As Filed With The Securities and Exchange Commission On May 31, 2000
File Nos. 333-31972
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. 1 [X]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36 [ X]
(Check appropriate box or boxes.)
VARIABLE ACCOUNT I
(Exact Name of Registrant)
AIG Life Insurance Company
(Name of Depositor)
600 King Street, Wilmington, DE 19801
(Address of Depositor's Principal Executive Offices) (Zip Code)
(302) 594-2978
(Depositor's Telephone Number, including Area Code)
Kenneth D. Walma, Esq.
AIG Life Insurance Company
One Alico Plaza
Wilmington, Delaware 19899
(Name and Address of Agent for Service)
<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)
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b) of Rule 485
------
on _______ pursuant to paragraph (b) of Rule 485
-----
___ 60 days after filing pursuant to paragraph (a)(i) of Rule 485
on ______ pursuant to paragraph (a)(i) of Rule 485
------
___ 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 annuity
contracts.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission acting pursuant
to said Section 8(a) may determine.
<PAGE>
PART A
<PAGE>
OVATION ACCESS VARIABLE ANNUITY PROFILE
This profile is a summary of some of the more important points that you should
know and consider before purchasing a variable annuity. The variable annuity is
more fully described in the accompanying prospectus. The sections in this
summary correspond to sections in the prospectus which discuss the topics in
more detail. All capitalized terms are used as defined in the prospectus. Please
read the prospectus carefully.
______________, 2000
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1. VARIABLE ANNUITY
================================================================
This variable annuity contract is between you and AIG Life Insurance Company. It
is designed to help you invest on a tax-deferred basis and meet long-term
financial goals, such as providing you with retirement income. Tax deferral
means all your money, including the amount you would otherwise pay in current
income taxes, remains in your contract to generate more earnings.
This contract offers a choice of investment options. You may divide your money
among any or all of the 16 variable investment portfolios provided by Alliance
Capital Management, L.P. and the fixed investment option. Your investment is not
guaranteed. The value of your contract can fluctuate up or down based on the
performance of the underlying investments you select and you may experience a
loss.
The variable investment portfolios offer professionally managed investment
choices with goals ranging from capital preservation to aggressive growth. Your
choices for the various investment options are listed later in this profile.
Like most deferred annuities, the contract has an accumulation phase and an
income phase. During the accumulation phase, you invest money in your contract.
Your earnings are based on the investment performance of the variable investment
portfolios to which your money is allocated and/or the interest rate earned on
the fixed investment option. You may withdraw money from your contract during
the accumulation phase. However, as with other tax-deferred investments, you
will pay taxes on earnings and untaxed contributions when you withdraw them. A
tax penalty may apply if you make withdrawals before age 59 1/2. The income
phase begins with the Annuity Date that you select. During the income phase, you
will receive payments from your annuity. Your payments may be fixed in dollar
amount, vary with investment performance or a combination of both, depending on
where you allocate your money. Among other factors, the amount of money you are
able to accumulate in your contract during the accumulation phase will determine
the amount of your payments during the income phase.
<PAGE>
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1. ANNUITY OPTIONS
================================================================
You can select one of the annuity options listed below:
(1) payments for the Annuitant's lifetime;
(2) payments for the Annuitant's lifetime, but for not less than 10 years;
and
(3) payments for the lifetime of the survivor of two Annuitants.
We may offer other annuity options, subject to our discretion.
You will need to decide if you want your payments to fluctuate with investment
performance, remain constant or to reflect a combination of the two. You will
also select the date on which your payments will begin. Once you begin receiving
payments, you cannot change your annuity option. If your contract is part of a
non-qualified retirement plan (one that is established with after tax dollars),
payments during the income phase are considered partly a return of your original
investment. The "original investment" part of each payment is not taxable as
income. For contracts which are part of a qualified retirement plan using before
tax dollars, the entire payment is taxable as income.
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3. PURCHASING A VARIABLE ANNUITY CONTRACT
================================================================
You can buy a contract through your financial representative, who can also help
you complete the proper forms. The minimum initial investment is $10,000.
Additional amounts of $1,000 or more may be added to your contract at any time
during the accumulation phase. You can pay additional premium of $100 or more
per month by enrolling in an automatic investment plan.
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4. INVESTMENT OPTIONS
================================================================
You may allocate money to the following variable investment portfolios of
Alliance Variable Products Series Fund, Inc.
Alliance Variable Products Series Fund, Inc.
(managed by Alliance Capital Management L.P.)
Global Bond Portfolio
Global Dollar Government Portfolio
Growth Portfolio
Growth and Income Portfolio
High-Yield Portfolio
International Portfolio
Money Market Portfolio
North American Government Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Real Estate Investment Portfolio
Technology Portfolio
Total Return Portfolio
U.S. Government/High Grade Securities Portfolio
Utility Income Portfolio
Worldwide Privatization Portfolio
The fixed investment option is part of our general account. The interest rate
may differ from time to time but we will never credit less than a 3% annual
effective rate. Once established, the rate will not change during the selected
period. You may also elect to participate in the dollar cost averaging program.
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5. EXPENSES
================================================================
Each year we deduct a $30 contract maintenance fee from your Contract Value.
This fee is waived if the value of your contract is at least $50,000. We also
deduct insurance charges from your Contract Value on a daily basis, currently
equal to 0.19%, annually of the average daily value of your contract allocated
to the variable investment options. The insurance charges include a mortality
and expense risk charge of 0.19% and an administrative charge that is currently
zero but may be up to 0.15%. Insurance charges will never exceed 0.34%.
As with other professionally managed investments, there are also investment
charges imposed on contracts with money allocated to the variable investment
options. These charges include management fees and other operating expenses and
are estimated to range from 0.64% to 1.05%.
Each year you are allowed to make 12 transfers without charge. After your first
12 transfers, currently a $10 transfer fee will apply to each subsequent
transfer. The maximum charge we will ever impose is $50 per transfer.
You may also be assessed a premium tax of up to 3.5% depending upon the state
where you reside.
The following chart is designed to help you understand the charges under your
contract. The column "Total Annual Insurance Charges" shows the total of the
0.19% insurance charges and the $30 contract maintenance fee. We converted the
contract maintenance fee to a percentage using an assumed contract size of
$50,000. The actual impact of this charge on your contract may differ from this
percentage. The column "Total Annual Portfolio Charges" shows portfolio charges
for each portfolio after waivers and/or reimbursements by Alliance Capital
Management L.P. for the year ended December 31, 1999. The third column is the
total of all annual charges.
The fourth and fifth columns show two examples of the charges you would pay
under the contract. The examples assume that you invested $1,000 in a contract
that earns 5% annually and that you withdraw your money (1) at the end of year 1
and (2) at the end of year 10. The premium tax is assumed to be 0% in both
examples.
<TABLE>
Total Total
Annual Annual Total Total Expenses Total Expenses
Insurance Portfolio Annual at the end of at the end of
Charges Charges Charges 1 Year 10 Years
<S> <C> <C> <C> <C> <C>
Global Bond Portfolio 0.25% 0.90% 1.15% $12 $140
Global Dollar Government Portfolio 0.25% 0.95% 1.20% 12 145
Growth Portfolio 0.25% 0.84% 1.09% 11 133
Growth & Income Portfolio 0.25% 0.71% 0.96% 10 118
High-Yield Portfolio 0.25% 0.95% 1.20% 12 145
International Portfolio 0.25% 0.95% 1.20% 12 145
Money Market Portfolio 0.25% 0.64% 0.89% 9 110
North American Government Income Portfolio 0.25% 0.95% 1.20% 12 145
Premier Growth Portfolio 0.25% 1.05% 1.30% 13 157
Quasar Portfolio 0.25% 0.95% 1.20% 12 145
Real Estate Investment Portfolio 0.25% 0.95% 1.20% 12 145
Technology Portfolio 0.25% 0.95% 1.20% 12 145
Total Return Portfolio 0.25% 0.86% 1.11% 11 135
U.S. Government/High Grade Securities Portfolio 0.25% 0.86% 1.11% 11 135
Utility Income Portfolio 0.25% 0.95% 1.20% 12 145
Worldwide Privatization Portfolio 0.25% 0.95% 1.20% 12 145
</TABLE>
For more detailed information, see "Fee Tables" in the prospectus.
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6. TAXES
================================================================
Unlike taxable investments where earnings are taxed in the year they are earned,
taxes on amounts earned in a non-qualified contract (one that is established
with after tax dollars) are deferred until they are withdrawn. In a qualified
contract (one that is established with before tax dollars like an IRA), all
amounts are taxable when they are withdrawn.
When you begin taking distributions or withdrawals from your contract, earnings
are considered to be taken out first and will be taxed at your ordinary income
rate. You may be subject to a 10% tax penalty for distributions or withdrawals
before age 59 1/2.
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7. ACCESS TO YOUR MONEY
================================================================
You may withdraw part or all of your Contract Value at anytime. You may have to
pay income tax on any amount withdrawn and a 10% tax penalty may apply if you
are under age 59 1/2.
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8. PERFORMANCE
================================================================
The value of your annuity will fluctuate depending upon the investment
performance of the portfolios you choose. Performance of Variable Account I is
not included in this profile because no contracts have been issued using the
subaccounts described in the accompanying prospectus and, therefore, there is no
performance to show at this time.
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9. DEATH BENEFIT
================================================================
If you should die during the accumulation phase, your beneficiary will receive a
death benefit. Unless you choose the optional death benefit, the traditional
death benefit will be paid. You may select the death benefit option described
below at the time you purchase your contract. Once we issue your contract, you
cannot add the death benefit option. You should discuss with your financial
representative if electing the option is best for you. Additional information is
available in the prospectus.
Traditional Death Benefit
The traditional death benefit is equal to the Contract Value. The traditional
death benefit will be paid if no other death benefit is selected.
Optional Death Benefit
The optional death benefit is available if the contract is issued prior to age
80. If you elect the optional death benefit, we will assess a daily charge
against the assets in the variable account equal to 0.25% annually.
Annual Ratchet Plan. We will pay a death benefit equal to the greatest of:
(1) the Contract Value; or
(2) the greatest Contract Value at any Contract Anniversary reduced
proportionally by any surrenders subsequent to that Contract
Anniversary in the same proportion that the Contract Value was reduced
on the date of a surrender, plus any premium paid subsequent to that
Contract Anniversary.
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10. OTHER INFORMATION
================================================================
Right to Examine and Cancel: You may cancel your contract within ten days (or
longer if your state requires a longer period) by mailing it to our
Administrative Office. Your contract will be treated as void on the date we
receive it and we will pay you an amount equal to the value of your contract
(unless otherwise required by state law). Its value may be more or less than the
money you initially invested.
Dollar Cost Averaging: If selected, this program allows you to invest in the
portfolios gradually over time at a fixed dollar amount or a certain percentage
each month. This type of investing will cover various market cycles. Your
Contract Value must be at least $12,000 to elect this option.
Asset Rebalancing: If selected, this program seeks to keep your investment in
line with your goals. We will maintain your specified allocation mix among the
subaccounts that you selected. The Contract Value allocated to each subaccount
will grow or decline in value at different rates during the quarter. Asset
rebalancing automatically reallocates according to the allocation percentages
you selected.
Systematic Withdrawal Program: If selected, this program allows you to receive
either monthly or quarterly withdrawals during the accumulation phase. Of
course, withdrawals may be taxable and a 10% tax penalty may apply if you are
under age 59 1/2. Your Contract Value must be at least $24,000 to elect this
option.
Confirmations and Quarterly Statements: You will receive a confirmation of each
financial transaction within your contract. On a quarterly basis, you will
receive a complete statement of your transactions over the past quarter and a
summary of your Contract Value.
<PAGE>
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11. INQUIRIES
================================================================
If you have questions about your contract or need to make changes, call your
financial representative or contact us at:
AIG Life Insurance Company
c/o Delaware Valley Financial Services
P.O. Box 3031
Berwyn, PA 19312-0031
1-800-255-8402
<PAGE>
PROSPECTUS
OVATION ACCESS 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 and Income Portfolio
High-Yield Portfolio
International Portfolio
Money Market Portfolio
North American Government Income Portfolio
Premier Growth Portfolio
Quasar Portfolio
Real Estate Investment Portfolio
Technology Portfolio
Total Return Portfolio
U.S. Government/High Grade Securities Portfolio
Utility Income Portfolio
Worldwide Privatization Portfolio
<PAGE>
To learn more about the contract, you can obtain a copy of the Statement of
Additional Information ("SAI") dated__________, 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.
_______________, 2000
<PAGE>
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TABLE OF CONTENTS
=====================================================================
DEFINITIONS..................................................................
FEE TABLES...................................................................
CONDENSED FINANCIAL INFORMATION..............................................
THE CONTRACT.................................................................
INVESTMENT OPTIONS...........................................................
CHARGES AND DEDUCTIONS.......................................................
ACCESS TO YOUR MONEY.........................................................
ANNUITY PAYMENTS.............................................................
DEATH BENEFIT................................................................
PERFORMANCE..................................................................
TAXES........................................................................
OTHER INFORMATION............................................................
FINANCIAL STATEMENTS.........................................................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.....................
<PAGE>
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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>
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FEE TABLES
=====================================================================
Owner Transaction Expenses
Sales Load..................................................................None
Transfer Fee
First 12 Per Contract Year.............................................None
Thereafter (1)..........................................................$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.................................... 0.19%
Administrative Charge(2)............................................. 0 %
=====
Total Variable Account Annual Expenses............................... 0.19%
(1) We reserve the right to increase the transfer fee from $10 per transfer to a
maximum of $50 per transfer.
(2) We do not currently deduct an administrative charge, but reserve the right
to do so in the future. The maximum administrative charge will be 0.15%.
<PAGE>
Annual Portfolio Expenses
After Waivers/Reimbursement
(as a percentage of average net assets)
<TABLE>
Management Other Total Annual
Fees Expenses(1) Portfolio Expenses(2)
Alliance Variable Products Series Fund, Inc.
<S> <C> <C> <C>
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,
whether or not you surrender or annuitize at the end of the applicable time
period:
<TABLE>
1 Year 3 Years 5 Years 10 Years
--------- ---------- -------- --------
Alliance Variable Products Series Fund
<S> <C> <C> <C> <C>
Global Bond Portfolio $12 $37 $63 $140
Global Dollar Government Portfolio 12 38 66 145
Growth Portfolio 11 35 60 133
Growth and Income Portfolio 10 31 53 118
High-Yield Portfolio 12 38 66 145
International Portfolio 12 38 66 145
Money Market Portfolio 9 28 49 110
North American Government Income Portfolio 12 38 66 145
Premier Growth Portfolio 13 41 72 157
Quasar Portfolio 12 38 66 145
Real Estate Investment Portfolio 12 38 66 145
Technology Portfolio 12 38 66 145
Total Return Portfolio 11 35 61 135
U.S. Government/High Grade Securities Portfolio 11 35 61 135
Utility Income Portfolio 12 38 66 145
Worldwide Privatization Portfolio 12 38 66 145
</TABLE>
The purpose of the example above is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. The example
reflects 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.
<PAGE>
===============================================================
CONDENSED FINANCIAL INFORMATION
================================================================
Historical accumulation unit values are not included because no contracts have
been issued using the subaccounts described in this prospectus.
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THE CONTRACT
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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
$10,000. 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 90.
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 currently a $10 transfer fee for each transfer over twelve in a
Contract Year. We reserve the right to increase this amount to a maximum of $50
per transfer. 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.
<PAGE>
There is no charge for the dollar cost averaging program. In addition, your
periodic transfers under the 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 the 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.
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INVESTMENT OPTIONS
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Variable Investment Options
Variable Account I
Our board of directors authorized the organization of the variable account in
1986. The variable account is maintained pursuant to Delaware insurance law and
is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940, as amended (the "1940 Act"). However, the SEC does not
supervise the management or the investment practices of the variable account.
We own the assets in the variable account and use them to support the variable
portion of your contract and other variable annuity contracts described in other
prospectuses. The variable account's assets are separate from our other assets
and are not chargeable with liabilities arising out of any other business we
conduct. Income, gains or losses, whether or not realized, are credited to or
charged against the subaccounts of the variable account without regard to
income, gains or losses arising out of any of our other business. As a result,
the investment performance of each subaccount of the variable account is
entirely independent of the investment performance of our general account and of
any 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.
Global Bond Portfolio seeks a high level of return from a combination of current
income and capital appreciation by investing in a globally diversified portfolio
of high quality debt securities denominated in the U.S. dollar and a range of
foreign currencies. The sub-adviser for this portfolio is AIGAM International
Limited, an affiliate of American International Group, Inc.
Global Dollar Government Portfolio seeks a high level of current income through
investing substantially all of its assets in U.S. and non-U.S. fixed income
securities denominated only in U.S. dollars. As a secondary objective, the
portfolio seeks capital appreciation. Substantially all of the portfolio's
assets will be invested in high yield, high risk securities that are low-rated
(i.e., below investment grade), or of comparable quality and unrated, and that
are considered to be predominately speculative as regards the issuer's capacity
to pay interest and repay principal.
Growth Portfolio seeks long-term growth of capital by investing primarily in
common stocks and other equity securities.
Growth and Income Portfolio seeks to balance the objectives of reasonable
current income and reasonable opportunities for appreciation through investments
primarily in dividend-paying common stocks of good quality.
High-Yield Portfolio seeks the highest level of current income available without
assuming undue risk by investing principally in high-yielding fixed income
securities. As a secondary objective, this portfolio seeks capital appreciation
where consistent with its primary objective. Many of the high-yielding
securities in which the High-Yield Portfolio invests are rated in the lower
rating categories (i.e., below investment grade) by the nationally recognized
rating services. These securities, which are often referred to as "junk bonds,"
are subject to greater risk of loss of principal and interest than higher rated
securities and are considered to be predominately speculative with respect to
the issuer's capacity to pay interest and repay principal.
International Portfolio seeks to obtain a total return on its assets from
long-term growth of capital and from income principally through a broad
portfolio of marketable securities of established non-U.S. companies (or U.S.
companies having their principal activities and interests outside the United
States), companies participating in foreign economies with prospects for growth,
and foreign government securities.
<PAGE>
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.
Premier Growth Portfolio seeks growth of capital rather than current income. In
pursuing its investment objective, the Premier Growth Portfolio will employ
aggressive investment policies. Since investments will be made based on their
potential for capital appreciation, current income will be incidental to the
objective of capital growth. The portfolio is not intended for investors whose
principal objective is assured income or preservation of capital.
Quasar Portfolio seeks growth of capital by pursuing aggressive investment
policies. The portfolio invests principally in a diversified portfolio of equity
securities of any company and industry and in any type of security which is
believed to offer possibilities for capital appreciation.
Real Estate Investment Portfolio seeks a total return on its assets from
long-term growth of capital and from income principally through investing in a
portfolio of equity securities of issuers that are primarily engaged in or
related to the real estate industry.
Technology Portfolio seeks growth of capital through investment in companies
expected to benefit from advances in technology. The portfolio invests
principally in a diversified portfolio of securities of companies which use
technology extensively in the development of new or improved products or
processes.
Total Return Portfolio seeks to achieve a high return through a combination of
current income and capital appreciation by investing in a diversified portfolio
of common and preferred stocks, senior corporate debt securities, and U.S.
government and agency obligations, bonds and senior debt securities.
U.S. Government/High Grade Securities Portfolio seeks a high level of current
income consistent with preservation of capital by investing principally in a
portfolio of U.S. government securities and other high grade debt securities.
Utility Income Portfolio seeks current income and capital appreciation by
investing primarily in the equity and fixed-income securities of companies in
the "utilities industry." The portfolio's investment objective and policies are
designed to take advantage of the characteristics and historical performance of
securities of utilities companies. The utilities industry consists of companies
engaged in the manufacture, production, generation, provision, transmission,
sale and distribution of gas, electric energy, and communications equipment and
services, and in the provision of other utility or utility-related goods and
services.
Worldwide Privatization Portfolio seeks long-term capital appreciation by
investing principally in equity securities issued by enterprises that are
undergoing, or have undergone, privatization. The balance of the portfolio's
investment portfolio will include equity securities of companies that are
believed by Alliance Capital Management L.P. to be beneficiaries of the
privatization process.
Alliance Capital Management, L.P. may compensate us for providing administrative
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 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.
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CHARGES AND DEDUCTIONS
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Insurance Charges
Each day, we deduct insurance charges from your Contract Value. This is done as
part of our calculation of the value of Accumulation Units during the
accumulation phase and of Annuity Units during the income phase. The insurance
charges are the mortality and expense risk charge, the administrative charge, if
any, and the charge for the optional death benefit which is described under
"Death Benefit."
Mortality and Expense Risk Charge
The mortality and expense risk charge is equal, on an annual basis, to 0.19% 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
We are currently not deducting an administrative charge. However, we may in the
future charge up to 0.15%, on an annual basis, of the daily value of the
variable portion of your contract. This charge will compensate 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 Charge
If you elect the optional death benefit, we will assess a daily charge against
the assets in the variable account equal to an annual charge as shown below.
Annual Ratchet Plan 0.25%
This option is available if the contract is issued prior to age 80.
Contract Maintenance Fee
During the accumulation phase, we will deduct a contract maintenance fee of $30
from your contract on each Contract Anniversary. We will not increase this fee.
It compensates us for 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 administrative charge, if any, 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 are relevant in determining
whether reduced sales expenses may be expected.
We may also waive or reduce the 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>
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ACCESS TO YOUR MONEY
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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.
Surrenders
Generally, surrenders are subject to 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.
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>
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ANNUITY PAYMENTS
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Generally
Beginning on the Annuity Date, you will receive regular annuity payments. You
may choose to receive annuity payments that are fixed, variable or a combination
of fixed and variable.
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 as 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 2.
However, if the annuity payments are for joint lives, 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. In addition, 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 monthly 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
monthly 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 monthly 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.
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DEATH BENEFIT
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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. The optional death benefit may
not be available in all states.
Traditional Death Benefit
Under the traditional death benefit, we will pay the amount equal to the
Contract Value. The traditional death benefit will be paid unless you selected
the optional death benefit.
Optional Death Benefit
The optional death benefit is available if the contract is issued prior to age
80.
Annual Ratchet Plan. We will pay a death benefit equal to the greater of:
(1) the Contract Value; or
(2) 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.
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.
<PAGE>
If no payment option is elected within sixty days of our receipt of proof of
your death, a single sum settlement will be made at the end of the sixty-day
period following such receipt. Upon payment of a death benefit, the contract
will end.
Death of Owner After the Annuity Date
If you are not the Annuitant, and if your death occurs on or after the Annuity
Date, no death benefit will be payable under the contract. Any guaranteed
payments remaining unpaid will continue to be paid to the Annuitant pursuant to
the annuity option in force at the date of your death. If the contract is not
owned by an individual, the Annuitant shall be treated as the owner and any
change of the named Annuitant will be treated as if the owner died.
Death of Annuitant
Before the Annuity Date
If you are not the Annuitant, and if the Annuitant dies before the Annuity Date,
you may name a new Annuitant. If you do not name a new Annuitant within sixty
days after we are notified of the Annuitant's death, we will deem you to be the
new Annuitant.
After the Annuity Date
If an Annuitant dies after the Annuity Date, the remaining payments, if any,
will be as specified in the annuity option in effect when the Annuitant died. We
will require proof of the Annuitant's death. The remaining benefit, if any, will
be paid to the beneficiary at least as rapidly as under the method of
distribution in effect at the Annuitant's death. If you were not the Annuitant
and no beneficiary survives the Annuitant, we will pay any remaining benefit to
you.
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PERFORMANCE
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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. Then the average annual
compounded rate of return is calculated to produce the value of the investment
at the end of the period.
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 portfolio level
since it is reduced by all contract charges (mortality and expense risk charge,
administrative charge, if any, 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 affects all
recurring charges.
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
<PAGE>
(4) indices or averages of alternative financial products available to
prospective investors, including the Bank Rate Monitor which monitors
average returns of various bank instruments.
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TAXES
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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.
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.
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.
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 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
================================================================
A complete set of financial statements of AIG Life Insurance Company that have
been included with the SAI and filed electronically with the SEC, can be
obtained through its website at http://www.sec.gov. A copy of the SAI and our
consolidated balance sheets 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. Financial
statements of the variable account are not included because as of the effective
date of this prospectus no contracts have been issued using the subaccounts
described herein.
<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...............................................
Tax Deferred Accumulation.............................................
ANNUITY PROVISIONS.............................................................
Variable Annuity Payments.............................................
Annuity Unit Value....................................................
Net Investment Factor.................................................
Additional Provisions.................................................
FINANCIAL STATEMENTS...........................................................
<PAGE>
PART B
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
_______________, 2000
OVATION ACCESS VARIABLE ANNUITY
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______________, 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.
1
<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...4
Yield Quotations for Other Subaccounts.................................5
Total Return Quotations................................................5
Tax Deferred Accumulation..............................................6
ANNUITY PROVISIONS..........................................................7
Variable Annuity Payments..............................................7
Annuity Unit Value.....................................................7
Net Investment Factor..................................................8
Additional Provisions..................................................9
FINANCIAL STATEMENTS........................................................9
2
<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 [to be provided by subsequent
amendment to this filing], 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
3
<PAGE>
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 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. No deductions are assessed upon annuitization
under the contract. Realized gains and losses from the sale of securities and
unrealized appreciation and depreciation of the money market subaccount and the
corresponding portfolio are excluded from the calculation of yield.
4
<PAGE>
Yield Quotations for Other Subaccounts
Yield quotations will be based on the thirty-day period ended on the date of the
most recent balance sheet of Variable Account 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.
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:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
5
<PAGE>
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.
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 0.19% mortality and expense risk charge and the $30 contract maintenance
fee, but not the expenses of an underlying investment vehicle. 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.
6
<PAGE>
The rates of return illustrated are hypothetical and are not an estimate or
guaranty of performance. Actual tax rates may vary for different taxpayers.
=====================================================================
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
7
<PAGE>
o (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 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.
8
<PAGE>
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.
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
=====================================================================
A complete set of financial statements of the company has been filed
electronically with the SEC and can be obtained through its website at
http://www.sec.gov. Our consolidated balance sheets are provided along with the
printed copy of the statement of additional information. Our financial
statements shall be considered only as bearing upon our ability to meet our
obligations under the contract. Financial statements of Variable Account I are
not included because no contracts had been issued as of the date of this
statement of additional information.
9
<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.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Washington, DC
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>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements
Audited statements of AIG Life Insurance Company for the year ended
December 31, 1999, are included in Part B of the registration
statement.
(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) Restated By-Laws of AIG Life Insurance Company dated March
2000.##
(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 Michele L. Abruzzo ****
(d) Power of Attorney of Robinson K. Nottingham ****
(e) Power of Attorney of Edmund Sze-Wing Tse ****
(f) Power of Attorney of Elizabeth M. Tuck *****
(g) 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 Registration Statement
on Form N-4 (File No. 333-93709) filed on December 28, 1999.
*****Incorporated by reference to Registrant's Initial filing 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.
## Incorporated by reference to Registrant's Post-Effective
Amendment No. 15 to Form N-4 (File No. 33-39171) filed on April
28, 2000. 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.
<TABLE>
(c) Net
Name of Underwriting Compensation
Principal Discounts and on Brokerage
Underwriter Commission Redemption Commissions Compensation
<S> <C> <C> <C> <C>
AIG Equity $0 $0 $0 $0
Sales Corp.
</TABLE>
Item 30. Location of Accounts and Records.
Kenneth F. Judkowitz, Assistant 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 has caused this Registration Statement to be signed on its
behalf, in the City of Wilmington, and State of Delaware on this 31st day of
May, 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 May 31, 2000
------------------- President, Director
Michele L. Abruzzo
Paul S. Bell* Chief Actuary, Senior May 31, 2000
------------- Vice President, Director
Paul S. Bell
M.R. Greenberg* Director May 31, 2000
---------------
M.R. Greenberg
Edward. E. Matthews* Senior Vice President, May 31, 2000
-------------------- Director
Edward E. Matthews
Jerome T. Muldowney* Senior Vice President, May 31, 2000
------------------- Director
Jerome T. Muldowney
Robinson Kendall Nottingham* Chairman of the Board May 31, 2000
---------------------------- of Directors, Director
Robinson Kendall Nottingham
Nicholas A. O'Kulich* Vice Chairman, Treasurer, May 31, 2000
--------------------- Director
Nicholas A. O'Kulich
Howard I. Smith* Director May 31, 2000
----------------
Howard I. Smith
Edmund Sze-Wing Tse* Director May 31, 2000
--------------------
Edmund Sze-Wing Tse
Elizabeth M. Tuck Secretary May 31, 2000
-----------------
Elizabeth M. Tuck
Gerald W. Wyndorf* Director May 31, 2000
------------------
Gerald W. Wyndorf
*By: /s/ Kenneth D. Walma
----------------------
Kenneth D. Walma,
Attorney in Fact
<PAGE>
INDEX TO EXHIBITS
9. Opinion and Consent of Counsel
10.(a) Consent of Jorden Burt Boros Cicchetti Berenson & Johnson LLP
10.(b) Consent of Independent Accountants
