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?...................................... 21-23
</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 beginning 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
RESOURCE 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
