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Separate Account II of AGL, et al. – ‘485BPOS’ on 5/1/06

On:  Monday, 5/1/06, at 2:17pm ET   ·   Effective:  5/1/06   ·   Accession #:  1193125-6-94793   ·   File #s:  333-34199, 811-04867

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Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 485BPOS     485B (Form N-6) Pea 17 Aig Life Executive            243   1.20M 
                          Advantage Vul                                          
 2: EX-99.(E)(2)  Supplemental Application                             2     13K 
 3: EX-99.(E)(3)  Subaccount Transfer Request Form                     2±    11K 
 4: EX-99.(E)(4)  Premium Allocation Form                              2±    11K 
 5: EX-99.(E)(5)  Loan/Surrender Request Form                          2     12K 
 6: EX-99.(E)(6)  Dollar Cost Averaging Request Form                   2     12K 
 7: EX-99.(E)(8)  Reallocation and Rebalancing Request Form            2±    11K 
 8: EX-99.(E)(9)  Automatic Rebalancing Request                        2±    10K 
 9: EX-99.(H)(7)(D)  Amendment No. 3 to Franklin Templeton             9     27K 
                          Participation Agreement                                
10: EX-99.(N)(1)  Pricewaterhousecoopers LLP Consent                   1      7K 

485BPOS   —   485B (Form N-6) Pea 17 Aig Life Executive Advantage Vul
Document Table of Contents

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As filed with the Securities and Exchange Commission on May 1, 2006 

                                                   Registration Nos. 333-34199
                                                                     811-04867

================================================================================

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION  
Washington, D.C. 20549  

FORM N-6  

       REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933         [X]

Pre-effective Amendment No. [_]     

Post-Effective Amendment No. [ 17 ]     

and/or  

   REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     [X]

Amendment No. [ 9 ]     

VARIABLE ACCOUNT II OF AIG LIFE INSURANCE COMPANY 
(Exact Name of Registrant)  

AIG LIFE INSURANCE COMPANY  
(Name of Depositor) 

One ALICO Plaza 
600 King Street 
Wilmington, Delaware 19801  
(Address of Depositor's Principal Executive Offices)(Zip Code)  

(713) 831-8470  
(Depositor's Telephone Number, including Area Code) 

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.  
(Name of Guarantor) 

70 Pine Street  
New York, New York 10270  
(212) 770-7000  
(Guarantor's Telephone Number, including Area Code) 

Lauren W. Jones, Esq. 
Deputy General Counsel  
American General Life Companies, LLC  
2929 Allen Parkway  
Houston, Texas 77019-2191 
(Name and Address of Agent for Service for Depositor, Registrant and Guarantor) 

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Approximate Date of Proposed Public Offering: Continuous.                       

It is proposed that this filing will become effective                           

[_] immediately upon filing pursuant to paragraph (b)                           

[X] on May 1, 2006 pursuant to paragraph (b)                                    

[_] 60 days after filing pursuant to paragraph (a)(1)                           

[_] on (date) pursuant to paragraph (a)(1) 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.                              

================================================================================

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EXECUTIVE ADVANTAGE(SM)                                                         

GROUP FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES (the          
"Policies") issued by AIG Life Insurance Company ("AIG Life") through its       
Variable Account II                                                             

This prospectus is dated
 May 1, 2006

AIG Life Insurance Company ("AIG Life") is offering life insurance coverage     
under the Executive AdvantageSM group flexible premium variable universal life  
policy (the "Policy"). The Policy provides insurance protection for individuals 
within groups under corporate owned or sponsored arrangements. Corporate owned  
arrangements are those where an employer (or trust established by an employer)  
purchases life insurance coverage on their employees. The employer or trust is  
the Beneficiary. Sponsored arrangements are those instances where an employer, a
financial institution or association allows us to sell insurance policies to its
employees, depositors or members. The description of the Policy in this         
prospectus is fully applicable to your certificate and the word "Policy"        
includes any such certificate.                                                  

For information on how to contact AIG Life, please see page 5.                  

The Index of Special Words and Phrases on page 51 will define many of the words 
and phrases that we use. All of the words and phrases listed in the Index will  
be underlined and written in bold the first time they appear in this prospectus.

This prospectus generally describes only the variable portions of the Policy.   
Please read this prospectus carefully and keep it for future reference.         

The Guaranteed Account is part of our general account. You can use AIG Life's   
Variable Account II ("Variable Account") to invest in the Executive Advantage   
variable investment options. Currently, the Executive Advantage variable        
investment options each purchase shares of a corresponding Fund of:             

..    AllianceBernstein Variable Products Series Fund, Inc. ("AllianceBernstein 
VPS")                                                                 
..    American Century Variable Portfolios, Inc. ("American Century VP")        
..    Credit Suisse Trust ("Credit Suisse Trust")                               
..    FAM Variable Series Funds, Inc. ("Mercury")                               
..    Fidelity(R) Variable Insurance Products ("Fidelity(R) VIP")               
..    Franklin Templeton Variable Insurance Products Trust ("Franklin Templeton 
VIP")                                                                 
..    Goldman Sachs Variable Insurance Trust ("Goldman Sachs VIT")              
..    J.P. Morgan Series Trust II ("JPMorgan")                                  
..    Neuberger Berman Advisers Management Trust ("Neuberger Berman AMT")       
..    PIMCO Variable Insurance Trust ("PIMCO VIT")                              
..    The Universal Institutional Funds, Inc. ("UIF")                           
..    VALIC Company I ("VALIC Co. I")                                           
..    Vanguard(R) Variable Insurance Fund ("Vanguard VIF")                      

See "Variable Investment Options" on page 17 for a complete list of the variable
investment options and the respective advisers and sub-advisers of the          
corresponding Funds. You should also read the prospectuses of the Funds         
underlying variable investment options that may interest you. You can request   
free copies from your AIG Life representative or from our Administrative Center 
shown on page 5 of this prospectus.                                             

Buying this Policy might not be a good way of replacing your existing insurance 
or adding more insurance if you already own a flexible premium variable life    
insurance Policy. You may wish to consult with your insurance representative or 
financial adviser.                                                              

Neither the Securities and Exchange Commission ("SEC") nor any state securities 
commission has approved or disapproved these securities or passed upon the      
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.                                                               

The Policies are not insured by the FDIC, The Federal Reserve Board or any      
similar agency. They are not a deposit or other obligation of, nor are they     
guaranteed or endorsed by, any bank or depository institution. An investment in 
a variable life insurance policy is subject to investment risks, including      
possible loss of principal invested.                                            

The Policies are not available in all states. This prospectus does not offer the
Policies in any jurisdiction where they cannot be lawfully sold. You should rely
only on the information contained in this prospectus, or on sales materials we  
have approved or that we have referred you to. We have not authorized anyone to 
provide you with information that is different.                                 

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 TABLE OF CONTENTS

POLICY BENEFITS/RISKS SUMMARY..................................................6
POLICY BENEFITS................................................................6
  Death Benefit................................................................6
    Death Benefit Proceeds.....................................................6
    Death Benefit Options......................................................6
  Full Surrenders, Partial Surrenders, Transfers, and Policy Loans.............6
    Full Surrenders............................................................6
    Partial Surrenders.........................................................7
    Transfers..................................................................7
    Loans......................................................................7
  Premiums.....................................................................7
    Flexibility of Premiums....................................................7
    Free Look..................................................................7
  The Policy...................................................................7
    Ownership Rights...........................................................7
    Variable Account...........................................................7
    Guaranteed Account.........................................................7
    Account Value..............................................................8
    Payment Options............................................................8
    Tax Benefits...............................................................8
  Supplemental Benefits and Riders.............................................8
POLICY RISKS...................................................................8
  Investment Risk..............................................................8
  Risk of Lapse................................................................9
  Tax Risks....................................................................9
  Partial Surrender and Full Surrender Risks...................................9
  Policy Loan Risks............................................................9
PORTFOLIO RISKS...............................................................10
TABLES OF CHARGES.............................................................11
GENERAL INFORMATION...........................................................15
  AIG Life Insurance Company..................................................15
  The Variable Account........................................................15
  Guarantee of Insurance Obligations..........................................15
  Additional Information......................................................16
  Communication with AIG Life.................................................16
    Administrative Center.....................................................16
  Applying for a Policy.......................................................16
    Our age requirement for the Insured.......................................16
    The minimum Face Amount...................................................16
    We require a minimum initial premium......................................16
    When your coverage will be effective......................................16
    General...................................................................17
  Variable Investment Options.................................................17
  Guaranteed Investment Option................................................19
  Guaranteed Account Value....................................................20
  Voting Privileges...........................................................20
  Illustrations...............................................................21
POLICY FEATURES...............................................................21
  Death Benefits..............................................................21
    Your Face Amount of insurance.............................................21
    Your death benefit........................................................22
    Life Insurance Proceeds...................................................22
    Payment of Life Insurance Proceeds........................................22
    Amount of Life Insurance Proceeds.........................................22
  Tax Qualification Options...................................................23

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  Changes in Death Benefit Options............................................23
    How to request a change...................................................23
    Tax consequences of changes in insurance coverage.........................24
  Premium Payments............................................................24
    Restrictions on Premium...................................................24
    Minimum Initial Premium...................................................24
    Planned Periodic Premium..................................................24
    Additional Premium........................................................24
    Effect of Premium Payments................................................24
    Grace Period..............................................................25
    Premium Allocations.......................................................25
    Allocation Rules..........................................................25
    Crediting Premium.........................................................26
    Future premium payments...................................................26
  Determining the Account Value...............................................26
  Account Value in the Subaccounts............................................27
    Accumulation Unit Values..................................................27
    Net Investment Factor.....................................................27
    Guaranteed Account Value..................................................27
    Net Account Value.........................................................28
    Cash Surrender Value......................................................28
    Net Cash Surrender Value..................................................28
  Transfers...................................................................28
    Minimum amount of transfer................................................28
    Form of transfer request..................................................28
    Transfers from the Guaranteed Account.....................................28
    Date We Process Your Transfer Request.....................................28
    Number of Permitted Transfers/Transfer Charge.............................28
  Dollar Cost Averaging.......................................................29
    Processing your automatic dollar cost averaging transfers.................29
  Market Timing...............................................................29
  Fund-Rejected Transfers.....................................................30
  Changing the Face Amount of Insurance.......................................30
    Changes in Face Amount....................................................30
    Increases in Face Amount..................................................30
    Decreases in Face Amount..................................................31
    Consequences of a Change in Face Amount...................................31
  Effective Date of Policy and Related Transactions...........................31
    Valuation dates, times, and periods.......................................31
    Fund Pricing..............................................................31
    Date of receipt...........................................................31
    Commencement of insurance coverage........................................32
    Issue Date; Policy months and years.......................................32
    Monthly deduction days....................................................32
    Commencement of investment performance....................................32
    Effective date of other premium payments and requests that you make.......32
  Reports to Policy Owners....................................................33
POLICY TRANSACTIONS...........................................................33
  Withdrawing Policy Investments..............................................33
    Full surrender............................................................33
    Partial surrender.........................................................34
    Loans.....................................................................34
    Maximum Loan Amount.......................................................34
    Interest..................................................................34
    Loan Account..............................................................34
    Effect of a Loan..........................................................34
    Outstanding Loan..........................................................35
    Loan Repayment............................................................35
  Maturity of your Policy.....................................................35
  Tax considerations..........................................................35

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POLICY PAYMENTS...............................................................35
  Payment Options.............................................................35
    Change of payment option..................................................35
    Tax impact................................................................35
  The Beneficiary.............................................................36
  Assignment of a Policy......................................................36
  Payment of Proceeds.........................................................36
    General...................................................................36
    Delay of Guaranteed Account option proceeds...............................36
    Delay for check clearance.................................................36
    Delay of Variable Account proceeds........................................36
    Delay to challenge coverage...............................................37
    Delay required under applicable law.......................................37
ADDITIONAL RIGHTS THAT WE HAVE................................................37
CHARGES UNDER THE POLICY......................................................38
  Deductions From Premium.....................................................38
    Monthly Deduction From Account Value......................................38
    Administrative Charge.....................................................39
    Cost of Insurance Charge..................................................39
  Net Amount at Risk..........................................................39
    Rate Classes for Insureds.................................................39
  Legal Considerations Relating to Sex-Distinct Premiums and Benefits.........40
  Deduction From Variable Account Assets......................................41
    Mortality and Expense Risk Charge.........................................41
  Deductions Upon Policy Transactions.........................................41
    Transfer Charge...........................................................41
    Surrender Charge..........................................................41
    Surrender Charge Calculation..............................................41
    Surrender Charge Based On An Increase Or Decrease In Face Amount..........42
    Partial Surrender Charge..................................................42
    Partial Surrender Charge Due to Decrease in Face Amount...................42
    Partial Surrender Administrative Charge...................................43
    Discount Purchase Programs................................................43
OTHER POLICY PROVISIONS.......................................................43
  Right to Exchange...........................................................43
  More About Policy Charges...................................................43
    Purpose of our charges....................................................43
    General...................................................................44
  Account Value...............................................................44
    Your Account Value........................................................44
    Your investment options...................................................44
    The Guaranteed Account....................................................44
POLICY LAPSE AND REINSTATEMENT................................................45
    Reinstatement.............................................................45
FEDERAL INCOME TAX CONSIDERATIONS.............................................45
  Tax Status of the Policy....................................................45
  AIG Life....................................................................46
  Diversification and Investor Control........................................46
  Tax Treatment of the Policy.................................................46
  Tax Treatment of Policy Benefits In General.................................47
  Pre-Death Distribution......................................................47
  Policies Not Classified as Modified Endowment Contracts.....................47
  Modified Endowment Contracts................................................47
  Interest on Loans...........................................................48
  Policy Exchanges and Modifications..........................................48
  Withholding.................................................................48
  Contracts Issued in Connection With Tax Qualified Pension Plans.............48
  Possible Charge for AIG Life's Taxes........................................49
LEGAL PROCEEDINGS.............................................................49
FINANCIAL STATEMENTS..........................................................50

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INDEX OF SPECIAL WORDS AND PHRASES............................................51
APPENDIX A....................................................................53

CONTACT INFORMATION: Here is how you can contact us about the AIG Life Executive
Advantage Policies:                                                             

Administrative Center:                Home Office:                        
 ------------------------------------  -------------------------------------
AIG Life Insurance Company            AIG Life Insurance Company          
One ALICO Plaza                       One ALICO Plaza                     
600 King Street, CLMK                 600 King Street                     
Wilmington, Delaware 19801            Wilmington, Delaware 19801          
1-302-594-2352                        1-302-594-2352                      

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 POLICY BENEFITS/RISKS SUMMARY

This summary describes the Policy's important benefits and risks. The 
sections in this prospectus following this summary discuss the Policy's benefits
and other provisions in more detail.                                            

 POLICY BENEFITS

You may allocate your Account Value among the 43 variable investment  
options available under the Policy, each of which invests in an underlying Fund 
(each available portfolio is referred to in this prospectus as a "Fund" and     
collectively, the "Funds"), and the Guaranteed Account, which credits a         
specified rate of interest. Your Account Value will vary based on the investment
performance of the variable investment options you choose and interest credited 
in the Guaranteed Account.                                                      

Death Benefit                                                                   

..    Death Benefit Proceeds: We pay the death benefit proceeds (reduced by any 
    outstanding Policy loans and any accrued loan interest) to the Beneficiary
when the Insured person dies. In your application to buy an Executive 
     Advantage Policy, you tell us how much life insurance coverage you want. We
call this the "Face Amount" of insurance.                             

..   Death Benefit Options: You must choose one of the two Death Benefit Options
when you apply for your Policy:                                       

.    Level Death Benefit Option or                                    

.    Increasing Death Benefit Option                                  

   For the Level Death Benefit Option, the death benefit will be the greater
of:                                                                   

.    Face Amount; or                                                  

.    Account Value on the date of death multiplied by the appropriate 
minimum death benefit factor.                               

    You should consider this Death Benefit Option if you want to minimize your
cost of insurance.                                                    

For the Increasing Death Benefit Option, the death benefit will be the
greater of:                                                           

.    Face Amount plus the Account Value; or                           

.    Account Value on the date of death multiplied by the appropriate 
minimum death benefit factor.                               

You should consider this Death Benefit Option if you want your death  
benefit to increase with your Account Value.                          

   Federal tax law may require us to increase payment under any of the above
Death Benefit Options. See "Tax Qualification Options" on page 23.              

Full Surrenders, Partial Surrenders, Transfers, and Policy Loans                

..    Full Surrenders: At any time while the Policy is in force, you may        
surrender your Policy in full. If you do, we will pay you the Account 
  Value, less any Policy loans and any accrued loan interest, and less any
surrender charge that then applies. We call this amount your Net Cash 
  Surrender Value. A surrender charge may apply. See "Surrender Charge" on
  page 41. You cannot reinstate a surrendered Policy. A full surrender may
have adverse tax consequences.                                        

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..    Partial Surrenders: We will not allow a partial surrender during the first
 Policy year or during the first 12 months following an increase in Face
   Amount. You may make two partial surrenders per year. A partial surrender
must be at least $500 but may not exceed 90% of your Policy's Net Cash
     Surrender Value. We may deduct the applicable surrender charge on a partial
surrender. Currently, we do not assess a processing charge for partial
surrenders. A partial surrender may have adverse tax consequences.    

..   Transfers: Within certain limits, you may make transfers among the variable
  investment options and the Guaranteed Account. You may make up to twelve
  transfers of Account Value among the variable investment options in each
Policy year without charge. We currently assess a $25 charge for each 
     transfer after the 12th transfer in a Policy year. There are special limits
on transfers involving the Guaranteed Account.                        

..    Loans: You may take a loan from your Policy at any time after the first   
   Policy year. The maximum loan amount you may take is 90% of your Policy's
   Net Cash Surrender Value. We charge you interest daily on any Outstanding
  Loan at a declared annual rate not in excess of 8%. The maximum net cost
(the difference between the rate of interest charged on loans and the 
  amount we credit on the equivalent amount held in the Loan Account) of a
loan is 2% per year. You may increase your risk of lapse if you take a
loan. Loans may have adverse tax consequences.                        

Premiums                                                                        

..    Flexibility of Premiums: After you pay the initial premium, you can pay   
     subsequent premiums at any time (prior to the Policy's maturity) and in any
  amount (but not less than $50). You can select a premium payment plan to
pay planned periodic premiums annually. You are not required to pay   
   premiums according to the plan. Under certain circumstances, we may limit
the amount of a premium payment or reject a premium payment.          

..    Free Look: When you receive your Policy, the free look period begins. You 
may return your Policy during this period and receive a refund of the 
premiums paid.                                                        

The free look period generally expires the later of:        

.    10 days after you receive the Policy, or                         
.    45 days after you sign Part I of the application.                

The Policy                                                                      

..    Ownership Rights: While the Insured person is living, you, as the Owner of
 the Policy, may exercise all of the rights and options described in the
Policy. These rights include selecting and changing the Beneficiary,  
changing the Owner, and assigning the Policy.                         

..    Variable Account: You may direct the money in your Policy to any of the   
variable investment options of the Variable Account. Each variable    
    investment option invests exclusively in one of the Mutual Funds listed in
this prospectus.                                                      

..    Guaranteed Account: You may place amounts in the Guaranteed Account where 
   it earns interest at the rate of 4% annually. We may declare higher rates
of interest, but are not obligated to do so.                          

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..    Account Value: Account Value varies from day to day, depending on the     
investment performance of the variable investment options you choose, 
  interest we credit to the Guaranteed Account, charges we deduct, and any
other transactions (e.g., transfers, partial surrenders and loans).   

..    Payment Options: There are several ways of receiving proceeds under the   
     death benefit, surrender, and maturity provisions of the Policy, other than
   in a lump sum. More detailed information concerning these payment options
is available on request from our Administrative Center.               

..    Tax Benefits: The Policy is designed to afford the tax treatment normally 
   accorded life insurance contracts under federal tax law. Generally, under
     federal tax law, the death benefit under a qualifying life insurance Policy
 is excludable from the gross income of the Beneficiary until there is a
 distribution. This means that under a qualifying life insurance Policy,
    cash value accumulates on a tax deferred basis and transfers of cash value
 among the available investment options under the Policy may be made tax
free. Under a qualifying life insurance Policy that is not a modified 
 endowment contract ("MEC"), the proceeds from Policy loans would not be
     taxed. If the Policy is not a MEC, distributions after the 15th Policy year
   generally will be treated first as a return of basis or investment in the
    contract and then as taxable income. Moreover, loans will generally not be
   treated as distributions. Finally, neither distributions nor loans from a
Policy that is not a MEC are subject to the 10% penalty tax.          

Supplemental Benefits and Riders                                                

We offer no supplemental benefits or riders with this Policy.         

POLICY RISKS

Investment Risk                                                                 

The Policy is not suitable as a short-term investment. We designed the
Policy to meet long-term financial goals. In the Policy's early years, if the   
total charges exceed total premiums paid or if your investment choices perform  
poorly, your Policy may not have any cash surrender value. Any applicable       
surrender charge may be large enough in the Policy's early years so that if you 
fully surrender your Policy you may receive no cash surrender value. If you take
multiple partial surrenders, your Account Value may not cover required charges  
and your Policy would lapse.                                                    

If you invest your Account Value in one or more variable investment   
options, then you will be subject to the risk that the investment performance of
the variable investment options will be unfavorable. You will also be subject to
the risk that the Account Value will decrease because of the unfavorable        
performance and the resulting higher insurance charges. You could lose          
everything you invest. You will also be subject to the risk that the investment 
performance of the variable investment options you choose may be less favorable 
than that of other variable investment options, and in order to keep the Policy 
in force may be required to pay more premiums than originally planned. We do not
guarantee a minimum Account Value.                                              

     If you allocate Net Premiums to the Guaranteed Account, then we credit your
Account Value (in the Guaranteed Account) with a declared rate of interest, but 
you assume the risk that the rate may decrease, although it will never be lower 
than a guaranteed minimum annual effective rate of 4%.                          

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Risk of Lapse                                                                   

    If your Net Cash Surrender Value is not enough to pay the charges deducted
against Account Value each month, your Policy may enter a 61-day Grace Period.  
We will notify you that the Policy will lapse (terminate without value) at the  
end of the Grace Period unless you make a sufficient payment. Your Policy may   
also lapse if outstanding Policy loans plus any accrued interest payable exceeds
the Cash Surrender Value.                                                       

If we do not receive a sufficient premium before the end of the Grace 
Period, the Policy will terminate without value. We will send you a written     
notice within 30 days of the beginning of any Grace Period. The notice will     
state that you have 61 days from the due date of the premium to pay the         
necessary charges to avoid lapse of the Policy. If the Insured dies during the  
Grace Period, we will still pay the Life Insurance Proceeds to the Beneficiary. 
The amount we pay will reflect a reduction for the unpaid monthly deductions due
on or before the date of the Insured's death.                                   

Tax Risks                                                                       

   We anticipate that the Policy should generally be deemed a life insurance
contract under federal tax law. However, due to limited guidance under the      
federal tax law, there is some uncertainty about the application of the federal 
tax law to the Policy, particularly if you pay the full amount of premiums      
permitted under the Policy. Please consult a tax adviser about these            
consequences.                                                                   

Depending on the total amount of premiums you pay, the Policy may be  
treated as a MEC under federal tax laws. If a Policy is treated as a MEC, then  
surrenders, partial surrenders, and loans under the Policy will be taxable as   
ordinary income to the extent there are earnings in the Policy. In addition, a  
10% penalty tax may be imposed on surrenders, partial surrenders, and loans     
taken before you reach age 59 1/2.                                              

You should consult a qualified tax adviser for assistance in all      
Policy-related tax matters. See "Federal Income Tax Considerations" on page 45. 

Partial Surrender and Full Surrender Risks                                      

     The surrender charge under the Policy applies for the first 14 Policy years
(and for a maximum of the first 14 Policy years after any increase in the       
Policy's Face Amount) in the event you surrender the Policy or decrease the Face
Amount. The surrender charge may be considerable. Any Outstanding Loan balance  
reduces the amount available to you upon a partial or full surrender. It is     
possible that you will receive no Net Cash Surrender Value if you surrender your
Policy in the first few Policy years. You should purchase the Policy only if you
have the financial ability to keep it in force for a substantial period of time.
You should not purchase the Policy if you intend to surrender all or part of the
Account Value in the near future. We designed the Policy to meet long-term      
financial goals.                                                                

A partial surrender or full surrender may have adverse tax consequences.        

Policy Loan Risks                                                               

   A Policy loan, whether or not repaid, will affect Account Value over time
because we subtract the amount of the loan from the variable investment options 
and/or Guaranteed Account as collateral, and this loan collateral does not      
participate in the investment performance of the variable investment options or 
receive any excess interest credited to the Guaranteed Account.                 

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    We reduce the amount we pay on the Insured person's death by the amount of
any Policy loan and your Policy may lapse (terminate without value) if          
outstanding Policy loans plus any accrued interest payable reduce the Net Cash  
Surrender Value to zero.                                                        

If you surrender the Policy or allow it to lapse while a Policy loan  
remains outstanding, the amount of the loan, to the extent it has not previously
been taxed, is treated as a distribution from the Policy and may be subject to  
federal income taxation.                                                        

 PORTFOLIO RISKS

A discussion of the risks of each Fund may be found in its prospectus.
Please refer to the Funds' prospectuses for more information. You may request a 
copy of any or all of the Fund prospectuses by contacting us at the             
Administrative Center shown on page 5 of this prospectus.                       

There is no assurance that any of the Funds will achieve its stated   
investment objective.                                                           

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 TABLES OF CHARGES

    The following tables describe the fees and expenses that are payable, when
buying, owning and surrendering a Policy. No Policy Owner will be charged more  
than the amount we show under the "Maximum Guaranteed Charge" columns.          

  The first table describes the fees and expenses that are payable, at the
time that you (1) buy a Policy, (2) surrender a Policy during the first 14      
Policy years and the first 14 Policy years following an increase in the Policy's
Face Amount, (3) change a Policy's Face Amount, or (4) transfer Account Value   
between investment options.                                                     

                                                        [Enlarge/Download Table]

                                                      Transaction Fees                                                      
----------------------------------------------------------------------------------------------------------------------------
Charge                             When Charge is Deducted                   Maximum Guaranteed      Current Charge         
                                                                             Charge                                         
---------------------------------  ----------------------------------------  ----------------------  -----------------------
                                                                                                                            
Statutory Premium Tax Charge       Upon receipt of each premium payment      3.5%/1/ of each         0%/1/ of each premium  
                                                                             premium payment         payment                

DAC Tax Charge                     Upon receipt of each premium payment      1%                      0%                     

Premium Expense Charge             Upon receipt of each premium payment      9% of the amount of     9% of the amount of    
                                                                             each premium payment    each premium payment   

Surrender Charge                                                                                                            

  Maximum Charge - for a 55 year   Upon a partial surrender or a full        $48 per $1,000 of       $0 per $1,000 of Face  
  old male, smoker with a Face     surrender of your Policy during the       Face Amount             Amount/2/              
  Amount of $100,000 for the       first 14 Policy years and during the                                                     
  first Policy year/2/             first 14 Policy years following an                                                       
                                   increase in the Policy's Face Amount                                                     

  Minimum Charge - for a 18 year   Upon a partial surrender or a full        $13 per $1,000 of       $0 per $1,000 of Face  
  old female, nonsmoker with a     surrender of your Policy during the       Face Amount             Amount/2/              
  Face Amount of $100,000 for      first 14 Policy years and during the                                                     
  the first Policy year/2/         first 14 Policy years following an                                                       
                                   increase in the Policy's Face Amount                                                     

  Example Charge - for a 45 year   Upon a partial surrender or a full        $26 per $1,000 of       $0 per $1,000 of Face  
  old male, non-smoker with a      surrender of your Policy during the       Face Amount             Amount/2/              
  Face Amount of $100,000 for      first 14 Policy years and during the                                                     
  the first Policy year/2/         first 14 Policy years following an                                                       
                                   increase in the Policy's Face Amount                                                     

----------                                                                      
 /1/ Statutory premium tax rates vary by state. For example, the highest
premium tax rate, 3.5%, is in the state of Nevada, while the lowest premium tax 
rate, 0.50%, is in the state of Illinois. Certain local jurisdictions may assess
additional premium taxes.                                                       

    /2/ The Surrender Charge will vary based on the Insured person's sex, age,
risk class, Policy year and Face Amount. The Surrender Charges shown in the     
table may not be typical of the charges you will pay. Page 3B of your Policy    
will indicate the guaranteed Surrender Charges applicable to your Policy. More  
detailed information concerning your Surrender Charge is available free of      
charge on request from our Administrative Center shown on page 5 of this        
prospectus.                                                                     

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                                                        [Enlarge/Download Table]

                                                      Transaction Fees                                                      
----------------------------------------------------------------------------------------------------------------------------
Charge                             When Charge is Deducted                   Maximum Guaranteed      Current Charge         
                                                                             Charge                                         
---------------------------------- ----------------------------------------- ----------------------- -----------------------
                                                                                                                            
Partial Surrender Processing Fee   Upon a partial surrender of your Policy   The lesser of $25 or    $0                     
                                                                             2% of the amount of                            
                                                                             the partial surrender                          

Transfer Fee                       Upon a transfer of Account Value          $25 for each            $25 for each           
                                                                             transfer/1/             transfer/1/            

Policy Loan Interest Charge        Annually (on your Policy anniversary)     8.0% of the             8.0% of the            
                                                                             Outstanding Loan        Outstanding Loan       
                                                                             balance                 balance                

Policy Owner Additional            Upon each request for a Policy            $25                     $0                     
Illustration Charge                illustration after the first in a                                                        
                                   Policy year                                                                              

Flat Monthly Charge                Monthly, at the beginning of each         $10                     $7                     
                                   Policy Month                                                                             

First Year Administrative Charge   Monthly, at the beginning of each         $25                     $0                     
                                   Policy month during the first Policy                                                     
                                   year                                                                                     

Face Amount Increase Charge        Monthly, at the beginning of each         $25                     $0                     
                                   Policy month for the 12 months                                                           
                                   immediately following the effective                                                      
                                   date of the increase                                                                     

----------                                                                      
/1/ The first 12 transfers in a Policy year are free of charge.       

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The next table describes the fees and expenses that you will pay      
periodically during the time that you own the Policy, not including Fund fees   
and expenses.                                                                   

                                                        [Enlarge/Download Table]

                                                     Periodic Charges                                                      
                                            (other than Fund fees and expenses)                                            
---------------------------------------------------------------------------------------------------------------------------
Charge                             When Charge is Deducted      Maximum Guaranteed Charge         Current Charge           
---------------------------------- ---------------------------- --------------------------------- -------------------------
                                                                                                                           
Cost of Insurance Charge/1/                                                                                                

  Maximum Charge - for the first   Monthly, at the beginning    $4.74911 per $1,000 of Net        $2.3204 per $1,000 of Net
  Policy year for a 70 year old    of each Policy month         Amount at Risk/2/                 Amount at Risk           
  male, smoker, guaranteed issue                                                                                           
  with a Face Amount of $100,000                                                                                           

  Minimum Charge - for the first   Monthly, at the beginning    $0.08 per $1,000 of Net Amount    $0.0171 per $1,000 of Net
  Policy year for a 18 year old    of each Policy month         at Risk                           Amount at Risk           
  female, nonsmoker, medically                                                                                             
  underwritten, with a Face                                                                                                
  Amount of $100,000                                                                                                       

  Example Charge - for the first   Monthly, at the beginning    $0.28758 per $1,000 of Net        $0.0514 per $1,000 of Net
  Policy year for a 45 year old    of each Policy month         Amount at Risk                    Amount at Risk           
  male, nonsmoker, medically                                                                                               
  underwritten with a Face Amount                                                                                          
  of $100,000                                                                                                              

Mortality and Expense Risk Charge                                                                                          

  Policy years 1-4/3,4/            Daily                        annual effective rate of 1.0%/4/  annual effective rate of 
                                                                                                  0.65%/4/                 

----------                                                                      
  /1/ The Cost of Insurance Charge will vary based on the Insured person's
sex, age, rate class, Policy year, and the Face Amount. The Cost of Insurance   
Charges shown in the table may not be typical of the charges you will pay. Page 
3C of your Policy will indicate the guaranteed Cost of Insurance Charge         
applicable to your Policy. More detailed information concerning your Cost of    
Insurance Charge is available on request from our Administrative Center. Also,  
before you purchase the Policy, we will provide you hypothetical illustrations  
of Policy values based upon the Insured person's age and rate class, the Death  
Benefit Option, Face Amount and planned periodic premiums. Please consult your  
insurance representative or contact AIG Life for information about your Cost of 
Insurance Charge.                                                               

/2/ The Net Amount at Risk is the difference between the current death
benefit under your Policy divided by 1.0032737 and your Account Value under the 
Policy.                                                                         

 /3/ After the 4th Policy year, the maximum Mortality and Expense Charge
will be as follows:                                                   
 Policy years 5-20 annual effective rate of 1.00% (guaranteed) and 0.20%
(current)                                                             
Policy years 21+ annual effective rate of 1.00% (guaranteed) and 0.15%
(current)                                                             

   /4/ All percentages are calculated as a percent of Account Value invested
in the Variable Account options.                                                

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The next table describes the Fund fees and expenses that you will pay 
periodically during the time that you own the Policy. The table shows the       
maximum and minimum Total Annual Fund Operating Expenses before contractual     
waiver or reimbursement for any of the Funds for the fiscal year ended December 
31, 2005. Current and future expenses for the Funds may be higher or lower than 
those shown.                                                                    

Annual Fund Fees and Expenses   
(expenses that are deducted from the Fund assets)   
--------------------------------------------------------- 
Charge                                  Maximum   Minimum 
--------------------------------------  -------   ------- 
Total Annual Fund Operating Expenses                      
for all of the Funds (expenses that                       
are deducted from portfolio assets       1.78%     0.10%  
include management fees, distribution                     
(12b-1) fees, and other expenses)/1/                      

Details concerning each Fund's specific fees and expenses are contained in the  
Funds' prospectuses.                                                            

/1/ Currently 11 of the Funds have contractual reimbursements or fee  
waivers. These reimbursements or waivers expire on April 30, 2007. The impact of
contractual reimbursements or fee waivers is as follows:                        

Charge                                          Maximum  Minimum  
----------------------------------------------  -------  -------  
Total Annual Fund Operating Expenses for all                      
of the Funds After Contractual Reimbursement                      
or Fee Waiver                                    1.78%    0.10%   

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 GENERAL INFORMATION

AIG Life Insurance Company                                                      

   AIG Life Insurance Company ("AIG Life") is a stock life insurance company
initially organized under the laws of Pennsylvania and reorganized under the    
laws of Delaware. AIG Life's home office address is One ALICO Plaza, 600 King   
Street, Wilmington, Delaware 19801. AIG Life was incorporated in 1962. AIG Life 
is a wholly owned subsidiary of American International Group, Inc. ("AIG"). AIG,
a Delaware corporation, is a holding company which through its subsidiaries is  
engaged in a broad range of insurance and insurance-related activities and      
financial services in the United States and internationally. AIG is a marketing 
name of AIG Life and its affiliates. The commitments under the Policies are AIG 
Life's, and AIG has no legal obligation to back those commitments.              

 AIG Life is a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is a voluntary membership organization created by the life       
insurance industry to promote ethical market conduct for life insurance and     
annuity products. AIG Life's membership in IMSA applies only to AIG Life and not
its products.                                                                   

The Variable Account                                                            

 We established the Variable Account as a separate investment account on
June 5, 1986. It is used to support the Policy and other variable life insurance
policies, and used for other permitted purposes. The Variable Account is        
registered with the SEC as a unit investment trust under the federal securities 
laws and qualifies as a "Variable Account" within the meaning of these laws.    

    We own the assets in the Variable Account. The Variable Account is divided
into subaccounts. The Variable Account may include other subaccounts which are  
not available under the Policy.                                                 

   The assets in the Variable Account may not be used to pay any liabilities
of AIG Life other than those arising from the Policies, and AIG Life is         
obligated to pay all amounts due the Policy Owners under the Policies.          

Guarantee of Insurance Obligations                                              

   Insurance obligations under the Policies are guaranteed by National Union
Fire Insurance Company of Pittsburgh, Pa. ("National Union"), an affiliate of   
AIG Life. Insurance obligations include, without limitation, Policy values      
invested in the Guaranteed Account, death benefits and Policy features that     
provide return of premium or protection against Policy lapse. The guarantee does
not guarantee Policy value or the investment performance of the variable        
investment options available under the Policies. The guarantee provides that    
Policy owners can enforce the guarantee directly.                               

AIG Life expects that the National Union guarantee will be terminated 
within the next year. However, the insurance obligations on Policies issued     
prior to termination of the National Union guarantee would continue to be       
covered, including obligations arising from premium payments or other payments  
received after termination, until satisfied in full.                            

    National Union is a stock property-casualty insurance company incorporated
under the laws of the Commonwealth of Pennsylvania on February 14, 1901.        
National Union's principal executive office is                                  

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located at 70 Pine Street, New York, New York 10270. National Union is licensed 
in all 50 states of the United States and the District of Columbia, as well as  
certain foreign jurisdictions, and engages in a broad range of insurance and    
reinsurance activities. National Union is a wholly owned subsidiary of AIG and  
an affiliate of AIG Life.                                                       

Additional Information                                                          

  We have filed a Statement of Additional Information (the "SAI") with the
SEC which includes more information about your Policy. The back cover page of   
this prospectus describes how you can obtain a copy of the SAI.                 

Communication with AIG Life                                                     

  When we refer to "you," we mean the person who is authorized to take any
action with respect to a Policy. Generally, this is the Owner named in the      
Policy. Where a Policy has more than one Owner, each Owner generally must join  
in any requested action, except for transfers and changes in the allocation of  
future premiums or changes among the investment options.                        

  Administrative Center. The Administrative Center provides service to all
Policy Owners. For applicants, your AIG Life representative will tell you if you
should use an address other than the Administrative Center address. All premium 
payments, requests, directions and other communications should be directed to   
the appropriate location. See AIG Life's addresses under "Contact Information"  
on page 5 of this prospectus.                                                   

Applying for a Policy                                                           

     To purchase a Policy, you must complete an application and submit it to us.
You must specify certain information in the application, including the Face     
Amount and the Death Benefit Option. We may also require information to         
determine if the Insured is an acceptable risk to us. We may require a medical  
examination of the Insured and ask for additional information.                  

    Our age requirement for the Insured. You may apply for a Policy to cover a
person who is at least 18 but no more than 70 years of age.                     

     The minimum Face Amount. The Face Amount must be at least $50,000, for each
Insured.                                                                        

 We require a minimum initial premium. We require that you pay a minimum
initial premium before we will issue the Policy. You may pay the minimum initial
premium when you submit the application or at a later date.                     

We will not issue a Policy until we have accepted the application. We 
reserve the right to reject an application for any reason or "rate" an Insured  
as a substandard risk.                                                          

 When your coverage will be effective. Your Policy will become effective
after:                                                                          

.    We accept your application;                                      

   .    We receive an initial premium payment in an amount we determine; and

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    .    We have completed our review of your application to our satisfaction.

  General. You should mail or express checks for premium payments and loan
repayments directly to the appropriate address shown on your billing statement. 
If you do not receive a billing statement, send your premium directly to the    
Administrative Center.                                                          

You must make the following requests in writing:                      

.    transfer of Account Value;                             
.    loan;                                                  
.    full surrender;                                        
.    partial surrender;                                     
.    change of Beneficiary or contingent Beneficiary;       
.    change of allocation percentages for premium payments; 
.    change of allocation percentages for Policy deductions;
.    loan repayments or loan interest payments;             
  .    change of Death Benefit Option or manner of death benefit
payment;                                          
.    change in Face Amount;                                 
      .    addition or cancellation of, or other action with respect to,
   election of a payment option for Policy proceeds; and
.    tax withholding elections.                             

You should mail or express these requests to the Administrative Center
address shown under "Contact Information" on page 5 of this prospectus. You     
should also communicate notice of the Insured person's death, and related       
documentation, to our Administrative Center address.                            

    We have special forms which should be used for loans, assignments, partial
and full surrenders, changes of Owner or Beneficiary, and all other contractual 
changes. You will be asked to return your Policy when you request a full        
surrender. You may obtain these forms from our Administrative Center or from    
your AIG Life representative. Each communication must include your name, Policy 
number and, if you are not the Insured person, that person's name. We cannot    
process any requested action that does not include all required information.    

Variable Investment Options                                                     

   We divided the Variable Account into variable investment options, each of
which invests in shares of a corresponding Fund. Currently, you may invest      
premium payments in variable investment options investing in the Funds listed in
the following table. The name of each Fund describes its type (for example,     
money market fund, growth fund, equity fund, etc.) except for the Funds with a  
footnote 1 next to their names. For these Funds, whose name does not describe   
its type, we provide the information immediately following the table. Fund      
sub-advisers are shown in parenthesis.                                          

                                                        [Enlarge/Download Table]

Variable Investment Options                                     Investment Adviser (Sub-adviser, if applicable)                   
--------------------------------------------------------------  ------------------------------------------------------------------
                                                                                                                                  
AllianceBernstein VPS Americas Government Income Portfolio -    AllianceBernstein, L.P.                                           
Class A                                                                                                                           

AllianceBernstein VPS Growth and Income Portfolio - Class A     AllianceBernstein, L.P.                                           

AllianceBernstein VPS Growth Portfolio - Class A                AllianceBernstein, L.P.                                           

                                                    (Footnotes found on page 19)

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Variable Investment Options                                     Investment Adviser (Sub-adviser, if applicable)                   
--------------------------------------------------------------  ------------------------------------------------------------------
                                                                                                                                  
AllianceBernstein VPS Large Cap Growth Portfolio -              AllianceBernstein, L.P.                                           
Class A                                                                                                                           

AllianceBernstein VPS Small Cap Growth Portfolio -              AllianceBernstein, L.P.                                           
Class A/1/                                                                                                                        

American Century VP Income & Growth Fund                        American Century Investment Management, Inc.                      

American Century VP International Fund                          American Century Global Investment Management, Inc.               

Credit Suisse Trust Emerging Markets Portfolio                  Credit Suisse Asset Management, LLC                               

Credit Suisse Trust Global Small Cap Portfolio                  Credit Suisse Asset Management, LLC                               

Credit Suisse Trust International Focus Portfolio               Credit Suisse Asset Management, LLC                               

Credit Suisse Trust Large Cap Value Portfolio                   Credit Suisse Asset Management, LLC                               

Credit Suisse Trust Mid-Cap Growth Portfolio                    Credit Suisse Asset Management, LLC                               

Credit Suisse Trust Small Cap Growth Portfolio                  Credit Suisse Asset Management, LLC                               

Fidelity(R) VIP Balanced Portfolio - Initial Class              Fidelity Management & Research Company (FMR Co., Inc.)            
                                                                (Fidelity International Investment Advisors)                      
                                                                (Fidelity International Investment Advisors (U.K.) Limited)       
                                                                (Fidelity Investments Japan Limited)                              
                                                                (Fidelity Investments Money Management, Inc.)                     
                                                                (Fidelity Management & Research (Far East) Inc.)                  
                                                                (Fidelity Management & Research (U.K.) Inc.)                      

Fidelity(R) VIP Contrafund(R) Portfolio - Initial Class/2/      Fidelity Management & Research Company (FMR Co., Inc.)            
                                                                (Fidelity International Investment Advisors)                      
                                                                (Fidelity International Investment Advisors (U.K.) Limited)       
                                                                (Fidelity Investments Japan Limited)                              
                                                                (Fidelity Management & Research (Far East) Inc.)                  
                                                                (Fidelity Management & Research (U.K.) Inc.)                      

Fidelity(R) VIP Index 500 Portfolio - Initial Class             Fidelity Management & Research Company (FMR Co., Inc.)            
                                                                (Geode Capital Management, LLC)                                   

Franklin Templeton VIP Franklin Money Market Fund - Class 1     Franklin Advisers, Inc.                                           

Franklin Templeton VIP Templeton Developing Markets             Templeton Asset Management Ltd.                                   
Securities Fund - Class 2                                                                                                         

Franklin Templeton VIP Templeton Foreign Securities Fund -      Templeton Investment Counsel, LLC                                 
Class 2                                                                                                                           

Franklin Templeton VIP Templeton Growth Securities Fund -       Templeton Global Advisors Limited                                 
Class 2                                                                                                                           

Goldman Sachs VIT International Equity Fund                     Goldman Sachs Asset Management International                      

Goldman Sachs VIT Structured U.S. Equity Fund                   Goldman Sachs Asset Management, L.P.                              

JPMorgan Small Company Portfolio                                J.P. Morgan Investment Management Inc.                            

Mercury Basic Value V.I. Fund - Class I Shares/3/               Merrill Lynch Investment Managers, L.P., d/b/a Mercury Advisors   

Mercury Fundamental Growth V.I. Fund - Class I Shares/4/        Merrill Lynch Investment Managers, L.P., d/b/a Mercury Advisors   

Mercury Government Bond V.I. Fund - Class I Shares              Merrill Lynch Investment Managers, L.P., d/b/a Mercury Advisors   

Mercury Value Opportunities V.I. Fund - Class I Shares          Merrill Lynch Investment Managers, L.P., d/b/a Mercury Advisors   

Neuberger Berman AMT Partners Portfolio/5/                      Neuberger Berman Management Inc. (Neuberger Berman LLC)           

PIMCO VIT High Yield Portfolio - Administrative Class           Pacific Investment Management Company LLC                         

PIMCO VIT Long-Term U.S. Government Portfolio -                 Pacific Investment Management Company LLC                         
Administrative Class                                                                                                              

PIMCO VIT Real Return Portfolio - Administrative Class          Pacific Investment Management Company LLC                         

PIMCO VIT Short-Term Portfolio - Administrative Class           Pacific Investment Management Company LLC                         

PIMCO VIT Total Return Portfolio - Administrative Class         Pacific Investment Management Company LLC                         

UIF Core Plus Fixed Income Portfolio - Class I Shares           Morgan Stanley Investment Management Inc. d/b/a Van Kampen        

UIF Emerging Markets Equity Portfolio - Class I Shares          Morgan Stanley Investment Management Inc. d/b/a Van Kampen        

UIF High Yield Portfolio - Class I Shares                       Morgan Stanley Investment Management Inc. d/b/a Van Kampen        

                                                    (Footnotes found on page 19)

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Variable Investment Options                                     Investment Adviser (Sub-adviser, if applicable)                   
--------------------------------------------------------------  ------------------------------------------------------------------
                                                                                                                                  
UIF Mid Cap Growth Portfolio - Class I Shares                   Morgan Stanley Investment Management Inc. d/b/a Van Kampen        

UIF U.S. Mid Cap Value Portfolio - Class I Shares               Morgan Stanley Investment Management Inc. d/b/a Van Kampen        

VALIC Co. I International Equities Fund                         VALIC* (AIG Global Investment Corp.)                              

VALIC Co. I Mid Cap Index Fund                                  VALIC* (AIG Global Investment Corp.)                              

VALIC Co. I Small Cap Index Fund                                VALIC* (AIG Global Investment Corp.)                              

Vanguard VIF Total Bond Market Index Portfolio                  The Vanguard Group, Inc.                                          

Vanguard VIF Total Stock Market Index Portfolio                 The Vanguard Group, Inc.                                          

 /1/  The Fund type for AllianceBernstein VPS Small Cap Growth
Portfolio - Class A is growth equity.             
    /2/  The Fund type for Fidelity(R) VIP Contrafund(R) Portfolio -
Initial Class is capital appreciation.            
         /3/  The Fund type for Mercury Basic Value V.I. Fund - Class I Shares
is large cap value.                               
         /4/  The Fund type for Mercury Fundamental Growth V.I. Fund - Class I
Shares is large cap growth.                       
         /5/  The Fund type for Neuberger Berman AMT Partners Portfolio is mid
to large cap value.                               

   *    "VALIC" means The Variable Annuity Life Insurance Company.

    From time to time, certain Fund names are changed. When we are notified of
a name change, we will make changes so that the new name is properly shown.     
However, until we complete the changes, we may provide you with various forms,  
reports and confirmations that reflect a Fund's prior name.                     

You can learn more about the Funds, their investment policies, risks, 
expenses and all other aspects of their operations by reading their             
prospectuses. You should carefully read the Funds' prospectuses before you      
select any variable investment option. We do not guarantee that any Fund will   
achieve its objective. In addition, no single Fund or investment option, by     
itself, constitutes a balanced investment plan.                                 

    We have entered into various services agreements with most of the advisers
or administrators for the Funds. We receive payments for the administrative     
services we perform such as proxy mailing and tabulation, mailing of fund       
related information and responding to Policy Owners' inquiries about the Funds. 
Currently, these payments range from 0.15% to 0.35% of the daily market value of
the assets invested in the underlying Fund as of a certain date, usually paid at
the end of each calendar quarter. From time to time some of these arrangements  
may be renegotiated so that we receive a greater payment than previously paid   
depending on our determination that the expenses that we are incurring are      
greater than we anticipated. These payments do not result in any additional     
charges under the Policies that are not described under "Charges Under the      
Policy" on page 38.                                                             

    We also receive what is referred to as "12b-1 fees" from some of the Funds
themselves. These fees are designed to help pay for our direct and indirect     
distribution costs for the Policies. These fees are generally equal to 0.25% of 
the daily market value of the assets invested in the underlying Fund.           

Guaranteed Investment Option                                                    

Under the Policy, you may currently allocate your Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part of
your Account Value to the Loan Account which is part of the Guaranteed Account. 

We may treat each allocation and transfer separately for purposes of  
crediting interest and making deductions from the Guaranteed Account.           

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     All of your Account Value held in the Guaranteed Account will earn interest
at a rate we determine in our sole discretion. This rate will never be less than
4% per year compounded annually. The Loan Account portion of your Account Value 
may earn a different interest rate than the remaining portion of your Account   
Value in the Guaranteed Account.                                                

 We will deduct any transfers, partial surrenders or any Policy expenses
from the Guaranteed Account and your variable investment options on a pro rata  
basis, unless you provide other directions. No portion of the Loan Account may  
be used for this purpose.                                                       

  If we must pay any part of the proceeds for a loan, partial surrender or
full surrender from the Guaranteed Account, we may defer the payment for up to  
six months from the date we receive the written request. If we defer payment    
from the Guaranteed Account for 30 days or more, we will pay interest on the    
amount we deferred at a rate of 4% per year, compounded annually, until we make 
payment.                                                                        

Guaranteed Account Value                                                        

On any Valuation Date, the Guaranteed Account portion of your Policy  
Account Value equals:                                                           

 .    the total of all Net Premium, allocated to the Guaranteed Account,
plus                                                        

.    any amounts transferred to the Guaranteed Account, plus          

.    interest credited on the amounts allocated and transferred to the
Guaranteed Account, less                                    

.    the amount of any transfers from the Guaranteed Account, less    

   .    the amount of any partial surrender, including the partial surrender
charges, taken from the Guaranteed Account, less            

.    the allocated portion of the monthly deduction deducted from the 
Guaranteed Account, plus                                    

.    the amount of the Loan Account.                                  

    If you take a loan, we transfer the amount of the loan to the Loan Account
held in the Guaranteed Account. The value of your Loan Account includes         
transfers to and from the Loan Account as you take and repay loans and interest 
credited on the Loan Account.                                                   

Voting Privileges                                                               

   We are the legal owner of the Funds' shares held in the Variable Account.
However, you may be asked to instruct us how to vote the Fund shares held in the
various Funds that are attributable to your Policy at meetings of shareholders  
of the Funds. The number of votes for which you may give directions will be     
determined as of the record date for the meeting. The number of votes that you  
may direct related to a particular Fund is equal to (a) your Account Value      
invested in that Fund divided by (b) the net asset value of one share of that   
Fund. Fractional votes will be recognized.                                      

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    We will vote all shares of each Fund that we hold of record, including any
shares we own on our own behalf, in the same proportions as those shares for    
which we have received instructions from Owners participating in that Fund      
through the Variable Account.                                                   

     If you are asked to give us voting instructions, we will send you the proxy
material and a form for providing such instructions. Should we determine that we
are no longer required to send the Owner such materials, we will vote the shares
as we determine in our sole discretion.                                         

  In certain cases, we may disregard instructions relating to changes in a
Fund's investment manager or its investment policies. We will advise you if we  
do and explain the reasons in our next report to Policy Owners. AIG Life        
reserves the right to modify these procedures in any manner that the laws in    
effect from time to time allow.                                                 

Illustrations                                                                   

We may provide you with illustrations for your Policy's death benefit,
Account Value, and Net Cash Surrender Value based on hypothetical rates of      
return. Hypothetical illustrations also assume costs of insurance for a         
hypothetical person. These illustrations are illustrative only and should not be
considered a representation of past or future performance. Your actual rates of 
return and actual charges may be higher or lower than these illustrations. The  
actual return on your Account Value will depend on factors such as the amounts  
you allocate to particular investment options, the amounts deducted for the     
Policy's fees and charges, the variable investment options' fees and charges,   
and your Policy loan and partial surrender history.                             

   Before you purchase the Policy, we will provide you with what we refer to
as a personalized illustration. A personalized illustration shows future        
benefits under the Policy based upon (1) the proposed Insured person's age and  
rate class and (2) your selection of a Death Benefit Option, Face Amount,       
planned periodic premiums and proposed investment options.                      

After you purchase the Policy and upon your request, we will provide a
similar personalized illustration that takes into account your Policy's actual  
values and features as of the date the illustration is prepared. We reserve the 
right to charge a $25 fee for personalized illustrations prepared after the     
Policy is issued if you request us to do so more than once each year. We do not 
currently charge for additional personalized illustrations.                     

 POLICY FEATURES

Death Benefits                                                                  

Your Face Amount of insurance. In your application to buy an Executive
Advantage Policy, you tell us how much life insurance coverage you want. We call
this the "Face Amount" of insurance.                                            

   Investment performance affects the amount of your Policy's Account Value.
We deduct all charges from your Account Value. The amount of the monthly charges
may differ from month to month. However, as long as all applicable charges are  
paid on a timely basis each month, the Face Amount of insurance payable under   
your Policy is unaffected by investment performance. See "Monthly Deduction From
Account Value" on page 38.                                                      

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     Your death benefit. You must choose one of the two Death Benefit Options at
the time we issue your Policy.                                                  

.    Level Death Benefit Option or                          

.    Increasing Death Benefit Option.                       

     For the Level Death Benefit Option, the death benefit will be the
greater of:                                                 

.    Face Amount; or                                        

         .    Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.                     

         You should consider this Death Benefit Option if you want to minimize
your cost of insurance.                                     

          For the Increasing Death Benefit Option, the death benefit will be the
greater of:                                                 

.    Face Amount plus the Account Value; or                 

         .    Account Value on the date of death multiplied by the appropriate
minimum death benefit factor.                     

        You should consider this Death Benefit Option if you want your death
benefit to increase with your Account Value.                

Life Insurance Proceeds. During the Policy term, we will pay the Life 
Insurance Proceeds to the Beneficiary after the Insured's death. To make        
payment, we must receive at our Administrative Center:                          

.    satisfactory proof of the Insured's death; and         

.    the Policy.                                            

     Payment of Life Insurance Proceeds. We will pay the Life Insurance Proceeds
generally within seven days after we receive the information we require. We will
pay the Life Insurance Proceeds to the Beneficiary in one lump sum or, if       
elected, under a payment option. Payment of the Life Insurance Proceeds may also
be affected by other provisions of the Policy.                                  

  We will pay interest on the Life Insurance Proceeds from the date of the
Insured's death to the date of payment as required by applicable state law.     

 Amount of Life Insurance Proceeds. We will determine the Life Insurance
Proceeds as of the date of the Insured's death. The Life Insurance Proceeds will
equal:                                                                          

.    the amount of the death benefit determined according to the Death
Benefit Option selected; minus                              

.    the Outstanding Loan, if any, and accrued loan interest; minus   

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.    any overdue monthly deductions if the Insured dies during a Grace
Period.                                                     

Tax Qualification Options                                                       

Section 7702 of the Code provides alternative testing procedures for  
meeting the definition of life insurance. Each Policy must qualify under one of 
these two tests and you may select the test we use for ensuring your Policy     
meets the definition of life insurance.                                         

Under both tests under Section 7702, there is a minimum death benefit 
required at all times. This is equal to the Account Value multiplied by the     
appropriate minimum death benefit factor. These factors depend on the tax       
qualification option and may be based on the Attained Age, sex and rate class of
the Insured. A table of the applicable factors is located in the Policy.        

The two tax qualification options are:                                

.    Guideline Premium/Cash Value Corridor Test.                      

.    Cash Value Accumulation Test.                                    

 You must elect one of these tests when you apply for a Policy. After we
issue your Policy, the choice may not be changed.                               

Changes in Death Benefit Options                                                

   If you have selected the Level Death Benefit Option you may change to the
Increasing Death Benefit Option. You may also change from the Increasing Death  
Benefit Option to the Level Death Benefit Option.                               

How to request a change. You may change your Death Benefit Option by  
providing your agent with a written request or by writing us at our             
Administrative Center. We may require that you submit satisfactory evidence of  
insurability to us.                                                             

If you request a change from the Level Death Benefit Option to the    
Increasing Death Benefit Option, we will decrease the Face Amount by an amount  
equal to your Account Value on the date the change takes effect. However, we    
reserve the right to decline to make such a change if it would reduce the Face  
Amount below the minimum Face Amount.                                           

 If you request a change from the Increasing Death Benefit Option to the
Level Death Benefit Option, we will increase the Face Amount by an amount equal 
to your Account Value on the date the change takes effect. Such decreases and   
increases in the Face Amount are made so that the Life Insurance Proceeds remain
the same on the date the change takes effect.                                   

     Once approved, we will issue new Policy information pages and attach a copy
of your application for change. We reserve the right to decline to make any     
changes that we determine would cause the Policy to fail to qualify as life     
insurance under our interpretation of the Code.                                 

    The change will take effect on the next Monthly Anniversary that coincides
with or next follows the date we approve your request.                          

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 Tax consequences of changes in insurance coverage. Please read "Federal
Income Tax Considerations" starting on page 45 of this prospectus to learn about
possible tax consequences of changing your insurance coverage under your Policy.

Premium Payments                                                                

   The Policy allows you to select the timing and amount of premium payments
within limits. Send premium payments to our Administrative Center.              

Restrictions on Premium. We may not accept any premium payment:       

.    If it is less than $50;                                          

 .    If the premium would cause the Policy to fail to qualify as a life
      insurance contract as defined in Section 7702 of the Code, we will
        refund any portion of any premium that causes the Policy to fail. In
          addition, we will monitor the Policy and will attempt to notify you on
       a timely basis if your Policy is in jeopardy of becoming a modified
endowment contract under the Code; or                       

     .    If the premium would increase the amount of our risk under your Policy
        by an amount greater than that premium amount. In such cases, we may
       require satisfactory evidence of insurability before accepting that
premium.                                                    

     Minimum Initial Premium. We will calculate the minimum initial premium. The
amount is based on a number of factors, including the age, sex, and underwriting
class of the proposed Insured and the desired Face Amount.                      

  Planned Periodic Premium. When you apply for a Policy, you select a plan
for paying annual level premiums. We will establish a minimum amount that may be
used as the planned periodic premium. We may recalculate this minimum amount if 
the Face Amount of the Policy is increased or decreased.                        

    You are not required to pay premiums in accordance with this plan. Rather,
you can pay more or less than the planned periodic premium or skip a planned    
periodic premium entirely.                                                      

     At any time you can change the amount and frequency of the planned periodic
premium by sending a written notice to our Administrative Center.               

 Additional Premium. Additional premiums are premiums other than planned
premiums. Additional premiums may be paid in any amount and at any time subject 
to the Code.                                                                    

Depending on the Account Value at the time of an increase in the Face 
Amount and the amount of the increase requested, an additional premium may be   
needed to prevent your Policy from terminating.                                 

Effect of Premium Payments. In general, paying all planned periodic   
premiums may not prevent your Policy from lapsing. In addition, if you fail to  
pay any planned periodic premium, your Policy will not necessarily lapse.       

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    Your Policy will lapse only when the Net Cash Surrender Value on a Monthly
Anniversary is less than the amount of that date's monthly deduction. This could
happen if the Net Cash Surrender Value has decreased because:                   

     .    of the negative return or insufficient return earned by one or more of
the subaccounts you selected; or                            

     .    of any combination of the following -- you have Outstanding Loans, you
       have taken partial surrenders, we have deducted Policy expenses, or
     you have made insufficient premium payments to offset the monthly
deduction.                                                  

   Grace Period. In order for insurance coverage to remain in force, the Net
Cash Surrender Value on each Monthly Anniversary must be equal to or greater    
than the total monthly deductions for that Monthly Anniversary. If it is not,   
you have a Grace Period of 61 days during which the Policy will continue in     
force. The Grace Period begins on the Monthly Anniversary that the Net Cash     
Surrender Value is less than the total monthly deductions then due. If we do not
receive a sufficient premium before the end of the Grace Period, the Policy will
terminate without value.                                                        

  We will send you a written notice within 30 days of the beginning of any
Grace Period. The notice will state that a Grace Period of 61 days has begun.   

   The amount of premium required to prevent your Policy from terminating is
equal to the amount needed to increase the Net Cash Surrender Value sufficiently
to cover total monthly deductions for the next three (3) Monthly Anniversaries. 

 If the Insured dies during the Grace Period, we will still pay the Life
Insurance Proceeds to the Beneficiary. The amount we pay will reflect a         
reduction for the unpaid monthly deductions due on or before the date of the    
Insured's death.                                                                

     If your Policy lapses with an Outstanding Loan you may have taxable income.

    Premium Allocations. In the application, you specify the percentage of Net
Premium to be allocated to each subaccount and Guaranteed Account. However,     
until the period to examine and cancel expires, we invest this amount in the    
Money Market subaccount. On the first business day after the period expires, we 
will reallocate your Account Value based on the premium allocation percentages  
in your application.                                                            

 For all subsequent premiums, we will use the allocation percentages you
specified in the application until you change them. You can change the          
allocation percentages at any time by sending written notice to our             
Administrative Center. The change will apply to all premium received with or    
after your notice.                                                              

Allocation Rules. Your allocation instructions must meet the following
requirements:                                                                   

.    Each allocation percentage must be a whole number;     

.    Any allocation to a subaccount must be at least 5%; and

.    the sum of your allocations must equal 100%.           

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Crediting Premium. Your initial Net Premium will be credited to your  
Account Value as of the Policy Date. We will credit and invest subsequent Net   
Premiums on the date we receive the premium or notice of deposit at our         
Administrative Center. We will process premiums at the price next computed after
receipt of premium. Premiums received by 4:00 p.m., Eastern Time, on a Valuation
Date will be processed as of that day. Premiums received after 4:00 p.m.,       
Eastern Time, on a Valuation Date will be processed as of the next Valuation    
Date.                                                                           

     If any premium requires us to accept additional risk, we will allocate this
amount to the Money Market subaccount until we complete our underwriting. When  
accepted, and at the end of the period to examine and cancel the Policy, we will
allocate it in accordance with your allocation percentages.                     

    Future premium payments. You may at any time change the investment options
in which future premiums you pay will be invested. Your allocation must,        
however, be in whole percentages that total 100%.                               

The Policy allows you to choose how to invest your Account Value. Your
Account Value will increase or decrease based on:                               

.    The returns earned by the subaccounts you select.                

.    Interest credited on amounts allocated to the Guaranteed Account.

  We will determine your Policy benefits based upon your Account Value. If
your Account Value is insufficient, your Policy may terminate. If the Net Cash  
Surrender Value on a Monthly Anniversary is less than the amount of that date's 
monthly deduction, the Policy will be in default and a Grace Period will begin. 

Determining the Account Value                                                   

On the Policy Date, your Account Value is equal to your initial Net   
Premium. If the Policy Date and the Issue Date are the same day, the Account    
Value is equal to your initial premium, less the premium expenses and monthly   
deduction.                                                                      

On each Valuation Date thereafter, your Account Value is equal to:    

.    Your Account Value held in the subaccounts; and                  

.    Your Account Value held in the Guaranteed Account.               

Your Account Value will reflect:                                      

.    the premiums you pay; and,                                       

.    the returns earned by the subaccounts you select; and,           

    .    the interest credited on amounts allocated to the Guaranteed Account;
and,                                                        

.    any loans or partial surrender; and,                             

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.    the Policy expenses we deduct.                                   

Account Value in the Subaccounts                                                

We measure your Account Value in the subaccounts by the value of the  
subaccounts' accumulation units we credit to your Policy. When you allocate     
premiums or transfer part of your Account Value to a subaccount, we credit your 
Policy with accumulation units in that subaccount. The number of accumulation   
units equals the amount allocated to the subaccount divided by that subaccount's
accumulation unit value for the Valuation Date when the allocation is effected. 

    The number of subaccount accumulation units we credit to your Policy will:

    .    increase when Net Premium is allocated to the subaccount, amounts are
         transferred to the subaccount and loan repayments are credited to the
subaccount.                                                 

    .    decrease when the allocated portion of the monthly deduction is taken
          from the subaccount, a loan is taken from the subaccount, an amount is
          transferred from the subaccount, or a partial surrender, including the
partial surrender charges, is taken from the subaccount.    

    Accumulation Unit Values. A subaccount's accumulation unit value varies to
reflect the return of the portfolio and may increase or decrease from one       
Valuation Date to the next. We arbitrarily set the accumulation unit value for  
each subaccount at $10 when the subaccount was established. Thereafter, the     
accumulation unit value equals the accumulation unit value for the prior        
Valuation Period multiplied by the Net Investment Factor for the current        
Valuation Period.                                                               

Net Investment Factor. The net investment factor is an index we use to
measure the investment return earned by a subaccount during a Valuation Period. 
It is based on the change in net asset value of the portfolio shares held by the
subaccount, and reflects any dividend or capital gain distributions on the      
portfolio shares and may include the deduction of the daily mortality and       
expense risk charge.                                                            

 Guaranteed Account Value. On any Valuation Date, the Guaranteed Account
portion of your Policy Account Value equals:                                    

 .    the total of all Net Premium, allocated to the Guaranteed Account,
plus                                                        

.    any amounts transferred to the Guaranteed Account, plus          

.    interest credited on the amounts allocated and transferred to the
Guaranteed Account, less                                    

.    the amount of any transfers from the Guaranteed Account, less    

   .    the amount of any partial surrender, including the partial surrender
charges, taken from the Guaranteed Account, less            

.    the allocated portion of the monthly deduction deducted from the 
Guaranteed Account, plus                                    

.    the amount of the Loan Account.                                  

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    If you take a loan, we transfer the amount of the loan to the Loan Account
held in the Guaranteed Account. The value of your Loan Account includes         
transfers to and from the Loan Account as you take and repay loans and interest 
credited on the Loan Account.                                                   

     Net Account Value. The net Account Value on a Valuation Date is the Account
Value less Outstanding Loans on that date.                                      

   Cash Surrender Value. The Cash Surrender Value on a Valuation Date is the
Account Value reduced by any surrender charge that would be assessed if you     
surrendered the Policy on that date.                                            

    Net Cash Surrender Value. The Net Cash Surrender Value on a Valuation Date
is the amount you would receive on a surrender of your Policy and is equal to:  

.    the Cash Surrender Value, less                                   

.    the Outstanding Loan on that date.                               

Transfers                                                                       

    You may transfer Account Value among the subaccounts and to the Guaranteed
Account after the period to examine and cancel. All transfer requests, except   
for those made under the dollar cost averaging program, must satisfy the        
following requirements:                                                         

    .    Minimum amount of transfer -- You must transfer at least $250 or, the
 balance in the subaccount or the Guaranteed Account, if less;

     .    Form of transfer request -- You must make a written request unless you
         have established prior authorization to make transfers by other means
we make available;                                          

    .    Transfers from the Guaranteed Account -- The maximum you may transfer
 in a Policy year is equal to 25% of your Account Value in the
          Guaranteed Account (not including the Loan Account) as of the date the
transfer takes effect.                                      

Date We Process Your Transfer Request. We must receive your transfer  
request at our Administrative Center. We process transfers at the price next    
computed after we receive your transfer request. Transfer requests received by  
4:00 p.m., Eastern Time, on a Valuation Date will be processed as of that day.  
Transfer requests received after 4:00 p.m., Eastern Time, on a Valuation Date   
will be processed as of the next Valuation Date.                                

  Number of Permitted Transfers/Transfer Charge. We do not currently limit
the number of transfers you may make. However, for each transfer in excess of 12
during a Policy year, we will charge you $25 for each additional transfer. All  
transfers processed on the same business day will count as one transfer for     
purposes of determining the number of transfers you have made in a Policy year. 
Transfers in connection with the dollar cost averaging program will not count   
against the 12 free transfers in any Policy year. We reserve the right to       
increase or decrease the number of free transfers allowed in any Policy year.   

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Dollar Cost Averaging                                                           

Dollar cost averaging is a systematic method of investing at regular  
intervals. By investing at regular intervals, the cost of the securities is     
averaged over time and perhaps over various market cycles.                      

 If you choose this program, we will make automatic monthly transfers of
your Account Value from the Money Market subaccount into other subaccounts for a
specified dollar amount or a specified number of months (not exceeding          
twenty-four months). Unless you tell us otherwise, we will allocate the transfer
as you have specified in your most current premium allocation instructions.     
However, no less than 5% may be allocated to any one subaccount. You must have  
$2,000 in the Money Market subaccount to elect dollar cost averaging. We will   
apply any additional premium payments you make after electing this program to   
the Money Market subaccount for purposes of dollar cost averaging your          
investment. You may maintain only one dollar cost averaging instruction with us 
at a time.                                                                      

     There is currently no charge for this program. Transfers in connection with
dollar cost averaging will not count against your free transfers in a Policy    
year. We reserve the right to suspend or modify this program at any time.       

     Processing your automatic dollar cost averaging transfers. We will begin to
process your automatic transfers:                                               

  .    On the first Monthly Anniversary following the end of the period to
          examine and cancel if you request dollar cost averaging when you apply
for your Policy.                                            

     .    On the second Monthly Anniversary following receipt of your request at
          our Administrative Center if you elect the program after you apply for
the Policy.                                                 

We will stop processing automatic transfers if:                       

.    The funds in the Money Market subaccount have been depleted;     

     .    We receive your written request at our Administrative Center to cancel
future transfers;                                           

.    We receive notification of death of the Insured; or              

.    Your Policy goes into the Grace Period.                          

    Dollar cost averaging may lessen the impact of market fluctuations on your
investment. Using dollar cost averaging does not guarantee investment gains or  
protect against loss in a declining market.                                     

Market Timing                                                                   

    The Policies are not designed for professional market timing organizations
or other entities or individuals using programmed and frequent transfers        
involving large amounts. Market timing carries risks with it, including:        

    .    dilution in the value of Fund shares underlying investment options of
other Policy owners;                                        

  .    interference with the efficient management of the Fund's portfolio;
and                                                         

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.    increased administrative costs.                                  

    We have policies and procedures that require us to monitor the Policies to
determine if a Policy owner requests:                                           

    .    an exchange out of a variable investment option, other than the money
     market investment option, within two calendar weeks of an earlier
exchange into that same variable investment option;         

  .    an exchange into a variable investment option, other than the money
     market investment option, within two calendar weeks of an earlier
exchange out of that same variable investment option; or    

  .    exchanges into or out of the same variable investment option, other
       than the money market investment option, more than twice in any one
calendar quarter.                                           

If any of the above transactions occurs, we will suspend such Policy  
owner's same day or overnight delivery transfer privileges (including website,  
e-mail and facsimile communications) with prior notice to prevent market timing 
efforts that could be harmful to other Policy owners or beneficiaries. Such     
notice of suspension will take the form of either a letter mailed to your last  
known address, or a telephone call from our Administrative Center to inform you 
that effective immediately, your same day or overnight delivery transfer        
privileges have been suspended. A Policy owner's first violation of this policy 
will result in the suspension of Policy transfer privileges for ninety days. A  
Policy owner's subsequent violation of this policy will result in the suspension
of Policy transfer privileges for six months. Transfers under dollar cost       
averaging, automatic rebalancing or any other automatic transfer arrangements to
which we have agreed are not affected by these procedures.                      

The procedures above will be followed in all circumstances and we will
treat all Policy owners the same.                                               

   In addition, Policy owners incur a $25 charge for each transfer in excess
of 12 each Policy year.                                                         

Fund-Rejected Transfers                                                         

   Some of the Funds have policies and procedures restricting transfers into
the Fund. For this reason or for any other reason the Fund deems necessary, a   
Fund may instruct us to reject a Policy owner's transfer request. We will follow
the Fund's instructions. Please read the Funds' prospectuses and supplements for
information about restrictions on transfers.                                    

Changing the Face Amount of Insurance                                           

Changes in Face Amount. At any time after the first Policy anniversary
while your Policy is in force you may request a change in the Face Amount. We   
will not make a change in Face Amount that causes your Policy to fail to qualify
as life insurance under the Code.                                               

Increases in Face Amount. Any request for an increase:                

.    Must be for at least $10,000;                                    

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     .    May not be requested in the same Policy year as another request for an
increase; and                                               

.    May not be requested after the Insured is Attained Age 65.       

    A written application must be submitted to our Administrative Center along
with satisfactory evidence of insurability. You must return the Policy so we can
amend it to reflect the increase. The increase in Face Amount will become       
effective on the Monthly Anniversary on or next following the date the increase 
is approved, and the Account Value will be adjusted to the extent necessary to  
reflect a monthly deduction as of the effective date based on the increase in   
Face Amount. Increasing the Face Amount may increase the amount of premium you  
would need to pay to avoid a lapse of your Policy.                              

Decreases in Face Amount. Any request for a decrease:                 

.    Must be at least $5,000;                                         

    .    Must not cause the Face Amount after the decrease to be less than the
minimum Face Amount at which we would issue a Policy; and   

.    During the first five Policy years, the Face Amount may not be   
      decreased by more than 10% of the initial Face Amount. If the Face
     Amount is decreased during the first 14 Policy years or within 14
         Policy years of an increase in Face Amount, a surrender charge may be
applicable.                                                 

  Consequences of a Change in Face Amount. Both increases and decreases in
Face Amount may impact the surrender charge. In addition, an increase or        
decrease in Face Amount may impact the status of the Policy as a modified       
endowment contract.                                                             

Effective Date of Policy and Related Transactions                               

  Valuation dates, times, and periods. We compute values under a Policy on
each day that the New York Stock Exchange ("NYSE") is open for business. We call
each such day a "valuation date" or a "business day."                           

   We compute Policy values as of the time the NYSE closes on each Valuation
Date, which usually is 4:00 p.m. Eastern time. We call this our "close of       
business." We call the time from the close of business on one Valuation Date to 
the close of business of the next Valuation Date a "Valuation Period." We are   
closed only on those holidays the NYSE is closed.                               

Fund Pricing. Each Fund produces a price per Fund share following each
close of the NYSE and provides that price to us. We then determine the Fund     
value at which you may invest in the particular investment option, which        
reflects the change in value of each Fund reduced by the daily charge and any   
other charges that are applicable to your Policy.                               

Date of receipt. Generally we consider that we have received a premium
payment or another communication from you on the day we actually receive it in  
full and proper order at any of the addresses shown on page 5 of this           
prospectus. If we receive it after the close of business on any Valuation Date, 
however, we consider that we have received it on the day following that         
Valuation Date. Any premium                                                     

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payments we receive after our close of business are held in our general account 
until the next business day.                                                    

  Commencement of insurance coverage. After you apply for a Policy, it can
sometimes take up to several weeks for us to gather and evaluate all the        
information we need to decide whether to issue a Policy to you and, if so, what 
the Insured person's premium class should be. We will not pay a death benefit   
under a Policy unless (a) it has been delivered to and accepted by the Owner and
at least the initial premium has been paid, and (b) at the time of such delivery
and payment, there have been no adverse developments in the Insured person's    
health or risk of death.                                                        

  Issue Date; Policy months and years. We prepare the Policy only after we
approve an application for a Policy and assign an appropriate premium class. The
day we begin to deduct charges will appear on page 3 of your Policy and is      
called the "Issue Date." Policy months and years are measured from the Issue    
Date. To preserve a younger age at issue for the Insured person, we may assign  
an Issue Date to a Policy that is up to 6 months earlier than otherwise would   
apply.                                                                          

Monthly deduction days. Each charge that we deduct monthly is assessed
against your Account Value at the close of business on the Issue Date and at the
end of each subsequent Valuation Period that includes the first day of a Policy 
month. We call these "monthly deduction days."                                  

  Commencement of investment performance. We begin to credit an investment
return to the Account Value resulting from your initial premium payment on the  
later of (a) the Issue Date, or (b) the date all requirements needed to place   
the Policy in force have been satisfied, including underwriting approval and    
receipt of the necessary premium. In the case of a back-dated Policy, we do not 
credit an investment return to the Account Value resulting from your initial    
premium payment until the date stated in (b) above.                             

Effective date of other premium payments and requests that you make.  
Premium payments (after the first) and transactions made in response to your    
requests and elections are generally effected at the end of the Valuation Period
in which we receive the payment, request or election and based on prices and    
values computed as of that same time. Exceptions to this general rule are as    
follows:                                                                        

    .    Increases you request in the Face Amount of insurance, reinstatements
         of a Policy that has lapsed, and changes in Death Benefit Option take
         effect on the Policy's monthly deduction day on or next following our
approval of the transaction;                                

.    In most states, we may return premium payments, make a partial   
   surrender or reduce the death benefit if we determine that such
   premiums would cause your Policy to become a modified endowment
          contract or to cease to qualify as life insurance under federal income
tax law or exceed the maximum Net Amount at Risk;           

     .    If you exercise the right to return your Policy described on page 7 of
       this prospectus, your coverage will end when you deliver it to your
     AIG Life representative, or if you mailed it to us, the day it is
postmarked; and                                             

   .    If you pay a premium at the same time that you make a Policy request
  which requires our approval, your payment will be applied when
   received rather than following the effective date of the change
         requested so long as your Policy is in force and the amount paid will
        not cause you to exceed premium limitations under the Code. If we do
not approve your Policy                                     

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      request, your premium payment will still be accepted in full or in
        part (we will return to you the portion of your premium payment that
      would be in violation of the maximum premium limitations under the
  Code). We will not apply this procedure to premiums you pay in
connection with reinstatement requests.                     

Reports to Policy Owners                                                        

  You will receive a confirmation within seven days of the transaction of:

.    the receipt of any premium;                                      

.    any change of allocation of premiums;                            

.    any transfer between subaccounts;                                

.    any loan, interest repayment, or loan repayment;                 

.    any partial surrender;                                           

.    any return of premium necessary to comply with applicable maximum
receipt of any premium payment;                             

.    any exercise of your right to cancel;                            

.    an exchange of the Policy;                                       

.    full surrender of the Policy.                                    

 Within 30 days after each Policy anniversary we will send you an annual
statement. The statement will show the Life Insurance Proceeds currently        
payable, and the current Account Value, Cash Surrender Value, and the           
Outstanding Loan. The statement will also show premiums paid, all charges       
deducted during the Policy year, and all transactions. We will also send to you 
annual and semi-annual reports of the Variable Account.                         

 POLICY TRANSACTIONS

The transactions we describe below may have different effects on the  
Account Value, death benefit, Face Amount or cost of insurance. You should      
consider the net effects before requesting a Policy transaction. See "Policy    
Features," on page 21. Certain transactions also entail charges. For information
regarding other charges, see "Charges Under the Policy" on page 38.             

Withdrawing Policy Investments                                                  

   Full surrender. You may at any time surrender your Policy in full. If you
do, we will pay you the Account Value, less any Policy loans, plus any unearned 
loan interest, and less any surrender charge that then applies. We call this    
amount your "Net Cash Surrender Value." Because of the surrender charge, it is  
unlikely that an Executive Advantage Policy will have any Net Cash Surrender    
Value during at least the first year. A full surrender may have adverse tax     
consequences.                                                                   

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     Partial surrender. You may, at any time after the first Policy year, make a
partial surrender of your Policy's Net Cash Surrender Value. A partial surrender
must be at least $500. We will automatically reduce your Policy's Account Value 
by the amount of your withdrawal and any related charge. A partial surrender may
have adverse tax consequences.                                                  

   You may choose the investment option or options from which money that you
withdraw will be taken. Otherwise, we will allocate the partial surrender in the
same proportions as then apply for deducting monthly charges under your Policy  
or, if that is not possible, in proportion to the amount of Account Value you   
then have in each investment option.                                            

    There is a maximum partial surrender processing fee equal to the lesser of
2% of the amount withdrawn or $25 for each partial surrender you make. This     
charge currently is $0.                                                         

 Loans. You may request a loan against your Policy at any time after the
first Policy year while the Policy has a Net Cash Surrender Value. We limit the 
minimum and maximum amount of loan you may take. If we issued the Policy under a
corporate owned arrangement, unless we agree otherwise, a loan will be applied  
pro rata over all Insureds under the Policy.                                    

    You must submit a written request for a loan to the Administrative Center.
Loans will be processed as of the date we receive the request at our            
Administrative Center. Loan proceeds generally will be sent to you within seven 
days.                                                                           

     Maximum Loan Amount. After the first Policy year the maximum loan amount is
90% of your Net Cash Surrender Value.                                           

  Interest. We charge interest daily on any Outstanding Loan at a declared
annual rate not in excess of 8%. The maximum net cost (the difference between   
the rate of interest we charge on loans and the amount we credit on the         
equivalent amount held in the Loan Account) of a loan is 2% per year. Interest  
is due and payable at the end of each Policy year while a loan is outstanding.  
If interest is not paid when due, the amount of the interest is added to the    
loan and becomes part of the Outstanding Loan.                                  

Loan Account. You may direct us to take an amount equal to the loan   
proceeds and any amount attributed to unpaid interest from any subaccount or    
from the Guaranteed Account. Otherwise, we will withdraw this amount from each  
subaccount on a pro rata basis. We transfer this amount to the Loan Account in  
the Guaranteed Account.                                                         

     When a loan is repaid, an amount equal to the repayment will be transferred
from the Loan Account to the subaccounts and Guaranteed Account in accordance   
with your allocation percentages in effect at the time of repayment.            

Effect of a Loan. A loan, whether or not repaid, will have a permanent
effect on the Life Insurance Proceeds and Account Value because the investment  
results of the subaccounts and current interest rates credited in the Guaranteed
Account will apply only to the non-loaned portion of the Account Value. The     
longer the loan is outstanding, the greater this effect is likely to be.        
Depending on the investment results of the subaccounts or credited interest     
rates for the Guaranteed Account while the loan is outstanding, the effect could
be favorable or unfavorable.                                                    

     In addition, loans from modified endowment contracts may be treated for tax
purposes as distributions of income.                                            

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    If the Life Insurance Proceeds become payable while a loan is outstanding,
the Outstanding Loan will be deducted in calculating the Life Insurance         
Proceeds.                                                                       

 If the Outstanding Loan exceeds the Cash Surrender Value on any Monthly
Anniversary, the Policy will be in default. We will send you, and any assignee  
of record, notice of the default. You will have a 61-day Grace Period to submit 
a sufficient payment to avoid termination. The notice will specify the amount   
that must be repaid to prevent termination.                                     

Outstanding Loan. The Outstanding Loan on a Valuation Date equals:    

.    All loans that have not been repaid (including past due unpaid   
interest added to the loan), plus                           

.    accrued interest not yet due.                                    

   Loan Repayment. You may repay all or part of your Outstanding Loan at any
time while the Insured is living and the Policy is in force. Loan repayments    
must be sent to our Administrative Center and will be credited as of the date   
received.                                                                       

Maturity of your Policy                                                         

   If the Insured person is living on the "Maturity Date" shown on page 3 of
your Policy, we will pay you the Net Cash Surrender Value of the Policy, and the
Policy will end.                                                                

Tax considerations                                                              

Please refer to "Federal Income Tax Considerations" on page 45 for    
information about the possible tax consequences to you when you receive any     
loan, surrender or other funds from your Policy. A Policy loan may cause the    
Policy to lapse which may result in adverse tax consequences.                   

 POLICY PAYMENTS

Payment Options                                                                 

 The Policy offers a wide variety of optional ways of receiving proceeds
payable under the Policy, such as on a surrender or death, other than in a lump 
sum. Any agent authorized to sell this Policy can explain these options upon    
request.                                                                        

  Change of payment option. You may give us written instructions to change
any payment option previously elected at any time while the Policy is in force  
and before the start date of the payment option.                                

Tax impact. If a payment option is chosen, the Policy Owner or the    
Beneficiary may have tax consequences. The Policy Owner or the Beneficiary      
should consult with a qualified tax adviser before deciding whether to elect one
or more payment options.                                                        

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The Beneficiary                                                                 

   You name your Beneficiary when you apply for a Policy. The Beneficiary is
entitled to the insurance benefits of the Policy. You may change the Beneficiary
during the lifetime of the Insured person unless your previous designation of   
Beneficiary provides otherwise. In this case the previous Beneficiary must give 
us permission to change the Beneficiary and then we will accept your            
instructions. A new Beneficiary designation is effective as of the date you sign
it, but will not affect any payments we may make before we receive it. If no    
Beneficiary is living when the Insured person dies, we will pay the insurance   
proceeds to the Owner or the Owner's estate.                                    

Assignment of a Policy                                                          

You may assign (transfer) your rights in a Policy to someone else as  
collateral for a loan or for some other reason. We will not be bound by an      
assignment unless it is received in writing. You must provide us with two copies
of the assignment. We are not responsible for any payment we make or any action 
we take before we receive a complete notice of the assignment in good order. We 
are also not responsible for the validity of the assignment. An absolute        
assignment is a change of ownership. Because there may be unfavorable tax       
consequences, including recognition of taxable income and the loss of income    
tax-free treatment for any death benefit payable to the Beneficiary, you should 
consult a qualified tax adviser before making an assignment.                    

Payment of Proceeds                                                             

General. We will pay any death benefit, maturity benefit, Net Cash    
Surrender Value or loan proceeds within seven days after we receive the last    
required form or request (and any other documents that may be required for      
payment of a death benefit). If we do not have information about the desired    
manner of payment within 60 days after the date we receive notification of the  
Insured person's death, we will pay the proceeds as a single sum, normally      
within seven days thereafter.                                                   

     Delay of Guaranteed Account option proceeds. We have the right, however, to
defer payment or transfers of amounts out of our Guaranteed Account option for  
up to six months. We will allow interest, at a rate of at least 4% a year, on   
any Net Cash Surrender Value payment derived from Our Guaranteed Account that We
defer for 10 days or more after We receive a request for it.                    

  Delay for check clearance. We reserve the right to defer payment of that
portion of your Account Value that is attributable to a payment made by check   
for a reasonable period of time (not to exceed 15 days) to allow the check to   
clear the banking system.                                                       

Delay of Variable Account proceeds. We reserve the right to defer     
computation of values and payment of any death benefit, loan or other           
distribution that comes from that portion of your Account Value that is         
allocated to the Variable Account, if:                                          

.    the NYSE is closed other than weekend and holiday closings;      

.    trading on the NYSE is restricted;                               

.    an emergency exists as determined by the SEC or other appropriate
          regulatory authority such that disposal of securities or determination
of the Account Value is not reasonably practicable; or      

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.    the SEC by order so permits for the protection of investors.     

     Transfers and allocations of Account Value among the investment options may
also be postponed under these circumstances. If we need to defer calculation of 
Variable Account values for any of the foregoing reasons, all delayed           
transactions will be processed at the next values that we do compute.           

Delay to challenge coverage. We may challenge the validity of your    
insurance Policy based on any material misstatements in your application or any 
application for a change in coverage. However,                                  

     .    We cannot challenge the Policy after it has been in effect, during the
         Insured person's lifetime, for two years from the date the Policy was
          issued or restored after termination. (Some states may require that we
          measure this time in another way. Some states may also require that we
calculate the amount we are required to pay in another way.)

.    We cannot challenge any Policy change that requires evidence of  
          insurability (such as an increase in Face Amount) after the change has
      been in effect for two years during the Insured person's lifetime.

  Delay required under applicable law. We may be required under applicable
law to block a request for transfer or payment, including a Policy loan request,
under a Policy until we receive instructions from the appropriate regulator.    

ADDITIONAL RIGHTS THAT WE HAVE

We have the right at any time to:                                     

     .    transfer the entire balance in an investment option in accordance with
          any transfer request you make that would reduce your Account Value for
that option to below $500;                                  

.    transfer the entire balance in proportion to any other investment
     options you then are using, if the Account Value in an investment
option is below $500 for any other reason;                  

.    replace the underlying Fund that any investment option uses with 
         another Fund, subject to SEC and other required regulatory approvals;

.    add, delete or limit investment options, combine two or more     
        investment options, or withdraw assets relating to the Policies from
       one investment option and put them into another, subject to SEC and
other required regulatory approvals;                        

.    operate Variable Account under the direction of a committee or   
discharge such a committee at any time;                     

  .    operate Variable Account, or one or more investment options, in any
      other form the law allows, including a form that allows us to make
          direct investments. Variable Account may be charged an advisory fee if
 its investments are made directly rather than through another
          investment company. In that case, we may make any legal investments we
wish; or                                                    

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     .    make other changes in the Policy that in our judgment are necessary or
      appropriate to ensure that the Policy continues to qualify for tax
   treatment as life insurance, or that do not reduce any Net Cash
          Surrender Value, death benefit, Account Value, or other accrued rights
or benefits.                                                

    We also have the right to make some variations in the terms and conditions
of a Policy. Any variations will be made only in accordance with uniform rules  
that we establish.                                                              

   You will be notified as required by law if there are any material changes
in the underlying investments of an investment option that you are using. We    
intend to comply with all applicable laws in making any changes and, if         
necessary, we will seek Policy Owner approval, SEC and regulatory approvals.    

CHARGES UNDER THE POLICY

Periodically, we will deduct expenses related to your Policy. We will 
deduct these:                                                                   

.    from premium, Account Value and from subaccount assets; and      

.    upon certain transactions.                                       

The amount of these expenses are described in your Policy as either   
guaranteed or current. We will never charge more than the guaranteed amount. We 
may in our discretion deduct on a current basis less than the guaranteed amount.

Deductions From Premium                                                         

  We may deduct a sales charge from each premium to cover costs associated
with the issuance of the Policy as well as administrative services we perform.  
This charge will never exceed 9% of the premium.                                

  The sales charge partially compensates us for the expense of selling and
distributing the Policy, printing prospectuses, preparing sales literature and  
paying for other promotional activities. Some of these expenses or other        
administrative expenses may be assumed by an employer or group sponsor under    
some employer-owned, trust-owned, or sponsored arrangements. If so, in our sole 
discretion, we may offer the Policy with no sales charge or a reduced sales     
charge.                                                                         

     We may deduct a charge for taxes as an explicit percentage of premium based
upon state and local tax rates within the Insured's state of residence. We may  
also deduct a charge for federal deferred acquisition cost ("DAC") taxes as an  
explicit percentage of premium at a rate not to exceed 1% of premium.           

   In place of the lump sum deductions described above for sales charges and
taxes, we may offer optional methods of payment at the time you apply for a     
Policy.                                                                         

   Monthly Deduction From Account Value. On the Policy Date and each Monthly
Anniversary thereafter, we make a deduction from the Account Value. The amount  
deducted on the Issue Date is for the Policy Date and any Monthly Anniversaries 
that have elapsed since the Policy Date. For this purpose, the Policy Date is   
treated as a Monthly Anniversary.                                               

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We will deduct charges on each Monthly Anniversary for:               

.    The administration of your Policy.                               

.    The cost of insurance for your Policy.                           

.    The cost associated with mortality and expense risks.            

Administrative Charge. This charge compensates us for administrative  
expenses associated with the Policy. These expenses relate to premium billing   
and collection, record keeping, processing claims, loans, Policy changes,       
reporting and overhead costs, processing applications, establishing Policy      
records, and sending regulatory mailings and responding to Policy owners'       
requests. This charge will be no more than $10 per month for all Policy years.  
We may reduce this charge. The current charge is $7.00 per month. There may be  
an additional monthly administrative charge during the first Policy year and the
12 months after an increase in Face Amount per Insured. This additional charge  
will not exceed $25 a month per Insured.                                        

Cost of Insurance Charge. This charge compensates us for providing    
insurance coverage. The charge depends on a number of factors, such as Attained 
Age, sex and rate class of the Insured, and therefore will vary from Policy to  
Policy and from month to month. For any Policy the cost of insurance on a       
Monthly Anniversary is calculated by multiplying the cost of insurance rate for 
the Insured by the Net Amount at Risk under the Policy on that Monthly          
Anniversary.                                                                    

Net Amount at Risk                                                              

The Net Amount at Risk is calculated as (a) minus (b) where:          

          a.   is the current death benefit at the beginning of the Policy month
divided by 1.0032737; and                         

b.   is the current total Account Value.                    

   However, if the death benefit is a percentage of the Account Value of the
Policy, then the Net Amount at Risk is the death benefit minus the amount in the
Account Value of the Policy at that time.                                       

   Rate Classes for Insureds. We currently rate Insureds in one of following
basic rate classifications based on our underwriting:                           

.    nonsmoker;                                                       

.    smoker;                                                          

.    substandard for those involving a higher mortality risk          

.    Unismoke/Unisex                                                  

 At our discretion we may offer this Policy on a guaranteed issue basis.

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    We place the Insured in a rate class when we issue the Policy based on our
underwriting determination. This original rate class applies to the initial Face
Amount. When an increase in Face Amount is requested, we conduct underwriting   
before approving the increase (except as noted below) to determine whether a    
different rate class will apply to the increase. If the rate class for the      
increase has a lower guaranteed cost of insurance rates than the original rate  
class, the rate class for the increase also will be applied to the initial Face 
Amount. If the rate class for the increase has a higher guaranteed cost of      
insurance rates than the original rate class, the rate class for the increase   
will apply only to the increase in Face Amount, and the original rate class will
continue to apply to the initial Face Amount.                                   

    If there have been increases in the Face Amount, we may use different cost
of insurance rates for the increased portions of the Face Amount. For purposes  
of calculating the cost of insurance charge after the Face Amount has been      
increased, the Account Value will be applied to the initial Face Amount first   
and then to any subsequent increases in Face Amount. If at the time an increase 
is requested, the Account Value exceeds the initial Face Amount (or any         
subsequently increased Face Amount) divided by 1.0032737, the excess will then  
be applied to the subsequent increase in Face Amount in the sequence of the     
increases.                                                                      

In order to maintain the Policy in compliance with Section 7702 of the
Code, under certain circumstances an increase in Account Value will cause an    
automatic increase in the Life Insurance Proceeds. The Attained Age and rate    
class for such increase will be the same as that used for the most recent       
increase in Face Amount (that has not been eliminated through a subsequent      
decrease in Face Amount).                                                       

The guaranteed cost of insurance charges at any given time for a      
substandard Policy with flat extra charges will be based on the guaranteed      
maximum cost of insurance rate for the Policy (including table rating multiples,
if applicable), the current Net Amount at Risk at the time the deduction is     
made, plus the actual dollar amount of the flat extra charge.                   

    Our current cost of insurance rates may be less than the guaranteed rates.
Our current cost of insurance rates will be determined based on our expectations
as to future mortality and persistency experience. These rates may change from  
time to time. In our discretion, the current charge may be increased in any     
amount up to the maximum guaranteed charge shown in the table.                  

     Cost of insurance rates (whether guaranteed or current) for an Insured in a
nonsmoker rate class are generally lower than rates for an Insured of the same  
age and sex in a smoker rate class. Cost of insurance rates (whether guaranteed 
or current) for an Insured in a nonsmoker or smoker rate class are generally    
lower than rates for an Insured of the same age and sex and smoking status in a 
substandard rate class.                                                         

Legal Considerations Relating to Sex-Distinct Premiums and Benefits             

 Mortality tables for the Policy generally distinguish between males and
females. Thus, premiums and benefits under the Policy covering males and females
of the same age will generally differ.                                          

   We do, however, also offer the Policy based on unisex mortality tables if
required by state law. Employers and employee organizations considering purchase
of a Policy should consult their legal advisers to determine whether purchase of
a Policy based on sex-distinct actuarial tables is consistent with Title VII of 
the Civil Rights Act of 1964 or other applicable law. Upon request, we may offer
the Policy with unisex mortality tables to such prospective purchasers.         

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Deduction From Variable Account Assets                                          

   Mortality and Expense Risk Charge. We deduct a mortality and expense risk
fee from your Account Value in the subaccounts for assuming certain mortality   
and expense risks under the Policy. This charge does not apply to the amounts   
you allocate to the Guaranteed Account. The current charge is at an annual      
effective rate of 0.65% of net assets for Policy years one through four, 0.20%  
for years five through twenty, and 0.15% thereafter. The guaranteed charge is at
an annual effective rate of 1.00% of Variable Account assets. Although, we may  
increase or decrease the charge at our sole discretion, it is guaranteed not to 
exceed an annual effective rate of 1.00% of your Account Value in the           
subaccounts for the duration of your Policy.                                    

 The mortality risk we assume is that the Insured under a Policy may die
sooner than anticipated, and therefore we will pay an aggregate amount of Life  
Insurance Proceeds greater than anticipated. The expense risk we assume is that 
expenses incurred in issuing and administering all policies and the Variable    
Account will exceed the amounts realized from the administrative charges        
assessed against all policies. AIG Life receives this charge to pay for these   
mortality and expense risks.                                                    

Deductions Upon Policy Transactions                                             

  Transfer Charge. We will charge a $25 transfer charge on any transfer of
Account Value among the subaccounts and the Guaranteed Account in excess of the 
12 free transfers permitted each Policy year. If the charge is imposed, we will 
deduct it from the amount requested to be transferred before allocation to the  
new subaccount(s) and shown in the confirmation of the transaction. AIG Life    
receives this charge to help pay for the expense of making the requested        
transfer.                                                                       

  Surrender Charge. If the Policy is surrendered or there is a decrease in
Face Amount during the first 14 Policy years, we may deduct a surrender charge  
based on the initial Face Amount. If a Policy is surrendered or there is a      
decrease in Face Amount within 14 years after an increase in Face Amount, we    
will deduct a surrender charge based on the increase in Face Amount. The        
surrender charge will be deducted before any surrender proceeds are paid. AIG   
Life receives this charge to help recover sales expenses.                       

    Surrender Charge Calculation. In general, the surrender charge is based on
the premiums you pay. The Surrender Charge will be no greater than the product  
of (1) times (2) times (3) where:                                               

1.   is equal to the Face Amount divided by $1,000;                   

2.   is equal to a surrender charge factor per $1,000 based on the    
Insured's age, sex and underwriting class; and              

3.   is a factor based on the Policy year when the surrender occurs as
described in the following table:                           

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Policy Year    Factor   
-----------    ------   
 1          100%

 2          100%

 3          100%

 4          100%

 5          100%

 6           90%

 7           80%

 8           70%

 9           60%

 10          50%

 11          40%

 12          30%

 13          20%

 14          10%

15+          0% 

    A table of the maximum initial surrender charge factors per $1,000 of Face
Amount is shown in Appendix A. We reserve the right to charge less than the     
maximum amount, no amount at all, or even a negative amount which would have the
effect of increasing the Policy's Cash Surrender Value.                         

Surrender Charge Based On An Increase Or Decrease In Face Amount. An  
increase in Face Amount of the Policy may result in an additional surrender     
charge during the 14 Policy years immediately following the increase. The       
additional surrender charge period will begin on the effective date of the      
increase. If the Face Amount of the Policy is reduced before the end of the 14th
Policy year or within 14 years immediately following a Face Amount increase, we 
may also deduct a pro rata share of any applicable surrender charge from your   
Account Value. Reductions will first be applied against the most recent increase
in the Face Amount of the Policy. They will then be applied to prior increases  
in Face Amount of the Policy in the reverse order in which such increases took  
place, and then to the initial Face Amount of the Policy.                       

Partial Surrender Charge. We may deduct a partial surrender charge:   

.    upon a partial surrender; and                                    

.    if you decrease your Policy's Face Amount.                       

We deduct the partial surrender charge from the subaccounts or the    
Guaranteed Account in the same proportion as we deduct the amounts for your     
partial surrender.                                                              

Partial Surrender Charge Due to Decrease in Face Amount. We deduct an 
amount equal to the applicable surrender charge multiplied by a fraction (equal 
to the decrease in Face Amount divided by the Face Amount of the Policy prior to
the decrease).                                                                  

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    Partial Surrender Administrative Charge. We reserve the right to deduct an
administrative charge upon a partial surrender of up to $25 or 2% of amount     
surrendered, whichever is less in order to help pay for the expense of making a 
partial surrender. The current charge is $0.                                    

  Discount Purchase Programs. The amount of the surrender charge and other
charges under the Policy may be reduced or eliminated when sales of the Policy  
are made to individuals or to groups of individuals in a manner that in our     
opinion results in expense savings. For purchases made by our officers,         
directors and employees, those of an affiliate, or any individual, firm, or a   
company that has executed the necessary agreements to sell the Policy, and      
members of the immediate families of such officers, directors, and employees, we
may reduce or eliminate the surrender charge. Any variation in charges under the
Policy, including the surrender charge, administrative charge or mortality and  
expense risk charge, will reflect differences in costs or services and will not 
be unfairly discriminatory.                                                     

 OTHER POLICY PROVISIONS

Right to Exchange                                                               

You may exchange this Policy to a flexible premium fixed benefit life 
insurance Policy on the life of the Insured without evidence of insurability.   
This exchange may be made:                                                      

     .    within 24 months after the Issue Date while the Policy is in force; or

.    within 24 months of any increase in Face Amount of the Policy; or

.    within 60 days of the effective date of a material change in the 
investment Policy of a subaccount, or within 60 days of the 
         notification of such change, if later. In the event of such a change,
         we will notify you and give you information on the options available.

   When an exchange is requested, we accomplish the exchange by transferring
all of the Account Value to the Guaranteed Account. There is no charge for this 
transfer. Once this option is exercised, the entire Account Value must remain in
the Guaranteed Account for the remaining life of the new Policy. The Face Amount
in effect at the time of the exchange will remain unchanged. The effective date,
Issue Date and issue age of the Insured will remain unchanged. The Owner and    
Beneficiary are the same as were recorded immediately before the exchange.      

More About Policy Charges                                                       

     Purpose of our charges. The charges under the Policy are designed to cover,
in total, our direct and indirect costs of selling, administering and providing 
benefits under the Policy. They are also designed, in total, to compensate us   
for the risks we assume and services that we provide under the Policy. These    
include:                                                                        

.    mortality risks (such as the risk that Insured persons will, on  
          average, die before we expect, thereby increasing the amount of claims
we must pay);                                               

    .    sales risks (such as the risk that the number of Policies we sell and
        the premiums we receive net of withdrawals, are less than we expect,
thereby depriving us of expected economies of scale);       

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   .    regulatory risks (such as the risk that tax or other regulations may
    be changed in ways adverse to issuers of variable life insurance
policies); and                                              

.    expense risks (such as the risk that the costs of administrative 
       services that the Policy requires us to provide will exceed what we
currently project).                                         

     The current monthly insurance charge has been designed primarily to provide
funds out of which we can make payments of death benefits under the Policy as   
the Insured person dies.                                                        

    General. If the charges that we collect from the Policies exceed our total
costs in connection with the Policies, we will earn a profit. Otherwise we will 
incur a loss. We reserve the right to increase the charges to the maximum       
amounts on Policies issued in the future.                                       

Although the paragraphs above describe the primary purposes for which 
charges under the Policies have been designed, these purposes are subject to    
considerable change over the life of a Policy. We can retain or use the revenues
from any charge for any purpose.                                                

Account Value                                                                   

Your Account Value. From each premium payment you make, we deduct the 
charges that we describe on page 38 under "Deductions from Premium." We invest  
the rest in one or more of the available investment options listed on page 17 of
this prospectus. We call the amount that is at any time invested under your     
Policy (including any loan collateral we are holding for your Policy loans) your
"Account Value."                                                                

 Your investment options. We invest the accumulation value that you have
allocated to any variable investment option in shares of a corresponding Fund.  
Over time, your accumulation value in any such investment option will increase  
or decrease in accordance with the investment experience of the Fund. Your      
accumulation value will also be reduced by Fund charges and certain other       
charges that we deduct from your Policy. We describe these charges beginning on 
page 38 under "Charges Under the Policy."                                       

    You can review other important information about the Mutual Funds that you
can choose in the separate prospectuses for those Funds. You can request        
additional free copies of these prospectuses from your AIG Life representative, 
from our Home Office or from the Administrative Center (both locations and the  
telephone numbers are shown under "Contact Information" on page 5 of this       
prospectus).                                                                    

 The Guaranteed Account. The Guaranteed Account is an account within the
general account of the company. Our general account assets are used to support  
our insurance and annuity obligations other than those funded by Variable       
Accounts. Subject to applicable law, we have sole discretion over the investment
of the assets of the general account.                                           

We have not registered interests in the Guaranteed Account under the  
Securities Act of 1933 or as an investment company under the Investment Company 
Act of 1940.                                                                    

The staff of the SEC has not reviewed our disclosure on the Guaranteed
Account. Our disclosure regarding the Guaranteed Account must comply with       
generally applicable provisions of the federal securities laws relating to the  
accuracy and completeness of statements made in a prospectus.                   

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POLICY LAPSE AND REINSTATEMENT

Reinstatement                                                                   

  If the Policy has ended without value, you may reinstate Policy benefits
while the Insured is alive if you:                                              

  .    Request reinstatement of Policy benefits within three years (unless
       otherwise specified by state law) from the end of the Grace Period;

.    Provide evidence of insurability satisfactory to us;             

    .    Make a payment of an amount sufficient to cover (i) the total monthly
        administrative charges from the beginning of the Grace Period to the
      effective date of reinstatement; (ii) total monthly deductions for
          three months, calculated from the effective date of reinstatement; and
          (iii) the premium expense charge and any increase in surrender charges
      associated with this payment. We will determine the amount of this
     required payment as if no interest or investment performance were
credited to or charged against your Account Value; and      

.    Repay or reinstate any loan which existed on the date the Policy 
ended.                                                      

     The effective date of the reinstatement of Policy benefits will be the next
Monthly Anniversary which coincides with or next follows the date we approve    
your request. From the required payment we will deduct the premium expenses. The
Account Value, loan and surrender charges that will apply upon reinstatement    
will be those that were in effect on the date the Policy lapsed.                

    We will start to make monthly deductions again as of the effective date of
reinstatement. The monthly expense charge from the beginning of the Grace Period
to the effective date of reinstatement will be deducted from the Account Value  
as of the effective date of reinstatement. No other charges will accrue for this
period.                                                                         

 FEDERAL INCOME TAX CONSIDERATIONS

     The following summarizes the current federal income tax law that applies to
life insurance in general. This summary does not cover all situations. This     
summary is based upon our understanding of the current federal income tax laws  
and current interpretations by the Internal Revenue Service. We cannot predict  
whether the Code will change. The following discussion of federal income tax    
treatment is general in nature and is not intended as tax advice. You should    
consult with a competent tax adviser to determine the specific federal tax      
treatment of your Policy based on your individual factual situation.            

Tax Status of the Policy                                                        

     A Policy has certain tax advantages when it is treated as a "life insurance
contract" under the Code. We believe that the Policy meets the definition of a  
life insurance contract under Section 7702 of the Code at issue. You bear the   
risk that the Policy may not meet the definition of a life insurance contract.  
You should consult your own tax adviser to discuss these risks.                 

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AIG Life                                                                        

  We are taxed as a life insurance company under the Code. For federal tax
purposes, the Variable Account and its operations are considered to be part of  
our operations and are not taxed separately.                                    

Diversification and Investor Control                                            

 The Code requires that we diversify the investments underlying variable
insurance contracts. If the investments are not properly diversified and any    
remedial period has passed, Section 817(h) of the Code provides in general the  
contract is immediately disqualified from treatment as a life insurance contract
for federal income tax purposes. Disqualification of the Policy as a life       
insurance contract would result in taxable income to you at the time that we    
allocate any earnings to your Policy. You would have taxable income even though 
you have not received any payments under the Policy.                            

   Although we do not have direct control over the investments or activities
of the portfolios in which the subaccount invests, we intend that each portfolio
in which the subaccounts invest will be managed by its investment adviser in    
compliance with these diversification requirements.                             

A variable life insurance Policy could fail to be treated as a life   
insurance contract for tax purposes if the Owner of the Policy has such control 
over the investments underlying the Policy (e.g., by being able to transfer     
values among many portfolios with only limited restrictions) so as to be        
considered the Owner of the underlying investments. There is some uncertainty on
this point because only limited guidance has been issued by the Treasury        
Department. If and when guidelines are issued, we may be required to impose     
limitations on your rights to control investment designations under the Policy. 
We do not know whether any such guidelines will be issued or whether any such   
guidelines would have retroactive effect. We, therefore, reserve the right to   
make changes that we deem necessary to insure that the Policy qualifies as a    
life insurance contract.                                                        

Tax Treatment of the Policy                                                     

Section 7702 of the Code sets forth a detailed definition of a life   
insurance contract for federal tax purposes. The Treasury Department has not    
issued final regulations so that the extent of the official guidance as to how  
Section 7702 is to be applied is quite limited. If a Policy were determined not 
to be a life insurance contract for purposes of Section 7702, that Policy would 
not qualify for the favorable tax treatment normally provided to a life         
insurance contract.                                                             

   With respect to a Policy issued on the basis of a standard rate class, we
believe that such a Policy should meet the Section 7702 definition of a life    
insurance contract.                                                             

 With respect to a Policy that is issued on a substandard basis (i.e., a
premium class involving higher than standard mortality risk), there is less     
certainty, in particular as to how the mortality and other expense requirements 
of Section 7702 are to be applied in determining whether such a Policy meets the
definition of a life insurance contract set forth in Section 7702. Thus, it is  
not clear that such a Policy would satisfy Section 7702, particularly if you pay
the full amount of premiums permitted under the Policy.                         

    If subsequent guidance issued under Section 7702 leads us to conclude that
a Policy does not (or may not) satisfy Section 7702, we will take appropriate   
and necessary steps for the purpose of bringing the Policy into compliance, but 
we can give no assurance that it will be possible to achieve that result. We    

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expressly reserve the right to restrict Policy transactions if we determine such
action to be necessary to qualify the Policy as a life insurance contract under 
Section 7702.                                                                   

Tax Treatment of Policy Benefits In General                                     

   This discussion assumes that each Policy will qualify as a life insurance
contract for federal income tax purposes under Section 7702. The Life Insurance 
Proceeds under the Policy should generally be excluded from the taxable gross   
income of the Beneficiary. In addition, the increases in a Policy's Account     
Value should not be taxed until there has been a distribution from the Policy   
such as a surrender, partial surrender or lapse with loan.                      

Pre-Death Distribution                                                          

The tax treatment of any distribution you receive before the Insured's
death depends on whether the Policy is classified as a modified endowment       
contract.                                                                       

Policies Not Classified as Modified Endowment Contracts                         

.    If you surrender the Policy or allow it to lapse, you will not be
         taxed except to the extent the amount you receive is in excess of the
        premiums you paid less the untaxed portion of any prior withdrawals.
         For this purpose, you will be treated as receiving any portion of the
Net Cash Surrender Value used to repay Policy debt. The tax 
         consequences of a surrender may differ if you take the proceeds under
an income payment settlement option.                        

    .    Generally, you will be taxed on a withdrawal to the extent the amount
     you receive exceeds the premiums you paid for the Policy less the
         untaxed portion of any prior withdrawals. However, under some limited
      circumstances, in the first 15 Policy years, all or a portion of a
        withdrawal may be taxed if the cash value exceeds the total premiums
          paid less the untaxed portions of any prior withdrawals, even if total
withdrawals do not exceed total premiums paid.              

   .    Loans you take against the Policy are ordinarily treated as debt and
are not considered distributions subject to tax.            

Modified Endowment Contracts                                                    

   .    The rules change if the Policy is classified as a modified endowment
         contract ("MEC"). The Policy could be classified as a MEC if premiums
        substantially in excess of scheduled premiums are paid or a decrease
    in the Face Amount of insurance is made. An increase in the Face
       Amount of insurance may also cause the Policy to be classified as a
        MEC. The rules on whether a Policy will be treated as a MEC are very
     complex and cannot be fully described in this summary. You should
 consult a qualified tax adviser to determine whether a Policy
        transaction will cause the Policy to be classified as a MEC. We will
        monitor your Policy and will attempt to notify you on a timely basis
if your Policy is in jeopardy of becoming a MEC.            

   .    If the Policy is classified as a MEC, then amounts you receive under
the Policy before the Insured's death, including loans and  
         withdrawals, are included in income to the extent that the cash value
      before surrender charges exceeds the premiums paid for the Policy,
       increased by the amount of any loans previously included in income,
and reduced by any                                          

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          untaxed amounts previously received other than the amount of any loans
         excludable from income. An assignment of a MEC is taxable in the same
     way. These rules also apply to pre-death distributions, including
          loans, made during the two-year period before the time that the Policy
became a MEC.                                               

.    Any taxable income on pre-death distributions (including full    
   surrenders) is subject to a penalty of 10% unless the amount is
         received on or after age 59 1/2, on account of your becoming disabled
     or as a life annuity. It is presently unclear how the penalty tax
provisions apply to the Policies owned by businesses.       

     .    All MECs issued by us to you during the same calendar year are treated
as a single Policy for purposes of applying these rules.    

Interest on Loans                                                               

 Except in special circumstances, interest paid on a loan under a Policy
which is owned by an individual is treated as personal interest under the Code  
and thus will not be tax deductible. In addition, the deduction of interest that
is incurred on any loan under a Policy owned by a taxpayer and covering the life
of any individual who is an officer or employee of or who is financially        
interested in the business carried on by that taxpayer may also be subject to   
certain restrictions set forth in Section 264 of the Code. Before taking a loan,
you should consult a tax adviser as to the tax consequences of such a loan.     
(Also Section 264 of the Code may preclude business owners from deducting       
premium payments.)                                                              

Policy Exchanges and Modifications                                              

   Depending on the circumstances, the exchange of a Policy, a change in the
Death Benefit Option, a loan, a partial surrender, a surrender, a change in     
ownership, or an assignment of the Policy may have adverse federal income tax   
consequences. In addition, the federal, state and local transfer, and other tax 
consequences of ownership or receipt of Policy proceeds will depend on the      
circumstances of each Owner or Beneficiary.                                     

Withholding                                                                     

    We are required to withhold federal income taxes on the taxable portion of
any amounts received under the Policy unless you elect to not have any          
withholding or in certain other circumstances. You are not permitted to elect   
out of withholding if you do not provide a social security number or other      
taxpayer identification number. Special withholding rules apply to payments made
to non-resident aliens.                                                         

   You are liable for payment of federal income taxes on the taxable portion
of any amounts received under the Policy. You may be subject to penalties under 
the estimated tax rules if your withholding and estimated tax payments are not  
sufficient.                                                                     

Contracts Issued in Connection With Tax Qualified Pension Plans                 

Prior to purchase of a Policy in connection with a qualified plan, you
should examine the applicable tax rules relating to such plans and life         
insurance thereunder in consultation with a qualified tax adviser.              

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Possible Charge for AIG Life's Taxes                                            

   At the present time, we do not deduct any charges for any federal, state,
or local income taxes. However, we do currently deduct charges for state and    
federal premium based taxes and the federal DAC tax. We reserve the right in the
future to deduct a charge for any such tax or other economic burden resulting   
from the application of the tax laws that we determine to be properly           
attributable to the Variable Account or to the Policy.                          

 LEGAL PROCEEDINGS

AIG Life is a party to various lawsuits and proceedings arising in the
ordinary course of business. Many of these lawsuits and proceedings arise in    
jurisdictions that permit damage awards disproportionate to the actual damages  
incurred. Based upon information presently available, AIG Life believes that the
total amounts that will ultimately be paid, if any, arising from these lawsuits 
and proceedings will not have a material adverse effect on AIG Life's results of
operations and financial position.                                              

     The principal underwriter and distributor of the Policies, American General
Equity Services Corporation ("AGESC"), offers general securities. As a          
consequence, AGESC is engaged in certain legal matters related to its previous  
line of business. AGESC believes that none of these legal matters are of any    
materiality. More information about AGESC can be found in the SAI.              

     On February 9, 2006, American International Group, Inc. ("AIG"), the parent
company and an affiliated person of AIG Life, the Variable Account, its         
principal underwriter, AGESC, and National Union, announced that it had         
consented to the settlement of an injunctive action instituted by the Securities
and Exchange Commission ("SEC"). In its complaint, the SEC alleged that AIG     
violated Section 17(a) of the Securities Act of 1933, as amended, Sections      
10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934, as  
amended, and Rules 10b-5, 12b-20, 13a-1 and 13b2-1 promulgated thereunder, in   
connection with AIG's accounting and public reporting practices. The conduct    
described in the complaint did not involve any conduct of AIG or its            
subsidiaries related to their investment advisory or distribution activities    
with respect to the variable product in which you are invested.                 

    AIG, without admitting or denying the allegations in the complaint (except
as to jurisdiction), consented to the entry of an injunction against further    
violations of the statutes referred to above. Absent exemptive relief granted by
the SEC, the entry of such an injunction would prohibit AIG and its affiliated  
persons from, among other things, serving as an investment adviser of any       
registered investment management company or principal underwriter for any       
registered open-end investment company pursuant to Section 9(a) of the          
Investment Company Act of 1940, as amended ("1940 Act). Certain affiliated      
persons of AIG, including AIG Life, the Variable Account and AGESC, received a  
temporary order from the SEC pursuant to Section 9(c) of the 1940 Act with      
respect to the entry of the injunction, granting exemptive relief from the      
provisions of Section 9(a) of the 1940 Act. The temporary order permits AIG and 
its affiliated persons, including AIG's investment management subsidiaries, to  
serve as investment adviser, sub-adviser, principal underwriter or sponsor of   
variable products. It is expected that a permanent exemptive order will be      
granted, although there is no assurance the SEC will issue the order.           

Additionally, AIG reached a resolution of claims and matters under    
investigation with the United States Department of Justice ("DOJ"), the Attorney
General of the State of New York ("NYAG") and the New York State Department of  
Insurance ("DOI"), regarding accounting, financial reporting and insurance      
brokerage practices of AIG and its subsidiaries, as well as claims relating to  
the underpayment of certain workers compensation premium taxes and other        
assessments.                                                                    

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     As a result of the settlements with the SEC, the DOJ, the NYAG and the DOI,
AIG will make payments totaling approximately $1.64 billion. In addition, as    
part of its settlements, AIG has agreed to retain for a period of three years an
Independent Consultant who will conduct a review that will include the adequacy 
of AIG's internal controls over financial reporting and the remediation plan    
that AIG has implemented as a result of its own internal review.                

    Subject to the receipt of permanent relief, AIG Life, the Variable Account
and AGESC believe that the settlements are not likely to have a material adverse
effect on their ability to perform services relating to their variable products.

FINANCIAL STATEMENTS

 The Financial Statements of AIG Life, the Variable Account and National
Union can be found in the Statement of Additional Information. You may obtain a 
free copy of these Financial Statements if you write us at our Administrative   
Center, which is located at 600 King Street, CLMK, Wilmington, Delaware, 19801  
or call us at 1-302-594-2352. The financial statements have also been filed with
the SEC and can be obtained through its website at http://www.sec.gov.          

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INDEX OF SPECIAL WORDS AND PHRASES

We have capitalized some special terms we use in this document. We have defined 
these terms here.                                                               

Account Value. The total amount in the Variable Account and Guaranteed Account  
attributable to your Policy.                                                    

Administrative Center. One ALICO Plaza, 600 King Street, CLMK, Wilmington,      
Delaware 19801.                                                                 

Attained Age. The Insured's age as of the Policy Date plus the number of        
completed Policy years since the Policy Date.                                   

Beneficiary. The person(s) who is entitled to the Life Insurance Proceeds under 
the Policy.                                                                     

Cash Surrender Value. Account Value less any applicable surrender charge that   
would be deducted upon surrender.                                               

Code. The Internal Revenue Code of 1986, as amended.                            

Face Amount. The amount of insurance specified by the Owner and the base for    
calculating the death benefit.                                                  

Grace Period. The period of time beginning on a Monthly Anniversary during which
the Policy will continue in force even though your Net Cash Surrender Value is  
less than the total monthly deduction then due.                                 

Guaranteed Account. An account within the general account which consists of all 
of our assets other than the assets of the Variable Account and any of our other
separate investment accounts.                                                   

Insured. A person whose life is covered under the Policy. At the time of        
application, the Insured must be 70 years of age or younger, unless we agree    
otherwise.                                                                      

Issue Date. The date the Policy is actually issued. It may be later than the    
Policy Date.                                                                    

Life Insurance Proceeds. The amount payable to a Beneficiary if the Insured dies
while coverage under the Policy is in force.                                    

Loan Account. The portion of the Account Value held in the Guaranteed Account as
collateral for loans.                                                           

Monthly Anniversary. The same day as the Policy Date for each succeeding month. 
If the day of the Monthly Anniversary is the 29th, 30th, or 31st and a month has
no such day, the Monthly Anniversary is deemed to be the last day of that month.

Net Cash Surrender Value. The Cash Surrender Value less any Outstanding Loan.   

Net Premium. Any premium paid less any expense charges deducted from the premium
payment.                                                                        

Outstanding Loan. The total amount of Policy loans, including both principal and
accrued interest.                                                               

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Owner. The person who purchased the Policy as shown in the application, unless  
later changed.                                                                  

Policy Date. The date as of which we have received the initial premium and an   
application in good order. If a Policy is issued, life insurance coverage is    
effective as of the Policy Date.                                                

Valuation Date. Each day the New York Stock Exchange is open for trading.       

Valuation Period. A period commencing with the close of trading on the New York 
Stock Exchange (generally 4 p.m., Eastern Time) on any Valuation Date and ending
as of the close of the New York Stock Exchange on the next succeeding Valuation 
Date.                                                                           

Variable Account. Variable Account II, a separate investment account of ours.   

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APPENDIX A

Maximum Initial Surrender Charge
 Per $1,000 of Initial Specified Face Amount

Issue Age    Sex    Smoker Status  Surrender Charge 
---------  -------  -------------  ---------------- 
25       Male      Nonsmoker         $16.00   

35       Male      Nonsmoker          20.00   

45       Male      Nonsmoker          26.00   

55       Male      Nonsmoker          38.00   

65       Male      Nonsmoker          46.00   

75       Male      Nonsmoker          44.00   

25       Male        Smoker           18.00   

35       Male        Smoker           23.00   

45       Male        Smoker           32.00   

55       Male        Smoker           48.00   

65       Male        Smoker           47.00   

75       Male        Smoker           46.00   

25      Female     Nonsmoker          14.00   

35      Female     Nonsmoker          18.00   

45      Female     Nonsmoker          23.00   

55      Female     Nonsmoker          33.00   

65      Female     Nonsmoker          45.00   

75      Female     Nonsmoker          44.00   

25      Female       Smoker           16.00   

35      Female       Smoker           20.00   

45      Female       Smoker           26.00   

55      Female       Smoker           37.00   

65      Female       Smoker           46.00   

75      Female       Smoker           44.00   

25      Unisex      Unismoke          16.00   

35      Unisex      Unismoke          20.00   

45      Unisex      Unismoke          27.00   

55      Unisex      Unismoke          40.00   

65      Unisex      Unismoke          46.00   

75      Unisex      Unismoke          45.00   

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THIS DOCUMENT IS NOT PART OF ANY PROSPECTUS.

[LOGO] AIG AMERICAN GENERAL                                      Privacy Notice 

AIG American General knows that your privacy is important. You have received    
this notice as required by law and because you are now or may be a customer of  
one of our companies. This notice will advise you of the types of Nonpublic     
Personal Information we collect, how we use it, and what we do to protect your  
privacy.                                                                        

"Nonpublic Personal Information" refers to personally identifiable information  
that is not available to the public.                                            

"Employees, Representatives, Agents, and Selected Third Parties" refers to      
individuals or entities who act on our behalf.                                  

     .    Our Employees, Representatives, Agents, and Selected Third Parties may
collect Nonpublic Personal Information about you, including 
information:                                                

.    Given to us on applications or other forms;            

      .    About transactions with us, our affiliates, or third parties;

       .    From others, such as credit reporting agencies, employers, and
federal and state agencies.                       

    .    The types of Nonpublic Personal Information we collect depends on the
        products we offer to you and may include your: name; address; Social
          Security Number; account balances; income; assets; insurance premiums;
   coverage and beneficiaries; credit reports; marital status; and
  payment history. We may also collect Nonpublic Personal Health
 Information, such as medical reports, to underwrite insurance
policies, process claims, or for other related functions.   

.    We restrict access to Nonpublic Personal Information to those    
     Employees, Representatives, Agents, or Selected Third Parties who
    provide products or services to you and who have been trained to
      handle Nonpublic Personal Information as described in this Notice.

.    We have policies and procedures that direct our Employees,       
        Representatives, Agents and Selected Third Parties acting for us, on
how to protect and use Nonpublic Personal Information.      

    .    We have physical, electronic, and procedural safeguards in place that
were designed to protect Nonpublic Personal Information.    

 .    We do not share Nonpublic Personal Information about you except as
allowed by law.                                             

  .    We may disclose all types of Nonpublic Personal Information that we
 collect, including information regarding your transactions or
experiences with us, when needed, to:                       

          (i)  Affiliated AIG American General companies, including the American
          International Group Inc. family of companies, and Employees,
              Representatives, Agents, and Selected Third Parties as permitted
by law; or                                        

          (ii) other organizations with which we have joint marketing agreements
as permitted by law.                              

   .    The types of companies and persons to whom we may disclose Nonpublic
       Personal Information as permitted by law include: banks; attorneys;
     trustees; third-party administrators; insurance agents; insurance
          companies; insurance support organizations; credit reporting agencies;
    registered broker-dealers; auditors; regulators; and reinsurers.

.    We do not share your Nonpublic Personal Health Information unless
authorized by you or allowed by law.                        

.    Our privacy policy applies, to the extent required by law, to our
    agents and representatives when they are acting on behalf of AIG
American General.                                           

.    You will be notified if our privacy policy changes.              

.    Our privacy policy applies to current and former customers.      

This Privacy Notice is given to you for your information only. You do not need  
to call or take any action.                                                     

This Privacy Notice is provided on behalf of the following companies:           

AGC Life Insurance Company, AIG Life Insurance Company of Puerto Rico, AIG Life 
Insurance Company, AIG Life of Bermuda, Ltd., AIG Premier Insurance Company, AIG
Worldwide Life Insurance of Bermuda, Ltd American General Assurance Company,    
American General Equity Services Corporation, American General Indemnity        
Company, American General Life and Accident Insurance Company, American General 
Life Insurance Company, American General Property Insurance Company of Florida, 
American General Property Insurance Company, American General Securities        
Incorporated, American International Life Assurance Company of New York,        
Delaware American Life Insurance Company, Pacific Union Assurance Company, The  
United States Life Insurance Company in the City of New York.                   

California, New Mexico and Vermont Residents Only:                              
Following the law of your state, we will not disclose nonpublic personal        
financial information about you to nonaffiliated third parties (other than as   
permitted by law) unless you authorize us to make that disclosure. Your         
authorization must be in writing. If you wish to authorize us to disclose your  
nonpublic personal financial information to nonaffiliated third parties, you may
write to us at: American General Service Center, P.O. Box 4373, Houston, Texas  
77210-4373.                                                                     

(C) 2006 American International Group, Inc. All rights reserved.                

AGLC0375 Rev0306                                                                

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[LOGO] AIG AMERICAN GENERAL                                                     

For additional information about the Executive Advantage Policies and the       
Variable Account, you may request a copy of the Statement of Additional         
Information (the "SAI"), dated May 1, 2006. We have filed the SAI with the SEC  
and have incorporated it by reference into this prospectus. You may obtain a    
free copy of the SAI and the Policy or Fund prospectuses if you write us at our 
Administrative Center, which is located at 600 King Street, CLMK, Wilmington,   
Delaware 19801 or call us at 1-302-594-2352. You may also obtain the SAI from an
insurance representative through which the Policies may be purchased. Additional
information about the Executive Advantage Policies, including personalized      
illustrations of death benefits, cash surrender values, and account values is   
available without charge to individuals considering purchasing a Policy, upon   
request to the same address or phone number printed above. We may charge current
Policy owners $25 per illustration if they request more than one personalized   
illustration in a Policy year.                                                  

Information about the Variable Account, including the SAI, can also be reviewed 
and copied at the SEC's Public Reference Room in Washington, D.C. Inquiries on  
the operations of the Public Reference Room may be made by calling the SEC at   
1-202-942-8090. Reports and other information about the Variable Account are    
available on the SEC's Internet site at http://www.sec.gov and copies of this   
information may be obtained, upon payment of a duplicating fee, by writing the  
Public Reference Section of the SEC, 100 F. Street NE, Washington, D.C. 20549.  

Policies issued by:                                                             
AIG Life Insurance Company                                                      
A member company of American International Group, Inc.                          
One ALICO Plaza, 600 King Street, Wilmington, Delaware 19801                    

Executive Advantage Group Flexible Premium Variable Life Insurance              
Policy Form Number   11GVULU997 (unisex)                                        
11GVULD997 (sex distinct)             

Not available in the state of New York                                          

Distributed by American General Equity Services Corporation                     
Member NASD                                                                     
A member company of American International Group, Inc.                          

The underwriting risks, financial obligations and support functions associated  
with the products issued by AIG Life Insurance Company ("AIG Life") are its     
responsibility. AIG Life is responsible for its own financial condition and     
contractual obligations. AIG Life does not solicit business in the state of New 
York. The Policies are not available in all states.                             

(C)2006 American International Group, Inc.  All rights reserved.                

[LOGO OF IMSA]
 INSURANCE MARKETPLACE
STANDARDS ASSOCIATION 

Membership in IMSA applies
only to AIG Life Insurance
Company and not to its
 products.

  ICA File No. 811-04867

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AIG LIFE INSURANCE COMPANY
 VARIABLE ACCOUNT II

   EXECUTIVE ADVANTAGE(SM)

 GROUP FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES

 ISSUED BY

AIG LIFE INSURANCE COMPANY

AFFLUENT AND CORPORATE MARKETS GROUP

ONE ALICO PLAZA, 600 KING STREET, CLMK, WILMINGTON, DELAWARE 19801

 TELEPHONE: 1-302-594-2352

 STATEMENT OF ADDITIONAL INFORMATION

 DATED MAY 1, 2006

  This Statement of Additional Information ("SAI") is not a prospectus. It
should read in conjunction with the prospectus for AIG Life Insurance Company   
Variable Account II (the "Separate Account" or "Variable Account II") dated May 
1, 2006, describing the Executive Advantage group flexible premium variable life
insurance policies (the "Policy" or "Policies"). The Policy prospectus sets     
forth information that a prospective investor should know before investing. For 
a copy of the Policy prospectus, and any prospectus supplements, contact AIG    
Life Insurance Company ("AIG Life") at the address or telephone number given    
above. Each term used in this SAI has the same meaning as is defined in the     
Policy prospectus.                                                              

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 TABLE OF CONTENTS

GENERAL INFORMATION............................................................3

  AIG Life.....................................................................3
  Variable Account II..........................................................3
  National Union Fire Insurance Company of Pittsburgh, Pa......................3

SERVICES.......................................................................4

DISTRIBUTION OF THE POLICIES...................................................4

PERFORMANCE INFORMATION........................................................5

ADDITIONAL INFORMATION ABOUT THE POLICIES......................................6

    Gender neutral policies....................................................6
    Cost of insurance rates....................................................6
    Certain arrangements.......................................................6
  Guaranteed Investment Option.................................................6
  Adjustments to Death Benefit.................................................7
    Suicide....................................................................7
    Wrong age or gender........................................................7
    Death during grace period..................................................7

ACTUARIAL EXPERT...............................................................7

MATERIAL CONFLICTS.............................................................8

FINANCIAL STATEMENTS...........................................................8

  Separate Account Financial Statements........................................8
  AIG Life Financial Statements................................................9
  National Union Financial Statements..........................................9
  Incorporation of AIG Financial Information...................................9

INDEX TO FINANCIAL STATEMENTS..................................................9

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 GENERAL INFORMATION

AIG Life                                                                        

  We are AIG Life Insurance Company ("AIG Life"). AIG Life is a stock life
insurance company initially organized under the laws of Pennsylvania and        
reorganized under the laws of Delaware. We were incorporated in 1962. AIG Life  
is an indirect, wholly-owned subsidiary of American International Group, Inc.   
("AIG"). AIG, a Delaware corporation, is a holding company which through its    
subsidiaries is engaged in a broad range of insurance and insurance-related     
activities and financial services in the United States and internationally. AIG 
American General is a marketing name of AIG Life and its affiliates. The        
commitments under the Policies are AIG Life's, and AIG has no legal obligation  
to back those commitments.                                                      

 AIG Life is a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is a voluntary membership organization created by the life       
insurance industry to promote ethical market conduct for life insurance and     
annuity products. AIG Life's membership in IMSA applies only to AIG Life and not
its products.                                                                   

Variable Account II                                                             

     We hold the Fund shares in which any of your accumulation value is invested
in Variable Account II. Variable Account II is registered as a unit investment  
trust with the Securities and Exchange Commission ("SEC") under the Investment  
Company Act of 1940. We created the Separate Account on June 5, 1986.           

     For record keeping and financial reporting purposes, Variable Account II is
divided into 108 separate "divisions," 43 of which are available under the      
Policies offered by the Policy prospectus as variable "investment options."     
Eight of these 43 divisions and the remaining 65 divisions are offered under    
other AIG Life policies. We hold the Fund shares in which we invest your        
accumulation value for an investment option in the division that corresponds to 
that investment option.                                                         

The assets in Variable Account II are our property. The assets in the 
Separate Account may not be used to pay any liabilities of AIG Life other than  
those arising from the Policies. AIG Life is obligated to pay all amounts under 
the Policies due the Policy owners. We act as custodian for the Separate        
Account's assets.                                                               

National Union Fire Insurance Company of Pittsburgh, Pa.                        

     National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union")
is a stock property-casualty insurance company incorporated under the laws of   
the Commonwealth of Pennsylvania on February 14, 1901. National Union's         
principal executive office is located at 70 Pine Street, New York, New York     
10270. National Union is licensed in all 50 states of the United States and the 
District of Columbia, as well as certain foreign jurisdictions, and engages in a
broad range of insurance and reinsurance activities. National Union is a wholly 
owned subsidiary of AIG and an affiliate of AIG Life.                           

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SERVICES

    AIG Life and AIG are parties to a service and expense agreement. Under the
service and expense agreement, AIG provides services to AIG Life and certain    
other life insurance companies under the AIG holding company system at cost.    
Those services include data processing systems, customer services, product      
development, actuarial, internal auditing, accounting and legal services. During
2005, 2004 and 2003, AIG Life paid AIG for these services $831,348, $1,473,348  
and $2,757,831, respectively.                                                   

   In 2003, American General Life Companies, LLC ("AGLC") started paying for
almost all of AIG Life's expenses and allocating these charges back to AIG Life.
Previously, most of these expenses, such as payroll expenses, were paid by AIG  
Life directly. AIG Life, AGLC and AIG are parties to a services agreement. AIG  
Life and AGLC are both wholly-owned subsidiaries of AIG and therefore affiliates
of one another. AGLC is a Delaware limited liability company established on     
August 30, 2002. Prior to that date, AGLC was a Delaware business trust. Its    
address is 2727-A Allen Parkway, Houston, Texas 77019-2191. Under the services  
agreement, AGLC provides shared services to AIG Life and certain other life     
insurance companies under the AIG holding company system at cost. Those services
include data processing systems, customer services, product development,        
actuarial, internal auditing, accounting and legal services. During 2005, 2004  
and 2003, AIG Life paid AGLC for these services $30,831,012, $25,846,530 and    
$21,696,058, respectively.                                                      

We have not designed the Policies for professional market timing      
organizations or other entities or individuals using programmed and frequent    
transfers involving large amounts. We currently have no contractual agreements  
or any other formal or informal arrangements with any entity or individual      
permitting such transfers and receive no compensation for any such contract or  
arrangement.                                                                    

DISTRIBUTION OF THE POLICIES

     American General Equity Services Corporation ("AGESC"), #1 Franklin Square,
Springfield, Illinois 62713, a Delaware corporation and an affiliate of AIG     
Life, is the principal underwriter and distributor of the Policies for the      
Separate Account under a Distribution Agreement between AGESC and AIG Life.     
AGESC also acts as principal underwriter for AIG Life's other separate accounts 
and for the separate accounts of certain AIG Life affiliates. AGESC is a        
registered broker-dealer under the Securities Exchange Act of 1934, as amended  
and a member of the National Association of Securities Dealers, Inc. ("NASD").  
AGESC, as the principal underwriter and distributor, is not paid any fees on the
Policies.                                                                       

The Policies are offered on a continuous basis.                       

  We and AGESC have sales agreements with various broker-dealers and banks
under which the Policies will be sold by registered representatives of the      
broker-dealers or employees of the banks. These registered representatives and  
employees are also required to be authorized under applicable state regulations 
as life insurance agents to sell variable life insurance. The                   

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broker-dealers are ordinarily required to be registered with the SEC and must be
members of the NASD.                                                            

 Commissions may be paid based on premiums paid for Policies sold. Other
expense reimbursements, allowances, and overrides may also be paid. Registered  
representatives who meet certain productivity and profitability standards may be
eligible for additional compensation. Additional payments may be made for       
administrative or other services not directly related to the sale of the        
Policies.                                                                       

    We pay compensation directly to broker-dealers and banks for promotion and
sales of the Policies. The compensation may vary with the sales agreement, but  
is generally not expected to exceed:                                            

     .    24% of premiums paid in the first Policy year up to the Target Premium
and 4% of premiums in excess of the Target Premium;         

.    11% of premiums paid in Policy years 2 through 4 up to the Target
Premium and 4% of premiums in excess of the Target Premium; 

.    4% of premiums paid in Policy years 5 through 7 up to the Target 
Premium and 4% of premiums in excess of the Target Premium; 

.    3% of premiums paid in Policy years 8 through 15 up to the Target
Premium and 2% of premiums in excess of the Target Premium; 

     .    2% of premiums paid beginning in the 16th Policy year up to the Target
        Premium and 2% of premiums paid beginning in the 16th Policy year in
excess of the Target Premium;                               

     .    Trail commission of 0.20% annual in Policy years 8 through 15, of each
       Policy's accumulation value (reduced by any outstanding loans); and

     .    Trail commission of 0.10% annual beginning in the 16th Policy year, of
        each Policy's accumulation value (reduced by any outstanding loans).

 Target Premium is the maximum amount of premium to which the first year
commission rate applies.                                                        

 PERFORMANCE INFORMATION

   From time to time, we may quote performance information for the divisions
of the Separate Account in advertisements, sales literature, or reports to      
owners or prospective investors.                                                

We may quote performance information in any manner permitted under    
applicable law. We may, for example, present such information as a change in a  
hypothetical owner's cash value or death benefit. We also may present the yield 
or total return of the division based on a                                      

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hypothetical investment in a Policy. The performance information shown may cover
various periods of time, including periods beginning with the commencement of   
the operations of the division or the Fund in which it invests. The performance 
information shown may reflect the deduction of one or more charges, such as the 
premium charge, and we generally expect to exclude costs of insurance charges   
because of the individual nature of these charges. We also may present the yield
or total return of the investment option in which a division invests.           

We may compare a division's performance to that of other variable life
separate accounts or investment products, as well as to generally accepted      
indices or analyses, such as those provided by research firms and rating        
services. In addition, we may use performance ratings that may be reported      
periodically in financial publications, such as Money Magazine, Forbes, Business
Week, Fortune, Financial Planning and The Wall Street Journal. We also may      
advertise ratings of AIG Life's financial strength or claims-paying ability as  
determined by firms that analyze and rate insurance companies and by nationally 
recognized statistical rating organizations.                                    

 ADDITIONAL INFORMATION ABOUT THE POLICIES

  Gender neutral policies. Congress and the legislatures of various states
have from time to time considered legislation that would require insurance rates
to be the same for males and females of the same age, premium class and tobacco 
user status. In addition, employers and employee organizations should consider, 
in consultation with counsel, the impact of Title VII of the Civil Rights Act of
1964 on the purchase of life insurance policies in connection with an           
employment-related insurance or benefit plan. In a 1983 decision, the United    
States Supreme Court held that, under Title VII, optional annuity benefits under
a deferred compensation plan could not vary on the basis of gender. In general, 
we do not offer the Policies for sale in situations which, under current law,   
require gender-neutral premiums or benefits.                                    

   Cost of insurance rates. Because of specified amount increases, different
cost of insurance rates may apply to different increments of specified amount   
under your Policy. If so, we attribute your accumulation value proportionately  
to each increment of specified amount to compute our net amount at risk.        

   Certain arrangements. Most of the advisers or administrators of the Funds
make certain payments to us, on a quarterly basis, for certain administrative,  
Policy, and policy owner support expenses. These amounts will be reasonable for 
the services performed and are not designed to result in a profit. These amounts
will not be paid by the Funds or Policy owners.                                 

Guaranteed Investment Option                                                    

Under the Policy, you may currently allocate your Account Value to the
Guaranteed Account. In addition, if you request a loan, we will allocate part of
your Account Value to the Loan Account which is part of the Guaranteed Account. 

We may treat each allocation and transfer separately for purposes of  
crediting interest and making deductions from the Guaranteed Account.           

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     All of your Account Value held in the Guaranteed Account will earn interest
at a rate we determine in our sole discretion. This rate will never be less than
4% per year compounded annually. The Loan Account portion of your Account Value 
may earn a different interest rate than the remaining portion of your Account   
Value in the Guaranteed Account.                                                

 We will deduct any transfers, partial surrenders or any policy expenses
from the Guaranteed Account and your variable investment options on a pro rata  
basis, unless you provide other directions. No portion of the Loan Account may  
be used for this purpose.                                                       

  If we must pay any part of the proceeds for a loan, partial surrender or
full surrender from the Guaranteed Account, we may defer the payment for up to  
six months from the date we receive the written request. If we defer payment    
from the Guaranteed Account for 30 days or more, we will pay interest on the    
amount we deferred at a rate of 4% per year, compounded annually, until we make 
payment.                                                                        

Adjustments to Death Benefit                                                    

    Suicide. If the insured person commits suicide during the first two Policy
years, we will limit the proceeds payable to the total of all premiums that have
been paid to the time of death minus any outstanding Policy loans (plus credit  
for any unearned interest) and any partial surrenders.                          

    A new two-year period begins if you increase the specified amount. You can
increase the specified amount only if the insured person is living at the time  
of the increase. In this case, if the insured person commits suicide during the 
first two years following the increase, we will refund the monthly insurance    
deductions attributable to the increase. The death benefit will then be based on
the specified amount in effect before the increase.                             

Wrong age or gender. If the age or gender of the insured person was   
misstated on your application for a Policy (or for any increase in benefits), we
will adjust any death benefit to be what the monthly insurance charge deducted  
for the current month would have purchased based on the correct information.    

   Death during grace period. We will deduct from the insurance proceeds any
monthly charges that remain unpaid because the insured person died during a     
grace period.                                                                   

ACTUARIAL EXPERT

     Actuarial matters have been examined by Wayne A. Barnard, who is an actuary
of AIG Life. An opinion on actuarial matters is filed as an exhibit to the      
registration statement we have filed with the SEC in connection with the        
Policies.                                                                       

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MATERIAL CONFLICTS

 We are required to track events to identify any material conflicts from
using investment portfolios for both variable life and variable annuity separate
accounts. The boards of the Funds, AIG Life, and other insurance companies      
participating in the Funds have this same duty. There may be a material conflict
if:                                                                             

.    state insurance law or federal income tax law changes;           

.    investment management of an investment portfolio changes; or     

.    voting instructions given by owners of variable life insurance   
Policies and variable annuity contracts differ.             

    The investment portfolios may sell shares to certain qualified pension and
retirement plans qualifying under Code Section 401. These include cash or       
deferred arrangements under Code Section 401(k). Therefore, there is a          
possibility that a material conflict may arise between the interests of owners  
in general, or certain classes of owners, and these retirement plans or         
participants in these retirement plans.                                         

    If there is a material conflict, we have the duty to determine appropriate
action, including removing the portfolios involved from our variable investment 
options. We may take other action to protect Policy owners. This could mean     
delays or interruptions of the variable operations.                             

When state insurance regulatory authorities require us, we may ignore 
instructions relating to changes in an investment portfolio's adviser or its    
investment policies. If we do ignore voting instructions, we give you a summary 
of our actions in the next semi-annual report to owners.                        

FINANCIAL STATEMENTS

     PricewaterhouseCoopers LLP ("PwC"), located at 1201 Louisiana Street, Suite
2900, Houston, Texas 77002, is the independent registered public accounting firm
for AIG Life. AIG uses PwC as its corporate-wide auditing firm.                 

Separate Account Financial Statements                                           

The statement of net assets as of December 31, 2005 and the related   
statement of operations for the year then ended and statements of changes in net
assets for the two years ended December 31, 2005 of the Separate Account,       
appearing herein, have been audited by PwC, an independent registered public    
accounting firm, on the authority of such firm as experts in accounting and     
auditing, as set forth in their report appearing elsewhere herein.              

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AIG Life Financial Statements                                                   

   The financial statements of AIG Life as of December 31, 2005 and 2004 and
the related statements of income, shareholder's equity, cash flows and          
comprehensive income for the three years ended December 31, 2005, appearing     
herein, have been audited by PwC, an independent registered public accounting   
firm, on the authority of such firm as experts in accounting and auditing, as   
set forth in their report appearing elsewhere herein.                           

National Union Financial Statements                                             

The statutory statement of admitted assets, liabilities, capital and  
surplus of National Union as of December 31, 2005 and 2004, and the related     
statutory statements of income and changes in capital and surplus and of cash   
flow for each of the two years in the period ended December 31, 2005, appear    
herein, in reliance on the report of PwC, an independent registered public      
accounting firm, given on the authority of said firm as experts in accounting   
and auditing.                                                                   

Incorporation of AIG Financial Information                                      

We incorporate by reference the consolidated financial statements     
(including notes and financial statement schedules thereto) and management's    
assessment of the effectiveness of internal control over financial reporting    
(which is included in Management's Report on Internal Control Over Financial    
Reporting) of AIG included in AIG's Annual Report on Form 10-K for the year     
ended December 31, 2005, File No. 001-08787, filed on March 16, 2006, in        
reliance on the report (which contains an adverse opinion on the effectiveness  
of internal control over financial reporting) of PwC, an independent registered 
public accounting firm, given on the authority of said firm as experts in       
auditing and accounting.                                                        

 INDEX TO FINANCIAL STATEMENTS

     You should consider the financial statements of AIG Life that we include in
this SAI as bearing on the ability of AIG Life to meet its obligations under the
Policies.                                                                       

      You should only consider the financial statements of National Union that
we include in this SAI as bearing on the ability of National Union, as          
guarantor, to meet its obligations under a guarantee agreement that guarantees  
the insurance obligations of the Policies.                                      

                                                        [Enlarge/Download Table]

I.       Variable Account II 2005 Financial Statements                                  Page      
         ---------------------------------------------                                  ----      
                                                                                                  
Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm ... VA II - 1 
Statement of Net Assets as of December 31, 2005........................................ VA II - 2 
Statement of Operations for the year ended December 31, 2005........................... VA II - 4 
Statement of Changes in Net Assets for the years ended December 31, 2005 and 2004...... VA II - 6 
Notes to Financial Statements.......................................................... VA II - 26

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                                                        [Enlarge/Download Table]

II.      AIG Life 2005 Financial Statements                                                               Page 
         ----------------------------------                                                               ---- 
                                                                                                               
Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm ..................... F - 2
Balance Sheets as of December 31, 2005 and 2004.......................................................... F - 3
Statements of Income for the years ended December 31, 2005, 2004 and 2003................................ F - 5
Statements of Shareholders' Equity for the years ended December 31, 2005, 2004                                 
 and 2003................................................................................................ F - 6
Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003............................ F - 7
Statements of Comprehensive Income for the years ended December 31, 2005, 2004                                 
 and 2003................................................................................................ F - 8
Notes to Financial Statements............................................................................ F - 9

                                                        [Enlarge/Download Table]

III.     National Union Financial Statements (Statutory Basis)                                            Page
         -----------------------------------------------------                                            ----
                                                                                                              
Report of PricewaterhouseCoopers LLP, Independent Auditors............................................... 2   
Statements of Admitted Assets (Statutory Basis) as of December 31, 2005 and 2004......................... 3   
Statements of Liabilities, Capital and Surplus (Statutory Basis) as of December 31, 2005 and 2004........ 4   
Statements of Income and Changes in Capital and Surplus (Statutory Basis) for the years ended                 
  December 31, 2005 and 2004............................................................................. 5   
Statements of Cash Flow (Statutory Basis) for the years ended December 31, 2005 and 2004................. 6   
Notes to Statutory Basis Financial Statements............................................................ 7   

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[LOGO] AIG AMERICAN GENERAL                                                     

                                                           Variable Account II
                                             Variable Universal Life Insurance

                                                                          2005
                                                                 Annual Report

                                                             December 31, 2005

                                                    AIG Life Insurance Company
                        A member company of American International Group, Inc.

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[LETTERHEAD] PricewaterhouseCoopers LLP                                         

PricewaterhouseCoopers LLP                                                      
1201 Louisiana                                                                  
Suite 2900                                                                      
Houston, TX 77002-5678                                                          
Telephone (713) 356-4000                                                        
Facsimile (713) 356-4717                                                        

Report of Independent Registered Public Accounting Firm 

To the Board of Directors of AIG Life Insurance Company and Policy Owners of    
AIG Life Insurance Company Variable Account II                                  

In our opinion, the accompanying statement of net assets, including the         
schedule of portfolio investments, and the related statements of operations and 
of changes in net assets and the financial highlights present fairly, in all    
material respects, the financial position of each of the Sub-accounts listed in 
Note A of AIG Life Insurance Company Variable Account II (the "Separate         
Account") at December 31, 2005, the results of their operations for the year    
then ended, the changes in their net assets for each of the two years in the    
period then ended and the financial highlights for each of the five years in    
the period then ended, in conformity with accounting principles generally       
accepted in the United States of America. These financial statements and        
financial highlights (hereafter referred to as "financial statements") are the  
responsibility of the Separate Account's management; our responsibility is to   
express an opinion on these financial statements based on our audits. We        
conducted our audits of these financial statements in accordance with the       
standards of the Public Company Accounting Oversight Board (United States).     
Those standards require that we plan and perform the audit to obtain reasonable 
assurance about whether the financial statements are free of material           
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements, assessing the          
accounting principles used and significant estimates made by management, and    
evaluating the overall financial statement presentation. We believe that our    
audits, which included confirmation of securities at December 31, 2005 by       
correspondence with the investment companies, provide a reasonable basis for    
our opinion.                                                                    

PRICEWATERHOUSECOOPERS LLP                                                      

April 5, 2006                                                                   

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF NET ASSETS                                                         
December 31, 2005                                                               

                                                        [Enlarge/Download Table]

                                                                         Investment    Due from (to) AIG           
                                                                       securities - at  Life Insurance             
Sub-accounts                                                             fair value         Company      Net Assets
---------------------------------------------------------------------  --------------- ----------------- ----------
                                                                                                                   
AIM V.I. Capital Appreciation Fund - Series I                            $  679,342           $--        $  679,342
AIM V.I. International Growth Fund - Series I                             1,148,656            --         1,148,656
AllianceBernstein Global Bond Portfolio - Class A                            52,787            --            52,787
AllianceBernstein Global Dollar Government Portfolio - Class A                  344            --               344
AllianceBernstein Global Technology Portfolio - Class A                   1,894,410            --         1,894,410
AllianceBernstein Growth and Income Portfolio - Class A                   3,949,219            (1)        3,949,218
AllianceBernstein Growth Portfolio - Class A                              3,108,494            --         3,108,494
AllianceBernstein Large Cap Growth Portfolio - Class A                    1,518,969             1         1,518,970
AllianceBernstein Money Market Portfolio - Class A                           33,707            91            33,798
AllianceBernstein Real Estate Investment Portfolio - Class A                595,354             1           595,355
AllianceBernstein Small Cap Growth Portfolio - Class A                      491,437            --           491,437
AllianceBernstein Total Return Portfolio - Class A                          392,872            --           392,872
AllianceBernstein U.S. Government/High Grade Securities Portfolio -                                                
  Class A                                                                       577            --               577
AllianceBernstein Utility Income Portfolio - Class A                        194,613            --           194,613
American Century VP Capital Appreciation Fund - Class I                     107,869            --           107,869
American Century VP Income & Growth Fund - Class I                          242,689            --           242,689
American Century VP International Fund - Class I                            332,321            --           332,321
Anchor Series Trust Asset Allocation Portfolio - Class 1                    445,317            --           445,317
Anchor Series Trust Capital Appreciation Portfolio - Class 1              3,894,209            --         3,894,209
Anchor Series Trust Government and Quality Bond Portfolio - Class 1         764,572            --           764,572
Anchor Series Trust Growth Portfolio - Class 1                            1,863,342            (1)        1,863,341
Anchor Series Trust Natural Resources Portfolio - Class 1                 1,075,229            --         1,075,229
Dreyfus Stock Index Fund, Inc. - Initial shares                           5,606,987             1         5,606,988
Dreyfus VIF Small Company Stock Portfolio - Initial shares                1,420,015            --         1,420,015
Fidelity VIP Asset Manager Portfolio - Initial Class                      1,460,280            --         1,460,280
Fidelity VIP Contrafund Portfolio - Initial Class                         3,322,747            --         3,322,747
Fidelity VIP Growth Portfolio - Initial Class                             3,997,747            --         3,997,747
Fidelity VIP High Income Portfolio - Initial Class                          628,511            --           628,511
Fidelity VIP Index 500 Portfolio - Initial Class                            523,892            --           523,892
Fidelity VIP Investment Grade Bond Portfolio - Initial Class              1,043,225            --         1,043,225
Fidelity VIP Money Market Portfolio - Initial Class                       2,265,382            --         2,265,382
Fidelity VIP Overseas Portfolio - Initial Class                             769,330            --           769,330
Franklin Templeton - Templeton Foreign Securities Fund - Class 2            170,399            --           170,399
Franklin Templeton - Templeton Global Asset Allocation Fund - Class 1       322,152            --           322,152
JPMorgan Bond Portfolio                                                     141,611            --           141,611
JPMorgan U.S. Large Cap Core Equity Portfolio                                72,811            --            72,811
Mercury Basic Value V.I. Fund - Class I                                     127,221            --           127,221
Neuberger Berman AMT Limited Maturity Bond Portfolio - Class I              139,100            --           139,100
Neuberger Berman AMT Partners Portfolio - Class I                           392,111            --           392,111
Oppenheimer Global Securities Fund/VA - Non-Service Shares                  558,207             1           558,208
Oppenheimer Main Street Fund/VA - Non-Service Shares                        614,847            --           614,847
PIMCO VIT Real Return Portfolio - Administrative Class                      205,636            --           205,636
PIMCO VIT Total Return Portfolio - Administrative Class                     126,376            --           126,376
SunAmerica - Aggressive Growth Portfolio - Class 1                        2,114,406            (1)        2,114,405
SunAmerica - SunAmerica Balanced Portfolio - Class 1                      1,595,681            --         1,595,681
SunAmerica Alliance Growth Portfolio                                      3,997,909            --         3,997,909
SunAmerica Blue Chip Growth Portfolio                                       117,354            --           117,354
SunAmerica Cash Management Portfolio                                      3,286,709            --         3,286,709
SunAmerica Corporate Bond Portfolio                                         330,149            --           330,149
SunAmerica Davis Venture Value Portfolio                                  3,285,939            --         3,285,939
SunAmerica "Dogs" of Wall Street Portfolio                                  454,414            --           454,414
SunAmerica Emerging Markets Portfolio                                     1,076,323            --         1,076,323
SunAmerica Federated American Leaders Portfolio                             380,765            --           380,765
STATEMENT OF NET ASSETS - CONTINUED                                                                                

See accompanying notes. 

VA II - 2 

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
STATEMENT OF NET ASSETS - CONTINUED                                             

December 31, 2005                                                               

                                                        [Enlarge/Download Table]

                                                                         Investment    Due from (to) AIG           
                                                                       securities - at  Life Insurance             
Sub-accounts                                                             fair value         Company      Net Assets
---------------------------------------------------------------------  --------------- ----------------- ----------
                                                                                                                   
SunAmerica Global Bond Portfolio                                         $  541,238          $ --        $  541,238
SunAmerica Global Equities Portfolio                                        611,629            --           611,629
SunAmerica Goldman Sachs Research Portfolio                                  27,192            --            27,192
SunAmerica Growth Opportunities Portfolio                                    89,792            --            89,792
SunAmerica Growth-Income Portfolio                                        2,676,181            --         2,676,181
SunAmerica High-Yield Bond Portfolio                                        204,746            --           204,746
SunAmerica International Diversified Equities Portfolio                     704,110            --           704,110
SunAmerica International Growth and Income Portfolio                      1,117,603            --         1,117,603
SunAmerica Marsico Growth Portfolio                                         623,339            --           623,339
SunAmerica MFS Massachusetts Investors Trust Portfolio                      638,547            --           638,547
SunAmerica MFS Mid-Cap Growth Portfolio                                   2,613,573            --         2,613,573
SunAmerica MFS Total Return Portfolio                                     1,232,316            --         1,232,316
SunAmerica Putnam Growth: Voyager Portfolio                               1,074,314            --         1,074,314
SunAmerica Real Estate Portfolio                                            892,461            --           892,461
SunAmerica Technology Portfolio                                             112,030            --           112,030
SunAmerica Telecom Utility Portfolio                                        161,825            --           161,825
SunAmerica Worldwide High Income Portfolio                                  112,975            --           112,975
UIF Core Plus Fixed Income Portfolio - Class I                              204,470            --           204,470
UIF Money Market Portfolio - Class I                                        119,123           189           119,312
UIF U.S. Mid Cap Value Portfolio - Class I                                  602,810            --           602,810
VALIC Company I - International Equities Fund                               134,650            --           134,650
VALIC Company I - Small Cap Index Fund                                      414,984            --           414,984
Van Eck Worldwide Emerging Markets Fund                                     412,635            --           412,635
Van Eck Worldwide Hard Assets Fund                                          327,222            --           327,222
Vanguard VIF Total Bond Market Index Portfolio                              126,559            --           126,559

See accompanying notes. 

VA II - 3 

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF OPERATIONS                                                         
For the Year Ended December 31, 2005                                            

                                                        [Enlarge/Download Table]

                                             A           B          A+B=C         D             E             F         C+D+E+F  

                                                                                                                        Increase 
                                                                                                        Net change in  (decrease)
                                                   Mortality and                                          unrealized     in net  
                                         Dividends  expense risk     Net     Net realized Capital gain   appreciation    assets  
                                           from         and       investment gain (loss)  distributions (depreciation) resulting 
                                          mutual   administrative   income        on       from mutual        of          from   
Sub-accounts                               funds      charges       (loss)   investments      funds      investments   operations
---------------------------------------- --------- -------------- ---------- ------------ ------------- -------------- ----------
                                                                                                                                 
AIM V.I. Capital Appreciation Fund -                                                                                             
  Series I                                $   419     $ (5,454)    $ (5,035)  $ (23,468)     $    --      $  78,484     $ 49,981 
AIM V.I. International Growth Fund -                                                                                             
  Series I                                  6,924       (8,478)      (1,554)    (16,942)          --        179,418      160,922 
AllianceBernstein Global Bond Portfolio                                                                                          
  - Class A                                 7,494         (631)       6,863      (2,347)         956        (11,841)      (6,369)
AllianceBernstein Global Dollar                                                                                                  
  Government Portfolio - Class A               21           (3)          18           3           16             (9)          28 
AllianceBernstein Global Technology                                                                                              
  Portfolio - Class A                          --      (14,934)     (14,934)   (186,777)          --        261,672       59,961 
AllianceBernstein Growth and Income                                                                                              
  Portfolio - Class A                      56,747      (32,466)      24,281      40,473           --         87,861      152,615 
AllianceBernstein Growth Portfolio -                                                                                             
  Class A                                      --      (26,509)     (26,509)   (302,834)          --        621,642      292,299 
AllianceBernstein Large Cap Growth                                                                                               
  Portfolio - Class A                          --      (11,131)     (11,131)    (57,136)          --        259,559      191,292 
AllianceBernstein Money Market                                                                                                   
  Portfolio - Class A                         837         (325)         512          --           --             --          512 
AllianceBernstein Real Estate                                                                                                    
  Investment Portfolio - Class A           16,302       (3,925)      12,377      38,716       51,967        (45,423)      57,637 
AllianceBernstein Small Cap Growth                                                                                               
  Portfolio - Class A                          --       (4,410)      (4,410)     (7,689)          --         28,445       16,346 
AllianceBernstein Total Return                                                                                                   
  Portfolio - Class A                       9,517       (3,202)       6,315       2,601           --          1,427       10,343 
AllianceBernstein U.S. Government/High                                                                                           
  Grade Securities Portfolio - Class A         19           (6)          13          (1)          18            (23)           7 
AllianceBernstein Utility Income                                                                                                 
  Portfolio - Class A                       3,988       (1,426)       2,562       1,713           --         21,941       26,216 
American Century VP Capital                                                                                                      
  Appreciation Fund - Class I                  --         (669)        (669)      1,228           --         17,320       17,879 
American Century VP Income & Growth                                                                                              
  Fund - Class I                            4,331       (1,701)       2,630       4,645           --          1,263        8,538 
American Century VP International Fund                                                                                           
  - Class I                                 3,125       (1,881)       1,244       1,920           --         34,232       37,396 
Anchor Series Trust Asset Allocation                                                                                             
  Portfolio - Class 1                      13,804       (3,145)      10,659       6,348           --            236       17,243 
Anchor Series Trust Capital                                                                                                      
  Appreciation Portfolio - Class 1         10,557      (27,083)     (16,526)    (10,228)          --        406,478      379,724 
Anchor Series Trust Government and                                                                                               
  Quality Bond Portfolio - Class 1         32,188       (6,292)      25,896      (3,822)          --         (6,059)      16,015 
Anchor Series Trust Growth Portfolio -                                                                                           
  Class 1                                  15,565      (12,928)       2,637     (10,461)      65,355         52,348      109,879 
Anchor Series Trust Natural Resources                                                                                            
  Portfolio - Class 1                       4,456       (6,498)      (2,042)     70,491       42,234        215,188      325,871 
Dreyfus Stock Index Fund, Inc. -                                                                                                 
  Initial shares                           95,302      (51,520)      43,782     272,508           --       (110,953)     205,337 
Dreyfus VIF Small Company Stock                                                                                                  
  Portfolio - Initial shares                   --      (11,638)     (11,638)     44,187       70,767       (102,482)         834 
Fidelity VIP Asset Manager Portfolio -                                                                                           
  Initial Class                            38,490      (12,747)      25,743     (39,366)         493         58,155       45,025 
Fidelity VIP Contrafund Portfolio -                                                                                              
  Initial Class                             7,372      (22,527)     (15,155)     45,226          461        421,641      452,173 
Fidelity VIP Growth Portfolio - Initial                                                                                          
  Class                                    19,963      (35,108)     (15,145)   (291,855)          --        489,703      182,703 
Fidelity VIP High Income Portfolio -                                                                                             
  Initial Class                            91,893       (5,262)      86,631     (39,955)          --        (35,270)      11,406 
Fidelity VIP Index 500 Portfolio -                                                                                               
  Initial Class                             9,225       (3,292)       5,933       8,379           --          6,162       20,474 
Fidelity VIP Investment Grade Bond                                                                                               
  Portfolio - Initial Class                38,082       (9,055)      29,027       3,898       23,008        (41,895)      14,038 
Fidelity VIP Money Market Portfolio -                                                                                            
  Initial Class                            74,565      (20,348)      54,217          --           --             --       54,217 
Fidelity VIP Overseas Portfolio -                                                                                                
  Initial Class                             3,658       (5,761)      (2,103)    (26,496)       2,863        143,337      117,601 
Franklin Templeton - Templeton Foreign                                                                                           
  Securities Fund - Class 2                 1,859         (825)       1,034         (17)          --         10,718       11,735 
Franklin Templeton - Templeton Global                                                                                            
  Asset Allocation Fund - Class 1          10,956       (2,035)       8,921      19,604           --        (18,605)       9,920 
JPMorgan Bond Portfolio                     3,878         (944)       2,934      (1,066)       1,959         (1,487)       2,340 
JPMorgan U.S. Large Cap Core Equity                                                                                              
  Portfolio                                   869         (528)         341         135           --              4          480 
Mercury Basic Value V.I. Fund - Class I     1,731         (634)       1,097         (40)       9,162         (6,418)       3,801 
Neuberger Berman AMT Limited Maturity                                                                                            
  Bond Portfolio - Class I                  4,036         (755)       3,281      (1,714)          --           (984)         583 
Neuberger Berman AMT Partners Portfolio                                                                                          
  - Class I                                 3,929       (3,224)         705      98,613           91        (31,939)      67,470 
Oppenheimer Global Securities Fund/VA -                                                                                          
  Non-Service Shares                        4,881       (3,717)       1,164      26,746           --         37,858       65,768 
Oppenheimer Main Street Fund/VA - Non-                                                                                           
  Service Shares                            7,919       (4,391)       3,528       8,367           --         18,296       30,191 
PIMCO VIT Real Return Portfolio -                                                                                                
  Administrative Class                      5,708       (1,337)       4,371         (70)       2,237         (3,633)       2,905 
PIMCO VIT Total Return Portfolio -                                                                                               
  Administrative Class                      3,756         (651)       3,105          17        2,010         (2,130)       3,002 
SunAmerica - Aggressive Growth                                                                                                   
  Portfolio - Class 1                          --      (15,314)     (15,314)    (91,121)          --        262,465      156,030 
SunAmerica - SunAmerica Balanced                                                                                                 
  Portfolio - Class 1                      38,862      (11,440)      27,422     (19,579)          --         12,832       20,675 
SunAmerica Alliance Growth Portfolio       14,432      (26,509)     (12,077)   (125,313)          --        690,465      553,075 
SunAmerica Blue Chip Growth Portfolio         629         (827)        (198)       (120)          --          2,763        2,445 
SunAmerica Cash Management Portfolio       27,822      (22,222)       5,600     (19,995)          --         75,609       61,214 
SunAmerica Corporate Bond Portfolio        16,825       (2,889)      13,936      13,006           --        (22,906)       4,036 
SunAmerica Davis Venture Value Portfolio   32,434      (23,560)       8,874      44,148           --        243,243      296,265 

See accompanying notes. 

VA II - 4 

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF OPERATIONS - CONTINUED                                             
For the Year Ended December 31, 2005                                            

                                                        [Enlarge/Download Table]

                                             A           B          A+B=C         D             E             F         C+D+E+F  

                                                                                                                        Increase 
                                                                                                        Net change in  (decrease)
                                                   Mortality and                                          unrealized     in net  
                                         Dividends  expense risk     Net     Net realized Capital gain   appreciation    assets  
                                           from         and       investment gain (loss)  distributions (depreciation) resulting 
                                          mutual   administrative   income        on       from mutual        of          from   
Sub-accounts                               funds      charges       (loss)   investments      funds      investments   operations
---------------------------------------  --------- -------------- ---------- ------------ ------------- -------------- ----------
                                                                                                                                 
SunAmerica "Dogs" of Wall Street                                                                                                 
  Portfolio                               11,285      $ (3,356)    $  7,929   $   2,734      $   933       $(26,234)    $(14,638)
SunAmerica Emerging Markets Portfolio      3,109        (6,841)      (3,732)     68,392           --        224,764      289,424 
SunAmerica Federated American Leaders                                                                                            
  Portfolio                                5,862        (2,710)       3,152       2,588           --          7,258       12,998 
SunAmerica Global Bond Portfolio          18,345        (4,369)      13,976      17,070        3,113        (12,523)      21,636 
SunAmerica Global Equities Portfolio       1,511        (4,215)      (2,704)    (29,208)          --        109,569       77,657 
SunAmerica Goldman Sachs Research                                                                                                
  Portfolio                                  127          (195)         (68)        881           --            (39)         774 
SunAmerica Growth Opportunities                                                                                                  
  Portfolio                                   --          (752)        (752)      9,700           --         (3,373)       5,575 
SunAmerica Growth-Income Portfolio        14,325       (18,700)      (4,375)    (46,369)          --        208,646      157,902 
SunAmerica High-Yield Bond Portfolio      21,495        (1,536)      19,959      12,802           --        (16,788)      15,973 
SunAmerica International Diversified                                                                                             
  Equities Portfolio                       9,921        (4,730)       5,191       3,975           --         71,133       80,299 
SunAmerica International Growth and                                                                                              
  Income Portfolio                         9,306        (7,490)       1,816       7,541           --        125,679      135,036 
SunAmerica Marsico Growth Portfolio           --        (4,091)      (4,091)     22,478           --         37,339       55,726 
SunAmerica MFS Massachusetts Investors                                                                                           
  Trust Portfolio                          4,998        (4,528)         470      (2,682)          --         44,205       41,993 
SunAmerica MFS Mid-Cap Growth Portfolio       --       (18,391)     (18,391)   (183,720)          --        261,151       59,040 
SunAmerica MFS Total Return Portfolio     26,650        (8,801)      17,849      14,655       57,894        (64,177)      26,221 
SunAmerica Putnam Growth: Voyager                                                                                                
  Portfolio                                6,365        (7,625)      (1,260)    (48,488)          --        105,899       56,151 
SunAmerica Real Estate Portfolio          16,766        (6,509)      10,257     104,189       62,500        (76,898)     100,048 
SunAmerica Technology Portfolio               --          (876)        (876)     (1,888)          --          1,584       (1,180)
SunAmerica Telecom Utility Portfolio       6,664        (1,030)       5,634      (7,594)          --          8,523        6,563 
SunAmerica Worldwide High Income                                                                                                 
  Portfolio                                8,488          (762)       7,726        (495)          --           (477)       6,754 
UIF Core Plus Fixed Income Portfolio -                                                                                           
  Class I                                  7,082        (1,254)       5,828          86        1,452           (588)       6,778 
UIF Money Market Portfolio - Class I       3,062          (750)       2,312          --           --             --        2,312 
UIF U.S. Mid Cap Value Portfolio -                                                                                               
  Class I                                  1,748        (3,501)      (1,753)      4,202        7,795         51,903       62,147 
VALIC Company I - International                                                                                                  
  Equities Fund                            1,858          (623)       1,235           6           --         14,870       16,111 
VALIC Company I - Small Cap Index Fund     3,809        (2,585)       1,224       1,864       12,816         (1,863)      14,041 
Van Eck Worldwide Emerging Markets Fund    2,278        (2,969)        (691)     23,160           --         69,670       92,139 
Van Eck Worldwide Hard Assets Fund           714        (2,250)      (1,536)     19,211           --         88,467      106,142 
Vanguard VIF Total Bond Market Index                                                                                             
  Portfolio                                4,223          (651)       3,572         (60)         751         (1,078)       3,185 

See accompanying notes. 

VA II - 5 

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS                                              

                                                        [Enlarge/Download Table]

                                                                               Sub-accounts                              
                                                  ---------------------------------------------------------------------- 
                                                                      AIM V.I.                         AllianceBernstein 
                                                  AIM V.I. Capital  International  AllianceBernstein     Global Dollar   
                                                  Appreciation Fund Growth Fund -     Global Bond         Government     
                                                     - Series I       Series I    Portfolio - Class A Portfolio - Class A
                                                  ----------------- ------------- ------------------- -------------------
                                                                                                                         
For the Year Ended December 31, 2005                                                                                     

OPERATIONS:                                                                                                              
   Net investment income (loss)                       $ (5,035)      $   (1,554)       $  6,863              $ 18        
   Net realized gain (loss) on investments             (23,468)         (16,942)         (2,347)                3        
   Capital gain distributions from mutual funds             --               --             956                16        
   Net change in unrealized appreciation                                                                                 
     (depreciation) of investments                      78,484          179,418         (11,841)               (9)       
                                                      --------       ----------        --------              ----        
Increase (decrease) in net assets resulting from                                                                         
  operations                                            49,981          160,922          (6,369)               28        
                                                      --------       ----------        --------              ----        
PRINCIPAL TRANSACTIONS:                                                                                                  
   Net premiums and transfers from (to) other                                                                            
     Sub-accounts or fixed rate option                 116,125          189,818          12,384                --        
   Administrative charges                                   --               --              --                --        
   Cost of insurance                                   (58,240)         (78,841)         (5,928)              (10)       
   Policy loans                                        (15,056)          32,734            (864)               --        
   Death benefits                                          (65)          (1,571)             --                --        
   Withdrawals                                         (50,327)         (29,883)        (11,652)               --        
                                                      --------       ----------        --------              ----        
Increase (decrease) in net assets resulting from                                                                         
  principal transactions                                (7,563)         112,257          (6,060)              (10)       
                                                      --------       ----------        --------              ----        
TOTAL INCREASE (DECREASE) IN NET ASSETS                 42,418          273,179         (12,429)               18        

NET ASSETS:                                                                                                              
   Beginning of year                                   636,924          875,477          65,216               326        
                                                      --------       ----------        --------              ----        
   End of year                                        $679,342       $1,148,656        $ 52,787              $344        
                                                      ========       ==========        ========              ====        
For the Year Ended December 31, 2004                                                                                     

OPERATIONS:                                                                                                              
   Net investment income (loss)                       $ (5,198)      $   (1,542)       $  3,086              $ 19        
   Net realized gain (loss) on investments             (23,903)         (44,601)          2,326                 5        
   Capital gain distributions from mutual funds             --               --           1,279                --        
   Net change in unrealized appreciation                                                                                 
     (depreciation) of investments                      65,005          209,487            (574)                3        
                                                      --------       ----------        --------              ----        
Increase (decrease) in net assets resulting from                                                                         
  operations                                            35,904          163,344           6,117                27        
                                                      --------       ----------        --------              ----        
PRINCIPAL TRANSACTIONS:                                                                                                  
   Net premiums and transfers from (to) other                                                                            
     Sub-accounts or fixed rate option                 101,509          149,293          22,114                --        
   Administrative charges                                   --               --              --                --        
   Cost of insurance                                   (64,726)         (70,075)         (5,619)              (11)       
   Policy loans                                        (13,844)         (44,740)             (6)               --        
   Death benefits                                           --             (515)             --                --        
   Withdrawals                                         (39,976)         (32,496)        (10,131)               --        
                                                      --------       ----------        --------              ----        
Increase (decrease) in net assets resulting from                                                                         
  principal transactions                               (17,037)           1,467           6,358               (11)       
                                                      --------       ----------        --------              ----        
TOTAL INCREASE (DECREASE) IN NET ASSETS                 18,867          164,811          12,475                16        

NET ASSETS:                                                                                                              
   Beginning of year                                   618,057          710,666          52,741               310        
                                                      --------       ----------        --------              ----        
   End of year                                        $636,924       $  875,477        $ 65,216              $326        
                                                      ========       ==========        ========              ====        

See accompanying notes. 

VA II - 6 

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                                 Sub-accounts                                 
                                                 ---------------------------------------------------------------------------- 
                                                                     AllianceBernstein                                        
                                                  AllianceBernstein      Growth and     AllianceBernstein   AllianceBernstein 
                                                  Global Technology  Income Portfolio - Growth Portfolio -  Large Cap Growth  
                                                 Portfolio - Class A      Class A            Class A       Portfolio - Class A
                                                 ------------------- ------------------ ------------------ -------------------
                                                                                                                              
For the Year Ended December 31, 2005                                                                                          

OPERATIONS:                                                                                                                   
   Net investment income (loss)                      $  (14,934)         $   24,281         $  (26,509)        $  (11,131)    
   Net realized gain (loss) on investments             (186,777)             40,473           (302,834)           (57,136)    
   Capital gain distributions from mutual funds              --                  --                 --                 --     
   Net change in unrealized appreciation                                                                                      
     (depreciation) of investments                      261,672              87,861            621,642            259,559     
                                                     ----------          ----------         ----------         ----------     
Increase (decrease) in net assets resulting from                                                                              
  operations                                             59,961             152,615            292,299            191,292     
                                                     ----------          ----------         ----------         ----------     
PRINCIPAL TRANSACTIONS:                                                                                                       
   Net premiums and transfers from (to) other                                                                                 
     Sub-accounts or fixed rate option                  307,541             540,668             17,029            188,207     
   Administrative charges                                    --                (933)                --               (437)    
   Cost of insurance                                   (165,690)           (232,945)          (215,537)          (100,266)    
   Policy loans                                          61,256             (18,895)           (65,238)           (23,794)    
   Death benefits                                            --                (693)              (256)            (2,099)    
   Withdrawals                                          (72,219)           (162,604)          (177,915)          (117,325)    
                                                     ----------          ----------         ----------         ----------     
Increase (decrease) in net assets resulting from                                                                              
  principal transactions                                130,888             124,598           (441,917)           (55,714)    
                                                     ----------          ----------         ----------         ----------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                 190,849             277,213           (149,618)           135,578     

NET ASSETS:                                                                                                                   
   Beginning of year                                  1,703,561           3,672,005          3,258,112          1,383,392     
                                                     ----------          ----------         ----------         ----------     
   End of year                                       $1,894,410          $3,949,218         $3,108,494         $1,518,970     
                                                     ==========          ==========         ==========         ==========     
For the Year Ended December 31, 2004                                                                                          

OPERATIONS:                                                                                                                   
   Net investment income (loss)                      $  (13,861)         $    1,513         $  (26,909)        $  (10,146)    
   Net realized gain (loss) on investments             (201,774)             10,703           (129,738)           (44,208)    
   Capital gain distributions from mutual funds              --                  --                 --                 --     
   Net change in unrealized appreciation                                                                                      
     (depreciation) of investments                      286,364             333,853            551,580            155,017     
                                                     ----------          ----------         ----------         ----------     
Increase (decrease) in net assets resulting from                                                                              
  operations                                             70,729             346,069            394,933            100,663     
                                                     ----------          ----------         ----------         ----------     
PRINCIPAL TRANSACTIONS:                                                                                                       
   Net premiums and transfers from (to) other                                                                                 
     Sub-accounts or fixed rate option                  295,977             644,521            353,372            271,196     
   Administrative charges                                    --                (799)                --               (410)    
   Cost of insurance                                   (171,819)           (229,511)          (226,042)          (103,077)    
   Policy loans                                         (62,229)            (20,349)           (28,879)            (4,166)    
   Death benefits                                          (295)                 --             (4,135)                --     
   Withdrawals                                          (46,225)           (181,815)          (108,047)           (50,051)    
                                                     ----------          ----------         ----------         ----------     
Increase (decrease) in net assets resulting from                                                                              
  principal transactions                                 15,409             212,047            (13,731)           113,492     
                                                     ----------          ----------         ----------         ----------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                  86,138             558,116            381,202            214,155     

NET ASSETS:                                                                                                                   
   Beginning of year                                  1,617,423           3,113,889          2,876,910          1,169,237     
                                                     ----------          ----------         ----------         ----------     
   End of year                                       $1,703,561          $3,672,005         $3,258,112         $1,383,392     
                                                     ==========          ==========         ==========         ==========     

See accompanying notes. 

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                                 Sub-accounts                                
                                                  -------------------------------------------------------------------------- 
                                                                      AllianceBernstein                                      
                                                                         Real Estate                        AllianceBernstein
                                                   AllianceBernstein     Investment      AllianceBernstein    Total Return   
                                                     Money Market        Portfolio -     Small Cap Growth      Portfolio -   
                                                  Portfolio - Class A      Class A      Portfolio - Class A      Class A     
                                                  ------------------- ----------------- ------------------- -----------------
                                                                                                                             
For the Year Ended December 31, 2005                                                                                         

OPERATIONS:                                                                                                                  
   Net investment income (loss)                        $    512           $ 12,377           $  (4,410)         $  6,315     
   Net realized gain (loss) on investments                   --             38,716              (7,689)            2,601     
   Capital gain distributions from mutual funds              --             51,967                  --                --     
   Net change in unrealized appreciation                                                                                     
     (depreciation) of investments                           --            (45,423)             28,445             1,427     
                                                       --------           --------           ---------          --------     
Increase (decrease) in net assets resulting from                                                                             
  operations                                                512             57,637              16,346            10,343     
                                                       --------           --------           ---------          --------     
PRINCIPAL TRANSACTIONS:                                                                                                      
   Net premiums and transfers from (to) other                                                                                
     Sub-accounts or fixed rate option                       (1)            91,728             (21,743)           37,693     
   Administrative charges                                    --                 --                  --                --     
   Cost of insurance                                     (5,304)           (41,844)            (33,126)          (23,320)    
   Policy loans                                              --              2,894              (1,672)           72,366     
   Death benefits                                            --                 --              (1,417)               --     
   Withdrawals                                               --            (16,557)            (43,946)           (2,161)    
                                                       --------           --------           ---------          --------     
Increase (decrease) in net assets resulting from                                                                             
  principal transactions                                 (5,305)            36,221            (101,904)           84,578     
                                                       --------           --------           ---------          --------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                  (4,793)            93,858             (85,558)           94,921     

NET ASSETS:                                                                                                                  
   Beginning of year                                     38,591            501,497             576,995           297,951     
                                                       --------           --------           ---------          --------     
   End of year                                         $ 33,798           $595,355           $ 491,437          $392,872     
                                                       ========           ========           =========          ========     
For the Year Ended December 31, 2004                                                                                         

OPERATIONS:                                                                                                                  
   Net investment income (loss)                        $   (115)          $  6,357           $  (4,566)         $  5,086     
   Net realized gain (loss) on investments                   --             16,363              (2,201)           (1,950)    
   Capital gain distributions from mutual funds              --                 --                  --                --     
   Net change in unrealized appreciation                                                                                     
     (depreciation) of investments                           --            102,501              74,560            21,162     
                                                       --------           --------           ---------          --------     
Increase (decrease) in net assets resulting from                                                                             
  operations                                               (115)           125,221              67,793            24,298     
                                                       --------           --------           ---------          --------     
PRINCIPAL TRANSACTIONS:                                                                                                      
   Net premiums and transfers from (to) other                                                                                
     Sub-accounts or fixed rate option                      996             56,323              86,240            33,507     
   Administrative charges                                    --                 --                  --                --     
   Cost of insurance                                     (5,594)           (36,722)            (33,000)          (22,868)    
   Policy loans                                              --             (2,428)             (5,876)          (94,224)    
   Death benefits                                            --               (489)                 --                --     
   Withdrawals                                          (16,528)            (3,864)            (12,212)           (7,622)    
                                                       --------           --------           ---------          --------     
Increase (decrease) in net assets resulting from                                                                             
  principal transactions                                (21,126)            12,820              35,152           (91,207)    
                                                       --------           --------           ---------          --------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                 (21,241)           138,041             102,945           (66,909)    

NET ASSETS:                                                                                                                  
   Beginning of year                                     59,832            363,456             474,050           364,860     
                                                       --------           --------           ---------          --------     
   End of year                                         $ 38,591           $501,497           $ 576,995          $297,951     
                                                       ========           ========           =========          ========     

See accompanying notes. 

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                                Sub-accounts                              
                                                  ----------------------------------------------------------------------- 
                                                  AllianceBernstein                                                       
                                                        U.S.                                                              
                                                   Government/High  AllianceBernstein  American Century   American Century
                                                  Grade Securities   Utility Income       VP Capital        VP Income &   
                                                     Portfolio -       Portfolio -    Appreciation Fund -  Growth Fund -  
                                                       Class A           Class A            Class I           Class I     
                                                  ----------------- ----------------- ------------------- ----------------
                                                                                                                          
For the Year Ended December 31, 2005                                                                                      

OPERATIONS:                                                                                                               
   Net investment income (loss)                         $  13           $  2,562           $   (669)          $  2,630    
   Net realized gain (loss) on investments                 (1)             1,713              1,228              4,645    
   Capital gain distributions from mutual funds            18                 --                 --                 --    
   Net change in unrealized appreciation                                                                                  
     (depreciation) of investments                        (23)            21,941             17,320              1,263    
                                                        -----           --------           --------           --------    
Increase (decrease) in net assets resulting from                                                                          
  operations                                                7             26,216             17,879              8,538    
                                                        -----           --------           --------           --------    
PRINCIPAL TRANSACTIONS:                                                                                                   
   Net premiums and transfers from (to) other                                                                             
     Sub-accounts or fixed rate option                     --              2,768             27,439             51,135    
   Administrative charges                                  --                 --                 --                 --    
   Cost of insurance                                     (102)           (22,175)           (11,941)           (25,635)   
   Policy loans                                            --               (245)              (389)               180    
   Death benefits                                          --                 --                 --                 --    
   Withdrawals                                             --            (12,483)            (7,078)           (15,246)   
                                                        -----           --------           --------           --------    
Increase (decrease) in net assets resulting from                                                                          
  principal transactions                                 (102)           (32,135)             8,031             10,434    
                                                        -----           --------           --------           --------    
TOTAL INCREASE (DECREASE) IN NET ASSETS                   (95)            (5,919)            25,910             18,972    

NET ASSETS:                                                                                                               
   Beginning of year                                      672            200,532             81,959            223,717    
                                                        -----           --------           --------           --------    
   End of year                                          $ 577           $194,613           $107,869           $242,689    
                                                        =====           ========           ========           ========    
For the Year Ended December 31, 2004                                                                                      

OPERATIONS:                                                                                                               
   Net investment income (loss)                         $  14           $  2,323           $   (503)          $  1,026    
   Net realized gain (loss) on investments                  2             (8,260)              (391)               725    
   Capital gain distributions from mutual funds            21                 --                 --                 --    
   Net change in unrealized appreciation                                                                                  
     (depreciation) of investments                        (18)            41,657              6,508             21,349    
                                                        -----           --------           --------           --------    
Increase (decrease) in net assets resulting from                                                                          
  operations                                               19             35,720              5,614             23,100    
                                                        -----           --------           --------           --------    
PRINCIPAL TRANSACTIONS:                                                                                                   
   Net premiums and transfers from (to) other                                                                             
     Sub-accounts or fixed rate option                     --             26,199             20,090             64,584    
   Administrative charges                                  --                 --                 --                 --    
   Cost of insurance                                      (98)           (21,488)           (10,851)           (23,259)   
   Policy loans                                            --             (2,578)              (288)              (946)   
   Death benefits                                          --               (188)                --                (31)   
   Withdrawals                                             --             (7,982)              (105)              (872)   
                                                        -----           --------           --------           --------    
Increase (decrease) in net assets resulting from                                                                          
  principal transactions                                  (98)            (6,037)             8,846             39,476    
                                                        -----           --------           --------           --------    
TOTAL INCREASE (DECREASE) IN NET ASSETS                   (79)            29,683             14,460             62,576    

NET ASSETS:                                                                                                               
   Beginning of year                                      751            170,849             67,499            161,141    
                                                        -----           --------           --------           --------    
   End of year                                          $ 672           $200,532           $ 81,959           $223,717    
                                                        =====           ========           ========           ========    

See accompanying notes. 

VA II - 9 

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                                 Sub-accounts                                 
                                                 ---------------------------------------------------------------------------- 
                                                                     Anchor Series        Anchor Series       Anchor Series   
                                                 American Century     Trust Asset         Trust Capital     Trust Government  
                                                 VP International Allocation Portfolio    Appreciation      and Quality Bond  
                                                  Fund - Class I       - Class 1       Portfolio - Class 1 Portfolio - Class 1
                                                 ---------------- -------------------- ------------------- -------------------
                                                                                                                              
For the Year Ended December 31, 2005                                                                                          

OPERATIONS:                                                                                                                   
   Net investment income (loss)                      $  1,244           $ 10,659           $  (16,526)          $  25,896     
   Net realized gain (loss) on investments              1,920              6,348              (10,228)             (3,822)    
   Capital gain distributions from mutual funds            --                 --                   --                  --     
   Net change in unrealized appreciation                                                                                      
     (depreciation) of investments                     34,232                236              406,478              (6,059)    
                                                     --------           --------           ----------           ---------     
Increase (decrease) in net assets resulting from                                                                              
  operations                                           37,396             17,243              379,724              16,015     
                                                     --------           --------           ----------           ---------     
PRINCIPAL TRANSACTIONS:                                                                                                       
   Net premiums and transfers from (to) other                                                                                 
     Sub-accounts or fixed rate option                 39,114            113,302              331,622              29,664     
   Administrative charges                                (370)                --                   --                  --     
   Cost of insurance                                   (4,438)           (46,836)            (343,570)           (106,719)    
   Policy loans                                            --             (4,205)             (40,340)             (1,472)    
   Death benefits                                          --                 --                   --                  --     
   Withdrawals                                             --            (15,932)            (123,345)            (84,967)    
                                                     --------           --------           ----------           ---------     
Increase (decrease) in net assets resulting from                                                                              
  principal transactions                               34,306             46,329             (175,633)           (163,494)    
                                                     --------           --------           ----------           ---------     
TOTAL INCREASE (DECREASE) IN NET                                                                                              
  ASSETS                                               71,702             63,572              204,091            (147,479)    

NET ASSETS:                                                                                                                   
   Beginning of year                                  260,619            381,745            3,690,118             912,051     
                                                     --------           --------           ----------           ---------     
   End of year                                       $332,321           $445,317           $3,894,209           $ 764,572     
                                                     ========           ========           ==========           =========     
For the Year Ended December 31, 2004                                                                                          

OPERATIONS:                                                                                                                   
   Net investment income (loss)                      $   (251)          $  7,081           $  (24,516)          $  35,166     
   Net realized gain (loss) on investments              5,677              1,662              (35,577)              1,689     
   Capital gain distributions from mutual funds            --                 --                   --                 356     
   Net change in unrealized appreciation                                                                                      
     (depreciation) of investments                     23,857             22,966              331,437             (14,473)    
                                                     --------           --------           ----------           ---------     
Increase (decrease) in net assets resulting from                                                                              
  operations                                           29,283             31,709              271,344              22,738     
                                                     --------           --------           ----------           ---------     
PRINCIPAL TRANSACTIONS:                                                                                                       
   Net premiums and transfers from (to) other                                                                                 
     Sub-accounts or fixed rate option                 68,939             97,851            1,030,154             153,018     
   Administrative charges                                (317)                --                   --                  --     
   Cost of insurance                                   (3,453)           (48,342)            (401,615)           (124,138)    
   Policy loans                                            --             (4,566)             (28,394)             (4,616)    
   Death benefits                                          --                 --                   --                  --     
   Withdrawals                                             --             (5,263)            (133,760)            (10,046)    
                                                     --------           --------           ----------           ---------     
Increase (decrease) in net assets resulting from                                                                              
  principal transactions                               65,169             39,680              466,385              14,218     
                                                     --------           --------           ----------           ---------     
TOTAL INCREASE (DECREASE) IN NET                                                                                              
  ASSETS                                               94,452             71,389              737,729              36,956     

NET ASSETS:                                                                                                                   
   Beginning of year                                  166,167            310,356            2,952,389             875,095     
                                                     --------           --------           ----------           ---------     
   End of year                                       $260,619           $381,745           $3,690,118           $ 912,051     
                                                     ========           ========           ==========           =========     

See accompanying notes. 

VA II - 10  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                                  Sub-accounts                                 
                                                 ----------------------------------------------------------------------------- 
                                                                        Anchor Series                        Dreyfus VIF Small 
                                                    Anchor Series       Trust Natural      Dreyfus Stock       Company Stock   
                                                    Trust Growth          Resources      Index Fund, Inc. - Portfolio - Initial
                                                 Portfolio - Class 1 Portfolio - Class 1   Initial shares         shares       
                                                 ------------------- ------------------- ------------------ -------------------
                                                                                                                               
For the Year Ended December 31, 2005                                                                                           

OPERATIONS:                                                                                                                    
   Net investment income (loss)                      $    2,637          $   (2,042)        $    43,782         $  (11,638)    
   Net realized gain (loss) on investments              (10,461)             70,491             272,508             44,187     
   Capital gain distributions from mutual funds          65,355              42,234                  --             70,767     
   Net change in unrealized appreciation                                                                                       
     (depreciation) of investments                       52,348             215,188            (110,953)          (102,482)    
                                                     ----------          ----------         -----------         ----------     
Increase (decrease) in net assets resulting from                                                                               
  operations                                            109,879             325,871             205,337                834     
                                                     ----------          ----------         -----------         ----------     
PRINCIPAL TRANSACTIONS:                                                                                                        
   Net premiums and transfers from (to) other                                                                                  
     Sub-accounts or fixed rate option                  312,979             175,790             200,479            306,592     
   Administrative charges                                    --                  --                  --                 --     
   Cost of insurance                                   (168,624)            (75,398)           (671,190)          (108,127)    
   Policy loans                                         (23,300)             (5,306)            (77,204)           (16,744)    
   Death benefits                                       (15,231)                (33)               (308)            (1,443)    
   Withdrawals                                          (20,983)            (30,896)           (515,663)          (166,822)    
                                                     ----------          ----------         -----------         ----------     
Increase (decrease) in net assets resulting from                                                                               
  principal transactions                                 84,841              64,157          (1,063,886)            13,456     
                                                     ----------          ----------         -----------         ----------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                 194,720             390,028            (858,549)            14,290     

NET ASSETS:                                                                                                                    
   Beginning of year                                  1,668,621             685,201           6,465,537          1,405,725     
                                                     ----------          ----------         -----------         ----------     
   End of year                                       $1,863,341          $1,075,229         $ 5,606,988         $1,420,015     
                                                     ==========          ==========         ===========         ==========     
For the Year Ended December 31, 2004                                                                                           

OPERATIONS:                                                                                                                    
   Net investment income (loss)                      $   (2,600)         $      184         $    59,862         $   (9,757)    
   Net realized gain (loss) on investments              (45,292)             31,491             (66,779)            33,598     
   Capital gain distributions from mutual funds              --              19,500                  --             83,309     
   Net change in unrealized appreciation                                                                                       
     (depreciation) of investments                      205,852              80,426             570,465             98,919     
                                                     ----------          ----------         -----------         ----------     
Increase (decrease) in net assets resulting from                                                                               
  operations                                            157,960             131,601             563,548            206,069     
                                                     ----------          ----------         -----------         ----------     

PRINCIPAL TRANSACTIONS:                                                                                                        
   Net premiums and transfers from (to) other                                                                                  
     Sub-accounts or fixed rate option                  400,950             197,282             737,866            272,730     
   Administrative charges                                    --                  --                  --                 --     
   Cost of insurance                                   (183,861)            (66,841)           (714,320)          (101,172)    
   Policy loans                                          (2,279)               (660)            (60,917)            (6,566)    
   Death benefits                                            --                  --                 (31)               (33)    
   Withdrawals                                         (155,661)            (18,046)           (272,983)           (28,344)    
                                                     ----------          ----------         -----------         ----------     
Increase (decrease) in net assets resulting from                                                                               
  principal transactions                                 59,149             111,735            (310,385)           136,615     
                                                     ----------          ----------         -----------         ----------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                 217,109             243,336             253,163            342,684     

NET ASSETS:                                                                                                                    
   Beginning of year                                  1,451,512             441,865           6,212,374          1,063,041     
                                                     ----------          ----------         -----------         ----------     
   End of year                                       $1,668,621          $  685,201         $ 6,465,537         $1,405,725     
                                                     ==========          ==========         ===========         ==========     

See accompanying notes. 

VA II - 11  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                               Sub-accounts                              
                                                  ---------------------------------------------------------------------- 
                                                                      Fidelity VIP                                       
                                                  Fidelity VIP Asset   Contrafund      Fidelity VIP    Fidelity VIP High 
                                                  Manager Portfolio -  Portfolio -  Growth Portfolio - Income Portfolio -
                                                     Initial Class    Initial Class   Initial Class      Initial Class   
                                                  ------------------- ------------- ------------------ ------------------
                                                                                                                         
For the Year Ended December 31, 2005                                                                                     

OPERATIONS:                                                                                                              
   Net investment income (loss)                       $   25,743       $  (15,155)      $  (15,145)         $ 86,631     
   Net realized gain (loss) on investments               (39,366)          45,226         (291,855)          (39,955)    
   Capital gain distributions from mutual funds              493              461               --                --     
   Net change in unrealized appreciation                                                                                 
     (depreciation) of investments                        58,155          421,641          489,703           (35,270)    
                                                      ----------       ----------       ----------          --------     
Increase (decrease) in net assets resulting from                                                                         
  operations                                              45,025          452,173          182,703            11,406     
                                                      ----------       ----------       ----------          --------     
PRINCIPAL TRANSACTIONS:                                                                                                  
   Net premiums and transfers from (to) other                                                                            
     Sub-accounts or fixed rate option                   151,054          726,370          398,047            69,021     
   Administrative charges                                     --             (941)              --                --     
   Cost of insurance                                    (126,709)        (171,551)        (335,416)          (49,590)    
   Policy loans                                           59,160          (10,761)         (45,044)           (7,840)    
   Death benefits                                             --           (1,563)          (2,343)               --     
   Withdrawals                                          (148,642)         (96,388)        (382,859)          (33,864)    
                                                      ----------       ----------       ----------          --------     
Increase (decrease) in net assets resulting from                                                                         
  principal transactions                                 (65,137)         445,166         (367,615)          (22,273)    
                                                      ----------       ----------       ----------          --------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                  (20,112)         897,339         (184,912)          (10,867)    

NET ASSETS:                                                                                                              
   Beginning of year                                   1,480,392        2,425,408        4,182,659           639,378     
                                                      ----------       ----------       ----------          --------     
   End of year                                        $1,460,280       $3,322,747       $3,997,747          $628,511     
                                                      ==========       ==========       ==========          ========     
For the Year Ended December 31, 2004                                                                                     

OPERATIONS:                                                                                                              
   Net investment income (loss)                       $   28,246       $  (10,111)      $  (25,716)         $ 43,144     
   Net realized gain (loss) on investments               (40,133)           4,477         (185,769)          (18,963)    
   Capital gain distributions from mutual funds               --               --               --                --     
   Net change in unrealized appreciation                                                                                 
     (depreciation) of investments                        77,026          304,499          304,184            27,113     
                                                      ----------       ----------       ----------          --------     
Increase (decrease) in net assets resulting from                                                                         
  operations                                              65,139          298,865           92,699            51,294     
                                                      ----------       ----------       ----------          --------     
PRINCIPAL TRANSACTIONS:                                                                                                  
   Net premiums and transfers from (to) other                                                                            
     Sub-accounts or fixed rate option                   236,577          543,380          624,739            79,930     
   Administrative charges                                     --             (789)              --                --     
   Cost of insurance                                    (129,540)        (151,840)        (367,057)          (53,573)    
   Policy loans                                         (115,962)         (15,179)        (106,614)           (4,573)    
   Death benefits                                        (16,963)          (9,813)          (8,237)              (32)    
   Withdrawals                                           (80,198)         (77,562)        (170,424)          (14,733)    
                                                      ----------       ----------       ----------          --------     
Increase (decrease) in net assets resulting from                                                                         
  principal transactions                                (106,086)         288,197          (27,593)            7,019     
                                                      ----------       ----------       ----------          --------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                  (40,947)         587,062           65,106            58,313     

NET ASSETS:                                                                                                              
   Beginning of year                                   1,521,339        1,838,346        4,117,553           581,065     
                                                      ----------       ----------       ----------          --------     
   End of year                                        $1,480,392       $2,425,408       $4,182,659          $639,378     
                                                      ==========       ==========       ==========          ========     

See accompanying notes. 

VA II - 12  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                                 Sub-accounts                                
                                                  -------------------------------------------------------------------------- 
                                                                       Fidelity VIP                                          
                                                  Fidelity VIP Index Investment Grade Fidelity VIP Money     Fidelity VIP    
                                                   500 Portfolio -   Bond Portfolio - Market Portfolio - Overseas Portfolio -
                                                    Initial Class     Initial Class     Initial Class       Initial Class    
                                                  ------------------ ---------------- ------------------ --------------------
                                                                                                                             
For the Year Ended December 31, 2005                                                                                         

OPERATIONS:                                                                                                                  
   Net investment income (loss)                        $  5,933         $   29,027        $   54,217           $ (2,103)     
   Net realized gain (loss) on investments                8,379              3,898                --            (26,496)     
   Capital gain distributions from mutual funds              --             23,008                --              2,863      
   Net change in unrealized appreciation                                                                                     
     (depreciation) of investments                        6,162            (41,895)               --            143,337      
                                                       --------         ----------        ----------           --------      
Increase (decrease) in net assets resulting from                                                                             
  operations                                             20,474             14,038            54,217            117,601      
                                                       --------         ----------        ----------           --------      
PRINCIPAL TRANSACTIONS:                                                                                                      
   Net premiums and transfers from (to) other                                                                                
     Sub-accounts or fixed rate option                  (16,608)           128,814           389,114            148,328      
   Administrative charges                                  (290)                --                --                 --      
   Cost of insurance                                     (9,800)           (85,409)         (338,113)           (41,211)     
   Policy loans                                              --             (3,496)          (17,870)            30,103      
   Death benefits                                            --                 --                --                 --      
   Withdrawals                                               --            (62,624)         (522,945)           (24,973)     
                                                       --------         ----------        ----------           --------      
Increase (decrease) in net assets resulting from                                                                             
  principal transactions                                (26,698)           (22,715)         (489,814)           112,247      
                                                       --------         ----------        ----------           --------      
TOTAL INCREASE (DECREASE) IN NET ASSETS                  (6,224)            (8,677)         (435,597)           229,848      

NET ASSETS:                                                                                                                  
   Beginning of year                                    530,116          1,051,902         2,700,979            539,482      
                                                       --------         ----------        ----------           --------      
   End of year                                         $523,892         $1,043,225        $2,265,382           $769,330      
                                                       ========         ==========        ==========           ========      
For the Year Ended December 31, 2004                                                                                         

OPERATIONS:                                                                                                                  
   Net investment income (loss)                        $    140         $   34,812        $   10,320           $  1,314      
   Net realized gain (loss) on investments                5,927             14,453                --            (30,723)     
   Capital gain distributions from mutual funds              --             31,681                --                 --      
   Net change in unrealized appreciation                                                                                     
     (depreciation) of investments                       38,803            (42,646)               --             88,340      
                                                       --------         ----------        ----------           --------      
Increase (decrease) in net assets resulting from                                                                             
  operations                                             44,870             38,300            10,320             58,931      
                                                       --------         ----------        ----------           --------      
PRINCIPAL TRANSACTIONS:                                                                                                      
   Net premiums and transfers from (to) other                                                                                
     Sub-accounts or fixed rate option                  349,641            128,387           446,494             73,191      
   Administrative charges                                  (244)                --                --                 --      
   Cost of insurance                                     (4,752)           (89,510)         (337,461)           (36,028)     
   Policy loans                                              --            (34,847)         (109,200)           (50,025)     
   Death benefits                                            --                 --                --                 --      
   Withdrawals                                               --            (78,977)         (140,788)           (30,527)     
                                                       --------         ----------        ----------           --------      
Increase (decrease) in net assets resulting from                                                                             
  principal transactions                                344,645            (74,947)         (140,955)           (43,389)     
                                                       --------         ----------        ----------           --------      
TOTAL INCREASE (DECREASE) IN NET ASSETS                 389,515            (36,647)         (130,635)            15,542      

NET ASSETS:                                                                                                                  
   Beginning of year                                    140,601          1,088,549         2,831,614            523,940      
                                                       --------         ----------        ----------           --------      
   End of year                                         $530,116         $1,051,902        $2,700,979           $539,482      
                                                       ========         ==========        ==========           ========      

See accompanying notes. 

VA II - 13  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                            Sub-accounts                           
                                                  ---------------------------------------------------------------- 
                                                      Franklin          Franklin                                   
                                                     Templeton -      Templeton -                                  
                                                  Templeton Foreign Templeton Global                JPMorgan U.S.  
                                                  Securities Fund - Asset Allocation JPMorgan Bond  Large Cap Core 
                                                       Class 2       Fund - Class 1    Portfolio   Equity Portfolio
                                                  ----------------- ---------------- ------------- ----------------
                                                                                                                   
For the Year Ended December 31, 2005                                                                               

OPERATIONS:                                                                                                        
   Net investment income (loss)                       $  1,034          $  8,921       $  2,934        $   341     
   Net realized gain (loss) on investments                 (17)           19,604         (1,066)           135     
   Capital gain distributions from mutual funds             --                --          1,959             --     
   Net change in unrealized appreciation                                                                           
     (depreciation) of investments                      10,718           (18,605)        (1,487)             4     
                                                      --------          --------       --------        -------     
Increase (decrease) in net assets resulting from                                                                   
  operations                                            11,735             9,920          2,340            480     
                                                      --------          --------       --------        -------     
PRINCIPAL TRANSACTIONS:                                                                                            
   Net premiums and transfers from (to) other                                                                      
     Sub-accounts or fixed rate option                 160,745           129,461         50,989         13,572     
   Administrative charges                                  (11)               --             --             --     
   Cost of insurance                                    (2,070)          (20,023)       (18,104)        (8,732)    
   Policy loans                                             --              (231)          (891)        (2,161)    
   Death benefits                                           --                --             --             --     
   Withdrawals                                              --           (12,323)        (4,823)             2     
                                                      --------          --------       --------        -------     
Increase (decrease) in net assets resulting from                                                                   
  principal transactions                               158,664            96,884         27,171          2,681     
                                                      --------          --------       --------        -------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                170,399           106,804         29,511          3,161     

NET ASSETS:                                                                                                        
   Beginning of year                                        --           215,348        112,100         69,650     
                                                      --------          --------       --------        -------     
   End of year                                        $170,399          $322,152       $141,611        $72,811     
                                                      ========          ========       ========        =======     
For the Year Ended December 31, 2004                                                                               

OPERATIONS:                                                                                                        
   Net investment income (loss)                       $     --          $  3,270       $  3,846        $    12     
   Net realized gain (loss) on investments                  --            19,941            366           (455)    
   Capital gain distributions from mutual funds             --                --          2,541             --     
   Net change in unrealized appreciation                                                                           
     (depreciation) of investments                          --             4,587         (2,998)         6,062     
                                                      --------          --------       --------        -------     
Increase (decrease) in net assets resulting from                                                                   
  operations                                                --            27,798          3,755          5,619     
                                                      --------          --------       --------        -------     
PRINCIPAL TRANSACTIONS:                                                                                            
   Net premiums and transfers from (to) other                                                                      
     Sub-accounts or fixed rate option                      --            42,907        (13,042)        13,682     
   Administrative charges                                   --                --             --             --     
   Cost of insurance                                        --           (17,033)       (20,481)        (8,848)    
   Policy loans                                             --                 8           (325)        (2,032)    
   Death benefits                                           --                --             --             --     
   Withdrawals                                              --            (1,219)       (11,339)        (2,528)    
                                                      --------          --------       --------        -------     
Increase (decrease) in net assets resulting from                                                                   
  principal transactions                                    --            24,663        (45,187)           274     
                                                      --------          --------       --------        -------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                     --            52,461        (41,432)         5,893     

NET ASSETS:                                                                                                        
   Beginning of year                                        --           162,887        153,532         63,757     
                                                      --------          --------       --------        -------     
   End of year                                        $     --          $215,348       $112,100        $69,650     
                                                      ========          ========       ========        =======     

See accompanying notes. 

VA II - 14  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                                Sub-accounts                               
                                                  ------------------------------------------------------------------------ 
                                                                       Neuberger                                           
                                                                       Berman AMT         Neuberger          Oppenheimer   
                                                    Mercury Basic   Limited Maturity      Berman AMT      Global Securities
                                                  Value V.I. Fund - Bond Portfolio - Partners Portfolio -  Fund/VA - Non-  
                                                       Class I          Class I            Class I         Service Shares  
                                                  ----------------- ---------------- -------------------- -----------------
                                                                                                                           
For the Year Ended December 31, 2005                                                                                       

OPERATIONS:                                                                                                                
   Net investment income (loss)                       $  1,097          $  3,281          $     705           $  1,164     
   Net realized gain (loss) on investments                 (40)           (1,714)            98,613             26,746     
   Capital gain distributions from mutual funds          9,162                --                 91                 --     
   Net change in unrealized appreciation                                                                                   
     (depreciation) of investments                      (6,418)             (984)           (31,939)            37,858     
                                                      --------          --------          ---------           --------     
Increase (decrease) in net assets resulting from                                                                           
  operations                                             3,801               583             67,470             65,768     
                                                      --------          --------          ---------           --------     
PRINCIPAL TRANSACTIONS:                                                                                                    
   Net premiums and transfers from (to) other                                                                              
     Sub-accounts or fixed rate option                 125,023            90,495             38,718            101,758     
   Administrative charges                                   (8)               --                 --                 --     
   Cost of insurance                                    (1,595)           (8,390)          (178,225)           (46,305)    
   Policy loans                                             --             5,798             (8,212)            (5,360)    
   Death benefits                                           --                --                 --                 --     
   Withdrawals                                              --              (445)                (5)           (36,312)    
                                                      --------          --------          ---------           --------     
Increase (decrease) in net assets resulting from                                                                           
  principal transactions                               123,420            87,458           (147,724)            13,781     
                                                      --------          --------          ---------           --------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                127,221            88,041            (80,254)            79,549     

NET ASSETS:                                                                                                                
   Beginning of year                                        --            51,059            472,365            478,659     
                                                      --------          --------          ---------           --------     
   End of year                                        $127,221          $139,100          $ 392,111           $558,208     
                                                      ========          ========          =========           ========     
For the Year Ended December 31, 2004                                                                                       

OPERATIONS:                                                                                                                
   Net investment income (loss)                       $     --          $  1,522          $  (3,556)          $  1,610     
   Net realized gain (loss) on investments                  --               (67)            14,053              5,303     
   Capital gain distributions from mutual funds             --                --                 --                 --     
   Net change in unrealized appreciation                                                                                   
     (depreciation) of investments                          --            (1,469)            68,185             65,071     
                                                      --------          --------          ---------           --------     
Increase (decrease) in net assets resulting from                                                                           
  operations                                                --               (14)            78,682             71,984     
                                                      --------          --------          ---------           --------     
PRINCIPAL TRANSACTIONS:                                                                                                    
   Net premiums and transfers from (to) other                                                                              
     Sub-accounts or fixed rate option                      --            13,540             16,344            118,758     
   Administrative charges                                   --                --                 --                 --     
   Cost of insurance                                        --            (6,012)          (130,448)           (44,811)    
   Policy loans                                             --              (129)               199             (5,793)    
   Death benefits                                           --                --                 --                 --     
   Withdrawals                                              --            (1,173)           (11,150)           (12,591)    
                                                      --------          --------          ---------           --------     
Increase (decrease) in net assets resulting from                                                                           
  principal transactions                                    --             6,226           (125,055)            55,563     
                                                      --------          --------          ---------           --------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                     --             6,212            (46,373)           127,547     

NET ASSETS:                                                                                                                
   Beginning of year                                        --            44,847            518,738            351,112     
                                                      --------          --------          ---------           --------     
   End of year                                        $     --          $ 51,059          $ 472,365           $478,659     
                                                      ========          ========          =========           ========     

See accompanying notes. 

VA II - 15  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                                Sub-accounts                              
                                                  ----------------------------------------------------------------------- 
                                                   Oppenheimer     PIMCO VIT Real    PIMCO VIT Total                      
                                                   Main Street   Return Portfolio - Return Portfolio -    SunAmerica -    
                                                  Fund/VA - Non-   Administrative     Administrative    Aggressive Growth 
                                                  Service Shares       Class              Class        Portfolio - Class 1
                                                  -------------- ------------------ ------------------ -------------------
                                                                                                                          
For the Year Ended December 31, 2005                                                                                      

OPERATIONS:                                                                                                               
   Net investment income (loss)                      $  3,528         $  4,371           $  3,105          $  (15,314)    
   Net realized gain (loss) on investments              8,367              (70)                17             (91,121)    
   Capital gain distributions from mutual funds            --            2,237              2,010                  --     
   Net change in unrealized appreciation                                                                                  
     (depreciation) of investments                     18,296           (3,633)            (2,130)            262,465     
                                                     --------         --------           --------          ----------     
Increase (decrease) in net assets resulting from                                                                          
  operations                                           30,191            2,905              3,002             156,030     
                                                     --------         --------           --------          ----------     
PRINCIPAL TRANSACTIONS:                                                                                                   
   Net premiums and transfers from (to) other                                                                             
     Sub-accounts or fixed rate option                 82,040           (2,449)           125,023             407,401     
   Administrative charges                                  --              (26)                (9)                 --     
   Cost of insurance                                  (64,201)          (3,966)            (1,640)           (259,152)    
   Policy loans                                        (5,089)              --                 --             (36,590)    
   Death benefits                                          --               --                 --              (7,769)    
   Withdrawals                                        (20,159)              --                 --            (111,837)    
                                                     --------         --------           --------          ----------     
Increase (decrease) in net assets resulting from                                                                          
  principal transactions                               (7,409)          (6,441)           123,374              (7,947)    
                                                     --------         --------           --------          ----------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                22,782           (3,536)           126,376             148,083     

NET ASSETS:                                                                                                               
   Beginning of year                                  592,065          209,172                 --           1,966,322     
                                                     --------         --------           --------          ----------     
   End of year                                       $614,847         $205,636           $126,376          $2,114,405     
                                                     ========         ========           ========          ==========     
For the Year Ended December 31, 2004                                                                                      

OPERATIONS:                                                                                                               
   Net investment income (loss)                      $    288         $    477           $     --          $  (12,850)    
   Net realized gain (loss) on investments              4,346               12                 --            (105,024)    
   Capital gain distributions from mutual funds            --            6,419                 --                  --     
   Net change in unrealized appreciation                                                                                  
     (depreciation) of investments                     42,976             (917)                --             381,671     
                                                     --------         --------           --------          ----------     
Increase (decrease) in net assets resulting from                                                                          
  operations                                           47,610            5,991                 --             263,797     
                                                     --------         --------           --------          ----------     
PRINCIPAL TRANSACTIONS:                                                                                                   
   Net premiums and transfers from (to) other                                                                             
     Sub-accounts or fixed rate option                114,164          204,577                 --             457,675     
   Administrative charges                                  --               (9)                --                  --     
   Cost of insurance                                  (61,426)          (1,387)                --            (286,655)    
   Policy loans                                        (4,617)              --                 --               3,351     
   Death benefits                                        (719)              --                 --                 (32)    
   Withdrawals                                        (24,823)              --                 --             (89,584)    
                                                     --------         --------           --------          ----------     
Increase (decrease) in net assets resulting from                                                                          
  principal transactions                               22,579          203,181                 --              84,755     
                                                     --------         --------           --------          ----------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                70,189          209,172                 --             348,552     

NET ASSETS:                                                                                                               
   Beginning of year                                  521,876               --                 --           1,617,770     
                                                     --------         --------           --------          ----------     
   End of year                                       $592,065         $209,172           $     --          $1,966,322     
                                                     ========         ========           ========          ==========     

See accompanying notes. 

VA II - 16  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                              Sub-accounts                            
                                                  ------------------------------------------------------------------- 
                                                      SunAmerica -                                                    
                                                       SunAmerica        SunAmerica    SunAmerica Blue SunAmerica Cash
                                                  Balanced Portfolio - Alliance Growth   Chip Growth     Management   
                                                        Class 1           Portfolio       Portfolio       Portfolio   
                                                  -------------------- --------------- --------------- ---------------
                                                                                                                      
For the Year Ended December 31, 2005                                                                                  

OPERATIONS:                                                                                                           
   Net investment income (loss)                        $   27,422        $  (12,077)      $   (198)      $    5,600   
   Net realized gain (loss) on investments                (19,579)         (125,313)          (120)         (19,995)  
   Capital gain distributions from mutual funds                --                --             --               --   
   Net change in unrealized appreciation                                                                              
     (depreciation) of investments                         12,832           690,465          2,763           75,609   
                                                       ----------        ----------       --------       ----------   
Increase (decrease) in net assets resulting from                                                                      
  operations                                               20,675           553,075          2,445           61,214   
                                                       ----------        ----------       --------       ----------   
PRINCIPAL TRANSACTIONS:                                                                                               
   Net premiums and transfers from (to) other                                                                         
     Sub-accounts or fixed rate option                    392,793           714,434         26,769          986,221   
   Administrative charges                                      --                --             --               --   
   Cost of insurance                                     (144,240)         (424,394)       (12,695)        (315,791)  
   Policy loans                                            (6,166)          (24,310)          (802)             (16)  
   Death benefits                                              --                --             --               --   
   Withdrawals                                            (44,071)         (204,976)        (5,817)        (142,185)  
                                                       ----------        ----------       --------       ----------   
Increase (decrease) in net assets resulting from                                                                      
  principal transactions                                  198,316            60,754          7,455          528,229   
                                                       ----------        ----------       --------       ----------   
TOTAL INCREASE (DECREASE) IN NET ASSETS                   218,991           613,829          9,900          589,443   

NET ASSETS:                                                                                                           
   Beginning of year                                    1,376,690         3,384,080        107,454        2,697,266   
                                                       ----------        ----------       --------       ----------   
   End of year                                         $1,595,681        $3,997,909       $117,354       $3,286,709   
                                                       ==========        ==========       ========       ==========   
For the Year Ended December 31, 2004                                                                                  

OPERATIONS:                                                                                                           
   Net investment income (loss)                        $   10,831        $  (13,738)      $   (521)      $     (128)  
   Net realized gain (loss) on investments                (25,702)         (257,092)        (1,292)         (44,931)  
   Capital gain distributions from mutual funds                --                --             --               --   
   Net change in unrealized appreciation                                                                              
     (depreciation) of investments                         92,857           493,722          5,815           46,434   
                                                       ----------        ----------       --------       ----------   
Increase (decrease) in net assets resulting from                                                                      
  operations                                               77,986           222,892          4,002            1,375   
                                                       ----------        ----------       --------       ----------   
PRINCIPAL TRANSACTIONS:                                                                                               
   Net premiums and transfers from (to) other                                                                         
     Sub-accounts or fixed rate option                    323,461           660,008         36,852           (2,601)  
   Administrative charges                                      --                --             --               --   
   Cost of insurance                                     (155,345)         (501,809)       (11,882)        (439,652)  
   Policy loans                                              (158)          (15,249)            (1)         (10,003)  
   Death benefits                                              --               (31)            --               --   
   Withdrawals                                            (53,517)         (154,771)          (770)        (188,456)  
                                                       ----------        ----------       --------       ----------   
Increase (decrease) in net assets resulting from                                                                      
  principal transactions                                  114,441           (11,852)        24,199         (640,712)  
                                                       ----------        ----------       --------       ----------   
TOTAL INCREASE (DECREASE) IN NET ASSETS                   192,427           211,040         28,201         (639,337)  

NET ASSETS:                                                                                                           
   Beginning of year                                    1,184,263         3,173,040         79,253        3,336,603   
                                                       ----------        ----------       --------       ----------   
   End of year                                         $1,376,690        $3,384,080       $107,454       $2,697,266   
                                                       ==========        ==========       ========       ==========   

See accompanying notes. 

VA II - 17  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                            Sub-accounts                           
                                                  ---------------------------------------------------------------- 
                                                    SunAmerica   SunAmerica Davis    SunAmerica       SunAmerica   
                                                  Corporate Bond  Venture Value    "Dogs" of Wall  Emerging Markets
                                                    Portfolio       Portfolio     Street Portfolio    Portfolio    
                                                  -------------- ---------------- ---------------- ----------------
                                                                                                                   
For the Year Ended December 31, 2005                                                                               

OPERATIONS:                                                                                                        
   Net investment income (loss)                     $  13,936       $    8,874        $  7,929        $   (3,732)  
   Net realized gain (loss) on investments             13,006           44,148           2,734            68,392   
   Capital gain distributions from mutual funds            --               --             933                --   
   Net change in unrealized appreciation                                                                           
     (depreciation) of investments                    (22,906)         243,243         (26,234)          224,764   
                                                    ---------       ----------        --------        ----------   
Increase (decrease) in net assets resulting from                                                                   
  operations                                            4,036          296,265         (14,638)          289,424   
                                                    ---------       ----------        --------        ----------   
PRINCIPAL TRANSACTIONS:                                                                                            
   Net premiums and transfers from (to) other                                                                      
     Sub-accounts or fixed rate option                (83,418)         362,546          93,929            73,961   
   Administrative charges                                  --               --              --                --   
   Cost of insurance                                  (41,726)        (278,065)        (28,262)          (93,366)  
   Policy loans                                           (59)         104,863             251            (8,151)  
   Death benefits                                          --               --              --                --   
   Withdrawals                                         (8,215)        (140,751)             --           (34,936)  
                                                    ---------       ----------        --------        ----------   
Increase (decrease) in net assets resulting from                                                                   
  principal transactions                             (133,418)          48,593          65,918           (62,492)  
                                                    ---------       ----------        --------        ----------   
TOTAL INCREASE (DECREASE) IN NET ASSETS              (129,382)         344,858          51,280           226,932   

NET ASSETS:                                                                                                        
   Beginning of year                                  459,531        2,941,081         403,134           849,391   
                                                    ---------       ----------        --------        ----------   
   End of year                                      $ 330,149       $3,285,939        $454,414        $1,076,323   
                                                    =========       ==========        ========        ==========   
For the Year Ended December 31, 2004                                                                               

OPERATIONS:                                                                                                        
   Net investment income (loss)                     $  18,354       $    3,452        $  6,377        $    2,664   
   Net realized gain (loss) on investments              1,573           (6,771)          3,337            42,093   
   Capital gain distributions from mutual funds            --               --              --                --   
   Net change in unrealized appreciation                                                                           
     (depreciation) of investments                      4,645          338,294          19,005           114,701   
                                                    ---------       ----------        --------        ----------   
Increase (decrease) in net assets resulting from                                                                   
  operations                                           24,572          334,975          28,719           159,458   
                                                    ---------       ----------        --------        ----------   
PRINCIPAL TRANSACTIONS:                                                                                            
   Net premiums and transfers from (to) other                                                                      
     Sub-accounts or fixed rate option                 93,610          584,793         191,557           118,953   
   Administrative charges                                  --               --              --                --   
   Cost of insurance                                  (46,614)        (309,161)        (32,171)         (106,982)  
   Policy loans                                          (119)         (23,381)           (419)             (139)  
   Death benefits                                          --               --              --                --   
   Withdrawals                                         (2,070)        (214,075)         (3,821)          (56,909)  
                                                    ---------       ----------        --------        ----------   
Increase (decrease) in net assets resulting from                                                                   
  principal transactions                               44,807           38,176         155,146           (45,077)  
                                                    ---------       ----------        --------        ----------   
TOTAL INCREASE (DECREASE) IN NET ASSETS                69,379          373,151         183,865           114,381   

NET ASSETS:                                                                                                        
   Beginning of year                                  390,152        2,567,930         219,269           735,010   
                                                    ---------       ----------        --------        ----------   
   End of year                                      $ 459,531       $2,941,081        $403,134        $  849,391   
                                                    =========       ==========        ========        ==========   

See accompanying notes. 

VA II - 18  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                           Sub-accounts                          
                                                  -------------------------------------------------------------- 
                                                     SunAmerica                                                  
                                                     Federated     SunAmerica    SunAmerica        SunAmerica    
                                                  American Leaders Global Bond Global Equities   Goldman Sachs   
                                                     Portfolio      Portfolio     Portfolio    Research Portfolio
                                                  ---------------- ----------- --------------- ------------------
                                                                                                                 
For the Year Ended December 31, 2005                                                                             

OPERATIONS:                                                                                                      
   Net investment income (loss)                       $  3,152      $  13,976     $ (2,704)         $   (68)     
   Net realized gain (loss) on investments               2,588         17,070      (29,208)             881      
   Capital gain distributions from mutual funds             --          3,113           --               --      
   Net change in unrealized appreciation                                                                         
     (depreciation) of investments                       7,258        (12,523)     109,569              (39)     
                                                      --------      ---------     --------          -------      
Increase (decrease) in net assets resulting from                                                                 
  operations                                            12,998         21,636       77,657              774      
                                                      --------      ---------     --------          -------      
PRINCIPAL TRANSACTIONS:                                                                                          
   Net premiums and transfers from (to) other                                                                    
     Sub-accounts or fixed rate option                  61,201         93,908       32,362            7,723      
   Administrative charges                                   --             --           --               --      
   Cost of insurance                                   (41,154)      (153,951)     (58,224)          (4,207)     
   Policy loans                                           (157)          (826)        (523)              --      
   Death benefits                                           --             --           --               --      
   Withdrawals                                          (6,499)       (26,866)     (15,023)              --      
                                                      --------      ---------     --------          -------      
Increase (decrease) in net assets resulting from                                                                 
  principal transactions                                13,391        (87,735)     (41,408)           3,516      
                                                      --------      ---------     --------          -------      
TOTAL INCREASE (DECREASE) IN NET ASSETS                 26,389        (66,099)      36,249            4,290      

NET ASSETS:                                                                                                      
   Beginning of year                                   354,376        607,337      575,380           22,902      
                                                      --------      ---------     --------          -------      
   End of year                                        $380,765      $ 541,238     $611,629          $27,192      
                                                      ========      =========     ========          =======      
For the Year Ended December 31, 2004                                                                             

OPERATIONS:                                                                                                      
   Net investment income (loss)                       $  2,485      $  (4,572)    $ (2,275)         $  (158)     
   Net realized gain (loss) on investments                (971)        10,914      (42,743)             462      
   Capital gain distributions from mutual funds             --          7,202           --               --      
   Net change in unrealized appreciation                                                                         
     (depreciation) of investments                      29,044          5,745      100,413            2,172      
                                                      --------      ---------     --------          -------      
Increase (decrease) in net assets resulting from                                                                 
  operations                                            30,558         19,289       55,395            2,476      
                                                      --------      ---------     --------          -------      
PRINCIPAL TRANSACTIONS:                                                                                          
   Net premiums and transfers from (to) other                                                                    
     Sub-accounts or fixed rate option                  56,939        165,307      121,101            3,608      
   Administrative charges                                   --             --           --               --      
   Cost of insurance                                   (45,939)      (135,956)     (74,691)          (3,937)     
   Policy loans                                           (392)        (3,367)       6,522               --      
   Death benefits                                           --           (932)          --               --      
   Withdrawals                                         (25,231)       (22,756)     (41,477)              --      
                                                      --------      ---------     --------          -------      
Increase (decrease) in net assets resulting from                                                                 
  principal transactions                               (14,623)         2,296       11,455             (329)     
                                                      --------      ---------     --------          -------      
TOTAL INCREASE (DECREASE) IN NET ASSETS                 15,935         21,585       66,850            2,147      

NET ASSETS:                                                                                                      
   Beginning of year                                   338,441        585,752      508,530           20,755      
                                                      --------      ---------     --------          -------      
   End of year                                        $354,376      $ 607,337     $575,380          $22,902      
                                                      ========      =========     ========          =======      

See accompanying notes. 

VA II - 19  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                           Sub-accounts                          
                                                  -------------------------------------------------------------- 
                                                   SunAmerica                                      SunAmerica    
                                                     Growth      SunAmerica   SunAmerica High-   International   
                                                  Opportunities Growth-Income    Yield Bond       Diversified    
                                                    Portfolio     Portfolio      Portfolio     Equities Portfolio
                                                  ------------- ------------- ---------------- ------------------
                                                                                                                 
For the Year Ended December 31, 2005                                                                             

OPERATIONS:                                                                                                      
   Net investment income (loss)                     $   (752)    $   (4,375)      $ 19,959          $  5,191     
   Net realized gain (loss) on investments             9,700        (46,369)        12,802             3,975     
   Capital gain distributions from mutual funds           --             --             --                --     
   Net change in unrealized appreciation                                                                         
     (depreciation) of investments                    (3,373)       208,646        (16,788)           71,133     
                                                    --------     ----------       --------          --------     
Increase (decrease) in net assets resulting from                                                                 
  operations                                           5,575        157,902         15,973            80,299     
                                                    --------     ----------       --------          --------     
PRINCIPAL TRANSACTIONS:                                                                                          
   Net premiums and transfers from (to) other                                                                    
     Sub-accounts or fixed rate option                (2,295)       497,639         51,036           146,068     
   Administrative charges                                 --             --             --                --     
   Cost of insurance                                 (10,444)      (274,266)       (25,033)          (63,339)    
   Policy loans                                         (264)       (29,134)        (1,205)           (2,073)    
   Death benefits                                         --             --             --                --     
   Withdrawals                                        (8,961)      (203,567)       (24,306)          (27,975)    
                                                    --------     ----------       --------          --------     
Increase (decrease) in net assets resulting from                                                                 
  principal transactions                             (21,964)        (9,328)           492            52,681     
                                                    --------     ----------       --------          --------     
TOTAL INCREASE (DECREASE) IN NET ASSETS              (16,389)       148,574         16,465           132,980     

NET ASSETS:                                                                                                      
   Beginning of year                                 106,181      2,527,607        188,281           571,130     
                                                    --------     ----------       --------          --------     
   End of year                                      $ 89,792     $2,676,181       $204,746          $704,110     
                                                    ========     ==========       ========          ========     
For the Year Ended December 31, 2004                                                                             

OPERATIONS:                                                                                                      
   Net investment income (loss)                     $   (694)    $   (1,031)      $ 14,785          $  8,602     
   Net realized gain (loss) on investments            (2,558)      (123,299)         2,423           (55,994)    
   Capital gain distributions from mutual funds           --             --             --                --     
   Net change in unrealized appreciation                                                                         
     (depreciation) of investments                     8,500        372,183         10,291           133,661     
                                                    --------     ----------       --------          --------     
Increase (decrease) in net assets resulting from                                                                 
  operations                                           5,248        247,853         27,499            86,269     
                                                    --------     ----------       --------          --------     
PRINCIPAL TRANSACTIONS:                                                                                          
   Net premiums and transfers from (to) other                                                                    
     Sub-accounts or fixed rate option                20,149        461,589         34,130           111,291     
   Administrative charges                                 --             --             --                --     
   Cost of insurance                                 (14,658)      (314,733)       (26,760)          (77,032)    
   Policy loans                                           (1)       (33,332)        (4,098)             (384)    
   Death benefits                                         --             --             --                --     
   Withdrawals                                          (573)      (201,527)       (10,066)          (12,326)    
                                                    --------     ----------       --------          --------     
Increase (decrease) in net assets resulting from                                                                 
  principal transactions                               4,917        (88,003)        (6,794)           21,549     
                                                    --------     ----------       --------          --------     
TOTAL INCREASE (DECREASE) IN NET ASSETS               10,165        159,850         20,705           107,818     

NET ASSETS:                                                                                                      
   Beginning of year                                  96,016      2,367,757        167,576           463,312     
                                                    --------     ----------       --------          --------     
   End of year                                      $106,181     $2,527,607       $188,281          $571,130     
                                                    ========     ==========       ========          ========     

See accompanying notes. 

VA II - 20  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                             Sub-accounts                           
                                                  ----------------------------------------------------------------- 
                                                       SunAmerica                     SunAmerica MFS                
                                                  International Growth   SunAmerica    Massachusetts  SunAmerica MFS
                                                       and Income      Marsico Growth Investors Trust Mid-Cap Growth
                                                       Portfolio         Portfolio       Portfolio      Portfolio   
                                                  -------------------- -------------- --------------- --------------
                                                                                                                    
For the Year Ended December 31, 2005                                                                                

OPERATIONS:                                                                                                         
   Net investment income (loss)                        $    1,816         $ (4,091)      $    470       $  (18,391) 
   Net realized gain (loss) on investments                  7,541           22,478         (2,682)        (183,720) 
   Capital gain distributions from mutual funds                --               --             --               --  
   Net change in unrealized appreciation                                                                            
     (depreciation) of investments                        125,679           37,339         44,205          261,151  
                                                       ----------         --------       --------       ----------  
Increase (decrease) in net assets resulting from                                                                    
  operations                                              135,036           55,726         41,993           59,040  
                                                       ----------         --------       --------       ----------  
PRINCIPAL TRANSACTIONS:                                                                                             
   Net premiums and transfers from (to) other                                                                       
     Sub-accounts or fixed rate option                    166,420          136,617        100,015          451,080  
   Administrative charges                                      --               --             --               --  
   Cost of insurance                                      (89,060)         (68,194)       (62,102)        (299,717) 
   Policy loans                                            (2,710)          (2,518)       (11,415)         (35,116) 
   Death benefits                                              --              (33)            --              (34) 
   Withdrawals                                            (43,550)         (11,820)       (14,565)        (136,487) 
                                                       ----------         --------       --------       ----------  
Increase (decrease) in net assets resulting from                                                                    
  principal transactions                                   31,100           54,052         11,933          (20,274) 
                                                       ----------         --------       --------       ----------  
TOTAL INCREASE (DECREASE) IN NET ASSETS                   166,136          109,778         53,926           38,766  

NET ASSETS:                                                                                                         
   Beginning of year                                      951,467          513,561        584,621        2,574,807  
                                                       ----------         --------       --------       ----------  
   End of year                                         $1,117,603         $623,339       $638,547       $2,613,573  
                                                       ==========         ========       ========       ==========  
For the Year Ended December 31, 2004                                                                                

OPERATIONS:                                                                                                         
   Net investment income (loss)                        $    3,629         $ (3,493)      $    367       $  (17,097) 
   Net realized gain (loss) on investments                (16,447)          14,838        (26,605)        (125,613) 
   Capital gain distributions from mutual funds                --               --             --               --  
   Net change in unrealized appreciation                                                                            
     (depreciation) of investments                        153,195           35,797         84,182          433,014  
                                                       ----------         --------       --------       ----------  
Increase (decrease) in net assets resulting from                                                                    
  operations                                              140,377           47,142         57,944          290,304  
                                                       ----------         --------       --------       ----------  
PRINCIPAL TRANSACTIONS:                                                                                             
   Net premiums and transfers from (to) other                                                                       
     Sub-accounts or fixed rate option                    379,671           83,461         22,672          637,173  
   Administrative charges                                      --               --             --               --  
   Cost of insurance                                      (90,422)         (69,200)       (66,544)        (336,950) 
   Policy loans                                            (3,754)          (5,000)         2,181           (2,086) 
   Death benefits                                              --             (769)            --              (32) 
   Withdrawals                                           (160,272)         (36,749)       (23,706)         (62,349) 
                                                       ----------         --------       --------       ----------  
Increase (decrease) in net assets resulting from                                                                    
  principal transactions                                  125,223          (28,257)       (65,397)         235,756  
                                                       ----------         --------       --------       ----------  
TOTAL INCREASE (DECREASE) IN NET ASSETS                   265,600           18,885         (7,453)         526,060  

NET ASSETS:                                                                                                         
   Beginning of year                                      685,867          494,676        592,074        2,048,747  
                                                       ----------         --------       --------       ----------  
   End of year                                         $  951,467         $513,561       $584,621       $2,574,807  
                                                       ==========         ========       ========       ==========  

See accompanying notes. 

VA II - 21  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                                       Sub-accounts                        
                                                               ----------------------------------------------------------- 
                                                               SunAmerica MFS    SunAmerica                      SunAmerica
                                                                Total Return   Putnam Growth:   SunAmerica Real  Technology
                                                                 Portfolio    Voyager Portfolio Estate Portfolio Portfolio 
                                                               -------------- ----------------- ---------------- ----------
                                                                                                                           
For the Year Ended December 31, 2005                                                                                       

OPERATIONS:                                                                                                                
   Net investment income (loss)                                  $   17,849      $   (1,260)       $  10,257      $   (876)
   Net realized gain (loss) on investments                           14,655         (48,488)         104,189        (1,888)
   Capital gain distributions from mutual funds                      57,894              --           62,500            -- 
   Net change in unrealized appreciation (depreciation) of                                                                 
     investments                                                    (64,177)        105,899          (76,898)        1,584 
                                                                 ----------      ----------        ---------      -------- 
Increase (decrease) in net assets resulting from operations          26,221          56,151          100,048        (1,180)
                                                                 ----------      ----------        ---------      -------- 
PRINCIPAL TRANSACTIONS:                                                                                                    
   Net premiums and transfers from (to) other Sub-accounts or                                                              
     fixed rate option                                              288,332         183,627          (39,420)        2,985 
   Administrative charges                                                --              --               --            -- 
   Cost of insurance                                               (130,329)       (103,301)         (64,195)      (12,868)
   Policy loans                                                      (2,429)        (14,132)          (3,329)       (2,025)
   Death benefits                                                        --          (7,006)              --            -- 
   Withdrawals                                                      (66,177)        (35,261)          (8,479)       (3,708)
                                                                 ----------      ----------        ---------      -------- 
Increase (decrease) in net assets resulting from principal                                                                 
  transactions                                                       89,397          23,927         (115,423)      (15,616)
                                                                 ----------      ----------        ---------      -------- 
TOTAL INCREASE (DECREASE) IN NET ASSETS                             115,618          80,078          (15,375)      (16,796)

NET ASSETS:                                                                                                                
   Beginning of year                                              1,116,698         994,236          907,836       128,826 
                                                                 ----------      ----------        ---------      -------- 
   End of year                                                   $1,232,316      $1,074,314        $ 892,461      $112,030 
                                                                 ==========      ==========        =========      ======== 
For the Year Ended December 31, 2004                                                                                       

OPERATIONS:                                                                                                                
   Net investment income (loss)                                  $   (5,563)     $   (5,970)       $  15,924      $ (1,006)
   Net realized gain (loss) on investments                            9,634         (97,848)          29,281         2,781 
   Capital gain distributions from mutual funds                          --              --               --            -- 
   Net change in unrealized appreciation (depreciation) of                                                                 
     investments                                                     96,460         142,348          186,783        (5,651)
                                                                 ----------      ----------        ---------      -------- 
Increase (decrease) in net assets resulting from operations         100,531          38,530          231,988        (3,876)
                                                                 ----------      ----------        ---------      -------- 
PRINCIPAL TRANSACTIONS:                                                                                                    
   Net premiums and transfers from (to) other Sub-accounts or                                                              
     fixed rate option                                              325,538         130,844          242,359        29,101 
   Administrative charges                                                --              --               --            -- 
   Cost of insurance                                               (138,433)       (130,103)         (67,953)      (19,901)
   Policy loans                                                        (962)           (869)          (6,250)           (1)
   Death benefits                                                        --              --               --            -- 
   Withdrawals                                                     (107,373)        (46,982)          (2,954)          657 
                                                                 ----------      ----------        ---------      -------- 
Increase (decrease) in net assets resulting from principal                                                                 
  transactions                                                       78,770         (47,110)         165,202         9,856 
                                                                 ----------      ----------        ---------      -------- 
TOTAL INCREASE (DECREASE) IN NET ASSETS                             179,301          (8,580)         397,190         5,980 

NET ASSETS:                                                                                                                
   Beginning of year                                                937,397       1,002,816          510,646       122,846 
                                                                 ----------      ----------        ---------      -------- 
   End of year                                                   $1,116,698      $  994,236        $ 907,836      $128,826 
                                                                 ==========      ==========        =========      ======== 

See accompanying notes. 

VA II - 22  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                               Sub-accounts                              
                                                 ----------------------------------------------------------------------- 
                                                   SunAmerica       SunAmerica       UIF Core Plus                       
                                                 Telecom Utility  Worldwide High     Fixed Income      UIF Money Market  
                                                    Portfolio    Income Portfolio Portfolio - Class I Portfolio - Class I
                                                 --------------- ---------------- ------------------- -------------------
                                                                                                                         
For the Year Ended December 31, 2005                                                                                     

OPERATIONS:                                                                                                              
   Net investment income (loss)                     $  5,634         $  7,726          $  5,828            $  2,312      
   Net realized gain (loss) on investments            (7,594)            (495)               86                  --      
   Capital gain distributions from mutual funds           --               --             1,452                  --      
   Net change in unrealized appreciation                                                                                 
     (depreciation) of investments                     8,523             (477)             (588)                 --      
                                                    --------         --------          --------            --------      
Increase (decrease) in net assets resulting from                                                                         
  operations                                           6,563            6,754             6,778               2,312      
                                                    --------         --------          --------            --------      
PRINCIPAL TRANSACTIONS:                                                                                                  
   Net premiums and transfers from (to) other                                                                            
     Sub-accounts or fixed rate option                67,244           36,724            25,376              25,809      
   Administrative charges                                 --               --              (248)               (229)     
   Cost of insurance                                 (16,707)          (5,588)           (2,977)            (13,834)     
   Policy loans                                       (4,047)              --                --                  --      
   Death benefits                                         --               --                --                  --      
   Withdrawals                                        (9,271)              --                --                  --      
                                                    --------         --------          --------            --------      
Increase (decrease) in net assets resulting from                                                                         
  principal transactions                              37,219           31,136            22,151              11,746      
                                                    --------         --------          --------            --------      
TOTAL INCREASE (DECREASE) IN NET                                                                                         
  ASSETS                                              43,782           37,890            28,929              14,058      

NET ASSETS:                                                                                                              
   Beginning of year                                 118,043           75,085           175,541             105,254      
                                                    --------         --------          --------            --------      
   End of year                                      $161,825         $112,975          $204,470            $119,312      
                                                    ========         ========          ========            ========      
For the Year Ended December 31, 2004                                                                                     

OPERATIONS:                                                                                                              
   Net investment income (loss)                     $  4,684         $  3,943          $  5,480            $    486      
   Net realized gain (loss) on investments            (4,688)          (1,324)            2,554                  --      
   Capital gain distributions from mutual funds           --               --               398                  --      
   Net change in unrealized appreciation                                                                                 
     (depreciation) of investments                    16,721            3,246            (1,474)                 --      
                                                    --------         --------          --------            --------      
Increase (decrease) in net assets resulting from                                                                         
  operations                                          16,717            5,865             6,958                 486      
                                                    --------         --------          --------            --------      
PRINCIPAL TRANSACTIONS:                                                                                                  
   Net premiums and transfers from (to) other                                                                            
     Sub-accounts or fixed rate option                28,855           11,636           (48,665)            (66,534)     
   Administrative charges                                 --               --              (281)               (192)     
   Cost of insurance                                 (16,618)          (5,459)           (3,050)             (5,934)     
   Policy loans                                        1,472               --                --                  --      
   Death benefits                                         --               --                --                  --      
   Withdrawals                                        (7,123)          (1,754)               --                  --      
                                                    --------         --------          --------            --------      
Increase (decrease) in net assets resulting from                                                                         
  principal transactions                               6,586            4,423           (51,996)            (72,660)     
                                                    --------         --------          --------            --------      
TOTAL INCREASE (DECREASE) IN NET                                                                                         
  ASSETS                                              23,303           10,288           (45,038)            (72,174)     

NET ASSETS:                                                                                                              
   Beginning of year                                  94,740           64,797           220,579             177,428      
                                                    --------         --------          --------            --------      
   End of year                                      $118,043         $ 75,085          $175,541            $105,254      
                                                    ========         ========          ========            ========      

See accompanying notes. 

VA II - 23  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                        [Enlarge/Download Table]

                                                                                        Sub-accounts                             
                                                           --------------------------------------------------------------------- 
                                                                                                                     Van Eck     
                                                           UIF U.S. Mid Cap  VALIC Company I - VALIC Company I -    Worldwide    
                                                           Value Portfolio -   International    Small Cap Index  Emerging Markets
                                                                Class I        Equities Fund         Fund              Fund      
                                                           ----------------- ----------------- ----------------- ----------------
                                                                                                                                 
For the Year Ended December 31, 2005                                                                                             

OPERATIONS:                                                                                                                      
   Net investment income (loss)                                $ (1,753)         $  1,235          $  1,224          $   (691)   
   Net realized gain (loss) on investments                        4,202                 6             1,864            23,160    
   Capital gain distributions from mutual funds                   7,795                --            12,816                --    
   Net change in unrealized appreciation (depreciation)                                                                          
     of investments                                              51,903            14,870            (1,863)           69,670    
                                                               --------          --------          --------          --------    
Increase (decrease) in net assets resulting from                                                                                 
  operations                                                     62,147            16,111            14,041            92,139    
                                                               --------          --------          --------          --------    
PRINCIPAL TRANSACTIONS:                                                                                                          
   Net premiums and transfers from (to) other                                                                                    
     Sub-accounts or fixed rate option                           72,426           120,193            (5,731)           97,559    
   Administrative charges                                          (693)               (7)              (43)               --    
   Cost of insurance                                             (8,277)           (1,647)           (8,623)          (22,710)   
   Policy loans                                                      --                --                --            (1,532)   
   Death benefits                                                    --                --                --                --    
   Withdrawals                                                       --                --                --           (15,413)   
                                                               --------          --------          --------          --------    
Increase (decrease) in net assets resulting from principal                                                                       
  transactions                                                   63,456           118,539           (14,397)           57,904    
                                                               --------          --------          --------          --------    
TOTAL INCREASE (DECREASE) IN NET ASSETS                         125,603           134,650              (356)          150,043    

NET ASSETS:                                                                                                                      
   Beginning of year                                            477,207                --           415,340           262,592    
                                                               --------          --------          --------          --------    
   End of year                                                 $602,810          $134,650          $414,984          $412,635    
                                                               ========          ========          ========          ========    
For the Year Ended December 31, 2004                                                                                             

OPERATIONS:                                                                                                                      
   Net investment income (loss)                                $ (2,339)         $     --          $    122          $   (841)   
   Net realized gain (loss) on investments                        2,580                --               218            15,574    
   Capital gain distributions from mutual funds                      --                --                --                --    
   Net change in unrealized appreciation (depreciation)                                                                          
     of investments                                              52,306                --            54,550            40,883    
                                                               --------          --------          --------          --------    
Increase (decrease) in net assets resulting from                                                                                 
  operations                                                     52,547                --            54,890            55,616    
                                                               --------          --------          --------          --------    
PRINCIPAL TRANSACTIONS:                                                                                                          
   Net premiums and transfers from (to) other                                                                                    
     Sub-accounts or fixed rate option                          142,354                --           363,077            28,926    
   Administrative charges                                          (580)               --               (18)               --    
   Cost of insurance                                             (6,293)               --            (2,609)          (19,415)   
   Policy loans                                                      --                --                --            (3,301)   
   Death benefits                                                    --                --                --                --    
   Withdrawals                                                       --                --                --           (26,302)   
                                                               --------          --------          --------          --------    
Increase (decrease) in net assets resulting from principal                                                                       
  transactions                                                  135,481                --           360,450           (20,092)   
                                                               --------          --------          --------          --------    
TOTAL INCREASE (DECREASE) IN NET ASSETS                         188,028                --           415,340            35,524    

NET ASSETS:                                                                                                                      
   Beginning of year                                            289,179                --                --           227,068    
                                                               --------          --------          --------          --------    
   End of year                                                 $477,207          $     --          $415,340          $262,592    
                                                               ========          ========          ========          ========    

See accompanying notes. 

VA II - 24  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             

STATEMENT OF CHANGES IN NET ASSETS - CONTINUED                                  

                                                                [Download Table]

                                                            Sub-accounts          
                                                  ------------------------------- 
                                                     Van Eck       Vanguard VIF   
                                                  Worldwide Hard Total Bond Market
                                                   Assets Fund    Index Portfolio 
                                                  -------------- -----------------
                                                                                  
For the Year Ended December 31, 2005                                              

OPERATIONS:                                                                       
   Net investment income (loss)                      $ (1,536)       $  3,572     
   Net realized gain (loss) on investments             19,211             (60)    
   Capital gain distributions from mutual funds            --             751     
   Net change in unrealized appreciation                                          
     (depreciation) of investments                     88,467          (1,078)    
                                                     --------        --------     
Increase (decrease) in net assets resulting from                                  
  operations                                          106,142           3,185     
                                                     --------        --------     
PRINCIPAL TRANSACTIONS:                                                           
   Net premiums and transfers from (to) other                                     
     Sub-accounts or fixed rate option                 78,271         125,023     
   Administrative charges                                  --              (9)    
   Cost of insurance                                  (16,293)         (1,640)    
   Policy loans                                          (361)             --     
   Death benefits                                      (1,656)             --     
   Withdrawals                                        (10,744)             --     
                                                     --------        --------     
Increase (decrease) in net assets resulting from                                  
  principal transactions                               49,217         123,374     
                                                     --------        --------     
TOTAL INCREASE (DECREASE) IN NET ASSETS               155,359         126,559     

NET ASSETS:                                                                       
   Beginning of year                                  171,863              --     
                                                     --------        --------     
   End of year                                       $327,222        $126,559     
                                                     ========        ========     
For the Year Ended December 31, 2004                                              

OPERATIONS:                                                                       
   Net investment income (loss)                      $   (620)       $     --     
   Net realized gain (loss) on investments              2,332              --     
   Capital gain distributions from mutual funds            --              --     
   Net change in unrealized appreciation                                          
     (depreciation) of investments                     22,799              --     
                                                     --------        --------     
Increase (decrease) in net assets resulting from                                  
  operations                                           24,511              --     
                                                     --------        --------     
PRINCIPAL TRANSACTIONS:                                                           
   Net premiums and transfers from (to) other                                     
     Sub-accounts or fixed rate option                 71,220              --     
   Administrative charges                                  --              --     
   Cost of insurance                                   (6,598)             --     
   Policy loans                                        (2,393)             --     
   Death benefits                                          --              --     
   Withdrawals                                           (782)             --     
                                                     --------        --------     
Increase (decrease) in net assets resulting from                                  
  principal transactions                               61,447              --     
                                                     --------        --------     
TOTAL INCREASE (DECREASE) IN NET ASSETS                85,958              --     

NET ASSETS:                                                                       
   Beginning of year                                   85,905              --     
                                                     --------        --------     
   End of year                                       $171,863        $     --     
                                                     ========        ========     

See accompanying notes. 

VA II - 25  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS                                                   

Note A - Organization                                                           

Variable Account II (the "Account") was established by AIG Life Insurance       
Company (the "Company") on June 5, 1986, to fund individual and group flexible  
premium variable universal life insurance policies issued by the Company. The   
Executive Advantage(SM) policy is currently offered by the Account. Gallery     
Life, Gemstone Life, Polaris Life, Polaris Survivorship Life, and the Variable  
Universal Life Policy are no longer offered. The Company is an indirect,        
wholly-owned subsidiary of American International Group, Inc. The Account is    
registered with the Securities and Exchange Commission as a unit investment     
trust pursuant to the provisions of the Investment Company Act of 1940, as      
amended.                                                                        

The Account is divided into "Sub-accounts", which invest in independently       
managed mutual fund portfolios ("Funds"). The Funds available to policy owners  
through the various Sub-accounts are as follows:                                

                                                        [Enlarge/Download Table]
                                                                                                                               
AIM Variable Insurance Funds:                                    Dreyfus Variable Investment Fund ("Dreyfus VIF"):             
   AIM V.I. Capital Appreciation Fund - Series I                    Dreyfus VIF Small Company Stock Portfolio - Initial        
   AIM V.I. International Growth Fund - Series I                      shares                                                   

AllianceBernstein Variable Products Series Fund, Inc.:           FAM Variable Series Funds, Inc.:(6)                           
   AllianceBernstein Americas Government Income Portfolio -         Mercury Basic Value V.I. Fund - Class I (7)                
     Class A (1)                                                    Mercury Fundamental Growth V.I. Fund - Class I(1) (7)      
   AllianceBernstein Global Bond Portfolio - Class A                Mercury Government Bond V.I. Fund - Class I(1) (7)         
   AllianceBernstein Global Dollar Government Portfolio -           Mercury Value Opportunities V.I. Fund - Class I (1) (4) (7)
     Class A                                                                                                                   
   AllianceBernstein Global Technology Portfolio - Class A (9)   Fidelity(R) Variable Insurance Products ("Fidelity VIP"):     
   AllianceBernstein Growth and Income Portfolio - Class A          Fidelity(R) VIP Asset Manager(SM) Portfolio - Initial Class
   AllianceBernstein Growth Portfolio - Class A                     Fidelity(R) VIP Balanced Portfolio - Initial Class (1)     
   AllianceBernstein High Yield Portfolio - Class A (1)             Fidelity(R) VIP Contrafund(R) Portfolio - Initial Class    
   AllianceBernstein International Portfolio - Class A (1)          Fidelity(R) VIP Growth Portfolio - Initial Class           
   AllianceBernstein Large Cap Growth Portfolio - Class A (8)       Fidelity(R) VIP High Income Portfolio - Initial Class      
   AllianceBernstein Money Market Portfolio - Class A               Fidelity(R) VIP Index 500 Portfolio - Initial Class        
   AllianceBernstein Real Estate Investment Portfolio - Class A     Fidelity(R) VIP Investment Grade Bond Portfolio - Initial  
   AllianceBernstein Small Cap Growth Portfolio - Class A (2)         Class                                                    
   AllianceBernstein Total Return Portfolio - Class A               Fidelity(R) VIP Money Market Portfolio - Initial Class     
   AllianceBernstein U.S. Government/High Grade Securities          Fidelity(R) VIP Overseas Portfolio - Initial Class         
     Portfolio - Class A                                                                                                       
   AllianceBernstein Utility Income Portfolio - Class A          Franklin Templeton Variable Insurance Products Trust          
   AllianceBernstein Worldwide Privatization Portfolio - Class     ("Franklin Templeton"):                                     
     A (1)                                                          Franklin Templeton - Templeton Developing Markets          
                                                                      Securities Fund - Class 2 (1)                            
American Century Variable Portfolios, Inc.                          Franklin Templeton - Templeton Foreign Securities Fund -   
  ("American Century"):                                               Class 2                                                  
   American Century VP Capital Appreciation Fund - Class I          Franklin Templeton - Templeton Global Asset Allocation     
   American Century VP Income & Growth Fund - Class I                 Fund - Class 1                                           
   American Century VP International Fund - Class I                 Franklin Templeton - Templeton Growth Securities Fund -    
                                                                      Class 2 (1)                                              
Anchor Series Trust:                                                                                                           
   Anchor Series Trust Asset Allocation Portfolio - Class 1      Goldman Sachs Variable Insurance Trust:                       
   Anchor Series Trust Capital Appreciation Portfolio - Class 1     Goldman Sachs CORE(SM) U.S. Equity Fund (1)                
   Anchor Series Trust Government and Quality Bond Portfolio        Goldman Sachs International Equity Fund (1)                
     - Class 1                                                                                                                 
   Anchor Series Trust Growth Portfolio - Class 1                J.P. Morgan Series Trust II:                                  
   Anchor Series Trust Natural Resources Portfolio - Class 1        JPMorgan Bond Portfolio                                    
                                                                    JPMorgan Mid Cap Value Portfolio (1)                       
Credit Suisse Trust ("Credit Suisse"):                              JPMorgan Small Company Portfolio (1)                       
   Credit Suisse Emerging Markets Portfolio (1)                     JPMorgan U.S. Large Cap Core Equity Portfolio              
   Credit Suisse Global Small Cap Portfolio (1) (5)                                                                            
   Credit Suisse International Focus Portfolio (1)               Neuberger Berman Advisers Management Trust                    
   Credit Suisse Large Cap Value Portfolio (1)                    ("Neuberger Berman AMT"):                                    
   Credit Suisse Mid-Cap Growth Portfolio (1) (3)                   Neuberger Berman AMT Limited Maturity Bond Portfolio       
   Credit Suisse Small Cap Growth Portfolio (1)                       - Class I                                                
                                                                    Neuberger Berman AMT Partners Portfolio - Class I          
Dreyfus Stock Index Fund, Inc. - Initial shares                                                                                

VA II - 26  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note A - Organization - Continued                                               

                                                        [Enlarge/Download Table]
                                                                                                                       
Oppenheimer Variable Account Funds:                           SunAmerica Series Trust ("SunAmerica") - continued:      
   Oppenheimer Global Securities Fund/VA - Non-Service           SunAmerica MFS Massachusetts Investors Trust Portfolio
     Shares                                                      SunAmerica MFS Mid-Cap Growth Portfolio               
   Oppenheimer Main Street Fund/VA - Non-Service Shares          SunAmerica MFS Total Return Portfolio                 
                                                                 SunAmerica Putnam Growth: Voyager Portfolio           
PIMCO Variable Insurance Trust:                                  SunAmerica Real Estate Portfolio                      
   PIMCO VIT High Yield Portfolio - Administrative Class (1)     SunAmerica Technology Portfolio                       
   PIMCO VIT Long-Term U.S. Government Portfolio -               SunAmerica Telecom Utility Portfolio                  
     Administrative Class (1)                                    SunAmerica Worldwide High Income Portfolio            
   PIMCO VIT Real Return Portfolio - Administrative Class                                                              
   PIMCO VIT Short-Term Portfolio - Administrative Class (1)  The Universal Institutional Funds, Inc. ("UIF"):         
   PIMCO VIT Total Return Portfolio - Administrative Class       UIF Core Plus Fixed Income Portfolio - Class I        
                                                                 UIF Emerging Markets Equity Portfolio - Class I (1)   
SunAmerica Series Trust ("SunAmerica"):                          UIF High Yield Portfolio - Class I (1)                
   SunAmerica - Aggressive Growth Portfolio - Class 1            UIF Mid Cap Growth Portfolio - Class I (1)            
   SunAmerica - SunAmerica Balanced Portfolio - Class 1          UIF Money Market Portfolio - Class I                  
   SunAmerica Alliance Growth Portfolio                          UIF Technology Portfolio - Class I (1)                
   SunAmerica Blue Chip Growth Portfolio                         UIF U.S. Mid Cap Value Portfolio - Class I            
   SunAmerica Cash Management Portfolio                                                                                
   SunAmerica Corporate Bond Portfolio                        VALIC Company I:                                         
   SunAmerica Davis Venture Value Portfolio                      VALIC Company I - International Equities Fund         
   SunAmerica "Dogs" of Wall Street Portfolio                    VALIC Company I - Mid Cap Index Fund (1)              
   SunAmerica Emerging Markets Portfolio                         VALIC Company I - Small Cap Index Fund                
   SunAmerica Federated American Leaders Portfolio                                                                     
   SunAmerica Global Bond Portfolio                           Van Eck Worldwide Insurance Trust ("Van Eck"):           
   SunAmerica Global Equities Portfolio                          Van Eck Worldwide Emerging Markets Fund               
   SunAmerica Goldman Sachs Research Portfolio                   Van Eck Worldwide Hard Assets Fund                    
   SunAmerica Growth Opportunities Portfolio                                                                           
   SunAmerica Growth-Income Portfolio                         Vanguard(R) Variable Insurance Fund ("Vanguard"):        
   SunAmerica High-Yield Bond Portfolio                          Vanguard(R) VIF Total Bond Market Index Portfolio     
   SunAmerica International Diversified Equities Portfolio       Vanguard(R) VIF Total Stock Market Index Portfolio (1)
   SunAmerica International Growth and Income Portfolio                                                                
   SunAmerica Marsico Growth Portfolio                                                                                 

--------                                                                        
(1) Sub-accounts had no activity.                                               
(2) Effective May 1, 2004, AllianceBernstein Quasar Portfolio - Class A changed 
its name to AllianceBernstein Small Cap Growth Portfolio - Class A.     
(3) Effective May 1, 2004, Credit Suisse Emerging Growth Portfolio changed its  
name to Credit Suisse Mid-Cap Growth Porfolio.                          
(4) Effective July 26, 2004, Merrill Lynch Small Cap Value V.I. Fund - Class I  
  changed its name to Merrill Lynch Value Opportunities V.I. Fund - Class I.
(5) Effective February 21, 2005, Credit Suisse Global Post-Venture Capital      
Portfolio changed its name to Credit Suisse Global Small Cap Portfolio. 
(6) Effective May 1, 2005, Merrill Lynch Variable Series Funds, Inc. ("Merrill  
Lynch") changed its name to FAM Variable Series Funds, Inc.             
(7) Effective May 1, 2005, Merrill Lynch funds were rebranded as Mercury funds. 
(8) Effective May 2, 2005, AllianceBernstein Premier Growth Portfolio - Class A 
   changed its name to AllianceBernstein Large Cap Growth Portfolio - Class A.
(9) Effective May 2, 2005, AllianceBernstein Technology Portfolio - Class A     
    changed its name to AllianceBernstein Global Technology Portfolio - Class A.

VA II - 27  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note A - Organization - Continued                                               

AIG SunAmerica Asset Management Corp., an affiliate of the Company, serves as   
the investment advisor to Anchor Series Trust and SunAmerica Series Trust.      

The Variable Annuity Life Insurance Company, an affiliate of the Company,       
serves as the investment advisor to VALIC Company I.                            

In addition to the Sub-accounts above, policy owners may allocate funds to a    
fixed account that is part of the Company's general account. Policy owners      
should refer to the appropriate policy prospectus and prospectus supplements    
for a complete description of the available Funds and the fixed account.        

The assets of the Account are segregated from the Company's other assets. The   
operations of the Account are part of the Company.                              

Net premiums from the policies are allocated to the Sub-accounts and invested   
in the funds in accordance with policy owner instructions. The premiums are     
recorded as principal transactions in the Statement of Changes in Net Assets.   

Note B - Summary of Significant Accounting Policies and Basis of Presentation   

The accompanying financial statements of the Account have been prepared in      
conformity with accounting principles generally accepted in the United States   
of America ("GAAP"). The accounting policies followed by the Account and the    
methods of applying those principles are presented below.                       

Use of estimates - 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 the reported amounts of income   
and expenses during the year. Actual results could differ from those estimates. 

Security valuation - The investment in shares of Funds are stated at the net    
asset value of the respective portfolios as determined by the Funds, which      
value their securities at fair value.                                           

Security transactions and related investment income - Security transactions     
which represent purchases and sales of investments are accounted for on the     
trade date at fair value. Realized gains and losses from security transactions  
are determined on the basis of first-in first-out. Dividend income and          
distributions of capital gains are recorded on the ex-dividend date and         
reinvested upon receipt.                                                        

Policy loans - When a policy loan is made, the loan amount is transferred to    
the Company from the policy owner's selected investment Sub-account(s), and     
held as collateral. Interest on this collateral amount is credited to the       
policy. Loan repayments are invested in the policy owner's selected investment  
Sub-account(s), after they are first used to repay all loans taken from the     
declared fixed interest account option.                                         

Federal income taxes - The Company is taxed as a life insurance company under   
the Internal Revenue Code and includes the Account in determining its federal   
income tax liability. As a result, the Account is not taxed as a "Regulated     
Investment Company" under subchapter M of the Internal Revenue Code. Under      
existing federal income tax law, the investment income and capital gains from   
sales of investments realized by the Account are not taxable. Therefore, no     
federal income tax provision has been made.                                     

Accumulation unit - This is a measuring unit used to calculate the policy       
owner's interest. Such units are valued on each day that the New York Stock     
Exchange ("NYSE") is open for business to reflect investment performance and    
the prorated daily deduction for mortality and expense risk charges.            

VA II - 28  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note C - Policy Charges                                                         

Deductions from premium payments - The deductions from each premium payment are 
for state premium taxes and for other expenses associated with selling and      
distributing the policy. A summary of sales charges for each policy follows:    

                                                        [Enlarge/Download Table]

Policies                                        Sales Charges                                                    
----------------------------------------------- -----------------------------------------------------------------
                                                                                                                 
Variable Universal Life Policy and Gallery Life 5% of each premium payment plus the state specific premium taxes.

Executive Advantage                             The maximum charge is 9% of each premium payment.                

Gemstone Life                                   5% of each premium payment up to the target premium amount plus  
                                                2% of any premium paid in excess of the target premium amount    
                                                for policy years 1-10. 3% of each premium payment up to the      
                                                target premium amount plus 2% of any premium paid in excess of   
                                                the target premium amount beginning in policy year 11. The       
                                                maximum charge is 8% of each premium payment.                    

Polaris Life and Polaris Survivorship Life      Currently 5% for the first 10 policy years and 3% thereafter.    
                                                The maximum charge allowed is 8% of each premium payment.        

Mortality and expense risk and administrative charges - Deductions for          
administrative expenses and mortality and expense risks assumed by the Company  
are assessed through the daily unit value calculation and paid to the Company   
from the daily net asset value of the Sub-accounts. A summary of the charges by 
policy follows:                                                                 

                                                        [Enlarge/Download Table]

                                                                                                 Mortality and Expense 
                                                 Mortality and Expense   Mortality and Expense  Risk and Administrative
                                                Risk and Administrative Risk and Administrative     Charges Minimum    
                                                Charges Current Annual      Charges Maximum      Annual Rate in Policy 
Policies                                                 Rate                 Annual Rate         Year 11 and Greater  
----------------------------------------------- ----------------------- ----------------------- -----------------------
                                                                                                                       
Variable Universal Life Policy and Gallery Life          0.90%                   0.90%                   0.50%         
Executive Advantage                                      0.65%                   1.00%                    N/A          
Gemstone Life                                            0.75%                   0.90%                   0.35%         
Polaris Life and Polaris Survivorship Life               0.75%                   0.90%                   0.25%         

Monthly administrative and expense charges - Monthly administrative charges are 
paid to the Company for the administrative services provided under the current  
policies. The Company may charge a maximum fee of $15 for the monthly           
administrative charge. The Company may deduct an additional monthly expense     
charge for expenses associated with acquisition, administrative and             
underwriting of your policy. The monthly expense charge is applied against each 
$1,000 of base coverage. This charge varies according to the ages, gender and   
the premium classes of both of the contingent insurers, as well as the amount   
of coverage.                                                                    

There may be an additional monthly administrative charge during the first       
policy year and the 12 months after an increase in face amount per insured.     
This charge will not exceed $25 a month per insured. The monthly administrative 
and expense charges are paid by redemption of units outstanding. Monthly        
administrative and expense charges are included with cost of insurance in the   
Statement of Changes in Net Assets under principal transactions. For the        
Executive Advantage policies, the monthly administrative charges are included   
with administrative charges in the Statement of Changes in Net Assets under     
principal transactions.                                                         

Cost of insurance charge - Since determination of both the insurance rate and   
the Company's net amount at risk depends upon several factors, the cost of      
insurance deduction may vary from month to month. Policy accumulation value,    
specified amount of insurance and certain characteristics of the insured person 
are among the variables included in the calculation for the monthly cost of     
insurance deduction. The cost of insurance charges are paid by redemption of    
units outstanding. Cost of insurance charges are included in the Statement of   
Changes in Net Assets under principal transactions.                             

VA II - 29  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note C - Policy Charges - Continued                                             

Optional rider charges - Monthly charges are deducted if the policy owner       
selects additional benefit riders. The charges for any rider selected will vary 
by policy within a range based on either the personal characteristics of the    
insured person or the specific coverage chosen under the rider. The rider       
charges are paid by redemption of units outstanding. Optional rider charges are 
included with cost of insurance in the Statement of Changes in Net Assets under 
principal transactions.                                                         

Transfer charges - A transfer charge of $25 may be assessed for each transfer   
in excess of twelve each policy year. Transfer requests are subject to the      
Company's published rules concerning market timing. A policy owner who violates 
these rules will for a period of time (typically six months), have certain      
restrictions placed on transfers. The transfer charges are paid by redemption   
of units outstanding. Transfer charges are included with net premiums and       
transfers from (to) other sub-accounts or fixed rate option in the Statement of 
Changes in Net Assets under principal transactions.                             

Surrender charge - A surrender charge may be applicable to certain withdrawal   
amounts and is payable to the Company. The amount of the surrender charge is    
based on a table of charges and the premiums paid under the policy or the face  
amount of the policy (including increases and decreases in the face amount of   
the policy). For any partial surrender, the Company may charge a maximum        
transaction fee per policy equal to the lesser of 2% of the amount withdrawn or 
$25. The surrender and partial withdrawal charges are paid by redemption of     
units outstanding. Surrender and partial withdrawal charges are included with   
withdrawals in the Statement of Changes in Net Assets under principal           
transactions.                                                                   

Policy loan - A loan may be requested against the policy while the policy has a 
net cash surrender value. The daily interest charge on the loan is paid to the  
Company for the expenses of administering and providing policy loans. The       
interest charge is collected through any loan repayment from the policyholder.  

VA II - 30  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note D - Security Purchases and Sales                                           

For the year ended December 31, 2005, the aggregate cost of purchases and       
proceeds from the sales of investments were:                                    

                                                        [Enlarge/Download Table]

                                                                                  Cost of   Proceeds from
Sub-accounts                                                                     Purchases      Sales    
-------------------------------------------------------------------------------  ---------- -------------
                                                                                                         
AIM V.I. Capital Appreciation Fund - Series I                                    $   95,483  $  108,082  
AIM V.I. International Growth Fund - Series I                                       243,282     132,579  
AllianceBernstein Global Bond Portfolio - Class A                                    38,015      36,251  
AllianceBernstein Global Dollar Government Portfolio - Class A                           37          10  
AllianceBernstein Global Technology Portfolio - Class A                             364,159     248,206  
AllianceBernstein Growth and Income Portfolio - Class A                             583,331     434,462  
AllianceBernstein Growth Portfolio - Class A                                        272,851     741,277  
AllianceBernstein Large Cap Growth Portfolio - Class A                              201,611     268,458  
AllianceBernstein Money Market Portfolio - Class A                                      785       5,636  
AllianceBernstein Real Estate Investment Portfolio - Class A                        191,451      90,888  
AllianceBernstein Small Cap Growth Portfolio - Class A                              135,062     241,377  
AllianceBernstein Total Return Portfolio - Class A                                  168,771      77,878  
AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A              37         109  
AllianceBernstein Utility Income Portfolio - Class A                                 18,221      47,807  
American Century VP Capital Appreciation Fund - Class I                              21,610      14,250  
American Century VP Income & Growth Fund - Class I                                   43,419      30,355  
American Century VP International Fund - Class I                                     40,909       5,349  
Anchor Series Trust Asset Allocation Portfolio - Class 1                            122,270      65,279  
Anchor Series Trust Capital Appreciation Portfolio - Class 1                        335,064     527,224  
Anchor Series Trust Government and Quality Bond Portfolio - Class 1                 127,902     265,504  
Anchor Series Trust Growth Portfolio - Class 1                                      305,047     152,212  
Anchor Series Trust Natural Resources Portfolio - Class 1                           239,068     134,724  
Dreyfus Stock Index Fund, Inc. - Initial shares                                   1,085,847   2,105,952  
Dreyfus VIF Small Company Stock Portfolio - Initial shares                          381,587     309,004  
Fidelity VIP Asset Manager Portfolio - Initial Class                                268,667     307,568  
Fidelity VIP Contrafund Portfolio - Initial Class                                   723,007     292,533  
Fidelity VIP Growth Portfolio - Initial Class                                       402,511     785,273  
Fidelity VIP High Income Portfolio - Initial Class                                  170,247     105,888  
Fidelity VIP Index 500 Portfolio - Initial Class                                     35,475      56,239  
Fidelity VIP Investment Grade Bond Portfolio - Initial Class                        286,356     257,038  
Fidelity VIP Money Market Portfolio - Initial Class                                 629,268   1,064,867  
Fidelity VIP Overseas Portfolio - Initial Class                                     280,224     167,217  
Franklin Templeton - Templeton Foreign Securities Fund - Class 2                    162,583       2,885  
Franklin Templeton - Templeton Global Asset Allocation Fund - Class 1               213,654     107,848  
JPMorgan Bond Portfolio                                                              75,989      43,924  
JPMorgan U.S. Large Cap Core Equity Portfolio                                        15,790      12,768  
Mercury Basic Value V.I. Fund - Class I                                             135,900       2,220  
Neuberger Berman AMT Limited Maturity Bond Portfolio - Class I                      178,981      88,241  
Neuberger Berman AMT Partners Portfolio - Class I                                    51,342     198,269  
Oppenheimer Global Securities Fund/VA - Non-Service Shares                          122,897     107,946  
Oppenheimer Main Street Fund/VA - Non-Service Shares                                 73,633      77,507  
PIMCO VIT Real Return Portfolio - Administrative Class                                8,070       7,905  
PIMCO VIT Total Return Portfolio - Administrative Class                             130,774       2,285  
SunAmerica - Aggressive Growth Portfolio - Class 1                                  267,021     290,281  
SunAmerica - SunAmerica Balanced Portfolio - Class 1                                347,110     121,372  
SunAmerica Alliance Growth Portfolio                                                404,288     355,613  
SunAmerica Blue Chip Growth Portfolio                                                30,040      22,785  
SunAmerica Cash Management Portfolio                                              1,215,468     681,639  
SunAmerica Corporate Bond Portfolio                                                 102,448     221,929  
SunAmerica Davis Venture Value Portfolio                                            545,997     488,538  
SunAmerica "Dogs" of Wall Street Portfolio                                          107,014      32,235  
SunAmerica Emerging Markets Portfolio                                                86,153     152,376  

VA II - 31  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note D - Security Purchases and Sales - Continued                               

For the year ended December 31, 2005, the aggregate cost of purchases and       
proceeds from the sales of investments were:                                    

                                                        [Enlarge/Download Table]

                                                                                  Cost of  Proceeds from
Sub-accounts                                                                     Purchases     Sales    
-------------------------------------------------------------------------------  --------- -------------
                                                                                                        
SunAmerica Federated American Leaders Portfolio                                  $ 86,771    $ 70,228   
SunAmerica Global Bond Portfolio                                                  120,334     190,981   
SunAmerica Global Equities Portfolio                                               74,667     118,778   
SunAmerica Goldman Sachs Research Portfolio                                         6,770       3,323   
SunAmerica Growth Opportunities Portfolio                                          28,330      51,045   
SunAmerica Growth-Income Portfolio                                                316,262     329,964   
SunAmerica High-Yield Bond Portfolio                                               71,785      51,327   
SunAmerica International Diversified Equities Portfolio                           124,425      66,552   
SunAmerica International Growth and Income Portfolio                              135,262     102,347   
SunAmerica Marsico Growth Portfolio                                               145,936      95,975   
SunAmerica MFS Massachusetts Investors Trust Portfolio                             66,686      54,275   
SunAmerica MFS Mid-Cap Growth Portfolio                                           277,542     316,206   
SunAmerica MFS Total Return Portfolio                                             314,448     149,308   
SunAmerica Putnam Growth: Voyager Portfolio                                       150,337     127,670   
SunAmerica Real Estate Portfolio                                                  195,206     237,873   
SunAmerica Technology Portfolio                                                    29,236      45,727   
SunAmerica Telecom Utility Portfolio                                               63,642      20,789   
SunAmerica Worldwide High Income Portfolio                                         42,046       3,178   
UIF Core Plus Fixed Income Portfolio - Class I                                     34,353       4,922   
UIF Money Market Portfolio - Class I                                              782,622     768,680   
UIF U.S. Mid Cap Value Portfolio - Class I                                         79,957      10,449   
VALIC Company I - International Equities Fund                                     122,039       2,265   
VALIC Company I - Small Cap Index Fund                                             16,625      16,983   
Van Eck Worldwide Emerging Markets Fund                                           117,911      60,695   
Van Eck Worldwide Hard Assets Fund                                                 82,654      34,973   
Vanguard VIF Total Bond Market Index Portfolio                                    129,981       2,284   

VA II - 32  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note E - Investments                                                            

The following is a summary of fund shares owned as of December 31, 2005.        

                                                        [Enlarge/Download Table]

                                                                                           Net Asset                            
                                                                                           Value Per Value of Shares   Cost of  
Sub-accounts                                                                      Shares     Share    at Fair Value  Shares Held
-------------------------------------------------------------------------------  --------- --------- --------------- -----------
                                                                                                                                
AIM V.I. Capital Appreciation Fund - Series I                                       27,526  $ 24.68    $  679,342    $  631,098 
AIM V.I. International Growth Fund - Series I                                       49,575    23.17     1,148,656       864,906 
AllianceBernstein Global Bond Portfolio - Class A                                    4,663    11.32        52,787        59,525 
AllianceBernstein Global Dollar Government Portfolio - Class A                          24    14.42           344           253 
AllianceBernstein Global Technology Portfolio - Class A                            119,446    15.86     1,894,410     2,098,135 
AllianceBernstein Growth and Income Portfolio - Class A                            158,731    24.88     3,949,219     3,388,273 
AllianceBernstein Growth Portfolio - Class A                                       151,708    20.49     3,108,494     3,135,873 
AllianceBernstein Large Cap Growth Portfolio - Class A                              56,279    26.99     1,518,969     1,327,341 
AllianceBernstein Money Market Portfolio - Class A                                  33,707     1.00        33,707        33,707 
AllianceBernstein Real Estate Investment Portfolio - Class A                        29,798    19.98       595,354       445,811 
AllianceBernstein Small Cap Growth Portfolio - Class A                              40,085    12.26       491,437       415,115 
AllianceBernstein Total Return Portfolio - Class A                                  20,483    19.18       392,872       366,746 
AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A             49    11.82           577           589 
AllianceBernstein Utility Income Portfolio - Class A                                 9,429    20.64       194,613       146,401 
American Century VP Capital Appreciation Fund - Class I                             11,537     9.35       107,869        82,976 
American Century VP Income & Growth Fund - Class I                                  32,315     7.51       242,689       205,170 
American Century VP International Fund - Class I                                    40,379     8.23       332,321       248,944 
Anchor Series Trust Asset Allocation Portfolio - Class 1                            29,707    14.99       445,317       409,672 
Anchor Series Trust Capital Appreciation Portfolio - Class 1                       105,850    36.79     3,894,209     3,025,916 
Anchor Series Trust Government and Quality Bond Portfolio - Class 1                 51,719    14.78       764,572       792,000 
Anchor Series Trust Growth Portfolio - Class 1                                      66,092    28.19     1,863,342     1,620,103 
Anchor Series Trust Natural Resources Portfolio - Class 1                           24,587    43.73     1,075,229       653,989 
Dreyfus Stock Index Fund, Inc. - Initial shares                                    176,210    31.82     5,606,987     5,315,361 
Dreyfus VIF Small Company Stock Portfolio - Initial shares                          65,228    21.77     1,420,015     1,276,149 
Fidelity VIP Asset Manager Portfolio - Initial Class                                97,093    15.04     1,460,280     1,335,986 
Fidelity VIP Contrafund Portfolio - Initial Class                                  107,082    31.03     3,322,747     2,482,100 
Fidelity VIP Growth Portfolio - Initial Class                                      118,627    33.70     3,997,747     4,346,909 
Fidelity VIP High Income Portfolio - Initial Class                                 101,866     6.17       628,511       667,877 
Fidelity VIP Index 500 Portfolio - Initial Class                                     3,693   141.88       523,892       466,558 
Fidelity VIP Investment Grade Bond Portfolio - Initial Class                        81,757    12.76     1,043,225     1,054,134 
Fidelity VIP Money Market Portfolio - Initial Class                              2,265,382     1.00     2,265,382     2,265,382 
Fidelity VIP Overseas Portfolio - Initial Class                                     37,328    20.61       769,330       619,009 
Franklin Templeton - Templeton Foreign Securities Fund - Class 2                    10,909    15.62       170,399       159,681 
Franklin Templeton - Templeton Global Asset Allocation Fund - Class 1               15,297    21.06       322,152       307,578 
JPMorgan Bond Portfolio                                                             11,930    11.87       141,611       141,967 
JPMorgan U.S. Large Cap Core Equity Portfolio                                        5,354    13.60        72,811        64,551 
Mercury Basic Value V.I. Fund - Class I                                              8,613    14.77       127,221       133,640 
Neuberger Berman AMT Limited Maturity Bond Portfolio - Class I                      11,005    12.64       139,100       141,912 
Neuberger Berman AMT Partners Portfolio - Class I                                   18,314    21.41       392,111       262,300 
Oppenheimer Global Securities Fund/VA - Non-Service Shares                          16,723    33.38       558,207       396,312 
Oppenheimer Main Street Fund/VA - Non-Service Shares                                28,217    21.79       614,847       513,680 
PIMCO VIT Real Return Portfolio - Administrative Class                              16,205    12.69       205,636       210,185 
PIMCO VIT Total Return Portfolio - Administrative Class                             12,341    10.24       126,376       128,506 
SunAmerica - Aggressive Growth Portfolio - Class 1                                 190,832    11.08     2,114,406     1,893,680 
SunAmerica - SunAmerica Balanced Portfolio - Class 1                               114,819    13.90     1,595,681     1,579,204 
SunAmerica Alliance Growth Portfolio                                               182,383    21.92     3,997,909     3,715,232 
SunAmerica Blue Chip Growth Portfolio                                               17,966     6.53       117,354       104,325 
SunAmerica Cash Management Portfolio                                               302,035    10.88     3,286,709     3,263,567 
SunAmerica Corporate Bond Portfolio                                                 28,402    11.62       330,149       334,415 
SunAmerica Davis Venture Value Portfolio                                           114,934    28.59     3,285,939     2,545,144 
SunAmerica "Dogs" of Wall Street Portfolio                                          44,915    10.12       454,414       442,736 

VA II - 33  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note E - Investments - Continued                                                

The following is a summary of fund shares owned as of December 31, 2005.        

                                                        [Enlarge/Download Table]

                                                                                         Net Asset                            
                                                                                         Value Per Value of Shares   Cost of  
Sub-accounts                                                                     Shares    Share    at Fair Value  Shares Held
-------------------------------------------------------------------------------  ------- --------- --------------- -----------
                                                                                                                              
SunAmerica Emerging Markets Portfolio                                             68,423  $15.73     $1,076,323    $  552,975 
SunAmerica Federated American Leaders Portfolio                                   22,646   16.81        380,765       328,876 
SunAmerica Global Bond Portfolio                                                  46,325   11.68        541,238       525,232 
SunAmerica Global Equities Portfolio                                              45,920   13.32        611,629       495,127 
SunAmerica Goldman Sachs Research Portfolio                                        3,548    7.66         27,192        22,325 
SunAmerica Growth Opportunities Portfolio                                         16,389    5.48         89,792        79,286 
SunAmerica Growth-Income Portfolio                                               105,113   25.46      2,676,181     2,314,390 
SunAmerica High-Yield Bond Portfolio                                              28,878    7.09        204,746       193,371 
SunAmerica International Diversified Equities Portfolio                           80,145    8.79        704,110       546,609 
SunAmerica International Growth and Income Portfolio                              82,478   13.55      1,117,603       863,110 
SunAmerica Marsico Growth Portfolio                                               50,805   12.27        623,339       483,048 
SunAmerica MFS Massachusetts Investors Trust Portfolio                            51,579   12.38        638,547       558,659 
SunAmerica MFS Mid-Cap Growth Portfolio                                          279,357    9.36      2,613,573     2,447,672 
SunAmerica MFS Total Return Portfolio                                             72,552   16.99      1,232,316     1,162,694 
SunAmerica Putnam Growth: Voyager Portfolio                                       69,687   15.42      1,074,314     1,065,860 
SunAmerica Real Estate Portfolio                                                  44,199   20.19        892,461       658,611 
SunAmerica Technology Portfolio                                                   42,733    2.62        112,030       106,556 
SunAmerica Telecom Utility Portfolio                                              18,151    8.92        161,825       167,147 
SunAmerica Worldwide High Income Portfolio                                        14,906    7.58        112,975       114,221 
UIF Core Plus Fixed Income Portfolio - Class I                                    17,734   11.53        204,470       203,087 
UIF Money Market Portfolio - Class I                                             119,123    1.00        119,123       119,123 
UIF U.S. Mid Cap Value Portfolio - Class I                                        32,150   18.75        602,810       435,865 
VALIC Company I - International Equities Fund                                     14,911    9.03        134,650       119,780 
VALIC Company I - Small Cap Index Fund                                            25,840   16.06        414,984       362,296 
Van Eck Worldwide Emerging Markets Fund                                           20,725   19.91        412,635       251,122 
Van Eck Worldwide Hard Assets Fund                                                11,796   27.74        327,222       193,083 
Vanguard VIF Total Bond Market Index Portfolio                                    11,290   11.21        126,559       127,637 

VA II - 34  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note F - Summary of Changes in Units                                            

Summary of Changes in Units for the year ended December 31, 2005.               

                                                        [Enlarge/Download Table]

                                                                                   Accumulation Accumulation Units Net Increase
Sub-accounts                                                                       Units Issued      Redeemed       (Decrease) 
---------------------------------------------------------------------------------  ------------ ------------------ ------------
                                                                                                                               
1   AIM V.I. Capital Appreciation Fund - Series I                                      6,192           (6,974)          (782)  
6   AIM V.I. Capital Appreciation Fund - Series I                                      5,739           (5,564)           175   
1   AIM V.I. International Growth Fund - Series I                                     11,268           (6,014)         5,254   
6   AIM V.I. International Growth Fund - Series I                                      6,592           (2,783)         3,809   
1   AllianceBernstein Global Bond Portfolio - Class A                                    756           (1,275)          (519)  
2   AllianceBernstein Global Dollar Government Portfolio - Class A                        --               (1)            (1)  
3   AllianceBernstein Global Technology Portfolio - Class A                           20,392          (12,527)         7,865   
6   AllianceBernstein Global Technology Portfolio - Class A                           13,007          (10,254)         2,753   
3   AllianceBernstein Growth and Income Portfolio - Class A                           10,525          (13,557)        (3,032)  
5   AllianceBernstein Growth and Income Portfolio - Class A                           15,479             (929)        14,550   
3   AllianceBernstein Growth Portfolio - Class A                                      16,628          (39,374)       (22,746)  
1   AllianceBernstein Large Cap Growth Portfolio - Class A                             7,981           (7,839)           142   
2   AllianceBernstein Large Cap Growth Portfolio - Class A                               150              (63)            87   
5   AllianceBernstein Large Cap Growth Portfolio - Class A                             3,672             (433)         3,239   
6   AllianceBernstein Large Cap Growth Portfolio - Class A                             8,409          (22,167)       (13,758)  
2   AllianceBernstein Money Market Portfolio - Class A                                    --             (449)          (449)  
2   AllianceBernstein Real Estate Investment Portfolio - Class A                          --              (27)           (27)  
6   AllianceBernstein Real Estate Investment Portfolio - Class A                       4,473           (2,728)         1,745   
1   AllianceBernstein Small Cap Growth Portfolio - Class A                             5,179          (14,128)        (8,949)  
2   AllianceBernstein Small Cap Growth Portfolio - Class A                               190              (36)           154   
1   AllianceBernstein Total Return Portfolio - Class A                                 9,107           (2,044)         7,063   
2   AllianceBernstein Total Return Portfolio - Class A                                    --              (52)           (52)  
2   AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A           --               (7)            (7)  
2   AllianceBernstein Utility Income Portfolio - Class A                                  --               (6)            (6)  
6   AllianceBernstein Utility Income Portfolio - Class A                               2,318           (5,813)        (3,495)  
6   American Century VP Capital Appreciation Fund - Class I                            3,603           (2,631)           972   
6   American Century VP Income & Growth Fund - Class I                                 4,944           (3,971)           973   
5   American Century VP International Fund - Class I                                   2,925             (352)         2,573   
4   Anchor Series Trust Asset Allocation Portfolio - Class 1                           8,803           (5,091)         3,712   
4   Anchor Series Trust Capital Appreciation Portfolio - Class 1                      35,471          (52,607)       (17,136)  
6   Anchor Series Trust Capital Appreciation Portfolio - Class 1                      17,684          (13,984)         3,700   
4   Anchor Series Trust Government and Quality Bond Portfolio - Class 1                9,317          (21,377)       (12,060)  
4   Anchor Series Trust Growth Portfolio - Class 1                                    18,227          (14,943)         3,284   
6   Anchor Series Trust Growth Portfolio - Class 1                                    10,454           (5,283)         5,171   
4   Anchor Series Trust Natural Resources Portfolio - Class 1                          3,069           (1,698)         1,371   
6   Anchor Series Trust Natural Resources Portfolio - Class 1                          3,349           (2,255)         1,094   
1   Dreyfus Stock Index Fund, Inc. - Initial shares                                   24,449          (36,868)       (12,419)  
6   Dreyfus Stock Index Fund, Inc. - Initial shares                                   28,461         (114,020)       (85,559)  
1   Dreyfus VIF Small Company Stock Portfolio - Initial shares                         7,789           (7,252)           537   
6   Dreyfus VIF Small Company Stock Portfolio - Initial shares                        13,855          (13,456)           399   
1   Fidelity VIP Asset Manager Portfolio - Initial Class                               9,443          (12,569)        (3,126)  
6   Fidelity VIP Asset Manager Portfolio - Initial Class                               4,937           (5,511)          (574)  
1   Fidelity VIP Contrafund Portfolio - Initial Class                                 13,819           (7,956)         5,863   
5   Fidelity VIP Contrafund Portfolio - Initial Class                                 16,775             (921)        15,854   
6   Fidelity VIP Contrafund Portfolio - Initial Class                                 18,753           (9,422)         9,331   
1   Fidelity VIP Growth Portfolio - Initial Class                                     23,232          (43,004)       (19,772)  
6   Fidelity VIP Growth Portfolio - Initial Class                                     14,001          (12,671)         1,330   
1   Fidelity VIP High Income Portfolio - Initial Class                                 3,964           (6,184)        (2,220)  
6   Fidelity VIP High Income Portfolio - Initial Class                                 2,293           (1,783)           510   
5   Fidelity VIP Index 500 Portfolio - Initial Class                                   2,041           (3,974)        (1,933)  
1   Fidelity VIP Investment Grade Bond Portfolio - Initial Class                       5,530           (5,547)           (17)  
6   Fidelity VIP Investment Grade Bond Portfolio - Initial Class                       3,186           (4,915)        (1,729)  
AIG LIFE INSURANCE COMPANY                                                                                                     

VA II - 35  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note F - Summary of Changes in Units - Continued                                

Summary of Changes in Units for the year ended December 31, 2005.               

                                                        [Enlarge/Download Table]

                                                                                   Accumulation Accumulation Units Net Increase
Sub-accounts                                                                       Units Issued      Redeemed       (Decrease) 
---------------------------------------------------------------------------------  ------------ ------------------ ------------
                                                                                                                               
1   Fidelity VIP Money Market Portfolio - Initial Class                               15,793         (28,881)        (13,088)  
6   Fidelity VIP Money Market Portfolio - Initial Class                               21,374         (50,713)        (29,339)  
1   Fidelity VIP Overseas Portfolio - Initial Class                                   11,415          (4,190)          7,225   
5   Franklin Templeton - Templeton Foreign Securities Fund - Class 2                  14,001            (181)         13,820   
6   Franklin Templeton - Templeton Global Asset Allocation Fund - Class 1             10,045          (2,512)          7,533   
6   JPMorgan Bond Portfolio                                                            4,055          (1,863)          2,192   
6   JPMorgan U.S. Large Cap Core Equity Portfolio                                      1,788          (1,478)            310   
5   Mercury Basic Value V.I. Fund - Class I                                            9,872            (128)          9,744   
6   Neuberger Berman AMT Limited Maturity Bond Portfolio - Class I                     8,388            (773)          7,615   
6   Neuberger Berman AMT Partners Portfolio - Class I                                  2,438         (14,407)        (11,969)  
6   Oppenheimer Global Securities Fund/VA - Non-Service Shares                         9,646          (8,274)          1,372   
6   Oppenheimer Main Street Fund/VA - Non-Service Shares                              10,385         (11,172)           (787)  
5   PIMCO VIT Real Return Portfolio - Administrative Class                                --            (599)           (599)  
5   PIMCO VIT Total Return Portfolio - Administrative Class                           12,244            (158)         12,086   
4   SunAmerica - Aggressive Growth Portfolio - Class 1                                36,081         (33,591)          2,490   
6   SunAmerica - Aggressive Growth Portfolio - Class 1                                 8,887         (13,085)         (4,198)  
4   SunAmerica - SunAmerica Balanced Portfolio - Class 1                              34,986         (15,556)         19,430   
6   SunAmerica - SunAmerica Balanced Portfolio - Class 1                               9,276          (6,551)          2,725   
4   SunAmerica Alliance Growth Portfolio                                              88,232         (80,529)          7,703   
6   SunAmerica Alliance Growth Portfolio                                              13,631         (12,114)          1,517   
4   SunAmerica Blue Chip Growth Portfolio                                              4,413          (3,108)          1,305   
4   SunAmerica Cash Management Portfolio                                              87,896         (40,806)         47,090   
4   SunAmerica Corporate Bond Portfolio                                                3,860         (13,320)         (9,460)  
4   SunAmerica Davis Venture Value Portfolio                                          30,441         (27,604)          2,837   
4   SunAmerica "Dogs" of Wall Street Portfolio                                         8,809          (3,032)          5,777   
4   SunAmerica Emerging Markets Portfolio                                              7,543         (11,764)         (4,221)  
4   SunAmerica Federated American Leaders Portfolio                                    9,147          (7,990)          1,157   
4   SunAmerica Global Bond Portfolio                                                   4,946          (3,797)          1,149   
6   SunAmerica Global Bond Portfolio                                                   2,434         (11,122)         (8,688)  
4   SunAmerica Global Equities Portfolio                                              12,641         (17,807)         (5,166)  
4   SunAmerica Goldman Sachs Research Portfolio                                        1,158            (633)            525   
4   SunAmerica Growth Opportunities Portfolio                                          3,025          (7,855)         (4,830)  
4   SunAmerica Growth-Income Portfolio                                                33,023         (39,499)         (6,476)  
6   SunAmerica Growth-Income Portfolio                                                22,254         (16,678)          5,576   
4   SunAmerica High-Yield Bond Portfolio                                               3,946          (3,849)             97   
4   SunAmerica International Diversified Equities Portfolio                           18,117         (11,484)          6,633   
4   SunAmerica International Growth and Income Portfolio                              14,909         (11,801)          3,108   
6   SunAmerica Marsico Growth Portfolio                                               12,372          (7,397)          4,975   
4   SunAmerica MFS Massachusetts Investors Trust Portfolio                            10,940          (9,546)          1,394   
4   SunAmerica MFS Mid-Cap Growth Portfolio                                           32,815         (33,523)           (708)  
6   SunAmerica MFS Mid-Cap Growth Portfolio                                           29,486         (32,088)         (2,602)  
4   SunAmerica MFS Total Return Portfolio                                             20,396         (14,065)          6,331   
4   SunAmerica Putnam Growth: Voyager Portfolio                                       29,748         (26,072)          3,676   
4   SunAmerica Real Estate Portfolio                                                   4,786          (9,874)         (5,088)  
4   SunAmerica Technology Portfolio                                                   12,536         (18,833)         (6,297)  
4   SunAmerica Telecom Utility Portfolio                                               7,567          (3,147)          4,420   
4   SunAmerica Worldwide High Income Portfolio                                         2,662            (399)          2,263   
5   UIF Core Plus Fixed Income Portfolio - Class I                                     2,258            (286)          1,972   
5   UIF Money Market Portfolio - Class I                                              77,509         (76,340)          1,169   
5   UIF U.S. Mid Cap Value Portfolio - Class I                                         4,540            (550)          3,990   
5   VALIC Company I - International Equities Fund                                      8,589            (117)          8,472   
5   VALIC Company I - Small Cap Index Fund                                                --          (1,035)         (1,035)  

VA II - 36  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note F - Summary of Changes in Units - Continued                                

Summary of Changes in Units for the year ended December 31, 2005.               

                                                        [Enlarge/Download Table]

                                                                                   Accumulation Accumulation Units Net Increase
Sub-accounts                                                                       Units Issued      Redeemed       (Decrease) 
---------------------------------------------------------------------------------  ------------ ------------------ ------------
                                                                                                                               
1   Van Eck Worldwide Emerging Markets Fund                                            7,060          (2,794)          4,266   
1   Van Eck Worldwide Hard Assets Fund                                                 4,460          (1,512)          2,948   
5   Vanguard VIF Total Bond Market Index Portfolio                                    12,321            (159)         12,162   

Footnotes                                                                       
1  Variable Universal Life Policy product.                                      
2  Gallery Life product.                                                        
3  Variable Universal Life Policy product or Gallery Life product.              
4  Polaris product or Polaris Survivorship product.                             
5  Executive Advantage product.                                                 
6  Gemstone Life product.                                                       

VA II - 37  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note F - Summary of Changes in Units - Continued                                

Summary of Changes in Units for the year ended December 31, 2004.               

                                                        [Enlarge/Download Table]

                                                                                   Accumulation Accumulation Units Net Increase
Sub-accounts                                                                       Units Issued      Redeemed       (Decrease) 
---------------------------------------------------------------------------------  ------------ ------------------ ------------
                                                                                                                               
1   AIM V.I. Capital Appreciation Fund - Series I                                      7,037          (8,677)         (1,640)  
6   AIM V.I. Capital Appreciation Fund - Series I                                      4,259          (4,020)            239   
1   AIM V.I. International Growth Fund - Series I                                      7,577          (9,109)         (1,532)  
6   AIM V.I. International Growth Fund - Series I                                      4,633          (2,531)          2,102   
1   AllianceBernstein Global Bond Portfolio - Class A                                  1,638          (1,093)            545   
2   AllianceBernstein Global Dollar Government Portfolio - Class A                        --              --              --   
3   AllianceBernstein Growth and Income Portfolio - Class A                           11,301         (12,764)         (1,463)  
5   AllianceBernstein Growth and Income Portfolio - Class A                           19,427            (703)         18,724   
3   AllianceBernstein Growth Portfolio - Class A                                      18,387         (19,039)           (652)  
2   AllianceBernstein Money Market Portfolio - Class A                                    38          (1,836)         (1,798)  
1   AllianceBernstein Premier Growth Portfolio - Class A                              10,420         (10,051)            369   
2   AllianceBernstein Premier Growth Portfolio - Class A                                 153             (55)             98   
5   AllianceBernstein Premier Growth Portfolio - Class A                               8,237            (404)          7,833   
6   AllianceBernstein Premier Growth Portfolio - Class A                              11,644          (9,257)          2,387   
2   AllianceBernstein Real Estate Investment Portfolio - Class A                          --             (24)            (24)  
6   AllianceBernstein Real Estate Investment Portfolio - Class A                       2,769          (2,155)            614   
1   AllianceBernstein Small Cap Growth Portfolio - Class A                             6,999          (3,895)          3,104   
2   AllianceBernstein Small Cap Growth Portfolio - Class A                               198             (32)            166   
3   AllianceBernstein Technology Portfolio - Class A                                  18,475         (19,298)           (823)  
6   AllianceBernstein Technology Portfolio - Class A                                  13,461          (9,352)          4,109   
1   AllianceBernstein Total Return Portfolio - Class A                                 3,841         (11,843)         (8,002)  
2   AllianceBernstein Total Return Portfolio - Class A                                    --             (50)            (50)  
2   AllianceBernstein U.S. Government/High Grade Securities Portfolio - Class A           --              (7)             (7)  
2   AllianceBernstein Utility Income Portfolio - Class A                                  --              (6)             (6)  
6   AllianceBernstein Utility Income Portfolio - Class A                               3,259          (4,391)         (1,132)  
6   American Century VP Capital Appreciation Fund - Class I                            2,841          (1,484)          1,357   
6   American Century VP Income & Growth Fund - Class I                                 6,518          (2,322)          4,196   
5   American Century VP International Fund - Class I                                   5,566            (311)          5,255   
4   Anchor Series Trust Asset Allocation Portfolio - Class 1                           7,594          (4,189)          3,405   
4   Anchor Series Trust Capital Appreciation Portfolio - Class 1                      69,709         (35,268)         34,441   
6   Anchor Series Trust Capital Appreciation Portfolio - Class 1                      19,468         (11,491)          7,977   
4   Anchor Series Trust Government and Quality Bond Portfolio - Class 1               10,269          (9,231)          1,038   
4   Anchor Series Trust Growth Portfolio - Class 1                                    29,606         (26,080)          3,526   
6   Anchor Series Trust Growth Portfolio - Class 1                                    10,186          (6,615)          3,571   
4   Anchor Series Trust Natural Resources Portfolio - Class 1                          6,394          (2,020)          4,374   
6   Anchor Series Trust Natural Resources Portfolio - Class 1                          3,657          (2,300)          1,357   
1   Dreyfus Stock Index Fund, Inc. - Initial shares                                   24,041         (25,942)         (1,901)  
6   Dreyfus Stock Index Fund, Inc. - Initial shares                                   56,340         (89,744)        (33,404)  
1   Dreyfus VIF Small Company Stock Portfolio - Initial shares                         9,653          (4,421)          5,232   
6   Dreyfus VIF Small Company Stock Portfolio - Initial shares                        11,151          (5,142)          6,009   
1   Fidelity VIP Asset Manager Portfolio - Initial Class                               6,175         (13,617)         (7,442)  
6   Fidelity VIP Asset Manager Portfolio - Initial Class                               6,030          (3,240)          2,790   
1   Fidelity VIP Contrafund Portfolio - Initial Class                                  8,225          (8,615)           (390)  
5   Fidelity VIP Contrafund Portfolio - Initial Class                                 18,237            (705)         17,532   
6   Fidelity VIP Contrafund Portfolio - Initial Class                                 12,549          (6,496)          6,053   
1   Fidelity VIP Growth Portfolio - Initial Class                                     23,897         (28,645)         (4,748)  
6   Fidelity VIP Growth Portfolio - Initial Class                                     14,532          (7,306)          7,226   
1   Fidelity VIP High Income Portfolio - Initial Class                                 4,514          (3,816)            698   
6   Fidelity VIP High Income Portfolio - Initial Class                                 1,432          (1,508)            (76)  
5   Fidelity VIP Index 500 Portfolio - Initial Class                                  27,197            (381)         26,816   
1   Fidelity VIP Investment Grade Bond Portfolio - Initial Class                       3,660         (10,201)         (6,541)  
6   Fidelity VIP Investment Grade Bond Portfolio - Initial Class                       5,223          (2,455)          2,768   

VA II - 38  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note F - Summary of Changes in Units - Continued                                

Summary of Changes in Units for the year ended December 31, 2004.               

                                                        [Enlarge/Download Table]

                                                                                   Accumulation Accumulation Units Net Increase
Sub-accounts                                                                       Units Issued      Redeemed       (Decrease) 
---------------------------------------------------------------------------------  ------------ ------------------ ------------
                                                                                                                               
1   Fidelity VIP Money Market Portfolio - Initial Class                                7,783          (19,934)       (12,151)  
6   Fidelity VIP Money Market Portfolio - Initial Class                               35,797          (33,695)         2,102   
1   Fidelity VIP Overseas Portfolio - Initial Class                                    3,955           (7,200)        (3,245)  
6   Franklin Templeton - Templeton Global Asset Allocation Fund - Class 1              4,504           (2,340)         2,164   
6   JPMorgan Bond Portfolio                                                            1,523           (5,371)        (3,848)  
6   JPMorgan U.S. Large Cap Core Equity Portfolio                                      1,724           (1,682)            42   
6   Neuberger Berman AMT Limited Maturity Bond Portfolio - Class I                     1,117             (575)           542   
6   Neuberger Berman AMT Partners Portfolio - Class I                                    981          (13,167)       (12,186)  
6   Oppenheimer Global Securities Fund/VA - Non-Service Shares                        12,612           (6,096)         6,516   
6   Oppenheimer Main Street Fund/VA - Non-Service Shares                               9,079           (6,457)         2,622   
5   PIMCO VIT Real Return Portfolio - Administrative Class                            19,598             (133)        19,465   
4   SunAmerica - Aggressive Growth Portfolio - Class 1                                42,951          (35,388)         7,563   
6   SunAmerica - Aggressive Growth Portfolio - Class 1                                10,667           (8,725)         1,942   
4   SunAmerica - SunAmerica Balanced Portfolio - Class 1                              28,645          (14,259)        14,386   
6   SunAmerica - SunAmerica Balanced Portfolio - Class 1                               7,255           (8,364)        (1,109)  
4   SunAmerica Alliance Growth Portfolio                                             100,708         (104,719)        (4,011)  
6   SunAmerica Alliance Growth Portfolio                                              12,920          (10,918)         2,002   
4   SunAmerica Blue Chip Growth Portfolio                                              6,089           (1,986)         4,103   
4   SunAmerica Cash Management Portfolio                                              39,834          (97,458)       (57,624)  
4   SunAmerica Corporate Bond Portfolio                                                6,565           (3,305)         3,260   
4   SunAmerica Davis Venture Value Portfolio                                          35,031          (32,414)         2,617   
4   SunAmerica "Dogs" of Wall Street Portfolio                                        17,288           (3,219)        14,069   
4   SunAmerica Emerging Markets Portfolio                                             12,678          (16,889)        (4,211)  
4   SunAmerica Federated American Leaders Portfolio                                    6,388           (7,799)        (1,411)  
4   SunAmerica Global Bond Portfolio                                                  10,924           (2,218)         8,706   
6   SunAmerica Global Bond Portfolio                                                     562           (9,820)        (9,258)  
4   SunAmerica Global Equities Portfolio                                              19,324          (18,039)         1,285   
4   SunAmerica Goldman Sachs Research Portfolio                                          515             (572)           (57)  
4   SunAmerica Growth Opportunities Portfolio                                          4,255           (3,165)         1,090   
4   SunAmerica Growth-Income Portfolio                                                41,428          (57,199)       (15,771)  
6   SunAmerica Growth-Income Portfolio                                                20,707          (14,220)         6,487   
4   SunAmerica High-Yield Bond Portfolio                                               2,461           (3,037)          (576)  
4   SunAmerica International Diversified Equities Portfolio                           21,294          (16,804)         4,490   
4   SunAmerica International Growth and Income Portfolio                              37,126          (25,281)        11,845   
6   SunAmerica Marsico Growth Portfolio                                                7,756          (10,783)        (3,027)  
4   SunAmerica MFS Massachusetts Investors Trust Portfolio                            11,799          (19,854)        (8,055)  
4   SunAmerica MFS Mid-Cap Growth Portfolio                                           48,184          (26,451)        21,733   
6   SunAmerica MFS Mid-Cap Growth Portfolio                                           32,913          (26,889)         6,024   
4   SunAmerica MFS Total Return Portfolio                                             23,705          (17,880)         5,825   
4   SunAmerica Putnam Growth: Voyager Portfolio                                       33,476          (40,609)        (7,133)  
4   SunAmerica Real Estate Portfolio                                                  13,510           (3,448)        10,062   
4   SunAmerica Technology Portfolio                                                   17,626          (13,631)         3,995   
4   SunAmerica Telecom Utility Portfolio                                               4,108           (3,068)         1,040   
4   SunAmerica Worldwide High Income Portfolio                                           974             (630)           344   
5   UIF Core Plus Fixed Income Portfolio - Class I                                     5,634          (10,415)        (4,781)  
5   UIF Money Market Portfolio - Class I                                              94,631         (101,857)        (7,226)  
5   UIF U.S. Mid Cap Value Portfolio - Class I                                         9,850             (483)         9,367   
5   VALIC Company I - Small Cap Index Fund                                            29,319             (199)        29,120   
1   Van Eck Worldwide Emerging Markets Fund                                            1,480           (3,151)        (1,671)  
1   Van Eck Worldwide Hard Assets Fund                                                 4,773             (506)         4,267   

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note F - Summary of Changes in Units - Continued                                

Footnotes                                                                       
1  Variable Universal Life Policy product.                                      
2  Gallery Life product.                                                        
3  Variable Universal Life Policy product or Gallery Life product.              
4  Polaris product or Polaris Survivorship product.                             
5  Executive Advantage product.                                                 
6  Gemstone Life product.                                                       

VA II - 40  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights                                                   

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                                 Investment                     
                                                               Unit                Income    Expense    Total   
Sub-accounts                                            Units  Value  Net Assets Ratio (a)  Ratio (b) Return (c)
----------------------------------------------------   ------- ------ ---------- ---------- --------- ----------
                                                                                                                
2005                                                                                                            
1   AIM V.I. Capital Appreciation Fund - Series I       41,074 $12.00 $  493,079    0.06%     0.90%      7.86%  
6   AIM V.I. Capital Appreciation Fund - Series I       22,678   8.21    186,263    0.06%     0.75%      8.02%  
1   AIM V.I. International Growth Fund - Series I       55,489  15.09    837,297    0.68%     0.90%     16.87%  
6   AIM V.I. International Growth Fund - Series I       25,913  12.02    311,359    0.68%     0.75%     17.05%  
1   AllianceBernstein Global Bond Portfolio - Class A    3,969  13.30     52,787   12.70%     0.90%     -8.48%  
2   AllianceBernstein Global Dollar Government                                                                  
      Portfolio - Class A                                   16  21.12        344    6.23%     0.90%      8.64%  
3   AllianceBernstein Global Technology Portfolio -                                                             
      Class A *                                         99,454  15.63  1,554,365    0.00%     0.90%      2.94%  
6   AllianceBernstein Global Technology Portfolio -                                                             
      Class A *                                         53,710   6.33    340,045    0.00%     0.75%      3.09%  
3   AllianceBernstein Growth and Income Portfolio -                                                             
      Class A                                          102,832  29.63  3,047,108    1.46%     0.90%      3.93%  
5   AllianceBernstein Growth and Income Portfolio -                                                             
      Class A                                           59,374  15.19    902,110    1.60%     0.65%      4.19%  
3   AllianceBernstein Growth Portfolio - Class A       139,473  22.29  3,108,494    0.00%     0.90%     10.97%  
1   AllianceBernstein Large Cap Growth Portfolio -                                                              
      Class A *                                         53,529  13.86    742,125    0.00%     0.90%     14.12%  
2   AllianceBernstein Large Cap Growth Portfolio -                                                              
      Class A *                                          1,497  14.22     21,293    0.00%     0.90%     14.12%  
5   AllianceBernstein Large Cap Growth Portfolio -                                                              
      Class A *                                         26,985  14.74    397,735    0.00%     0.65%     14.40%  
6   AllianceBernstein Large Cap Growth Portfolio -                                                              
      Class A *                                         43,860   8.16    357,817    0.00%     0.75%     14.29%  
2   AllianceBernstein Money Market Portfolio - Class A   2,835  11.92     33,798    2.31%     0.90%      1.44%  
2   AllianceBernstein Real Estate Investment                                                                    
      Portfolio - Class A                                  169  22.05      3,728    3.15%     0.90%     10.67%  
6   AllianceBernstein Real Estate Investment                                                                    
      Portfolio - Class A                               25,752  22.97    591,627    2.97%     0.75%     10.84%  
1   AllianceBernstein Small Cap Growth Portfolio -                                                              
      Class A                                           38,242  12.50    478,205    0.00%     0.90%      4.30%  
2   AllianceBernstein Small Cap Growth Portfolio -                                                              
      Class A                                            1,311  10.09     13,232    0.00%     0.90%      4.30%  
1   AllianceBernstein Total Return Portfolio - Class A  31,504  12.31    387,726    2.76%     0.90%      2.98%  
2   AllianceBernstein Total Return Portfolio - Class A     304  16.91      5,146    2.56%     0.90%      2.98%  
2   AllianceBernstein U.S. Government/High Grade                                                                
      Securities Portfolio - Class A                        40  14.46        577    3.00%     0.90%      1.07%  
2   AllianceBernstein Utility Income Portfolio -                                                                
      Class A                                               32  18.87        610    2.20%     0.90%     15.02%  
6   AllianceBernstein Utility Income Portfolio -                                                                
      Class A                                           18,694  10.38    194,003    2.02%     0.75%     15.19%  
6   American Century VP Capital Appreciation Fund -                                                             
      Class I                                           12,226   8.82    107,869    0.00%     0.75%     21.15%  
6   American Century VP Income & Growth Fund - Class I  22,805  10.64    242,689    1.86%     0.75%      3.85%  
5   American Century VP International Fund - Class I    21,892  15.18    332,321    1.05%     0.65%     12.52%  
4   Anchor Series Trust Asset Allocation Portfolio -                                                            
      Class 1                                           34,749  12.82    445,317    3.34%     0.75%      4.19%  
4   Anchor Series Trust Capital Appreciation                                                                    
      Portfolio - Class 1                              223,091  13.54  3,020,369    0.28%     0.75%     10.81%  
6   Anchor Series Trust Capital Appreciation                                                                    
      Portfolio - Class 1                               87,346  10.00    873,840    0.28%     0.75%     10.81%  
4   Anchor Series Trust Government and Quality Bond                                                             
      Portfolio - Class 1                               56,029  13.65    764,572    3.84%     0.75%      1.87%  
4   Anchor Series Trust Growth Portfolio - Class 1     117,743  11.56  1,360,891    0.88%     0.75%      6.33%  
6   Anchor Series Trust Growth Portfolio - Class 1      50,733   9.90    502,450    0.88%     0.75%      6.33%  
4   Anchor Series Trust Natural Resources Portfolio -                                                           
      Class 1                                           15,634  36.42    569,340    0.51%     0.75%     45.03%  
6   Anchor Series Trust Natural Resources Portfolio -                                                           
      Class 1                                           17,537  28.85    505,889    0.51%     0.75%     45.03%  
1   Dreyfus Stock Index Fund, Inc. - Initial shares    188,143  23.02  4,331,336    1.59%     0.90%      3.76%  
6   Dreyfus Stock Index Fund, Inc. - Initial shares    133,323   9.57  1,275,652    1.55%     0.75%      3.91%  
1   Dreyfus VIF Small Company Stock Portfolio -                                                                 
      Initial shares                                    47,786  14.71    702,950    0.00%     0.90%      0.00%  
6   Dreyfus VIF Small Company Stock Portfolio -                                                                 
      Initial shares                                    54,321  13.20    717,065    0.00%     0.75%      0.15%  
1   Fidelity VIP Asset Manager Portfolio - Initial                                                              
      Class                                             61,429  19.32  1,186,888    2.62%     0.90%      3.11%  
6   Fidelity VIP Asset Manager Portfolio - Initial                                                              
      Class                                             25,200  10.85    273,392    2.62%     0.75%      3.27%  
1   Fidelity VIP Contrafund Portfolio - Initial Class   68,012  19.48  1,324,675    0.26%     0.90%     15.89%  
5   Fidelity VIP Contrafund Portfolio - Initial Class   59,189  16.96  1,003,673    0.24%     0.65%     16.18%  
6   Fidelity VIP Contrafund Portfolio - Initial Class   73,798  13.47    994,399    0.26%     0.75%     16.07%  
1   Fidelity VIP Growth Portfolio - Initial Class      172,888  20.20  3,491,592    0.49%     0.90%      4.85%  
6   Fidelity VIP Growth Portfolio - Initial Class       63,347   7.99    506,155    0.49%     0.75%      5.01%  
1   Fidelity VIP High Income Portfolio - Initial Class  33,503  13.02    436,230   14.50%     0.90%      1.78%  
6   Fidelity VIP High Income Portfolio - Initial Class  15,430  12.46    192,281   14.50%     0.75%      1.94%  

VA II - 41  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights - Continued                                       

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                                 Investment                     
                                                               Unit                Income    Expense    Total   
Sub-accounts                                            Units  Value  Net Assets Ratio (a)  Ratio (b) Return (c)
----------------------------------------------------   ------- ------ ---------- ---------- --------- ----------
                                                                                                                
2005 - Continued                                                                                                
5   Fidelity VIP Index 500 Portfolio - Initial Class    35,915 $14.59 $  523,892    1.75%     0.65%      4.15%  
1   Fidelity VIP Investment Grade Bond Portfolio -                                                              
      Initial Class                                     42,951  17.13    735,748    3.64%     0.90%      1.28%  
6   Fidelity VIP Investment Grade Bond Portfolio -                                                              
      Initial Class                                     23,806  12.92    307,477    3.64%     0.75%      1.43%  
1   Fidelity VIP Money Market Portfolio - Initial                                                               
      Class                                             69,085  13.75    949,958    3.00%     0.90%      2.11%  
6   Fidelity VIP Money Market Portfolio - Initial                                                               
      Class                                            122,486  10.74  1,315,424    3.00%     0.75%      2.26%  
1   Fidelity VIP Overseas Portfolio - Initial Class     41,844  18.39    769,330    0.56%     0.90%     17.98%  
5   Franklin Templeton - Templeton Foreign Securities                                                           
      Fund - Class 2                                    13,820  12.33    170,399    2.18%     0.65%      9.46%  
6   Franklin Templeton - Templeton Global Asset                                                                 
      Allocation Fund - Class 1                         24,226  13.30    322,152    4.08%     0.75%      3.08%  
6   JPMorgan Bond Portfolio                             11,402  12.42    141,611    3.06%     0.75%      2.04%  
6   JPMorgan U.S. Large Cap Core Equity Portfolio        8,216   8.86     72,811    1.22%     0.75%      0.60%  
5   Mercury Basic Value V.I. Fund - Class I *            9,744  13.06    127,221    2.72%     0.65%      2.27%  
6   Neuberger Berman AMT Limited Maturity Bond                                                                  
      Portfolio - Class I                               12,080  11.51    139,100    4.24%     0.75%      0.69%  
6   Neuberger Berman AMT Partners Portfolio - Class I   29,089  13.48    392,111    0.91%     0.75%     17.17%  
6   Oppenheimer Global Securities Fund/VA -                                                                     
      Non-Service Shares                                50,580  11.04    558,208    0.94%     0.75%     13.46%  
6   Oppenheimer Main Street Fund/VA - Non-Service                                                               
      Shares                                            61,078  10.07    614,847    1.31%     0.75%      5.19%  
5   PIMCO VIT Real Return Portfolio - Administrative                                                            
      Class                                             18,866  10.90    205,636    2.75%     0.65%      1.43%  
5   PIMCO VIT Total Return Portfolio - Administrative                                                           
      Class                                             12,086  10.46    126,376    5.94%     0.65%      1.79%  
4   SunAmerica - Aggressive Growth Portfolio - Class 1 163,083  10.87  1,772,880    0.00%     0.75%      7.93%  
6   SunAmerica - Aggressive Growth Portfolio - Class 1  41,134   8.30    341,525    0.00%     0.75%      7.93%  
4   SunAmerica - SunAmerica Balanced Portfolio -                                                                
      Class 1                                          128,344   9.23  1,184,569    2.61%     0.75%      1.14%  
6   SunAmerica - SunAmerica Balanced Portfolio -                                                                
      Class 1                                           46,653   8.81    411,112    2.61%     0.75%      1.14%  
4   SunAmerica Alliance Growth Portfolio               397,728   8.76  3,485,767    0.39%     0.75%     15.76%  
6   SunAmerica Alliance Growth Portfolio                59,119   8.66    512,142    0.39%     0.75%     15.76%  
4   SunAmerica Blue Chip Growth Portfolio               19,172   6.12    117,354    0.56%     0.75%      1.78%  
4   SunAmerica Cash Management Portfolio               289,382  11.36  3,286,709    0.93%     0.75%      2.02%  
4   SunAmerica Corporate Bond Portfolio                 23,192  14.24    330,149    4.26%     0.75%      1.15%  
4   SunAmerica Davis Venture Value Portfolio           163,491  20.10  3,285,939    1.04%     0.75%      9.79%  
4   SunAmerica "Dogs" of Wall Street Portfolio          40,246  11.29    454,414    2.63%     0.75%     -3.46%  
4   SunAmerica Emerging Markets Portfolio               56,485  19.05  1,076,323    0.32%     0.75%     36.19%  
4   SunAmerica Federated American Leaders Portfolio     35,026  10.87    380,765    1.59%     0.75%      3.89%  
4   SunAmerica Global Bond Portfolio                    20,393  13.11    267,396    3.19%     0.75%      3.81%  
6   SunAmerica Global Bond Portfolio                    22,810  12.01    273,842    3.19%     0.75%      3.81%  
4   SunAmerica Global Equities Portfolio                63,647   9.61    611,629    0.25%     0.75%     14.93%  
4   SunAmerica Goldman Sachs Research Portfolio          3,918   6.94     27,192    0.51%     0.75%      2.83%  
4   SunAmerica Growth Opportunities Portfolio           18,327   4.90     89,792    0.00%     0.75%      6.85%  
4   SunAmerica Growth-Income Portfolio                 164,983  10.20  1,682,909    0.55%     0.75%      6.40%  
6   SunAmerica Growth-Income Portfolio                 104,979   9.46    993,272    0.55%     0.75%      6.40%  
4   SunAmerica High-Yield Bond Portfolio                15,408  13.29    204,746   10.94%     0.75%      8.06%  
4   SunAmerica International Diversified Equities                                                               
      Portfolio                                         78,996   8.91    704,110    1.56%     0.75%     12.93%  
4   SunAmerica International Growth and Income                                                                  
      Portfolio                                         90,664  12.33  1,117,603    0.90%     0.75%     13.44%  
6   SunAmerica Marsico Growth Portfolio                 52,573  11.86    623,339    0.00%     0.75%      9.89%  
4   SunAmerica MFS Massachusetts Investors Trust                                                                
      Portfolio                                         66,135   9.66    638,547    0.82%     0.75%      6.92%  
4   SunAmerica MFS Mid-Cap Growth Portfolio            172,631  10.28  1,775,161    0.00%     0.75%      2.42%  
6   SunAmerica MFS Mid-Cap Growth Portfolio            134,553   6.23    838,412    0.00%     0.75%      2.42%  
4   SunAmerica MFS Total Return Portfolio               86,527  14.24  1,232,316    2.27%     0.75%      2.28%  
4   SunAmerica Putnam Growth: Voyager Portfolio        143,087   7.51  1,074,314    0.62%     0.75%      5.28%  
4   SunAmerica Real Estate Portfolio                    35,363  25.24    892,461    1.86%     0.75%     12.45%  
4   SunAmerica Technology Portfolio                     45,299   2.47    112,030    0.00%     0.75%     -0.95%  
4   SunAmerica Telecom Utility Portfolio                19,323   8.37    161,825    4.76%     0.75%      5.73%  

VA II - 42  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights - Continued                                       

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                                 Investment                     
                                                               Unit                Income    Expense    Total   
Sub-accounts                                            Units  Value  Net Assets Ratio (a)  Ratio (b) Return (c)
----------------------------------------------------   ------- ------ ---------- ---------- --------- ----------
                                                                                                                
2005 - Continued                                                                                                
4   SunAmerica Worldwide High Income Portfolio           7,746 $14.59 $  112,975    9.03%     0.75%      6.51%  
5   UIF Core Plus Fixed Income Portfolio - Class I      17,755  11.52    204,470    3.73%     0.65%      3.54%  
5   UIF Money Market Portfolio - Class I                11,675  10.22    119,312    2.73%     0.65%      2.00%  
5   UIF U.S. Mid Cap Value Portfolio - Class I          34,198  17.63    602,810    0.32%     0.65%     11.58%  
5   VALIC Company I - International Equities Fund        8,472  15.89    134,650    2.76%     0.65%     16.23%  
5   VALIC Company I - Small Cap Index Fund              28,085  14.78    414,984    0.92%     0.65%      3.59%  
1   Van Eck Worldwide Emerging Markets Fund             25,468  16.20    412,635    0.67%     0.90%     30.82%  
1   Van Eck Worldwide Hard Assets Fund                  14,006  23.36    327,222    0.29%     0.90%     50.32%  
5   Vanguard VIF Total Bond Market Index Portfolio      12,162  10.41    126,559    6.67%     0.65%      1.74%  

2004                                                                                                            
1   AIM V.I. Capital Appreciation Fund - Series I       41,856  11.13    465,833    0.00%     0.90%      5.67%  
6   AIM V.I. Capital Appreciation Fund - Series I       22,503   7.60    171,092    0.00%     0.75%      5.83%  
1   AIM V.I. International Growth Fund - Series I       50,235  12.91    648,573    0.64%     0.90%     22.89%  
6   AIM V.I. International Growth Fund - Series I       22,104  10.27    226,907    0.64%     0.75%     23.08%  
1   AllianceBernstein Global Bond Portfolio - Class A    4,488  14.53     65,216    6.19%     0.90%      8.65%  
2   AllianceBernstein Global Dollar Government                                                                  
      Portfolio - Class A                                   17  19.44        326    7.01%     0.90%      9.13%  
3   AllianceBernstein Growth and Income Portfolio -                                                             
      Class A                                          105,864  28.51  3,018,341    0.89%     0.90%     10.46%  
5   AllianceBernstein Growth and Income Portfolio -                                                             
      Class A                                           44,824  14.58    653,664    0.95%     0.65%     10.74%  
3   AllianceBernstein Growth Portfolio - Class A       162,219  20.08  3,258,112    0.00%     0.90%     13.71%  
2   AllianceBernstein Money Market Portfolio - Class A   3,284  11.75     38,591    0.65%     0.90%     -0.18%  
1   AllianceBernstein Premier Growth Portfolio -                                                                
      Class A                                           53,387  12.15    648,589    0.00%     0.90%      7.65%  
2   AllianceBernstein Premier Growth Portfolio -                                                                
      Class A                                            1,410  12.46     17,575    0.00%     0.90%      7.65%  
5   AllianceBernstein Premier Growth Portfolio -                                                                
      Class A                                           23,746  12.88    305,936    0.00%     0.65%      7.92%  
6   AllianceBernstein Premier Growth Portfolio -                                                                
      Class A                                           57,618   7.14    411,292    0.00%     0.75%      7.81%  
2   AllianceBernstein Real Estate Investment                                                                    
      Portfolio - Class A                                  196  19.92      3,902    2.24%     0.90%     34.41%  
6   AllianceBernstein Real Estate Investment                                                                    
      Portfolio - Class A                               24,007  20.73    497,595    2.16%     0.75%     34.61%  
1   AllianceBernstein Small Cap Growth Portfolio -                                                              
      Class A *                                         47,191  11.99    565,796    0.00%     0.90%     13.53%  
2   AllianceBernstein Small Cap Growth Portfolio -                                                              
      Class A *                                          1,157   9.68     11,199    0.00%     0.90%     13.53%  
3   AllianceBernstein Technology Portfolio - Class A    91,589  15.18  1,390,617    0.00%     0.90%      4.51%  
6   AllianceBernstein Technology Portfolio - Class A    50,957   6.14    312,944    0.00%     0.75%      4.67%  
1   AllianceBernstein Total Return Portfolio - Class A  24,441  11.95    292,103    2.47%     0.90%      8.10%  
2   AllianceBernstein Total Return Portfolio - Class A     356  16.42      5,848    2.19%     0.90%      8.10%  
2   AllianceBernstein U.S. Government/High Grade                                                                
      Securities Portfolio - Class A                        47  14.31        672    2.88%     0.90%      2.84%  
2   AllianceBernstein Utility Income Portfolio -                                                                
      Class A                                               38  16.41        624    2.13%     0.90%     23.21%  
6   AllianceBernstein Utility Income Portfolio -                                                                
      Class A                                           22,189   9.01    199,908    1.94%     0.75%     23.40%  
6   American Century VP Capital Appreciation Fund -                                                             
      Class I                                           11,254   7.28     81,959    0.00%     0.75%      6.78%  
6   American Century VP Income & Growth Fund - Class I  21,832  10.25    223,717    1.23%     0.75%     12.15%  
5   American Century VP International Fund - Class I    19,319  13.49    260,619    0.51%     0.65%     14.18%  
4   Anchor Series Trust Asset Allocation Portfolio -                                                            
      Class 1                                           31,037  12.30    381,745    2.79%     0.75%      9.51%  
4   Anchor Series Trust Capital Appreciation                                                                    
      Portfolio - Class 1                              240,227  12.22  2,934,964    0.00%     0.75%      8.30%  
6   Anchor Series Trust Capital Appreciation                                                                    
      Portfolio - Class 1                               83,646   9.03    755,154    0.00%     0.75%      8.30%  
4   Anchor Series Trust Government and Quality Bond                                                             
      Portfolio - Class 1                               68,089  13.40    912,051    4.68%     0.75%      2.64%  
4   Anchor Series Trust Growth Portfolio - Class 1     114,459  10.87  1,244,228    0.57%     0.75%     10.03%  
6   Anchor Series Trust Growth Portfolio - Class 1      45,562   9.31    424,393    0.57%     0.75%     10.03%  
4   Anchor Series Trust Natural Resources Portfolio -                                                           
      Class 1                                           14,263  25.11    358,142    0.77%     0.75%     24.11%  
6   Anchor Series Trust Natural Resources Portfolio -                                                           
      Class 1                                           16,443  19.89    327,059    0.77%     0.75%     24.11%  
1   Dreyfus Stock Index Fund, Inc. - Initial shares    200,562  22.19  4,450,084    1.78%     0.90%      9.65%  
6   Dreyfus Stock Index Fund, Inc. - Initial shares    218,882   9.21  2,015,453    1.81%     0.75%      9.81%  
1   Dreyfus VIF Small Company Stock Portfolio -                                                                 
      Initial shares                                    47,249  14.71    695,019    0.00%     0.90%     17.46%  
6   Dreyfus VIF Small Company Stock Portfolio -                                                                 
      Initial shares                                    53,922  13.18    710,706    0.00%     0.75%     17.63%  
1   Fidelity VIP Asset Manager Portfolio - Initial                                                              
      Class                                             64,555  18.74  1,209,626    2.76%     0.90%      4.52%  

VA II - 43  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights - Continued                                       

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                                 Investment                     
                                                               Unit                Income    Expense    Total   
Sub-accounts                                            Units  Value  Net Assets Ratio (a)  Ratio (b) Return (c)
----------------------------------------------------   ------- ------ ---------- ---------- --------- ----------
                                                                                                                
2004 - Continued                                                                                                
6   Fidelity VIP Asset Manager Portfolio - Initial                                                              
      Class                                             25,774 $10.51 $  270,766    2.76%     0.75%      4.68%  
1   Fidelity VIP Contrafund Portfolio - Initial Class   62,149  16.81  1,044,492    0.32%     0.90%     14.44%  
5   Fidelity VIP Contrafund Portfolio - Initial Class   43,335  14.60    632,487    0.31%     0.65%     14.73%  
6   Fidelity VIP Contrafund Portfolio - Initial Class   64,467  11.61    748,429    0.32%     0.75%     14.61%  
1   Fidelity VIP Growth Portfolio - Initial Class      192,660  19.26  3,710,779    0.26%     0.90%      2.45%  
6   Fidelity VIP Growth Portfolio - Initial Class       62,017   7.61    471,880    0.26%     0.75%      2.61%  
1   Fidelity VIP High Income Portfolio - Initial Class  35,723  12.79    456,984    7.92%     0.90%      8.61%  
6   Fidelity VIP High Income Portfolio - Initial Class  14,920  12.22    182,394    7.92%     0.75%      8.77%  
5   Fidelity VIP Index 500 Portfolio - Initial Class    37,848  14.01    530,116    0.50%     0.65%      9.90%  
1   Fidelity VIP Investment Grade Bond Portfolio -                                                              
      Initial Class                                     42,968  16.91    726,746    4.12%     0.90%      3.52%  
6   Fidelity VIP Investment Grade Bond Portfolio -                                                              
      Initial Class                                     25,535  12.73    325,156    4.12%     0.75%      3.67%  
1   Fidelity VIP Money Market Portfolio - Initial                                                               
      Class                                             82,173  13.47  1,106,569    1.16%     0.90%      0.30%  
6   Fidelity VIP Money Market Portfolio - Initial                                                               
      Class                                            151,825  10.50  1,594,410    1.16%     0.75%      0.45%  
1   Fidelity VIP Overseas Portfolio - Initial Class     34,619  15.58    539,482    1.14%     0.90%     12.62%  
6   Franklin Templeton - Templeton Global Asset                                                                 
      Allocation Fund - Class 1                         16,693  12.90    215,348    2.40%     0.75%     15.07%  
6   JPMorgan Bond Portfolio                              9,210  12.17    112,100    3.61%     0.75%      3.51%  
6   JPMorgan U.S. Large Cap Core Equity Portfolio        7,906   8.81     69,650    0.75%     0.75%      8.67%  
6   Neuberger Berman AMT Limited Maturity Bond                                                                  
      Portfolio - Class I                                4,465  11.44     51,059    3.96%     0.75%      0.03%  
6   Neuberger Berman AMT Partners Portfolio - Class I   41,058  11.50    472,365    0.01%     0.75%     18.09%  
6   Oppenheimer Global Securities Fund/VA -                                                                     
      Non-Service Shares                                49,208   9.73    478,659    1.10%     0.75%     18.27%  
6   Oppenheimer Main Street Fund/VA - Non-Service                                                               
      Shares                                            61,865   9.57    592,065    0.77%     0.75%      8.64%  
5   PIMCO VIT Real Return Portfolio - Administrative                                                            
      Class                                             19,465  10.75    209,172    0.80%     0.65%      8.21%  
4   SunAmerica - Aggressive Growth Portfolio - Class 1 160,593  10.07  1,617,590    0.00%     0.75%     15.91%  
6   SunAmerica - Aggressive Growth Portfolio - Class 1  45,332   7.69    348,732    0.00%     0.75%     15.91%  
4   SunAmerica - SunAmerica Balanced Portfolio -                                                                
      Class 1                                          108,914   9.13    993,938    1.59%     0.75%      5.98%  
6   SunAmerica - SunAmerica Balanced Portfolio -                                                                
      Class 1                                           43,928   8.71    382,752    1.59%     0.75%      5.98%  
4   SunAmerica Alliance Growth Portfolio               390,025   7.57  2,953,003    0.31%     0.75%      7.14%  
6   SunAmerica Alliance Growth Portfolio                57,602   7.48    431,077    0.31%     0.75%      7.14%  
4   SunAmerica Blue Chip Growth Portfolio               17,867   6.01    107,454    0.15%     0.75%      4.45%  
4   SunAmerica Cash Management Portfolio               242,292  11.13  2,697,266    0.75%     0.75%      0.06%  
4   SunAmerica Corporate Bond Portfolio                 32,652  14.07    459,531    5.05%     0.75%      6.02%  
4   SunAmerica Davis Venture Value Portfolio           160,654  18.31  2,941,081    0.87%     0.75%     12.67%  
4   SunAmerica "Dogs" of Wall Street Portfolio          34,469  11.70    403,134    2.88%     0.75%      8.81%  
4   SunAmerica Emerging Markets Portfolio               60,706  13.99    849,391    1.05%     0.75%     23.58%  
4   SunAmerica Federated American Leaders Portfolio     33,869  10.46    354,376    1.46%     0.75%      9.07%  
4   SunAmerica Global Bond Portfolio                    19,244  12.63    243,074    0.00%     0.75%      3.19%  
6   SunAmerica Global Bond Portfolio                    31,498  11.56    364,263    0.00%     0.75%      3.19%  
4   SunAmerica Global Equities Portfolio                68,813   8.36    575,380    0.30%     0.75%     11.03%  
4   SunAmerica Goldman Sachs Research Portfolio          3,393   6.75     22,902    0.00%     0.75%     12.17%  
4   SunAmerica Growth Opportunities Portfolio           23,157   4.59    106,181    0.00%     0.75%      5.38%  
4   SunAmerica Growth-Income Portfolio                 171,459   9.59  1,643,701    0.67%     0.75%     10.70%  
6   SunAmerica Growth-Income Portfolio                  99,403   8.89    883,906    0.67%     0.75%     10.70%  
4   SunAmerica High-Yield Bond Portfolio                15,311  12.30    188,281    9.05%     0.75%     16.59%  
4   SunAmerica International Diversified Equities                                                               
      Portfolio                                         72,363   7.89    571,130    2.50%     0.75%     15.62%  
4   SunAmerica International Growth and Income                                                                  
      Portfolio                                         87,556  10.87    951,467    1.09%     0.75%     19.96%  
6   SunAmerica Marsico Growth Portfolio                 47,598  10.79    513,561    0.00%     0.75%     10.42%  
4   SunAmerica MFS Massachusetts Investors Trust                                                                
      Portfolio                                         64,741   9.03    584,621    0.77%     0.75%     11.03%  
4   SunAmerica MFS Mid-Cap Growth Portfolio            173,339  10.04  1,740,354    0.00%     0.75%     13.24%  
6   SunAmerica MFS Mid-Cap Growth Portfolio            137,155   6.08    834,453    0.00%     0.75%     13.24%  
4   SunAmerica MFS Total Return Portfolio               80,196  13.92  1,116,698    0.18%     0.75%     10.47%  
4   SunAmerica Putnam Growth: Voyager Portfolio        139,411   7.13    994,236    0.13%     0.75%      4.22%  
4   SunAmerica Real Estate Portfolio                    40,451  22.44    907,836    2.99%     0.75%     33.56%  
4   SunAmerica Technology Portfolio                     51,596   2.50    128,826    0.00%     0.75%     -3.25%  

VA II - 44  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights - Continued                                       

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                                  Investment                     
                                                                Unit                Income    Expense    Total   
Sub-accounts                                            Units   Value  Net Assets Ratio (a)  Ratio (b) Return (c)
----------------------------------------------------   -------  ------ ---------- ---------- --------- ----------
                                                                                                                 
2004 - Continued                                                                                                 
4   SunAmerica Telecom Utility Portfolio                14,903  $ 7.92 $  118,043    5.15%     0.75%     15.90%  
4   SunAmerica Worldwide High Income Portfolio           5,483   13.69     75,085    6.38%     0.75%      8.60%  
5   UIF Core Plus Fixed Income Portfolio - Class I      15,783   11.12    175,541    3.34%     0.65%      3.69%  
5   UIF Money Market Portfolio - Class I                10,506   10.02    105,254    1.20%     0.65%      0.13%  
5   UIF U.S. Mid Cap Value Portfolio - Class I          30,208   15.80    477,207    0.02%     0.65%     13.85%  
5   VALIC Company I - Small Cap Index Fund              29,120   14.26    415,340    0.39%     0.65%     17.13%  
1   Van Eck Worldwide Emerging Markets Fund             21,202   12.39    262,592    0.50%     0.90%     24.76%  
1   Van Eck Worldwide Hard Assets Fund                  11,058   15.54    171,863    0.28%     0.90%     22.87%  

2003                                                                                                             
1   AIM V.I. Capital Appreciation Fund - Series I       43,496   10.53    458,103    0.00%     0.90%     28.36%  
6   AIM V.I. Capital Appreciation Fund - Series I       22,264    7.18    159,954    0.00%     0.75%     28.55%  
1   AIM V.I. International Growth Fund - Series I       51,767   10.51    543,841    0.51%     0.90%     27.91%  
6   AIM V.I. International Growth Fund - Series I       20,002    8.34    166,825    0.51%     0.75%     28.10%  
1   AllianceBernstein Global Bond Portfolio - Class A    3,943   13.38     52,741    5.54%     0.90%     12.25%  
2   AllianceBernstein Global Dollar Government                                                                   
      Portfolio - Class A                                   17   17.81        310    5.48%     0.90%     32.21%  
3   AllianceBernstein Growth and Income Portfolio -                                                              
      Class A                                          107,327   25.81  2,770,192    1.09%     0.90%     31.32%  
5   AllianceBernstein Growth and Income Portfolio -                                                              
      Class A                                           26,100   13.17    343,697    1.24%     0.65%     31.65%  
3   AllianceBernstein Growth Portfolio - Class A       162,871   17.66  2,876,910    0.00%     0.90%     33.85%  
2   AllianceBernstein Money Market Portfolio - Class A   5,082   11.77     59,832    0.64%     0.90%     -0.37%  
1   AllianceBernstein Premier Growth Portfolio -                                                                 
      Class A                                           53,018   11.29    598,364    0.00%     0.90%     22.56%  
2   AllianceBernstein Premier Growth Portfolio -                                                                 
      Class A                                            1,312   11.58     15,194    0.00%     0.90%     22.56%  
5   AllianceBernstein Premier Growth Portfolio -                                                                 
      Class A                                           15,913   11.94    189,978    0.00%     0.65%     22.87%  
6   AllianceBernstein Premier Growth Portfolio -                                                                 
      Class A                                           55,231    6.62    365,701    0.00%     0.75%     22.74%  
2   AllianceBernstein Real Estate Investment                                                                     
      Portfolio - Class A                                  220   14.82      3,264    3.00%     0.90%     38.05%  
6   AllianceBernstein Real Estate Investment                                                                     
      Portfolio - Class A                               23,393   15.40    360,192    2.68%     0.75%     38.26%  
1   AllianceBernstein Small Cap Growth Portfolio -                                                               
      Class A                                           44,087   10.56    465,600    0.00%     0.90%     47.57%  
2   AllianceBernstein Small Cap Growth Portfolio -                                                               
      Class A                                              991    8.52      8,450    0.00%     0.90%     47.57%  
3   AllianceBernstein Technology Portfolio - Class A    92,412   14.53  1,342,541    0.00%     0.90%     42.79%  
6   AllianceBernstein Technology Portfolio - Class A    46,848    5.87    274,882    0.00%     0.75%     43.01%  
1   AllianceBernstein Total Return Portfolio - Class A  32,443   11.06    358,692    2.80%     0.90%     17.99%  
2   AllianceBernstein Total Return Portfolio - Class A     406   15.19      6,168    2.98%     0.90%     17.99%  
2   AllianceBernstein U.S. Government/High Grade                                                                 
      Securities Portfolio - Class A                        54   13.92        751    3.36%     0.90%      2.95%  
2   AllianceBernstein Utility Income Portfolio -                                                                 
      Class A                                               44   13.32        582    3.56%     0.90%     18.81%  
6   AllianceBernstein Utility Income Portfolio -                                                                 
      Class A                                           23,321    7.30    170,267    3.12%     0.75%     18.99%  
6   American Century VP Capital Appreciation Fund -                                                              
      Class I                                            9,897    6.82     67,499    0.00%     0.75%     19.57%  
6   American Century VP Income & Growth Fund - Class I  17,636    9.14    161,141    1.15%     0.75%     28.39%  
5   American Century VP International Fund - Class I    14,064   11.82    166,167    0.45%     0.65%     23.70%  
4   Anchor Series Trust Asset Allocation Portfolio -                                                             
      Class 1                                           27,632   11.23    310,356    0.00%     0.75%      4.12%  
4   Anchor Series Trust Capital Appreciation                                                                     
      Portfolio - Class 1                              205,786   11.28  2,321,583    0.00%     0.75%     31.26%  
6   Anchor Series Trust Capital Appreciation                                                                     
      Portfolio - Class 1                               75,669    8.34    630,806    0.00%     0.75%     31.26%  
4   Anchor Series Trust Government and Quality Bond                                                              
      Portfolio - Class 1                               67,051   13.05    875,095    4.56%     0.75%      1.75%  
4   Anchor Series Trust Growth Portfolio - Class 1     110,933    9.88  1,096,020    0.52%     0.75%     28.95%  
6   Anchor Series Trust Growth Portfolio - Class 1      41,991    8.47    355,492    0.52%     0.75%     28.95%  
4   Anchor Series Trust Natural Resources Portfolio -                                                            
      Class 1                                            9,889   20.23    200,082    0.67%     0.75%     46.61%  
6   Anchor Series Trust Natural Resources Portfolio -                                                            
      Class 1                                           15,086   16.03    241,783    0.67%     0.75%     46.61%  
1   Dreyfus Stock Index Fund, Inc. - Initial shares    202,463   20.24  4,096,944    1.48%     0.90%     27.21%  
6   Dreyfus Stock Index Fund, Inc. - Initial shares    252,286    8.39  2,115,430    1.50%     0.75%     27.41%  
1   Dreyfus VIF Small Company Stock Portfolio -                                                                  
      Initial shares                                    42,017   12.52    526,202    0.11%     0.90%     41.66%  
6   Dreyfus VIF Small Company Stock Portfolio -                                                                  
      Initial shares                                    47,913   11.20    536,839    0.10%     0.75%     41.87%  

VA II - 45  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights - Continued                                       

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                                 Investment                     
                                                               Unit                Income    Expense    Total   
Sub-accounts                                            Units  Value  Net Assets Ratio (a)  Ratio (b) Return (c)
----------------------------------------------------   ------- ------ ---------- ---------- --------- ----------
                                                                                                                
2003 - Continued                                                                                                
1   Fidelity VIP Asset Manager Portfolio - Initial                                                              
      Class                                             71,997 $17.93 $1,290,678    3.62%     0.90%     16.92%  
6   Fidelity VIP Asset Manager Portfolio - Initial                                                              
      Class                                             22,984  10.04    230,661    3.62%     0.75%     17.09%  
1   Fidelity VIP Contrafund Portfolio - Initial Class   62,539  14.69    918,399    0.43%     0.90%     27.31%  
5   Fidelity VIP Contrafund Portfolio - Initial Class   25,803  12.72    328,255    0.24%     0.65%     27.63%  
6   Fidelity VIP Contrafund Portfolio - Initial Class   58,414  10.13    591,692    0.43%     0.75%     27.50%  
1   Fidelity VIP Growth Portfolio - Initial Class      197,408  18.80  3,711,243    0.26%     0.90%     31.66%  
6   Fidelity VIP Growth Portfolio - Initial Class       54,791   7.42    406,310    0.26%     0.75%     31.86%  
1   Fidelity VIP High Income Portfolio - Initial Class  35,025  11.78    412,529    6.38%     0.90%     26.13%  
6   Fidelity VIP High Income Portfolio - Initial Class  14,996  11.24    168,536    6.38%     0.75%     26.31%  
5   Fidelity VIP Index 500 Portfolio - Initial Class    11,032  12.74    140,601    0.69%     0.65%     27.58%  
1   Fidelity VIP Investment Grade Bond Portfolio -                                                              
      Initial Class                                     49,509  16.34    808,916    3.82%     0.90%      4.26%  
6   Fidelity VIP Investment Grade Bond Portfolio -                                                              
      Initial Class                                     22,767  12.28    279,633    3.82%     0.75%      4.42%  
1   Fidelity VIP Money Market Portfolio - Initial                                                               
      Class                                             94,324  13.43  1,266,366    1.01%     0.90%      0.09%  
6   Fidelity VIP Money Market Portfolio - Initial                                                               
      Class                                            149,723  10.45  1,565,248    1.01%     0.75%      0.24%  
1   Fidelity VIP Overseas Portfolio - Initial Class     37,864  13.84    523,940    0.76%     0.90%     42.09%  
6   Franklin Templeton - Templeton Global Asset                                                                 
      Allocation Fund - Class 1                         14,529  11.21    162,887    2.58%     0.75%     31.32%  
6   JPMorgan Bond Portfolio                             13,058  11.76    153,532    2.94%     0.75%      2.94%  
6   JPMorgan U.S. Large Cap Core Equity Portfolio        7,864   8.11     63,757    0.68%     0.75%     27.18%  
6   Neuberger Berman AMT Limited Maturity Bond                                                                  
      Portfolio - Class I                                3,923  11.43     44,847    4.41%     0.75%      1.66%  
6   Neuberger Berman AMT Partners Portfolio - Class I   53,244   9.74    518,738    0.00%     0.75%     34.08%  
6   Oppenheimer Global Securities Fund/VA -                                                                     
      Non-Service Shares                                42,692   8.22    351,112    0.63%     0.75%     41.95%  
6   Oppenheimer Main Street Fund/VA - Non-Service                                                               
      Shares                                            59,243   8.81    521,876    0.89%     0.75%     25.77%  
4   SunAmerica - Aggressive Growth Portfolio - Class 1 153,030   8.69  1,329,798    0.00%     0.75%     27.50%  
6   SunAmerica - Aggressive Growth Portfolio - Class 1  43,390   6.64    287,972    0.00%     0.75%     27.50%  
4   SunAmerica - SunAmerica Balanced Portfolio -                                                                
      Class 1                                           94,528   8.61    813,988    2.32%     0.75%     14.26%  
6   SunAmerica - SunAmerica Balanced Portfolio -                                                                
      Class 1                                           45,037   8.22    370,275    2.32%     0.75%     14.26%  
4   SunAmerica Alliance Growth Portfolio               394,036   7.07  2,784,661    0.26%     0.75%     24.87%  
6   SunAmerica Alliance Growth Portfolio                55,600   6.99    388,379    0.26%     0.75%     24.87%  
4   SunAmerica Asset Allocation Portfolio                   --  10.79         --    8.28%     0.75%     17.31%  
4   SunAmerica Blue Chip Growth Portfolio               13,764   5.76     79,253    0.17%     0.75%     25.07%  
4   SunAmerica Cash Management Portfolio               299,916  11.13  3,336,603    2.05%     0.75%     -0.08%  
4   SunAmerica Corporate Bond Portfolio                 29,392  13.27    390,152    6.51%     0.75%     11.10%  
4   SunAmerica Davis Venture Value Portfolio           158,037  16.25  2,567,930    0.85%     0.75%     32.12%  
4   SunAmerica "Dogs" of Wall Street Portfolio          20,400  10.75    219,269    2.68%     0.75%     19.13%  
4   SunAmerica Emerging Markets Portfolio               64,917  11.32    735,010    0.00%     0.75%     51.45%  
4   SunAmerica Federated American Leaders Portfolio     35,280   9.59    338,441    1.47%     0.75%     26.63%  
4   SunAmerica Global Bond Portfolio                    10,538  12.24    128,988    0.00%     0.75%      2.78%  
6   SunAmerica Global Bond Portfolio                    40,756  11.21    456,764    0.00%     0.75%      2.78%  
4   SunAmerica Global Equities Portfolio                67,528   7.53    508,530    0.27%     0.75%     25.58%  
4   SunAmerica Goldman Sachs Research Portfolio          3,450   6.02     20,755    0.00%     0.75%     24.29%  
4   SunAmerica Growth Opportunities Portfolio           22,067   4.35     96,016    0.00%     0.75%     33.96%  
4   SunAmerica Growth-Income Portfolio                 187,230   8.66  1,621,398    1.00%     0.75%     24.70%  
6   SunAmerica Growth-Income Portfolio                  92,916   8.03    746,359    1.00%     0.75%     24.70%  
4   SunAmerica High-Yield Bond Portfolio                15,887  10.55    167,576    6.50%     0.75%     30.58%  
4   SunAmerica International Diversified Equities                                                               
      Portfolio                                         67,873   6.83    463,312    4.52%     0.75%     30.82%  
4   SunAmerica International Growth and Income                                                                  
      Portfolio                                         75,711   9.06    685,867    1.41%     0.75%     35.90%  
6   SunAmerica Marsico Growth Portfolio                 50,625   9.77    494,676    0.00%     0.75%     29.25%  
4   SunAmerica MFS Massachusetts Investors Trust                                                                
      Portfolio                                         72,796   8.13    592,074    0.88%     0.75%     21.57%  
4   SunAmerica MFS Mid-Cap Growth Portfolio            151,606   8.87  1,344,211    0.00%     0.75%     36.21%  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights - Continued                                       

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                                           Investment Expense Total  
                                                                         Unit                Income    Ratio  Return 
Sub-accounts                                                      Units  Value  Net Assets Ratio (a)    (b)    (c)   
--------------------------------------------------------------   ------- ------ ---------- ---------- ------- ------ 
                                                                                                                     
2003 - Continued                                                                                                     
6   SunAmerica MFS Mid-Cap Growth Portfolio                      131,131 $ 5.37 $  704,536    0.00%    0.75%   36.21%
4   SunAmerica MFS Total Return Portfolio                         74,371  12.60    937,397    4.35%    0.75%   15.99%
4   SunAmerica Putnam Growth: Voyager Portfolio                  146,544   6.84  1,002,816    0.26%    0.75%   23.09%
4   SunAmerica Real Estate Portfolio                              30,389  16.80    510,646    2.85%    0.75%   36.96%
4   SunAmerica Technology Portfolio                               47,601   2.58    122,846    0.00%    0.75%   49.63%
4   SunAmerica Telecom Utility Portfolio                          13,863   6.83     94,740    6.31%    0.75%   17.88%
4   SunAmerica Worldwide High Income Portfolio                     5,139  12.61     64,797    9.15%    0.75%   25.00%
5   UIF Core Plus Fixed Income Portfolio - Class I                20,564  10.73    220,579    0.04%    0.65%    3.96%
5   UIF Money Market Portfolio - Class I                          17,732  10.01    177,428    0.73%    0.65%   -0.10%
5   UIF U.S. Mid Cap Value Portfolio - Class I                    20,841  13.88    289,179    0.00%    0.65%   40.59%
1   Van Eck Worldwide Emerging Markets Fund                       22,873   9.93    227,068    0.10%    0.90%   52.81%
1   Van Eck Worldwide Hard Assets Fund                             6,791  12.65     85,905    0.37%    0.90%   43.78%

2002                                                                                                                 
1   AIM V.I. Capital Appreciation Fund - Series I                 42,363   8.21    347,598    0.00%    0.90%  -25.03%
6   AIM V.I. Capital Appreciation Fund - Series I                 18,966   5.59    105,993    0.00%    0.75%  -24.92%
1   AIM V.I. International Growth Fund - Series I                 55,998   8.21    459,940    0.51%    0.90%  -16.43%
6   AIM V.I. International Growth Fund - Series I                 18,474   6.51    120,286    0.69%    0.75%  -16.30%
1   AllianceBernstein Global Bond Portfolio - Class A              3,055  11.92     36,408    0.87%    0.90%   15.87%
2   AllianceBernstein Global Dollar Government Portfolio -                                                           
      Class A                                                         18  13.47        247    7.39%    0.90%   15.10%
3   AllianceBernstein Growth and Income Portfolio - Class A      120,637  19.66  2,371,167    0.63%    0.90%  -22.75%
5   AllianceBernstein Growth and Income Portfolio - Class A       16,792  10.00    167,974    0.77%    0.65%    3.80%
3   AllianceBernstein Growth Portfolio - Class A                 167,575  13.20  2,211,486    0.00%    0.90%  -28.72%
2   AllianceBernstein Money Market Portfolio - Class A            35,714  11.82    421,991    1.16%    0.90%    0.20%
1   AllianceBernstein Premier Growth Portfolio - Class A          50,347   9.21    463,621    0.00%    0.90%  -31.27%
2   AllianceBernstein Premier Growth Portfolio - Class A           1,196   9.45     11,295    0.00%    0.90%  -31.27%
5   AllianceBernstein Premier Growth Portfolio - Class A           7,738   9.72     75,186    0.00%    0.65%   -0.73%
6   AllianceBernstein Premier Growth Portfolio - Class A          44,369   5.39    239,346    0.00%    0.75%  -31.16%
2   AllianceBernstein Real Estate Investment Portfolio -                                                             
      Class A                                                        248  10.74      2,664    2.60%    0.90%    1.68%
6   AllianceBernstein Real Estate Investment Portfolio -                                                             
      Class A                                                     21,436  11.14    238,728    2.61%    0.75%    1.83%
1   AllianceBernstein Small Cap Growth Portfolio - Class A        40,653   7.16    290,938    0.00%    0.90%  -32.38%
2   AllianceBernstein Small Cap Growth Portfolio - Class A           773   5.78      4,465    0.00%    0.90%  -32.38%
3   AllianceBernstein Technology Portfolio - Class A             105,081  10.17  1,069,111    0.00%    0.90%  -42.23%
6   AllianceBernstein Technology Portfolio - Class A              37,810   4.10    155,134    0.00%    0.75%  -42.14%
1   AllianceBernstein Total Return Portfolio - Class A            29,733   9.37    278,610    1.98%    0.90%  -11.39%
2   AllianceBernstein Total Return Portfolio - Class A               461  12.88      5,929    1.92%    0.90%  -11.39%
2   AllianceBernstein U.S. Government/High Grade Securities                                                          
      Portfolio - Class A                                             61  13.52        830    3.03%    0.90%    6.82%
2   AllianceBernstein Utility Income Portfolio - Class A              50  11.21        557    1.73%    0.90%  -22.82%
6   AllianceBernstein Utility Income Portfolio - Class A          20,861   6.14    128,000    1.95%    0.75%  -22.70%
6   American Century VP Capital Appreciation Fund - Class I        8,944   5.70     51,015    0.00%    0.75%  -21.79%
6   American Century VP Income & Growth Fund - Class I            15,316   7.12    109,006    1.04%    0.75%  -19.97%
5   American Century VP International Fund - Class I               4,414   9.55     42,164    0.36%    0.65%    3.64%
4   Anchor Series Trust Capital Appreciation Portfolio - Class 1 183,500   8.59  1,577,118    0.00%    0.75%  -23.23%
6   Anchor Series Trust Capital Appreciation Portfolio - Class 1  71,786   6.35    455,907    0.00%    0.75%  -23.23%
4   Anchor Series Trust Government and Quality Bond Portfolio -                                                      
      Class 1                                                     67,792  12.83    869,506    3.44%    0.75%    8.50%
4   Anchor Series Trust Growth Portfolio - Class 1               112,727   7.66    863,689    0.50%    0.75%  -22.75%
6   Anchor Series Trust Growth Portfolio - Class 1                35,054   6.57    230,132    0.00%    0.75%  -22.75%
4   Anchor Series Trust Natural Resources Portfolio - Class 1      8,900  13.80    122,810    2.12%    0.75%    7.54%
6   Anchor Series Trust Natural Resources Portfolio - Class 1     14,208  10.93    155,313    0.00%    0.75%    7.54%

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights - Continued                                       

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                                 Investment                     
                                                               Unit                Income    Expense    Total   
Sub-accounts                                            Units  Value  Net Assets Ratio (a)  Ratio (b) Return (c)
----------------------------------------------------   ------- ------ ---------- ---------- --------- ----------
                                                                                                                
2002 - Continued                                                                                                
1   Dreyfus Stock Index Fund, Inc. - Initial shares    210,792 $15.91 $3,352,978    1.32%     0.90%     -23.06% 
6   Dreyfus Stock Index Fund, Inc. - Initial shares    237,120   6.58  1,560,582    1.91%     0.75%     -22.94% 
1   Dreyfus VIF Small Company Stock Portfolio -                                                                 
      Initial shares                                    41,902   8.84    370,446    0.24%     0.90%     -20.43% 
6   Dreyfus VIF Small Company Stock Portfolio -                                                                 
      Initial shares                                    43,146   7.90    340,758    0.26%     0.75%     -20.31% 
1   Fidelity VIP Asset Manager Portfolio - Initial                                                              
      Class                                             81,090  15.33  1,243,323    3.47%     0.90%      -9.55% 
6   Fidelity VIP Asset Manager Portfolio - Initial                                                              
      Class                                             19,448   8.57    166,675    4.72%     0.75%      -9.41% 
1   Fidelity VIP Contrafund Portfolio - Initial Class   67,615  11.53    779,917    0.69%     0.90%     -10.16% 
5   Fidelity VIP Contrafund Portfolio - Initial Class   10,378   9.97    103,446    0.34%     0.65%      -3.25% 
6   Fidelity VIP Contrafund Portfolio - Initial Class   45,664   7.94    362,761    1.03%     0.75%     -10.03% 
1   Fidelity VIP Growth Portfolio - Initial Class      209,585  14.28  2,992,695    0.24%     0.90%     -30.73% 
6   Fidelity VIP Growth Portfolio - Initial Class       44,693   5.62    251,353    0.35%     0.75%     -30.63% 
1   Fidelity VIP High Income Portfolio - Initial Class  26,449   9.34    246,994    9.51%     0.90%       2.52% 
6   Fidelity VIP High Income Portfolio - Initial Class  14,672   8.90    130,546   12.54%     0.75%       2.67% 
5   Fidelity VIP Index 500 Portfolio - Initial Class     3,634   9.99     36,300    0.52%     0.65%      -4.29% 
1   Fidelity VIP Investment Grade Bond Portfolio -                                                              
      Initial Class                                     46,297  15.67    725,516    3.13%     0.90%       9.35% 
6   Fidelity VIP Investment Grade Bond Portfolio -                                                              
      Initial Class                                     23,244  11.76    273,408    3.81%     0.75%       9.52% 
1   Fidelity VIP Money Market Portfolio - Initial                                                               
      Class                                            102,652  13.41  1,376,877    2.13%     0.90%       0.78% 
6   Fidelity VIP Money Market Portfolio - Initial                                                               
      Class                                            173,706  10.43  1,811,546    1.58%     0.75%       0.93% 
1   Fidelity VIP Overseas Portfolio - Initial Class     35,759   9.74    348,253    0.83%     0.90%     -20.99% 
6   Franklin Templeton - Templeton Global Asset                                                                 
      Allocation Fund - Class 1                         12,885   8.54    109,999    1.61%     0.75%      -4.88% 
6   JPMorgan Bond Portfolio                             11,113  11.42    126,934    0.80%     0.75%       7.99% 
6   JPMorgan U.S. Large Cap Core Equity Portfolio        6,370   6.37     40,604    0.04%     0.75%     -25.19% 
6   Neuberger Berman AMT Limited Maturity Bond                                                                  
      Portfolio - Class I                                4,088  11.25     45,970    4.95%     0.75%       4.55% 
6   Neuberger Berman AMT Partners Portfolio - Class I   45,324   7.27    329,344    0.19%     0.75%     -24.71% 
6   Oppenheimer Global Securities Fund/VA -                                                                     
      Non-Service Shares                                35,423   5.79    205,232    0.42%     0.75%     -22.72% 
6   Oppenheimer Main Street Fund/VA - Non-Service                                                               
      Shares                                            54,756   7.00    383,505    0.75%     0.75%     -19.40% 
4   SunAmerica - Aggressive Growth Portfolio - Class 1 144,414   6.82    984,262    0.32%     0.75%     -25.25% 
6   SunAmerica - Aggressive Growth Portfolio - Class 1  36,696   5.21    191,018    0.36%     0.75%     -25.25% 
4   SunAmerica - SunAmerica Balanced Portfolio -                                                                
      Class 1                                           96,186   7.54    724,921    2.65%     0.75%     -15.83% 
6   SunAmerica - SunAmerica Balanced Portfolio -                                                                
      Class 1                                           41,903   7.20    301,525    3.33%     0.75%     -15.83% 
4   SunAmerica Alliance Growth Portfolio               380,385   5.66  2,152,727    0.27%     0.75%     -31.80% 
6   SunAmerica Alliance Growth Portfolio                53,050   5.59    296,754    0.35%     0.75%     -31.80% 
4   SunAmerica Asset Allocation Portfolio               26,488   9.20    243,565    3.73%     0.75%      -8.21% 
4   SunAmerica Blue Chip Growth Portfolio               10,855   4.60     49,973    0.42%     0.75%     -29.82% 
4   SunAmerica Cash Management Portfolio               420,526  11.13  4,682,060    3.04%     0.75%       0.63% 
4   SunAmerica Corporate Bond Portfolio                 24,008  11.95    286,825    8.41%     0.75%       6.62% 
4   SunAmerica Davis Venture Value Portfolio           150,193  12.30  1,847,103    0.67%     0.75%     -17.38% 
4   SunAmerica "Dogs" of Wall Street Portfolio          18,944   9.02    170,928    2.02%     0.75%      -7.25% 
4   SunAmerica Emerging Markets Portfolio               63,372   7.48    473,759    0.29%     0.75%      -7.79% 
4   SunAmerica Federated American Leaders Portfolio     41,560   7.58    314,853    1.10%     0.75%     -20.37% 
4   SunAmerica Global Bond Portfolio                     8,497  11.91    101,188    1.84%     0.75%       5.13% 
6   SunAmerica Global Bond Portfolio                    41,605  10.90    453,655    1.84%     0.75%       5.13% 
4   SunAmerica Global Equities Portfolio                64,812   6.00    388,640    0.00%     0.75%     -27.36% 
4   SunAmerica Goldman Sachs Research Portfolio          3,262   4.84     15,792    0.00%     0.75%     -28.58% 
4   SunAmerica Growth Opportunities Portfolio           10,666   3.25     34,643    0.00%     0.75%     -40.26% 
4   SunAmerica Growth-Income Portfolio                 172,246   6.94  1,196,151    0.88%     0.75%     -21.74% 
6   SunAmerica Growth-Income Portfolio                  78,957   6.44    508,595    1.12%     0.75%     -21.74% 
4   SunAmerica High-Yield Bond Portfolio                15,217   8.08    122,913   17.32%     0.75%      -6.55% 
4   SunAmerica International Diversified Equities                                                               
      Portfolio                                         63,224   5.22    329,911    0.00%     0.75%     -28.98% 

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights - Continued                                       

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                                 Investment                     
                                                               Unit                Income    Expense    Total   
Sub-accounts                                            Units  Value  Net Assets Ratio (a)  Ratio (b) Return (c)
----------------------------------------------------   ------- ------ ---------- ---------- --------- ----------
                                                                                                                
2002 - Continued                                                                                                
4   SunAmerica International Growth and Income                                                                  
      Portfolio                                         70,189 $ 6.67 $  467,872    0.57%     0.75%     -21.49% 
6   SunAmerica Marsico Growth Portfolio                 46,470   7.56    351,326    0.01%     0.75%     -11.91% 
4   SunAmerica MFS Massachusetts Investors Trust                                                                
      Portfolio                                         69,772   6.69    466,789    0.88%     0.75%     -21.61% 
4   SunAmerica MFS Mid-Cap Growth Portfolio            127,125   6.51    827,513    0.00%     0.75%     -47.56% 
6   SunAmerica MFS Mid-Cap Growth Portfolio            105,224   3.94    415,054    0.00%     0.75%     -47.56% 
4   SunAmerica MFS Total Return Portfolio               69,206  10.87    752,048    2.09%     0.75%      -5.55% 
4   SunAmerica Putnam Growth: Voyager Portfolio        144,219   5.56    801,766    0.18%     0.75%     -26.99% 
4   SunAmerica Real Estate Portfolio                    24,254  12.27    297,563    3.13%     0.75%       5.43% 
4   SunAmerica Technology Portfolio                     19,432   1.72     33,516    0.00%     0.75%     -49.73% 
4   SunAmerica Telecom Utility Portfolio                12,767   5.80     74,017    9.89%     0.75%     -24.31% 
4   SunAmerica Worldwide High Income Portfolio           4,439  10.09     44,775   14.06%     0.75%      -1.14% 
5   UIF Core Plus Fixed Income Portfolio - Class I       7,002  10.32     72,244    5.81%     0.65%      -2.26% 
5   UIF Money Market Portfolio - Class I                 7,303  10.02     73,142    0.64%     0.65%      -2.10% 
5   UIF U.S. Mid Cap Value Portfolio - Class I          10,527   9.87    103,895    0.00%     0.65%       3.28% 
1   Van Eck Worldwide Emerging Markets Fund             21,113   6.50    137,157    0.18%     0.90%      -3.77% 
1   Van Eck Worldwide Hard Assets Fund                   6,315   8.80     55,560    0.84%     0.90%      -3.70% 

2001                                                                                                            
1   AIM V.I. Capital Appreciation Fund - Series I       45,508  10.95    498,096    0.00%     0.90%     -23.97% 
6   AIM V.I. Capital Appreciation Fund - Series I       11,570   7.44     86,121    0.00%     0.75%     -25.56% 
1   AIM V.I. International Growth Fund - Series I       73,079   9.83    718,240    0.29%     0.90%     -24.22% 
6   AIM V.I. International Growth Fund - Series I       13,815   7.78    107,477    0.34%     0.75%     -22.21% 
1   AllianceBernstein Global Bond Portfolio - Class A    1,961  10.28     20,171    0.00%     0.90%      -1.17% 
2   AllianceBernstein Global Dollar Government                                                                  
      Portfolio - Class A                                   20  11.71        229   10.10%     0.90%       8.38% 
3   AllianceBernstein Growth and Income Portfolio -                                                             
      Class A                                          119,052  25.44  3,029,173    0.62%     0.90%      -0.55% 
5   AllianceBernstein Growth and Income Portfolio -                                                             
      Class A                                            4,331   9.64     41,738    0.00%     0.50%      -3.63% 
3   AllianceBernstein Growth Portfolio - Class A       169,713  18.51  3,142,197    0.27%     0.90%     -24.16% 
2   AllianceBernstein Money Market Portfolio - Class A  54,096  11.79    637,942    1.47%     0.90%       2.64% 
1   AllianceBernstein Premier Growth Portfolio -                                                                
      Class A                                           53,078  13.40    711,106    0.00%     0.90%     -17.95% 
2   AllianceBernstein Premier Growth Portfolio -                                                                
      Class A                                            1,088  13.74     14,954    0.00%     0.90%     -17.95% 
5   AllianceBernstein Premier Growth Portfolio -                                                                
      Class A                                            2,045   9.79     20,022    0.00%     0.50%      -2.11% 
6   AllianceBernstein Premier Growth Portfolio -                                                                
      Class A                                           29,274   7.84    229,408    0.00%     0.75%     -21.63% 
2   AllianceBernstein Real Estate Investment                                                                    
      Portfolio - Class A                                  284  10.56      2,996    3.58%     0.90%       9.80% 
6   AllianceBernstein Real Estate Investment                                                                    
      Portfolio - Class A                               13,369  10.94    146,209    0.55%     0.75%       9.36% 
1   AllianceBernstein Small Cap Growth Portfolio -                                                              
      Class A                                           39,071  10.58    413,520    0.00%     0.90%     -13.54% 
2   AllianceBernstein Small Cap Growth Portfolio -                                                              
      Class A                                              548   8.54      4,685    0.00%     0.90%     -13.54% 
3   AllianceBernstein Technology Portfolio - Class A   104,518  17.61  1,840,698    0.00%     0.90%     -25.91% 
6   AllianceBernstein Technology Portfolio - Class A    22,199   7.09    157,422    0.00%     0.75%     -29.09% 
1   AllianceBernstein Total Return Portfolio - Class A  28,132  10.57    297,477    3.09%     0.90%       1.35% 
2   AllianceBernstein Total Return Portfolio - Class A     518  14.53      7,522    2.49%     0.90%       1.35% 
2   AllianceBernstein U.S. Government/High Grade                                                                
      Securities Portfolio - Class A                        68  12.65        865    4.80%     0.90%       6.91% 
2   AllianceBernstein Utility Income Portfolio -                                                                
      Class A                                               55  14.52        804    3.79%     0.90%     -23.20% 
6   AllianceBernstein Utility Income Portfolio -                                                                
      Class A                                           15,301   7.94    121,457    0.59%     0.75%     -20.62% 
6   American Century VP Capital Appreciation Fund -                                                             
      Class I                                            5,587   7.29     40,741    0.00%     0.75%     -27.07% 
6   American Century VP Income & Growth Fund - Class I  10,379   8.89     92,305    0.00%     0.75%     -11.07% 
5   American Century VP International Fund - Class I     1,103   9.22     10,169    0.00%     0.50%      -7.84% 
4   Anchor Series Trust Capital Appreciation                                                                    
      Portfolio - Class 1                              169,943  11.20  1,902,609    0.23%     0.75%     -15.29% 
6   Anchor Series Trust Capital Appreciation                                                                    
      Portfolio - Class 1                               39,906   8.27    330,137    0.09%     0.75%     -17.27% 
4   Anchor Series Trust Government and Quality Bond                                                             
      Portfolio - Class 1                               43,732  11.82    516,971    2.76%     0.75%       6.12% 

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights - Continued                                       

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                                 Investment                     
                                                               Unit                Income    Expense    Total   
Sub-accounts                                            Units  Value  Net Assets Ratio (a)  Ratio (b) Return (c)
----------------------------------------------------   ------- ------ ---------- ---------- --------- ----------
                                                                                                                
2001 - Continued                                                                                                
4   Anchor Series Trust Growth Portfolio - Class 1     119,312 $ 9.92 $1,183,307    0.15%     0.75%     -13.74% 
6   Anchor Series Trust Growth Portfolio - Class 1      13,710   8.50    116,513    0.03%     0.75%     -15.02% 
4   Anchor Series Trust Natural Resources Portfolio -                                                           
      Class 1                                            7,281  12.83     93,430    0.40%     0.75%      -1.80% 
6   Anchor Series Trust Natural Resources Portfolio -                                                           
      Class 1                                           10,700  10.16    108,756    0.20%     0.75%       1.64% 
1   Dreyfus Stock Index Fund, Inc. - Initial shares    217,502  20.67  4,496,569    1.08%     0.90%     -12.97% 
6   Dreyfus Stock Index Fund, Inc. - Initial shares     73,194   8.54    625,150    0.68%     0.75%     -14.59% 
1   Dreyfus VIF Small Company Stock Portfolio -                                                                 
      Initial shares                                    46,592  11.11    517,676    0.07%     0.90%      -2.42% 
6   Dreyfus VIF Small Company Stock Portfolio -                                                                 
      Initial shares                                    27,639   9.91    273,921    0.00%     0.75%      -0.89% 
1   Fidelity VIP Asset Manager Portfolio - Initial                                                              
      Class                                             70,392  16.95  1,193,200    4.09%     0.90%      -4.95% 
6   Fidelity VIP Asset Manager Portfolio - Initial                                                              
      Class                                              7,795   9.46     73,745    0.00%     0.75%      -5.39% 
1   Fidelity VIP Contrafund Portfolio - Initial Class   77,124  12.84    990,223    0.76%     0.90%     -13.04% 
5   Fidelity VIP Contrafund Portfolio - Initial Class    2,300  10.30     23,694    0.00%     0.50%       3.03% 
6   Fidelity VIP Contrafund Portfolio - Initial Class   21,026   8.83    185,651    0.00%     0.75%     -11.70% 
1   Fidelity VIP Growth Portfolio - Initial Class      224,024  20.61  4,618,140    0.08%     0.90%     -18.39% 
6   Fidelity VIP Growth Portfolio - Initial Class       22,798   8.11    184,823    0.00%     0.75%     -18.93% 
1   Fidelity VIP High Income Portfolio - Initial Class  27,434   9.11    249,901   13.68%     0.90%     -12.53% 
6   Fidelity VIP High Income Portfolio - Initial Class   7,932   8.67     68,739    0.00%     0.75%     -13.34% 
5   Fidelity VIP Index 500 Portfolio - Initial Class       863  10.44      9,012    0.00%     0.50%       4.38% 
1   Fidelity VIP Investment Grade Bond Portfolio -                                                              
      Initial Class                                     33,564  14.33    480,976    5.11%     0.90%       7.49% 
6   Fidelity VIP Investment Grade Bond Portfolio -                                                              
      Initial Class                                      9,272  10.74     99,582    0.00%     0.75%       7.40% 
1   Fidelity VIP Money Market Portfolio - Initial                                                               
      Class                                             97,805  13.31  1,301,678    4.13%     0.90%       3.25% 
6   Fidelity VIP Money Market Portfolio - Initial                                                               
      Class                                            284,638  10.33  2,940,983    1.28%     0.75%       3.32% 
1   Fidelity VIP Overseas Portfolio - Initial Class     35,643  12.33    439,371    5.30%     0.90%     -21.88% 
6   Franklin Templeton - Templeton Global Asset                                                                 
      Allocation Fund - Class 1                          6,002   8.98     53,870    0.17%     0.75%     -10.25% 
6   JPMorgan Bond Portfolio                              5,512  10.58     58,297    4.09%     0.75%       5.77% 
6   JPMorgan U.S. Large Cap Core Equity Portfolio        4,467   8.52     38,064    0.41%     0.75%     -14.79% 
6   Neuberger Berman AMT Limited Maturity Bond                                                                  
      Portfolio - Class I                                2,146  10.76     23,084    0.00%     0.75%       7.57% 
6   Neuberger Berman AMT Partners Portfolio - Class I    8,130   9.65     78,464    0.00%     0.75%      -3.49% 
6   Oppenheimer Global Securities Fund/VA -                                                                     
      Non-Service Shares                                16,994   7.50    127,402    0.00%     0.75%     -25.03% 
6   Oppenheimer Main Street Fund/VA - Non-Service                                                               
      Shares                                            35,338   8.69    307,098    0.00%     0.75%     -13.10% 
4   SunAmerica - Aggressive Growth Portfolio - Class 1 124,945   9.12  1,139,165    0.00%     0.75%     -32.22% 
6   SunAmerica - Aggressive Growth Portfolio - Class 1  24,691   6.96    171,928   14.32%     0.75%     -30.37% 
4   SunAmerica - SunAmerica Balanced Portfolio -                                                                
      Class 1                                           82,278   8.95    736,689    4.50%     0.75%     -13.79% 
6   SunAmerica - SunAmerica Balanced Portfolio -                                                                
      Class 1                                           21,330   8.55    182,338    2.67%     0.75%     -14.51% 
4   SunAmerica Alliance Growth Portfolio               373,562   8.30  3,099,689    0.10%     0.75%     -14.65% 
6   SunAmerica Alliance Growth Portfolio                31,498   8.20    258,337    0.05%     0.75%     -17.98% 
4   SunAmerica Asset Allocation Portfolio               20,998  10.02    210,362    4.29%     0.75%      -3.58% 
4   SunAmerica Blue Chip Growth Portfolio                3,388   6.56     22,224    0.10%     0.75%     -21.46% 
4   SunAmerica Cash Management Portfolio               518,519  11.06  5,736,906    4.36%     0.75%       2.89% 
4   SunAmerica Corporate Bond Portfolio                 11,691  11.21    131,000    4.26%     0.75%       6.78% 
4   SunAmerica Davis Venture Value Portfolio           121,623  14.89  1,810,387    4.54%     0.75%     -11.99% 
4   SunAmerica "Dogs" of Wall Street Portfolio          13,726   9.73    133,521    1.55%     0.75%       7.10% 
4   SunAmerica Emerging Markets Portfolio               60,607   8.11    491,365    0.49%     0.75%      -2.50% 
4   SunAmerica Federated American Leaders Portfolio     36,679   9.51    348,955    0.69%     0.75%      -3.07% 
4   SunAmerica Global Bond Portfolio                     7,345  11.33     83,209   11.15%     0.75%       4.27% 
6   SunAmerica Global Bond Portfolio                     9,907  10.37    102,745    8.16%     0.75%       3.71% 
4   SunAmerica Global Equities Portfolio                53,108   8.26    438,432    0.33%     0.75%     -18.73% 
4   SunAmerica Goldman Sachs Research Portfolio          1,312   6.78      8,891    0.00%     0.75%     -25.77% 
4   SunAmerica Growth Opportunities Portfolio            3,567   5.44     19,393    0.01%     0.75%     -33.68% 
4   SunAmerica Growth-Income Portfolio                 172,124   8.87  1,527,300    0.74%     0.75%     -16.54% 

VA II - 50  

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AIG LIFE INSURANCE COMPANY                                                      
VARIABLE ACCOUNT II                                                             
NOTES TO FINANCIAL STATEMENTS - CONTINUED                                       

Note G - Financial Highlights - Continued                                       

A summary of units outstanding, unit values, and net assets for the variable    
life policies and the investment income ratios, expense ratios (excluding       
expenses of the underlying Sub-accounts) and total returns for the years ended  
December 31, 2005, 2004, 2003, 2002 and 2001, are as follows:                   

                                                        [Enlarge/Download Table]

                                                                               Investment                     
                                                             Unit                Income    Expense    Total   
Sub-accounts                                          Units  Value  Net Assets Ratio (a)  Ratio (b) Return (c)
---------------------------------------------------  ------- ------ ---------- ---------- --------- ----------
                                                                                                              
2001 - Continued                                                                                              
6   SunAmerica Growth-Income Portfolio                48,554 $ 8.23 $  399,624     0.51%    0.75%     -17.70% 
4   SunAmerica High-Yield Bond Portfolio               9,998   8.64     86,419     7.96%    0.75%      -5.02% 
4   SunAmerica International Diversified Equities                                                             
      Portfolio                                       44,304   7.35    325,515     0.31%    0.75%     -24.59% 
4   SunAmerica International Growth and Income                                                                
      Portfolio                                       64,902   8.49    551,034     2.06%    0.75%     -22.82% 
6   SunAmerica Marsico Growth Portfolio               28,703   8.58    246,339     0.18%    0.75%     -14.18% 
4   SunAmerica MFS Massachusetts Investors Trust                                                              
      Portfolio                                       60,736   8.53    518,334     5.83%    0.75%     -16.67% 
4   SunAmerica MFS Mid-Cap Growth Portfolio           99,473  12.41  1,234,757     0.00%    0.75%     -23.20% 
6   SunAmerica MFS Mid-Cap Growth Portfolio           63,725   7.52    479,330     0.00%    0.75%     -24.78% 
4   SunAmerica MFS Total Return Portfolio             60,314  11.51    693,947     5.16%    0.75%      -0.24% 
4   SunAmerica Putnam Growth: Voyager Portfolio      122,707   7.61    934,335     0.00%    0.75%     -24.74% 
4   SunAmerica Real Estate Portfolio                  11,097  11.64    129,134     4.34%    0.75%       5.20% 
4   SunAmerica Technology Portfolio                    7,471   3.43     25,635     0.00%    0.75%     -48.02% 
4   SunAmerica Telecom Utility Portfolio              11,329   7.66     86,776     2.59%    0.75%     -14.41% 
4   SunAmerica Worldwide High Income Portfolio         3,939  10.20     40,195    15.10%    0.75%      -3.93% 
5   UIF Core Plus Fixed Income Portfolio - Class I     1,362  10.56     14,381     4.00%    0.50%       5.56% 
5   UIF Money Market Portfolio - Class I                 280  10.23      2,870   291.10%    0.50%       2.31% 
5   UIF U.S. Mid Cap Value Portfolio - Class I         2,929   9.56     27,988     0.00%    0.50%      -4.44% 
1   Van Eck Worldwide Emerging Markets Fund           18,859   6.75    127,320     0.00%    0.90%      -2.70% 
1   Van Eck Worldwide Hard Assets Fund                 5,954   9.14     54,402     1.15%    0.90%     -11.25% 

Footnotes                                                                       
1  Variable Universal Life Policy product.                                      
2  Gallery Life product.                                                        
3  Variable Universal Life Policy product or Gallery Life product.              
4  Polaris product or Polaris Survivorship product.                             
5  Executive Advantage product.                                                 
6  Gemstone Life product.                                                       

(a) These amounts represent the dividends, excluding capital gain distributions 
 from mutual funds, received by the Sub-account from the underlying mutual
 fund, net of management fees assessed by the fund manager, divided by the
  average net assets. These ratios exclude those expenses, such as mortality
and expense risk charges, that result in direct reduction in the unit   
  value. The recognition of investment income by the Sub-account is affected
by the timing of the declaration of dividends by the underlying fund in 
which the Sub-accounts invest.                                          

(b) These amounts represent the annualized policy expenses of the Account,      
 consisting primarily of mortality and expense risk charges, for each year
   indicated. These ratios include only those expenses that result in a direct
reduction to unit values. Charges made directly to policy owner accounts
through the redemption of units and expenses of the underlying fund have
been excluded.                                                          

(c) These amounts represent the total return for the years indicated, including 
  changes in the value of the underlying Sub-account, and reflect deductions
for those expenses that result in a direct reduction to unit values. The
   total return does not include policy charges deducted directly from account
   values. For the years ended December 31, 2002 and 2001, no total return was
  calculated if the Sub-account became an available investment option during
the year. For the years ended December 31, 2005, 2004 and 2003, a total 
 return was calculated using the initial unit value for the Sub-account if
 the Sub-account became an available investment option during the year and
the underlying Fund was not available at the beginning of the year.     

*  Fund name changes                                                            
2004                                                                      

.  Effective May 1, 2004, AllianceBernstein Quasar Portfolio--Class A     
    changed its name to AllianceBernstein Small Cap Growth Portfolio - Class
A.                                                                  

2005                                                                      
   .  Effective May 1, 2005, Merrill Lynch funds were rebranded as Mercury funds
  .  Effective May 2, 2005, AllianceBernstein Premier Growth Portfolio - Class
A changed its name to AllianceBernstein Large Cap Growth Portfolio -
Class A.                                                            
.  Effective May 2, 2005, AllianceBernstein Technology Portfolio - Class A
     changed its name to AllianceBernstein Global Technology Portfolio - Class
A.                                                                  

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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, 2005, 2004 AND 2003  

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[LOGO]                                                                          

                                                    PricewaterhouseCoopers LLP
                                    Suite 2900
                                        1201 Louisiana
                                                Houston, TX 77002-5678
                                                  Telephone (713) 356-4000

Report of Independent Registered Public Accounting Firm 

To the Shareholders and Board of Directors                                      
AIG Life Insurance Company:                                                     

In our opinion, the accompanying balance sheets as of December 31, 2005 and     
2004 and the related statements of income, shareholders' equity, cash flows and 
comprehensive income present fairly, in all material respects, the financial    
position of AIG Life Insurance Company (an indirect, wholly-owned subsidiary of 
American International Group, Inc.) at December 31, 2005 and 2004, and the      
results of its operations and its cash flows for each of the three years in the 
period ended December 31, 2005, in conformity with accounting principles        
generally accepted in the United States of America. 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 the standards of    
the Public Company Accounting Oversight Board (United States). Those standards  
require that we plan and perform the audit to obtain reasonable assurance about 
whether the financial statements are free of material misstatement. An audit    
includes examining, on a test basis, evidence supporting the amounts and        
disclosures in the financial statements, 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 our opinion.                                               

As discussed in Note 2 to the financial statements, the Company changed its     
method of accounting and reporting for certain nontraditional long-duration     
contracts in 2004.                                                              

PRICEWATERHOUSECOOPERS LLP                                                      

April 24, 2006                                                                  

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AIG LIFE INSURANCE COMPANY  
BALANCE SHEETS  
(in thousands)  

                                                   December 31, December 31,
                                                   2005         2004
                                                   ------------ ------------
Assets                                                                          
Investments:                                                                    
Fixed maturities available for sale, at fair                              
  value.......................................... $ 8,826,072  $ 9,879,583
(cost: 2005 - $8,410,382; 2004 - $9,207,004)                              
Equity securities available for sale, at fair                             
  value..........................................      27,434        7,782
(cost: 2005 - $24,094; 2004 - $5,297)                                     
Mortgage loans on real estate....................     514,343      494,343
Policy loans.....................................     201,568      254,448
Other long-term investments......................      36,984       62,642
Derivative assets, at fair value.................      35,561       52,886
Security lending collateral......................   1,666,201    1,307,339
Short-term investments...........................      31,463       40,666
                                                  -----------  -----------
Total investments................................  11,339,626   12,099,689

Cash................................................       9,556       12,262   
Investment income due and accrued...................     123,194      142,437   
Reinsurance assets..................................     136,369      118,973   
Deferred policy acquisition costs...................     244,233      253,774   
Premium and insurance balances receivable...........      34,626       53,744   
Amounts due from related parties....................       4,431       13,159   
Other assets........................................       6,112        6,030   
Assets held in separate accounts....................   3,123,472    3,218,345   
                                                  -----------  -----------
Total assets..................................... $15,021,619  $15,918,413
                                                  ===========  ===========

See accompanying notes to financial statements. 

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AIG LIFE INSURANCE COMPANY  
BALANCE SHEETS  
(in thousands, except share amounts)  

                                                     December 31, December 31,
                                                     2005         2004
                                                     ------------ ------------
Liabilities                                                                     
 Policyholders' contract deposits.................. $ 6,170,747  $ 7,016,323
Future policy benefits for life and accident and                          
   health insurance contracts......................   2,393,263    2,388,991
 Reserve for unearned premiums.....................      28,401       22,371
 Policy and contract claims........................     135,671       99,492
 Amounts due to related parties....................      71,897       58,686
 Income taxes payable..............................     145,849      234,735
 Derivative liabilities, at fair value.............      10,429       40,494
 Other liabilities.................................      22,709       65,843
 Liabilities related to separate accounts..........   3,123,472    3,218,345
 Security lending payable..........................   1,666,201    1,307,339
                                                    -----------  -----------
     Total liabilities.............................  13,768,639   14,452,619
                                                    -----------  -----------
Shareholders' equity                                                            
Series A preferred stock, $100,000 par value;                                   
1,000 and 2,500 shares authorized, issued and                             
   outstanding, respectively.......................     100,000      250,000
Common stock, $5 par value; 1,000,000 shares                              
   authorized; 976,703 issued and outstanding......       4,884        4,884
 Additional paid-in capital........................     302,283      302,283
 Accumulated other comprehensive income............     253,676      388,716
 Retained earnings.................................     592,137      519,911
                                                    -----------  -----------
     Total shareholders' equity....................   1,252,980    1,465,794
                                                    -----------  -----------
Total liabilities and shareholders' equity........... $15,021,619  $15,918,413  
                                                    ===========  ===========

See accompanying notes to financial statements. 

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AIG LIFE INSURANCE COMPANY  
STATEMENTS OF INCOME  
(in thousands)  

                                              Years ended December 31,
                                              --------------------------------
                                               2005        2004       2003
                                              ----------  ----------  --------
Revenues:                                                                       
  Premiums and other considerations.......... $  295,021  $  306,411  $227,243
  Net investment income......................    730,341     692,324   706,452
  Realized capital gains (losses)............     (9,270)     22,430    45,930
                                              ----------  ----------  --------
      Total revenues.........................  1,016,092   1,021,165   979,625
                                              ----------  ----------  --------
Benefits and expenses:                                                          
  Death and other benefits...................    344,545     374,137   317,856
  Increase in future policy benefits.........     75,113      38,964     2,883
Interest credited on policyholder contract                                
    deposits.................................    278,748     306,867   351,518
Insurance acquisition and other operating                                 
    expenses.................................    117,373     126,492   153,321
                                              ----------  ----------  --------
  Total benefits and expenses................    815,779     846,460   825,578
                                              ----------  ----------  --------
Income before income taxes....................    200,313     174,705   154,047 
                                              ----------  ----------  --------
Income taxes:                                                                   
  Current....................................     83,956      67,265    29,307
  Deferred...................................    (16,937)     (7,354)   23,447
                                              ----------  ----------  --------
  Total income tax expense...................     67,019      59,911    52,754
                                              ----------  ----------  --------
Net income before cumulative effect of                                          
 accounting change...........................    133,294     114,794   101,293
Cumulative effect of accounting change, Net                                     
 of tax......................................         --      (6,911)       --
                                              ----------  ----------  --------
Net income.................................... $  133,294  $  107,883  $101,293 
                                              ==========  ==========  ========

See accompanying notes to financial statements. 

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AIG LIFE INSURANCE COMPANY  
STATEMENTS OF SHAREHOLDERS' EQUITY  
(in thousands)  

                                                                [Download Table]

                                                  Years ended December 31,      
                                             ---------------------------------- 
                                                2005        2004        2003    
                                             ----------  ----------  ---------- 
                                                                                
Preferred Stock                                                                 
Balance at beginning and end of year........ $  250,000  $  250,000  $  250,000 
Shares redeemed.............................   (150,000)         --          -- 
                                             ----------  ----------  ---------- 
Balance at end of year......................    100,000     250,000     250,000 
                                             ----------  ----------  ---------- 
Common stock                                                                    
Balance at beginning and end of year........      4,884       4,884       4,884 
                                             ----------  ----------  ---------- 
Additional paid-in capital                                                      
Balance at beginning of year................    302,283     302,283     212,283 
Capital contribution from parent............         --          --      90,000 
                                             ----------  ----------  ---------- 
Balance at end of year......................    302,283     302,283     302,283 
                                             ----------  ----------  ---------- 
Accumulated other comprehensive income                                          
Balance at beginning of year, as reported...    388,716     349,823     180,035 
Other comprehensive income..................   (135,040)     38,893     169,788 
                                             ----------  ----------  ---------- 
Balance at end of year......................    253,676     388,716     349,823 
                                             ----------  ----------  ---------- 
Retained earnings                                                               
Balance at beginning of year................    519,911     423,753     334,060 
Net income..................................    133,294     107,883     101,293 
Dividends to shareholders...................    (61,068)    (11,725)    (11,600)
                                             ----------  ----------  ---------- 
Balance at end of year......................    592,137     519,911     423,753 
                                             ----------  ----------  ---------- 
   Total shareholders' equity............... $1,252,980  $1,465,794  $1,330,743 
                                             ==========  ==========  ========== 

See accompanying notes to financial statements  

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AIG LIFE INSURANCE COMPANY  
STATEMENTS OF CASH FLOWS  
(in thousands)  

                                                        [Enlarge/Download Table]

                                                           Years ended December 31,       
                                                    ------------------------------------- 
                                                        2005         2004         2003    
                                                    -----------  -----------  ----------- 
                                                                                          
Cash flows from operating activities:                                                     
   Net income...................................... $   133,294  $   107,883  $   101,293 
Adjustments to reconcile net income to net cash                                           
  provided by operating activities:                                                       
   Change in insurance reserves....................      46,482       50,916       20,218 
   Change in accounting principles.................          --        6,911           -- 
   Change in premiums and insurance balances                                              
     receivable and payable - net..................      36,228        5,976      (11,905)
   Change in reinsurance assets....................     (17,400)       4,530      (44,575)
   Change in deferred policy acquisition costs.....      56,583       63,458       37,272 
   Change in other policyholders' contracts........     237,287     (107,347)     (51,489)
   Interest credited to policyholder contracts.....     278,748      306,867      351,518 
   Change in investment income due and accrued.....      19,243        5,031       10,328 
   Realized capital (gains) losses.................       9,270      (22,430)     (45,930)
   Change in income taxes - net....................     (14,934)         (83)      26,480 
   Change in reserves for commissions, expenses                                           
     and taxes.....................................      (4,820)       2,002        9,163 
   Amortization of premiums and discounts on                                              
     securities....................................     (12,977)     (33,678)      (8,669)
   Change in other assets and liabilities - net....     (33,564)      23,593      (46,146)
                                                    -----------  -----------  ----------- 
Net cash provided by operating activities..........     733,440      413,629      347,558 
Cash flows from investing activities:                                                     
   Sale of fixed maturities........................   4,741,528    3,106,933    4,188,555 
   Redemptions and maturities of fixed maturities..     864,169      716,121      493,880 
   Sale of equity securities.......................      38,079        1,409       33,802 
   Purchase of fixed maturities....................  (4,792,066)  (3,809,615)  (4,551,183)
   Purchase of equity securities...................     (59,147)      (3,153)      (4,763)
   Purchase of real estate.........................      (2,925)      (1,319)      (4,231)
   Mortgage loans funded...........................    (121,088)     (72,181)    (142,539)
   Repayments of mortgage loans....................      92,172       48,547       32,694 
   Change in policy loans..........................      52,880        7,460       84,946 
   Change in short-term investments................       9,203      (20,260)      24,382 
   Sales or distributions of other invested assets.      93,083       24,229       19,027 
   Investments in other invested assets............      (1,497)       1,871       (1,699)
   Change in security lending collateral...........    (358,862)     252,104    1,187,716 
   Other - net.....................................     (77,858)       6,330       (3,895)
                                                    -----------  -----------  ----------- 
Net cash provided by investing activities..........     477,671      258,476    1,356,692 
Cash flows from financing activities:                                                     
   Deposits on policyholder contracts..............     123,760      149,355      185,933 
   Withdrawals on policyholder contracts...........  (1,485,371)    (635,369)    (749,867)
   Capital contribution from parent................          --       90,000       59,000 
   Redemption of preferred stock...................    (150,000)          --           -- 
   Dividends to shareholders.......................     (61,068)     (11,725)     (11,600)
   Change in security lending payable..............     358,862     (252,104)  (1,187,716)
                                                    -----------  -----------  ----------- 
Net cash used in financing activities..............  (1,213,817)    (659,843)  (1,704,250)
                                                    -----------  -----------  ----------- 
Change in cash.....................................      (2,706)      12,262           -- 
Cash at beginning of period........................      12,262           --           -- 
                                                    -----------  -----------  ----------- 
Cash at end of year................................       9,556       12,262           -- 
                                                    ===========  ===========  =========== 

See accompanying notes to financial statements. 

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AIG LIFE INSURANCE COMPANY  
STATEMENTS OF COMPREHENSIVE INCOME  
(in thousands)  

                                                Years ended December 31,
                                               -----------------------------
                                                2005      2004      2003
                                               ---------  --------  --------
Comprehensive income                                                            
Net income...................................... $ 133,294  $107,883  $101,293  
Other comprehensive income                                                      
Change in net unrealized appreciation                                           
(depreciation) of investments - net of                                      
reclassifications.............................  (208,992)   61,570   259,485
Deferred income tax benefit (expense) on above                                  
 changes.......................................    73,952   (22,677)  (89,697)
                                               ---------  --------  --------
Other comprehensive income......................  (135,040)   38,893   169,788  
                                               ---------  --------  --------
Comprehensive income (loss)..................... $  (1,746) $146,776  $271,081  
                                               =========  ========  ========

See accompanying notes to financial statements. 

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AIG LIFE INSURANCE COMPANY  
NOTES TO FINANCIAL STATEMENTS 

1. Nature of Operations                                                         

AIG Life Insurance Company (the "Company") is part of the Domestic Life   
  Segment (the "Domestic Life") of American International Group, Inc. ("AIG"),
its ultimate parent. The Company, domiciled in Delaware, has been doing   
business since 1962 as a provider of individual and group life insurance, 
fixed, variable, terminal funding annuities, immediate annuities, and     
 structured settlement contracts. The Company is currently licensed to write
 and reinsure life, annuity and accident and health business in the District
of Columbia, Puerto Rico and all states except New York.                  

2. Summary of Significant Accounting Policies                                   

   (a)Basis of Presentation: The financial statements of the Company have been
     prepared in accordance with accounting principles generally accepted in
 the United States of America ("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. These estimates and    
   assumptions are particularly significant with respect to investments,
    deferred policy acquisition costs and future policy benefits. Ultimate
   results could differ from those estimates. Certain prior period items
     have been reclassified to conform to the current period's presentation.

 We have reclassified certain amounts in our 2004 and 2003 financial
   statements to conform to the 2005 presentation. The reclassifications
  included the presentation of collateral received with respect to the
     company's securities lending program separately on the balance sheet as
     "Securities Lending Collateral" and a corresponding "Securities Lending
   Payable". In addition, changes in "Securities Lending Collateral" and
"Securities Lending Payable" have been separately classified as   
 Investing Activities and Financing Activities, respectively, in the
    Statement of Cash Flows. None of these reclassifications had an effect
on earnings, shareholder's equity or cash flows.                  

(b)Statutory Accounting: The Company is required to file financial      
    statements with state regulatory authorities. State insurance laws and
      regulations prescribe accounting practices for calculating statutory net
   income and equity. In addition, state regulators may permit statutory
    accounting practices that differ from prescribed practices. The use of
    such permitted practices by the Company did not have a material effect
  on statutory capital and surplus at December 31, 2005. Statutory net
income and capital and surplus of the Company are as follows:     

                                               2005     2004
                                               -------- --------
                                              (in thousands)
Statutory net income........................... $151,166 $131,585 
Statutory capital and surplus.................. $635,980 $739,951 

    The more significant differences between GAAP and statutory accounting
principles are that under GAAP: (a) acquisition costs related to  
acquiring new business are deferred and amortized (generally in   
      proportion to the present value of expected gross profits from surrender
 charges and investment, mortality and expense margins), rather than
     being charged to operations as incurred; (b) future policy benefits are
based on management's best estimates of mortality, interest and   
    withdrawals generally representing the Company's experience, which may
      differ from those based on statutory mortality and interest requirements
without                                                           

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2. Summary of Significant Accounting Policies - (continued):                    

(b)Statutory Accounting - (continued):                                  

     consideration of withdrawals; (c) certain assets (principally furniture
  and equipment, agents' debit balances, computer software and certain
    other receivables) are reported as assets rather than being charged to
      retained earnings; (d) acquisitions are accounted for using the purchase
method of accounting rather than being accounted for as equity    
 investments; and (e) fixed maturity investments are carried at fair
 value rather than amortized cost. In addition, statutory accounting
principles require life insurance companies to establish an asset 
    valuation reserve ("AVR") and an interest maintenance reserve ("IMR").
The AVR is designed to address the credit-related risk for bonds, 
    preferred stocks, derivative instruments and mortgages and market risk
  for common stocks, real estate and other invested assets. The IMR is
  composed of realized gains and losses that result from interest rate
      fluctuations. These realized gains and losses, net of tax, are amortized
   into income over the expected remaining life of the asset sold or the
liability released.                                               

(c)Insurance Contracts: The insurance contracts accounted for in these  
financial statements include primarily long-duration contracts.   
    Long-duration contracts include limited payment, endowment, guaranteed
renewable term life, universal life and investment contracts.     
  Long-duration contracts generally require the performance of various
      functions and services over a period of more than one year. The contract
      provisions generally cannot be changed or canceled by the insurer during
     the contract period; however, most new contracts written by the Company
      allow the insurer to revise certain elements used in determining premium
      rates or policy benefits, subject to guarantees stated in the contracts.

(d)Investments:                                                         

(i)Fixed Maturity and Equity Securities                           

      Cash and short-term investments primarily include interest bearing
     cash accounts, commercial paper and money market investments. All
     such investments are carried at cost plus accrued interest, which
         approximates fair value, have maturities of greater than three months
         and less than one year at the date of acquisition. Such highly liquid
    investments with original maturities of three months or less are
        classified as cash equivalents. Investments with original maturities
of greater than three months are classified as short-term.  

         Fixed maturity and equity securities classified as available-for-sale
        are recorded at fair value at December 31, 2005 and 2004. Unrealized
        gains and losses, net of deferred taxes and amortization of deferred
    acquisition costs, are recorded as a separate component of other
      comprehensive income or loss within shareholder's equity. Realized
 gains and losses on the sale of investments are recognized in
      operating earnings at the date of sale and are determined by using
the specific cost identification method.                    

    Interest on fixed maturity securities is recorded as income when
       earned and is adjusted for any amortization of premium or accretion
       of discount. Premiums and discounts on investments are amortized to
       investment income by using the interest method over the contractual
        lives or expected payment period of the investments. Dividend income
 on equity securities is generally recognized as income on the
ex-dividend date.                                           

        The Company evaluates its investments for impairment. As a matter of
policy, the determination that a security has incurred an   
    other-than-temporary decline in value and the amount of any loss
        recognition requires the judgement of the Company's management and a
continual review of its investment.                         

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2. Summary of Significant Accounting Policies - (continued):                    

(d)Investments - (continued):                                           

         In general, a security is considered a candidate for impairment if it
     meets any of the following criteria: Trading at a significant (25
       percent or more) discount to par, amortized cost (if lower) or cost
for an extended period of time (nine months or longer); The 
     occurrence of a discrete credit event resulting in (i) the issuer
       defaulting on a material outstanding obligation; or (ii) the issuer
      seeking protection from creditors under the bankruptcy laws or any
    similar laws intended for the court supervised reorganization of
    insolvent enterprises; or (iii) the issuer proposing a voluntary
    reorganization pursuant to which creditors are asked to exchange
         their claims for cash or securities having a fair value substantially
         lower than par value of their claims; In the opinion of the Company's
       management, the Company does not have the ability or intent to hold
        the investment until recovery, irrespective of the occurrence of one
of the foregoing events.                                    

       Once a security has been identified as impaired, the amount of such
impairment is determined by reference to that security's    
          contemporaneous market price, and recorded as a realized capital loss.

(ii)Mortgage Loans                                                  

     Mortgage loans on real estate are carried at the unpaid principal
       balance less unamortized loan origination fees and costs and net of
         an allowance for uncollectible loans. The allowance for losses covers
    estimated losses based on our assessment of risk factors such as
         potential non-payment or non-monetary default. The allowance is based
     on a loan-specific review. Loans for which the Company determines
         that collection of all amounts due under the contractual terms is not
       probable are considered to be impaired. The Company generally looks
 to the underlying collateral for repayment of impaired loans.
         Therefore, impaired loans are reported at the lower of amortized cost
      or fair value of the underlying collateral, less estimated cost to
        sell. There was no allowance for uncollectible loans at December 31,
2005 and 2004.                                              

    Interest on performing mortgage loans is recorded as income when
        earned and is adjusted for any amortization of premium or accrual of
      discount. Interest on non-performing mortgage loans is recorded as
income when received.                                       

(iii)Policy Loans                                                     

       Policy loans are carried at the aggregate unpaid principal balance.
   There is no allowance for policy loans, as these loans serve to
       reduce the death benefits paid when the death claim is made and the
       balances are effectively collateralized by the cash surrender value
of the policy.                                              

(iv)Other Long-Term Investments                                     

         Other long-term investments consist primarily of limited partnerships
       and other investments not classified elsewhere herein. Partnerships
    in which the Company holds less than a five percent interest are
         carried at fair value and the change in fair value is recognized as a
      component of other comprehensive income. Partnerships in which the
    Company holds a five percent or more interest are carried at net
    asset value and the change in net asset value is recorded in net
investment income.                                          

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2. Summary of Significant Accounting Policies - (continued):                    

(d)Investments - (continued):                                           

(v)Securities Lending Collateral and Securities Lending Payable   

     Securities held under collateral agreements consists primarily of
        invested collateral with respect to the Company's securities lending
        program. The Company has entered into a securities lending agreement
        with an affiliated lending agent, which authorizes the agent to lend
      securities held in the Company's portfolio to a list of authorized
   borrowers. The Company receives primarily cash collateral in an
  amount in excess of the market value of securities loaned. The
affiliated lending agent monitors the daily market value of 
      securities loaned with respect to the collateral value and obtains
     additional collateral when necessary to ensure that collateral is
maintained at a minimum of 102% of the value of the loaned  
       securities. Such collateral is not available for the general use of
         the Company. Income earned on the collateral, net of interest paid on
     the securities lending agreements and the related management fees
       paid to administer the program, is recorded as investment income in
the statements of income and comprehensive income.          

(vi)Dollar Roll Agreements                                          

        Throughout the year, the Company enters into dollar roll agreements.
       These are agreements to sell mortgage-backed securities ("MBS") and
      to repurchase substantially similar securities at a specific price
       and date in the future. Dollar roll agreements are accounted for as
        sales of financial assets and forward repurchase commitments. Assets
are removed from the balance sheet at the time of sale. The 
         difference between sales proceeds and carrying values are recorded as
    realized gains or losses. The forward repurchase commitments are
  accounted for at fair value, and the changes in fair value are
         recorded as realized gains or losses. Assets are recorded at the time
of purchase at fair value. Unsettled amounts on the purchase
      contracts are reflected in the balance sheet in other liabilities.

(e)Deferred Acquisition Costs ("DAC"): DAC consists of commissions and  
     other costs that vary with and are primarily related to the acquisition
      of new business. Policy acquisition costs for traditional life insurance
   products are generally deferred and amortized over the premium paying
      period of the policy. Policy acquisition costs related to universal life
      and investment-type products (non-traditional products) are deferred and
amortized, with interest, in relation to estimated gross profits  
     ("EGPs") to be realized over the estimated lives of the contracts. EGPs
      are composed of net investment income, net realized investment gains and
      losses, mortality and expense margins and surrender charges. The Company
    reviews for recoverability, the carrying amounts of DAC on at least an
annual basis.                                                     

     Management considers estimated future gross profits or future premiums,
      expected mortality, interest earned and credited rates, persistency, and
     expenses in determining whether the carrying amount is recoverable. Any
    amounts deemed unrecoverable are immediately charged to expense in the
period such determination is made.                                

    With respect to the Company's variable life and annuity contracts, the
assumption for the long-term annual net growth of the separate and
     variable account assets used by the Company in the determination of DAC
amortization is approximately 10% (the "long-term growth rate     
  assumption"). The Company uses a "reversion to the mean" methodology
 which allows the Company to maintain this 10% long-term growth rate
     assumption, while also giving consideration to the effect of short-term
swings in the equity markets. For example, if performance were 15%
    during the first year following the introduction of a product, the DAC

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2. Summary of Significant Accounting Policies - (continued):                    

      model would assume that market returns for the following five years (the
     "short-term growth rate assumption") would approximate 9%, resulting in
  an average annual growth rate of 10% during the life of the product.
   Similarly, following periods of below 10% performance, the model will
    assume a short-term growth rate higher than 10%. A DAC adjustment will
 occur if management considers the short-term growth rate (i.e., the
growth rate required to revert to the mean 10% growth rate over a 
      five-year period) to be unachievable. The use of a reversion to the mean
    assumption is common within the industry; however, the parameters used
  in the methodology are subject to judgment and vary among companies.

     DAC is adjusted with respect to non-traditional products as a result of
changes in the net unrealized gains or losses on debt and equity  
  securities available for sale. That is, as fixed maturity and equity
   securities available for sale are carried at aggregate fair value, an
  adjustment is made to deferred policy acquisition costs equal to the
     change in amortization that would have been recorded if such securities
 had been sold at their stated aggregate fair value and the proceeds
   reinvested at current yields. The adjustment, net of tax, is included
     with the change in net unrealized gains or losses on fixed maturity and
     equity securities available for sale that is recorded directly to other
comprehensive income.                                             

(f)Income Taxes: The Company joins in a consolidated federal income tax 
     return with AIG and its domestic subsidiaries. The Company and AIG have
     a written tax allocation agreement whereby AIG 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, AIG agrees to reimburse the Company for any tax benefits,
      if any, arising out of its net losses and tax credits within ninety days
    after the filing of that consolidated tax return for the year in which
      these losses and tax credits 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, at the enacted tax rates expected
     to be in effect when the temporary differences reverse. The effect of a
 tax rate change is recognized in income in the period of enactment.
State income taxes are included in income tax expense.            

     A valuation allowance for deferred tax assets is provided if it is more
     likely than not that some portion of the deferred tax asset will not be
     realized. An increase or decrease in a valuation allowance that results
   from a change in circumstances that causes a change in judgment about
the realizability of the related deferred tax asset is included in
income.                                                           

   (g)Premium Recognition and Related Benefits and Expenses: Most receipts for
     annuities and interest-sensitive life insurance policies are classified
     as deposits instead of revenue. Revenues for these contracts consist of
    mortality, expense, and surrender charges and are included in premiums
      and other considerations. Policy charges that compensate the Company for
   future services are deferred and recognized in income over the period
earned, using the same assumptions used to amortize DAC.          

  Premiums for traditional life insurance products are recognized when
   due. A liability for future policy benefits is recorded using the net
level premium method.                                             

    For limited payment contracts, primarily the Company's life contingent
    annuities and terminal funding contracts, net premiums are recorded as
   revenue when due and the difference between the gross premium and the
net premium is deferred and recognized in income in a constant    
      relationship to the amount of expected future benefit payments. Reserves
     for these contracts are based on estimates of the cost of future policy
benefits.                                                         

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2. Summary of Significant Accounting Policies - (continued)                     

      Premiums on accident and health premiums 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 reserves for
unearned premiums.                                                

 (h)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 claims reported and
      for 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.                                                        

   (i)Separate and Variable Accounts: Separate and variable accounts represent
      funds for which investment income and investment gains and losses accrue
   directly to the policyholders who bear the investment risk, except to
  the extent of minimum guarantees made by the Company with respect to
   certain amounts. Each account has specific investment objectives, and
  the assets are carried at fair 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. Investment income, realized investment
      gains (losses) and policyholder account deposits and withdrawals related
to separate accounts are excluded from the statements of income,  
      comprehensive income and cash flows. The Company receives administrative
   fees for managing the funds and other fees for assuming mortality and
 certain expense risks. Such fees are included in premiums and other
considerations in the statements of income.                       

  (j)Guaranteed Minimum Death Benefits: A majority of the Company's variable
     annuity products are issued with a death benefit feature which provides
that, upon the death of a contractholder, the contractholder's    
      beneficiary will receive the greater of (1) the contractholder's account
value, or (2) a guaranteed minimum death benefit (the "GMDB") that
     varies by product. These benefits have issue age and other restrictions
      to reduce mortality risk exposure. The Company bears the risk that death
claims following a decline in the financial markets may exceed    
    contractholder account balances, and that the fees collected under the
contract are insufficient to cover the costs of the benefit to be 
   provided. The Company limits this risk through the use of reinsurance
arrangements. Prior to January 1, 2004, the Company expensed      
 GMDB-related benefits in the period incurred, and therefore did not
  provide reserves for future benefits. Effective January 1, 2004, the
     Company does provide reserves for future GMDB-related benefits pursuant
      to the adoption of Statement of Position 03-01, Accounting and Reporting
by Insurance Enterprises for Certain Non-traditional Long-Duration
    Contracts and for Separate Accounts" ("SOP 03-01"). The GMDB liability
     is determined each period end by estimating the expected value of death
     benefits in excess of the projected account balance and recognizing the
 excess ratably over the accumulation period based on total expected
     assessments. Changes in liabilities for minimum guarantees are included
   in increase in future policy benefits in the statement of income. The
   Company regularly evaluates estimates used and adjusts the additional
      liability balance, with a related charge or credit to increase in future
      policy benefits expense, if actual experience or other evidence suggests
that earlier assumptions should be revised.                       

(k)Reinsurance: The Company generally limits its exposure to loss on any
single insured to $5.0 million by ceding additional risks through 
   reinsurance contracts with other insurers. On an exception basis, the
   Company can increase its exposure to loss on any single insured up to
      $10.0 million. These limits were increased from lower amounts on June 1,
   2005. The Company diversifies its risk of reinsurance loss by using a
     number of reinsurers that have strong claims-paying ability ratings. If
      the reinsurer could not meet its obligations, the Company would reassume
the liability, as the Company remains primarily liable to the     
policyholder.                                                     

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2. Summary of Significant Accounting Policies - (continued)                     

   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, policyholder contract
deposits and policy and contract claims.                          

(l)Derivatives: The Company takes positions from time to time in certain
 derivative financial instruments in order to mitigate the impact of
  changes in interest rates or equity markets on cash flows or certain
     policyholder liabilities. Financial instruments used by the Company for
   such purposes include interest rate swaps and foreign currency swaps.
 The Company recognizes all derivatives in the balance sheet at fair
value.                                                            

   Statement of Financial Accounting Standards No. 133 - "Accounting for
    Derivative Instruments and Hedging Activities" (FAS 133) requires that
   third-party derivatives used for hedging must be specifically matched
    with the underlying exposures to an outside third party and documented
      contemporaneously to qualify for hedge accounting treatment. The Company
believes its hedging activities have been and remain economically 
      effective, but do not currently qualify for hedge accounting. The impact
     of fair value adjustments on derivatives which do not qualify for hedge
   accounting have been recorded in net realized capital gains (losses).

(m)Recently Issued Accounting Standards: In January 2003, FASB issued   
  Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN46"). FIN46 changes the method of determining whether certain
     entities should be consolidated in the Company's consolidated financial
statements. An entity is subject to FIN46 and is called a Variable
  Interest Entity ("VIE") if it has (i) equity that is insufficient to
permit the entity to finance its activities without additional    
subordinated financial support from other parties, or (ii) equity 
 investors that cannot make significant decisions about the entity's
      operations, or do not absorb the expected losses or receive the expected
returns of the entity. All other entities are evaluated for       
 consolidation under existing guidance. A VIE is consolidated by its
primary beneficiary, which is the party that has a majority of the
   expected losses or a majority of the expected residual returns of the
VIE, or both. In December 2003, the FASB issued FIN46R.           

    The provisions of FIN46R are to be applied immediately to VIEs created
 after January 31, 2003, and to VIEs in which the Company obtains an
  interest after that date. For VIEs in which Company holds a variable
      interest that is acquired before February 1, 2003, FIN46R was applied as
of December 31, 2003. For any VIEs that must be consolidated under
FIN46R that were created before February 1, 2003, the assets,     
   liabilities and noncontrolling interest of the VIE would be initially
    measured at their carrying amounts with any difference between the net
      amount added to the balance sheet and any previously recognized interest
being recognized as the cumulative effect of an accounting change.

    The following VIE activities are not consolidated by the Company under
FIN46R:                                                           

   i. The Company manages collateralized bond and loan obligation trusts
         (collectively, collateralized debt obligation trust or CDO trust). As
         asset manager, the Company receives fees for management of the assets
        held in the CDO trust, which support the issuance of securities sold
 by the CDO trust. The Company may take minority equity and/or
    fixed-income security interest in the CDO trust. The Company has
 entered into such arrangements to expand its asset management
   activities. Third-party investors have recourse only to the CDO
trust, and                                                  

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2. Summary of Significant Accounting Policies - (continued):                    

(m)Recently Issued Accounting Standards - (continued):                  

     have no recourse to the Company. The Company does not consolidate
these CDO trusts, pursuant to FIN46R.                       

ii.The Company also invests in assets of VIEs. These VIEs are     
established by unrelated third parties. Investments include 
    collateralized mortgage backed securities and similar securities
       backed by pools of mortgages, consumer receivables or other assets.
      The investment in these VIEs allows the Company to purchase assets
       permitted by insurance regulations while maximizing their return on
 these assets. These VIEs are not consolidated by the Company,
pursuant to FIN46R.                                         

     iii.The Company uses VIEs primarily in connection with certain guaranteed
         investment contract programs (GIC Programs). In the GIC Programs, the
      Company provides guaranteed investment contracts to VIEs which are
         not controlled by the Company, and in which the Company does not have
       a direct variable interest, as defined under FIN46R, in the entity.
The VIE issues notes or bonds which are sold to third party 
 institutional investors. The Company has no obligation to the
     investors in the notes or bonds. The proceeds from the securities
      issued by the VIE are invested by the VIE in the GICs. The Company
uses their proceeds to invest in a diversified portfolio of 
         securities, primarily investment grade bonds. Both the assets and the
  liabilities of the Company arising from these GIC Programs are
presented in the Company's balance sheet.                   

  In March 2005, FASB issued FSP FIN46R-5 "Implicit Variable Interests
     under FASB Interpretation No. 46 (revised December 2003), Consolidation
  of Variable Interest Entities" ("FSP FIN46R-5") to address whether a
  reporting enterprise has an implicit variable interest in a variable
      interest entity ("VIE") or potential VIE when specific conditions exist.
    Although implicit variable interests are mentioned in FIN46R, the term
  is not defined and only one example is provided. FSP FIN46R-5 offers
additional guidance, stating that implicit variable interests are 
      implied financial interests in an entity that change with changes in the
    fair value of the entity's net assets exclusive of variable interests.

 An implicit variable interest acts the same as an explicit variable
interest except it involves the absorbing and/or receiving of     
variability indirectly from the entity (rather than directly). The
     identification of an implicit variable interest is a matter of judgment
that depends on the relevant facts and circumstances. The Company 
     adopted FSP FIN46R-5 in the second quarter of 2005. The adoption of FSP
FIN46R-5 did not have a material effect on the Company's financial
condition or results of operations.                               

  In July 2003, the American Institute of Certified Public Accountants
("AICPA") issued SOP 03-01. This statement was effective as of    
   January 1, 2004 and requires the Company to recognize a liability for
    GMDB, as discussed above, related to its variable annuity and variable
     life contracts and modifies certain disclosures and financial statement
presentations for these products. The Company reported a one-time 
     cumulative accounting charge upon adoption of $6.9 million after taxes,
to reflect the guaranteed minimum death benefit liability as of   
January 1, 2004. In                                               

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2. Summary of Significant Accounting Policies - (continued):                    

(m)Recently Issued Accounting Standards - (continued):                  

 addition, under SOP 03-01, variable annuity assets held in separate
 accounts will continue to be measured at fair value and reported in
     summary total on the Company's financial statements, with an equivalent
     summary total reported for related liabilities, if the separate account
   arrangement meets certain specified conditions. Assets underlying the
      Company's interest in a separate account ("separate account seed money")
do not qualify for separate account accounting and reporting.     

     The Company was required to "look through" the separate account for the
  purposes of accounting for its interest therein, and account for and
classify separate account seed money based on its nature as if the
   assets of the separate account underlying the Company's interest were
   held directly by the general account rather than through the separate
  account structure. The adoption of SOP 03-01 did not have a material
       impact on the Company's separate accounts or separate account seed money.

In June 2004, the FASB issued FSP No. 97-1, "Situations in Which  
Paragraphs 17(b) and 20 of FASB Statement No. 97, Accounting and  
    Reporting by Insurance Enterprises for Certain Long-Duration Contracts
    and for Realized Gains and Losses from the Sale of Investments, Permit
      or Require Accrual of an Unearned Revenue Liability." FSP 97-1 clarifies
the accounting for unearned revenue liabilities of certain        
      universal-life type contracts under SOP 03-01. The Company's adoption of
 FSP 97-1 on July 1, 2004 did not change the accounting for unearned
revenue liabilities and, therefore, had no impact on the Company's
consolidated financial position or results of operations.         

      In December 2004, the FASB issued Statement No. 123 (revised 2004) ("FAS
     123R"), "Share-Based Payment." FAS 123R replaces FASB Statement No. 123
    ("FAS 123"), "Accounting for Stock-based Compensation," and superseded
      APB Opinion No. 25, "Accounting for Stock Issued to Employees." FAS 123,
as originally issued in 1995, established as preferable a         
fair-value-based method of accounting for share-based payment     
transactions with employees. On January 1, 2003, AIG adopted the  
      recognition provisions of FAS 123. The effect of the compensation costs,
     as determined consistent with FAS 123, was not computed on a subsidiary
   basis, but rather on a consolidated basis for all subsidiaries of AIG
and, therefore, are not presented herein.                         

      In April 2005, the SEC delayed the effective date for FAS 123R until the
first fiscal year beginning after June 15, 2005. As a result, AIG 
     expects to adopt the provisions of the revised FAS 123R and its related
     interpretive guidance in the first quarter of 2006. AIG and the Company
    are currently assessing the impact of FAS 123R and believes the impact
   will not be material to AIG's or the Company's financial condition or
results of operations.                                            

     At the March 2004 meeting, the Emerging Issue Task Force "EITF" reached
a consensus with respect to Issue No. 03-1, "The Meaning of       
Other-Than-Temporary Impairment and Its Application to Certain    
      Investments." On September 30, 2004, the FASB issued FASB Staff Position
 ("FSP") EITF No. 03-1-1, Effective Date of Paragraphs 10-20 of EITF
     Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments" delaying the                  

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2. Summary of Significant Accounting Policies - (continued):                    

(m)Recently Issued Accounting Standards - (continued):                  

 effective date of this guidance until the FASB has resolved certain
      implementation issues with respect to this guidance, but the disclosures
 remain effective. This FSP, retitled FSP FAS 115-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain    
 Investments," replaces the measurement and recognition guidance set
forth in Issue No. 03-1 and codifies certain existing guidance on 
      impairment. Adoption of FSP FAS 115-1 is not expected to have a material
   effect on the Company's financial condition or results of operations.

    On December 16, 2004, the FASB issued Statement No. 153, "Exchanges of
      Nonmonetary Assets--An Amendment of APB Opinion No. 29" ("FAS 153"). FAS
153 amends APB Opinion No. 29, "Accounting for Nonmonetary        
      Transactions". The amendments made by FAS 153 are based on the principle
  that exchanges of nonmonetary assets should be measured based on the
   fair value of the assets exchanged. Further, the amendments eliminate
  the narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of   
     nonmonetary assets that do not have "commercial substance." Previously,
  APB Opinion No. 29 required that the accounting for an exchange of a
productive asset for a similar productive asset or an equivalent  
     interest in the same or similar productive asset should be based on the
      recorded amount of the asset relinquished. The provisions in FAS 153 are
   effective for nonmonetary asset exchanges beginning July 1, 2005. The
 adoption of FAS 153 did not have a material effect on the Company's
financial condition or results of operations.                     

     On June 1, 2005, the FASB issued Statement No. 154, "Accounting Changes
      and Error Corrections" ("FAS 154"). FAS 154 replaces APB Opinion No. 20,
  "Accounting Changes" and FASB Statement No. 3, "Reporting Accounting
Changes in Interim Financial Statements." FAS 154 requires that a 
      voluntary change in accounting principle be applied retrospectively with
   all prior period financial statements presented on the new accounting
      principle, unless its impracticable to do so. FAS 154 also provides that
     a correction of errors in previously issued financial statements should
     be termed a "restatement." The new standard is effective for accounting
changes and correction of errors beginning January 1, 2006.       

    At the June 2005 meeting, the EITF reached a consensus with respect to
    Issue No. 04-5, "Determining Whether a General Partner, or the General
   Partners as a Group, Controls a Limited Partnership or Similar Entity
   When the Limited Partners Have Certain Rights" (formerly, "Investor's
     Accounting for an Investment in a Limited Partnership When the Investor
Is the Sole General Partner and the Limited Partners Have Certain 
      Rights"). The Issue addresses what rights held by the limited partner(s)
preclude consolidation in circumstances in which the sole general 
  partner would consolidate the limited partnership in accordance with
  generally accepted accounting principles absent the existence of the
      rights held by the limited partner(s). Based on that consensus, the EITF
also agreed to amend the consensus in Issue No. 96-16, "Investor's
Accounting for an Investee When the Investor Has a Majority of the
    Voting Interest but the Minority Shareholders Have Certain Approval or
  Veto Rights." The guidance in this Issue is effective after June 29,
      2005 for general partners of all new limited partnerships formed and for
    existing limited partnerships for which the partnership agreements are
   modified. For general partners in all other limited partnerships, the

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2. Summary of Significant Accounting Policies - (continued):                    

(m)Recently Issued Accounting Standards - (continued):                  

guidance in this Issue is effective beginning January 1, 2006. The
    Company is currently assessing the effect of adopting this EITF Issue.

  On June 29, 2005, FASB issued Statement 133 Implementation Issue No.
      B38, "Embedded Derivatives: Evaluation of Net Settlement with Respect to
     the Settlement of a Debt Instrument through Exercise of an Embedded Put
 Option or Call Option." This implementation guidance relates to the
  potential settlement of the debtor's obligation to the creditor that
     would occur upon exercise of the put option or call option, which meets
   the net settlement criterion in FAS 133 paragraph 9(a). The effective
    date of the implementation guidance is January 1, 2006. The Company is
currently assessing the effect of implementing this guidance.     

  On June 29, 2005, FASB issued Statement 133 Implementation Issue No.
B39, "Application of Paragraph 13(b) to Call Options That Are     
  Exercisable Only by the Debtor." The conditions in FAS 133 paragraph
  13(b) do not apply to an embedded call option in a hybrid instrument
containing a debt host contract if the right to accelerate the    
settlement of the debt can be exercised only by the debtor        
(issuer/borrower). This guidance does not apply to other embedded 
    derivative features that may be present in the same hybrid instrument.
   The effective date of the implementation guidance is January 1, 2006.
The Company is currently assessing the effect of implementing this
guidance.                                                         

On September 19, 2005, FASB issued Statement of Position 05-1,    
    "Accounting by Insurance Enterprises for Deferred Acquisition Costs in
     Connection with Modifications or Exchanges of Insurance Contracts." SOP
    05-1 provides guidance on accounting for deferred acquisition costs on
    internal replacements of insurance and investment contracts other than
    those specifically described in FASB Statement No. 97, "Accounting and
    Reporting by Insurance Enterprises for Certain Long-Duration Contracts
      and for Realized Gains and Losses from the Sale of Investments." The SOP
    defines an internal replacement as a modification in product benefits,
     features, rights, or coverage that occurs by the exchange of a contract
for a new contract, or by amendment, endorsement, or rider to a   
      contract, or by the election of a feature or coverage within a contract.
   The effective date of the implementation guidance is January 1, 2007.
The Company is currently assessing the effect of implementing this
guidance.                                                         

 On February 16, 2006, the FASB issued SFAS No. 155, "Accounting for
     Certain Hybrid Financial Instruments" ("SFAS 155") an amendment to SFAS
    140 and SFAS 133. SFAS 155 permits the Company to elect to measure any
   hybrid financial instrument at fair value (with changes in fair value
   recognized in earnings) if the hybrid instrument contains an embedded
derivative that would otherwise be required to be bifurcated and  
  accounted for separately under SFAS 133. The election to measure the
    hybrid instrument at fair value is made on an instrument-by-instrument
      basis and is irrevocable. SFAS 155 will be effective for all instruments
   acquired, issued, or subject to a remeasurement event occurring after
      the beginning of a company's fiscal year that begins after September 15,
2006, with earlier adoption permitted as of the beginning of 2006,
      provided that financial statements for any interim period of that fiscal
    year have not been issued. The Company has elected to early adopt SFAS
    155 effective January 1, 2006. Adoption of SFAS 155 is not expected to
      have a material effect on the Company's consolidated financial condition
or results of operations.                                         

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3. Investment Information                                                       

(a)Net Investment Income: An analysis of net investment income is as    
follows (in thousands):                                           

                                              Years ended December 31,
                                              ----------------------------
                                              2005      2004      2003
                                              --------  --------  --------
Fixed maturities................................ $623,193  $629,928  $648,416   
Equity securities...............................      662        13     1,446   
Mortgage loans..................................   33,524    33,470    31,785   
Policy loans....................................   16,485    18,285    24,367   
Cash and short-term investments.................    3,368       673       520   
Other long-term investments.....................   58,278    16,349     7,957   
                                              --------  --------  --------
Total investment income......................  735,510   698,718   714,491
Investment expenses.............................   (5,169)   (6,394)   (8,039)  
                                              --------  --------  --------
Net investment income........................ $730,341  $692,324  $706,452
                                              ========  ========  ========

   (b)Investment Gains and Losses: The net realized capital gains (losses) and
 change in unrealized appreciation (depreciation) of investments for
2005, 2004 and 2003 are summarized below (in thousands):          

                                              Years ended December 31,
                                              ----------------------------
                                               2005      2004     2003
                                              ---------  -------  --------
Realized gains (losses) on investments:                                         
Fixed maturities................................ $   4,705  $(2,703) $ 27,352   
Equity securities...............................    (1,960)     422     1,804   
Mortgage loans..................................        --       --      (448)  
Derivatives.....................................   (10,637)  33,517    21,713   
Other long-term investments.....................    (1,378)  (8,806)   (4,491)  
                                              ---------  -------  --------
Realized gains (losses)......................... $  (9,270) $22,430  $ 45,930   
                                              =========  =======  ========
Change in net unrealized appreciation                                           
(depreciation) of investments:                                              
Fixed maturities................................ $(256,889) $49,069  $302,768   
Equity securities...............................       855    1,775    (1,587)  
Deferred policy acquisition costs...............    47,042   10,726   (41,696)  
                                              ---------  -------  --------
Change in net unrealized appreciation                                           
(depreciation) of investments................. $(208,992) $61,570  $259,485 
                                              =========  =======  ========

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3. Investment Information - (continued):                                        

During 2005, 2004 and 2003, gross gains of $67,166,000, $59,556,000 and   
  $123,572,000, respectively, and gross losses of $62,461,000, $62,259,000 and
$96,220,000, respectively, were realized on dispositions of fixed maturity
investments. The 2005, 2004 and 2003 losses include writedowns of         
$15,289,000, $13,357,000 and $48,860,000, respectively, for certain       
securities available for sale, which experienced a decline in value deemed
other than temporary.                                                     

During 2005, 2004 and 2003, gross gains of $1,947,000, $422,000 and       
$1,873,000, respectively, and gross losses of $3,907,000, $0 and $69,000, 
respectively, were realized on dispositions of equity securities.         

  The following table summarizes the gross unrealized losses and fair value on
fixed maturities and equity securities, aggregated by the length of time  
that individual securities have been in a continuous unrealized loss      
position, at December 31, 2005 (in thousands).                            

                                                        [Enlarge/Download Table]

                            12 months or less   Greater than 12 months         Total        
                          --------------------- ---------------------- ---------------------
                            Fair     Unrealized  Fair      Unrealized    Fair     Unrealized
December 31, 2005           Value      Losses    Value       Losses      Value      Losses  
-----------------         ---------- ----------  --------  ----------  ---------- ----------
                                                                                            
Fixed maturities......... $2,052,643  $51,137   $226,534    $20,223    $2,279,177  $71,360  
Equity Securities........     19,464      878         --         --        19,464      878  
                          ----------  -------    --------   -------    ----------  -------  
Total.................... $2,072,107  $52,015   $226,534    $20,223    $2,298,641  $72,238  
                          ==========  =======    ========   =======    ==========  =======  

As of December 31, 2005, the Company held 470 and 5 of individual bond and
stock investments that were in an unrealized loss position, of which 42   
individual investments (bonds) were in an unrealized loss position        
continuously for 12 months or more.                                       

  The Company regularly reviews its investments for possible impairments based
on the criteria discussed in Note 2. The determination that a security has
  incurred an other-than-temporary decline in value and the amount of any loss
recognition requires the judgment of the Company's management and a       
continual review of its investments. As of December 31, 2005, all of the  
unrealized losses in the table shown above were considered to be temporary
based on the results of this review.                                      

   (c)Amortized Cost and Fair Value of Fixed Maturities and Equity Securities:
      The amortized cost and fair value of investments in fixed maturities and
equity securities at December 31, 2005 and 2004 are as follows (in
thousands):                                                       

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3. Investment Information - (continued):                                        

                                  Gross      Gross
                               Amortized  Unrealized Unrealized   Fair
2005                                  Cost       Gains      Losses     Value    
----                                ---------- ---------- ---------- ---------- 
Fixed maturities:                                                               
U.S. Government and government                                            
    agencies and authorities...... $   54,045  $ 10,812   $   735   $   64,122
  Foreign Governments.............    112,360    12,144       911      123,593
States, municipalities and                                                
    political subdivisions........     18,533       391       223       18,701
  Mortgage-backed securities......  1,323,126    23,343    20,259    1,326,210
  All other corporate.............  6,902,318   440,359    49,231    7,293,446
                                   ----------  --------   -------   ----------
Total fixed maturities............. $8,410,382  $487,049   $71,359   $8,826,072 
                                   ==========  ========   =======   ==========
Equity securities.................. $   24,094  $  4,218   $   878   $   27,434 
                                   ==========  ========   =======   ==========

                                  Gross      Gross
                               Amortized  Unrealized Unrealized   Fair
2004                                  Cost       Gains      Losses     Value    
----                                ---------- ---------- ---------- ---------- 
Fixed maturities:                                                               
U.S. Government and government                                            
    agencies and authorities...... $   66,124  $ 12,039   $   238   $   77,925
  Foreign Governments.............    102,437     7,976        38      110,375
States, municipalities and                                                
    political subdivisions........     36,141     4,348       200       40,289
  Mortgage-backed securities......  1,115,677    54,862     3,525    1,167,014
  All other corporate.............  7,886,625   635,758    38,403    8,483,980
                                   ----------  --------   -------   ----------
Total fixed maturities............. $9,207,004  $714,983   $42,404   $9,879,583 
                                   ==========  ========   =======   ==========
Equity securities.................. $    5,297  $  2,925   $   440   $    7,782 
                                   ==========  ========   =======   ==========

  The amortized cost and fair value of fixed maturities, available for sale at
 December 31, 2005, 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.                                             

                                                 Amortized    Fair
                                                    Cost       Value
                                                     ---------- ----------
Fixed maturity securities, excluding mortgage-backed                            
securities:                                                                 
Due in one year or less............................. $  294,260 $  295,706
Due after one year through five years...............  1,061,989  1,096,663
Due after five years through ten years..............  2,165,755  2,230,215
Due after ten years.................................  3,565,252  3,877,278
Mortgage-backed securities.............................  1,323,126  1,326,210   
                                                     ---------- ----------
Total fixed maturity securities..................... $8,410,382 $8,826,072
                                                     ========== ==========

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3. Investment Information - (continued):                                        

   (d)Net Unrealized Gains (Losses) on Fixed Maturities and Equity Securities:
     Net unrealized gains (losses) on fixed maturities and equity securities
      included in accumulated other comprehensive income at December 31 are as
follows (in thousands):                                           

                                            2005       2004       2003
                                           ---------  ---------  ---------
Gross unrealized gains....................... $ 491,267  $ 717,908  $ 693,695   
Gross unrealized losses......................   (72,237)   (42,844)   (69,475)  
Deferred policy acquisition costs............   (25,633)   (72,675)   (83,402)  
Deferred income tax expense..................  (139,721)  (213,673)  (190,995)  
                                           ---------  ---------  ---------
Net unrealized gains on securities........... $ 253,676  $ 388,716  $ 349,823   
                                           =========  =========  =========

  (e)Fixed Maturities Below Investment Grade: At December 31, 2005 and 2004,
 the fixed maturities held by the Company that were below investment
     grade had an aggregate amortized cost of $642,779,000 and $605,708,000,
respectively, and an aggregate market value of $669,847,000 and   
$643,178,000, respectively.                                       

(f)Non-income Producing Assets: Non-income producing assets were        
insignificant to the Company's statement of income.               

(g)Investments Greater than 10% of Equity: There were no individual     
 investment securities in which the market value exceeded 10% of the
Company's total shareholders' equity at December 31, 2005.        

 (h)Statutory Deposits: Securities with a carrying value of $3,390,000 and
$3,395,000 were deposited by the Company under requirements of    
    regulatory authorities as of December 31, 2005 and 2004, respectively.

   (i)Mortgage Loans: At December 31, 2005, mortgage loans were collateralized
   by properties primarily located in seven geographic areas, with loans
totaling approximately 43% of the aggregate carrying value of the 
     portfolio secured by properties located in the Northeast region, 16% in
      the West region and 7% in the Mid-Atlantic region, 14% in the Southeast,
     13% in the Mid-west, and 4% in the Northwest region. No more than 3% of
    the portfolio was secured by properties in any other single geographic
region.                                                           

     At December 31, 2005, the type of property collateralizing the mortgage
   loan portfolio was approximately 45% for office, 15% for residential,
  11% for hotels, 10% for industrial, 12% for retail and 7% for other.

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4. Deferred Policy Acquisition Costs                                            

The following reflects deferred policy acquisition costs which will be    
  amortized against future income and the related current amortization charged
to income, excluding certain amounts deferred and amortized in the same   
period (in thousands).                                                    

                                              Years ended December 31,
                                              ----------------------------
                                              2005      2004      2003
                                              --------  --------  --------
Balance at beginning of year.................... $253,774  $307,175  $386,258   
Acquisition costs deferred......................    8,961    10,254    53,661   
Amortization charged to income..................  (65,544)  (74,381)  (91,048)  
Effect of net unrealized gains(losses)..........   47,042    10,726   (41,696)  
                                              --------  --------  --------
Balance at end of year.......................... $244,233  $253,774  $307,175   
                                              ========  ========  ========

5. Policyholder Contract Deposits and Future Policy Benefits                    

(a)The analysis of the future policy benefits and policyholder contract 
deposits at December 31, 2005 and 2004 follows (in thousands):    

                                                       2005       2004
                                                       ---------- ----------
Policyholder contract deposits:                                                 
Annuities............................................... $3,406,323 $3,698,107  
Universal life..........................................    474,715    445,538  
Guaranteed investment contracts ("GICs")................    628,065  1,247,678  
Corporate-owned life insurance..........................  1,629,800  1,593,169  
Other contract deposits.................................     31,844     31,831  
                                                       ---------- ----------
                                                       $6,170,747 $7,016,323
                                                       ========== ==========

                                                       2005       2004
                                                       ---------- ----------
Future policy benefits:                                                         
Ordinary life........................................... $   49,917 $   71,398  
Group life..............................................     17,090     19,234  
Life contingent annuities...............................  1,184,716  1,049,910  
Terminal funding........................................  1,021,846  1,133,143  
Accident and health.....................................    119,694    115,306  
                                                       ---------- ----------
                                                       $2,393,263 $2,388,991
                                                       ========== ==========

(b)The liability for policyholder contract deposits has been established
based on the following assumptions:                               

(i)Interest rates credited on deferred annuities, which vary by   
 territory and year of issuance, range from 3.0 percent to 6.2
        percent. Current declared interest rates are generally guaranteed to
        remain in effect for a period of one year though some are guaranteed
         for longer periods. Withdrawal charges generally range from zero to 6
percent grading to zero over a period of zero to 7 years.   

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5. Policyholder Contract Deposits and Future Policy Benefits - (continued):     

  (ii)Domestically, 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 7.8 percent and
     maturities range from 2 to 6 years. The average maturity of these
GICs is 3 years.                                            

(iii)Interest rates on corporate-owned life insurance business are    
       guaranteed at 4.0 percent and the weighted average rate credited in
2005 was 5.4 percent.                                       

     (iv)The universal life funds, exclusive of corporate-owned life insurance
        business, have credited interest rates of 4.5 percent to 5.7 percent
       and guarantees ranging from 3.0 percent to 5.5 percent depending on
        the year of issue. Additionally, universal life funds are subject to
        surrender charges that amount to 3.0 percent of the fund balance and
grade to zero over a period not longer than 20 years.       

   (c)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 8.0 percent within the first 20 years. Interest rates on 
        immediate/terminal funding annuities are at a maximum of 7.5 percent
and grade to not less than 1.8 percent.                     

(ii)Mortality and surrender rates are based upon actual experience  
         modified to allow for variations in policy form. The weighted average
      lapse rate for individual life, including surrenders, approximated
4.2 percent.                                                

6. Reserves For Guaranteed Benefits:                                            

Details concerning the Company's guaranteed minimum death benefit (GMDB)  
exposure as of December 31, 2005 and 2004 were as follows:                

                                                   Return of Net Deposits Plus a
                                                Minimum Return
                                                  ----------------------------
                                                 (dollars in millions)
                                                  ----------------------------
                                                 2005           2004
                                                 ------------   ------------
Account value..................................... $      2,040   $      1,886  
Net amount at risk (a)............................           88            102  
Average attained age of contract holders..........           65             68  
Range of GMDB increase rates (b)..................  0.00%-10.00%   0.00%-10.00% 

(a) Net amount at risk represents the guaranteed benefit exposure in excess of  
  the current account value if all contract holders died at the same balance
sheet date.                                                             

(b) Reinsured with top rated companies                                          

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6. Reserves For Guaranteed Benefits (continued):                                

The following summarizes the reserve for guaranteed benefits on variable  
contracts, which is reflected in the general account and reported in      
reserves for fixed annuity contracts on the consolidated balance sheet:   

                                                       Years ended December 31
                                                (in thousands)
                                                      ----------------------
                                                    2005        2004
                                                     -------     -------
Balance at January 1 (c)............................... $   352     $   733     
Guaranteed benefits incurred...........................   5,427       1,930     
Guaranteed benefits paid...............................  (5,379)     (2,311)    
                                                     -------     -------
Balance at December 31................................. $   400     $   352     
                                                     =======     =======

(c) Included is the one-time cumulative effect of accounting change resulting   
from the adoption of SOP 03-1.                                          

  The following assumptions and methodology were used to determine the reserve
for guaranteed benefits at December 31, 2005 and 2004:                    

.   Data used was 1,000 stochastically generated investment performance     
scenarios.                                                          

.   Mean investment performance assumption was 10%.                         

.   Volatility assumption was 16%.                                          

.   Mortality was assumed to be 87.5% of the 1983a table.                   

.   Lapse rates vary by contract type and duration and range from 5% to 25% 
with an average of 15%.                                             

.   The discount rate was 8%.                                               

7. Income Taxes                                                                 

(a)Income tax liabilities were as follows (in thousands):               

                                                        Years ended December 31,
                                                       -----------------------
                                                       2005         2004
                                                       ---------   ---------
Current tax receivables................................ $   5,406    $   6,779  
Deferred tax liabilities...............................  (151,255)    (241,514) 
                                                       ---------   ---------
  Income taxes payable................................ $(145,849)   $(234,735)
                                                       =========   =========

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7. Income Taxes (continued):                                                    

The components of deferred tax assets and liabilities were as follows (in 
thousands):                                                               

                                                      Years ended December 31,
                                                     -----------------------
                                                     2005         2004
                                                     ---------   ---------
Deferred tax assets applicable to:                                
    Policy reserves................................ $  26,915    $  36,595
    Basis differential of investments..............    42,374       17,141
    Other..........................................     6,721        5,991
                                                     ---------   ---------
    Total deferred tax assets......................    76,010       59,727
                                                     ---------   ---------
Deferred tax liabilities applicable to:                                         
    Deferred policy acquisition costs..............    85,482       88,821
Net unrealized appreciation on debt and                           
      equity securities available for sale.........   139,779      210,170
    Other..........................................     2,004        2,250
                                                     ---------   ---------
Total deferred tax liabilities.....................   227,265      301,241
                                                     ---------   ---------
Net deferred tax liabilities.......................... $(151,255)   $(241,514)  
                                                     ---------   ---------

(b)Under prior federal income tax law, one-half of the excess of a life 
    insurance company's income from operations over its taxable investment
income was not taxed, but was set aside in a special tax account  
designated as "policyholders' surplus". At December 31, 2004, the 
 Company had approximately $2.2 million of policyholders' surplus on
   which deferred tax liability has not been provided, as federal income
    taxes are not required unless this amount is distributed as a dividend
or recognized under other specified conditions. The American Jobs 
Creation Act of 2004 modified federal income tax law to allow life
   insurance companies to distribute amounts from policyholders' surplus
during 2005 and 2006 without incurring federal income tax on these
   distributions. During 2005, the Company distributed cash dividends in
   excess of $61 million, thereby eliminating its policyholders' surplus
account and its exposure to federal income taxation.              

(c)The provision for income taxes differs from the amount of income tax 
      determined by applying the applicable U.S. statutory federal tax rate to
pretax income (loss) as a result of the following differences (in 
thousands):                                                       

                                                    Years ended December 31,
                                                   -------------------------
                                                    2005     2004     2003
                                                   -------  -------  -------
Income tax expense at statutory percentage of GAAP                              
pretax income (loss).............................. $70,110  $61,147  $53,916
State income tax....................................     385      315       78  
Dividends received deduction........................  (1,785)      --       --  
Prior year true-up..................................  (1,722)  (1,540)    (759) 
Other...............................................      31      (11)    (481) 
                                                   -------  -------  -------
Income tax expense.................................. $67,019  $59,911  $52,754  
                                                   =======  =======  =======

 (d)The Internal Revenue Service (IRS) is currently examining the Parent's
      tax return for the tax years 1991 to 2002. Although the final outcome of
any issues raised in examination is uncertain, the Parent Company 
believes that the ultimate liability, including interest, will not
materially exceed amounts recorded in the consolidated financial  
statements.                                                       

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7. Income Taxes (continued):                                                    

The Company has a written agreement with AIG under which each subsidiary  
agrees to pay AIG an amount equal to the consolidated federal income tax  
expense, multiplied by the ratio that the subsidiary's separate return tax
 liability bears to the consolidated tax liability, plus one hundred percent
of the excess of the subsidiary's separate return tax liability over the  
 allocated consolidated tax liability. AIG agrees to pay each subsidiary for
 the tax benefits, if any, of net operating losses and tax credits which are
not usable by the subsidiary but which are used by other members of the   
consolidated group.                                                       

8. Commitments and Contingencies                                                

The Company is party to various lawsuits and proceedings arising in the   
  ordinary course of business. Based upon information presently available, the
Company believes that the total amounts that will ultimately be paid, if  
any, arising from these lawsuits and proceedings will not have a material 
adverse effect on the Company's results of operations and financial       
position. However, it should be noted that the frequency of large damage  
awards, including large punitive damage awards, that bear little or no    
relation to actual economic damages incurred by plaintiffs in some        
jurisdictions continues to create the potential for an unpredictable      
judgment in any given suit.                                               

 The Company had $27.4 million and $27.5 million of unfunded commitments for
its investments in limited partnerships at December 31, 2005 and 2004,    
respectively.                                                             

  On February 9, 2006, American International Group, Inc. (AIG) announced that
it has reached a resolution of claims and matters under investigation with
the United States Department of Justice (DOJ), the Securities and Exchange
  Commission (SEC), the Office of the New York Attorney General (NYAG) and the
New York State Department of Insurance (DOI). The settlements resolve     
outstanding litigation filed by the SEC, NYAG and DOI against AIG and     
 conclude negotiations with these authorities and the DOJ in connection with
  the accounting, financial reporting and insurance brokerage practices of AIG
and its subsidiaries, as well as claims relating to the underpayment of   
certain workers compensation premium taxes and other assessments. As a    
result of the settlement, the Company will need to obtain permission from 
the SEC to continue to provide its variable annuities. While the SEC has  
 granted this type of relief to others in the past in similar circumstances,
  there is no assurance that this permission would be granted. Accordingly, no
assurance can be given that any further changes in circumstances for AIG  
will not impact the Company.                                              

9. Derivative Financial Instruments                                             

  (a) Use of Derivative Financial Instruments: The Company's use of derivative
financial instruments is generally limited to interest rate and currency  
swap agreements, and, at times, options to enter into interest rate swap  
agreements (call and put options). The Company is neither a dealer nor a  
trader in derivative financial instruments.                               

(b) Interest Rate and Currency Swap Agreements: The Company uses interest 
rate swap agreements to convert specific investment securities from a     
  floating to a fixed rate basis, or vice versa, and to hedge against the risk
  of declining interest rates on anticipated security purchases. Interest rate
swaps involved in qualifying hedging relationships in which the Company   
 agrees to pay a fixed rate and receive a floating rate are accounted for as
fair value hedges. Interest rate swaps involved in qualifying hedging     
  relationships in which the Company agrees to pay a floating rate and receive
a fixed rate are accounted for as cash flow hedges.                       

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9. Derivative Financial Instruments (continued):                                

Currency swap agreements are used to convert cash flow from specific      
  investment securities denominated in foreign currencies into U.S. dollars at
specific exchange rates and to hedge against currency rate fluctuation on 
anticipated security purchases.                                           

  The difference between amounts paid and received on swap agreements involved
in qualifying hedging relationships is recorded on an accrual basis as an 
adjustment to realized gains/losses over the periods covered by the       
 agreements. The related amount payable to or receivable from counterparties
is included in derivative liabilities or assets.                          

The Company believes its hedging activities have been and remain          
economically effective, but do not currently qualify for hedge accounting.
  The impact of fair value adjustments on derivatives which do not qualify for
 hedge accounting have been recorded in net realized capital gains (losses).
Swap agreements generally have terms of two to ten years.                 

 Interest rate and currency swap agreements related to investment securities
at December 31 were as follows (in millions):                             

                                                              2005    2004
                                                              ------  ------
Liability swaps                                                                 
Interest rate swap agreements to receive floating rate:                   
     Notional amount......................................... $506.9  $606.9
      Fair Value..............................................   (5.2)  (27.6)
Currency swap agreements (receive Koruna dollars/pay U. S.                
dollars):                                                             
     Notional amount (in U.S. dollars)....................... $ 52.4  $ 52.4
     Fair Value..............................................   16.3    23.8
Currency swap agreements (receive Euro dollars/pay U. S.                  
dollars):                                                             
     Notional amount (in U.S. dollars)....................... $ 51.1  $ 51.1
     Fair Value..............................................   19.3    29.1

Asset Swaps:                                                                    
Currency swap agreements (receive U.S. dollars/pay Euro                   
dollars):.................................................            
     Notional amount (in U.S. dollars)....................... $ 15.8  $ 15.8
      Fair Value..............................................   (2.3)   (5.0)
Currency swap agreements (receive U.S. dollars/pay British                
pounds):                                                              
     Notional amount (in U.S. dollars)....................... $ 40.0  $ 40.0
      Fair Value..............................................    (.8)   (4.8)
Currency swap agreements (receive U.S. dollars/pay Canadian               
dollars):                                                             
     Notional amount (in U.S. dollars)....................... $  7.3  $  7.3
      Fair Value..............................................   (1.9)   (1.3)
Currency swap agreements (receive U.S. dollars/pay                        
Australian dollars:                                                   
     Notional amount (in U.S. dollars)....................... $ 35.0  $ 30.0
      Fair Value..............................................    (.2)   (1.8)

(c) Risks Inherent In the Use of Derivatives:                                   

  Risks inherent in the use of derivatives include market risk, credit
  risk in the event of non-performance by counterparties, and mismatch
risk. Exposure to market risk is mitigated by the fact that all   
 derivatives contracts are executed as effective economic hedges the
financial effects                                                 

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9. Derivative Financial Instruments - (continued):                              

of which are offset by another financial instrument (investment   
securities or index-based policy liabilities.) Counterparty credit
exposure is limited by entering into agreements with affiliated   
counterparties or unaffiliated counterparties having high credit  
ratings. Affiliated counterparties are guaranteed by AIG and      
 unaffiliated counterparty credit ratings are monitored on a regular
basis.                                                            

     Mismatch risk is the risk that hedges are executed improperly or become
ineffective over the term of the contracts. Procedures have been  
  implemented at AIG Global Investment Group, the Company's affiliated
   investment advisor, and within the Company to prevent and detect such
mismatches.                                                       

10. 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. In the measurement of the fair
value of certain of the financial instruments, where quoted market
  prices were not available, other valuation techniques were utilized.
These fair value estimates are derived using internally developed 
valuation methodologies based on available and observable market  
information.                                                      

 The fair value and carrying amounts of financial instruments are as
follows (in thousands):                                           

                                                                    Carrying
2005                                                      Fair Value   Amount   
----                                                      ---------- ---------- 
Cash and short-term investments.......................... $   41,019 $   41,019 
Fixed maturities.........................................  8,826,072  8,826,072 
Equity securities........................................     27,434     27,434 
Mortgage and policy loans................................    728,502    715,911 
Investment contracts.....................................  3,889,916  4,065,953 
Other long-term investments..............................     36,984     36,984 
Assets and liabilities related to separate accounts......  3,123,472  3,123,472 
Derivative assets........................................     35,561     35,561 
Derivative liabilities...................................     10,429     10,429 

                                                                    Carrying
2004                                                      Fair Value   Amount   
----                                                      ---------- ---------- 
Cash and short-term investments.......................... $   52,928 $   52,928 
Fixed maturities.........................................  9,879,583  9,879,583 
Equity securities........................................      7,782      7,782 
Mortgage and policy loans................................    759,014    748,791 
Investment contracts.....................................  4,972,727  4,945,786 
Other long-term investments..............................     62,642     62,642 
Assets and liabilities related to separate accounts......  3,218,345  3,218,345 
Derivative assets........................................     52,886     52,886 
Derivative liabilities...................................     40,494     40,494 

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10. Fair Value of Financial Instruments - (continued):                          

(b)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 maturity securities: Fair value is based principally on     
independent pricing services broker quotes and other independent  
      information. For securities that do not have readily determinable market
     prices, the Company estimates their fair value with internally prepared
      valuations (including those based on estimates of future profitability).
Otherwise, the Company uses its most recent purchases and sales of
     similar unquoted securities, independent broker quotes or comparison to
      similar securities with quoted prices when possible to estimate the fair
value of those securities.                                        

  Equity securities: Fair values for equity securities were based upon
quoted market prices.                                             

  Mortgage loans on real estate 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
estimated to approximate carrying value.                          

Investment contracts: For guaranteed investment contracts, income 
annuities and other similar contracts without life contingencies, 
estimated fair values are derived using discounted cash flow      
calculations based upon interest rates currently being offered for
 similar contracts consistent with those remaining for the contracts
being valued.                                                     

 Other long-term investments: Fair value of other invested assets is
 based upon the fair-value of the net assets of these investments as
determined by the general partners.                               

Assets and liabilities related to separate accounts: Separate and 
variable accounts are carried at the quoted market value of the   
   underlying securities. The liabilities for these amounts are equal to
the account assets.                                               

 Derivatives: Fair values for derivative assets and liabilities were
based upon quoted market prices.                                  

11. Shareholders' Equity:                                                       

  (a)The Board of Directors is authorized to issue up to 1,000,000 shares of
    preferred stock that may be issued in one or more series and with such
    stated value and terms as may be determined by the Board of Directors.
      There were 1,000 and 2,500 Series A preferred shares with a par value of
$100,000 issued and outstanding at December 31, 2005 and 2004     
 respectively. The holder of Series A preferred stock is entitled to
 cumulative dividends at a rate which is recalculated on a quarterly
     basis. Common stock dividends may not be paid unless provision has been
      made for payment of Series A preferred dividends. The Series A preferred
stock has no additional voting rights. The terms of the Series A  
      preferred stock include the right of the Company to redeem all shares at
    par value any time at the option of the Company. On December 28, 2005,
     the Company redeemed 1,500 shares of preferred stock. The redemption of
$150,000,000 was paid to National Union Fire Insurance Company of 
Pittsburgh, an affiliate.                                         

(b)The maximum shareholder dividend, which can be paid without prior    
regulatory approval, is limited to an amount that is based on     
   restrictions relating to statutory surplus. During 2005 and 2004, the
     Company paid dividends of $61,068,750 and $11,725,000, respectively, to
its shareholders.                                                 

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12. Employee Benefits                                                           

(c)Currently all the Company's employees participate in various benefit 
   plans sponsored by AIG, including a noncontributory qualified defined
 benefit retirement plan, various stock option and purchase plans, a
    401(k) plan and a post retirement benefit program for medical care and
   life insurance. AIG's U.S. plans do not separately identify projected
benefit obligations and plan assets attributable to employees of  
participating affiliates.                                         

13. 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 14). The effect of
     all reinsurance contracts, including reinsurance assumed, is as follows
(in thousands, except percentages):                               

2005                                        Premiums and Other Considerations   
----                               Life     ----------------------------------  
              Insurance           Accident
                              in Force    Life   and Health Annuity  Total
                               ---------- ------- ---------- ------- -------
Direct.......................... 36,797,482 169,270  324,970   116,108 610,348  

 Assumed - Nonaffiliated......         --      --       --        --      --
 Assumed - Affiliated.........      5,111      --       --        --      --
                               ---------- -------  -------   ------- -------
Total Assumed...................      5,111      --       --        --      --  

 Ceded - Nonaffiliated........ 10,107,158  38,110    2,622     5,098  45,830
 Ceded - Affiliated...........  3,689,646      47  269,450        -- 269,497
                               ---------- -------  -------   ------- -------
Total Ceded..................... 13,796,804  38,157  272,072     5,098 315,327  
                               ---------- -------  -------   ------- -------
Net............................. 23,005,789 131,113   52,898   111,010 295,021  
                               ========== =======  =======   ======= =======

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13. Reinsurance (continued):                                                    

2004                                       Premiums and Other Considerations    
----                             Life     -----------------------------------   
           Insurance            Accident
                           in Force     Life   and Health Annuity  Total
                            ---------- -------  ---------- ------- -------
Direct........................ 36,527,437 163,299   365,337   140,710 669,346   

 Assumed - Nonaffiliated....         --    (113)       --        --    (113)
 Assumed - Affiliated.......     10,949     (49)       --        --     (49)
                            ---------- -------   -------   ------- -------
Total Assumed.................     10,949    (162)       --        --    (162)  

Ceded - Nonaffiliated...... 10,581,608  31,117     8,899     5,705  45,721
Ceded - Affiliated.........  3,828,489     764   316,288        -- 317,052
                            ---------- -------   -------   ------- -------
Total Ceded................... 14,410,097  31,881   325,187     5,705 362,773   
                            ---------- -------   -------   ------- -------
Net........................... 22,128,289 131,256    40,150   135,005 306,411   
                            ========== =======   =======   ======= =======

2003                                       Premiums and Other Considerations    
----                             Life     -----------------------------------   
           Insurance            Accident
                           in Force     Life   and Health Annuity  Total
                            ---------- -------  ---------- ------- -------
Direct........................ 41,971,038 152,345   341,266   62,945  556,556   

Assumed - Nonaffiliated....         --     113        --       --      113
 Assumed - Affiliated.......     18,593      (9)                --       (9)
                            ---------- -------   -------   ------  -------
Total Assumed.................     18,593     104                 --      104   

Ceded - Nonaffiliated...... 10,887,505  19,328    19,702    6,422   45,452
Ceded - Affiliated.........  4,334,490     (12)  283,977       --  283,965
                            ---------- -------   -------   ------  -------
Total Ceded................... 15,221,995  19,316   303,679    6,422  329,417   
                            ---------- -------   -------   ------  -------
Net........................... 26,767,636 133,133    37,587   56,523  227,243   
                            ========== =======   =======   ======  =======

(b)Reinsurance recoveries, which reduced death and other benefits,      
   approximated $231,679,000 and $239,618,000, respectively, for each of
the years ended December 31, 2005 and 2004.                       

    The Company's reinsurance arrangements do not relieve the Company from
   its direct obligation to its insureds. Thus, a credit exposure exists
   with respect to reinsurance ceded to the extent that any reinsurer is
      unable to meet the obligations assumed under the reinsurance agreements.

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14. 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 2005 was $269,497,000 and
    $18,815,000 respectively. Premium income and commission ceded for 2004
    amounted to $317,052,000 and $20,133,000, respectively. Premium income
and commission ceded to affiliates amounted to $283,965,000 and   
$19,719,000, respectively, for the year ended December 31, 2003.  

(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, 2005, 2004 and 2003, the Company was 
 charged $30,578,000, $26,601,000 and $25,800,000, respectively, for
expenses attributed to the Company but incurred by affiliates.    

(c)The Company's insurance policy obligations are guaranteed by National
   Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"), a
      subsidiary of AIG. This guarantee is unconditional and irrevocable as to
 outstanding obligations, and the Company's contractholders have the
      right to enforce the guarantee directly against National Union. National
   Union's statutory financial statements are contained in the Company's
variable product registration statements filed with the SEC.      
Additionally, National Union files statutory annual and quarterly 
    reports with the Pennsylvania Insurance Department, where such reports
are available to the public.                                      

      The Company expects that the National Union guarantee will be terminated
   within the next year. However, the insurance obligations on contracts
issued prior to termination of the National Union guarantee would 
    continue to be covered by the guarantee, including obligations arising
   from purchase payments received after termination, until satisfied in
full.                                                             

(d)In 2003, the Company entered into a coinsurance/modified coinsurance 
     agreement with AIG Life of Bermuda ("ALB"), an affiliate. The agreement
has an effective date of January 1, 2003. Under the agreement, ALB
  reinsures a 100% quota share of the Company's liability on selective
    level term products and universal life products issued by the Company.
   The agreement is unlimited in duration but either party may terminate
     the agreement as to new business with thirty days written notice to the
      other party. The agreement also provides for an experience refund of all
profits, less a reinsurance risk charge.                          

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 NATIONAL UNION FIRE INSURANCE COMPANY
OF PITTSBURGH, PA.

NAIC CODE: 19445

STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

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 NATIONAL UNION FIRE INSURANCE COMPANY
OF PITTSBURGH, PA.

STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 TABLE OF CONTENTS

                                                                [Download Table]
                                                                         
Report of Independent Auditors ..................................     2  

Statements of Admitted Assets ...................................     3  

Statements of Liabilities, Capital and Surplus ..................     4  

Statements of Income and Changes in Capital and Surplus .........     5  

Statements of Cash Flow .........................................     6  

Notes to Statutory Basis Financial Statements ...................     7  

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholder of National Union Fire Insurance      
Company of Pittsburgh, PA.                                                      

We have audited the accompanying statutory statements of admitted assets and    
liabilities, capital and surplus of National Union Fire Insurance Company of    
Pittsburgh, PA. (the "Company") as of December 31, 2005 and 2004, and           
the related statutory statements of income and changes in capital and surplus,  
and of cash flow, for the years then ended. These financial statements are the  
responsibility of the Company's management. Our responsibility is to express an 
opinion on these financial statements based on our audits.                      

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and       
perform the audit to obtain reasonable assurance about whether the financial    
statements are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial    
statements. An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe that our audits provide a          
reasonable basis for our opinion.                                               

As described in Note 1 to the financial statements, the Company prepared        
these financial statements using accounting practices prescribed or permitted by
the Insurance Department of the Commonwealth of Pennsylvania, which practices   
differ from accounting principles generally accepted in the United States of    
America. The effects on the financial statements of the variances between the   
statutory basis of accounting and accounting principles generally accepted in   
the United States of America, although not reasonably determinable, are presumed
to be material.                                                                 

In our opinion, because of the effects of the matter discussed in the preceding 
paragraph, the financial statements referred to above do not present fairly, in 
conformity with accounting principles generally accepted in the United States of
America, the financial position of the Company as of December 31, 2005 and 2004,
or the results of its operations or its cash flow for the years then ended.     

In our opinion, the financial statements referred to above present fairly, in   
all material respects, the admitted assets, liabilities and surplus of the      
Company as of December 31, 2005 and 2004, and the results of its operations and 
its cash flows for the years then ended, on the basis of accounting described in
Notes 1 and 2 to the financial statements.                                      

PricewaterhouseCoopers LLP                                                      
New York, NY                                                                    
April 27, 2006                                                                  

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 STATEMENTS OF ADMITTED ASSETS

 STATUTORY BASIS

AS OF DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

                                                        [Enlarge/Download Table]

AS OF DECEMBER 31,                                                                                           2005          2004    
                                                                                                         ------------  ------------
                                                                                                                                   
Cash and Invested Assets:                                                                                                          
  Bonds, principally at amortized cost (NAIC market value: 2005 - $11,028,298; 2004 - $9,570,573)        $ 10,806,319  $  9,305,455
  Stocks:                                                                                                                          
     Common stocks, at NAIC market value (Cost: 2005 - $2,760,035; 2004 - $2,736,085)                       6,445,976     5,869,968
     Non-redeemable preferred stocks, at NAIC market value (Cost: 2005 - $2,110,012; 2004 - $2,259,718)     2,110,150     2,259,870
  Other invested assets, primarily at equity (Cost: 2005 - $978,354; 2004 - $778,680)                       1,425,397     1,051,860
  Short-term investments, at amortized cost (approximates NAIC market value)                                  168,815       109,446
  Securities lending collateral                                                                                83,903        43,883
  Cash                                                                                                         50,752       115,855
  Receivable for securities                                                                                         -        20,336
                                                                                                         ------------  ------------
       TOTAL CASH AND INVESTED ASSETS                                                                    $ 21,091,312  $ 18,776,673
                                                                                                         ------------  ------------

Investment income due and accrued                                                                             193,851       132,033
Agents' balances or uncollected premiums:                                                                                          
  Premiums in course of collection                                                                            705,461       637,680
  Premiums and installments booked but deferred and not yet due                                             1,460,490     1,216,506
  Accrued retrospective premiums                                                                               29,300         8,146
Amounts billed and receivable from high deductible policies                                                   333,315       387,572
Reinsurance recoverable on loss payments                                                                      419,911       258,992
Funds held by or deposited with reinsurers                                                                     25,026       170,139
Deposit accounting assets                                                                                   1,410,584     1,729,756
Deposit accounting assets - funds held                                                                        457,042       448,279
Federal and foreign income taxes recoverable from parent                                                      763,168       630,958
Net deferred tax assets                                                                                       385,906       379,832
Receivable from parent, subsidiaries and affiliates                                                           826,889       571,351
Equities in underwriting pools and associations                                                               609,772       526,124
Other admitted assets                                                                                         133,600       356,466
                                                                                                         ------------  ------------
       TOTAL ADMITTED ASSETS                                                                             $ 28,845,627  $ 26,230,507
                                                                                                         ============  ============

 See Notes to Statutory Basis Financial Statements

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

STATEMENTS OF LIABILITIES, CAPITAL AND SURPLUS

 STATUTORY BASIS

AS OF DECEMBER 31, 2005 AND 2004

(000'S OMITTED EXCEPT SHARE INFORMATION)

                                                        [Enlarge/Download Table]

 AS OF DECEMBER 31,                                                   2005           2004     
----------------------------------------------------------------  ------------   ------------ 
                                                                                              
                                   Liabilities                                                

Reserves for losses and loss adjustment expenses                  $ 11,786,300   $  9,811,368 
Unearned premium reserves                                            4,291,224      4,142,837 
Commissions, premium taxes, and other expenses payable                 278,031        289,329 
Reinsurance payable on paid loss and loss adjustment expenses          153,630        273,785 
Funds held by company under reinsurance treaties                       267,740        275,189 
Provision for reinsurance                                              201,761        334,696 
Ceded reinsurance premiums payable, net of ceding commissions          429,327         66,516 
Retroactive reinsurance reserves - assumed                              34,720         11,270 
Retroactive reinsurance reserves - ceded                               (68,657)       (86,065)
Deposit accounting liabilities                                         513,961        691,335 
Deposit accounting liabilities - funds held                          1,062,338      1,149,918 
Securities lending payable                                              83,903         43,883 
Collateral deposit liability                                           533,851        484,435 
Payable to parent, subsidiaries and affiliates                         886,989      1,190,865 
Other liabilities                                                      270,346        174,325 
                                                                  ------------   ------------ 
  TOTAL LIABILITIES                                               $ 20,725,464   $ 18,853,686 
                                                                  ------------   ------------ 

                               Capital and Surplus                                            

Common capital stock, $5.00 par value, 1,000,000 shares                                       
   authorized; 895,750 shares issued and outstanding                     4,479          4,479 
Capital in excess of par value                                       2,694,092      2,494,262 
Unassigned surplus                                                   5,349,702      4,791,970 
Special surplus funds from retroactive reinsurance                      71,890         86,110 
                                                                  ------------   ------------ 
  TOTAL CAPITAL AND SURPLUS                                          8,120,163      7,376,821 
                                                                  ------------   ------------ 
 TOTAL LIABILITIES, CAPITAL, AND SURPLUS                          $ 28,845,627   $ 26,230,507 
                                                                  ============   ============ 

 See Notes to Statutory Basis Financial Statements

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 STATEMENTS OF INCOME AND CHANGES IN CAPITAL AND SURPLUS

 STATUTORY BASIS

FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

                                                        [Enlarge/Download Table]

FOR THE YEARS ENDED DECEMBER 31,                                                 2005          2004    
---------------------------------------------------------------------------  -----------   ----------- 
                                                                                                       

                              Statements of Income                                                     

Underwriting Income:                                                                                   
  Premiums earned                                                            $ 7,035,963   $ 6,592,662 
                                                                             -----------   ----------- 

Underwriting Deductions:                                                                               
  Losses incurred                                                              5,207,675     4,943,210 
  Loss adjustment expenses incurred                                            1,138,284       755,384 
  Other underwriting expenses incurred                                         1,401,165     1,369,229 
                                                                             -----------   ----------- 
Total Underwriting Deductions                                                  7,747,124     7,067,823 
                                                                             -----------   ----------- 
NET UNDERWRITING LOSS                                                           (711,161)     (475,161)
                                                                             -----------   ----------- 

Investment Income:                                                                                     
  Net investment income earned                                                   747,551       826,487 
  Net realized capital gains (net of capital                                                           
   gains taxes: 2005 - $24,064; 2004 - $24,340)                                   44,691        45,202 
                                                                             -----------   ----------- 
NET INVESTMENT GAIN                                                              792,242       871,689 
                                                                             -----------   ----------- 

Net loss from agents' or premium balances charged-off                           (153,838)      (45,160)
Other gain                                                                        96,755        76,169 
                                                                             -----------   ----------- 
NET INCOME AFTER CAPITAL GAINS TAXES AND BEFORE FEDERAL INCOME TAXES              23,998       427,537 
Federal income tax expense (benefit)                                            (107,916)      101,147 
                                                                             -----------   ----------- 
    NET INCOME                                                               $   131,914   $   326,390 
                                                                             ===========   =========== 

                         Changes in Capital and Surplus                                                

Capital and Surplus, as of December 31, Previous Year                        $ 7,376,821   $ 6,899,256 
  Adjustment to beginning surplus                                               (205,585)     (545,684)
                                                                             -----------   ----------- 
CAPITAL AND SURPLUS, AS OF JANUARY 1,                                          7,171,236     6,353,572 
                                                                             -----------   ----------- 

Changes in capital and surplus:                                                                        
  Net income                                                                     131,914       326,390 
  Change in net unrealized capital gains [net of capital gains                                         
   taxes: 2005 - $(18,068); 2004 - $43,543]                                      697,684       529,835 
  Change in net deferred income taxes                                             46,237       298,938 
  Change in non-admitted assets                                                  (88,388)      (91,499)
  Change in provision for reinsurance                                            132,935        42,397 
  Paid in surplus                                                                199,830       143,782 
  Cash dividends to stockholder                                                  (97,750)     (207,199)
  Other surplus adjustments                                                            -       (39,660)
  Foreign exchange translation                                                   (73,535)       20,265 
                                                                             -----------   ----------- 
    TOTAL CHANGES IN CAPITAL AND SURPLUS                                         948,927     1,023,249 
                                                                             -----------   ----------- 
 CAPITAL AND SURPLUS, AS OF DECEMBER 31,                                     $ 8,120,163   $ 7,376,821 
                                                                             ===========   =========== 

 See Notes to Statutory Basis Financial Statements

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 STATEMENTS OF CASH FLOW

 STATUTORY BASIS

FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

                                                        [Enlarge/Download Table]

FOR THE YEARS ENDED DECEMBER 31,                                      2005          2004    
-----------------------------------------------------------      ------------  ------------ 
                                                                                            
                              Cash From Operations                                          

Premiums collected, net of reinsurance                           $  7,217,780  $  7,010,374 
Net investment income                                                 720,255       831,974 
Miscellaneous income (expense)                                        (57,062)       31,571 
                                                                 ------------  ------------ 
  SUB-TOTAL                                                         7,880,973     7,873,919 
                                                                 ------------  ------------ 
Benefit and loss related payments                                   3,931,978       (65,276)
Commission and other expense paid                                   2,113,308     1,864,377 
Dividends paid to policyholders                                           927           634 
Change in federal income taxes                                         47,537       675,868 
                                                                 ------------  ------------ 
  NET CASH FROM OPERATIONS                                          1,787,223     5,398,316 
                                                                 ------------  ------------ 

                              Cash From Investments                                         

Proceeds from investments sold, matured, or repaid                                          
  Bonds                                                             2,374,908     2,314,128 
  Stocks                                                              677,784       550,433 
  Other                                                             3,296,328     4,193,343 
                                                                 ------------  ------------ 
  TOTAL PROCEEDS FROM INVESTMENTS SOLD, MATURED, OR REPAID          6,349,020     7,057,904 
                                                                 ------------  ------------ 

Cost of Investments Acquired                                                                
  Bonds                                                             3,915,482     5,009,144 
  Stocks                                                              521,240       459,758 
  Other                                                             3,256,822     4,240,241 
                                                                 ------------  ------------ 
  TOTAL COST OF INVESTMENTS ACQUIRED                                7,693,544     9,709,143 
                                                                 ------------  ------------ 
  NET CASH (USED IN) INVESTING ACTIVITIES                          (1,344,524)   (2,651,240)
                                                                 ------------  ------------ 

                  Cash From Financing and Miscellaneous Sources                             

Capital and Surplus paid-in, less treasury stock                            -       143,782 
Dividends to stockholder                                             (146,977)     (206,320)
Net deposit on deposit-type contracts and other insurance              45,455      (677,632)
Other                                                                (346,911)   (2,021,066)
                                                                 ------------  ------------ 
  NET CASH (USED IN) FINANCING AND MISCELLANEOUS ACTIVITIES          (448,433)   (2,761,236)
                                                                 ------------  ------------ 
  NET CHANGE IN CASH AND SHORT-TERM INVESTMENTS                        (5,734)      (14,160)
Cash and short-term Investments:                                                            
  Beginning of year                                                   225,301       239,461 
                                                                 ------------  ------------ 
  END OF YEAR                                                    $    219,567  $    225,301 
                                                                 ============  ============ 

 See Notes to Statutory Basis Financial Statements

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT STATUTORY BASIS ACCOUNTING     
POLICIES                                                                        

A.    ORGANIZATION                                                              

The National Union Fire Insurance Company of Pittsburgh, PA. (the   
"Company") is a direct wholly-owned subsidiary of the American      
International Group, Inc. (the "Parent" or "AIG").                  

The Company writes substantially all lines of property and casualty 
  insurance with an emphasis on U.S. commercial business. In addition to
    writing substantially all classes of business insurance, including large
 commercial or industrial property insurance, excess liability, inland
marine, environmental, workers' compensation and excess and umbrella
     coverages, the Company offers many specialized forms of insurance such as
      aviation, accident and health, equipment breakdown, directors and officers
   liability (D&O), difference in conditions, kidnap-ransom, export credit
    and political risk, and various types of errors and omissions coverages.
   Through AIG's risk management operation, the Company provides insurance
    and risk management programs to large corporate customers, while through
AIG's risk finance operation the Company is a leading provider in   
customized structured products.                                     

The Company accepts business mainly from insurance brokers, enabling
   selection of specialized markets and retention of underwriting control.
    Any licensed insurance broker is able to submit business to the Company,
    but such broker usually has no authority to commit the Company to accept
the risk. In addition, the Company utilizes certain managing general
agents and third party administrators for policy issuance and       
administration, underwriting, and claims adjustment services.       

    The Company has significant transactions with the Parent and affiliates.
In addition, the Company participates in an inter-company pooling   
agreement with certain affiliated companies (see Note 5).           

B.    SUMMARY OF SIGNIFICANT STATUTORY BASIS ACCOUNTING POLICIES                

PRESCRIBED OR PERMITTED STATUTORY ACCOUNTING PRACTICES:             

      The accompanying financial statements of the Company have been prepared in
conformity with accounting practices prescribed or permitted by the 
Insurance Department of the Commonwealth of Pennsylvania.           

   The Insurance Department of the Commonwealth of Pennsylvania recognizes
only statutory accounting practices prescribed or permitted by the  
    Commonwealth of Pennsylvania for determining and reporting the financial
  position and results of operations of an insurance company and for the
     purpose of determining its solvency under the Pennsylvania Insurance Law.
    The National Association of Insurance Commissioners Accounting Practices
 and Procedures Manual ("NAIC SAP") has been adopted as a component of
      prescribed practices by the Commonwealth of Pennsylvania. The Commissioner
      of Insurance has the right to permit other specific practices that deviate
from prescribed practices.                                          

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

    The Insurance Department of the Commonwealth of Pennsylvania has adopted
   the following accounting practices that differ from those found in NAIC
SAP. Specifically, the prescribed practice of discounting of workers
     compensation reserves on a non-tabular basis (in NAIC SAP, discounting of
reserves is not permitted on a non tabular basis) and the permitted 
   practice that Schedule F is prepared on a New York basis, including New
    York Regulation 20 reinsurance credits for calculating the provision for
     unauthorized reinsurance (in NAIC SAP, New York Regulation 20 reinsurance
credits are not permitted).                                         

A reconciliation of the Company's net income and capital and surplus
between NAIC SAP and practices prescribed and permitted by the      
Commonwealth of Pennsylvania is shown below:                        

                                                                      [Download Table]
                                                                     
                                                                     
               DECEMBER 31,                    2005         2004     
-----------------------------------------  -----------   ----------- 
                                                                     

NET INCOME, PENNSYLVANIA INSURANCE                                   
DEPARTMENT                                 $   131,914   $   326,390 
State Practices - (Deduction) Income:                                
   Non-Tabular Discounting                    (403,719)      (46,613)
                                           -----------   ----------- 
NET (LOSS) INCOME, NAIC SAP                $  (271,805)  $   279,777 
                                           ===========   =========== 

STATUTORY SURPLUS, PENNSYLVANIA INSURANCE                            
DEPARTMENT                                 $ 8,120,163   $ 7,376,821 
State Practices - (Charge) Credit:                                   
   Non-Tabular Discounting                    (594,958)     (191,239)
   Reinsurance Credits                        (212,192)     (201,318)
                                           -----------   ----------- 
STATUTORY SURPLUS, NAIC SAP                $ 7,313,013   $ 6,984,264 
                                           ===========   =========== 
                                                                          
     In addition to the aforementioned matters, the Commissioner has permitted
     the Company to utilize the independent audit of the Company's Parent (the
 consolidated upstream holding company) to support the requirement for
    audited U.S. GAAP equity of the investments in non insurance and foreign
  insurance entities. The Commissioner has also permitted the Company to
  utilize audited financial statements prepared on a basis of accounting
 other than U.S. GAAP, to value investments in joint ventures, limited
partnerships and hedge funds.                                       

STATUTORY ACCOUNTING PRACTICES AND GENERALLY ACCEPTED ACCOUNTING    
PRINCIPLES:                                                         

 NAIC SAP is a comprehensive basis of accounting other than accounting
   principles generally accepted in the United States of America ("GAAP").
 NAIC SAP varies in certain respects from GAAP. A description of these
accounting differences is set forth below:                          

Under GAAP:                                                         

    a.    Costs incidental to acquiring business related to premiums written
          and costs allowed by assuming reinsurers related to premiums ceded
  are deferred and amortized over the periods covered by the
underlying policies or reinsurance agreements;          

b.    Statutory basis reserves, such as non-admitted assets and     
unauthorized reinsurance are restored to surplus;       

   c.    The equity in earnings of affiliates with ownership between 20.0%
            and 50.0% is included in net income, and investments in subsidiaries
with greater than 50.0% ownership are consolidated;     

d.    Estimated undeclared dividends to policyholders are accrued;  

e.    The reserves for losses and loss adjustment expense (LAE) and 
          unearned premium reserves are presented gross of ceded reinsurance
by establishing a reinsurance asset;                    

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

f.    Debt and equity securities deemed to be available for sale or 
           trading are reported at fair value. The difference between the cost
         and the fair value for securities available for sale is reflected
      net of related deferred income tax, as a separate component of
           accumulated other comprehensive income in shareholder's equity. For
         trading securities, the difference between cost and fair value is
           included in income, while securities held to maturity are valued at
amortized cost;                                         

   g.    Direct written premium contracts that do not have sufficient risk
transfer are treated as deposit accounting liabilities; 

    h.    Insurance and reinsurance contracts recorded as retroactive retain
           insurance accounting treatment if they pass the risk transfer test.
         If risk transfer is not met, no insurance accounting treatment is
      permitted. All income is then recognized based upon either the
interest or recovery method; and                        

      i.    Deferred federal income taxes are provided for temporary differences
         for the expected future tax consequences of events that have been
           recognized in the Company's financial statements. The provision for
  deferred income taxes is reported in the income statement.

Under NAIC SAP:                                                     

    a.    Costs incidental to acquiring business related to premiums written
          and costs allowed by assuming reinsurers related to premiums ceded
are immediately expensed;                               

b.    Statutory basis reserves, such as non-admitted assets and     
 unauthorized reinsurance are charged directly to surplus;

c.    Subsidiaries are not consolidated. The equity in earnings of  
           affiliates is included in unrealized appreciation/(depreciation) of
         investments, which is reported directly in surplus. Dividends are
reported as investment income;                          

d.    Declared dividends to policyholders are accrued;              

  e.    The reserve for losses and LAE and unearned premium reserves are
presented net of ceded reinsurance;                     

 f.    NAIC investment grade debt securities are reported at amortized
         cost, while NAIC non-investment grade debt securities (NAIC rated
4-6) are reported at lower of cost or market;           

    g.    Direct written premium contracts are reported as insurance as long
         as policies are issued in accordance with insurance requirements;

      h.    Insurance and reinsurance contracts deemed to be retroactive receive
           special accounting treatment. Gains or losses are recognized in the
          income statement and surplus is segregated by the ceding entity to
the extent of gains realized; and                       

      i.    Deferred federal income taxes are provided for temporary differences
         for the expected future tax consequences of events that have been
    recognized in the Company's financial statements. Changes in
         deferred income taxes are charged directly to surplus and have no
       impact on statutory earnings. The admissibility of deferred tax
assets is limited by statutory guidance.                

The effects on the financial statements of the variances between the
      statutory basis of accounting and accounting principles generally accepted
      in the United States of America, although not reasonably determinable, are
presumed to be material.                                            

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

SIGNIFICANT STATUTORY ACCOUNTING PRACTICES:                         

     A summary of the Company's significant statutory accounting practices are
as follows:                                                         

   USE OF ESTIMATES: The preparation of financial statements in conformity
    with accounting practices prescribed or permitted by the Commonwealth of
   Pennsylvania requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities. On an ongoing
      basis, the Company evaluates all of its estimates and assumptions. It also
   requires disclosure of contingent assets and liabilities at the date of
     the financial statements and the reported amounts of revenue and expenses
during the period. Actual results could differ from management's    
estimates.                                                          

INVESTED ASSETS: The Company's invested assets are accounted for as 
follows:                                                            

      -     Short-term Investments: The Company considers all highly liquid debt
        securities with maturities of greater than three months but less
  than twelve months or less from the date of purchase to be
     short-term investments. Short-term investments are carried at
          amortized cost which approximates NAIC market value (as designated
by the NAIC Securities Valuation Office).               

-     Bonds: Bonds with an NAIC designation of 1 to 3 are carried at
      amortized cost using the scientific method. Bonds with an NAIC
           designation of 4 to 6 are carried at the lower of amortized cost or
           the NAIC-designated market value. Bonds that are determined to have
         an other-than-temporary decline in value are written down to fair
         value as the new cost basis, with the corresponding charge to Net
Realized Capital Gains as a realized loss.              

    Mortgage-backed securities are carried at amortized cost and
            generally are more likely to be prepaid than other fixed maturities.
      As of December 31, 2005 and 2004, the NAIC market value of the
      Company's mortgage-backed securities approximated $238,400 and
  $237,683, respectively. Mortgage-backed securities include
      prepayment assumptions used at the purchase date and valuation
         changes caused by changes in estimated cash flows, and are valued
            using the retrospective method. Prepayment assumptions were obtained
from broker surveys.                                    

     -     Common and Preferred Stocks: Unaffiliated common stocks are carried
            principally at market value. Perpetual preferred stocks with an NAIC
            rating of P1 or P2 are carried at market value. Redeemable preferred
      stocks with an NAIC rating of RP1 or RP2 that are subject to a
        100.0% mandatory sinking fund are carried at amortized cost. All
           below investment grade preferred stocks are carried at the lower of
amortized cost or NAIC designated market values.        

            Investments in affiliates for which the Company's ownership interest
            (including ownership interest of the Parent and its subsidiaries) is
            less than 85.0%, and whose securities are traded on one of the three
        major U.S. exchanges, are included in common stock at the quoted
            market value less a discount as prescribed by NAIC SAP. The discount
        rate is approximately 23.0%. Other investments in affiliates are
       included in common stocks based on the net worth of the entity.

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

   -     Other Invested Assets: Other invested assets consist primarily of
          investments in joint ventures and partnerships. Joint ventures and
          partnership investments are accounted for under the equity method,
            based on the most recent financial statements of the entity. Changes
           in value are recorded as unrealized gains or losses. Investments in
      joint ventures and partnerships that are determined to have an
            other-than-temporary decline in value are written down to fair value
            as the new cost basis, with the corresponding charge to Net Realized
            Capital Gains as a realized loss. The intermediate bond mutual fund,
         owned by AIG, is carried principally at the NAIC market value and
   the unrealized gain or loss reported as unassigned surplus.

 -     Derivatives: Foreign exchange forward contracts are derivatives
       whereby the Company agrees to exchange a specific amount of one
           currency for a specific amount of another currency at a date in the
       future. Foreign exchange contracts are entered into in order to
           manage exposure to changes in the foreign exchange rates related to
    long-term foreign denominated bonds held by the Company. The
            contracts are usually one to three months in duration and are marked
      to market every month using publicly obtained foreign exchange
       rates. When the contract expires, realized gains and losses are
recorded in investment income.                          

      Options purchased are included in Other Invested Assets on the
       Company's Statements of Admitted Assets. Options are carried at
          market value. Options written are reported in Other Liabilities on
          the Statements of Liabilities, Capital and Surplus. Realized gains
           or losses on the disposition of options are determined on the basis
of specific identification and are included in income.  

          Futures are exchange contracts whereby the Company agrees to buy a
           specific amount of an underlying security (usually an equity index)
      at a specific price in the future. Through out the term of the
      contract, the change in the underlying security's price in the
       future is calculated each business day, and the gain or loss is
        transferred in cash to or from the counterparty. When the future
       position is closed out or expires, a final payment is made. The
            daily mark-to-market payments are accounted for as realized gains or
losses.                                                 

            Any change in unrealized gains or losses on derivatives purchased or
          written are credited or charged to unassigned surplus. The Company
does not use hedge accounting for its derivatives.      

      -     Net Investment Gains (Losses): Net investment gains (losses) consist
         of net investment income earned and realized gains or losses from
    the disposition of investments. Net investment income earned
           includes accrued interest, accrued dividends and distributions from
         partnerships and joint ventures. Investment income is recorded as
          earned. Realized gains or losses on the disposition of investments
are determined on the basis of specific identification. 

     -     Unrealized Gains (Losses): Unrealized gains (losses) on all stocks,
bonds carried at NAIC designated values, joint ventures,
      partnerships, derivatives and foreign currency translation are
credited or charged to unassigned surplus.              

      REVENUE RECOGNITION: Direct written premium contracts are primarily earned
    on a pro-rata basis over the terms of the policies to which they relate.
    Accordingly, unearned premiums represent the portion of premiums written
  which is applicable to the unexpired terms of policies in force. Ceded
     premiums are amortized into income over the contract period in proportion
to the protection received.                                         

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

     Premium estimates for retrospectively  rated policies are recognized within
    the periods in which the related  losses are incurred. In accordance  with
 NAIC Statement on Statutory Accounting Practices (SSAP) No. 66 entitled
Retrospectively Rated Contracts, the Company estimates accrued        
retrospectively rated premium adjustments by using the application of 
   historical ratios of retrospective rated premium development. The Company
   records accrued retrospectively rated premiums as an adjustment to earned
premiums. In connection therewith, as of December 31, 2005 and 2004,  
   accrued premiums related to the Company's retrospectively rated contracts
   amounted to $29,300 and $8,146, respectively, net of non-admitted premium
balances of $3,256 and $905, respectively.                            

   Adjustments to premiums for changes in the level of exposure to insurance
    risk are generally determined based upon audits conducted after the policy
expiration date. In accordance with SSAP No. 53, entitled Property and
    Casualty Contracts-Premiums, the Company records these estimates [commonly
   known as Earned But Unbilled (EBUB) Premiums] as an adjustment to written
     premium, and earns these premiums immediately. For premium adjustments that
    result in a return of premium to the policyholder, the Company immediately
reduces earned premiums. When the EBUB premium exceeds the amount of  
   collateral held, a non-admitted asset (equivalent to 10.0% of this excess
amount) is recorded.                                                  

    In accordance with SSAP No. 53, the Company reviews its ultimate losses in
    respect to its premium reserves. A liability is established if the premium
reserves are not sufficient to cover the ultimate loss projections and
     associated acquisition expenses. Investment income is not considered in the
calculation.                                                          

     For certain lines of business for which the insurance policy is issued on a
     claims-made basis, the Company offers the Insured the option to purchase an
 extended reporting endorsement (commonly referred to as Tail Coverage),
which permits the extended reporting of insured events after the      
  termination of the claims made contract. Extended reporting endorsements
modify the exposure period of the underlying contract and can be for a
  defined period (e.g., six months, one year, five years) or an indefinite
     period. For defined reporting periods, premiums are earned over the term of
the fixed period. For indefinite reporting periods, premiums are fully
   earned and loss and LAE liabilities associated with the unreported claims
are recognized immediately.                                           

REINSURANCE: Ceded premiums, commissions, expense reimbursements and  
    reserves related to ceded business are accounted for on a basis consistent
with that used in accounting for the original contracts issued and the
   terms of the reinsurance contract. Ceded premiums have been reported as a
  reduction of premium earned. Amounts applicable to ceded reinsurance for
unearned premium reserves, and reserves for losses and LAE have been  
    reported as a reduction of these items, and expense allowances received in
   connection with ceded reinsurance are accounted for as a reduction of the
related acquisition cost.                                             

RETROACTIVE REINSURANCE: Retroactive reinsurance reserves are shown   
separately in the balance sheet. Gains or losses are recognized in the
     income statement. Surplus gains are reported as segregated unassigned funds
  (surplus) until the actual retroactive reinsurance recovered exceeds the
consideration paid.                                                   

                                                                         Page 12

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

  As agreed with the Company's domiciliary state, the Company analyzed the
     status of all reinsurance treaties entered into on or after January 1, 1994
    for which ceded reserves as of December 31, 2004 (including IBNR) exceeded
    $100 for compliance with the nine month rule as prescribed in SSAP No. 62,
     entitled Property and Casualty Reinsurance. Any such treaties for which the
  documentation required by SSAP No. 62 did not exist were reclassified as
retroactive, with appropriate adjustments to underwriting accounts and
unassigned surplus. Treaties entered into prior to January 1, 2005 for
which such documentation is contained in the Company's files retained 
prospective treatment, irrespective of whether such documentation was 
  executed within nine months of the treaty's effective date in accordance
with agreements reached with the Domiciliary Insurance Department.    

   DEPOSIT ACCOUNTING: All assumed and ceded reinsurance contracts which the
  Company determines do not transfer a sufficient amount of insurance risk
     are recorded as deposit accounting transactions in accordance with SSAP No.
   62 and SSAP No. 75 entitled Reinsurance Deposit Accounting - An Amendment
to SSAP No. 62, Property and Casualty Reinsurance.                    

As agreed with the Company's domiciliary state, direct insurance      
 transactions whereby the Company determines there was insufficient risk
    transfer, other than those where a policy was issued (a) in respect of the
insured's requirement for evidence of coverage pursuant to applicable 
 statutes (insurance statutes or otherwise), contractual terms or normal
   business practices, (b) in respect of an excess insurer's requirement for
     an underlying primary insurance policy in lieu of self insurance, or (c) in
 compliance with filed forms, rates and/or rating plans, are recorded as
deposit accounting arrangements.                                      

FOREIGN PROPERTY CASUALTY BUSINESS: As agreed with the Company's      
domiciliary state, the Company will continue to follow the current    
   presentation practices relating to its foreign branches and participation
in the business of the American International Underwriters Overseas   
Association (AIUOA). See Note 5 for a description of AIUOA pooling    
arrangement and related financial statement presentation.             

COMMISSIONS AND UNDERWRITING EXPENSES: Commissions, premium taxes, and
     certain other underwriting expenses related to premiums written are charged
  to income at the time the premiums are written and are included in Other
     Underwriting Expenses Incurred. In accordance with SSAP No. 62, the Company
   records a liability for reinsurance ceding commissions recorded in excess
of acquisition costs. The liability is earned over the terms of the   
underlying policies.                                                  

 RESERVES FOR LOSSES AND LAE: The reserves for losses and LAE, including
 incurred but not reported (IBNR) losses, are determined on the basis of
actuarial specialists' evaluations and other estimates, including     
  historical loss experience. The methods of making such estimates and for
   establishing the resulting reserves are continually reviewed and updated,
and any resulting adjustments are recorded in the current period.     
Accordingly, losses and LAE are charged to income as incurred. Amounts
   recoverable from reinsurers are estimated in a manner consistent with the
claim liability associated with the reinsured policy.                 

    The Company  discounts  its loss reserves on workers' compensation claims.

     The calculation of the Company's tabular discount is based upon the 1979-81
   Decennial Mortality Table, and applying a 3.5% interest rate. At December
31,                                                                   

                                                                         Page 13

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

2005 and 2004, the reserves for losses (net of reinsurance) subject to
tabular discount were $2,135,010 and $1,423,684,  respectively. As of 
     December 31, 2005 and 2004, the Company's tabular  discounting  amounted to
     $194,527  and  $151,671,  respectively,  all of which  were  applied to the
Company's case reserves.                                              

  As prescribed by the Pennsylvania Insurance statutes, the calculation of
the Company's non-tabular discount is determined as follows:          

 -    For accident years 2001 and prior - based upon the industry payout
pattern and a 6.0% interest rate.                           

     -    For accident  years 2002 and subsequent - based upon the yield of U.S.
          Treasury securities between one and twenty years and the Company's own
payout pattern.                                             

     At December 31, 2005 and 2004, the reserves for losses (net of reinsurance)
subject to non-tabular discounting were $3,420,746 and $1,272,013,    
   respectively. As of December 31, 2005, the Company's non-tabular discount
  amounted to $594,958, of which $224,416 and $370,542 was applied to case
 reserves and IBNR, respectively. As of December 31, 2004, the Company's
    non-tabular discount amounted to $191,239, all of which was applied to the
Company's case reserves.                                              

    FOREIGN EXCHANGE: Assets and liabilities denominated in foreign currencies
are translated at the rate of exchange in effect at the close of the  
 reporting period. Unrealized gains and losses from translating balances
from foreign currency into United States currency are recorded as     
  adjustments to surplus. Gains and losses resulting from foreign currency
transactions are included in income.                                  

STATUTORY BASIS RESERVES: Certain required statutory basis reserves,  
principally the provision for reinsurance, are charged to surplus and 
reflected as a liability of the Company.                              

     POLICYHOLDERS' DIVIDENDS:  Dividends to policyholders are charged to income
as declared.                                                          

CAPITAL AND SURPLUS: Common capital stock and capital in excess of par
value represent amounts received by the Company in exchange for shares
 issued. The common capital stock represents the number of shares issued
multiplied by par value per share. Capital in excess of par value     
     represents the value received by the Company in excess of the par value per
share.                                                                

     NON-ADMITTED ASSETS: Certain assets, principally electronic data processing
    (EDP) equipment, software, leasehold improvements, certain overdue agents'
     balances, prepaid expenses and certain deferred taxes that exceed statutory
    guidance are designated as Non-admitted Assets and are directly charged to
    unassigned surplus. EDP equipment is depreciated over five years using the
    straight line method. Leasehold improvements are amortized over the lesser
   of the remaining lease term or the estimated useful life of the leasehold
     improvement. In connection therewith, for the years ended December 31, 2005
 and 2004, depreciation and amortization expense amounted to $25,983 and
$18,008, respectively.                                                

RECLASSIFICATIONS: Certain balances contained in the 2004 financial   
statements have been reclassified to conform with the current year's  
presentation.                                                         

                                                                         Page 14

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

NOTE 2 - ACCOUNTING ADJUSTMENTS TO STATUTORY BASIS FINANCIAL STATEMENTS         

A.   ACCOUNTING ADJUSTMENTS TO 2005 STATUTORY BASIS FINANCIAL STATEMENTS        

    During 2005, the Company dedicated significant effort to the resolution of
  previously identified weaknesses in internal controls over balance sheet
reconciliations. As a result of these remediation efforts, management 
concluded that certain adjustments should be made to the assets,      
     liabilities, net income and unassigned surplus as reported in the Company's
 2004 amended Annual Statement. The adjustments resulted in an after tax
statutory charge of $205,585. In accordance with SSAP No. 3, entitled 
Accounting Changes and Correction of Errors, the Company reported the 
impact to its 2004 and prior unassigned surplus as an adjustment to   
unassigned surplus as of January 1, 2005.                             

                                                                [Download Table]
                                                                       
CAPITAL AND SURPLUS, AS OF DECEMBER 31, 2004               $ 7,376,821 

Adjustments to Beginning Capital and Surplus:                          

  1. Asset realization                                        (242,195)

  2. Revenue recognition                                       (68,690)
                                                           ----------- 

        TOTAL ADJUSTMENTS TO BEGINNING CAPITAL AND                     
          SURPLUS, BEFORE FEDERAL INCOME TAXES                (310,885)

Federal Income Taxes:                                                  

     Current federal income taxes                               23,551 

     Deferred income taxes                                      81,749 
                                                           ----------- 

        TOTAL ADJUSTMENTS TO BEGINNING CAPITAL AND                     
          SURPLUS, AFTER FEDERAL INCOME TAXES                 (205,585)
                                                           ----------- 

CAPITAL AND SURPLUS, AS OF JANUARY 1, 2005                 $ 7,171,236 
                                                           =========== 

     An explanation for each of the adjustments for prior period  corrections is
described below:                                                      

     1.   ASSET  REALIZATION:  As a result of the  remediation  of the  internal
          control  weaknesses  related to the balance sheet  reconciliations,  a
          further  review was performed of the Company's  allowance for doubtful
          accounts  and  other  accruals.  Based  on this  review,  the  Company
          determined that the allowances related to certain premium  receivable,
          reinsurance  recoverable and other asset accounts were not sufficient.
         The adjustment has established additional allowances for these items.

     2.   REVENUE  RECOGNITION:  As a result of the  remediation of the internal
          control  weaknesses  related  to  the  Company's  revenue  recognition
          policies,  a further review was performed by the Company that resulted
         in  revisions  to  revenues  that were  recognized  in prior  periods
       related to certain long duration environmental insurance contracts.

                                                                         Page 15

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

B.   ACCOUNTING ADJUSTMENTS TO 2004 STATUTORY BASIS FINANCIAL STATEMENTS        

As a result of regulatory inquiries into certain transactions, AIG    
   conducted an internal review of information and certain transactions from
January 2000 to May 2005. As part of the internal review, the Company 
   reviewed the statutory accounting treatment for matters identified during
the internal review and concluded that certain transactions required  
adjustment.                                                           

  An agreement was reached with the Company's domiciliary state to re-file
   its 2004 annual statement using the methodology prescribed under SSAP No.
   3. In applying this methodology, the Company has reflected the impact (in
the amount of $545,684) to its 2003 and prior unassigned surplus as an
adjustment to unassigned surplus as of January 1, 2004.               

    A reconciliation of the Company's unassigned surplus balance from December
   31, 2003 to January 1, 2004, taking into consideration these prior period
adjustments, is outlined in the table below:                          

                                                                [Download Table]
                                                                       
CAPITAL AND SURPLUS, AS OF DECEMBER 31, 2003               $ 6,899,256 

Adjustments to beginning capital and surplus:                          

1. Risk Transfer (Union Excess, Richmond and other)           (455,383)

2. Coventry                                                    (16,817)

3. In-Substance Defeasance                                      19,500 

4. Loss Reserves                                               (79,040)

5. DBG Analysis                                                (56,278)

6. Other Adjustments                                            42,334 

TOTAL ADJUSTMENTS TO BEGINNING CAPITAL AND SURPLUS            (545,684)
                                                           ----------- 

CAPITAL AND SURPLUS, AS OF JANUARY 1, 2004                 $ 6,353,572 
                                                           =========== 

    The above reconciliation of the Company's unassigned surplus at January 1,
2004 is presented net of income taxes. The Company has evaluated any  
   deferred income taxes arising from these adjustments for admissibility in
accordance with NAIC SAP.                                             

An explanation of each of the accounting adjustments included in the  
reconciliation above are discussed below:                             

     1.   RISK TRANSFER (UNION EXCESS, RICHMOND AND OTHER): Reinsurance ceded to
          Union   Excess   Reinsurance   Company,   Ltd.   (Union   Excess),   a
          Barbados-domiciled   reinsurer,   Richmond  Insurance  Company,   Ltd.
          (Richmond),  a Bermuda-based  reinsurance  holding  company,  and some
          other insurance and reinsurance  transactions were adjusted to deposit
          accounting due to  insufficient  risk transfer in accordance with SSAP
No.  62 and SSAP No. 75.                                    

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

     2.   COVENTRY:  Life  settlements  are  designed to assist  life  insurance
          policyholders  to  monetize  the  existing  value  of  life  insurance
          policies.  The Company  determined,  in light of new  information  not
          available at the time the initial  accounting  determination was made,
          that  the   accounting  for  these   transactions   as  insurance  and
          reinsurance  was a  misapplication  of statutory  accounting  and such
          transactions have been reversed in the Company's financial statements.

     3.   IN-SUBSTANCE DEFEASANCE:  The Company entered into a funding agreement
          and related  interest rate swap.  These  contracts were intended to be
          entered  into by  American  International  Specialty  Lines  Insurance
          Company  (AISLIC)  to  economically   hedge  a  corresponding   AISLIC
          contract.  The Company has since  assigned  the  intercompany  funding
          agreement  and novated the interest  rate swap to AISLIC as if in each
    case the contracts had been entered into by AISLIC at inception.

     4.   LOSS RESERVES:  The Company determined that the unsupported changes in
          reserves  independently from the actuarial process  constituted errors
which have been adjusted accordingly.                       

     5.   DOMESTIC  BROKERAGE GROUP (DBG)  ANALYSIS:  The Company has determined
          that  allowances  related to certain premium  receivable,  reinsurance
          recoverable and other assets were not  sufficient.  The adjustment has
established additional allowances for these items.          

     6.   OTHER  ADJUSTMENTS:  The Company has  summarized  other  miscellaneous
          adjustments that individually did not have a significant impact on the
adjustment of its statutory financial statements.           

                                                                         Page 17

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

NOTE 3 - INVESTMENTS                                                            

The amortized cost and NAIC market values* of the Company's bond investments at 
December 31, 2005 and 2004 are outlined in the table below:                     

                                                        [Enlarge/Download Table]

                                                                                  GROSS       GROSS         NAIC *  
                                                                   AMORTIZED   UNREALIZED   UNREALIZED      MARKET  
                                                                     COST         GAINS       LOSSES        VALUE   
                                                                  -----------  -----------  -----------  -----------
                                                                                                                    
AS OF DECEMBER 31, 2005                                                                                             

   U.S. governments                                               $    29,928  $       960  $        39  $    30,849
   All other governments                                              649,321       10,352        8,611      651,062
   States, territories and possessions                              1,835,166       44,713        4,654    1,875,225
   Political subdivisions of states, territories and possessions    2,643,663       60,523        2,539    2,701,647
   Special revenue and special assessment obligations and all                                                       
   non-guaranteed obligations of agencies and authorities and                                                       
   their political subdivisions                                     5,212,354      119,179        7,282    5,324,251
   Public utilities                                                    54,429          954          633       54,750
   Industrial and miscellaneous                                       381,458       18,070        9,014      390,514
                                                                  -----------  -----------  -----------  -----------
      TOTAL BONDS, AS OF DECEMBER 31, 2005                        $10,806,319  $   254,751  $    32,772  $11,028,298
                                                                  ===========  ===========  ===========  ===========
AS OF DECEMBER 31, 2004                                                                                             

   U.S. governments                                               $    45,062  $     1,117  $       144  $    46,035
   All other governments                                              465,565       17,831          260      483,136
   States, territories and possessions                              2,097,759       58,903        4,204    2,152,458
   Political subdivisions of states, territories and possessions    1,933,929       56,880          555    1,990,254
   Special revenue and special assessment obligation and all                                                        
   non-guaranteed obligations of agencies and authorities and                                                       
   their political subdivisions                                     4,300,455      131,102        2,836    4,428,721
   Public utilities                                                    10,515        1,205            -       11,720
   Industrial and miscellaneous                                       452,170        6,795          716      458,249
                                                                  -----------  -----------  -----------  -----------
      TOTAL BONDS, AS OF DECEMBER 31, 2004                        $ 9,305,455  $   273,833  $     8,715  $ 9,570,573
                                                                  ===========  ===========  ===========  ===========

As of December 31, 2005 and 2004, the actual fair market value, principally     
priced by Interactive Data Corporation, a third party rating source, for the    
above listed securities amounted to $11,030,435 and $9,673,296, respectively.   

----------                                                                      
*     The NAIC market value was used where available. When not available, market
values were obtained from third party pricing sources.              

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

The amortized cost and NAIC market values* of bonds at December 31, 2005 and    
2004, by contractual maturity, are shown below. Actual maturities may differ    
from contractual maturities because borrowers may have the right to call or     
prepay certain obligations with or without call or prepayment penalties.        

                                                        [Enlarge/Download Table]


                                                   2005                              2004           
                                        ----------------------------  ------------------------------
                                         AMORTIZED         NAIC *       AMORTIZED            NAIC * 
AS OF DECEMBER 31,                         COST         MARKET VALUE      COST          MARKET VALUE
--------------------------------------  -----------     ------------  ------------     -------------
                                                                                                    
Due in one year or less                 $    86,639     $    87,166   $    29,408      $    37,302  
Due after one year through five years       546,495         565,421       507,375          519,338  
Due after five years through ten years    8,122,058       8,259,989     1,447,668        1,482,452  
Due after ten years                       1,813,491       1,877,322     7,083,325        7,293,798  
Mortgaged-backed securities                 237,636         238,400       237,679          237,683  
                                        -----------     -----------   -----------      -----------  
   TOTAL BONDS                          $10,806,319     $11,028,298   $ 9,305,455      $ 9,570,573  
                                        ===========     ===========   ===========      ===========  

During 2005 and 2004, proceeds from the sale of the Company's bonds were        
$2,114,173 and $2,126,400, respectively. During 2005 and 2004, the Company      
realized gross gains of $52,643 and $18,767, respectively and gross losses of   
$21,356 and $19,712, respectively, related to these sales.                      

During 2005 and 2004, proceeds from the sale of the Company's equity investments
amounted to $585,696 and $501,264, respectively. Gross gains of $43,085 and     
$57,845 and gross losses of $8,592 and $7,161 were realized on those sales in   
2005 and 2004, respectively.                                                    

----------                                                                      
*    The NAIC market value was used where available. When not available, market 
values were obtained from third party pricing sources.                

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

The amortized cost and market values of the Company's common and preferred      
stocks at December 31, 2005 and 2004 are set forth in the table below:          

                                                        [Enlarge/Download Table]

                                       DECEMBER 31, 2005                                    DECEMBER 31, 2004                
                   ----------------------------------------------------  ----------------------------------------------------
                                   GROSS         GROSS         NAIC *                     GROSS         GROSS        NAIC *  
                    AMORTIZED    UNREALIZED    UNREALIZED      MARKET     AMORTIZED    UNREALIZED    UNREALIZED      MARKET  
                       COST        GAINS         LOSSES        VALUE        COST          GAINS        LOSSES        VALUE   
                   ----------    ----------    ----------    ----------  ----------    ----------    ----------    ----------
                                                                                                                             
Common Stocks:                                                                                                               

   Affiliated      $2,168,153    $3,730,014    $  127,265    $5,770,902  $2,133,267    $3,137,924    $  179,416    $5,091,775
   Non-affiliated     591,892       101,725        18,543       675,074     602,818       188,730        13,355       778,193
                   ----------    ----------    ----------    ----------  ----------    ----------    ----------    ----------
      TOTAL        $2,760,045    $3,831,739    $  145,808    $6,445,976  $2,736,085    $3,326,654    $  192,771    $5,869,968
                   ==========    ==========    ==========    ==========  ==========    ==========    ==========    ==========
Preferred Stocks:                                                                                                            

   Affiliated      $2,100,000    $        -    $        -    $2,100,000  $2,250,000    $        -    $        -    $2,250,000
   Non-affiliated      10,012           386           248        10,150       9,718           311           159         9,870
                   ----------    ----------    ----------    ----------  ----------    ----------    ----------    ----------
      TOTAL        $2,110,012    $      386    $      248    $2,110,150  $2,259,718    $      311    $      159    $2,259,870
                   ==========    ==========    ==========    ==========  ==========    ==========    ==========    ==========

The NAIC market value column for preferred stocks in the above table does not   
agree to the carrying amount in the Company's Statements of Admitted Assets due 
to the Company's redeemable preferred stocks being carried at amortized, while  
the Company's perpetual preferred stocks being carried at market value.         

As of December 31, 2005 and 2004, the Company held derivative investments of    
$(44,341) and $(729), respectively.                                             

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

The fair market value together with the aging of the pre-tax unrealized losses  
with respect to the Company's bonds and stocks as of December 31, 2005 and 2004 
is set forth in the table below:                                                

                                                        [Enlarge/Download Table]

                                          12 MONTHS OR LESS     GREATER THAN 12 MONTHS          TOTAL          
                                       -----------------------  ----------------------  ---------------------- 
                                          FAIR      UNREALIZED    FAIR     UNREALIZED      FAIR     UNREALIZED 
    DESCRIPTION OF SECURITIES            VALUE        LOSSES     VALUE       LOSSES        VALUE      LOSSES   
-------------------------------------  ----------   ----------  --------   -----------  ---------   ---------- 
                                                                                                               
As of December 31, 2005:                                                                                       

  U. S. Governments                    $    5,333   $       39  $      -   $         -  $    5,333   $       39
  All Other Governments                   268,895        4,240   124,919         4,371     393,814        8,611
  States, territories and possessions     378,022        3,069    31,115         1,585     409,137        4,654
  Political subdivisions of states,                                                                            
  territories and possessions             387,574        2,539         -             -     387,574        2,539
  Special revenue                         812,359        6,842    12,251           440     824,610        7,282
  Public utilities                         47,746          633         -             -      47,746          633
  Industrial and miscellaneous            113,404        4,603     5,753         4,411     119,157        9,014
                                       ----------   ----------  --------   -----------  ----------   ----------
  TOTAL BONDS                           2,013,333       21,965   174,038        10,807   2,187,371       32,772

  Common Stock                            287,947       20,822   336,178       124,986     654,125      145,808
  Preferred Stock                               -            -       751           248         751          248
                                       ----------   ----------  --------   -----------  ----------   ----------
  TOTAL STOCKS                            651,822      145,403     3,054           653     654,876      145,056
                                       ----------   ----------  --------   -----------  ----------   ----------
  TOTAL BONDS AND STOCKS               $2,665,155   $  167,368  $177,092   $    11,460  $2,842,247   $  178,828
                                       ==========   ==========  ========   ===========  ==========   ==========

As of December 31, 2004:                                                                                       

  U. S. Governments                    $    2,400   $      144  $      -   $         -  $    2,400   $      144
  All Other Governments                   121,010          260         -             -     121,010          260
  States, territories and possessions     170,120          982   285,409         3,227     455,529        4,204
  Political subdivisions of states,                                                                            
  territories and possessions             174,418          555         -             -     174,418          555
  Special revenue                         365,583        2,110    22,410           245     387,993        2,836
  Public utilities                              -            -         -             -           -            -
  Industrial and miscellaneous             72,522          601    10,524           115      83,046          716
                                       ----------   ----------  --------   -----------  ----------   ----------
  TOTAL BONDS                             906,053        4,652   318,343         4,063   1,224,396        8,715
  Common Stock                            331,234      192,771         -             -     331,234      192,771
  Preferred Stock                               -            -       811           159         811          159
                                       ----------   ----------  --------   -----------  ----------   ----------
  TOTAL STOCKS                            331,234      192,771       811           159     332,045      192,930
                                       ----------   ----------  --------   -----------  ----------   ----------
  TOTAL BONDS AND STOCKS               $1,237,287   $  197,423  $319,154   $     4,222  $1,556,441   $  201,645
                                       ==========   ==========  ========   ===========  ==========   ==========
                                                                            

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

In general, a security is considered a candidate for other-than-temporary       
impairments if it meets any of the following criteria:                          

a.    Trading at a significant (25 percent or more) discount to par or amortized
   cost (if lower) for an extended period of time (nine months or longer);

b.    The occurrence of a discrete credit event resulting in (i) the issuer     
defaulting on a material outstanding obligation; or (ii) the issuer 
      seeking protection from creditors under the bankruptcy laws or any similar
laws intended for the court supervised reorganization of insolvent  
 enterprises; or (iii) the issuer proposing a voluntary reorganization
      pursuant to which creditors are asked to exchange their claims for cash or
      securities having a fair value substantially lower than par value of their
claims; or                                                          

c.    In the opinion of the Company's management, it is probable that AIG may   
not realize a full recovery on its investment, irrespective of the  
occurrence of one of the foregoing events.                          

As of December 31, 2005, the Company has both the ability and intent to hold    
these investments to recovery.                                                  

During 2005 and 2004, the Company reported write-downs on its common and        
preferred stock investments due to an other-than-temporary decline in fair value
of $2,652 and $702, respectively, and reported write-downs on its bond          
investments due to an other-than-temporary decline in fair value of $0 and      
$7,726, respectively.                                                           

During 2005 and 2004, the Company reported the following write-downs on its     
joint venture and partnership investments due to an other-than-temporary decline
in fair value:                                                                  

                                                                [Download Table]

FOR THE YEARS ENDED DECEMBER 31,     2005      2004  
--------------------------------   -------   --------
                                                     
Marlwood                           $     -   $  8,877
Odyssey Invest                           -      1,914
Advance Technology Venture               -      1,045
DLJ Merchant Banking Partners        2,923          -
Castleriggs Partners                 2,412          -
Healthcare Partners III              1,491          -
Sandler Capital IV                   1,353          -
RCBA Strategic Partners              1,242          -
Polyventures II                      1,184          -
Items less than $1.0 million           661        754
                                   -------   --------

    TOTAL                          $11,266   $ 12,590
                                   =======   ========

As of December 31, 2005 and 2004, securities with a market value of $81,453 and 
$41,888, respectively, were on loan. The Company receives as collateral 102.0%  
of the market value of domestic transactions and 105.0% for cross-border        
transactions. Securities lent, under the Securities Lending Agreement, are under
exclusive control of the Company. Pursuant to the Securities Agency Lending     
Agreement, AIG Global Securities Lending Corporation, a Delaware registered     
company, maintains responsibility for the investment and control of such        
collateral.                                                                     
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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

Securities carried at amortized cost of $1,499,498 and $1,248,472 were deposited
with regulatory authorities as required by law at December 31, 2005 and 2004,   
respectively.                                                                   

During 2005 and 2004, included in Net investment income earned were investment  
expenses of $6,226 and $6,053, respectively, and interest expense of $88,991 and
$61,398, respectively.                                                          

NOTE 4 - RESERVES FOR LOSSES AND LAE                                            

A reconciliation of the Company's reserves for losses and LAE as of December 31,
2005 and 2004 is set forth in the table below:                                  

                                                                [Download Table]

                                                     2005           2004     
                                                 ------------   ------------ 
                                                                             
RESERVES FOR LOSSES AND LAE, AS OF BEGINNING                                 
  OF THE PERIOD                                  $  9,811,368   $  6,686,734 

Adjustments for prior period corrections             (174,946)       908,324 

Incurred losses and LAE related to:                                          

    Current accident year                           5,005,099      4,808,892 

    Prior accident years                            1,340,860        889,702 
                                                 ------------   ------------ 

       TOTAL INCURRED LOSSES AND LAE                6,345,959      5,698,594 
                                                 ------------   ------------ 

Paid losses and LAE related to:                                              

    Current accident year                          (1,274,795)      (930,546)

    Prior accident years                           (2,921,286)    (2,551,738)
                                                 ------------   ------------ 

       TOTAL PAID LOSSES AND LAE                   (4,196,081)    (3,482,284)
                                                 ------------   ------------ 

RESERVES FOR LOSSES AND LAE, AS OF DECEMBER 31,  $ 11,786,300   $  9,811,368 
                                                 ============   ============ 

During the 2005 and 2004 calendar years, estimated ultimate incurred losses and 
LAE attributable to insured events of prior years increased by $1,340,860 and   
$889,702, respectively. The Company experienced adverse loss and LAE reserve    
development primarily related to claims from accident years 2002 and prior. The 
classes of business accounting for the majority of this adverse development were
directors & officers' liability and related management liability classes of     
business, excess casualty, and excess workers' compensation. In addition, the   
Company significantly increased its reserves for asbestos based on a ground up  
review of its asbestos claims exposures at year-end 2005 (see Note 12.B for     
further information concerning the Company's asbestos and environmental         
reserves).                                                                      

As of December 31, 2005 and 2004, the Company's reserves for losses and LAE have
been reduced by anticipated salvage and subrogation of $198,497 and $170,076,   
respectively.                                                                   

As of December 31, 2005 and 2004, the Company's reserves for losses and LAE have
been reduced by credits for reinsurance recoverable of $7,743,937 and           
$6,341,900, respectively (exclusive of intercompany pooling).                   

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

NOTE 5 - RELATED PARTY TRANSACTIONS                                             

A.    NATIONAL UNION INTERCOMPANY POOLING AGREEMENT                             

   The Company, as well as certain other insurance company subsidiaries of
     the Parent, is a party to an inter-company reinsurance pooling agreement.
     In accordance with the terms and conditions of this agreement, the member
companies cede all direct and assumed business except business from 
foreign branches (excluding Canada) to the Company (the lead pooling
     participant). In turn, each pooling participant receives from the Company
their percentage share of the pooled business.                      

In connection therewith, the Company's share of the pool is 38.0%.  
Accordingly, premiums earned, losses and LAE incurred, and other    
    underwriting expenses, as well as related assets and liabilities, in the
   accompanying financial statements emanate from the Company's percentage
participation in the pool.                                          

 A list of all pooling participants and their respective participation
percentages is set forth in the table below:                        

                                                                [Download Table]

                                                  NAIC CO.   PARTICIPATION
MEMBER COMPANY                                      CODE         PERCENT  
--------------                                    --------   -------------
                                                                          
National Union Fire Insurance Company                                     
  of Pittsburgh, PA.                                19445         38.0%   
American Home Assurance Company                     19380         36.0%   
Commerce and Industry Insurance Company             19410         10.0%   
New Hampshire Insurance Company                     23481          5.0%   
The Insurance Company of the State                                        
  of Pennsylvania                                   19429          5.0%   
Birmingham Fire Insurance Company of                                      
  Pennsylvania                                      19402          5.0%   
AIU Insurance Company                               19399          1.0%   
American International Pacific                                            
  Insurance Company                                 23795          0.0%   
American International South                                              
  Insurance Company                                 40258          0.0%   
Granite State Insurance Company                     23809          0.0%   
Illinois National Insurance Company                 23817          0.0%   


B.    AMERICAN INTERNATIONAL UNDERWRITERS OVERSEAS ASSOCIATION POOLING          
ARRANGEMENT                                                         

AIG formed American International Underwriters Overseas Association 
  (AIUOA), a Bermuda unincorporated association, in 1976, as the pooling
mechanism for AIG's international general insurance operations.     

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

 A list of all members in the AIUOA and their respective participation
percentages is set forth in the table below:                        

                                                                [Download Table]

                                                         NAIC CO.  PARTICIPATION
MEMBER COMPANY                                            CODE       PERCENT    
--------------                                           --------  -------------
                                                                                
American International Underwriters Overseas, Limited          -        67.0%   
New Hampshire Insurance Company (NHIC)                     23481        12.0%   
National Union Fire Insurance Company of Pittsburgh, PA.   19445        11.0%   
American Home Assurance Company (AHAC)                     19380        10.0%   


  In exchange for membership in AIUOA at the assigned participation, the
members contributed capital in the form of cash and other assets,   
   including rights to future business written by international operations
     owned by the members. The legal ownership and insurance licenses of these
     international branches remain in the name of NHIC, AHAC, and the Company.

  At the time of forming the AIUOA, the member companies entered into an
open-ended reinsurance agreement, cancelable with six months written
 notice by any member. The reinsurance agreement governs the insurance
business pooled in the AIUOA. As discussed in Note 1, the Company   
      continues to follow the current practices relating to its foreign branches
and participation in the business of AIUOA by recording: (a) its net
(after pooling) liability on such business as direct writings in its
statutory financial statements, rather than recording gross direct  
 writings with reinsurance cessions to the other pool members; (b) its
      corresponding balance sheet position, excluding loss reserves and unearned
  premium reserves, as a net equity interest in Equities in Underwriting
Pools and Associations; and (c) loss reserves and unearned premium  
     reserves are recorded on a gross basis. As of December 31, 2005 and 2004,
the Company's interest in AIUOA amounted to $613,711 and $530,063,  
respectively, gross of $957,256 and $623,392, respectively, in loss 
reserves and unearned premium reserves, after consideration of the  
National Union intercompany pooling agreement.                      

    Additionally, the Company holds 16.9% of the issued share capital of AIG
    Europe S.A. for the beneficial interest of the AIUOA. As of December 31,
 2005, the Company's interest in AIG Europe S.A. amounted to $241,997.

C.    GUARANTEE ARRANGEMENTS                                                    

     The Company has issued guarantees whereby the Company unconditionally and
     irrevocably guarantees all present and future obligations and liabilities
of any kind arising from the policies of insurance issued by the    
guaranteed companies in exchange for an annual guarantee fee.       

The guarantees are not expected to have a material effect upon the  
    Company's surplus as guaranteed companies have admitted assets in excess
      of policyholder liabilities. The Company believes that the likelihood of a
   payment under the guarantee is remote. These guarantees are provided to
    maintain the guaranteed company's rating status issued by certain rating
agencies. In the event of termination of a guarantee, obligations in
    effect or contracted for on the date of termination would remain covered
until extinguished.                                                 

   The Company is party to an agreement with AIG whereby AIG has agreed to
    make any payments due under the guarantees in the place and stead of the
Company.                                                            

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

A list of the guarantees that were in effect at December 31, 2005 is outlined in
the table below:                                                                

As of December 31, 2005                                                         

                                                        [Enlarge/Download Table]

                                      GUARANTEE  POLICYHOLDER    INVESTED   ESTIMATED POLICYHOLDERS'  
GUARANTEED COMPANY                     ISSUED     OBLIGATIONS     ASSETS      LOSS       SURPLUS      
------------------------------------- ---------- ------------- ------------ ---------  ------------   
                                                                                                      
New Hampshire Indemnity Company,                                                                      
Inc.                                  12/15/1997 $     156,315 $    279,068 $       - $      99,675   
Audubon Insurance Company              11/5/1997       171,796       66,379         -        62,051   
Landmark Insurance Company                                                                            
(California)                            3/2/1998        81,202      222,233         -        98,347   
Starr Excess Liability Insurance                                                                      
Company, Ltd.                          7/29/1998       320,268    2,250,828         -       714,201   
Starr Excess Liability Insurance                                                                      
International Limited                  5/28/1998     2,060,866      454,066         -       203,015 * 
American International Insurance                                                                      
Company of PR                          11/5/1997       265,170      179,584         -       122,858 * 
AHICO First American-Hungarian                                                                        
Insurance Company                      9/15/1998         9,475       16,902         -     3,458,736 * 
AIG Europe (Ireland) Ltd.             12/15/1997       531,701      367,461         -       154,614 * 
AIG Global Trade and Political Risk    11/5/1997           615      417,860         -       162,650 * 
AIG Poland Insurance Company           9/15/1998        24,906       30,296         -        26,689 * 
AIG Russia Insurance Company ZAO       9/15/1998           n/a          n/a         -           n/a   
AIG Slovakia Insurance Company A. S.  12/23/1998         5,116        3,832         -         3,359 * 
First American Czech Insurance                                                                        
Company, Rt.                           9/15/1998           n/a          n/a         -           n/a   
La Meridional Compania Argentina de                                                                   
Seguros S.A.                            1/6/1998        88,497       62,962         -        64,961 * 
AIG Romania Insurance Company (w/d                                                                    
2/13/03)                              12/23/1998        13,705       19,345         -         5,285 * 
AIG Ukraine Insurance Company (w/d                                                                    
2/13/03)                               10/1/2000         1,941        9,075         -           798 * 
AIG Bulgaria Ins and Reinsurance Co                                                                   
(w/d 2/13/03)                         12/31/1998         4,633        7,647         -         4,291 * 
AIG Life Insurance Company(+)          7/13/1998     8,469,700    9,247,410         -       702,511 **
American International Assurance Co                                                                   
(Bermuda) Ltd                          8/23/1999     7,466,172    9,552,342         -     1,346,926   
American International Life Assurance                                                                 
Company of N Y(+)                      7/13/1998     7,219,889    7,915,072         -       696,304   
                                                 ------------- ------------ --------- -------------   
   TOTAL GUARANTEES                              $  26,891,967 $ 31,102,362 $       - $   7,927,271   
                                                 ============= ============ ========= =============   

----                                                                            
(+)   The guaranteed company is backed by a support agreeement issued by AIG.   

(*)   Policyholders' surplus is based on local GAAP financial statements.       

(**)  Policyholders' surplus for life companies is increased by the asset       
valuation reserve (AVR).                                            

(n/a) Not Available                                                             

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

D.    INVESTMENTS IN AFFILIATES                                                 

As of December 31, 2005, the Company's preferred and common stock   
investments with its affiliates together with the related change in 
unrealized appreciation were as follows:                            

                                                        [Enlarge/Download Table]

                                                                         EQUITY AT                    
                                               OWNERSHIP      COST        DECEMBER     CHANGE IN      
AFFILIATED INVESTMENT                           PERCENT       2005        31, 2005    EQUITY 2005     
---------------------------------------------  ---------  ------------- ------------ ---------------- 
                                                                                                      
Preferred Stocks:                                                                                     

AIG Life Insurance Company                         100.0% $     100,000 $    100,000 $              - 
AIG Capital Corporation                            100.0%     2,000,000    2,000,000                - 
                                                   -----  ------------- ------------ ---------------- 
   TOTAL PREFERRED STOCKS - AFFILIATES                        2,100,000    2,100,000                - 
                                                          ------------- ------------ ---------------- 
Common stocks:                                                                                        

International Lease Finance Corporation             32.8%       793,240    2,000,248           65,177 
Lexington Insurance Company                         70.0%       257,973    1,795,395          228,474 
United Guaranty Corporation                         45.9%        74,893      272,619              (91)
AIU Insurance Company                               32.0%        40,000      348,853          159,879 
American International Specialty Lines                                                                
Insurance Company                                   70.0%       109,497      268,454          (12,344)
Starr Excess Liability Insurance Company Ltd.      100.0%       385,454      714,201          133,184 
Pine Street Real Estate Holding Corp.               22.1%         3,139       14,964                3 
21st Century Insurance Group                        33.1%       467,720      346,106           55,189 
American International Realty, Inc.                 22.1%        20,736       17,769           (1,355)
Eastgreen, Inc.                                      9.4%         8,976        9,768              249 
AIG Lodging Opportunities, Inc.                    100.0%         3,026          342           (2,779)
National Union Fire Ins. Company of Vt.            100.0%         1,000       18,522           18,522 
National Union Fire Ins. Company of La.            100.0%         2,500        6,054              135 
                                                   -----  ------------- ------------ ---------------- 
   TOTAL COMMON STOCKS - AFFILIATES                           2,168,154    5,813,295          644,243 
                                                          ------------- ------------ ---------------- 
TOTAL COMMON AND PREFERRED STOCK - AFFILIATES             $   4,268,154 $  7,913,295 $        644,243 
                                                          ============= ============ ================ 

 The Company has ownership interests in certain affiliated real estate
holding companies.                                                  

The remaining equity interest in these investments, except for 21st 
      Century Insurance Group, is owned by other affiliated companies, which are
wholly owned by the Parent.                                         

     From time to time, the Company may own investments in partnerships across
    various other AIG affiliated entities with a combined percentage greater
   than 10.0%. As of December 31, 2005, the Company's total investments in
     partnerships with affiliated entities where AIG interest was greater than
10.0% amounted to $548,880.                                         

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

E.    OTHER RELATED PARTY TRANSACTIONS                                          

      The following table summarizes all transactions (excluding reinsurance and
    cost allocation transactions) that occurred during 2005 and 2004 between
the Company and any affiliated companies* that exceeded half of one 
      percent of the Company's admitted assets as of December 31, 2005 and 2004:

                                                              [Enlarge/Download Table]
                                                                                        
                                                                                        
                                          ASSETS RECEIVED BY    ASSETS TRANSFERRED BY   
                                             THE COMPANY              THE COMPANY       
----------------------------------------------------------------------------------------
            EXPLANTION                                                                  
 DATE OF        OF        NAME OF     STATEMENT                STATEMENT                
TRANSACTION TRANSACTION  AFFILIATE(*)   VALUE     DESCRIPTION     VALUE      DESCRIPTION
----------- -----------  -----------  ----------  -----------  ------------  -----------
                                                                                        
YEAR ENDED DECEMBER 31, 2005                                                            

 3/3/2005 Dividend         AIG      $        -         -     $     49,227      Cash     
 6/3/2005 Dividend         AIG      $        -         -     $     59,870      Cash     
 9/3/2005 Dividend         AIG      $        -         -     $     37,880      Cash     
 3/3/2005 Dividend     ILFC /AIGCC  $   28,867      Cash     $          -         -     
 6/3/2005 Dividend     ILFC /AIGCC  $   28,164      Cash     $          -         -     
 9/3/2005 Dividend     ILFC /AIGCC  $   28,164      Cash     $          -         -     
12/3/2005 Dividend     ILFC /AIGCC  $   29,949      Cash     $          -         -     

YEAR ENDED DECEMBER 31, 2004                                                            

  3/3/2004 Dividend        AIG       $        -         -     $     48,348      Cash    
  6/3/2004 Dividend        AIG       $        -         -     $     59,519      Cash    
  9/3/2004 Dividend        AIG       $        -         -     $     48,875      Cash    
 12/3/2004 Dividend        AIG       $        -         -     $     49,578      Cash    
12/17/2004 Purch Bonds     UGC       $  284,635     Bonds     $    284,635      Cash    
  3/3/2004 Dividend     ILFC /AIGCC  $   27,636      Cash     $          -         -    
  6/3/2004 Dividend     ILFC /AIGCC  $   27,812      Cash     $          -         -    
  9/3/2004 Dividend     ILFC /AIGCC  $   27,812      Cash     $          -         -    
 12/3/2004 Dividend     ILFC /AIGCC  $   28,867      Cash     $          -         -    
                                                                          
The Company also reinsures risks and assumes reinsurance from other 
affiliates. As agreed upon with the Insurance Department of the     
     Commonwealth of Pennsylvania, transactions with Union Excess and Richmond
are treated as affiliated.                                          

----                                                                            
(*)   International Lease Finance Corporation (ILFC); AIG Capital Corporation   
(AIGCC); United Guaranty Corporation (UGC).                         

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

      The Company did not change its methods of establishing terms regarding any
    affiliate transaction during the years ended December 31, 2005 and 2004.

In the ordinary course of business, the Company utilizes certain    
      affiliated companies for data center systems, investment services, salvage
and subrogation, and claims management. These companies are AIG     
Technology, Inc., AIG Global Investment Corp. and AIG Global Trust  
Services, Limited, AI Recovery, Inc., and AIG Domestic Claims, Inc.,
 respectively. In connection with these services, the fees paid by the
      Company to these affiliates during 2005 and 2004 are outlined in the table
below:                                                              

                                                                      [Download Table]
                                                         
                                                         
FOR THE YEARS ENDED DECEMBER 31,       2005       2004   
----------------------------------  ----------  ---------
                                                         
AIG Technology, Inc.(+)             $   28,183  $  25,778
AIG Global Investment Corporation        5,188      4,241
AIG Global Trust Services, Limited         143        229
AI Recovery, Inc.                        3,772      3,274
AIG Domestic Claims, Inc.              112,960    120,687
                                    ----------  ---------

   TOTAL                            $  150,246  $ 154,209
                                    ==========  =========
                                                                          
---                                                                             
(+)   Formerly AIG Data Center, Inc.                                            

     As of December 31, 2005 and 2004, short-term investments included amounts
  invested in the AIG Managed Money Market Fund of $19,369 and $109,446,
respectively.                                                       

Federal and foreign income taxes recoverable from the Parent as of  
December 31, 2005 and 2004 amounted to $763,168 and $630,958,       
respectively.                                                       

During 2005 and 2004, the Company sold $202,251 and $227,539,       
respectively, of premium receivables without recourse to AI Credit  
Corporation, and recorded losses of $3,627 and $2,992, respectively,
related to these transactions.                                      

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

As of December 31, 2005 and 2004, the Company had the following balances        
payable/receivable to/from its affiliates (excluding reinsurance transactions): 

                                                                [Download Table]

AS OF DECEMBER 31,                                     2005           2004   
------------------                                  ----------     ----------
                                                                             
Balances with pool member companies                 $  403,833     $  709,843
Balances with less than 0.5% of admitted assets        483,156        481,022
                                                    ----------     ----------
PAYABLE TO PARENT, SUBSIDIARIES AND AFFILIATES      $  886,989     $1,190,865
                                                    ==========     ==========

AIG                                                 $  199,830     $        -
American Home Canada                                   156,575        156,575
Balances with pool member companies                    236,379        112,507
Balances with less than 0.5% of admitted assets        234,105        302,269
                                                    ----------     ----------
RECEIVABLE FROM PARENT, SUBSIDIARIES AND                                     
 AFFILIATES                                         $  826,889     $  571,351
                                                    ==========     ==========

NOTE 6 -REINSURANCE                                                             

In the ordinary course of business, the Company reinsures certain risks with    
affiliates and other companies. Such arrangements serve to limit the Company's  
maximum loss on catastrophes, large and unusually hazardous risks. To the extent
that any reinsuring company might be unable to meet its obligations, the Company
would be liable for its respective participation in such defaulted amounts. The 
Company purchased catastrophe excess of loss reinsurance covers protecting its  
net exposures from an excessive loss arising from property insurance losses and 
excessive losses in the event of a catastrophe under workers' compensation      
contracts issued without limit of loss.                                         

During 2005 and 2004, the Company's net premiums written and net premiums earned
were comprised of the following:                                                

                                                        [Enlarge/Download Table]

FOR THE YEARS ENDED DECEMBER 31,              2005                        2004            
                                  ---------------------------  ---------------------------
                                    WRITTEN         EARNED       WRITTEN          EARNED  
                                  -----------     -----------  -----------     -----------
                                                                                          
Direct Premiums                   $ 5,588,284     $ 5,838,904  $ 6,361,956     $ 6,291,282
Reinsurance premiums assumed:                                                             

       Affiliates                  22,153,164      21,595,324   21,103,816      19,703,510
       Non-affiliates                 494,482         548,499      502,326         533,280
                                  -----------     -----------  -----------     -----------
         GROSS PREMIUMS            28,235,930      27,982,727   27,968,098      26,528,072
                                  -----------     -----------  -----------     -----------
Reinsurance premiums ceded:                                                               

       Affiliates                  19,860,111      19,676,550   19,544,479      18,386,791
       Non-affiliates               1,288,840       1,270,214    1,394,320       1,548,619
                                  -----------     -----------  -----------     -----------
         NET PREMIUMS             $ 7,086,979     $ 7,035,963  $ 7,029,299     $ 6,592,662
                                  ===========     ===========  ===========     ===========

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

The maximum amount of return commissions which would have been due reinsurers if
all of the Company's reinsurance had been cancelled as of December 31, 2005 and 
2004 with the return of the unearned premium reserve is as follows:             

                                                        [Enlarge/Download Table]

                        ASSUMED REINSURANCE         CEDED REINSURANCE                  NET          
                   ----------------------------  -------------------------  ------------------------
                    UNEARNED                      UNEARNED                                          
                     PREMIUM        COMMISSION     PREMIUM     COMMISSION    PREMIUM     COMMISSION 
                    RESERVES          EQUITY      RESERVES       EQUITY      RESERVES      EQUITY   
                   -----------      -----------  -----------   -----------  -----------  -----------
                                                                                                    
DECEMBER 31, 2005                                                                                   

  Affiliated       $10,662,670      $ 1,218,460  $ 9,437,660   $ 1,100,419  $ 1,225,010  $   118,041

  Non Affiliated       891,932          101,924      507,060        59,123  $   384,872  $    42,801
                   -----------      -----------  -----------   -----------  -----------  -----------
  TOTALS           $11,554,602      $ 1,320,384  $ 9,944,720   $ 1,159,542  $ 1,609,882  $   160,842
                   ===========      ===========  ===========   ===========  ===========  ===========
DECEMBER 31, 2004                                                                                   

  Affiliated       $ 9,810,548      $ 1,168,029  $ 9,095,231   $ 1,058,103  $   715,317  $   109,926

  Non Affiliated       945,951          112,624      488,434        56,823      457,517       55,801
                   -----------      -----------  -----------   -----------  -----------  -----------
  TOTALS           $10,756,499      $ 1,280,653  $ 9,583,665   $ 1,114,926  $ 1,172,834  $   165,727
                   ===========      ===========  ===========   ===========  ===========  ===========

As of December 31, 2005 and 2004, and for the years then ended, the Company's   
unearned premium reserves, paid losses and LAE, and reserves for losses and LAE 
(including IBNR), have been reduced for reinsurance ceded as follows:           

                                                                [Download Table]

                    UNEARNED    PAID LOSSES   RESERVES FOR
                     PREMIUM        AND         LOSSES AND
                    RESERVES        LAE            LAE    
                   -----------  -----------   ------------
                                                          
DECEMBER 31, 2005                                         

Affiliates         $ 9,437,660  $    97,076   $ 36,164,744
Non-Affiliates         507,060      322,835      3,728,454
                   -----------  -----------   ------------
Total              $ 9,944,720  $   419,911   $ 39,893,198
                   ===========  ===========   ============

DECEMBER 31, 2004                                         

Affiliates         $ 9,095,231  $    (5,225)  $ 29,697,663
Non-Affiliates         488,434      264,218      2,999,793
                   -----------  -----------   ------------
TOTAL              $ 9,583,665  $   258,993   $ 32,697,456
                   ===========  ===========   ============

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

The Company's unsecured reinsurance recoverables as of December 31, 2005 in     
excess of 3.0% of its capital and surplus is set forth in the table below:      

As of December 31, 2005                                                         

                                                                [Download Table]

                                                            NAIC CO.            
REINSURER                                                    CODE      AMOUNT   
---------------------------------------------------------  --------  -----------
                                                                                
Affilliates:                                                                    
     American Home Assurance Company                        19380   $ 24,242,369
     Commerce and Industry Insurance Company                19410      6,618,032
     Insurance Company of the State of Pennsylvania.        19429      3,366,695
     New Hampshire Insurance Company                        23841      3,350,984
     Birmingham Fire Insruance Company of Pennsylvania      19402      3,318,439
     AIU Insurance Company                                  19399        812,461
     American International Insurance Company               32220        512,797
     Transatlantic Reinsurance Company                      19453        288,819
     National Union Fire Company of Pittsburgh,                                 
     Pennsylvania                                           19445        266,849
     American International Underwriters Overseas, Ltd.         -        222,538
     New Hampshire Indemnity Company                        23833        153,724
     AIG Global Trade And Political Risk Ins Company        10651        133,127
     United Guaranty Insurance Company                      11715         49,313
     Transatlantic Reinsurance Company                          -         27,276
     Landmark Insurance Company                             35637          9,688
     Audubon Insurance Company                              19933          6,111
     Starr Excess Liability Insurance Company, Ltd.         10932          4,779
     Hartford Steam Boiler Inspection And Insurance Co.     11452          4,290
     Euroguard Insurance Company, Limited                       -          3,807
     Illinois National Insurance Company                    23817          3,667
     National Union Fire Ins Company of Vermont                 -          3,216
     AIU Insurance Company (Japan)                              -          2,917
     American International Life Assurance Co. of NY (US)   60607          2,709
     Granite State Insurance Company                        23809          2,547
     Ascot Syndicate Lloyds 1414                                -          2,230
     American General Life Ins Co                           60488          2,091
     Arabian American Insurance Co. Ltd                         -          1,059
     First American Polish Ins Co                               -          1,040
     Other affiliates less than $1.0 million                    -         35,535
                                                                    ------------
        TOTAL AFFILIATES                                              43,449,109
                                                                    ------------

Non-Affilliates:                                                                

     Lloyd's Syndicates                                         -        387,270
                                                                    ------------
        TOTAL NON AFFILIATES                                             387,270
                                                                    ------------

   TOTAL AFFILIATES AND NON AFFILIATES                              $ 43,836,379
                                                                    ============

                                                                         Page 32

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

During 2005 and 2004, the Company reported in its Statements of Income $45,537  
and $65,363, respectively, of statutory underwriting losses, which were         
comprised of premiums earned of ($1,805) and ($8,777), respectively, less losses
incurred of $43,732 and $56,586, respectively, as a result of commutations with 
the following reinsurers:                                                       

                                                                [Download Table]

COMPANY                                     2005      2004 
---------------------------------------   -------   -------
                                                           
SCOR Reinsurance Company                  $44,800   $22,458
General Re Corp                                 -    16,984
Converium Reins.                                -     7,947
AXA Albingia                                    -     6,161
CX Reinsurance                                  -     4,511
AXA Corporate Solutions                         -     3,668
National Indemnity Co.                          -     2,819
Other reinsurers less than $1.0 million       737       815
                                          -------   -------

TOTAL                                     $45,537   $65,363
                                          =======   =======

As of December 31, 2005 and 2004, the Company had reinsurance recoverables on   
paid losses in dispute of $149,456 and $80,435, respectively.                   

During 2005, the Company had written off reinsurance recoverable balances of    
$68,909.                                                                        

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

NOTE 7 - RETROACTIVE REINSURANCE                                                

As of December 31, 2005, the Company reported the following activity and        
balances with respect to its retroactive reinsurance arrangements:              

                                                                [Download Table]

                                                 ASSUMED       CEDED   
                                                ---------    --------- 
                                                                       
Reserves Transferred:                                                  

   Initial Reserves                             $ 228,366    $ 478,934 
   Adjustments - prior year(s)                   (187,916)     (23,011)
   Adjustments - current year                       7,160      (12,417)
                                                ---------    --------- 

   BALANCE AS OF DECEMBER 31, 2005                 47,610      443,506 
                                                ---------    --------- 

Paid Losses Recovered:                                                 

   Prior year(s)                                    3,391      344,068 
   Current year                                     9,499       30,781 
                                                ---------    --------- 

   TOTAL RECOVERED AS OF DECEMBER 31, 2005         12,890      374,849 
                                                ---------    --------- 

   CARRIED RESERVES AS OF DECEMBER 31, 2005     $  34,720    $  68,657 
                                                =========    ========= 

Consideration Paid or Received:                                        

   Initial Reserves                             $ 212,797    $ 291,794 
   Adjustments - prior year(s)                   (190,000)     (19,040)
   Adjustments - current year                           -         (876)
                                                ---------    --------- 

   TOTAL PAID AS OF DECEMBER 31, 2005           $  22,797    $ 271,878 
                                                =========    ========= 

Special Surplus from Retroactive Reinsurance:                          

   Initial surplus gain or loss realized$       $       -    $  50,201 
   Adjustments - prior year(s)                          -       35,909 
   Adjustments - current year                           -      (14,220)
                                                ---------    --------- 

   BALANCE AT DECEMBER 31, 2005                 $       -    $  71,890 
                                                =========    ========= 

CUMULATIVE FUNDS TRANSFERRED TO UNASSIGNED                             
SURPLUS AS OF DECEMBER 31, 2005                 $       -    $   6,628 
                                                =========    ========= 

                                                                         Page 34

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

The Company's retroactive reinsurance balances (by reinsurer) as of December 31,
2005, is set forth in the table below:                                          

AS OF DECEMBER 31, 2005                                                         

                                                                [Download Table]

REINSURER                                                  ASSUMED    CEDED 
--------------------------------------------------------   -------   -------
                                                                            
American International Reins. Co.                          $     -   $60,516
American International Specialty Lines Insurance Company    16,760         -
Guideone Mutual Ins Co.                                      9,648         -
Commerce and Industry Insurance Company of Canada            7,280         -
PEG Reinsurance Co.                                              -     1,473
Upinsco Inc                                                      -     1,143
Swiss Re America Corp                                            -     1,138
All other reinsurers less than $1.0 million                  1,074     4,387
                                                           ------    -------

  TOTAL                                                    $34,762   $68,657
                                                           =======   =======

NOTE 8 - DEPOSIT ACCOUNTING ASSETS AND LIABILITIES                              

Certain of the products offered by the Company include funding components or    
have been structured in a manner such that little or no insurance risk is       
actually transferred. In addition, the Company has entered into several         
reinsurance arrangements, both treaty and facultative, which were determined to 
be deposit agreements. Funds received in connection with these arrangements are 
recorded as deposit liabilities, rather than premiums and incurred losses.      
Conversely, funds paid in connection with these arrangements are recorded as    
deposit assets, rather than as ceded premiums and ceded incurred losses.        

As of December 31, 2005 and 2004, the Company's deposit assets and liabilities  
were comprised of the following:                                                

                                                                [Download Table]

                                          2005                       2004       
                             ------------------------   ------------------------
                              DEPOSIT       DEPOSIT       DEPOSIT      DEPOSIT  
                              ASSETS      LIABILITIES     ASSETS     LIABILITIES
                             ----------   -----------   ----------   -----------
                                                                                
Direct                       $        -   $    59,922   $        -   $    34,823
Assumed                               -       454,039            -       656,512
Ceded                         1,410,584             -    1,729,756             -
                             ----------   -----------   ----------   -----------

  BALANCE AS OF DECEMBER 31, $1,410,584   $   513,961   $1,729,756   $   691,335
                             ==========   ===========   ==========   ===========

                                                                         Page 35

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

A reconciliation of the Company's deposit assets and deposit liabilities as of  
December 31, 2005 and 2004 is set forth in the table below:                     

                                                        [Enlarge/Download Table]

                                                           2005                         2004            
                                                --------------------------   -------------------------- 
                                                  DEPOSIT        DEPOSIT       DEPOSIT        DEPOSIT   
                                                   ASSETS      LIABILITIES     ASSETS       LIABILITIES 
                                                -----------    -----------   -----------    ----------- 
                                                                                                        
BALANCE AS OF BEGINNING OF PERIOD               $ 1,729,756    $   491,335   $ 2,216,987    $   789,132 

   Deposit activity, including loss recoveries     (471,268)       (12,605)     (459,259)       (88,858)

   Interest income or expense, net of                                                                   
   amortization of margin                            95,951         35,231       112,880         (8,939)

   Change in non-admitted asset portion              56,145              -      (140,852)             - 
                                                -----------    -----------   -----------    ----------- 

BALANCE AS OF DECEMBER 31,                      $ 1,410,584    $   513,961   $ 1,729,756    $   691,335 
                                                ===========    ===========   ===========    =========== 

During 2005 the Company received consideration of $79,279 resulting from the    
commutations of its reinsurance deposit accounting arrangement with the Richmond
Insurance Company, Ltd.                                                         

As of December 31, 2005, the deposit assets with related parties, mostly        
reinsurance transaction with Union Excess, amounted to $ 1,258,466. During 2005,
the Company commuted $272,387 of the deposit assets with Union Excess and       
Richmond resulting in a $3,944 loss.                                            

NOTE 9 - FEDERAL INCOME TAXES                                                   

The Company files a consolidated U.S. federal income tax return with the Parent 
and its domestic subsidiaries pursuant to a tax sharing agreement. The agreement
provides that the Parent will not 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 federal income tax return. In addition, the agreement provides 
that the Company will be reimbursed by the Parent for tax benefits relating to  
any net losses or any tax credits of the Company utilized in filing the         
consolidated return. The federal income tax recoverables in the accompanying    
Statements of Admitted Assets are due from the Parent. As of December 31,       
2005 and 2004, the U.S. federal income tax rate applicable to ordinary income   
was 35.0%.                                                                      

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

The components of the Company's net deferred tax assets / liabilities at        
December 31, 2005 and 2004 are as follows:                                      

                                                                [Download Table]

AS OF DECEMBER 31,                                  2005           2004     
----------------------------------------------   -----------    ----------- 
                                                                            
Gross deferred tax assets                        $ 1,044,743    $   870,158 
Gross deferred tax liabilities                      (484,906)      (425,130)
Non-admitted deferred tax assets in accordance                              
with SSAP No.10 entitled Income Taxes               (173,931)       (65,196)
                                                 -----------    ----------- 

NET DEFERRED TAX ASSETS ADMITTED                 $   385,906    $   379,842 
                                                 ===========    =========== 
CHANGE IN DEFERRED TAX ASSETS NON-                                          
ADMITTED                                         $  (108,735)   $    65,196 
                                                 ===========    =========== 

During 2005 and 2004, the Company's current federal income tax expense (benefit)
was comprised of the following:                                                 

                                                                [Download Table]

FOR THE YEARS ENDED DECEMBER 31,                2005         2004   
-------------------------------------------   ---------    ---------
                                                                    
Income tax expense (benefit) on net                                 
underwriting and net investment income        $(106,539)   $  65,519

Federal income tax adjustment - prior years      (1,377)      35,628

                                              ---------    ---------
CURRENT INCOME TAX EXPENSE (BENEFIT)          $(107,916)   $ 101,147
                                              =========    =========

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

The composition of the Company's net deferred tax assets at December 31, 2005   
and 2004, along with the changes in deferred income taxes for 2004, is set forth
in the table below:                                                             

                                                                [Download Table]


AS OF DECEMBER 31,                        2005           2004         CHANGE   
                                       -----------   -----------    -----------
                                                                               
Deferred Tax Assets                                                            

   Loss reserve discount               $  506,988   $  422,379    $   84,608   
   Non-admitted assets                    157,505      157,780          (275)  
   Unearned premium reserve               300,386      289,999        10,387   
   Other temporary difference              79,865            -        79,865   
                                       ----------   ----------    ----------   

     GROSS DEFERRED TAX ASSETS          1,044,743      870,158       174,585   
   Non-admitted deferred tax assets      (173,931)     (65,196)     (108,735)  
                                       ----------   ----------    ----------   

     ADMITTED DEFERRED TAX ASSETS         870,812      804,962        65,850   
                                       ----------   ----------    ----------   

Deferred Tax Liabilities                                                       

   Unrealized capital gains              (185,655)    (167,587)      (18,068)  
   Other temporary differences           (299,251)    (257,543)      (41,708)  
                                        ----------   ----------    ----------  

   GROSS DEFERRED TAX LIABILITIES        (484,906)    (425,130)      (59,776)  
                                        ----------   ----------    ----------  

     NET ADMITTED DEFERRED TAX ASSETS  $  385,906   $  379,832    $    6,074   
                                       ==========   ==========    ==========   

   Gross deferred tax assets           $1,044,743   $  870,158    $  174,585   
   Gross deferred tax liabilities        (484,906)    (425,131)      (59,775)  
                                       ----------   ----------    ----------   

   NET DEFERRED TAX ASSETS             $  559,837   $  445,027       114,810   
                                       ==========   ==========                 
   Income Tax effect of unrealized                                             
   capital gains/(losses)                                             18,068   
                                                                  ----------   

   CHANGE IN DEFERRED INCOME TAXES                                $  132,877   
                                                                  ==========   

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

The actual tax expense (benefit) on income from operations differs from the tax 
expense (benefit) calculated at the statutory tax rate. A reconciliation of the 
Company's income tax expense (benefit) together with the significant book to tax
adjustments for 2005 is set forth below:                                        

                                                                [Download Table]

                                                      AMOUNT         TAX EFFECT 
                                                   -----------       -----------
                                                                                
Net income before federal income taxes             $ 48,062          $  16,822  

  Book to tax adjustments:                                                      

  Tax exempt income and dividends received                                      
   deduction                                       (358,917)          (125,621) 

  Intercompany dividends                           (149,147)           (52,202) 

  Federal income tax adjustment - prior year              -             (1,377) 

  Remediation adjustments                                 -            (41,254) 

  Foreign tax credits                                     -            (15,200) 

  Other                                               6,055              2,102  
                                                  ----------         ---------- 

   TOTAL BOOK TO TAX ADJUSTMENTS                   (502,059)          (233,552) 
                                                  ----------         ---------- 

TOTAL FEDERAL TAXABLE LOSS AND TAX BENEFIT         $(453,997)        $ (216,730)
                                                  ==========         ========== 

Current federal income tax expense (benefit)                        $ (107,916) 

Income tax on net realized capital gains                                24,064  

Change in net deferred income taxes                                   (132,878) 
                                                                     ---------- 

Total Federal income tax (benefit)                                   $ (216,730)
                                                                     ========== 

The amount of federal income tax incurred and available for recoupment in the   
event of future net operating losses for tax purposes is set forth in the table 
below:                                                                          

                                                                [Download Table]
                                            
Current year                       $       -

First preceding year               $  89,858

The Company did not have any unused net operating loss carry forwards or tax    
credits available to offset against future taxable income as of December 31,    
2005.                                                                           

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

NOTE 10 - PENSION PLANS AND DEFERRED COMPENSATION ARRANGEMENTS                  

A.    GENERAL                                                                   

Employees of AIG, the ultimate holding company, its subsidiaries and
   certain affiliated companies, including employees in foreign countries,
 are generally covered under various funded and insured pension plans.
 Eligibility for participation in the various plans is based on either
   completion of a specified period of continuous service or date of hire,
subject to age limitation.                                          

AIG's U.S. retirement plan is a qualified, non-contributory defined 
      benefit retirement plan which is subject to the provisions of the Employee
    Retirement Income Security Act of 1974. All employees of AIG and most of
    its subsidiaries and affiliates who are regularly employed in the United
    States, including certain U.S. citizens employed abroad on a U.S. dollar
payroll, and who have attained age 21 and completed twelve months of
    continuous service are eligible to participate in this plan. An employee
with five or more years of service is entitled to pension benefits  
beginning at normal retirement at 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. The employees may elect
   certain options with respect to their receipt of their pension benefits
      including a joint and survivor annuity. An employee with ten or more years
     of service may retire early from age 55 to 64. An early retirement factor
     is applied resulting in a reduced benefit. If an employee terminates with
  less than five years of service, such employees forfeit their right to
receive any pension benefits accumulated thus far.                  

  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.                                                            

      The Company's share of net expense for the qualified pension plan amounted
to $6,900 and $10,400 for 2005 and 2004, respectively.              

B.    DEFERRED COMPENSATION PLAN                                                

      Some of the Company's officers and key employees are participants in AIG's
     stock option plans of 1991 and 1999. Details of these plans are published
in AIG's 2005 Annual Report on Form 10-K. During 2005, the Parent   
 allocated $2,298 of the total cost of these stock options and certain
other deferred compensation programs to the Company.                

C.    POSTRETIREMENT BENEFIT PLANS                                              

      AIG's US postretirement medical and life insurance benefits are based upon
  the employee electing immediate retirement and having a minimum of ten
      years of service. Retirees and their dependents who were 65 by May 1, 1989
   participate in the medical plan at no cost. Employees who retired after
      May 1, 1989 or prior to January 1, 1993 pay the active employee premium if
under age 65 and 50% of the active employee premium if over age 65. 
Retiree contributions are subject to adjustment annually. Other cost
     sharing features of the medical plan include deductibles, coinsurance and
Medicare coordination and a lifetime maximum benefit of $2,000. The 
     maximum life insurance benefit prior to age 70 is $32, with a maximum $25
thereafter.                                                         

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

     Effective January 1, 1993, both plans' provisions were amended. Employees
   who retire after January 1, 1993 are required to pay the actual cost of
    the medical insurance benefit premium reduced by a credit which is based
     upon years of service at retirement. The life insurance benefit varies by
      age at retirement from $5 for retirement at ages 55 through 59 and $10 for
   retirement at ages 60 through 64 and $15 from retirement at ages 65 and
over.                                                               

  The postretirement benefit obligations and amounts recognized in AIG's
     consolidated balance sheet as of December 31, 2005 and 2004 were $140,100
   and $179,100, respectively. These obligations are not funded currently.
  The Company's share of other postretirement benefit plans was $200 and
$100 for 2005 and 2004, respectively.                               

  AIG is the Plan Sponsor of the pension and post retirement and benefit
 plans and is ultimately responsible for the conduct of the plans. The
   Company is only obligated to the extent of their allocation of expenses
from these plans.                                                   

      The Company's weighted average assumptions that were used to determine its
      pension benefit obligations as of December 31, 2005 and 2004 are set forth
in the table below:                                                 

                                                                      [Download Table]
                                                                          
                                                                          
AS OF DECEMBER 31,                                 2005            2004   
-----------------------------------------       ----------      --------- 
                                                                          
   Discount rate                                  5.50%           5.75%   

   Rate of compensation increase (average)        4.25%           4.25%   

   Measurement date                             12/31/2005      12/31/2004

   Medical cost trend rate                          N/A             N/A   
                                                                          
D.    POST-EMPLOYMENT BENEFITS AND COMPENSATED ABSENCES                         

    AIG provides certain benefits provided to inactive employees who are not
   retirees. Certain of these benefits are insured and expensed currently;
    other expenses are provided for currently. Such expenses include medical
and life insurance continuation and COBRA medical subsidies.        

                                                                         Page 41

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

NOTE 11 - CAPITAL AND SURPLUS AND DIVIDEND RESTRICTIONS:                        

A.    CAPITAL AND SURPLUS                                                       

  The issued capital and surplus position of the Company at December 31,
2005 and 2004 was as follows:                                       

                                                                      [Download Table]
                                                                       
                                                                       
                                                2005            2004   
                                           ------------     -----------
                                                                       
Common stock, par value                    $      4,479     $     4,479

Common stock in excess of par value           2,694,092       2,494,262
                                           ------------     -----------

        TOTAL CAPITAL                         2,698,571       2,498,741
                                           ------------     -----------

Unassigned surplus                            5,349,702       4,791,970

Special surplus from retroactive                                       
    reinsurance arrangements                     71,890          86,110
                                           ------------     -----------

     TOTAL SURPLUS                            5,421,592       4,878,080
                                           ------------     -----------

   TOTAL CAPITAL AND SURPLUS               $  8,120,163     $ 7,376,821
                                           ============     ===========
                                                                          
   The portion of unassigned funds (surplus) at December 31, 2005 and 2004
represented or reduced by each item below is as follows:            

                                                                      [Download Table]
                                                                        
                                                                        
                                                2005            2004    
                                           ------------     ----------- 
                                                                        
Unrealized gains and losses                $  4,083,298     $ 3,367,546 

Non-admitted asset values                  $   (648,626)    $  (560,238)

Provision for reinsurance                  $   (201,761)    $  (334,696)
                                                                          
B.    RISK-BASED CAPITAL REQUIREMENTS                                           

      The NAIC has adopted a Risk-based Capital ("RBC") formula to be applied to
all property and casualty insurance companies. RBC is a method of   
   establishing the minimum amount of capital appropriate for an insurance
      company to support its overall business operations in consideration of its
      size and risk profile. A company's RBC is calculated by applying different
   factors to various asset classes, net premiums written and loss and LAE
 reserves. A company's result from the RBC formula is then compared to
     certain established minimum capital benchmarks. To the extent a company's
    RBC result does not either reach or exceed these established benchmarks,
    certain regulatory actions may be taken in order for the insurer to meet
the statutorily-imposed minimum capital and surplus requirements.   

      In connection therewith, the Company has satisfied the capital and surplus
requirements of RBC for the 2005 reporting period.                  

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 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

C.    DIVIDEND RESTRICTIONS                                                     

Under Pennsylvania law, the Company may pay cash dividends only from
   earned surplus determined on a statutory basis. Further, the Company is
restricted [on the basis of the greater of 10.0% of the Company's   
     statutory surplus, (excluding approximately $1,900,000 from an investment
      in an affiliate for which proper approval from the Insurance Department of
  the Commonwealth of Pennsylvania has been received) as of December 31,
      2005, or 100.0% of the Company's net income for the year then ended] as to
    the amount of dividends it may declare or pay in any twelve-month period
      without the prior approval of the Insurance Department of the Commonwealth
of Pennsylvania. In connection therewith, at December 31, 2005, the 
      maximum dividend payments, which may be made without prior approval during
2006, is approximately $622,016.                                    

   Within the limitations noted above, there are no restrictions placed on
    the portion of Company profits that may be paid as ordinary dividends to
    stockholders. There were no restrictions placed on the Company's surplus
   including for whom the surplus is being held. There is no stock held by
the Company for any special purpose.                                

NOTE 12 - CONTINGENCIES                                                         

A.    LEGAL PROCEEDINGS                                                         

The Company is involved in various legal proceedings incident to the
    operation of its business. Such proceedings include claims litigation in
      the normal course of business involving disputed interpretations of policy
coverage. Other proceedings in the normal course of business include
      allegations of underwriting errors or omissions, bad faith in the handling
     of insurance claims, employment claims, regulatory activity, and disputes
relating to the Company's business ventures and investments.        

Other legal proceedings include the following:                      

   AIG, National Union Fire Insurance Company of Pittsburgh, Pa. (National
Union), and American International Specialty Lines Insurance Company
    (AISLIC) have been named defendants (the AIG Defendants) in two putative
class actions in state court in Alabama that arise out of the 1999  
     settlement of class and derivative litigation involving Caremark Rx, Inc.
      (Caremark). An excess policy issued by a subsidiary of AIG with respect to
      the 1999 litigation was expressly stated to be without limit of liability.
  In the current actions, plaintiffs allege that the judge approving the
1999 settlement was misled as to the extent of available insurance  
   coverage and would not have approved the settlement had he known of the
existence and/or unlimited nature of the excess policy. They further
allege that the AIG Defendants and Caremark are liable for fraud and
      suppression for misrepresenting and/or concealing the nature and extent of
     coverage. In their complaint, plaintiffs request compensatory damages for
      the 1999 class in the amount of $3,200,000, plus punitive damages. The AIG
Defendants deny the allegations of fraud and suppression and have   
   asserted, inter alia, that information concerning the excess policy was
      publicly disclosed months prior to the approval of the settlement. The AIG
Defendants further assert that the current claims are barred by the 
   statute of limitations and that plaintiffs' assertions that the statute
was tolled cannot stand against the public disclosure of the excess 
coverage. Plaintiffs, in turn, have asserted that the disclosure was
 insufficient to inform them of the nature of the coverage and did not
     start the running of the statute of limitations. On January 28, 2005, the
      Alabama trial court determined that one of the current actions may proceed
as a class action on behalf of the 1999 classes that were allegedly 
defrauded by the settlement.                                        

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 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

 The AIG Defendants and Caremark are seeking appellate relief from the
    Alabama Supreme Court. The AIG Defendants cannot now estimate either the
     likelihood of its prevailing in these actions or the potential damages in
the event liability is determined.                                  

    On September 2, 2005, AIG sued Robert Plan Corporation, the agency which
services personal auto assigned risk business alleging the          
misappropriation of funds and other violations of contractual       
    arrangements. On September 27, 2005, Robert Plan Corporation countersued
   AIG for $370,000 in disgorged profits and $500,000 of punitive damages.
      Subsequently, American Home Assurance Company (American Home) was named as
  a counterclaim defendant in this case. American Home believes that the
countersuit is without merit and intends to defend it vigorously.   

      Effective February 9, 2006, AIG reached a resolution of claims and matters
 under investigation with the United States Department of Justice (the
     DOJ), the United States Securities and Exchange Commission (the SEC), the
      Office of the Attorney General of the State of New York (the NYAG) and the
New York Insurance Department (the NYDOI). The settlements resolve  
  outstanding litigation and allegations by such agencies against AIG in
connection with the accounting, financial reporting and insurance   
brokerage practices of AIG and its subsidiaries, as well as claims  
      relating to the underpayment of certain workers compensation premium taxes
  and other assessments. As a result of these settlements, AIG will make
    payments totaling approximately $1,640,000, including (i) $375,000 to be
paid into a fund under the supervision of the NYAG and NYDOI to be  
 available principally to pay certain AIG insurance company subsidiary
policyholders who purchased excess casualty policies through Marsh &
     McLennan Companies, Inc. and Marsh Inc. and (ii) $343,000 to be paid into
a fund under the supervision of the NYAG and the NYDOI to be used to
    compensate various states in connection with the underpayment of certain
      workers compensation premium taxes and other assessments. No amounts to be
paid under the related settlement agreements will be charged to the 
    Company, although the Company and certain affiliates will be required to
adopt various business reforms.                                     

     Various federal and state regulatory agencies are reviewing certain other
 transactions and practices of AIG and its subsidiaries, including the
 Company, in connection with certain industry-wide and other inquiries
    including, but not limited to, insurance brokerage practices relating to
      contingent commissions. It is possible that additional civil or regulatory
      proceedings will be filed. Additionally, various actions have been brought
 against AIG arising out of the liability of certain AIG subsidiaries,
      including the Company, for taxes, assessments, and surcharges for policies
   of workers compensation insurance. As of December 31, 2005, the Company
recorded a provision of $57,494 to cover any contingent liabilities 
arising from the potential underpayment of these premium taxes and  
assessments.                                                        

   Since October 19, 2004, AIG and certain subsidiaries have been named as
     defendants in numerous complaints that were filed in federal court and in
 state court (Massachusetts and Florida) and removed to federal court.
These cases generally allege that AIG and its subsidiaries violated 
   federal and various state antitrust and anti-racketeering laws, various
     state deceptive and unfair practice laws and certain state laws governing
   fiduciary duties. The alleged basis of these claims is that there was a
    conspiracy between insurance companies and insurance brokers with regard
     to the bidding practices for insurance coverage in certain sectors of the
      insurance industry. The Judicial Panel on Multidistrict Litigation entered
   an order consolidating most of these cases and transferring them to the
      United States District Court for the District of New Jersey. The remainder
of these cases have been transferred to the District of New Jersey. 

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 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

      On August 15, 2005, the plaintiffs in the multidistrict litigation filed a
  Corrected First Consolidated Amended Commercial Class Action Complaint
which names AIG and the following additional AIG subsidiaries as    
     defendants: AIU Insurance Company, American Home, National Union, AISLIC,
American International Insurance Company, Birmingham Fire Insurance 
Company of Pennsylvania, Commerce and Industry Insurance Company,   
 Lexington Insurance Company, National Union Fire Insurance Company of
 Louisiana, New Hampshire Insurance Company, The Hartford Steam Boiler
    Inspection and Insurance Company, and The Insurance Company of the State
      of Pennsylvania. Also on August 15, 2005, AIG, American Home, and AIG Life
Insurance Company were named as defendants in a Corrected First     
     Consolidated Amended Employee Benefits Complaint filed in the District of
   New Jersey that adds claims under ERISA. The AIG defendants, along with
other insurer defendants and the broker defendants filed motions to 
     dismiss both the Commercial and Employee Benefits Complaints. Plaintiffs'
   have filed a Motion for Class Certification in the consolidated action,
  which defendants will oppose. Both the motion to dismiss and the class
certification motions are pending.                                  

    On January 18, 2006, American International Aviation Agency, Inc. (AIAA)
    and Redholm Underwriting Agents Limited (Redholm) commenced two separate
     arbitration proceedings against New Hampshire Insurance Company (NHIC) in
  the United States and United Kingdom, respectively, seeking to prevent
NHIC from terminating and/or breaching certain agreements with AIAA,
   Redholm and their affiliates. On the same date, AIAA filed an action in
   Georgia state court against NHIC, and sought an injunction barring NHIC
     from terminating and/or breaching these agreements pending the outcome of
 the arbitration. AIAA and Redholm were, at the time, managing general
    agents for certain insurance company subsidiaries of AIG, and are wholly
      owned by C.V. Starr & Co., Inc. (C.V. Starr), a company that is controlled
by certain former senior executives of AIG. AIG and its affiliates  
 thereafter terminated their managing general agency relationship with
AIAA. They had previously terminated their agency relationship with 
Redholm.                                                            

      Subsequent to the commencement of these arbitration proceedings, two other
  managing general agencies owned by C.V. Starr - American International
 Marine Agency, Inc. (AIMA), and C.V. Starr & Co. (Starr California) -
    commenced two additional arbitration proceedings against AIG and certain
     of its affiliates, and Starr Technical Risks Agency, Inc. (Starr Tech), a
   third C.V. Starr agency (together with AIAA, AIMA and Starr California,
     the C.V. Starr Agencies), asserted claims in an arbitration that had been
    commenced by certain AIG subsidiaries. The AIG insurance companies named
    in claims asserted by the C.V. Starr Agencies are: The Insurance Company
   of the State of Pennsylvania, Illinois National Insurance Co., American
   International South Insurance Company, Granite State Insurance Company,
      AISLIC, National Union, Birmingham Fire Insurance Company of Pennsylvania,
     American Home, Commerce and Industry Insurance Company, and AIU Insurance
      Company (the AIG Insurance Company Defendants). The claims asserted by the
C.V. Starr Agencies allege that AIG and the AIG Insurance Company   
      Defendants are irreparably harming the C.V. Starr Agencies by, among other
 things, misappropriating their business relationships and proprietary
  information, predatorily hiring their employees, and restricting their
      access to offices, computer systems, documents and other information. They
      seek damages and injunctive relief: (i) permitting the C.V. Starr Agencies
to operate independently from AIG, and to produce business for other
      companies, and (ii) restraining AIG and its affiliates from competing with
      the C.V. Starr Agencies for certain business and from using the C.V. Starr
Agencies' proprietary information.                                  

AIG and certain of the AIG Insurance Company Defendants have also   
instituted arbitration and litigation in New York and litigation in 
    Georgia seeking damages, equitable and injunctive relief: (i) preventing
the C.V. Starr Agencies from denying AIG access to its documents and
information; (ii) enjoining the C.V. Starr Agencies from engaging in
  certain insurance and reinsurance transactions with non-AIG companies;
    (iii) requiring the C.V. Starr Agencies to relinquish control of certain
premium trust funds; and (iv) seeking damages resulting from any    

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 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

improper or illegal conduct of the C.V. Starr Agencies. AIG and its 
      affiliates have also terminated or provided notice of termination of their
managing general agency relationships with Starr Tech and Starr     
California.                                                         

On March 20, 2006, C.V. Starr filed a lawsuit in the United States  
      District Court for the Southern District of New York against AIG, alleging
  that the use by certain AIG affiliates of the name "Starr" in commerce
     infringes trademarks held by C.V. Starr. The Complaint alleges claims for
  federal trademark infringement, common law unfair competition, service
    mark infringement and dilution pursuant to New York law. C.V. Starr also
   alleges that AIG's continued ownership of certain Internet domain names
that include the "Starr" name, violates federal law and constitutes 
  conversion of C.V. Starr property. C.V. Starr seeks to enjoin AIG from
  using the name Starr, to turn over its rights in certain trademark and
domain name rights, and also seeks damages as a result of these     
violations.                                                         

AIG and its affiliates involved in the arbitration and litigation   
   proceedings with the C.V. Starr Agencies cannot now estimate either the
    likelihood of their prevailing in these actions or any potential damages
in the event liability is determined.                               

      AIG is also subject to various legal proceedings which have been disclosed
   in AIG's periodic filings under the Securities Exchange Act of 1934, as
    amended, in which the Company is not named as a party, but whose outcome
may nonetheless adversely affect the Company's financial position or
results of operation.                                               

    Except for the provisions the Company recorded related to the contingent
      liabilities arising out of the potential underpayment of premium taxes and
 assessments described in the preceding paragraphs, the Company cannot
      predict the outcome of the matters described above, estimate the potential
costs related to these matters, or determine whether other AIG      
      subsidiaries, including the Company, would have exposure to proceedings in
   which they are not named parties by virtue of their participation in an
   inter-company pooling arrangement and, accordingly, no reserve is being
      established in the Company's financial statements at December 31, 2005. In
the opinion of management, the Company's ultimate liability for the 
     matters referred to above is not likely to have a material adverse effect
 on the Company's financial position, although it is possible that the
  effect would be material to the Company's results of operations for an
individual reporting period.                                        

B.    ASBESTOS AND ENVIRONMENTAL RESERVES                                       

     The Company continues to receive indemnity claims asserting injuries from
toxic waste, hazardous substances, asbestos and other environmental 
   pollutants and alleged damages to cover the clean-up costs of hazardous
      waste dump sites (environmental claims). Estimation of environmental claim
     loss reserves is a difficult process, as these claims, which emanate from
policies written in 1984 and prior years, cannot be estimated by    
 conventional reserving techniques. Environmental claim development is
      affected by factors such as inconsistent court resolutions, the broadening
    of the intent of policies and scope of coverage and increasing number of
     new claims. The Company and other industry members have and will continue
     to litigate the broadening judicial interpretation of policy coverage and
    the liability issues. If the courts continue in the future to expand the
     intent of the policies and the scope of the coverage, as they have in the
past, additional liabilities would emerge for amounts in excess of  
 reserves held. This emergence cannot now be reasonably estimated, but
     could have a material impact on the Company's future operating results or
financial position.                                                 

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

The Company's environmental exposure arises from the sale of general
liability, product liability or commercial multi peril liability    
      insurance, or by assumption of reinsurance within these lines of business.

The Company tries to estimate the full impact of the asbestos and   
  environmental exposure by establishing full case basis reserves on all
    known losses and establishes bulk reserves for IBNR losses and LAE based
      on management's judgment after reviewing all the available loss, exposure,
and other information.                                              

     A reconciliation of the Company's asbestos and environmental related loss
     and LAE reserves (including case & IBNR reserves) as of December 31, 2005
and 2004, gross and net of reinsurance credits, is set forth below: 

                                                              [Enlarge/Download Table]
                                                                                                  
                                                                                                  
                                                  ASBESTOS LOSSES           ENVIRONMENTAL LOSSES  
                                            ---------------------------    ---------------------- 
                                               2005             2004         2005          2004   
                                            --------------    ---------    ---------    --------- 
                                                                                                  
Direct :                                                                                          

Loss and LAE reserves, beginning of period  $      731,546    $  272,012   $  271,161   $ 196,300 

   Incurred losses and LAE                         517,176       535,892       66,554     117,838 
   Calendar year paid losses and LAE              (100,673)      (76,358)     (33,001)    (42,977)
                                            --------------    ----------   ----------   --------- 
Loss and LAE reserves, as of December 31,   $    1,148,049    $  731,546   $  304,714   $ 271,161 
                                            ==============    ==========   ==========   ========= 
Assumed:                                                                                          

Loss and LAE reserves, beginning of period  $       95,171    $   34,601    $   6,994   $   8,522 

   Incurred losses and LAE                          15,540        66,069          876        (587)
   Calendar year paid losses and LAE               (7,901)        (5,499)        (944)       (941)
                                            --------------    ----------   ----------   --------- 
Loss and LAE reserves, as of December 31,   $      102,810    $   95,171    $   6,926   $   6,994 
                                            ==============    ==========   ==========   ========= 
Net of Reinsurance:                                                                               

Loss and LAE reserves, beginning of period  $      367,609    $  108,999   $  149,915   $ 85,324  

   Incurred losses and LAE                         220,900       291,003       17,322      87,348 
   Calendar year paid losses and LAE               (41,472)      (32,393)     (24,761)    (22,757)
                                            --------------    ----------   ----------   --------- 
LOSS AND LAE RESERVES, AS OF DECEMBER 31,   $      547,037    $  367,609   $  142,476   $ 149,915 
                                            ==============    ==========   ==========   ========= 
                                                                          
Management believes that the reserves carried for the asbestos and  
    environmental claims at December 31, 2005 are adequate as they are based
     on known facts and current law. AIG continues to receive claims asserting
    injuries from toxic waste, hazardous substances, and other environmental
  pollutants and alleged damages to cover the cleanup costs of hazardous
   waste dump sites (hereinafter collectively referred to as environmental
     claims) and indemnity claims asserting injuries from asbestos. Estimation
      of asbestos and environmental claims loss reserves is a difficult process,
  as these claims, which emanate from policies written in 1984 and prior
years, cannot be estimated by conventional reserving techniques.    

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

C.    OTHER CONTINGENCIES                                                       

  In the ordinary course of business, the Company enters into structured
    settlements to settle certain claims. Structured settlements involve the
     purchase of an annuity to fund future claim obligations. In the event the
   life insurers providing the annuity, on certain structured settlements,
   are not able to meet their obligations, the Company would be liable for
the payments of benefits.                                           

      As of December 31, 2005, the Company has not incurred a loss and there has
     been no default by any of the life insurers included in the transactions.
Management believes that based on the financial strength of the life
  insurers involved in these structured settlements, the likelihood of a
loss is remote.                                                     

In connection therewith, as of December 31, 2005 the Company's loss 
reserves eliminated by annuities and unrecorded loss contingencies  
amounted to $764,800 and $745,100, respectively.                    

    The Company has entered into a credit agreement with its Parent, whereby
    the Company may loan, subject to contractually agreed interest rates, up
 to a maximum of $410,000. As of December 31, 2005, the Company had no
outstanding loan balances due from its Parent related to this credit
arrangement.                                                        

  As part of its private equity portfolio investment, as of December 31,
     2005, the Company may be called upon for an additional capital investment
of up to $422,500. The Company expects only a small portion of this 
additional capital will be called during 2006.                      

   The Company has committed to provide Pound Sterling 50,000 ($86,000) in
    capital to a Lloyd's Syndicate. The Company believes that the likelihood
of a payment during 2006 is remote.                                 

     As fully disclosed in Note 5, the Company has guaranteed the policyholder
obligations of certain affiliated insurance companies. Each of the  
guaranteed affiliates has admitted assets in excess of policyholder 
    liabilities. The Company believes that the likelihood of a payment under
any of these guarantees is remote.                                  

NOTE 13 - OTHER SIGNIFICANT MATTERS                                             

A.    SEPTEMBER 11, 2001 EVENTS                                                 

      As of December 31, 2005 and 2004, the Company's ultimate losses and LAE as
      a result of the September 11th events gross, ceded and net of reinsurance,
is set forth in the table below:                                    

                                                                      [Download Table]
                                                                     
                                                                     
AS OF DECEMBER 31,                            2005           2004    
--------------------                     ------------     -----------
                                                                     
Gross of reinsurance                     $    473,083     $  473,083 
Ceded reinsurance                            (408,188)      (408,188)
                                         ------------     ---------- 
  NET OF REINSURANCE                     $     64,895     $   64,895 
                                         ============     ========== 
                                                                          
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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

      All contingencies and unpaid claims or losses resulting from the September
     11th events have been recognized in the financial statements. The Company
     does not expect any unrecognized contingencies or unpaid claims or losses
to impact the financial statements in the near term.                

B.    PROPERTY CATASTROPHE LOSSES                                               

   During 2005, the Company incurred significant losses related to certain
    hurricane events. In connection therewith, the Company's estimate of its
potential pre-tax loss exposure, including the cost of reinstatement
premiums, related to these events is set forth in the table below:  

                                                              [Enlarge/Download Table]
                                                                                         
                                                                                         

            LOSS OCCURRENCE                                                  PRE-TAX LOSS
HURRICANE       PERIOD          CATEGORY      AREA / REGION                   EXPOSURE   
---------  -------------------  --------  --------------------------------  -------------
                                                                                         
Katrina        August 2005          4     Louisiana / Central Gulf Coast     $   193,522 
Rita           September 2005       3     Southwestern Louisiana and Texas        50,551 
Wilma          October 2005         3     Southern Florida                        65,967 
                                                                             ----------- 
TOTAL                                                                        $   310,040 
                                                                             =========== 

C.    OTHER                                                                     

      The Company underwrites a significant concentration of its direct business
with brokers.                                                       

    As of December 31, 2005 and 2004, the amount of reserve credits recorded
for high deductibles on unpaid claims amounted to $3,900,000 and    
  $3,369,400, respectively. As of December 31, 2005 and 2004, the amount
billed and recoverable on paid claims was $350,900 and $387,600,    
respectively, of which $17,600 and $22,300, respectively, were      
non-admitted.                                                       

  The Company's direct percentage of policyholder dividend participating
    policies is 0.05 percent. Policyholder dividends are accounted for on an
incurred basis. In connection therewith, during 2005 and 2004,      
   policyholder dividends amounted to $20 and $562, respectively, and were
reported as Other Gains in the accompanying Statements of Income.   

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

      As of December 31, 2005 and 2004, other admitted assets as reported in the
      accompanying Statements of Admitted Assets were comprised of the following
balances:                                                           

                                                                      [Download Table]
                                                                     
                                                                     
AS OF DECEMBER 31,                             2005          2004    
------------------------------------------   ---------     --------- 
                                                                     
Guaranty funds receivable or on deposit      $  21,216     $  19,745 
Loss funds on deposit                           65,974        79,741 
Outstanding loss drafts - suspense accounts    537,881       293,066 
Accrued recoverables                             7,157         6,294 
Other assets                                   (27,064)       67,240 
Allowance for Doubtful Accounts               (471,565)     (109,621)
                                             ---------     --------- 
   TOTAL OTHER ADMITTED ASSETS               $ 133,599     $ 356,465 
                                             =========     ========= 
                                                                          
    Guaranty fund receivables represent payments to various state insolvency
funds which are recoupable against future premium tax payment in the
 respective states. Various states allow insurance companies to recoup
assessments over a period of five to ten years.                     

The Company routinely assesses the collectibility of its receivable 
balances for potentially, uncollectible premiums receivable due from
    agents and reinsurance recoverable balances. In connection therewith, as
   of December 31, 2005 and 2004, the Company established an allowance for
doubtful accounts of $471,565 and $109,621, respectively, which was 
reported as a contra asset within Other Admitted Assets in the      
accompanying Statements of Admitted Assets.                         

During 2005, the Company recorded $153,838 of the increase in the   
allowance for doubtful accounts to Net Loss from Agents' Balances   
      Charged-off in the accompanying 2005 Statement of Income, and recorded the
remaining increase of $208,106 as an adjustment for prior period    
  corrections to the Company's Capital and Surplus balance at January 1,
2005.                                                               

NOTE 14 - SUBSEQUENT EVENTS                                                     

In February 2006, the Company entered into a Capital Maintenance Agreement (CMA)
with its Parent. The CMA provides that in the event that the Company's Total    
Adjusted Capital falls below 200.0% of the Company's Authorized Control Level   
RBC, as reported in the Company's 2005 Annual Statement, together with any      
adjustments or modifications required by the Company's domiciliary regulator,   
the Parent will provide a capital contribution to the Company in an amount equal
to the difference between the Company's Total Adjusted Capital and 200.0% of the
Company's Authorized Control Level RBC. In lieu of making any capital           
contribution, with the approval of the domiciliary department, AIG may provide a
letter of credit naming the Company as beneficiary.                             

Effective upon the date of filing of the Company's 2005 Annual Statement with   
its domiciliary regulator, this CMA superseded and replaced a similar agreement 
that was effective October 15, 2005 related to the Company's December 31, 2004  
surplus position.                                                               

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NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.

 NOTES TO STATUTORY BASIS FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

 (000'S OMITTED)

During 2005, the board of directors of the Parent, authorized a resolution where
it committed to replenish any surplus lost as a result of the effects of the    
restatements of the Company's December 31, 2004 financial statements as well as 
any additional loss and LAE reserve strengthening as a result of the reserve    
review conducted by an independent actuarial consultant. In accordance with that
resolution, on February 15, 2006, the Parent contributed $199,830 in cash to the
Company. In connection therewith, at December 31, 2005, the Company reported a  
receivable of $199,830 with its Parent and increased its Capital in Excess of   
Par Value accordingly. The recognition of this surplus contribution has been    
approved by the Pennsylvania Insurance Department.                              

In addition, with approval of the Company's domiciliary regulator, AIG provided 
the Company with a letter of credit for unauthorized reinsurance recoverables,  
at December 31, 2005, authorizing the withdrawal of up to $380,000. In addition,
the calculation of the provision for reinsurance reflects the affects of cash   
collections from affiliates subsequent to December 31, 2005.                    

NOTE 15 - POLICYHOLDERS' SURPLUS AND NET INCOME RECONCILIATION                  

A reconciliation of policyholder's surplus as of December 31, 2005 and net      
income for the year ended, as previously reported in the Company's annual       
statements filed with regulatory authorities, and the amounts, as adjusted,     
reported in the accompanying statutory basis financial statements, is presented 
in the following table:                                                         

                                                        [Enlarge/Download Table]
                                                                                              
                                                                      POLICYHOLDERS'      NET 
                                                                         SURPLUS        INCOME
                                                                      ------------------------

AS REPORTED IN THE 2005 ANNUAL STATEMENT PREVIOUSLY FILED               $8,046,993    $ 58,744

 Adjustment to accruals and provisions, net of federal income tax           73,170      73,170
                                                                      ------------------------

AS REPORTED IN THE ACCOMPANYING STATUTORY BASIS FINANCIAL STATEMENTS    $8,120,163    $131,914
                                                                      ========================

Certain expense accruals and provisions are calculated differently for GAAP     
basis financials and NAIC SAP basis financials. During the preparation of the   
annual statement, the Company did not properly eliminate or adjust the GAAP     
basis accruals and provisions when the NAIC SAP basis accruals and provisions   
were recorded. As a result, certain expenses were recorded twice.               

                                                                         Page 51

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PART C: OTHER INFORMATION 

Item 26. Exhibits                                                               

(a) Board of Directors Resolution.                                              

  (1) Certificate of Resolution for AIG Life Insurance Company pursuant to
     the Board of Directors' meeting dated June 5, 1986, authorizing the
 establishment of separate accounts for the issuance and sale of
      variable life insurance contracts, as well as for variable and fixed
annuity contracts. (1)                                        

  (2) Certificate of Resolution for AIG Life Insurance Company pursuant to
       the Board of Directors' meeting dated September 12, 1995, amending in
its entirety the resolution previously passed by the Board of 
      Directors on June 5, 1986, authorizing the establishment of separate
accounts for the issuance and sale of variable life insurance 
     contracts, as well as for variable and fixed annuity contracts. (5)

(b) Custodian Agreements. Inapplicable                                          

(c) Underwriting Contracts.                                                     

    (1) Distribution Agreement between AIG Life Insurance Company and American
 General Equity Services Corporation, effective May 1, 2003. (7)

(2) Form of Selling Group Agreement. (9)                              

(d) Contracts.                                                                  

(1) Form of Group Flexible Premium Variable Life Insurance            
Policy--Non-Participating, Form No. 11GVULD997. (2)           

 (2) Form of Group Flexible Premium Variable Life Insurance Certificate,
Form No. 16GVULD997. (2)                                      

(e) Applications.                                                               

    (1) Form of Application for Group Flexible Premium Variable Life Insurance
Policy, Form No. 14COLI400. (7)                               

(2) Form of Supplemental Application for Life Insurance, Form         
No. 14GVSUP997. (Filed herewith)                              

(3) Form of Subaccount Transfer Request Form, 04/06. (Filed herewith) 

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(4) Form of Premium Allocation Form, 04/06. (Filed herewith)          

(5) Form of Loan/Surrender Request Form, 0406. (Filed herewith)       

(6) Form of Dollar Cost Averaging Request Form. (Filed herewith)      

(7) Form of Change Request Form. (7)                                  

(8) Form of Reallocation and Rebalancing Request Form, 04/06. (Filed  
herewith)                                                     

(9) Form of Automatic Rebalancing Request, 04/06. (Filed herewith)    

(f) Depositor's Certificate of Incorporation and By-Laws.                       

   (1) By-Laws of AIG Life Insurance Company, restated as of April 27, 2005.
(4)                                                           

(2) Certificate of Incorporation of AIG Life Insurance Company, dated 
December 6, 1991. (1)                                         

  (3) Restated Certificate of Incorporation of AIG Life Insurance Company,
dated December 6, 1991. (1)                                   

  (4) Certificate of Amendment of Certificate of Incorporation of AIG Life
Insurance Company, dated December 3, 2001. (7)                

(5) Certificate of Change of Location of Registered Office and of     
        Registered Agent, AIG Life Insurance Company, dated July 24, 2002. (9)

(g) Reinsurance Contracts. Inapplicable                                         

(h) Participation Agreements.                                                   

(1)(a) Form of Participation Agreement among Alliance Variable Products     
  Series Fund, Inc., Alliance Fund Distributors, Inc. and AIG Life
Insurance Company. (7)                                        

(1)(b) Form of Amendment to Participation Agreement among Alliance Variable 
Products Series Fund, Inc. and AIG Life Insurance Company. (7)

 (2)(a) Form of Shareholder Services Agreement by and between American Century
Investment Services, Inc. and AIG Life Insurance Company. (8) 

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(2)(b) Form of Amendment No. 1 to Shareholder Services Agreement by and     
 between American Century Investment Services, Inc. and AIG Life
Insurance Company, effective January 1, 2001. (8)             

(3)(a) Form of Participation Agreement by and among Credit Suisse Warburg   
        Pincus Trust, Credit Suisse Asset Management, LLC, Credit Suisse Asset
 Management Securities, Inc. and AIG Life Insurance Company. (8)

(4)(a) Form of Participation Agreement by and among Variable Insurance      
Products Fund, Fidelity Distributors Corporation and AIG Life 
Insurance Company. (8)                                        

(4)(b) Form of Amendment to Participation Agreement by and among Variable   
    Insurance Products Fund, Fidelity Distributors Corporation and AIG
Life Insurance Company, dated July 23, 1999. (8)              

(4)(c) Form of Fifth Amendment to Participation Agreement by and among      
     Variable Insurance Products Fund, Fidelity Distributors Corporation
and AIG Life Insurance Company, dated January 2, 2001. (8)    

(5)(a) Form of Participation Agreement by and among Variable Insurance      
  Products Fund II, Fidelity Distributors Corporation and AIG Life
Insurance Company. (8)                                        

(5)(b) Form of Amendment to Participation Agreement by and among Variable   
       Insurance Products Fund II, Fidelity Distributors Corporation and AIG
Life Insurance Company, dated July 23, 1999. (8)              

(5)(c) Form of Fifth Amendment to Participation Agreement by and among      
        Variable Insurance Products Fund II, Fidelity Distributors Corporation
and AIG Life Insurance Company, dated January 2, 2001. (8)    

(6)(a) Form of Participation Agreement by and among Variable Insurance      
   Products Fund III, Fidelity Distributors Corporation and AIG Life
Insurance Company. (8)                                        

(7)(a) Form of Participation Agreement by and between Franklin Templeton    
    Products Trust, Franklin Templeton Distributors, Inc. and AIG Life
Insurance Company. (8)                                        

(7)(b) Form of Amendment to Participation Agreement by and between Franklin 
     Templeton Products Trust, Franklin Templeton Distributors, Inc. and
AIG Life Insurance Company, effective May 1, 2001. (8)        

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(7)(c) Form of Amendment to Participation Agreement by and between Franklin 
     Templeton Products Trust, Franklin Templeton Distributors, Inc. and
AIG Life Insurance Company, effective May 3, 2004. (10)       

(7)(d) Form of Amendment No. 3 to Participation Agreement as of March 31,   
 2006 by and between Franklin Templeton Products Trust, Franklin
     Templeton Distributors, Inc. and AIG Life Insurance Company. (Filed
herewith)                                                     

(8)(a) Form of Participation Agreement by and among Goldman Sachs Variable  
        Insurance Trust, Goldman, Sachs & Co., and AIG Life Insurance Company.
(10)                                                          

 (9)(a) Form of Fund Participation Agreement by and between J.P. Morgan Series
Trust II and AIG Life Insurance Company. (8)                  

 (9)(b) Form of Amendment No. 1 to Fund Participation Agreement by and between
        J.P. Morgan Series Trust II and AIG Life Insurance Company, dated June
16, 2003. (10)                                                

(10)(a) Form of Participation Agreement by and among Merrill Lynch Variable   
   Series Funds, Inc., FAM Distributors, Inc. and AIG Life Insurance
Company. (8)                                                  

(11)(a) Form of Participation Agreement among Morgan Stanley Universal Funds, 
Inc., Morgan Stanley Asset Management Inc., Miller Anderson & 
Sherrerd, LLP and AIG Life Insurance Company. (6)             

(11)(b) Form of Amendment to Participation Agreement among The Universal      
     Institutional Funds, Inc. (formerly Morgan Stanley Universal Funds,
   Inc.), Morgan Stanley Investment Management Inc. (formerly Morgan
Stanley Asset Management Inc.), Morgan Stanley Investments LP 
   (formerly Miller Anderson & Sherrerd, LLP) and AIG Life Insurance
Company, dated October 1, 2001. (7)                           

(12)(a) Form of Fund Participation Agreement by and among Neuberger & Berman  
        Advisers Management Trust, Advisers Managers Trust, Neuberger & Berman
Management Incorporated and AIG Life Insurance Company. (10)  

(12)(b) Form of Amendment to Fund Participation Agreement by and among        
        Neuberger & Berman Advisers Management Trust, Advisers Managers Trust,
   Neuberger & Berman Management Incorporated and AIG Life Insurance
Company. (10)                                                 

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(13)(a) Form of Participation Agreement by and among PIMCO Variable Insurance 
         Trust, PIMCO Funds Distributors LLC and AIG Life Insurance Company. (8)

(14)(a) Form of Participation Agreement by and between VALIC Company I, The   
Variable Annuity Life Insurance Company and AIG Life Insurance
Company. (7)                                                  

(14)(b) Form of Amendment No. 1 to Participation Agreement by and between     
      VALIC Company I, The Variable Annuity Life Insurance Company and AIG
Life Insurance Company. (7)                                   

(15)(a) Form of Participation Agreement by and among Vanguard Variable        
Insurance Fund, The Vanguard Group, Inc., Vanguard Marketing  
Corporation and AIG Life Insurance Company. (8)               

(16)(a) Form of Administrative Services Agreement by and among Credit Suisse  
Asset Management, LLC and AIG Life Insurance Company. (8)     

(i) Administrative Contracts.                                                   

   (1) Form of Service and Expense Agreement dated February 1, 1974, between
        American International Group, Inc. and various affiliate subsidiaries,
including AIG Life Insurance Company. (7)                     

(2) Form of Addendum No. 1 to Service and Expense Agreement dated     
  February 1, 1974, between American International Group, Inc. and
       various affiliate subsidiaries, including AIG Life Insurance Company,
dated May 21, 1975. (7)                                       

(3) Form of Addendum No. 2 to Service and Expense Agreement dated     
  February 1, 1974, between American International Group, Inc. and
       various affiliate subsidiaries, including AIG Life Insurance Company,
dated September 23, 1975. (7)                                 

(4) Form of Addendum No. 24 to Service and Expense Agreement dated    
  February 1, 1974, between American International Group, Inc. and
       various affiliate subsidiaries, including AIG Life Insurance Company,
dated December 30, 1998. (7)                                  

(5) Form of Addendum No. 28 to Service and Expense Agreement dated    
        February 1, 1974, among American International Group, Inc. and various
  affiliate subsidiaries, including AIG Life Insurance Company and
 American General Life Companies, effective January 1, 2002. (7)

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(6) Form of Addendum No. 30 to Service and Expense Agreement dated    
        February 1, 1974, among American International Group, Inc. and various
  affiliate subsidiaries, including AIG Life Insurance Company and
      American General Life Companies, LLC, effective January 1, 2002. (9)

(7) Form of Addendum No. 32 to Service and Expense Agreement dated    
        February 1, 1974, among American International Group, Inc. and various
  affiliate subsidiaries, including AIG Life Insurance Company and
   American General Life Companies, LLC, effective May 1, 2004. (10)

(j) Other Material Contracts.                                                   

    (1) General Guarantee Agreement from National Union Fire Insurance Company
 of Pittsburgh, Pa. on behalf of AIG Life Insurance Company. (4)

   (2) AIG Support Agreement between AIG Life Insurance Company and American
International Group, Inc. (4)                                 

(k) Legal Opinions.                                                             

  (1) Opinion and Consent of Kenneth D. Walma, Vice President and Counsel,
AIG Life Insurance Company. (3)                               

   (2) Opinion and Consent of Saul Ewing LLP, Counsel to National Union Fire
Insurance Company of Pittsburgh, Pa. (11)                     

 (3) Opinion and Consent of Sullivan & Cromwell LLP, Counsel to National
Union Fire Insurance Company of Pittsburgh, Pa. (11)          

(l) Actuarial Opinions.                                                         

(1) Opinion and Consent of AIG Life Insurance Company's actuary. (3)  

(2) Opinion and Consent of AIG Life Insurance Company's actuary. (7)  

(m) Calculation. None                                                           

(n) Other Opinions.                                                             

(1) Consent of Independent Registered Public Accounting Firm,         
PricewaterhouseCoopers LLP. (Filed herewith)                  

(o) Omitted Financial Statements. None                                          

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(p) Initial Capital Agreements. None                                            

(q) Redeemability Exemption.                                                    

(1) Memorandum Regarding Procedures including Issuance, Transfer and  
      Redemption Procedures for Variable Universal Life Insurance Policies
       Pursuant to Rule 6e-3(T)(b)(12)(iii) under the Investment Company Act
of 1940. (10)                                                 

(r) Powers of Attorney.                                                         

(1) Power of Attorney with respect to Registration Statements and     
   Amendments thereto signed by the directors and, where applicable,
      officers of National Union Fire Insurance Company of Pittsburgh, Pa.
(12)                                                          
--------                                                                        
(1) Incorporated by reference to Post-Effective Amendment No. 4 to Form S-6     
 Registration Statement (File No. 033-90684) of Variable Account II of AIG
Life Insurance Company filed on October 27, 1998.                       

(2) Incorporated by reference to Post-Effective Amendment No. 1 to Form S-6     
 Registration Statement (File No. 333-34199) of Variable Account II of AIG
Life Insurance Company filed on March 13, 1998.                         

(3) Incorporated by reference to Post-Effective Amendment No. 8 to Form S-6     
 Registration Statement (File No. 333-34199) of Variable Account II of AIG
Life Insurance Company filed on May 1, 2002.                            

(4) Incorporated by reference to Post-Effective Amendment No. 14 to Form N-6    
 Registration Statement (File No. 333-34199) of Variable Account II of AIG
Life Insurance Company filed on August 12, 2005.                        

(5) Incorporated by reference to Post-Effective Amendment No. 9 to Form N-6     
 Registration Statement (File No. 333-34199) of Variable Account II of AIG
Life Insurance Company filed on February 7, 2003.                       

(6) Incorporated by reference to Post-Effective Amendment No. 2 to Form N-4     
Registration Statement (File No. 333-36260) of Variable Account I of AIG
Life Insurance Company filed on December 28, 2001.                      

(7) Incorporated by reference to Post-Effective Amendment No. 10 to Form N-6    
 Registration Statement (File No. 333-34199) of Variable Account II of AIG
Life Insurance Company filed on April 25, 2003.                         

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(8) Incorporated by reference to Post-Effective Amendment No. 11 to Form N-6    
 Registration Statement (File No. 333-34199) of Variable Account II of AIG
Life Insurance Company filed on June 16, 2003.                          

(9) Incorporated by reference to Post-Effective Amendment No. 9 to Form N-4     
Registration Statement (File No. 333-36260) of Variable Account I of AIG
Life Insurance Company filed on April 27, 2004.                         

(10)Incorporated by reference to Post-Effective Amendment No. 13 to Form N-6    
 Registration Statement (File No. 333-34199) of Variable Account II of AIG
Life Insurance Company filed on May 2, 2005.                            

(11)Incorporated by reference to Post-Effective Amendment No. 15 to Form N-6    
 Registration Statement (File No. 333-34199) of Variable Account II of AIG
Life Insurance Company filed on October 24, 2005.                       

(12)Incorporated by reference to Post-Effective Amendment No. 16 to Form N-6    
 Registration Statement (File No. 333-34199) of Variable Account II of AIG
Life Insurance Company filed on March 24, 2006.                         

Item 27. Directors and Officers of the Depositor                                

Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------  

Rodney O. Martin, Jr.                  Director and Chairman of the Board of  
2929 Allen Parkway                     Directors                              
Houston, TX 77019                                                             

M. Bernard Aidinoff                    Director                               
Sullivan and Cromwell                                                         
125 Broad Street                                                              
New York, NY 10004                                                            

David J. Dietz                         Director, Chairman-Global High Net     
830 Third Avenue                       Worth, Corporate Markets & Domestic    
New York, NY 10022                     Institutional Profit Center, and       
                                   Chief Executive Officer-Global High
                              Net Worth, Corporate Markets &
                                    Domestic Institutional Profit Center

Mary Jane Fortin                       Director, Executive Vice President     
2929 Allen Parkway                     and Chief Financial Officer            
Houston, TX 77019                                                             

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------  

David L. Herzog                        Director                               
70 Pine Street                                                                
New York, NY 10270                                                            

Richard A. Hollar                      Director, Chairman-Independent         
750 West Virginia Street               Distribution Profit Center & Chief     
Milwaukee, WI 53204                    Executive Officer-Independent          
                          Distribution Profit Center

Royce G. Imhoff, II                    Director, President-Independent        
2929 Allen Parkway                     Distribution and Affluent Profit       
Houston, TX 77019                      Center                                 

Gary D. Reddick                        Director, Executive Vice President     
2929 Allen Parkway                     and Chief Administrative Officer       
Houston, TX 77019                                                             

Christopher J. Swift                   Director                               
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

James W. Weakley                       Director, President-Group Benefit &    
2929 Allen Parkway                     Financial Institutions Profit Center   
Houston, TX 77019                      and Chief Executive Officer-Group      
                                Benefit & Financial Institutions
             Profit Center

Matthew Winter                         Director, President and Chief          
2929 Allen Parkway                     Executive Officer                      
Houston, TX 77019                                                             

Thomas L. Booker                       President-Annuity Profit Center        
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Lawrence J. O'Brien                    President-Independent Agency Group     
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Richard C. Schuettner                  President-AIG Life Brokerage Profit    
750 West Virginia Street               Center                                 
Milwaukee, WI 53204                                                           

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------- 

James P. Steele                        President-Structured Settlements       
205 E. 10th Street                                                            
Amarillo, TX 79101                                                            

David R. Armstrong                     Executive Vice President-Group         
3600 Route 66                          Benefit & Financial Institutions       
Neptune, NJ 07754                                                             

Chris T. Calos                         Executive Vice President and           
3600 Route 66                          Executive Vice President-Group         
Neptune, NJ 07754                      Benefit & Financial Institutions       

Rebecca G. Campbell                    Executive Vice President-Human         
2929 Allen Parkway                     Resources                              
Houston, TX 77019                                                             

Dan E. Trudan                          Executive Vice President-Operations,   
750 West Virginia St.                  Independent Distribution Profit Center 
Milwaukee, WI 53204                                                           

Steven D. Anderson                     Senior Vice President-Independent      
2727 Allen Parkway                     Distribution Profit Center and Chief   
Houston, TX 77019                      Financial Officer-Independent          
                          Distribution Profit Center

Erik A. Baden                          Senior Vice President                  
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Wayne A. Barnard                       Senior Vice President                  
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

Robert M. Beuerlein                    Senior Vice President and Chief        
2727-A Allen Parkway                   Actuary                                
Houston, TX 77019                                                             

Patricia A. Bosi                       Senior Vice President                  
3600 Route 66                                                                 
Neptune, NJ 07754-1580                                                        

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------  

Jeffrey H. Carlson                     Senior Vice President and Chief        
2727 Allen Parkway                     Information Officer                    
Houston, TX 77019                                                             

James A. Galli                         Senior Vice President and              
830 Third Avenue                       Chief Business Development Officer     
New York, NY 10022                                                            

Robert M. Goldbloom                    Senior Vice President-Terminal         
70 Pine Street                         Funding Annuities                      
New York, NY 10270                                                            

William F. Guterding                   Senior Vice President                  
830 Third Avenue                                                              
New York, NY 10022                                                            

Robert F. Herbert, Jr.                 Senior Vice President, Treasurer and   
2727-A Allen Parkway                   Controller                             
Houston, TX 77019                                                             

S. Douglas Israel                      Senior Vice President                  
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

Kyle L. Jennings                       Senior Vice President and General      
2929 Allen Parkway                     Counsel                                
Houston, TX 77019                                                             

Althea R. Johnson                      Senior Vice President                  
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

Glen D. Keller                         Senior Vice President                  
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Simon J. Leech                         Senior Vice President                  
2727-A Allen Parkway                                                          
Houston, TX 77019                                                             

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------  

Kent D. Major                          Senior Vice President                  
2727-A Allen Parkway                                                          
Houston, TX 77019                                                             

Mark R. McGuire                        Senior Vice President                  
2727-A Allen Parkway                                                          
Houston, TX 77019                                                             

Laura W. Milazzo                       Senior Vice President                  
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Harry R. Miller                        Senior Vice President                  
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Barry Pelleterri                       Senior Vice President                  
3600 Route 66                                                                 
Neptune, NJ 07754                                                             

Dennis H. Roberts                      Senior Vice President                  
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Robert E. Steele                       Senior Vice President                  
205 E. 10th Street                                                            
Amarillo, TX 79101                                                            

Michael W. Witwer                      Senior Vice President                  
3600 Route 66                                                                 
Neptune, NJ 07754                                                             

Frederic R. Yopps                      Senior Vice President                  
750 West Virginia St.                                                         
Milwaukee, WI 53204                                                           

Steven E. Zimmerman                    Senior Vice President and Medical      
2727 Allen Parkway                     Director                               
Houston, TX 77019                                                             

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------  

Edward F. Bacon                        Vice President                         
2727-A Allen Parkway                                                          
Houston, TX 77019                                                             

Joan M. Bartel                         Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Walter E. Bednarski                    Vice President                         
3600 Route 66                                                                 
Neptune, NJ 07754-1580                                                        

Paul Bell, III                         Vice President                         
Walnut Glen Tower                                                             
8144 Walnut Hill Lane                                                         
Dallas, TX 75231                                                              

Michael B. Boesen                      Vice President and Medical Director    
2727-A Allen Parkway                                                          
Houston, TX 77019                                                             

David R. Brady                         Vice President                         
70 Pine Street                                                                
New York, NY 10270                                                            

Stephen J. Brenneman                   Vice President                         
1 Alico Plaza                                                                 
600 King Street                                                               
Wilmington, DE 19801                                                          

James B. Brown                         Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

David W. Butterfield                   Vice President                         
3600 Route 66                                                                 
Neptune, NJ 07754                                                             

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------- 

Robert W. Chesner                      Vice President                         
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

Valerie A. Childrey                    Vice President and Medical Director    
750 West Virginia Street                                                      
Milwaukee, WI 53204                                                           

Mark E. Childs                         Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Robert M. Cicchi                       Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Steven A. Dmytrack                     Vice President                         
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

Douglas M. Donnenfield                 Vice President                         
750 West Virginia Street                                                      
Milwaukee, WI 53204                                                           

Timothy M. Donovan                     Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Donna F. Fahey                         Vice President                         
3600 Route 66                                                                 
Neptune, NJ 07754-1580                                                        

Farideh N. Farrokhi                    Vice President and Assistant Secretary 
2727-A Allen Parkway                                                          
Houston, TX 77019                                                             

John T. Fieler                         Vice President and Medical Director    
2727-A Allen Parkway                                                          
Houston, TX 77019                                                             

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------- 

Patrick S. Froze                       Vice President                         
750 West Virginia Street                                                      
Milwaukee, WI 53204                                                           

Frederick J. Garland, Jr.              Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Richard L. Gravette                    Vice President and Assistant Treasurer 
2727-A Allen Parkway                                                          
Houston, TX 77019                                                             

Kenneth J. Griesemer                   Vice President                         
6363 Forest Park Road                                                         
Dallas, TX 75235                                                              

Daniel J. Gutenberger                  Vice President and Medical Director    
70 Pine Street                                                                
New York, NY 10270                                                            

Joel H. Hammer                         Vice President                         
1 Chase Manhattan Plaza                                                       
New York, NY 10005                                                            

Craig H. Harrel                        Vice President                         
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

D. Leigh Harrington                    Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Neal C. Hasty                          Vice President                         
6363 Forest Park Road                                                         
Dallas, TX 75235                                                              

Keith C. Honig                         Vice President                         
1 SunAmerica Center                                                           
Los Angeles, CA 90067                                                         

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------  

Walter P. Irby                         Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Karen M. Isaacs                        Vice President                         
3600 Route 66                                                                 
Neptune, NJ 07754                                                             

David S. Jorgensen                     Vice President                         
2727-A Allen Parkway                                                          
Houston, TX 77019                                                             

Stephen C. Kennedy                     Vice President                         
750 West Virginia Street                                                      
Milwaukee, WI 53204                                                           

Gary J. Kleinman                       Vice President and Real Estate         
1 Chase Manhattan Plaza                Investment Officer                     
New York, NY 10005                                                            

Frank A. Kophamel                      Vice President                         
3600 Route 66                                                                 
Neptune, NJ 07754                                                             

Charles L. Levy                        Vice President and Medical Director    
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Linda Lewis                            Vice President                         
6363 Forest Park Road                                                         
Dallas, TX 75235                                                              

Robert J. Ley                          Vice President                         
70 Pine Street                                                                
New York, NY 10270                                                            

Jerry L. Livers                        Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------  

Gwendolyn J. Mallett                   Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Randy J. Marash                        Vice President                         
3600 Route 66                                                                 
Neptune, NJ 07754                                                             

David S. Martin                        Vice President-Underwriting            
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

W. Larry Mask                          Vice President, Real Estate            
2727 Allen Parkway                     Investment Officer and                 
Houston, TX 77019                      Assistant Secretary                    

Gordon S. Massie                       Vice President                         
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

Melvin C. McFall                       Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Richard D. McFarland                   Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Richard A. Mercante                    Vice President                         
175 Water Street                                                              
New York, NY 10038                                                            

Beverly A. Meyer                       Vice President                         
750 West Virginia Street                                                      
Milwaukee, WI 53204                                                           

Candace A. Michael                     Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------  

Anne K. Milio                          Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Sylvia A. Miller                       Vice President                         
#1 Franklin Square                                                            
Springfield, IL 62713                                                         

Michael R. Murphy                      Vice President                         
750 West Virginia Street                                                      
Milwaukee, WI 53204                                                           

Carl T. Nichols                        Vice President and Medical Director    
205 E. 10th Street                                                            
Amarillo, TX 79101                                                            

Deanna D. Osmonson                     Vice President and Chief Compliance    
2727 Allen Parkway                     Officer                                
Houston, TX 77019                                                             

Rembert R. Owen, Jr.                   Vice President, Real Estate            
2929 Allen Parkway                     Investment Officer and                 
Houston, TX 77019                      Assistant Secretary                    

Lori J. Payne                          Vice President                         
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Kirsten M. Pedersen                    Vice President                         
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

Cathy A. Percival                      Vice President and Medical Director    
2727 Allen Parkway                                                            
Houston, TX 77019                                                             

Rodney E. Rishel                       Vice President                         
American General Center                                                       
2000 American General Way                                                     
Brentwood, TN 37027                                                           

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------  

Terri Robbins                          Vice President                         
175 Water Street                                                              
New York, NY 10038                                                            

Walter J. Rucecki, Jr.                 Vice President                         
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

Dale W. Sachtleben                     Vice President                         
#1 Franklin Square                                                            
Springfield, IL 62713                                                         

Kristin Sather                         Vice President                         
1 Chase Manhattan Plaza                                                       
New York, NY 10005                                                            

Richard W. Scott                       Vice President and Chief Investment    
70 Pine Street                         Officer                                
New York, NY 10270                                                            

Tom L. Scott                           Vice President and General Auditor     
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

T. Clay Spires                         Vice President and Assistant Tax       
2929 Allen Parkway                     Officer                                
Houston, TX 77019                                                             

Gregory R. Thornton                    Vice President                         
#1 Franklin Square                                                            
Springfield, IL 62713                                                         

Veronica Torralba                      Vice President                         
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

Paul Turner                            Vice President                         
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

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Name and Principal                     Positions and Offices with Depositor   
Business Address                       AIG Life Insurance Company             
------------------                     -------------------------------------  

Richard P. Vegh                        Vice President                         
3600 Route 66                                                                 
Neptune, NJ 07754                                                             

Curt Vondrasek                         Vice President                         
1000 E. Woodfield Road                                                        
Schaumburg, IL 60173                                                          

Christian D. Weiss                     Vice President                         
#1 Franklin Square                                                            
Springfield, IL 62713                                                         

Ronald J. Williams                     Vice President                         
3600 Route 66                                                                 
Neptune, NJ 07754                                                             

Elizabeth M. Tuck                      Secretary                              
70 Pine Street                                                                
New York, NY 10270                                                            

Lauren W. Jones                        Assistant Secretary                    
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

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Item 28. Persons Controlled by or Under Common Control with the Depositor or    
the Registrant                                                

The Depositor is an indirect wholly-owned subsidiary of American International  
Group, Inc. ("AIG"). See footnotes to table below at end of Item 28. Table of   
subsidiaries of AIG can be found as Exhibit 21 in Form 10-K, SEC file number    
001-08787, accession number 0000950123-06-003276, filed March 16, 2006.         

SUBSIDIARIES OF AIG 

                                                              Percentage
                                                             of Voting
                                                              Securities
                                              Jurisdiction of Owned by its
                                             Incorporation   Immediate
                                             or Organization Parent/(2)/
                                              --------------- ------------
American International Group,                                                   
Inc./(1) /....................................       Delaware        /(3)/  
AIG Aviation, Inc............................        Georgia        100   
AIG Bulgaria Insurance and                                                
Reinsurance Company EAD....................       Bulgaria        100 
AIG Capital Corporation......................       Delaware        100   
AIG Consumer Finance Group,                                       
   Inc....................................       Delaware        100
    AIG Bank Polska S.A...................         Poland      99.92
    AIG Credit S.A........................         Poland        100
Compania Financiera                                         
      Argentina S.A.......................      Argentina        100
AIG Equipment Finance                                             
   Holdings, Inc..........................       Delaware        100
AIG Commercial Equipment                                    
      Finance, Inc........................       Delaware        100
AIG Commercial                                      
Equipment Finance                               
          Company, Canada.................         Canada        100
 AIG Finance Holdings, Inc................       New York        100
AIG Finance (Hong Kong)                                     
      Limited.............................      Hong Kong        100
AIG Global Asset Management                                       
   Holdings Corp..........................       Delaware        100
AIG Asset Management                                        
      Services, Inc.......................       Delaware        100
Brazos Capital                                      
          Management, L.P.................       Delaware         92
    AIG Capital Partners, Inc.............       Delaware        100
    AIG Equity Sales Corp.................       New York        100
    AIG Global Investment Corp............     New Jersey        100
AIG Global Securities                                       
      Lending Corp........................       Delaware        100
International Lease Finance                                       
        Corporation............................     California     67.23 /(4)/
AIG Global Real Estate                                            
   Investment Corp........................       Delaware        100
AIG Credit Corp..............................       Delaware        100   
A.I. Credit Consumer discount                                     
   Corp...................................   Pennsylvania        100
 A.I. Credit Corp.........................  New Hampshire        100
 AICCO, Inc...............................       Delaware        100
 AICCO, Inc...............................     California        100
 AIG Credit Corp. of Canada...............         Canada        100
 Imperial Premium Funding Inc.............       Delaware        100
AIG Egypt Insurance Company, S.A.E...........          Egypt      89.98   
AIG Federal Savings Bank.....................         U.S.A.        100   
AIG Financial Advisor Services,                                           
Inc........................................       Delaware        100 
AIG Financial Advisor                                             
   Services (Europe), S.A.................     Luxembourg        100
AIG Financial Products Corp..................       Delaware        100   
 AIG Matched Funding Corp.................       Delaware        100
      Banque AIG...............................         France        90 /(5)/
AIG Funding, Inc.............................       Delaware        100   

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SUBSIDIARIES OF AIG 

                                                              Percentage
                                                             of Voting
                                                              Securities
                                              Jurisdiction of Owned by its
                                             Incorporation   Immediate
                                             or Organization Parent/(2)/
                                              --------------- ------------
AIG Global Trade & Political                                              
Risk Insurance Company.....................     New Jersey       100  
A.I.G. Golden Insurance Ltd.....................         Israel     50.01       
AIG Life Holdings (International)                                               
LLC...........................................       Delaware       100     
American International                                                    
Reinsurance Company, Ltd...................        Bermuda       100  
AIG Edison Life Insurance                                         
       Company................................          Japan       90 /(6)/
American International                                            
Assurance Company,                                            
  Limited................................      Hong Kong       100
American International                                            
Assurance Company                                             
  (Australia) Limited....................      Australia       100
American International                                            
Assurance Company                                             
  (Bermuda) Limited......................        Bermuda       100
American International                                      
Assurance Co.                                           
     (Vietnam) Limited...................        Vietnam       100
Tata AIG Life Insurance                                     
     Company Limited.....................          India        26
Nan Shan Life Insurance                                           
  Company, Ltd...........................         Taiwan        95
AIG Life Insurance Company......................       Delaware       79 /(7)/  
AIG Life Insurance Company of                                                   
Puerto Rico...................................    Puerto Rico       100     
AIG Liquidity Corp..............................       Delaware       100       
AIG Marketing, Inc..............................       Delaware       100       
AIG Private Bank Ltd............................    Switzerland       100       
AIG Retirement Services, Inc....................       Delaware      100 /(8)/  
SunAmerica Life Insurance                                                 
Company....................................        Arizona       100  
SunAmerica Investments,                                           
       Inc....................................        Georgia       70 /(9)/
   AIG Advisor Group, Inc................       Maryland       100
Advantage Capital                                   
         Corporation.....................       New York       100
FSC Securities                                      
         Corporation.....................       Delaware       100
Royal Alliance                                      
         Associates, Inc.................       Delaware       100
Sentra Securities                                   
         Corporation.....................     California       100
       Spelman & Co., Inc................     California       100
SunAmerica                                          
         Securities, Inc.................       Delaware       100
AIG SunAmerica Life                                         
           Assurance Company...................        Arizona      100 /(10)/
AIG SunAmerica                                      
Asset Management                                
         Corp............................       Delaware       100
AIG SunAmerica                                
Capital                                   
            Services. Inc................       Delaware       100
First SunAmerica Life                                       
     Insurance Company...................       New York       100
AIG Risk Management, Inc........................       New York       100       
AIG Technologies, Inc...........................  New Hampshire       100       
AIGTI, Inc......................................       Delaware       100       
AIG Trading Group Inc...........................       Delaware       100       
AIG International, Inc.......................       Delaware       100    
AIU Holdings, LLC...............................       Delaware       100       
AIG Central Europe & CIS                                                  
Insurance Holdings                                                    
Corporation................................       Delaware       100  
AIG Bulgaria Insurance and                                        
  Reinsurance Company EAD................       Bulgaria       100
AIG Czech Republic                                                
  pojistovna, as......................... Czech Republic       100
AIG Kazakhstan Insurance                                          
  Company, S.A...........................      Kzakhstan     88.87
AIU Africa Holdings, Inc.....................       Delaware       100    
AIG Kenya Insurance                                               
  Company, Limited.......................          Kenya       100
AIG Memsa, Inc...............................       Delaware       100    
AIG Iraq.................................       Delaware       100
AIG Lebanon, S.A.L.......................        Lebanon       100
AIG Libya, Inc...........................       Delaware       100
AIG Hayleys Investment                                            
  Holdings (Private) Ltd.................      Sri Lanka        80

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SUBSIDIARIES OF AIG 

                                                            Percentage
                                                           of Voting
                                                            Securities
                                            Jurisdiction of Owned by its
                                           Incorporation   Immediate
                                           or Organization Parent/(2)/
                                            --------------- ------------
Hayleys AIG Insurance                                       
     Company, Ltd.......................     Sri Lanka         100
AIG Sigorta A.S.........................        Turkey         100
Tata AIG General Insurance                                        
  Company Limited.......................         India          26
AIU Insurance Company..........................      New York         52 /(11)/ 
AIU North America, Inc.........................      New York         100       
American General Corporation...................         Texas         100       
American General Bancassurance                                            
Services, Inc.............................      Illinois         100  
AGC Life Insurance Company..................      Missouri         100    
AIG Life Holdings (Canada),                                       
  ULC...................................        Canada         100
   AIG Assurance Canada.................        Canada         100
AIG Life Insurance                                          
     Company of Canada..................        Canada         100
AIG Life of Bermuda, Ltd................       Bermuda         100
American General Life and                                         
  Accident Insurance Company............     Tennessee         100
American General Life                                             
  Insurance Company.....................         Texas         100
American General Annuity                                    
     Service Corporation................         Texas         100
AIG Enterprise Services,                                    
     LLC................................      Delaware         100
American General Equity                                     
     Services Corporation...............      Delaware         100
American General Life                                       
     Companies, LLC.....................      Delaware         100
The Variable Annuity Life                                   
     Insurance Company..................         Texas         100
VALIC Retirement                                    
         Services Company...............         Texas         100
       VALIC Trust Company..............         Texas         100
American General Property                                         
        Insurance Company.....................     Tennessee      51.85 /(12)/
American General Property                                   
Insurance Company of                                    
     Florida............................       Florida         100
AIG Annuity Insurance Company...........         Texas         100
The United States Life                                            
Insurance Company in the                                      
  City of New York......................      New York         100
American General Finance, Inc...............       Indiana         100    
American General Auto                                             
  Finance, Inc..........................      Delaware         100
American General Finance                                          
  Corporation...........................       Indiana         100
   MorEquity, Inc.......................        Nevada         100
Wilmington Finance,                                 
         Inc............................      Delaware         100
   Merit Life Insurance Co..............       Indiana         100
   Yosemite Insurance Company...........       Indiana         100
       CommoLoCo, Inc...................   Puerto Rico         100
American General Financial                                        
  Services of Alabama, Inc..............      Delaware         100
American General Investment                                               
Management Corporation....................      Delaware         100  
American General Realty                                                   
Investment Corporation....................         Texas         100  
American General Assurance                                                
Company...................................      Illinois         100  
American General Indemnity                                        
  Company...............................      Illinois         100
Knickerbocker Corporation...................         Texas         100    
American Home Assurance Company................      New York         100       
  AIG Domestic Claims, Inc....................      Delaware         50 /(13)/
AIG Hawaii Insurance Company,                                             
Inc.......................................        Hawaii         100  
American Pacific Insurance                                        
  Company, Inc..........................        Hawaii         100
American International Insurance                                          
Company...................................      New York         100  
American International                                            
Insurance Company of                                          
  California, Inc.......................    California         100
American International                                            
Insurance Company of New                                      
  Jersey................................    New Jersey         100
Minnesota Insurance Company.............     Minnesota         100

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SUBSIDIARIES OF AIG 

                                                            Percentage
                                                           of Voting
                                                            Securities
                                            Jurisdiction of Owned by its
                                           Incorporation   Immediate
                                           or Organization Parent/(2)/
                                            --------------- ------------
  American International Realty Corp..........       Delaware      31.5 /(14)/
Pine Street Real Estate Holdings                                          
    Corp......................................  New Hampshire     31.47 /(14)/
  Transatlantic Holdings, Inc.................       Delaware     33.41 /(15)/
Transatlantic Reinsurance                                         
  Company...............................       New York        100
   Putnam Reinsurance Company...........       New York        100
   Trans Re Zurich......................    Switzerland        100
American International Insurance                                                
Company of Delaware..........................       Delaware        100     
American International Life Assurance                                           
 Company of New York..........................       New York     77.52 /(16)/
American International Reinsurance                                              
Company, Ltd.................................        Bermuda        100     
American International Underwriters                                             
Corporation..................................       New York        100     
American International Underwriters                                             
Overseas, Ltd................................        Bermuda        100     
AIG Europe (Ireland) Limited................        Ireland        100    
AIG Europe (U.K.) Limited...................        England        100    
AIG Brasil Companhia de Seguros.............         Brazil         50    
AIG General Insurance (Vietnam)                                           
Company Limited...........................        Vietnam        100  
Universal Insurance Co., Ltd................       Thailand        100    
La Seguridad de Centroamerica,                                            
Compania de Seguros S.A...................      Guatemala        100  
La Meridional Compania Argentina de                                       
Seguros...................................      Argentina        100  
American International Insurance                                          
Company of Puerto Rico....................    Puerto Rico        100  
A.I.G. Colombia Seguros Generales                                         
S.A.......................................       Colombia        100  
American International Underwriters                                       
GmBH......................................        Germany        100  
Richmond Insurance Company Limited..........        Bermuda        100    
Underwriters Adjustment Company,                                          
Inc.......................................         Panama        100  
American Life Insurance Company................       Delaware        100       
AIG Life (Bulgaria) Z.D. A.D................       Bulgaria        100    
ALICO, S.A..................................         France        100    
First American Polish Life                                                
Insurance and Reinsurance                                             
Company, S.A..............................         Poland        100  
Inversiones Interamericana S.A.                                           
(Chile)...................................          Chile        100  
Pharaonic American Life Insurance                                         
Company...................................          Egypt      71.63  
  Unibanco AIG Seguros S.A....................         Brazil     47.81 /(17)/
AIG Life Insurance Company                                                      
(Switzerland) Ltd............................    Switzerland        100     
American Security Life Insurance                                                
Company, Ltd.................................   Lichtenstein        100     
Birmingham Fire Insurance Company of                                            
Pennsylvania.................................   Pennsylvania        100     
China America Insurance Company, Ltd...........       Delaware         50       
Commerce and Industry Insurance Company........       New York        100       
Commerce and Industry Insurance                                                 
Company of Canada............................        Ontario        100     
Delaware American Life Insurance                                                
Company......................................       Delaware        100     
Hawaii Insurance Consultants, Ltd..............         Hawaii        100       
HSB Group, Inc.................................       Delaware        100       
The Hartford Steam Boiler                                                 
Inspection and Insurance Company..........    Connecticut        100  
The Hartford Steam Boiler                                         
Inspection and Insurance                                      
  Company of Connecticut................    Connecticut        100
HSB Engineering Insurance                                         
  Limited...............................        England        100
The Boiler Inspection and                                   
     Insurance Company of Canada........         Canada        100
The Insurance Company of the State of                                           
Pennsylvania.................................   Pennsylvania        100     
Landmark Insurance Company.....................     California        100       
Mt. Mansfield Company, Inc.....................        Vermont        100       
National Union Fire Insurance Company                                           
of Pittsburgh, Pa............................   Pennsylvania        100     

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SUBSIDIARIES OF AIG 

                                                            Percentage
                                                           of Voting
                                                            Securities
                                           Jurisdiction of  Owned by its
                                          Incorporation    Immediate
                                          or Organization  Parent/(2)/
                                          --------------- ------------
American International                                                    
Specialty Lines Insurance                                             
    Company..................................         Alaska         70 /(18)/
  Lexington Insurance Company................       Delaware         70 /(18)/
AIG Centennial Insurance                                          
  Company..............................   Pennsylvania         100
AIG Premier Insurance                                       
     Company...........................   Pennsylvania         100
AIG Indemnity                                       
         Insurance Company.............   Pennsylvania         100
AIG Preferred Insurance                                     
     Company...........................   Pennsylvania         100
AIG Auto Insurance                                          
     Company of New Jersey.............     New Jersey         100
JI Accident & Fire                                                
  Insurance Co. Ltd....................          Japan          50
National Union Fire Insurance                                             
Company of Louisiana.....................      Louisiana         100  
National Union Fire Insurance                                             
Company of Vermont.......................        Vermont         100  
 21st Century Insurance Group...............     California     33.03 /(19)/
21st Century Insurance                                            
  Company..............................     California         100
21st Century Casualty                                             
  Company..............................     California         100
21st Century Insurance                                            
  Company of the Southwest.............          Texas         100
Starr Excess Liability                                                    
Insurance Company, Ltd...................       Delaware         100  
Starr Excess Liability                                            
Insurance International                                       
  Ltd..................................        Ireland         100
NHIG Holding Corp.............................       Delaware         100       
Audubon Insurance Company..................      Louisiana         100    
Audubon Indemnity Company..............    Mississippi         100
Agency Management                                                 
  Corporation..........................      Louisiana         100
   The Gulf Agency, Inc................        Alabama         100
New Hampshire Insurance Company............   Pennsylvania         100    
      AIG Europe, S.A........................         France      70.48 /(20)/
AI Network Corporation.................       Delaware         100
American International                                            
  Pacific Insurance Company............       Colorado         100
American International                                            
  South Insurance Company..............   Pennsylvania         100
Granite State Insurance                                           
  Company..............................   Pennsylvania         100
New Hampshire Indemnity                                           
  Company, Inc.........................   Pennsylvania         100
AIG National Insurance                                      
     Company, Inc......................       New York         100
Illinois National Insurance                                       
  Co...................................       Illinois         100
New Hampshire Insurance                                           
  Services, Inc........................  New Hampshire         100
AIG Star Life Insurance Co., Ltd...........          Japan         100    
The Philippine American Life and                                                
General Insurance Company...................    Philippines       99.78     
Pacific Union Assurance Company............     California         100    
Philam Equitable Life Assurance                                           
Company, Inc.............................    Philippines       95.31  
Philam Insurance Company, Inc..............    Philippines         100    
Risk Specialist Companies, Inc................       Delaware         100       
United Guaranty Corporation................... North Carolina      36.3l /(21)/ 
A.I.G. Mortgage Holdings                                                  
Israel, Ltd..............................         Israel       82.12  
E.M.I.-Ezer Mortgage                                              
  Insurance Company, Limited...........         Israel         100
AIG United Guaranty Agenzia DI                                            
Assicurazione S.R.L......................          Italy         100  
AIG United Guraranty Insurance                                            
(Asia) Limited...........................      Hong Kong         100  
AIG United Guaranty Re, Ltd................        Ireland         100    
United Guaranty Insurance                                                 
Company.................................. North Carolina         100  
United Guaranty Mortgage                                                  
Insurance Company........................ North Carolina         100  
United Guaranty Mortgage                                                  
Insurance Company of North                                            
Carolina................................. North Carolina         100  
United Guaranty Partners                                                  
Insurance Company........................        Vermont          80  

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                                            Percentage
                                           of Voting
                                            Securities
                            Jurisdiction of Owned by its
                           Incorporation   Immediate
                           or Organization Parent/(2)/
                            --------------- ------------
United Guaranty Residential                                               
Insurance Company of North                                            
Carolina.......................... North Carolina        100          
United Guaranty Residential                                               
Insurance Company................. North Carolina     75.03 /(22)/    
United Guaranty Commercial                                                
Insurance Company of North                                            
Carolina.......................... North Carolina        100          
United Guaranty Mortgage                                          
Indemnity Company............. North Carolina        100      
United Guaranty Credit                                            
Insurance Company............. North Carolina        100      
United Guaranty Services,                                         
Inc........................... North Carolina        100      
--------                                                                        
/(1)/  All subsidiaries listed are consolidated in the financial statements of  
   AIG as filed in its Form 10-K on March 16, 2006. Certain subsidiaries
   have been omitted from the tabulation. The omitted subsidiaries, when
     considered in the aggregate as a single subsidiary, do not constitute a
significant subsidiary.                                           

/(2)/  Percentages include directors' qualifying shares.                        

/(3)/  The common stock is owned approximately 12.0 percent by Starr            
    International Company, Inc., 1.8 percent by C.V. Starr & Co., Inc. and
2.0 percent by The Starr Foundation.                              

/(4)/  Also owned 35.15 percent by National Union Fire Insurance Company of     
Pittsburgh, Pa.                                                   

/(5)/  Also owned 10 percent by AIG Matched Funding Corp.                       

/(6)/  Also owned 21 percent by Commerce and Industry Insurance Company.        

/(7)/  Indirect wholly-owned subsidiary.                                        

/(8)/  Formerly known as AIG SunAmerica Inc.                                    

/(9)/  Also owned 30 percent by AIG Retirement Services, Inc.                   

/(10)/ Formerly known as Anchor National Life Insurance Company.                

/(11)/ Also owned eight percent by The Insurance Company of the State of        
  Pennsylvania, 32 percent by National Union Fire Insurance Company of
    Pittsburgh, Pa. and eight percent by Birmingham Fire Insurance Company
of Pennsylvania.                                                  

/(12)/ Also owned 48.15 percent by American General Life and Accident Insurance 
Company.                                                          

/(13)/ Also owned 50 percent by The Insurance Company of the State of           
Pennsylvania.                                                     

/(14)/ Also owned by 11 other AIG subsidiaries.                                 

/(15)/ Also owned 25.95 percent by AIG.                                         

/(16)/ Also owned 22.48 percent by American Home Assurance Company.             

/(17)/ Also owned ten percent by a subsidiary of American Life Insurance        
Company.                                                          

/(18)/ Also owned 1.7 percent by American International Underwriters Overseas,  
Ltd. and .48 percent by American Home Assurance Company.          

/(19)/ Also owned 20 percent by The Insurance Company of the State of           
  Pennsylvania and ten percent by Birmingham Fire Insurance Company of
Pennsylvania.                                                     

/(20)/ Also owned 16.85 percent by American Home Assurance Company,             
      6.34 percent by Commerce and Industry Insurance Company and 6.34 percent
by New Hampshire Insurance Company.                               

/(21)/ 100 percent to be held with other AIG companies.                         

/(22)/ Also owned 45.88 percent by National Union Fire Insurance Company of     
   Pittsburgh, Pa., 16.95 percent by New Hampshire Insurance Company and
 0.86 percent by The Insurance Company of the State of Pennsylvania.

/(23)/ Also owned 24.97 percent by United Guaranty Residential Insurance        
Company of North Carolina.                                        

The Registrant is a separate account of AIG Life Insurance Company (Depositor). 

Item 29. Indemnification                                                        

Insofar as indemnification for liability arising under the Securities Act of    
1933 (the "Act") may be permitted to directors, officers and controlling        
persons of the Registrant pursuant to the foregoing                             

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provisions, or otherwise, the Registrant has been advised that in the opinion   
of the Securities and Exchange Commission such indemnification is against       
public policy as expressed in the Act and is, therefore, unenforceable. In the  
event that a claim for indemnification against such liabilities (other than the 
payment by the Registrant of expenses incurred or paid by a director, officer   
or controlling person of the Registrant in the successful defense of any        
action, suit or proceeding) is asserted by such director, officer or            
controlling person in connection with the securities being registered, the      
Registrant will, unless in the opinion of its counsel the matter has been       
settled by controlling precedent, submit to a court of appropriate jurisdiction 
the question whether such indemnification by it is against public policy as     
expressed in the Act and will be governed by the final adjudication of such     
issue.                                                                          

AIG Life Insurance Company                                                      

Except as otherwise required by applicable law:                                 

(a) The company shall have the power to indemnify any person who was or is a    
party or is threatened to be made a party to any threatened, pending or         
completed action, suit or proceeding, whether civil, criminal, administrative   
or investigative (other than an action by or on behalf of the company) by       
reason of the fact that he is or was director, officer, or employee or agent of 
the company, or is or was serving at the request of the company as director,    
officer, employee or agent of another company or enterprise, against expenses   
(including attorney's fees), judgments, fines and amounts paid in settlement    
actually and reasonably incurred by him in connection with such action, suit or 
proceeding; provided that he (1) acted in good faith and in a manner he         
reasonably believed to be in or not opposed to the best interests of the        
company; and, (2) with respect to any criminal action or proceeding, had no     
reasonable cause to believe his conduct was unlawful. The termination of any    
action, suit or proceeding by judgment, order, settlement, conviction, or upon  
a plea of nolo contendere or its equivalent, shall not, by itself, create a     
presumption that the person did not act in good faith and in a manner he        
reasonably believed to be in or not opposed to the best interest of the         
company, and, with respect to any criminal action or proceeding, had reasonable 
cause to believe that his conduct was lawful.                                   

(b) The company shall have the power to indemnify any person who was or is a    
party or is threatened to be made a party to any threatened, pending or         
completed action, suit or proceeding by or on behalf of the company to procure  
a judgement in the company's favor, by reason of the fact that he is or was a   
director, officer, employee or agent of the company, or is or was serving at    
the request of the company as a director, officer, employee or agent of another 
company or enterprise, against expenses (including attorney's fees), judgments  
and amounts paid in settlement actually and reasonably incurred by him in       
connection with the defense or settlement of such action, suit or proceeding;   
provided that he acted in good faith and in a manner he reasonably believed to  
be in or not opposed to the best interests of the company, except that no       
indemnification shall be made in respect of any claim, issue or matter as to    
which such person shall have been adjudged to be liable for negligence or       
misconduct in the performance of his duty to the company unless and only to the 
extent that the court in which such action, suit or proceeding was brought or   
any other court of competent jurisdiction shall determine upon application      
that, despite the adjudication of liability but in view of all the              
circumstances of the case, such person is fairly and reasonably entitled to     
indemnity.                                                                      

(c) To the extent that a director, officer, or employee or agent of the company 
has been successful on the merits or otherwise in defense of any action, suit   
or proceeding referred to in paragraphs (a)                                     

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and (b) above, or in defense of any claim, issue or matter therein, he shall be 
indemnified against expenses (including attorney's fees) actually and           
reasonably incurred by him in connection therewith.                             

(d) Any indemnification under paragraphs (a) and (b) above (unless ordered by a 
court or made pursuant to a determination by a court as hereinafter provided)   
shall be made by the company upon a determination that indemnification of the   
director, officer, employee or agent is proper in the circumstances and he has  
met the applicable standard of conduct set forth in paragraphs (a) and (b).     
Such determination shall be made (1) by the Board by a majority of a quorum     
consisting of directors who were not parties to such action, suit or proceeding 
(disinterested), or (2) by a committee of disinterested directors designated by 
majority vote of disinterested directors, even though less than a quorum, or    
(3) by independent legal counsel in a written opinion, and such legal counsel   
was selected by a majority vote of a quorum of the disinterested directors, or  
(4) by the stockholders. In the absence of a determination that indemnification 
is proper, the director, officer or employee may apply to the court conducting  
the proceeding or another court of competent jurisdiction which shall determine 
whether the director, officer, employee or agent has met the applicable         
standard of conduct set forth in paragraphs (a) and (b). If the court shall so  
determine, indemnification shall be made under paragraph (a) or (b) as the case 
may be.                                                                         

(e) Expenses incurred in defending a civil or criminal action, suit or          
proceeding may be paid by the company in advance of the final disposition of    
such action, suit or proceeding as authorized by the Board in the manner        
provided in paragraph (d) upon receipt of a written instrument acceptable to    
the Board by or on behalf of the director, officer, employee or agent to repay  
such amount unless it shall ultimately be determined that he is entitled to be  
indemnified by the company as authorized in this section.                       

(f) The indemnification provided by these By-Laws shall not be deemed exclusive 
of any other rights to which those seeking indemnification may be entitled      
under any agreement, or otherwise, both as to action in his official capacity   
and as to action in another capacity while holding such office, and shall       
continue as to a person who has ceased to be a director, officer, employee or   
agent and shall inure to the benefit or the heirs, executors and administrators 
of such a person.                                                               

(g) The company shall have the power to purchase and maintain insurance on      
behalf of any person who is or was a director, officer, employee or agent of    
the company, or is or was serving at the request of the company as a director,  
officer, employee or agent of another company, or enterprise against any        
liability asserted against him and incurred by him in any such capacity, or     
arising out of his status as such, whether or not the company would have the    
power to indemnify him against such liability under the provisions of these     
By-Laws.                                                                        

Item 30.Principal Underwriters                                                  

(a) Other Activity. Registrant's principal underwriter, American General Equity 
Services Corporation, also acts as principal underwriter for Variable Account I 
of AIG Life Insurance Company, which offers interests in variable annuities.    
American General Equity Services Corporation also acts as principal underwriter 
for certain other separate accounts of AIG Life Insurance Company affiliates.   

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(b) Management.                                                                 

                                    Positions and Offices with Underwriter
Name and Principal                     American General Equity Services         
Business Address                       Corporation                              
------------------                     --------------------------------------   
Rodney O. Martin, Jr.                  Director and Chairman of the Board of    
2929 Allen Parkway                     Directors                                
Houston, TX 77019                                                               

Mark R. McGuire                        Director and Senior Vice President       
2727 Allen Parkway                                                              
Houston, TX 77019                                                               

Gary D. Reddick                        Director                                 
2929 Allen Parkway                                                              
Houston, TX 77019                                                               

Royce G. Imhoff, II                    President and Chief Executive Officer    
2929 Allen Parkway                                                              
Houston, TX 77019                                                               

Robert F. Herbert, Jr.                 Vice President                           
2727-A Allen Parkway                                                            
Houston, TX 77019                                                               

Rhonda Washington                      Treasurer and Controller                 
2727 Allen Parkway                                                              
Houston, TX 77019                                                               

Deanna D. Osmonson                     Vice President, Chief Compliance         
2727 Allen Parkway                     Officer and Anti-                        
Houston, TX 77019                      Money Laundering Compliance Officer      

T. Clay Spires                         Tax Officer                              
2727-A Allen Parkway                                                            
Houston, TX 77019                                                               

Elizabeth M. Tuck                      Secretary                                
70 Pine Street                                                                  
New York, NY 10270                                                              

Sarah Hosker                           Assistant Secretary                      
70 Pine Street                                                                  
New York, NY 10270                                                              

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                                      Positions and Offices with Underwriter
Name and Principal                     American General Equity Services       
Business Address                       Corporation                            
------------------                     -------------------------------------- 
Lauren W. Jones                        Assistant Secretary                    
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

David M. Robinson                      Assistant Secretary                    
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

John D. Fleming                        Assistant Treasurer                    
2929 Allen Parkway                                                            
Houston, TX 77019                                                             

Barbara J. Moore                       Assistant Tax Officer                  
2919 Allen Parkway                                                            
Houston, TX 77019                                                             

(c) Compensation From the Registrant.                                           

              Compensation
    Net        on Events
 Underwriting  Occasioning
   Discounts   the Deduction
Name of Principal               and      of a Deferred  Brokerage     Other     
Underwriter                 Commissions   Sales Load   Commissions Compensation 
-----------------           ------------ ------------- ----------- ------------ 
American General Equity                                                         
Services Corporation.....      0             0            0           0     

Item 31. Location of Accounts and Records                                       

All records referenced under Section 31(a) of the 1940 Act, and Rules 31a-1     
through 31a-3 thereunder, are maintained and in the custody of AIG Life         
Insurance Company at its principal executive office located at 70 Pine Street,  
New York, New York 10270 or at its offices located at 2727-A Allen Parkway,     
Houston, Texas 77019-2191 or One ALICO Plaza, 600 King Street, Wilmington,      
Delaware 19801.                                                                 

Item 32. Management Services Inapplicable                                       

Item 33. Fee Representation                                                     

AIG Life Insurance Company hereby represents that the fees and charges deducted 
under the Policy, in the aggregate, are reasonable in relation to the services  
rendered, the expenses expected to be incurred, and risks assumed by AIG Life   
Insurance Company.                                                              

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Undertakings of the Depositor                                                   

During any time there are insurance obligations outstanding and covered by the  
guarantee issued by the National Union Fire Insurance Company of Pittsburgh,    
Pa. ("National Union Guarantee Period"), filed as an exhibit to this            
Registration Statement (the "National Union Guarantee"), the Depositor hereby   
undertakes to provide notice to policy owners covered by the National Union     
Guarantee promptly after the happening of significant events related to the     
National Union Guarantee.                                                       

These significant events include: (i) termination of the National Union         
Guarantee that has a material adverse effect on the policy owner's rights under 
the National Union Guarantee; (ii) a default under the National Union Guarantee 
that has a material adverse effect on the policy owner's rights under the       
National Union Guarantee; or (iii) the insolvency of National Union Fire        
Insurance Company of Pittsburgh, Pa. ("National Union").                        

Depositor hereby undertakes during the National Union Guarantee Period to cause 
Registrant to file post-effective amendments to this Registration Statement as  
frequently as is necessary to ensure that the current annual audited statutory  
financial statements of National Union in the Registration Statement are        
updated to be as of a date not more than 16 months prior to the effective date  
of this Registration Statement, and to cause Registrant to include as an        
exhibit to such Registration Statement the consent of the independent           
registered public accounting firm of National Union regarding such financial    
statements.                                                                     

During the National Union Guarantee Period, the Depositor hereby undertakes to  
include in the prospectus to policy owners, an offer to supply the Statement of 
Additional Information which shall contain the annual audited statutory         
financial statements of National Union, free of charge upon a policy owner's    
request.                                                                        

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POWERS OF ATTORNEY  

  Each person whose signature appears below hereby appoints Robert F. Herbert,
Jr., Gary D. Reddick and Kyle L. Jennings and each of them, any one of whom may 
act without the joinder of the others, as his/her attorney-in-fact to sign on   
his/her behalf and in the capacity stated below and to file all amendments to   
this Registration Statement, which amendment or amendments may make such        
changes and additions to this Registration Statement as such attorney-in-fact   
may deem necessary or appropriate.                                              

SIGNATURES  

Pursuant to the requirements of the Securities Act of 1933 and the        
Investment Company Act of 1940, the Registrant, Variable Account II of AIG Life 
Insurance Company, certifies that it meets all of the requirements for          
effectiveness of this amended Registration Statement under Rule 485(b) under    
the Securities Act of 1933 and has duly caused this amended Registration        
Statement to be signed on its behalf by the undersigned, duly authorized, in    
the City of Houston, and State of Texas on the 28th day of April, 2006.         

                       VARIABLE ACCOUNT II OF AIG LIFE
         INSURANCE COMPANY
    (Registrant)

                      BY: AIG LIFE INSURANCE COMPANY
                                        (On behalf of the Registrant and itself)

                  BY: ROBERT F. HERBERT, JR.
                                        ----------------------------------------
                      ROBERT F. HERBERT, JR.
                                SENIOR VICE PRESIDENT, TREASURER
              AND CONTROLLER

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Pursuant to the requirements of the Securities Act of 1933, this amended  
Registration Statement has been signed below by the following persons in the    
capacities and on the dates indicated.                                          

Signature             Title                                      Date           
---------             -----                                      ----           

RODNEY O. MARTIN, JR. Director, Chairman,                        April 28, 2006 
--------------------- President and Chief Executive Officer                     
RODNEY O. MARTIN, JR.                                                           

MARY JANE FORTIN      Director, Chief Financial Officer and      April 28, 2006 
--------------------- Executive Vice President                                  
MARY JANE FORTIN                                                                

M. BERNARD AIDINOFF   Director                                   April 28, 2006 
---------------------                                                           
M. BERNARD AIDINOFF                                                             

DAVID J. DIETZ        Director                                   April 28, 2006 
---------------------                                                           
DAVID J. DIETZ                                                                  

DAVID L. HERZOG       Director                                   April 28, 2006 
---------------------                                                           
DAVID L. HERZOG                                                                 

RICHARD A. HOLLAR     Director                                   April 28, 2006 
---------------------                                                           
RICHARD A. HOLLAR                                                               

ROYCE G. IMHOFF II    Director                                   April 28, 2006 
---------------------                                                           
ROYCE G. IMHOFF II                                                              

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Signature            Title                                      Date            
---------            -----                                      ----            

GARY D. REDDICK      Director                                   April 28, 2006  
--------------------                                                            
GARY D. REDDICK                                                                 

CHRISTOPHER J. SWIFT Director                                   April 28, 2006  
--------------------                                                            
CHRISTOPHER J. SWIFT                                                            

JAMES W. WEAKLEY     Director                                   April 28, 2006  
--------------------                                                            
JAMES W. WEAKLEY                                                                

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                                                                     333-34199
                                                                     811-04867

SIGNATURES  

National Union Fire Insurance Company of Pittsburgh, Pa. has caused this  
amended Registration Statement to be signed on its behalf by the undersigned,   
duly authorized, in the City of New York, and State of New York on the 28th day 
of April, 2006.                                                                 

                                     NATIONAL UNION FIRE INSURANCE COMPANY
                  OF PITTSBURGH, PA.

             BY: ROBERT S. SCHIMEK
                                        ----------------------------------------
                 ROBERT S. SCHIMEK
                     SENIOR VICE PRESIDENT
             AND TREASURER

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This amended Registration Statement has been signed below by the following      
persons in the capacities and on the dates indicated.                           

Signature            Title                                      Date            
---------            -----                                      ----            

*KRISTIAN P. MOOR    Director and Chairman                      April 28, 2006  
--------------------                                                            
KRISTIAN P. MOOR                                                                

JOHN Q. DOYLE        Director and President                     April 28, 2006  
--------------------                                                            
JOHN Q. DOYLE                                                                   

*ROBERT S. SCHIMEK   Director, Senior Vice President and        April 28, 2006  
-------------------- Treasurer                                                  
ROBERT S. SCHIMEK                                                               

*M. BERNARD AIDINOFF Director                                   April 28, 2006  
--------------------                                                            
M. BERNARD AIDINOFF                                                             

*STEVEN J. BENSINGER Director                                   April 28, 2006  
--------------------                                                            
STEVEN J. BENSINGER                                                             

*CHARLES H. DANGELO  Director                                   April 28, 2006  
--------------------                                                            
CHARLES H. DANGELO                                                              

*DAVID L. HERZOG     Director                                   April 28, 2006  
--------------------                                                            
DAVID L. HERZOG                                                                 

*ROBERT E. LEWIS     Director                                   April 28, 2006  
--------------------                                                            
ROBERT E. LEWIS                                                                 

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Signature          Title                                      Date              
---------          -----                                      ----              

*WIN J. NEUGER     Director                                   April 28, 2006    
------------------                                                              
WIN J. NEUGER                                                                   

*ROBERT M. SANDLER Director                                   April 28, 2006    
------------------                                                              
ROBERT M. SANDLER                                                               

*NICHOLAS S. TYLER Director                                   April 28, 2006    
------------------                                                              
NICHOLAS S. TYLER                                                               

*NICHOLAS C. WALSH Director                                   April 28, 2006    
------------------                                                              
NICHOLAS C. WALSH                                                               

* BY: ROBERT S. SCHIMEK                                                         
----------------------------------------                            
ROBERT S. SCHIMEK                                                   
ATTORNEY-IN-FACT                                                    
(Exhibit (r)(1) to the Registration                                 
Statement)                                                      

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EXHIBIT INDEX 

Item 26. Exhibits                                                               

(e)(2)    Form of Supplemental Application for Life Insurance, Form No.         
14GVSUP997.                                                 

(e)(3)    Form of Subaccount Transfer Request Form, 04/06.                      

(e)(4)    Form of Premium Allocation Form, 04/06.                               

(e)(5)    Form of Loan/Surrender Request Form, 0406.                            

(e)(6)    Form of Dollar Cost Averaging Request Form.                           

(e)(8)    Form of Reallocation and Rebalancing Request Form, 04/06.             

(e)(9)    Form of Automatic Rebalancing Request, 04/06.                         

(h)(7)(d) Form of Amendment No. 3 to Participation Agreement as of March 31,    
   2006 by and between Franklin Templeton Products Trust, Franklin
Templeton Distributors, Inc. and AIG Life Insurance Company.

(n)(1)    Consent of Independent Registered Public Accounting Firm,             
PricewaterhouseCoopers LLP.                                 

E-1