AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
APRIL 30, 1999
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. 9 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 32 [ 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)
(302) 594-2978
(Depositor's Telephone Number, including Area Code)
Kenneth D. Walma, Esq.
AIG Life Insurance Company
One Alico Plaza
Wilmington, Delaware 19899
(Name and Address of Agent for Service)
Copies to:
Michael Berenson, Esq. and Ernest T. Patrikis, Esq.
Jorden Burt Boros Cicchetti American International Group, Inc.
Berenson & Johnson 70 Pine Street
1025 Thomas Jefferson Street, N.W. New York, NY 10270
Washington, DC 200007-0805
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)
____ immediately upon filing pursuant to paragraph (b) of Rule 485
_X_ on May 1, 1999 pursuant to paragraph (b) of Rule 485 ___ 60 days
after filing pursuant to paragraph (a)(i) of Rule 485
__ on _______ pursuant to paragraph (a)(i) of Rule 485 ___ 75 days
after filing pursuant to paragraph (a)(ii) ___ on _____ pursuant to
paragraph (a)(ii) of Rule 485 If appropriate, check the following box:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has declared that it registered an indefinite number or
amount of securities in accordance with Rule 24f-2 under the Investment
Company Act of 1940. Registrant filed a Rule 24f-2 notice for its most
recent fiscal year on March 29, 1999
<PAGE>
CROSS REFERENCE SHEET
(required by Rule 495)
Item No. Location
PART A
Item 1. Cover Page Cover Page
Item 2. Definitions Definitions
Item 3. Synopsis General Description
Item 4. Condensed Financial Information Condensed Financial
Information
Item 5. General Description of Registrant, Investment Options
Depositor, and Portfolio Companies Other Information
Item 6. Deductions and Charges Charges and Deductions
Item 7. General Description of Variable The Contract
Annuity Contracts
Item 8. Annuity Period Annuity Payments
Item 9. Death Benefit Death Benefit
Item 10. Purchases and Contract Value Investment Options
Item 11. Redemptions Access to Your Money
Item 12. Taxes Taxes
Item 13. Legal Proceedings Legal Proceedings
Item 14. Table of Contents of the Statement of Table of Contents of
Additional Information the Statement of Additional
Information
<PAGE>
PART B
Item 15. Cover Page Cover Page
Item 16. Table of Contents Table of Contents
Item 17. General Information and History General Information
Item 18. Services General Information/
Independent Accountants/
Legal Counsel
Item 19. Purchase of Securities Being Offered The Contract;
Charges and Deductions
(Part A)
Item 20. Underwriters General Information/
Distributor
Item 21. Calculation of Performance Data Calculation of Performance Data
Item 22. Annuity Payments Annuity Provisions
Item 23. Financial Statements Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART A
<PAGE>
<PAGE>
TRILOGY VARIABLE ANNUITY PROFILE
This profile is a summary of some of the more important points that you should
know and consider before purchasing a variable annuity. The variable annuity is
more fully described in the accompanying prospectus. The sections in this
summary correspond to sections in the prospectus which discuss the topics in
more detail. All capitalized terms are used as defined in the prospectus. Please
read the prospectus carefully.
MAY 1, 1999
================================================================
1. VARIABLE ANNUITY
================================================================
A variable annuity contract is between you and AIG Life Insurance Company. It is
designed to help you invest on a tax-deferred basis and meet long-term financial
goals, such as providing you with retirement income. Tax deferral means all your
money, including the amount you would otherwise pay in current income taxes,
remains in your contract to generate more earnings.
This prospectus offers a choice of investment options. You may divide your money
among any or all of the 23 variable investment options provided by Merrill Lynch
Asset Management, L.P., Hotchkis and Wiley, Mercury Asset Management
International Ltd. and Alliance Capital Management, L.P. and the fixed
investment option. Your investment is not guaranteed. The value of your contract
can fluctuate up or down based on the performance of the underlying investments
you select, and you may experience a loss.
The variable investment portfolios offer professionally managed investment
choices with goals ranging from capital preservation to aggressive growth. Your
choices for the various investment options are found on the next page.
Like most deferred annuities, the contract has an accumulation phase and an
income phase. During the accumulation phase, you invest money in your contract.
Your earnings are based on the investment performance of the variable investment
portfolios to which your money is allocated and/or the interest rate earned on
the fixed investment option. You may withdraw money from your contract during
the accumulation phase. However, as with other tax-deferred investments, you
will pay taxes on earnings and untaxed contributions when you withdraw them. A
tax penalty may apply if you make withdrawals before age 59 1/2. The income
phase begins with the Annuity Date that you select. During the income phase, you
will receive payments from your annuity. Your payments may be fixed in dollar
amount, vary with investment performance or a combination of both, depending on
where you allocate your money. Among other factors, the amount of money you are
able to accumulate in your contract during the accumulation phase will determine
the amount of your payments during the income phase.
<PAGE>
================================================================
2. ANNUITY OPTIONS
================================================================
You can select one of the annuity options listed below:
(1) payments for the Annuitant's lifetime;
(2) payments for the Annuitant's lifetime, but for not less than 10 years;
and
(3) payments for the lifetime of the survivor of two Annuitants.
We may offer other annuity options, subject to our discretion.
You will need to decide if you want your payments to fluctuate with investment
performance, remain constant or to reflect a combination of the two. You will
also select the date on which your payments will begin. Once you begin receiving
payments, you cannot change your annuity option. If your contract is part of a
non-qualified retirement plan (one that is established with after tax dollars),
payments during the income phase are considered partly a return of your original
investment. The "original investment" part of each payment is not taxable as
income. For contracts which are part of a qualified retirement plan using before
tax dollars, the entire payment is taxable as income.
================================================================
3. PURCHASING A VARIABLE ANNUITY CONTRACT
================================================================
You can buy a contract through your financial representative, who can also help
you complete the proper forms. The minimum initial investment of $2,000 and
subsequent amounts of $1,000 or more may be added to your contract at any time
during the accumulation phase.
================================================================
4. INVESTMENT OPTIONS
================================================================
You may allocate money to the following variable investment portfolios of
Merrill Lynch Variable Series Funds, Inc., Hotchkis and Wiley Variable Trust,
Mercury Asset Management Master Trust or Alliance Variable Products Series Fund,
Inc.
Merrill Lynch Variable Series Fund
(managed by Merrill Lynch Asset Management, L.P.)
Basic Value Focus Fund
Capital Focus Fund
Domestic Money Market Fund
Global Growth Focus Fund
Global Strategy Focus Fund
Global Utility Focus Fund
High Current Income Fund
Quality Equity Fund
Special Value Focus Fund
Hotchkis and Wiley Variable Trust
(managed by Hotchkis and Wiley)
International VIP Portfolio
Low Duration VIP Portfolio
Mercury Asset Management Master Trust
(managed by Mercury Asset Management International Ltd.)
U.S. Large Cap Fund
Alliance Variable Products Series Fund
(managed by Alliance Capital Management L.P.)
Global Dollar Government Portfolio
Growth Portfolio
Growth and Income Portfolio
High Yield Portfolio
Premier Growth Portfolio
Quasar Portfolio
Real Estate Investment Portfolio
Technology Portfolio
Total Return Portfolio
U.S. Government/High Grade Securities Portfolio
Worldwide Privatization Portfolio
The fixed investment option is our guaranteed account. The interest rate may
differ from time to time but we will never credit less than a 3% annual
effective rate. Once established, the rate will not change during the selected
period. You may also elect one of two dollar cost averaging programs. (The
6-month DCA may not yet be available in your state. Please contact your
financial representative for more information.)
================================================================
5. EXPENSES
================================================================
Each year, we deduct a $30 contract maintenance fee from your contract. This fee
is waived if the value of your contract is at least $50,000. We also deduct
insurance charges which equal 1.40% annually of the average daily value of your
contract allocated to the variable portfolios. The insurance charges include a
mortality and expense risk charge of 1.25% and an administrative charge of
0.15%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable portfolios.
These charges, include management fees and other operating expenses and are
estimated to range from 0.49% to 1.35%.
If you take money out in excess of the free amount permitted by your contract,
you may be assessed a surrender charge as a percentage of the premium you
withdraw. The percentage declines over a seven year period as follows:
Premium Year 1 2 3 4 5 6 7 Thereafter
Surrender Charge 6% 6% 5% 5% 4% 3% 2% None
Each year, you are allowed to make 12 transfers without charge. After your first
12 free transfers, a $10 transfer fee will apply to each subsequent transfer.
You may also be assessed a premium tax of up to 3.5% depending upon the state
where you reside.
The following chart is designed to help you understand the charges under your
contract. The column "Total Annual Insurance Charges" shows the total of the
1.40% insurance charges and the $30 contract maintenance fee. We converted the
contract maintenance fee to a percentage using an assumed contract size of
$50,000. The actual impact of this charge on your contract may differ from this
percentage. The column "Total Annual Portfolio Charges" refers to portfolio
charges for each variable portfolio. The third column is the total of all annual
charges.
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money (1) at the end of year 1 and (2) at
the end of year 10. The premium tax is assumed to be 0% in both examples.
<PAGE>
<TABLE>
Total Total Examples
Annual Annual Total Total Expenses Total Expenses
Insurance Portfolio Annual at the end of at the end of
Charges Charges* Charges 1 Year 10 Years
<S> <C> <C> <C> <C> <C>
Merrill Lynch Variable Series Fund
Basic Value Focus Fund 1.40% 0.66% 2.06% $76 $245
Capital Focus Fund 1.40% 0.86% 2.26% 78 266
Domestic Money Market Fund 1.40% 0.56% 1.96% 75 235
Global Growth Focus Fund 1.40% 1.03% 2.43% 79 283
Global Strategy Focus Fund 1.40% 0.72% 2.12% 76 251
Global Utility Focus Fund 1.40% 0.68% 2.08% 76 247
High Current Income Fund 1.40% 0.53% 1.93% 74 232
Quality Equity Fund 1.40% 0.49% 1.89% 74 227
Special Value Focus Fund 1.40% 0.81% 2.21% 77 261
Hotchkis & Wiley Variable Trust
International VIP Portfolio 1.40% 1.05% 2.45% 79 285
Low Duration VIP Portfolio 1.40% 0.58% 1.98% 75 237
Mercury Asset Management Master Trust
U.S. Large Cap Fund 1.40% 1.35% 1.75% 82 314
Alliance Variable Products Series Fund
Global Dollar Government Portfolio 1.40% 0.95% 2.35% 78 275
Growth Portfolio 1.40% 0.87% 2.27% 78 267
Growth and Income Portfolio 1.40% 0.73% 2.13% 76 252
High Yield Portfolio 1.40% 0.95% 2.35% 78 275
Premier Growth Portfolio 1.40% 1.06% 2.46% 80 286
Quasar Portfolio 1.40% 0.95% 2.35% 78 275
Real Estate Investment Portfolio 1.40% 0.95% 2.35% 78 275
Technology Portfolio 1.40% 0.95% 2.35% 78 275
Total Return Portfolio 1.40% 0.88% 2.28% 78 268
U.S. Gov't/High Grade Securities Portfolio 1.40% 0.78% 2.18% 77 257
Worldwide Privatization Portfolio 1.40% 0.95% 2.35% 78 275
</TABLE>
* Total Annual Portfolio Charges for the following portfolios before
reimbursement by the investment advisers for the period ended December 31, 1998
were as follows:
Merrill Lynch Variable Series Fund
Special Value Focus Fund 0.97%
Alliance Variable Products Series Fund
Global Dollar Government Portfolio 1.75%
High Yield Portfolio 1.80%
Premier Growth Portfolio 1.09%
Quasar Portfolio 1.30%
Real Estate Investment Portfolio 1.77%
Technology Portfolio 1.20%
Total Return Portfolio 0.95%
U.S. Government/High Grade Securities Portfolio 0.91%
Worldwide Privatization Portfolio 1.70%
For more detailed information, see "Fee Tables" in the prospectus.
================================================================
6. TAXES
================================================================
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract (one that is established
with after tax dollars) are deferred until they are withdrawn. In a qualified
contract (one that is established with before tax dollars like an IRA), all
amounts are taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% tax penalty for distributions or withdrawals
before age 591/2.
================================================================
7. ACCESS TO YOUR MONEY
================================================================
You may withdraw free of a surrender charge an amount that is equal to the
penalty-free earnings in your contract as of the date you make the withdrawal.
If you participate in the systematic withdrawal program, you may withdraw 10% of
your total invested amount. The penalty-free earnings amount is calculated by
taking the value of your contract on the day you make the withdrawal and
subtracting your total invested amount. Your maximum free withdrawal amount is
the greater of: (1) the penalty-free earnings or (2) 10% of your total invested
amount that has been invested.
Withdrawals in excess of these limits will be assessed a surrender charge.
Withdrawals may be made from your contract in the amount of $500 or more. You
may request a withdrawal in writing. Under the systematic withdrawal program,
you must have at least $24,000 in contract value. The minimum withdrawal amount
is $200.
After your money has been in the contract for seven full years, there is no
surrender charge on that portion of the money that you have invested for at
least seven full years. Of course, you may have to pay income tax on any amount
withdrawn and a 10% tax penalty may apply if you are under age 59 1/2.
Additionally, a surrender charge is not assessed when a death benefit is paid.
================================================================
8. PERFORMANCE
================================================================
The value of your annuity will fluctuate depending upon the investment
performance of the portfolios you choose.
The following chart shows total returns for each portfolio for the time periods
shown. These numbers reflect the insurance charges, the contract maintenance fee
and the investment charges. Surrender charges are not reflected in the chart. If
a surrender charge was reflected, the performance would be lower. Past
performance is no guarantee of future results.
<PAGE>
<TABLE>
SUMMARY OF PERFORMANCE
Inception Since
Date* Inception
<S> <C> <C>
Merrill Lynch Variable Series Fund
Basic Value Focus Fund Feb-98 14.11%
Capital Focus Fund
Domestic Money Market Fund Feb-98 3.17%
Global Growth Focus Fund
Global Strategy Focus Fund Feb-98 7.95%
Global Utility Focus Fund Feb-98 13.28%
High Current Income Fund Feb-98 10.12%
Quality Equity Fund Feb-98 14.08%
Special Value Focus Fund Feb-98 7.96%
Hotchkis and Wiley Variable Trust
International VIP Portfolio May-99 N/A
Low Duration VIP Portfolio May-99 N/A
Mercury Asset Management Master Trust
U.S. Large Cap Fund May-99 N/A
Alliance Variable Products Series Fund
Global Dollar Government Portfolio Feb-98 4.95%
Growth Portfolio Feb-98 27.34%
Growth & Income Portfolio Feb-98 17.80%
High Yield Portfolio Feb-98 -2.15%
Premier Growth Portfolio Feb-93 22.94%
Quasar Portfolio Feb-98 6.54%
Real Estate Portfolio Feb-98 -1.46%
Technology Portfolio Feb-98 22.90%
Total Return Portfolio Feb-98 15.08%
U.S. Government/High Grade Securities Portfolio Feb-98 4.71%
Worldwide Privatization Portfolio Feb-98 10.24%
</TABLE>
*The portfolios were not available under the contract prior to 1998.
================================================================
9. DEATH BENEFIT
================================================================
If you should die during the accumulation phase, your beneficiary will receive a
death benefit. Unless you choose one or more of the optional death benefits, the
traditional death benefit will be paid. You may select from the death benefit
options described below at the time you purchase your contract. Once we issue
your contract, you cannot add death benefit options. You should discuss with
your financial representative which option is best for you. Additional
information is available in the prospectus.
Traditional Death Benefit
The traditional death benefit is equal to the greatest of:
(1) the Contract Value;
(2) the total of all premium paid, reduced proportionally by any surrenders
in the same proportion that the Contract Value was reduced on the date
of a surrender; or
(3) the greatest 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 paid if no other death benefit is
selected.
Optional Death Benefits
There is a charge for each 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 charge for the optional death benefit if, as of the
date of death, the accrued charge had not yet been deducted.
Annual Ratchet Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any surrenders
in the same proportion that the Contract Value was reduced on the date
of a surrender; 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.
Equity Assurance Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the greatest Contract Value at any seventh Contract Anniversary plus
any premium 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 premium paid on or before the first
Contract Anniversary following your 85th Birthday, adjusted for surrenders and
then accumulated at the compound interest rates shown below for the number of
completed 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:
o 0% per annum if death occurs during the 1st through 24th month from
the date of premium payment;
o 2% per annum if death occurs during the 25th through 48th month from
the date of premium payment;
o 4% per annum if death occurs during the 49th through 72nd month from
the date of premium payment;
o 6% per annum if death occurs during the 73rd through 96th month from
the date of premium payment;
o 8% per annum if death occurs during the 97th through 120th month from
the date of premium payment;
o 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 premium paid after the first Contract Anniversary
following your 85th birthday, adjusted for surrenders.
Accidental Death Benefit
If you select the accidental death benefit it will be paid in addition to the
traditional or optional death benefit in effect at the time of your death. The
accidental death benefit is not available if the contract is used as an IRA. If
selected, 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.
================================================================
10. OTHER INFORMATION
================================================================
Right to Examine and Cancel: You may cancel your contract within ten days (or
longer if your state requires a longer period) by mailing it to our
Administrative Office. Your contract will be treated as void on the date we
receive it and we will pay you an amount equal to the value of your contract
(unless otherwise required by state law). Its value may be more or less than the
money you initially invested.
Dollar Cost Averaging: If selected, these programs allow you to invest in the
portfolios gradually over time at a fixed dollar amount or a certain percentage
each month. This type of investing will cover various market cycles. Your
Contract Value must be at least $12,000 to elect this option. The 6-month dollar
cost averaging program may not be available in all states.
Asset Rebalancing: If selected, this program seeks to keep your investment in
line with your goals. We will maintain your specified allocation mix among the
subaccounts that you selected. The Contract Value allocated to each subaccount
will grow or decline in value at different rates during the quarter. Asset
rebalancing automatically reallocates according to the allocation percentages
you selected.
Systematic Withdrawal Program: If selected, this program allows you to receive
either monthly or quarterly withdrawals during the accumulation phase. Of
course, withdrawals may be taxable and a 10% tax penalty may apply if you are
under age 59 1/2. Your Contract Value must be at least $24,000 to elect this
option.
Confirmations and Quarterly Statements: You will receive a confirmation of each
financial transaction within your contract. On a quarterly basis, you will
receive a complete statement of your transactions over the past quarter and a
summary of your Contract Value.
================================================================
11. INQUIRIES
================================================================
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
AIG Life Insurance Company
c/o Delaware Valley Financial Services
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
Telephone Number 1-800-870-1453
<PAGE>
TRILOGY PROSPECTUS
MAY 1, 1999
VARIABLE ANNUITY CONTRACTS
issued by
AIG LIFE INSURANCE COMPANY
through its
VARIABLE ACCOUNT I
This prospectus describes a variable annuity contract being offered to
individuals and groups. It is a flexible premium, deferred annuity contract with
a fixed investment option. Please read this prospectus carefully before
investing and keep it for future reference.
The contract has twenty-four investment options to which you can allocate your
money -- twenty-three variable investment options listed below and one fixed
investment option. The fixed investment option is our guaranteed account which
earns a minimum of 3% interest. The variable investment options are portfolios
of the Merrill Lynch Variable Series Fund, Inc., Hotchkis and Wiley Variable
Trust, Mercury Asset Management Master Trust or the Alliance Variable Products
Series Fund, Inc.
Merrill Lynch Variable Series Fund
(managed by Merrill Lynch Asset Management, L.P.)
Basic Value Focus Fund Global Utility Focus Fund
Capital Focus Fund High Current Income Fund
Domestic Money Market Fund Quality Equity Fund
Global Growth Focus Fund Special Value Focus Fund
Global Strategy Focus Fund
Hotchkis and Wiley Variable Trust
(managed by Hotchkis and Wiley)
International VIP Portfolio
Low Duration VIP Portfolio
Mercury Asset Management Master Trust
(managed by Mercury Asset Management International Ltd.)
U.S. Large Cap Fund
1
<PAGE>
Alliance Variable Products Series Fund
(managed by Alliance Capital Management L.P.)
Global Dollar Government Portfolio Real Estate Investment Portfolio
Growth Portfolio Technology Portfolio
Growth and Income Portfolio Total Return Portfolio
High Yield Portfolio U.S. Government/High Grade
Premier Growth Portfolio Securities Portfolio
Quasar Portfolio Worldwide Privatization Portfolio
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information ("SAI") dated May 1, 1999. The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference
into this prospectus. The table of contents of the SAI appears on the last page
of this prospectus. For a free copy of the SAI, call us at (800) 870-1453 or
write to us at AIG Life Insurance Company, Attention: Variable Products, One
Alico Plaza, 600 King Street, Wilmington, Delaware 19801.
In addition, the SEC maintains a website at http://www.sec.gov that contains the
prospectus, SAI, materials incorporated by reference and other information which
we have filed electronically with the SEC.
Variable annuities involve risks, including possible loss of principal. They are
not a deposit of any bank or insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The SEC has not approved or disapproved of the contract or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
2
<PAGE>
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TABLE OF CONTENTS
=====================================================================
DEFINITIONS
FEE TABLES
CONDENSED FINANCIAL INFORMATION
THE CONTRACT
INVESTMENT OPTIONS
CHARGES AND DEDUCTIONS
ACCESS TO YOUR MONEY
ANNUITY PAYMENTS
DEATH BENEFIT
PERFORMANCE
TAXES
OTHER INFORMATION
FINANCIAL STATEMENTS
APPENDIX - CONDENSED FINANCIAL INFORMATION
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
3
<PAGE>
=====================================================================
DEFINITIONS
=====================================================================
We have capitalized certain terms used in this prospectus. To help you
understand these terms, we have defined them in this glossary.
Accumulation Unit - An accounting unit of measure used to calculate your
Contract Value prior to the Annuity Date.
Administrative Office - The Annuity Service Office, c/o Delaware Valley
Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031.
Annuitant - The person you designate whose life determines the duration of
annuity payments involving life contingencies.
Annuity Date - The date on which annuity payments begin.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary - An anniversary of the date we issued your contract.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under your contract.
Contract Year - Each period of twelve months commencing with the date we issued
your contract.
Owner - The person named as the owner in the contract or as later changed and
who has all rights under the contract.
Premium Year - Any period of twelve months commencing with the date we receive a
premium payment and ending on the same date in each succeeding twelve month
period thereafter.
Valuation Date - Each day that the New York Stock Exchange is 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.
4
<PAGE>
=====================================================================
FEE TABLES
=====================================================================
Owner Transaction Expenses
<TABLE>
<S> <C> <C>
Sales Load.................................................................... None
Surrender Charge (as a percentage of premiums 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%
Thereafter................................................................ None
Transfer Fee
First 12 Per Contract Year................................................ None
Thereafter................................................................ $10
Contract Maintenance Fee (waived if account value is $50,000 or greater)....... $30/yr
Variable Account Expenses (as a percentage of average account value)
Mortality and Expense Risk Charge......................................... 1.25%
Administrative Charge..................................................... 0.15%
====
Total Variable Account Annual Expenses.................................... 1.40%
</TABLE>
5
<PAGE>
Annual Portfolio Expenses
After Waivers/Reimbursement
<TABLE>
Management Other 12b-1 Total
Fees Expenses(1) Fees(2) Expenses
<S> <C> <C> <C> <C>
Merrill Lynch Variable Series Fund(3)
Basic Value Focus Fund 0.60% 0.06% 0.0% 0.66%
Capital Focus Fund 0.60% 0.26% 0.0% 0.86%
Domestic Money Market Fund 0.50% 0.06% 0.0% 0.56%
Global Growth Focus Fund 0.75% 0.28% 0.0% 1.03%
Global Strategy Focus Fund 0.65% 0.07% 0.0% 0.72%
Global Utility Focus Fund 0.60% 0.08% 0.0% 0.68%
High Current Income Fund 0.47% 0.06% 0.0% 0.53%
Quality Equity Fund 0.44% 0.05% 0.0% 0.49%
Special Value Focus Fund 0.75% 0.06% 0.0% 0.81%
Hotchkis and Wiley Variable Trust
International VIP Portfolio 0.75% 0.30% 0.0% 1.05%
Low Duration VIP Portfolio 0.46% 0.12% 0.0% 0.58%
Mercury Asset Management Master Trust
U.S. Large Cap Fund 0.65% 0.70% 0.0% 1.35%
Alliance Variable Products Series Fund(4)
Global Dollar Government Portfolio 0.39% 0.56% 0.0% 0.95%
Growth Portfolio 0.75% 0.12% (2) 0.87%
Growth and Income Portfolio 0.63% 0.10% (2) 0.73%
High Yield Portfolio 0.44% 0.51% 0.0% 0.95%
Premier Growth Portfolio 0.97% 0.09% 0.0% 1.06%
Quasar Portfolio 0.73% 0.22% 0.0% 0.95%
Real Estate Investment Portfolio 0.08% 0.87% 0.0% 0.95%
Technology Portfolio 0.81% 0.14% 0.0% 0.95%
Total Return Portfolio 0.62% 0.26% 0.0% 0.88%
U.S. Government/High Grade Securities Portfolio 0.60% 0.18% (2) 0.78%
Worldwide Privatization Portfolio 0.25% 0.70% 0.0% 0.95%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectuses
for the Merrill Lynch Variable Series Fund, Hotchkis and Wiley Variable
Trust, Mercury Asset Management Master Trust and the Alliance Variable
Products Series Fund.
6
<PAGE>
(2) Expenses shown are for the year ended December 31, 1998. No 12b-1 fees
were charged. Effective May 1, 1999, Alliance Variable Products Series
Fund will offer the Growth Portfolio, Growth and Income Portfolio and
U.S. Government/High Grade Securities Portfolio as Class B shares and
will be subject to 12b-1 fees. The amount of this fee is 0.25%.
(3) Total expenses for the following portfolios before waivers and
reimbursement by the Merrill Lynch Variable Series Fund's investment
adviser for the period ended December 31, 1998, were as follows:
Special Value Focus 0.97%
(4) Total expenses for the following portfolios before reimbursement by the
Alliance Variable Products Series Fund's investment adviser for the
period ended December 31, 1998, were as follows:
Global Dollar Government 1.75% Technology 1.20%
High Yield 1.80% Total Return 0.95%
Premier Growth 1.09% U.S. Government/
Quasar 1.30% High Grade Securities 0.91%
Real Estate Investment 1.77% Worldwide Privatization 1.70%
7
<PAGE>
Example
<TABLE>
You would pay the following expenses on a $1,000 investment, assuming 5% growth:
If you surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Merrill Lynch Variable Series Fund
Basic Value Focus Fund $76 $111 $150 $245
Capital Focus Fund 78 117 160 266
Domestic Money Market Fund 75 108 145 235
Global Growth Focus Fund 79 123 169 283
Global Strategy Focus Fund 76 113 153 251
Global Utility Focus Fund 76 112 151 247
High Current Income Fund 74 107 143 232
Quality Equity Fund 74 106 141 227
Special Value Focus Fund 77 116 158 261
Hotchkis and Wiley Variable Trust
International VIP Portfolio 79 123 170 285
Low Duration VIP Portfolio 75 109 146 237
Mercury Asset Management Master Trust
U.S. Large Cap Fund 82 132 184 314
Alliance Variable Products Series Fund
Global Dollar Government Portfolio 78 120 165 275
Growth Portfolio 78 118 161 267
Growth and Income Portfolio 76 114 153 252
High Yield Portfolio 78 120 165 275
Premier Growth Portfolio 80 123 170 286
Quasar Portfolio 78 120 165 275
Real Estate Investment Portfolio 78 120 165 275
Technology Portfolio 78 120 165 275
Total Return Portfolio 78 118 161 268
U.S. Government/High Grade Securities Portfolio 77 115 156 257
Worldwide Privatization Portfolio 78 120 165 275
</TABLE>
8
<PAGE>
<TABLE>
If you annuitize or you do not surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Merrill Lynch Variable Series Fund
Basic Value Focus Fund $22 $66 $114 $245
Capital Focus Fund 24 72 124 266
Domestic Money Market Fund 21 63 109 235
Global Growth Focus Fund 25 78 133 283
Global Strategy Focus Fund 22 68 117 251
Global Utility Focus Fund 22 67 115 247
High Current Income Fund 20 62 107 232
Quality Equity Fund 20 61 105 227
Special Value Focus Fund 23 71 122 261
Hotchkis and Wiley Variable Trust
International VIP Portfolio 25 78 134 285
Low Duration VIP Portfolio 21 64 110 237
Mercury Asset Management Master Trust
U.S. Large Cap Fund 28 87 148 314
Alliance Variable Products Series Fund
Global Dollar Government Portfolio 24 75 129 275
Growth Portfolio 24 73 125 267
Growth and Income Portfolio 22 69 117 252
High Yield Portfolio 24 75 129 275
Premier Growth Portfolio 26 78 134 286
Quasar Portfolio 24 75 129 275
Real Estate Investment Portfolio 24 75 129 275
Technology Portfolio 24 75 129 275
Total Return Portfolio 24 73 125 268
U.S. Government/High Grade Securities Portfolio 23 70 120 257
Worldwide Privatization Portfolio 24 75 129 275
</TABLE>
The purpose of the tables set forth in the example above is to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly. The tables reflect expenses of the variable account and the
portfolios but do not reflect any deduction for premium taxes, if any. The
example should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
===================================================================
CONDENSED FINANCIAL INFORMATION
===================================================================
Historical accumulation unit values are contained in the Appendix.
9
<PAGE>
===================================================================
THE CONTRACT
===================================================================
General Description
An annuity is a contract between you, as the owner, and a life insurance
company. The contract provides tax deferral for your earnings, which means your
earnings accumulate on a tax-deferred basis until you take money out of your
contract. It also provides a death benefit and a guaranteed income in the form
of annuity payments beginning on a date you select. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation phase. The
income phase begins once you begin receiving annuity payments. If you die during
the accumulation phase, we guarantee a death benefit to your beneficiary.
The contract is called a variable annuity because you can allocate your money
among variable investment options. Each subaccount of our variable account
invests in shares of a corresponding portfolio of a mutual fund. Depending on
market conditions, the various portfolios may make or lose money. If you
allocate money to the portfolios, your Contract Value during the accumulation
phase will depend on their investment performance. In addition, the amount of
the variable annuity payments you may receive will depend on the investment
performance of the portfolios you select for the income phase.
The contract also has a fixed investment option. The guaranteed option account
is a fixed interest option that is part of our general account. Premium you
allocate to the guaranteed option will earn interest at a fixed rate that we
set. We guarantee the interest rate will never be less than 3%. Your Contract
Value in the guaranteed option account during the accumulation phase will depend
on the total interest we credit. During the income phase, each annuity payment
you receive from the fixed portion of your contract will be for the same amount.
Purchasing a Contract
Premium is the money you give us as payment to buy the contract, as well as any
additional money you give us to invest in the contract after you own it. The
minimum initial investment for both qualified and non-qualified contracts is
$2,000. You may add premium payments of $1,000 or more to your contract at any
time during the accumulation phase. You can pay scheduled subsequent premium of
$100 or more per month by enrolling in an automatic investment plan.
We may refuse any premium. In general, we will not issue a contract to anyone
who is over age 85.
10
<PAGE>
Allocation of Premium
When you purchase a contract, you will tell us how to allocate your initial
premium among the investment options. We will allocate additional premium in the
same way unless you tell us otherwise.
At the time of application, we must receive your initial premium at our
Administrative Office before the contract will be effective. We will issue your
contract and allocate your initial premium within two business days. If you do
not give us all the necessary information we need to issue the contract, we will
contact you to obtain it. If we are unable to complete this process within five
business days, we will send your money back unless you allow us to keep it until
we get all the necessary information.
Right to Examine Contract
If you change your mind about owning this contract, you can cancel it within ten
days after receiving it (or longer if required by state law) by mailing it back
to our Administrative Office: Delaware Valley Financial Services, Inc., 300
Berwyn Park, P.O. Box 3031, Berwyn, PA 19312- 0031. You will receive your
Contract Value on the day we receive your request which may be more or less than
the money you initially invested.
In certain states or if you purchase your contract as an individual retirement
annuity, we may be required to return your premium. If you cancel your contract
during the right to examine period, we will return to you an amount equal to
your premium payments less any withdrawals.
Accumulation Units
The value of an Accumulation Unit may go up or down from day to day. When you
pay a premium, we credit your contract with Accumulation Units. The number of
Accumulation Units credited is determined by dividing the amount of premium
allocated to a subaccount by the value of the Accumulation Unit for that
subaccount. We calculate the value of an Accumulation Unit as of the close of
business of the New York Stock Exchange ("NYSE") on each day that the NYSE is
open for trading. Except in the case of initial premium, we credit Accumulation
Units to your contract at the value next calculated after we receive your
premium at our Administrative Office.
The Accumulation Unit value for each portfolio will vary from one valuation
period to the next based on the investment experience of the assets in the
portfolio and the deduction of certain charges and expenses. The SAI contains a
detailed explanation of how Accumulation Units are valued.
Your value in any portfolio is determined by multiplying its unit value by the
number of units you own. Your value within the variable investment options is
the sum of your values in all the
11
<PAGE>
portfolios. The total value of your contract, referred to as the Contract Value,
equals your value in the variable investment options plus your value in the
guaranteed account.
Transfers During the Accumulation Phase
You can transfer money among the investment options by written request or by
telephone. You can make twelve transfers every Contract Year without charge.
There is a $10 transfer fee for each transfer over twelve in a Contract Year.
Transfers as a result of dollar cost averaging or asset rebalancing are not
counted against your twelve free transfers.
The minimum amount you can transfer is $1,000. You cannot make a partial
transfer if, after the transfer, there would be less than $1,000 in the
portfolio from which the transfer is being made. Your transfer request must
clearly state which investment options are involved and the amount of the
transfer.
We will accept transfers by telephone from you, your representative or anyone
else designated by you. Neither we nor the funds will be liable for following
telephone instructions we reasonably believe to be genuine or for any loss,
damage, cost or expense in acting on such instructions. We have in place
procedures to provide reasonable assurance that telephone instructions are
genuine.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time.
Dollar Cost Averaging
The contract has a feature which allows you to dollar cost average your
allocations to the portfolios by authorizing us to make periodic allocations of
Contract Value from either the money market portfolio or the guaranteed option
to one or more of the other portfolios. 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. It will result in the reallocation of
Contract Value to one or more portfolios and these amounts will be credited at
the Accumulation Unit value as of the Valuation Dates on which the exchanges are
effected. The amounts exchanged from a portfolio will result in a debiting of a
greater number of units when the Accumulation Unit value is low and a lower
number of units when the Accumulation Unit value is high.
To elect dollar cost averaging, your Contract Value must be at least $12,000.
You must send us a completed dollar cost averaging request form which is
available from the Administrative Office. We will not consider your request
unless your Contract Value is at least the required amount or the premium
submitted is at least $12,000.
Dollar cost averaging does not guarantee profits, nor does it assure that you
will not have losses.
12
<PAGE>
In addition to the dollar cost averaging program described above, we also offer
a six-month dollar cost averaging program that is available only for new premium
payments of at least $12,000. Either initial premium or subsequent premium
payments are eligible for this program. You may not include existing Contract
Value in the six-month dollar cost averaging program.
If you select this program, your premium will be allocated to the DCA account.
The DCA account is a guaranteed account available only for the six month dollar
cost averaging program. Your contract value in the DCA account will earn
interest at a rate guaranteed for six months from the date we receive your new
premium. The interest rate applicable to each account varies. Therefore, each
premium allocation to the program may earn interest at a different rate. The
full amount of the premium you allocate to the DCA account will be transferred
on a monthly basis over a six-month period into portfolios you have selected.
The minimum monthly amount that can be transferred from the DCA account is
one-sixth of the premium allocated to it. You may not change the amount or
frequency of transfers under this program.
The interest rate credited to the DCA account may be different from the interest
rate credited to the guaranteed option. If the six-month dollar cost averaging
program is terminated, we will automatically transfer any Contract Value
remaining in the DCA account to the guaranteed account option.
The six-month dollar cost averaging program may not be available in your state.
Please contact us for more information.
There is no charge for either dollar cost averaging program. In addition, your
periodic transfers under either dollar cost averaging program are not counted
against your twelve free transfers per Contract Year. You may not have dollar
cost averaging and asset rebalancing in effect at the same time. We reserve the
right to modify, suspend or terminate any dollar cost averaging program at any
time.
Asset Rebalancing
Once your money has been allocated among the investment options, the earnings
may cause the percentage invested in each investment option to differ from your
allocation instructions. You can direct us to automatically rebalance your
contract to return to your allocation percentages by selecting our asset
rebalancing program. Rebalancing will be on a calendar quarter basis and will
occur on the last business day of the quarter. The minimum amount of each
rebalancing is $1,000.
There is no charge for asset rebalancing. In addition, a rebalancing is not
counted against your twelve free transfers each Contract Year. You may not
select dollar cost averaging and asset rebalancing at the same time. We reserve
the right to modify, suspend or terminate this program at anytime. We also
reserve the right to waive the $1,000 minimum amount for asset rebalancing.
13
<PAGE>
=====================================================================
INVESTMENT OPTIONS
=====================================================================
Variable Investment Options
Variable Account I
Our board of directors authorized the organization of the variable account in
1986. The variable account is maintained pursuant to Delaware insurance law and
is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"). However, the SEC does not
supervise the management or the investment practices of the variable account.
We own the assets in the variable account and use them to support the variable
portion of your contract and other variable annuity contracts described in other
prospectuses. The variable account's assets are separate from our other assets
and are not chargeable with liabilities arising out of any other business we
conduct. Income, gains or losses, whether or not realized, are credited to or
charged against the subaccounts of the variable account without regard to
income, gains or losses arising out of any of our other business. As a result,
the investment performance of each subaccount of the variable account is
entirely independent of the investment performance of our general account and of
any other of our variable accounts.
The variable account is divided into subaccounts, each of which invests in
shares of a different portfolio of a mutual fund. We may, from time to time, add
or remove subaccounts and the corresponding portfolios. No substitution of
shares of one portfolio for another will be made until you have been notified
and the SEC has approved the change. If deemed to be in the best interest 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
that Act in the event such registration is no longer required, or may be
combined with one or more other variable accounts.
The Funds and Their Portfolios
The Merrill Lynch Variable Series Fund, Hotchkis and Wiley Variable Trust,
Mercury Asset Management Master Trust and the Alliance Variable Products Series
Fund are mutual funds registered with the SEC. Each one may have additional
portfolios that are not available under the contract.
You should carefully read each fund's prospectus before investing. These
prospectuses are attached to this prospectus and contain detailed information
regarding management of the portfolios, investment objectives, investment
advisory fees and other charges. The prospectuses
14
<PAGE>
also discuss the risks involved in investing in the portfolios. Below is a
summary of the investment objectives of the portfolios available under the
contract. There is no assurance that any of these portfolios will achieve its
stated objectives.
Merrill Lynch Variable Series Fund, Inc.
Basic Value Focus Fund seeks to attain capital appreciation and, secondarily,
income by investing in securities, primarily equities, that management 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.
Capital Focus Fund seeks to achieve its investment objective through a fully
managed investment policy utilizing equity, debt (including money market) and
convertible securities.
Domestic Money Market 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.
Global Growth Focus Fund seeks to achieve its investment objective by investing
in a diversified portfolio of equity securities of issuers located in various
foreign countries and the United States, placing particular emphasis on
companies that have exhibited above-average growth rates in earnings. The Global
Growth Focus Fund should be considered a long-term investment and a vehicle for
diversification and not as a balanced investment program.
Global Strategy Focus Fund seeks high total investment return by investing
primarily in a portfolio of equity and fixed income securities of U.S. and
foreign issuers.
Global Utility Focus 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, primarily engaged in the ownership or operation of facilities used
to generate, transmit or distribute electricity, telecommunications, gas or
water.
High Current Income Fund seeks to obtain as high a level of current income as is
consistent with its investment policies and with prudent investment management,
and capital appreciation to the extent consistent with the foregoing objective.
It 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 this portfolio may not be appropriate as the exclusive investment
to fund a contract. In an effort to minimize risk, the High Current Income Fund
will diversify its holdings among many issuers. However, there can be no
assurance that diversification will protect it from widespread defaults during
periods of sustained economic downturn.
15
<PAGE>
Quality Equity Fund seeks to attain the highest total investment return
consistent with prudent risk by employing a fully managed investment policy
utilizing equity securities, primarily common stocks of large-capitalization
companies, as well as investment grade debt and convertible securities.
Special Value Focus 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 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.
Hotchkis and Wiley Variable Trust
International VIP Portfolio seeks to provide current income and long-term growth
of income, accompanied by growth of capital. The Fund invests in international
equity securities.
Low Duration VIP Portfolio seeks to maximize total return, consistent with
preservation of capital. The Fund invests in a diversified portfolio of
fixed-income securities of varying maturities with a portfolio duration of one
to three years.
Mercury Asset Management Master Trust
U.S. Large Cap Fund seeks long-term capital growth. The Fund tries to achieve
its goal by investing primarily in a diversified portfolio of equity securities
of large cap companies located in the U.S. The Fund may also invest up to 10% of
its assets in equity securities of companies located in Canada. In selecting
securities, the Fund emphasizes those securities that Fund management believes
to be undervalued or have good prospects for earnings growth.
Alliance Variable Products Series Fund, Inc.
Global Dollar Government Portfolio seeks a high level of current income by
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 issuers capacity
to pay interest and repay principal.
Growth Portfolio seeks long term growth of capital by investing primarily in
common stocks and other equity securities.
16
<PAGE>
Growth and Income 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 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 the 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 predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal.
Premier Growth Portfolio seeks growth of capital by employing 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.
Quasar 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 seeks 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.
Technology Portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. It invests principally in a
diversified portfolio of securities of companies which use technology
extensively in the development of new or improved products or processes.
Total Return 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.
U.S. Government/High Grade Securities 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.
Worldwide Privatization Portfolio seeks long-term capital appreciation by
investing principally in equity securities issued by enterprises that are
undergoing or have undergone privatization.
17
<PAGE>
The balance of the portfolio's investment portfolio will include equity
securities of companies that are believed by the Fund's Advisor to be
beneficiaries of the privatization process.
Fixed Investment Option
The General Account
Premium you allocate to the guaranteed option goes into our general account. The
general account is not registered with the SEC. The general account is invested
in assets permitted by state insurance law. It is made up of all of our assets
other than assets attributable to our variable accounts. Unlike our variable
account assets, assets in the general account are subject to claims of Owners
like you, as well as claims made by our other creditors.
The Guaranteed Account Option
The guaranteed account is a fixed interest option. We credit money in the
guaranteed account with interest on a daily basis at the guaranteed rate then in
effect. The rate of interest to be credited to the guaranteed account is
determined wholly within our discretion. However, the rate will not be changed
more than once per year. The interest rate will never be less than 3%.
If you allocate premium to the guaranteed account, the fixed portion of your
Contract Value during the accumulation phase will depend on the total interest
we credit to your contract. During the income phase, each annuity payment you
receive from the fixed portion of your contract will be for the same amount.
We reserve the right to delay any payment from the guaranteed account for up to
six months from the date we receive the request at our Administrative Office, as
permitted by law.
===================================================================
CHARGES AND DEDUCTIONS
===================================================================
Insurance Charges
Each day, we deduct insurance charges from your Contract Value. This is done as
part of our calculation of the value of Accumulation Units during the
accumulation phase and of Annuity Units during the income phase. The insurance
charges are the mortality and expense risk charge, the administrative charge,
and the charges for the optional death benefits which are described under "Death
Benefit."
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<PAGE>
Mortality and Expense Risk Charge
The mortality and expense risk charge is equal, on an annual basis, to 1.25% of
the daily value of the variable portion of your contract. We will not increase
this charge. It compensates us for our obligation to make annuity payments, to
provide the death benefit, and for assuming the risk that current charges will
be insufficient in the future to cover the cost of administering the contract.
If the charges under the contract are not sufficient, we will bear the loss. If
the charges are sufficient, we will keep the balance of this charge as profit.
Administrative Charge
The administrative charge is equal, on an annual basis, to 0.15% of the daily
value of the variable portion of your contract. These expenses include preparing
the contract, confirmations and statements, and maintaining contract records. If
this charge is not enough to cover the costs of administering the contract, we
will bear the loss.
Optional Death Benefit Charges
If you elect an optional death benefit, we will assess a daily charge against
the assets in the variable account equal to an annual charge as shown below.
Equity Assurance Plan
Owner's Attained Age Annual Charge
0-59 0.07%
60+ 0.20%
Annual Ratchet Plan 0.10%
Accidental Death Benefit 0.05%
Surrender Charge
If you surrender your contract prior to the Annuity Date during the first seven
years after a premium payment, we will assess a surrender charge as a percentage
of premium withdrawn as shown below:
Premium Year 1 2 3 4 5 6 7 Thereafter
Surrender Charge 6% 6% 5% 5% 4% 3% 2% 0%
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<PAGE>
For purposes of calculating the surrender charge, we treat surrenders as coming
from the oldest premiums first (i.e., first-in, first-out). However, we will not
assess a surrender charge on amounts of a partial surrender equal to the greater
of:
(1) the Contract Value less premium paid, or
(2) up to 10% of premium paid, less the amount of any prior surrender.
You will not receive the benefit of this "free withdrawal amount" if you
participate in the systematic withdrawal program. If you make a partial
surrender, we will deduct the surrender charge, if any, pro rata from the
remaining value in your contract. If insufficient value remains in your
contract, then we will deduct the surrender charge from the amount you are to
receive as a result of your surrender request. Likewise, we will deduct a
surrender charge on a full surrender from the amount you are to receive.
Contract Maintenance Fee
During the accumulation phase, we will deduct a contract maintenance fee of $30
from your contract on each Contract Anniversary. We will not increase this fee.
It compensates us for expenses incurred to establish and maintain your contract.
If you surrender the entire value of your contract, the contract maintenance fee
will be deducted prior to the surrender.
We do not deduct the contract maintenance fee if your Contract Value is $50,000
or more when the deduction is to be made.
Premium Taxes
We will deduct from your Contract Value any premium tax imposed by the state or
locality where you reside. Premium taxes currently imposed on the contract by
various states range from 0% to 3.5% of premiums paid. These taxes are due
either when premium is paid or when annuity payments begin. It is our current
practice to charge you for these taxes when annuity payments begin or if you
surrender the contract in full. In the future, we may discontinue this practice
and assess the tax when it is due or upon the payment of the death benefit.
Income Taxes
Although we do not currently deduct any charges for income taxes attributable to
your contract, we reserve the right to do so in the future.
20
<PAGE>
Fund Expenses
There are deductions from and expenses paid out of the assets of the various
portfolios. These charges are described in the prospectuses for the Merrill
Lynch Variable Series Fund, Hotchkis and Wiley Variable Trust, Mercury Asset
Management Master Trust and the Alliance Variable Products Series Fund and are
summarized in the fee table.
Reduction or Elimination of Certain Charges and Additional Amounts Credited
We may reduce or eliminate the surrender charge or the administrative charge or
change the minimum premium requirement when the contract is sold to groups of
individuals under circumstances which reduce our sales expenses. We will
determine the eligibility of such groups by considering factors such as:
(1) the size of the group;
(2) the total amount of premium we expect to receive from the group;
(3) the nature of the purchase and the persistency we expect in that
group;
(4) the purpose of the purchase and whether that purpose makes it likely
that expenses will be reduced; and
(5) any other circumstances which we believe to be relevant in determining
whether reduced sales expenses may be expected.
We may also waive or reduce the surrender charge and/or contract maintenance fee
in connection with contracts sold to employees, employees of affiliates,
registered representatives, employees of broker-dealers which have a current
selling agreement with us, and immediate family members of those persons. Any
reduction or waiver may be withdrawn or modified by us.
===================================================================
ACCESS TO YOUR MONEY
===================================================================
Generally
Contract Value is available in the following ways:
o by surrendering all or part of your Contract Value during the
accumulation phase;
o by receiving annuity payments during the income phase;
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<PAGE>
o when a death benefit is paid to your beneficiary.
Generally, surrenders are subject to a surrender charge, a contract maintenance
fee and, if it is a full surrender, premium taxes. Surrenders may also be
subject to income tax and a penalty tax.
To make a surrender you must send a complete and detailed written request to our
Administrative Office. We will calculate your surrender as of the close of
business of the NYSE at the value next determined after we receive your request.
For a surrender of your entire Contract Value, you must also send us your
contract.
Under most circumstances, partial surrenders must be for a minimum of $500. We
require that your Contract Value be at least $2,000 after the surrender. If the
Contract Value would be less than $2,000 as a result of a surrender, we may
cancel the contract. Unless you provide us with different instructions, partial
surrenders will be made pro rata from each investment option in which your
contract is invested.
We may be required to suspend or postpone the payment of a surrender for an
undetermined period of time when:
o the NYSE is closed (other than a customary weekend and holiday
closings);
o trading on the NYSE is restricted;
o an emergency exists such that disposal of or determination of the
value of shares of the portfolios is not reasonably practicable;
o the SEC, by order, so permits for the protection of owners.
Systematic Withdrawal Program
The systematic withdrawal program allows you to make regularly scheduled
withdrawals from your Contract Value of at least $200 each on a monthly or
quarterly basis. You may change the amount or frequency of withdrawals under the
program once per Contract Year. In order to initiate the program, your Contract
Value must be at least $24,000. A maximum of 10% of your Contract Value may be
withdrawn in a Contract Year.
Surrender charges are not imposed on withdrawals under this program nor is there
any charge for participating in this program. You may not elect this program if
you have made a partial surrender earlier in the same Contract Year. In
addition, the free withdrawal amount is not available in connection with partial
surrenders you make while participating in the systematic withdrawal program.
You will be entitled to the free withdrawal amount on and after the Contract
Anniversary next following the termination of the systematic withdrawal program.
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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 portfolio or the guaranteed option is not sufficient
to make a withdrawal or if your request for systematic withdrawal does not
specify the investment options from which to deduct withdrawals, withdrawals
will be deducted pro rata from your Contract Value in each portfolio and the
guaranteed option.
The systematic withdrawal program may be canceled at any time by written request
or automatically by us if your Contract Value falls below $1,000. In the event
the systematic withdrawal program is canceled, you may not elect to participate
in the program again until the next Contract Anniversary.
If your Contract is issued in connection with an individual retirement annuity
or 403(b) Plan, you are cautioned that your rights to implement a systematic
withdrawal program may be subject to the terms and conditions of your plan,
regardless of the terms and conditions of your Contract. Moreover,
implementation of the systematic withdrawal program may subject you to adverse
tax consequences, including a 10% tax penalty if you are under age 59 1/2. See
"Taxes" for a discussion of the various tax consequences.
For information, including the necessary enrollment form, please check with our
Administrative Office. We reserve the right to modify, suspend or terminate this
program at any time.
===================================================================
ANNUITY PAYMENTS
===================================================================
Generally
Beginning on the Annuity Date, you will receive regular annuity payments. You
may choose to receive annuity payments that are fixed, variable or a combination
of fixed and variable. We make annuity payments on a monthly, quarterly,
semiannual or annual basis.
You select the Annuity Date, which must be the first day of a month and must be
at least one year after we issue your contract. You may change the Annuity Date
at least 30 days before payments are to begin. However, annuity payments must
begin by the annuitant's 90th birthday. Certain states may require that annuity
payments begin prior to such date and we will comply with those requirements.
The Annuitant is the person on whose life annuity payments are based. You may
change the Annuitant at any time prior to the Annuity Date. If you are not the
Annuitant and the Annuitant dies before the Annuity Date, you must notify us and
designate a new Annuitant.
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Annuity Options
The contract offers three annuity options described below. Other annuity options
may be made available, including other guarantee periods and options without
life contingencies, subject to our discretion. If you do not choose an annuity
option, annuity payments will be made in accordance with option 2 for 10 years.
If the annuity payments are for joint lives, then we will make payments in
accordance with option 3. Where permitted by state law, we may pay the annuity
in one lump sum if your Contract Value is less than $2,000. Likewise, if your
annuity payments would be less than $100 a month, we have the right to change
the frequency of your payment to be on a semiannual or annual basis so that the
payments are at least $100. We will make annuity payments to you unless you
designate another person to receive them. In that case, you must notify us in
writing at least thirty days before the Annuity Date. You will remain fully
responsible for any taxes related to the annuity payments.
Option 1 - Life Income
Under this option, we will make annuity payments as long as the Annuitant is
alive. Annuity payments stop when the Annuitant dies.
Option 2 - Life Annuity with 10 Years Guaranteed
This option is similar to option 1 above, with the additional guarantee that
payments will be made for a period you select of at least 10 years. Under this
option, if the Annuitant dies before all guaranteed payments have been made, the
rest will be paid to the beneficiary for the remainder of the period..
Option 3 - Joint and Last Survivor Income
Under this option, we will make annuity payments as long as either the Annuitant
or a contingent annuitant is alive. If your Contract is issued as an individual
retirement annuity, payments under this option will be made only to you as
Annuitant or to your spouse. Upon the death of either of you, we will continue
to make annuity payments so long as the survivor is alive.
Variable Annuity Payments
If you choose to have any portion of your annuity payments based on the variable
investment options, the amount of your payments will depend upon:
o your Contract Value in the portfolios on the Annuity Date;
o the 5.0% assumed investment rate used in the annuity table for the
contract;
o the performance of the portfolios you selected;
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o the annuity option you selected.
If the actual performance exceeds the 5.0% assumed rate, the annuity payments
will increase. Similarly, if the actual rate is less than 5.0%, the annuity
payments will decrease. The SAI contains more information.
Transfers During Income Phase
Transfers during the income phase are subject to the same limitations as
transfers during the accumulation phase. See "The Contract - Transfers During
Accumulation Phase." However, you may only make one transfer each month and you
may only transfer money among the variable investment options. You may not
transfer money from the fixed investment option to the variable investment
options or from the variable investment options to the fixed investment option.
Deferment of Payments
We may defer making fixed annuity payments for up to six months subject to state
law. We will credit interest to you during the deferral period.
===================================================================
DEATH BENEFIT
===================================================================
Death of Owner Before the Annuity Date
If you (or a joint owner) dies before the Annuity Date, the 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 ownership
was changed from one natural person to another natural person, the death benefit
will equal the Contract Value. A surviving spouse designated as the beneficiary
can elect to continue the contract and become the Owner. The amount of the death
benefit to be paid is determined by the death benefit option selected at the
time of application and is calculated in accordance with the terms of that
option as described below. The amount of the death benefit will never be less
than the traditional death benefit. If you selected both the annual ratchet plan
and the equity assurance plan, the death benefit will be the greatest of the
traditional death benefit, the annual ratchet plan, or the equity assurance
plan. The accidental death benefit, if applicable, will be paid in addition to
any other benefit. All death benefit options may not be available in all states.
Traditional Death Benefit
Under the traditional death benefit, we will pay the amount equal to the
greatest of:
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(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was
reduced on the date of a surrender; or
(3) the greatest 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 paid unless you selected an optional death
benefit.
Optional Death Benefits
Prior to determining the amount of any of the following optional death benefits,
the Contract Value will be reduced by the accrued charge for the optional death
benefit if, as of the date of death, the accrued charge had not yet been
deducted.
Annual Ratchet Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was
reduced on the date of a surrender; 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
premiums paid subsequent to that Contract Anniversary.
The annual ratchet plan will be in effect if:
(1) you select it on the application; and
(2) the charge for the annual ratchet plan is shown in your contract.
The annual ratchet plan will cease to be in effect upon our receipt of your
written request to discontinue it.
Equity Assurance Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
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(2) the greatest Contract Value at any seventh Contract
Anniversary, plus any premium 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 premium 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 completed 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:
o 0% per annum if death occurs during the 1st through
24th month from the date of premium payment;
o 2% per annum if death occurs during the 25th
through 48th month from the date of premium
payment;
o 4% per annum if death occurs during the 49th
through 72nd month from the date of premium
payment;
o 6% per annum if death occurs during the 73rd
through 96th month from the date of premium
payment;
o 8% per annum if death occurs during the 97th
through 120th month from the date of premium
payment;
o 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 premium paid after the first Contract
Anniversary following your 85th birthday, adjusted for
surrenders as described below.
In determining 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 the surrender.
The Equity Assurance Plan will be in effect if:
(1) you select it on the application;
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(2) the charge for the equity assurance plan is shown in your contract.
The equity assurance plan will cease when we receive your written request to
discontinue it or upon the allocation of Contract Value to either the money
market portfolio or guaranteed option unless such allocation is made as part of
dollar cost averaging.
Accidental Death Benefit
If you selected the accidental death benefit at the time of application, it will
be paid in addition to the traditional or optional death benefit in effect at
the time of your death. The accidental death benefit is not available if the
contract is used in connection with an individual retirement annuity. If
selected at the time of application, 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 accidental death benefit is payable if you die as a result of injury prior
to the Contract Anniversary following your 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:
o suicide or attempted suicide, while sane or insane, or intentionally
self-inflicted injuries;
o 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;
o injury sustained as a consequence of riding in, including boarding or
alighting from, any vehicle or device used for aerial navigation
except if you are a passenger on any aircraft licensed for the
transportation of passengers;
o declared or undeclared war or any act thereof; or
o service in the military, naval or air service of any country.
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The accidental death benefit will be in effect if:
(1) you select it on the Application; and
(2) the charge for the accidental death benefit is shown in your contract.
The accidental death benefit will cease to be in effect upon the Contract
anniversary following your 75th birthday, or upon our receipt of your written
request to discontinue.
Payment to Beneficiary
Upon your death if 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 five years of the date of
your death; or
(2) payment over the beneficiary's lifetime with distribution beginning
within one year of your date of death; or
If no payment option is elected within sixty days of our receipt of proof of
your death, a single sum settlement will be made at the end of the sixty-day
period following such receipt. Upon payment of a death benefit, the contract
will end.
Death of Owner After the Annuity Date
If you are not the Annuitant, and if your death occurs on or after the Annuity
Date, no death benefit will be payable under the 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 your death. If the Contract is not
owned by an individual, the Annuitant shall be treated as the Owner and any
change of the named Annuitant will be treated as if the Owner died.
Death of Annuitant
Before the Annuity Date
If you are not the Annuitant, and if the Annuitant dies before the Annuity Date,
you may name a new Annuitant. If you do not name a new Annuitant within sixty
days after we are notified of the Annuitant's death, we will deem you to be the
new Annuitant.
After the Annuity Date
If an Annuitant dies after the Annuity Date, the remaining payments, if any,
will be as specified in the annuity option in effect when the Annuitant died. We
will require proof of the Annuitant's
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death. The remaining benefit, if any, will be paid to the beneficiary at least
as rapidly as under the method of distribution in effect at the Annuitant's
death. If you were not the Annuitant and no beneficiary survives the Annuitant,
we will pay any remaining benefit to you.
================================================================
PERFORMANCE
================================================================
Occasionally, we may advertise certain performance related information
concerning one or more of the portfolios, including total return and yield
information. A portfolio's performance information is based on the portfolio's
past performance only and is not intended as an indication of future
performance.
When we advertise the average annual total return of a portfolio, it will
usually be calculated for one, five, and ten year periods or, where a portfolio
has been in existence for a period of 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 portfolio at the beginning of the relevant period
to the value of the investment at the end of the period. That assumes the
deduction of any surrender charge that would be payable if the account were
redeemed at the end of the period. Then the average annual compounded rate of
return is calculated to produce the value of the investment at the end of the
period. We may simultaneously present returns that do not assume a surrender
and, therefore, do not deduct a surrender charge.
When we advertise the yield of a portfolio we will calculate it based upon a
given thirty 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 we advertise the performance of the money market portfolio we may advertise
the yield or the effective yield in addition to the total return. The yield of
the money market portfolio refers to the income generated by an investment in
that portfolio 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 portfolio 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 lower than at the underlying fund
level since it is reduced by all contract charges (surrender charge, mortality
and expense risk charge, administrative charge, and contract maintenance fee).
Likewise, yield and effective yield at the variable account level are lower than
at the fund level since the variable account level total return affects all
recurring charges (except surrender charge).
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Performance information for a portfolio may be compared to:
(1) 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 portfolio's results
with those of a group of securities widely regarded by
investors as representative of the securities markets in
general;
(2) 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;
(3) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Contract; and
(4) indices or averages of alternative financial products
available to prospective investors, including the Bank Rate
Monitor which monitors average returns of various bank
instruments.
================================================================
TAXES
================================================================
Introduction
The following discussion of federal income tax treatment is general in nature
and is not intended as tax advice. This discussion is based on current law and
interpretations, which may change. For a discussion of federal income taxes as
they relate to the funds, please see the accompanying fund prospectuses. No
attempt is made to consider any applicable state or other tax laws. We do not
guarantee the tax status of your contract.
Annuity Contracts in General
The Internal Revenue Code (the "Code") provides special rules regarding the tax
treatment of annuity contracts. Generally, you will not be taxed on the earnings
in an annuity contract until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is qualified
or non-qualified, as explained below.
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If you do not purchase your contract under a retirement arrangement entitled to
favorable federal income tax treatment, your contract is referred to as a
non-qualified contract. If you purchase your contract under a retirement
arrangement entitled to favorable federal income tax treatment, your contract is
referred to as a qualified contract.
Tax Treatment of Distributions -- Non-qualified Contracts
If you make a withdrawal from a non-qualified contract or surrender it before
annuity payments begin, the amount you receive will be taxed as ordinary income,
rather than as a return of premium, until all gain has been withdrawn. For
annuity payments, any portion of each payment that is considered a return of
your premium will not be taxed. There is a 10% tax penalty on any taxable amount
you receive unless the amount received is paid:
(1) after you reach age 59 1/2;
(2) to your beneficiary after you die;
(3) after you become disabled;
(4) in a series of substantially equal installments made not less
frequently than annually under a lifetime annuity; or
(5) under an immediate annuity.
Assignments
If you assign all or part of the contract as collateral for a loan, the part
assigned will be treated as a withdrawal and the excess of the Contract Value
over total premium will be taxed as ordinary income. Please consult your tax
adviser prior to making an assignment of the contract.
Gifts of Contracts
If you transfer a contract for less than full consideration, such as by gift,
you will generally trigger tax on the gain in the contract. This rule does not
apply to those transfers between spouses or incident to divorce.
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 premium) is includable in income each year. The rule
does not apply where the non-natural person is only the nominal
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owner, such as a trust or other entity acting as an agent for a natural person,
and in other limited circumstances.
Distribution at Death Rules
Upon the death of the Owner of a contract, certain distributions must be made:
o If the Owner dies on or after the Annuity Date, and before the entire
interest in the contract has been distributed, the remaining portion will
be distributed at least as quickly as the method in effect on the Owner's
death;
o If the Owner dies before the Annuity Date, the entire interest must
generally be distributed within five years after the date of death.
o If the beneficiary is a natural person, the interest may be annuitized over
the life of that individual or over a period not extending beyond the life
expectancy of that individual, so long as distributions commence within one
year after the date of death.
o If the beneficiary is the spouse of the Owner, the contract may be
continued in the name of the spouse as Owner.
o If the Owner is not an individual, the death of the "primary annuitant" (as
defined under the Code) is treated as the death of 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.
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 or
other property 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 Section 1035
transactions. Prospective owners wishing to take advantage of Section 1035 of
the Code should consult their tax advisers.
Tax Treatment of Distributions --Qualified Contracts
If you purchase your contract under a tax-favored retirement plan or account,
your contract is referred to as a qualified contract. Examples of qualified
plans or accounts are:
o Individual Retirement Annuities ("IRAs");
o Roth IRAs;
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o Tax Deferred Annuities (governed by Code Section 403(b) and referred to as
"403(b) Plans");
o Keogh Plans; and
o Employer-sponsored pension and profit sharing arrangements such as 401(k)
plans.
Withdrawals in General
Generally, with the exception of a Roth IRA, you have not paid any taxes on the
premium used to buy a qualified contract or on any earnings. Therefore, any
amount you take out as a withdrawal or as annuity payments will be taxable
income. In addition, a 10% tax penalty may apply to the taxable part of a
withdrawal received before age 59 1/2. Limited exceptions are provided, such as
where amounts are paid in the form of a qualified life annuity, upon death or
disability of the employee, to pay certain medical expenses, or, in some cases,
upon separation from service on or after age 55.
Individual Retirement Annuities
Code Section 408 permits eligible individuals to contribute to an IRA. By
attachment of an endorsement that reflects the limits of Code Section 408(b),
the Contracts may be issued as 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. Most IRAs cannot accept contributions after the owner
reaches 70 1/2, and must also begin required distributions at that age. Sales of
the contract for use with IRAs are subject to special requirements, including
the requirement that informational disclosure be given to each person desiring
to establish an IRA. That person must be given the opportunity to affirm or
reverse a decision to purchase the contract. Contracts offered by this
prospectus in connection with an IRA are not available in all states. The
accidental death benefit is not available under a contract issued in connection
with an IRA.
Roth IRAs
Code Section 408A 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.
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403(b) Plans
The contracts are also available for use in connection with a previously
established 403(b) plan. Code Section 403(b) imposes certain restrictions on
your ability to make partial surrenders from a contract used in connection with
a 403(b) Plan, if attributable to premium paid under a salary reduction
agreement. Specifically, an owner may make a surrender or partial withdrawal
only (a) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled, or (b) in the case of hardship. In the case of hardship, only
an amount equal to the premium paid may be withdrawn. 403(b) Plans are subject
to additional requirements, including eligibility, limits on contributions,
minimum distributions, and nondiscrimination requirements applicable to the
employer. In particular, distributions generally must commence by April 1 of the
calendar year following the later of the year in which the employee (a) attains
age 70 1/2, or (b) retires. Owners and their employers are responsible for
compliance with these rules. Contracts offered by this prospectus in connection
with a 403(b) Plan are not available in all states.
Rollovers
Distributions from a 401(a) 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 IRA. A
prospective owner considering use of the contract in this manner should consult
a competent tax adviser with regard to the suitability of the contract for this
purpose and for information concerning the tax law provisions applicable to
qualified plans, 403(b) plans, and IRAs.
Diversification and Investor Control
The Code imposes certain diversification requirements on the underlying
investments for a variable annuity to be treated as a variable annuity for tax
purposes. We believe that the portfolios are being managed so as to comply with
these requirements.
The tax regulations do not provide guidance as to the circumstances under which
you, because of the degree of control you exercise over the underlying
investments, would be considered the owner of the shares of the portfolios. If
any guidance on this point is provided which is considered a new position, then
the guidance would generally be applied prospectively. However, if such guidance
is considered not to be a new position, it may be applied retroactively. This
would mean you, as the owner of the contract, could be treated as the owner of
assets in the portfolios. We reserve the right to make changes to the contract
we think necessary to see that it qualifies as a variable annuity contract for
tax purposes.
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Withholding
We are 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. If you do
not provide a social security number or other taxpayer identification number,
you will not be permitted to elect out of withholding. Special withholding rules
apply to payments made to non-resident aliens.
For lump-sum distributions or withdrawals, we are required to withhold 10% of
the taxable portion of any withdrawal or lump sum distribution unless you elect
out of withholding. For annuity payments, the company will withhold on the
taxable portion of annuity payments based on a withholding certificate you file
with us. 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.
================================================================
OTHER INFORMATION
================================================================
AIG Life Insurance Company
We are a stock life insurance company initially organized under the laws of
Pennsylvania and reorganized under the laws of Delaware. We were incorporated in
1962. Our principal business address is One Alico Plaza, 600 King Street,
Wilmington, Delaware 19801. We provide a full range of life insurance and
annuity plans. We are 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 in approximately 130 countries and
jurisdictions around the world.
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to AIG by one or more independent rating
organizations such as A.M. Best Company, Moody's and Standard & Poor's. The
purpose of the ratings is to reflect the rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the variable account.
The ratings are not recommendations to purchase our life insurance or annuity
products or to hold or sell these products, and the ratings do not comment on
the suitability of such products for a particular investor. There can be no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn entirely by a rating
organization if, in such organization's judgment, future circumstances so
warrant. The ratings do
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not reflect the investment performance of the variable account or the degree of
risk associated with an investment in the variable account.
Ownership
This prospectus describes both individual flexible premium deferred variable
annuity contracts and group flexible premium deferred variable annuity
contracts. The individual and group contracts described in this prospectus are
identical except that the individual contract is issued directly to the
individual owner. A group contract is issued to a contract holder for the
benefit of the participants in the group. If you are a participant in the group
you will receive a certificate evidencing your ownership. You, either as the
owner of an individual contract or as the owner of a certificate, are entitled
to all the rights and privileges of ownership. As used in this prospectus, the
term contract is equally applicable to an individual contract or to a
certificate.
Voting Rights
To the extent required by law, we will vote the portfolio shares held in the
variable account at shareholder meetings in accordance with instructions
received from persons having a voting interest in the portfolio. However, if
legal requirements or 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, you hold a voting interest in each portfolio in whose
corresponding portfolio you have Contract Value. The number of portfolio shares
which are attributable to you is determined by dividing the corresponding value
in a particular portfolio by the net asset value of one portfolio share. The
number of votes which you 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 meeting.
Each person having a voting interest in a portfolio will receive proxy material,
reports and other materials relating to the appropriate portfolios. We will vote
shares in accordance with instructions received from the person having a voting
interest. We will vote shares for which we receive no timely instructions and
any shares not attributable to Owners in proportion to the voting instructions
we have received.
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 option.
Distribution of the Contract
Our affiliate, AIG Equity Sales Corp. ("AIGESC"), 80 Pine Street, New York, New
York, acts as the distributor of the contract. AIGESC is a wholly-owned
subsidiary of AIG. Commissions not to exceed 7% of premiums will be paid to
entities which sell the contract. Additional payments may be made for other
services not directly related to the sale of the contract, including
37
<PAGE>
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 from
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 Contract
While we have primary responsibility for all administration of the contract and
the variable account, we have retained the services of Delaware Valley Financial
Services, Inc. ("DVFS") pursuant to an administrative agreement. These
administrative services include issuance of the contract and maintenance of
Owner records. DVFS serves as the administrator to various insurance companies
offering variable annuity contracts and variable life insurance policies.
Year 2000 Readiness
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the Year 2000, causing
disruption of the operations of AIG, as well as its lessees, vendors, or
business partners.
AIG has developed a plan to address the Year 2000 issue as it affects AIG's
internal IT and non- IT systems, and to assess Year 2000 issues relating to
third parties with whom AIG has critical relationships.
The plan for addressing internal systems includes an assessment of internal IT
and non-IT systems and equipment affected by the Year 2000 issue; definition of
strategies to address affected systems and equipment; remediation of identified
affected systems and equipment; and internal certification that each internal
system is Year 2000 compliant. AIG has remediated, tested and returned to
production substantially all of its internal IT systems. AIG continues to
remediate and test internal non-IT systems and expects to complete remediation
by mid-1999.
AIG has also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with AIG. Currently,
AIG is unable to ascertain whether all such third parties will successfully
address the Year 2000 issue, particularly those third parties outside the United
States where it is believed that remediation efforts relating to the Year 2000
issue may be less advanced. While AIG expects to have no interruption of
operations as a result of internal IT and non-IT systems, significant
uncertainties remain about the effect on
38
<PAGE>
AIG of third parties who are not Year 2000 compliant. AIG will continue to
monitor third party Year 2000 issue readiness to determine whether additional or
alternative measures may be necessary. Such measures may include the selection
of alternate third parties or other actions designed to mitigate the effects of
a third party's lack of preparedness. There can be no assurance that unresolved
Year 2000 issues of third parties will not have a material adverse impact on
AIG's results of operations, financial condition or liquidity. AIG is
considering the effects of Year 2000 related failures on its business and, as
the most reasonably likely worst case scenarios become more clearly identified,
AIG will develop appropriate contingency plans.
There can be no assurance that the funds, like other third parties, will not
have unresolved Year 2000 issues that may have a material adverse impact on your
contract values as well as our operations. Please refer to the Year 2000
discussion in each fund's prospectus.
Legal Proceedings
There are no pending legal proceedings which, in our judgment, are material with
respect to the variable account.
================================================================
FINANCIAL STATEMENTS
================================================================
Consolidated balance sheets of AIG Life Insurance Company and of the variable
account are included in the SAI which may be obtained without charge by calling
(800) 870-1453 or writing to AIG Life Insurance Company, Attention: Variable
Products, One Alico Plaza, 600 King Street, Wilmington, Delaware 19801. A
complete set of financial statements of the company and the variable account has
been filed electronically with the SEC and can be obtained through its website
at http://www.sec.gov.
39
<PAGE>
===============================================================
APPENDIX
================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
1998 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
MERRILL LYNCH BASIC VALUE
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 10.65 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 330,863.59 N/A N/A N/A N/A N/A N/A
MERRILL LYNCH DOMESTIC MONEY MARKET
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 10.43 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 285,074.87 N/A N/A N/A N/A N/A N/A
MERRILL LYNCH GLOBAL STRATEGY
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 10.73 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 20,304.87 N/A N/A N/A N/A N/A N/A
MERRILL LYNCH GLOBAL UTILITY
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 13.80 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 34,377.78 N/A N/A N/A N/A N/A N/A
MERRILL LYNCH HIGH CURRENT INCOME
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 9.45 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 51,178.92 N/A N/A N/A N/A N/A N/A
MERRILL LYNCH QUALITY EQUITY
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 11.55 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 60,761.56 N/A N/A N/A N/A N/A N/A
MERRILL LYNCH SPECIAL VALUE
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 8.73 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 48,096.41 N/A N/A N/A N/A N/A N/A
ALLIANCE GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period 16.25 14.56 11.82 9.74 10.00 N/A N/A
End of Period 12.55 16.25 14.56 11.82 9.74 N/A N/A
Accum Units o/s @ end of period 636,568.44 714,986.09 469,801.08 238,452.60 69,320.82 N/A N/A
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period 22.70 17.70 13.97 10.48 10.00 N/A N/A
End of Period 28.81 22.70 17.70 13.97 10.48 N/A N/A
Accum Units o/s @ end of period 8,904,664.35 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 24.27 19.11 15.62 11.67 11.88 10.78 10.00
End of Period 28.94 24.27 19.11 15.62 11.67 11.88 10.78
Accum Units o/s @ end of period 9,476,753.38 7,258,107.19 4,509,118.40 1,554,549.81 438,680.32 28,041.82 800.00
HIGH YIELD
Accumulation Unit Value
Beginning of Period 10.30 N/A N/A N/A N/A N/A N/A
End of Period 9.78 10.30 N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 1,476,993.82 106,671.96 N/A N/A N/A N/A N/A
ALLIANCE PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 23.22 17.59 14.54 10.15 11.13 10.00 10.00
End of Period 33.89 23.22 17.59 14.54 10.15 11.13 10.00
Accum Units o/s @ end of period 10,004,043.81 6,662.866.85 3,971,452.13 1,252,211.18 223,550.22 35,271.53 2081.43
ALLIANCE QUASAR
Accumulation Unit Value
Beginning of Period 12.37 10.58 10.00 N/A N/A N/A N/A
End of Period 11.65 12.37 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period 5,595,694.29 3,991,205.09 649,902.74 N/A N/A N/A N/A
REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period 12.16 N/A N/A N/A N/A N/A N/A
End of Period 9.71 12.16 N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 1,323,433.94 936,389.36 N/A N/A N/A N/A N/A
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period 11.43 10.89 10.00 N/A N/A N/A N/A
End of Period 18.47 11.43 10.89 N/A N/A N/A N/A
Accum Units o/s @ end of period 5,670,473.44 4,818,385.19 2,127,691.68 N/A N/A N/A N/A
ALLIANCE TOTAL RETURN
Accumulation Unit Value
Beginning of Period 15.97 13.37 11.78 9.65 10.00 N/A N/A
End of Period 18.42 15.97 13.37 11.78 9.65 N/A N/A
Accum Units o/s @ end of period 2,427,810.67 1,780,440.77 1,155,818.92 328,256.04 34,684.53 N/A N/A
ALLIANCE U.S. GOVERNMENT/HIGH GRADE SECURIITES
Accumulation Unit Value
Beginning of Period 12.00 11.20 11.07 9.42 9.95 10.00 N/A
End of Period 12.80 12.00 11.20 11.07 9.42 9.95 N/A
Accum Units o/s @ end of period 3,516,324.78 2,190,735.81 1,838,415.41 914,988.76 320,574.64 41,210.45 N/A
ALLIANCE WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period 14.02 12.84 10.99 10.05 10.00 N/A N/A
End of Period 15.32 14.02 12.84 10.99 10.05 N/A N/A
Accum Units o/s @ end of period 2,399,048.01 2,391,217.59 1,135,168.22 394,704.27 105,674.08 N/A N/A
</TABLE>
* Funds were first invested in the portfolios as listed below:
Merrill Lynch Variable Series Fund
Basic Value Focus Fund July 1, 1993
Capital Focus Fund June 5, 1998
Domestic Money Market Fund February 20, 1992
Global Growth Focus Fund June 5, 1998
Global Strategy Focus Fund February 28, 1992
Global Utility Focus Fund July 1, 1993
High Current Income Fund April 20, 1982
Quality Equity Fund April 20, 1982
Special Value Focus Fund April 20, 1982
Hotchkis and Wiley Variable Trust
International VIP Portfolio June 10, 1998
Low Duration VIP Portfolio March 18, 1998
Mercury Asset Management Master Trust
U.S. Large Cap Fund April 30, 1999
Alliance Variable Products Series Fund
Global Dollar Government Portfolio May 2, 1994
Growth Portfolio September 15, 1994
Growth and Income Portfolio January 14, 1991
High Yield Portfolio October 27, 1997
Premier Growth Portfolio June 26, 1992
Quasar Portfolio August 5, 1996
Real Estate Investment Portfolio January 9, 1997
Technology Portfolio January 11, 1996
Total Return Portfolio December 28, 1992
U.S. Government/High Grade Securities Portfolio September 17, 1992
Worldwide Privatization Portfolio September 23, 1994
43
<PAGE>
================================================================
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
================================================================
GENERAL INFORMATION
AIG Life Insurance Company
Independent Accountants
Legal Counsel
Distributor
Potential Conflicts
CALCULATION OF PERFORMANCE DATA
Yield and Effective Yield Quotations for the Money Market Subaccount
Yield Quotations for Other Subaccounts
Total Return Quotations
Non-Standardized Performance Data
ANNUITY PROVISIONS
Variable Annuity Payments
Annuity Unit Value
Net Investment Factor
Additional Provisions
FINANCIAL STATEMENTS
44
<PAGE>
3
OVATION VARIABLE ANNUITY PROFILE
This profile is a summary of some of the more important points that you should
know and consider before purchasing a variable annuity. The variable annuity is
more fully described in the accompanying prospectus. The sections in this
summary correspond to sections in the prospectus which discuss the topics in
more detail. All capitalized terms are used as defined in the prospectus. Please
read the prospectus carefully.
MAY 1, 1999
================================================================
1. VARIABLE ANNUITY
================================================================
A variable annuity contract is between you and AIG Life Insurance Company. It is
designed to help you invest on a tax-deferred basis and meet long-term financial
goals, such as providing you with retirement income. Tax deferral means all your
money, including the amount you would otherwise pay in current income taxes,
remains in your contract to generate more earnings.
This prospectus offers a choice of investment options. You may divide your money
among any or all of the 16 variable investment options provided by Alliance
Capital Management, L.P. and the fixed investment option. Your investment is not
guaranteed. The value of your contract can fluctuate up or down based on the
performance of the underlying investments you select, and you may experience a
loss.
The variable investment portfolios offer professionally managed investment
choices with goals ranging from capital preservation to aggressive growth. Your
choices for the various investment options are found on the next page.
Like most deferred annuities, the contract has an accumulation phase and an
income phase. During the accumulation phase, you invest money in your contract.
Your earnings are based on the investment performance of the variable investment
portfolios to which your money is allocated and/or the interest rate earned on
the fixed investment option. You may withdraw money from your contract during
the accumulation phase. However, as with other tax-deferred investments, you
will pay taxes on earnings and untaxed contributions when you withdraw them. A
tax penalty may apply if you make withdrawals before age 59 1/2. The income
phase begins with the Annuity Date that you select. During the income phase, you
will receive payments from your annuity. Your payments may be fixed in dollar
amount, vary with investment performance or a combination of both, depending on
where you allocate your money. Among other factors, the amount of money you are
able to accumulate in your contract during the accumulation phase will determine
the amount of your payments during the income phase.
<PAGE>
================================================================
2. ANNUITY OPTIONS
================================================================
You can select one of the annuity options listed below:
(1) payments for the Annuitant's lifetime;
(2) payments for the Annuitant's lifetime, but for not less than 10 years;
and
(3) payments for the lifetime of the survivor of two Annuitants.
We may offer other annuity options, subject to our discretion.
You will need to decide if you want your payments to fluctuate with investment
performance, remain constant or to reflect a combination of the two. You will
also select the date on which your payments will begin. Once you begin receiving
payments, you cannot change your annuity option. If your contract is part of a
non-qualified retirement plan (one that is established with after tax dollars),
payments during the income phase are considered partly a return of your original
investment. The "original investment" part of each payment is not taxable as
income. For contracts which are part of a qualified retirement plan using before
tax dollars, the entire payment is taxable as income.
================================================================
3. PURCHASING A VARIABLE ANNUITY CONTRACT
================================================================
You can buy a contract through your financial representative, who can also help
you complete the proper forms. The minimum initial investment of $2,000 and
subsequent amounts of $1,000 or more may be added to your contract at any time
during the accumulation phase.
================================================================
4. INVESTMENT OPTIONS
================================================================
You may allocate money to the following variable investment portfolios of
Alliance Variable Products Series Fund, Inc.
Alliance Variable Products Series Fund
(managed by Alliance Capital Management L.P.)
Global Bond Portfolio
Global Dollar Government Portfolio
Growth Portfolio
Growth and Income Portfolio
High Yield Portfolio
International Portfolio
Money Market Portfolio
North American Government Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Real Estate Investment Portfolio
Technology Portfolio
Total Return Portfolio
U.S. Government/High Grade Securities Portfolio
Utility Income Portfolio
Worldwide Privatization Portfolio
The fixed investment option is our guaranteed account. The interest rate may
differ from time to time but we will never credit less than a 3% annual
effective rate. Once established, the rate will not change during the selected
period. You may also elect one of two dollar cost averaging programs. (The
6-month DCA may not yet be available in your state. Please contact your
financial representative for more information.)
================================================================
5. EXPENSES
================================================================
Each year, we deduct a $30 contract maintenance fee from your contract. This fee
is waived if the value of your contract is at least $50,000. We also deduct
insurance charges which equal 1.40% annually of the average daily value of your
contract allocated to the variable portfolios. The insurance charges include a
mortality and expense risk charge of 1.25% and an administrative charge of
0.15%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable portfolios.
These charges, include management fees and other operating expenses and are
estimated to range from 0.73% to 1.06%.
If you take money out in excess of the free amount permitted by your contract,
you may be assessed a surrender charge as a percentage of the premium you
withdraw. The percentage declines over a seven year period as follows:
Premium Year 1 2 3 4 5 6 7 Thereafter
Surrender Charge 6% 6% 5% 5% 4% 3% 2% None
Each year, you are allowed to make 12 transfers without charge. After your first
12 free transfers, a $10 transfer fee will apply to each subsequent transfer.
You may also be assessed a premium tax of up to 3.5% depending upon the state
where you reside.
The following chart is designed to help you understand the charges under your
contract. The column "Total Annual Insurance Charges" shows the total of the
1.40% insurance charges and the $30 contract maintenance fee. We converted the
contract maintenance fee to a percentage using an assumed contract size of
$50,000. The actual impact of this charge on your contract may differ from this
percentage. The column "Total Annual Portfolio Charges" refers to portfolio
charges for each variable portfolio. The third column is the total of all annual
charges.
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money (1) at the end of year 1 and (2) at
the end of year 10. The premium tax is assumed to be 0% in both examples.
<TABLE>
Total Total Examples
Annual Annual Total Total Expenses Total Expenses
Insurance Portfolio Annual at the end of at the end of
Charges Charges* Charges 1 Year 10 Years
<S> <C> <C> <C> <C> <C>
Alliance Variable Products Series Fund
Global Bond Portfolio 1.40% 0.93% 2.33% $78 $273
Global Dollar Government Portfolio 1.40% 0.95% 2.35% 78 275
Growth Portfolio 1.40% 0.87% 2.27% 78 267
Growth & Income Portfolio 1.40% 0.73% 2.13% 76 252
High Yield Portfolio 1.40% 0.95% 2.35% 78 275
International Portfolio 1.40% 0.95% 2.35% 78 275
Money Market Portfolio 1.40% 0.68% 2.08% 76 247
North American Government Income Portfolio 1.40% 0.86% 2.26% 78 266
Premier Growth Portfolio 1.40% 1.06% 2.46% 80 286
Quasar Portfolio 1.40% 0.95% 2.35% 78 275
Real Estate Investment Portfolio 1.40% 0.95% 2.35% 78 275
Technology Portfolio 1.40% 0.95% 2.35% 78 275
Total Return Portfolio 1.40% 0.88% 2.28% 78 268
U.S. Government/High Grade Securities Portfolio 1.40% 0.78% 2.18% 77 257
Utility Income Portfolio 1.40% 0.95% 2.35% 78 275
Worldwide Privatization Portfolio 1.40% 0.95% 2.35% 78 275
</TABLE>
* Total Annual Portfolio Charges for the following portfolios before
reimbursement by the investment advisers for the period ended December 31, 1998
were as follows:
Alliance Variable Products Series Fund
Global Bond Portfolio 1.17%
Global Dollar Government Portfolio 1.75%
High Yield Portfolio 1.80%
International Portfolio 1.37%
North American Government Income Portfolio 1.17%
Premier Growth Portfolio 1.09%
Quasar Portfolio 1.30%
Real Estate Investment Portfolio 1.77%
Technology Portfolio 1.20%
Total Return Portfolio 0.95%
U.S. Government/High Grade Securities Portfolio 0.91%
Utility Income Portfolio 1.35%
Worldwide Privatization Portfolio 1.70%
For more detailed information, see "Fee Tables" in the prospectus.
================================================================
6. TAXES
================================================================
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract (one that is established
with after tax dollars) are deferred until they are withdrawn. In a qualified
contract (one that is established with before tax dollars like an IRA), all
amounts are taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% tax penalty for distributions or withdrawals
before age 591/2.
================================================================
7. ACCESS TO YOUR MONE
================================================================
You may
withdraw free of a surrender charge an amount that is equal to the penalty-free
earnings in your contract as of the date you make the withdrawal. If you
participate in the systematic withdrawal program, you may withdraw 10% of your
total invested amount. The penalty-free earnings amount is calculated by taking
the value of your contract on the day you make the withdrawal and subtracting
your total invested amount. Your maximum free withdrawal amount is the greater
of: (1) the penalty-free earnings or (2) 10% of your total invested amount that
has been invested.
Withdrawals in excess of these limits will be assessed a surrender charge.
Withdrawals may be made from your contract in the amount of $500 or more. You
may request a withdrawal in writing. Under the systematic withdrawal program,
you must have at least $24,000 in contract value. The minimum withdrawal amount
is $200.
After your money has been in the contract for seven full years, there is no
surrender charge on that portion of the money that you have invested for at
least seven full years. Of course, you may have to pay income tax on any amount
withdrawn and a 10% tax penalty may apply if you are under age 59 1/2.
Additionally, a surrender charge is not assessed when a death benefit is paid.
<PAGE>
================================================================
8. PERFORMANCE
================================================================
The value of your annuity will fluctuate depending upon the investment
performance of the portfolios you choose.
The following chart shows total returns for each portfolio for the time periods
shown. These numbers reflect the insurance charges, the contract maintenance fee
and the investment charges. Surrender charges are not reflected in the chart. If
a surrender charge was reflected, the performance would be lower.
Past performance is no guarantee of future results.
SUMMARY OF PERFORMANCE
Inception Since
Date* Inception
Alliance Variable Products Series Fund
Global Bond Portfolio May-98 6.22%
Global Dollar Government Portfolio May-98 4.95%
Growth Portfolio May-98 27.34%
Growth & Income Portfolio May-98 17.80%
High Yield Portfolio May-98 -2.15%
International Portfolio May-98 6.51%
Money Market Portfolio May-98 2.80%
N. A. Government Income Portfolio May-98 6.84%
Premier Growth Portfolio May-98 22.94%
Quasar Portfolio May-98 6.54%
Real Estate Investment Portfolio May-98 -1.46%
Technology Portfolio May-98 22.90%
Total Return Portfolio May-98 15.08%
U.S. Government/High Grade Securities Portfolio May-98 4.71%
Utility Income Portfolio May-98 14.68%
Worldwide Privatization Portfolio May-98 10.24%
*The portfolios were not available under the contract prior to 1998.
================================================================
9. DEATH BENEFIT
================================================================
If you should die during the accumulation phase, your beneficiary will receive a
death benefit. Unless you choose one or more of the optional death benefits, the
traditional death benefit will be paid. You may select from the death benefit
options described below at the time you purchase your contract. Once we issue
your contract, you cannot add death benefit options. You should discuss with
your financial representative which option is best for you. Additional
information is available in the prospectus.
Traditional Death Benefit
The traditional death benefit is equal to the greatest of:
(1) the Contract Value;
(2) the total of all premium paid, reduced proportionally by any surrenders
in the same proportion that the Contract Value was reduced on the date
of a surrender; or
(3) the greatest 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 paid if no other death benefit is
selected.
Optional Death Benefits
There is a charge for each 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 charge for the optional death benefit if, as of the
date of death, the accrued charge had not yet been deducted.
Annual Ratchet Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any surrenders
in the same proportion that the Contract Value was reduced on the date
of a surrender; 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.
Equity Assurance Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the greatest Contract Value at any seventh Contract Anniversary plus
any premium 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 premium paid on or before the first
Contract Anniversary following your 85th Birthday, adjusted for surrenders and
then accumulated at the compound interest rates shown below for the number of
completed 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:
o 0% per annum if death occurs during the 1st through 24th month from
the date of premium payment;
o 2% per annum if death occurs during the 25th through 48th month from
the date of premium payment;
o 4% per annum if death occurs during the 49th through 72nd month from
the date of premium payment;
o 6% per annum if death occurs during the 73rd through 96th month from
the date of premium payment;
o 8% per annum if death occurs during the 97th through 120th month from
the date of premium payment;
o 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 premium paid after the first Contract Anniversary
following your 85th birthday, adjusted for surrenders.
Accidental Death Benefit
If you select the accidental death benefit it will be paid in addition to the
traditional or optional death benefit in effect at the time of your death. The
accidental death benefit is not available if the contract is used as an IRA. If
selected, 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.
================================================================
10. OTHER INFORMATION
================================================================
Right to Examine and Cancel: You may cancel your contract within ten days (or
longer if your state requires a longer period) by mailing it to our
Administrative Office. Your contract will be treated as void on the date we
receive it and we will pay you an amount equal to the value of your contract
(unless otherwise required by state law). Its value may be more or less than the
money you initially invested.
Dollar Cost Averaging: If selected, these programs allow you to invest in the
portfolios gradually over time at a fixed dollar amount or a certain percentage
each month. This type of investing will cover various market cycles. Your
Contract Value must be at least $12,000 to elect this option. The 6-month dollar
cost averaging program may not be available in all states.
Asset Rebalancing: If selected, this program seeks to keep your investment in
line with your goals. We will maintain your specified allocation mix among the
subaccounts that you selected. The Contract Value allocated to each subaccount
will grow or decline in value at different rates during the quarter. Asset
rebalancing automatically reallocates according to the allocation percentages
you selected.
Systematic Withdrawal Program: If selected, this program allows you to receive
either monthly or quarterly withdrawals during the accumulation phase. Of
course, withdrawals may be taxable and a 10% tax penalty may apply if you are
under age 59 1/2. Your Contract Value must be at least $24,000 to elect this
option .
Confirmations and Quarterly Statements: You will receive a confirmation of each
financial transaction within your contract. On a quarterly basis, you will
receive a complete statement of your transactions over the past quarter and a
summary of your Contract Value.
================================================================
11. INQUIRIES
================================================================
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
AIG Life Insurance Company
c/o Delaware Valley Financial Services
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
Telephone Number 1-800-255-8402
<PAGE>
OVATION PROSPECTUS
MAY 1, 1999
VARIABLE ANNUITY CONTRACTS
issued by
AIG LIFE INSURANCE COMPANY
through its
VARIABLE ACCOUNT I
This prospectus describes a variable annuity contract being offered to
individuals and groups. It is a flexible premium, deferred annuity contract with
a fixed investment option. Please read this prospectus carefully before
investing and keep it for future reference.
The contract has seventeen investment options to which you can allocate your
money -- sixteen variable investment options listed below and one fixed
investment option. The fixed investment option is our guaranteed account which
earns a minimum of 3% interest. The variable investment options are portfolios
of the Alliance Variable Products Series Fund, Inc.
Alliance Variable Products Series Fund
(managed by Alliance Capital Management L.P.)
Global Bond Portfolio
Global Dollar Government Portfolio
Growth Portfolio
Growth & Income Portfolio
High-Yield Portfolio
International Portfolio
Money Market Portfolio
North American Government
Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Real Estate Investment Portfolio
Technology Portfolio
Total Return Portfolio
U.S. Government/High Grade Securities Portfolio
Utility Income Portfolio
Worldwide Privatization Portfolio
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information ("SAI") dated May 1, 1999. The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference
into this prospectus. The table
1
<PAGE>
of contents of the SAI appears on the last page of this prospectus. For a free
copy of the SAI, call us at (800) 255-8402 or write to us at AIG Life Insurance
Company, Attention: Variable Products, One Alico Plaza, 600 King Street,
Wilmington, Delaware 19801.
In addition, the SEC maintains a website at http://www.sec.gov that contains the
prospectus, SAI, materials incorporated by reference and other information which
we have filed electronically with the SEC.
Variable annuities involve risks, including possible loss of principal. They are
not a deposit of any bank or insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The SEC has not approved or disapproved of the contract or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
2
<PAGE>
=====================================================================
TABLE OF CONTENTS
=====================================================================
DEFINITIONS
FEE TABLES
CONDENSED FINANCIAL INFORMATION
THE CONTRACT
INVESTMENT OPTIONS
CHARGES AND DEDUCTIONS
ACCESS TO YOUR MONEY
ANNUITY PAYMENTS
DEATH BENEFIT
PERFORMANCE
TAXES
OTHER INFORMATION
FINANCIAL STATEMENTS
APPENDIX - CONDENSED FINANCIAL INFORMATION
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
3
<PAGE>
=====================================================================
DEFINITIONS
=====================================================================
We have capitalized certain terms used in this prospectus. To help you
understand these terms, we have defined them in this glossary.
Accumulation Unit - An accounting unit of measure used to calculate your
Contract Value prior to the Annuity Date.
Administrative Office - The Annuity Service Office, c/o Delaware Valley
Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031.
Annuitant - The person you designate whose life determines the duration of
annuity payments involving life contingencies.
Annuity Date - The date on which annuity payments begin.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary - An anniversary of the date we issued your contract.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under your contract.
Contract Year - Each period of twelve months commencing with the date we issued
your contract.
Owner - The person named as the owner in the contract or as later changed and
who has all rights under the contract.
Premium Year - Any period of twelve months commencing with the date we receive a
premium payment and ending on the same date in each succeeding twelve month
period thereafter.
Valuation Date - Each day that the New York Stock Exchange is 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.
4
<PAGE>
=====================================================================
FEE TABLES
=====================================================================
Owner Transaction Expenses
Sales Load............................................................... None
Surrender Charge (as a percentage of premiums 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%
Thereafter.......................................................... None
Transfer Fee
First 12 Per Contract Year.......................................... None
Thereafter.......................................................... $10
Contract Maintenance Fee (waived if account value is $50,000 or greater). $30/yr
Variable Account Expenses (as a percentage of average account value)
Mortality and Expense Risk Charge................................... 1.25%
Administrative Charge............................................... 0.15%
====
Total Variable Account Annual Expenses.............................. 1.40%
5
<PAGE>
Annual Portfolio Expenses
After Waivers/Reimbursement
<TABLE>
Management Other Total
Fees Expenses(1) Expenses
<S> <C> <C> <C>
Alliance Variable Products Series Fund(2)
Global Bond Portfolio 0.64% 0.29% 0.93%
Global Dollar Government Portfolio 0.39% 0.56% 0.95%
Growth Portfolio 0.75% 0.12% 0.87%
Growth & Income Portfolio 0.63% 0.10% 0.73%
High-Yield Portfolio 0.44% 0.51% 0.95%
International Portfolio 0.58% 0.37% 0.95%
Money Market Portfolio 0.50% 0.18% 0.68%
North American Government Income Portfolio 0.53% 0.33% 0.86%
Premier Growth Portfolio 0.97% 0.09% 1.06%
Quasar Portfolio 0.73% 0.22% 0.95%
Real Estate Investment Portfolio 0.08% 0.87% 0.95%
Technology Portfolio 0.81% 0.14% 0.95%
Total Return Portfolio 0.62% 0.26% 0.88%
U.S. Government/High Grade Securities Portfolio 0.60% 0.18% 0.78%
Utility Income Portfolio 0.58% 0.37% 0.95%
Worldwide Privatization Portfolio 0.25% 0.70% 0.95%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectuses
for the Alliance Variable Products Series Funds.
(2) Total expenses for the following portfolios before waivers and
reimbursement by the Alliance Variable Products Series Fund's
investment adviser for the period ended December 31, 1998, were as
follows:
Global Bond Portfolio 1.17%
Global Dollar Government Portfolio 1.75%
High-Yield Portfolio 1.80%
International Portfolio 1.37%
North American Government Income Portfolio 1.17%
Premier Growth Portfolio 1.09%
Quasar Portfolio 1.30%
Real Estate Investment Portfolio 1.77%
6
<PAGE>
Technology Portfolio 1.20%
Total Return Portfolio 0.95%
U.S. Government High Grade Securities Portfolio 0.91%
Utility Income Portfolio 1.35%
Worldwide Privatization Portfolio 1.70%
Example
You would pay the following expenses on a $1,000 investment, assuming 5% growth:
<TABLE>
If you surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Variable Products Series Fund
Global Bond Portfolio $78 $120 $164 $273
Global Dollar Government Portfolio 78 120 165 275
Growth Portfolio 78 118 161 267
Growth & Income Portfolio 76 114 153 252
High-Yield Portfolio 78 120 165 275
International Portfolio 78 120 165 275
Money Market Portfolio 76 112 151 247
North American Government Income Portfolio 78 117 160 266
Premier Growth Portfolio 80 123 170 286
Quasar Portfolio 78 120 165 275
Real Estate Investment Portfolio 78 120 165 275
Technology Portfolio 78 120 165 275
Total Return Portfolio 78 118 161 268
U.S. Government/High Grade Securities Portfolio 77 115 156 257
Utility Income Portfolio 78 120 165 275
Worldwide Privatization Portfolio 78 120 165 275
</TABLE>
7
<PAGE>
<TABLE>
If you Annuitize or do not surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Variable Products Series Fund
Global Bond Portfolio $24 $75 $128 $273
Global Dollar Government Portfolio 24 75 129 275
Growth Portfolio 24 73 125 267
Growth & Income Portfolio 22 69 117 252
High-Yield Portfolio 24 75 129 275
International Portfolio 24 75 129 275
Money Market Portfolio 22 67 115 247
North American Government Income Portfolio 24 72 124 266
Premier Growth Portfolio 26 78 134 286
Quasar Portfolio 24 75 129 275
Real Estate Investment Portfolio 24 75 129 275
Technology Portfolio 24 75 129 275
Total Return Portfolio 24 73 125 268
U.S. Government/High Grade Securities Portfolio 23 70 120 257
Utility Income Portfolio 24 75 129 275
Worldwide Privatization Portfolio 24 75 129 275
</TABLE>
The purpose of the tables set forth in the example above is to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly. The tables reflect expenses of the variable account and the
portfolios but do not reflect any deduction for premium taxes, if any. The
example should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
===============================================================
CONDENSED FINANCIAL INFORMATION
================================================================
Historical accumulation unit values are contained in the Appendix.
8
<PAGE>
===================================================================
THE CONTRACT
===================================================================
General Description
An annuity is a contract between you, as the owner, and a life insurance
company. The contract provides tax deferral for your earnings, which means your
earnings accumulate on a tax-deferred basis until you take money out of your
contract. It also provides a death benefit and a guaranteed income in the form
of annuity payments beginning on a date you select. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation phase. The
income phase begins once you begin receiving annuity payments. If you die during
the accumulation phase, we guarantee a death benefit to your beneficiary.
The contract is called a variable annuity because you can allocate your money
among variable investment options. Each subaccount of our variable account
invests in shares of a corresponding portfolio of a mutual fund. Depending on
market conditions, the various portfolios may make or lose money. If you
allocate money to the portfolios, your Contract Value during the accumulation
phase will depend on their investment performance. In addition, the amount of
the variable annuity payments you may receive will depend on the investment
performance of the portfolios you select for the income phase.
The contract also has a fixed investment option. The guaranteed option account
is a fixed interest option that is part of our general account. Premium you
allocate to the guaranteed option will earn interest at a fixed rate that we
set. We guarantee the interest rate will never be less than 3%. Your Contract
Value in the guaranteed option account during the accumulation phase will depend
on the total interest we credit. During the income phase, each annuity payment
you receive from the fixed portion of your contract will be for the same amount.
Purchasing a Contract
Premium is the money you give us as payment to buy the contract, as well as any
additional money you give us to invest in the contract after you own it. The
minimum initial investment for both qualified and non-qualified contracts is
$2,000. You may add premium payments of $1,000 or more to your contract at any
time during the accumulation phase. You can pay scheduled subsequent premium of
$100 or more per month by enrolling in an automatic investment plan.
We may refuse any premium. In general, we will not issue a contract to anyone
who is over age 85.
9
<PAGE>
Allocation of Premium
When you purchase a contract, you will tell us how to allocate your initial
premium among the investment options. We will allocate additional premium in the
same way unless you tell us otherwise.
At the time of application, we must receive your initial premium at our
Administrative Office before the contract will be effective. We will issue your
contract and allocate your initial premium within two business days. If you do
not give us all the necessary information we need to issue the contract, we will
contact you to obtain it. If we are unable to complete this process within five
business days, we will send your money back unless you allow us to keep it until
we get all the necessary information.
Right to Examine Contract
If you change your mind about owning this contract, you can cancel it within ten
days after receiving it (or longer if required by state law) by mailing it back
to our Administrative Office: Delaware Valley Financial Services, Inc., 300
Berwyn Park, P.O. Box 3031, Berwyn, PA 19312- 0031. You will receive your
Contract Value on the day we receive your request which may be more or less than
the money you initially invested.
In certain states or if you purchase your contract as an individual retirement
annuity, we may be required to return your premium. If you cancel your contract
during the right to examine period, we will return to you an amount equal to
your premium payments less any withdrawals.
Accumulation Units
The value of an Accumulation Unit may go up or down from day to day. When you
pay a premium, we credit your contract with Accumulation Units. The number of
Accumulation Units credited is determined by dividing the amount of premium
allocated to a subaccount by the value of the Accumulation Unit for that
subaccount. We calculate the value of an Accumulation Unit as of the close of
business of the New York Stock Exchange ("NYSE") on each day that the NYSE is
open for trading. Except in the case of initial premium, we credit Accumulation
Units to your contract at the value next calculated after we receive your
premium at our Administrative Office.
The Accumulation Unit value for each portfolio will vary from one valuation
period to the next based on the investment experience of the assets in the
portfolio and the deduction of certain charges and expenses. The SAI contains a
detailed explanation of how Accumulation Units are valued.
Your value in any portfolio is determined by multiplying its unit value by the
number of units you own. Your value within the variable investment options is
the sum of your values in all the
10
<PAGE>
portfolios. The total value of your contract, referred to as the Contract Value,
equals your value in the variable investment options plus your value in the
guaranteed account.
Transfers During the Accumulation Phase
You can transfer money among the investment options by written request or by
telephone. You can make twelve transfers every Contract Year without charge.
There is a $10 transfer fee for each transfer over twelve in a Contract Year.
Transfers as a result of dollar cost averaging or asset rebalancing are not
counted against your twelve free transfers.
The minimum amount you can transfer is $1,000. You cannot make a partial
transfer if, after the transfer, there would be less than $1,000 in the
portfolio from which the transfer is being made. Your transfer request must
clearly state which investment options are involved and the amount of the
transfer.
We will accept transfers by telephone from you, your representative or anyone
else designated by you. Neither we nor the funds will be liable for following
telephone instructions we reasonably believe to be genuine or for any loss,
damage, cost or expense in acting on such instructions. We have in place
procedures to provide reasonable assurance that telephone instructions are
genuine.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time.
Dollar Cost Averaging
The contract has a feature which allows you to dollar cost average your
allocations to the portfolios by authorizing us to make periodic allocations of
Contract Value from either the money market portfolio or the guaranteed option
to one or more of the other portfolios. 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. It will result in the reallocation of
Contract Value to one or more portfolios and these amounts will be credited at
the Accumulation Unit value as of the Valuation Dates on which the exchanges are
effected. The amounts exchanged from a portfolio will result in a debiting of a
greater number of units when the Accumulation Unit value is low and a lower
number of units when the Accumulation Unit value is high.
To elect dollar cost averaging, your Contract Value must be at least $12,000.
You must send us a completed dollar cost averaging request form which is
available from the Administrative Office. We will not consider your request
unless your Contract Value is at least the required amount or the premium
submitted is at least $12,000.
Dollar cost averaging does not guarantee profits, nor does it assure that you
will not have losses.
11
<PAGE>
In addition to the dollar cost averaging program described above, we also offer
a six-month dollar cost averaging program that is available only for new premium
payments of at least $12,000. Either initial premium or subsequent premium
payments are eligible for this program. You may not include existing Contract
Value in the six-month dollar cost averaging program.
If you select this program, your premium will be allocated to the DCA account.
The DCA account is a guaranteed account available only for the six month dollar
cost averaging program. Your contract value in the DCA account will earn
interest at a rate guaranteed for six months from the date we receive your new
premium. The interest rate applicable to each account varies. Therefore, each
premium allocation to the program may earn interest at a different rate. The
full amount of the premium you allocate to the DCA account will be transferred
on a monthly basis over a six-month period into portfolios you have selected.
The minimum monthly amount that can be transferred from the DCA account is
one-sixth of the premium allocated to it. You may not change the amount or
frequency of transfers under this program.
The interest rate credited to the DCA account may be different from the interest
rate credited to the guaranteed option. If the six-month dollar cost averaging
program is terminated, we will automatically transfer any Contract Value
remaining in the DCA account to the guaranteed account option.
The six-month dollar cost averaging program may not be available in your state.
Please contact us for more information.
There is no charge for either dollar cost averaging program. In addition, your
periodic transfers under either dollar cost averaging program are not counted
against your twelve free transfers per Contract Year. You may not have dollar
cost averaging and asset rebalancing in effect at the same time. We reserve the
right to modify, suspend or terminate any dollar cost averaging program at any
time.
Asset Rebalancing
Once your money has been allocated among the investment options, the earnings
may cause the percentage invested in each investment option to differ from your
allocation instructions. You can direct us to automatically rebalance your
contract to return to your allocation percentages by selecting our asset
rebalancing program. Rebalancing will be on a calendar quarter basis and will
occur on the last business day of the quarter. The minimum amount of each
rebalancing is $1,000.
There is no charge for asset rebalancing. In addition, a rebalancing is not
counted against your twelve free transfers each Contract Year. You may not
select dollar cost averaging and asset rebalancing at the same time. We reserve
the right to modify, suspend or terminate this program at anytime. We also
reserve the right to waive the $1,000 minimum amount for asset rebalancing.
12
<PAGE>
=====================================================================
INVESTMENT OPTIONS
=====================================================================
Variable Investment Options
Variable Account I
Our board of directors authorized the organization of the variable account in
1986. The variable account is maintained pursuant to Delaware insurance law and
is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"). However, the SEC does not
supervise the management or the investment practices of the variable account.
We own the assets in the variable account and use them to support the variable
portion of your contract and other variable annuity contracts described in other
prospectuses. The variable account's assets are separate from our other assets
and are not chargeable with liabilities arising out of any other business we
conduct. Income, gains or losses, whether or not realized, are credited to or
charged against the subaccounts of the variable account without regard to
income, gains or losses arising out of any of our other business. As a result,
the investment performance of each subaccount of the variable account is
entirely independent of the investment performance of our general account and of
any other of our variable accounts.
The variable account is divided into subaccounts, each of which invests in
shares of a different portfolio of a mutual fund. We may, from time to time, add
or remove subaccounts and the corresponding portfolios. No substitution of
shares of one portfolio for another will be made until you have been notified
and the SEC has approved the change. If deemed to be in the best interest 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
that Act in the event such registration is no longer required, or may be
combined with one or more other variable accounts.
The Funds and Their Portfolios
The Alliance Variable Products Series Fund, Inc. is a mutual fund registered
with the SEC. It has additional portfolios that are not available under the
contract.
You should carefully read the fund's prospectus before investing. The Fund
prospectus is attached to this prospectus and contains detailed information
regarding management of the portfolios, investment objectives, investment
advisory fees and other charges. The prospectus also discusses the risks
involved in investing in the portfolios. Below is a summary of the
13
<PAGE>
investment objectives of the portfolios available under the contract. There is
no assurance that any of these portfolios will achieve its stated objectives.
Alliance Variable Products Series Fund, Inc.
Global Bond Portfolio seeks a high level of return from a combination of current
income and capital appreciation by investing in a globally diversified portfolio
of high quality debt securities denominated in the U.S. Dollar and a range of
foreign currencies. The sub-adviser for this portfolio is AIGAM International
Limited, an affiliate of American International Group, Inc.
Global Dollar Government 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.
Growth Portfolio seeks long-term growth of capital by investing primarily in
common stocks and other equity securities.
Growth and Income 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 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 the 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.
International 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.
Money Market Portfolio seeks safety of principal, maintenance of liquidity and
maximum current income by investing in a broadly diversified portfolio of money
market securities. An
14
<PAGE>
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.
North American Government Income 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.
Premier Growth 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.
Quasar 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 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.
Technology 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.
Total Return 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.
U.S. Government/High Grade Securities 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.
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<PAGE>
Utility Income 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.
Worldwide Privatization 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 Advisor to be beneficiaries of the privatization process.
Fixed Investment Option
The General Account
Premium you allocate to the guaranteed option goes into our general account. The
general account is not registered with the SEC. The general account is invested
in assets permitted by state insurance law. It is made up of all of our assets
other than assets attributable to our variable accounts. Unlike our variable
account assets, assets in the general account are subject to claims of Owners
like you, as well as claims made by our other creditors.
The Guaranteed Account Option
The guaranteed account is a fixed interest option. We credit money in the
guaranteed account with interest on a daily basis at the guaranteed rate then in
effect. The rate of interest to be credited to the guaranteed account is
determined wholly within our discretion. However, the rate will not be changed
more than once per year. The interest rate will never be less than 3%.
If you allocate premium to the guaranteed account, the fixed portion of your
Contract Value during the accumulation phase will depend on the total interest
we credit to your contract. During the income phase, each annuity payment you
receive from the fixed portion of your contract will be for the same amount.
We reserve the right to delay any payment from the guaranteed account for up to
six months from the date we receive the request at our Administrative Office, as
permitted by law.
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===================================================================
CHARGES AND DEDUCTIONS
===================================================================
Insurance Charges
Each day, we deduct insurance charges from your Contract Value. This is done as
part of our calculation of the value of Accumulation Units during the
accumulation phase and of Annuity Units during the income phase. The insurance
charges are the mortality and expense risk charge, the administrative charge,
and the charges for the optional death benefits which are described under "Death
Benefit."
Mortality and Expense Risk Charge
The mortality and expense risk charge is equal, on an annual basis, to 1.25% of
the daily value of the variable portion of your contract. We will not increase
this charge. It compensates us for our obligation to make annuity payments, to
provide the death benefit, and for assuming the risk that current charges will
be insufficient in the future to cover the cost of administering the contract.
If the charges under the contract are not sufficient, we will bear the loss. If
the charges are sufficient, we will keep the balance of this charge as profit.
Administrative Charge
The administrative charge is equal, on an annual basis, to 0.15% of the daily
value of the variable portion of your contract. These expenses include preparing
the contract, confirmations and statements, and maintaining contract records. If
this charge is not enough to cover the costs of administering the contract, we
will bear the loss.
Optional Death Benefit Charges
If you elect an optional death benefit, we will assess a daily charge against
the assets in the variable account equal to an annual charge as shown below.
Equity Assurance Plan
Owner's Attained Age Annual Charge
0-59 0.07%
60+ 0.20%
Annual Ratchet Plan 0.10%
Accidental Death Benefit 0.05%
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Surrender Charge
If you surrender your contract prior to the Annuity Date during the first seven
years after a premium payment, we will assess a surrender charge as a percentage
of premium withdrawn as shown below:
Premium Year 1 2 3 4 5 6 7 Thereafter
Surrender Charge 6% 6% 5% 5% 4% 3% 2% 0%
For purposes of calculating the surrender charge, we treat surrenders as coming
from the oldest premiums first (i.e., first-in, first-out). However, we will not
assess a surrender charge on amounts of a partial surrender equal to the greater
of:
(1) the Contract Value less premium paid, or
(2) up to 10% of premium paid, less the amount of any prior surrender.
You will not receive the benefit of this "free withdrawal amount" if you
participate in the systematic withdrawal program. If you make a partial
surrender, we will deduct the surrender charge, if any, pro rata from the
remaining value in your contract. If insufficient value remains in your
contract, then we will deduct the surrender charge from the amount you are to
receive as a result of your surrender request. Likewise, we will deduct a
surrender charge on a full surrender from the amount you are to receive.
Contract Maintenance Fee
During the accumulation phase, we will deduct a contract maintenance fee of $30
from your contract on each Contract Anniversary. We will not increase this fee.
It compensates us for expenses incurred to establish and maintain your contract.
If you surrender the entire value of your contract, the contract maintenance fee
will be deducted prior to the surrender.
We do not deduct the contract maintenance fee if your Contract Value is $50,000
or more when the deduction is to be made.
Premium Taxes
We will deduct from your Contract Value any premium tax imposed by the state or
locality where you reside. Premium taxes currently imposed on the contract by
various states range from 0% to 3.5% of premiums paid. These taxes are due
either when premium is paid or when annuity payments begin. It is our current
practice to charge you for these taxes when annuity payments
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begin or if you surrender the contract in full. In the future, we may
discontinue this practice and assess the tax when it is due or upon the payment
of the death benefit.
Income Taxes
Although we do not currently deduct any charges for income taxes attributable to
your contract, we reserve the right to do so in the future.
Fund Expenses
There are deductions from and expenses paid out of the assets of the various
portfolios. These charges are described in the prospectus for the Alliance
Variable Products Series Fund and are summarized in the fee table.
Reduction or Elimination of Certain Charges and Additional Amounts Credited
We may reduce or eliminate the surrender charge or the administrative charge or
change the minimum premium requirement when the contract is sold to groups of
individuals under circumstances which reduce our sales expenses. We will
determine the eligibility of such groups by considering factors such as:
(1) the size of the group;
(2) the total amount of premium we expect to receive from the group;
(3) the nature of the purchase and the persistency we expect in that
group;
(4) the purpose of the purchase and whether that purpose makes it likely
that expenses will be reduced; and
(5) any other circumstances which we believe to be relevant in determining
whether reduced sales expenses may be expected.
We may also waive or reduce the surrender charge and/or contract maintenance fee
in connection with contracts sold to employees, employees of affiliates,
registered representatives, employees of broker-dealers which have a current
selling agreement with us, and immediate family members of those persons. Any
reduction or waiver may be withdrawn or modified by us.
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===================================================================
ACCESS TO YOUR MONEY
===================================================================
Generally
Contract Value is available in the following ways:
o by surrendering all or part of your Contract Value during the
accumulation phase;
o by receiving annuity payments during the income phase;
o when a death benefit is paid to your beneficiary.
Generally, surrenders are subject to a surrender charge, a contract maintenance
fee and, if it is a full surrender, premium taxes. Surrenders may also be
subject to income tax and a penalty tax.
To make a surrender you must send a complete and detailed written request to our
Administrative Office. We will calculate your surrender as of the close of
business of the NYSE at the value next determined after we receive your request.
For a surrender of your entire Contract Value, you must also send us your
contract.
Under most circumstances, partial surrenders must be for a minimum of $500. We
require that your Contract Value be at least $2,000 after the surrender. If the
Contract Value would be less than $2,000 as a result of a surrender, we may
cancel the contract. Unless you provide us with different instructions, partial
surrenders will be made pro rata from each investment option in which your
contract is invested.
We may be required to suspend or postpone the payment of a surrender for an
undetermined period of time when:
o the NYSE is closed (other than a customary weekend and holiday
closings);
o trading on the NYSE is restricted;
o an emergency exists such that disposal of or determination of the
value of shares of the portfolios is not reasonably practicable;
o the SEC, by order, so permits for the protection of owners.
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Systematic Withdrawal Program
The systematic withdrawal program allows you to make regularly scheduled
withdrawals from your Contract Value of at least $200 each on a monthly or
quarterly basis. You may change the amount or frequency of withdrawals under the
program once per Contract Year. In order to initiate the program, your Contract
Value must be at least $24,000. A maximum of 10% of your Contract Value may be
withdrawn in a Contract Year.
Surrender charges are not imposed on withdrawals under this program nor is there
any charge for participating in this program. You may not elect this program if
you have made a partial surrender earlier in the same Contract Year. In
addition, the free withdrawal amount is not available in connection with partial
surrenders you make while participating in the systematic withdrawal program.
You will be entitled to the free withdrawal amount on and after the Contract
Anniversary next following the termination of the systematic withdrawal program.
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 portfolio or the guaranteed option is not sufficient
to make a withdrawal or if your request for systematic withdrawal does not
specify the investment options from which to deduct withdrawals, withdrawals
will be deducted pro rata from your Contract Value in each portfolio and the
guaranteed option.
The systematic withdrawal program may be canceled at any time by written request
or automatically by us if your Contract Value falls below $1,000. In the event
the systematic withdrawal program is canceled, you may not elect to participate
in the program again until the next Contract Anniversary.
If your Contract is issued in connection with an individual retirement annuity
or 403(b) Plan, you are cautioned that your rights to implement a systematic
withdrawal program may be subject to the terms and conditions of your plan,
regardless of the terms and conditions of your Contract. Moreover,
implementation of the systematic withdrawal program may subject you to adverse
tax consequences, including a 10% tax penalty if you are under age 59 1/2. See
"Taxes" for a discussion of the various tax consequences.
For information, including the necessary enrollment form, please check with our
Administrative Office. We reserve the right to modify, suspend or terminate this
program at any time.
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===================================================================
ANNUITY PAYMENTS
===================================================================
Generally
Beginning on the Annuity Date, you will receive regular annuity payments. You
may choose to receive annuity payments that are fixed, variable or a combination
of fixed and variable. We make annuity payments on a monthly, quarterly,
semiannual or annual basis.
You select the Annuity Date, which must be the first day of a month and must be
at least one year after we issue your contract. You may change the Annuity Date
at least 30 days before payments are to begin. However, annuity payments must
begin by the annuitant's 90th birthday. Certain states may require that annuity
payments begin prior to such date and we will comply with those requirements.
The Annuitant is the person on whose life annuity payments are based. You may
change the Annuitant at any time prior to the Annuity Date. If you are not the
Annuitant and the Annuitant dies before the Annuity Date, you must notify us and
designate a new Annuitant.
Annuity Options
The contract offers three annuity options described below. Other annuity options
may be made available, including other guarantee periods and options without
life contingencies, subject to our discretion. If you do not choose an annuity
option, annuity payments will be made in accordance with option 2 for 10 years.
If the annuity payments are for joint lives, then we will make payments in
accordance with option 3. Where permitted by state law, we may pay the annuity
in one lump sum if your Contract Value is less than $2,000. Likewise, if your
annuity payments would be less than $100 a month, we have the right to change
the frequency of your payment to be on a semiannual or annual basis so that the
payments are at least $100. We will make annuity payments to you unless you
designate another person to receive them. In that case, you must notify us in
writing at least thirty days before the Annuity Date. You will remain fully
responsible for any taxes related to the annuity payments.
Option 1 - Life Income
Under this option, we will make annuity payments as long as the Annuitant is
alive. Annuity payments stop when the Annuitant dies.
Option 2 - Life Annuity with 10 Years Guaranteed
This option is similar to option 1 above, with the additional guarantee that
payments will be made for a period you select of at least 10 years. Under this
option, if the Annuitant dies before
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all guaranteed payments have been made, the rest will be paid to the beneficiary
for the remainder of the period..
Option 3 - Joint and Last Survivor Income
Under this option, we will make annuity payments as long as either the Annuitant
or a contingent annuitant is alive. If your Contract is issued as an individual
retirement annuity, payments under this option will be made only to you as
Annuitant or to your spouse. Upon the death of either of you, we will continue
to make annuity payments so long as the survivor is alive.
Variable Annuity Payments
If you choose to have any portion of your annuity payments based on the variable
investment options, the amount of your payments will depend upon:
o your Contract Value in the portfolios on the Annuity Date;
o the 5.0% assumed investment rate used in the annuity table for the
contract;
o the performance of the portfolios you selected;
o the annuity option you selected.
If the actual performance exceeds the 5.0% assumed rate, the annuity payments
will increase. Similarly, if the actual rate is less than 5.0%, the annuity
payments will decrease. The SAI contains more information.
Transfers During Income Phase
Transfers during the income phase are subject to the same limitations as
transfers during the accumulation phase. See "The Contract - Transfers During
Accumulation Phase." However, you may only make one transfer each month and you
may only transfer money among the variable investment options. You may not
transfer money from the fixed investment option to the variable investment
options or from the variable investment options to the fixed investment option.
Deferment of Payments
We may defer making fixed annuity payments for up to six months subject to state
law. We will credit interest to you during the deferral period.
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===================================================================
DEATH BENEFIT
===================================================================
Death of Owner Before the Annuity Date
If you (or a joint owner) dies before the Annuity Date, the 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 ownership
was changed from one natural person to another natural person, the death benefit
will equal the Contract Value. A surviving spouse designated as the beneficiary
can elect to continue the contract and become the Owner. The amount of the death
benefit to be paid is determined by the death benefit option selected at the
time of application and is calculated in accordance with the terms of that
option as described below. The amount of the death benefit will never be less
than the traditional death benefit. If you selected both the annual ratchet plan
and the equity assurance plan, the death benefit will be the greatest of the
traditional death benefit, the annual ratchet plan, or the equity assurance
plan. The accidental death benefit, if applicable, will be paid in addition to
any other benefit. All death benefit options may not be available in all states.
Traditional Death Benefit
Under the traditional death benefit, we will pay the amount equal to the
greatest of:
(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was
reduced on the date of a surrender; or
(3) the greatest 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 paid unless you selected an optional death
benefit.
Optional Death Benefits
Prior to determining the amount of any of the following optional death benefits,
the Contract Value will be reduced by the accrued charge for the optional death
benefit if, as of the date of death, the accrued charge had not yet been
deducted.
Annual Ratchet Plan. We will pay a death benefit equal to the greatest of:
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(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was
reduced on the date of a surrender; 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
premiums paid subsequent to that Contract Anniversary.
The annual ratchet plan will be in effect if:
(1) you select it on the application; and
(2) the charge for the annual ratchet plan is shown in your contract.
The annual ratchet plan will cease to be in effect upon our receipt of your
written request to discontinue it.
Equity Assurance Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the greatest Contract Value at any seventh Contract
Anniversary, plus any premium 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 premium 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 completed 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:
o 0% per annum if death occurs during the 1st through
24th month from the date of premium payment;
o 2% per annum if death occurs during the 25th
through 48th month from the date of premium
payment;
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o 4% per annum if death occurs during the 49th
through 72nd month from the date of premium
payment;
o 6% per annum if death occurs during the 73rd
through 96th month from the date of premium
payment;
o 8% per annum if death occurs during the 97th
through 120th month from the date of premium
payment;
o 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 premium paid after the first Contract
Anniversary following your 85th birthday, adjusted for
surrenders as described below.
In determining 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 the surrender.
The Equity Assurance Plan will be in effect if:
(1) you select it on the application;
(2) the charge for the equity assurance plan is shown in your contract.
The equity assurance plan will cease when we receive your written request to
discontinue it or upon the allocation of Contract Value to either the money
market portfolio or guaranteed option unless such allocation is made as part of
dollar cost averaging.
Accidental Death Benefit
If you selected the accidental death benefit at the time of application, it will
be paid in addition to the traditional or optional death benefit in effect at
the time of your death. The accidental death benefit is not available if the
contract is used in connection with an individual retirement annuity. If
selected at the time of application, 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.
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The accidental death benefit is payable if you die as a result of injury prior
to the Contract Anniversary following your 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:
o suicide or attempted suicide, while sane or insane, or intentionally
self-inflicted injuries;
o 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;
o injury sustained as a consequence of riding in, including boarding or
alighting from, any vehicle or device used for aerial navigation
except if you are a passenger on any aircraft licensed for the
transportation of passengers;
o declared or undeclared war or any act thereof; or
o service in the military, naval or air service of any country.
The accidental death benefit will be in effect if:
(1) you select it on the Application; and
(2) the charge for the accidental death benefit is shown in your contract.
The accidental death benefit will cease to be in effect upon the Contract
anniversary following your 75th birthday, or upon our receipt of your written
request to discontinue.
Payment to Beneficiary
Upon your death if 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 five years of the date of
your death; or
(2) payment over the beneficiary's lifetime with distribution beginning
within one year of your date of death; or
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If no payment option is elected within sixty days of our receipt of proof of
your death, a single sum settlement will be made at the end of the sixty-day
period following such receipt. Upon payment of a death benefit, the contract
will end.
Death of Owner After the Annuity Date
If you are not the Annuitant, and if your death occurs on or after the Annuity
Date, no death benefit will be payable under the 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 your death. If the Contract is not
owned by an individual, the Annuitant shall be treated as the Owner and any
change of the named Annuitant will be treated as if the Owner died.
Death of Annuitant
Before the Annuity Date
If you are not the Annuitant, and if the Annuitant dies before the Annuity Date,
you may name a new Annuitant. If you do not name a new Annuitant within sixty
days after we are notified of the Annuitant's death, we will deem you to be the
new Annuitant.
After the Annuity Date
If an Annuitant dies after the Annuity Date, the remaining payments, if any,
will be as specified in the annuity option in effect when the Annuitant died. We
will require proof of the Annuitant's death. The remaining benefit, if any, will
be paid to the beneficiary at least as rapidly as under the method of
distribution in effect at the Annuitant's death. If you were not the Annuitant
and no beneficiary survives the Annuitant, we will pay any remaining benefit to
you.
================================================================
PERFORMANCE
================================================================
Occasionally, we may advertise certain performance related information
concerning one or more of the portfolios, including total return and yield
information. A portfolio's performance information is based on the portfolio's
past performance only and is not intended as an indication of future
performance.
When we advertise the average annual total return of a portfolio, it will
usually be calculated for one, five, and ten year periods or, where a portfolio
has been in existence for a period of 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 portfolio at the beginning of the relevant period
to the value of the investment at the end of the period. That assumes the
deduction of any surrender charge that would be payable if the account were
redeemed at the end of the period. Then the
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average annual compounded rate of return is calculated to produce the value of
the investment at the end of the period. We may simultaneously present returns
that do not assume a surrender and, therefore, do not deduct a surrender charge.
When we advertise the yield of a portfolio we will calculate it based upon a
given thirty 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 we advertise the performance of the money market portfolio we may advertise
the yield or the effective yield in addition to the total return. The yield of
the money market portfolio refers to the income generated by an investment in
that portfolio 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 portfolio 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 lower than at the underlying fund
level since it is reduced by all contract charges (surrender charge, mortality
and expense risk charge, administrative charge, and contract maintenance fee).
Likewise, yield and effective yield at the variable account level are lower than
at the fund level since the variable account level total return affects all
recurring charges (except surrender charge).
Performance information for a portfolio may be compared to:
(1) 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 portfolio's results
with those of a group of securities widely regarded by
investors as representative of the securities markets in
general;
(2) 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;
(3) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Contract; and
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(4) indices or averages of alternative financial products
available to prospective investors, including the Bank Rate
Monitor which monitors average returns of various bank
instruments.
================================================================
TAXES
================================================================
Introduction
The following discussion of federal income tax treatment is general in nature
and is not intended as tax advice. This discussion is based on current law and
interpretations, which may change. For a discussion of federal income taxes as
they relate to the funds, please see the accompanying fund prospectuses. No
attempt is made to consider any applicable state or other tax laws. We do not
guarantee the tax status of your contract.
Annuity Contracts in General
The Internal Revenue Code (the "Code") provides special rules regarding the tax
treatment of annuity contracts. Generally, you will not be taxed on the earnings
in an annuity contract until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is qualified
or non-qualified, as explained below.
If you do not purchase your contract under a retirement arrangement entitled to
favorable federal income tax treatment, your contract is referred to as a
non-qualified contract. If you purchase your contract under a retirement
arrangement entitled to favorable federal income tax treatment, your contract is
referred to as a qualified contract.
Tax Treatment of Distributions -- Non-qualified Contracts
If you make a withdrawal from a non-qualified contract or surrender it before
annuity payments begin, the amount you receive will be taxed as ordinary income,
rather than as a return of premium, until all gain has been withdrawn. For
annuity payments, any portion of each payment that is considered a return of
your premium will not be taxed. There is a 10% tax penalty on any taxable amount
you receive unless the amount received is paid:
(1) after you reach age 59 1/2;
(2) to your beneficiary after you die;
(3) after you become disabled;
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(4) in a series of substantially equal installments made not less
frequently than annually under a lifetime annuity; or
(5) under an immediate annuity.
Assignments
If you assign all or part of the contract as collateral for a loan, the part
assigned will be treated as a withdrawal and the excess of the Contract Value
over total premium will be taxed as ordinary income. Please consult your tax
adviser prior to making an assignment of the contract.
Gifts of Contracts
If you transfer a contract for less than full consideration, such as by gift,
you will generally trigger tax on the gain in the contract. This rule does not
apply to those transfers between spouses or incident to divorce.
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 premium) 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, and in other
limited circumstances.
Distribution at Death Rules
Upon the death of the Owner of a contract, certain distributions must be made:
o If the Owner dies on or after the Annuity Date, and before the entire
interest in the contract has been distributed, the remaining portion will
be distributed at least as quickly as the method in effect on the Owner's
death;
o If the Owner dies before the Annuity Date, the entire interest must
generally be distributed within five years after the date of death.
o If the beneficiary is a natural person, the interest may be annuitized over
the life of that individual or over a period not extending beyond the life
expectancy of that individual, so long as distributions commence within one
year after the date of death.
o If the beneficiary is the spouse of the Owner, the contract may be
continued in the name of the spouse as Owner.
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o If the Owner is not an individual, the death of the "primary annuitant" (as
defined under the Code) is treated as the death of 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.
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 or
other property 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 Section 1035
transactions. Prospective owners wishing to take advantage of Section 1035 of
the Code should consult their tax advisers.
Tax Treatment of Distributions --Qualified Contracts
If you purchase your contract under a tax-favored retirement plan or account,
your contract is referred to as a qualified contract. Examples of qualified
plans or accounts are:
o Individual Retirement Annuities ("IRAs");
o Roth IRAs;
o Tax Deferred Annuities (governed by Code Section 403(b) and referred to as
"403(b) Plans");
o Keogh Plans; and
o Employer-sponsored pension and profit sharing arrangements such as 401(k)
plans.
Withdrawals in General
Generally, with the exception of a Roth IRA, you have not paid any taxes on the
premium used to buy a qualified contract or on any earnings. Therefore, any
amount you take out as a withdrawal or as annuity payments will be taxable
income. In addition, a 10% tax penalty may apply to the taxable part of a
withdrawal received before age 59 1/2. Limited exceptions are provided, such as
where amounts are paid in the form of a qualified life annuity, upon death or
disability of the employee, to pay certain medical expenses, or, in some cases,
upon separation from service on or after age 55.
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Individual Retirement Annuities
Code Section 408 permits eligible individuals to contribute to an IRA. By
attachment of an endorsement that reflects the limits of Code Section 408(b),
the Contracts may be issued as 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. Most IRAs cannot accept contributions after the owner
reaches 70 1/2, and must also begin required distributions at that age. Sales of
the contract for use with IRAs are subject to special requirements, including
the requirement that informational disclosure be given to each person desiring
to establish an IRA. That person must be given the opportunity to affirm or
reverse a decision to purchase the contract. Contracts offered by this
prospectus in connection with an IRA are not available in all states. The
accidental death benefit is not available under a contract issued in connection
with an IRA.
Roth IRAs
Code Section 408A 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.
403(b) Plans
The contracts are also available for use in connection with a previously
established 403(b) plan. Code Section 403(b) imposes certain restrictions on
your ability to make partial surrenders from a contract used in connection with
a 403(b) Plan, if attributable to premium paid under a salary reduction
agreement. Specifically, an owner may make a surrender or partial withdrawal
only (a) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled, or (b) in the case of hardship. In the case of hardship, only
an amount equal to the premium paid may be withdrawn. 403(b) Plans are subject
to additional requirements, including eligibility, limits on contributions,
minimum distributions, and nondiscrimination requirements applicable to the
employer. In particular, distributions generally must commence by April 1 of the
calendar year following the later of the year in which the employee (a) attains
age 70 1/2, or (b) retires. Owners and their employers are responsible for
compliance with these rules. Contracts offered by this prospectus in connection
with a 403(b) Plan are not available in all states.
33
<PAGE>
Rollovers
Distributions from a 401(a) 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 IRA. A
prospective owner considering use of the contract in this manner should consult
a competent tax adviser with regard to the suitability of the contract for this
purpose and for information concerning the tax law provisions applicable to
qualified plans, 403(b) plans, and IRAs.
Diversification and Investor Control
The Code imposes certain diversification requirements on the underlying
investments for a variable annuity to be treated as a variable annuity for tax
purposes. We believe that the portfolios are being managed so as to comply with
these requirements.
The tax regulations do not provide guidance as to the circumstances under which
you, because of the degree of control you exercise over the underlying
investments, would be considered the owner of the shares of the portfolios. If
any guidance on this point is provided which is considered a new position, then
the guidance would generally be applied prospectively. However, if such guidance
is considered not to be a new position, it may be applied retroactively. This
would mean you, as the owner of the contract, could be treated as the owner of
assets in the portfolios. We reserve the right to make changes to the contract
we think necessary to see that it qualifies as a variable annuity contract for
tax purposes.
Withholding
We are 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. If you do
not provide a social security number or other taxpayer identification number,
you will not be permitted to elect out of withholding. Special withholding rules
apply to payments made to non-resident aliens.
For lump-sum distributions or withdrawals, we are required to withhold 10% of
the taxable portion of any withdrawal or lump sum distribution unless you elect
out of withholding. For annuity payments, the company will withhold on the
taxable portion of annuity payments based on a withholding certificate you file
with us. 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.
34
<PAGE>
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.
================================================================
OTHER INFORMATION
================================================================
AIG Life Insurance Company
We are a stock life insurance company initially organized under the laws of
Pennsylvania and reorganized under the laws of Delaware. We were incorporated in
1962. Our principal business address is One Alico Plaza, 600 King Street,
Wilmington, Delaware 19801. We provide a full range of life insurance and
annuity plans. We are 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 in approximately 130 countries and
jurisdictions around the world.
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to AIG by one or more independent rating
organizations such as A.M. Best Company, Moody's and Standard & Poor's. The
purpose of the ratings is to reflect the rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the variable account.
The ratings are not recommendations to purchase our life insurance or annuity
products or to hold or sell these products, and the ratings do not comment on
the suitability of such products for a particular investor. There can be no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn entirely by a rating
organization if, in such organization's judgment, future circumstances so
warrant. The ratings do not reflect the investment performance of the variable
account or the degree of risk associated with an investment in the variable
account.
Ownership
This prospectus describes both individual flexible premium deferred variable
annuity contracts and group flexible premium deferred variable annuity
contracts. The individual and group contracts described in this prospectus are
identical except that the individual contract is issued directly to the
individual owner. A group contract is issued to a contract holder for the
benefit of the participants in the group. If you are a participant in the group
you will receive a certificate evidencing your ownership. You, either as the
owner of an individual contract or as the owner of a certificate, are entitled
to all the rights and privileges of ownership. As used in this prospectus, the
term contract is equally applicable to an individual contract or to a
certificate.
35
<PAGE>
Voting Rights
To the extent required by law, we will vote the portfolio shares held in the
variable account at shareholder meetings in accordance with instructions
received from persons having a voting interest in the portfolio. However, if
legal requirements or 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, you hold a voting interest in each portfolio in whose
corresponding portfolio you have Contract Value. The number of portfolio shares
which are attributable to you is determined by dividing the corresponding value
in a particular portfolio by the net asset value of one portfolio share. The
number of votes which you 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 meeting.
Each person having a voting interest in a portfolio will receive proxy material,
reports and other materials relating to the appropriate portfolios. We will vote
shares in accordance with instructions received from the person having a voting
interest. We will vote shares for which we receive no timely instructions and
any shares not attributable to Owners in proportion to the voting instructions
we have received.
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 option.
Distribution of the Contract
Our affiliate, AIG Equity Sales Corp. ("AIGESC"), 80 Pine Street, New York, New
York, acts as the distributor of the contract. AIGESC is a wholly-owned
subsidiary of AIG. Commissions not to exceed 7% of premiums will be paid to
entities which sell the contract. Additional payments may be made for other
services not directly related to the sale of the contract, including the
recruitment and training of personnel, production of promotional literature and
similar services.
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 from
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.
36
<PAGE>
Administration of the Contract
While we have primary responsibility for all administration of the contract and
the variable account, we have retained the services of Delaware Valley Financial
Services, Inc. ("DVFS") pursuant to an administrative agreement. These
administrative services include issuance of the contract and maintenance of
Owner records. DVFS serves as the administrator to various insurance companies
offering variable annuity contracts and variable life insurance policies.
Year 2000 Readiness
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the Year 2000, causing
disruption of the operations of AIG, as well as its lessees, vendors, or
business partners.
AIG has developed a plan to address the Year 2000 issue as it affects AIG's
internal IT and non- IT systems, and to assess Year 2000 issues relating to
third parties with whom AIG has critical relationships.
The plan for addressing internal systems includes an assessment of internal IT
and non-IT systems and equipment affected by the Year 2000 issue; definition of
strategies to address affected systems and equipment; remediation of identified
affected systems and equipment; and internal certification that each internal
system is Year 2000 compliant. AIG has remediated, tested and returned to
production substantially all of its internal IT systems. AIG continues to
remediate and test internal non-IT systems and expects to complete remediation
by mid-1999.
AIG has also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with AIG. Currently,
AIG is unable to ascertain whether all such third parties will successfully
address the Year 2000 issue, particularly those third parties outside the United
States where it is believed that remediation efforts relating to the Year 2000
issue may be less advanced. While AIG expects to have no interruption of
operations as a result of internal IT and non-IT systems, significant
uncertainties remain about the effect on AIG of third parties who are not Year
2000 compliant. AIG will continue to monitor third party Year 2000 issue
readiness to determine whether additional or alternative measures may be
necessary. Such measures may include the selection of alternate third parties or
other actions designed to mitigate the effects of a third party's lack of
preparedness. There can be no assurance that unresolved Year 2000 issues of
third parties will not have a material adverse impact on AIG's results of
operations, financial condition or liquidity. AIG is considering the effects of
Year 2000 related failures on its business and, as the most reasonably likely
worst case scenarios become more clearly identified, AIG will develop
appropriate contingency plans.
37
<PAGE>
There can be no assurance that the funds, like other third parties, will not
have unresolved Year 2000 issues that may have a material adverse impact on your
contract values as well as our operations. Please refer to the Year 2000
discussion in each fund's prospectus.
Legal Proceedings
There are no pending legal proceedings which, in our judgment, are material with
respect to the variable account.
================================================================
FINANCIAL STATEMENTS
================================================================
Consolidated balance sheets of AIG Life Insurance Company and of the variable
account are included in the SAI which may be obtained without charge by calling
(800) 255-8402 or writing to AIG Life Insurance Company, Attention: Variable
Products, One Alico Plaza, 600 King Street, Wilmington, Delaware 19801. A
complete set of financial statements of the company and the variable account has
been filed electronically with the SEC and can be obtained through its website
at http://www.sec.gov.
38
<PAGE>
===============================================================
APPENDIX
================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
1998 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
GLOBAL BOND
Accumulation Unit Value
Beginning of Period 13.14 13.24 12.64 10.28 11.00 9.96 10.00
End of Period 14.79 13.14 13.24 12.64 10.28 11.00 9.96
Accum Units o/s @ end of period 643,678.64 708,242.42 579,082.99 213,886.71 85,875.16 18,846.45 5,444.00
GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period 16.25 14.56 11.82 9.74 10.00 N/A N/A
End of Period 12.55 16.25 14.56 11.82 9.74 N/A N/A
Accum Units o/s @ end of period 636,568.44 714,986.09 469,801.08 238,452.60 69,320.82 N/A N/A
GROWTH
Accumulation Unit Value
Beginning of Period 22.70 17.70 13.97 10.48 10.00 N/A N/A
End of Period 28.81 22.70 17.70 13.97 10.48 N/A N/A
Accum Units o/s @ end of period 8,904,664.35 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 24.27 19.11 15.62 11.67 11.88 10.78 10.00
End of Period 28.94 24.27 19.11 15.62 11.67 11.88 10.78
Accum Units o/s @ end of period 9,476,753.38 7,258,107.19 4,509,118.40 1,554,549.81 438,680.32 28,041.82 800.00
HIGH YIELD
Accumulation Unit Value
Beginning of Period 10.30 N/A N/A N/A N/A N/A N/A
End of Period 9.78 10.30 N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 1,476,993.82 106,671.96 N/A N/A N/A N/A N/A
INTERNATIONAL
Accumulation Unit Value
Beginning of Period 12.50 12.26 11.60 10.71 10.17 10.00 N/A
End of Period 13.93 12.50 12.26 11.60 10.71 10.17 N/A
Accum Units o/s @ end of period 3,645,458.54 3,700,183.10 2,718,751.84 981,260.91 447,407.41 21,717.14 N/A
MONEY MARKET
Accumulation Unit Value
Beginning of Period 11.37 10.97 10.63 10.26 10.08 10.00 N/A
End of Period 11.77 11.37 10.97 10.63 10.26 10.08 N/A
Accum Units o/s @ end of period 7,257,274.05 4,291,499.61 4,320,223.01 1,856,020.37 431,319.86 8,487.20 N/A
NORTH AMERICAN GOVERNMENT INCOME
Accumulation Unit Value
Beginning of Period 13.32 12.33 10.53 8.70 10.00 N/A N/A
End of Period 13.67 13.32 12.33 10.53 8.70 N/A N/A
Accum Units o/s @ end of period 1,816,650.85 1,790,540.24 1,047,240.17 531,374.67 340,817.36 N/A N/A
PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 23.22 17.59 14.54 10.15 11.13 10.00 10.00
End of Period 33.89 23.22 17.59 14.54 10.15 11.13 10.00
Accum Units o/s @ end of period 10,004,043.81 6,662.866.85 3,971,452.13 1,252,211.18 223,550.22 35,271.53 2,081.43
QUASAR
Accumulation Unit Value
Beginning of Period 12.37 10.58 10.00 N/A N/A N/A N/A
End of Period 11.65 12.37 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period 5,595,694.29 3,991,205.09 649,902.74 N/A N/A N/A N/A
REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period 12.16 N/A N/A N/A N/A N/A N/A
End of Period 9.71 12.16 N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 1,323,433.94 936,389.36 N/A N/A N/A N/A N/A
TECHNOLOGY
Accumulation Unit Value
Beginning of Period 11.43 10.89 10.00 N/A N/A N/A N/A
End of Period 18.47 11.43 10.89 N/A N/A N/A N/A
Accum Units o/s @ end of period 5,670,473.44 4,818,385.19 2,127,691.68 N/A N/A N/A N/A
TOTAL RETURN
Accumulation Unit Value
Beginning of Period 15.97 13.37 11.78 9.65 10.00 N/A N/A
End of Period 18.42 15.97 13.37 11.78 9.65 N/A N/A
Accum Units o/s @ end of period 2,427,810.67 1,780,440.77 1,155,818.92 328,256.04 34,684.53 N/A N/A
U.S. GOVERNMENT/HIGH GRADE SECURITIES
Accumulation Unit Value
Beginning of Period 12.00 11.20 11.07 9.42 9.95 10.00 N/A
End of Period 12.80 12.00 11.20 11.07 9.42 9.95 N/A
Accum Units o/s @ end of period 3,516,324.78 2,190,735.81 1,838,415.41 914,988.76 320,574.64 41,210.45 N/A
UTILITY INCOME
Accumulation Unit Value
Beginning of Period 15.58 12.57 11.82 9.87 10.00 N/A N/A
End of Period 19.04 15.58 12.57 11.82 9.87 N/A N/A
Accum Units o/s @ end of period 1,379,682.64 910,470.43 812,579.02 358,005.39 111,604.02 N/A N/A
WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period 14.02 12.84 10.99 10.05 10.00 N/A N/A
End of Period 15.32 14.02 12.84 10.99 10.05 N/A N/A
Accum Units o/s @ end of period 2,399,048.01 2,391,217.59 1,135,168.22 394,704.27 105,674.08 N/A N/A
</TABLE>
*Funds were first invested in the Portfolios as listed below:
Global Bond Portfolio July 15, 1991
Global Dollar Government Portfolio May 2, 1994
Growth Portfolio September 15, 1994
Growth and Income Portfolio January 14, 1991
High-Yield Portfolio October 27, 1997
International Portfolio December 28, 1992
Money Market Portfolio December 4, 1992
North American Government Income Portfolio May 3, 1994
Premier Growth Portfolio June 26, 1992
Quasar Portfolio August 5, 1996
Real Estate Investment Portfolio January 9, 1997
Technology Portfolio January 11, 1996
Total Return Portfolio December 28, 1992
U.S. Government/High Grade Securities Portfolio September 17, 1992
Utility Income Portfolio May 10, 1994
Worldwide Privatization Portfolio September 23, 1994
41
<PAGE>
================================================================
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
================================================================
GENERAL INFORMATION
AIG Life Insurance Company
Independent Accountants
Legal Counsel
Distributor
Potential Conflicts
CALCULATION OF PERFORMANCE DATA
Yield and Effective Yield Quotations for the Money Market Subaccount
Yield Quotations for Other Subaccounts
Total Return Quotations
Non-Standardized Performance Data
ANNUITY PROVISIONS
Variable Annuity Payments
Annuity Unit Value
Net Investment Factor
Additional Provisions
FINANCIAL STATEMENTS
42
<PAGE>
<PAGE>
PROFILE VARIABLE ANNUITY PROFILE
This profile is a summary of some of the more important points that you should
know and consider before purchasing a variable annuity. The variable annuity is
more fully described in the accompanying prospectus. The sections in this
summary correspond to sections in the prospectus which discuss the topics in
more detail. All capitalized terms are used as defined in the prospectus. Please
read the prospectus carefully.
MAY 1, 1999
================================================================
1. VARIABLE ANNUITY
================================================================
A variable annuity contract is between you and AIG Life Insurance Company. It is
designed to help you invest on a tax-deferred basis and meet long-term financial
goals, such as providing you with retirement income. Tax deferral means all your
money, including the amount you would otherwise pay in current income taxes,
remains in your contract to generate more earnings.
This prospectus offers a choice of investment options. You may divide your money
among any or all of the 18 variable investment options provided by A I M
Advisors Inc., Alliance Capital Management, L.P., The Dreyfus Corporation,
Mellon Equity Associates, Fidelity Management and Research Company and Van Eck
Associates Corporation and the fixed investment option. Your investment is not
guaranteed. The value of your contract can fluctuate up or down based on the
performance of the underlying investments you select, and you may experience a
loss.
The variable investment portfolios offer professionally managed investment
choices with goals ranging from capital preservation to aggressive growth. Your
choices for the various investment options are found on the next page.
Like most deferred annuities, the contract has an accumulation phase and an
income phase. During the accumulation phase, you invest money in your contract.
Your earnings are based on the investment performance of the variable investment
portfolios to which your money is allocated and/or the interest rate earned on
the fixed investment option. You may withdraw money from your contract during
the accumulation phase. However, as with other tax-deferred investments, you
will pay taxes on earnings and untaxed contributions when you withdraw them. A
tax penalty may apply if you make withdrawals before age 59 1/2. The income
phase begins with the Annuity Date that you select. During the income phase, you
will receive payments from your annuity. Your payments may be fixed in dollar
amount, vary with investment performance or a combination of both, depending on
where you allocate your money. Among other factors, the amount of money you are
able to accumulate in your contract during the accumulation phase will determine
the amount of your payments during the income phase.
<PAGE>
================================================================
2. ANNUITY OPTIONS
================================================================
You can select one of the annuity options listed below:
(1) payments for the Annuitant's lifetime;
(2) payments for the Annuitant's lifetime, but for not less than 10 years;
and
(3) payments for the lifetime of the survivor of two Annuitants.
We may offer other annuity options, subject to our discretion.
You will need to decide if you want your payments to fluctuate with investment
performance, remain constant or to reflect a combination of the two. You will
also select the date on which your payments will begin. Once you begin receiving
payments, you cannot change your annuity option. If your contract is part of a
non-qualified retirement plan (one that is established with after tax dollars),
payments during the income phase are considered partly a return of your original
investment. The "original investment" part of each payment is not taxable as
income. For contracts which are part of a qualified retirement plan using before
tax dollars, the entire payment is taxable as income.
================================================================
3. PURCHASING A VARIABLE ANNUITY CONTRACT
================================================================
You can buy a contract through your financial representative, who can also help
you complete the proper forms. The minimum initial investment of $2,000 and
subsequent amounts of $1,000 or more may be added to your contract at any time
during the accumulation phase.
================================================================
4. INVESTMENT OPTIONS
================================================================
You may allocate money to the following variable investment portfolios of AIM
Variable Insurance Funds, Inc., Alliance Variable Products Series Fund, Inc.,
Dreyfus Variable Investment Fund, Dreyfus Stock Index Fund, Fidelity Variable
Insurance Products Fund, Fidelity Variable Insurance Products Fund II and Van
Eck Worldwide Insurance Trust.
AIM Variable Insurance Funds, Inc.
(managed by A I M Advisors, Inc.)
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
<PAGE>
Alliance Variable Products Series Fund
(managed by Alliance Capital Management L.P.)
Global Bond Portfolio
Growth Portfolio
Growth and Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Technology Portfolio
Dreyfus Variable Investment Fund
(managed by The Dreyfus Corporation)
Small Company Stock Portfolio
Dreyfus Stock Index Fund
(managed by The Dreyfus Corporation and Mellon Equity Associates)
Fidelity Variable Insurance Products Fund
(managed by Fidelity Management & Research Company)
VIP Growth Portfolio
VIP High Income Portfolio
VIP Money Market Portfolio
Fidelity Variable Insurance Products Fund II
(managed by Fidelity Management & Research Company)
VIP II Asset Manager Portfolio
VIP II Contrafund Portfolio
VIP II Investment Grade Bond Portfolio
Van Eck Worldwide Insurance Trust
(managed by Van Eck Associates Corporation)
Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund
The fixed investment option is our guaranteed account. The interest rate may
differ from time to time but we will never credit less than a 3% annual
effective rate. Once established, the rate will not change during the selected
period. You may also elect one of two dollar cost averaging programs. (The
6-month DCA may not yet be available in your state. Please contact your
financial representative for more information.)
================================================================
5. EXPENSES
================================================================
Each year, we deduct a $30 contract maintenance fee from your contract. This fee
is waived if the value of your contract is at least $50,000. We also deduct
insurance charges which equal 1.40% annually of the average daily value of your
contract allocated to the variable portfolios. The insurance charges include a
mortality and expense risk charge of 1.25% and an administrative charge of
0.15%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable portfolios.
These charges, include management fees and other operating expenses and are
estimated to range from 0.63% to 1.50%.
If you take money out in excess of the free amount permitted by your contract,
you may be assessed a surrender charge as a percentage of the premium you
withdraw. The percentage declines over a seven year period as follows:
Premium Year 1 2 3 4 5 6 7 Thereafter
Surrender Charge 6% 6% 5% 5% 4% 3% 2% None
Each year, you are allowed to make 12 transfers without charge. After your first
12 free transfers, a $10 transfer fee will apply to each subsequent transfer.
You may also be assessed a premium tax of up to 3.5% depending upon the state
where you reside.
The following chart is designed to help you understand the charges under your
contract. The column "Total Annual Insurance Charges" shows the total of the
1.40% insurance charges and the $30 contract maintenance fee. We converted the
contract maintenance fee to a percentage using an assumed contract size of
$50,000. The actual impact of this charge on your contract may differ from this
percentage. The column "Total Annual Portfolio Charges" refers to portfolio
charges for each variable portfolio. The third column is the total of all annual
charges.
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money (1) at the end of year 1 and (2) at
the end of year 10. The premium tax is assumed to be 0% in both examples.
<PAGE>
<TABLE>
Total Total Examples
Annual Annual Total Total Expenses Total Expenses
Insurance Portfolio Annual at the end of at the end of
Charges Charges* Charges 1 Year 10 Years
<S> <C> <C> <C> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund 1.40% 0.67% 2.07% $76 $246
AIM V.I. International Equity Fund 1.40% 0.91% 2.31% 78 271
Alliance Variable Products Series Fund
Global Bond Portfolio 1.40% 0.93% 2.33% 78 273
Growth Portfolio 1.40% 0.87% 2.27% 78 267
Growth and Income Portfolio 1.40% 0.73% 2.13% 76 252
Premier Growth Portfolio 1.40% 1.06% 2.46% 80 286
Quasar Portfolio 1.40% 0.95% 2.35% 78 275
Technology Portfolio 1.40% 0.95% 2.35% 78 275
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 1.40% 0.98% 2.38% 79 278
Dreyfus Stock Index Fund 1.40% 0.26% 1.66% 71 203
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 1.40% 0.66% 2.08% 76 247
VIP High Income Portfolio 1.40% 0.70% 2.10% 76 249
VIP Money Market Portfolio 1.40% 0.30% 1.70% 72 207
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 1.40% 0.63% 2.03% 75 242
VIP II Contrafund Portfolio 1.40% 0.66% 2.06% 76 245
VIP II Investment Grade Bond Portfolio 1.40% 0.57% 1.97% 75 236
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 1.40% 1.50% 2.90% 84 328
Worldwide Hard Assets Fund 1.40% 1.16% 2.56% 81 295
</TABLE>
* Total Annual Portfolio Charges for the following portfolios before
reimbursement by the investment advisers for the period ended December 31, 1998
were as follows:
Alliance Variable Products Series Fund
Global Bond Portfolio 1.17%
Premier Growth Portfolio 1.09%
Quasar Portfolio 1.30%
Technology Portfolio 1.20%
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 0.64%
VIP II Contrafund Portfolio 0.70%
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 1.61%
Worldwide Hard Assets Fund 1.20%
For more detailed information, see "Fee Tables" in the prospectus.
================================================================
6. TAXES
================================================================
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract (one that is established
with after tax dollars) are deferred until they are withdrawn. In a qualified
contract (one that is established with before tax dollars like an IRA), all
amounts are taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% tax penalty for distributions or withdrawals
before age 591/2.
================================================================
7. ACCESS TO YOUR MONEY
================================================================
You may withdraw free of a surrender charge an amount that is equal to the
penalty-free earnings in your contract as of the date you make the withdrawal.
If you participate in the systematic withdrawal program, you may withdraw 10% of
your total invested amount. The penalty-free earnings amount is calculated by
taking the value of your contract on the day you make the withdrawal and
subtracting your total invested amount. Your maximum free withdrawal amount is
the greater of: (1) the penalty-free earnings or (2) 10% of your total invested
amount that has been invested.
Withdrawals in excess of these limits will be assessed a surrender charge.
Withdrawals may be made from your contract in the amount of $500 or more. You
may request a withdrawal in writing. Under the systematic withdrawal program,
you must have at least $24,000 in contract value. The minimum withdrawal amount
is $200.
After your money has been in the contract for seven full years, there is no
surrender charge on that portion of the money that you have invested for at
least seven full years. Of course, you may have to pay income tax on any amount
withdrawn and a 10% tax penalty may apply if you are under age 59 1/2.
Additionally, a surrender charge is not assessed when a death benefit is paid.
================================================================
8. PERFORMANCE
================================================================
The value of your annuity will fluctuate depending upon the investment
performance of the subaccounts you choose.
The following chart shows total returns for each subaccount for the time periods
shown. These numbers reflect the insurance charges, the contract maintenance fee
and the investment charges. Surrender charges are not reflected in the chart. If
a surrender charge was reflected, the performance would be lower. Past
performance is no guarantee of future results.
SUMMARY OF PERFORMANCE
Inception Since
Date* Inception
AIM Variable Insurance Funds
V.I. Capital Appreciation Fund May-98 17.01%
V.I. International Equity Fund May-98 11.68%
Alliance Variable Products Series Fund
Global Bond Portfolio May-98 6.22%
Growth Portfolio May-98 27.96%
Growth & Income Portfolio May-98 17.80%
Premier Growth Portfolio May-98 17.40%
Quasar Portfolio May-98 5.42%
Technology Portfolio May-98 22.92%
Dreyfus Variable Investment Fund
VIF Small Co. Stock Portfolio May-98 7.04%
Dreyfus Stock Index Fund May-98 15.34%
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio May-98 15.65%
VIP High Income Portfolio May-98 9.48%
VIP Money Market Portfolio May-98 5.55%
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio May-98 11.41%
VIP II Contrafund Portfolio May-98 25.53%
VIP II Investment Grade Bond Portfolio May-98 6.83%
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund May-98 -11.21%
Worldwide Hard Assets Fund May-98 0.68%
*The portfolios were not available under the contract prior to 1998.
================================================================
9. DEATH BENEFIT
================================================================
If you should die during the accumulation phase, your beneficiary will receive a
death benefit. Unless you choose one or more of the optional death benefits, the
traditional death benefit will be paid. You may select from the death benefit
options described below at the time you purchase your contract. Once we issue
your contract, you cannot add death benefit options. You should discuss with
your financial representative which option is best for you. Additional
information is available in the prospectus.
Traditional Death Benefit
The traditional death benefit is equal to the greatest of:
(1) the Contract Value;
(2) the total of all premium paid, reduced proportionally by any surrenders
in the same proportion that the Contract Value was reduced on the date
of a surrender; or
(3) the greatest 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 paid if no other death benefit is
selected.
Optional Death Benefits
There is a charge for each 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 charge for the optional death benefit if, as of the
date of death, the accrued charge had not yet been deducted.
Annual Ratchet Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any surrenders
in the same proportion that the Contract Value was reduced on the date
of a surrender; 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.
Equity Assurance Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the greatest Contract Value at any seventh Contract Anniversary plus
any premium 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 premium paid on or before the first
Contract Anniversary following your 85th Birthday, adjusted for surrenders and
then accumulated at the compound interest rates shown below for the number of
completed 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:
o 0% per annum if death occurs during the 1st through 24th month from the
date of premium payment;
o 2% per annum if death occurs during the 25th through 48th month from the
date of premium payment;
o 4% per annum if death occurs during the 49th through 72nd month from the
date of premium payment;
o 6% per annum if death occurs during the 73rd through 96th month from the
date of premium payment;
o 8% per annum if death occurs during the 97th through 120th month from the
date of premium payment;
o 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 premium paid after the first Contract Anniversary following
your 85th birthday, adjusted for surrenders.
Accidental Death Benefit
If you select the accidental death benefit it will be paid in addition to the
traditional or optional death benefit in effect at the time of your death. The
accidental death benefit is not available if the contract is used as an IRA. If
selected, 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.
================================================================
10. OTHER INFORMATION
================================================================
Right to Examine and Cancel: You may cancel your contract within ten days (or
longer if your state requires a longer period) by mailing it to our
Administrative Office. Your contract will be treated as void on the date we
receive it and we will pay you an amount equal to the value of your contract
(unless otherwise required by state law). Its value may be more or less than the
money you initially invested.
Dollar Cost Averaging: If selected, these programs allow you to invest in the
portfolios gradually over time at a fixed dollar amount or a certain percentage
each month. This type of investing will cover various market cycles. Your
Contract Value must be at least $12,000 to elect this option. The 6-month dollar
cost averaging program may not be available in all states.
Asset Rebalancing: If selected, this program seeks to keep your investment in
line with your goals. We will maintain your specified allocation mix among the
subaccounts that you selected. The Contract Value allocated to each subaccount
will grow or decline in value at different rates during the quarter. Asset
rebalancing automatically reallocates according to the allocation percentages
you selected.
Systematic Withdrawal Program: If selected, this program allows you to receive
either monthly or quarterly withdrawals during the accumulation phase. Of
course, withdrawals may be taxable and a 10% tax penalty may apply if you are
under age 59 1/2. Your Contract Value must be at least $24,000 to elect this
option .
Confirmations and Quarterly Statements: You will receive a confirmation of each
financial transaction within your contract. On a quarterly basis, you will
receive a complete statement of your transactions over the past quarter and a
summary of your Contract Value.
================================================================
11. INQUIRIES
================================================================
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
AIG Life Insurance Company
c/o Delaware Valley Financial Services
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
Telephone Number 1-800-255-8402
<PAGE>
PROFILE PROSPECTUS
MAY 1, 1999
VARIABLE ANNUITY CONTRACTS
issued by
AIG LIFE INSURANCE COMPANY
through its
VARIABLE ACCOUNT I
This prospectus describes a variable annuity contract being offered to
individuals and groups. It is a flexible premium, deferred annuity contract with
a fixed investment option. Please read this prospectus carefully before
investing and keep it for future reference.
The contract has nineteen investment options to which you can allocate your
money -- eighteen variable investment options listed below and one fixed
investment option. The fixed investment option is our guaranteed account which
earns a minimum of 3% interest. The variable investment options are portfolios
of the AIM Variable Insurance Funds, Inc., Alliance Variable Products Series
Fund, Inc., Dreyfus Variable Investment Fund, Dreyfus Stock Index Fund, Fidelity
Variable Insurance Products Fund, Fidelity Variable Insurance Products Fund II
and Van Eck Worldwide Insurance Trust.
AIM Variable Insurance Funds, Inc.
(managed by A I M Advisors, Inc.)
AIM V.I. Capital Appreciation Fund
AIM V.I. International Equity Fund
Alliance Variable Products Series Fund, Inc.
(managed by Alliance Capital Management, L.P.)
Global Bond Portfolio
Growth Portfolio
Growth and Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Technology Portfolio
Dreyfus Variable Investment Fund
(managed by The Dreyfus Corporation)
Small Company Stock Portfolio
1
<PAGE>
Dreyfus Stock Index Fund
(managed by The Dreyfus Corporation and Mellon Equity Associates)
Fidelity Variable Insurance Products Fund
(managed by Fidelity Management & Research Company)
VIP Growth Portfolio
VIP High Income Portfolio
VIP Money Market Portfolio
Fidelity Variable Insurance Products Fund II
(managed by Fidelity Management & Research Company)
VIP II Asset Manager Portfolio
VIP II Contrafund Portfolio
VIP II Investment Grade Bond Portfolio
Van Eck Worldwide Insurance Trust
(managed by Van Eck Associates Corporation)
Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information ("SAI") dated May 1, 1999. The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference
into this prospectus. The table of contents of the SAI appears on the last page
of this prospectus. For a free copy of the SAI, call us at (800) 255-8402 or
write to us at AIG Life Insurance Company, Attention: Variable Products, One
Alico Plaza, 600 King Street, Wilmington, Delaware 19801.
In addition, the SEC maintains a website at http://www.sec.gov that contains the
prospectus, SAI, materials incorporated by reference and other information which
we have filed electronically with the SEC.
Variable annuities involve risks, including possible loss of principal. They are
not a deposit of any bank or insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The SEC has not approved or disapproved of the contract or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
2
<PAGE>
=====================================================================
TABLE OF CONTENTS
=====================================================================
DEFINITIONS
FEE TABLES
CONDENSED FINANCIAL INFORMATION
THE CONTRACT
INVESTMENT OPTIONS
CHARGES AND DEDUCTIONS
ACCESS TO YOUR MONEY
ANNUITY PAYMENTS
DEATH BENEFIT
PERFORMANCE
TAXES
OTHER INFORMATION
FINANCIAL STATEMENTS
APPENDIX - CONDENSED FINANCIAL INFORMATION
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
3
<PAGE>
=====================================================================
DEFINITIONS
=====================================================================
We have capitalized certain terms used in this prospectus. To help you
understand these terms, we have defined them in this glossary.
Accumulation Unit - An accounting unit of measure used to calculate your
Contract Value prior to the Annuity Date.
Administrative Office - The Annuity Service Office, c/o Delaware Valley
Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031.
Annuitant - The person you designate whose life determines the duration of
annuity payments involving life contingencies.
Annuity Date - The date on which annuity payments begin.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary - An anniversary of the date we issued your contract.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under your contract.
Contract Year - Each period of twelve months commencing with the date we issued
your contract.
Owner - The person named as the owner in the contract or as later changed and
who has all rights under the contract.
Premium Year - Any period of twelve months commencing with the date we receive a
premium payment and ending on the same date in each succeeding twelve month
period thereafter.
Valuation Date - Each day that the New York Stock Exchange is 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.
4
<PAGE>
=====================================================================
FEE TABLES
=====================================================================
Owner Transaction Expenses
Sales Load.............................................................. None
Surrender Charge (as a percentage of premiums 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%
Thereafter......................................................... None
Transfer Fee
First 12 Per Contract Year......................................... None
Thereafter......................................................... $10
Contract Maintenance Fee (waived if account value is $50,000 or greater)$30/yr
Variable Account Expenses (as a percentage of average account value)
Mortality and Expense Risk Charge.................................. 1.25%
Administrative Charge.............................................. 0.15%
=====
Total Variable Account Annual Expenses............................. 1.40%
5
<PAGE>
<TABLE>
Annual Portfolio Expenses
After Waivers/Reimbursement
Management Other 12b-1 Total
Fees Expenses(1) Fees(2) Expenses
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.0% 0.67%
AIM V.I. International Equity Fund 0.75% 0.16% 0.0% 0.91%
Alliance Variable Products Series Fund(3)
Global Bond Portfolio 0.64% 0.29% 0.0% 0.93%
Growth Portfolio 0.75% 0.12% (2) 0.87%
Growth and Income Portfolio 0.63% 0.10% (2) 0.73%
Premier Growth Portfolio 0.97% 0.09% 0.0% 1.06%
Quasar Portfolio 0.73% 0.22% 0.0% 0.95%
Technology Portfolio 0.81% 0.14% 0.0% 0.95%
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 0.75% 0.23% 0.0% 0.98%
Dreyfus Stock Index Fund 0.25% 0.01% 0.0% 0.26%
Fidelity Variable Insurance Products Fund(4)
VIP Growth Portfolio 0.59% 0.07% 0.0% 0.66%
VIP High Income Portfolio 0.58% 0.12% 0.0% 0.70%
VIP Money Market Portfolio 0.20% 0.10% 0.0% 0.30%
Fidelity Variable Insurance Products Fund II(5)
VIP II Asset Manager Portfolio 0.54% 0.09% 0.0% 0.63%
VIP II Contrafund Portfolio 0.59% 0.07% 0.0% 0.66%
VIP II Investment Grade Bond Portfolio 0.43% 0.14% 0.0% 0.57%
Van Eck Worldwide Insurance Trust(6)
Worldwide Emerging Markets Fund 0.89% 0.61% 0.0% 1.50%
Worldwide Hard Assets Fund 1.00% 0.16% 0.0% 1.16%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectuses
for the AIM Variable Insurance Funds, Alliance Variable Products Series
Fund, Dreyfus Variable Investment Fund, Dreyfus Stock Index Fund,
Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance
Products Fund II and Van Eck Worldwide Insurance Trust.
6
<PAGE>
(2) Expenses shown are for the year ended December 31, 1998. No 12b-1 fees
were charged. Effective May 1, 1999, Alliance Variable Products Series
Fund will offer the Growth Portfolio and Growth and Income Portfolio as
Class B shares and will be subject to 12b- 1 fees. The amount of this
fee is 0.25%.
(3) Total expenses for the following portfolios before waivers and
reimbursement by the Alliance Variable Products Series Fund's
investment adviser for the period ended December 31, 1998, were as
follows:
Global Bond Portfolio 1.17%
Premier Growth Portfolio 1.09%
Quasar Portfolio 1.30%
Technology Portfolio 1.20%
(4) Total expenses for the following portfolios before reimbursement by
Fidelity Variable Insurance Products Fund's investment adviser for the
period ended December 31, 1998, were as follows:
VIP Growth Portfolio 0.68%
(5) Total expenses for the following portfolios before reimbursement by
Fidelity Variable Insurance Products Fund II's investment adviser for
the period ended December 31, 1998, were as follows:
VIP II Asset Manager Portfolio 0.64%
VIP II Contrafund Portfolio 0 .70%
(6) Total expenses for the following portfolios before reimbursement by Van
Eck Worldwide Insurance Trust's investment adviser for the period ended
December 31, 1998, were as follows:
Worldwide Emerging Markets Fund 1.61%
Worldwide Hard Assets Fund 1.20%
7
<PAGE>
Example
You would pay the following expenses on a $1,000 investment, assuming 5% growth:
<TABLE>
If you surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund $76 $112 $150 $246
AIM V.I. International Equity Fund 78 119 163 271
Alliance Variable Products Series Fund
Global Bond Portfolio 78 120 164 273
Growth Portfolio 78 118 161 267
Growth and Income Portfolio 76 114 153 252
Premier Growth Portfolio 80 123 170 286
Quasar Portfolio 78 120 165 275
Technology Portfolio 78 120 165 275
Dreyfus Variable Insurance Products Fund
Small Company Stock Portfolio 79 121 166 278
Dreyfus Stock Index Fund 71 99 129 203
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 76 112 151 247
VIP High Income Portfolio 76 113 152 249
VIP Money Market Portfolio 72 100 131 207
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 75 110 148 242
VIP II Contrafund Portfolio 76 111 150 245
VIP II Investment Grade Bond Portfolio 75 109 145 236
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 84 137 192 328
Worldwide Hard Assets Fund 81 126 175 295
</TABLE>
8
<PAGE>
<TABLE>
If you annuitize or you do not surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund $22 $67 $114 $246
AIM V.I. International Equity Fund 24 74 127 271
Alliance Variable Products Series Fund
Global Bond Portfolio 24 75 128 273
Growth Portfolio 24 73 125 267
Growth and Income Portfolio 22 69 117 252
Premier Growth Portfolio 26 78 134 286
Quasar Portfolio 24 75 129 275
Technology Portfolio 24 75 129 275
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 25 76 130 278
Dreyfus Stock Index Fund 17 54 93 203
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 22 67 115 247
VIP High Income Portfolio 22 68 116 249
VIP Money Market Portfolio 18 55 95 207
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 21 65 112 242
VIP II Contrafund Portfolio 22 66 114 245
VIP II Investment Grade Bond Portfolio 21 64 109 236
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 30 92 156 328
Worldwide Hard Assets Fund 27 81 139 295
</TABLE>
The purpose of the tables set forth in the example above is to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly. The tables reflect expenses of the variable account and the
portfolios but do not reflect any deduction for premium taxes, if any. The
example should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
===================================================================
CONDENSED FINANCIAL INFORMATION
===================================================================
Historical accumulation unit values are contained in the Appendix.
9
<PAGE>
===================================================================
THE CONTRACT
===================================================================
General Description
An annuity is a contract between you, as the owner, and a life insurance
company. The contract provides tax deferral for your earnings, which means your
earnings accumulate on a tax-deferred basis until you take money out of your
contract. It also provides a death benefit and a guaranteed income in the form
of annuity payments beginning on a date you select. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation phase. The
income phase begins once you begin receiving annuity payments. If you die during
the accumulation phase, we guarantee a death benefit to your beneficiary.
The contract is called a variable annuity because you can allocate your money
among variable investment options. Each subaccount of our variable account
invests in shares of a corresponding portfolio of a mutual fund. Depending on
market conditions, the various portfolios may make or lose money. If you
allocate money to the portfolios, your Contract Value during the accumulation
phase will depend on their investment performance. In addition, the amount of
the variable annuity payments you may receive will depend on the investment
performance of the portfolios you select for the income phase.
The contract also has a fixed investment option. The guaranteed option account
is a fixed interest option that is part of our general account. Premium you
allocate to the guaranteed option will earn interest at a fixed rate that we
set. We guarantee the interest rate will never be less than 3%. Your Contract
Value in the guaranteed option account during the accumulation phase will depend
on the total interest we credit. During the income phase, each annuity payment
you receive from the fixed portion of your contract will be for the same amount.
Purchasing a Contract
Premium is the money you give us as payment to buy the contract, as well as any
additional money you give us to invest in the contract after you own it. The
minimum initial investment for both qualified and non-qualified contracts is
$2,000. You may add premium payments of $1,000 or more to your contract at any
time during the accumulation phase. You can pay scheduled subsequent premium of
$100 or more per month by enrolling in an automatic investment plan.
We may refuse any premium. In general, we will not issue a contract to anyone
who is over age 85.
10
<PAGE>
Allocation of Premium
When you purchase a contract, you will tell us how to allocate your initial
premium among the investment options. We will allocate additional premium in the
same way unless you tell us otherwise.
At the time of application, we must receive your initial premium at our
Administrative Office before the contract will be effective. We will issue your
contract and allocate your initial premium within two business days. If you do
not give us all the necessary information we need to issue the contract, we will
contact you to obtain it. If we are unable to complete this process within five
business days, we will send your money back unless you allow us to keep it until
we get all the necessary information.
Right to Examine Contract
If you change your mind about owning this contract, you can cancel it within ten
days after receiving it (or longer if required by state law) by mailing it back
to our Administrative Office: Delaware Valley Financial Services, Inc., 300
Berwyn Park, P.O. Box 3031, Berwyn, PA 19312- 0031. You will receive your
Contract Value on the day we receive your request which may be more or less than
the money you initially invested.
In certain states or if you purchase your contract as an individual retirement
annuity, we may be required to return your premium. If you cancel your contract
during the right to examine period, we will return to you an amount equal to
your premium payments less any withdrawals.
Accumulation Units
The value of an Accumulation Unit may go up or down from day to day. When you
pay a premium, we credit your contract with Accumulation Units. The number of
Accumulation Units credited is determined by dividing the amount of premium
allocated to a subaccount by the value of the Accumulation Unit for that
subaccount. We calculate the value of an Accumulation Unit as of the close of
business of the New York Stock Exchange ("NYSE") on each day that the NYSE is
open for trading. Except in the case of initial premium, we credit Accumulation
Units to your contract at the value next calculated after we receive your
premium at our Administrative Office.
The Accumulation Unit value for each portfolio will vary from one valuation
period to the next based on the investment experience of the assets in the
portfolio and the deduction of certain charges and expenses. The SAI contains a
detailed explanation of how Accumulation Units are valued.
Your value in any portfolio is determined by multiplying its unit value by the
number of units you own. Your value within the variable investment options is
the sum of your values in all the
11
<PAGE>
portfolios. The total value of your contract, referred to as the Contract Value,
equals your value in the variable investment options plus your value in the
guaranteed account.
Transfers During the Accumulation Phase
You can transfer money among the investment options by written request or by
telephone. You can make twelve transfers every Contract Year without charge.
There is a $10 transfer fee for each transfer over twelve in a Contract Year.
Transfers as a result of dollar cost averaging or asset rebalancing are not
counted against your twelve free transfers.
The minimum amount you can transfer is $1,000. You cannot make a partial
transfer if, after the transfer, there would be less than $1,000 in the
portfolio from which the transfer is being made. Your transfer request must
clearly state which investment options are involved and the amount of the
transfer.
We will accept transfers by telephone from you, your representative or anyone
else designated by you. Neither we nor the funds will be liable for following
telephone instructions we reasonably believe to be genuine or for any loss,
damage, cost or expense in acting on such instructions. We have in place
procedures to provide reasonable assurance that telephone instructions are
genuine.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time.
Dollar Cost Averaging
The contract has a feature which allows you to dollar cost average your
allocations to the portfolios by authorizing us to make periodic allocations of
Contract Value from either the money market portfolio or the guaranteed option
to one or more of the other portfolios. 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. It will result in the reallocation of
Contract Value to one or more portfolios and these amounts will be credited at
the Accumulation Unit value as of the Valuation Dates on which the exchanges are
effected. The amounts exchanged from a portfolio will result in a debiting of a
greater number of units when the Accumulation Unit value is low and a lower
number of units when the Accumulation Unit value is high.
To elect dollar cost averaging, your Contract Value must be at least $12,000.
You must send us a completed dollar cost averaging request form which is
available from the Administrative Office. We will not consider your request
unless your Contract Value is at least the required amount or the premium
submitted is at least $12,000.
Dollar cost averaging does not guarantee profits, nor does it assure that you
will not have losses.
12
<PAGE>
In addition to the dollar cost averaging program described above, we also offer
a six-month dollar cost averaging program that is available only for new premium
payments of at least $12,000. Either initial premium or subsequent premium
payments are eligible for this program. You may not include existing Contract
Value in the six-month dollar cost averaging program.
If you select this program, your premium will be allocated to the DCA account.
The DCA account is a guaranteed account available only for the six month dollar
cost averaging program. Your contract value in the DCA account will earn
interest at a rate guaranteed for six months from the date we receive your new
premium. The interest rate applicable to each account varies. Therefore, each
premium allocation to the program may earn interest at a different rate. The
full amount of the premium you allocate to the DCA account will be transferred
on a monthly basis over a six-month period into portfolios you have selected.
The minimum monthly amount that can be transferred from the DCA account is
one-sixth of the premium allocated to it. You may not change the amount or
frequency of transfers under this program.
The interest rate credited to the DCA account may be different from the interest
rate credited to the guaranteed option. If the six-month dollar cost averaging
program is terminated, we will automatically transfer any Contract Value
remaining in the DCA account to the guaranteed account option.
The six-month dollar cost averaging program may not be available in your state.
Please contact us for more information.
There is no charge for either dollar cost averaging program. In addition, your
periodic transfers under either dollar cost averaging program are not counted
against your twelve free transfers per Contract Year. You may not have dollar
cost averaging and asset rebalancing in effect at the same time. We reserve the
right to modify, suspend or terminate any dollar cost averaging program at any
time.
Asset Rebalancing
Once your money has been allocated among the investment options, the earnings
may cause the percentage invested in each investment option to differ from your
allocation instructions. You can direct us to automatically rebalance your
contract to return to your allocation percentages by selecting our asset
rebalancing program. Rebalancing will be on a calendar quarter basis and will
occur on the last business day of the quarter. The minimum amount of each
rebalancing is $1,000.
There is no charge for asset rebalancing. In addition, a rebalancing is not
counted against your twelve free transfers each Contract Year. You may not
select dollar cost averaging and asset rebalancing at the same time. We reserve
the right to modify, suspend or terminate this program at anytime. We also
reserve the right to waive the $1,000 minimum amount for asset rebalancing.
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INVESTMENT OPTIONS
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Variable Investment Options
Variable Account I
Our board of directors authorized the organization of the variable account in
1986. The variable account is maintained pursuant to Delaware insurance law and
is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"). However, the SEC does not
supervise the management or the investment practices of the variable account.
We own the assets in the variable account and use them to support the variable
portion of your contract and other variable annuity contracts described in other
prospectuses. The variable account's assets are separate from our other assets
and are not chargeable with liabilities arising out of any other business we
conduct. Income, gains or losses, whether or not realized, are credited to or
charged against the subaccounts of the variable account without regard to
income, gains or losses arising out of any of our other business. As a result,
the investment performance of each subaccount of the variable account is
entirely independent of the investment performance of our general account and of
any other of our variable accounts.
The variable account is divided into subaccounts, each of which invests in
shares of a different portfolio of a mutual fund. We may, from time to time, add
or remove subaccounts and the corresponding portfolios. No substitution of
shares of one portfolio for another will be made until you have been notified
and the SEC has approved the change. If deemed to be in the best interest 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
that Act in the event such registration is no longer required, or may be
combined with one or more other variable accounts.
The Funds and Their Portfolios
The AIM Variable Insurance Funds, Alliance Variable Products Series Fund,
Dreyfus Variable Investment Fund, Dreyfus Stock Index Fund, Fidelity Variable
Insurance Products Fund, Fidelity Variable Insurance Products Fund II and Van
Eck Worldwide Insurance Trust Funds are mutual funds registered with the SEC.
Each one may have additional portfolios that are not available under the
contract.
You should carefully read each fund's prospectus before investing. These
prospectuses are attached to this prospectus and contain detailed information
regarding management of the
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portfolios, investment objectives, investment advisory fees and other charges.
The prospectuses also discuss the risks involved in investing in the portfolios.
Below is a summary of the investment objectives of the portfolios available
under the contract. There is no assurance that any of these portfolios will
achieve its stated objectives.
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund seeks growth of capital through investment in
common stocks, with emphasis on medium-and smaller-sized growth companies.
AIM V.I. International Equity Fund seeks to provide long-term growth of capital
by investing in a diversified portfolio of international equity securities whose
issuers are considered to have strong earnings momentum.
Alliance Variable Products Series Fund, Inc.
Global Bond Portfolio seeks a high level of return from a combination of current
income and capital appreciation by investing in a globally diversified portfolio
of high quality debt securities denominated in the U.S. Dollar and a range of
foreign currencies. The sub-adviser for this portfolio is AIGAM International
Limited, an affiliate of American International Group, Inc.
Growth Portfolio seeks long term growth of capital by investing primarily in
common stocks and other equity securities.
Growth and Income 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.
Premier Growth 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.
Quasar 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.
Technology 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.
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Dreyfus Variable Investment Fund
Small Company Stock Portfolio seeks investment results that are greater than the
total return performance of publicly-traded common stocks in the aggregate, as
represented by Russell 2500 TM Index. The portfolio invests primarily in the
equity securities of the small to medium-sized domestic issuers that are
considered by the Dreyfus Corporation to offer above-average growth potential.
Dreyfus Stock Index 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. The Fund attempts to be fully invested at all times in the stocks that
comprise the index, and stock index futures. The Fund is neither sponsored by
nor affiliated with Standard & Poor's Corporation. Dreyfus has engaged its
affiliate, Mellon Equity Associates, to serve as the Fund's index fund manager.
Fidelity Variable Insurance Products Fund (VIP)
VIP Growth Portfolio seeks capital appreciation through investments primarily in
common stock.
VIP High Income Portfolio seeks high current income by investing primarily in
income producing debt securities, preferred stocks and convertible securities,
with emphasis on lower- quality debt securities (commonly referred to as "junk
bonds"), while also considering growth of capital. The potential for high yield
is accompanied by higher risk. For a more detailed discussion of the investment
risks associated with such securities, please refer to the Fidelity Fund's
attached prospectus. The sub-adviser for this portfolio is Fidelity Management &
Research Far East Inc. and Fidelity Management & Research (U.K.) Inc.
VIP Money Market Portfolio seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. The portfolio
will invest only in high quality U.S. dollar-denominated money market securities
of domestic and foreign issuers. An investment in the VIP Money Market Portfolio
is neither insured nor guaranteed by the U.S. Government, and there can be no
assurance that the portfolio will maintain a stable $1.00 share price. The
sub-adviser for this portfolio is Fidelity Investments Money Management, Inc., a
wholly owned subsidiary of FMR.
Fidelity Variable Insurance Products Fund II (VIP II)
VIP II Asset Manager Portfolio seeks to provide a high total return with reduced
risk over the long term by allocating its assets among stocks, bonds and
short-term money market instruments. The sub-adviser for this portfolio is
Fidelity Management & Research Far East Inc.
and Fidelity Management & Research (U.K.) Inc.
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VIP II Contrafund Portfolio seeks capital appreciation by investing in
securities of companies whose value the manager believes is not fully recognized
by the public. The sub-adviser for this portfolio is Fidelity Management &
Research Far East Inc. and Fidelity Management & Research (U.K.) Inc.
VIP II Investment Grade Bond Portfolio seeks as high a level of current income
as is consistent with the preservation of capital by investing in U.S.
dollar-denominated investment-grade bonds. The portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less. The sub-adviser
for this portfolio is Fidelity Investments Money Management, Inc.
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund seeks long-term capital appreciation by
investing primarily in equity securities in emerging markets around the world.
Worldwide Hard Assets Fund seeks long-term capital appreciation by investing
primarily in "hard asset securities." Income is a secondary consideration. Hard
Asset securities are the stocks, bonds, and other securities of companies that
derive at least 50% of gross revenue or profit from exploration, development,
production or distribution of (1) precious metals, (2) natural resources, (3)
real estate and (4) commodities.
Fixed Investment Option
The General Account
Premium you allocate to the guaranteed option goes into our general account. The
general account is not registered with the SEC. The general account is invested
in assets permitted by state insurance law. It is made up of all of our assets
other than assets attributable to our variable accounts. Unlike our variable
account assets, assets in the general account are subject to claims of Owners
like you, as well as claims made by our other creditors.
The Guaranteed Account Option
The guaranteed account is a fixed interest option. We credit money in the
guaranteed account with interest on a daily basis at the guaranteed rate then in
effect. The rate of interest to be credited to the guaranteed account is
determined wholly within our discretion. However, the rate will not be changed
more than once per year. The interest rate will never be less than 3%.
If you allocate premium to the guaranteed account, the fixed portion of your
Contract Value during the accumulation phase will depend on the total interest
we credit to your contract. During the income phase, each annuity payment you
receive from the fixed portion of your contract will be for the same amount.
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We reserve the right to delay any payment from the guaranteed account for up to
six months from the date we receive the request at our Administrative Office, as
permitted by law.
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CHARGES AND DEDUCTIONS
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Insurance Charges
Each day, we deduct insurance charges from your Contract Value. This is done as
part of our calculation of the value of Accumulation Units during the
accumulation phase and of Annuity Units during the income phase. The insurance
charges are the mortality and expense risk charge, the administrative charge,
and the charges for the optional death benefits which are described under "Death
Benefit."
Mortality and Expense Risk Charge
The mortality and expense risk charge is equal, on an annual basis, to 1.25% of
the daily value of the variable portion of your contract. We will not increase
this charge. It compensates us for our obligation to make annuity payments, to
provide the death benefit, and for assuming the risk that current charges will
be insufficient in the future to cover the cost of administering the contract.
If the charges under the contract are not sufficient, we will bear the loss. If
the charges are sufficient, we will keep the balance of this charge as profit.
Administrative Charge
The administrative charge is equal, on an annual basis, to 0.15% of the daily
value of the variable portion of your contract. These expenses include preparing
the contract, confirmations and statements, and maintaining contract records. If
this charge is not enough to cover the costs of administering the contract, we
will bear the loss.
Optional Death Benefit Charges
If you elect an optional death benefit, we will assess a daily charge against
the assets in the variable account equal to an annual charge as shown below.
Equity Assurance Plan
Owner's Attained Age Annual Charge
0-59 0.07%
60+ 0.20%
Annual Ratchet Plan 0.10%
Accidental Death Benefit 0.05%
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Surrender Charge
If you surrender your contract prior to the Annuity Date during the first seven
years after a premium payment, we will assess a surrender charge as a percentage
of premium withdrawn as shown below:
Premium Year 1 2 3 4 5 6 7 Thereafter
Surrender Charge 6% 6% 5% 5% 4% 3% 2% 0%
For purposes of calculating the surrender charge, we treat surrenders as coming
from the oldest premiums first (i.e., first-in, first-out). However, we will not
assess a surrender charge on amounts of a partial surrender equal to the greater
of:
(1) the Contract Value less premium paid, or
(2) up to 10% of premium paid, less the amount of any prior surrender.
You will not receive the benefit of this "free withdrawal amount" if you
participate in the systematic withdrawal program. If you make a partial
surrender, we will deduct the surrender charge, if any, pro rata from the
remaining value in your contract. If insufficient value remains in your
contract, then we will deduct the surrender charge from the amount you are to
receive as a result of your surrender request. Likewise, we will deduct a
surrender charge on a full surrender from the amount you are to receive.
Contract Maintenance Fee
During the accumulation phase, we will deduct a contract maintenance fee of $30
from your contract on each Contract Anniversary. We will not increase this fee.
It compensates us for expenses incurred to establish and maintain your contract.
If you surrender the entire value of your contract, the contract maintenance fee
will be deducted prior to the surrender.
We do not deduct the contract maintenance fee if your Contract Value is $50,000
or more when the deduction is to be made.
Premium Taxes
We will deduct from your Contract Value any premium tax imposed by the state or
locality where you reside. Premium taxes currently imposed on the contract by
various states range from 0% to 3.5% of premiums paid. These taxes are due
either when premium is paid or when annuity payments begin. It is our current
practice to charge you for these taxes when annuity payments
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begin or if you surrender the contract in full. In the future, we may
discontinue this practice and assess the tax when it is due or upon the payment
of the death benefit.
Income Taxes
Although we do not currently deduct any charges for income taxes attributable to
your contract, we reserve the right to do so in the future.
Fund Expenses
There are deductions from and expenses paid out of the assets of the various
portfolios. These charges are described in the prospectuses for the AIM Variable
Insurance Funds, Alliance Variable Products Series Fund, Dreyfus Variable
Investment Fund, Dreyfus Stock Index Fund, Fidelity Variable Insurance Products
Fund, Fidelity Variable Insurance Products Fund II and Van Eck Worldwide
Insurance Trust and are summarized in the fee table.
Reduction or Elimination of Certain Charges and Additional Amounts Credited
We may reduce or eliminate the surrender charge or the administrative charge or
change the minimum premium requirement when the contract is sold to groups of
individuals under circumstances which reduce our sales expenses. We will
determine the eligibility of such groups by considering factors such as:
(1) the size of the group;
(2) the total amount of premium we expect to receive from the group;
(3) the nature of the purchase and the persistency we expect in that
group;
(4) the purpose of the purchase and whether that purpose makes it likely
that expenses will be reduced; and
(5) any other circumstances which we believe to be relevant in determining
whether reduced sales expenses may be expected.
We may also waive or reduce the surrender charge and/or contract maintenance fee
in connection with contracts sold to employees, employees of affiliates,
registered representatives, employees of broker-dealers which have a current
selling agreement with us, and immediate family members of those persons. Any
reduction or waiver may be withdrawn or modified by us.
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ACCESS TO YOUR MONEY
===================================================================
Generally
Contract Value is available in the following ways:
o by surrendering all or part of your Contract Value during the
accumulation phase;
o by receiving annuity payments during the income phase;
o when a death benefit is paid to your beneficiary.
Generally, surrenders are subject to a surrender charge, a contract maintenance
fee and, if it is a full surrender, premium taxes. Surrenders may also be
subject to income tax and a penalty tax.
To make a surrender you must send a complete and detailed written request to our
Administrative Office. We will calculate your surrender as of the close of
business of the NYSE at the value next determined after we receive your request.
For a surrender of your entire Contract Value, you must also send us your
contract.
Under most circumstances, partial surrenders must be for a minimum of $500. We
require that your Contract Value be at least $2,000 after the surrender. If the
Contract Value would be less than $2,000 as a result of a surrender, we may
cancel the contract. Unless you provide us with different instructions, partial
surrenders will be made pro rata from each investment option in which your
contract is invested.
We may be required to suspend or postpone the payment of a surrender for an
undetermined period of time when:
o the NYSE is closed (other than a customary weekend and holiday
closings);
o trading on the NYSE is restricted;
o an emergency exists such that disposal of or determination of the
value of shares of the portfolios is not reasonably practicable;
o the SEC, by order, so permits for the protection of owners.
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Systematic Withdrawal Program
The systematic withdrawal program allows you to make regularly scheduled
withdrawals from your Contract Value of at least $200 each on a monthly or
quarterly basis. You may change the amount or frequency of withdrawals under the
program once per Contract Year. In order to initiate the program, your Contract
Value must be at least $24,000. A maximum of 10% of your Contract Value may be
withdrawn in a Contract Year.
Surrender charges are not imposed on withdrawals under this program nor is there
any charge for participating in this program. You may not elect this program if
you have made a partial surrender earlier in the same Contract Year. In
addition, the free withdrawal amount is not available in connection with partial
surrenders you make while participating in the systematic withdrawal program.
You will be entitled to the free withdrawal amount on and after the Contract
Anniversary next following the termination of the systematic withdrawal program.
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 portfolio or the guaranteed option is not sufficient
to make a withdrawal or if your request for systematic withdrawal does not
specify the investment options from which to deduct withdrawals, withdrawals
will be deducted pro rata from your Contract Value in each portfolio and the
guaranteed option.
The systematic withdrawal program may be canceled at any time by written request
or automatically by us if your Contract Value falls below $1,000. In the event
the systematic withdrawal program is canceled, you may not elect to participate
in the program again until the next Contract Anniversary.
If your Contract is issued in connection with an individual retirement annuity
or 403(b) Plan, you are cautioned that your rights to implement a systematic
withdrawal program may be subject to the terms and conditions of your plan,
regardless of the terms and conditions of your Contract. Moreover,
implementation of the systematic withdrawal program may subject you to adverse
tax consequences, including a 10% tax penalty if you are under age 59 1/2. See
"Taxes" for a discussion of the various tax consequences.
For information, including the necessary enrollment form, please check with our
Administrative Office. We reserve the right to modify, suspend or terminate this
program at any time.
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ANNUITY PAYMENTS
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Generally
Beginning on the Annuity Date, you will receive regular annuity payments. You
may choose to receive annuity payments that are fixed, variable or a combination
of fixed and variable. We make annuity payments on a monthly, quarterly,
semiannual or annual basis.
You select the Annuity Date, which must be the first day of a month and must be
at least one year after we issue your contract. You may change the Annuity Date
at least 30 days before payments are to begin. However, annuity payments must
begin by the annuitant's 90th birthday. Certain states may require that annuity
payments begin prior to such date and we will comply with those requirements.
The Annuitant is the person on whose life annuity payments are based. You may
change the Annuitant at any time prior to the Annuity Date. If you are not the
Annuitant and the Annuitant dies before the Annuity Date, you must notify us and
designate a new Annuitant.
Annuity Options
The contract offers three annuity options described below. Other annuity options
may be made available, including other guarantee periods and options without
life contingencies, subject to our discretion. If you do not choose an annuity
option, annuity payments will be made in accordance with option 2 for 10 years.
If the annuity payments are for joint lives, then we will make payments in
accordance with option 3. Where permitted by state law, we may pay the annuity
in one lump sum if your Contract Value is less than $2,000. Likewise, if your
annuity payments would be less than $100 a month, we have the right to change
the frequency of your payment to be on a semiannual or annual basis so that the
payments are at least $100. We will make annuity payments to you unless you
designate another person to receive them. In that case, you must notify us in
writing at least thirty days before the Annuity Date. You will remain fully
responsible for any taxes related to the annuity payments.
Option 1 - Life Income
Under this option, we will make annuity payments as long as the Annuitant is
alive. Annuity payments stop when the Annuitant dies.
Option 2 - Life Annuity with 10 Years Guaranteed
This option is similar to option 1 above, with the additional guarantee that
payments will be made for a period you select of at least 10 years. Under this
option, if the Annuitant dies before
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all guaranteed payments have been made, the rest will be paid to the beneficiary
for the remainder of the period..
Option 3 - Joint and Last Survivor Income
Under this option, we will make annuity payments as long as either the Annuitant
or a contingent annuitant is alive. If your Contract is issued as an individual
retirement annuity, payments under this option will be made only to you as
Annuitant or to your spouse. Upon the death of either of you, we will continue
to make annuity payments so long as the survivor is alive.
Variable Annuity Payments
If you choose to have any portion of your annuity payments based on the variable
investment options, the amount of your payments will depend upon:
o your Contract Value in the portfolios on the Annuity Date;
o the 5.0% assumed investment rate used in the annuity table for the
contract;
o the performance of the portfolios you selected;
o the annuity option you selected.
If the actual performance exceeds the 5.0% assumed rate, the annuity payments
will increase. Similarly, if the actual rate is less than 5.0%, the annuity
payments will decrease. The SAI contains more information.
Transfers During Income Phase
Transfers during the income phase are subject to the same limitations as
transfers during the accumulation phase. See "The Contract - Transfers During
Accumulation Phase." However, you may only make one transfer each month and you
may only transfer money among the variable investment options. You may not
transfer money from the fixed investment option to the variable investment
options or from the variable investment options to the fixed investment option.
Deferment of Payments
We may defer making fixed annuity payments for up to six months subject to state
law. We will credit interest to you during the deferral period.
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DEATH BENEFIT
===================================================================
Death of Owner Before the Annuity Date
If you (or a joint owner) dies before the Annuity Date, the 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 ownership
was changed from one natural person to another natural person, the death benefit
will equal the Contract Value. A surviving spouse designated as the beneficiary
can elect to continue the contract and become the Owner. The amount of the death
benefit to be paid is determined by the death benefit option selected at the
time of application and is calculated in accordance with the terms of that
option as described below. The amount of the death benefit will never be less
than the traditional death benefit. If you selected both the annual ratchet plan
and the equity assurance plan, the death benefit will be the greatest of the
traditional death benefit, the annual ratchet plan, or the equity assurance
plan. The accidental death benefit, if applicable, will be paid in addition to
any other benefit. All death benefit options may not be available in all states.
Traditional Death Benefit
Under the traditional death benefit, we will pay the amount equal to the
greatest of:
(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was
reduced on the date of a surrender; or
(3) the greatest 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 paid unless you selected an optional death
benefit.
Optional Death Benefits
Prior to determining the amount of any of the following optional death benefits,
the Contract Value will be reduced by the accrued charge for the optional death
benefit if, as of the date of death, the accrued charge had not yet been
deducted.
Annual Ratchet Plan. We will pay a death benefit equal to the greatest of:
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(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was
reduced on the date of a surrender; 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
premiums paid subsequent to that Contract Anniversary.
The annual ratchet plan will be in effect if:
(1) you select it on the application; and
(2) the charge for the annual ratchet plan is shown in your contract.
The annual ratchet plan will cease to be in effect upon our receipt of your
written request to discontinue it.
Equity Assurance Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the greatest Contract Value at any seventh Contract
Anniversary, plus any premium 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 premium 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 completed 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:
o 0% per annum if death occurs during the 1st through
24th month from the date of premium payment;
o 2% per annum if death occurs during the 25th
through 48th month from the date of premium
payment;
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o 4% per annum if death occurs during the 49th
through 72nd month from the date of premium
payment;
o 6% per annum if death occurs during the 73rd
through 96th month from the date of premium
payment;
o 8% per annum if death occurs during the 97th
through 120th month from the date of premium
payment;
o 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 premium paid after the first Contract
Anniversary following your 85th birthday, adjusted for
surrenders as described below.
In determining 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 the surrender.
The Equity Assurance Plan will be in effect if:
(1) you select it on the application;
(2) the charge for the equity assurance plan is shown in your contract.
The equity assurance plan will cease when we receive your written request to
discontinue it or upon the allocation of Contract Value to either the money
market portfolio or guaranteed option unless such allocation is made as part of
dollar cost averaging.
Accidental Death Benefit
If you selected the accidental death benefit at the time of application, it will
be paid in addition to the traditional or optional death benefit in effect at
the time of your death. The accidental death benefit is not available if the
contract is used in connection with an individual retirement annuity. If
selected at the time of application, 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.
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The accidental death benefit is payable if you die as a result of injury prior
to the Contract Anniversary following your 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:
o suicide or attempted suicide, while sane or insane, or intentionally
self-inflicted injuries;
o 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;
o injury sustained as a consequence of riding in, including boarding or
alighting from, any vehicle or device used for aerial navigation
except if you are a passenger on any aircraft licensed for the
transportation of passengers;
o declared or undeclared war or any act thereof; or
o service in the military, naval or air service of any country.
The accidental death benefit will be in effect if:
(1) you select it on the Application; and
(2) the charge for the accidental death benefit is shown in your contract.
The accidental death benefit will cease to be in effect upon the Contract
anniversary following your 75th birthday, or upon our receipt of your written
request to discontinue.
Payment to Beneficiary
Upon your death if 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 five years of the date of
your death; or
(2) payment over the beneficiary's lifetime with distribution beginning
within one year of your date of death; or
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If no payment option is elected within sixty days of our receipt of proof of
your death, a single sum settlement will be made at the end of the sixty-day
period following such receipt. Upon payment of a death benefit, the contract
will end.
Death of Owner After the Annuity Date
If you are not the Annuitant, and if your death occurs on or after the Annuity
Date, no death benefit will be payable under the 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 your death. If the Contract is not
owned by an individual, the Annuitant shall be treated as the Owner and any
change of the named Annuitant will be treated as if the Owner died.
Death of Annuitant
Before the Annuity Date
If you are not the Annuitant, and if the Annuitant dies before the Annuity Date,
you may name a new Annuitant. If you do not name a new Annuitant within sixty
days after we are notified of the Annuitant's death, we will deem you to be the
new Annuitant.
After the Annuity Date
If an Annuitant dies after the Annuity Date, the remaining payments, if any,
will be as specified in the annuity option in effect when the Annuitant died. We
will require proof of the Annuitant's death. The remaining benefit, if any, will
be paid to the beneficiary at least as rapidly as under the method of
distribution in effect at the Annuitant's death. If you were not the Annuitant
and no beneficiary survives the Annuitant, we will pay any remaining benefit to
you.
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PERFORMANCE
================================================================
Occasionally, we may advertise certain performance related information
concerning one or more of the portfolios, including total return and yield
information. A portfolio's performance information is based on the portfolio's
past performance only and is not intended as an indication of future
performance.
When we advertise the average annual total return of a portfolio, it will
usually be calculated for one, five, and ten year periods or, where a portfolio
has been in existence for a period of 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 portfolio at the beginning of the relevant period
to the value of the investment at the end of the period. That assumes the
deduction of any surrender charge that would be payable if the account were
redeemed at the end of the period. Then the
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<PAGE>
average annual compounded rate of return is calculated to produce the value of
the investment at the end of the period. We may simultaneously present returns
that do not assume a surrender and, therefore, do not deduct a surrender charge.
When we advertise the yield of a portfolio we will calculate it based upon a
given thirty 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 we advertise the performance of the money market portfolio we may advertise
the yield or the effective yield in addition to the total return. The yield of
the money market portfolio refers to the income generated by an investment in
that portfolio 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 portfolio 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 lower than at the underlying fund
level since it is reduced by all contract charges (surrender charge, mortality
and expense risk charge, administrative charge, and contract maintenance fee).
Likewise, yield and effective yield at the variable account level are lower than
at the fund level since the variable account level total return affects all
recurring charges (except surrender charge).
Performance information for a portfolio may be compared to:
(1) 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 portfolio's results
with those of a group of securities widely regarded by
investors as representative of the securities markets in
general;
(2) 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;
(3) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Contract; and
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<PAGE>
(4) indices or averages of alternative financial products
available to prospective investors, including the Bank Rate
Monitor which monitors average returns of various bank
instruments.
================================================================
TAXES
================================================================
Introduction
The following discussion of federal income tax treatment is general in nature
and is not intended as tax advice. This discussion is based on current law and
interpretations, which may change. For a discussion of federal income taxes as
they relate to the funds, please see the accompanying fund prospectuses. No
attempt is made to consider any applicable state or other tax laws. We do not
guarantee the tax status of your contract.
Annuity Contracts in General
The Internal Revenue Code (the "Code") provides special rules regarding the tax
treatment of annuity contracts. Generally, you will not be taxed on the earnings
in an annuity contract until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is qualified
or non-qualified, as explained below.
If you do not purchase your contract under a retirement arrangement entitled to
favorable federal income tax treatment, your contract is referred to as a
non-qualified contract. If you purchase your contract under a retirement
arrangement entitled to favorable federal income tax treatment, your contract is
referred to as a qualified contract.
Tax Treatment of Distributions -- Non-qualified Contracts
If you make a withdrawal from a non-qualified contract or surrender it before
annuity payments begin, the amount you receive will be taxed as ordinary income,
rather than as a return of premium, until all gain has been withdrawn. For
annuity payments, any portion of each payment that is considered a return of
your premium will not be taxed. There is a 10% tax penalty on any taxable amount
you receive unless the amount received is paid:
(1) after you reach age 59 1/2;
(2) to your beneficiary after you die;
(3) after you become disabled;
33
<PAGE>
(4) in a series of substantially equal installments made not less
frequently than annually under a lifetime annuity; or
(5) under an immediate annuity.
Assignments
If you assign all or part of the contract as collateral for a loan, the part
assigned will be treated as a withdrawal and the excess of the Contract Value
over total premium will be taxed as ordinary income. Please consult your tax
adviser prior to making an assignment of the contract.
Gifts of Contracts
If you transfer a contract for less than full consideration, such as by gift,
you will generally trigger tax on the gain in the contract. This rule does not
apply to those transfers between spouses or incident to divorce.
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 premium) 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, and in other
limited circumstances.
Distribution at Death Rules
Upon the death of the Owner of a contract, certain distributions must be made:
o If the Owner dies on or after the Annuity Date, and before the entire
interest in the contract has been distributed, the remaining portion will
be distributed at least as quickly as the method in effect on the Owner's
death;
o If the Owner dies before the Annuity Date, the entire interest must
generally be distributed within five years after the date of death.
o If the beneficiary is a natural person, the interest may be annuitized over
the life of that individual or over a period not extending beyond the life
expectancy of that individual, so long as distributions commence within one
year after the date of death.
o If the beneficiary is the spouse of the Owner, the contract may be
continued in the name of the spouse as Owner.
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<PAGE>
o If the Owner is not an individual, the death of the "primary annuitant" (as
defined under the Code) is treated as the death of 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.
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 or
other property 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 Section 1035
transactions. Prospective owners wishing to take advantage of Section 1035 of
the Code should consult their tax advisers.
Tax Treatment of Distributions --Qualified Contracts
If you purchase your contract under a tax-favored retirement plan or account,
your contract is referred to as a qualified contract. Examples of qualified
plans or accounts are:
o Individual Retirement Annuities ("IRAs");
o Roth IRAs;
o Tax Deferred Annuities (governed by Code Section 403(b) and referred to as
"403(b) Plans");
o Keogh Plans; and
o Employer-sponsored pension and profit sharing arrangements such as 401(k)
plans.
Withdrawals in General
Generally, with the exception of a Roth IRA, you have not paid any taxes on the
premium used to buy a qualified contract or on any earnings. Therefore, any
amount you take out as a withdrawal or as annuity payments will be taxable
income. In addition, a 10% tax penalty may apply to the taxable part of a
withdrawal received before age 59 1/2. Limited exceptions are provided, such as
where amounts are paid in the form of a qualified life annuity, upon death or
disability of the employee, to pay certain medical expenses, or, in some cases,
upon separation from service on or after age 55.
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<PAGE>
Individual Retirement Annuities
Code Section 408 permits eligible individuals to contribute to an IRA. By
attachment of an endorsement that reflects the limits of Code Section 408(b),
the Contracts may be issued as 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. Most IRAs cannot accept contributions after the owner
reaches 70 1/2, and must also begin required distributions at that age. Sales of
the contract for use with IRAs are subject to special requirements, including
the requirement that informational disclosure be given to each person desiring
to establish an IRA. That person must be given the opportunity to affirm or
reverse a decision to purchase the contract. Contracts offered by this
prospectus in connection with an IRA are not available in all states. The
accidental death benefit is not available under a contract issued in connection
with an IRA.
Roth IRAs
Code Section 408A 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.
403(b) Plans
The contracts are also available for use in connection with a previously
established 403(b) plan. Code Section 403(b) imposes certain restrictions on
your ability to make partial surrenders from a contract used in connection with
a 403(b) Plan, if attributable to premium paid under a salary reduction
agreement. Specifically, an owner may make a surrender or partial withdrawal
only (a) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled, or (b) in the case of hardship. In the case of hardship, only
an amount equal to the premium paid may be withdrawn. 403(b) Plans are subject
to additional requirements, including eligibility, limits on contributions,
minimum distributions, and nondiscrimination requirements applicable to the
employer. In particular, distributions generally must commence by April 1 of the
calendar year following the later of the year in which the employee (a) attains
age 70 1/2, or (b) retires. Owners and their employers are responsible for
compliance with these rules. Contracts offered by this prospectus in connection
with a 403(b) Plan are not available in all states.
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<PAGE>
Rollovers
Distributions from a 401(a) 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 IRA. A
prospective owner considering use of the contract in this manner should consult
a competent tax adviser with regard to the suitability of the contract for this
purpose and for information concerning the tax law provisions applicable to
qualified plans, 403(b) plans, and IRAs.
Diversification and Investor Control
The Code imposes certain diversification requirements on the underlying
investments for a variable annuity to be treated as a variable annuity for tax
purposes. We believe that the portfolios are being managed so as to comply with
these requirements.
The tax regulations do not provide guidance as to the circumstances under which
you, because of the degree of control you exercise over the underlying
investments, would be considered the owner of the shares of the portfolios. If
any guidance on this point is provided which is considered a new position, then
the guidance would generally be applied prospectively. However, if such guidance
is considered not to be a new position, it may be applied retroactively. This
would mean you, as the owner of the contract, could be treated as the owner of
assets in the portfolios. We reserve the right to make changes to the contract
we think necessary to see that it qualifies as a variable annuity contract for
tax purposes.
Withholding
We are 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. If you do
not provide a social security number or other taxpayer identification number,
you will not be permitted to elect out of withholding. Special withholding rules
apply to payments made to non-resident aliens.
For lump-sum distributions or withdrawals, we are required to withhold 10% of
the taxable portion of any withdrawal or lump sum distribution unless you elect
out of withholding. For annuity payments, the company will withhold on the
taxable portion of annuity payments based on a withholding certificate you file
with us. 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.
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<PAGE>
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.
================================================================
OTHER INFORMATION
================================================================
AIG Life Insurance Company
We are a stock life insurance company initially organized under the laws of
Pennsylvania and reorganized under the laws of Delaware. We were incorporated in
1962. Our principal business address is One Alico Plaza, 600 King Street,
Wilmington, Delaware 19801. We provide a full range of life insurance and
annuity plans. We are 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 in approximately 130 countries and
jurisdictions around the world.
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to AIG by one or more independent rating
organizations such as A.M. Best Company, Moody's and Standard & Poor's. The
purpose of the ratings is to reflect the rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the variable account.
The ratings are not recommendations to purchase our life insurance or annuity
products or to hold or sell these products, and the ratings do not comment on
the suitability of such products for a particular investor. There can be no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn entirely by a rating
organization if, in such organization's judgment, future circumstances so
warrant. The ratings do not reflect the investment performance of the variable
account or the degree of risk associated with an investment in the variable
account.
Ownership
This prospectus describes both individual flexible premium deferred variable
annuity contracts and group flexible premium deferred variable annuity
contracts. The individual and group contracts described in this prospectus are
identical except that the individual contract is issued directly to the
individual owner. A group contract is issued to a contract holder for the
benefit of the participants in the group. If you are a participant in the group
you will receive a certificate evidencing your ownership. You, either as the
owner of an individual contract or as the owner of a certificate, are entitled
to all the rights and privileges of ownership. As used in this prospectus, the
term contract is equally applicable to an individual contract or to a
certificate.
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<PAGE>
Voting Rights
To the extent required by law, we will vote the portfolio shares held in the
variable account at shareholder meetings in accordance with instructions
received from persons having a voting interest in the portfolio. However, if
legal requirements or 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, you hold a voting interest in each portfolio in whose
corresponding portfolio you have Contract Value. The number of portfolio shares
which are attributable to you is determined by dividing the corresponding value
in a particular portfolio by the net asset value of one portfolio share. The
number of votes which you 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 meeting.
Each person having a voting interest in a portfolio will receive proxy material,
reports and other materials relating to the appropriate portfolios. We will vote
shares in accordance with instructions received from the person having a voting
interest. We will vote shares for which we receive no timely instructions and
any shares not attributable to Owners in proportion to the voting instructions
we have received.
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 option.
Distribution of the Contract
Our affiliate, AIG Equity Sales Corp. ("AIGESC"), 80 Pine Street, New York, New
York, acts as the distributor of the contract. AIGESC is a wholly-owned
subsidiary of AIG. Commissions not to exceed 7% of premiums will be paid to
entities which sell the contract. Additional payments may be made for other
services not directly related to the sale of the contract, including the
recruitment and training of personnel, production of promotional literature and
similar services.
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 from
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 Contract
While we have primary responsibility for all administration of the contract and
the variable account, we have retained the services of Delaware Valley Financial
Services, Inc. ("DVFS")
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<PAGE>
pursuant to an administrative agreement. These administrative services include
issuance of the contract and maintenance of Owner records. DVFS serves as the
administrator to various insurance companies offering variable annuity contracts
and variable life insurance policies.
Year 2000 Readiness
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the Year 2000, causing
disruption of the operations of AIG, as well as its lessees, vendors, or
business partners.
AIG has developed a plan to address the Year 2000 issue as it affects AIG's
internal IT and non- IT systems, and to assess Year 2000 issues relating to
third parties with whom AIG has critical relationships.
The plan for addressing internal systems includes an assessment of internal IT
and non-IT systems and equipment affected by the Year 2000 issue; definition of
strategies to address affected systems and equipment; remediation of identified
affected systems and equipment; and internal certification that each internal
system is Year 2000 compliant. AIG has remediated, tested and returned to
production substantially all of its internal IT systems. AIG continues to
remediate and test internal non-IT systems and expects to complete remediation
by mid-1999.
AIG has also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with AIG. Currently,
AIG is unable to ascertain whether all such third parties will successfully
address the Year 2000 issue, particularly those third parties outside the United
States where it is believed that remediation efforts relating to the Year 2000
issue may be less advanced. While AIG expects to have no interruption of
operations as a result of internal IT and non-IT systems, significant
uncertainties remain about the effect on AIG of third parties who are not Year
2000 compliant. AIG will continue to monitor third party Year 2000 issue
readiness to determine whether additional or alternative measures may be
necessary. Such measures may include the selection of alternate third parties or
other actions designed to mitigate the effects of a third party's lack of
preparedness. There can be no assurance that unresolved Year 2000 issues of
third parties will not have a material adverse impact on AIG's results of
operations, financial condition or liquidity. AIG is considering the effects of
Year 2000 related failures on its business and, as the most reasonably likely
worst case scenarios become more clearly identified, AIG will develop
appropriate contingency plans.
There can be no assurance that the funds, like other third parties, will not
have unresolved Year 2000 issues that may have a material adverse impact on your
contract values as well as our operations. Please refer to the Year 2000
discussion in each fund's prospectus.
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<PAGE>
Legal Proceedings
There are no pending legal proceedings which, in our judgment, are material with
respect to the variable account.
================================================================
FINANCIAL STATEMENTS
================================================================
Consolidated balance sheets of AIG Life Insurance Company and of the variable
account are included in the SAI which may be obtained without charge by calling
(800) 255-8402 or writing to AIG Life Insurance Company, Attention: Variable
Products, One Alico Plaza, 600 King Street, Wilmington, Delaware 19801. A
complete set of financial statements of the company and the variable account has
been filed electronically with the SEC and can be obtained through its website
at http://www.sec.gov.
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===============================================================
APPENDIX
================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
AIM V.I. CAPITAL APRECIATION FUND
Accumulation Unit Value
Beginning of Period 9.61 N/A N/A
End of Period 11.31 9.61 N/A
Accum Units o/s @ end of period 119,260.64 N/A N/A
AIM V.I. INTERNATIONAL EQUITY FUND
Accumulation Unit Value
Beginning of Period 10.10 N/A N/A
End of Period 11.51 10.10 N/A
Accum Units o/s @ end of period 67,193.18 262.97 N/A
ALLIANCE GLOBAL BOND
Accumulation Unit Value
Beginning of Period 9.86 N/A N/A
End of Period 11.10 9.86 N/A
Accum Units o/s @ end of period 4,547.27 N/A N/A
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period 15.69 12.24 10.00
End of Period 19.92 15.69 12.24
Accum Units o/s @ end of period 123,814.87 333,114.57 123,814.87
ALLIANCE GROWTH & INCOME
Accumulation Unit Value
Beginning of Period 15.06 11.85 10.00
End of Period 17.95 15.06 11.85
Accum Units o/s @ end of period 116,342.75 547,915.82 116,342.75
ALLIANCE PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 10.48 N/A N/A
End of Period 15.29 10.48 N/A
Accum Units o/s @ end of period 68,418.04 N/A N/A
ALLIANCE QUASAR
Accumulation Unit Value
Beginning of Period 12.02 10.28 10.00
End of Period 11.32 12.02 10.28
Accum Units o/s @ end of period 123,814.87 94,929.55 4,796.29
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period 11.07 10.54 10.00
End of Period 17.87 11.07 10.54
Accum Units o/s @ end of period 123,814.87 143,999.25 15,829.55
DREYFUS SMALL COMPANY STOCK
Accumulation Unit Value
Beginning of Period 10.55 N/A N/A
End of Period 9.79 10.55 N/A
Accum Units o/s @ end of period 16,124.79 58,659.22 N/A
DREYFUS STOCK INDEX
Accumulation Unit Value
Beginning of Period 15.39 11.74 10.00
End of Period 19.45 15.39 11.74
Accum Units o/s @ end of period 113,481.41 490,227.53 113,481.41
FIDELITY VIP HIGH INCOME
Accumulation Unit Value
Beginning of Period 12.65 10.90 10.00
End of Period 11.93 12.65 10.90
Accum Units o/s @ end of period 55,015.77 185,484.29 55,015.77
FIDELITY VIP GROWTH
Accumulation Unit Value
Beginning of Period 13.30 10.92 10.00
End of Period 18.29 13.30 10.92
Accum Units o/s @ end of period 149,722.06 468,339.86 149,722.06
FIDELITY VIP MONEY MARKET
Accumulation Unit Value
Beginning of Period 10.70 10.29 10.00
End of Period 11.13 10.70 10.29
Accum Units o/s @ end of period 385,238.57 944,656.53 385,238.57
FIDELITY VIP II ASSET MANAGER
Accumulation Unit Value
Beginning of Period 13.23 11.12 10.00
End of Period 15.01 13.23 11.12
Accum Units o/s @ end of period 56,345.46 239,825.14 56,345.46
FIDELITY VIP II CONTRAFUND
Accumulation Unit Value
Beginning of Period 10.15 N/A N/A
End of Period 13.02 10.15 N/A
Accum Units o/s @ end of period 212,388.21 N/A N/A
FIDELITY VIP II INVESTMENT GRADE BOND
Accumulation Unit Value
Beginning of Period 11.28 10.49 10.00
End of Period 12.10 11.28 10.49
Accum Units o/s @ end of period 40,777.94 221,696.39 40,777.94
VAN ECK WORLDWIDE EMERGING MARKETS
Accumulation Unit Value
Beginning of Period 9.28 N/A N/A
End of Period 6.03 9.28 N/A
Accum Units o/s @ end of period 3,152.89 N/A N/A
VAN ECK WORLDWIDE HARD ASSETS
Accumulation Unit Value
Beginning of Period 9.86 10.17 10.00
End of Period 6.71 9.86 10.17
Accum Units o/s @ end of period 19,667.21 22,196.30 11,530.80
</TABLE>
<PAGE>
* Funds were first invested in the portfolios as listed below:
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund May 5, 1993
AIM V.I. International Equity Fund May 2, 1993
Alliance Variable Products Series Fund
Global Bond Portfolio July 15, 1991
Growth Portfolio September 15, 1994
Growth and Income Portfolio January 14, 1991
Premier Growth Portfolio June 26, 1992
Quasar Portfolio August 5, 1996
Technology Portfolio January 11, 1996
Dreyfus Variable Investment Fund
Small Company Stock Portfolio May 1, 1996
Dreyfus Stock Index Fund September 29, 1989
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio October 9, 1986
VIP High Income Portfolio September 19, 1985
VIP Money Market Portfolio April 1, 1982
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio September 6, 1989
VIP II Contrafund Portfolio January 3, 1995
VIP II Investment Grade Bond Portfolio December 5, 1988
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund December 21, 1995
Worldwide Hard Assets Fund September 1, 1989
45
<PAGE>
================================================================
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
================================================================
GENERAL INFORMATION
AIG Life Insurance Company
Independent Accountants
Legal Counsel
Distributor
Potential Conflicts
CALCULATION OF PERFORMANCE DATA
Yield and Effective Yield Quotations for the Money Market Subaccount
Yield Quotations for Other Subaccounts
Total Return Quotations
Non-Standardized Performance Data
ANNUITY PROVISIONS
Variable Annuity Payments
Annuity Unit Value
Net Investment Factor
Additional Provisions
FINANCIAL STATEMENTS
46
<PAGE>
PARADIGM VARIABLE ANNUITY PROFILE
This profile is a summary of some of the more important points that you should
know and consider before purchasing a variable annuity. The variable annuity is
more fully described in the accompanying prospectus. The sections in this
summary correspond to sections in the prospectus which discuss the topics in
more detail. All capitalized terms are used as defined in the prospectus. Please
read the prospectus carefully.
MAY 1, 1999
================================================================
1. VARIABLE ANNUITY
================================================================
A variable annuity contract is between you and AIG Life Insurance Company. It is
designed to help you invest on a tax-deferred basis and meet long-term financial
goals, such as providing you with retirement income. Tax deferral means all your
money, including the amount you would otherwise pay in current income taxes,
remains in your contract to generate more earnings.
This prospectus offers a choice of investment options. You may divide your money
among any or all of the 18 variable investment options provided by Mitchell
Hutchins and Alliance Capital Management, L.P. and the fixed investment option.
Your investment is not guaranteed. The value of your contract can fluctuate up
or down based on the performance of the underlying investments you select, and
you may experience a loss.
The variable investment portfolios offer professionally managed investment
choices with goals ranging from capital preservation to aggressive growth. Your
choices for the various investment options are found on the next page.
Like most deferred annuities, the contract has an accumulation phase and an
income phase. During the accumulation phase, you invest money in your contract.
Your earnings are based on the investment performance of the variable investment
portfolios to which your money is allocated and/or the interest rate earned on
the fixed investment option. You may withdraw money from your contract during
the accumulation phase. However, as with other tax-deferred investments, you
will pay taxes on earnings and untaxed contributions when you withdraw them. A
tax penalty may apply if you make withdrawals before age 59 1/2. The income
phase begins with the Annuity Date that you select. During the income phase, you
will receive payments from your annuity. Your payments may be fixed in dollar
amount, vary with investment performance or a combination of both, depending on
where you allocate your money. Among other factors, the amount of money you are
able to accumulate in your contract during the accumulation phase will determine
the amount of your payments during the income phase.
<PAGE>
================================================================
2. ANNUITY OPTIONS
================================================================
You can select one of the annuity options listed below:
(1) payments for the Annuitant's lifetime;
(2) payments for the Annuitant's lifetime, but for not less than 10 years;
and
(3) payments for the lifetime of the survivor of two Annuitants.
We may offer other annuity options, subject to our discretion.
You will need to decide if you want your payments to fluctuate with investment
performance, remain constant or to reflect a combination of the two. You will
also select the date on which your payments will begin. Once you begin receiving
payments, you cannot change your annuity option. If your contract is part of a
non-qualified retirement plan (one that is established with after tax dollars),
payments during the income phase are considered partly a return of your original
investment. The "original investment" part of each payment is not taxable as
income. For contracts which are part of a qualified retirement plan using before
tax dollars, the entire payment is taxable as income.
================================================================
3. PURCHASING A VARIABLE ANNUITY CONTRACT
================================================================
You can buy a contract through your financial representative, who can also help
you complete the proper forms. The minimum initial investment of $2,000 and
subsequent amounts of $1,000 or more may be added to your contract at any time
during the accumulation phase.
================================================================
4. INVESTMENT OPTIONS
================================================================
You may allocate money to the following variable investment portfolios of
Mitchell Hutchins Series Trust or Alliance Variable Products Series Fund, Inc.
Mitchell Hutchins Series Trust
(managed by Mitchell Hutchins Asset Management Inc.)
Balanced Portfolio
Global Income Portfolio
Growth Portfolio
Growth and Income Portfolio
High Income Portfolio
Small Cap Portfolio
Strategic Income Portfolio
Tactical Allocation Portfolio
Alliance Variable Products Series Fund
(managed by Alliance Capital Management L.P.)
Growth Portfolio
Growth and Income Portfolio
International Portfolio
Money Market Portfolio
Premier Growth Portfolio
Quasar Portfolio
Real Estate Investment Portfolio
Technology Portfolio
U.S. Government/High Grade Securities Portfolio
Worldwide Privatization Portfolio
The fixed investment option is our guaranteed account. The interest rate may
differ from time to time but we will never credit less than a 3% annual
effective rate. Once established, the rate will not change during the selected
period. You may also elect one of two dollar cost averaging programs. (The
6-month DCA may not yet be available in your state. Please contact your
financial representative for more information.)
================================================================
5. EXPENSES
================================================================
Each year, we deduct a $30 contract maintenance fee from your contract. This fee
is waived if the value of your contract is at least $50,000. We also deduct
insurance charges which equal 1.40% annually of the average daily value of your
contract allocated to the variable portfolios. The insurance charges include a
mortality and expense risk charge of 1.25% and an administrative charge of
0.15%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable portfolios.
These charges, include management fees and other operating expenses and are
estimated to range from 0.68% to 1.68%.
If you take money out in excess of the free amount permitted by your contract,
you may be assessed a surrender charge as a percentage of the premium you
withdraw. The percentage declines over a seven year period as follows:
Premium Year 1 2 3 4 5 6 7 Thereafter
Surrender Charge 6% 6% 5% 5% 4% 3% 2% None
Each year, you are allowed to make 12 transfers without charge. After your first
12 free transfers, a $10 transfer fee will apply to each subsequent transfer.
You may also be assessed a premium tax of up to 3.5% depending upon the state
where you reside.
The following chart is designed to help you understand the charges under your
contract. The column "Total Annual Insurance Charges" shows the total of the
1.40% insurance charges and the $30 contract maintenance fee. We converted the
contract maintenance fee to a percentage using an assumed contract size of
$50,000. The actual impact of this charge on your contract may differ from this
percentage. The column "Total Annual Portfolio Charges" refers to portfolio
charges for each variable portfolio. The third column is the total of all annual
charges.
The next two columns show two examples of the charges you would pay under the
contract. The examples assume that you invested $1,000 in a contract which earns
5% annually and that you withdraw your money (1) at the end of year 1 and (2) at
the end of year 10. The premium tax is assumed to be 0% in both examples.
<TABLE>
Total Total Examples
Annual Annual Total Total Expenses Total Expenses
Insurance Portfolio Annual at the end of at the end of
Charges Charges* Charges 1 Year 10 Years
<S> <C> <C> <C> <C> <C>
Mitchell Hutchins Series Trust
Balanced Portfolio 1.40% 0.97% 2.37% $79 $277
Global Income Portfolio 1.40% 1.68% 3.08% 86 345
Growth Portfolio 1.40% 1.05% 2.45% 79 285
Growth and Income Portfolio 1.40% 1.04% 2.44% 79 284
High Income Portfolio 1.40% 1.20% 2.60% 81 299
Small Cap Portfolio 1.40% 1.94% 3.34% 88 368
Strategic Income Portfolio 1.40% 1.44% 2.84% 83 322
Tactical Allocation Portfolio 1.40% 0.95% 2.35% 78 275
Alliance Variable Products Series Fund
Growth Portfolio 1.40% 0.87% 2.13% 78 267
Growth and Income Portfolio 1.40% 0.73% 2.35% 76 252
International Portfolio 1.40% 0.95% 2.08% 78 275
Money Market Portfolio 1.40% 0.68% 2.46% 76 247
Premier Growth Portfolio 1.40% 1.06% 2.35% 80 286
Quasar Portfolio 1.40% 0.95% 2.35% 78 275
Real Estate Investment Portfolio 1.40% 0.95% 2.35% 78 275
Technology Portfolio 1.40% 0.95% 2.18% 78 275
U.S. Government/High Grade Securities Portfolio 1.40% 0.78% 2.35% 77 257
Worldwide Privatization Portfolio 1.40% 0.95% 1.40% 78 275
</TABLE>
* Total Annual Portfolio Charges for the following portfolios before
reimbursement by the investment advisers for the period ended December 31, 1998
were as follows:
Alliance Variable Products Series Fund
International Portfolio 1.37%
Premier Growth Portfolio 1.09%
Quasar Portfolio 1.30%
Real Estate Investment Portfolio 1.77%
Technology Portfolio 1.20%
U.S. Government/High Grade Securities Portfolio 0.91%
Worldwide Privatization Portfolio 1.70%
For more detailed information, see "Fee Tables" in the prospectus.
================================================================
6. TAXES
================================================================
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract (one that is established
with after tax dollars) are deferred until they are withdrawn. In a qualified
contract (one that is established with before tax dollars like an IRA), all
amounts are taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% tax penalty for distributions or withdrawals
before age 591/2.
================================================================
7. ACCESS TO YOUR MONEY
================================================================ You may
withdraw free of a surrender charge an amount that is equal to the penalty-free
earnings in your contract as of the date you make the withdrawal. If you
participate in the systematic withdrawal program, you may withdraw 10% of your
total invested amount. The penalty-free earnings amount is calculated by taking
the value of your contract on the day you make the withdrawal and subtracting
your total invested amount. Your maximum free withdrawal amount is the greater
of: (1) the penalty-free earnings or (2) 10% of your total invested amount that
has been invested.
Withdrawals in excess of these limits will be assessed a surrender charge.
Withdrawals may be made from your contract in the amount of $500 or more. You
may request a withdrawal in writing. Under the systematic withdrawal program,
you must have at least $24,000 in contract value. The minimum withdrawal amount
is $200.
After your money has been in the contract for seven full years, there is no
surrender charge on that portion of the money that you have invested for at
least seven full years. Of course, you may have to pay income tax on any amount
withdrawn and a 10% tax penalty may apply if you are under age 59 1/2.
Additionally, a surrender charge is not assessed when a death benefit is paid.
================================================================
8. PERFORMANCE
================================================================
The value of your annuity will fluctuate depending upon the investment
performance of the subaccounts you choose.
The following chart shows total returns for each subaccount for the time periods
shown. These numbers reflect the insurance charges, the contract maintenance fee
and the investment charges. Surrender charges are not reflected in the chart. If
a surrender charge was reflected, the performance would be lower. Past
performance is no guarantee of future results.
SUMMARY OF PERFORMANCE
Inception Since
Date* Inception
Mitchell Hutchins Series Trust
Balanced Portfolio Sep-98 13.78%
Global Income Portfolio Sep-98 0.98%
Growth Portfolio Sep-98 29.49%
Growth and Income Portfolio Sep-98 19.25%
High Income Portfolio Sep-98 4.79%
Small Cap Portfolio Sep-98 29.82%
Strategic Income Portfolio Sep-98 2.48%
Tactical Allocation Portfolio Sep-98 24.54%
Alliance Variable Products Series Fund
Growth Portfolio Sep-98 32.01%
Growth and Income Portfolio Sep-98 23.23%
International Portfolio Sep-98 17.61%
Money Market Portfolio Sep-98 0.79%
Premier Growth Portfolio Sep-98 29.27%
Quasar Portfolio Sep-98 15.15%
Real Estate Investment Portfolio Sep-98 -2.54%
Technology Portolio Sep-98 39.54%
U.S. Government/High Grade Securities Portfolio Sep-98 -0.43%
Worldwide Privatization Portfolio Sep-98 9.29%
*The portfolios were not available under the contract prior to 1998.
================================================================
9. DEATH BENEFIT
================================================================
If you should die during the accumulation phase, your beneficiary will receive a
death benefit. Unless you choose one or more of the optional death benefits, the
traditional death benefit will be paid. You may select from the death benefit
options described below at the time you purchase your contract. Once we issue
your contract, you cannot add death benefit options. You should discuss with
your financial representative which option is best for you. Additional
information is available in the prospectus.
Traditional Death Benefit
The traditional death benefit is equal to the greatest of:
(1) the Contract Value;
(2) the total of all premium paid, reduced proportionally by any surrenders
in the same proportion that the Contract Value was reduced on the date
of a surrender; or
(3) the greatest 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 paid if no other death benefit is
selected.
Optional Death Benefits
There is a charge for each 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 charge for the optional death benefit if, as of the
date of death, the accrued charge had not yet been deducted.
Annual Ratchet Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any surrenders
in the same proportion that the Contract Value was reduced on the date
of a surrender; 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.
Equity Assurance Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the greatest Contract Value at any seventh Contract Anniversary plus
any premium 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 premium paid on or before the first
Contract Anniversary following your 85th Birthday, adjusted for surrenders and
then accumulated at the compound interest rates shown below for the number of
completed 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:
o 0% per annum if death occurs during the 1st through 24th month from the
date of premium payment;
o 2% per annum if death occurs during the 25th through 48th month from the
date of premium payment;
o 4% per annum if death occurs during the 49th through 72nd month from the
date of premium payment;
o 6% per annum if death occurs during the 73rd through 96th month from the
date of premium payment;
o 8% per annum if death occurs during the 97th through 120th month from the
date of premium payment;
o 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 premium paid after the first Contract Anniversary
following your 85th birthday, adjusted for surrenders.
Accidental Death Benefit
If you select the accidental death benefit it will be paid in addition to the
traditional or optional death benefit in effect at the time of your death. The
accidental death benefit is not available if the contract is used as an IRA. If
selected, 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.
================================================================
10. OTHER INFORMATION
================================================================
Right to Examine and Cancel: You may cancel your contract within ten days (or
longer if your state requires a longer period) by mailing it to our
Administrative Office. Your contract will be treated as void on the date we
receive it and we will pay you an amount equal to the value of your contract
(unless otherwise required by state law). Its value may be more or less than the
money you initially invested.
Dollar Cost Averaging: If selected, these programs allow you to invest in the
portfolios gradually over time at a fixed dollar amount or a certain percentage
each month. This type of investing will cover various market cycles. Your
Contract Value must be at least $12,000 to elect this option. The 6-month dollar
cost averaging program may not be available in all states.
Asset Rebalancing: If selected, this program seeks to keep your investment in
line with your goals. We will maintain your specified allocation mix among the
subaccounts that you selected. The Contract Value allocated to each subaccount
will grow or decline in value at different rates during the quarter. Asset
rebalancing automatically reallocates according to the allocation percentages
you selected.
Systematic Withdrawal Program: If selected, this program allows you to receive
either monthly or quarterly withdrawals during the accumulation phase. Of
course, withdrawals may be taxable and a 10% tax penalty may apply if you are
under age 59 1/2. Your Contract Value must be at least $24,000 to elect this
option .
Confirmations and Quarterly Statements: You will receive a confirmation of each
financial transaction within your contract. On a quarterly basis, you will
receive a complete statement of your transactions over the past quarter and a
summary of your Contract Value.
================================================================
11. INQUIRIES
================================================================
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
AIG Life Insurance Company
c/o Delaware Valley Financial Services
300 Berwyn Park
P.O. Box 3031
Berwyn, PA 19312-0031
Telephone Number 1-800-728-7819
<PAGE>
PARADIGM PROSPECTUS
MAY 1, 1999
VARIABLE ANNUITY CONTRACTS
issued by
AIG LIFE INSURANCE COMPANY
through its
VARIABLE ACCOUNT I
This prospectus describes a variable annuity contract being offered to
individuals and groups. It is a flexible premium, deferred annuity contract with
a fixed investment option. Please read this prospectus carefully before
investing and keep it for future reference.
The contract has nineteen investment options to which you can allocate your
money -- eighteen variable investment options listed below and one fixed
investment option. The fixed investment option is our guaranteed account which
earns a minimum of 3% interest. The variable investment options are portfolios
of the Mitchell Hutchins Series Trust or the Alliance Variable Products Series
Fund, Inc.
Mitchell Hutchins Series Trust
(managed by Mitchell Hutchins Asset Managment Inc.)
Balanced Portfolio High Income Portfolio
Global Income Portfolio Small Cap Portfolio
Growth Portfolio Strategic Income Portfolio
Growth and Income Portfolio Tactical Allocation Portfolio
Alliance Variable Products Series Fund
(managed by Alliance Capital Management L.P.)
Growth Portfolio Quasar Portfolio
Growth and Income Portfolio Real Estate Investment Portfolio
International Portfolio Technology Portfolio
Money Market Portfolio U.S.Gov't/High Grade Securities Portfolio
Premier Growth Portfolio Worldwide Privatization Portfolio
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information ("SAI") dated May 1, 1999. The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference
into this prospectus. The table of contents of the SAI appears on the last page
of this prospectus. For a free copy of the SAI,
1
<PAGE>
call us at (800) 728-7819 or write to us at AIG Life Insurance Company,
Attention: Variable Products, One Alico Plaza, 600 King Street, Wilmington,
Delaware 19801.
In addition, the SEC maintains a website at http://www.sec.gov that contains the
prospectus, SAI, materials incorporated by reference and other information which
we have filed electronically with the SEC.
Variable annuities involve risks, including possible loss of principal. They are
not a deposit of any bank or insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The SEC has not approved or disapproved of the contract or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
2
<PAGE>
=====================================================================
TABLE OF CONTENTS
=====================================================================
DEFINITIONS
FEE TABLES
CONDENSED FINANCIAL INFORMATION
THE CONTRACT
INVESTMENT OPTIONS
CHARGES AND DEDUCTIONS
ACCESS TO YOUR MONEY
ANNUITY PAYMENTS
DEATH BENEFIT
PERFORMANCE
TAXES
OTHER INFORMATION
FINANCIAL STATEMENTS
APPENDIX - CONDENSED FINANCIAL INFORMATION
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
3
<PAGE>
=====================================================================
DEFINITIONS
=====================================================================
We have capitalized certain terms used in this prospectus. To help you
understand these terms, we have defined them in this glossary.
Accumulation Unit - An accounting unit of measure used to calculate your
Contract Value prior to the Annuity Date.
Administrative Office - The Annuity Service Office, c/o Delaware Valley
Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031.
Annuitant - The person you designate whose life determines the duration of
annuity payments involving life contingencies.
Annuity Date - The date on which annuity payments begin.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary - An anniversary of the date we issued your contract.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under your contract.
Contract Year - Each period of twelve months commencing with the date we issued
your contract.
Owner - The person named as the owner in the contract or as later changed and
who has all rights under the contract.
Premium Year - Any period of twelve months commencing with the date we receive a
premium payment and ending on the same date in each succeeding twelve month
period thereafter.
Valuation Date - Each day that the New York Stock Exchange is 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.
4
<PAGE>
=====================================================================
FEE TABLES
=====================================================================
Owner Transaction Expenses
Sales Load.............................................................. None
Surrender Charge (as a percentage of premiums 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%
Thereafter......................................................... None
Transfer Fee
First 12 Per Contract Year......................................... None
Thereafter......................................................... $10
Contract Maintenance Fee (waived if account value is $50,000 or greater)$30/yr
Variable Account Expenses (as a percentage of average account value)
Mortality and Expense Risk Charge.................................. 1.25%
Administrative Charge.............................................. 0.15%
=====
Total Variable Account Annual Expenses............................. 1.40%
5
<PAGE>
Annual Portfolio Expenses
After Waivers/Reimbursement
<TABLE>
Management Other 12b-1 Total
Fees Expenses(1) Fees(2) Expenses
<S> <C> <C> <C> <C>
Mitchell Hutchins Series Trust
Balanced Portfolio 0.75% 0.22% 0.0% 0.97%
Global Income Portfolio 0.75% 0.93% 0.0% 1.68%
Growth Portfolio 0.75% 0.30% 0.0% 1.05%
Growth and Income Portfolio 0.70% 0.34% 0.0% 1.04%
High Income Portfolio 0.50% 0.70% 0.0% 1.20%
Small Cap Portfolio 1.00% 0.94% 0.0% 1.94%
Strategic Income Portfolio 0.75% 0.69% 0.0% 1.44%
Tactical Allocation Portfolio 0.50% 0.45% 0.0% 0.95%
Alliance Variable Products Series Fund(3)
Growth Portfolio 0.75% 0.12% (2) 0.87%
Growth and Income Portfolio 0.63% 0.10% (2) 0.73%
International Portfolio 0.58% 0.37% 0.0% 0.95%
Money Market Portfolio 0.50% 0.18% (2) 0.68%
Premier Growth Portfolio 0.97% 0.09% 0.0% 1.06%
Quasar Portfolio 0.73% 0.22% 0.0% 0.95%
Real Estate Investment Portfolio 0.08% 0.87% 0.0% 0.95%
Technology Portfolio 0.81% 0.14% 0.0% 0.95%
U.S. Government/High Grade Securities Portfolio 0.60% 0.18% (2) 0.78%
Worldwide Privatization Portfolio 0.25% 0.70% 0.0% 0.95%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectuses
for the Mitchell Hutchins Series Trust and Alliance Variable Product
Series Funds.
(2) Expenses shown are for the year ended December 31, 1998. No 12b-1 fees
were charged. Effective May 1, 1999, Alliance Variable Products Series
Fund will offer the Growth Portfolio, Growth and Income Portfolio,
Money Market Portfolio and U.S. Government/High Grade Securities
Portfolio as Class B shares and will be subject to 12b-1 fees. The
amount of this fee is 0.25%.
6
<PAGE>
(3) Total expenses for the following portfolios before waivers and
reimbursement by the Alliance Variable Products Series Fund's
investment adviser for the period ended December 31, 1998, were as
follows:
International Portfolio 1.37%
Premier Growth Portfolio 1.09%
Quasar Portfolio 1.30%
Real Estate Investment Portfolio 1.77%
Technology Portfolio 1.20%
U.S. Government /High Grade Securities Portfolio 0.91%
Worldwide Privatization Portfolio 1.70%
Example
You would pay the following expenses on a $1,000 investment, assuming 5% growth:
<TABLE>
If you surrender after:
1 Year 3 Years 5 Years 10 Years
------- ------- ------- --------
<S> <C> <C> <C> <C>
Mitchell Hutchins Series Trust
Balanced Portfolio $79 $121 $166 $277
Global Income Portfolio 86 142 200 345
Growth Portfolio 79 123 170 285
Growth and Income Portfolio 79 123 169 284
High Income Portfolio 81 128 177 299
Small Cap Portfolio 88 149 213 368
Strategic Income Portfolio 83 135 189 322
Tactical Allocation Portfolio 78 120 165 275
Alliance Variable Products Series Fund
Growth Portfolio 78 118 161 267
Growth and Income Portfolio 76 114 153 252
International Portfolio 78 120 165 275
Money Market Portfolio 76 112 151 247
Premier Growth Portfolio 80 123 170 286
Quasar Portfolio 78 120 165 275
Real Estate Investment Portfolio 78 120 165 275
Technology Portfolio 78 120 165 275
U.S. Government/High Grade Securities Portfolio 77 115 156 257
Worldwide Privatization Portfolio 78 120 165 275
</TABLE>
7
<PAGE>
<TABLE>
If you Annuitize or if you do not surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Mitchell Hutchins Series Trust
Balanced Portfolio $25 $76 $130 $277
Global Income Portfolio 32 97 164 345
Growth Portfolio 25 78 134 285
Growth and Income Portfolio 25 78 133 284
High Income Portfolio 27 83 141 299
Small Cap Portfolio 34 104 177 368
Strategic Income Portfolio 29 83 135 322
Tactical Allocation Portfolio 24 75 129 275
Alliance Variable Products Series Fund
Growth Portfolio 24 73 125 267
Growth and Income Portfolio 22 69 117 252
International Portfolio 24 75 129 275
Money Market Portfolio 22 67 115 247
Premier Growth Portfolio 26 78 134 286
Quasar Portfolio 24 75 129 275
Real Estate Investment Portfolio 24 75 129 275
Technology Portfolio 24 75 129 275
U.S. Government/High Grade Securities Portfolio 23 70 120 257
Worldwide Privatization Portfolio 24 75 129 275
</TABLE>
The purpose of the tables set forth in the example above is to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly. The tables reflect expenses of the variable account and the
portfolios but do not reflect any deduction for premium taxes, if any. The
example should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
===============================================================
CONDENSED FINANCIAL INFORMATION
================================================================
Historical accumulation unit values are contained in the Appendix.
8
<PAGE>
===================================================================
THE CONTRACT
===================================================================
General Description
An annuity is a contract between you, as the owner, and a life insurance
company. The contract provides tax deferral for your earnings, which means your
earnings accumulate on a tax-deferred basis until you take money out of your
contract. It also provides a death benefit and a guaranteed income in the form
of annuity payments beginning on a date you select. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation phase. The
income phase begins once you begin receiving annuity payments. If you die during
the accumulation phase, we guarantee a death benefit to your beneficiary.
The contract is called a variable annuity because you can allocate your money
among variable investment options. Each subaccount of our variable account
invests in shares of a corresponding portfolio of a mutual fund. Depending on
market conditions, the various portfolios may make or lose money. If you
allocate money to the portfolios, your Contract Value during the accumulation
phase will depend on their investment performance. In addition, the amount of
the variable annuity payments you may receive will depend on the investment
performance of the portfolios you select for the income phase.
The contract also has a fixed investment option. The guaranteed option account
is a fixed interest option that is part of our general account. Premium you
allocate to the guaranteed option will earn interest at a fixed rate that we
set. We guarantee the interest rate will never be less than 3%. Your Contract
Value in the guaranteed option account during the accumulation phase will depend
on the total interest we credit. During the income phase, each annuity payment
you receive from the fixed portion of your contract will be for the same amount.
Purchasing a Contract
Premium is the money you give us as payment to buy the contract, as well as any
additional money you give us to invest in the contract after you own it. The
minimum initial investment for both qualified and non-qualified contracts is
$2,000. You may add premium payments of $1,000 or more to your contract at any
time during the accumulation phase. You can pay scheduled subsequent premium of
$100 or more per month by enrolling in an automatic investment plan.
We may refuse any premium. In general, we will not issue a contract to anyone
who is over age 85.
9
<PAGE>
Allocation of Premium
When you purchase a contract, you will tell us how to allocate your initial
premium among the investment options. We will allocate additional premium in the
same way unless you tell us otherwise.
At the time of application, we must receive your initial premium at our
Administrative Office before the contract will be effective. We will issue your
contract and allocate your initial premium within two business days. If you do
not give us all the necessary information we need to issue the contract, we will
contact you to obtain it. If we are unable to complete this process within five
business days, we will send your money back unless you allow us to keep it until
we get all the necessary information.
Right to Examine Contract
If you change your mind about owning this contract, you can cancel it within ten
days after receiving it (or longer if required by state law) by mailing it back
to our Administrative Office: Delaware Valley Financial Services, Inc., 300
Berwyn Park, P.O. Box 3031, Berwyn, PA 19312- 0031. You will receive your
Contract Value on the day we receive your request which may be more or less than
the money you initially invested.
In certain states or if you purchase your contract as an individual retirement
annuity, we may be required to return your premium. If you cancel your contract
during the right to examine period, we will return to you an amount equal to
your premium payments less any withdrawals.
Accumulation Units
The value of an Accumulation Unit may go up or down from day to day. When you
pay a premium, we credit your contract with Accumulation Units. The number of
Accumulation Units credited is determined by dividing the amount of premium
allocated to a subaccount by the value of the Accumulation Unit for that
subaccount. We calculate the value of an Accumulation Unit as of the close of
business of the New York Stock Exchange ("NYSE") on each day that the NYSE is
open for trading. Except in the case of initial premium, we credit Accumulation
Units to your contract at the value next calculated after we receive your
premium at our Administrative Office.
The Accumulation Unit value for each portfolio will vary from one valuation
period to the next based on the investment experience of the assets in the
portfolio and the deduction of certain charges and expenses. The SAI contains a
detailed explanation of how Accumulation Units are valued.
Your value in any portfolio is determined by multiplying its unit value by the
number of units you own. Your value within the variable investment options is
the sum of your values in all the
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portfolios. The total value of your contract, referred to as the Contract Value,
equals your value in the variable investment options plus your value in the
guaranteed account.
Transfers During the Accumulation Phase
You can transfer money among the investment options by written request or by
telephone. You can make twelve transfers every Contract Year without charge.
There is a $10 transfer fee for each transfer over twelve in a Contract Year.
Transfers as a result of dollar cost averaging or asset rebalancing are not
counted against your twelve free transfers.
The minimum amount you can transfer is $1,000. You cannot make a partial
transfer if, after the transfer, there would be less than $1,000 in the
portfolio from which the transfer is being made. Your transfer request must
clearly state which investment options are involved and the amount of the
transfer.
We will accept transfers by telephone from you, your representative or anyone
else designated by you. Neither we nor the funds will be liable for following
telephone instructions we reasonably believe to be genuine or for any loss,
damage, cost or expense in acting on such instructions. We have in place
procedures to provide reasonable assurance that telephone instructions are
genuine.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time.
Dollar Cost Averaging
The contract has a feature which allows you to dollar cost average your
allocations to the portfolios by authorizing us to make periodic allocations of
Contract Value from either the money market portfolio or the guaranteed option
to one or more of the other portfolios. 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. It will result in the reallocation of
Contract Value to one or more portfolios and these amounts will be credited at
the Accumulation Unit value as of the Valuation Dates on which the exchanges are
effected. The amounts exchanged from a portfolio will result in a debiting of a
greater number of units when the Accumulation Unit value is low and a lower
number of units when the Accumulation Unit value is high.
To elect dollar cost averaging, your Contract Value must be at least $12,000.
You must send us a completed dollar cost averaging request form which is
available from the Administrative Office. We will not consider your request
unless your Contract Value is at least the required amount or the premium
submitted is at least $12,000.
Dollar cost averaging does not guarantee profits, nor does it assure that you
will not have losses.
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In addition to the dollar cost averaging program described above, we also offer
a six-month dollar cost averaging program that is available only for new premium
payments of at least $12,000. Either initial premium or subsequent premium
payments are eligible for this program. You may not include existing Contract
Value in the six-month dollar cost averaging program.
If you select this program, your premium will be allocated to the DCA account.
The DCA account is a guaranteed account available only for the six month dollar
cost averaging program. Your contract value in the DCA account will earn
interest at a rate guaranteed for six months from the date we receive your new
premium. The interest rate applicable to each account varies. Therefore, each
premium allocation to the program may earn interest at a different rate. The
full amount of the premium you allocate to the DCA account will be transferred
on a monthly basis over a six-month period into portfolios you have selected.
The minimum monthly amount that can be transferred from the DCA account is
one-sixth of the premium allocated to it. You may not change the amount or
frequency of transfers under this program.
The interest rate credited to the DCA account may be different from the interest
rate credited to the guaranteed option. If the six-month dollar cost averaging
program is terminated, we will automatically transfer any Contract Value
remaining in the DCA account to the guaranteed account option.
The six-month dollar cost averaging program may not be available in your state.
Please contact us for more information.
There is no charge for either dollar cost averaging program. In addition, your
periodic transfers under either dollar cost averaging program are not counted
against your twelve free transfers per Contract Year. You may not have dollar
cost averaging and asset rebalancing in effect at the same time. We reserve the
right to modify, suspend or terminate any dollar cost averaging program at any
time.
Asset Rebalancing
Once your money has been allocated among the investment options, the earnings
may cause the percentage invested in each investment option to differ from your
allocation instructions. You can direct us to automatically rebalance your
contract to return to your allocation percentages by selecting our asset
rebalancing program. Rebalancing will be on a calendar quarter basis and will
occur on the last business day of the quarter. The minimum amount of each
rebalancing is $1,000.
There is no charge for asset rebalancing. In addition, a rebalancing is not
counted against your twelve free transfers each Contract Year. You may not
select dollar cost averaging and asset rebalancing at the same time. We reserve
the right to modify, suspend or terminate this program at anytime. We also
reserve the right to waive the $1,000 minimum amount for asset rebalancing.
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INVESTMENT OPTIONS
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Variable Investment Options
Variable Account I
Our board of directors authorized the organization of the variable account in
1986. The variable account is maintained pursuant to Delaware insurance law and
is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"). However, the SEC does not
supervise the management or the investment practices of the variable account.
We own the assets in the variable account and use them to support the variable
portion of your contract and other variable annuity contracts described in other
prospectuses. The variable account's assets are separate from our other assets
and are not chargeable with liabilities arising out of any other business we
conduct. Income, gains or losses, whether or not realized, are credited to or
charged against the subaccounts of the variable account without regard to
income, gains or losses arising out of any of our other business. As a result,
the investment performance of each subaccount of the variable account is
entirely independent of the investment performance of our general account and of
any other of our variable accounts.
The variable account is divided into subaccounts, each of which invests in
shares of a different portfolio of a mutual fund. We may, from time to time, add
or remove subaccounts and the corresponding portfolios. No substitution of
shares of one portfolio for another will be made until you have been notified
and the SEC has approved the change. If deemed to be in the best interest 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
that Act in the event such registration is no longer required, or may be
combined with one or more other variable accounts.
The Funds and Their Portfolios
The Mitchell Hutchins Series Trust and the Alliance Variable Products Series
Fund, Inc. are mutual funds registered with the SEC. Each one may have
additional portfolios that are not available under the contract.
You should carefully read each fund's prospectus before investing. These
prospectuses are attached to this prospectus and contain detailed information
regarding management of the portfolios, investment objectives, investment
advisory fees and other charges. The prospectuses also discuss the risks
involved in investing in the portfolios. Below is a summary of the
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investment objectives of the portfolios available under the contract. There is
no assurance that any of these portfolios will achieve its stated objectives.
Mitchell Hutchins Series Trust
Balanced Portfolio invests primarily in a combination of stocks, bonds
(investment grade and U.S. Government) and money market instruments.
Global Income Portfolio invests principally in high quality bonds of issuers in
the U.S. and developed foreign countries.
Growth Portfolio invests primarily in equity securities of companies believed to
have substantial potential for capital growth.
Growth and Income Portfolio invests primarily in dividend-paying equity
securities of companies believed to have the potential for rapid earnings
growth.
High Income Portfolio invests primarily in a diversified range of high yield,
U.S. and foreign corporate bonds (sometimes called "junk bonds").
Small Cap Portfolio invests primarily in equity securities of small
capitalization ("small cap") companies, which are defined as companies that have
market capitalizations of up to $1 billion.
Strategic Income Portfolio strategically allocates its investments among three
bond market categories: U.S. government and investment grade corporate bonds;
U.S. high yield, bonds (sometimes called "junk bonds"); and foreign and emerging
market bonds.
Tactical Allocation Portfolio allocates its assets between a stock portion that
is designed to track the performance of the S&P 500 Composite Stock Price Index
and a fixed income portion that consists of either five-year U.S. Treasury notes
or U.S. Treasury bills with remaining maturities of 30 days.
Alliance Variable Products Series Fund, Inc.
Growth Portfolio seeks long term growth of capital by investing primarily in
common stocks and other equity securities.
Growth and Income 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.
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International 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.
Money Market 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.
Premier Growth 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.
Quasar 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 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.
Technology 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.
U.S. Government/High Grade Securities 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.
Worldwide Privatization 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.
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Fixed Investment Option
The General Account
Premium you allocate to the guaranteed option goes into our general account. The
general account is not registered with the SEC. The general account is invested
in assets permitted by state insurance law. It is made up of all of our assets
other than assets attributable to our variable accounts. Unlike our variable
account assets, assets in the general account are subject to claims of Owners
like you, as well as claims made by our other creditors.
The Guaranteed Account Option
The guaranteed account is a fixed interest option. We credit money in the
guaranteed account with interest on a daily basis at the guaranteed rate then in
effect. The rate of interest to be credited to the guaranteed account is
determined wholly within our discretion. However, the rate will not be changed
more than once per year. The interest rate will never be less than 3%.
If you allocate premium to the guaranteed account, the fixed portion of your
Contract Value during the accumulation phase will depend on the total interest
we credit to your contract. During the income phase, each annuity payment you
receive from the fixed portion of your contract will be for the same amount.
We reserve the right to delay any payment from the guaranteed account for up to
six months from the date we receive the request at our Administrative Office, as
permitted by law.
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CHARGES AND DEDUCTIONS
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Insurance Charges
Each day, we deduct insurance charges from your Contract Value. This is done as
part of our calculation of the value of Accumulation Units during the
accumulation phase and of Annuity Units during the income phase. The insurance
charges are the mortality and expense risk charge, the administrative charge,
and the charges for the optional death benefits which are described under "Death
Benefit."
Mortality and Expense Risk Charge
The mortality and expense risk charge is equal, on an annual basis, to 1.25% of
the daily value of the variable portion of your contract. We will not increase
this charge. It compensates us for our obligation to make annuity payments, to
provide the death benefit, and for assuming the risk that current charges will
be insufficient in the future to cover the cost of administering the contract.
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If the charges under the contract are not sufficient, we will bear the loss. If
the charges are sufficient, we will keep the balance of this charge as profit.
Administrative Charge
The administrative charge is equal, on an annual basis, to 0.15% of the daily
value of the variable portion of your contract. These expenses include preparing
the contract, confirmations and statements, and maintaining contract records. If
this charge is not enough to cover the costs of administering the contract, we
will bear the loss.
Optional Death Benefit Charges
If you elect an optional death benefit, we will assess a daily charge against
the assets in the variable account equal to an annual charge as shown below.
Equity Assurance Plan
Owner's Attained Age Annual Charge
0-59 0.07%
60+ 0.20%
Annual Ratchet Plan 0.10%
Accidental Death Benefit 0.05%
Surrender Charge
If you surrender your contract prior to the Annuity Date during the first seven
years after a premium payment, we will assess a surrender charge as a percentage
of premium withdrawn as shown below:
Premium Year 1 2 3 4 5 6 7 Thereafter
Surrender Charge 6% 6% 5% 5% 4% 3% 2% 0%
For purposes of calculating the surrender charge, we treat surrenders as coming
from the oldest premiums first (i.e., first-in, first-out). However, we will not
assess a surrender charge on amounts of a partial surrender equal to the greater
of:
(1) the Contract Value less premium paid, or
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(2) up to 10% of premium paid, less the amount of any prior surrender.
You will not receive the benefit of this "free withdrawal amount" if you
participate in the systematic withdrawal program. If you make a partial
surrender, we will deduct the surrender charge, if any, pro rata from the
remaining value in your contract. If insufficient value remains in your
contract, then we will deduct the surrender charge from the amount you are to
receive as a result of your surrender request. Likewise, we will deduct a
surrender charge on a full surrender from the amount you are to receive.
Contract Maintenance Fee
During the accumulation phase, we will deduct a contract maintenance fee of $30
from your contract on each Contract Anniversary. We will not increase this fee.
It compensates us for expenses incurred to establish and maintain your contract.
If you surrender the entire value of your contract, the contract maintenance fee
will be deducted prior to the surrender.
We do not deduct the contract maintenance fee if your Contract Value is $50,000
or more when the deduction is to be made.
Premium Taxes
We will deduct from your Contract Value any premium tax imposed by the state or
locality where you reside. Premium taxes currently imposed on the contract by
various states range from 0% to 3.5% of premiums paid. These taxes are due
either when premium is paid or when annuity payments begin. It is our current
practice to charge you for these taxes when annuity payments begin or if you
surrender the contract in full. In the future, we may discontinue this practice
and assess the tax when it is due or upon the payment of the death benefit.
Income Taxes
Although we do not currently deduct any charges for income taxes attributable to
your contract, we reserve the right to do so in the future.
Fund Expenses
There are deductions from and expenses paid out of the assets of the various
portfolios. These charges are described in the prospectuses for the Mitchell
Hutchins Series Trust and Alliance Variable Products Series Funds and are
summarized in the fee table.
Reduction or Elimination of Certain Charges and Additional Amounts Credited
We may reduce or eliminate the surrender charge or the administrative charge or
change the minimum premium requirement when the contract is sold to groups of
individuals under
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circumstances which reduce our sales expenses. We will determine the eligibility
of such groups by considering factors such as:
(1) the size of the group;
(2) the total amount of premium we expect to receive from the group;
(3) the nature of the purchase and the persistency we expect in that
group;
(4) the purpose of the purchase and whether that purpose makes it likely
that expenses will be reduced; and
(5) any other circumstances which we believe to be relevant in determining
whether reduced sales expenses may be expected.
We may also waive or reduce the surrender charge and/or contract maintenance fee
in connection with contracts sold to employees, employees of affiliates,
registered representatives, employees of broker-dealers which have a current
selling agreement with us, and immediate family members of those persons. Any
reduction or waiver may be withdrawn or modified by us.
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ACCESS TO YOUR MONEY
===================================================================
Generally
Contract Value is available in the following ways:
o by surrendering all or part of your Contract Value during the
accumulation phase;
o by receiving annuity payments during the income phase;
o when a death benefit is paid to your beneficiary.
Generally, surrenders are subject to a surrender charge, a contract maintenance
fee and, if it is a full surrender, premium taxes. Surrenders may also be
subject to income tax and a penalty tax.
To make a surrender you must send a complete and detailed written request to our
Administrative Office. We will calculate your surrender as of the close of
business of the NYSE at the value next determined after we receive your request.
For a surrender of your entire Contract Value, you must also send us your
contract.
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Under most circumstances, partial surrenders must be for a minimum of $500. We
require that your Contract Value be at least $2,000 after the surrender. If the
Contract Value would be less than $2,000 as a result of a surrender, we may
cancel the contract. Unless you provide us with different instructions, partial
surrenders will be made pro rata from each investment option in which your
contract is invested.
We may be required to suspend or postpone the payment of a surrender for an
undetermined period of time when:
o the NYSE is closed (other than a customary weekend and holiday
closings);
o trading on the NYSE is restricted;
o an emergency exists such that disposal of or determination of the
value of shares of the portfolios is not reasonably practicable;
o the SEC, by order, so permits for the protection of owners.
Systematic Withdrawal Program
The systematic withdrawal program allows you to make regularly scheduled
withdrawals from your Contract Value of at least $200 each on a monthly or
quarterly basis. You may change the amount or frequency of withdrawals under the
program once per Contract Year. In order to initiate the program, your Contract
Value must be at least $24,000. A maximum of 10% of your Contract Value may be
withdrawn in a Contract Year.
Surrender charges are not imposed on withdrawals under this program nor is there
any charge for participating in this program. You may not elect this program if
you have made a partial surrender earlier in the same Contract Year. In
addition, the free withdrawal amount is not available in connection with partial
surrenders you make while participating in the systematic withdrawal program.
You will be entitled to the free withdrawal amount on and after the Contract
Anniversary next following the termination of the systematic withdrawal program.
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 portfolio or the guaranteed option is not sufficient
to make a withdrawal or if your request for systematic withdrawal does not
specify the investment options from which to deduct withdrawals, withdrawals
will be deducted pro rata from your Contract Value in each portfolio and the
guaranteed option.
The systematic withdrawal program may be canceled at any time by written request
or automatically by us if your Contract Value falls below $1,000. In the event
the systematic
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withdrawal program is canceled, you may not elect to participate in the program
again until the next Contract Anniversary.
If your Contract is issued in connection with an individual retirement annuity
or 403(b) Plan, you are cautioned that your rights to implement a systematic
withdrawal program may be subject to the terms and conditions of your plan,
regardless of the terms and conditions of your Contract. Moreover,
implementation of the systematic withdrawal program may subject you to adverse
tax consequences, including a 10% tax penalty if you are under age 59 1/2. See
"Taxes" for a discussion of the various tax consequences.
For information, including the necessary enrollment form, please check with our
Administrative Office. We reserve the right to modify, suspend or terminate this
program at any time.
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ANNUITY PAYMENTS
===================================================================
Generally
Beginning on the Annuity Date, you will receive regular annuity payments. You
may choose to receive annuity payments that are fixed, variable or a combination
of fixed and variable. We make annuity payments on a monthly, quarterly,
semiannual or annual basis.
You select the Annuity Date, which must be the first day of a month and must be
at least one year after we issue your contract. You may change the Annuity Date
at least 30 days before payments are to begin. However, annuity payments must
begin by the annuitant's 90th birthday. Certain states may require that annuity
payments begin prior to such date and we will comply with those requirements.
The Annuitant is the person on whose life annuity payments are based. You may
change the Annuitant at any time prior to the Annuity Date. If you are not the
Annuitant and the Annuitant dies before the Annuity Date, you must notify us and
designate a new Annuitant.
Annuity Options
The contract offers three annuity options described below. Other annuity options
may be made available, including other guarantee periods and options without
life contingencies, subject to our discretion. If you do not choose an annuity
option, annuity payments will be made in accordance with option 2 for 10 years.
If the annuity payments are for joint lives, then we will make payments in
accordance with option 3. Where permitted by state law, we may pay the annuity
in one lump sum if your Contract Value is less than $2,000. Likewise, if your
annuity payments would be less than $100 a month, we have the right to change
the frequency of your payment to be on a semiannual or annual basis so that the
payments are at least $100. We will make annuity
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payments to you unless you designate another person to receive them. In that
case, you must notify us in writing at least thirty days before the Annuity
Date. You will remain fully responsible for any taxes related to the annuity
payments.
Option 1 - Life Income
Under this option, we will make annuity payments as long as the Annuitant is
alive. Annuity payments stop when the Annuitant dies.
Option 2 - Life Annuity with 10 Years Guaranteed
This option is similar to option 1 above, with the additional guarantee that
payments will be made for a period you select of at least 10 years. Under this
option, if the Annuitant dies before all guaranteed payments have been made, the
rest will be paid to the beneficiary for the remainder of the period..
Option 3 - Joint and Last Survivor Income
Under this option, we will make annuity payments as long as either the Annuitant
or a contingent annuitant is alive. If your Contract is issued as an individual
retirement annuity, payments under this option will be made only to you as
Annuitant or to your spouse. Upon the death of either of you, we will continue
to make annuity payments so long as the survivor is alive.
Variable Annuity Payments
If you choose to have any portion of your annuity payments based on the variable
investment options, the amount of your payments will depend upon:
o your Contract Value in the portfolios on the Annuity Date;
o the 5.0% assumed investment rate used in the annuity table for the
contract;
o the performance of the portfolios you selected;
o the annuity option you selected.
If the actual performance exceeds the 5.0% assumed rate, the annuity payments
will increase. Similarly, if the actual rate is less than 5.0%, the annuity
payments will decrease. The SAI contains more information.
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Transfers During Income Phase
Transfers during the income phase are subject to the same limitations as
transfers during the accumulation phase. See "The Contract - Transfers During
Accumulation Phase." However, you may only make one transfer each month and you
may only transfer money among the variable investment options. You may not
transfer money from the fixed investment option to the variable investment
options or from the variable investment options to the fixed investment option.
Deferment of Payments
We may defer making fixed annuity payments for up to six months subject to state
law. We will credit interest to you during the deferral period.
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DEATH BENEFIT
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Death of Owner Before the Annuity Date
If you (or a joint owner) dies before the Annuity Date, the 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 ownership
was changed from one natural person to another natural person, the death benefit
will equal the Contract Value. A surviving spouse designated as the beneficiary
can elect to continue the contract and become the Owner. The amount of the death
benefit to be paid is determined by the death benefit option selected at the
time of application and is calculated in accordance with the terms of that
option as described below. The amount of the death benefit will never be less
than the traditional death benefit. If you selected both the annual ratchet plan
and the equity assurance plan, the death benefit will be the greatest of the
traditional death benefit, the annual ratchet plan, or the equity assurance
plan. The accidental death benefit, if applicable, will be paid in addition to
any other benefit. All death benefit options may not be available in all states.
Traditional Death Benefit
Under the traditional death benefit, we will pay the amount equal to the
greatest of:
(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was
reduced on the date of a surrender; or
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(3) the greatest 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 paid unless you selected an optional death
benefit.
Optional Death Benefits
Prior to determining the amount of any of the following optional death benefits,
the Contract Value will be reduced by the accrued charge for the optional death
benefit if, as of the date of death, the accrued charge had not yet been
deducted.
Annual Ratchet Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the total of all premium paid reduced proportionally by any
surrenders in the same proportion that the Contract Value was
reduced on the date of a surrender; 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
premiums paid subsequent to that Contract Anniversary.
The annual ratchet plan will be in effect if:
(1) you select it on the application; and
(2) the charge for the annual ratchet plan is shown in your contract.
The annual ratchet plan will cease to be in effect upon our receipt of your
written request to discontinue it.
Equity Assurance Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value;
(2) the greatest Contract Value at any seventh Contract
Anniversary, plus any premium 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
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(3) an amount equal to (a) plus (b) where:
(a) is equal to the total of all premium 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 completed 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:
o 0% per annum if death occurs during the 1st through
24th month from the date of premium payment;
o 2% per annum if death occurs during the 25th
through 48th month from the date of premium
payment;
o 4% per annum if death occurs during the 49th
through 72nd month from the date of premium
payment;
o 6% per annum if death occurs during the 73rd
through 96th month from the date of premium
payment;
o 8% per annum if death occurs during the 97th
through 120th month from the date of premium
payment;
o 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 premium paid after the first Contract
Anniversary following your 85th birthday, adjusted for
surrenders as described below.
In determining 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 the surrender.
The Equity Assurance Plan will be in effect if:
(1) you select it on the application;
(2) the charge for the equity assurance plan is shown in your contract.
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The equity assurance plan will cease when we receive your written request to
discontinue it or upon the allocation of Contract Value to either the money
market portfolio or guaranteed option unless such allocation is made as part of
dollar cost averaging.
Accidental Death Benefit
If you selected the accidental death benefit at the time of application, it will
be paid in addition to the traditional or optional death benefit in effect at
the time of your death. The accidental death benefit is not available if the
contract is used in connection with an individual retirement annuity. If
selected at the time of application, 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 accidental death benefit is payable if you die as a result of injury prior
to the Contract Anniversary following your 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:
o suicide or attempted suicide, while sane or insane, or intentionally
self-inflicted injuries;
o 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;
o injury sustained as a consequence of riding in, including boarding or
alighting from, any vehicle or device used for aerial navigation
except if you are a passenger on any aircraft licensed for the
transportation of passengers;
o declared or undeclared war or any act thereof; or
o service in the military, naval or air service of any country.
The accidental death benefit will be in effect if:
(1) you select it on the Application; and
(2) the charge for the accidental death benefit is shown in your
contract.
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<PAGE>
The accidental death benefit will cease to be in effect upon the Contract
anniversary following your 75th birthday, or upon our receipt of your written
request to discontinue.
Payment to Beneficiary
Upon your death if 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 five years of the date of
your death; or
(2) payment over the beneficiary's lifetime with distribution beginning
within one year of your date of death; or
If no payment option is elected within sixty days of our receipt of proof of
your death, a single sum settlement will be made at the end of the sixty-day
period following such receipt. Upon payment of a death benefit, the contract
will end.
Death of Owner After the Annuity Date
If you are not the Annuitant, and if your death occurs on or after the Annuity
Date, no death benefit will be payable under the 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 your death. If the Contract is not
owned by an individual, the Annuitant shall be treated as the Owner and any
change of the named Annuitant will be treated as if the Owner died.
Death of Annuitant
Before the Annuity Date
If you are not the Annuitant, and if the Annuitant dies before the Annuity Date,
you may name a new Annuitant. If you do not name a new Annuitant within sixty
days after we are notified of the Annuitant's death, we will deem you to be the
new Annuitant.
After the Annuity Date
If an Annuitant dies after the Annuity Date, the remaining payments, if any,
will be as specified in the annuity option in effect when the Annuitant died. We
will require proof of the Annuitant's death. The remaining benefit, if any, will
be paid to the beneficiary at least as rapidly as under the method of
distribution in effect at the Annuitant's death. If you were not the Annuitant
and no beneficiary survives the Annuitant, we will pay any remaining benefit to
you.
27
<PAGE>
================================================================
PERFORMANCE
================================================================
Occasionally, we may advertise certain performance related information
concerning one or more of the portfolios, including total return and yield
information. A portfolio's performance information is based on the portfolio's
past performance only and is not intended as an indication of future
performance.
When we advertise the average annual total return of a portfolio, it will
usually be calculated for one, five, and ten year periods or, where a portfolio
has been in existence for a period of 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 portfolio at the beginning of the relevant period
to the value of the investment at the end of the period. That assumes the
deduction of any surrender charge that would be payable if the account were
redeemed at the end of the period. Then the average annual compounded rate of
return is calculated to produce the value of the investment at the end of the
period. We may simultaneously present returns that do not assume a surrender
and, therefore, do not deduct a surrender charge.
When we advertise the yield of a portfolio we will calculate it based upon a
given thirty 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 we advertise the performance of the money market portfolio we may advertise
the yield or the effective yield in addition to the total return. The yield of
the money market portfolio refers to the income generated by an investment in
that portfolio 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 portfolio 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 lower than at the underlying fund
level since it is reduced by all contract charges (surrender charge, mortality
and expense risk charge, administrative charge, and contract maintenance fee).
Likewise, yield and effective yield at the variable account level are lower than
at the fund level since the variable account level total return affects all
recurring charges (except surrender charge).
Performance information for a portfolio may be compared to:
(1) the Standard & Poor's 500 Stock Index, Dow Jones Industrial
Average, Donoghue Money Market Institutional Averages, indices
measuring corporate
28
<PAGE>
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 portfolio's results with those of
a group of securities widely regarded by investors as
representative of the securities markets in general;
(2) 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;
(3) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Contract; and
(4) indices or averages of alternative financial products
available to prospective investors, including the Bank Rate
Monitor which monitors average returns of various bank
instruments.
================================================================
TAXES
================================================================
Introduction
The following discussion of federal income tax treatment is general in nature
and is not intended as tax advice. This discussion is based on current law and
interpretations, which may change. For a discussion of federal income taxes as
they relate to the funds, please see the accompanying fund prospectuses. No
attempt is made to consider any applicable state or other tax laws. We do not
guarantee the tax status of your contract.
Annuity Contracts in General
The Internal Revenue Code (the "Code") provides special rules regarding the tax
treatment of annuity contracts. Generally, you will not be taxed on the earnings
in an annuity contract until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is qualified
or non-qualified, as explained below.
If you do not purchase your contract under a retirement arrangement entitled to
favorable federal income tax treatment, your contract is referred to as a
non-qualified contract. If you purchase your contract under a retirement
arrangement entitled to favorable federal income tax treatment, your contract is
referred to as a qualified contract.
29
<PAGE>
Tax Treatment of Distributions -- Non-qualified Contracts
If you make a withdrawal from a non-qualified contract or surrender it before
annuity payments begin, the amount you receive will be taxed as ordinary income,
rather than as a return of premium, until all gain has been withdrawn. For
annuity payments, any portion of each payment that is considered a return of
your premium will not be taxed. There is a 10% tax penalty on any taxable amount
you receive unless the amount received is paid:
(1) after you reach age 59 1/2;
(2) to your beneficiary after you die;
(3) after you become disabled;
(4) in a series of substantially equal installments made not less
frequently than annually under a lifetime annuity; or
(5) under an immediate annuity.
Assignments
If you assign all or part of the contract as collateral for a loan, the part
assigned will be treated as a withdrawal and the excess of the Contract Value
over total premium will be taxed as ordinary income. Please consult your tax
adviser prior to making an assignment of the contract.
Gifts of Contracts
If you transfer a contract for less than full consideration, such as by gift,
you will generally trigger tax on the gain in the contract. This rule does not
apply to those transfers between spouses or incident to divorce.
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 premium) 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, and in other
limited circumstances.
30
<PAGE>
Distribution at Death Rules
Upon the death of the Owner of a contract, certain distributions must be made:
o If the Owner dies on or after the Annuity Date, and before the entire
interest in the contract has been distributed, the remaining portion will
be distributed at least as quickly as the method in effect on the Owner's
death;
o If the Owner dies before the Annuity Date, the entire interest must
generally be distributed within five years after the date of death.
o If the beneficiary is a natural person, the interest may be annuitized over
the life of that individual or over a period not extending beyond the life
expectancy of that individual, so long as distributions commence within one
year after the date of death.
o If the beneficiary is the spouse of the Owner, the contract may be
continued in the name of the spouse as Owner.
o If the Owner is not an individual, the death of the "primary annuitant" (as
defined under the Code) is treated as the death of 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.
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 or
other property 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 Section 1035
transactions. Prospective owners wishing to take advantage of Section 1035 of
the Code should consult their tax advisers.
Tax Treatment of Distributions --Qualified Contracts
If you purchase your contract under a tax-favored retirement plan or account,
your contract is referred to as a qualified contract. Examples of qualified
plans or accounts are:
o Individual Retirement Annuities ("IRAs");
o Roth IRAs;
o Tax Deferred Annuities (governed by Code Section 403(b) and referred to as
"403(b) Plans");
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<PAGE>
o Keogh Plans; and
o Employer-sponsored pension and profit sharing arrangements such as 401(k)
plans.
Withdrawals in General
Generally, with the exception of a Roth IRA, you have not paid any taxes on the
premium used to buy a qualified contract or on any earnings. Therefore, any
amount you take out as a withdrawal or as annuity payments will be taxable
income. In addition, a 10% tax penalty may apply to the taxable part of a
withdrawal received before age 59 1/2. Limited exceptions are provided, such as
where amounts are paid in the form of a qualified life annuity, upon death or
disability of the employee, to pay certain medical expenses, or, in some cases,
upon separation from service on or after age 55.
Individual Retirement Annuities
Code Section 408 permits eligible individuals to contribute to an IRA. By
attachment of an endorsement that reflects the limits of Code Section 408(b),
the Contracts may be issued as 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. Most IRAs cannot accept contributions after the owner
reaches 70 1/2, and must also begin required distributions at that age. Sales of
the contract for use with IRAs are subject to special requirements, including
the requirement that informational disclosure be given to each person desiring
to establish an IRA. That person must be given the opportunity to affirm or
reverse a decision to purchase the contract. Contracts offered by this
prospectus in connection with an IRA are not available in all states. The
accidental death benefit is not available under a contract issued in connection
with an IRA.
Roth IRAs
Code Section 408A 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.
403(b) Plans
The contracts are also available for use in connection with a previously
established 403(b) plan. Code Section 403(b) imposes certain restrictions on
your ability to make partial surrenders from
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<PAGE>
a contract used in connection with a 403(b) Plan, if attributable to premium
paid under a salary reduction agreement. Specifically, an owner may make a
surrender or partial withdrawal only (a) when the employee attains age 59 1/2,
separates from service, dies, or becomes disabled, or (b) in the case of
hardship. In the case of hardship, only an amount equal to the premium paid may
be withdrawn. 403(b) Plans are subject to additional requirements, including
eligibility, limits on contributions, minimum distributions, and
nondiscrimination requirements applicable to the employer. In particular,
distributions generally must commence by April 1 of the calendar year following
the later of the year in which the employee (a) attains age 70 1/2, or (b)
retires. Owners and their employers are responsible for compliance with these
rules. Contracts offered by this prospectus in connection with a 403(b) Plan are
not available in all states.
Rollovers
Distributions from a 401(a) 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 IRA. A
prospective owner considering use of the contract in this manner should consult
a competent tax adviser with regard to the suitability of the contract for this
purpose and for information concerning the tax law provisions applicable to
qualified plans, 403(b) plans, and IRAs.
Diversification and Investor Control
The Code imposes certain diversification requirements on the underlying
investments for a variable annuity to be treated as a variable annuity for tax
purposes. We believe that the portfolios are being managed so as to comply with
these requirements.
The tax regulations do not provide guidance as to the circumstances under which
you, because of the degree of control you exercise over the underlying
investments, would be considered the owner of the shares of the portfolios. If
any guidance on this point is provided which is considered a new position, then
the guidance would generally be applied prospectively. However, if such guidance
is considered not to be a new position, it may be applied retroactively. This
would mean you, as the owner of the contract, could be treated as the owner of
assets in the portfolios. We reserve the right to make changes to the contract
we think necessary to see that it qualifies as a variable annuity contract for
tax purposes.
Withholding
We are 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. If you do
not provide a social security number or
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<PAGE>
other taxpayer identification number, you will not be permitted to elect out of
withholding. Special withholding rules apply to payments made to non-resident
aliens.
For lump-sum distributions or withdrawals, we are required to withhold 10% of
the taxable portion of any withdrawal or lump sum distribution unless you elect
out of withholding. For annuity payments, the company will withhold on the
taxable portion of annuity payments based on a withholding certificate you file
with us. 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.
================================================================
OTHER INFORMATION
================================================================
AIG Life Insurance Company
We are a stock life insurance company initially organized under the laws of
Pennsylvania and reorganized under the laws of Delaware. We were incorporated in
1962. Our principal business address is One Alico Plaza, 600 King Street,
Wilmington, Delaware 19801. We provide a full range of life insurance and
annuity plans. We are 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 in approximately 130 countries and
jurisdictions around the world.
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to AIG by one or more independent rating
organizations such as A.M. Best Company, Moody's and Standard & Poor's. The
purpose of the ratings is to reflect the rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the variable account.
The ratings are not recommendations to purchase our life insurance or annuity
products or to hold or sell these products, and the ratings do not comment on
the suitability of such products for a particular investor. There can be no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn entirely by a rating
organization if, in such organization's judgment, future circumstances so
warrant. The ratings do not reflect the investment performance of the variable
account or the degree of risk associated with an investment in the variable
account.
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<PAGE>
Ownership
This prospectus describes both individual flexible premium deferred variable
annuity contracts and group flexible premium deferred variable annuity
contracts. The individual and group contracts described in this prospectus are
identical except that the individual contract is issued directly to the
individual owner. A group contract is issued to a contract holder for the
benefit of the participants in the group. If you are a participant in the group
you will receive a certificate evidencing your ownership. You, either as the
owner of an individual contract or as the owner of a certificate, are entitled
to all the rights and privileges of ownership. As used in this prospectus, the
term contract is equally applicable to an individual contract or to a
certificate.
Voting Rights
To the extent required by law, we will vote the portfolio shares held in the
variable account at shareholder meetings in accordance with instructions
received from persons having a voting interest in the portfolio. However, if
legal requirements or 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, you hold a voting interest in each portfolio in whose
corresponding portfolio you have Contract Value. The number of portfolio shares
which are attributable to you is determined by dividing the corresponding value
in a particular portfolio by the net asset value of one portfolio share. The
number of votes which you 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 meeting.
Each person having a voting interest in a portfolio will receive proxy material,
reports and other materials relating to the appropriate portfolios. We will vote
shares in accordance with instructions received from the person having a voting
interest. We will vote shares for which we receive no timely instructions and
any shares not attributable to Owners in proportion to the voting instructions
we have received.
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 option.
Distribution of the Contract
Our affiliate, AIG Equity Sales Corp. ("AIGESC"), 80 Pine Street, New York, New
York, acts as the distributor of the contract. AIGESC is a wholly-owned
subsidiary of AIG. Commissions not to exceed 7% of premiums will be paid to
entities which sell the contract. Additional payments may be made for other
services not directly related to the sale of the contract, including the
recruitment and training of personnel, production of promotional literature and
similar services.
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<PAGE>
Under the Glass-Steagall Act and other laws, certain banking institutions may be
prohibited from distributing variable annuity contracts. If a bank were to be
prohibited from performing certain agency or administrative services and from
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 Contract
While we have primary responsibility for all administration of the contract and
the variable account, we have retained the services of Delaware Valley Financial
Services, Inc. ("DVFS") pursuant to an administrative agreement. These
administrative services include issuance of the contract and maintenance of
Owner records. DVFS serves as the administrator to various insurance companies
offering variable annuity contracts and variable life insurance policies.
Year 2000 Readiness
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the Year 2000, causing
disruption of the operations of AIG, as well as its lessees, vendors, or
business partners.
AIG has developed a plan to address the Year 2000 issue as it affects AIG's
internal IT and non- IT systems, and to assess Year 2000 issues relating to
third parties with whom AIG has critical relationships.
The plan for addressing internal systems includes an assessment of internal IT
and non-IT systems and equipment affected by the Year 2000 issue; definition of
strategies to address affected systems and equipment; remediation of identified
affected systems and equipment; and internal certification that each internal
system is Year 2000 compliant. AIG has remediated, tested and returned to
production substantially all of its internal IT systems. AIG continues to
remediate and test internal non-IT systems and expects to complete remediation
by mid-1999.
AIG has also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with AIG. Currently,
AIG is unable to ascertain whether all such third parties will successfully
address the Year 2000 issue, particularly those third parties outside the United
States where it is believed that remediation efforts relating to the Year 2000
issue may be less advanced. While AIG expects to have no interruption of
operations as a result of internal IT and non-IT systems, significant
uncertainties remain about the effect on AIG of third parties who are not Year
2000 compliant. AIG will continue to monitor third party Year 2000 issue
readiness to determine whether additional or alternative measures may be
necessary. Such measures may include the selection of alternate third parties or
other actions
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<PAGE>
designed to mitigate the effects of a third party's lack of preparedness. There
can be no assurance that unresolved Year 2000 issues of third parties will not
have a material adverse impact on AIG's results of operations, financial
condition or liquidity. AIG is considering the effects of Year 2000 related
failures on its business and, as the most reasonably likely worst case scenarios
become more clearly identified, AIG will develop appropriate contingency plans.
There can be no assurance that the funds, like other third parties, will not
have unresolved Year 2000 issues that may have a material adverse impact on your
contract values as well as our operations. Please refer to the Year 2000
discussion in each fund's prospectus.
Legal Proceedings
There are no pending legal proceedings which, in our judgment, are material with
respect to the variable account.
================================================================
FINANCIAL STATEMENTS
================================================================
Consolidated balance sheets of AIG Life Insurance Company and of the variable
account are included in the SAI which may be obtained without charge by calling
(800) 728-7819 or writing to AIG Life Insurance Company, Attention: Variable
Products, One Alico Plaza, 600 King Street, Wilmington, Delaware 19801. A
complete set of financial statements of the company and the variable account has
been filed electronically with the SEC and can be obtained through its website
at http://www.sec.gov.
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===============================================================
APPENDIX
================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
1998 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
MITCHELL HUTCHINS BALANCED
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 13.16 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 37,630.79 N/A N/A N/A N/A N/A N/A
MITCHELL HUTCHINS GLOBAL INCOME
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 11.79 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 2,160.6 N/A N/A N/A N/A N/A N/A
MITCHELL HUTCHINS GROWTH
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 20.14 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 7,922.56 N/A N/A N/A N/A N/A N/A
MITCHELL HUTCHINS GROWTH & INCOME
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 15.84 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 77,909.26 N/A N/A N/A N/A N/A N/A
MITCHELL HUTCHINS HIGH INCOME
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 12.56 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 45,621.25 N/A N/A N/A N/A N/A N/A
MITCHELL HUTCHINS SMALL CAPITAL
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 15.56 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 19,246.77 N/A N/A N/A N/A N/A N/A
MITCHELL HUTCHINS STRATEGIC INCOME
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 12.28 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 11,783.29 N/A N/A N/A N/A N/A N/A
MITCHELL HUTCHINS TATICAL ALLOCATIONS
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A N/A N/A
End of Period 14.93 N/A N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 625,337.73 N/A N/A N/A N/A N/A N/A
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period 22.70 17.70 13.97 10.48 10.00 N/A N/A
End of Period 28.81 22.70 17.70 13.97 10.48 N/A N/A
Accum Units o/s @ end of period 8,904,664.35 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 24.27 19.11 15.62 11.67 11.88 10.78 10.00
End of Period 28.94 24.27 19.11 15.62 11.67 11.88 10.78
Accum Units o/s @ end of period 9,476,753.38 7,258,107.19 4,509,118.40 1,554,549.81 438,680.32 28,041.82 800.00
ALLIANCE INTERNATIONAL
Accumulation Unit Value
Beginning of Period 12.50 12.26 11.60 10.71 10.17 10.00 N/A
End of Period 13.93 12.50 12.26 11.60 10.71 10.17 N/A
Accum Units o/s @ end of period 3,645,458.54 3,700,183.10 2,718,751.84 981,260.91 447,407.41 21,717.14 N/A
ALLIANCE MONEY MARKET
Accumulation Unit Value
Beginning of Period 11.37 10.97 10.63 10.26 10.08 10.00 N/A
End of Period 11.77 11.37 10.97 10.63 10.26 10.08 N/A
Accum Units o/s @ end of period 7,257,274.05 4,291,499.61 4,320,223.01 1,856,020.37 431,319.86 8,487.20 N/A
ALLIANCE PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 23.22 17.59 14.54 10.15 11.13 10.00 10.00
End of Period 33.89 23.22 17.59 14.54 10.15 11.13 10.00
Accum Units o/s @ end of period 10,004,043.81 6,662.866.85 3,971,452.13 1,252,211.18 223,550.22 35,271.53 2,081.43
ALLIANCE QUASAR
Accumulation Unit Value
Beginning of Period 12.37 10.58 10.00 N/A N/A N/A N/A
End of Period 11.65 12.37 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period 5,595,694.29 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 12.16 N/A N/A N/A N/A N/A N/A
End of Period 9.71 12.16 N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 1,323,433.94 936,389.36 N/A N/A N/A N/A N/A
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period 11.43 10.89 10.00 N/A N/A N/A N/A
End of Period 18.47 11.43 10.89 N/A N/A N/A N/A
Accum Units o/s @ end of period 5,670,473.44 4,818,385.19 2,127,691.68 N/A N/A N/A N/A
ALLIANCE U.S. GOVERNMENT/HIGH GRADE SECURITIES
Accumulation Unit Value
Beginning of Period 12.00 11.20 11.07 9.42 9.95 10.00 N/A
End of Period 12.80 12.00 11.20 11.07 9.42 9.95 N/A
Accum Units o/s @ end of period 3,516,324.78 2,190,735.81 1,838,415.41 914,988.76 320,574.64 41,210.45 N/A
ALLIANCE WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period 14.02 12.84 10.99 10.05 10.00 N/A N/A
End of Period 15.32 14.02 12.84 10.99 10.05 N/A N/A
Accum Units o/s @ end of period 2,399,048.01 2,391,217.59 1,135,168.22 394,704.27 105,674.08 N/A N/A
</TABLE>
<PAGE>
* Funds were first invested in the portfolios as listed below:
Mitchell Hutchins Series Trust
Balanced Portfolio June 1, 1988
Global Income Portfolio May 1, 1988
Growth Portfolio May 4, 1987
Growth & Income Portfolio January 2, 1992
High Income Portfolio September 28, 1998
Small Cap Portfolio September 28, 1998
Strategic Income Portfolio September 28, 1998
Tactical Allocation Portfolio September 28, 1998
Alliance Variable Products Series Fund
Growth Portfolio September 15, 1994
Growth and Income Portfolio January 14, 1991
International Portfolio December 28, 1992
Money Market Portfolio December 4, 1992
Premier Growth Portfolio June 26, 1992
Quasar Portfolio August 5, 1996
Real Estate Investment Portfolio January 7, 1997
Technology Portfolio January 11, 1996
U.S. Government/High Grade Securities Portfolio September 17, 1992
Worldwide Privatization Portfolio September 23, 1994
41
<PAGE>
================================================================
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
================================================================
GENERAL INFORMATION
AIG Life Insurance Company
Independent Accountants
Legal Counsel
Distributor
Potential Conflicts
CALCULATION OF PERFORMANCE DATA
Yield and Effective Yield Quotations for the Money Market Subaccount
Yield Quotations for Other Subaccounts
Total Return Quotations
Non-Standardized Performance Data
ANNUITY PROVISIONS
Variable Annuity Payments
Annuity Unit Value
Net Investment Factor
Additional Provisions
FINANCIAL STATEMENTS
42
<PAGE>
GALLERY PROSPECTUS
MAY 1, 1999
INDIVIDUAL AND GROUP
SINGLE AND FLEXIBLE PURCHASE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
AIG LIFE INSURANCE COMPANY
through its
VARIABLE ACCOUNT I
This prospectus describes single and flexible purchase payment variable annuity
contracts being offered to individuals and groups. The word "contract" as used
in this prospectus includes both single and flexible purchase payment contracts,
whether issued on an individual or group basis, as well as any certificate
issued under a group contract. Please read this prospectus carefully before
investing and keep it for future reference.
You can allocate your money among the eighteen variable investment options
listed below and one fixed investment option. The fixed investment option is our
guaranteed account which earns a minimum of 3% interest for flexible premium
contracts and 4% for single premium contracts. The variable investment options
are portfolios of the Alliance Variable Products Series Fund, Inc.
Alliance Variable Products Series Fund, Inc.
(managed by Alliance Capital Management, L.P.)
Conservative Investors Portfolio Premier Growth Portfolio
Global Bond Portfolio Quasar Portfolio
Global Dollar Government Portfolio Real Estate Investors Portfolio
Growth Portfolio Short-Term Multi-Market Portfolio
Growth and Income Portfolio Technology Portfolio
Growth Investors Portfolio Total Return Portfolio
High-Yield Portfolio U.S. Gov't High Grade Securities Portfolio
International Portfolio Utility Income Portfolio
Money Market Portfolio Worldwide Privatization Portfolio
North American Government Portfolio
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information ("SAI") dated May 1, 1999. The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference
into this prospectus. The table of contents of the SAI appears on the last page
of this prospectus. For a free copy of the SAI,
1
<PAGE>
call us at (800) 255-8402 or write to us at AIG Life Insurance Company,
Attention: Variable Products, One Alico Plaza, 600 King Street, Wilmington,
Delaware 19801.
In addition, the SEC maintains a website at http://www.sec.gov that contains the
prospectus, SAI, materials incorporated by reference and other information which
we have filed electronically with the SEC.
Variable annuities involve risks, including possible loss of principal. They are
not a deposit of any bank or insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The SEC has not approved or disapproved of the contract or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
2
<PAGE>
=====================================================================
TABLE OF CONTENTS
=====================================================================
DEFINITIONS
FEE TABLES
CONDENSED FINANCIAL INFORMATION
THE CONTRACT
INVESTMENT OPTIONS
CHARGES AND DEDUCTIONS
ACCESS TO YOUR MONEY
ANNUITY PAYMENTS
DEATH BENEFIT
PERFORMANCE
TAXES
OTHER INFORMATION
FINANCIAL STATEMENTS
APPENDIX - CONDENSED FINANCIAL INFORMATION
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
3
<PAGE>
=====================================================================
DEFINITIONS
=====================================================================
We have capitalized certain terms used in this prospectus. To help you
understand these terms, we have defined them in this glossary.
Accumulation Unit - An accounting unit of measure used to calculate your
Contract Value prior to the Annuity Date.
Administrative Office - The Annuity Service Office, c/o Delaware Valley
Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031.
Annuitant - The person you designate whose life determines the duration of
annuity payments involving life contingencies.
Annuity Date - The date on which annuity payments begin.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary - An anniversary of the date we issued your contract.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under your contract.
Contract Year - Each period of twelve months commencing with the date we issued
your contract. For single purchase payment contracts, Contribution Year and
Contract Year are the same.
Contribution Year - Any period of twelve months commencing with the date we
receive a purchase payment and ending on the same date in each succeeding twelve
month period thereafter. As noted above, for single purchase payment contracts,
Contribution Year and Contract Year are the same.
Owner - The person named as the owner in the contract or as later changed and
who has all rights under the contract.
Valuation Date - Each day that the New York Stock Exchange is 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.
4
<PAGE>
=====================================================================
FEE TABLES
=====================================================================
Owner Transaction Expenses
Sales Load................................................................ None
Deferred Sales Charge (as a percentage of purchase payment withdrawn)*
Contribution Year 1.................................................. 6%
Contribution Year 2.................................................. 5%
Contribution Year 3.................................................. 4%
Contribution Year 4.................................................. 3%
Contribution Year 5.................................................. 2%
Contribution Year 6.................................................. 1%
Thereafter........................................................... None
* For single purchase payment contracts Contribution Year and Contract Year are
the same.
Transfer Fee:
First 12 Per Contract Year.......................................... None
Thereafter.......................................................... $10
Contract Maintenance Fee.................................................$30/yr
Variable Account Expenses (as a percentage of average account value)
Mortality and Expense Risk Charge................................... 1.25%
Administrative Charge............................................... 0.15%
====
Total Variable Account Annual Expenses.............................. 1.40%
5
<PAGE>
Annual Portfolio Expenses
After Waivers/Reimbursement
<TABLE>
Management Other Total
Fees Expenses(1) Expenses
<S> <C> <C> <C>
Alliance Variable Products Series Funds(2)
Conservative Investors Portfolio 0.63% 0.27% 0.90%
Global Bond Portfolio 0.64% 0.09% 0.93%
Global Dollar Government Portfolio 0.39% 0.56% 0.95%
Growth Portfolio 0.75% 0.12% 0.87%
Growth & Income Portfolio 0.63% 0.10% 0.73%
Growth Investors Portfolio 0.34% 0.60% 0.94%
High-Yield Portfolio 0.44% 0.51% 0.95%
International Portfolio 0.67% 0.28% 0.95%
Money Market Portfolio 0.50% 0.18% 0.68%
North American Government Income Portfolio 0.53% 0.33% 0.86%
Premier Growth Portfolio 0.97% 0.09% 1.06%
Quasar Portfolio 0.73% 0.22% 0.95%
Real Estate Investment Portfolio 0.45% 0.50% 0.95%
Short-Term Multi-Market Portfolio 0.00% 0.94% 0.94%
Technology Portfolio 0.81% 0.14% 0.95%
Total Return Portfolio 0.62% 0.26% 0.88%
U.S. Government/High Grade Securities Portfolio 0.60% 0.18% 0.78%
Utility Income Portfolio 0.58% 0.37% 0.95%
Worldwide Privatization Portfolio 0.38% 0.57% 0.95%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectuses
for the Alliance Variable Products Series Funds.
(2) Total expenses for the following portfolios before waivers and reimbursement
by the Alliance Variable Products Series Fund's investment adviser for the
period ended December 31, 1998, were as follows:
Conservative Investors Portfolio 1.19%
Global Bond Portfolio 1.17%
Global Dollar Government Portfolio 1.75%
Growth Investors Portfolio 1.68%
High-Yield Portfolio 1.80%
6
<PAGE>
International Portfolio 1.37%
North American Government Income Portfolio 1.17%
Premier Growth Portfolio 1.09%
Quasar Portfolio 1.30%
Real Estate Investment Portfolio 1.77%
Short-Term Multi-Market Portfolio 2.69%
Technology Portfolio 1.20%
Total Return Portfolio 0.95%
U.S. Gov't High Grade Securities Portfolio 0.91%
Utility Income Portfolio 1.35%
Worldwide Privatization Portfolio 1.70%
Example
You would pay the following expenses on a $1,000 single purchase payment
investment, assuming 5% growth:
<TABLE>
If you surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Variable Products Series Fund
Conservative Investors Portfolio $79 $113 $147 $270
Global Bond Portfolio 80 113 148 273
Global Dollar Government Portfolio 80 114 149 275
Growth Portfolio 79 112 145 267
Growth & Income Portfolio 78 108 138 252
Growth Investors Portfolio 80 114 149 274
High-Yield Portfolio 80 114 149 275
International Portfolio 80 114 149 275
Money Market Portfolio 77 106 136 247
North American Government Income Portfolio 79 111 145 266
Premier Growth Portfolio 81 117 154 286
Quasar Portfolio 80 114 149 275
Real Estate Investment Portfolio 80 114 149 275
Short-Term Multi-Market Portfolio 80 114 149 274
Technology Portfolio 80 114 149 275
Total Return Portfolio 79 112 146 268
U.S. Government/High Grade Securities Portfolio 78 109 141 257
Utility Income Portfolio 80 114 149 275
Worldwide Privatization Portfolio 80 114 149 275
</TABLE>
7
<PAGE>
You would pay the following expenses on a $1,000 flexible purchase payment
investment, assuming 5% growth:
<TABLE>
If you surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Variable Products Series Fund
Conservative Investors Portfolio 78 110 144 270
Global Bond Portfolio 78 111 146 273
Global Dollar Government Portfolio 78 111 147 275
Growth Portfolio 78 109 143 267
Growth & Income Portfolio 76 105 135 252
Growth Investors Portfolio 78 111 146 274
High-Yield Portfolio 78 111 147 275
International Portfolio 78 111 147 275
Money Market Portfolio 76 103 133 247
North American Government Income Portfolio 78 108 142 266
Premier Growth Portfolio 80 114 152 286
Quasar Portfolio 78 111 147 275
Real Estate Investment Portfolio 78 111 147 275
Short-Term Multi-Market Portfolio 78 111 146 274
Technology Portfolio 78 111 147 275
Total Return Portfolio 78 109 143 268
U.S. Government/High Grade Securities Portfolio 77 106 138 257
Utility Income Portfolio 78 111 147 275
Worldwide Privatization Portfolio 78 111 147 275
</TABLE>
8
<PAGE>
You would pay the following expenses on a $1,000 single or flexible purchase
payment investment, assuming 5% growth:
<TABLE>
If you Annuitize or do not surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Alliance Variable Products Series Fund
Conservative Investors Portfolio 24 74 126 270
Global Bond Portfolio 24 75 128 273
Global Dollar Government Portfolio 24 75 129 275
Growth Portfolio 24 73 125 267
Growth & Income Portfolio 22 69 117 252
Growth Investors Portfolio 24 75 128 274
High-Yield Portfolio 24 75 129 275
International Portfolio 24 75 129 275
Money Market Portfolio 22 67 115 247
North American Government Income Portfolio 24 72 124 266
Premier Growth Portfolio 26 78 134 286
Quasar Portfolio 24 75 129 275
Real Estate Investment Portfolio 24 75 129 275
Short-Term Multi-Market Portfolio 24 75 128 274
Technology Portfolio 24 75 129 275
Total Return Portfolio 24 73 125 268
U.S. Government/High Grade Securities Portfolio 23 70 120 257
Utility Income Portfolio 24 75 129 275
Worldwide Privatization Portfolio 24 75 129 275
</TABLE>
The purpose of the tables set forth in the example above is to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly. The tables reflect expenses of the variable account and the
portfolios but do not reflect any deduction for premium taxes, if any. The
example should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
===============================================================
CONDENSED FINANCIAL INFORMATION
================================================================
Historical accumulation unit values are contained in the Appendix.
9
<PAGE>
===================================================================
THE CONTRACT
===================================================================
General Description
An annuity is a contract between you, as the owner, and a life insurance
company. The contract provides tax deferral for your earnings, which means your
earnings accumulate on a tax-deferred basis until you take money out of your
contract. It also provides a death benefit and a guaranteed income in the form
of annuity payments beginning on a date you select. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation phase. The
income phase begins once you or the annuitant begins receiving annuity payments.
If you or the annuitant dies during the accumulation phase, we guarantee a death
benefit to your beneficiary.
The contract is called a variable annuity because you can allocate your money
among variable investment options. Each subaccount of our variable account
invests in shares of a corresponding portfolio of a mutual fund. Depending on
market conditions, the various portfolios may make or lose money. If you
allocate money to the portfolios, your Contract Value during the accumulation
phase will depend on their investment performance. In addition, the amount of
the variable annuity payments you may receive will depend on the investment
performance of the portfolios you select for the income phase.
The contract also has a fixed investment option. The guaranteed option account
is a fixed interest option that is part of our general account. Any portion of
the purchase payment you allocate to the guaranteed option will earn interest at
a fixed rate that we set. We guarantee the interest rate will never be less than
3% for flexible purchase payment contracts and 4% for single purchase payment
contracts. Your Contract Value in the guaranteed option account during the
accumulation phase will depend on the total interest we credit. During the
income phase, each annuity payment you receive from the fixed portion of your
contract will be for the same amount.
Purchasing a Contract
A purchase payment is the money you give us as payment to buy the contract, as
well as any additional money you give us to invest in the contract after you own
it. The minimum initial investment is $5,000 for a non-qualified contract and
$2,000 for a qualified contract. If you own a flexible purchase payment
contract, you may add purchase payments of $1,000 or more to your contract at
any time during the accumulation phase.
We may refuse any purchase payment. In general, we will not issue a contract to
anyone who is over age 85.
10
<PAGE>
Allocation of Purchase Payment
When you purchase a contract, you will tell us how to allocate your initial
purchase payment among the investment options. We will allocate additional
purchase payments for a flexible purchase payment contract in the same way
unless you tell us otherwise.
At the time of application, we must receive your purchase payment at our
Administrative Office before the contract will be effective. We will issue your
contract and allocate your purchase payment within two business days. If you do
not give us all the necessary information we need to issue the contract, we will
contact you to obtain it. If we are unable to complete this process within five
business days, we will send your money back unless you allow us to keep it until
we get all the necessary information.
Right to Examine Contract
If you change your mind about owning this contract, you can cancel it within a
specified time frame after receiving it by mailing it back to our Administrative
Office: Delaware Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box
3031, Berwyn, PA 19312-0031. The specified time frame is ten days for single
purchase payment contracts and twenty days for flexible purchase payment
contracts (or longer if required by state law). You will receive your Contract
Value on the day we receive your request which may be more or less than the
money you initially invested.
In certain states or if you purchase your contract as an individual retirement
annuity, we may be required to return your purchase payment. If you cancel your
contract during the right to examine period, we will return to you an amount
equal to your purchase payments less any withdrawals.
Accumulation Units
The value of an Accumulation Unit may go up or down from day to day. When you
pay a purchase payment, we credit your contract with Accumulation Units. The
number of Accumulation Units credited is determined by dividing the amount of
purchase payment allocated to a subaccount by the value of the Accumulation Unit
for that subaccount. We calculate the value of an Accumulation Unit as of the
close of business of the New York Stock Exchange ("NYSE") on each day that the
NYSE is open for trading. Except in the case of an initial purchase payment, we
credit Accumulation Units to your contract at the value next calculated after we
receive your purchase payment at our Administrative Office.
The Accumulation Unit value for each portfolio will vary from one valuation
period to the next based on the investment experience of the assets in the
portfolio and the deduction of certain charges and expenses. The SAI contains a
detailed explanation of how Accumulation Units are valued.
11
<PAGE>
Your value in any portfolio is determined by multiplying its unit value by the
number of units you own. Your value within the variable investment options is
the sum of your values in all the portfolios. The total value of your contract,
referred to as the Contract Value, equals your value in the variable investment
options plus your value in the guaranteed account.
Transfers During the Accumulation Phase
You can transfer money among the investment options by written request or by
telephone. You can make twelve transfers every Contract Year without charge.
There is a $10 transfer fee for each transfer over twelve in a Contract Year. We
may reject any more than twelve transfer requests in any Contract Year.
The minimum amount you can transfer is $1,000. You cannot make a transfer if,
after the transfer, there would be less than $1,000 in the portfolio from which
the transfer is being made. Your transfer request must clearly state which
investment options are involved and the amount of the transfer.
We will accept transfers by telephone from you, your representative or anyone
else designated by you. Neither we nor the funds will be liable for following
telephone instructions we reasonably believe to be genuine or for any loss,
damage, cost or expense in acting on such instructions. We have in place
procedures to provide reasonable assurance that telephone instructions are
genuine.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time.
=====================================================================
INVESTMENT OPTIONS
=====================================================================
Variable Investment Options
Variable Account I
Our board of directors authorized the organization of the variable account in
1986. The variable account is maintained pursuant to Delaware insurance law and
is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"). However, the SEC does not
supervise the management or the investment practices of the variable account.
We own the assets in the variable account and use them to support the variable
portion of your contract and other variable annuity contracts described in other
prospectuses. The variable account's assets are separate from our other assets
and are not chargeable with liabilities arising out of any other business we
conduct. Income, gains or losses, whether or not realized, are credited to or
charged against the subaccounts of the variable account without regard to
income,
12
<PAGE>
gains or losses arising out of any of our other business. As a result, the
investment performance of each subaccount of the variable account is entirely
independent of the investment performance of our general account and of any
other of our variable accounts.
The variable account is divided into subaccounts, each of which invests in
shares of a different portfolio of a mutual fund. We may, from time to time, add
or remove subaccounts and the corresponding portfolios. No substitution of
shares of one portfolio for another will be made until you have been notified
and the SEC has approved the change. If deemed to be in the best interest 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
that Act in the event such registration is no longer required, or may be
combined with one or more other variable accounts.
The Funds and Their Portfolios
The Alliance Variable Products Series Fund, Inc. is a mutual fund registered
with the SEC. Each one may have additional portfolios that are not available
under the contract.
Detailed information regarding management of the portfolios, investment
objectives and policies, and investment advisory fees and other charges may be
found in the relevant fund prospectus, which also contains a discussion of the
risks involved in investing in the portfolios. Below is a summary of the
investment objectives of the portfolios available under the contract. There is
no assurance that any of these portfolios will achieve its stated objectives.
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
Conservative Investors Portfolio seeks the highest total return without, in the
view of the Fund's Adviser, undue risk to principal by investing in a
diversified mix of publicly traded equity and fixed-income securities.
Global Bond Portfolio seeks a high level of return from a combination of current
income and capital appreciation by investing in a globally diversified portfolio
of high quality debt securities denominated in the U.S. Dollar and a range of
foreign currencies. The sub-adviser for this portfolio is AIGAM International
Limited, an affiliate of American International Group, Inc.
Global Dollar Government Portfolio seeks a high level of current income 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.
13
<PAGE>
Growth Portfolio seeks long-term growth of capital by investing primarily in
common stocks and other equity securities.
Growth and Income 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.
Growth Investors Portfolio seeks the highest total return consistent with what
the Fund's Adviser considers to be reasonable risk by investing in a diversified
mix of publicly traded equity and fixed-income securities.
High-Yield 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 the 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.
International 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.
Money Market 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.
North American Government Income 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.
14
<PAGE>
Premier Growth 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.
Quasar 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 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.
Short-Term Multi Market Portfolio seeks the highest level of current income,
consistent with what the Fund's Adviser considers to be prudent investment risk,
that is available from a portfolio of high-quality debt securities having
remaining maturities of not more than three years.
Technology 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.
Total Return 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.
U.S. Government/High Grade Securities 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.
Utility Income 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.
15
<PAGE>
Worldwide Privatization 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 Advisor to be beneficiaries of the privatization process.
Fixed Investment Option
The General Account
Purchase payments you allocate to the guaranteed option go into our general
account. The general account is not registered with the SEC. The general account
is invested in assets permitted by state insurance law. It is made up of all of
our assets other than assets attributable to our variable accounts. Unlike our
variable account assets, assets in the general account are subject to claims of
Owners like you, as well as claims made by our other creditors.
The Guaranteed Account Option
The guaranteed account is a fixed interest option. We credit money in the
guaranteed account with interest on a daily basis at the guaranteed rate then in
effect. The rate of interest to be credited to the guaranteed account is
determined wholly within our discretion. However, the rate will not be changed
more than once per year. The interest rate will never be less than 3% for
flexible purchase payment contracts and 4% for single purchase payment
contracts.
If you allocate purchase payments to the guaranteed account, the fixed portion
of your Contract Value during the accumulation phase will depend on the total
interest we credit to your contract. During the income phase, each annuity
payment you receive from the fixed portion of your contract will be for the same
amount.
We reserve the right to delay any payment from the guaranteed account for up to
six months from the date we receive the request at our Administrative Office, as
permitted by law.
===================================================================
CHARGES AND DEDUCTIONS
===================================================================
Insurance Charges
Each day, we deduct insurance charges from your Contract Value. This is done as
part of our calculation of the value of Accumulation Units during the
accumulation phase and of Annuity Units during the income phase. The insurance
charges are the mortality and expense risk charge, the administrative charge,
and the charges for the optional death benefits which are described under "Death
Benefit."
16
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Mortality and Expense Risk Charge
The mortality and expense risk charge is equal, on an annual basis, to 1.25% of
the daily value of the variable portion of your contract. We will not increase
this charge. It compensates us for our obligation to make annuity payments, to
provide the death benefit, and for assuming the risk that current charges will
be insufficient in the future to cover the cost of administering the contract.
If the charges under the contract are not sufficient, we will bear the loss. If
the charges are sufficient, we will keep the balance of this charge as profit.
Administrative Charge
The administrative charge is equal, on an annual basis, to 0.15% of the daily
value of the variable portion of your contract. These expenses include preparing
the contract, confirmations and statements, and maintaining contract records. If
this charge is not enough to cover the costs of administering the contract, we
will bear the loss.
Deferred Sales Charge
If you withdraw your contract prior to the Annuity Date during the first six
years after a purchase payment, we will assess a deferred sales charge as a
percentage of purchase payments withdrawn as shown below:
Contribution Year* 1 2 3 4 5 6 Thereafter
Deferred Sales Charge 6% 5% 4% 3% 2% 1% 0%
* For single purchase payment contracts, Contribution Year and Contract Year are
the same.
For purposes of calculating the deferred sales charge, we treat withdrawals as
coming from the oldest purchase payments first (i.e., first-in, first-out).
However, we will not assess a deferred sales charge for flexible purchase
payment contracts on amounts up to 10% of purchase payments paid, less the
amount of any prior withdrawals or for single purchase payment contracts on
amounts up to 10% of the Contract Value at the time of withdrawal.
You will not receive the benefit of this "free withdrawal amount" if you
participate in the systematic withdrawal program. If you make a partial
withdrawal, we will deduct the deferred sales charge, if any, pro rata from the
remaining value in your contract. The total of all deferred sales charges may
not exceed 8.5% of the purchase payments for a contract. We do not expect the
proceeds from the deferred sales charge to cover all of our distribution costs.
We may use any corporate asset, including potential profit which may arise from
the mortality and expense risk charge to cover the distribution costs.
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Contract Maintenance Fee
During the accumulation phase, we will deduct an annual contract maintenance fee
of $30 from your contract on each Contract Anniversary. The contract refers to
this fee as an administrative charge. We will not increase this fee. It
compensates us for expenses incurred to establish and maintain your contract. If
you withdraw the entire value of your contract, the contract maintenance fee
will be deducted prior to the withdrawal.
Premium Taxes
We will deduct from your Contract Value any premium tax imposed by the state or
locality where you reside. Premium taxes currently imposed on the contract by
various states range from 0% to 3.5% of purchase payments paid. These taxes are
due either when a purchase payment is paid or when annuity payments begin. It is
our current practice to charge you for these taxes when annuity payments begin
or if you withdraw the contract in full. In the future, we may discontinue this
practice and assess the tax when it is due or upon the payment of the death
benefit.
Income Taxes
Although we do not currently deduct any charges for income taxes attributable to
your contract, we reserve the right to do so in the future.
Fund Expenses
There are deductions from and expenses paid out of the assets of the various
portfolios. These charges are described in the prospectus for the Alliance
Variable Products Series Fund and are summarized in the fee table.
Reduction or Elimination of Certain Charges and Additional Amounts Credited
We may reduce or eliminate the deferred sales charge or the administrative
charge or change the minimum purchase payment requirement when the contract is
sold to groups of individuals under circumstances which reduce our sales
expenses. We will determine the eligibility of such groups by considering
factors such as:
(1) the size of the group;
(2) the total amount of purchase payments we expect to receive from the group;
(3) the nature of the purchase and the persistency we expect in that group;
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(4) the purpose of the purchase and whether that purpose makes it likely that
expenses will be reduced; and
(5) any other circumstances which we believe to be relevant in determining
whether reduced sales expenses may be expected.
We may also waive or reduce the deferred sales charge and/or contract
maintenance fee in connection with contracts sold to employees, employees of
affiliates, registered representatives, employees of broker-dealers which have a
current selling agreement with us, and immediate family members of those
persons. Any reduction or waiver may be withdrawn or modified by us.
===================================================================
ACCESS TO YOUR MONEY
===================================================================
Generally
Contract Value is available in the following ways:
o by withdrawing all or part of your Contract Value during the accumulation
phase;
o by receiving annuity payments during the income phase;
o when a death benefit is paid to your beneficiary.
Generally, withdrawals are subject to a deferred sales charge, a contract
maintenance fee and, if it is a full withdrawal, premium taxes. Withdrawals may
also be subject to income tax and a penalty tax.
To make a withdrawal you must send a complete and detailed written request to
our Administrative Office. We will calculate your withdrawal as of the close of
business of the NYSE at the value next determined after we receive your request.
For a withdrawal of your entire Contract Value, you must also send us your
contract.
Under most circumstances, partial withdrawals must be for a minimum of $500. We
require that your Contract Value be at least $2,000 after the withdrawal. If the
Contract Value would be less than $2,000 as a result of a withdrawal, we may
cancel the contract. Unless you provide us with different instructions, partial
withdrawals will be made pro rata from each investment option in which your
contract is invested.
We may be required to suspend or postpone the payment of a withdrawal or death
benefit for an undetermined period of time when:
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o the NYSE is closed (other than a customary weekend and holiday closings);
o trading on the NYSE is restricted;
o an emergency exists such that disposal of or determination of the value of
shares of the portfolios is not reasonably practicable;
o the SEC, by order, so permits for the protection of owners.
Systematic Withdrawal Program
The systematic withdrawal program allows you to make regularly scheduled
withdrawals from your Contract Value of at least $200 each on a monthly or
quarterly basis. You may change the amount or frequency of withdrawals under the
program once per Contract Year. In order to initiate the program, your Contract
Value must be at least $24,000. A maximum of 10% of your Contract Value may be
withdrawn in a Contract Year.
Deferred sales charges are not imposed on withdrawals under this program nor is
there any charge for participating in this program. You may not elect this
program if you have made a partial withdrawal earlier in the same Contract Year.
In addition, the free withdrawal amount is not available in connection with
partial withdrawals you make while participating in the systematic withdrawal
program. You will be entitled to the free withdrawal amount on and after the
Contract Anniversary next following the termination of the systematic withdrawal
program.
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 portfolio or the guaranteed option is not sufficient
to make a withdrawal or if your request for systematic withdrawal does not
specify the investment options from which to deduct withdrawals, withdrawals
will be deducted pro rata from your Contract Value in each portfolio and the
guaranteed option.
The systematic withdrawal program may be canceled at any time by written request
or automatically by us if your Contract Value falls below $1,000. In the event
the systematic withdrawal program is canceled, you may not elect to participate
in the program again until the next Contract Anniversary.
If your Contract is issued in connection with an Individual Retirement Annuity
or 403(b) Plan, you are cautioned that your rights to implement a systematic
withdrawal program may be subject to the terms and conditions of your plan,
regardless of the terms and conditions of your contract. Moreover,
implementation of the systematic withdrawal program may subject you to adverse
tax consequences, including a 10% tax penalty if you are under age 59 1/2. See
"Taxes" for a discussion of the various tax consequences.
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For information, including the necessary enrollment form, please check with our
Administrative Office. We reserve the right to modify, suspend or terminate this
program at any time.
===================================================================
ANNUITY PAYMENTS
===================================================================
Generally
Beginning on the Annuity Date, you will receive regular annuity payments. You
may choose to receive annuity payments that are fixed, variable or a combination
of fixed and variable. We make annuity payments on a monthly, quarterly,
semiannual or annual basis.
You select the Annuity Date, which must be the first day of a month. You may
change the Annuity Date at least 30 days before payments are to begin. However,
annuity payments must begin by the later of an Annuitant's 85th birthday or the
tenth Contract Anniversary. Certain states may require that annuity payments
begin prior to such date and we will comply with those requirements.
The Annuitant is the person on whose life annuity payments are based. If you are
not the Annuitant and the Annuitant dies before the Annuity Date, a death
benefit will be paid.
Annuity Options
The contract offers three annuity options described below. Other annuity options
may be made available, including other guarantee periods and options with life
contingencies, subject to our discretion. If you do not choose an annuity
option, annuity payments will be made in accordance with option 2 for 10 years.
If the annuity payments are for joint lives, then we will make payments in
accordance with option 3. Where permitted by state law, we may pay the annuity
in one lump sum if your Contract Value is less than $2,000. Likewise, if your
annuity payments would be less than $100 a month, we have the right to change
the frequency of your payment to be on a semiannual or annual basis so that the
payments are at least $100. We will make annuity payments to you or to the
Annuitant unless you designate another person to receive them. In that case, you
must notify us in writing at least thirty days before the Annuity Date. You will
remain fully responsible for any taxes related to the annuity payments.
Option 1 - Life Income
Under this option, we will make annuity payments as long as the Annuitant is
alive. Annuity payments stop when the Annuitant dies.
Option 2 - Life Annuity with 10 Years Guaranteed
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This option is similar to option 1 above, with the additional guarantee that
payments will be made for a period you select of at least 10 years. Under this
option, if the Annuitant dies before all guaranteed payments have been made, the
rest will be paid to the beneficiary for the remainder of the period.
Option 3 - Joint and Last Survivor Income
Under this option, we will make annuity payments as long as either the Annuitant
or a contingent annuitant is alive. If your Contract is issued as an individual
retirement annuity, payments under this option will be made only to you as
Annuitant or to your spouse. Upon the death of either of you, we will continue
to make annuity payments so long as the survivor is alive.
Variable Annuity Payments
If you choose to have any portion of your annuity payments based on the variable
investment options, the amount of your payments will depend upon:
o your Contract Value in the portfolios on the Annuity Date;
o the 5.0% assumed investment rate used in the annuity table for the
contract;
o the performance of the portfolios you selected;
o the annuity option you selected.
If the actual performance exceeds the 5.0% assumed rate, the annuity payments
will increase. Similarly, if the actual rate is less than 5.0%, the annuity
payments will decrease. The SAI contains more information.
Transfers During Income Phase
Transfers during the income phase are subject to the same limitations as
transfers during the accumulation phase. See "The Contract - Transfers During
Accumulation Phase." However, you may only make one transfer each month and you
may only transfer money among the variable investment options. You may not
transfer money from the fixed investment option to the variable investment
options or from the variable investment options to the fixed investment option.
Deferment of Payments
We may defer making fixed annuity payments for up to six months subject to state
law. We will credit interest to you during the deferral period.
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===================================================================
DEATH BENEFIT
===================================================================
Death of Annuitant Before the Annuity Date
If the Annuitant dies before the Annuity Date, we will pay the beneficiary a
death benefit equal to the greatest of:
(1) the total of all purchase payments less withdrawals;
(2) the Contract Value; and
(3) the greatest Contract Value at any sixth Contract Anniversary
(i.e., sixth, twelfth, eighteen, etc.), plus any additional purchase payments
paid, less any subsequent withdrawals.
The value of the death benefit will be determined as of the date we receive
proof of death in a form acceptable to us.
Payment of the Death Benefit
Payment of the death benefit can be in one lump sum or under one of the annuity
options. You may elect by written request that a death benefit of at least
$2,000 be paid to the beneficiary under an annuity option. You may choose or
change the method of payment at any time prior to the Annuitant's death. If at
the time the Annuitant dies you have not made a choice, the beneficiary has
sixty days to elect by written request either a lump sum payment or payment
under an annuity option. We will make a lump sum payment within seven business
days of receiving proof of death and the beneficiary's written election, unless
there is a delay in payment as described under "Access To Your Money."
Death of Owner
Before the Annuity Date
If the Owner dies before the Annuity Date, the Contract Value must be
distributed within five years of the date of death unless:
(1) it is payable over the lifetime of the beneficiary with distributions
beginning within one year of the date of death; or
(2) the Owner's spouse, as contingent owner, continues the contract in his
or her name.
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After the Annuity Date
If the Owner dies after the Annuity Date, distribution will be as provided in
the annuity option selected.
================================================================
PERFORMANCE
================================================================
Occasionally, we may advertise certain performance related information
concerning one or more of the portfolios, including total return and yield
information. A portfolio's performance information is based on the portfolio's
past performance only and is not intended as an indication of future
performance.
When we advertise the average annual total return of a portfolio, it will
usually be calculated for one, five, and ten year periods or, where a portfolio
has been in existence for a period of 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 portfolio at the beginning of the relevant period
to the value of the investment at the end of the period. That assumes the
deduction of any deferred sales charge that would be payable if the account were
redeemed at the end of the period. Then the average annual compounded rate of
return is calculated to produce the value of the investment at the end of the
period. We may simultaneously present returns that do not assume a withdrawal
and, therefore, do not deduct a deferred sales charge.
When we advertise the yield of a portfolio we will calculate it based upon a
given thirty 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 we advertise the performance of the money market portfolio we may advertise
the yield or the effective yield in addition to the total return. The yield of
the money market portfolio refers to the income generated by an investment in
that portfolio 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 portfolio 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 lower than at the underlying fund
level since it is reduced by all contract charges (deferred sales charge,
mortality and expense risk charge, administrative charge, and contract
maintenance fee). Likewise, yield and effective yield at the variable account
level are lower than at the fund level since the variable account level total
return affects all recurring charges (except deferred sales charge).
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Performance information for a portfolio may be compared to:
(1) 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 portfolio's results
with those of a group of securities widely regarded by
investors as representative of the securities markets in
general;
(2) 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;
(3) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Contract; and
(4) indices or averages of alternative financial products
available to prospective investors, including the Bank Rate
Monitor which monitors average returns of various bank
instruments.
================================================================
TAXES
================================================================
Introduction
The following discussion of federal income tax treatment is general in nature
and is not intended as tax advice. This discussion is based on current law and
interpretations, which may change. For a discussion of federal income taxes as
they relate to the funds, please see the accompanying fund prospectuses. No
attempt is made to consider any applicable state or other tax laws. We do not
guarantee the tax status of your contract.
Annuity Contracts in General
The Internal Revenue Code (the "Code") provides special rules regarding the tax
treatment of annuity contracts. Generally, you will not be taxed on the earnings
in an annuity contract until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is qualified
or non-qualified, as explained below.
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If you do not purchase your contract under a retirement arrangement entitled to
favorable federal income tax treatment, your contract is referred to as a
non-qualified contract. If you purchase your contract under a retirement
arrangement entitled to favorable federal income tax treatment, your contract is
referred to as a qualified contract.
Tax Treatment of Distributions -- Non-qualified Contracts
If you make a withdrawal from a non-qualified contract or withdraw it before
annuity payments begin, the amount you receive will be taxed as ordinary income,
rather than as a return of purchase payment, until all gain has been withdrawn.
For annuity payments, any portion of each payment that is considered a return of
your purchase payment will not be taxed. There is a 10% tax penalty on any
taxable amount you receive unless the amount received is paid:
(1) after you reach age 59 1/2;
(2) to your beneficiary after you die;
(3) after you become disabled;
(4) in a series of substantially equal installments made not less
frequently than annually under a lifetime annuity; or
(5) under an immediate annuity.
Assignments
If you assign all or part of the contract as collateral for a loan, the part
assigned will be treated as a withdrawal and the excess of the Contract Value
over total purchase payments will be taxed as ordinary income. Please consult
your tax adviser prior to making an assignment of the contract.
Gifts of Contracts
If you transfer a contract for less than full consideration, such as by gift,
you will generally trigger tax on the gain in the contract. This rule does not
apply to those transfers between spouses or incident to divorce.
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 payment) is includable in income each year. The
rule does not apply where the non-natural person is only the nominal
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owner, such as a trust or other entity acting as an agent for a natural person,
and in other limited circumstances.
Distribution at Death Rules
Upon the death of the Owner of a contract, certain distributions must be made:
o If the Owner dies on or after the Annuity Date, and before the entire
interest in the contract has been distributed, the remaining portion will
be distributed at least as quickly as the method in effect on the Owner's
death;
o If the Owner dies before the Annuity Date, the entire interest must
generally be distributed within five years after the date of death.
o If the beneficiary is a natural person, the interest may be annuitized over
the life of that individual or over a period not extending beyond the life
expectancy of that individual, so long as distributions commence within one
year after the date of death.
o If the beneficiary is the spouse of the Owner, the contract may be
continued in the name of the spouse as Owner.
o If the Owner is not an individual, the death of the "primary annuitant" (as
defined under the Code) is treated as the death of 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.
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 or
other property is distributed as part of the exchange. A replacement contract
obtained in a tax-free exchange of contracts succeeds to the status of the
withdrawn contract. Special rules and procedures apply to Section 1035
transactions. Prospective owners wishing to take advantage of Section 1035 of
the Code should consult their tax advisers.
Tax Treatment of Distributions -- Qualified Contracts
If you purchase your contract under a tax-favored retirement plan or account,
your contract is referred to as a qualified contract. Examples of qualified
plans or accounts are:
o Individual Retirement Annuities ("IRAs");
o Roth IRAs;
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o Tax Deferred Annuities (governed by Code Section 403(b) and referred to as
"403(b) Plans");
o Keogh Plans; and
o Employer-sponsored pension and profit sharing arrangements such as 401(k)
plans.
Withdrawals in General
Generally, with the exception of a Roth IRA, you have not paid any taxes on the
purchase payment used to buy a qualified contract or on any earnings. Therefore,
any amount you take out as a withdrawal or as annuity payments will be taxable
income. In addition, a 10% tax penalty may apply to the taxable part of a
withdrawal received before age 59 1/2. Limited exceptions are provided, such as
where amounts are paid in the form of a qualified life annuity, upon death or
disability of the employee, to pay certain medical expenses, or, in some cases,
upon separation from service on or after age 55.
Individual Retirement Annuities
Code Section 408 permits eligible individuals to contribute to an IRA. By
attachment of an endorsement that reflects the limits of Code Section 408(b),
the contracts may be issued as 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. Most IRAs cannot accept contributions after the owner
reaches 70 1/2, and must also begin required distributions at that age. Sales of
the contract for use with IRAs are subject to special requirements, including
the requirement that informational disclosure be given to each person desiring
to establish an IRA. That person must be given the opportunity to affirm or
reverse a decision to purchase the contract. Contracts offered by this
prospectus in connection with an IRA are not available in all states. The
accidental death benefit is not available under a contract issued in connection
with an IRA.
Roth IRAs
Code Section 408A 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.
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403(b) Plans
The contracts are also available for use in connection with a previously
established 403(b) Plan. Code Section 403(b) imposes certain restrictions on
your ability to make partial withdrawals from a contract used in connection with
a 403(b) Plan, if attributable to purchase payments paid under a salary
reduction agreement. Specifically, an owner may make a withdrawal or partial
withdrawal only (a) when the employee attains age 59 1/2, separates from
service, dies, or becomes disabled, or (b) in the case of hardship. In the case
of hardship, only an amount equal to the purchase payment paid may be withdrawn.
403(b) Plans are subject to additional requirements, including eligibility,
limits on contributions, minimum distributions, and nondiscrimination
requirements applicable to the employer. In particular, distributions generally
must commence by April 1 of the calendar year following the later of the year in
which the employee (a) attains age 70 1/2, or (b) retires. Owners and their
employers are responsible for compliance with these rules. Contracts offered by
this prospectus in connection with a 403(b) Plan are not available in all
states.
Rollovers
Distributions from a 401(a) 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 IRA. A
prospective owner considering use of the contract in this manner should consult
a competent tax adviser with regard to the suitability of the contract for this
purpose and for information concerning the tax law provisions applicable to
qualified plans, 403(b) plans, and IRAs.
Diversification and Investor Control
The Code imposes certain diversification requirements on the underlying
investments for a variable annuity to be treated as a variable annuity for tax
purposes. We believe that the portfolios are being managed so as to comply with
these requirements.
The tax regulations do not provide guidance as to the circumstances under which
you, because of the degree of control you exercise over the underlying
investments, would be considered the owner of the shares of the portfolios. If
any guidance on this point is provided which is considered a new position, then
the guidance would generally be applied prospectively. However, if such guidance
is considered not to be a new position, it may be applied retroactively. This
would mean you, as the owner of the contract, could be treated as the owner of
assets in the portfolios. We reserve the right to make changes to the contract
we think necessary to see that it qualifies as a variable annuity contract for
tax purposes.
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Withholding
We are 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. If you do
not provide a social security number or other taxpayer identification number,
you will not be permitted to elect out of withholding. Special withholding rules
apply to payments made to non-resident aliens.
For lump-sum distributions or withdrawals, we are required to withhold 10% of
the taxable portion of any withdrawal or lump sum distribution unless you elect
out of withholding. For annuity payments, the company will withhold on the
taxable portion of annuity payments based on a withholding certificate you file
with us. 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.
================================================================
OTHER INFORMATION
================================================================
AIG Life Insurance Company
We are a stock life insurance company initially organized under the laws of
Pennsylvania and reorganized under the laws of Delaware. We were incorporated in
1962. Our principal business address is One Alico Plaza, 600 King Street,
Wilmington, Delaware 19801. We provide a full range of life insurance and
annuity plans. We are 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 in approximately 130 countries and
jurisdictions around the world.
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to AIG by one or more independent rating
organizations such as A.M. Best Company, Moody's and Standard & Poor's. The
purpose of the ratings is to reflect the rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the variable account.
The ratings are not recommendations to purchase our life insurance or annuity
products or to hold or sell these products, and the ratings do not comment on
the suitability of such products for a particular investor. There can be no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn entirely by a rating
organization if, in such organization's judgment, future circumstances so
warrant. The ratings do
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not reflect the investment performance of the variable account or the degree of
risk associated with an investment in the variable account.
Ownership
This prospectus describes both individual flexible premium deferred variable
annuity contracts and group flexible premium deferred variable annuity
contracts. The individual and group contracts described in this prospectus are
identical except that the individual contract is issued directly to the
individual owner. A group contract is issued to a contract holder for the
benefit of the participants in the group. If you are a participant in the group
you will receive a certificate evidencing your ownership. You, either as the
owner of an individual contract or as the owner of a certificate, are entitled
to all the rights and privileges of ownership. As used in this prospectus, the
term contract is equally applicable to an individual contract or to a
certificate.
Voting Rights
To the extent required by law, we will vote the portfolio shares held in the
variable account at shareholder meetings in accordance with instructions
received from persons having a voting interest in the portfolio. However, if
legal requirements or 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, you hold a voting interest in each portfolio in whose
corresponding portfolio you have Contract Value. The number of portfolio shares
which are attributable to you is determined by dividing the corresponding value
in a particular portfolio by the net asset value of one portfolio share. The
number of votes which you 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 meeting.
Each person having a voting interest in a portfolio will receive proxy material,
reports and other materials relating to the appropriate portfolios. We will vote
shares in accordance with instructions received from the person having a voting
interest. We will vote shares for which we receive no timely instructions and
any shares not attributable to Owners in proportion to the voting instructions
we have received.
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 option.
Distribution of the Contract
Our affiliate, AIG Equity Sales Corp. ("AIGESC"), 80 Pine Street, New York, New
York, acts as the distributor of the contract. AIGESC is a wholly-owned
subsidiary of AIG. Commissions not to exceed 7% of purchase payments 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
31
<PAGE>
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 from
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 Contract
While we have primary responsibility for all administration of the contract and
the variable account, we have retained the services of Delaware Valley Financial
Services, Inc. ("DVFS") pursuant to an administrative agreement. These
administrative services include issuance of the contract and maintenance of
Owner records. DVFS serves as the administrator to various insurance companies
offering variable annuity contracts and variable life insurance policies.
Year 2000 Readiness
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the Year 2000, causing
disruption of the operations of AIG, as well as its lessees, vendors, or
business partners.
AIG has developed a plan to address the Year 2000 issue as it affects AIG's
internal IT and non- IT systems, and to assess Year 2000 issues relating to
third parties with whom AIG has critical relationships.
The plan for addressing internal systems includes an assessment of internal IT
and non-IT systems and equipment affected by the Year 2000 issue; definition of
strategies to address affected systems and equipment; remediation of identified
affected systems and equipment; and internal certification that each internal
system is Year 2000 compliant. AIG has remediated, tested and returned to
production substantially all of its internal IT systems. AIG continues to
remediate and test internal non-IT systems and expects to complete remediation
by mid-1999.
AIG has also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with AIG. Currently,
AIG is unable to ascertain whether all such third parties will successfully
address the Year 2000 issue, particularly those third parties outside the United
States where it is believed that remediation efforts relating to the Year 2000
issue may be less advanced. While AIG expects to have no interruption of
operations as a result of internal IT and non-IT systems, significant
uncertainties remain about the effect on
32
<PAGE>
AIG of third parties who are not Year 2000 compliant. AIG will continue to
monitor third party Year 2000 issue readiness to determine whether additional or
alternative measures may be necessary. Such measures may include the selection
of alternate third parties or other actions designed to mitigate the effects of
a third party's lack of preparedness. There can be no assurance that unresolved
Year 2000 issues of third parties will not have a material adverse impact on
AIG's results of operations, financial condition or liquidity. AIG is
considering the effects of Year 2000 related failures on its business and, as
the most reasonably likely worst case scenarios become more clearly identified,
AIG will develop appropriate contingency plans.
There can be no assurance that the funds, like other third parties, will not
have unresolved Year 2000 issues that may have a material adverse impact on your
contract values as well as our operations. Please refer to the Year 2000
discussion in each fund's prospectus.
Legal Proceedings
There are no pending legal proceedings which, in our judgment, are material with
respect to the variable account.
================================================================
FINANCIAL STATEMENTS
================================================================
Consolidated balance sheets of AIG Life Insurance Company and of the variable
account are included in the SAI which may be obtained without charge by calling
(800) 255-8402 or writing to AIG Life Insurance Company, Attention: Variable
Products, One Alico Plaza, 600 King Street, Wilmington, Delaware 19801. A
complete set of financial statements of the company and the variable account has
been filed electronically with the SEC and can be obtained through its website
at http://www.sec.gov.
33
<PAGE>
===============================================================
APPENDIX
================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
1998 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
CONSERVATIVE INVESTORS
Accumulation Unit Value
Beginning of Period 12.99 11.84 11.57 10.02 10.00 N/A N/A
End of Period 14.62 12.99 11.84 11.57 10.02 N/A N/A
Accum Units o/s @ end of period 1,834,033.49 584,750.70 1,109,173.48 405,192.27 62,828.02 N/A N/A
GLOBAL BOND
Accumulation Unit Value
Beginning of Period 13.14 13.24 12.64 10.28 11.00 9.96 10.00
End of Period 14.79 13.14 13.24 12.64 10.28 11.00 9.96
Accum Units o/s @ end of period 643,678.64 708,242.42 579,082.99 213,886.71 85,875.16 18,846.45 5,444.00
GLOBAL DOLLAR GOVERNMENT
Accumulation Unit Value
Beginning of Period 16.25 14.56 11.82 9.74 10.00 N/A N/A
End of Period 12.55 16.25 14.56 11.82 9.74 N/A N/A
Accum Units o/s @ end of period 636,568.44 714,986.09 469,801.08 238,452.60 69,320.82 N/A N/A
GROWTH
Accumulation Unit Value
Beginning of Period 22.70 17.70 13.97 10.48 10.00 N/A N/A
End of Period 28.81 22.70 17.70 13.97 10.48 N/A N/A
Accum Units o/s @ end of period 8,904,664.35 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 24.27 19.11 15.62 11.67 11.88 10.78 10.00
End of Period 28.94 24.27 19.11 15.62 11.67 11.88 10.78
Accum Units o/s @ end of period 9,476,753.38 7,258,107.19 4,509,118.40 1,554,549.81 438,680.32 28,041.82 800.00
GROWTH INVESTORS
Accumulation Unit Value
Beginning of Period 14.26 12.43 11.65 9.81 10.00 N/A N/A
End of Period 17.39 14.26 12.43 11.65 9.81 N/A N/A
Accum Units o/s @ end of period 805,318.01 824,606.48 609,405.23 292,173.06 29,492.78 N/A N/A
HIGH YIELD
Accumulation Unit Value
Beginning of Period 10.30 N/A N/A N/A N/A N/A N/A
End of Period 9.78 10.30 N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 1,476,993.82 106,671.96 N/A N/A N/A N/A N/A
INTERNATIONAL
Accumulation Unit Value
Beginning of Period 12.50 12.26 11.60 10.71 10.17 10.00 N/A
End of Period 13.93 12.50 12.26 11.60 10.71 10.17 N/A
Accum Units o/s @ end of period 3,645,458.54 3,700,183.10 2,718,751.84 981,260.91 447,407.41 21,717.14 N/A
MONEY MARKET
Accumulation Unit Value
Beginning of Period 11.37 10.97 10.63 10.26 10.08 10.00 N/A
End of Period 11.77 11.37 10.97 10.63 10.26 10.08 N/A
Accum Units o/s @ end of period 7,257,274.05 4,291,499.61 4,320,223.01 1,856,020.37 431,319.86 8,487.20 N/A
NORTH AMERICAN GOVERNMENT INCOME
Accumulation Unit Value
Beginning of Period 13.32 12.33 10.53 8.70 10.00 N/A N/A
End of Period 13.67 13.32 12.33 10.53 8.70 N/A N/A
Accum Units o/s @ end of period 1,816,650.85 1,790,540.24 1,047,240.17 531,374.67 340,817.36 N/A N/A
PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 23.22 17.59 14.54 10.15 11.13 10.00 10.00
End of Period 33.89 23.22 17.59 14.54 10.15 11.13 10.00
Accum Units o/s @ end of period 10,004,043.81 6,662.866.85 3,971,452.13 1,252,211.18 223,550.22 35,271.53 2,081.43
QUASAR
Accumulation Unit Value
Beginning of Period 12.37 10.58 10.00 N/A N/A N/A N/A
End of Period 11.65 12.37 10.58 N/A N/A N/A N/A
Accum Units o/s @ end of period 5,595,694.29 3,991,205.09 649,902.74 N/A N/A N/A N/A
REAL ESTATE INVESTMENT
Accumulation Unit Value
Beginning of Period 12.16 N/A N/A N/A N/A N/A N/A
End of Period 9.71 12.16 N/A N/A N/A N/A N/A
Accum Units o/s @ end of period 1,323,433.94 936,389.36 N/A N/A N/A N/A N/A
SHORT-TERM MULTI MARKET
Accumulation Unit Value
Beginning of Period 11.13 10.79 9.99 9.49 10.29 9.79 N/A
End of Period 11.67 11.13 10.79 9.99 9.49 10.29 N/A
Accum Units o/s @ end of period 372,503.39 418,440.83 461,069.70 115,207.71 95,717.71 14,511.57 N/A
TECHNOLOGY
Accumulation Unit Value
Beginning of Period 11.43 10.89 10.00 N/A N/A N/A N/A
End of Period 18.47 11.43 10.89 N/A N/A N/A N/A
Accum Units o/s @ end of period 5,670,473.44 4,818,385.19 2,127,691.68 N/A N/A N/A N/A
TOTAL RETURN
Accumulation Unit Value
Beginning of Period 15.97 13.37 11.78 9.65 10.00 N/A N/A
End of Period 18.42 15.97 13.37 11.78 9.65 N/A N/A
Accum Units o/s @ end of period 2,427,810.67 1,780,440.77 1,155,818.92 328,256.04 34,684.53 N/A N/A
U.S. GOVERNMENT/HIGH GRADE SECURITIES
Accumulation Unit Value
Beginning of Period 12.00 11.20 11.07 9.42 9.95 10.00 N/A
End of Period 12.80 12.00 11.20 11.07 9.42 9.95 N/A
Accum Units o/s @ end of period 3,516,324.78 2,190,735.81 1,838,415.41 914,988.76 320,574.64 41,210.45 N/A
UTILITY INCOME
Accumulation Unit Value
Beginning of Period 15.58 12.57 11.82 9.87 10.00 N/A N/A
End of Period 19.04 15.58 12.57 11.82 9.87 N/A N/A
Accum Units o/s @ end of period 1,379,682.64 910,470.43 812,579.02 358,005.39 111,604.02 N/A N/A
WORLDWIDE PRIVATIZATION
Accumulation Unit Value
Beginning of Period 14.02 12.84 10.99 10.05 10.00 N/A N/A
End of Period 15.32 14.02 12.84 10.99 10.05 N/A N/A
Accum Units o/s @ end of period 2,399,048.01 2,391,217.59 1,135,168.22 394,704.27 105,674.08 N/A N/A
</TABLE>
36
<PAGE>
*Funds were first invested in the Portfolios as listed below:
Conservative Investors Portfolio October 28, 1994
Global Bond Portfolio July 15, 1991
Global Dollar Government Portfolio May 2, 1994
Growth Portfolio September 15, 1994
Growth and Income Portfolio January 14, 1991
Growth Investors Portfolio October 28, 1994
High-Yield Portfolio October 27, 1997
International Portfolio December 28, 1992
Money Market Portfolio December 4, 1992
North American Government Income Portfolio May 3, 1994
Premier Growth Portfolio June 26, 1992
Quasar Portfolio August 5, 1996
Real Estate Investment Portfolio January 9, 1997
Short-Term Multi-Market Portfolio November 28, 1990
Technology Portfolio January 11, 1996
Total Return Portfolio December 28, 1992
U.S. Government/High Grade Securities Portfolio September 17, 1992
Utility Income Portfolio May 10, 1994
Worldwide Privatization Portfolio September 23, 1994
37
<PAGE>
================================================================
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
================================================================
GENERAL INFORMATION
AIG Life Insurance Company
Independent Accountants
Legal Counsel
Distributor
CALCULATION OF PERFORMANCE DATA
Yield and Effective Yield Quotations for the
Money Market Subaccount
Yield Quotations for Other Subaccounts
Total Return Quotations
Non-Standardized Performance Data
ANNUITY PROVISIONS
Variable Annuity Payments
Annuity Unit Value
Net Investment Factor
Additional Provisions
Variable Annuity Payments
FINANCIAL STATEMENTS
38
<PAGE>
PROFILE PROSPECTUS
MAY 1, 1999
INDIVIDUAL AND GROUP
SINGLE AND FLEXIBLE PURCHASE PAYMENT
VARIABLE ANNUITY CONTRACTS
issued by
AIG LIFE INSURANCE COMPANY
through its
VARIABLE ACCOUNT I
This prospectus describes single and flexible purchase payment variable annuity
contracts being offered to individuals and groups. The word "contract" as used
in this prospectus includes both single and flexible purchase payment contracts,
whether issued on an individual or group basis, as well as any certificate
issued under a group contract. Please read this prospectus carefully before
investing and keep it for future reference.
You can allocate your money among the eighteen variable investment options
listed below and one fixed investment option. The fixed investment option is our
guaranteed account which earns a minimum of 3% interest for flexible premium
contracts and 4% for single premium contracts. The variable investment options
are portfolios of the AIM Variable Insurance Funds, Inc., Alliance Variable
Products Series Fund, Inc., Dreyfus Variable Investment Fund, Dreyfus Stock
Index Fund, Fidelity Variable Insurance Products Fund, Fidelity Variable
Insurance Products Fund II and Van Eck Worldwide Insurance Trust.
AIM Variable Insurance Funds, Inc.
(managed by A I M Advisors, Inc.)
V.I. Capital Appreciation Fund
V.I. International Equity Fund
Alliance Variable Products Series Fund, Inc.
(managed by Alliance Capital Management, L.P.)
Global Bond Portfolio
Growth Portfolio
Growth and Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Technology Portfolio
1
<PAGE>
Dreyfus Variable Investment Fund
(managed by The Dreyfus Corporation)
Small Company Stock Portfolio
Dreyfus Stock Index Fund
(managed by The Dreyfus Corporation and
Mellon Equity Corporation Associates)
Fidelity Variable Insurance Products Fund
(managed by Fidelity Management & Research Company)
VIP Growth Portfolio
VIP High Income Portfolio
VIP Money Market Portfolio
Fidelity Variable Insurance Products Fund II
(managed by Fidelity Management & Research Company)
VIP II Asset Manager Portfolio
VIP II Contrafund Portfolio
VIP II Investment Grade Bond Portfolio
Van Eck Worldwide Insurance Trust
(managed by Van Eck Associates Corporation)
Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information ("SAI") dated May 1, 1999. The SAI has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated by reference
into this prospectus. The table of contents of the SAI appears on the last page
of this prospectus. For a free copy of the SAI, call us at (800) 255-8402 or
write to us at AIG Life Insurance Company, Attention: Variable Products, One
Alico Plaza, 600 King Street, Wilmington, Delaware 19801.
In addition, the SEC maintains a website at http://www.sec.gov that contains the
prospectus, SAI, materials incorporated by reference and other information which
we have filed electronically with the SEC.
Variable annuities involve risks, including possible loss of principal. They are
not a deposit of any bank or insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
The SEC has not approved or disapproved of the contract or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
2
<PAGE>
=====================================================================
TABLE OF CONTENTS
=====================================================================
DEFINITIONS
FEE TABLES
CONDENSED FINANCIAL INFORMATION
THE CONTRACT
INVESTMENT OPTIONS
CHARGES AND DEDUCTIONS
ACCESS TO YOUR MONEY
ANNUITY PAYMENTS
DEATH BENEFIT
PERFORMANCE
TAXES
OTHER INFORMATION
FINANCIAL STATEMENTS
APPENDIX - CONDENSED FINANCIAL INFORMATION
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
3
<PAGE>
=====================================================================
DEFINITIONS
=====================================================================
We have capitalized certain terms used in this prospectus. To help you
understand these terms, we have defined them in this glossary.
Accumulation Unit - An accounting unit of measure used to calculate your
Contract Value prior to the Annuity Date.
Administrative Office - The Annuity Service Office, c/o Delaware Valley
Financial Services, Inc., 300 Berwyn Park, P.O. Box 3031, Berwyn, Pennsylvania
19312-0031.
Annuitant - The person you designate whose life determines the duration of
annuity payments involving life contingencies.
Annuity Date - The date on which annuity payments begin.
Annuity Unit - An accounting unit of measure used to calculate annuity payments
after the Annuity Date.
Contract Anniversary - An anniversary of the date we issued your contract.
Contract Value - The dollar value as of any Valuation Date of all amounts
accumulated under your contract.
Contract Year - Each period of twelve months commencing with the date we issued
your contract. For single purchase payment contracts, Contribution Year and
Contract Year are the same.
Contribution Year - Any period of twelve months commencing with the date we
receive a purchase payment and ending on the same date in each succeeding twelve
month period thereafter. As noted above, for single purchase payment contracts,
Contribution Year and Contract Year are the same.
Owner - The person named as the owner in the contract or as later changed and
who has all rights under the contract.
Valuation Date - Each day that the New York Stock Exchange is 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.
4
<PAGE>
=====================================================================
FEE TABLES
=====================================================================
Owner Transaction Expenses
Sales Load................................................................None
Deferred Sales Charge (as a percentage of purchase payment withdrawn)*
Contribution Year 1................................................. 6%
Contribution Year 2................................................. 5%
Contribution Year 3................................................. 4%
Contribution Year 4................................................. 3%
Contribution Year 5................................................. 2%
Contribution Year 6................................................. 1%
Thereafter.......................................................... None
* For single purchase payment contracts Contribution Year and Contract Year are
the same.
Transfer Fee:
First 12 Per Contract Year.......................................... None
Thereafter.......................................................... $10
Contract Maintenance Fee................................................. $30/yr
Variable Account Expenses (as a percentage of average account value)
Mortality and Expense Risk Charge.................................... 1.25%
Administrative Charge................................................ 0.15%
=====
Total Variable Account Annual Expenses............................... 1.40%
5
<PAGE>
Annual Portfolio Expenses
After Waiver/Reimbursement
<TABLE>
Management Other Total
Fees Expenses(1) Expenses
<S> <C> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67%
AIM V.I. International Equity Fund 0.75% 0.16% 0.91%
Alliance Variable Products Series Fund(2)
Global Bond Portfolio 0.64% 0.29% 0.93%
Growth Portfolio 0.75% 0.12% 0.87%
Growth and Income Portfolio 0.63% 0.10% 0.73%
Premier Growth Portfolio 0.97% 0.09% 1.06%
Quasar Portfolio 0.73% 0.22% 0.95%
Technology Portfolio 0.81% 0.14% 0.95%
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 0.75% 0.23% 0.98%
Dreyfus Stock Index Fund 0.25% 0.01% 0.26%
Fidelity Variable Insurance Products Fund(3)
VIP Growth Portfolio 0.59% 0.07% 0.66%
VIP High Income Portfolio 0.58% 0.12% 0.70%
VIP Money Market Portfolio 0.20% 0.10% 0.30%
Fidelity Variable Insurance Products Fund II(4)
VIP II Asset Manager Portfolio 0.54% 0.09% 0.63%
VIP II Contrafund Portfolio 0.59% 0.07% 0.66%
VIP II Investment Grade Bond Portfolio 0.43% 0.14% 0.57%
Van Eck Worldwide Insurance Trust(5)
Worldwide Emerging Markets Fund 0.89% 0.61% 1.50%
Worldwide Hard Assets Fund 1.00% 0.16% 1.16%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectuses
for the AIM Variable Insurance Funds, Alliance Variable Products Series
Fund, Dreyfus Variable Investment Fund, Dreyfus Stock Index Fund,
Fidelity Variable Investment Products Fund, Fidelity Variable
Investment Products Fund II, and Van Eck Worldwide Insurance Trust.
6
<PAGE>
(2) Total expenses for the following portfolios before waivers and
reimbursement by the Alliance Variable Products Series Fund's
investment adviser for the period ended December 31, 1998, were as
follows:
Global Bond Portfolio 1.17%
Premier Growth Portfolio 1.09%
Quasar Portfolio 1.30%
Technology Portfolio 1.20%
(3) Total expenses for the following portfolios before reimbursement by
Fidelity Variable Insurance Products Fund's investment adviser for the
period ended December 31, 1998, were as follows:
VIP Growth Portfolio 0.68%
(4) Total expenses for the following portfolios before reimbursement by
Fidelity Variable Insurance Products Fund II's investment adviser for
the period ended December 31, 1998, were as follows:
VIP II Asset Manager Portfolio 0.64%
VIP II Contrafund Portfolio 0 .70%
(5) Total expenses for the following portfolios before reimbursement by Van
Eck Worldwide Insurance Trust's investment adviser for the period ended
December 31, 1998, were as follows:
Worldwide Emerging Markets Fund 1.61%
Worldwide Hard Assets Fund 1.20%
7
<PAGE>
Example
You would pay the following expenses on a $1,000 single purchase payment
investment, assuming 5% growth:
<TABLE>
If you withdraw after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund $77 $106 $135 $246
AIM V.I. International Equity Fund 79 113 147 271
Alliance Variable Products Series Fund
Global Bond Portfolio 80 114 149 274
Growth Portfolio 79 112 145 267
Growth and Income Portfolio 78 108 138 252
Premier Growth Portfolio 81 117 154 286
Quasar Portfolio 80 114 149 275
Technology Portfolio 80 114 149 275
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 80 115 150 278
Dreyfus Stock Index Fund 73 94 111 203
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 77 106 135 245
VIP High Income Portfolio 77 107 137 249
VIP Money Market Portfolio 74 95 117 207
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 77 105 133 242
VIP II Contrafund Portfolio 77 106 135 245
VIP II Investment Grade Bond Portfolio 76 103 130 236
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 85 130 176 328
Worldwide Hard Assets Fund 82 120 159 295
</TABLE>
8
<PAGE>
You would pay the following expenses on a $1,000 flexible purchase payment
investment, assuming 5% growth:
<TABLE>
If you withdraw after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund $76 $103 $132 $246
AIM V.I. International Equity Fund 78 110 145 271
Alliance Variable Products Series Fund
Global Bond Portfolio 78 111 146 273
Growth Portfolio 78 109 143 267
Growth and Income Portfolio 76 105 135 252
Premier Growth Portfolio 80 114 152 286
Quasar Portfolio 78 111 147 275
Technology Portfolio 78 111 147 275
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 79 112 148 278
Dreyfus Stock Index Fund 71 90 111 203
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 76 102 132 245
VIP High Income Portfolio 76 104 134 249
VIP Money Market Portfolio 72 91 113 207
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 75 101 130 242
VIP II Contrafund Portfolio 76 102 132 245
VIP II Investment Grade Bond Portfolio 75 100 127 236
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 84 128 174 328
Worldwide Hard Assets Fund 81 117 157 295
</TABLE>
9
<PAGE>
You would pay the following expenses on a $1,000 single or flexible premium
investment, assuming 5% growth:
<TABLE>
If you annuitize or you do not withdraw after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund $22 $67 $114 $246
AIM V.I. International Equity Fund 24 74 127 271
Alliance Variable Products Series Fund
Global Bond Portfolio 24 75 128 273
Growth Portfolio 24 73 125 267
Growth and Income Portfolio 22 69 117 252
Premier Growth Portfolio 26 78 134 286
Quasar Portfolio 24 75 129 275
Technology Portfolio 24 75 129 275
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 25 76 130 278
Dreyfus Stock Index Fund 17 54 93 203
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 22 66 114 245
VIP High Income Portfolio 22 68 116 249
VIP Money Market Portfolio 18 55 95 207
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 21 65 112 242
VIP II Contrafund Portfolio 22 66 114 245
VIP II Investment Grade Bond Portfolio 21 64 109 236
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 30 92 156 328
Worldwide Hard Assets Fund 27 81 139 295
</TABLE>
The purpose of the tables set forth in the example above is to assist you in
understanding the various costs and expenses that you will bear directly or
indirectly. The tables reflect expenses of the variable account and the
portfolios but do not reflect any deduction for premium taxes, if any. The
example should not be considered a representation of past or future expenses.
Actual expenses may be greater or less than those shown.
===============================================================
CONDENSED FINANCIAL INFORMATION
================================================================
Historical accumulation unit values are contained in the Appendix.
10
<PAGE>
===================================================================
THE CONTRACT
===================================================================
General Description
An annuity is a contract between you, as the owner, and a life insurance
company. The contract provides tax deferral for your earnings, which means your
earnings accumulate on a tax-deferred basis until you take money out of your
contract. It also provides a death benefit and a guaranteed income in the form
of annuity payments beginning on a date you select. Until you decide to begin
receiving annuity payments, your annuity is in the accumulation phase. The
income phase begins once you or the annuitant begins receiving annuity payments.
If you or the annuitant dies during the accumulation phase, we guarantee a death
benefit to your beneficiary.
The contract is called a variable annuity because you can allocate your money
among variable investment options. Each subaccount of our variable account
invests in shares of a corresponding portfolio of a mutual fund. Depending on
market conditions, the various portfolios may make or lose money. If you
allocate money to the portfolios, your Contract Value during the accumulation
phase will depend on their investment performance. In addition, the amount of
the variable annuity payments you may receive will depend on the investment
performance of the portfolios you select for the income phase.
The contract also has a fixed investment option. The guaranteed option account
is a fixed interest option that is part of our general account. Any portion of
the purchase payment you allocate to the guaranteed option will earn interest at
a fixed rate that we set. We guarantee the interest rate will never be less than
3% for flexible purchase payment contracts and 4% for single purchase payment
contracts. Your Contract Value in the guaranteed option account during the
accumulation phase will depend on the total interest we credit. During the
income phase, each annuity payment you receive from the fixed portion of your
contract will be for the same amount.
Purchasing a Contract
A purchase payment is the money you give us as payment to buy the contract, as
well as any additional money you give us to invest in the contract after you own
it. The minimum initial investment is $5,000 for a non-qualified contract and
$2,000 for a qualified contract. If you own a flexible purchase payment
contract, you may add purchase payments of $1,000 or more to your contract at
any time during the accumulation phase.
We may refuse any purchase payment. In general, we will not issue a contract to
anyone who is over age 85.
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Allocation of Purchase Payment
When you purchase a contract, you will tell us how to allocate your initial
purchase payment among the investment options. We will allocate additional
purchase payments for a flexible purchase payment contract in the same way
unless you tell us otherwise.
At the time of application, we must receive your purchase payment at our
Administrative Office before the contract will be effective. We will issue your
contract and allocate your purchase payment within two business days. If you do
not give us all the necessary information we need to issue the contract, we will
contact you to obtain it. If we are unable to complete this process within five
business days, we will send your money back unless you allow us to keep it until
we get all the necessary information.
Right to Examine Contract
If you change your mind about owning this contract, you can cancel it within a
specified time frame after receiving it by mailing it back to our Administrative
Office: Delaware Valley Financial Services, Inc., 300 Berwyn Park, P.O. Box
3031, Berwyn, PA 19312-0031. The specified time frame is ten days for single
purchase payment contracts and twenty days for flexible purchase payment
contracts (or longer if required by state law). You will receive your Contract
Value on the day we receive your request which may be more or less than the
money you initially invested.
In certain states or if you purchase your contract as an individual retirement
annuity, we may be required to return your purchase payment. If you cancel your
contract during the right to examine period, we will return to you an amount
equal to your purchase payments less any withdrawals.
Accumulation Units
The value of an Accumulation Unit may go up or down from day to day. When you
pay a purchase payment, we credit your contract with Accumulation Units. The
number of Accumulation Units credited is determined by dividing the amount of
purchase payment allocated to a subaccount by the value of the Accumulation Unit
for that subaccount. We calculate the value of an Accumulation Unit as of the
close of business of the New York Stock Exchange ("NYSE") on each day that the
NYSE is open for trading. Except in the case of an initial purchase payment, we
credit Accumulation Units to your contract at the value next calculated after we
receive your purchase payment at our Administrative Office.
The Accumulation Unit value for each portfolio will vary from one valuation
period to the next based on the investment experience of the assets in the
portfolio and the deduction of certain charges and expenses. The SAI contains a
detailed explanation of how Accumulation Units are valued.
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Your value in any portfolio is determined by multiplying its unit value by the
number of units you own. Your value within the variable investment options is
the sum of your values in all the portfolios. The total value of your contract,
referred to as the Contract Value, equals your value in the variable investment
options plus your value in the guaranteed account.
Transfers During the Accumulation Phase
You can transfer money among the investment options by written request or by
telephone. You can make twelve transfers every Contract Year without charge.
There is a $10 transfer fee for each transfer over twelve in a Contract Year. We
may reject any more than twelve transfer requests in any Contract Year.
The minimum amount you can transfer is $1,000. You cannot make a transfer if,
after the transfer, there would be less than $1,000 in the portfolio from which
the transfer is being made. Your transfer request must clearly state which
investment options are involved and the amount of the transfer.
We will accept transfers by telephone from you, your representative or anyone
else designated by you. Neither we nor the funds will be liable for following
telephone instructions we reasonably believe to be genuine or for any loss,
damage, cost or expense in acting on such instructions. We have in place
procedures to provide reasonable assurance that telephone instructions are
genuine.
We reserve the right to modify, suspend or terminate the transfer provisions at
any time.
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INVESTMENT OPTIONS
=====================================================================
Variable Investment Options
Variable Account I
Our board of directors authorized the organization of the variable account in
1986. The variable account is maintained pursuant to Delaware insurance law and
is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"). However, the SEC does not
supervise the management or the investment practices of the variable account.
We own the assets in the variable account and use them to support the variable
portion of your contract and other variable annuity contracts described in other
prospectuses. The variable account's assets are separate from our other assets
and are not chargeable with liabilities arising out of any other business we
conduct. Income, gains or losses, whether or not realized, are credited to or
charged against the subaccounts of the variable account without regard to
income,
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gains or losses arising out of any of our other business. As a result, the
investment performance of each subaccount of the variable account is entirely
independent of the investment performance of our general account and of any
other of our variable accounts.
The variable account is divided into subaccounts, each of which invests in
shares of a different portfolio of a mutual fund. We may, from time to time, add
or remove subaccounts and the corresponding portfolios. No substitution of
shares of one portfolio for another will be made until you have been notified
and the SEC has approved the change. If deemed to be in the best interest 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
that Act in the event such registration is no longer required, or may be
combined with one or more other variable accounts.
The Funds and Their Portfolios
The AIM Variable Insurance Funds, Inc., Alliance Variable Products Series Fund,
Inc., Fidelity Variable Insurance Products Fund, Dreyfus Variable Investment
Fund, Dreyfus Stock Index Fund, Fidelity Variable Insurance Products Fund II,
and Van Eck Worldwide Insurance Trust Funds are mutual funds registered with the
SEC. Each one may have additional portfolios that are not available under the
contract.
You should carefully read each fund's prospectus before investing. These
prospectuses are attached to this prospectus and contain detailed information
regarding management of the portfolios, investment objectives, investment
advisory fees and other charges. The prospectuses also discuss the risks
involved in investing in the portfolios. Below is a summary of the investment
objectives of the portfolios available under the contract. There is no assurance
that any of these portfolios will achieve its stated objectives.
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund seeks growth of capital through investment in
common stocks, with emphasis on medium-and smaller-sized growth companies.
AIM V.I. International Equity Fund seeks to provide long-term growth of capital
by investing in a diversified portfolio of international equity securities whose
issuers are considered to have strong earnings momentum.
Alliance Variable Products Series Fund, Inc.
Global Bond Portfolio seeks a high level of return from a combination of current
income and capital appreciation by investing in a globally diversified portfolio
of high quality debt securities denominated in the U.S. Dollar and a range of
foreign currencies. The sub-adviser for this portfolio is AIGAM International
Limited, an affiliate of American International Group, Inc.
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Growth Portfolio seeks long term growth of capital by investing primarily in
common stocks and other equity securities.
Growth and Income 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.
Premier Growth 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.
Quasar 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.
Technology 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.
Dreyfus Variable Investment Fund
Small Company Stock Portfolio seeks investment results that are greater than the
total return performance of publicly-traded common stocks in the aggregate, as
represented by Russell 2500 TM Index. The portfolio invests primarily in the
equity securities of the small to medium-sized domestic issuers that are
considered by the Dreyfus Corporation to offer above-average growth potential.
Dreyfus Stock Index 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. The Fund attempts to be fully invested at all times in the stocks that
comprise the index, and stock index futures. The Fund is neither sponsored by
nor affiliated with Standard & Poor's Corporation. Dreyfus has engaged its
affiliate, Mellon Equity Associates, to serve as the Fund's index fund manager.
Fidelity Variable Insurance Products Fund (VIP)
VIP Growth Portfolio seeks capital appreciation through investments primarily in
common stock.
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VIP High Income Portfolio seeks high current income by investing primarily in
income producing debt securities, preferred stocks and convertible securities,
with emphasis on lower- quality debt securities (commonly referred to as "junk
bonds"), while also considering growth of capital. The potential for high yield
is accompanied by higher risk. For a more detailed discussion of the investment
risks associated with such securities, please refer to the Fidelity Fund's
attached prospectus. The sub-adviser for this portfolio is Fidelity Management &
Research Far East Inc. and Fidelity Management & Research (U.K.) Inc.
VIP Money Market Portfolio seeks to obtain as high a level of current income as
is consistent with preserving capital and providing liquidity. The portfolio
will invest only in high quality U.S. dollar-denominated money market securities
of domestic and foreign issuers. An investment in the VIP Money Market Portfolio
is neither insured nor guaranteed by the U.S. Government, and there can be no
assurance that the portfolio will maintain a stable $1.00 share price. The
sub-adviser for this portfolio is Fidelity Investments Money Management, Inc., a
wholly owned subsidiary of FMR.
Fidelity Variable Insurance Products Fund II (VIP II)
VIP II Asset Manager Portfolio seeks to provide a high total return with reduced
risk over the long term by allocating its assets among stocks, bonds and
short-term money market instruments. The sub-adviser for this portfolio is
Fidelity Management & Research Far East Inc.
and Fidelity Management & Research (U.K.) Inc.
VIP II Contrafund Portfolio seeks capital appreciation by investing in
securities of companies whose value the manager believes is not fully recognized
by the public. The sub-adviser for this portfolio is Fidelity Management &
Research Far East Inc. and Fidelity Management & Research (U.K.) Inc.
VIP II Investment Grade Bond Portfolio seeks as high a level of current income
as is consistent with the preservation of capital by investing in U.S.
dollar-denominated investment-grade bonds. The portfolio will maintain a
dollar-weighted average portfolio maturity of ten years or less. The sub-adviser
for this portfolio is Fidelity Investments Money Management, Inc.
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund seeks long-term capital appreciation by
investing primarily in equity securities in emerging markets around the world.
Worldwide Hard Assets Fund seeks long-term capital appreciation by investing
primarily in "hard asset securities." Income is a secondary consideration. Hard
Asset securities are the stocks, bonds, and other securities of companies that
derive at least 50% of gross revenue or profit from exploration, development,
production or distribution of (1) precious metals, (2) natural resources, (3)
real estate and (4) commodities.
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Fixed Investment Option
The General Account
Purchase payments you allocate to the guaranteed option go into our general
account. The general account is not registered with the SEC. The general account
is invested in assets permitted by state insurance law. It is made up of all of
our assets other than assets attributable to our variable accounts. Unlike our
variable account assets, assets in the general account are subject to claims of
Owners like you, as well as claims made by our other creditors.
The Guaranteed Account Option
The guaranteed account is a fixed interest option. We credit money in the
guaranteed account with interest on a daily basis at the guaranteed rate then in
effect. The rate of interest to be credited to the guaranteed account is
determined wholly within our discretion. However, the rate will not be changed
more than once per year. The interest rate will never be less than 3% for
flexible purchase payment contracts and 4% for single purchase payment
contracts.
If you allocate purchase payments to the guaranteed account, the fixed portion
of your Contract Value during the accumulation phase will depend on the total
interest we credit to your contract. During the income phase, each annuity
payment you receive from the fixed portion of your contract will be for the same
amount.
We reserve the right to delay any payment from the guaranteed account for up to
six months from the date we receive the request at our Administrative Office, as
permitted by law.
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CHARGES AND DEDUCTIONS
===================================================================
Insurance Charges
Each day, we deduct insurance charges from your Contract Value. This is done as
part of our calculation of the value of Accumulation Units during the
accumulation phase and of Annuity Units during the income phase. The insurance
charges are the mortality and expense risk charge, the administrative charge,
and the charges for the optional death benefits which are described under "Death
Benefit."
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Mortality and Expense Risk Charge
The mortality and expense risk charge is equal, on an annual basis, to 1.25% of
the daily value of the variable portion of your contract. We will not increase
this charge. It compensates us for our obligation to make annuity payments, to
provide the death benefit, and for assuming the risk that
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current charges will be insufficient in the future to cover the cost of
administering the contract. If the charges under the contract are not
sufficient, we will bear the loss. If the charges are sufficient, we will keep
the balance of this charge as profit.
Administrative Charge
The administrative charge is equal, on an annual basis, to 0.15% of the daily
value of the variable portion of your contract. These expenses include preparing
the contract, confirmations and statements, and maintaining contract records. If
this charge is not enough to cover the costs of administering the contract, we
will bear the loss.
Deferred Sales Charge
If you withdraw your contract prior to the Annuity Date during the first six
years after a purchase payment, we will assess a deferred sales charge as a
percentage of purchase payments withdrawn as shown below:
Contribution Year* 1 2 3 4 5 6 Thereafter
Deferred Sales Charge 6% 5% 4% 3% 2% 1% 0%
* For single purchase payment contracts, Contribution Year and Contract Year are
the same.
For purposes of calculating the deferred sales charge, we treat withdrawals as
coming from the oldest purchase payments first (i.e., first-in, first-out).
However, we will not assess a deferred sales charge for flexible purchase
payment contracts on amounts up to 10% of purchase payments paid, less the
amount of any prior withdrawals or for single purchase payment contracts on
amounts up to 10% of the Contract Value at the time of withdrawal.
You will not receive the benefit of this "free withdrawal amount" if you
participate in the systematic withdrawal program. If you make a partial
withdrawal, we will deduct the deferred sales charge, if any, pro rata from the
remaining value in your contract. The total of all deferred sales charges may
not exceed 8.5% of the purchase payments for a contract. We do not expect the
proceeds from the deferred sales charge to cover all of our distribution costs.
We may use any corporate asset, including potential profit which may arise from
the mortality and expense risk charge to cover the distribution costs.
Contract Maintenance Fee
During the accumulation phase, we will deduct an annual contract maintenance fee
of $30 from your contract on each Contract Anniversary. The contract refers to
this fee as an administrative charge. We will not increase this fee. It
compensates us for expenses incurred to establish and
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maintain your contract. If you withdraw the entire value of your contract, the
contract maintenance fee will be deducted prior to the withdrawal.
Premium Taxes
We will deduct from your Contract Value any premium tax imposed by the state or
locality where you reside. Premium taxes currently imposed on the contract by
various states range from 0% to 3.5% of purchase payments paid. These taxes are
due either when a purchase payment is paid or when annuity payments begin. It is
our current practice to charge you for these taxes when annuity payments begin
or if you withdraw the contract in full. In the future, we may discontinue this
practice and assess the tax when it is due or upon the payment of the death
benefit.
Income Taxes
Although we do not currently deduct any charges for income taxes attributable to
your contract, we reserve the right to do so in the future.
Fund Expenses
There are deductions from and expenses paid out of the assets of the various
portfolios. These charges are described in the prospectuses for the AIM Variable
Insurance Funds, Inc., Alliance Variable Products Series Fund, Inc., Dreyfus
Variable Investment Fund, Dreyfus Stock Index Fund, Fidelity Variable Insurance
Products Fund, Fidelity Variable Insurance Products Fund II, and Van Eck
Worldwide Insurance Trust and are summarized in the fee table.
Reduction or Elimination of Certain Charges and Additional Amounts Credited
We may reduce or eliminate the deferred sales charge or the administrative
charge or change the minimum purchase payment requirement when the contract is
sold to groups of individuals under circumstances which reduce our sales
expenses. We will determine the eligibility of such groups by considering
factors such as:
(1) the size of the group;
(2) the total amount of purchase payments we expect to receive from the
group;
(3) the nature of the purchase and the persistency we expect in that
group;
(4) the purpose of the purchase and whether that purpose makes it likely
that expenses will be reduced; and
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(5) any other circumstances which we believe to be relevant in determining
whether reduced sales expenses may be expected.
We may also waive or reduce the deferred sales charge and/or contract
maintenance fee in connection with contracts sold to employees, employees of
affiliates, registered representatives, employees of broker-dealers which have a
current selling agreement with us, and immediate family members of those
persons. Any reduction or waiver may be withdrawn or modified by us.
===================================================================
ACCESS TO YOUR MONEY
===================================================================
Generally
Contract Value is available in the following ways:
o by withdrawing all or part of your Contract Value during the
accumulation phase;
o by receiving annuity payments during the income phase;
o when a death benefit is paid to your beneficiary.
Generally, withdrawals are subject to a deferred sales charge, a contract
maintenance fee and, if it is a full withdrawal, premium taxes. Withdrawals may
also be subject to income tax and a penalty tax.
To make a withdrawal you must send a complete and detailed written request to
our Administrative Office. We will calculate your withdrawal as of the close of
business of the NYSE at the value next determined after we receive your request.
For a withdrawal of your entire Contract Value, you must also send us your
contract.
Under most circumstances, partial withdrawals must be for a minimum of $500. We
require that your Contract Value be at least $2,000 after the withdrawal. If the
Contract Value would be less than $2,000 as a result of a withdrawal, we may
cancel the contract. Unless you provide us with different instructions, partial
withdrawals will be made pro rata from each investment option in which your
contract is invested.
We may be required to suspend or postpone the payment of a withdrawal or death
benefit for an undetermined period of time when:
o the NYSE is closed (other than a customary weekend and holiday
closings);
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o trading on the NYSE is restricted;
o an emergency exists such that disposal of or determination of the
value of shares of the portfolios is not reasonably practicable;
o the SEC, by order, so permits for the protection of owners.
Systematic Withdrawal Program
The systematic withdrawal program allows you to make regularly scheduled
withdrawals from your Contract Value of at least $200 each on a monthly or
quarterly basis. You may change the amount or frequency of withdrawals under the
program once per Contract Year. In order to initiate the program, your Contract
Value must be at least $24,000. A maximum of 10% of your Contract Value may be
withdrawn in a Contract Year.
Deferred sales charges are not imposed on withdrawals under this program nor is
there any charge for participating in this program. You may not elect this
program if you have made a partial withdrawal earlier in the same Contract Year.
In addition, the free withdrawal amount is not available in connection with
partial withdrawals you make while participating in the systematic withdrawal
program. You will be entitled to the free withdrawal amount on and after the
Contract Anniversary next following the termination of the systematic withdrawal
program.
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 portfolio or the guaranteed option is not sufficient
to make a withdrawal or if your request for systematic withdrawal does not
specify the investment options from which to deduct withdrawals, withdrawals
will be deducted pro rata from your Contract Value in each portfolio and the
guaranteed option.
The systematic withdrawal program may be canceled at any time by written request
or automatically by us if your Contract Value falls below $1,000. In the event
the systematic withdrawal program is canceled, you may not elect to participate
in the program again until the next Contract Anniversary.
If your Contract is issued in connection with an Individual Retirement Annuity
or 403(b) Plan, you are cautioned that your rights to implement a systematic
withdrawal program may be subject to the terms and conditions of your plan,
regardless of the terms and conditions of your contract. Moreover,
implementation of the systematic withdrawal program may subject you to adverse
tax consequences, including a 10% tax penalty if you are under age 59 1/2. See
"Taxes" for a discussion of the various tax consequences.
For information, including the necessary enrollment form, please check with our
Administrative Office. We reserve the right to modify, suspend or terminate this
program at any time.
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ANNUITY PAYMENTS
===================================================================
Generally
Beginning on the Annuity Date, you will receive regular annuity payments. You
may choose to receive annuity payments that are fixed, variable or a combination
of fixed and variable. We make annuity payments on a monthly, quarterly,
semiannual or annual basis.
You select the Annuity Date, which must be the first day of a month. You may
change the Annuity Date at least 30 days before payments are to begin. However,
annuity payments must begin by the later of an Annuitant's 85th birthday or the
tenth Contract Anniversary. Certain states may require that annuity payments
begin prior to such date and we will comply with those requirements.
The Annuitant is the person on whose life annuity payments are based. If you are
not the Annuitant and the Annuitant dies before the Annuity Date, a death
benefit will be paid.
Annuity Options
The contract offers three annuity options described below. Other annuity options
may be made available, including other guarantee periods and options with life
contingencies, subject to our discretion. If you do not choose an annuity
option, annuity payments will be made in accordance with option 2 for 10 years.
If the annuity payments are for joint lives, then we will make payments in
accordance with option 3. Where permitted by state law, we may pay the annuity
in one lump sum if your Contract Value is less than $2,000. Likewise, if your
annuity payments would be less than $100 a month, we have the right to change
the frequency of your payment to be on a semiannual or annual basis so that the
payments are at least $100. We will make annuity payments to you or to the
Annuitant unless you designate another person to receive them. In that case, you
must notify us in writing at least thirty days before the Annuity Date. You will
remain fully responsible for any taxes related to the annuity payments.
Option 1 - Life Income
Under this option, we will make annuity payments as long as the Annuitant is
alive. Annuity payments stop when the Annuitant dies.
Option 2 - Life Annuity with 10 Years Guaranteed
This option is similar to option 1 above, with the additional guarantee that
payments will be made for a period you select of at least 10 years. Under this
option, if the Annuitant dies before
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all guaranteed payments have been made, the rest will be paid to the beneficiary
for the remainder of the period.
Option 3 - Joint and Last Survivor Income
Under this option, we will make annuity payments as long as either the Annuitant
or a contingent annuitant is alive. If your Contract is issued as an individual
retirement annuity, payments under this option will be made only to you as
Annuitant or to your spouse. Upon the death of either of you, we will continue
to make annuity payments so long as the survivor is alive.
Variable Annuity Payments
If you choose to have any portion of your annuity payments based on the variable
investment options, the amount of your payments will depend upon:
o your Contract Value in the portfolios on the Annuity Date;
o the 5.0% assumed investment rate used in the annuity table for the
contract;
o the performance of the portfolios you selected;
o the annuity option you selected.
If the actual performance exceeds the 5.0% assumed rate, the annuity payments
will increase. Similarly, if the actual rate is less than 5.0%, the annuity
payments will decrease. The SAI contains more information.
Transfers During Income Phase
Transfers during the income phase are subject to the same limitations as
transfers during the accumulation phase. See "The Contract - Transfers During
Accumulation Phase." However, you may only make one transfer each month and you
may only transfer money among the variable investment options. You may not
transfer money from the fixed investment option to the variable investment
options or from the variable investment options to the fixed investment option.
Deferment of Payments
We may defer making fixed annuity payments for up to six months subject to state
law. We will credit interest to you during the deferral period.
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DEATH BENEFIT
===================================================================
Death of Annuitant Before the Annuity Date
If the Annuitant dies before the Annuity Date, we will pay the beneficiary a
death benefit equal to the greatest of:
(1) the total of all purchase payments less withdrawals;
(2) the Contract Value; and
(3) the greatest Contract Value at any sixth Contract Anniversary
(i.e., sixth, twelfth, eighteen, etc.), plus any additional purchase payments
paid, less any subsequent withdrawals.
The value of the death benefit will be determined as of the date we receive
proof of death in a form acceptable to us.
Payment of the Death Benefit
Payment of the death benefit can be in one lump sum or under one of the annuity
options. You may elect by written request that a death benefit of at least
$2,000 be paid to the beneficiary under an annuity option. You may choose or
change the method of payment at any time prior to the Annuitant's death. If at
the time the Annuitant dies you have not made a choice, the beneficiary has
sixty days to elect by written request either a lump sum payment or payment
under an annuity option. We will make a lump sum payment within seven business
days of receiving proof of death and the beneficiary's written election, unless
there is a delay in payment as described under "Access To Your Money."
Death of Owner
Before the Annuity Date
If the Owner dies before the Annuity Date, the Contract Value must be
distributed within five years of the date of death unless:
(1) it is payable over the lifetime of the beneficiary with distributions
beginning within one year of the date of death; or
(2) the Owner's spouse, as contingent owner, continues the contract in his
or her name.
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After the Annuity Date
If the Owner dies after the Annuity Date, distribution will be as provided in
the annuity option selected.
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PERFORMANCE
================================================================
Occasionally, we may advertise certain performance related information
concerning one or more of the portfolios, including total return and yield
information. A portfolio's performance information is based on the portfolio's
past performance only and is not intended as an indication of future
performance.
When we advertise the average annual total return of a portfolio, it will
usually be calculated for one, five, and ten year periods or, where a portfolio
has been in existence for a period of 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 portfolio at the beginning of the relevant period
to the value of the investment at the end of the period. That assumes the
deduction of any deferred sales charge that would be payable if the account were
redeemed at the end of the period. Then the average annual compounded rate of
return is calculated to produce the value of the investment at the end of the
period. We may simultaneously present returns that do not assume a withdrawal
and, therefore, do not deduct a deferred sales charge.
When we advertise the yield of a portfolio we will calculate it based upon a
given thirty 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 we advertise the performance of the money market portfolio we may advertise
the yield or the effective yield in addition to the total return. The yield of
the money market portfolio refers to the income generated by an investment in
that portfolio 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 portfolio 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 lower than at the underlying fund
level since it is reduced by all contract charges (deferred sales charge,
mortality and expense risk charge, administrative charge, and contract
maintenance fee). Likewise, yield and effective yield at the variable account
level are lower than at the fund level since the variable account level total
return affects all recurring charges (except deferred sales charge).
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Performance information for a portfolio may be compared to:
(1) 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 portfolio's results
with those of a group of securities widely regarded by
investors as representative of the securities markets in
general;
(2) 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;
(3) the Consumer Price Index (measure for inflation) to assess the
real rate of return from an investment in the Contract; and
(4) indices or averages of alternative financial products
available to prospective investors, including the Bank Rate
Monitor which monitors average returns of various bank
instruments.
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TAXES
================================================================
Introduction
The following discussion of federal income tax treatment is general in nature
and is not intended as tax advice. This discussion is based on current law and
interpretations, which may change. For a discussion of federal income taxes as
they relate to the funds, please see the accompanying fund prospectuses. No
attempt is made to consider any applicable state or other tax laws. We do not
guarantee the tax status of your contract.
Annuity Contracts in General
The Internal Revenue Code (the "Code") provides special rules regarding the tax
treatment of annuity contracts. Generally, you will not be taxed on the earnings
in an annuity contract until you take the money out. Different rules apply
depending on how you take the money out and whether your contract is qualified
or non-qualified, as explained below.
27
<PAGE>
If you do not purchase your contract under a retirement arrangement entitled to
favorable federal income tax treatment, your contract is referred to as a
non-qualified contract. If you purchase your contract under a retirement
arrangement entitled to favorable federal income tax treatment, your contract is
referred to as a qualified contract.
Tax Treatment of Distributions -- Non-qualified Contracts
If you make a withdrawal from a non-qualified contract or withdraw it before
annuity payments begin, the amount you receive will be taxed as ordinary income,
rather than as a return of purchase payment, until all gain has been withdrawn.
For annuity payments, any portion of each payment that is considered a return of
your purchase payment will not be taxed. There is a 10% tax penalty on any
taxable amount you receive unless the amount received is paid:
(1) after you reach age 59 1/2;
(2) to your beneficiary after you die;
(3) after you become disabled;
(4) in a series of substantially equal installments made not less
frequently than annually under a lifetime annuity; or
(5) under an immediate annuity.
Assignments
If you assign all or part of the contract as collateral for a loan, the part
assigned will be treated as a withdrawal and the excess of the Contract Value
over total purchase payments will be taxed as ordinary income. Please consult
your tax adviser prior to making an assignment of the contract.
Gifts of Contracts
If you transfer a contract for less than full consideration, such as by gift,
you will generally trigger tax on the gain in the contract. This rule does not
apply to those transfers between spouses or incident to divorce.
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 payment) is includable in income each year. The
rule does not apply where the non-natural person is only the nominal
28
<PAGE>
owner, such as a trust or other entity acting as an agent for a natural person,
and in other limited circumstances.
Distribution at Death Rules
Upon the death of the Owner of a contract, certain distributions must be made:
o If the Owner dies on or after the Annuity Date, and before the entire
interest in the contract has been distributed, the remaining portion will
be distributed at least as quickly as the method in effect on the Owner's
death;
o If the Owner dies before the Annuity Date, the entire interest must
generally be distributed within five years after the date of death.
o If the beneficiary is a natural person, the interest may be annuitized over
the life of that individual or over a period not extending beyond the life
expectancy of that individual, so long as distributions commence within one
year after the date of death.
o If the beneficiary is the spouse of the Owner, the contract may be
continued in the name of the spouse as Owner.
o If the Owner is not an individual, the death of the "primary annuitant" (as
defined under the Code) is treated as the death of 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.
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 or
other property is distributed as part of the exchange. A replacement contract
obtained in a tax-free exchange of contracts succeeds to the status of the
withdrawn contract. Special rules and procedures apply to Section 1035
transactions. Prospective owners wishing to take advantage of Section 1035 of
the Code should consult their tax advisers.
Tax Treatment of Distributions -- Qualified Contracts
If you purchase your contract under a tax-favored retirement plan or account,
your contract is referred to as a qualified contract. Examples of qualified
plans or accounts are:
o Individual Retirement Annuities ("IRAs");
o Roth IRAs;
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<PAGE>
o Tax Deferred Annuities (governed by Code Section 403(b) and referred to as
"403(b) Plans");
o Keogh Plans; and
o Employer-sponsored pension and profit sharing arrangements such as 401(k)
plans.
Withdrawals in General
Generally, with the exception of a Roth IRA, you have not paid any taxes on the
purchase payment used to buy a qualified contract or on any earnings. Therefore,
any amount you take out as a withdrawal or as annuity payments will be taxable
income. In addition, a 10% tax penalty may apply to the taxable part of a
withdrawal received before age 59 1/2. Limited exceptions are provided, such as
where amounts are paid in the form of a qualified life annuity, upon death or
disability of the employee, to pay certain medical expenses, or, in some cases,
upon separation from service on or after age 55.
Individual Retirement Annuities
Code Section 408 permits eligible individuals to contribute to an IRA. By
attachment of an endorsement that reflects the limits of Code Section 408(b),
the contracts may be issued as 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. Most IRAs cannot accept contributions after the owner
reaches 70 1/2, and must also begin required distributions at that age. Sales of
the contract for use with IRAs are subject to special requirements, including
the requirement that informational disclosure be given to each person desiring
to establish an IRA. That person must be given the opportunity to affirm or
reverse a decision to purchase the contract. Contracts offered by this
prospectus in connection with an IRA are not available in all states. The
accidental death benefit is not available under a contract issued in connection
with an IRA.
Roth IRAs
Code Section 408A 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.
30
<PAGE>
403(b) Plans
The contracts are also available for use in connection with a previously
established 403(b) Plan. Code Section 403(b) imposes certain restrictions on
your ability to make partial withdrawals from a contract used in connection with
a 403(b) Plan, if attributable to purchase payments paid under a salary
reduction agreement. Specifically, an owner may make a withdrawal or partial
withdrawal only (a) when the employee attains age 59 1/2, separates from
service, dies, or becomes disabled, or (b) in the case of hardship. In the case
of hardship, only an amount equal to the purchase payment paid may be withdrawn.
403(b) Plans are subject to additional requirements, including eligibility,
limits on contributions, minimum distributions, and nondiscrimination
requirements applicable to the employer. In particular, distributions generally
must commence by April 1 of the calendar year following the later of the year in
which the employee (a) attains age 70 1/2, or (b) retires. Owners and their
employers are responsible for compliance with these rules. Contracts offered by
this prospectus in connection with a 403(b) Plan are not available in all
states.
Rollovers
Distributions from a 401(a) 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 IRA. A
prospective owner considering use of the contract in this manner should consult
a competent tax adviser with regard to the suitability of the contract for this
purpose and for information concerning the tax law provisions applicable to
qualified plans, 403(b) plans, and IRAs.
Diversification and Investor Control
The Code imposes certain diversification requirements on the underlying
investments for a variable annuity to be treated as a variable annuity for tax
purposes. We believe that the portfolios are being managed so as to comply with
these requirements.
The tax regulations do not provide guidance as to the circumstances under which
you, because of the degree of control you exercise over the underlying
investments, would be considered the owner of the shares of the portfolios. If
any guidance on this point is provided which is considered a new position, then
the guidance would generally be applied prospectively. However, if such guidance
is considered not to be a new position, it may be applied retroactively. This
would mean you, as the owner of the contract, could be treated as the owner of
assets in the portfolios. We reserve the right to make changes to the contract
we think necessary to see that it qualifies as a variable annuity contract for
tax purposes.
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<PAGE>
Withholding
We are 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. If you do
not provide a social security number or other taxpayer identification number,
you will not be permitted to elect out of withholding. Special withholding rules
apply to payments made to non-resident aliens.
For lump-sum distributions or withdrawals, we are required to withhold 10% of
the taxable portion of any withdrawal or lump sum distribution unless you elect
out of withholding. For annuity payments, the company will withhold on the
taxable portion of annuity payments based on a withholding certificate you file
with us. 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.
================================================================
OTHER INFORMATION
================================================================
AIG Life Insurance Company
We are a stock life insurance company initially organized under the laws of
Pennsylvania and reorganized under the laws of Delaware. We were incorporated in
1962. Our principal business address is One Alico Plaza, 600 King Street,
Wilmington, Delaware 19801. We provide a full range of life insurance and
annuity plans. We are 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 in approximately 130 countries and
jurisdictions around the world.
We may occasionally publish in advertisements, sales literature and reports the
ratings and other information assigned to AIG by one or more independent rating
organizations such as A.M. Best Company, Moody's and Standard & Poor's. The
purpose of the ratings is to reflect the rating organization's opinion of our
financial strength and should not be considered as bearing on the investment
performance of assets held in the variable account.
The ratings are not recommendations to purchase our life insurance or annuity
products or to hold or sell these products, and the ratings do not comment on
the suitability of such products for a particular investor. There can be no
assurance that any rating will remain in effect for any given period of time or
that any rating will not be lowered or withdrawn entirely by a rating
organization if, in such organization's judgment, future circumstances so
warrant. The ratings do
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<PAGE>
not reflect the investment performance of the variable account or the degree of
risk associated with an investment in the variable account.
Ownership
This prospectus describes both individual flexible premium deferred variable
annuity contracts and group flexible premium deferred variable annuity
contracts. The individual and group contracts described in this prospectus are
identical except that the individual contract is issued directly to the
individual owner. A group contract is issued to a contract holder for the
benefit of the participants in the group. If you are a participant in the group
you will receive a certificate evidencing your ownership. You, either as the
owner of an individual contract or as the owner of a certificate, are entitled
to all the rights and privileges of ownership. As used in this prospectus, the
term contract is equally applicable to an individual contract or to a
certificate.
Voting Rights
To the extent required by law, we will vote the portfolio shares held in the
variable account at shareholder meetings in accordance with instructions
received from persons having a voting interest in the portfolio. However, if
legal requirements or 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, you hold a voting interest in each portfolio in whose
corresponding portfolio you have Contract Value. The number of portfolio shares
which are attributable to you is determined by dividing the corresponding value
in a particular portfolio by the net asset value of one portfolio share. The
number of votes which you 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 meeting.
Each person having a voting interest in a portfolio will receive proxy material,
reports and other materials relating to the appropriate portfolios. We will vote
shares in accordance with instructions received from the person having a voting
interest. We will vote shares for which we receive no timely instructions and
any shares not attributable to Owners in proportion to the voting instructions
we have received.
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 option.
Distribution of the Contract
Our affiliate, AIG Equity Sales Corp. ("AIGESC"), 80 Pine Street, New York, New
York, acts as the distributor of the contract. AIGESC is a wholly-owned
subsidiary of AIG. Commissions not to exceed 7% of purchase payments 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
33
<PAGE>
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 from
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 Contract
While we have primary responsibility for all administration of the contract and
the variable account, we have retained the services of Delaware Valley Financial
Services, Inc. ("DVFS") pursuant to an administrative agreement. These
administrative services include issuance of the contract and maintenance of
Owner records. DVFS serves as the administrator to various insurance companies
offering variable annuity contracts and variable life insurance policies.
Year 2000 Readiness
The Year 2000 issue arises from computer programs being written using two digits
rather than four digits to define the applicable year. This could result in a
failure of the information technology systems (IT systems) and other equipment
containing imbedded technology (non-IT systems) in the Year 2000, causing
disruption of the operations of AIG, as well as its lessees, vendors, or
business partners.
AIG has developed a plan to address the Year 2000 issue as it affects AIG's
internal IT and non- IT systems, and to assess Year 2000 issues relating to
third parties with whom AIG has critical relationships.
The plan for addressing internal systems includes an assessment of internal IT
and non-IT systems and equipment affected by the Year 2000 issue; definition of
strategies to address affected systems and equipment; remediation of identified
affected systems and equipment; and internal certification that each internal
system is Year 2000 compliant. AIG has remediated, tested and returned to
production substantially all of its internal IT systems. AIG continues to
remediate and test internal non-IT systems and expects to complete remediation
by mid-1999.
AIG has also initiated formal communications with respect to the Year 2000 issue
to those third parties which have significant interaction with AIG. Currently,
AIG is unable to ascertain whether all such third parties will successfully
address the Year 2000 issue, particularly those third parties outside the United
States where it is believed that remediation efforts relating to the Year 2000
issue may be less advanced. While AIG expects to have no interruption of
operations as a result of internal IT and non-IT systems, significant
uncertainties remain about the effect on
34
<PAGE>
AIG of third parties who are not Year 2000 compliant. AIG will continue to
monitor third party Year 2000 issue readiness to determine whether additional or
alternative measures may be necessary. Such measures may include the selection
of alternate third parties or other actions designed to mitigate the effects of
a third party's lack of preparedness. There can be no assurance that unresolved
Year 2000 issues of third parties will not have a material adverse impact on
AIG's results of operations, financial condition or liquidity. AIG is
considering the effects of Year 2000 related failures on its business and, as
the most reasonably likely worst case scenarios become more clearly identified,
AIG will develop appropriate contingency plans.
There can be no assurance that the funds, like other third parties, will not
have unresolved Year 2000 issues that may have a material adverse impact on your
contract values as well as our operations. Please refer to the Year 2000
discussion in each fund's prospectus.
Legal Proceedings
There are no pending legal proceedings which, in our judgment, are material with
respect to the variable account.
================================================================
FINANCIAL STATEMENTS
================================================================
Consolidated balance sheets of AIG Life Insurance Company and of the variable
account are included in the SAI which may be obtained without charge by calling
(800) 255-8402 or writing to AIG Life Insurance Company, Attention: Variable
Products, One Alico Plaza, 600 King Street, Wilmington, Delaware 19801. A
complete set of financial statements of the company and the variable account has
been filed electronically with the SEC and can be obtained through its website
at http://www.sec.gov.
35
===============================================================
APPENDIX
================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
<TABLE>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
AIM V.I. CAPITAL APRECIATION FUND
Accumulation Unit Value
Beginning of Period 9.61 N/A N/A
End of Period 11.31 9.61 N/A
Accum Units o/s @ end of period 119,260.64 N/A N/A
AIM V.I. INTERNATIONAL EQUITY FUND
Accumulation Unit Value
Beginning of Period 10.10 N/A N/A
End of Period 11.51 10.10 N/A
Accum Units o/s @ end of period 67,193.18 262.97 N/A
ALLIANCE GLOBAL BOND
Accumulation Unit Value
Beginning of Period 9.86 N/A N/A
End of Period 11.10 9.86 N/A
Accum Units o/s @ end of period 4,547.27 N/A N/A
ALLIANCE GROWTH
Accumulation Unit Value
Beginning of Period 15.69 12.24 10.00
End of Period 19.92 15.69 12.24
Accum Units o/s @ end of period 123,814.87 333,114.57 123,814.87
ALLIANCE GROWTH & INCOME
Accumulation Unit Value
Beginning of Period 15.06 11.85 10.00
End of Period 17.95 15.06 11.85
Accum Units o/s @ end of period 116,342.75 547,915.82 116,342.75
ALLIANCE PREMIER GROWTH
Accumulation Unit Value
Beginning of Period 10.48 N/A N/A
End of Period 15.29 10.48 N/A
Accum Units o/s @ end of period 68,418.04 N/A N/A
ALLIANCE QUASAR
Accumulation Unit Value
Beginning of Period 12.02 10.28 10.00
End of Period 11.32 12.02 10.28
Accum Units o/s @ end of period 123,814.87 94,929.55 4,796.29
ALLIANCE TECHNOLOGY
Accumulation Unit Value
Beginning of Period 11.07 10.54 10.00
End of Period 17.87 11.07 10.54
Accum Units o/s @ end of period 123,814.87 143,999.25 15,829.55
DREYFUS SMALL COMPANY STOCK
Accumulation Unit Value
Beginning of Period 10.55 N/A N/A
End of Period 9.79 10.55 N/A
Accum Units o/s @ end of period 16,124.79 58,659.22 N/A
DREYFUS STOCK INDEX
Accumulation Unit Value
Beginning of Period 15.39 11.74 10.00
End of Period 19.45 15.39 11.74
Accum Units o/s @ end of period 113,481.41 490,227.53 113,481.41
FIDELITY VIP HIGH INCOME
Accumulation Unit Value
Beginning of Period 12.65 10.90 10.00
End of Period 11.93 12.65 10.90
Accum Units o/s @ end of period 55,015.77 185,484.29 55,015.77
FIDELITY VIP GROWTH
Accumulation Unit Value
Beginning of Period 13.30 10.92 10.00
End of Period 18.29 13.30 10.92
Accum Units o/s @ end of period 149,722.06 468,339.86 149,722.06
FIDELITY VIP MONEY MARKET
Accumulation Unit Value
Beginning of Period 10.70 10.29 10.00
End of Period 11.13 10.70 10.29
Accum Units o/s @ end of period 385,238.57 944,656.53 385,238.57
FIDELITY VIP II ASSET MANAGER
Accumulation Unit Value
Beginning of Period 13.23 11.12 10.00
End of Period 15.01 13.23 11.12
Accum Units o/s @ end of period 56,345.46 239,825.14 56,345.46
FIDELITY VIP II CONTRAFUND
Accumulation Unit Value
Beginning of Period 10.15 N/A N/A
End of Period 13.02 10.15 N/A
Accum Units o/s @ end of period 212,388.21 N/A N/A
FIDELITY VIP II INVESTMENT GRADE BOND
Accumulation Unit Value
Beginning of Period 11.28 10.49 10.00
End of Period 12.10 11.28 10.49
Accum Units o/s @ end of period 40,777.94 221,696.39 40,777.94
VAN ECK WORLDWIDE EMERGING MARKETS
Accumulation Unit Value
Beginning of Period 9.28 N/A N/A
End of Period 6.03 9.28 N/A
Accum Units o/s @ end of period 3,152.89 N/A N/A
VAN ECK WORLDWIDE HARD ASSETS
Accumulation Unit Value
Beginning of Period 9.86 10.17 10.00
End of Period 6.71 9.86 10.17
Accum Units o/s @ end of period 19,667.21 22,196.30 11,530.80
</TABLE>
<PAGE>
* Funds were first invested in the portfolios as listed below:
AIM Variable Insurance Funds
AIM V.I. Capital Appreciation Fund May 5, 1993
AIM V.I. International Equity Fund May 2, 1993
Alliance Variable Products Series Fund
Global Bond Portfolio July 15, 1991
Growth Portfolio September 15, 1994
Growth and Income Portfolio January 14, 1991
Premier Growth Portfolio June 26, 1992
Quasar Portfolio August 5, 1996
Technology Portfolio January 11, 1996
Dreyfus Variable Investment Fund
Small Company Stock Portfolio May 1, 1996
Dreyfus Stock Index Fund September 29, 1989
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio October 9, 1986
VIP High Income Portfolio September 19, 1985
VIP Money Market Portfolio April 1, 1982
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio September 6, 1989
VIP II Contrafund Portfolio January 3, 1995
VIP II Investment Grade Bond Portfolio December 5, 1988
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund December 21, 1995
Worldwide Hard Assets Fund September 1, 1989
45
<PAGE>
================================================================
TABLE OF CONTENTS OF
THE STATEMENT OF ADDITIONAL INFORMATION
================================================================
GENERAL INFORMATION
AIG Life Insurance Company
Independent Accountants
Legal Counsel
Distributor
CALCULATION OF PERFORMANCE DATA
Yield and Effective Yield Quotations for the
Money Market Subaccount
Yield Quotations for Other Subaccounts
Total Return Quotations
Non-Standardized Performance Data
ANNUITY PROVISIONS
Variable Annuity Payments
Annuity Unit Value
Net Investment Factor
Additional Provisions
Variable Annuity Payments
FINANCIAL STATEMENTS
40
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
VARIABLE ANNUITY CONTRACTS
issued by
AMERICAN INTERNATIONAL LIFE ASSURANCE COMPANY OF NEW YORK
through its
VARIABLE ACCOUNT A
This statement of additional information is not a prospectus. It should be read
in conjunction with the prospectus describing the flexible premium, deferred
annuity contract. The prospectus concisely sets forth information that a
prospective investor should know before investing. For a copy of the prospectus
dated May 1, 1999, call us at (800) 255-8402 or write to us at American
International Life Assurance Company of New York, Attention: Variable Products,
80 Pine Street, New York, NY 10270.
1
<PAGE>
=====================================================================
TABLE OF CONTENTS
=====================================================================
GENERAL INFORMATION.............................................................
American International Life Assurance Company of New York..................
Independent Accountants....................................................
Legal Counsel..............................................................
Distributor................................................................
Potential Conflicts........................................................
CALCULATION OF PERFORMANCE DATA.................................................
Yield and Effective Yield Quotations for the Money Market Subaccount.......
Yield Quotations for Other Subaccounts.....................................
Total Return Quotations....................................................
Non-Standardized Performance Data..........................................
ANNUITY PROVISIONS..............................................................
Variable Annuity Payments..................................................
Annuity Unit Value.........................................................
Net Investment Factor......................................................
Additional Provisions......................................................
FINANCIAL STATEMENTS............................................................
2
<PAGE>
=====================================================================
GENERAL INFORMATION
=====================================================================
American International Life Assurance Company of New York
A description of American International Life Assurance Company of New York and
its ownership is contained in the prospectus. We will provide for the
safekeeping of the assets of Variable Account A.
Independent Accountants
Our financial statements have been audited by PricewaterhouseCoopers, LLP,
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
contract described herein and in the prospectus are being passed upon by Jorden
Burt Boros Cicchetti Berenson & Johnson LLP, Washington, D.C.
Distributor
Our affiliate, AIG Equity Sales Corp. ("AIGESC"), a wholly owned subsidiary of
American International Group, Inc., acts as the distributor. Commissions are
paid by Variable Account A directly to selling dealers and representatives on
behalf of AIGESC. Aggregate commissions were $2,001,940 in 1998, $2,373,178 in
1997, and $2,614,407 in 1996. Commissions retained by AIGESC were $0 in 1998,
$37,267 in 1997, and $20,363 in 1996.
Potential Conflicts
Shares of the funds may be sold only to separate accounts of life insurance
companies. They may be sold to our other separate accounts, 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
a fund simultaneously. Although neither we nor the funds currently foresee any
such disadvantages, either to variable life insurance policy owners or to
variable annuity owners, each fund's board of directors will monitor events in
order to identify any material irreconcilable conflicts which may possibly arise
and to determine what action, if any, should be taken. If a material
irreconcilable conflict were to occur, we will take whatever steps are deemed
necessary, at our expense, to remedy or eliminate the irreconcilable material
conflict. As a result, one or more insurance
3
<PAGE>
company separate accounts might withdraw their investments in the fund. This
might force the fund to sell securities at disadvantageous prices.
=====================================================================
CALCULATION OF PERFORMANCE DATA
=====================================================================
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 Variable Account A
included in the registration statement. It 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, 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 Variable
Account A included in the registration statement and will be carried at least to
the nearest hundredth of one percent. It 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, 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 premium was held under the contract and whether withdrawals had been
previously made during that Contract Year. No deductions or sales loads are
assessed upon annuitization under the contract. Realized gains and losses from
the sale of securities and unrealized appreciation and depreciation of the money
market subaccount and the corresponding portfolio are excluded from the
calculation of yield.
4
<PAGE>
Yield Quotations for Other Subaccounts
Yield quotations will be based on the thirty-day period ended on the date of the
most recent balance sheet of Variable Account A 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 portfolio
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
Yield quotations for a subaccount reflect all recurring contract charges (except
surrender charge). For any charge that varies with the size of the account, the
account size is assumed to be the respective subaccount's mean account size.
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 contract, and whether withdrawals had previously
been made during that Contract Year.
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 Variable Account A 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:
5
<PAGE>
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
The total return quotations reflect all recurring contract charges and assume a
total surrender at the end of the particular period. For any charge that varies
with the size of the account, the account size is assumed to be the respective
subaccount's mean account size.
Non-Standardized Performance Data
Total Return Quotations
Non-standardized total return quotations for all of the subaccounts other than
the 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 Variable Account A
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
Non-standardized total return quotations reflect all recurring contract charges.
For any charge that varies 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 surrender as of the end of the particular period
and, therefore, no surrender charge is reflected.
6
<PAGE>
Tax Deferred Accumulation
In reports or other communications to you or in advertising or sales materials,
we may also describe the effects of tax deferred compounding on Variable Account
A'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 phase, 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 charge,
and the $30 contract maintenance fee, but not the expenses of an underlying
investment vehicle. In addition, these values assume that the Owner does not
surrender the contract or make any partial surrenders until the end of the
period shown. The chart assumes a full surrender at the end of the period shown
and the payment of taxes at the 31% rate on the amount in excess of the premium.
In developing tax-deferral charts, we will follow these general principles:
(1) the assumed rate of earnings will be realistic;
(2) the chart will depict accurately the effect of all fees and
charges or 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 any surrender; and
(4) a narrative accompanying the chart will disclose prominently
that there may be a 10% tax penalty on a surrender by an Owner
who has not reached age 59 1/2.
The rates of return illustrated are hypothetical and are not an estimate or
guaranty of performance. Actual tax rates may vary for different taxpayers.
7
<PAGE>
=====================================================================
ANNUITY PROVISIONS
=====================================================================
Variable Annuity Payments
A variable annuity is an annuity with payments which are not predetermined as to
dollar amount and will vary in amount with the net investment results of the
applicable subaccounts. At the Annuity Date, the Contract Value in each
subaccount will be applied to the applicable annuity tables contained in the
contract. The annuity table used will depend upon the payment option chosen. The
same Contract Value amount applied to each payment option may produce a
different initial annuity payment. If, as of the Annuity Date, the then current
annuity rates applicable to contract will provide a larger income than that
guaranteed for the same form of annuity under the contract, 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
subsequent annuity payments is determined as follows:
(a) The dollar amount of the first annuity payment is divided by
the Annuity Unit value 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 fourteen 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
administrative charge.
Annuity Unit Value
The value of an Annuity Unit for each subaccount was arbitrarily set initially
at $10. This was done when the first portfolio shares were purchased. The
Annuity Unit value at the end of any subsequent Valuation Period is determined
by multiplying the subaccount's Annuity Unit value for the immediately preceding
Valuation Period by the quotient of (a) and (b) where:
o (a) is the net investment factor for the Valuation Period for which
the Annuity Unit value is being determined; and
o (b) is the assumed investment factor for such Valuation Period.
8
<PAGE>
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 a
portfolio affect the Annuity Unit value of the subaccount 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:
o (a) is equal to:
(i) the net asset value per share of the portfolio 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 portfolio 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 we determine, for
changes in tax reserves resulting from investment operations
of the subaccount.
o (b) is equal to:
(i) the net asset value per share of the portfolio 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.
o (c) is equal to:
(i) the percentage factor representing the mortality and expense
risk charge, plus
(ii) the percentage factor representing the 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.
9
<PAGE>
Additional Provisions
We may require proof of the age of the Annuitant before making any life annuity
payment provided for by the contract. If the age of the Annuitant has been
misstated, we will compute the amount payable based on the correct age. If
annuity payments have begun, any underpayment 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 us in one sum, will be deducted from future annuity payments
until we are repaid in full.
If a contract provision requires that a person be alive, we may require due
proof that the person is alive before we act under that provision.
We will give the payee under an annuity payment option a settlement contract for
the payment option.
You may assign the contract prior to the Annuity Date. You must send a dated and
signed written request to our Administrative Office accompanied by a duly
executed copy of any assignment. We are not responsible for the validity of any
assignment.
=====================================================================
FINANCIAL STATEMENTS
=====================================================================
Our consolidated balance sheets and those of Variable Account A are included
herein. A complete set of the financial statements of the company and the
variable account have been filed electronically with the SEC and can be obtained
through their website at http://www.sec.gov. Our financial statements shall be
considered only as bearing upon our ability to meet our obligations under the
contract.
10
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
VARIABLE ANNUITY CONTRACTS
issued by
AIG LIFE INSURANCE COMPANY
through its
VARIABLE ACCOUNT I
This statement of additional information is not a prospectus. It should be read
in conjunction with the prospectus describing the individual and group, single
and flexible purchase payment, variable annuity contracts. The prospectus
concisely sets forth information that a prospective investor should know before
investing. For a copy of the prospectus dated May 1, 1999, call us at (800)
255-8402 or write to us AIG Life Insurance Company, Attention: Variable
Products, One Alico Plaza, 600 King Street, Wilmington, Delaware 19801.
DATE OF STATEMENT OF ADDITIONAL INFORMATION: May 1, 1999
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION..................................
AIG Life Insurance Company.....................
Independent Accountants........................
Legal Counsel..................................
Distributor....................................
Potential Conflicts.........................
CALCULATION OF PERFORMANCE DATA......................
Yield and Effective Yield Quotations for the
Money Market Subaccount...................
Yield Quotations for Other Subaccounts......
Total Return Quotations.....................
Non-Standarized Performance Data............
ANNUITY PROVISIONS...................................
Variable Annuity Payments......................
Annuity Unit Value.............................
Net Investment Factor..........................
Additional Provisions..........................
FINANCIAL STATEMENTS.................................
<PAGE>
GENERAL INFORMATION
AIG Life Insurance Company
A description of AIG Life Insurance Company, and its ownership is contained in
the Prospectus. We will provide for the safekeeping of the assets of the
Variable Account.
Independent Accountants
Our financial statements have been audited by PricewaterhouseCoopers, LLP,
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
contract described herein are being passed upon by Jorden Burt Boros Cicchetti
Berenson & Johnson LLP, Washington, D.C..
Distributor
Our affiliate, AIG Equity Sales Corp. (AAIGESC@), a wholly owned subsidiary of
American International Group, Inc., acts as the distributor. Commissions are
paid by Variable Account I directly to selling dealers and representatives on
behalf of AIGESC. Aggregate commissions were $33,398,137 in 1998, $27,225,980 in
1997, and $23,531,557 in 1996. Commissions retained by AIGESC were $0 in 1998,
$193,263 in 1997, and $83,483 in 1996.
Potential Conflicts
Shares of the funds may be sold only to separate accounts of life insurance
companies. They may be sold to our other separate accounts, 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
a fund simultaneously. Although neither we nor the funds currently foresee any
such disadvantages, either to variable life insurance policy owners or to
variable annuity owners, each fund's board of directors will monitor events in
order to identify any material irreconcilable conflicts which may possibly arise
and to determine what action, if any, should be taken. If a material
irreconcilable conflict were to occur, we will take whatever steps are deemed
necessary, at our expense, to remedy or eliminate the irreconcilable material
conflict. As a result, one or more insurance company separate accounts might
withdraw their investments in the fund. This might force the fund to sell
securities at disadvantageous prices.
CALCULATION OF PERFORMANCE RELATED INFORMATION
Yield and Effective Yield Quotations for the Money Market Subaccount
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. It 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, 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. It 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, 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
Subaccount'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" of the Prospectus) No
deductions or sales loads are assessed upon annuitization under the Contracts.
Realized gains and losses from the sale of securities and unrealized
appreciation and depreciation of the Money Market Subaccount and the Fund are
excluded from the calculation of yield.
Yield Quotations for Other Subaccounts
Yield quotations will be set forth in the Prospectus will be based on the
thirty-day period ended on the date of the most recent balance sheet of the
Variable Account included in the registration statement, and are computed by
dividing the net investment income per Accumulation Unit earned during the
period by the maximum offering price per unit on the last day of the period,
according to the following formula:
Yield = 2[(a - b + 1)6 - 1]
cd
Where: a = net investment income earned during the period by the
corresponding portfolios of the Fund attributable to shares
owned by the Subaccount.
b = expenses accrued for the period(net of reimbursements).
c = the average daily number of Accumulation Units outstanding
during the period.
d = the maximum offering price per Accumulation Unit on the
last day of the period.
For the purposes of yield quotations for the Subaccount, 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 Subaccount'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" 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" of the
Prospectus)
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)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 Subaccount's mean account size. The calculations also assume a total
withdrawal as of the end of the particular period.
Non-Standardized Performance Data
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)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 Subaccount's mean account size. The calculations do not, however,
assume a total withdrawal as of the end of the particular period.
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 depict accurately the effect of all fees and charges, or
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.
ANNUITY PROVISIONS
Variable Annuity Payments
A Variable Annuity is an annuity with payments which are not predetermined as to
dollar amount and will vary in amount with the net investment results of the
applicable Subaccounts. At the Annuity Date the Contract Value in each
Subaccount will be applied to the applicable Annuity Tables contained in the
Contract. The Annuity Table used will depend upon the payment option chosen. The
same Contract Value amount applied to each payment option may produce a
different initial annuity payment. If, as of the Annuity Date, the then current
annuity rates applicable to this class of contracts will provide a larger income
than that guaranteed for the same form of annuity under the Contracts described
herein, the larger amount will be paid.
The first annuity payment for each Subaccount is determined by multiplying the
amount of the Contract Value allocated to that Subaccount by the factor shown in
the table for the option selected, divided by 1000.
The dollar amount of Subaccount annuity payments after the first is determined
as follows:
(a) The dollar amount of the first annuity payment is divided by the value
for the Subaccount Annuity Unit as of the Annuity Date. This
establishes the number of Annuity Units for each monthly payment. The
number of Annuity Units remains fixed during the Annuity payment
period, subject to any transfers.
(b) The fixed number of Annuity Units is multiplied by the Annuity Unit
value for the Valuation Period 14 days prior to the date of payment.
The total dollar amount of each Variable Annuity payment is the sum of all
Subaccount variable annuity payments less the pro-rata amount of the annual
Administrative Charge.
Annuity Unit Value
The value of an Annuity Unit for each Subaccount was arbitrarily set initially
at $10. This was done when the first Fund shares were purchased. The Subaccount
Annuity Unit value at the end of any subsequent Valuation Period is determined
by multiplying the Subaccount Annuity Unit value for the immediately preceding
Valuation Period by the quotient of (a) and (b) where:
(a) is the net investment factor for the Valuation Period for which the
Subaccount Annuity Unit value is being determined; and
(b) is the assumed investment factor for such Valuation Period. The
assumed investment factor adjusts for the interest assumed in
determining the first variable annuity payment. Such factor for any
Valuation Period shall be the accumulated value, at the end of such
period, of $1.00 deposited at the beginning of such period at the
assumed investment rate of 5%.
Net Investment Factor
The net investment factor is used to determine how investment results of the
Fund affect the Subaccount Annuity Unit value from one Valuation Period to the
next. The net investment factor for each Subaccount for any Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result, where:
(a) is equal to:
(i) the net asset value per share of the Fund held in the Subaccount
determined at the end of that Valuation Period; plus
(ii) the per share amount of any dividend or capital gain distribution
made by the Fund held in the Subaccount if the "ex-dividend" date
occurs during that same Valuation Period; plus or minus
(iii)a per share charge or credit, which is determined by the
Company, for changes in tax reserves resulting from investment
operations of the Subaccount.
(b) is equal to:
(i) the net asset value per share of the Fund held in the Subaccount
determined as of the end of the prior Valuation Period; plus or
minus
(ii the per share charge or credit for any change in tax reserves for
the prior Valuation Period.
(c) is equal to:
(i) the percentage factor representing the Mortality and Expense Risk
Charge, plus
(ii) the percentage factor representing the daily Administrative
Charge.
The net investment factor may be greater or less than the assumed
investment factor; therefore, the Subaccount Annuity Unit value may
increase or decrease from Valuation Period to Valuation Period.
Additional Provisions
The Company may require proof of the age of the Annuitant before making any life
annuity payment provided for by the Contract. If the age of the Annuitant has
been misstated the Company will compute the amount payable based on the correct
age. If annuity payments have begun, any underpayments that may have been made
will be paid in full with the next annuity payment, including interest at the
annual rate of 5%. Any overpayments, including interest at the annual rate of
5%, unless repaid to the Company in one sum, will be deducted from future
annuity payments until the Company is repaid in full.
If a Contract provision requires that a person be alive, the Company may require
due proof that the person is alive before the Company acts under that provision.
The Company will give the payee under an annuity payment option a settlement
contract for the payment option.
You may assign this Contract prior to the Annuity Date. A written request, dated
and signed by you must be sent to our Administrative Office. A duly executed
copy of any assignment must be filed with our Administrative Office. We are not
responsible for the validity of any assignment.
FINANCIAL STATEMENTS
Our consolidated balance sheets and those of Variable Account I are included
herein. A complete set of the financial statements of the company and the
variable account have been filed electronically with the SEC and can be obtained
through their website at http://www.sec.gov. Our financial statements shall be
considered only as bearing upon our ability to meet our obligations under the
contract.
<PAGE>
AIG LIFE INSURANCE COMPANY
(a wholly-owned subsidiary of
American International Group, Inc.)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors
AIG Life Insurance Company
In our opinion, the accompanying balance sheets and the related statements of
income, capital funds, cash flows, and comprehensive income present fairly, in
all material respects, the financial position of AIG Life Insurance Company (a
wholly-owned subsidiary of American International Group, Inc.) at December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
February 5, 1999
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
<TABLE>
December31, December 31,
1998 1997
Assets
<S> <C> <C>
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 4,238,045 $ 2,984,255
(cost: 1998 - $4,081,008: 1997 - $2,826,088)
Equity securities:
Common stock
(cost: 1998 - $901: 1997 - $1,381) 2,410 2,775
Preferred stock
(cost: 1998 - $18,250 : 1997 - $250) 19,338 250
Mortgage loans on real estate, net 468,342 350,823
Real estate, net of accumulated
depreciation of $4,351 in 1998; and $4,740 in 1997 13,002 15,940
Policy loans 1,010,969 1,496,837
Other invested assets 81,916 56,219
Short-term investments 163,704 667,912
Cash 4,788 5,132
-------------- -------------
Total investments and cash 6,002,514 5,580,143
Amounts due from related parties 17,330 11,446
Investment income due and accrued 94,029 85,135
Premium and insurance balances receivable-net 56,583 46,937
Reinsurance assets 72,044 60,744
Deferred policy acquisition costs 167,840 118,535
Federal income tax receivable 4,207 -
Separate and variable accounts 1,971,280 1,204,643
Other assets 6,228 4,855
-------------- -------------
Total assets $ 8,392,055 $ 7,112,438
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
December 31, December 31,
1998 1997
Liabilities
<S> <C> <C>
Policyholders' funds on deposit $ 4,472,854 $ 3,745,902
Future policy benefits 1,002,244 749,918
Reserve for unearned premiums 21,468 24,108
Policy and contract claims 200,193 199,069
Reserve for commissions, expenses and taxes 25,702 16,103
Insurance balances payable 56,263 47,372
Amounts due to related parties 4,119 3,945
Federal income tax payable - 1,684
Deferred income taxes 56,519 37,498
Separate and variable accounts 1,971,280 1,204,643
Minority interest 5,987 6,067
Other liabilities 59,189 621,585
------------- ------------
Total liabilities 7,875,818 6,657,894
----------- -----------
Capital funds
Common stock, $5 par value; 1,000,000 shares
authorized; 976,703 shares issued and
outstanding 4,884 4,884
Additional paid-in capital 153,283 153,283
Retained earnings 236,521 181,887
Accumulated other comprehensive income 121,549 114,490
------------ -------------
Total capital funds 516,237 454,544
------------ ------------
Total liabilities and capital funds $ 8,392,055 $ 7,112,438
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
<TABLE>
Years ended December 31,
1998 1997 1996
--------- -------------- -------------
<S> <C> <C> <C>
Revenues:
Premiums $ 616,964 $ 437,650 $ 394,480
Net investment income 457,148 381,868 504,661
Realized capital (losses) (334) (3,025) (51)
------------- ------------- -------------
Total revenues 1,073,778 816,493 899,090
--------- ----------- ----------
Benefits and expenses:
Benefits to policyholders 272,368 188,969 189,933
Increase in future policy benefits
and policyholders' funds on deposit 547,100 397,481 495,529
Acquisition and insurance expenses 168,075 163,533 161,841
---------- ----------- ----------
Total benefits and expenses 987,543 749,983 847,303
---------- ----------- ----------
Income before income taxes 86,235 66,510 51,787
----------- ------------ ----------
Income taxes (benefits):
Current 16,218 20,059 25,087
Deferred 15,220 3,964 (5,486)
----------- ------------- -----------
Total income taxes 31,438 24,023 19,601
----------- ----------- ----------
Net income before minority interest 54,797 42,487 32,186
Minority interest income (loss) (163) (128) 154
------------ ------------- ------------
Net income $ 54,634 $ 42,359 $ 32,340
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL FUNDS
(in thousands)
<TABLE>
Years ended December 31,
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $ 4,884 $ 4,884 $ 4,884
------------ ----------- -----------
Balance at end of year 4,884 4,884 4,884
------------ ----------- -----------
Additional paid-in capital
Balance at beginning of year: 153,283 123,283 123,283
Capital contribution - 30,000 -
--------------- ---------- --------------
Balance at end of year 153,283 153,283 123,283
--------- --------- ---------
Retained earnings
Balance at beginning of year 181,887 139,528 107,188
Net income 54,634 42,359 32,340
---------- ---------- -----------
Balance at end of year 236,521 181,887 139,528
--------- --------- ----------
Accumulated other comprehensive income
Balance at beginning of year 114,490 62,814 87,673
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments 10,860 79,497 (50,245)
Deferred income tax (expense) benefit on
changes (3,801) (27,821) 25,386
----------- ---------- ----------
Balance at end of year 121,549 114,490 62,814
--------- --------- ----------
Total capital funds $ 516,237 $ 454,544 $ 330,509
========= ========= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Years ended December 31,
1998 1997 1996
----------- ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 54,634 $ 42,359 $ 32,340
--------- ----------- ------------
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 250,810 121,325 72,151
Change in premiums and insurance balances
receivable and payable -net (753) (5,346) 11,782
Change in reinsurance assets (11,301) 157,710 (10,627)
Change in deferred policy acquisition costs (49,305) (34,248) (23,662)
Change in investment income due and accrued (8,894) 22,133 135,480
Realized capital losses 334 3,025 51
Change in current and deferred income taxes -net 9,330 2,689 (7,133)
Change in reserves for commissions, expenses and taxes 9,599 13,243 (21,274)
Change in other assets and liabilities - net (61,575) 69,582 12,733
----------- ----------- ------------
Total adjustments 138,245 350,113 169,501
--------- ---------- -----------
Net cash provided by operating activities 192,879 392,472 201,841
--------- ---------- -----------
Cash flows from investing activities:
Cost of fixed maturities at market, sold 282,756 23,816 40,098
Cost of fixed maturities at market, matured or redeemed 340,435 153,963 124,621
Cost of equity securities sold 1,039 3,676 2,607
Cost of real estate sold 2,585 - -
Realized capital gains 1,666 1,975 (51)
Purchase of fixed maturities (1,865,768) (804,262) (524,245)
Purchase of equity securities (18,559) (1,750) (1,678)
Purchase of real estate (341) (413) (881)
Mortgage loans granted (202,484) (87,690) (74,590)
Repayments of mortgage loans 83,035 29,298 16,416
Change in policy loans 485,868 377,124 1,087,765
Change in short-term investments 504,208 (567,876) 102,616
Change in other invested assets (11,706) 6,294 11,002
Other - net (27,908) 11,917 (38)
---------- ----------- --------------
Net cash (used in) provided by investing activities (425,174) (853,928) 783,642
---------- ----------- ----------
Cash flows from financing activities:
Change in policyholders' funds on deposit 231,951 430,808 (980,835)
Proceeds from capital contribution - 30,000 -
--------------- ----------- -----------------
Net cash provided by (used in) financing activities 231,951 460,808 (980,835)
--------- ---------- ------------
Change in cash (344) (648) 4,648
Cash at beginning of year 5,132 5,780 1,132
------------ ------------ -------------
Cash at end of year $ 4,788 $ 5,132 $ 5,780
=========== ============ =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
Years ended December 31,
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Comprehensive income
Net income $ 54,634 $ 42,359 $ 32,340
------------ ------------ -----------
Other comprehensive income
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments 10,860 79,497 (50,245)
Changes due to deferred income tax benefit
(expense) on changes and
future policy benefits (3,801) (27,821) 25,386
------------ ------------- -----------
Other comprehensive income 7,059 51,676 (24,859)
------------ ------------ -----------
Comprehensive income $ 61,693 $ 94,035 $ 7,481
=========== =========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Basis of Presentation: AIG Life Insurance Company (the Company) is a
wholly owned subsidiary of American International Group, Inc. (the
Parent). The financial statements of the Company have been prepared on
the basis of generally accepted accounting principles (GAAP). The
preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates. The Company
is licensed to sell life and accident and health insurance in the
District of Columbia and all states except for Maine and New York.
The Company also files financial statements prepared in accordance
with statutory practices prescribed or permitted by the Insurance
Department of the State of Delaware. Financial statements prepared in
accordance with 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 their estimated life.
Common and non-redeemable preferred stocks are carried at current
market value. Dividend income is generally recognized when receivable.
Short-term investments are carried at cost, which approximates market.
Unrealized gains and losses from investments in equity securities and
fixed maturities available for sale are reflected as a separate
component of comprehensive income, net of deferred income taxes and
future policy benefits in capital funds currently.
Realized capital gains and losses are determined principally by
specific identification. Where declines in values of securities below
cost or amortized cost are considered to be other than temporary, a
charge is reflected in income for the difference between cost or
amortized cost and estimated net realizable value.
Mortgage loans on real estate are carried at unpaid principal balance
less unamortized loan origination fees and costs less an allowance for
uncollectible loans. Interest income on such loans is accrued
currently.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(b) Investments: (continued)
Real estate is carried at depreciated cost and is depreciated on a
straight-line basis over 31.5 years. Expenditures for maintenance and
repairs are charged to income as incurred; expenditures for
betterments are capitalized and depreciated over their estimated
lives.
Policy loans are carried at the aggregate unpaid principal balance.
Other invested assets consist primarily of limited partnership
interests which are carried at market value. Unrealized gains and
losses from the revaluation of these investments are reflected as a
separate component of comprehensive income, net of deferred income
taxes in capital funds currently.
(c) Income Taxes: The Company joins in a consolidated federal income tax
return with the Parent and its domestic subsidiaries. The Company and
the Parent have a written tax allocation agreement whereby the Parent
agrees not to charge the Company a greater portion of the consolidated
tax liability than would have been paid by the Company if it had filed
a separate return. Additionally, the Parent agrees to reimburse the
Company for any tax benefits arising out of its net losses within
ninety days after the filing of that consolidated tax return for the
year in which these losses are utilized. Deferred federal income taxes
are provided for temporary differences related to the expected future
tax consequences of events that have been recognized in the Company's
financial statements or tax returns.
(d) Premium Recognition and Related Benefits and Expenses: Premiums on
traditional life insurance and life contingent annuity contracts are
recognized when due. Revenues for universal life and investment-type
products consist of policy charges for the cost of insurance,
administration, and surrenders during the period. Premiums on accident
and health insurance are reported as earned over the contract term.
The portion of accident and health premiums which is not earned at the
end of a reporting period is recorded as unearned premiums. Estimates
of premiums due but not yet collected are accrued. Policy benefits and
expenses are associated with earned premiums on long-duration
contracts resulting in a level recognition of profits over the
anticipated life of the contracts.
Policy acquisition costs for traditional life insurance products are
generally deferred and amortized over the premium paying period of the
policy. Deferred policy acquisition costs and policy initiation costs
related to universal life and investment-type products are amortized
in relation to expected gross profits over the life of the policies
(see Note 3).
The liability for future policy benefits and policyholders' contract
deposits is established using assumptions described in Note 4.
(e) Policy and Contract Claims: Policy and contract claims include amounts
representing: (1) the actual in-force amounts for reported life claims
and an estimate of incurred but unreported claims; and (2) an
estimate, based upon prior experience, for accident and health
reported and incurred but unreported losses. The methods of making
such estimates and establishing the resulting reserves are continually
reviewed and updated and any adjustments resulting therefrom are
reflected in income currently.
(f) Separate and Variable Accounts: These accounts represent funds for
which investment income and investment gains and losses accrue
directly to the policyholders. Each account has specific investment
objectives, and the assets are carried at market value. The assets of
each account are legally segregated and are not subject to claims
which arise out of any other business of the Company.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(g) Reinsurance Assets: Reinsurance assets include the balances due from
both reinsurance and insurance companies under the terms of the
Company's reinsurance arrangements for ceded unearned premiums, future
policy benefits for life and accident and health insurance contracts,
policyholders' funds on deposit and policy and contract claims. It
also includes funds held under reinsurance treaties.
(h) Accounting Standards:
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" (FASB 130) and Statement of Financial Accounting
Standards No. 131 "Disclosure about Segments of an Enterprise and
Related Information" (FASB 131).
FASB 130 establishes standards for reporting comprehensive income and
its components in a full set of general purpose financial statements.
FASB 130 was effective for the Company as of January 1, 1998. FASB 130
had no impact on the Company's results of operations, financial
condition or liquidity.
FASB 131 establishes standards for the way companies are required to
disclose information about their operating segments in annual
financial statements and in interim financial statements. FASB 131
establishes, where practicable, standards with respect to geographic
areas, among other things. Certain descriptive information is also
required. FASB 131 has been adopted for the year ended December 31,
1998 by the Parent, whose operations are conducted principally through
three business segments: General Insurance, Life Insurance and
Financial Services. All operations of the Company fall within the Life
Insurance segment.
In February 1998, FASB issued Statement of Financial Accounting
Standards No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (FASB 132). This statement requires revised
disclosures about pension and other postretirement benefit plans and
does not change the measurement or recognition of these plans. Also,
FASB 132 requires additional information on changes in the benefit
obligations and fair values of plan assets. FASB 132 was effective for
the year ended December 31, 1998 and has been adopted by the Parent.
Information regarding the pension and postretirement benefit plans is
not computed on a subsidiary basis, but rather on a consolidated basis
for all subsidiaries of the Parent and, accordingly, is not presented
herein.
In June 1998, FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities"
(FASB 133). This statement requires the Company to recognize all
derivatives in the consolidated balance sheet measuring these
derivatives at fair value. The recognition of the change in the fair
value of a derivative depends on a number of factors, including the
intended use of the derivative. The Company believes that the impact
of FASB 133 on its results of operations, financial condition or
liquidity will not be significant. FASB 133 is effective for the year
commencing January 1, 2000.
In December 1997, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (AcSEC) issued
Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." This statement
provides guidance for the recording of a liability for
insurance-related assessments. The statement requires that a liability
be recognized in certain defined circumstances. The Company believes
that the impact of this statement on its results of operations,
financial condition or liquidity will not be significant. This
statement is effective for the year commencing January 1, 1999.
<PAGE>
1. Summary of Significant Accounting Policies - (continued)
(h) Accounting Standards - (continued):
In October 1998, AcSEC issued SOP 98-7, "Deposit Accounting:
Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk." This statement identifies several methods of
deposit accounting and provides guidance on the application of each
method. This statement classifies insurance and reinsurance contracts
for which the deposit method is appropriate as contracts that (i)
transfer only significant timing risk, (ii) transfer only significant
underwriting risk, (iii) transfer neither significant timing nor
underwriting risk, and (iv) have an indeterminate risk. The Company
believes that the impact of this statement on its results of
operations, financial condition or liquidity will not be significant.
This statement is effective for the year commencing January 1, 2000.
Restatement of previously issued financial statements is not
permitted.
(i) The financial statements for 1997 and 1996 have been reclassified to
conform to the 1998 presentation.
2. Investment Information
(a) Statutory Deposits: Securities with a carrying value of $2,448,000 and
$2,454,000 were deposited by the Company under requirements of
regulatory authorities as of December 31, 1998 and 1997, respectively.
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Fixed maturities $284,267 $200,097 $164,548
Equity securities 622 58 219
Mortgage loans 36,464 28,714 22,797
Real estate 2,406 2,254 2,125
Policy loans 120,927 148,555 314,020
Cash and short-term investments 9,346 3,582 2,924
Other invested assets 8,015 2,380 2,549
--------- --------- ---------
Total investment income 462,047 385,640 509,182
Investment expenses 4,899 3,772 4,521
--------- --------- ---------
Net investment income $457,148 $381,868 $504,661
======= ======= =======
</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 1998, 1997 and 1996 are summarized below (in thousands):
<TABLE>
Years ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net realized (losses) gains on investments:
Fixed maturities $ - $ - $ (79)
Equity securities 84 1,975 28
Mortgage loans (2,000) (5,000) -
Real estate 1,561 - -
Other invested assets 21 - -
--------- ----------- ------------
Net realized gains $ (334) $ (3,025) $ (51)
======= ======= ==========
Change in unrealized appreciation (depreciation) of investments:
Fixed maturities $ (1,131) $77,422 $(58,659)
Equity securities 1,203 (626) 1,517
Other invested assets 10,788 2,701 6,897
--------- ------- ---------
Net change in unrealized appreciation
(depreciation) of investments $ 10,860 $79,497 $(50,245)
======== ====== =======
</TABLE>
Proceeds from the sale of investments in fixed maturities during 1998, 1997
and 1996 were $282,756,000, $23,816,000, and $40,098,000, respectively.
During 1998, 1997 and 1996, gross gains of $0, $0, and $176,000,
respectively, and gross losses of $0, $0, and $255,000, respectively, were
realized on dispositions of fixed maturity investments.
During 1998, 1997 and 1996, gross gains of $84,000, $1,975,000, and
$28,000, respectively, were realized on disposition of equity securities.
(d) Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1998 and 1997, unrealized appreciation of
investments in equity securities (before applicable taxes) included gross
gains of $2,854,000 and $1,530,000 and gross losses of $257,000 and
$136,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1998 and 1997 are as follows (in thousands):
<TABLE>
Gross Gross
1998 Amortized Unrealized Unrealized Market
---- Cost Gains Losses Value
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 50,617 $ 19,220 $ 10 $ 69,827
States, municipalities and
political subdivisions 370,790 23,962 4,961 389,791
Foreign governments 30,431 7,201 - 37,632
All other corporate 3,629,170 156,316 44,691 3,740,795
--------- ---------- --------- ---------
Total fixed maturities $4,081,008 $ 206,699 $ 49,662 $4,238,045
========= ========== ========= =========
</TABLE>
<PAGE>
2. Investment Information - (continued)
<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>
The amortized cost and estimated market value of fixed maturities,
available for sale at December 31, 1998, 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 $ 139,701 $ 144,918
Due after one year through five years 1,097,111 1,136,468
Due after five years through ten years 1,538,510 1,586,346
Due after ten years 1,305,686 1,370,313
---------- ---------
$ 4,081,008 $4,238,045
========= =========
</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, 1998 and 1997, the market value of the CMO
portfolio was $522,844,000 and $445,739,000, respectively; the
estimated amortized cost was approximately $504,077,000 in 1998 and
$426,760,000 in 1997. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities
contained in the portfolio at December 31, 1998.
(f) Fixed Maturities Below Investment Grade: At December 31, 1998 and
1997, the fixed maturities held by the Company that were below
investment grade had an aggregate amortized cost of $344,609,000 and
$242,573,000, respectively, and an aggregate market value of
$327,217,000 and $244,417,000, 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 capital
funds at December 31, 1998 (in thousands):
Other Invested Assets:
Equity Linked Investors II, L.P. $ 60,271
<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).
Years ended December 31,
1998 1997 1996
Balance at beginning of year $118,535 $84,287 $60,625
Acquisition costs deferred 71,430 50,927 43,534
Amortization charged to income (22,125) (16,679) (19,872)
-------- -------- ------
Balance at end of year $167,840 $118,535 $84,287
======= ======= ======
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, 1998 and 1997 follows (in thousands):
<TABLE>
1998 1997
----------- ----------
<S> <C> <C>
Future Policy Benefits:
Long duration contracts $ 987,503 $ 740,969
Short duration contracts 14,741 8,949
----------- ------------
$1,002,244 $ 749,918
========= ==========
Policyholders' funds on deposit:
Annuities $ 1,385,203 $ 1,265,490
Universal life 184,460 149,202
Guaranteed investment contracts (GICs) 669,035 379,049
Corporate owned life insurance 2,229,843 1,948,558
Other investment contracts 4,313 3,603
------------ ------------
$ 4,472,854 $ 3,745,902
============ ============
</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 10.1 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 7.1 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 1 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 1998 was 7.0 percent.
(iv) The universal life funds, exclusive of corporate owned life
insurance business, have credited interest rates of 5.6 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 1998, 1997 and 1996. 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,
-------------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- ------------------------
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 $ 30,183 35.0% $ 23,279 35.0% $ 18,125 35.0%
Prior year federal
income tax benefit 268 0.3 (6) - (51) (0.1)
State income tax 599 0.7 673 1.0 850 1.6
Other 388 0.5 77 0.1 677 1.3
-------- ------- ---------- ----- --------- -----
Actual income tax expense $31,438 36.5% $ 24,023 36.1% $ 19,601 37.8%
====== ====== ======= ==== ======= ====
</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,
1998 1997
<S> <C> <C>
Deferred tax assets:
Adjustment to life reserves $ 59,903 $ 51,992
Adjustments to mortgage loans and
investment income due and accrued 4,913 4,250
Adjustment to policy and contract claims 5,456 8,816
Other 2,406 4,292
---------- ---------
72,678 69,350
--------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $ 55,308 $ 37,559
Unrealized appreciation on investments 65,445 61,644
Bond discount 4,911 4,843
Other 3,533 2,802
---------- -----------
129,197 106,848
-------- ---------
Net deferred tax liability $ 56,519 $ 37,498
========= =========
</TABLE>
(c) At December 31, 1998, 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 1998, 1997, and 1996 amounted to $21,184,000,
$20,311,000, and $25,412,000, 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. Contributions totaling
$10,963,000 have been made through December 31, 1998.
During 1998, the Company entered into a partnership agreement with Sankaty
High Yield Asset Partners, L.P. The agreement requires the Company to make
capital contributions totaling $2,500,000. Contributions totaling
$1,868,000 have been made through December 31, 1998.
<PAGE>
7. Fair Value of Financial Instruments
(a) Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" (FASB 107) requires disclosure of
fair value information about financial instruments for which it is
practicable to estimate such fair value. These financial instruments
may or may not be recognized in the balance sheet. In the measurement
of the fair value of certain of the financial instruments, quoted
market prices were not available and other valuation techniques were
utilized. These derived fair value estimates are significantly
affected by the assumptions used. FASB 107 excludes certain financial
instruments, including those related to insurance contracts.
The following methods and assumptions were used by the Company in
estimating the fair value of the financial instruments presented:
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate fair values.
Fixed maturities: Fair values for fixed maturity securities carried at
market value are generally based upon quoted market prices. For
certain fixed maturities for which market prices were not readily
available, fair values were estimated using values obtained from
independent pricing services.
Equity securities: Fair values for equity securities were based upon
quoted market prices.
Mortgage and policy loans: Where practical, the fair values of loans
on real estate were estimated using discounted cash flow calculations
based upon the Company's current incremental lending rates for similar
type loans. The fair value of the policy loans were not calculated as
the Company believes it would have to expend excessive costs for the
benefits derived. Therefore, the fair value of policy loans was
estimated at carrying value.
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>
1998 Fair Carrying
Value Amount
<S> <C> <C>
Cash and short-term investments $ 168,492 $ 168,492
Fixed maturities 4,238,045 4,238,045
Equity securities 21,748 21,748
Mortgage and policy loans 1,500,447 1,479,311
Policyholders' funds on deposit $ 4,554,644 $ 4,472,854
1997 Fair Carrying
Value Amount
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
</TABLE>
<PAGE>
8. Capital Funds
(a) The maximum stockholder dividend which can be paid without prior
regulatory approval is subject to restrictions relating to statutory
surplus and statutory net gain from operations. These restrictions
limited payment of dividends to $35,350,000 during 1998, however, no
dividends were paid during the year.
(b) The Company's capital funds as determined in accordance with statutory
accounting practices was $298,047,000 at December 31, 1998 and
$285,350,000 at December 31, 1997. Statutory net income amounted to
$28,789,000, $35,350,000 and $47,074,000 for 1998, 1997 and 1996,
respectively.
(c) During 1997, the Company received a $30,000,000 surplus contribution
from American International Group Inc., the parent.
(d) Statement of Accounting Standards No. 130 "Comprehensive Income" (FASB
130) was adopted by the Company effective January 1, 1998. FASB 130
establishes standards for reporting comprehensive income and its
components as part of capital funds. The reclassification adjustments
with respect to available for sale securities were $(334,000),
$(3,025,000) and $(51,000) for December 31, 1998, 1997 and 1996,
respectively.
9. Employee Benefits
(a) The Company participates with its affiliates in a qualified,
non-contributory, defined benefit pension plan which is administered
by the Parent. All qualified employees who have attained age 21 and
completed twelve months of continuous service are eligible to
participate in this plan. An employee with 5 or more years of service
is entitled to pension benefits beginning at normal retirement age 65.
Benefits are based upon a percentage of average final compensation
multiplied by years of credited service limited to 44 years of
credited service. 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, 1998, 1997 and 1996 were approximately $272,000,
$373,000, and $400,000, 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, 1998 by
$100,000,000.
The Parent has adopted a Supplemental Executive Retirement Program
(Supplemental Plan) to provide additional retirement benefits to
designated executives and key employees. Under the Supplemental Plan,
the annual benefit, not to exceed 60 percent of average final
compensation, accrues at a percentage of average final pay multiplied
for each year of credited service reduced by any benefits from the
current and any predecessor retirement plans, Social Security, if any,
and from any qualified pension plan of prior employers. The
Supplemental Plan also provides a benefit equal to the reduction in
benefits payable under the AIG retirement plan as a result of Federal
limitations on benefits payable thereunder. Currently, the
Supplemental Plan is unfunded.
(b) The Parent also sponsors a voluntary savings plan for domestic
employees (a 401(k) plan), which, during the three years ended
December 31, 1998, 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.
<PAGE>
9. Employee Benefits - (continued)
(c) In addition to the Parent's defined benefit pension plan, the Parent
and its subsidiaries provide a post-retirement benefit program for
medical care and life insurance. Eligibility in the various plans is
generally based upon completion of a specified period of eligible
service and reaching a specified age.
(d) The Parent applies APB Opinion 25 "Accounting for Stock issued to
Employees" and related interpretations in accounting for its stock
based compensation plans. Employees of the Company participate in
certain stock option and stock purchase plans of the Parent. In
general, under the stock option plan, officers and other key employees
are granted options to purchase AIG common stock at a price not less
than fair market value at the date of grant. In general, the stock
purchase plan 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, 1998, the
future minimum lease payments under operating leases were as follows
(in thousands):
Year Payment
1999 $ 4,251
2000 2,980
2001 2,530
2002 2,380
2003 1,870
Remaining years after 2003 1,571
-------
Total $ 15,582
Rent expense approximated $4,450,000, $3,881,000, and $4,263,000 for
the years ended December 31, 1998, 1997 and 1996, 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
December 31, 1998 of Amount
Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $53,884,853 $19,921,930 $ 896,285 $34,859,208 2.6%
============= ========== ======== ==========
Premiums:
Life 184,487 54,134 2,022 132,375 1.5%
Accident and Health 155,199 82,614 142,878 215,463 66.3%
Annuity 269,126 - - 269,126 -
------------ ----------------- -------------- ------------
Total Premiums $ 608,812 $ 136,748 $ 144,900 $ 616,964 23.5%
============ =========== ======== ============
Percentage
of Amount
December 31, 1997 Assumed
Gross Ceded Assumed Net to Net
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%
============ ============== ======== ============
</TABLE>
(b) The maximum amount retained on any one life by the Company is
$1,000,000.
(c) Reinsurance recoveries, which reduced death and other benefits,
approximated $111,580,000, $100,029,000, and $54,456,000,
respectively, for each of the years ended December 31, 1998, 1997 and
1996.
The Company's reinsurance arrangements do not relieve the Company from
its direct obligation to its insureds.
<PAGE>
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 1998 amounted to
$1,237,000 and $1,000, respectively. Premium income and commission
ceded for 1997 amounted to $1,251,000 and $1,000, respectively.
Premium income and commission ceded to affiliates amounted to
$1,345,000 and $0 for the year ended December 31, 1996. Premium income
and ceding commission expense assumed from affiliates aggregated
$131,771,000 and $31,584,000, respectively, for 1998, compared to
$110,529,000 and $24,853,000, respectively, for 1997, and $103,885,000
and $27,609,000, respectively for 1996.
(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, 1998, 1997 and 1996, the Company was
charged $40,417,000, $37,846,000 and $28,277,000, respectively, for
expenses attributed to the Company but incurred by affiliates. During
the same period, the Company received reimbursements from affiliates
aggregating $23,132,000, $18,134,000 and $17,598,000, respectively,
for costs incurred by the Company but attributable to affiliates.
(c) During 1997, a reinsurance agreement covering certain annuity policies
was terminated. Upon cancellation, assets totaling $164,895,000 were
transferred to the Company from Delaware American Life Insurance
Company.
(d) During 1996, the Company purchased 1,500,000 shares of AIG Life
Ireland, LTD., a subsidiary.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
AIG Life Insurance Company
Variable Account I
In our opinion, the accompanying statements of assets and liabilities of AIG
Life Insurance Company Variable Account I (comprising fifty-five subaccounts,
hereafter collectively referred to as "Variable Account I") and the related
statements of operations and changes in net assets present fairly, in all
material respects, the financial position of Variable Account I at December 31,
1998, and the results of its operations for the year then ended and the changes
in its net assets for each of the two years in the period then ended, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
March 12, 1999
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ASSETS:
Investments at Market Value:
Shares Cost Market Value
-----------------------------------------------------------
<S> <C> <C> <C>
Aim
Capital Appreciation Portfolio 54,578.478 $ 1,264,417 $ 1,375,379
International Equity Portfolio 39,405.047 770,162 773,129
Alliance
Money Market Portfolio 87,464,382.020 87,464,382 87,464,382
Premier Growth Portfolio 11,183,964.497 229,693,805 347,070,719
Growth and Income Portfolio 13,468,972.189 244,488,831 294,171,324
International Portfolio 3,166,243.476 47,845,667 51,198,156
Short-term Multi-Market Portfolio 430,280.702 4,437,649 4,345,832
Global Bond Portfolio 774,582.643 8,755,351 9,620,315
U.S. Government High Grade Portfolio 3,770,455.395 44,373,587 46,261,351
Global Dollar Government Portfolio 789,856.879 11,103,287 8,040,745
North American Government Portfolio 1,990,869.107 25,266,870 24,985,410
Utility Income Portfolio 1,416,461.648 20,589,839 26,771,129
Conservative Investors Portfolio 1,993,000.613 24,955,977 27,961,800
Growth Investors Portfolio 924,016.816 12,431,497 15,089,196
Growth Portfolio 9,853,026.858 183,381,151 268,504,234
Total Return Portfolio 2,515,769.031 39,408,330 45,434,785
Worldwide Privatization Portfolio 2,526,466.765 35,459,523 37,416,971
Technology Portfolio 5,788,002.796 71,421,572 110,975,365
Quasar Portfolio 6,090,862.698 72,743,504 67,852,212
Real Estate Portfolio 1,358,808.913 15,192,810 13,289,151
High Yield Portfolio 1,542,210.988 16,470,396 15,329,579
Dreyfus
Stock Index Portfolio 472,962.495 12,674,657 15,380,741
Zero Coupon 2000 Portfolio 23,000.487 281,795 287,504
Small Company Stock Portfolio 90,013.947 1,460,496 1,358,314
Fidelity
Money Market Portfolio 10,278,490.000 10,278,489 10,278,489
Asset Manager Portfolio 424,927.349 7,236,105 7,716,681
Growth Profolio 261,914.119 9,459,042 11,752,084
High Income Portfolio 313,814.928 3,939,369 3,618,284
Investment Grade Bond Portfolio 362,600.900 4,501,837 4,699,307
Overseas Portfolio 59,262.592 1,148,312 1,188,215
Contrafund Portfolio 114,289.631 2,436,303 2,793,240
Merrill Lynch
Basic Value Portfolio 285,965.108 4,205,189 4,195,106
Capital Market Portfolio 10,057.115 73,993 64,668
Domestic Money Market Portfolio 3,635,913.700 3,635,915 3,635,915
Global Strategy Portfolio 22,373.499 296,051 300,031
Global Utility Portfolio 27,897.588 421,189 476,490
High Current Income Portfolio 48,670.191 512,382 492,055
International Equity Portfolio 62,455.020 653,802 667,020
Natural Resources Portfolio 3,808.098 32,382 29,132
Prime Bond Portfolio 35,090.140 426,928 429,853
Quality Equity Portfolio 20,543.657 727,432 783,125
Special Value Portfolio 29,175.993 614,185 582,061
Mitchell Hutchins
Balanced Portfolio 51,390.534 612,603 593,049
Global Income Portfolio 2,924.764 34,118 32,378
Growth Portfolio 10,813.774 186,913 194,649
Growth & Income Portfolio 110,127.599 1,569,832 1,630,990
High Income Portfolio 49,255.696 620,624 610,771
Small Capital Portfolio 23,591.311 321,538 351,512
Strategic Income Portfolio 13,818.472 168,088 168,446
Tactical Allocations Portfolio 691,798.099 9,763,480 10,307,793
Van Eck
Worldwide Hard Assets Portfolio 14,354.877 202,942 132,066
Worldwide Emerging Markets Portfolio 2,668.197 22,742 18,996
Weiss, Peck and Greer
Tomorrow Short Term Portfolio 54,435.216 568,226 573,745
Tomorrow Medium Term Portfolio 53,887.005 483,762 508,158
Tomorrow Long Term Portfolio 58,870.162 484,083 543,373
Total Investments
------------------ ------------------
$ 1,277,573,411 1,590,325,405
-------------------
$ 1,590,325,405
===================
Contract Owners' Equity $ 1,590,325,405
-------------------
Total Equity $ 1,590,325,405
===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
Aim Aim
Capital International
Appreciation Equity
Total Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $65,200,792 $36,411 $6,219
Expenses:
Mortality & Expense Risk Fees 15,505,872 8,849 8,056
Daily Administrative Charges 1,850,825 1,084 970
------------------ ------------------ -------------------
Net Investment Income (Loss) 47,844,095 26,478 (2,807)
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 27,632,721 1,230 9,757
Change in Unrealized Appreciation
(Depreciation) 176,614,709 111,032 2,909
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 204,247,430 112,262 12,666
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $252,091,525 $138,740 $9,859
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Growth
Money Premier &
Market Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $3,088,693 $220,555 $22,949,629
Expenses:
Mortality & Expense Risk Fees 805,225 2,931,741 2,942,840
Daily Administrative Charges 95,939 347,881 352,066
------------------ ------------------ -------------------
Net Investment Income (Loss) 2,187,529 (3,059,067) 19,654,723
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 184 3,478,906 3,801,870
Change in Unrealized Appreciation
(Depreciation) 0 90,184,199 18,289,890
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 184 93,663,105 22,091,760
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $2,187,713 $90,604,038 $41,746,483
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Short-Term Global
International Multi-Market Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $2,522,179 $438,920 $175,784
Expenses:
Mortality & Expense Risk Fees 629,792 55,951 115,475
Daily Administrative Charges 75,312 6,701 13,854
------------------ ------------------ -------------------
Net Investment Income (Loss) 1,817,075 376,268 46,455
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 1,036,224 (80,540) (120,856)
Change in Unrealized Appreciation
(Depreciation) 2,047,659 (83,364) 1,173,628
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 3,083,883 (163,904) 1,052,772
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
------------------ ------------------ -------------------
Resulting From Operations $4,900,958 $212,364 $1,099,227
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Alliance
U.S. Alliance Alliance
Government Global North
High Dollar American
Grade Government Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,537,301 $1,367,507 $1,912,440
Expenses:
Mortality & Expense Risk Fees 416,924 131,544 318,357
Daily Administrative Charges 50,428 15,980 38,240
------------------ ------------------ -------------------
Net Investment Income (Loss) 1,069,949 1,219,983 1,555,843
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 347,826 (302,952) 895,410
Change in Unrealized Appreciation
(Depreciation) 709,554 (3,643,766) (1,861,942)
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 1,057,380 (3,946,718) (966,532)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
------------------ ------------------
Resulting From Operations $2,127,329 ($2,726,735) $589,311
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance Alliance
Utility Conservative Growth
Income Investors Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $496,779 $1,663,020 $1,214,149
Expenses:
Mortality & Expense Risk Fees 242,969 323,173 176,258
Daily Administrative Charges 28,927 38,616 21,060
------------------ ------------------ -------------------
Net Investment Income (Loss) 224,883 1,301,231 1,016,831
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 907,999 504,326 491,122
Change in Unrealized Appreciation
(Depreciation) 3,206,582 1,200,166 1,216,568
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 4,114,581 1,704,492 1,707,690
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $4,339,464 $3,005,723 $2,724,521
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Total Worldwide
Growth Return Privatization
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $13,139,273 $3,300,624 $2,284,660
Expenses:
Mortality & Expense Risk Fees 2,781,788 453,190 462,628
Daily Administrative Charges 330,943 54,291 55,564
------------------ ------------------ -------------------
Net Investment Income (Loss) 10,026,542 2,793,143 1,766,468
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 9,875,339 853,076 1,400,478
Change in Unrealized Appreciation
(Depreciation) 34,363,300 1,583,798 (298,320)
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 44,238,639 2,436,874 1,102,158
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $54,265,181 $5,230,017 $2,868,626
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Real
Technology Quasar Estate
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $103,391 $5,119,796 $280,542
Expenses:
Mortality & Expense Risk Fees 960,487 761,213 159,792
Daily Administrative Charges 113,366 91,862 19,340
------------------ ------------------ -------------------
Net Investment Income (Loss) (970,462) 4,266,721 101,410
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 3,219,195 389,615 (65,896)
Change in Unrealized Appreciation
(Depreciation) 37,132,821 (9,296,240) (3,061,310)
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 40,352,016 (8,906,625) (3,127,206)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $39,381,554 ($4,639,904) ($3,025,796)
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Alliance Dreyfus Zero
High Stock Coupon
Yield Index 2000
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $10,220 $186,148 $16,152
Expenses:
Mortality & Expense Risk Fees 126,094 142,470 3,767
Daily Administrative Charges 15,392 17,018 451
------------------ ------------------ -------------------
Net Investment Income (Loss) (131,266) 26,660 11,934
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (13,109) $530,479 $876
Change in Unrealized Appreciation
(Depreciation) (1,159,736) 2,117,029 3,910
------------------ ------------------ -------------------
Net Gain (Loss) on Investments (1,172,845) 2,647,508 4,786
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations ($1,304,111) $2,674,168 $16,720
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Small Fidelity Fidelity
Company Money Asset
Stock Market Manager
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $5,831 $535,721 $478,658
Expenses:
Mortality & Expense Risk Fees 13,001 126,121 71,357
Daily Administrative Charges 1,574 15,087 8,555
------------------ ------------------ -------------------
Net Investment Income (Loss) (8,744) 394,513 398,746
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity ($5,230) (133) (5,987)
Change in Unrealized Appreciation
(Depreciation) (81,665) 0 312,647
------------------ ------------------ -------------------
Net Gain (Loss) on Investments (86,895) (133) 306,660
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations ($95,639) $394,380 $705,406
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $996,128 $280,385 $132,266
Expenses:
Mortality & Expense Risk Fees 111,889 38,590 44,618
Daily Administrative Charges 13,379 4,649 5,360
------------------ ------------------ -------------------
Net Investment Income (Loss) 870,860 237,146 82,288
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 307,907 (987) 73,256
Change in Unrealized Appreciation
(Depreciation) 1,758,539 (478,498) 100,475
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 2,066,446 (479,485) 173,731
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $2,937,306 ($242,339) $256,019
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill
Lynch
Fidelity Fidelity Basic
Overseas Contrafund Value
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $107,451 $6,284 $0
Expenses:
Mortality & Expense Risk Fees 16,467 16,907 23,468
Daily Administrative Charges 1,979 2,057 2,828
------------------ ------------------ -------------------
Net Investment Income (Loss) 89,005 (12,680) (26,296)
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 42,715 16,299 (16,848)
Change in Unrealized Appreciation
(Depreciation) 27,078 356,936 (10,081)
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 69,793 373,235 (26,929)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $158,798 $360,555 ($53,225)
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Merrill
Merrill Lynch Merrill
Lynch Domestic Lynch
Capital Money Global
Market Market Strategy
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $60,417 $17
Expenses:
Mortality & Expense Risk Fees 356 15,136 1,913
Daily Administrative Charges 43 1,809 227
------------------ ------------------ -------------------
Net Investment Income (Loss) (399) 43,472 (2,123)
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (645) 0 (1,211)
Change in Unrealized Appreciation
(Depreciation) (9,325) 0 3,979
------------------ ------------------ -------------------
Net Gain (Loss) on Investments (9,970) 0 2,768
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations ($10,369) $43,472 $645
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill
Merrill Lynch Merrill
Lynch High Lynch
Global Current Inertnational
Utility Income Equity
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $4,148 $19,042 $0
Expenses:
Mortality & Expense Risk Fees 2,435 2,502 3,636
Daily Administrative Charges 291 301 435
------------------ ------------------ -------------------
Net Investment Income (Loss) 1,422 16,239 (4,071)
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (854) (17,159) (2,979)
Change in Unrealized Appreciation
(Depreciation) 55,302 (20,327) 13,217
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 54,448 (37,486) 10,238
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $55,870 ($21,247) $6,167
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Merrill Merrill Merrill
Lynch Lynch Lynch
Natural Prime Quality
Resources Bond Equity
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $12,171 $0
Expenses:
Mortality & Expense Risk Fees 206 2,591 4,139
Daily Administrative Charges 24 308 496
------------------ ------------------ -------------------
Net Investment Income (Loss) (230) 9,272 (4,635)
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (32) 1,852 (6,901)
Change in Unrealized Appreciation
(Depreciation) (3,249) 2,926 55,693
------------------ ------------------ -------------------
Net Gain (Loss) on Investments (3,281) 4,778 48,792
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations ($3,511) $14,050 $44,157
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Mitchell
Lynch Mitchell Hutchins
Special Hutchins Global
Value Balanced Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $75,494 $2,125
Expenses:
Mortality & Expense Risk Fees 3,207 1,233 79
Daily Administrative Charges 385 142 9
------------------ ------------------ -------------------
Net Investment Income (Loss) (3,592) 74,119 2,037
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (11,879) 1 (1)
Change in Unrealized Appreciation
(Depreciation) (32,123) (19,556) (1,741)
------------------ ------------------ -------------------
Net Gain (Loss) on Investments (44,002) (19,555) (1,742)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations ($47,594) $54,564 $295
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Mitchell
Hutchins Mitchell
Mitchell Growth Hutchins
Hutchins & High
Growth Income Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $21,501 $113,457 $10,634
Expenses:
Mortality & Expense Risk Fees 342 3,020 696
Daily Administrative Charges 38 344 83
------------------ ------------------ -------------------
Net Investment Income (Loss) 21,121 110,093 9,855
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 35 1,634 19
Change in Unrealized Appreciation
(Depreciation) 7,735 61,156 (9,852)
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 7,770 62,790 (9,833)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $28,891 $172,883 $22
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mitchell Mitchell Mitchell
Hutchins Hutchins Hutchins
Small Strategic Tactical
Capital Income Allocations
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $16,392 $1,987 $66,004
Expenses:
Mortality & Expense Risk Fees 669 263 14,229
Daily Administrative Charges 76 32 1,653
------------------ ------------------ -------------------
Net Investment Income (Loss) 15,647 1,692 50,122
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 669 16 94,317
Change in Unrealized Appreciation
(Depreciation) 29,971 359 544,313
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 30,640 375 638,630
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $46,287 $2,067 $688,752
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Van Eck Van Eck
Worldwide Van Eck Worldwide
Hard Worldwide Emerging
Assets Balanced Markets
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $32,095 $86,603 $0
Expenses:
Mortality & Expense Risk Fees 2,194 2,485 233
Daily Administrative Charges 252 295 29
------------------ ------------------ -------------------
Net Investment Income (Loss) 29,649 83,823 (262)
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity (27,745) (38,939) (5,888)
Change in Unrealized Appreciation
(Depreciation) (66,594) (12,586) (3,745)
------------------ ------------------ -------------------
Net Gain (Loss) on Investments (94,339) (51,525) (9,633)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations ($64,690) $32,298 ($9,895)
================== ================== ===================
</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 $26,993 $30,480 $8,116
Expenses:
Mortality & Expense Risk Fees 7,870 8,157 7,280
Daily Administrative Charges 945 981 874
------------------ ------------------ -------------------
Net Investment Income (Loss) 18,178 21,342 (38)
------------------ ------------------ -------------------
Realized & Unrealized Gain (Loss) on Investments:
Realized Gain (Loss) on Investment
Activity 20,080 34,514 22,266
Change in Unrealized Appreciation
(Depreciation) 25,080 21,585 48,693
------------------ ------------------ -------------------
Net Gain (Loss) on Investments 45,160 56,099 70,959
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $63,338 $77,441 $70,921
================== ================== ===================
</TABLE>
See Accompanying 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, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1998
Aim Aim
Capital International
Appreciation Equity
Total Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $47,844,095 $26,478 ($2,807)
Realized Gain (Loss) on Investment Activity 27,632,721 1,230 9,757
Change in Unrealized Appreciation
(Depreciation) of Investments 176,614,709 111,032 2,909
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 252,091,525 138,740 9,859
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 491,085,298 478,857 290,708
Administrative Charges (523,825) (83) (157)
Transfers Between Funds 2,067,455 773,522 478,351
Contract Withdrawals (96,499,599) (14,520) (8,177)
Deferred Sales Charges (2,627,505) (265) (113)
Death Benefits (20,060,447) 0 0
Annuity Payments (328,935) (872) 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 373,112,442 1,236,639 760,612
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 625,203,967 1,375,379 770,471
Net Assets, at Beginning of Year 965,121,438 0 2,658
------------------ ------------------ -------------------
Net Assets, at End of Year $1,590,325,405 $1,375,379 $773,129
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Growth
Money Premier &
Market Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,187,529 ($3,059,067) $19,654,723
Realized Gain (Loss) on Investment Activity 184 3,478,906 3,801,870
Change in Unrealized Appreciation
(Depreciation) of Investments 0 90,184,199 18,289,890
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,187,713 90,604,038 41,746,483
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 89,806,583 95,447,393 73,653,111
Administrative Charges (24,860) (102,102) (95,687)
Transfers Between Funds (30,326,159) 26,143,071 14,938,639
Contract Withdrawals (18,403,633) (15,647,824) (15,694,529)
Deferred Sales Charges (607,224) (396,170) (381,013)
Death Benefits (3,996,448) (2,872,731) (4,574,754)
Annuity Payments (6,043) (46,129) (53,904)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 36,442,216 102,525,508 67,791,863
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 38,629,929 193,129,546 109,538,346
Net Assets, at Beginning of Year 48,834,453 153,941,173 184,632,978
------------------ ------------------ -------------------
Net Assets, at End of Year $87,464,382 $347,070,719 $294,171,324
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Short-Term Global
International Multi-Market Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,817,075 $376,268 $46,455
Realized Gain (Loss) on Investment Activity 1,036,224 (80,540) (120,856)
Change in Unrealized Appreciation
(Depreciation) of Investments 2,047,659 (83,364) 1,173,628
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 4,900,958 212,364 1,099,227
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 7,038,944 572,601 1,521,220
Administrative Charges (21,767) (1,467) (3,797)
Transfers Between Funds (3,601,690) (813,036) (1,498,457)
Contract Withdrawals (2,684,122) (137,245) (747,819)
Deferred Sales Charges (63,196) (5,236) (18,867)
Death Benefits (701,054) (138,603) (59,945)
Annuity Payments (26,441) 0 (4,912)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (59,326) (522,986) (812,577)
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 4,841,632 (310,622) 286,650
Net Assets, at Beginning of Year 46,356,524 4,656,454 9,333,665
------------------ ------------------ -------------------
Net Assets, at End of Year $51,198,156 $4,345,832 $9,620,315
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Alliance
U.S. Alliance Alliance
Government Global North
High Dollar American
Grade Government Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,069,949 $1,219,983 $1,555,843
Realized Gain (Loss) on Investment Activity 347,826 (302,952) 895,410
Change in Unrealized Appreciation
(Depreciation) of Investments 709,554 (3,643,766) (1,861,942)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,127,329 (2,726,735) 589,311
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 14,219,487 2,110,887 7,687,456
Administrative Charges (15,679) (4,048) (10,439)
Transfers Between Funds 7,243,456 (2,090,057) (5,608,307)
Contract Withdrawals (2,747,021) (665,352) (1,183,008)
Deferred Sales Charges (65,540) (9,774) (17,216)
Death Benefits (783,919) (206,835) (340,406)
Annuity Payments (18,052) (1,404) (1,598)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 17,832,732 (866,583) 526,482
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 19,960,061 (3,593,318) 1,115,793
Net Assets, at Beginning of Year 26,301,290 11,634,063 23,869,617
------------------ ------------------ -------------------
Net Assets, at End of Year $46,261,351 $8,040,745 $24,985,410
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance Alliance
Utility Conservative Growth
Income Investors Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $224,883 $1,301,231 $1,016,831
Realized Gain (Loss) on Investment Activity 907,999 504,326 491,122
Change in Unrealized Appreciation
(Depreciation) of Investments 3,206,582 1,200,166 1,216,568
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 4,339,464 3,005,723 2,724,521
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 6,858,500 2,661,338 884,350
Administrative Charges (6,953) (10,209) (5,884)
Transfers Between Funds 2,924,340 2,894,593 (304,810)
Contract Withdrawals (1,285,838) (1,774,675) (765,575)
Deferred Sales Charges (26,843) (28,627) (18,697)
Death Benefits (238,736) (413,030) (181,995)
Annuity Payments (8,138) (2,976) (6,090)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 8,216,332 3,326,414 (398,701)
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 12,555,796 6,332,137 2,325,820
Net Assets, at Beginning of Year 14,215,333 21,629,663 12,763,376
------------------ ------------------ -------------------
Net Assets, at End of Year $26,771,129 $27,961,800 $15,089,196
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Total Worldwide
Growth Return Privatization
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $10,026,542 $2,793,143 $1,766,468
Realized Gain (Loss) on Investment Activity 9,875,339 853,076 1,400,478
Change in Unrealized Appreciation
(Depreciation) of Investments 34,363,300 1,583,798 (298,320)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 54,265,181 5,230,017 2,868,626
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 49,572,101 12,319,642 6,707,438
Administrative Charges (93,695) (17,308) (14,321)
Transfers Between Funds (1,135,432) 2,355,499 (3,382,338)
Contract Withdrawals (18,617,459) (2,367,226) (1,817,429)
Deferred Sales Charges (568,829) (47,698) (45,577)
Death Benefits (2,978,649) (538,278) (473,793)
Annuity Payments (20,982) (18,495) (26,132)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 26,157,055 11,686,136 947,848
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 80,422,236 16,916,153 3,816,474
Net Assets, at Beginning of Year 188,081,998 28,518,632 33,600,497
------------------ ------------------ -------------------
Net Assets, at End of Year $268,504,234 $45,434,785 $37,416,971
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Real
Technology Quasar Estate
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($970,462) $4,266,721 $101,410
Realized Gain (Loss) on Investment Activity 3,219,195 389,615 (65,896)
Change in Unrealized Appreciation
(Depreciation) of Investments 37,132,821 (9,296,240) (3,061,310)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 39,381,554 (4,639,904) (3,025,796)
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 21,154,826 23,067,077 6,224,344
Administrative Charges (33,685) (25,121) (5,026)
Transfers Between Funds (1,088,521) 3,109,668 (666,704)
Contract Withdrawals (4,466,073) (3,582,335) (418,621)
Deferred Sales Charges (122,081) (106,351) (6,476)
Death Benefits (550,122) (620,207) (239,965)
Annuity Payments (15,981) (38,759) (4,118)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 14,878,363 21,803,972 4,883,434
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 54,259,917 17,164,068 1,857,638
Net Assets, at Beginning of Year 56,715,448 50,688,144 11,431,513
------------------ ------------------ -------------------
Net Assets, at End of Year $110,975,365 $67,852,212 $13,289,151
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Alliance Dreyfus Zero
High Stock Coupon
Yield Index 2000
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($131,266) $26,660 $11,934
Realized Gain (Loss) on Investment Activity (13,109) 530,479 876
Change in Unrealized Appreciation
(Depreciation) of Investments (1,159,736) 2,117,029 3,910
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations (1,304,111) 2,674,168 16,720
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 12,091,262 4,087,116 0
Administrative Charges (4,317) (5,133) (207)
Transfers Between Funds 4,347,976 1,673,959 (38,356)
Contract Withdrawals (803,654) (575,676) (9,834)
Deferred Sales Charges (18,764) (14,595) (327)
Death Benefits (52,472) (1,042) (5,638)
Annuity Payments (25,057) (940) 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 15,534,974 5,163,689 (54,362)
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 14,230,863 7,837,857 (37,642)
Net Assets, at Beginning of Year 1,098,716 7,542,884 325,146
------------------ ------------------ -------------------
Net Assets, at End of Year $15,329,579 $15,380,741 $287,504
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Small Fidelity Fidelity
Company Money Asset
Stock Market Manager
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($8,744) $394,513 $398,746
Realized Gain (Loss) on Investment Activity (5,230) (133) (5,987)
Change in Unrealized Appreciation
(Depreciation) of Investments (81,665) 0 312,647
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations (95,639) 394,380 705,406
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 291,183 18,825,929 1,416,269
Administrative Charges (282) (1,705) (2,055)
Transfers Between Funds 551,143 (18,407,450) 2,725,292
Contract Withdrawals (7,095) (620,062) (292,549)
Deferred Sales Charges (60) (21,549) (8,819)
Death Benefits 0 0 0
Annuity Payments 0 0 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 834,889 (224,837) 3,838,138
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 739,250 169,543 4,543,544
Net Assets, at Beginning of Year 619,064 10,108,946 3,173,137
------------------ ------------------ -------------------
Net Assets, at End of Year $1,358,314 $10,278,489 $7,716,681
================== ================== ===================
</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) $870,860 $237,146 $82,288
Realized Gain (Loss) on Investment Activity 307,907 (987) 73,256
Change in Unrealized Appreciation
(Depreciation) of Investments 1,758,539 (478,498) 100,475
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,937,306 (242,339) 256,019
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 2,412,200 942,566 1,433,179
Administrative Charges (4,432) (902) (920)
Transfers Between Funds 616,412 739,280 689,440
Contract Withdrawals (419,770) (162,674) (162,535)
Deferred Sales Charges (10,367) (3,671) (2,411)
Death Benefits (8,363) 0 (12,525)
Annuity Payments 0 0 (973)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 2,585,680 1,514,599 1,943,255
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 5,522,986 1,272,260 2,199,274
Net Assets, at Beginning of Year 6,229,098 2,346,024 2,500,033
------------------ ------------------ -------------------
Net Assets, at End of Year $11,752,084 $3,618,284 $4,699,307
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill
Lynch
Fidelity Fidelity Basic
Overseas Contrafund Value
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $89,005 ($12,680) ($26,296)
Realized Gain (Loss) on Investment Activity 42,715 16,299 (16,848)
Change in Unrealized Appreciation
(Depreciation) of Investments 27,078 356,936 (10,081)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 158,798 360,555 (53,225)
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 2,682 1,228,817 3,969,023
Administrative Charges (797) (105) (3,180)
Transfers Between Funds (230,148) 1,220,420 305,193
Contract Withdrawals (114,197) (15,281) (22,602)
Deferred Sales Charges (3,885) (227) (103)
Death Benefits 0 0 0
Annuity Payments 0 (939) 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (346,345) 2,432,685 4,248,331
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets (187,547) 2,793,240 4,195,106
Net Assets, at Beginning of Year 1,375,762 0 0
------------------ ------------------ -------------------
Net Assets, at End of Year $1,188,215 $2,793,240 $4,195,106
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Merrill
Merrill Lynch Merrill
Lynch Domestic Lynch
Capital Money Global
Market Market Strategy
Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($399) $43,472 ($2,123)
Realized Gain (Loss) on Investment Activity (645) 0 (1,211)
Change in Unrealized Appreciation
(Depreciation) of Investments (9,325) 0 3,979
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations (10,369) 43,472 645
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 60,054 5,035,460 280,402
Administrative Charges (30) (2,053) (242)
Transfers Between Funds 15,013 (1,410,578) 22,148
Contract Withdrawals 0 (29,036) (2,922)
Deferred Sales Charges 0 (1,350) 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 75,037 3,592,443 299,386
------------------ ------------------ -------------------
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 64,668 3,635,915 300,031
Net Assets, at Beginning of Year 0 0 0
------------------ ------------------ -------------------
Net Assets, at End of Year $64,668 $3,635,915 $300,031
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill
Merrill Lynch Merrill
Lynch High Lynch
Global Current Inertnational
Utility Income Equity
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,422 $16,239 ($4,071)
Realized Gain (Loss) on Investment Activity (854) (17,159) (2,979)
Change in Unrealized Appreciation
(Depreciation) of Investments 55,302 (20,327) 13,217
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 55,870 (21,247) 6,167
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 477,467 536,180 623,134
Administrative Charges (264) (194) (348)
Transfers Between Funds (19,952) 12,536 38,709
Contract Withdrawals (617) (297) (642)
Deferred Sales Charges 0 0 0
Death Benefits (36,014) (34,923) 0
Annuity Payments 0 0 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 420,620 513,302 660,853
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 476,490 492,055 667,020
Net Assets, at Beginning of Year 0 0 0
------------------ ------------------ -------------------
Net Assets, at End of Year $476,490 $492,055 $667,020
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Merrill Merrill Merrill
Lynch Lynch Lynch
Natural Prime Quality
Resources Bond Equity
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($230) $9,272 ($4,635)
Realized Gain (Loss) on Investment Activity (32) 1,852 (6,901)
Change in Unrealized Appreciation
(Depreciation) of Investments (3,249) 2,926 55,693
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations (3,511) 14,050 44,157
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 22,442 638,872 701,100
Administrative Charges (42) (107) (508)
Transfers Between Funds 10,243 (222,446) 41,014
Contract Withdrawals 0 (516) (2,638)
Deferred Sales Charges 0 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 32,643 415,803 738,968
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 29,132 429,853 783,125
Net Assets, at Beginning of Year 0 0 0
------------------ ------------------ -------------------
Net Assets, at End of Year $29,132 $429,853 $783,125
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Mitchell
Lynch Mitchell Hutchins
Special Hutchins Global
Value Balanced Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($3,592) $74,119 $2,037
Realized Gain (Loss) on Investment Activity (11,879) 1 (1)
Change in Unrealized Appreciation
(Depreciation) of Investments (32,123) (19,556) (1,741)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations (47,594) 54,564 295
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 567,049 538,371 28,855
Administrative Charges (463) (107) (6)
Transfers Between Funds 64,167 221 3,234
Contract Withdrawals (1,089) 0 0
Deferred Sales Charges (9) 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 629,655 538,485 32,083
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 582,061 593,049 32,378
Net Assets, at Beginning of Year 0 0 0
------------------ ------------------ -------------------
Net Assets, at End of Year $582,061 $593,049 $32,378
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Mitchell
Hutchins Mitchell
Mitchell Growth Hutchins
Hutchins & High
Growth Income Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $21,121 $110,093 $9,855
Realized Gain (Loss) on Investment Activity 35 1,634 19
Change in Unrealized Appreciation
(Depreciation) of Investments 7,735 61,156 (9,852)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 28,891 172,883 22
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 157,942 1,430,900 588,041
Administrative Charges (36) (339) (26)
Transfers Between Funds 7,852 27,707 22,734
Contract Withdrawals 0 (161) 0
Deferred Sales Charges 0 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 165,758 1,458,107 610,749
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 194,649 1,630,990 610,771
Net Assets, at Beginning of Year 0 0 0
------------------ ------------------ -------------------
Net Assets, at End of Year $194,649 $1,630,990 $610,771
================== ================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mitchell Mitchell Mitchell
Hutchins Hutchins Hutchins
Small Strategic Tactical
Capital Income Allocations
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $15,647 $1,692 $50,122
Realized Gain (Loss) on Investment Activity 669 16 94,317
Change in Unrealized Appreciation
(Depreciation) of Investments 29,971 359 544,313
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 46,287 2,067 688,752
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 297,384 157,694 9,858,987
Administrative Charges (90) (36) (1,224)
Transfers Between Funds 8,383 9,365 (235,126)
Contract Withdrawals (452) (644) (3,596)
Deferred Sales Charges 0 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 305,225 166,379 9,619,041
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets 351,512 168,446 10,307,793
Net Assets, at Beginning of Year 0 0 0
------------------ ------------------ -------------------
Net Assets, at End of Year $351,512 $168,446 $10,307,793
================== ================== ===================
</TABLE>
<TABLE>
<CAPTION>
Van Eck Van Eck
Worldwide Van Eck Worldwide
Hard Worldwide Emerging
Assets Balanced Markets
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $29,649 $83,823 ($262)
Realized Gain (Loss) on Investment Activity (27,745) (38,939) (5,888)
Change in Unrealized Appreciation
(Depreciation) of Investments (66,594) (12,586) (3,745)
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations (64,690) 32,298 (9,895)
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 6,896 1,139 26,351
Administrative Charges (136) (118) (5)
Transfers Between Funds (10,643) (403,202) 2,545
Contract Withdrawals (17,632) (20,077) 0
Deferred Sales Charges (552) (556) 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (22,067) (422,814) 28,891
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets (86,757) (390,516) 18,996
Net Assets, at Beginning of Year 218,823 390,516 0
------------------ ------------------ -------------------
Net Assets, at End of Year $132,066 0 $18,996
================== ================== ===================
</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) $18,178 $21,342 ($38)
Realized Gain (Loss) on Investment Activity 20,080 34,514 22,266
Change in Unrealized Appreciation
(Depreciation) of Investments 25,080 21,585 48,693
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 63,338 77,441 70,921
------------------ ------------------ -------------------
Capital Transactions:
Contract Deposits 36,622 27,019 9,848
Administrative Charges (279) (392) (457)
Transfers Between Funds (130,120) (273,314) (51,824)
Contract Withdrawals (74,252) (48,734) (61,884)
Deferred Sales Charges (2,160) (321) (1,986)
Death Benefits 0 0 0
Annuity Payments 0 0 0
------------------ ------------------ -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (170,189) (295,742) (106,303)
------------------ ------------------ -------------------
Total Increase (Decrease) in Net Assets (106,851) (218,301) (35,382)
Net Assets, at Beginning of Year 680,596 726,459 578,755
------------------ ------------------ -------------------
Net Assets, at End of Year $573,745 $508,158 $543,373
================== ================== ===================
</TABLE>
See Accompanying 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, 1998 and December 31, 1997
<TABLE>
<CAPTION>
1997
Aim Aim
Capital International
Appreciation Equity
Total Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $13,548,504 $0 ($1)
Realized Gain (Loss) on Investment Activity 8,929,886 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 98,621,120 0 56
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 121,099,510 0 55
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 397,800,076 0 0
Administrative Charges (238,857) 0 0
Transfers Between Funds 2,388,992 0 2,603
Contract Withdrawals (45,731,605) 0 0
Deferred Sales Charges (1,289,690) 0 0
Death Benefits (6,433,953) 0 0
Annuity Payments (130,144) 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 346,364,819 0 2,603
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 467,464,329 0 2,658
Net Assets, at Beginning of Year 497,657,109 0 0
----------------- ----------------- -----------------
Net Assets, at End of Year $965,121,438 $0 $2,658
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Growth
Money Premier &
Market Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,777,756 ($1,439,376) $5,570,129
Realized Gain (Loss) on Investment Activity 0 1,068,076 901,394
Change in Unrealized Appreciation
(Depreciation) of Investments 0 28,012,215 24,483,174
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,777,756 27,640,915 30,954,697
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 112,042,295 42,843,795 49,760,507
Administrative Charges (10,967) (36,258) (42,303)
Transfers Between Funds (102,000,868) 21,078,785 25,207,834
Contract Withdrawals (8,610,020) (6,264,801) (7,571,038)
Deferred Sales Charges (304,347) (185,450) (192,400)
Death Benefits (1,442,716) (991,469) (1,020,337)
Annuity Payments (2,837) (19,084) (21,546)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (329,460) 56,425,518 66,120,717
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 1,448,296 84,066,433 97,075,414
Net Assets, at Beginning of Year 47,386,157 69,874,740 87,557,564
----------------- ----------------- -----------------
Net Assets, at End of Year $48,834,453 $153,941,173 $184,632,978
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Short-Term Global
International Multi-Market Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $454,910 $222,684 $381,821
Realized Gain (Loss) on Investment Activity 357,951 15,429 1,224
Change in Unrealized Appreciation
(Depreciation) of Investments (438,658) (77,786) (424,240)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 374,203 160,327 (41,195)
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 11,808,046 1,806,048 2,119,563
Administrative Charges (16,005) (1,450) (3,652)
Transfers Between Funds 3,059,259 (2,020,981) 228,850
Contract Withdrawals (1,816,013) (245,827) (480,067)
Deferred Sales Charges (39,973) (6,556) (10,379)
Death Benefits (337,804) (9,754) (143,059)
Annuity Payments (18,316) 0 (2,250)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 12,639,194 (478,520) 1,709,006
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 13,013,397 (318,193) 1,667,811
Net Assets, at Beginning of Year 33,343,127 4,974,647 7,665,854
----------------- ----------------- -----------------
Net Assets, at End of Year $46,356,524 $4,656,454 $9,333,665
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance
U.S. Alliance Alliance
Government Global North
High Dollar American
Grade Government Government
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $730,869 $808,640 $587,747
Realized Gain (Loss) on Investment Activity 249,171 530,664 935,084
Change in Unrealized Appreciation
(Depreciation) of Investments 593,093 (441,472) (131,720)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 1,573,133 897,832 1,391,111
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 4,714,575 3,433,148 10,996,294
Administrative Charges (8,042) (3,107) (5,479)
Transfers Between Funds 1,554,976 1,071,030 225,186
Contract Withdrawals (1,848,163) (464,827) (1,332,955)
Deferred Sales Charges (59,106) (11,697) (32,098)
Death Benefits (209,720) (126,761) (280,050)
Annuity Payments (416) (396) (407)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,144,104 3,897,390 9,570,491
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 5,717,237 4,795,222 10,961,602
Net Assets, at Beginning of Year 20,584,053 6,838,841 12,908,015
----------------- ----------------- -----------------
Net Assets, at End of Year $26,301,290 $11,634,063 $23,869,617
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance Alliance Alliance
Utility Conservative Growth
Income Investors Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $37,367 $146,157 $148,283
Realized Gain (Loss) on Investment Activity 357,093 153,385 209,404
Change in Unrealized Appreciation
(Depreciation) of Investments 2,221,402 1,205,590 937,319
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,615,862 1,505,132 1,295,006
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 2,299,126 5,743,898 2,375,181
Administrative Charges (4,445) (6,013) (3,902)
Transfers Between Funds 156,757 2,204,394 1,884,777
Contract Withdrawals (915,938) (898,306) (527,920)
Deferred Sales Charges (25,065) (26,309) (14,137)
Death Benefits (119,410) (191,508) (46,107)
Annuity Payments (6,061) (1,494) (3,376)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,384,964 6,824,662 3,664,516
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 4,000,826 8,329,794 4,959,522
Net Assets, at Beginning of Year 10,214,507 13,299,869 7,803,854
----------------- ----------------- -----------------
Net Assets, at End of Year $14,215,333 $21,629,663 $12,763,376
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Alliance Alliance
Alliance Total Worldwide
Growth Return Privatization
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $3,315,111 $660,699 $256,298
Realized Gain (Loss) on Investment Activity 2,595,070 339,981 303,968
Change in Unrealized Appreciation
(Depreciation) of Investments 31,408,208 2,789,900 767,160
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 37,318,389 3,790,580 1,327,426
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 40,074,525 7,396,356 11,178,801
Administrative Charges (56,285) (7,650) (7,664)
Transfers Between Funds 15,570,803 3,245,323 7,638,266
Contract Withdrawals (8,893,975) (1,065,417) (953,158)
Deferred Sales Charges (265,633) (22,403) (19,193)
Death Benefits (847,552) (265,632) (124,743)
Annuity Payments (5,714) (8,410) (12,093)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 45,576,169 9,272,167 17,700,216
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 82,894,558 13,062,747 19,027,642
Net Assets, at Beginning of Year 105,187,440 15,455,885 14,572,855
----------------- ----------------- -----------------
Net Assets, at End of Year $188,081,998 $28,518,632 $33,600,497
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Alliance
Alliance Alliance Real
Technology Quasar Estate
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($482,325) ($395,733) ($63,344)
Realized Gain (Loss) on Investment Activity 354,619 337,869 29,149
Change in Unrealized Appreciation
(Depreciation) of Investments 913,174 4,247,740 1,157,650
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 785,468 4,189,876 1,123,455
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 23,116,434 25,866,034 5,146,970
Administrative Charges (15,309) (5,108) (394)
Transfers Between Funds 11,066,269 14,734,073 5,496,196
Contract Withdrawals (1,371,545) (901,916) (300,870)
Deferred Sales Charges (30,116) (15,196) (7,384)
Death Benefits (171,592) (81,002) (24,737)
Annuity Payments (3,010) (23,011) (1,723)
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 32,591,131 39,573,874 10,308,058
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 33,376,599 43,763,750 11,431,513
Net Assets, at Beginning of Year 23,338,849 6,924,394 0
----------------- ----------------- -----------------
Net Assets, at End of Year $56,715,448 $50,688,144 $11,431,513
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Dreyfus
Alliance Dreyfus Zero
High Stock Coupon
Yield Index 2000
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($1,520) $194,540 $17,511
Realized Gain (Loss) on Investment Activity 6 58,497 942
Change in Unrealized Appreciation
(Depreciation) of Investments 18,918 541,429 753
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 17,404 794,466 19,206
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 495,777 2,159,734 196,470
Administrative Charges (9) (1,043) (140)
Transfers Between Funds 586,741 3,453,754 (56,713)
Contract Withdrawals (1,197) (191,098) (2,013)
Deferred Sales Charges 0 (4,689) 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,081,312 5,416,658 137,604
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 1,098,716 6,211,124 156,810
Net Assets, at Beginning of Year 0 1,331,760 168,336
----------------- ----------------- -----------------
Net Assets, at End of Year $1,098,716 $7,542,884 $325,146
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dreyfus
Small Fidelity Fidelity
Company Money Asset
Stock Market Manager
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $9,481 $265,168 $82,833
Realized Gain (Loss) on Investment Activity (2,418) 0 16,597
Change in Unrealized Appreciation
(Depreciation) of Investments (20,519) 0 141,622
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations (13,456) 265,168 241,052
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 60,957 27,367,968 785,125
Administrative Charges (15) (377) (322)
Transfers Between Funds 599,833 (20,984,865) 1,596,921
Contract Withdrawals (28,255) (500,338) (73,541)
Deferred Sales Charges 0 (2,097) (2,711)
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 632,520 5,880,291 2,305,472
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 619,064 6,145,459 2,546,524
Net Assets, at Beginning of Year 0 3,963,487 626,613
----------------- ----------------- -----------------
Net Assets, at End of Year $619,064 $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
Death Benefits 0 0 0
Annuity Payments 0 0 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>
Merrill
Lynch
Fidelity Fidelity Basic
Overseas Contrafund Value
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $23,042 $0 $0
Realized Gain (Loss) on Investment Activity 3,263 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments (2,743) 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 23,562 0 0
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 536,913 0 0
Administrative Charges (244) 0 0
Transfers Between Funds 494,958 0 0
Contract Withdrawals (16,014) 0 0
Deferred Sales Charges (117) 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 1,015,496 0 0
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 1,039,058 0 0
Net Assets, at Beginning of Year 336,704 0 0
----------------- ----------------- -----------------
Net Assets, at End of Year $1,375,762 $0 $0
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Merrill
Merrill Lynch Merrill
Lynch Domestic Lynch
Capital Money Global
Market Market Strategy
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 $0
Realized Gain (Loss) on Investment Activity 0 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0 0
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 0 0 0
Administrative Charges 0 0 0
Transfers Between Funds 0 0 0
Contract Withdrawals 0 0 0
Deferred Sales Charges 0 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0 0
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 0 0 0
Net Assets, at Beginning of Year 0 0 0
----------------- ----------------- -----------------
Net Assets, at End of Year $0 $0 $0
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill
Merrill Lynch Merrill
Lynch High Lynch
Global Current Inertnational
Utility Income Equity
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 $0
Realized Gain (Loss) on Investment Activity 0 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0 0
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 0 0 0
Administrative Charges 0 0 0
Transfers Between Funds 0 0 0
Contract Withdrawals 0 0 0
Deferred Sales Charges 0 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0 0
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 0 0 0
Net Assets, at Beginning of Year 0 0 0
----------------- ----------------- -----------------
Net Assets, at End of Year $0 $0 $0
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Merrill Merrill Merrill
Lynch Lynch Lynch
Natural Prime Quality
Resources Bond Equity
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 $0
Realized Gain (Loss) on Investment Activity 0 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0 0
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 0 0 0
Administrative Charges 0 0 0
Transfers Between Funds 0 0 0
Contract Withdrawals 0 0 0
Deferred Sales Charges 0 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0 0
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 0 0 0
Net Assets, at Beginning of Year 0 0 0
----------------- ----------------- -----------------
Net Assets, at End of Year $0 $0 $0
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Merrill Mitchell
Lynch Mitchell Hutchins
Special Hutchins Global
Value Balanced Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 $0
Realized Gain (Loss) on Investment Activity 0 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0 0
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 0 0 0
Administrative Charges 0 0 0
Transfers Between Funds 0 0 0
Contract Withdrawals 0 0 0
Deferred Sales Charges 0 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0 0
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 0 0 0
Net Assets, at Beginning of Year 0 0 0
----------------- ----------------- -----------------
Net Assets, at End of Year $0 $0 $0
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Mitchell
Hutchins Mitchell
Mitchell Growth Hutchins
Hutchins & High
Growth Income Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 $0
Realized Gain (Loss) on Investment Activity 0 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0 0
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 0 0 0
Administrative Charges 0 0 0
Transfers Between Funds 0 0 0
Contract Withdrawals 0 0 0
Deferred Sales Charges 0 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0 0
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 0 0 0
Net Assets, at Beginning of Year 0 0 0
----------------- ----------------- -----------------
Net Assets, at End of Year $0 $0 $0
================= ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mitchell Mitchell Mitchell
Hutchins Hutchins Hutchins
Small Strategic Tactical
Capital Income Allocations
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 $0
Realized Gain (Loss) on Investment Activity 0 0 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0 0
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 0 0 0
Administrative Charges 0 0 0
Transfers Between Funds 0 0 0
Contract Withdrawals 0 0 0
Deferred Sales Charges 0 0 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0 0
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 0 0 0
Net Assets, at Beginning of Year 0 0 0
----------------- ----------------- -----------------
Net Assets, at End of Year $0 $0 $0
================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
Van Eck Van Eck
Worldwide Van Eck Worldwide
Hard Worldwide Emerging
Assets Balanced Markets
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,655 ($758) $0
Realized Gain (Loss) on Investment Activity 5,096 7,673 0
Change in Unrealized Appreciation
(Depreciation) of Investments (10,767) 6,663 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations (3,016) 13,578 0
----------------- ----------------- -----------------
Capital Transactions:
Contract Deposits 21,151 178,444 0
Administrative Charges (94) (91) 0
Transfers Between Funds 101,597 107,211 0
Contract Withdrawals (17,458) (5,505) 0
Deferred Sales Charges (674) (23) 0
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 104,522 280,036 0
----------------- ----------------- -----------------
Total Increase (Decrease) in Net Assets 101,506 293,614 0
Net Assets, at Beginning of Year 117,317 96,902 0
----------------- ----------------- -----------------
Net Assets, at End of Year $218,823 $390,516 $0
================= ================= =================
</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)
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------- ----------------- -----------------
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>
See Accompanying 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
following products are offered by the Account: Alliance Gallery, Profile,
Ovation, Trilogy, and Paradigm. The Account invests in shares of AIM Variable
Insurance Fund ("AIM Fund"), Alliance Variable Products Series Fund, Inc.
("Alliance Fund"), Dreyfus Variable Investment Fund ("Dreyfus Fund"), Fidelity
Investments Variable Insurance Products Fund ("Fidelity Trust"), Fidelity
Variable Insurance Products Fund II ("Fidelity Trust II"), Merrill Lynch
Variable Series Funds ("Merrill Lynch"), Mitchell Hutchins Series Trust
("Mitchell Hutchins"), Van Eck Investment Trust ("Van Eck Trust") and Weiss,
Peck & Greer ("Tomorrow Funds"). The assets in the policies may be invested in
the following subaccounts.
AIM Fund: Fidelity Trust II:
International Equity Portfolio Asset Manager Portfolio
Capital Appreciation Portfolio Investment Grade Bond Portfolio
Contrafund Portfolio
Alliance Fund:
Growth & Income Portfolio Merrill Lynch Fund:
Conservative Investors Portfolio Basic Value Portfolio
Growth Portfolio Capital Market Portfolio
Growth Investors Portfolio Domestic Money Market Portfolio
Quasar Portfolio Global Strategy Portfolio
Technology Portfolio Global Utility Portfolio
Money Market Portfolio High Current Income Portfolio
Premier Growth Portfolio International Equity Portfolio
International Portfolio Natural Resources Portfolio
Short-Term Multi-Market Portfolio Prime Bond Portfolio
Global Bond Portfolio Quality Equity Portfolio
U.S. Government Portfolio Special Value Portfolio
Global Dollar Government Portfolio
North American Government Portfolio Mitchell Hutchins Trust:
Utility Income Portfolio Balanced Portfolio
Total Return Portfolio Global Income Portfolio
Worldwide Privatization Portfolio Growth Portfolio
Real Estate Portfolio Growth & Income Portfolio
High Yield Portfolio High Income Portfolio
Small Capital Portfolio
Dreyfus Fund: Strategic Income Portfolio
Stock Index Portfolio Tactical Allocations Portfolio
Zero Coupon 2000 Portfolio
Small Company Stock Portfolio Van Eck Trusts:
Worldwide Hard Assets Portfolio
Fidelity Trust: Worldwide Emerging Markets Portfolio
Money Market Portfolio Worldwide Balanced Portfolio
High Income Portfolio (Fund closed 06/29/98)
Growth Portfolio Weiss, Peck & Greer Tomorrow Funds:
Overseas Portfolio Tomorrow Long Term Portfolio
Tomorrow Medium Term Portfolio
Tomorrow Short Term Portfolio
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
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 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.
Daily charges for the Accidental Death Benefit (ADB) option are assessed through
the daily unit value calculation on all contracts that have elected this option
and are equivalent on an annual basis to 0.05% of the value of the contracts.
These charges are included as part of the mortality and expense risk fees line
of the Statement of Operations.
The contracts provide that in the event that a contract owner withdraws all or a
portion of the contract value within the surrender charge period 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, 1998, investment activity in the Fund was as
follows:
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
AIM:
Capital Appreciation Portfolio $ 1,344,539 $ 81,351
International Equity Portfolio 1,566,560 808,755
Alliance Funds:
Money Market Portfolio 104,309,381 65,679,448
Premier Growth Portfolio 110,468,523 11,034,383
Growth & Income Portfolio 102,772,000 15,334,385
International Portfolio 9,130,019 7,372,272
Short-Term Multi-Market Portfolio 2,682,779 2,829,496
Global Bond Market Portfolio 2,013,028 2,779,147
U.S. Government High Grade Portfolio 25,632,440 6,727,622
Global Dollar Government Portfolio 4,093,316 3,739,917
North American Government Portfolio 9,030,785 6,948,461
Utility Income Portfolio 11,812,459 3,371,236
Conservative Investors Portfolio 8,749,318 4,122,016
Growth Investors Portfolio 3,268,336 2,649,865
Growth Portfolio 56,639,414 20,465,070
Total Return Portfolio 18,565,164 4,085,884
Worldwide Privatization Portfolio 8,829,063 6,114,746
Technology Portfolio 25,227,667 11,339,118
Quasar Portfolio 33,049,740 6,979,048
Real Estate Portfolio 8,228,432 3,243,588
High Yield Portfolio 22,383,965 6,980,257
Dreyfus
Stock Index Portfolio 7,114,507 1,924,156
Zero Coupon 2000 Portfolio 21,756 64,177
Small Company Portfolio 912,317 86,172
Fidelity Trust Funds:
Money Market Portfolio 20,390,709 20,221,175
Asset Manager Portfolio 4,733,438 496,552
Growth Portfolio 5,512,114 2,055,567
High Income Portfolio 2,134,586 382,841
Investment Grade Bond Portfolio 3,146,980 1,121,436
Overseas Portfolio 259,217 516,558
Contrafund Portfolio 2,675,514 255,508
Merrill Lynch
Basic Value Portfolio 4,399,244 177,207
Capital Market Portfolio 81,194 6,556
Domestic Money Market Portfolio 5,009,192 1,373,278
Global Strategy Portfolio 309,184 11,922
Global Utility Portfolio 505,490 83,447
High Current Income Portfolio 646,548 117,007
International Equity Portfolio 697,326 40,545
Natural Resources Portfolio 32,703 289
Prime Bond Portfolio 754,606 329,530
Quality Equity Portfolio 787,446 53,113
Special Value Portfolio 658,873 32,809
Mitchell Hutchins
Balanced Income Portfolio 613,571 969
Global Income Portfolio 34,214 95
Growth Portfolio 187,269 391
Growth and Income Portfolio 1,592,385 24,187
High Income Portfolio 621,280 675
Small Capital Portfolio 324,239 3,370
Strategic Income Portfolio 168,775 703
Tactical Allocations Portfolio 10,236,632 567,469
Van Eck:
Worldwide Hard Assets Portfolio 95,977 88,394
Worldwide Balanced Portfolio 101,524 440,603
Worldwide Emerging Markets Portfolio 39,716 11,086
Weiss, Peck, & Greer:
Tomorrow Short Term Portfolio 122,794 274,804
Tomorrow Medium Term Portfolio 112,050 386,450
Tomorrow Long Term Portfolio 52,459 158,800
<PAGE>
For the year ended December 31, 1997, investment activity in the Fund was as
follows:
AIM:
International Equity Portfolio $ 2,603 $ 2
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 74,460,117 2,769,272
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 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 8,283,399 1,312,581
Growth Investors Portfolio 5,396,178 1,583,376
Growth Portfolio 54,506,591 5,615,308
Total Return Portfolio 11,219,656 1,286,790
Worldwide Privatization Portfolio 18,993,504 1,036,988
Technology Portfolio 34,021,733 1,912,926
Quasar Portfolio 41,248,107 2,069,946
Real Estate Investment Portfolio 10,774,880 530,167
High Yield Portfolio 1,080,228 437
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
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
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
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
5. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1998, transactions in accumulation units of the
account were as follows:
<TABLE>
Aim
Aim Capital Aim
Capital Appreciation International
Appreciation ADB Equity
3 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 47,558.86 0.00 25,522.92
Units Withdrawn (3,959.15) 0.00 (790.21)
Units Transferred Between Funds 75,660.93 0.00 42,197.50
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------ ----------
Net Increase (Decrease) 119,260.64 0.00 66,930.21
Units, at Beginning of the Year 0.00 0.00 262.97
----------- ------ ----------
Units, at End of the Year 119,260.64 0.00 67,193.18
=========== ====== ==========
Unit Value at December 31, 1998 $ 11.31 $ 11.30 $ 11.51
=========== ====== ==========
</TABLE>
<TABLE>
Aim Alliance
International Alliance Money
Equity Money Market
ADB Market ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 0.00 7,509,842.45 257,459.65
Units Withdrawn 0.00 (1,988,422.77) (118.06)
Units Transferred Between Funds 0.00 (2,575,889.22) (84,563.38)
Units Transferred From (To) AIG Life 0.00 20,243.98 0.00
------ ------------- -----------
Net Increase (Decrease) 0.00 2,965,774.44 172,778.21
Units, at Beginning of the Year 0.00 4,291,499.61 0.00
------ ------------- -----------
Units, at End of the Year 0.00 7,257,274.05 172,778.21
====== ============= ===========
Unit Value at December 31, 1998 $ 11.50 $ 11.77 $ 11.76
====== ============= ===========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Alliance
Alliance Premier Alliance
Premier Growth Premier
Growth ADB Growth
1 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 3,171,897.12 178,832.87 14,597.80
Units Withdrawn (675,954.49) (651.51) (835.27)
Units Transferred Between Funds 883,119.78 16,919.22 54,655.51
Units Transferred From (To) AIG Life 2,114.55 0.00 0.00
-------------- ----------- ----------
Net Increase (Decrease) 3,381,176.96 195,100.58 68,418.04
Units, at Beginning of the Year 6,622,866.85 0.00 0.00
-------------- ----------- ----------
Units, at End of the Year 10,004,043.81 195,100.58 68,418.04
============== =========== ==========
Unit Value at December 31, 1998 $ 33.89 $ 33.86 $ 15.29
============== =========== ==========
</TABLE>
<TABLE>
Alliance
Alliance Growth Alliance
Growth & Growth
& Income &
Income ADB Income
1 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 2,656,426.66 109,421.67 62,196.56
Units Withdrawn (761,908.81) (545.08) (46,624.91)
Units Transferred Between Funds 318,992.21 4,613.57 350,325.42
Units Transferred From (To) AIG Life 5,136.13 0.00 0.00
-------------- ----------- ----------
Net Increase (Decrease) 2,218,646.19 113,490.16 365,897.07
Units, at Beginning of the Year 7,258,107.19 0.00 547,915.28
-------------- ----------- ----------
Units, at End of the Year 9,476,753.38 113,490.16 913,812.35
============== =========== ==========
Unit Value at December 31, 1998 $ 28.94 $ 28.92 $ 17.95
============== =========== ==========
</TABLE>
<TABLE>
Alliance Alliance
Alliance International Short-Term
International ADB Multi-Market
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 489,565.90 21,545.46 50,543.41
Units Withdrawn (257,741.94) (96.60) (24,477.28)
Units Transferred Between Funds (276,734.46) 2,106.91 (73,629.01)
Units Transferred From (To) AIG Life (9,814.06) 0.00 1,625.44
-------------- ----------- ----------
Net Increase (Decrease) (54,724.56) 23,555.77 (45,937.44)
Units, at Beginning of the Year 3,700,183.10 0.00 418,440.83
-------------- ----------- ----------
Units, at End of the Year 3,645,458.54 23,555.77 372,503.39
============== =========== ==========
Unit Value at December 31, 1998 $ 13.93 $ 13.92 $ 11.67
============== =========== ==========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Alliance Alliance
Short-Term Alliance Global
Multi-Market Global Bond
ADB Bond ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 0.00 108,917.23 1,694.51
Units Withdrawn 0.00 (60,020.43) (0.28)
Units Transferred Between Funds 0.00 (113,588.35) 215.71
Units Transferred From (To) AIG Life 0.00 127.77 0.00
-------------- ----------- ----------
Net Increase (Decrease) 0.00 (64,563.78) 1,909.94
Units, at Beginning of the Year 0.00 708,242.42 0.00
-------------- ----------- ----------
Units, at End of the Year 0.00 643,678.64 1,909.94
============== =========== ==========
Unit Value at December 31, 1998 $ 11.66 $ 14.79 $ 14.78
============== =========== ==========
</TABLE>
<TABLE>
Alliance
Alliance U.S.
U.S. Government
Alliance Government High
Global High Grade
Bond Grade ADB
3 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 4.52 1,082,149.55 53,281.55
Units Withdrawn (85.97) (347,109.59) (139.76)
Units Transferred Between Funds 4,628.72 582,727.45 3,144.68
Units Transferred From (To) AIG Life 0.00 7,821.56 0.00
-------------- ----------- ----------
Net Increase (Decrease) 4,547.27 1,325,588.97 56,286.47
Units, at Beginning of the Year 0.00 2,190,735.81 0.00
-------------- ----------- ----------
Units, at End of the Year 4,547.27 3,516,324.78 56,286.47
============== =========== ==========
Unit Value at December 31, 1998 $ 11.10 $ 12.80 $ 12.80
============== =========== ==========
</TABLE>
<TABLE>
Alliance
Alliance Global Alliance
Global Dollar North
Dollar Government American
Government ADB Government
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 136,768.25 2,381.63 564,009.11
Units Withdrawn (59,051.43) (2.88) (116,023.80)
Units Transferred Between Funds (156,922.03) 1,161.23 (423,434.75)
Units Transferred From (To) AIG Life 787.56 0.00 1,560.05
----------- --------- -------------
Net Increase (Decrease) (78,417.65) 3,539.98 26,110.61
Units, at Beginning of the Year 714,986.09 0.00 1,790,540.24
----------- --------- -------------
Units, at End of the Year 636,568.44 3,539.98 1,816,650.85
=========== ========= =============
Unit Value at December 31, 1998 $ 12.55 $ 12.54 $ 13.67
=========== ========= =============
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Alliance
North
American Alliance
Government Alliance Utility
ADB Utility ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 8,271.14 383,325.70 22,800.27
Units Withdrawn (7.41) (91,678.44) (160.63)
Units Transferred Between Funds 1,675.41 174,263.42 2,436.72
Units Transferred From (To) AIG Life 0.00 3,301.53 0.00
----------- --------- -------------
Net Increase (Decrease) 9,939.14 469,212.21 25,076.36
Units, at Beginning of the Year 0.00 910,470.43 0.00
----------- --------- -------------
Units, at End of the Year 9,939.14 1,379,682.64 25,076.36
=========== ========= =============
Unit Value at December 31, 1998 $ 13.66 $ 19.04 $ 19.03
=========== ========= =============
</TABLE>
<TABLE>
Alliance
Alliance Conservative Alliance
Conservative Investors Conservative
Investors ADB Investors
1 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 194,573.92 0.00 1,216.65
Units Withdrawn (158,624.25) 0.00 (3,857.41)
Units Transferred Between Funds 206,250.37 0.00 (1,082.78)
Units Transferred From (To) AIG Life 7,082.75 0.00 0.00
----------- --------- -------------
Net Increase (Decrease) 249,282.79 0.00 (3,723.54)
Units, at Beginning of the Year 1,584,750.70 0.00 90,034.09
----------- --------- -------------
Units, at End of the Year 1,834,033.49 0.00 86,310.55
=========== ========= =============
Unit Value at December 31, 1998 $ 14.62 $ 14.61 $ 13.03
=========== ========= =============
</TABLE>
<TABLE>
Alliance
Alliance Growth Alliance
Growth Investors Growth
Investors ADB Investors
1 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 57,037.79 0.00 (30.32)
Units Withdrawn (56,530.88) 0.00 (6,447.17)
Units Transferred Between Funds (21,179.07) 0.00 (3,029.70)
Units Transferred From (To) AIG Life 1,383.69 0.00 0.00
----------- --------- -------------
Net Increase (Decrease) (19,288.47) 0.00 (9,507.19)
Units, at Beginning of the Year 824,606.48 0.00 79,290.63
----------- --------- -------------
Units, at End of the Year 805,318.01 0.00 69,783.44
=========== ========= =============
Unit Value at December 31, 1998 $ 17.39 $ 17.38 $ 15.06
=========== ========= =============
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Alliance
Alliance Growth Alliance
Growth ADB Growth
1 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 1,857,332.67 99,987.89 52,120.97
Units Withdrawn (873,056.11) (305.07) (28,655.02)
Units Transferred Between Funds (135,476.29) 8,482.69 83,879.94
Units Transferred From (To) AIG Life 1,279.51 0.00 (981.99)
----------- --------- -------------
Net Increase (Decrease) 850,079.78 108,165.51 106,363.90
Units, at Beginning of the Year 8,054,584.57 0.00 333,114.57
----------- --------- -------------
Units, at End of the Year 8,904,664.35 108,165.51 439,478.47
=========== ========= =============
Unit Value at December 31, 1998 $ 28.81 $ 28.79 $ 19.92
=========== ========= =============
</TABLE>
<TABLE>
Alliance
Alliance Total Alliance
Total Return Worldwide
Return ADB Privatization
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 684,307.11 38,485.82 391,584.50
Units Withdrawn (174,420.87) (187.93) (157,769.30)
Units Transferred Between Funds 140,189.04 (4,508.65) (228,826.22)
Units Transferred From (To) AIG Life (2,705.38) 0.00 2,841.44
----------- --------- -------------
Net Increase (Decrease) 647,369.90 33,789.24 7,830.42
Units, at Beginning of the Year 1,780,440.77 0.00 2,391,217.59
----------- --------- -------------
Units, at End of the Year 2,427,810.67 33,789.24 2,399,048.01
=========== ========= =============
Unit Value at December 31, 1998 $ 18.42 $ 18.41 $ 15.32
=========== ========= =============
</TABLE>
<TABLE>
Alliance
Worldwide Alliance
Privatization Alliance Technology
ADB Technology ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 44,025.63 1,377,661.98 127,787.60
Units Withdrawn (112.74) (366,104.73) (233.48)
Units Transferred Between Funds (7,563.17) (161,640.97) 7,307.52
Units Transferred From (To) AIG Life 0.00 2,171.97 0.00
----------- --------- -------------
Net Increase (Decrease) 36,349.72 852,088.25 134,861.64
Units, at Beginning of the Year 0.00 4,818,385.19 0.00
----------- --------- -------------
Units, at End of the Year 36,349.72 5,670,473.44 134,861.64
=========== ========= =============
Unit Value at December 31, 1998 $ 15.31 $ 18.47 $ 18.45
=========== ========= =============
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Alliance
Alliance Alliance Quasar
Technology Quasar ADB
3 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 14,966.28 1,762,866.89 83,852.70
Units Withdrawn (6,868.05) (345,725.43) (298.26)
Units Transferred Between Funds 53,694.12 181,924.13 10,797.23
Units Transferred From (To) AIG Life (1,278.48) 5,423.61 0.00
----------- --------- -------------
Net Increase (Decrease) 60,513.87 1,604,489.20 94,351.67
Units, at Beginning of the Year 143,999.25 3,991,205.09 0.00
----------- --------- -------------
Units, at End of the Year 204,513.12 5,595,694.29 94,351.67
=========== ========= =============
Unit Value at December 31, 1998 $ 17.87 $ 11.65 $ 11.64
=========== ========= =============
</TABLE>
<TABLE>
Alliance
Alliance Real
Alliance Real Estate
Quasar Estate ADB
3 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 9,644.59 519,394.78 39,131.84
Units Withdrawn (4,155.86) (60,429.88) (39.92)
Units Transferred Between Funds 25,573.64 (77,095.41) 2,277.84
Units Transferred From (To) AIG Life 0.00 5,175.09 0.00
----------- ------------- ----------
Net Increase (Decrease) 31,062.37 387,044.58 41,369.76
Units, at Beginning of the Year 94,929.55 936,389.36 0.00
----------- ------------- ----------
Units, at End of the Year 125,991.92 1,323,433.94 41,369.76
=========== ============= ==========
Unit Value at December 31, 1998 $ 11.32 $ 9.71 $ 9.70
=========== ============= ==========
</TABLE>
<TABLE>
Alliance
Alliance High Dreyfus
High Yield Stock
Yield ADB Index
1 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 1,052,970.85 95,938.61 236,163.34
Units Withdrawn (113,724.82) (327.18) (36,469.30)
Units Transferred Between Funds 429,085.33 (30,691.22) 99,235.06
Units Transferred From (To) AIG Life 1,990.50 0.00 (762.65)
----------- ------------- ----------
Net Increase (Decrease) 1,370,321.86 64,920.21 298,166.45
Units, at Beginning of the Year 106,671.96 0.00 490,227.53
----------- ------------- ----------
Units, at End of the Year 1,476,993.82 64,920.21 788,393.98
=========== ============= ==========
Unit Value at December 31, 1998 $ 9.78 $ 9.78 $ 19.45
=========== ============= ==========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Dreyfus
Dreyfus Dreyfus Zero
Stock Zero Coupon
Index Coupon 2000
ADB 2000 ADB
2 Portfolio 3 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 0.00 0.00 0.00
Units Withdrawn 0.00 (1,416.67) 0.00
Units Transferred Between Funds 815.94 (3,421.17) 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 815.94 (4,837.84) 0.00
Units, at Beginning of the Year 0.00 29,491.76 0.00
----------- ------------- ----------
Units, at End of the Year 815.94 24,653.92 0.00
=========== ============= ==========
Unit Value at December 31, 1998 $ 19.44 $ 11.66 $ 11.65
=========== ============= ==========
</TABLE>
<TABLE>
Dreyfus
Dreyfus Small
Small Company Fidelity
Company Stock Money
Stock ADB Market
3 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 28,117.16 0.00 1,728,067.19
Units Withdrawn (781.04) 0.00 (58,886.72)
Units Transferred Between Funds 51,770.67 1,042.70 (1,687,383.70)
Units Transferred From (To) AIG Life 0.00 0.00 (2,878.99)
----------- ------------- ----------
Net Increase (Decrease) 79,106.79 1,042.70 (21,082.22)
Units, at Beginning of the Year 58,659.22 0.00 944,656.53
----------- ------------- ----------
Units, at End of the Year 137,766.01 1,042.70 923,574.31
=========== ============= ==========
Unit Value at December 31, 1998 $ 9.79 $ 9.78 $ 11.13
=========== ============= ==========
</TABLE>
<TABLE>
Fidelity Fidelity
Money Fidelity Asset
Market Asset Manager
ADB Manager ADB
2 Portfolio 3 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 4,083.19 101,784.75 0.00
Units Withdrawn 0.00 (21,758.76) 0.00
Units Transferred Between Funds (4,083.19) 193,948.00 0.00
Units Transferred From (To) AIG Life 0.00 274.09 0.00
----------- ------------- ----------
Net Increase (Decrease) 0.00 274,248.08 0.00
Units, at Beginning of the Year 0.00 239,825.14 0.00
----------- ------------- ----------
Units, at End of the Year 0.00 514,073.22 0.00
=========== ============= ==========
Unit Value at December 31, 1998 $ 11.12 $ 15.01 $ 15.00
=========== ============= ==========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Fidelity Fidelity
Fidelity Growth High
Growth ADB Income
3 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 158,485.11 0.00 74,146.16
Units Withdrawn (29,341.99) 0.00 (13,479.41)
Units Transferred Between Funds 46,036.56 0.00 55,911.05
Units Transferred From (To) AIG Life (1,153.20) 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 174,026.48 0.00 116,577.80
Units, at Beginning of the Year 468,339.86 0.00 185,484.29
----------- ------------- ----------
Units, at End of the Year 642,366.34 0.00 302,062.09
=========== ============= ==========
Unit Value at December 31, 1998 $ 18.29 $ 18.28 $ 11.93
=========== ============= ==========
</TABLE>
<TABLE>
Fidelity
Fidelity Fidelity Investment
High Investment Grade
Income Grade Bond
ADB Bond ADB
2 Portfolio 3 Portfolio 2 Portfolio
VARIABLE ANNUITY -- -- --
<S> <C> <C> <C>
Units Purchased 0.00 122,732.33 0.00
Units Withdrawn 0.00 (17,637.58) 0.00
Units Transferred Between Funds 1,171.66 59,235.79 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 1,171.66 164,330.54 0.00
Units, at Beginning of the Year 0.00 221,696.39 0.00
----------- ------------- ----------
Units, at End of the Year 1,171.66 386,026.93 0.00
=========== ============= ==========
Unit Value at December 31, 1998 $ 11.92 $ 12.10 $ 12.10
=========== ============= ==========
</TABLE>
<TABLE>
Fidelity
Fidelity Overseas Fidelity
Overseas ADB Contrafund
3 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 231.61 0.00 107,725.66
Units Withdrawn (9,050.33) 0.00 (3,742.83)
Units Transferred Between Funds (17,104.93) 0.00 109,931.46
Units Transferred From (To) AIG Life 0.00 0.00 (1,526.08)
----------- ------------- ----------
Net Increase (Decrease) (25,923.65) 0.00 212,388.21
Units, at Beginning of the Year 116,147.43 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 90,223.78 0.00 212,388.21
=========== ============= ==========
Unit Value at December 31, 1998 $ 13.17 $ 13.16 $ 13.02
=========== ============= ==========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Merrill
Merrill Lynch
Fidelity Lynch Basic
Contrafund Basic Value
ADB Value ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 0.00 310,697.36 57,648.54
Units Withdrawn 0.00 (2,364.77) (195.69)
Units Transferred Between Funds 0.00 22,531.00 5,666.66
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 0.00 330,863.59 63,119.51
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 0.00 330,863.59 63,119.51
=========== ============= ==========
Unit Value at December 31, 1998 $ 13.01 $ 10.65 $ 10.64
=========== ============= ==========
</TABLE>
<TABLE>
Merrill Merrill
Merrill Lynch Lynch
Lynch Capital Domestic
Capital Market Money
Market ADB Market
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 4,882.42 2,238.62 389,834.13
Units Withdrawn (2.59) (1.58) (761.11)
Units Transferred Between Funds 1,095.10 1,268.07 (103,998.15)
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 5,974.93 3,505.11 285,074.87
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 5,974.93 3,505.11 285,074.87
=========== ============= ==========
Unit Value at December 31, 1998 $ 6.82 $ 6.82 $ 10.43
=========== ============= ==========
</TABLE>
<TABLE>
Merrill
Lynch Merrill
Domestic Merrill Lynch
Money Lynch Global
Market Global Strategy
ADB Strategy ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 98,151.80 19,831.18 6,346.74
Units Withdrawn (2,378.09) (298.57) (8.34)
Units Transferred Between Funds (32,280.17) 772.26 1,334.86
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 63,493.54 20,304.87 7,673.26
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 63,493.54 20,304.87 7,673.26
=========== ============= ==========
Unit Value at December 31, 1998 $ 10.43 $ 10.73 $ 10.72
=========== ============= ==========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Merrill Merrill
Merrill Lynch Lynch
Lynch Global High
Global Utility Current
Utility ADB Income
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 39,047.00 164.43 54,580.58
Units Withdrawn (2,973.18) (0.04) (3,944.39)
Units Transferred Between Funds (1,696.04) (9.51) 542.73
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 34,377.78 154.88 51,178.92
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 34,377.78 154.88 51,178.92
=========== ============= ==========
Unit Value at December 31, 1998 $ 13.80 $ 13.79 $ 9.45
=========== ============= ==========
</TABLE>
<TABLE>
Merrill
Lynch Merrill
High Merrill Lynch
Current Lynch International
Income International Equity
ADB Equity ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 409.98 52,287.08 9,061.87
Units Withdrawn (0.15) (100.76) (3.78)
Units Transferred Between Funds 454.95 2,382.33 1,817.69
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 864.78 54,568.65 10,875.78
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 864.78 54,568.65 10,875.78
=========== ============= ==========
Unit Value at December 31, 1998 $ 9.45 $ 10.19 $ 10.19
=========== ============= ==========
</TABLE>
<TABLE>
Merrill
Merrill Lynch Merrill
Lynch Natural Lynch
Natural Resources Prime
Resources ADB Bond
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 2,157.51 379.75 59,592.87
Units Withdrawn (4.10) (0.99) (58.85)
Units Transferred Between Funds 86.41 1,244.68 (21,391.73)
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 2,239.82 1,623.44 38,142.29
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 2,239.82 1,623.44 38,142.29
=========== ============= ==========
Unit Value at December 31, 1998 $ 7.54 $ 7.54 $ 10.67
=========== ============= ==========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Merrill Merrill
Lynch Merrill Lynch
Prime Lynch Quality
Bond Quality Equity
ADB Equity ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 1,390.26 58,375.72 5,767.46
Units Withdrawn (0.81) (289.40) (7.76)
Units Transferred Between Funds 743.47 2,675.24 1,279.75
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 2,132.92 60,761.56 7,039.45
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 2,132.92 60,761.56 7,039.45
=========== ============= ==========
Unit Value at December 31, 1998 $ 10.67 $ 11.55 $ 11.54
=========== ============= ==========
</TABLE>
<TABLE>
Merrill
Merrill Lynch
Lynch Special Mitchell
Special Value Hutchins
Value ADB Balanced
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 43,318.38 15,996.45 37,639.00
Units Withdrawn (159.47) (19.33) (8.21)
Units Transferred Between Funds 4,937.50 2,618.40 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 48,096.41 18,595.52 37,630.79
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 48,096.41 18,595.52 37,630.79
=========== ============= ==========
Unit Value at December 31, 1998 $ 8.73 $ 8.72 $ 13.16
=========== ============= ==========
</TABLE>
<TABLE>
Mitchell
Mitchell Mitchell Hutchins
Hutchins Hutchins Global
Balanced Global Income
ADB Income ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 7,424.22 2,161.15 309.98
Units Withdrawn (0.43) (0.50) (0.03)
Units Transferred Between Funds 16.79 0.00 275.73
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 7,440.58 2,160.65 585.68
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 7,440.58 2,160.65 585.68
=========== ============= ==========
Unit Value at December 31, 1998 $ 13.16 $ 11.79 $ 11.79
=========== ============= ==========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Mitchell
Mitchell Hutchins
Mitchell Hutchins Growth
Hutchins Growth &
Growth ADB Income
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 7,771.37 1,467.78 75,365.36
Units Withdrawn (1.73) (0.26) (28.19)
Units Transferred Between Funds 152.92 276.84 2,572.09
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 7,922.56 1,744.36 77,909.26
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 7,922.56 1,744.36 77,909.26
=========== ============= ==========
Unit Value at December 31, 1998 $ 20.14 $ 20.13 $ 15.84
=========== ============= ==========
</TABLE>
<TABLE>
Mitchell
Hutchins Mitchell
Growth Mitchell Hutchins
& Hutchins High
Income High Income
ADB Income ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 25,798.70 44,903.70 1,917.48
Units Withdrawn (5.68) (1.83) (0.27)
Units Transferred Between Funds (728.53) 719.38 1,095.06
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 25,064.49 45,621.25 3,012.27
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 25,064.49 45,621.25 3,012.27
=========== ============= ==========
Unit Value at December 31, 1998 $ 15.84 $ 12.56 $ 12.56
=========== ============= ==========
</TABLE>
<TABLE>
Mitchell
Mitchell Hutchins Mitchell
Hutchins Small Hutchins
Small Capital Strategic
Capital ADB Income
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 19,179.96 2,860.06 11,078.04
Units Withdrawn (35.65) (0.88) (55.45)
Units Transferred Between Funds 102.46 487.08 760.70
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 19,246.77 3,346.26 11,783.29
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 19,246.77 3,346.26 11,783.29
=========== ============= ==========
Unit Value at December 31, 1998 $ 15.56 $ 15.56 $ 12.28
=========== ============= ==========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
Mitchell Mitchell
Hutchins Mitchell Hutchins
Strategic Hutchins Tactical
Income Tactical Allocations
ADB Allocations ADB
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 1,932.23 645,295.91 60,523.31
Units Withdrawn 0.00 (328.39) (11.11)
Units Transferred Between Funds 0.00 (19,629.79) 4,771.21
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 1,932.23 625,337.73 65,283.41
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 1,932.23 625,337.73 65,283.41
=========== ============= ==========
Unit Value at December 31, 1998 $ 12.28 $ 14.93 $ 14.92
=========== ============= ==========
</TABLE>
<TABLE>
VanEck
VanEck Worldwide
Worldwide Hard VanEck
Hard Assets Worldwide
Assets ADB Balanced
3 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 726.96 0.00 88.58
Units Withdrawn (2,568.40) 0.00 (1,663.30)
Units Transferred Between Funds (687.65) 0.00 (31,529.62)
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) (2,529.09) 0.00 (33,104.34)
Units, at Beginning of the Year 22,196.30 0.00 33,104.34
----------- ------------- ----------
Units, at End of the Year 19,667.21 0.00 (0.00)
=========== ============= ==========
Unit Value at December 31, 1998 $ 6.71 $ 6.71 $ 12.71
=========== ============= ==========
</TABLE>
<TABLE>
VanEck
VanEck VanEck Worldwide
Worldwide Worldwide Emerging
Balanced Emerging Markets
ADB Markets ADB
2 Portfolio 3 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 0.00 3,049.08 0.00
Units Withdrawn 0.00 (0.69) 0.00
Units Transferred Between Funds 0.00 104.50 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 0.00 3,152.89 0.00
Units, at Beginning of the Year 0.00 0.00 0.00
----------- ------------- ----------
Units, at End of the Year 0.00 3,152.89 0.00
=========== ============= ==========
Unit Value at December 31, 1998 $ 12.70 $ 6.03 $ 6.02
=========== ============= ==========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<PAGE>
<TABLE>
WP&G
WP&G Tomorrow WP&G
Tomorrow Short Tomorrow
Short Term Medium
Term ADB Term
3 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 2,794.91 0.00 2,031.85
Units Withdrawn (5,953.88) 0.00 (3,730.35)
Units Transferred Between Funds (9,895.31) 0.00 (20,871.63)
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) (13,054.28) 0.00 (22,570.13)
Units, at Beginning of the Year 54,085.14 0.00 57,813.40
----------- ------------- ----------
Units, at End of the Year 41,030.86 0.00 35,243.27
=========== ============= ==========
Unit Value at December 31, 1998 $ 13.98 $ 13.97 $ 14.42
=========== ============= ==========
</TABLE>
<TABLE>
WPG WPG
Tomorrow WP&G Tomorrow
Medium Tomorrow Long
Term Long Term
ADB Term ADB
2 Portfolio 3 Portfolio 2 Portfolio
VARIABLE ANNUITY - - -
<S> <C> <C> <C>
Units Purchased 0.00 706.16 0.00
Units Withdrawn 0.00 (4,665.60) 0.00
Units Transferred Between Funds 0.00 (3,721.80) 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
----------- ------------- ----------
Net Increase (Decrease) 0.00 (7,681.24) 0.00
Units, at Beginning of the Year 0.00 42,594.39 0.00
----------- ------------- ----------
Units, at End of the Year 0.00 34,913.15 0.00
=========== ============= ==========
Unit Value at December 31, 1998 $ 14.41 $ 15.56 $ 15.55
=========== ============= ==========
</TABLE>
Footnote 1 are all funds except for ADB and Profile.
Footnote 2 are funds with ADB.
Footnote 3 are the Profile funds.
<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, 1998, transactions in accumulation 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
VARIABLE ANNUITY - - - - -
<S> <C> <C> <C> <C> <C>
Units Purchased 0.00 7,065.40 1,477.50 0.00 0.00
Units Withdrawn (480.00) 0.00 (1,640.0.00
Units Transferred Between Funds 0.00 0.00 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Net Increase (Decrease) (481.87) 7,065.40 1,477.50 (1,640.61) 0.00
Units, at Beginning of the Year 2,177.25 5,694.61 7,417.86 9,565.91 0.00
--------- ---------- --------- --------- ------
Units, at End of the Year 1,695.38 12,760.01 8,895.36 7,925.30 0.00
========= ========== ========= ========= ======
Unit Value at December 31, 1998 $ 10.88 $ 31.32 $ 26.74 $ 12.87 $10.78
========= ========== ========= ========= ======
</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 0.00 42,375.04 0.00 0.00 0.00
Units Withdrawn (313.27) 0.00 (72.65) (88.80) (431.15)
Units Transferred Between Funds 0.00 0.00 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Net Increase (Decrease) (313.27) 42,375.04 (72.65) (88.80) (431.15)
Units, at Beginning of the Year 1,989.75 1,117.05 783.09 978.04 1,842.10
--------- ---------- --------- --------- ------
Units, at End of the Year 1,676.48 43,492.09 710.44 889.24 1,410.95
========= ========== ========= ========= ======
Unit Value at December 31, 1998 $ 13.67 $ 11.83 $ 11.60 $ 12.64 $17.60
========= ========== ========= ========= ======
</TABLE>
<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 570.66 0.00 1,521.73 0.00 1,522.34
Units Withdrawn 0.00 (794.75) 0.00 (367.42) 0.00
Units Transferred Between Funds 0.00 0.00 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Net Increase (Decrease) 570.66 (794.75) 1,521.73 (367.42) 1,522.34
Units, at Beginning of the Year 546.59 2,731.68 2,411.36 5,286.24 5,646.89
--------- ---------- --------- --------- ------
Units, at End of the Year 1,117.25 1,936.93 3,933.09 4,918.82 7,169.23
========= ========== ========= ========= ======
Unit Value at December 31, 1998 $ 13.52 $ 16.07 $ 26.62 $ 17.03 $14.16
========= ========== ========= ========= ======
</TABLE>
<PAGE>
<TABLE>
Alliance Alliance
Alliance Alliance Real High
Technology Quasar Estate Yield
Portfolio Portfolio Portfolio Portfolio
- - - -
<S> <C> <C> <C> <C>
Units Purchased 3,666.42 0.00 85.12 24,825.97
Units Withdrawn 0.00 (2,543.98) 0.00 0.00
Units Transferred Between Funds 0.00 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00 0.00
---------- ---------- --------- ----------
Net Increase (Decrease) 3,666.42 (2,543.98) 85.12 24,825.97
Units, at Beginning of the Year 14,166.88 3,843.56 0.00
---------- ---------- --------- ----------
Units, at End of the Year 6,383.71 11,622.90 3,928.68 24,825.97
========== ========== ========= ==========
Unit Value at December 31, 1998 $ 17.07 $ 10.77 $ 8.97 $ 9.93
========== ========== ========= ==========
</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, 1998, transactions in accumulation units of the
account were as follows:
<TABLE>
Alliance
Aim Aim Alliance Growth Alliance
Capital International Premier & Global
Appreciation Equity Growth Income Bond
Portfolio Portfolio Portfolio Portfolio Portfolio
VARIABLE ANNUITY - - - - -
<S> <C> <C> <C> <C> <C>
Units Purchased 2,408.74 0.00 0.00 1,541.11 0.00
Units Withdrawn 0.00 0.00 0.00 0.00 0.00
Units Transferred Between Funds 0.00 0.00 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Net Increase (Decrease) 2,408.74 0.00 0.00 1,541.11 0.00
Units, at Beginning of the Year 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Units, at End of the Year 2,408.74 0.00 0.00 1,541.11 0.00
========= ========== ========= ========= ======
Unit Value at December 31, 1998 $ 10.95 $ 11.14 $ 14.80 $ 17.37 $10.74
========= ========== ========= ========= ======
</TABLE>
<TABLE>
Alliance Alliance
Conservative Growth Alliance Alliance Alliance
Investors Investors Growth Technology Quasar
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ---------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Units Purchased 0.00 0.00 0.00 0.00 0.00
Units Withdrawn 0.00 0.00 0.00 0.00 0.00
Units Transferred Between Funds 0.00 0.00 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Net Increase (Decrease) 0.00 0.00 0.00 0.00 0.00
Units, at Beginning of the Year 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Units, at End of the Year 0.00 0.00 0.00 0.00 0.00
========= ========== ========= ========= ======
Unit Value at December 31, 1998 $ 12.61 $ 14.58 $ 19.28 $ 17.30 $10.96
========= ========== ========= ========= ======
</TABLE>
<TABLE>
Dreyfus Dreyfus Dreyfus Fidelity Fidelity
Stock Zero Small Money Asset
Index Coupon Company Market Manager
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ---------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Units Purchased 1,489.93 0.00 0.00 0.00 0.00
Units Withdrawn 0.00 0.00 0.00 0.00 0.00
Units Transferred Between Funds 0.00 0.00 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Net Increase (Decrease) 1,489.93 0.00 0.00 0.00 0.00
Units, at Beginning of the Year 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Units, at End of the Year 1,489.93 0.00 0.00 0.00 0.00
========= ========== ========= ========= ======
Unit Value at December 31, 1998 $ 18.83 $ 11.29 $ 9.47 $ 10.77 $14.53
========= ========== ========= ========= ======
</TABLE>
<PAGE>
<TABLE>
Fidelity
Fidelity Investment
Fidelity High Grade Fidelity Fidelity
Growth Income Bond Overseas Contrafund
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ---------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Units Purchased 0.00 0.00 2,299.56 0.00 2,287.75
Units Withdrawn 0.00 0.00 0.00 0.00 0.00
Units Transferred Between Funds 0.00 0.00 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Net Increase (Decrease) 0.00 0.00 2,299.56 0.00 2,287.75
Units, at Beginning of the Year 0.00 0.00 0.00 0.00 0.00
--------- ---------- --------- --------- ------
Units, at End of the Year 0.00 0.00 2,299.56 0.00 2,287.75
========= ========== ========= ========= ======
Unit Value at December 31, 1998 $ 17.71 $ 11.55 $ 11.72 $ 12.75 $12.60
========= ========== ========= ========= ======
</TABLE>
<TABLE>
VanEck VanEck
Worldwide Worldwide
Hard Emerging
Assets Markets
Portfolio Portfolio
-- --
<S> <C> <C>
Units Purchased 0.00 0.00
Units Withdrawn 0.00 0.00
Units Transferred Between Funds 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00
----- -----
Net Increase (Decrease) 0.00 0.00
Units, at Beginning of the Year 0.00 0.00
----- -----
Units, at End of the Year 0.00 0.00
===== =====
Unit Value at December 31, 1998 $6.50 $5.83
===== =====
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
a. Financial Statements
b. Exhibits
1. Certificate of Resolution for AIG Life Insurance Company dated June 5,
1986, authorizing the issuance and sale of variable and fixed annuity
contracts.*
2. N/A
3. (a) Principal Underwriter's Agreement between AIG Life Insurance
Company and American International Fund Distributors, dated August 1,
1988;*
(b) Broker/Dealer Agreement between AIG Life Insurance Company and
American International Fund Distributors, dated August 1, 1988;*
(c) Selling Agreement between AIG Life Insurance Company, American
International Life Assurance Company of New York and AIG Equity Sales
Corporation, dated October 1998*
(d) Distribution Agreement between, AIG Life Insurance Company,
American International Life Assurance Company of New York and Alliance
Fund Distributors, dated June 11, 1991;*
(e) Buy Sell Agreement between AIG Life Insurance Company and Alliance
Variable Products Series Fund and Alliance Capital Management, L.P.,
dated June 11, 1991*
4. (a) Form of Individual Variable Annuity Single Purchase Payment Policy
(45648 - 4/87)*
(b) Form of Individual Variable Annuity Policy (11VAN0896)*
(c) Form of Group Variable Annuity Policy (11VAN0896GP)*
(d) Form of Variable Annuity Certificate of Coverage(16VAN0896)*
5. (a) Form of variable annuity application (14VAN897)*
(b) Form of Flexible Variable Annuity application (56778 11/96)*
(c) Form of Single Variable Annuity application (52970 11/96)*
(d) Form of Group Variable Annuity application (56451 11/96)*
6. (a) By-Laws of AIG Life Insurance Company as amended through December
31, 1991;*
(b) Certificate of Incorporation of AIG Life Insurance Company, dated
December 31, 1991*
(c) Restated Certificate of Incorporation of AIG Life Insurance
Company, dated December 31, 1991*
7. N/A
8. Delaware Valley Financial Services, Inc. Administrative Agreement
appointing Delaware Valley Financial Services, Inc. by AIG Life
Insurance Company and American International Life Assurance Company of
New York, dated October 1, 1986.*
9. Opinion of Counsel (filed electronically herein)
10. (i) Consent of Counsel (filed electronically herein)
(ii)Consent of Independent Accountants (filed electronically herein)
11. N/A
12. N/A
13. Performance Data #
14. N/A
15. Powers of Attorney
* Incorporated by reference to Registrant's Post-Effective Amendment No.
12 to Form N-4 (File No. 33-39171), filed on October 27, 1998.
# Incorporated by reference to Registrant's Post-Effective Amendment No.
3 to Form N-4 (File No. 33-39171) filed on May 1, 1993.
<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
Michele L. Abruzzo(2) Director, Sr. Executive Vice President
Paul S. Bell(3) Director, Sr.Vice President Chief Actuary
Edward E. Matthews(1) Director, Senior Vice
President - Finance
Jerome T. Muldowney(4) Director, Sr. Vice President - Domestic
Investments
Robinson Kendall Nottingham(1,3) Director, Chairman of the Board
Nicholas A. O'Kulich(1) Director, Vice Chairman, Treasurer
Gerald W. Wyndorf(2) Director, Chief Executive Officer, President
James A. Bambrick(2) Senior Vice President
Michael Mullin(3) Chief Operating Officer, Sr. Vice President
Howard E. Gunton, Jr.(3) Chief Financial Officer, Sr. Vice President
Jeffrey M. Kestenbaum(2) Executive Vice President
Elizabeth M. Tuck(1) Secretary - Corporate
(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, 600 King Street Wilmington, DE 19801
(4) Business address is: 175 Water Street, New York, New York 10038
Directors:
Name Business Address
Michele L. Abruzzo American International Life Assurance
Company of New York
80 Pine Street, New York, NY 10005
Paul S. Bell AIG Life Insurance Company
One Alico Plaza, 600 King Street
Wilmington, DE 19801
M.R. Greenberg 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 AIG Global Investment Corp.
175 Water Street
New York, New York 10038
Robinson Kendall Nottingham AIG Life Insurance Company
70 Pine Street
New York, New York 10270
and
One Alico Plaza, 600 King Street
Wilmington, DE 19801
Nicholas A. O'Kulich American International Group, Inc.
70 Pine Street
New York, New York 10270
Howard I. Smith American International Group, Inc.
70 Pine Street
New York, New York 10270
Edmund Sze-Wing Tse American International Group, Inc.
70 Pine Street
New York, New York 10270
Gerald W. Wyndorf American International Group, Inc.
80 Pine Street
New York, New York 10005
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, parent of registrant for year end December 31,
1998.
Item 27. Number of Contract Owners.
21,235
Item 28. Indemnification
Principal Underwriter's Agreement between AIG Life Insurance Company and
American International Fund Distributors, dated August 1, 1988. *
Item 29. Principal Underwriter
a. AIG Equity Sales Corp., the principal underwriter for Variable
Account I, also acts as the principal underwriter for other
separate accounts of the Depositor, and for the separate
accounts of American International Life Assurance Company of
New York, an affiliated company.
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 Director
Kevin Clowe Director and Vice President
Florence Ann Davis Director and General Counsel
Ronald Alan Latz Director and Vice President
Jerome Thomas Muldowney Director
Helen Stefanis Director and President
Philomena Scamardella Vice President and
Compliance Officer
Ken Masiello Comptroller
Elizabeth M. Tuck Secretary
<PAGE>
c. Name of Net
Principal Underwriting Compensation
Underwriter Discounts and on Brokerage
Compensation Commissions Redemption Commissions
AIG Equity $0 $0 $0
Sales Corp.
Item 30. Location of Accounts and Records.
Kenneth F. Judkowitz, Assistant Vice President of the Company, whose
address is 80 Pine Street, New York, NY 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.
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 30th day of April, 1999
Variable Account I
Registrant
/s/ Kenneth D. Walma
By: Kenneth D. Walma
----------------------
Kenneth D. Walma,
Assistant Secretary and
General Counsel
By: AIG Life Insurance Company
Depositor
<PAGE>
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
/s/ Michele L. Abruzzo Director April 30, 1999
- -------------------------
Michele L. Abruzzo
/s/ Paul S. Bell Director April 30, 1999
- -------------------------
Paul S. Bell
/s M.R. Greenberg Director April 30, 1999
- -------------------------
M.R. Greenberg
/s/ Edward E. Matthews Director April 30, 1999
- --------------------------
Edward E. Matthews
/s/ Jerome T. Muldowney Director April 30, 1999
- ----------------------------
Jerome T. Muldowney
/s/ Robinson Kendall Nottingham Director April 30, 1999
- -------------------------------------
Robinson Kendall Nottingham
/s/ Nicholas A. O'Kulich Director April 30, 1999
- --------------------------
Nicholas A. O'Kulich
/s/ Howard I. Smith Director April 30, 1999
- -------------------------
Howard I. Smith
/s/ Edmund Sze-Wing Tse Director April 30, 1999
- ----------------------------
Edmund Sze-Wing Tse
/s/ Gerald W. Wyndorf Director April 30, 1999
- -------------------------
Gerald W. Wyndorf
By: /s/ Kenneth D. Walma
---------------------------------
Kenneth D. Walma,
Attorney in Fact
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
9 Opinion of Counsel
10(i) Consent of Counsel
10(ii) Consent of Independent Accountants
<PAGE>
EXHIBIT B
OPINION OF COUNSEL
Gentlemen:
I have made such examination of the law and have examined such company
records and documents as in my judgment are necessary or appropriate to enable
me to render the opinion expressed below:
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 thereof, may be used as an exhibit to or in connection
with the filing with the Securities and Exchange Commission of the Post
Effective Amendment No. 9 to the Registration Statement on Form N-4 (File No.
33-58504) 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
General Counsel
Dated: April 30, 1999
EXHIBIT 10 (i)
CONSENT OF COUNSEL
JORDEN BURT BOROS CICCHETTI BERENSON & JOHNSON LLP
SUITE 400 EAST
1025 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 2007-0805
TELECOPIER (202) 965-8014
April 30, 1999
AIG Life Insurance Company
One Alico Plaza
600 King Street
Wilmington, DE 19801
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Counsel" in the Statement of Additional Information contained in Post Effective
Amendment No. 9 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
Jorden Burt Boros Cicchetti Berenson & Johnson
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect to Post-effective
Amendment No. 9 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 5, 1999 relating to our
audits of the financial statements of AIG Life Insurance Company in the
Statements of Additional Information.
2. The inclusion of our report dated March 12, 1999 relating to our
audit of the financial statements of Variable Account I in the Statement of
Additional Information.
3. The incorporation by reference into the Prospectus of our reports
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 "Independent
Accountants" in the Statement of Additional Information.
/s/ PriceWaterhouseCoopers LLP
- ------------------
PriceWaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 23, 1999
