<PAGE>
Registration No. 333-42567
As filed with the Securities and Exchange Commission on April 21, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 2
TO REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
(Exact Name of Trust)
AMERICAN GENERAL LIFE INSURANCE COMPANY
(Exact Name of Depositor)
2727-A Allen Parkway
Houston, Texas 77019-2191
(Complete Address of Depositor's Principal Executive Offices)
Pauletta P. Cohn, Esq.
Associate General Counsel and Secretary
American General Life Companies
2727 Allen Parkway
Houston, Texas 77019-2191
(Name and Complete Address of Agent for Service)
Title and Amount of Securities Being Registered:
An Indefinite Amount of Units of Interest in
American General Life Insurance Company
Separate Account VL-R
Under Variable Life Insurance Policies
Amount of Filing Fee: None required.
It is proposed that this filing will become effective on April 30, 1999
pursuant to paragraph (b) of Rule 485.
This post-effective amendment designates a new effective date for a previously
filed post-effective amendment.
Registrant elects to be governed by Rule 63-e(T)(b)(13)(i)(A) under the
Investment Company Act of 1940, with respect to the Variable Life Insurance
Policies described in the Prospectus.
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
RECONCILIATION AND TIE BETWEEN ITEMS IN FORM
N-8B-2 AND THE PROSPECTUS
(PURSUANT TO INSTRUCTION 4 OF FORM S-6)
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ITEM NO. OF FORM N-8B-2* CAPTION IN PROSPECTUS
<S> <C>
1 Additional Information: Separate Account VL-R.
2 Additional Information: AGL.
3 Inapplicable.**
4 Additional Information: Distribution of Policies.
5, 6 Additional Information: Separate Account VL-R.
7 Inapplicable.**
8 Inapplicable.**
9 Additional information: Legal Matters.
10(a) Additional Information: Your Beneficiary, Assigning Your
Policy.
10(b) Basic Questions You May Have: How will the value of my
investment in a Policy change over time?
10(c), 10(d) Basic Questions You May Have: How can I change my Policy's
insurance coverage? How can I access my investment in a
Policy? Can I choose the form in which AGL pays out any
proceeds from my Policy?
10(e) Basic Questions You May Have: Must I invest any minimum
amount in a Policy?
10(f) Additional Information: Voting Privileges.
10(g)(1), 10(g)(4), 10(h)(3), 10(h)(2) Basic Questions You May Have: To what extent will AGL vary
the terms and conditions of the Policies in particular cases?
Additional Information: Voting Privileges; Additional Rights
That We Have.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
10(g)(3), 10(g)(4), 10(h)(3), 10(h)(4) Inapplicable.**
10(i) Additional information: Separate Account VL-R; Tax Effects.
11 Basic Questions You May Have: How will the value of my
investments change over time?
12(a) Additional Information: Separate Account VL-R; Front Cover.
12(b) Inapplicable.**
12(c), 12(d) Inapplicable.**
12(e) Inapplicable, because the Separate Account has not yet
commenced operations.
13(a) Basic Questions You May Have: What charges will AGL deduct
from my investment in a Policy? What charges and expenses
will the mutual Funds deduct from the amount I invest through
my Policy? Additional Information: More About Policy Charges.
13(b) Illustrations of Hypothetical Policy Benefits.
13(c) Inapplicable.**
13(d) Basic Questions You May Have: To what extent will AGL vary
the terms and conditions of the Policies in particular cases?
13(e), 13(f) None.
14 Basic Questions You May Have: How can I invest money in a
Policy?
15 Basic Questions You May Have: How can I invest money in a
Policy? How do I communicate with AGL?
16 Basic Questions You May Have: How will the value of my
investment in a Policy change over time? Additional
Information: Separate Account VL-R.
17(a), 17(b) Captions referenced under Items 10(c), 10(d), and 10(e).
17(c) Inapplicable.**
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ii
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<TABLE>
<CAPTION>
<S> <C>
18(a) Captions referred to under Item 16.
18(b), 18(d) Inapplicable.**
18(c) Additional Information: Separate Account VL-R.
19 Additional Information: Separate Account VL-R; Our Reports to
Policy Owners.
20(a) Captions referenced under Items 10(g)(1), 10(g)(2), 10(h)(1),
and 10(h)(2).
20(a), 20(b), 20(c), 20(d) Inapplicable.**
20(e), 20(f)
21(a), 21(b) Basic Questions You May Have: How can I access my investment
in a Policy? Additional Information: Payment of Policy
Proceeds.
21(c) Inapplicable.**
22 Additional Information: Payment of Policy Proceeds--Delay to
Challenge Coverage.
23 Inapplicable.**
24 Additional Information: Additional Rights That We Have
25 Additional Information: American General Life Insurance
Company.
26 Inapplicable, because the Separate Account has not yet
commenced operations.
27 Additional Information: American General Life Insurance
Company.
28 Additional Information: AGL's Management.
29 Additional Information: AGL.
30, 31, 32, 33, 34 Inapplicable, because the Separate Account has not yet
commenced operations.
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iii
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<TABLE>
<CAPTION>
<S> <C>
35 Inapplicable.**
36 Inapplicable.**
37 None.
38, 39 Additional Information: Distribution of the Policies.
40 Inapplicable, because the Separate Account has not yet
commenced operations.
41(a) Additional Information: Distribution of the Policies.
41(b), 41(c) Inapplicable.**
42, 43 Inapplicable, because the Separate Account has not yet
commenced operations or issued any securities.
44(a)(1), 44(a)(2), Basic Questions You May Have: How will the value of my
44(a)(3) investment in a Policy change over time?
44(a)(4) Additional Information: Tax Effects--Our Taxes.
44(a)(5), 44(a)(6) Basic Questions You May Have: What charges will AGL deduct
from my investment in a Policy?
44(b) Inapplicable.**
44(c) Caption referenced in 13(d) above.
45 Inapplicable, because the Separate Account has not yet
commenced operations.
46(a) Captions referenced in 44(a) above.
46(b) Inapplicable.**
47, 48, 49 None.
50 Inapplicable.
51 Inapplicable.
52(a), 52(c) Basic Questions You May Have: To what extent will AGL vary
</TABLE>
iv
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<TABLE>
<CAPTION>
<S> <C>
the terms and conditions of the Policies in particular
cases? Additional Information: Additional Rights That We Have
52(b), 52(d) None.
53(a) Additional Information: Tax Effects--Our Taxes.
53(b), 54 Inapplicable.
55 Illustrations of Hypothetical Policy Benefits.
56-59 Inapplicable.**
</TABLE>
* Registrant includes this Reconciliation and Tie in its Registration Statement
in compliance with Instruction 4 as to the Prospectus as set out in Form S-6.
Separate Account VL-R has, simultaneously herewith, filed a notice of
registration as an investment company on Form N-8A under the Investment Company
Act of 1940, and it is filing a Form N-8B-2 Registration Statement at or about
the time this amended Registration Statement is filed. Pursuant to Sections 8
and 30(b)(1) of the Investment Company Act of 1940, Rule 30a-1 under the Act,
and Forms N-8B-2 and N-SAR under that Act, the Account will keep its Form N-8B-2
Registration Statement current through the filing of periodic reports required
by the Securities and Exchange Commission.
** Not required pursuant to either Instruction 1(a) as to the Prospectus as set
out in Form S-6 or the administrative practice of the Commission and its staff
of adapting the disclosure requirements of the Commission's registration
statement forms in recognition of the differences between variable life
insurance policies and other periodic payment plan certificates issued by
investment companies and between separate accounts organized as management
companies and unit investment trusts.
v
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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")
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HOME OFFICE: SPRINGFIELD SERVICE CENTER:
<S> <C> <C> <C>
(Express Delivery) (US Mail) (Express Delivery) (US Mail)
2727-A Allen Parkway Variable Universal Life #1 Franklin Square Variable Universal Life
Houston, Texas 77019-2191 Administration Springfield, Illinois 62713-0001 Administration
PHONE: 1-888-325-9315 P.O. Box 4880 PHONE: 1-888-325-9315 P.O. Box 19520
or 1-713-831-3443 Houston, Texas 77210-4880 or 1-800-528-2011 Springfield, Illinois 62794-9520
FAX: 1-713-620-3371 FAX: 1-217-528-2404
</TABLE>
The Home Office provides service to applicants and Policy owners whose AGL
representative is associated with any broker-dealer except Franklin Financial
Services Corporation ("FFSC"). The Springfield Service Center services the
needs of applicants and Policy owners whose AGL representative is associated
with the FFSC broker-dealer. Your AGL representative will tell you if you
should use the Home Office or Springfield Service Center addresses. All premium
payments, requests, directions and other communications should be directed to
the appropriate location. See "How do I communicate with AGL?" on page 21.
Also see "Services Agreements" on page 51. This booklet is called the
"prospectus."
Investment options. The AGL declared fixed interest account is the fixed
investment option for these Policies. You can also use AGL's Separate Account
VL-R ("Separate Account") to invest in the following variable investment
options. You may change your selections from time to time:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC. AMERICAN GENERAL SERIES DREYFUS VARIABLE MFS VARIABLE INSURANCE
. AIM V.I. International PORTFOLIO COMPANY INVESTMENT FUND TRUST
Equity Fund . International Equities . Quality Bond Portfolio . MFS Emerging Growth
. AIM V.I. Value Fund Fund/1/ . Small Cap Portfolio Series
. MidCap Index Fund/1,2/
. Money Market Fund/1/
. Stock Index Fund/1,2/
A I M Advisors, Inc.* /1/ The Variable Annuity Life The Dreyfus Corporation* Massachusetts Financial
Insurance Company* Services Company*
/2/ Bankers Trust Company+
- ------------------------------------------------------------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER UNIVERSAL PUTNAM VARIABLE TRUST SAFECO RESOURCE VAN KAMPEN LIFE
FUNDS, INC. . Putnam VT Diversified SERIES TRUST INVESTMENT TRUST
. Equity Growth Portfolio/1/ Income Fund . Equity Portfolio . Strategic Stock Portfolio
. High Yield Portfolio/2/ . Putnam VT Growth . Growth Portfolio
and Income Fund
. Putnam VT International
Growth and Income Fund
/1/Morgan Stanley Dean Witter Investment
Management Inc.* Putnam Investment SAFECO Asset Management Van Kampen Asset
/2/Miller Anderson & Sherrerd, LLP* Management, Inc.* Company* Management Inc.*
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Investment Adviser of the investment option
+ The Investment Sub-Adviser of the investment option
<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. 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 EITHER OUR HOME OFFICE
OR SPRINGFIELD SERVICE CENTER 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 or
Springfield Service Center 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.
We have designed this prospectus to provide you with information that you
should have before investing in the Policies Please read the prospectus
carefully and keep it for future reference.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION ("SEC") OR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THE POLICIES ARE NOT AVAILABLE IN ALL STATES.
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 PROSPECTUS IS DATED APRIL 30, 1999.
2
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GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you
purchase a Platinum Investor(SM) 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>
PAGES TO SEE
BASIC QUESTIONS YOU MAY HAVE IN THIS PROSPECTUS
- --------------------------------------------------------------------------- ------------------
<S> <C>
. What are the Policies? 1 - 2
. How can I invest money in a Policy? 5 - 6
. How will the value of my investment in a Policy change over time? 6 - 7
. What is the basic amount of insurance ("death benefit") that AGL pays
when the insured person dies? 7 - 8
. What charges will AGL deduct from my investment in a Policy? 8 - 10
. What charges and expenses will the Mutual Funds deduct from
amounts I invest through my Policy? 10 - 11
. Must I invest any minimum amount in a Policy? 11 - 13
. What are the differences between the Platinum Investor I and the
Platinum Investor II Policies? 13 - 14
. How can I change my Policy's investment options? 14
. How can I change my Policy's insurance coverage? 14 - 15
. What additional rider benefits might I select? 15 - 17
. How can I access my investment in a Policy? 17 - 19
. Can I choose the form in which AGL pays out the proceeds from my
Policy? 19-20
</TABLE>
3
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<TABLE>
<CAPTION>
<S> <C>
. To what extent can AGL vary the terms and conditions of the Policies
in particular cases? 20
. How will my Policy be treated for income tax purposes? 20 - 21
. How do I communicate with AGL? 21 - 22
</TABLE>
Illustrations of a hypothetical policy. Starting on page 23, we have
included some examples of how the values of a sample 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 sample 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 first page of this prospectus).
You should contact the Springfield Service Center if we requested that you do so
(also shown on the first page).
AGL's financial statements. We have included certain financial statements
of AGL and Separate Account VL-R in this prospectus. These begin on page
VL-R-1.
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 55, which
follows all of the financial pages). 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. You must pay premiums 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 should be sent
directly to the appropriate address shown on your billing statement. If you do
not receive a billing statement, send your premium directly to our Home Office
or Springfield Service Center 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.
We have a premium financing program available for certain qualified
applicants. If you intend to make an initial premium payment of at least
$50,000 and you have a net worth of at least $3,000,000, you may qualify under
this program. For more information, you may contact your registered
representative or our Home Office at 1-800-677-3311.
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.
5
<PAGE>
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. 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 38.) You must have at least
$5,000 of accumulation value to start dollar cost averaging and 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 ends 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?"
You can review other important information about the Mutual Funds that you can
choose in the separate prospectuses for those Funds. This includes information
about the investment performance that each Fund's investment manager has
achieved. You can request additional free copies of these prospectuses from
your AGL representative, from our Home Office or from the Springfield Service
Center if such Center provides your customer service (both locations are shown
on the first page of this prospectus).
6
<PAGE>
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 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 - 11 below do not apply to our declared fixed interest account
option.
Policies are "non-participating." 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 also choose whether the basic death benefit we will pay
is
. Option 1 - The specified amount on the date of the insured person's
death, or
. Option 2 - The specified amount plus the Policy's accumulation value
on the date of death.
Under Option 2, your death benefit will tend to be higher than under Option 1.
However, the monthly insurance charge we deduct will also be higher to
compensate us for our additional risk. Because of this, your accumulation value
will tend to be higher under Option 1 than under Option 2.
We will automatically pay an alternative basic death benefit if it is higher
than the basic Option 1 or Option 2 death benefit (whichever you have selected).
The alternative basic death benefit is computed by multiplying your Policy's
accumulation value on the insured person's date of death by the following
percentages:
7
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TABLE OF ALTERNATIVE BASIC DEATH BENEFITS AS A PERCENTAGE MULTIPLE OF POLICY
ACCUMULATION VALUE
INSURED
PERSON'S 40 or
AGE*: Under 45 50 55 60 65 70 75 to 95 100
%: 250% 215% 185% 150% 130% 120% 115% 105% 100%
__________________________________
* 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.
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 10 years, we will reduce the rate of the charge to a maximum
of .50%, and after 20 years, we will further reduce the charge to a maximum of
.25%. The daily deduction charges, including the current charge of .75%, are
the maximums we may charge; we may charge less, but we can never charge more.
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 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.
8
<PAGE>
In general, our cost of insurance rates increase with the insured person's
age. 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 if the insured
person is a female than if a male (except in Montana where such costs cannot be
based on gender).
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 non-work related
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 15, under "What additional rider benefits
might I select?"
Additional monthly charge for Platinum Investor II Policies during the first
two years. This charge is described on page 13 under "What are the differences
between the Platinum Investor I and the Platinum Investor II Policies?"
Surrender charge for Platinum Investor I Policies. The Platinum Investor I
Policies have a surrender charge that applies for the first 10 Policy years (and
the first 10 years after any requested increase in the Policy's specified
amount). The amount of the surrender charge depends on the age and other
insurance characteristics of the insured person. The maximum amount of the
surrender charge will be shown on pages 23 and 24 of the Policy. It may
initially be as high as $40 per $1,000 of specified amount or as low as $1.80
per $1,000 of specified amount (or any increase in the specified amount). Any
amount of surrender charge decreases automatically by a constant amount each
year beginning in the 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 canceled. This includes any
specified amount decrease that, as described under "Partial surrender" beginning
on page 17, results from any requested partial surrender. For this purpose, we
deem the most recent increases of specified amount to have been canceled first.
Transaction Fee. We will charge a $25 transaction fee for each partial
surrender you make.
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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 are as follows:
<TABLE>
<CAPTION>
THE MUTUAL FUNDS' ANNUAL EXPENSES/1/ (as a percentage of average net assets)
TOTAL
FUND OTHER FUND OPERATING FUND
MANAGEMENT EXPENSES (AFTER EXPENSE OPERATING
NAME OF FUND FEES(1),(2) REIMBURSEMENT)(1)(2) EXPENSES(1),(2)
------------ ----------- ----------------------- ---------------
<S> <C> <C> <C>
The following funds of AIM VARIABLE
INSURANCE FUNDS, INC.:
AIM V.I. International Equity Fund 0.75% 0.16% 0.91%
AIM V.I. Value Fund 0.61% 0.05% 0.66%
The following funds of AMERICAN GENERAL
SERIES PORTFOLIO COMPANY:
International Equities Fund 0.35% 0.05% 0.40%
MidCap Index Fund 0.32% 0.04% 0.36%
Money Market Fund 0.50% 0.04% 0.54%
Stock Index Fund 0.27% 0.04% 0.31%
The following funds of DREYFUS VARIABLE
INVESTMENT FUND:
Quality Bond Portfolio 0.65% 0.08% 0.73%
Small Cap Portfolio 0.75% 0.02% 0.77%
The following series of MFS VARIABLE
INSURANCE TRUST:
MFS Emerging Growth Series 0.75% 0.10% 0.85%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
The following portfolios of MORGAN
STANLEY DEAN WITTER UNIVERSAL FUNDS,
INC.:
Equity Growth Portfolio 0.09% 0.76% 0.85%
High Yield Portfolio 0.15% 0.65% 0.80%
The following portfolios of PUTNAM
VARIABLE TRUST: Class "IB" Funds
Putnam VT Diversified Income Fund 0.50% 0.19%/(3)/ 0.69%
PutnamVT Growth and Income Fund 0.35% 0.14%/(3)/ 0.49%
Putnam VT International Growth 0.59% 0.25%/(3)/ 0.84%
and Income Fund
The following portfolios of SAFECO
RESOURCES SERIES TRUST:
Equity Portfolio 0.74% 0.04% 0.78%
Growth Portfolio 0.74% 0.06% 0.80%
The following portfolio of VAN KAMPEN
LIFE INVESTMENT TRUST:
Strategic Stock Portfolio 0.00% 0.65% 0.65%
</TABLE>
- -------------------------------------------------
/1/The Mutual Funds' advisers or administrators have entered into administrative
services agreements with AGL. The advisers or administrators pay fees to AGL
for these services. The fees do not have a direct relationship to the Mutual
Funds' Annual Expenses. (See "Service Agreements.")
/2/Management fees and other expenses as shown for fiscal year 1998 would have
been the percentages shown below without certain voluntary expense
reimbursements from the investment adviser. Current and future fees and
expenses may vary from the fiscal year 1998 fees and expenses.
Management Other Total
Fees Expenses Annual Expenses
----------- --------- ----------------
Strategic Stock Portfolio 0.50% 0.75% 1.25%
High Yield Portfolio 0.50% 0.65% 1.15%
Equity Growth Portfolio 0.55% 0.76% 1.31%
/3/ Including 12b-1 fees of .11%
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
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<PAGE>
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 17.) The less you invest, the more
likely it is that your Policy's cash surrender value could fall to zero, as a
result of the deductions we periodically make from your accumulation value.
Policy lapse and reinstatement. If your Policy's cash surrender value does
fall to zero, we will notify you and give you a grace period to pay at least the
amount we estimate is necessary to keep your Policy in force for a reasonable
time. If we do not receive your payment by the end of the grace period, your
Policy and all riders will end 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.
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;
. a sufficient premium is not paid before the end of the grace
period, the Policy and the 5 year no-lapse guarantee terminate;
. 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
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<PAGE>
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. Important 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 future.
The differences between the two versions of Platinum Investor are:
. 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 that would reduce the
specified amount to less than $100,000 or under a Platinum Investor II
Policy that would reduce the specified amount to less than $500,000.
. 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.
. The Platinum Investor II version of the Policy does not have a surrender
charge.
. The Platinum Investor II version of the Policy does not have a 5 year
no-lapse guarantee.
. 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.
. The Platinum Investor II version of the Policy has a flat 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
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<PAGE>
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 of specified amount), or as low as $0.0999 per $1,000 of
specified amount (or increase of specified amount). (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
investment option, each transfer must be at least $500. See "Additional Rights
That We Have," beginning on page 44. 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.
Market timing. The Policies are not designed for professional market timing
organizations or other entities using 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 stop permitting telephone requests altogether.
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.
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<PAGE>
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; or
. 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 38, 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 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.
. Accidental Death Benefit Rider, which pays an additional death
benefit if the insured person dies from certain accidental causes.
. 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
15
<PAGE>
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 14). 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.
. 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.
. 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
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.
. 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).
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<PAGE>
. 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.
. 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 before 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
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.
. 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.
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<PAGE>
. 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 38.
. 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.
Exchange of policy in certain states. Certain states require that a Policy
owner be given the right to exchange the Policy for a fixed benefit life
insurance policy, within either 18 or 24 months from the date of issue. This
right is subject to various conditions imposed by the states and us. In such
states, this right has been more fully described in your Policy or related
endorsements to comply with the applicable state requirements.
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.
We remove from your investment options an amount equal to your loan and hold
that amount as additional collateral for the loan. We will credit your Policy
with interest on this collateral amount at an effective annual rate of 4%
(rather than any amount you could otherwise earn in one of our investment
options), and we will charge you interest on your loan at an effective annual
rate of 4.75%. Loan interest is payable annually, on the Policy anniversary, in
advance, at a rate of 4.54%. Any amount not paid by its due date will
automatically be added to the loan balance as an additional loan. Interest you
pay on Policy loans will not in most cases be deductible on your tax returns.
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
before the death of the Insured while the Policy is in force. You must
designate any loan repayment as such. Otherwise, we will treat it as a premium
payment instead. 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
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<PAGE>
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:
. 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
. if less, your Policy's maximum remaining loan value at that anniversary.
We intend to set the rate of interest we credit to your preferred collateral
amount equal to the loan interest rate you are paying, resulting in a zero net
cost of borrowing for that amount. We have full discretion to vary the
preferred rate, provided that it will always be greater than the rate we are
then crediting in connection with regular Policy loans, and will never be less
than an effective annual rate of 4.5%.
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 end. The maturity
date is the Policy anniversary nearest the insured person's 95th birthday.
CAN I CHOOSE THE FORM IN WHICH AGL PAYS OUT THE PROCEEDS FROM MY POLICY?
Choosing a payment option. You may choose to receive the full proceeds from
the Policy (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:
. Option 1 - Equal monthly payments for a specified period of time.
. Option 2 - Equal monthly payments of a specified amount until all
amounts are paid out.
. Option 3 - Equal monthly payments for the payee's life, but with
payments guaranteed for a specified number of years. These payments are
based on annuity rates that are set forth in the Policy or, at the
payee's request, the annuity rates that we then are using.
. Option 4 - Proceeds left to accumulate with interest.
Additional payment options may also be available with our consent. We have the
right to veto any payment option, if the payee is a corporation or other entity.
You can read more about each of these options in our Policy form and in the
separate form of payment contract that we issue when any such option takes
effect.
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Within 60 days after the insured person's death, any payee entitled to
receive proceeds as a single sum may elect one or more payment options.
Interest rates that we credit under each option will be at least 3%.
Change of payment option. You may change any payment option you have elected
at any time while the Policy is in force and before the start date of the
payment option.
Tax impact. If a payment option is chosen, you or your beneficiary may have
tax consequences. You should consult with a qualified tax adviser before
deciding whether to elect one or more payment options.
TO WHAT EXTENT CAN AGL VARY THE TERMS AND CONDITIONS OF THE 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.
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. Our published rules may be
changed from time to time, but are evenly applied to all our customers.
Policies purchased through term life conversions. 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. Again, our published rules about term conversions may be
changed from time to time, but are evenly applied to all our customers.
State law requirements. AGL is subject to the insurance laws and regulations
in every jurisdiction in which 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, which is not subject to income tax.
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<PAGE>
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.
HOW DO I COMMUNICATE WITH AGL?
When we refer to "you," we mean the person who is authorized to take any
action with respect to a Policy. Generally, this is the owner named in the
Policy. Where a Policy has more than one owner, each owner generally must join
in any requested action, except for transfers and changes in the allocation of
future premiums or changes among the investment options.
General. You should mail or express checks and money orders for premium
payments and loan repayments directly to the appropriate address shown on your
billing statement. If you do not receive a billing statement, send your premium
directly to our Home Office or Springfield Service Center at the appropriate
address shown on the first page of this prospectus.
The following requests must be made in writing and signed by you:
. transfer of accumulation value;
. loan;
. full surrender;
. partial surrender;
. change of beneficiary or contingent beneficiary;
. change of allocation percentages for premium payments,
. loan repayments or charges;
. change of death benefit option or manner of death benefit payment;
. increase 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
21
<PAGE>
. telephone transaction privileges.
You should mail or express these requests to our Home Office or Springfield
Service Center 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 or Springfield Service Center.
We have special forms which should be used for loans, assignments, partial
and full surrenders, changes of owner or beneficiary, and all other contractual
changes. You will be asked to return your Policy when you request a full
surrender. You may also obtain these forms from our Home Office or Springfield
Service Center 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.
The Springfield Service Center is for the convenience of certain Policy
owners, who have been requested to use it as a primary contact location. Other
Policy owners have been asked to use our Home Office as a primary contact
location. If you make a mistake and contact the incorrect location, your
requests and premium payments will be treated in the same manner as if you had
contacted the correct location.
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 (a) many people seek to make
telephone requests at or about the same time, or (b) our recording equipment
malfunctions, it may be impossible for you to make a telephone request at the
time you wish. You should make a written request, if you cannot make a
telephone transaction. Also, if, due to malfunction or other circumstances, the
recording of your telephone request is incomplete or not fully comprehensible,
we will not process the transaction. The phone number for telephone requests is
1-888-325-9315.
22
<PAGE>
ILLUSTRATIONS OF HYPOTHETICAL POLICY BENEFITS
To help explain how our Policies work, we have prepared the following tables:
PAGE TO SEE IN THIS
PROSPECTUS
----------
Platinum Platinum
TABLE Investor I Investor II
----- ----------- -----------
Death Benefit Option 1 - Current Charges 24 26
Guaranteed Maximum Charges 25 27
The tables show how death benefits, accumulation values, and cash surrender
values ("Policy benefits") under sample Platinum Investor Policies would change
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 samples 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 examples 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 show 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 10
Policy years;
. a daily charge at an annual effective rate of .50% after 10 Policy
years;
. a daily charge at an annual effective rate of .25% after 20 Policy
years;
. a monthly charge for Platinum Investor II only, for the first two Policy
years (and first two years after any increase in the specified amount)
between $0.0999 and $1.88 for each $1,000 of specified amount, assumed
to be $0.2647 for this illustration;
. a charge for state premium tax ranging from .75% to 3.5% of each premium
payment, depending on the state, assumed to be 2.50% for this
illustration.
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<PAGE>
. a charge of 2.5% from each after-tax premium payment;
. current monthly insurance charges; and
. a flat monthly charge of $6.
The charges assumed by both the current and guaranteed maximum charge tables
also include 0.67% for expenses of the Mutual Funds, which is the arithmetic
average of the advisory fees payable with respect to each Mutual Fund, after all
reimbursements, plus the arithmetic average of all other operating expenses of
each such Fund after all reimbursements, as reflected on pages 10 and 11. The
total assumed tax charges for all of the tables are 2.5% of premiums.
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>
<CAPTION>
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
Death Benefit Accumulation Value Cash Surrender Value
End of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Policy Annual Investment Return of Annual Investment Return of Annual Investment Return of
Year 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>
1 100,000 100,000 100,000 893 958 1,023 0 0 0
2 100,000 100,000 100,000 1,752 1,938 2,132 384 570 764
3 100,000 100,000 100,000 2,591 2,954 3,349 1,223 1,586 1,981
4 100,000 100,000 100,000 3,386 3,985 4,663 2,189 2,788 3,466
5 100,000 100,000 100,000 4,162 5,056 6,109 3,136 4,030 5,083
6 100,000 100,000 100,000 4,919 6,168 7,701 4,064 5,313 6,846
7 100,000 100,000 100,000 5,668 7,336 9,467 4,984 6,652 8,783
8 100,000 100,000 100,000 6,388 8,539 11,405 5,875 8,026 10,892
9 100,000 100,000 100,000 7,089 9,791 13,545 6,747 9,449 13,203
10 100,000 100,000 100,000 7,773 11,095 15,909 7,602 10,924 15,738
15 100,000 100,000 100,000 11,092 18,760 32,629 11,092 18,760 32,629
20 100,000 100,000 100,000 13,666 28,059 60,426 13,666 28,059 60,426
</TABLE>
THE VALUES WILL CHANGE IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
THE MONTHLY GUARANTEE PREMIUM FOR THIS POLICY WOULD BE $56.
THE INVESTMENT RESULTS ARE AN EXAMPLE ONLY AND ARE NOT A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN.
24
<PAGE>
<TABLE>
<CAPTION>
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 Guaranteed Charges
Death Benefit Accumulation Value Cash Surrender Value
End of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Policy Annual Investment Return of Annual Investment Return of Annual Investment Return of
Year 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>
1 100,000 100,000 100,000 658 715 772 0 0 0
2 100,000 100,000 100,000 1,275 1,429 1,591 0 61 223
3 100,000 100,000 100,000 1,851 2,143 2,463 483 775 1,095
4 100,000 100,000 100,000 2,375 2,846 3,383 1,178 1,649 2,186
5 100,000 100,000 100,000 2,849 3,538 4,357 1,823 2,512 3,331
6 100,000 100,000 100,000 3,273 4,219 5,392 2,418 3,364 4,537
7 100,000 100,000 100,000 3,637 4,877 6,484 2,953 4,193 5,800
8 100,000 100,000 100,000 3,929 5,500 7,629 3,416 4,987 7,116
9 100,000 100,000 100,000 4,152 6,087 8,834 3,810 5,745 8,492
10 100,000 100,000 100,000 4,293 6,626 10,098 4,122 6,455 9,927
15 100,000 100,000 100,000 3,612 8,383 17,616 3,612 8,383 17,616
20 0 100,000 100,000 0 7,069 27,397 0 7,069 27,397
</TABLE>
THE VALUES WILL CHANGE IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES.
THE MONTHLY GUARANTEE PREMIUM FOR THIS POLICY WOULD BE $56.
THE INVESTMENT RESULTS ARE AN EXAMPLE ONLY AND ARE NOT A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS
THAN THOSE SHOWN.
25
<PAGE>
<TABLE>
<CAPTION>
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
Death Benefit Accumulation Value Cash Surrender Value
End of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Policy Annual Investment Return of Annual Investment Return of Annual Investment Return of
Year 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>
1 500,000 500,000 500,000 6,727 7,223 7,721 6,727 7,223 7,721
2 500,000 500,000 500,000 13,322 14,739 16,218 13,322 14,739 16,218
3 500,000 500,000 500,000 21,367 24,192 27,258 21,367 24,192 27,258
4 500,000 500,000 500,000 29,269 34,052 39,439 29,269 34,052 39,439
5 500,000 500,000 500,000 37,142 44,451 53,002 37,142 44,451 53,002
6 500,000 500,000 500,000 44,929 55,359 68,040 44,929 55,359 68,040
7 500,000 500,000 500,000 52,845 67,014 84,926 52,845 67,014 84,926
8 500,000 500,000 500,000 60,620 79,182 103,586 60,620 79,182 103,586
9 500,000 500,000 500,000 68,359 91,992 124,316 68,359 91,992 124,316
10 500,000 500,000 500,000 76,212 105,617 147,471 76,212 105,617 147,471
15 500,000 500,000 500,000 113,583 184,629 308,738 113,583 184,629 308,738
20 500,000 500,000 705,402 143,794 281,526 578,198 143,794 281,526 578,198
</TABLE>
THE VALUES WILL CHANGE IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR
FREQUENCIES.
THE INVESTMENT RESULTS ARE AN EXAMPLE ONLY AND ARE NOT A REPRESENTATION OF
PAST OR FUTURE INVESTMENT RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR
LESS THAN THOSE SHOWN.
26
<PAGE>
<TABLE>
<CAPTION>
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 Guaranteed Charges
Death Benefit Accumulation Value Cash Surrender Value
End of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Policy Annual Investment Return of Annual Investment Return of Annual Investment Return of
Year 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>
1 500,000 500,000 500,000 5,697 6,153 6,611 5,697 6,153 6,611
2 500,000 500,000 500,000 11,164 12,435 13,764 11,164 12,435 13,764
3 500,000 500,000 500,000 17,990 20,489 23,208 17,990 20,489 23,208
4 500,000 500,000 500,000 24,528 28,722 33,461 24,528 28,722 33,461
5 500,000 500,000 500,000 30,788 37,150 44,623 30,788 37,150 44,623
6 500,000 500,000 500,000 36,778 45,793 56,809 36,778 45,793 56,809
7 500,000 500,000 500,000 42,451 54,616 70,091 42,451 54,616 70,091
8 500,000 500,000 500,000 47,763 63,584 84,555 47,763 63,584 84,555
9 500,000 500,000 500,000 52,723 72,719 100,359 52,723 72,719 100,359
10 500,000 500,000 500,000 57,287 81,992 117,632 57,287 81,992 117,632
15 500,000 500,000 500,000 74,251 131,811 235,994 74,251 131,811 235,994
20 0 500,000 534,575 76,660 185,373 438,176 76,660 185,373 438,176
</TABLE>
THE VALUES WILL CHANGE IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR
FREQUENCIES.
THE INVESTMENT RESULTS ARE AN EXAMPLE ONLY AND ARE NOT 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 27. The
additional information that follows gives more details, but generally does not
repeat what is set forth above.
PAGE TO
SEE IN THIS
CONTENTS OF ADDITIONAL INFORMATION PROSPECTUS
- ---------------------------------- ----------
AGL.............................................................. 28
Separate Account VL-R............................................ 29
Tax Effects...................................................... 29
Voting Privileges................................................ 35
Your Beneficiary................................................. 35
Assigning Your Policy............................................ 36
More About Policy Charges........................................ 36
Effective Date of Policy and Related Transactions................ 38
More About Our Declared Fixed Interest Account Option............ 40
Distribution of the Policies..................................... 41
Payment of Policy Proceeds....................................... 42
Adjustments to Death Benefit..................................... 44
Additional Rights That We Have................................... 44
Performance Information.......................................... 45
Our Reports to Policy Owners..................................... 46
AGL's Management................................................. 46
Principal Underwriter's Management............................... 49
Legal Matters.................................................... 51
Independent Auditors............................................. 51
Actuarial Experts................................................ 51
Service Agreements............................................... 51
Certain Potential Conflicts...................................... 52
Year 2000........................................................ 52
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 55, which
follows all of the financial pages). 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 on January
10, 1917. AGL is an indirect, wholly-owned subsidiary of American General
Corporation (formerly American General Insurance Company), a diversified
financial services holding company engaged primarily in the insurance business.
The
28
<PAGE>
commitments under the Policies are AGL's, and American General Corporation has
no legal obligation to back those commitments.
During 1998, AGL received $9,801,320 in total premium payments from Policy
holders. From such premium payments, AGL received the following fees and
charges:
*mortality and expense fees $ 88,099.97
*administrative fees $146,322.56
*cost of insurance charges $530,548.28
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, as amended. We created
the separate account on May 6, 1997 under Texas law.
For record keeping and financial reporting purposes, Separate Account VL-R
is divided into 24 separate "divisions," 17 of which correspond to one of the 17
available investment options (other than our declared fixed interest account
option). The remaining 7 divisions represent investment options available under
another variable life policy we offer. We hold the Mutual Fund shares in which
we invest your accumulation value for an investment option in the division that
corresponds to that investment option.
The assets in the separate account are our property. 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
29
<PAGE>
Revenue Code of 1986, as amended ("the Code") and (b) for as long as the
investments made by the underlying Mutual Funds satisfy certain investment
diversification requirements under Section 817(h) of the Code. We believe that
the Policies will meet these requirements and that:
. the death benefit received by the beneficiary under your Policy will not
be subject to federal income tax; and
. increases in your Policy's accumulation value as a result of interest or
investment experience will not be subject to federal income tax unless
and until there is a distribution from your Policy, such as a surrender
or a partial surrender.
The federal income tax consequences of a distribution from your Policy can be
affected by whether your Policy is determined to be a "modified endowment
contract" (which is discussed below). In all cases, however, the character of
all income that is described below as taxable to the payee will be ordinary
income (as opposed to capital gain).
Testing for modified endowment contract status. Your Policy will be a
"modified endowment contract" if, at any time during the first seven Policy
years, you have paid a cumulative amount of premiums that exceeds the premiums
that would have been paid by that time under a similar fixed-benefit insurance
policy that was designed (based on certain assumptions mandated under the Code)
to provide for paid-up future benefits after the payment of seven level annual
premiums. This is called the "seven-pay" test.
Whenever there is a "material change" under a Policy, the Policy will
generally be (a) treated as a new contract for purposes of determining whether
the Policy is a modified endowment contract and (b) subjected to a new seven-pay
period and a new seven-pay limit. The new seven-pay limit would be determined
taking into account, under a prescribed formula, the accumulation value of the
Policy at the time of such change. A materially changed Policy would be
considered a modified endowment 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 or the selection of additional rider benefits. A material
change will occur as a result of an increase in your Policy's specified amount
of coverage, and certain other changes.
If your Policy's benefits are reduced during the first seven Policy years
(or within seven years after a material change), the calculated seven-pay
premium limit will be redetermined based on the reduced level of benefits and
applied retroactively for purposes of the seven-pay test. (Such a reduction in
benefits could include, for example, a decrease in 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.
30
<PAGE>
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.
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 ends 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:
31
<PAGE>
. to taxpayers 59 1/2 years of age or older;
. in the case of a disability (as defined in the Code); or
. 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 ends after a grace period while there is a Policy loan, the
cancellation of the loan will be treated as a distribution to the extent not
previously treated as such and could be subject to tax, including the 10%
penalty tax, as described above. In addition, on the maturity date or upon a
full surrender, any excess of the proceeds we pay (including any amounts we use
to discharge any loan) over your basis in the Policy, will be subject to federal
income tax and, unless an exception applies, the 10% penalty tax.
Distributions that occur during a Policy year in which your Policy becomes
a modified endowment contract, and during any subsequent Policy years, will be
taxed as described in the two preceding paragraphs. In addition, distributions
from a Policy within two years before it becomes a modified endowment contract
also will be subject to tax in this manner. This means that a distribution made
from a Policy that is not a modified endowment contract could later become
taxable as a distribution from a modified endowment contract. The Treasury
Department has been authorized to prescribe rules which would treat similarly
other distributions made in anticipation of a policy becoming a modified
endowment contract.
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.
Our failure 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. Also, if the insured
died during such period of disqualification or subsequent periods, a portion of
the death benefit proceeds would be taxable to the beneficiary. Separate
Account VL-R, through the Mutual Funds, intends
32
<PAGE>
to comply with these requirements. Although we do not have direct control over
the investments or activities of the Mutual Funds, we will enter into agreements
with them requiring the Mutual Funds to comply with the diversification
requirements of the Section 817(h) Treasury Regulations.
In connection with the issuance of then temporary diversification
regulations, the Treasury Department stated that it anticipated the issuance of
guidelines prescribing the circumstances in which the ability of a policy owner
to direct his or her investment to particular Mutual Funds within 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 $650,000 (or larger
amounts specified in the Code to commence in certain future years) will not
incur a federal estate tax liability. In addition, an unlimited marital
deduction may be available for federal estate tax purposes.
As a general rule, if a "transfer" is made to a person two or more
generations younger than the Policy's owner, a generation skipping tax may be
payable at rates similar to the maximum estate tax rate in effect at the time.
The generation skipping tax provisions generally apply to "transfers" that would
be subject to the gift and estate tax rules. Individuals are generally allowed
an aggregate generation skipping tax exemption of $1 million. Because these
rules are complex, you should consult with a qualified tax adviser for specific
information, especially where benefits are passing to younger generations.
The particular situation of each Policy owner, insured person or
beneficiary will determine how ownership or receipt of Policy proceeds will be
treated for purposes of federal estate and generation skipping taxes, as well as
state and local estate, inheritance and other taxes.
Pension and profit-sharing plans. If 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.
The reasonable net premium cost for such amount of insurance that is
purchased as part of a pension or profit-sharing plan 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
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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.
ERISA. Employers and employer-created trusts may be subject to reporting,
disclosure and fiduciary obligations under the Employee Retirement Income
Security Act of 1974, as amended. You should consult a qualified legal adviser.
Our taxes. We report the operations of our Separate Account VL-R 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. We
currently make no charge 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 we incur 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, we may make charges 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.
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When we withhold income taxes. Generally, unless you provide us with an
election to the contrary before we make the distribution, we are required to
withhold income tax from any proceeds we distribute as part of a taxable
transaction under your Policy. In some cases, where generation skipping taxes
may apply, we may also be required to withhold for such taxes unless we are
provided satisfactory written notification that no such taxes are due.
Tax changes. The U.S. Congress frequently considers legislation that, if
enacted, could change the tax treatment of life insurance policies. In
addition, the Treasury Department may amend existing regulations, issue
regulations on the qualification of life insurance and modified endowment
contracts, or adopt new interpretations of existing law. State and local tax
law or, if you are not a U.S. citizen and resident, foreign tax law, may also
affect the tax consequences to you, the insured person or your beneficiary, and
are subject to change. Any changes in federal, state, local or foreign tax law
or interpretation could have a retroactive effect. We suggest you consult a
qualified tax adviser.
VOTING PRIVILEGES
We are the legal owner of the Funds' shares held in Separate Account VL-R.
However, you may be asked to instruct us how to vote the Fund shares held in the
various Mutual Funds and attributable to your Policy at meetings of shareholders
of the Funds. The number of votes for which you may give directions will be
determined as of the record date for the meeting. The number of votes that you
may direct related to a particular Fund is equal to (a) your accumulation value
invested in that Fund divided by (b) the net asset value of one share of that
Fund. Fractional votes will be recognized.
We will vote all shares of each Fund that we hold of record, including any
shares we own on our own behalf, in the same proportions as those shares for
which we have received instructions from owners participating in that Fund
through Separate Account VL-R.
If you are asked to give us voting instructions, we will send you the proxy
material and a form for providing such instructions. Should we determine that
we are no longer required to send the owner such materials, we will vote the
shares as we determine in our sole discretion.
In certain cases, we may disregard instructions relating to changes in a
Fund's investment manager or its investment policies. We will advise you if we
do and explain the reasons in our next report to Policy owners. AGL reserves
the right to modify these procedures in any manner that the laws in effect from
time to time allow.
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
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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. We will not be
bound by an assignment unless it is received in writing. You must provide us
with two copies of the assignment. We are not responsible for any payment we
make or any action taken before we receive complete notice of the assignment in
good order. We are not 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 before making an assignment.
MORE ABOUT POLICY CHARGES
Purpose of our charges. The charges under the Policies are designed to
cover, in total, our direct and indirect costs of selling, administering and
providing benefits under the Policies. They are also designed, in total, 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 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.
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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 to:
. offset 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);
. compensate us for the risks we assume under the Policies; or
. 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 paragraphs above describe the primary purposes for which
charges under the Policies have been designed, these purposes are subject to
considerable change over the life of a Policy. We can retain or use the
revenues from any charge or charge increase for any purpose.
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 stopped 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
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.
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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 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.
. 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 canceled).
Miscellaneous. Each of the distributors or advisers of the Mutual Funds
listed on page 1 of this prospectus reimburses us, on a quarterly basis, for
certain administrative, Policy, and Policy owner support expenses, up to an
annual rate of 0.25% the average daily net asset value of shares of the Mutual
Funds purchased by the divisions at the instruction of owners. These
reimbursements will be reasonable for the services performed and are not
designed to result in a profit. These reimbursements are paid by the
distributors or the advisers, and will not be paid by the Mutual Funds, the
divisions or the owners.
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."
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 or Springfield Service Center (both are
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.
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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 provided 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 or Springfield Service Center by writing
to the appropriate address shown on the first page of this prospectus or from
your AGL representative.
Date of issue; Policy months and years. We prepare the Policy only after
we approve an application for a Policy and assign an appropriate insurance rate
class. 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. To preserve a younger age at issue for the insured person,
we may assign a date of issue to a Policy that is up to 6 months earlier than
otherwise would apply.
Monthly deduction days. Each charge that we deduct monthly is assessed
against your accumulation value at the close of business on the date of issue
and at the end of each subsequent valuation period that includes the first day
of a Policy month. We call these "monthly deduction days."
Commencement of investment performance. We begin to credit an investment
return to the accumulation value resulting from your initial premium payment on
the later of (a) the date of issue, or (b) the date all requirements needed to
place the Policy in force have been satisfied, including underwriting approval
and receipt in the Home Office or Springfield Service Center, of the necessary
premium. In the case of a back-dated Policy, we do not credit an investment
return to the accumulation value resulting from your initial premium payment
until the date stated in (b) above.
Effective date of other premium payments and requests that you make.
Premium payments (after the first) and transactions made in response to your
requests and elections are generally effected at the end of the valuation period
in which we receive the payment, request or election and based on prices and
values computed as of that same time. Exceptions to this general rule are as
follows:
. Increases 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;
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. 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;
. If you exercise the right to return your Policy described on the
second page of this prospectus, your coverage will end when you mail
us your Policy or deliver it to your AGL representative; and
. If you pay a premium in connection with a request which requires our
approval, your payment will be applied when received rather than
following the effective date of the change requested so long as your
coverage is in force and the amount paid will not cause you to exceed
premium limitations under the Code. If we do not approve your
request, no premium will be refunded to you except to the extent
necessary to cure any violation of the maximum premium limitations
under the Code. We will not apply this procedure to premiums you pay
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 exemptions, no interest in this option
has been registered under the Securities Act of 1933, as amended. Neither our
general account or our declared fixed interest account is 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 date that
accumulation value was allocated to this option.
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DISTRIBUTION OF THE POLICIES
American General Securities Incorporated ("AGSI") is the principal
underwriter of the Policies. AGSI is a wholly-owned subsidiary of AGL. AGL, in
turn, is a wholly-owned subsidiary of American General Corporation ("American
General"). AGSI's principal office is at 2727 Allen Parkway, Houston, Texas
77019. AGSI was organized as a Texas corporation on March 8, 1983 and is a
registered broker-dealer under the Securities Exchange Act of 1934, as amended
("1934 Act") and is a member of the National Association of Securities Dealers,
Inc. ("NASD"). AGSI is also the principal underwriter for AGL's Separate
Accounts A and D, and Separate Account E of American General Life Insurance
Company of New York, which is a wholly-owned subsidiary of AGL. These separate
accounts are registered investment companies. AGSI, as the principal
underwriter, is not paid any fees on the Policies.
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. FFSC is one of the broker-dealers with a sales agreement. FFSC is
affiliated with AGL and with AGSI, but FFSC is treated the same as any other
broker-dealer is treated under its sales agreement.
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 after Policy year 1.
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.
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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 after Policy year 1.
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.
For example, we may pay a broker-dealer compensation in a lump sum which will
not exceed the aggregate compensation 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 broker-dealers or banks expense allowances,
bonuses, wholesaler fees and training allowances.
We pay the compensation directly to AGSI or any other selling broker-dealer
firm or bank. We pay the compensation from our own resources which does not
result in any additional charge to you that is not described on page 8. Each
broker-dealer firm or bank, in turn, may compensate its registered
representative or employee who acts as agent in selling you a Policy.
We sponsor a non-qualified deferred compensation plan ("Plan") for our
insurance agents. Some of our agents are registered representatives of AGSI and
sell the Policies. These agents may, subject to regulatory approval, receive
benefits under the Plan when they sell the Policies. The benefits are deferred
and the Plan terms may result in the agent never receiving the benefits. The
Plan provides for a varying amount of benefits annually. We have the right to
change the Plan and affect the amount of benefits earned each year.
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.
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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 comes from that portion of
your accumulation value that is allocated to Separate Account VL-R, if:
. the New York Stock Exchange is closed other than customary weekend and
holiday closings, or trading on the New York Stock Exchange is
restricted;
. 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
. 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,
. We cannot challenge the Policy after it has been in effect, during the
insured person's lifetime, for two years from the date the Policy was
issued or restored after termination. (Some states may require that
we measure this time in some other way.)
. We cannot challenge any Policy change that requires evidence of
insurability (such as an increase in specified amount) after the
change has been in effect for two years during the insured person's
lifetime.
. We cannot challenge an additional benefit rider that provides benefits
if the insured person becomes totally disabled, after two years from
the later of the Policy's date of issue or the date the additional
benefit rider becomes effective.
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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 gender. If the age or gender of the insured person was
misstated on your application for a Policy (or for any increase in benefits), we
will adjust any death benefit to be what the monthly insurance charge deducted
for the current month would have purchased based on the correct information.
Death during grace period. 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:
. 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;
. 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;
. end the automatic rebalancing feature if your accumulation value falls
below $5,000;
. change the underlying Mutual Fund that any investment option uses;
. add or delete investment options, combine two or more investment
options, or withdraw assets relating to Platinum Investor from one
investment option and put them into another;
. operate Separate Account VL-R under the direction of a committee or
discharge such a committee at any time;
. operate 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; or
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. make other changes in the Policy that in our judgment are necessary or
appropriate to ensure that the Policy continues to qualify for tax
treatment as life insurance, or that do not reduce any cash surrender
value, death benefit, accumulation value, or other accrued rights or
benefits.
You will be notified as required by law if there are any material changes
in the underlying investments of an investment option that you are using. We
intend to comply with applicable law in making any changes and, if necessary, we
will seek Policy owner approval.
PERFORMANCE INFORMATION
From time to time, we may quote performance information for the divisions
of 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.
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. You should not
consider such performance information to be an estimate or guarantee of future
performance.
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OUR REPORTS TO POLICY OWNERS
Shortly after the end of each Policy year, we will mail you a report that
includes information about your Policy's current death benefit, accumulation
value, cash surrender value and policy loans. We will send you notices 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 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.
NAME BUSINESS EXPERIENCE WITHIN PAST FIVE YEARS
- --------------------------------------------------------------------------------
Jon P. Newton Director and Vice Chairman of American General Life
Insurance Company since February 1996. Director of
American General Corporation since October 1995 and Vice
Chairman since April 1997; Vice Chairman and General
Counsel (October 1995-April 1997). Director of other
American General affiliates since October 1994. Prior
thereto, Partner with Clark, Thomas, Winter & Newton,
Austin, Texas (February 1979-February 1993).
Directorships with Houston Museum of Natural Science
Board of Trustees since 1997; University of Texas Law
School Foundation Board of Trustees, Austin, Texas since
1997; University of Texas-Houston Health Science Center
Development Board, Houston, Texas since 1996; Texas
Commerce Bancshares, Houston, Texas (1985-1993); Texas
Commerce Bank, Austin, Texas (1979-1993); Lomas
Financial Corporation, Dallas, Texas (1983-1993); Vista
Properties, Inc., Dallas, Texas (1992-1993).
Rodney O. Martin, Jr. Chairman of the Board of American General Life Insurance
Company since July, 1998 and a Director since August
1996. President and CEO (August 1996-July 1998).
President of American General Life Insurance Company of
New York (November 1995-August 1996). Vice President
Agencies, with Connecticut Mutual Life Insurance Company
(1990-1995).
Ronald H. Ridlehuber Director, President and Chief Executive Officer of
American General Life Insurance Company since July,
1998. Senior Vice President and Chief Marketing Officer
of Jefferson-Pilot Life Insurance Company in Greensboro,
North Carolina (1993-1998). Before 1993 held various
positions with Southland Life Insurance
46
<PAGE>
Company in Dallas, Texas and Atlanta, Georgia including
Vice President, Sales.
David A. Fravel Director and Senior Vice President of American General
Life Insurance Company since November 1996. Elected
Executive Vice President in April, 1998. Senior Vice
President Massachusetts Mutual, Springfield, Missouri
(March 1996-June 1996); Vice President, New Business,
Connecticut Mutual Life, Hartford, Connecticut (December
1978-March 1996).
Robert F. Herbert, Jr. Director, Senior Vice President and Treasurer of
American General Life Insurance Company since May 1996,
and Controller and 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 of American General Life Insurance Company since
August 1996. Elected Executive Vice President in July,
1998. Prior thereto, Director of Citicorp Insurance
Services, Inc., Dover, Delaware (1986-1996).
Gary D. Reddick Executive Vice President of American General Life
Insurance Company since April 1998 and Director since
October 1998. Vice Chairman since July 1997 and
Executive Vice President-Administration of The Franklin
Life Insurance Company since February 1995. Senior Vice
President-Administration of American General Corporation
(October 1994-February 1995). Senior Vice President for
American General Life Insurance Company (September 1986-
October 1994).
Philip K. Polkinghorn Director of American General Life Insurance Company
since February 1997. Executive Vice President and Chief
Financial Officer since December 1998. Senior Vice
President-Product Development Center since April, 1998.
Senior Vice President and Chief Marketing Officer
(December 1996-September 1997). Prior thereto, Chief
Financial Officer, Connecticut Mutual Life Insurance
Company (March 1995-March 1996); Senior Vice President
First Colony Life Insurance Company, Lynchburg, Virginia
(March 1996-December 1996), and Chief Marketing Officer,
Allmerica Financial, Worcester, MA (March 1993-April
1994).
47
<PAGE>
Wayne A. Barnard Senior Vice President and Chief Actuary of American
General Life Insurance Company since November 1997 and
Vice President since February, 1991 and Chief Actuary
since February, 1993.
Rebecca G. Campbell In December 1998 named as Senior Vice President -
Organization Development and Change Management for
American General Life Insurance Company. Various
positions with American General Life Insurance Company
since 1983, including Director of Human Resources in
1993 and Vice President - Human Resources in 1996.
Ross D. Friend In July 1998 named as Senior Vice President and Chief
Compliance Officer of American General Life Insurance
Company. Senior Vice President and General Counsel of
The Franklin Life Insurance Company, Springfield,
Illinois (August 1996 - July 1998). Attorney-in-Charge
for The Prudential Insurance Company, Jacksonville,
Florida (July 1995 - August 1996). Chief Legal Officer
for Confederation Life Insurance, Atlanta, Georgia
(1982 - June 1995).
F. Paul Kovach, Jr. Senior Vice President-Broker Dealers and FIMG for
American General Life Insurance Company since August
1997. Since October 1994, President and Director of
American General Securities Incorporated. Vice President
of Chubb Securities Corporation, Concord, New Hampshire,
(February 1990-October 1994).
Simon J. Leech In July 1997 named as Senior Vice President-Houston
Service Center for American General Life Insurance
Company. Various positions with American General Life
Insurance Company since 1981, including Director of POS
in 1993, and Vice President-Policy Administration in
1995.
Brian D. Murphy In April 1998 named as Senior Vice President-Insurance
Operations of American General Life Insurance Company.
Vice President-Sales, Phoenix Home Life, Hartford, CT
(January 1997-April 1998). Vice President of
Underwriting and Issue, Phoenix Home Life (July 1994-
January 1997). Various positions with Mutual of New
York, Syracuse, NY, including Agent, Agency Manager,
Marketing Life and Disability Income Underwriting
Management, (1978-July 1994).
48
<PAGE>
JoAnn Waddell In October 1998 named as Senior Vice President - Human
Resources for American General Life Insurance Company.
Vice President - Human Resources for American General
Corporation (1995 - October 1998) and Director,
Corporate Personnel of American General Corporation
(1993 -1995).
Don M. Ward In February 1998 named as Senior Vice President-Variable
Products-Marketing of American General Life Insurance
Company. Vice President of Pacific Life Insurance
Company, Newport Beach, CA (1991-February 1998).
Thomas M. Zurek In December 1998 named as Senior Vice President and
General Counsel of American General Life Insurance
Company. In February 1998 named as Senior Vice President
and Deputy General Counsel of American General
Corporation. Attorney Shareholder with Nyemaster, Goode,
Voigts, West, Hansell & O'Brien, Des Moines, Iowa (June
1992-February 1998).
Larry M. Robinson In April 1998 named as Vice President-Variable Products-
Marketing of American General Life Insurance Company.
From July 1996 Vice President of American General Life
Insurance Company. Vice President of Business
Development of Allmerica Financial, Worcester, MA (1994-
1996). Vice President of Life Marketing at Nationwide
Insurance Enterprise, Columbus, Ohio (1991-1994).
The principal business address of each person listed above is our Home
Office; except that the street number for Messrs. Newton, Fravel, LaGrasse,
Martin, Polkinghorn, Reddick and Zurek and Ms. Campbell is 2929 Allen Parkway
and the street number for Mr. Kovach is 2727 Allen Parkway.
PRINCIPAL UNDERWRITER'S MANAGEMENT
The directors and principal officers of the principal underwriter are:
Position and Offices
with Underwriter,
Name and Principal American General
Business Address Securities Incorporated
- ----------------- -----------------------
F. Paul Kovach, Jr. Director and Chairman,
American General Securities Incorporated President and Chief Executive
2727 Allen Parkway Officer
Houston, TX 77019
49
<PAGE>
Royce G. Imhoff, II Director
American General Life Companies
2727-A Allen Parkway
Houston, Texas 77019
Rodney O. Martin, Jr. Director and Vice Chairman
American General Life Companies
2929 Allen Parkway
Houston, TX 77019
John A. Kalbaugh Vice President -
American General Life Companies Chief Marketing Officer
2727 Allen Parkway
Houston, TX 77019
Robert M. Roth Vice President -
American General Securities Incorporated Administration and Compliance,
2727 Allen Parkway Treasurer and Secretary
Houston, TX 77019
Pauletta P. Cohn Assistant Secretary
American General Life Companies
2727 Allen Parkway
Houston, TX 77019
Robert F. Herbert Assistant Treasurer
American General Life Companies
2727-A Allen Parkway
Houston, Texas 77019
K. David Nunley Assistant Associate Tax Officer
2727-A Allen Parkway
Houston, TX 77019
50
<PAGE>
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 American General Life Companies, 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 and Separate Account VL-R included in this
prospectus have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports appearing elsewhere in this prospectus. Such financial
statements have been included in this prospectus in reliance upon the reports of
Ernst & Young LLP given upon the authority of such firm as experts in accounting
and auditing. Ernst & Young LLP is located at One Houston Center, 1221 McKinney,
Suite 2400, Houston, Texas 77010-2007.
ACTUARIAL EXPERT
Actuarial matters 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.
SERVICE AGREEMENTS
American General Life Companies ("AGLC") is party to an existing general
services agreement with AGL. AGLC, an affiliate of AGL, is a corporation
incorporated in Delaware on November 24, 1997. Pursuant to this agreement, AGLC
provides services to AGL, including most of the administrative, data processing,
systems, customer services, product development, actuarial, auditing, accounting
and legal services for AGL and the Platinum Investor Policies.
The Franklin Life Insurance Company ("FL") is also a party to the general
services agreement. FL is affiliated with AGL and is located at #1 Franklin
Square, Springfield, Illinois 62713-0001. FL provides most of the employees who
service our Policies at the Springfield Service Center. The Policy owners who
receive services thorough the Springfield Service Center purchase their Policies
with the assistance of an AGL representative who is associated with FFSC.
Pursuant to the general services agreement, the Springfield Service Center
processes applications and issues Policies, accepts premiums, and provides most
of the customer services and administrative services. AGL reimburses FL for the
cost of these services, and FL does not make a profit.
We have entered into administrative services agreements with the advisers or
administrators for the Mutual Funds. We receive fees for the administrative
services we perform. These fees do not result in any additional charges under
the Policies that are not described under "What charges will AGL deduct from my
investment in a Policy?"
51
<PAGE>
CERTAIN POTENTIAL CONFLICTS
The Mutual Funds sell shares to separate accounts of insurance companies, both
affiliated and not affiliated with AGL. We currently do not foresee any
disadvantages to you arising out of such sales. 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 to identify any
material irreconcilable conflicts that possibly may arise and to determine what
action, if any, should be taken in response. If we believe that a Fund's
response to any such event insufficiently protects our Policy owners, we will
see to it that appropriate action is taken to do so. If it becomes necessary for
any separate account to replace shares of any Mutual Fund in which it invests,
that Fund may have to liquidate securities in its portfolio on a disadvantageous
basis.
YEAR 2000 CONSIDERATIONS
Internal Systems. AGL's ultimate parent, American General Corporation ("AGC"),
has numerous technology systems that are managed on a decentralized basis.
AGC's Year 2000 readiness efforts are being undertaken by its key business units
with centralized oversight. Each business unit, including AGL, has developed
and is implementing a plan to minimize the risk of a significant negative impact
on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of our information technology and non-
information technology systems; (2) assess which items in the inventory may
expose us to business interruptions due to Year 2000 issues; (3) reprogram or
replace systems that are not Year 2000 ready; (4) test systems to prove that
they will function into the next century as they do currently; and (5) return
the systems to operations. As of December 31, 1998, substantially all of our
critical systems are Year 2000 ready and have been returned to operations.
However, activities (3) through (5) for certain systems are ongoing, with vendor
upgrades expected to be received during the first half of 1999.
Third Party Relationships. We have relationships with various third parties
who must also be Year 2000 ready. These third parties provide (or receive)
resources and services to (or from) AGL and include organizations with which we
exchange information. Third parties include vendors of hardware, software, and
information services; providers of infrastructure services such as voice and
data communications and utilities for office facilities; investors; customers;
distribution channels; and joint venture partners. Third parties differ from
internal systems in that we exercise less, or no, control over Year 2000
readiness. We developed a plan to assess and attempt to reduce the risks
associated with the potential failure of third parties to achieve Year 2000
readiness. The plan includes the following activities: (1) identify and
classify third party dependencies; (2) research, analyze, and document Year 2000
readiness for critical third parties; and (3) test critical hardware and
software products and electronic interfaces. As of December 31, 1998, AGC has
identified and assessed approximately 700 critical third party dependencies,
including those relating to AGL. A more detailed evaluation will be completed
during first quarter 1999 as part of our contingency
52
<PAGE>
planning efforts. Due to the various stages of third parties' Year 2000
readiness, our testing activities will extend through 1999.
Contingency Plans. AGL and its affiliates have commenced contingency planning
to reduce the risk of Year 2000-related business failures. The contingency
plans, which address both internal systems and third party relationships,
include the following activities: (1) evaluate the consequences of failure of
business processes with significant exposure to Year 2000 risk; (2) determine
the probability of a Year 2000-related failure for those processes that have a
high consequence of failure; (3) develop an action plan to complete contingency
plans for those processes that rank high in consequence and probability of
failure; and (4) complete the applicable action plans. We are currently
developing contingency plans and expect to substantially complete all
contingency planning activities during the second quarter of 1999.
Risks and Uncertainties. Based on our plans to make internal systems ready
for Year 2000, to deal with third party relationships, and to develop
contingency actions, we believe that we will experience at most isolated and
minor disruptions of business processes following the turn of the century. Such
disruptions are not expected to have a material effect on AGL's future results
of operations, liquidity, or financial condition. However, due to the size and
complexity of this project, risks and uncertainties exist, and we cannot predict
a most reasonably likely worst case scenario. If conversion of our internal
systems is not completed on a timely basis (due to non-performance by
significant third-party vendors, lack of qualified personnel to perform the Year
2000 work, or other unforeseen circumstances in completing our plans), or if
critical third parties fail to achieve Year 2000 readiness on a timely basis,
the Year 2000 issues could have a material adverse impact on our operations
following the turn of the century.
Costs. Through December 31, 1998, AGL has incurred, and anticipates that it
will continue to incur, costs for internal staff, third-party vendors, and other
expenses to achieve Year 2000 readiness. The cost of activities related to Year
2000 readiness has not had a material adverse effect on our results of
operations or financial condition. In addition, we have elected to accelerate
the planned replacement of certain systems as part of the Year 2000 plans.
Costs of the replacement systems are not passed to Divisions of the Separate
Account.
53
<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. The financial statements of
Separate Account VL-R are limited to 1998 because Separate Account VL-R
commenced operations in 1998.
PAGE TO
SEE IN THIS
FINANCIAL STATEMENTS OF SEPARATE ACCOUNT VL-R PROSPECTUS
-----------
Report of Ernst & Young LLP Independent Auditors................. VL-R-1
Statement of Net Assets as of December 31, 1998.................. VL-R-2
Statement of Operations for the twelve months
ended December 31, 1998......................................... VL-R-2
Statement of Changes in Net Assets for the twelve months
ended December 31, 1998......................................... VL-R-3
Notes to Financial Statements.................................... VL-R-4
PAGE TO
CONSOLIDATED FINANCIAL STATEMENTS OF SEE IN THIS
AMERICAN GENERAL LIFE INSURANCE COMPANY PROSPECTUS
- ---------------------------------------------------------------- -----------
Report of Ernst & Young LLP, Independent Auditors................ F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997..... F-2
Consolidated Income Statements for the years ended
December 31, 1998, 1997 and 1996................................. F-3
Consolidated Statements of Comprehensive Income for
the years ended December 31, 1998, 1997 and 1996................. F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996........................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996................................. F-6
Notes to Consolidated Financial Statements....................... F-7
54
<PAGE>
[ERNST & YOUNG LLP LOGO] . One Houston Center . Phone: 713 750-1500
Suite 2400 Fax: 713 750-1501
1221 McKinney
Houston, Texas 77010-2007
Report of Independent Auditors
Board of Directors
American General Life Insurance Company
and
Policy Owners
American General Life Insurance Company
Platinum Investor Divisions
of Separate Account VL-R
We have audited the accompanying statement of net assets of the Platinum
Investor Divisions of American General Life Insurance Company (the "Company")
Separate Account VL-R as of December 31, 1998, and the related statements of
operations and changes in net assets for the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agents. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Platinum Investor Divisions
of American General Life Insurance Company Separate Account VL-R at December 31,
1998, and the results of its operations and changes in its net assets for the
period then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
/s/ ERNST & YOUNG LLP
---------------------
February 10, 1999
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
VL-R-1
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
PLATINUM INVESTOR DIVISIONS
SEPARATE ACCOUNT VL-R
STATEMENT OF NET ASSETS
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investment securities - at market (cost $9,187,377).......................................... $ 9,606,457
Due from American General Life Insurance Company ............................................ 797
-----------------
NET ASSETS FOR VARIABLE LIFE INSURANCE POLICIES ....................................... $ 9,607,254
=================
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1998
<S> <C>
INVESTMENT INCOME:
Dividends from mutual funds.................................................................. $ 46,640
EXPENSES:
Expense and mortality fee.................................................................... (88,100)
--------------
NET INVESTMENT EXPENSE.................................................................. (41,460)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments............................................................. (23,757)
Capital gain distributions from mutual funds................................................. 159,961
Net unrealized gain on investments........................................................... 419,080
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ........................................ 555,284
--------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................................... $ 513,824
==============
</TABLE>
SEE ACCOMPANYING NOTES.
VL-R-2
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
PLATINUM INVESTOR DIVISIONS
SEPARATE ACCOUNT VL-R
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<S>.................................................................................................. <C>
OPERATIONS:
Net investment expense........................................................................... $ (41,460)
Net realized loss on investments................................................................. (23,757)
Capital gain distributions from mutual funds..................................................... 159,961
Net unrealized gain on investments............................................................... 419,080
--------------
Increase in net assets resulting from operations............................................. 513,824
--------------
PRINCIPAL TRANSACTIONS:
Premiums, net of premium taxes................................................................... 8,694,541
Purchase payments from internal rollover transactions ........................................... 1,099,589
Cost of insurance and administrative expenses.................................................... (676,871)
Payments to contract owners:
Terminations and withdrawals................................................................. (23,829)
--------------
Increase in net assets resulting from principal transactions..................................... 9,093,430
--------------
TOTAL INCREASE IN NET ASSETS .................................................................... 9,607,254
NET ASSETS:
Beginning of period.............................................................................. 0
--------------
End of period.................................................................................... $ 9,607,254
==============
</TABLE>
See accompanying notes.
VL-R-3
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PLATINUM INVESTOR DIVISIONS
SEPARATE ACCOUNT VL-R
Note A - Organization
American General Life Insurance Company Separate Account VL-R (the "Separate
Account") was established by resolution of the Board of Directors of American
General Life Insurance Company (the "Company") on May 6, 1997. The Separate
Account is registered under the Investment Company Act of 1940 as a unit
investment trust and consists of twenty investment divisions at December 31,
1998. The seventeen Platinum Investor Divisions (the "Divisions") received
their first deposits in May 1998.
These Divisions, funded by series of independently managed mutual fund
portfolios ("Funds") which are available through Platinum Investor I and
Platinum Investor II Variable Life Insurance Policies offered by the Company are
as follows:
<TABLE>
<S> <C>
AIM VARIABLE INSURANCE FUNDS, INC.: MORGAN STANLEY DEAN WITTER
V.I. International Equity Fund UNIVERSAL FUNDS, INC. ("MSDWUF"):
V.I. Value Fund (formerly, "Morgan Stanley Universal Funds, Inc. MSUF")
Equity Growth Portfolio
High Yield Portfolio
AMERICAN GENERAL SERIES PORTFOLIO COMPANY:
International Equities Fund PUTNAM VARIABLE TRUST:
MidCap Index Fund Putnam VT Diversified Income Fund
Money Market Fund Putnam VT Growth and Income Fund
Stock Index Fund Putnam VT International Growth and Income Fund
DREYFUS VARIABLE INVESTMENT FUND:
Quality Bond Portfolio SAFECO RESOURCE SERIES TRUST:
Small Cap Portfolio Equity Portfolio
Growth Portfolio
MFS VARIABLE INSURANCE TRUST:
MFS Emerging Growth Series VAN KAMPEN LIFE INVESTMENT TRUST:
Strategic Stock Portfolio
</TABLE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The accompanying financial statements of the Divisions of the Separate Account
have been prepared on the basis of generally accepted accounting principles
("GAAP"). The accounting principles followed by the Divisions and the methods
of applying those principles are presented below or in the footnotes which
follow.
SECURITY VALUATION - The investments in shares of the Funds listed above are
valued at the closing net asset value (market) per share as determined by the
Funds on the day of measurement.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security transactions
are accounted for on the date the order to buy or sell is executed ("trade
date"). Dividend income and distributions of capital gains are recorded on the
ex-dividend date and reinvested upon receipt. Realized gains and losses from
security transactions are determined on the basis of identified cost.
VL-R-4
<PAGE>
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION -
CONTINUED
Charges and Expenses
DEDUCTIONS FROM PREMIUM PAYMENTS. Certain jurisdictions require that a
deduction be made from each premium payment for taxes. The amount of such
deduction currently ranges from .75% to 3.5%. Prior to allocation to the
Separate Account, an additional 2.5% is deducted from each after-tax premium
payment.
SEPARATE ACCOUNT CHARGES. Currently, daily charges at an annual effective rate
of .75% on the daily net asset value of the Divisions are paid to the Company.
These charges are made in return for the Company's assumption of mortality and
expense risks associated with the policies issued.
For each policy, a reduction in the current daily charge by .25% will occur
after policy year 10, and a further reduction of .25% will occur after policy
year 20. Because the policies were first offered in 1998, this decrease has not
yet occurred for any outstanding policy.
Other charges paid to the Company include: deductions for monthly
administrative charges, the cost of insurance, additional benefit riders, and
withdrawal charges.
The monthly administrative charge deduction is $6 for each policy in force.
An additional monthly expense deduction for Platinum Investor II policies is
charged during the first two policy years, and for the first two years on any
increase in specified amount. The amount of this charge varies from $0.0999 per
$1,000 of specified amount to $1.88 per $1,000 of specified amount (or increase
in specified amount), depending upon the age and other characteristics of the
insured person.
Since determination of both the insurance rate and the Company's net amount at
risk depends upon several factors, the cost of insurance deduction may vary from
month to month. Policy accumulation value, specified amount of insurance and
certain characteristics of the insured person, are among the variables included
in the calculation for the cost of insurance deduction.
Surrender charges are deducted for the Platinum Investor I policies if the
policy is surrendered during the policy's first 10 years. Beginning in the
fourth policy year, the amount of the surrender charge decreases by a constant
amount each policy year. In addition, a $25 transaction fee per policy is
charged for each partial surrender made. No surrender charges or transaction
fees were collected for the year ended December 31, 1998.
NOTE C - FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the Internal Revenue
Code and includes the operations of the Separate Account in determining its
federal income tax liability. Under existing federal income tax law, the
investment income and capital gains from sales of investments realized by the
Separate Account are not taxable. Therefore, no federal income tax provision
has been made.
VL-R-5
<PAGE>
SEPARATE ACCOUNT VL-R - Platinum Investor Divisions
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE D - YEAR 2000 CONTINGENCY (UNAUDITED)
Internal Systems. The Company's ultimate parent, American General
Corporation (AGC), has numerous technology systems that are managed on a
decentralized basis. AGC's Year 2000 readiness efforts are therefore being
undertaken by its key business units with centralized oversight. Each business
unit, including the Company, has developed and is implementing a plan to
minimize the risk of a significant negative impact on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of the Company's information technology and
non-information technology systems; (2) assess which items in the inventory may
expose the company to business interruptions due to Year 2000 issues; (3)
reprogram or replace systems that are not Year 2000 ready; (4) test systems to
prove that they will function into the next century as they do currently; and
(5) return the systems to operations. As of December 31,1998, substantially all
of the Company's critical systems are Year 2000 ready and have been returned to
operations. However, activities (3) through (5) for certain systems are
ongoing, with vendor upgrades expected to be received during the first half of
1999.
Third Party Relationships. The Company has relationships with various third
parties who must also be Year 2000 ready. These third parties provide (or
receive) resources and services to (or from) the Company and include
organizations with which the company exchanges information. Third parties
include vendors of hardware, software, and information services; providers of
infrastructure services such as voice and data communications and utilities for
office facilities; investors; customers; distribution channels; and joint
venture partners. Third parties differ from internal systems in that the Company
exercises less, or no, control over Year 2000 readiness. The Company has
developed a plan to assess and attempt to mitigate the risks associated with the
potential failure of third parties to achieve Year 2000 readiness. The plan
includes the following activities: (1) identify and classify third party
dependencies; (2) research, analyze, and document Year 2000 readiness for
critical third parties; and (3) test critical hardware and software products and
electronic interfaces. As of December 31, 1998, AGC has identified and assessed
approximately 700 critical third party dependencies, including those relating to
the Company. A more detailed evaluation will be completed during the first
quarter 1999 as part of the Company's contingency planning efforts. Due to the
various stages of third parties' Year 2000 readiness, the Company's testing
activities will extend through 1999.
Contingency Plans. The Company has commenced contingency planning to
reduce the risk of Year 2000-related business failures. The contingency plans,
which address both internal systems and third party relationships, include the
following activities: (1) evaluate the consequences of failure of business
processes with significant exposure to Year 2000 risk; (2) determine the
probability of a year 2000-related failure for those processes that have a high
consequence of failure; (3) develop an action plan to complete contingency plans
for those processes that rank high in consequence and probability of failure;
and (4) complete the applicable action plans. The Company is currently
developing contingency plans and expects to substantially complete all
contingency planning activities by April 30, 1999.
Risks and Uncertainties. Based on its plans to make internal systems ready
for Year 2000, to deal with third party relationships, and to develop
contingency actions, the Company believes that it will experience at most
isolated and minor disruptions of business processes following the turn of the
century. Such disruptions are not expected to have a material effect on the
Company's future results of operations, liquidity, or financial condition.
However, due to the magnitude and complexity of this project, risks and
uncertainties exist and the Company is not able to predict a most reasonably
likely worst case scenario. If conversion of the Company's internal systems is
not completed on a timely basis (due to non-performance by significant third-
party vendors, lack of qualified personnel to perform the Year 2000 work, or
other unforeseen circumstances in completing the Company's plans), or if
critical third parties fail to achieve Year 2000 readiness on a timely basis,
the Year 2000 issues could have a material adverse impact on the Company's
operations following the turn of the century.
Costs. Through December 31,1998, the Company has incurred, and anticipates
that it will continue to incur, costs for internal staff, third-party vendors,
and other expenses to achieve Year 2000 readiness. The cost of activities
related to Year 2000 readiness has not had a material adverse effect on the
Company's results of operations or financial condition. In addition, the
Company has elected to accelerate the planned replacement of certain systems as
part of the Year 2000 plans. Costs of the replacement systems are being
capitalized and amortized over their useful lives, in accordance with the
Company's normal accounting policies. These costs are not passed to Divisions
of the Separate Account.
VL-R-6
<PAGE>
Note E - Investments
Fund shares are purchased at net asset value with net policy transactions
(net premium payments less surrenders and amounts payable to the Company for
administrative, insurance and surrender charges) and reinvestment of
distributions made by the Funds. The following is a summary of shares of the
Funds owned as of December 31, 1998.
<TABLE>
<CAPTION>
Value of Unrealized
Net Asset Shares at Costs of Appreciation
Fund Shares Value Market Shares Held (Depreciation)
<S> <C> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc.:
V. I. International Equity Fund................... 15,471.115 $19.62 $ 303,543 $ 279,815 $ 23,728
V. I. Value Fund.................................. 22,150.566 26.25 581,452 532,429 49,023
---------- ---------- --------
884,995 812,244 72,751
American General Series Portfolio Company:
International Equities Fund........................ 4,158.085 11.37 47,277 46,141 1,136
MidCap Index Fund.................................. 9,269.859 25.37 235,177 205,762 29,415
Money Marlket Fund................................. 3,511,689.890 1.00 3,511,690 3,511,690 0
Stock Index Fund................................... 34,154.777 37.54 1,282,170 1,124,580 157,590
---------- ---------- --------
5,076,314 4,888,173 188,141
Dreyfus Variable Investment Fund:
Quality Bond Portfolio............................. 18,338.318 11.50 210,891 213,020 (2,129)
Small Cap Portfolio............................... 8,292.429 53.91 447,045 430,303 16,742
---------- ---------- --------
657,936 643,323 14,613
MFS Variable Insurance Trust:
MFS Emerging Growth Series ....................... 15,920.906 21.47 341,822 284,300 57,522
Morgan Stanley Dean Witter Universal Funds, Inc.:
Equity Growth Portfolio........................... 34,948.835 15.10 527,728 478,143 49,585
High Yield Portfolio.............................. 13,924.985 10.35 144,124 147,206 (3,082)
---------- ---------- --------
671,852 625,349 46,503
Putnam Variable Trust:
VT Diversified Income Fund........................ 24,749.176 10.47 259,124 256,448 2,676
VT Growth and Income Fund ........................ 10,545.965 28.75 303,196 285,841 17,355
VT International Growth and Income Fund .......... 12,954.286 12.24 158,560 150,230 8,330
---------- ---------- --------
720,880 692,519 28,361
SAFECO Resource Series Trust:
Equity Portfolio.................................. 14,661.330 29.97 439,400 417,999 21,401
Growth Portfolio.................................. 35,207.637 21.30 749,923 763,633 (13,710)
---------- ---------- --------
1,189,323 1,181,632 7,691
Van Kampen Life Investment Trust:
Strategic Stock Portfolio......................... 5,308.876 11.93 63,335 59,837 3,498
---------- ---------- --------
Total.................................................. $9,606,457 $9,187,377 $419,080
========== ========== ========
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments for
the period ended December 31, 1998 were $13,694,733 and $4,483,599,
respectively. The cost of total investments owned at December 31, 1998 was the
same for both financial reporting and federal income tax purposes. Gross
unrealized appreciation and gross unrealized depreciation as of December 31,
1998 were $438,002 and $18,922, respectively.
VL-R-7
<PAGE>
SEPARATE ACCOUNT VL-R - PLATINUM INVESTOR DIVISIONS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE F - SUMMARY OF CHANGES IN UNITS
SUMMARY OF CHANGES IN UNITS FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
AIM V.I. AIM V.I. AGSPC AGSPC AGSPC
International Value International MidCap Index Money Market
Equity Fund Fund Equities Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period.. 0.000 0.000 0.000 0.000 0.000
Purchase payments .................. 3,933.994 5,028.181 1,258.721 2,203.174 887,232.172
Transfers between funds............. 27,288.385 47,610.818 3,442.353 19,353.676 (515,790.168)
COI and administration charges ..... (508.526) (2,555.107) (264.382) (688.290) (27,327.516)
Surrenders.......................... 0.000 (57.308) 0.000 0.000 (1,749.912)
---------- ---------- --------- ---------- ------------
Outstanding at end of period........ 30,713.853 50,026.584 4,436.692 20,868.560 342,364.576
========== ========== ========= ========== ============
</TABLE>
<TABLE>
<CAPTION>
AGSPC Dreyfus Dreyfus MFS MSDWUF
Stock Quality Small Emerging Equity
Index Bond Cap Growth Growth
Fund Portfolio Portfolio Series Portfolio
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period.. 0.000 0.000 0.000 0.000 0.000
Purchase payments .................. 8,628.761 2,899.836 2,877.991 2,165.052 3,375.968
Transfers between funds............. 107,442.283 18,269.597 47,736.008 27,489.472 48,846.035
COI and administration charges ..... (3,054.075) (158.453) (2,885.870) (789.766) (2,332.117)
Surrenders.......................... 0.000 0.000 (23.364) (50.229) (31.365)
----------- ---------- ---------- ---------- ----------
Outstanding at end of period........ 113,016.969 21,010.980 47,704.765 28,814.529 49,858.521
=========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MSDWUF Putnam VT Putnam VT Putnam VT
High Diversified Growth and Intl Growth SAFECO
Yield Income Income and Income Equity
Portfolio Fund Fund Fund Portfolio
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period.. 0.000 0.000 0.000 0.000 0.000
Purchase payments .................. 1,079.788 2,736.793 2,895.013 1,481.444 1,848.660
Transfers between funds............. 13,535.025 25,670.109 27,336.414 15,779.278 38,805.245
COI and administration charges ..... (172.575) (1,113.705) (915.004) (368.239) (1,228.964)
Surrenders.......................... 0.000 0.000 (93.286) 0.000 0.000
---------- ---------- ---------- ---------- ----------
Outstanding at end of period........ 14,442.238 27,293.197 29,223.137 16,892.483 39,424.941
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SAFECO Van Kampen LIT
Growth Strategic Stock
Portfolio Portfolio
<S> <C> <C>
Outstanding at beginning of period... 0.000 0.000
Purchase payments ................... 11,571.367 1,026.844
Transfers between funds.............. 78,917.682 5,152.249
COI and administration charges ...... (3,046.234) (190.338)
Surrenders........................... (13.296) (49.497)
---------- ---------
Outstanding at end of period ....... 87,429.519 5,939.258
========== =========
</TABLE>
VL-R-8
<PAGE>
NOTES G - NET ASSETS REPRESENTED BY:
December 31, 1998
<TABLE>
<CAPTION>
UNITS OUTSTANDING: Units Unit Value Amount
<S> <C> <C> <C>
AIM Variable Insurance Funds, Inc.:
AIM V.I. International Equity Fund.................................... 30,713.853 $ 9.883756 $ 303,568
AIM V.I. Value Fund................................................... 50,026.584 11.623823 581,500
------------
885,068
------------
AMERICAN GENERAL SERIES PORTFOLIO COMPANY:
International Equities Fund........................................... 4,436.692 10.657122 47,282
MidCap Index Fund..................................................... 20,868.560 11.270655 235,202
Money Market Fund..................................................... 342,364.576 10.258008 3,511,979
Stock Index Fund...................................................... 113,016.969 11.345869 1,282,276
------------
5,076,739
------------
DREYFUS VARIABLE INVESTMENT FUND:
Quality Bond Portfolio................................................ 21,010.980 10.037989 210,908
Small Cap Portfolio................................................... 47,704.765 9.371844 447,082
------------
657,990
------------
MFS VARIABLE INSURANCE TRUST:
MFS Emerging Growth Series............................................ 28,814.529 11.863805 341,850
------------
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.:
Equity Growth Portfolio............................................... 49,858.521 10.585368 527,771
High Yield Portfolio.................................................. 14,442.238 9.980132 144,136
------------
671,907
------------
PUTNAM VARIABLE TRUST:
Putnam VT Diversified Income Fund .................................... 27,293.197 9.494863 259,145
Putnam VT Growth and Income Fund...................................... 29,223.137 10.376073 303,221
Putnam VT International Growth and Income Fund ....................... 16,892.483 9.387222 158,574
------------
720,940
------------
SAFECO RESOURCE SERIES TRUST:
Equity Portfolio...................................................... 39,424.941 11.146147 439,436
Growth Portfolio...................................................... 87,429.519 8.578159 749,984
------------
1,189,420
------------
VAN KAMPEN LIFE INVESTMENT TRUST:
Strategic Stock Portfolio............................................. 5,939.258 10.664649 63,340
------------
VALUE OF UNITS OUTSTANDING AT DECEMBER 31, 1998........................... $ 9,607,254
============
</TABLE>
VL-R-9
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD] . One Houston Center . Phone: 713 750 1500
Suite 2400 Fax: 713 750 1501
1221 McKinney
Houston, Texas 77010-2007
Report of Independent Auditors
Board of Directors and Stockholder
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, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, shareholder's
equity, and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our 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 disclosure 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, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/S/ ERNST & YOUNG LLP
---------------------
February 16, 1999
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
F-1
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
---------------------------------
<S> <C> <C>
(In Thousands)
ASSETS
Investments:
Fixed maturity securities, at fair value (amortized cost-
$27,425,605 in 1998 and $26,131,207 in 1997) $28,906,261 $27,386,715
Equity securities, at fair value (cost - $193,368 in 1998
and $19,208 in 1997) 211,684 21,114
Mortgage loans on real estate 1,557,268 1,659,921
Policy loans 1,170,686 1,093,694
Investment real estate 119,520 129,364
Other long-term investments 86,194 55,118
Short-term investments 222,949 100,061
---------------------------------
Total investments 32,274,562 30,445,987
Cash 117,675 99,284
Investment in Parent Company (cost - $8,597 in 1998
and 1997) 54,570 37,823
Indebtedness from affiliates 161,096 96,519
Accrued investment income 459,961 433,111
Accounts receivable 196,596 208,209
Deferred policy acquisition costs 1,087,718 835,031
Property and equipment 66,197 33,827
Other assets 206,318 132,659
Assets held in separate accounts 15,616,020 11,242,270
---------------------------------
Total assets $50,240,713 $43,564,720
=================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits $29,353,022 $27,849,893
Other policy claims and benefits payable 54,278 42,677
Other policyholders' funds 398,587 398,314
Federal income taxes 677,315 543,379
Indebtedness to affiliates 18,173 4,712
Other liabilities 554,783 421,861
Liabilities related to separate accounts 15,616,020 11,242,270
---------------------------------
Total liabilities 46,672,178 40,503,106
Shareholder's 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 1,368,089 1,184,743
Accumulated other comprehensive income 679,107 427,526
Retained earnings 1,514,489 1,442,495
---------------------------------
Total shareholder's equity 3,568,535 3,061,614
---------------------------------
Total liabilities and shareholder's equity $50,240,713 $43,564,720
=================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
American General Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Revenues:
Premiums and other considerations $ 470,238 $ 428,721 $ 382,923
Net investment income 2,316,933 2,198,623 2,095,072
Net realized investment gains (losses) (33,785) 29,865 28,502
Other 69,602 53,370 41,968
----------------------------------------------------------
Total revenues 2,822,988 2,710,579 2,548,465
Benefits and expenses:
Benefits 1,788,417 1,757,504 1,689,011
Operating costs and expenses 467,067 379,012 347,369
Interest expense 15 782 830
Litigation settlement 97,096 - -
----------------------------------------------------------
Total benefits and expenses 2,352,595 2,137,298 2,037,210
----------------------------------------------------------
Income before income tax expense 470,393 573,281 511,255
Income tax expense 153,719 198,724 176,660
----------------------------------------------------------
Net income $ 316,674 $ 374,557 $ 334,595
==========================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
American General Life Insurance Company
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Net income $316,674 $374,557 $ 334,595
Other comprehensive income:
Gross change in unrealized gains (losses)
on securities (pretax: $341,000;
$318,700; ($404,900)) 222,245 207,124 (263,181)
Less: gains (losses) realized in net income (29,336) (1,251) 11,262
--------------------------------------------------------
Change in net unrealized gains (losses) on
securities (pretax: $387,000; $320,600;
($422,200) 251,581 208,375 (274,443)
-------------------------------------------------------
Comprehensive income $568,255 $582,932 $ 60,152
========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
American General Life Insurance Company
Consolidated Statements of Shareholder's Equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
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 850 850 850
Change during year - - -
----------------------------------------------------------
Balance at end of year 850 850 850
Additional paid-in capital:
Balance at beginning of year 1,184,743 933,342 858,075
Capital contribution from Parent
Company 182,284 250,000 75,000
Other changes during year 1,062 1,401 267
----------------------------------------------------------
Balance at end of year 1,368,089 1,184,743 933,342
Accumulated other comprehensive income:
Balance at beginning of year 427,526 219,151 493,594
Change in unrealized gains (losses) on
securities 251,581 208,375 (274,443)
----------------------------------------------------------
Balance at end of year 679,107 427,526 219,151
Retained earnings:
Balance at beginning of year 1,442,495 1,469,618 1,324,703
Net income 316,674 374,557 334,595
Dividends paid (244,680) (401,680) (189,680)
----------------------------------------------------------
Balance at end of year 1,514,489 1,442,495 1,469,618
----------------------------------------------------------
Total shareholder's equity $3,568,535 $3,061,614 $2,628,961
==========================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
American General Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
OPERATING ACTIVITIES
Net income $ 316,674 $ 374,557 $ 334,595
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts receivable 11,613 (37,752) 3,846
Change in future policy benefits and other policy
claims (866,428) (1,143,736) (543,193)
Amortization of policy acquisition costs 125,062 115,467 102,189
Policy acquisition costs deferred (244,196) (219,339) (188,001)
Change in other policyholders' funds 273 21,639 (69,126)
Provision for deferred income tax expense 15,872 13,264 12,388
Depreciation 19,418 16,893 16,993
Amortization (26,775) (28,276) (30,758)
Change in indebtedness to/from affiliates (51,116) (8,695) 4,432
Change in amounts payable to brokers (894) 31,769 (25,260)
Net (gain) loss on sale of investments 37,016 (29,865) (28,502)
Other, net 57,307 30,409 32,111
--------------------------------------------------------------------
Net cash used in operating activities (606,174) (863,665) (378,286)
INVESTING ACTIVITIES
Purchases of investments and loans made (28,231,615) (29,638,861) (27,245,453)
Sales or maturities of investments and receipts from
repayment of loans 26,656,897 28,300,238 25,889,422
Sales and purchases of property, equipment, and
software, net (105,907) (9,230) (8,057)
--------------------------------------------------------------------
Net cash used in investing activities (1,680,625) (1,347,853) (1,364,088)
FINANCING ACTIVITIES
Policyholder account deposits 4,688,831 4,187,191 3,593,380
Policyholder account withdrawals (2,322,307) (1,759,660) (1,746,987)
Dividends paid (244,680) (401,680) (189,680)
Capital contribution from Parent 182,284 250,000 75,000
Other 1,062 1,401 267
--------------------------------------------------------------------
Net cash provided by financing activities 2,305,190 2,277,252 1,731,980
--------------------------------------------------------------------
Increase (decrease) in cash 18,391 65,734 (10,394)
Cash at beginning of year 99,284 33,550 43,944
--------------------------------------------------------------------
Cash at end of year $ 117,675 $ 99,284 $ 33,550
====================================================================
</TABLE>
Interest paid amounted to approximately $420,000, $1,004,000, and $1,080,000 in
1998, 1997, and 1996, respectively.
See accompanying notes.
F-6
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1998
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"). During
1998, the Company formed a new wholly owned subsidiary, American General Life
Companies (AGLC), to provide management services to certain life insurance
subsidiaries of the Parent Company.
The Company offers a complete portfolio of the standard forms of universal life,
variable 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 wholly owned
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 subsidiaries. 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.
F-7
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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,
1998.
Statutory financial statements differ from GAAP. Significant differences were as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------
<S> <C> <C> <C>
Net income:
Statutory net income (1998 balance is
unaudited) $ 259,903 $ 327,813 $ 284,070
Deferred policy acquisition costs and cost
of insurance purchased 116,597 103,872 85,812
Deferred income taxes (53,358) (13,264) (12,388)
Adjustments to policy reserves 52,445 (30,162) (19,954)
Goodwill amortization (2,033) (2,067) (2,169)
Net realized gain on investments 41,488 20,139 14,140
Litigation settlement (63,112) -- --
Other, net (35,256) (31,774) (14,916)
-------------------------------------------------------
GAAP net income $ 316,674 $ 374,557 $ 334,595
=======================================================
Shareholders' equity:
Statutory capital and surplus (1998 balance
is unaudited) $1,670,412 $1,636,327 $1,441,768
Deferred policy acquisition costs 1,109,831 835,031 1,042,783
Deferred income taxes (698,350) (535,703) (410,007)
Adjustments to policy reserves (274,532) (319,680) (297,434)
Acquisition-related goodwill 54,754 51,424 55,626
Asset valuation reserve ("AVR") 310,564 255,975 291,205
Interest maintenance reserve ("IMR") 27,323 9,596 63
Investment valuation differences 1,487,658 1,272,339 643,289
Surplus from separate accounts (174,447) (150,928) (106,026)
Other, net 55,322 7,233 (32,306)
-------------------------------------------------------
Total GAAP shareholders' equity $3,568,535 $3,061,614 $2,628,961
=======================================================
</TABLE>
F-8
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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 tax assets and liabilities
are established for temporary differences between the financial reporting basis
and the tax basis of assets and liabilities, at the enacted tax rates expected
to be in effect when the temporary differences reverse; (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.
F-9
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities were classified as available-for-sale
and recorded at fair value at December 31, 1998, 1997, and 1996. After adjusting
related balance sheet accounts as if the unrealized gains (losses) had been
realized, the net adjustment is recorded in accumulated other comprehensive
income 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.
During 1998, the Company maintained a trading portfolio of certain fixed
maturity securities. Trading securities are recorded at fair value. Unrealized
gains (losses), as well as realized gains (losses), are included in net
investment income. The Company held no trading securities at December 31, 1998,
and trading securities did not have a material effect on net investment income
in 1998.
MORTGAGE LOANS
Mortgage loans are reported at amortized cost, net of an allowance for losses.
The allowance for losses covers all non-performing loans and loans for which
management has a concern based on its assessment of risk factors, such as
potential non-payment or non-monetary default. The allowance is based on a loan-
specific review and a formula that reflects past results and current trends.
Loans for which the Company determines that collection of all amounts due under
the contractual terms is not probable are considered to be impaired. The Company
generally looks to the underlying collateral for repayment of impaired loans.
Therefore, impaired loans are considered to be collateral dependent and are
reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated cost to sell.
POLICY LOANS
Policy loans are reported at unpaid principal balance.
F-10
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS (CONTINUED)
INVESTMENT REAL ESTATE
Investment real estate is classified as held for investment or available for
sale, based on management's intent. Real estate held for investment is carried
at cost, less accumulated depreciation and impairment write-downs. Real estate
available for sale is carried at the lower of cost (less accumulated
depreciation, if applicable) or fair value less cost to sell.
INVESTMENT INCOME
Interest on fixed maturity securities and performing and restructured mortgage
loans is recorded as income when earned and is adjusted for any amortization of
premium or discount. Interest on delinquent mortgage loans is recorded as income
when received. Dividends are recorded as income on ex-dividend dates.
REALIZED INVESTMENT GAINS
Realized investment gains (losses) are recognized using the specific-
identification method.
1.5 SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain contracts,
principally annuities; for which the investment risk lies solely with the
contract holder. Therefore, 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, comprehensive
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.
F-11
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.6 DEFERRED POLICY ACQUISITION COSTS ("DPAC") AND COST OF INSURANCE PURCHASED
("CIP")
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC.
CIP represents the cost assigned to insurance contracts in force that are
acquired through the purchase of a block of business. At December 31, 1998, CIP
of $22.1 million was reported within other assets.
DPAC and CIP associated with interest-sensitive life contracts, insurance
investment contracts, and participating life insurance contracts is charged to
expense in relation to the estimated gross profits of those contracts. DPAC and
CIP associated with all other insurance contracts is charged to expense over the
premium-paying period or as the premiums are earned over the life of the
contract.
DPAC and CIP are adjusted for the impact on estimated future gross profits as if
net unrealized gains (losses) on securities had been realized at the balance
sheet date. The impact of this adjustment is included in accumulated other
comprehensive income within shareholder's equity.
The Company reviews the carrying amount of DPAC and CIP on at least an annual
basis. Management considers estimated future gross profits or future premiums,
expected mortality, interest earned and credited rates, persistency, and
expenses in determining whether the carrying amount is recoverable.
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. 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 a constant relationship to insurance in force. For all other
contracts, premiums are recognized when due.
F-12
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
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 by management for indicators of impairment in value. If facts
and circumstances suggest that goodwill is impaired, other than temporarily, the
Company assesses the fair value of the underlying assets and reduces goodwill
accordingly.
1.9 POLICY AND CONTRACT CLAIMS RESERVES
Substantially all of the Company's insurance and annuity liabilities relate to
long-duration contracts. The contracts normally cannot be changed or canceled by
the Company during the contract period.
For interest-sensitive life and insurance investment contracts, reserves equal
the sum of the policy account balance and deferred revenue charges. Reserves for
other contracts are based on estimates of the cost of future policy benefits.
Reserves are determined using the net level premium method. Interest assumptions
used to compute reserves ranged from 2.5% to 13.5% at December 31, 1998.
1.10 REINSURANCE
The Company limits its exposure to loss on any single insured to $2.5 million by
ceding additional risks through reinsurance contracts with other insurers. The
Company diversifies its risk of reinsurance loss by using a number of reinsurers
that have strong claims-paying ability ratings. If the reinsurer could not meet
its obligations, the Company would reassume the liability. The likelihood of a
material reinsurance liability being reassumed by the Company is considered to
be remote.
A receivable is recorded for the portion of benefits paid and insurance
liabilities that have been reinsured. Reinsurance recoveries on ceded
reinsurance contracts were $63 million, $25 million, and $24 million during
1998, 1997, and 1996, respectively. The cost of reinsurance is recognized over
the life of the reinsured policies using assumptions consistent with those used
to account for the underlying policies.
F-13
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.10 REINSURANCE
Benefits paid and future policy benefits related to ceded insurance contracts
are recorded as reinsurance receivables. The cost of reinsurance is recognized
over the life of the underlying reinsured policies using assumptions consistent
with those used to account for the underlying policies.
1.11 PARTICIPATING POLICY CONTRACTS
Participating life insurance accounted for approximately 2% of life insurance in
force at December 31, 1998 and 1997.
The portion of earnings allocated to participating policyholders that cannot be
expected to inure to shareholders is excluded from net income and shareholder's
equity. Dividends to be paid on participating life insurance contracts are
determined annually based on estimates of the contracts' earnings. Policyholder
dividends were $4.9 million in 1998.
1.12 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.
Deferred tax assets and liabilities are established for temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities, at the enacted tax rates expected to be in effect when the
temporary differences reverse. The effect of a tax rate change is recognized in
income in the period of enactment. State income taxes are included in income tax
expense.
F-14
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.12 INCOME TAXES (CONTINUED)
A valuation allowance for deferred tax assets is provided if it is more likely
than not that some portion of the deferred tax asset will not be realized. An
increase or decrease in a valuation allowance that results from a change in
circumstances that causes a change in judgment about the realizability of the
related deferred tax asset is included in income. Changes related to
fluctuations in fair value of available-for-sale securities are included in the
consolidated statements of comprehensive income and accumulated other
comprehensive income in shareholder's equity.
1.13 ACCOUNTING CHANGES
During 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) 130, Reporting Comprehensive Income, which establishes standards for
reporting and displaying comprehensive income and its components in the
financial statements. The Company elected to report comprehensive income and its
components in a separate statement of comprehensive income. Adoption of this
statement did not change recognition or measurement of net income and,
therefore, did not impact the Company's consolidated results of operations or
financial position.
Effective December 31, 1998, the Company adopted SFAS 131, Disclosures about
Segments of an Enterprise and Related Information, which changes the way
companies report segment information. With the adoption of SFAS 131, the Company
reports division earnings exclusive of goodwill amortization, net realized
investment gains, and nonrecurring items. This methodology is consistent with
the manner in which management reviews division results. Adoption of this
statement did not impact the Company's consolidated results of operations or
financial position.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, which requires all
derivative instruments to be recognized at fair value as either assets or
liabilities in the balance sheet. Changes in the fair value of a derivative
instrument are to be reported as earnings or other comprehensive income,
depending upon the intended use of the derivative instrument. This statement is
effective for years beginning after June 15, 1999. Adoption of SFAS 133 is not
expected to have a material impact on the Company's consolidated results of
operations or financial position.
F-15
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS
2.1 INVESTMENT INCOME
Investment income by type of investment was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Investment income:
Fixed maturities $2,101,730 $1,966,528 $1,846,549
Equity securities 1,813 1,067 1,842
Mortgage loans on real estate 148,447 157,035 175,833
Investment real estate 23,139 22,157 22,752
Policy loans 66,573 62,939 58,211
Other long-term investments 3,837 3,135 2,328
Short-term investments 15,492 8,626 9,280
Investment income from affiliates 10,536 11,094 11,502
----------------------------------------------------------
Gross investment income 2,371,567 2,232,581 2,128,297
Investment expenses 54,634 33,958 33,225
----------------------------------------------------------
Net investment income $2,316,933 $2,198,623 $2,095,072
==========================================================
</TABLE>
The carrying value of investments that produced no investment income during 1998
was less than 0.2% 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.
F-16
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.2 NET REALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) by type of investment were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 20,109 $ 42,966 $ 46,498
Gross losses (62,657) (34,456) (47,293)
--------------------------------------------------------
Total fixed maturities (42,548) 8,510 (795)
Equity securities 645 1,971 18,304
Other investments 8,118 19,384 10,993
--------------------------------------------------------
Net realized investment gains (losses)
before tax (33,785) 29,865 28,502
Income tax expense (benefit) (11,826) 10,452 9,976
--------------------------------------------------------
Net realized investment gains (losses)
after tax $(21,959) $ 19,413 $ 18,526
========================================================
</TABLE>
F-17
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Fixed maturity securities:
Corporate securities:
Investment-grade $18,800,553 $1,129,504 $(26,353) $19,903,703
Below investment-grade 1,409,198 33,910 (45,789) 1,397,320
Mortgage-backed securities* 6,359,242 294,331 (870) 6,652,703
U.S. government obligations 417,822 69,321 (178) 486,965
Foreign governments 331,699 24,625 (2,437) 353,887
State and political subdivisions 86,778 4,796 (187) 91,387
Redeemable preferred stocks 20,313 - (17) 20,296
------------------------------------------------------------------------------
Total fixed maturity securities $27,425,605 $1,556,487 $(75,831) $28,906,261
==============================================================================
Equity securities $ 193,368 $ 19,426 $ (1,110) $ 211,684
==============================================================================
Investment in Parent Company $ 8,597 $ 45,973 $ - $ 54,570
==============================================================================
</TABLE>
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and government
agencies.
F-18
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST 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>
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and government
agencies.
F-19
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
Net unrealized gains (losses) on securities included in accumulated
comprehensive income in shareholders' equity at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------
(In Thousands)
<S> <C> <C>
Gross unrealized gains $1,621,886 $1,316,330
Gross unrealized losses (76,941) (29,690)
DPAC and other fair value adjustments (488,120) (621,867)
Deferred federal income taxes (377,718) (237,247)
--------------------------------------------
Net unrealized gains on securities $ 679,107 $ 427,526
============================================
</TABLE>
The contractual maturities of fixed maturity securities at December 31, 1998
were as follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
-----------------------------------------------------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities,
excluding mortgage-
backed securities:
Due in one year or less $ 531,496 $ 536,264 $ 205,719 $ 207,364
Due after one year
through five years 5,550,665 5,812,581 5,008,933 5,216,174
Due after five years
through ten years 9,229,980 9,747,761 9,163,681 9,604,447
Due after ten years 5,754,220 6,156,950 5,138,169 5,470,143
Mortgage-backed securities 6,359,244 6,652,705 6,614,705 6,888,587
-----------------------------------------------------------------------------
Total fixed maturity securities $27,425,605 $28,906,261 $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 $5.4 billion,
$14.8 billion, and $16.2 billion during 1998, 1997, and 1996, respectively.
F-20
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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, 1998 and 1997:
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
DECEMBER 31, 1998
Geographic distribution:
South Atlantic $ 429 27.6% 0.2%
Pacific 320 20.6 10.4
Mid-Atlantic 326 20.9 4.1
East North Central 178 11.4 -
Mountain 95 6.1 -
West South Central 118 7.5 -
East South Central 46 3.0 -
West North Central 33 2.1 -
New England 25 1.6 -
Allowance for losses (13) (0.8) -
-------------------------------------
Total $ 1,557 100.00% 3.1%
=====================================
Property type:
Office $ 593 38.1% 7.0%
Retail 423 27.1 0.2
Industrial 292 18.8 -
Apartments 178 11.4 2.9
Hotel/motel 38 2.4 -
Other 46 3.0 -
Allowance for losses (13) (0.8) -
-------------------------------------
Total $ 1,557 100% 3.1%
=====================================
</TABLE>
F-21
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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, 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>
F-22
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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
1998 1997
-----------------------------------------
(In Millions)
<S> <C> <C>
Impaired loans:
With allowance* $ 13 $ 35
Without allowance - -
-----------------------------------------
Total impaired loans $ 13 $ 35
=========================================
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of $1.8
million and $10 million, respectively.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
Average investment $ 24 $ 48 $ 72
Interest income earned $ - $ 3 $ 6
Interest income - cash basis $ - $ - $ 6
</TABLE>
F-23
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.5 INVESTMENT SUMMARY
Investments of the Company were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------------------------------------------------------------------------------
CARRYING CARRYING
COST FAIR VALUE AMOUNT COST FAIR VALUE AMOUNT
--------------------------------------------------------------------------------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities:
Bonds:
United States government
and government agencies
and authorities $ 417,822 $ 486,965 $ 486,965 $ 289,406 $ 335,861 $ 335,861
States, municipalities,
and political subdivisions 86,778 91,387 91,387 44,505 46,191 46,191
Foreign governments 331,699 353,887 353,887 318,212 332,754 332,754
Public utilities 1,777,172 1,895,326 1,895,326 1,848,546 1,952,724 1,952,724
Mortgage-backed securities 6,359,242 6,652,703 6,652,703 6,614,704 6,888,587 6,888,587
All other corporate bonds 18,432,579 19,405,697 19,405,697 17,015,834 17,830,598 17,830,598
Redeemable preferred stocks 20,313 20,296 20,296 - - -
--------------------------------------------------------------------------------------------------------
Total fixed maturities 27,425,605 28,906,261 28,906,261 26,131,207 27,386,715 27,386,715
Equity securities:
Common stocks:
Banks, trust, and insurance
companies - - - - - -
Industrial, miscellaneous,
and other 176,321 211,684 211,684 5,604 5,785 5,785
Nonredeemable preferred
stocks 17,047 - - 13,604 15,329 15,329
--------------------------------------------------------------------------------------------------------
Total equity securities 193,368 211,684 211,684 19,208 21,114 21,114
Mortgage loans on real
estate* 1,557,268 - 1,557,268 1,659,921 - 1,659,921
Investment real estate 119,520 - 119,520 129,364 - 129,364
Policy loans 1,170,686 - 1,170,686 1,093,694 - 1,093,694
Other long-term investments 86,194 - 86,194 55,118 - 55,118
Short-term investments 222,949 - 222,949 100,061 - 100,061
--------------------------------------------------------------------------------------------------------
Total investments $30,775,590 $ - $32,274,562 $29,188,573 $ - $30,445,987
========================================================================================================
</TABLE>
* Amount is net of allowance for losses of $13 million and $23 million at
December 31, 1996 and 1997, respectively.
F-24
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. DEFERRED POLICY ACQUISITION COSTS
The balance of DPAC at December 31 and the components of the change reported in
operating costs and expenses for the years then ended were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance at January 1 $ 835,031 $1,042,783 $ 605,501
Capitalization 244,196 219,339 188,001
Amortization (125,062) (115,467) (102,189)
Effect of unrealized gains (losses) on
securities 133,553 (311,624) 351,470
----------------------------------------------------------
Balance at December 31 $1,087,718 $ 835,031 $1,042,783
==========================================================
</TABLE>
4. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
(In Thousands)
<S> <C> <C>
Goodwill $ 54,754 $ 51,424
American General Corporation CBO (Collateralized Bond
Obligation) 98-1 Ltd. 9,740 -
Cost of insurance purchased ("CIP") 22,113 -
Other 119,711 81,235
------------------------------------
Total other assets $206,318 $132,659
====================================
</TABLE>
F-25
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. OTHER ASSETS (CONTINUED)
A rollforward of CIP for the year ended December 31, 1998, was as follows:
<TABLE>
<CAPTION>
1998
--------------------
(In Thousands)
<S> <C>
Balance at January 1 $ --
Acquisition of business 23,915
Accretion of interest at 5.88% 733
Amortization (2,535)
--------------------
Balance at December 31 $ 22,113
====================
</TABLE>
5. FEDERAL INCOME TAXES
5.1 TAX LIABILITIES
Income tax liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------------------------
(In Thousands)
<S> <C> <C>
Current tax (receivable) payable $ (21,035) $ 7,676
Deferred tax liabilities, applicable to:
Net income 320,632 298,456
Net unrealized investment gains 377,718 237,247
-----------------------------------------
Total deferred tax liabilities 698,350 535,703
-----------------------------------------
Total current and deferred tax liabilities $ 677,315 $ 543,379
=========================================
</TABLE>
F-26
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.1 TAX LIABILITIES (CONTINUED)
Components of deferred tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------
(In Thousands)
<S> <C> <C>
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 307,025 $ 226,653
Basis differential of investments 590,661 486,194
Other 150,189 139,298
------------------------------------------
Total deferred tax liabilities 1,047,875 852,145
Deferred tax assets applicable to:
Policy reserves (212,459) (232,539)
Other (137,066) (83,903)
------------------------------------------
Total deferred tax assets before valuation
allowance (349,525) (316,442)
Valuation allowance - -
------------------------------------------
Total deferred tax assets, net of valuation
allowance (349,525) (316,442)
------------------------------------------
Net deferred tax liabilities $ 698,350 $ 535,703
==========================================
</TABLE>
A portion of life insurance income earned prior to 1984 is not taxable unless it
exceeds certain statutory limitations, is distributed as dividends, or unless
the income tax deferred status of such amount is modified by future tax
legislation. Such income, accumulated in policyholders' surplus accounts,
totaled $87.1 million at December 31, 1998. At current corporate rates, the
maximum amount of tax on such income is approximately $30.5 million. Deferred
income taxes on these accumulations are not required because no distributions
are expected.
F-27
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.2 TAX EXPENSE
Components of income tax expense for the years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Current expense $134,344 $185,460 $164,272
Deferred expense (benefit):
Deferred policy acquisition cost 33,230 27,644 21,628
Policy reserves 2,189 (27,496) (27,460)
Basis differential of investments 11,969 3,769 4,129
Litigation settlement (33,983) -- --
Year 2000 (9,653) -- --
Other, net 15,623 9,347 14,091
--------------------------------------------------------
Total deferred expense 19,375 13,264 12,388
--------------------------------------------------------
Income tax expense $153,719 $198,724 $176,660
========================================================
</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>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Income tax at statutory percentage of GAAP
pretax income $164,638 $200,649 $178,939
Tax-exempt investment income (11,278) (9,493) (9,347)
Goodwill 712 723 759
Other (353) 6,845 6,309
--------------------------------------------------------
Income tax expense $153,719 $198,724 $176,660
========================================================
</TABLE>
F-28
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.3 TAXES PAID
Income taxes paid amounted to approximately $159 million, $168 million, and $182
million in 1998, 1997, and 1996, 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 ("IRS") has completed
examinations of the Parent Company's tax returns through 1988. The IRS 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 Parent
Company believes that the ultimate liability, including interest, will not
materially exceed amounts recorded in the consolidated financial statements.
6. TRANSACTIONS WITH AFFILIATES
Affiliated notes and accounts receivable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------------------------------------------
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 $ 3,345 $ 4,725 $ 3,288
American General Corporation,
Promissory notes, due 2004 14,679 14,679 17,125 17,125
American General Corporation,
Restricted Subordinated
Note, 13-1/2%, due 2002 29,435 29,435 31,494 31,494
------------------------------------------------------------------------
Total notes receivable from
affiliates 48,839 47,459 53,344 51,907
Accounts receivable from
affiliates - 113,637 - 44,612
------------------------------------------------------------------------
Indebtedness from affiliates $48,839 $161,096 $53,344 $96,519
========================================================================
</TABLE>
F-29
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Various American General companies provide services to the Company, principally
mortgage servicing and investment management services, provided by American
General Investment Management Corporation on a fee basis. The Company paid
approximately $46,921,000, $33,916,000, and $22,083,000 for such services in
1998, 1997, and 1996, respectively. Accounts payable for such services at
December 31, 1998 and 1997 were not material. The Company rents facilities and
provides services on an allocated cost basis to various American General
companies. Beginning in 1998, amounts received by the Company from affiliates
include amounts received by its wholly-owned, non-life insurance subsidiary,
American General Life Companies (AGLC). AGLC provides shared services, including
technology and Year 2000-readiness, to a number of American General
Corporation's life insurance subsidiaries. The Company received approximately
$66,550,000, $6,455,000, and $1,255,000 for such services and rent in 1998,
1997, and 1996, respectively. Accounts receivable for rent and services at
December 31, 1998 and 1997 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, Inc., 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.
F-30
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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>
1998 1997 1996
-------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net income as reported $316,674 $374,557 $334,595
Net income pro forma $315,078 $373,328 $334,029
</TABLE>
The average fair values of the options granted during 1998, 1997, and 1996 were
$15.38, $10.33, and $7.07, 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>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 2.5% 3.0% 4.0%
Expected volatility 23.0% 22.0% 22.3%
Risk-free interest rate 5.76% 6.4% 6.2%
Expected life 6 YEARS 6 years 6 years
</TABLE>
8. BENEFIT PLANS
8.1 PENSION PLANS
The Company has non-contributory defined benefit pension plans covering most
employees. Pension benefits are based on the participant's compensation and
length of credited service.
Equity and fixed maturity securities were 56% and 30%, respectively, of the
plans' assets at the plans' most recent balance sheet dates. Additionally, 1% of
plan assets were invested in general investment accounts of the Parent Company's
subsidiaries through deposit administration insurance contracts.
F-31
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The benefit plans have purchased annuity contracts from American General
Corporation's subsidiaries to provide benefits for certain retirees. These
contracts are expected to provide future annual benefits to certain retirees of
American General Corporation and its subsidiaries of approximately $52 million.
The components of pension expense and underlying assumptions were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost (benefits earned) $ 3,693 $ 1,891 $ 1,826
Interest cost 6,289 2,929 2,660
Expected return on plan assets (9,322) (5,469) (5,027)
Amortization (557) 195 4
--------------------------------------------------------
Pension (income) expense $ 103 $ (454) $ (537)
========================================================
Discount rate on benefit obligation 7.00% 7.25% 7.50%
Rate of increase in compensation levels 4.25% 4.00% 4.00%
Expected long-term rate of return on plan
assets 10.25% 10.00% 10.00%
</TABLE>
The Company's funding policy is to contribute annually no more than the maximum
deductible for federal income tax purposes. The funded status of the plans and
the prepaid pension expense included in other assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
(In Thousands)
<S> <C> <C>
Projected benefit obligation (PBO) $ 96,554 $ 43,393
Plan assets at fair value 120,898 80,102
Plan assets at fair value in excess of PBO 24,344 36,709
Other unrecognized items, net (10,176) (23,470)
-----------------------------------
Prepaid pension expense $ 14,168 $ 13,239
===================================
</TABLE>
F-32
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The change in PBO was as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
(In Thousands)
<S> <C> <C>
PBO at January 1 $43,393 $37,389
Service and interest costs 9,982 4,820
Benefits paid (1,954) (673)
Actuarial loss 17,089 1,810
Amendments, transfers, and acquisitions 28,044 47
---------------------------------
PBO at December 31 $96,554 $43,393
=================================
</TABLE>
The change in the fair value of plan assets was as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
(In Thousands)
<S> <C> <C>
Fair value of plan assets at January 1 $ 80,102 $65,158
Actual return on plan assets 12,269 14,990
Benefits paid (1,954) (673)
Acquisitions and other 30,481 627
----------------------------------
Fair value of plan assets at December 31 $120,898 $80,102
==================================
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has life, medical, supplemental major medical, and dental plans for
certain retired employees and agents. Most plans are contributory, which 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.
F-33
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The life plans are insured through December 31, 1999. A portion of the retiree
medical and dental plans is funded through a voluntary employees' beneficiary
association (VEBA); 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.
Postretirement benefit expense in 1998, 1997, and 1996 was $60,000, $601,000,
and $844,000, respectively. The accrued liability for postretirement benefits
was $19.2 million and $3.8 million at December 31, 1998 and 1997, respectively.
These liabilities were discounted at the same rates used for the pension plans.
9. DERIVATIVE FINANCIAL INSTRUMENTS
9.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments is generally limited to
reducing its exposure to interest rate and currency exchange risk by utilizing
interest rate and currency swap agreements, and options to enter into interest
rate swap agreements (called swaptions). The Company accounts for these
derivative and financial instruments as hedges. Hedge accounting requires a high
correlation between changes in fair values or cash flows of the derivative
financial instrument and the specific item 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 declining interest rates on anticipated security purchases. Interest
rate swap agreements are also used to convert a portion of floating-rate
borrowings to a fixed rate and to hedge against the risk of rising interest
rates on anticipated debt issuances.
Currency swap agreements are used to convert cash flows from specific investment
securities denominated in foreign currencies into U.S. dollars at specific
exchange rates, and to hedge against currency rate fluctuation on anticipated
security purchases.
F-34
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS (CONTINUED)
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 the hedge investments are 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 other accumulated comprehensive income in shareholders' equity,
consistent with the treatment of the related investment security. The fair
values of swap agreements hedging debt are not recognized in the consolidated
balance sheet.
For swap agreements hedging anticipated investment purchases or debt issuances,
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 or debt. If the underlying
investment or debt is extinguished or sold, any related gain or loss on swap
agreements is recognized in income.
F-35
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
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>
1998 1997
-----------------------------------
(Dollars in Millions)
<S> <C> <C>
Interest rate swap agreements to pay fixed rate:
Notional amount $ - $ 15
Average receive rate - 6.74%
Average pay rate - 6.48%
Interest rate swap agreements to receive fixed rate:
Notional amount $ 369 $ 144
Average receive rate 6.06% 6.89%
Average pay rate 5.48% 6.37%
Currency swap agreements (receive U.S. dollars/pay
Canadian dollars):
Notional amount (in U.S. dollars) $ 124 $ 139
Average exchange rate 1.50 1.50
</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.
F-36
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.3 CALL SWAPTIONS (CONTINUED)
Swaptions at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
(Dollars in Billions)
<S> <C> <C>
Call swaptions:
Notional amount $1.76 $1.35
Average strike rate 3.97% 4.81%
Put swaptions:
Notional amount $1.05 $ -
Average strike rate 8.33% -
</TABLE>
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 or 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.
F-37
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and fair values for certain of the Company's financial
instruments at December 31 are presented below. 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 the Company's assets and liabilities,
and (2) the reporting of investments at fair value without a corresponding
evaluation of related policyholders liabilities can be misinterpreted.
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
--------------------------------------------------------------------------------
(In Millions) (In Millions)
<S> <C> <C> <C> <C>
Assets:
Fixed maturity and equity
securities * $29,118 $29,118 $27,408 $27,408
Mortgage loans on real
estate $ 1,608 $ 1,557 $ 1,702 $ 1,660
Policy loans $ 1,252 $ 1,171 $ 1,127 $ 1,094
Investment in parent
company $ 55 $ 55 $ 38 $ 38
Indebtedness from
affiliates $ 161 $ 161 $ 97 $ 97
Liabilities:
Insurance investment
contracts $25,852 $25,675 $24,011 $24,497
</TABLE>
* Includes derivative financial instruments with negative fair values of $1.0
million and $4.2 million and positive fair values of $24.3 million and $7.2
million at December 31, 1998 and 1997, respectively.
F-38
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value of
financial instruments:
FIXED MATURITY AND EQUITY SECURITIES
Fair values of fixed maturity and equity securities were based on quoted
market prices, where available. For investments not actively traded, fair
values were estimated using values obtained from independent pricing
services or, in the case of some private placements, by discounting
expected future cash flows using a current market rate applicable to yield,
credit quality, and average life of investments.
MORTGAGE LOANS ON REAL ESTATE
Fair value of mortgage loans was estimated primarily using discounted cash
flows, based on contractual maturities and risk-adjusted discount rates.
POLICY LOANS
Fair value of policy loans was estimated using discounted cash flows and
actuarially determined assumptions, incorporating market rates.
INVESTMENT IN PARENT COMPANY
The fair value of the investment in Parent Company is based on quoted
market prices of American General Corporation common stock.
INSURANCE INVESTMENT CONTRACTS
Fair value of insurance investment contracts was estimated using cash flows
discounted at market interest rates.
F-39
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 $244 million, $401 million, and
$189 million in dividends on common stock to AGC Life Insurance Company in 1998,
1997, and 1996, respectively. The Company also paid $680 thousand per year in
dividends on preferred stock to an affiliate, The Franklin Life Insurance
Company, in 1998, 1997, and 1996.
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, 1998,
approximately $3.3 billion of consolidated shareholder's equity represents net
assets of the Company which cannot be transferred, in the form of dividends,
loans, or advances to the Parent Company. Approximately $2.5 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.
F-40
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
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 have resulted in substantial settlements. On
December 16, 1998, American General Corporation announced that certain of its
life insurance subsidiaries had entered into agreements to resolve all pending
market conduct class action lawsuits. The settlements are not final until
approved by the courts and any appeals are resolved. If court approvals are
obtained and appeals are not taken, it is expected the settlements will be final
in third quarter 1999.
In conjunction with the proposed settlements, the Company recorded a charge of
$97.1 million ($63.1 million after-tax) in the fourth quarter of 1998. The
charge covers the cost of policyholder benefits and other anticipated expenses
resulting from the proposed settlements, as well as other administrative and
legal costs.
On December 31, 1998, the Company entered into an agreement with the Parent
Company whereby the Company assigned, and the Parent Company assumed, $80.1
million of the liabilities of the Company related to the proposed resolution.
The liabilities of American General Life Insurance Company of New York, which
totaled $17.0 million, were not assumed by the Parent Company. As consideration
for the assumption of the liabilities, the Company paid the Parent Company an
amount equal to the liabilities recorded with respect to the proposed resolution
of the litigation. The assignment of the liabilities was not a novation, and
accordingly, the Company retains a contingent liability related to the
litigation. The litigation liabilities were reduced by payments of $2.7 million,
and the remaining balance of $94.4 million was included in other liabilities on
the Company's balance sheet at December 31, 1998.
The Company is 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 and Mississippi, that permit damage awards
disproportionate to the actual economic damages incurred. Based upon information
presently available, the Company believes that the total amounts that will
ultimately be paid, if any, arising from these lawsuits and proceedings will not
have a material adverse effect on the Company's consolidated 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 and Mississippi continues to create the potential for
an unpredictable judgment in any given suit.
F-41
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
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, 1998 and 1997, the Company has accrued $6.0 million and
$7.6 million, respectively, for guaranty fund assessments, net of $3.7 million
and $4.3 million, respectively, of premium tax deductions. The Company has
recorded receivables of $6.2 million and $9.7 million at December 31, 1998 and
1997, respectively, for expected recoveries against the payment of future
premium taxes. Expenses incurred for guaranty fund assessments were $3.6
million, $2.1 million, and $6.0 million in 1998, 1997, and 1996, respectively.
F-42
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1998, 1997, and 1996
were as follows:
<TABLE>
<CAPTION>
CEDED TO ASSUMED PERCENTAGE OF
GROSS OTHER FROM OTHER AMOUNT
AMOUNT COMPANIES COMPANIES NET AMOUNT ASSUMED TO NET
----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Life insurance in force $46,057,031 $13,288,183 $629,791 $33,398,639 1.89%
====================================================================
Premiums:
Life insurance and annuities $ 90,298 $ 42,235 $ 117 $ 48,180 0.24%
Accident and health insurance 1,134 87 - 1,047 0.00%
--------------------------------------------------------------------
Total premiums $ 91,432 $ 42,322 $ 117 $ 49,227 0.24%
====================================================================
DECEMBER 31, 1997
Life insurance in force $45,963,710 $10,926,255 $ 4,997 $35,042,452 0.01%
====================================================================
Premiums:
Life insurance and annuities $ 100,357 $ 37,294 $ 75 $ 63,138 0.12%
Accident and health insurance 1,208 172 - 1,036 0.00%
--------------------------------------------------------------------
Total premiums $ 101,565 $ 37,466 $ 75 $ 64,174 0.12%
====================================================================
DECEMBER 31, 1996
Life insurance in force $44,535,841 $ 8,625,465 $ 5,081 $35,915,457 0.01%
====================================================================
Premiums:
Life insurance and annuities $ 104,225 $ 34,451 $ 36 $ 69,810 0.05%
Accident and health insurance 1,426 64 - 1,362 0.00%
--------------------------------------------------------------------
Total premiums $ 105,651 $ 34,515 $ 36 $ 71,172 0.05%
====================================================================
</TABLE>
Reinsurance recoverable on paid losses was approximately $7.7 million, $2.3
million, and $6.9 million at December 31, 1998, 1997, and 1996, respectively.
Reinsurance recoverable on unpaid losses was approximately $2.5 million, $3.2
million, and $4.3 million at December 31, 1998, 1997, and 1996, respectively.
F-43
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED)
INTERNAL SYSTEMS
The Company's ultimate parent, American General Corporation, ("AGC") has
numerous technology systems that are managed on a decentralized basis. AGC's
Year 2000 readiness efforts are therefore being undertaken by its key business
units with centralized oversight. Each business unit, including the Company, has
developed and is implementing a plan to minimize the risk of a significant
negative impact on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of the Company's information technology and
non-information technology systems; (2) assess which items in the inventory may
expose the Company to business interruptions due to Year 2000 issues; (3)
reprogram or replace systems that are not Year 2000 ready; (4) test systems to
prove that they will function into the next century as they do currently; and
(5) return the systems to operations. As of December 31, 1998, substantially all
of the Company's critical systems are Year 2000 ready and have been returned to
operations. However, activities (3) through (5) for certain systems are ongoing,
with vendor upgrades expected to be received during the first half of 1999.
THIRD PARTY RELATIONSHIPS
The Company has relationships with various third parties who must also be Year
2000 ready. These third parties provide, or receive resources and services to
(or from) the Company and include organizations with which the Company exchanges
information. Third parties include vendors of hardware, software, and
information services; providers of infrastructure services such as voice and
data communications and utilities for office facilities; investors, customers;
distribution channels; and joint venture partners. Third parties differ from
internal systems in that the Company exercises less, or no, control over Year
2000 readiness. The Company has developed a plan to assess and attempt to
mitigate the risks associated with the potential failure of third parties to
achieve Year 2000 readiness. The plan includes the following activities (1)
identify and classify third party dependencies; (2) research, analyze, and
document Year 2000 readiness for critical third parties; and (3) test critical
hardware and software products and electronic interfaces. As of December 31,
1998, AGC has identified and assessed more approximately 700 critical third
party dependencies, including those related to the Company. A more detailed
evaluation will be completed during the first quarter 1999 as part of the
Company's contingency planning efforts. Due to the various stages of third
parties' Year 2000 readiness, the Company's testing activities will extend
through 1999.
F-44
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED) (CONTINUED)
CONTINGENCY PLANS
The Company has commenced contingency planning to reduce the risk of Year 2000-
related business failures. The contingency plans, which address both internal
systems and third party relationships, include the following activities: (1)
evaluate the consequences of failure of business processes with significant
exposure to Year 2000 risk; (2) determine the probability of a Year 2000 related
failure for those processes that have a high consequence of failure; (3) develop
an action plan to complete contingency plans for those processes that rank high
in consequence and probability of failure; and (4) complete the applicable
actions plans. The Company is currently developing action plans and expects to
substantially complete all contingency planning activities by April 30, 1999.
RISKS AND UNCERTAINTIES
Based on its plans to make internal systems ready for Year 2000, to deal with
third party relationships, and to develop contingency action, the Company
believes that it will experience at most isolated and minor disruptions of
business processes following the turn of the century. Such disruptions are not
expected to have a material effect on the Company's future results of
operations, liquidity, or financial condition. However, due to the magnitude and
complexity of this project, risks and uncertainties exist and the Company is not
able to predict a most reasonably likely worst case scenario. If conversion of
the Company's internal systems is not completed on a timely basis (due to non-
performance by significant third party vendors, lack of qualified personnel to
perform the Year 2000 work, or other unforeseen circumstances in completing the
Company's plans), or if critical third parties fail to achieve Year 2000
readiness on a timely basis, the Year 2000 issue could have a material adverse
impact on the Company's operation following the turn of the century.
COSTS
Through December 31, 1998, the Company has incurred, and anticipates that it
will continue to incur, costs for internal staff, third-party vendors, and other
expenses to achieve Year 2000 readiness. The cost of activities related to Year
2000 readiness has not had a material adverse effect on the Company's results of
operations or financial condition. In addition, the Company has elected to
accelerate the planned replacement of certain systems as part of the Year 2000
plans. Costs of the replacement systems are being capitalized and amortized over
their useful lives, in accordance with the Company's normal accounting policies.
F-45
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
15. DIVISION OPERATIONS
15.1 NATURE OF OPERATIONS
The Company manages its business operation through two divisions, which are
based on products and services offered.
RETIREMENT SERVICES
The Retirement Services Division provides tax-deferred retirement annuities and
employer-sponsored retirement plans to employees of educational, health care,
public sector, and other not-for-profit organizations marketed nationwide
through exclusive sales representatives.
LIFE INSURANCE
The Life Insurance division provides traditional, interest-sensitive, and
variable life insurance and annuities to a broad spectrum of customers through
multiple distribution channels focused on specific market segments.
15.2 DIVISION RESULTS
Results of each division exclude goodwill amortization, net realized investment
gains, and non-recurring items.
Division earnings information was as follows:
<TABLE>
<CAPTION>
REVENUES INCOME BEFORE TAXES EARNINGS
------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------------------------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retirement Services $1,987 $1,859 $1,745 $ 469 $398 $343 $315 $261 $226
Life Insurance 870 822 774 162 147 141 107 97 92
------------------------------------------------------------------------------------------------------------
Total divisions 2,857 2,681 2,519 631 545 484 422 358 318
Goodwill
amortization - - - (2) (2) (2) (2) (2) (2)
RG (L) (34) 30 29 (34) 30 29 (22) 19 19
Nonrecurring items - - - (125)(a) - - (81)(a) - -
------------------------------------------------------------------------------------------------------------
Total consolidated $2,823 $2,711 $2,548 $ 470 $573 $511 $317 $375 $335
============================================================================================================
</TABLE>
(a) Includes $97 million pretax ($63 million after-tax) in litigation
settlements and $28 million pretax ($18 million after-tax) in Year 2000
costs.
F-46
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
15. DIVISION OPERATIONS (CONTINUED)
15.2 DIVISION RESULTS (CONTINUED)
Division balance sheet information was as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
-------------------------------------------------------------------
DECEMBER 31
-------------------------------------------------------------------
IN MILLIONS 1998 1997 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retirement Services $41,347 $35,195 $38,841 $33,136
Life Insurance 8,894 8,370 7,831 7,367
-------------------------------------------------------------------
Total consolidated $50,241 $43,565 $46,672 $40,503
===================================================================
</TABLE>
F-47
<PAGE>
INDEX OF WORDS AND PHRASES
This index should help you to locate more information about some of the
terms and phrases used in this prospectus.
<TABLE>
<CAPTION>
Page to See in Page to See in
Defined Term this Prospectus Defined Term this Prospectus
- ---------------- --------------- ------------ ---------------
<S> <C> <C> <C>
accumulation value 6 Option 1, 2 7
AGL 28 owner 21
amount at risk 8 partial surrender 17
automatic rebalancing 6 payment option 19
basis 31 planned periodic premium 11
beneficiary 35 Platinum Investor 3
cash surrender value 17 Platinum Investor I and II 3
close of business 38 Policy 1
Code 30 Policy anniversary 14
cost of insurance rates 38 Policy loan 18
daily charge 8 Policy month, year 39
date of issue 39 preferred loan interest 19
death benefit 7 premiums 5
declared fixed interest account option 1 premium payments 5
division 29 prospectus 1
dollar cost averaging 5 reinstate, reinstatement 12
Five year no-lapse guarantee 12 rider 15
Fund 2 SEC 2
full surrender 17 separate account 29
grace period 12 Separate Account VL-R 29
guarantee premiums 12 seven-pay test 30
Home Office 1 specified amount 7
insured person 7 Springfield Service Center 1
investment option 1 surrender 17
lapse 12 surrender charge 9
loan, loan interest 18 target 41
maturity, maturity date 19 telephone transactions 22
modified endowment contract 30 transfers 14
monthly deduction day 39 valuation date period 38
monthly guarantee premiums 12 you, your 21
Monthly insurance charge 8
Mutual Fund 2
</TABLE>
55
<PAGE>
We have filed a registration statement relating to Separate Account VL-R and
the Policy with the SEC. The registration statement, which is required by the
Securities Act of 1933, includes additional information that is not required in
this prospectus. If you would like the additional information, you may obtain it
from the SEC's Website at http://www.sec.gov or main office in Washington, D.C.
You will have to pay a fee for the material.
You should rely only on the information contained in this prospectus or sales
materials we have approved. We have not authorized anyone to provide you with
information that is different. The policies are not available in all states.
This prospectus is not an offer in any state to any person if the offer would be
unlawful.
56
<PAGE>
PART II
(OTHER INFORMATION)
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
American General Life Insurance Company's Bylaws provide in Article VII,
Section 1 for indemnification of directors, officers and employees of the
Company.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT COMPANY ACT OF
1940
American General Life Insurance Company hereby represents that the fees and
charges deducted under the Policy, in the aggregate, are reasonable in relation
to the services rendered, the expenses expected to be incurred, and risks
assumed by American General Life Insurance Company.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
The facing sheet.
Cross-Reference Table.
Prospectus, consisting of 56 pages of text, plus 9 financial pages of Separate
Account VL-R and 47 financial pages of American General Life Insurance
Company.
The undertaking to file reports.
The Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
The signatures.
Written Consents of the following persons:
Independent Auditors
The following exhibits:
1. Exhibits required by Article IX, paragraph A of Form N-8B-2:
(1)(a) Resolutions of Board of Directors of American General Life
Insurance Company authorizing the establishment of Separate
Account VL-R. (3)
(1)(b) Resolutions of Board of Directors of American General Life
Insurance Company authorizing the establishment of variable life
insurance standards of suitability and conduct. (1)
(2) Not applicable.
(3)(a) Amended and Restated Distribution Agreement between American
General Securities Incorporated and American General Life
Insurance Company effective October 15, 1998. (4)
(3)(b) Form of Selling Group Agreement. (6)
(3)(c) Schedule of Commissions (incorporated by reference from the text
included under the heading "Distribution of the Policies" in the
prospectus that is filed as part of this amended Registration
Statement).
(4) Not applicable.
(5)(a)(i) Specimen form of the "Platinum Investor I" Variable Universal
Life Insurance Policy (Policy Form No. 97600). (1)
(5)(a)(ii) Specimen form of the "Platinum Investor II" Variable
Universal Life Insurance Policy (Policy Form No. 97610). (1)
(6)(a) Amended and Restated Articles of Incorporation of American
General Life Insurance Company, effective December 31, 1991. (2)
II-2
<PAGE>
(6)(b) Bylaws of American General Life Insurance Company, adopted
January 22, 1992. (3)
(6)(c) Amendment to the Amended and Restated Articles of Incorporation
of American General Life Insurance Company, effective July 13,
1995 (5).
(7) Not applicable.
(8)(a)(i) Form of Participation Agreement by and Among AIM Variable
Insurance Funds, Inc., AIM Distributors, Inc., American General
Life Insurance Company, on Behalf of Itself and its Separate
Accounts, and American General Securities Incorporated. (6)
(8)(a)(ii) Amendment One to Participation Agreement by and among AIM
Variable Insurance Funds, Inc., A I M Distributors, Inc.,
American General Life Insurance Company, on Behalf of Itself and
its Separate Accounts, and American General Securities
Incorporated dated as of January 1, 1999. (8)
(8)(b)(i) Form of Participation Agreement by and between The Variable
Annuity Life Insurance Company and American General Life
Insurance Company. (6)
(8)(b)(ii) Amendment One to Participation Agreement by and between The
Variable Annuity Life Insurance Company and American General Life
Insurance Company dated as of July 21, 1998. (8)
(8)(c)(i) Form of Participation Agreement Between American General Life
Insurance Company and Dreyfus Variable Investment Fund, The
Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus Life
and Annuity Index Fund, Inc. (6)
(8)(c)(ii) Amendment One to Participation Agreement by and among American
General Life Insurance Company, Dreyfus Variable Investment Fund,
The Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus
Life and Annuity Index Fund, Inc. dated December 1, 1998. (8)
(8)(d)(i) Form of Participation Agreement Among MFS Variable Insurance
Trust, American General Life Insurance Company and Massachusetts
Financial Services Company. (6)
(8)(d)(ii) Amendment One to Participation Agreement by and among MFS
Variable Insurance Trust, American General Life Insurance Company
and Massachusetts Financial Services Company dated December 1,
1998 (8)
(8)(e)(i) Participation Agreement by and among American General Life
Insurance Company, American General Securities Incorporated,
Morgan Stanley Universal Funds, Inc., Morgan Stanley Asset
Management Inc., and Miller Anderson & Sherrerd LLP. (9)
II-3
<PAGE>
(8)(e)(ii) Amendment One to Participation Agreement by and among American
General Life Insurance Company, American General Securities
Incorporated, Morgan Stanley Universal Funds, Inc., Morgan
Stanley Asset Management Inc., and Miller Anderson & Sherrerd
LLP. (6)
(8)(e)(iii) Amendment Number Two to Participation Agreement Among Morgan
Stanley Dean Witter Universal Funds, Inc., Van Kampen
Distributors, Inc., Morgan Stanley Dean Witter Investment
Management Inc., Miller Anderson & Sherrerd, LLP, American
General Life Insurance Company, and American General Securities
Incorporated. (6)
(8)(e)(iv) Amendment Three to Participation Agreement by and among American
General Life Insurance Company, American General Securities
Incorporated, Morgan Stanley Universal Funds, Inc., Morgan
Stanley Asset Management Inc., and Miller Anderson & Sherrerd
LLP. (5)
(8)(e)(v) Amendment Four to Participation Agreement by and among American
General Life Insurance Company, American General Securities
Incorporated, Morgan Stanley Universal Funds, Inc., Morgan
Stanley Asset Management Inc., and Miller Anderson & Sherrerd
LLP. (8)
(8)(f) Form of Participation Agreement Among Putnam Variable Trust,
Putnam Mutual Funds Corp., and American General Life Insurance
Company. (6)
(8)(g)(i) Form of Participation Agreement Among American General Life
Insurance Company, American General Securities Incorporated,
SAFECO Resources Series Trust, and Safeco Securities, Inc. (6)
(8)(g)(ii) Amendment One by and among American General Life Insurance
Company, American General Securities Incorporated and SAFECO
Resources Series Trust dated as of December 1, 1998. (8)
(8)(h)(i) Amended and Restated Participation Agreement by and among
American General Life Insurance Company, American General
Securities Incorporated, Van Kampen American Capital Life
Investment Trust, Van Kampen American Capital Asset Management,
Inc., and Van Kampen American Capital Distributors, Inc. (9)
(8)(h)(ii) Amendment One to Amended and Restated Participation Agreement by
and among American General Life Insurance Company, American
General Securities Incorporated, Van Kampen American Capital Life
Investment Trust, Van Kampen American Capital Asset Management,
Inc., and Van Kampen American Capital Distributors, Inc. (8)
(8)(h)(iii) Form of Amendment Number Two to Amended and Restated
Participation Agreement among Van Kampen Life Investment Trust,
Van Kampen Distributors, Inc., Van Kampen Asset Management, Inc.,
American General Life Insurance Company, and American General
Securities Incorporated. (6)
II-4
<PAGE>
8(h)(iv) Amendment Three to Amended and Restated Participation Agreement
by and among American General Life Insurance Company, American
General Securities Incorporated, Van Kampen Life Investment
Trust, Van Kampen Asset Management, Inc., and Van Kampen
Distributors, Inc. (9)
(8)(i) Form of Administrative Services Agreement between AGL and fund
distributor. (5)
(8)(j) Form of Administrative Services Agreement between American
General Life Insurance Company, Miller Anderson & Sherrerd LLP
and Morgan Stanley Dean Witter Investment Management Inc. (8)
8(k) Form of Administrative Services Agreement between American
General Life Insurance Company and SAFECO Asset Management
Company. (8)
8(l) Form of Administrative Services Agreement between American
General Life Insurance Company and Van Kampen Asset Management
Inc. (8)
8(m) Form of services agreement dated July 31, 1975, (limited to
introduction and first two recitals, and sections 1-3) among
various affiliates of American General Corporation, including
American General Life Insurance Company and American General Life
Companies. (7)
8(n) Administrative Services Agreement dated as of June 1, 1998,
between American General Life Insurance Company and AIM Advisors,
Inc. (4)
8(o) Administrative Services Agreement dated as of August 11, 1998,
between American General Life Insurance Company and The Dreyfus
Corporation, as amended by that Amendment to Agreement dated as
effective as of December 1, 1998.(4)
(9) Not applicable
(10)(a) Specimen form of application for life insurance issued by AGL.(1)
(10)(b) Specimen form of supplemental application for variable life
insurance issued by AGL on Policy Form No. 97600 and Policy Form
No. 97610. (1)
(10)(c) Service Request Form for Home Office. (6)
(10)(d) Service Request Form for Springfield Service Center (filed
herewith).
Other Exhibits
2(a) Opinion and Consent of Steven A. Glover, Senior Counsel. (6)
2(b) Opinion and Consent of AGL's actuary. (6)
II-5
<PAGE>
3 Not applicable.
4 Not applicable.
5 Financial Data Schedule. (Not applicable.)
6 Consent of Independent Auditors. (Filed herewith)
7 Powers of Attorney (10)
27 Financial Data Schedule. (Inapplicable, because no financial
statements of the Separate Account are being filed herewith)
/1/ Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File No. 333-42567) of American General Life Insurance
Company Separate Account VL-R on December 18, 1997.
/2/ Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 33-43390) of Separate Account D of AGL on
October 16, 1991.
/3/ Incorporated herein by reference to the filing of Post-Effective Amendment
No. 1 of the Form N-4 Registration Statement (File No. 33-43390) of Separate
Account D of AGL on April 30, 1992.
/4/ Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 333-70667) of American General Life Insurance
Company Separate Account D on January 15, 1999.
/5/ Incorporated by reference to the filing of Pre-Effective Amendment No. 3 of
the Form S-6 Registration Statement (File No. 333-53909) of American General
Life Insurance Company Separate Account VL-R on August 19, 1998.
/6/ Incorporated by reference to the filing of Pre-Effective Amendment No. 1 of
the Form S-6 Registration Statement (File No. 333-42567) of American General
Life Insurance Company Separate Account VL-R on March 23, 1998.
/7/ Incorporated by reference to the filing of Pre-Effective Amendment No. 23
to the Form N-4 Registration Statement of American General Life Insurance
Company's Separate Account A (File No. 33-44745) on April 24, 1998.
/8/ Incorporated by reference to the filing of the Pre-Effective Amendment No. 1
to Form N-4 Registration Statement (File No. 333-70667) of American General Life
Insurance Company Separate Account D on March 18, 1999.
/9/ Incorporated by reference to Post-Effective Amendment No. 12 to Registrant's
Form N-4 Registration Statement (File No. 33-43390) filed on April 30, 1997.
/10/ Incorporated by reference to Post-Effective Amendment No. 1 to Registrant's
Form S-6 Registration Statement (File No. 333-42567) filed on February 22, 1999.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
American General Life Insurance Company Separate Account VL-R, certifies that it
meets all of the requirements for effectiveness of this amended registration
statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amended registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Houston, and State of Texas, on this 19th day of
April, 1999.
AMERICAN GENERAL LIFE INSURANCE
COMPANY
SEPARATE ACCOUNT VL-R
(Registrant)
BY: AMERICAN GENERAL LIFE INSURANCE
COMPANY
(On behalf of the Registrant and itself)
BY: /s/ ROBERT F. HERBERT, JR
----------------------------
Robert F. Herbert, Jr.
Senior Vice President
[SEAL]
ATTEST: BY /s/ PAULETTA P. COHN
-----------------------
Pauletta P. Cohn
Secretary
Pursuant to the requirements of the Securities Act of 1933, this amended
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ RONALD H. RIDLEHUBER* Principal Executive Officer and April 19, 1999
- ------------------------- Director
(Ronald H. Ridlehuber)
/s/ PHILIP K. POLKINGHORN* Principal Financial Officer and April 19, 1999
- ------------------------- Director
(Philip K. Polkinghorn)
/s/ ROBERT F. HERBERT, JR* Principal Accounting Officer and April 19, 1999
- ------------------------- Director
(Robert F. Herbert, Jr.)
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ DAVID A. FRAVEL* Director April 19, 1999
- -------------------------
(David A. Fravel)
/s/ ROYCE G. IMHOFF, II* Director April 19, 1999
- -------------------------
(Royce G. Imhoff, II)
/s/ JOHN V. LAGRASSE* Director April 19, 1999
- -------------------------
(John V. LaGrasse)
/s/ RODNEY O. MARTIN, JR*. Director April 19, 1999
- -------------------------
(Rodney O. Martin, Jr.)
/s/ JON P. NEWTON* Director April 19, 1999
- -------------------------
(Jon P. Newton)
/s/ GARY D. REDDICK* Director April 19, 1999
- -------------------------
(Gary D. Reddick)
/s/ ROBERT F. HERBERT, JR
- -------------------------
* By Robert F. Herbert, Jr.
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
The following exhibits:
1. Exhibits required by Article IX, paragraph A of Form N-8B-2:
(1)(a) Resolutions of Board of Directors of American General Life
Insurance Company authorizing the establishment of Separate
Account VL-R. (3)
(1)(b) Resolutions of Board of Directors of American General Life
Insurance Company authorizing the establishment of variable life
insurance standards of suitability and conduct. (1)
(2) Not applicable.
(3)(a) Amended and Restated Distribution Agreement between American
General Securities Incorporated and American General Life
Insurance Company effective October 15, 1998. (4)
(3)(b) Form of Selling Group Agreement. (6)
(3)(c) Schedule of Commissions (incorporated by reference from the text
included under the heading "Distribution of the Policies" in the
prospectus that is filed as part of this amended Registration
Statement).
(4) Not applicable.
(5)(a)(i) Specimen form of the "Platinum Investor I" Variable Universal
Life Insurance Policy (Policy Form No. 97600). (1)
(5)(a)(ii) Specimen form of the "Platinum Investor II" Variable Universal
Life Insurance Policy (Policy Form No. 97610). (1)
(6)(a) Amended and Restated Articles of Incorporation of American
General Life Insurance Company, effective December 31, 1991. (2)
(6)(b) Bylaws of American General Life Insurance Company, adopted
January 22, 1992. (3)
(6)(c) Amendment to the Amended and Restated Articles of Incorporation
of American General Life Insurance Company, effective July 13,
1995 (5).
(7) Not applicable.
(8)(a)(i) Form of Participation Agreement by and Among AIM Variable
Insurance Funds, Inc., AIM Distributors, Inc., American General
Life Insurance Company, on Behalf of Itself and its Separate
Accounts, and American General Securities Incorporated. (6)
E-1
<PAGE>
(8)(a)(ii) Amendment One to Participation Agreement by and among AIM
Variable Insurance Funds, Inc., A I M Distributors, Inc.,
American General Life Insurance Company, on Behalf of Itself and
its Separate Accounts, and American General Securities
Incorporated dated as of January 1, 1999. (8)
(8)(b)(i) Form of Participation Agreement by and between The Variable
Annuity Life Insurance Company and American General Life
Insurance Company. (6)
(8)(b)(ii) Amendment One to Participation Agreement by and between The
Variable Annuity Life Insurance Company and American General Life
Insurance Company dated as of July 21, 1998. (8)
(8)(c)(i) Form of Participation Agreement Between American General Life
Insurance Company and Dreyfus Variable Investment Fund, The
Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus Life
and Annuity Index Fund, Inc. (6)
(8)(c)(ii) Amendment One to Participation Agreement by and among American
General Life Insurance Company, Dreyfus Variable Investment Fund,
The Dreyfus Socially Responsible Growth Fund, Inc. and Dreyfus
Life and Annuity Index Fund, Inc. dated December 1, 1998. (8)
(8)(d)(i) Form of Participation Agreement Among MFS Variable Insurance
Trust, American General Life Insurance Company and Massachusetts
Financial Services Company. (6)
(8)(d)(ii) Amendment One to Participation Agreement by and among MFS
Variable Insurance Trust, American General Life Insurance Company
and Massachusetts Financial Services Company dated December 1,
1998 (8)
(8)(e)(i) Participation Agreement by and among American General Life
Insurance Company, American General Securities Incorporated,
Morgan Stanley Universal Funds, Inc., Morgan Stanley Asset
Management Inc., and Miller Anderson & Sherrerd LLP. (9)
(8)(e)(ii) Amendment One to Participation Agreement by and among American
General Life Insurance Company, American General Securities
Incorporated, Morgan Stanley Universal Funds, Inc., Morgan
Stanley Asset Management Inc., and Miller Anderson & Sherrerd
LLP. (6)
(8)(e)(iii) Amendment Number Two to Participation Agreement Among Morgan
Stanley Dean Witter Universal Funds, Inc., Van Kampen
Distributors, Inc., Morgan Stanley Dean Witter Investment
Management Inc., Miller Anderson & Sherrerd, LLP, American
General Life Insurance Company, and American General Securities
Incorporated. (6)
E-2
<PAGE>
(8)(e)(iv) Amendment Three to Participation Agreement by and among American
General Life Insurance Company, American General Securities
Incorporated, Morgan Stanley Universal Funds, Inc., Morgan
Stanley Asset Management Inc., and Miller Anderson & Sherrerd
LLP. (5)
(8)(e)(v) Amendment Four to Participation Agreement by and among American
General Life Insurance Company, American General Securities
Incorporated, Morgan Stanly Universal Funds, Inc., Morgan Stanley
Asset Management Inc., and Miller Anderson & Sherrerd LLP. (8)
(8)(f) Form of Participation Agreement Among Putnam Variable Trust,
Putnam Mutual Funds Corp., and American General Life Insurance
Company. (6)
(8)(g)(i) Form of Participation Agreement Among American General Life
Insurance Company, American General Securities Incorporated,
SAFECO Resources Series Trust, and Safeco Securities, Inc. (6)
(8)(g)(ii) Amendment One by and among American General Life Insurance
Company, American General Securities Incorporated and SAFECO
Resources Series Trust dated as of December 1, 1998. (8)
(8)(h)(i) Amended and Restated Participation Agreement by and among
American General Life Insurance Company, American General
Securities Incorporated, Van Kampen American Capital Life
Investment Trust, Van Kampen American Capital Asset Management,
Inc., and Van Kampen American Capital Distributors, Inc. (9)
(8)(h)(ii) Amendment One to Amended and Restated Participation Agreement by
and among American General Life Insurance Company, American
General Securities Incorporated, Van Kampen American Capital Life
Investment Trust, Van Kampen American Capital Asset Management,
Inc., and Van Kampen American Capital Distributors, Inc. (8)
(8)(h)(iii) Form of Amendment Number 2 to Amended and Restated Participation
Agreement among Van Kampen Life Investment Trust, Van Kampen
Distributors, Inc., Van Kampen Asset Management, Inc., American
General Life Insurance Company, and American General Securities
Incorporated. (6)
8(h)(iv) Amendment Three to Amended and Restated Participation Agreement
by and among American General Life Insurance Company, American
General Securities Incorporated, Van Kampen Life Investment
Trust, Van Kampen Asset Management, Inc., and Van Kampen
Distributors, Inc. (9)
(8)(i) Form of Administrative Services Agreement between AGL and fund
distributor. (5)
(8)(j) Form of Administrative Services Agreement between American
General Life Insurance Company, Miller Anderson & Sherrerd LLP
and Morgan Stanley Dean Witter Investment Management Inc. (8)
E-3
<PAGE>
8(k) Form of Administrative Services Agreement between American
General Life Insurance Company and SAFECO Asset Management
Company. (8)
8(l) Form of Administrative Services Agreement between American
General Life Insurance Company and Van Kampen Asset Management
Inc. (8)
8(m) Form of services agreement dated July 31, 1975, (limited to
introduction and first two recitals, and sections 1-3) among
various affiliates of American General Corporation, including
American General Life Insurance Company and American General Life
Companies. (7)
8(n) Administrative Services Agreement dated as of June 1, 1998,
between American General Life Insurance Company and AIM Advisors,
Inc. (4)
8(o) Administrative Services Agreement dated as of August 11, 1998,
between American General Life Insurance Company and The Dreyfus
Corporation, as amended by that Amendment to Agreement dated as
effective as of December 1, 1998. (4)
(9) Not applicable
(10)(a) Specimen form of application for life insurance issued by AGL.(1)
(10)(b) Specimen form of supplemental application for variable life
insurance issued by AGL on Policy Form No. 97600 and Policy Form
No. 97610. (1)
(10)(c) Service Request Form for Home Office. (6)
(10)(d) Service Request Form for Springfield Service Center (filed
herewith).
Other Exhibits
2(a) Opinion and Consent of Steven A. Glover, Senior Counsel. (6)
2(b) Opinion and Consent of AGL's actuary. (6)
3 Not applicable.
4 Not applicable.
5 Financial Data Schedule. (Not applicable.)
6 Consent of Independent Auditors. (Filed herewith)
7 Powers of Attorney (10)
27 Financial Data Schedule. (Inapplicable, because no financial
statements of the Separate Account are being filed herewith)
E-4
<PAGE>
/1/ Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File No. 333-42567) of American General Life Insurance
Company Separate Account VL-R on December 18, 1997.
/2/ Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 33-43390) of Separate Account D of AGL on
October 16, 1991.
/3/ Incorporated herein by reference to the filing of Post-Effective Amendment
No. 1 of the Form N-4 Registration Statement (File No. 33-43390) of Separate
Account D of AGL on April 30, 1992.
/4/ Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 333-70667) of American General Life Insurance
Company Separate Account D on January 15, 1999.
/5/ Incorporated by reference to the filing of Pre-Effective Amendment No. 3 of
the Form S-6 Registration Statement (File No. 333-53909) of American General
Life Insurance Company Separate Account VL-R on August 19, 1998.
/6/ Incorporated by reference to the filing of Pre-Effective Amendment No. 1 of
the Form S-6 Registration Statement (File No. 333-42567) of American General
Life Insurance Company Separate Account VL-R on March 23, 1998.
/7/ Incorporated by reference to the filing of Pre-Effective Amendment No. 23
to the Form N-4 Registration Statement of American General Life Insurance
Company's Separate Account A (File No. 33-44745) on April 24, 1998.
/8/ Incorporated by reference to the filing of the Pre-Effective Amendment No. 1
to Form N-4 Registration Statement (File No. 333-70667) of American General Life
Insurance Company Separate Account D on March 18, 1999.
/9/ Incorporated by reference to Post-Effective Amendment No. 12 to Registrant's
Form N-4 Registration Statement (File No. 33-43390) filed on April 30, 1997.
/10/ Incorporated by reference to Post-Effective Amendment No. 1 to Registrant's
Form S-6 Registration Statement (File No. 333-42567) filed on February 22, 1999.
E-5
<PAGE>
EXHIBIT 10(d)
SERVICE REQUEST
P L A T I N U M
INVESTOR
AMERICAN GENERAL LIFE
- ------------------------------------------------------------------------------
PLATINUM INVESTOR--VARIABLE DIVISIONS
AIM Variable Insurance Funds, Inc.
- ----------------------------------
. Division 126 - AIM V.I. International Equity
. Division 127 - AIM V.I. Value
American General Series Portfolio Company
- ----------------------------------------
. Division 128 - International Equities
. Division 129 - MidCap Index
. Division 130 - Money Market
. Division 131 - Stock Index
Dreyfus Variable Investment Fund
- --------------------------------
. Division 132 - Quality Bond
. Division 133 - Small Cap
MFS Variable Insurance Trust
- ----------------------------
. Division 134 - MFS Emerging Growth
Morgan Stanley Dean Witter Universal Funds, Inc.
- ------------------------------------------------
. Division 135 - Equity Growth
. Division 136 - High Yield
Putnam Variable Trust
- ---------------------
. Division 137 - Putnam VT Diversified Income
. Division 138 - Putnam VT Growth and Income
. Division 139 - Putnam VT Int'l Growth and Income
SAFECO Resources Series Trust
- -----------------------------
. Division 140 - Equity
. Division 141 - Growth
Van Kampen Life Investment Trust
- --------------------------------
. Division 142 - Strategic Stock
PLATINUM INVESTOR--FIXED DIVISION
. Division 125 - Declared Fixed Interest Account
<PAGE>
<TABLE>
<CAPTION>
AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL")
Complete and return this request to: ---------------------------------------------
Springfield Service Center A Subsidiary of American General Corporation
Variable Universal Life Administration ---------------------------------------------
PO Box 19520 Springfield, IL 62794-9520 Houston, Texas
(800) 528-2011 or (217) 528-2011
Fax: (217) 528-2404 VARIABLE UNIVERSAL LIFE INSURANCE SERVICE REQUEST
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<S> <C> <C>
[ ] POLICY 1.| POLICY #:___________________________________________________ INSURED:_________________________________
IDENTIFICATION |
| ADDRESS:________________________________________________________________________ New Address (yes)(no)
COMPLETE THIS SECTION |
FOR ALL REQUESTS. | Primary Owner (If other than insured):__________________________________________
|
| Address:________________________________________________________________________ New Address (yes)(no)
|
| Primary Owner's S.S. No. or Tax I.D. No._____________________________ Phone Number: ( )____ - ______
|
| Joint Owner (If applicable):____________________________________________________
|
| Address:________________________________________________________________________ New Address (yes)(no)
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[ ] NAME 2.|
CHANGE | Change Name Of: (Circle One) Insured Owner Payor Beneficiary
|
Complete this section if | Change Name From: (First, Middle, Last) Change Name To: (First, Middle, Last)
the name of the Insured, |
Owner, Payor or Beneficiary| _________________________________________ _________________________________________________
has changed. (Please note,|
this does not change the |
Insured, Owner, Payor or | Reason for Change: (Circle One) Marriage Divorce Correction Other (Attach copy of legal proof)
Beneficiary designation) |
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[ ] MODE OF PREMIUM 3.|
PAYMENT/BILLING | Indicate frequency and premium amount desired: $______ Annual $______ Semi-Annual $_______ Quarterly
METHOD CHANGE |
| $______ Monthly (Bank Draft Only)
Use this section to change |
the billing frequence and/ | Indicate billing method desired:_____ Direct Bill ______ Pre-Authorized Bank Draft (attach a Bank Draft
or method of premium pay- | Authorization Form and "Void" Check)
ment. Note, however, that |
AGL will not bill you on a | Start Date: ______/______/_____
direct monthly basis. Refer|
to your policy and its |
related prospectus for |
further information |
concerning minimum premiums|
and billing options. |
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[ ] LOST POLICY 4.|
CERTIFICATE | I/we hereby certify that the policy of insurance for the listed policy has been ____LOST_____DESTROYED
| _____OTHER.
Complete this section if | Unless I/we have directed cancellation of the policy, I/we request that a:
applying for a Certificate |
of Insurance or duplicate | _________ Certificate of Insurance at no charge
policy to replace a lost or|
misplaced policy. If a full| _________ Full duplicate policy at a charge of $25
duplicate policy is being |
requested, a check or money| be issued to me/us. If the original policy is located, I/we will return the Certificate or duplicate
order for $25 payable to | policy to AGL for cancellation.
AGL must be submitted with|
this request. |
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[ ] DOLLAR COST 5.| Designate the day of the month for transfers:_________(choose a day from 1-28)
AVERAGING |
($5,000 minimum initial | Frequency of transfers (check one): _______Monthly _______Quarterly ______Semi-Annually _____Annually
accumulation value) An |
amount may be deducted | I want: $___________($100 minimum) taken from the Money Market Division and transferred to the
periodically from the | following Divisions:
Money Market Division and |
placed in one or more of | AIM Variable Insurance Funds, Inc. Morgan Stanley Dean Witter Universal Funds, Inc.
the Divisions listed. The | $_________(126) AIM V.I. International Equity $________(135) Equity Growth
Declared Fixed Interest | $_________(127) AIM V.I. Value $________(136) High Yield
Account is not available | American General Series Portfolio Company Putnam Variable Trust
for Dollar Cost Averaging.| $_________(128) International Equities $________(137) Putnam VT Diversified Income
Please refer to the pros- | $_________(129) MidCap Index $________(138) Putnam VT Growth and Income
pectus for more infor- | $_________(131) Stock Index $________(139) Putnam VT Int'l Growth & Income
mation on the Dollar Cost | Dreyfus Variable Investment Fund SAFECO Resource Series Trust
Averaging Option. | $_________(132) Quality Bond $________(140) Equity
| $_________(133) Small Cap $________(141) Growth
| MFS Variable Insurance Trust Van Kampen Life Investment Trust
| $_________(134) MFS Emerging Growth $________(142) Strategic Stock
|
| ________INITIAL HERE TO REVOKE DOLLAR COST AVERAGING ELECTION.
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PAGE 2 OF 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
[ ] TELEPHONE 6.| I/we if Joint Owners) hereby authorize AGL to act on telephone instructions to transfer values among
PRIVILEGE | the Variable Divisions and Declared Fixed Interest Account and to change allocations for future
AUTHORIZATION | purchase payments and monthly deductions.
|
Complete this section if | Initial the designation you prefer:
you are applying for or |
revoking current telephone| __________Policy Owner(s) only--If Joint Owners, either one acting independently.
privileges. | __________Policy Owner(s) and Agent/Registered Representative who is appointed to represent AGL and the
| firm authorized to service my policy.
|
| AGL and any person designated by this authorization will not be responsible for any claim, loss or
| expense based upon telephone transfer or allocation instructions received and acted upon in good faith,
| including losses due to telephone instruction communication errors. AGL's liability for erroneous
| transfers or allocations, unless clearly contrary to instructions received, will be limited to
| correction of the allocations on a current basis. If an error, objection or other claim arises due to a
| telephone transaction, I will notify AGL in writing within five working days from the receipt of the
| confirmation of the transaction from AGL. I understand that this authorization is subject to the terms
| and provisions of my policy and its related prospectus. This authorization will remain in effect until
| my written notice of its revocation is received by AGL at the address printed on the top of this
| service request form.
|
|___________INITIAL HERE TO REVOKE TELEPHONE PRIVILEGE AUTHORIZATION.
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] CORRECT AGE 7.|
| Name of Insured for whom this correction is submitted:___________________________________
|
Use this section to correct| Correct DOB: ________/________/________
the age of any person |
covered under this policy. |
Proof of the correct date |
of birth must accompany |
this request. |
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] TRANSFER OF 8.| (Division Name or Number) (Division Name or Number)
ACCUMULATED VALUES |
|
| Transfer $________ or %_______ from_______________________________to__________________________________
Use this section if you |
want to move money between | Transfer $________ or %_______ from_______________________________to__________________________________
divisions. Withdrawals |
from the Declared Fixed | Transfer $________ or %_______ from_______________________________to__________________________________
Interest Account are |
limited to 60 days after | Transfer $________ or %_______ from_______________________________to__________________________________
the policy anniversary and |
to no more than 25% of the | Transfer $________ or %_______ from_______________________________to__________________________________
total unloaned value of |
the Declared Fixed | Transfer $________ or %_______ from_______________________________to__________________________________
Interest Account on the |
policy anniversary. If a | Transfer $________ or %_______ from_______________________________to__________________________________
transfer causes the |
balance in any division to | Transfer $________ or %_______ from_______________________________to__________________________________
drop below $500, AGL |
reserves the right to | Transfer $________ or %_______ from_______________________________to_________________________________
transfer the remaining |
balance. | Transfer $________ or %_______ from_______________________________to__________________________________
Amounts to be transferred |
should be indicated in | Transfer $________ or %_______ from_______________________________to__________________________________
dollar or percentage |
amounts, maintaining | Transfer $________ or %_______ from_______________________________to__________________________________
consistency throughout. |
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] CHANGE IN 9.| INVESTMENT DIVISION PREM % DED % INVESTMENT DIVISION PREM % DED %
ALLOCATION |
PERCENTAGES | (125) Declared Fixed Interest Account ______ ______ Morgan Stanley Dean Witter
| Universal Funds, Inc.
Use this section to | AIM Variable Insurance Funds, Inc. (135) Equity Growth ______ ______
indicate how premiums or | (126) AIM V.I. Int'l Equity ______ ______ (136) High Yield ______ ______
monthly deductions are to | (127) AIM V.I. Value ______ ______
be allocated. Total | Putnam Variable Trust
allocation in each | (137) Putnam VT Diversified
column must equal 100%; | American General Series Portfolio Co. Income ______ ______
whole numbers only | (128) International Equities ______ ______ (138) Putnam VT Growth &
| (129) MidCap Index ______ ______ Income ______ ______
| (130) Money Market ______ ______ (139) Putnam VT Int'l
| (131) Stock Index ______ ______ Growth & Income ______ ______
| Dreyfus Variable Investment Fund
| (132) Quality Bond ______ ______ SAFECO Resources Series Trust
| (133) Small Cap ______ ______ (140) Equity ______ ______
| (141) Growth ______ ______
| MFS Variable Insurance Trust
| (134) MFS Emerging Growth ______ ______ Van Kampen Life Investment
| Trust
| (142) Strategic Stock ______ ______
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE 3 OF 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> |<C> <C>
[ ] AUTOMATIC 10.| Indicate frequency: _______ Quarterly ______ Semi-Annually ______ Annually
REBALANCING | (Division Name or Number) (Division Name or Number)
|
($5,000 minimum | %_________:________________________________________ %_________:____________________________________
accumulation value) Use |
this section to apply for | %_________:________________________________________ %_________:____________________________________
or make changes to |
Automatic Rebalancing of | %_________:________________________________________ %_________:____________________________________
the variable divisions. |
Please refer to the | %_________:________________________________________ %_________:____________________________________
prospectus for more |
information on the | %_________:________________________________________ %_________:____________________________________
Automatic Rebalancing |
Option. This option is not | %_________:________________________________________ %_________:____________________________________
available while the Dollar |
Cost Averaging Option is |
in use. | _________INITIAL HERE TO REVOKE AUTOMATIC REBALANCING ELECTION.
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] REQUEST FOR 11.| _________I request a partial surrender of $_________ or %_________ of the net cash surrender value.
PARTIAL |
SURRENDER/ | _________I request a loan in the amount of $________.
POLICY LOAN |
| _________I request the maximum loan amount available from my policy.
Use this section to apply |
for a partial surrender | Unless you direct otherwise below, proceeds are allocated according to the deduction allocation
from or policy loan against| percentages in effect, if available; otherwise they are taken pro-rata from the Declared Fixed Interest
policy values. For detailed| Account and Variable Divisions in use.
information concerning |
these two options please | ______________________________________________________________________________________________________
refer to your policy and |
its related prospectus. If | ______________________________________________________________________________________________________
applying for a partial |
surrender, be sure to | ______________________________________________________________________________________________________
complete the Notice of |
Withholding section of this| ______________________________________________________________________________________________________
Service Request in addition|
to this section. |
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] NOTICE OF 12.| The taxable portion of the distribution you receive from your variable universal life insurance policy
WITHHOLDING | is subject to federal income tax withholding unless you elect not to have withholding apply.
| Withholding of state income tax may also be required by your state of residence. You may elect not to
Complete this section if | have withholding apply by checking the appropriate box below. If you elect not to have withholding
you have applied for a | apply to your distribution or if you do not have enough income tax withheld, you may be responsible for
partial surrender in | payment of estimated tax. You may incur penalties under the estimated tax rules, if your withholding
Section 11. | and estimated tax are not sufficient.
|
| Check one: _______ I do want income tax withheld from this distribution.
|
| _______ I do not want income tax withheld from this distribution.
|
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] AFFIRMATION/ 13.| CERTIFICATION: Under penalties of perjury, I certify: (1) that the number shown on this form is my
SIGNATURE | correct taxpayer identification number and; (2) that I am not subject to backup withholding under
| Section 3406(a)(1)(C) of the Internal Revenue Code. The Internal Revenue Service does not require your
Complete this section for | consent to any provision of this document other than the certification required to avoid backup
ALL requests. | withholding.
|
| Dated at __________________________________ this _________ day of ________________________, 19________.
|
|
| X_________________________________________________ X_____________________________________________
| SIGNATURE OF OWNER SIGNATURE OF WITNESS
|
| X_________________________________________________ X_____________________________________________
| SIGNATURE OF JOINT OWNER SIGNATURE OF WITNESS
|
| X_________________________________________________ X_____________________________________________
| SIGNATURE OF ASSIGNEE SIGNATURE OF WITNESS
|
|
|
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PAGE 4 OF 4
</TABLE>
<PAGE>
OTHER EXHIBITS - EXHIBIT 6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" and to the use of our report dated February 10, 1999, as to the
Platinum Investor Divisions of American General Life Insurance Company Separate
Account VL-R, and February 16, 1999, as to American General Life Insurance
Company, in Post-Effective Amendment No. 2 to the Registration Statement (Form
S-6 No. 333-42567) of American General Life Insurance Company Separate Account
VL-R.
/s/ ERNST & YOUNG LLP
----------------------
Ernst & Young LLP
Houston, Texas
April 20, 1999
