<PAGE>
Registration No. 333-53909
As filed with the Securities and Exchange Commission on August 19, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
PRE-EFFECTIVE AMENDMENT NO. 3
TO REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUST REGISTERED ON FORM N-8B-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
(Exact Name of Trust)
AMERICAN GENERAL LIFE INSURANCE COMPANY
(Exact Name of Depositor)
2727-A Allen Parkway
Houston, Texas 77019-2191
(Complete Address of Depositor's Principal Executive Offices)
Pauletta P. Cohn, Esq.
Associate General Counsel
American General Life Companies
2727-A Allen Parkway
Houston, Texas 77019-2191
(Name and Complete Address of Agent for Service)
Please send copies of all communications to:
Diane E. Ambler, Esq.
Mayer, Brown & Platt
2000 Pennsylvania Ave., N.W.
Washington, D.C. 20006
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Securities Being Offered: Flexible Premium Variable Life Insurance Policies.
--------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- -------------------------------------------------------------------------------
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
RECONCILIATION AND TIE BETWEEN ITEMS IN FORM
N-8B-2 AND THE PROSPECTUS
(PURSUANT TO INSTRUCTION 4 OF FORM S-6)
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO. OF FORM N-8B-2* PROSPECTUS CAPTION
- ----------------------- ------------------
<S> <C>
1 Additional Information : Separate Account VL-R
2 Additional Information: AGL.
3 Inapplicable.
4 Additional Information: Distribution of Policies.
5, 6 Additional Information: Separate Account VL-R.
7 Inapplicable.**
8 Inapplicable.**
9 Additional Information: Legal Matters.
10(a) Additional Information: Your Beneficiary, Assigning
Your Policy.
10(b) Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
10(c)(d) Basic Questions You May Have: How can I change
my Policy's insurance coverage? How can I access
my investment in a Policy? Can I choose the form
in which AGL pays out any proceeds from my
Policy? Additional Information: Payment of Policy
Proceeds.
10(e) Basic Questions You May Have: Must I invest any
minimum amount in a policy?
10(f) Additional Information: Voting Privileges.
10(g)(1), 10(g)(4), 10(h)(3), 10(h)(2) Basic Questions You May Have: To what extent will
AGL vary the terms and conditions of the Policies
in particular cases? Additional Information: Voting
Privileges; Additional Rights That We Have.
10(g)(3), 10(g)(4), 10(h)(3), 10(h)(4) Inapplicable.**
10(i) Additional Information: Separate Account VL-R;Tax
Effects.
11 Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
Additional Information: Separate Account VL-R.
12(a) Additional Information: Separate Account VL-R;
Front Cover.
12(b) Inapplicable.
12(c), 12(d) Inapplicable.**
12(e) Inapplicable, because the Separate Account did not
commence operations until 1998.
13(a) Basic Questions You May Have: What charges will
AGL deduct from my investment in a Policy? What
charges and expenses will the Mutual Funds deduct
from the amounts I invest through my Policy?
Additional Information: More About Policy
Charges.
13(b) Illustrations of Hypothetical Policy Benefits.
13(c) Inapplicable.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
13(d) Basic Questions You May Have: To what extent will
AGL vary the terms and conditions of the Policy in
particular cases?
13(e), 13(f), 13(g) None.
14 Basic Questions You May Have: How can I invest
money in a Policy?
15 Basic Questions You May Have: How can I invest
money in a Policy? How do I communicate with
AGL?
16 Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
ITEM NO. ADDITIONAL INFORMATION
- -------- ----------------------
17(a), 17(b) Captions referenced under Items 10(c), 10(d), and 10(e).
17(c) Inapplicable.
18(a) Captions referred to under Item 16.
18(b), 18(d) Inapplicable.
18(c) Additional Information: Separate Account VL-R.
19 Additional Information: Separate Account VL-R;
Our Reports to Policy Owners.
20(a), 20(b), 20(c), 20(d), 20(e), 20(f) Inapplicable.
21(a), 21(b) Basic Questions You May Have: How can I access
my investment in a Policy? Additional Information:
Payment of Policy Proceeds.
21(c) Inapplicable.**
22 Additional Information: Payment of Policy Proceeds-
Delay to Challenge Coverage.
23 Inapplicable.**
24 Basic Questions You May Have; Additional
Information.
25 Additional Information: AGL.
26 Inapplicable, because the Separate Account did not
commence operations until 1998.
27 Additional Information: AGL.
28 Additional Information: AGL's Management.
29 Additional Information: AGL.
30, 31, 32, 33, 34 Inapplicable, because the Separate Account did not
commence operations until 1998.
35 Inapplicable.**
36 Inapplicable.**
37 None.
38, 39 Additional Information: Distribution of the Policies.
40 Inapplicable, because the Separate Account did not
commence operations until 1998.
41(a) Additional Information: Distribution of the Policies.
41(b), 41(c) Inapplicable.**
42, 43 Inapplicable, because the Separate Account did not
commence operations or issue any securities until
1998.
44(a)(1), 44(a)(2), 44(a)(3) Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
44(a)(4) Additional Information: Tax Effects--Our taxes.
44(a)(5), 44(a)(6) Basic Questions You May Have: What charges will
AGL deduct from my investment in a Policy?
44(b) Inapplicable.**
44(c) Caption referenced in 13(d) above.
</TABLE>
<PAGE>
45 Inapplicable, because the Separate Account did not
commence operations until 1998.
46(a) Captions referenced in 44(a) above.
46(b) Inapplicable.**
47, 48, 49 None.
50 Inapplicable.
51 Inapplicable.
52(a), 52(c) Basic Questions You May Have: To what extent can
AGL vary the terms and conditions of the Policy
in particular cases? Additional Information:
Additional Rights That We Have.
52(b), 52(d) None.
53(a) Additional Information: Tax Effects--Our taxes.
53(b), 54 Inapplicable.
55 Illustrations of Hypothetical Policy Benefits.
56-59 Inapplicable.**
* Registrant includes this Reconciliation and Tie in its Registration
Statement in compliance with Instruction 4 as to the Prospectus as set out
in Form S-6. Separate Account VL-R (Account) has previously filed a notice
of registration as an investment company on Form N-8A under the Investment
Company Act of 1940 (Act), and a Form N-8B-2 Registration Statement.
Pursuant to Sections 8 and 30(b)(1) of the Act, Rule 30a-1 under the Act,
and Forms N-8B-2 and N-SAR under that Act, the Account will keep its
Form N-8B-2 Registration Statement current through the filing of periodic
reports required by the Securities and Exchange Commission (Commission).
** Not required pursuant to either Instruction 1(a) as to the Prospectus as
set out in Form S-6 or the administrative practice of the Commission and
its staff of adapting the disclosure requirements of the Commission's
registration statement forms in recognition of the differences between
variable life insurance policies and other periodic payment plan
certificates issued by investment companies and between separate accounts
organized as management companies and unit investment trusts.
<PAGE>
LEGACY PLUS
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY (THE "POLICY")
ISSUED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL")
HOME OFFICE:
<TABLE>
<CAPTION>
(Express Delivery) (US Mail)
<S> <C>
2727-A Allen Parkway Variable Universal Life
Houston, Texas 77019-2191 Administration
PHONE: 1-888-325-9315 P.O. Box 4880
or 1-713-831-3443 Houston, Texas 77210-4880
FAX: 1-713-620-3857
</TABLE>
Investment options. You may invest in the following variable investment
options and change your selections from time to time:
<TABLE>
<S> <C> <C>
BT INSURANCE FUNDS TRUST MORGAN STANLEY UNIVERSAL ROYCE CAPITAL FUND
.Equity 500 Index FUNDS, INC. .Royce Total Return
.EAFE Equity Index .Equity Growth
- -----------------------------------------------------------------------------
AIM VARIABLE INSURANCE AMERICAN GENERAL SERIES
FUNDS, INC. PORTFOLIO COMPANY
.AIM V.I. Value .Money Market
</TABLE>
SEPARATE PROSPECTUSES CONTAIN MORE INFORMATION ABOUT THE MUTUAL FUNDS ("FUNDS"
OR "MUTUAL FUNDS") IN WHICH WE INVEST THE ACCUMULATION VALUE THAT YOU ALLOCATE
TO ANY OF THE ABOVE-LISTED INVESTMENT OPTIONS. THE FORMAL NAME OF EACH SUCH
FUND IS SET FORTH IN THE CHART THAT APPEARS ABOVE. YOUR INVESTMENT RESULTS IN
ANY SUCH OPTION WILL DEPEND ON THOSE OF THE RELATED FUND. THEREFORE, YOU
SHOULD BE SURE YOU ALSO READ THE PROSPECTUS OF THE MUTUAL FUND FOR ANY SUCH
INVESTMENT OPTION YOU MAY BE INTERESTED IN. YOU CAN REQUEST FREE COPIES OF ANY
OR ALL OF THE MUTUAL FUND PROSPECTUSES FROM YOUR AGL REPRESENTATIVE OR FROM US
AT OUR HOME OFFICE LISTED ABOVE.
Other choices you have. During the insured person's lifetime, you can (1)
increase (but not decrease) the amount of insurance, (2) borrow or withdraw
amounts you have invested, (3) choose, within limits, when and how much you
invest, and (4) choose whether the amount you have invested under your Policy,
upon the insured person's death, will be added to the insurance proceeds we
otherwise will pay to the beneficiary.
Charges and expenses. We deduct charges and expenses from the amounts you
invest. These are described beginning on page 6.
Right to return. If for any reason you are not satisfied with your Policy,
you may return it to us and we will refund any premiums paid adjusted to
reflect investment experience. (In some states, we will return premiums paid
as required by state law.) To exercise your right to return your Policy, you
must mail it directly to the Home Office address shown on the first page of
this prospectus or return it to the AGL representative through whom you
purchased the Policy within 10 days after you receive it. In a few states,
this period may be longer. Because you have this right, we will invest your
initial premium payment in the money market investment option from the date
your investment performance begins until the first business day that is at
least 15 days later. Then we will automatically allocate your investment among
the above-listed investment options as you have chosen. Any additional premium
we receive during the 15-day period will also be invested in the money market
division and allocated to the investment options at the same time as your
initial premium.
<PAGE>
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS CONTAINS INFORMATION THAT YOU SHOULD KNOW BEFORE INVESTING IN A
POLICY. THE POLICIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE POLICIES ARE NOT INSURED BY THE FDIC OR ANY OTHER AGENCY. THEY ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT BANK GUARANTEED. THEY
ARE SUBJECT TO INVESTMENT RISKS AND POSSIBLE LOSS OF PRINCIPAL INVESTED.
THIS BOOKLET IS CALLED A "PROSPECTUS." ITS DATE IS , 1998.
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This booklet (which is called a "prospectus") contains information that you
should know before you purchase a Legacy Plus policy ("Policy") or exercise
any of your rights or privileges under a Policy.
Basic Information. Here are the page numbers in this prospectus where you
may find answers to most of your questions:
<TABLE>
<CAPTION>
PAGE TO
SEE IN
THIS
BASIC QUESTIONS YOU MAY HAVE PROSPECTUS
---------------------------- ----------
<S> <C>
.How can I invest money in a Policy?................................ 4
.How will the value of my investment in a Policy change over time?.. 5
.What is the basic amount of insurance ("death benefit") that AGL
pays when the insured person dies?............................. 5
.What charges will AGL deduct from my investment in a Policy?....... 6
.What charges and expenses will the Mutual Funds deduct from amounts
I invest through my Policy?.................................... 7
.Must I invest any minimum amount in a Policy?...................... 8
.How can I change my Policy's investment options?................... 8
.How can I change my Policy's insurance coverage?................... 8
.What additional rider benefits might I select?..................... 9
.How can I access my investment in a Policy?........................ 9
.Can I choose the form in which AGL pays out proceeds from my
Policy?............................................................ 10
.To what extent can AGL vary the terms and conditions of the Policy
in particular cases?............................................... 11
.How will my Policy be treated for income tax purposes?............. 11
.How do I communicate with AGL?..................................... 11
</TABLE>
Illustrations of a hypothetical Policy. Starting on page 13, we have
included some illustrations of how the values of a hypothetical Policy would
change over time, based on certain assumptions we have made. Because your
circumstances may vary considerably from our assumptions, your AGL
representative will also provide you with a similar hypothetical illustration
that is more tailored to your own circumstances and wishes.
Additional information. You may find the answers to any other questions you
have under "Additional Information" beginning on page 16 or in the form of our
Policy. A table of contents for the "Additional Information" portion of this
prospectus also appears on page 16. You can obtain copies of our Policy form
from (and direct any other questions to) your AGL representative or our Home
Office (shown on the first page of this Prospectus).
Financial statements. We have included certain financial statements of AGL
and Separate Account VL-R in this prospectus. These begin on page 30.
Special words and phrases. If you want more information about any words or
phrases that you read in this prospectus, you may wish to refer to the Index
of Words and Phrases that appears at the back of this prospectus. That index
will tell you on what page you can read more about many of the words and
phrases that we use.
3
<PAGE>
BASIC QUESTIONS YOU MAY HAVE
HOW CAN I INVEST MONEY IN A POLICY?
Premium payments. We call the investments you make in a Policy "premiums" or
"premium payments." The amount we require as your initial premium varies
depending on the specifics of your Policy and the insured person. We can
refuse to accept a subsequent premium payment that is less than $50.
Otherwise, with a few exceptions mentioned below, you can make premium
payments at any time and in any amount.
Limits on premium payments. In certain circumstances, we may refuse to
accept an additional premium if the insured person does not provide us with
adequate evidence that he/she continues to meet our requirements for issuing
insurance or if the additional premium would cause the "net amount at risk" to
exceed the Maximum Net Amount at Risk, as set out in your Policy. The net
amount at risk is the difference between (a) the death benefit that would be
payable before reduction by policy loans if the insured person died on that
date and (b) the then total accumulation value under the Policy. The term
"accumulation value" is described on page 5. Additional premium payments may
result in an increase in the death benefit. If the increase in the death
benefit exceeds the increase in the accumulation value due to the alternative
basic death benefit calculation, then the net amount at risk will increase.
The resulting increase in the net amount at risk could cause the net amount at
risk to exceed the Maximum Net Amount at Risk. The "alternative basic death
benefit calculation" is described starting on page 5.
The sum of the premiums paid under your Policy may not exceed the guideline
premium limitation as defined by Section 7702 of the Internal Revenue Code of
1986, as amended. Any portion of any premium paid which is determined to be in
excess of the limit will be refunded.
Checks and money orders. Premiums must be by check or money order drawn on a
U.S. bank in U.S. dollars and made payable to "American General Life Insurance
Company," or "AGL." Premiums after the initial premium must be sent directly
to our Home Office.
Other ways to pay premiums. We also accept premium payments by bank draft,
wire, or by exchange from another insurance company. You may obtain further
information about how to make premium payments by any of these methods from
your AGL representative or from our Home Office shown on the first page of
this prospectus.
Dollar cost averaging. Dollar cost averaging is an investment strategy
designed to reduce the risks that result from market fluctuations. The
strategy spreads the allocation of your accumulation value over a period of
time. This allows you to reduce the risk of investing most of your funds at a
time when prices are high. The success of this strategy depends on market
trends and is not guaranteed.
Under dollar cost averaging, we automatically make transfers of your
accumulation value from the money market investment option to one or more of
the other investment options that you choose. You tell us whether you want
these transfers to be made monthly, quarterly, semi-annually or annually; and
we make the transfers as of the end of the valuation period that contains the
day of the month that you select other than the 29th, 30th or 31st day of the
month. The term "valuation period" is described on page 22. You must have at
least $100,000 of accumulation value to start dollar cost averaging and each
transfer under the program must be at least $5,000. You cannot participate in
dollar cost averaging while also using automatic rebalancing (discussed
below). Dollar cost averaging ceases upon your request, or if your
accumulation value in the money market option becomes exhausted.
Automatic rebalancing. This feature automatically rebalances the proportion
of your accumulation value in each investment option under your Policy to
correspond to your then current premium allocation designation. You tell us
whether you want us to do the rebalancing quarterly, semi-annually or
annually. The date automatic
4
<PAGE>
rebalancing occurs will be based on the date of issue of your Policy. For
example, if your Policy is dated January 17, and you have requested automatic
rebalancing on a quarterly basis, automatic rebalancing will start on April
17, and will occur quarterly thereafter. Automatic rebalancing will occur as
of the end of the valuation period that contains the date of the month your
Policy was issued. You must have a total accumulation value of at least
$100,000 to begin automatic rebalancing. You cannot participate in this
program while also participating in dollar cost averaging (discussed above).
Rebalancing terminates upon your request.
HOW WILL THE VALUE OF MY INVESTMENT IN A POLICY CHANGE OVER TIME?
Your accumulation value. From each premium payment you make, we deduct the
charges that we describe on page 6 under "Deductions from each premium
payment." We invest the rest in one or more of the investment options listed
on the first page of this prospectus. We call the amount that is at any time
invested under your Policy (including any loan collateral we are holding for
your Policy loans) your "accumulation value."
Your investment options. We invest the accumulation value that you have
allocated to any investment option in shares of a Mutual Fund that follows
investment practices, policies and objectives that are appropriate to that
option. Over time, your accumulation value in any investment option will
increase or decrease by the same amount as if you had invested in the related
Fund's shares directly (and reinvested all dividends and distributions from
the Fund in additional Fund shares); except that your accumulation value will
be reduced by certain charges that we deduct. We describe these charges
beginning on page 6 under "What charges will AGL deduct from my investment in
a Policy?"
Other important information about the Mutual Funds that you can choose is
included in the separate prospectuses for those Funds. This includes
information about the investment performance that each Fund's investment
manager has achieved. Additional free copies of these prospectuses are
available from your AGL representative or from our Home Office shown on the
first page of this prospectus.
Policies are "non-participating." The Policies are not "participating."
Therefore, you will not be entitled to any dividends from AGL.
WHAT IS THE BASIC AMOUNT OF INSURANCE ("DEATH BENEFIT") THAT AGL PAYS WHEN THE
INSURED PERSON DIES?
Your specified amount of insurance. In your application to buy a Legacy Plus
Policy, you will tell us how much life insurance coverage you want on the life
of the insured person. We call this the "specified amount" of insurance.
Your death benefit. The basic death benefit we will pay is reduced by any
outstanding Policy loans. You also choose whether the basic death benefit we
will pay is
.Option 1--The specified amount on the date of the insured person's death
- or -
.Option 2--The specified amount plus the Policy's accumulation value on
the date of death.
Under Option 2, your death benefit will tend to be higher than under Option
1. However, the monthly insurance charge we deduct will also be higher to
compensate us for our additional risk. Because of this, your accumulation
value will tend to be higher under Option 1 than under Option 2.
We will automatically pay an alternative basic death benefit if it is higher
than the basic Option 1 or Option 2 death benefit (whichever you have
selected). The alternative basic death benefit is computed by multiplying your
Policy's accumulation value on the insured person's date of death by the
following percentages:
5
<PAGE>
TABLE OF ALTERNATIVE BASIC DEATH BENEFITS AS A PERCENTAGE MULTIPLE OF POLICY
ACCUMULATION VALUE
BASED ON GUIDELINE PREMIUM
<TABLE>
<CAPTION>
INSURED'S INSURED'S
AGE ON % OF AGE ON % OF
POLICY ACCUMULATION POLICY ACCUMULATION
ANNIVERSARY* VALUE ANNIVERSARY* VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C>
0-40 250 60 130
41 243 61 128
42 236 62 126
43 229 63 124
44 222 64 122
45 215 65 120
46 209 66 119
47 203 67 118
48 197 68 117
49 191 69 116
50 185 70 115
51 178 71 113
52 171 72 111
53 164 73 109
54 157 74 107
55 150 75-90 105
56 146 91 104
57 142 92 103
58 138 93 102
59 134 94 101
95+ 100
</TABLE>
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* Nearest birthday at the beginning of the Policy year in which the insured
person dies.
WHAT CHARGES WILL AGL DEDUCT FROM MY INVESTMENT IN A POLICY?
Deductions from each premium payment. There is currently no deduction from
each premium payment you make. However, We have the right at any time to
assess a charge not to exceed more than 1.5% on all future premium payments
for the costs associated with the issuance of the Policy and administrative
services we perform.
Daily charge. We make a daily deduction at an annual effective rate of .75%
of your accumulation value that is then being invested in any of the
investment options for the costs associated with the mortality and expense
risks we assume under the Policy. After a Policy has been in effect for 10
years, we will reduce the rate of the charge to a maximum of .50%, and after
20 years, we will further reduce the charge to a maximum of .25%. Because the
Policies were first offered in 1998, however, this decrease has not yet
occurred for any outstanding Policy. The daily deduction charges, including
the current charge of .75%, are the maximums we may charge; we may charge
less, but we can never charge more.
Monthly insurance charge. Every month we will deduct from your accumulation
value a charge based on the cost of insurance rates applicable to your Policy
on the date of the deduction and our "amount at risk" on that date. Our amount
at risk is the difference between (a) the death benefit that would be payable
before reduction by policy loans if the insured person died on that date and
(b) the then total accumulation value under the Policy. For otherwise
identical Policies, a greater amount at risk results in a higher monthly
insurance charge. The current monthly insurance charge has been designed
primarily to provide funds out of which we can make payments of death benefits
under the Policy as insured persons die.
For otherwise identical Policies, a higher cost of insurance rate also
results in a higher monthly insurance charge. Our cost of insurance rates are
guaranteed not to exceed those that will be specified in your Policy.
6
<PAGE>
In general, our cost of insurance rates increase with the insured person's
age. Therefore, the longer you own your Policy, the higher the cost of
insurance rate will be. Also our cost of insurance rates will generally be
lower (except in Montana) if the insured person is a female than if a male.
Similarly, our current cost of insurance rates are generally lower for non-
smokers than smokers. Insured persons who present particular health,
occupational or avocational risks may be charged higher cost of insurance
rates and other additional charges based on the specified amount of insurance
coverage under their Policy.
Our cost of insurance rates also are generally higher under a Policy that
has been in force for some period of time than they would be under an
otherwise identical Policy purchased more recently on the same insured person.
Transaction Fee. We will charge a $25 transaction fee for each partial
surrender you make to cover administrative services. This charge will be
deducted from the investment options in the same ratio as the requested
transfer.
Charge for taxes. We can make a charge in the future for taxes we incur or
reserves we set aside for taxes in connection with the Policies. This would
reduce the investment experience of your accumulation value.
For a further discussion regarding the charges we will deduct from your
investment in a Policy, see "More About Policy Charges" on page 21.
Allocation of charges. You may choose from which of your investment options
we deduct all monthly charges. If you do not have enough accumulation value in
any investment option to comply with your selection, we will deduct these
charges in proportion to the amount of accumulation value you then have in
each investment option.
WHAT CHARGES AND EXPENSES WILL THE MUTUAL FUNDS DEDUCT FROM AMOUNTS I INVEST
THROUGH MY POLICY?
Each Mutual Fund pays its investment management fees and other operating
expenses. Because they reduce the investment return of a Fund, these fees and
expenses also will reduce indirectly the return you will earn on any
accumulation value that you have invested in that Fund. These charges and
expenses currently are as follows:
THE MUTUAL FUNDS' ANNUAL EXPENSES (1) (as a percentage of average net assets)
<TABLE>
<CAPTION>
FUND OTHER FUND TOTAL FUND
MANAGEMENT OPERATING OPERATING
FEES AFTER EXPENSES EXPENSES
EXPENSE AFTER EXPENSE AFTER EXPENSE
NAME OF FUND REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT
------------ ------------- ------------- -------------
<S> <C> <C> <C>
The following funds of
BT INSURANCE FUNDS TRUST:
Equity 500 Index................... 0.00% 0.30% 0.30%
EAFE Equity Index.................. 0.02% 0.63% 0.65%
The following fund of
MORGAN STANLEY UNIVERSAL FUNDS,
INC.:
Equity Growth...................... 0.0% 0.85% 0.85%
The following fund of
AMERICAN GENERAL SERIES PORTFOLIO
COMPANY:
Money Market....................... 0.50% 0.07% 0.57%
The following fund of
ROYCE CAPITAL FUND:
Royce Total Return................. 0.00% 1.35% 1.35%
The following fund of
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. Value..................... 0.62% 0.08% 0.70%
</TABLE>
- --------
(1) The annual expenses are estimated for the current fiscal year for the
Equity 500 Index and EAFE Equity Index Funds, because neither of these
Funds has financial statements covering a period of at least ten months.
7
<PAGE>
If certain voluntary expense reimbursements from the investment adviser were
terminated, management fees and other expenses for the fiscal year ended in
1997 would have been as set out in the following table. Information about
annual expenses excluding voluntary expense reimbursements is estimated for
the Equity 500 Index and EAFE Equity Index Funds since neither of these Funds
has financial statements covering a period of at least ten months.
<TABLE>
<CAPTION>
OTHER TOTAL
FUND FUND FUND
MANAGEMENT OPERATING OPERATING
NAME OF FUND FEES EXPENSES EXPENSES
------------ ---------- --------- ---------
<S> <C> <C> <C>
Equity 500 Index.............................. 0.20% 2.58% 2.78%
EAFE Equity Index............................. 0.45% 2.30% 2.75%
Royce Total Return............................ 1.00% 1.99% 2.99%
Equity Growth................................. 0.55% 1.50% 2.05%
</TABLE>
MUST I INVEST ANY MINIMUM AMOUNT IN A POLICY?
Planned periodic premiums. Page 3 of your Policy will specify a "Planned
Periodic Premium." This is the amount that you (within limits) choose to have
us bill you. Our current practice is to bill quarterly, semi-annually or
annually. However, payment of these or any other specific amounts of premiums
is not mandatory. After payment of your initial premium, you need only invest
enough to ensure your Policy's cash surrender value stays above zero. The less
you invest, the more likely it is that your Policy's cash surrender value
could fall to zero, as a result of the deductions we periodically make from
your accumulation value.
Policy lapse and reinstatement. If your Policy's cash surrender value does
fall to zero, we will notify you and give you a grace period to pay at least
the amount we estimate is necessary to keep your Policy in force for a
reasonable time. If we do not receive your payment by the end of the grace
period, your Policy will terminate without value and all coverage under your
Policy will cease. Although you can apply to have your Policy "reinstated,"
you must do this within 5 years (or, if earlier, before the Policy's maturity
date), and you must present evidence that the insured person still meets our
requirements for issuing coverage. Also, you would have to pay certain extra
amounts that we require. In the Policy form itself, you will find additional
information about the values and terms of a Policy after it is reinstated.
HOW CAN I CHANGE MY POLICY'S INVESTMENT OPTIONS?
Future premium payments. You may at any time change the investment options
in which future premiums you pay will be invested. Your allocation must,
however, be in whole percentages that total 100%.
Transfers of existing accumulation value. You may also transfer your
existing accumulation value from one investment option under the Policy to
another. You may make transfers at any time. Unless you are transferring the
entire amount you have in an investment option, each transfer must be at least
$5,000. See "Additional Rights That We Have" on page 25.
Transaction Fee. We will charge a $25 transaction fee for each transfer you
make in excess of 12 per Policy year.
Maximum number of investment options. We can at any time limit the number of
investment options you may use.
HOW CAN I CHANGE MY POLICY'S INSURANCE COVERAGE?
Increase in coverage. You may at any time request an increase in the
specified amount of coverage under your Policy. You must, however, provide us
with satisfactory evidence that the insured person continues to meet our
requirements for issuing insurance coverage. You may not request a decrease in
the specified amount of coverage under your Policy.
8
<PAGE>
We treat an increase in specified amount in many respects as if it were the
issuance of a new Policy. For example, the monthly insurance charge for the
increase will be based on the age and risk class of the insured person at the
time of the increase.
Change of death benefit option. You may at any time request us to change
your coverage from death benefit Option 1 to 2 or vice-versa. If you change
from Option 1 to 2, we also automatically reduce your Policy's specified
amount of insurance by the amount of your Policy's accumulation value (but not
below zero) at the time of the change. If you change from Option 2 to 1, we
automatically increase your Policy's specified amount by the amount of your
Policy's accumulation value.
Tax consequences of changes in insurance coverage. Please read "Tax Effects"
starting on page 17 of this prospectus to learn about possible tax
consequences of changing your insurance coverage under your Policy.
WHAT ADDITIONAL RIDER BENEFITS MIGHT I SELECT?
Under the terms of your Policy, there are currently no additional rider
benefits available.
HOW CAN I ACCESS MY INVESTMENT IN A POLICY?
Full surrender. You may at any time surrender your Policy in full. If you
do, we will pay you the accumulation value, less any Policy loans. We call
this amount your "cash surrender value".
Partial surrender. You may, at any time after the first Policy year, make a
partial surrender of your Policy's cash surrender value. A partial surrender
must be at least $5,000. If the Option 1 death benefit is then in effect, we
will also automatically reduce your Policy's specified amount of insurance by
the amount of your withdrawal and any related charges. We will not permit a
partial surrender if it would cause your accumulation value to fall below
$100,000 or your death benefit to fall below the minimum specified in your
Policy.
You may choose the investment option or options from which money that you
withdraw will be taken. Otherwise, we will allocate the withdrawal in the same
proportions as then apply for deducting monthly charges under your Policy or,
if that is not possible, in proportion to the amount of accumulation value you
then have in each investment option.
Exchange of Policy in Certain States. Certain states require that a policy
owner be given the right to exchange the Policy for a fixed benefit life
insurance policy, within either 18 or 24 months from the date of issue. This
right is subject to various conditions imposed by the states and us. In such
states, this right has been more fully described in your Policy or related
endorsements to comply with the applicable state requirements.
Transaction Fee. We will charge a $25 transaction fee for each partial
surrender you make. This charge will be deducted from the investment options
in the same ratio as the requested transfer.
Policy loans. You may at any time borrow from us an amount equal to your
Policy's cash surrender value less $100,000, less our estimate of three
months' charges and less the interest that will be payable on your loan
through your next Policy anniversary; this rule is not applicable in all
states. The minimum amount of each loan is $5,000.
We remove from your investment options an amount equal to your loan and hold
that amount as additional collateral for the loan. We will credit your Policy
with interest on this collateral amount at an effective annual rate of 4%
(rather than any amount you could otherwise earn in one of our investment
options), and we will charge you interest on your loan at an effective annual
rate of 4.75%. Loan interest is payable annually, on the Policy anniversary,
in advance, at a rate of 4.54%. Any amount not paid by its due date will
automatically be added to the loan balance as an additional loan. Interest you
pay on Policy loans will not, in most cases, be deductible on your tax
returns.
9
<PAGE>
You may choose which of your investment options the loan will be taken from.
If you do not so specify, we will allocate the loan in the same way that
charges under your Policy are being allocated. If this is not possible, we
will make the loan pro-rata from each investment option that you then are
using.
You may repay all or part (but not less than $5,000) of your loan at any
time prior to the death of the Insured while the Policy is in force. You must
designate any loan repayment as such. Otherwise, we will treat it as a premium
payment instead. We will invest any additional loan repayments you make in the
investment options you request. In the absence of such a request we will
invest the repayment in the same proportion as you then have selected for
premium payments that we receive from you. Any unpaid loan will be deducted
from the proceeds we pay following the insured person's death.
Preferred loan interest rate. We will credit a higher interest rate, but not
more than 4.75%, on an amount of the collateral securing Policy loans taken
out after the first 10 Policy years. The maximum amount of new loans that will
receive this preferred loan interest rate for any year is (a) 10% of your
Policy's accumulation value (including any loan collateral we are holding for
your Policy loans) at the beginning of the Policy year or (b) if less, your
Policy's maximum remaining loan value at that anniversary. We intend to set
the rate of interest we credit to your preferred collateral amount equal to
the loan interest rate you are paying, resulting in a zero net cost of
borrowing for that amount. We have full discretion to vary the preferred rate,
provided that it will always be greater than the rate we are then crediting in
connection with regular Policy loans, and will never be less than an effective
annual rate of 4.5%. Because we first offered the Policies in 1998, we have
not yet applied the preferred loan interest rate to any Policy loan amounts.
Maturity of your Policy. If the insured person is still living on the
"Maturity Date" shown on page 3 of your Policy, we will automatically pay you
the cash surrender value of the Policy, and the Policy will terminate. The
maturity date is the Policy anniversary nearest the insured person's 100th
birthday.
CAN I CHOOSE THE FORM IN WHICH AGL PAYS OUT THE PROCEEDS FROM MY POLICY?
Choosing a payment option. You may choose to receive the full proceeds from
the Policy as a single sum. This includes proceeds that become payable upon
the death of the insured person, full surrender or the maturity date.
Alternatively, you may elect that all or part of such proceeds be applied to
one or more of the following payment options:
. Option 1--Equal monthly payments for a specified period of time.
. Option 2--Equal monthly payments of a specified amount until all amounts
are paid out.
. Option 3--Equal monthly payments for the payee's life, but with
payments guaranteed for a specified number of years. These payments are
based on annuity rates that are set forth in the Policy or, at the
payee's request, the annuity rates that we then are using.
. Option 4--Proceeds left to accumulate with interest.
Additional payment options may also be available with our consent. We have
the right to veto any payment option, if the payee is a corporation or other
entity. You can read more about each of these options in our Policy form and
in the separate form of payment contract that we issue when any such option
takes effect.
Within 60 days after the insured person's death, any payee entitled to
receive proceeds as a single sum may elect one or more payment options.
Interest rates that we credit under each option will be at least 3%.
Change of payment option. You may change any payment option you have elected
at any time while the Policy is in force and before the start date of the
payment option.
10
<PAGE>
Tax impact. If a payment option is chosen, you or your beneficiary may have
tax consequences. You therefore should consult with a qualified tax adviser
before deciding whether to elect one or more payment options.
TO WHAT EXTENT CAN AGL VARY THE TERMS AND CONDITIONS OF THE POLICY IN
PARTICULAR CASES?
Listed below are some variations we may make in the terms of a Policy. Any
variations will be made only in accordance with uniform rules that we
establish.
Policies purchased through "internal rollovers." We maintain published rules
that describe the procedures necessary to replace the other life insurance we
issue with a Policy. Not all types of other insurance we issue are eligible to
be replaced with a Policy. Our published rules may be changed from time to
time, but are evenly applied to all our customers.
Policies purchased through term life conversions. Also, we maintain rules
about how to convert term insurance to a Legacy Plus Policy. This is referred
to as a term conversion. Term conversions are available to owners of term life
insurance we have issued. Any right to a term conversion is stated in the term
life insurance policy. Again, our published rules about term conversions may
be changed from time to time, but are evenly applied to all our customers.
State law requirements. AGL is subject to the insurance laws and regulations
in every jurisdiction in which Legacy Plus Policies are sold. As a result,
various time periods and other terms and conditions described in this
prospectus may vary depending on where you reside. These variations will be
reflected in your Policy and related endorsements.
Variations in expenses or risks. AGL may vary the charges and other terms of
the Policy where special circumstances result in sales, administrative or
other expenses, mortality risks or other risks that are different from those
normally associated with the Policy.
HOW WILL MY POLICY BE TREATED FOR INCOME TAX PURPOSES?
Generally, death benefits paid under a Policy are not subject to income tax,
and earnings on your accumulation value are not subject to income tax as long
as we do not pay them out to you. If we do pay any amount of your Policy's
accumulation value upon surrender, partial surrender, or maturity of your
Policy, all or part of that distribution may be treated as a return of the
premiums you paid, and therefore not subject to income tax.
Amounts you receive as Policy loans are not taxable to you, unless you have
paid such a large amount of premiums that your Policy becomes what the tax law
calls a "modified endowment contract." In that case, the loan will be taxed as
if it were a partial surrender. Furthermore, loans, partial surrenders and
other distributions from a modified endowment contract may require you to pay
additional taxes and penalties that otherwise would not apply.
For further information about the tax consequences of owning a Policy,
please read "Tax Effects" starting on page 17.
HOW DO I COMMUNICATE WITH AGL?
When we refer to "you," we mean the person who is duly authorized to take
any contemplated action with respect to a Policy. Generally, this is the owner
named in the Policy. Where a Policy has more than one owner, each owner
generally must join in any requested action, except for transfers and changes
in the allocation of future premiums or charges among the investment options.
General. You should mail or express checks and money orders for premium
payments and loan repayments directly to our Home Office.
11
<PAGE>
The following requests must be made in writing and signed by you: transfer
of accumulation value; loan; full surrender; partial surrender; change of
beneficiary or contingent beneficiary; change of allocation percentages for
premium payments; loan repayments or charges; change of death benefit option
or manner of death benefit payment; increase in specified insurance amount;
addition or cancellation of, or other action with respect to, election of a
payment option for Policy proceeds; tax withholding elections; and telephone
transaction privileges. You should mail or express these requests to our Home
Office at the appropriate address shown on the first page of this prospectus.
You should also communicate notice of the insured person's death, and related
documentation, to our Home Office.
We have special forms which should be used for loans, assignments, partial
and full surrenders, changes of owner or beneficiary, and all other
contractual changes. A Service Request form covering many of these
transactions is attached to the back of this prospectus. You will be asked to
return your Policy when you request a full surrender. You may also obtain
these forms from our Home Office or from your AGL representative. Each
communication must include your name, Policy number and, if you are not the
insured person, that person's name. We cannot process any requested action
that does not include all required information.
Telephone transactions. If you have a completed telephone authorization form
on file with us, you may make transfers, or change the allocation of future
premium payments or deduction of charges, by telephone, subject to the terms
of the form. We will honor telephone instructions from any person who provides
the correct information, so there is a risk of possible loss to you if
unauthorized persons use this service in your name. Our current procedure is
that only the owner or your AGL representative may make a transfer request by
phone. We are not liable for any acts or omissions based upon instructions
that we reasonably believe to be genuine. Our procedures include verification
of the Policy number, the identity of the caller, both the insured person's
and owner's names, and a form of personal identification from the caller. We
will mail you a prompt written confirmation of the transaction. If many people
seek to make telephone requests at or about the same time, or if our recording
equipment malfunctions, it may be impossible for you to make a telephone
request at the time you wish. If this occurs, you should submit a written
request. Also, if, due to malfunction or other circumstances, the recording of
your telephone request is incomplete or not fully comprehensible, we will not
process the transaction. The phone number for telephone requests is
1-888-325-9315.
The Policy is not designed for professional market timing organizations or
other entities utilizing programmed and frequent transfers. We reserve the
right at any time and without prior notice to any party to terminate, suspend,
or modify our policies or procedures regarding telephone requests or to cease
permitting telephone requests altogether.
12
<PAGE>
ILLUSTRATIONS OF HYPOTHETICAL POLICY BENEFITS
To help clarify how our Policy works, we have prepared the following tables:
<TABLE>
<CAPTION>
PAGE TO
SEE IN
THIS
TABLE PROSPECTUS
----- ----------
<S> <C>
Death Benefit Option 1--Current Charges........................... 14
Guaranteed Maximum Charges...................................... 15
</TABLE>
The tables show how death benefits, accumulation values, and cash surrender
values ("Policy benefits") under a hypothetical Legacy Plus Policy would vary
over time if the investment options had constant hypothetical gross annual
investment returns of 0%, 6% or 12% over the years covered by each table. The
tables are for a 45 year-old male non-tobacco user. A single premium payment
of $250,000 for an initial $1,090,988 of specified amount of coverage is
assumed to be paid at issue. The illustrations assume no Policy loan has been
taken. As illustrated, this Policy would be classified as a modified endowment
contract (See "Tax Effects" in Additional Information for further discussion).
Although the tables below do not include illustrations of a Policy with an
Option 2 death benefit, such a Policy would have higher death benefits and
lower cash surrender values.
Separate tables are included to illustrate both current and guaranteed
maximum charges. The charges assumed in the current charge tables include a
daily charge at an annual effective rate of .75% for the first 10 Policy
years, .50% for Policy years 11--20, and .25% thereafter and current monthly
insurance charges. The guaranteed maximum charge tables assume that these
charges will include a daily charge at an annual effective rate of .75% for
the first 10 Policy years, .50% for Policy years 11--20, and .25% thereafter,
and an additional charge of 1.5% of every premium and guaranteed maximum
insurance charges. In Texas and Oregon, the guaranteed maximum daily charge is
.35% per annum higher for certain periods of time than the daily charges
assumed in the maximum charge tables below. Therefore, an identical Policy
sold in those states would have values less than those illustrated if we
deducted the maximum charges.
The charges assumed by both the current and guaranteed maximum charge tables
also include 0.74% for expenses of the Mutual Funds, which is the unweighted
average of the advisory fees payable with respect to each Mutual Fund, after
all reimbursements, as reflected on page 7 of this prospectus, plus the
weighted average of all other operating expenses of each such Fund after all
reimbursements, as reflected on page 8 of this prospectus.
The second column of each table shows the effect of an amount equal to the
premiums invested to earn interest, after taxes, of 5% compounded annually.
Individual illustrations. On request, we will furnish you with a comparable
illustration based on your Policy's characteristics. If you request
illustrations more than once in any Policy year, we may charge $25 for the
illustration.
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<PAGE>
LEGACY PLUS
SINGLE PREMIUM $250,000.00 INITIAL SPECIFIED $1,090,988
DEATH BENEFIT
OPTION 1
MALE AGE 45
NONSMOKER
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
CASH SURRENDER VALUE
DEATH BENEFIT ASSUMING ACCOUNT VALUE ASSUMING ASSUMING HYPOTHETICAL
HYPOTHETICAL GROSS HYPOTHETICAL GROSS GROSS
END OF ANNUAL RETURN OF ANNUAL RETURN OF ANNUAL RETURN OF
POLICY ACCUMULATED ----------------------------- ------------------------- -------------------------
YEAR PREMIUMS(1) 0.0% 6.0% 12.0% 0.0% 6.0% 12.0% 0.0% 6.0% 12.0%
- ------ ----------- --------- --------- --------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 262,500 1,090,988 1,090,988 1,090,988 244,730 259,580 274,432 244,730 259,580 274,432
2 275,625 1,090,988 1,090,988 1,090,988 239,076 269,153 301,006 239,076 269,153 301,006
3 289,406 1,090,988 1,090,988 1,090,988 233,654 279,338 330,579 233,654 279,338 330,579
4 303,877 1,090,988 1,090,988 1,090,988 227,963 289,675 362,997 227,963 289,675 362,997
5 319,070 1,090,988 1,090,988 1,090,988 222,059 300,234 398,641 222,059 300,234 398,641
6 335,024 1,090,988 1,090,988 1,090,988 215,978 311,068 437,916 215,978 311,068 437,916
7 351,775 1,090,988 1,090,988 1,090,988 209,742 322,217 481,252 209,742 322,217 481,252
8 369,364 1,090,988 1,090,988 1,090,988 203,330 333,686 529,101 203,330 333,686 529,101
9 387,832 1,090,988 1,090,988 1,090,988 196,691 345,453 581,947 196,691 345,453 581,947
10 407,224 1,090,988 1,090,988 1,090,988 189,702 357,439 640,303 189,702 357,439 640,303
15 519,732 1,090,988 1,090,988 1,381,903 155,590 427,456 1,031,271 155,590 427,456 1,031,271
20 663,324 1,090,988 1,090,988 1,969,072 112,436 507,996 1,613,994 112,436 507,996 1,613,994
</TABLE>
- --------
(1) Assumes net interest of 5% compounded annually.
THE VALUES WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR
FREQUENCIES.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN.
14
<PAGE>
LEGACY PLUS
SINGLE PREMIUM $250,000 INITIAL SPECIFIED $1,090,988
DEATH BENEFIT
OPTION 1
MALE AGE 45
NONSMOKER
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
CASH SURRENDER VALUE
DEATH BENEFIT ASSUMING ACCOUNT VALUE ASSUMING ASSUMING HYPOTHETICAL
HYPOTHETICAL GROSS HYPOTHETICAL GROSS GROSS
END OF ANNUAL RETURN OF ANNUAL RETURN OF ANNUAL RETURN OF
POLICY ACCUMULATED ----------------------------- ------------------------- -------------------------
YEAR PREMIUMS(1) 0.0% 6.0% 12.0% 0.0% 6.0% 12.0% 0.0% 6.0% 12.0%
- ------ ----------- --------- --------- --------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 262,500 1,090,988 1,090,988 1,090,988 238,764 253,335 267,910 238,764 253,335 267,910
2 275,625 1,090,988 1,090,988 1,090,988 231,038 260,453 291,618 231,038 260,453 291,618
3 289,406 1,090,988 1,090,988 1,090,988 223,044 267,584 317,593 223,044 267,584 317,593
4 303,877 1,090,988 1,090,988 1,090,988 214,760 274,719 346,090 214,760 274,719 346,090
5 319,070 1,090,988 1,090,988 1,090,988 206,138 281,820 377,375 206,138 281,820 377,375
6 335,024 1,090,988 1,090,988 1,090,988 197,145 288,869 411,765 197,145 288,869 411,765
7 351,775 1,090,988 1,090,988 1,090,988 187,694 295,795 449,582 187,694 295,795 449,582
8 369,364 1,090,988 1,090,988 1,090,988 177,713 302,543 491,211 177,713 302,543 491,211
9 387,832 1,090,988 1,090,988 1,090,988 167,109 309,037 537,085 167,109 309,037 537,085
10 407,224 1,090,988 1,090,988 1,090,988 155,777 315,195 587,704 155,777 315,195 587,704
15 519,732 1,090,988 1,090,988 1,244,718 89,456 343,481 928,894 89,456 343,481 928,894
20 663,324 -- 1,090,988 1,749,133 -- 351,725 1,433,715 -- 351,725 1,433,715
</TABLE>
- --------
(1) Assumes net interest of 5% compounded annually.
THE VALUES WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR
FREQUENCIES.
THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN.
15
<PAGE>
ADDITIONAL INFORMATION
A general overview of the Policy appears at pages 1-15. The additional
information that follows gives more details, but generally does not repeat
what is set forth above.
<TABLE>
<CAPTION>
PAGE TO
SEE IN
THIS
CONTENTS OF ADDITIONAL INFORMATION PROSPECTUS
---------------------------------- ----------
<S> <C>
AGL.................................................................. 16
Separate Account VL-R................................................ 16
Tax Effects.......................................................... 17
Voting Privileges.................................................... 20
Your Beneficiary..................................................... 21
Assigning Your Policy................................................ 21
More About Policy Charges............................................ 21
Effective Date of Policy and Related Transactions.................... 22
Distribution of the Policies......................................... 23
Payment of Policy Proceeds........................................... 24
Adjustments to Death Benefit......................................... 24
Additional Rights That We Have....................................... 25
Performance Information.............................................. 25
Our Reports to Policy Owners......................................... 26
AGL's Management..................................................... 26
Legal Matters........................................................ 28
Independent Auditors ................................................ 28
Actuarial Expert..................................................... 28
Services Agreement................................................... 28
Certain Potential Conflicts.......................................... 29
Year 2000............................................................ 29
</TABLE>
Special words and phrases. If you want more information about any words or
phrases that you read in this prospectus, you may wish to refer to the Index
of Words and Phrases that appears at the end of the back cover of this
prospectus. That index will tell you on what page you can read more about many
of the words and phrases that we use.
AGL
We are American General Life Insurance Company ("AGL"). AGL is a stock life
insurance company organized under the laws of Texas. AGL is a successor in
interest to a company originally organized under the laws of Delaware in 1917.
AGL is an indirect, wholly-owned subsidiary of American General Corporation
(formerly American General Insurance Company), a diversified financial
services holding company engaged primarily in the insurance business. The
commitments under the Policies are AGL's, and American General Corporation has
no legal obligation to back those commitments.
SEPARATE ACCOUNT VL-R
We hold the Mutual Fund shares in which any of your accumulation value is
invested in Separate Account VL-R. Separate Account VL-R is a "separate
account," as defined by the SEC and is registered as a unit investment trust
with the SEC under the Investment Company Act of 1940, as amended. We created
the separate account on May 6, 1997.
For record keeping and financial reporting purposes, Separate Account VL-R
is divided into 22 separate "divisions", 6 of which correspond to one of the 6
available investment options. The remaining 16 divisions represent investment
options available under another variable life policy we offer. We hold the
Mutual Fund shares in which we invest your accumulation value for an
investment option in the division that corresponds to that investment option.
16
<PAGE>
The assets in Separate Account VL-R are our property. Nevertheless, the
assets in Separate Account VL-R would be available only to satisfy the claims
of owners of the Policies, to the extent they have allocated their
accumulation value to Separate Account VL-R. Our other creditors could reach
only those Separate Account VL-R assets (if any) that are in excess of the
amount of our reserves and other contract liabilities under the Policies with
respect to Separate Account VL-R.
TAX EFFECTS
This discussion is based on current federal income tax law and
interpretations. It assumes that the policy owner is a natural person who is a
U.S. citizen and resident. The tax effects on corporate taxpayers, non-U.S.
residents or non-U.S. citizens, may be different. This discussion is general
in nature, and should not be considered tax advice, for which you should
consult a qualified tax adviser.
General. A Legacy Plus Policy will be treated as "life insurance" for
federal income tax purposes (a) if it meets the definition of life insurance
under Section 7702 of the Internal Revenue Code of 1986, as amended ("the
Code") and (b) for as long as the investments made by the underlying Mutual
Funds satisfy certain investment diversification requirements under Section
817(h) of the Code. We believe that the Policy will meet these requirements
and that:
. the death benefit received by the beneficiary under your Policy will not
be subject to federal income tax; and
. increases in your Policy's accumulation value as a result of interest or
investment experience will not be subject to federal income tax unless
and until there is a distribution from your Policy, such as a surrender
or a partial surrender.
The federal income tax consequences of a distribution from your Policy can
be affected by whether your Policy is determined to be a "modified endowment
contract" (which is discussed below). In all cases, however, the character of
all income that is described below as taxable to the payee will be ordinary
income (as opposed to capital gain).
Testing for modified endowment contract status. Your Policy will be a
"modified endowment contract" if, at any time during the first seven Policy
years, you have paid a cumulative amount of premiums that exceeds the premiums
that would have been paid by that time under a similar fixed-benefit insurance
policy that was designed (based on certain assumptions mandated under the
Code) to provide for paid-up future benefits after the payment of seven level
annual premiums. This is called the "seven-pay" test.
Whenever there is a "material change" under a policy, the policy will
generally be (a) treated as a new contract for purposes of determining whether
the policy is a modified endowment contract and (b) subjected to a new seven-
pay period and a new seven-pay limit. The new seven-pay limit would be
determined taking into account, under a prescribed formula, the accumulation
value of the policy at the time of such change. A materially changed policy
would be considered a modified endowment contract if it failed to satisfy the
new seven-pay limit. A material change for these purposes could occur as a
result of a change in death benefit option. A material change will occur as a
result of an increase in your Policy's specified amount of coverage, and
certain other changes.
If your Policy's benefits are reduced during the first seven Policy years
(or within seven years after a material change), the calculated seven-pay
premium limit will be redetermined based on the reduced level of benefits and
applied retroactively for purposes of the seven-pay test. (Such a reduction in
benefits could include, for example, a decrease in the specified amount
resulting from a partial surrender). If the premiums previously paid are
greater than the recalculated seven-payment premium level limit, the Policy
will become a modified endowment contract. A life insurance policy that is
received in exchange for a modified endowment contract will also be considered
a modified endowment contract.
Other effects of Policy changes. Changes made to your Policy (for example, a
decrease in benefits or a lapse or reinstatement of your Policy) may also have
other effects on your Policy. Such effects may include impacting
17
<PAGE>
the maximum amount of premiums that can be paid under your Policy, as well as
the maximum amount of accumulation value that may be maintained under your
Policy.
Taxation of pre-death distributions if your Policy is not a modified
endowment contract. As long as your Policy remains in force during the insured
person's lifetime, as a non-modified endowment contract, a Policy loan will be
treated as indebtedness, and no part of the loan proceeds will be subject to
current federal income tax. Interest on the loan generally will not be tax
deductible.
After the first 15 Policy years, the proceeds from a partial surrender will
not be subject to federal income tax except to the extent such proceeds exceed
your "basis" in your Policy. (Your basis generally will equal the premiums you
have paid, less the amount of any previous distributions from your Policy that
were not taxable.) During the first 15 Policy years, the proceeds from a
partial surrender could be subject to federal income tax, under a complex
formula, to the extent that your accumulation value exceeds your basis in your
Policy.
On the maturity date or upon full surrender, any excess in the amount of
proceeds we pay (including amounts we use to discharge any Policy loan) over
your basis in the Policy, will be subject to federal income tax. In addition,
if a Policy terminates after a grace period while there is a policy loan, the
cancellation of such loan and accrued loan interest will be treated as a
distribution and could be subject to tax under the above rules. Finally, if
you make an assignment of rights or benefits under your Policy you may be
deemed to have received a distribution from your Policy, all or part of which
may be taxable.
Taxation of pre-death distributions if your Policy is a modified endowment
contract. If your Policy is a modified endowment contract, any distribution
from your Policy during the insured person's lifetime will be taxed on an
"income-first" basis. Distributions for this purpose include a loan (including
any increase in the loan amount to pay interest on an existing loan or an
assignment or a pledge to secure a loan) or partial surrender. Any such
distributions will be considered taxable income to you to the extent your
accumulation value exceeds your basis in the Policy. For modified endowment
contracts, your basis is similar to the basis described above for other
policies, except that it also would be increased by the amount of any prior
loan under your Policy that was considered taxable income to you. For purposes
of determining the taxable portion of any distribution, all modified endowment
contracts issued by the same insurer (or its affiliate) to the same owner
(excluding certain qualified plans) during any calendar year are aggregated.
The Treasury Department has authority to prescribe additional rules to prevent
avoidance of "income-first" taxation on distributions from modified endowment
contracts.
A 10% penalty tax also will apply to the taxable portion of most
distributions from a policy that is a modified endowment contract. The penalty
tax will not, however, apply to distributions (i) to taxpayers 59 1/2 years of
age or older, (ii) in the case of a disability (as defined in the Code) or
(iii) received as part of a series of substantially equal periodic annuity
payments for the life (or life expectancy) of the taxpayer or the joint lives
(or joint life expectancies) of the taxpayer and his or her beneficiary. If
your Policy terminates after a grace period while there is a Policy loan, the
cancellation of such loan will be treated as a distribution to the extent not
previously treated as such and could be subject to tax, including the 10%
penalty tax, as described above. In addition, on the maturity date or upon a
full surrender, any excess of the proceeds we pay (including any amounts we
use to discharge any loan) over your basis in the Policy, will be subject to
federal income tax and, unless an exception applies, the 10% penalty tax.
Distributions that occur during a Policy year in which your Policy becomes a
modified endowment contract, and during any subsequent Policy years, will be
taxed as described in the two preceding paragraphs. In addition, distributions
from a policy within two years before it becomes a modified endowment contract
also will be subject to tax in this manner. This means that a distribution
made from a policy that is not a modified endowment contract could later
become taxable as a distribution from a modified endowment contract. The
Treasury Department has been authorized to prescribe rules which would treat
similarly other distributions made in anticipation of a policy becoming a
modified endowment contract.
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<PAGE>
Policy lapses and reinstatements. A Policy which has lapsed may have the tax
consequences described above, even though you may be able to reinstate that
Policy. For tax purposes, some reinstatements may be treated as the purchase
of a new insurance contract.
Diversification. Under Section 817(h) of the Code, the Treasury Department
has issued regulations that implement investment diversification requirements.
Failure by us to comply with these regulations would disqualify your Policy as
a life insurance policy under Section 7702 of the Code. If this were to occur,
you would be subject to federal income tax on the income under the Policy for
the period of the disqualification and for subsequent periods. Separate
Account VL-R, through the Mutual Funds, intends to comply with these
requirements. Although we do not have direct control over the investments or
activities of the Mutual Funds, we will enter into agreements with them
requiring the Mutual Funds to comply with the diversification requirements of
the Section 817(h) Treasury Regulations.
In connection with the issuance of then temporary diversification
regulations, the Treasury Department stated that it anticipated the issuance
of guidelines prescribing the circumstances in which the ability of a policy
owner to direct his or her investment to particular Mutual Funds within
Separate Account VL-R may cause the policy owner, rather than the insurance
company, to be treated as the owner of the assets in the account. If you were
considered the owner of the assets of Separate Account VL-R, income and gains
from the account would be included in your gross income for federal income tax
purposes. Under current law, however, we believe that AGL, and not the owner
of a Policy, would be considered the owner of the assets of Separate Account
VL-R.
Estate and generation skipping taxes. If the insured person is the Policy's
owner, the death benefit under a Legacy Plus Policy will generally be
includable in the owner's estate for purposes of federal estate tax. If the
owner is not the insured person, under certain conditions, only an amount
approximately equal to the cash surrender value of the Policy would be
includable. Federal estate tax is integrated with federal gift tax under a
unified rate schedule. In general, estates less than $625,000 (or larger
amounts specified in the Code to commence in certain future years) will not
incur a federal estate tax liability. In addition, an unlimited marital
deduction may be available for federal estate tax purposes.
As a general rule, if a "transfer" is made to a person two or more
generations younger than the Policy's owner, a generation skipping tax may be
payable at rates similar to the maximum estate tax rate in effect at the time.
The generation skipping tax provisions generally apply to "transfers" that
would be subject to the gift and estate tax rules. Individuals are generally
allowed an aggregate generation skipping tax exemption of $1 million. Because
these rules are complex, you should consult with a qualified tax adviser for
specific information, especially where benefits are passing to younger
generations.
The particular situation of each policy owner, insured person or beneficiary
will determine how ownership or receipt of Policy proceeds will be treated for
purposes of federal estate and generation skipping taxes, as well as state and
local estate, inheritance and other taxes.
Pension and profit-sharing plans. If a life insurance policy is purchased by
a trust or other entity that forms part of a pension or profit-sharing plan
qualified under Section 401(a) of the Code for the benefit of participants
covered under the plan, the federal income tax treatment of such policies will
be somewhat different from that described above.
If purchased as part of a pension or profit-sharing plan, the reasonable net
premium cost for such amount of insurance is required to be included annually
in the plan participant's gross income. This cost (generally referred to as
the "P.S. 58" cost) is reported to the participant annually. If the plan
participant dies while covered by the plan and the policy proceeds are paid to
the participant's beneficiary, then the excess of the death benefit over the
policy's accumulation value will not be subject to federal income tax.
However, the policy's accumulation value will generally be taxable to the
extent it exceeds the participant's cost basis in the policy. The
participant's cost basis will generally include the costs of insurance
previously reported as income to the participant. Special rules may apply if
the participant had borrowed from the policy or was an owner-employee under
the plan.
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There are limits on the amounts of life insurance that may be purchased on
behalf of a participant in a pension or profit-sharing plan. Complex rules, in
addition to those discussed above, apply whenever life insurance is purchased
by a tax qualified plan. You should consult a qualified tax adviser.
Other employee benefit programs. Complex rules may also apply when a policy
is held by an employer or a trust, or acquired by an employee, in connection
with the provision of other employee benefits. These policy owners must
consider whether the policy was applied for by or issued to a person having an
insurable interest under applicable state law and with the insured person's
consent. The lack of an insurable interest or consent may, among other things,
affect the qualification of the policy as life insurance for federal income
tax purposes and the right of the beneficiary to receive a death benefit.
ERISA. Employers and employer-created trusts may be subject to reporting,
disclosure and fiduciary obligations under the Employee Retirement Income
Security Act of 1974, as amended. You should consult a qualified legal
adviser.
Our taxes. The operations of Separate Account VL-R are reported in our
federal income tax return, but we currently pay no income tax on Separate
Account VL-R's investment income and capital gains, because these items are,
for tax purposes, reflected in our variable life insurance policy reserves.
Therefore, no charge is currently being made to any Separate Account VL-R
division for taxes. We reserve the right to make a charge in the future for
taxes incurred; for example, a charge to Separate Account VL-R for income
taxes incurred by us that are allocable to the Policy.
We may have to pay state, local or other taxes in addition to applicable
taxes based on premiums. At present, these taxes are not substantial. If they
increase, charges may be made for such taxes when they are attributable to
Separate Account VL-R or allocable to the Policy.
Certain Mutual Funds in which your accumulation value is invested may elect
to pass through to AGL taxes withheld by foreign taxing jurisdictions on
foreign source income. Such an election will result in additional taxable
income and income tax to AGL. The amount of additional income tax, however,
may be more than offset by credits for the foreign taxes withheld which are
also passed through. These credits may provide a benefit to AGL.
When we withhold income taxes. Generally, unless you provide us with an
election to the contrary before we make the distribution, we are required to
withhold income tax from any proceeds we distribute as part of a taxable
transaction under your Policy. In some cases, where generation skipping taxes
may apply, we may also be required to withhold for such taxes unless we are
provided satisfactory written notification that no such taxes are due.
Tax changes. The U.S. Congress frequently considers legislation that, if
enacted, could change the tax treatment of life insurance policies. In
addition, the Treasury Department may amend existing regulations, issue
regulations on the qualification of life insurance and modified endowment
contracts, or adopt new interpretations of existing law. State and local tax
law or, if you are not a U.S. citizen and resident, foreign tax law, may also
affect the tax consequences to you, the insured person or your beneficiary,
and are subject to change. Any changes in federal, state, local or foreign tax
law or interpretation could have a retroactive effect. We suggest you consult
a qualified tax adviser.
VOTING PRIVILEGES
We are the legal owner of the Funds' shares held in Separate Account VL-R.
However, you may be asked to instruct us how to vote the Fund shares held in
the various Mutual Funds and attributable to your Policy at meetings of
shareholders of the Funds. The number of votes for which you may give
directions will be determined as of the record date for the meeting. The
number of votes that you may direct with respect to a particular Fund is equal
to (a) your accumulation value invested in that Fund divided by (b) the net
asset value of one share of that Fund. Fractional votes will be recognized.
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We will vote all shares of each Fund that we hold of record, including any
shares we own on our own behalf, in the same proportions as those shares for
which we have received instructions from owners participating in that Fund
through Separate Account VL-R.
If you are asked to give us voting instructions, we will send you the proxy
material and a form for providing such instructions. Should we determine that
we are no longer required to send the owner such materials, we will vote the
shares as we determine in our sole discretion.
In certain cases, we may disregard instructions relating to changes in a
Fund's investment manager or its investment policies. We will advise you if we
do and detail the reasons in our next report to policy owners. AGL reserves
the right to modify these procedures in any manner consistent with applicable
legal requirements and interpretations as in effect from time to time.
YOUR BENEFICIARY
You name your beneficiary when you apply for a Policy. The beneficiary is
entitled to the insurance benefits of the Policy. You may change the
beneficiary during the insured person's lifetime. We also require the consent
of any irrevocably named beneficiary. A new beneficiary designation is
effective as of the date you sign it, but will not affect any payments we may
make before we receive it. If no beneficiary is living when the insured person
dies, we will pay the insurance proceeds to the owner or the owner's estate.
ASSIGNING YOUR POLICY
You may assign (transfer) your rights in a Policy to someone else as
collateral for a loan or for some other reason. We will not be bound by an
assignment unless it is received in writing. Two copies of the assignment must
be forwarded to us. We are not responsible for any payment we make or any
action taken before we receive due and complete notice of the assignment in
good order. Nor are we responsible for the validity of the assignment. An
absolute assignment is a change of ownership. Because there may be unfavorable
tax consequences, including recognition of taxable income and the loss of
income tax-free treatment for any death benefit payable to the beneficiary,
you should consult a qualified tax adviser prior to making an assignment.
MORE ABOUT POLICY CHARGES
Purpose of our charges. The charges under the Policy are designed to cover,
in the aggregate, our direct and indirect costs of selling, administering and
providing benefits under the Policy. They are also designed, in the aggregate,
to compensate us for the risks we assume and services that we provide under
the Policy. These include mortality risks (such as the risk that insured
persons will, on average, die before we expect, thereby increasing the amount
of claims we must pay); investment risks (such as the risk that adverse
investment performance will make it more difficult for us to reduce the amount
of our daily charge for revenues below what we anticipate); sales risks (such
as the risk that the number of Policies we sell and the premiums we receive
net of withdrawals, are less than we expect, thereby depriving us of expected
economies of scale); regulatory risks (such as the risk that tax or other
regulations may be changed in ways adverse to issuers of variable life
insurance policies); and expense risks (such as the risk that the costs of
administrative services that the Policy requires us to provide will exceed
what we currently project).
If the charges that we collect from the Policy exceed our total costs in
connection with the Policy, we will earn a profit. Otherwise we will incur a
loss.
The current monthly insurance charge has been designed primarily to provide
funds out of which we can make payments of death benefits under the Policy as
insured persons die.
Any excess from the charges discussed in the preceding paragraph, are
primarily intended (a) to defray other expenses in connection with the
Policies (such as the costs of processing applications for Policies and other
unreimbursed administrative expenses, costs of paying marketing and
distribution expenses for the Policies, and costs of paying death claims if
the mortality experience of insured persons is worse than we expect), (b) to
compensate us for the risk we assume under the Policies, or (c) otherwise to
be retained by us as profit.
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Although the preceding paragraphs describe the primary purposes for which
charges under the Policies have been designed, these distinctions are
imprecise and subject to considerable change over the life of a Policy. We
have full discretion to retain or use the revenues from any charge or charge
increase for any purpose, whether or not related to the Policies.
Change of tobacco use. If the person insured under your Policy is a tobacco
user, you may apply to us for an improved risk class if the insured person
meets our then applicable requirements for demonstrating that he or she has
ceased tobacco use for a sufficient period.
Gender neutral Policy. Our cost of insurance charge rates in Montana will
not be greater than the comparable male rates illustrated in this prospectus.
Congress and the legislatures of various states have from time to time
considered legislation that would require insurance rates to be the same for
males and females of the same age, rating class and tobacco user status. In
addition, employers and employee organizations should consider, in
consultation with counsel, the impact of Title VII of the Civil Rights Act of
1964 on the purchase of life insurance policies in connection with an
employment-related insurance or benefit plan. In a 1983 decision, the United
States Supreme Court held that, under Title VII, optional annuity benefits
under a deferred compensation plan could not vary on the basis of sex.
Cost of insurance rates. Because of specified amount increases, different
cost of insurance rates may apply to different increments of specified amount
under your Policy. If so, we attribute your accumulation value first to the
oldest increments of specified amount in order to compute our net amount at
risk at each cost of insurance rate. See "Monthly Insurance Charge" beginning
on page 6.
Miscellaneous. Each of the distributors or advisers of the Mutual Funds
listed on page 1 of this prospectus reimburses us, on a quarterly basis, for
certain administrative, Policy, and policy owner support expenses. These
reimbursements will be reasonable in relation to the services performed and
are not designed to result in a profit. These reimbursements are paid by the
distributors or the advisers, and will not be paid by the Mutual Funds, the
divisions or the owners. No payments have yet been made under these
arrangements, because no Policies have yet been issued.
EFFECTIVE DATE OF POLICY AND RELATED TRANSACTIONS
Valuation dates, times, and periods. We generally compute values under a
Policy on each day that we are open for business except, with respect to any
investment option, days on which the related Mutual Fund does not value its
shares. We call each such day a "valuation date."
We compute policy values as of 3:00 p.m., Central time, on each valuation
date. We call this our "close of business." We call the time from the close of
business on one valuation date to the close of business of the next valuation
date a "valuation period."
Date of receipt. Generally we consider that we have received a premium
payment or another communication from you on the day we actually receive it in
full and proper order at our Home Office. If we receive it after the close of
business on any valuation date, however, we consider that we have received it
on the day following that valuation date.
Commencement of insurance coverage. After you apply for a Policy, it can
sometimes take up to several weeks for us to gather and evaluate all the
information we need to decide whether to issue a Policy to you and, if so,
what the insured person's insurance rate class should be. We will not pay a
death benefit under a Policy unless (a) it has been delivered to and accepted
by the owner and at least the initial premium has been paid, and (b) at the
time of such delivery and payment, there have been no adverse developments in
the insured person's health or risk of death.
Date of issue; Policy months and years. After we approve an application for
a Policy and assign an appropriate insurance rate class, we prepare the
Policy. The day we begin to deduct charges will appear on page
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3 of your Policy and is called the "date of issue." Policy months and years
are measured from the date of issue. In order to preserve a younger age at
issue for the insured person, we may assign a date of issue to a Policy that
is up to 6 months earlier than otherwise would apply.
Monthly deduction days. Each charge that we deduct monthly is assessed
against your accumulation value at the close of business on the date of issue
and at the end of each subsequent valuation period that includes the first day
of a Policy month. We call these "monthly deduction days."
Commencement of investment performance. We begin to credit an investment
return to the accumulation value resulting from your initial premium payment
on the later of (a) the date of issue, or (b) the date all requirements needed
to place the Policy (whether a back-dated Policy or not) in force have been
satisfied, including underwriting approval and receipt in the Home Office of
the necessary premium.
Effective date of other premium payments and requests that you make. Premium
payments (after the first) and transactions implemented in response to
requests and elections made by you are generally effected at the end of the
valuation period in which we receive the payment, request or election and
based on prices and values computed as of that same time. Exceptions to this
general rule are as follows:
. Increases you request in the specified amount of insurance, and
reinstatements of a Policy that has lapsed take effect on the Policy's
monthly deduction day on or next following our approval of the
transaction;
. We may return premium payments if we determine that such premiums would
cause your Policy to become a modified endowment contract or to cease to
qualify as life insurance under federal income tax law or exceed the
maximum net amount at risk;
. If you exercise the right to return your Policy described on the first
page of this prospectus, your coverage will end when you mail us your
Policy or deliver it to your AGL representative; and
. If you pay a premium in connection with a request which requires our
approval, your payment will be applied when received rather than
following the effective date of the change requested so long as your
coverage is in force and the amount paid will not cause you to exceed
premium limitations under the Code. If we do not approve your request,
no premium will be refunded to you except to the extent necessary to
cure any violation of the maximum premium limitations under the Code.
This procedure will not apply to premiums remitted in connection with
reinstatement requests.
DISTRIBUTION OF THE POLICIES
American General Securities Incorporated ("AGSI") is the principal
underwriter of the Policies. AGSI is a wholly-owned subsidiary of AGL, a
wholly-owned subsidiary of American General Corporation ("American General"),
and its principal office is 2727 Allen Parkway, Houston, Texas, 77019. AGSI
was organized as a Texas corporation on March 8, 1983 and is a registered
broker-dealer under the Securities Exchange Act of 1934, as amended ("1934
Act") and is a member of the National Association of Securities Dealers, Inc.
("NASD"). AGSI is also the principal underwriter for AGL's Separate Accounts A
and D, and Separate Account E of American General Life Insurance Company of
New York, which is a wholly-owned subsidiary of AGL. These separate accounts
are registered investment companies.
AGL has entered into a distribution agreement with AGSI which acts as the
principal distributor of the Policies and provides certain marketing support
services for which it is compensated by AGL. Pursuant to the agreement, AGL
pays AGSI a distribution fee of .20% of each Policy's average annual cash
value. AGSI may enter into other agreements with broker-dealers registered
under the 1934 Act. AGSI has also entered into an arrangement with Independent
Advantage Financial and Insurance Services, Inc., a licensed insurance agency
and another indirect wholly-owned subsidiary of American General, to provide
certain additional marketing support services.
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PAYMENT OF POLICY PROCEEDS
General. We will pay any death benefit, maturity benefit, cash surrender
value or loan proceeds within seven days after we receive the last required
form or request (and any other documents that may be required for payment of a
death benefit). If we do not have information about the desired manner of
payment within 60 days after the date of notification of the insured person's
death, we will pay the proceeds as a single sum, normally within seven days
thereafter.
Delay for check clearance. We reserve the right to defer payment of that
portion of your accumulation value that is attributable to a premium payment
made by check for a reasonable period of time (not to exceed 15 days) to allow
the check to clear the banking system.
Delay of Separate Account VL-R proceeds. We may suspend the calculation and
payment of the Policy's cash surrender value in the following circumstances:
(1) if there is a failure in any of the means normally employed in
ascertaining the prices or values of investments, or (2) if for any reason the
prices or values of investments in Separate Account VL-R cannot be reasonably
ascertained; or (3) if circumstances exist as a result of which it is not
reasonably practicable to realize any of Separate Account VL-R's investments
or to determine fairly the net asset value of Separate Account VL-R; or (4) if
the remittance of funds involved in the realization of, or in the payment for
investments or payment due under this Policy cannot be carried out without
undue delay and at normal rates of exchange; or (5) the SEC determines that a
state of emergency exists; or (6) an order of the SEC permits a delay for the
protection of policy owners.
Transfers and allocations of accumulation value among the investment options
may also be postponed under these circumstances. Payments or calculations
which were due to have been made and which were deferred following the
suspension of the calculation of the cash surrender value will be made within
thirty (30) days following the lifting of the suspension, and will be
calculated based on the valuation date which immediately follows termination
of the suspension.
Delay to challenge coverage. We may challenge the validity of your insurance
Policy based on any material misstatements in your application and any
application for a change in coverage. However,
. We cannot challenge the Policy after it has been in effect, during the
insured person's lifetime, for two years from the date the Policy was
issued or restored after termination. (Some states may require that we
measure this time in some other way.)
. We cannot challenge any Policy change that requires evidence of
insurability (such as an increase in specified amount) after the change
has been in effect for two years during the insured person's lifetime.
ADJUSTMENTS TO DEATH BENEFIT
Suicide. If the insured person commits suicide within two years after the
date on which the Policy was issued, the death benefit will be limited to the
total of all premiums that have been paid to the time of death minus any
outstanding Policy loans and any partial surrenders. If the insured person
commits suicide within two years after the effective date of an increase in
specified amount that you requested, we will pay the death benefit based on
the specified amount which was in effect before the increase, plus the monthly
insurance deductions for the increase. Some states require that we compute
differently these periods for non-contestability following a suicide.
Wrong age or sex. If the age or gender of the insured person was misstated
on your application for a Policy (or for any increase in benefits), we will
adjust any death benefit to be what the monthly insurance charge deducted for
the current month would have purchased based on the correct information.
Death during grace period. If the insured person dies during the Policy's
grace period, we will deduct any overdue monthly charges from the insurance
proceeds.
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ADDITIONAL RIGHTS THAT WE HAVE
We have the right at any time to:
. transfer the entire balance in an investment option in accordance with
any transfer request you make that would reduce your accumulation value
for that option to below $5,000;
. transfer the entire balance in proportion to any other investment
options you then are using, if the accumulation value in an investment
option is below $5,000 for any other reason;
. terminate the automatic rebalancing feature if your accumulation value
falls below $100,000;
. change the underlying Mutual Fund that any investment option uses;
. add or delete investment options, combine two or more investment
options, or withdraw assets relating to Legacy Plus from one investment
option and put them into another;
. operate Separate Account VL-R under the direction of a committee or
discharge such a committee at any time;
. operate Separate Account VL-R, or one or more investment options, in any
other form the law allows, including a form that allows us to make
direct investments. Separate Account VL-R may be charged an advisory fee
if its investments are made directly rather than through another
investment company. In that case, we may make any legal investments we
wish; or
. make other changes in the Policy that in our judgment are necessary or
appropriate to ensure that the Policy continues to qualify for tax
treatment as life insurance, or that do not reduce any cash surrender
value, death benefit, accumulation value, or other accrued rights or
benefits.
If there are any material changes in the underlying investments of an
investment option that you are using, you will be notified as required by law.
We intend to comply with all applicable laws in making any changes and, if
necessary, we will seek policy owner approval.
PERFORMANCE INFORMATION
From time to time, we may quote performance information for the divisions of
Separate Account VL-R in advertisements, sales literature, or reports to
owners or prospective investors.
We may quote performance information in any manner permitted under
applicable law. We may, for example, present such information as a change in a
hypothetical owner's cash value or death benefit. We also may present the
yield or total return of the division based on a hypothetical investment in a
Policy. The performance information shown may cover various periods of time,
including periods beginning with the commencement of the operations of the
division or the Mutual Funds in which it invests. The performance information
shown may reflect the deduction of one or more charges, such as the premium
charge, and we generally expect to exclude costs of insurance charges because
of the individual nature of these charges.
We may compare a division's performance to that of other variable life
separate accounts or investment products, as well as to generally accepted
indices or analyses, such as those provided by research firms and rating
services. In addition, we may use performance ratings that may be reported
periodically in financial publications, such as Money Magazine, Forbes,
Business Week, Fortune, Financial Planning and The Wall Street Journal. We
also may advertise ratings of AGL's financial strength or claims-paying
ability as determined by firms that analyze and rate insurance companies and
by nationally recognized statistical rating organizations.
Performance information for any division reflects the performance of a
hypothetical Policy and are not illustrative of how actual investment
performance would affect the benefits under your Policy. Therefore, you should
not consider such performance information to be an estimate or guarantee of
future performance.
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OUR REPORTS TO POLICY OWNERS
Shortly after the end of each Policy year, we will mail you a report that
includes information about your Policy's current death benefit, accumulation
value, cash surrender value and policy loans. Notices will be sent to you to
confirm premium payments, transfers and certain other Policy transactions. We
will mail to you at your last known address of record, these and any other
reports and communications required by law. You should therefore give us
prompt written notice of any address change.
AGL'S MANAGEMENT
The directors, executive officers, and (to the extent responsible for
variable life operations) the other principal officers of AGL are listed
below.
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- -------------------------------------------------------------------------------
<C> <S>
James S. D'Agostino, Jr. Director and Vice Chairman of American General Life
Insurance Company since May 1997. Director and
President American General Corporation since 1996
and Senior Vice President (February 1993--August
1993). Officer positions with other American General
Companies since July 1986.
- -------------------------------------------------------------------------------
Jon P. Newton Director and Vice Chairman of American General Life
Insurance Company since February 1996. Director of
American General Corporation since October 1995 and
Vice Chairman since April 1997; Vice Chairman and
General Counsel (October 1995--April 1997). Director
of other American General affiliates since October
1994. Prior thereto, Partner with Clark, Thomas,
Winter & Newton,Austin, Texas (February 1979--
February 1993). Directorships with Houston Museum of
Natural Science Board of Trustees since 1997;
University of Texas Law School Foundation Board of
Trustees, Austin, Texas since 1997; University of
Texas-Houston Health Science Center Development
Board, Houston, Texas since 1996; Texas Commerce
Bancshares, Houston, Texas (1985--1993); Texas
Commerce Bank, Austin, Texas (1979-1993); Lomas
Financial Corporation, Dallas, Texas (1983-1993);
Vista Properties, Inc., Dallas, Texas (1992-1993).
- -------------------------------------------------------------------------------
Rodney O. Martin, Jr. Chairman of the Board of American General Life
Insurance Company since July, 1998 and a Director
since August 1996. President and CEO (August 1996--
July 1998). President of American General Life
Insurance Company of New York (November 1995- August
1996). Vice President Agencies, with Connecticut
Mutual Life Insurance Company (1990-1995).
- -------------------------------------------------------------------------------
Ronald H. Ridlehuber President, Chief Executive Officer and a Director of
American General Life Insurance Company since July,
1998. Senior Vice President and Chief Marketing
Officer of Jefferson-Pilot Life Insurance Company in
Greensboro, North Carolina (1993--1998). Prior to
1993 held various positions with Southland Life
Insurance Company in Dallas, Texas and Atlanta,
Georgia including Vice President, Sales.
- -------------------------------------------------------------------------------
David A. Fravel Director and Senior Vice President of American
General Life Insurance Company since November 1996.
Elected Executive Vice President in April, 1998.
Senior Vice President Massachusetts Mutual,
Springfield, Missouri (March 1996-June 1996); Vice
President, New Business, Connecticut Mutual Life,
Hartford, Connecticut (December 1978--March 1996).
- -------------------------------------------------------------------------------
Robert F. Herbert, Jr. Director, Senior Vice President and Chief Financial
Officer of American General Life Insurance Company
since May 1996, and Controller and Actuary from June
1988 to May 1996.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- -------------------------------------------------------------------------------
<C> <S>
Royce G. Imhoff, II Director, Senior Vice President and Chief Marketing
Officer for American General Life Insurance Company
since November 1997, Vice President (August 1996--
August 1997), and Regional Director (1992-1996).
- -------------------------------------------------------------------------------
John V. LaGrasse Director, Senior Vice President and Chief Systems
Officer of American General Life Insurance Company
since August 1996. Elected Executive Vice President in
July, 1998. Prior thereto, Director Citicorp Insurance
Services, Inc., Dover, Delaware (1986-1996).
- -------------------------------------------------------------------------------
Gary D. Reddick Executive Vice President of American General Life
Insurance Company since April 1998. Vice Chairman since
July 1997 and Executive Vice President--Administration
of The Franklin Life Insurance Company since February
1995. Senior Vice President--Administration of American
General Corporation (October 1994--February 1995).
Senior Vice President for American General Life
Insurance Company (September
1986--October 1994).
- -------------------------------------------------------------------------------
Philip K. Polkinghorn Director of American General Life Insurance Company
since February 1997. Senior Vice President--Product
Development Center since April, 1998. Senior Vice
President and Chief Marketing Officer (December 1996--
September 1997). Prior thereto, Chief Financial
Officer, Connecticut Mutual Life Insurance Company
(March 1995--March 1996); Senior Vice President First
Colony Life Insurance Company, Lynchburg, Virginia
(March 1996--December 1996), and Chief Marketing
Officer, Allmerica Financial, Worcester, MA (March
1993--April 1994).
- -------------------------------------------------------------------------------
Wayne A. Barnard Senior Vice President and Chief Actuary of American
General Life Insurance Company since November 1997 and
Vice President since February, 1991 and Chief Actuary
since February, 1993.
- -------------------------------------------------------------------------------
F. Paul Kovach, Jr. Senior Vice President--Broker Dealers and FIMG for
American General Life Insurance Company since August
1997. Since October 1994, President and Director of
American General Securities Incorporated. Vice
President of Chubb Securities Corporation, Concord, New
Hampshire, (February 1990--October 1994).
- -------------------------------------------------------------------------------
Simon J. Leech In July 1997 named as Senior Vice President--Houston
Service Center for American General Life Insurance
Company. Various positions with American General Life
Company since 1981, including Director of POS in 1993,
and Vice President--Policy Administration in 1995.
- -------------------------------------------------------------------------------
Brian D. Murphy In April 1998 named as Senior Vice President--Insurance
Operations of American General Life Insurance Company.
Vice President--Sales, Phoenix Home Life, Hartford, CT
(January 1997--April 1998). Vice President of
Underwriting and Issue, Phoenix Home Life (July
1994--January 1997). Various positions with Mutual of
New York, Syracuse, NY, including Agent, Agency
Manager, Marketing Life and Disability Income
Underwriting Management, (1978--July 1994).
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
NAME BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- -------------------------------------------------------------------------------
<C> <S>
Robert A. Slepicka In September, 1997 named as President of the Corporate
Markets Group of American General Life Insurance Company.
Senior Vice President--American General Life Insurance
Company, American General Life Insurance Company of New
York, and the United States Life Insurance Company, New
York. President--American General Life Insurance Company
of New York (December 1996). President--United States Life
Insurance Company, New York (June 1997). Senior Vice
President of New York Life Insurance Company, New York, NY
(1987--October 1996).
- -------------------------------------------------------------------------------
Don M. Ward In February 1998 named as Senior Vice President--Variable
Products-Marketing of American General Life Insurance
Company. Vice President of Pacific Life Insurance Company,
Newport Beach, CA (1991--February 1998).
- -------------------------------------------------------------------------------
Larry M. Robinson In April 1998 named as Vice President--Variable Products-
Marketing of American General Life Insurance Company. From
July 1996 Vice President of American General Life
Insurance Company. Vice President of Business Development
of Allmerica Financial, Worcester, MA (1994--1996). Vice
President of Life Marketing at Nationwide Insurance
Enterprise, Columbus, Ohio (1991--1994).
</TABLE>
The principal business address of each person listed above is our Home
Office; except that the street number for Messrs. D'Agostino and Newton, is
2929 Allen Parkway.
LEGAL MATTERS
We are not involved in any legal proceedings that would be considered
material with respect to a policy owner's interest in Separate Account VL-R.
Pauletta P. Cohn, Esquire, Associate General Counsel of the American General
Life Companies, an affiliate of AGL, has opined as to the validity of the
Policies. Mayer, Brown & Platt has advised AGL about certain federal
securities and tax law matters in connection with the Policies.
INDEPENDENT AUDITORS
The financial statements of AGL and the June 30, 1998 financial statements
of Separate Account VL-R included in this prospectus have been audited by
Ernst & Young, LLP, independent auditors, as set forth in their reports
appearing elsewhere herein. Such financial statements have been included in
this prospectus in reliance upon the reports of Ernst & Young, LLP given upon
the authority of such firm as experts in accounting and auditing. Ernst &
Young, LLP is located at One Houston Center, 1221 McKinney, Suite 2400,
Houston, Texas 77010-2007.
ACTUARIAL EXPERT
Actuarial matters in this prospectus have been examined by Wayne A. Barnard,
who is Senior Vice President and Chief Actuary of AGL. His opinion on
actuarial matters is filed as an exhibit to the registration statement we have
filed with the SEC in connection with the Policies.
SERVICES AGREEMENT
American General Life Companies ("AGLC") is party to an existing general
services agreement with AGL. AGLC, an affiliate of AGL, is a corporation
incorporated in Delaware on November 24, 1997. Pursuant to this agreement,
AGLC provides services to AGL, including most of the administration, data
processing, systems, customer services, product development, actuarial,
auditing, accounting and legal services for AGL and the Legacy Plus Policies.
28
<PAGE>
CERTAIN POTENTIAL CONFLICTS
The Mutual Funds sell shares to separate accounts of insurance companies,
both affiliated and not affiliated with AGL. We currently do not foresee any
disadvantages to you arising out of this process. Nevertheless, differences in
treatment under tax and other laws, as well as other considerations, could
cause the interests of various owners to conflict. For example, violation of
the federal tax laws by one separate account investing in the Funds could
cause the contracts funded through another separate account to lose their tax-
deferred status, unless remedial action were taken. However, each Mutual Fund
has advised us that its board of trustees (or directors) intends to monitor
events in order to identify any material irreconcilable conflicts that
possibly may arise and to determine what action, if any, should be taken in
response. If we believe that a Fund's response to any such event
insufficiently protects our policy owners, we will see to it that appropriate
action is taken to do so. If it becomes necessary for any separate account to
replace shares of any Mutual Fund in which it invests, that Fund may have to
liquidate securities in its portfolio on a disadvantageous basis.
YEAR 2000
AGL and its affiliates are in the process of modifying its computer systems
to be Year 2000 compliant. During 1997, AGL and its affiliates incurred and
expensed $15 million (pretax) related to this project. AGL and its affiliates
estimate that it will incur future costs in excess of $45 million (pretax) for
additional internal staff, third-party vendors, and other expenses to render
its systems Year 2000 compliant.
AGL and its affiliates expect to substantially complete this project during
1998. However, risks and uncertainties exist in most significant systems
development projects. If conversion of AGL and its affiliates' systems is not
completed on a timely basis, due to non-performance by third-party vendors or
other unforeseen circumstances, the Year 2000 issue could have a material
adverse impact on the operations of AGL and its affiliates.
29
<PAGE>
FINANCIAL STATEMENTS
The financial statements of AGL contained in this prospectus should be
considered to bear only upon the ability of AGL to meet its obligations under
the Legacy Plus Policies. They should not be considered as bearing upon the
investment experience of Separate Account VL-R. Interim financial statements
of Separate Account VL-R are included because Separate Account VL-R commenced
operations in 1998.
<TABLE>
<CAPTION>
PAGE TO
SEE IN
THIS
FINANCIAL STATEMENTS OF SEPARATE ACCOUNT VL-R PROSPECTUS
--------------------------------------------- ----------
<S> <C>
Report of Ernst & Young, LLP, Independent Auditors.................. 31
Statement of Net Assets as of June 30, 1998......................... 32
Statement of Operations for the six months ended June 30, 1998...... 32
Statement of Changes in Net Assets for the six months ended June 30,
1998............................................................... 33
Notes to Financial Statements....................................... 34
<CAPTION>
PAGE TO
SEE IN
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN GENERAL LIFE INSURANCE THIS
COMPANY PROSPECTUS
- -------------------------------------------------------------------- ----------
<S> <C>
Unaudited Consolidated Balance Sheet as of June 30, 1998............ 39
Unaudited Consolidated Income Statement for the six months ended
June 30, 1998...................................................... 40
Report of Ernst & Young, LLP, Independent Auditors.................. 41
Consolidated Balance Sheets as of December 31, 1997 and 1996........ 42
Consolidated Income Statements for the years ended December 31,
1997, 1996 and 1995................................................ 43
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995................................... 44
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995............................................ 45
Notes to Consolidated Financial Statements.......................... 46
</TABLE>
30
<PAGE>
[Letterhead of Ernst & Young appears here]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American General Life Insurance Company
and
Policy Owners
American General Life Insurance Company Separate Account VL-R
We have audited the accompanying statement of net assets of American General
Life Insurance Company (the "Company") Separate Account VL-R as of June 30,
1998, and the related statements of operations and changes in net assets for
the six-month period ended June 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of June 30, 1998, by
correspondence with the transfer agents. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American General Life
Insurance Company Separate Account VL-R at June 30, 1998, the results of its
operations and the changes in its net assets for the six-month period ended
June 30, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
August 12, 1998
Houston, Texas
31
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
STATEMENT OF NET ASSETS
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS:
Investment securities--at market (cost $783,853)................... $ 810,934
Due from American General Life Insurance Company................... 423
---------
Net Assets for Variable Life Insurance Policies.................. $ 811,357
=========
</TABLE>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends from mutual funds.......................................... $ 1,727
EXPENSES:
Expense and mortality fee............................................ 397
-------
Net Investment Income.............................................. 1,330
-------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments..................................... 0
Net unrealized gain on investments................................... 27,081
-------
Net Realized and Unrealized Gain on Investments.................... 27,081
-------
Increase in Net Assets Resulting from Operations................... $28,411
=======
</TABLE>
See accompanying notes.
32
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<S> <C>
OPERATIONS:
Net investment income............................................... $ 1,330
Net realized gain on investments.................................... 0
Net unrealized gain on investments.................................. 27,081
--------
Increase in net assets resulting from operations.................. 28,411
--------
PRINCIPAL TRANSACTIONS:
Premiums, net of premium taxes...................................... 875,369
Cost of insurance and administrative expenses....................... (92,423)
Payments to contract owners:
Terminations and withdrawals...................................... 0
--------
Increase in net assets resulting from principal transactions........ 782,946
--------
Total Increase in Net Assets........................................ 811,357
NET ASSETS:
Beginning of period................................................. 0
--------
End of period....................................................... $811,357
========
</TABLE>
See accompanying notes.
33
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPARATE ACCOUNT VL-R
NOTE A--ORGANIZATION
American General Life Insurance Company Separate Account VL-R (the "Separate
Account") was established by resolution of the Board of Directors of American
General Life Insurance Company (the "Company") on May 6, 1997. The Separate
Account is registered under the Investment Company Act of 1940 as a unit
investment trust and consists of seventeen investment divisions at June 30,
1998.
The Separate Account Divisions (the "Divisions") which received their first
deposits in May 1998, are currently available through Platinum Investor I and
Platinum Investor II Variable Life Insurance Policies offered by the Company.
These Divisions, funded by series of independently managed mutual fund
portfolios ("Funds") are as follows:
AIM VARIABLE INSURANCE FUNDS, INC.: MORGAN STANLEY UNIVERSAL FUNDS,
V.I. International Equity Fund INC.:
V.I. Value Fund Equity Growth Portfolio
High Yield Portfolio
AMERICAN GENERAL SERIES PORTFOLIO
COMPANY: PUTNAM VARIABLE TRUST:
International Equities Fund Putnam VT Diversified Income Fund
MidCap Index Fund Putnam VT Growth and Income Fund
Money Market Fund Putnam VT International Growth and
Stock Index Fund Income Fund
DREYFUS VARIABLE INVESTMENT FUND: SAFECO RESOURCE SERIES TRUST:
Quality Bond Portfolio Equity Portfolio
Small Cap Portfolio Growth Portfolio
MFS VARIABLE INSURANCE TRUST: VAN KAMPEN LIFE INVESTMENT TRUST:
MFS Emerging Growth Series Strategic Stock Portfolio
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The accompanying financial statements of the Separate Account Divisions have
been prepared on the basis of generally accepted accounting principles
("GAAP"). The accounting principles followed by the Divisions and the methods
of applying those principles are presented below or in the footnotes which
follow.
SECURITY VALUATION--The investments in shares of the Funds listed above are
valued at the closing net asset value (market) per share as determined by the
Funds on the day of measurement.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME--Security transactions
are accounted for on the date the order to buy or sell is executed ("trade
date"). Dividend income and distributions of capital gains are recorded on the
ex-dividend date and reinvested upon receipt. Realized gains and losses from
security transactions are determined on the basis of identified cost.
Charges and Expenses
Deductions from premium payments. Certain jurisdictions require that
deductions be made from premium payment for taxes. The amount of such
deduction currently ranges from .75% to 3.5%. Prior to allocation to the
Separate Account, an additional 2.5% is deducted from each after-tax premium
payment.
34
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Separate Account charges. Currently, daily charges at an annual effective
rate of .75% on the average daily net asset value of the Divisions are paid to
the Company. These charges are made in return for the Company's assumption of
mortality and expense risks associated with the policies issued.
For all policies, a reduction in the current daily charge by .25% will occur
after year 10, and a further reduction of .25% will occur after year 20.
Because the policies were first offered in 1998, this decrease has not yet
occurred for any outstanding policy.
Other charges. Other charges paid to the Company include: deductions for
monthly administrative charges, the cost of insurance, additional benefit
riders and withdrawal charges.
The monthly administrative charge deduction is $6 for each policy in force.
An additional monthly expense deduction for Platinum Investor II policies is
charged during the first two policy years. The amount of this charge varies
from $0.0999 per $1,000 of specified amount to $1.88 per $1,000 of specified
amount, depending upon the age and other characteristics of the insured
person.
Since determination of both the insurance rate and the Company's net amount
at risk depends upon several factors, the cost of insurance deduction may vary
from month to month. Policy accumulation value, specified amount of insurance
and certain characteristics of the insured person, are among the variables
included in the calculation for the cost of insurance deduction.
Surrender charges are deducted for the Platinum Investor I policies if the
policy is surrendered during the first 10 years. Beginning in the fourth year,
the amount of the surrender charge decreases by a constant amount each year.
In addition, a $25 transaction fee per policy is charged for each partial
surrender made. No surrender charges or transaction fees were collected for
the six months ended June 30, 1998.
NOTE C--FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the Internal Revenue
Code and includes the operations of the Separate Account in determining its
federal income tax liability. Under existing federal income tax law, the
investment income and capital gains from sales of investments realized by the
Separate Account are not taxable. Therefore, no federal income tax provision
has been made.
NOTE D--YEAR 2000 CONTINGENCY (UNAUDITED)
Management has engaged in a program to render the Company's computer systems
(hardware and mainframe and personal applications software) Year 2000
compliant. The Company will incur internal staff costs as well as third-party
vendor and other expenses to prepare the systems for Year 2000. The cost of
testing and conversion of systems applications has not had, and is not
expected to have, a material adverse effect on the Company's results of
operations or financial condition. However, risks and uncertainties exist in
most significant systems development projects. If conversion of the Company's
systems is not completed on a timely basis, due to nonperformance by third-
party vendors or other unforeseen circumstances, the Year 2000 problem could
have a material adverse impact on the operations of the Company.
35
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--INVESTMENTS
Fund shares are purchased at net asset value with net policy transactions
(net premium payments less surrenders and amounts payable to the Company for
administrative, insurance and surrender charges) and reinvestment of
distributions made by the Funds. The following is a summary of shares of the
Funds owned as of June 30, 1998.
<TABLE>
<CAPTION>
NET VALUE OF UNREALIZED
ASSET SHARES AT COST OF APPRECIATION
FUND SHARES VALUE MARKET SHARES HELD (DEPRECIATION)
---- ---------- ------ --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
AIM VARIABLE INSURANCE
FUNDS, INC.:
V.I. International
Equity Fund........... 0.000 $20.35 $ 0 $ 0 $ 0
V.I. Value Fund........ 7,457.465 24.67 183,976 175,821 8,155
-------- -------- -------
183,976 175,821 8,155
AMERICAN GENERAL SERIES
PORTFOLIO COMPANY:
International Equities
Fund.................. 0.000 12.06 0 0 0
MidCap Index Fund...... 336.929 25.42 8,565 8,299 266
Money Market Fund...... 34,573.370 1.00 34,573 34,573 0
Stock Index Fund....... 249.188 34.70 8,647 8,301 346
-------- -------- -------
51,785 51,173 612
DREYFUS VARIABLE
INVESTMENT FUND:
Quality Bond Portfolio. 0.000 11.91 0 0 0
Small Cap Portfolio.... 3,020.532 60.54 182,863 175,820 7,043
-------- -------- -------
182,863 175,820 7,043
MFS VARIABLE INSURANCE
TRUST:
MFS Emerging Growth
Series................ 0.000 19.45 0 0 0
MORGAN STANLEY UNIVERSAL
FUNDS, INC.:
Equity Growth
Portfolio............. 12,334.756 14.74 181,814 175,820 5,994
High Yield Portfolio... 0.000 11.01 0 0 0
-------- -------- -------
181,814 175,820 5,994
PUTNAM VARIABLE TRUST:
VT Diversified Income
Fund.................. 1,338.756 10.94 14,646 14,700 (54)
VT Growth and Income
Fund.................. 213.114 27.40 5,839 5,880 (41)
VT International Growth
and Income Fund....... 324.971 13.28 4,316 4,410 (94)
-------- -------- -------
24,801 24,990 (189)
SAFECO RESOURCE SERIES
TRUST:
Equity Portfolio....... 2,085.662 28.77 60,004 58,607 1,397
Growth Portfolio....... 4,577.229 27.46 125,691 121,622 4,069
-------- -------- -------
185,695 180,229 5,466
VAN KAMPEN LIFE
INVESTMENT TRUST:
Strategic Stock
Portfolio............. 0.000 11.25 0 0 0
-------- -------- -------
Total.................. $810,934 $783,853 $27,081
======== ======== =======
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments for
the period ended June 30, 1998 were $1,519,295 and $735,442, respectively. The
cost of total investments owned at June 30, 1998 was the same for both
financial reporting and federal income tax purposes.
36
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--SUMMARY OF CHANGES IN UNITS
Summary of Changes in Units for the Period Ended June 30, 1998
<TABLE>
<CAPTION>
AIM V.I. AIM V.I. AGSPC AGSPC AGSPC
INTERNATIONAL VALUE INTERNATIONAL MIDCAP INDEX MONEY MARKET
EQUITY FUND FUND EQUITIES FUND FUND FUND
-------------- ------------------ ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 0.000 0.000 0.000 0.000 0.000
Purchase payments....... 0.000 0.000 0.000 0.000 85,258.281
Transfers between funds. 0.000 17,623.827 0.000 829.319 (74,712.995)
COI and administration
charges................ 0.000 0.000 0.000 0.000 (7,046.489)
Surrenders.............. 0.000 0.000 0.000 0.000 0.000
---------- ---------- ---------- ------- -----------
Outstanding at end of
period................. 0.000 17,623.827 0.000 829.319 3,498.797
========== ========== ========== ======= ===========
<CAPTION>
AGSPC DREYFUS DREYFUS MFS MORGAN STANLEY
STOCK INDEX QUALITY BOND SMALL CAP EMERGING GROWTH EQUITY GROWTH
FUND PORTFOLIO PORTFOLIO SERIES PORTFOLIO
-------------- ------------------ ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 0.000 0.000 0.000 0.000 0.000
Purchase payments....... 0.000 0.000 0.000 0.000 0.000
Transfers between funds. 829.319 0.000 17,711.214 0.000 17,640.530
COI and administration
charges................ 0.000 0.000 0.000 0.000 0.000
Surrenders.............. 0.000 0.000 0.000 0.000 0.000
---------- ---------- ---------- ------- -----------
Outstanding at end of
period................. 829.319 0.000 17,711.214 0.000 17,640.530
========== ========== ========== ======= ===========
<CAPTION>
MORGAN STANLEY PUTNAM VT PUTNAM VT PUTNAM VT SAFECO
HIGH YIELD DIVERSIFIED INCOME GROWTH AND INTL GROWTH AND EQUITY
PORTFOLIO FUND INCOME FUND INCOME FUND PORTFOLIO
-------------- ------------------ ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 0.000 0.000 0.000 0.000 0.000
Purchase payments....... 0.000 0.000 0.000 0.000 0.000
Transfers between funds. 0.000 1,469.984 587.994 440.995 5,861.072
COI and administration
charges................ 0.000 0.000 0.000 0.000 0.000
Surrenders.............. 0.000 0.000 0.000 0.000 0.000
---------- ---------- ---------- ------- -----------
Outstanding at end of
period................. 0.000 1,469.984 587.994 440.995 5,861.072
========== ========== ========== ======= ===========
<CAPTION>
SAFECO VAN KAMPEN LIT
GROWTH STRATEGIC STOCK
PORTFOLIO PORTFOLIO
-------------- ------------------
<S> <C> <C>
Outstanding at beginning
of period.............. 0.000 0.000
Purchase payments....... 0.000 0.000
Transfers between funds. 12,636.546 0.000
COI and administration
charges................ 0.000 0.000
Surrenders.............. 0.000 0.000
---------- ----------
Outstanding at end of
period................. 12,636.546 0.000
========== ==========
</TABLE>
37
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE G--NET ASSETS REPRESENTED BY:
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------
UNITS UNIT VALUE AMOUNT
---------- ---------- --------
<S> <C> <C> <C>
UNITS OUTSTANDING:
AIM VARIABLE INSURANCE FUNDS, INC.:
AIM V.I. International Equity Fund............ 0.000 $10.000000 $ 0
AIM V.I. Value Fund........................... 17,623.827 10.437299 183,945
--------
183,945
--------
AMERICAN GENERAL SERIES PORTFOLIO COMPANY:
International Equities Fund................... 0.000 10.000000 0
MidCap Index Fund............................. 829.319 10.324636 8,562
Money Market Fund............................. 3,498.797 10.041460 35,133
Stock Index Fund.............................. 829.319 10.423558 8,644
--------
52,339
--------
DREYFUS VARIABLE INVESTMENT FUND:
Quality Bond Portfolio........................ 0.000 10.000000 0
Small Cap Portfolio........................... 17,711.214 10.322999 182,833
--------
182,833
--------
MFS VARIABLE INSURANCE TRUST:
MFS Emerging Growth Series.................... 0.000 10.000000 0
--------
MORGAN STANLEY UNIVERSAL FUNDS, INC.:
Equity Growth Portfolio....................... 17,640.530 10.304911 181,784
High Yield Portfolio.......................... 0.000 10.000000 0
--------
181,784
--------
PUTNAM VARIABLE TRUST:
Putnam VT Diversified Income Fund............. 1,469.984 9.959193 14,640
Putnam VT Growth and Income Fund.............. 587.994 9.926772 5,837
Putnam VT International Growth and Income
Fund......................................... 440.995 9.781966 4,314
--------
24,791
--------
SAFECO RESOURCE SERIES TRUST:
Equity Growth................................. 5,861.072 10.236099 59,995
Growth Portfolio.............................. 12,636.546 9.944948 125,670
--------
185,665
--------
VAN KAMPEN LIFE INVESTMENT TRUST:
Strategic Stock Portfolio..................... 0.000 10.000000 0
--------
Value of Units Outstanding at June 30, 1998..... $811,357
========
</TABLE>
38
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998
------ --------------
(IN THOUSANDS)
<S> <C>
Investments:
Fixed maturity securities, at fair value (amortized cost
$27,328,947)................................................. $28,716,667
Equity securities, at fair value (cost $13,008)............... 14,696
Mortgage loans on real estate................................. 1,664,063
Policy loans.................................................. 1,131,687
Investment real estate........................................ 130,010
Other long-term investments................................... 50,310
Short-term investments........................................ 150,629
-----------
Total investments............................................... 31,858,062
Cash............................................................ 27,298
Investment in Parent Company (cost $8,597)...................... 49,804
Indebtedness from affiliates.................................... 77,401
Accrued investment income....................................... 454,769
Accounts receivable............................................. 255,963
Deferred policy acquisition costs............................... 1,072,776
Property and equipment.......................................... 34,667
Other assets.................................................... 157,239
Assets held in separate accounts................................ 13,898,985
-----------
Total assets.................................................... $47,886,964
===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C>
Liabilities:
Future policy benefits........................................ $28,844,322
Other policy claims and benefits payable...................... 69,246
Other policyholders' funds.................................... 401,343
Federal income taxes.......................................... 670,979
Indebtedness to affiliates.................................... 3,740
Other liabilities............................................. 629,312
Liabilities related to separate accounts...................... 13,898,985
-----------
Total liabilities............................................... 44,517,927
Shareholders' equity:
Common stock, $10 par value, 600,000 shares authorized,
issued, and outstanding...................................... 6,000
Preferred stock, $100 par value, 8,500 shares authorized,
issued, and outstanding...................................... 850
Additional paid-in capital.................................... 1,242,106
Net unrealized investment gains............................... 638,178
Retained earnings............................................. 1,481,903
-----------
Total shareholders' equity...................................... 3,369,037
-----------
Total liabilities and shareholders' equity...................... $47,886,964
===========
</TABLE>
39
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
UNAUDITED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1998
--------------
(IN THOUSANDS)
<S> <C>
Revenues:
Premiums and other considerations.............................. $ 234,825
Net investment income.......................................... 1,149,155
Net realized investment gains (losses)......................... 5,072
Other.......................................................... 34,982
----------
Total revenues................................................... 1,424,034
Benefits and expenses:
Benefits....................................................... 889,007
Operating costs and expenses................................... 211,749
Interest expense............................................... 5
----------
Total benefits and expenses...................................... 1,100,761
----------
Income before income tax expense................................. 323,273
Income tax expense............................................... 108,785
----------
Net income....................................................... $ 214,488
==========
</TABLE>
40
<PAGE>
[Letterhead of Ernst & Young LLP]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
American General Life Insurance Company
We have audited the accompanying consolidated balance sheets of American
General Life Insurance Company (an indirectly wholly owned subsidiary of
American General Corporation) and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
General Life Insurance Company and subsidiaries at December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
February 23, 1998
41
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
ASSETS 1997 1996
------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Investments:
Fixed maturity securities, at fair value (amortized
cost $26,131,207 in 1997 and $24,762,134 in 1996)... $27,386,715 $25,395,381
Equity securities, at fair value (cost $19,208 in
1997 and $17,642 in 1996)........................... 20,555 21,114
Mortgage loans on real estate........................ 1,659,921 1,707,843
Policy loans......................................... 1,093,694 1,006,137
Investment real estate............................... 129,364 145,442
Other long-term investments.......................... 55,118 43,344
Short-term investments............................... 100,061 94,882
----------- -----------
Total investments...................................... 30,445,987 28,413,584
Cash................................................... 99,284 33,550
Investment in Parent Company (cost $8,597 in 1997 and
1996)................................................. 37,823 28,597
Indebtedness from affiliates........................... 96,519 86,488
Accrued investment income.............................. 433,111 392,058
Accounts receivable.................................... 208,209 170,457
Deferred policy acquisition costs...................... 835,031 1,042,783
Property and equipment................................. 33,827 35,414
Other assets........................................... 132,659 134,289
Assets held in separate accounts....................... 11,242,270 7,727,189
----------- -----------
Total assets........................................... $43,564,720 $38,064,409
=========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Future policy benefits............................... $27,849,893 $26,558,538
Other policy claims and benefits payable............. 42,677 41,679
Other policyholders' funds........................... 398,314 376,675
Federal income taxes................................. 543,379 402,361
Indebtedness to affiliates........................... 4,712 3,376
Other liabilities.................................... 421,861 325,630
Liabilities related to separate accounts............. 11,242,270 7,727,189
----------- -----------
Total liabilities.................................. 40,503,106 35,435,448
Shareholders' equity:
Common stock, $10 par value, 600,000 shares
authorized, issued, and outstanding................. 6,000 6,000
Preferred stock, $100 par value, 8,500 shares
authorized, issued, and outstanding................. 850 850
Additional paid-in capital........................... 1,184,743 933,342
Net unrealized investment gains...................... 427,526 219,151
Retained earnings.................................... 1,442,495 1,469,618
----------- -----------
Total shareholders' equity............................. 3,061,614 2,628,961
Total liabilities and shareholders' equity............. $43,564,720 $38,064,409
=========== ===========
</TABLE>
See accompanying notes.
42
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Premiums and other considerations........... $ 428,721 $ 382,923 $ 342,420
Net investment income....................... 2,198,623 2,095,072 2,011,088
Net realized investment gains (losses)...... 29,865 28,502 (1,942)
Other....................................... 53,370 41,968 27,172
---------- ---------- ----------
Total revenues............................ 2,710,579 2,548,465 2,378,738
Benefits and expenses:
Benefits.................................... 1,757,504 1,689,011 1,641,206
Operating costs and expenses................ 379,012 347,369 309,110
Interest expense............................ 782 830 2,180
---------- ---------- ----------
Total benefits and expenses................... 2,137,298 2,037,210 1,952,496
---------- ---------- ----------
Income before income tax expense.............. 573,281 511,255 426,242
Income tax expense............................ 198,724 176,660 143,947
---------- ---------- ----------
Net income.................................... $ 374,557 $ 334,595 $ 282,295
========== ========== ==========
</TABLE>
See accompanying notes.
43
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock:
Balance at beginning of
year................... $ 6,000 $ 6,000 $ 6,000
Change during year...... -- -- --
---------- ---------- ----------
Balance at end of year.... 6,000 6,000 6,000
Preferred stock:
Balance at beginning of
year................... 850 850 --
Change during year...... -- -- 850
---------- ---------- ----------
Balance at end of year.... 850 850 850
Additional paid-in
capital:
Balance at beginning of
year................... 933,342 858,075 850,358
Capital contribution
from Parent Company.... 250,000 75,000 --
Other changes during
year................... 1,401 267 7,717
---------- ---------- ----------
Balance at end of year.... 1,184,743 933,342 858,075
Net unrealized investment
gains (losses):
Balance at beginning of
year................... 219,151 493,594 (730,900)
Change during year...... 208,375 (274,443) 1,224,494
---------- ---------- ----------
Balance at end of year.... 427,526 219,151 493,594
Retained earnings:
Balance at beginning of
year................... 1,469,618 1,324,703 1,249,109
Net income.............. 374,557 334,595 282,295
Dividends paid.......... (401,680) (189,680) (206,701)
---------- ---------- ----------
Balance at end of year.... 1,442,495 1,469,618 1,324,703
---------- ---------- ----------
Total shareholders'
equity................... $3,061,614 $2,628,961 $2,683,222
========== ========== ==========
</TABLE>
See accompanying notes.
44
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................. $ 374,557 $ 334,595 $ 282,295
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Change in accounts receivable......... (37,752) 3,846 (18,654)
Change in future policy benefits and
other policy claims.................. (1,143,736) (543,193) (70,383)
Amortization of policy acquisition
costs................................ 115,467 102,189 68,295
Policy acquisition costs deferred..... (219,339) (188,001) (203,607)
Change in other policyholders' funds.. 21,639 (69,126) 63,174
Provision for deferred income tax
expense.............................. 13,264 12,388 (9,773)
Depreciation.......................... 16,893 16,993 18,119
Amortization.......................... (28,276) (30,758) (35,825)
Change in indebtedness to/from
affiliates........................... (8,695) 4,432 7,596
Change in amounts payable to brokers.. 31,769 (25,260) 30,964
Net (gain) loss on sale of
investments.......................... (29,865) (28,502) 1,942
Other, net............................ 30,409 32,111 46,863
----------- ----------- -----------
Net cash (used in) provided by
operating activities............... (863,665) (378,286) 181,006
INVESTING ACTIVITIES
Purchases of investments and loans made. (29,638,861) (27,245,453) (14,573,323)
Sales or maturities of investments and
receipts from repayment of loans....... 28,300,238 25,889,422 12,528,185
Sales and purchases of property and
equipment, net......................... (9,230) (8,057) (12,114)
----------- ----------- -----------
Net cash used in investing activities... (1,347,853) (1,364,088) (2,057,252)
FINANCING ACTIVITIES
Policyholder account deposits........... 4,187,191 3,593,380 3,372,522
Policyholder account withdrawals........ (1,759,660) (1,746,987) (1,258,560)
Dividends paid.......................... (401,680) (189,680) (206,701)
Capital contribution from Parent........ 250,000 75,000 --
Other................................... 1,401 267 67
----------- ----------- -----------
Net cash provided by financing
activities............................. 2,277,252 1,731,980 1,907,328
----------- ----------- -----------
Increase (decrease) in cash............. 65,734 (10,394) 31,082
Cash at beginning of year............... 33,550 43,944 12,862
----------- ----------- -----------
Cash at end of year..................... $ 99,284 $ 33,550 $ 43,944
=========== =========== ===========
</TABLE>
Interest paid amounted to approximately $1,004,000, $1,080,000, and
$1,933,000 in 1997, 1996, and 1995, respectively.
See accompanying notes.
45
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NATURE OF OPERATIONS
American General Life Insurance Company (the "Company") is a wholly owned
subsidiary of AGC Life Insurance Company, which is a wholly owned subsidiary
of American General Corporation (the "Parent Company"). The Company's wholly
owned life insurance subsidiaries are American General Life Insurance Company
of New York ("AGNY") and The Variable Annuity Life Insurance Company
("VALIC").
The Company offers a complete portfolio of the standard forms of universal
life, interest-sensitive whole life, term life, structured settlements, and
fixed and variable annuities throughout the United States. In addition, a
variety of equity products is sold through its broker/dealer, American General
Securities, Inc. The Company serves the estate planning needs of middle- and
upper-income households and the insurance needs of small- to medium-sized
businesses. AGNY offers a broad array of traditional and interest-sensitive
insurance, in addition to individual annuity products. VALIC provides tax-
deferred retirement annuities and employer-sponsored retirement plans to
employees of health care, educational, public sector, and other not-for-profit
organizations throughout the United States.
1. ACCOUNTING POLICIES
1.1 PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") and include the accounts of
the Company and its wholly owned life insurance subsidiaries, AGNY and VALIC.
Transactions with the Parent Company and other subsidiaries of the Parent
Company are not eliminated from the financial statements of the Company. All
other material intercompany transactions have been eliminated in
consolidation.
The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and disclosures of contingent assets and liabilities. Ultimate
results could differ from those estimates.
46
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1.2 STATUTORY ACCOUNTING
The Company and its wholly owned life insurance subsidiaries are required to
file financial statements with state regulatory authorities. State insurance
laws and regulations prescribe accounting practices for calculating statutory
net income and equity. In addition, state regulators may permit statutory
accounting practices that differ from prescribed practices. The use of such
permitted practices by the Company and its wholly owned life insurance
subsidiaries did not have a material effect on statutory equity at December
31, 1997.
Statutory financial statements differ from GAAP. Significant differences
were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income:
Statutory net income (1997 balance is
unaudited).............................. $ 327,813 $ 284,070 $ 197,769
Deferred policy acquisition costs........ 103,872 85,812 135,312
Deferred income taxes.................... (13,264) (12,388) 9,773
Adjustments to policy reserves........... (30,162) (19,954) (77,591)
Goodwill amortization.................... (2,067) (2,169) (2,195)
Net realized gain on investments......... 20,139 14,140 22,874
Gain on sale of subsidiary............... -- -- 661
Other, net............................... (31,774) (14,916) (4,308)
---------- ---------- ----------
GAAP net income........................ $ 374,557 $ 334,595 $ 282,295
========== ========== ==========
Shareholders' equity:
Statutory capital and surplus (1997
balance is unaudited)................... $1,636,327 $1,441,768 $1,298,323
Deferred policy acquisition costs........ 835,031 1,042,783 605,501
Deferred income taxes.................... (535,703) (410,007) (549,663)
Adjustments to policy reserves........... (319,680) (297,434) (311,065)
Acquisition-related goodwill............. 51,424 55,626 57,795
Asset valuation reserve ("AVR").......... 255,975 291,205 263,295
Interest maintenance reserve ("IMR")..... 9,596 63 3,114
Investment valuation differences......... 1,272,339 643,289 1,417,775
Benefit plans, pretax.................... 6,103 6,749 6,023
Surplus from separate accounts........... (150,928) (106,026) (76,645)
Other, net............................... 1,130 (39,055) (31,231)
---------- ---------- ----------
Total GAAP shareholders' equity............ $3,061,614 $2,628,961 $2,683,222
========== ========== ==========
</TABLE>
The more significant differences between GAAP and statutory accounting
principles are that under GAAP: (a) acquisition costs related to acquiring new
business are deferred and amortized (generally in proportion to the present
value of expected gross profits from surrender charges and investment,
mortality, and expense margins), rather than being charged to operations as
incurred; (b) future policy benefits are based on estimates of mortality,
interest, and withdrawals generally representing the Company's experience,
which may differ from those based on statutory mortality and interest
requirements without consideration of withdrawals; (c) deferred federal income
taxes are provided for significant timing differences between income reported
for financial reporting purposes and income reported for federal income tax
purposes; (d) certain assets (principally furniture and equipment, agents'
debit balances, computer software, and certain other receivables) are reported
as assets rather than being charged to retained earnings; (e) acquisitions are
accounted for using the purchase method of accounting rather than being
accounted for as equity investments; and (f) fixed maturity investments are
carried at fair value rather than amortized cost. In addition, statutory
accounting principles require life insurance companies to establish an AVR and
an IMR. The AVR is designed to address the credit-related risk for bonds,
47
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
preferred stocks, derivative instruments, and mortgages and market risk for
common stocks, real estate, and other invested assets. The IMR is composed of
investment- and liability-related realized gains and losses that result from
interest rate fluctuations. These realized gains and losses, net of tax, are
amortized into income over the expected remaining life of the asset sold or
the liability released.
1.3 INSURANCE CONTRACTS
The insurance contracts accounted for in these financial statements include
primarily long-duration contracts. Long-duration contracts include traditional
whole life, endowment, guaranteed renewable term life, universal life, limited
payment, and investment contracts. Long-duration contracts generally require
the performance of various functions and services over a period of more than
one year. The contract provisions generally cannot be changed or canceled by
the insurer during the contract period; however, most new contracts written by
the Company allow the insurer to revise certain elements used in determining
premium rates or policy benefits, subject to guarantees stated in the
contracts.
1.4 INVESTMENTS
Fixed Maturity and Equity Securities
All fixed maturity and equity securities are currently classified as
available-for-sale and recorded at fair value. After adjusting related balance
sheet accounts as if the unrealized gains (losses) had been realized, the net
adjustment is recorded in net unrealized gains (losses) on securities within
shareholders' equity. If the fair value of a security classified as available-
for-sale declines below its cost and this decline is considered to be other
than temporary, the security is reduced to its fair value, and the reduction
is recorded as a realized loss.
Mortgage Loans
Mortgage loans are reported at amortized cost, net of an allowance for
losses. The allowance for losses covers all nonperforming loans, consisting of
loans restructured or delinquent 60 days or more, and loans for which
management has a concern based on its assessment of risk factors, such as
potential nonpayment or nonmonetary default. The allowance is based on a loan-
specific review and a formula that reflects past results and current trends.
Impaired loans, those for which the Company determines it is probable that
all amounts due under the contractual terms will not be collected, are
reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated costs to sell.
Policy Loans
Policy loans are reported at unpaid principal balances adjusted periodically
for uncollectible amounts.
Investment Real Estate
Investment real estate consists of income-producing real estate, foreclosed
real estate, and the American General Center, an office complex in Houston.
The Company classifies all investment real estate, except the American General
Center, as available-for-sale. Real estate available-for-sale is carried at
the lower of cost less accumulated depreciation, if applicable, or fair value
less costs to sell. Changes in estimates of fair value less costs to sell are
recognized as realized gains (losses) through a valuation allowance.
Real estate held-for-investment is carried at cost less accumulated
depreciation and impairment reserves and write-downs, if applicable.
Impairment losses are recorded whenever circumstances indicate that a property
48
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
might be impaired and the estimated undiscounted future cash flows of the
property are less than the carrying amount. In such event, the property is
written down to fair value, determined by market prices, third-party
appraisals, or expected future cash flows discounted at market rates. Any
write-down is recognized as a realized loss, and a new cost basis is
established.
Investment Income
Interest on fixed maturity securities, performing and restructured mortgage
loans, and policy loans is recorded as income when earned and is adjusted for
any amortization of premium or discount. Interest on impaired mortgage loans
is recorded as income when received. Dividends are recorded as income on ex-
dividend dates.
Realized Investment Gains (Losses)
Realized investment gains (losses) are recognized using the specific-
identification method and include declines in fair value of investments below
cost that are considered to be other than temporary.
1.5 SEPARATE ACCOUNTS
Separate accounts are assets and liabilities associated with certain
contracts, principally annuities; the investment risk lies solely with the
contract holder rather than the Company. Consequently, the Company's liability
for these accounts equals the value of the account assets. Investment income,
realized investment gains (losses), and policyholder account deposits and
withdrawals related to separate accounts are excluded from the consolidated
statements of income and cash flows. Assets held in separate accounts are
primarily shares in mutual funds, which are carried at fair value based on the
quoted net asset value per share.
1.6 DEFERRED POLICY ACQUISITION COSTS ("DPAC")
Certain costs of writing an insurance policy, including agents' commissions,
underwriting and marketing expenses, are deferred and reported as DPAC.
DPAC associated with interest-sensitive life insurance contracts, insurance
investment contracts, and participating life insurance contracts, to the
extent recoverable from expected future gross profits, is deferred and
amortized generally in proportion to the present value of expected future
gross profits from surrender charges and investment, mortality, and expense
margins. Expected future gross profits are adjusted to include the impact of
realized and unrealized gains (losses) as if net unrealized investment gains
(losses) had been realized at the balance sheet date. The impact of this
adjustment is included in the net unrealized gains (losses) on securities
within shareholders' equity. DPAC associated with all other insurance
contracts, to the extent recoverable from future policy revenues, is amortized
over the premium-paying period of the related contracts using assumptions that
are consistent with those used in computing policy benefit reserves.
The Company reviews the carrying value of DPAC on at least an annual basis.
In determining whether the carrying amount is appropriate, the Company
considers estimated future gross profits or future premiums, as applicable for
the type of contract. In all cases, the Company considers expected mortality,
interest earned and credited rates, persistency, and expenses.
1.7 PREMIUM RECOGNITION
Most receipts for annuities and interest-sensitive life insurance policies
are classified as deposits instead of revenue. Revenues for these contracts
consist of mortality, expense, and surrender charges assessed against the
49
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
account balance. Policy charges that compensate the Company for future
services are deferred and recognized in income over the period earned, using
the same assumptions used to amortize DPAC (see Note 1.6).
For limited-payment contracts, net premiums are recorded as revenue, and the
difference between the gross premium received and the net premium is deferred
and recognized in income in a constant relationship to insurance in force. For
all other contracts, premiums are recognized when due. When the revenue is
recorded, an estimate of the cost of the related benefit is recorded in the
future policy benefits account on the consolidated balance sheet. Also, this
cost is recorded in the consolidated statement of income as a benefit in the
current year and in all future years during which the policy is expected to be
renewed.
1.8 OTHER ASSETS
Acquisition-related goodwill, which is included in other assets, is charged
to expense in equal amounts over 40 years. The carrying value of goodwill is
regularly reviewed for indicators of impairment in value.
1.9 DEPRECIATION
Provision for depreciation of American General Center, data processing
equipment, and furniture and fixtures is computed on the straight-line method
over the estimated useful lives of the assets.
1.10 POLICY AND CONTRACT CLAIMS RESERVES
Substantially all of the Company's insurance and annuity liabilities relate
to long-duration contracts which generally require performance over a period
of more than one year. The contract provisions normally cannot be changed or
canceled by the Company during the contract period.
For interest-sensitive and investment contracts, reserves equal the sum of
the policy account balance and deferred revenue charges. In establishing
reserves for limited payment and other long-duration contracts, an estimate is
made of the cost of future policy benefits to be paid as a result of present
and future claims due to death, disability, surrender of a policy, and payment
of an endowment. Reserves for traditional insurance products are determined
using the net level premium method. Based on past experience, consideration is
given to expected policyholder deaths, policy lapses, surrenders, and
terminations. Consideration is also given to the possibility that the
Company's experience with policyholders will be worse than expected. Interest
assumptions used to compute reserves ranged from 2.0% to 13.5% at December 31,
1997.
The claims reserves are determined using case-basis evaluation and
statistical analyses and represent estimates of the ultimate net cost of
unpaid claims. These estimates are reviewed; and as adjustments become
necessary, such adjustments are reflected in current operations. Since these
reserves are based on estimates, the ultimate settlement of claims may vary
from the amounts included in the accompanying financial statements. Although
it is not possible to measure the degree of variability inherent in such
estimates, management believes claim reserves are reasonable.
1.11 REINSURANCE
The Company limits its exposure to loss on any single insured to $1.5
million by ceding additional risks through reinsurance contracts with other
insurers. Ceded reinsurance becomes a liability of the reinsurer assuming the
risk. The Company diversifies its risk of exposure to reinsurance loss by
using several reinsurers that have strong claims-paying ability ratings. If a
reinsurer could not meet its obligations, the Company would reassume the
liability. The likelihood of a material reinsurance liability being reassumed
by the Company is considered to be remote.
50
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Benefits paid and future policy benefits related to ceded reinsurance
contracts are recorded as reinsurance receivables. The cost of reinsurance is
recognized over the life of the underlying reinsured policies using
assumptions consistent with those used to account for the underlying policies.
1.12 PARTICIPATING POLICY CONTRACTS
Participating life insurance contracts contain dividend payment provisions
that entitle the policyholder to participate in the earnings of the contracts.
Participating life insurance contracts accounted for 2.22% and 2.47% of life
insurance in force at December 31, 1997 and 1996, respectively. Such business
is accounted for in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 120.
1.13 INCOME TAXES
The Company and its life insurance subsidiaries, together with certain other
life insurance subsidiaries of the Parent Company, are included in a life/non-
life consolidated tax return with the Parent Company and its noninsurance
subsidiaries. The Company participates in a tax sharing agreement with other
companies included in the consolidated tax return. Under this agreement, tax
payments are made to the Parent Company as if the companies filed separate tax
returns; and companies incurring operating and/or capital losses are
reimbursed for the use of these losses by the consolidated return group.
Income taxes are provided for in accordance with SFAS No. 109. Under this
standard, deferred tax assets and liabilities are calculated using the
differences between the financial reporting basis and the tax basis of assets
and liabilities, using the enacted tax rate. The effect of a tax rate change
is recognized in income in the period of enactment. Under SFAS No. 109, state
income taxes are included in income tax expense.
1.14 NEW ACCOUNTING STANDARD NOT YET ADOPTED
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which establishes standards for reporting and
displaying comprehensive income and its components in the financial
statements. Beginning in 1998, the Company must adopt this statement for all
periods presented. Application of this statement will not change recognition
or measurement of net income and, therefore, will not impact the Company's
consolidated results of operations or financial position.
2. INVESTMENTS
2.1 INVESTMENT INCOME
Investment income by type of investment was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment income:
Fixed maturities............................ $1,966,528 $1,846,549 $1,759,358
Equity securities........................... 1,067 1,842 6,773
Mortgage loans on real estate............... 157,035 175,833 185,022
Investment real estate...................... 22,157 22,752 16,397
Policy loans................................ 62,939 58,211 52,939
Other long-term investments................. 3,135 2,328 1,996
Short-term investments...................... 8,626 9,280 6,234
Investment income from affiliates........... 11,094 11,502 12,570
---------- ---------- ----------
Gross investment income....................... 2,232,581 2,128,297 2,041,289
Investment expenses........................... 33,958 33,225 30,201
---------- ---------- ----------
Net investment income......................... $2,198,623 $2,095,072 $2,011,088
========== ========== ==========
</TABLE>
51
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The carrying value of investments that have produced no investment income
during 1997 was less than 1% of total invested assets. The ultimate
disposition of these investments is not expected to have a material effect on
the Company's results of operations and financial position.
2.2 NET REALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) by type of investment were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Gross gains.................................... $ 42,966 $ 46,498 $ 38,657
Gross losses................................... (34,456) (47,293) (41,022)
-------- -------- --------
Total fixed maturities........................... 8,510 (795) (2,365)
Equity securities................................ 1,971 18,304 9,710
Other investments................................ 19,384 10,993 (9,287)
-------- -------- --------
Net realized investment gains (losses) before
tax............................................. 29,865 28,502 (1,942)
Income tax expense............................... 10,452 9,976 547
-------- -------- --------
Net realized investment gains (losses) after tax. $ 19,413 $ 18,526 $ (2,489)
======== ======== ========
</TABLE>
2.3 FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities are classified as available-for-
sale and reported at fair value (see Note 1.4). Amortized cost and fair value
at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAIN LOSS FAIR VALUE
----------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturity securities:
Corporate securities:
Investment-grade............... $17,913,942 $ 906,235 $17,551 $18,802,626
Below investment-grade......... 950,438 34,290 4,032 980,696
Mortgage-backed securities*..... 6,614,704 278,143 4,260 6,888,587
U.S. government obligations..... 289,406 46,529 74 335,861
Foreign governments............. 318,212 18,076 3,534 332,754
State and political
subdivisions................... 44,505 1,686 -- 46,191
----------- ---------- ------- -----------
Total fixed maturity securities.. $26,131,207 $1,284,959 $29,451 $27,386,715
=========== ========== ======= ===========
Equity securities................ $ 19,208 $ 2,145 $ 239 $ 21,114
=========== ========== ======= ===========
Investment in Parent Company..... $ 8,597 $ 29,226 $ -- $ 37,823
=========== ========== ======= ===========
</TABLE>
52
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAIN LOSS FAIR VALUE
----------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Fixed maturity securities:
Corporate securities:
Investment-grade............... $15,639,170 $528,602 $ 90,379 $16,077,393
Below investment-grade......... 898,187 29,384 5,999 921,572
Mortgage-backed securities*..... 7,547,616 186,743 54,543 7,679,816
U.S. government obligations..... 313,759 26,597 1,050 339,306
Foreign governments............. 313,655 13,255 248 326,662
State and political
subdivisions................... 48,553 1,003 226 49,330
----------- -------- -------- -----------
Redeemable preferred stocks..... 1,194 108 -- 1,302
----------- -------- -------- -----------
Total fixed maturity securities.. $24,762,134 $785,692 $152,445 $25,395,381
=========== ======== ======== ===========
Equity securities................ $ 17,642 $ 3,021 $ 108 $ 20,555
=========== ======== ======== ===========
Investment in Parent Company..... $ 8,597 $ 20,000 $ -- $ 28,597
=========== ======== ======== ===========
</TABLE>
- --------
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and government
agencies.
Net unrealized gains (losses) on securities included in shareholders' equity
at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Gross unrealized gains................................... $1,316,330 $ 808,713
Gross unrealized losses.................................. (29,690) (152,553)
DPAC and other fair value adjustments.................... (621,867) (315,117)
Deferred federal income taxes............................ (237,247) (121,892)
---------- ---------
Net unrealized gains on securities....................... $ 427,526 $ 219,151
========== =========
</TABLE>
The contractual maturities of fixed maturity securities at December 31, 1997
were as follows:
<TABLE>
<CAPTION>
AMORTIZED
COST FAIR VALUE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Fixed maturity securities, excluding mortgage-backed
securities:
Due in one year or less............................. $ 205,719 $ 207,364
Due after one year through five years............... 5,008,933 5,216,174
Due after five years through ten years.............. 9,163,681 9,604,447
Due after ten years................................. 5,138,169 5,470,143
Mortgage-backed securities............................ 6,614,705 6,888,587
----------- -----------
Total fixed maturity securities....................... $26,131,207 $27,386,715
=========== ===========
</TABLE>
Actual maturities may differ from contractual maturities, since borrowers
may have the right to call or prepay obligations. In addition, corporate
requirements and investment strategies may result in the sale of investments
before maturity. Proceeds from sales of fixed maturities were $14.8 billion,
$16.2 billion, and $7.3 billion during 1997, 1996, and 1995, respectively.
53
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE
Diversification of the geographic location and type of property
collateralizing mortgage loans reduces the concentration of credit risk. For
new loans, the Company requires loan-to-value ratios of 75% or less, based on
management's credit assessment of the borrower. The mortgage loan portfolio
was distributed as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
OUTSTANDING PERCENT PERCENT
AMOUNT OF TOTAL NONPERFORMING
------------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
DECEMBER 31, 1997
Geographic distribution:
South Atlantic........................... $ 456 27.5% 1.8%
Pacific.................................. 340 20.5 14.4
Mid-Atlantic............................. 288 17.3 --
East North Central....................... 186 11.2 --
Mountain................................. 151 9.1 2.7
West South Central....................... 132 7.9 .1
East South Central....................... 94 5.7 --
West North Central....................... 19 1.1 --
New England.............................. 17 1.1 --
Allowance for losses....................... (23) (1.4) --
------ -----
Total...................................... $1,660 100.0% 3.6%
====== =====
Property type:
Office................................... $ 622 37.5% 4.6%
Retail................................... 463 27.9 3.0
Industrial............................... 324 19.5 1.8
Apartments............................... 223 13.4 6.1
Hotel/motel.............................. 40 2.4 --
Other.................................... 11 .7 --
Allowance for losses....................... (23) (1.4) --
------ -----
Total...................................... $1,660 100.0% 3.6%
====== =====
DECEMBER 31, 1996
Geographic distribution:
South Atlantic........................... $ 522 30.6% 8.1%
Pacific.................................. 407 23.8 8.1
Mid-Atlantic............................. 231 13.5 --
East North Central....................... 168 9.8 --
Mountain................................. 153 9.0 2.8
West South Central....................... 141 8.2 5.3
East South Central....................... 109 6.4 --
West North Central....................... 13 0.8 --
New England.............................. 13 0.8 --
Allowance for losses....................... (49) (2.9) --
------ -----
Total...................................... $1,708 100.0% 5.0%
====== =====
Property type:
Office................................... $ 590 34.5% --%
Retail................................... 502 29.4 2.5
Industrial............................... 304 17.8 6.0
Apartments............................... 264 15.5 8.3
Hotel/motel.............................. 54 3.2 --
Other.................................... 43 2.5 78.8
Allowance for losses....................... (49) (2.9) --
------ -----
Total...................................... $1,708 100.0% 5.0%
====== =====
</TABLE>
54
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Impaired mortgage loans on real estate and related interest income were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------
1997 1996
------ ------
(IN MILLIONS)
<S> <C> <C>
Impaired loans:
With allowance*................................................ $ 35 $ 60
Without allowance.............................................. -- --
------ ------
Total impaired loans............................................. $ 35 $ 60
------ ------
</TABLE>
- --------
* Represents gross amounts before allowance for mortgage loan losses of $10
million and $9 million, respectively.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Average investment.............................................. $48 $72 $102
Interest income earned.......................................... $ 3 $ 6 $ 8
Interest income cash basis...................................... $-- $ 6 $ 8
</TABLE>
2.5 INVESTMENT SUMMARY
Investments of the Company were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------
CARRYING
COST FAIR VALUE AMOUNT
----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States government and government
agencies and authorities................. $ 289,406 $ 335,861 $ 335,861
States, municipalities, and political
subdivisions............................. 44,505 46,191 46,191
Foreign governments....................... 318,212 332,754 332,754
Public utilities.......................... 1,848,546 1,952,724 1,952,724
Mortgage-backed securities................ 6,614,704 6,888,587 6,888,587
All other corporate bonds................. 17,015,834 17,830,598 17,830,598
----------- ---------- -----------
Total fixed maturities...................... 26,131,207 27,386,715 27,386,715
Equity securities:
Common stocks:
Industrial, miscellaneous, and other...... 5,604 5,785 5,785
Nonredeemable preferred stocks............ 13,604 15,329 15,329
----------- ---------- -----------
Total equity securities..................... 19,208 21,114 21,114
Mortgage loans on real estate*.............. 1,659,921 XXX 1,659,921
Investment real estate...................... 129,364 XXX 129,364
Policy loans................................ 1,093,694 XXX 1,093,694
Other long-term investments................. 55,118 XXX 55,118
Short-term investments...................... 100,061 XXX 100,061
----------- ---------- -----------
Total investments........................... $29,188,573 $ XXX $30,445,987
=========== ========== ===========
</TABLE>
- --------
* Amount is net of a $23 million allowance for losses.
55
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. DEFERRED POLICY ACQUISITION COSTS
The balance of DPAC at December 31 and the components of the change reported
in operating costs and expenses for the years then ended were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at January 1....................... $1,042,783 $ 605,501 $ 1,479,115
Capitalization........................... 219,339 188,001 203,607
Amortization............................. (115,467) (102,189) (68,295)
Change in the effect of SFAS No. 115..... (311,624) 351,470 (1,008,926)
---------- ---------- -----------
Balance at December 31..................... $ 835,031 $1,042,783 $ 605,501
========== ========== ===========
</TABLE>
4. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Goodwill...................................................... $ 51,424 $ 55,626
Other......................................................... 81,235 78,663
-------- --------
Total other assets............................................ $132,659 $134,289
======== ========
</TABLE>
5. FEDERAL INCOME TAXES
5.1 TAX LIABILITIES
Income tax liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current tax payable (receivable)............................ $ 7,676 $ (7,646)
Deferred tax liabilities, applicable to:
Net income................................................ 298,456 288,115
Net unrealized investment gains........................... 237,247 121,892
-------- --------
Total deferred tax liabilities.............................. 535,703 410,007
-------- --------
Total current and deferred tax liabilities.................. $543,379 $402,361
======== ========
</TABLE>
56
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Components of deferred tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities applicable to:
Deferred policy acquisition costs....................... $ 226,653 $ 308,802
Basis differential of investments....................... 486,194 254,402
Other................................................... 139,298 130,423
--------- ---------
Total deferred tax liabilities............................ 852,145 693,627
Deferred tax assets applicable to:
Policy reserves......................................... (232,539) (219,677)
Other................................................... (83,903) (63,943)
--------- ---------
Total deferred tax assets before valuation allowance...... (316,442) (283,620)
Valuation allowance....................................... -- --
--------- ---------
Total deferred tax assets, net of valuation allowance..... (316,442) (283,620)
--------- ---------
Net deferred tax liabilities.............................. $ 535,703 $ 410,007
========= =========
</TABLE>
A portion of life insurance income earned prior to 1984 is not taxable
unless it exceeds certain statutory limitations or is distributed as
dividends. Such income, accumulated in policyholders' surplus accounts,
totaled $93.6 million at December 31, 1997. At current corporate rates, the
maximum amount of tax on such income is approximately $32.8 million. Deferred
income taxes on these accumulations are not required because no distributions
are expected.
5.2 TAX EXPENSE
Components of income tax expense for the year were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current expense................................... $185,460 $164,272 $153,720
Deferred expense (benefit):
Deferred policy acquisition cost................ 27,644 21,628 38,275
Policy reserves................................. (27,496) (27,460) (49,177)
Basis differential of investments............... 3,769 4,129 3,710
Other, net...................................... 9,347 14,091 (2,581)
-------- -------- --------
Total deferred expense (benefit).................. 13,264 12,388 (9,773)
-------- -------- --------
Income tax expense................................ $198,724 $176,660 $143,947
======== ======== ========
</TABLE>
A reconciliation between the income tax expense computed by applying the
federal income tax rate (35%) to income before taxes and the income tax
expense reported in the financial statement is presented below.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax at statutory percentage of GAAP
pretax income $200,649 $178,939 $149,185
Tax-exempt investment income.................... (9,493) (9,347) (10,185)
Goodwill........................................ 723 759 768
Tax on sale of subsidiary....................... -- -- (661)
Other........................................... 6,845 6,309 4,840
-------- -------- --------
Income tax expense.............................. $198,724 $176,660 $143,947
======== ======== ========
</TABLE>
57
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5.3 TAXES PAID
Income taxes paid amounted to approximately $168 million, $182 million, and
$90 million in 1997, 1996, and 1995, respectively.
5.4 TAX RETURN EXAMINATIONS
The Parent Company and the majority of its subsidiaries file a consolidated
federal income tax return. The Internal Revenue Service has completed
examinations of the Company's tax returns through 1988 and is currently
examining tax returns for 1989 through 1996. In addition, the tax returns of
companies recently acquired are also being examined. Although the final
outcome of any issues raised in examination is uncertain, the Company believes
that the ultimate liability, including interest, will not exceed amounts
recorded in the consolidated financial statements.
6. TRANSACTIONS WITH AFFILIATES
Affiliated notes and accounts receivable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
--------------- ---------------
PAR BOOK PAR BOOK
VALUE VALUE VALUE VALUE
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
American General Corporation, 9 3/8%, due 2008. $ 4,725 $ 3,288 $ 4,725 $ 3,239
American General Corporation, 8 1/4%, due 2004. 17,125 32,953 19,572 19,572
American General Corporation, Restricted
Subordinated Note, 13 1/2%, due 2002.......... 31,494 31,494 33,550 33,550
------- ------- ------- -------
Total notes receivable from affiliates......... 53,344 67,735 57,847 56,361
Accounts receivable from affiliates............ -- 28,784 -- 30,127
------- ------- ------- -------
Indebtedness from affiliates................... $53,344 $96,519 $57,847 $86,488
======= ======= ======= =======
</TABLE>
Various American General companies provide services to the Company,
principally mortgage servicing and investment advisory services. The Company
paid approximately $33,916,000, $22,083,000, and $21,006,000 for such services
in 1997, 1996, and 1995, respectively. Accounts payable for such services at
December 31, 1997 and 1996 were not material. In addition, the Company rents
facilities and provides services to various American General companies. The
Company received approximately $6,455,000, $1,255,000, and $2,086,000 for such
services and rent in 1997, 1996, and 1995, respectively. Accounts receivable
for rent and services at December 31, 1997 and 1996 were not material.
The Company has 8,500 shares of $100 par value cumulative preferred stock
authorized and outstanding with an $80 dividend rate, redeemable at $1,000 per
share after December 31, 2000. The holder of this stock, the Franklin Life
Insurance Company ("Franklin"), an affiliated company, is entitled to one vote
per share, voting together with the holders of common stock.
During 1996, the Company's residential mortgage loan portfolio of $42
million was sold to American General Finance at carrying value plus accrued
interest.
7. STOCK-BASED COMPENSATION
Certain officers of the Company participate in American General
Corporation's stock and incentive plans which provide for the award of stock
options, restricted stock awards, performance awards, and incentive awards to
key employees. Stock options constitute the majority of such awards. Expense
related to stock options is
58
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
measured as the excess of the market price of the stock at the measurement
date over the exercise price. The measurement date is the first date on which
both the number of shares that the employee is entitled to receive and the
exercise price are known. Under the stock option plans, no expense is
recognized, since the market price equals the exercise price at the
measurement date.
Under an alternative accounting method, compensation expense arising from
stock options would be measured at the estimated fair value of the options at
the date of grant. Had compensation expense for the stock options been
determined using this method, net income would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income as reported............................... $374,557 $334,595 $282,295
Net income pro forma................................. 373,328 334,029 281,821
</TABLE>
The average fair values of the options granted during 1997, 1996, and 1995
were $10.33, $7.07, and $6.93, respectively. The fair value of each option was
estimated at the date of grant using a Black-Scholes option pricing model. The
weighted average assumptions used to estimate the fair value of the stock
options were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Dividend yield.......................................... 3.0% 4.0% 4.0%
Expected volatility..................................... 22.0% 22.3% 23.0%
Risk-free interest rate................................. 6.4% 6.2% 6.9%
Expected life 6 YEARS 6 years 6 years
</TABLE>
8. BENEFIT PLANS
8.1 PENSION PLANS
The Company has noncontributory, defined benefit pension plans covering most
employees. Pension benefits are based on the participant's average monthly
compensation and length of credited service offset by an amount that complies
with federal regulations. The Company's funding policy is to contribute
annually no more than the maximum amount deductible for federal income tax
purposes. The Company uses the projected unit credit method for computing
pension expense.
The components of pension expense and underlying assumptions were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost benefits earned during period........ $ 1,891 $ 1,826 $ 1,346
Interest cost on projected benefit obligation..... 2,929 2,660 2,215
Actual return on plan assets...................... (15,617) (9,087) (10,178)
Amortization of unrecognized net asset............ -- (261) (888)
Amortization of unrecognized prior service cost... 195 197 197
Deferral of net asset gain........................ 10,148 4,060 5,724
Amortization of gain.............................. -- 68 38
-------- ------- --------
Total pension income.............................. $ (454) $ (537) $ (1,546)
======== ======= ========
Assumptions:
Weighted average discount rate on benefit
obligation..................................... 7.25% 7.50% 7.25%
Rate of increase in compensation levels......... 4.00% 4.00% 4.00%
Expected long-term rate of return on plan
assets......................................... 10.00% 10.00% 10.00%
</TABLE>
59
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plans and the prepaid pension expenses included in
other assets at December 31 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested.................................................... $ 32,926 $ 27,558
Nonvested................................................. 3,465 4,000
Additional minimum liability.............................. -- 205
-------- --------
Accumulated benefit obligation.............................. 36,391 31,763
Effect of increase in compensation levels................... 7,002 5,831
-------- --------
Projected benefit obligation................................ 43,393 37,594
Plan assets at fair value................................... 80,102 65,159
-------- --------
Plan assets in excess of projected benefit obligation....... 36,709 27,565
Unrecognized net gain....................................... (23,548) (15,881)
Unrecognized prior service cost............................. 78 274
-------- --------
Prepaid pension expense..................................... $ 13,239 $ 11,958
======== ========
</TABLE>
More than 85% of the plan assets were invested in fixed maturity and equity
securities at the plan's most recent balance sheet date.
8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company and its life insurance subsidiaries, together with certain other
insurance subsidiaries of the Parent Company, have life, medical, supplemental
major medical, and dental plans for certain retired employees and agents. Most
plans are contributory, with retiree contributions adjusted annually to limit
employer contributions to predetermined amounts. The Company has reserved the
right to change or eliminate these benefits at any time.
The life plans are fully insured. A portion of the retiree medical and
dental plans are funded through a voluntary employees' beneficiary association
("VEBA") established in 1994; the remainder is unfunded and self-insured. All
of the retiree medical and dental plans' assets held in the VEBA were invested
in readily marketable securities at its most recent balance sheet date.
The plans' combined funded status and the accrued postretirement benefit
cost included in other liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1997 1996
------- ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees.................................................... $ 2,469 $5,199
Fully eligible active plan participants..................... 259 251
Other active plan participants.............................. 3,214 2,465
------- ------
Accumulated postretirement benefit obligation................. 5,942 7,915
Plan assets at fair value..................................... 159 106
------- ------
Accumulated postretirement benefit obligation in excess of
plan assets at fair value.................................... 5,783 7,809
Unrecognized net gain......................................... (1,950) (243)
------- ------
Accrued postretirement benefit cost........................... $ 3,833 $7,566
======= ======
Weighted-average discount rate on postretirement benefit
obligation 7.25% 7.50%
</TABLE>
60
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost benefits earned..................................... $211 $218 $171
Interest cost on accumulated postretirement benefit obligation... 390 626 638
---- ---- ----
Postretirement benefit expense................................... $601 $844 $809
==== ==== ====
</TABLE>
9. DERIVATIVE FINANCIAL INSTRUMENTS
9.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments is generally limited
to interest rate and currency swap agreements, and options to enter into
interest rate swap agreements (call swaptions). The Company accounts for its
derivative financial instruments as hedges. Hedge accounting requires a high
correlation between changes in fair values or cash flows or the derivative
financial instruments and the specific items being hedged, both at inception
and throughout the life of the hedge.
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS
Interest rate swap agreements are used to convert specific investment
securities from a floating to a fixed-rate basis, or vice versa, and to hedge
against the risk of rising prices on anticipated investment security
purchases. Currency swap agreements are infrequently used to effectively
convert cash flows from specific investment securities denominated in foreign
currencies into U.S. dollars at specified exchange rates, and to hedge against
currency rate fluctuations on anticipated investment security purchases.
The difference between amounts paid and received on swap agreements is
recorded on an accrual basis as an adjustment to net investment income or
interest expense, as appropriate, over the periods covered by the agreements.
The related amount payable to or receivable from counterparties is included in
other liabilities or assets.
The fair values of swap agreements are recognized in the consolidated
balance sheet if they hedge investments carried at fair value or if they hedge
anticipated purchases of such investments. In this event, changes in the fair
value of a swap agreement are reported in net unrealized gains on securities
included in shareholders' equity, consistent with the treatment of the related
investment security. For swap agreements hedging anticipated investment
purchases, the net swap settlement amount or unrealized gain or loss is
deferred and included in the measurement of the anticipated transaction when
it occurs.
Swap agreements generally have terms of two to ten years. Any gain or loss
from early termination of a swap agreement is deferred and amortized into
income over the remaining term of the related investment. If the underlying
investment is extinguished or sold, any related gain or loss on swap
agreements is recognized in income. Average floating rates may change
significantly, thereby affecting future cash flows.
61
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest rate and currency swap agreements related to investment securities
at December 31 were as follows:
<TABLE>
<CAPTION>
1997 1995
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Interest rate swap agreements to pay fixed rate:
Notional amount..................................... $ 15 $ 60
Average receive rate................................ 6.74% 6.19%
Average pay rate.................................... 6.48% 6.42%
Interest rate swap agreements to receive fixed rate:
Notional amount..................................... $ 144 $ 44
Average receive rate................................ 6.89% 6.84%
Average pay rate.................................... 6.37% 6.01%
Currency swap agreements (receive U.S. dollars/pay
Canadian dollars):
Notional amount (in U.S. dollars)................... $ 139 $ 99
Average exchange rate............................... 1.50 1.57
</TABLE>
9.3 CALL SWAPTIONS
Options to enter into interest rate swap agreements are used to limit the
Company's exposure to reduced spreads between investment yields and interest
crediting rates should interest rates decline significantly over prolonged
periods. During such periods, the spread between investment yields and
interest crediting rates may be reduced as a result of certain limitations on
the Company's ability to manage interest crediting rates. Call swaptions allow
the Company to enter into interest rate swap agreements to receive fixed rates
and pay lower floating rates, effectively increasing the spread between
investment yields and interest crediting rates.
Premiums paid to purchase call swaptions are included in investments and are
amortized to net investment income over the exercise period of the swaptions.
If a call swaption is terminated, any gain is deferred and amortized to
insurance and annuity benefits over the expected life of the insurance and
annuity contracts and any unamortized premium is charged to income. If a call
swaption ceases to be an effective hedge, any related gain or loss is
recognized in income.
During 1997, the Company purchased call swaptions which expire in 1998.
These call swaptions had a notional amount of $1.35 billion and strike rates
ranging from 4.5% to 5.5% at December 31, 1997. Should the strike rates remain
below market rates, the call swaptions will expire and the Company's exposure
would be limited to the premiums paid.
9.4 CREDIT AND MARKET RISK
Derivative financial instruments expose the Company to credit risk in the
event of non-performance by counterparties. The Company limits this exposure
by entering into agreements with counterparties having high credit ratings and
by regularly monitoring the ratings. The Company does not expect any
counterparty to fail to meet its obligation; however, non-performance would
not have a material impact on the Company's consolidated results of operations
and financial position.
The Company's exposure to market risk is mitigated by the offsetting effects
of changes in the value of the agreements and the related items being hedged.
Derivative financial instruments related to investment securities did not
have a material effect on net investment income in 1997, 1996 or 1995.
62
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of the fair value of financial instruments. This standard
excludes certain financial instruments and all nonfinancial instruments,
including policyholder liabilities for life insurance contracts from its
disclosure requirements. Care should be exercised in drawing conclusions based
on fair value, since (1) the fair values presented do not include the value
associated with all of the Company's assets and liabilities and (2) the
reporting of investments at fair value without a corresponding revaluation of
related policyholder liabilities can be misinterpreted.
Carrying amounts and fair values for those financial instruments covered by
SFAS 107 at December 31, 1997 are presented below:
<TABLE>
<CAPTION>
FAIR CARRYING
VALUE AMOUNT
------- --------
(IN MILLIONS)
----------------
<S> <C> <C>
Assets:
Fixed maturity and equity securities *....................... $27,408 $27,408
Mortgage loans on real estate................................ $ 1,702 $ 1,660
Policy loans................................................. $ 1,127 $ 1,094
Investment in parent company................................. $ 38 $ 38
Indebtedness from affiliates................................. $ 97 $ 97
Liabilities:
Insurance investment contracts............................... $24,011 $24,497
</TABLE>
- --------
* Includes derivative financial instruments with negative fair value of $4.2
million and $10.8 million and positive fair value of $7.2 million and $.6
million at December 31, 1997 and 1996, respectively.
The following methods and assumptions were used to estimate the fair values
of financial instruments:
FIXED MATURITY AND EQUITY SECURITIES
Fair values of fixed maturity and equity securities were based on quoted
market prices, where available. For investments not actively traded, fair
values were estimated using values obtained from independent pricing
services or, in the case of some private placements, by discounting
expected future cash flows using a current market rate applicable to yield,
credit quality, and average life of investments.
MORTGAGE LOANS ON REAL ESTATE
Fair value of mortgage loans was estimated primarily using discounted cash
flows based on contractual maturities and risk-adjusted discount rates.
POLICY LOANS
Fair value of policy loans was estimated using discounted cash flows and
actuarially determined assumptions incorporating market rates.
INVESTMENT IN PARENT COMPANY
The fair value of the investment in Parent Company is based on quoted
market prices of American General Corporation common stock.
INSURANCE INVESTMENT CONTRACTS
Insurance investment contracts do not subject the Company to significant
risks arising from policyholder mortality or morbidity. The majority of the
Company's annuity products are considered insurance
63
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
investment contracts. Fair value of insurance investment contracts was
estimated using cash flows discounted at market interest rates.
INDEBTEDNESS FROM AFFILIATES
Indebtedness from affiliates is composed of accounts receivable and notes
receivable from affiliates. Due to the short-term nature of accounts
receivable, fair value is assumed to equal carrying value. Fair value of
notes receivable was estimated using discounted cash flows based on
contractual maturities and discount rates that were based on U.S. Treasury
rates for similar maturity ranges.
11. DIVIDENDS PAID
American General Life Insurance Company paid $402 million, $189 million, and
$207 million in dividends on common stock to AGC Life Insurance Company in
1997, 1996, and 1995, respectively. The 1995 dividends included $701 thousand
in the form of furniture and equipment. In addition, in 1996, the Company paid
$680 thousand in dividends on preferred stock to Franklin.
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES
The Company and its insurance subsidiaries are restricted by state insurance
laws as to the amounts they may pay as dividends without prior approval from
their respective state insurance departments. At December 31, 1997,
approximately $2.6 billion of consolidated shareholders' equity represents net
assets of the Company which cannot be transferred, in the form of dividends,
loans, or advances to the Parent Company. Approximately $2.0 billion of
consolidated shareholders' equity is similarly restricted as to transfer from
its subsidiaries to the Company.
Generally, the net assets of the Company's subsidiaries available for
transfer to the Parent are limited to the amounts that the subsidiaries' net
assets, as determined in accordance with statutory accounting practices,
exceed minimum statutory capital requirements. However, payments of such
amounts as dividends may be subject to approval by regulatory authorities and
are generally limited to the greater of 10% of policyholders' surplus or the
previous year's statutory net gain from operations.
The Company has various leases, substantially all of which are for office
space and facilities. Rentals under financing leases, contingent rentals, and
future minimum rental commitments and rental expense under operating leases
are not material.
In recent years, various life insurance companies have been named as
defendants in class action lawsuits relating, to life insurance pricing and
sales practices, and a number of these lawsuits has resulted in substantial
settlements. The Company is a defendant in such purported class action
lawsuits, asserting claims related to pricing and sales practices. These
claims are being defended vigorously by the Company. Given the uncertain
nature of litigation and the early stages of this litigation, the outcome of
these actions cannot be predicted at this time. The Company nevertheless
believes that the ultimate outcome of all such pending litigation should not
have a material adverse effect on the Company's financial position; however,
it is possible that settlements or adverse determinations in one or more of
these actions or other future proceedings could have a material adverse effect
on results of operations for a given period. No provision has been made in the
consolidated financial statements related to this pending litigation because
the amount of loss, if any, from these actions cannot be reasonably estimated
at this time.
The Company is a party to various other lawsuits and proceedings arising in
the ordinary course of business. Many of these lawsuits and proceedings arise
in jurisdictions, such as Alabama, that permit damage awards
64
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
disproportionate to the actual economic damages incurred. Based upon
information presently available, the Company believes that the total amounts
that will ultimately be paid, if any, arising from these lawsuits and
proceedings will not have a material adverse effect on the Company's results
of operations and financial position. However, it should be noted that the
frequency of large damage awards, including large punitive damage awards, that
bear little or no relation to actual economic damages incurred by plaintiffs
in jurisdictions like Alabama continues to increase and creates the potential
for an unpredictable judgment in any given suit.
The increase in the number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in increased
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated insurance companies. Those mandatory assessments
may be partially recovered through a reduction in future premium taxes in
certain states. At December 31, 1997 and 1996, the Company has accrued $7.6
million and $16.1 million, respectively, for guaranty fund assessments, net of
$4.3 million and $4.1 million, respectively, of premium tax deductions. The
Company has recorded receivables of $9.7 million and $10.9 million at December
31, 1997 and 1996, respectively, for expected recoveries against the payment
of future premium taxes. Expenses incurred for guaranty fund assessments were
$2.1 million, $6.0 million, and $22.4 million in 1997, 1996, and 1995,
respectively.
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1997, 1996, and
1995 were as follows:
<TABLE>
<CAPTION>
CEDED TO ASSUMED PERCENTAGE OF
GROSS OTHER FROM OTHER AMOUNT ASSUMED
AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET
----------- ----------- ---------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Life insurance in force. $45,963,710 $10,926,255 $4,997 $35,042,452 0.01%
=========== =========== ====== ===========
Premiums:
Life insurance and
annuities............ $ 100,357 $ 37,294 $ 75 $ 63,138 0.12%
Accident and health
insurance............ 1,208 172 -- 1,036 0.00%
----------- ----------- ------ -----------
Total premiums.......... $ 101,565 $ 37,466 $ 75 $ 64,174 0.12%
=========== =========== ====== ===========
DECEMBER 31, 1996
Life insurance in force. $44,535,841 $ 8,625,465 $5,081 $35,915,457 0.01%
=========== =========== ====== ===========
Premiums:
Life insurance and
annuities............ $ 104,225 $ 34,451 $ 36 $ 69,810 0.05%
Accident and health
insurance............ 1,426 64 -- 1,362 0.00%
----------- ----------- ------ -----------
Total premiums.......... $ 105,651 $ 34,515 $ 36 $ 71,172 0.05%
=========== =========== ====== ===========
DECEMBER 31, 1995
Life insurance in force. $44,637,599 $ 7,189,493 $5,771 $37,453,877 0.02%
=========== =========== ====== ===========
Premiums:
Life insurance and
annuities............ $ 103,780 $ 26,875 $ 171 $ 77,076 0.22%
Accident and health
insurance............ 1,510 82 -- 1,428 0.00%
----------- ----------- ------ -----------
Total premiums.......... $ 105,290 $ 26,957 $ 171 $ 78,504 0.22%
=========== =========== ====== ===========
</TABLE>
Reinsurance recoverable on paid losses was approximately $2,278,000,
$6,904,000, and $6,190,000 at December 31, 1997, 1996, and 1995, respectively.
Reinsurance recoverable on unpaid losses was approximately $3,210,000,
$4,282,000, and $2,775,000 at December 31, 1997, 1996, and 1995, respectively.
65
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. ACQUISITIONS
Effective December 31, 1995, the Company purchased Franklin United Life
Insurance Company, a subsidiary of Franklin, which is a wholly owned
subsidiary of the Parent Company. This purchase was effected through issuance
of $8.5 million in preferred stock to Franklin. The acquisition was accounted
for using the purchase method of accounting and is not material to the
operations of the Company.
15. YEAR 2000 CONTINGENCY (UNAUDITED)
Management has been engaged in a program to render the Company's computer
systems (hardware and mainframe and personal applications software) Year 2000
compliant. The Company will incur internal staff costs as well as third-party
vendor and other expenses to prepare the systems for Year 2000. The cost of
testing and conversion of systems applications has not had, and is not
expected to have, a material adverse effect on the Company's results of
operations or financial condition. However, risks and uncertainties exist in
most significant systems development projects. If conversion of the Company's
systems is not completed on a timely basis, due to nonperformance by third-
party vendors or other unforeseen circumstances, the Year 2000 problem could
have a material adverse impact on the operations of the Company.
66
<PAGE>
INDEX OF WORDS AND PHRASES
This index should help you to locate more information about some of the
terms and phrases used in this prospectus.
<TABLE>
<CAPTION>
PAGE TO
SEE IN
THIS
DEFINED TERM PROSPECTUS
------------ ----------
<S> <C>
accumulation value........... 5
AGLC......................... 28
AGL.......................... 16
amount at risk............... 4
automatic rebalancing........ 4
basis........................ 18
beneficiary.................. 21
cash surrender value......... 9
close of business............ 22
Code......................... 17
cost of insurance rates...... 22
daily charge................. 6
date of issue................ 22
death benefit................ 5
dollar cost averaging........ 4
full surrender............... 9
Fund......................... 1
investment option............ 1
lapse........................ 8
Legacy Plus.................. 1
loan, loan interest.......... 9
maturity, maturity date...... 10
modified endowment contract.. 17
monthly deduction day........ 23
</TABLE>
<TABLE>
<CAPTION>
PAGE TO
SEE IN
THIS
DEFINED TERM PROSPECTUS
------------ ----------
<S> <C>
Mutual Fund............... 1
monthly insurance charge.. 6
Option 1, 2............... 5
partial surrender......... 9
payment option............ 10
planned periodic premium.. 8
Policy.................... 1
Policy loan............... 9
Policy month, year........ 22
preferred loan interest... 10
premium payments.......... 4
premiums.................. 4
prospectus................ 3
reinstate, reinstatement.. 8
SEC....................... 2
separate account.......... 16
Separate Account VL-R..... 16
seven-pay test............ 17
specified amount.......... 5
surrender................. 9
telephone transactions.... 12
transfers................. 4
valuation date, period.... 22
</TABLE>
We have filed a registration statement relating to Separate Account VL-R and
the Policy with the SEC. The registration statement, which is required by the
Securities Act of 1933, includes additional information that is not required
in this prospectus. If you would like the additional information, you may
obtain it from the SEC's main office in Washington, D.C. You will have to pay
a fee for the material.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS (OR ANY SALES
LITERATURE APPROVED BY AGL) IN CONNECTION WITH THE OFFER OF THE POLICIES, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THE POLICIES ARE NOT AVAILABLE IN ALL
JURISDICTIONS, AND THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN.
67
<PAGE>
PART II
(OTHER INFORMATION)
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
American General Life Insurance Company's Bylaws provide in Article VII,
Section 1 for indemnification of directors, officers and employees of the
Company.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT COMPANY ACT OF
1940
American General Life Insurance Company hereby represents that the fees
and charges deducted under the Policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
risks assumed by American General Life Insurance Company.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
The facing sheet.
Cross-Reference Table.
Prospectus, consisting of 67 pages.
The undertaking to file reports.
The Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
The signatures.
Written Consents of the following persons:
(a) Pauletta P. Cohn, Associate General Counsel of the American General
Life Companies.
(b) Mayer, Brown & Platt.
(c) American General Life Insurance Company's actuary.
(d) Independent Auditors.
The following exhibits:
1. Exhibits required by Article IX, paragraph A of Form N-8B-2:
(1)(a) Resolutions of Board of Directors of American General Life
Insurance Company authorizing the establishment of Separate
Account VL-R. (3)
(1)(b) Resolutions of Board of Directors of American General Life
Insurance Company authorizing the establishment of variable
life insurance standards of suitability and conduct. (1)
(2) Not applicable.
(3)(a)(i) Distribution Agreement dated October 3, 1991, between
American General Securities Incorporated and American
General Life Insurance Company. (2)
(3)(a)(ii) Form of First Amendment to Distribution Agreement. (5)
(3)(b) Form of Selling Group Agreement. (5)
(3)(c) Not applicable.
(4) Not applicable.
2
<PAGE>
(5)(a)(i) Amended Specimen form of the Lockwood Flexible Premium
Variable Life Insurance Policy (Policy Form No. 98615).
(Filed herewith)
(6)(a) Amended and Restated Articles of Incorporation of American
General Life Insurance Company, effective December 31,
1991. (2)
(6)(b) Bylaws of American General Life Insurance Company, adopted
January 22, 1992. (3)
(6)(c) Amendment to the Amended and Restated Articles of
Incorporation of American General Life Insurance Company,
effective July 13, 1995 (Filed herewith).
(7) Not applicable.
(8)(a) Form of Participation Agreement by and between BT Insurance
Funds Trust and American General Life Insurance Company.
(Filed herewith)
(8)(b) Form of Amendment No. 3 to the Participation Agreement by
and between Morgan Stanley Universal Funds, Inc. and
American General Life Insurance Company. (Filed herewith)
(8)(c) Form of First Amendment to Participation Agreement by and
between American General Life Insurance Company and
American General Series Portfolio Company. (Filed herewith)
(8)(d) Form of Agreement by and between AIM Variable Insurance
Funds, Inc. and American General Life Insurance Company.
(Filed herewith)
(8)(e) Form of First Amendment to Participation Agreement by and
between Royce Capital Fund and American General Life
Insurance Company. (Filed herewith)
(8)(f) Form of Administrative Services Agreement between American
General Life Insurance Company and fund distributor. (Filed
herewith)
(9) All other material contracts not entered into in the
ordinary course of business of the trust or of the
depositor concerning the trust.
Not applicable.
(10)(a) Specimen form of application for life insurance issued by
American General Life Insurance Company. (Filed herewith)
3
<PAGE>
(10)(b) Specimen form of supplemental application for variable life
insurance issued by American General Life Insurance Company
on Policy Form No. 98615. (Filed herewith)
(10)(c) Form of Service Request. (Filed herewith)
(10)(d) Form of Owner Authorization of Third Party Transfers
Other Exhibits
2(a) Opinion and Consent of Pauletta P. Cohn, Associate General
Counsel of American General Life Companies. (Filed
herewith)
2(b) Consent of Mayer, Brown & Platt. (Filed herewith)
2(c) Opinion and Consent of American General Life Insurance
Company's actuary. (Filed herewith)
3 Not applicable.
4 Not applicable.
6 Consent of Independent Auditors. (Filed herewith)
7 Powers of Attorney. (6)
27 Financial Data Schedule. Not applicable.
(1) Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File No. 333-42567) of American General Life
Insurance Company Separate Account VL-R on December 18, 1997.
(2) Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 33-43390) of Separate Account D of
American General Life Insurance Company on October 16, 1991.
(3) Incorporated herein by reference to the filing of Post-Effective
Amendment No. 1 of the Form N-4 Registration Statement (File
No. 33-43390) of Separate Account D of American General Life Insurance
Company on April 30, 1992.
(4) Incorporated by reference to the filing of Pre-Effective Amendment No. 1
of the Form N-4 Registration Statement (File No. 333-40637) of Separate
Account D of American General Life Insurance Company on February 12,
1998.
4
<PAGE>
(5) Incorporated by reference to the filing of Pre-Effective Amendment No. 1
of the Form S-6 Registration Statement (File No. 333-42567) of American
General Life Insurance Company Separate Account VL-R on March 23, 1998.
(6) Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File No. 333-53909) of American General Life
Insurance Company Separate Account VL-R filed on May 29, 1998.
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
American General Life Insurance Company Separate Account VL-R, has duly caused
this amended registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Houston, and State of Texas, on the 14th day of
August, 1998.
AMERICAN GENERAL LIFE INSURANCE
COMPANY SEPARATE ACCOUNT VL-R
(Registrant)
BY: AMERICAN GENERAL LIFE
INSURANCE COMPANY
(On behalf of the Registrant and itself)
BY: /s/ ROBERT F. HERBERT, JR.
-------------------------------------
Robert F. Herbert, Jr.
Senior Vice President
[SEAL]
ATTEST: /s/ PAULETTA P. COHN
-----------------------
Pauletta P. Cohn
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ RONALD H. RIDLEHUBER Principal Executive Officer August 14, 1998
- -----------------------------
(Ronald H. Ridlehuber)
/s/ ROBERT F. HERBERT, JR. Principal Financial and August 14, 1998
- ----------------------------- Accounting Officer
(Robert F. Herbert, Jr.)
<PAGE>
Signature Title Date
- --------- ----- ----
Director , 1998
- ---------------------------------- -----------
(James S. D'Agostino, Jr.)
/s/ DAVID A. FRAVEL* Director
- ---------------------------------- August 14, 1998
(David A. Fravel)
/s/ ROBERT F. HERBERT, JR. Director
- ---------------------------------- August 14, 1998
(Robert F. Herbert, Jr.)
Director , 1998
- ---------------------------------- -----------
Royce G. Imhoff, II)
/s/ JOHN V. LAGRASSE* Director August 14, 1998
- ----------------------------------
(John V. LaGrasse)
/s/ RODNEY O. MARTIN, JR. * Director August 14, 1998
- ----------------------------------
(Rodney O. Martin, Jr.)
Director , 1998
- ---------------------------------- -----------
(Jon P. Newton)
/s/ PHILIP K. POLKINGHORN* Director August 14, 1998
- ----------------------------------
(Philip K. Polkinghorn)
/s/ RONALD H. RIDLEHUBER Director
- ----------------------------------
(Ronald H. Ridlehuber August 14, 1998
/s/ ROBERT F. HERBERT, JR.
- ----------------------------------
* By Robert F. Herbert, Jr.,
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
1. Exhibits required by Article IX, paragraph A of Form N-8B-2:
(1)(a) Resolutions of Board of Directors of American General Life
Insurance Company authorizing the establishment of Separate
Account VL-R. (3)
(1)(b) Resolutions of Board of Directors of American General Life
Insurance Company authorizing the establishment of variable
life insurance standards of suitability and conduct. (1)
(2) Not applicable.
(3)(a)(i) Distribution Agreement dated October 3, 1991, between
American General Securities Incorporated and American
General Life Insurance Company. (2)
(3)(a)(ii) Form of First Amendment to Distribution Agreement. (5)
(3)(b) Form of Selling Group Agreement. (5)
(3)(c) Not applicable.
(4) Not applicable.
<PAGE>
(5)(a)(i) Amended Specimen form of the Lockwood Flexible Premium
Variable Life Insurance Policy (Policy Form No. 98615).
(Filed herewith)
(6)(a) Amended and Restated Articles of Incorporation of American
General Life Insurance Company, effective December 31,
1991. (2)
(6)(b) Bylaws of American General Life Insurance Company, adopted
January 22, 1992. (3)
(6)(c) Amendment to the Amended and Restated Articles of
Incorporation of American General Life Insurance Company,
effective July 13, 1995 (Filed herewith).
(7) Not applicable.
(8)(a) Form of Participation Agreement by and between BT Insurance
Funds Trust and American General Life Insurance Company.
(Filed herewith)
(8)(b) Form of Amendment No. 3 to the Participation Agreement by
and between Morgan Stanley Universal Funds, Inc. and
American General Life Insurance Company. (Filed herewith)
(8)(c) Form of First Amendment to Participation Agreement by and
between American General Life Insurance Company and
American General Series Portfolio Company. (Filed herewith)
(8)(d) Form of Agreement by and between AIM Variable Insurance
Funds, Inc. and American General Life Insurance Company.
(Filed herewith)
(8)(e) Form of First Amendment to Participation Agreement by and
between Royce Capital Fund and American General Life
Insurance Company. (Filed herewith)
(8)(f) Form of Administrative Services Agreement between American
General Life Insurance Company and fund distributor. (Filed
herewith)
(9) All other material contracts not entered into in the
ordinary course of business of the trust or of the
depositor concerning the trust.
Not applicable.
(10)(a) Specimen form of application for life insurance issued by
American General Life Insurance Company. (Filed herewith)
<PAGE>
(10)(b) Specimen form of supplemental application for variable life
insurance issued by American General Life Insurance Company
on Policy Form No. 98615. (Filed herewith)
(10)(c) Form of Service Request. (Filed herewith)
(10)(d) Form of Owner Authorization of Third Party Transfers
Other Exhibits
2(a) Opinion and Consent of Pauletta P. Cohn, Associate General
Counsel of American General Life Companies. (Filed
herewith)
2(b) Consent of Mayer, Brown & Platt. (Filed herewith)
2(c) Opinion and Consent of American General Life Insurance
Company's actuary. (Filed herewith)
3 Not applicable.
4 Not applicable.
6 Consent of Independent Auditors. (Filed herewith)
7 Powers of Attorney. (6)
27 Financial Data Schedule. Not applicable.
(1) Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File No. 333-42567) of American General Life
Insurance Company Separate Account VL-R on December 18, 1997.
(2) Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 33-43390) of Separate Account D of
American General Life Insurance Company on October 16, 1991.
(3) Incorporated herein by reference to the filing of Post-Effective
Amendment No. 1 of the Form N-4 Registration Statement (File
No. 33-43390) of Separate Account D of American General Life Insurance
Company on April 30, 1992.
(4) Incorporated by reference to the filing of Pre-Effective Amendment No. 1
of the Form N-4 Registration Statement (File No. 333-40637) of Separate
Account D of American General Life Insurance Company on February 12,
1998.
<PAGE>
(5) Incorporated by reference to the filing of Pre-Effective Amendment No. 1
of the Form S-6 Registration Statement (File No. 333-42567) of American
General Life Insurance Company Separate Account VL-R on March 23, 1998.
(6) Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File No. 333-53909) of American General Life
Insurance Company Separate Account VL-R filed on May 29, 1998.
<PAGE>
EXHIBIT 1.5(a)(i)
AMERICAN GENERAL LIFE
INSURANCE COMPANY
Home Office:
Houston, Texas
[AMERICAN GENERAL
2727-A Allen Parkway JOHN DOE LOGO
P.O. Box 4880 POLICY NUMBER: 0000000000 APPEARS HERE]
Houston, Texas 77210-4880 A STOCK COMPANY
------------------------------------------------
(713) 522-1111 A Subsidiary of American General Corporation
------------------------------------------------
WE WILL PAY THE DEATH BENEFIT PROCEEDS to the Beneficiary if the Insured dies
prior to the Maturity Date and while this policy is in force. Payment will be
made after We receive due proof of the Insured's death, and will be subject to
the terms of this policy.
WE WILL PAY THE CASH SURRENDER VALUE of this policy to the Owner on the Maturity
Date if the Insured is living on that date.
THE AMOUNT OR DURATION OF THE DEATH BENEFIT PROCEEDS AND THE ACCUMULATION VALUES
PROVIDED BY THIS POLICY WHEN BASED ON THE INVESTMENT EXPERIENCE OF A SEPARATE
ACCOUNT, ARE VARIABLE AND NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
The consideration for this policy is the application and payment of the first
premium. The first premium must be paid on or before delivery of this policy.
This is a FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. An adjustable Death
Benefit is payable upon the Insured's death prior to the Maturity Date.
Investment results are reflected in policy benefits. ACCUMULATION VALUES are
flexible and will be based on the amount and frequency of premiums paid and the
investment results of the Separate Account. NONPARTICIPATING - NOT ELIGIBLE FOR
DIVIDENDS.
NOTICE OF TEN DAY RIGHT TO EXAMINE POLICY
YOU MAY RETURN THIS POLICY WITHIN 10 DAYS AFTER DELIVERY IF YOU ARE NOT
SATISFIED WITH IT FOR ANY REASON. THE POLICY MAY BE RETURNED TO US OR TO THE
REGISTERED REPRESENTATIVE THROUGH WHOM IT WAS PURCHASED. UPON SURRENDER OF THIS
POLICY WITHIN THE 10 DAY PERIOD, IT WILL BE DEEMED VOID FROM THE DATE OF ISSUE,
AND WE WILL REFUND ANY PREMIUMS PAID ADJUSTED TO REFLECT INVESTMENT EXPERIENCE.
SIGNED AT THE HOME OFFICE ON THE DATE OF ISSUE.
Secretary President
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
READ YOUR POLICY CAREFULLY
INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Allocation of Policy Deductions 4 General Provisions 18
Allocation of Net Premiums 4 Grace Period 11
Annual Report 19 Incontestability 18
Automatic Rebalancing 13 Investment Advisor, Change of 9
Beneficiary and Proceeds 16 Investments of the Separate Account 8
Cash Surrender Value 11 Maturity Date 3
Changing Your Insurance Policy 7 Owner 5
Change of Ownership or Beneficiary 16 Payment Options 16
Changing the Death Benefit Option 7 Policy Loans 14
Increasing the Death Benefit Amount 7 Policy Values Provision 9
Contract 5 Premium Class 2
Cost of Insurance Rate Table 20 Premium Payments 5
Date of Issue 3,5 Separate Account Provisions 7
Death Benefit and Death Benefit Options 6 Surrender, Full and Partial 12
Dollar Cost Averaging 13 Suspension and Deferral of Payments Provision 14
Expense Charges Transfer Provision 13
Premium Expense Charge 4 Valuation of Assets 8
Loan Account 14 Valuation Dates 8
Valuation Units 8
</TABLE>
COMPANY REFERENCE. We, Our, Us, or Company means American General Life Insurance
Company.
YOU, YOUR. The words You or Your mean the Owner of this policy.
HOME OFFICE. Our office at 2727-A Allen Parkway, Houston, Texas 77019-4880;
Mailing Address P. O. Box 4880, Houston, Texas 77210-4880.
WRITTEN, IN WRITING. A written request or notice in acceptable form and content,
which is signed and dated, and received at Our Home Office.
PREMIUM CLASS. The Premium Class of this policy is shown on page 3 as one or a
combination of the following terms:
. PREFERRED. The term "Preferred" means the cost of insurance is based on the
Insured being a non-user of tobacco.
. STANDARD. The term "Standard" means the cost of insurance is based on the
Insured being a tobacco user.
. SPECIAL. The term "Special" means an extra premium is being charged due to
the Insured's health, occupation or avocation.
NOTICE
This Policy Is A Legal Contract Between
The Policy Owner And the Company.
Page 2
<PAGE>
POLICY SCHEDULE
BASIC POLICY MONTHLY COST YEARS PAYABLE
VARIABLE LIFE SEE PAGE 21 65
ADDITIONAL BENEFITS PROVIDED BY RIDERS
<TABLE>
<CAPTION>
NONE
<S> <C>
PREMIUM CLASS: PREFERRED
</TABLE>
INITIAL PREMIUM: [$250,000.00]
PLANNED PERIODIC PREMIUM: $5,000.00 PAYABLE ANNUALLY
MONTHLY DEDUCTION DAY: 1ST DAY OF EACH MONTH
<TABLE>
<CAPTION>
<S> <C>
MINIMUM DEATH BENEFIT $ 500,000
AMOUNT (AFTER A DECREASE IN SPECIFIED AMOUNT)
MINIMUM CASH SURRENDER VALUE AFTER
A PARTIAL SURRENDER: $ 100,000
MINIMUM PARTIAL SURRENDER $ 5,000
MINIMUM VALUE THAT MAY BE RETAINED IN A
DIVISION AFTER A PARTIAL SURRENDER OR TRANSFER $ 5,000
MAXIMUM NET AMOUNT AT RISK [$1,500,000]
</TABLE>
COVERAGE MAY EXPIRE PRIOR TO THE MATURITY DATE SHOWN WHERE EITHER NO PREMIUMS
ARE PAID FOLLOWING PAYMENT OF THE INITIAL PREMIUM, OR SUBSEQUENT PREMIUMS ARE
INSUFFICIENT TO CONTINUE COVERAGE TO SUCH DATE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INSURED: JOHN DOE POLICY NUMBER: 0000000000
INSURANCE AGE: 35 DATE OF ISSUE: JUNE 1, 1998
INITIAL SPECIFIED AMOUNT: $500,000 MATURITY DATE: JUNE 1, 2063
DEATH BENEFIT OPTION: 1
</TABLE>
THIS IS A (STATE NAME) POLICY
Page 3
<PAGE>
POLICY SCHEDULE CONTINUED - POLICY NUMBER 0000000000
CHARGES DEDUCTED FROM THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE CHARGE. Deductions from the Separate Account will be
made at an annual rate not to exceed .75%. After the 10th policy anniversary
the annual rate will not exceed .50%. After the 20th policy anniversary the
annual rate will not exceed .25% The current rate on the date of issue is
[.75%]. The actual deduction will be made on a daily basis. The current rate
on a daily basis is [.002055%].
EXPENSE CHARGES:
PREMIUM EXPENSE CHARGE: CURRENT GUARANTEED
(ADJUSTABLE PERCENTAGE OF PREMIUM) [0%] 1.5%
BASIC POLICY CHARGES AND FEES
COST OF INSURANCE CHARGES. Guaranteed Maximum Cost of Insurance Rates Per
$1,000 of Net Amount at Risk are shown on page 21.
INITIAL ALLOCATION OF NET PREMIUMS AND POLICY DEDUCTIONS
<TABLE>
<CAPTION>
Investment Option(s) Initial Allocation Initial Allocation of
of Net Premiums Policy Deductions
<S> <C> <C> <C>
SEPARATE ACCOUNT: VL-R
[( ) Equity 500 Index 100% 100%
( ) EAFE Equity Index 0% 0%
( ) AIM V.I. Value 0% 0%
( ) Equity Growth 0% 0%
( ) Royce Total Return 0% 0%
( ) Money Market 0% 0%]
</TABLE>
Page 4
<PAGE>
CONTRACT. Your policy is a legal contract that You have entered into with Us.
You have paid the first premium and have submitted an application, a copy of
which is attached. In return, We promise to provide the insurance coverage
described in this policy.
The entire contract consists of:
1. The basic policy;
2. The riders that add benefits to the basic policy, if any;
3. Endorsements, if any; and
4. The attached copy of your application, and any amendments or supplemental
applications.
DATE OF ISSUE. The Date of Issue of this policy is the date on which the first
premium is due. The Date of Issue is also the date from which all policy years,
anniversaries, and monthly deduction dates are determined.
OWNER. The Owner is as stated in the application unless later changed. During
the Insured's lifetime, the Owner may exercise every right the policy confers or
We allow (subject to the rights of any assignee of record, and to any
endorsement on this policy limiting such rights). You may have Joint Owners of
the policy. In that case, the authorization of both Joint Owners is required for
all policy changes except for transfers, premium allocations and deduction
allocations. We will accept the authorization of either Joint Owner for
transfers and changes in premium and deduction allocations. The Owner and the
Insured may be the same person but do not have to be. If the Owner dies while
the policy is in force and the Insured is living, ownership rights pass on to a
successor owner, if any, or to the estate of the Owner.
PREMIUM PAYMENTS
All premiums after the first are payable in advance. Premium payments are
flexible. This means You may choose the amount and frequency of payments.
The sum of the premiums paid under this policy may not exceed the guideline
premium limitation as defined by Section 7702, Internal Revenue Code of 1986 (or
as later amended). Any portion of any premium paid which is determined to be in
excess of the limit will be refunded.
To receive the tax treatment accorded life insurance under U.S. law, this policy
must initially qualify and continue to qualify as life insurance under
Section 7702 of the Internal Revenue Code.
PLANNED PERIODIC PREMIUMS. The amount and frequency of the Planned Periodic
Premiums You selected are shown on page 3. You may request a change in the
amount and frequency. We may limit the amount of any increase. (See "Maximum
Net Amount at Risk").
UNSCHEDULED ADDITIONAL PREMIUMS. You may pay additional premiums at any time
before the Maturity Date shown on page 3, except that:
1. We may limit the number and amount of additional premiums, as provided in
the "Maximum Net Amount at Risk" provision; or
2. If payment of additional premiums would result in an increase in the Death
Benefit Amount, such increase will be subject to a written application and
evidence of insurability satisfactory to Us.
Any unscheduled payments will be applied as Unscheduled Additional Premiums
unless You specifically state otherwise.
MAXIMUM NET AMOUNT AT RISK. We reserve the right to reduce the Death Benefit by
affecting partial surrenders or limit the number and amount of additional
premiums in order to maintain the Net Amount at Risk, as defined below, at an
amount that will not exceed the Maximum Net Amount at Risk shown on page 3. Net
Amount at Risk is the excess of the Death Benefit over the
Page 5
<PAGE>
Accumulation Value of the policy.
PREMIUM EXPENSE CHARGE. The Premium Expense Charge is calculated by multiplying
the premium paid by the Premium Expense Charge Percentage. The Premium Expense
Charge Percentage is adjustable, but will never be more than the guaranteed
Premium Expense Charge Percentage shown on the Policy Schedule.
NET PREMIUM. The Net Premium is the premium paid, less the Premium Expense
Charge.
ALLOCATION OF PREMIUMS. The initial allocation of Net Premiums is shown on the
Policy Schedule and will remain in effect until changed by Written notice from
the Owner. The percentage allocation for future Net Premiums may be changed at
any time by Written notice.
If We have on file a completed telephone authorization form (Telephone
Transaction), We will allow the percentage allocation for future Net Premiums to
be changed at any time by telephone. We will honor instructions for Telephone
Transactions from any person who provides the correct information. Therefore,
there is a risk of possible loss to You if unauthorized persons use this service
in Your name. Under Telephone Transactions, We are not liable for any acts or
omissions based upon instructions that We reasonably believe to be genuine,
including losses arising from errors in the communication of telephone
instructions.
The initial Net Premium will be allocated to the Money Market Division on the
later of the following dates:
1. The Date of Issue; or
2. The date all requirements needed to place the policy in force have been
satisfied, including underwriting approval and receipt in the Home Office
of the necessary premium.
The initial Net Premium will remain in the Money Market Division until the first
Valuation Date following the 15th day after it was applied. Any additional Net
Premiums received prior to the first Valuation Date which follows the 15th day
after the initial Net Premium was applied will be allocated to the Money Market
Division until such Valuation Date. At that time, We will transfer the
Accumulation Value to the selected Investment Option(s). Each premium received
after such Valuation Date will be reduced by the Premium Expense Charge and
applied directly to the selected Investment Option(s) as of the Business Day
received.
Changes in the allocation will be effective on the date we receive the Owner's
notice. The allocation may be 100% to any available Division or may be divided
among these options in whole percentage points totaling 100%. We reserve the
right to limit the number of Divisions which You may select.
WHERE TO PAY. You may make Your payments to Us at Our Home Office or to an
authorized agent. A receipt signed by an officer of the Company will be
furnished upon request.
DEATH BENEFIT AND DEATH BENEFIT OPTIONS
DEATH BENEFIT PROCEEDS. If the Insured dies prior to the Maturity Date and
while this policy is in force, We will pay the Death Benefit Proceeds to the
Beneficiary. The Death Benefit Proceeds will be subject to:
1. The Death Benefit Option in effect on the date of death; and
2. Any increases (or decreases resulting from a partial surrender) made to the
Specified Amount. The Initial Specified Amount is shown on page 3.
Guidelines for changing the Death Benefit Option or the Specified Amount will be
found in the section entitled "Changing Your Insurance Policy."
Page 6
<PAGE>
The Death Benefit Proceeds will be the Death Benefit Amount reduced by any
outstanding policy loan and will be subject to the other provisions of the
"Beneficiary and Proceeds" section.
DEATH BENEFIT OPTION. The Death Benefit Option which You have chosen is shown
on page 3 as either Option 1 or Option 2.
OPTION 1. If You have chosen Option 1 the Death Benefit Amount will be the
greater of:
1. The Specified Amount on the date of death; or
2. The Accumulation Value on the date of death multiplied by the Death Benefit
Corridor Rate for the Insured's age nearest birthday as shown in the table
on page 20.
OPTION 2. If You have chosen Option 2, the Death Benefit Amount will be the
greater of:
1. The Specified Amount plus the Accumulation Value on the date of death; or
2. The Accumulation Value on the date of death multiplied by the Death Benefit
Corridor Rate for the Insured's age nearest birthday as shown in the table
on page 20.
CHANGING YOUR INSURANCE POLICY
You may request an increase in the Specified Amount or a change in the Death
Benefit Option at any time. Your request must be submitted to Our Home Office In
Writing in a form acceptable to Us.
INCREASING THE DEATH BENEFIT AMOUNT. The Owner may request an increase in the
Death Benefit Amount by submitting a written supplemental application to Us. The
increase will require evidence of insurability satisfactory to Us. An increase
will be effective as of the next Monthly Deduction Day following the date the
application for increase is approved by Us. The effective date will appear in an
endorsement to this policy.
CHANGING THE DEATH BENEFIT OPTION. You may request a change in the Death Benefit
Option You have chosen.
1. If You request a change from Option 1 to Option 2: The new Specified Amount
will be the Specified Amount, prior to change, less the Accumulation Value
as of the effective date of the change, but not less than zero.
2. If You request a change from Option 2 to Option 1: The new Specified Amount
will be the Specified Amount, prior to change, plus the Accumulation Value
as of the effective date of the change.
We will not require evidence of insurability for a change in the Death Benefit
Option. The change will go into effect on the Monthly Deduction Day following
the date We receive Your Written request for change.
CHANGING THE TERMS OF YOUR POLICY. Any change in Your policy must be approved by
one of Our officers. No agent has the authority to make any changes or waive any
of the terms of Your policy.
SEPARATE ACCOUNT PROVISIONS
SEPARATE ACCOUNT. Separate Account VL-R is a segregated investment account
established by the Company under Texas law to separate the assets funding the
variable benefits for the class of policies to which this policy belongs from
the other assets of the Company. That portion of the assets of the Separate
Account equal to the reserves and other policy liabilities with respect to the
Separate Account shall not be chargeable with liabilities arising out of any
other business We
Page 7
<PAGE>
SEPARATE ACCOUNT PROVISIONS (CONT'D)
may conduct. Income, gains and losses, whether or not realized from assets
allocable to the Separate Account, are credited to or charged against such
Account without regard to Our other income, gains or losses.
INVESTMENTS OF THE SEPARATE ACCOUNT. The Separate Account is segmented into
Divisions. Each Division invests in a single Investment Option. Net Premiums
will be applied to the Separate Account and allocated to one or more Divisions.
The assets of the Separate Account are invested in the Investment Option(s)
listed on the Policy Schedule pages. From time to time, We may add additional
Divisions to those shown on the Policy Schedule pages. We may also discontinue
offering one or more Divisions as provided in "Rights Reserved by Us." Any
change in Divisions available or selected are shown on the Policy Schedule or on
an amended Policy Schedule. Any change in investment selection shall be
pursuant to a duly executed change form filed with Our Home Office. Transfers
may be made to the additional Divisions subject to the rules stated in the
Transfer Provision and any new rules or limitations tied to such additional
Divisions.
If shares of any of the Investment Options become unavailable for investment by
the Separate Account, or the Company's Board of Directors deems further
investment in these shares inappropriate, the Company may limit further
investment in the shares or may substitute shares of another Investment Option
for shares already purchased under this policy as provided in "Rights Reserved
by Us" provision.
VALUATION OF ASSETS. The assets of the Separate Account are valued as of each
Valuation Date at their fair market value in accordance with Our established
procedures. The Separate Account Value as of any Valuation Date prior to the
Maturity Date is the sum of Your account values in each Division of the Separate
Account as of that date.
VALUATION UNITS. In order to determine policy values in the Divisions, We use
Valuation Units which are calculated separately for each Division. The Valuation
Unit value for each Division will vary to reflect the investment experience of
the applicable Investment Option. The Valuation Unit for a Division will be
determined on each Valuation Date for the Division by multiplying the Valuation
Unit value for the Division on the preceding Valuation Date by the Net
Investment Factor for that Division for the current Valuation Date.
The Net Investment Factor for each Division is determined by dividing (1) by (2)
and subtracting (3), where:
(1) is the net asset value per share of the applicable Investment Option as of
the current Valuation Date (plus any per share amount of any dividend or
capital gains distribution paid by the Investment Option since the last
Valuation Date); and
(2) is the net asset value per share of the shares held in the Division as
determined at the end of the previous valuation period; and
(3) is a factor representing the Mortality and Expense Charge.
The net asset value of an Investment Option's shares held in each division shall
be the value reported to Us by that Investment Option.
VALUATION DATES. Valuation of the various Divisions will occur on each Business
Day during each month. If the underlying Investment Option is unable to value or
determine the Division's investment in an Investment Option due to any of the
reasons stated in the "Suspension and Deferral of Payments Provision," the
Valuation Date for the Division with respect to the unvalued portion shall be
the first Business Day that the assets can be valued or determined.
Page 8
<PAGE>
BUSINESS DAY. A business day is each day that the New York Stock Exchange and
the Company are open for business. For the purpose of collecting daily charges,
a business day immediately preceded by one or more non-business calendar days
will include those non-business days as a part of that business day. For
example, a business day which falls on a Monday will consist of a Monday and the
immediately preceding Saturday and Sunday.
MINIMUM BALANCE. The minimum value that may be retained in a Division after a
partial surrender or transfer is shown on page 3. If a partial surrender causes
the balance in any Division to drop below such minimum amount, the Company
reserves the right to transfer the remaining balance to the Money Market
Division. If a transfer causes the balance in any Division to drop below the
minimum amount, the Company reserves the right to transfer the remaining balance
in proportion to the transfer request. A partial surrender may not leave a Cash
Surrender Value of less than the amount specified on page 3.
CHANGE OF INVESTMENT ADVISOR OR INVESTMENT POLICY. Unless otherwise required by
law or regulation, the investment advisor or any investment policy may not be
changed without Our consent. If required, approval of or change of any
investment objective will be filed with the Insurance Department of the state
where the policy is being delivered.
RIGHTS RESERVED BY US. Upon notice to You, this policy may be modified by Us,
but only if such modification is necessary to:
1. Operate the Separate Account in any form permitted under the Investment
Company Act of 1940 or in any other form permitted by law;
2. Transfer any assets in any Division to another Division, or to one or more
other separate accounts;
3. Add, combine or remove Divisions in the Separate Account, or combine the
Separate Account with another separate account;
4 Make any new Division available to You on a basis to be determined by Us;
5. Substitute for the shares held by any Division the shares of another
Division or the shares of another investment company or any other
investment permitted by law;
6. Make any changes as required by the Internal Revenue Code, or by any other
applicable law, regulation or interpretation in order to continue treatment
of this policy as life insurance; or
7. Make any changes required to comply with the requirements of any underlying
Investment Option.
When required by law, We will obtain Your approval of changes and We will gain
approval from any appropriate regulatory authority.
POLICY VALUES PROVISION
ACCUMULATION VALUE. The Accumulation Value of Your policy is the total of all
values in the Divisions of the Separate Account and in the Loan Account. The
Accumulation Value reflects:
1. Net Premiums paid;
2. Monthly deductions;
3. The investment experience of the Divisions selected less the Mortality and
Expense Charge;
4. Amounts allocated to the Loan Account, including interest earned on amounts
in the Loan Account (See "Policy Loans");
Page 9
<PAGE>
5. Deductions due to partial surrenders and any charges for partial surrenders
and transfers.
Net premiums are allocated, in accordance with your instructions, to the
selected Divisions of the Separate Account and converted to Valuation Units.
On each Monthly Deduction Day, a Monthly Deduction will be made by redeeming
Valuation Units from each applicable Division in the same ratio as the
Allocation of Policy Deductions in effect on the Monthly Deduction Day. If the
number of Valuation Units in any Division is insufficient to make a Monthly
Deduction in this manner, We will cancel Valuation Units from each applicable
Division in the same ratio the Monthly Deduction bears to the unloaned
Accumulation Value of your policy.
The Accumulation Value in any Division is determined by multiplying the value of
a Valuation Unit by the number of Valuation Units held under the policy in that
Division.
The value of the Valuation Units equal to the amount being borrowed from the
Separate Account will be transferred to the Loan Account as of the Business Day
that the loan request is received In Writing.
Valuation Units are surrendered to reflect a partial surrender as of the
Business Day that the request for partial surrender is received In Writing.
ON THE DATE OF ISSUE. The Accumulation Value on the Date of Issue will be
determined as follows:
1. The Net Premium received; less
2. The Monthly Deduction for the first policy month (See "How We Calculate a
Monthly Deduction.").
The first deduction day is the Date of Issue. The Monthly Deduction Day is
shown on page 3.
ON EACH MONTHLY DEDUCTION DAY. On each Monthly Deduction Day after the Date of
Issue, we will determine the Accumulation Value as follows:
1. We will take the Accumulation Value as of the last Monthly Deduction Day;
and
2. Add the interest earned for the month on the excess of the Loan Account
value on the last Monthly Deduction Day over any reductions made in the
Loan Account since the last Monthly Deduction Day; and
3. Add any investment gain (or subtract any investment loss) on the Divisions
of the Separate Account since the last Monthly Deduction Day as measured by
the change in the value of the Valuation Units; and
4. Add all Net Premiums received since the last Monthly Deduction Day; and
5. Subtract any partial surrender made since the last Monthly Deduction Day;
and
6. Subtract the Monthly Deduction for the policy month following the Monthly
Deduction Day. (See "How We Calculate a Monthly Deduction.")
ON ANY VALUATION DATE OTHER THAN A MONTHLY DEDUCTION DAY. The Accumulation
Value on any Valuation Date other than a Monthly Deduction Day will be the sum
of:
1. The value of the Loan Account;
2. Less any partial surrenders since the last Monthly Deduction Day.
3. Plus all Net Premiums received since the last Monthly Deduction Day;
4. Plus the sum of the values of the Divisions of the Separate Account as of
the last Monthly Deduction Day, plus the amount of any investment gain (or
minus any investment loss) on the Divisions since the last Monthly
Deduction Day as measured by the change in the value of the Valuation
Units.
Page 10
<PAGE>
CASH SURRENDER VALUE. The Cash Surrender Value of this policy will be equal to
the Accumulation Value less any indebtedness.
HOW WE CALCULATE A MONTHLY DEDUCTION. Each Monthly Deduction includes:
1. The cost of insurance provided by the basic policy; and
2. The cost of insurance for benefits provided by riders, if any.
HOW WE CALCULATE THE COST OF INSURANCE FOR THE BASIC POLICY. We calculate the
cost of insurance at the beginning of each policy month as of the Monthly
Deduction Day. The cost of insurance is determined as follows:
1. Reduce the Death Benefit Amount by the amount of Accumulation Value on the
Monthly Deduction Day before the cost of insurance deduction is taken, and
after the cost of insurance for riders, if any, are deducted;
2. Multiply the difference by the cost of insurance rate per $1,000 of the Net
Amount at Risk as provided in the Cost of Insurance Rate provision; and
3. Divide the result by 1,000.
If Option 1 is in effect, and there have been increases in the Specified Amount,
the Accumulation Value will first be considered part of the Initial Specified
Amount. If the Accumulation Value exceeds the Initial Specified Amount, the
excess will be considered part of any Specified Amount increases in the order in
which the increases were made.
COST OF INSURANCE FOR BENEFITS PROVIDED BY RIDERS. The cost of insurance for
benefits provided by riders, if any, will be as stated on the Policy Schedule or
in an endorsement to this policy.
COST OF INSURANCE RATE. The cost of insurance rate for the Initial Specified
Amount, and for each Specified Amount increase, is based on the Insured's:
1. Sex (if issued on a Sex Distinct basis);
2. Age nearest birthday on each policy anniversary; and
3. Premium class shown on the Policy Schedule, associated with the Initial
Specified Amount and each increase in the Specified Amount.
The guaranteed monthly cost of insurance rates are shown in the table on page
[]. We can use cost of insurance rates that are lower than the guaranteed
rates. Any change in rates will apply to all policies in the same rate class as
this policy. The rate class of this policy is determined on its Date of Issue
and according to:
1. The calendar year of issue and policy year;
2. The plan of insurance;
3. The amount of insurance; and
4. The age, sex and premium class of the Insured if issued on a Sex Distinct
basis or the age and premium class if issued on a Unisex basis.
CHANGES IN RATES, CHARGES AND FEES. This policy does not participate in Our
profits or surplus. Any redetermination of the cost of insurance rates,
interest rates, mortality and expense charges or percentage of premium charges
will be based on Our expectations as to investment earnings, mortality,
persistency and expenses. We will not change these charges in order to recoup
any prior losses.
GRACE PERIOD. If the Cash Surrender Value on a Monthly Deduction Day is not
enough to meet the Monthly Deduction for the current month, this policy will
remain in force during the 61-day period that follows. If the Cash Surrender
Value on a policy anniversary is not enough to pay any loan interest due, this
policy will remain in force during the 61-day period that follows. Such 61-
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<PAGE>
day period is referred to in this policy as the "Grace Period." There is no
Grace Period for the initial Monthly Deduction.
If the amount we require to keep your policy in force is not paid by the end of
the Grace Period, this policy will terminate without value. However, we will
give You at least 31 days notice prior to termination that your policy is in the
Grace Period and advise You of the amount required to keep your policy in force.
Such 31 days prior notice will be sent to You at your last known address, and to
the assignee of record, if any. If death occurs during the Grace Period,
Monthly Deductions through the policy month in which death occurred will be
deducted from the proceeds.
If a surrender request is received within 31 days after the Grace Period
commences, the Cash Surrender Value payable will not be less than the Cash
Surrender Value on the Monthly Deduction Day the Grace Period commenced. The
Monthly Deduction for the policy month following such Monthly Deduction Day will
not be subtracted in the calculation of such Cash Surrender Value.
FULL SURRENDER. Subject to the Beneficiary and Proceeds section, You may return
Your policy to Us and request its Cash Surrender Value at any time during the
Insured's lifetime before the Maturity Date. The Cash Surrender Value will be
determined as of the Business Day the policy and the signed request for
surrender are received In Writing at the Home Office. The Company may delay
payment if the Suspension and Deferral of Payments Provision is in effect.
PARTIAL SURRENDER. At any time after the first policy year, You may request a
portion of the Cash Surrender Value of the policy. Your request must be made In
Writing prior to the Maturity Date during the Insured's lifetime. The minimum
partial surrender is $5,000.00.
Valuation Units are surrendered to reflect a partial surrender as of the
Business Day the request for partial surrender is received In Writing.
A partial surrender will result in a reduction of the Accumulation Value and the
Death Benefit Amount. The Accumulation Value will be reduced by the amount of
partial surrender benefit. The reduced Death Benefit Amount will be determined
in accordance with the Death Benefit Option provision. If your Death Benefit
Option is Option 1, the Specified Amount will be reduced by the amount of the
partial surrender. (The reduced amount will not be less than zero.) The Cash
Surrender Value and Death Benefit Amount remaining after this reduction must be
no less than the Minimum Cash Surrender Value and Minimum Death Benefit Amount
after a Partial Surrender shown on page 3.
A partial surrender will result in the cancellation of Valuation Units from each
applicable Division in the same ratio as the Allocation of Policy Deductions in
effect on the date of partial surrender. If the number of Valuation Units in
any Division is insufficient to make a partial surrender in this manner, We will
cancel Valuation Units from each applicable Division in the ratio the partial
surrender request bears to the Cash Surrender Value of your policy. You must
state In Writing in advance how partial surrenders should be made if other than
this method is to be used.
There will be a $25.00 charge for each partial surrender.
The Company may delay payment if the Suspension and Deferral of Payments
Provision is in effect.
PERIOD OF INSURANCE COVERAGE IF AMOUNT OR FREQUENCY OF PREMIUM PAYMENTS IS
REDUCED OR IF PREMIUM PAYMENTS ARE DISCONTINUED. If You reduce the amount or
frequency of premium payments, or if You discontinue payment of premiums, We
will continue making Monthly Deductions (as long as there is sufficient Cash
Surrender Value to make such deductions) until the Maturity date. This policy
will remain in force until the earlier of the following dates:
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1. The Maturity Date (if there is sufficient Cash Surrender Value to make
Monthly Deductions to that date); or
2. Surrender of the policy; or
3. The end of the Grace Period; or
4. Death of the insured.
TRANSFER PROVISION
TRANSFER OF ACCUMULATION VALUE. You may transfer all or part of Your interest
in a Division of the Separate Account subject to the following:
1. Transfers will be made as of the Business Day that the transfer request is
received in good order.
2. The minimum amount which may be transferred is $5,000.00.
3. Prior to the Maturity Date, You may make up to 12 transfers each policy
year without charge.
4. There will be a charge of $25.00 for each transfer in excess of 12 in a
policy year. This charge will be deducted from the Divisions in the same
ratio as the requested transfer.
5. We reserve the right to transfer the entire balance in proportion to any
other Investment Options you are then using, if the Accumulation Value is
below $5,000.
6. We reserve the right to terminate, suspend or modify the transfer privilege
described above.
If You elect to use the transfer privilege, We will not be liable for a transfer
made in accordance with Your instructions.
Transfers between Separate Account Divisions result in the redemption of
Valuation Units in one Division and the purchase of Valuation Units in the
Division to which the transfer is made.
DOLLAR COST AVERAGING. Dollar Cost Averaging is an automatic transfer of funds
made periodically prior to the Maturity Date in accordance with the Transfers
provision, except as provided below, and instructions from the Owner. Dollar
Cost Averaging (DCA) is subject to the following guidelines:
1. DCA transfers may be made:
(a) On any day of the month except the 29th, 30th or 31st;
(b) On a monthly, quarterly, semi-annual or annual basis; and
(c) From the Money Market Division to one or more of the other Separate
Account Divisions.
2. DCA may be elected only if the Accumulation Value at the time of election
is $100,000 or more.
3. The minimum amount of each DCA transfer is $5,000, or the remaining amount
in the Money Market Division, if less.
4. DCA may not begin prior to the first Valuation Date following the 15th day
after the initial Net Premium is applied.
5. DCA will end when there is no longer any value in the Money Market
Division, or when You request that DCA end. (You will be notified if the
value of Your Money Market Division reaches zero).
6. Amounts applied to the Money Market Division while DCA is active will be
available for future Dollar Cost Averaging in accordance with the current
DCA request.
7. There is no charge for DCA.
8. DCA is not available if Automatic Rebalancing is active.
AUTOMATIC REBALANCING. Automatic Rebalancing occurs when funds are transferred
by
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<PAGE>
the Company between the Separate Account Divisions so that the values in each
Division match the premium allocation percentages then in effect. You may
choose Automatic Rebalancing on a quarterly, semi-annual or annual basis if your
Accumulation Value is $100,000 or more. The date Automatic Rebalancing occurs
will be based on the Date of Issue of Your policy. For example, if Your policy
is dated January 17, and You have requested Automatic Rebalancing on a quarterly
basis, Automatic Rebalancing will start on April 17, and will occur quarterly
thereafter. After Automatic Rebalancing is elected, it will continue until We
are notified In Writing that it is to be discontinued. There is no charge for
Automatic Rebalancing. Automatic Rebalancing is not available if Dollar Cost
Averaging is active.
SUSPENSION AND DEFERRAL OF PAYMENTS PROVISION
We may suspend the calculation and payment of the policy's Cash Surrender Value
in the following circumstances:
1. If there is a failure in any of the means normally employed in ascertaining
the prices or values of investments, or
2. If for any reason the prices or values of investments in the Separate
Account cannot be reasonably ascertained; or
3. If circumstances exist as a result of which it is not reasonably
practicable to realize any of the Separate Account's investments or to
determine fairly the net asset value of the Separate Account; or
4. If the remittance of funds involved in the realization of, or in the
payment for investments or payment due under this policy cannot be carried
out without undue delay and at normal rates of exchange; or
5. The U.S. Securities and Exchange Commission (SEC) determines that a state
of emergency exists; or
6. An order of the SEC permits a delay for the protection of policy holders.
Written notice of both the imposition and termination of any such suspension
will be given to the Owners, assignees of record and any irrevocable
Beneficiaries.
Payments which were due to have been made and which were deferred following the
suspension of the calculation of the Cash Surrender Value will be made within
thirty (30) days following the lifting of the suspension, and will be calculated
based on the Valuation Date which immediately follows termination of the
suspension.
POLICY LOANS
You may borrow from Us at any time while this policy is in force, an amount
which is equal to or less than the policy's loan value. The loan value will be
the Cash Surrender Value, less $100,000, minus 3 monthly deductions and less
interest on the amount to be borrowed to the next policy anniversary. The
minimum amount of each loan is $5,000 or, if less, the entire remaining loan
value.
The value of Valuation Units equal to the amount being borrowed from the
Separate Account will be transferred to the Loan Account as of the Business Day
that the loan request is received in good order.
LOAN ACCOUNT. The Loan Account is a fixed account within Our general assets
which we have established for any amounts transferred from the Divisions as a
result of a loan. Interest applied to the Loan Account will be an annual rate of
not less than 4% nor more than 4.75%, and is not based on investment experience
of any Division of the Separate Account.
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<PAGE>
LOAN INTEREST. Loan interest will accrue daily at an annual effective rate of
4.54% payable in advance. (This is equivalent to an annual effective rate of
4.75% paid in arrears.) On each policy anniversary, loan interest for the next
year is due in advance. Unpaid loan interest will be deducted from the various
Divisions according to the Allocation of Policy Deductions then in effect, and
added to the Loan Account. If the number of Valuation Units in any Division is
insufficient to deduct unpaid loan interest in this manner, We will cancel
Valuation Units from each applicable Division in the same ratio the unpaid loan
interest bears to the unloaned Accumulation Value of your policy.
HOW YOU MAY REPAY A POLICY LOAN. You may repay all or part of a policy loan at
any time, except that;
1. Repayment may be made only while this policy is in force and prior to the
death of the Insured;
2. A partial repayment must be at least $5,000; and
3. At the time You repay all or part of a Policy Loan, You must specify the
payment is to repay all or part of the Policy Loan.
You may tell Us how to allocate repayments. If You do not tell Us, an amount
equal to the loan repayment will be transferred from the Loan Account to the
Divisions in the same ratio currently in effect for the Allocation of Premiums.
WE CAN DELAY PAYMENT. We can delay lending You money for up to 6 months, or the
period allowed by law, whichever is less. However, We cannot delay lending You
money if the amount is to be used to pay a premium to Us.
OBTAINING A LOAN. You may obtain a policy loan by Written request and
assignment of the policy as sole security for the loan. The Company may delay a
loan if the Suspension and Deferral of Payments Provision is in effect.
EFFECT OF A LOAN. When a loan is made, an amount equal to the amount being
borrowed from the Separate Account will be transferred to the Loan Account. A
loan will result in cancellation of units from each applicable Division in the
ratio that the loan bears to the unloaned Accumulation Value of Your policy.
You must state In Writing in advance which Division units are to be canceled if
a different method is to be used. A loan, whether or not repaid, will have a
permanent effect on the Cash Surrender Values and on the death benefits. If not
repaid, any indebtedness will reduce the amount of Death Benefit Proceeds and
the amount available upon surrender of the policy.
PREFERRED LOANS. A "Preferred Loan" is a policy loan that is made at a net cost
to the Owner that is less than the net cost of other policy loans. Starting on
the tenth policy anniversary, this policy will be eligible for "Preferred Loans"
subject to the following guidelines:
1. The maximum amount eligible for a new Preferred Loan during a policy year
is restricted to the lesser of the following values on the first day of
such policy year:
a. The policy loan value; or
b. 10% of the Accumulation Value.
2. When a Preferred Loan is made, interest to the next policy anniversary will
be charged at the rate shown in the Loan Interest provision.
3. Interest credited to the amount of the Accumulation Value offset by a
Preferred Loan:
a. Will be at an annual effective rate that is equal to or less than the
Policy Loan annual effective interest rate; and
b. Will be at a higher rate than the rate used to credit interest to values
offset by any other policy loan and will never be less than an annual
effective rate of 4.5%.
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<PAGE>
BENEFICIARY AND PROCEEDS
BENEFICIARY. The Beneficiary as named in the application, or later changed by
You, will receive the proceeds upon the death of the Insured. Unless You have
stated otherwise, proceeds will be paid as follows:
1. If any Beneficiary dies before the Insured, that Beneficiary's interest
will pass to any other Beneficiaries according to their respective
interests.
2. If no Beneficiary survives the Insured, proceeds will be paid to You, as
Owner, if You are then living; otherwise proceeds will be paid to Your
estate.
CHANGE OF OWNERSHIP OR BENEFICIARY. You may change the Owner or the Beneficiary
at any time during the lifetime of the Insured unless the previous designation
provides otherwise. To do so, send a Written request to Our Home Office. The
change will go into effect when We have recorded the change. However, after the
change is recorded, it will be deemed effective as of the date of Your Written
request for change. The change will be subject to any payment made or action
taken by Us before the request is recorded.
COMMON DISASTER. If We cannot determine whether a Beneficiary or the Insured
died first in a common disaster, We will assume that the Beneficiary died first.
Proceeds will be paid on this basis unless an endorsement to this policy
provides otherwise.
PROCEEDS. Proceeds means the amount payable on:
1. The Maturity Date;
2. Exercise of the full surrender benefit; or
3. The Insured's death.
The Proceeds on the Maturity Date will be the Cash Surrender Value. The
Proceeds on the Insured's death will be the Death Benefit Amount less any
outstanding Policy Loan.
All Proceeds are subject to the provisions of the Payment Options section and
the other provisions of this policy.
PAYMENT OPTIONS
Instead of being paid in one sum, all or part of the proceeds may be applied
under any of the Payment Options described below. In addition to these options
other methods of payment may be chosen with Our consent.
PAYMENT CONTRACT. When proceeds become payable under a Payment Option, a
Payment Contract will be issued to each payee. The Payment Contract will state
the rights and benefits of the payee. It will also name those who are to
receive any balance unpaid at the death of the payee.
ELECTION OF OPTIONS. The Owner may elect or change any Payment Option while the
Insured is living, subject to the provisions of this policy. This election or
change must be In Writing. Within 60 days after the Insured's death, a payee
entitled to proceeds in one sum may elect to receive proceeds under any option.
OPTION 1. PAYMENTS FOR A SPECIFIED PERIOD: Equal monthly payments will be made
for a specified period. The Option 1 Table in this policy shows the monthly
income for each $1,000 of proceeds applied.
OPTION 2. PAYMENTS OF A SPECIFIED AMOUNT: Equal monthly payments of a specified
amount will be made. Each payment must be at least $60 a year for each $1,000
of proceeds applied. Payments will continue until the amount applied, with
interest, has been paid in full.
OPTION 3. MONTHLY PAYMENTS FOR LIFE: Equal monthly payments will be made for a
specified period, and will continue after that period for as long as the payee
lives. The specified period may be 10, 15 or 20 years. The Option 3 Table in
this policy shows the monthly income for each $1,000 of proceeds applied. If
issued on a Sex Distinct
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basis, tables are based on the 1983a Male or Female Tables adjusted by
projection scale G for 9 years, with interest at the rate of 3% per year and a
2% load. If issued on a Unisex basis, tables are based on the 1983a Male or
Female Tables, adjusted by projection scale G for 9 years, with unisex rates
based on 60% female and 40% male, and interest at the rate of 3% per year and a
2% load.
At the time payments are to begin under this option, the payee may choose one of
the following:
1. Monthly payments based on the Option 3 Table; or
2. Monthly payments equal to a monthly annuity based on our single premium
immediate annuity rates then in use.
OPTION 4. PROCEEDS LEFT AT INTEREST: Proceeds may be left on deposit with us
for any period up to 30 years. Interest earned on the proceeds may be:
1. Left on deposit to accumulate at the rate of 3% compounded annually; or
2. Paid in installments at the rate for each $1,000 of proceeds of $30
annually, $14.89 semiannually, $7.42 quarterly or $2.47 monthly.
Upon the death of the payee, or at the end of the specified period, any balance
left on deposit will be paid in a lump sum or under Payment Options 1, 2 or 3.
INTEREST RATES. The guaranteed rate of interest for proceeds held under Payment
Options 1, 2, 3 and 4 is 3% compounded annually. We may credit interest at a
higher rate. The amount of any increase will be determined by Us.
PAYMENTS. The first payment under Options 1, 2 and 3 will be made when the
claim for settlement has been approved. Payments after the first will be made
according to the manner of payment chosen. Interest under Option 4 will be
credited from the date of death and paid or added to the proceeds as provided in
the Payment Contract.
AVAILABILITY OF OPTIONS. If the proposed payee is not a natural person, payment
options may be chosen only with Our consent.
If this policy is assigned, We will have the right to pay the assignee in one
sum the amount to which the assignee is entitled. Any balance will be applied
according to the option chosen.
The amount to be applied under any one option must be at least $2,000. The
payment elected under any one option must be at least $25. If the total policy
proceeds are less than $2,000, payment will be made in one lump sum.
EVIDENCE THAT PAYEE IS ALIVE. Before making any payment under a Payment Option,
We may ask for proof that the payee is alive. If proof is requested, no payment
will be made or considered due until We receive proof.
DEATH OF A PAYEE. If a payee dies, any unpaid balance will be paid as stated in
the Payment Contract. If there is no surviving payee named in the Payment
Contract, We will pay the estate of the payee:
1. Under Options 1 and 3, the value as of the date of death of the remaining
payments for the specified period, discounted at the rate of interest,
compounded annually, that was used in determining the amount of the monthly
payment;
2. Under Options 2 and 4, the balance of any proceeds remaining unpaid with
accrued interest, if any.
WITHDRAWAL OF PROCEEDS UNDER OPTIONS 1 OR 2. If provided in the Payment
Contract, a payee will have the right to withdraw the entire unpaid balance
under Options 1 or 2. Under Option 1, the amount will be the value of the
remaining payments for the specified period discounted at the rate of interest
used in determining monthly income. Under Option 2, the amount will be the
entire unpaid balance.
WITHDRAWAL OF PROCEEDS UNDER OPTION 4. A payee will have the right to withdraw
proceeds left under Option 4 subject to the following rules:
1. The amount to be withdrawn must be $500 or more; and
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2. A partial withdrawal must leave a balance on deposit of $1,000 or more.
WITHDRAWALS MAY BE DEFERRED. We may defer payment of any withdrawal for up to 6
months from the date We receive a withdrawal request.
ASSIGNMENT. Payment Contracts may not be assigned.
CHANGE IN PAYMENT. The right to make any change in payment is available only if
it is provided in the Payment Contract.
CLAIMS OF CREDITORS. To the extent permitted by law, proceeds will not be
subject to any claims of a Beneficiary's creditors.
GENERAL PROVISIONS
ASSIGNING YOUR POLICY. During the lifetime of the Insured, You may assign this
policy as security for an obligation. We will not be bound by an assignment
unless it is received In Writing at the Home Office. Two copies of the
assignment must be submitted. We will retain one copy and return the other. We
will not be responsible for the validity of any assignment.
INCONTESTABILITY. We rely on the statements made in the application for the
policy and applications for any reinstatements or increases in Specified Amount.
These statements, in the absence of fraud, are considered representations and
not warranties. No statement may be used in defense of a claim under the policy
unless it is in such applications.
Except as stated below, We cannot contest this policy after it has been in force
during the Insured's lifetime for 2 years from the Date of Issue.
Exceptions: We cannot contest any claim related to an increase in Specified
Amount after such increase has been in effect during the Insured's lifetime for
2 years.
If this policy is reinstated, We cannot contest this policy after it has been in
force during the Insured's lifetime for 2 years from the date of reinstatement.
We can contest a reinstatement or an increase in Specified Amount only on the
basis of the information furnished in the application for such reinstatement or
increase.
This 2-year limitation does not apply to any Disability or Accidental Death
Benefit, or to the nonpayment of premium.
SUICIDE EXCLUSION. If the Insured takes his or her own life, while sane or
insane, within 2 years from the Date of Issue, We will limit the Death Benefit
Proceeds to the premiums paid less any policy loans and less any partial cash
surrenders paid.
If there are any increases in the Specified Amount (See the section entitled
"Changing Your Insurance Policy") a new 2 year period shall apply to each
increase beginning on the date of each increase. The Death Benefit Proceeds
will be the costs of insurance associated with each increase.
When the laws of the state in which this policy is delivered require less than
this 2 year period, the period will be as stated in such laws.
AGE OR SEX INCORRECTLY STATED (AGE INCORRECTLY STATED IF ISSUED ON A UNISEX
BASIS). If the (1) age or sex of the Insured (if this policy was issued on a
Sex Distinct basis) or (2) age of the Insured (if this policy was issued on a
Unisex basis) has been misstated to Us, We will adjust the excess of the Death
Benefit Amount over the Accumulation Value on the date of death to that which
would have been purchased by the Monthly Deduction for the policy month of death
at the correct cost of insurance rate. By age, We mean age nearest birthday as
of the Date of Issue.
STATUTORY BASIS OF POLICY VALUES. The Accumulation Values of the policy are not
less than the minimum values required by the law of the state where this policy
is delivered. The
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calculation of the Accumulation Values includes a charge for the cost of
insurance, as shown in the Table of Guaranteed Monthly Cost of Insurance Rates.
Calculation of minimum Accumulation Values, nonforfeiture benefits and
Guaranteed Cost of Insurance Rates are based on the Composite 1980 Commissioners
Standard Ordinary Male\Female\Unisex Table B (80% male, 20% female) Mortality
Table for the appropriate sex and age nearest birthday. A detailed statement of
the method of computing values has been filed with the state insurance
department where required.
NO DIVIDENDS. This policy will not pay dividends. It will not participate in
any of Our surplus or earnings.
ANNUAL REPORT. We will send You at least once a year an annual report which
will show a summary of all transactions since the last report, including:
1. Premiums paid since the last report;
2. Transfers since the last report;
3. Expense charges deducted since the last report;
4. The cost of insurance deducted since the last report;
5. Partial surrender benefits deducted since the last report including partial
surrender fees;
6. The amount of any outstanding policy loan;
7. Separate Account Unit Values;
8. The current Cash Surrender Value and Accumulation Values; and
9. The Death Benefit Amount.
WHEN THIS POLICY TERMINATES. This policy will terminate if:
1. You request that this policy be terminated;
2. The Insured dies;
3. The policy matures; or
4. The Grace Period ends and there is not sufficient Cash Surrender Value to
cover a Monthly Deduction.
REINSTATEMENT. "Reinstating" means placing Your policy in force after it has
terminated at the end of the Grace Period. We will reinstate this policy if We
receive:
1. Your Written request within 5 years after the end of the Grace Period and
before the Maturity Date;
2. Evidence of insurability satisfactory to Us;
3. Payment of enough premiums so that the policy will remain in force for 2
months; and
4. Payment or reinstatement of any indebtedness.
The reinstated policy will be in force from the Monthly Deduction Day on or
following the date We approve the reinstatement application.
The Accumulation Value at the time of reinstatement will be:
1. The Net Premium allocated in accordance with the premium allocation
percentages at time of lapse unless the reinstatement application provides
otherwise, using Unit Values as of the date of reinstatement; plus
2. Any loan, including loan interest to the next policy anniversary, repaid or
reinstated; less
3. The monthly deduction for one month.
If a person other than the Insured is covered by a rider attached to this
policy, coverage will be reinstated according to that rider.
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<PAGE>
DEATH BENEFIT CORRIDOR RATES
BASED ON GUIDELINE PREMIUM
ATTAINED ATTAINED
AGE RATE AGE RATE
AGE
0-40 2.50 60 1.30
41 2.43 61 1.28
42 2.36 62 1.26
43 2.29 63 1.24
44 2.22 64 1.22
45 2.15 65 1.20
46 2.09 66 1.19
47 2.03 67 1.18
48 1.97 68 1.17
49 1.91 69 1.16
50 1.85 70 1.15
51 1.78 71 1.13
52 1.71 72 1.11
53 1.64 73 1.09
54 1.57 74 1.07
55 1.50 75-90 1.05
56 1.46 91 1.04
57 1.42 92 1.03
58 1.38 93 1.02
59 1.34 94 1.01
95+ 1.00
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TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES
PER $1,000 OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
Nearest Birthday Nearest Birthday
(On Each Policy (On Each Policy
Anniversary) Anniversary)
<S> <C> <C> <C> <C>
0 $0.35 50 $0.56
1 0.09 51 0.61
2 0.08 52 0.67
3 0.08 53 0.73
4 0.08 54 0.80
5 0.08 55 0.88
6 0.07 56 0.96
7 0.07 57 1.05
8 0.06 58 1.14
9 0.06 59 1.24
10 0.06 60 1.35
11 0.06 61 1.48
12 0.07 62 1.62
13 0.08 63 1.78
14 0.10 64 1.95
15 0.11 65 2.15
16 0.13 66 2.36
17 0.14 67 2.58
18 0.15 68 2.82
19 0.16 69 3.07
20 0.16 70 3.36
21 0.16 71 3.70
22 0.16 72 4.08
23 0.16 73 4.52
24 0.15 74 5.01
25 0.15 75 5.54
26 0.14 76 6.11
27 0.14 77 6.71
28 0.14 78 7.33
29 0.14 79 7.99
30 0.14 80 8.71
31 0.15 81 9.52
32 0.15 82 10.45
33 0.16 83 11.50
34 0.17 84 12.67
35 0.18 85 13.93
36 0.19 86 15.25
37 0.20 87 16.63
38 0.22 88 18.06
39 0.23 89 19.55
40 0.25 90 21.11
41 0.27 91 22.80
42 0.30 92 24.66
43 0.32 93 26.82
44 0.35 94 29.67
45 0.38
46 0.41
47 0.44
48 0.48
49 0.52
</TABLE>
The rates shown above represent the guaranteed (maximum) monthly cost of
insurance for each $1,000 of net amount at risk. If this policy has been issued
in a special (rated) premium class, the guaranteed monthly cost will be
calculated as shown on page 3.
Page 21
<PAGE>
TABLES OF MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS
<TABLE>
<CAPTION>
OPTION 1 TABLE
INSTALLMENTS FOR A SPECIFIED PERIOD
- --------------------------------------------------------------------------------------------------------
Number Amount of Number Amount of Number Amount of Number Amount of
of Years Monthly of Years Monthly of Years Monthly of Years Monthly
Payable Installments Payable Installments Payable Installments Payable Installments
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 $17.91 15 $6.87 25 $4.71 35 $3.82
6 15.14 16 6.53 26 4.59 36 3.76
7 13.16 17 6.23 27 4.47 37 3.70
8 11.68 18 5.96 28 4.37 38 3.65
9 10.53 19 5.73 29 4.27 39 3.60
10 9.61 20 5.51 30 4.18 40 3.55
11 8.86 21 5.32 31 4.10
12 8.24 22 5.15 32 4.02
13 7.71 23 4.99 33 3.95
14 7.26 24 4.84 34 3.88
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTION 3 TABLE
INSTALLMENTS FOR LIFE WITH SPECIFIED MINIMUM PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
AGE OF PAYEE GUARANTEED PERIOD AGE OF PAYEE GUARANTEED PERIOD
- --------------------- -------------------------------------------- ----------- ----------------------------------------------------
Male 10 Years 15 Years 20 Years Male 10 Years 15 Years 20 Years
- --------------------- ------------- -------------- --------------- ----------- -------------- ------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
20* $2.95 $2.94 $2.94 50 $4.05 $4.00 $3.93
21 2.97 2.96 2.96 51 4.11 4.06 3.99
22 2.98 2.98 2.98 52 4.18 4.13 4.04
23 3.00 3.00 3.00 53 4.26 4.19 4.10
24 3.02 3.02 3.02 54 4.34 4.27 4.16
25 3.05 3.04 3.04 55 4.42 4.34 4.22
26 3.07 3.06 3.06 56 4.51 4.42 4.28
27 3.09 3.09 3.08 57 4.60 4.50 4.35
28 3.12 3.11 3.11 58 4.69 4.58 4.41
29 3.14 3.14 3.13 59 4.79 4.66 4.47
30 3.17 3.16 3.16 60 4.90 4.75 4.54
31 3.20 3.19 3.18 61 5.01 4.84 4.60
32 3.22 3.22 3.21 62 5.13 4.94 4.67
33 3.25 3.25 3.24 63 5.26 5.03 4.73
34 3.29 3.28 3.27 64 5.39 5.13 4.79
35 3.32 3.31 3.00 65 5.52 5.23 4.85
36 3.35 3.35 3.33 66 5.66 5.33 4.91
37 3.39 3.38 3.36 67 5.81 5.43 4.97
38 3.43 3.42 3.40 68 5.96 5.53 5.02
39 3.47 3.46 3.44 69 6.12 5.63 5.07
40 3.51 3.50 3.47 70 6.28 5.73 5.11
41 3.55 3.54 3.51 71 6.44 5.82 5.15
42 3.60 3.58 3.55 72 6.61 5.91 5.19
43 3.65 3.63 3.59 73 6.78 6.00 5.23
44 3.70 3.67 3.64 74 6.96 6.08 5.26
45 3.75 3.72 3.68 75 7.13 6.16 5.28
46 3.80 3.77 3.73 76 7.30 6.24 5.31
47 3.86 3.83 3.78 77 7.47 6.31 5.33
48 3.92 3.88 3.83 78 7.64 6.37 5.34
49 3.98 3.94 3.88 79 7.81 6.42 5.36
80** 7.97 6.48 5.37
- -----------------------------------------------------------------------------------------------------------------------------------
Payments are based upon the age, nearest birthday, of the Payee on the date the first payment is due. If monthly installments for
two or more specified periods for a given age are the same, the specified period of longer duration will apply.
*Also applies to younger ages. **Also applies to older ages.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 22
<PAGE>
TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES
PER $1,000 OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
Nearest Birthday Nearest Birthday
(On Each Policy (On Each Policy
Anniversary) Anniversary)
<S> <C> <C> <C> <C>
0 $0.24 50 0.41
1 0.07 51 0.44
2 0.07 52 0.48
3 0.07 53 0.51
4 0.06 54 0.55
5 0.06 55 0.59
6 0.06 56 0.63
7 0.06 57 0.67
8 0.06 58 0.71
9 0.06 59 0.75
10 0.06 60 0.79
11 0.06 61 0.85
12 0.06 62 0.92
13 0.06 63 1.01
14 0.07 64 1.11
15 0.07 65 1.23
16 0.08 66 1.35
17 0.08 67 1.47
18 0.08 68 1.59
19 0.09 69 1.72
20 0.09 70 1.86
21 0.09 71 2.05
22 0.09 72 2.27
23 0.09 73 2.55
24 0.10 74 2.88
25 0.10 75 3.25
26 0.10 76 3.67
27 0.10 77 4.11
28 0.11 78 4.59
29 0.11 79 5.11
30 0.11 80 5.71
31 0.12 81 6.39
32 0.12 82 7.19
33 0.13 83 8.12
34 0.13 84 9.18
35 0.14 85 10.34
36 0.15 86 11.60
37 0.16 87 12.97
38 0.17 88 14.45
39 0.19 89 16.05
40 0.20 90 17.79
41 0.22 91 19.72
42 0.24 92 21.89
43 0.26 93 24.44
44 0.28 94 27.67
45 0.30
46 0.32
47 0.34
48 0.36
49 0.39
</TABLE>
The rates shown above represent the guaranteed (maximum) monthly cost of
insurance for each $1,000 of net amount at risk. If this policy has been issued
in a special (rated) premium class, the guaranteed monthly cost will be
calculated as shown on page 3.
Page 23
<PAGE>
TABLES OF MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS
<TABLE>
<CAPTION>
OPTION 1 TABLE
INSTALLMENTS FOR A SPECIFIED PERIOD
- --------------------------------------------------------------------------------------------------------
Number Amount of Number Amount of Number Amount of Number Amount of
of Years Monthly of Years Monthly of Years Monthly of Years Monthly
Payable Installments Payable Installments Payable Installments Payable Installments
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 $17.91 15 $6.87 25 $4.71 35 $3.82
6 15.14 16 6.53 26 4.59 36 3.76
7 13.16 17 6.23 27 4.47 37 3.70
8 11.68 18 5.96 28 4.37 38 3.65
9 10.53 19 5.73 29 4.27 39 3.60
10 9.61 20 5.51 30 4.18 40 3.55
11 8.86 21 5.32 31 4.10
12 8.24 22 5.15 32 4.02
13 7.71 23 4.99 33 3.95
14 7.26 24 4.84 34 3.88
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTION 3 TABLE
INSTALLMENTS FOR LIFE WITH SPECIFIED MINIMUM PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
AGE OF PAYEE GUARANTEED PERIOD AGE OF PAYEE GUARANTEED PERIOD
- --------------------- -------------------------------------------- ----------------------------------------------------------------
Female 10 Years 15 Years 20 Years Female 10 Years 15 Years 20 Years
- --------------------- ------------- -------------- --------------- ----------- -------------- ------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
20* $2.85 $2.85 $2.85 50 $3.75 $3.73 $3.69
21 2.87 2.87 2.87 51 3.80 3.78 3.74
22 2.89 2.88 2.88 52 3.86 3.84 3.79
23 2.90 2.90 2.90 53 3.92 3.89 3.85
24 2.92 2.92 2.91 54 3.99 3.96 3.90
25 2.94 2.93 2.93 55 4.06 4.02 3.96
26 2.95 2.95 2.95 56 4.13 4.09 4.02
27 2.97 2.97 2.97 57 4.21 4.16 4.08
28 2.99 2.99 2.99 58 4.29 4.23 4.15
29 3.01 3.01 3.01 59 4.37 4.31 4.21
30 3.03 3.03 3.03 60 4.46 4.39 4.28
31 3.06 3.05 3.05 61 4.56 4.47 4.35
32 3.08 3.08 3.07 62 4.66 4.56 4.42
33 3.10 3.10 3.10 63 4.76 4.65 4.49
34 3.13 3.13 3.12 64 4.88 4.75 4.56
35 3.16 3.15 3.15 65 4.99 4.85 4.63
36 3.19 3.18 3.17 66 5.12 4.95 4.70
37 3.21 3.21 3.20 67 5.25 5.05 4.77
38 3.24 3.24 3.23 68 5.39 5.16 4.83
39 3.28 3.27 3.26 69 5.53 5.27 4.90
40 3.31 3.30 3.29 70 5.69 5.38 4.96
41 3.35 3.34 3.33 71 5.85 5.49 5.02
42 3.38 3.37 3.36 72 6.02 5.60 5.08
43 3.42 3.41 3.40 73 6.19 5.71 5.13
44 3.46 3.45 3.43 74 6.37 5.82 5.17
45 3.50 3.49 3.47 75 6.56 5.92 5.21
46 3.55 3.53 3.51 76 6.75 6.02 5.25
47 3.59 3.58 3.56 77 6.95 6.11 5.28
48 3.64 3.63 3.60 78 7.14 6.20 5.30
49 3.69 3.67 3.65 79 7.34 6.28 5.32
80** 7.54 6.35 5.34
- -----------------------------------------------------------------------------------------------------------------------------------
Payments are based upon the age, nearest birthday, of the Payee on the date the first payment is due. If monthly installments for
two or more specified periods for a given age are the same, the specified period of longer duration will apply.
*Also applies to younger ages. **Also applies to older ages.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 24
<PAGE>
TABLE OF GUARANTEED MONTHLY COST OF INSURANCE RATES
PER $1,000 OF NET AMOUNT AT RISK
<TABLE>
<CAPTION>
Nearest Birthday Nearest Birthday
(On Each Policy (On Each Policy
Anniversary) Anniversary)
<S> <C> <C> <C> <C>
0 $0.33 50 0.53
1 0.09 51 0.58
2 0.08 52 0.63
3 0.08 53 0.69
4 0.08 54 0.75
5 0.07 55 0.82
6 0.07 56 0.89
7 0.07 57 0.97
8 0.06 58 1.05
9 0.06 59 1.14
10 0.06 60 1.24
11 0.06 61 1.35
12 0.07 62 1.47
13 0.08 63 1.61
14 0.09 64 1.77
15 0.10 65 1.95
16 0.12 66 2.14
17 0.13 67 2.34
18 0.14 68 2.54
19 0.14 69 2.77
20 0.15 70 3.02
21 0.15 71 3.32
22 0.14 72 3.66
23 0.14 73 4.05
24 0.14 74 4.49
25 0.14 75 4.98
26 0.14 76 5.50
27 0.13 77 6.04
28 0.13 78 6.60
29 0.14 79 7.21
30 0.14 80 7.87
31 0.14 81 8.63
32 0.15 82 9.49
33 0.15 83 10.49
34 0.16 84 11.59
35 0.17 85 12.78
36 0.18 86 14.05
37 0.19 87 15.39
38 0.21 88 16.80
39 0.22 89 18.30
40 0.24 90 19.89
41 0.26 91 21.63
42 0.29 92 23.60
43 0.31 93 25.88
44 0.33 94 28.87
45 0.36
46 0.39
47 0.42
48 0.46
49 0.49
</TABLE>
The rates shown above represent the guaranteed (maximum) monthly cost of
insurance for each $1,000 of net amount at risk. If this policy has been issued
in a special (rated) premium class, the guaranteed monthly cost will be
calculated as shown on page 3.
Page 25
<PAGE>
TABLES OF MONTHLY INSTALLMENTS FOR EACH $1,000 OF PROCEEDS
<TABLE>
<CAPTION>
OPTION 1 TABLE
INSTALLMENTS FOR A SPECIFIED PERIOD
- --------------------------------------------------------------------------------------------------------
Number Amount of Number Amount of Number Amount of Number Amount of
of Years Monthly of Years Monthly of Years Monthly of Years Monthly
Payable Installments Payable Installments Payable Installments Payable Installments
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
5 $17.91 15 $6.87 25 $4.71 35 $3.82
6 15.14 16 6.53 26 4.59 36 3.76
7 13.16 17 6.23 27 4.47 37 3.70
8 11.68 18 5.96 28 4.37 38 3.65
9 10.53 19 5.73 29 4.27 39 3.60
10 9.61 20 5.51 30 4.18 40 3.55
11 8.86 21 5.32 31 4.10
12 8.24 22 5.15 32 4.02
13 7.71 23 4.99 33 3.95
14 7.26 24 4.84 34 3.88
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPTION 3 TABLE
INSTALLMENTS FOR LIFE WITH SPECIFIED MINIMUM PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
GUARANTEED PERIOD GUARANTEED PERIOD
- -----------------------------------------------------------------------------------------------------------------------------------
AGE OF PAYEE 10 Years 15 Years 20 Years AGE OF PAYEE 10 Years 15 Years 20 Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
20* $2.89 $2.89 $2.89 50 $3.87 $3.84 $3.79
21 2.91 2.91 2.90 51 3.93 3.90 3.85
22 2.93 2.92 2.92 52 3.99 3.96 3.90
23 2.94 2.94 2.94 53 4.06 4.02 3.95
24 2.96 2.96 2.96 54 4.13 4.08 4.01
25 2.98 2.98 2.98 55 4.21 4.15 4.07
26 3.00 3.00 3.00 56 4.28 4.22 4.13
27 3.02 3.02 3.02 57 4.37 4.30 4.19
28 3.04 3.04 3.04 58 4.45 4.38 4.26
29 3.07 3.06 3.06 59 4.55 4.46 4.32
30 3.09 3.09 3.08 60 4.64 4.54 4.39
31 3.11 3.11 3.11 61 4.74 4.63 4.46
32 3.14 3.14 3.13 62 4.85 4.72 4.52
33 3.17 3.16 3.16 63 4.97 4.81 4.59
34 3.20 3.19 3.18 64 5.08 4.91 4.66
35 3.22 3.22 3.21 65 5.21 5.01 4.73
36 3.26 3.25 3.24 66 5.34 5.11 4.79
37 3.29 3.28 3.27 67 5.48 5.21 4.85
38 3.32 3.31 3.30 68 5.62 5.32 4.92
39 3.36 3.35 3.33 69 5.77 5.42 4.97
40 3.39 3.38 3.37 70 5.93 5.53 5.03
41 3.43 3.42 3.40 71 6.09 5.63 5.08
42 3.47 3.46 3.44 72 6.26 5.73 5.13
43 3.51 3.50 3.48 73 6.44 5.84 5.17
44 3.56 3.54 3.52 74 6.62 5.93 5.21
45 3.60 3.59 3.56 75 6.80 6.03 5.24
46 3.65 3.63 3.60 76 6.98 6.12 5.27
47 3.70 3.68 3.65 77 7.17 6.20 5.30
48 3.76 3.73 3.70 78 7.35 6.27 5.32
49 3.81 3.78 3.74 79 7.54 6.34 5.34
80** 7.72 6.41 5.35
- -----------------------------------------------------------------------------------------------------------------------------------
Payments are based upon the age, nearest birthday, of the Payee on the date the first payment is due. If monthly installments for
two or more specified periods for a given age are the same, the specified period of longer duration will apply.
*Also applies to younger ages. **Also applies to older ages.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 26
<PAGE>
AMERICAN GENERAL LIFE
INSURANCE COMPANY
This is a FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. An adjustable Death
Benefit is payable upon the Insured's death prior to the Maturity Date.
Investment results are reflected in policy benefits. ACCUMULATION VALUES are
flexible and will be based on the amount and frequency of premiums paid and the
investment results of the Separate Account. NONPARTICIPATING - NOT ELIGIBLE
FOR DIVIDENDS.
For Information, Service or to make a Complaint
Contact your Servicing Agent, or our VUL Administration.
2727-A Allen Parkway
P.O. Box 4880
Houston, Texas 77210-4880
1-888-325-9315
[LOGO OF AMERICAN GENERAL APPEARS HERE]
A STOCK COMPANY
_______________________
A Subsidiary of American General Corporation
<PAGE>
EXHIBIT 1.6(c)
AMENDMENT TO AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
AMERICAN GENERAL LIFE INSURANCE COMPANY
("AMENDMENT")
American General Life Insurance Company (hereinafter sometimes referred to as
the "Company"), a Texas insurer incorporated on April 11, 1960 and formerly
known as American General Life Insurance Company of Delaware, pursuant to the
provisions of Texas Insurance Code Articles 3.02a, 3.04 and 3.05 and Texas
Business Corporation Act Articles 2.12, 2.25, 4.02, 4.04 and 9.10, hereby amends
its Amended and Restated Articles of Incorporation (the "Articles") as follows:
1. The name of the corporation is American General Life Insurance Company.
2. Article IV of the Articles of the corporation is deleted in its entirety
and inserted in lieu thereof is the following:
"ARTICLE IV
A. The aggregate number of shares of capital stock which this corporation
shall have authority to issue is six hundred eight thousand five
hundred (608,500) shares, consisting of (i) eight thousand five
hundred (8,500) shares of Preferred Stock of the par value of One
Hundred Dollars ($100.00) per share ("Preferred Stock") and (ii) six
hundred thousand (600,000) shares of Common Stock of the par value of
ten dollars ($10.00) per share ("Common Stock").
B. The amount of capital stock with which this corporation will commence
business is Five Million Five Hundred Thousand Dollars
($5,500,000.00). The amount of its surplus is at least Seven Hundred
Thousand Dollars ($700,000.00).
C. Concurrent with the merger of The Franklin United Life Insurance
Company with and into American General Life Insurance Company of New
York ("AGNY"), (which is currently estimated to occur on July 31,
1995, assuming all necessary regulatory approvals have been secured,
and if not on July 31, 1995 then, alternatively, on August 31, 1995,
assuming all necessary regulatory approvals have been secured) the
Board of Directors is expressly vested with the authority to issue to
The Franklin Life Insurance Company the shares of Preferred Stock
designated below.
1. Designation and Number. There shall be only one series of
Preferred Stock, and it is hereby designated the "$80.00
Cumulative Preferred Stock" (hereinafter referred to as the
"Cumulative Preferred Stock"). The shares
Page 1 of 7
<PAGE>
of the Cumulative Preferred Stock shall be of par value of
$100.00 each. The number of shares which shall constitute the
Cumulative Preferred Stock shall be 8,500.
2. Dividends.
(a) The Franklin Life Insurance Company or any subsequent holder
or holders of shares of the Cumulative Preferred Stock, in
preference to the holders of Common Stock and of any other
capital stock of the corporation which ranks junior to the
Cumulative Preferred Stock in respect of dividends or
distributions of assets on liquidation of the corporation
(all of which classes are hereinafter embraced in the term
"junior stock"), shall be entitled to receive as and when
declared by the Board of Directors out of the assets of the
corporation which are by law available for the payment of
dividends, cumulative cash dividends at, but not exceeding,
the rate of $80.00 per share per annum (8%). Any dividend
payment shall be made pro rata among the holders of the
Cumulative Preferred Stock.
(b) Dividends on the Cumulative Preferred Stock shall be payable
annually on the anniversary of the date of the initial
issuance of the Cumulative Preferred Stock to The Franklin
Life Insurance Company. In the event the corporation fails
to pay when due any dividends on the Cumulative Preferred
Stock, until the payment or declaration and setting apart of
all accrued dividends which have not been paid as scheduled,
(i) no dividend shall be declared and paid or set apart for
payment upon any junior stock and (ii) no other distribution
shall be made with respect to any junior stock. Each share
of the Cumulative Preferred Stock shall rank on a parity
with each other share of the Cumulative Preferred Stock with
respect to preferential dividends. Accruals of dividends on
the Cumulative Preferred Stock shall not bear interest.
3. Redemption.
(a) On or after five (5) years from the date of the initial
issuance of the Cumulative Preferred Stock to The Franklin
Life Insurance Company, shares of the Cumulative Preferred
Stock shall be redeemable in whole or in part at any time or
from time to time, at the option of the Company, at a
redemption price per share of $1,000, plus dividends accrued
to the date fixed for redemption and remaining unpaid. If
less than all outstanding shares of the Cumulative Preferred
Stock are to be redeemed, the shares of the Cumulative
Preferred Stock to be redeemed shall be redeemed pro rata.
Page 2 of 7
<PAGE>
(b) Notice of any proposed redemption of the Cumulative
Preferred Stock under this Section shall be given by the
corporation by providing a copy of such notice at least
fifteen (15) and not more than thirty (30) days prior to the
date fixed for such redemption to each holder of record of
shares of the Cumulative Preferred Stock to be redeemed, at
its address appearing on the books of the corporation. If,
on or before the redemption date specified in such notice,
all funds necessary for such redemption shall have been set
aside by the corporation, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of
the shares so called for redemption, so as to be and
continue to be available therefor, then from and after the
date of redemption so designated, notwithstanding that any
certificate for shares of the Cumulative Preferred Stock so
called for redemption shall not have been surrendered for
cancellation, the shares represented thereby shall no longer
be deemed outstanding, the right to receive dividends
thereon shall cease to accrue and all rights with respect to
such shares of the Cumulative Preferred Stock so called for
redemption shall forthwith on such redemption date cease and
terminate except only the right of the holders thereof to
receive the redemption price of such shares so to be
redeemed plus accrued and unpaid dividends up to the date
fixed for redemption, but without interest thereon. Any
moneys so set aside by the corporation and unclaimed at the
end of five (5) years from the date fixed for redemption
shall revert to the general funds of the corporation.
4. Liquidation.
(a) In the event of any liquidation, dissolution or winding up
of the affairs of the corporation (all of which are
hereinafter embraced in the word "liquidation"), then,
before any distribution or payment shall be made to the
holders of the Common Stock or any other junior stock, the
holders of the Cumulative Preferred Stock shall be entitled
to be paid in full the respective amounts fixed for such
Cumulative Preferred Stock, plus in each case a sum equal to
accrued and unpaid dividends thereon to the date of payment
thereof. After such payment shall have been made in full to
the holders of the Cumulative Preferred Stock, the remaining
assets and funds of the corporation shall be distributed
among the holders of the junior stock of the corporation
according to their respective rights. In the event that the
assets of the corporation are not sufficient to make the
payment to the holders of the Cumulative Preferred Stock
herein required to be made in full, such assets shall be
distributed to the holders of the Cumulative Preferred Stock
pro rata.
(b) The amount per share which the holders of the Cumulative
Preferred Stock shall be entitled to receive in the event of
a
Page 3 of 7
<PAGE>
liquidation shall be (in addition to accrued and unpaid
dividends) $1,000.
(c) Neither the merger or consolidation of the Company into or
with another corporation, nor the merger or consolidation of
any other corporation into or with the Company, shall be
deemed to be a liquidation, dissolution or winding up of the
Company within the meaning of this Section 4, but the sale,
lease or conveyance of all or substantially all of the
Company's assets shall be deemed to be a liquidation,
dissolution or winding up of the Company within the meaning
of this Section 4.
5. Limitations.
(a) So long as any shares of the Cumulative Preferred Stock are
outstanding, the corporation shall not, without the consent
of the holders of at least two-thirds (2/3) of the total
number of shares of the Cumulative Preferred Stock at the
time outstanding, given in person or by proxy, by vote at a
meeting called for the purpose, increase the authorized
amount of preferred stock, or create or authorize any shares
of any class of stock ranking prior to, or on a parity with,
the Cumulative Preferred Stock in respect of dividends or
distributions of assets in the event of any liquidation
(hereinafter sometimes referred to as "prior stock" and
"parity stock," respectively), or any securities convertible
into or exchangeable for any such prior stock or parity
stock.
(b) Without the consent of the holders of at least two-thirds
(2/3) of the total number of shares of the Cumulative
Preferred Stock outstanding, given in person or by proxy, by
vote at a meeting called for the purpose, the corporation
shall not create or acquire any additional shares of the
Cumulative Preferred Stock or amend, or repeal any of the
rights, preferences or powers of holders of the Cumulative
Preferred Stock so as to affect adversely such rights,
preferences or powers.
(c) So long as any shares of the Cumulative Preferred Stock are
outstanding, the corporation shall not at any time purchase,
redeem or otherwise acquire for value any shares of
preferred stock that may be created in the future or of any
other stock ranking junior to or on a parity with the
Cumulative Preferred Stock in respect of dividends or
distribution of assets on liquidation (i) during the
continuance of any default in the payment of dividends on
the Cumulative Preferred Stock or (ii) if full dividends on
the outstanding shares of the Cumulative Preferred Stock
were not paid or set apart for payment in cash in respect of
the dividend payment date immediately preceding such time.
Page 4 of 7
<PAGE>
6. Regarding Voting Rights.
(a) The holders of shares of the Cumulative Preferred Stock
shall be entitled to one vote per share, voting together
with the holders of Common Stock, on any question presented
to the holders of Common Stock of the corporation and to be
represented and receive notice of any meeting of the
shareholders of the corporation.
(b) If and whenever cumulative dividends on the Cumulative
Preferred Stock shall be in arrears in an amount equal to
two (2) years payments or more per share, then during the
period (hereinafter called the "class voting period")
commencing with such time and ending with the time when all
arrears in dividends of the Cumulative Preferred Stock shall
have been paid and the full dividend on the Cumulative
Preferred Stock for the current annual dividend period shall
have been paid or declared and set apart for payment, at any
meeting of the shareholders of the corporation held for the
election of directors during the class voting period, the
holders of the Cumulative Preferred Stock voting together as
a class shall be entitled (in addition to exercising such
other voting rights as they may have) to elect, by a vote of
the majority of the total votes represented by such class,
two (2) members of the Board of Directors of the
corporation, each share of the Cumulative Preferred Stock
entitling the holder thereof to one (1) vote for such
purpose. Whenever the right to elect directors shall have
accrued to the holders of the Cumulative Preferred Stock,
the proper officers of the corporation shall call a meeting
for the election of such directors, such meeting to be held
not less than forty-five (45) nor more than ninety (90) days
after the accrual of such right.
(c) Any director who shall have been elected by holders of the
Cumulative Preferred Stock, or appointed as provided herein,
may be removed at any time during a class voting period by,
and only by, the affirmative vote of the holders of record
of a majority of the outstanding shares of the Cumulative
Preferred Stock to which the right to elect directors shall
have accrued (an "Affirmative Shareholder Vote") at a
special meeting of such shareholders; and any vacancy
thereby created may be filled by an Affirmative Shareholder
Vote. If a director shall die, resign, or otherwise cease
to be a director of the corporation (other than as a result
of removal as provided herein) during a class voting period,
such vacancy shall be filled by a person appointed by the
remaining director. If both such directors shall die,
resign, or otherwise cease to be directors of the
corporation during a class voting period, such vacancies
shall be filled by an Affirmative Shareholder Vote at a
special meeting of such shareholders. At the end of the
class voting period, the holders of the Cumulative Preferred
Stock shall be
Page 5 of 7
<PAGE>
automatically divested of all special voting power vested in
them under Sections 6(b) and (c) hereunder, but subject
always to the subsequent vesting hereunder of voting power
in the holders of the Cumulative Preferred Stock in the
event of any similar default or defaults thereafter. The
term of all directors elected pursuant to the provisions of
Sections 6(b) and (c) shall in all events expire at the end
of the class voting period.
7. Regarding Preemptive Rights. No holder of shares of the
Cumulative Preferred Stock shall by reason of his holding shares
of the Cumulative Preferred Stock have any preemptive or
preferential right to purchase or subscribe to any securities of
the corporation, now or hereafter to be authorized."
3. This Amendment was adopted by unanimous written consent of the board of
directors of AGL, and by written consent of the sole shareholder of AGL,
AGC Life Insurance Company, a Missouri-domiciled insurer, on July 13, 1995.
4. At the time of adoption of this Amendment there were 600,000 shares of
stock outstanding and entitled to vote.
5. The number of shares voting for this Amendment was 600,000. The number of
shares that voted against this Amendment was 0.
6. The Amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
7. The Amendment does increase the authorized capital of the corporation by
the addition of 8,500 shares of Preferred Stock to the currently authorized
600,000 shares of Common Stock.
8. Upon the issuance of the 8,500 shares of Preferred Stock, the stated
capital of the corporation will increase from $6,000,000 to $14,500,000.
Dated: July 13, 1995.
AMERICAN GENERAL LIFE INSURANCE COMPANY
By: /s/ ROBERT S. CAUTHEN, JR.
------------------------------------
Robert S. Cauthen, Jr.
President and Chief Executive Officer
By: /s/ STEVEN A. GLOVER
------------------------------------
Steven A. Glover
Assistant Secretary
Page 6 of 7
<PAGE>
State of Texas (S)
(S)
County of Harris (S)
BEFORE ME, the undersigned authority on this day personally appeared Robert
S. Cauthen, Jr., the President and Chief Executive Officer of American General
Life Insurance Company ("AGL"), known to me to be the person and officer whose
name is subscribed to the foregoing instrument, and after being duly sworn upon
his oath, did acknowledge to me that he executed the same as an officer of AGL
and that the statements contained therein are true and correct to the best of
his knowledge and belief.
SWORN TO AND SUBSCRIBED before me, the undersigned authority on this 13th
day of July, 1995 to certify which witness my hand and seal of office.
/s/ RHONDA K. HENRY
--------------------------------------------
Notary Public in and for the State of Texas
State of Texas (S)
(S)
County of Harris (S)
BEFORE ME, the undersigned authority on this day personally appeared Steven
A. Glover, Assistant Secretary of American General Life Insurance Company
("AGL"), known to me to be the person and officer whose name is subscribed to
the foregoing instrument, and after being duly sworn upon his oath, did
acknowledge to me that he executed the same as an officer of AGL and that the
statements contained therein are true and correct to the best of his knowledge
and belief.
SWORN TO AND SUBSCRIBED before me, the undersigned authority on this 13th
day of July, 1995 to certify which witness my hand and seal of office.
/s/ RHONDA K. HENRY
---------------------------------------------
Notary Public in and for the State of Texas
Page 7 of 7
<PAGE>
EXHIBIT 1.8(a)
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the _____ day of August, 1998 by and among BT
INSURANCE FUNDS TRUST ("TRUST"), a Massachusetts business trust,BANKERS TRUST
COMPANY ("ADVISER"), a New York banking corporation, and AMERICAN GENERAL LIFE
INSURANCE COMPANY ("LIFE COMPANY"), a life insurance company organized under the
laws of the State of Texas.
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the " '40 Act"),
as an open-end, diversified management investment company; and
WHEREAS, TRUST is comprised of several series funds (each a "Portfolio"), with
those Portfolios currently available being listed on Appendix A hereto; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts ("Separate
Accounts") of such life insurance companies ("Participating Insurance
Companies"); and
WHEREAS, TRUST may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, TRUST has received an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the TRUST to be sold to and held by Variable Contract Separate
Accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more Separate
Accounts to offer Variable Contracts and is desirous of having TRUST as one of
the underlying funding vehicles for such Variable Contracts; and
WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act of
1940, as amended (the "Advisers Act") and as such is excluded from the
definition of "Investment Adviser" and is not required to register as an
investment adviser pursuant to the Advisers Act; and
WHEREAS, ADVISER serves as the TRUST's investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
LIFE COMPANY intends to purchase shares of TRUST to fund the aforementioned
Variable Contracts and TRUST is authorized to sell such shares to LIFE COMPANY
at such shares' net asset value;
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NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, and ADVISER agree as follows:
Article I. SALE OF TRUST SHARES
1.1 TRUST agrees to make available to the Separate Accounts of LIFE
COMPANY the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in TRUST's Registration Statement.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section
1.2, LIFE COMPANY shall be the designee of TRUST for receipt of such orders from
the designated Separate Account and receipt by such designee shall constitute
receipt by TRUST; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and TRUST receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as TRUST and LIFE COMPANY may agree in writing) of such
order by 10:30 a.m. New York time on the next Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which TRUST calculates its net asset value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem on LIFE COMPANY's request, any full or
fractional shares of TRUST held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by TRUST or its
designee of the request for redemption, in accordance with the provisions of
this Agreement and TRUST's Registration Statement. (In the event of a conflict
between the provisions of this Agreement and the Trust's Registration Statement,
the provisions of the Registration Statement shall govern.) For purposes of
this Section 1.3, LIFE COMPANY shall be the designee of TRUST for receipt of
requests for redemption from the designated Separate Account and receipt by such
designee shall constitute receipt by TRUST; provided that LIFE COMPANY receives
the request for redemption by 4:00 p.m. New York time and TRUST receives notice
from LIFE COMPANY by telephone or facsimile (or by such other means as TRUST and
LIFE COMPANY may agree in writing) of such request for redemption by 10:30 a.m.
New York time on the next Business Day.
1.4 TRUST shall furnish, on or before each ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the shares of any Portfolio of TRUST. LIFE COMPANY hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. TRUST shall notify
LIFE COMPANY or its designee of the number of shares so issued as payment of
such dividends and distributions. LIFE COMPANY reserves the right, on its
behalf and on behalf of the Separate Accounts to revoke this election and
receive all such dividends in cash.
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1.5 TRUST shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30 p.m. New York time.
If TRUST provides LIFE COMPANY with materially incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any
material error in the calculation of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to LIFE
COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of TRUST shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined
shall be transmitted to TRUST by LIFE COMPANY by 10:30 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and premiums
in accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of TRUST shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall use its best efforts
to wire the redemption proceeds to LIFE COMPANY by the next Business Day, unless
doing so would require TRUST to dispose of Portfolio securities or otherwise
incur additional costs. In any event, proceeds shall be wired to LIFE COMPANY
within the time period permitted by the '40 Act or the rules, orders or
regulations thereunder, and TRUST shall notify the person designated in writing
by LIFE COMPANY as the recipient for such notice of such delay by 3:00 p.m. New
York Time on the same Business Day that LIFE COMPANY transmits the redemption
order to TRUST. If LIFE COMPANY's order requests the application of redemption
proceeds from the redemption of shares to the purchase of shares of another Fund
advised by ADVISER, TRUST shall so apply such proceeds on the same Business Day
that LIFE COMPANY transmits such order to TRUST.
1.8 TRUST agrees that all shares of the Portfolios of TRUST will be sold
only to Participating Insurance Companies which have agreed to participate in
TRUST to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h)(4) of the Internal Revenue
Code of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
TRUST's Portfolios will not be sold directly to the general public.
1.9 TRUST may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any Portfolio of
TRUST if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Trustees of the TRUST
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
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<PAGE>
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY or the Separate Accounts.
Shares ordered from Portfolio will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Texas, and
that it has legally and validly established each Separate Account as a
segregated asset account under such laws, and that American General Securities
Incorporated ("AGSI"), the principal underwriter for the Variable Contracts, is
registered as a broker-dealer under the Securities Exchange Act of 1934 (the
"'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the '40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will
be registered under the Securities Act of 1933 (the "'33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts, and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
(including all applicable blue sky laws) and further that the sale of the
Variable Contracts shall comply in all material respects with applicable state
insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify TRUST immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 TRUST represents and warrants that the Trust shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal laws, and TRUST shall be registered under
the '40 Act prior to and at the time of any issuance or sale of such shares.
TRUST, subject to Section 1.9 above, shall amend its registration statement
under the '33 Act and the '40 Act from time to time as required in order to
effect the continuous offering of its shares. TRUST shall register and qualify
its shares for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by TRUST.
2.6 TRUST represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply and will
immediately take all reasonable steps to adequately diversify the Portfolio to
achieve compliance.
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<PAGE>
2.7 TRUST represents and warrants that each Portfolio invested in by the
Separate Account will be treated as a "regulated investment company" under
Subchapter M of the Code, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 ADVISER represents and warrants that it shall perform its obligations
hereunder in compliance in all material respects with any applicable state and
federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 TRUST shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge, with
as many copies of the current prospectus (or prospectuses), statements of
additional information, annual and semi-annual reports and proxy statements for
the shares of the Portfolios as LIFE COMPANY may reasonably request for
distribution to existing Variable Contract owners whose Variable Contracts are
funded by such shares. TRUST or its designee shall provide LIFE COMPANY, at LIFE
COMPANY's expense, with as many copies of the current prospectus (or
prospectuses) for the shares as LIFE COMPANY may reasonably request for
distribution to prospective purchasers of Variable Contracts. If requested by
LIFE COMPANY, TRUST or its designee shall provide such documentation (including
a "camera ready" copy of the current prospectus (or prospectuses) as set in type
or, at the request of LIFE COMPANY, as a diskette in the form sent to the
financial printer) and other assistance as is reasonably necessary in order for
the parties hereto once a year (or more frequently if the prospectus (or
prospectuses) for the shares is supplemented or amended) to have the prospectus
for the Variable Contracts and the prospectus (or prospectuses) for the TRUST
shares printed together in one document. The expenses of such printing will be
apportioned between LIFE COMPANY and TRUST in proportion to the number of pages
of the Variable Contract and TRUST prospectus, taking account of other relevant
factors affecting the expense of printing, such as covers, columns, graphs and
charts; TRUST shall bear the cost of printing the TRUST prospectus portion of
such document for distribution only to owners of existing Variable Contracts
funded by the TRUST shares and LIFE COMPANY shall bear the expense of printing
the portion of such documents relating to the Separate Account; provided,
however, LIFE COMPANY shall bear all printing expenses of such combined
documents where used for distribution to prospective purchasers or to owners of
existing Variable Contracts not funded by the shares. In the event that LIFE
COMPANY requests that TRUST or its designee provide TRUST's prospectus in a
"camera ready" or diskette format, TRUST shall be responsible for providing the
prospectus (or prospectuses) in the format in which it is accustomed to
formatting prospectuses and shall bear the expense of providing the prospectus
(or prospectuses) in such format (e.g. typesetting expenses), and LIFE COMPANY
shall bear the expense of adjusting or changing the format to conform with any
of its prospectuses.
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<PAGE>
3.3 TRUST will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide TRUST with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST and
ADVISER, each piece of sales literature or other promotional material in which
TRUST or ADVISER is named, at least fifteen (15) Business Days prior to its
intended use. No such material will be used if TRUST or ADVISER objects to its
use in writing within ten (10) Business Days after receipt of such material.
4.2 TRUST and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY or its Separate Accounts are named, at least fifteen (15) Business
Days prior to its intended use. No such material will be used if LIFE COMPANY
objects to its use in writing within ten (10) Business Days after receipt of
such material.
4.3 TRUST and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission of
LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information or representations contained in a registration
statement or prospectus for TRUST, as such registration statement and prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by TRUST or its designee, except with the
written permission of TRUST.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form
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<PAGE>
letters, seminar texts, or reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and any other
material constituting sales literature or advertising under National Association
of Securities Dealers, Inc. ("NASD") rules, the '40 Act, the '33 Act or rules
thereunder.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that TRUST has received an order from the SEC
granting relief from various provisions of the '40 Act and the rules thereunder
to the extent necessary to permit TRUST shares to be sold to and held by
Variable Contract separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans. The Exemptive Order
requires TRUST and each Participating Insurance Company to comply with
conditions and undertakings substantially as provided in this Section 5. The
TRUST will not enter into a participation agreement with any other Participating
Insurance Company unless it imposes the same conditions and undertakings as are
imposed on LIFE COMPANY hereby.
5.2 The Board will monitor TRUST for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts and with participants of Qualified Plans investing in TRUST.
An irreconcilable material conflict may arise for a variety of reasons, which
may include: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of TRUST are being managed; (e) a difference in voting instructions
given by Variable Contract owners; (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Variable Contract owners and (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts of which
it becomes aware to the Board. LIFE COMPANY will be responsible for assisting
the Board in carrying out its duties in this regard by providing the Board with
all information reasonably necessary for the Board to consider any issues
raised. The responsibility includes, but is not limited to, an obligation by
the LIFE COMPANY to inform the Board whenever it has determined to disregard
Variable Contract owner voting instructions. These responsibilities of LIFE
COMPANY will be carried out with a view only to the interests of the Variable
Contract owners.
5.4 If a majority of the Board or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Trustees), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from TRUST or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may
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<PAGE>
include another Portfolio of TRUST, or another investment company; (b)
submitting the question as to whether such segregation should be implemented to
a vote of all affected Variable Contract owners and as appropriate, segregating
the assets of any appropriate group (i.e., variable annuity or variable life
insurance Contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Variable
Contract owners the option of making such a change; and (c) establishing a new
registered management investment company (or series thereof) or managed separate
account. If a material irreconcilable conflict arises because of LIFE COMPANY's
decision to disregard Variable Contract owner voting instructions, and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at the election of TRUST, to withdraw the Separate
Account's investment in TRUST, and no charge or penalty will be imposed as a
result of such withdrawal. The responsibility to take such remedial action shall
be carried out with a view only to the interests of the Variable Contract
owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
TRUST or ADVISER (or any other investment adviser of TRUST) be required to
establish a new funding medium for any Variable Contract. Further, LIFE COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the '40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. LIFE COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
TRUST calculates voting privileges in a manner consistent with other
Participating Insurance Companies. LIFE COMPANY will vote shares for which it
has not received timely voting instructions, as well as shares it owns, in the
same proportion as its votes those shares for which it has received voting
instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the '40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the Exemptive
Order, then TRUST, and/or the Participating Insurance Companies, as
appropriate,
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shall take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and
hold harmless TRUST, ADVISER and each of their Trustees, directors, principals,
officers, employees and agents and each person, if any, who controls TRUST or
ADVISER within the meaning of Section 15 of the '33 Act (collectively, the
"Indemnified Parties") against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY,
which consent shall not be unreasonably withheld) or litigation or threatened
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Registration Statement or
prospectus for the Variable Contracts or contained in the Variable Contracts
(or any amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in conformity
with information furnished in writing to LIFE COMPANY by or on behalf of TRUST
for use in the registration statement or prospectus for the Variable Contracts
or in the Variable Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Variable
Contracts or TRUST shares; or
(b) arise out of or result from (i) statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of TRUST not supplied by LIFE COMPANY, or
persons under its control) or (ii) wrongful conduct of LIFE COMPANY or
persons under its control, with respect to the sale or distribution of the
Variable Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of TRUST or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished in writing to TRUST
by or on behalf of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the terms of this
Agreement; or
9
<PAGE>
(e) arise out of or result from any material breach of any representation
and/or warranty made by LIFE COMPANY in this Agreement or arise out of or
result from any other material breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.4 Indemnification by TRUST and ADVISER. TRUST and ADVISER agrees to
indemnify and hold harmless LIFE COMPANY, AGSI and each of their respective
directors, officers, employees, and agents and each person, if any, who controls
LIFE COMPANY within the meaning of Section 15 of the '33 Act (collectively, the
"Indemnified Parties") against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of TRUST and
ADVISOR which consent shall not be unreasonably withheld) or litigation or
threatened litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of TRUST's shares or the Variable Contracts, and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of TRUST (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information
10
<PAGE>
furnished in writing to ADVISER or TRUST by or on behalf of LIFE COMPANY for
use in the registration statement or prospectus for TRUST or in sales
literature (or any amendment or supplement) or otherwise for use in connection
with the sale of the Variable Contracts or TRUST shares; or
(b) arise out of or result from (i) statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Variable Contracts not supplied by
ADVISER or TRUST or persons under its control) or (ii) gross negligence or
wrongful conduct or willful misfeasance of TRUST or ADVISER or persons under
their respective control, with respect to the sale or distribution of the
Variable Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity with
information furnished in writing to LIFE COMPANY for inclusion therein by or
on behalf of TRUST or ADVISER; or
(d) arise as a result of (i) a failure by TRUST to provide substantially
the services and furnish the materials under the terms of this Agreement; or
(ii) a failure by a Portfolio(s) invested in by the Separate Account to
comply with the diversification requirements of Section 817(h) of the Code; or
(iii) a failure by a Portfolio(s) invested in by the Separate Account to
qualify as a "regulated investment company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by TRUST in this Agreement or arise out of or result from
any other material breach of this Agreement by TRUST.
7.5 Neither TRUST nor ADVISER shall be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party to the extent that such
losses, claims, damages, liabilities or litigation are attributable to such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
7.6 Neither TRUST nor ADVISER shall be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified TRUST in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify TRUST and ADVISER of any such claim
shall not relieve TRUST or ADVISER from any liability which it may have to the
Indemnified Party against whom such action is brought
11
<PAGE>
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, TRUST and ADVISER shall be
entitled to participate at its own expense in the defense thereof. TRUST and
ADVISER also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from TRUST and
ADVISER to such party of TRUST's and ADVISER's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and neither TRUST or ADVISER will be liable
to such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or TRUST at any time from the date
hereof upon 180 days' notice, unless a shorter time is agreed to by the
parties;
(b) At the option of LIFE COMPANY, if TRUST shares are not reasonably
available to meet the requirements of the Variable Contracts as determined by
LIFE COMPANY. Prompt notice of election to terminate shall be furnished by
LIFE COMPANY, said termination to be effective ten (10) days after receipt of
notice unless TRUST makes available a sufficient number of shares to
reasonably meet the requirements of the Variable Contracts within said ten
(10) day period;
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against TRUST by the SEC, the NASD, or any other regulatory body,
the expected or anticipated ruling, judgment or outcome of which would, in
LIFE COMPANY's reasonable judgment, materially impair TRUST's ability to meet
and perform TRUST's obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by LIFE COMPANY with said termination
to be effective upon receipt of notice;
(d) At the option of TRUST, upon the institution of formal proceedings
against LIFE COMPANY and/or its broker-dealer affiliates by the SEC, the NASD,
or any other regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in TRUST's reasonable judgment, materially impair LIFE
COMPANY's ability to meet and perform its obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by TRUST with said
termination to be effective upon receipt of notice;
(e) In the event TRUST's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law precludes the use
of such shares as the underlying investment medium of Variable Contracts
issued or to be issued by LIFE COMPANY. Termination shall be effective upon
such occurrence without notice;
12
<PAGE>
(f) At the option of TRUST if the Variable Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under the Code,
or if TRUST reasonably believes that the Variable Contracts may fail to so
qualify. Termination shall be effective upon receipt of notice by LIFE
COMPANY;
(g) At the option of LIFE COMPANY, upon TRUST's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of LIFE COMPANY within ten days after written notice of such
breach is delivered to TRUST;
(h) At the option of TRUST, upon LIFE COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of TRUST within ten days after written notice of such breach is
delivered to LIFE COMPANY;
(i) At the option of TRUST, if the Variable Contracts are not registered,
issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without
notice;
In the event this Agreement is assigned without the prior written consent
of LIFE COMPANY, TRUST, and ADVISER, termination shall be effective immediately
upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.2 hereof, TRUST at its option may elect to continue to make available
additional TRUST shares, as provided below, for so long as TRUST desires
pursuant to the terms and conditions of this Agreement, for all Variable
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if TRUST so elects to make additional TRUST shares available, the
owners of the Existing Contracts or LIFE COMPANY, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in TRUST,
redeem investments in TRUST and/or invest in TRUST upon the payment of
additional premiums under the Existing Contracts. In the event of a termination
of this Agreement pursuant to Section 8.2 hereof, TRUST and ADVISER, as
promptly as is practicable under the circumstances, shall notify LIFE COMPANY
whether TRUST elects to continue to make TRUST shares available after such
termination. If TRUST shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either TRUST or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 8.3, upon sixty (60) days' prior written
notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified TRUST of its intention to do so.
13
<PAGE>
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to TRUST:
BT Insurance Funds Trust
c/o First Data Investor Services Group, Inc.
One Exchange Place
53 State Street, Mail Stop BOS 865
Boston, MA 02109
Attn: Elizabeth Russell, Legal Dep't
and
c/o BT Alex. Brown
One South Street, Mail Stop 1-18-6
Baltimore, MD 21202
Attn: Brian Wixted, Mutual Fund Services
If to ADVISER:
Bankers Trust Company - Global Investment Management
130 Liberty Street
New York, NY 10006
Attn.: Vinay Mendiratta, Mail Stop 2355
If to LIFE COMPANY:
American General Life Insurance Company
c/o American General Life Companies
2727-A Allen Parkway
Houston, Texas 77019
Attn: Steven Glover, Esq.
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
14
<PAGE>
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Trustees or officers of TRUST or
any Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with TRUST or a
Portfolio must look solely to the property of TRUST or that Portfolio,
respectively, for enforcement of any claims against TRUST or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.8 If the Agreement terminates, the parties agree that Article 7 and
Sections 10.5, 10.6 and 10.7 shall remain in effect after termination.
10.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by TRUST,
ADVISER and the LIFE COMPANY.
15
<PAGE>
10.10 No failure or delay by a party in exercising any right or remedy
under this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The rights
and remedies provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
BT INSURANCE FUNDS TRUST
By:_______________________________________
Name:
Title:
BANKERS TRUST COMPANY
By:_______________________________________
Name:
Title:
AMERICAN GENERAL LIFE INSURANCE COMPANY
By: _______________________________________
Don M. Ward
Senior Vice President- Variable Products
16
<PAGE>
Appendix A
To Participation Agreement by and among BT Insurance Funds Trust, Bakers Trust
Company and American General Life Insurance Company.
List of portfolios:
- Equity 500 Index Fund
- EAFE Equity Index Fund
17
<PAGE>
Appendix B
To Participation Agreement by and among BT Insurance Funds Trust, Bakers Trust
Company and American General Life Insurance Company.
List of variable separate accounts: Selected Portfolios
- ----------------------------------- -------------------
American General Life Insurance Company Equity 500 Index Fund
Separate Account VL-R EAFE Equity Index Fund
Established May 6, 1997
18
<PAGE>
EXHIBIT 1.8(b)
AMENDMENT NUMBER 3 TO
PARTICIPATION AGREEMENT
AMONG MORGAN STANLEY UNIVERSAL FUNDS, INC.,
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.,
MORGAN STANLEY ASSET MANAGEMENT INC.,
MILLER ANDERSON & SHERRERD, LLP,
AMERICAN GENERAL LIFE INSURANCE COMPANY, AND
AMERICAN GENERAL SECURITIES INCORPORATED
This Amendment No. 3 ("Amendment") executed as of the August 1, 1998 to the
Participation Agreement (the "AGLI Agreement") dated as of January 24, 1997, as
amended, among Morgan Stanley Universal Funds, Inc. (the "Fund"), Van Kampen
American Capital Distributors, Inc. ("VKAC"), Morgan Stanley Asset Management
Inc. ("MSAM"), Miller Anderson & Sherrerd, LLP ("MAS"), American General Life
Insurance Company (the "Company"), and American General Securities Incorporated
("AGSI").
WHEREAS, the parties desire to amend the Agreement to (i) add to Schedule A
of the Agreement the Contracts of the Company relating to the Company's Legacy
Plus Flexible Premium Variable Life Insurance Policies ("Legacy Plus
Contracts"), and (ii) solely to the extent the Agreement relates to the Legacy
Plus Contracts, amend the provisions of Article III of the Agreement as
described below.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants herein contained, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Schedule A to the Agreement, a revised copy of which is attached
hereto, is hereby amended and restated to clarify the complete list of
the Fund's portfolios available for purchase under the Agreement.
2. Schedule B to the Agreement, a revised copy of which is attached
hereto, is hereby amended and restated to add the Legacy Plus
Contracts.
<PAGE>
3. Solely to the extent the Agreement relates to the Legacy Plus
Contracts, Article III of the Agreement is hereby deleted and replaced
with the following:
"ARTICLE III. Prospectuses, Reports to Shareholders and Proxy
Statements; Voting
3.1. The Fund or its designee shall provide the Company with as
many printed copies of the Fund's current prospectus and
statement of additional information as the Company may
reasonably request. If requested by the Company, in lieu of
providing printed copies the Fund shall provide camera-ready
film or computer diskettes containing the Fund's prospectus
and statement of additional information, and such other
assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the prospectus
and/or statement of additional information for the Fund is
amended during the year) to have the prospectus for the
Contracts and the Fund's prospectus printed together in one
document or separately. The Company may elect to print the
Fund's prospectus and/or its statement of additional
information in combination with other fund companies'
prospectuses and statements of additional information.
3.2(a). Except as otherwise provided in this Section 3.2., all
expenses of preparing, setting in type and printing and
distributing Fund prospectuses and statements of additional
information shall be the expense of the Company. For
prospectuses and statements of additional information
provided by the Company to its existing owners of Contracts
who own shares of the Fund in order to update disclosure as
required by the 1933 Act and/or the 1940 Act, the cost of
setting in type, printing and distributing shall be borne by
the Fund. If the Company chooses to receive camera-ready film
or computer diskettes in lieu of receiving printed copies of
the Fund's prospectus and/or statement of additional
information, the Fund shall bear the cost of typesetting to
provide the Fund's prospectus and/or statement of additional
information to the Company in the format in which the Fund is
accustomed to formatting prospectuses and statements of
additional information, respectively, and the Company shall
bear the expense of adjusting or changing the format to
conform with any of its prospectuses and/or statements of
additional information. In such event, the Fund will
reimburse the Company in an amount equal to the product of x
and y where x is the number of such prospectuses distributed
to Participants who own shares of the Fund, and y is the
Fund's per unit cost of printing the Fund's prospectuses. The
same procedures shall be followed
<PAGE>
with respect to the Fund's statement of additional
information. The Fund shall not pay any costs of typesetting,
printing and distributing the Fund's prospectus and/or
statement of additional information to prospective
Participants.
3.2(b). The Fund, at its expense, shall provide the Company with
copies of its proxy statements, reports to shareholders, and
other communications (except for prospectuses and statements
of additional information, which are covered in Section
3.2(a) above) to shareholders in such quantity as the Company
shall reasonably require for distributing to Participants.
The Fund shall not pay any costs of distributing such proxy-
related material, reports to shareholders, and other
communications to prospective Participants.
3.2(c). The Company agrees to provide the Fund or its designee with
such information as may be reasonably requested by the Fund
to assure that the Fund's expenses do not include the cost of
typesetting, printing or distributing any of the foregoing
documents other than those actually distributed to existing
Participants.
3.2(d). The Fund shall pay no fee or other compensation to the
Company under this Agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1
to finance distribution expenses, then the Underwriter may
make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in
writing.
3.2(e). All expenses, including expenses to be borne by the Fund
pursuant to Section 3.2 hereof, incident to performance by
the Fund under this Agreement shall be paid by the Fund. The
Fund shall see to it that all its shares are registered and
authorized for issuance in accordance with applicable federal
law and, if and to the extent deemed advisable by the Fund,
in accordance with applicable state laws prior to their sale.
The Fund shall bear the expenses for the cost of registration
and qualification of the Fund's shares.
3.3 The Fund's statement of additional information shall be
obtainable from the Fund, the Underwriter, the Company or
such other person as the Fund may designate.
<PAGE>
3.4 If and to the extent required by law the Company shall
distribute all proxy material furnished by the Fund to
Contract Owners to whom voting privileges are required to be
extended and shall:
(i) solicit voting instructions from Contract owners:
(ii) vote the Fund shares in accordance with instructions
received from Contract owners: and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
Portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange
Commission continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners.
The Company reserves the right to vote Fund shares held in
any segregated asset account in its own right, to the extent
permitted by law. The Fund and the Company shall follow the
procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting
instruction solicitations, as set forth in Schedule C
attached hereto and incorporated herein by reference.
Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating
in the Fund calculates voting privileges in a manner
consistent with the standards set forth on Schedule C, which
standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund
will either provide for annual meetings (except insofar as
the Securities and Exchange Commission may interpret Section
16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with
respect thereto."
4. Except as amended hereby the Agreement is hereby ratified and
confirmed in all respects.
<PAGE>
IN WITNESS WHEREOF, the parties hereto execute this Amendment No. 3 as of
the date first written above.
<TABLE>
<CAPTION>
AMERICAN GENERAL LIFE INSURANCE COMPANY AMERICAN GENERAL SECURITIES INCORPORATED
<S> <C>
on behalf of itself and each of its Accounts named
in Schedule B to the Agreement, as amended from
time to time
By:______________________________________ By:______________________________________
VAN KAMPEN FUNDS INC.
MORGAN STANLEY UNIVERSAL (FORMERLY VAN KAMPEN AMERICAN
FUNDS, INC. CAPITAL DISTRIBUTORS, INC.)
By:______________________________________ By:______________________________________
MORGAN STANLEY ASSET MILLER ANDERSON & SHERRERD, LLP
MANAGEMENT, INC.
By:______________________________________ By:____________________________________
</TABLE>
<PAGE>
SCHEDULE A
PORTFOLIOS OF MORGAN STANLEY
UNIVERSAL FUNDS AVAILABLE FOR
PURCHASE BY AMERICAN GENERAL LIFE
INSURANCE COMPANY UNDER THIS AGREEMENT
Fixed Income
High Yield
Mid Cap Value
Value
International Magnum
Emerging Markets Equity
Global Equity
Equity Growth
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
-------------------------------
<TABLE>
<CAPTION>
Name of Separate Account and Form Numbers and Names of
Date Established by Board of Directors Contracts Funded by Separate Account
- --------------------------------------------------- ------------------------------------
<S> <C>
American General Life Insurance Company Contract Form Numbers:
Separate Account D 95020 Rev 896
Established: November 19, 1973 95021 Rev 896
Name of Contract:
Generations Combination Fixed and Variable
Annuity Contract
Contract Form Numbers:
91010
91011
93020
93021
Name of Contract:
Variety Plus Combination Fixed and Variable
Annuity Contract
Contract Form Numbers:
74010
74011
76010
76011
80010
80011
81010
81011
83010
83011
Name of Contract: None
American General Life Insurance Company Contract Form Numbers:
Separate Account VL-R 97600
Established: May 6, 1997 97610
Name of Contract:
Platinum I and Platinum II Flexible Premium
Variable Life Insurance Policies
Contract Form Number:
98615
Name of Contract:
Legacy Plus Flexible Premium
Variable Life Insurance Policies
</TABLE>
<PAGE>
EXHIBIT 1.8(c)
FIRST AMENDMENT
TO
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
AMERICAN GENERAL SERIES PORTFOLIO COMPANY AND
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
THIS FIRST AMENDMENT TO PARTICIPATION AGREEMENT ("Amendment") dated as of July
21, 1998, amends the Participation Agreement dated as of February 26, 1998 (the
"Agreement"), among AMERICAN GENERAL LIFE INSURANCE COMPANY (the "Company"), on
its own behalf and on behalf of each separate account of the Company set forth
on Schedule B of the Agreement (the "Account"), AMERICAN GENERAL SECURITIES
INCORPORATED ("AGSI"), AMERICAN GENERAL SERIES PORTFOLIO COMPANY (the "Fund"),
and THE VARIABLE ANNUITY LIFE INSURANCE COMPANY (the "Adviser"), collectively,
the "Parties." All capitalized terms not otherwise defined in this Amendment,
shall have the same meaning as ascribed in the Agreement.
WHEREAS, from time to time, the Company will offer new Variable Insurance
Products which are not covered under the Agreement, but for which the Fund will
act as an investment vehicle for the Company's Accounts; and
WHEREAS, the Company and the Adviser have reached an agreement to provide for
the reimbursement to the Company by the Adviser of certain of the administrative
costs and expenses incurred by the Company in connection with the servicing of
owners of Contracts covered under the Agreement, who have allocated Contract
values to a Portfolio, including, but not limited to, responding by the Company
to various Contract owner inquiries regarding a Portfolio, and record keeping
relating thereto; and
WHEREAS, the parties now desire to amend the Agreement to reflect, among other
things, (i) the new Variable Insurance Product for which the Fund will act as an
investment vehicle for the Accounts, and (ii) the agreement of the Parties with
respect to the Adviser's reimbursement to the Company of certain of the
Company's administrative costs and expenses;
NOW, THEREFORE, in consideration of their mutual promises, the Parties agree as
follows:
1. Schedule B to the Agreement, a revised copy of which is attached hereto, is
hereby amended to add the Legacy Plus Contract.
2. The Parties acknowledge that from time to time the Company will introduce new
Variable Insurance Products for which the Fund will act as an investment
vehicle for certain of the Company's Accounts. In this regard, the Parties
agree that the Company may, upon written notice to the other Parties, add
such new Variable Insurance Products and Separate Accounts of the Company to
Schedule B of the Agreement, and thereby amend Schedule B of the Agreement.
<PAGE>
3. The following new 3.2(e) paragraph is added to the Agreement:
"3.2. Expenses.
. . . .
(e) Certain Administrative Expenses of the Company. The Adviser will
reimburse the Company on a calendar quarterly basis, for certain of the
administrative costs and expenses incurred by the Company as a result
of operations necessitated by the beneficial ownership of shares of the
Portfolios of the Fund by owners of those Contracts which are subject
to such reimbursement as indicated on Schedule B hereto. Such
reimbursement shall be in an amount equal to fifteen (15) basis points
per annum of the net assets of the Funds attributable to such
Contracts. The determination of applicable assets shall be made by
averaging assets in applicable Portfolios of the Fund as of the last
Business Day of each calendar month falling within the applicable
calendar quarter. In no event shall such fee be paid by the Fund, its
shareholders or by any Contract owner.
4. Except as amended hereby, the Agreement is hereby ratified and confirmed in
all respects.
IN WITNESS WHEREOF, the Parties hereto has caused this Agreement to be executed
in its name and on its behalf by its duly authorized representative hereto as of
the date specified above.
AMERICAN GENERAL LIFE INSURANCE COMPANY, on behalf of itself and each of its
Accounts named in Schedule B hereto, as amended from time to time.
By:
-----------------------------
Don M. Ward
Senior Vice President - Variable Products
AMERICAN GENERAL SECURITIES INCORPORATED
By:
-----------------------------
F. Paul Kovach, Jr.
President
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-----------------------------
Thomas L. West, Jr.
President and CEO
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
By:
-----------------------------
Cynthia A. Toles
General Counsel and Secretary
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS+
<TABLE>
<S> <C>
NAME OF SEPARATE ACCOUNT AND REGISTRATION NUMBERS AND NAMES OF CONTRACTS
DATE ESTABLISHED BY BOARD OF DIRECTORS FUNDED BY SEPARATE ACCOUNT
American General Life Insurance Company Registration Nos.: Name of Contract:
Separate Account A 33-44744 Group and Individual Variable
Established: August 14, 1967 811-1491 Annuity
33-44745 Individual Variable Annuity
811-1491
American General Life Insurance Company 333-40637 Select Reserve Flexible Payment
Separate Account D 811-02441 Variable and Fixed Individual
Established: November 19, 1973 Deferred Annuity*
33-43390 VAriety Plus Variable Annuity
811-2441
American General Life Insurance Company 333-42567 Platinum Investor I and Platinum
Separate Account VL-R 811-08561 Investor II Variable Life Insurance
Established: May 6, 1997 Policies*
333-53909 Legacy Plus Variable Life Insurance
811-08561 Policies*
</TABLE>
*Subject to reimbursement of certain administrative expenses as set forth in
Paragraph 3.2(e) of the Participation Agreement above.
+The parties hereto agree that this Schedule B may be revised and replaced as
necessary to accurately reflect the Separate Accounts and Contracts covered
under this Agreement.
<PAGE>
EXHIBIT 1.8(d)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
AMERICAN GENERAL LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AMERICAN GENERAL SECURITIES INCORPORATED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
Section 1. Available Funds................................................. 2
1.1 Availability...................................................... 2
1.2 Addition, Deletion or Modification of Funds....................... 2
1.3 No Sales to the General Public.................................... 2
Section 2. Processing Transactions......................................... 3
2.1 Timely Pricing and Orders......................................... 3
2.2 Timely Payments................................................... 3
2.3 Applicable Price.................................................. 3
2.4 Dividends and Distributions....................................... 4
2.5 Book Entry........................................................ 4
Section 3. Costs and Expenses.............................................. 4
3.1 General........................................................... 4
3.2 Parties To Cooperate.............................................. 4
Section 4. Legal Compliance................................................ 5
4.1 Tax Laws.......................................................... 5
4.2 Insurance and Certain Other Laws.................................. 7
4.3 Securities Laws................................................... 7
4.4 Notice of Certain Proceedings and Other Circumstances............. 8
4.5 LIFE COMPANY To Provide Documents; Information About AVIF......... 9
4.6 AVIF To Provide Documents; Information About LIFE COMPANY.........10
Section 5. Mixed and Shared Funding........................................11
5.1 General...........................................................11
5.2 Disinterested Directors...........................................12
5.3 Monitoring for Material Irreconcilable Conflicts..................12
5.4 Conflict Remedies.................................................13
5.5 Notice to LIFE COMPANY............................................14
5.6 Information Requested by Board of Directors.......................14
5.7 Compliance with SEC Rules.........................................14
5.8 Other Requirements................................................14
Section 6. Termination.....................................................14
6.1 Events of Termination.............................................14
6.2 Notice Requirement for Termination................................16
6.3 Funds To Remain Available.........................................16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
6.4 Survival of Warranties and Indemnifications.......................16
6.5 Continuance of Agreement for Certain Purposes.....................16
Section 7. Parties To Cooperate Respecting Termination.....................17
Section 8. Assignment......................................................17
Section 9. Notices.........................................................17
Section 10. Voting Procedures...............................................18
Section 11. Foreign Tax Credits.............................................18
Section 12. Indemnification.................................................18
12.1 Of AVIF and AIM by LIFE COMPANY and UNDERWRITER...................18
12.2 Of LIFE COMPANY and UNDERWRITER by AVIF and AIM...................20
12.3 Effect of Notice..................................................23
12.4 Successors........................................................23
Section 13. Applicable Law..................................................23
Section 14. Execution in Counterparts.......................................23
Section 15. Severability....................................................23
Section 16. Rights Cumulative...............................................24
Section 17. Headings........................................................24
Section 18. Confidentiality.................................................24
Section 19. Trademarks and Fund Names.......................................25
Section 20. Parties to Cooperate............................................26
</TABLE>
ii
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the ____ day of
_______________, 1998 ("Agreement"), by and among AIM Variable Insurance Funds,
Inc., a Maryland corporation ("AVIF"); A I M Distributors, Inc. ("AIM");
American General Life Insurance Company, a Texas life insurance company ("LIFE
COMPANY"), on behalf of itself and each of its segregated asset accounts listed
in Schedule A hereto, as the parties hereto may amend from time to time (each,
an "Account," and collectively, the "Accounts"); American General Securities
Incorporated, an affiliate of LIFE COMPANY and the principal underwriter of the
Contracts ("UNDERWRITER") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"), shares
("Shares") of each of which are registered under the Securities Act of 1933, as
amended (the "1933 Act") and are currently sold to one or more separate accounts
of life insurance companies to fund benefits under variable annuity contracts
and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, LIFE COMPANY will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend from time to time, which
Contracts (hereinafter collectively, the "Contracts"), if required by applicable
law, will be registered under the 1933 Act; and
WHEREAS, LIFE COMPANY will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, LIFE COMPANY will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Contracts will be registered as securities under the 1933 Act
(or exempt therefrom); and
1
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Contracts; and
WHEREAS, UNDERWRITER is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, AIM is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of
the National Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to LIFE COMPANY for purchase
and redemption at net asset value and with no sales charges, subject to the
terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or will
be sold to the general public.
2
<PAGE>
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide
LIFE COMPANY with the net asset value per Share for each Fund by 5:30 p.m.
Central Time on each Business Day. As used herein, "Business Day" shall mean any
day on which (i) the New York Stock Exchange is open for regular trading, (ii)
AVIF calculates the Fund's net asset value, and (iii) LIFE COMPANY is open for
business.
(b) LIFE COMPANY will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. LIFE COMPANY will perform such Account processing the same Business
Day, and will place corresponding orders to purchase or redeem Shares with AVIF
by 9:00 a.m. Central Time the following Business Day; provided, however, that
AVIF shall provide additional time to LIFE COMPANY in the event that AVIF is
unable to meet the 5:30 p.m. time stated in paragraph (a) immediately above.
Such additional time shall be equal to the additional time that AVIF takes to
make the net asset values available to LIFE COMPANY.
(c) With respect to payment of the purchase price by LIFE COMPANY and of
redemption proceeds by AVIF, LIFE COMPANY and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value
information (as determined under SEC guidelines), LIFE COMPANY shall be entitled
to an adjustment to the number of Shares purchased or redeemed to reflect the
correct net asset value per Share. Any material error in the calculation or
reporting of net asset value per Share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
2.2 TIMELY PAYMENTS.
LIFE COMPANY will wire payment for net purchases to a custodial account
designated by AVIF by 3:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by LIFE COMPANY by 3:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable LIFE COMPANY to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and other transactions under
Contracts (collectively, "Contract
3
<PAGE>
transactions") and that LIFE COMPANY receives prior to the close of regular
trading on the New York Stock Exchange on a Business Day will be executed at the
net asset values of the appropriate Funds next computed after receipt by AVIF or
its designated agent of the orders. For purposes of this Section 2.3(a), LIFE
COMPANY shall be the designated agent of AVIF for receipt of orders relating to
Contract transactions on each Business Day and receipt by such designated agent
shall constitute receipt by AVIF; provided that AVIF receives notice of such
orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by LIFE COMPANY will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to LIFE COMPANY of any income
dividends or capital gain distributions payable on the Shares of any Fund. LIFE
COMPANY hereby elects to reinvest all dividends and capital gains distributions
in additional Shares of the corresponding Fund at the ex-dividend date net asset
values until LIFE COMPANY otherwise notifies AVIF in writing, it being agreed by
the Parties that the ex-dividend date and the payment date with respect to any
dividend or distribution will be the same Business Day. LIFE COMPANY reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY. Shares ordered from AVIF will
be recorded in an appropriate title for LIFE COMPANY, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided in Schedule C, attached hereto
and made a part hereof, each Party will bear all expenses incident to its
performance under this Agreement.
3.2 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in arranging
to print, mail and/or deliver, in a timely manner, combined or coordinated
prospectuses or other materials of AVIF and the Accounts.
4
<PAGE>
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified as
a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will use
its best efforts to qualify and to maintain qualification of each Fund as a RIC.
AVIF will notify LIFE COMPANY immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will use its best efforts to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code. AVIF will notify LIFE COMPANY immediately upon having a reasonable
basis for believing that a Fund has ceased to so comply or that a Fund might not
so comply in the future. In the event of a breach of this Section 4.1(b) by
AVIF, it will take all reasonable steps to adequately diversify the Fund so as
to achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) LIFE COMPANY agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of LIFE
COMPANY or, to LIFE COMPANY's knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or LIFE COMPANY otherwise becomes aware of any facts that could give rise
to any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(i) LIFE COMPANY shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions of
Section 18 as to any Participant);
(ii) LIFE COMPANY shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or
alleged failure;
(iii) LIFE COMPANY shall use its best efforts to minimize any
liability of AVIF or its affiliates resulting from such
failure, including, without limitation, demonstrating,
pursuant to Treasury Regulations Section 1.817-5(a)(2), to the
Commissioner of the IRS that such failure was inadvertent;
(iv) LIFE COMPANY shall permit AVIF, its affiliates and their legal
and accounting advisors to participate in any conferences,
settlement discussions or other administrative or judicial
proceeding or contests (including judicial appeals thereof)
with the IRS, any Participant or any other claimant regarding
any claims that could give rise to liability to AVIF or its
affiliates as a result of such a failure or alleged failure;
provided, however, that LIFE COMPANY
5
<PAGE>
will retain control of the conduct of such conferences
discussions, proceedings, contests or appeals;
(v) any written materials to be submitted by LIFE COMPANY to the
IRS, any Participant or any other claimant in connection with
any of the foregoing proceedings or contests (including,
without limitation, any such materials to be submitted to the
IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)),
(a) shall be provided by LIFE COMPANY to AVIF (together with
any supporting information or analysis); subject to the
confidentiality provisions of Section 18, at least ten (10)
business days or such shorter period to which the Parties
hereto agree prior to the day on which such proposed materials
are to be submitted, and (b) shall not be submitted by LIFE
COMPANY to any such person (except for its parent company,
affiliates, accounting and legal representatives on a need to
know basis), without the express written consent of AVIF which
shall not be unreasonably withheld;
(vi) LIFE COMPANY shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF
shall reasonably request (including, without limitation, by
permitting AVIF and its accounting and legal advisors to
review the relevant books and records of LIFE COMPANY) in
order to facilitate review by AVIF or its advisors of any
written submissions provided to it pursuant to the preceding
clause or its assessment of the validity or amount of any
claim against its arising from such a failure or alleged
failure;
(vii) LIFE COMPANY shall not with respect to any claim of the IRS or
any Participant that would give rise to a claim against AVIF
or its affiliates (a) compromise or settle any claim, (b)
accept any adjustment on audit, or (c) forego any allowable
administrative or judicial appeals, without the express
written consent of AVIF or its affiliates, which shall not be
unreasonably withheld, provided that LIFE COMPANY shall not be
required, after exhausting all administrative penalties, to
appeal any adverse judicial decision unless AVIF or its
affiliates shall have provided an opinion of independent
counsel to the effect that a reasonable basis exists for
taking such appeal;
(viii) AVIF and its affiliates shall have no liability as a result of
such failure or alleged failure if LIFE COMPANY fails to
comply with any of the foregoing clauses (i) through (vii),
and such failure could be shown to have materially contributed
to the liability.
Should AVIF or any of its affiliates refuse to give its written consent to
any compromise or settlement of any claim or liability hereunder, LIFE COMPANY
may, in its discretion, authorize AVIF or its affiliates to act in the name of
LIFE COMPANY in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
6
<PAGE>
thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control; provided, that in no event shall LIFE COMPANY have any liability
resulting from AVIF's refusal to accept the proposed settlement or compromise
with respect to any failure caused by AVIF. As used in this Agreement, the term
"affiliates" shall have the same meaning as "affiliated person" as defined in
Section 2(a)(3) of the 1940 Act.
(d) LIFE COMPANY represents and warrants that the Contracts currently are
and will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; LIFE COMPANY will notify AVIF immediately upon having a
reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) LIFE COMPANY represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. LIFE COMPANY will use its best efforts to continue to
meet such definitional requirements, and it will notify AVIF immediately upon
having a reasonable basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by LIFE COMPANY, including, the furnishing of information not otherwise
available to LIFE COMPANY which is required by state insurance law to enable
LIFE COMPANY to obtain the authority needed to issue the Contracts in any
applicable state.
(b) LIFE COMPANY represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Texas and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under Article 3.75 of the Texas Insurance
Code and the regulations thereunder, and (iii) the Contracts comply in all
material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) LIFE COMPANY represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the
7
<PAGE>
Contracts will be duly authorized for issuance and sold in compliance with all
applicable federal and state laws, including, without limitation, the 1933 Act,
the 1934 Act, the 1940 Act and Texas law, (iii) each Account is and will remain
registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each
Account does and will comply in all material respects with the requirements of
the 1940 Act and the rules thereunder, to the extent required, (v) each
Account's 1933 Act registration statement relating to the Contracts, together
with any amendments thereto, will at all times comply in all material respects
with the requirements of the 1933 Act and the rules thereunder, (vi) LIFE
COMPANY will amend the registration statement for its Contracts under the 1933
Act and for its Accounts under the 1940 Act from time to time as required in
order to effect the continuous offering of its Contracts or as may otherwise be
required by applicable law, and (vii) each Account Prospectus will at all times
comply in all material respects with the requirements of the 1933 Act and the
rules thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and qualify its Shares for sale in
accordance with the laws of any state or other jurisdiction if and to the extent
reasonably deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it reserves the right to make such payments in the future. To the
extent that it decides to finance distribution expenses pursuant to Rule 12b-1,
AVIF undertakes to have its Board of Directors, a majority of whom are not
"interested" persons of the Fund, formulate and approve any plan under
Rule 12b-1 to finance distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers,
employees, investment advisers, and other individuals/entities having access to
the funds and/or securities of the Fund are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund in an amount not less than the minimal coverage as required currently by
Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond includes coverage for larceny and embezzlement
and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify LIFE COMPANY of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to
8
<PAGE>
AVIF's registration statement under the 1933 Act or AVIF Prospectus, (ii) any
request by the SEC for any amendment to such registration statement or AVIF
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of AVIF's Shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Shares of any Fund in
any state or jurisdiction, including, without limitation, any circumstances in
which (a) such Shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law, or (b) such law
precludes the use of such Shares as an underlying investment medium of the
Contracts issued or to be issued by LIFE COMPANY. AVIF will make every
reasonable effort to prevent the issuance, with respect to any Fund, of any such
stop order, cease and desist order or similar order and, if any such order is
issued, to obtain the lifting thereof at the earliest possible time.
(b) LIFE COMPANY will immediately notify AVIF of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to each Account's registration statement under the
1933 Act relating to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or Account
Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. LIFE COMPANY will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 LIFE COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of all SEC registration statements, Account Prospectuses,
reports, any preliminary and final voting instruction solicitation material,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) LIFE COMPANY will provide to AVIF or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which AVIF or any of its affiliates is named, at least five (5)
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if AVIF or its
designated agent objects to such use within five (5) Business Days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. AVIF hereby designates AIM as the entity to receive such sales
literature, until such time as AVIF appoints another designated agent by giving
notice to LIFE COMPANY in the manner required by Section 9 hereof.
(c) Neither LIFE COMPANY nor any of its affiliates, will give any
information or make any representations or statements on behalf of or concerning
AVIF or its affiliates in connection with
9
<PAGE>
the sale of the Contracts other than (i) the information or representations
contained in the registration statement, including the AVIF Prospectus contained
therein, relating to Shares, as such registration statement and AVIF Prospectus
may be amended from time to time; or (ii) in reports or proxy materials for
AVIF; or (iii) in published reports for AVIF that are in the public domain and
approved by AVIF for distribution; or (iv) in sales literature or other
promotional material approved by AVIF, except with the express written
permission of AVIF.
(d) LIFE COMPANY shall adopt and implement procedures reasonably designed
to ensure that information concerning AVIF and its affiliates that is intended
for use only by brokers or agents selling the Contracts (i.e., information that
is not intended for distribution to Participants) ("broker only materials") is
so used, and neither AVIF nor any of its affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g., on-
line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT LIFE COMPANY.
(a) AVIF will provide to LIFE COMPANY at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to LIFE COMPANY camera ready or computer diskette
copies of all AVIF prospectuses and printed copies, in an amount specified by
LIFE COMPANY, of AVIF statements of additional information, proxy materials,
periodic reports to shareholders and other materials required by law to be sent
to Participants who have allocated any Contract value to a Fund. AVIF will
provide such copies to LIFE COMPANY in a timely manner so as to enable LIFE
COMPANY, as the case may be, to print and distribute such materials within the
time required by law to be furnished to Participants.
(c) AVIF will provide to LIFE COMPANY or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which LIFE COMPANY, or any of its respective affiliates is named, or
that refers to the Contracts, at least five (5) Business Days prior to its use
or such shorter period as the Parties hereto may, from time to time,
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agree upon. No such material shall be used if LIFE COMPANY or its designated
agent objects to such use within five (5) Business Days after receipt of such
material or such shorter period as the Parties hereto may, from time to time,
agree upon. LIFE COMPANY shall receive all such sales literature until such time
as it appoints a designated agent by giving notice to AVIF in the manner
required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning LIFE COMPANY,
any of its affiliates or related entities, each Account, or the Contracts other
than (i) the information or representations contained in the registration
statement, including each Account Prospectus contained therein, relating to the
Contracts, as such registration statement and Account Prospectus may be amended
from time to time; or (ii) in published reports for the Account or the Contracts
that are in the public domain and approved by LIFE COMPANY for distribution; or
(iii) in sales literature or other promotional material approved by LIFE COMPANY
or its affiliates, except with the express written permission of LIFE COMPANY.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning LIFE
COMPANY, and its respective affiliates that is intended for use only by brokers
or agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
LIFE COMPANY, nor any of its respective affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media, (e.g., on-
line networks such as the Internet or other electronic messages), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain provisions
of the 1940 Act and rules thereunder so that AVIF may be available for
investment by certain other entities, including, without limitation, separate
accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with LIFE
COMPANY,
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and trustees of qualified pension and retirement plans (collectively, "Mixed and
Shared Funding"). The Parties recognize that the SEC has imposed terms and
conditions for such orders that are substantially identical to many of the
provisions of this Section 5. Sections 5.2 through 5.8 below shall apply
pursuant to such an exemptive order granted to AVIF. AVIF hereby notifies LIFE
COMPANY that, in the event that AVIF implements Mixed and Shared Funding, it may
be appropriate to include in the prospectus pursuant to which a Contract is
offered disclosure regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence of
any material irreconcilable conflict between the interests of the Participants
in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). LIFE COMPANY agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
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(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive orders
of the type referred to in Section 5.1 hereof, LIFE COMPANY will assist the
Board of Directors in carrying out its responsibilities by providing the Board
of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by LIFE COMPANY to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, LIFE COMPANY will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the Accounts
from AVIF or any Fund and reinvesting such assets in a different
investment medium, including another Fund of AVIF, or submitting
the question whether such segregation should be implemented to a
vote of all affected Participants and, as appropriate,
segregating the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all Participants)
that votes in favor of such segregation, or offering to the
affected Participants the option of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "management company" in Section 4(3) of the 1940 Act
or a new separate account that is operated as a management
company.
(b) If the material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote, LIFE
COMPANY may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a
result of such withdrawal. Any such withdrawal must take place within six (6)
months after AVIF gives notice to LIFE COMPANY that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by LIFE COMPANY for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to LIFE COMPANY conflicts with
the majority of other state regulators, then LIFE COMPANY will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs LIFE COMPANY that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
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continue to accept and implement orders by LIFE COMPANY for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) LIFE COMPANY agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and with
a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts.
LIFE COMPANY will not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO LIFE COMPANY.
AVIF will promptly make known in writing to LIFE COMPANY the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
LIFE COMPANY and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request so that the Board of Directors may
fully carry out the obligations imposed upon it by the provisions hereof or
any exemptive order granted by the SEC to permit Mixed and Shared Funding, and
said reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors actions
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies and Participating Plans of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be properly
recorded in the minutes of the Board of Directors or other appropriate records,
and such minutes or other records will be made available to the SEC upon
request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium for
variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 OTHER REQUIREMENTS.
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AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of any party, with or without cause with respect to the
Fund, upon six (6) months advance written notice to the other parties, or, if
later, upon receipt of any required exemptive relief from the SEC, unless
otherwise agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings against
LIFE COMPANY or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding LIFE COMPANY's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of LIFE COMPANY upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, LIFE
COMPANY reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on LIFE COMPANY, or the Subaccount corresponding to the
Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law, or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Contracts issued or to be
issued by LIFE COMPANY; or
(e) upon termination of the corresponding Subaccount's investment in the
Fund pursuant to Section 5 hereof; or
(f) at the option of LIFE COMPANY if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
LIFE COMPANY reasonably believes that the Fund may fail to so qualify; or
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(g) at the option of LIFE COMPANY if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if LIFE
COMPANY reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by LIFE COMPANY cease
to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the Fund's noncompliance with Section 817(h) or
Subchapter M of the Code) or if interests in an Account under the Contracts are
not registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible within twenty-four (24) hours after
the terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the option
of LIFE COMPANY, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Fund (as in effect on such date), redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 6.3 will not apply to
any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
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All warranties and indemnifications will survive the termination of this
Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this
Agreement shall nevertheless continue in effect as to any Shares of that Fund
that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date
as of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that LIFE COMPANY may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or
6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1(a), the termination date specified in the notice of termination. Such steps
may include combining the affected Account with another Account, substituting
other mutual fund shares for those of the affected Fund, or otherwise
terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
AMERICAN GENERAL LIFE INSURANCE COMPANY
AMERICAN GENERAL SECURITIES INCORPORATED
c/o American General Independent Producer Division
2727-A Allen Parkway
Houston, Texas 77019
Facsimile: (713) 831-3071
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Attn: Steven Glover, Esquire
AIM VARIABLE INSURANCE FUNDS, INC.
AIM DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 1919
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esquire
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
LIFE COMPANY will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. LIFE COMPANY will vote
Shares in accordance with timely instructions received from Participants. LIFE
COMPANY will vote Shares that are (a) not attributable to Participants to whom
pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants.
Neither LIFE COMPANY nor any of its affiliates will in any way recommend action
in connection with or oppose or interfere with the solicitation of proxies for
the Shares held for such Participants. LIFE COMPANY reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
LIFE COMPANY shall be responsible for assuring that each of its Accounts holding
Shares calculates voting privileges in a manner consistent with that of other
Participating Insurance Companies or in the manner required by the Mixed and
Shared Funding exemptive order obtained by AVIF. AVIF will notify LIFE COMPANY
of any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC's interpretation of
the requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
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AVIF agrees to consult in advance with LIFE COMPANY concerning any decision
to elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF AVIF AND AIM BY LIFE COMPANY AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
LIFE COMPANY and UNDERWRITER agree to indemnify and hold harmless AVIF, AIM, and
their respective affiliates, and each person, if any, who controls AVIF, AIM,
and their respective affiliates within the meaning of Section 15 of the 1933 Act
and each of their respective directors and officers, (collectively, the
"Indemnified Parties" for purposes of this Section 12.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of LIFE COMPANY and UNDERWRITER) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to LIFE COMPANY or
UNDERWRITER by or on behalf of AVIF for use in any Account's 1933
Act registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or otherwise for
use in connection with the sale of Contracts or Shares (or any
amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in AVIF's 1933 Act registration statement, AVIF
Prospectus, sales literature or advertising of AVIF, or any
amendment or supplement to any of the foregoing, not supplied for
use therein by or on behalf of LIFE COMPANY, UNDERWRITER or their
respective affiliates and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent conduct of LIFE
COMPANY, UNDERWRITER or their respective affiliates or persons
under their control (including, without limitation, their
employees and "Associated Persons," as that term is defined in
paragraph
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(m) of Article I of the NASD's By-Laws), in connection with the
sale or distribution of the Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to AVIF or its affiliates by or on behalf
of LIFE COMPANY, UNDERWRITER or their respective affiliates for
use in AVIF's 1933 Act registration statement, AVIF Prospectus,
sales literature or advertising of AVIF, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by LIFE COMPANY or UNDERWRITER
to perform the obligations, provide the services and furnish the
materials required of them under the terms of this Agreement, or
any material breach of any representation and/or warranty made by
LIFE COMPANY or UNDERWRITER in this Agreement or arise out of or
result from any other material breach of this Agreement by LIFE
COMPANY or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by LIFE
COMPANY to qualify as annuity contracts or life insurance
contracts under the Code, otherwise than by reason of any Fund's
failure to comply with Subchapter M or Section 817(h) of the
Code.
(b) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF.
(c) Neither LIFE COMPANY nor UNDERWRITER shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
shall have notified LIFE COMPANY and UNDERWRITER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify LIFE COMPANY and UNDERWRITER of any
such action shall not relieve LIFE COMPANY and UNDERWRITER from any liability
which they may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.1. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, LIFE
COMPANY and UNDERWRITER shall be entitled to participate, at their own expense,
in the defense of such action and also shall be entitled to assume the defense
thereof, with counsel approved by the Indemnified Party named in the action,
which approval shall not be
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unreasonably withheld. After notice from LIFE COMPANY or UNDERWRITER to such
Indemnified Party of LIFE COMPANY's or UNDERWRITER's election to assume the
defense thereof, the Indemnified Party will cooperate fully with LIFE COMPANY
and UNDERWRITER and shall bear the fees and expenses of any additional counsel
retained by it, and neither LIFE COMPANY nor UNDERWRITER will be liable to such
Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
12.2 OF LIFE COMPANY AND UNDERWRITER BY AVIF AND AIM.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM agree to indemnify and hold harmless LIFE COMPANY,
UNDERWRITER, their respective affiliates, and each person, if any, who controls
LIFE COMPANY, UNDERWRITER or their respective affiliates within the meaning of
Section 15 of the 1933 Act and each of their respective directors and officers,
(collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of AVIF and AIM) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses), to
which the Indemnified Parties may become subject under any statute, regulation,
at common law, or otherwise; provided, the Account owns shares of the Fund and
insofar as such losses, claims, damages, liabilities or actions:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus or sales literature
or advertising of AVIF (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to AVIF, AIM or
their respective affiliates by or on behalf of LIFE COMPANY,
UNDERWRITER or their respective affiliates for use in AVIF's 1933
Act registration statement, AVIF Prospectus, or in sales
literature or advertising or otherwise for use in connection with
the sale of Contracts or Shares (or any amendment or supplement
to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising for the
Contracts, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of AVIF
and AIM or their respective affiliates and on which such persons
have reasonably relied) or the negligent, illegal or fraudulent
conduct of AVIF and AIM or their respective affiliates or persons
under its control (including, without limitation, their employees
and "Associated Persons" as that term is defined in Section (n)
of Article I of the
21
<PAGE>
NASD By-Laws), in connection with the sale or distribution of
AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, sales
literature or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing, or the omission
or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon and in conformity with information furnished to LIFE
COMPANY, UNDERWRITER or their respective affiliates by or on
behalf of AVIF or AIM for use in any Account's 1933 Act
registration statement, any Account Prospectus, sales literature
or advertising covering the Contracts, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any material
breach of any representation and/or warranty made by AVIF or AIM
in this Agreement or arise out of or result from any other
material breach of this Agreement by AVIF or AIM.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, the written
consent of AVIF) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses) to which the Indemnified Parties may
become subject directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or actions
directly or indirectly result from or arise out of the failure of any Fund to
operate as a regulated investment company in compliance with (i) Subchapter M of
the Code and regulations thereunder, or (ii) Section 817(h) of the Code and
regulations thereunder, including, without limitation, any income taxes and
related penalties, rescission charges, liability under state law to Participants
asserting liability against LIFE COMPANY pursuant to the Contracts, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by LIFE COMPANY of Shares of another investment company or
portfolio for those of any adversely affected Fund as a funding medium for each
Account that LIFE COMPANY reasonably deems necessary or appropriate as a result
of the noncompliance.
(c) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to LIFE COMPANY,
UNDERWRITER, each Account or Participants.
22
<PAGE>
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified Party
shall have notified AVIF and AIM in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AVIF and AIM of any such action shall not relieve
AVIF and AIM from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this Section
12.2. Except as otherwise provided herein, in case any such action is brought
against an Indemnified Party, AVIF and AIM will be entitled to participate, at
its own expense, in the defense of such action and also shall be entitled to
assume the defense thereof (which shall include, without limitation, the conduct
of any ruling request and closing agreement or other settlement proceeding with
the IRS), with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from AVIF
and/or AIM to such Indemnified Party of AVIF's and/or AIM's election to assume
the defense thereof, the Indemnified Party will cooperate fully with AVIF and/or
AIM and shall bear the fees and expenses of any additional counsel retained by
it, and neither AVIF nor AIM will not be liable to such Indemnified Party under
this Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof, other
than reasonable costs of investigation.
(e) In no event shall AVIF be liable under the indemnification provisions
contained in this Agreement to any individual or entity, including, without
limitation, LIFE COMPANY, UNDERWRITER or any other Participating Insurance
Company or any Participant, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of any
representation, warranty, and/or covenant made by LIFE COMPANY or UNDERWRITER
hereunder or by any Participating Insurance Company under an agreement
containing substantially similar representations, warranties and covenants; (ii)
the failure by LIFE COMPANY or any Participating Insurance Company to maintain
its segregated asset account (which invests in any Fund) as a legally and
validly established segregated asset account under applicable state law and as a
duly registered unit investment trust under the provisions of the 1940 Act
(unless exempt therefrom); or (iii) the failure by LIFE COMPANY or any
Participating Insurance Company to maintain its variable annuity or life
insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance contracts under
applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Sections 12.1(c) or 12.2(d) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 SUCCESSORS.
23
<PAGE>
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
24
<PAGE>
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of LIFE COMPANY or
any of its affiliates (collectively, the "LIFE COMPANY Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by or on
behalf of LIFE COMPANY, the LIFE COMPANY Protected Parties or any of their
employees or agents in connection with LIFE COMPANY's performance of its duties
under this Agreement are the valuable property of the LIFE COMPANY or LIFE
COMPANY Protected Parties, as the case may be. AVIF agrees that if it comes into
possession of any list or compilation of the identities of or other information
about the LIFE COMPANY Protected Parties' customers, or any other information or
property of LIFE COMPANY or the LIFE COMPANY Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the LIFE COMPANY Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with LIFE COMPANY's prior written
consent; or (b) as required by law or judicial process. LIFE COMPANY
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively, the "AVIF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. LIFE COMPANY agrees that if it comes into possession of
any list or compilation of the identities of or other information about the AVIF
Protected Parties' customers or any other information or property of the AVIF
Protected Parties, other than such information as may be independently developed
or compiled by LIFE COMPANY from information supplied to it by the AVIF
Protected Parties' customers who also maintain accounts directly with LIFE
COMPANY, LIFE COMPANY will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with AVIF's prior written consent; or (b) as required by
law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 18 would result in immediate and irreparable harm to
the other parties for which there would be no adequate remedy at law and agree
that in the event of such a breach, the other parties will be entitled to
equitable relief by way of temporary and permanent injunctions, as well as such
other relief as any court of competent jurisdiction deems appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of
AVIF, owns all right, title and interest in and to the name, trademark and
service mark "AIM" and such other tradenames, trademarks and service marks as
may be set forth on Schedule B, as amended from time to time by written notice
from AIM to LIFE COMPANY (the "AIM licensed marks" or the
25
<PAGE>
"licensor's licensed marks") and is authorized to use and to license other
persons to use such marks. LIFE COMPANY and its affiliates are hereby granted a
non-exclusive license to use the AIM licensed marks in connection with LIFE
COMPANY's performance of the services contemplated under this Agreement, subject
to the terms and conditions set forth in this Section 19.
(b) The grant of license to LIFE COMPANY and its affiliates ( the
"licensee") shall terminate automatically upon termination of this Agreement.
Upon automatic termination, the licensee shall cease to use the licensor's
licensed marks, except that LIFE COMPANY shall have the right to continue to
service any outstanding Contracts bearing any of the AIM licensed marks. Upon
AIM's elective termination of this license, LIFE COMPANY and its affiliates
shall immediately cease to issue any new annuity or life insurance contracts
bearing any of the AIM licensed marks and shall likewise cease any activity
which suggests that it has any right under any of the AIM licensed marks or that
it has any association with AIM, except that LIFE COMPANY shall have the right
to continue to service outstanding Contracts bearing any of the AIM licensed
marks.
(c) The licensee shall obtain the prior written approval of the licensor
for the public release by such licensee of any materials bearing the licensor's
licensed marks. The licensor's approvals shall not be unreasonably withheld.
(d) During the term of this grant of license, a licensor may request that
a licensee submit samples of any materials bearing any of the licensor's
licensed marks which were previously approved by the licensor but, due to
changed circumstances, the licensor may wish to reconsider. If, on
reconsideration, or on initial review, respectively, any such samples fail to
meet with the written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials. The licensor's
approval shall not be unreasonably withheld, and the licensor, when requesting
reconsideration of a prior approval, shall assume the reasonable expenses of
withdrawing and replacing such disapproved materials. The licensee shall obtain
the prior written approval of the licensor for the use of any new materials
developed to replace the disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that, to the
best of the knowledge of the licensee, the licensor's licensed marks are valid
and enforceable trademarks and/or service marks and that such licensee does not
own the licensor's licensed marks and claims no rights therein other than as a
licensee under this Agreement; (ii) agrees never to contend otherwise in legal
proceedings or in other circumstances; and (iii) acknowledges and agrees that
the use of the licensor's licensed marks pursuant to this grant of license shall
inure to the benefit of the licensor.
26
<PAGE>
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and will permit each other and such
authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
----------------------------------
27
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: By:
---------------------------- ------------------------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: By:
---------------------------- ------------------------------------
Name: Nancy L. Martin Name: Michael J. Cemo
Title: Assistant Secretary Title: President
AMERICAN GENERAL LIFE INSURANCE COMPANY,
on behalf of itself and its separate
accounts
Attest: By:
---------------------------- ------------------------------------
Name: Don M. Ward
Name: Title: Senior Vice President - Variable
---------------------------- Products
Title:
----------------------------
AMERICAN GENERAL SECURITIES
INCORPORATED
Attest: By:
---------------------------- ------------------------------------
Name: Frank P. Kovach, Jr.
Name: Title: President
----------------------------
Title:
----------------------------
28
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
. AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. International Equity Fund
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
American General Life Insurance Company Separate Account VL-R
Established: May 1, 1997
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS INCLUDING
THE CORRESPONDING FUNDS AVAILABLE THEREUNDER
Platinum Investor I Flexible Premium Life Insurance Policy - Policy Form
No. 97600
AIM Variable Insurance Funds, Inc.
AIM V.I. International Equity Fund
AIM V.I. Value Fund
Platinum Investor II Flexible Premium Life Insurance Policy - Policy Form
No. 97610
AIM Variable Insurance Funds, Inc.
AIM V.I. International Equity Fund
AIM V.I. Value Fund
Legacy Plus Flexible Premium Life Insurance Policy - Policy Form No. 98615
AIM Variable Insurance Funds, Inc.
AIM V.I. Value Fund
29
<PAGE>
SCHEDULE B
. AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. International Equity Fund
AIM V.I. Value Fund
. AIM and Design
[LOGO OF AIM APPEARS HERE]
30
<PAGE>
SCHEDULE C
EXPENSE ALLOCATIONS
===============================================================================
AMERICAN GENERAL LIFE AVIF / AIM
- -------------------------------------------------------------------------------
preparing and filing the Account's preparing and filing the Fund's
registration statement registration statement
- -------------------------------------------------------------------------------
text composition for Account prospectuses text composition for Fund
and supplements prospectuses and supplements
- -------------------------------------------------------------------------------
text alterations of prospectuses (Account) text alterations of prospectuses
and supplements (Account) (Fund) and supplements (Fund)
- -------------------------------------------------------------------------------
printing Account and Fund prospectuses and a camera ready Fund prospectus
supplements (the prospectus shall be limited
to those Funds listed on
Schedule A)
- -------------------------------------------------------------------------------
text composition and printing Account SAIs text composition and printing
Fund SAIs
- -------------------------------------------------------------------------------
mailing and distributing Account SAIs to mailing and distributing Fund
policy owners upon request by policy owners SAIs to policy owners upon
request by policy owners
- -------------------------------------------------------------------------------
mailing and distributing prospectuses
(Account and Fund) and supplements
(Account and Fund) to policy owners of
record as required by Federal Securities
Laws and to prospective purchasers
- -------------------------------------------------------------------------------
text composition and printing (Account), text composition and printing
printing, mailing, and distributing annual of annual and semi-annual
and semi-annual reports for Account (Fund reports (Fund)
and Account as, applicable)
- -------------------------------------------------------------------------------
text composition, printing, mailing, text composition, printing,
distributing, and tabulation of proxy mailing, distributing and
statements and voting instruction tabulation of proxy statements
solicitation materials to policy owners and voting instruction
with respect to proxies related to the solicitation materials to policy
Account owners with respect to proxies
related to the Fund
- -------------------------------------------------------------------------------
31
<PAGE>
preparation, printing and distributing
sales material and advertising relating
to the Funds, insofar as such materials
relate to the Contracts and filing such
materials with and obtaining approval from,
the SEC, the NASD, any state insurance
regulatory authority, and any other
appropriate regulatory authority, to the
extent required
===============================================================================
32
<PAGE>
EXHIBIT 1.8(e)
FIRST AMENDMENT
TO
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
ROYCE CAPITAL FUND AND
ROYCE & ASSOCIATES, INC.
THIS FIRST AMENDMENT TO PARTICIPATION AGREEMENT ("Amendment") dated as of
August __, 1998, amends the Participation Agreement dated as of February 26,
1998 (the "Agreement"), among AMERICAN GENERAL LIFE INSURANCE COMPANY (the
"Company"), on its own behalf and on behalf of each separate account of the
Company set forth on Schedule B of the Agreement (the "Account"), AMERICAN
GENERAL SECURITIES INCORPORATED ("AGSI"), ROYCE CAPITAL FUND (the "Fund"), and
ROYCE & ASSOCIATES, INC. (the "Adviser"), collectively, the "Parties." All
capitalized terms not otherwise defined in this Amendment, shall have the same
meaning as ascribed in the Agreement.
WHEREAS, the Company will offer a new Variable Insurance Products comprised of a
variable life insurance product which is not covered under the Agreement, but
for which the Fund will act as an investment vehicle for the Company's Accounts;
and
WHEREAS, the Parties now desire to amend the Agreement to reflect the new
Variable Insurance Product for which the Fund will act as an investment vehicle
for the Accounts, and to otherwise amend the agreement in the manner set forth
herein;
NOW, THEREFORE, in consideration of their mutual promises, the Parties agree as
follows:
1. The fifth (5th) recital of the agreement is hereby deleted in its entirety
and replaced therefor with the following new recital:
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated July 24, 1996 (File No. 812-9988), granting Participating
Insurance Companies and Variable Insurance Product separate accounts
exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of
the Investment Company Act of 1940, as amended (hereinafter the "1940 Act"),
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary
to permit shares of the Fund to be sold to and held by Variable Insurance
Product separate accounts of both affiliated and unaffiliated life insurance
companies and Qualified Plans (hereinafter the "Shared Funding Exemptive
Order"); and
2. The ninth (9th) recital of the Agreement is hereby deleted in its entirety.
Page 1 of 2 Pages
<PAGE>
3. Schedule B to the Agreement, a revised copy of which is attached hereto, is
hereby amended to add the Legacy Plus/(SM)/ Contract.
4. Except as amended hereby, the Agreement is hereby ratified and confirmed in
all respects.
IN WITNESS WHEREOF, the Parties hereto has caused this Agreement to be executed
in its name and on its behalf by its duly authorized representative hereto as of
the date specified above.
AMERICAN GENERAL LIFE INSURANCE COMPANY, on behalf of itself and each of its
Accounts named in Schedule B hereto, as amended from time to time.
By:
--------------------------
Don M. Ward
Senior Vice President -Variable Markets
AMERICAN GENERAL SECURITIES INCORPORATED
By:
--------------------------
F. Paul Kovach, Jr.
President
ROYCE CAPITAL FUNDS
By:
--------------------------
John D. Diederich
Vice President
ROYCE & ASSOCIATES, INC.
By:
--------------------------
Daniel A. O'Byrne
Vice President
Page 2 of 2 Pages
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND REGISTRATION NUMBERS AND NAMES OF CONTRACTS FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
- -------------------------------------- ----------------
Form Nos.: Name of Contract:
<S> <C> <C>
American General Life Insurance Company 97505 Select Reserve/(SM)/ Flexible Payment
Separate Account D Variable and Fixed
Established: November 19, 1973 Individual Deferred Annuity
American General Life Insurance Company 98615 Legacy Plus/(SM)/ Variable Life Insurance
Separate Account VL-R Policies
Established: May 6, 1997
</TABLE>
<PAGE>
EXHIBIT 1.8(f)
AGREEMENT
THIS AGREEMENT ("Agreement") made as of , 1998,
is by and between , a
corporation ("Adviser") and AMERICAN GENERAL LIFE INSURANCE
COMPANY, a Texas corporation ("AGL").
W I T N E S S E T H:
WHEREAS, each of the investment companies listed on Schedule One hereto
("Schedule One," as the same may be amended from time to time), is registered as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "Act") (such investment companies are hereinafter
collectively called the "Funds," or each a "Fund"); and
WHEREAS, each of the Funds is available as the investment vehicle for certain
separate accounts of AGL, established for variable life insurance policies
and/or variable annuity contracts offered by AGL (the "Separate Account,"
whether one or more); and
WHEREAS, AGL has entered into a participation agreement dated
among AGL, and the Funds (the
"Participation Agreement," as the same may be amended from time to time); and
WHEREAS, Adviser provides, among other things, investment advisory and/or
administrative services to the Funds; and
WHEREAS, (the "Distributor"), is the
[underwriter][distributor] of the funds; and
WHEREAS, Adviser desires AGL to provide the administrative services specified in
the attached Exhibit A ("Administrative Services"), in connection with the
ownership of interests of the Separate Account, which is the owner of shares of
the Funds for the benefit of persons who maintain their ownership interests in
the Separate Account, whose interests are included in the master account
("Master Account") referred to in paragraph 1, of Exhibit A ("Shareholders"),
and AGL is willing and able to provide such Administrative Services on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees as follows:
1. AGL agrees to perform the Administrative Services specified in Exhibit A
hereto for the benefit of the Shareholders.
2. AGL represents and agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing
the Administrative Services, and will otherwise comply with all laws, rules
and regulations applicable to the Administrative Services.
<PAGE>
3. AGL agrees to provide copies of all the historical records relating to
transactions between the Funds and Shareholders, and all written
communications and other related materials regarding the Fund(s) to or from
such Shareholders, as reasonably requested by Adviser or its
representatives (which representatives, include, without limitation, its
auditors, legal counsel or the Distributor, as the case may be), to enable
Adviser or its representatives to monitor and review the Administrative
Services performed by AGL, or comply with any request of the board of
directors, or trustees or general partners (collectively, the "Directors")
of any Fund, or of a governmental body, self-regulatory organization or
Shareholder.
In addition, AGL agrees that it will permit Adviser, the Funds or their
representatives, to have reasonable access to its personnel and records in
order to facilitate the monitoring of the quality of the Administrative
Services.
4. AGL may, with the consent of Adviser, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of AGL required by this Agreement, or the
Participation Agreement, provided that AGL shall be fully responsible for
the acts and omissions of such other parties.
5. AGL hereby agrees to notify Adviser promptly if for any reason it is unable
to perform fully and promptly any of its obligations under this Agreement.
6. AGL hereby represents and covenants that it does not, and will not, own or
hold or control with power to vote any shares of the Funds which are
registered in the name of AGL or the name of its nominee and which are
maintained in AGL variable annuity or variable life insurance accounts. AGL
represents further that it is not registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and it is not
required to be so registered, including as a result of entering into this
Agreement and performing the Administrative Services, and other obligations
of AGL set forth in this Agreement.
7. The provisions of the Agreement shall in no way limit the authority of
Adviser, or any Fund or Distributor to take such action as any of such
parties may deem appropriate or advisable in connection with all matters
relating to the operations of any of such Funds and/or sale of its shares.
8. In consideration of the performance of the Administrative Services by AGL,
Adviser agrees to pay AGL a monthly fee at an annual rate which shall equal
% of the value of each Fund's average daily net assets maintained in
the Master Account for the Shareholders. The foregoing fee will be paid by
Adviser to AGL on a calendar quarterly basis, and in this regard, payment
of such fee will be made by Adviser to AGL within thirty (30) days
following the end of each calendar quarter. The determination of applicable
assets shall be made by averaging assets in applicable portfolios as of the
first and last Business Day (as defined in the Participation Agreement) of
each month falling within the applicable calendar quarter.
2
<PAGE>
Notwithstanding anything in this Agreement or the Participation Agreement
appearing to the contrary, the payments by Adviser to AGL relate solely to
the performance by AGL of the Administrative Services described herein
only, and do not constitute payment in any manner for services provided by
AGL to AGL policy or contract owners, or to any separate account organized
by AGL, or for any investment advisory services, or for costs associated
with the distribution of any variable annuity or variable life insurance
contracts.
9. AGL shall indemnify and hold harmless each of the Funds, Adviser and
Distributor and each of their respective officers, Directors, employees and
agents from and against any and all losses, claims, damages, expenses, or
liabilities that any one or more of them may incur including without
limitation reasonable attorneys' fees, expenses and costs arising out of or
related to the performance or non-performance by AGL of the Administrative
Services under this Agreement.
10 This Agreement may be terminated without penalty at any time by AGL or by
Adviser as to one or more of the Funds collectively, upon one hundred and
eighty days (180) written notice to the other party. Notwithstanding the
foregoing, the provisions of paragraphs 2, 3, 9 and 11 of this Agreement,
shall continue in full force and effect after termination of this
Agreement.
This Agreement shall not require AGL to preserve any records (in any medium
or format) relating to this Agreement beyond the time periods otherwise
required by the laws to which AGL or the Funds are subject provided that
such records shall be offered to the Funds in the event AGL decides to no
longer preserve such records following such time periods.
11. After the date of any termination of this Agreement in accordance with
paragraph 10 of this Agreement, no fee will be due with respect to any
amounts first placed in the Master Account for the benefit of Shareholders
after the date of such termination. However, notwithstanding any such
termination, Adviser will remain obligated to pay AGL the fee specified in
paragraph 8 of this Agreement, with respect to the value of each Fund's
average daily net assets maintained in the Master Account as of the date of
such termination, for so long as such amounts are held in the Master
Account and AGL continues to provide the Administrative Services with
respect to such amounts in conformity with this Agreement. This Agreement,
or any provision hereof, shall survive termination to the extent necessary
for each party to perform its obligations with respect to amounts for which
a fee continues to be due subsequent to such termination.
12. AGL understands and agrees that the obligations of Adviser under this
Agreement are not binding upon any of the Funds, upon any of their Board
members or upon any shareholder of any of the Funds.
13. It is understood and agreed that in performing the services under this
Agreement AGL, acting in its capacity described herein, shall at no time be
acting as an agent for Adviser, Distributor or any of the Funds. AGL
agrees, and agrees to cause its agents, not to make any representations
concerning a Fund except those contained in the Fund's then-current
prospectus; in current sales literature furnished by the Fund, Adviser or
Distributor to AGL; in the then current prospectus for a variable annuity
contract or variable life insurance policy issued by AGL or then current
sales literature with respect to such variable annuity contract or variable
life insurance policy, approved by Adviser.
3
<PAGE>
14. This Agreement, including the provisions set forth herein in paragraph 8,
may only be amended pursuant to a written instrument signed by the party to
be charged. This Agreement may not be assigned by a party hereto, by
operation of law or otherwise, without the prior written consent of the
other party.
15. This Agreement shall be governed by the laws of the State of ,
without giving effect to the principles of conflicts of law of such
jurisdiction.
16. This Agreement, including Exhibit A and Schedule One, constitutes the
entire agreement between the parties with respect to the matters dealt with
herein and supersedes any previous agreements and documents with respect to
such matters. The parties agree that Schedule One may be replaced from time
to time with a new Schedule One to accurately reflect any changes in the
Funds available as investment vehicles under the Participation Agreement.
IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement
as of the date first above written.
AMERICAN GENERAL LIFE INSURANCE COMPANY
By:
-----------------------------------------
Authorized Signatory
-----------------------------------------
Print or Type Name
--------------------------------------------------
By:
-----------------------------------------
Authorized Signatory
-----------------------------------------
Print or Type Name
4
<PAGE>
SCHEDULE ONE
INVESTMENT COMPANY NAME: FUND NAME(S):
5
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, AGL shall perform the
following Administrative Services:
1. Maintain separate records for each Shareholder, which records shall reflect
shares purchased and redeemed for the benefit of the Shareholder and share
balances held for the benefit of the Shareholder. AGL shall maintain the
Master Account with the transfer agent of the Fund on behalf of
Shareholders and such Master Account shall be in the name of AGL or its
nominee as the record owner of the shares held for such Shareholders.
2. For each Fund, disburse or credit to Shareholders all proceeds of
redemptions of shares of the Fund and all dividends and other distributions
not reinvested in shares of the Fund or paid to the Separate Account
holding the Shareholders' interests.
3. Prepare and transmit to Shareholders periodic account statements showing
the total number of shares held for the benefit of the Shareholder as of
the statement closing date (converted to interests in the Separate
Account), purchases and redemptions of Fund shares for the benefit of the
Shareholder during the period covered by the statement, and the dividends
and other distributions paid for the benefit of the Shareholder during the
statement period (whether paid in cash or reinvested in Fund shares).
4. Transmit to Shareholders proxy materials and reports and other information
received by AGL from any of the Funds and required to be sent to
Shareholders under the federal securities laws and, upon request of the
Fund's transfer agent, transmit to Shareholders material Fund
communications deemed by the Fund, through its Board of Directors or other
similar governing body, to be necessary and proper for receipt by all Fund
beneficial shareholders.
5. Transmit to the Fund's transfer agent purchase and redemption orders on
behalf of Shareholders.
6. Provide to the Funds, or to the transfer agent for any of the Funds, or any
of the agents designated by any of them, such periodic reports as shall
reasonably be concluded to be necessary to enable each of the Funds and its
distributor to comply with any applicable State Blue Sky requirements.
6
<PAGE>
EXHIBIT 1.10(a)
AMERICAN GENERAL LIFE INSURANCE COMPANY
Home Office: Houston, Texas
APPLICATION FOR LIFE INSURANCE
1. Names of persons proposed for insurance:
First Name Middle Name Last Name Sex Relationship
Date of Birth Ins. Age Place of Birth Height Weight
A. Drivers Lic Num & State:_________________SS#___________________
B. Drivers Lic Num & State:_________________SS#___________________
C.
D.
For child or family benefits, list only children who are natural or legally
adopted children of the Primary Proposed Insured or Spouse and who actually
reside at the address of the Primary Proposed Insured.
2. Present Residence of Primary Proposed Insured
Address
City State ZIP
Telephone No. of Yrs.
3. OCCUPATION Proposed Insured A
Occupation Yrs.
Employer Name
Address
City__________________State______Zip______
Telephone
Proposed Insured B
Occupation Yrs.
Employer Name
Address
City__________________State______Zip______
Telephone
4. Has proposed insured A or B used tobacco in any form in the past 24 months?
Proposed Insured A Yes No Proposed Insured B Yes No
5. Plan of basic insurance: Amount
____________________ $______________
Planned Periodic Premium $______________
Lump Sum Payment $______________
Benefit Option: 1 - Level 2 - Increasing
Are you requesting Select Rates? Yes No
6. Additional benefits to be added Amount
Maturity Extension Rider - Death Benefit
<PAGE>
Maturity Extension Rider - Accumulation Value
Terminal Illness Rider
Waiver of Premium/Waiver of Monthly Deduction
Waiver of Monthly Guarantee Premium
Accidental Death Benefit $______________
Spouse/Other Insured Rider $______________
FIB __________ Units CIB___________ Units
Additional Insurance Option $______________
Joint Insurance 4-Year Term $______________
First-to-die Term Rider $______________
Joint Term $______________
Joint ART A n B n $______________
Automatic Increase Rider ______________%
Return of Premium Death Benefit Option
Premium Assurance Rider
Other _____________ $______________
7. Premiums to be paid
Automatic Bank Check Direct
List Bill or Government Allotment List Bill #_______________
Company_______________________________________________
Annually Semi-Annually Quarterly
Amount paid with application $ _______________ or None
8. Beneficiary Designation Proposed Insured A
First_______________________________ Relationship_________________
Second______________________________ Relationship_________________
Trust Name__________________________ Date of Trust________________
Proposed Insured B
First_______________________________ Relationship_________________
Second______________________________ Relationship_________________
Trust Name__________________________ Date of Trust________________
9. Premium PAYOR
Name________________________________
Address______________________________
City___________________State_____ ZIP__________
Relationship to Primary Proposed Insured_________________________
Secondary Payor
Name_______________________________
Address____________________________
City____________________State_____ ZIP___________
10. Policyowner and taxpayEr identification number (must be completed)
Policyowner Name_________________________
Address_________________________________
City___________________State________ZIP__________
<PAGE>
Social Security or Tax ID Number ___________________
Policyowner Date of Birth _______________
Insured Other Relationship
Contingent Owner Designation
Contingent Policyowner Name____________________________
Social Security or Tax ID Number _________________________________
(Contingent Policyowner designation becomes effective upon the
death of the Primary Owner)
11. INCLUDE AUTOMATIC PREMIUM LOAN IF AVAILABLE? Yes No
Home Office Endorsement Only. May not be used in any state where
prohibited.
Page 2
12. HAS ANY PERSON PROPOSED FOR INSURANCE DURING THE LAST 12 MONTHS
a. had a heart attack, stroke, cancer, diabetes, or disorder of the immune
system? Yes No
b. been confined to a hospital or other health care facility and/or been
advised to have any diagnostic test or surgery not yet performed?
Yes No
Temporary insurance is not available if there are any "yes" answers to question
number 12
13. REPLACEMENTS, EXCHANGES, CONVERSIONS
If this is a replacement, required state replacement forms and disclosures
must be used. If state does not require Policy Comparison Form, you must
attach AGL Replacement Comparison Guide (L8726).
a. List below all Life Insurance policies in force and applied for in all
companies.
(Use explanations section on pg. 3 if necessary.)
<TABLE>
<CAPTION>
Proposed Proposed Company Year Coverage Amount Is Beneficiary Replace
Insured Insured Issued Life ADB Business or Yes No
A B Personal
<S> <C> <C> <C> <C> <C> <C> <C>
Proposed Insured
A B-D
Yes No Yes No
</TABLE>
b. Is this insurance intended to be a 1035 tax-free exchange?
c. Is this insurance intended to be a term conversion?
d. Will this insurance replace, change, or use the cash value of any existing
insurance policy or annuity?
PART 2. UNDERWRITING INFORMATION
<PAGE>
Important: QUESTIONS 1 & 2 MUST BE ANSWERED EVEN IF A MEDICAL EXAM WILL BE
PROVIDED)
PROVIDE DETAILS TO ANY YES ANSWERS UNDER EXPLANATIONS ON PAGE 3
1. Has any Proposed Insured:
Proposed Insured
A B-D
Yes No Yes No
a. in the past 2 years flown in any type of aircraft or plan to fly in
the future, other than as a passenger? (If "Yes" complete Military &
Civilian Aviation Supplement.)
b. in the past 2 years participated or expect to participate in any
vehicle racing on land or water, bobsledding, scuba or skin diving,
skydiving or parachuting, ultralight aviation, or mountaineering?
(If "Yes" complete Avocation Questionnaire.)
c. during the past 90 days submitted an application for life insurance to
any other company or is any contemplated?
d. ever had a life insurance application modified, rated, declined,
postponed, withdrawn, canceled, or refused for renewal?
e. any intention of traveling or residing outside the United States or
Canada within the next 24 months?
f. during the past 3 years been refused a driver's license, had a moving
violation, or been involved in 1 or more accidents?
(If "Yes" give license number, issue state & details.)
g. ever used cocaine, barbiturates, heroin, or other narcotic drugs,
except as legally prescribed by a physician?
h. ever sought, received advice, counseling or treatment for the use of
alcohol, marijuana, barbiturates, or drugs including prescription
drugs?
2. Has any Proposed Insured ever been diagnosed or treated by any member of
the medical profession for Acquired Immune Deficiency Syndrome (AIDS)?
3. Has any Proposed Insured in the past 3 years ever had:
a. fainting spells, nervous disorder, convulsions or paralysis?
b. pain or discomfort in the chest, or shortness of breath?
c. disorder of the stomach, intestines, rectum or blood in the urine?
4. Has any Proposed Insured ever consulted a physician for or been diagnosed
or treated for:
Proposed Insured
A B-D
Yes No Yes No
a. mental disorder, epilepsy or stroke?
b. disease or disorder of the heart or blood vessels, heart attack, high
blood pressure, or rheumatic fever?
c. elevated cholesterol?
d. disease or disorder of the lungs, asthma, emphysema, or tuberculosis?
<PAGE>
e. disease or disorder of stomach, intestines, rectum, liver, or gall
bladder?
f. disease or disorder of the kidney, bladder, or prostate gland?
g. sugar, albumin, blood, or pus in the urine?
h. cancer, tumor, syphilis, diabetes, gland or blood disorder, ulcer,
rupture, or disease or disorder of the breast or reproductive organs?
5. Has any Proposed Insured during the past 3 years:
a. received or claimed disability or hospital indemnity benefits or a
pension for any injury, sickness, disability or impaired condition?
b. had any other impairment, sickness, laboratory tests, or diagnostic
procedures? c
been confined in a hospital or other health care facility, had a blood
transfusion, or had surgery performed, advised, or contemplated?
6. Is any Proposed Insured now taking any medication or under any treatment?
7. Medical Exam Certificate (Complete when submitting a medical examination
from another company.)
a. Attached examination is on the life of:
b. Name of insurance company for which examination was made and date of
the examination:
Company Date of Exam
c. Has Proposed Insured A or B consulted a doctor or other practitioner
or received medical or surgical advice since the date of the
examination?
d. To the best of Proposed Insured A's or B's knowledge and belief, are
any statements in the examination now inaccurate, as of today?
Page 3
FAMILY HISTORY
Proposed Insured A
Family If living If not living, State of health or
History current age(s) age at death cause & date of death
Father
Mother
Brothers
& Sisters
Proposed Insured B
Family If living If not living, State of health or
History current age(s) age at death cause & date of death
Father
Mother
Brothers
& Sisters
9. PERSONAL PHYSICIAN INFORMATION
<PAGE>
Proposed Insured A Proposed Insured B
Who is your personal physician? Who is your personal physician?
Name:_______________________ Name:________________________
Address:____________________ Address:_____________________
City State Zip______________ City State Z_________________
Phone:______________________ Phone:_______________________
Date personal physician was last seen? Date personal physician
was last seen?
Reason Seen? Reason Seen?
EXPLANATIONS:
Details of any "Yes" answers to questions 1-7. Identify question number; circle
applicable items; include diagnosis, treatment dates, duration, and names and
addresses of all attending physicians and health care facilities.
QUES (Proposed) Insured A QUES (Proposed) Insureds B-D
PART 3. FINANCIAL INFORMATION
FINANCIAL INFORMATION MUST BE COMPLETED (1) FOR BUSINESS INSURANCE OR (2) FOR A
PROPOSED INSURED AGE 65 OR OVER OR (3) WHERE THE FACE AMOUNT EXCEEDS $250,000
FOR PROPOSED INSUREDS UNDER AGE 65. IF FACE AMOUNT APPLIED FOR IS $1 MILLION OR
MORE, PROVIDE AN EXPANDED FINANCIAL STATEMENT. I BELIEVE THAT THIS PURCHASE OF
LIFE INSURANCE IS SUITABLE FOR THIS APPLICANT/INSURED, BASED UPON THE
APPLICANT'S NEEDS, FINANCIAL SITUATION AND INSURANCE OBJECTIVES.
1. For personal insurance:
a. What is the purpose of the insurance? Check all that apply.
Estate preservation Family protection Mortgage protection Charitable
Other _______
b. What is the Proposed Insured(s)
1) Annual earned income $_______________ 3)Total assets $____________
2) Annual interest & other income $____________(include retained
earnings)
4) Total liabilities $_______________________
2. For business insurance:
a. What is the purpose of the insurance? Check all that apply.
Key person Buy-Sell Split dollar Stock redemption
Creditor Other
b. Annual net profit before taxes: Last year $__________
2 years ago $____________ net worth $______________
c. If key person insurance: Retained earnings $____________ Yes No
1) Are all partners or key people to be covered?
<PAGE>
2) Does either Proposed Insured have an ownership interest in the
business?
If "Yes" what is Proposed Insured A's percent of ownership?_______%
If "Yes" what is Proposed Insured B's percent of ownership?_______%
Page 4
SPECIAL INSTRUCTIONS
AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION
I hereby give my consent to: (1) any physician or medical practitioner; (2)
hospital, clinic, or other health care facility; (3) insurance or reinsurance
company; (4) consumer reporting agency, insurance support organization; (5) my
employer; or (6) the Medical Information Bureau, Inc., to give to American
General Life Insurance Company (American General Life) all information it has
pertaining to: (1) my medical consultations, treatments or surgeries; (2)
hospital confinements which concern the physical and mental condition of myself,
my spouse or my minor children; (3) my use of drugs or alcohol; or (4) any other
non-health (non-medical) information.
In turn, American General Life is free to disclose such information and any
information developed during its evaluation of my application to: (1) its
reinsurers; (2) the Medical Information Bureau, Inc.; (3) other insurance
companies; (4) me; (5) any physician designated by me; or (6) any person or
entity required to receive such information by law or as I may further consent.
I, as well as any person authorized to act on my behalf, may, upon written
request, obtain a copy of this consent from American General Life.
This consent shall be valid for thirty (30) months from the date stated below.
I agree that a photocopy of this consent shall be as valid as the original.
I authorize American General Life to obtain an investigative consumer report on
me. I understand that I may: (1) request to be interviewed in connection with
the preparation of the investigative consumer report; and (2) receive, upon
written request, a copy of such report if no personal interview is in fact
conducted.
DECLARATION. I have read the above statements or they have been read to me. I
represent that the above statements are true and complete to the best of my
knowledge and belief. I understand that any misrepresentation contained in this
application and relied on by the Company may be used to reduce or deny a claim
or void the policy if it is within its contestable period and if such
misrepresentation materially affects the acceptance of the risk. Except as may
be provided in a Limited Temporary Life Insurance Agreement for which all
eligibility requirements are met, I understand and agree that no insurance shall
be in effect pursuant to this application, or under any policy issued by the
Company, until: (1) the policy has been delivered and accepted; (2) the full
first mode premium for the issued policy has been paid; and, (3) between the
date of the application and the delivery and acceptance of the policy, there has
been no material change in the health of any person proposed for insurance. I
understand and agree that no agent is authorized to: (1) accept risks or pass
upon insurability; (2) make or modify contracts; or (3) waive any of the
Company's rights or requirements.
<PAGE>
I have received a copy of the Fair Credit Reporting Act, Medical Information
Bureau (MIB), Insurance Information Practices, and Telephone Interview
Information notices.
IF ELIGIBLE: I have received and accepted the Limited Temporary Life Insurance
Agreement. Temporary insurance is available only if: (1) the full first mode
premium is submitted with this application; and (2) only "No" answers have been
given in Part 1, Question 12.
Any person who includes any false or misleading information on an application
for insurance policy is subject to criminal and civil penalties.
Under penalties of perjury, I certify: (1) that the number shown on this
application is my correct social security (or taxpayer identification) number
and (2) that I am not subject to backup withholding under Section 3406(a)(1)(C)
of the Internal Revenue Code.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
Signed at ___________________________ Date: ________________
city state
X__________________________________ X_______________________________
SIGNATURE OF PROPOSED INSURED A SIGNATURE OF OWNER/TRUSTEE
(If below age 15, signature of parent Primary Proposed Insured. Show
or guardian.) officer's title if signing for
firm.)
X__________________________________
SIGNATURE OF OWNER
X X X
X___________________________________ X_______________________________
SIGNATURE OF PROPOSED INSURED B SIGNATURE OF OWNER
X___________________________________
SIGNATURE OF OWNER
I certify that I have truthfully and accurately recorded on the application the
information supplied by the Proposed Insured(s) and personally witnessed the
signature(s) of the Proposed Insured(s).
X_______________________ ______________________ ______________
AGENT NAME (Please Print) SIGNATURE OF AGENT AGENT No.
X_______________________
STATE LICENSE NO.
Page 5
<PAGE>
AGENT'S REPORT (MUST be completed to issue policy.)
1. If Primary Proposed Insured has lived at present address less than 5 years,
list previous addresses for the past 5 years, with dates.
List address where correspondence should be sent, if different than the
Primary Proposed Insured's or Owner's address shown in Part 1.
2. Current marital status
Married Single Divorced Separated Widowed
3. If married, what amount of insurance is in force on the spouse? $__________
4. If primary proposed insured is a child, what amount of insurance is in
force on the father and/or mother?
$__________________
5. How long have you known the proposed insured(s)?
Insured A ______________ Insured B ______________
6. Are you related by blood or marriage to any proposed insured?
Yes No Relationship
7. Did you personally see all proposed insureds and ask each and every
question and accurately record their answers yourself?
Yes No If "No" give details in Remarks.
8. Which of the following have you scheduled?
Blood Profile
HOS
Inspection
Resting EKG
Stress EKG
Chest X-Ray
Para Med
NAME OF EXAMINER/SERVICE DATE
Medical
NAME OF EXAMINER/SERVICE DATE
APS from
DOCTOR DATE
APS from
DOCTOR DATE
<PAGE>
9. Complete if Part 3 not completed
a. Purpose of insurance. Check all that apply.
Estate preservation Family protection
Charitable Mortgage protection Other_____________________
b. Annual earned income of the Proposed Insured(s) or of the Payor,
if other than the Primary Proposed Insured
Proposed Insured A $_____________________
Proposed Insured B $_____________________
10. Telephone interview information
Best time to call Proposed Insured(s) at
Business ( )______________ Home ( )_____________
Time __________Time ______________
11. AGENT(S) TO RECEIVE COMMISSION & VOLUME CREDIT
(Circle letter to indicate who Agency Agent Percent
should receive correspondence.) Number Number of credit
a.
b.
c.
12. To the best of your knowledge, will the insurance applied for replace or
change existing insurance or annuity in this or any other company?
Yes No
(If "Yes", complete requirement of the state of residence.)
REMARKS:
Date Contact Person if other than Agent SIGNATURE OF AGENT
Telephone No. of Agent PLEASE PRINT NAME
Facsimile No. of Agent STREET ADDRESS (Please Print)
Page 6
BANK DRAFT INFORMATION
The Automatic Bank Check plan, commonly known as ABC or Electronic Funds
Transfer, is a preauthorized debit service which offers a convenient way to pay
your insurance premiums. Under the ABC plan, your insurance premiums are
collected from your bank account electronically. After each premium payment has
been withdrawn from your bank account, a single-line entry in the amount of your
premium payment will appear on your bank statement. That entry will be your
receipt for payment of your premium. When paying with ABC, you no longer have to
write additional checks or mail any premium payments. As long as you maintain a
sufficient balance in your bank account, your insurance premiums are
automatically paid from your account with no further effort on your part.
<PAGE>
PREAUTHORIZED DEBIT AGREEMENT
I, the undersigned bank account owner, hereby authorize and request American
General Life Insurance Company ("Company") to initiate electronic or other
commercially accepted type debits against the indicated bank account in the
depository institution named below ("Depository") for the payment of premiums
and other indicated charges due on the insurance policy or policies listed below
(hereafter referred to as "Policy", whether one or more), and to continue to
initiate such debits in the event of a conversion, renewal or other change to
any such policy. I hereby agree to indemnify and hold the Company harmless from
any loss, claim or liability of any kind by reason or dishonor of any debit.
I understand that this Authorization will not affect the terms of the Policy,
other than the mode of payment, and that if premiums are not paid within the
applicable grace period, the Policy will terminate, subject to any applicable
nonforfeiture provision. I acknowledge that the debit appearing on my bank
statement shall constitute my receipt of payment, but no payment is deemed made
until the company receives actual payment in its Home Office. I understand that
this Authorization will not result in any insurance becoming effective under any
conditional receipt or temporary insurance unless all terms of such conditional
receipt or temporary insurance have been met.
I agree that this Authorization may be terminated by me or the Company at any
time and for any reason by providing written notice of such termination to the
non-terminating party and may be terminated by the Company immediately if any
debt is not honored by the Depository named below for any reason.
Policy No. Insured Premium Amount
Bank Account Number_________________FREQUENCY: ___Monthly
Transit Routing Number _________________ ___Quarterly
Name of Depository_____________________ ___Semi-Annually
Address of Depository___________________ ___Annually
Preferred withdrawal date__________________________________
___Please initiate debits against my account for all outstanding premiums due.
Signature of Bank Account Owner Date
PLEASE ATTACH VOIDED CHECK
Page 7
American General Life Insurance Company
Home Office: Houston, Texas
LIMITED TEMPORARY LIFE INSURANCE AGREEMENT
Received $________________on this date from___________________________
This amount was paid when, on this date, a life insurance application was signed
in which is named as the Primary Proposed Insured. We agree to provide temporary
life insurance coverage as described below, subject to the rules that follow:
<PAGE>
ALL PREMIUM CHECKS MUST BE MADE PAYABLE TO THE COMPANY: DO NOT MAKE CHECK
PAYABLE TO THE AGENT OR LEAVE THE PAYEE BLANK. NOTE: AGENT DOES NOT HAVE THE
AUTHORITY TO ACCEPT A PREMIUM (INCLUDING AUTOMATIC BANK DRAFT CHECK, SALARY
SAVINGS OR GOVERNMENT ALLOTMENT) WITH THIS APPLICATION IF THE CONDITIONS IN THE
DECLARATION CANNOT BE MET; IF ANY PART OF QUESTION 12 HAS BEEN ANSWERED "YES",
ANSWERED FALSELY, OR LEFT BLANK, THIS AGREEMENT WILL BE VOID AND ANY PAYMENT
SUBMITTED WILL BE REFUNDED.
1. The full first mode premium must be submitted with this application. (Any
payment submitted must be honored on its first presentation for payment.)
2. The answer to all parts of question 12 must be "NO".
3. Upon receipt of due proof of the death of any person to be insured during
the period covered by this agreement, the total amount we will pay under
the policy, any riders, and this agreement, will be the lesser of:
(a) the amount applied for on such person; or
(b) $300,000 and the amount of any premium paid for coverage in excess of
$300,000 on such person.
4. Such payment will be made in one sum to the beneficiary stated in the
application. If death is due to suicide, payment will be limited to the
return of the amount paid. Coverage under this agreement will be subject to
the terms of the policy for which application is made.
5. Coverage will begin on the latest of the following dates:
(a) the date of the application;
(b) the date that all medical examinations have been taken; or
(c) the date requested in the application.
6. Coverage under this agreement will cease on the earliest of the following
dates:
(a) the date we issue the policy as applied for;
(b) the date a policy issued other than as applied for is offered to the
applicant;
(c) the date we decline the application;
(d) the date we state that the application will not be considered on a
prepaid basis; or
(e) 60 days from the date coverage begins under this agreement.
7. Any payment submitted to and accepted by the Company will be:
(a) applied to pay the first premium due if the policy is issued as applied
for;
(b) applied toward payment of the first premium if a policy is issued other
than as applied for and is accepted by the applicant;
(c) refunded if we decline the application or if the applicant refuses to
accept a policy issued other than as applied for.
No changes may be made in the terms and conditions of this form.
No statement which claims to make such a change will bind the Company.
<PAGE>
I understand and agree that no agent is authorized to accept risks or pass upon
insurability, to make or modify contracts, or to waive any of the company's
rights or requirements.
Signed at_____________________________________Date:_______________
CITY STATE
X _____________________________________________
SIGNATURE OF AGENT AGENT NUMBER
Page 8
DETACH THIS NOTICE &
LEAVE IT WITH THE
PROPOSED INSURED
American General Life Insurance Company
Home Office: Houston, Texas
NOTICE TO PROPOSED INSURED
Fair Credit Reporting Act
In compliance with the Fair Credit Reporting Act, as amended, we advise you that
we may, as a part of our normal procedure for processing your contract
application, request that an investigative consumer report be prepared whereby
information is obtained through personal interviews with your neighbors,
friends, former employers, primary insurance company or others with whom you are
acquainted. This inquiry includes information as to your character, general
reputation, personal characteristics and mode of living.
You have the right to make a written request to our home office within a
reasonable period of time to receive additional, detailed information about the
nature and scope of this investigation, if one is made. Please address your
request to New Business, American General Life Insurance Company, P.O. Box 1931,
Houston, Texas 77251-1931. These reports are obtained in your best interest.
They assist us in determining that the Company's insureds meet certain
standards, thus allowing us to continue offering coverage at the lowest possible
cost to all who qualify.
Medical Information Bureau
Information regarding your insurability will be treated as confidential.
American General Life Insurance Company or its reinsurers may, however, make a
brief report thereon to the Medical Information Bureau, a non-profit membership
organization of life insurance companies, which operates an information exchange
on behalf of its members. If you apply to another Bureau member company for life
or health insurance coverage, or a claim for benefits is submitted to such a
company, the Bureau, upon request, will supply such company with the information
in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any
information it may have in your file. If you question the accuracy of
information in the Bureau's file, you may contact the Bureau and seek a
correction in accordance with the procedures set forth in the Federal Fair
Credit Reporting Act. The address of the Bureau's information office is Post
Office Box 105, Essex Station, Boston, Massachusetts 01112, telephone number
(617) 426-3660.
<PAGE>
American General Life Insurance Company or its reinsurers may also release
information in its file to other life insurance companies to whom you may apply
for life or health insurance, or to whom a claim for benefits may be submitted.
Insurance Information Practices
To issue an insurance policy, we need to obtain information about you and any
other persons proposed for insurance. Some of that information will come from
you and some will come from other sources. That information and any subsequent
information collected by us may in certain circumstances be disclosed to third
parties without your specific authorization.
You have a right of access and correction with respect to the information
collected about you except information which relates to a claim or civil or
criminal proceeding.
If you wish to have a more detailed explanation of our information practices,
please contact: American General Life Insurance Company, New Business, P.O. Box
1931, Houston, Texas 77251-1931.
Telephone Interview Information (If Applicable)
To help us process your application as rapidly as possible, American General
Life may have one of its representatives contact you by telephone and at your
convenience to secure additional underwriting information.
You may be assured that all information developed in this interview will be kept
in strictest confidence and used solely for insurance purposes.
<PAGE>
EXHIBIT 1.10(b)
Page 1
AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL")
Home Office: Houston, Texas
Variable Universal Life Insurance Supplemental Application
(This supplement must accompany the appropriate application for life
insurance.)
PART 1. Applicant INFORMATION
Supplement to the application on the life of , dated .
PART 2. Initial Allocation Percentages
Investment Options: In the "Premium Allocation" column, indicate how
each premium received is to be allocated. In the "Deduction Allocation"
column, indicate which investment options are to be used for the
deduction of monthly account charges. Total allocations in each column
must equal 100%. Use whole percentages only.
Divisions Premium
Allocation Allocation Deduction
---------- ---------- ---------
BT Insurance Funds Trust
Equity 500 Index (179) % %
EAFE Equity Index (180) % %
AIM Variable Insurance Funds, Inc.
AIM V.I. Value (181) % %
Morgan Stanley Universal Funds, Inc.
Equity Growth (182) % %
Royce Capital Fund
Royce Total Return (183) % %
American General Series Portfolio Company
Money Market (184) % %
PART 3. Modified Endowment Contract
If any premium payment causes the policy to be classified as a modified
endowment contract under Section 7702A of the United States Internal
Revenue Code, there may be potentially adverse U.S. tax consequences.
Such consequences include:
(1) withdrawals or loans being taxed to the extent of gain; and (2) a
10% penalty tax on the taxable amount. In order to avoid modified
endowment status, I request any excess premium that could cause
such status to be refunded. [ ] YES [ ] NO
PART 4. Dollar Cost Averaging
Dollar Cost Averaging: ($100,000 minimum beginning accumulation value)
An amount can be systematically transferred from the Money Market
Division (184) and transferred to one or more of the investment
divisions below. Please refer to the prospectus for more information on
the Dollar Cost Averaging option.
Day of the month for transfers: (Choose a day of the month between 1_28.)
Frequency of transfers: [ ] Monthly [ ] Quarterly [ ] Semiannually
[ ] Annually
Transfer $ ($5,000 minimum, whole dollars only) from the AGSPC Money
Market (184) to the following division(s):
(179) Equity 500 Index $
(180) EAFE Equity Index $
(181) AIM V.I. Value $
(182) Equity Growth $
(183) Royce Total Return $
PART 5. Automatic Rebalancing
Automatic Rebalancing: ($100,000 minimum beginning accumulation value)
Variable division assets will be automatically rebalanced based on the
premium percentages designated in Part 2. Please refer to the
prospectus for more information on the Automatic Rebalancing option.
[ ] Check here for Automatic Rebalancing.
Frequency: [ ] Quarterly [ ] Semiannually [ ] Annually
NOTE: Automatic Rebalancing is not available if the Dollar Cost Averaging option
has been chosen.
<PAGE>
Page 2
AMERICAN GENERAL LIFE INSURANCE COMPANY
Home Office: Houston, Texas
PART 6. Telephone Authorization
I (or we, if Joint Owners), hereby authorize American General Life Insurance
Company ("AGL") to act on telephone instructions to transfer values among the
variable divisions and to change allocations for future purchase payments and
monthly deductions given by:
(Initial appropriate box below.)
Policy Owner(s) only __ if Joint Owners, either of us acting independently.
Policy Owner(s) and the Agent/Registered Representative who is appointed to
represent AGL and the firm authorized to service my policy.
AGL and any person designated by this authorization will not be responsible for
any claim, loss or expense based upon telephone instructions received and acted
on in good faith, including losses due to telephone instruction communication
errors.
AGL's liability for erroneous transfers and allocations, unless clearly contrary
to instructions received, will be limited to correction of the allocations on a
current basis. If an error, objection or other claim arises due to a telephone
transaction, I will notify AGL in writing within five working days from receipt
of confirmation of the transaction from AGL. I understand that this
authorization is subject to the terms and provisions of my variable universal
life insurance policy and its related prospectus. This authorization will remain
in effect until my written notice of its revocation is received by AGL at its
home office.
Initial here to decline the above telephone Authorization.
PART 7. Suitability (All questions must be answered.)
[ ] YES [ ] NO
1. Have you, the Proposed Insured or Owner (if different), received the
variable universal life insurance policy prospectus and the prospectuses
describing the investment options? [ ] YES [ ] NO
(If "yes," please furnish the Prospectus dates.)
Variable Universal Life Insurance Policy Prospectus:
Supplements (if any):
2. Do you understand that under the Policy applied for:
a. The amount or duration of the death benefit may increase or decrease,
depending on the investment experience of the Separate Account?
[ ] YES [ ] NO
b. The Policy values may increase or decrease, depending on the investment
experience of the Separate Account and certain expense deductions?
[ ] YES [ ] NO
c. The Policy is designed to provide life insurance coverage and
to allow for the accumulation of values in the
Separate Account?
3. Do you believe the Policy you selected meets your insurance and investment
objectives and your anticipated financial needs?
[ ] YES [ ] NO
Signed at: _______________________________________ Date: __________________
city state
________________________________________ ____________________________________
XSignature of Primary XSignature of Registered
Proposed Insured Representative
_______________________________________________________________________________
XSignature of Owner (if different from Proposed Insured)
_______________________________________________________________________________
Print Name of Broker/Dealer
_______________________________________________________________________________
XSignature of Joint Owner (if applicable)
<PAGE>
EXHIBIT 1.10(c)
Page 1
Service Request
LEGACY
Plus
AMERICAN GENERAL LIFE
Legacy Plus_Variable Divisions
BT Insurance Funds Trust
. Division 179_Equity 500 Index
. Division 180_EAFE Equity Index
AIM Variable Insurance Funds, Inc.
. Division 181_AIM V.I. Value
Morgan Stanley Universal Funds, Inc.
. Division 182_Equity Growth
Royce Capital Fund
. Division 183_Royce Total Return
American General Series Portfolio Company
. Division 184_Money Market
<PAGE>
Page 2
1. POLICY IDENTIFICATION
Complete this section for ALL requests.
American General Life Insurance Company ("AGL")
A Subsidiary of American General Corporation
Houston, Texas
Variable Universal Life INSURANCE Service Request
Complete and return this request to:
Variable Universal Life Operations
PO Box 4880 Houston, TX. 77210-4880
(888) 325-9315 or (713) 831-3443
Fax: (713) 620-3857
1. POLICY #: Insured:
Address: New Address (yes) (no)
Primary Owner (If other than insured):
Address: New Address (yes) (no)
Primary Owner's S.S. No. or Tax l.D. No._____________________
Phone Number: (___) ______ - __________
Joint Owner (If applicable):
Address: New Address (yes) (no)
2. NAME CHANGE
Complete this section if the name of the Insured, Owner, Payor or Beneficiary
has changed. (Please note, this does not change the Insured, Owner, Payor or
Beneficiary designation)
Change Name Of: (Circle One) Insured Owner Payor Beneficiary
Change Name From: (First, Middle, Last) Change Name To: (First, Middle, Last)
Reason for Change: (Circle One) Marriage Divorce Correction
Other (Attach copy of legal proof)
3. MODE OF PREMIUM
PAYMENT/BILLING METHOD CHANGE
Use this section to change the billing frequency and/or method of premium
payment. Note, however, that AGL will not bill you on a direct monthly basis.
Refer to your policy and its related prospectus for further information
concerning minimum premiums and billing options. Indicate frequency and premium
amount desired: $ Annual $ Semi-Annual $ Quarterly
$ Monthly (Bank Draft Only)
Indicate billing method desired: Direct Bill
Pre-Authorized Bank Draft
(attach a Bank Draft Authorization Form and "Void" Check)
Start Date: / /
<PAGE>
PAGE 3
4. LOST POLICY CERTIFICATE
Complete this section if applying for a Certificate of Insurance or duplicate
policy to replace a lost or misplaced policy. If a full duplicate policy is
being requested, a check or money order for $25 payable to AGL must be
submitted with this request.
I/we hereby certify that the policy of insurance for the listed policy has
been
LOST DESTROYED OTHER.
Unless I/we have directed cancellation of the policy, I/we request that a:
Certificate of Insurance at no charge
Full duplicate policy at a charge of $25
be issued to me/us. If the original policy is located, I/we will return the
Certificate or duplicate policy to AGL for cancellation.
5. DOLLAR COST AVERAGING
($100,000 minimum initial accumulation value) An amount may be deducted
periodically from the Money Market Division and placed in one or more of the
Divisions listed. Please refer to the prospectus for more information on the
Dollar Cost Averaging Option.
Designate the day of the month for transfers: (choose a day from 1-28)
Frequency of transfers (check one): Monthly Quarterly Semi-Annually Annually
I want: $ ($5,000 minimum) taken from the Money Market Division and transferred
to the following Divisions:
I (/we if Joint Owners) hereby authorize AGL to act on telephone instructions to
transfer values among Divisions and to change allocations for future purchase
payments and monthly deductions.
<PAGE>
PAGE 4
6. TELEPHONE PRIVILEGE AUTHORIZATION
Complete this section if you are applying for or revoking current telephone
privileges.
I (/we if Joint Owners) hereby authorize AGL to act on telephone instructions to
transfer values among Divisions and to change allocations for future purchase
payments and monthly deductions.
Initial the designation you prefer:
Policy Owner(s) only_If Joint Owners, either one acting independently.
Policy Owner(s) and Agent/Registered Representative who is appointed to
represent AGL and the firm authorized to service my policy.
AGL and any person designated by this authorization will not be responsible for
any claim, loss or expense based upon telephone transfer or allocation
instructions received and acted upon in good faith, including losses due to
telephone instruction communication errors. AGL's liability for erroneous
transfers or allocations, unless clearly contrary to instructions received, will
be limited to correction of the allocations on a current basis. If an error,
objection or other claim arises due to a telephone transaction, l will notify
AGL in writing within five working days from the receipt of the confirmation of
the transaction from AGL. I understand that this authorization is subject to the
terms and provisions of my policy and its related prospectus. This authorization
will remain in effect until my written notice of its revocation is received by
AGL at the address printed on the top of this service request form.
Initial Here To Revoke Telephone privilege authorization.
7. CORRECT AGE
Use this section to correct the age of any person covered under this policy.
Proof of the correct date of birth must accompany this request. Name of Insured
for whom this correction is submitted: ________________________
Correct DOB: ________/________/________
8. TRANSFER OF ACCUMULATED VALUES
Use this section if you want to move money between divisions. If a transfer
causes the balance in any division to drop below $5,000, AGL reserves the right
to transfer the remaining balance. There is a $25 charge for each transfer in
excess of 12 per maintaining consistency throughout.
(Division Name or Number) (Division Name or Number)
Transfer $ or % from to .
Transfer $ or % from to .
Transfer $ or % from to .
Transfer $ or % from to .
Transfer $ or % from to .
Transfer $ or % from to .
Transfer $ or % from to .
Transfer $ or % from to .
Transfer $ or % from to .
Transfer $ or % from to .
<PAGE>
PAGE 5
9. CHANGE IN ALLOCATION PERCENTAGES
Use this section to indicate how premiums or monthly deductions are to be
allocated. Total allocation in each column must equal 100%; whole numbers only.
INVESTMENT DIVISION PREM % DED % INVESTMENT DIVISION
PREM % DED %
BT Insurance Funds Trust
(179) Equity 500 Index
(180) EAFE Equity Index
AIM Variable Insurance Funds, Inc.
(181) AIM V.l. Int'l Equity
Morgan Stanley Universal Funds, Inc.
(182) Equity Growth
Royce Capital Fund
(183) Royce Total Return
American General Series Porfolio Company
(184) Money Market
10. AUTOMATIC REBALANCING
($100,000 minimum accumulation value) Use this section to apply for or make
changes to Automatic Rebalancing of the divisions. Please refer to the
prospectus for more information on the Automatic Rebalancing Option. This option
is not available while the Dollar Cost Averaging Option is in use.
Indicate frequency: Quarterly Semi-Annually Annually
(Division Name or Number) (Division Name or Number)
% : % :
% : % :
% : % :
% : % :
% : % :
% : % :
Initial Here To Revoke Automatic Rebalancing Election.
11. REQUEST FOR PARTIAL SURRENDER/POLICY LOAN
Use this section to apply for a partial surrender or policy loan. Minimum Cash
Surrenter Value after a Partial Surrender or Loan must not be less than
$100,000. (There are some states which are excluded from the Minimum Cash
Surrender Value Provision.) For detailed information concerning these two
options please refer to your policy and its related prospectus.
<PAGE>
PAGE 6
If applying for a partial surrender, be sure to complete the Notice of
Withholding section of this Service Request in addition to this section.
I request a partial surrender of $ or % of the net cash surrender value.
I request a loan in the amount of $ .
I request the maximum loan amount available from my policy.
Unless you direct otherwise below, proceeds are allocated according to the
deduction allocation percentages in effect, if available; otherwise they are
taken pro-rata from the Variable Divisions in use.
12. NOTICE OF WITHHOLDING
Complete this section if you have applied for a partial surrender in Section 11.
The taxable portion of the distribution you receive from your variable universal
life insurance policy is subject to federal income tax withholding unless you
elect not to have withholding apply. Withholding of state income tax may also be
required by your state of residence. You may elect not to have withholding apply
by checking the appropriate box below. If you elect not to have withholding
apply to your distribution or if you do not have enough income tax withheld, you
may be responsible for payment of estimated tax. You may incur penalties under
the estimated tax rules, if your withholding and estimated tax are not
sufficient. Check one: I do want income tax withheld from this distribution. I
do not want income tax withheld from this distribution.
13. AFFIRMATION/SIGNATURE
Complete this section for ALL requests.
CERTIFICATION: Under penalties of perjury, I certify: (1) that the number shown
on this form is my correct taxpayer identification number and; (2) that I am not
subject to backup withholding under Section 3406(a)(1)(c) of the Internal
Revenue Code. The Internal Revenue Service does not require your consent to any
provision of this document other than the certification required to avoid backup
withholding.
Dated at__________________________________ this__________ day
of____________________________, 19________.
________________________________ ________________________________
XSignature of Owner XSignature of witness
________________________________ ________________________________
XSignature of Joint Owner XSignature of witness
________________________________ ________________________________
XSignature of Assignee XSignature of witness
<PAGE>
EXHIBIT 1.10(d)
American General Life Insurance Company
A Subsidiary of American General Corporation
VUL Operations
P.O. Box 4880 Houston, Texas 77210-4880
Owner Authorization of Third Party Transfers
Contract Identification Contract Number
INSURED/ANNUITANT'S NAME
Owner's name Owner's Street Address
City state zip
Joint Owner's Name (if one is designated)
Authorized Third Party Name Title/Position
Firm Street Address
City state zip Telephone Number
Authorization by Owner(s)_Please read carefully!
I/we hereby authorize American General Life Insurance Company ("AGL")
to act upon instructions to transfer values among the Variable Divisions
and Fixed Accounts and to change allocations for future purchase
payments given by the Third Party named above for my/our contract
referenced above. The Third Party named above is authorized to accept
delivery of the contract on my/our behalf and receive copies of
transaction confirmations and annual statements.
AGL will not be responsible for any claim, loss, or expense based upon
transfer instructions received and acted upon in good faith, including
losses due to instruction communication errors. AGL's liability for
erroneous transfers, unless clearly contrary to instructions received, will
be limited to correction of the allocations on a current basis. If an error,
objection, or other claim arises due to a transfer transaction, I will
notify AGL in writing within five working days from receipt of
confirmation of the transaction from AGL. I understand that this
authorization is subject to the terms and provisions of my contract
referenced above and its related prospectus. This authorization will
<PAGE>
remain in effect until my written notice of its revocation is received by
AGL at its main office.
By delivering this Authorization to AGL, I/we revoke all prior third party
authorizations which have been delivered to AGL.
I/we understand the following:
1. Transfers may be made by telephone or written communication.
2. I/we may cancel this authorization at any time by furnishing written
notice to AGL.
3. The Third Party or AGL may cancel this authorization at any time.
4. Requests received after 3:00 p.m. (Central time) on a business day (a
day when both the New York Stock Exchange and AGL are open) will be
executed on the following business day.
Contract Owner's Signature___________________________ Date
Joint Owner's Signature (if applicable)_______________________ Date
Third Party's Signature_____________________________ Date
<PAGE>
EXHIBIT 2(a)
AMERICAN GENERAL
LIFE COMPANIES
2727-A ALLEN PARKWAY, HOUSTON, TEXAS 77019
Writer's Direct Number
(713) 831-8471
August 19, 1998
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Dear Ladies and Gentlemen:
This opinion is furnished in connection with the filing of a Registration
Statement on Form S-6, File No. 333-53909 ("Registration Statement") of Separate
Account VL-R ("Separate Account VL-R") of American General Life Insurance
Company ("AGL"). The Registration Statement covers an indefinite number of units
of interest in Separate Account VL-R ("Units") funding Legacy Plus (policy form
No. 98615) individual flexible premium variable life insurance policies issued
by AGL ("Policies"). Net premiums received under the Policies are allocated by
AGL to Separate Account VL-R to the extent directed by owners of the Policies.
Net premiums under other variable life insurance policies which may be issued by
AGL may also be allocated to Separate Account VL-R.
The Policies are designed to provide life insurance protection and are to
be offered in the manner described in the prospectus and the prospectus
supplements included in the Registration Statement. The Policies will be sold
only in jurisdictions authorizing such sales. I have examined all such
corporate records of AGL and such other documents and laws as I consider
appropriate as a basis for the opinion expressed herein.
Based on the foregoing, I am of the opinion that:
l. AGL is a corporation duly organized and validly existing under the
laws of the State of Texas.
2. Separate Account VL-R was duly established and is maintained by AGL
pursuant to the laws of the State of Texas, under which income, gains
and losses, whether or not realized, from assets allocated to Separate
Account VL-R, are, in accordance with the Policies, credited to or
charged against Separate Account VL-R without regard to other income,
gains or losses of AGL.
3. Assets allocated to Separate Account VL-R will be owned by AGL. AGL is
not a trustee with respect thereto. The Policies provide that the
portion of the assets of Separate Account VL-R equal to the reserves
and other contract liabilities with
<PAGE>
August 19, 1998
Page 2
respect to Separate Account VL-R will not be chargeable with
liabilities arising out of any other business AGL may conduct. AGL
reserves the right to transfer assets of Separate Account VL-R in
excess of such reserves and other Policy liabilities to the general
account of AGL.
4. When issued and sold as described above, the Policies (including any
Units duly credited thereunder) will be duly authorized and will
constitute validly issued and binding obligations of AGL in accordance
with their terms.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Sincerely,
PAULETTA P. COHN
----------------------------
Pauletta P. Cohn
Associate General Counsel
and Corporate Secretary
<PAGE>
Exhibit 2(b)
CONSENT OF
MAYER, BROWN & PLATT
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Additional Information section comprising a part of
Pre-Effective Amendment No. 3 to the Form S-6 Registration Statement of American
General Life Insurance Company Separate Account VL-R with respect to File
No. 333-53909.
/s/MAYER, BROWN & PLATT
-----------------------
MAYER, BROWN & PLATT
Washington, D.C.
August 17, 1998
<PAGE>
Writer's Direct Number Exhibit 2(c)
(713) 831-3246
August 19, 1998
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Dear Ladies and Gentlemen:
This opinion is furnished in connection with the Registration Statement on Form
S-6, File No. 333-53909 ("Registration Statement") of Separate Account VL-R
("Separate Account VL-R") of American General Life Insurance Company ("AGL")
covering an indefinite number of units of interest in Separate Account VL-R
under Legacy Plus (policy form No. 98615) flexible premium variable life
insurance policies ("Policies"). Net premiums received under the Policies may
be allocated to Separate Account VL-R as described in the prospectus included in
the Registration Statement.
I participated in the preparation of the Policies and I am familiar with their
provisions. I am also familiar with the description contained in the
prospectus. In my opinion:
The Illustrations of Hypothetical Policy Benefits appearing on page 16 of
the Prospectus (the "Illustrations") are consistent with the provisions of
the Policies. The assumptions upon which these Illustrations are based,
including the current charges and the currently planned .25% and .50%
reductions in the daily charges after a specified number of years, are
stated in the prospectus and are reasonable. The Policies have not been
designed so as to make the relationship between premiums and benefits, as
shown in the Illustrations, appear disproportionately more favorable to
prospective purchasers of Policies for preferred risk (the best risk class
offered by AGL) non-tobacco user males age 45, than to prospective
purchasers of Policies for males at other ages within this risk class or
any other risk class, or for females. The particular Illustrations shown
were not selected for the purpose of making the relationship appear more
favorable.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Accounting and
Actuarial Experts" in the prospectus.
/s/ WAYNE A. BARNARD
-------------------------------------
Wayne A. Barnard
Senior Vice President & Chief Actuary
<PAGE>
EXHIBIT 6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" and to the use of our report dated February 23, 1998, as to American
General Life Insurance Company, and our report dated August 12, 1998, as to
American General Life Insurance Company Separate Account VL-R, in Pre-Effective
Amendment No. 3 to the Registration Statement (Form S-6, No. 333-53909) of
American General Life Insurance Company Separate Account VL-R.
ERNST & YOUNG LLP
Houston, Texas
August 14, 1998
