Registration No. 333-42567
As filed with the Securities and Exchange Commission on March 23, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
PRE-EFFECTIVE AMENDMENT NO. 1
TO REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS 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)
Steven A, Glover, Esq.
Assistant Secretary
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019-2191
(Name and Complete Address of Agent for Service)
Please send copies of all communications to:
Gary O. Cohen, Esq. and Thomas C. Lauerman, Esq.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W., Suite 825
Washington, D.C. 20036
Title and Amount of Securities Being Registered:
An Indefinite Amount of Units of Interest in
American General Life Insurance Company
Separate Account VL-R
Under Variable Life Insurance Policies
<PAGE>
Amount of Filing Fee: None required.
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Registrant elects to be governed by Rule 63-3(T)(b)(13)(I)(A) under the
Investment Company Act of 1940, with respect to the Variable Life Insurance
Policies described in the Prospectus.
ii
<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)
<TABLE>
<CAPTION>
ITEM NO. OF FORM N-8B-2* CAPTION IN PROSPECTUS
<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), 10(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), Basic Questions You May Have: To what
10(h)(2) extent will AGL vary the terms and
conditions of the Policies in particular
cases? Additional Information: Voting
Privileges; Additional Rights That We
Have.
iii
<PAGE>
10(g)(3), 10(g)(4), 10(h)(3), Inapplicable.**
10(h)(4)
10(i) Additional information: Separate Account
VL-R; Tax Effects.
11 Basic Questions You May Have: How will the
value of my investments 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
has not yet commenced operations.
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 amount I
invest through my Policy? Additional
Information: More About Policy Charges.
13(b) Illustrations of Hypothetical Policy
Benefits.
13(c) Inapplicable.**
13(d) Basic Questions You May Have: To what
extent will AGL vary the terms and
conditions of the Policies in particular
cases?
13(e), 13(f) 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?
iv
<PAGE>
16 Basic Questions You May Have: How will the
value of my investment in a Policy change
over time? Additional Information:
Separate Account VL-R.
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), Inapplicable.
20(e), 20(f)
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: American General
Life Insurance Company.
26 Inapplicable, because the Separate Account
has not yet commenced operations.
27 Additional Information: American General
Life Insurance Company.
v
<PAGE>
28 Additional Information: AGL's Management.
29 Additional Information: AGL.
30, 31, 32, 33, 34 Inapplicable, because the Separate Account
has not yet commenced operations.
35 Inapplicable.**
36 Inapplicable.**
37 None.
38, 39 Additional Information: Distribution of
the Policies.
40 Inapplicable, because the Separate Account
has not yet commenced operations.
41(a) Additional Information: Distribution of
the Policies.
41(b), 41(c) Inapplicable.**
42, 43 Inapplicable, because the Separate Account
has not yet commenced operations or issued
any securities.
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.
45 Inapplicable, because the Separate Account
has not yet commenced operations.
46(a) Captions referenced in 44(a) above.
46(b) Inapplicable.**
vi
<PAGE>
47, 48, 49 None.
50 Inapplicable.
51 Inapplicable.
52(a), 52(c) Basic Questions You May Have: To what
extent will AGL vary the terms and
conditions of the Policies 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.**
<FN>
* 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 has, simultaneously herewith,
filed a notice of registration as an investment company on Form N-8A
under the Investment Company Act of 1940, and it is filing a Form N-8B-2
Registration Statement at or about the time this amended Registration
Statement is filed. Pursuant to Sections 8 and 30(b)(1) of the
Investment Company Act of 1940, 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.
** 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.
</FN>
</TABLE>
vii
<PAGE>
PLATINUM INVESTOR I (SM) AND
PLATINUM INVESTOR II (SM)
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICIES (THE "POLICIES")
Issued by
AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL")
HOME OFFICE:
(Express Delivery) (US Mail)
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
INVESTMENT OPTIONS. The AGL Declared Fixed Interest Account is the fixed
investment option for these policies. You can also invest in the
following variable investment options. You may change your selections
from time to time:
<TABLE>
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM VARIABLE INSURANCE AMERICAN GENERAL SERIES DREYFUS VARIABLE MFS VARIABLE INSURANCE
FUNDS, INC. PORTFOLIO COMPANY INVESTMENT FUND TRUST
o AIM V.I. International o International Equities o Quality Bond Portfolio o MFS Emerging Growth
Equity Fund Fund (1) o Small Cap Portfolio Series
o AIM V.I. Value Fund o MidCap Index Fund (1,2)
o Money Market Fund (1)
o Stock Index Fund (1,2)
(1) Variable Annuity Life
Insurance Company * Massachusetts Financial
AIM Advisors, Inc.* (2) Bankers Trust Company(+) The Dreyfus Corporation* Services Company*
--------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY PUTNAM VARIABLE TRUST SAFECO RESOURCE VAN KAMPEN AMERICAN
UNIVERSAL FUNDS, INC. o Putnam VT Diversified SERIES TRUST CAPITAL LIFE INVESTMENT
o Equity Growth Portfolio (1) Income Fund o Equity Portfolio TRUST
o High Yield Portfolio (2) o Putnam VT Growth o Growth Portfolio o Strategic Stock Portfolio
o Putnam VT Growth
and Income Fund
o Putnam VT International
Growth and Income Fund
(1) Morgan Stanley Asset Mgmt,
Inc.* SAFECO Asset Management Van Kampen American Capital
(2) Miller Anderson Sherrerd, LLP* Putnam Management, Inc.* Company* Asset Management, Inc.*
--------------------------------------------------------------------------------------------------------------------------------
<FN>
* The Investment Adviser of the investment option
(+) The Investment Sub-Adviser of the investment option
</FN>
</TABLE>
<PAGE>
SEPARATE PROSPECTUSES CONTAIN MORE INFORMATION ABOUT THE MUTUAL FUNDS ("FUNDS"
OR "MUTUAL FUNDS") IN WHICH WE INVEST THE AMOUNTS THAT YOU ALLOCATE TO ANY OF
THE ABOVE-LISTED INVESTMENT OPTIONS (OTHER THAN OUR DECLARED FIXED INTEREST
ACCOUNT OPTION). THE FORMAL NAME OF EACH SUCH FUND IS SET FORTH IN THE CHART
THAT APPEARS ON PAGE 1. 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 also (1)
change the amount of insurance, (2) borrow or withdraw amounts you have in our
investment options, (3) choose, within limits, when and how much you invest,
and (4) choose whether the amounts you have in our investment options will,
upon the insured person's death, 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 8.
RIGHT TO RETURN. If for any reason you are not satisfied with your Policy, you
may return it to us for a full refund. (In some states, we will adjust this
amount for any investment performance you have earned.) 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 option and allocated to your chosen investment
options at the same time as your initial premium.
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 APRIL 1, 1998.
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This booklet (which is called a prospectus) contains information that
you should know before you purchase a Platinum InvestorSM variable life policy
("Policy") or exercise any of your rights or privileges under a Policy.
This prospectus describes two versions of the Platinum Investor
Policies: the Platinum Investor I and the Platinum Investor II Policies. Your
AGL representative can advise you which version of the Policy he or she offers
or whether he or she offers both. You cannot change to a different version
once your coverage takes effect. The Platinum Investor I and Platinum Investor
II Policies are identical, except for the differences that are discussed
beginning on page 13 of this prospectus.
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
BASIC QUESTIONS YOU MAY HAVE IN THIS PROSPECTUS
<S> <C>
o What are the Policies?.............................................. 1-2
o How can I invest money in a Policy?................................. 5-6
o How will the value of my investment in a Policy change over time?... 6-7
o What is the basic amount of insurance ("death benefit") that AGL
pays when the insured person dies?.................................. 7-8
o What charges will AGL deduct from my investment in a Policy?........ 8-10
o What charges and expenses will the Mutual Funds deduct from
amounts I invest through my Policy?................................ 10-12
o Must I invest any minimum amount in a Policy?....................... 12-13
o What are the differences between the Platinum Investor I and the
Platinum Investor II Policies?..................................... 13-14
o How can I change my Policy's investment options?.................... 14-15
o How can I change my Policy's insurance coverage?.................... 15-16
o What additional rider benefits might I select?...................... 16-18
3
<PAGE>
o How can I access my investment in a Policy?......................... 18-19
o Can I choose the form in which AGL pays out the proceeds from my
Policy?............................................................ 20
o To what extent can AGL vary the terms and conditions of the
Policies in particular cases?...................................... 21
o How will my Policy be treated for income tax purposes?.............. 21
o How do I communicate with AGL?...................................... 21-22
</TABLE>
ILLUSTRATIONS OF A HYPOTHETICAL POLICY. Starting on page 23, 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 28, or in the forms
of our Policy and riders. A table of contents for the "Additional Information"
portion of this prospectus also appears on page 28. You can obtain copies of
our Policy and rider forms from (and direct any other questions to) your AGL
representative or our Home Office (shown on the cover of this Prospectus).
AGL'S FINANCIAL STATEMENTS. We have included our financial statements in
this prospectus. These begin on page 49.
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 this prospectus (page
91). That index will tell you on what page you can read more about many of the
words and phrases that we use.
4
<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 first 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.
(Policies issued in some states or automatic premium payment plans may have
different minimums.) Otherwise, with a few exceptions mentioned below, you can
make premium payments at any time and in any amount.
LIMITS ON PREMIUM PAYMENTS. Federal tax law limits your ability to make
certain very large amounts of premium payments (relative to the amount of your
Policy's insurance coverage) and may impose penalties on amounts you take out
of your Policy if you do not observe certain additional requirements. These
tax law requirements are summarized further under "Tax Effects" beginning on
page 29. We will monitor your premium payments, however, to be sure that you
do not exceed permitted amounts or inadvertently incur any tax penalties.
Also, 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.
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 first premium must be sent
directly to our Home Office at the appropriate address shown on the front
cover of this prospectus.
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 front cover
of this prospectus. Premium payments from salary deduction plans may be made
only if we agree.
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 (but not to our declared fixed
interest account option). 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. (The term "valuation period" is described on page 37.) You must
have at least $5,000 of accumulation value to start dollar cost averaging and
5
<PAGE>
each transfer under the program must be at least $100. 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 (other than our declared fixed interest account option) 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 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 $5,000 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 beginning on page 8, under "Deductions from each
premium payment." We invest the rest in one or more of the investment options
listed on the front cover of this prospectus. We call the amount that is at
any time invested under your Policy your "accumulation value."
YOUR INVESTMENT OPTIONS. We invest the accumulation value that you have
allocated to any investment option (except our declared fixed interest account
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 8, 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.
We invest any accumulation value you have allocated to our declared
fixed interest account option as part of our general assets. We credit a fixed
rate of interest on that accumulation value, which we declare from time to
time. We guarantee that this will be at an effective annual rate of at least
6
<PAGE>
4%. Although this interest increases the amount of any accumulation value that
you have in our declared fixed interest account option, such accumulation
value will also be reduced by any charges that are allocated to this option
under the procedures described under "Allocation of charges" on page 10. The
"daily charge" described on page 8 and the charges and expenses of the Mutual
Funds discussed on pages 10-12 below do NOT apply to our declared fixed
interest account option.
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
Platinum Investor 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 loans. You choose whether the basic death benefit is
o Option 1 - The specified amount on the date of the insured person's
death
- or -
o 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:
7
<PAGE>
<TABLE>
TABLE OF ALTERNATIVE BASIC DEATH BENEFITS AS A PERCENTAGE
MULTIPLE OF POLICY ACCUMULATION VALUE
<CAPTION>
INSURED
PERSON'S 40 or
AGE*: Under 45 50 55 60 65 70 75 to 95 100
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
%: 250% 215% 185% 150% 130% 120% 115% 105% 100%
<FN>
* Nearest birthday at the beginning of the Policy year in which the
insured person dies. The percentages are interpolated for ages that are
not shown here.
</FN>
</TABLE>
WHAT CHARGES WILL AGL DEDUCT FROM MY INVESTMENT IN A POLICY?
DEDUCTIONS FROM EACH PREMIUM PAYMENT. We deduct from each premium a
charge for the tax that is then applicable to us in your state or other
jurisdiction. These taxes currently range from .75% to 3.5%. Please let us
know if you move to another jurisdiction, so we can adjust this charge if
required. You are not permitted to deduct the amount of these taxes on your
income tax return. We also currently deduct an additional 2.5% from each
after-tax premium payment. We have the right at any time to increase this
additional charge to not more than 5% on all future premium payments.
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 (other than our declared fixed interest option). After a
Policy has been in effect for a certain number of years, we intend to reduce
the rate of this charge by .25%. The number of years depends on whether you
have version I or version II of the Policy and is discussed on page 13 under
"What are the differences between the Platinum Investor I and Platinum
Investor II Policies." Because the Policies were first offered in 1998,
however, this decrease has not yet occurred for any outstanding Policy.
Neither this decrease nor the current rate of .75% is guaranteed. Rather, we
have the right at any time to raise this charge under your Policy to not more
than .90%; except that in Texas and Oregon, until a Policy has been in effect
for a certain number of years, this maximum is .25% higher.
FLAT MONTHLY CHARGE. We will deduct $6 per month from your accumulation
value. Also, we have the right to raise this charge at any time to not more
than $12 per month.
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 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 cost
8
<PAGE>
of insurance rates are generally lower under the Platinum Investor II Policy
than under the Platinum Investor I Policy.
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. Our
current rates are lower for insured persons in most age and risk classes,
although we have the right at any time to raise these rates to not more than
the guaranteed maximum.
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, and lower for persons that have other highly
favorable health characteristics, as compared to those that do not. On the
other hand, 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.
Finally, our current cost of insurance rates are lower for Policies
having a specified amount of at least $1,000,000 on the day the charge is
deducted. This means that if your specified amount for any reason decreases
from $1,000,000 or more to less than $1,000,000, your subsequent cost of
insurance rates will be higher under your Policy than they otherwise would be.
The reverse is also true. 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.
MONTHLY CHARGES FOR ADDITIONAL BENEFIT RIDERS. We will deduct charges
monthly from your accumulation value, if you select certain additional benefit
riders. These are described beginning on page 16, under "What additional rider
benefits might I select?"
ADDITIONAL MONTHLY CHARGE FOR PLATINUM INVESTOR II POLICIES DURING THE
FIRST TWO YEARS. This charge is described on page 13 under "What are the
differences between the Platinum Investor I and the Platinum Investor II
Policies?"
SURRENDER CHARGE FOR PLATINUM INVESTOR I POLICIES. The Platinum Investor
I Policies have a surrender charge that applies for the first 10 Policy years
(and the first 10 years after any requested increase in the Policy's specified
amount). The amount of the surrender charge depends on the age and other
insurance characteristics of the insured person. The maximum amount of the
surrender charge will be shown on pages 23 and 24 of the Policy. It may
initially be as high as $40 per $1,000 of specified amount or as low as $1.80
per $1,000 of specified amount (or increase therein). Any amount of surrender
charge decreases automatically by a constant amount each year beginning in the
9
<PAGE>
fourth year of its 10 year period referred to above until, in the eleventh
year, it is zero.
We will deduct the entire amount of any then applicable surrender charge
from the accumulation value at the time of a full surrender of a Platinum
Investor I Policy. Upon a requested decrease in such a Policy's specified
amount of coverage, we will deduct any remaining amount of the surrender
charge that was associated with the specified amount that is cancelled. This
includes any specified amount decrease that, as described under "Partial
surrender" beginning on page 18, results from any requested partial surrender.
For this purpose, we deem the most recent increases of specified amount to
have been cancelled first.
TRANSACTION FEE. We will charge a $25 transaction fee for each partial
surrender you make.
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.
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. Any surrender charge upon a decrease in specified
amount that is requested under a Platinum Investor I Policy will be allocated
in the same manner as if it were a monthly deduction.
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:
10
<PAGE>
<TABLE>
THE MUTUAL FUNDS' ANNUAL EXPENSES (1) (as a percentage of average net assets)
<CAPTION>
Other Fund Total
Fund Operating Expenses Fund
Management After Expense Operating
Name Of Fund Fees Reimbursement(2) Expenses(2)
------------ ------------------ ------------------ -----------
<S> <C> <C> <C>
The following funds of AIM VARIABLE
INSURANCE FUNDS, INC.:
V.I. International Equity Fund 0.75% 0.18% 0.93%
V.I. Value Fund 0.62% 0.08% 0.70%
The following funds of AMERICAN GENERAL
SERIES PORTFOLIO COMPANY ("AGSPC"):
International Equities Fund 0.35% 0.07% 0.42%
MidCap Index Fund 0.35% 0.05% 0.40%
Money Market Fund 0.50% 0.07% 0.57%
Stock Index Fund 0.34% 0.00% 0.34%
The following funds of DREYFUS VARIABLE
INVESTMENT FUND:
Quality Bond Portfolio 0.65% 0.06% 0.71%
Small Cap Portfolio 0.75% 0.03% 0.78%
The following series of MFS VARIABLE INSURANCE TRUST:
MFS Emerging Growth Series 0.75% 0.15% 0.90%
The following portfolios of MORGAN
STANLEY UNIVERSAL FUNDS, INC.:
Equity Growth Portfolio 0.55% 0.30% 0.85%
High Yield Portfolio 0.50% 0.31% 0.81%
The following portfolios of PUTNAM
VARIABLE TRUST:
Putnam VT Diversified Income Fund 0.69% 0.26% (including 12b-1 0.95%
fees of 0.15%)
Putnam VT Growth and Income Fund 0.49% 0.19% (including 12b-1 0.68%
fees of 0.15%)
Putnam VT International Growth 0.80% 0.47% (including 12b-1 1.27%
and Income Fund fees of 0.15%)
11
<PAGE>
The following portfolios of SAFECO
RESOURCES SERIES TRUST:
Equity Portfolio 0.73% 0.02% 0.75%
Growth Portfolio 0.74% 0.03% 0.77%
The following portfolio of VAN KAMPEN
AMERICAN CAPITAL LIFE INVESTMENT TRUST:
Strategic Stock Portfolio 0.50% 0.11% 0.61%
<FN>
(1) The annual expenses are estimated for the current fiscal year for the
Van Kampen American Capital Strategic Stock Portfolio because it does
not have financial statements covering a period of at least ten months.
(2) If certain voluntary expense reimbursements from the investment adviser
were terminated, other expenses for the Morgan Stanley Equity Growth and
High Yield Portfolios would have been 1.50% and 1.18%, respectively, and
for the Van Kampen American Capital Strategic Stock Portfolio would have
been 2.09%.
</FN>
</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. You need to invest only enough to ensure either that your
Policy's cash surrender value stays above zero or, if you own a Platinum
Investor I Policy, that your 5 year no-lapse guarantee (discussed below)
remains in effect. ("Cash surrender value" is explained under "Full surrender"
on page 18.) 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 don't receive your payment by the end of the grace
period, your Policy and all riders will terminate without value and all
coverage under your Policy will cease. (The only exception is if the guarantee
is in effect that is described below under "Monthly guarantee premiums under
Platinum Investor I Policies.") 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.
12
<PAGE>
MONTHLY GUARANTEE PREMIUMS UNDER THE PLATINUM INVESTOR I POLICIES. Page
3 of a Platinum Investor I Policy will specify a "Monthly Guarantee Premium."
On the first day of each Policy month that the cash surrender value is not
sufficient to pay the monthly deduction, we check to see if the cumulative
amount of premiums paid under such a Policy is at least equal to the sum of
the monthly guarantee premiums for all Policy months to date, including the
Policy month then starting. (Policy months are measured from the "Date of
Issue" that will also be shown on page 3 of the Policy.) So long as at least
this amount of premium payments has been paid by the beginning of that Policy
month, a Platinum Investor I Policy will not enter a grace period or terminate
(I.E., lapse) because of insufficient cash surrender value during the first 5
Policy years. If this test is not met on the monthly deduction day at the
beginning of any Policy month, the Policy enters the grace period. If a
sufficient premium is not paid before the end of the grace period, the Policy
and the 5 year no-lapse guarantee terminate. If the Policy is later
reinstated, the 5 year no-lapse guarantee may also be reinstated if sufficient
premiums are paid, although the reinstated guarantee will in no case extend
beyond the date that originally marked the end of its maximum 5 year duration.
The amount of premiums that must be paid to maintain the 5 year no-lapse
guarantee will be increased by the cumulative amount of any loans (including
any loan increases to pay interest) and partial surrenders you have taken from
your Policy. Such monthly guarantee premiums also will be higher following any
requested increase in the specified amount of insurance coverage, or following
a requested addition of (or increase in) certain rider benefits. On the other
hand, the monthly guarantee premium will be lower following any requested
decrease in the specified amount of insurance coverage, or following a
requested cancellation of (or decrease in) certain riders. If your Policy is
the Platinum Investor I version, we will send you an endorsement to your
Policy that will tell you what your new monthly guarantee premium is. However,
none of the above-mentioned changes extends the no-lapse period beyond 5 years
or establishes a new no-lapse guarantee.
The 5-year no-lapse guarantee described in the two previous paragraphs
is not available in all states.
Although we will bill you for planned premiums, we will not send any
specific bills for the amount of any monthly guarantee premium that is due.
WHAT ARE THE DIFFERENCES BETWEEN THE PLATINUM INVESTOR I AND THE PLATINUM
INVESTOR II POLICIES?
Depending on your own financial circumstances and goals, and the uses to
which you intend to put a Platinum Investor Policy, either version of the
Policy may be appropriate for you. You should consult carefully with your AGL
representative about this. Relevant factors may include how much accumulation
value you intend to maintain in the Policy relative to the amount of the
Policy's death benefit and how likely it is that you may choose to surrender
your Policy or otherwise reduce your Policy's specified amount in the
foreseeable future.
The differences between the two versions of Platinum Investor are:
13
<PAGE>
o Platinum Investor I is available for specified amounts of $100,000
or more. Platinum Investor II is available only for specified
amounts of $500,000 or more. You may not request a specified
amount decrease (or a partial surrender) under a Platinum Investor
I or a Platinum Investor II Policy that would reduce the specified
amount to less than $100,000 or $500,000, respectively.
o Platinum Investor I is available for insured persons through age
80. Platinum Investor II is available for insured persons who are
age 18 through age 80.
o The Platinum Investor II version of the Policy DOES NOT have a
surrender charge.
o The Platinum Investor II version of the Policy DOES NOT have a 5
year no-lapse guarantee.
o The planned reduction in the current daily charge by .25% per
annum of separate account accumulation value is scheduled to occur
after year 10 for Platinum Investor II and after year 20 for
Platinum Investor I. These are also the same periods after which
the guaranteed maximum daily charge under Policies sold in Texas
and Oregon will decrease by .25% per annum.
o The two versions of Platinum Investor have different current cost
of insurance rates. Since this difference results in differing
accumulation values, you should carefully review the Policy
illustrations that are available to you.
o The Platinum Investor II version of the Policy has a monthly
expense charge during the first two Policy years (and the first
two years after any requested increase in the Policy's specified
amount). The amount of this charge depends on the age and other
insurance characteristics of the insured person. The amount of
this charge will be shown on page 4 of a Platinum Investor II
Policy. It may initially be as much as $1.88 per $1,000 of
specified amount (or increase therein), or as low as $0.0999 per
$1,000 of specified amount (or increase therein). (After the
two-year periods mentioned above, this charge is zero.) This
additional monthly charge does not apply to the Platinum Investor
I version of the Policies.
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. Unless you are transferring the entire amount you have in an
14
<PAGE>
investment option, each transfer must be at least $500. See "Additional Rights
That We Have," beginning on page 42. Also, you may not in any one Policy year
make transfers out of our declared fixed interest account option that
aggregate more than 25% of the accumulation value you had invested in that
option at the beginning of that Policy year.
You may make transfers at any time, except that transfers out of our
declared fixed interest account option must be made within 60 days after a
Policy anniversary. We will not honor any request received outside that
period.
MAXIMUM NUMBER OF INVESTMENT OPTIONS. We can at any time limit the
number of investment options you may use. Our current rule is that you cannot
use more than 18 different options over the life of your Policy.
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.
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. Also, if you have the Platinum Investor I version of
the Policy, a new amount of surrender charge and monthly guarantee premium
apply to the specified amount increase; and these amounts are the same as they
would be if we were instead issuing the same amount of additional coverage as
a new Platinum Investor I Policy. On the other hand, if you have the Platinum
Investor II version of the Policy, an additional monthly expense charge
applies for the first two years following the request for an increase in
specified amount. This amount is also the same as it would be if we were
instead issuing the same amount of additional coverage as a new Platinum
Investor II Policy.
DECREASE IN COVERAGE. After the first Policy year, you may request a
reduction in the specified amount of coverage, but not below certain minimums.
The minimum is $100,000 for a Platinum Investor I Policy and $500,000 for a
Platinum Investor II Policy (or, if greater, the minimum amount that the tax
law requires relative to the amount of premium payments you have made). At the
time of a decrease under such a Policy, we will deduct from the Policy's
accumulation value an amount of any remaining surrender charge. If there is
not sufficient accumulation value to pay the surrender charge at the time you
request a reduction, the decrease will not be allowed. We compute the amount
we deduct in the manner described on page 37, under "Decreases in the
specified amount of a Platinum Investor I Policy."
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 automatically reduce your Policy's specified amount of
insurance by the amount of your Policy's accumulation value (but not below
15
<PAGE>
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 29 of this prospectus to learn about possible tax
consequences of changing your insurance coverage under your Policy.
WHAT ADDITIONAL RIDER BENEFITS MIGHT I SELECT?
You can request that your Policy include the additional rider benefits
described below. For most of the riders that you choose, a charge, which will
be shown on page 3 of your Policy, will be deducted from your accumulation
value on each monthly deduction date. Eligibility for and changes in these
benefits are subject to our rules and procedures as in effect from time to
time. More details are included in the form of each rider, which we suggest
that you review if you choose any of these benefits.
o ACCIDENTAL DEATH BENEFIT RIDER, which pays an additional death
benefit if the insured person dies from certain accidental causes.
o AUTOMATIC INCREASE RIDER, which provides for automatic increases
in your Policy's specified amount of insurance at certain
specified dates and based on a specified index. After you have met
our eligibility requirements for this rider, these increases will
not require that evidence be provided to us about whether the
insured person continues to meet our requirements for insurance
coverage. These automatic increases are on the same terms
(including additional charges) as any other specified amount
increase you request (as described under "Increase in coverage" on
page 15). There is no additional charge for the rider itself,
although the automatic increases in the specified amount will
increase the monthly insurance charge deducted from your
accumulation value, to compensate us for the additional coverage.
o CHILDREN'S INSURANCE BENEFIT RIDER, which provides term life
insurance coverage on the eligible children of the person insured
under the Policy. This rider is convertible into any other
insurance (except for term coverage) available for conversions,
under our published rules at the time of conversion.
o MATURITY EXTENSION RIDER, which permits you to extend the Policy's
maturity date beyond what it otherwise would be, has two versions
from which to choose.
One version provides for a death benefit after the original
maturity date that is equal to the accumulation value on the date
of death. With this version, all accumulation value that is in the
16
<PAGE>
separate account can remain there. There is no charge for this
version.
The other version provides for a death benefit after the original
maturity date equal to the base policy death benefit on the
original maturity date. With this version, if you elect to extend
your maturity date, all accumulation value that is in the separate
account will be automatically transferred at the Policy's original
maturity date to the declared fixed interest account option. There
is a monthly charge for this version of the rider during the first
nine Policy years immediately preceding the Policy's original
maturity date. Therefore, this rider may not be added to a Policy
during that 9 year period.
In both versions, only the insurance coverage associated with the
base policy will be extended beyond the original maturity date. No
additional premium payments, new loans, monthly insurance charge,
or changes in specified amount will be allowed after the original
maturity date. There is a flat monthly charge of no more than $10
each month after the original maturity date.
Extension of the maturity date beyond the insured person's age 100
may result in the current taxation of increases in your Policy's
accumulation value as a result of interest or investment
experience after that time. You should consult a qualified tax
adviser before making such an extension.
o RETURN OF PREMIUM DEATH BENEFIT RIDER, which provides additional
term life insurance coverage on the person insured under the
Policy. The amount of additional insurance varies so that it
always equals the cumulative amount of premiums paid under the
Policy (subject to certain adjustments).
o SPOUSE TERM RIDER, which provides term life insurance on the life
of the spouse of the Policy's insured person. This rider is
convertible into any other insurance (except for term coverage)
available for conversions, under our published rules at the time
of conversion.
o TERMINAL ILLNESS RIDER, which provides for a benefit to be
requested if the Policy's insured person is diagnosed as having a
terminal illness (as defined in the rider) and less than 12 months
to live. This rider is not available in all states. The maximum
amount you may receive under this rider prior to the insured
person's death is 50% of the death benefit payable under the
Policy (excluding any rider benefits) or, if less, $250,000. The
amount of benefits paid under the rider, plus an administrative
fee (not to exceed $250), plus interest on these amounts to the
next Policy anniversary becomes a "lien" against all future Policy
benefits. We will continue to charge interest in advance on the
total amount of the lien and will add any unpaid interest to the
total amount of the lien each year. Any time the total lien, plus
17
<PAGE>
any other Policy loans, exceeds the Policy's then current death
benefit, the Policy will terminate without further value. The cash
surrender value of the Policy also will be reduced by the amount
of the lien.
o WAIVER OF MONTHLY DEDUCTION RIDER, under which we will waive all
monthly charges under your Policy and riders that we otherwise
would deduct from your accumulation value, so long as the insured
person is totally disabled (as defined in the rider). While we are
paying benefits under this rider we will not permit you to request
any increase in the specified amount of your Policy's coverage.
However, loan interest will not be paid for you under this rider,
and the Policy could, under certain circumstances, lapse for
nonpayment of loan interest.
TAX CONSEQUENCES OF ADDITIONAL RIDER BENEFITS. Adding or deleting
riders, or increasing or decreasing coverage under existing riders can have
tax consequences. See "Tax Effects" starting on page 29. You should consult a
qualified tax adviser.
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, and, if
you have the Platinum Investor I version of the Policy, less any surrender
charge that then applies. We call this your "cash surrender value." Because of
the surrender charge, it is unlikely that a Platinum Investor I Policy will
have any cash surrender value during at least the first year unless you pay
significantly more than the monthly guarantee premiums.
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 $500. 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. If you
have the Platinum Investor I version of the Policy, and we reduce your
Policy's specified amount because you have requested a partial withdrawal
while the Option 1 death benefit is in effect, we will deduct the same amount
of surrender charge, if any, that would have applied if you had requested such
face amount decrease directly. See "Decreases in the specified amount of a
Platinum Investor I Policy," on page 37. We will not permit a partial
surrender if it would cause your Policy to fail to qualify as life insurance
under the tax laws or if it would cause your specified amount to fall below
the minimum allowed.
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.
18
<PAGE>
POLICY LOANS. You may at any time borrow from us an amount equal to your
Policy's cash surrender value (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 $500 or, if less, the entire remaining borrowable amount under
your Policy.
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 4.51%. 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.
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 $100) of your loan at any
time. You must designate any loan repayment as such. Otherwise, we will treat
it as a premium payment instead. Any loan repayments go first to repay all
loans that were taken from our declared fixed interest account option. 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 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, however, provided that it will
always be greater than the rate we are then crediting in connection with
regular Policy loans. 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 95th
birthday.
19
<PAGE>
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 (and any riders) 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:
o Option 1 - Equal monthly payments for a specified period of time.
o Option 2 - Equal monthly payments of a specified amount until all
amounts are paid out.
o 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.
o 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.
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.
20
<PAGE>
TO WHAT EXTENT CAN AGL VARY THE TERMS AND CONDITIONS OF THE POLICIES 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 from time to time and apply evenly to all our customers.
POLICIES PURCHASED THROUGH "INTERNAL ROLLOVERS." We maintain published
rules that describe the procedures necessary to replace the other life
insurance we issue with one of the Policies. Not all types of other insurance
we issue are eligible to be replaced with one of the Policies.
POLICIES PURCHASED THROUGH TERM LIFE CONVERSIONS. Also, we maintain
rules about how to convert term insurance to a Platinum Investor 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.
STATE LAW REQUIREMENTS. AGL is subject to the insurance laws and
regulations in every jurisdiction in which Platinum Investor is 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 riders, or related endorsements.
VARIATIONS IN EXPENSES OR RISKS. AGL may vary the charges and other
terms of the Policies where special circumstances result in sales or
administrative expenses, mortality risks, or other risks that are different
from those normally associated with the Policies.
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 29.
21
<PAGE>
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 at the appropriate
address shown on the first page of this prospectus.
The following requests must be made in writing signed and dated 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 or decrease in
specified insurance amount; addition or cancellation of, or other action with
respect to, any rider benefits; 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
22
<PAGE>
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 Policies are 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.
ILLUSTRATIONS OF HYPOTHETICAL POLICY BENEFITS
To help clarify how our Policies work, we have prepared the following
tables:
<TABLE>
<CAPTION>
Page to see in this
Prospectus
----------
Table Platinum Platinum
----- Investor I Investor II
---------- -----------
<S> <C> <C>
Death Benefit Option 1 - Current Charges................... 24 26
Guaranteed Maximum Charges......................... 25 27
</TABLE>
The tables show how death benefits, accumulation values, and cash
surrender values ("Policy benefits") under hypothetical Platinum Investor
Policies 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
and who is a better-than-average mortality risk in other respects as well.
Planned premium payments of $1,368 for an initial $100,000 of specified amount
of coverage are assumed to be paid at the beginning of each Policy year for
the Platinum Investor I Policy. Planned premium payments of $10,560 for an
initial $500,000 of specified amount coverage are assumed to be paid at the
beginning of each Policy year for the Platinum Investor II Policy. The
illustrations assume no Policy loan has been taken. The differences between
the accumulation values and the cash surrender values for the first 10 years
in the tables for the Platinum Investor I version are that version's surrender
charges.
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,
lower cash values, and a greater risk of lapse.
Separate tables are included to illustrate both current and guaranteed
maximum charges for both Platinum Investor I and Platinum Investor II. The
charges assumed in the current charge tables include a daily charge at an
annual effective rate of .75% for the first 20 Policy years (for Platinum
Investor I) or 10 years (for Platinum Investor II), and .50% thereafter,
current monthly insurance charges and a flat monthly charge of $6. The
guaranteed maximum charge tables assume that these charges will be .90%,
guaranteed maximum insurance charges, and $12, respectively, in all years. In
23
<PAGE>
Texas and Oregon, the guaranteed maximum daily charge is .25% 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 0.72% 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 pages 11 and 12, plus the
weighted average of all other operating expenses of each such Fund after all
reimbursements, as reflected on page 12. The total assumed tax charges for all
of the tables are 2.5% of premiums.
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.
<TABLE>
Platinum Investor I
Planned Premium 1,368.00 Initial Specified Amount $100,000
Death Benefit Option 1
Male Age 45
Preferred risk Non-Tobacco User
Assuming Current Charges
<CAPTION>
Death Benefit Accumulation Value Cash Surrender Value
Assuming Assuming Assuming
Hypothetical Gross Hypothetical Gross Hypothetical Gross
Annual Investment Annual Investment Annual Investment
End Of Return of Return of 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 1,436 100,000 100,000 100,000 892 957 1,022 0 0 0
2 2,945 100,000 100,000 100,000 1,751 1,937 2,130 383 568 762
3 4,528 100,000 100,000 100,000 2,588 2,952 3,346 1,220 1,584 1,978
4 6,191 100,000 100,000 100,000 3,382 3,981 4,658 2,185 2,784 3,461
5 7,937 100,000 100,000 100,000 4,156 5,049 6,100 3,130 4,023 5,074
6 9,770 100,000 100,000 100,000 4,911 6,158 7,688 4,056 5,303 6,833
7 11,695 100,000 100,000 100,000 5,657 7,322 9,449 4,973 6,638 8,765
8 13,716 100,000 100,000 100,000 6,374 8,520 11,381 5,861 8,007 10,868
9 15,839 100,000 100,000 100,000 7,072 9,767 13,512 6,730 9,425 13,170
10 18,067 100,000 100,000 100,000 7,752 11,066 15,866 7,581 10,895 15,695
15 30,995 100,000 100,000 100,000 10,927 18,469 32,009 10,927 18,469 32,009
20 47,497 100,000 100,000 100,000 13,318 27,288 58,686 13,318 27,288 58,686
<FN>
(1) Assumes net interest of 5% compounded annually.
</FN>
</TABLE>
THE VALUES WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
THE MONTHLY GUARANTEE PREMIUM FOR THIS POLICY WOULD BE $56.
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.
24
<PAGE>
<TABLE>
Platinum Investor I
Planned Premium 1,368.00 Initial Specified Amount $100,000
Death Benefit Option 1
Male Age 45
Preferred risk Non-Tobacco User
Assuming Current Charges
<CAPTION>
Death Benefit Accumulation Value Cash Surrender Value
Assuming Assuming Assuming
Hypothetical Gross Hypothetical Gross Hypothetical Gross
Annual Investment Annual Investment Annual Investment
End Of Return of Return of 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 1,436 100,000 100,000 100,000 656 713 770 0 0 0
2 2,945 100,000 100,000 100,000 1,270 1,424 1,585 0 56 217
3 4,528 100,000 100,000 100,000 1,842 2,133 2,451 474 765 1,083
4 6,191 100,000 100,000 100,000 2,361 2,829 3,363 1,164 1,632 2,166
5 7,937 100,000 100,000 100,000 2,829 3,513 4,326 1,803 2,487 3,300
6 9,770 100,000 100,000 100,000 3,246 4,183 5,346 2,391 3,328 4,491
7 11,695 100,000 100,000 100,000 3,602 4,829 6,420 2,918 4,145 5,736
8 13,716 100,000 100,000 100,000 3,886 5,438 7,542 3,373 4,925 7,029
9 15,839 100,000 100,000 100,000 4,100 6,010 8,720 3,758 5,668 8,378
10 18,067 100,000 100,000 100,000 4,232 6,531 9,951 4,061 6,360 9,780
15 30,995 100,000 100,000 100,000 3,447 8,048 16,949 3,447 8,048 16,949
20 47,496 100,000 100,000 100,000 0 6,386 25,523 0 6,386 25,523
<FN>
(1) Assumes net interest of 5% compounded annually.
</FN>
</TABLE>
THE VALUES WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
THE MONTHLY GUARANTEE PREMIUM FOR THIS POLICY WOULD BE $56.
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.
25
<PAGE>
<TABLE>
Platinum Investor II
Planned Premium 10,560 Initial Specified Amount $500,000
Death Benefit Option 1
Male Age 45
Preferred risk Non-Tobacco User
Assuming Current Charges
<CAPTION>
Death Benefit Accumulation Value Cash Surrender Value
Assuming Assuming Assuming
Hypothetical Gross Hypothetical Gross Hypothetical Gross
Annual Investment Annual Investment Annual Investment
End Of Return of Return of 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 11,088 500,000 500,000 500,000 6,724 7,220 7,717 6,724 7,220 7,717
2 22,730 500,000 500,000 500,000 13,312 14,728 16,207 13,312 14,728 16,207
3 34,955 500,000 500,000 500,000 21,347 24,170 27,234 21,347 24,170 27,234
4 47,791 500,000 500,000 500,000 29,235 34,014 39,396 29,235 34,014 39,396
5 61,269 500,000 500,000 500,000 37,091 44,391 52,933 37,091 44,391 52,933
6 75,420 500,000 500,000 500,000 44,859 55,272 67,936 44,859 55,272 67,936
7 90,279 500,000 500,000 500,000 52,751 66,895 84,775 52,751 66,895 84,775
8 105,881 500,000 500,000 500,000 60,499 79,023 103,378 60,499 79,023 103,378
9 122,263 500,000 500,000 500,000 68,208 91,786 124,035 68,208 91,786 124,035
10 139,464 500,000 500,000 500,000 76,029 105,356 147,100 76,029 105,356 147,100
15 239,263 500,000 500,000 500,000 111,965 181,862 303,941 111,965 181,862 303,941
20 366,635 500,000 500,000 685,968 140,295 274,057 562,269 140,295 274,057 562,269
<FN>
(1) Assumes net interest of 5% compounded annually.
</FN>
</TABLE>
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.
26
<PAGE>
<TABLE>
Platinum Investor II
Planned Premium 10,560 Initial Specified Amount $500,000
Death Benefit Option 1
Male Age 45
Preferred risk Non-Tobacco User
Assuming Current Charges
<CAPTION>
Death Benefit Accumulation Value Cash Surrender Value
Assuming Assuming Assuming
Hypothetical Gross Hypothetical Gross Hypothetical Gross
Annual Investment Annual Investment Annual Investment
End Of Return of Return of 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 11,088 500,000 500,000 500,000 5,682 6,137 6,595 5,682 6,137 6,595
2 22,730 500,000 500,000 500,000 11,124 12,391 13,716 11,124 12,391 13,716
3 34,955 500,000 500,000 500,000 17,912 20,401 23,108 17,912 20,401 23,108
4 47,791 500,000 500,000 500,000 24,401 28,571 33,283 24,401 28,571 33,283
5 61,268 500,000 500,000 500,000 30,599 36,918 44,339 30,599 36,918 44,339
6 75,420 500,000 500,000 500,000 36,516 45,458 56,382 36,516 45,458 56,382
7 90,279 500,000 500,000 500,000 42,105 54,154 69,479 42,105 54,154 69,479
8 105,881 500,000 500,000 500,000 47,323 62,972 83,710 47,323 62,972 83,710
9 122,263 500,000 500,000 500,000 52,179 71,931 99,224 52,179 71,931 99,224
10 139,464 500,000 500,000 500,000 56,631 81,000 116,140 56,631 81,000 116,140
15 239,263 500,000 500,000 500,000 72,027 127,691 228,350 72,027 127,691 228,350
20 366,635 500,000 500,000 506,249 72,561 175,541 414,958 72,561 175,541 414,958
<FN>
(1) Assumes net interest of 5% compounded annually.
</FN>
</TABLE>
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.
27
<PAGE>
ADDITIONAL INFORMATION
A general overview of the Policies appears at pages 1 through 23. The
additional information that follows gives more details, but generally does NOT
repeat what is set forth above.
<TABLE>
<CAPTION>
Contents of Additional Information Page to see in this
Prospectus
<S> <C>
AGL................................................................................... 28
Separate Account VL-R................................................................. 29
Tax Effects........................................................................... 29
Voting Privileges..................................................................... 34
Your Beneficiary...................................................................... 35
Assigning Your Policy................................................................. 35
More About Policy Charges............................................................. 35
Effective Date of Policy and Related Transactions..................................... 37
More About Our Declared Fixed Interest Account Option................................. 39
Distribution of the Policies.......................................................... 40
Payment of Policy Proceeds............................................................ 41
Adjustments to Death Benefit.......................................................... 42
Additional Rights That We Have........................................................ 42
Performance Information............................................................... 43
Our Reports to Policy Owners.......................................................... 44
AGL's Management...................................................................... 44
Legal Matters......................................................................... 46
Independent Auditors.................................................................. 46
Actuarial Experts..................................................................... 46
Services Agreement.................................................................... 47
Certain Potential Conflicts........................................................... 47
</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 this prospectus (page
91). 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 a 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 Contracts are AGL's, and American General
Corporation has no legal obligation to back those commitments.
28
<PAGE>
SEPARATE ACCOUNT VL-R
We hold the Mutual Fund shares in which any of your accumulation value
is invested in our 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. We created the separate
account on May 6, 1997 under Texas law.
For recordkeeping and financial reporting purposes, Separate Account
VL-R is divided into 17 separate "divisions" each corresponding to one of the
17 available investment options (other than our declared fixed interest
account option). 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.
The assets in the separate account are our property. Nevertheless, the
assets in the separate account would be available only to satisfy the claims
of owners of the Policies, to the extent they have allocated their
accumulation value to the separate account. Our other creditors could reach
only those separate account assets (if any) that are in excess of the amount
of our reserves and liabilities under the Policies with respect to the
separate account.
AGL also issues variable annuity contracts through its Separate Accounts
A and D, which also are registered investment companies.
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 Platinum Investor 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 ("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 Policies will meet these requirements and
that:
o the death benefit received by the beneficiary under your Policy
will not be subject to federal income tax; and
o 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.
29
<PAGE>
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 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, the selection of additional rider
benefits, 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 specified
amount you request or, in some cases, a partial surrender or termination of
additional benefits under a rider.) 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
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.
30
<PAGE>
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 U.S. 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 and 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,
31
<PAGE>
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.
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.
TERMINAL ILLNESS RIDER. Amounts received under an insurance policy on
the life of an individual who is terminally ill, as defined by the tax law,
are generally excludable from the payee's gross income. We believe that the
benefits provided under our terminal illness rider meet the law's definition
of terminally ill and can qualify for this income tax exclusion. This
exclusion does not apply, however, to amounts paid to someone other than the
insured person, if the payee has an insurable interest in the insured person's
life because the insured is a director, officer or employee of the payee or by
reason of the insured person being financially interested in any trade or
business carried on by the payee.
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.
Our separate account, through the Mutual Funds, intends to comply with these
requirements.
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 a
separate account 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 the separate account, 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 our separate
account.
ESTATE AND GENERATION SKIPPING TAXES. If the insured person is the
Policy's owner, the death benefit under a Platinum Investor 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
32
<PAGE>
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 Platinum Investor Policies are
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.
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.
33
<PAGE>
ERISA. Employers and employer-created trusts may be subject to
reporting, disclosure and fiduciary obligations under the Employee Retirement
Income Security Act of 1974. You should consult a qualified legal adviser.
OUR TAXES. The operations of our Separate Account VL-R are reported in
our federal income tax return, but we currently pay no income tax on the
separate account'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
division for taxes. We reserve the right to make a charge in the future for
taxes incurred; for example, a charge to the separate account for income taxes
incurred by us that are allocable to the Policies.
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 our
separate account or allocable to the Policies.
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
You will be entitled to instruct us how to vote Mutual Fund shares held
in the divisions of Separate Account VL-R 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 you are entitled to direct with respect to a particular Mutual
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
34
<PAGE>
recognized. Separate Account VL-R will vote all shares of each Fund that it
holds of record in the same proportions as those shares for which we have
received instructions from owners participating in that Fund through the
separate account.
If you are entitled to give us voting instructions, we will send you
proxy material and a form for providing such instructions. 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, if we agree. 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. All collateral
assignees of record must consent to any full surrender, partial surrender,
loan or payment from a Policy under a terminal illness rider. 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 Policies are designed to
cover, in the aggregate, our direct and indirect costs of selling,
administering and providing benefits under the Policies. They are also
designed, in the aggregate, to compensate us for the risks we assume and
services that we provide under the Policies. 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 costly for
us to provide the 5-year no-lapse guarantee under the Platinum Investor I
35
<PAGE>
Policies or reduce the amount of our daily charge fee 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 Policies require us to
provide will exceed what we currently project).
If the charges that we collect from the Policies exceed our total costs
in connection with the Policies, we will earn a profit. Otherwise we will
incur a loss.
The current charges that we deduct from premiums have been designed to
compensate us for taxes we have to pay to the state where you live when we
receive a premium from you, as well as similar federal taxes we incur as a
result of premium payments. The current flat monthly charge that we deduct has
been designed primarily to compensate us for the continuing administrative
functions we perform in connection with the Policies. The current monthly
insurance charge has been designed primarily to provide funds out of which we
can make payments of death benefits under the Policies as insured persons die.
Any excess from the charges discussed in the preceding paragraph, as
well as revenues from the daily charge, 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 sales commissions and other marketing 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 risks
we assume under the Policies, or (c) otherwise to be retained by us as profit.
The surrender charge under the Platinum Investor I Policies and the additional
monthly charge during the first two years under a Platinum Investor II Policy
have also been designed primarily for these purposes.
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 POLICIES. 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
36
<PAGE>
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 (including Platinum Investor
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 8.
DECREASES IN THE SPECIFIED AMOUNT OF A PLATINUM INVESTOR I POLICY. An
amount of any remaining surrender charge will be deducted upon a decrease in
specified amount under a Platinum Investor I Policy. If there have been no
previous specified amount increases, the amount we deduct will bear the same
proportion to the total surrender charge then applicable as the amount of the
specified amount decrease bears to the Policy's total specified amount. The
remaining amount of surrender charge that we could impose at a future time,
however, will also be reduced proportionally. If there have been increases in
specified amount, we decrease first those portions of specified amount that
were most recently established. We also deduct any remaining amount of the
surrender charge that was established with that portion of specified amount
(which we pro-rate if less than that entire portion of specified amount is
being cancelled).
MISCELLANEOUS. Each of the distributors 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, up to an annual
rate of 0.25% of the average daily net asset value of shares of the Mutual
Funds purchased by the divisions at the instruction of owners. These
reimbursements are paid by the distributors, 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
Policies 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."
37
<PAGE>
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 (shown on the first page of this
prospectus). If we receive it after the close of business on any valuation
date, however, we consider that we have received it on the day following that
valuation date.
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 minimum first 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. However, if you pay at least
the minimum first premium payment with your application for a Policy, we will
provide temporary coverage of up to $300,000 if the insured person meets
certain medical and risk requirements. The terms and conditions of this
coverage are described in our "Limited Temporary Life Insurance Agreement."
You can obtain a copy from our Home Office by writing to the address shown on
the first page of this prospectus or from your AGL representative.
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 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, (b) 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, or (c) in the case of
a back-dated policy, the date we approve the Policy for insurance.
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:
38
<PAGE>
o Increases or decreases you request in the specified amount of
insurance, and reinstatements of Policies that have lapsed take
effect on the Policy's monthly deduction day on or next following
our approval of the transaction;
o 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;
o 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
o 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.
MORE ABOUT OUR DECLARED FIXED INTEREST ACCOUNT OPTION
OUR GENERAL ACCOUNT. Our general account assets are all of our assets
that we do not hold in legally segregated separate accounts. Our general
account supports our obligations to you under your Policy's declared fixed
interest account option. Because of applicable exemptive provisions, no
interest in this option has been registered under the Securities Act of 1933;
nor is our general account or our declared fixed interest account an
investment company under the Investment Company Act of 1940. We have been
advised that the staff of the SEC has not reviewed the disclosures that are
included in this prospectus for your information about our general account or
our declared fixed interest account option. Those disclosures, however, may be
subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
HOW WE DECLARE INTEREST. We can at any time change the rate of interest
we are paying on any accumulation value allocated to our declared fixed
interest account option, but it will always be at an effective annual rate of
at least 4%.
Under these procedures, it is likely that at any time different interest
rates will apply to different portions of your accumulation value, depending
on when each portion was allocated to our declared fixed interest account
option. Any charges, partial surrenders, or loans that we take from any
accumulation value that you have in our declared fixed interest account option
will be taken from each portion in reverse chronological order based on the
39
<PAGE>
date that accumulation value was allocated to this option.
DISTRIBUTION OF THE POLICIES
American General Securities Incorporated ("AGSI") is the principal
underwriter of the Policies. AGSI is a wholly-owned subsidiary of AGL, and its
principal office is 2727 Allen Parkway, Houston, Texas 77019. AGSI was
organized on March 8, 1983 under Texas law. AGSI is registered with the SEC as
a broker-dealer under the Securities Exchange Act of 1934 ("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.
We and AGSI have sales agreements with various broker-dealers and banks
under which the Policies will be sold by registered representatives of the
broker-dealers or employees of the banks. These registered representatives and
employees are also required to be authorized under applicable state
regulations as life insurance agents to sell variable life insurance. The
broker-dealers are ordinarily required to be registered with the SEC and must
be members of the NASD.
We pay compensation directly to broker-dealers and banks for promotion
and sales of the Policies. AGSI also has its own registered representatives
who will sell the Policies, and we will pay compensation to AGSI for these
sales. The compensation payable to broker-dealers or banks for sales of the
Policies may vary with the sales agreement, but is generally not expected to
exceed, for the Platinum Investor I Policies, 90% of the premiums paid in the
first Policy year up to a "target" amount, 4% of the premiums not in excess of
the target amount paid in each of Policy years 2 through 10, 2.5% of all
premiums in excess of the target amount received in any of Policy years 1
through 10, and .25% annually of the Policy's accumulation value (reduced by
any outstanding loans) in the investment options thereafter. (The target
amount is an amount of level annual premium that would be necessary to support
the benefits under your Policy, based on certain assumptions that we believe
are reasonable.) The compensation payable to the broker-dealers or banks for
the Platinum Investor II Policies is generally not expected to exceed 20% of
premiums paid in the first Policy year up to the target amount, 12% of the
premiums not in excess of the target amount paid in each of Policy years 2
through 7, 2.5% on all premiums in excess of the target amount received in any
of Policy years 1 through 7, and .25% of the Policy's accumulation value
(reduced by any outstanding loans) in the investment options thereafter.
The maximum value of any alternative amounts we may pay for sales of the
Policies is expected to be equivalent over time to the amounts described
above.
We pay a comparable amount of compensation to the broker-dealers or
banks with respect to any increase in the specified amount of coverage that
you request. In addition, we may pay expense allowances, bonuses, wholesaler
fees and training allowances.
40
<PAGE>
We pay the compensation directly to AGSI or any other selling
broker-dealer firm or bank. We pay the compensation from our own resources and
they do not result in any additional charge to you that is not described on
page 8. Each broker-dealer firm or bank, in turn compensates its registered
representative or employee who acts as agent in selling you a Policy.
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
death benefit). If we do not have information about the desired manner of
payment within 60 days after the date we receive notification of the insured
person's death, we will pay the proceeds as a single sum, normally within
seven days thereafter.
DELAY OF DECLARED FIXED INTEREST ACCOUNT OPTION PROCEEDS. We have the
right, however, to defer payment or transfers of amounts out of our declared
fixed interest account option for up to six months. If we delay more than 30
days in paying you such amounts, we will pay interest of at least 3% a year
from the date we receive all items we require to make the payment.
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 PROCEEDS. We reserve the right to defer
payment of any death benefit, loan or other distribution that is derived from
that portion of your accumulation value that is allocated to Separate Account
VL-R, if (a) the New York Stock Exchange is closed other than customary
weekend and holiday closings, or trading on the New York Stock Exchange is
restricted; (b) an emergency exists, as a result of which disposal of
securities is not reasonably practicable or it is not reasonably practicable
to fairly determine the accumulation value; or (c) the SEC by order permits
the delay for the protection of owners. Transfers and allocations of
accumulation value among the investment options may also be postponed under
these circumstances. If we need to defer calculation of separate account
values for any of the foregoing reasons, all delayed transactions will be
processed at the next values that we do compute.
DELAY TO CHALLENGE COVERAGE. We may challenge the validity of your
insurance Policy based on any material misstatements in your application and
any application for a change in coverage. However,
o 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.)
41
<PAGE>
o 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.
o We cannot challenge an additional benefit rider that provides
benefits in the event that the insured person becomes totally
disabled, after two years from the later of the Policy's date of
issue or the date as of which the additional benefit rider becomes
effective.
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 loan 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.
ADDITIONAL RIGHTS THAT WE HAVE
We have the right at any time to:
o 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 $500;
o transfer the entire balance on a pro-rata basis to any other
investment options you then are using, if the accumulation value
in an investment option is below $500 for any other reason;
o terminate the automatic rebalancing feature if your accumulation
value falls below $5,000;
42
<PAGE>
o change the underlying Mutual Fund that any investment option uses;
o add or delete investment options, combine two or more investment
options, or withdraw assets relating to Platinum Investor from one
investment option and put them into another;
o operate Separate Account VL-R under the direction of a committee
or discharge such a committee at any time;
o operate the separate account, or one or more investment options,
in any other form the law allows, including a form that allows us
to make direct investments. Our separate account may be charged an
advisory fee if its investments are made directly rather than
through another investment company. In that case, we may make any
legal investments we wish;
o do any of the following, if in our judgment necessary or
appropriate to ensure that the Policies continue to qualify for
tax treatment as life insurance: decline to change death benefit
options or the specified amount of insurance, refuse a partial
surrender request, require you to pay additional premiums, make
distributions from your Policy (which could require payment of
taxes and penalties), or make any other changes in your Policy; or
o make other changes in the Policies that do not reduce any cash
surrender value, death benefit, accumulation value, or other
accrued rights or benefits.
PERFORMANCE INFORMATION
From time to time, we may quote performance information for the
divisions of the 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 Fund in which it invests. The performance information
shown may reflect the deduction of one or more charges, such as the premium
charge or surrender charge, and we generally expect to exclude cost of
insurance charges because of the individual nature of these charges.
43
<PAGE>
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.
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 applicable law in making any changes and, if
necessary, we will seek Policy owner approval.
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
---- ------------------------------------------
<S> <C>
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).
44
<PAGE>
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. Director, President and CEO of American General Life Insurance
Company since August 1996. 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).
David A. Fravel Director and Senior Vice President of American General Life
Insurance Company since November 1996. 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 and Senior Vice President, Chief Financial Officer of
American General Life Insurance Company since May 1996, and
Controller, Actuary from June 1988 to May 1996.
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 since
August 1996. Prior thereto, Director Citicorp Insurance Services,
Inc., Dover, Delaware (1986-1996).
45
<PAGE>
Peter V. Tuters Director, Vice President and Chief Investment Officer of American
General Life Insurance Company since November 1993. Senior Vice
President and Chief Investment Officer of American General
Corporation since November 1993
Philip K. Polkinghorn Director of American General Life Insurance Company since February
1997. 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, Worchester, MA (March 1993-April
1994) Senior Vice President and Chief Actuary of American General
Life Insurance Company since
Wayne A. Barnard November 1997 and Vice President and Chief Actuary since August
1983.
</TABLE>
The principal business address of each person listed above is our Home Office;
except that the street number for Messrs. D'Agostino, Newton, and Tuters 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.
Steven A. Glover, Esquire, Senior Counsel of the American General Independent
Producer Division, has opined as to the validity of the Policies. Freedman,
Levy, Kroll & Simonds, Washington, D.C., has advised AGL about certain federal
securities and tax law matters in connection with the Policies.
INDEPENDENT AUDITORS
The financial statements of AGL included in this prospectus have been
audited by Ernst & Young LLP, as stated in their reports. The financial
statements of AGL have been included in reliance on the reports of Ernst &
Young LLP, independent accountants, given upon the authority of such firm as
experts in accounting and auditing.
ACTUARIAL EXPERTS
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.
46
<PAGE>
SERVICES AGREEMENT
American General Independent Producer Division ("AGIPD") is party to an
existing general services agreement with AGL. AGIPD, an affiliate of AGL, is a
corporation incorporated in Delaware on November 24, 1997. Pursuant to this
agreement, AGIPD provides services to AGL, including most of the
administrative, data processing, systems, customer services, product
development, actuarial, auditing, accounting and legal services for AGL and
the Platinum Investor Policies.
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. 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.
47
<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
Platinum Investor Policies. They should not be considered as bearing upon the
investment experience of the separate account. No financial statements of
Separate Account VL-R are included because, at the date of this prospectus,
the separate account had not yet commenced operations and had no assets or
liabilities.
<TABLE>
<CAPTION>
Consolidated Financial Statements Of Page to see in
American General Life Insurance Company this Prospectus
--------------------------------------- ---------------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors 49
Consolidated Balance Sheets as of December 31, 1997 and 1996 50
Consolidated Income Statements for the years ended December 31,
1997, 1996 and 1995 52
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995 53
Consolidated Statements of Cash Flows for the years, ended December
31, 1997, 1996 and 1995 54
Notes to Consolidated Financial Statements 55
</TABLE>
48
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN GENERAL LIFE INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
Report of Independent Auditors.........................................
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................
Consolidated Income Statements.........................................
Consolidated Statements of Shareholders' Equity........................
Consolidated Statements of Cash Flows..................................
Notes to Consolidated Financial Statements.............................
<PAGE>
ERNST & YOUNG LLP One Houston Center Phone: 713 750 1500
Suite 2400 Fax: 713 750 1501
1221 McKinney Street
Houston, Texas 77010-2007
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 ,
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 , 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
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
49
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
---------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
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) 21,114 20,555
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
=================================
</TABLE>
SEE ACCOMPANYING NOTES.
50
<PAGE>
<TABLE>
<CAPTION>
December 31
1997 1996
---------------------------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
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' $ 43,564,720 $ 38,064,409
equity =================================
</TABLE>
SEE ACCOMPANYING NOTES.
51
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Consolidated Income Statements
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
---------------------------------------------
(IN THOUSANDS)
Revenues:
<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.
52
<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.
53
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
<TABLE>
Consolidated Statements of Cash Flows
<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 63,174 (69,126)
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.
54
<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.
55
<PAGE>
1. ACCOUNTING POLICIES (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>
56
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.2 STATUTORY ACCOUNTING (CONTINUED)
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,
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.
57
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
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.
58
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS (CONTINUED)
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
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.
59
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
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
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
60
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.7 PREMIUM RECOGNITION (CONTINUED)
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.
61
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
1.10 POLICY AND CONTRACT CLAIMS RESERVES (CONTINUED)
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.
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.
62
<PAGE>
1. ACCOUNTING POLICIES (CONTINUED)
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.
63
<PAGE>
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>
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.
64
<PAGE>
2. INVESTMENTS (CONTINUED)
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) (47,29 (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>
65
<PAGE>
2. INVESTMENTS (CONTINUED)
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 COST UNREALIZED UNREALIZED FAIR
GAIN LOSS 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>
66
<PAGE>
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED FAIR
GAIN LOSS 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
===================================================================
<FN>
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and
government agencies.
</FN>
</TABLE>
67
<PAGE>
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
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 FAIR
COST 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.
68
<PAGE>
2. INVESTMENTS (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 :
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT 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%
===============================
</TABLE>
69
<PAGE>
2. Investments (continued)
2.4 Mortgage Loans on Real Estate (continued)
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
-----------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
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>
70
<PAGE>
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE (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
====================================
<FN>
* Represents gross amounts before allowance for mortgage loan losses of
$10 million and $9 million, respectively.
</FN>
</TABLE>
<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>
71
<PAGE>
2. INVESTMENTS (CONTINUED)
2.5 INVESTMENT SUMMARY
Investments of the Company were as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------
FAIR CARRYING
COST 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
=====================================================
<FN>
* Amount is net of a $23 million allowance for losses.
</FN>
</TABLE>
72
<PAGE>
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>
73
<PAGE>
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 (receivable) payable $ 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>
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>
74
<PAGE>
5. FEDERAL INCOME TAXES (CONTINUED)
5.1 TAX LIABILITIES (CONTINUED)
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>
75
<PAGE>
5. FEDERAL INCOME TAXES (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, 1997 December 31, 1996
-----------------------------------------------------------------------
PAR VALUE BOOK VALUE PAR VALUE BOOK 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>
76
<PAGE>
6. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 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 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 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.
77
<PAGE>
7. STOCK-BASED COMPENSATION (CONTINUED)
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.
78
<PAGE>
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The components of pension expense and underlying assumptions were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------
(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>
79
<PAGE>
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (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.
80
<PAGE>
8. BENEFIT PLANS (CONTINUED)
8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
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
------------------------------------
(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>
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>
81
<PAGE>
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.
82
<PAGE>
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS (CONTINUED)
Interest rate and currency swap agreements related to investment securities at
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------
(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.
83
<PAGE>
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.3 CALL SWAPTIONS (CONTINUED)
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.
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.
84
<PAGE>
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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
<FN>
* 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.
</FN>
</TABLE>
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.
85
<PAGE>
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 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.
86
<PAGE>
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 disproportionate
to the actual economic damages
87
<PAGE>
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
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 , 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.
88
<PAGE>
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1997, 1996, and 1995
were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO OTHER ASSUMED FROM OF AMOUNT
GROSS AMOUNT COMPANIES OTHER COMPANIES NET AMOUNT ASSUMED 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%2
=======================================================================
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%
=======================================================================
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>
89
<PAGE>
13. REINSURANCE (CONTINUED)
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.
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.
90
<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 Page to See
Defined Term in Defined Term in
this this
Prospectus Prospectus
<S> <C> <C> <C>
accumulation value 6 Option 1, 2 7
AGL 28 our 2
AGSPC 11 owner 22
amount at risk 8 partial surrender 18
automatic rebalancing 6 payment option 20
basis 31 planned periodic premium 12
beneficiary 35 Platinum Investor 3
cash surrender value 18 Platinum Investor I and II 3
close of business 37 Policy 1
Code 29 Policy anniversary 15
cost of insurance rates 37 Policy loan 19
daily charge 8 Policy month, year 38
date of issue 38 preferred loan interest 19
death benefit 7 premiums 5
declared fixed interest account
option 1 premium payments 5
division 29 prospectus 2
dollar cost averaging 5 reinstate, reinstatement 12
Five year no-lapse guarantee 13 rider 16
Fund 2 SEC 2
full surrender 18 separate account 29
grace period 12 Separate Account VL-R 29
guarantee premiums 13 seven-pay test 30
insured person 7 specified amount 7
investment option 1 surrender 18
lapse 12 surrender charge 9
loan, loan interest 19 target 40
maturity, maturity date 19 telephone transfers 22
modified endowment contract 30 transfers 14
monthly deduction day 38 valuation date, period 37
monthly guarantee premiums 13 we 28
monthly insurance charge 8 you, your 1
Mutual Fund 2
</TABLE>
91
<PAGE>
We have filed a registration statement relating to Separate Account VL-R
and the Policies 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
PROSPECTUS, 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.
92
<PAGE>
SERVICE REQUEST
PLATINUM INVESTOR
AMERICAN GENERAL LIFE
-----------------------------------------------------------------------------
Platinum Investor - Variable Divisions
AIM Variable Insurance Funds, Inc.
AIM Variable Insurance Funds, Inc.
Division 128 - AIM V.I. International Equity
Division 127 - AIM V.I. Value
American General Series Portfolio Company
Division 128 - International Equities
Division 129 - MidCap Index
Division 131 - Stock Index
Dreyfus Variable Investment Fund
Division 132 - Quality Bond
Division 133 - Small Cap
MPS Variable Insurance Trust
Division 134 - MPS Emerging Growth
Morgan Stanley Universal Funds, Inc.
Division 135 - Equity Growth
Division 136 - High Yield
Putnam Variable Trust
Division 137 - Putnam VT Diversified Income
Division 138 - Putnam VT Growth and Income
Division 139 - Putnam VT Int'l Growth & Income
SAFECO Resources Series Trust
Division 140 - Equity
Division 141 - Growth
Van Kampen Amer. Cap. Life Investment Trust
Division 142 - Strategic Stock
Platinum Investor - Fixed Division
Division 125 - Declared Fixed Interest Account
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL")
--------------------------------------------
A Subsidiary of American General Corporation
--------------------------------------------
Houston, Texas
-SERVICE REQUEST-
[American General Logo]
VARIABLE UNIVERSAL LIFE INSURANCE SERVICE REQUEST
COMPLETE AND RETURN THIS REQUEST TO:
Variable Universal Life Operations
P.O. Box 4880
Houston, TX 77210-3443
(800)325-9315 or (713) 831-3443
Fax: (713) 620-3657
-----------------------------------------------------------------------------
1. [ ] POLICY INDENTIFICATION (COMPLETE THIS SECTION FOR ALL
REQUESTS.)
POLICY #:_________________________ INSURED:_____________________________
ADDRESS: __________________________________________ New Address (yes) (no)
PRIMARY OWNER (If other than insured)
__________________________________________________________________________
ADDRESS: __________________________________________ New Address (yes) (no)
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
masis. Refer to your policy and it 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: _____/_____/_____
-----------------------------------------------------------------------------
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
($5,000 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. The Declared Fixed Interest Account is not available
for Dollar Cost Averaging. 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 ___ Annual
I want: $ _______ ($100 minimum) taken from the Money Market
Division and transferred to the following Divisions:
AIM Variable Insurance Funds, Inc.
$__________(126) AIM V.I. International Equity
$__________(127) AIM V.I. Value
American General Series Portfolio Company
$__________(128) International Equities
$__________(129) MidCap Index
$__________(131) Stock Index
Dreyfus Variable Investment Fund
$__________(132) Quality Bond
$__________(133) Small Cap
MPS Variable Insurance Trust
$__________(134) MPS Emerging Growth
Morgan Stanley Universal Funds, Inc.
$__________(135) Equity Growth
$__________(136) High Yield
Putnam Variable Trust
$__________(137) Putnam VT Diversified Income
$__________(138) Putnam VT Growth and Income
$__________(139) Putnam VT Int'l Growth & Income
SAFECO Resources Series Trust
$__________(140) Equity
$__________(141) Growth
Van Kampen Amer. Cap. Life Investment Trust
$__________(142) Strategic Stock
_____INITIAL HERE TO REVOKE DOLLAR COST AVERAGING ELECTION
-----------------------------------------------------------------------------
L 8893 Page 2 of 4
<PAGE>
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
Instruction to transfer values among the Variable Divisions and Declared
Fixed Interest Account 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. I an error, objection or other claim arises due to a
telephone transaction, I 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 PRIVLEGE AUTHORIZATION.
-----------------------------------------------------------------------------
7. [ ] CORRECT AGE
Use this section to correct the age of any person covered under the
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. Withdrawals
from the Declared Fixed Interest Account are limited to 60 days after the
policy anniversary and to no more than 25% of the total unloaned value of
the Declared Fixed Interest Account on the policy anniversary. If a
transfer causes the balance in any division to drop below $500, AGL
reserves the right to transfer the remaining balance. Amounts to be
transferred should be indicated in dollar or percentage amounts,
maintaining consistency throughout.
(Division Name (Division Name
or Number) 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_______________________
Transfer $_____ or %_____from_______________________ to_______________________
-----------------------------------------------------------------------------
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%; who numbers only.
INVESTMENT DIVISION PERM % DED %
(125) Declared Fixed Interest Account ______ ______
AIM Variable Insurance Funds, Inc.
(126) AIM V.I. Int'l Equity ______ ______
(127) AIM V.I. Value ______ ______
American General Series Portfolio Co.
(128) International Equities ______ ______
(129) MidCap Index ______ ______
(130) Money Market ______ ______
(131) Stock Index ______ ______
Dreyfus Variable Investment Fund
(132) Quality Bond ______ ______
(133) Small Cap ______ ______
MPS Variable Insurance Trust
(134) MPS Emerging Growth ______ ______
Morgan Stanley Universal Funds, Inc.
(135) Equity Growth ______ ______
(136) High Yield ______ ______
Putnam Variable Trust
(137) Putnam VT Diversified Income ______ ______
(138) Putnam VT Growth & Income ______ ______
(139) Putnam VT Int'l Growth & Income ______ ______
SAFECO Resources Series Trust
(140) Equity ______ ______
(141) Growth ______ ______
Van Kampen Amer. Cap. Life Investment Trust
(142) Strategic Stock ______ ______
-----------------------------------------------------------------------------
L 8893 Page 3 of 4
<PAGE>
10. [ ] AUTOMATIC REBALANCING
($5,000 minimum accumulation values) Use this section to apply for or make
changes to Automatic Rebalancing of the variable divisions. Please refer
to the prospectus for more information on the Automatic Rebalancing
Option. This option in not available while the Dollar Cost Averaging
Option is in use.
Indicated frequency: _____ Quarterly _____ Semi-Annually _____ Annually
(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 from or policy loan
against policy values. For detailed information concerning these two
options please refer to your policy ad its related prospectus. 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 case
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 affect, if available; otherwise they
are taken pro-rata from the Declared Fixed Interest Account and 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 to 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 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 340B(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.
Date at ________________________this _________ day of _____________, 19_____
x________________________ x________________________
SIGNATURE OF OWNER SIGNATURE OF WITNESS
x________________________ x________________________
SIGNATURE OF JOINT OWNER SIGNATURE OF WITNESS
x________________________ x________________________
SIGNATURE OF ASSIGNEE SIGNATURE OF WITNESS
-----------------------------------------------------------------------------
L 8893 Page 4 of 4
<PAGE>
PART II
(INFORMATION NOT REQUIRED TO BE FILED IN A PROSPECTUS)
REPRESENTATION REGARDING THE REASONABLENESS OF AGGREGATE FEES AND CHARGES
DEDUCTED UNDER THE POLICIES PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT
COMPANY ACT OF 1940
AGL represents that the fees and charges deducted under the Policies, in
the aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by AGL under the
Policies. AGL bases its representation on its assessment of all of the facts
and circumstances, including such relevant factors, as: the nature and extent
of such services, expenses and risks; the need for AGL to earn a profit; the
degree to which the Policies include innovative features; and the regulatory
standards for exemptive relief under the Investment Company Act of 1940 used
prior to October 1996, including the range of industry practice. This
representation applies to all Policies sold pursuant to this Registration
Statement, including those sold on the terms specifically described in the
prospectus contained herein, or any variations therein, based on supplements,
endorsements, or riders to any Policies or prospectus, or otherwise.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
The facing sheet.
Cross-Reference Table.
Prospectus, consisting of 92 pages.
Form of Service Request.
Undertaking to file reports. (Included in the original filing of this
Registration Statement on December 18, 1997.)
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933.
(Included in the original filing of this Registration Statement on December
18, 1997.)
Representation with respect to fees and charges.
The signatures.
Written Consents of the following persons:
Steven A. Glover, Senior Counsel of the American General Independent
Producer Division (see Exhibit 2(a)).
AGL's actuary (see Exhibit 2(b)).
Independent Auditors (see Exhibit 6).
The following exhibits:
1. Exhibits required by Article IX, paragraph A of Form N-8B-2:
<TABLE>
<S> <C>
(1)(a) Resolutions of Board of Directors of AGL authorizing
the establishment of Separate Account VL-R. (3)
(1)(b) Resolutions of Board of Directors of AGL authorizing
the establishment of variable life insurance standards
of suitability and conduct. (1)
(2) Inapplicable.
(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.
(Filed herewith.)
(3)(b) Form of Selling Group Agreement. (Filed herewith.)
(3)(c) Schedule of Commissions (incorporated by reference
from the text included under the heading "Distribution
of the Policies" in the prospectus that is filed as
part of this amended Registration Statement).
(4) Inapplicable.
S-2
<PAGE>
(5)(a)(i) Specimen form of the "Platinum Investor I" Variable
Universal Life Insurance Policy (Policy Form No.
97600). (1)
(5)(a)(ii) Specimen form of the "Platinum Investor II" Variable
Universal Life Insurance Policy (Policy Form No.
97610). (1)
(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)
(7) Inapplicable.
(8)(a) Form of Participation Agreement by and Among AIM
Variable Insurance Funds, Inc., AIM Distributors,
Inc., American General Life Insurance Company, on
Behalf of Itself and its Separate Accounts, and
American General Securities Incorporated. (Filed
herewith.)
(8)(b) Form of Participation Agreement by and between the
Variable Annuity Life Insurance Company and American
General Life Insurance Company. (4)
(8)(c) Form of Participation Agreement Between American
General Life Insurance Company and Dreyfus Variable
Investment Fund, The Dreyfus Socially Responsible
Growth Fund, Inc. and Dreyfus Life and Annuity Index
Fund, Inc.. (Filed herewith.)
(8)(d) Form of Participation Agreement Among MFS Variable
Insurance Trust, American General Life Insurance
Company and Massachusetts Financial Services Company.
(Filed herewith.)
(8)(e) Amendment Number 2 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. (Filed
herewith.)
(8)(f) Form of Participation Agreement Among Putnam Variable
Trust, Putnam Mutual Funds Corp., and American General
Life Insurance Company. (Filed herewith.)
S-3
<PAGE>
(8)(g) Form of Participation Agreement Among American General
Life Insurance Company, American General Securities
Incorporated, Safeco Resources Series Trust, and
Safeco Securities, Inc. (Filed herewith.)
(8)(h) Form of Amendment Number 2 to Amended and Restated
Participation Agreement among Van Kampen American
Capital Life Investment Trust, Van Kampen American
Capital Distributors, Inc., Van Kampen American
Capital Asset Management, Inc., American General Life
Insurance Company, and American General Securities
Incorporated. (Filed herewith.)
(8)(i) Form of Administrative Services Agreement between AGL
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 AGL. (1)
(10)(b) Specimen form of supplemental application for variable
life insurance issued by AGL on Policy Form No. 97600
and Policy Form No. 97610. (1)
Other Exhibits
2(a) Opinion and Consent of Steven A. Glover, Senior
Counsel of American General Independent Producer
Division (Filed herewith.)
2(b) Opinion and Consent of AGL's actuary. (Filed
herewith.)
3 Inapplicable.
4 Inapplicable.
5 Financial Data Schedule. (See Exhibit 27 below.)
6 Consent of Independent Auditors. (Filed herewith.)
7 Powers of Attorney. (1)
S-4
<PAGE>
27 Financial Data Schedule. (Inapplicable, because no
financial statements of the Separate Account are being
filed herewith)
<FN>
(1) Included in the original filing of this Form S-6 Registration Statement
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 AGL
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 AGL 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 AGL on February 12, 1998.
</FN>
</TABLE>
S-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 16th day
of March, 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/STEVEN A. GLOVER
-------------------
Steven A. Glover
Assistant 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.
<TABLE>
<CAPTION>
Signature Title
----------- -------
<S> <C>
RODNEY O. MARTIN, JR.* Principal Executive Officer
--------------------------
(Rodney O. Martin, Jr.)
ROBERT F. HERBERT, JR.* Principal Financial and Accounting Officer
--------------------------
(Robert F. Herbert, Jr.)
</TABLE>
<PAGE>
<TABLE>
Directors
---------
<S> <C>
JAMES S. D' AGOSTINO, JR.* RODNEY O. MARTIN, JR.*
-------------------------- --------------------------
(James S. D' Agostino, Jr.) (Rodney O. Martin, Jr.)
DAVID A. FRAVEL* JON P. NEWTON*
-------------------------- --------------------------
(David A. Fravel) (Jon P. Newton)
ROBERT F. HERBERT, JR.* PHILIP K. POLKINGHORN*
-------------------------- --------------------------
(Robert F. Herbert, Jr.) (Philip K. Polkinghorn)
ROYCE G. IMHOFF, II* PETER V. TUTERS*
-------------------------- --------------------------
(Royce G. Imofft, II) (Peter V. Tuters)
JOHN V. LAGRASSE*
--------------------------
(John V. Lagrasse)
/s/STEVEN A. GLOVER
--------------------------
*By Steven A. Glover, Attorney-in-Fact March 16, 1998
</TABLE>
EXHIBIT 2(a)
AMERICAN GENERAL
INDEPENDENT PRODUCER DIVISION
2727-A ALLEN PARKWAY, HOUSTON, TEXAS 77019
Writer's Direct Number
(713) 831-3633
March 16, 1998
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Dear Sir:
This opinion is furnished in connection with the filing of a
Registration Statement on Form S-6, File No. 333-42567 ("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 Platinum Investor I (policy form No. 97600) and Platinum Investor II
(policy form No. 97610) 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. On the basis of such
examination, it is my 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 Policy liabilities with respect
<PAGE>
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.
Very truly yours,
/s/STEVEN A. GLOVER
-------------------
Steven A. Glover
Senior Counsel
SAG:dt
EXHIBIT 2(b)
AMERICAN GENERAL LIFE
INSURANCE COMPANY
P.O. Box 1591 - Houston, Texas 77251-1591 A Subsidiary of
713-522-1111 American General Corporation
Writer's Direct Number
(713) 831-3246
March 18, 1998
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Dear Sir:
This opinion is furnished in connection with the Registration Statement on
Form S-6, File No. 333- 42567 ("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 Platinum Investor I (policy form No. 97600) and Platinum Investor
II (policy form No. 97610) 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 24
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% reduction 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.
<PAGE>
Opinion and Consent
Page 2
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
March 18, 1998
--------------
Date
EXHIBIT 3(a)(ii)
DISTRIBUTION AGREEMENT
BETWEEN
AMERICAN GENERAL LIFE INSURANCE COMPANY
AND
AMERICAN GENERAL SECURITIES INCORPORATED
FIRST AMENDMENT
WHEREAS, American General Life Insurance Company (formerly American General
Life Insurance Company of Delaware) ("AGL") and American General Securities
Incorporated ("AGSI" or "Distributor") have previously entered into a
Distribution Agreement ("Agreement") designed for the promotion by AGSI of the
sale of AGL's variable annuity contracts; and
WHEREAS, the parties now desire to amend the Agreement to provide for the
promotion of the sale by AGSI of AGL's variable life and variable annuity
contracts ("Contracts") and to provide for a schedule of compensation for each
of the Contracts offered by AGL and promoted by AGSI;
NOW THEREFORE, the parties agree to this First Amendment, effective March 2,
1998, as follows:
1. The Agreement shall include Schedule A.
2. The first sentence of the paragraph titled "FIRST" shall be
amended to read as follows:
The Company hereby grants AGSI a non-exclusive right
to promote the sale of the Company's Contracts listed
on Schedule A to the public through investment dealers
which are members of the National Association of
Securities Dealers, Inc. (or exempt from such
registration) in states of the United States where the
Company is licensed.
3. The paragraph titled "FOURTH" shall be amended to restate the
second sentence of the second paragraph to read as follows:
For its costs in promotion of the sale of the
Contracts, including its administrative and
ministerial costs, AGSI shall receive the percentage
of gross purchase payments received by the Company or
of accumulation value held by the Company, as
indicated for each of the Contracts listed on Schedule
A.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
executed in duplicate.
ATTEST: AMERICAN GENERAL LIFE INSURANCE COMPANY
By ___________________________________
Don M. Ward, Senior Vice President-
Variable Contracts
ATTEST: AMERICAN GENERAL SECURITIES INCORPORATED
By ___________________________________
F. Paul Kovach, President
<PAGE>
<TABLE>
SCHEDULE A
<CAPTION>
Contract Contract/Policy
Name Form No: Compensation:
-------- --------------- -------------
<S> <C> <C>
Platinum Investor I 97600 Payable to broker-dealer:
90% of premiums paid in the first Policy year,
up to target; 4% of premiums not in excess of
target paid in Policy years 2-10; 2.5% of all
premiums in excess of target paid in years
1-10; 0.25% annually of all Policies'
accumulation value (reduced by any outstanding
loans).
Payable to Distributor: No distribution fee.
Platinum Investor II 97610 Payable to broker-dealer:
20% of all premiums paid in the first Policy
year up to target; 12 % of all premiums not in
excess of target paid in Policy years 2-7;
2.5% on all premiums in excess of the target
amount received in Policy years 1-7; 0.25% of
all Policies' accumulation value (reduced by
any outstanding loans).
Payable to Distributor: No distribution fee.
Select Reserve 97505 Payable to broker-dealer:
0.2375% of all Purchase Payments received,
plus 0.2375% trail commission commencing at
the end of the 12th month after receipt of the
initial Purchase Payment.
Payable to Distributor:
0.0125% of all Purchase Payments received,
plus 0.0125% trail compensation commencing at
the end of the 12th month after receipt of the
initial Purchase Payment.
</TABLE>
EXHIBIT 3(b)
SELLING GROUP AGREEMENT
AMERICAN GENERAL SECURITIES INCORPORATED AND
AMERICAN GENERAL LIFE INSURANCE COMPANY
This Selling Group Agreement ("Agreement") is made among American General
Securities Incorporated, a registered broker - dealer and the distributor for
the variable life insurance policies and/or annuity contracts set forth in
Schedule A ("Distributor"),
______________________________________________________________________________
("Selling Group Member")
______________________________________________________________________________
("Associated Agency")
and, as the fourth party, American General Life Insurance Company ("AGL").
Distributor is a wholly-owned subsidiary of AGL. Selling Group Member is
registered with the Securities and Exchange Commission ("SEC") as a
broker-dealer under the Securities Exchange Act of 1934 ("1934 Act") and under
any appropriate regulatory requirements of state law, and is a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD"),
unless Selling Group Member is exempt from the broker-dealer registration
requirements of the 1934 Act. Unless exempt, Selling Group Member maintains a
level of qualification with the NASD appropriate to enable it to offer and
sell the products set forth in Schedule A. Selling Group Member is affiliated
with Associated Agency, which is properly licensed under the insurance laws of
the state(s) in which Selling Group Member will act under this Agreement.
This Agreement is for the purpose of providing for the distribution of certain
variable life insurance policies and/or annuity contracts set forth in
Schedule A and any successor or additional SEC registered insurance products
(as discussed in Part (1) "NEW PRODUCTS" of this Agreement) to be issued by
AGL and distributed through Distributor through representatives who are state
insurance licensed and appointed agents of AGL and associated with Associated
Agency and are also NASD registered representatives of Selling Group Member
("Sales Persons"). The policies and/or annuity contracts set forth in Schedule
A, along with any successor or additional SEC registered insurance products,
are referred to collectively herein as the "Contracts".
In consideration of the mutual promises and covenants contained in this
Agreement, AGL and Distributor appoint Selling Group Member and those persons
associated with Associated Agency who are NASD registered representatives of
Selling Group Member and state insurance licensed agents of AGL to solicit and
procure applications for the Contracts. This appointment is not deemed to be
exclusive in any manner and only extends to those jurisdictions where the
Contracts have been approved for sale. Selling Group Member is authorized to
collect the first purchase payment or premium (collectively "Premiums") on the
Contracts and, unless Selling Group Member and AGL have otherwise agreed, must
remit such premiums in full dollar amount to AGL. Unless Selling Group Member
and AGL have otherwise agreed, applications
<PAGE>
shall be taken only on preprinted application forms supplied by AGL. All
completed applications and supporting documents are the sole property of AGL
and must be promptly delivered to AGL. All applications are subject to
acceptance by AGL at its sole discretion.
(1) NEW PRODUCTS
AGL and Distributor may propose, and AGL may issue additional or successor
products, in which event Selling Group Member will be informed of the product
and its related concession schedule. If Selling Group Member does not agree to
distribute such product(s), it must notify Distributor in writing within 30
days of receipt of the Concession Schedule for such product(s). If Selling
Group Member does not indicate disapproval of the new product(s) or the terms
contained in the related Concession Schedule, Selling Group Member will be
deemed to have thereby agreed to distribute such product(s) and agreed to the
related Concession Schedule which shall be attached to and made a part of this
Agreement.
(2) SALES PERSONS
Associated Agency is authorized to recommend Sales Persons for appointment by
AGL to solicit sales of the Contracts. Associated Agency warrants that all
such Sales Persons shall not commence solicitation nor aid, directly or
indirectly, in the solicitation of any application for any Contract until that
Sales Person is appropriately licensed for such product under applicable
insurance laws and is a currently NASD registered representative of Selling
Group Member. Associated Agency shall be responsible for all fees required to
obtain and/or maintain any licenses or registrations required by state or
federal law, for Associated Agency and its Sales Persons. From time to time,
AGL will provide Associated Agency and Selling Group Member with information
regarding the jurisdictions in which AGL is authorized to solicit applications
for the Contracts and any limitations on the availability of such Contracts in
any jurisdiction.
(3) SALES MATERIAL
Associated Agency and Selling Group Member shall not utilize in their efforts
to market the Contracts, any written brochure, prospectus, descriptive
literature, printed and published material, audio-visual material or standard
letters unless such material has been provided preprinted by AGL or
Distributor or unless AGL and Distributor have provided written approval for
the use of such literature. In accordance with the requirements of the laws of
the several states, Associated Agency and Selling Group Member shall maintain
complete records indicating the manner and extent of distribution of any such
solicitation material, shall make such records and files available to staff of
AGL and/or Distributor in field inspections and shall make such material
available to personnel of state insurance departments, the NASD or other
regulatory agencies, including the SEC, which have regulatory authority over
AGL or Distributor. Associated Agency and Selling Group Member jointly and
severally hold AGL, Distributor and their affiliates harmless from any
liability arising from the use of any material which either (a) has not been
specifically approved in writing by AGL, or (b) although previously approved,
has been disapproved by AGL or Distributor, in writing for further use.
(4) PROSPECTUSES
Selling Group Member and Associated Agency warrant that solicitation for the
sale of SEC registered insurance products will be made by use of a currently
effective prospectus, that a prospectus will be
2
<PAGE>
delivered concurrently with each sales presentation and that no statements
shall be made to a client superseding or controverting any statement made in
the prospectus. AGL and Distributor shall furnish Selling Group Member and
Associated Agency, at no cost to Selling Group Member or Associated Agency,
reasonable quantities of prospectuses to aid in the solicitation of Contracts.
(5) SELLING GROUP MEMBER COMPLIANCE
Selling Group Member shall be solely responsible for the approval of
suitability determinations for the purchase of any Contract or the selection
of any investment option thereunder, in compliance with federal and state
securities laws and shall supervise Associated Agency and Sales Persons in
determining client suitability. Selling Group Member shall hold AGL and
Distributor harmless from any financial claim resulting from improper
suitability decisions.
Selling Group Member will fully comply with the requirements of the NASD and
of the 1934 Act and such other applicable federal and state laws and will
establish rules, procedures, and supervisory and inspection techniques
necessary to diligently supervise the activities of its NASD registered
representatives who are state insurance licensed agents or solicitors of AGL,
in connection with offers and sales of the Contracts. Such supervision shall
include providing, or arranging for, initial and periodic training in
knowledge of the Contracts. Upon request by Distributor or AGL, Selling Group
Member will furnish appropriate records as are necessary to establish diligent
supervision and client suitability.
Selling Group Member shall fully cooperate in any insurance or securities
regulatory examination, investigation, or proceeding or any judicial
proceeding with respect to AGL, Distributor, Selling Group Member, and
Associated Agency and their respective affiliates, agents and representatives
to the extent that such examination, investigation, or proceeding arises in
connection with the Contracts. Selling Group Member shall immediately notify
Distributor if its broker-dealer registration or the registration of any of
its Sales Persons is revoked, suspended, or terminated.
(6) ASSOCIATED AGENCY AND SALES PERSON COMPLIANCE
Associated Agency will fully comply with the requirements of state insurance
laws and applicable federal laws and will establish rules and procedures
necessary to diligently supervise the activities of the Sales Persons. Upon
request by Distributor or AGL, Selling Group Member will furnish appropriate
records as are necessary to establish such supervision. Associated Agency and
Sales Persons shall be responsible for making suitability determinations for
the purchase of any Contract or the selection of any investment option
thereunder, in compliance with federal and state securities laws.
Associated Agency shall fully cooperate in any insurance or securities
regulatory examination, investigation, or proceeding or any judicial
proceeding with respect to AGL, Distributor, Selling Group Member, and
Associated Agency and their respective affiliates, agents and representatives
to the extent that such examination, investigation, or proceeding arises in
connection with the Contracts. Associated Agency shall immediately notify
Distributor if its insurance license or the license of any of its Sales
Persons is revoked, suspended, or terminated.
3
<PAGE>
(7) AGL COMPLIANCE
AGL represents that the prospectus(es) and registration statement(s) relating
to the Contracts contain no untrue statements of material fact or omission to
state a material fact, the omission of which makes any statement contained in
the prospectus and registration statement misleading. AGL agrees to indemnify
Associated Agency and Selling Group Member from and against any claims,
liabilities and expenses which may be incurred by any of those parties under
the Securities Act of 1933, the 1934 Act, the Investment Company Act of 1940,
common law, or otherwise, and that arises out of a breach of this paragraph.
(8) COMPENSATION
AGL will remit to Associated Agency compensation as set forth in Schedule B
hereto.
(9) CUSTOMER SERVICE, COMPLAINTS, AND INDEMNIFICATION
The parties agree that AGL may contact by mail or otherwise, any client,
agent, account executive, or employee of Associated Agency or other individual
acting in a similar capacity if deemed appropriate by AGL, in the course of
normal customer service for existing Contracts, in the investigation of
complaints, or as required by law. The parties agree to cooperate fully in the
investigation of any complaint.
Selling Group Member, Associated Agency, and Sales Persons agree to hold
harmless and indemnify Distributor and AGL against any and all claims,
liabilities and expenses incurred by either Distributor or AGL, and arising
out of or based upon any alleged or untrue statement of Selling Group Member,
Associated Agency or Sales Person other than statements contained in the
approved sales material for any Contract, or in the registration statement or
prospectus for any Contract.
(10) FIDELITY BOND
Associated Agency represents that all directors, officers, employees and Sales
Persons of Associated Agency licensed pursuant to this Agreement or who have
access to funds of AGL are and will continue to be covered by a blanket
fidelity bond including coverage for larceny, embezzlement and other
defalcation, issued by a reputable bonding company. This bond shall be
maintained at Associated Agency's expense. Such bond shall be at least
equivalent to the minimal coverage required under the NASD Rules of Fair
Practice, and endorsed to extend coverage to life insurance and annuity
transactions. Associated Agency acknowledges that AGL may require evidence
that such coverage is in force and Associated Agency shall promptly give
notice to AGL of any notice of cancellation or change of coverage.
Associated Agency assigns any proceeds received from the fidelity bond company
to AGL to the extent of AGL's loss due to activities covered by the bond. If
there is any deficiency, Associated Agency will promptly pay AGL that amount
on demand. Associated Agency indemnifies and holds harmless AGL from any
deficiency and from the cost of collection.
4
<PAGE>
(11) LIMITATIONS OF AUTHORITY
The Contract forms are the sole property of AGL. No person other than AGL has
the authority to make, alter or discharge any policy, Contract, certificate,
supplemental contract or form issued by AGL. No party has the right to waive
any provision with respect to any Contract or policy; give or offer to give,
on behalf of AGL, any tax or legal advice related to the purchase of a
Contract or policy; or make any settlement of any claim or bind AGL or any of
its affiliates in any way. No person has the authority to enter into any
proceeding in a court of law or before a regulatory agency in the name of or
on behalf of AGL.
(12) ARBITRATION
The parties agree that any controversy between or among them arising out of
their business or pursuant to this Agreement that cannot be settled by
agreement shall be taken to arbitration as set forth herein. Such arbitration
will be conducted according to the securities arbitration rules then in
effect, of the American Arbitration Association, NASD, or any registered
national securities exchange. Arbitration may be initiated by serving or
mailing a written notice. The notice must specify which rules will apply to
the arbitration. This specification will be binding on all parties.
The arbitrators shall render a written opinion, specifying the factual and
legal bases for the award, with a view to effecting the intent of this
Agreement. The written opinion shall be signed by a majority of the
arbitrators. In rendering the written opinion, the arbitrators shall determine
the rights and obligations of the parties according the substantive and
procedural laws of the State of Texas. Accordingly, the written opinion of the
arbitrators will be determined by the rule of law and not by equity. The
decision of the majority of the arbitrators shall be final and binding on the
parties and shall be enforced by the courts in Texas.
(13) GENERAL PROVISIONS
(A) Waiver
Failure of any of the parties to promptly insist upon strict
compliance with any of the obligations of any other party under
this Agreement will not be deemed to constitute a waiver of the
right to enforce strict compliance.
(B) Independent Contractors
Selling Group Member and Associated Agency are independent
contractors and not employees or subsidiaries of AGL. AGSI is a
wholly - owned subsidiary of AGL. Selling Group Member and
Associated Agency are not employees or subsidiaries of
Distributor.
(C) Independent Assignment
No assignment of this Agreement or of commissions or other
payments under this Agreement shall be valid without prior written
consent of AGL and Distributor.
5
<PAGE>
(D) Notice
Any notice pursuant to this Agreement may be given electronically
(other than vocally by telephone) or by mail, postage paid,
transmitted to the last address communicated by the receiving
party to the other parties to this Agreement.
(E) Severability
To the extent this Agreement may be in conflict with any
applicable law or regulation, this Agreement shall be construed in
a manner consistent with such law or regulation. The invalidity or
illegality of any provisions of this Agreement shall not be deemed
to affect the validity or legality of any other provision of this
Agreement.
(F) Amendment
This Agreement may be amended only in writing and signed by all
parties. No amendment will impair the right to receive commissions
as accrued with respect to Contracts issued and applications
procured prior to the amendment.
(G) Termination
This Agreement may be terminated by any party upon 30 days' prior
written notice. It may be terminated, for cause, by any party
immediately. Termination of this Agreement shall not impair the
right to receive commissions accrued with respect to applications
procured prior to the termination except as otherwise specifically
provided in Schedule B.
(H) TEXAS LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS.
(I) This Agreement replaces and supersedes any other agreement or
understanding related to the Contracts, between or among the
parties to this Agreement.
6
<PAGE>
By signing below, the undersigned agree to have read and be bound by the terms
and conditions of this Agreement.
Date: ____________________
Selling Group Member: __________________________________________________
(broker-dealer)
Address: __________________________________________________
__________________________________________________
Signature: __________________________________________________
Name & Title: __________________________________________________
Associated Agency: __________________________________________________
(primary insurance agency affiliation)
Address: __________________________________________________
__________________________________________________
Signature: __________________________________________________
Name & Title: __________________________________________________
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Signature: __________________________________________________
Name & Title: __________________________________________________
American General Life Insurance Company
2727-A Allen Parkway
Houston Texas 77019
Signed By: __________________________________________________
Name & Title __________________________________________________
7
<PAGE>
Schedule A
<TABLE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
CONTRACTS COVERED BY THIS AGREEMENT
<CAPTION>
Policy Registration Forms Separate
Contract Name Form Nos. And Numbers Account
------------- --------- ------------------ --------
<S> <C> <C> <C>
Flexible Payment Variable
Life Insurance Policies:
Platinum Investor I 97600 Form S-6 VL-R
Platinum Investor II 97610 Nos. 811-08561
333-42567
</TABLE>
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, in Pre-Effective Amendment No. 1 to the
Registration Statement (Form S-6 No. 333-42567) of American General Life
Insurance Company Separate Account VL-R.
/s/Ernst & Young LLP
--------------------
ERNST & YOUNG LLP
Houston, Texas
March 23, 1998
EXHIBIT 8(a)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
AIM DISTRIBUTORS, INC.,
AMERICAN GENERAL LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS,
AND
AMERICAN GENERAL SECURITIES INCORPORATED
<PAGE>
TABLE OF CONTENTS
DESCRIPTION PAGE
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....................................... 2
2.1 Timely Pricing and Orders..................................... 2
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 Registration.................................................. 4
3.3 Other (Non-Sales-Related)..................................... 5
3.4 Other (Sales-Related)......................................... 5
3.5 Parties To Cooperate.......................................... 5
Section 4. Legal Compliance.............................................. 5
4.1 Tax Laws...................................................... 5
4.2 Insurance and Certain Other Laws.............................. 8
4.3 Securities Laws............................................... 8
4.4 Notice of Certain Proceedings and Other Circumstances......... 9
4.5 AMERICAN GENERAL To Provide Documents; Information About AVIF. 10
4.6 AVIF To Provide Documents; Information About LIFE COMPANY..... 11
Section 5. Mixed and Shared Funding...................................... 12
5.1 General....................................................... 12
5.2 Disinterested Directors....................................... 13
5.3 Monitoring for Material Irreconcilable Conflicts.............. 13
5.4 Conflict Remedies............................................. 14
5.5 Notice to AMERICAN GENERAL.................................... 15
5.6 Information Requested by Board of Directors................... 15
5.7 Compliance with SEC Rules..................................... 15
5.8 Other Requirements............................................ 16
Section 6. Termination................................................... 16
i
<PAGE>
DESCRIPTION PAGE
6.1 Events of Termination.......................................... 16
6.2 Notice Requirement for Termination............................. 17
6.3 Funds To Remain Available...................................... 17
6.4 Survival of Warranties and Indemnifications.................... 18
6.5 Continuance of Agreement for Certain Purposes.................. 18
Section 7. Parties To Cooperate Respecting Termination.................... 18
Section 8. Assignment..................................................... 18
Section 9. Notices........................................................ 18
Section 10. Voting Procedures.............................................. 19
Section 11. Foreign Tax Credits............................................ 20
Section 12. Indemnification................................................ 20
12.1 Of AVIF AIM DISTRIBUTORS by AMERICAN GENERAL and
UNDERWRITER.................................................... 20
12.2 Of AMERICAN GENERAL and AIM DISTRIBUTORS by AVIF............... 22
12.3 Effect of Notice............................................... 25
12.4 Successors..................................................... 25
Section 13. Applicable Law................................................. 25
Section 14. Execution in Counterparts...................................... 25
Section 15. Severability................................................... 25
Section 16. Rights Cumulative.............................................. 25
Section 17. Headings....................................................... 26
Section 18. Confidentiality................................................ 26
Section 19. Trademarks and Fund Names...................................... 26
Section 20. Parties to Cooperate........................................... 28
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"); American General Life Insurance Company, a
Texas life insurance company ("AMERICAN GENERAL"), 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"); and American General Securities Incorporated,
an affiliate of AMERICAN GENERAL 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, AMERICAN GENERAL 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, AMERICAN GENERAL 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, AMERICAN GENERAL 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, AMERICAN GENERAL 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");
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 AMERICAN GENERAL 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.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide
AMERICAN GENERAL 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
2
<PAGE>
Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's
net asset value, and (iii) AMERICAN GENERAL is open for business.
(b) AMERICAN GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL
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
AMERICAN GENERAL.
(c) With respect to payment of the purchase price by AMERICAN GENERAL
and of redemption proceeds by AVIF, AMERICAN GENERAL 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), AMERICAN GENERAL 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 AMERICAN
GENERAL.
2.2 TIMELY PAYMENTS.
AMERICAN GENERAL will wire payment for net purchases to a custodial
account designated by AVIF by 1:00 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 AMERICAN GENERAL by 1:00 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 AMERICAN GENERAL 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 transactions") and that AMERICAN GENERAL
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), AMERICAN GENERAL 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
3
<PAGE>
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 AMERICAN GENERAL 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 AMERICAN GENERAL of any
income dividends or capital gain distributions payable on the Shares of any
Fund. AMERICAN GENERAL 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 AMERICAN GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL. Shares ordered from AVIF
will be recorded in an appropriate title for AMERICAN GENERAL, on behalf of
its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the
1933 Act, and keeping such registrations current and effective; including,
without limitation, the preparation of and filing with the SEC of Forms N-SAR
and Rule 24f-2 Notices with respect to AVIF and its Shares and payment of all
applicable registration or filing fees with respect to any of the foregoing.
(b) AMERICAN GENERAL will bear the cost of registering, to the extent
required, each Account as a unit investment trust under the 1940 Act and
registering units of interest under the Contracts under the 1933 Act and
keeping such registrations current and effective; including, without
limitation, the preparation and filing with the SEC of Forms N-SAR and Rule
24f-2
4
<PAGE>
Notices with respect to each Account and its units of interest and payment of
all applicable registration or filing fees with respect to any of the
foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) AMERICAN GENERAL will bear the costs of preparing, filing with the
SEC and setting for printing each Account's prospectus, statement of
additional information and any amendments or supplements thereto
(collectively, the "Account Prospectus"), any periodic reports to Contract
owners, annuitants, insureds or participants (as appropriate) under the
Contracts (collectively, "Participants"), voting instruction solicitation
material, and other Participant communications.
(c) AMERICAN GENERAL will print in quantity and deliver to existing
Participants the documents described in Section 3.3(b) above and the
prospectus provided by AVIF in camera ready or computer diskette form. AVIF
will print the AVIF statement of additional information, proxy materials
relating to AVIF and periodic reports of AVIF.
3.4 OTHER (SALES-RELATED).
AMERICAN GENERAL will bear the expenses of distribution. These expenses
would include by way of illustration, but are not limited to, the costs of
distributing to Participants the following documents, whether they relate to
the Account or AVIF: prospectuses, statements of additional information, proxy
materials and periodic reports. These costs would also include the costs of
preparing, printing, and distributing sales literature and advertising
relating to the Funds, as well as 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.
3.5 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.
5
<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 AMERICAN GENERAL 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 AMERICAN GENERAL 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) AMERICAN GENERAL agrees that if the Internal Revenue Service
("IRS") asserts in writing in connection with any governmental audit or review
of AMERICAN GENERAL or, to AMERICAN GENERAL's knowledge, of any Participant,
that any Fund has failed to comply with the diversification requirements of
Section 817(h) of the Code or AMERICAN GENERAL 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) AMERICAN GENERAL shall promptly notify AVIF of such
assertion or potential claim (subject to the
Confidentiality provisions of Section 18 as to any
Participant);
(ii) AMERICAN GENERAL shall consult with AVIF as to how to
minimize any liability that may arise as a result of such
failure or alleged failure;
(iii) AMERICAN GENERAL 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) AMERICAN GENERAL 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,
6
<PAGE>
however, that AMERICAN GENERAL will retain control of the
conduct of such conferences discussions, proceedings,
contests or appeals;
(v) any written materials to be submitted by AMERICAN GENERAL
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 AMERICAN
GENERAL 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 AMERICAN GENERAL to any such
person without the express written consent of AVIF which
shall not be unreasonably withheld;
(vi) AMERICAN GENERAL 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
AMERICAN GENERAL) 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) AMERICAN GENERAL 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
AMERICAN GENERAL 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; and
PROVIDED FURTHER that the costs of any such appeal shall be
borne equally by the Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a result
of such failure or alleged failure if AMERICAN GENERAL
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, AMERICAN
GENERAL may, in its discretion, authorize AVIF or its affiliates to act in the
name of AMERICAN GENERAL in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all
7
<PAGE>
administrative or judicial appeals 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 AMERICAN GENERAL 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) AMERICAN GENERAL 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; AMERICAN GENERAL 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) AMERICAN GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL, including, the furnishing of information not otherwise
available to AMERICAN GENERAL which is required by state insurance law to
enable AMERICAN GENERAL to obtain the authority needed to issue the Contracts
in any applicable state.
(b) AMERICAN GENERAL 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 Section 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.
8
<PAGE>
(a) AMERICAN GENERAL 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 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) AMERICAN GENERAL
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.
9
<PAGE>
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify AMERICAN GENERAL 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 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 AMERICAN GENERAL. 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) AMERICAN GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF.
(a) AMERICAN GENERAL 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) AMERICAN GENERAL 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
10
<PAGE>
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 AMERICAN GENERAL in the manner required by Section 9 hereof.
(c) Neither AMERICAN GENERAL 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 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) AMERICAN GENERAL 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 AMERICAN GENERAL.
(a) AVIF will provide to AMERICAN GENERAL 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 AMERICAN GENERAL camera ready or computer
diskette copies of all AVIF prospectuses and printed copies, in an amount
specified by AMERICAN GENERAL, of AVIF statements of additional information,
proxy materials, periodic reports to
11
<PAGE>
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 AMERICAN GENERAL in a timely manner so as to enable AMERICAN GENERAL, 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 AMERICAN GENERAL or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which AMERICAN GENERAL, 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, agree upon. No such material shall be used if AMERICAN
GENERAL 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. AMERICAN GENERAL 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 AMERICAN
GENERAL, 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 AMERICAN GENERAL for distribution; or
(iii) in sales literature or other promotional material approved by AMERICAN
GENERAL or its affiliates, except with the express written permission of
AMERICAN GENERAL.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning AMERICAN
GENERAL, 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 AMERICAN GENERAL, 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.
12
<PAGE>
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 AMERICAN GENERAL, 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 AMERICAN GENERAL 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"). AMERICAN GENERAL 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;
13
<PAGE>
(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
(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, AMERICAN GENERAL 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 AMERICAN GENERAL to disregard voting instructions of
Participants. AMERICAN GENERAL's responsibilities in connection with the
foregoing shall be carried out with a view only to the interests 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, AMERICAN GENERAL 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.
14
<PAGE>
(b) If the material irreconcilable conflict arises because of AMERICAN
GENERAL's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote,
AMERICAN GENERAL 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 AMERICAN GENERAL that this provision is
being implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by AMERICAN GENERAL 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 AMERICAN GENERAL conflicts
with the majority of other state regulators, then AMERICAN GENERAL will
withdraw each Account's investment in AVIF within six (6) months after AVIF's
Board of Directors informs AMERICAN GENERAL that it has determined that such
decision has created a material irreconcilable conflict, and until such
withdrawal AVIF shall continue to accept and implement orders by AMERICAN
GENERAL for the purchase and redemption of Shares of AVIF. No charge or
penalty will be imposed as a result of such withdrawal.
(d) AMERICAN GENERAL 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. AMERICAN GENERAL 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.
15
<PAGE>
5.5 NOTICE TO AMERICAN GENERAL.
AVIF will promptly make known in writing to AMERICAN GENERAL 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.
AMERICAN GENERAL 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.
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
16
<PAGE>
(b) at the option of AVIF upon institution of formal proceedings
against AMERICAN GENERAL or its affiliates by the NASD, the SEC, any state
insurance regulator or any other regulatory body regarding AMERICAN GENERAL'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 AMERICAN GENERAL 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, AMERICAN GENERAL 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 AMERICAN GENERAL, 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 AMERICAN GENERAL; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of AMERICAN GENERAL if the Fund ceases to qualify as
a RIC under Subchapter M of the Code or under successor or similar provisions,
or if AMERICAN GENERAL reasonably believes that the Fund may fail to so
qualify; or
(g) at the option of AMERICAN GENERAL if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if
AMERICAN GENERAL reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by AMERICAN GENERAL
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.
17
<PAGE>
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 AMERICAN GENERAL, 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.
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 AMERICAN GENERAL 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).
18
<PAGE>
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:
AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
AMERICAN GENERAL LIFE INSURANCE COMPANY
AMERICAN GENERAL SECURITIES INCORPORATED
c/o American Independent Producer Division
2727-A Allen Parkway
Houston, Texas 77019
Facsimile: (713) 831-3071
Attn: Steven A. Glover, Esq.
19
<PAGE>
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
AMERICAN GENERAL 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. AMERICAN
GENERAL will vote Shares in accordance with timely instructions received from
Participants. AMERICAN GENERAL 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 AMERICAN GENERAL 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. AMERICAN
GENERAL reserves the right to vote shares held in any Account in its own
right, to the extent permitted by law. AMERICAN GENERAL 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 AMERICAN GENERAL 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
AVIF agrees to consult in advance with AMERICAN GENERAL 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 AIM DISTRIBUTORS BY AMERICAN GENERAL AND UNDERWRITER.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, AMERICAN GENERAL and UNDERWRITER agree to indemnify and hold harmless
AVIF, AIM Distributors, and their respective affiliates, and each person, if
any, who controls AVIF, AIM Distributors, 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
20
<PAGE>
Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of AMERICAN
GENERAL 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 AMERICAN
GENERAL 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 AMERICAN
GENERAL, UNDERWRITER or their respective affiliates and on
which such persons have reasonably relied) or the negligent,
illegal or fraudulent conduct of AMERICAN GENERAL,
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 (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
AMERICAN GENERAL, UNDERWRITER or their respective affiliates
21
<PAGE>
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 AMERICAN GENERAL 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 AMERICAN GENERAL or
UNDERWRITER in this Agreement or arise out of or result from
any other material breach of this Agreement by AMERICAN
GENERAL or UNDERWRITER; or
(v) arise as a result of failure by the Contracts issued by
AMERICAN GENERAL 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 AMERICAN GENERAL 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 AMERICAN GENERAL nor UNDERWRITER shall be liable under
this Section 12.1 with respect to any action against an Indemnified Party
unless AVIF shall have notified AMERICAN GENERAL 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 AMERICAN
GENERAL and UNDERWRITER of any such action shall not relieve AMERICAN GENERAL
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, AMERICAN GENERAL 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 unreasonably withheld. After notice from AMERICAN GENERAL or
UNDERWRITER to such Indemnified Party of AMERICAN GENERAL's or UNDERWRITER's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with AMERICAN GENERAL and UNDERWRITER and shall bear the fees and
expenses of any additional counsel retained by it, and neither AMERICAN
GENERAL 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.
22
<PAGE>
12.2 OF AMERICAN GENERAL AND UNDERWRITER BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), below, AVIF and AIM Distributors agrees to indemnify and hold
harmless AMERICAN GENERAL, UNDERWRITER, their respective affiliates, and each
person, if any, who controls AMERICAN GENERAL, 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 Distributors) 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
Distributors or their respective affiliates by or on behalf
of AMERICAN GENERAL, 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 Distributors or their respective affiliates and
on which such persons have reasonably relied) or the
negligent, illegal or fraudulent conduct of AVIF and AIM
Distributors 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 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
23
<PAGE>
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 AMERICAN GENERAL, UNDERWRITER or their
respective affiliates by or on behalf of AVIF and AIM
Distributors or their respective affiliates 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 Distributors in this Agreement or arise out
of or result from any other material breach of this
Agreement by AVIF or AIM Distributors.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, AVIF and AIM Distributors agrees 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 AMERICAN GENERAL 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 AMERICAN GENERAL of Shares
of another investment company or portfolio for those of any adversely affected
Fund as a funding medium for each Account that AMERICAN GENERAL reasonably
deems necessary or appropriate as a result of the noncompliance.
(c) Neither AVIF nor AIM Distributors 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 AMERICAN GENERAL, UNDERWRITER, each Account or Participants.
(d) Neither AVIF nor AIM Distributors shall 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 Distributors in writing
within a reasonable time after the summons or other first legal
24
<PAGE>
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 Distributors of any such action shall not relieve AVIF and
AIM Distributors 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 Distributors 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 Distributors to such Indemnified Party of
AVIF's and/or AIM Distributor's election to assume the defense thereof, the
Indemnified Party will cooperate fully with AVIF and/or AIM Distributors and
shall bear the fees and expenses of any additional counsel retained by it, and
neither AVIF nor AIM Distributors 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, AMERICAN GENERAL, 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 AMERICAN GENERAL or
UNDERWRITER hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants; (ii) the failure by AMERICAN GENERAL 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 AMERICAN
GENERAL 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.
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
25
<PAGE>
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.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of AMERICAN
GENERAL or any of its affiliates (collectively, the "AMERICAN GENERAL
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 AMERICAN GENERAL Protected Parties or any of
their employees or agents in connection with AMERICAN GENERAL's performance of
its duties under this Agreement are the valuable property of the AMERICAN
GENERAL Protected Parties. AVIF agrees that if it comes into possession of any
list or compilation of the identities of or other information about the
AMERICAN GENERAL Protected Parties' customers, or any other information or
property of the AMERICAN GENERAL Protected Parties, other than such
information as may be independently developed or compiled by AVIF from
information supplied to it by the AMERICAN GENERAL Protected Parties'
customers who also maintain
26
<PAGE>
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 AMERICAN GENERAL's prior
written consent; or (b) as required by law or judicial process. AMERICAN
GENERAL 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. AMERICAN GENERAL 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 AMERICAN GENERAL
from information supplied to it by the AVIF Protected Parties' customers who
also maintain accounts directly with AMERICAN GENERAL, AMERICAN GENERAL 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 AMERICAN GENERAL (the "AIM licensed marks" or the "licensor's
licensed marks") and is authorized to use and to license other persons to use
such marks. AMERICAN GENERAL and its affiliates are hereby granted a
non-exclusive license to use the AIM licensed marks in connection with
AMERICAN GENERAL'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 AMERICAN GENERAL 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 AMERICAN GENERAL 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, AMERICAN GENERAL 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 AMERICAN GENERAL
shall have the right to continue to service outstanding Contracts bearing any
of the AIM licensed marks.
27
<PAGE>
(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.
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.
-----------------------------------------
28
<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: _____________________________
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
AIM DISTRIBUTORS, INC.
Attest: _____________________________ By: _____________________________
Nancy L. Martin Name: A.W. Gary Littlepage
Assistant General Counsel Title: Sr. Vice President
& Assistant Secretary
AMERICAN GENERAL LIFE INSURANCE
COMPANY, on behalf of itself and its
separate accounts
Attest: _____________________________ By: _____________________________
Steven A. Glover Name: Don M. Ward
Assistant Secretary Title: Senior Vice President-Variable
Products
AMERICAN GENERAL SECURITIES
INCORPORATED
Attest: _____________________________ By: _____________________________
Steven A. Glover Name: F. Paul Kovach
Assistant Secretary Title: President
29
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
o AIM VARIABLE INSURANCE FUNDS, INC.
V.I. International Equity
V.I. Value
SEPARATE ACCOUNTS UTILIZING THE FUNDS
American General Life Insurance Company Separate Account VL-R
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
Platinum Investor I Policy Form No. 97600
Platinum Investor II Policy Form No. 97610
30
<PAGE>
SCHEDULE B
o AIM VARIABLE INSURANCE FUNDS, INC.
AIM __________________ Fund
o AIM and Design
[AIM GRAPHIC OMITTED]
31
EXHIBIT 8(c)
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the day of _________, 1998, between
AMERICAN GENERAL LIFE INSURANCE COMPANY, a life insurance company organized
under the laws of the State of Texas ("Insurance Company") (on behalf of
itself and its Separate Account, as defined below), and each of DREYFUS
VARIABLE INVESTMENT FUND, THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
and DREYFUS LIFE AND ANNUITY INDEX FUND, INC. (d/b/a DREYFUS STOCK INDEX FUND)
(each a "Fund").
1.0 ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Directors or Trustees, as the case may
be, of a Fund, which has the responsibility for management and control
of the Fund.
1.3 "Business Day" shall mean any day for which a Fund calculates net asset
value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or life insurance contract that
uses any Participating Fund (as defined below) as an underlying
investment medium. Individuals who participate under a group Contract
are "Participants."
1.6 "Contractholder" shall mean any entity that is a party to a Contract
with a Participating Company (as defined below).
1.7 "Disinterested Board Members" shall mean those members of the Board of a
Fund that are not deemed to be "interested persons" of the Fund, as
defined by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company) that offers variable annuity and/or variable life
insurance contracts to the public and that has entered into an agreement
with one or more of the Funds.
1.10 "Participating Fund" shall mean each Fund, including, as applicable,
only those series specified in Exhibit A, as such Exhibit may be amended
from time to time by agreement of the parties hereto, the shares of
which are available to serve as the underlying investment medium for the
aforesaid Contracts.
<PAGE>
1.11 "Prospectus" shall mean the current prospectus and statement of
additional information of a Fund, as most recently filed with the
Commission.
1.12 "Separate Account" shall mean American General Life Insurance Company
Separate Account VL-R, a separate account established by Insurance
Company in accordance with the laws of the State of Texas.
1.13 "Software Program" shall mean the software program used by a Fund for
providing Fund and account balance information including net asset value
per share. Such Program may include the Lion System. In situations where
the Lion System or any other Software Program used by a Fund is not
available, such information may be provided by telephone. The Lion
System shall be provided to Insurance Company at no charge.
1.14 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates that invest in a
Fund.
2.0 ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b) it
has legally and validly established the Separate Account pursuant to the
Texas Insurance Code for the purpose of offering to the public certain
individual and group variable annuity and life insurance contracts; (c)
it has registered the Separate Account as a unit investment trust under
the Act to serve as the segregated investment account for the Contracts;
and (d) the Separate Account is eligible to invest in shares of each
Participating Fund without such investment disqualifying any
Participating Fund as an investment medium for insurance company
separate accounts supporting variable annuity contracts or variable life
insurance contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will be
described in a registration statement filed under the Securities Act of
1933, as amended ("1933 Act"); (b) the Contracts will be issued and sold
in compliance in all material respects with all applicable federal and
state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to notify each Participating Fund promptly of any
investment restrictions imposed by state insurance law and applicable to
the Participating Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be credited
to or charged against such Separate Account without regard to other
income, gains or losses from assets allocated to any other accounts of
Insurance Company. Insurance Company represents and warrants that the
assets of the Separate Account are and will be kept separate from
Insurance Company's General Account and any other separate accounts
Insurance Company may have, and such Separate Account will not be
charged with liabilities from any business that Insurance Company may
conduct or the liabilities of any companies affiliated with Insurance
Company.
-2-
<PAGE>
2.4 Each Participating Fund represents that it is registered with the
Commission under the Act as an open-end, management investment company
and possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Participating
Fund to operate and offer its shares as an underlying investment medium
for Participating Companies.
2.5 Each Participating Fund represents that it is currently qualified as a
regulated investment company under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every
effort to maintain such qualification (under Subchapter M or any
successor or similar provision) and that it will notify Insurance
Company immediately upon having a reasonable basis for believing that it
has ceased to so qualify or that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is appropriate, under
applicable provisions of the Code, and that it will make every effort to
maintain such treatment and that it will notify each Participating Fund
and Dreyfus immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not
be so treated in the future. Insurance Company agrees that any
prospectus offering a Contract that is a "modified endowment contract,"
as that term is defined in Section 7702A of the Code, will identify such
Contract as a modified endowment contract (or policy).
2.7 Each Participating Fund agrees that its assets shall be maintained,
managed and invested in a manner that complies with the requirements of
Section 817(h) of the Code. Each Participating Fund agrees to notify
Insurance Company promptly upon having a reasonable basis for believing
that the Participating Fund has ceased to so comply, or that the
Participating Fund might not so comply in the future. In the event of a
breach of this Section 2.7 by a Participating Fund, the Participating
Fund shall take all reasonable steps to comply with the diversification
requirements of Section 817(h) within the grace period specified under
Section 817(h) of the Code.
2.8 Insurance Company agrees that each Participating Fund shall be permitted
(subject to the other terms of this Agreement) to make its shares
available to other Participating Companies and Contractholders.
2.9 Each Participating Fund represents and warrants that any of its
directors, trustees, officers, employees, investment advisers, and other
individuals/entities who deal with the money and/or securities of the
Participating Fund are and shall continue to be at all times covered by
a blanket fidelity bond or similar coverage for the benefit of the
Participating Fund in an amount not less than that required by Rule
17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of each Participating
Fund are and shall continue to be at all
-3-
<PAGE>
times covered by a blanket fidelity bond or similar coverage in an
amount not less than the coverage required to be maintained by the
Participating Fund. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
3.0 ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in shares of each Participating Fund.
3.2 Each Participating Fund agrees to make its shares available for purchase
at the then applicable net asset value per share by Insurance Company
and the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, each Participating Fund may
refuse to sell its shares to any person, or suspend or terminate the
offering of its shares, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion
of its Board, acting in good faith and in light of its fiduciary duties
under federal and any applicable state laws, necessary and in the best
interests of the Participating Fund's shareholders.
3.3 Each Participating Fund agrees that shares of the Participating Fund
will be sold only to (a) Participating Companies and their separate
accounts or (b) "qualified pension or retirement plans" as determined
under Section 817(h)(4) of the Code. Except as otherwise set forth in
this Section 3.3, no shares of any Participating Fund will be sold to
the general public.
3.4 Each Participating Fund shall use its best efforts to provide closing
net asset value, dividend and capital gain information on a per-share
basis to Insurance Company by 6:00 p.m. Eastern time on each Business
Day. Any material errors in the calculation of net asset value, dividend
and capital gain information shall be reported immediately upon
discovery to Insurance Company. Non-material errors will be corrected in
the next Business Day's net asset value per share.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the unit
values of the Separate Account for the day. Using this unit value,
Insurance Company will process the day's Separate Account transactions
received by it by the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) to determine the net
dollar amount of each Participating Fund's shares that will be purchased
or redeemed at that day's closing net asset value per share. Insurance
Company will use all commercially reasonable efforts to transmit the net
purchase or redemption orders to each Participating Fund by 11:00 a.m.
Eastern time on the Business Day next following Insurance Company's
receipt of that information. Subject to Sections 3.6 and 3.8, all
purchase and redemption orders for Insurance Company's General Accounts
shall be
-4-
<PAGE>
effected at the net asset value per share of each Participating Fund
next calculated after receipt of the order by the Participating Fund or
its Transfer Agent.
3.6 Each Participating Fund appoints Insurance Company as its agent for the
limited purpose of accepting orders for the purchase and redemption of
Participating Fund shares for the Separate Account. Each Participating
Fund will execute orders at the applicable net asset value per share
determined as of the close of trading on the day of receipt of such
orders by Insurance Company acting as agent ("effective trade date"),
provided that the Participating Fund receives notice of such orders by
11:00 a.m. Eastern time on the next following Business Day and, if such
orders request the purchase of Participating Fund shares, the conditions
specified in Section 3.8, as applicable, are satisfied. A redemption or
purchase request that does not satisfy the conditions specified above
and in Section 3.8, as applicable, will be effected at the net asset
value per share computed on the Business Day immediately preceding the
next following Business Day upon which such conditions have been
satisfied in accordance with the requirements of this Section and
Section 3.8. Payment for the purchase or redemption of Participating
Fund shares may be netted against one another on any Business Day for
the purpose of determining the amount of any wire transfer on that
Business Day. Insurance Company represents and warrants that all orders
submitted by the Insurance Company for execution on the effective trade
date shall represent purchase or redemption orders received from
Contractholders prior to the close of trading on the New York Stock
Exchange on the effective trade date.
3.7 Insurance Company will make its best efforts to notify each applicable
Participating Fund in advance of any unusually large purchase or
redemption orders.
3.8 If Insurance Company's order requests the purchase of a Participating
Fund's shares, Insurance Company will pay for such purchases by wiring
Federal Funds to the Participating Fund or its designated custodial
account on the day the order is transmitted. Insurance Company shall
make all commercially reasonable efforts to transmit to the applicable
Participating Fund payment in Federal Funds by 12:00 noon Eastern time
on the Business Day the Participating Fund receives the notice of the
order pursuant to Section 3.5. Each applicable Participating Fund will
execute such orders at the applicable net asset value per share
determined as of the close of trading on the effective trade date if the
Participating Fund receives payment in Federal Funds by 12:00 midnight
Eastern time on the Business Day the Participating Fund receives the
notice of the order pursuant to Section 3.5. If payment in Federal Funds
for any purchase is not received or is received by a Participating Fund
after 12:00 noon Eastern time on such Business Day, Insurance Company
shall promptly, upon each applicable Participating Fund's request,
reimburse the respective Participating Fund for any charges, costs,
fees, interest or other expenses incurred by the Participating Fund in
connection with any advances to, or borrowings or overdrafts by, the
Participating Fund, or any similar expenses incurred by the
Participating Fund, as a result of portfolio transactions effected by
the Participating Fund based upon such purchase request. If Insurance
Company's order requests the redemption of any Participating Fund's
shares valued at or greater than $1 million dollars, the Participating
Fund will wire such amount to Insurance Company within seven days of the
order.
-5-
<PAGE>
3.9 Each Participating Fund has the obligation to ensure that its shares are
registered with applicable federal agencies at all times.
3.10 Each Participating Fund will confirm each purchase or redemption order
made by Insurance Company. Transfer of Participating Fund shares will be
by book entry only. No share certificates will be issued to Insurance
Company. Insurance Company will record shares ordered from a
Participating Fund in an appropriate title for the corresponding
account.
3.11 Each Participating Fund shall credit Insurance Company with the
appropriate number of shares.
3.12 On each ex-dividend date of a Participating Fund or, if not a Business
Day, on the first Business Day thereafter, each Participating Fund shall
communicate to Insurance Company the amount of dividend and capital
gain, if any, per share. All dividends and capital gains shall be
automatically reinvested in additional shares of the applicable
Participating Fund at the net asset value per share on the ex-dividend
date. Each Participating Fund shall, on the day after the ex-dividend
date or, if not a Business Day, on the first Business Day thereafter,
notify Insurance Company of the number of shares so issued. Insurance
Company reserves the right, on its behalf and on behalf of the Separate
Account, to revoke this election and receive all such dividends in cash.
4.0 ARTICLE IV
STATEMENTS AND REPORTS
4.1 Each Participating Fund shall provide monthly statements of account as
of the end of each month for all of Insurance Company's accounts by the
fifteenth (15th) Business Day of the following month.
4.2 Each Participating Fund shall distribute to Insurance Company copies of
the Participating Fund's Prospectuses, proxy materials, notices,
periodic reports and other printed materials (which the Participating
Fund customarily provides to its shareholders) in quantities as
Insurance Company may reasonably request for distribution to each
Contractholder and Participant.
4.3 Each Participating Fund will provide to Insurance Company at least one
complete copy of all registration statements, Prospectuses, reports,
proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Participating Fund or
its shares, contemporaneously with the filing of such document with the
Commission or other regulatory authorities.
4.4 Insurance Company will provide to each Participating Fund at least one
copy of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the
Separate Account, contemporaneously with the filing of such document
with the Commission.
-6-
<PAGE>
5.0 ARTICLE V
EXPENSES
5.1 The charge to each Participating Fund for all expenses and costs of the
Participating Fund, including but not limited to management fees,
administrative expenses and legal and regulatory costs, will be made in
the determination of the Participating Fund's daily net asset value per
share so as to accumulate to an annual charge at the rate set forth in
the Participating Fund's Prospectus. Excluded from the expense
limitation described herein shall be brokerage commissions and
transaction fees and extraordinary expenses.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of any Participating Fund or expenses relating to the
distribution of its shares. Insurance Company shall pay the following
expenses or costs:
a. Such amount of the production expenses of any Participating Fund
materials, including the cost of printing a Participating Fund's
Prospectus, or marketing materials for prospective Insurance
Company Contractholders and Participants as Dreyfus and Insurance
Company shall agree from time to time. Each Participating Fund
agrees to bear one-half of the expense of printing such
Participating Fund's prospectus to be distributed to
Contractholders.
b. Distribution expenses of any Participating Fund materials or
marketing materials for prospective Insurance Company
Contractholders and Participants.
c. Distribution expenses of any Participating Fund materials or
marketing materials for Insurance Company Contractholders and
Participants.
Except as provided herein, all other expenses of each Participating Fund
shall not be borne by Insurance Company.
6.0 ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of (i) the amended order dated
December 31, 1997 of the Securities and Exchange Commission under
Section 6(c) of the Act with respect to Dreyfus Variable Investment Fund
and Dreyfus Life and Annuity Index Fund, Inc.; and (ii) the order dated
February 5, 1998 of the Securities and Exchange Commission under Section
6(c) of the Act with respect to The Dreyfus Socially Responsible Growth
Fund, Inc., and, in particular, has reviewed the conditions to the
relief set forth in each related Notice. As set forth therein, if
Dreyfus Variable Investment Fund, Dreyfus Life and Annuity Index Fund,
Inc. or The Dreyfus Socially Responsible Growth Fund, Inc. is a
Participating Fund, Insurance Company agrees, as applicable, to report
any potential or existing conflicts promptly to the respective Board of
Dreyfus Variable Investment Fund, Dreyfus Life and Annuity Index Fund,
Inc. and/or The Dreyfus Socially Responsible Growth Fund, Inc., and, in
particular, whenever
-7-
<PAGE>
contract voting instructions are disregarded, and recognizes that it
will be responsible for assisting each applicable Board in carrying out
its responsibilities under such application. Insurance Company agrees to
carry out such responsibilities with a view to the interests of existing
Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in a Participating Fund, the Board
shall give prompt notice to all Participating Companies and any other
Participating Fund. If the Board determines that Insurance Company is
responsible for causing or creating said conflict, Insurance Company
shall at its sole cost and expense, and to the extent reasonably
practicable (as determined by a majority of the Disinterested Board
Members), take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may include, but
shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from the
Participating Fund and reinvesting such assets in another
Participating Fund (if applicable) or a different investment
medium, or submitting the question of whether such segregation
should be implemented to a vote of all affected Contractholders;
and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions and
said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in a
Participating Fund, Insurance Company may be required, at the Board's
election, to withdraw the investments of the Separate Account in that
Participating Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will any
Participating Fund be required to bear the expense of establishing a new
funding medium for any Contract. Insurance Company shall not be required
by this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or any Participating Fund taken or omitted as a result
of any act or failure to act by Insurance Company pursuant to this
Article VI, shall relieve Insurance Company of its obligations under, or
otherwise affect the operation of, Article V.
7.0 ARTICLE VII
VOTING OF PARTICIPATING FUND SHARES
7.1 Each Participating Fund shall provide Insurance Company with copies, at
no cost to Insurance Company, of the Participating Fund's proxy
material, reports to shareholders and other
-8-
<PAGE>
communications to shareholders in such quantity as Insurance Company
shall reasonably require for distributing to Contractholders or
Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or Participants
on a timely basis and in accordance with applicable law;
(b) vote the Participating Fund shares in accordance with instructions
received from Contractholders or Participants; and
(c) vote the Participating Fund shares for which no instructions have
been received in the same proportion as Participating Fund shares
for which instructions have been received.
Insurance Company agrees at all times to vote its General Account shares
in the same proportion as the Participating Fund shares for which
instructions have been received from Contractholders or Participants.
Insurance Company further agrees to be responsible for assuring that
voting the Participating Fund shares for the Separate Account is
conducted in a manner consistent with other Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of each applicable Participating Fund and Dreyfus, solicit,
induce or encourage Contractholders to (a) change or supplement the
Participating Fund's current investment adviser or (b) change, modify,
substitute, add to or delete from the current investment media for the
Contracts.
8.0 ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 Each Participating Fund or its underwriter shall periodically furnish
Insurance Company with the following documents, in quantities as
Insurance Company may reasonably request:
a. Current Prospectus and any supplements thereto; and
b. Other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities that shall
have the requisite licenses to solicit applications for the sale of
Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
-9-
<PAGE>
8.3 Insurance Company shall furnish, or shall cause to be furnished, to each
applicable Participating Fund or its designee, each piece of sales
literature or other promotional material in which the Participating
Fund, its investment adviser or the administrator is named, at least
fifteen Business Days prior to its use. No such material shall be used
unless the Participating Fund or its designee approves such material.
Such approval (if given) must be in writing and shall be presumed not
given if not received within ten Business Days after receipt of such
material. Each applicable Participating Fund or its designee, as the
case may be, shall use all reasonable efforts to respond within ten days
of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of a Participating Fund or
concerning a Participating Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or Prospectus of, as may be amended or
supplemented from time to time, or in reports or proxy statements for,
the applicable Participating Fund, or in sales literature or other
promotional material approved by the applicable Participating Fund.
8.5 Each Participating Fund shall furnish, or shall cause to be furnished,
to Insurance Company, each piece of the Participating Fund's sales
literature or other promotional material in which Insurance Company or
the Separate Account is named, at least fifteen Business Days prior to
its use. No such material shall be used unless Insurance Company
approves such material. Such approval (if given) must be in writing and
shall be presumed not given if not received within ten Business Days
after receipt of such material. Insurance Company shall use all
reasonable efforts to respond within ten days of receipt.
8.6 Each Participating Fund shall not, in connection with the sale of
Participating Fund shares, give any information or make any
representations on behalf of Insurance Company or concerning Insurance
Company, the Separate Account, or the Contracts other than the
information or representations contained in a registration statement or
prospectus for the Contracts, as may be amended or supplemented from
time to time, or in published reports for the Separate Account that are
in the public domain or approved by Insurance Company for distribution
to Contractholders or Participants, or in sales literature or other
promotional material approved by Insurance Company.
8.7 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 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. rules, the Act or the
1933 Act.
-10-
<PAGE>
9.0 ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless each
Participating Fund, Dreyfus, each respective Participating Fund's
investment adviser and sub-investment adviser (if applicable), each
respective Participating Fund's distributor, and their respective
affiliates, and each of their directors, trustees, officers, employees,
agents and each person, if any, who controls or is associated with any
of the foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted) for
which the Indemnified Parties may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect to thereof) (i) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in information furnished by Insurance Company for use in the
registration statement or Prospectus or sales literature or
advertisements of the respective Participating Fund or with respect to
the Separate Account or Contracts, 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; (ii) arise out of or as a result of conduct,
statements or representations (other than statements or representations
contained in the Prospectus and sales literature or advertisements of
the respective Participating Fund) of Insurance Company or its agents,
with respect to the sale and distribution of Contracts for which the
respective Participating Fund's shares are an underlying investment;
(iii) arise out of the wrongful conduct of Insurance Company or persons
under its control with respect to the sale or distribution of the
Contracts or the respective Participating Fund's shares; (iv) arise out
of Insurance Company's incorrect calculation and/or untimely reporting
of net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result of
any failure by Insurance Company to provide the services and furnish the
materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that with respect to clauses (i) and (ii)
above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or omission or alleged omission made
in such registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the respective Participating Fund specifically for
use therein. This indemnity agreement will be in addition to any
liability which Insurance Company may otherwise have.
9.2 Each Participating Fund severally agrees to indemnify and hold harmless
Insurance Company, American General Securities Incorporated ("AGSI"),
their respective affiliates, and each of their directors, officers,
employees, agents and each person, if any, who controls Insurance
Company and/or AGSI within the meaning of the 1933 Act (collectively,
the "Indemnified Parties") against any losses, claims, damages or
liabilities to which the Indemnified Parties may become subject, under
the 1933 Act or otherwise, insofar as such losses, claims, damages
-11-
<PAGE>
or liabilities (or actions in respect thereof) (1) 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 or advertisements of the respective Participating Fund;
(2) arise out of or are based upon the omission to state in the
registration statement or Prospectus or sales literature or
advertisements of the respective Participating Fund any material fact
required to be stated therein or necessary to make the statements
therein not misleading; or (3) 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 or
advertisements with respect to the Separate Account or the Contracts and
such statements were based on information provided to Insurance Company
by the respective Participating Fund; and the respective Participating
Fund will reimburse any legal or other expenses reasonably incurred by
the Indemnified Parties in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however,
that the respective Participating Fund will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or omission or alleged
omission made in such registration statement, Prospectus, sales
literature or advertisements in conformity with written information
furnished to the respective Participating Fund by Insurance Company
specifically for use therein. This indemnity agreement will be in
addition to any liability which the respective Participating Fund may
otherwise have.
9.3 Each Participating Fund severally shall indemnify and hold the
Indemnified Parties harmless against any and all liability, loss,
damages, costs or expenses which they may incur, suffer or be required
to pay due to the respective Participating Fund's (1) incorrect
calculation of the daily net asset value, dividend rate or capital gain
distribution rate; (2) incorrect reporting of the daily net asset value,
dividend rate or capital gain distribution rate; (3) untimely reporting
of the net asset value, dividend rate or capital gain distribution rate;
and (4) breach of a material term of this Agreement, or as a result of a
failure by such Participating Fund to provide the services or furnish
the materials or make the payments required by such Participating Fund
under the Agreement; provided that the respective Participating Fund
shall have no obligation to indemnify and hold harmless Insurance
Company if the incorrect calculation or incorrect or untimely reporting
was the result of incorrect information furnished by Insurance Company
or information furnished untimely by Insurance Company or otherwise as a
result of or relating to a breach of this Agreement by Insurance
Company.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such indemnified party, and to the extent that the
indemnifying party has given notice to such effect
-12-
<PAGE>
to the indemnified party and is performing its obligations under this
Article, the indemnifying party shall not be liable for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, other than reasonable costs of
investigation. Notwithstanding the foregoing, in any such proceeding,
any indemnified party shall have the right to retain its own counsel,
but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests
between them. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article IX. The
provisions of this Article IX shall survive termination of this
Agreement.
9.5 Insurance Company shall indemnify and hold each respective Participating
Fund, Dreyfus and sub-investment adviser of the Participating Fund
harmless against any tax liability incurred by the Participating Fund
under Section 851 of the Code arising from purchases or redemptions by
Insurance Company's General Accounts or the account of its affiliates.
10.0 ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty:
a. As to any Participating Fund, at the option of Insurance Company
or the Participating Fund at any time from the date hereof upon
twelve months' notice, unless a shorter time is agreed to by the
respective Participating Fund and Insurance Company;
b. As to any Participating Fund, at the option of Insurance Company,
if shares of that Participating Fund are not reasonably available
to meet the requirements of the Contracts as determined by
Insurance Company. Prompt notice of election to terminate shall be
furnished by Insurance Company, said termination to be effective
ten days after receipt of notice unless the Participating Fund
makes available a sufficient number of shares to meet the
requirements of the Contracts within said ten- day period;
c. As to a Participating Fund, at the option of Insurance Company,
upon the institution of formal proceedings against that
Participating Fund by the Commission, National Association of
Securities Dealers or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in
Insurance Company's
-13-
<PAGE>
reasonable judgment, materially impair that Participating Fund's
ability to meet and perform the Participating Fund's obligations
and duties hereunder. Prompt notice of election to terminate shall
be furnished by Insurance Company with said termination to be
effective upon receipt of notice;
d. As to a Participating Fund, at the option of each Participating
Fund, upon the institution of formal proceedings against Insurance
Company by the Commission, National Association of Securities
Dealers or any other regulatory body, the expected or anticipated
ruling, judgment or outcome of which would, in the Participating
Fund's reasonable judgment, materially impair Insurance Company's
ability to meet and perform Insurance Company's obligations and
duties hereunder. Prompt notice of election to terminate shall be
furnished by such Participating Fund with said termination to be
effective upon receipt of notice;
e. As to a Participating Fund, at the option of that Participating
Fund, if the Participating Fund shall determine, in its sole
judgment reasonably exercised in good faith, that Insurance
Company has suffered a material adverse change in its business or
financial condition or is the subject of material adverse
publicity and such material adverse change or material adverse
publicity is likely to have a material adverse impact upon the
business and operation of that Participating Fund or Dreyfus, such
Participating Fund shall notify Insurance Company in writing of
such determination and its intent to terminate this Agreement, and
after considering the actions taken by Insurance Company and any
other changes in circumstances since the giving of such notice,
such determination of the Participating Fund shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination;
f. As to a Participating Fund, at the option of Insurance Company, if
Insurance Company shall determine, in its sole judgment reasonably
exercised in good faith, that the Participating Fund has suffered
a material adverse change in its business or financial condition
or is the subject of material adverse publicity and such material
adverse change or material adverse publicity is likely to have a
material adverse impact upon the business and operation of
Insurance Company or its Separate Account, the Insurance Company
shall notify the Participating Fund in writing of such
determination and its intent to terminate this Agreement, and
after considering the actions taken by the Participating Fund and
any other changes in circumstances since the giving of such
notice, such determination of Insurance Company shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination;
g. As to a Participating Fund, upon termination of the Investment
Advisory Agreement between that Participating Fund and Dreyfus or
its successors unless Insurance Company specifically approves the
selection of a new Participating Fund investment adviser. Such
Participating Fund shall promptly furnish notice of such
termination to Insurance Company;
-14-
<PAGE>
h. As to a Participating Fund, in the event that Participating Fund's
shares are not registered, issued or sold in accordance with
applicable federal law, or such law precludes the use of such
shares as the underlying investment medium of Contracts issued or
to be issued by Insurance Company. Termination shall be effective
immediately as to that Participating Fund only upon such
occurrence without notice;
i. At the option of a Participating Fund upon a determination by its
Board in good faith that it is no longer advisable and in the best
interests of shareholders of that Participating Fund to continue
to operate pursuant to this Agreement. Termination pursuant to
this Subsection (h) shall be effective upon notice by such
Participating Fund to Insurance Company of such termination;
j. At the option of a Participating Fund if the Contracts cease to
qualify as annuity contracts or life insurance policies, as
applicable, under the Code, or if such Participating Fund
reasonably believes that the Contracts may fail to so qualify;
k. At the option of any party to this Agreement, upon another party's
breach of any material provision of this Agreement;
l. At the option of a Participating Fund, if the Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law; or
m. Upon assignment of this Agreement, unless made with the written
consent of every other non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, each Participating Fund and Dreyfus may, at the option of
the Participating Fund, continue to make available additional shares of
that Participating Fund for as long as the Participating Fund desires
pursuant to the terms and conditions of this Agreement as provided
below, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if that Participating Fund and Dreyfus
so elect to make additional Participating Fund shares available, the
owners of the Existing Contracts or Insurance Company, whichever shall
have legal authority to do so, shall be permitted to reallocate
investments in that Participating Fund, redeem investments in that
Participating Fund and/or invest in that Participating Fund upon the
making of additional purchase payments under the Existing Contracts. In
the event of a termination of this Agreement pursuant to Section 10.2
hereof, such Participating Fund and Dreyfus, as promptly as is
practicable under the circumstances, shall notify Insurance Company
whether Dreyfus and that Participating Fund will continue to make that
Participating Fund's shares available after such termination. If such
Participating Fund shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either of that Participating Fund or Insurance Company may
terminate the Agreement as to that
-15-
<PAGE>
Participating Fund, as so continued pursuant to this Section 10.3, upon
prior written notice to the other party, such notice to be for a period
that is reasonable under the circumstances but, if given by the
Participating Fund, need not be for more than six months.
10.4 Termination of this Agreement as to any one Participating Fund shall not
be deemed a termination as to any other Participating Fund unless
Insurance Company or such other Participating Fund, as the case may be,
terminates this Agreement as to such other Participating Fund in
accordance with this Article X.
11.0 ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement, except for the
addition or deletion of any Participating Fund as specified in Exhibit
A, shall be made by agreement in writing between Insurance Company and
each respective Participating Fund.
-16-
<PAGE>
12.0 ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified mail,
return receipt requested, to the appropriate parties at the following
addresses:
Insurance Company: American General Life Insurance Company
c/o American General Independent Producer Division
2727-A Allen Parkway
Houston, Texas 77019
Facsimile: (713) 831-3071
Attn: Steven Glover, Esq.
Participating Funds: [Name of Fund]
c/o Premier Mutual Fund Services, Inc.
200 Park Avenue
New York, New York 10166
Attn: Vice President and Assistant Secretary
with copies to: [Name of Fund]
c/o The Dreyfus Corporation
200 Park Avenue
New York, New York 10166
Attn: Mark N. Jacobs, Esq.
Lawrence B. Stoller, Esq.
Stroock & Stroock & Lavan
180 Maiden Lane
New York, New York 10038-4982
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
13.0 ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of each Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
director, trustee, officer or shareholder of the Fund individually. It
is agreed that the obligations of the Funds are several and not joint,
that no Fund shall be liable for any amount
-17-
<PAGE>
owing by another Fund and that the Funds have executed one instrument
for convenience only.
13.2 Each Participating Fund agrees to consult in advance with Insurance
Company concerning any decision to elect or not to pass through the
benefit of any foreign tax credits to the Participating Fund's
shareholders pursuant to Section 853 of the Code.
14.0 ARTICLE XIV
LAW
14.1 This Agreement shall be construed in accordance with the internal
laws of the State of New York, without giving effect to principles of
conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
AMERICAN GENERAL LIFE INSURANCE COMPANY
By: ________________________
Its: _______________________
Attest: ________________________
DREYFUS LIFE AND ANNUITY INDEX FUND, INC.
(d/b/a DREYFUS STOCK INDEX FUND)
By: ________________________
Its: _______________________
Attest: ________________________
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
By: ________________________
Its: _______________________
-18-
<PAGE>
Attest: ________________________
DREYFUS VARIABLE INVESTMENT FUND
By: ________________________
Its: _______________________
Attest: ________________________
-19-
<PAGE>
EXHIBIT A
LIST OF PARTICIPATING FUNDS
Dreyfus Variable Investment Fund:
Small Cap Portfolio
Quality Bond Portfolio
-20-
EXHIBIT 8(d)
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
AMERICAN GENERAL LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this ____ day of March 1998, by
and among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), AMERICAN GENERAL LIFE INSURANCE COMPANY, a Texas corporation (the
"Company") on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act
of 1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to
the Company and the Accounts are set forth on Schedule A attached hereto
(each, a "Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state
securities law, and is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
Company, to
<PAGE>
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to the Accounts
(the Policies and the Accounts covered by this Agreement, and each
corresponding Portfolio covered by this Agreement in which the Accounts
invest, is specified in Schedule A attached hereto as may be modified from
time to time);
WHEREAS, the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered
as a broker-dealer with the Securities and Exchange Commission (the "SEC")
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD");
WHEREAS, American General Securities Incorporated, an affiliate of the
Company and the underwriter for the Policies, is registered as a broker-dealer
with the SEC under the 1934 Act and is a member in good standing of the NASD;
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares
to the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
MFS, and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that
Business Day, as defined below) and which are available for purchase by
such Accounts, executing such orders on a daily basis at the net asset
value next computed after receipt by the Trust or its designee of the
order for the Shares. For purposes of this Section 1.1, the Company
shall be the designee of the Trust for receipt of such orders from
Policy owners and receipt by such designee shall constitute receipt by
the Trust. In this regard, the Company shall use its best efforts to
notify the Trust of such orders by 9:30 a.m. New York time on the next
following Business Day, provided that in any event the Company will so
notify the Trust by 10:30 a.m. New York time on the next following
<PAGE>
Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange, Inc. (the "NYSE") is open for trading and on which the
Trust calculates its net asset value pursuant to the rules of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and
the Accounts on those days on which the Trust calculates its net asset
value pursuant to rules of the SEC and the Trust shall calculate such
net asset value on each day which the NYSE is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Trust (the
"Board") may refuse to sell any Shares to the Company and the Accounts,
or suspend or terminate the offering of the Shares if such action is
required by law or by regulatory authorities having jurisdiction or is,
in the sole discretion of the Board acting in good faith and in light of
its fiduciary duties under federal and any applicable state laws,
necessary in the best interest of the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements
with the Trust and MFS (the "Participating Insurance Companies") and
their separate accounts, qualified pension and retirement plans and MFS
or its affiliates. The Trust and MFS will not sell Trust shares to any
insurance company or separate account unless an agreement containing
provisions substantially the same as Articles III and VII of this
Agreement is in effect to govern such sales. The Company will not resell
the Shares except to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed
by Policy owners on that Business Day), executing such requests on a
daily basis at the net asset value next computed after receipt by the
Trust or its designee of the request for redemption. For purposes of
this Section 1.4, the Company shall be the designee of the Trust for
receipt of requests for redemption from Policy owners and receipt by
such designee shall constitute receipt by the Trust. In this regard, the
Company shall use its best efforts to notify the Trust of such request
for redemption by 9:30 a.m. New York time on the next following Business
Day, provided that in any event the Company will so notify the Trust by
10:30 a.m. New York time the next following Business Day.
1.5. Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted
with respect to any Portfolio. However, with respect to payment of the
purchase price by the Company and of redemption proceeds by the Trust,
the Company and the Trust shall net purchase and redemption orders with
respect to each Portfolio and shall transmit one net payment for all of
the Portfolios in accordance with Section 1.6 hereof.
<PAGE>
1.6. In the event of net purchases, the Company shall pay for the
Shares by 2:00 p.m. New York time on the next Business Day after an
order to purchase the Shares is made in accordance with the provisions
of Section 1.1. hereof. In the event of net redemptions, the Trust shall
pay the redemption proceeds by 2:00 p.m. New York time on the next
Business Day after an order to redeem the shares is made in accordance
with the provisions of Section 1.4. hereof. All such payments shall be
in federal funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts.
The Shares ordered from the Trust will be recorded in an appropriate
title for the Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish notice to the Company (by facsimile copy,
followed by telephone confirmation), on or prior to the payment date of
any dividends or capital gain distributions payable on the Shares. The
Company hereby elects to receive all such dividends and distributions as
are payable on a Portfolio's Shares in additional Shares of that
Portfolio. The Trust shall notify the Company of the number of Shares so
issued as payment of such dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per
share for each Portfolio available to the Company on each Business Day
as soon as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value
per share available by 6:30 p.m. New York time. In the event that the
Trust is unable to meet the 6:30 p.m. time stated herein, it shall
provide additional time for the Company to place orders for the purchase
and redemption of Shares. Such additional time shall be equal to the
additional time which the Trust takes to make the net asset value
available to the Company. If the Trust provides materially incorrect
share net asset value information, the Trust shall make an adjustment to
the number of shares purchased or redeemed for the Accounts 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 gains information shall be reported promptly upon discovery to
the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will
be registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable
<PAGE>
state and federal laws, including without limitation the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
1940 Act. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable
law and that it has legally and validly established the Account as a
segregated asset account under applicable law and has registered or,
prior to any issuance or sale of the Policies, will register the
Accounts as unit investment trusts in accordance with the provisions of
the 1940 Act (unless exempt therefrom) to serve as segregated investment
accounts for the Policies, and that it will maintain such registration
for so long as any Policies are outstanding. The Company shall amend the
registration statements under the 1933 Act for the Policies and the
registration statements under the 1940 Act for the Accounts from time to
time as required in order to effect the continuous offering of the
Policies or as may otherwise be required by applicable law. The Company
shall register and qualify the Policies for sales in accordance with the
securities laws of the various states only if and to the extent deemed
necessary by the Company.
2.2. The Company represents and warrants that the Policies are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contract under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), that it will
maintain such treatment and that it will notify the Trust or MFS
immediately upon having a reasonable basis for believing that the
Policies have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that American General
Securities Incorporated, the underwriter for the Policies, is a member
in good standing of the NASD and is a registered broker-dealer with the
SEC. The Company represents and warrants that the Company and American
General Securities Incorporated will sell and distribute such policies
in accordance in all material respects with all applicable state and
federal securities laws, including without limitation the 1933 Act, the
1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The
Commonwealth of Massachusetts and all applicable federal and state
securities laws and that the Trust is and shall remain registered under
the 1940 Act. The Trust shall amend the registration statement for its
Shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its Shares. The Trust
shall register and qualify the Shares for sale in accordance with the
laws of the various states only if and to the extent deemed necessary by
the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in
good standing of the NASD and is registered as a broker-dealer with the
SEC. The Trust and MFS represent that the Trust and the Underwriter will
<PAGE>
sell and distribute the Shares in accordance in all material respects
with all applicable state and federal securities laws, including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and any
applicable regulations thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it
shall perform its obligations for the Trust in compliance in all
material respects with any applicable federal securities laws and with
the securities laws of The Commonwealth of Massachusetts. MFS represents
and warrants that it is not subject to state securities laws other than
the securities laws of The Commonwealth of Massachusetts and that it is
exempt from registration as an investment adviser under the securities
laws of The Commonwealth of Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request
so that it may carry out fully the obligations imposed upon it by the
conditions contained in the exemptive application pursuant to which the
SEC has granted exemptive relief to permit mixed and shared funding (the
"Mixed and Shared Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the
Shares as the Company may reasonably request for distribution to
existing Policy owners whose Policies are funded by such Shares. The
Trust or its designee shall provide the Company, at the Company's
expense, with as many copies of the current prospectus for the Shares as
the Company may reasonably request for distribution to prospective
purchasers of Policies. If requested by the Company in lieu thereof, the
Trust or its designee shall provide such documentation (including a
"camera ready" copy of the new prospectus as set in type or, at the
request of the 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 each year (or more frequently if the prospectus
for the Shares is supplemented or amended) to have the prospectus for
the Policies and the prospectus for the Shares printed together in one
document; the expenses of such printing to be apportioned between (a)
the Company and (b) the Trust or its designee in proportion to the
number of pages of the Policy and Shares' prospectuses, taking account
<PAGE>
of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; the Trust or its designee to bear
the cost of printing the Shares' prospectus portion of such document for
distribution to owners of existing Policies funded by the Shares and the
Company to bear the expenses of printing the portion of such document
relating to the Accounts; PROVIDED, however, that the Company shall bear
all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Policies
not funded by the Shares. In the event that the Company requests that
the Trust or its designee provides the Trust's prospectus in a "camera
ready" or diskette format, the Trust shall be responsible for providing
the prospectus in the format in which it or MFS is accustomed to
formatting prospectuses and shall bear the expense of providing the
prospectus in such format (E.G., typesetting expenses), and the Company
shall bear the expense of adjusting or changing the format to conform
with any of its prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and
provide such statement of additional information to the Company (or a
master of such statement suitable for duplication by the Company) for
distribution to any owner of a Policy funded by the Shares. The Trust or
its designee, at the Company's expense, shall print and provide such
statement to the Company (or a master of such statement suitable for
duplication by the Company) for distribution to a prospective purchaser
who requests such statement or to an owner of a Policy not funded by the
Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's
proxy materials, reports to Shareholders and other communications to
Shareholders in such quantity as the Company shall reasonably require
for distribution to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3
above, or of Article V below, the Company shall pay the expense of
printing or providing documents to the extent such cost is considered a
distribution expense. Distribution expenses would include by way of
illustration, but are not limited to, the printing of the Shares'
prospectus or prospectuses for distribution to prospective purchasers or
to owners of existing Policies not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate
to include in the prospectus pursuant to which a Policy is offered
disclosure regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
<PAGE>
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received
from Policy owners; and
(c) vote the Shares for which no instructions have been received
in the same proportion as the Shares of such Portfolio for
which instructions have been received from Policy owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass through voting privileges for variable contract
owners. The Company will in no way recommend action in connection with
or oppose or interfere with the solicitation of proxies for the Shares
held for such Policy owners. The Company reserves the right to vote
shares held in any segregated asset account in its own right, to the
extent permitted by law. Participating Insurance Companies shall be
responsible for assuring that each of their separate accounts holding
Shares calculates voting privileges in the manner required by the Mixed
and Shared Funding Exemptive Order. The Trust and MFS will notify the
Company of any changes of interpretations or amendments to the Mixed and
Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other
promotional material in which the Trust, MFS, any other investment
adviser to the Trust, or any affiliate of MFS are named, at least three
(3) Business Days prior to its use. No such material shall be used if
the Trust, MFS, or their respective designees reasonably objects to such
use within three (3) Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any other
investment adviser to the Trust, or any affiliate of MFS or concerning
the Trust or any other such entity in connection with the sale of the
Policies other than the information or representations contained in the
registration statement, prospectus or statement of additional
information for the Shares, as such registration statement, prospectus
and statement of additional information may be amended or supplemented
from time to time, or in reports or proxy statements for the Trust, or
in sales literature or other promotional material approved by the Trust,
MFS or their respective designees, except with the permission of the
<PAGE>
Trust, MFS or their respective designees. The Trust, MFS or their
respective designees each agrees to respond to any request for approval
on a prompt and timely basis. The Company shall adopt and implement
procedures reasonably designed to ensure that information concerning the
Trust, MFS or any of their affiliates which is intended for use only by
brokers or agents selling the Policies (I.E., information that is not
intended for distribution to Policy owners or prospective Policy owners)
is so used, and neither the Trust, MFS nor any of their affiliates shall
be liable for any losses, damages or expenses relating to the improper
use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or the
Accounts is named, at least three (3) Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably
objects to such use within three (3) Business Days after receipt of such
material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf of
the Company or concerning the Company, the Accounts, or the Policies in
connection with the sale of the Policies other than the information or
representations contained in a registration statement, prospectus, or
statement of additional information for the Policies, as such
registration statement, prospectus and statement of additional
information may be amended or supplemented from time to time, or in
reports for the Accounts, or in sales literature or other promotional
material approved by the Company or its designee, except with the
permission of the Company. The Company or its designee agrees to respond
to any request for approval on a prompt and timely basis. The parties
hereto agree that this Section 4.4. is neither intended to designate nor
otherwise imply that MFS is an underwriter or distributor of the
Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company
or the Trust, as appropriate) will each provide to the other at least
one complete copy of all registration statements, prospectuses,
statements of additional information, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above,
that relate to the Policies, or to the Trust or its Shares, prior to or
contemporaneously with the filing of such document with the SEC or other
regulatory authorities. The Company and the Trust shall also each
promptly inform the other of the results of any examination by the SEC
(or other regulatory authorities) that relates to the Policies, the
Trust or its Shares, and the party that was the subject of the
examination shall provide the other party with a copy of relevant
portions of any "deficiency letter" or other correspondence or written
report regarding any such examination.
<PAGE>
4.6. The Trust and MFS will provide the Company with as much notice as
is reasonably practicable of any proxy solicitation for any Portfolio,
and of any material change in the Trust's registration statement,
particularly any change resulting in change to the registration
statement or prospectus or statement of additional information for any
Account. The Trust and MFS will cooperate with the Company so as to
enable the Company to solicit proxies from Policy owners or to make
changes to its prospectus, statement of additional information or
registration statement, in an orderly manner. The Trust and MFS will
make reasonable efforts to attempt to have changes affecting Policy
prospectuses become effective simultaneously with the annual updates for
such prospectuses.
4.7. For purpose of this Article IV and Article VIII, 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), and sales literature (such as
brochures, circulars, reprints or excerpts or any other advertisement,
sales literature, or published articles), distributed or made generally
available to customers or the public, educational or training materials
or communications distributed or made generally available to some or all
agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other
compensation to the Trust, except that if the Trust or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act
to finance distribution and Shareholder servicing expenses, then,
subject to obtaining any required exemptive orders or regulatory
approvals, the Trust may make payments to the Company or to the
underwriter for the Policies if and in amounts agreed to by the Trust in
writing. Each party, however, shall, in accordance with the allocation
of expenses specified in Articles III and V hereof, reimburse other
parties for expenses initially paid by one party but allocated to
another party. In addition, nothing herein shall prevent the parties
hereto from otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to the Trust and/or to the
Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable
federal and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration
fees; preparation and filing of the Trust's proxy materials and reports
to Shareholders; setting in type and printing its prospectus and
statement of additional information (to the extent provided by and as
determined in accordance with Article III above); setting in type and
printing the proxy materials and reports to Shareholders (to the extent
provided by and as
<PAGE>
determined in accordance with Article III above); the preparation of all
statements and notices required of the Trust by any federal or state law
with respect to its Shares; all taxes on the issuance or transfer of the
Shares; and the costs of distributing the Trust's prospectuses and proxy
materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act. The Trust shall not bear any
expenses of marketing the Policies.
5.3. The Company or its designee shall bear the expenses of
distributing the Shares' prospectus or prospectuses in connection with
new sales of the Policies and of distributing the Trust's Shareholder
reports to Policy owners. The Company shall bear all expenses associated
with the registration, qualification, and filing of the Policies under
applicable federal securities and state insurance laws; the cost of
preparing, printing and distributing the Policy prospectus and statement
of additional information; and the cost of preparing, printing and
distributing annual individual account statements for Policy owners as
required by state insurance laws.
5.4 MFS will quarterly reimburse the Company certain of the
administrative costs and expenses incurred by the Company as a result of
operations necessitated by the beneficial ownership by Policy owners of
shares of the Portfolios of the Trust, equal to ___% per annum of the
net assets of the Trust attributable to variable life or variable
annuity contracts offered by the Company or its affiliates. In no event
shall such fee be paid by the Trust, its shareholders or by the Policy
holders.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817 (h) (1)
of the Code and Treas. Reg. 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance
contracts, as they may be amended from time to time (and any revenue
rulings, revenue procedures, notices, and other published announcements
of the Internal Revenue Service interpreting these sections), as if
those requirements applied directly to each such Portfolio.
6.2. In the event of a breach of Section 6.1 above by the Trust and
MFS, the Trust and MFS will take reasonable steps to adequately
diversify each Portfolio of the Trust so as to achieve compliance within
<PAGE>
the grace period afforded by Treas. Reg. 1.817-5.
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests
of the variable annuity contract owners and the variable life insurance
policy owners of the Company and/or affiliated companies ("contract
owners") investing in the Trust. The Board shall have the sole authority
to determine if a material irreconcilable conflict exists, and such
determination shall be binding on the Company only if approved in the
form of a resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt notice
of any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set
forth in the Trust's exemptive application pursuant to which the SEC has
granted the Mixed and Shared Funding Exemptive Order by providing the
Board, as it may reasonably request, with all information necessary for
the Board to consider any issues raised and agrees that it will be
responsible for promptly reporting any potential or existing conflicts
of which it is aware to the Board including, but not limited to, an
obligation by the Company to inform the Board whenever contract owner
voting instructions are disregarded. The Company also agrees that, if a
material irreconcilable conflict arises, it will at its own cost remedy
such conflict up to and including (a) withdrawing the assets allocable
to some or all of the Accounts from the Trust or any Portfolio and
reinvesting such assets in a different investment medium, including (but
not limited to) another Portfolio of the Trust, or submitting to a vote
of all affected contract owners whether to withdraw assets from the
Trust or any Portfolio and reinvesting such assets in a different
investment medium and, as appropriate, segregating the assets
attributable to any appropriate group of contract owners that votes in
favor of such segregation, or offering to any of the affected contract
owners the option of segregating the assets attributable to their
contracts or policies, and (b) establishing a new registered management
investment company and segregating the assets underlying the Policies,
unless a majority of Policy owners materially adversely affected by the
conflict have voted to decline the offer to establish a new registered
management investment company.
<PAGE>
7.3. A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies
any material irreconcilable conflict. In the event that the Board
determines that any proposed action does not adequately remedy any
material irreconcilable conflict, the Company will withdraw from
investment in the Trust each of the Accounts designated by the
disinterested trustees and terminate this Agreement within six (6)
<PAGE>
months after the Board informs the Company in writing of the foregoing
determination; PROVIDED, HOWEVER, that such withdrawal and termination
shall be limited to the extent required to remedy any such material
irreconcilable conflict as determined by a majority of the disinterested
trustees of the Board.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the 1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Mixed and Shared Funding
Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the
Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules
are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3 and 7.4 of this
Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify and hold harmless the Trust, MFS,
any affiliates of MFS, and each of their respective directors/trustees,
officers and each person, if any, who controls the Trust or MFS within
the meaning of Section 15 of the 1933 Act, and any agents or employees
of the foregoing (each an "Indemnified Party," or collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and
all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or expenses
(including reasonable counsel fees) to which any Indemnified Party 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 the Shares or the Policies 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, prospectus or statement of
additional information for the Policies or contained in the
Policies or sales literature or other promotional material
for the Policies (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
<PAGE>
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 reasonable reliance upon
and in conformity with information furnished to the Company
or its designee by or on behalf of the Trust or MFS for use
in the registration statement, prospectus or statement of
additional information for the Policies or in the Policies
or sales literature or other promotional material (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material of the Trust not supplied by the Company or its
designee, or persons under its control and on which the
Company has reasonably relied) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the registration
statement, prospectus, statement of additional information,
or sales literature or other promotional literature of the
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
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.2. INDEMNIFICATION BY THE TRUST AND MFS
<PAGE>
The Trust agrees to indemnify and hold harmless the Company,
American General Securities Incorporated, their respective affiliates
and each of their respective directors and officers and each person, if
any, who controls the Company or American General Securities
Incorporated within the meaning of Section 15 of the 1933 Act, and any
agents or employees of the foregoing (each an "Indemnified Party," or
collectively, the "Indemnified Parties" for purposes of this Section
8.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Trust) or
expenses (including reasonable counsel fees) to which any Indemnified
Party may become subject under any statute, 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 the Shares or the Policies 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, prospectus, statement of
additional information or sales literature or other
promotional material of the 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 statement 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 reasonable
reliance upon and in conformity with information furnished
to the Trust, MFS, the Underwriter or their respective
designees by or on behalf of the Company for use in the
registration statement, prospectus or statement of
additional information for the Trust or in sales literature
or other promotional material for the Trust (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material for the Policies not supplied by the Trust, MFS,
the Underwriter or any of their respective designees or
persons under their respective control and on which any such
entity has reasonably relied) or wrongful conduct of the
Trust or persons under its control, with respect to the sale
or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the registration
<PAGE>
statement, prospectus, statement of additional information,
or sales literature or other promotional literature of the
Accounts or relating to the Policies, 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 statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of the Trust, MFS or the
Underwriter; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement) or
arise out of or result from any other material breach of
this Agreement by the Trust; or
(e) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate; or
(f) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of the
Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating
Insurance Company or any Policy holder, 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 the Company hereunder or by any Participating Insurance Company under
an agreement containing substantially similar representations,
warranties and covenants; (ii) the failure by the Company or any
Participating Insurance Company to maintain its segregated asset account
(which invests in any Portfolio) 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 the Company or any
Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any Portfolio
serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code.
<PAGE>
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with
respect to any losses, claims, damages, liabilities or expenses to
which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, willful misconduct,
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.
8.5. Promptly after receipt by an Indemnified Party under this Section
8.5. of notice of commencement of any action, such Indemnified
Party will, if a claim in respect thereof is to be made against
the indemnifying party under this section, notify the indemnifying
party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability
which it may have to any Indemnified Party otherwise than under
this section. In case any such action is brought against any
Indemnified Party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume
the defense thereof, with counsel satisfactory to such Indemnified
Party. After notice from the indemnifying party of its intention
to assume the defense of an action, the Indemnified Party shall
bear the expenses of any additional counsel obtained by it, and
the indemnifying party shall not be liable to such Indemnified
Party under this section for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties of
the commencement of any litigation or proceeding against it or any
of its respective officers, directors, trustees, employees or 1933
Act control persons in connection with the Agreement, the issuance
or sale of the Policies, the operation of the Accounts, or the
sale or acquisition of Shares.
8.7. A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this
Article VIII. The indemnification provisions contained in this
Article VIII shall survive any termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The
Commonwealth of Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules
<PAGE>
and regulations as the SEC may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall
promptly notify the other parties to this Agreement, in writing, of the
institution of any formal proceedings brought against such party or its
designees by the NASD, the SEC, or any insurance department or any other
regulatory body regarding such party's duties under this Agreement or related
to the sale of the Policies, the operation of the Accounts, or the purchase of
the Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any party upon twelve (12) months' advance
written notice to the other parties; or
(b) at the option of the Company to the extent that the Shares
of Portfolios are not reasonably available to meet the
requirements of the Policies or are not "appropriate funding
vehicles" for the Policies, as reasonably determined by the
Company. Without limiting the generality of the foregoing,
the Shares of a Portfolio would not be "appropriate funding
vehicles" if, for example, such Shares did not meet the
diversification or other requirements referred to in Article
VI hereof; or if the Company would be permitted to disregard
Policy owner voting instructions pursuant to Rule 6e-2 or
6e-3(T) under the 1940 Act. Prompt notice of the election to
terminate for such cause and an explanation of such cause
shall be furnished to the Trust by the Company; or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company or American General
Securities Incorporated by the NASD, the SEC, or any
insurance department or any other regulatory body regarding
the Company's duties under this Agreement or related to the
sale of the Policies, the operation of the Accounts, or the
purchase of the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust or the Underwriter by the
NASD, the SEC, or any state securities or insurance
<PAGE>
department or any other regulatory body regarding the
Trust's or MFS' duties under this Agreement or related to
the sale of the Shares; or
(e) at the option of the Company, the Trust or MFS upon receipt
of any necessary regulatory approvals and/or the vote of the
Policy owners having an interest in the Accounts (or any
subaccounts) to substitute the shares of another investment
company for the corresponding Portfolio Shares in accordance
with the terms of the Policies for which those Portfolio
Shares had been selected to serve as the underlying
investment media. The Company will give thirty (30) days'
prior written notice to the Trust of the Date of any
proposed vote or other action taken to replace the Shares;
or
(f) termination by either the Trust or MFS by written notice to
the Company, if either one or both of the Trust or MFS
respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a
material adverse change in its business, operations,
financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Trust
and MFS, if the Company shall determine, in its sole
judgment exercised in good faith, that the Trust or MFS has
suffered a material adverse change in this business,
operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse
publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement;
or
(i) upon assignment of this Agreement, unless made with the
written consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies
and, if applicable, the Accounts as to which the Agreement is to
be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be
exercised for cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or
regulations, the Company shall not redeem the Shares attributable
to the Policies (as opposed to the Shares attributable to the
Company's assets held in the Accounts), and the Company shall not
<PAGE>
prevent Policy owners from allocating payments to a Portfolio that
was otherwise available under the Policies, until thirty (30) days
after the Company shall have notified the Trust of its intention
to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and
MFS shall, at the option of the Company, continue to make
available additional shares of the Portfolios pursuant to the
terms and conditions of this Agreement, for all Policies in effect
on the effective date of termination of this Agreement (the
"Existing Policies"), except as otherwise provided under Article
VII of this Agreement. Specifically, without limitation, the
owners of the Existing Policies shall be permitted to transfer or
reallocate investment under the Policies, redeem investments in
any Portfolio and/or invest in the Trust upon the making of
additional purchase payments under the Existing Policies.
<PAGE>
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail, overnight courier or facsimile 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 the Trust:
MFS VARIABLE INSURANCE TRUST
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, Secretary
If to the Company:
AMERICAN GENERAL LIFE INSURANCE COMPANY
c/o American General Independent Producer Division
2727-A Allen Parkway
Houston, Texas 77019
Facsimile No.: (STILL NEED FAX)
Attn: Steven Glover, Esq.
If to MFS:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. FOREIGN TAX CREDITS
13.1 The Trust agrees to consult in advance with the Company concerning
any decision to elect or not to pass through the benefit of any
foreign tax credits to the Trust's shareholders pursuant to
<PAGE>
Section 853 of the Code.
ARTICLE XIV. MISCELLANEOUS
14.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names
and addresses of the owners of the Policies and all information
reasonably identified as confidential in writing by any other
party hereto and, except as permitted by this Agreement or as
otherwise required by applicable law or regulation, shall not
disclose, disseminate or utilize such names and addresses and
other confidential information without the express written consent
of the affected party until such time as it may come into the
public domain.
14.2. 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.
14.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one
and the same instrument.
14.4. 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.
14.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
14.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state
insurance regulators) relating to this Agreement or the
transactions contemplated hereby.
14.7. 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.
14.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The
Company acknowledges that the obligations of or arising out of
this instrument are not binding upon any of the Trust's trustees,
officers, employees, agents or shareholders individually, but are
binding solely upon the assets and property of the Trust in
accordance with its proportionate interest hereunder. The Company
<PAGE>
further acknowledges that the assets and liabilities of each Portfolio
are separate and distinct and that the obligations of or arising out of
this instrument are binding solely upon the assets or property of the
Portfolio on whose behalf the Trust has executed this instrument. The
Company also agrees that the obligations of each Portfolio hereunder
shall be several and not joint, in accordance with its proportionate
interest hereunder, and the Company agrees not to proceed against any
Portfolio for the obligations of another Portfolio.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
AMERICAN GENERAL LIFE INSURANCE COMPANY
By its authorized officer,
By: ____________________________________
Title: _________________________________
MFS VARIABLE INSURANCE TRUST, ON BEHALF OF THE
PORTFOLIOS
By its authorized officer and not individually,
By: ____________________________________
James R. Bordewick, Jr.
Assistant Secretary
MASSACHUSETTS FINANCIAL SERVICES COMPANY
By its authorized officer,
By: ____________________________________
Jeffrey L. Shames
Chairman and Chief Executive Officer
<PAGE>
<TABLE>
As of ____________________
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
<CAPTION>
NAME OF SEPARATE
ACCOUNT AND DATE POLICIES FUNDED PORTFOLIOS
ESTABLISHED BY BOARD OF BY SEPARATE ACCOUNT APPLICABLE TO POLICIES
DIRECTORS
----------------------- ------------------- -----------------------
<S> <C> <C>
American General Life Platinum Investor I Flexible
Insurance Company Separate Premium Life Insurance Policy
Account Vl-r Policy Form No. 97600
(May 6, 1998)
Platinum Investor Ii Flexible
Premium Life Insurance Policy
Policy Form No. 97610
</TABLE>
EXHIBIT 8(e)
AMENDMENT NUMBER 2 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. 2 ("Amendment") executed as of the 4th day of
November, 1997 to the Participation Agreement dated as of January 24, 1997, as
amended (the "Agreement"), among Morgan Stanley Universal Funds, Inc. (the
"Fund"), Van Kampen American Capital Distributors, Inc., Morgan Stanley Asset
Management Inc., Miller Anderson & Sherrerd, LLP, American General Life
Insurance Company (the "Company"), and American General Securities
Incorporated.
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 PLATINUM INVESTOR I AND PLATINUM INVESTOR II FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICIES ("Platinum Contracts"), (ii) solely to the
extent the Agreement relates to the Platinum Contracts, amend the provisions
of Article III of the Agreement as described below, and (iii) add to Schedule
A of the Agreement the Fund's Equity Growth Portfolio.
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 to add the Equity Growth Portfolio.
2. Schedule B to the Agreement, a revised copy of which is attached
hereto, is hereby amended to add the Platinum Contracts.
3. Solely to the extent the Agreement relates to the Platinum
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
<PAGE>
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 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, and y is the Fund's
per unit cost of printing the Fund's prospectuses. The same
procedures shall be followed 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
<PAGE>
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.
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
<PAGE>
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 as of the
date first written above.
AMERICAN GENERAL LIFE INSURANCE COMPANY
AMERICAN GENERAL SECURITIES INCORPORATED
on behalf of itself and each of its Accounts named in
Schedule B to the Agreement, as amended from time to
time
By:______________________________________
By:______________________________________
MORGAN STANLEY UNIVERSAL FUNDS, INC.
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By:______________________________________
By:______________________________________
MORGAN STANLEY ASSET MANAGEMENT, INC.
MILLER ANDERSON & SHERRERD, LLP
By:______________________________________
By:______________________________________
<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
Growth
Mid Cap Value
Value
International Magnum
Emerging Markets Equity
Global Equity
Equity Growth
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
Name of Separate Account and
Date Established by Board of Directors
Form Numbers and Names of
Contracts Funded By Separate Account
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
CONTRACT FORM NUMBERS:
Company Separate Account VL-R
97600
Established: May 6, 1997
97610
NAME OF CONTRACT:
Platinum I and Platinum II Flexible Premium
Variable Life Insurance Policies
EXHIBIT 8(f)
PARTICIPATION AGREEMENT
AMONG
PUTNAM VARIABLE TRUST
PUTNAM MUTUAL FUNDS CORP.
AND
AMERICAN GENERAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this ________ day of __________,
1998, among American General Life Insurance Company] (the "Company"), a Texas
corporation, on its own behalf and on behalf of each separate account of the
Company set forth on Schedule A hereto, as such Schedule may be amended from
time to time (each such account hereinafter referred to as the "Account"),
PUTNAM VARIABLE TRUST (the "Trust"), a Massachusetts business trust, and
PUTNAM MUTUAL FUNDS CORP. (the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Trust is an open-end diversified management investment company
and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity
contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies which have entered into Participation Agreements with the
Trust and the Underwriter (the "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several series
of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission, dated December 29, 1993 (File No. 812-8612), granting the variable
annuity and variable life insurance separate accounts participating in the
Trust exemptions from the provisions of sections 9(a), 13(a), 15(a) and 15(b)
of the Investment Company Act of 1940, as amended (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 Trust to be sold to and held by variable annuity and variable
life insurance separate accounts of the Participating Insurance Companies (the
"Shared Funding Exemptive Order"); and WHEREAS, the Trust is registered as an
open-end management investment company under the 1940 Act and the sale of its
shares is registered under the Securities Act of 1933, as amended (the " 1933
Act"); and
WHEREAS, the Company has registered or will register certain variable life
and/or variable annuity contracts under the 1933 Act and any applicable state
securities and insurance law; and
1
<PAGE>
WHEREAS, each Account is a duly organized, validly existing separate account,
established by resolution of the Board of Directors of the Company, on the
date shown for such Account on Schedule A hereto, to set aside and invest
assets attributable to one or more variable insurance contracts (the
"Contracts"); and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended
(the " 1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in certain Funds ("Authorized Funds")
on behalf of each Account to fund certain of the Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts
such as each Account at net asset value;
NOW, THEREFORE, in consideration of the promises herein, the Company, the
Trust and the Underwriter agree as follows:
ARTICLE 1. SALE OF TRUST SHARES
1.1 The Underwriter agrees, subject to the Trust's rights under
Section 1.2 and otherwise under this Agreement, to sell to the Company those
Trust shares representing interests in Authorized Funds which each Account
orders, executing such orders on a daily basis at the net asset value next
computed after receipt by the Trust or its designee of the order for the
shares of the Trust. For purposes of this Section 1. 1, the Company shall be
the designee of the Trust for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Trust; provided that
the Trust receives notice of such order by 9:30 a.m. Eastern time on the next
following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Trust calculates its
net asset value pursuant to the rules of the Securities and Exchange
Commission. The initial Authorized Funds are set forth in Schedule B, as such
schedule is amended from time to time.
1.2 The Trust agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the Securities and Exchange Commission and the Trust
shall use reasonable efforts to calculate such net asset value on each day on
which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Trustees of the Trust (the "Trustees") may refuse to sell
shares of any Fund to the Company or any other 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 over the Trust or if the Trustees
determine, in the exercise of their fiduciary responsibilities, that to do so
would be in
2
<PAGE>
the best interests of shareholders.
1.3 The Trust and the Underwriter agree that shares of the Trust will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Fund will be sold to the general public.
1.4 The Trust shall redeem its shares in accordance with the terms of
its then current prospectus. For purposes of this Section 1.4, the Company
shall be the designee of the Trust for receipt of requests for redemption from
each Account and receipt by such designee shall constitute receipt by the
Trust; provided that the Trust receives notice of such request for redemption
by 9:30 a.m., Eastern time, on the next following Business Day.
1.5 The Company shall purchase and redeem the shares of Authorized
Funds offered by the then current prospectus of the Trust in accordance with
the provisions of such prospectus.
1.6 The Company shall pay for Trust shares on the next Business Day
after an order to purchase Trust shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds
transmitted by wire.
1.7 Issuance and transfer of the Trust's shares will be by book entry
only. Share certificates will not be issued to the Company or any Account.
Shares ordered from the Trust will be recorded as instructed by the Company to
the Underwriter in an appropriate title for each Account or the appropriate
sub-account of each Account.
1.8 The Underwriter shall furnish prompt notice (by wire or telephone,
followed by written confirmation) to the Company of the declaration of any
income, dividends or capital gain distributions payable on the Trust's shares.
The Company hereby elects to receive all such income dividends and capital
gain distributions as are payable on the Fund shares in additional shares of
that Fund. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Underwriter shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9 The Underwriter shall make the net asset value per share for each
Fund available to the Company on a daily basis as soon as reasonably practical
after the Trust calculates its net asset value per share and each of the Trust
and the Underwriter shall use its best efforts to make such net asset value
per share available by 7:00 p.m. Eastern time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that
(a) at all times during the term of this Agreement the Contracts
are or will be registered under
3
<PAGE>
the 1933 Act; the Contracts will be issued and sold in compliance in all
material respects with all applicable laws and the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it has
legally and validly established each Account prior to any issuance or sale
thereof as a separate account under applicable law and has registered or,
prior to any issuance or sale of the Contracts, will register each Account as
a unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts; and
(b) the Contracts are currently treated as endowment, annuity or
life insurance contracts, under applicable provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), and that it will make every effort to
maintain such treatment and that it will notify the Trust and the Underwriter
immediately upon having a reasonable basis for believing that the Contracts
have ceased to be so treated or that they might not be so treated in the
future.
2.2 The Trust represents and warrants that
(a) at all times during the term of this Agreement Trust shares
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold by the Trust to the Company in compliance
with all applicable laws, subject to the terms of Section 2.4 below, and the
Trust is and shall remain registered under the 1940 Act. The Trust shall amend
the Registration Statement for its shares under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of
its shares. The Trust shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust or the Underwriter in connection with their sale
by the Trust to the Company and only as required by Section 2.4;
(b) it is currently qualified as a Regulated Investment Company
under Subchapter M of the Code, and that it will use its best efforts to
maintain such qualification (under Subchapter M or any successor provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future; and
(c) it is lawfully organized and validly existing under the laws
of the Commonwealth of Massachusetts and that it does and will comply in all
material respects with the 1940 Act.
2.3 The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Trust
shares in accordance with all applicable securities laws applicable to it,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
4
<PAGE>
2.4 Notwithstanding any other provision of this Agreement, the Trust
shall be responsible for the registration and qualification of its shares and
of the Trust itself under the laws of any jurisdiction only in connection with
the sales of shares directly to the Company through the Underwriter. The Trust
shall not be responsible, and the Company shall take full responsibility, for
determining any jurisdiction in which any qualification or registration of
Trust shares or the Trust by the Trust may be required in connection with the
sale of the Contracts or the indirect interest of any Contract in any shares
of the Trust and advising the Trust thereof at such time and in such manner as
is necessary to permit the Trust to comply.
2.5 The Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states.
5
<PAGE>
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1 The Trust shall provide such documentation (including a
camera-ready copy of its prospectus) and other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus for the Trust is amended) to have the prospectus for the Contracts
and the Trust's prospectus printed together in one or more documents (such
printing to be at the Company's expense).
3.2 The Trust's Prospectus shall state that the Statement of
Additional Information for the Trust is available from the Underwriter or its
designee (or in the Trust's discretion, the Prospectus shall state that such
Statement is available from the Trust), and the Underwriter (or the Trust), at
its expense, shall print and provide such Statement free of charge to the
Company and to any owner of a Contract or prospective owner who requests such
Statement.
3.3 The Trust, at its expense, shall provide the Company with copies
of its reports to shareholders, proxy material and other communications to
shareholders in such quantity as the Company shall reasonably require for
distribution to the Contract owners, such distribution to be at the expense of
the Company.
3.4 The Company shall vote all Trust shares as required by law and the
Shared Funding Exemptive Order. The Company reserves the right to vote Trust
shares held in any separate account in its own right, to the extent permitted
by law and the Shared Funding Exemptive Order. The Company shall be
responsible for assuring that each of its separate accounts participating in
the Trust calculates voting privileges in a manner consistent with all legal
requirements and the Shared Funding Exemptive Order.
3.5 The Trust will comply with all applicable provisions of the 1940
Act requiring voting by shareholders, and in particular the Trust will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Trust 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 Trust 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 trustees and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 Without limiting the scope or effect of Section 4.2 hereof, the
Company shall furnish, or shall cause to be furnished, to the Underwriter each
piece of sales literature or other promotional material (as defined hereafter)
in which the Trust, its investment adviser or the Underwriter is named at
least 15 days prior to its use. No such material shall be used if the
Underwriter objects to such use within five Business Days after receipt of
such
6
<PAGE>
material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Trust shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in annual or semi-annual reports or proxy
statements for the Trust, or in sales literature or other promotional material
approved by the Trust or its designee or by the Underwriter, except with the
written permission of the Trust or the Underwriter or the designee of either
or as is required by law.
4.3 The Underwriter or its designee shall furnish, or shall cause to
be furnished, to the Company or its designee, each piece of sales literature
or other promotional material prepared by the Underwriter in which the Company
and/or its separate account(s) is named at least 15 days prior to its use. No
such material shall be used if the Company or its designee objects to such use
within five Business Days after receipt of such material.
4.4 Neither the Trust nor the Underwriter shall give any information
or make any representations on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by the Company for distribution to
Contract owners, or in sales literature or other promotional material approved
by the Company or its designee, except with the written permission of the
Company or as is required by law.
4.5 For purposes of this Article IV, 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), 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 registered representatives.
ARTICLE V. FEES AND EXPENSES
5.1 Except as provided in Article VI, the Trust and Underwriter shall
pay no fee or other compensation to the Company under this agreement.
5.2 All expenses incident to performance by the Trust under this
Agreement shall be paid by the Trust. The Trust shall bear the expenses for
the cost of registration and
7
<PAGE>
qualification of the Trust's shares, preparation and filing of the Trust's
prospectus and registration statement, proxy materials and reports, setting
the prospectus and shareholder reports in type, setting in type and printing
the proxy materials, and the preparation of all statements and notices
required by any federal or state law, in each case as may reasonably be
necessary for the performance by it of its obligations under this Agreement.
5.3 The Company shall bear the expenses of (a) printing and
distributing the Trust's prospectus in connection with sales of the Contracts
and (b) distributing the reports to Trust's Shareholders and (c) of
distributing the Trust's proxy materials to owners of the Contracts.
ARTICLE VI. SERVICE FEES
6.1 Provided the Company complies with its obligations under this
Agreement, the Underwriter shall pay the Company a service fee (the "Service
Fee") on shares of the Funds held in the Accounts at the annual rates
specified in Schedule B (excluding any accounts for the Company's own
corporate retirement plans), subject to Section 6.2 hereof.
6.2 The Company understands and agrees that all Service Fee payments
are subject to the limitations contained in each Fund's Distribution Plan,
which may be varied or discontinued at any time, and understands and agrees
that it will cease to receive such Service Fee payments with respect to a Fund
if the Fund ceases to pay fees to the Underwriter pursuant to its Distribution
Plan.
6.3 (a) The Company's failure to provide the services described in
Section 6.4 or otherwise to comply with the terms of this Agreement will
render it ineligible to receive Service Fees; and
(b) the Underwriter may, without the consent of the Company,
amend this Article VI to change the amount of Service Fees or the terms on
which Service Fees are paid or to terminate further payments of Service Fees
upon written notice to the Company.
6.4 The Company will provide the following services to the Contract
Owners purchasing Fund shares:
(i) Maintaining regular contact with Contract owners and
assisting in answering inquiries concerning the Funds;
(ii) Assisting in printing and distributing shareholder reports,
prospectuses and other sale and service literature provided by the
Underwriter;
(iii) Assisting the Underwriter and its affiliates in the
establishment and maintenance of Contract owner and shareholder accounts
and records;
8
<PAGE>
(iv) Assisting Contract owners in effecting administrative
changes, such as exchanging shares in or out of the Funds;
(v) Assisting in processing purchasing purchase and redemption
transactions; and
(vi) Providing any other information or services as the Contract
owners or the Underwriter may reasonably request.
The Company will support the Underwriter's marketing and servicing
efforts by granting reasonable requests for visits to the Company's offices by
representatives of the Underwriter.
6.5 The Company's compliance with the service requirement set forth in
this Agreement will be evaluated from time to time by the Underwriter's
monitoring of redemption levels of Fund shares held in any Account and by such
other methods as the Underwriter deems appropriate.
ARTICLE VII. DIVERSIFICATION
7.1 The Trust shall use its best efforts to cause each Authorized Fund
to maintain a diversified pool of investments that would, if such Fund were a
segregated asset account, satisfy the diversification provisions of Treas.
Reg. ss. 1.817-5(b)(1) or (2).
ARTICLE VIII. POTENTIAL CONFLICTS
8.1 The Trustees will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the contract owners
of all separate accounts investing in the Trust. A material irreconcilable
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities law 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 owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Trust shall promptly inform the
Company if the Trustees determine that a material irreconcilable conflict
exists and the implications thereof.
8.2 The Company will report any potential or existing conflicts of
which it is aware to the Trustees. The Company will assist the Trustees in
carrying out their responsibilities under the Shared Funding Exemptive Order,
by providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised. This includes, but is not limited to,
an obligation by the Company to inform the Trustees whenever Contract owner
voting instructions are disregarded.
8.3 If it is determined by a majority of the Trustees, or a majority
of the
9
<PAGE>
disinterested Trustees, that a material irreconcilable conflict exists, the
Company shall to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees), take, at the Company's expense,
whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict, up to and including: (1) withdrawing the assets
allocable to some or all of the separate accounts from the Trust or any Fund
and reinvesting such assets in a different investment medium, including (but
not limited to) another Fund of the Trust, or submitting the question whether
such segregation should be implemented to a vote of all affected contract
owners and, as appropriate, segregating the assets of any appropriate group
(i.e., annuity contract owners, life insurance contract owners, or variable
contract owners of one or more Participating Insurance Companies) that votes
in favor of such segregation, or offering to the affected contract owners the
option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
8.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Trust's election, to withdraw the affected
Account's investment in one or more portfolios of the Trust and terminate this
Agreement with respect to such Account; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested Trustees. No charge or penalty shall be imposed as a result of
such withdrawal. Any such withdrawal and termination must take place within
six (6) months after the Trust gives written notice that this provision is
being implemented, and until the end of that six month period the Underwriter
and Trust shall, to the extent permitted by law and any exemptive relief
previously granted to the Trust, continue to accept and implement orders by
the Company for the purchase (or redemption) of shares of the Trust.
8.5 If a material irreconcilable conflict arises because of a
particular state insurance regulator's decision applicable to the Company to
disregard Contract owner voting instructions and that decision represents a
minority position that would preclude a majority vote, then the Company may be
required, at the Trust's direction, to withdraw the affected Account's
investment in one or more Authorized Funds of the Trust; provided, however,
that such withdrawal and termination shall be limited to the extent required
by the foregoing material irreconcilable conflict as determined by a majority
of the disinterested Trustees. Any such withdrawal and termination must take
place within six (6) months after the Trust gives written notice that this
provision is being implemented, unless a shorter period is required by law,
and until the end of the foregoing six month period (or such shorter period if
required by law), the Underwriter and Trust shall, to the extent permitted by
law and any exemptive relief previously granted to the Trust, continue to
accept and implement orders by the Company for the purchase (and redemption)
of shares of the Trust. No charge or penalty will be imposed as a result of
such withdrawal.
10
<PAGE>
8.6 For purposes of Sections 8.3 through 8.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict. Neither the
Trust nor the Underwriter shall be required to establish a new finding medium
for the Contracts, nor shall the Company be required to do so, if an offer to
do so has been declined by vote of a majority of Contract owners materially
adversely affected by the material irreconcilable conflict. In the event that
the Trustees determine that any proposed action does not adequately remedy any
material irreconcilable conflict, then the Company will withdraw the Account's
investment in one or more Authorized Funds of the Trust and terminate this
Agreement within six (6) months (or such shorter period as may be required by
law or any exemptive relief previously granted to the Trust) after the
Trustees inform the Company in writing of the foregoing determination;
provided, however, that such withdrawal and termination shall be limited to
the extent required by any such material irreconcilable conflict as determined
by a majority of the disinterested Trustees. No charge or penalty will be
imposed as a result of such withdrawal.
8.7 The responsibility to take remedial action in the event of the
Trustees' determination of a material irreconcilable conflict and to bear the
cost of such remedial action shall be the obligation of the Company, and the
obligation of the Company set forth in this Article VII shall be carried out
with a view only to the interests of Contract owners.
8.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 8.1, 8.2, 8.3,
8.4 and 8.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
8.9 The Company has reviewed the Shared Funding Exemption Order and
hereby assumes all obligations referred to therein which are required,
including, without limitation, the obligation to provide reports, material or
data as the Trustees may request as conditions to such Order, to be assumed or
undertaken by the Company.
ARTICLE IX. INDEMNIFICATION
9.1. INDEMNIFICATION BY THE COMPANY
9.1 (a). The Company shall indemnify and hold harmless the Trust and the
Underwriter and each of the Trustees, directors of the Underwriter, officers,
employees or agents of the Trust or the Underwriter and each person, if any,
who controls the Trust or the Underwriter within the
11
<PAGE>
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
for purposes of this Section 9.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company which consent may not be unreasonably withheld) or litigation
(including reasonable 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 the Trust's shares or the Contracts or the performance by the
parties of their obligations hereunder and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
Registration Statement, Prospectus or Statement of Additional
Information for the Contracts or contained in the Contracts or sales
literature 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 the Company by or on behalf of the Trust for
use in the Registration Statement, Prospectus or Statement of Additional
Information for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of written statements or
representations (other than statements or representations contained in
the Trust's Registration Statement or Prospectus, or in sales literature
for Trust shares not supplied by the Company, or persons under its
control) or wrongful conduct of the Company or persons under its
control, with respect to the sale or distribution of the Contracts or
Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
Prospectus, or sales literature of the 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 a statement or omission was
made in reliance upon information furnished to the Trust or the
Underwriter by or on behalf of the Company; or
(iv) arise out of or result from any breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or
result from any other breach of this Agreement by the Company, as
limited by and in accordance with the provisions of Sections 9.1(b) and
9.1(c) hereof.
9.1 (b) The 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
12
<PAGE>
Party to the extent such may arise from 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 or to the
Trust, whichever is applicable.
9.1 (c) The 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 the 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), on the basis of which the
Indemnified Party should reasonably know of the availability of indemnity
hereunder in respect of such claim but failure to notify the Company of any
such claim shall not relieve the 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 the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
Indemnified Party named in the action. After notice from the Company to such
Indemnified Party of the 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 the Company 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.
9.1 (d) The Underwriter shall promptly notify the Company of the
commencement of any litigation or proceedings against the Trust or the
Underwriter in connection with the issuance or sale of the Trust Shares or the
Contracts or the operation of the Trust.
9.1 (e) The provisions of this Section 9.1 shall survive any termination
of this Agreement.
9.2 INDEMNIFICATION BY THE UNDERWRITER
9.2 (a) The Underwriter shall indemnify and hold harmless the Company
and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act and any director, officer, employee or agent of the
foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 9.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the
Underwriter which consent may not be unreasonably withheld) or litigation
(including reasonable legal and other expenses) to which the Indemnified
Parties may become subject under any statute, 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
the Trust's shares or the
13
<PAGE>
Contracts or the performance by the parties of their obligations hereunder
and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the sales
literature of the Trust prepared by or approved by the Trust or
Underwriter (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
the Underwriter or Trust by or on behalf of the Company for use in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(ii) arise out of or as a result of written statements or
representations (other than statements or representations contained in
the Registration Statement, Prospectus, Statement of Additional
Information or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) of the Underwriter or persons
under its control, with respect to the sale or distribution of the
Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
Prospectus, Statement of Additional Information or sales literature
covering the 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 statement or
statements therein not misleading, if such statement or omission was
made in reliance upon information furnished to the Company by or on
behalf of the Underwriter; or
(iv) arise out of or result from any breach of any representation
and/or warranty made by the Underwriter in this Agreement or arise out
of or result from any other breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 9.2(b)
and 9.2(c) hereof.
9.2 (b) The Underwriter 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 as such may arise
from 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 or to each Company or the Account, whichever is applicable.
9.2 (c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall
14
<PAGE>
have notified the Underwriter 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) on the basis of which the Indemnified Party should reasonably know of
the availability of indemnity hereunder in respect of such claim, but failure
to notify the Underwriter of any such claim shall not relieve the Underwriter
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 the Indemnified Parties,
the Underwriter will be entitled to participate, at its own expense, in the
defense thereof. The Underwriter also shall be entitled to assume the defense
thereof, with counsel satisfactory to the Indemnified Party named in the
action. After notice from the Underwriter to such Indemnified Party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter 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.
9.2 (d) The Company shall promptly notify the Underwriter of the Trust
of the commencement of any litigation or proceedings against it or any of its
officers or directors, in connection with the issuance or sale of the
Contracts or the operation of each Account.
9.2 (e) The provisions of this Section 9.2 shall survive any termination
of this Agreement.
9.3 INDEMNIFICATION BY THE TRUST
9.3 (a) The Trust shall indemnify and hold harmless the Company, and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act and any director, officer, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 9.3)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Trust which consent may not
be unreasonably withheld) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, 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 operations of the Trust and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in a
Registration Statement, Prospectus and Statement of Additional
Information of the 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
15
<PAGE>
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 the Underwriter or Trust by or
on behalf of the Company for use in the Registration Statement,
Prospectus, or Statement of Additional Information for the Trust (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Trust shares; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Trust, as limited by and in accordance with the provisions of
Sections 9.3(b) and 9.3(c) hereof.
9.3 (b) The Trust shall not be liable under the indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party s willful misfeasance, bad faith, or gross
negligence or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to the Company, the Trust, the
Underwriter or each Account, whichever is applicable.
9.3 (c) The Trust shall not be liable under this indemnification
provision with respect to any claim made against any Indemnified Party unless
such Indemnified Party shall have notified the 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) on the basis of which the Indemnified
Party should reasonably know of the availability of indemnity hereunder in
respect of such claim, but failure to notify the Trust of any such claim shall
not relieve the Trust 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 the
Indemnified Parties, the Trust will be entitled to participate, at its own
expense, in the defense thereof. The Trust also shall be entitled to assume
the defense thereof, with counsel reasonably satisfactory to the Indemnified
Party named in the action. After notice from the Trust to such Indemnified
Party of the Trust's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by
it, and the Trust 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.
9.3 (d) The Company agrees promptly to notify the Trust of the
commencement of any litigation or proceedings against it or any of its
officers or, directors, in connection with this Agreement, the issuance or
sale of the Contracts or the sale or acquisition of shares of the Trust.
16
<PAGE>
9.3 (e) The provisions of this Section 9.3 shall survive any termination
of this Agreement.
ARTICLE X. APPLICABLE LAW
10.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
10.2 This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to,
the Shared Funding Exemptive Order) and the terms hereof shall be interpreted
and construed in accordance therewith.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate:
(a) at the option of any party upon 90 days advance written
notice to the other parties; or
(b) at the option of the Trust or the Underwriter in the event
that formal administrative proceedings are instituted against the Company by
the NASD, the Securities and Exchange Commission, the Insurance Commissioner
of the State of Missouri or any other regulatory body regarding the Company's
duties under this Agreement or related to the sales of the Contracts, with
respect to the operation of any Account, or the purchase of the Trust shares,
provided, however, that the Trust or the Underwriter determines in its sole
judgment exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Company to perform
its obligations under this Agreement; or
(c) at the option of the Company in the event that formal
administrative proceedings are instituted against the Trust or Underwriter by
the NASD, the Securities and Exchange Commission, or any state securities or
insurance department or any other regulatory body in respect of the sale of
shares of the Trust to the Company, provided, however, that the Company
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the
ability of the Trust or Underwriter to perform its obligations under this
Agreement; or
(d) with respect to any Account, upon requisite vote of the
Contract owners having an interest in such Account (or any subaccount) to
substitute the shares of another investment company for the corresponding Fund
shares of the Trust in accordance with the terms of the Contracts for which
those Fund shares had been selected to serve as the underlying investment
17
<PAGE>
media. The Company will give 30 days' prior written notice to the Trust of the
date of any proposed vote to replace the Trust's shares; or
(e) with respect to any Authorized Fund, upon 30 days advance
written notice from the Underwriter to the Company, upon a decision by the
Underwriter to cease offering shares of the Fund for sale.
11.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1 (a) may be exercised for any
reason or for no reason.
11.3 No termination of this Agreement shall be effective unless and
until the party terminating this Agreement gives prior written notice to all
other parties to this Agreement of its intent to terminate, which notice shall
set forth the basis for such termination. Such prior written notice shall be
given in advance of the effective date of termination as required by this
Article XI.
11.4 Notwithstanding any termination of this Agreement, subject to
Section 1.2 of this Agreement, the Trust and the Underwriter shall, at the
option of the Company, continue to make available additional shares of the
Trust 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, subject to Section 1.2 of this Agreement, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Trust,
redeem investments in the Trust and/or invest in the Trust upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 11.4 shall not apply to any termination under Article VIII
and the effect of such Article VIII termination shall be governed by Article
VIII of this Agreement.
11.5 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets
held in either Account) except (i) as necessary to implement Contract owner
initiated transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally required Redemption"). Upon request,
the Company will promptly furnish to the Trust and the Underwriter an opinion
of counsel for the Company, reasonably satisfactory to the Trust, to the
effect that any redemption pursuant to clause (ii) above is a Legally Required
Redemption. Furthermore, except in cases where permitted under the terms of
the Contracts, subject to Section 1.2 of this Agreement, the Company shall not
prevent Contract owners from allocating payments to an Authorized Fund that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the
18
<PAGE>
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 the Trust:
One Post Office Square
Boston, MA 02109
Attention: John R. Verani
If to the Underwriter:
One Post Office Square
Boston, MA 02109
Attention: General Counsel
If to the Company:
2727-A Allen Parkway
Houston, Tx 77019
Attention: Steven A. Glover
19
<PAGE>
ARTICLE XIII. MISCELLANEOUS
13.1 A copy of the Agreement and Declaration of Trust of the Trust is
on file with the Secretary of State of the Commonwealth of Massachusetts, and
notice is hereby given that this instrument is executed on behalf of the
Trustees of the Trust as Trustees and not individually and that the
obligations of or arising out of this instrument, including without limitation
Article VII, are not binding upon any of the Trustees or shareholders
individually but binding only upon the assets and property of the Trust.
13.2 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.
13.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.4 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.
13.5 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators)
and shall pertmit 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.
13.6 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.
13.7 Notwithstanding any other provision of this Agreement, the
obligations of the Trust and the Underwriter are several and, without limiting
in any way the generality of the foregoing, neither such party shall have any
liability for any action or failure to act by the other party, or any person
acting on such other party's behalf.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
AMERICAN GENERAL LIFE INSURANCE COMPANY
By its authorized officer,
Name: _________________________________________
Don M. Ward
Title: Senior Vice President - Variable Products
PUTNAM VARIABLE TRUST
By its authorized officer,
Name: _________________________________________
Title: ________________________________________
PUTNAM MUTUAL FUNDS CORP.
By its authorized officer,
Name: _________________________________________
Title: ________________________________________
21
<PAGE>
SCHEDULE A
<TABLE>
SEPARATE ACCOUNTS AND CONTRACTS
<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 CONTRACT FORM NUMBERS:
Company Separate Account VL-R 97600
Established: May 6, 1997 97610
NAME OF CONTRACT:
Platinum Investor I and Platinum Investor II
Flexible Premium Variable Life Insurance
Policies
</TABLE>
<PAGE>
SCHEDULE B
FUNDS OF PUTNAM VARIABLE TRUST
AVAILABLE FOR
PURCHASE BY AMERICAN GENERAL LIFE
INSURANCE COMPANY UNDER THIS AGREEMENT
Putnam VT Diversified Income
Putnam VT Growth and Income
Putnam VT International Growth and Income
EXHIBIT 8(g)
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
SAFECO RESOURCE SERIES TRUST
AND
SAFECO SECURITIES, INC.
DATED AS OF
__________, 1998
i
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the day of , 199 8
("Agreement"), by and among American General Life Insurance Company, a Texas
life insurance company ("AGL") (on behalf of itself and its "Separate
Account," defined below), American General Securities Incorporated, a Texas
corporation ("AGSI"), the principal underwriter and distributor with respect
to the Policies referred to below, [SAFECO RESOURCE SERIES TRUST, AN
UNINCORPORATED BUSINESS TRUST ORGANIZED UNDER THE LAWS OF THE STATE OF
DELAWARE, (THE "FUND"), AND SAFECO SECURITIES, INC., A WASHINGTON CORPORATION,
(the "Distributor"), the Fund's principal underwriter (collectively, the
"Parties").
WITNESSETH THAT:
WHEREAS the Distributor and the Fund desire that shares of the Fund's
Equity Portfolio and Growth Portfolio (the "Series"; reference herein to the
"Fund" includes reference to each of the foregoingSeries to the extent the
context requires) be made available by the Distributor to serve as underlying
investment media for those variable life insurance policies of AGL that are
the subject of AGL's Form S-6 registration statement filed with the Securities
and Exchange Commission (the "SEC"), File No. 333-42567 and 811-08561 (the
"Policies") and to be offered through AGSI.
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and the Distributor will make shares in the Series
available to AGL for this purpose at net asset value and with no sales
charges, all subject to the following provisions:
SECTION 1. INTRODUCTION
1.1 AVAILABILITY OF SEPARATE ACCOUNT DIVISIONS.
AGL represents that American General Life Insurance Company Separate
Account VL-R (the "Separate Account") is and will continue to be available to
serve as an investment vehicle for its Policies. The Policies provide for the
allocation of net amounts received by AGL to separate series
1
<PAGE>
(the "Divisions"; reference herein to the "Separate Account" includes
reference to each Division to the extent the context requires) of the Separate
Account for investment in the shares of corresponding Series of the Fund that
are made available through the Separate Account to act as underlying
investment media. Other series of the Fund may become subject to this
Agreement, upon mutual agreement of the parties. AGL will not unreasonably
deny any request by the Distributor to create new Divisions corresponding to
such other Series.
1.2 BROKER-DEALER REGISTRATION.
The Distributor and AGSI each represents and warrants that it is and
will remain duly registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD").
SECTION 2. PROCESSING TRANSACTIONS
2.1 The Fund agrees, as provided in its Registration Statement, to
make available to the Separate Account, and any Division, shares of the Series
for investment of purchase payments of the Policies allocated to the Separate
Account.
2.2 The Fund agrees to sell to AGL those shares of the Series which
AGL orders. Orders which are sent by AGL to the Fund and received by the Fund
by 8:00 a.m. Pacific time, will be executed by the Fund at the net asset value
determined on the prior Business Day. Any orders received by the Fund after
8:00 a.m. and prior to 1:00 p.m. Pacific time, will be executed by the Fund at
the net asset value next computed pursuant to the rules of the SEC. For
purposes of this Section 2.2, the Fund hereby appoints AGL as its designee for
receipt of such orders from the Separate Account and receipt by such designee
shall constitute receipt by the Fund; provided that the Fund receives notice
from AGL by telephone or facsimile (or by such other means as the Fund and AGL
may agree in writing) of receipt of such orders by 8:00 a.m. Pacific time on
the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the SEC.
2
<PAGE>
2.3 The Fund agrees to redeem, on AGL's request, any full or
fractional shares of the Fund held by AGL, executing such requests on each
Business Day at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption, in accordance with the provisions
of this Agreement and the Fund's Registration Statement. For purposes of this
Section 2.3, AGL hereby appoints the Fund as its designee for receipt of
requests for redemption from the Separate Account and receipt by such designee
shall constitute receipt by the Fund; provided that the Fund receives notice
from AGL by telephone or facsimile (or by such other means as the Fund and AGL
may agree in writing) of receipt of such request for redemption by 8:00 a.m.
Pacific time on the next following Business Day.
2.4 In the event that AGL's order results in a net purchase of Series
shares, AGL shall use its best efforts to pay for Series shares by 11:00 a.m.
Pacific time on the same Business Day that the notice of order to purchase the
Fund shares is made in accordance with the provisions of this section. If
AGL's order requests a net redemption resulting in a payment of redemption
proceeds to AGL, the Fund shall normally pay and transmit the proceeds of
redemptions of Series shares by 11:00 a.m. Pacific time on the same Business
Day that the notice of a redemption order is received in accordance with the
provisions of this Agreement, unless doing so would require the Fund to
dispose of Series securities or otherwise incur additional costs. In any
event, proceeds shall be wired to AGL within three (3) Business Days or such
longer period permitted by the Investment Company Act of 1940, as amended (the
"1940 Act") or the rules, orders or regulations thereunder, and the Fund shall
notify the person designated in writing by AGL as the recipient for such
notice of such delay by 1:00 p.m. Pacific time the same Business Day that AGL
transmits the redemption order to the Fund. If AGL's order requests the
application of redemption proceeds from the redemption of shares to the
purchase of shares of another fund advised by Adviser (as defined below), the
Fund shall so apply such proceeds the same Business Day that AGL transmits
such order to the Fund. Any payment made pursuant to this Section 2.4 shall be
in federal funds transmitted by wire.
2.5 The Fund will provide to AGL closing net asset value per share for
the Series at the close of trading each Business Day. In any event, the Fund
shall use its best efforts to make the net
3
<PAGE>
asset value per share for each Series available by 3:30 p.m. Pacific time each
Business Day, and as soon as reasonably practicable after the net asset value
per share for each Series is calculated, and shall calculate such net asset
value in accordance with the Fund's Registration Statement. Any material error
in the calculation of the net asset value of the Series shall be reported
immediately to AGL.
2.6 At the end of each Business Day, AGL shall use the information
described in Section 2.5 to calculate Separate Account unit values for the
day. Using these unit values, AGL 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 the Fund 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 the Fund by AGL by 8:00 a.m. Pacific time on the Business Day
next following AGL's receipt of such requests and premiums in accordance with
the terms of Sections 2.2 and 2.3 hereof. Orders will be sent directly, via
facsimile (or by such other means as the Fund and AGL may agree in writing),
to the Fund or such other person as the Fund may designate.
2.7 The Fund shall furnish, on or before the exdividend date, notice
to AGL of any income dividends or capital gain distributions payable on the
shares of any Series. AGL hereby elects to receive all such income dividends
and capital gain distributions as are payable on a Series' shares in
additional shares of the Series, but reserves the right to revoke the election
and to receive all such income dividends and capital gain distributions in
cash. The Fund shall notify AGL or its designee of the number of shares so
issued as payment of such dividends and distributions.
2.8 The Fund may refuse to sell shares of any Series to any person or
suspend or terminate the offering of the shares of or liquidate any Series 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
Fund (the "Board of Trustees"), 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
4
<PAGE>
of such Series. The Fund further reserves the right to pay any portion of a
redemption in kind of portfolio securities of any Series if the Fund's Board
of Trustees determines that it would be detrimental to the best interests of
the shareholders to make a redemption wholly in cash.
2.9 Issuance and transfer of Series shares will be by book entry only.
Stock certificates will not be issued to AGL or the Separate Account. Shares
ordered from the Series will be recorded in appropriate book entry titles for
the Separate Account.
2.10 Each Party has the right to rely on information or confirmations
provided by each other Party (or by any affiliate of each other Party) and
shall not be liable in the event that an error is a result of any
misinformation supplied by any other Party or any such affiliate. If a mistake
is caused in supplying such information or confirmations, which results in a
reconciliation with incorrect information, the amount required to make a
Policy owner's or participant's account whole shall be borne by the Party
providing the incorrect information.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 EXPENSE ALLOCATIONS.
(a) The Fund will pay the cost of keeping its registration of
shares under the Securities Act of 1933, as amended (the "1933 Act") and its
registration as a management investment company under the 1940 Act, current
and effective. AGL will pay the cost of registering the Separate Account as a
unit investment trust under the 1940 Act and registering units of interest
under the Policies under the 1933 Act and keeping such registrations current
and effective.
(b) At least annually, the Fund or its designee shall provide
AGL with the current
5
<PAGE>
prospectus, statement of additional information and any supplements thereto
for the shares of the Series in the form of "camera ready" copy as set in type
or, at the request of AGL, as a diskette in the form sent to the financial
printer. The prospectuses provided by the Fund shall be limited to only those
Series of the Fund that are made available through the Separate Account to
serve as underlying investments. The Fund shall be responsible for providing
the prospectus and/or statement of additional information in the format (i.e.,
"camera ready" or diskette) in which it is accustomed to formatting
prospectuses and/or statements of additional information and shall bear the
expense of providing the prospectus and/or statement of additional
information, and any supplements thereto, in such format (e.g. typesetting
expenses), and AGL shall bear the expense of adjusting or changing the format
to conform with any of its prospectuses and/or statements of additional
information. At AGL's option and expense, once a year (or more frequently if
the prospectus and/or statement of additional information for the shares is
supplemented or amended), AGL may cause the Fund's prospectus and/or statement
of additional information to be printed separately and/or together in one
document with the prospectus and/or statement of additional information for
other investment companies and/or for the Policies. AGL shall be responsible
for the costs of printing the Fund's prospectus and/or statement of additional
information, either separately or in combination as aforesaid, and
distribution to existing Policy owners whose Policies are funded by such
shares and to prospective purchasers of Policies; provided that the Fund shall
be responsible for one-half of the cost of printing the Fund's prospectus in a
quantity sufficient to provide each existing Policy owner with a copy.
(c) The Fund will bear the costs of preparing, filing with the
SEC and setting for printing the Fund's periodic reports to shareholders, the
Fund proxy material and other shareholder communications (collectively "Fund
Reports") and AGL will bear the costs delivering the Fund Reports to existing
owners under the Policies (collectively, "Participants").
(d) AGL will bear the costs of preparing, filing with the SEC,
setting for printing, printing and delivering to Participants the Separate
Account's prospectus, statement of additional information and any supplements
thereto (collectively, the "Separate Account Prospectus"), periodic
6
<PAGE>
reports to Participants, voting instruction solicitation material, and other
Participant communications.
3.3 PARTIES TO COOPERATE.
The Fund, AGL, AGSI and the Distributor each agrees to cooperate with
the others, as applicable, in arranging to print, mail and/or deliver combined
or coordinated prospectuses or other materials of the Fund and Separate
Account.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) The Fund represents and warrants that each Series 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 make every effort to qualify and to maintain
qualification of each Series as a RIC. The Fund or the Distributor will notify
AGL immediately upon having a reasonable basis for believing that a Series has
ceased to so qualify or that it might not so qualify in the future.
(b) AGL represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance policies under
applicable provisions of the Code and that it will make every effort to
maintain such treatment. AGL will notify the Fund and the Distributor
immediately upon having a reasonable basis for believing that any of the
Policies have ceased to be so treated or that they might not be so treated in
the future.
(c) The Fund represents and warrants that each Series is
currently in compliance with the diversification requirements set forth in
Section 817(h) of the Code and Section 1.817-5 of the regulations under the
Code, and the Fund represents that it will make every effort to maintain each
Series' compliance with such diversification requirements. The Fund or the
Distributor will notify AGL immediately upon having a reasonable basis for
believing that a Series has ceased to so comply or that a Series might not so
comply in the future.
7
<PAGE>
(d) AGL represents and warrants that that the Separate Account
is a "segregated asset account" and that interests in the Separate Account are
offered exclusively through the purchase of or transfer into a "variable
contract," within the meaning of such terms under Section 817(h) of the Code
and the regulations thereunder. AGL will make every effort to continue to meet
such definitional requirements, and it will notify the Fund and the
Distributor 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. quarter.
(e) The Fund represents that, under the terms of its investment
advisory agreements with SAFECO Asset Management Company (the "Adviser"), the
Adviser is and will be responsible for managing the Fund in compliance with
the Fund's investment objectives, policies and restrictions as set forth in
the Fund Prospectus. The Fund represents that these objectives, policies and
restrictions do and will include operating as a RIC in compliance with
Subchapter M of the Code and Section 817(h) of the Code and regulations
thereunder. The Fund has adopted and will maintain procedures for ensuring
that the Fund is managed in compliance with Subchapter M and Section 817(h)
and regulations thereunder. On request, the Fund shall also provide AGL with
such materials, cooperation and assistance as may be reasonably necessary for
AGL or any appropriate person designated by AGL to review from time to time
the procedures and practices of the Adviser or each sub-investment adviser to
the Fund for ensuring that the Fund is managed in compliance with Subchapter M
and Section 817(h) and regulations thereunder.
In the event of any noncompliance regarding its status as a RIC, the Fund will
pursue those efforts necessary to enable each affected Series to qualify once
again for treatment as a RIC in compliance with Subchapter M, including
cooperation in good faith with AGL. If the Fund does not so cure the
noncompliance regarding its status under Section 817(h), the Fund will
cooperate in good faith with AGL's efforts to obtain a ruling and closing
agreement, as provided in Revenue Procedure 92-25 issued by the Internal
Revenue Service (or any applicable ruling or procedure subsequently issued by
the Internal Revenue Service), that the Series satisfies Section 817(h) for
the period or periods of
8
<PAGE>
non-compliance.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) The Distributor and the Fund make no representation as to
whether any aspect of the Fund's operations complies with the insurance laws
or regulations of the various states. The Fund will use reasonable efforts to
comply with any applicable state insurance laws or regulations, to the extent
specifically requested in writing by AGL.
(b) AGL 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 the Separate Account as a segregated asset account under Article
3.75 of the Texas Insurance Code, and (iii) the Policies comply in all
material respects with all other applicable federal and state laws and
regulations.
(c) AGL and AGSI represent and warrant that AGSI is a business
corporation 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.
(d) The Distributor represents and warrants that it is a
business corporation duly organized, validly existing, and in good standing
under the laws of the State of Washington and has full corporate power,
authority and legal right to execute, deliver, and perform its duties and
comply with its obligations under this Agreement.
(e) The Distributor and the Fund represent and warrant that the
Fund is a business trust duly organized, validly existing, and in good
standing under the laws of the state of Delaware and has full power,
authority, and legal right to execute, deliver, and perform its duties and
comply
9
<PAGE>
with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) AGL represents and warrants that (i) it has registered the
Separate Account as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a segregated investment account for its variable
life insurance policies, including the Policies, (ii) the Separate Account
does and will comply in all material respects with the requirements of the
1940 Act and the rules thereunder, (iii) the Separate Account's 1933 Act
registration statement relating to the Policies, 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,(iv) the Separate
Account Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder; and (v) interests in
the Separate Account pursuant to the Policies will be registered under the
1933 Act to the extent required by the 1933 Act and the Policies will be duly
authorized for issuance and sold in compliance with all applicable federal and
state laws and that the sale of the Policies will comply in all material
respects with state insurance suitability requirements.
(b) The Fund and the Distributor represent and warrant that (i)
Fund 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 Washington law, (ii) the Fund is and will remain
registered under the 1940 Act to the extent required by the 1940 Act, and
(iii) the Fund 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.
(c) The Fund represents and warrants that (i) the Fund does and
will comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, (ii) its 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 (iii) the Fund
Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(d) The Fund will register and qualify its shares for sale in
accordance with the laws of any state or other jurisdiction only if and to the
extent reasonably deemed advisable by the
10
<PAGE>
Fund, AGL or any other life insurance company utilizing the Fund.
(e) AGL represents and warrants that its directors, officers,
and employees, if any, dealing with the money and/or securities of the Fund
are and shall continue to be at all times covered by a blanket fidelity bond
or similar coverage in an amount not less than $2 million. The aforesaid bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
(f) The Fund represents and warrants that its directors,
officers, and employees, if any, dealing with the money and/or securities of
the Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage 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 shall
include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company. The Fund agrees that any amounts received under
such bond that arise from the arrangements contemplated by this Agreement
shall be held by them for the benefit of the Fund.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) The Distributor or the Fund shall promptly notify AGL 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 the Fund's registration
statement under the 1933 Act or the Fund Prospectus, (ii) any request by the
SEC for any amendment to such registration statement or Fund Prospectus, (iii)
the initiation of any proceedings for that purpose or for any other purpose
relating to the registration or offering of the Fund's shares, or (iv) any
other action or circumstances that may prevent the lawful offer or sale of
Fund shares in any state or jurisdiction, including, without limitation, any
circumstances in which (x) the Fund's shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law or (y) such law precludes the use of such shares as an underlying
investment medium of the Policies issued or to be issued by AGL. The
Distributor and the Fund will make every reasonable effort to prevent the
issuance of any stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at
11
<PAGE>
the earliest possible time.
(b) AGL or AGSI shall promptly notify the Fund 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 the Separate Account's
registration statement under the 1933 Act relating to the Policies or the
Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose
relating to the registration or offering of the Separate Account interests
pursuant to the Policies, (iv) any other action or circumstances that 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. AGL and AGSI will make every reasonable
effort to prevent the issuance of any 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 AGL TO PROVIDE DOCUMENTS.
AGL will provide to the Fund one complete copy of all SEC registration
statements, Separate Account Prospectuses, annual and semi-annual 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 the Separate Account or the Policies,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6 FUND TO PROVIDE DOCUMENTS.
The Fund will provide to AGL one complete copy of all SEC registration
statements, Fund Prospectuses, annual and semi-annual 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 the Fund or
its shares, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
12
<PAGE>
4.7 SALES LITERATURE
(a) AGL will furnish, or will cause to be furnished, to the Fund
and Distributor for review, each piece of sales literature or other
promotional material in which the Fund, or any Series thereof, or Adviser is
named, before such material is submitted to any regulatory body for review,
and in any event, at least fifteen (15) Business Days prior to its use. No
such material will be used if the Fund or Distributor objects to its use in
writing within fifteen (15) Business Days after receipt of such material.
(b) Advertising and sales literature with respect to AGL, the
Separate Account and/or the Policies prepared by the Fund, Distributor or any
affiliate thereof will be submitted to AGL for review before such material is
submitted to any regulatory body for review, and in any event, at least
fifteen (15) Business Days prior to its use. No such material will be used if
AGL objects to its use in writing within fifteen (15) Business Days after
receipt of such material.
(c) The Fund and its affiliates and agents shall not give any
information or make any representations on behalf of AGL or concerning AGL,
the Separate Account or the Policies issued by AGL, other than the information
or representations contained in a registration statement or prospectus for
such Policies, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports of the Separate Account or
reports prepared for distribution to owners of such Policies, or in sales
literature or other promotional material approved by AGL or its designee,
without the written permission of AGL.
(d) AGL and its affiliates and agents shall not give any
information or make any representations on behalf of the Fund or concerning
the Fund other than the information or representations contained in a
Registration Statement or prospectus for the Fund, as such Registration
Statement and prospectus may be amended or supplemented from time to time, or
in reports of the Fund or reports prepared for distribution to owners of
shares of the Fund or for owners of the Policies, or in sales literature or
other promotional material approved by the Fund or its designee, without the
written permission of the Fund.
13
<PAGE>
(e) 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, electronic
media, 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
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 1940 Act or the
1933 Act.
(f) AGL will bear the cost of printing and delivering to
prospective purchasers of the Policies Fund and Separate Account sales
literature or other promotional material and the cost of filing any such
materials with, and obtaining approval from, any state insurance regulatory
authorities.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The order Fund has obtained, and AGL has received and reviewed, a copy
of the amended and restated application for exemptive relief filed by the Fund
and certain affiliates on December 20, 1995 with the SEC and the Exemptive
Order issued by the SEC on January 17, 1996 in response thereto (Securities
and Exchange Commission Release No. IC-21608 the "Mixed and Shared Funding
Order") exempting it from certain provisions of the 1940 Act and rules
thereunder so that the Fund may be available for investment by certain other
entities, including, without limitation, separate accounts funding variable
life insurance policies and variable annuity contracts, separate accounts of
insurance companies unaffiliated with AGL and trustees of qualified pension
and
14
<PAGE>
retirement plans ("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. The Parties represent
and warrant that they will comply with the terms and conditions of the SEC
order, whether or not recited in this Section 5.
5.2 DISINTERESTED DIRECTORS.
The Fund agrees that the Board of Trustees shall at all times consist of
Trustees, a majority of whom (the "Disinterested Directors") are not
interested persons of the Adviser or the Distributor 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 Trustee
or Trustees, then the operation of this condition shall be suspended (a) for a
period of 45 days if the vacancy or vacancies may be filled by the Board of
Trustees; (b) for a period of 60 days if a vote of shareholders is permitted
to fill the vacancy or vacancies; or (c) for such longer period as the SEC may
permit.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
The Fund agrees that the Board of Trustees will monitor for the
existence of any material irreconcilable conflict between the interests of the
Participants of all separate accounts of life insurance companies utilizing
the Fund, including the Separate Account. 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;
15
<PAGE>
(d) the manner in which the investments of any Series are being
managed;
(e) a difference in voting instructions given by variable
insurancelife insurance policy and variable annuity contract participants or
by participants of different life insurance companies utilizing the Fund; or
(f) a decision by a life insurance company utilizing the Fund to
disregard the voting instructions of participants. AGL will report any
potential or existing conflicts of which it becomes aware to the Fund's Board
of Trustees. AGL will assist the Board in carrying out its responsibilities
under the Mixed and Shared Funding Order by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
This assistance shall include, but is not limited to, an obligation by AGL to
(i) inform the Board whenever the voting instructions of the Policy owners or
Participants are disregarded, and (ii) to submit to the Board such reports,
materials or data as the Board may reasonably request so that the Board may
fully carry out the obligations imposed upon it by the Mixed and Shared
Funding Order, and such reports, materials and data shall be submitted more
frequently if deemed appropriate by the Board. AGL will carry out its
responsibilities under this paragraph with a view only to the interests of the
Policy owners and Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Trustees or a majority of the Disinterested Trustees
that a material irreconcilable conflict exists affecting AGL, AGL will, at
theirits own expense and to the extent reasonably practicable (as determined
by a majority of the Disinterested Trustees), 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 the separate
account from the Fund or any series and reinvesting such assets in a different
investment medium, including another series of the Fund or another investment
company, or submitting the question whether such
16
<PAGE>
segregation should be implemented to a vote of all affected Participants and,
as appropriate, segregating the assets of any particular group (E.G., variable
life insurance contract owners, variable annuity contract owners or all
variable contract owners and participants of one or more life insurance
companies utilizing the Fund) that votes in favor of such segregation, or
offering to the affected variable contract owners or 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
AGL's decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, AGL may be
required, at the Fund's election, to withdraw the Separate Account's
investment in the Fund. No charge or penalty will be imposed as a result of
such withdrawal. Any such withdrawal must take place within six months after
the Fund gives notice to AGL that this provision is being implemented, and
until such withdrawal the Distributor and Fund shall continue to accept and
implement orders by AGL for the purchase and redemption of shares of the Fund.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to AGL conflicts
with the majority of other state regulators, then AGL will withdraw the
Separate Account's investment in the Fund within six months after the Fund's
Board of Directors informs AGL that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal the
Distributor and Fund shall continue to accept and implement orders by AGL for
the purchase and redemption of shares of the Fund.
17
<PAGE>
(d) AGL 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 the
Fund or the Distributor be required to establish a new funding medium for any
Policies. AGL will not be required by the terms hereof to establish a new
funding medium for any Policies if any 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 AGL.
The Fund will promptly make known in writing to AGL the Board of
Trustees' 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 TRUSTEES.
AGL will at least annually submit to the Board of Trustees of the Fund
such reports, materials or data as the Board of Trustees may reasonably
request so that the Board of Trustees may fully carry out the obligations
imposed upon it by the provisions hereof, and said reports, materials and data
will be submitted at any reasonable time deemed appropriate by the Board of
Trustees. All reports received by the Board of Trustees of potential or
existing conflicts, and all Board of Trustees actions with regard to
determining the existence of a conflict, notifying life insurance companies
utilizing the Fund of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of
the Board of Trustees 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.
18
<PAGE>
If, at any time during which the Fund is serving an investment medium
for variable life insurance policies, 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, the Parties agree that they
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.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Series:
(a) at the option of AGL, the Distributor or the Fund upon (i)
at least six months' advance written notice to the other Parties unless a
shorter time period is agreed to by the parties, (b) at the option of the Fund
upon
(i) at least sixty days advance written notice to the
other parties, and
(ii) the approval by (x) a majority of the Disinterested
Directors or (y) a majority vote of the shares of the affected Series that are
held in the corresponding Divisions of the Separate Account (pursuant to the
procedures set forth in Section 10 of this Agreement for voting Series shares
in accordance with Participant instructions);or
(c) at the option of the Fund upon written notice upon
institution of formal proceedings against AGL or AGSI by the SEC, the NASD,
any state insurance regulator or any other regulatory body regarding AGL's
duties under this Agreement or related to the sale of the Policies, the
operation of the Separate Account, or the purchase of the Fund shares, if, in
each case, the Fund reasonably determines that such proceedings, or the facts
on which such proceedings may be based, have a material likelihood of imposing
material adverse consequences on the Series to be terminated; or
19
<PAGE>
(d) at the option of AGL upon written notice upon institution of
formal proceedings against the Fund, the Adviser or any sub-investment adviser
to the Fund, or the Distributor by the NASD, the SEC, or any state securities
or insurance department or any other regulatory body, if, in each case, AGL
reasonably determines that such proceedings, or the facts on which such
proceedings may be based, have a material likelihood of imposing material
adverse consequences on AGL, AGSI or the Division corresponding to the Series
to be terminated; or
(e) at the option of any Party upon occurrence without written
notice in the event that (i) the Series's shares are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law or (ii) such law precludes the use of such shares as an underlying
investment medium of the Policies issued or to be issued by AGL; or
(f) upon termination of the corresponding Division's investment
in the Series pursuant to Section 5 hereof; or
(g) at the option of AGL upon written notice if the Series
ceases to qualify as a RIC under Subchapter M of the Code or under successor
or similar provisions, or if AGL reasonably believes that the Series may fail
to so qualify; or
(h) at the option of AGL upon written notice if the Series fails
to comply with Section 817(h) of the Code or with successor or similar
provisions, or if AGL reasonably believes that the Series may fail to so
comply.
(i) at the option of the Fund upon written notice if the
Policies cease to qualify as annuity contracts or life insurance contracts, as
applicable, under the Code, or if the Fund reasonably believes that the
Policies may fail to so qualify; or
(j) at the option of the Fund, upon AGL's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of the Fund within thirty (30) days
20
<PAGE>
after written notice of such breach is delivered to AGL; or
(k) at the option of AGL, upon the Fund's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of AGL within thirty (30) days after written notice of such
breach is delivered to the Fund; or
(l) at the option of the Fund upon written notice, if the
Policies are not registered, issued or sold in accordance with applicable
federal and/or state law and any applicable rules and regulations thereunder;
or
(m) effective immediately in the event the agreement is assigned
without the prior written consent of all parties.
6.2 SERIES TO REMAIN AVAILABLE.
Except (i) as necessary to implement Participant initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Series as
to which this Agreement has terminated, AGL shall not (x) redeem Fund shares
attributable to the Policies (as opposed to Fund shares attributable to AGL's
assets held in the Separate Account), or (y) prevent Participants from
allocating payments to or transferring amounts from a Series that was
otherwise available under the Policies, until, in either case, 90 calendar
days after AGL shall have notified the Fund or Distributor of its intention to
do so.
6.3 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of this
Agreement.
6.4 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Series
pursuant to Section 6.1 hereof, this Agreement shall nevertheless continue in
effect as to any shares of that Series that are
21
<PAGE>
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
the Separate Account owns no shares of the affected Series or a date (the
"Final Termination Date") six months following the Initial Termination Date,
except that (i) AGL may, by written notice to the other Parties, shorten said
six month period in the case of a termination pursuant to Sections 6.1(d),
6.1(e) 6.1(g) 6.1(k) or 6.1(m) and (ii) the Fund may, by written notice to the
other Parties, shorten said 6 month period in the case of a termination
pursuant to Sections 6.1(b), 6.1(c), 6.1(f), 6.1(h), 6.1(i), 6.1(j) 6.1(l) or
6.1(m).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that the Separate Account owns no shares of a Series 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.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned, except with the written consent of
each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 2 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:
22
<PAGE>
American General Life
Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Attn: Steven A. Glover
FAX: 713-831-3071
American General Securities
Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attn: Steven A. Glover
FAX: 713-831-3071
SAFECO Resource Series Trust
4333 Brooklyn Avenue N.E.
Seattle, Washington 98185
Attn: Neal A. Fuller
FAX: 206-548- 7150
SAFECO Securities, Inc.
4333 Brooklyn Avenue N.E.
Seattle, Washington 98185
Attn: Neal A. Fuller
FAX: 206-548- 7150
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
AGL will distribute all proxy material furnished by the Fund to Participants
and will vote Fund shares in accordance with instructions received from
Participants. AGL will vote Fund shares that are (a) not attributable to
Participants or (b) attributable to Participants, but for which no
instructions have been received, in the same proportion as Fund shares for
which said instructions have been received from Participants. AGL agrees that
it will disregard Participant voting instructions only to the extent (i) it
would be permitted to do so pursuant to Rule 6e-3(T)(b)(15)(iii) under the
1940 Act if the Policies were variable life insurance policies subject to that
rule or (ii) it is permitted under applicable state
23
<PAGE>
insurance laws affecting the Fund. AGL will be responsible for assuring that
the Separate Account calculates voting privileges in a manner consistent with
that of other participating life insurance companies that utilize the Fund.
SECTION 11. FOREIGN TAX CREDITS
The Fund agrees to consult in advance with AGL 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 FUND AND DISTRIBUTOR BY AGL.
(a) Except to the extent provided in Sections 12.1(b) and
12.1(c), below, AGL agrees to indemnify and hold harmless the Fund and the
Distributor, each of their respective affiliates, and each of their directors
and officers, employees and agents, and each person, if any, who controls the
Fund or the Distributor within the meaning of Section 15 of the 1933 Act
(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 AGL) 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, insofar as such losses, claims,
damages, liabilities, actions, or settlements are related to the sale or
acquisition of the Fund's shares or the Policies and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Separate
Account's 1933 Act registration statement, the Separate Account Prospectus,
the Policies or, to the extent prepared by AGL or AGSI, or agents thereof,
sales literature or advertising for the Policies (or any
24
<PAGE>
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 AGL or AGSI, or agents thereof by or on behalf of the Fund, the
Distributor or the Adviser for use in the Separate Account's 1933 Act
registration statement, the Separate Account Prospectus, the Policies, or
sales literature or advertising (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of the Policies or
Fund shares; or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in the
Fund's 1933 Act registration statement, Fund Prospectus, sales literature or
advertising of the Fund, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of AGL or AGSI) or
wrongful conduct of AGL or AGSI or persons under their control (including,
without limitation, their employees and "Associated Persons," as that term is
defined in paragraph (m) of Article I of the NASD's By-Laws), in connection
with the sale or distribution of the Policies or Fund shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or advertising of
the Fund, or any amendment or supplement to any of the foregoing,
25
<PAGE>
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 the Fund by or on behalf of AGL or
AGSI for use in the Fund's 1933 Act registration statement, Fund Prospectus,
sales literature or advertising of the Fund, or any amendment or supplement to
any of the foregoing; or
(iv) arise as a result of any failure by AGL or AGSI 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 the AGL or AGSI in this Agreement
or arise out of or result from any other material breach of this Agreement by
AGL or AGSI.
(b) AGL shall not be liable under this indemnification provision
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 its reckless disregard of
obligations or duties under this Agreement or to the Distributor or to the
Fund.
(c) AGL shall not be liable under this indemnification provision
with respect to any action against an Indemnified Party unless such
Indemnified Party shall have notified AGL 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 AGL of any such action shall not
relieve AGL 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.
26
<PAGE>
In case any such action is brought against an Indemnified Party, AGL shall be
entitled to participate, at its own expense, in the defense of such action.
AGL 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 unreasonably withheld. After notice from AGL to such Indemnified Party
of AGL's election to assume the defense thereof, the Indemnified Party will
cooperate fully with AGL and shall bear the fees and expenses of any
additional counsel retained by it, and AGL 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.
12.2 OF AGL AND AGSI BY DISTRIBUTOR.
(a) Except to the extent provided in Sections 12.2(b) and
12.2(c) hereof, the Distributor agrees to indemnify and hold harmless AGL,
AGSI, each of their respective affiliates, and each of their directors and
officers, employees and agents, and each person, if any, who controls AGL or
AGSI, within the meaning of Section 15 of the 1933 Act (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 the Distributor) 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, insofar as such losses, claims, damages, liabilities,
actions, or settlements are related to the sale or acquisition of the Fund's
shares or the Policies and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Fund's 1933 Act
registration statement, Fund Prospectus, sales literature or advertising of
the Fund or, to the extent not prepared by AGL or AGSI or agents thereof,
sales literature or advertising for the Policies (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
27
<PAGE>
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 the Distributor or Fund or agents thereof by or
on behalf of AGL or AGSI for use in the Fund's 1933 Act registration
statement, Fund Prospectus, or in sales literature or advertising (or any
amendment or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Policies or Fund shares; or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in the
Separate Account's 1933 Act registration statement, Separate Account
Prospectus, sales literature or advertising for the Policies, or any amendment
or supplement to any of the foregoing, not supplied for use therein by or on
behalf of the Distributor, Fund or Adviser) or the wrongful conduct of the
Fund or Distributor, or persons under their control (including, without
limitation, their employees and Associated Persons), in connection with the
sale or distribution of the Policies or Fund shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Separate
Account's 1933 Act registration statement, Separate Account Prospectus, sales
literature or advertising covering the Policies, 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
28
<PAGE>
statement or omission was made in reliance upon and in conformity with
information furnished to AGL or AGSI by or on behalf of the Fund, the Adviser
or the Distributor for use in the Separate Account's 1933 Act registration
statement, Separate Account Prospectus, sales literature or advertising
covering the Policies, or any amendment or supplement to any of the foregoing;
or arise as a result of any failure by the Fund or the Distributor 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 the Fund or the Distributor in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Fund or the Distributor;
(b) Except to the extent provided in Sections 12.2(c) and
12.2(d) hereof, the Distributor agrees 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 the Fund) 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 Series
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 AGL or AGSI pursuant to the Policies,
the costs of any ruling and closing agreement or other settlement with the
IRS, and the cost of any substitution by AGL of shares of another investment
company or portfolio for those of any adversely affected Series as a funding
medium for each Separate Account that AGL reasonably deems necessary or
appropriate as a result of the noncompliance.
29
<PAGE>
(c) The Fund and the Distributor shall not be liable under this
indemnification provision 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 its
reckless disregard of obligations and duties under this Agreement or to AGL,
AGSI or the Separate Account.
(d) The Fund and the Distributor shall not be liable under this
indemnification provision with respect to any action against an Indemnified
Party unless such Indemnified Party shall have notified the Fund and the
Distributor 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 the Distributor of any such action shall not relieve the Distributor
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,
the Distributor will be entitled to participate, at its own expense, in the
defense of such action. The Distributor 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 unreasonably withheld. After notice from
the Distributor to such Indemnified Party of the Distributor's election to
assume the defense thereof, the Indemnified Party will cooperate fully with
the Distributor and shall bear the fees and expenses of any additional counsel
retained by it, and the Distributor 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.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Section 12.1 or 12.2 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
30
<PAGE>
or otherwise.
12.4 SUCCESSORS.
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 Delaware 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
31
<PAGE>
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.
SECTION 18. LIMITATION OF LIABILITY
It is understood and expressly stipulated that neither the shareholders of
shares of any Series nor the Trustees or officers of the Fund or any Series
shall be personally liable hereunder. No Series shall be liable for the
liabilities of any other Series. All persons dealing with the Fund or a Series
must look solely to the property of the Fund or that Series, respectively, for
enforcement of any claims against the Fund or that Series. It is also
understood that each of the Series shall be deemed to be entering into a
separate Agreement with AGL so that it is as if each of the Series had signed
a separate Agreement with AGL and that a single document is being signed
simply to facilitate the execution and administration of the Agreement.
SECTION 19
No provision of this Agreement may be amended or modified in any manner except
by a written agreement properly authorized and executed by all Parties.
32
<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.
AMERICAN GENERAL LIFE INSURANCE COMPANY
By __________________________________
Don M. Ward
Title SENIOR VICE PRESIDENT-VARIABLE PRODUCTS
AMERICAN GENERAL SECURITIES INCORPORATED
By __________________________________
F. Paul Kovach
Title PRESIDENT
SAFECO RESOURCE SERIES TRUST
By __________________________________
Neal A. Fuller
Title VICE PRESIDENT & CONTROLLER
SAFECO SECURITIES, INC.
By __________________________________
Neal A. Fuller
Title VICE PRESIDENT & CONTROLLER
EXHIBIT 8(h)
AMENDMENT NUMBER 2 TO
AMENDED AND RESTATED PARTICIPATION AGREEMENT
AMONG VAN KAMPEN AMERICAN CAPITAL LIFE INVESTMENT TRUST,
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.,
VAN KAMPEN AMERICAN CAPITAL ASSET MANAGEMENT, INC.,
AMERICAN GENERAL LIFE INSURANCE COMPANY, AND
AMERICAN GENERAL SECURITIES INCORPORATED
This Amendment No. 2 ("Amendment") executed as of the 4th day of
November, 1997 to the Amended and Restated Participation Agreement dated as of
January 24, 1997, as amended (the "Agreement"), among Van Kampen American
Capital Life Investment Trust (the "Fund"), Van Kampen American Capital
Distributors, Inc., Van Kampen American Capital Asset Management, Inc.,
American General Life Insurance Company (the "Company"), and American General
Securities Incorporated.
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 PLATINUM INVESTOR I AND PLATINUM INVESTOR II FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICIES ("Platinum Contracts"), (ii) solely to the
extent the Agreement relates to the Platinum Contracts, amend the provisions
of Article III of the Agreement as described below, and (iii) add to Schedule
B of the Agreement the Fund's Strategic Stock Portfolio.
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 to add the Platinum Contracts.
2. Schedule B to the Agreement, a revised copy of which is attached
hereto, is hereby amended to add the Strategic Stock Portfolio.
3. Solely to the extent the Agreement relates to the Platinum
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 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
1
<PAGE>
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 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 owners of the
Contracts, and y is the Fund's per unit cost of printing
the Fund's prospectuses. The same procedures shall be
followed 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 Contract owners.
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
Contract owners. The Fund shall not pay any costs of
distributing such proxy-related material, reports to
shareholders, and other communications to prospective
Contract owners.
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 Contract owners.
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
2
<PAGE>
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.
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.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto execute this Amendment as of the
date first written above.
AMERICAN GENERAL LIFE INSURANCE AMERICAN GENERAL SECURITIES
COMPANY INCORPORATED
on behalf of itself and each of
its Accounts named in Schedule A
to the Agreement, as amended from
time to time
By: ______________________________ By: ______________________________
Don M. Ward F. Paul Kovach, Jr.
Senior Vice President - President
Variable Products
VAN KAMPEN AMERICAN CAPITAL VAN KAMPEN AMERICAN CAPITAL
LIFE INVESTMENT TRUST
DISTRIBUTORS, INC.
By: ______________________________ By: ______________________________
Dennis J. McDonnell John H. Zimmermann III
President President
VAN KAMPEN AMERICAN CAPITAL ASSET
MANAGEMENT, INC.
By: ______________________________
Dennis J. McDonnell
President
4
<PAGE>
SCHEDULE A
<TABLE>
SEPARATE ACCOUNTS AND CONTRACTS
<CAPTION>
Name of Separate Account and Form Numbers and Names of Contracts
Date Established by Board Of Directors Funded by Separate Account
-------------------------------------- -----------------------------------
<S> <C>
American General Life Insurance CONTRACT FORM NOS.:
Company 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 NOS.:
91010
91011
93020
93021
NAME OF CONTRACT:
Variety Plus Combination Fixed and Variable
Annuity Contract
CONTRACT FORM NOS.:
74010
74011
76010
76011
80010
80011
81010
81011
83010
83011
NAME OF CONTRACT: None
American General Life Insurance CONTRACT FORM NOS.:
Company Separate Account VL-R 97600
Established: May 6, 1997 97610
NAME OF CONTRACT:
Platinum I and Platinum II Flexible Premium
Variable Life Insurance Policies
</TABLE>
5
<PAGE>
SCHEDULE B
PARTICIPATING LIFE INVESTMENT TRUST PORTFOLIOS
Emerging Growth Portfolio
Enterprise Portfolio
Growth and Income Portfolio
Domestic Income Portfolio
Government Portfolio
Money Market Portfolio
Morgan Stanley Real Estate Securities Portfolio
Strategic Stock Portfolio
6
EXHIBIT 8(i)
AGREEMENT
AGREEMENT made as of the _____ day of _______________, 1998 by and
between ("Distributor"), a _______________ corporation and American General
Life Insurance Company ("Company"), a Texas corporation.
WITNESSETH:
WHEREAS, each of the investment companies listed on Schedule A hereto as
such Schedule may be amended from time to time (collectively the "Funds," each
a "Fund") are investment companies registered under the Investment Company Act
of 1940, as amended (the "Act"); and
WHEREAS, Company has entered into a Participation Agreement with each of
the Funds listed on Schedule A hereto; and
WHEREAS, _______________ ("Adviser") provides investment advisory and/or
administrative services to the Funds; and
WHEREAS, Distributor is the distributor for the Funds; and
WHEREAS, the parties hereto have agreed to arrange separately for the
performance of administrative services (the "Administrative Services") for
owners of shares of the Funds who maintain their shares in a variable annuity
and/or variable life separate account with Company; and
WHEREAS, Distributor desires Company to perform such services and
Company is willing and able to furnish such 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. Company agrees to perform the Administrative Services specified in
Exhibit A hereto for the benefit of the shareholders of the Funds who maintain
their shares of any such Funds in variable annuity and/or variable life
insurance separate accounts with Company and whose shares are included in the
master account ("Master Account") referred to in paragraph 1 of Exhibit A
(collectively, the Company Customers").
2. Company 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. Upon
the request of Distributor or its representatives, Company shall provide
copies of all the historical records relating to transactions between the
Funds and Company Customers, and written
<PAGE>
communications regarding the Fund(s) to or from such Customers and other
materials, in each case as may reasonably be requested to enable Distributor
or its representatives, including without limitation its auditors, legal
counsel or distributor, to monitor and review the Administrative Services, or
to 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 a shareholder. Company agrees that it
will permit Distributor, 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 services.
3. Company may, with the consent of Distributor, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of Company required by the Agreement, provided
that Company shall be fully responsible for the acts and omissions of such
other parties.
4. Company hereby agrees to notify Distributor promptly if for any reason
it is unable to perform fully and promptly any of its obligations under this
Agreement.
5. Company 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 Company or the name of its nominee and which are
maintained in Company variable annuity accounts. Company 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.
6. The provisions of the Agreement shall in no way limit the authority of
Distributor, 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.
7. In consideration of the performance of the Administrative Services by
Client, Distributor agrees to pay Company 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 Company Customers. The foregoing payment
may be paid by Distributor to Company annually. Such payment will be made
within thirty (30) days following the end of each calendar year. The payments
by Distributor to Company relate solely to Administrative Services only and do
not constitute payment in any manner for Administrative Services provided by
Company to Company Customers or any separate account organized by Company for
any investment advisory services or for costs of distribution of any variable
insurance contracts.
8. Company shall indemnify and hold harmless each of the Funds, Distributor
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 of Company of its
responsibilities under this Agreement.
2
<PAGE>
9. This Agreement may be terminated without penalty at any time by Company
or by Distributor as to all of the Funds collectively, upon 180 days written
notice to the other party. The provisions of paragraphs 2, 8 and 10 shall
continue in full force and effect after termination of this Agreement.
Notwithstanding the foregoing, this Agreement shall not require Company to
preserve any records (in any medium or format) relating to this Agreement
beyond the time periods otherwise required by the laws to which Company or the
Funds are subject provided that such records shall be offered to the Funds in
the event Company decides to no longer preserve such records following such
time periods.
10. After the date of any termination of this Agreement in accordance with
paragraph 9, no fee will be due with respect to any amounts first placed in
the Master Account for Company Customers after the date of such termination.
However, notwithstanding any such termination, Distributor will remain
obligated to pay Company the fee specified in paragraph 7 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 Company 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.
11. Company understands and agrees that the obligations of Distributor 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.
12. It is understood and agreed that in performing the services under this
Agreement Company, acting in its capacity described herein, shall at no time
be acting as an agent for Distributor, Distributor or any of the Funds.
Company 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,
Distributor or Distributor to Company; in the then current prospectus for a
variable annuity contract or variable life insurance policy issued by Company
or then current sales literature with respect to such variable annuity
contract or variable life insurance policy, approved by Distributor.
13. This Agreement, including the provisions set forth herein in Section 7,
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.
14. 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.
3
<PAGE>
15. This Agreement, including its Exhibit and Schedule, 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.
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>
<TABLE>
SCHEDULE A
<CAPTION>
INVESTMENT COMPANY NAME: FND NAME(S):
<S> <C>
</TABLE>
5
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, Company shall
perform the following Administrative Services:
1. Maintain separate records for each Company Customer, which records shall
reflect shares purchased and redeemed and share balances. Company shall
maintain the Master Account with the transfer agent of the Fund on behalf of
Company Customers and such Master Account shall be in the name of Company or
its nominee as the record owner of the shares owned by such Company Customers.
2. For each Fund, disburse or credit to Company Customers 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 Customers' interests.
3. Prepare and transmit to Company Customers periodic account statements
showing the total number of shares owned by the Customer as of the statement
closing date, purchases and redemptions of Fund shares by the Customer during
the period covered by the statement, and the dividends and other distributions
paid to the Customer during the statement period (whether paid in cash or
reinvested in Fund shares).
4. Transmit to Company Customers proxy materials and reports and other
information received by Company 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 Company Customers 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 Company Customers.
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 State Blue Sky requirements.
6
