As Filed With The Securities and Exchange Commission on April 28, 2000
File Nos. 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. [10]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. [34]
(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)
<PAGE>
Copies to:
Michael Berenson, Esq. and Ernest T. Patrikis, Esq.
Jorden Burt Boros Cicchetti American International Group, Inc.
Berenson & Johnson LLP 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, 2000 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
___ 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.
Title of Securities Being Registered: Flexible Premium Deferred Variable Annuity
Contract.
<PAGE>
PART A
<PAGE>
PROSPECTUS
OVATION VARIABLE ANNUITY
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 part of our general 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, Inc.
(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
<PAGE>
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information ("SAI") dated May 1, 2000. 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 that
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.
May 1, 2000
<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
<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., 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.
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.
<PAGE>
=====================================================================
FEE TABLES
=====================================================================
Owner Transaction Expenses
Sales Load................................................................ None
Surrender Charge (as a percentage of premium 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 Contract Value is $50,000 or greater) $30/yr
Variable Account Annual 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%
<PAGE>
<TABLE>
Annual Portfolio Expenses
After Waivers/Reimbursement
(as a percentage of average net assets)
Management Other Total Annual
Fees Expenses(1) Portfolio Expenses(2)
<S> <C> <C> <C>
Alliance Variable Products Series Fund, Inc.
Global Bond Portfolio 0.65% 0.25% 0.90%
Global Dollar Government Portfolio 0.12% 0.83% 0.95%
Growth Portfolio 0.75% 0.09% 0.84%
Growth and Income Portfolio 0.63% 0.08% 0.71%
High-Yield Portfolio 0.60% 0.35% 0.95%
International Portfolio 0.69% 0.26% 0.95%
Money Market Portfolio 0.50% 0.14% 0.64%
North American Government Income Portfolio 0.61% 0.34% 0.95%
Premier Growth Portfolio 1.00% 0.05% 1.05%
Quasar Portfolio 0.81% 0.14% 0.95%
Real Estate Investment Portfolio 0.49% 0.46% 0.95%
Technology Portfolio 0.86% 0.09% 0.95%
Total Return Portfolio 0.63% 0.23% 0.86%
U.S. Government/High Grade Securities Portfolio 0.60% 0.26% 0.86%
Utility Income Portfolio 0.72% 0.23% 0.95%
Worldwide Privatization Portfolio 0.63% 0.32% 0.95%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectus for the
Alliance Variable Products Series Funds, Inc.
(2) Total annual expenses for the following portfolios before waivers and
reimbursement by Alliance Capital Management L.P. for the year ended
December 31, 1999, were as follows:
Global Bond Portfolio 1.04%
Global Dollar Government Portfolio 2.29%
High-Yield Portfolio 1.40%
International Portfolio 1.36%
North American Government Income Portfolio 1.20%
Quasar Portfolio 1.19%
Real Estate Investment Portfolio 1.72%
Technology Portfolio 1.12%
Utility Income Portfolio 1.14%
Worldwide Privatization Portfolio 1.46%
<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
Alliance Variable Products Series Fund, Inc.
<S> <C> <C> <C> <C>
Global Bond Portfolio $78 $119 $162 $270
Global Dollar Government Portfolio 78 120 165 275
Growth Portfolio 77 117 159 264
Growth & Income Portfolio 76 113 152 250
High-Yield Portfolio 78 120 165 275
International Portfolio 78 120 165 275
Money Market Portfolio 75 111 149 243
North American Government Income Portfolio 78 120 165 275
Premier Growth Portfolio 79 123 170 285
Quasar Portfolio 78 120 165 275
Real Estate Investment Portfolio 78 120 165 275
Technology Portfolio 78 120 165 275
Total Return Portfolio 78 117 160 266
U.S. Government/High Grade Securities Portfolio 77 117 160 266
Utility Income Portfolio 78 120 165 275
Worldwide Privatization Portfolio 78 120 165 275
</TABLE>
<PAGE>
<TABLE>
If you annuitize or do not surrender after:
1 Year 3 Years 5 Years 10 Years
Alliance Variable Products Series Fund, Inc.
<S> <C> <C> <C> <C>
Global Bond Portfolio 24 $74 $126 $270
Global Dollar Government Portfolio 24 75 129 275
Growth Portfolio 23 72 123 264
Growth & Income Portfolio 22 68 116 250
High-Yield Portfolio 24 75 129 275
International Portfolio 24 75 129 275
Money Market Portfolio 21 66 113 243
North American Government Income Portfolio 24 75 129 275
Premier Growth Portfolio 25 78 134 285
Quasar Portfolio 24 75 129 275
Real Estate Investment Portfolio 24 75 129 275
Technology Portfolio 24 75 129 275
Total Return Portfolio 24 72 124 266
U.S. Government/High Grade Securities Portfolio 24 72 124 266
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.
<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 that is part of our general
account. Premium you allocate to the fixed investment 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 general 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.
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., P.O. Box
3031, Berwyn, PA 19312-0031. You will receive your Contract Value as of 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 partial surrender.
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 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 fixed investment option.
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 fund 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 procedures in
place 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 that 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 fixed investment
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.
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 premium 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.
<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 of our other variable accounts.
The variable account is divided into subaccounts, each of which invests in
shares of a different portfolio of a mutual fund. The variable account maintains
subaccounts that are not available under the contract. 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 Fund and Its 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 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 and,
secondarily, capital appreciation.
Growth Portfolio - seeks to provide long-term growth of capital. Current income
is incidental to the portfolio's objective.
Growth and Income Portfolio - seeks reasonable current income and reasonable
opportunities for appreciation through investments primarily in dividend-paying
common stocks of good quality.
High-Yield Portfolio - seeks to earn the highest level of current income without
assuming undue risk by investing principally in high-yielding fixed income
securities rated Baa or lower by Moody's or BBB or lower by S&P, Duff & Phelps
or Fitch or, if unrated, of comparable quality.
International Portfolio - seeks to obtain a total return on its assets from
long-term growth of capital principally through a broad portfolio of marketable
securities of established non-U.S. companies (or companies incorporated outside
the U.S.), companies participating in foreign economies with prospects for
growth, and foreign government securities.
Money Market Portfolio - seeks safety of principal, excellent liquidity and
maximum current income to the extent consistent with the first two objectives.
North American Government Income Portfolio - seeks the highest level of current
income, consistent with what Alliance 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 or Mexico, their political
subdivisions (including Canadian Provinces, but excluding states of the United
States), agencies, instrumentalities or authorities.
Premier Growth Portfolio - seeks growth of capital by pursuing aggressive
investment policies. Quasar Portfolio - seeks growth of capital by pursuing
aggressive investment policies. Current income is incidental to the portfolio's
objective.
Real Estate Investment Portfolio - seeks total return from long-term growth of
capital and income principally through investing in equity securities of
companies that are primarily engaged in or related to the real estate industry.
Technology Portfolio - seeks growth of capital. Current income is incidental to
the portfolio's objective.
Total Return Portfolio - seeks to achieve a high return through a combination of
current income and capital appreciation.
U.S. Government/High Grade Securities Portfolio - seeks high current income
consistent with preservation of capital.
Utility Income Portfolio - seeks current income and capital appreciation by
investing primarily in equity and fixed-income securities of companies in the
utilities industry.
Worldwide Privatization Portfolio - seeks long-term capital appreciation.
Alliance Capital Management L.P. may compensate us for providing administration
services in connection with the portfolios that are offered under the contract.
Such compensation is paid from its assets.
Fixed Investment Option
Premium you allocate to the fixed investment option is guaranteed and 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.
We credit money allocated to the fixed investment option 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 general 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 fixed investment option, 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 general 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 that 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 assuming the risks associated with our
obligations to make annuity payments and 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. It compensates us for our
administrative expenses, which 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 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 to each Contract Anniversary. We will not increase this fee.
It compensates us for the 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 prospectus for the Alliance
Variable Products Series Fund, Inc. 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 that 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.
<PAGE>
===================================================================
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.
To surrender 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.
<PAGE>
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 premium 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 fixed investment 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 fixed investment 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.
<PAGE>
===================================================================
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, we will make annuity payments in accordance with option. However, 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% 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% assumed rate, the annuity payments will
increase. Similarly, if the actual rate is less than 5%, 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.
<PAGE>
===================================================================
DEATH BENEFIT
===================================================================
Death of Owner Before the Annuity Date
If you (and a joint owner, if applicable) 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 select 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
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
(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.
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 fixed investment 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
that 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.
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.
<PAGE>
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 contract were
surrendered 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
portfolio 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 portfolio level since the variable account level
total return reflects 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
(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 fund, please see the accompanying fund prospectus. 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;
(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:
C 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;
C If the owner dies before the Annuity Date, the entire interest must
generally be distributed within five years after the date of death.
C 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.
C If the beneficiary is the spouse of the owner, the contract may be
continued in the name of the spouse as owner.
C 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.
<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 traditional IRA is that contributions to a Roth IRA are
not deductible and "qualified distributions" from a Roth IRA are not includable
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.
<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.
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.
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 subaccount you have Contract Value. We determine the number of
portfolio shares that are attributable to you by dividing the corresponding
value in a particular portfolio by the net asset value of one portfolio share.
After the Annuity Date, we determine the number of portfolio shares that are
attributable to you by dividing the reserve maintained in a particular portfolio
to meet the obligations under the contract by the net asset value of one
portfolio share. The number of votes that 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 fixed investment
option.
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.
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.
<PAGE>
================================================================================
APPENDIX
================================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
(for an accumulation unit outstanding throughout the period)
<TABLE>
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
GLOBAL BOND PORTFOLIO
Accumulation Unit Value
Beginning of Period 14.79 13.14 13.24 12.64 10.28
End of Period 13.69 14.79 13.14 13.24 12.64
Accum Units o/s @ end of period 607,165.47 643,678.64 708,242.42 579,082.99 213,886.71
GLOBAL DOLLAR GOVERNMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period 12.55 16.25 14.56 11.82 9.74
End of Period 15.60 12.55 16.25 14.56 11.82
Accum Units o/s @ end of period 532,628.44 636,568.44 714,986.09 469,801.08 238,452.60
GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 28.81 22.70 17.70 13.97 10.48
End of Period 38.20 28.81 22.70 17.70 13.97
Accum Units o/s @ end of period 9,548,163.15 8,904,664.35 8,054,584.57 5,856,812.02 2,215,092.12
GROWTH & INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 28.94 24.27 19.11 15.62 11.67
End of Period 31.78 28.94 24.27 19.11 15.62
Accum Units o/s @ end of period 12,326,350.55 9,476,753.38 7,258,107.19 4,509,118.40 1,554,549.81
HIGH YIELD PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.78 10.30 N/A N/A N/A
End of Period 9.40 9.78 10.30 N/A N/A
Accum Units o/s @ end of period 2,178,459.79 1,476,993.82 106,671.96 N/A N/A
INTERNATIONAL PORTFOLIO
Accumulation Unit Value
Beginning of Period 13.93 12.50 12.26 11.60 10.71
End of Period 19.26 13.93 12.50 12.26 11.60
Accum Units o/s @ end of period 3,403,423.52 3,645,458.54 3,700,183.10 2,718,751.84 981,260.91
MONEY MARKET PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.77 11.37 10.97 10.63 10.26
End of Period 12.15 11.77 11.37 10.97 10.63
Accum Units o/s @ end of period 7,969,839.42 7,257,274.05 4,291,499.61 4,320,223.01 1,856,020.37
NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 13.67 13.32 12.33 10.53 8.70
End of Period 14.68 13.67 13.32 12.33 10.53
Accum Units o/s @ end of period 1,532,276.68 1,816,650.85 1,790,540.24 1,047,240.17 531,374.67
PREMIER GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 33.89 23.22 17.59 14.54 10.15
End of Period 44.22 33.89 23.22 17.59 14.54
Accum Units o/s @ end of period 13,968,927.64 10,004,043.81 6,662.866.85 3,971,452.13 1,252,211.18
QUASAR PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.65 12.37 10.58 10.00 N/A
End of Period 13.45 11.65 12.37 10.58 N/A
Accum Units o/s @ end of period 5,239,451.80 5,595,694.29 3,991,205.09 649,902.74 N/A
REAL ESTATE INVESTMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.71 12.16 N/A N/A N/A
End of Period 9.09 9.71 12.16 N/A N/A
Accum Units o/s @ end of period 1,173,826.98 1,323,433.94 936,389.36 N/A N/A
TECHNOLOGY PORTFOLIO
Accumulation Unit Value
Beginning of Period 18.47 11.43 10.89 10.00 N/A
End of Period 32.00 18.47 11.43 10.89 N/A
Accum Units o/s @ end of period 8,948,085.57 5,670,473.44 4,818,385.19 2,127,691.68 N/A
TOTAL RETURN PORTFOLIO
Accumulation Unit Value
Beginning of Period 18.42 15.97 13.37 11.78 9.65
End of Period 19.35 18.42 15.97 13.37 11.78
Accum Units o/s @ end of period 3,271,109.60 2,427,810.67 1,780,440.77 1,155,818.92 328,256.04
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
Accumulation Unit Value
Beginning of Period 12.80 12.00 11.20 11.07 9.42
End of Period 12.32 12.80 12.00 11.20 11.07
Accum Units o/s @ end of period 4,082,327.72 3,516,324.78 2,190,735.81 1,838,415.41 914,988.76
UTILITY INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 19.04 15.58 12.57 11.82 9.87
End of Period 22.42 19.04 15.58 12.57 11.82
Accum Units o/s @ end of period 1,646,240.96 1,379,682.64 910,470.43 812,579.02 358,005.39
WORLDWIDE PRIVATIZATION PORTFOLIO
Accumulation Unit Value
Beginning of Period 15.32 14.02 12.84 10.99 10.05
End of Period 24.00 15.32 14.02 12.84 10.99
Accum Units o/s @ end of period 2,092,530.42 2,399,048.01 2,391,217.59 1,135,168.22 394,704.27
</TABLE>
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
(for an accumulation unit outstanding throughout the period)
(continued)
<TABLE>
1994 1993 1992
-------------------------------------
<S> <C> <C> <C>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
GLOBAL BOND PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.00 9.96 10.00
End of Period 10.28 11.00 9.96
Accum Units o/s @ end of period 85,875.16 18,846.45 5,444.00
GLOBAL DOLLAR GOVERNMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A
End of Period 9.74 N/A N/A
Accum Units o/s @ end of period 69,320.82 N/A N/A
GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A
End of Period 10.48 N/A N/A
Accum Units o/s @ end of period 467,688.06 N/A N/A
GROWTH & INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.88 10.78 10.00
End of Period 11.67 11.88 10.78
Accum Units o/s @ end of period 438,680.32 28,041.82 800.00
HIGH YIELD PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
INTERNATIONAL PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.17 10.00 N/A
End of Period 10.71 10.17 N/A
Accum Units o/s @ end of period 447,407.41 21,717.14 N/A
MONEY MARKET PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.08 10.00 N/A
End of Period 10.26 10.08 N/A
Accum Units o/s @ end of period 431,319.86 8,487.20 N/A
NORTH AMERICAN GOVERNMENT INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A
End of Period 8.70 N/A N/A
Accum Units o/s @ end of period 340,817.36 N/A N/A
PREMIER GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.13 10.00 10.00
End of Period 10.15 11.13 10.00
Accum Units o/s @ end of period 223,550.22 35,271.53 2,081.43
QUASAR PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
REAL ESTATE INVESTMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
TECHNOLOGY PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
TOTAL RETURN PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A
End of Period 9.65 N/A N/A
Accum Units o/s @ end of period 34,684.53 N/A N/A
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.95 10.00 N/A
End of Period 9.42 9.95 N/A
Accum Units o/s @ end of period 320,574.64 41,210.45 N/A
UTILITY INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A
End of Period 9.87 N/A N/A
Accum Units o/s @ end of period 111,604.02 N/A N/A
WORLDWIDE PRIVATIZATION PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A
End of Period 10.05 N/A N/A
Accum Units o/s @ end of period 105,674.08 N/A N/A
</TABLE>
*Premium under the contract was 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 28, 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
<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
Tax Deferred Accumulation
ANNUITY PROVISIONS
Variable Annuity Payments
Annuity Unit Value
Net Investment Factor
Additional Provisions
FINANCIAL STATEMENTS
<PAGE>
PROSPECTUS
PARADIGM VARIABLE ANNUITY
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 eighteen investment options to which you can allocate your
money -- seventeen variable investment options listed below and one fixed
investment option. The fixed investment option is part of our general 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, Inc.
(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. Government/High Grade Securities
Premier Growth Portfolio Portfolio
<PAGE>
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information ("SAI") dated May 1, 2000. 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) 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 that
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.
May 1, 2000
<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
<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., 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.
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.
<PAGE>
=====================================================================
FEE TABLES
=====================================================================
Owner Transaction Expenses
Sales Load.............................................................. None
Surrender Charge (as a percentage of premium 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 Contract Value is $50,000 or greater) $30/yr
Variable Account Annual 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%
<PAGE>
<TABLE>
Annual Portfolio Expenses
After Waivers/Reimbursement
(as a percentage of average net assets)
Management Other 12b-1 Total
Fees Expenses(1) Fees Expenses
<S> <C> <C> <C> <C>
Mitchell Hutchins Series Trust (Class H)
Balanced Portfolio 0.75% 0.50% 0.00% 1.25%
Global Income Portfolio 0.75% 1.34% 0.00% 2.09%
Growth Portfolio 0.75% 0.36% 0.00% 1.11%
Growth and Income Portfolio 0.70% 0.53% 0.00% 1.23%
High Income Portfolio 0.50% 0.85% 0.00% 1.35%
Small Cap Portfolio 1.00% 2.86% 0.00% 3.86%
Strategic Income Portfolio 0.75% 0.87% 0.00% 1.62%
Tactical Allocation Portfolio 0.50% 0.24% 0.00% 0.74%
Alliance Variable Products Series Fund(2)
Growth Portfolio (Class B) 0.75% 0.12% 0.25% 1.12%
Growth and Income Portfolio (Class B) 0.63% 0.09% 0.25% 0.97%
International Portfolio 0.69% 0.26% 0.00% 0.95%
Money Market Portfolio (Class B) 0.50% 0.14% 0.25% 0.89%
Premier Growth Portfolio 1.00% 0.05% 0.00% 1.05%
Quasar Portfolio 0.81% 0.14% 0.00% 0.95%
Real Estate Investment Portfolio 0.49% 0.46% 0.00% 0.95%
Technology Portfolio 0.86% 0.09% 0.00% 0.95%
U.S. Government/High Grade Securities Portfolio (Class B) 0.60% 0.30% 0.25% 1.15%
</TABLE>
(1) Other expenses are based on the expenses outlined in the financial
statements for the Mitchell Hutchins Series Trust and the prospectus for
the Alliance Variable Product Series Funds.
(2) Total expenses for the following portfolios before waivers and
reimbursement by Alliance Capital Management L.P. for the year ended
December 31, 1999, were as follows:
International Portfolio 1.36%
Quasar Portfolio 1.19%
Real Estate Investment Portfolio 1.72%
Technology Portfolio 1.12%
<PAGE>
<TABLE>
Example
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>
Mitchell Hutchins Series Trust (Class H)
Balanced Portfolio $81 $129 $179 $304
Global Income Portfolio 90 154 220 382
Growth Portfolio 80 125 173 290
Growth and Income Portfolio 81 129 178 302
High Income Portfolio 82 132 184 314
Small Cap Portfolio 107 204 300 524
Strategic Income Portfolio 85 140 198 339
Tactical Allocation Portfolio 76 114 154 253
Alliance Variable Products Series Fund
Growth Portfolio (Class B) 80 125 173 291
Growth and Income Portfolio (Class B) 79 121 166 277
International Portfolio 78 120 165 275
Money Market Portfolio (Class B) 78 118 162 269
Premier Growth Portfolio 79 123 170 285
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 80 126 175 294
Portfolio (Class B)
</TABLE>
<TABLE>
If you annuitize or do not surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Mitchell Hutchins Series Trust (Class H)
Balanced Portfolio $27 $84 $143 $304
Global Income Portfolio 36 109 184 382
Growth Portfolio 26 80 137 290
Growth and Income Portfolio 27 84 142 302
High Income Portfolio 28 87 148 314
Small Cap Portfolio 53 159 264 524
Strategic Income Portfolio 31 95 162 339
Tactical Allocation Portfolio 22 69 118 253
Alliance Variable Products Series Fund
Growth Portfolio (Class B) 26 80 137 291
Growth and Income Portfolio (Class B) 25 76 130 277
International Portfolio 24 75 129 275
Money Market Portfolio (Class B) 24 73 126 269
Premier Growth Portfolio 25 78 134 285
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 26 81 139 294
Portfolio (Class B)
</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.
<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 that is part of our general
account. Premium you allocate to the fixed investment 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 general 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.
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., P.O. Box
3031, Berwyn, PA 19312-0031. You will receive your Contract Value as of 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 partial surrender.
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 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 fixed investment option.
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 fund 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 procedures in
place 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 that 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 fixed investment
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.
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 premium 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.
================================================================
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 of our other variable accounts.
The variable account is divided into subaccounts, each of which invests in
shares of a different portfolio of a mutual fund. The variable account maintains
subaccounts that are not available under the contract. 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 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 (Class H)
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 $1.5 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 (Class B) - seeks to provide long term growth of capital.
Current income is incidental to the Portfolio's objective.
Growth and Income Portfolio (Class B) - seeks reasonable current income and
reasonable opportunity for appreciation through investments primarily in
dividend-paying common stocks of good quality.
International Portfolio - seeks to obtain a total return on its assets from
long-term growth of capital principally through a broad portfolio of marketable
securities of established non-U.S. companies (i.e., companies incorporated
outside the U.S.), companies participating in foreign economies with prospects
for growth, and foreign government securities.
Money Market Portfolio (Class B) - seeks safety of principal, excellent
liquidity and maximum current income to the extent consistent with the first two
objectives.
Premier Growth Portfolio - seeks growth of capital by pursuing aggressive
investment policies.
Quasar Portfolio - seeks growth of capital by pursuing aggressive investment
policies. Current income is incidental to the Portfolio's objective.
Real Estate Investment Portfolio - seeks total return from long-term growth of
capital and from income principally through investing in equity securities of
companies that are primarily engaged in or related to the real estate industry.
Technology Portfolio - seeks growth of capital. Current income is incidental to
the Portfolio's objective.
U.S. Government/High Grade Securities Portfolio (Class B) - seeks high current
income consistent with preservation of capital.
Mitchell Hutchins Asset Management Inc. and Alliance Capital Management L.P. may
compensate us for providing administration services in connection with the
portfolios that are offered under the contract. Such compensation is paid from
its assets.
Fixed Investment Option
Premium you allocate to the fixed investment option is guaranteed and 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.
We credit money allocated to the fixed investment option 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 general 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 fixed investment option, 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 general account for up to six
months from the date we receive the request at our Administrative Office, as
permitted by law.
<PAGE>
===================================================================
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 that 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 assuming the risks associated with our
obligations to make annuity payments and 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. It compensates us for our
administrative expenses, which 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 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 to each Contract Anniversary. We will not increase this fee.
It compensates us for the 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 financial statements for the
Mitchell Hutchins Series Trust and the prospectus for the Alliance Variable
Products Series Funds Inc. 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 that 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.
<PAGE>
===================================================================
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.
To surrender 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.
<PAGE>
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 premium 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 fixed investment 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 fixed investment 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.
<PAGE>
===================================================================
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, we will make annuity payments in accordance with option. However, 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% 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% assumed rate, the annuity payments will
increase. Similarly, if the actual rate is less than 5%, 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.
<PAGE>
===================================================================
DEATH BENEFIT
===================================================================
Death of Owner Before the Annuity Date
If you (and a joint owner, if applicable) 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 select 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
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
(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.
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 fixed investment 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
that 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.
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.
<PAGE>
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 contract were
surrendered 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
portfolio 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 portfolio level since the variable account level
total return reflects 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
(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 fund, please see the accompanying fund prospectus. 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;
(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.
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.
<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 traditional IRA is that contributions to a Roth IRA are
not deductible and "qualified distributions" from a Roth IRA are not includable
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.
<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.
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.
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 subaccount you have Contract Value. We determine the number of
portfolio shares that are attributable to you by dividing the corresponding
value in a particular portfolio by the net asset value of one portfolio share.
After the Annuity Date, we determine the number of portfolio shares that are
attributable to you by dividing the reserve maintained in a particular portfolio
to meet the obligations under the contract by the net asset value of one
portfolio share. The number of votes that 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 fixed investment
option.
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.
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.
<PAGE>
================================================================================
APPENDIX
================================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
(for an accumulation unit outstanding throughout the period)
<TABLE>
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MITCHELL HUTCHINS SERIES TRUST
BALANCED PORTFOLIO
Accumulation Unit Value
Beginning of Period 13.16 N/A N/A N/A N/A
End of Period 13.21 13.16 N/A N/A N/A
Accum Units o/s @ end of period 93,364.49 37,630.79 N/A N/A N/A
GLOBAL INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.79 N/A N/A N/A N/A
End of Period 11.07 11.79 N/A N/A N/A
Accum Units o/s @ end of period 30,287.27 2,160.65 N/A N/A N/A
GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 20.14 N/A N/A N/A N/A
End of Period 26.58 20.14 N/A N/A N/A
Accum Units o/s @ end of period 82,485.97 7,922.56 N/A N/A N/A
GROWTH & INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 15.84 N/A N/A N/A N/A
End of Period 17.23 15.84 N/A N/A N/A
Accum Units o/s @ end of period 372,045.91 77,909.26 N/A N/A N/A
HIGH INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 12.56 N/A N/A N/A N/A
End of Period 13.06 12.56 N/A N/A N/A
Accum Units o/s @ end of period 95,983.74 45,621.25 N/A N/A N/A
SMALL CAP PORTFOLIO
Accumulation Unit Value
Beginning of Period 15.56 N/A N/A N/A N/A
End of Period 16.29 15.56 N/A N/A N/A
Accum Units o/s @ end of period 32,175.25 19,246.77 N/A N/A N/A
STRATEGIC INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 12.28 N/A N/A N/A N/A
End of Period 12.34 12.28 N/A N/A N/A
Accum Units o/s @ end of period 69,191.82 11,783.29 N/A N/A N/A
TACTICAL ALLOCATION PORTFOLIO
Accumulation Unit Value
Beginning of Period 14.93 N/A N/A N/A N/A
End of Period 17.44 14.93 N/A N/A N/A
Accum Units o/s @ end of period 1,787,232.93 625,337.73 N/A N/A N/A
ALLIANCE VARIABLE PRODUCTS SERIES FUND
GROWTH PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 38.14 N/A N/A N/A N/A
Accum Units o/s @ end of period 136,639.29 N/A N/A N/A N/A
GROWTH & INCOME PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 31.73 N/A N/A N/A N/A
Accum Units o/s @ end of period 164,974.93 N/A N/A N/A N/A
INTERNATIONAL PORTFOLIO
Accumulation Unit Value
Beginning of Period 13.93 12.50 12.26 11.60 10.71
End of Period 19.26 13.93 12.50 12.26 11.60
Accum Units o/s @ end of period 3,403,423.52 3,645,458.54 3,700,183.10 2,718,751.84 981,260.91
MONEY MARKET PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 12.13 N/A N/A N/A N/A
Accum Units o/s @ end of period 62,489.67 N/A N/A N/A N/A
PREMIER GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 33.89 23.22 17.59 14.54 10.15
End of Period 44.22 33.89 23.22 17.59 14.54
Accum Units o/s @ end of period 13,968,927.64 10,004,043.81 6,662.866.85 3,971,452.13 1,252,211.18
QUASAR PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.65 12.37 10.58 10.00 N/A
End of Period 13.45 11.65 12.37 10.58 N/A
Accum Units o/s @ end of period 5,239,451.80 5,595,694.29 3,991,205.09 649,902.74 N/A
REAL ESTATE INVESTMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.71 12.16 N/A N/A N/A
End of Period 9.09 9.71 12.16 N/A N/A
Accum Units o/s @ end of period 1,173,826.98 1,323,433.94 936,389.36 N/A N/A
TECHNOLOGY PORTFOLIO
Accumulation Unit Value
Beginning of Period 18.47 11.43 10.89 10.00 N/A
End of Period 32.00 18.47 11.43 10.89 N/A
Accum Units o/s @ end of period 8,948,085.57 5,670,473.44 4,818,385.19 2,127,691.68 N/A
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 12.29 N/A N/A N/A N/A
Accum Units o/s @ end of period 102,108.55 N/A N/A N/A N/A
</TABLE>
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
(for an accumulation unit outstanding throughout the period)
(continued)
<TABLE>
1994 1993 1992
-------------------------------------
-------------------------------------
<S> <C> <C> <C>
MITCHELL HUTCHINS SERIES TRUST
BALANCED PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
GLOBAL INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
GROWTH & INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
HIGH INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
SMALL CAP PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
STRATEGIC INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
TACTICAL ALLOCATION PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
ALLIANCE VARIABLE PRODUCTS SERIES FUND
GROWTH PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
GROWTH & INCOME PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
INTERNATIONAL PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.17 10.00 N/A
End of Period 10.71 10.17 N/A
Accum Units o/s @ end of period 447,407.41 21,717.14 N/A
MONEY MARKET PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
PREMIER GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.13 10.00 10.00
End of Period 10.15 11.13 10.00
Accum Units o/s @ end of period 223,550.22 35,271.53 2,081.43
QUASAR PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
REAL ESTATE INVESTMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
TECHNOLOGY PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
</TABLE>
* 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 28, 1992
Premier Growth Portfolio June 26, 1992
Quasar Portfolio August 5, 1996
Real Estate Investment Portfolio January 9, 1997
Technology Portfolio January 11, 1996
U.S. Government/High Grade Securities Portfolio September 17, 1992
<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
Tax Deferred Accumulation
ANNUITY PROVISIONS
Variable Annuity Payments
Annuity Unit Value
Net Investment Factor
Additional Provisions
FINANCIAL STATEMENTS
<PAGE>
PROSPECTUS
PROFILE(TM) VARIABLE ANNUITY
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 part of our general 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
Dreyfus Stock Index Fund
(managed by The Dreyfus Corporation and Mellon Equity Associates)
<PAGE>
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, 2000. 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 that
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.
May 1, 2000
<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
<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., 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.
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.
<PAGE>
=====================================================================
FEE TABLES
=====================================================================
Owner Transaction Expenses
Sales Load.............................................................. None
Surrender Charge (as a percentage of premium 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 Contract Value is $50,000 or greater) $30/yr
Variable Account Annual 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%
<PAGE>
<TABLE>
Annual Portfolio Expenses
After Waivers/Reimbursement
(as a percentage of average net assets)
Management Other 12b-1 Total
Fees Expenses(1) Fees Expenses
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.00% 0.73%
AIM V.I. International Equity Fund 0.75% 0.22% 0.00% 0.97%
Alliance Variable Products Series Fund(2)
Global Bond Portfolio 0.65% 0.25% 0.00% 0.90%
Growth Portfolio (Class B) 0.75% 0.12% 0.25% 1.12%
Growth and Income Portfolio (Class B) 0.63% 0.09% 0.25% 0.97%
Premier Growth Portfolio 1.00% 0.05% 0.00% 1.05%
Quasar Portfolio 0.81% 0.14% 0.00% 0.95%
Technology Portfolio 0.86% 0.09% 0.00% 0.95%
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 0.75% 0.22% 0.00% 0.97%
Dreyfus Stock Index Fund 0.25% 0.01% 0.00% 0.26%
Fidelity Variable Insurance Products Fund(3)
(Initial Class) 0.58% 0.07% 0.00% 0.65%
VIP Growth Portfolio 0.58% 0.11% 0.00% 0.69%
VIP High Income Portfolio 0.18% 0.09% 0.00% 0.27%
VIP Money Market Portfolio
Fidelity Variable Insurance Products Fund II(4)
(Initial Class)
VIP II Asset Manager Portfolio 0.53% 0.09% 0.00% 0.62%
VIP II Contrafund(TM)Portfolio 0.58% 0.07% 0.00% 0.65%
VIP II Investment Grade Bond Portfolio 0.43% 0.11% 0.00% 0.54%
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund(5) 1.00% 0.34% 0.00% 1.34%
Worldwide Hard Assets Fund 1.00% 0.26% 0.00% 1.26%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectuses
for the AIM Variable Insurance Funds, Inc., 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.
(2) Total annual expenses for the following portfolios before waivers and
reimbursement by Alliance Capital Management L.P. investment adviser
for the year ended December 31, 1999, were as follows:
Global Bond Portfolio 1.04%
Quasar Portfolio 1.19%
Technology Portfolio 1.12%
(3) Total annual expenses for the following portfolio before reimbursement
by Fidelity Variable Insurance Products Fund's investment adviser for
the year ended December 31, 1999, was as follows:
VIP Growth Portfolio 0.66%
(4) Total annual expenses for the following portfolios before reimbursement
by Fidelity Variable Insurance Products Fund II's investment adviser
for the year ended December 31, 1999, were as follows:
VIP II Asset Manager Portfolio 0.63%
VIP II Contrafund(TM)Portfolio 0.67%
(5) Total annual expenses (excluding brokerage commissions, foreign taxes,
and interest expenses) for the following portfolio before reimbursement
by Van Eck Worldwide Insurance Trust's investment adviser for the year
ended December 31, 1999, was as follows:
Worldwide Emerging Markets Fund 1.54%
<PAGE>
<TABLE>
Example
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>
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund $76 $114 $153 $252
AIM V.I. International Equity Fund 79 121 166 277
Alliance Variable Products Series Fund, Inc.
Global Bond Portfolio 78 119 162 270
Growth Portfolio (Class B) 80 125 173 291
Growth and Income Portfolio (Class B) 79 121 166 277
Premier Growth Portfolio 79 123 170 285
Quasar Portfolio 78 120 165 275
Technology Portfolio 78 120 165 275
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 79 121 166 277
Dreyfus Stock Index Fund 71 99 129 203
Fidelity Variable Insurance Products Fund
(Initial Class)
VIP Growth Portfolio 75 111 149 244
VIP High Income Portfolio 76 112 151 248
VIP Money Market Portfolio 72 99 130 204
Fidelity Variable Insurance Products Fund II
(Initial Class)
VIP II Asset Manager Portfolio 75 110 148 241
VIP II Contrafund Portfolio 75 111 149 244
VIP II Investment Grade Bond Portfolio 74 108 144 233
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 82 132 184 313
Worldwide Hard Assets Fund 82 129 180 305
</TABLE>
<PAGE>
<TABLE>
If you annuitize or do not surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc.
AIM V.I. Capital Appreciation Fund $22 $69 $117 $252
AIM V.I. International Equity Fund 25 76 130 277
Alliance Variable Products Series Fund, Inc.
Global Bond Portfolio 24 74 126 270
Growth Portfolio (Class B) 26 80 137 291
Growth and Income Portfolio (Class B) 25 76 130 277
Premier Growth Portfolio 25 78 134 285
Quasar Portfolio 24 75 129 275
Technology Portfolio 78 120 165 275
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 25 76 130 277
Dreyfus Stock Index Fund 17 54 93 203
Fidelity Variable Insurance Products Fund
(Initial Class)
VIP Growth Portfolio 21 66 113 244
VIP High Income Portfolio 22 67 115 248
VIP Money Market Portfolio 18 54 94 204
Fidelity Variable Insurance Products Fund II
(Initial Class)
VIP II Asset Manager Portfolio 21 65 112 241
VIP II Contrafund(TM)Portfolio 21 66 113 244
VIP II Investment Grade Bond Portfolio 20 63 108 233
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 28 87 148 313
Worldwide Hard Assets Fund 28 84 144 305
</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.
===================================================================
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 that is part of our general
account. Premium you allocate to the fixed investment 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 general 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.
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., P.O. Box
3031, Berwyn, PA 19312-0031. You will receive your Contract Value as of 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 partial surrender.
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 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 fixed investment option.
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 fund 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 procedures in
place 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 that 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 fixed investment
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.
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 premium 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.
===============================================================
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 of our other variable accounts.
The variable account is divided into subaccounts, each of which invests in
shares of a different portfolio of a mutual fund. The variable account maintains
subaccounts that are not available under the contract. 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,
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 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 to provide growth of capital through
investment in common stocks, with emphasis on medium and small-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.
Growth Portfolio (Class B) - seeks to provide long term growth of capital.
Current income is incidental to the Portfolio's objective.
Growth and Income Portfolio (Class B) - seeks reasonable current income and
reasonable opportunity for appreciation through investments primarily in
dividend-paying common stocks of good quality.
Premier Growth Portfolio - seeks growth of capital by pursuing aggressive
investment policies.
Quasar Portfolio - seeks growth of capital by pursuing aggressive investment
policies. Current income is incidental to the Portfolio's objective.
Technology Portfolio - seeks growth of capital. Current income is incidental to
the Portfolio's objective.
Dreyfus Variable Investment Fund
Small Company Stock Portfolio - seeks investment returns (consisting of capital
appreciation and income) that are greater than the total return performance of
stocks as represented by the Russell 2500 TM Index. The portfolio normally
invests in a blended portfolio of growth and value stocks of small and mid-size
domestic companies, whose market values generally range between $500 million and
$5 billion.
Dreyfus Stock Index Fund
Dreyfus Stock Index Fund - seeks to match the total return of the Standard &
Poor's 500 Composite Stock Price Index. The fund generally invests in all 500
stocks in the S&P 500 in proportion to their weighting in the index. The fund is
neither sponsored by nor affiliated with Standard & Poor's Corporation. The
Dreyfus Corporation has engaged its affiliate, Mellon Equity Associates, to
serve as the fund's index fund manager.
Fidelity Variable Insurance Products Fund (VIP) (Initial Class)
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 attached prospectus.
The sub-advisers 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 Fidelity Management & Research Company.
Fidelity Variable Insurance Products Fund II (VIP II) (Initial Class)
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-advisers for this portfolio is
Fidelity Management & Research Far East Inc. and Fidelity Management & Research
(U.K.) Inc.
VIP II Contrafund(TM)Portfolio - seeks capital appreciation by investing in
securities of companies whose value the manager believes is not fully recognized
by the public. The sub-advisers 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.
The investment advisers may compensate us for providing administration services
in connection with the portfolios that are offered under the contract. Such
compensation is paid from its assets.
Fixed Investment Option
Premium you allocate to the fixed investment option is guaranteed and 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.
We credit money allocated to the fixed investment option 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 general 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 fixed investment option, 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 general account for up to six
months from the date we receive the request at our Administrative Office, as
permitted by law.
<PAGE>
===================================================================
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 that 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 assuming the risks associated with our
obligations to make annuity payments and 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. It compensates us for our
administrative expenses, which 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 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 to each Contract Anniversary. We will not increase this fee.
It compensates us for the 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 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 that 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.
<PAGE>
===================================================================
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.
To surrender 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.
<PAGE>
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 premium 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 fixed investment 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 fixed investment 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.
<PAGE>
===================================================================
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, we will make annuity payments in accordance with option. However, 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% 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% assumed rate, the annuity payments will
increase. Similarly, if the actual rate is less than 5%, 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.
<PAGE>
===================================================================
DEATH BENEFIT
===================================================================
Death of Owner Before the Annuity Date
If you (and a joint owner, if applicable) 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 select 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
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
(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.
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 fixed investment 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
that 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.
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.
<PAGE>
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 contract were
surrendered 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
portfolio 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 portfolio level since the variable account level
total return reflects 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
(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 fund, please see the accompanying fund prospectus. 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;
(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.
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.
<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 traditional IRA is that contributions to a Roth IRA are
not deductible and "qualified distributions" from a Roth IRA are not includable
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.
<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.
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.
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 subaccount you have Contract Value. We determine the number of
portfolio shares that are attributable to you by dividing the corresponding
value in a particular portfolio by the net asset value of one portfolio share.
After the Annuity Date, we determine the number of portfolio shares that are
attributable to you by dividing the reserve maintained in a particular portfolio
to meet the obligations under the contract by the net asset value of one
portfolio share. The number of votes that 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 fixed investment
option.
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.
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.
<PAGE>
================================================================================
APPENDIX
================================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
(for an accumulation unit outstanding throughout the period)
<TABLE>
1999 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. CAPITAL APPRECIATION FUND
Accumulation Unit Value
Beginning of Period 11.31 9.61 N/A N/A
End of Period 16.13 11.31 9.61 N/A
Accum Units o/s @ end of period 171,824.23 119,260.64 N/A N/A
AIM V.I. INTERNATIONAL EQUITY FUND
Accumulation Unit Value
Beginning of Period 11.51 10.10 N/A N/A
End of Period 17.59 11.51 10.10 N/A
Accum Units o/s @ end of period 206,083.30 67,193.18 262.97 N/A
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GLOBAL BOND PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.10 9.86 N/A N/A
End of Period 10.27 11.10 9.86 N/A
Accum Units o/s @ end of period 17,089.96 4,547.27 N/A N/A
GROWTH PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A
End of Period 38.14 N/A N/A N/A
Accum Units o/s @ end of period 136,639.29 N/A N/A N/A
GROWTH & INCOME PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A
End of Period 31.73 N/A N/A N/A
Accum Units o/s @ end of period 164,974.93 N/A N/A N/A
PREMIER GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 15.29 10.48 N/A N/A
End of Period 19.94 15.29 10.48 N/A
Accum Units o/s @ end of period 113,961.76 68,418.04 N/A N/A
QUASAR PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.32 12.02 10.28 10.00
End of Period 13.07 11.32 12.02 10.28
Accum Units o/s @ end of period 99,569.25 125,991.92 94,929.55 4,796.29
TECHNOLOGY PORTFOLIO
Accumulation Unit Value
Beginning of Period 17.87 11.07 10.54 10.00
End of Period 30.97 17.87 11.07 10.54
Accum Units o/s @ end of period 219,615.79 204,513.12 143,999.25 15,829.55
DREYFUS VARIABLE INVESTMENT FUND
SMALL COMPANY STOCK PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.79 10.55 N/A N/A
End of Period 10.67 9.79 10.55 N/A
Accum Units o/s @ end of period 156,175.36 137,766.01 58,659.22 N/A
DREYFUS STOCK INDEX FUND
Accumulation Unit Value
Beginning of Period 19.45 15.39 11.74 10.00
End of Period 23.14 19.45 15.39 11.74
Accum Units o/s @ end of period 975,476.18 788,393.98 490,227.53 113,481.41
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 18.29 13.30 10.92 10.00
End of Period 24.79 18.29 13.30 10.92
Accum Units o/s @ end of period 920,831.84 642,366.34 468,339.86 149,722.06
VIP HIGH INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.93 12.65 10.90 10.00
End of Period 12.73 11.93 12.65 10.90
Accum Units o/s @ end of period 576,557.79 302,062.09 185,484.29 55,015.77
VIP MONEY MARKET PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.13 10.70 10.29 10.00
End of Period 11.54 11.13 10.70 10.29
Accum Units o/s @ end of period 1,062,555.12 923,574.31 944,656.53 385,238.57
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II ASSET MANAGER PORTFOLIO
Accumulation Unit Value
Beginning of Period 15.01 13.23 11.12 10.00
End of Period 16.44 15.01 13.23 11.12
Accum Units o/s @ end of period 666,289.59 514,073.22 239,825.14 56,345.46
VIP II CONTRAFUND PORTFOLIO
Accumulation Unit Value
Beginning of Period 13.02 10.15 N/A N/A
End of Period 15.95 13.02 10.15 N/A
Accum Units o/s @ end of period 419,876.63 212,388.21 N/A N/A
VIP II INVESTMENT GRADE BOND PORTFOLIO
Accumulation Unit Value
Beginning of Period 12.10 11.28 10.49 10.00
End of Period 11.81 12.10 11.28 10.49
Accum Units o/s @ end of period 407,761.56 386,026.93 221,696.39 40,777.94
VAN ECK WORLDWIDE INSURANCE TRUST
WORLDWIDE EMERGING MARKETS FUND
Accumulation Unit Value
Beginning of Period 6.03 9.28 N/A N/A
End of Period 11.90 6.03 9.28 N/A
Accum Units o/s @ end of period 24,026.58 3,152.89 N/A N/A
WORLDWIDE HARD ASSETS FUND
Accumulation Unit Value
Beginning of Period 6.71 9.86 10.17 10.00
End of Period 8.01 6.71 9.86 10.17
Accum Units o/s @ end of period 30,383.48 19,667.21 22,196.30 11,530.80
</TABLE>
* 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 5, 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 January 3, 1995
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
<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
Tax Deferred Accumulation
ANNUITY PROVISIONS
Variable Annuity Payments
Annuity Unit Value
Net Investment Factor
Additional Provisions
FINANCIAL STATEMENTS
<PAGE>
PROSPECTUS
TRILOGY VARIABLE ANNUITY
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-three investment options to which you can allocate your
money -- twenty-two variable investment options listed below and one fixed
investment option. The fixed investment option is part of our general 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 High Current Income Fund
Domestic Money Market Fund Quality Equity Fund
Global Growth Focus Fund Small CapValue Focus Fund
Global Strategy Focus Fund Utilities and Telecommunications 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
<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
<PAGE>
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information ("SAI") dated May 1, 2000. 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 that
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.
May 1, 2000
<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
<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., 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.
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.
<PAGE>
=====================================================================
FEE TABLES
=====================================================================
Owner Transaction Expenses
Sales Load............................................................... None
Surrender Charge (as a percentage of premium 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 Contract Value is $50,000 or greater) $30/yr
Variable Account Annual 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%
<PAGE>
Annual Portfolio Expenses
After Waivers/Reimbursement
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Other 12b-1 Total
Fees Expenses Fees Expenses
Merrill Lynch Variable Series Funds
Basic Value Focus Fund 0.60% 0.06% 0.00% 0.66%
Domestic Money Market Fund 0.50% 0.05% 0.00% 0.55%
Global Growth Focus Fund 0.75% 0.12% 0.00% 0.87%
Global Strategy Focus Fund 0.65% 0.08% 0.00% 0.73%
High Current Income Fund 0.50% 0.02% 0.00% 0.52%
Quality Equity Fund 0.40% 0.09% 0.00% 0.49%
Small Cap Value Focus Fund 0.75% 0.06% 0.00% 0.81%
Utilities and Telecommunications Focus Fund 0.60% 0.09% 0.00% 0.69%
Hotchkis and Wiley Variable Trust
International VIP Portfolio 0.75% 0.26% 0.00% 1.01%
Low Duration VIP Portfolio 0.46% 0.12% 0.00% 0.58%
Mercury Asset Management Master Trust (2)
U.S. Large Cap Fund 0.65% 0.60% 0.00% 1.25%
Alliance Variable Products Series Fund(3)
Global Dollar Government Portfolio 0.12% 0.83% 0.00% 0.95%
Growth Portfolio (Class B) 0.75% 0.12% 0.25% 1.12%
Growth and Income Portfolio (Class B) 0.63% 0.09% 0.25% 0.97%
High-Yield Portfolio 0.60% 0.35% 0.00% 0.95%
Premier Growth Portfolio 1.00% 0.05% 0.00% 1.05%
Quasar Portfolio 0.81% 0.14% 0.00% 0.95%
Real Estate Investment Portfolio 0.49% 0.46% 0.00% 0.95%
Technology Portfolio 0.86% 0.09% 0.00% 0.95%
Total Return Portfolio 0.63% 0.23% 0.00% 0.86%
U.S. Government/High Grade Securities Portfolio (Class B) 0.60% 0.30% 0.25% 1.15%
Worldwide Privatization Portfolio 0.63% 0.32% 0.00% 0.95%
</TABLE>
(1) Other expenses are based on the expenses outlined in the prospectuses for
the Merrill Lynch Variable Series Funds, Hotchkis and Wiley Variable Trust,
Mercury Asset Management Master Trust and the Alliance Variable Products
Series Fund.
(2) Total annual expenses for the following portfolios before waivers and
reimbursement by the Mercury Asset Management Master Trust's investment
adviser for the year ended December 31, 1999, are as follows:
U.S. Large Cap Fund 2.83%
(3) Total expenses for the following portfolios before reimbursement by the
Alliance Variable Products Series Funds investment adviser for the year
ended December 31, 1999, were as follows:
Global Dollar Government 2.29% Real Estate Investment 1.72%
High Yield 1.40% Technology 1.12%
Quasar 1.19% Worldwide Privatization 1.46%
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>
Merrill Lynch Variable Series Funds
Basic Value Focus Fund $76 $111 $150 $245
Domestic Money Market Fund 74 108 144 234
Global Growth Focus Fund 78 118 161 267
Global Strategy Focus Fund 76 114 153 252
High Current Income Fund 74 107 143 231
Quality Equity Fund 74 106 141 227
Small Cap Value Focus Fund 77 116 158 261
Utilities and Telecommunications Focus Fund 76 112 151 248
Hotchkis and Wiley Variable Trust
International VIP Portfolio 79 122 168 281
Low Duration VIP Portfolio 75 109 146 237
Mercury Asset Management Master Trust(2)
U.S. Large Cap Fund 81 129 179 304
Alliance Variable Products Series Fund(3)
Global Dollar Government Portfolio 78 120 165 275
Growth Portfolio (Class B) 80 125 173 291
Growth and Income Portfolio (Class B) 79 121 166 277
High-Yield Portfolio 78 120 165 275
Premier Growth Portfolio 79 123 170 285
Quasar Portfolio 78 120 165 275
Real Estate Investment Portfolio 78 120 165 275
Technology Portfolio 78 120 165 275
Total Return Portfolio 78 117 160 266
U.S. Government/High Grade Securities 80 126 175 294
Portfolio (Class B)
Worldwide Privatization Portfolio 78 120 165 275
</TABLE>
<PAGE>
<TABLE>
If you annuitize or do not surrender after:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Merrill Lynch Variable Series Funds
Basic Value Focus Fund $22 $66 $114 $245
Domestic Money Market Fund 20 63 108 234
Global Growth Focus Fund 24 73 125 267
Global Strategy Focus Fund 22 69 117 252
High Current Income Fund 20 62 107 231
Quality Equity Fund 20 61 105 227
Small Cap Value Focus Fund 23 71 122 261
Utilities and Telecommunications Focus Fund 22 67 115 248
Hotchkis and Wiley Variable Trust
International VIP Portfolio 25 77 132 281
Low Duration VIP Portfolio 21 64 110 237
Mercury Asset Management Master Trust
U.S. Large Cap Fund 27 84 143 304
Alliance Variable Products Series Fund
Global Dollar Government Portfolio 24 75 129 275
Growth Portfolio (Class B) 26 80 137 291
Growth and Income Portfolio (Class B) 25 76 130 277
High-Yield Portfolio 24 75 129 275
Premier Growth Portfolio 25 78 134 285
Quasar Portfolio 24 75 129 275
Real Estate Investment Portfolio 24 75 129 275
Technology Portfolio 24 75 129 275
Total Return Portfolio 24 72 124 266
U.S. Government/High Grade Securities 26 81 139 294
Portfolio (Class B)
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.
<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 that is part of our general
account. Premium you allocate to the fixed investment 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 general 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.
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., P.O. Box
3031, Berwyn, PA 19312-0031. You will receive your Contract Value as of 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 partial surrender.
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 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 fixed investment option.
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 fund 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 procedures in
place 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 that 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 fixed investment
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.
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 premium 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.
================================================================
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 of our other variable accounts.
The variable account is divided into subaccounts, each of which invests in
shares of a different portfolio of a mutual fund. The variable account maintains
subaccounts that are not available under the contract. 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 Funds, 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 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 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.
Domestic Money Market Fund - seeks to preserve capital, maintain liquidity, and
achieve the highest possible current income consistent with the foregoing
objectives by investing in short-term domestic money market securities.
Global Growth Focus Fund - seeks long-term growth of capital 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.
High Current Income Fund - seeks to obtain a high level of current income.
Secondarily, 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.
Quality Equity Fund - seeks to attain high total investment return by creating a
portfolio that produces a high total return while maintaining a low level of
volatility when equity markets are declining.
Small Cap 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 and emerging growth companies that management
believes have special investment value, 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.
Utility and Telecommunication Focus Fund - seeks both 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.
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 and,
secondarily, capital appreciation.
Growth Portfolio (Class B) - seeks to provide long term growth of capital.
Current income is incidental to the Portfolio's objective.
Growth and Income Portfolio (Class B) - seeks reasonable current income and
reasonable opportunity for appreciation through investments primarily in
dividend-paying common stocks of good quality.
High-Yield Portfolio - seeks to earn the highest level of current income without
assuming undue risk by investing principally in high-yielding fixed income
securities rated Baa or lower by Moody's or BBB or lower by S&P, Duff & Phelps
or Fitch or, if unrated, of comparable quality.
Premier Growth Portfolio - seeks growth of capital by pursuing aggressive
investment policies.
Quasar Portfolio - seeks growth of capital by pursuing aggressive investment
policies. Current income is incidental to the Portfolio's objective.
Real Estate Investment Portfolio - seeks total return from long-term growth of
capital and from income principally through investing in equity securities of
companies that are primarily engaged in or related to the real estate industry.
Technology Portfolio - seeks growth of capital. Current income is incidental to
the Portfolio's objective.
Total Return Portfolio - seeks to achieve a high return through a combination of
current income and capital appreciation.
U.S. Government/High Grade Securities Portfolio (Class B) - seeks high current
income consistent with preservation of capital.
Worldwide Privatization Portfolio - seeks long-term capital appreciation.
The investment adviser may compensate us for providing administration services
in connection with the portfolios that are offered under the contract. Such
compensation is paid from its assets.
Fixed Investment Option
Premium you allocate to the fixed investment option is guaranteed and 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.
We credit money allocated to the fixed investment option 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 general 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 fixed investment option, 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 general account for up to six
months from the date we receive the request at our Administrative Office, as
permitted by law.
<PAGE>
===================================================================
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 that 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 assuming the risks associated with our
obligations to make annuity payments and 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. It compensates us for our
administrative expenses, which 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 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 to each Contract Anniversary. We will not increase this fee.
It compensates us for the 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 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 that 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.
<PAGE>
===================================================================
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.
To surrender 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.
<PAGE>
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 premium 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 fixed investment 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 fixed investment 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.
<PAGE>
===================================================================
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, we will make annuity payments in accordance with option. However, 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% 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% assumed rate, the annuity payments will
increase. Similarly, if the actual rate is less than 5%, 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.
<PAGE>
===================================================================
DEATH BENEFIT
===================================================================
Death of Owner Before the Annuity Date
If you (and a joint owner, if applicable) 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 select 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
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
(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.
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 fixed investment 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
that 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.
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.
<PAGE>
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 contract were
surrendered 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
portfolio 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 portfolio level since the variable account level
total return reflects 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
(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 fund, please see the accompanying fund prospectus. 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;
(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.
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.
<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 traditional IRA is that contributions to a Roth IRA are
not deductible and "qualified distributions" from a Roth IRA are not includable
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.
<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.
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.
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 subaccount you have Contract Value. We determine the number of
portfolio shares that are attributable to you by dividing the corresponding
value in a particular portfolio by the net asset value of one portfolio share.
After the Annuity Date, we determine the number of portfolio shares that are
attributable to you by dividing the reserve maintained in a particular portfolio
to meet the obligations under the contract by the net asset value of one
portfolio share. The number of votes that 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 fixed investment
option.
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.
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.
<PAGE>
================================================================================
APPENDIX
================================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
(for an accumulation unit outstanding throughout the period)
<TABLE>
1999 1998 1997 1996 1995
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MERRILL LYNCH VARIABLE SERIES FUND
BASIC VALUE FOCUS FUND
Accumulation Unit Value
Beginning of Period 10.65 N/A N/A N/A N/A
End of Period 12.72 10.65 N/A N/A N/A
Accum Units o/s @ end of period 499,921.42 330,863.59 N/A N/A N/A
DOMESTIC MONEY MARKET FUND
Accumulation Unit Value
Beginning of Period 10.43 N/A N/A N/A N/A
End of Period 10.79 10.43 N/A N/A N/A
Accum Units o/s @ end of period 106,527.64 285,074.87 N/A N/A N/A
GLOBAL GROWTH FOCUS FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 12.99 N/A N/A N/A N/A
Accum Units o/s @ end of period 19,656.99 N/A N/A N/A N/A
GLOBAL STRATEGY FOCUS FUND
Accumulation Unit Value
Beginning of Period 10.73 N/A N/A N/A N/A
End of Period 12.84 10.73 N/A N/A N/A
Accum Units o/s @ end of period 68,558.75 20,304.87 N/A N/A N/A
HIGH CURRENT INCOME FUND
Accumulation Unit Value
Beginning of Period 9.45 N/A N/A N/A N/A
End of Period 9.88 9.45 N/A N/A N/A
Accum Units o/s @ end of period 73,498.12 51,178.92 N/A N/A N/A
QUALITY EQUITY FUND
Accumulation Unit Value
Beginning of Period 11.55 N/A N/A N/A N/A
End of Period 14.97 11.55 N/A N/A N/A
Accum Units o/s @ end of period 118,296.37 60,761.56 N/A N/A N/A
SMALL CAP VALUE FOCUS FUND
Accumulation Unit Value
Beginning of Period 8.73 N/A N/A N/A N/A
End of Period 11.55 8.73 N/A N/A N/A
Accum Units o/s @ end of period 91,234.80 48,096.41 N/A N/A N/A
UTILITIES AND TELECOMMUNICATIONS FOCUS FUND
Accumulation Unit Value
Beginning of Period 13.80 N/A N/A N/A N/A
End of Period 15.33 13.80 N/A N/A N/A
Accum Units o/s @ end of period 66,695.54 34,377.78 N/A N/A N/A
HOTCHKIS AND WILEY VARIABLE TRUST
INTERNATIONAL VIP PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 10.91 N/A N/A N/A N/A
Accum Units o/s @ end of period 10,868.39 N/A N/A N/A N/A
LOW DURATION VIP PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 10.07 N/A N/A N/A N/A
Accum Units o/s @ end of period 8,544.08 N/A N/A N/A N/A
MERCURY ASSET MANAGEMENT MASTER TRUST
U.S. LARGE CAP FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 11.98 N/A N/A N/A N/A
Accum Units o/s @ end of period 6,216.43 N/A N/A N/A N/A
ALLIANCE VARIABLE PRODUCTS SERIES FUND
GLOBAL DOLLAR GOVERNMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period 12.55 16.25 14.56 11.82 9.74
End of Period 15.60 12.55 16.25 14.56 11.82
Accum Units o/s @ end of period 532,628.44 636,568.44 714,986.09 469,801.08 238,452.60
GROWTH PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 38.14 N/A N/A N/A N/A
Accum Units o/s @ end of period 136,639.29 N/A N/A N/A N/A
GROWTH & INCOME PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 31.73 N/A N/A N/A N/A
Accum Units o/s @ end of period 164,974.93 N/A N/A N/A N/A
HIGH YIELD PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.78 10.30 N/A N/A N/A
End of Period 9.40 9.78 10.30 N/A N/A
Accum Units o/s @ end of period 2,178,459.79 1,476,993.82 106,671.96 N/A N/A
PREMIER GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 33.89 23.22 17.59 14.54 10.15
End of Period 44.22 33.89 23.22 17.59 14.54
Accum Units o/s @ end of period 13,968,927.64 10,004,043.81 6,662,866.85 3,971,452.13 1,252,211.18
QUASAR PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.65 12.37 10.58 10.00 N/A
End of Period 13.45 11.65 12.37 10.58 N/A
Accum Units o/s @ end of period 5,239,451.80 5,595,694.29 3,991,205.09 649,902.74 N/A
REAL ESTATE INVESTMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.71 12.16 N/A N/A N/A
End of Period 9.09 9.71 12.16 N/A N/A
Accum Units o/s @ end of period 1,173,826.98 1,323,433.94 936,389.36 N/A N/A
TECHNOLOGY PORTFOLIO
Accumulation Unit Value
Beginning of Period 18.47 11.43 10.89 10.00 N/A
End of Period 32.00 18.47 11.43 10.89 N/A
Accum Units o/s @ end of period 8,948,085.57 5,670,473.44 4,818,385.19 2,127,691.68 N/A
TOTAL RETURN PORTFOLIO
Accumulation Unit Value
Beginning of Period 18.42 15.97 13.37 11.78 9.65
End of Period 19.35 18.42 15.97 13.37 11.78
Accum Units o/s @ end of period 3,271,109.60 2,427,810.67 1,780,440.77 1,155,818.92 328,256.04
U.S. GOVERNMENT/HIGH GRADE SECURITIES
PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A N/A
End of Period 12.29 N/A N/A N/A N/A
Accum Units o/s @ end of period 102,108.55 N/A N/A N/A N/A
WORLDWIDE PRIVATIZATION PORTFOLIO
Accumulation Unit Value
Beginning of Period 15.32 14.02 12.84 10.99 10.05
End of Period 24.00 15.32 14.02 12.84 10.99
Accum Units o/s @ end of period 2,092,530.42 2,399,048.01 2,391,217.59 1,135,168.22 394,704.27
</TABLE>
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
(for an accumulation unit outstanding throughout the period)
(continued)
<TABLE>
1994 1993 1992
-------------------------------
-------------------------------
<S> <C> <C> <C>
MERRILL LYNCH VARIABLE SERIES FUND
BASIC VALUE FOCUS FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
DOMESTIC MONEY MARKET FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
GLOBAL GROWTH FOCUS FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
GLOBAL STRATEGY FOCUS FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
HIGH CURRENT INCOME FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
QUALITY EQUITY FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
SMALL CAP VALUE FOCUS FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
UTILITIES AND TELECOMMUNICATIONS FOCUS FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
HOTCHKIS AND WILEY VARIABLE TRUST
INTERNATIONAL VIP PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
LOW DURATION VIP PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
MERCURY ASSET MANAGEMENT MASTER TRUST
U.S. LARGE CAP FUND
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
ALLIANCE VARIABLE PRODUCTS SERIES FUND
GLOBAL DOLLAR GOVERNMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A
End of Period 9.74 N/A N/A
Accum Units o/s @ end of period 69,320.82 N/A N/A
GROWTH PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A
End of Period 10.48 N/A N/A
Accum Units o/s @ end of period 467,688.06 N/A N/A
GROWTH & INCOME PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period 11.88 10.78 10.00
End of Period 11.67 11.88 10.78
Accum Units o/s @ end of period 438,680.32 28,041.82 800.00
HIGH YIELD PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
PREMIER GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.13 10.00 10.00
End of Period 10.15 11.13 10.00
Accum Units o/s @ end of period 223,550.22 35,271.53 2081.43
QUASAR PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
REAL ESTATE INVESTMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
TECHNOLOGY PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
TOTAL RETURN PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A
End of Period 9.65 N/A N/A
Accum Units o/s @ end of period 34,684.53 N/A N/A
U.S. GOVERNMENT/HIGH GRADE SECURITIES
PORTFOLIO (CLASS B)
Accumulation Unit Value
Beginning of Period N/A N/A N/A
End of Period N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A
WORLDWIDE PRIVATIZATION PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.00 N/A N/A
End of Period 10.05 N/A N/A
Accum Units o/s @ end of period 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
Domestic Money Market Fund February 20, 1992
Global Growth Focus Fund June 5, 1998
Global Strategy Focus Fund February 28, 1992
High Current Income Fund April 20, 1982
Quality Equity Fund April 20, 1982
Small Cap Value Focus Fund April 20, 1982
Utilities and Telecommunicatins Focus Fund July 1, 1993
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 January 11, 1996
<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
Tax Deferred Accumulation
ANNUITY PROVISIONS
Variable Annuity Payments
Annuity Unit Value
Net Investment Factor
Additional Provisions
FINANCIAL STATEMENTS
<PAGE>
PROFILE PROSPECTUS
MAY 1, 2000
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
<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, 2000. 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.
<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.
<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>
Other Total
Fees Expenses(1) Expenses
AIM Variable Insurance Funds
<S> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.73%
AIM V.I. International Equity Fund 0.75% 0.22% 0.97%
Alliance Variable Products Series Fund(2)
Global Bond Portfolio 0.65% 0.25% 0.90%
Growth Portfolio 0.75% 0.09% 0.84%
Growth and Income Portfolio 0.63% 0.08% 0.71%
Premier Growth Portfolio 1.00% 0.05% 1.05%
Quasar Portfolio 0.81% 0.14% 0.95%
Technology Portfolio 0.86% 0.09% 0.95%
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 0.75% 0.22% 0.97%
Dreyfus Stock Index Fund 0.25% 0.01% 0.26%
Fidelity Variable Insurance Products Fund(3)
VIP Growth Portfolio 0.59% 0.06% 0.65%
VIP High Income Portfolio 0.58% 0.11% 0.69%
VIP Money Market Portfolio 0.18% 0.09% 0.27%
Fidelity Variable Insurance Products Fund II(4)
VIP II Asset Manager Portfolio 0.53% 0.09% 0.62%
VIP II Contrafund Portfolio 0.58% 0.07% 0.65%
VIP II Investment Grade Bond Portfolio 0.43% 0.11% 0.54%
Van Eck Worldwide Insurance Trust(5)
Worldwide Emerging Markets Fund 1.00% 0.34% 1.34%
Worldwide Hard Assets Fund 1.00% 0.26% 1.26%
</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.
<PAGE>
(2) Total expenses for the following portfolios before waivers and
reimbursement by the Alliance Variable Products Series Fund's
investment adviser for the year ended December 31, 1999, were as
follows:
Global Bond Portfolio 1.04%
Quasar Portfolio 1.19%
Technology Portfolio 1.12%
(3) Total expenses for the following portfolios before reimbursement by
Fidelity Variable Insurance Products Fund's investment adviser for the
year ended December 31, 1999, were as follows:
VIP Growth Portfolio 0.66%
(4) Total expenses for the following portfolios before reimbursement by
Fidelity Variable Insurance Products Fund II's investment adviser for
the year ended December 31, 1999, were as follows:
VIP II Asset Manager Portfolio 0.64%
VIP II Contrafund Portfolio 0.67%
(5) Total expenses for the following portfolios before reimbursement by Van
Eck Worldwide Insurance Trust's investment adviser for the year ended
December 31, 1999, were as follows:
Worldwide Emerging Markets Fund 1.54%
<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
------ ------- ------- --------
AIM Variable Insurance Funds
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $78 $108 $138 $252
AIM V.I. International Equity Fund 80 115 150 277
Alliance Variable Products Series Fund
Global Bond Portfolio 79 113 147 270
Growth Portfolio 79 111 144 264
Growth and Income Portfolio 78 107 137 250
Premier Growth Portfolio 81 117 154 285
Quasar Portfolio 80 114 149 275
Technology Portfolio 80 114 149 275
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 80 115 150 277
Dreyfus Stock Index Fund 73 94 114 203
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 77 105 134 244
VIP High Income Portfolio 77 106 136 248
VIP Money Market Portfolio 73 94 115 204
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 77 104 133 241
VIP II Contrafund Portfolio 77 105 134 244
VIP II Investment Grade Bond Portfolio 76 102 129 233
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 83 125 168 313
Worldwide Hard Assets Fund 83 123 164 305
</TABLE>
<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
------ ------- ------- --------
AIM Variable Insurance Funds
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $76 $105 $135 $252
AIM V.I. International Equity Fund 79 112 148 277
Alliance Variable Products Series Fund
Global Bond Portfolio 78 110 144 270
Growth Portfolio 77 108 141 264
Growth and Income Portfolio 76 104 134 250
Premier Growth Portfolio 79 114 152 285
Quasar Portfolio 78 111 147 275
Technology Portfolio 78 111 147 275
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 79 112 148 277
Dreyfus Stock Index Fund 71 90 111 203
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 75 102 131 244
VIP High Income Portfolio 76 103 133 248
VIP Money Market Portfolio 72 90 112 204
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 75 101 130 241
VIP II Contrafund Portfolio 75 102 131 244
VIP II Investment Grade Bond Portfolio 74 99 126 233
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 82 123 166 313
Worldwide Hard Assets Fund 82 120 162 305
</TABLE>
<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
------ ------- ------- --------
AIM Variable Insurance Funds
<S> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund $22 $69 $117 $252
AIM V.I. International Equity Fund 25 76 130 277
Alliance Variable Products Series Fund
Global Bond Portfolio 24 74 126 270
Growth Portfolio 23 72 123 264
Growth and Income Portfolio 22 68 116 250
Premier Growth Portfolio 25 78 134 285
Quasar Portfolio 24 75 129 275
Technology Portfolio 24 75 129 275
Dreyfus Variable Investment Fund
Small Company Stock Portfolio 25 76 130 277
Dreyfus Stock Index Fund 17 54 93 203
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 21 66 113 244
VIP High Income Portfolio 22 67 115 248
VIP Money Market Portfolio 18 54 94 204
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 21 65 112 241
VIP II Contrafund Portfolio 22 66 113 244
VIP II Investment Grade Bond Portfolio 20 63 108 233
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 28 87 148 313
Worldwide Hard Assets Fund 28 84 144 305
</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.
<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.
<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.
<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,
<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 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.
<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 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.
<PAGE>
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.
<PAGE>
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."
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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);
<PAGE>
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.
<PAGE>
===================================================================
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
<PAGE>
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.
<PAGE>
===================================================================
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.
<PAGE>
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).
<PAGE>
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.
<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
<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;
<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.
<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.
<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
<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
<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.
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.
<PAGE>
================================================================================
APPENDIX
================================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
(for an accumulation unit outstanding throughout the period)
<TABLE>
1999 1998 1997 1996
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. CAPITAL APPRECIATION FUND
Accumulation Unit Value
Beginning of Period 11.31 9.61 N/A N/A
End of Period 16.13 11.31 9.61 N/A
Accum Units o/s @ end of period 171,824.23 119,260.64 N/A N/A
AIM V.I. INTERNATIONAL EQUITY FUND
Accumulation Unit Value
Beginning of Period 11.51 10.10 N/A N/A
End of Period 17.59 11.51 10.10 N/A
Accum Units o/s @ end of period 206,083.30 67,193.18 262.97 N/A
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
GLOBAL BOND PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.10 9.86 N/A N/A
End of Period 10.27 11.10 9.86 N/A
Accum Units o/s @ end of period 17,089.96 4,547.27 N/A N/A
GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 19.92 15.69 12.24 10.00
End of Period 26.41 19.92 15.69 12.24
Accum Units o/s @ end of period 401,094.74 439,478.47 333,114.57 123,814.87
GROWTH & INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 17.95 15.06 11.85 10.00
End of Period 19.71 17.95 15.06 11.85
Accum Units o/s @ end of period 620,940.44 913,812.35 547,915.82 116,342.75
PREMIER GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 15.29 10.48 N/A N/A
End of Period 19.94 15.29 10.48 N/A
Accum Units o/s @ end of period 113,961.76 68,418.04 N/A N/A
QUASAR PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.32 12.02 10.28 10.00
End of Period 13.07 11.32 12.02 10.28
Accum Units o/s @ end of period 99,569.25 125,991.92 94,929.55 4,796.29
TECHNOLOGY PORTFOLIO
Accumulation Unit Value
Beginning of Period 17.87 11.07 10.54 10.00
End of Period 30.97 17.87 11.07 10.54
Accum Units o/s @ end of period 219,615.79 204,513.12 143,999.25 15,829.55
DREYFUS VARIABLE INVESTMENT FUND
SMALL COMPANY STOCK PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.79 10.55 N/A N/A
End of Period 10.67 9.79 10.55 N/A
Accum Units o/s @ end of period 156,175.36 137,766.01 58,659.22 N/A
DREYFUS STOCK INDEX FUND
Accumulation Unit Value
Beginning of Period 19.45 15.39 11.74 10.00
End of Period 23.14 19.45 15.39 11.74
Accum Units o/s @ end of period 975,476.18 788,393.98 490,227.53 113,481.41
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 18.29 13.30 10.92 10.00
End of Period 24.79 18.29 13.30 10.92
Accum Units o/s @ end of period 920,831.84 642,366.34 468,339.86 149,722.06
VIP HIGH INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.93 12.65 10.90 10.00
End of Period 12.73 11.93 12.65 10.90
Accum Units o/s @ end of period 576,557.79 302,062.09 185,484.29 55,015.77
VIP MONEY MARKET PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.13 10.70 10.29 10.00
End of Period 11.54 11.13 10.70 10.29
Accum Units o/s @ end of period 1,062,555.12 923,574.31 944,656.53 385,238.57
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II ASSET MANAGER PORTFOLIO
Accumulation Unit Value
Beginning of Period 15.01 13.23 11.12 10.00
End of Period 16.44 15.01 13.23 11.12
Accum Units o/s @ end of period 666,289.59 514,073.22 239,825.14 56,345.46
VIP II CONTRAFUND PORTFOLIO
Accumulation Unit Value
Beginning of Period 13.02 10.15 N/A N/A
End of Period 15.95 13.02 10.15 N/A
Accum Units o/s @ end of period 419,876.63 212,388.21 N/A N/A
VIP II INVESTMENT GRADE BOND PORTFOLIO
Accumulation Unit Value
Beginning of Period 12.10 11.28 10.49 10.00
End of Period 11.81 12.10 11.28 10.49
Accum Units o/s @ end of period 407,761.56 386,026.93 221,696.39 40,777.94
VAN ECK WORLDWIDE INSURANCE TRUST
WORLDWIDE EMERGING MARKETS FUND
Accumulation Unit Value
Beginning of Period 6.03 9.28 N/A N/A
End of Period 11.90 6.03 9.28 N/A
Accum Units o/s @ end of period 24,026.58 3,152.89 N/A N/A
WORLDWIDE HARD ASSETS FUND
Accumulation Unit Value
Beginning of Period 6.71 9.86 10.17 10.00
End of Period 8.01 6.71 9.86 10.17
Accum Units o/s @ end of period 30,383.48 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
<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
<PAGE>
GALLERY PROSPECTUS
MAY 1, 2000
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, 2000. 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,
<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.
<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
<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.
<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%
<PAGE>
Annual Portfolio Expenses
After Waivers/Reimbursement
<TABLE>
Management Other Total
Fees Expenses(1) Expenses
Alliance Variable Products Series Funds(2)
<S> <C> <C> <C>
Conservative Investors Portfolio 0.70% 0.25% 0.95%
Global Bond Portfolio 0.65% 0.25% 0.90%
Global Dollar Government Portfolio 0.12% 0.83% 0.95%
Growth Portfolio 0.75% 0.09% 0.84%
Growth & Income Portfolio 0.63% 0.08% 0.71%
Growth Investors Portfolio 0.55% 0.40% 0.95%
High-Yield Portfolio 0.60% 0.35% 0.95%
International Portfolio 0.69% 0.26% 0.95%
Money Market Portfolio 0.50% 0.14% 0.64%
North American Government Income Portfolio 0.61% 0.34% 0.95%
Premier Growth Portfolio 1.00% 0.05% 1.05%
Quasar Portfolio 0.81% 0.14% 0.95%
Real Estate Investment Portfolio 0.49% 0.46% 0.95%
Short-Term Multi-Market Portfolio 0.55% 0.40% 0.95%
Technology Portfolio 0.86% 0.09% 0.95%
Total Return Portfolio 0.63% 0.23% 0.86%
U.S. Government/High Grade Securities Portfolio 0.60% 0.26% 0.86%
Utility Income Portfolio 0.72% 0.23% 0.95%
Worldwide Privatization Portfolio 0.63% 0.32% 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 year ended December 31, 1999, were as follows:
Conservative Investors Portfolio 1.18%
Global Bond Portfolio 1.04%
Global Dollar Government Portfolio 2.29%
Growth Investors Portfolio 1.47%
High-Yield Portfolio 1.40%
<PAGE>
International Portfolio 1.36%
North American Government Income Portfolio 1.20%
Premier Growth Portfolio 1.05%
Quasar Portfolio 1.19%
Real Estate Investment Portfolio 1.72%
Short-Term Multi-Market Portfolio 2.65%
Technology Portfolio 1.12%
Total Return Portfolio 0.86%
U.S. Government High Grade Securities Portfolio 0.86%
Utility Income Portfolio 1.14%
Worldwide Privatization Portfolio 1.46%
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
------ ------- ------- --------
Alliance Variable Products Series Fund
<S> <C> <C> <C> <C>
Conservative Investors Portfolio $80 $114 $149 $275
Global Bond Portfolio 79 113 147 270
Global Dollar Government Portfolio 80 114 149 275
Growth Portfolio 79 111 144 264
Growth & Income Portfolio 78 107 137 250
Growth Investors Portfolio 80 114 149 275
High-Yield Portfolio 80 114 149 275
International Portfolio 80 114 149 275
Money Market Portfolio 77 105 134 243
North American Government Income Portfolio 80 114 149 275
Premier Growth Portfolio 81 117 154 285
Quasar Portfolio 80 114 149 275
Real Estate Investment Portfolio 80 114 149 275
Short-Term Multi-Market Portfolio 80 114 149 275
Technology Portfolio 80 114 149 275
Total Return Portfolio 79 111 145 266
U.S. Government/High Grade Securities Portfolio 79 111 145 266
Utility Income Portfolio 80 114 149 275
Worldwide Privatization Portfolio 80 114 149 275
</TABLE>
<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
------ ------- ------- --------
Alliance Variable Products Series Fund
<S> <C> <C> <C> <C>
Conservative Investors Portfolio 78 111 147 275
Global Bond Portfolio 78 110 144 270
Global Dollar Government Portfolio 78 111 147 275
Growth Portfolio 77 108 141 264
Growth & Income Portfolio 76 1045 134 250
Growth Investors Portfolio 78 111 147 275
High-Yield Portfolio 78 111 147 275
International Portfolio 78 111 147 275
Money Market Portfolio 75 102 131 243
North American Government Income Portfolio 78 111 147 275
Premier Growth Portfolio 79 114 152 285
Quasar Portfolio 78 111 147 275
Real Estate Investment Portfolio 78 111 147 275
Short-Term Multi-Market Portfolio 78 111 147 275
Technology Portfolio 78 111 147 275
Total Return Portfolio 78 108 142 266
U.S. Government/High Grade Securities Portfolio 78 108 142 266
Utility Income Portfolio 78 111 147 275
Worldwide Privatization Portfolio 78 111 147 275
</TABLE>
<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
------ ------- ------- --------
Alliance Variable Products Series Fund
<S> <C> <C> <C> <C>
Conservative Investors Portfolio 24 75 129 275
Global Bond Portfolio 24 74 1268 270
Global Dollar Government Portfolio 24 75 129 275
Growth Portfolio 23 72 123 264
Growth & Income Portfolio 22 68 116 250
Growth Investors Portfolio 24 75 129 275
High-Yield Portfolio 24 75 129 275
International Portfolio 24 75 129 275
Money Market Portfolio 21 66 113 243
North American Government Income Portfolio 24 75 129 275
Premier Growth Portfolio 25 78 134 285
Quasar Portfolio 24 75 129 275
Real Estate Investment Portfolio 24 75 129 275
Short-Term Multi-Market Portfolio 24 75 129 275
Technology Portfolio 24 75 129 275
Total Return Portfolio 24 72 124 266
U.S. Government/High Grade Securities Portfolio 24 72 124 266
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.
<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.
<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.
<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,
<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.
<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.
<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.
<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."
<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.
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.
<PAGE>
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;
<PAGE>
(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:
<PAGE>
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.
<PAGE>
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
<PAGE>
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.
<PAGE>
===================================================================
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.
<PAGE>
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).
<PAGE>
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.
<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
<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;
<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.
<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.
<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
<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
<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.
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.
<PAGE>
================================================================================
APPENDIX
================================================================================
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
(for an accumulation unit outstanding throughout the period)
<TABLE>
1999 1998 1997 1996
--------------------------------------------------------------------------
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
CONSERVATIVE INVESTORS PORTFOLIO
Accumulation Unit Value
Beginning of Period 14.62 12.99 11.84 11.57
End of Period 15.15 14.62 12.99 11.84
Accum Units o/s @ end of period 1,576,035.87 1,834,033.49 1,584,750.70 1,109,173.48
GLOBAL BOND PORTFOLIO
Accumulation Unit Value
Beginning of Period 14.79 13.14 13.24 12.64
End of Period 13.69 14.79 13.14 13.24
Accum Units o/s @ end of period 607,165.47 643,678.64 708,242.42 579,082.99
GLOBAL DOLLAR GOVERNMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period 12.55 16.25 14.56 11.82
End of Period 15.60 12.55 16.25 14.56
Accum Units o/s @ end of period 532,628.44 636,568.44 714,986.09 469,801.08
GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 28.81 22.70 17.70 13.97
End of Period 38.20 28.81 22.70 17.70
Accum Units o/s @ end of period 9,548,163.15 8,904,664.35 8,054,584.57 5,856,812.02
GROWTH & INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 28.94 24.27 19.11 15.62
End of Period 31.78 28.94 24.27 19.11
Accum Units o/s @ end of period 12,326,350.55 9,476,753.38 7,258,107.19 4,509,118.40
GROWTH INVESTORS PORTFOLIO
Accumulation Unit Value
Beginning of Period 17.39 14.26 12.43 11.65
End of Period 19.94 17.39 14.26 12.43
Accum Units o/s @ end of period 717,170.78 805,318.01 824,606.48 609,405.23
HIGH YIELD PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.78 10.30 N/A N/A
End of Period 9.40 9.78 10.30 N/A
Accum Units o/s @ end of period 2,178,459.79 1,476,993.82 106,671.96 N/A
INTERNATIONAL PORTFOLIO
Accumulation Unit Value
Beginning of Period 13.93 12.50 12.26 11.60
End of Period 19.26 13.93 12.50 12.26
Accum Units o/s @ end of period 3,403,423.52 3,645,458.54 3,700,183.10 2,718,751.84
MONEY MARKET PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.77 11.37 10.97 10.63
End of Period 12.15 11.77 11.37 10.97
Accum Units o/s @ end of period 7,969,839.42 7,257,274.05 4,291,499.61 4,320,223.01
NORTH AMERICAN GOVERNMENT INVESTORS PORTFOLIO
Accumulation Unit Value
Beginning of Period 13.67 13.32 12.33 10.53
End of Period 14.68 13.67 13.32 12.33
Accum Units o/s @ end of period 1,532,276.68 1,816,650.85 1,790,540.24 1,047,240.17
PREMIER GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 33.89 23.22 17.59 14.54
End of Period 44.22 33.89 23.22 17.59
Accum Units o/s @ end of period 13,968,927.64 10,004,043.81 6,662,866.85 3,971,452.13
QUASAR PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.65 12.37 10.58 10.00
End of Period 13.45 11.65 12.37 10.58
Accum Units o/s @ end of period 5,239,451.80 5,595,694.29 3,991,205.09 649,902.74
REAL ESTATE INVESTMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.71 12.16 N/A N/A
End of Period 9.09 9.71 12.16 N/A
Accum Units o/s @ end of period 1,173,826.98 1,323,433.94 936,389.36 N/A
SHORT-TERM MULTI MARKET PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.67 11.13 10.79 9.99
End of Period 11.91 11.67 11.13 10.79
Accum Units o/s @ end of period 269,432.57 372,503.39 418,440.83 461,069.70
TECHNOLOGY PORTFOLIO
Accumulation Unit Value
Beginning of Period 18.47 11.43 10.89 10.00
End of Period 32.00 18.47 11.43 10.89
Accum Units o/s @ end of period 8,948,085.57 5,670,473.44 4,818,385.19 2,127,691.68
TOTAL RETURN PORTFOLIO
Accumulation Unit Value
Beginning of Period 18.42 15.97 13.37 11.78
End of Period 19.35 18.42 15.97 13.37
Accum Units o/s @ end of period 3,271,109.60 2,427,810.67 1,780,440.77 1,155,818.92
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
Accumulation Unit Value
Beginning of Period 12.80 12.00 11.20 11.07
End of Period 12.32 12.80 12.00 11.20
Accum Units o/s @ end of period 4,082,327.72 3,516,324.78 2,190,735.81 1,838,415.41
UTILITY INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 19.04 15.58 12.57 11.82
End of Period 22.42 19.04 15.58 12.57
Accum Units o/s @ end of period 1,646,240.96 1,379,682.64 910,470.43 812,579.02
WORLDWIDE PRIVATIZATION PORTFOLIO
Accumulation Unit Value
Beginning of Period 15.32 14.02 12.84 10.99
End of Period 24.00 15.32 14.02 12.84
Accum Units o/s @ end of period 2,092,530.42 2,399,048.01 2,391,217.59 1,135,168.22
</TABLE>
<PAGE>
CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES*
(for an accumulation unit outstanding throughout the period)
(continued)
<TABLE>
1995 1994 1993 1992
----------------------------------------------
-----------------------------------------------
<S> <C> <C> <C> <C>
ALLIANCE VARIABLE PRODUCTS SERIES FUND
CONSERVATIVE INVESTORS PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.02 10.00 N/A N/A
End of Period 11.57 10.02 N/A N/A
Accum Units o/s @ end of period 405,192.27 62,828.02 N/A N/A
GLOBAL BOND PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.28 11.00 9.96 10.00
End of Period 12.64 10.28 11.00 9.96
Accum Units o/s @ end of period 213,886.71 85,875.16 18,846.45 5,444.00
GLOBAL DOLLAR GOVERNMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.74 10.00 N/A N/A
End of Period 11.82 9.74 N/A N/A
Accum Units o/s @ end of period 238,452.60 69,320.82 N/A N/A
GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.48 10.00 N/A N/A
End of Period 13.97 10.48 N/A N/A
Accum Units o/s @ end of period 2,215,092.12 467,688.06 N/A N/A
GROWTH & INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 11.67 11.88 10.78 10.00
End of Period 15.62 11.67 11.88 10.78
Accum Units o/s @ end of period 1,554,549.81 438,680.32 28,041.82 800.00
GROWTH INVESTORS PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.81 10.00 N/A N/A
End of Period 11.65 9.81 N/A N/A
Accum Units o/s @ end of period 292,173.06 29,492.78 N/A N/A
HIGH YIELD PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A
End of Period N/A N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A N/A
INTERNATIONAL PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.71 10.17 10.00 N/A
End of Period 11.60 10.71 10.17 N/A
Accum Units o/s @ end of period 981,260.91 447,407.41 21,717.14 N/A
MONEY MARKET PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.26 10.08 10.00 N/A
End of Period 10.63 10.26 10.08 N/A
Accum Units o/s @ end of period 1,856,020.37 431,319.86 8,487.20 N/A
NORTH AMERICAN GOVERNMENT INVESTORS PORTFOLIO
Accumulation Unit Value
Beginning of Period 8.70 10.00 N/A N/A
End of Period 10.53 8.70 N/A N/A
Accum Units o/s @ end of period 531,374.67 340,817.36 N/A N/A
PREMIER GROWTH PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.15 11.13 10.00 10.00
End of Period 14.54 10.15 11.13 10.00
Accum Units o/s @ end of period 1,252,211.18 223,550.22 35,271.53 2,081.43
QUASAR PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A
End of Period N/A N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A N/A
REAL ESTATE INVESTMENT PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A
End of Period N/A N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A N/A
SHORT-TERM MULTI MARKET PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.49 10.29 9.79 N/A
End of Period 9.99 9.49 10.29 N/A
Accum Units o/s @ end of period 115,207.71 95,717.71 14,511.57 N/A
TECHNOLOGY PORTFOLIO
Accumulation Unit Value
Beginning of Period N/A N/A N/A N/A
End of Period N/A N/A N/A N/A
Accum Units o/s @ end of period N/A N/A N/A N/A
TOTAL RETURN PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.65 10.00 N/A N/A
End of Period 11.78 9.65 N/A N/A
Accum Units o/s @ end of period 328,256.04 34,684.53 N/A N/A
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.42 9.95 10.00 N/A
End of Period 11.07 9.42 9.95 N/A
Accum Units o/s @ end of period 914,988.76 320,574.64 41,210.45 N/A
UTILITY INCOME PORTFOLIO
Accumulation Unit Value
Beginning of Period 9.87 10.00 N/A N/A
End of Period 11.82 9.87 N/A N/A
Accum Units o/s @ end of period 358,005.39 111,604.02 N/A N/A
WORLDWIDE PRIVATIZATION PORTFOLIO
Accumulation Unit Value
Beginning of Period 10.05 10.00 N/A N/A
End of Period 10.99 10.05 N/A N/A
Accum Units o/s @ end of period 394,704.27 105,674.08 N/A N/A
</TABLE>
<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
<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
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
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 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, 2000, 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.
<PAGE>
=====================================================================
TABLE OF CONTENTS
=====================================================================
GENERAL INFORMATION..........................................................3
AIG Life Insurance Company..............................................3
Independent Accountants.................................................3
Legal Counsel...........................................................3
Distributor.............................................................3
Potential Conflicts.....................................................3
CALCULATION OF PERFORMANCE DATA..............................................4
Yield and Effective Yield Quotations for the Money Market Subaccount....5
Yield Quotations for Other Subaccounts..................................5
Total Return Quotations.................................................5
Non-Standardized Performance Data.......................................6
Tax Deferred Accumulation...............................................7
ANNUITY PROVISIONS...........................................................8
Variable Annuity Payments...............................................8
Annuity Unit Value......................................................8
Net Investment Factor...................................................9
Additional Provisions..................................................10
FINANCIAL STATEMENTS........................................................10
<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 Variable
Account I.
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"), 70 Pine Street, New York, New
York, acts as the distributor of the contract. AIGESC is a wholly owned
subsidiary of American International Group, Inc. Commissions not to exceed 7% of
premiums will be paid to entities that 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. Commissions are paid by Variable Account I
directly to selling dealers and representatives on behalf of AIGESC. Aggregate
commissions were $46,881,581 in 1999, $33,398,137 in 1998, and $27,225,980 in
1997. Commissions retained by AIGESC were $0 in 1999, $0 in 1998, and $193,263
in 1997.
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
<PAGE>
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 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 I
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 I 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 quotations, 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
<PAGE>
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.
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 I 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 I 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:
<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
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 I
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.
<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
I'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.
<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.
<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.
<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 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 its 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>
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
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, 2000, 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, 2000
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION.................................. B-3
AIG Life Insurance Company..................... B-3
Independent Accountants........................ B-3
Legal Counsel.................................. B-3
Distributor.................................... B-3
Potential Conflicts.........................
CALCULATION OF PERFORMANCE DATA...................... B-3
Yield and Effective Yield Quotations for the
Money Market Subaccount...................... B-3
Yield Quotations for Other Subaccounts......... B-4
Total Return Quotations........................ B-5
Non-Standarized Performance Data............... B-6
ANNUITY PROVISIONS................................... B-8
Variable Annuity Payments...................... B-8
Annuity Unit Value............................. B-8
Net Investment Factor.......................... B-9
Additional Provisions.......................... B-10
FINANCIAL STATEMENTS................................. B-10
<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. (AIGESC), 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>
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,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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 3, 2000
<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, 1999, 1998 AND 1997
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands)
<TABLE>
December 31, December 31,
1999 1998
<S> <C> <C>
Assets
Investments and cash:
Fixed maturities:
Bonds available for sale, at market value $ 4,702,879 $ 4,238,045
(cost: 1999 - $4,890,022; 1998 - $4,081,008)
Equity securities:
Common stock
(cost: 1999-$892; 1998 - $901) 2,233 2,410
Non-redeemable preferred stock
(cost: 1999 - $50,794; 1998 - $18,250) 49,377 19,338
Mortgage loans on real estate, net 345,253 468,342
Real estate, net of accumulated
depreciation of $5,041 in 1999 and $4,351 in 1998 12,543 13,002
Policy loans 643,815 1,010,969
Other invested assets 77,845 81,916
Short-term investments 222,677 163,704
Cash 86 4,788
---------------- -------------
Total investments and cash 6,056,708 6,002,514
Amounts due from related parties 5,465 17,330
Investment income due and accrued 93,183 94,029
Premium and insurance balances receivable 64,359 56,583
Reinsurance assets 99,850 72,044
Deferred policy acquisition costs 220,672 167,840
Federal income tax receivable 9,611 4,207
Deferred income taxes 63,568 -
Separate and variable accounts 3,220,806 1,971,280
Other assets 5,363 6,228
-------------- -------------
Total assets $ 9,839,585 $ 8,392,055
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
December 31, December 31,
1999 1998
<S> <C> <C>
Liabilities
Policyholders' funds on deposit $ 4,612,363 $ 4,472,854
Future policy benefits 1,284,568 1,002,244
Reserve for unearned premiums 21,100 21,468
Policy and contract claims 212,627 200,193
Reserve for commissions, expenses and taxes 19,390 25,702
Insurance balances payable 60,642 56,263
Amounts due to related parties 6,821 4,119
Deferred income taxes - 56,519
Separate and variable accounts 3,220,806 1,971,280
Minority interest 5,837 5,987
Other liabilities 75,039 59,189
------------- -----------
Total liabilities 9,519,193 7,875,818
----------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
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 283,908 236,521
Accumulated other comprehensive income (121,683) 121,549
----------- ------------
Total capital funds 320,392 516,237
----------- ------------
Total liabilities and capital funds $ 9,839,585 $ 8,392,055
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
(in thousands)
<TABLE>
Years ended December 31,
1999 1998 1997
------------ -------- -------
Revenues:
<S> <C> <C> <C>
Premiums $ 712,920 $ 616,964 $ 437,650
Net investment income 443,863 457,148 381,868
Realized capital losses (11,240) (334) (3,025)
------------- ------------- ----------
Total revenues 1,145,543 1,073,778 816,493
---------- ---------- --------
Benefits and expenses:
Benefits to policyholders 329,888 272,368 188,969
Increase in future policy benefits
and policyholders' funds on deposit 539,457 547,100 397,481
Acquisition and insurance expenses 202,678 168,075 163,533
----------- ----------- --------
Total benefits and expenses 1,072,023 987,543 749,983
---------- ----------- --------
Income before income taxes 73,520 86,235 66,510
------------ ----------- ---------
Income taxes:
Current 15,055 16,218 20,059
Deferred 10,884 15,220 3,964
------------ ----------- ----------
Total income taxes 25,939 31,438 24,023
------------ ----------- ---------
Net income before minority interest 47,581 54,797 42,487
Minority interest income (194) (163) (128)
-------------- ------------- ----------
Net income $ 47,387 $ 54,634 $ 42,359
========== ========== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CAPITAL FUNDS
(in thousands)
<TABLE>
Years ended December 31,
1999 1998 1997
<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 153,283 153,283 123,283
Capital contributions - - 30,000
--------------- --------------- ----------
Balance at end of year 153,283 153,283 153,283
--------- --------- ---------
Retained earnings
Balance at beginning of year 236,521 181,887 139,528
Net income 47,387 54,634 42,359
---------- ---------- ----------
Balance at end of year 283,908 236,521 181,887
--------- --------- ---------
Accumulated other comprehensive income
Balance at beginning of year 121,549 114,490 62,814
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments (374,203) 10,860 79,497
Deferred income tax benefit (expense) on
changes 130,971 (3,801) (27,821)
---------- ---------- ---------
Balance at end of year (121,683) 121,549 114,490
---------- --------- ---------
Total capital funds $ 320,392 $ 516,237 $ 454,544
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Years ended December 31,
1999 1998 1997
------------ ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 47,387 $ 54,634 $ 42,359
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 294,389 250,810 121,325
Change in premiums and insurance balances
receivable and payable -net (3,398) (753) (5,346)
Change in reinsurance assets (27,806) (11,301) 157,710
Change in deferred policy acquisition costs (52,832) (49,305) (34,248)
Change in investment income due and accrued 846 (8,894) 22,133
Realized capital losses 11,240 334 3,025
Change in current and deferred income taxes -net 5,480 9,330 2,689
Change in reserves for commissions, expenses and taxes (6,312) 9,599 13,243
Change in other assets and liabilities - net 26,888 (61,575) 69,582
---------- ----------- ---------
Total adjustments 248,495 138,245 350,113
--------- --------- --------
Net cash provided by operating activities 295,882 192,879 392,472
--------- --------- --------
Cash flows from investing activities:
Cost of fixed maturities, at market, sold 564,697 282,756 23,816
Cost of fixed maturities, at market, matured or redeemed 318,833 340,435 153,963
Cost of equity securities sold 1,032 1,039 3,676
Cost of real estate sold - 2,585 -
Realized capital losses (11,240) 1,666 1,975
Purchase of fixed maturities (1,685,038) (1,865,768) (804,262)
Purchase of equity securities (33,567) (18,559) (1,750)
Purchase of real estate - (341) (413)
Mortgage loans granted (134,988) (202,484) (87,690)
Repayments of mortgage loans 258,159 83,035 29,298
Change in policy loans 367,154 485,868 377,124
Change in short-term investments (58,973) 504,208 (567,876)
Change in other invested assets (23,336) (11,706) 6,294
Other - net (2,826) (27,908) 11,917
---------- ----------- ----------
Net cash used in investing activities (440,093) (425,174) (853,928)
-------- ---------- ---------
Cash flows from financing activities:
Change in policyholders' funds on deposit 139,509 231,951 430,808
Proceeds from capital contribution - - 30,000
-------------- ---------------- ----------
Net cash provided by financing activities 139,509 231,951 460,808
-------- ---------- ---------
Change in cash (4,702) (344) (648)
Cash at beginning of period 4,788 5,132 5,780
---------- ------------ ----------
Cash at end of period $ 86 $ 4,788 $ 5,132
============ ============ ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
AIG LIFE INSURANCE COMPANY
STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
Years ended December 31,
1999 1998 1997
----------------- ---------- ------
<S> <C> <C> <C>
Comprehensive income
Net income $ 47,387 $ 54,634 $ 42,359
------------ ------------ -----------
Other comprehensive income
Unrealized appreciation (depreciation) of
investments - net of reclassification
adjustments (374,203) 10,860 79,497
Changes due to deferred income tax benefit
(expense) on changes 130,971 (3,801) (27,821)
----------- ------------- ---------
Other comprehensive income (243,232) 7,059 51,676
---------- -------------- ---------
Comprehensive income $ (195,845) $ 61,693 $ 94,035
==========- =========== =========
</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 GAAP 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 current 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
lives. 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 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 partnerships, which
are recorded using either the cost or the equity method depending on
the type of partnership and the Company's related ownership
percentage.
(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 for
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 131 establishes standards for the way the Company is required to
disclose information about its operating segments in its annual
financial statements and selected information in its 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 was effective 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 the
Company to revise its 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, 2001.
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. This statement was
effective for the year commencing January 1, 1999 and has been adopted
herein. SOP 97-3 did not have a material impact on the Company's
results of operations, financial condition or liquidity.
<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.
2. Investment Information
(a) Statutory Deposits: Securities with a carrying value of $2,540,000 and
$2,448,000 were deposited by the Company under requirements of
regulatory authorities as of December 31, 1999 and 1998, respectively.
(b) Net Investment Income: An analysis of net investment income is as
follows (in thousands):
<TABLE>
Years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Fixed maturities $330,806 $284,267 $200,097
Equity securities 1,670 622 58
Mortgage loans 37,255 36,464 28,714
Real estate 2,253 2,406 2,254
Policy loans 55,832 120,927 148,555
Cash and short-term investments 7,349 9,346 3,582
Other invested assets 15,141 8,015 2,380
--------- --------- ---------
Total investment income 450,306 462,047 385,640
Investment expenses 6,443 4,899 3,772
--------- --------- ---------
Net investment income $443,863 $457,148 $381,868
======= ======= =======
</TABLE>
2. Investment Information - (continued)
(c) Investment Gains and Losses: The net realized capital gains (losses)
and change in unrealized appreciation (depreciation) of investments
for 1999, 1998 and 1997 are summarized below (in thousands):
<TABLE>
Years ended December 31,
1999 1998 1997
---------- ------- ------
Realized (losses) gains on investments:
<S> <C> <C> <C>
Fixed maturities $ (11,100) $ - $ -
Equity securities 86 84 1,975
Mortgage loans - (2,000) (5,000)
Real estate - 1,561 -
Other invested assets (226) 21 -
----------- --------- ------------
Realized losses $ (11,240) $ (334) $ (3,025)
======== ======= =========
Change in unrealized appreciation (depreciation) of investments:
Fixed maturities $(344,180) $( 1,131) $ 77,422
Equity securities (2,673) 1,203 (626)
Other invested assets (27,350) 10,788 2,701
---------- ------- ---------
Change in unrealized appreciation
(depreciation) of investments $(374,203) $10,860 $ 79,497
-======== ====== =======
</TABLE>
Proceeds from the sale of investments in fixed maturities during 1999,
1998 and 1997 were $564,697,000, $282,756,000, and $23,816,000,
respectively.
During 1999, 1998 and 1997, gross gains of $8,603,000, $0, and $0,
respectively, and gross losses of $19,703,000, $0, and $0,
respectively, were realized on dispositions of fixed maturity
investments.
During 1999, 1998 and 1997, gross gains of $87,000, $84,000, and
$1,975,000, respectively, and gross losses of $1,000, $0, and $0,
respectively, were realized on disposition of equity securities.
(d) Market Value of Fixed Maturities and Unrealized Appreciation of
Investments: At December 31, 1999 and 1998, unrealized appreciation of
investments in equity securities (before applicable taxes) included
gross gains of $3,635,000 and $2,854,000 and gross losses of
$3,711,000 and $257,000, respectively.
The amortized cost and estimated market values of investments in fixed
maturities at December 31, 1999 and 1998 are as follows (in
thousands):
<TABLE>
Gross Gross Estimated
1999 Amortized Unrealized Unrealized Market
---- Cost Gains Losses Value
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Government and government
agencies and authorities $ 54,114 $ 10,611 $ 549 $ 64,176
States, municipalities and
political subdivisions 298,831 8,474 2,777 304,528
Foreign governments 20,242 947 109 21,080
All other corporate 4,516,835 30,080 233,820 4,313,095
--------- ----------- -------- ---------
Total fixed maturities $4,890,022 $ 50,112 $ 237,255 $4,702,879
========= =========== ======== =========
</TABLE>
<PAGE>
2. Investment Information - (continued)
-----------------------------------
<TABLE>
Gross Gross Estimated
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>
The amortized cost and estimated market value of fixed maturities,
available for sale at December 31, 1999, 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 $ 320,364 $ 310,060
Due after one year through five years 1,431,252 1,385,475
Due after five years through ten years 1,788,798 1,708,343
Due after ten years 1,349,608 1,299,001
---------- ---------
$ 4,890,022 $4,702,879
========= =========
</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, 1999 and 1998, the market value of the CMO
portfolio was $577,112,000 and $522,844,000, respectively; the
estimated amortized cost was approximately $586,925,000 in 1999 and
$504,077,000 in 1998. The Company's CMO portfolio is readily
marketable. There were no derivative (high risk) CMO securities
contained in the portfolio at December 31, 1999 and 1998.
(f) Fixed Maturities Below Investment Grade: At December 31, 1999 and
1998, the fixed maturities held by the Company that were below
investment grade had an aggregate amortized cost of $368,018,000 and
$344,609,000, respectively, and an aggregate market value of
$326,989,000 and $327,217,000, respectively.
(g) Non-income Producing Assets: Non-income producing assets were
insignificant.
<PAGE>
2. Investment Information - (continued)
(h) Investments Greater than 10% Equity: The market value of investments
in the following companies exceeded 10% of the Company's total capital
funds at December 31, 1999 (in thousands):
Bankers Trust $ 35,126
Camden Property 38,782
Countrywide 39,621
Fort James 36,202
GMAC 34,375
Lehman Brothers 35,698
Morgan Stanley Capital 37,532
Morgan Stanley Group 40,665
RFCO 33,501
Simon Debartolo 41,138
Tower Funding 49,489
Other Invested Assets:
Equity Linked Investors II, L.P. $ 36,852
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).
<TABLE>
Years ended December 31,
1999 1998 1997
---------- ------ -------
<S> <C> <C> <C>
Balance at beginning of year $167,840 $118,535 $84,287
Acquisition costs deferred 73,097 71,430 50,927
Amortization charged to income (20,265) (22,125) (16,679)
-------- -------- --------
Balance at end of year $220,672 $167,840 $118,535
======= ======= =======
</TABLE>
4. Future Policy Benefits and Policyholders' Funds on Deposit
(a) The analysis of the future policy benefits and policyholders' funds on
deposit at December 31, 1999 and 1998 follows (in thousands):
<TABLE>
1999 1998
<S> <C> <C>
Future Policy Benefits:
Long duration contracts $ 1,255,606 $ 987,503
Short duration contracts 28,962 14,741
----------- ------------
$ 1,284,568 $ 1,002,244
========= =========
Policyholders' funds on deposit:
Annuities $ 1,598,685 $ 1,385,203
Universal life 212,907 184,460
Guaranteed investment contracts (GICs) 976,517 669,035
Corporate owned life insurance 1,816,969 2,229,843
Other investment contracts 7,285 4,313
------------ ------------
$ 4,612,363 $ 4,472,854
========= =========
</TABLE>
<PAGE>
4. Future Policy Benefits and Policyholders' Funds on Deposit - (continued)
(b) Long duration contract liabilities included in future policy benefits,
as presented in the table above, result from traditional life and
annuity 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 7.6 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 7.4
percent.
(c) The liability for policyholders' funds on deposit has been established
based on the following assumptions:
(i) Interest rates credited on deferred annuities vary by year of issuance
and range from 3.0 percent to 7.5 percent. Credited interest rate
guarantees are generally for a period of one year. Withdrawal charges
generally range from 3.0 percent to 10.0 percent grading to zero over
a period of 5 to 10 years.
(ii) GICs have market value withdrawal provisions for any funds withdrawn
other than benefit responsive payments. Interest rates credited
generally range from 4.9 percent to 8.1 percent and maturities range
from 3 to 7 years.
(iii)Interest rates on corporate-owned life insurance business are
guaranteed at 4.0 percent and the weighted average rate credited in
1999 was 6.7 percent.
(iv) The universal life funds, exclusive of corporate-owned life insurance
business, have credited interest rates of 5.4 percent to 7.1 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.
<PAGE>
5. Income Taxes
(a) The Federal income tax rate applicable to ordinary income is 35% for
1999, 1998 and 1997. 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,
1999 1998 1997
----------------------- ---------------- --------------
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 $ 25,732 35.0% $ 30,183 35.0% $ 23,279 35.0%
Prior year federal
income tax benefit 109 0.1 268 0.3 (6) -
State income tax 198 0.3 599 0.7 673 1.0
Other (100) (0.1) 388 0.5 77 0.1
-------- ------ --------- ----- ---------- -----
Actual income tax expense $25,939 35.3% $ 31,438 36.5% $ 24,023 36.1%
====== ====== ======= ==== ======= ====
</TABLE>
(b) The components of the net deferred tax liability were as follows (in
thousands):
<TABLE>
Years ended December 31,
1999 1998
<S> <C> <C>
Deferred tax assets:
Adjustment to life policy reserves $ 74,579 $ 59,903
Unrealized depreciation of investments 65,527 -
Adjustments to mortgage loans and
investment income due and accrued 5,009 4,913
Adjustment to policy and contract claims 1,959 5,456
Other 2,521 2,406
---------- ---------
149,595 72,678
-------- --------
Deferred tax liabilities:
Deferred policy acquisition costs $ 74,247 $ 55,308
Unrealized appreciation on investments - 65,445
Fixed maturities discount 7,744 4,911
Other 4,036 3,533
---------- -----------
86,027 129,197
--------- ---------
Net deferred tax (asset) liability $ (63,568) $ 56,519
========= =========
</TABLE>
(c) At December 31, 1999, 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 1999, 1998, and 1997 amounted to $20,156,000,
$21,184,000, and $20,311,000, respectively.
<PAGE>
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. As of December 31, 1999, the
Company's unused capital commitment was $5,086,000. Contributions
totaling $19,872,000 have been made through December 31, 1999.
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 $2,250,000 have been made through December 31,
1999.
During 1999, the Company entered into a partnership agreement with G2
Opportunity Fund, L.P. The agreement requires the Company to make
capital contributions totaling $12,500,000. Contributions totaling
$11,515,000 have been made through December 31, 1999.
During 1999, the Company entered into a partnership agreement with CVC
Capital Funding LLC. The agreement requires the Company to make
capital contributions totaling $10,000,000. No contributions have been
made as of December 31, 1999.
During 1999, the Company entered into a partnership agreement with
Private Equity Investors, IV L.P. The agreement requires the Company
to make capital contributions totaling $73,000,000. No contributions
have been made as of December 31, 1999.
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.
<PAGE>
7. Fair Value of Financial Instruments - (continued)
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):
1999 Fair Carrying
Value Amount
Cash and short-term investments $ 222,763 $ 222,763
Fixed maturities 4,702,879 4,702,879
Equity securities 51,610 51,610
Mortgage and policy loans 994,825 989,068
Policyholders' funds on deposit $ 4,627,170 $ 4,612,363
1998 Fair Carrying
Value Amount
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
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 $29,805,000 during 1999, however, no
dividends were paid during the year.
(b) The Company's capital funds as determined in accordance with statutory
accounting practices was $298,955,000 at December 31, 1999 and
$298,047,000 at December 31, 1998. Statutory net income amounted to
$23,517,000, $28,789,000 and $35,350,000 for 1999, 1998 and 1997,
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 $(11,240,000),
$(334,000) and $(3,025,000) for December 31, 1999, 1998 and 1997,
respectively.
<PAGE>
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, 1999, 1998 and 1997 were approximately $89,000, $272,000,
and $373,000, 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, 1999 by
$36,000,000.
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, 1999, provided for salary reduction contributions by
employees and matching contributions by the Parent of up to 6 percent
of annual salary depending on the employees' years of service.
(c) In addition to the Parent's defined benefit pension plan, the Parent
and its subsidiaries provide a post-retirement benefit program for
medical care and life insurance. Eligibility in the various plans is
generally based upon completion of a specified period of eligible
service and reaching a specified age.
(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 provides 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.
<PAGE>
10. Leases
(a) The Company occupies leased space in many locations under various
long-term leases and has entered into various leases covering the
long-term use of data processing equipment. At December 31, 1999, the
future minimum lease payments under operating leases were as follows (in
thousands):
Year Payment
2000 $ 4,714
2001 4,250
2002 3,773
2003 3,451
2004 1,831
Remaining years after 2004 -
-------
Total $18,019
=======
Rent expense approximated $4,983,000, $4,450,000, and $3,881,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
11. Reinsurance
(a) The Company reinsures portions of its life and accident and health
insurance risks with unaffiliated companies. Life insurance risks are
reinsured primarily under coinsurance and yearly renewable term
treaties. Accident and health insurance risks are reinsured primarily
under coinsurance, excess of loss and quota share treaties. Amounts
recoverable from reinsurers are estimated in a manner consistent with
the assumptions used for the underlying policy benefits and are
presented as a component of reinsurance assets. A contingent liability
exists with respect to reinsurance ceded to the extent that any
reinsurer is unable to meet the obligations assumed under the
reinsurance agreements.
The Company also reinsures portions of its life and accident and
health insurance risks with affiliated companies (see Note 12). The
effect of all reinsurance contracts, including reinsurance assumed, is
as follows (in thousands, except percentages):
<TABLE>
December 31, 1999
Percentage
of Amount
Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $55,097,927 $19,275,199 $ 850,313 $36,673,041 2.3%
============= ========== ======== ==========
Premiums:
Life 241,419 52,217 2,449 191,651 1.3%
Accident and Health 210,592 112,162 171,794 270,224 63.6%
Annuity 251,045 - - 251,045 -
------------ ----------------- -------------- ----------
Total Premiums $ 703,056 $ 164,379 $ 174,243 $ 712,920 24.4%
============ =========== ======== ============
</TABLE>
<PAGE>
11. Reinsurance - (continued)
<TABLE>
December 31, 1998
Percentage
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%
============ =========== ======== ============
</TABLE>
<TABLE>
December 31, 1997
Percentage
of Amount
Assumed
Gross Ceded Assumed Net to Net
<S> <C> <C> <C> <C> <C>
Life Insurance in Force $52,183,971 $18,779,228 $ 935,975 $34,340,718 2.7%
============= ========== ======== ==========
Premiums:
Life 200,926 67,350 2,389 135,965 1.8%
Accident and Health 118,663 59,550 115,573 174,686 66.2%
Annuity 126,999 - - 126,999 -
------------ ----------------- -------------- ----------
Total Premiums $ 446,588 $ 126,900 $ 117,962 $ 437,650 27.0%
============ =========== ======== ============
</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 $147,882,000, $111,580,000, and $100,029,000,
respectively, for each of the years ended December 31, 1999, 1998 and
1997.
The Company's reinsurance arrangements do not relieve the Company from
its direct obligation to its insureds.
12. Transactions with Related Parties
(a) The Company is party to several reinsurance agreements with its
affiliates covering certain life and accident and health insurance
risks. Premium income and commission ceded for 1999 amounted to
$1,194,000 and $1,000, respectively. Premium income and commission
ceded for 1998 amounted to $1,237,000 and $1,000, respectively.
Premium income and commission ceded to affiliates amounted to
$1,251,000 and $1,000 for the year ended December 31, 1997. Premium
income and ceding commission expense assumed from affiliates
aggregated $158,579,000 and $31,710,000, respectively, for 1999,
compared to $131,771,000 and $31,584,000, respectively, for 1998, and
$110,529,000 and $24,853,000, respectively for 1997.
<PAGE>
12. Transactions with Related Parties - (continued)
(b) The Company is party to several cost sharing agreements with its
affiliates. Generally, these agreements provide for the allocation of
costs upon either the specific identification basis or a proportional
cost allocation basis which management believes to be reasonable. For
the years ended December 31, 1999, 1998 and 1997, the Company was
charged $38,845,000, $40,417,000 and $37,846,000, respectively, for
expenses attributed to the Company but incurred by affiliates. During
the same period, the Company received reimbursements from affiliates
aggregating $20,604,000, $23,132,000 and $18,134,000, 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.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Holders 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 sixty-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,
1999, 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 accounting principles generally accepted in the United States.
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 auditing standards generally accepted in the United States,
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 10, 2000
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
ASSETS:
Investments at Market Value:
Shares Cost Market Value
----------------------------------------------------------------
<S> <C> <C> <C>
AIM
Capital Appreciation Fund 78,940.837 $ 1,964,074 $ 2,808,716
International Equity Fund 123,776.999 2,551,338 3,625,431
Alliance
Money Market Portfolio 100,967,746.450 100,967,746 100,967,746
Premier Growth Portfolio 15,936,838.460 411,322,469 644,645,115
Growth & Income Portfolio 19,253,202.227 377,959,142 419,519,614
International Portfolio 3,051,885.127 49,511,680 66,470,057
Short-Term Multi-Market Portfolio 323,753.325 3,234,525 3,208,393
Global Bond Portfolio 762,715.347 8,671,200 8,580,545
U.S. Government/High Grade Securities Portfolio 4,734,737.903 55,722,261 52,931,974
Global Dollar Government Portfolio 778,777.476 9,479,558 8,403,011
North American Government Income Portfolio 1,831,926.719 23,081,762 22,752,532
Utility Income Portfolio 1,752,369.603 29,596,439 37,956,325
Conservative Investors Portfolio 1,829,805.195 23,627,210 24,574,284
Growth Investors Portfolio 900,603.991 12,645,353 15,427,347
Growth Portfolio 11,583,317.867 258,498,357 389,075,571
Total Return Portfolio 3,711,014.427 62,080,773 64,905,641
Worldwide Privatization Portfolio 2,370,042.831 35,373,281 51,524,730
Technology Portfolio 9,104,409.167 216,283,179 305,999,186
Quasar Portfolio 5,697,402.059 67,156,794 74,066,228
Real Estate Investment Portfolio 1,261,462.389 13,553,019 11,189,170
High Yield Portfolio 2,366,448.703 23,548,536 21,629,341
Dreyfus
Stock Index Fund 588,973.950 17,437,086 22,646,050
Zero Coupon 2000 Portfolio 6,706.380 82,633 81,615
Small Company Stock Portfolio 100,534.405 1,547,506 1,677,921
Fidelity
Money Market Portfolio 12,263,432.910 12,263,433 12,263,433
Asset Manager Portfolio 587,498.451 10,123,585 10,968,598
Growth Portfolio 415,668.330 16,883,805 22,832,659
High Income Portfolio 650,292.513 7,664,718 7,354,806
Investment Grade Bond Portfolio 398,061.355 4,939,897 4,840,423
Overseas Portfolio 50,075.850 970,860 1,374,081
Contrafund Portfolio 231,082.765 5,529,117 6,736,063
Hotchkis & Wiley
International VIP Portfolio 10,291.790 112,768 118,563
Low Duration VIP Portfolio 8,862.007 87,315 86,049
Mercury
U.S. Large Cap Fund 6,191.257 72,182 74,482
Merrill Lynch
Basic Value Focus Fund 530,471.244 7,462,035 7,214,406
Capital Focus Fund 762.860 7,845 7,758
Developing Capital Markets Fund 13,310.738 95,747 137,635
Domestic Money Market Fund 1,280,801.200 1,280,801 1,280,801
Global Growth Focus Fund 17,272.094 214,822 255,282
Global Strategy Focus Fund 69,596.099 960,824 983,397
Global Utility Focus Fund 61,733.320 980,323 1,040,207
High Current Income Fund 78,860.719 799,447 756,273
International Equity Focus Fund 93,339.612 1,005,462 1,305,820
Natural Resources Focus Fund 6,696.454 57,472 63,481
Prime Bond Fund 55,649.369 662,734 619,931
Quality Equity Fund 47,175.995 1,717,533 1,883,737
Special Value Focus Fund 55,154.034 1,142,736 1,287,844
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES (continued)
DECEMBER 31, 1999
<TABLE>
ASSETS:
Investments at Market Value:
Shares Cost Market Value
--------------------------------------------------------------
<S> <C> <C> <C>
Mitchell Hutchins
Balanced Portfolio 120,361.019 1,389,402 1,414,243
Global Income Portfolio 37,889.642 410,573 399,359
Growth Portfolio 95,494.048 1,843,148 2,300,452
Growth & Income Portfolio 421,816.862 6,251,195 6,892,491
High Income Portfolio 122,472.681 1,560,252 1,439,055
Small Cap Portfolio 40,424.433 570,123 616,878
Strategic Income Portfolio 81,912.896 1,010,501 960,837
Tactical Allocation Portfolio 2,203,733.886 35,518,011 36,339,574
Van Eck
Worldwide Hard Assets Fund 22,211.943 235,374 243,443
Worldwide Emerging Markets Fund 20,051.178 203,901 285,928
Weiss, Peck & Greer
Tomorrow Short Term Portfolio 42,020.691 436,493 420,624
Tomorrow Medium Term Portfolio 48,103.455 432,951 433,896
Tomorrow Long Term Portfolio 52,464.208 446,450 478,476
-------------------- ----------------------
Total Investments $ 1,931,239,756 $ 2,490,377,528
Total Assets $ 2,490,377,528
======================
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY
CONTRACT HOLDERS:
Accumulation Reserves $ 2,487,071,434
Annuity Reserves 3,306,094
----------------------
$ 2,490,377,528
======================
</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, 1999
<TABLE>
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $104,087,321 $60,650 $230,553
Expenses:
Mortality & Expense Risk Fees 24,354,915 22,931 43,591
Daily Administrative Charges 2,915,325 2,750 5,226
-------------------- ------------------- -------------------
Net Investment Income (Loss) 76,817,081 34,969 181,736
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 137,236,532 52,210 1,090,840
Change in Unrealized Appreciation
(Depreciation) 246,453,532 733,681 1,071,125
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 383,690,064 785,891 2,161,965
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $460,507,145 $820,860 $2,343,701
==================== =================== ===================
</TABLE>
<TABLE>
Alliance
Alliance Alliance Growth
Money Premier &
Market Growth Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $4,689,577 $6,372,729 $36,321,210
Expenses:
Mortality & Expense Risk Fees 1,290,708 5,941,849 4,480,413
Daily Administrative Charges 153,100 712,949 536,629
-------------------- ------------------- -------------------
Net Investment Income (Loss) 3,245,769 (282,069) 31,304,168
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 0 19,960,434 8,345,783
Change in Unrealized Appreciation
(Depreciation) 0 115,978,034 (8,113,047)
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 0 135,938,468 232,736
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $3,245,769 $135,656,399 $31,536,904
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance Alliance
Alliance Short-Term Global
International Multi-Market Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,853,639 $244,566 $308,945
Expenses:
Mortality & Expense Risk Fees 659,413 57,586 111,232
Daily Administrative Charges 77,811 6,905 13,392
-------------------- ------------------- -------------------
Net Investment Income (Loss) 1,116,415 180,075 184,321
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 3,732,621 (146,929) 68,327
Change in Unrealized Appreciation
(Depreciation) 13,605,889 65,684 (955,620)
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 17,338,510 (81,245) (887,293)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $18,454,925 $98,830 ($702,972)
==================== =================== ===================
</TABLE>
<TABLE>
Alliance
U.S. Alliance
Government/ Alliance North
High Global American
Grade Dollar Government
Securities Government Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $3,192,505 $1,068,563 $2,031,573
Expenses:
Mortality & Expense Risk Fees 629,999 89,262 290,418
Daily Administrative Charges 75,735 10,713 34,728
-------------------- ------------------- -------------------
Net Investment Income (Loss) 2,486,771 968,588 1,706,427
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 360,738 (1,419,253) 11,362
Change in Unrealized Appreciation
(Depreciation) (4,680,190) 1,985,996 (47,771)
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments (4,319,452) 566,743 (36,409)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations ($1,832,681) $1,535,331 $1,670,018
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance Alliance Alliance
Utility Conservative Growth
Income Investors Investors
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,299,750 $2,357,709 $1,431,813
Expenses:
Mortality & Expense Risk Fees 397,880 330,788 185,967
Daily Administrative Charges 47,702 39,744 22,405
-------------------- ------------------- -------------------
Net Investment Income (Loss) 854,168 1,987,177 1,223,441
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 2,196,833 981,607 695,455
Change in Unrealized Appreciation
(Depreciation) 2,178,597 (2,058,748) 124,297
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 4,375,430 (1,077,141) 819,752
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $5,229,598 $910,036 $2,043,193
==================== =================== ===================
</TABLE>
<TABLE>
Alliance Alliance
Alliance Total Worldwide
Growth Return Privatization
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $24,452,751 $5,008,217 $2,649,459
Expenses:
Mortality & Expense Risk Fees 3,854,000 703,933 476,141
Daily Administrative Charges 461,477 84,058 56,793
-------------------- ------------------- -------------------
Net Investment Income (Loss) 20,137,274 4,220,226 2,116,525
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 28,107,912 1,525,428 2,110,797
Change in Unrealized Appreciation
(Depreciation) 45,463,387 (3,201,588) 14,194,001
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 73,571,299 (1,676,160) 16,304,798
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $93,708,573 $2,544,066 $18,421,323
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Real
Alliance Alliance Estate
Technology Quasar Investment
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $305,135 $210,479 $589,335
Expenses:
Mortality & Expense Risk Fees 2,125,104 816,282 155,885
Daily Administrative Charges 254,942 97,204 18,353
-------------------- ------------------- -------------------
Net Investment Income (Loss) (2,074,911) (703,007) 415,097
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 68,971,993 (522,595) (836,292)
Change in Unrealized Appreciation
(Depreciation) 50,181,571 11,800,725 (460,189)
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 119,153,564 11,278,130 (1,296,481)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $117,078,653 $10,575,123 ($881,384)
==================== =================== ===================
</TABLE>
<TABLE>
Dreyfus
Alliance Dreyfus Zero
High Stock Coupon
Yield Index 2000
Portfolio Fund Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $990,643 $392,416 $9,198
Expenses:
Mortality & Expense Risk Fees 230,870 237,359 2,357
Daily Administrative Charges 27,806 28,463 273
-------------------- ------------------- -------------------
Net Investment Income (Loss) 731,967 126,594 6,568
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity (667,836) 731,343 1,880
Change in Unrealized Appreciation
(Depreciation) (778,377) 2,502,878 (6,726)
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments (1,446,213) 3,234,221 (4,846)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations ($714,246) $3,360,815 $1,722
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Dreyfus
Small Fidelity Fidelity
Company Money Asset
Stock Market Manager
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $423,960 $580,673
Expenses:
Mortality & Expense Risk Fees 18,765 105,203 115,472
Daily Administrative Charges 2,251 12,585 13,865
-------------------- ------------------- -------------------
Net Investment Income (Loss) (21,016) 306,172 451,336
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity (80,077) 0 100,465
Change in Unrealized Appreciation
(Depreciation) 232,597 0 364,435
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 152,520 0 464,900
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $131,504 $306,172 $916,236
==================== =================== ===================
</TABLE>
<TABLE>
Fidelity
Fidelity Investment
Fidelity High Grade
Growth Income Bond
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $1,369,728 $357,625 $250,067
Expenses:
Mortality & Expense Risk Fees 198,445 62,450 65,007
Daily Administrative Charges 23,791 7,485 7,822
-------------------- ------------------- -------------------
Net Investment Income (Loss) 1,147,492 287,690 177,238
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 554,625 (69,241) (23,043)
Change in Unrealized Appreciation
(Depreciation) 3,655,811 11,174 (296,942)
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 4,210,436 (58,067) (319,985)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $5,357,928 $229,623 ($142,747)
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Hotchkis
&
Wiley
Fidelity Fidelity International
Overseas Contrafund VIP
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $45,346 $135,302 $596
Expenses:
Mortality & Expense Risk Fees 14,592 62,306 247
Daily Administrative Charges 1,750 7,492 29
-------------------- ------------------- -------------------
Net Investment Income (Loss) 29,004 65,504 320
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 25,449 186,090 8
Change in Unrealized Appreciation
(Depreciation) 363,319 850,009 5,793
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 388,768 1,036,099 5,801
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $417,772 $1,101,603 $6,121
==================== =================== ===================
</TABLE>
<TABLE>
Hotchkis
& Merrill
Wiley Mercury Lynch
Low U.S. Basic
Duration Large Value
VIP Cap Focus
Portfolio Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $2,268 $235 $1,275,566
Expenses:
Mortality & Expense Risk Fees 441 54 72,036
Daily Administrative Charges 53 6 8,587
-------------------- ------------------- -------------------
Net Investment Income (Loss) 1,774 175 1,194,943
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity (26) 8 (80,446)
Change in Unrealized Appreciation
(Depreciation) (1,264) 2,299 (237,545)
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments (1,290) 2,307 (317,991)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $484 $2,482 $876,952
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Merrill Merrill
Merrill Lynch Lynch
Lynch Developing Domestic
Capital Capital Money
Focus Markets Market
Fund Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $188 $2,253 $90,288
Expenses:
Mortality & Expense Risk Fees 58 1,235 24,532
Daily Administrative Charges 7 144 2,921
-------------------- ------------------- -------------------
Net Investment Income (Loss) 123 874 62,835
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 0 (1,774) 0
Change in Unrealized Appreciation
(Depreciation) (87) 51,211 0
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments (87) 49,437 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $36 $50,311 $62,835
==================== =================== ===================
</TABLE>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
Global Global Global
Growth Strategy Utility
Focus Focus Focus
Fund Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $2,938 $113,484 $108,275
Expenses:
Mortality & Expense Risk Fees 459 6,175 8,495
Daily Administrative Charges 52 734 1,022
-------------------- ------------------- -------------------
Net Investment Income (Loss) 2,427 106,575 98,758
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 936 1,159 4,838
Change in Unrealized Appreciation
(Depreciation) 40,459 18,590 4,581
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 41,395 19,749 9,419
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $43,822 $126,324 $108,177
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
High International Natural
Current Equity Resources
Income Focus Focus
Fund Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $68,306 $39,800 $912
Expenses:
Mortality & Expense Risk Fees 7,727 11,680 681
Daily Administrative Charges 925 1,390 81
-------------------- ------------------- -------------------
Net Investment Income (Loss) 59,654 26,730 150
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity (9,667) 2,517 1,537
Change in Unrealized Appreciation
(Depreciation) (22,846) 287,142 9,258
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments (32,513) 289,659 10,795
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $27,141 $316,389 $10,945
==================== =================== ===================
</TABLE>
<TABLE>
Merrill
Merrill Merrill Lynch
Lynch Lynch Special
Prime Quality Value
Bond Equity Focus
Fund Fund Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $41,396 $286,442 $93,108
Expenses:
Mortality & Expense Risk Fees 7,309 16,543 8,203
Daily Administrative Charges 876 1,976 968
-------------------- ------------------- -------------------
Net Investment Income (Loss) 33,211 267,923 83,937
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity (9,495) 8,451 (37,134)
Change in Unrealized Appreciation
(Depreciation) (45,725) 110,512 177,235
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments (55,220) 118,963 140,101
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations ($22,009) $386,886 $224,038
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Mitchell
Mitchell Hutchins Mitchell
Hutchins Global Hutchins
Balanced Income Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $20 $0 $28
Expenses:
Mortality & Expense Risk Fees 12,204 3,385 13,316
Daily Administrative Charges 1,390 404 1,570
-------------------- ------------------- -------------------
Net Investment Income (Loss) (13,574) (3,789) (14,858)
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity (3,739) (1,721) 13,091
Change in Unrealized Appreciation
(Depreciation) 44,396 (9,476) 449,569
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 40,657 (11,197) 462,660
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $27,083 ($14,986) $447,802
==================== =================== ===================
</TABLE>
<TABLE>
Mitchell
Hutchins Mitchell Mitchell
Growth Hutchins Hutchins
& High Small
Income Income Cap
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $69 $145,396 $21,076
Expenses:
Mortality & Expense Risk Fees 51,989 18,588 5,989
Daily Administrative Charges 6,124 2,239 691
-------------------- ------------------- -------------------
Net Investment Income (Loss) (58,044) 124,569 14,396
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 31,065 27,590 9,051
Change in Unrealized Appreciation
(Depreciation) 580,137 (111,345) 16,783
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 611,202 (83,755) 25,834
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $553,158 $40,814 $40,230
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Mitchell Mitchell Van Eck
Hutchins Hutchins Worldwide
Strategic Tactical Hard
Income Allocation Assets
Portfolio Portfolio Fund
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $52,707 $2,391,585 $1,959
Expenses:
Mortality & Expense Risk Fees 7,145 277,838 2,041
Daily Administrative Charges 854 33,399 245
-------------------- ------------------- -------------------
Net Investment Income (Loss) 44,708 2,080,348 (327)
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 1,517 1,198,834 (48,791)
Change in Unrealized Appreciation
(Depreciation) (50,021) 277,248 78,945
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments (48,504) 1,476,082 30,154
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations ($3,796) $3,556,430 $29,827
==================== =================== ===================
</TABLE>
<TABLE>
Van Eck WP&G WP&G
Worldwide Tomorrow Tomorrow
Emerging Short Medium
Markets Term Term
Fund Portfolio Portfolio
<S> <C> <C> <C>
Investment Income (Loss):
Dividends $0 $30,422 $36,366
Expenses:
Mortality & Expense Risk Fees 2,302 6,280 5,773
Daily Administrative Charges 275 754 693
-------------------- ------------------- -------------------
Net Investment Income (Loss) (2,577) 23,388 29,900
-------------------- ------------------- -------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 48,508 3,736 6,399
Change in Unrealized Appreciation
(Depreciation) 85,772 (21,387) (23,450)
-------------------- ------------------- -------------------
Net Gain (Loss) on Investments 134,280 (17,651) (17,051)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets
Resulting From Operations $131,703 $5,737 $12,849
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G
Tomorrow
Long
Term
Portfolio
<S> <C>
Investment Income (Loss):
Dividends $47,522
Expenses:
Mortality & Expense Risk Fees 5,982
Daily Administrative Charges 717
--------------------
Net Investment Income (Loss) 40,823
--------------------
Realized & Unrealized Gain (Loss) on
Investments:
Realized Gain (Loss) on Investment
Activity 23,154
Change in Unrealized Appreciation
(Depreciation) (27,264)
--------------------
Net Gain (Loss) on Investments (4,110)
--------------------
Increase (Decrease) in Net Assets
Resulting From Operations $36,713
====================
</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, 1999 and December 31, 1998
<TABLE>
1999
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $76,817,081 $34,969 $181,736
Realized Gain (Loss) on Investment Activity 137,236,532 52,210 1,090,840
Change in Unrealized Appreciation
(Depreciation) of Investments 246,453,532 733,681 1,071,125
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 460,507,145 820,860 2,343,701
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 508,164,540 312,206 371,168
Administrative Charges (1,219,471) (800) (773)
Transfers 170,625,741 442,136 186,108
Contract Withdrawals (206,246,970) (134,587) (46,095)
Deferred Sales Charges (5,346,186) (4,753) (1,807)
Death Benefits (25,942,061) 0 0
Annuity Payments (490,615) (1,725) 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 439,544,978 612,477 508,601
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 900,052,123 1,433,337 2,852,302
Net Assets, at Beginning of Year 1,590,325,405 1,375,379 773,129
----------------------- ----------------- ------------------
Net Assets, at End of Year $2,490,377,528 $2,808,716 $3,625,431
======================= ================= ==================
</TABLE>
<TABLE>
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) $3,245,769 ($282,069) $31,304,168
Realized Gain (Loss) on Investment Activity 0 19,960,434 8,345,783
Change in Unrealized Appreciation
(Depreciation) of Investments 0 115,978,034 (8,113,047)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 3,245,769 135,656,399 31,536,904
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 58,954,763 147,668,565 92,427,346
Administrative Charges (78,791) (315,287) (209,117)
Transfers (1,241,800) 60,927,636 37,652,567
Contract Withdrawals (42,756,164) (39,422,187) (29,930,762)
Deferred Sales Charges (1,222,139) (974,680) (745,689)
Death Benefits (3,361,857) (5,876,182) (5,301,312)
Annuity Payments (36,417) (89,868) (81,647)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 10,257,595 161,917,997 93,811,386
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 13,503,364 297,574,396 125,348,290
Net Assets, at Beginning of Year 87,464,382 347,070,719 294,171,324
----------------------- ----------------- ------------------
Net Assets, at End of Year $100,967,746 $644,645,115 $419,519,614
======================= ================= ==================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
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) $1,116,415 $180,075 $184,321
Realized Gain (Loss) on Investment Activity 3,732,621 (146,929) 68,327
Change in Unrealized Appreciation
(Depreciation) of Investments 13,605,889 65,684 (955,620)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 18,454,925 98,830 (702,972)
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 4,619,098 132,833 512,524
Administrative Charges (27,325) (1,494) (4,716)
Transfers (1,746,251) (997,987) 154,797
Contract Withdrawals (4,871,850) (301,797) (857,464)
Deferred Sales Charges (118,831) (2,750) (15,994)
Death Benefits (1,021,452) (65,074) (121,221)
Annuity Payments (16,413) 0 (4,724)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (3,183,024) (1,236,269) (336,798)
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 15,271,901 (1,137,439) (1,039,770)
Net Assets, at Beginning of Year 51,198,156 4,345,832 9,620,315
----------------------- ----------------- ------------------
Net Assets, at End of Year $66,470,057 $3,208,393 $8,580,545
======================= ================= ==================
</TABLE>
<TABLE>
Alliance
U.S. Alliance
Government/ Alliance North
High Global American
Grade Dollar Government
Securities Government Income
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,486,771 $968,588 $1,706,427
Realized Gain (Loss) on Investment Activity 360,738 (1,419,253) 11,362
Change in Unrealized Appreciation
(Depreciation) of Investments (4,680,190) 1,985,996 (47,771)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations (1,832,681) 1,535,331 1,670,018
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 5,163,602 266,100 3,422,160
Administrative Charges (32,357) (3,671) (13,269)
Transfers 8,007,641 (585,137) (3,404,029)
Contract Withdrawals (3,143,754) (752,079) (3,447,102)
Deferred Sales Charges (76,055) (13,806) (88,086)
Death Benefits (1,409,708) (83,249) (370,961)
Annuity Payments (6,065) (1,223) (1,609)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 8,503,304 (1,173,065) (3,902,896)
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 6,670,623 362,266 (2,232,878)
Net Assets, at Beginning of Year 46,261,351 8,040,745 24,985,410
----------------------- ----------------- ------------------
Net Assets, at End of Year $52,931,974 $8,403,011 $22,752,532
======================= ================= ==================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
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) $854,168 $1,987,177 $1,223,441
Realized Gain (Loss) on Investment Activity 2,196,833 981,607 695,455
Change in Unrealized Appreciation
(Depreciation) of Investments 2,178,597 (2,058,748) 124,297
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 5,229,598 910,036 2,043,193
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 7,285,288 128,584 34,336
Administrative Charges (19,852) (11,154) (5,996)
Transfers 2,544,296 (988,770) (81,220)
Contract Withdrawals (3,252,017) (2,532,286) (1,382,830)
Deferred Sales Charges (86,843) (61,028) (26,235)
Death Benefits (506,238) (829,638) (236,120)
Annuity Payments (9,036) (3,260) (6,977)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 5,955,598 (4,297,552) (1,705,042)
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 11,185,196 (3,387,516) 338,151
Net Assets, at Beginning of Year 26,771,129 27,961,800 15,089,196
----------------------- ----------------- ------------------
Net Assets, at End of Year $37,956,325 $24,574,284 $15,427,347
======================= ================= ==================
</TABLE>
<TABLE>
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) $20,137,274 $4,220,226 $2,116,525
Realized Gain (Loss) on Investment Activity 28,107,912 1,525,428 2,110,797
Change in Unrealized Appreciation
(Depreciation) of Investments 45,463,387 (3,201,588) 14,194,001
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 93,708,573 2,544,066 18,421,323
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 51,101,343 14,773,354 3,237,440
Administrative Charges (167,093) (35,127) (19,112)
Transfers 12,311,937 7,985,533 (1,998,982)
Contract Withdrawals (32,405,468) (4,779,088) (5,111,962)
Deferred Sales Charges (828,340) (105,015) (136,980)
Death Benefits (3,117,092) (890,215) (256,687)
Annuity Payments (32,523) (22,652) (27,281)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 26,862,764 16,926,790 (4,313,564)
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 120,571,337 19,470,856 14,107,759
Net Assets, at Beginning of Year 268,504,234 45,434,785 37,416,971
----------------------- ----------------- ------------------
Net Assets, at End of Year $389,075,571 $64,905,641 $51,524,730
======================= ================= ==================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Real
Alliance Alliance Estate
Technology Quasar Investment
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($2,074,911) ($703,007) $415,097
Realized Gain (Loss) on Investment Activity 68,971,993 (522,595) (836,292)
Change in Unrealized Appreciation
(Depreciation) of Investments 50,181,571 11,800,725 (460,189)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 117,078,653 10,575,123 (881,384)
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 58,996,081 8,756,721 1,369,943
Administrative Charges (104,157) (39,658) (9,183)
Transfers 36,798,049 (5,911,538) (1,488,125)
Contract Withdrawals (16,053,483) (6,476,542) (976,596)
Deferred Sales Charges (422,258) (175,062) (30,293)
Death Benefits (1,226,670) (477,569) (76,993)
Annuity Payments (42,394) (37,459) (7,350)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 77,945,168 (4,361,107) (1,218,597)
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 195,023,821 6,214,016 (2,099,981)
Net Assets, at Beginning of Year 110,975,365 67,852,212 13,289,151
----------------------- ----------------- ------------------
Net Assets, at End of Year $305,999,186 $74,066,228 $11,189,170
======================= ================= ==================
</TABLE>
<TABLE>
Dreyfus
Alliance Dreyfus Zero
High Stock Coupon
Yield Index 2000
Portfolio Fund Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $731,967 $126,594 $6,568
Realized Gain (Loss) on Investment Activity (667,836) 731,343 1,880
Change in Unrealized Appreciation
(Depreciation) of Investments (778,377) 2,502,878 (6,726)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations (714,246) 3,360,815 1,722
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 7,414,143 2,938,350 0
Administrative Charges (16,659) (9,132) (111)
Transfers 1,120,912 2,083,844 (92,714)
Contract Withdrawals (1,059,095) (1,038,316) (110,897)
Deferred Sales Charges (19,784) (29,248) (3,889)
Death Benefits (368,859) (39,164) 0
Annuity Payments (56,650) (1,840) 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 7,014,008 3,904,494 (207,611)
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 6,299,762 7,265,309 (205,889)
Net Assets, at Beginning of Year 15,329,579 15,380,741 287,504
----------------------- ----------------- ------------------
Net Assets, at End of Year $21,629,341 $22,646,050 $81,615
======================= ================= ==================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
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) ($21,016) $306,172 $451,336
Realized Gain (Loss) on Investment Activity (80,077) 0 100,465
Change in Unrealized Appreciation
(Depreciation) of Investments 232,597 0 364,435
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 131,504 306,172 916,236
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 97,770 2,639,740 1,493,433
Administrative Charges (565) (2,822) (3,739)
Transfers 257,595 558,531 1,449,897
Contract Withdrawals (155,716) (1,452,604) (568,160)
Deferred Sales Charges (3,609) (43,785) (16,115)
Death Benefits (7,372) (20,288) (19,635)
Annuity Payments 0 0 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 188,103 1,678,772 2,335,681
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 319,607 1,984,944 3,251,917
Net Assets, at Beginning of Year 1,358,314 10,278,489 7,716,681
----------------------- ----------------- ------------------
Net Assets, at End of Year $1,677,921 $12,263,433 $10,968,598
======================= ================= ==================
</TABLE>
<TABLE>
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) $1,147,492 $287,690 $177,238
Realized Gain (Loss) on Investment Activity 554,625 (69,241) (23,043)
Change in Unrealized Appreciation
(Depreciation) of Investments 3,655,811 11,174 (296,942)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 5,357,928 229,623 (142,747)
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 3,040,725 581,955 511,293
Administrative Charges (7,764) (1,405) (1,826)
Transfers 3,720,791 3,148,187 18,874
Contract Withdrawals (980,774) (208,149) (228,363)
Deferred Sales Charges (29,299) (5,309) (5,077)
Death Benefits (21,032) (8,380) (9,424)
Annuity Payments 0 0 (1,614)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 5,722,647 3,506,899 283,863
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 11,080,575 3,736,522 141,116
Net Assets, at Beginning of Year 11,752,084 3,618,284 4,699,307
----------------------- ----------------- ------------------
Net Assets, at End of Year $22,832,659 $7,354,806 $4,840,423
======================= ================= ==================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Hotchkis
&
Wiley
Fidelity Fidelity International
Overseas Contrafund VIP
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $29,004 $65,504 $320
Realized Gain (Loss) on Investment Activity 25,449 186,090 8
Change in Unrealized Appreciation
(Depreciation) of Investments 363,319 850,009 5,793
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 417,772 1,101,603 6,121
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 10,267 1,561,946 91,474
Administrative Charges (623) (1,554) (12)
Transfers (188,509) 1,539,892 20,980
Contract Withdrawals (51,468) (235,226) 0
Deferred Sales Charges (1,573) (6,164) 0
Death Benefits 0 (15,786) 0
Annuity Payments 0 (1,888) 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (231,906) 2,841,220 112,442
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 185,866 3,942,823 118,563
Net Assets, at Beginning of Year 1,188,215 2,793,240 0
----------------------- ----------------- ------------------
Net Assets, at End of Year $1,374,081 $6,736,063 $118,563
======================= ================= ==================
</TABLE>
<TABLE>
Hotchkis
& Merrill
Wiley Mercury Lynch
Low U.S. Basic
Duration Large Value
VIP Cap Focus
Portfolio Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,774 $175 $1,194,943
Realized Gain (Loss) on Investment Activity (26) 8 (80,446)
Change in Unrealized Appreciation
(Depreciation) of Investments (1,264) 2,299 (237,545)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 484 2,482 876,952
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 87,815 69,462 1,620,425
Administrative Charges 0 0 (10,335)
Transfers 0 2,538 925,943
Contract Withdrawals (2,250) 0 (194,787)
Deferred Sales Charges 0 0 (4,672)
Death Benefits 0 0 (194,226)
Annuity Payments 0 0 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 85,565 72,000 2,142,348
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 86,049 74,482 3,019,300
Net Assets, at Beginning of Year 0 0 4,195,106
----------------------- ----------------- ------------------
Net Assets, at End of Year $86,049 $74,482 $7,214,406
======================= ================= ==================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Merrill Merrill
Merrill Lynch Lynch
Lynch Developing Domestic
Capital Capital Money
Focus Markets Market
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $123 $874 $62,835
Realized Gain (Loss) on Investment Activity 0 (1,774) 0
Change in Unrealized Appreciation
(Depreciation) of Investments (87) 51,211 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 36 50,311 62,835
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 7,722 10,423 803,173
Administrative Charges 0 (148) (3,056)
Transfers 0 12,381 (3,108,559)
Contract Withdrawals 0 0 (104,605)
Deferred Sales Charges 0 0 (4,902)
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 7,722 22,656 (2,417,949)
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 7,758 72,967 (2,355,114)
Net Assets, at Beginning of Year 0 64,668 3,635,915
----------------------- ----------------- ------------------
Net Assets, at End of Year $7,758 $137,635 $1,280,801
======================= ================= ==================
</TABLE>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
Global Global Global
Growth Strategy Utility
Focus Focus Focus
Fund <C> Fund Fund
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $2,427 $106,575 $98,758
Realized Gain (Loss) on Investment Activity 936 1,159 4,838
Change in Unrealized Appreciation
(Depreciation) of Investments 40,459 18,590 4,581
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 43,822 126,324 108,177
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 209,167 552,042 144,293
Administrative Charges (14) (690) (1,205)
Transfers 2,307 11,274 313,932
Contract Withdrawals 0 (5,584) (1,480)
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 211,460 557,042 455,540
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 255,282 683,366 563,717
Net Assets, at Beginning of Year 0 300,031 476,490
----------------------- ----------------- ------------------
Net Assets, at End of Year $255,282 $983,397 $1,040,207
======================= ================= ==================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
High International Natural
Current Equity Resources
Income Focus Focus
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $59,654 $26,730 $150
Realized Gain (Loss) on Investment Activity (9,667) 2,517 1,537
Change in Unrealized Appreciation
(Depreciation) of Investments (22,846) 287,142 9,258
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 27,141 316,389 10,945
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 142,275 152,830 1,500
Administrative Charges (780) (1,835) (104)
Transfers 101,603 179,357 22,008
Contract Withdrawals (6,021) (5,730) 0
Deferred Sales Charges 0 0 0
Death Benefits 0 (2,211) 0
Annuity Payments 0 0 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 237,077 322,411 23,404
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 264,218 638,800 34,349
Net Assets, at Beginning of Year 492,055 667,020 29,132
----------------------- ----------------- ------------------
Net Assets, at End of Year $756,273 $1,305,820 $63,481
======================= ================= ==================
</TABLE>
<TABLE>
Merrill
Merrill Merrill Lynch
Lynch Lynch Special
Prime Quality Value
Bond Equity Focus
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $33,211 $267,923 $83,937
Realized Gain (Loss) on Investment Activity (9,495) 8,451 (37,134)
Change in Unrealized Appreciation
(Depreciation) of Investments (45,725) 110,512 177,235
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations (22,009) 386,886 224,038
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 248,967 509,382 524,123
Administrative Charges (576) (2,331) (1,386)
Transfers (35,467) 287,462 (38,310)
Contract Withdrawals (837) (77,091) (1,702)
Deferred Sales Charges 0 (3,696) (11)
Death Benefits 0 0 (969)
Annuity Payments 0 0 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 212,087 713,726 481,745
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 190,078 1,100,612 705,783
Net Assets, at Beginning of Year 429,853 783,125 582,061
----------------------- ----------------- ------------------
Net Assets, at End of Year $619,931 $1,883,737 $1,287,844
======================= ================= ==================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Mitchell
Mitchell Hutchins Mitchell
Hutchins Global Hutchins
Balanced Income Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($13,574) ($3,789) ($14,858)
Realized Gain (Loss) on Investment Activity (3,739) (1,721) 13,091
Change in Unrealized Appreciation
(Depreciation) of Investments 44,396 (9,476) 449,569
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 27,083 (14,986) 447,802
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 389,596 226,658 649,845
Administrative Charges (1,474) (349) (2,635)
Transfers 417,297 157,078 1,039,427
Contract Withdrawals (11,308) (1,420) (27,312)
Deferred Sales Charges 0 0 (1,324)
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 794,111 381,967 1,658,001
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 821,194 366,981 2,105,803
Net Assets, at Beginning of Year 593,049 32,378 194,649
----------------------- ----------------- ------------------
Net Assets, at End of Year $1,414,243 $399,359 $2,300,452
======================= ================= ==================
</TABLE>
<TABLE>
Mitchell
Hutchins Mitchell Mitchell
Growth Hutchins Hutchins
& High Small
Income Income Cap
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) ($58,044) $124,569 $14,396
Realized Gain (Loss) on Investment Activity 31,065 27,590 9,051
Change in Unrealized Appreciation
(Depreciation) of Investments 580,137 (111,345) 16,783
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 553,158 40,814 40,230
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 3,183,950 1,161,234 235,324
Administrative Charges (7,694) (1,983) (689)
Transfers 1,643,784 (362,114) 20,752
Contract Withdrawals (105,529) (7,148) (29,159)
Deferred Sales Charges (2,210) 0 (1,092)
Death Benefits (3,958) (2,519) 0
Annuity Payments 0 0 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 4,708,343 787,470 225,136
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 5,261,501 828,284 265,366
Net Assets, at Beginning of Year 1,630,990 610,771 351,512
----------------------- ----------------- ------------------
Net Assets, at End of Year $6,892,491 $1,439,055 $616,878
======================= ================= ==================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Mitchell Mitchell Van Eck
Hutchins Hutchins Worldwide
Strategic Tactical Hard
Income Allocation Assets
Portfolio Portfolio Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $44,708 $2,080,348 ($327)
Realized Gain (Loss) on Investment Activity 1,517 1,198,834 (48,791)
Change in Unrealized Appreciation
(Depreciation) of Investments (50,021) 277,248 78,945
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations (3,796) 3,556,430 29,827
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 382,695 16,908,446 420
Administrative Charges (1,123) (34,768) (105)
Transfers 437,084 6,176,066 118,884
Contract Withdrawals (21,673) (559,460) (36,131)
Deferred Sales Charges (796) (14,933) (1,518)
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 796,187 22,475,351 81,550
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 792,391 26,031,781 111,377
Net Assets, at Beginning of Year 168,446 10,307,793 132,066
----------------------- ----------------- ------------------
Net Assets, at End of Year $960,837 $36,339,574 $243,443
======================= ================= ==================
</TABLE>
<TABLE>
Van Eck WP&G
Van Eck Worldwide Tomorrow
Worldwide Emerging Short
Balanced Markets Term
Fund Fund Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 ($2,577) $23,388
Realized Gain (Loss) on Investment Activity 0 48,508 3,736
Change in Unrealized Appreciation
(Depreciation) of Investments 0 85,772 (21,387)
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 131,703 5,737
----------------------- ----------------- ------------------
Capital Transactions:
Contract Deposits 0 21,037 0
Administrative Charges 0 (141) (245)
Transfers 0 121,704 17,804
Contract Withdrawals 0 (7,371) (171,051)
Deferred Sales Charges 0 0 (5,366)
Death Benefits 0 0 0
Annuity Payments 0 0 0
----------------------- ----------------- ------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 135,229 (158,858)
----------------------- ----------------- ------------------
Total Increase (Decrease) in Net Assets 0 266,932 (153,121)
Net Assets, at Beginning of Year 0 18,996 573,745
----------------------- ----------------- ------------------
Net Assets, at End of Year $0 $285,928 $420,624
======================= ================= ==================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
WP&G WP&G
Tomorrow Tomorrow
Medium Long
Term Term
Portfolio Portfolio
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $29,900 $40,823
Realized Gain (Loss) on Investment Activity 6,399 23,154
Change in Unrealized Appreciation
(Depreciation) of Investments (23,450) (27,264)
----------------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Operations 12,849 36,713
----------------------- -----------------
Capital Transactions:
Contract Deposits 3,469 3,716
Administrative Charges (311) (350)
Transfers (35,873) (7,762)
Contract Withdrawals (52,759) (93,681)
Deferred Sales Charges (1,637) (3,533)
Death Benefits 0 0
Annuity Payments 0 0
----------------------- -----------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (87,111) (101,610)
----------------------- -----------------
Total Increase (Decrease) in Net Assets (74,262) (64,897)
Net Assets, at Beginning of Year 508,158 543,373
----------------------- -----------------
Net Assets, at End of Year $433,896 $478,476
======================= =================
</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, 1999 and December 31, 1998
<TABLE>
1998
AIM AIM
Capital International
Appreciation Equity
Total Fund Fund
<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 2,067,456 773,522 478,351
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>
<TABLE>
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 (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>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
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 (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>
Alliance
U.S. Alliance
Government/ Alliance North
High Global American
Grade Dollar Government
Securities Government Income
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 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>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
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 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>
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 (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>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Alliance
Real
Alliance Alliance Estate
Technology Quasar Investment
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 (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>
Dreyfus
Alliance Dreyfus Zero
High Stock Coupon
Yield Index 2000
Portfolio Fund 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 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>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
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 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>
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 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>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Hotchkis
&
Wiley
Fidelity Fidelity International
Overseas Contrafund VIP
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $89,005 ($12,680) $0
Realized Gain (Loss) on Investment Activity 42,715 16,299 0
Change in Unrealized Appreciation
(Depreciation) of Investments 27,078 356,936 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 158,798 360,555 0
-------------------- ------------------- -------------------
Capital Transactions:
Contract Deposits 2,682 1,228,817 0
Administrative Charges (797) (105) 0
Transfers (230,148) 1,220,420 0
Contract Withdrawals (114,197) (15,281) 0
Deferred Sales Charges (3,885) (227) 0
Death Benefits 0 0 0
Annuity Payments 0 (939) 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (346,345) 2,432,685 0
-------------------- ------------------- -------------------
Total Increase (Decrease) in Net Assets (187,547) 2,793,240 0
Net Assets, at Beginning of Year 1,375,762 0 0
-------------------- ------------------- -------------------
Net Assets, at End of Year $1,188,215 $2,793,240 $0
==================== =================== ===================
</TABLE>
<TABLE>
Hotchkis
& Merrill
Wiley Mercury Lynch
Low U.S. Basic
Duration Large Value
VIP Cap Focus
Portfolio Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 $0 ($26,296)
Realized Gain (Loss) on Investment Activity 0 0 (16,848)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 0 (10,081)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 0 (53,225)
-------------------- ------------------- -------------------
Capital Transactions:
Contract Deposits 0 0 3,969,023
Administrative Charges 0 0 (3,180)
Transfers 0 0 305,193
Contract Withdrawals 0 0 (22,602)
Deferred Sales Charges 0 0 (103)
Death Benefits 0 0 0
Annuity Payments 0 0 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 0 4,248,331
-------------------- ------------------- -------------------
Total Increase (Decrease) in Net Assets 0 0 4,195,106
Net Assets, at Beginning of Year 0 0 0
-------------------- ------------------- -------------------
Net Assets, at End of Year $0 $0 $4,195,106
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Merrill Merrill
Merrill Lynch Lynch
Lynch Developing Domestic
Capital Capital Money
Focus Markets Market
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 ($399) $43,472
Realized Gain (Loss) on Investment Activity 0 (645) 0
Change in Unrealized Appreciation
(Depreciation) of Investments 0 (9,325) 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 (10,369) 43,472
-------------------- ------------------- -------------------
Capital Transactions:
Contract Deposits 0 60,054 5,035,460
Administrative Charges 0 (30) (2,053)
Transfers 0 15,013 (1,410,578)
Contract Withdrawals 0 0 (29,036)
Deferred Sales Charges 0 0 (1,350)
Death Benefits 0 0 0
Annuity Payments 0 0 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 75,037 3,592,443
-------------------- ------------------- -------------------
Total Increase (Decrease) in Net Assets 0 64,668 3,635,915
Net Assets, at Beginning of Year 0 0 0
-------------------- ------------------- -------------------
Net Assets, at End of Year $0 $64,668 $3,635,915
==================== =================== ===================
</TABLE>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
Global Global Global
Growth Strategy Utility
Focus Focus Focus
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $0 ($2,123) $1,422
Realized Gain (Loss) on Investment Activity 0 (1,211) (854)
Change in Unrealized Appreciation
(Depreciation) of Investments 0 3,979 55,302
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 0 645 55,870
-------------------- ------------------- -------------------
Capital Transactions:
Contract Deposits 0 280,402 477,467
Administrative Charges 0 (242) (264)
Transfers 0 22,148 (19,952)
Contract Withdrawals 0 (2,922) (617)
Deferred Sales Charges 0 0 0
Death Benefits 0 0 (36,014)
Annuity Payments 0 0 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 0 299,386 420,620
-------------------- ------------------- -------------------
Total Increase (Decrease) in Net Assets 0 300,031 476,490
Net Assets, at Beginning of Year 0 0 0
-------------------- ------------------- -------------------
Net Assets, at End of Year $0 $300,031 $476,490
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
High International Natural
Current Equity Resources
Income Focus Focus
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $16,239 ($4,071) ($230)
Realized Gain (Loss) on Investment Activity (17,159) (2,979) (32)
Change in Unrealized Appreciation
(Depreciation) of Investments (20,327) 13,217 (3,249)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations (21,247) 6,167 (3,511)
-------------------- ------------------- -------------------
Capital Transactions:
Contract Deposits 536,180 623,134 22,442
Administrative Charges (194) (348) (42)
Transfers 12,536 38,709 10,243
Contract Withdrawals (297) (642) 0
Deferred Sales Charges 0 0 0
Death Benefits (34,923) 0 0
Annuity Payments 0 0 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 513,302 660,853 32,643
-------------------- ------------------- -------------------
Total Increase (Decrease) in Net Assets 492,055 667,020 29,132
Net Assets, at Beginning of Year 0 0 0
-------------------- ------------------- -------------------
Net Assets, at End of Year $492,055 $667,020 $29,132
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Merrill
Merrill Merrill Lynch
Lynch Lynch Special
Prime Quality Value
Bond Equity Focus
Fund Fund Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $9,272 ($4,635) ($3,592)
Realized Gain (Loss) on Investment Activity 1,852 (6,901) (11,879)
Change in Unrealized Appreciation
(Depreciation) of Investments 2,926 55,693 (32,123)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 14,050 44,157 (47,594)
-------------------- ------------------- -------------------
Capital Transactions:
Contract Deposits 638,872 701,100 567,049
Administrative Charges (107) (508) (463)
Transfers (222,446) 41,014 64,167
Contract Withdrawals (516) (2,638) (1,089)
Deferred Sales Charges 0 0 (9)
Death Benefits 0 0 0
Annuity Payments 0 0 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 415,803 738,968 629,655
-------------------- ------------------- -------------------
Total Increase (Decrease) in Net Assets 429,853 783,125 582,061
Net Assets, at Beginning of Year 0 0 0
-------------------- ------------------- -------------------
Net Assets, at End of Year $429,853 $783,125 $582,061
==================== =================== ===================
</TABLE>
<TABLE>
Mitchell
Mitchell Hutchins Mitchell
Hutchins Global Hutchins
Balanced Income Growth
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $74,119 $2,037 $21,121
Realized Gain (Loss) on Investment Activity 1 (1) 35
Change in Unrealized Appreciation
(Depreciation) of Investments (19,556) (1,741) 7,735
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 54,564 295 28,891
-------------------- ------------------- -------------------
Capital Transactions:
Contract Deposits 538,371 28,855 157,942
Administrative Charges (107) (6) (36)
Transfers 221 3,234 7,852
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 538,485 32,083 165,758
-------------------- ------------------- -------------------
Total Increase (Decrease) in Net Assets 593,049 32,378 194,649
Net Assets, at Beginning of Year 0 0 0
-------------------- ------------------- -------------------
Net Assets, at End of Year $593,049 $32,378 $194,649
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Mitchell
Hutchins Mitchell Mitchell
Growth Hutchins Hutchins
& High Small
Income Income Cap
Portfolio Portfolio Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $110,093 $9,855 $15,647
Realized Gain (Loss) on Investment Activity 1,634 19 669
Change in Unrealized Appreciation
(Depreciation) of Investments 61,156 (9,852) 29,971
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 172,883 22 46,287
-------------------- ------------------- -------------------
Capital Transactions:
Contract Deposits 1,430,900 588,041 297,384
Administrative Charges (339) (26) (90)
Transfers 27,707 22,734 8,383
Contract Withdrawals (161) 0 (452)
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 1,458,107 610,749 305,225
-------------------- ------------------- -------------------
Total Increase (Decrease) in Net Assets 1,630,990 610,771 351,512
Net Assets, at Beginning of Year 0 0 0
-------------------- ------------------- -------------------
Net Assets, at End of Year $1,630,990 $610,771 $351,512
==================== =================== ===================
</TABLE>
<TABLE>
Mitchell Mitchell Van Eck
Hutchins Hutchins Worldwide
Strategic Tactical Hard
Income Allocation Assets
Portfolio Portfolio Fund
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $1,692 $50,122 $29,649
Realized Gain (Loss) on Investment Activity 16 94,317 (27,745)
Change in Unrealized Appreciation
(Depreciation) of Investments 359 544,313 (66,594)
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 2,067 688,752 (64,690)
-------------------- ------------------- -------------------
Capital Transactions:
Contract Deposits 157,694 9,858,987 6,896
Administrative Charges (36) (1,224) (136)
Transfers 9,365 (235,126) (10,643)
Contract Withdrawals (644) (3,596) (17,632)
Deferred Sales Charges 0 0 (552)
Death Benefits 0 0 0
Annuity Payments 0 0 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions 166,379 9,619,041 (22,067)
-------------------- ------------------- -------------------
Total Increase (Decrease) in Net Assets 168,446 10,307,793 (86,757)
Net Assets, at Beginning of Year 0 0 218,823
-------------------- ------------------- -------------------
Net Assets, at End of Year $168,446 $10,307,793 $132,066
==================== =================== ===================
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
<TABLE>
Van Eck WP&G
Van Eck Worldwide Tomorrow
Worldwide Emerging Short
Balanced Markets Term
Fund Fund Portfolio
<S> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $83,823 ($262) $18,178
Realized Gain (Loss) on Investment Activity (38,939) (5,888) 20,080
Change in Unrealized Appreciation
(Depreciation) of Investments (12,586) (3,745) 25,080
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 32,298 (9,895) 63,338
-------------------- ------------------- -------------------
Capital Transactions:
Contract Deposits 1,139 26,351 36,622
Administrative Charges (118) (5) (279)
Transfers (403,202) 2,545 (130,120)
Contract Withdrawals (20,077) 0 (74,252)
Deferred Sales Charges (556) 0 (2,160)
Death Benefits 0 0 0
Annuity Payments 0 0 0
-------------------- ------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (422,814) 28,891 (170,189)
-------------------- ------------------- -------------------
Total Increase (Decrease) in Net Assets (390,516) 18,996 (106,851)
Net Assets, at Beginning of Year 390,516 0 680,596
-------------------- ------------------- -------------------
Net Assets, at End of Year $0 $18,996 $573,745
==================== =================== ===================
</TABLE>
<TABLE>
WP&G WP&G
Tomorrow Tomorrow
Medium Long
Term Term
Portfolio Portfolio
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss) $21,342 ($38)
Realized Gain (Loss) on Investment Activity 34,514 22,266
Change in Unrealized Appreciation
(Depreciation) of Investments 21,585 48,693
-------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Operations 77,441 70,921
-------------------- -------------------
Capital Transactions:
Contract Deposits 27,019 9,848
Administrative Charges (392) (457)
Transfers (273,314) (51,824)
Contract Withdrawals (48,734) (61,884)
Deferred Sales Charges (321) (1,986)
Death Benefits 0 0
Annuity Payments 0 0
-------------------- -------------------
Increase (Decrease) in Net Assets Resulting
From Capital Transactions (295,742) (106,303)
-------------------- -------------------
Total Increase (Decrease) in Net Assets (218,301) (35,382)
Net Assets, at Beginning of Year 726,459 578,755
-------------------- -------------------
Net Assets, at End of Year $508,158 $543,373
==================== ===================
</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"), Alliance Variable Products Series Fund B, Inc. ("Alliance
Fund B"), Dreyfus Variable Investment Fund ("Dreyfus Fund"), Fidelity
Investments Variable Insurance Products Fund ("Fidelity Trust"), Fidelity
Investments Variable Insurance Products Fund II ("Fidelity Trust II"), Hotchkis
& Wiley Variable Trust ("Hotchkis & Wiley Trust"), Mercury Asset Management V.I.
Funds, Inc. ("Mercury Fund"), Merrill Lynch Variable Series Funds ("Merrill
Lynch Fund"), Mitchell Hutchins Series Trust ("Mitchell Hutchins Trust"), Van
Eck Investment Trust ("Van Eck Trust") and Weiss, Peck & Greer ("WP&G Tomorrow
Fund"). The assets in the policies may be invested in the following subaccounts:
<TABLE>
<S> <C>
AIM Fund: Hotchkis & Wiley Trust:
Capital Appreciation Fund International VIP Portfolio
International Equity Fund Low Duration VIP Portfolio
Alliance Fund: Mercury Fund:
Conservative Investors Portfolio U.S. Large Cap Fund
Global Bond Portfolio
Global Dollar Government Portfolio Merrill Lynch Fund:
Growth Portfolio Basic Value Focus Fund
Growth & Income Portfolio Capital Focus Fund
Growth Investors Portfolio Developing Capital Markets Fund
High Yield Portfolio Domestic Money Market Fund
International Portfolio Global Growth Focus Fund
Money Market Portfolio Global Strategy Focus Fund
North American Government Income Portfolio Global Utility Focus Fund
Premier Growth Portfolio High Current Income Fund
Quasar Portfolio International Equity Focus Fund
Real Estate Investment Portfolio Natural Resources Focus Fund
Short-Term Multi-Market Portfolio Prime Bond Fund
Technology Portfolio Quality Equity Fund
Total Return Portfolio Special Value Focus Fund
U.S. Government/High Grade Securities Portfolio
Utility Income Portfolio Mitchell Hutchins Trust:
Worldwide Privatization Portfolio Balanced Portfolio
Global Income Portfolio
Alliance Fund B: Growth Portfolio
Growth Portfolio Growth & Income Portfolio
Growth & Income Portfolio High Income Portfolio
Money Market Portfolio Small Cap Portfolio
U.S. Government/High Grade Securities Portfolio Strategic Income Portfolio
Tactical Allocation Portfolio
Dreyfus Fund:
Small Company Stock Portfolio Van Eck Trust:
Stock Index Fund Worldwide Balanced Fund (Fund Closed 06/29/98)
Zero Coupon 2000 Portfolio Worldwide Emerging Markets Fund
Worldwide Hard Assets Fund
Fidelity Trust:
Growth Portfolio WP&G Tomorrow Fund:
High Income Portfolio Tomorrow Long Term Portfolio
Money Market Portfolio Tomorrow Medium Term Portfolio
Overseas Portfolio Tomorrow Short Term Portfolio
Fidelity Trust II:
Asset Manager Portfolio
Contrafund Portfolio
Investment Grade Bond Portfolio
</TABLE>
<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 may
be 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.
Daily charges for the Annual Ratchet Plan option are assessed on all contracts
that have elected this option and are equivalent on an annual basis to 0.10% of
the value of the contracts. These charges are included as part of the
administrative charges line of the Statement of Changes in Net Assets.
Daily charges for the Equity Assurance Plan option are assessed on all contracts
that have elected this option and are equivalent to a maximum 0.20% on an annual
basis of the value of the contracts. These charges are included as part
administrative charges line of the Statement of Changes in Net Assets.
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 subject to a
maximum of 8.5% of premiums paid for single premium contracts and a maximum
charge of 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.
4. Annuity Reserves
Annuity reserves are computed for currently payable contracts according to the
83 IAM or Annuity 2000 Mortality Tables. The assumed interest rate is 5%.
Charges to annuity reserves for mortality and expense risks experience are
reimbursed to the Company if the reserves required are less than originally
estimated. If additional reserves are required, the Company reimburses the
variable annuity account.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
5. Purchases of Investments
For the year ended December 31, 1999, investment activity in the Fund was as
follows:
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Shares of
AIM Fund:
Capital Appreciation Fund $ 881,622 $ 234,175
International Equity Fund 4,249,966 3,559,631
Alliance Fund:
Money Market Portfolio 227,285,666 213,782,303
Premier Growth Portfolio 205,118,956 43,450,728
Growth & Income Portfolio 158,944,744 33,820,220
International Portfolio 17,876,267 19,942,876
Short-Term Multi-Market Portfolio 1,699,692 2,755,887
Global Bond Portfolio 1,922,254 2,074,731
U.S. Government/High Grade
Securities Portfolio 30,096,641 19,108,706
Global Dollar Government Portfolio 2,599,868 2,804,346
North American Government Income
Portfolio 6,882,641 9,079,109
Utility Income Portfolio 12,554,867 5,745,102
Conservative Investors Portfolio 4,511,490 6,821,864
Growth Investors Portfolio 2,179,110 2,660,710
Growth Portfolio 103,602,480 56,593,184
Total Return Portfolio 27,403,781 6,256,767
Worldwide Privatization Portfolio 7,851,872 10,048,911
Technology Portfolio 209,010,540 133,120,925
Quasar Portfolio 118,143,929 123,208,043
Real Estate Investment Portfolio 3,739,059 4,542,557
High Yield Portfolio 11,838,570 4,092,594
Dreyfus Fund:
Stock Index Fund 6,082,305 2,051,218
Zero Coupon 2000 Portfolio 9,197 210,241
Small Company Portfolio 813,911 646,825
Fidelity Trust:
Money Market Portfolio 11,996,280 10,011,337
Asset Manager Portfolio 4,473,275 1,686,264
Growth Portfolio 8,764,848 1,894,711
High Income Portfolio 4,559,533 764,945
Investment Grade Bond Portfolio 2,656,542 2,195,442
Overseas Portfolio 93,822 296,725
Contrafund Portfolio 3,897,177 990,453
Hotchkis & Wiley Trust:
International VIP Portfolio 112,915 155
Low Duration VIP Portfolio 90,083 2,744
Mercury Fund:
U.S. Large Cap Fund 72,234 60
Merrill Lynch Fund:
Basic Value Focus Fund 4,166,900 829,608
Capital Focus Fund 7,910 65
Developing Capital Markets Fund 35,335 11,808
Domestic Money Market Fund 1,271,815 3,626,931
Global Growth Focus Fund 217,829 3,943
Global Strategy Focus Fund 688,049 24,434
Global Utility Focus Fund 648,744 94,446
High Current Income Fund 364,887 68,156
International Equity Focus Fund 393,417 44,275
Natural Resources Focus Fund 44,418 20,864
Prime Bond Fund 439,973 194,674
Quality Equity Fund 1,118,841 137,192
Special Value Focus Fund 698,870 133,186
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
5. Purchases of Investments (continued)
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Mitchell Hutchins Trust:
Balanced Portfolio 839,250 58,136
Global Income Portfolio 401,284 23,116
Growth Portfolio 1,782,827 139,478
Growth & Income Portfolio 4,998,045 346,914
High Income Portfolio 2,762,079 1,850,068
Small Cap Portfolio 366,902 127,201
Strategic Income Portfolio 885,778 44,889
Tactical Allocation Portfolio 35,039,258 10,483,347
Van Eck Trust:
Worldwide Hard Assets Fund 203,012 121,789
Worldwide Emerging Markets Fund 355,024 222,372
WP&G Tomorrow Fund:
Tomorrow Short Term Portfolio 48,220 183,690
Tomorrow Medium Term Portfolio 60,358 117,569
Tomorrow Long Term Portfolio 51,183 111,971
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
5. 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 Fund:
Capital Appreciation Fund $ 1,344,539 $ 81,351
International Equity Fund 1,566,560 808,755
Alliance Fund:
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 Portfolio 2,013,028 2,779,147
U.S. Government/High Grade
Securities Portfolio 25,632,440 6,727,622
Global Dollar Government Portfolio 4,093,316 3,739,917
North American Government Income
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 Investment Portfolio 8,228,432 3,243,588
High Yield Portfolio 22,383,965 6,980,257
Dreyfus Fund:
Stock Index Fund 7,114,507 1,924,156
Zero Coupon 2000 Portfolio 21,756 64,177
Small Company Portfolio 912,317 86,172
Fidelity Trust:
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 Fund:
Basic Value Focus Fund 4,399,244 177,207
Developing Capital Markets Fund 81,194 6,556
Domestic Money Market Fund 5,009,192 1,373,278
Global Strategy Focus Fund 309,184 11,922
Global Utility Focus Fund 505,490 83,447
High Current Income Fund 646,548 117,007
International Equity Focus Fund 697,326 40,545
Natural Resources Focus Fund 32,703 289
Prime Bond Fund 754,606 329,530
Quality Equity Fund 787,446 53,113
Special Value Focus Fund 658,873 32,809
Mitchell Hutchins Trust:
Balanced Portfolio 613,571 969
Global Income Portfolio 34,214 95
Growth Portfolio 187,269 391
Growth & Income Portfolio 1,592,385 24,187
High Income Portfolio 621,280 675
Small Cap Portfolio 324,239 3,370
Strategic Income Portfolio 168,775 703
Tactical Allocation Portfolio 10,236,632 567,469
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
<TABLE>
5. Purchases of Investments (continued)
Cost of Proceeds
Purchases From Sales
<S> <C> <C>
Van Eck Trust:
Worldwide Hard Assets Fund 95,977 88,394
Worldwide Balanced Fund 101,524 440,603
Worldwide Emerging Markets Fund 39,716 11,086
WP&G Tomorrow Fund:
Tomorrow Short Term Portfolio 122,794 274,804
Tomorrow Medium Term Portfolio 112,050 386,450
Tomorrow Long Term Portfolio 52,459 158,800
</TABLE>
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
6. Net Increase (Decrease) in Accumulation Units
For the year ended December 31, 1999, transactions in accumulation units of the
account were as follows:
<TABLE>
AIM AIM AIM
Capital Capital International
Appreciation Appreciation Equity
3 Fund 2 Fund 3 Fund
VARIABLE ANNUITY
----------------- ----------- -----------------
<S> <C> <C> <C>
Units Purchased 26,004.10 57.61 30,704.14
Units Withdrawn (11,528.86) (0.09) (3,976.53)
Units Transferred Between Funds 12,262.54 51.35 93,326.15
Units Transferred From (To) AIG Life 25,825.80 0.00 18,836.36
----------------- ----------- -----------------
Net Increase (Decrease) 52,563.58 108.87 138,890.12
Units, at Beginning of the Year 119,260.64 0.00 67,193.18
----------------- ----------- -----------------
Units, at End of the Year 171,824.22 108.87 206,083.30
================= =========== =================
Unit Value at December 31, 1999 $ 16.13 $ 16.11 $ 17.59
================= =========== =================
</TABLE>
<TABLE>
Alliance Alliance Alliance
Money Money Money
Market Market Market
1 Portfolio 2 Portfolio 4 Portfolio
VARIABLE ANNUITY
------------------- ----------------- -----------------
<S> <C> <C> <C>
Units Purchased 4,667,835.04 154,327.47 81,224.65
Units Withdrawn (3,549,809.40) (30,659.06) (258.60)
Units Transferred Between Funds (405,521.57) (149,811.28) (19,347.49)
Units Transferred From (To) AIG Life 61.29 22,337.42 871.11
------------------- ----------------- -----------------
Net Increase (Decrease) 712,565.36 (3,805.45) 62,489.67
Units, at Beginning of the Year 7,257,274.05 172,778.21 0.00
------------------- ----------------- -----------------
Units, at End of the Year 7,969,839.41 168,972.76 62,489.67
=================== ================= =================
Unit Value at December 31, 1999 $ 12.15 $ 12.13 $ 12.13
=================== ================= =================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Alliance Alliance Alliance
Money Premier Premier
Market Growth Growth
5 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY
--------------------- ------------------- ------------------
<S> <C> <C> <C>
Units Purchased 29,822.96 3,717,392.35 253,160.16
Units Withdrawn (23.81) (1,226,944.53) (15,533.07)
Units Transferred Between Funds (3,641.95) 231,724.95 25,075.49
Units Transferred From (To) AIG Life 7,225.08 1,242,711.06 89,607.00
------------------- ------------------- ------------------
Net Increase (Decrease) 33,382.28 3,964,883.83 352,309.58
Units, at Beginning of the Year 0.00 10,004,043.82 195,100.58
------------------- ------------------- ------------------
Units, at End of the Year 33,382.28 13,968,927.65 547,410.16
=================== =================== ==================
Unit Value at December 31, 1999 $ 12.12 $ 44.22 $ 44.16
=================== =================== ==================
</TABLE>
<TABLE>
Alliance Alliance
Alliance Growth Growth
Premier & &
Growth Income Income
3 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 1,871.20 2,728,704.16 134,899.65
Units Withdrawn (6,274.46) (1,144,964.45) (9,463.25)
Units Transferred Between Funds 49,946.98 228,886.76 7,569.53
Units Transferred From (To) AIG Life 0.00 1,036,970.70 54,154.95
------------------ ------------------ -------------------
Net Increase (Decrease) 45,543.72 2,849,597.17 187,160.88
Units, at Beginning of the Year 68,418.04 9,476,753.38 113,490.16
------------------ ------------------ -------------------
Units, at End of the Year 113,961.76 12,326,350.55 300,651.04
================== ================== ===================
Unit Value at December 31, 1999 $ 19.94 $ 31.78 $ 31.74
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Alliance Alliance Alliance
Growth Growth Growth
& & &
Income Income Income
3 Portfolio 4 Portfolio 5 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 5,266.94 127,988.07 9,810.35
Units Withdrawn (42,138.88) (932.74) (6.58)
Units Transferred Between Funds (256,055.82) (1,949.75) (88.58)
Units Transferred From (To) AIG Life 55.87 39,869.35 455.16
------------------ ------------------ -------------------
Net Increase (Decrease) (292,871.89) 164,974.93 10,170.35
Units, at Beginning of the Year 913,812.34 0.00 0.00
------------------ ------------------ -------------------
Units, at End of the Year 620,940.45 164,974.93 10,170.35
================== ================== ===================
Unit Value at December 31, 1999 $ 19.71 $ 31.73 $ 31.70
================== ================== ===================
</TABLE>
<TABLE>
Alliance
Alliance Alliance Short-Term
International International Multi-Market
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 298,188.89 11,213.37 11,293.59
Units Withdrawn (402,664.80) (1,240.01) (31,393.44)
Units Transferred Between Funds (303,407.93) 2,962.93 (82,970.97)
Units Transferred From (To) AIG Life 165,848.82 7,438.59 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) (242,035.02) 20,374.88 (103,070.82)
Units, at Beginning of the Year 3,645,458.53 23,555.77 372,503.39
------------------ ------------------ -------------------
Units, at End of the Year 3,403,423.51 43,930.65 269,432.57
================== ================== ===================
Unit Value at December 31, 1999 $ 19.26 $ 19.23 $ 11.91
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Alliance Alliance Alliance
Global Global Global
Bond Bond Bond
1 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 33,824.13 2,839.61 0.00
Units Withdrawn (70,622.35) (7.20) (1,285.15)
Units Transferred Between Funds (43,747.88) 399.46 13,827.84
Units Transferred From (To) AIG Life 44,032.92 408.11 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) (36,513.18) 3,639.98 12,542.69
Units, at Beginning of the Year 643,678.65 1,909.94 4,547.27
------------------ ------------------ -------------------
Units, at End of the Year 607,165.47 5,549.92 17,089.96
================== ================== ===================
Unit Value at December 31, 1999 $ 13.69 $ 13.67 $ 10.27
================== ================== ===================
</TABLE>
<TABLE>
Alliance Alliance Alliance
U.S. U.S. U.S.
Government/ Government/ Government/
High High High
Grade Grade Grade
Securities Securities Securities
1 Portfolio 2 Portfolio 4 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 302,797.46 30,790.37 71,895.79
Units Withdrawn (375,153.64) (14,964.32) (141.85)
Units Transferred Between Funds 155,551.33 15,695.45 22,478.67
Units Transferred From (To) AIG Life 482,807.79 9,514.88 7,875.94
------------------ ------------------ -------------------
Net Increase (Decrease) 566,002.94 41,036.38 102,108.55
Units, at Beginning of the Year 3,516,324.79 56,286.47 0.00
------------------ ------------------ -------------------
Units, at End of the Year 4,082,327.73 97,322.85 102,108.55
================== ================== ===================
Unit Value at December 31, 1999 $ 12.32 $ 12.30 $ 12.29
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Alliance
U.S.
Government/ Alliance Alliance
High Global Global
Grade Dollar Dollar
Securities Government Government
5 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 1,821.62 16,291.45 3,446.87
Units Withdrawn (10.00) (64,486.40) (10.69)
Units Transferred Between Funds 4,556.15 (79,787.65) (1,550.80)
Units Transferred From (To) AIG Life 398.23 24,042.61 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) 6,766.00 (103,939.99) 1,885.38
Units, at Beginning of the Year 0.00 636,568.44 3,539.98
------------------ ------------------ -------------------
Units, at End of the Year 6,766.00 532,628.45 5,425.36
================== ================== ===================
Unit Value at December 31, 1999 $ 12.28 $ 15.60 $ 15.58
================== ================== ===================
</TABLE>
<TABLE>
Alliance Alliance
North North
American American Alliance
Government Government Utility
Income Income Income
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 238,411.39 3,348.95 330,275.51
Units Withdrawn (278,864.54) (51.06) (182,332.21)
Units Transferred Between Funds (339,730.03) (7,836.42) (72,619.64)
Units Transferred From (To) AIG Life 95,809.01 10,271.87 191,234.66
------------------ ------------------ -------------------
Net Increase (Decrease) (284,374.17) 5,733.34 266,558.32
Units, at Beginning of the Year 1,816,650.85 9,939.13 1,379,682.64
------------------ ------------------ -------------------
Units, at End of the Year 1,532,276.68 15,672.47 1,646,240.96
================== ================== ===================
Unit Value at December 31, 1999 $ 14.68 $ 14.67 $ 22.42
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>>
<TABLE>
Alliance Alliance Alliance
Utility Conservative Conservative
Income Investors Investors
2 Portfolio 1 Portfolio 3 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 26,256.18 8,726.59 19.58
Units Withdrawn (5,237.18) (215,600.60) (17,703.52)
Units Transferred Between Funds (6,289.27) (50,242.70) (17,578.62)
Units Transferred From (To) AIG Life 7,111.72 (880.91) 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) 21,841.45 (257,997.62) (35,262.56)
Units, at Beginning of the Year 25,076.36 1,834,033.48 86,310.55
------------------ ------------------ -------------------
Units, at End of the Year 46,917.81 1,576,035.86 51,047.99
================== ================== ===================
Unit Value at December 31, 1999 $ 22.39 $ 15.15 $ 13.49
================== ================== ===================
</TABLE>
<TABLE>
Alliance Alliance
Growth Growth Alliance
Investors Investors Growth
1 Portfolio 3 Portfolio 1 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 1,852.37 44.37 1,470,653.98
Units Withdrawn (86,817.85) (3,806.21) (1,117,669.65)
Units Transferred Between Funds (3,117.54) (2,554.40) (9,152.49)
Units Transferred From (To) AIG Life (64.21) 0.00 299,666.97
------------------ ------------------ -------------------
Net Increase (Decrease) (88,147.23) (6,316.24) 643,498.81
Units, at Beginning of the Year 805,318.02 69,783.44 8,904,664.34
------------------ ------------------ -------------------
Units, at End of the Year 717,170.79 63,467.20 9,548,163.15
================== ================== ===================
Unit Value at December 31, 1999 $ 19.94 $ 17.27 $ 38.20
================== ================== ===================
</TABLE>
<TABLE>
Alliance Alliance Alliance
Growth Growth Growth
2 Portfolio 3 Portfolio 4 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 69,691.16 4,762.50 80,936.52
Units Withdrawn (8,646.87) (36,594.01) (319.78)
Units Transferred Between Funds 7,205.17 (6,601.52) (764.95)
Units Transferred From (To) AIG Life 37,722.90 49.29 56,787.51
------------------ ------------------ -------------------
Net Increase (Decrease) 105,972.36 (38,383.74) 136,639.30
Units, at Beginning of the Year 108,165.51 439,478.48 0.00
------------------ ------------------ -------------------
Units, at End of the Year 214,137.87 401,094.74 136,639.30
================== ================== ===================
Unit Value at December 31, 1999 $ 38.16 $ 26.41 $ 38.14
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Alliance Alliance
Alliance Total Total
Growth Return Return
5 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 4,037.39 750,721.40 27,237.46
Units Withdrawn (14.54) (302,928.30) (4,409.48)
Units Transferred Between Funds 58.12 29,665.39 (656.33)
Units Transferred From (To) AIG Life 1,221.67 365,840.44 21,818.81
------------------ ------------------ -------------------
Net Increase (Decrease) 5,302.64 843,298.93 43,990.46
Units, at Beginning of the Year 0.00 2,427,810.67 33,789.24
------------------ ------------------ -------------------
Units, at End of the Year 5,302.64 3,271,109.60 77,779.70
================== ================== ===================
Unit Value at December 31, 1999 $ 38.10 $ 19.35 $ 19.33
================== ================== ===================
</TABLE>
<TABLE>
Alliance Alliance
Worldwide Worldwide Alliance
Privatization Privatization Technology
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 171,512.75 9,874.03 2,528,021.93
Units Withdrawn (318,716.57) (847.05) (776,237.68)
Units Transferred Between Funds (241,652.77) 146.93 778,942.56
Units Transferred From (To) AIG Life 82,339.00 4,624.10 746,885.33
------------------ ------------------ -------------------
Net Increase (Decrease) (306,517.59) 13,798.01 3,277,612.14
Units, at Beginning of the Year 2,399,048.02 36,349.72 5,670,473.43
------------------ ------------------ -------------------
Units, at End of the Year 2,092,530.43 50,147.73 8,948,085.57
================== ================== ===================
Unit Value at December 31, 1999 $ 24.00 $ 23.97 $ 32.00
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Alliance Alliance Alliance
Technology Technology Quasar
2 Portfolio 3 Portfolio 1 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 165,682.53 3,126.61 697,149.17
Units Withdrawn (7,209.83) (13,012.58) (605,700.84)
Units Transferred Between Funds 39,234.58 24,484.29 (747,760.96)
Units Transferred From (To) AIG Life 61,434.42 504.36 300,070.13
------------------ ------------------ -------------------
Net Increase (Decrease) 259,141.70 15,102.68 (356,242.50)
Units, at Beginning of the Year 134,861.64 204,513.11 5,595,694.30
------------------ ------------------ -------------------
Units, at End of the Year 394,003.34 219,615.79 5,239,451.80
================== ================== ===================
Unit Value at December 31, 1999 $ 31.96 $ 30.97 $ 13.45
================== ================== ===================
</TABLE>
<TABLE>
Alliance
Real
Alliance Alliance Estate
Quasar Quasar Investment
2 Portfolio 3 Portfolio 1 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 54,140.53 833.59 134,416.05
Units Withdrawn (2,151.32) (7,527.75) (116,433.95)
Units Transferred Between Funds (7,301.01) (19,728.51) (244,600.13)
Units Transferred From (To) AIG Life 21,600.47 0.00 77,011.06
------------------ ------------------ -------------------
Net Increase (Decrease) 66,288.67 (26,422.67) (149,606.97)
Units, at Beginning of the Year 94,351.66 125,991.91 1,323,433.95
------------------ ------------------ -------------------
Units, at End of the Year 160,640.33 99,569.24 1,173,826.98
================== ================== ===================
Unit Value at December 31, 1999 $ 13.44 $ 13.07 $ 9.09
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Alliance
Real Alliance Alliance
Estate High High
Investment Yield Yield
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 9,249.33 744,281.57 30,586.59
Units Withdrawn (3,304.03) (147,963.10) (2,167.63)
Units Transferred Between Funds (5,392.67) (224,509.77) (6,281.39)
Units Transferred From (To) AIG Life 9,670.28 329,657.28 20,283.41
------------------ ------------------ -------------------
Net Increase (Decrease) 10,222.91 701,465.98 42,420.98
Units, at Beginning of the Year 41,369.76 1,476,993.82 64,920.21
------------------ ------------------ -------------------
Units, at End of the Year 51,592.67 2,178,459.80 107,341.19
================== ================== ===================
Unit Value at December 31, 1999 $ 9.08 $ 9.40 $ 9.39
================== ================== ===================
</TABLE>
<TABLE>
Dreyfus
Dreyfus Dreyfus Zero
Stock Stock Coupon
Index Index 2000
3 Fund 2 Fund 3 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 141,872.56 0.00 0.00
Units Withdrawn (53,379.28) 0.00 (9,798.37)
Units Transferred Between Funds (24,507.50) 807.88 (7,946.60)
Units Transferred From (To) AIG Life 123,096.41 0.00 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) 187,082.19 807.88 (17,744.97)
Units, at Beginning of the Year 788,393.98 815.94 24,653.92
------------------ ------------------ -------------------
Units, at End of the Year 975,476.17 1,623.82 6,908.95
================== ================== ===================
Unit Value at December 31, 1999 $ 23.14 $ 23.11 $ 11.81
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Dreyfus Dreyfus
Small Small Fidelity
Company Company Money
Stock Stock Market
3 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 10,110.52 0.00 233,702.33
Units Withdrawn (17,627.41) 0.00 (134,628.93)
Units Transferred Between Funds (3,630.11) 0.00 13,852.22
Units Transferred From (To) AIG Life 29,556.37 0.00 26,055.17
------------------ ------------------ -------------------
Net Increase (Decrease) 18,409.37 0.00 138,980.79
Units, at Beginning of the Year 137,766.00 1,042.70 923,574.31
------------------ ------------------ -------------------
Units, at End of the Year 156,175.37 1,042.70 1,062,555.10
================== ================== ===================
Unit Value at December 31, 1999 $ 10.67 $ 10.66 $ 11.54
================== ================== ===================
</TABLE>
<TABLE>
Fidelity Fidelity
Asset Asset Fidelity
Manager Manager Growth
3 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 96,576.93 737.26 151,279.56
Units Withdrawn (39,185.70) 0.00 (50,664.82)
Units Transferred Between Funds (15,665.69) 0.00 73,934.57
Units Transferred From (To) AIG Life 110,490.84 0.00 103,916.19
------------------ ------------------ -------------------
Net Increase (Decrease) 152,216.38 737.26 278,465.50
Units, at Beginning of the Year 514,073.21 0.00 642,366.35
------------------ ------------------ -------------------
Units, at End of the Year 666,289.59 737.26 920,831.85
================== ================== ===================
Unit Value at December 31, 1999 $ 16.44 $ 16.42 $ 24.79
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Fidelity Fidelity
Fidelity High High
Growth Income Income
2 Portfolio 3 Portfolio 2 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 32.55 47,234.87 204.43
Units Withdrawn (0.04) (17,786.20) 0.00
Units Transferred Between Funds 0.00 220,147.86 0.00
Units Transferred From (To) AIG Life 0.00 24,899.17 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) 32.51 274,495.70 204.43
Units, at Beginning of the Year 0.00 302,062.09 1,171.66
------------------ ------------------ -------------------
Units, at End of the Year 32.51 576,557.79 1,376.09
================== ================== ===================
Unit Value at December 31, 1999 $ 24.76 $ 12.73 $ 12.71
================== ================== ===================
</TABLE>
<TABLE>
Fidelity Fidelity
Investment Investment
Grade Grade Fidelity
Bond Bond Overseas
3 Portfolio 2 Portfolio 3 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 40,883.37 1,912.81 656.31
Units Withdrawn (20,580.91) 0.00 (3,715.85)
Units Transferred Between Funds (138,852.70) (1,912.81) (12,980.23)
Units Transferred From (To) AIG Life 140,284.87 0.00 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) 21,734.63 0.00 (16,039.77)
Units, at Beginning of the Year 386,026.93 0.00 90,223.77
------------------ ------------------ -------------------
Units, at End of the Year 407,761.56 0.00 74,184.00
================== ================== ===================
Unit Value at December 31, 1999 $ 11.81 $ 11.80 $ 18.52
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Hotchkis
&
Wiley
Fidelity Fidelity International
Contrafund Contrafund VIP
3 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 113,488.25 421.90 8,863.66
Units Withdrawn (18,300.00) (0.06) (1.12)
Units Transferred Between Funds 32,824.93 0.00 275.29
Units Transferred From (To) AIG Life 79,475.25 0.00 1,730.55
------------------ ------------------ -------------------
Net Increase (Decrease) 207,488.43 421.84 10,868.38
Units, at Beginning of the Year 212,388.21 0.00 0.00
------------------ ------------------ -------------------
Units, at End of the Year 419,876.64 421.84 10,868.38
================== ================== ===================
Unit Value at December 31, 1999 $ 15.95 $ 15.93 $ 10.91
================== ================== ===================
</TABLE>
<TABLE>
Hotchkis
& Merrill
Wiley Mercury Lynch
Low U.S. Basic
Duration Large Value
VIP Cap Focus
1 Portfolio 1 Fund 1 Fund
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 8,768.49 5,984.60 120,375.10
Units Withdrawn (224.40) (0.04) (18,974.12)
Units Transferred Between Funds 0.00 0.00 5,608.55
Units Transferred From (To) AIG Life 0.00 231.86 62,048.30
------------------ ------------------ -------------------
Net Increase (Decrease) 8,544.09 6,216.42 169,057.83
Units, at Beginning of the Year 0.00 0.00 330,863.59
------------------ ------------------ -------------------
Units, at End of the Year 8,544.09 6,216.42 499,921.42
================== ================== ===================
Unit Value at December 31, 1999 $ 10.07 $ 11.98 $ 12.72
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Merrill Merrill
Lynch Merrill Lynch
Basic Lynch Developing
Value Capital Capital
Focus Focus Markets
2 Fund 1 Fund 1 Fund
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 10,329.93 793.26 1,139.43
Units Withdrawn (7,995.95) 0.00 (13.81)
Units Transferred Between Funds 1,940.22 0.00 1,523.09
Units Transferred From (To) AIG Life 0.00 0.00 481.71
------------------ ------------------ -------------------
Net Increase (Decrease) 4,274.20 793.26 3,130.42
Units, at Beginning of the Year 63,119.52 0.00 5,974.92
------------------ ------------------ -------------------
Units, at End of the Year 67,393.72 793.26 9,105.34
================== ================== ===================
Unit Value at December 31, 1999 $ 12.70 $ 9.78 $ 11.14
================== ================== ===================
</TABLE>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
Developing Domestic Domestic
Capital Money Money
Markets Market Market
2 Fund 1 Fund 2 Fund
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 72.52 75,260.82 942.32
Units Withdrawn 24.17 (5,410.87) (5,239.82)
Units Transferred Between Funds (561.83) (213,611.85) (46,955.68)
Units Transferred From (To) AIG Life 216.78 (34,785.32) 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) (248.36) (178,547.22) (51,253.18)
Units, at Beginning of the Year 3,505.11 285,074.87 63,493.54
------------------ ------------------ -------------------
Units, at End of the Year 3,256.75 106,527.65 12,240.36
================== ================== ===================
Unit Value at December 31, 1999 $ 11.12 $ 10.79 $ 10.77
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
Global Global Global
Growth Strategy Strategy
Focus Focus Focus
1 Fund 1 Fund 2 Fund
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 19,418.96 48,107.82 0.00
Units Withdrawn (1.19) (539.18) (18.27)
Units Transferred Between Funds (41.13) (432.73) 402.40
Units Transferred From (To) AIG Life 280.35 1,117.97 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) 19,656.99 48,253.88 384.13
Units, at Beginning of the Year 0.00 20,304.87 7,673.26
------------------ ------------------ -------------------
Units, at End of the Year 19,656.99 68,558.75 8,057.39
================== ================== ===================
Unit Value at December 31, 1999 $ 12.99 $ 12.84 $ 12.82
================== ================== ===================
</TABLE>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
Global Global High
Utility Utility Current
Focus Focus Income
1 Fund 2 Fund 1 Fund
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 9,799.76 805.40 14,692.38
Units Withdrawn (181.32) (1.27) (698.88)
Units Transferred Between Funds (2,980.78) 1.27 (1,580.88)
Units Transferred From (To) AIG Life 25,680.09 221.23 9,906.59
------------------ ------------------ -------------------
Net Increase (Decrease) 32,317.75 1,026.63 22,319.21
Units, at Beginning of the Year 34,377.79 154.88 51,178.92
------------------ ------------------ -------------------
Units, at End of the Year 66,695.54 1,181.51 73,498.13
================== ================== ===================
Unit Value at December 31, 1999 $ 15.33 $ 15.31 $ 9.88
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
High International International
Current Equity Equity
Income Focus Focus
2 Fund 1 Fund 2 Fund
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 0.00 12,943.06 654.72
Units Withdrawn (2.32) (870.16) (19.58)
Units Transferred Between Funds 2,202.75 3,780.05 1,713.84
Units Transferred From (To) AIG Life 0.00 10,761.39 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) 2,200.43 26,614.34 2,348.98
Units, at Beginning of the Year 864.78 54,568.65 10,875.79
------------------ ------------------ -------------------
Units, at End of the Year 3,065.21 81,182.99 13,224.77
================== ================== ===================
Unit Value at December 31, 1999 $ 9.87 $ 13.83 $ 13.82
================== ================== ===================
</TABLE>
<TABLE>
Merrill Merrill
Lynch Lynch Merrill
Natural Natural Lynch
Resources Resources Prime
Focus Focus Bond
1 Fund 2 Fund 1 Fund
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 0.00 199.95 24,658.81
Units Withdrawn (8.72) (2.76) (131.75)
Units Transferred Between Funds (1,910.14) 0.00 (11,141.27)
Units Transferred From (To) AIG Life 4,593.25 0.00 3,949.06
------------------ ------------------ -------------------
Net Increase (Decrease) 2,674.39 197.19 17,334.85
Units, at Beginning of the Year 2,239.82 1,623.44 38,142.29
------------------ ------------------ -------------------
Units, at End of the Year 4,914.21 1,820.63 55,477.14
================== ================== ===================
Unit Value at December 31, 1999 $ 9.43 $ 9.42 $ 10.28
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Merrill Merrill Merrill
Lynch Lynch Lynch
Prime Quality Quality
Bond Equity Equity
2 Fund 1 Fund 2 Fund
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 953.89 39,043.48 1,809.42
Units Withdrawn (3.92) (1,100.41) (5,201.40)
Units Transferred Between Funds 1,766.54 11,859.34 3,894.65
Units Transferred From (To) AIG Life 0.00 7,732.41 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) 2,716.51 57,534.82 502.67
Units, at Beginning of the Year 2,132.92 60,761.56 7,039.45
------------------ ------------------ -------------------
Units, at End of the Year 4,849.43 118,296.38 7,542.12
================== ================== ===================
Unit Value at December 31, 1999 $ 10.27 $ 14.97 $ 14.95
================== ================== ===================
</TABLE>
<TABLE>
Merrill Merrill
Lynch Lynch
Special Special Mitchell
Value Value Hutchins
Focus Focus Balanced
1 Fund 2 Fund 1 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 48,256.15 1,585.58 30,290.22
Units Withdrawn (404.65) (44.85) (773.45)
Units Transferred Between Funds (9,839.46) (99.13) (5,786.44)
Units Transferred From (To) AIG Life 5,126.34 281.54 32,003.38
------------------ ------------------ -------------------
Net Increase (Decrease) 43,138.38 1,723.14 55,733.71
Units, at Beginning of the Year 48,096.41 18,595.52 37,630.79
------------------ ------------------ -------------------
Units, at End of the Year 91,234.79 20,318.66 93,364.50
================== ================== ===================
Unit Value at December 31, 1999 $ 11.55 $ 11.53 $ 13.21
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Mitchell Mitchell
Mitchell Hutchins Hutchins
Hutchins Global Global
Balanced Income Income
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 375.19 19,608.42 0.00
Units Withdrawn 728.22 (102.98) 28.23
Units Transferred Between Funds (775.90) (1,518.49) 4,741.96
Units Transferred From (To) AIG Life 5,921.11 10,139.67 439.34
------------------ ------------------ -------------------
Net Increase (Decrease) 6,248.62 28,126.62 5,209.53
Units, at Beginning of the Year 7,440.58 2,160.65 585.68
------------------ ------------------ -------------------
Units, at End of the Year 13,689.20 30,287.27 5,795.21
================== ================== ===================
Unit Value at December 31, 1999 $ 13.20 $ 11.07 $ 11.06
================== ================== ===================
</TABLE>
<TABLE>
Mitchell
Hutchins
Mitchell Mitchell Growth
Hutchins Hutchins &
Growth Growth Income
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 26,120.53 4,077.65 193,436.66
Units Withdrawn (1,460.38) (44.70) (7,281.33)
Units Transferred Between Funds 941.89 (2,588.80) 6,137.99
Units Transferred From (To) AIG Life 48,961.38 892.37 101,843.32
------------------ ------------------ -------------------
Net Increase (Decrease) 74,563.42 2,336.52 294,136.64
Units, at Beginning of the Year 7,922.55 1,744.37 77,909.27
------------------ ------------------ -------------------
Units, at End of the Year 82,485.97 4,080.89 372,045.91
================== ================== ===================
Unit Value at December 31, 1999 $ 26.58 $ 26.56 $ 17.23
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
Mitchell
Hutchins Mitchell Mitchell
Growth Hutchins Hutchins
& High High
Income Income Income
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 6,233.75 89,686.68 4,037.48
Units Withdrawn 58.59 (877.90) (26.79)
Units Transferred Between Funds (4,142.69) (51,317.06) 5,555.16
Units Transferred From (To) AIG Life 711.31 12,870.76 1,666.33
------------------ ------------------ -------------------
Net Increase (Decrease) 2,860.96 50,362.48 11,232.18
Units, at Beginning of the Year 25,064.48 45,621.25 3,012.26
------------------ ------------------ -------------------
Units, at End of the Year 27,925.44 95,983.73 14,244.44
================== ================== ===================
Unit Value at December 31, 1999 $ 17.22 $ 13.06 $ 13.05
================== ================== ===================
</TABLE>
<TABLE>
Mitchell Mitchell Mitchell
Hutchins Hutchins Hutchins
Small Small Strategic
Cap Cap Income
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 11,580.55 4,409.53 29,597.68
Units Withdrawn (2,156.16) (9.66) (1,894.18)
Units Transferred Between Funds (1,310.51) (2,452.48) 876.05
Units Transferred From (To) AIG Life 4,814.60 405.09 28,828.99
------------------ ------------------ -------------------
Net Increase (Decrease) 12,928.48 2,352.48 57,408.54
Units, at Beginning of the Year 19,246.77 3,346.26 11,783.30
------------------ ------------------ -------------------
Units, at End of the Year 32,175.25 5,698.74 69,191.84
================== ================== ===================
Unit Value at December 31, 1999 $ 16.29 $ 16.28 $ 12.34
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>>
<TABLE>
Mitchell Mitchell Mitchell
Hutchins Hutchins Hutchins
Strategic Tactical Tactical
Income Allocation Allocation
2 Portfolio 1 Portfolio 2 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 1,136.83 880,590.57 184,315.87
Units Withdrawn (11.14) (32,491.28) (4,717.53)
Units Transferred Between Funds 4,109.21 (23,468.85) 12,265.34
Units Transferred From (To) AIG Life 1,500.22 337,264.76 39,166.67
------------------ ------------------ -------------------
Net Increase (Decrease) 6,735.12 1,161,895.20 231,030.35
Units, at Beginning of the Year 1,932.23 625,337.73 65,283.41
------------------ ------------------ -------------------
Units, at End of the Year 8,667.35 1,787,232.93 296,313.76
================== ================== ===================
Unit Value at December 31, 1999 $ 12.33 $ 17.44 $ 17.43
================== ================== ===================
</TABLE>
<TABLE>
Van Eck Van Eck WP&G
Worldwide Worldwide Tomorrow
Hard Emerging Short
Assets Markets Term
3 Fund 3 Fund 3 Portfolio
VARIABLE ANNUITY
------------------ ------------------ -------------------
<S> <C> <C> <C>
Units Purchased 55.46 2,460.62 0.00
Units Withdrawn (4,938.79) (942.27) (12,510.12)
Units Transferred Between Funds 16,238.40 16,066.97 1,269.76
Units Transferred From (To) AIG Life (638.80) 3,288.37 0.00
------------------ ------------------ -------------------
Net Increase (Decrease) 10,716.27 20,873.69 (11,240.36)
Units, at Beginning of the Year 19,667.21 3,152.89 41,030.86
------------------ ------------------ -------------------
Units, at End of the Year 30,383.48 24,026.58 29,790.50
================== ================== ===================
Unit Value at December 31, 1999 $ 8.01 $ 11.90 $ 14.12
================== ================== ===================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
<TABLE>
WP&G WP&G
Tomorrow Tomorrow
Medium Long
Term Term
3 Portfolio 3 Portfolio
VARIABLE ANNUITY
------------------ ------------------
<S> <C> <C>
Units Purchased 240.45 234.17
Units Withdrawn (3,853.05) (6,324.36)
Units Transferred Between Funds (2,502.19) (499.55)
Units Transferred From (To) AIG Life 0.00 0.00
------------------ ------------------
Net Increase (Decrease) (6,114.79) (6,589.74)
Units, at Beginning of the Year 35,243.27 34,913.15
------------------ ------------------
Units, at End of the Year 29,128.48 28,323.41
================== ==================
Unit Value at December 31, 1999 $ 14.90 $ 16.89
================== ==================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are funds with ADB only.
Footnote 3 are the Profile funds.
Footnote 4 are funds with 12B-1 fees only.
Footnote 5 are funds with 12B-1 fees and ADB.
<PAGE>
AIG LIFE INSURANCE COMPANY
(AIG LIFE)
VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (continued)
7. Net Increase (Decrease) in Annuity Units
For the year ended December 31, 1999, transactions in annuity units of the
account were as follows:
<TABLE>
AIM Alliance Alliance
Capital Money Premier
Appreciation Market Growth
2 Fund 1 Portfolio 1 Portfolio
VARIABLE ANNUITY
-------------- --------------- ----------------
<S> <C> <C> <C>
Units Purchased 0.00 85,374.17 1,288.79
Units Withdrawn (33.59) 0.00 0.00
Units Transferred Between Funds 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
-------------- --------------- ----------------
Net Increase (Decrease) (33.59) 85,374.17 1,288.79
Units, at Beginning of the Year 2,408.74 1,695.38 12,760.01
-------------- --------------- ----------------
Units, at End of the Year 2,375.15 87,069.55 14,048.80
============== =============== ================
Unit Value at December 31, 1999 $ 14.87 $ 10.69 $ 38.92
============== =============== ================
</TABLE>
<TABLE>
Alliance Alliance
Growth Growth
& & Alliance
Income Income International
1 Portfolio 2 Portfolio 1 Portfolio
VARIABLE ANNUITY
-------------- --------------- ----------------
<S> <C> <C> <C>
Units Purchased 6,686.93 439.86 0.00
Units Withdrawn 0.00 0.00 (3,140.66)
Units Transferred Between Funds 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
-------------- --------------- ----------------
Net Increase (Decrease) 6,686.93 439.86 (3,140.66)
Units, at Beginning of the Year 8,895.36 1,541.11 7,925.30
-------------- --------------- ----------------
Units, at End of the Year 15,582.29 1,980.97 4,784.64
============== =============== ================
Unit Value at December 31, 1999 $ 27.97 $ 18.17 $ 16.95
============== =============== ================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are the Profile funds.
<PAGE>
<TABLE>
Alliance
U.S.
Government/ Alliance
Alliance High Global
Global Grade Dollar
Bond Securities Government
1 Portfolio 1 Portfolio 1 Portfolio
VARIABLE ANNUITY
-------------- --------------- ----------------
<S> <C> <C> <C>
Units Purchased 0.00 0.00 0.00
Units Withdrawn (302.54) (32,964.16) (66.73)
Units Transferred Between Funds 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
-------------- --------------- ----------------
Net Increase (Decrease) (302.54) (32,964.16) (66.73)
Units, at Beginning of the Year 1,676.48 43,492.09 710.44
-------------- --------------- ----------------
Units, at End of the Year 1,373.94 10,527.93 643.71
============== =============== ================
Unit Value at December 31, 1999 $ 12.05 $ 10.84 $ 13.73
============== =============== ================
</TABLE>
<TABLE>
Alliance
North
American Alliance Alliance
Government Utility Conservative
Income Income Investors
1 Portfolio 1 Portfolio 1 Portfolio
VARIABLE ANNUITY
-------------- --------------- ----------------
<S> <C> <C> <C>
Units Purchased 1,005.17 0.00 0.00
Units Withdrawn 0.00 (1,410.95) (176.07)
Units Transferred Between Funds 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
-------------- --------------- ----------------
Net Increase (Decrease) 1,005.17 (1,410.95) (176.07)
Units, at Beginning of the Year 889.24 1,410.95 1,117.25
-------------- --------------- ----------------
Units, at End of the Year 1,894.41 0.00 941.18
============== =============== ================
Unit Value at December 31, 1999 $ 12.92 $ 19.73 $ 13.33
============== =============== ================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are the Profile funds.
<PAGE>
<TABLE>
Alliance Alliance
Growth Alliance Total
Investors Growth Return
1 Portfolio 1 Portfolio 1 Portfolio
VARIABLE ANNUITY
-------------- --------------- ----------------
<S> <C> <C> <C>
Units Purchased 0.00 398.93 649.44
Units Withdrawn (304.54) 0.00 0.00
Units Transferred Between Funds 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
-------------- --------------- ----------------
Net Increase (Decrease) (304.54) 398.93 649.44
Units, at Beginning of the Year 1,936.93 3,933.09 4,918.82
-------------- --------------- ----------------
Units, at End of the Year 1,632.39 4,332.02 5,568.26
============== =============== ================
Unit Value at December 31, 1999 $ 17.55 $ 33.62 $ 17.03
============== =============== ================
</TABLE>
<TABLE>
Alliance
Worldwide Alliance Alliance
Privatization Technology Quasar
1 Portfolio 1 Portfolio 1 Portfolio
VARIABLE ANNUITY
-------------- --------------- ----------------
<S> <C> <C> <C>
Units Purchased 0.00 3,000.65 0.00
Units Withdrawn (2,221.15) 0.00 (1,356.88)
Units Transferred Between Funds 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
-------------- --------------- ----------------
Net Increase (Decrease) (2,221.15) 3,000.65 (1,356.88)
Units, at Beginning of the Year 7,169.23 6,383.71 11,622.90
-------------- --------------- ----------------
Units, at End of the Year 4,948.08 9,384.36 10,266.02
============== =============== ================
Unit Value at December 31, 1999 $ 21.12 $ 28.17 $ 11.84
============== =============== ================
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are the Profile funds.
<PAGE>
<TABLE>
Alliance
Real Alliance Dreyfus
Estate High Stock
Investment Yield Index
1 Portfolio 1 Portfolio 2 Fund
VARIABLE ANNUITY
-------------- --------------- ----------------
<S> <C> <C> <C>
Units Purchased 2,889.31 0.00 407.47
Units Withdrawn 0.00 (8,192.61) 0.00
Units Transferred Between Funds 0.00 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00 0.00
-------------- --------------- ----------------
Net Increase (Decrease) 2,889.31 (8,192.61) 407.47
Units, at Beginning of the Year 3,928.68 24,825.97 1,489.93
-------------- --------------- ----------------
Units, at End of the Year 6,817.99 16,633.36 1,897.40
============== =============== ================
Unit Value at December 31, 1999 $ 8.00 $ 9.09 $ 21.33
============== =============== ================
</TABLE>
<TABLE>
Fidelity
Investment
Grade Fidelity
Bond Contrafund
2 Portfolio 2 Portfolio
VARIABLE ANNUITY
-------------- ---------------
<S> <C> <C>
Units Purchased 0.00 0.00
Units Withdrawn (31.55) (34.36)
Units Transferred Between Funds 0.00 0.00
Units Transferred From (To) AIG Life 0.00 0.00
-------------- ---------------
Net Increase (Decrease) (31.55) (34.36)
Units, at Beginning of the Year 2,299.56 2,287.75
-------------- ---------------
Units, at End of the Year 2,268.01 2,253.39
============== ===============
Unit Value at December 31, 1999 $ 10.89 $ 14.70
============== ===============
</TABLE>
Footnote 1 are the Alliance Gallery, Ovation,
Trilogy and Paradigm funds.
Footnote 2 are the Profile funds.
<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)*
(e) Form of Group Variable Annuity Policy (11GVAN999) and Certificate
(16GVAN999)*****
(f) Form of Individual Variable Annuity Policy (11NLVAN100)******
(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*
(d) By-Laws of AIG Life Insurance Company (filed electronically herewith).
(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 and Consent of Counsel (filed electronically herewith).
(10)(a) Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP
(filed electronically herewith)
(b)Consent of Independent Accountants (filed electronically herewith).
(11) N/A
(12) N/A
(13) Performance Data #
(14)(a) Powers of Attorney **
(b) Power of Attorney of Paul S. Bell ***
(c) Power of Attorney of Stephen M. White ****
(d) Power of Attorney of Michele L. Abruzzo *****
(e) Power of Attorney of Robinson K. Nottingham *****
(f) Power of Attorney of Edmund Sze-Wing Tse *****
(g) Power of Attorney of Elizabeth M. Tuck ******
(h) Power of Attorney of John Oehmke ******
* Incorporated by reference to Registrant's Post-Effective Amendment No. 12
to the Registration Statement on Form N-4 (File No. 33-39171) filed on
October 27, 1998.
** Incorporated by reference to Registrant's Post-Effective Amendment No. 2 to
the Registration Statement on Form S-6 (File No. 33-90684) filed on May 1,
1997.
*** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1 to
the Registration Statement on Form S-6 (File No. 333-85573) filed on
October 15, 1999.
**** Incorporated by reference to Registrant's Post-Effective Amendment No. 1 to
the Registration Statement on Form S-6 (File No. 333-71753) filed on
November 5, 2000.
*****Incorporated by reference to Registrant's Registration Statement on Form
N-4 (File No. 333-93709) filed on December 28, 1999.
******Incorporated by reference to Registrant's Registration Statement on Form
N-4 (File No. 333-31972) filed on March 8, 2000.
# Incorporated by reference to Registrant's Post-Effective Amendment No. 3 to
Form N-4 (File No. 33-39171) filed on May 1, 1993.
Item 25. Directors and Officers of the Depositor.
The following are the Principal Officers and Directors of the Company:
Name and Principal Position and Offices
Business Address with the Company
Michele L. Abruzzo(2) Director, Sr. Executive Vice President
James A. Bambrick(2) Senior Vice President
Paul S. Bell(3) Director, Sr.Vice President, Chief Actuary
Maurice R. Greenberg(1) Director
Jeffrey M. Kestenbaum(2) Executive Vice President
Edward E. Matthews(1) Director, Senior Vice
President - Finance
Jerome T. Muldowney(4) Director, Sr. Vice President - Domestic
Investments
Robinson Kendall Nottingham(3) Director, Chairman of the Board
John Oehmke(3) Chief Financial Officer, Vice President
Nicholas A. O'Kulich(1) Director, Vice Chairman, Treasurer
Howard Ian Smith(1) Director
Edmund Sze-Wing Tse(1) Director
Elizabeth M. Tuck(1) Secretary - Corporate
Kenneth D. Walma(3) Vice Presdient, General Counsel
Gerald W. Wyndorf(2) Director, Chief Executive Officer, President
(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
Item 26. Persons Controlled by or Under Common Control with the Depositor or
Registrant
Incorporated by reference to the Form 10-K, Exhibit 21 filed by American
International Group (parent of registrant) for the year ended December 31, 1999.
Item 27. Number of Contractowners
Not applicable.
Item 28. Indemnification
Incorporated by reference to Principal Underwriter's Agreement between AIG Life
Insurance Company and American International Fund Distributors, dated August 1,
1988, and filed electronically on October 27, 1998 as an exhibit to
post-effective amendment no. 12 to the registration statement on Form N-4 (File
No. 33-39171).
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 Business Address* Positions and Offices with Underwriter
Michele L. Abruzzo Director, Vice President, Compliance
Officer - Variable
Life
Kevin Clowe Director and Vice President
Ernest T. Patrikis Director
Ronald Alan Latz Director, Vice President and Financial
Operations Principal
Jerome Thomas Muldowney Director
Helen Stefanis Director and President
Martinnette J. Witrick Vice President and Compliance Officer
Kenneth F. Judkowitz Vice President
Elizabeth M. Tuck Secretary
* Business address is 70 Pine Street, New York, New York 10270.
(c) Net
Name of Underwriting Compensation
Principal Discounts and on Brokerage
Underwriter Commission Redemption Commissions Compensation
AIG Equity $0 $0 $0 $0
Sales Corp.
Item 30. Location of Accounts and Records.
Kenneth F. Judkowitz, Vice President of AIG Life Insurance Company, whose
address is 70 Pine Street, New York, New York 10270, maintains physical
possession of the accounts, books, or documents of Variable Account I required
to be maintained by Section 31(a) of the Investment Company 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 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 the fees and charges deducted under the
contracts offered by this registration statement, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by the company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has caused this
Registration Statement to be signed on its behalf, in the City of Wilmington,
and State of Delaware on this 28th day of April, 2000.
Variable Account I
By: AIG Life Insurance Company
/s/ Kenneth D. Walma
By: _______________________________
Kenneth D. Walma,
Vice President and General Counsel
AIG Life Insurance Company
/s/ Kenneth D. Walma
By: ________________________________
Kenneth D. Walma,
Vice President and General Counsel
As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
Michele L. Abruzzo* Senior Executive Vice April 28, 2000
- ------------------- President, Director
Michele L. Abruzzo
Paul S. Bell* Chief Actuary, Senior April 28, 2000
- ------------- Vice President, Director
Paul S. Bell
M.R. Greenberg* Director April 28, 2000
- ---------------
M.R. Greenberg
Edward. E. Matthews* Senior Vice President, April 28, 2000
- -------------------- Director
Edward E. Matthews
Jerome T. Muldowney* Senior Vice President, April 28, 2000
- ------------------- Director
Jerome T. Muldowney
Robinson Kendall Nottingham* Chairman of the Board April 28, 2000
- ---------------------------- of Directors, Director
Robinson Kendall Nottingham
John Oehmke* Vice President, Chief Financial April 28, 2000
- ------------ Officer
John Oehmke
Nicholas A. O'Kulich* Vice Chairman, Treasurer, April 28, 2000
- --------------------- Director
Nicholas A. O'Kulich
Howard I. Smith* Director April 28, 2000
- ----------------
Howard I. Smith
Edmund Sze-Wing Tse* Director April 28, 2000
- --------------------
Edmund Sze-Wing Tse
Elizabeth M. Tuck* Secretary April 28, 2000
- ------------------
Elizabeth M. Tuck
Gerald W. Wyndorf* Director, Chief April 28, 2000
- ------------------ Executive Officer,
Gerald W. Wyndorf President
*By: /s/ Kenneth D. Walma
----------------------
Kenneth D. Walma,
Attorney in Fact
<PAGE>
INDEX TO EXHIBITS
Exhibit
(6)(d) By-Laws of AIG Life Insurance Company
(9) Opinion of Counsel
(10)(i) Consent of Counsel
(10)(ii) Consent of Independent Accountants
BYLAWS
OF
AIG LIFE INSURANCE COMPANY,
a Delaware corporation.
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in the
corporation shall be signed by, or in the name of, the corporation by the
Chairperson or Vice-Chairperson of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were such officer, transfer
agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen, or destroyed certificate, or such owner's legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the General
Corporation Law, the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
Upon request every holder of uncertificated shares shall be entitled to
have a certificate signed by, or in the name of the corporation by the
Chairperson or Vice-Chairperson of the Board of Directors, or the President or
Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of such corporation representing the number of shares
registered in certificate form.
3. FRACTIONAL SHARE INTERESTS. The corporation shall not be required to
issue fractions of a share. If the corporation does not issue fractions of a
share, it shall pay in cash the fair value of fractions of a share, as of the
time when those entitled to receive such fractions are determined
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by the registered holder's attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary of the corporation or with a transfer
agent or a registrar, if any, and, in the case of shares represented by
certificates, on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining the stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
the General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the certificate of incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.
7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held during the month of May in each
year on the date fixed from time to time by the directors. A special meeting
shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such place,
within or without the State of Delaware, as the directors may, from time to
time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the directors
or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, and hour of the meeting and stating the place
within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at such stockholder's record address or
at such other address which such stockholder may have furnished by request in
writing to the Secretary of the corporation. Notice by mail shall be deemed to
be given when deposited, with postage thereon prepaid, in the United States
Mail. If a meeting is adjourned to another time, not more than thirty days
hence, and/or to another place, and if an announcement of the adjourned time
and/or place is made at the meeting, it shall not be necessary to give notice of
the adjourned meeting unless the directors, after adjournment, fix a new record
date for the adjourned meeting. Notice need not be given to any stockholder who
submits a written waiver of notice signed by such stockholder before or after
the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city or other
municipality or community where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote at
any meeting of stockholders.
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided over
by one of the following officers in the order of seniority and if present and
acting - the Chairperson of the Board, if any, the Vice-Chairperson of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, by a chairperson to be chosen by the
stockholders. The Secretary of the corporation, or in such Secretary's absence,
an Assistant Secretary, shall act as secretary of every meeting, but if neither
the Secretary nor an Assistant Secretary is present the chairperson of the
meeting shall appoint a secretary of the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person or
persons to act for such stockholder by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by such
stockholder's attorney-in-fact. No proxy shall be voted or acted upon after
three years from its date unless such proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and, if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need not,
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more inspectors. In
case any person who may be appointed as an inspector fails to appear or act, the
vacancy may be filled by appointment made by the directors in advance of the
meeting or at the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of duties of inspector, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of such inspector's ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots, or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots, or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question, or matter determined by
such inspector or inspectors and execute a certificate of any fact found by such
inspector or inspectors. Except as may otherwise be required by subsection (e)
of Section 231 of the General Corporation Law, the provisions of that Section
shall not apply to the corporation.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to one vote.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. Any other action shall be authorized by a majority of the
votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Except as any provision of the
General Corporation Law may otherwise require, any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors of the
corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors, which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The number
of directors constituting the whole board shall be at least one. Subject to the
foregoing limitation, such number may be fixed from time to time by action of
the stockholders or of the directors, or, if the number is not fixed, the number
shall be not less than three (3) nor more than twenty (20). The number of
directors may be increased or decreased by action of the stockholders or of the
directors.
3. ELECTION AND TERM. The Board of Directors shall be elected by the
stockholders and shall hold office until the next annual meeting of stockholders
and until their successors are elected and qualified or until their earlier
resignation or removal. Any director may resign at any time with or without
written notice to the corporation. Except as the General Corporation Law may
otherwise require, in the interim between annual meetings of stockholders or of
special meetings of stockholders called for the election of directors and/or for
the removal of one or more directors and for the filling of any vacancy in that
connection, newly created directorships and any vacancies in the Board of
Directors, including unfilled vacancies resulting from the removal of directors
for cause or without cause, may be filled by the vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director. Directors who are elected in the interim to fill vacancies
and newly created directorships, shall hold office until the next annual meeting
of stockholders and until their successors are elected and qualified or until
their earlier resignation or removal.
4. MEETINGS. --------
- TIME. Meetings shall be held at such time as the Board shall fix, except
that the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without the State
of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of the Chairperson of the Board, if any, the Vice-Chairperson
of the Board, if any, of the President, or of a majority of the directors in
office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for
regular meetings for which the time and place have been fixed. Written, oral, or
any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by such
director or member before or after the time stated therein. Attendance of any
such person at a meeting shall constitute a waiver of notice of such meeting,
except when such person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
directors need be specified in any written waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided, that such majority shall constitute at least one-third of the whole
Board. A majority of the directors present, whether or not a quorum is present,
may adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the General Corporation Law, the
vote of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRPERSON OF THE MEETING. The Chairperson of the Board, if any and if
present and acting, shall preside at all meetings. Otherwise, the
Vice-Chairperson of the Board, if any and if present and acting, or the
President, if present and acting, or any other director chosen by the Board,
shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the General
Corporation Law, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
6. COMMITTEES. The Board of Directors may designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not such member or members
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board, shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation with
the exception of any power or authority the delegation of which is prohibited by
Section 141 of the General Corporation Law, and may authorize the seal of the
corporation to be affixed to all papers which may require it.
7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a Secretary,
a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairperson of the Board, a Vice-Chairperson of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing such officer, no officer other than the Chairperson or
Vice-Chairperson of the Board, if any, need be a director. Any number of offices
may be held by the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing such officer, each
officer shall be chosen for a term which shall continue until the meeting of the
Board of Directors following the next annual meeting of stockholders and until
such officer's successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform such
duties in the management and operation of the corporation as shall be prescribed
in the resolutions of the Board of Directors designating and choosing such
officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. In the event that
the Board of Directors shall elect more than one Secretary, it shall designate
one of such Secretaries to be the Secretary of the Company, and the Secretary so
designated shall record all of the proceedings of all meetings and actions in
writing of stockholders, directors, and committees of directors, and shall
exercise such additional authority and perform such additional duties as the
Board shall assign to such Secretary. In the absence of the Secretary of the
Company, the Board of Directors may designate another Secretary or Assistant
Secretary to act as Secretary of the Company in the interim. Any officer may be
removed, with or without cause, by the Board of Directors. Any vacancy in any
office may be filled by the Board of Directors.
ARTICLE IV
INDEMNIFICATION
The corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, indemnify any and all of its directors and
officers, who shall serve as an officer or director of the corporation at the
request of the corporation, from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any other provision of
the bylaws, the certificate of incorporation, any agreement, any vote of the
stockholders or disinterested directors or otherwise, both as to action in their
official capacity while holding such office and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such a person.
ARTICLE V
CORPORATE SEAL
The corporate seal shall be in such form, as the Board of Directors shall
prescribe.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VII
CONTROL OVER BYLAWS
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of
the Bylaws of AIG Life Insurance Company, a Delaware corporation, as in effect
on the date hereof.
Dated: March 2000
/s/ Elizabeth Tuck
---------------------------------
Elizabeth Tuck
Corporate Secretary
AIG Life Insurance Company
[Corporate Seal]
OPINION AND CONSENT OF COUNSEL
Ladies and 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. 10 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
Vice President and
General Counsel
Dated: April 28, 2000
[JordenBurt Letterhead]
April 28, 2000
AIG Life Insurance Company
One Alico Plaza
600 King Street
Wilmington, DE 19801
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Counsel" in the Statement of Additional Information contained in Post-Effective
Amendment No. 10 to the Registration Statement on Form N-4 (File No. 33-58504)
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 on or about May 1, 2000.
Very truly yours,
/s/ Jorden Burt Boros Cicchetti Berenson & Johnson
Jorden Burt Boros Cicchetti Berenson & Johnson
<PAGE>
Exhibit 10 (ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect of Post-effective Amendment No.
10 to the Registration Statement (No. 33-58504) 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 3, 2000 relating to our
audits of the financial statements of AIG Life Insurance Company in
the Statement of Additional Information.
2. The inclusion of our report dated February 3, 2000 relating to our
audits of the financial statements of Variable Account I in the
Statement of Additional Information.
3. The incorporation by reference into the Prospectus of our report dated
February 3, 2000 relating to our audits of the financial statements of
AIG Life Insurance Company and Variable Account I.
4. The reference to our firm under the heading "General Information
Independent Accountants" in the Statement of Additional Information.
April 21, 2000
/s/PricewaterhouseCoopers, LLP
