<PAGE>   1
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                             ---------------------
 
                                   FORM 10-Q
               [ X ]  QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                                       OR
 
            [  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
             FOR THE TRANSITION PERIOD FROM           TO
 
         FOR QUARTER ENDED JUNE 30, 1995 COMMISSION FILE NUMBER 1-8787
 
                             ---------------------
                       AMERICAN INTERNATIONAL GROUP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 

<TABLE>
<S>                                             <C>
                  DELAWARE                                       13-2592361
      (STATE OR OTHER JURISDICTION OF             (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
        INCORPORATION OR ORGANIZATION)
     70 PINE STREET, NEW YORK, NEW YORK                            10270
  (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                       (ZIP CODE)
 
             REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 770-7000

                                            NONE
     FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT.
</TABLE>

 
                             ---------------------
 
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
 
                              YES  [ X ]  NO  [  ]
 
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1995 316,129,242. (Adjusting on a pro forma basis,
common shares outstanding would have been 474,193,863 after reflecting a 
common stock split in the form of a 50 percent common stock dividend paid 
July 28, 1995.)
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>   2
 
                       AMERICAN INTERNATIONAL GROUP, INC.
 
                           CONSOLIDATED BALANCE SHEET
                                 (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                                    JUNE 30,       DECEMBER 31,
                                                                      1995             1994
                                                                  ------------     ------------
                                                                  (UNAUDITED)
<S>                                                               <C>              <C>
ASSETS:
  Investments and cash:
     Fixed maturities:
       Bonds held to maturity, at amortized cost (market value:
          1995 -- $14,509,700; 1994 -- $13,109,700).............  $ 13,925,300     $ 13,041,807
       Bonds available for sale, at market value (amortized
          cost: 1995 -- $25,014,400; 1994 -- $22,207,300).......    25,922,891       21,812,600
       Bonds trading securities, at market value (cost:
          1995 -- $365,700; 1994 -- $172,000)...................       369,261          163,956
       Preferred stocks, at amortized cost (market value:
          1995 -- $550,800; 1994 -- $424,800)...................       443,708          412,503
     Equity securities:
       Common stocks (cost: 1995 -- $4,815,600;
          1994 -- $4,607,800)...................................     5,200,609        5,002,668
       Non-redeemable preferred stocks (cost: 1995 -- $85,300;
          1994 -- $85,900)......................................        86,065           96,503
     Mortgage loans on real estate, policy and collateral
       loans -- net.............................................     7,031,943        5,353,074
     Financial services assets:
       Flight equipment primarily under operating leases, net of
          accumulated depreciation (1995 -- $1,082,400;
          1994 -- $959,100).....................................    12,699,360       10,723,527
       Securities available for sale, at market value (cost:
          1995 -- $4,091,300; 1994 -- $3,794,100)...............     4,087,537        3,796,792
       Trading securities, at market value......................     3,322,257        2,483,637
       Spot commodities, at market value........................     1,191,821          916,833
       Unrealized gain on interest rate and currency swaps,
          options and forward transactions......................     7,115,557        4,650,743
       Trade receivables........................................     2,851,780        2,629,734
       Securities purchased under agreements to resell, at
          contract value........................................     1,232,616        1,209,403
     Other invested assets......................................     2,166,426        1,953,015
     Short-term investments, at cost which approximates market
       value....................................................     2,286,470        2,467,453
     Cash.......................................................        66,007           76,237
                                                                  ------------     ------------
            Total investments and cash..........................    89,999,608       76,790,485
  Investment income due and accrued.............................     1,062,338          927,951
  Premiums and insurance balances receivable -- net.............     9,930,490        8,802,207
  Reinsurance assets............................................    16,812,539       16,289,607
  Deferred policy acquisition costs.............................     5,760,760        5,132,245
  Investments in partially-owned companies......................       740,136          645,167
  Real estate and other fixed assets, net of accumulated
     depreciation (1995 -- $1,245,500; 1994 -- $1,129,500)......     1,930,793        1,865,244
  Separate and variable accounts................................     2,399,071        2,297,605
  Other assets..................................................     1,897,958        1,595,606
                                                                  ------------     ------------
            Total assets........................................  $130,533,693     $114,346,117
                                                                   ===========      ===========
</TABLE>

 
                See Accompanying Notes to Financial Statements.
 
                                        1

<PAGE>   3
 
                       AMERICAN INTERNATIONAL GROUP, INC.
 
                   CONSOLIDATED BALANCE SHEET -- (CONTINUED)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                                    JUNE 30,       DECEMBER 31,
                                                                      1995             1994
                                                                  ------------     ------------
                                                                  (UNAUDITED)
<S>                                                               <C>              <C>
LIABILITIES:
  Reserve for losses and loss expenses..........................  $ 32,762,970     $ 31,435,355
  Reserve for unearned premiums.................................     7,011,422        6,318,754
  Future policy benefits for life and accident and health
     insurance contracts........................................    20,437,106       17,432,222
  Policyholders' contract deposits..............................     8,477,093        6,487,426
  Other policyholders' funds....................................     2,172,454        1,951,358
  Reserve for commissions, expenses and taxes...................     1,390,524        1,319,183
  Insurance balances payable....................................     2,075,938        1,462,545
  Funds held by companies under reinsurance treaties............       384,800          382,853
  Income taxes payable:
     Current....................................................       281,376          420,569
     Deferred...................................................       369,537           33,031
  Financial services liabilities:
     Borrowings under obligations of guaranteed investment
       agreements...............................................     4,767,575        5,535,318
     Securities sold under agreements to repurchase, at contract
       value....................................................     2,327,872        1,342,064
     Trade payables.............................................     2,845,739        2,108,263
     Securities sold but not yet purchased, principally
       obligations of the U.S. Government and Government
       agencies, at market value................................       730,755          192,898
     Spot commodities sold but not yet purchased, at market
       value....................................................       541,831          369,089
     Unrealized loss on interest rate and currency swaps,
       options and forward transactions.........................     6,298,787        3,659,450
     Deposits due to banks and other depositors.................       621,065          655,973
     Commercial paper...........................................     2,432,337        1,960,545
     Notes, bonds and loans payable.............................     8,357,934        7,567,046
  Commercial paper..............................................     2,070,651        1,829,014
  Notes, bonds, loans and mortgages payable.....................       601,547          627,554
  Separate and variable accounts................................     2,399,071        2,297,605
  Other liabilities.............................................     2,747,641        2,336,341
                                                                  ------------     ------------
            Total liabilities...................................   112,106,025       97,724,456
                                                                  ------------     ------------
  Preferred shareholders' equity in subsidiary company..........       300,000          200,000
CAPITAL FUNDS:
  Common stock, $2.50 par value: 1,000,000,000 shares
     authorized; shares issued 1995 -- 337,390,977;
     1994 -- 337,390,984........................................       843,477          843,477
  Additional paid-in capital....................................       551,987          565,410
  Unrealized appreciation of investments, net of taxes..........       751,744          184,556
  Cumulative translation adjustments, net of taxes..............      (291,723)        (288,074)
  Retained earnings.............................................    16,474,201       15,340,928
  Treasury stock, at cost; 1995 -- 21,261,735;
     1994 -- 21,550,358 shares of common stock..................      (202,018)        (224,636)
                                                                  ------------     ------------
            Total capital funds.................................    18,127,668       16,421,661
                                                                  ------------     ------------
            Total liabilities and capital funds.................  $130,533,693     $114,346,117
                                                                   ===========      ===========
</TABLE>

 
                See Accompanying Notes to Financial Statements.
 
                                        2

<PAGE>   4
 
                       AMERICAN INTERNATIONAL GROUP, INC.
 
                        CONSOLIDATED STATEMENT OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)
 

<TABLE>
<CAPTION>
                                                  SIX MONTHS                 THREE MONTHS
                                                ENDED JUNE 30,              ENDED JUNE 30,
                                            -----------------------     -----------------------
                                              1995          1994          1995          1994
                                            ---------     ---------     ---------     ---------
<S>                                         <C>           <C>           <C>           <C>
General insurance operations:
Net premiums written......................  $6,024,227    $5,500,895    $3,145,232    $2,879,590
Change in unearned premium reserve........    (421,585)     (467,491)     (306,438)     (302,539)
                                             ---------     ---------     ---------     ---------
Net premiums earned.......................   5,602,642     5,033,404     2,838,794     2,577,051
Net investment income.....................     757,808       705,894       378,143       351,765
Realized capital gains....................      47,556        48,488        23,146        28,394
                                             ---------     ---------     ---------     ---------
                                             6,408,006     5,787,786     3,240,083     2,957,210
                                             ---------     ---------     ---------     ---------
Losses and loss expenses incurred.........   4,308,515     4,000,258     2,138,305     2,022,791
Underwriting expenses.....................   1,128,399     1,010,420       600,580       526,866
                                             ---------     ---------     ---------     ---------
                                             5,436,914     5,010,678     2,738,885     2,549,657
                                             ---------     ---------     ---------     ---------
Operating income..........................     971,092       777,108       501,198       407,553
                                             ---------     ---------     ---------     ---------
Life insurance operations:
Premium income............................   3,837,151     3,171,655     2,047,402     1,676,556
Net investment income.....................   1,059,569       835,255       557,129       427,259
Realized capital gains (losses)...........       1,748        32,719        (1,183)        3,979
                                             ---------     ---------     ---------     ---------
                                             4,898,468     4,039,629     2,603,348     2,107,794
                                             ---------     ---------     ---------     ---------
Death and other benefits..................   1,573,237     1,243,068       855,500       666,267
Increase in future policy benefits........   1,753,386     1,478,014       909,446       765,561
Acquisition and insurance expenses........   1,074,170       878,162       577,196       458,702
                                             ---------     ---------     ---------     ---------
                                             4,400,793     3,599,244     2,342,142     1,890,530
                                             ---------     ---------     ---------     ---------
Operating income..........................     497,675       440,385       261,206       217,264
                                             ---------     ---------     ---------     ---------
Agency and service fee operating income...      31,966        29,170        15,406        13,595
Financial services operating income.......     193,485       214,143       117,948       117,045
Equity in income of minority-owned
  insurance operations....................      39,119        22,021        21,430        14,749
Other realized capital gains (losses).....     (14,304)      (19,687)       (6,570)       (9,482)
Minority interest.........................     (17,508)      (10,813)       (8,136)       (5,267)
Other income (deductions) -- net               (36,436)      (33,224)      (23,187)      (14,764)
                                             ---------     ---------     ---------     ---------
Income before income taxes................   1,665,089     1,419,103       879,295       740,693
                                             ---------     ---------     ---------     ---------
Income taxes (benefits) -- Current........     475,956       426,362       298,060       207,393
                        -- Deferred.......     (16,808)      (62,571)      (52,550)      (16,394)
                                             ---------     ---------     ---------     ---------
                                               459,148       363,791       245,510       190,999
                                             ---------     ---------     ---------     ---------
Net income...............................   $1,205,941    $1,055,312     $ 633,785     $ 549,694
                                             =========     =========     =========     =========
Earnings per common share (a):
Net income................................   $    2.54     $    2.22     $    1.34     $    1.16
                                             =========     =========     =========     =========
Cash dividends per common share...........   $   0.153     $   0.133     $   0.077     $   0.067
                                             =========     =========     =========     =========
Average shares outstanding (a)............     473,933       475,544       474,016       474,846
                                             ---------     ---------     ---------     ---------
</TABLE>

 
(a) Share information reflects a common stock split in the form of a 50 percent
    common stock dividend paid July 28, 1995.
 
                  See Accompanying Notes to Financial Statements.
 
                                        3

<PAGE>   5
 
                       AMERICAN INTERNATIONAL GROUP, INC.
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)
 

<TABLE>
<CAPTION>
                                                                           SIX MONTHS
                                                                         ENDED JUNE 30,
                                                                   --------------------------
                                                                      1995            1994
                                                                   -----------     ----------
<S>                                                                <C>             <C>
Cash Flows From Operating Activities:
Net income.....................................................    $ 1,205,941     $1,055,312
                                                                   -----------     ----------
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Non-cash revenues, expenses, gains and losses included in
     income:
  Change in:
     General and life insurance reserves.......................      4,535,030      3,073,203
     Premiums and insurance balances receivable and payable --
       net.....................................................       (514,890)      (566,047)
     Reinsurance assets........................................       (522,932)      (336,898)
     Deferred policy acquisition costs.........................       (628,515)      (478,609)
     Investment income due and accrued.........................       (134,387)       (60,197)
     Funds held under reinsurance treaties.....................          1,947        (36,474)
     Other policyholders' funds................................        221,096        103,967
     Current and deferred income taxes -- net..................       (156,001)       (84,929)
     Reserve for commissions, expenses and taxes...............         71,341        220,258
     Other assets and liabilities -- net.......................        108,948        (10,383)
     Trade receivables and payables -- net.....................        515,430        408,611
     Trading securities, at market value.......................       (838,620)       508,118
     Spot commodities, at market value.........................       (274,988)      (420,544)
     Net unrealized gain on interest rate and currency swaps,
       options and forward transactions........................        174,523       (290,045)
     Securities purchased under agreements to resell...........        (23,213)       (14,398)
     Securities sold under agreements to repurchase............        985,808       (595,303)
     Securities sold but not yet purchased.....................        537,857        150,510
     Spot commodities sold but not yet purchased, at market
       value...................................................        172,742        136,630
  Realized capital gains.......................................        (35,000)       (61,520)
  Equity in income of partially-owned companies and other
     invested assets...........................................        (53,296)       (31,350)
  Depreciation expenses, principally flight equipment..........        350,844        263,063
  Change in cumulative translation adjustments.................         45,451         52,625
  Other -- net.................................................        (46,474)        18,126
                                                                   -----------     ----------
  Total Adjustments............................................      4,492,701      1,948,414
                                                                   -----------     ----------
Net cash provided by operating activities......................      5,698,642      3,003,726
                                                                   -----------     ----------
</TABLE>

 
                See Accompanying Notes to Financial Statements.
 
                                        4

<PAGE>   6
 
                       AMERICAN INTERNATIONAL GROUP, INC.
 
              CONSOLIDATED STATEMENT OF CASH FLOWS -- (CONTINUED)
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)
 

<TABLE>
<CAPTION>
                                                                           SIX MONTHS
                                                                         ENDED JUNE 30,
                                                                   --------------------------
                                                                      1995            1994
                                                                   -----------     ----------
<S>                                                                <C>             <C>
Cash Flows From Investing Activities:
  Cost of fixed maturities, at amortized cost matured or
     redeemed..................................................        387,974        307,992
  Cost of bonds, at market sold................................      4,829,308      4,304,361
  Cost of bonds, at market matured or redeemed.................      1,302,178        641,095
  Cost of equity securities sold...............................      1,363,587      1,304,979
  Realized capital gains.......................................         35,000         61,520
  Purchases of fixed maturities................................    (10,401,337)    (7,690,165)
  Purchases of equity securities...............................     (1,578,128)    (1,843,779)
  Mortgage, policy and collateral loans granted................     (2,135,487)    (1,464,294)
  Repayments of mortgage, policy and collateral loans..........        388,030        359,786
  Sales of securities available for sale.......................      1,519,889      3,058,704
  Maturities of securities available for sale..................        131,595        391,970
  Purchases of securities available for sale...................     (1,949,525)    (2,494,442)
  Sales of flight equipment....................................        268,405        141,370
  Purchases of flight equipment................................     (2,398,067)    (1,706,412)
  Net additions to real estate and other fixed assets..........       (197,988)      (177,459)
  Sales or distributions of other invested assets..............        166,667         69,837
  Investments in other invested assets.........................       (299,113)      (250,345)
  Change in short-term investments.............................        180,983        464,227
  Investments in partially-owned companies.....................        (20,752)       (35,454)
                                                                   -----------     ----------
Net cash used in investing activities..........................     (8,406,781)    (4,556,509)
                                                                   -----------     ----------
Cash Flows From Financing Activities:
  Change in policyholders' contract deposits...................      1,989,667      1,263,678
  Change in deposits due to banks and other depositors.........        (34,908)       130,952
  Change in commercial paper...................................        713,429        598,948
  Proceeds from notes, bonds, loans and mortgages payable......      2,738,973      1,964,549
  Repayments on notes, bonds, loans and mortgages payable......     (1,978,036)      (976,507)
  Proceeds from guaranteed investment agreements...............      1,210,364        910,524
  Maturities of guaranteed investment agreements...............     (1,978,107)    (2,232,543)
  Proceeds from subsidiary company preferred stock issued......         98,476         --
  Proceeds from common stock issued............................         11,886          6,974
  Cash dividends to shareholders...............................        (72,668)       (63,407)
  Acquisition of treasury stock................................         (1,167)      (109,335)
                                                                   -----------     ----------
Net cash provided by financing activities......................      2,697,909      1,493,833
                                                                   -----------     ----------
Change in cash.................................................        (10,230)       (58,950)
Cash at beginning of period....................................         76,237        157,481
                                                                   -----------     ----------
Cash at end of period..........................................    $    66,007     $   98,531
                                                                   ===========     ==========
</TABLE>

 
                See Accompanying Notes to Financial Statements.
 
 
                                        5

<PAGE>   7
 
                       AMERICAN INTERNATIONAL GROUP, INC.
 

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                                 JUNE 30, 1995
 
a)  These statements are unaudited. In the opinion of management, all
     adjustments consisting of normal recurring accruals have been made for a
     fair presentation of the results shown.
 
b)  Earnings per share of American International Group, Inc. (AIG) are based on
     the weighted average number of common shares outstanding during the period,
     retroactively adjusted to reflect a common stock split in the form of a 50
     percent common stock dividend paid July 28, 1995. The effect of potentially
     dilutive securities is not significant. Following are the net income per
     share figures, before and after adjustment for the stock split:
 

<TABLE>
<CAPTION>
                                                 SIX MONTHS          SECOND QUARTER
                                              -----------------     -----------------
                                               1995       1994       1995       1994
                                              ------     ------     ------     ------
            <S>                               <C>        <C>        <C>        <C>
            Pre-split.......................  $ 3.82     $ 3.33     $ 2.01     $ 1.74
            Post-split......................  $ 2.54     $ 2.22     $ 1.34     $ 1.16
</TABLE>

 
     Cash dividends per common share reflect the adjustment for a common stock
     split in the form of a 50 percent common stock dividend paid July 28, 1995.
     Following are the dividend per share figures, before and after adjustment
     for the stock split:
 

<TABLE>
<CAPTION>
                                                 SIX MONTHS          SECOND QUARTER
                                              -----------------     -----------------
                                               1995       1994       1995       1994
                                              ------     ------     ------     ------
            <S>                               <C>        <C>        <C>        <C>
            Pre-split.......................  $0.230     $0.200     $0.115     $0.100
            Post-split......................  $0.153     $0.133     $0.077     $0.067
</TABLE>

 
c)  Supplemental cash flow information for the six month periods ended June 30,
     1995 and 1994 is as follows:
 

<TABLE>
<CAPTION>
                                                               1995         1994
                                                             --------     --------
                                                             (IN THOUSANDS)
            <S>                                              <C>          <C>
            Income taxes paid..............................  $616,500     $442,600
            Interest paid..................................  $651,000     $496,000
</TABLE>

 
d)  For further information, refer to the Form 10-K filing of AIG for the year
     ended December 31, 1994.
 
                                        6

<PAGE>   8
 
                       AMERICAN INTERNATIONAL GROUP, INC.
 
 
                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OPERATIONAL REVIEW
 
General Insurance Operations
 
General insurance operations for the six month periods ending June 30, 1995 and
1994 were as follows:
 
(in thousands)
- ---------------------------------------------------------
 

<TABLE>
<CAPTION>
                                 1995             1994
- ---------------------------------------------------------
<S>                           <C>              <C>
Net premiums written:
  Domestic                    $3,949,886       $3,743,207
  Foreign                      2,074,341        1,757,688
- ---------------------------------------------------------
Total                         $6,024,227       $5,500,895
- ---------------------------------------------------------
Net premiums earned:
  Domestic                    $3,632,375       $3,408,428
  Foreign                      1,970,267        1,624,976
- ---------------------------------------------------------
Total                         $5,602,642       $5,033,404
- ---------------------------------------------------------
Adjusted underwriting
  profit (loss):
  Domestic                    $  (11,996)      $  (80,256)
  Foreign                        177,724          102,982
- ---------------------------------------------------------
Total                         $  165,728       $   22,726
- ---------------------------------------------------------
Net investment income:
  Domestic                    $  611,132       $  569,370
  Foreign                        146,676          136,524
- ---------------------------------------------------------
Total                         $  757,808       $  705,894
- ---------------------------------------------------------
Operating income before       
  realized capital gains:
  Domestic                    $  599,136       $  489,114
  Foreign                        324,400          239,506
- ---------------------------------------------------------
Total                         $  923,536       $  728,620
Realized capital gains            47,556           48,488
- ---------------------------------------------------------
Operating income              $  971,092       $  777,108
- ---------------------------------------------------------
</TABLE>

 
     During the first six months of 1995, the net premiums written and the net
premiums earned in AIG's general insura
nce operations increased 9.5 percent and
11.3 percent, respectively, from those of 1994.
 
     The growth in net premiums written in the first six months of 1995 over the
same period of 1994 resulted from a combination of several factors.
Domestically, AIG continued to achieve general price increases in certain
domestic commercial property and specialty casualty markets, as well as growth
in personal lines. Overseas, growth was achieved through price and volume
increases. Foreign general insurance operations produced 34.4 percent of the
general insurance net premiums written in this period of 1995 and 32.0 percent
in the same period of 1994.
 
     During the first six months of 1995, the U.S. dollar declined in value in
relation to most major foreign currencies in which AIG transacts business.
Accordingly, the translation of foreign net premiums written into U.S. dollars
for the purposes of consolidation caused the increase in total net premiums
written to be approximately three percentage points greater than it would have
been if translated utilizing exchange rates prevailing in the first six months
of 1994.
 
     Net premiums written are initially deferred and earned based upon the terms
of the underlying policies. The net unearned premium reserve constitutes the
deferred revenues which are generally earned ratably over the policy period.
Thus, the net unearned premium reserve is not fully recognized as net premiums
earned until the end of the policy period.
 
     The statutory general insurance ratios for the six month periods ended June
30, 1995 and 1994 were as follows:
 

<TABLE>
<CAPTION>
                                        1995       1994
- --------------------------------------------------------
<S>                                    <C>        <C>
Domestic:
  Loss Ratio                            86.67      88.51
  Expense Ratio                         14.32      14.40
- --------------------------------------------------------
Combined Ratio                         100.99     102.91
- --------------------------------------------------------
Foreign:
  Loss Ratio                            58.90      60.51
  Expense Ratio                         31.91      32.46
- --------------------------------------------------------
Combined Ratio                          90.81      92.97
- --------------------------------------------------------
Consolidated:
  Loss Ratio                            76.90      79.47
  Expense Ratio                         20.38      20.17
- --------------------------------------------------------
Combined Ratio                          97.28      99.64
- --------------------------------------------------------
</TABLE>

 
     AIG's results reflect the net impact with respect to incurred losses of
catastrophes approximating $55 million in each of 1995 and 1994. During the
first six months of 1995, AIG's gross incurred losses from catastrophes
approximated $115 million. The Kobe Japan earthquake which struck in early 1995
resulted in gross and net incurred losses to AIG of approximately $73 million
and $30 million, respectively. A substantial portion of the remaining balances
resulted from storms which struck the midwestern and southern states.
 
                                        7

<PAGE>   9
 
     The Northridge earthquake which struck the Los Angeles area of California
in January 1994, resulted in gross and net incurred losses to AIG of
approximately $174 million and $55 million, respectively. AIG did not record any
catastrophe losses in the second quarter of 1994.
 
     If these catastrophes were excluded from each six months period's losses
incurred, the pro forma consolidated statutory general insurance ratios would be
as follows:
 

<TABLE>
<CAPTION>
- ------------------------------------------------------
                                       1995        1994
- ------------------------------------------------------
<S>                                    <C>         <C>
Loss Ratio                             75.92       78.38
Expense Ratio                          20.38       20.17
- ------------------------------------------------------
Combined Ratio                         96.30       98.55
- ------------------------------------------------------
</TABLE>

 
     The maintenance of the pro forma statutory combined ratio in each period at
a level below 100 is a result of the profitability of AIG's foreign general
insurance operations and AIG's emphasis on maintaining its disciplined
underwriting within the continued overall competitiveness of the domestic market
environment as well as AIG's expense control.
 
     Adjusted underwriting profit or loss (operating income less net investment
income and realized capital gains) represents statutory underwriting profit or
loss adjusted primarily for changes in deferred acquisition costs. The adjusted
underwriting profit in the first six months of 1995 was $165.7 million compared
to an adjusted underwriting profit of $22.7 million recorded in the same period
of 1994. This improvement is a result of growth in AIG's foreign general
insurance operations and a domestic strategy implemented several years ago. That
is, AIG withdrew from certain classes of domestic business, primarily agency
lines and certain segments of workers' compensation business. At that time, AIG
had determined that the returns on capital or equity allocated to such classes
were deemed unacceptable. AIG's objective continues to be disciplined
underwriting, especially in the domestic primary casualty market, and AIG does
not seek net premium growth where rates do not adequately reflect its assessment
of exposures.
 
     General insurance net investment income in the first six months of 1995
increased 7.4 percent when compared to the same period of 1994. The growth in
net investment income was primarily attributable to new cash flow for
investment. The new cash flow was generated from general insurance operating net
cash flow and included the compounding of previously earned and reinvested net
investment income. (See also the discussion under "Liquidity" herein.)
 
     General insurance realized capital gains were $47.6 million in the first
six months of 1995, and $48.5 million in the same period of 1994. These realized
gains resulted from the ongoing management of the general insurance investment
portfolios within the overall objectives of the general insurance operations and
arose primarily from the disposition of equity securities and available for sale
and trading fixed maturities as well as redemptions of fixed maturities.
 
     General insurance operating income in the first six months of 1995
increased 25.0 percent when compared to the same period of 1994. The
contribution of general insurance operating income to income before income taxes
was 58.3 percent in the first six months of 1995 compared to 54.8 percent in the
same period of 1994. The growth rate and increase in the percentage contribution
in the first six months of 1995 resulted from the increased adjusted
underwriting profit and the growth of net investment income.
 
     A period to period comparison of operating income may be significantly
influenced by the catastrophe losses in any one year as well as the volatility
from one year to the next in realized capital gains. Adjusting each year to
exclude the effects of both catastrophe losses and realized capital gains,
operating income would have increased by 24.9 percent in 1995.
 
     AIG is a major purchaser of reinsurance for its general insurance
operations. AIG is cognizant of the need to exercise good judgment in the
selection and approval of both domestic and foreign companies participating in
its reinsurance programs. AIG insures risks in over 100 countries and its
reinsurance programs must be coordinated in order to provide AIG the level of
reinsurance protection which AIG desires. These reinsurance arrangements do not
relieve AIG from its direct obligations to its insureds.
 
     AIG's general reinsurance assets resulting from its reinsurance
arrangements amounted to $16.81 billion at June 30, 1995. A credit exposure
exists with respect to reinsurance recoverable when under the terms of the
reinsurance arrangements any reinsurer may not be able to reimburse AIG. With
respect to its reinsurance relationships, AIG manages its credit
 
                                        8

<PAGE>   10
 
risk by transacting with reinsurers that it considers
financially sound; and, when necessary, AIG holds substantial collateral in the
form of funds, securities and/or irrevocable letters of credit. This collateral
can be drawn on for amounts that remain unpaid beyond specified time periods.
The application of this collateral against balances due or any changes to the
amount of collateral are based on the development of losses recoverable on an
individual reinsurer basis. This development includes losses incurred but not
reported (IBNR). At December 31, 1994, approximately 59 percent of reinsurance
recoverable was from unauthorized reinsurers. In order to obtain statutory
recognition, nearly all of these balances are collateralized. The remaining 41
percent of the reinsurance recoverable was from authorized reinsurers and over
90 percent of such balances were from reinsurers rated A- (excellent) or better,
as rated by A.M. Best. Through June 30, 1995, these distribution percentages
have not significantly changed. The A.M. Best rating is a measure of financial
strength. The terms authorized and unauthorized pertain to regulatory
categories, not creditworthiness.
 
     AIG's provision for estimated unrecoverable reinsurance has not
significantly changed from December 31, 1994. AIG has been largely successful in
its prior recovery efforts and has no significant reinsurance recoverables from
any individual reinsurer which is financially troubled (e.g., liquidated,
insolvent, in receivership or otherwise subject to formal or informal regulatory
restriction).
 
     AIG's Reinsurance Security Department conducts ongoing detailed assessments
of the reinsurance markets and current and potential reinsurers both foreign and
domestic. Such assessments include, but are not limited to, identifying if a
reinsurer is appropriately licensed, whether a reinsurer has sufficient
financial capacity and the local economic environment in which a foreign
reinsurer operates. This department also reviews the nature of the risks ceded
and the need for collateral. In addition, AIG's Credit Risk Committee reviews
the credit limits for and concentrations with any one reinsurer.
 
     AIG enters into certain intercompany reinsurance transactions for its
general and life operations. AIG enters these transactions as a sound and
prudent business practice in order to maintain underwriting control and spread
insurance risk among various legal entities. These reinsurance agreements have
been approved by the appropriate regulatory authorities. All material
intercompany transactions have been eliminated in consolidation.
 
     At June 30, 1995, the consolidated general reinsurance assets of $16.81
billion include reinsurance recoverables for (i) paid losses and loss expenses
of $1.44 billion and (ii) the ceded reserve for losses and loss expenses,
including losses and loss expenses incurred but not reported (ceded reserves) of
$13.57 billion. The ceded reserves represent the accumulation of estimates of
ultimate ceded losses including provisions for ceded IBNR and loss expenses. The
methods used to determine such estimates and to establish the resulting ceded
reserves are continually reviewed and updated. Any adjustments therefrom are
reflected in income currently. It is AIG's belief that the ceded reserves at
June 30, 1995 were representative of the ultimate losses recoverable. In the
future, as the ceded reserves continue to develop to ultimate amounts, the
ultimate loss recoverable may be greater or less than the reserves currently
ceded.
 
     At June 30, 1995, general insurance reserves for losses and loss expenses
(loss reserves) amounted to $32.76 billion, an increase of $1.33 billion or 4.2
percent over the prior year end. General insurance net loss reserves represent
the accumulation of estimates of ultimate losses, including IBNR, and loss
expenses, reduced by reinsurance recoverable net of an allowance for
unrecoverable reinsurance and minor amounts of discounting related to certain
workers' compensation claims. The net loss reserves increased $777.9 million to
$19.20 billion or 4.2 percent over the prior year end. The methods used to
determine such estimates and to establish the resulting reserves are continually
reviewed and updated. Any adjustments resulting therefrom are reflected in
operating income currently. It is management's belief that the general insurance
net loss reserves are adequate to cover all general insurance net losses and
loss expenses as at June 30, 1995. In the future, if the general insurance net
loss reserves develop deficiently, such deficiency would have an adverse impact
on such future results of operations.
 
     In a very broad sense, the general loss reserves can be categorized into
two distinct groups: one group being long tail casualty lines of business; the
other being short tail lines of business consisting principally of property
lines and including certain classes of casualty lines.
 
     Estimation of ultimate net losses and loss expenses (net losses) for long
tail casualty lines of
 
                                        9

<PAGE>   11
 
business is a complex process and depends on a number of factors, including 
the line and volume of the business involved. In the more recent accident years
of long tail casualty lines there is limited statistical credibility in 
reported net losses. That is, a relatively low proportion of net losses would 
be reported claims and expenses and an even smaller proportion would be net 
losses paid. A relatively high proportion of net losses would therefore be IBNR.
 
     A variety of actuarial methods and assumptions are normally employed to
estimate net losses for long tail casualty lines. These methods ordinarily
involve the use of loss trend factors intended to reflect the estimated annual
growth in loss costs from one accident year to the next. Loss trend factors
reflect many items including changes in claims handling, exposure and policy
forms and current and future estimates of monetary inflation and social
inflation. Thus, many factors are implicitly considered in estimating the year
to year growth in loss costs. Therefore, AIG's carried net long tail loss
reserves are judgmentally set as well as tested for reasonableness using the
most appropriate loss trend factors for each class of business. In the
evaluation of AIG's net loss reserves, loss trend factors vary slightly,
depending on the particular class and nature of the business involved. For the
majority of long tail casualty lines, net loss trend factors approximating 10
percent were employed. These factors are periodically reviewed and subsequently
adjusted, as appropriate, to reflect emerging trends which are based upon past
loss experience.
 
     Estimation of net losses for short tail business is less complex than for
long tail casualty lines. Loss cost trends for many property lines can generally
be assumed to be similar to the growth in exposure of such lines. For example,
if the fire insurance coverage remained proportional to the actual value of the
property, the growth in the property's exposure to fire loss can be approximated
by the amount of insurance purchased.
 
     For other property and short tail casualty lines, the loss trend is
implicitly assumed to grow at the rate that reported net losses grow from one
year to the next. The concerns noted above for longer tail casualty lines with
respect to the limited statistical credibility of reported net losses generally
do not apply to shorter tail lines.
 
     AIG continues to receive indemnity 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. The vast majority of these asbestos and environmental
claims emanate from policies written in 1984 and prior years. Commencing in
1985, standard policies contained an absolute exclusion for pollution related
damage. However, AIG currently underwrites pollution impairment liability
insurance on a claims made basis and excluded such claims from the analyses
included herein. AIG has established a specialized claims unit which
investigates and adjusts all such asbestos and environmental claims.
 
     Estimation of asbestos and environmental claims loss reserves is a
difficult process. These asbestos and environmental claims cannot be estimated
by conventional reserving techniques as previously described. Quantitative
techniques frequently have to be supplemented by subjective considerations
including managerial judgment. Significant factors which affect the trends which
influence the development of asbestos and environmental claims are the
inconsistent court resolutions, judicial interpretations which broaden the
intent of the policies and scope of coverage and the increasing number of new
claims. The case law that has emerged can be characterized as still being in its
infancy and the likelihood of any firm direction in the near future is very
small. Additionally, the exposure for cleanup costs of hazardous waste dump
sites involves issues such as allocation of responsibility among potentially
responsible parties and the government's refusal to release parties. The cleanup
cost exposure may significantly change if the Congressional reauthorization of
Superfund expected in 1995 dramatically changes, thereby reducing or increasing
litigation and cleanup costs.
 
     In the interim, AIG and other industry members have and will continue to
litigate the broadening judicial interpretation of the policy coverage and the
liability issues. At the current time, it is not possible to determine the
future development of asbestos and environmental claims. Such development will
be affected by the extent to which courts continue to expand the intent of the
policies and the scope of the coverage, as they have in the past, as well as by
changes in Superfund and waste dump site coverage issues. Additional liabilities
could emerge for amounts in excess of the current reserves held. Although this
emergence cannot now be rea-
 
                                       10

<PAGE>   12
 
sonably estimated, it could have a material adverse
impact on AIG's future operating results. The reserves carried for these claims
at June 30, 1995 are believed to be adequate as these reserves are based on the
known facts and current law. Furthermore, as AIG's net exposure retained
relative to the gross exposure written was lower in 1984 and prior years, the
potential impact of these claims is much smaller on the net loss reserves than
on the gross loss reserves. (See the previous discussion on reinsurance
collectibility herein.)
 
     The majority of AIG's exposures for asbestos and environmental claims are
excess casualty coverages, not primary coverages. Thus, the litigation costs are
treated in the same manner as indemnity reserves. That is, litigation expenses
are included within the limits of the liability AIG incurs. Individual
significant claim liabilities, where future litigation costs are reasonably
determinable, are established on a case basis.
 
     AIG's estimated gross and net IBNR with respect to asbestos and
environmental claims were $190 million and $50 million at June 30, 1995 and $150
million and $30 million at December 31, 1994.
 
     A summary of reserve activity, including estimates for applicable IBNR,
relating to asbestos and environmental claims separately and combined at June
30, 1995 and 1994 was as follows:
 
(in millions)
- ------------------------------------------------------
 

<TABLE>
<CAPTION>
                               1995               1994
                          -------------      -------------
                          GROSS     NET      Gross     Net
<S>                      <C>       <C>      <C>       <C>
- ------------------------------------------------------
Asbestos:
Reserve for losses and
  loss expenses at
  beginning of period    $  686.0  $130.2   $  656.0  $116.7
Losses and loss
  expenses incurred          15.9     7.9       20.7    11.7
Losses and loss
  expenses paid             (62.1)  (15.1)     (51.0)  (14.9)
- ------------------------------------------------------
Reserve for losses and
  loss expenses at end
  of period              $  639.8  $123.0   $  625.7  $113.5
- ------------------------------------------------------
Environmental:
Reserve for losses and
  loss expenses at
  beginning of period    $  728.1  $200.1   $  684.8  $191.5
Losses and loss
  expenses incurred         190.0    57.6       53.6    40.6
Losses and loss
  expenses paid             (79.6)  (30.2)     (83.8)  (33.0)
- ------------------------------------------------------
Reserve for losses and
  loss expenses at end
  of period              $  838.5  $227.5   $  654.6  $199.1
- ------------------------------------------------------
Combined:
Reserve for losses and
  loss expenses at
  beginning of period    $1,414.1  $330.3   $1,340.8  $308.2
Losses and loss
  expenses incurred         205.9    59.0       74.3    52.3
Losses and loss
  expenses paid            (141.7)  (38.8)    (134.8)  (47.9)
- ------------------------------------------------------
Reserve for losses and
  loss expenses at end
  of period              $1,478.3  $350.5   $1,280.3  $312.6
- ------------------------------------------------------
</TABLE>

 
     A summary of asbestos and
environmental claims count activity
for the six month periods ended June
30, 1995 and 1994 was as follows:
 

<TABLE>
<CAPTION>
   ------------------------------------------------------------------------------------------------------------------
                                                        1995                                        1994
                                         ----------------------------------          ----------------------------------
                                        ASBESTOS    ENVIRONMENTAL    COMBINED       Asbestos    Environmental    Combined
<S>                                     <C>         <C>              <C>            <C>         <C>              <C>
- ------------------------------------------------------------------------------------------------------------------
Claims at beginning of period             5,947         16,223        22,170          5,522         16,661        22,183
Claims during period:
  Opened                                    781          2,157         2,938            722          1,743         2,465
  Settled                                   (80)          (304)         (384)           (48)          (266)         (314)
  Dismissed or otherwise resolved          (373)        (1,067)       (1,440)          (638)        (1,912)       (2,550)
- ------------------------------------------------------------------------------------------------------------------
Claims at end of period                   6,275         17,009        23,284          5,558         16,226        21,784
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

 
                                       11

<PAGE>   13
 
     The average cost per claim settled, dismissed or otherwise resolved for the
six month periods ended June 30, 1995 and 1994 was as follows:
 
- ------------------------------------------------------
 

<TABLE>
<CAPTION>
                           1995                  1994
                      ---------------      ----------------
                      GROSS      NET        Gross     Net
<S>                  <C>       <C>         <C>      <C>
- -----------------------------------------------------------
Asbestos             $137,100  $19,000     $74,300  $21,700
Environmental          58,100   22,000      38,500   15,200
Combined               77,700   21,300      47,100   16,700
- -----------------------------------------------------------
</TABLE>

 
     Recently, an insurance rating agency developed a survival ratio to measure
the number of years it would take a company to exhaust both its asbestos and
environmental reserves for losses and loss expenses based on that company's
current level of asbestos and environmental claims payments. The higher the
ratio, the more years the reserves for losses and loss expenses cover these
claims payments. These ratios are computed based on the respective ending
reserves for losses and loss expenses over the respective claims settlements
during the fiscal year. Such payments include indemnity payments and legal and
loss adjustment payments. It should be noted, however, that this is an extremely
simplistic approach to measuring asbestos and environmental reserve levels. Many
factors, such as aggressive settlement procedures, mix of business and level of
coverage provided have significant impact on the amount of asbestos and
environmental losses and loss expense reserves, ultimate payments thereof and
the resultant ratio. In addition to the study published by that insurance rating
agency, another published study projected significantly lower ultimate costs for
toxic waste cleanups for the insurance industry.
 
     The developed survival ratios include both involuntary and voluntary
indemnity payments. Involuntary payments include court judgments; court orders;
covered claims with no coverage defenses; state mandated cleanup costs; claims
where AIG's coverage defenses are minimal; and settlements made less than six
months before the first trial setting. Also, AIG considers all legal and loss
adjustment payments as involuntary.
 
     AIG believes voluntary indemnity payments should be excluded from the
survival ratio. The special asbestos and environmental claims unit actively
manages AIG's asbestos and environmental claims and proactively pursues early
settlement of environmental claims for all known and unknown sites. As a result,
AIG reduces its exposure to future environmental loss contingencies.
 
     Accordingly, AIG's annualized survival ratios for involuntary asbestos and
environmental claims, separately and combined, were estimated as follows for the
six month periods ended June 30, 1995 and 1994:
 
- ------------------------------------------------------
 

<TABLE>
<CAPTION>
                           1995                  1994
                       -------------       ----------------
                      GROSS      NET        Gross      Net
<S>                   <C>       <C>         <C>       <C>
- -----------------------------------------------------------
Involuntary survival
  ratios:
  Asbestos              5.2       4.1         6.1       3.8
  Environmental        12.8       8.8         9.8       6.4
  Combined              8.2       8.2         7.8       5.3
- -----------------------------------------------------------
</TABLE>

 
     AIG's operations are negatively impacted under guarantee fund assessment
laws which exist in most states. As a result of operating in a state which has
guarantee fund assessment laws, a solvent insurance company may be assessed for
certain obligations arising from the insolvencies of other insurance companies
which operated in that state. AIG generally records these assessments upon
notice. Additionally, certain states permit at least a portion of the assessed
amount to be used as a credit against a company's future premium tax
liabilities. Therefore, the ultimate net assessment cannot reasonably be
estimated. The guarantee fund assessments, net of credits for 1994 were $48.2
million. Based upon current information, AIG does not anticipate that its net
assessment will be significantly different in 1995. Also, AIG is required to
participate in various involuntary pools (principally workers' compensation
business) which provide insurance coverage for those not able to obtain such
coverage in the voluntary markets. This participation is also recorded upon
notification, as these amounts cannot reasonably be estimated.
 
                                       12

<PAGE>   14
 
Life Insurance Operations
 
Life insurance operations for the six months ended June 30, 1995 and 1994 were
as follows:
 
(in thousands)
- ------------------------------------------------------
 

<TABLE>
<CAPTION>
                                1995             1994
<S>                         <C>              <C>
- ------------------------------------------------------
Premium income:
  Domestic                  $    245,653     $    187,189
  Foreign                      3,591,498        2,984,466
- ------------------------------------------------------
Total                       $  3,837,151     $  3,171,655
- ------------------------------------------------------
Net investment income:
  Domestic                  $    394,157     $    284,056
  Foreign                        665,412          551,199
- ------------------------------------------------------
Total                       $  1,059,569     $    835,255
- ------------------------------------------------------
Operating income before
  realized capital gains:
  Domestic                  $     26,070     $     17,383
  Foreign                        469,857          390,283
- ------------------------------------------------------
Total                       $    495,927     $    407,666
Realized capital gains             1,748           32,719
- ------------------------------------------------------
Operating income            $    497,675     $    440,385
- ------------------------------------------------------
Life insurance in-force:
  Domestic                  $ 51,210,304     $ 35,734,985
  Foreign                    363,054,434      262,534,038
- ------------------------------------------------------
Total                       $414,264,738     $298,269,023
- ------------------------------------------------------
</TABLE>

 
     AIG's life insurance operations continued to show growth as a result of
overseas operations, particularly in Asia. AIG's life premium income in the
first six months of 1995 increased 21.0 percent over the same period in 1994.
Foreign life operations produced 93.6 percent and 94.1 percent of the life
premium income in 1995 and 1994, respectively.
 
     As previously discussed, the U.S. dollar declined in value in relation to
most major foreign currencies in which AIG transacts business. Accordingly, the
translation of foreign life premium income into U.S. dollars for purposes of
consolidation caused the increase in total premium income to be approximately
five percentage points greater than it would have been if translated utilizing
exchange rates prevailing in the first six months of 1994.
 
     Life insurance net investment income increased 26.9 percent in the first
six months of 1995 over the same period in 1994. The growth in net investment
income was primarily attributable to new cash flow for investment. The new cash
flow was generated from life insurance operating net cash flow and included the
compounding of previously earned and reinvested net investment income. (See also
the discussion under "Liquidity" herein.)
 
     The growth in the premium income of the domestic life segment primarily
resulted from the sale of a terminal funded pension plan annuity and to a lesser
extent the renewal of risk bearing premium related to corporate-owned life
insurance products. Additionally, the interest income earned on the policy loans
associated with the life products caused domestic investment income to increase
significantly.
 
     The traditional life products, such as whole and term life and endowments,
were the major contributors to the growth in foreign premium income and
investment income, particularly in Asia, and continue to be the primary source
of growth in the life segment. A mixture of traditional, accident and health and
financial products are being sold in Japan.
 
     Life insurance realized capital gains were $1.7 million in the first six
months of 1995 and $32.7 million in the same period of 1994. These realized
gains resulted from the ongoing management of the life insurance investment
portfolios within the overall objectives of the life insurance operations and
arose primarily from the disposition of equity securities and available for sale
fixed maturities and redemptions of fixed maturities.
 
     Life insurance operating income in the first six months of 1995 increased
13.0 percent to $497.7 million from $440.4 million in the same period of 1994.
Excluding realized capital gains from life insurance operating income, the
percent increase would be 21.7 percent in 1995. The contribution of life
insurance operating income to income before income taxes amounted to 29.9
percent in 1995 compared to 31.0 percent in 1994.
 
     The risks associated with the traditional life and accident and health
products are underwriting risk and investment risk. The risk associated with the
financial and investment contract products is investment risk.
 
     Underwriting risk represents the exposure to loss resulting from the actual
policy experience adversely emerging in comparison to the assumptions made in
the product pricing associated with mortality, morbidity, termination and
expenses. AIG's life companies limit their maximum underwriting exposure on
traditional life insurance of a single life to approximately $1.5 million of
coverage by using yearly renewable term reinsurance. The life insurance
operations have not entered into assumption reinsurance transactions or surplus
relief transactions during the twelve month and six month
 
                                       13

<PAGE>   15
 
periods ended December 31, 1994 and June 30, 1995, respectively.
 
     The investment risk represents the exposure to loss resulting from the cash
flows from the invested assets, primarily long-term fixed rate investments,
being less than the cash flows required to meet the obligations of the expected
policy and contract liabilities and the necessary return on investments.
 
     To minimize its exposure to investment risk, AIG tests the cash flows from
the invested assets and the policy and contract liabilities using various
interest rate scenarios to assess whether there is a liquidity excess or
deficit. If a rebalancing of the invested assets to the policy and contract
claims became necessary and did not occur, a demand could be placed upon
liquidity. (See also the discussion under "Liquidity" herein.)
 
     The asset-liability relationship is appropriately managed in AIG's foreign
operations, even though certain territories lack qualified long-term investments
or there are investment restrictions imposed by the local regulatory
authorities. For example, in Japan and several Southeast Asia territories, the
duration of the investments is often for a shorter period than the effective
maturity of such policy liabilities. Therefore, there is a risk that the
reinvestment of the proceeds at the maturity of the investments may be at a
yield below that of the interest required for the accretion of the policy
liabilities. At December 31, 1994, the average duration of the Japanese
investment portfolio was 5.0 years, while the related Japanese policy
liabilities were estimated to be 11.5 years. These durations have not
significantly changed during 1995. To maintain an adequate yield to manage the
interest required over the duration of the liabilities, constant management
focus is required to reinvest the proceeds of the maturing securities without
sacrificing investment quality. To the extent permitted under local regulation
and to manage more closely both duration and the required yield, AIG may invest
in qualified longer-term securities outside Japan. AIG is able to manage any
asset-liability duration difference through maintenance of sufficient global
liquidity and to support any operational shortfall through its international
financial network. Domestically, the asset-liability management process is
appropriately functioning as there are investments available to match the
duration and the required yield. (See also the discussion under "Liquidity"
herein.)
 
     AIG uses asset-liability management as a tool to determine the composition
of the invested assets and marketing strategies. As a part of these strategies,
AIG may determine that it is economically advantageous to be temporarily in an
unmatched position due to an anticipated interest rate change or other economic
changes.
 
Agency and Service Fee Operations
 
Agency and service fee operating income in the six months ended June 30, 1995
and 1994 was $32.0 million and $29.2 million, respectively. This was an increase
of 9.6 percent. The increase in 1995 was due to increased commission revenue in
certain of AIG's managing general agencies. Agency and service fee operating
income contributed 1.9 percent to AIG's income before income taxes in 1995
compared to 2.1 percent in 1994.
 
Financial Services Operations
 
Financial services operations for the six months ended June 30, 1995 and 1994
were as follows:


<TABLE>
<CAPTION>

(in thousands)
- --------------------------------------------------------- 
                                     1995          1994
<S>                               <C>            <C>
- ---------------------------------------------------------
Revenues:
International Lease Finance
  Corp.                           $  656,091     $525,939
AIG Financial Products Corp.         110,359*     150,180*
AIG Trading Group Inc.               122,388*     108,563*
Other                                114,419       80,598
- ---------------------------------------------------------
Total                             $1,003,257     $865,280
- ---------------------------------------------------------
Operating income:
International Lease Finance
  Corp.                           $  135,561     $124,960
AIG Financial Products Corp.          53,768       69,974
AIG Trading Group Inc.                29,916       26,979
Other, including intercompany
  adjustments                        (25,760)      (7,770)
- ---------------------------------------------------------
Total                             $  193,485     $214,143
- ---------------------------------------------------------
</TABLE>

 
* Represents net trading revenues.
 
     Financial services operating income decreased 9.6 percent in the first six
months of 1995 over the same period in 1994. The financial services operating
income in 1995 decreased as a result of the declines in the operating income of
AIG Financial Products Corp. and its subsidiaries (AIGFP) and other minor AIG
financial services operations.
 
     AIGFP participates in the derivatives dealer market conducting, as
principal, an interest rate, currency and equity derivative products business
which includes long-dated transactions. AIGFP also enters into guaranteed
investment agreements. AIGFP's revenues and operating income in the first six
months of 1995 were less than those for the same period of 1994. These declines
resulted from
 
                                       14

<PAGE>   16
 
reduced activity in the market place. Current and
past performance may not provide a basis for predicting future performance.
AIGFP derives substantially all its revenues from proprietary positions entered
in connection with counterparty transactions rather than from speculative
transactions. (See also the discussions under "Capital Resources," "Liquidity"
and "Derivatives" herein.)
 
     International Lease Finance Corporation (ILFC) primarily engages in the
acquisition of new and used commercial jet aircraft and the leasing and sale of
such aircraft to airlines around the world. ILFC derives a substantial portion
of its revenues from its leasing operations and is also engaged in the
remarketing of commercial jets to and for airlines and financial institutions.
As a result of the rising interest rate environment during 1994, ILFC's weighted
average interest with respect to its borrowings increased during the first six
months of 1995 when compared to the same period in 1994. Although the increase
in interest expense had some impact on ILFC's current lease margins, it is not
anticipated that the aforementioned rise in interest rates will have any
significant impact on future operating income as lease margins generally lag
rising interest rates. Accordingly, ILFC has negotiated appropriate lease rates
on any new contracts. (See also the discussions under "Capital Resources" and
"Liquidity" herein.)
 
     ILFC is exposed to loss through non-performance of aircraft lessees,
through owning aircraft which it would be unable to lease or re-lease at
acceptable rates or sell at lease expiration and through committing to purchase
aircraft which it would be unable to lease. ILFC manages its lessee
non-performance exposure through credit reviews and security deposit
requirements. At June 30, 1995, only one of 296 aircraft owned was not leased.
At August 1, 1995, this one aircraft has been contracted for sale. All other
aircraft remain leased. Currently, 76 percent of the fleet is leased to foreign
carriers which produces approximately the same percent of ILFC's rental
revenues. (See also the discussions under "Capital Resources" and "Liquidity"
herein.)
 
     AIG Trading Group Inc. and its subsidiaries (AIGTG), derive a substantial
portion of their revenues from market making and trading activities, as
principals, in foreign exchange, interest rates, precious and base metals,
petroleum and natural gas. AIGTG's operating income increased in 1995 as a
result of increased activity and presence in the natural gas sector. (See also
the discussions under "Liquidity" and "Derivatives" herein.)
 
     Financial services operating income represented 11.6 percent of AIG's
income before income taxes in the first six months of 1995. This compares to
15.1 percent in 1994.
 
Other Operations
 
In the first six months of 1995, AIG's equity in income of minority-owned
insurance operations was $39.1 million compared to $22.0 million in the same
period of 1994. The equity interest in insurance companies represented 2.3
percent of income before income taxes in 1995, compared to 1.6 percent in 1994.
 
     Other realized capital losses amounted to $14.3 million and $19.7 million
in the first six months of 1995 and 1994, respectively.
 
     Minority interest represents minority shareholders' equity in income of
certain consolidated subsidiaries. In the first six months of 1995, minority
interest amounted to $17.5 million compared to $10.8 million for the same period
of 1994.
 
     Other income (deductions) -- net includes AIG's equity in certain minor
majority-owned subsidiaries and certain partially-owned companies, realized
foreign exchange transaction gains and losses in substantially all currencies
and unrealized gains and losses in hyperinflationary currencies, as well as the
income and expenses of the parent holding company and other miscellaneous income
and expenses. In the first six months of 1995 and 1994, net deductions amounted
to $36.4 million and $33.2 million, respectively.
 
     Income before income taxes amounted to $1.67 billion during the first six
months of 1995 and $1.42 billion in 1994.
 
     In the first six months of 1995, AIG recorded a provision for income taxes
of $459.1 million compared to the provision of $363.8 million in the same period
of 1994. These provisions represent effective tax rates of 27.6 percent in 1995
and 25.6 percent in 1994. The increase in the effective tax rate is in part due
to the smaller domestic general adjusted underwriting loss relative to income
before income taxes and in part to foreign capital losses which do not provide a
current benefit.
 
                                       15

<PAGE>   17
 
     Net income amounted to $1.21 billion in the first six months of 1995 and
$1.06 billion in the same period of 1994.
 
CAPITAL RESOURCES
 
At June 30, 1995 and December 31, 1994, AIG had total capital funds of $18.13
billion and $16.42 billion, respectively, and total borrowings of $18.23 billion
and $17.52 billion, respectively.
 
     Total borrowings at June 30, 1995 and December 31, 1994 were as follows:
 
(in thousands)
- ---------------------------------------------------------
 

<TABLE>
<CAPTION>
                                 1995            1994
<S>                           <C>             <C>
- ---------------------------------------------------------
Borrowings under Obligations
  of
  Guaranteed Investment
  Agreements
  (GIA) -- AIGFP              $ 4,767,575     $ 5,535,318
- ---------------------------------------------------------
Commercial Paper:
  Funding                       1,444,187       1,211,280
  ILFC                          2,432,337*      1,960,545*
  AICCO                           626,464         617,734
- ---------------------------------------------------------
  Total                         4,502,988       3,789,559
- ---------------------------------------------------------
Medium Term Notes:
  ILFC                          2,306,435*      1,999,535*
  AIG                             115,000         155,000
- ---------------------------------------------------------
  Total                         2,421,435       2,154,535
- ---------------------------------------------------------
Notes and Bonds Payable:
  ILFC                          3,300,000*      2,950,000*
  AIGFP                         1,121,258       1,048,061
  AIG: Lire bonds                 159,067         159,067
     Zero coupon notes             69,483          65,831
- ---------------------------------------------------------
  Total                         4,649,808       4,222,959
- ---------------------------------------------------------
Loans and Mortgages Payable:
  AIGTG                           287,000         890,800
  ILFC                          1,343,241*        678,650*
  AIG                             257,997         247,656
- ---------------------------------------------------------
  Total                         1,888,238       1,817,106
- ---------------------------------------------------------
Total Borrowings               18,230,044      17,519,477
- ---------------------------------------------------------
Borrowings not guaranteed by
  AIG                           9,382,013       7,588,730
Matched GIA borrowings          4,767,575       5,535,318
- ---------------------------------------------------------
                               14,149,588      13,124,048
- ---------------------------------------------------------
Remaining borrowings of AIG   $ 4,080,456     $ 4,395,429
- ---------------------------------------------------------
</TABLE>

 
*AIG does not guarantee or support these borrowings.
 
     GIAs usually serve as the primary source of proceeds for AIGFP's
investments in a diversified portfolio of securities and derivative
transactions. (See also the discussions under "Operational Review", "Liquidity"
and "Derivatives" herein.)
 
     AIG Funding, Inc. (Funding), through the issuance of commercial paper,
fulfills the short-term cash requirements of AIG and its subsidiaries. Funding
intends to continue to meet AIG's funding requirements through the issuance of
commercial paper guaranteed by AIG. This issuance of commercial paper is subject
to the approval of AIG's Board of Directors. ILFC, A.I. Credit Corp. (AICCO) and
AIGFP issue commercial paper for the funding of their own operations. AIG does
not guarantee AICCO's or ILFC's commercial paper. However, AIG has entered into
an agreement in support of AICCO's commercial paper. (See also the discussion
under "Derivatives" herein.)
 
     During 1994, AIG and Funding entered into two syndicated revolving credit
facilities (the Facilities) aggregating $1 billion. The Facilities consist of a
$500 million 364 day revolving credit facility and a $500 million five year
revolving credit facility. The Facilities represent a consolidation of domestic
and international bilateral lines of credit and can be used for general
corporate purposes. The Facilities also provide backup for AIG's commercial
paper programs administered by Funding. At June 30, 1995, there were no
borrowings outstanding under either of the Facilities, nor were any borrowings
outstanding through August 1, 1995.
 
     At June 30, 1995, ILFC increased the aggregate principal amount outstanding
of its medium term and term notes to $5.61 billion, a net increase of $656.9
million. At June 30, 1995, ILFC had approximately $587 million in aggregate
principal amount of debt securities registered for issuance from time to time.
The funds used to purchase flight equipment are derived primarily from the
proceeds of ILFC's debt financing. The primary sources for the repayment of this
debt and the interest expense thereon are the lease receipts received and
proceeds from the sale of flight equipment. During the first six months of 1995,
ILFC obtained net financing of approximately $1.79 billion and sold $100 million
of Market Auction Preferred Stock (MAPS) in February, 1995. These proceeds were
used for the acquisition of flight equipment costing $2.40 billion. Additional
funds were provided by operating cash flow and the sale of flight equipment.
(See also the discussions under "Operational Review" and "Liquidity" herein.)
 
     During the first six months of 1995, AIG did not issue any medium term
notes and $40.0 million of previously issued notes matured. At June 30, 1995,
AIG had $247.0 million in aggregate principal amount of debt securities
registered for issuance from time to time. (See also the discussion under
"Derivatives" herein.)
 
                                       16

<PAGE>   18
 
     AIG's capital funds have increased $1.71 billion in the first six months of
1995. Unrealized appreciation of investments, net of taxes, increased $567.2
million, primarily resulting from the decline of domestic interest rates during
the period. As a result of adopting Financial Accounting Standards No. 115
"Accounting for Certain Investments on Debt and Equity Securities" at December
31, 1993, unrealized appreciation of investments, net of taxes, is now subject
to increased volatility resulting from the changes in the market value of bonds
available for sale. The cumulative translation adjustment loss, net of taxes,
increased $3.6 million. Retained earnings increased $1.13 billion, resulting
from net income less dividends.
 
     Payments of dividends to AIG by its insurance subsidiaries are subject to
certain restrictions imposed by statutory authorities. AIG has in the past
reinvested most of its unrestricted earnings in its operations and believes such
continued reinvestment in the future will be adequate to meet any foreseeable
capital needs. However, AIG may choose from time to time to raise additional
funds through the issuance of additional securities. At June 30, 1995, there
were no significant statutory or regulatory issues which would impair AIG's
financial condition, results of operations or liquidity. (See also the
discussion under "Liquidity" herein.)
 
LIQUIDITY
 
At June 30, 1995, AIG's consolidated invested assets included approximately
$2.35 billion of cash and short-term investments. Consolidated net cash provided
from operating activities in the first six months of 1995 amounted to
approximately $5.70 billion.
 
     Management believes that AIG's liquid assets, its net cash provided by
operations, and access to the capital markets will enable it to meet any
foreseeable cash requirements.
 
     AIG's liquidity is primarily derived from the cash flows of its general and
life insurance operations.
 
     The liquidity of the combined insurance operations is derived both
domestically and abroad. The combined insurance pretax cash flow is derived from
two sources, underwriting operations and investment operations. In the
aggregate, AIG's insurance operations generated approximately $5.6 billion in
pretax cash flow during the first six months of 1995. Cash flow includes
periodic premium collections, including policyholders' contract deposits, paid
loss recoveries less reinsurance premiums, losses, benefits, acquisition and
operating expenses paid. Generally, there is a time lag from when premiums are
collected and, when as a result of the occurrence of events specified in the
policy, the losses and benefits are paid. AIG's insurance investment operations
generated approximately $1.7 billion in investment income cash flow during the
first six months of 1995. Investment income cash flow is primarily derived from
interest and dividends received and includes realized capital gains.
 
     At June 30, 1995, the combined insurance pretax cash flow coupled with the
cash and short-term investments of $2.09 billion provided the insurance
operations with a significant amount of liquidity. This liquidity is available
to purchase high quality and diversified fixed income securities and to a lesser
extent marketable equity securities and to provide mortgage loans on real
estate, policy and collateral and guaranteed loans. With this liquidity coupled
with proceeds of approximately $8 billion from the maturities, sales and
redemptions of fixed income securities and from the sales of marketable equity
securities, AIG purchased approximately $12 billion of fixed income securities
and marketable equity securities and granted $1.7 billion of mortgage loans on
real estate, policy and collateral loans during the first six months of 1995.
 
     During 1995, AIG expects to receive approximately $1 billion for the
redemption of held to maturity municipal bonds. During the first six months of
1995, approximately $400 million of these securities were redeemed. Through
August 1, 1995 the redemptions of these bonds approximated $800 million. Prior
to redemption, the yield on these bonds approximated eight percent. The current
estimate of the yield on the reinvestment of the proceeds in bonds with similar
characteristics is slightly less than six percent. AIG does not anticipate that
these redemptions will have a significant effect on AIG's general investment
income, operations, financial condition or liquidity.
 
     The following table is a summary of AIG's invested assets by significant
segment, including
 
                                       17

<PAGE>   19
 
investment income due and accrued and real estate, at June 30, 1995 and December
31, 1994:
 
(dollars in thousands)

<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                          JUNE 30, 1995                           December 31, 1994
                                                     -----------------------                   -------------------------
                                                     INVESTED         PERCENT                  Invested         Percent
                                                      ASSETS          OF TOTAL                  Assets          of Total
   ---------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>                     <C>               <C>
General insurance                                   $25,448,716           27.5%               $23,873,059           30.2%
Life insurance                                       32,462,475           35.2                 26,690,071           33.8
Financial services                                   33,945,749           36.8                 27,920,262           35.4
Other                                                   479,302            0.5                    491,548            0.6
- ------------------------------------------------------------------------------------------------------------------------
Total                                               $92,336,242          100.0%               $78,974,940          100.0%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

 
     The following tables summarize the composition of AIG's insurance invested
assets by insurance segment, including investment income due and accrued and
real estate, at June 30, 1995 and December 31, 1994:
 
(dollars in thousands)

<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
                                                                                                       PERCENT DISTRIBUTION
                                                                                          PERCENT      --------------------
             JUNE 30, 1995                  GENERAL          LIFE            TOTAL        OF TOTAL     DOMESTIC     FOREIGN
<S>                                       <C>             <C>             <C>             <C>          <C>          <C>
- ---------------------------------------------------------------------------------------------------------------------------
FIXED MATURITIES:
  AVAILABLE FOR SALE, AT MARKET VALUE(a)  $ 5,669,537     $20,516,839     $26,186,376         45.2%        31.1%       68.9%
  HELD TO MATURITY, AT AMORTIZED COST(b)   14,369,008              --      14,369,008         24.8        100.0          --
EQUITY SECURITIES, AT MARKET VALUE(c)       2,772,626       2,303,596       5,076,222          8.8         28.4        71.6
MORTGAGE LOANS ON REAL ESTATE, POLICY
  AND
  COLLATERAL LOANS                             39,214       6,176,956       6,216,170         10.7         49.1        50.9
SHORT-TERM INVESTMENTS, INCLUDING TIME
  DEPOSITS, AND CASH                          845,978       1,244,687       2,090,665          3.6         15.4        84.6
REAL ESTATE                                   347,948         680,789       1,028,737          1.8         16.4        83.6
INVESTMENT INCOME DUE AND ACCRUED             485,052         565,923       1,050,975          1.8         55.3        44.7
OTHER INVESTED ASSETS                         919,353         973,685       1,893,038          3.3         47.7        52.3
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL                                     $25,448,716     $32,462,475     $57,911,191        100.0%        50.0%       50.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

 
(a)Includes $369,261 of bonds trading securities, at market value.
(b)Includes $443,708 of preferred stock, at amortized cost.
(c)Includes $50,799 of preferred stock, at market value.
 
(dollars in thousands)

<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
 <CAPTION>
                                                                                                       Percent Distribution
                                                                                          Percent      --------------------
           December 31, 1994                General          Life            Total        of Total     Domestic     Foreign
<S>                                       <C>             <C>             <C>             <C>          <C>          <C>
- ---------------------------------------------------------------------------------------------------------------------------
Fixed Maturities:
  Available for sale, at market value(a)  $ 4,995,778     $16,890,709     $21,886,487         43.3%        32.2%       67.8%
  Held to maturity, at amortized cost(b)   13,454,310              --      13,454,310         26.6        100.0          --
Equity securities, at market value(c)       2,799,728       2,090,421       4,890,149          9.7         30.4        69.6
Mortgage loans on real estate, policy
  and
  collateral loans                             27,725       4,534,604       4,562,329          9.0         43.1        56.9
Short-term investments, including time
  deposits, and cash                          954,901       1,212,933       2,167,834          4.3         27.6        72.4
Real estate                                   364,115         648,938       1,013,053          2.0         18.0        82.0
Investment income due and accrued             446,745         471,281         918,026          1.8         57.5        42.5
Other invested assets                         829,757         841,185       1,670,942          3.3         50.9        49.1
- ---------------------------------------------------------------------------------------------------------------------------
Total                                     $23,873,059     $26,690,071     $50,563,130        100.0%        51.7%       48.3%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

 
(a)Includes $163,956 of bonds trading securities, at market value.
(b)Includes $412,503 of preferred stock, at amortized cost.
(c)Includes $61,937 of preferred stock, at market value.
 
     With respect to fixed maturities, AIG's strategy is to invest in high
quality securities while maintaining diversification to avoid significant
exposure to issuer, industry and/or country concentrations. The growth in the
percentage distribution of fixed maturities available for sale, at market value
is primarily attributable to the decline in domestic interest rates.
 
     At June 30, 1995, approximately 56 percent of the fixed maturity
investments were domestic securities. Approximately 40 percent of such domestic
securities were rated AAA, less than two percent
 
                                       18

<PAGE>   20
 
were below investment grade and less than two percent were not rated.
 
     A significant portion of the foreign insurance fixed income portfolio is
rated by Moody's, Standard & Poor's (S&P) or similar foreign services. However,
similar credit quality rating services are not available in all overseas
locations. Thus, AIG annually reviews the credit quality of the nonrated fixed
income investments, including mortgages, in its foreign portfolio. AIG applies a
scale similar to that of Moody's and S&P to the rating of these securities.
Coupling the ratings of this internal review with those of the independent
agencies indicates that approximately 42 percent of the foreign fixed income
investments were rated AAA, less than one percent were deemed below investment
grade and approximately 4 percent were not rated at December 31, 1994. These
percent distributions have not significantly changed at June 30, 1995.
 
     Although AIG's fixed income insurance portfolios contain only minor amounts
of securities below investment grade, potentially any fixed income security is
subject to downgrade for a variety of reasons subsequent to any balance sheet
date. There have been no significant downgrades as at August 1, 1995.
 
     At June 30, 1995, approximately 5 percent of the fixed maturities portfolio
were Collateralized Mortgage Obligations (CMOs). All of the CMOs were investment
grade and approximately 83 percent of the CMOs were backed by various U.S.
government agencies. Thus, credit risk was minimal. CMOs are exposed to interest
rate risk as the duration and ultimate realized yield would be affected by the
accelerated prepayments of the underlying mortgages. There were no interest only
or principal only CMOs.
 
     When permitted by regulatory authorities and when deemed necessary to
protect insurance assets, including invested assets, from currency risk and
interest rate risk, AIG and its insurance subsidiaries enter into derivative
transactions as end users. To date, such activities have been minor. (See also
the discussion under "Derivatives" herein.)
 
     Short-term investments represent amounts invested in various internal and
external money market funds, time deposits and cash.
 
     Mortgage loans on real estate, policy, collateral and guaranteed loans
comprised 10.7 percent of AIG's insurance invested assets at June 30, 1995.
AIG's insurance holdings of real estate mortgages amounted to $1.99 billion of
which 30.8 percent was domestic. At June 30, 1995, no domestic mortgages and
only a nominal amount of foreign mortgages were in default. At June 30, 1995,
AIG's insurance holdings of collateral loans amounted to $834.6 million, all of
which were foreign. It is AIG's practice to maintain a maximum loan to value
ratio of 75 percent at loan origination. AIG's policy loans increased from $2.23
billion at December 31, 1994 to $3.39 billion at June 30, 1995, with
approximately one billion dollars of this increase relating to the domestic
corporate-owned life insurance product.
 
     AIG's real estate investment properties are primarily occupied by AIG's
various operations. The current market value of these properties considerably
exceeds their carrying value.
 
     In certain jurisdictions, significant regulatory and/or foreign
governmental barriers exist which may not permit the immediate free flow of
funds between insurance subsidiaries or from the insurance subsidiaries to AIG
parent. These barriers generally cause only minor delays in the outward
remittance of the funds.
 
     The following table is a summary of the composition of AIG's financial
services invested assets at June 30, 1995 and December 31, 1994. (See also the
discussions under "Operational Review," "Capital Resources" and "Derivatives"
herein.)
 
                                       19

<PAGE>   21
 
(dollars in thousands)


<TABLE>
- -----------------------------------------------------------------------------------------------------------------------

<CAPTION>
                                                                  JUNE 30, 1995                  December 31, 1994
                                                             -----------------------          -------------------------
                                                             INVESTED         PERCENT         Invested         Percent
                                                              ASSETS          OF TOTAL          Asset          of Total
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>               <C>            <C>               <C>
Flight equipment primarily under operating leases, net of
  accumulated depreciation                                  $12,699,360          37.4%       $10,723,527          38.4%
Unrealized gain on interest rate and currency swaps,
  options and forward transactions                            7,115,557          21.0          4,650,743          16.7
Securities available for sale, at market value                4,087,537          12.0          3,796,792          13.6
Trading securities, at market value                           3,322,257           9.8          2,483,637           8.9
Securities purchased under agreements to resell, at
  contract value                                              1,232,616           3.6          1,209,403           4.3
Trade receivables                                             2,851,780           8.4          2,629,734           9.4
Spot commodities, at market value                             1,191,821           3.5            916,833           3.3
Other, including short-term investments                       1,444,821           4.3          1,509,593           5.4
- -----------------------------------------------------------------------------------------------------------------------
Total                                                       $33,945,749         100.0%       $27,920,262         100.0%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

 
     As previously discussed, the cash used for the purchase of flight equipment
is derived primarily from the proceeds of ILFC's debt financing. The primary
sources for the repayment of this debt and the interest expense thereon are the
lease receipts received and proceeds from the sale of flight equipment. During
the first six months of 1995, ILFC obtained net financing of approximately $1.79
billion and proceeds of $100 million from the sale of MAPS for the acquisition
of flight equipment costing $2.40 billion. Additional funds were provided by
operating cash flow and the sale of flight equipment.
 
     AIGFP's derivative transactions are carried at market value or at estimated
fair value when market prices are not readily available. These values represent
assessments of the present value of expected future cash flows. The recorded
values of these transactions may be less than the values that might be realized,
if AIGFP were to sell or close out the transactions prior to maturity. AIGFP
reduces its economic risk exposure through similarly valued offsetting
transactions including swaps, trading securities, forwards and futures. AIG
believes that the impact of such limited liquidity would not be significant to
AIG's financial condition or its overall liquidity. The significant increase in
unrealized gain on interest rate and currency swaps, options and forward
transactions resulted from the decline in the U.S. dollar relative to most major
foreign currencies during the first six months of 1995. (See also the discussion
under "Derivatives" herein.)
 
     Securities available for sale, at market value and securities purchased
under agreements to resell are purchased with the proceeds of AIGFP's GIA
financings and other long and short term borrowings. The decline in GIA
borrowings since December 31, 1994, has been offset by the increase in certain
other financial services liabilities such as securities sold under agreements to
repurchase. (See also the discussion under "Capital Resources" herein.)
 
     Securities available for sale is mainly a portfolio of debt securities,
where the individual securities have varying degrees of credit risk. At June 30,
1995, the average credit rating to this portfolio was AA as determined through
rating agencies or internal review. There were no securities deemed below
investment grade. There have been no significant downgrades through August 1,
1995. Securities purchased under agreements to resell are treated as
collateralized transactions. AIGFP generally takes possession of securities
purchased under agreements to resell. AIGFP further minimizes its credit risk by
monitoring counterparty credit exposure and, when AIGFP deems necessary, it
requires additional collateral to be deposited. Trading securities, at market
value are marked to market daily and are held to meet the short-term risk
management objectives of AIGFP.
 
     AIGTG acts as principal in certain foreign exchange, interest rate,
precious and base metals, petroleum and natural gas trading activities. AIGTG
owns inventories in the commodities in which it trades and may reduce the
exposure to market risk through the use of forwards, futures and option
contracts. AIGTG uses derivatives to manage the economic exposure of its various
trading positions and transactions from adverse movement in interest rates,
exchange rates and commodity prices. AIGTG supports its trading activities
largely through trade payables, short-term borrowings and
 
                                       20

<PAGE>   22
 
spot commodities sold but not yet purchased. (See also the discussions under
"Capital Resources" and "Derivatives" herein.)
 
DERIVATIVES
 
Derivatives are financial arrangements among two or more parties whose returns
are linked to or "derived" from some underlying stock, bond, commodity or other
asset, or some index. Derivatives payments may be based on interest rates and
exchange rates and/or prices of certain securities, certain commodities, or
financial or commodity indices. The types of derivative arrangements in which
AIG transacts are swaps, forwards, futures, options and related instruments.
 
     The most commonly used swaps are interest rate and currency swaps. An
interest rate swap is a contract between two parties to exchange interest rate
payments (typically a fixed interest rate versus a variable interest rate)
calculated on a notional principal amount for a specified period of time. The
notional amount is not exchanged. A currency swap is similar but the notional
amounts are different currencies which are typically exchanged at the
commencement and termination of the swap based upon negotiated exchange rates.
 
     A futures or forward contract is a legal contract between two parties to
purchase or sell at a specified future date a specified quantity of a commodity,
security, currency, financial index or other instrument, at a specified price. A
futures contract is traded on an exchange, while a forward contract is executed
over the counter.
 
     An option contract generally provides the option purchaser with the right
but not the obligation to buy or sell during a period of time or at a specified
date the underlying instrument at a set price. The option writer is obligated to
sell or buy the underlying item if the option purchaser chooses to exercise his
right. The option writer receives a nonrefundable fee or premium paid by the
option purchaser.
 
     Derivatives are generally either negotiated over the counter contracts or
standardized contracts executed on an exchange. Standardized exchange traded
derivatives include futures and options which can be readily bought or sold over
recognized security exchanges and settled through such clearing houses.
Negotiated over the counter derivatives include forwards, swaps and options.
Over the counter derivatives are generally not traded like exchange traded
securities. However, in the normal course of business, with the agreement of the
original counterparty, these contracts may be terminated or assigned to another
counterparty.
 
     Through AIGFP and AIGTG, AIG participates in the derivatives dealer market
acting primarily as principal. In these derivative operations AIG structures
transactions which generally permit its counterparties to enter into
transactions with respect to interest and exchange rate changes, to prices of
securities and to certain commodities and financial or commodity indices. All
significant derivatives activities are conducted through AIGFP and AIGTG.
 
     Generally, derivatives are used by AIG's customers such as corporations,
financial institutions, multinational organizations, sovereign entities,
government agencies and municipalities. For example, a futures, forward or
option contract can be used to protect the customers' assets or liabilities
against price fluctuations.
 
     The senior management of AIG, with review by the Board of Directors,
defines the policies and establishes general operating parameters for AIGFP and
AIGTG. AIG's senior management has established various oversight committees to
review the various financial market, operational and credit issues of AIGFP and
AIGTG. The senior managements of AIGFP and AIGTG report the results of their
respective operations to and review future strategies with AIG's senior
management.
 
     AIG actively manages the exposures to limit the potential to loss, while
maximizing the rewards afforded by these business opportunities. In doing so,
AIG must manage a variety of exposures to risk including credit risk, market
risk, liquidity risk and legal risk.
 
     Market risk principally arises from the uncertainty that future earnings
are exposed to potential changes in volatility, interest rates, foreign exchange
rates, and equity and commodity prices. AIG generally controls its exposure to
market risk by taking offsetting positions. AIG's philosophy with respect to its
financial services operations is to minimize or set limits for open or uncovered
positions that are to be carried. Credit risk exposure is separately managed.
(See the discussion on the management of credit risk below).
 
                                       21

<PAGE>   23
 
     AIGFP does not seek to manage the market risk of each of its individual
transactions through an individual offsetting transaction. Rather, AIGFP takes a
portfolio approach to the management of its market risk exposure. AIGFP values
its portfolio at market value or estimated fair value when market values are not
readily available. These valuations represent an assessment of the present
values of expected future cash flows of AIGFP's transactions and may include
reserves for market risk as deemed appropriate by AIGFP's management. AIGFP
evaluates the portfolio's discounted cash flows with reference to current market
conditions, maturities within the portfolio and other relevant factors. Based
upon this evaluation, AIGFP determines what, if any, offsetting transactions are
necessary to reduce the market risk exposure of the portfolio.
 
     The aforementioned estimated fair values are based upon the use of
valuation models. These models utilize, among other things, current interest,
foreign exchange and volatility rates. These valuation models are integrated
into the evaluation of the portfolio, as described above, in order to provide
timely information for the market risk management of the portfolio.
 
     Additionally, depending upon the nature of interest rates and market
movements during the day, the system will produce reports for management's
consideration for intra-day offsetting positions. Overnight, the system
generates reports which recommend the types of offsets management should
consider for the following day. Additionally, AIGFP operates in major business
centers overseas and is essentially open for business 24 hours a day. Thus, the
market exposure and offset strategies are monitored, reviewed and coordinated
around the clock. Therefore, offsetting adjustments can be made as and when
necessary from any AIGFP office in the world.
 
     As part of its monitoring and controlling of its exposure to market risk,
AIGFP applies various testing techniques which reflect potential market
movements. These techniques vary by currency and are regularly changed to
reflect factors affecting the derivatives portfolio. In addition to the daily
monitoring, AIGFP's senior management and local risk managers conduct a weekly
review of the derivatives portfolio and existing hedges. This review includes an
examination of the portfolio's risk measures, such as aggregate option
sensitivity to movements in market variables. AIGFP's management may change
these measures to reflect their judgment and evaluation of the dynamics of the
markets. This management group will also determine whether additional or
alternative action is required in order to manage the portfolio. AIG utilizes an
outside consultant to provide the managements of AIG and AIGFP with comfort that
the system produces representative values.
 
     AIGTG's approach to managing market risk is to establish an appropriate
offsetting position to a particular transaction or group of transactions
depending upon the extent of market risk AIGTG wishes to reduce.
 
     AIGTG senior management has established positions and stop-loss limits for
each line of business. AIGTG's traders are required to maintain positions within
these limits. These positions are monitored during the day either manually or
through on-line computer systems. In addition, these positions are reviewed by
AIGTG management. Reports which present each trading book's position and the
prior day's profit and loss are reviewed by traders, head traders and AIGTG's
senior management. Based upon these and other reports, AIGTG's senior management
may determine to adjust AIGTG's risk profile.
 
     AIGTG attempts to secure reliable current market prices, such as published
prices or third party quotes, to value its derivatives. Where such prices are
not available, AIGTG uses an internal methodology which includes interpolation
or extrapolation from verifiable prices nearest to the dates of the
transactions. The methodology may reflect interest and exchange rates,
volatility rates and other relevant factors.
 
     A significant portion of AIGTG's business is transacted in liquid markets.
Certain of AIGTG's derivative product exposures are evaluated using simulation
techniques which consider such factors as changes in currency and commodity
prices, interest rates, volatility levels and the effect of time. Though not
indicative of the future, past volatile market scenarios have represented profit
opportunities for AIGTG.
 
                                       22

<PAGE>   24
 
     The gross unrealized gains and gross unrealized losses of AIGFP and AIGTG
included in the financial services assets and liabilities at June 30, 1995 were
as follows:
 

<TABLE>
<CAPTION>

(in thousands)
- ----------------------------------------------------------- 
                         GROSS        GROSS       BALANCE
                       UNREALIZED   UNREALIZED     SHEET
                         GAINS        LOSSES       AMOUNT
<S>                    <C>          <C>          <C>
- -----------------------------------------------------------
Securities
  available for
  sale, at market
  value                $  205,100   $  208,900   $4,087,537
Unrealized
  gain/loss on
  interest rate and
  currency swaps,
  options and
  forward
  transactions          7,115,557    6,298,787           --
Trading securities,
  at market value              --           --    3,322,257
Securities sold but
  not yet
  purchased,
  principally
  obligations of
  the U.S.
  government and
  government
  agencies, at
  market value                 --           --      730,755
Trade
  receivables(a)        5,173,907    2,721,231    2,851,780
Spot commodities,
  at market
  value(b)                171,868      138,165    1,191,821
Trade payables                 --    2,115,341    2,845,739
Spot commodities
  sold but not yet
  purchased, at
  market value            125,236       28,526      541,831
- -----------------------------------------------------------
</TABLE>

 
(a)The net replacement value with respect to futures and forward contracts of
   AIGTG at June 30, 1995 was $2.51 billion.
 
(b)The net replacement value with respect to purchased option contracts of AIGTG
   at June 30, 1995 was $391.8 million.
 
     The interest rate risk on securities available for sale, at market, is
managed by taking offsetting positions on a security by security basis, thereby
offsetting a significant portion of the unrealized appreciation or depreciation.
At June 30, 1995, the unrealized gains and losses remaining after benefit of the
offsets were $7.4 million and $11.2 million, respectively.
 
     AIGFP carries its derivatives at market or estimated fair value, whichever
is appropriate. Because of limited liquidity of these instruments, the recorded
estimated fair values of these derivatives may be different than the values that
might be realized if AIGFP were to sell or close out the transactions prior to
maturity. (See also the discussions under "Operational Review: Financial
Services" and "Liquidity" herein.)
 
     Trading securities, at market value, and securities sold but not yet
purchased are marked to market daily with the unrealized gain or loss being
recognized in income at that time. These securities are held to meet the
short-term risk management objectives of AIGFP.
 
     AIGTG acts as principal in certain foreign exchange, interest rate,
precious and base metals, petroleum and natural gas trading activities. AIGTG
owns inventories in the commodities in which it trades. These inventories are
carried at market and may be substantially hedged. AIGTG uses derivatives to
manage the economic exposure of its various trading positions and transactions
from adverse movements in interest rates, exchange rates and commodity prices.
(See also the discussions under "Operational Review: Financial Services" and
"Liquidity" herein.)
 
     A counterparty may default on any obligation to AIG, including a derivative
contract. Credit risk is a consequence of extending credit and/or carrying
trading and investment positions. Credit risk exists for a derivative contract
when that contract has an estimated positive fair value. To help manage this
risk, the credit departments of AIGFP and AIGTG operate within the guidelines of
the AIG Credit Risk Committee, which sets credit policy and limits for
counterparties and provides limits for derivative transactions with
counterparties having different credit ratings. In addition to credit ratings,
this committee takes into account the industry and country of the counterparty.
Transactions which fall outside these pre-established guidelines require the
approval of the AIG Credit Risk Committee. It is also AIG's policy to establish
reserves for potential credit impairment when necessary.
 
     AIGFP and AIGTG determine the credit quality of each of their
counterparties taking into account credit ratings assigned by recognized
statistical rating organizations. If it is determined that a counterparty
requires credit enhancement, then one or more enhancement techniques will be
used. Examples of such enhancement techniques include letters of credit,
guarantees, collateral and margin agreements.
 
     The significant majority of AIGFP's transactions are contracted and
documented under master netting agreements that provide for set-off and close
out netting in the event of default. Excluding regu-
 
                                      23

<PAGE>   25
 
lated exchange transactions, AIGTG, whenever possible, enters into netting
agreements with its counterparties which are similar in effect to those
discussed above.
 
     The following tables provide the notional and contractual amounts of
AIGFP's derivatives portfolio at June 30, 1995. The notional amounts used to
express the extent of AIGFP's involvement in derivatives transactions represent
a standard of measurement of the volume of AIGFP's swaps business. Notional
amount is not a quantification of market risk or credit risk and it may not
necessarily be recorded on the balance sheet. Notional amounts represent those
amounts used to calculate contractual cash flows to be exchanged and are not
paid or received, except for certain contracts such as currency swaps. The
timing and the amount of cash flows relating to foreign exchange forwards and
exchange traded futures and options contracts are determined by the contractual
agreements.
 
     AIGFP extensively uses legally enforceable master closeout netting
agreements. Thus, contracts subject to such arrangements permit AIGFP to offset
its receivables from and payables to the same counterparty. As a result, the net
replacement value represents the net sum of estimated positive fair values after
the application of such agreements and collateral held. The net replacement
value most closely represents the net credit risk to AIGFP or the maximum amount
exposed to potential loss.
 
     The following table presents AIGFP's derivatives portfolio by maturity and
type of derivative at June 30, 1995 and December 31, 1994:
 

<TABLE>
<CAPTION>

(in thousands)
- ----------------------------------------------------------------------------------------------------------------------------- 
                                                             REMAINING LIFE
                                             ----------------------------------------------
                                                         AFTER ONE    AFTER FIVE
                                            WITHIN       YEAR BUT      YEARS BUT       AFTER
                                              ONE         WITHIN        WITHIN          TEN          TOTAL          Total
                                             YEAR       FIVE YEARS     TEN YEARS       YEARS          1995           1994
<S>                                       <C>           <C>           <C>           <C>           <C>            <C>
- -----------------------------------------------------------------------------------------------------------------------------
Interest rate, currency and
  equity/commodity swaps and swaptions:
Notional amount:
  Interest rate swaps                     $11,548,000   $62,764,000   $34,447,000   $ 9,621,000   $118,380,000   $105,581,000
  Currency swaps                            2,198,000    13,319,000     6,619,000     1,863,000     23,999,000     18,260,300
  Equity/commodity swaps                    1,689,000       529,000       702,000     1,611,000      4,531,000        817,000
  Swaptions                                 1,122,000     5,917,000     4,148,000     1,790,000     12,977,000      9,060,000
- -----------------------------------------------------------------------------------------------------------------------------
Total                                     $16,557,000   $82,529,000   $45,916,000   $14,885,000   $159,887,000   $133,718,300
- -----------------------------------------------------------------------------------------------------------------------------
Futures, options and forward contracts:
Exchange traded futures and options
  contracts contractual amount*           $22,120,277            --            --            --   $ 22,120,277   $ 13,182,900
- -----------------------------------------------------------------------------------------------------------------------------
Over the counter forward contracts
  contractual amount                      $ 2,759,000   $    78,000            --            --   $  2,837,000   $  2,048,700
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

 
*Exchange traded futures and options are not deemed to have significant credit
 exposure as the exchanges guarantee that every contract will be properly
 settled.
 
                                       24

<PAGE>   26
 
     At June 30, 1995, the
counterparty credit quality by
derivative product with respect to
the net replacement value of AIGFP's
derivatives portfolio was as
follows:
 
(in thousands)


<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
 
<CAPTION>
                                                                   NET REPLACEMENT VALUE
                                                              --------------------------------
                                                                             FUTURES, OPTIONS
                                                             SWAPS AND              AND
                                                             SWAPTIONS       FORWARD CONTRACTS                TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>                             <C>
Counterparty credit quality:
  AAA                                                        $1,645,526                $ 43,870             $1,689,396
  AA                                                         2,240,975                   45,811              2,286,786
  A                                                          1,652,720                      712              1,653,432
  BBB                                                        1,421,841                       --              1,421,841
  Below investment grade                                        30,754                       --                 30,754
  Not externally rated -- exchanges                                 --                   33,348                 33,348
- ----------------------------------------------------------------------------------------------------------------------
Total                                                        $6,991,816                $123,741             $7,115,557
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

 
     At June 30, 1995, the counterparty breakdown by industry with respect to
the net replacement value of AIGFP's derivatives portfolio was as follows:
 
(in thousands)

<TABLE>
- ----------------------------------------------------------------------------------------------------------------------
 
<CAPTION>
                                                                   NET REPLACEMENT VALUE
                                                              --------------------------------
                                                                             FUTURES, OPTIONS
                                                             SWAPS AND              AND
                                                             SWAPTIONS       FORWARD CONTRACTS                 TOTAL
- ----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>            <C>                             <C>
Non-U.S. banks                                               $3,091,811                $ 16,472             $3,108,283
Insured municipalities                                         637,381                       --                637,381
U.S. industrials                                               601,800                       --                601,800
Governmental                                                   836,160                       --                836,160
Non-U.S. financial service companies                            92,939                       --                 92,939
Non-U.S. industrials                                           655,466                      133                655,599
Special purpose                                                 67,589                       --                 67,589
U.S. banks                                                     229,532                   33,097                262,629
U.S. financial service companies                               520,108                   40,691                560,799
Supranationals                                                 259,030                       --                259,030
Exchanges                                                           --                   33,348                 33,348
- ----------------------------------------------------------------------------------------------------------------------
Total                                                        $6,991,816                $123,741             $7,115,557
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

 
     The following tables provide the notional and contractual amounts of
AIGTG's derivatives portfolio at June 30, 1995. In addition, the estimated
positive fair values associated with the derivatives portfolio are also provided
and include a maturity profile for the June 30, 1995 balances based upon the
expected timing of the future cash flows.
 
     The notional amounts used to express the extent of AIGTG's involvement in
derivatives transactions represent a standard of measurement of the volume of
AIGTG's swaps business. Notional amount is not a quantification of the market or
credit risks of the positions and is not necessarily recorded on the balance
sheet. Notional amounts represent those amounts used to calculate contractual
cash flows to be exchanged and are not paid or received, except for certain
contracts such as currency swaps. The timing and the amount of cash flows
relating to foreign exchange forwards and exchange traded futures and options
contracts are determined by the contractual agreements.
 
     The gross replacement values presented represent the sum of the estimated
fair values of all of AIGTG's derivatives contracts at June 30, 1995. These
values do not represent the credit risk to AIGTG.
 
     Net replacement values presented represent the net sum of estimated
positive fair values after the application of legally enforceable master
closeout netting agreements and collateral held. The net replacement value most
closely represents the net credit risk to AIGTG or the maximum amount exposed to
potential loss.
 
                                       25

<PAGE>   27
 
     The following tables present
AIGTG's derivatives portfolio and
associated credit exposure, if
applicable, by maturity and type of
derivative at June 30, 1995 and
December 31, 1994:


<TABLE>
<CAPTION>

(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------
                                                               REMAINING LIFE
                                                -------------------------------------------
                                                             AFTER ONE    AFTER FIVE
                                                WITHIN       YEAR BUT     YEARS BUT     AFTER
                                                 ONE          WITHIN        WITHIN       TEN         TOTAL          Total
                                                 YEAR       FIVE YEARS    TEN YEARS     YEARS         1995           1994
<S>                                          <C>            <C>           <C>          <C>        <C>            <C>
- -----------------------------------------------------------------------------------------------------------------------------
Futures and forward contracts and interest
  swaps:
  Exchange traded futures contracts
    contractual amount(a)                    $ 30,836,839   $ 3,697,885   $   90,063   $     --   $ 34,624,787   $ 21,504,155
- -----------------------------------------------------------------------------------------------------------------------------
  Over the counter forward contracts
    contractual amount(b)                    $222,765,049   $13,550,864   $2,205,869   $509,400   $239,031,182   $191,178,023
- -----------------------------------------------------------------------------------------------------------------------------
Futures and forward contracts and interest
  swaps:
  Credit exposure:
    Gross replacement value                  $  4,440,968   $   614,565   $   99,676   $ 18,698   $  5,173,907   $  3,531,000
    Master netting arrangements                (2,149,060)     (357,370)     (69,685)   (10,190)    (2,586,305)    (1,577,407)
    Collateral                                    (77,445)           --           --         --        (77,445)       (82,747)
- -----------------------------------------------------------------------------------------------------------------------------
Net replacement value(c)                     $  2,214,463   $   257,195   $   29,991   $  8,508   $  2,510,157   $  1,870,846
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

 
(a)Exchange traded futures are not deemed to have significant credit exposure as
   the exchanges guarantee that every contract will be properly settled.
 
(b)Includes interest rate swaps with notional amounts of approximately $4.27
   billion and $549.0 million at June 30, 1995 and December 31, 1994,
   respectively.
 
(c)The net replacement values with respect to futures and forward contracts are
   presented as a component of trade receivables in the accompanying balance
   sheet.
 

<TABLE>
<CAPTION>

(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------
                                                               REMAINING LIFE
                                                -------------------------------------------
                                                             AFTER ONE    AFTER FIVE
                                                WITHIN       YEAR BUT     YEARS BUT     AFTER
                                                 ONE          WITHIN        WITHIN       TEN         TOTAL          Total
                                                 YEAR       FIVE YEARS    TEN YEARS     YEARS         1995           1994
<S>                                          <C>            <C>           <C>          <C>        <C>            <C>
- -----------------------------------------------------------------------------------------------------------------------------
Option contracts:
Contractual amounts for purchased options:
  Exchange traded(a)                         $  1,779,911   $   174,529           --         --   $  1,954,440   $  1,410,501
  Over the counter                             20,553,404     2,491,913           --         --     23,045,317     13,826,578
- -----------------------------------------------------------------------------------------------------------------------------
Total                                        $ 22,333,315   $ 2,666,442           --         --   $ 24,999,757   $ 15,237,079
- -----------------------------------------------------------------------------------------------------------------------------
Credit exposure for purchased options:
  Gross replacement value                    $    475,207   $   122,874   $    3,050         --   $    601,131   $    369,499
  Master netting arrangements                    (152,376)      (56,559)          --         --       (208,935)       (71,773)
  Collateral                                         (425)           --           --         --           (425)       (22,594)
- -----------------------------------------------------------------------------------------------------------------------------
Net replacement value(b)                     $    322,406   $    66,315   $    3,050         --   $    391,771   $    275,132
- -----------------------------------------------------------------------------------------------------------------------------
Contractual amounts for sold options(c)      $ 22,491,913   $ 2,709,999           --         --   $ 25,201,912   $ 14,157,868
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>

 
(a)Exchange traded options are not deemed to have significant credit exposure as
   the exchanges guarantee that every option will be properly settled.
 
(b)The net replacement value with respect to purchased options is presented as a
   component of spot commodities, at market value in the accompanying balance
   sheet.
 
(c)Options obligate AIGTG to buy or sell the underlying item if the option
   purchaser chooses to exercise. The amounts do not represent credit exposures.
 
                                       26

<PAGE>   28
 
     At June 30, 1995, the counterparty credit quality by derivative product
with respect to the net replacement value of AIGTG's derivatives portfolio was
as follows:


<TABLE>
<CAPTION>

(in thousands)
- ------------------------------------------------------------------------------------------------------------------------ 
                                                                  NET REPLACEMENT VALUE
                                                    -------------------------------------------------
                                                  FUTURES AND FORWARD CONTRACTS
                                                     AND INTEREST RATE SWAPS          PURCHASED OPTIONS         TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                                 <C>                     <C>
Counterparty credit quality:
  AAA                                                      $   242,138                    $  52,262           $  294,400
  AA                                                           961,136                      159,558            1,120,694
  A                                                            581,557                       81,442              662,999
  BBB                                                           76,109                        4,626               80,735
  Below investment grade                                        28,654                        5,384               34,038
  Not externally rated, including exchange
    traded futures and options                                 620,563                       88,499              709,062
- ------------------------------------------------------------------------------------------------------------------------
Total                                                      $ 2,510,157                    $ 391,771           $2,901,928
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

 
     At June 30, 1995, the counterparty breakdown by industry with respect to
the net replacement value of AIGTG's derivatives portfolio was as follows:
 

<TABLE>
<CAPTION>

(in thousands)
- ------------------------------------------------------------------------------------------------------------------------ 
                                                                  NET REPLACEMENT VALUE
                                                    -------------------------------------------------
                                                  FUTURES AND FORWARD CONTRACTS
                                                     AND INTEREST RATE SWAPS          PURCHASED OPTIONS         TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                                 <C>                     <C>
Non-U.S. banks                                             $   876,311                    $ 175,477           $1,051,788
U.S. industrials                                               331,879                       12,492              344,371
Governmental                                                   187,768                       23,861              211,629
Non-U.S. financial service companies                            49,200                       16,677               65,877
Non-U.S. industrials                                           164,002                       58,819              222,821
U.S. banks                                                     391,164                       40,083              431,247
U.S. financial service companies                               210,233                       38,197              248,430
Exchanges                                                      299,600                       26,165              325,765
- ------------------------------------------------------------------------------------------------------------------------
Total                                                      $ 2,510,157                    $ 391,771           $2,901,928
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

 
     Generally, AIG manages and operates its businesses in the currencies of the
local operating environment. Thus, exchange gains or losses occur when AIG's
foreign currency net investment is affected by changes in the foreign exchange
rates relative to the U.S. dollar from one reporting period to the next.
 
     As an end-user, AIG and its subsidiaries, including its insurance
subsidiaries, use derivatives to aid in managing AIG's foreign exchange
translation exposure. Derivatives may also be used to minimize certain exposures
with respect to AIG's debt financing and insurance investment operations; to
date, such activities have been minor.
 
     AIG, through its Foreign Exchange Operating Committee, evaluates its
worldwide consolidated net asset or liability positions and manages AIG's
translation exposure to adverse movement in currency exchange rates. AIG may use
forward exchange contracts and purchased options where the cost of such is
reasonable and markets are liquid to reduce these exchange translation
exposures. The exchange gain or loss with respect to these hedging instruments
is recorded on an accrual basis as a component of the cumulative translation
adjustment account in capital funds. AIG's largest currency net investments have
had historically stable exchange rates with respect to the U.S. dollar.
 
     Management of AIG's liquidity profile is designed to ensure that even under
adverse conditions AIG is able to raise funds at the most economical cost to
fund maturing liabilities and capital and liquidity requirements of its
subsidiaries. Sources of funds considered in meeting these objectives include
guaranteed investment agreements, issuance of long and short-term debt,
maturities and sales of securities available for sale, securities sold under
repurchase agreements, trade payables, securities and spot commodities sold, not
yet purchased, issu-
 
                                       27

<PAGE>   29
 
ance of equity, and cash provided from operations. AIG's strong capital 
position is integral to managing liquidity, as it enables AIG to raise funds in
diverse markets worldwide. (See also the discussions under "Capital Resources" 
and "Liquidity" herein.)
 
     Legal risk arises from the uncertainty of the enforceability, through legal
or judicial processes, of the obligations of AIG's clients and counterparties,
including contractual provisions intended to reduce credit exposure by providing
for the netting of mutual obligations. (See also the discussion on master
netting agreements above.) AIG seeks to eliminate or minimize such uncertainty
through continuous consultation with internal and external legal advisors, both
domestically and abroad, in order to understand the nature of legal risk, to
improve documentation and to strengthen transaction structure.
 
     Over the counter derivatives are not transacted in an exchange traded
environment. The futures exchanges maintain considerable financial requirements
and surveillance to ensure the integrity of exchange traded futures and options.
 
     Over the counter derivatives dealers have drafted a code of conduct to
provide standards for their industry. The alternative to self-regulation is
federal regulation. AIG supports self-regulation and expects to adhere to
promulgated standards.
 
RECENT DEVELOPMENTS
 
In May 1995, the Board of Directors of AIG declared a common stock split in the
form of a 50 percent common stock dividend which was paid July 28, 1995 to
shareholders of record on June 30, 1995. A quarterly dividend of 8.5 cents per
share was declared on the common stock, payable September 22, 1995 to
shareholders of record on September 8, 1995.
 
     For the six month periods ended June 30, 1995 and 1994, the earnings per
common share on net income prior to the common stock split in the form of a 50
percent common stock dividend were $3.82 and $3.33, respectively. Earnings per
common share on net income after providing for the effect of the common stock
split in the form of a 50 percent common stock dividend were $2.54 and $2.22,
respectively.
 
     In 1989, the National Association of Insurance Commissioners (NAIC) adopted
the "NAIC Solvency Policing Agenda for 1990". Included in this agenda was the
development of Risk-Based Capital (RBC) requirements. RBC relates an individual
insurance company's statutory surplus to the risk inherent in its overall
operations. AIG believes that the development of RBC standards is a positive
step for the insurance industry but further believes the standards in their
present form may lead to an inefficient deployment of industry capital. As
experience is gained with the application of RBC standards, it is likely that
adjustments to the formula will be made.
 
     At December 31, 1994, the adjusted capital of each of AIG's four domestic
life companies exceeded each of their RBC standards by considerable margins.
There has been no significant change during the first six months of 1995.
 
     RBC standards for property and casualty insurers were finalized in
principle in December 1993 and were effective with the 1994 statutory financial
statements. At December 31, 1994, the adjusted capital of each of AIG's domestic
general companies exceeded each of their RBC standards by considerable margins.
Additionally, no AIG company is on any regulatory or similar "watch list". There
has been no significant change during the first six months of 1995.
 
ACCOUNTING STANDARDS
 
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of" (FASB 121). This
statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable and an impairment
loss must be recognized.
 
     FASB 121 is effective for AIG commencing January 1, 1996. AIG does not
anticipate adopting FASB 121 before that date. AIG believes that the adoption of
this statement will have an immaterial impact on the results of operations,
financial condition and liquidity.
 
                                       28

<PAGE>   30
 
P
ART II -- OTHER INFORMATION
 
ITEM #4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     At the Annual Meeting of Shareholders held on May 24, 1995, the
shareholders:
 
(a) elected sixteen directors as follows:
 

<TABLE>
<CAPTION>
                              NOMINEE                               SHARES FOR   SHARES WITHHELD
    ------------------------------------------------------------    ----------   ---------------
    <S>                                                             <C>          <C>
    M. Bernard Aidinoff.........................................    281,731,089     3,208,433
    Lloyd M. Bentsen............................................    283,853,293     1,086,229
    Marshall A. Cohen...........................................    284,025,162       914,360
    Barber B. Conable, Jr.......................................    284,014,711       924,811
    Martin Feldstein............................................    284,031,225       908,297
    Houghton Freeman............................................    283,625,429     1,314,093
    Leslie L. Gonda.............................................    284,005,609       933,913
    Maurice R. Greenberg........................................    283,602,546     1,336,976
    Carla A. Hills..............................................    281,753,470     3,186,052
    Frank J. Hoenemeyer.........................................    284,013,384       926,138
    John J. Howell..............................................    284,005,863       933,659
    Edward E. Matthews..........................................    284,016,473       923,049
    Dean P. Phypers.............................................    284,045,568       893,954
    John J. Roberts.............................................    283,591,163     1,348,359
    Ernest E. Stempel...........................................    283,585,078     1,354,444
    Thomas R. Tizzio............................................    283,620,633     1,318,889
</TABLE>

 
(b) approved, by a vote of 268,573,834 shares to 15,034,426 shares, with
     1,331,262 abstentions, a proposal to amend the Restated Certificate of
     Incorporation to increase the authorized number of shares of Common Stock
     from 500,000,000 shares to 1,000,000,000 shares;
 
(c) approved, by a vote of 284,234,340 shares to 260,772 shares with 444,410
     abstentions, a proposal to select Coopers & Lybrand L.L.P. as independent
     accountants for 1995;
 
(d) rejected, by a vote of 43,224,942 shares for and 221,519,449 shares against,
     with 6,105,035 shares abstaining and 14,090,096 shares not voting, a
     shareholder proposal requesting AIG to change the composition of the
     Nominating Committee; and
 
(e) rejected, by a vote of 14,602,410 shares for and 245,331,905 shares against,
     with 10,915,111 shares abstaining and 14,090,096 shares not voting, a
     shareholder proposal requesting AIG to initiate a study relating to
     investment in tobacco companies.
 
                                       29

<PAGE>   31
 
PART II -- OTHER INFORMATION
 
ITEM #6 -- EXHIBITS AND REPORTS ON FORM 8-K
 
     (a)  Exhibits
        See accompanying Exhibit Index.
 
     (b)  There have been no reports on Form 8-K filed during the quarter ended
        June 30, 1995.
 

                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
                                            AMERICAN INTERNATIONAL GROUP, INC.
 
                                          --------------------------------------
                                                       (Registrant)
 
                                                 s/s HOWARD I. SMITH
 
                                          --------------------------------------
                                                     Howard I. Smith
                                               Executive Vice President and
                                                       Comptroller
                                                (Chief Accounting Officer)
 
Dated: August 11, 1995
 
                                       30

<PAGE>   32
 

                                 EXHIBIT INDEX
 

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                               DESCRIPTION                                    LOCATION
- -------   -----------------------------------------------------------------    ------------------
<C>       <S>                                                                  <C>
    2     Plan of acquisition, reorganization, arrangement, liquidation or
          succession.......................................................    None
    4     Instruments defining the rights of security holders, including
          indentures.......................................................    Not required to be
                                                                               filed.
   10     Material contracts...............................................    None
   11     Statement re computation of per share earnings...................    Filed herewith.
   12     Statement re computation of ratios...............................    Filed herewith.
   15     Letter re unaudited interim financial information................    None
   18     Letter re change in accounting principles........................    None
   19     Report furnished to security holders.............................    None
   22     Published report regarding matters submitted to vote of security
          holders..........................................................    None
   23     Consents of experts and counsel..................................    None
   24     Power of attorney................................................    None
   27     Financial Data Schedule..........................................    Provided herewith.
   99     Additional exhibits..............................................    None
</TABLE>

 
                                       31





<PAGE>   1
 
                                                                      EXHIBIT 11
 
                       AMERICAN INTERNATIONAL GROUP, INC.
 
                       COMPUTATION OF EARNINGS PER SHARE
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                               SIX MONTHS ENDED JUNE 30,      THREE MONTHS ENDED
                                                                                   JUNE 30,
                                               -------------------------     ---------------------
                                                  1995           1994          1995         1994
                                               ----------     ----------     --------     --------
<S>                                            <C>            <C>            <C>          <C>
Average outstanding shares used in the
  computation of per share earnings:
  Common stock(a)............................     506,086        506,086      506,086      506,086
  Common stock in treasury(a)................     (32,153)       (30,542)     (32,070)     (31,240)
                                               ----------     ----------     --------     --------
                                                  473,933        475,544      474,016      474,846
                                                =========      =========     ========     ========
Net income (applicable to common stock)......  $1,205,941     $1,055,312     $633,785     $549,694
                                                =========      =========     ========     ========
Net income per share.........................  $     2.54     $     2.22     $   1.34     $   1.16
                                                =========      =========     ========     ========
</TABLE>

 
- ---------------
(a) Adjusted for a common stock split in the form of a 50 percent common stock
    dividend paid July 28, 1995.
    The effects of all other common stock equivalents are not significant.
 
                                       32





<PAGE>   1
 
                                                                      EXHIBIT 12
 
                       AMERICAN INTERNATIONAL GROUP, INC.
 
               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                         (IN THOUSANDS, EXCEPT RATIOS)
 

<TABLE>
<CAPTION>
                                            SIX MONTHS ENDED JUNE 30,      THREE MONTHS ENDED JUNE
                                                                                     30,
                                            -------------------------     -------------------------
                                               1995           1994           1995           1994
                                            ----------     ----------     ----------     ----------
<S>                                         <C>            <C>            <C>            <C>
Income before income taxes................  $1,665,089     $1,419,103     $  879,295     $  740,693
Less -- Equity income of less than 50%
  owned persons...........................      41,042         20,730         22,741         12,322
Add -- Dividends from less than 50% owned
  persons.................................       2,940          2,743          1,791          1,772
                                            ----------     ----------     ----------     ----------
                                             1,626,987      1,401,116        858,345        730,143
 
Add --
  Fixed charges...........................     780,720        704,956        411,357        346,265
Less --
  Capitalized interest....................      27,490         22,272         13,578         10,927
                                            ----------     ----------     ----------     ----------
Income before income taxes and fixed
  charges.................................  $2,380,217     $2,083,800     $1,256,124     $1,065,481
                                             =========      =========      =========      =========
Fixed charges:
  Interest costs..........................  $  740,880     $  671,540     $  391,437     $  329,557
  Rent expense *..........................      39,840         33,416         19,920         16,708
                                            ----------     ----------     ----------     ----------
     Total fixed charges..................  $  780,720     $  704,956     $  411,357     $  346,265
                                             =========      =========      =========      =========
Ratio of earnings to fixed charges........        3.05           2.96           3.05           3.08
</TABLE>

 
- ---------------
 
* The proportion deemed representative of the interest factor.
 
     The ratio shown is significantly affected as a result of the inclusion of
the fixed charges and operating results of AIG Financial Products Corp. and its
subsidiaries (AIGFP). AIGFP structures borrowings through guaranteed investment
agreements and engages in other complex financial transactions, including
interest
 rate and currency swaps. In the course of its business, AIGFP enters
into borrowings that are primarily used to purchase assets that yield rates
greater than the rates on the borrowings with the intent of earning a profit on
the spread and to finance the acquisition of securities utilized to hedge
certain transactions. The pro forma ratios of earnings to fixed charges, which
exclude the effects of the operating results of AIGFP, are 4.74 and 5.59 for the
second quarter and 4.66 and 5.61 for the first six months of 1995 and 1994,
respectively. As AIGFP will continue to be a subsidiary, AIG expects that these
ratios will continue to be lower than they would be if the fixed charges and
operating results of AIGFP were not included therein.
 
                                       33



<TABLE> <S> <C>

<ARTICLE> 7
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1995
<PERIOD-END>                               JUN-30-1995
<EXCHANGE-RATE>                                      1
<DEBT-HELD-FOR-SALE>                        25,922,891
<DEBT-CARRYING-VALUE>                       13,925,300
<DEBT-MARKET-VALUE>                         14,509,700
<EQUITIES>                                   5,286,674
<MORTGAGE>                                   2,022,044
<REAL-ESTATE>                                1,274,296
<TOTAL-INVEST>                              89,933,601
<CASH>                                          66,007
<RECOVER-REINSURE>                          16,812,539
<DEFERRED-ACQUISITION>                       5,760,760
<TOTAL-ASSETS>                             130,533,693
<POLICY-LOSSES>                             53,200,076
<UNEARNED-PREMIUMS>                          7,011,422
<POLICY-OTHER>                                       0
<POLICY-HOLDER-FUNDS>                       10,649,547
<NOTES-PAYABLE>                             13,462,469
<COMMON>                                       843,477
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<OTHER-SE>                                  17,284,191
<TOTAL-LIABILITY-AND-EQUITY>               130,533,693
<PREMIUMS>                                   9,439,793
<INVESTMENT-INCOME>                          1,817,377
<INVESTMENT-GAINS>                              35,000
<OTHER-INCOME>                                (36,436)
<BENEFITS>                                   7,635,138
<UNDERWRITING-AMORTIZATION>                    830,369
<UNDERWRITING-OTHER>                         1,372,200
<INCOME-PRETAX>                              1,665,089
<INCOME-TAX>                                   459,148
<INCOME-CONTINUING>                          1,205,941
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                 1,205,941
<EPS-PRIMARY>                                     2.54
<EPS-DILUTED>                                     2.54
<RESERVE-OPEN>                              18,418,900
<PROVISION-CURRENT>                          4,308,500
<PROVISION-PRIOR>                                    0
<PAYMENTS-CURRENT>                             987,200
<PAYMENTS-PRIOR>                             2,543,400
<RESERVE-CLOSE>                             19,196,800
<CUMULATIVE-DEFICIENCY>                              0
        

</TABLE>