive a written request;
(b) the amount requested must be at least $500;
(c) any applicable Surrender Charge will be deducted;
(d) the Contract Value will be reduced by the sum of the amount requested
plus the amount of any applicable Surrender Charge;
(e) the Company will deduct the amount requested plus any accured charges
for optional death benefits and any Surrender Charge from each
Subaccount of the Variable Account and from the Guaranteed Account
either as specified or in the proportion that each Subaccount and the
Guaranteed Account bears to the Contract Value; and
We reserve the right to consider any withdrawal request that would reduce
the Value of the Accumulation Account to less than $2,000 to be a request for
surrender. In this event, the Surrender Value will be paid to You and the
Contract will terminate.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page ____.)
<PAGE>
Systematic Withdrawal
The systematic withdrawal program involves making regularly scheduled
withdrawals from Your value in the Contract. In order to initiate the program,
your total Contract Value must be at least $24,000. The program allows You to
prearrange the withdrawal of a specified dollar amount of at least $200 per
withdrawal, on a monthly or quarterly payment basis. A maximum of 10% of the
Contract Value may be withdrawn in a Contract Year. Surrender Charges are not
imposed on withdrawals under this program. If you elect this program Surrender
Charges will be imposed on any withdrawal, other than withdrawals made under
Your systematic withdrawal program, when the withdrawal is from Premium paid in
the last seven years. You may not elect this program if you have taken a prior
withdrawal during the same Contract Year. (See "Surrender Charges" on page
____.)
Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. In the event that
Your value in a specified Subaccount or the Guaranteed Account is not sufficient
to deduct a withdrawal or if Your request for systematic withdrawal does not
specify the Guaranteed Account or from which Subaccounts withdrawals are to be
deducted, withdrawals will be deducted proportionally based on Your value in
each Subaccount and the Guaranteed Account.
All parties to the Contract are cautioned that the rights of any person to
implement the systematic withdrawal program under Contracts issued in connection
with IRAs or 403(b) Plans may be subject to the terms and conditions of the
retirement plan, regardless of the terms and conditions of the Qualified
Contract (See "Taxes" on page ____.)
The systematic withdrawal program may be canceled at any time by written
request or automatically by Us should the Contract Value fall below $1,000. In
the event the systematic withdrawal program is canceled, the Owner may not elect
to participate in such program until the next Contract Anniversary.
An Owner may change once per Contract Year the amount or frequency of
withdrawals on a systematic basis.
The Free Withdrawal Amount (see "Charges and Deductions -- Deduction for
Surrender Charge" on page ____) is not available while an Owner is receiving
systematic withdrawals. An Owner will be entitled to the free withdrawal amount
on and after the Contract Anniversary next following the termination of the
systematic withdrawal program.
Implementation of the systematic withdrawal program may subject an Owner to
adverse tax consequences, including a 10% tax penalty. (See "Taxes -- Taxation
of Annuities in General" on page ____ for a discussion of the tax consequences
of withdrawals.)
The Company reserves the right to discontinue this program at any time.
Surrender
Prior to the Annuity Date you may surrender the Contract for the Surrender
Value by withdrawing the entire Contract Value. You must submit a written
request for surrender and return the Contract to Us. The Surrender Value will be
based on the Contract Value at the end of the Valuation Period during which the
surrender request is received as described below. The Contract may not be
surrendered after the Annuity Date. A surrender may be taxable and subject to a
tax penalty. (See "Taxes" discussed on page _____.)
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value as of the date the Company receives Your surrender
request, reduced by the following: (1) any applicable taxes not previously
deducted; (2) any applicable accrued charges for optional death benefits; (3)
the Contract Maintenance Charge; and (4) any applicable Surrender Charge.
<PAGE>
Payment of Withdrawals and Surrender Values
Payments of withdrawals and Surrender Values will ordinarily be sent to the
Owner within seven (7) days of receipt of the written request, but see the
Deferment of Payment discussion below. (Also see Statement of Additional
Information -- "Delay of Payments.")
The Company reserves the right to ensure that an Owner's check or other
form of Premium has been cleared for payment prior to processing any withdrawal
or redemption request occurring shortly after a Premium payment.
If, at the time You make a request for a withdrawal or a surrender, You
have not provided Us with a written election not to have Federal income taxes
withheld, We must by law withhold such taxes from the taxable portion of Your
payment and remit that amount to the IRS. Mandatory withholding rules apply to
certain distributions from 403(b) Plan Contracts. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See "Taxes" on page ___, and "Tax-Favored Plans" on page ____.)
Deferral of Payment
Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Variable Account will usually occur within seven days. We may be permitted to
defer such payment if: (1) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise restricted;
(2) an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; (3) the SEC permits a delay for protection of Owners; or (4) the
check used to pay any Premium has not cleared through the banking system (this
may take up to 15 days).
We may defer payment of any withdrawal or surrender from the Guaranteed
Account for up to six months from the date we receive Your written request.
TAXES
Introduction
The Contracts are designed to accumulate Contract Values for retirement
plans which, except for IRAs and 403(b) Plans, are generally not tax-qualified
plans. The ultimate effect of Federal income taxes on the amounts held under a
Contract, on annuity payments, and on the economic benefits to the Owner,
Annuitant or Beneficiary depend on the Company's tax status and upon the tax
status of the individual concerned. Accordingly, each potential Owner should
consult a competent tax adviser regarding the tax consequences of purchasing a
Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Fund, please see the accompanying Prospectus for the Fund.
Company Tax Status
The Company is taxed as a life insurance company under 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. <PAGE>
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 Person," on page ____ and "Diversification
Standards" on page ______.)
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a Contract
prior to the Annuity Date will be treated as taxable income to the extent the
amounts held under the Contract on the date of the withdrawal exceed the
"investment in the contract," as that term is defined under the Code. The
"investment in the contract" can generally be described as the cost of the
Contract. It generally constitutes the sum of all purchase payments made for the
contract less any amounts received under the Contract that are excluded from
gross income. The taxable portion is taxed as ordinary income. For purposes of
this rule, a pledge or assignment of a Contract is treated as a payment received
on account of a partial withdrawal of a Contract.
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the Contract, the
recipient is taxed on the portion of the payment that exceeds the investment in
the Contract. The taxable portion is taxed as ordinary income.
If the recipient receives annuity payments rather than a lump sum payment,
a portion of the payment is included in taxable income when received. For fixed
annuity payments, the taxable portion of each payment is generally determined by
using a formula known as the "exclusion ratio," which establishes the ratio that
the investment in the Contract bears to the total expected amount of annuity
payments for the term of the Contract. That ratio is then applied to each
payment to determine the nontaxable portion of the payment. The remaining
portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula which establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the investment in the
Contract by the total number of expected periodic payments. The remaining
portion of each payment is taxed as ordinary income.
The recipient is able to exclude a portion of the payments received from
taxable income until the investment in the Contract is fully recovered. Annuity
payments are fully taxable after the investment in the Contract is recovered. If
the recipient dies before the investment in the Contract is recovered, the
recipient's estate is allowed a deduction for the remainder.
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
<PAGE>
August 14, 1982; (v) under a qualified funding asset (as defined in Code Section
130(d)); (vi) under an immediate annuity contract; or (vii) that are purchased
by an employer on termination of certain types of qualified plans and which are
held by the employer until the employee separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount equal to
the tax that would have been imposed but for item (iii) above as determined
under Treasury Regulations, plus interest for the deferral period. The foregoing
rule applies if the modification takes place: (a) before the close of the period
which is five years from the date of the first payment and after the taxpayer
attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan may
result in a taxable event and the excess of the Contract Value over total
Premium will be taxed to the assignor as ordinary income. Please consult your
tax adviser prior to making an assignment of the Contract.
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 any 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 any Owner dies before the Annuity Date, the entire
interest must generally be distributed within five years after the date of
death. The designated beneficiary is the person to whom ownership of the
contract passes by reason of death and must be a natural person. To the extent
such interest is payable to a designated Beneficiary, however, such interest may
be annuitized over the life of that Beneficiary or over a period not extending
beyond the life expectancy of that Beneficiary, so long as distributions
commence within one year after the date of death. If the Beneficiary is the
spouse of the Owner, the Contract may be continued unchanged in the name of the
spouse as Owner.
If the Owner is not an individual, the "primary annuitant" (as defined
under the Code) is considered the Owner. In addition, when the Owner is not an
individual, a change in the primary annuitant is treated as the death of the
Owner.
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than full and
adequate consideration will generally trigger tax on the gain in the Contract.
The transferee will receive a step-up in basis for the amount included in the
transferor's income. This provision, however, does not apply to those transfers
between spouses or incident to a divorce which are governed by Code Section
1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a corporation
or trust) the Contract is generally not treated as an annuity contract for
Federal income tax purposes, and the income on the Contract (generally the
excess of the Contract Value over the purchase payments) is includable in income
each year. The rule does not apply where the non-natural person is only the
nominal owner such as a trust or other entity acting as an agent for a natural
person. The rule also does not apply when the Contract is
<PAGE>
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 Company (or affiliate) to the same
Owner during any calendar year will be treated as one annuity contract in
determining the amount includable in the taxpayer's gross income. Thus, any
amount received under any such contract prior to the contract's annuity starting
date will be taxable (and possibly subject to the 10% penalty tax) to the extent
of the combined income in all such contracts. The Treasury has broad regulatory
authority to prevent avoidance of the purposes of this aggregation rule. It is
possible that, under this authority, Treasury may apply this rule to amounts
that are paid as annuities (on or after the starting date) under annuity
contracts issued by the same company to the same Owner during any calendar year
period. In this case, annuity payments could be fully taxable (and possibly
subject to the 10% penalty tax) to the extent of the combined income in all such
contracts and regardless of whether any amount would otherwise have been
excluded from income. Owners should consult a tax adviser before purchasing more
than one Contract or other annuity contracts.
Withholding
The Company is required to withhold Federal income taxes on withdrawals,
lump sum distributions, and annuity payments that include taxable income unless
the payee elects to not have any withholding or in certain other circumstances.
Special withholding rules apply to payments made to non-resident aliens.
Lump-sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of any
withdrawal or lump sum distribution unless You elect out of withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments based
on a withholding certificate You file with the Company. If you do not file a
certificate, You will be treated, for purposes of determining your withholding
rates, as a married person with three exemptions.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
Diversification Standards
To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up period,
each Subaccount is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Subaccount is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-
<PAGE>
through" rule applies so that an investment in the Fund is not treated as one
investment but is treated as an investment in a pro-rata portion of each
underlying asset of the Fund. All securities of the same issuer are treated as a
single investment. In the case of government securities, each Government agency
or instrumentality is treated as a separate issuer.
In connection with the issuance of the Diversification Regulations,
Treasury announced that such regulations do not provide guidance concerning the
extent to which Owners may direct their investments to particular divisions of a
separate account. It is possible that if and when additional regulations or IRS
pronouncements are issued, the Contract may need to be modified to comply with
such rules. For these reasons, the Company reserves the right to modify the
Contract, as necessary, to prevent the Owner from being considered the owner of
the assets of the Variable Account.
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 an Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to Premium paid under a salary reduction agreement. Specifically, Code Section
403(b)(11) allows an Owner to make a surrender or partial withdrawal only
<PAGE>
(a) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled (as defined in the Code), or (b) in the case of hardship. In
the case of hardship, only an amount equal to the purchase payments may be
withdrawn. In addition, 403(b) Plans are subject to additional requirements,
including: eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403(b) Plan by this Prospectus are not available in all
states.
LEGAL PROCEEDINGS
The Company knows of no legal proceeding pending to which the Variable
Account is a party or which would materially affect the Variable Account.
LEGAL MATTERS
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.
<PAGE>
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
General Information
The Company
Independent Accountants
Legal Counsel
Distributor
Calculation of Performance Related Information
Delay of Payments
Transfers
Method of Determining Contract Values
Annuity Provisions
Annuity Benefits
Annuity Options
Variable Annuity Payment Values
Annuity Unit
Net Investment Factor
Additional Provisions
Financial Statements
<PAGE>
APPENDIX
Guaranteed Account Option
Under this Guaranteed Account option, Contract Values are held in the
Company's General Account. The General Account includes all of Our assets,
except those assets segregated in Our separate accounts. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 nor is the General Account
registered as an investment company under the Investment Company Act of 1940.
The Company understands that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus relating to the Guaranteed
Account portion of the Contract. Disclosures regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses. The Guaranteed Account option may not be available in all
states.
During the Accumulation Period the Owner may allocate amounts to the
Guaranteed Account. The initial Premium will be invested in the Guaranteed
Account if selected by the Owner at the time of application. Additional Premium
will be allocated in accordance with the selection made in the application or
the most recent instruction received at the Company Office. If the Owner elects
to withdraw amounts from the Guaranteed Account, such withdrawal, except as
otherwise provided in this Appendix, will be subject to the same conditions as
imposed on withdrawals from the Variable Account. The Company reserves the right
to delay any payment from the Guaranteed Account for up to six (6) months from
the date it receives such request at its Office.
Allocations To The Guaranteed Account
The minimum amount that may be allocated to the Guaranteed Account, either
from the initial or a subsequent Premium, is $3,000. Amounts invested in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guarantee rate. The effective guarantee rate is that rate
in effect when the Owner allocates or transfers amounts to the Guaranteed
Account. If the Owner has allocated or transferred amounts at different times to
the Guaranteed Account, each allocation or transfer may have a unique effective
guarantee rate associated with that amount. The effective guarantee rate will
not be changed more than once per year and the minimum rate will not be less
than 3%.
Guaranteed Account Transfers
During the accumulation period the Owner may transfer, by written request
or telephone authorization, Contract Values to or from a subaccount of the
Variable Account to or from the Guaranteed 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 Guaranteed Account
equals the amounts so allocated less withdrawals, with interest compounded
annually at the rate of 3%, reduced by any applicable Surrender Charge.
A-1
PROSPECTUS
for
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT I
and
AIG LIFE INSURANCE COMPANY
One Alico Plaza
600 King Street
Wilmington, Delaware 19801
This Prospectus sets forth the information a prospective investor ought to
know before investing.
The individual deferred variable annuity contracts and group flexible
premium deferred Variable Annuity Contracts (together "the Contracts") described
in this Prospectus provide for accumulation of Contract Values and payment of
monthly annuity payments. The Contracts may be used in retirement plans which do
not qualify for federal tax advantages ("Non-Qualified Contracts") or in
connection with retirement plans which may qualify as Individual Retirement
Annuities ("IRA") under Section 408 of the Internal Revenue Code of 1986, as
amended (the "Code") or Section 403(b) of the Code ("403(b) Plans"). The
Contracts will not be available in connection with retirement plans designed by
AIG Life Insurance Company (the "Company") which qualify for the federal tax
advantages available under Sections 401 and 457 of the Code. Purchasers
intending to use the Contracts in connection with an IRA or 403(b) Plan should
seek competent tax advice. An Owner may be issued a certificate as evidence of
individual participation under a group arrangement. The description of the
Contract in this prospectus is fully applicable to any certificate that may be
issued under the group contract.
Premiums allocated among the Subaccounts of Variable Account I (the
"Variable Account") will be invested in shares of Alliance Variable Products
Series Fund, Inc. (the "Alliance Fund") and Merrill Lynch Variable Series Funds,
Inc. (the "Merrill Lynch Fund"). The Alliance Fund has made available the
following Portfolios: Growth; Growth and Income; U.S. Government/High Grade
Securities; Global Dollar Government; Premier Growth; Total Return; Quasar; Real
Estate Investment; Worldwide Privatization; High Yield and Technology. The
Merrill Lynch Fund has made available the following portfolios: Domestic Money
Market; Prime Bond; High Current Income; Quality Equity; Special Value Focus;
Global Strategy Focus; Basic Value Focus; International Equity Focus; Developing
Capital Markets Focus; Natural Resources Focus; and Global Utility Focus.
Additional information about the Contracts and the Variable Account is
contained in the Statement of Additional Information which is available upon
request at no charge by calling or writing AIG Life Insurance Company,
Attention: Variable Products, One Alico Plaza, Wilmington, Delaware 19801,
1-800-340-2765 or calling the service office at 1-800-255-8402. The Statement of
Additional Information dated May 1, 1998, 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.
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 NOR OBLIGATIONS OF, AND ARE
NOT GUARANTEED NOR 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
<PAGE>
TABLE CONTENTS
Page
---
Definitions .........................................................
Highlights ..........................................................
Fee Table............................................................
Summary of Expenses .................................................
Condensed Financial Information......................................
The Company .........................................................
The Variable Account ................................................
The Funds ..........................................................
The Contract.........................................................
Charges and Deductions ..............................................
Annuity Benefits ....................................................
Death Benefit .......................................................
Distributions Under the Contract ....................................
Taxes ...............................................................
Legal Proceedings....................................................
Legal Matters........................................................
Table of Contents of the Statement of Additional Information.........
Appendix -- General Account Option ..................................
<PAGE>
DEFINITIONS
Accumulation Unit -- An accounting unit of measure used to calculate the
Contract Value prior to the Annuity Date.
Administrative Office -- The Annuity Service Office of the Company: c/o Delaware
Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, PA
19312-0031.
Annuitant -- The person designated by the Owner upon whose continuation of life
any annuity payment involving life contingencies depends.
Annuity Date -- The date on which annuity payments are to commence.
Annuity Option -- An arrangement under which annuity payments are made under
this Contract.
Annuity Unit -- An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary -- An anniversary of the Effective Date of the Contract.
Contract Value -- The dollar value as of any Valuation Date of all amounts
accumulated under this Contract.
Contract Year -- Each period of twelve (12) months commencing with the Effective
Date.
Effective Date -- The date on which the first Contract Year begins.
Guaranteed Account -- A part of our General Account, which earns a guaranteed
rate of interest.
Owner -- The person named in the Contract Schedule, unless changed, and who has
all rights under the Contract.
Premium -- Purchase payments for the Contract are referred to as Premium.
Premium Year -- Any period of twelve (12) months commencing with the date a
Premium payment is made and ending on the same date in each succeeding twelve
(12) month period thereafter.
Surrender Charge -- The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within 7 years of a premium
payment.
Valuation Date -- Each day that We and the New York Stock Exchange are open for
trading.
Valuation Period -- The period between the close of business on any Valuation
Date and the close of business for the next succeeding Valuation Date.
We, Our, Us -- AIG Life Insurance Company.
You, Your -- The Owner of this Contract.
<PAGE>
HIGHLIGHTS
This Prospectus describes the Contracts and a segregated investment account
of AIG Life Insurance Company (the "Company") which account has been designated
Variable Account I (the "Variable Account"). The Contracts are designed to
assist in financial planning by providing for the accumulation of capital on a
tax-deferred basis for retirement and other long-term purposes, and providing
for the payment of monthly annuity income. Contracts may be purchased in
connection with a retirement plan which may qualify as a 403 (b) Plan or as an
Individual Retirement Annuity ("IRA"). The Contract may also be purchased for
retirement plans, deferred compensation plans and other purposes which do not
qualify for such special Federal income tax treatment ("Non-Qualified
Contracts"). (See "Taxes" on page _____.)
A Contract is purchased with a minimum initial Premium of $2,000.
Additional Premium is permitted at any time, subject to certain limitations.
(See "Premium and Allocation to Your Investment Options" on page ____.) You, as
the Owner of the Contract, may allocate your Premium so that it accumulates on a
variable basis, a fixed basis or a combination of both.
Premium allocated among the Subaccounts of the Variable Account will
accumulate on a variable basis and will be invested in shares of one or more of
the following underlying portfolios: the Global Bond Portfolio, Premier Growth
Portfolio, Growth Portfolio, Quasar Portfolio, Technology Portfolio, or Growth
and Income Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
("Alliance Funds"); the VIP High Income Portfolio, VIP Growth Portfolio, VIP
Money Market Portfolio, VIP II Contrafund Portfolio, VIP II Asset Manager
Portfolio, or VIP II Investment Grade Bond Portfolio of the FIDELITY INVESTMENTS
VARIABLE INSURANCE PRODUCTS FUNDS ("Fidelity Funds"); the Small Company Stock
Portfolio of the DREYFUS VARIABLE INVESTMENT FUND ("Dreyfus Fund"); the
Worldwide Hard Assets Portfolio or Worldwide Emerging Markets Portfolio, of the
VAN ECK WORLDWIDE INSURANCE TRUST ("Van Eck Funds"); the DREYFUS STOCK INDEX
FUND; or the Capital Appreciation Fund or the International Equity Fund of AIM
VARIABLE INSURANCE FUNDS, INC. ("AIM Funds"). Your value in any one of these
Subaccounts will vary according to the investment performance of the underlying
portfolio chosen by you. You bear the entire investment risk for all Premium
allocated to the Variable Account.
The Company does not deduct sales charges from any Premium received.
However, the Contracts provide for a Surrender Charge (contingent deferred sales
charge) that may be assessed in the event that an Owner surrenders all or a
portion of the Contract Value within seven contract years following payment of
any Premium. The maximum Surrender Charge is 6% of Premium to which the charge
is applicable. (See "Summary of Expenses" on page ____, and "Charges and
Deductions - -- Deduction for Surrender Charge" on page _____.)
A penalty free withdrawal is available. Generally, there is no Surrender
Charge imposed on the greater of the Contract Value less Premium paid or the
portion of the withdrawal that does not exceed 10% of premium otherwise subject
to the Surrender Charge. (See "Withdrawals" on page ____.)
Surrenders and withdrawals may be taxable and subject to a penalty tax.
(See "Taxes" beginning on page ____.)
The Company deducts daily a Mortality and Expense Risk Charge which is
equal on an annual basis to 1.25% of the average daily net asset value of the
Variable Account. There is no Mortality and Expense Risk Charge deducted for
amounts in the Guaranteed Account. (See "Charges and Deductions --Deduction for
Mortality and Expense Risk Charge" on page _____.) <PAGE>
The Company deducts daily an Administrative Charge which is equal on an
annual basis to 0.15% of the average daily net asset value of the Variable
Account. The Administrative Charge is not assessed to the Guaranteed Account. In
addition, the Company deducts from the Contract Value, an annual Contract
Maintenance Fee which is $30 per year. The Contract Maintenance Fee is waived if
the Contract Value is greater than $50,000 on the date of the charge. These
Charges are designed to reimburse the Company for administrative expenses
relating to maintenance of the Contract and the Variable Account. (See "Charges
and Deductions -- Deduction for Administrative Charge and Contract Maintenance
Fee" on page _____.)
There are deductions and expenses paid out of the assets of the Fund which
are described in the accompanying Prospectuses for the Fund.
The Owner may return the Contract within ten (10) days (the "Right to
Examine Contract Period") after it is received by returning it to the Company's
Administrative Office. The return of the Contract by mail will be effective when
the postmark is affixed to a properly addressed and postage prepaid envelope.
The Company will refund the Contract Value. In the case of Contracts issued in
connection with an IRA the Company will refund the greater of the Premium less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Right to Examine Contract Period, an amount
equal to the Premium paid less any withdrawals, the Company will refund such an
amount.
FEE TABLE
Contract Owner Transaction Expenses
All Subaccounts
-----------
Sales Load Imposed on Purchases........................ None
Surrender Charge
(as a percentage of amount surrendered):
Premium Year 1 ...................................... 6%
Premium Year 2 ...................................... 6%
Premium Year 3 ...................................... 5%
Premium Year 4 ...................................... 5%
Premium Year 5 ...................................... 4%
Premium Year 6 ...................................... 3%
Premium Year 7 ...................................... 2%
Premium Year 8 and thereafter........................ None
Exchange Fee:
First 12 Per Contract Year .......................... None
Thereafter .......................................... $10
Annual Contract Fee ................................... $30
(waived for contracts with account value
of $50,000 or greater)
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
Fee Expenses* Expenses**
---------- --------- ---------
<S> <C> <C> <C>
Alliance Fund
Growth ............................................................. 0.75 0.09 0.84
Growth and Income .................................................. 0.63 0.09 0.72
High Yield (1)...................................................... 0.00 0.95 0.95
Global Dollar Government............................................ 0.41 0.54 0.95
U.S. Government/High Grade Securities .............................. 0.60 0.24 0.84
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
Merrill Lynch Fund
Prime Bond.......................................................... 0.42 0.05 0.47
High Current Income................................................. 0.47 0.07 0.54
Quality Equity...................................................... 0.44 0.04 0.48
Special Value....................................................... 0.75 0.05 0.80
Global Strategy Focus............................................... 0.65 0.08 0.73
Domestic Money Market............................................... 0.50 0.04 0.54
Basic Value Focus................................................... 0.60 0.05 0.65
International Equity Focus.......................................... 0.75 0.15 0.90
Developing Capital Markets Focus.................................... 1.00 0.25 1.25
Natural Resources Focus............................................. 0.65 0.16 0.81
Global Utility Focus................................................ 0.60 0.07 0.67
</TABLE>
- -----------
The purpose of the table set forth above is to assist the Owner in
understanding the various costs and expenses that an Owner will bear directly or
indirectly. The table reflects expenses of the Variable Account as well as the
Fund. (See "Charges and Deductions" on page ____of this Prospectus and the
respective Fund Prospectuses 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 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 on the Contracts by various states 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 relevant 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;
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, the investment adviser dicontinued expense
reimbursement with respect to the Premier Growth Portfolio.
<PAGE>
Expenses on a Hypothetical $1,000 Policy, Assuming 5% Growth:
<TABLE>
<CAPTION>
If you surrender
---------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Funds
Growth ............................................ $77 $117 $159 $264
Growth and Income ................................. 76 113 153 251
High Yield ........................................ 78 120 165 275
Global Dollar Government .......................... 78 120 165 275
U.S. Government/High Grade Securities ............. 77 117 159 264
Premier Growth .................................... 80 124 171 288
Total Return ...................................... 78 118 161 268
Worldwide Privatization ........................... 78 120 165 275
Technology ........................................ 78 120 165 275
Quasar ............................................ 78 120 165 275
Real Estate Investment ............................ 78 120 165 275
Merrill Lynch Fund
Prime Bond......................................... 74 106 140 225
High Current Income................................ 74 108 144 233
Quality Equity..................................... 74 106 141 226
Special Value...................................... 77 116 157 260
Global Strategy Focus.............................. 76 114 153 252
Domestic Money Market.............................. 74 108 144 233
Basic Value Focus.................................. 75 111 149 244
International Equity Focus......................... 78 119 162 270
Developing Capital Markets Focus................... 81 129 179 304
Natural Resources Focus............................ 77 116 158 261
Global Utility Focus............................... 76 112 150 246
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
If you Annuitize or if you do not surrender
---------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Funds
Growth ............................................ $23 $72 $123 $264
Growth and Income ................................. 22 68 117 251
U.S. Government/High Grade Securities ............. 24 75 129 275
Global Dollar Government .......................... 24 75 129 275
High Yield ........................................ 23 72 123 264
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
Merrill Lynch Fund
Prime Bond......................................... 20 61 104 225
High Current Income................................ 20 63 108 233
Quality Equity..................................... 20 61 105 226
Special Value...................................... 23 71 121 260
Global Strategy Focus.............................. 22 69 117 252
Domestic Money Market.............................. 20 63 108 233
Basic Value Focus.................................. 21 66 113 244
International Equity Focus......................... 24 74 126 270
Developing Capital Markets Focus................... 27 84 143 304
Natural Resources Focus............................ 23 71 122 261
Global Utility Focus............................... 22 67 114 246
</TABLE>
The Example should not be considered representations 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>
ALLIANCE 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
ALLIANCE 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
ALLIANCE U.S. GOVERNMENT/HIGH GRADE SECURIITES
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
ALLIANCE 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
ALLIANCE 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
ALLIANCE 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
ALLIANCE 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
ALLIANCE 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
ALLIANCE 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
ALLIANCE 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
</TABLE>
<PAGE>
*Funds were first invested in the Portfolios as listed below:
Premier Growth Portfolio December 7, 1992
Growth & Income Portfolio April 16, 1992
U.S. Government/High Grade Securities Portfolio June 14, 1993
Global Dollar Government Portfolio May 26, 1994
Growth Portfolio August 12, 1994
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
Domestic Money Market February 1998
Prime Bond February 1998
High Current Income February 1998
Quality Equity February 1998
Special Value Focus February 1998
Global Strategy Focus February 1998
Basic Value Focus February 1998
International Equity Focus February 1998
Developing Capital Markets February 1998
Natural Resources February 1998
Global Utility Focus February 1998
Calculation of Performance Data
The Company may, from time to time, advertise certain performance related
information concerning one or more of the Subaccounts, including information as
to total return and yield. Performance information about a Subaccount is based
on the Subaccount's past performance only and is not intended as an indication
of future performance.
When the Company advertises the average annual total return of a
Subaccount, it will usually be calculated for one, five, and ten year periods
or, where a Subaccount has been in existence for a period less than one, five or
ten years, for such lesser period. Average annual total return is measured by
comparing the value of the investment in a Subaccount at the beginning of the
relevant period to the value of the investment at the end of the period
(assuming the deduction of any Surrender Charge which would be payable if the
account were redeemed at the end of the period) and calculating the average
annual compounded rate of return necessary to produce the value of the
investment at the end of the period. The Company may simultaneously present
returns that do not assume a surrender and, therefore, do not deduct the
Surrender Charge.
When the Company advertises the yield of a Subaccount it will be calculated
based upon a given 30-day period. The yield is determined by dividing the net
investment income earned per Accumulation Unit during the period by the value of
an Accumulation Unit on the last day of the period.
When the Company advertises the performance of the Money Market Subaccount
it may advertise in addition to the total return either the yield or the
effective yield. The yield of the Money Market Subaccount refers to the income
generated by an investment in that Subaccount over a seven-day period. The
income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized the income earned by an investment in
the Money Market Subaccount is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
<PAGE>
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 a Fund
level, which has no comparable charges. Performance information for a Subaccount
may be compared to: (i) the Standard & Poor's 500 Stock Index, Dow Jones
Industrial Average, Donoghue Money Market Institutional Averages, indices
measuring corporate bond and government security prices as prepared by Lehman
Brothers, Inc. and Salomon Brothers or other indices measuring performance of a
pertinent group of securities so that investors may compare a Subaccount's
results with those of a group of securities widely regarded by investors as
representative of the securities markets in general; (ii) other variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other ratings services, companies, publications, or
persons who rank separate accounts or other investment products on overall
performance or other criteria; (iii) the Consumer Price Index (measure for
inflation) to assess the real rate of return from an investment in the Contract;
and (iv) indices or averages of alternative financial products available to
prospective investors, including the Bank Rate Monitor which monitors average
returns of various bank instruments.
Financial Data
Financial statements of the Company may be found in the Statement of
Additional Information. No financial statements for the Variable Accounts have
been provided in the Statement of Additional Information because as of the date
of the reporting periods no Contracts had been issued.
THE COMPANY
The Company is a stock life insurance company which was 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. ("AIG"), which serves as the holding company for a
number of companies engaged in the international insurance business, both life
and general, in approximately 130 countries and jurisdictions around the world.
Ratings
The Company may from time-to-time publish in advertisements, sales
literature and reports to Owners, the ratings and other information assigned to
it by one or more independent rating organizations such as A. M. Best Company,
Moody's, and Standard & Poor's. The purpose of the ratings is to reflect the
financial strength and/or claims-paying ability of the Company and should not be
considered as bearing on the investment performance of assets held in the
separate account. Each year the A. M. Best Company reviews the financial status
of thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect A. M. Best's current opinion of the relative financial strength
and operating performance of an insurance company in comparison to the norms of
the life insurance industry. In addition, the claims-paying ability of the
Company as measured by Standard & Poor's Insurance Ratings Services, and the
financial strength of the Company as measured by Moody's Investors Services, may
be referred to in advertisements, sales literature or in reports to Owners.
These ratings are their opinion of an operating insurance company's financial
capacity to meet the obligations of its life insurance policies and annuity
contracts in accordance with their terms. In regard to their ratings of the
Company, these ratings are explicitly based on the existence of a Support
Agreement, dated as of December 31, 1991, between the Company and its parent,
AIG, pursuant to which AIG has agreed to cause the Company to maintain a
positive net worth and to provide the Company with funds on a timely basis
sufficient to meet the Company's obligations to its policyholders. The Support
Agreement
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is not, however, a direct or indirect guarantee by AIG to any person of the
payment of any of the Company's indebtedness, liabilities or other obligations
(including obligations to the Company's policyholders).
The ratings are not recommendations to purchase the Company's life
insurance or annuity products, or to hold or sell these products, and the
ratings do not comment on the suitability of such products for a particular
investor. There can be no assurance that any rating will remain in effect for
any given period of time or that any rating will not be lowered or withdrawn
entirely by a rating organization if, in such organization's judgment, future
circumstances relating to the Support Agreement, such as a lowering of AIG's
long-term debt rating, so warrant. The ratings do not reflect the investment
performance of the Variable Account or the degree of risk associated with an
investment in the Variable Account.
THE VARIABLE ACCOUNT
The Company authorized the organization of the Variable Account in 1986.
The Variable Account is maintained pursuant to Delaware insurance law. The
Company has caused the Variable Account to be registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940, as amended (the "1940 Ac"). The Variable Account
meets the definition of a "Separate Account" under Federal securities laws. The
SEC does not supervise the management or the investment practices of the
Variable Account.
The Company owns the assets in the Variable Account and obligations under
the Contract are general corporate obligations. The Variable Account and each
Subaccount, however, are separate from the Company's other assets including
those of the General Account and from any other separate accounts. The assets of
the Variable Account, equal to the reserves and other contract liabilities with
respect to the Variable Account, are not chargeable with liabilities arising out
of any other business the Company may conduct. Investment income, as well as
both realized and unrealized gains and losses are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
income, gains or losses arising out of any other business of the Company. As a
result, the investment performance of each Subaccount and the Variable Account
is entirely independent of the investment performance of the General Account and
of any other separate account maintained by the Company.
The Variable Account is divided into Subaccounts, with the assets of each
Subaccount invested in shares of one portfolio of either the Alliance Fund or
the Merrill Lynch Fund. The Company may, from time to time, add additional
portfolios of the Fund, and, when appropriate, additional mutual funds to act as
the funding vehicles for the Contracts. If deemed to be in the best interests of
persons having voting rights under the Contract, the Variable Account may be
operated as a management company under the 1940 Act, may be deregistered under
such Act in the event such registration is no longer required, or may be
combined with one or more other separate accounts. The Company may offer other
variable annuity contracts which also invest inthe Variable Account, and are
described in other prospectuses.
THE FUNDS
Alliance Funds and Merrill Lynch Funds are each registered with the SEC as
a diversified open-end management investment company under the 1940 Act. Each is
made up of different series funds or portfolios.
The shares of the Fund will be sold to separate accounts of the Company and
its affiliate, AIG Life Insurance Company, as well as to separate accounts of
other affiliated or unaffiliated life insurance companies to fund variable
annuity contracts and variable life insurance policies. It is conceivable that,
in the future, it may be disadvantageous for variable life insurance separate
accounts and variable annuity separate accounts to invest in the Fund
simultaneously. Although neither the Company nor the Fund currently foresees any
such disadvantages, either to variable life insurance policy owners 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, we will take whatever steps it
deems necessary, at its expense, to remedy or eliminate the irreconcilable
material conflict. If such a conflict were to occur, one or more insurance
company separate accounts might withdraw its investments in the Fund. This might
force the Fund to sell securities at disadvantageous prices.
A summary of the 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 Fund prospectus, which contains a discussion
of the risks involved in investing in the Fund. The prospectuses for the Fund
are included with this Prospectus. Please read the Prospectus carefully before
investing.
<PAGE>
The following portfolios are available under the Alliance Fund:
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Growth Portfolio
This portfolio seeks long term growth of capital by investing primarily in
common stock and other equity securities.
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.
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.
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.
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 garde) 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.
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.
<PAGE>
Worldwide Privatization Portfolio
This portfolio seeks long-term capital appreciation by investing
principally in equity securities issued by enterprises that are undergoing, or
have undergone, privatization. The balance of the investment portfolio will
include equity securities of companies that are believed by the Fund's Advisor
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.
Alliance Variable Products Series Find, Inc., is managed by Alliance
Capital Management L.P. ("Alliance"). The fund also includes other Portfolios
which are not available for use by the Variable Account. More detailed
information regarding management of the portfolios, investment objectives,
invest advisory fees and other charges, may be found in the current Alliance
Fund Prospectus which contains a discussion of the risks involved in investing.
The Alliance Fund Prospectus is included with this Prospectus.
The following portfolios are available under the Merrill Lynch Fund:
MERRILL LYNCH VARIABLE SERIES FUND, INC.
Domestic Money Market Fund
This Fund seeks preservation of capital, liquidity, and the highest
possible current income consistent with the foregoing objectives by investing in
short-term domestic money market securities. The Fund invests in short-term
United States government securities; government agency securities; bank
certificates of deposit and banker's acceptances; short-term corporate debt
securities such as commercial paper and variable amount master demand notes;
repurchase agreements and other domestic money market instruments.
Prime Bond Fund
This Fund seeks to obtain as high a level of current income as is
consistent with the investment policies of the Fund and with prudent investment
management, and capital appreciation to the extent consistent with the foregoing
objective. The Fund invests primarily in long-term corporate bonds rated in the
top three ratings categories by established rating services.
<PAGE>
High Current Income Fund
This fund seeks to obtain as high a level of current income as is
consistent with the investment policies of the Fund and with prudent investment
management, and capital appreciation to the extent consistent with the foregoing
objective. The Fund invests principally in fixed-income securities that are
rated in the lower rating categories of the established rating services or in
unrated securities of comparable quality (commonly known as "junk bonds").
Because investment in such securities entails relatively greater risk of loss of
income or principal, an investment in the High Current Income Fund may not be
appropriate as the exclusive investment to fund a Contract. In an effort to
minimize risk, the Fund will diversify its holdings among many issuers. However,
there can be no assurance that diversification will protect the Fund from
widespread defaults during periods of sustained economic downturn.
Quality Equity Fund
This Fund seeks to attain the highest total investment return consistent
with prudent risk. The Fund employs a fully managed investment policy utilizing
equity securities, primarily common stocks of large-capitalization companies, as
well as investment grade debt and convertible securities. Management of the Fund
will shift the emphasis among investment alternatives for capital growth,
capital stability, and income as market trends change.
Special Value Focus Fund
This Fund seeks to attain long-term growth of capital by investing in a
diversified portfolio of securities, primarily common stocks, of relatively
small companies that management of the Fund believes have special investment
value, and of emerging growth companies regardless of size. Such companies are
selected by management on the basis of their long-term potential for expanding
their size and profitability or for gaining increased market recognition for
their securities. Current income is not a factor in such selection.
Global Strategy Focus Fund
This Fund seeks high total investment return by investing primarily in a
portfolio of equity and fixed income securities, including securities, of U.S.
and foreign issuers. The Fund seeks to achieve its objective by investing
primarily in securities of issuers located in the United States, Canada, Western
Europe, the Far East and Latin America.
Basic Value Focus Fund
This Fund seeks to attain capital appreciation, and secondarily, income by
investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value.
Particular emphasis is placed on securities which provide an above-average
dividend return and sell at a below-average price/earnings ratio.
International Equity Focus Fund
This Fund seeks to obtain capital appreciation and, secondarily, income by
investing in a diversified portfolio of equity securities, of issuers located in
countries other than the United States. Under normal conditions, at least 65% of
the Fund's net assets will be invested in such equity securities.
Developing Capital Markets Focus Fund
This Fund seeks long-term capital appreciation by investing in securities,
principally equities, of issuers in countries having smaller capital markets.
For purposes of its investment objective, the Fund considers countries having
smaller capital markets to be all countries other than the four countries having
the largest equity market capitalizations. The Developing Capital Markets Focus
Fund has established no
<PAGE>
rating criteria for the debt securities in which it may invest, and will rely on
the investment adviser's judgment in evaluating the creditworthiness of an
issuer of such securities. In an effort to minimize the risk, the Fund will
diversify its holdings among many issuers. However, there can be no assurance
that diversification will protect the Fund from widespread defaults during
periods of sustained economic downturn. Because investment in the Developing
Capital Markets Focus Fund entails relatively greater risk of loss of income or
principal, an investment in the Fund may not be appropriate as the exclusive
investment to fund a Contract.
Natural Resources Focus Fund
This Fund seeks to attain long-term growth of capital and protection of the
purchasing power of capital by investing primarily in equity securities of
domestic and foreign companies with substantial natural resource assets.
Global Utility Focus Fund
This Fund seeks to obtain capital appreciation and current income through
investment of at least 65% of its total assets in equity and debt securities
issued by domestic and foreign companies which are, in the opinion of management
of the Fund, primarily engaged in the ownership or operation of facilities used
to generate, transmit or distribute electricity, telecommunications, gas or
water. THERE IS NO ASSURANCE THAT ANY OF THESE PORTFOLIOS WILL ACHIEVE
THEIR STATED OBJECTIVES.
Voting Rights
As previously stated, all of the assets held in the Subaccounts of the
Variable Account will be invested in shares of a corresponding portfolio of the
Fund. Based on the Company's view of present applicable law, we will vote the
portfolio shares held in the Variable Account at meetings of shareholders in
accordance with instructions received from Owners having a voting interest in
the portfolio. However, if the 1940 Act or its regulations are amended, or if
our interpretation of present law changes to permit us to vote the portfolio
shares in our own right, we may elect to do so.
Prior to the Annuity Date, the Owner holds a voting interest in each
portfolio in which there is value in the corresponding Subaccount. The number of
portfolio shares which are attributable to the Owner is determined by dividing
the corresponding value in a particular Subaccount by the net asset value of one
portfolio share. The number of votes which an Owner will have a right to cast
will be determined as of the record date established by each portfolio.
We will solicit voting instructions by mail prior to the shareholder
meetings. An Owner having a voting interest in a Subaccount will be sent proxy
material, reports and other materials as provided by the Fund, relating to the
appropriate portfolios. The Company will vote shares in accordance with
instructions received from the Owner having a voting interest. At the meeting,
the Company will vote shares for which it has received no instructions and any
shares not attributable to Owners in the same proportion as it votes shares for
which it has received instructions from Owners.
The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds allocated to the Guaranteed
Account.
Substitution Of Shares
If the shares of the Fund (or any portfolio within the Fund) should no
longer be available for investment by the Variable Account or if, in the
judgment of the Company, further investment in such shares should become
inappropriate in view of the purpose of the Contracts, the Company may
substitute shares of another mutual fund (or portfolio within the fund) for Fund
shares already purchased or to be purchased in the future under the Contracts.
No substitution of securities may take place without any required prior approval
of the Securities and Exchange Commission and under such requirements as it may
impose.
<PAGE>
THE CONTRACT
The Contract described in this Prospectus is a deferred variable annuity.
Parties to the Contract
Owner
As the purchaser of the Contract, You may exercise all rights and
privileges provided in the Contract, subject to any rights that You, as Owner,
may convey to an irrevocable beneficiary. As Owner, You will also be the
Annuitant, unless You name in writing some other person as Annuitant.
Annuitant
The Annuitant is the person who receives annuity payments and upon the
continuance of whose life these payments are based. You may designate someone
other than yourself as Annuitant. If the Annuitant is a person other than the
Owner, and the Annuitant dies before the Annuity Date, You will become the
Annuitant unless you designate someone else as the new Annuitant.
Beneficiary
The Beneficiary You designate will receive the death proceeds if You die
prior to the Annuity Date. If no Beneficiary is living at that time, the death
proceeds are payable to Your estate. If the Annuitant dies after the Annuity
Date, the Beneficiary will receive any remaining guaranteed payments under an
Annuity Option. If no Beneficiary is living at that time, the remaining
guaranteed payments are payable to Your estate.
Change of Annuitant and Beneficiary
Prior to the Annuity Date, You may change the Annuitant and Beneficiary by
making a written request to Our Administrative Office. After the Annuity Date
only a change of Beneficiary may be made. Once We have accepted Your written
request, any change will become effective on the date You signed it. However,
any change will be subject to any payment or other action taken by Us before We
record the change. If the Owner is not a natural person, under current Federal
tax law, the Contract may be subject to unintended and adverse tax consequences.
For possible tax considerations of these changes, see TAXES, page _____.
How to Purchase a Contract
At the time of application, the Purchaser must pay at least the minimum
Premium required and provide instructions regarding the allocation of the
Premium among the Subaccounts. Acceptance of the Premium and form of application
is subject to Our requirements and We reserve the right to reject any Premium.
If the application and Premium are accepted in the form received, the Premium
will be credited and allocated to the Subaccounts within two business days of
its receipt. The date the Premium is credited to the Contract is the Effective
Date.
If within five days of the receipt of the initial Premium We have not
received sufficient information to issue a Contract, You will be contacted. The
reason for the delay will be explained to You. If You consent We will retain the
Premium until the necessary requirements are fulfilled. Otherwise, the Premium
will be immediately refunded to You.
Discount Purchase Programs
Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families may not be subject to the Surrender Charge.
<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"), 80 Pine Street, New York, New York, acts
as the distributor of the Contracts. AIGESC is a wholly-owned subsidiary of AIG,
and an affiliate of the Company. Commissions not to exceed 6 1/2% of Premiums
will be paid to entities which sell the Contract. Additional payments may be
made for other services not directly related to the sale of the Contract,
including the recruitment and training of personnel, production of promotional
literature and similar services.
Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
to be prohibited from performing certain agency or administrative services and
receiving fees from 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.
Administration of the Contracts
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Owner's records. DVFS serves as the administrator to various
insurance companies offering variable contracts.
Premium and Allocation to Your Investment Options
The initial Premium must be at least $2,000. You may make additional
payments of Premium prior to the Annuity Date, in amounts of at least $1000 or
$100 as part of an automatic investment plan. There is no maximum limit on the
additional Premiums You may pay or on the numbers of payments; however, the
Company reserves the right to reject any Premium on any Contract. You specify at
the time of issue or subsequently how the remaining amount, known as Additional
Premium will be allocated.
The initial Premium is allocated among the Subaccounts and Guaranteed
Account on the Effective Date. Your allocation instructions will specify what
percentage of Your initial Premium is to be credited to each Subaccount and to
the Guaranteed Account. Allocation instructions must be expressed in whole
percentages. Allocations for additional Premium will be made on the same basis
as the initial Premium unless We receive a written notice with new instructions.
Additional Premium will be credited to the Contract Value and allocated at the
close of the first Valuation Date on or after which the Additional Premium is
received at Our Administrative Office.
All premiums to IRA or 403(b) plan contracts must comply with the
applicable provisions in the Code and the applicable provisions of your
retirement plan. Additional premium commingled in an IRA with a rollover
contribution from other retirement plans may result in unfavorable tax
consequences. You should seek legal counsel and tax advice regarding the
suitability of the contract for your situation. (See "Taxes" on page _____.)
Right to Examine Contract Period
The Contract provides a 10 day Right to Examine Contract Period giving You
the opportunity to cancel the Contract. You must return the Contract with
written notice to Us. If We receive the Contract and Your written notice within
10 days after it is received by You, the Contract will be voided. With the
exception of Contracts issued in connection with an IRA, in those states whose
laws do not require that We assume the risk of market loss during the Right to
Examine Contract Period, should You decide to
<PAGE>
cancel Your Contract, the amount to be returned to You will be the Contract
Value (on the day We receive the Contract) plus any charges deducted for state
taxes, without imposition of the Surrender Charge. The amount returned to you
may be more or less than the initial Premium. (See "Charges and Deductions" on
page ____.) For Contracts issued in those states that require we return the
premium, we will do so. In the case of Contracts issued in connection with an
IRA, the Company will refund the greater of the Premium, less any withdrawals,
or the Contract Value.
State laws governing the duration of the Right to Examine Contract Period
may vary from state to state. We will comply with the laws of the state in which
the Owner resides at the time the Contract is applied for. Federal laws
governing IRAs require a minimum seven day right of revocation. We provide 10
days from the date the Contract is received by you. (See "Individual Retirement
Annuities" on page _____.)
Unit Value and Contract Value
After the deduction of certain charges and expenses, amounts which You
allocate to a Subaccount of the Variable Account are used to purchase
Accumulation Units in that Subaccount, not shares of the Portfolio in which that
Subaccount invest. The number of Accumulation Units you purchase will be
determined by dividing the amount allocated to each Subaccount by the Unit Value
of the Subaccount for the Valuation Period during which the amount was
allocated.
The Unit Value for each Subaccount will vary from one Valuation Period to
the next based on the investment experience of the Portfolio in which the
Subaccount invests and the deduction of certain charges and expenses. The
Statement of Additional Information contains a detailed explanation of how
Accumulation Units are valued.
Your value in any given Subaccount is determined by multiplying the Unit
Value for the Subaccount by the number of Units You own. Your value within the
Variable Account is the sum of your values in all the Subaccounts. The total
value of your Contract, known as the Contract Value, equals your Value in the
Variable Account plus Your value in the Guaranteed Account.
Transfers
Prior to the Annuity Date, You may make Transfers among the Subaccounts and
into and out of the Guaranteed Account subject to certain rules.
At the present time there is no limit on the number of transfers which can
be made among the Subaccounts and the Guaranteed Account in any one Contract
Year. We reserve the right to limit the number of transfers to 12 per Contract
Year. There are no fees for the first 12 transfers in any one Contract Year. For
each transfer in excess of 12 within one Contract Year, We impose a transfer fee
of $10. A transfer fee, if any, is deducted from the amount transferred. (See
Appendix -- "Guaranteed Account Transfers," page A-1.)
Transfers may be made by written request or by telephone as described in
the Contract or specifically authorized in writing. The Company will undertake
reasonable procedures to confirm that instructions communicated by telephone are
genuine. All calls will be recorded. All transfers will be confirmed in writing
to the Owner. The Company is not liable for any loss, cost, or expense for
action on telephone instructions which are believed to be genuine in accordance
with these procedures.
After the Annuity Date, the Owner may transfer the Contract Value allocated
to the Variable Account among the Subaccounts. However, the Company reserves the
right to refuse any more than one transfer per month. The transfer fee is the
same as before the Annuity Date. This transfer fee, if any, will be deducted
from the next annuity payment after the transfer. If following the transfer, the
Annuity Units remaining in the Subaccount would generate a monthly annuity
payment of less than $100, the Company will transfer the entire amount in the
Subaccount.
<PAGE>
Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Subaccount. The number of Annuity Units for each
Subaccount will remain the same for the remainder of the payment period unless
the Owner requests another change.
The minimum amount which may be transferred at any one time is the lesser
of $1,000 or the value of the Subaccount or Guarantee Period from which the
transfer is made. (See "Dollar Cost Averaging") For additional limitations
regarding transfers out of the Guaranteed Account, see "Guaranteed Account
Transfers" in the Appendix, page A-1.)
Dollar Cost Averaging
The Company currently offers an option under which Owners may dollar cost
average their allocations in the Subaccounts under the contract by authorizing
the Company to make periodic allocations of Contract Value from either the Money
Market Subaccount or the Guaranteed Account to one or more of the other
Subaccounts. Dollar Cost Averaging is a systematic method of investing in which
securities are purchased at regular intervals in fixed dollar amounts so that
the cost of the securities gets averaged over time and possibly over various
market cycles. The option will result in the allocation of Contract Value to one
or more Subaccounts, and these amounts will be credited at the Accumulation Unit
value as of the end of the Valuation Dates on which the exchanges are effected.
Amounts periodically transferred under this option are not included in the 12
transfers per Contract Year discussed under "Transfers" on page ____. Since the
value of Accumulation Units will vary, the amounts allocated to a Subaccount
will result in the crediting of a greater number of units when the Accumulation
Unit value is low and a lesser number of units when the Accumulation Unit value
is high. Similarly, the amounts exchanged from a Subaccount will result in a
debiting of a greater number of units when the Subaccount's Accumulation Unit
value is low and a lesser number of units when the Accumulation Unit value is
high. Dollar Cost Averaging does not guarantee profits, nor does it assure that
an Owner will not have losses.
To elect Dollar Cost Averaging, the Owner's Contract Value must be at least
$12,000 and a Dollar Cost Averaging Request in proper form must be received by
the Company. The Dollar Cost Averaging Request form will not be considered
complete until the Contract Value is at least the required amount. A Dollar Cost
Averaging Request form is available from the Administrative Office upon
request.An Owner may not have in effect at the same time Dollar Cost Averaging
and Asset Rebalancing.
Asset Rebalancing
The Company currently offers an option under which Owners may authorize the
Company to automatically exchange Contract Value periodically to maintain a
particular percentage allocation among the Subaccounts as selected by the Owner.
The Contract Value allocated to each Subaccount will grow or decline in value at
different rates during the quarter, and Asset Rebalancing automatically
reallocates the Contract Value in the Subaccounts to the allocation selected by
the Owner. Asset Rebalancing is intended to exchange Contract Value from those
Subaccounts that have increased in value to those Subaccounts that have declined
in value. Over time, this method of investing may help an Owner buy low and sell
high, although there can be no assurance of this. This investment method does
not guarantee profits, nor does it assure that an Owner will not have losses.
To elect Asset Rebalancing, the Contract Value in the Contract must be at
least $12,000 and an Asset Rebalancing Request in proper form must be received
by the Company. An Owner may not have in effect at the same time Dollar Cost
Averaging and Asset Rebalancing. If the Asset Rebalancing is elected, all
Contract Value allocated to the Subaccounts must be included in the Asset
Rebalancing.
<PAGE>
The amounts transferred will be credited to the Accumulation Unit Value as
of the end of the Valuation Dates on which the transfers are effected. Amounts
periodically transferred under this option are not included in the 12 transfers
per Contract Year discussed under "Transfers" on page ____.
An Owner may instruct the Company at any time to terminate this option by
written request. Once terminated, this Option may not be reselected during the
same Contract Year.
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Premium, the Contract Value
and the Variable Account. These charges and deductions are as follows:
Deduction for State Premium Taxes
We do not deduct premium taxes unless assessed by the state of residence of
the Owner. Any premium or other taxes levied by any governmental entity with
respect to the Contracts will be charged at Our discretion against either
Premium or Contract Value. Premium taxes currently imposed by certain states on
the Contracts range typically from 0% to 3.5% of premiums paid. Some states
assess premium taxes at the time Premium is received; others assess premium
taxes at the time of annuitization. Premium taxes are subject to being changed
or amended by state legislatures, administrative interpretations or judicial
acts.
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. The mortality risks assumed by the Company arise
from its contractual obligation to make annuity payments after the Annuity Date
for the life of the Annuitant, to waive the Surrender Charge in the event of the
death of the Owner prior to the Annuity Date and to provide the death benefit.
The expense risk assumed by the Company is that the costs of administering the
Contracts and the Variable Account will exceed the amount received from
Administrative and Contract Maintenance Charges.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and cannot be
increased. The Mortality and Expense Risk Charge is deducted during the
Accumulation Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period -- Annuity Options" on page ____.) The
Company in its discretion may offer additional payment options which are not
based on a life contingency. If this should occur and if a Owner should elect a
payment option not based on a life contingency, the Mortality and Expense Risk
Charge is still deducted but the Owner receives no benefit from that portion of
the charge attributable to mortality risk.
Deduction for Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Equity Assurance
Plan charge for each Valuation Period will equal on an annual basis to .07% of
the average daily net asset value of the Variable Account for Owners attained
age 0-59 and .20% of the average daily net asset value of the Variable Account
for Owners attained age 60 and above.
Deduction for Enhanced Equity Assurance Plan
If the Owner has elected the Equity Assurance Plan, the Enhanced Equity
Assurance Plan charge for each Valuation Period will equal on an annual basis to
.17% of the average daily net asset value of the Variable Account for Owners
attained age 0-59 and .30% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
<PAGE>
Deduction for Annual Ratchet Plan
If the Owner has elected the Annual Ratchet Plan, the Annual Ratchet Plan
charge for each Valuation Period will equal on an annual basis to .10% of the
average daily net asset value of the Variable Account.
Deduction for Accidental Death Benefit
If the Owner has elected the Accidental Death Benefit, the Company deducts
for each Valuation Period an Accidental Death Benefit Charge equal on an annual
basis to .05% of the average daily net asset value of the Variable Account.
Deduction for Surrender Charge
In the event that an Owner makes a withdrawal from or surrenders Contract
Value in excess of the Free Withdrawal Amount, a Surrender Charge may be
imposed. The Free Withdrawal Amount is equal to the greater of the Contract
Value less premiums paid or the portion of the withdrawal that does not exceed
10% of the total Premium otherwise subject to the Surrender Charge paid to the
time of withdrawal, less any prior withdrawals and less any accrued charges for
option death benefits; however, the Surrender Charge applies only to Premium
received by the Company within seven (7) years of the date of the withdrawal.
The Surrender Charge will vary in amount depending upon the time which has
elapsed since the date Premium was received. In calculating the Surrender
Charge, Premium is allocated to the amount surrendered on a first-in, first out
basis. The amount of any withdrawal which exceeds the Free Withdrawal Amount
will be subject to the following charges:
Surrender
Charge Percentage
---------------
Premium Year 1 ................................. 6%
Premium Year 2 ................................. 6%
Premium Year 3 ................................. 5%
Premium Year 4 ................................. 5%
Premium Year 5 ................................. 4%
Premium Year 6 ................................. 3%
Premium Year 7 ................................. 2%
Premium Year 8 and thereafter................... None
No Surrender Charge is imposed against: (1) Systematic Withdrawal options;
(2) Contract Value upon Annuitization; (3) a Death Benefit.
The Surrender Charge is intended to reimburse the Company for expenses
incurred which are related to Contract sales. The Company does not expect the
proceeds from the Surrender Charge to cover all distribution costs. To the
extent such charge is insufficient to cover all distribution costs, the Company
may use any of its corporate assets, including potential profit which may arise
from the Mortality and Expense Risk Charge, to make up any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403 (b) Plan or IRA (See
"Taxes -- 403(b) Plans" on page _____.)
Deduction for Administrative 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. This charge is intended to reimburse Us for
administrative expenses, both during the accumulation period and following the
Annuity Date.
Deduction for Contract Maintenance Charge
The Company also deducts an annual Contract Maintenance Charge of $30 per
year from the Contract Value on each Contract Anniversary. The Contract
Maintenance Fee is waived if the Contract Value is
<PAGE>
greater than $50,000 on the date of deduction of the charge. These charges are
designed to reimburse the Company for the costs it incurs relating to
maintenance of the Contract, the Variable Account, and the Guaranteed Account.
If the Contract is surrendered, we will deduct the Contract Maintenance Charge
at the time of surrender for the current Contract Year. The deduction will be
made proportionally based on Your value in each Subaccount and the Guaranteed
Account. After the Annuity Date, the Contract Maintenance Charge is deducted on
a pro-rata basis from each annuity income payment.
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any Federal income taxes. (See
also "Taxes" beginning on page _____.)
Other Expenses
There are deductions from and expenses paid out of the assets of the Funds
which are described in the accompanying Prospectus for the Fund.
Group and Sponsored Arrangements
In certain instances, we may reduce the Surrender Charge and the
Administrative Charge or change the minimum premium requirements for the sale of
Contracts to certain groups, including those in which a trustee or an employer,
for example, purchases Contracts covering a group of individuals on a group
basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
similar arrangement must meet certain requirements, including our requirements
for size and number of years in existence. Group or group sponsored arrangements
that have been set up solely to buy Contracts or that have been in existence
less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Contract is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or Administrative
Charge will reflect differences in costs or services and will not be unfairly
discriminatory.
ANNUITY BENEFITS
Annuitization
Annuitization is an election you make to apply the Contract Value to an
Annuity Option in order to provide a series of annuity payments. The date the
Annuity Option becomes effective is the Annuity Date.
Annuity Date
The latest Annuity Date is: (a) the first day of the calendar month
following the later of the Annuitant's 90th birthday; or (b) such earlier date
as may be set by applicable law.
The Owner may designate an earlier date or may change the Annuity Date by
making a written request at least thirty (30) days prior to the Annuity Date
being changed. However, any Annuity Date must be no later than the date defined
above; and, the first day of a calendar month.
Without the approval of the Company, the new Annuity Date cannot be earlier
than one year after the Effective Date. In addition, for IRA or 403 (b) Plan
Contracts, certain provisions of your retirement plan or the Code may further
restrict your choice of an Annuity Date. (See "Taxes ," page ____).
<PAGE>
Annuity Options
The Owner may choose annuity payments which are fixed or which are based on
the Variable Account or a combination of the two. The Owner may, upon at least
30 days prior written notice to us, at any time prior to the Annuity Date,
select or change an Annuity Option. If the Owner elects annuity payments which
are based on the Variable Account, the amount of the payments will be variable.
The amount of the annuity payment based on the value of a Subaccount is
determined through a calculation described in the Statement of Additional
Information, under the caption "Annuity Provisions". The Owner may not transfer
Contract Values between the Guaranteed Account and the Variable Account after
the Annuity Date, but may, subject to certain conditions, transfer Contract
Values from one Subaccount to another Subaccount. (See "Transfers" on page
- -----.)
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the Guaranteed Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will make annuity payments during the
lifetime of the Annuitant.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will make monthly annuity payments during the lifetime of the Annuitant. If, at
the death of the Annuitant, payments have been made for less than 10 years,
payments will be continued during the remainder of the period to the
Beneficiary.
Option 3: Joint and Last Survivor Income. The Company will make annuity
payments for as long as either the Annuitant or a Contingent Annuitant is alive.
In the event that the Contract is issued in connection with an IRA, the payments
in this Option will be made only to the Owner as Annuitant and the Owner's
spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company reserves the right to pay the amount in a lump sum in lieu
of annuity payments. The Company makes all other annuity payments monthly.
However, if the total monthly annuity payment would be less than $100 the
Company reserves the right to make payments semi-annually or annually.
If fixed annuity payments are selected, the amount of each fixed payment is
determined by multiplying the Contract Value allocated to purchase fixed annuity
payments by the factor shown in the annuity table specified in the Contract for
the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the value
of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Subaccount
selected; and (v) the pro-rata portion of the Contract Maintenance charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, variable annuity
payments will decrease.
<PAGE>
DEATH BENEFIT
Prior to the Annuity Date
In the event of an Owner's death (or the death of the first joint Owner to
die) prior to the Annuity Date, a death benefit is payable to the Beneficiary.
The value of the death benefit will be determined as of the date We receive
proof of death in a form acceptable to Us. If there has been a change of Owner
from one natural person to another natural person, the death benefit will equal
the Contract Value unless the change in ownership results from the election,
made by a surviving spouse as designated beneficiary to continue the Contract.
Otherwise, the death benefit will be calculated in accordance with the terms of
one or more of the options described below, as designated by the Owner at the
time of application. All death benefit options may not be available in all
states.
Traditional Death Benefit
Under the Traditional Death Benefit, We will pay the death benefit equal to
the greatest of:
1. the total of all Premiums paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was reduced
on the date of a surrender; or
2. the Contract Value; or
3. the greatest of the Contract Value at any seventh Contract Anniversary
reduced proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a Surrender, plus any Premiums paid subsequent to that
Contract Anniversary.
The Traditional Death Benefit will be in effect if no other death benefit
is in effect.
Optional Death Benefit
Prior to determining the amount of any of the following Optional Death
Benefits the Contract Value will be reduced by the accrued charges for the
optional death benefit, if as of the date of death, the accured charges had not
yet been deducted from the Variable Account.
Annual Ratchet Plan
If at the time of application, the Owner has elected a death benefit under
the terms of the Annual Ratchet Plan, We will pay the death benefit equal to the
greatest of:
1. the total of all Premium paid reduced proportionally by withdrawals
and surrenders;
2. the Contract Value; or
3. the greatest of the Contract Value at any Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a Surrender, plus any Premiums paid subsequent to that
Contract Anniversary.
The charge for the Annual Ratchet Plan is equal on an annual basis to .10%
of the average daily net asset value of the Variable Account.
The Annual Ratchet Plan will be in effect if:
1. the Owner designates this option on the Application; and
2. the Annual Ratchet Plan charge is shown on the Contract Schedule.
The Annual Ratchet Plan will cease to be in effect upon receipt by the
Company of Owner's written request to discontinue it.
Equity Assurance Plan
If at the time of application the Owner has selected a death benefit under
the terms of the Equity Assurance Plan, We will pay a death benefit equal to the
greatest of:
1. the Contract Value;
<PAGE>
2. the greatest Contract Value at any seventh Contract Anniversary plus
any Premiums subsequent to the Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a Surrender; or
3. an amount equal to (a) plus (b) where:
(a) is equal to the total of all Premiums paid on or before the first
contract Anniversary following:
Your 85th Birthday, adjusted for surrenders as described below
and then accumulated at the compound interest rates shown below
for the complete years, not to exceed 10, from the date of
receipt of each Premium to the earlier of the date of death or
the first Contract Anniversary following Your 85th birthday:
0% per annum if death occurs during the 1st through 24th
month from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th
month from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd
month from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th
month from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th
month from the date of Premium payment;
10% per annum (for a maximum of 10 years) if death occurs
more than 120 months from the date of Premium Payments; and
(b) is equal to all Premiums paid after the first Contract
Anniversary following Your 85th birthday, adjusted for surrenders
as described below.
The charge for the Equity Assurance Plan is equal on an annual basis to
.07% of the average daily net asset value of the Variable Account for Owners
attained ages 0-59 and .20% of the average daily net asset value of the Variable
Account for Owners attained age 60 and above.
Adjustment for surrenders. In the determination of the death benefit, for
each surrender a proportionate reduction will be made to each Premium paid prior
to the surrender. The proportion is determined by dividing the amount of the
Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application;
2. all premiums are initially allocated to investment options that are
designated for the Equity Assurance Plan on the Application; and
3. the charge for the Equity Assurance Plan is shown on the Contract
Schedule.
The Equity Assurance Plan will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue it or upon the allocation
of Contract Values to either the Money Market Subaccount or Guaranteed Account
unless such allocation is made as part of Dollar Cost Averaging.
<PAGE>
Enhanced Equity Assurance Plan
If at the time of the application the Owner has selected a death benefit
under the terms of the Enhanced Equity Assurance Plan, We will pay a death
benefit equal to the greatest of:
1. the Contract Value; or
2. the greatest Contract Value on any Contract Anniversary plus any
Premiums subsequent to that Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a Surrender; or
3. an amount equal to (a) plus (b) where:
(a) is equal to the total of all Premiums paid on or before the first
Contract Anniversary following Your 85th birthday, adjusted for
surrenders as described below and then accumulated at the
compound interest rates shown below for the number of complete
years, not to exceed 10, from the date of receipt of each Premium
to the earlier of the date of death or the first Contract
Anniversary following Your 85th Birthday:
0% per annum if death occurs during the 1st through 24th
month from the date of Premium payment;
2% per annum if death occurs during the 25th through 48th
month from the date of Premium payment;
4% per annum if death occurs during the 49th through 72nd
month from the date of Premium payment;
6% per annum if death occurs during the 73rd through 96th
month from the date of Premium payment;
8% per annum if death occurs during the 97th through 120th
month from the date of Premium payment;
10% per annum (for a maximum of 10 years) if death occurs
more than 120 months from the date of Premium Payment; and
(b) is equal to all Premiums paid after the first Contract
Anniversary following Your 85th birthday, adjusted for surrenders
as described below.
The charge for the Enhanced Equity Assurance Plan is equal on an annual
basis to .17% of the average daily net asset value of the Variable Account for
Owners attained ages 0-59 and .30% of the average daily net asset value of the
Varialbe Account for Owners attained age 60 and above.
Adjustment for surrender. In the determination of the death benefit, for
each surrender, a proportionate reduction will be made to each Premium paid
prior to the surrender. The proportion is determined by dividing the amount of
the Contract Value surrendered by the Contract Value immediately prior to each
surrender.
The Enhanced Equity Assurance Plan will be in effect if:
1. the Owner elected it on the Application;
2. the charge for this Rider is shown on the Contract Schedule.
<PAGE>
The Enhanced Equity Assurance Plan will cease to be in effect upon receipt
by the Company of the Owner's written request to discontinue it or upon the
allocation of Contract Values to either the Money Market Subaccount or
Guaranteed Account, unless such allocation is made part of Dollar Cost
Averaging.
Accidental Death Benefit
The Owner may select the Accidental Death Benefit in addition to any of the
forms of death benefit options. The Accidental Death Benefit is not available if
the Contract is used as an IRA. If at the time of application the Owner has
selected the Accidental Death Benefit, the accidental death benefit payable
under this option will be equal to the lesser of:
1. the Contract Value as of the date the death benefit is determined; or
2. $250,000.
The Company deducts for each Valuation Period a daily charge for the
Accidental Death Benefit which is equal on an annual basis to .05% of the
average daily net asset value of the Variable Account.
The Accidental Death Benefit is payable if the death of the primary Owner
occurs as a result of injury prior to the Contract Anniversary following his/her
75th birthday. The death must also occur before the Annuity Date and within 365
days of the date of the accident which caused the injury.
The Accidental Death Benefit will not be paid for any death caused by or
resulting (in whole or in part) from the following:
(a) suicide or attempted suicide while sane or insane; intentionally
self-inflicted injuries;
(b) sickness, disease or bacterial infection of any kind, except pyogenic
infections which occur as a result of an injury or bacterial
infections which result from the accidental ingestion of contaminated
substances;
(c) injury sustained as a consequence of riding in, including boarding or
alighting from, any vehicle or device used for aerial navigation
except if the Owner is a passenger on any aircraft licensed for the
transportation of passengers;
(d) declared or undeclared war or any act thereof; or
(e) service in the military, naval or air service of any country.
The Accidental Death Benefit will be in effect if:
1. the Owner designates this option on the Application; and
2. the Accidental Death Benefit charge is shown on the Contract Schedule;
The Accidental Death Benefit will cease to be in effect upon receipt by the
Company of the Owner's written request to discontinue.
<PAGE>
Payment to Beneficiary
Upon the death of the Owner prior to the Annuity Date, the Beneficiary may
elect the death benefit to be paid as follows:
1. payment of the entire death benefit within 5 years of the date of the
Owner's death; or
2. payment over the lifetime of the designated Beneficiary with
distribution beginning within 1 year of the date of death of the Owner
(see Annuity Options section of this contract); or
3. if the designated Beneficiary is Your spouse, he/she can continue the
contract in his/her own name.
If no payment option is elected within 60 days of our receipt of proof of
the Owner's death, a single sum settlement will be made at the end of the sixty
(60) day period following such receipt. Upon payment of a death benefit, the
Contract will end.
After the Annuity Date
If the Owner is a person other than the Annuitant, and if the Owner's death
occurs on or after the Annuity Date, no death benefit will be payable under this
contract. Any guaranteed payments remaining unpaid will continue to be paid to
the Annuitant pursuant to the Annuity Option in force at the date of the Owner's
death. If the Owner is not an individual, the Annuitant shall be treated as the
Owner and any change of such first named Annuitant, will be treated as if the
Owner died.
Death of Annuitant
If the Annuitant is a person other than the Owner, and if the Annuitant
dies before the Annuity Date, a new Annuitant may be named by the Owner. If no
new Annuitant is named within sixty (60) days of Our receipt of proof of the
Annuitant's death, the Owner will be deemed the new Annuitant. If an Annuitant
dies after the Annuity Date, the remaining payments, if any, will be as
specified in the Annuity Option elected. We will require proof of the
Annuitant's death. Death benefits, if any, will be paid to the designated
Beneficiary at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
DISTRIBUTIONS UNDER THE CONTRACT
Withdrawals
The Owner may withdraw Contract Value prior to the Annuity Date. Any
withdrawal is subject to the following conditions:
(a) the Company must receive a written request;
(b) the amount requested must be at least $500;
(c) any applicable Surrender Charge will be deducted;
(d) the Contract Value will be reduced by the sum of the amount requested
plus the amount of any applicable Surrender Charge;
(e) the Company will deduct the amount requested plus any accrued charges
for optional death benefits and any Surrender Charge from each
Subaccount of the Variable Account and from the Guaranteed Account
either as specified or in the proportion that each Subaccount and the
Guaranteed Account bears to the Contract Value; and
We reserve the right to consider any withdrawal request that would reduce
the Value of the Accumulation Account to less than $2,000 to be a request for
surrender. In this event, Surrender Value will be paid to You and the Contract
will terminate.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page _____.)
<PAGE>
Systematic Withdrawal
The systematic withdrawal program involves making regularly scheduled
withdrawals from Your value in the Contract. In order to initiate the program,
your total Contract Value must be at least $24,000. The program allows You to
prearrange the withdrawal of a specified dollar amount of at least $200 per
withdrawal, on a monthly or quarterly payment basis. A maximum of 10% of the
Contract Value may be withdrawn in a Contract Year. Surrender Charges are not
imposed on withdrawals under this program. If you elect this program Surrender
Charges will be imposed on any withdrawal, other than withdrawals made under
Your systematic withdrawal program, when the withdrawal is from Premium paid in
the last seven years. You may not elect this program if you have taken a prior
withdrawal during the same Contract Year. (See "Surrender Charges" on page
____.)
Systematic withdrawals will begin on the first scheduled withdrawal date
selected by You following the date We process Your request. In the event that
Your value in a specified Subaccount or the Guaranteed Account is not sufficient
to deduct a withdrawal or if Your request for systematic withdrawal does not
specify the Guaranteed Account or from which Subaccounts withdrawals are to be
deducted, withdrawals will be deducted proportionally based on Your value in
each Subaccount and the Guaranteed Account.
All parties to the Contract are cautioned that the rights of any person to
implement the systematic withdrawal program under Contracts issued in connection
with IRAs or 403(b) Plans may be subject to the terms and conditions of the
retirement plan, regardless of the terms and conditions of the Qualified
Contract (See "Taxes" on page _____.)
The systematic withdrawal program may be canceled at any time by written
request or automatically by Us should the Contract Value fall below $1,000. In
the event the systematic withdrawal program is canceled, the Owner may not elect
to participate in such program until the next Contract Anniversary.
An Owner may change once per Contract Year the amount or frequency of
withdrawals on a systematic basis.
The Free Withdrawal Amount (see "Charges and Deductions -- Deduction for
Surrender Charge" on page ____) is not available while an Owner is receiving
systematic withdrawals. An Owner will be entitled to the free withdrawal amount
on and after the Contract Anniversary next following the termination of the
systematic withdrawal program.
Implementation of the systematic withdrawal program may subject an Owner to
adverse tax consequences, including a 10% tax penalty. (See "Taxes -- Taxation
of Annuities in General" on page ____ for a discussion of the tax consequences
of withdrawals.)
The Company reserves the right to discontinue this program at any time.
Surrender
Prior to the Annuity Date you may surrender the Contract for the Surrender
Value by withdrawing the entire Contract Value. You must submit a written
request for surrender and return the Contract to Us. The Surrender Value will be
based on the Contract Value at the end of the Valuation Period during which the
surrender request is received as described below. The Contract may not be
surrendered after the Annuity Date. A surrender may be taxable and subject to a
tax penalty. (See "Taxes" discussed on page ____.)
Surrender Value
The Surrender Value of the Contract varies each day depending on the
investment results of the Subaccounts selected by the Owner. The Surrender Value
will be the Contract Value as of the date the Company receives Your surrender
request, reduced by the following: (1) any applicable taxes not previously
deducted; (2) any applicable accrued charges for optional death benefits (3) the
Contract Maintenance Charge; and (4) any applicable Surrender Charge.
<PAGE>
Payment of Withdrawals and Surrender Values
Payments of withdrawals and Surrender Values will ordinarily be sent to the
Owner within seven (7) days of receipt of the written request, but see the
Deferment of Payment discussion below. (Also see Statement of Additional
Information -- "Delay of Payments.")
The Company reserves the right to ensure that an Owner's check or other
form of Premium has been cleared for payment prior to processing any withdrawal
or redemption request occurring shortly after a Premium payment.
If, at the time You make a request for a withdrawal or a surrender, You
have not provided Us with a written election not to have Federal income taxes
withheld, We must by law withhold such taxes from the taxable portion of Your
payment and remit that amount to the IRS. Mandatory withholding rules apply to
certain distributions from 403(b) Plan Contracts. Additionally, the Code
provides that a 10% penalty tax may be imposed on certain early Withdrawals and
Surrenders. (See "Taxes" on page ____, and "Tax-Favored Plans" on page ____.)
Deferral of Payment
Payment of any Withdrawal, Surrender, or lump sum death proceeds from the
Variable Account will usually occur within seven days. We may be permitted to
defer such payment if: (1) the New York Stock Exchange is closed for other than
usual weekends or holidays, or trading on the Exchange is otherwise restricted;
(2) an emergency exists as defined by the SEC or the SEC requires that trading
be restricted; (3) the SEC permits a delay for protection of Owners; or (4) the
check used to pay any Premium has not cleared through the banking system (this
may take up to 15 days).
We may defer payment of any withdrawal or surrender from the Guaranteed
Account for up to six months from the date we receive Your written request.
TAXES
Introduction
The Contracts are designed to accumulate Contract Values for retirement
plans which, except for IRAs and 403(b) Plans, are generally not tax-qualified
plans. The ultimate effect of Federal income taxes on the amounts held under a
Contract, on annuity payments, and on the economic benefits to the Owner,
Annuitant or Beneficiary depend on the Company's tax status and upon the tax
status of the individual concerned. Accordingly, each potential Owner should
consult a competent tax adviser regarding the tax consequences of purchasing a
Contract.
The following discussion is general in nature and is not intended as tax
advice. No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
Federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the Federal income tax laws,
the Treasury Regulations, or the current interpretations by the Internal Revenue
Service (the "Service"). For a discussion of Federal income taxes as they relate
to the Fund, please see the accompanying Prospectus for the Fund.
Company Tax Status
The Company is taxed as a life insurance company under 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,
<PAGE>
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 Person," on page ____ and "Diversification
Standards" on page ____.)
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a Contract
prior to the Annuity Date will be treated as taxable income to the extent the
amounts held under the Contract on the date of the withdrawal exceed the
"investment in the contract," as that term is defined under the Code. The
"investment in the contract" can generally be described as the cost of the
Contract. It generally constitutes the sum of all purchase payments made for the
contract less any amounts received under the Contract that are excluded from
gross income. The taxable portion is taxed as ordinary income. For purposes of
this rule, a pledge or assignment of a Contract is treated as a payment received
on account of a partial withdrawal of a Contract.
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the Contract, the
recipient is taxed on the portion of the payment that exceeds the investment in
the Contract. The taxable portion is taxed as ordinary income.
If the recipient receives annuity payments rather than a lump sum payment,
a portion of the payment is included in taxable income when received. For fixed
annuity payments, the taxable portion of each payment is generally determined by
using a formula known as the "exclusion ratio," which establishes the ratio that
the investment in the Contract bears to the total expected amount of annuity
payments for the term of the Contract. That ratio is then applied to each
payment to determine the nontaxable portion of the payment. The remaining
portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula which establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the investment in the
Contract by the total number of expected periodic payments. The remaining
portion of each payment is taxed as ordinary income.
The recipient is able to exclude a portion of the payments received from
taxable income until the investment in the Contract is fully recovered. Annuity
payments are fully taxable after the investment in the Contract is recovered. If
the recipient dies before the investment in the Contract is recovered, the
recipient's estate is allowed a deduction for the remainder.
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
<PAGE>
August 14, 1982; (v) under a qualified funding asset (as defined in Code Section
130(d)); (vi) under an immediate annuity contract; or (vii) that are purchased
by an employer on termination of certain types of qualified plans and which are
held by the employer until the employee separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount equal to
the tax that would have been imposed but for item (iii) above as determined
under Treasury Regulations, plus interest for the deferral period. The foregoing
rule applies if the modification takes place: (a) before the close of the period
which is five years from the date of the first payment and after the taxpayer
attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan may
result in a taxable event and the excess of the Contract Value over total
Premium will be taxed to the assignor as ordinary income. Please consult your
tax adviser prior to making an assignment of the Contract.
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 any 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 any Owner dies before the Annuity Date, the entire
interest must generally be distributed within five years after the date of
death. The designated beneficiary is the person to whom ownership of the
contract passes by reason of death and must be a natural person. To the extent
such interest is payable to a designated Beneficiary, however, such interest may
be annuitized over the life of that Beneficiary or over a period not extending
beyond the life expectancy of that Beneficiary, so long as distributions
commence within one year after the date of death. If the Beneficiary is the
spouse of the Owner, the Contract may be continued unchanged in the name of the
spouse as Owner.
If the Owner is not an individual, the "primary annuitant" (as defined
under the Code) is considered the Owner. In addition, when the Owner is not an
individual, a change in the primary annuitant is treated as the death of the
Owner.
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than full and
adequate consideration will generally trigger tax on the gain in the Contract.
The transferee will receive a step-up in basis for the amount included in the
transferor's income. This provision, however, does not apply to those transfers
between spouses or incident to a divorce which are governed by Code Section
1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a corporation
or trust) the Contract is generally not treated as an annuity contract for
Federal income tax purposes, and the income on the Contract (generally the
excess of the Contract Value over the purchase payments) is includable in income
each year. The rule does not apply where the non-natural person is only the
nominal owner such as a trust or other entity acting as an agent for a natural
person. The rule also does not apply when the Contract is
<PAGE>
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 Company (or affiliate) to the same
Owner during any calendar year will be treated as one annuity contract in
determining the amount includable in the taxpayer's gross income. Thus, any
amount received under any such contract prior to the contract's annuity starting
date will be taxable (and possibly subject to the 10% penalty tax) to the extent
of the combined income in all such contracts. The Treasury has broad regulatory
authority to prevent avoidance of the purposes of this aggregation rule. It is
possible that, under this authority, Treasury may apply this rule to amounts
that are paid as annuities (on or after the starting date) under annuity
contracts issued by the same company to the same Owner during any calendar year
period. In this case, annuity payments could be fully taxable (and possibly
subject to the 10% penalty tax) to the extent of the combined income in all such
contracts and regardless of whether any amount would otherwise have been
excluded from income. Owners should consult a tax adviser before purchasing more
than one Contract or other annuity contracts.
Withholding
The Company is required to withhold Federal income taxes on withdrawals,
lump sum distributions, and annuity payments that include taxable income unless
the payee elects to not have any withholding or in certain other circumstances.
Special withholding rules apply to payments made to non-resident aliens.
Lump-sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of any
withdrawal or lump sum distribution unless You elect out of withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments based
on a withholding certificate You file with the Company. If you do not file a
certificate, You will be treated, for purposes of determining your withholding
rates, as a married person with three exemptions.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
Diversification Standards
To comply with the diversification regulations promulgated under Code
Section 817(h) (the "Diversification Regulations"), after a start-up period,
each Subaccount is required to diversify its investments. The Diversification
Regulations generally require that on the last day of each quarter of a calendar
year no more than 55% of the value of the assets of a Subaccount is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look-
<PAGE>
through" rule applies so that an investment in the Fund is not treated as one
investment but is treated as an investment in a pro-rata portion of each
underlying asset of the Fund. All securities of the same issuer are treated as a
single investment. In the case of government securities, each Government agency
or instrumentality is treated as a separate issuer.
In connection with the issuance of the Diversification Regulations,
Treasury announced that such regulations do not provide guidance concerning the
extent to which Owners may direct their investments to particular divisions of a
separate account. It is possible that if and when additional regulations or IRS
pronouncements are issued, the Contract may need to be modified to comply with
such rules. For these reasons, the Company reserves the right to modify the
Contract, as necessary, to prevent the Owner from being considered the owner of
the assets of the Variable Account.
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 an Owner's ability
to make partial withdrawals from Code Section 403(b) Contracts, if attributable
to Premium paid under a salary reduction agreement. Specifically, Code Section
403(b)(11) allows an Owner to make a surrender or partial withdrawal only
<PAGE>
(a) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled (as defined in the Code), or (b) in the case of hardship. In
the case of hardship, only an amount equal to the purchase payments may be
withdrawn. In addition, 403(b) Plans are subject to additional requirements,
including: eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. Owners and their
employers are responsible for compliance with these rules. Contracts offered in
connection with a 403(b) Plan by this Prospectus are not available in all
states.
LEGAL PROCEEDINGS
The Company knows of no legal proceeding pending to which the Variable
Account is a party or which would materially affect the Variable Account.
LEGAL MATTERS
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.
<PAGE>
TABLE OF CONTENTS
STATEMENT OF ADDITIONAL INFORMATION
General Information
The Company
Independent Accountants
Legal Counsel
Distributor
Calculation of Performance Related Information
Delay of Payments
Transfers
Method of Determining Contract Values
Annuity Provisions
Annuity Benefits
Annuity Options
Variable Annuity Payment Values
Annuity Unit
Net Investment Factor
Additional Provisions
Financial Statements
<PAGE>
APPENDIX
Guaranteed Account Option
Under this Guaranteed Account option, Contract Values are held in the
Company's General Account. The General Account includes all of Our assets,
except those assets segregated in Our separate accounts. Because of exemptive
and exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 nor is the General Account
registered as an investment company under the Investment Company Act of 1940.
The Company understands that the staff of the Securities and Exchange Commission
has not reviewed the disclosures in this Prospectus relating to the Guaranteed
Account portion of the Contract. Disclosures regarding the Guaranteed Account
may, however, be subject to certain generally applicable provisions of the
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses. The Guaranteed Account option may not be available in all
states.
During the Accumulation Period the Owner may allocate amounts to the
Guaranteed Account. The initial Premium will be invested in the Guaranteed
Account if selected by the Owner at the time of application. Additional Premium
will be allocated in accordance with the selection made in the application or
the most recent instruction received at the Company Office. If the Owner elects
to withdraw amounts from the Guaranteed Account, such withdrawal, except as
otherwise provided in this Appendix, will be subject to the same conditions as
imposed on withdrawals from the Variable Account. The Company reserves the right
to delay any payment from the Guaranteed Account for up to six (6) months from
the date it receives such request at its Office. The Guaranteed Account may not
be available in all states.
Allocations To The Guaranteed Account
The minimum amount that may be allocated to the Guaranteed Account, either
from the initial or a subsequent Premium, is $3,000. Amounts invested in the
Guaranteed Account are credited with interest on a daily basis at the then
applicable effective guarantee rate. The effective guarantee rate is that rate
in effect when the Owner allocates or transfers amounts to the Guaranteed
Account. If the Owner has allocated or transferred amounts at different times to
the Guaranteed Account, each allocation or transfer may have a unique effective
guarantee rate associated with that amount. The effective guarantee rate will
not be changed more than once per year and the minimum rate will not be less
than 3%.
Guaranteed Account Transfers
During the accumulation period the Owner may transfer, by written request
or telephone authorization, Contract Values to or from a subaccount of the
Variable Account to or from the Guaranteed 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 Guaranteed Account
equals the amounts so allocated less withdrawals, with interest compounded
annually at the rate of 3%, reduced by any applicable Surrender Charge.
A-1
PART A
<PAGE>
AIG LIFE INSURANCE COMPANY
One Alico Plaza
Wilmington, Delaware 19899
INDIVIDUAL AND GROUP
SINGLE PREMIUM AND FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT I
and
AIG LIFE INSURANCE COMPANY
The Individual Deferred Variable Annuity Contracts (the "Individual
Contracts") and Group Deferred Variable Annuity Contracts ("Group Contracts")
(collectively, the "Contracts") described in this Prospectus provide for
accumulation of Contract Values and payment of monthly annuity payments. The
Contracts may be used in retirement plans which do not qualify for federal tax
advantages ("Non-Qualified Contracts") or in connection with retirement plans
which may qualify as Individual Retirement Annuities ("IRA") under Section 408
of the Internal Revenue Code of 1986, as amended (the "Code") or Section 403(b)
of the Code ("403(b) Plan"). The Contracts will not be available in connection
with retirement plans designed by AIG Life Insurance Company (the "Company")
which qualify for the federal tax advantages available under Sections 401 and
457 of the Code. Purchasers intending to use the Contracts in connection with an
IRA or 403(b) Plan should seek competent tax advice.
Purchase payments for the Contracts will be allocated to a segregated
investment account of the Company which account has been designated Variable
Account I (the "Variable Account"). The Variable Account invests in shares of
Alliance Variable Products Series Fund, Inc. (the "Fund"). The Fund has made
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; 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
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
</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;
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 dicontinued expense reimbursement with
respect to the Premier Growth Portfolio.
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
</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
</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
</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
</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
<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; 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. The Prospectus for the Fund, which contains a discussion
of the risks involved in investing in the Fund is included with 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.
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...
Delay of Payments................................
Transfers........................................
Method of Determining Contract Values...............
Annuity Provisions..................................
Annuity Benefits....................................
Annuity Options..................................
Variable Annuity Payment Values..................
Annuity Unit.....................................
Net Investment Factor............................
Additional Provisions............................
Financial Statements................................
<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.
INDIVIDUAL AND GROUP SINGLE PREMIUM
AND FLEXIBLE PREMIUM
VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT I
and
AIG LIFE INSURANCE COMPANY
One Alico Plaza
Wilmington, Delaware 19899
The Individual Deferred Variable Annuity Contracts (the "Individual
Contracts") and Group Deferred Variable Annuity Contracts ("the Group
Contracts") (collectively, the "Contracts") described in this Prospectus provide
for accumulation of Contract Values and payment of monthly annuity payments. The
Contracts may be used in retirement plans which do not qualify for federal tax
advantages ("Non-Qualified Contracts") or in connection with retirement plans
which may qualify as Individual Retirement Annuities ("IRA") under Section 408
of the Internal Revenue Code of 1986, as amended (the "Code") or Section 403(b)
of the Code ("403(b) Plan"). The Contracts will not be available in connection
with retirement plans designed by AIG Life Insurance Company (the "Company")
which qualify for the federal tax advantages available under Sections 401 and
457 of the Code. Purchasers intending to use the Contracts in connection with an
IRA or 403(b) Plan should seek competent tax advice.
Purchase payments allocated among the Subaccounts of Variable Account I
(the "Variable Account") will be invested in shares of corresponding portfolios
as selected by the Owner from the following choices: Growth Portfolio, Quasar
Portfolio, Technology Portfolio, Growth and Income Portfolio, Global Bond
Portfolio or Premier Growth Portfolio of the ALLIANCE VARIABLE PRODUCTS SERIES
FUND, INC.; the VIP High Income Portfolio, VIP Growth Portfolio, VIP Money
Market Portfolio, of the FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS;
VIP II Asset Manager Portfolio, VIP II Contrafund Portfolio or VIP II Investment
Grade Bond Portfolio of the FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS
FUNDS II; the Small Company Stock Portfolio of the DREYFUS VARIABLE INVESTMENT
FUND; the Worldwide Hard Assets Fund or Worldwide Emerging Markets Fund, of the
VAN ECK WORLDWIDE INSURANCE TRUST; the DREYFUS STOCK INDEX FUND; or the Capital
Appreciation Fund and International Equity Fund of the AIM VARIABLE INSURANCE
FUNDS, INC. This Prospectus concisely sets forth the information a prospective
investor ought to know before investing. Additional information about the
Contracts is contained in the "Statement of Additional Information" which is
available at no charge. The Statement of Additional Information has been filed
with the Securities and Exchange Commission and is hereby incorporated by
reference. The Table of Contents of the Statement of Additional Information can
be found on page ___ of this Prospectus. For the Statement of Additional
Information dated May 1, 1997, call or write AIG Life Insurance Company;
Attention: Variable Products, One Alico Plaza, Wilmington, Delaware 19801,
1-800-340-2765.
INQUIRIES: Purchaser inquiries can be made by calling the service office at
1-800-340-2765.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
INVESTMENTS IN THESE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, AND ARE
NOT GUARANTEED OR ENDORSED BY 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
2
<PAGE>
TABLE CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Definitions....................................
Highlights.....................................
Fee
Table.............................................
Summary of Expenses............................
Condensed Financial Information................
The Company....................................
The Variable Account...........................
The Funds......................................
Charges and Deductions.........................
Administration of the Contracts................
Rights under the Contracts.....................
Annuity Period.................................
Death Benefit..................................
Purchasing a Contract..........................
Contract Value.................................
Withdrawals....................................
Taxes..........................................
Legal Proceedings..............................
Legal Matters..................................
Table of Contents of the Statement of Additional Information.....
Appendix - General Account Option..............
</TABLE>
3
<PAGE>
DEFINITIONS
Accumulation Period - The period prior to the Annuity Date.
Accumulation Unit - Accounting unit of measure used to calculate the Contract
Value prior to the Annuity Date.
Age - Age means age on last birthday.
Annuitant - The person upon whose continuation of life any annuity payment
involving life contingencies depends. The Annuitant is named in the application.
Annuity Date - The date at which annuity payments are to begin.
Annuity Unit - Accounting unit of measure used to calculate variable annuity
payments.
Beneficiary - The person or persons named in the application who will receive
any benefit upon the death of the Contract Owner (or Annuitant as applicable)
prior to the Annuity Date.
Contingent Owner - The Contingent Owner, if any, must be the spouse of the
Purchaser as named in the application, unless changed.
Contract Anniversary - The same month and date as the Date of Issue in each
subsequent year of the Contract or Certificate.
Contract Value - The value of all amounts accumulated under the Contract or
Certificate.
Contract Year - Any period of twelve (12) months commencing with the Date of
Issue and each Contract or Certificate Anniversary thereafter. Date of Issue The
date when the initial purchase payment was invested.
Deferred Sales Charge - The sales charge that may be applied against amounts
withdrawn prior to the Annuity Date if withdrawal is within six years of a
purchase payment.
General Account - All of the Company's assets other than the assets of the
Variable Account and any other separate accounts of the Company.
Office - The Annuity Service Office of the Company: c/o Delaware Valley
Financial Services, Inc. 300 Berwyn Park, P.O. Box 3031, Berwyn,
Pennsylvania 191312-0031.
Owner - The person designated as contract owner or certificate owner in the
application, unless changed.
Premium Year - Any period of 12 months commencing with the date a purchase
payment is made and ending on the same date in each succeeding 12 month period
thereafter.
Valuation Date - Each day that the New York Stock Exchange is open for trading.
Valuation Period - The period commencing as of the close of the New York Stock
Exchange (presently 4 P.M., Eastern Standard Time) on each Valuation Date and
ending as of the close of the New York Stock Exchange on the next succeeding
Valuation Date.
Variable Account - A separate investment account of the Company, designated
Variable Account I, into which purchase payments will be allocated.
4
<PAGE>
HIGHLIGHTS
Purchase payments for the Contracts will be allocated to a segregated investment
account of the Company which account has been designated Variable Account I .The
Variable Account invests in shares of the Portfolios of the available Funds.
The Contracts provide that in the event that an Owner withdraws all or a portion
of the Contract Value within the first six Contract years of a premium payment
there may be assessed a Deferred Sales Charge. The Deferred Sales Charge is
based on a table of charges, of which the maximum charge is currently 6% of
premium to which the charge is applicable for flexible premium Contracts, and 6%
of the Contract Value for single premium Contracts, subject to a maximum of 8.5%
of purchase payments. (See "Charges and Deductions - Deduction for Deferred
Sales Charge" on page ____.)
Any premium or other taxes levied by any governmental entity with respect to the
Contracts will be charged against the purchase payments or Contract Value.
Premium taxes currently imposed by certain states on the Contracts range from 0%
to 3.5%. (See "Charges and Deductions - Deduction for State Premium Taxes on
page _____.)
The Company deducts from the Contract Value and/or the Variable Account any
Federal income taxes resulting from the operation of the Variable Account. The
Company does not currently anticipate incurring any income taxes. (See "Charges
and Deductions - Deduction for Income Taxes" on page ______.)
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account. (See "Charges and Deductions Deduction for
Mortality and Expense Risk Charge" on page ______.)
The Company deducts for each Valuation Period an Administrative Charge which is
equal on an annual basis to 0.15% of the average daily net asset value of the
Variable Account. In addition, the Company deducts an annual Administrative
Charge which is currently $30 per year, from the Contract Value. (See "Charges
and Deductions - Deduction for Administrative Charge" on page ______.)
There are deductions and expenses paid out of the assets of the Funds which are
described in the accompanying Prospectuses for the Funds.
Surrenders and withdrawals may be taxable and subject to a penalty tax. (See
"Taxes" beginning on page ___.)
The Owner may return the Contract within twenty (20) days (the "Free Look
Period") after it is received by delivering or mailing it to the Company's
Office. The return of the Contract by mail will be effective when the postmark
is affixed to a properly addressed and postage prepaid envelope. The Company
will refund the Contract Value. In the case of Contracts issued in connection
with an IRA, the Company will refund the greater of the purchase payment, less
any withdrawals, or the Contract Value. However, if the laws of a state require
that the Company refund, during the Free Look Period, an amount equal to the
purchase payment paid less any withdrawals, the Company will refund such an
amount.
5
<PAGE>
FEE TABLE
<TABLE>
<CAPTION>
Owner Transaction Expenses
All Sub-Accounts
<S> <C>
Sales Load Imposed on Purchases.......................................None
</TABLE>
Surrender Charge (as a percentage of amount surrendered):
<TABLE>
<CAPTION>
Single Premium Contracts Flexible Premium Contracts
- - ------------------------ --------------------------
<S> <C> <C>
Contract Year 1 Premium Year 1 6%
Contract Year 2 Premium Year 2 5%
Contract Year 3 Premium Year 3 4%
Contract Year 4 Premium Year 4 3%
Contract Year 5 Premium Year 5 2%
Contract Year 6 Premium Year 6 1%
Contract Year 7 Premium Year 7 None
and thereafter and thereafter
Exchange Fee Currently:
First 12 Per Contract Year None
Thereafter $ 10
Annual Contract Fee $ 30
Separate Account Expenses
(as a percentage of average account value)
Mortality and Expense Risk Fees 1.25%
Account Fees and Expenses 0.15%
Total Separate Account Annual Expenses 1.40%
</TABLE>
6
<PAGE>
SUMMARY OF EXPENSES
Annual Fund Expenses After Expense Reimbursements*
<TABLE>
<CAPTION>
Total
Management Other Portfolio
Portfolio Fee Expenses* Expenses**
- - --------- --------- -------- ---------
<S> <C> <C> <C>
Alliance Global Bond................................................ 0.56% 0.38% 0.94%(1)
Alliance Premier Growth............................................. 1.00 0.08 1.08(1)
Alliance Growth..................................................... 0.75 0.09 0.84(1)
Alliance Growth and Income.......................................... 0.63 0.09 0.72(1)
Alliance Quasar..................................................... 0.58 0.37 0.95(1)
Alliance Technology................................................. 0.76 0.19 0.95(1)
AIM V.I. Capital Appreciation Fund.................................. 0.63 0.05 0.68(2)
AIM V.I. International Equity Fund.................................. 0.75 0.18 0.93(2)
Fidelity VIP High Income............................................ 0.59 0.12 0.71(4)
Fidelity VIP Growth................................................. 0.60 0.09 0.69(4)
Fidelity VIP Money Market........................................... 0.21 0.10 0.31(4)
Fidelity VIP II Contrafund.......................................... 0.60 0.11 0.71(4)
Fidelity VIP II Asset Manager....................................... 0.55 0.10 0.65(4)
Fidelity VIP II Investment Grade Bond............................... 0.44 0.14 0.58(4)
Van Eck Worldwide Hard Assets....................................... 1.00 0.17 1.17(5)
Van Eck Worldwide Emerging Markets.................................. 1.00 (0.20) 0.80(5)
Dreyfus Small Company Stock......................................... 0.75 0.37 1.12(3)
Dreyfus Stock Index................................................. 0.25 0.03 0.28(3)
</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
- ------.)
* "Other Expenses" are based upon the expenses outlined under the section
discussing the management of the Funds in each Fund's Prospectus attached.
- - ----------
** "Total Portfolio Expenses" for the following Portfolios before
reimbursement by the relevant Fund's investment advisor, for the period
ended December 31, 1997, were as follows:
(1) Alliance Variable Product Series Funds: 1.10% for Premier Growth; 1.03% for
Global Bond; 1.37% for Quasar; and 1.19% for Technology, of average daily
net assets. For the year ended December31, 1997 expenses of the Premier
Growth Portfolio were capped at .95%. Effective May 1, 1998 Alliance
disontinued expense reimbursement with respect to the Premier Growth
Portfolio;
6
<PAGE>
(2) Regarding the AIM Funds, A I M Advisors, Inc. ("AIM") May from time to time
voluntarily waive or reduce its respective fees. Effective may 1, 1998, the
Funds reimburse AIM in an amount up to 0.25% of the average net asset value
of each Fund, for expenses incurred in providing, or assuring that
participating insurance companies provide, certain administrative services.
Currently, the fee only applies to the average net asset value of each Fund
in excess of the net asset value of each Fund as calculated on April 30,
1998;
(3) Regarding the Dreyfus Fund, the expenses set forth above are the actual
total expenses without any expense reimbursement;
(4) With respect to the Fidelity VIP and VIP II Funds, the expenses set forth
above are actual total expenses. However a portion of the brokerage
commission that certain funds pay was used to reduce fund expenses. In
addition, certain funds have entered into arrangements with their custodian
and transfer agent whereby interest earned on uninvested cash balances was
used to reduce custodian and transfer agent expenses. Including these
reductions, the total operating expenses presented in the table would have
been .69% for the VIP Growth Portfolio, and .65% for the VIP II Asset
Manager Portfolio;
(5) The Van Eck Funds: For the Worldwide Hard Assets Fund, Other expenses are
net of soft dollor credits. Without such credits, Other Expenses would have
been 0.18% and Total Fund Operating Expenses would have been 1.18%. For
Worldwide Emerging Markets, Other Expenses are net of the reduction of the
Fund's operating fees in connection with a fee arrangement, based on cash
balances left on deposit with the custodian, and net of the waiver or
assumption by Van Eck Associates Corporation of certain fees and expenses.
Without such fee arrangement and, to a lesser extent, the
waiver/assumption, Other Expenses would have been 0.34% and Total Fund
Operation Expenses would have been 1.34%. Van Eck Associates Corporation is
no longer waiving or assuming fees and expenses.
Expenses on a hypothetical $1,000 Single Premium policy, assuming 5% growth:
<TABLE>
<CAPTION>
If you surrender
Portfolios 1 Year 3 Years 5 Years 10 Years
- - ---------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 77 106 136 247
AIM V.I. International Equity Fund 80 113 148 273
Alliance Global Bond 80 114 149 274
Alliance Growth 79 111 144 264
Alliance Growth and Income 78 107 138 251
Alliance Premier Growth 81 118 155 288
Alliance Quasar 80 114 149 275
Alliance Real Estate 80 114 149 275
Alliance Technology 80 114 149 275
Fidelity VIP High Income 78 107 137 250
Fidelity VIP Growth 77 106 136 248
Fidelity VIP Money Market 74 95 117 208
Fidelity VIP II Asset Manager 77 105 134 244
Fidelity VIP II Contrafund 78 107 137 250
Fidelity VIP II Investment Grade Bond 76 103 131 237
Dreyfus Small Company Stock 81 119 157 291
Dreyfus Stock Index 73 94 116 205
Van Eck Worldwide Hard Assets 82 120 160 296
Van Eck Worldwide Emerging Markets 83 125 168 313
</TABLE>
8
<PAGE>
Expenses on a hypothetical $1,000 Flexible Premium policy, assuming 5%
growth:
<TABLE>
<CAPTION>
If you surrender
Portfolios 1 Year 3 Years 5 Years 10 Years
- - ---------------------------
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 76 103 133 247
AIM V.I. International Equity Fund 78 111 146 273
Alliance Global Bond 78 111 146 274
Alliance Growth 77 108 141 264
Alliance Growth and Income 76 104 135 251
Alliance Premium Growth 80 115 153 288
Alliance Quasar 78 111 147 275
Alliance Real Estate 78 111 147 275
Alliance Technology 78 111 147 275
Fidelity VIP High Income 76 104 134 250
Fidelity VIP Growth 76 103 133 248
Fidelity VIP Money Market 72 92 114 208
Fidelity VIP II Asset Manager 75 102 131 244
Fidelity VIP II Contrafund 76 104 134 250
Fidelity VIP II Investment Grade Bond 75 100 128 237
Dreyfus Stock Index 72 91 112 205
Dreyfus Small Company Stock 80 116 155 291
Van Eck Worldwide Hard Assets 81 118 158 296
Van Eck Worldwide Emerging Markets 82 123 166 313
</TABLE>
9
<PAGE>
Expenses on a hypothetical $1,000 Single and 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>
AIM V.I. Capital Appreciation Fund 22 67 112 247
AIM V.I. International Equity Fund 24 75 128 273
Alliance Global Bond 24 75 128 274
Alliance Growth 23 72 123 264
Alliance Growth and Income 22 68 117 251
Alliance Premium Growth 26 79 135 288
Alliance Quasar 24 75 129 275
Alliance Real Estate 24 75 129 275
Alliance Technology 24 75 129 275
Fidelity VIP High Income 22 68 116 250
Fidelity VIP Growth 22 67 115 248
Fidelity VIP Money Market 18 56 96 208
Fidelity VIP II Asset Manager 21 66 113 244
Fidelity VIP II Contrafund 22 68 116 250
Fidelity VIP II Investment Grade Bond 21 64 110 237
Dreyfus Stock Index 18 55 94 205
Dreyfus Small Company Stock 26 80 137 291
Van Eck Worldwide Hard Assets 27 82 140 296
Van Eck Worldwide Emerging Markets 28 87 148 313
</TABLE>
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
10
<PAGE>
<TABLE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
1997 1996
--------- ---------
<S> <C> <C>
ALLIANCE GROWTH & INCOME
Accumulation Unit Value
Beginning of Period ...................................... 11.85 10.00
End of Period ............................................ 15.06 11.85
Accum Units o/s @ end of period............................. 547,915.82 116,342.75
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period ...................................... 12.24 10.00
End of Period ............................................ 15.69 12.24
Accum Units o/s @ end of period............................. 333,114.57 123,814.87
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period ...................................... 10.54 10.00
End of Period ............................................ 11.07 10.54
Accum Units o/s @ end of period............................. 143,999.25 15,829.55
ALLIANCE QUASAR
Accumulation Unit Value
Beginning of Period ...................................... 10.28 10.00
End of Period ............................................ 12.02 10.28
Accum Units o/s @ end of period............................. 94,929.55 4,796.29
FIDELITY VIP MONEY MARKET
Accumulation Unit Value
Beginning of Period ...................................... 10.29 10.00
End of Period ............................................ 10.70 10.29
Accum Units o/s @ end of period............................. 944,656.53 385,238.57
FIDELITY VIP II ASSET MANAGER
Accumulation Unit Value
Beginning of Period ...................................... 11.12 10.00
End of Period ............................................ 13.23 11.12
Accum Units o/s @ end of period............................. 239,825.14 56,345.46
FIDELITY VIP GROWTH
Accumulation Unit Value
Beginning of Period ...................................... 10.92 10.00
End of Period ............................................ 13.30 10.92
Accum Units o/s @ end of period............................. 468,339.86 149,722.06
FIDELITY VIP HIGH INCOME
Accumulation Unit Value
Beginning of Period ...................................... 10.90 10.00
End of Period ............................................ 12.65 10.90
Accum Units o/s @ end of period............................. 185,484.29 55,015.77
FIDELITY VIP II INVESTMENT GRADE BOND
Accumulation Unit Value
Beginning of Period ...................................... 10.49 10.00
End of Period ............................................ 11.28 10.49
Accum Units o/s @ end of period............................. 221,696.39 40,777.94
</TABLE>
9
<PAGE>
<TABLE>
1997 1996
--------- ---------
<S> <C> <C>
VAN ECK WORLDWIDE HARD ASSETS
Accumulation Unit Value
Beginning of Period ...................................... 10.17 10.00
End of Period ............................................ 9.86 10.17
Accum Units o/s @ end of period............................. 22,196.30 11,530.80
DREYFUS STOCK INDEX
Accumulation Unit Value
Beginning of Period ...................................... 11.74 10.00
End of Period ............................................ 15.39 11.74
Accum Units o/s @ end of period............................. 490,227.53 113,481.41
</TABLE>
*Funds were first invested in the Portfolios as listed below:
<TABLE>
<CAPTION>
<S> <C>
Alliance Growth and Income January 14, 1991
Alliance Global Bond May 10, 1993
Alliance Growth September 15, 1994
Alliance Premier Growth December 7, 1992
Alliance Quasar August 15, 1996
Alliance Technology January 22, 1996
Fidelity High Income September 19, 1985
Fidelity Growth October 9, 1986
Fidelity Money Market April 1, 1982
Fidelity Contrafund* January 3, 1995
Fidelity Asset Manager September 9, 1989
Fidelity Investment Grade Bond December 5, 1988
Dreyfus Small Company Stock* May 1, 1996
Dreyfus Stock Index August 31, 1990
Van Eck Worldwide Hard Assets September 1, 1989
Van Eck Worldwide Emerging Markets* December 21, 1995
AIM Capital Appreciation* May 5, 1993
AIM International Equity* May 5, 1993
</TABLE>
<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 given 30-day period. The yield is determined by dividing
the net investment income earned per Accumulation Unit during the period by the
value of an Accumulation Unit on the last day of the period.
When the Company advertises the performance of the Money Market
Sub-account it may advertise in addition to the total return either the yield or
the effective yield. The yield of the Money Market Sub-account refers to the
income generated by an investment in that Sub-account over a seven-day period.
The income is then annualized (i.e., the amount of income generated by the
investment during that week is assumed to be generated each week over a 52-week
period and is shown as a percentage of the investment). The effective yield is
calculated similarly but when annualized the income earned by an investment in
the Money Market Sub-account is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment during a 52-week period.
Total return at the Variable Account level is reduced by all contract
charge (sales charges, mortality and expense risk charges, and the
administrative charges) and is therefore lower than the total return at a Fund
level, which has no comparable charges. Likewise, yield and effective yield at
the Variable Account level take into account all recurring charges (except sales
charges), and are therefore lower than the yield and effective yield at a Fund
level, which has no comparable charges.
Performance information for a Sub-account may be compared to: (i) the
Standard & Poor's 500 Stock Index, Dow Jones Industrial Average, Donoghue Money
Market Institutional Averages, indices measuring corporate bond and government
security prices as prepared by Lehman Brothers, Inc. and Salomon Brothers or
other indices measuring performance of a pertinent group of securities so that
investors may compare a Sub-account's results with those of a group of
securities widely regarded by investors as representative of the securities
markets in general; (ii) other variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds and other investment
companies by overall performance, investment objectives, and assets, or tracked
by other ratings services, companies, publications, or persons who rank separate
accounts or other investment products on overall performance or other criteria;
(iii) the Consumer Price Index (measure for inflation) to assess the real rate
of return from an investment in the Contract; and (iv) indices or averages of
alternative financial products available to prospective investors, including the
Bank Rate Monitor which monitors average returns of various bank instruments.
Financial Data
Financial Statements of the Company and the Variable Account may be found
in the Statement of Additional Information.
13
<PAGE>
THE COMPANY
The Company is a stock life insurance company which is organized under the
laws of the State of Delaware in 1962. The Company provides a full range of life
insurance and annuity plans. The Company is a subsidiary of American
International Group, Inc., which serves as the holding company for a number of
companies engaged in the international insurance business, both life and
general, in over 130 countries and jurisdictions around the world.
THE VARIABLE ACCOUNT
The Board of Directors of the Company adopted a resolution to maintain the
Variable Account pursuant to Delaware insurance law. The Company has caused the
Variable Account to be registered with the Securities and Exchange Commission as
a unit investment trust pursuant to the provisions of the Investment Company Act
of 1940.
The assets of the Variable Account are the property of the Company.
However, the assets of the Variable Account, equal to the reserves and other
contract liabilities with respect to the Variable Account, are not chargeable
with liabilities arising out of any other business the Company may conduct.
Income, gains and losses, whether or not realized, are, in accordance with the
Contracts, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. The Company's obligations arising
under the Contracts are general corporate obligations of the Company. The
Variable Account may be subject to liabilities arising from Sub-accounts whose
assets are attributable to other variable annuity contracts offered by the
Variable Account which are not described in this Prospectus.
The Variable Account is divided into Sub-accounts, with the assets of each
Sub-account invested in shares of a corresponding portfolio of the available
Funds. The Company may, from time to time, add additional Portfolios of a Fund,
and, when appropriate, additional Funds to act as the funding vehicles for the
Contracts.
<PAGE>
THE FUNDS
Alliance Funds, Fidelity Funds, Dreyfus Funds, Van Eck Funds and AIM Funds
(collectively, the "Funds") are each registered with the SEC as a diversified
open-end management investment company under the 1940 Act. Each is made up of
different series funds or Portfolios ("Portfolios"). The Dreyfus Stock Index
Fund (also a "Fund" herein) is an open-end, non-diversified management
investment company. A summary of the investment objectives for each portfolio is
contained in the description of the Funds below. More detailed information,
including the advisory fee of each portfolio and other charges assessed by each
Fund, may be found in the relevant Fund prospectus, which contains a discussion
of the risks involved in investing in such Fund. The prospectuses for each Fund
are included with this Prospectus.
The investment objectives of the Portfolios are as follows:
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Global Bond Portfolio
This portfolio seeks a high level of return from a combination of current
income and capital appreciation by investing in a globally diversified portfolio
of high quality debt securities denominated in the U.S. Dollar and a range of
foreign currencies.
Premier Growth Portfolio
This portfolio seeks growth of capital rather than current income. In
pursuing its investment objectives, the Premier Growth Portfolio will employ
aggressive investment policies. Since investment will be made based upon 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.
Growth Portfolio
This portfolio seeks the long term growth of capital by investing primarily
in common stocks and other equity securities.
Growth and Income Portfolio
This portfolio seeks to balance the objectives of reasonable current income
and opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
Technology Portfolio
This portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. This portfolio invests
principally in 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.
Alliance Variable Products Series Fund, Inc., is managed by Alliance
Capital Management L.P., ("Alliance"). The fund also includes other portfolios
which are not available for use by the Separate Account. More detailed
information regarding management of the funds, investment objectives, investment
advisory fees and other charges, may be found in the current Alliance Fund
prospectus which contains a discussion of the risks involved in investing. The
Alliance Fund prospectus is included with this Prospectus.
13
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND
Small Company Stock Portfolio
This portfolio seeks investment results that are greater than the total
return performance of publicly-traded common stock in the aggregate, as
represented by Russel 2500 TM Index.
DREYFUS STOCK INDEX FUND
This Fund seeks to provide investment results that correspond to the price
and yield performance of publicly traded common stocks in the aggregate, as
represented by the Standard & Poor's 500 Composite Stock Price Index. In
anticipation of taking a market position, the Fund is permitted to purchase and
sell stock index futures. The Fund is neither sponsored by nor affiliated with
Standard & Poor's Corporation. Dreyfus has engaged Mellon Equity, located at 500
Grant Street, Pittsburgh, Pennsylvania 15258, to serve as the Fund's index fund
manager. Mellon Equity, a registered investment adviser formed in 1957, is an
indirect wholly-owned subsidiary of Mellon and, thus, an affiliate of Dreyfus.
As of March 31, 1998, Mellon Equity and its employees managed approximately
$19.9 billion in assets and served as the investment adviser of 2 other
investment companies
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUNDS (VIP)
VIP Growth Portfolio
This portfolio seeks capital appreciation through investments primarily in
common stock.
VIP High Income Portfolio
This portfolio seeks high current income by investing primarily in
high-yielding, lower-rated, fixed-income securities (commonly referred to as
"junk bonds"), while also considering growth of capital. The potential for high
yield is accompanied by higher risk. For a more detailed discussion of the
investment risks associated with such securities, please refer to the Fidelity
Fund's attached prospectus.
VIP Money Market Portfolio
This portfolio seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The portfolio will
invest only in high quality U.S. dollar-denominated money market securities of
domestic and foreign issuers. An investment in the VIP Money Market Portfolio is
neither insured nor guaranteed by the U.S. government, and there can be no
assurance that the portfolio will maintain a stable $1.00 share price.
FIDELITY INVESTMENTS VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
VIP II Asset Manager Portfolio
This portfolio seeks to provide a high total return with reduced risk over
the long term by allocating its assets among stocks, bonds and short-term money
market instruments.
VIP II Contrafund Portfolio
This portfolio seeks capital appreciation by investing in securities of
companies whose value the manager believes is not fully recognized by the
public.
VIP II Investment Grade Bond Portfolio
This portfolio seeks as high a level of current income as is consistent
with the preservation of capital by investing in a broad range of
investment-grade fixed-income securities. The portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less.
14
<PAGE>
Fidelity Management & Research Company ("FMR") is the investment advisor
for the Variable Insurance Products Funds. FMR has entered into a sub-advisory
agreement with Fidelity Investments Money Management, Inc. ("FIMM"), on behalf
of the VIP Money Market Portfolio. On behalf of the VIP Overseas Portfolio, FMR
has entered into sub-advisory agreements with Fidelity Management & Research
(U.K.) Inc., (FMR U.K.), Fidelity Management & Research (Far East) Inc. (FMR Far
East), and Fidelity International Investment Advisors (FIIA). FMR U.K. and FMR
Far East also are sub-advisors to the VIP II Asset Manager Portfolio. Fidelity
Funds include other portfolios which are not available under this Prospectus as
funding vehicles for the Contracts. More detailed information regarding
management of the funds, investment objectives, investment advisory fees and
other charges assessed by the Fidelity Funds, are contained in the prospectuses
of the Fidelity Funds, included with this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Emerging Markets Fund
This portfolio seeks long-term capital appreciation by investing primarily
in equity securities in emerging markets around the world.
Worldwide Hard Assets Fund
This portfolio seeks long-term capital appreciation by investing in equity
and debt securities of companies engaged to a significant extent in the
exploration, development, production, or distribution of (1) precious metals;
(2) ferrous and non-ferrous metals; (3) oil and gas; (4) forest products; (5)
real estate; and (6) other basic non-agricultural commodities (collectively,
"Hard Assets"), and in securities whose value is linked to the price of a Hard
Asset commodity or a commodity index. Income is a secondary consideration.
Van Eck Associates Corporation is the investment advisor and manager of
Worldwide Hard Assets Fund. Van Eck Global Asset Management (Asia) Limited, a
wholly-owned investment adviser subsidiary of Van Eck Associates Corporation, is
the investment adviser to Worldwide Emerging Markets Fund. Van Eck Worldwide
Insurance Trust includes other portfolios which are not available under this
prospectus as funding vehicles for the Contracts. More detailed information
regarding management of the funds, investment objectives, investment advisory
fees and other charges assessed by the Van Eck Worldwide Insurance Trust, are
contained in the relevant Fund prospectus included with this Prospectus.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
This Fund seeks capital appreciation through investments in common stock,
with emphasis on medium-sized and smaller emerging growth companies.
AIM V.I. International Equity Fund
This Fund seeks to provide long-term growth of capital by investing in a
diversified portfolio of international equity securities, the issuers of which
are considered by AIM to have strong earnings momentum.
A I M Advisors, Inc., 11 Greenway Plaza, Suite 100, Houston, TX 77046-1173,
serves as the investment advisor to each Fund, pursuant to a master investment
advisory agreement. More detailed information regarding management of the Funds,
investment objectives, investment advisory fees and other charges assessed by
the AIM Funds are contained in the prospectus for the Funds included with this
Prospectus.
There is no assurance that any of the Portfolios will achieve their stated
objectives.
15
<PAGE>
The shares of Alliance Funds, Fidelity Funds, Dreyfus Fund, the Dreyfus
Stock Index Fund, and Van Eck Funds are sold not only to the Variable Account,
but may be sold to other separate accounts of the Company that fund benefits
under variable annuity and variable life policies. The shares of the Funds are
also sold to separate accounts of other insurance companies. It is conceivable
that in the future it may become disadvantageous for variable life and variable
annuity separate accounts to invest in the same underlying mutual fund. Although
neither we nor Alliance Funds, Fidelity Funds, Dreyfus Fund, the Dreyfus Stock
Index Fund, the Tomorrow Funds, and Van Eck Funds currently perceive or
anticipate any such disadvantage, the Funds will monitor events to determine
whether any material conflict exists between variable annuity Owners and
variable life Owners.
Material conflicts could result from such occurrences as: (1) changes in
state insurance laws; (2) changes in federal income tax law; (3) changes in the
investment management of any Fund; or (4) differences between voting
instructions given by variable annuity Owners and those given by variable life
Owners. In the event of a material irreconcilable conflict, we will take the
steps necessary to protect our variable annuity and variable life Owners. This
could include discontinuance of investment in a Fund.
Each Fund sells and redeems its shares at Net Asset Value without any sales
charge. Any dividends or distributions from security transactions of a Fund are
reinvested at Net Asset Value in shares of the same Portfolio; however, there
are sales and additional charges associated with the purchase of the Contracts.
Further information about the Funds and the managers is contained in the
accompanying prospectuses, which You should read in conjunction with this
prospectus.
16
<PAGE>
Substitution of Securities
If the shares of a Fund (or any Portfolio within a Fund) should no longer
be available for investment by the Variable Account or if, in the judgment of
the Company, further investment in such shares should become inappropriate in
view of the purpose of the Contracts, the Company may substitute shares of
another Fund ( or Portfolio with in the Fund) for Fund shares already purchased
or to be purchased in the future by purchase payments under the Contracts. No
substitution of securities may take place without notice to the Owners, any
required approval by the Securities Exchange Commission (SEC) and the insurance
regulatory authorities.
Voting Rights
The Funds do not hold regular meetings of shareholders. The Directors of a
Fund may call Special Meetings of Shareholders for action by shareholder vote as
may be required by the Investment Company Act of 1940 or the Articles of
Incorporation of a Fund. In accordance with its view of present applicable law,
the Company will vote the shares of a Fund held in the Variable Account at
special meetings of the shareholders of the Fund in accordance with instructions
received from persons having the voting interest in the Variable Account. The
Company will vote shares for which it has not received instructions from Owners
and those shares which it owns in the same proportion as it votes shares for
which it has received instructions from Owners.
The number of shares which a person has a right to vote will be determined
as of a date to be chosen by the Company not more than sixty (60) days prior to
the meeting of a Fund. Voting instructions will be solicited by written
communication at least fourteen (14) days prior to such meeting. The person
having such voting rights will be the Owner before the Annuity Date, and
thereafter, the payee entitled to receive payments under the Contract. During
the Annuity Period, voting rights attributable to a Contract will generally
decrease as the Contract Value attributable to an Annuitant decreases.
The voting rights relate only to amounts invested in the Variable Account.
There are no voting rights with respect to funds invested in the General
Account.
Shares of the Funds are sold only to separate accounts of life insurance
companies. The shares of the Funds will be sold to separate accounts of the
Company, its affiliate, AIG Life Insurance Company and unaffiliated life
insurance companies to fund variable annuity contracts and/or variable life
insurance policies. It is conceivable that, in the future, it may be
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the Fund simultaneously. Although neither
the Company nor the Fund currently foresees any such disadvantages, either to
variable life insurance policyowners or to variable annuity Contract Owners, the
Fund's Board of Directors will monitor events in order to identify any material
irreconcilable conflicts which may possibly arise and to determine what action,
if any, should be taken in response thereto. If a material irreconcilable
conflict were to occur, the relevant participating life insurance companies will
under their agreements governing participation in the Funds take whatever steps
are necessary, at their expense, to remedy or eliminate the irreconcilable
material conflict. If such a conflict were to occur, one or more insurance
company separate accounts might withdraw its investments in a Fund. This might
force the Fund to sell securities at disadvantageous prices.
Allocation Of Purchase Payments to Sub-accounts
Initial purchase payments are allocated to the Sub-account(s) selected by
the Owner in the application except that in those states which require the
Company to deduct premium taxes upon receipt of a purchase payment the Company
will deduct the premium tax prior to allocating the purchase payment to such
Sub-account(s). The selection must specify a percentage for each Sub-account
that is a whole number, and must be either 0% or a number equal to or greater
than 10%. Subsequent purchase payments under flexible premium Contracts may be
made at any time prior to the Annuity Date and will be allocated to the
Sub-accounts selected by the Owner. If no selection is made, subsequent purchase
payments will be allocated to the Sub-account(s) selected by the Owner according
to the most recent selection request received at the Company's Office. At the
time of the allocation the purchase payment is divided by the value of the
Accumulation Unit for the particular Sub-account for the Valuation Period during
which such allocation occurs to determine the number of Accumulation Units
attributable to the purchase payment.
17
<PAGE>
The initial purchase payment under an IRA plan will be allocated to the
Money Market Sub-account until the expiration of twenty (20) days from the day
the Contract is mailed from the Company's office. Thereafter, the Contract Value
shall be reallocated in accordance with instructions specified in the
application. In the case of flexible premium Contracts, subsequent purchase
payments will be directly allocated to the Sub-account(s) selected by the Owner
according to the most recent selection request received at the Company's Office.
Transfer Of Contract Values
Before the Annuity Date, the Owner may transfer, by written request or
telephone authorization, Contract Values from one Sub-account to another
Sub-account, subject to the following conditions:
(a) the amount transferred from any Sub-account must be at least $1,000 (or
the entire Sub-account value, if less);
(b) if less than $1,000 would remain in the Sub-account after the transfer,
the Company will transfer the entire amount in the Sub-account;
(c) the Company may reject any more than twelve (12) transfer requests per
Contract Year; and
(d) The Company will deduct any transfer charge assessed on the
transaction.
The Company is currently not assessing a transfer fee for the first twelve
(12) transfers per Contract Year. The Company is assessing a transfer fee of $10
per transfer thereafter. The Company may increase the transfer fee to an amount
not to exceed $30 per transfer. The transfer fee will be deducted from either
the Sub-account which is the source of the transfer or from the amount
transferred if the entire value in the Sub-account is transferred. (See also
"Appendix - General Account").
Transfer by telephone is authorized by and described in the application
for the Contract. The Company will undertake reasonable procedures to confirm
that instructions communicated by telephone are genuine. All calls will be
recorded. All transfers performed by telephone authorization will be confirmed
in writing to the Owner. The Company is not liable for any loss, cost, or
expense for action on telephone instructions which are believed to be genuine in
accordance with these procedures.
After the Annuity Date, the payee of the annuity payments may transfer the
Contract Value allocated to the Variable Account from one Sub-account to another
Sub-account. However, the Company reserves the right to refuse any more than one
transfer per month. The transfer fee is the same as before the Annuity Date.
This transfer fee will be deducted from the next annuity payment after the
transfer. If following the transfer, the units remaining in the Sub-account
would generate a monthly payment of less than $100, then the Company may
transfer the entire amount in the Sub-account.
Once the transfer is effected, the Company will recompute the number of
Annuity Units for each Sub-account. The number of Annuity Units for each
Sub-account will remain the same for the remainder of the payment period unless
the payee requests another change.
18
<PAGE>
CHARGES AND DEDUCTIONS
Various charges and deductions are made from Contract Values and the
Variable Account. These charges and deductions are as follows:
Deduction for State Premium Taxes
Any premium or other taxes levied by any governmental entity with respect
to the Contracts will be charged against the purchase payments or Contract
Value. Premium taxes currently imposed by certain states on the Contracts range
from 0% to 3.5% of premiums paid. Some states assess premium taxes at the time
purchase payments are made; others assess premium taxes at the time of
annuitization. Premium taxes are subject to being changed or amended by state
legislatures, administrative interpretations or judicial acts.
Deduction for Mortality and Expense Risk Charge
The Company deducts for each Valuation Period a Mortality and Expense Risk
Charge which is equal on an annual basis to 1.25% of the average daily net asset
value of the Variable Account (consisting of approximately .90% for mortality
risks and approximately .35% for expense risks). The mortality risks assumed by
the Company arise from its contractual obligation to make annuity payments after
the Annuity Date for the life of the Annuitant, to waive the Deferred Sales
Charge in the event of the death of the Annuitant and to provide the death
benefit prior to the Annuity Date. The expense risk assumed by the Company is
that the costs of administering the Contracts and the Variable Account will
exceed the amount received from any Administrative Charge.
If the Mortality and Expense Risk Charge is insufficient to cover the
actual costs, the loss will be borne by the Company. Conversely, if the amount
deducted proves more than sufficient, the excess will be profit to the Company.
The Mortality and Expense Risk Charge is guaranteed by the Company and
cannot be increased.
The Mortality and Expense Risk Charge is deducted during the Accumulation
Period and after the Annuity Date.
The Company currently offers annuity payment options that are based on a
life contingency. (See "Annuity Period - Annuity Options" on page ___.) It is
possible that in the future the Company may offer additional payment options
which are not based on a life contingency. If this should occur and if a Owner
should elect a payment option not based on a life contingency, the Mortality and
Expense Risk Charge is still deducted but the Owner receives no benefit from it.
Deduction for Deferred Sales Charge
In the event that an Owner makes a withdrawal in excess of the Free
Withdrawal Amount for the first withdrawal in a Contract Year, or makes
subsequent withdrawals in a Contract Year, other than by way of the Systematic
Withdrawal Program (See "Withdrawals-Systematic Withdrawal Program" on page
_____), a Deferred Sales Charge may be imposed. The Free Withdrawal Amount for
flexible premium Contracts is equal to 10% of the purchase payments paid, less
any prior withdrawals at the time of withdrawal; however, the Deferred Sales
Charge applies only to those purchase payments received within six (6) years of
the date of surrender. (See, however, "Purchasing a Contract - Discount Purchase
Programs" on page ____.) The Free Withdrawal Amount for a single premium
Contract is equal to 10% of the Contract Value at the time of withdrawal.
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The Deferred Sales Charge will vary in amount depending upon the time
which has elapsed since the date on which the purchase payment was made. In
calculating the Deferred Sales Charge purchase payments are allocated to the
amount surrendered on a first-in, first out basis. The amount of any withdrawal
which exceeds the Free Withdrawal Amount will be subject to the following
charge: <TABLE> <CAPTION>
Deferred
Sales Charge
Single Premium Contracts Flexible Premium Contracts Percentage
<S> <C> <C>
Contract Year 1 Premium Year 1 6%
Contract Year 2 Premium Year 2 5%
Contract Year 3 Premium Year 3 4%
Contract Year 4 Premium Year 4 3%
Contract Year 5 Premium Year 5 2%
Contract Year 6 Premium Year 6 1%
Contract Year 7 Premium Year 7 None
and thereafter and thereafter
</TABLE>
The aggregate Deferred Sales Charges paid with respect to a Contract shall
not exceed 8.5% of the purchase payments for such Contract.
The Deferred Sales Charge is intended to reimburse the Company for
expenses incurred which are related to Contract sales. The Company does not
expect the proceeds from the Deferred Sales Charge to cover all distribution
costs. To the extent such charge is insufficient to cover all distribution
costs, the Company may use any of its corporate assets, including potential
profit which may arise from the Mortality and Expense Risk Charge, to make up
any difference.
Certain restrictions on surrenders are imposed on Contracts issued in
connection with retirement plans which qualify as a 403(b) Plan or IRA. (See
"Taxes - 403(b) Plans" on page .)
Deduction for Administrative Charge
The Company deducts for each Valuation Period a daily Administrative
Charge which is equal on an annual basis to .15% of the average daily net asset
value of the Variable Account. The Company also deducts an annual Administrative
Charge which is currently $30 per year, from the Contract Value. The Company may
increase the annual Administrative Charge to an amount not to exceed $100 per
year. The Administrative Charges are designed to reimburse the Company for the
costs it incurs relating to maintenance of the Contract and the Variable
Account.
The daily Administrative Charge is deducted during the Accumulation Period
and after the Annuity Date.
Prior to the Annuity Date, the annual Administrative Charge is deducted
from the Contract Value on each Contract Anniversary. If the Annuity Date is a
date other than a Contract Anniversary, the Company will also deduct a pro-rata
portion of the annual Administrative Charge from the Contract Value for the
fraction of the Contract Year preceding the Annuity Date.
The annual Administrative Charge is also deducted in full on the date of
any total withdrawal. The annual Administrative Charge will be deducted from
each Sub-account of the Variable Account in the proportion that the value of
each Sub-account attributable to the Contract bears to the total Contract Value.
After the Annuity Date, the annual Administrative Charge is deducted on a
pro-rata basis from each annuity payment and is guaranteed to remain at the same
amount as at the Annuity Date.
Deduction for Income Taxes
The Company deducts from the Contract Value and/or the Variable Account
any Federal income taxes resulting from the operation of the Variable Account.
The Company does not currently anticipate incurring any income taxes. Surrenders
and withdrawals may be taxable and subject to a Penalty Tax. (See "Taxes"
beginning on page ___.)
Other Expenses
There are deductions from and expenses paid out of the assets of the Fund
which are described in the accompanying Prospectuses for the Funds.
ADMINISTRATION OF THE CONTRACTS
While the Company has primary responsibility for all administration of the
Contracts and the Variable Account, it has retained the services of Delaware
Valley Financial Services, Inc. ("DVFS") pursuant to an administrative
agreement. Such administrative services include issuance of the Contracts and
maintenance of Contract Owners' records. DVFS serves as the administrator to
various insurance companies offering variable contracts.
RIGHTS UNDER THE CONTRACTS
The Owner has all rights and may receive all benefits under the Contract.
The Owner is named in the application. Ownership may be changed prior to the
Annuity Date through the submission of written notification of the change to the
Company on a form acceptable to the Company. On and after the Annuity Date, the
Annuitant and Owner shall be one in the same person, unless otherwise provided
for. In the case of Contracts issued in connection with an IRA, the Owner must
be the Annuitant.
The Owner's spouse is the only person eligible to be the Contingent
Owner. (See "Death Benefit - Death of Owner" on page .) Any new choice of
Annuitant or Contingent Owner will automatically revoke any prior choices.
The Owner may, except in the case of a Contract issued in connection with
either an IRA or a 403(b) Plan, assign a Contract at any time before the Annuity
Date and while the Annuitant is alive. A copy of any assignment must be filed
with the Company. The Company is not responsible for the validity of any
assignment. If the Contract is assigned, the rights of the Owner and those of
any revocable Beneficiary will be subject to the assignment. An assignment will
not affect any payments the Company may make or action it may take before it is
recorded. Inasmuch as an assignment or change of ownership may be a taxable
event, Owners should consult competent tax advisers should they wish to assign
their Contracts.
The Contract may be modified only with the consent of the Owner, except as
may be required by applicable law.
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ANNUITY PERIOD
Annuity Benefits
If the Annuitant and Owner are alive on the Annuity Date, the Company will
begin making payments to the Annuitant under the annuity option or options the
Owner has chosen.
The Owner may choose or change an annuity payment option by making a
written request at least thirty (30) days prior to the Annuity Date.
The amount of the payments will be determined by applying the Contract
Value on the Annuity Date. The amount of the annuity payments will depend on the
age of the payee at the time the settlement contract is issued. At the Annuity
Date the Contract Value in each Sub-account will be applied to the applicable
annuity tables contained in the Contract. The amount of the Sub-account annuity
payments are determined through a calculation described in the Section captioned
"Annuity Provisions" in the Statement of Additional Information.
Annuity Date
The Annuity Date for the Annuitant is:
(a) the first day of the calendar month following the later of the
Annuitant's 85th birthday or the 10th Contract Anniversary; or
(b) such earlier date as may be set by applicable law.
The Owner may designate an earlier date in the application or may change
the Annuity Date by making a written request at least thirty (30) days prior to
the Annuity Date being changed. However, any Annuity Date must be:
(a) no later than the date defined in (a) above; and (b) the first day of
a calendar month.
In addition, for IRA and 403(b) Plan Contracts, certain provisions of your
retirement plan or the Code may further restrict your choice of an Annuity Date.
(See "Taxes - 403(b) Plans" on page, and "Taxes Individual Retirement Annuities"
on page .)
Annuity Options
The Owner may choose to receive annuity payments which are fixed, or which
are based on the Variable Account, or a combination of the two. If the Owner
elects annuity payments which are based on the Variable Account, the amount of
the payments will be variable. The Owner may not transfer Contract Values
between the General Account and the Variable Account after the Annuity Date, but
may, subject to certain conditions, transfer Contract Values from one
Sub-account to another Sub-account. (See "The Funds - Transfer of Contract
Values" on page .)
If the Owner has not made any annuity payment option selection at the
Annuity Date, the Contract Value will be applied to purchase Option 2 fixed
basis annuity payments and Option 2 variable basis annuity payments, in
proportion to the amount of Contract Value in the General Account and the
Variable Account, respectively.
The annuity payment options are:
Option 1: Life Income. The Company will pay an annuity during the
lifetime of the payee.
Option 2: Life Income with 10 Years of Payments Guaranteed. The Company
will pay an annuity during the lifetime of the payee. If, at the death of the
payee, payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to the
successor payee;
(b) the successor payee may elect to receive in a lump sum the present
value of the remaining payments, commuted at the interest rate used to
create the annuity factor for this Option; or
(c) the guaranteed period will not in the case of Contracts issued in
connection with an IRA exceed the life expectancy of the Annuitant at
the time the first payment is due.
Option 3: Joint and Last Survivor Income. The Company will pay an annuity
for as long as either the payee or a designated second person is alive. In the
event that the Contract is issued in connection with an IRA, the payments in
this Option will be made only to the Annuitant and the Annuitant's spouse.
The annuity payment options are more fully explained in the Statement of
Additional Information. The Company may also offer additional options at its own
discretion.
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<PAGE>
Annuity Payments
If the Contract Value applied to annuity payment options is less than
$2,000, the Company has the right to pay the amount in a lump sum in lieu of
annuity payments. The Company makes all other annuity payments monthly. However,
if the total monthly annuity payment would be less than $100 the Company has the
right to make payments semi-annually or annually.
If fixed annuity payments are selected, the amount of each fixed payment
is determined by multiplying the Contract Value allocated to purchase fixed
annuity payments by the factor shown in the annuity table specified in the
Contract for the option selected, divided by 1,000.
If variable annuity payments are selected, the Annuitant receives the
value of a fixed number of Annuity Units each month. The actual dollar amount of
variable annuity payments is dependent upon: (i) the Contract Value at the time
of annuitization; (ii) the annuity table specified in the Contract; (iii) the
Annuity Option selected; (iv) the investment performance of the Sub-account
selected; and (v) the pro-rata portion of the annual Administrative charge.
The annuity tables contained in the Contract are based on a 5% assumed
investment rate. If the actual net investment rate exceeds 5%, payments will
increase. Conversely, if the actual rate is less than 5%, annuity payments will
decrease.
DEATH BENEFIT
Death Benefit
If the Annuitant (or Owner, if applicable) dies before the Annuity Date,
the Company will pay a death benefit equal to the greater of: (a) the purchase
payments paid less withdrawals; (b) the Contract Value; or, (c) the greatest
Contract Value at any sixth contract anniversary increment (i.e., sixth,
twelfth, eighteenth, etc.) plus any additional purchase payment paid less any
subsequent withdrawals.
Before the Company will pay any death benefit, the Company will require
due proof of death. The Company will determine the value of the death benefit as
of the Valuation Period following receipt of due proof of death at the Company's
Office. The Company will pay the death benefit to the Beneficiary in accordance
with any applicable laws governing the payment of death proceeds.
Payment of the death benefit may be made in one lump sum or applied under
one of the annuity payment options. (See "Annuity Period - Annuity Options" on
page .) The Owner may by written request elect that any death benefit of at
least $2,000 be received by the Beneficiary under an annuity payment option.
(See "Annuity Period - Annuity Options" on page .) If no payment option had been
selected by the Owner, the Beneficiary has sixty (60) days in which to make a
written request to elect either a lump sum payment or any annuity payment
option. Any lump sum payment will be made within seven (7) days after the
Company has received due proof of death and the written election of the
Beneficiary, unless a delay of payments provision is in effect. (See Statement
of Additional Information - "General Information Delay of Payments.")
Death of Owner
If an Owner dies before the Annuity Date, the entire Contract Value must
be distributed within five (5) years of the date of death, unless:
(a) it is payable over the lifetime of a designated Beneficiary with
distributions beginning within one (1) year of the date of death; or
(b) the Contingent Owner, if any, continues the Contract in his or her own
name.
In the case of Contracts issued in connection with an IRA plan, the
Beneficiary may elect to accelerate these payments. Any method of acceleration
chosen must be approved by the Company.
If the Owner dies after the Annuity Date, distribution will be as provided
in the annuity payment option selected.
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<PAGE>
PURCHASING A CONTRACT
Application
In order to acquire a Contract, an application provided by the Company
must be completed and submitted to the Company's Office for acceptance. The
Company must also receive the initial purchase payment. Upon acceptance, the
Contract is issued to the Owner and the purchase payment is then credited to the
Variable Account and converted into Accumulation Units, except in those states
where the applicable premium tax is deducted from the purchase payment. (See
Allocation of Purchase Payment to Sub-accounts" on page .) If the application
for a Contract is in good order, the Company will apply the purchase payment to
the Variable Account and credit the Contract with Accumulation Units within two
(2) business days of receipt. In addition to the underwriting requirements of
the Company, good order means that the Company has received federal funds
(monies credited to a bank's account with its regional Federal Reserve Bank). If
the application for a Contract is not in good order, the Company will attempt to
get it in good order within five (5) business days or the Company will return
the application and the purchase payment, unless the prospective owner
specifically consents to the Company's retaining them until the application is
made complete.
Purchase Payments
The minimum initial purchase payment is $5,000 for Non-Qualified Contracts
and $2,000 for a Contract purchased in connection with an IRA or 403(b) Plan.
Owners of flexible premium Contracts may make additional purchase payments
prior to the Annuity Date. The minimum additional purchase payment the Company
will accept is $1,000. The Company reserves the right to refuse to accept any
additional purchase payments.
Discount Purchase Programs
Purchases made by officers, directors and employees of either the Company,
an affiliate of the Company or any individual, firm or company that has executed
the necessary agreements to sell the Contracts and members of each of their
immediate families will not be subject to the Deferred Sales Charge. (See
"Charges and Deductions - Deduction for Deferred Sales Charge" on page _____.)
Such purchases include retirement accounts and must be for accounts in the name
of the individual or qualifying family member.
Distributor
AIG Equity Sales Corp. ("AIGESC"), 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
registered representatives of AIGESC and other entities which sell the
Contracts. Additional payments may be made for other services not directly
related to the sale of the Contracts, including the recruitment and training of
personnel, production of promotional literature, and similar services.
Under the Glass-Steagall Act and other laws, certain banking institutions
may be prohibited from distributing variable annuity contracts. If a bank were
prohibited from performing certain agency or administrative services and
receiving fees from 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.
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<PAGE>
CONTRACT VALUE
The Contract Value is the sum of the value of all Sub-account Accumulation
Units attributable to the Contract and amounts contributed to a guarantee period
of the General Account. (See "Appendix-General Account Option"). The value of an
Accumulation Unit will vary from Valuation Period to Valuation Period. The value
of an Accumulation Unit is determined at the end of the Valuation Period and
reflects the investment earnings, or loss, and the deductions for the Valuation
Period.
WITHDRAWALS
Partial Withdrawal
The Owner may partially withdraw Contract Value from the Contract prior to
the Annuity Date. Any partial withdrawal is subject to the following conditions:
(a) the Company must receive a written request;
(b) the amount requested must be at least $500;
(c) any applicable Deferred Sales Charge will be deducted;
(d) the amount withdrawn will be the sum of the amount requested and the
amount of any applicable Deferred Sales Charge; and
(e) the Company will deduct the amount requested plus any Deferred Sales
Charge from each Sub-account of the Variable Account either as
specified or in the proportion that the Sub-account bears to the total
Contract Value.
Withdrawals (including systematic withdrawals discussed below) may be
taxable and subject to a penalty tax. (See "Taxes" beginning on page .)
Systematic Withdrawal Program
During the Accumulation Period an Owner may at any time elect in writing
to take systematic withdrawals from one or more of the Sub-accounts or from a
guarantee period of the General Account (See "Appendix-General Account Option")
for a period of time not to exceed 12 months. In order to initiate this program,
the amount to be systematically withdrawn must be equal to or greater than $200
provided that the Contract Value is equal to or greater than $24,000 and the
amount to be withdrawn does not exceed the Free Withdrawal Amount. Systematic
withdrawals will be made without the imposition of the Deferred Sales Charge.
Systematic withdrawals may occur monthly or quarterly.
The systematic withdrawal program may be canceled at any time by written
request or automatically should the Contract Value fall below $1,000. In the
event the systematic withdrawal program is canceled, the Owner may not elect to
participate in such program until the next Contract Anniversary.
An Owner may change once per Contract Year the amount or frequency subject
to be withdrawn on a systematic basis.
The systematic withdrawal program is annually renewable, although the
limitations set forth above shall continue to apply.
The Free Withdrawal Amount (see "Charges and Deductions - Deduction for
Deferred Sales Charge" on page ) and Dollar Cost Averaging (See Statement of
Additional Information-"General Information- Transfers") are not available while
an Owner is receiving systematic withdrawals. An Owner will be entitled to the
Free Withdrawal Amount and Dollar Cost Averaging on and after the Contract
Anniversary next following the termination of the systematic withdrawal program.
Implementation of the systematic withdrawal program may subject an Owner
to adverse tax consequences, including a 10% tax penalty tax. (See "Taxes
Taxation of Annuities in General" on page for a discussion of the tax
consequences of withdrawals.)
Total Withdrawal
The Owner may withdraw the entire Contract Value prior to the Annuity
Date. A total withdrawal will cancel the Contract. The total withdrawal value is
equal to the Contract Value next calculated after receipt of the written
withdrawal request, less any applicable Deferred Sales Charge, less the annual
Administrative Charge and less any applicable premium taxes, and, less any
applicable charges assessed to amounts in the General Account. (See "Charges and
Deductions" on page and "Appendix-General Account Option".)
Payment of Withdrawals
Any Contract Values withdrawn will be sent to the Owner within seven (7)
days of receipt of the written request, unless the Delay of Payments provision
is in effect. (See Statement of Additional Information - "General Information
Delay of Payments.") (See "Taxes - Taxation of Annuities in General" on page for
a discussion of the tax consequences of withdrawals.)
The Company reserves the right to ensure that an Owner's check or other
form of purchase payment has been cleared for payment prior to processing any
withdrawal or redemption request occurring shortly after a purchase payment.
Certain restrictions on withdrawals are imposed on Contracts issued in
connection with 403(b) Plans. (See "Taxes - 403(b) Plans" on page .)
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<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, a Owner is
not taxed on increases in value under a Contract until some form of withdrawal
or distribution is made under the Contract. However, under certain
circumstances, the increase in value may be subject to tax currently. (See
"Contracts Owned by Non-Natural Persons," and "Diversification Standards".)
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<PAGE>
Withdrawals prior to the Annuity Date
Code Section 72 provides that a total or partial withdrawal from a Contract
prior to the Annuity Date will be treated as taxable income to the extent the
amounts held under the Contract on the date of withdrawal exceed the "investment
in the contract," as that term is defined under the Code. The "investment in the
contract" can generally be described as the cost of the Contract. It generally
constitutes the sum of all purchase payments made for the contract less any
amounts received under the Contract that are excluded from gross income. The
taxable portion is taxed as ordinary income. For purposes of this rule, a pledge
or assignment of a Contract is treated as a payment received on account of a
partial withdrawal of a Contract.
Withdrawals on or after the Annuity Date
Upon receipt of a lump sum payment on full surrender of the Contract, the
recipient is taxed on the portion of the payment that exceeds the investment in
the contract. The taxable portion is taxed as ordinary income.
If the recipient receives annuity payments rather than a lump sum payment,
a portion of the payment is included in taxable income when received. For fixed
annuity payments, the taxable portion of each payment is generally determined by
using a formula known as the "exclusion ratio," which establishes the ratio that
the investment in the Contract bears to the total expected amount of annuity
payments for the term of the Contract. That ratio is then applied to each
payment to determine the nontaxable portion of the payment. The remaining
portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula which establishes a specific dollar amount of each payment that is not
taxed. The dollar amount is determined by dividing the investment in the
Contract by the total number of expected periodic payments. The remaining
portion of each payment is taxed as ordinary income.
The recipient is able to exclude a portion of the payments received from
taxable income until the investment in the Contract is fully recovered. Annuity
payments are fully taxable after the investment in the Contract is recovered. If
the recipient dies before the investment in the Contract is recovered, the
recipient's estate is allowed a deduction for the remainder.
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<PAGE>
Penalty Tax on Certain Withdrawals
With respect to amounts withdrawn or distributed before the taxpayer
reaches age 59 1/2, a 10% penalty tax is imposed upon the portion of such amount
which is includable in gross income. However, the penalty tax will not apply to
withdrawals: (i) made on or after the death of the Owner (or where the Owner is
not an individual, the death of the "primary annuitant", who is defined as the
individual, the events in the life of whom are of primary importance in
affecting the timing or amount of the payout under the Contract); (ii)
attributable to the taxpayer's becoming totally disabled within the meaning of
Code Section 72(m)(7); (iii) which are part of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer, or the joint lives (or joint life expectancies) of
the taxpayer and his beneficiary; (iv) allocable to investment in the Contract
before August 14, 1982; (v) under a qualified funding asset (as defined in Code
Section 130(d)); (vi) under an immediate annuity contract; or (vii) that are
purchased by an employer on termination of certain types of qualified plans and
which are held by the employer until the employee separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the first
year in which the modification occurs will be increased by an amount equal to
the tax that would have been imposed but for item (iii) above as determined
under Treasury Regulations, plus interest for the deferral period. The foregoing
rule applies if the modification takes place: (a) before the close of the period
which is five years from the date of the first payment and after the taxpayer
attains age 59 1/2; or (b) before the taxpayer reaches age 59 1/2.
Assignments
Any assignment or pledge of the Contract as collateral for a loan may
result in a taxable event and the excess of the Contract Value over purchase
payments will be taxed to the assignor as ordinary income. Please consult your
tax adviser prior to making an assignment of the Contract.
Generation Skipping Transfer Tax
A transfer of the Contract or the designation of a beneficiary who is
either 37 1/2 years younger than the Contract Owner or a grandchild of the
Contract Owner may have Generation Skipping Transfer Tax consequences.
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Distribution-at-Death Rules
In order to be treated as an annuity contract for Federal income tax
purposes, a Contract must generally provide for the following two distribution
rules: (i) if the Owner dies on or after the Annuity Date, and before the entire
interest in the Contract has been distributed, the remaining portion of such
interest will be distributed at least as quickly as the method in effect on the
Owner's death; and (ii) if a Owner dies before the Annuity Date, the entire
interest must generally be distributed within five years after the date of
death. To the extent such interest is payable to a designated Beneficiary,
however, such interest may be annuitized over the life of that Beneficiary or
over a period not extending beyond the life expectancy of that Beneficiary, so
long as distributions commence within one year after the date of death. The
designated beneficiary is the person to whom ownership of the contract passes by
reason of death, and must be a natural person. If the Beneficiary is the spouse
of the Owner, the Contract may be continued unchanged in the name of the spouse
as Owner.
If the Owner is not an individual, the "primary annuitant" (as defined
under the Code) is considered the Owner. In addition, when the Owner is not an
individual, a change in the primary annuitant is treated as the death of the
Owner.
Gifts of Contracts
Any transfer of a Contract prior to the Annuity Date for less than full and
adequate consideration will generally trigger tax on the gain in the Contract.
The transferee will receive a step-up in basis for the amount included in the
transferor's income. This provision, however, does not apply to those transfers
between spouses or incident to a divorce which are governed by Code Section
1041(a).
Contracts Owned by Non-Natural Persons
If the Contract is held by a non-natural person (for example, a corporation
or trust) the Contract is generally not treated as an annuity contract for
Federal income tax purposes, and the income on the Contract (generally the
excess of the Contract Value over the purchase payments) is includable in income
each year. The rule does not apply where the non-natural person is only the
nominal owner such as a trust or other entity acting as an agent for a natural
person. The rule also does not apply when the Contract is acquired by the estate
of a decedent, when the Contract is held under certain qualified plans, when the
Contract is a qualified funding asset for structured settlements, when the
Contract is purchased on behalf of an employee upon termination of a qualified
plan, and in the case of an immediate annuity.
Section 1035 Exchanges
Code Section 1035 generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another annuity contract
unless money is distributed as part of the exchange. A replacement contract
obtained in a tax-free exchange of contracts succeeds to the status of the
surrendered contract. Special rules and procedures apply to Code Section 1035
transactions. Prospective owners wishing to take advantage of Code Section 1035
should consult their tax advisers.
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Multiple Contracts
Annuity contracts that are issued by the same company (or affiliate) to the
same Owner during any calendar year will be treated as one annuity contract in
determining the amount includable in the taxpayer's gross income. Thus, any
amount received under any such contract prior to the contract's annuity starting
date will be taxable (and possibly subject to the 10% penalty tax) to the extent
of the combined income in all such contracts. The Treasury has broad regulatory
authority to prevent avoidance of the purposes of this aggregation rule. It is
possible that, under this authority, Treasury may apply this rule to amounts
that are paid as annuities (on or after the starting date) under annuity
contracts issued by the same company to the same Owner during any calendar year
period. In this case, annuity payments could be fully taxable (and possibly
subject to the 10% penalty tax) to the extent of the combined income in all such
contracts and regardless of whether any amount would otherwise have been
excluded from income. Owners should consult a tax adviser before purchasing more
than one Contract or other annuity contracts.
Withholding
The Company is required to withhold Federal income taxes on withdrawals,
lump sum distributions, and annuity payments that include taxable income unless
the payee elects to not have any withholding or in certain other circumstances.
Special withholding rules apply to payments made to non-resident aliens.
Lump-Sum Distribution or Withdrawal
The Company is required to withhold 10% of the taxable portion of any
withdrawal or lump sum distribution unless you elect out of withholding.
Annuity Payments
The Company will withhold on the taxable portion of annuity payments based
on a withholding certificate you file with the Company. If you do not file a
certificate, you will be treated, for purposes of determining your withholding
rates, as a married person with three exemptions.
You are liable for payment of Federal income taxes on the taxable portion
of any withdrawal, distribution, or annuity payment. You may be subject to
penalties under the estimated tax rules if your withholding and estimated tax
payments are not sufficient.
30
<PAGE>
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...
Delay of Payments................................
Transfers........................................
Method of Determining Contract Values...............
Annuity Provisions..................................
Annuity Benefits....................................
Annuity Options..................................
Variable Annuity Payment Values..................
Annuity Unit.....................................
Net Investment Factor............................
Additional Provisions............................
Financial Statements................................
<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.
STATEMENT OF ADDITIONAL INFORMATION
issued by
VARIABLE ACCOUNT I
and
AIG LIFE INSURANCE COMPANY
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS DESCRIBING THE FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY CONTRACTS. THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT
A PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE
PROSPECTUS DATED MAY 1, 1998, CALL OR WRITE: AIG Life Insurance Company,
Attention: Variable Products, One Alico Plaza, Wilmington, Delaware 19801,
1-800-340-2765.
Date of Statement of Additional Information: May 1, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
General Information.......................................................................................
The Company..........................................................................................
Independent Accountants..............................................................................
Legal Counsel........................................................................................
Distributor..........................................................................................
Calculation of Performance Related Information.......................................................
Annuity Provisions........................................................................................
Variable Annuity Payment Values......................................................................
Annuity Unit.........................................................................................
Net Investment Factor................................................................................
Additional Provisions................................................................................
Financial Statements......................................................................................
</TABLE>
<PAGE>
GENERAL INFORMATION
The Company
A description of AIG Life Insurance Company (the "Company") and its
ownership is contained in the Prospectus. The Company will provide for the
safekeeping of the assets of Variable Account I (the "Variable Account").
Independent Accountants
The financial statements of the Company have been audited by Coopers
and Lybrand, L.L.P., independent certified public accountants, whose offices are
located in Philadelphia, Pennsylvania.
Legal Counsel
Legal matters relating to the Federal securities laws in connection
with the Contracts described herein and in the Prospectus are being passed upon
by the law firm of Jorden Burt Boros Cicchetti Berenson & Johnson LLP,
Washington, D.C..
Distributor
AIG Equity Sales Corp., a wholly owned subsidiary of American
International Group, Inc. and an affiliate of the Company, acts as the
distributor. Commissions are paid by the Variable Account directly to selling
dealers and representatives on behalf of the Distributor. Commissions retained
by the Distributor in 1997 were $193,263.91.
Calculation of Performance Related Information
A. Yield and Effective Yield Quotations for the Money Market Subaccount
The yield quotation for the Money Market Subaccount will be for the
seven days ended on the date of the most recent balance sheet of the Variable
Account included in the registration statement, and will be computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one Accumulation Unit in
the Money Market Subaccount at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by (365/7)
with the resulting figure carried to at least the nearest hundredth of one
percent.
Any effective yield quotation for the Money Market Subaccount will be
for the seven days ended on the date of the most recent balance sheet of the
Variable Account included in the registration statement, and will be carried at
least to the nearest hundredth of one percent, and will be computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical pre-existing account having a balance of one Accumulation Unit in
the Money Market Subaccount at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7 and subtracting 1
from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1
For purposes of the yield and effective yield computations, the
hypothetical charge reflects all deductions that are charged to all Owner
accounts in proportion to the length of the base period. For any fees that vary
with the size of the account, the account size is assumed to be the Money Market
Subaccount's mean account size. The yield and effective yield quotations do not
reflect the Surrender Charge that may be assessed at the time of withdrawal in
an amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contracts and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Surrender Charge" in the Prospectus). No deductions or sales loads
are assessed upon annuitization under the Contracts. Realized gains and losses
from the sale of securities and unrealized appreciation and depreciation of the
Money Market Subaccount and the Funds are excluded from the calculation of
yield.
B. Total Return Quotations
The total return quotations for all of the Subaccounts will be average
annual total return quotations for the one, five, and ten year periods (or,
where a Subaccount has been in existence for a period of less than one, five or
ten years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Subaccounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at the
beginning of the particular period at the
end of the particular period.
For the purposes of the total return quotations, the calculations take
into effect all fees that are charged to all Owner accounts. For any fees that
vary with the size of the account, the account size is assumed to be the
respective Subaccount's mean account size. The calculations also assume a total
withdrawal as of the end of the particular period.
C. Yield Quotations
Yield quotations will be based on the thirty-day period ended on the
date of the most recent balance sheet of the Variable Account included in the
registration statement, and are computed by dividing the net investment income
per Accumulation Unit earned during the period by the maximum offering price per
unit on the last day of the period, according to the following formula:
Yield = 2[(a - b + 1)6 - 1]
cd
Where: a = net investment income earned during the period by the
corresponding portfolio of the Fund attributable to shares owned
by the Subaccount.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Accumulation
Units outstanding during the period.
d = the maximum offering price per
Accumulation Unit on the last day of the
period.
For the purposes of yield quotations for a Subaccount, the calculations
take into effect all fees that are charged to all Owner accounts. For any fees
that vary with the size of the account, the account size is assumed to be the
respective Subaccount's mean account size. The calculations do not take into
account the Surrender Charge or any transfer charges.
A Surrender Charge may be assessed at the time of withdrawal in an
amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the premium was held under the Contracts, and whether withdrawals had been
previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Surrender Charge" in the Prospectus.) There is currently a
transfer charge of $10 per transfer after a specified number of transfers in
each Contract Year.
(See "Transfers" in the Prospectus).
D. Non-Standardized Performance Data
1. Total Return Quotations
The total return quotations for all of the Subaccounts other than a
Money Market Subaccount, will be average annual total return quotations for the
one, five, and ten year periods (or, where a Subaccount has been in existence
for a period of less than one, five or ten years, for such lesser period) ended
on the date of the most recent balance sheet of the Variable Account and for the
period from the date monies were first placed into the Subaccounts until the
aforesaid date. The quotations are computed by finding the average annual
compounded rates of return over the relevant periods that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a
hypothetical $1,000 payment made at
the beginning of the particular
period at the end of the particular
period.
For the purposes of the total return quotations, the calculations take
into effect all fees that are charged to all Owner accounts. For any fees that
vary with the size of the account, the account size is assumed to be the
respective Subaccount's mean account size. The calculations do not, however,
assume a total withdrawal as of the end of the particular period and, therefore,
no Surrender Charge is reflected.
2. Tax Deferred Accumulation
In reports or other communications to You or in advertising or sales
materials, the Company may also describe the effects of tax-deferred compounding
on the separate account's investment returns or upon returns in general. These
effects may be illustrated in charts or graphs and may include comparisons at
various points in time of returns under the Contracts or in general on a
tax-deferred basis with the returns on a taxable basis.
Different tax rates may be assumed.
In general, individuals who own annuity contracts are not taxed on
increases in the value under the annuity contract until some form of
distribution is made from the contract. Thus, the annuity contract will benefit
from tax deferral during the Accumulation Period, which generally will have the
effect of permitting an investment in an annuity contract to grow more rapidly
than a comparable investment under which increases in value are taxed on a
current basis. The chart shows accumulations on an initial investment or Premium
of a given amount, assuming hypothetical gross annual returns compounded
annually, and a stated assumed rate. The values shown for the taxable investment
do not include any deduction for management fees or other expenses but assume
that taxes are deducted annually from investment returns. The values shown for
the variable annuity in a chart reflect the deduction of contractual expenses
such as the 1.25% Mortality and Expense Risk Charge, the 0.15% Administrative
Fee, and the $30 Contract Maintenance Charge, but not the expenses of an
underlying investment vehicle. In addition, these values assume that the Owner
does not surrender the Contract or make any withdrawals until the end of the
period shown. The chart assumes a full withdrawal, at the end of the period
shown, of all Contract Value and the payment of taxes at the 31% rate on the
amount in excess of the Premium.
In developing tax-deferral charts, the Company will follow general
principles: (1) the assumed rate of earnings will be realistic; (2) the chart
will (a) depict accurately the effect of all fees and charges, or (b) provide a
narrative that prominently discloses all fees and charges; (3) comparative
charts for accumulation values for tax-deferred and non-tax-deferred investments
will depict the implications of withdrawals and surrenders; and (4) a narrative
accompanying the chart will disclose prominently that there may be a 10% tax
penalty on withdrawals by Owners who have not reached age 59 1/2.
The rates of return illustrated in a chart will be hypothetical and are
not an estimate or guaranty of performance. Actual tax rates may vary for
different taxpayers from that illustrated and, as noted above, withdrawals by
Owners who have not reached age 59 1/2 may be subject to a tax penalty of 10%.
Variable Annuity Payments
A variable annuity is an annuity with payments which (1) are not
predetermined as to dollar amount, and (2) will vary in amount with the net
investment results of the applicable Subaccount(s) of the Variable Account. At
the Annuity Date the Contract Value in each Subaccount will be applied to the
applicable Annuity Tables contained in the Contracts. The Annuity Table used
will depend upon the payment option chosen. The same Contract Value amount
applied to each payment option may produce a different initial annuity payment.
If, as of the Annuity Date, the then current annuity rates applicable to this
class of contracts will provide a larger income than that guaranteed for the
same form of annuity under the Contracts described herein, the larger amount
will be paid.
The first annuity payment for each Subaccount is determined by
multiplying the amount of the Contract Value allocated to that Subaccount by the
factor shown in the table for the option selected, divided by 1000.
The dollar amount of Subaccount annuity payments after the first is
determined as follows:
(a) The dollar amount of the first annuity payment is
divided by the value for the Subaccount Annuity Unit
as of the Annuity Date. This establishes the number
of Annuity Units for each monthly payment. The number
of Annuity Units remains fixed during the Annuity
payment period, subject to any transfers.
(b) The fixed number of Annuity Units is multiplied by
the Annuity Unit value for the Valuation Period 14
days prior to the date of payment.
The total dollar amount of each variable annuity payment is the sum of
all Subaccount variable annuity payments less the pro-rata amount of the annual
Administrative Charge.
Annuity Unit
The value of an Annuity Unit for each Subaccount was arbitrarily set
initially at $10. This was done when the first Fund shares were purchased. The
Subaccount Annuity Unit value at the end of any subsequent Valuation Period is
determined by multiplying the Subaccount Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (a) and (b) where:
(a) is the net investment factor for the Valuation Period
for which the Subaccount Annuity Unit value is being
determined; and
(b) is the assumed investment factor for such Valuation
Period. The assumed investment factor adjusts for the
interest assumed in determining the first variable
annuity payment. Such factor for any Valuation Period
shall be the accumulated value, at the end of such
period, of $1.00 deposited at the beginning of such
period at the assumed investment rate of 5%.
Net Investment Factor
The net investment factor is used to determine how investment results
of the Funds affect the Subaccount Annuity Unit value from one Valuation Period
to the next. The net investment factor for each Subaccount for any Valuation
Period is determined by dividing (a) by (b) and subtracting (c) from the result,
where:
(a) is equal to:
(i) the net asset value per share of the Fund
held in the Subaccount determined at the
end of that Valuation Period; plus
(ii) the per share amount of any dividend or
capital gain distribution made by the Fund
held in the Subaccount if the "ex-dividend"
date occurs during that same Valuation
Period; plus or minus
(iii) a per share charge or credit, which is
determined by the Company, for changes in
tax reserves resulting from investment
operations of the Subaccount.
(b) is equal to:
(i)the net asset value per share of the Fund held
in the Subaccount determined as of the end
of the prior Valuation Period; plus or
minus
(ii) the per share charge or credit for any
change in tax reserves for the prior
Valuation Period.
(c) is equal to:
(i)the percentage factor representing the Mortality
and Expense Risk Charge, plus
(ii) the percentage factor representing the
daily Administrative Charge.
The net investment factor may be greater or less than the assumed
investment factor; therefore, the Subaccount Annuity Unit value may increase or
decrease from Valuation Period to Valuation Period.
Additional Provisions
The Company may require proof of the age of the Annuitant before making
any life annuity payment provided for by the Contracts. If the age of the
Annuitant has been misstated, the Company will compute the amount payable based
on the correct age. If annuity payments have begun, any underpayments that may
have been made will be paid in full with the next annuity payment, including
interest at the annual rate of 5%. Any overpayments, including interest at the
annual rate of 5%, unless repaid to the Company in one sum, will be deducted
from future annuity payments until the Company is repaid in full.
If a Contract provision requires that a person be alive, the Company
may require due proof that the person is alive before the Company acts under
that provision.
The Company will give the payee under an annuity payment option a
settlement contract for the payment option.
You may assign a Contract prior to the Annuity Date. A written request,
dated and signed by you must be sent to our Administrative Office. A duly
executed copy of any assignment must be filed with our Administrative Office. We
are not responsible for the validity of any assignment.
FINANCIAL STATEMENTS
The financial statements of the Company and the Variable Account are
incorporated by reference herein and shall be considered only as bearing upon
the ability of the Company to meet its obligations under the Contracts.
PART B
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL SINGLE PURCHASE
PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS
issued by
VARIABLE ACCOUNT I
and
AIG LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD
BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE VARIABLE ANNUITY CONTRACTS
WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS DATED May 1, 1998
CALL OR WRITE: AIG Life Insurance Company, Attention: Variable Products, One
Alico Plaza, Wilmington, Delaware 19801, 10005, 1-800-340-2765.
DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
General Information.........................................
The Company.............................................
Independent Accountants.................................
Legal Counsel...........................................
Distributor.............................................
Calculation of Performance Related Information..........
Delay of Payments.......................................
Transfers...............................................
Method of Determining Contract Values.......................
Annuity Provisions..........................................
Annuity Benefits........................................
Annuity Options.........................................
Variable Annuity Payment Values.........................
Annuity Unit............................................
Net Investment Factor...................................
Additional Provisions...................................
Financial Statements.........................................
<PAGE>
GENERAL INFORMATION
The Company
A description of AIG Life Insurance Company (the "Company"), and its
ownership is contained in the Prospectus. The Company will provide for the
safekeeping of the assets of the Variable Account.
Independent Accountants
The audited financial statements of the Company and Variable Account A have
been audited by Coopers and Lybrand, independent certified public accountants,
whose offices are located in Philadelphia, Pennsylvania.
Legal Counsel
Legal matters relating to the Federal securities laws in connection with
the Contracts described herein and in the Prospectus are being passed upon by
the law firm of Jorden Burt Boros Cicchetti Berenson & Johnson, Washington, D.C.
Distributor
AIG Equity Sales Corp. ("AIGESC"), a wholly owned subsidiary of American
International Group, Inc. and an affiliate of the Company, acts as the
distributor. The offering is on a continuous basis. Commissions in the amount of
$193,263.91 were retained by the Distributor in 1997.
Calculation Of Performance Related Information
A. Yield and Effective Yield Quotations for the Money Market Sub-account
The yield quotation for the Money Market Sub-account will be for the seven
days ended on the date of the most recent balance sheet of the Variable Account
included in the registration statement, and will be computed by determining the
net change, exclusive of capital changes, in the value of a hypothetical
preexisting account having a balance of one Accumulation Unit in the Money
Market Sub-account at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from Contract Owner accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by (365/7)
with the resulting figure carried to at least the nearest hundredth of one
percent.
Any effective yield quotation for the Money Market Sub-account will be for
the seven days ended on the date of the most recent balance sheet of the
Variable Account included in the registration statement, and will be carried at
least to the nearest hundredth of one percent, and will be computed by
determining the net change, exclusive of capital changes, in the value of a
hypothetical preexisting account having a balance of one Accumulation Unit in
the Money Market Sub-account at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Contract Owner accounts, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7 and
subtracting 1 from the result, according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1.
For purposes of the yield and effective yield computations, the
hypothetical charge reflects all deductions that are charged to all Contract
Owner accounts in proportion to the length of the base period. For any fees that
vary with the size of the account, the account size is assumed to be the Money
Market Sub-account's mean account size. The yield and effective yield quotations
do not reflect the Deferred Sales Charge that may be assessed at the time of
withdrawal in an amount ranging up to 6% of the requested withdrawal amount,
with the specific percentage applicable to a particular withdrawal depending on
the length of time the purchase payment was held under the Contract and whether
withdrawals had been previously made during that Contract Year. (See "Charges
and Deductions - Deduction for Deferred Sales Charge" on page 17 of the
Prospectus) No deductions or sales loads are assessed upon annuitization under
the Contracts. Realized gains and losses from the sale of securities and
unrealized appreciation and depreciation of the Money Market Sub-account and the
Fund are excluded from the calculation of yield.
<PAGE>
B. Total Return Quotations
The total return quotations for all the Sub-accounts will be average annual
total return quotations for the one, five, and ten year periods (or, where a
Sub-account has been in existence for a period of less than one, five or ten
years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Sub-accounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
P(1+T) to the power of n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the particular period at the end
of the particular period.
For the purposes of the total return quotations , the calculations take
into effect all fees that are charged to all Contract Owner accounts. For any
fees that vary with the size of the account, the account size is assumed to be
the respective Sub-account's mean account size. The calculations also assume a
total withdrawal as of the end of the particular period.
C. Yield Quotations
The yield quotations for the Short-Term Multi-Market, U.S. Government/High
Grade Securities and Global Bond Sub-accounts will be based on the thirty-day
period ended on the date of the most recent balance sheet of the Variable
Account included in the registration statement, and are computed by dividing the
net investment income per Accumulation Unit earned during the period by the
maximum offering price per unit on the last day of the period, according to the
following formula:
Yield = 2[(a - b + 1) to the power of 6 - 1]
----------
cd
Where: a = net investment income earned during the period by the
corresponding Portfolio of the Fund attributable to shares
owned by the Sub-account.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Accumulation Units outstanding
during the period.
d = the maximum offering price per Accumulation Unit on the
last day of the period.
For the purposes of the yield quotations for a Sub-accounts, the
calculations take into effect all fees that are charged to all Contract Owner
accounts. For any fees that vary with the size of the account, the account size
is assumed to be the respective Sub-account's mean account size. The
calculations do not take into account the Deferred Sales Charge or any transfer
charges.
A Deferred Sales Charge may be assessed at the time of withdrawal in an
amount ranging up to 6% of the requested withdrawal amount, with the specific
percentage applicable to a particular withdrawal depending on the length of time
the purchase payment was held under the Contract, and whether withdrawals had
been previously made during that Contract Year. (See "Charges and Deductions -
Deduction for Deferred Sales Charge" on page 17 of the Prospectus) There is
currently a transfer charge of $10 per transfer after a specified number of
transfers in each Contract Year. (See "The Fund, - Transfer of Contract Values"
on page 15 of the Prospectus)
D. Non- Standardized Performance Data
1. Total Return Quotations
The total return quotations for all the Sub-accounts will be average annual
total return quotations for the one, five, and ten year periods (or, where a
Sub-account has been in existence for a period of less than one, five or ten
years, for such lesser period) ended on the date of the most recent balance
sheet of the Variable Account and for the period from the date monies were first
placed into the Sub-accounts until the aforesaid date. The quotations are
computed by finding the average annual compounded rates of return over the
relevant periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula: P(1+T)to the powere of n =
ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the particular period
at the end of the particular period.
For the purposes of the total return quotations, the calculations take into
effect all fees that are charged to all Contract Owner accounts. For any fees
that vary with the size of the account, the account size is assumed to be the
respective Sub-account's mean account size. The calculations do not, however,
assume a total withdrawal as of the end of the particular period.
<PAGE>
2. Tax Deferred Accumulation
In reports or other communications to You or in advertising or sales
materials, the Company may also describe the effects of tax-deferred compounding
on the separate account's investment returns or upon returns in general. These
effects may be illustrated in charts or graphs and may include comparisons at
various points in time of returns under the Contract or in general on a
tax-deferred basis with the returns on a taxable basis. Different tax rates may
be assumed.
In general, individuals who own annuity contracts are not taxed on
increases in the value under the annuity contract until some form of
distribution is made from the contract. Thus, the annuity contract will benefit
from tax deferral during the accumulation period, which generally will have the
effect of permitting an investment in an annuity contract to grow more rapidly
than a comparable investment under which increases in value are taxed on a
current basis. The charts may show accumulations on an initial investment or
Purchase Payment of a given amount, assuming hypothetical gross annual returns
compounded annually, and a stated assumed rate. The values shown for the taxable
investment will not include any deduction for management fees or other expenses
but assume that taxes are deducted annually from investment returns. The values
shown for the variable annuity in a chart reflect the deduction of contractual
expenses such as the 1.25% mortality and expense risk charge, the 0.15%
Administrative Fee and the $30 Contract Maintenance Charge , but not the
expenses of an underlying investment vehicle, such as the Fund. In addition,
these values assume that the Owner does not surrender the Contract or make any
withdrawals until the end of the period shown. The chart assumes a full
withdrawal, at the end of the period shown, of all contract value and the
payment of taxes at the stated assumed rate on the amount in excess of the
Purchase Payment.
In developing tax-deferral charts, the Company will follow these general
principles: (1) the assumed rate of earnings will be realistic; (2) the chart
will (a)depict accurately the effect of all fees and charges, or (b) provide a
narrative that prominently discloses all fees and charges; (3) comparative
charts for accumulation values for tax-deferred and non-tax-deferred investments
will depict the implications of withdrawals and surrenders; and (4) a narrative
accompanying the chart will disclose prominently that there may be a 10% tax
penalty on withdrawals by Owners who have not reached age 59 1/2.
The rates of return illustrated in a chart will be hypothetical and not an
estimate or guaranty of performance. Actual tax rates may vary for different
taxpayers from those illustrated in a chart.
<PAGE>
Delay of Payments
Any payments due under the Contracts will generally be sent to the
Contract Owner within seven (7) days of a completed request for payment.
However, the Company has reserved the right to postpone any type of payment from
the Variable Account for any period when:
(a) the New York Stock Exchange is closed for other than customary
weekends and holidays;
(b) trading on the Exchange is restricted;
(c) an emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the Variable Account or
determine their value; or
(d) an order of the Securities and Exchange Commission permits delay for
the protection of security holders.
The applicable rules of the Securities and Exchange Commission shall govern
as to whether the conditions in (b) and (c) exists.
Transfers
A Contract Owner may deposit prior to the Annuity Date, all or part of his
Contract Value into either the Money Market or Short-Term Multi-Market
Sub-account (the "Sending Sub-account"), and then automatically transfer those
assets into one or more of the other Sub-accounts on a systematic basis. The
amount transferred to the Sending Sub-account must be at least $12,000 in order
to initiate this option. This process is called Automatic Dollar Cost Averaging.
The Automatic Dollar Cost Averaging option is available for use with any of
the investment options, other than the General Account.
Automatic Dollar Cost Averaging transfers may occur monthly or quarterly.
The Contract Owner may designate the dollar amount to be transferred each month
or elect to have a percentage transferred each month, up to a maximum of 60
months.
The Company will make all Automatic Dollar Cost Averaging transfers on the
15th calendar day of each month, or the next day the New York Stock Exchange is
open for business if the 15th calendar day of the month should fall on a day the
New York Stock Exchange is closed. In order to process an Automatic Dollar Cost
Averaging transfer, the Company must have received a request in writing by no
later than the 6th calendar day of the month.
The Automatic Dollar Cost Averaging option may be cancelled at any time by
written request or automatically if the value of the Sending Sub-account subject
to the Automatic Dollar Cost Averaging option is less than $1,000.
A Contract Owner may change his Automatic Dollar Cost Averaging investment
allocation only once during any 12 month period.
Any transfers made under this section are subject to the conditions of the
section entitled " The Fund- Transfer of Contract Values" on page 15 of the
Prospectus, except that the Company will not deem the election of the Automatic
Dollar Cost Averaging option to count towards a Contract Owner's twelve (12)
free transfers.
<PAGE>
METHOD OF DETERMINING CONTRACT VALUES
The Contract Value will fluctuate in accordance with the investment results
of the underlying Portfolios of the Fund held within the Sub-account. In order
to determine how these fluctuations affect Contract Values, Accumulation Units
are utilized. The value of an Accumulation Unit applicable during any Valuation
Period is determined at the end of that period.
When the first shares of the respective Portfolios of the Fund were
purchased for the Sub-accounts, the Accumulation Units for the Sub-accounts were
valued at $10. The value of an Accumulation Unit for a Sub-account on any
Valuation Date thereafter is determined by dividing (a) by (b), where:
(a) is equal to:
(i) the total value of the net assets attributable to Accumulation
Units in the Sub-account, minus (ii) the daily charge for
assuming the risk of guaranteeing mortality factors and expense
charges, which is equal on an annual basis to 1.25% multiplied by
the daily net asset value of the Sub-account; minus (iii) the
daily charge for providing certain administrative functions which
is equal on an annual basis to 0.15% multiplied by the daily net
asset value of the Sub-Account, minus or plus (iv) a charge or
credit for any tax provision established for the Sub-account. The
Company is not currently making any provision for taxes.
(b) is the total number of Accumulation Units applicable to that
Sub-account at the end of the Valuation Period.
The resulting value of each Sub-account Accumulation Unit is multiplied by
the respective number of Sub-account Accumulation Units for a Contract. The
Contract Value is the sum of all Sub-account values for the Contract.
An Accumulation Unit may increase or decrease in value from Valuation Date
to Valuation Date.
ANNUITY PROVISIONS
Annuity Benefits
If the Annuitant is alive on the Annuity Date the Company will begin making
payments to the Annuitant under the payment option or options selected. The
amount of the annuity payments will depend on the age or sex of the payee at the
time the settlement contract is issued.
Annuity Options
The an
nuity options are as follows:
Option 1: Life Income. The Company will pay an annuity during
the lifetime of the payee.
Option 2: Income with 10 Years of Payments Guaranteed. The Company will
pay an annuity during the lifetime of the payee. If, at the death of
the payee, payments have been made for less than 10 years:
(a) payments will be continued during the remainder of the period to
the successor payee; or
(b) the successor payee may elect to receive in a lump sum the
present value of the remaining payments, commuted at the interest
rate used to create the annuity factor for this Option.
Option 3: Joint and Last Survivor Income. The Company will pay
an annuity for as long as either payee or a designated second
person is alive.
Annuity options are available on a fixed and/or a variable basis. The
Contract Owner may allocate Contract Values to purchase only fixed annuity
payments, or to purchase only variable annuity payments, or to purchase a
combination of the two. Contract Values which purchase fixed annuity payments
will be invested in the General Account. Contract Values which purchase variable
annuity payments will be invested in the Variable Account. The Contract Owner
may make no transfers between the General Account and the Variable Account after
the Annuity Date. The Company also may offer additional options at its
discretion.
<PAGE>
Variable Annuity Payment Values
A Variable Annuity is an annuity with payments which (1) are not
predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable Sub-account(s) of the Variable Account. At
the Annuity Date the Contract Value in each Sub-account will be applied to the
applicable Annuity Tables contained in the Contract. The Annuity Table used will
depend upon the payment option chosen. The same Contract Value amount applied to
each payment option may produce a different initial annuity payment. If, as of
the Annuity Date, the then current annuity rates applicable to this class of
contracts will provide a larger income than that guaranteed for the same form of
annuity under the Contracts described herein, the larger amount will be paid.
The first annuity payment for each Sub-account is determined by
multiplying the amount of the Contract Value allocated to that Sub-account by
the factor shown in the table for the option selected, divided by 1000.
The dollar amount of Sub-account annuity payments after the first is
determined as follows:
(a) The dollar amount of the first annuity payment is divided by the
value for the Sub-account Annuity Unit as of the Annuity Date.
This establishes the number of Annuity Units for each monthly
payment. The number of Annuity Units remains fixed during the
Annuity payment period, subject to any transfers.
(b) The fixed number of Annuity Units is multiplied by the Annuity
Unit value for the Valuation Period 14 days prior to the date of
payment.
The total dollar amount of each Variable Annuity payment is the sum of all
Sub-account variable annuity payments less the pro-rata amount of the
Administrative Charge.
Annuity Unit
The value of an Annuity Unit for each Sub-account was arbitrarily set
initially at $10. This was done when the first Fund shares were purchased. The
Sub-account Annuity Unit value at the end of any subsequent Valuation Period is
determined by multiplying the Sub-account Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (a) and (b) where:
(a) is the net investment factor for the Valuation Period for which
the Sub-account Annuity Unit value is being determined; and
(b) is the assumed investment factor for such Valuation Period. The
assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for
any Valuation Period shall be the accumulated value, at the end
of such period, of $1.00 deposited at the beginning of such
period at the assumed investment rate of 5%.
<PAGE>
Net Investment Factor
The net investment factor is used to determine how investment results of
the Fund affect Variable Account Values within the Sub-accounts from one
Valuation Period to the next. The net investment factor for each Sub-account for
any Valuation Period is determined by dividing (a) by (b) and subtracting (c)
from the result, where:
(a) is equal to:
(i) the net asset value per share of the Fund held in the
Sub-account determined at the end of that Valuation Period;
plus
(ii) the per share amount of any dividend or capital gain
distribution made by the Fund held in the Sub-account if the
"ex-dividend" date occurs during that same Valuation Period;
plus or minus (iii) a per share charge or credit, which is
determined by the Company, for changes in tax reserves
resulting from investment operations of the Sub-account.
(b) is equal to:
(i) the net asset value per share of the Fund held in the
Sub-account determined as of the end of the prior Valuation
Period; plus or minus
(ii) the per share charge or credit for any change in tax
reserves for the prior Valuation Period.
(c) is equal to:
(i) is the percentage factor representing the Mortality and
Expense Risk Charge plus
(ii) the percentage factor representing the daily Administrative
Charge.
The net investment factor may be greater or less than the assumed
investment factor; therefore, the Annuity Unit value may increase or decrease
from Valuation Period to Valuation Period.
<PAGE>
Additional Provisions
The Company may require proof of the age or sex of the Annuitant before
making any life annuity payment provided for by the Contract. If the age or sex
of the Annuitant has been misstated the Company will compute the amount payable
based on the correct age or sex. If annuity payments have begun, any
underpayments that may have been made will be paid in full with the next annuity
payment,including interest at an annual rate of 5%. Any overpayments, including
interest at the annual rate of 5%, unless repaid to the Company in one sum, will
be deducted from future annuity payments until the Company is repaid in full.
If a Contract provision requires that a person be alive, the Company may
require proof that the person is alive before the Company acts under that
provision.
The Company will give the payee under an annuity payment option a
settlement contract for the payment option.
You may assign this Contract prior to the Annuity Date. A written
request,dated and signed by you must be sent to our Administrative Office. A
duly executed copy of any assignment must be filed with our Administrative
Office. We are not responsible for the validiy of any assignment.
FINANCIAL STATEMENTS
The financial statements of the Company and the Variable Account included
herein should be considered only as bearing upon the ability of the Company to
meet its obligations under the Contracts.
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments at Market Value:
Alliance Variable Products Series Fund, Inc.:
Shares Cost Market Value
----------------------------------------------------------
<S> <C> <C> <C>
Money Market Portfolio 48,834,452.680 $ 48,834,453 $ 48,834,453
Premier Growth Portfolio 7,334,024.453 126,780,760 153,941,173
Growth & Income Portfolio 8,850,142.222 145,701,485 176,383,335
International Portfolio 3,086,320.026 45,051,696 46,356,524
Short-Term Multi-Market Portfolio 440,535.119 4,664,906 4,656,454
Global Bond Portfolio 840,870.747 9,642,327 9,333,665
U.S. Government/High Grade
Securities Portfolio 2,204,634.379 25,120,942 26,301,290
Global Dollar Government Portfolio 794,133.993 11,052,840 11,634,063
North American Government Portfolio 1,840,371.285 22,289,136 23,869,617
Utility Income Portfolio 907,168.060 11,240,616 14,215,333
Conservative Investors Portfolio 1,571,605.621 18,811,156 20,588,033
Growth Investors Portfolio 819,482.481 10,390,635 11,784,159
Growth Portfolio 8,155,911.321 132,878,605 182,855,530
Total Return Portfolio 1,685,498.520 24,075,974 28,518,632
Worldwide Privatization Portfolio 2,366,232.165 31,344,728 33,600,497
Technology Portfolio 4,703,246.181 52,659,984 55,122,044
Quasar Portfolio 3,929,160.165 45,236,808 49,546,710
Real Estate Investment Portfolio 927,129.922 10,273,862 11,431,513
High Yield Portfolio 106,361.572 1,079,797 1,098,716
------------------ ------------------
Total Investments $777,130,710 910,071,741
--------------
Total Assets $910,071,741
===============
EQUITY:
Variable Annuity Contracts $909,035,323
Annuity Reserves 1,036,418
--------------
Total Equity $910,071,741
==============
See Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1997
<CAPTION>
Alliance Alliance
Money Premier
Market Growth
Total Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $22,408,904 $2,470,839 $131,769
Expenses:
Mortality & Expense Risk Fees 8,824,201 618,958 1,403,115
Daily Administrative Charges 1,057,542 74,125 168,030
----------------- ----------------- -----------------
Net Investment Income (Loss) 12,527,161 1,777,756 (1,439,376)
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 8,533,937 0 1,068,076
Change in Unrealized Appreciation
(Depreciation) 95,859,687 0 28,012,215
----------------- ----------------- -----------------
Net Gain (Loss) on Investments 104,393,624 0 29,080,291
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $116,920,785 $1,777,756 $27,640,915
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
& Alliance Short-Term
Income International Multi-Market
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $7,305,791 $1,045,391 $295,893
Expenses:
Mortality & Expense Risk Fees 1,667,041 526,886 65,376
Daily Administrative Charges 198,955 63,595 7,833
----------------- ----------------- -----------------
Net Investment Income (Loss) 5,439,795 454,910 222,684
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 840,480 357,951 15,429
Change in Unrealized Appreciation
(Depreciation) 23,873,153 (438,658) (77,786)
----------------- ----------------- -----------------
Net Gain (Loss) on Investments 24,713,633 (80,707) (62,357)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $30,153,428 $374,203 $160,327
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
U.S. Alliance
Alliance Government Global
Global High Dollar
Bond Grade Government
Portfolio Portfolio Portfolio
----------------- ----------------- ----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $496,391 $1,048,291 $946,476
Expenses:
Mortality & Expense Risk Fees 102,215 283,488 123,031
Daily Administrative Charges 12,355 33,934 14,805
----------------- ----------------- -----------------
Net Investment Income (Loss) 381,821 730,869 808,640
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,224 249,171 530,664
Change in Unrealized Appreciation
(Depreciation) (424,240) 593,093 (441,472)
----------------- ----------------- -----------------
Net Gain (Loss) on Investments (423,016) 842,264 89,192
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations ($41,195) $1,573,133 $897,832
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
North Alliance Alliance
American Utility Conservative
Government Income Investors
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $861,978 $197,080 $372,843
Expenses:
Mortality & Expense Risk Fees 244,872 142,760 202,281
Daily Administrative Charges 29,359 16,953 24,301
----------------- ----------------- -----------------
Net Investment Income (Loss) 587,747 37,367 146,261
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 935,084 357,093 147,520
Change in Unrealized Appreciation
(Depreciation) (131,720) 2,221,402 1,180,644
----------------- ----------------- -----------------
Net Gain (Loss) on Investments 803,364 2,578,495 1,328,164
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,391,111 $2,615,862 $1,474,425
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Growth Alliance Total
Investors Growth Return
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $267,445 $5,251,158 $960,722
Expenses:
Mortality & Expense Risk Fees 114,559 1,790,772 267,729
Daily Administrative Charges 13,902 213,819 32,294
----------------- ----------------- -----------------
Net Investment Income (Loss) 138,984 3,246,567 660,699
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 190,817 2,477,607 339,981
Change in Unrealized Appreciation
(Depreciation) 894,580 30,741,149 2,789,900
----------------- ----------------- -----------------
Net Gain (Loss) on Investments 1,085,397 33,218,756 3,129,881
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,224,381 $36,465,323 $3,790,580
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Worldwide Alliance Alliance
Privatization Technology Quasar
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $616,885 $121,367 $18,585
Expenses:
Mortality & Expense Risk Fees 321,765 529,646 361,801
Daily Administrative Charges 38,822 63,984 43,518
----------------- ----------------- -----------------
Net Investment Income (Loss) 256,298 (472,263) (386,734)
----------------- ----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 303,968 360,141 329,576
Change in Unrealized Appreciation
(Depreciation) 767,160 970,209 4,153,490
----------------- ----------------- -----------------
Net Gain (Loss) on Investments 1,071,128 1,330,350 4,483,066
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,327,426 $858,087 $4,096,332
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Real High
Estate Yield
Portfolio Portfolio
----------------- -----------------
<S> <C> <C>
Investment Income (Loss):
Dividends $0 $0
Expenses:
Mortality & Expense Risk Fees 56,548 1,358
Daily Administrative Charges 6,796 162
----------------- -----------------
Net Investment Income (Loss) (63,344) (1,520)
----------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 29,149 6
Change in Unrealized Appreciation
(Depreciation) 1,157,650 18,918
----------------- -----------------
Net Gain (Loss) on Investments 1,186,799 18,924
----------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $1,123,455 $17,404
================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS
For The Years Ended December 31, 1997 and
December 31, 1996
<TABLE>
<CAPTION>
1997
Alliance Alliance
Money Premier
Market Growth
Total Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $12,527,161 $1,777,756 ($1,439,376)
Realized Gain (Loss) on Investment Activity 8,533,937 0 1,068,076
Change in Unrealized Appreciation
(Depreciation) of Investments 95,859,687 0 28,012,215
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations $116,920,785 1,777,756 27,640,915
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 358,230,727 112,042,295 42,843,795
Administrative Charges (230,848) (10,967) (36,258)
Transfers Between Funds 1,374,645 (102,045,811) 20,952,051
Contract Withdrawals (42,834,561) (8,565,077) (6,138,067)
Deferred Sales Charges (1,251,060) (304,347) (185,450)
Death Benefits (6,433,953) (1,442,716) (991,469)
Annuity Payments (130,144) (2,837) (19,084)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 308,724,806 (329,460) 56,425,518
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 425,645,591 1,448,296 84,066,433
Net Assets, at Beginning of Year 484,426,150 47,386,157 69,874,740
----------------- ----------------- -----------------
Net Assets, at End of Year $ 910,071,741 $48,834,453 $153,941,173
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
& Alliance Short-Term
Income International Multi-Market
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $5,439,795 $454,910 $222,684
Realized Gain (Loss) on Investment Activity 840,480 357,951 15,429
Change in Unrealized Appreciation
(Depreciation) of Investments 23,873,153 (438,658) (77,786)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 30,153,428 374,203 160,327
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 47,608,921 11,808,046 1,806,048
Administrative Charges (41,228) (16,005) (1,450)
Transfers Between Funds 20,893,295 2,920,809 (2,020,981)
Contract Withdrawals (7,179,891) (1,677,563) (245,827)
Deferred Sales Charges (187,648) (39,973) (6,556)
Death Benefits (1,020,337) (337,804) (9,754)
Annuity Payments (21,546) (18,316) 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 60,051,566 12,639,194 (478,520)
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 90,204,994 13,013,397 (318,193)
Net Assets, at Beginning of Year 86,178,341 33,343,127 4,974,647
----------------- ----------------- -----------------
Net Assets, at End of Year $176,383,335 $46,356,524 $4,656,454
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
U.S. Alliance
Alliance Government Global
Global High Dollar
Bond Grade Government
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $381,821 $730,869 $808,640
Realized Gain (Loss) on Investment Activity 1,224 249,171 530,664
Change in Unrealized Appreciation
(Depreciation) of Investments (424,240) 593,093 (441,472)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations (41,195) 1,573,133 897,832
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 2,119,563 4,714,575 3,433,148
Administrative Charges (3,652) (8,042) (3,107)
Transfers Between Funds 201,828 1,541,845 1,057,723
Contract Withdrawals (453,045) (1,835,032) (451,520)
Deferred Sales Charges (10,379) (59,106) (11,697)
Death Benefits (143,059) (209,720) (126,761)
Annuity Payments (2,250) (416) (396)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,709,006 4,144,104 3,897,390
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 1,667,811 5,717,237 4,795,222
Net Assets, at Beginning of Year 7,665,854 20,584,053 6,838,841
----------------- ----------------- -----------------
Net Assets, at End of Year $9,333,665 $26,301,290 $11,634,063
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
North Alliance
American Alliance Conservative
Government Utility Investors
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $587,747 $37,367 $146,261
Realized Gain (Loss) on Investment Activity 935,084 357,093 147,520
Change in Unrealized Appreciation
(Depreciation) of Investments (131,720) 2,221,402 1,180,644
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,391,111 2,615,862 1,474,425
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 10,996,294 2,299,126 5,396,255
Administrative Charges (5,479) (4,445) (5,879)
Transfers Between Funds 211,940 127,100 1,685,840
Contract Withdrawals (1,319,709) (886,281) (877,882)
Deferred Sales Charges (32,098) (25,065) (25,909)
Death Benefits (280,050) (119,410) (191,508)
Annuity Payments (407) (6,061) (1,494)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 9,570,491 1,384,964 5,979,423
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 10,961,602 4,000,826 7,453,848
Net Assets, at Beginning of Year 12,908,015 10,214,507 13,134,185
----------------- ----------------- -----------------
Net Assets, at End of Year $23,869,617 $14,215,333 $20,588,033
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Growth Alliance Total
Investors Growth Return
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $138,984 $3,246,567 $660,699
Realized Gain (Loss) on Investment Activity 190,817 2,477,607 339,981
Change in Unrealized Appreciation
(Depreciation) of Investments 894,580 30,741,149 2,789,900
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,224,381 36,465,323 3,790,580
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 1,982,830 39,062,915 7,396,356
Administrative Charges (3,767) (54,830) (7,650)
Transfers Between Funds 1,506,680 13,438,395 3,163,780
Contract Withdrawals (440,406) (8,618,048) (983,874)
Deferred Sales Charges (11,620) (257,258) (22,403)
Death Benefits (46,107) (847,552) (265,632)
Annuity Payments (3,376) (5,714) (8,410)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 2,984,234 42,717,908 9,272,167
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 4,208,615 79,183,231 13,062,747
Net Assets, at Beginning of Year 7,575,544 103,672,299 15,455,885
----------------- ----------------- -----------------
Net Assets, at End of Year $11,784,159 $182,855,530 $28,518,632
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Worldwide Alliance Alliance
Privatization Technology Quasar
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $256,298 ($472,263) ($386,734)
Realized Gain (Loss) on Investment Activity 303,968 360,141 329,576
Change in Unrealized Appreciation
(Depreciation) of Investments 767,160 970,209 4,153,490
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,327,426 858,087 4,096,332
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 11,178,801 22,425,147 25,473,865
Administrative Charges (7,664) (15,108) (4,914)
Transfers Between Funds 7,550,479 10,198,537 13,947,301
Contract Withdrawals (865,371) (1,312,134) (721,870)
Deferred Sales Charges (19,193) (29,901) (15,073)
Death Benefits (124,743) (171,592) (81,002)
Annuity Payments (12,093) (3,010) (23,011)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 17,700,216 31,091,939 38,575,296
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 19,027,642 31,950,026 42,671,628
Net Assets, at Beginning of Year 14,572,855 23,172,018 6,875,082
----------------- ----------------- -----------------
Net Assets, at End of Year $33,600,497 $55,122,044 $49,546,710
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Real High
Estate Yield
Portfolio Portfolio
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($63,344) ($1,520)
Realized Gain (Loss) on Investment Activity 29,149 6
Change in Unrealized Appreciation
(Depreciation) of Investments 1,157,650 18,918
----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,123,455 17,404
----------------- -----------------
Capital Transactions:
Contract Deposits 5,146,970 495,777
Administrative Charges (394) (9)
Transfers Between Funds 5,457,093 586,741
Contract Withdrawals (261,767) (1,197)
Deferred Sales Charges (7,384) 0
Death Benefits (24,737) 0
Annuity Payments (1,723) 0
----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 10,308,058 1,081,312
----------------- -----------------
Total Increase (Decrease) in Net Assets 11,431,513 1,098,716
Net Assets, at Beginning of Year 0 0
----------------- -----------------
Net Assets, at End of Year $11,431,513 $1,098,716
================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
1996
<TABLE>
<CAPTION>
Alliance Alliance
Money Premier
Market Growth
Total Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $21,111,053 $1,189,968 $11,451,389
Realized Gain (Loss) on Investment Activity 2,242,088 0 84,696
Change in Unrealized Appreciation
(Depreciation) of Investments 24,819,919 0 (2,412,194)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations $48,173,060 1,189,968 9,123,891
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 303,903,508 95,035,811 32,551,159
Administrative Charges (79,529) (5,786) (11,424)
Transfers Between Funds 6,320,503 (60,701,039) 11,691,930
Contract Withdrawals (15,765,479) (6,362,545) (1,281,044)
Deferred Sales Charges (380,704) (176,941) (30,465)
Death Benefits (5,210,593) (1,314,276) (378,874)
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 288,787,706 26,475,224 42,541,282
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 336,960,766 27,665,192 51,665,173
Net Assets, at Beginning of Year 147,465,384 19,720,965 18,209,567
----------------- ----------------- -----------------
Net Assets, at End of Year $ 484,426,150 $47,386,157 $69,874,740
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance
& Alliance Short-Term
Income International Multi-Market
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $7,453,558 ($24,546) $157,007
Realized Gain (Loss) on Investment Activity 118,675 61,622 34,922
Change in Unrealized Appreciation
(Depreciation) of Investments 3,949,531 1,071,980 34,992
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 11,521,764 1,109,056 226,921
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 38,513,090 15,497,251 3,535,318
Administrative Charges (12,981) (6,467) (658)
Transfers Between Funds 14,538,664 6,319,550 150,744
Contract Withdrawals (1,819,114) (686,795) (62,197)
Deferred Sales Charges (32,545) (16,028) (1,087)
Death Benefits (811,949) (253,527) (24,890)
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 50,375,165 20,853,984 3,597,230
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 61,896,929 21,963,040 3,824,151
Net Assets, at Beginning of Year 24,281,412 11,380,087 1,150,496
----------------- ----------------- -----------------
Net Assets, at End of Year $86,178,341 $33,343,127 $4,974,647
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
U.S. Alliance
Alliance Government Global
Global High Dollar
Bond Grade Government
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $410,011 $402,387 $96,442
Realized Gain (Loss) on Investment Activity 50,794 303,912 180,711
Change in Unrealized Appreciation
(Depreciation) of Investments (132,618) (216,624) 690,608
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 328,187 489,675 967,761
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 2,965,502 10,728,863 2,406,515
Administrative Charges (1,533) (4,992) (1,213)
Transfers Between Funds 1,918,259 539,517 1,040,481
Contract Withdrawals (204,154) (880,807) (308,516)
Deferred Sales Charges (4,666) (16,309) (16,223)
Death Benefits (39,335) (403,753) (68,328)
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,634,073 9,962,519 3,052,716
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 4,962,260 10,452,194 4,020,477
Net Assets, at Beginning of Year 2,703,594 10,131,859 2,818,364
----------------- ----------------- -----------------
Net Assets, at End of Year $7,665,854 $20,584,053 $6,838,841
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
North Alliance
American Alliance Conservative
Government Utility Investors
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($79,051) $50,806 ($26,716)
Realized Gain (Loss) on Investment Activity 215,181 128,528 129,961
Change in Unrealized Appreciation
(Depreciation) of Investments 1,233,584 404,614 322,938
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,369,714 583,948 426,183
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 6,159,973 4,137,659 6,884,955
Administrative Charges (2,485) (2,077) (2,289)
Transfers Between Funds 610,451 1,611,229 1,626,943
Contract Withdrawals (536,764) (250,771) (371,748)
Deferred Sales Charges (14,601) (2,098) (3,819)
Death Benefits (273,075) (94,291) (116,109)
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 5,943,499 5,399,651 8,017,933
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 7,313,213 5,983,599 8,444,116
Net Assets, at Beginning of Year 5,594,802 4,230,908 4,690,069
----------------- ----------------- -----------------
Net Assets, at End of Year $12,908,015 $10,214,507 $13,134,185
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Growth Alliance Total
Investors Growth Return
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($37,139) $336,915 ($55,849)
Realized Gain (Loss) on Investment Activity 215,321 466,277 109,865
Change in Unrealized Appreciation
(Depreciation) of Investments 300,210 15,249,478 1,397,060
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 478,392 16,052,670 1,451,076
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 3,457,199 45,760,038 8,048,133
Administrative Charges (1,672) (20,050) (2,152)
Transfers Between Funds 612,926 13,984,438 2,568,470
Contract Withdrawals (259,364) (2,021,823) (213,664)
Deferred Sales Charges (6,376) (45,403) (2,683)
Death Benefits (110,606) (984,450) (258,515)
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 3,692,107 56,672,750 10,139,589
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 4,170,499 72,725,420 11,590,665
Net Assets, at Beginning of Year 3,405,045 30,946,879 3,865,220
----------------- ----------------- -----------------
Net Assets, at End of Year $7,575,544 $103,672,299 $15,455,885
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Worldwide Alliance Alliance
Privatization Technology Quasar
Portfolio Portfolio Portfolio
----------------- ----------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($54,893) ($144,681) ($14,555)
Realized Gain (Loss) on Investment Activity 86,127 55,493 3
Change in Unrealized Appreciation
(Depreciation) of Investments 1,278,096 1,491,852 156,412
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,309,330 1,402,664 141,860
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 6,615,023 17,192,089 4,414,930
Administrative Charges (2,506) (606) (638)
Transfers Between Funds 2,575,271 4,880,120 2,352,549
Contract Withdrawals (226,493) (246,071) (33,609)
Deferred Sales Charges (6,165) (5,285) (10)
Death Benefits (27,722) (50,893) 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 8,927,408 21,769,354 6,733,222
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 10,236,738 23,172,018 6,875,082
Net Assets, at Beginning of Year 4,336,117 0 0
----------------- ----------------- -----------------
Net Assets, at End of Year $14,572,855 $23,172,018 $6,875,082
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Real High
Estate Yield
Portfolio Portfolio
----------------- -----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0
Realized Gain (Loss) on Investment Activity 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0
----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0
----------------- -----------------
Capital Transactions:
Contract Deposits 0 0
Administrative Charges 0 0
Transfers Between Funds 0 0
Contract Withdrawals 0 0
Deferred Sales Charges 0 0
Death Benefits 0 0
Annuity Payments 0 0
----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0
----------------- -----------------
Total Increase (Decrease) in Net Assets 0 0
Net Assets, at Beginning of Year 0 0
----------------- -----------------
Net Assets, at End of Year $0 $0
================= =================
</TABLE>
See Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
1. History
Variable Account I (the "Account") is a separate investment account established
under the provisions of Delaware Insurance Law by AIG Life Insurance Company
(the "Company"), a wholly-owned subsidiary of American International Group, Inc.
The Account operates as a unit investment trust registered under the Investment
Company Act of 1940, as amended, and supports the operations of the Company's
individual single purchase payment deferred variable annuity contracts,
individual flexible premium deferred variable annuity contracts and group
flexible premium deferred variable annuity contracts (the "contracts"). The
Account invests in shares of Alliance Variable Products Series Fund, Inc. (the
"Fund"). The Fund consists of nineteen series: Money Market Portfolio;
Short-Term Multi-Market Portfolio; Premier Growth Portfolio; Growth and Income
Portfolio; International Portfolio; Global Bond Portfolio; U.S. Government/High
Grade Securities Portfolio; Global Dollar Government Portfolio; North American
Government Portfolio; Utility Income Portfolio; Conservative Investors
Portfolio; Growth Investors Portfolio; Growth Portfolio; Total Return Portfolio;
World Privatization Portfolio; Quasar Portfolio; Technology Portfolio; High
Yield Portfolio and Real Estate Investors Portfolio. The Account invests in
shares of other funds which are not available to these contracts.
The assets of the Account are the property of the Company. The portion of the
Account's assets applicable to the contracts are not chargeable with liabilities
arising out of any other business conducted by the Company.
In addition to the Account, a contract owner may also allocate funds to the
Guaranteed Account, which is part of the Company's general account. Amounts
allocated to the Guaranteed Account are credited with a guaranteed rate of
interest for a selected period. Because of exemptive and exclusionary
provisions, interests in the Guaranteed Account have not been registered under
the Securities Act of 1933 and the Guaranteed Account has not been registered as
an investment company under the Investment Company Act of 1940.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Account in preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation - The investments in the Funds are stated at market
value which is the net asset value of each of the respective series as
determined at the close of business on the last business day of the period
by the Fund.
B. Accounting for Investments - Investment transactions are accounted for on
the date the investments are purchased or sold. Dividend income is recorded
on the ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations
and is not taxed separately. Under existing federal law, no taxes are
payable on investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported
values of assets and liabilities and the reported amounts from operations
and policy transactions. Actual results could differ from those estimates.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
Annuity reserves are computed for currently payable contracts according to the
1983 Individual Annuity Mortality Table. The assumed interest rate is 5%. If the
actual net investment rate exceeds 5%, variable annuity payments will increase.
Conversely, if the actual rate is less than 5%, payments will decrease. Charges
to annuity reserves for mortality and expense risks experience are reimbursed to
the Insurance Company if the reserves required are less than originally
estimated. If additional reserves are required, the Insurance Company reimburses
the variable annuity account.
3. Contract Charges
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are equivalent on an
annual basis to 1.25% of the value of the contracts.
Daily charges for administrative expenses are assessed through the daily unit
value calculation and are equivalent on an annual basis to 0.15% of the value of
the contracts. In addition, an annual administrative expense charge of $30 is
assessed against each contract on its anniversary date by surrendering units.
The contracts provide that in the event that a contract owner withdraws all or a
portion of the contract value within six contract years of a premium payment,
they will be assessed a deferred sales charge. The deferred sales charge is
based on a table of charges, of which the maximum charge is 6% of the contract
value for single premium contracts and 6% of premiums paid for flexible premium
contracts, subject to a maximum of 8.5% of purchase payments.
Certain states impose premium taxes upon contracts. The Company intends to
advance premium taxes due until the contract is surrendered or annuitized.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
4. Purchases of Investments
For the year ended December 31, 1997, investment activity in the Fund was as
follows:
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
Alliance Variable Product Series Fund, Inc.:
Money Market Portfolio $ 67,305,299 $ 65,857,004
Premier Growth Portfolio 58,784,038 3,797,460
Growth & Income Portfolio 67,932,946 2,441,586
International Portfolio 16,031,756 2,937,651
Short-Term Multi-Market Portfolio 3,182,206 3,438,048
Global Bond Portfolio 4,091,379 2,000,550
U.S. Government/High Grade
Securities Portfolio 8,794,260 3,919,288
Global Dollar Government Portfolio 6,675,204 1,969,175
North American Government Portfolio 13,547,222 3,388,988
Utility Income Portfolio 3,355,494 1,933,163
Conservative Investors Portfolio 7,384,901 1,259,217
Growth Investors Portfolio 4,520,378 1,397,157
Growth Portfolio 51,082,434 5,117,958
Total Return Portfolio 11,219,656 1,286,790
Worldwide Privatization Portfolio 18,993,504 1,036,988
Technology Portfolio 32,419,966 1,800,289
Quasar Portfolio 40,093,115 1,904,531
Real Estate Investment Portfolio 10,774,880 530,167
High Yield Portfolio 1,080,228 437
For the year ended December 31, 1996, investment activity in the Fund was as
follows:
Cost of Proceeds
Purchases From Sales
Shares of
Alliance Variable Product Series Fund, Inc.:
Money Market Portfolio $ 124,219,021 $ 96,475,207
Premier Growth Portfolio 54,607,443 573,341
Growth & Income Portfolio 58,328,638 499,791
International Portfolio 21,439,246 609,672
Short-Term Multi-Market Portfolio 5,858,005 2,103,874
Global Bond Portfolio 5,428,581 384,469
U.S. Government/High Grade
Securities Portfolio 13,226,814 2,862,834
Global Dollar Government Portfolio 3,979,512 830,352
North American Government Portfolio 7,768,254 1,904,000
Utility Income Portfolio 6,308,123 857,662
Conservative Investors Portfolio 9,327,023 1,333,009
Growth Investors Portfolio 5,072,368 1,417,398
Growth Portfolio 58,532,808 1,522,096
Total Return Portfolio 10,622,604 539,390
Worldwide Privatization Portfolio 9,357,325 484,806
Technology Portfolio 22,557,083 932,410
Quasar Portfolio 6,719,429 762
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1997, transactions in accumulation units of
the account were as follows:
Alliance
Alliance Alliance Growth Alliance Alliance
Money Premier & Inter- Short-Term
Market Growth Income national Multi-Market
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY
Units Purchased 10,035,444.77 2,034,572.40 2,186,163.89 929,758.59 165,808.98
Units Withdrawn (928,535.62) (347,467.73) (375,789.72) (174,056.32) (23,934.90)
Units Transferred Between Funds (9,137,107.42) 967,996.72 920,316.47 216,942.02 (184,502.95)
Units Transferred From (To) AIG Life 1,474.87 (3,686.67) 18,298.15 8,786.97 -
--------------- --------------- -------------- --------------- ---------------
Net Increase (Decrease) (28,723.40) 2,651,414.72 2,748,988.79 981,431.26 (42,628.87)
Units, at Beginning of the Year 4,320,223.01 3,971,452.13 4,509,118.40 2,718,751.84 461,069.70
---------------- --------------- -------------- --------------- ---------------
Units, at End of the Year 4,291,499.61 6,622,866.85 7,258,107.19 3,700,183.10 418,440.83
================ ============== ============== =============== ==============
Unit Value at December 31, 1997 $ 11.37 $ 23.22 $ 24.27 $ 12.50 $ 11.13
================ ============== ============== =============== ==============
</TABLE>
<TABLE>
Alliance
U.S. Alliance Alliance
Alliance Government Global North Alliance
Global High Dollar American Utility
Bond Grade Government Government Income
Portfolio Portfolio Portfolio Portfolio Portfolio
Units Purchased 163,955.07 410,860.64 236,326.12 854,498.02 165,163.94
Units Withdrawn (49,201.19) (185,999.02) (38,292.62) (127,665.21) (81,625.47)
Units Transferred Between Funds 12,201.72 126,248.97 43,577.34 14,158.68 6,833.49
Units Transferred From (To) AIG Life 2,203.83 1,209.81 3,574.17 2,308.58 7,519.45
---------------- ------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net Increase (Decrease) 129,159.43 352,320.40 245,185.01 743,300.07 97,891.41
Units, at Beginning of the Year 579,082.99 1,838,415.41 469,801.08 1,047,240.17 812,579.02
---------------- ------------ ----------- ------------ ------------
Units, at End of the Year 708,242.42 2,190,735.81 714,986.09 1,790,540.24 910,470.43
================ =============== ============== ============ =============
Unit Value at December 31, 1997 $ 13.14 $ 12.00 $ 16.25 $ 13.32 $ 15.58
================ =============== ============== =============== =============
</TABLE>
<TABLE>
Alliance Alliance Alliance Alliance
Conservative Growth Alliance Total Worldwide
Investors Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio Portfolio
Units Purchased 431,738.41 148,827.45 2,004,061.39 502,557.02 796,443.38
Units Withdrawn (89,752.65) (38,241.56) (484,867.60) (91,925.75) (77,813.97)
Units Transferred Between Funds 132,081.33 103,144.57 667,145.27 201,982.40 535,042.60
Units Transferred From (To) AIG Life 1,510.13 1,470.79 11,433.49 12,008.18 2,377.36
---------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Net Increase (Decrease) 475,577.22 215,201.25 2,197,772.55 624,621.85 1,256,049.37
Units, at Beginning of the Year 1,109,173.48 609,405.23 5,856,812.02 1,155,818.92 1,135,168.22
---------------- --------------- -------------- --------------- --------------
Units, at End of the Year 1,584,750.70 824,606.48 8,054,584.57 1,780,440.77 2,391,217.59
================ =============== ============== =============== ==============
Unit Value at December 31, 1997 $ 12.99 $ 14.26 $ 22.70 $ 15.97 $ 14.02
================ =============== ============== =============== =============
</TABLE>
<PAGE>
<TABLE>
Alliance Alliance
Alliance Alliance Real High
Technology Quasar Estate Yield
Portfolio Portfolio Portfolio Portfolio
Units Purchased 1,931,673.04 2,213,576.32 473,972.06 48,634.09
Units Withdrawn (130,670.78) (85,319.13) (31,226.33) (118.22)
Units Transferred Between Funds 888,989.04 1,213,465.94 483,230.47 56,902.21
Units Transferred From (To) AIG Life 702.21 (420.78) 10,413.16 1,253.88
---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net Increase (Decrease) 2,690,693.51 3,341,302.35 936,389.36 106,671.96
Units, at Beginning of the Year 2,127,691.68 649,902.74 - -
---------------- --------------- -------------- ---------------
Units, at End of the Year 4,818,385.19 3,991,205.09 936,389.36 106,671.96
================ =============== ============== ===============
Unit Value at December 31, 1997 $ 11.43 $ 12.37 $ 12.16 $ 10.30
================ =============== ============== ===============
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
6. Net Increase (Decrease) in Annuity Units
For the year ended December 31, 1997, transactions in annuity units of
the account were as follows:
<TABLE>
Alliance
Alliance Alliance Growth Alliance
Money Premier & Alliance Short-Term
Market Growth Income International Multi-Market
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY
Units Purchased - - - - -
Units Withdrawn - - - - -
Units Transferred Between Funds 2,177.25 5,694.61 7,417.86 9,565.91 -
Units Transferred From (To) AIG Life - - - - -
-------- -------- -------- -------- -----
Net Increase (Decrease) 2,177.25 5,694.61 7,417.86 9,565.91 -
Units, at Beginning of the Year - - - - -
-------- ------- -------- -------- -----
Units, at End of the Year 2,177.25 5,694.61 7,417.86 9,565.91 -
========= ======== ======== ======== =====
Unit Value at December 31, 1997 $ 11.03 $ 22.54 $ 23.55 $ 12.13 $ 10.80
========= ========= ========= ========= =======
</TABLE>
<TABLE>
Alliance
U.S. Alliance Alliance
Alliance Government Global North Alliance
Global High Dollar American Utility
Bond Grade Government Government Income
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Units Purchased - - - - -
Units Withdrawn - - - - -
Units Transferred Between Funds 1,989.75 1,117.05 783.09 978.04 1,842.10
Units Transferred From (To) AIG Life - - - - -
------- -------- ------ ------ --------
Net Increase (Decrease) 1,989.75 1,117.05 783.09 978.04 1,842.10
Units, at Beginning of the Year - - - - -
-------- -------- ------- ------ --------
Units, at End of the Year 12.75 11.64 15.77 12.93 15.12
========= ======== ======= ====== ========
Unit Value at December 31, 1997 $ 13.14 $ 12.00 $ 16.25 $ 13.32 $ 15.58
========= ======== ======= ======= =========
</TABLE>
<PAGE>
<TABLE>
Alliance Alliance Alliance Alliance
Conservative Growth Alliance Total Worldwide
Investors Investors Growth Return Privatization
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Units Purchased - - - - -
Units Withdrawn - - - - -
Units Transferred Between Funds 546.59 2,731.68 2,411.36 5,286.24 5,646.89
Units Transferred From (To) AIG Life - - - - -
-------- -------- ------- -------- --------
Net Increase (Decrease) 546.59 2,731.68 2,411.36 5,286.24 5,646.89
Units, at Beginning of the Year - - - - -
-------- -------- ------- -------- --------
Units, at End of the Year 546.59 2,731.68 2,411.36 5,286.24 5,646.89
======== ======== ======== ======== ========
Unit Value at December 31, 1997 $ 12.60 $ 12.84 $ 22.02 $ 15.50 $ 13.60
======== ======== ========= ========= ========
</TABLE>
<TABLE>
Alliance
Alliance Alliance Real
Technology Quasar Estate
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Units Purchased - - -
Units Withdrawn - - -
Units Transferred Between Funds 2,717.29 14,166.88 3,843.56
Units Transferred From (To) AIG Life - - -
--------- -------- --------
Net Increase (Decrease) 2,717.29 14,166.88 3,843.56
Units, at Beginning of the Year - - -
--------- -------- --------
Units, at End of the Year 2,717.29 14,166.88 3,843.56
========= ======== ========
Unit Value at December 31, 1997 $ 11.10 $ 12.01 $ 11.80
========= ======== ========
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
AIG Life Insurance Company
Variable Account I
We have audited the accompanying statement of assets and liabilities of AIG Life
Insurance Company Variable Account I (the "Account") comprising the Money
Market, Premier Growth, Growth and Income, International, Short-Term
Multi-Market, Global Bond, U.S. Government/High Grade Securities, Global Dollar
Government, North American Government, Utility Income, Conservative Investors,
Growth Investors, Growth, Total Return, Worldwide Privatization, Technology,
Quasar, Real Estate Investment and High Yield Subaccounts as of December 31,
1997, and the related statement of operations for the year then ended, and the
statement of changes in net assets for each of the two years then ended. These
financial statements are the responsibility of the management of Variable
Account I. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments held as of December 31, 1997 by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIG Life Insurance Company
Variable Account I as of December 31, 1997, and the results of its operations
for the year then ended, and the changes in its net assets for each of the two
years then ended, in conformity with generally accepted accounting principles.
/s/Cooper & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1998
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments at Market Value:
Shares Cost Market Value
----------------------------------------------------------
<S> <C> <C> <C>
Fidelity
Money Market Portfolio 10,108,945.810 $ 10,108,946 $ 10,108,946
Asset Manager Portfolio 176,187.483 3,005,208 3,173,137
Growth Portfolio 167,900.235 5,694,592 6,229,098
High Income Portfolio 172,755.885 2,188,611 2,346,024
Investment Grade Bond Portfolio 199,047.108 2,403,035 2,500,033
Overseas Portfolio 71,654.335 1,362,938 1,375,762
Alliance
Conservative Investors Portfolio 79,513.656 1,012,851 1,041,630
Growth & Income Portfolio 413,930.957 7,547,861 8,249,643
Growth Investors Portfolio 68,095.821 931,611 979,217
Growth Portfolio 233,116.341 4,452,864 5,226,468
Technology Portfolio 135,956.029 1,653,845 1,593,404
Quasar Portfolio 90,518.171 1,046,389 1,141,434
Dreyfus
Stock Index Portfolio 292,927.559 6,953,830 7,542,884
Zero Coupon 2000 Portfolio 26,434.770 323,347 325,146
Small Company Stock Portfolio 38,379.646 639,583 619,064
Van Eck
Worldwide Hard Assets Portfolio 13,928.849 223,105 218,823
Worldwide Balanced Portfolio 32,461.899 377,931 390,516
Weiss, Peck & Greer
Tomorrow Short Term Portfolio 69,307.296 700,157 680,596
Tomorrow Medium Term Portfolio 84,177.959 723,649 726,459
Tomorrow Long Term Portfolio 71,716.649 568,158 578,755
Aim
International Equity Portfolio 155.099 2,601 2,658
------------------ ------------------
Total Investments $ 51,921,112 55,049,697
------------------
Total Assets $ 55,049,697
==================
EQUITY:
Contract Owners' Equity $ 55,049,697
------------------
Total Equity $ 55,049,697
==================
</TABLE>
See Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1997
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset
Market Manager
Total Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,447,547 $359,103 $104,629
Expenses:
Mortality & Expense Risk Fees 380,682 83,908 19,474
Daily Administrative Charges 45,522 10,027 2,322
-------------- --------------- -----------------
Net Investment Income (Loss) 1,021,343 265,168 82,833
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 395,949 0 16,597
Change in Unrealized Appreciation
(Depreciation) 2,761,433 0 141,622
-------------- --------------- -----------------
Net Gain (Loss) on Investments 3,157,382 0 158,219
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $4,178,725 $265,168 $241,052
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $67,992 $63,817 $29,379
Expenses:
Mortality & Expense Risk Fees 41,541 17,333 15,524
Daily Administrative Charges 4,964 2,070 1,855
-------------- --------------- -----------------
Net Investment Income (Loss) 21,487 44,414 12,000
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 28,003 11,120 2,359
Change in Unrealized Appreciation
(Depreciation) 508,005 141,397 92,201
-------------- --------------- -----------------
Net Gain (Loss) on Investments 536,008 152,517 94,560
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $557,495 $196,931 $106,560
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Growth
Fidelity Conservative &
Overseas Investors Income
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $34,119 $6,385 $185,476
Expenses:
Mortality & Expense Risk Fees 9,887 5,795 49,256
Daily Administrative Charges 1,190 694 5,886
-------------- --------------- -----------------
Net Investment Income (Loss) 23,042 (104) 130,334
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,263 5,865 60,914
Change in Unrealized Appreciation
(Depreciation) (2,743) 24,946 610,021
-------------- --------------- -----------------
Net Gain (Loss) on Investments 520 30,811 670,935
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $23,562 $30,707 $801,269
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance Alliance
Investors Growth Technology
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $17,770 $114,354 $1,919
Expenses:
Mortality & Expense Risk Fees 7,565 40,928 10,689
Daily Administrative Charges 906 4,882 1,292
-------------- --------------- -----------------
Net Investment Income (Loss) 9,299 68,544 (10,062)
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 18,587 117,463 (5,522)
Change in Unrealized Appreciation
(Depreciation) 42,739 667,059 (57,035)
-------------- --------------- -----------------
Net Gain (Loss) on Investments 61,326 784,522 (62,557)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $70,625 $853,066 ($72,619)
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero
Alliance Stock Coupon
Quasar Index 2000
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $429 $245,398 $21,595
Expenses:
Mortality & Expense Risk Fees 8,425 45,430 3,627
Daily Administrative Charges 1,003 5,428 457
-------------- --------------- -----------------
Net Investment Income (Loss) (8,999) 194,540 17,511
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 8,293 58,497 942
Change in Unrealized Appreciation
(Depreciation) 94,250 541,429 753
-------------- --------------- -----------------
Net Gain (Loss) on Investments 102,543 599,926 1,695
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $93,544 $794,466 $19,206
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus VanEck
Small Worldwide VanEck
Company Hard Worldwide
Stock Assets Balanced
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $10,969 $5,617 $2,462
Expenses:
Mortality & Expense Risk Fees 1,328 2,645 2,875
Daily Administrative Charges 160 317 345
-------------- --------------- -----------------
Net Investment Income (Loss) 9,481 2,655 (758)
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (2,418) 5,096 7,673
Change in Unrealized Appreciation
(Depreciation) (20,519) (10,767) 6,663
-------------- --------------- -----------------
Net Gain (Loss) on Investments (22,937) (5,671) 14,336
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations ($13,456) ($3,016) $13,578
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Short Medium Long
Term Term Term
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $69,198 $58,865 $48,071
Expenses:
Mortality & Expense Risk Fees 4,472 5,192 4,787
Daily Administrative Charges 534 620 570
-------------- --------------- -----------------
Net Investment Income (Loss) 64,192 53,053 42,714
-------------- --------------- -----------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 17,171 14,690 27,356
Change in Unrealized Appreciation
(Depreciation) (26,629) 1,490 6,495
-------------- --------------- -----------------
Net Gain (Loss) on Investments (9,458) 16,180 33,851
-------------- --------------- -----------------
Increase (Decrease) in Net Assets
Resulting From Operations $54,734 $69,233 $76,565
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
AIM
International
Equity
Portfolio
--------------
<S> <C>
Investment Income (Loss):
Dividends $0
Expenses:
Mortality & Expense Risk Fees 1
Daily Administrative Charges 0
--------------
Net Investment Income (Loss) (1)
--------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 0
Change in Unrealized Appreciation
(Depreciation) 56
--------------
Net Gain (Loss) on Investments 56
--------------
Increase (Decrease) in Net Assets
Resulting From Operations $55
==============
</TABLE>
See Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF CHANGES IN NET ASSETS For The Years Ended
December 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
1997
Fidelity Fidelity
Money Asset
Market Manager
Total Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,021,343 $265,168 $82,833
Realized Gain (Loss) on Investment Activity 395,949 0 16,597
Change in Unrealized Appreciation
(Depreciation) of Investments 2,761,433 0 141,622
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 4,178,725 265,168 241,052
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 39,569,349 27,367,968 785,125
Administrative Charges (8,009) (377) (322)
Transfers Between Funds (74,298) (20,984,865) 1,596,921
Contract Withdrawals (1,808,399) (500,338) (73,541)
Deferred Sales Charges (38,630) (2,097) (2,711)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 37,640,013 5,880,291 2,305,472
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 41,818,738 6,145,459 2,546,524
Net Assets, at Beginning of Year 13,230,959 3,963,487 626,613
-------------- --------------- -----------------
Net Assets, at End of Year $ 55,049,697 $ 10,108,946 $ 3,173,137
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $21,487 $44,414 $12,000
Realized Gain (Loss) on Investment Activity 28,003 11,120 2,359
Change in Unrealized Appreciation
(Depreciation) of Investments 508,005 141,397 92,201
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 557,495 196,931 106,560
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 1,498,080 517,600 709,688
Administrative Charges (1,522) (347) (208)
Transfers Between Funds 2,705,816 1,119,803 1,299,739
Contract Withdrawals (161,312) (84,788) (43,331)
Deferred Sales Charges (4,871) (2,881) 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,036,191 1,549,387 1,965,888
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 4,593,686 1,746,318 2,072,448
Net Assets, at Beginning of Year 1,635,412 599,706 427,585
-------------- --------------- -----------------
Net Assets, at End of Year $6,229,098 $2,346,024 $2,500,033
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Growth
Fidelity Conservative &
Overseas Investors Income
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $23,042 ($104) $130,334
Realized Gain (Loss) on Investment Activity 3,263 5,865 60,914
Change in Unrealized Appreciation
(Depreciation) of Investments (2,743) 24,946 610,021
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 23,562 30,707 801,269
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 536,913 347,643 2,151,586
Administrative Charges (244) (134) (1,075)
Transfers Between Funds 494,958 511,081 4,112,800
Contract Withdrawals (16,014) (12,951) (189,408)
Deferred Sales Charges (117) (400) (4,752)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,015,496 845,239 6,069,151
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 1,039,058 875,946 6,870,420
Net Assets, at Beginning of Year 336,704 165,684 1,379,223
-------------- --------------- -----------------
Net Assets, at End of Year $1,375,762 $1,041,630 $8,249,643
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance Alliance
Investors Growth Technology
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $9,299 $68,544 ($10,062)
Realized Gain (Loss) on Investment Activity 18,587 117,463 (5,522)
Change in Unrealized Appreciation
(Depreciation) of Investments 42,739 667,059 (57,035)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 70,625 853,066 (72,619)
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 392,351 1,011,610 691,287
Administrative Charges (135) (1,455) (201)
Transfers Between Funds 355,474 2,088,184 842,275
Contract Withdrawals (64,891) (231,703) (33,954)
Deferred Sales Charges (2,517) (8,375) (215)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 680,282 2,858,261 1,499,192
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 750,907 3,711,327 1,426,573
Net Assets, at Beginning of Year 228,310 1,515,141 166,831
-------------- --------------- -----------------
Net Assets, at End of Year $979,217 $5,226,468 $1,593,404
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero
Alliance Stock Coupon
Quasar Index 2000
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($8,999) $194,540 $17,511
Realized Gain (Loss) on Investment Activity 8,293 58,497 942
Change in Unrealized Appreciation
(Depreciation) of Investments 94,250 541,429 753
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 93,544 794,466 19,206
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 392,169 2,159,734 196,470
Administrative Charges (194) (1,043) (140)
Transfers Between Funds 614,566 3,453,754 (56,713)
Contract Withdrawals (7,840) (191,098) (2,013)
Deferred Sales Charges (123) (4,689) 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 998,578 5,416,658 137,604
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 1,092,122 6,211,124 156,810
Net Assets, at Beginning of Year 49,312 1,331,760 168,336
-------------- --------------- -----------------
Net Assets, at End of Year $1,141,434 $7,542,884 $325,146
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus VanEck
Small Worldwide VanEck
Company Hard Worldwide
Stock Assets Balanced
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $9,481 $2,655 ($758)
Realized Gain (Loss) on Investment Activity (2,418) 5,096 7,673
Change in Unrealized Appreciation
(Depreciation) of Investments (20,519) (10,767) 6,663
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations (13,456) (3,016) 13,578
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 60,957 21,151 178,444
Administrative Charges (15) (94) (91)
Transfers Between Funds 599,833 101,597 107,211
Contract Withdrawals (28,255) (17,458) (5,505)
Deferred Sales Charges 0 (674) (23)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 632,520 104,522 280,036
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 619,064 101,506 293,614
Net Assets, at Beginning of Year 0 117,317 96,902
-------------- --------------- -----------------
Net Assets, at End of Year $619,064 $218,823 $390,516
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Short Medium Long
Term Term Term
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $64,192 $53,053 $42,714
Realized Gain (Loss) on Investment Activity 17,171 14,690 27,356
Change in Unrealized Appreciation
(Depreciation) of Investments (26,629) 1,490 6,495
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 54,734 69,233 76,565
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 254,541 137,015 159,017
Administrative Charges (96) (183) (133)
Transfers Between Funds 261,671 445,893 253,101
Contract Withdrawals (15,648) (18,291) (110,060)
Deferred Sales Charges (202) (34) (3,949)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 500,266 564,400 297,976
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 555,000 633,633 374,541
Net Assets, at Beginning of Year 125,596 92,826 204,214
-------------- --------------- -----------------
Net Assets, at End of Year $680,596 $726,459 $578,755
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
AIM
International
Equity
Portfolio
--------------
<S> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($1)
Realized Gain (Loss) on Investment Activity 0
Change in Unrealized Appreciation
(Depreciation) of Investments 56
--------------
Increase (Decrease) in Net Assets Resulting
From Operations 55
--------------
Capital Transactions:
Contract Deposits 0
Administrative Charges 0
Transfers Between Funds 2,603
Contract Withdrawals 0
Deferred Sales Charges 0
--------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 2,603
--------------
Total Increase (Decrease) in Net Assets 2,658
Net Assets, at Beginning of Year 0
--------------
Net Assets, at End of Year $2,658
==============
</TABLE>
See Notes to Financial Statements
<PAGE>
1996
<TABLE>
<CAPTION>
Fidelity Fidelity
Money Asset
Market Manager
Total Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $74,325 $42,263 ($1,567)
Realized Gain (Loss) on Investment Activity 6,188 0 19
Change in Unrealized Appreciation
(Depreciation) of Investments 367,150 0 26,307
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 447,663 42,263 24,759
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 12,978,254 8,824,400 231,094
Administrative Charges 0 0 0
Transfers Between Funds (34,151) (4,876,868) 372,288
Contract Withdrawals (160,764) (26,308) (1,528)
Deferred Sales Charges (43) 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 12,783,296 3,921,224 601,854
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 13,230,959 3,963,487 626,613
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $ 13,230,959 $3,963,487 $626,613
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Fidelity Fidelity
Fidelity High Investment
Growth Income Grade
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($5,344) ($1,521) ($1,080)
Realized Gain (Loss) on Investment Activity 5,396 130 0
Change in Unrealized Appreciation
(Depreciation) of Investments 26,502 16,017 4,795
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 26,554 14,626 3,715
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 873,806 171,003 155,298
Administrative Charges 0 0 0
Transfers Between Funds 772,758 415,670 268,572
Contract Withdrawals (37,701) (1,593) 0
Deferred Sales Charges (5) 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,608,858 585,080 423,870
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 1,635,412 599,706 427,585
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $1,635,412 $599,706 $427,585
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Growth
Fidelity Conservative &
Overseas Investors Income
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($1,827) ($497) $20,196
Realized Gain (Loss) on Investment Activity 1,917 10 (3,083)
Change in Unrealized Appreciation
(Depreciation) of Investments 15,569 3,832 91,762
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 15,659 3,345 108,875
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 181,145 125,062 572,119
Administrative Charges 0 0 0
Transfers Between Funds 175,593 37,277 751,633
Contract Withdrawals (35,693) 0 (53,402)
Deferred Sales Charges 0 0 (2)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 321,045 162,339 1,270,348
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 336,704 165,684 1,379,223
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $336,704 $165,684 $1,379,223
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Growth Alliance Alliance
Investors Growth Technology
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($542) ($1,687) ($198)
Realized Gain (Loss) on Investment Activity 20 1,649 11
Change in Unrealized Appreciation
(Depreciation) of Investments 4,866 106,545 (3,406)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 4,344 106,507 (3,593)
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 63,126 688,597 134,570
Administrative Charges 0 0 0
Transfers Between Funds 160,840 722,129 35,854
Contract Withdrawals 0 (2,090) 0
Deferred Sales Charges 0 (2) 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 223,966 1,408,634 170,424
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 228,310 1,515,141 166,831
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $228,310 $1,515,141 $166,831
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Dreyfus Zero
Alliance Stock Coupon
Quasar Index 2000
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($113) $20,687 $2,899
Realized Gain (Loss) on Investment Activity (72) 86 4
Change in Unrealized Appreciation
(Depreciation) of Investments 795 47,626 1,047
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 610 68,399 3,950
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 13,225 604,826 102,235
Administrative Charges 0 0 0
Transfers Between Funds 35,477 660,699 62,151
Contract Withdrawals 0 (2,164) 0
Deferred Sales Charges 0 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 48,702 1,263,361 164,386
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 49,312 1,331,760 168,336
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $49,312 $1,331,760 $168,336
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus VanEck
Small Worldwide VanEck
Company Hard Worldwide
Stock Assets Balance
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 ($405) ($452)
Realized Gain (Loss) on Investment Activity 0 (8) 21
Change in Unrealized Appreciation
(Depreciation) of Investments 0 6,483 5,922
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 6,070 5,491
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 0 57,057 29,229
Administrative Charges 0 0 0
Transfers Between Funds 0 54,338 62,182
Contract Withdrawals 0 (148) 0
Deferred Sales Charges 0 0 0
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 111,247 91,411
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 0 117,317 96,902
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $0 $117,317 $96,902
============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WP&G WP&G WP&G
Tomorrow Tomorrow Tomorrow
Short Medium Long
Term Term Term
Portfolio Portfolio Portfolio
-------------- --------------- -----------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($493) $3,125 $881
Realized Gain (Loss) on Investment Activity 27 13 48
Change in Unrealized Appreciation
(Depreciation) of Investments 7,070 1,317 4,101
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 6,604 4,455 5,030
-------------- --------------- -----------------
Capital Transactions:
Contract Deposits 77,645 26,701 47,116
Administrative Charges 0 0 0
Transfers Between Funds 41,347 61,670 152,239
Contract Withdrawals 0 0 (137)
Deferred Sales Charges 0 0 (34)
-------------- --------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 118,992 88,371 199,184
-------------- --------------- -----------------
Total Increase (Decrease) in Net Assets 125,596 92,826 204,214
Net Assets, at Beginning of Year 0 0 0
-------------- --------------- -----------------
Net Assets, at End of Year $125,596 $92,826 $204,214
============== =============== =================
</TABLE>
<TABLE>
<CAPTION>
AIM
International
Equity
Portfolio
--------------
<S> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0
Realized Gain (Loss) on Investment Activity 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0
--------------
Increase (Decrease) in Net Assets Resulting
From Operations 0
--------------
Capital Transactions:
Contract Deposits 0
Administrative Charges 0
Transfers Between Funds 0
Contract Withdrawals 0
Deferred Sales Charges 0
--------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0
--------------
Total Increase (Decrease) in Net Assets 0
Net Assets, at Beginning of Year 0
--------------
Net Assets, at End of Year $0
==============
</TABLE>
See Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
1. History
Variable Account I (the "Account") is a separate investment account established
under the provisions of Delaware Insurance Law by AIG Life Insurance Company
(the "Company"), a wholly-owned subsidiary of American International Group, Inc.
The Account operates as a unit investment trust registered under the Investment
Company Act of 1940, as amended, and supports the operations of the Company's
individual single purchase payment deferred variable annuity contracts,
individual flexible premium deferred variable annuity contracts and group
flexible premium deferred variable annuity contracts (the "contracts").The
Account invests in shares of Alliance Variable Products Series Fund, Inc.
("Alliance Fund"), AIM Variable Insurance Fund ("AIM Fund"), Dreyfus Variable
Investment Fund ("Dreyfus Fund"), Van Eck Investment Trust ("Van Eck Trust"),
Fidelity Investments Variable Insurance Products Fund ("Fidelity Trust"),
Fidelity Variable Insurance Products Fund II ("Fidelity Trust II") and Weiss,
Peck & Greer ("Tomorrow Funds"). The assets in the policies may be invested in
the following subaccounts:
Alliance Fund: Fidelity Trust:
Growth & Income Portfolio Money Market Portfolio
Conservative Investors Portfolio High Income Portfolio
Growth Portfolio Growth Portfolio
Growth Investors Portfolio Overseas Portfolio
Quasar Portfolio
Technology Portfolio
AIM Fund: Fidelity Trust II:
International Equity Portfolio Investment Grade Bond Portfolio
Capital Appreciation Portfolio Asset Manager Portfolio
Contrafund Portfolio
Dreyfus Fund:
Zero Coupon 2000 Portfolio Weiss, Peck & Greer Tomorrow Funds:
Stock Index Portfolio Tomorrow Long Term Portfolio
Small Company Stock Portfolio Tomorrow Medium Term Portfolio
Tomorrow Short Term Portfolio
Van Eck Trust:
Worldwide Hard Asset Portfolio (formerly Gold & Natural Resources Portfolio)
Worldwide Balanced Portfolio
Worldwide Emerging Markets Portfolio
The assets of the Account are the property of the Company. The portion of the
Account's assets applicable to the contracts are not chargeable with liabilities
arising out of any other business conducted by the Company.
In addition to the Account, a contract owner may also allocate funds to the
Guaranteed Account, which is part of the Company's general account. Amounts
allocated to the Guaranteed Account are credited with a guaranteed rate of
interest for a selected period. Because of exemptive and exclusionary
provisions, interests in the Guaranteed Account have not been registered under
the Securities Act of 1933, and the Guaranteed Account has not been registered
as an investment company under the Investment Company Act of 1940.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Account in preparation of the financial statements in conformity with generally
accepted accounting principles.
A. Investment Valuation - The investments in the respective funds and trusts
are stated at market value which is the net asset value of each of the
respective series as determined at the close of business on the last
business day of the period by the Fund.
B. Accounting for Investments - Investment transactions are accounted for on
the date the investments are purchased or sold. Dividend income is recorded
on the ex-dividend date.
C. Federal Income Taxes - The Company is taxed under federal law as a life
insurance company. The Account is part of the Company's total operations
and is not taxed separately. Under existing federal law, no taxes are
payable on investment income and realized capital gains of the Account.
D. The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported
values of assets and liabilities and the reported amounts from operations
and policy transactions. Actual results could differ from those estimates.
3. Contract Charges
Daily charges for mortality and expense risks assumed by the Company are
assessed through the daily unit value calculation and are equivalent on an
annual basis to 1.25% of the value of the contracts.
Daily charges for administrative expenses are assessed through the daily unit
value calculation and are equivalent on an annual basis to 0.15% of the value of
the contracts. In addition, an annual administrative expense charge of $30 is
assessed against each contract on its anniversary date by surrendering units.
The contracts provide that in the event that a contract owner withdraws all or a
portion of the contract value within six years of a premium payment, they will
be assessed a deferred sales charge. The deferred sales charge is based on a
table of charges, of which the maximum charge is 6% of the contract value for
single premium contracts subject to a maximum of 8.5% of premiums and 6% of
premiums, paid for flexible premium contracts.
Certain states impose premium taxes upon contracts. The Company intends to
advance premium taxes due until the contract is surrendered or annuitized.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
4. Purchases of Investments
For the year ended December 31, 1997, investment activity in the Fund was as
follows:
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
Fidelity Trust Funds:
Money Market Portfolio $ 21,256,393 $ 15,110,935
Asset Manager Portfolio 2,696,004 307,699
Growth Portfolio 4,292,328 234,649
High Income Portfolio 1,734,753 140,950
Investment Grade Bond Portfolio 2,152,819 174,932
Overseas Portfolio 1,074,495 35,955
Alliance Funds:
Conservative Investors Portfolio 898,498 53,364
Growth & Income Portfolio 6,527,171 327,686
Growth Investors Portfolio 875,800 186,219
Growth Portfolio 3,424,157 497,350
Technology Portfolio 1,601,767 112,637
Quasar Portfolio 1,154,992 165,415
Dreyfus:
Stock Index Portfolio 5,881,514 270,314
Zero Coupon 2000 Portfolio 350,113 194,996
Small Company Stock Portfolio 697,691 55,690
Van Eck:
Worldwide Hard Assets Portfolio 223,599 116,430
Worldwide Balanced Portfolio 378,769 99,491
Weiss, Peck, & Greer:
Tomorrow Short Term Portfolio 692,629 128,170
Tomorrow Medium Term Portfolio 706,268 88,817
Tomorrow Long Term Portfolio 469,133 128,444
AIM:
International Equity Portfolio 2,603 2
For the period April 1 through December 31, 1996, investment activity in the
Fund was as follows:
Cost of Proceeds
Purchases From Sales
Shares of
Fidelity Trust Funds:
Money Market Portfolio $ 7,370,819 $ 3,407,332
Asset Manager Portfolio 600,819 532
Growth Portfolio 1,651,679 48,165
High Income Portfolio 588,327 4,768
Investment Grade Bond Portfolio 423,058 269
Overseas Portfolio 361,770 42,552
Alliance Funds:
Conservative Investors Portfolio 162,112 270
Growth & Income Portfolio 1,342,544 52,000
Growth Investors Portfolio 223,801 376
Growth Portfolio 1,428,720 21,773
Technology Portfolio 170,428 203
Quasar Portfolio 59,597 11,008
Dreyfus:
Stock Index Portfolio 1,299,097 15,049
Zero Coupon 2000 Portfolio 167,953 668
Van Eck:
Worldwide Hard Assets Portfolio 111,353 507
Worldwide Balanced Portfolio 91,350 391
Weiss, Peck, & Greer:
Tomorrow Short Term Portfolio 118,992 493
Tomorrow Medium Term Portfolio 91,972 477
Tomorrow Long Term Portfolio 200,689 624
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1997, transactions in accumulation units
of the account were as follows:
Fidelity
Fidelity Fidelity Fidelity Investment
Money Asset Fidelity High Grade
Market Manager Growth Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
VARIABLE ANNUITY
Units Purchased 2,597,309.86 62,039.97 119,501.70 36,661.67 65,099.72
Units Withdrawn (47,391.18) (5,914.15) (13,229.99) (433.39) (3,973.01)
Units Transferred Between Funds (1,983,677.27) 127,353.86 212,346.09 95,041.47 119,791.74
Units Transferred From (To) AIG Life (6,823.45) - - (801.23) -
-------------- ----------------- -------------- -------------- --------------
Net Increase (Decrease) 559,417.96 183,479.68 318,617.80 130,468.52 180,918.45
Units, at Beginning of the Year 385,238.57 56,345.46 149,722.06 55,015.77 40,777.94
------------------ ----------------- --------------- ----------------------------
Units, at End of the Year 944,656.53 239,825.14 468,339.86 185,484.29 221,696.39
================== ================= =============== ============ ============
Unit Value at December 31, 1997 $ 10.70 $ 13.23 $ 13.30 $ 12.65 $ 11.28
================== ================= ============== ============== ============
</TABLE>
<TABLE>
Alliance
Alliance Growth Alliance
Fidelity Conservative & Growth Alliance
Overseas Investors Income Investors Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Units Purchased 44,402.45 30,768.82 153,864.15 33,018.74 73,786.72
Units Withdrawn (1,336.14) (1,187.85) (13,422.60) (5,749.18) (16,554.93)
Units Transferred Between Funds 41,811.35 46,837.97 291,130.98 30,812.69 152,067.91
Units Transferred From (To) AIG Life - (2,090.79) - - -
----------------- ----------------- ------------ ----------- ----------------
Net Increase (Decrease) 84,877.66 74,328.15 431,572.53 58,082.25 209,299.70
Units, at Beginning of the Year 31,269.77 15,705.94 116,342.75 21,208.38 123,814.87
----------------- ----------------- ------------ ----------- ----------------
Units, at End of the Year 116,147.43 90,034.09 547,915.28 79,290.63 333,114.57
================= ================= ============ =========== ================
Unit Value at December 31, 1997 $ 11.84 $ 11.57 $ 15.06 $ 12.35 $ 15.69
================== ============== =========== ============== ================
</TABLE>
<TABLE>
Dreyfus Dreyfus
Dreyfus Zero Small
Alliance Alliance Stock Coupon Company
Technology Quasar Index 2000 Stock
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Units Purchased 59,146.15 35,675.90 149,997.37 18,512.01 5,723.36
Units Withdrawn (2,709.44) (698.48) (13,487.28) (205.55) (2,685.75)
Units Transferred Between Funds 71,732.99 55,155.84 241,290.35 (4,939.49) 55,621.61
Units Transferred From (To) AIG Life - - (1,054.32) - -
----------------- ----------------- --------------- -------------- -------------
Net Increase (Decrease) 128,169.70 90,133.26 376,746.12 13,366.97 58,659.22
Units, at Beginning of the Year 15,829.55 4,796.29 113,481.41 16,124.79 -
----------------- ----------------- --------------- -------------- -------------
Units, at End of the Year 143,999.25 94,929.55 490,227.53 29,491.76 58,659.22
================= ================= =============== ============== =============
Unit Value at December 31, 1997 $ 11.07 $ 12.02 $ 15.39 $ 11.03 $ 10.55
================= ================= =============== ============== =============
</TABLE>
<TABLE>
VanEck WP&G WP&G WP&G
Worldwide VanEck Tomorrow Tomorrow Tomorrow
Hard Worldwide Short Medium Long
Assets Balanced Term Term Term
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Units Purchased 2,085.92 15,667.26 21,913.06 12,011.49 13,213.48
Units Withdrawn (1,721.04) (494.29) (1,374.84) 5,618.34 (8,498.50)
Units Transferred Between Funds 10,300.62 8,986.72 23,907.06 31,480.05 19,377.88
Units Transferred From (To) AIG Life - - (2,041.47) - -
------------ ------------- -------------- ----------- --------------
Net Increase (Decrease) 10,665.50 24,159.69 42,403.81 49,109.88 24,092.86
Units, at Beginning of the Year 11,530.80 8,944.65 11,681.33 8,703.52 18,501.53
------------ ------------- -------------- ----------- --------------
Units, at End of the Year 22,196.30 33,104.34 54,085.14 57,813.40 42,594.39
============ ============= ============== =========== ==============
Unit Value at December 31, 1997 $ 9.86 $ 11.80 $ 12.58 $ 12.57 $ 13.59
============ ============= ============== =========== ==============
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1997, transactions in accumulation units
of the account were as follows:
Aim
International
Equity
Portfolio
<S> <C>
VARIABLE ANNUITY
Units Purchased -
Units Withdrawn -
Units Transferred Between Funds 262.97
Units Transferred From (To) AIG Life -
---------------
Net Increase (Decrease) 262.97
Units, at Beginning of the Year -
---------------
Units, at End of the Year 262.97
===============
Unit Value at December 31, 1997 $ 10.10
===============
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
AIG Life Insurance Company
Variable Account I
We have audited the accompanying statement of assets and liabilities of AIG Life
Insurance Company Variable Account I comprising the Fidelity Money Market, Asset
Manager, Contrafund, Growth, High Income, Investment Grade Bond, Overseas; the
Alliance Conservative Investors, Growth and Income, Growth Investors, Growth,
Technology, Quasar; the Dreyfus Stock Index, Zero Coupon 2000, Small Company
Stock; the Van Eck Worldwide Hard Asset, Worldwide Balanced, Worldwide Emerging
Markets; the Weiss, Peck and Greer Tomorrow Short-Term, Tomorrow Medium-Term,
Tomorrow Long-Term; and the AIM International Equity and Capital Appreciation
Subaccounts as of December 31, 1997, and the related statement of operations for
the year then ended, and the statement of changes in net assets for each of the
two years then ended. These financial statements are the responsibility of the
management of the Variable Account I. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of investments held at December 31, 1997 by correspondence with the
transfer agents. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIG Life Insurance Company
Variable Account I as of December 31, 1997, and the results of its operations
for the year then ended, and the changes in its net assets for each of the two
years then ended, in conformity with generally accepted accounting principles.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1998
AIG LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
AIG Life Insurance Company:
We have audited the accompanying balance sheets of AIG Life Insurance Company (a
wholly-owned subsidiary of American International Group, Inc.) as of December
31, 1997 and 1996, and the related statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AIG Life Insurance Company as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1998
<PAGE>
<TABLE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
December 31, December 31,
1997 1996
----------- -----------
Assets
- ------
<S> <C> <C>
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $2,984,255 $2,271,326
(cost: 1997 - $2,826,088: 1996 - $2,190,580)
Equity securities:
Common stock
(cost: 1997 - $1,381: 1996 - $3,548) 2,775 5,578
Non - redeemable preferred stock
(cost: 1997 - $250 : 1996 - $0) 250 --
Mortgage loans on real estate, net 350,823 297,363
Real estate, net of accumulated
depreciation of $4,740 in 1997 and $4,099 in 1996 15,940 16,169
Policy loans 1,496,837 1,873,961
Other invested assets 56,219 64,109
Short-term investments 667,912 100,036
Cash 5,132 5,780
---------- ----------
Total investments and cash 5,580,143 4,634,322
Amounts due from related parties 11,446 3,193
Investment income due and accrued 85,135 107,268
Premium and insurance balances receivable-net 46,937 36,357
Reinsurance assets 60,744 218,453
Deferred policy acquisition costs 118,535 84,287
Separate and variable accounts 1,204,643 644,980
Other assets 4,855 5,092
---------- ----------
Total assets $7,112,438 $5,733,952
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
December 31, December 31,
1997 1996
Liabilities
- -----------
<S> <C> <C>
Policyholders' funds on deposit $3,745,902 $3,810,095
Future policy benefits 749,918 630,520
Reserve for unearned premiums 24,108 29,911
Policy and contract claims 199,069 191,338
Reserve for commissions, expenses and taxes 16,103 2,860
Insurance balances payable 47,372 42,137
Amounts due to related parties 3,945 5,921
Federal income tax payable 1,684 2,959
Deferred income taxes 37,498 5,713
Separate and variable accounts 1,204,643 644,980
Minority interest 6,067 6,077
Other liabilities 621,585 30,932
---------- ----------
Total liabilities 6,657,894 5,403,443
---------- ----------
</TABLE>
<TABLE>
Stockholders' Equity
- --------------------
December 31, December 31,
1997 1996
<S> <C> <C>
Common stock, $5 par value; 1,000,000 shares
authorized; 976,703 shares issued and
outstanding 4,884 4,884
Additional paid-in capital 153,283 123,283
Unrealized appreciation of investments,
net of future policy benefits and taxes
of $61,644 in 1997 and $33,823 in 1996 114,490 62,814
Retained earnings 181,887 139,528
---------- ----------
Total stockholders' equity 454,544 330,509
---------- ----------
Total liabilities and stockholders' equity $7,112,438 $5,733,952
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
Years ended December 31,
1997 1996 1995
------------ ------------ --------
<S> <C> <C> <C>
Revenues:
Premiums $ 437,650 $ 394,480 $ 364,502
Net investment income 381,868 504,661 435,683
Realized capital (losses) gains (3,025) (51) (417)
--------- --------- ---------
Total revenues 816,493 899,090 799,768
--------- --------- ---------
Benefits and expenses:
Benefits to policyholders 188,969 189,933 202,105
Increase in future policy benefits
and policyholders' funds on deposit 397,481 495,529 392,592
Acquisition and insurance expenses 163,533 161,841 170,343
--------- --------- ---------
Total benefits and expenses 749,983 847,303 765,040
--------- --------- ---------
Income before income taxes 66,510 51,787 34,728
--------- ---------
Income taxes (benefits):
Current 20,059 25,087 18,709
Deferred 3,964 (5,486) (6,339)
--------- --------- ---------
Total income taxes 24,023 19,601 12,370
--------- --------- ---------
Net income before minority interest 42,487 32,186 22,358
Minority interest income (loss) (128) 154 11
--------- --------- ---------
Net income $ 42,359 $ 32,340 $ 22,369
========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
Years ended December 31,
1997 1996 1995
------------ ------------ ---------
Common Stock
- ------------
<S> <C> <C> <C>
Balance at beginning of year $ 4,884 $ 4,884 $ 4,884
----------- ----------- -----------
Balance at end of year 4,884 4,884 4,884
----------- ----------- -----------
Additional paid-in capital
Balance at beginning of year: 123,283 123,283 123,283
Capital contribution 30,000 - -
--------- --------- ---------
Balance at end of year 153,283 123,283 123,283
--------- --------- ---------
Unrealized appreciation (depreciation)
of investments, net
Balance at beginning of year 62,814 87,673 (15,029)
Change during year 79,497 (50,245) 170,003
Changes due to deferred income tax
(expense) benefit and future policy benefits (27,821) 25,386 (67,301)
----------- ---------- -----------
Balance at end of year 114,490 62,814 87,673
--------- ---------- ----------
Retained earnings
Balance at beginning of year 139,528 107,188 84,819
Net income 42,359 32,340 22,369
---------- ---------- -----------
Balance at end of year 181,887 139,528 107,188
--------- --------- ----------
Total stockholders' equity $ 454,544 $ 330,509 $ 323,028
========= ========= ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
Years ended December 31,
1997 1996 1995
----------- ---------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 42,359 $ 32,340 $ 22,369
--------- ----------- ------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Non-cash revenues, expenses, gains and losses included in income:
Change in insurance reserves 121,325 72,151 133,207
Change in premiums and insurance balances
receivable and payable -net (5,346) 11,782 (4,695)
Change in reinsurance assets 157,710 (10,627) (201)
Change in deferred policy acquisition costs (34,248) (23,662) (6,151)
Change in investment income due and accrued 22,133 135,480 (126,299)
Realized capital gains (losses) 3,025 51 417
Change in current and deferred income taxes -net 2,689 (7,133) (15,112)
Change in reserves for commissions, expenses and taxes 13,243 (21,274) (9,857)
Change in other assets and liabilities - net 69,169 11,852 (7,466)
----------- ----------- -------------
Total adjustments 349,700 168,620 (36,157)
---------- ---------- ------------
Net cash (used in) provided by operating activities 392,059 200,960 (13,788)
---------- ---------- ------------
Cash flows from investing activities:
Cost of fixed maturities at market, sold 23,816 40,098 36,678
Cost of fixed maturities at market, matured or redeemed 153,963 124,621 76,989
Cost of equity securities sold 3,676 2,607 405
Realized capital gains 1,975 (51) 582
Purchase of fixed maturities (804,262) (524,245) (590,864)
Purchase of equity securities (1,750) (1,678) (1,213)
Mortgage loans granted (87,690) (74,590) (75,100)
Repayments of mortgage loans 29,298 16,416 12,406
Change in policy loans 377,124 1,087,765 (1,589,502)
Change in short-term investments (567,876) 102,616 (115,532)
Change in other invested assets 6,294 11,002 (4,296)
Other - net 11,917 (38) (6,042)
----------- ----------- -------------
Net cash used in investing activities (853,515) 784,523 (2,255,489)
----------- ---------- -----------
Cash flows from financing activities:
Change in policyholders' funds on deposit 430,808 (980,835) 2,265,900
Proceeds from capital contribution 30,000 - -
----------- ----------- -----------------
Net cash provided by financing activities 460,808 (980,835) 2,265,900
---------- ---------- ----------
Change in cash (648) 4,648 (3,377)
Cash at beginning of year 5,780 1,132 4,509
------------ ------------ -------------
Cash at end of year $ 5,132 $ 5,780 $ 1,132
============ ============ =============
See accompanying notes to financial statements.
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
-----------------------------------------
(a) Basis of Presentation: AIG Life Insurance Company (the Company) is a
wholly-owned subsidiary of American International Group, Inc. (the Parent).
The financial statements of the Company have been prepared on the basis of
generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates. The Company is licensed to sell life and accident and
health insurance in the District of Columbia and all states except for
Maine and New York.
The Company also files financial statements prepared in accordance with
statutory practices prescribed or permitted by the Insurance Department of
the State of Delaware. Financial statements prepared in accordance with
generally accepted accounting principles differ in certain respects from
the practices prescribed or permitted by regulatory authorities. The
significant differences are: (1) statutory financial statements do not
reflect fixed maturities available for sale at market value; (2) policy
acquisition costs, charged against operations as incurred for regulatory
purposes, have been deferred and are being amortized over the anticipated
life of the contracts; (3) individual life and annuity policy reserves
based on statutory requirements have been adjusted based upon mortality,
lapse and interest assumptions applicable to these coverages, including
provisions for reasonable adverse deviations; these assumptions reflect the
Company's experience and industry standards; (4) deferred income taxes not
recognized for regulatory purposes have been provided for temporary
differences between the bases of assets and liabilities for financial
reporting purposes and tax purposes; (5) for regulatory purposes, future
policy benefits, policyholders' funds on deposit, policy and contract
claims and reserve for unearned premiums are presented net of ceded
reinsurance; and (6) an asset valuation reserve and interest maintenance
reserve using National Association of Insurance Commissioners (NAIC)
formulas are set up for regulatory purposes.
(b) Investments: Fixed maturities available for sale, where the company may
not have the ability or positive intent to hold these securities until
maturity, are carried at market value. Interest income with respect to
fixed maturity securities is accrued currently. Included in fixed
maturities available for sale are collateralized mortgage obligations
(CMOs). Premiums and discounts arising from the purchase of CMOs are
treated as yield adjustments over the estimated life. Common and
non-redeemable preferred stocks are carried at market value. Dividend
income is generally recognized when payable. Short-term investments are
carried at cost, which approximates market.
Unrealized gains and losses from investments in equity securities and
fixed maturities available for sale are reflected in stockholders'
equity, net of amounts recorded as future policy benefits and any
related deferred income taxes.
Realized capital gains and losses are determined principally by specific
identification. Where declines in values of securities below cost or
amortized cost are considered to be other than temporary, a charge is
reflected in income for the difference between cost or amortized cost
and estimated net realizable value.
Mortgage loans on real estate are carried at unpaid principal balance
less unamortized loan origination fees and costs less an allowance for
uncollectible loans. Interest income on such loans is accrued currently.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
--------------------------------------------------------
(b) Investments: (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for betterments
are capitalized and depreciated over their estimated lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership interests
which are carried at market value. Unrealized gains and losses from the
revaluation of these investments are reflected in stockholders' equity,
net of any related taxes. Also included in this category is an interest
rate cap agreement, which is carried at its amortized cost. The cost of
the cap is being amortized against investment income on a straight line
basis over the life of the cap.
(c)Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and
the Parent have a written tax allocation agreement whereby the Parent
agrees not to charge the Company a greater portion of the consolidated
tax liability than would have been paid by the Company if it had filed a
separate return. Additionally, the Parent agrees to reimburse the
Company for any tax benefits arising out of its net losses within ninety
days after the filing of that consolidated tax return for the year in
which these losses are utilized. Deferred federal income taxes are
provided for temporary differences related to the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns.
(d) Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident
and health insurance are reported as earned over the contract term. The
portion of accident and health premiums which is not earned at the end
of a reporting period is recorded as unearned premiums. Estimates of
premiums due but not yet collected are accrued. Policy benefits and
expenses are associated with earned premiums on long-duration contracts
resulting in a level recognition of profits over the anticipated life of
the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized in
relation to expected gross profits over the life of the policies (see
Note 3).
The liability for future policy benefits and policyholders' contract
deposits is established using assumptions described in Note 4.
(e)Policy and Contract Claims: Policy and contract claims include amounts
representing: (1) the actual in-force amounts for reported life claims
and an estimate of incurred but unreported claims; and (2) an estimate,
based upon prior experience, for accident and health reported and
incurred but unreported losses. The methods of making such estimates and
establishing the resulting reserves are continually reviewed and updated
and any adjustments resulting therefrom are reflected in income
currently.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
--------------------------------------------------------
(f) Separate and Variable Accounts: These accounts represent funds for which
investment income and investment gains and losses accrue directly to the
policyholders. Each account has specific investment objectives, and the
assets are carried at market value. The assets of each account are
legally segregated and are not subject to claims which arise out of any
other business of the Company.
(g) Reinsurance Assets: Reinsurance assets include the balances due from
both reinsurance and insurance companies under the terms of the
Company's reinsurance arrangements for ceded unearned premiums, future
policy benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It also
includes funds held under reinsurance treaties.
(h) During 1996, the Company changed its method of accounting for a
subsidiary to reflect the minority interest. The financial statements
for 1995 have been reclassified to conform to this presentation.
2. Investment Information
----------------------
(a) Statutory Deposits: Securities with a carrying value of $2,454,000 and
$2,460,000 were deposited by the Company under requirements of
regulatory authorities as of December 31, 1997 and 1996, respectively.
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
Years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Fixed maturities $200,097 $164,548 $138,341
Equity securities 58 219 225
Mortgage loans 28,714 22,797 19,399
Real estate . 2,254 2,125 997
Policy loans 148,555 314,020 268,454
Cash and short-term investments 3,582 2,924 4,348
Other invested assets 2,380 2,549 6,129
-------- -------- --------
Total investment income 385,640 509,182 437,893
Investment expenses 3,772 4,521 2,210
-------- -------- --------
Net investment income $381,868 $504,661 $435,683
======== ======== ========
</TABLE>
<PAGE>
2. Investment Information - (continued)
------------------------------------
(c)Investment Gains and Losses: The net realized capital gains (losses) and
change in unrealized appreciation (depreciation) of investments for
1997, 1996 and 1995 are summarized below (in thousands):
<TABLE>
Years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Net realized (losses) gains on investments:
Fixed maturities $ -- $ (79) $ (166)
Equity securities 1,975 28 712
Mortgage loans (5,000) -- (1,000)
Other invested assets -- -- 37
--------- --------- ---------
Net realized gains $ (3,025) $ (51) $ (417)
========= ========= =========
Change in unrealized appreciation (depreciation) of investments:
Fixed maturities $ 77,422 $ (58,659)
$ 168,561
Equity securities (626) 1,517 69
Other invested assets 2,701 6,897 1,373
--------- --------- ---------
Net change in unrealized appreciation
(depreciation) of investments $ 79,497 $ (50,245) $ 170,003
========= ========= =========
</TABLE>
Proceeds from the sale of investments in fixed maturities during 1997, 1996
and 1995 were $23,816,000, $40,098,000, and $36,678,000, respectively.
During 1997, 1996 and 1995, gross gains of $0, $176,000, and $109,000,
respectively, and gross losses of $0, $255,000, and $275,000, respectively,
were realized on dispositions of fixed maturity investments.
During 1997, 1996 and 1995, gross gains of $1,975,000, $28,000, and
$712,000, respectively, were realized on disposition of equity securities.
(d) Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1997 and 1996, unrealized appreciation of
investments in equity securities (before applicable taxes) included
gross gains of $1,530,000 and $2,265,000 and gross losses of $136,000
and $235,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1997 and 1996 are as follows (in
thousands):
<TABLE>
Gross Gross
1997 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 42,866 $ 14,667 $ -- $ 57,533
States, municipalities and
political subdivisions 371,477 21,481 252 392,706
Foreign governments 30,168 4,887 -- 35,055
All other corporate 2,381,577 125,382 7,998 2,498,961
---------- ---------- ---------- ---------
Total fixed maturities $2,826,088 $ 166,417 $ 8,250 $2,984,255
========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
2. Investment Information - (continued)
------------------------------------
Gross Gross
1996 Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 47,848 $ 7,814 $ 151 $ 55,511
States, municipalities and
political subdivisions 327,944 15,525 1,934 341,535
Foreign governments 33,340 2,855 113 36,082
All other corporate 1,781,448 71,994 15,244 1,838,198
---------- ---------- ---------- ----------
Total fixed maturities $2,190,580 $ 98,188 $ 17,442 $2,271,326
========== ========== ========== ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities,
available for sale at December 31, 1997, by contractual maturity, are
shown below (in thousands). Actual maturities could differ from
contractual maturities because certain borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
Estimated
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $ 119,207 $ 123,786
Due after one year through five years 765,185 802,683
Due after five years through ten years 1,047,622 1,102,764
Due after ten years 894,074 955,022
---------- ----------
$2,826,088 $2,984,255
========== ==========
</TABLE>
(e) CMOs: CMOs are U.S. Government and Government agency backed and triple
A-rated securities. CMOs are included in other corporate fixed
maturities. At December 31, 1997 and 1996, the market value of the CMO
portfolio was $445,739,000 and $435,313,000, respectively; the estimated
amortized cost was approximately $426,760,000 in 1997 and $419,276,000
in 1996. The Company's CMO portfolio is readily marketable. There were
no derivative (high risk) CMO securities contained in the portfolio at
December 31, 1997.
(f) Fixed Maturities Below Investment Grade: At December 31, 1997 and 1996,
the fixed maturities held by the Company that were below investment
grade had an aggregate amortized cost of $242,573,000 and $136,502,000,
respectively, and an aggregate market value of $244,417,000 and
$135,218,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
(h) Investments Greater than 10% Equity: The market value of investments
in the following company exceeded 10% of the Company's total
stockholders' equity at December 31, 1997 (in thousands):
Other Invested Assets:
Equity Linked Investors II, L.P. $ 49,640
<PAGE>
3. Deferred Policy Acquisition Costs
---------------------------------
The following reflects the policy acquisition costs deferred (commissions,
direct solicitation and other costs) which will be amortized against future
income and the related current amortization charged to income, excluding
certain amounts deferred and amortized in the same period (in thousands).
The 1995 amortization includes $9,455,000, respectively, to recognize
excess loss experienced on credit insurance.
<TABLE>
Years ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $ 84,287 $ 60,625 $ 54,474
Acquisition costs deferred 50,927 43,534 35,008
Amortization charged to income (16,679) (19,872) (28,857)
--------- --------- ---------
Balance at end of year $ 118,535 $ 84,287 $ 60,625
========= ========= =========
</TABLE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a) The analysis of the future policy benefits and policyholders' funds on
deposit at December 31, 1997 and 1996 follows (in thousands):
<TABLE>
1997 1996
----------- -------
<S> <C> <C>
Future Policy Benefits:
Long duration contracts $ 740,969 $ 619,511
Short duration contracts 8,949 11,009
---------- ----------
$ 749,918 $ 630,520
========== ==========
Policyholders' funds on deposit:
Annuities $1,265,490 $1,082,217
Universal life 149,202 130,413
Guaranteed investment contracts (GICs) 379,049 278,680
Corporate owned life insurance 1,948,558 2,314,149
Other investment contracts 3,603 4,636
---------- ----------
$3,745,902 $3,810,095
========== ==========
</TABLE>
(b) Long duration contract liabilities included in future policy benefits,
as presented in the table above, result from traditional life products.
Short duration contract liabilities are primarily accident and health
products. The liability for future policy benefits has been established
based upon the following assumptions:
(i) Interest rates (exclusive of immediate/terminal funding annuities),
which vary by year of issuance and products, range from 3.0 percent
to 10.0 percent within the first 20 years. Interest rates on
immediate/terminal funding annuities are at a maximum of 12.2 percent
and grade to not greater than 7.5 percent.
(ii)Mortality and surrender rates are based upon actual experience
modified to allow for variations in policy form. The weighted average
lapse rate, including surrenders, for individual life approximated
17.6 percent.
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit - (continued)
------------------------------------------------------------------------
(c) The liability for policyholders' funds on deposit has been established
based on the following assumptions:
(i)Interest rates credited on deferred annuities vary by year of
issuance and range from 3.0 percent to 7.5 percent. Credited interest
rate guarantees are generally for a period of one year. Withdrawal
charges generally range from 3.0 percent to 10.0 percent grading to
zero over a period of 5 to 10 years.
(ii)GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited
generally range from 4.7 percent to 8.1 percent and maturities range
from 3 to 20 years.
(iii)Interest rates on corporate-owned life insurance business are
guaranteed at 4.0 percent and the weighted average rate credited in 1997
was 7.7 percent.
(iv) The universal life funds, exclusive of corporate owned life insurance
business, have credited interest rates of 5.9 percent to 7.5 percent and
guarantees ranging from 3.5 percent to 5.5 percent depending on the year
of issue. Additionally, universal life funds are subject to surrender
charges that amount to 11.0 percent of the fund balance and grade to
zero over a period not longer than 20 years.
5. Income Taxes
------------
(a) The Federal income tax rate applicable to ordinary income is 35% for
1997, 1996 and 1995. Actual tax expense on income from operations
differs from the "expected" amount computed by applying the Federal
income tax rate because of the following (in thousands except
percentages):
<TABLE>
Years ended December 31,
1997 1996 1995
Percent Percent Percent
of of of
pre-tax pre-tax pre-tax
operating operating operating
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
"Expected" income tax
expense $ 23,279 35.0% $ 18,125 35.0% $ 12,155 35.0%
Prior year federal
income tax benefit (6) -- (51) (0.1) (798) (2.3)
State income tax 673 1.0 850 1.6 894 2.6
Other 77 0.1 677 1.3 119 0.3
-------- ---- -------- ---- -------- ----
Actual income tax expense $ 24,023 36.1% $ 19,601 37.8% $ 12,370 35.6%
======== ==== ======== ==== ======== ====
</TABLE>
<PAGE>
5. Income Taxes - (continued)
--------------------------
(b) The components of the net deferred tax liability were as follows (in
thousands):
<TABLE>
Years ended December 31,
1997 1996
<S> <C> <C>
Deferred tax assets:
Adjustment to life reserves $ 51,992 $ 41,522
Adjustments to mortgage loans and
investment income due and accrued 4,250 2,531
Adjustment to policy and contract claims 8,816 10,687
Other 4,292 2,585
-------- --------
69,350 57,325
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $ 37,559 $ 23,047
Unrealized appreciation on investments 61,644 33,823
Bond discount 4,843 4,085
Other 2,802 2,083
-------- --------
106,848 63,038
-------- --------
Net deferred tax liability $ 37,498 $ 5,713
======== ========
</TABLE>
(c) At December 31, 1997, accumulated earnings of the Company for Federal
income tax purposes include approximately $2,204,000 of
"Policyholders' Surplus" as defined under the Code. Under provisions
of the Code, "Policyholders' Surplus" has not been currently taxed but
would be taxed at current rates if distributed to the Parent. There is
no present intention to make cash distributions from "Policyholders'
Surplus" and accordingly, no provision has been made for taxes on this
amount.
(d) Income taxes paid in 1997, 1996, and 1995 amounted to $20,311,000,
$25,412,000, and $26,030,000, respectively.
6. Commitments and Contingencies
-----------------------------
The Company, in common with the insurance industry in general, is
subject to litigation, including claims for punitive damages, in the
normal course of their business. The Company does not believe that such
litigation will have a material effect on its operating results and
financial condition.
During 1997, the Company entered into a partnership agreement with
Private Equity Investors III, L.P. The agreement requires the Company to
make capital contributions totaling $50,000,000. The total contribution
for 1997 was $2,900,000.
7. Fair Value of Financial Instruments
-----------------------------------
(a) Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments may
or may not be recognized in the balance sheet. In the measurement of the
fair value of certain of the financial instruments, quoted market prices
were not available and other valuation techniques were utilized. These
derived fair value estimates are significantly affected by the
assumptions used. FASB 107 excludes certain financial instruments,
including those related to insurance contracts.
<PAGE>
7. Fair Value of Financial Instruments - (continued)
-------------------------------------------------
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair values.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For certain
fixed maturities for which market prices were not readily available, fair
values were estimated using values obtained from independent pricing
services.
Equity securities: Fair values for equity securities were based upon quoted
market prices.
Mortgage and policy loans: Where practical, the fair values of loans on
real estate were estimated using discounted cash flow calculations based
upon the Company's current incremental lending rates for similar type
loans. The fair value of the policy loans were not calculated as the
Company believes it would have to expend excessive costs for the benefits
derived. Therefore, the fair value of policy loans was estimated at
carrying value.
Interest rate cap: Fair values for the interest rate cap were estimated
using values obtained from an independent pricing service.
Policyholders' funds on deposit: Fair value of policyholder contract
deposits were estimated using discounted cash flow calculations based upon
interest rates currently being offered for similar contracts consistent
with those remaining for the contracts being valued.
(b) The fair value and carrying amounts of financial instruments is as
follows (in thousands):
<TABLE>
1997 Fair Carrying
Value Amount
<S> <C> <C>
Cash and short-term investments $ 673,044 $ 673,044
Fixed maturities 2,984,255 2,984,255
Equity securities 3,025 3,025
Mortgage and policy loans 1,868,449 1,847,660
Interest rate cap -- 19
Policyholders' funds on deposit $3,777,435 $3,745,902
1996 Fair Carrying
Value Amount
Cash and short-term investments $ 105,816 $ 105,816
Fixed maturities 2,271,326 2,271,326
Equity securities 5,578 5,578
Mortgage and policy loans 2,183,873 2,171,324
Interest rate cap 75 94
Policyholders' funds on deposit $3,832,601 $3,810,095
</TABLE>
<PAGE>
8. Stockholders' Equity
---------------------
(a) The maximum stockholder dividend which can be paid without prior
regulatory approval is subject to restrictions relating to statutory
surplus and statutory net gain from operations. These restrictions
limited payment of dividends to $47,100,000 during 1997, however, no
dividends were paid during the year.
(b) The Company's stockholders' equity as determined in accordance with
statutory accounting practices was $285,350,000 at December 31, 1997 and
$221,567,000 at December 31, 1996. Statutory net income amounted to
$35,350,000, $47,074,000 and $39,712,000 for 1997, 1996 and 1995,
respectively.
(c) During 1997, the Company received a $30,000,000 surplus contribution
from American International Group, the parent.
9. Employee Benefits
-----------------
(a) The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered by
the Parent. All qualified employees who have attained age 21 and
completed twelve months of continuous service are eligible to
participate in this plan. An employee with 5 or more years of service is
entitled to pension benefits beginning at normal retirement age 65.
Benefits are based upon a percentage of average final compensation
multiplied by years of credited service limited to 44 years of credited
service. The average final compensation is subject to certain
limitations. Annual funding requirements are determined based on the
"projected unit credit" cost method which attributes a pro rata portion
of the total projected benefit payable at normal retirement to each year
of credited service. Pension expense for current service costs,
retirement and termination benefits for the years ended December 31,
1997, 1996 and 1995 were approximately $373,000, $400,000, and $304,000,
respectively. The Parent's plans do not separately identify projected
benefit obligations and plan assets attributable to employees of
participating affiliates. The projected benefit obligations exceeded the
plan assets at December 31, 1997 by $65,924,000.
The Parent has adopted a Supplemental Executive Retirement Program
(Supplemental Plan) to provide additional retirement benefits to
designated executives and key employees. Under the Supplemental Plan,
the annual benefit, not to exceed 60 percent of average final
compensation, accrues at a percentage of average final pay multiplied
for each year of credited service reduced by any benefits from the
current and any predecessor retirement plans, Social Security, if any,
and from any qualified pension plan of prior employers. The Supplemental
Plan also provides a benefit equal to the reduction in benefits payable
under the AIG retirement plan as a result of Federal limitations on
benefits payable thereunder. Currently, the Supplemental Plan is not
funded.
(b) The Parent also sponsors a voluntary savings plan for domestic employees
(a 401(k) plan), which, during the two years ended December 31, 1997,
provided for salary reduction contributions by employees and matching
contributions by the Parent of up to 6 percent of annual salary
depending on the employees' years of service.
(c) In addition to the Parent's defined benefit pension plan, the Parent and
its subsidiaries provide a post-retirement benefit program for medical
care and life insurance. Eligibility in the various plans is generally
based upon completion of a specified period of eligible service and
reaching a specified age.
<PAGE>
9. Employee Benefits - (continued)
-------------------------------
(d) The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its plans.
Employees of the Company participate in certain stock option and stock
purchase plans of the Parent. In general, under the stock option plan,
officers and other key employees are granted options to purchase AIG
common stock at a price not less than fair market value at the date of
grant. In general, the stock purchase plan provide for eligible
employees to receive privileges to purchase AIG common stock at a price
equal to 85% of the fair market value on the date of grant of the
purchase privilege. The Parent has not recognized compensation costs for
either plan. The effect of the compensation costs, as determined
consistent with FASB 123, was not computed on a subsidiary basis, but
rather on a consolidated basis for all subsidiaries of the Parent and
therefore are not presented herein.
10. Leases
------
(a) The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1997, the
future minimum lease payments under operating leases were as follows (in
thousands):
Year Payment
1998 $ 3,739
1999 3,196
2000 2,265
2001 2,107
2002 1,979
Remaining years after 2002 2,943
------
Total $ 16,229
Rent expense approximated $3,881,000, $4,263,000, and $3,764,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
(b) Sublease Income -The Company does not participate in sublease
agreements.
11. Reinsurance
----------
(a) The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term
treaties. Accident and health insurance risks are reinsured primarily
under coinsurance, excess of loss and quota share treaties. Amounts
recoverable from reinsurers are estimated in a manner consistent with
the assumptions used for the underlying policy benefits and are
presented as a component of reinsurance assets. A contingent liability
exists with respect to reinsurance ceded to the extent that any
reinsurer is unable to meet the obligations assumed under the
reinsurance agreements.
<PAGE>
11. Reinsurance - (continued)
-------------------------
The Company also reinsures portions of its life and accident and health
insurance risks with affiliated companies (see Note 12). The effect of
all reinsurance contracts, including reinsurance assumed, is as follows
(in thousands, except percentages):
<TABLE>
Percentage
of Amount
December 31, 1997 Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $52,183,971 $18,779,228 $ 935,975 $34,340,718 2.7%
=========== =========== =========== ===========
Premiums:
Life 200,926 67,350 2,389 135,965 1.8%
Accident and Health 118,663 59,550 115,573 174,686 66.2%
Annuity 126,999 -- -- 126,999 --
------- ----------- ----------- -------
Total Premiums $ 446,588 $ 126,900 $ 117,962 $ 437,650 27.0%
======= =========== =========== ===========
Percentage
of Amount
December 31, 1996 Assumed
Gross Ceded Assumed Net to Net
Life Insurance in Force $53,854,456 $17,392,184 $ 605,831 $37,068,103 1.6%
=========== =========== =========== ===========
Premiums:
Life 187,886 49,150 327 139,063 --
Accident and Health 97,971 28,359 107,447 177,059 60.7%
Annuity 78,358 -- -- 78,358 --
----------- ----------- ----------- ----------
Total Premiums $ 364,215 $ 77,509 $ 107,774 $ 394,480 27.3%
=========== =========== =========== ==========
Percentage
of Amount
December 31, 1995 Assumed
Gross Ceded Assumed Net to Net
Life Insurance in Force $48,644,007 $16,635,298 $ 58,966 $32,067,675 0.2%
=========== =========== ========== ===========
Premiums:
Life 184,981 33,768 1,670 152,883 1.1%
Accident and Health 72,473 16,800 93,060 148,733 62.6%
Annuity 62,886 -- -- 62,886 --
----------- ----------- ---------- -----------
Total Premiums $ 320,340 $ 50,568 $ 94,730 $ 364,502 26.0%
=========== =========== ========== ===========
(b) The maximum amount retained on any one life by the Company is
$1,000,000.
</TABLE>
<PAGE>
11. Reinsurance - (continued)
-------------------------
(c) Reinsurance recoveries, which reduced death and other benefits,
approximated $100,029,000, $54,456,000, and $51,264,000, respectively,
for each of the years ended December 31, 1997, 1996 and 1995.
The Company's reinsurance arrangements do not relieve the Company from
its direct obligation to its insureds.
12. Transactions with Related Parties
---------------------------------
(a) The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance
risks. Premium income and commission ceded for 1997 amounted to
$1,251,000 and $1,000, respectively. Premium income and commission
ceded for 1996 amounted to $1,345,000 and $0, respectively. Premium
income and commission ceded to affiliates amounted to $1,269,000 and
$1,000 for the year ended December 31, 1995. Premium income and ceding
commission expense assumed from affiliates aggregated $110,529,000 and
$24,853,000, respectively, for 1997, compared to $103,885,000 and
$27,609,000, respectively, for 1996, and $90,688,000 and $23,422,000,
respectively for 1995.
(b) The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional
cost allocation basis which management believes to be reasonable. For
the years ended December 31, 1997, 1996 and 1995, the Company was
charged $37,846,000, $28,277,000 and $23,193,000, respectively, for
expenses attributed to the Company but incurred by affiliates. During
the same period, the Company received reimbursements from affiliates
aggregating $18,134,000, $17,598,000 and $14,496,000, respectively,
for costs incurred by the Company but attributable to affiliates.
(c) During 1997, a reinsurance agreement covering certain annuity policies
was terminated. Upon cancellation, assets totaling $164,895,000 were
transferred from Delaware American Life Insurance Company to the
Company.
(d) During 1996, the Company purchased 1,500,000 shares of AIG Life
Ireland, LTD., a subsidiary.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
a. Financial Statements#####
b. Exhibits
1. Resolution of Board of Directors of the Company authorizing the
establishment of the Variable Account*
2. Not Applicable
3. (i) Principal Underwriter's Agreement**
(ii) Broker-Dealer Agreement**
(iii)General Agency Agreement***
(iv) Distribution Agreement***
(v) Buy-Sell Agreement #
4. Form of Annuity Contract
(i) Old Contract #
(ii) New Contract ####
5. Application for Annuity Contract#
6. (i) Copy of Articles of Incorporation of the Company*
(ii) Copy of the Bylaws of the Company*
7. Not Applicable
8. Administrative Agreement* (filed confidentially)
9. Opinion of Counsel (filed herewith electronically)
10. (i) Consent of Counsel (filed herewith electronically)
(ii)Consent of Independent Accountants (filed herewith
electronically)
11. Not Applicable
12. Agreement Governing Contribution*
13. Performance Data##
14. Financial Data Schedule (not applicable)
15. Powers of Attorney(filed herewith electronically)
* Incorporated by reference to initial filing on Form N-4, (File No.
33-16708) filed on October 7, 1986.
** Incorporated by reference to Post-Effective Amendment No. 3 to Form
N-4 (File No. 33-16708), filed on May 1, 1989.
*** Incorporated by reference to Post-Effective Amendment No. 4 to Form
N-4 (File No. 33-16708), filed on May 1, 1990.
# Incorporated by reference to Registrant's Post-Effective Amendment
No. 2 to Form N-4 (File No. 33-39171) filed on April 30, 1992.
## Incorporated by reference to Registrant's Post-Effective Amendment
No. 3 to Form N-4 (File No. 33-39171) filed on May 1, 1993.
### Incorporated by reference to Post-Effective Amendment No. 7 for
Variable Account II on Form S-6 (File No. 33-18301) filed on December
8, 1994.
#### Incorporated by reference to Post-Effective Amendment No. 9 for
Variable Account I on Form N-4 (FileNo. 33-19171) filed
on May 1, 1996
<PAGE>
Item 25. Directors and Officers of the Depositor.
The following are the Officers and Directors of the Company:
Officers:
Name and Principal Position and Offices
Business Address with the Company
Ernest E. Stempel(1) Director &Chairman of the Board
Robert J. O'Connell(2) Director, Chief Executive Officer
&President
Michele L. Abruzzo(2) Senior Vice President
James A. Bambrick(2) Senior Vice President
Howard Gunton(3) Vice President & Comptroller
Jeffrey M. Kestenbaum(2) Senior Vice President
Robert Liguori(3) Vice President and Counsel
Edward E. Matthews(1) Director, Senior Vice President -
Finance
Jerome T. Muldowney(4) Director, Vice President -
Domestic Investments
Michael Mullin(3) VicePresident
Nicholas A. O'Kulich(1) Director, Vice President & Treasurer
John R. Skar(3) Director,Vice President Chief Actuary
Gerald W. Wyndorf(2) Director& Executive VicePresident
Edmund Sze-Wing Tse (1) Director, Vice Chairman
Elizabeth M. Tuck(1) Secretary - Corporate
Maurice R.Greenerg(1) Director
Edwin A.G Manton (1) Director
Win J. Neuger (1) Director
Howard I. Smith (1) Director
(1) Business address is: 70 Pine Street, New York, New York 10270
(2) Business address is: 80 Pine Street, New York, New York 10005
(3) Business address is: One Alico Plaza, Wilmington, Delaware 19801
(4) Business address is: One Chase Plaza, New York, New York 10005
<PAGE>
Directors:
Name Address
M.R. Greenberg American International Group, Inc.
70 Pine Street
New York, New York 10270
Edwin A.G. Manton American International Group, Inc.
70 Pine Street
New York, New York 10270
Edward E. Matthews American International Group, Inc.
70 Pine Street
New York, New York 10270
Jerome T. Muldowney American International Group, Inc.
One Chase Plaza
New York, New York 10005
Win J. Neuger American International Group, Inc.
70 Pine Street
New York, New York 10270
Robert J. O'Connell American International Group, Inc.
80 Pine Street
New York, New York 10005
Nicholas A. O'Kulich American International Group, Inc.
70 Pine Street
New York, New York 10270
John R. Skar AIG Life Insurance Company
One Alico Plaza
Wilmington, DE 19801
Howard I. Smith AmericanInternational Group, Inc.
70 Pine Street
New York, New York 10270
Ernest E. Stempel American International Companies
70 Pine Street
New York, New York 10270
Edmund Sze-Wing Tse American International Companies
70 Pine Street
New York, New York 10270
Gerald W. Wyndorf American International Companies
80 Pine Street
New York, New York 10005
<PAGE>
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated by reference to the Form 10K, Exhibit 21 filed by
American International Group, Inc. parent of registrant for year
end December 31, 1997.
Item 27. Number of Contract Owners.
There were approximately 15,431 contractholders as of March 31, 1998.
Item 28. Indemnification
Incorporated by reference to initial Form N-4 (File No. 33-9144) filed on
October 7, 1986, by American International Life Assurance Company of New York,
an affiliate of Registrant.
Item 29. Principal Underwriter
a. AIG Equity Sales Corp. also acts as the principal underwriter
for other separate accounts of the Depositor, as well as the
separate accounts of American International Life Assurance
Company of New York, and for the AIG All Ages Funds, Inc. These
are affiliated companies.
b. The following information is provided for each director and officer
of the Principal Underwriter:
Name and Principal Positions and Offices
Business Address with Underwriter
Michele L. Abruzzo(1) Director and President
Kevin Clowe (2) Director and Vice President
Edward E. Matthews(1) Director and Chairman of the Board
Jerome T. Muldowney(3) Director
Robert J. O'Connell(1) Director
Ernest E. Stempel(2) Director
Kenneth F. Judkowitz(1) Treasurer,Comptroller, VicePresident
Philomena Scamardella(1) Vice President and Senior
Compliance Officer
Florence Davis(2) Director and General Counsel
Elizabeth M. Tuck(2) Secretary
Daniel Keith Kingsbury(2) Vice President
(1) Business address is: 80 Pine Street, New York, N Y 10270.
(2) Business address is: 70 Pine Street, New York, NY 10270
(3) Business address is: One Chase Manhattan Plaza, 57th Flr,
New York, NY 10005
c.
Name of Underwriting
Principal Discounts Compensation on Brokerage
Underwriter and Commissions Redemptions Commissions Compensation
AIG Equity Sales $193,263.91 $0 $0 $0
Corp.
<PAGE>
Item 30. Location of Accounts and Records.
Kenneth F. Judkowitz, Assistant Vice President of the Company, whose address
is 80 Pine Street, New York, New York 10005, maintains physical possession of
the accounts, books or documents of the Variable Account required to be
maintained by Section 31(a) of Investment Act of 1940 and the rules promulgated
thereunder.
Item 31. Management Services.
Not Applicable
Item 32. Undertakings.
a. Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure
that the audited financial statements in the registration statement
are never more than sixteen (16) months old for so long as payments
under the variable annuity contracts may be accepted.
b. Registrant hereby undertakes to include either (1) as part of any
application to purchase a Contract offered by the Prospectus, a space
that an applicant can check to request a Statement of Additional
Information, or (2) a postcard or similar written communication
affixed to or included in the Prospectus that the applicant can remove
to send for a Statement of Additional Information.
c. Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request.
d. Registrant represents that in connection with 403(b) Plans, it is
relying on the November 28, 1988 no-action letter issued by the SEC to
the American Council of Life Insurance.
e. Registrant represents that Variable Account I meets the definition of
a separate account under the federal securities laws.
f. Registrant represents that the fees and charges deducted under the
contracts covered by this registration statement, in the aggregate are
reasonable in relation to the services rendered, the expenses expected
to be incurred, and the risks assumed by the company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of the Securities
Exchange Act Rule 485(b)for effectiveness of this registration Statement and has
caused this Registration Statement to be signed on its behalf, in the City of
Wilmington, and State of Delaware on this 28th day of April, 1998
Variable Account I
Registrant
By: Kenneth D. Walma
----------------------
Kenneth D. Walma,
Assistant Secretary and Associate General Counsel
By: AIG Life Insurance Company
Depositor
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
Howard E. Gunton, Jr.* Chief Accounting April 28 1998
--------------------- Officer
Howard E. Gunton, Jr.
Nicholas A. O'Kulich*
------------------------- Director April 28 1998
Nicholas A.O'Kulich
Maurice R. Greenberg* Director April 28 1998
------------------------
Maurice R. Greenberg
Edwin A.G.Manton* Director April 28 1998
----------------
Edwin A.G.Manton
Edward E. Matthews* Director April 28 1998
-------------------
Edward E. Matthews
Jerome T. Muldowney* Director April 28 1998
-------------------
Jerome T. Muldowney
Win J. Neuger* Director April 28 1998
-------------
Win J. Neuger
John R. Skar* Director April 28 1998
-------------
John R. Skar
Howard I. Smith* Director April 28 1998
----------------
Howard I. Smith
Ernest E.Stempel* Director April 28 1998
---------------------
Ernest E. Stempel
--------------------- Director
Edmund Sze-Wing Tse*
Gerald W. Wyndorf* Director April 28 1998
---------------------
Gerald W. Wyndorf
Robert J. O'Connell* Director April 28 1998
---------------------
Robert J. O'Connell
*By:/s/ Kenneth D. Walma
-----------------------
Kenneth D. Walma
Attorney in Fact
<PAGE>
EXHIBITS TO
AMENDMENT NUMBER TO
FORM N-4
FOR VARIABLE
ACCOUNT I
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
9 Opinion of Counsel
10 (i) Consent of Counsel
10 (ii) Consent of Independent Accountants
<PAGE>
EXHIBIT 9
Opinion of Counsel
<PAGE>
OPINION OF COUNSEL
I have made such examination of the law and have examined such records and
documents as in my judgment are necessary or appropriate to enable me to render
the opinions expressed below.
I am of the following opinions:
1. AIG Life Insurance Company is a valid and existing stock life insurance
company domiciled in the State of Delaware.
2. Variable Account I is a separate investment account of AIG Life
Insurance Company validly existing pursuant to the Delaware Insurance
Laws and the Regulations thereunder.
3. All of the prescribed corporate procedures for the issuance of the
Individual and Group Single and Flexible Premium Deferred Variable
Annuity Contracts (the "Contracts") have been followed, and, when such
Contracts are issued in accordance with the Prospectuses contained in
the Registration Statement, all state requirements relating to such
Contracts will have been complied with.
4. Upon the acceptance of premiums made by Contract Owners pursuant to a
Contract issued in accordance with the Prospectuses contained in the
Registration Statement and upon compliance with applicable law, such
Contract Owner will have a legally-issued, fully paid, nonassessable
interest in such Contract.
This opinion, or a copy hereof, may be used as an exhibit to or in connection
with the filing with the Securities and Exchange Commission of the
Post-Effective Amendment No. 8 to the Registration Statement on Form N-4 for the
Contracts to be issued by AIG Life Insurance Company and its separate account,
Variable Account I.
/s/ Kenneth D. Walma
Kenneth D. Walma
Assistant Secretary and Associate General Counsel
Dated: April 28, 1998
<PAGE>
EXHIBIT 10(i)
Consent of Counsel
<PAGE>
April 28, 1998
[LETTERHEAD]
AIG Life Insurance Company
One Alico Plaza
600 King Street
Wilmington, Delaware 19801
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus and in the caption "Legal Counsel" in the Statement
of Additional Information Contained in Post Effective Amendment No. 8 to the
Registration Statement on Form N-4(File No. 33-58504) filed by AIG Life
Insurance Company and Variable Account I with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940.
Very Truly Yours,
/s/ Jorden Burt Boros Cicchetti Berenson & Johnson LLP
Jorden Burt Boros Cicchetti Berenson & Johnson
<PAGE>
EXHIBIT 10(ii)
Consent of Independent Accountants
<PAGE>
Exhibit 10 (ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect of Post-effective Amendment No.
8 to the Registration Statement (No. 33-58504) on Form N-4 under the Securities
Act of 1933 of Variable Account I of AIG Life Insurance Company.
1. The inclusion of our report dated February 4, 1998 relating to our
audits of the financial statements of AIG Life Insurance Company in the
Statement of Additional Information.
2. The inclusion of our report dated February 4, 1998 relating to our
audits of the financial statements of Variable Account I in the Statement
of Additional Information.
3. The incorporation by reference into theProspectus of our report dated
February 4, 1998 relating to our audits of the financial statements of
AIG Life Insurance Company and Variable Account I.
4. The reference to our firm under the heading "General Information
Independent Accountants" in the Statement of Additional Information.
/s/Coopers & Lybrand L.L.P
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Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 28, 1998
