<PAGE>
Registration No. 333-87307
As filed with the Securities and Exchange Commission on October 10, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-6
FOR REGISTRATION 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.
Deputy General Counsel
American General Life Companies
2929 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 October 23, 2000
pursuant to paragraph (b) of Rule 485.
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)
CROSS REFERENCE SHEET
ITEM NO. OF FORM N-8B-2* PROSPECTUS CAPTION
--------------------------------------------------------------------------------
1 Additional Information: Separate Account VL-R.
2 Additional Information: AGL.
3 Inapplicable.
4 Additional Information: Distribution of
Policies.
5, 6 Additional Information: Separate Account VL-R.
7 Inapplicable.**
8 Inapplicable.**
9 Additional Information: Legal Matters.
10(a) Additional Information: Your Beneficiary,
Assigning Your Policy.
10(b) Basic Questions You May Have: How will the
value of my investment in a Policy change
over time?
10(c)(d) Basic Questions You May Have: How can I change
my Policy's insurance coverage? How can I
access my investment in a Policy? Can I choose
the form in which AGL pays out any proceeds
from my Policy? Additional Information:
Payment of Policy Proceeds.
10(e) Basic Questions You May Have: Must I invest any
minimum amount in a policy?
10(f) Additional Information: Voting Privileges.
10(g)(1), 10(g)(4),
10(h)(3), 10(h)(2) Basic Questions You May Have: To what extent
will AGL vary the terms and conditions of the
Policies in particular cases? Additional
Information: Voting Privileges; Additional
Rights That We Have.
10(g)(3), 10(g)(4),
10(h)(3), 10(h)(4) Inapplicable.**
10(i) Additional Information: Separate Account VL-R;
Tax Effects.
11 Basic Questions You May Have: How will the
value of my investment in a Policy change
over time? Additional Information: Separate
Account VL-R.
12(a) Additional Information: Separate Account VL-R;
Front Cover.
12(b) Inapplicable.**
12(c), 12(d) Inapplicable.**
12(e) Inapplicable, because the Separate Account did
not commence operations until 1998.
13(a) Basic Questions You May Have: What charges will
AGL deduct from my investment in a Policy?
What charges and expenses will the Mutual
Funds from the amounts 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
Policy in particular cases?
13(e), 13(f), 13(g) None.
<PAGE>
14 Basic Questions You May Have: How can I invest
money in a Policy?
15 Basic Questions You May Have: How can I invest
money in a Policy? How do I communicate with
AGL?
16 Basic Questions You May Have: How will the
value of my investment in a Policy change over
time?
ITEM NO. ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
17(a), 17(b) Captions referenced under Items 10(c), 10(d),
and 10(e).
17(c) Inapplicable.**
18(a) Captions referred to under Item 16.
18(b), 18(d) Inapplicable.**
18(c) Additional Information: Separate Account VL-R.
19 Additional Information: Separate Account VL-R;
Our Reports to Policy Owners.
20(a), 20(b), 20(c), 20(d),
20(e), 20(f) Inapplicable.**
21(a), 21(b) Basic Questions You May Have: How can I access
my investment in a Policy? Additional
Information: Payment of Policy Proceeds.
21(c) Inapplicable.**
22 Additional Information: Payment of Policy
Proceeds-Delay to Challenge Coverage.
23 Inapplicable.**
24 Basic Questions You May Have; Additional
Information.
25 Additional Information: AGL.
26 Inapplicable, because the Separate Account did
not commence operations until 1998.
27 Additional Information: AGL.
28 Additional Information: AGL's Management.
29 Additional Information: AGL.
30, 31, 32, 33, 34 Inapplicable, because the Separate Account did
not commence operations until 1998.
35 Inapplicable.**
36 Inapplicable.**
37 None.
38, 39 Additional Information: Distribution of the
Policies.
40 Inapplicable, because the Separate Account did
not commence operations until 1998.
41(a) Additional Information: Distribution of the
Policies.
41(b), 41(c) Inapplicable**
41,43 Inapplicable, because the Separate Account did
not commence operations or issue any
securities until 1998.
44(a)(1), 44(a)(2), 44(a)(3) Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
44(a)(4) Additional Information: Tax Effects--Our taxes.
44(a)(5), 44(a)(6) Basic Questions You May Have: What charges will
AGL deduct from my investment in a Policy?
44(b) Inapplicable.**
44(c) Caption referenced in 13(d) above.
<PAGE>
45 Inapplicable, because the Separate Account did
not commence operations until 1998.
46(a) Captions referenced in 44(a) above.
46(b) Inapplicable.**
47, 48, 49 None.
50 Inapplicable.**
51 Inapplicable.**
52(a), 52(c) Basic Questions You May Have: To what extent can
AGL vary the terms and conditions of the
Policy in particular cases? Additional
Information: Additional Rights That We Have.
52(b), 52(d) None.
53(a) Additional Information: Tax Effects--Our taxes.
53(b), 54 Inapplicable.**
55 Illustrations of Hypothetical Policy Benefits.
56-59 Inapplicable.**
* Registrant includes this Reconciliation and Tie in its Registration
Statement in compliance with Instruction 4 as to the Prospectus as set out
in Form S-6. Separate Account VL-R (Account) has previously filed a notice
of registration as an investment company on Form N-8A under the Investment
Company Act of 1940 (Act), and a Form N-8B-2 Registration Statement.
Pursuant to Sections 8 and 30(b)(1) of the Act, Rule 30a-1 under the Act,
and Forms N-8B-2 and N-SAR under that Act, the Account will keep its Form
N-8B-2 Registration Statement current through the filing of periodic
reports required by the Securities and Exchange Commission (Commission).
** Not required pursuant to either Instruction 1(a) as to the Prospectus as
set out in Form S-6 or the administrative practice of the Commission and
its staff of adapting the disclosure requirements of the Commission's
registration statement forms in recognition of the differences between
variable life insurance policies and other periodic payment plan
certificates issued by investment companies and between separate accounts
organized as management companies and unit investment trusts.
<PAGE>
THE ONE(R)VUL SOLUTION(SM)
Contract Prospectus
Variable Universal Life
October 23, 2000
Issued by American General Life Insurance Company
The One VUL Solution is not a deposit or obligation of, or
guaranteed or endorsed by Bank One Corporation or any
of its affiliates or correspondents or any other agency. The
One VUL Solution is not insured by the FDIC or any other
agency. The One VUL Solution is subject to investment
risks and possible loss of the principal invested.
<PAGE>
THE ONE(R) VUL SOLUTION(SM)
Flexible Premium Variable Life Insurance Policy (the "Policy") Issued by
American General Life Insurance Company ("AGL")
HOME OFFICE:
(Express Delivery) (US Mail)
2727-A Allen Parkway Variable Universal Life
Houston, Texas 77019-2191 Administration
PHONE: 1-888-436-5255 P.O. Box 4880
or: 1-713-831-3443 Houston, Texas 77210-4880
or: 1-888- 436-5258 (hearing impaired)
FAX: 1-877-445-3098
This booklet is called the "prospectus."
Investment options. You may use AGL's Separate Account VL-R ("Separate
Account") to invest in the following variable investment options and change your
selections from time to time:
<TABLE>
<S> <C> <C>
-------------------------------------------------------------------------------------------------------------------------------
AIM Variable Insurance Funds Franklin Templeton Variable Kemper Variable Series
Insurance Products Trust
. AIM V.I. Capital Appreciation . Franklin Small Cap Fund . Kemper International Portfolio
Fund - Class 2/1/ . Kemper Small Cap Value
. AIM V.I. International Equity . Templeton Developing portfolio
Fund Markets Securities Fund
- Class 2/2/
. AIM V.I. Government Securities
Fund
. AIM V.I. High Yield Fund
A I M Advisors, Inc.* /1/ Franklin Advisers Inc.* Scudder Kemper Investments, Inc.*
/2/ Templeton Asset Management,
Ltd.*
-------------------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust North American Funds One Group(R) Investment Trust
Variable Product Series I
. Growth With Income Series . Money Market Fund . One Group Investment Trust
Equity Index Portfolio
. One Group Investment Trust
Mid Cap Growth Portfolio
. One Group Investment Trust
Large Cap Growth
Portfolio
. One Group Investment Trust
Government Bond
Portfolio
. One Group Investment Trust
Diversified Equity
Portfolio
Massachusetts Financial Services American General Advisers*
Company* Banc One Investment Advisors
Corporation*
-------------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Putnam Variable Trust - Van Kampen Life Investment
Funds Class IB Shares Trust
. Oppenheimer High Income . Putnam VT Vista Fund . Emerging Growth Portfolio
Fund/VA
OppenheimerFunds, Inc.* Putnam Investment Management, Van Kampen Asset Management
Inc.* Inc.*
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The Investment Adviser of the investment option
<PAGE>
Separate prospectuses contain more information about the mutual funds ("Funds"
or "Mutual Funds") in which we invest the accumulation value that you allocate
to any of the above-listed investment options. The formal name of each such Fund
is set forth in the chart that appears 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 our Home Office
listed on page 1.
Other choices you have. During the insured person's lifetime, you may,
within limits: (1) request an increase in the amount of insurance, (2) borrow or
withdraw amounts you have invested, (3) choose when and how much you invest, and
(4) choose whether your accumulation value under your Policy, upon the insured
person's death, will be added to the insurance proceeds we otherwise will pay to
the beneficiary.
Charges and expenses. We deduct charges and expenses from the amounts
you invest. These are described beginning on page 7.
Right to return. If for any reason you are not satisfied with your
Policy, you may return it to us and we will refund you the greater of (i) any
premium payments received by us or (ii) your accumulation value plus any charges
that have been deducted. To exercise your right to return your Policy, you must
mail it directly to the Home Office address shown on the first page of this
prospectus or return it to the AGL representative through whom you purchased the
Policy within 10 days after you receive it. In a few states, this period may be
longer. Because you have this right, we will invest your initial net 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 available
investment options in the ratios you have chosen. Any additional premium we
receive during the 15-day period will also be invested in the money market
division and allocated to the investment options at the same time as your
initial net premium.
We have designed this prospectus to provide you with information that
you should have before investing in the Policies. It also contains information
that will be helpful to you in exercising the various options you will have once
you own a Policy. Please read the prospectus carefully and keep it for future
reference.
Neither the Securities and Exchange Commission ("SEC") nor 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 deposits or obligations of, or guaranteed or
endorsed by Bank One Corporation or any of its affiliates or correspondents or
any other agency. The Policies are not insured by the FDIC or any other agency.
They are subject to investment risks and possible loss of principal invested.
This prospectus is dated October 23, 2000.
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you
purchase The One VUL Solution policy ("Policy") or exercise any of your rights
or privileges under a Policy.
Basic Information. Here are the page numbers in this prospectus where you
may find answers to most of your questions:
<TABLE>
<CAPTION>
Page to
see in this
Prospectus
----------
Basic Questions You May Have
-----------------------------
<S> <C>
. How can I invest money in a Policy?......................................................... 4
. How will the value of my investment in a Policy change over time?........................... 5
. What is the basic amount of insurance ("death benefit")
that AGL pays when the insured person dies?................................................. 6
. What charges will AGL deduct from my investment in a Policy?................................ 7
. What charges and expenses will the Mutual Funds deduct from
amounts I invest through my Policy?......................................................... 9
. Must I invest any minimum amount in a Policy?............................................... 12
. How can I change my Policy's investment options?............................................ 12
. How can I change my Policy's insurance coverage?............................................ 13
. What additional rider benefits might I select?.............................................. 13
. How can I access my investment in a Policy?................................................. 14
. Can I choose the form in which AGL pays out proceeds from my Policy?........................ 16
. To what extent can AGL vary the terms and conditions of the Policy
in particular cases?........................................................................ 17
. How will my Policy be treated for income tax purposes?...................................... 18
. How do I communicate with AGL?.............................................................. 18
</TABLE>
Illustrations of a hypothetical Policy. Starting on page 20, 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.
Underwriting. We will issue the Policy using either simplified underwriting
or full underwriting based on our established guidelines. See the discussion
regarding our underwriting process on page 17.
Additional information. You may find the answers to any other questions you
have under "Additional Information" beginning on page 26 or in our Policy. A
table of contents for the "Additional Information" portion of this prospectus
also appears on page 26. You can
3
<PAGE>
obtain copies of our form of Policy from (and direct any other questions to)
your AGL representative or our Home Office (shown on the first page of this
prospectus).
Financial statements. We have included certain financial statements of
AGL. These begin on page Q-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 back of this prospectus. That index will
tell you on what page you can read more about many of the words and phrases that
we use.
BASIC QUESTIONS YOU MAY HAVE
How can I invest money in a Policy?
Premium payments. We call the investments you make in a Policy "premiums"
or "premium payments." The amount we require as your initial premium varies
depending on the specifics of your Policy and the insured person. We can refuse
to accept a subsequent premium payment that is less than $50. Otherwise, with a
few exceptions mentioned below, you can make premium payments at any time and in
any amount. Premium payments we receive after your right to return expires, as
discussed on page 2, will be allocated upon receipt to the available investment
options you have chosen.
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. 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
limited circumstances (if your Policy is determined to be a "modified endowment
contract" or if additional premiums cause the death benefit to increase more
than the accumulation value), 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. These tax law
requirements and a discussion of modified endowment contracts are summarized
further under "Tax Effects" beginning on page 27.
Ways to pay premiums. You may 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 initial premium must be sent directly to
our Home Office. We also accept premium payments by bank draft, wire, or by
exchange from another insurance company. You may obtain further information
about how to make premium payments by any of these methods from your AGL
representative or from our Home Office shown on the first page of this
prospectus.
4
<PAGE>
Dollar cost averaging. Dollar cost averaging is an investment strategy
designed to reduce the risks that result from market fluctuations. The strategy
spreads the allocation of your accumulation value over a period of time. This
allows you to reduce the risk of investing most of your funds at a time when
prices are high. The success of this strategy depends on market trends and is
not guaranteed.
Under dollar cost averaging, we automatically make transfers of your
accumulation value from the money market investment option to one or more of the
other investment options that you choose. You tell us whether you want these
transfers to be made monthly, quarterly, semi-annually or annually. We make the
transfers as of the end of the valuation period that contains the day of the
month that you select other than the 29th, 30th or 31st day of the month. The
term "valuation period" is described on page 36. 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. We do not charge you for using this feature.
Automatic rebalancing. This feature automatically rebalances the
proportion of your accumulation value in each investment option under your
Policy to correspond to your then current premium allocation designation. You
tell us whether you want us to do the rebalancing quarterly, semi-annually or
annually. The date automatic 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. We do not charge you for using this
feature.
How will the value of my investment in a Policy change over time?
Your accumulation value. From each premium payment you make, we deduct the
charges that we describe on page 7 under "Deductions from each premium payment."
We invest the rest in one or more of the investment options listed on the first
page of this prospectus. We call the amount that is at any time invested under
your Policy (including any loan collateral we are holding for your Policy loans)
your "accumulation value."
Your investment options. We invest the accumulation value that you have
allocated to any investment option in shares of a corresponding Mutual Fund.
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 also be
reduced by
5
<PAGE>
certain charges that we deduct. We describe these charges beginning on page 7
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. You can request
additional free copies of these prospectuses from your AGL representative or
from our Home Office. Our Home Office address and telephone numbers are shown on
the first page of this prospectus.
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 The One VUL
Solution Policy, you will tell us how much life insurance coverage you want on
the life of the insured person. We call this the "specified amount" of
insurance.
Your death benefit. The basic death benefit we will pay is reduced by any
outstanding Policy loans (increased by any unearned loan interest we may have
already charged). 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:
6
<PAGE>
TABLE OF ALTERNATIVE BASIC DEATH BENEFITS AS A PERCENTAGE
MULTIPLE OF POLICY ACCUMULATION VALUE
Insured's Insured's
Age on % of Age on % of
Policy Accumulation Policy Accumulation
Anniversary* Value Anniversary Value
------------ ----- ----------- -----
0-40 250 60 130
41 243 61 128
42 236 62 126
43 229 63 124
44 222 64 122
45 215 65 120
46 209 66 119
47 203 67 118
48 197 68 117
49 191 69 116
50 185 70 115
51 178 71 113
52 171 72 111
53 164 73 109
54 157 74 107
55 150 75-90 105
56 146 91 104
57 142 92 103
58 138 93 102
59 134 94 101
95+ 100
________
* Nearest birthday at the beginning of the Policy year in which the insured
person dies.
What charges will AGL deduct from my investment in a Policy?
Deductions from each premium payment. There is currently no deduction from
each premium payment you make. However, we have the right at any time to assess
a charge not to exceed more than 1.5% on all future premium payments for the
costs associated with the issuance of the Policy and administrative services we
perform.
Daily Charge. We will deduct a daily charge based on either the guaranteed
rate or the current rate (if lower than the guaranteed rate) for the costs
associated with the mortality and expense risks we assume under the Policy.
. The guaranteed daily charge will be at an annual effective rate of
.90% for the first 10 Policy Years, .65% for Policy Years 11 - 20 and
.40% thereafter. The guaranteed daily deduction charges are .15%
higher than the current daily charges.
7
<PAGE>
The guaranteed daily deduction charges are the maximums we may charge;
we may charge less, but we can never charge more.
. The current daily charge will be at an annual effective rate of .75%
of your accumulation value that is then being invested in any of the
investment options. After a Policy has been in effect for 10 years, we
intend to reduce the rate of the current charge to .50%, and after 20
years, we intend to further reduce the current charge to .25%. We may
change the applicable current charge at any time as long as the charge
does not exceed the guaranteed daily charge.
Monthly insurance charge. Every month we will deduct from your accumulation
value a charge based on the cost of insurance rates applicable to your Policy on
the date of the deduction and our "amount at risk" on that date. Our amount at
risk is the difference between (a) the death benefit that would be payable
before reduction by policy loans if the insured person died on that date and (b)
the then total accumulation value under the Policy. For otherwise identical
Policies, a greater amount at risk results in a higher monthly insurance charge.
The current monthly insurance charge has been designed primarily to provide
funds out of which we can make payments of death benefits under the Policy as
insured persons die.
For otherwise identical Policies, a higher cost of insurance rate also
results in a higher monthly insurance charge. Our cost of insurance rates are
guaranteed not to exceed those that will be specified in your Policy.
We will offer the Policy on a simplified issue method based on our
established guidelines, including that the specified amount of the Policy cannot
exceed $250,000. Our cost of insurance rates will generally be higher for a
simplified issue Policy.
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. 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.
Our cost of insurance rates also generally lower for non-smokers than for
some period of time than they would be under an otherwise identical policy
purchased more recently on the same insured person.
Partial Surrender Fee. The fee for each partial surrender you make will
be the lesser of 2% of the amount withdrawn or $25 to cover administrative
services. This charge will be
8
<PAGE>
deducted from the remaining accumulation value in the investment options in the
same ratio as the requested partial surrender.
Charge for taxes. We can make a charge in the future for federal or state
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 the investment options from which we
deduct all monthly charges. If you do not have enough accumulation value in the
investment options, we will deduct these charges in proportion to the amount of
accumulation value you then have in each investment option.
For a further discussion regarding the charges we will deduct from your
investment in a Policy, see "More About Policy Charges" on page 34.
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. The charges and expenses
that we show in the following table are for each Fund's most recent fiscal year
ended, unless we indicate otherwise.
The Mutual Funds' Annual Expenses (as a percentage of average net assets).
<TABLE>
<CAPTION>
Fund Other Fund Total Fund
Management Operating Operating
Fees (After Expenses (After Expenses (After
Expense 12b-1 Expense Expense
Name of Fund Reimbursement) Fees Reimbursement) Reimbursement)
------------ -------------- ---- -------------- --------------
<S> <C> <C> <C> <C>
The following funds of
AIM Variable Insurance Funds:/1/
AIM V.I. International Equity Fund 0.75% 0.22% 0.97%
AIM V.I. High Yield Fund/2/ 0.35% 0.79% 1.14%
AIM V.I. Government Securities 0.50% 0.40% 0.90%
Fund
AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.73%
</TABLE>
The following funds of
Franklin Templeton Variable
Insurance Products Trust /1/
9
<PAGE>
<TABLE>
<CAPTION>
Fund Other Fund Total Fund
Management Operating Operating
Fees (After Expenses (After Expenses (After
Expense 12b-1 Expense Expense
Name of Fund Reimbursement) Fees Reimbursement) Reimbursement)
------------ -------------- ---- -------------- --------------
<S> <C> <C> <C> <C>
Franklin Small Cap Fund - Class 2/3,4/ 0.55% 0.25% 0.27% 1.07%
Templeton Developing Markets
Securities Fund - Class 2/4/ 1.25% 0.25% 0.31% 1.81%
The following funds of
Kemper Variable Series/1/
Kemper International Portfolio 0.75% 0.19% 0.94%
Kemper Small Cap Value Portfolio/2/ 0.75% 0.08% 0.83%
The following fund of
MFS Variable Insurance Trust/1/
Growth With Income Series/2/ 0.74% 0.13% 0.87%
The following fund of
North American Funds Variable Product
Series I:/1/
Money Market Fund 0.50% 0.07% 0.57%
The following funds of
One Group Investment Trust
One Group Investment Trust Equity
Index Portfolio/2/ 0.27% 0.28% 0.55%
One Group Investment Trust Mid
Cap Growth Portfolio 0.65% 0.27% 0.92%
One Group Investment Trust Large
Cap Growth Portfolio 0.65% 0.23% 0.88%
One Group Investment Trust
Government Bond Portfolio 0.45% 0.28% 0.73%
One Group Investment Trust
Diversified Equity Portfolio/5/ 0.72% 0.23% 0.95%
The following fund of
Oppenheimer Variable Account Funds/1/
Oppenheimer High Income Fund/VA 0.74% 0.01% 0.75%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Fund Other Fund Total Fund
Management Operating Operating
Fees (After Expenses (After Expenses (After
Expense 12b-1 Expense Expense
Name of Fund Reimbursement) Fees Reimbursement) Reimbursement)
------------- ------------- ----- ------------- -------------
<S> <C> <C> <C> <C>
The following fund of
Putnam Variable Trust - Class IB Shares
Putnam VT Vista Fund/4/ 0.65% 0.15% 0.10% 0.90%
The following fund of
Van Kampen Life Investment Trust/1/
Emerging Growth Portfolio/2/ 0.61% 0.18% 0.85%
</TABLE>
/1/ Certain of the Mutual Funds' advisers or administrators have
entered into arrangements under which they pay certain amounts to AGL. The fees
do not have a direct relationship to the Mutual Funds' Annual Expenses, and do
not increase the amount of charges you pay under your Policy. (See "Certain
arrangements" under "More About Policy Charges.")
/2/ If certain expense reimbursements from the investment adviser were
terminated, management fees and other expenses for the fiscal year ended in 1999
would have been as set out in the following table.
<TABLE>
<CAPTION>
Other Total
Fund Fund Fund
Management Operating Operating
Name of Fund Fees Expenses Expenses
------------ ---- -------- --------
<S> <C> <C> <C>
AIM V.I. High Yield Fund............................................. 0.63% 0.79% 1.42%
Kemper Small Cap Value Portfolio..................................... 0.75% 0.09% 0.84%
One Group Equity Index Portfolio..................................... 0.30% 0.28% 0.58%
Van Kampen Emerging Growth Portfolio................................. 0.70% 0.18% 0.88%
</TABLE>
/3/ On February 8, 2000, shareholders approved a proposal to merge the
funds of Templeton Variable Series Fund into similar corresponding funds of
Franklin Templeton Variable Insurance Products Trust (the "Reorganization").
This Reorganization was completed May 1, 2000.
/4/ The prospectus for Putnam Variable Trust - Class IB Shares under
"Distribution Plan" discusses this fund's 12b-1 fee. The prospectus for Franklin
Templeton Variable Insurance Products Trust under "Distribution and Services
(12b-1) Fees" discuss each fund's 12b-1 fees.
/5/ Figures reflect estimates which have been restated to reflect
estimates of current fees for the One Group Investment Trust's fiscal year
ending December 31, 2000. If certain expense reimbursements from the investment
adviser were terminated, estimates for management fees and other expenses for
the fiscal year ending December 31, 2000 would be as set forth in the following
table.
<TABLE>
<CAPTION>
Other Total
Fund Fund Fund
Management Operating Operating
Name of Fund Fees Expenses Expenses
------------ ---- -------- --------
<S> <C> <C> <C>
One Group Diversified Equity Portfolio ....... 0.74% 0.23% 0.97%
</TABLE>
11
<PAGE>
Must I invest any minimum amount in a Policy?
Planned periodic premiums. Page 3 of your Policy will specify a "Planned
Periodic Premium." This is the amount that you (within limits) choose to have us
bill you. Our current practice is to bill quarterly, semi-annually or annually.
However, payment of these or any other specific amounts of premiums is not
mandatory. After payment of your initial premium, you need only invest enough to
ensure your Policy's cash surrender value stays above zero. The less you invest,
the more likely it is that your Policy's cash surrender value could fall to
zero, as a result of the deductions we periodically make from your accumulation
value.
Policy lapse and reinstatement. If your Policy's cash surrender value does
fall to zero, we will notify you and give you a grace period of 61 days to pay
at least the amount we estimate is necessary to keep your Policy in force for a
reasonable time. If we do not receive your payment by the end of the grace
period, your Policy will end without value and all coverage under your Policy
will cease. Although you can apply to have your Policy "reinstated," you must do
this within 5 years (or, if earlier, before the Policy's maturity date), and you
must present evidence that the insured person still meets our requirements for
issuing coverage. Also, you will have to pay enough premium to keep your Policy
in force for two months as well as pay or reinstate any indebtedness. In the
Policy, you will find additional information about the values and terms of a
Policy after it is reinstated.
How can I change my Policy's investment options?
Future premium payments. You may at any time change the investment options
in which future premiums you pay will be invested. Your allocation must,
however, be in whole percentages that total 100%.
Transfers of existing accumulation value. You may also transfer your
existing accumulation value from one investment option under the Policy to
another free of charge. You may make transfers at any time. Unless you are
transferring the entire amount you have in an investment option, each transfer
must be at least $500. See "Additional Rights That We Have" on page 41.
Market Timing. The Policy is not designed for professional market timing
organizations or other entities using programmed and frequent transfers. We may
not unilaterally terminate or discontinue transfer privileges. However, we
reserve the right to suspend such privileges for a reasonable period.
12
<PAGE>
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. 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.
Decrease in Coverage. After the first Policy year, you may request a
reduction in the specified amount of coverage, but not below certain minimums.
After any decrease, the death benefit amount cannot be less than the greater of
(i) $50,000, and (ii) any death benefit amount which, upon comparing such
amounts to the sums already paid, would result in an excess of premium payments.
Change of death benefit option. You may at any time request us to
change your coverage from death benefit Option 1 to 2 or vice-versa.
. If you change from Option 1 to 2, we also automatically reduce your
Policy's specified amount of insurance by the amount of your Policy's
accumulation value (but not below zero) at the time of the change.
. If you change from Option 2 to 1, we automatically increase your
Policy's specified amount by the amount of your Policy's accumulation
value.
Tax consequences of changes in insurance coverage. Please read "Tax
Effects" starting on page 27 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 maturity extension rider
benefit described below. Eligibility for and changes in this benefit are subject
to our rules and procedures as in effect from time to time. More details are
included in the form of the rider, which we suggest that you review if you
choose this benefit.
Maturity Extension Rider
------------------------
. This rider permits you to extend the Policy's maturity date beyond
what it otherwise would be. The rider provides for a death benefit
after the original maturity date that is equal to the accumulation
value on the date of death. With
13
<PAGE>
this rider, all accumulation value that is in the Separate Account can
remain there.
. In this rider, 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 no charge for this rider except for 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.
How can I access my investment in a Policy?
Full surrender. You may at any time, without charge, surrender your Policy
in full. If you do, we will pay you the accumulation value, less any Policy
loans. We call this amount your "cash surrender value."
Partial surrender. You may, at any time after the first Policy year, make a
partial surrender of your Policy's cash surrender value. A partial surrender
must be at least $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.
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.
Partial surrender fee. The fee for each partial surrender you make will be
the lesser of 2% of the amount withdrawn or $25 to cover administrative
services. This charge will be deducted from the remaining accumulation value in
the investment options in the same ratio as the requested partial surrender.
14
<PAGE>
Policy loans. You may at any time borrow from us an amount equal to your
Policy's cash surrender value less the interest that will be payable on your
loan through your next Policy anniversary. This rule is not applicable in all
states. The minimum amount of each loan is $500.
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 a guaranteed effective annual
rate of at least 4% (rather than any amount you could otherwise earn in one of
our investment options). We can use interest rates greater than the guaranteed
rates used to calculate accumulation values of amounts allocated to the declared
fixed interest account. Interest which we apply to that portion of the declared
fixed interest account will be at an annual effective rate of not less than 4.0%
nor more than 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 $500 unless it is the
final payment) 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. We will invest any
additional loan repayments you make in the investment options you request. In
the absence of such a request we will invest the repayment in the same
proportion as you then have selected for premium payments that we receive from
you. Any unpaid loan (increased by any unearned loan interest we may have
already charged) will be deducted from the proceeds we pay following the insured
person's death.
Preferred loan interest rate. We will credit a higher interest rate,
but not more than 4.75%, on an amount of the collateral securing Policy loans
taken out after the first 10 Policy years. The maximum amount of new loans that
will receive this preferred loan interest rate for any year is:
. 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
15
<PAGE>
effective annual rate of 4.5%. Because we first offered the Policies in 2000, we
have not yet applied the preferred loan interest rate to any Policy loan
amounts.
Maturity of your Policy. If the insured person is still living on the
"Maturity Date" shown on page 3 of your Policy, we will automatically pay you
the cash surrender value of the Policy, and the Policy will end. The maturity
date is the Policy anniversary nearest the insured person's 100th birthday.
Can I choose the form in which AGL pays out the proceeds from my Policy?
Choosing a payment option. You may choose to receive the full proceeds
from the Policy as a single sum. This includes proceeds that become payable upon
the death of the insured person, full surrender or the maturity date.
Alternatively, you may elect that all or part of such proceeds be applied to one
or more of the following payment options:
. Option 1 - Equal monthly payments for a specified period of time.
. Option 2 - Equal monthly payments of a specified amount until all
amounts are paid out.
. Option 3 - Equal monthly payments for the payee's life, but with
payments guaranteed for a specified number of years. These payments
are based on annuity rates that are set forth in the Policy or, at the
payee's request, the annuity rates that we then are using.
. Option 4 - Proceeds left to accumulate with interest.
Additional payment options may also be available with our consent. We have
the right to reject any payment option, if the payee is a corporation or other
entity. You can read more about each of these options in the Policy and in the
separate form of payment contract that we issue when any such option takes
effect.
Within 60 days after the insured person's death, any payee entitled to
receive proceeds as a single sum may elect one or more payment options.
Interest rates that we credit under each option will be at least 3%.
Change of payment option. You may change any payment option you have
elected at any time while the Policy is in force and before the start date of
the payment option.
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.
16
<PAGE>
To what extent can AGL vary the terms and conditions of the Policy in particular
cases?
Listed below are some variations we may make in the terms and conditions of
a Policy. Any variations will be made only in accordance with uniform rules that
we establish.
Underwriting. We use two underwriting methods to issue a Policy,
simplified underwriting and full underwriting, which are described below. We
reserve the right to request additional information or reject an application for
any reason under either underwriting procedure.
. Simplified Underwriting - Any Policy with a specified amount of
$250,000 or lower must be issued based on simplified underwriting. Our
guidelines include that the proposed insured must answer limited
health questions and certain medical records are required. The Policy
specified amount is limited to $250,000, and any requested increases
in specified amount are considered under full underwriting only.
Additionally, a proposed insured who is rejected under simplified
underwriting cannot be considered for full underwriting.
. Full Underwriting - Any Policy that has a specified amount of over
$250,000 must be issued based on full underwriting. Our guidelines
include medical exams or tests and other satisfactory evidence of
insurability.
Policies purchased through "internal rollovers." We maintain published
rules that describe the procedures necessary to replace the other life insurance
we issue with a Policy. Not all types of other insurance we issue are eligible
to be replaced with a Policy. Our published rules may be changed from time to
time, but are evenly applied to all our customers.
Policies purchased through term life conversions. We maintain rules
about how to convert term insurance to The One VUL Solution 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 The One VUL Solution Policies are
sold. As a result, various time periods and other terms and conditions described
in this prospectus may vary depending on where you reside. These variations will
be reflected in your Policy and related endorsements.
Variations in expenses or risks. AGL may vary the charges and other
terms of the Policy where special circumstances result in sales, administrative
or other expenses, mortality risks or other risks that are different from those
normally associated with the Policy.
17
<PAGE>
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.
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 27.
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 our Home Office.
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;
18
<PAGE>
. change of death benefit option or manner of death benefit payment;
. changes in specified amount;
. addition or cancellation of, or other action with respect to, election
of a payment option for Policy proceeds;
. tax withholding elections; and
. telephone transaction privileges.
You should mail or express these requests to our Home Office at the appropriate
address shown on the first page of this prospectus. You should also communicate
notice of the insured person's death, and related documentation, to our Home
Office.
We have special forms which should be used for loans, assignments,
partial and full surrenders, changes of owner or beneficiary, and all other
contractual changes. You will be asked to return your Policy when you request a
full surrender. You may obtain these forms from our Home Office or from your AGL
representative. Each communication must include your name, Policy number and, if
you are not the insured person, that person's name. We cannot process any
requested action that does not include all required information.
Telephone transactions. If you have a completed telephone authorization
form on file with us, you may make transfers, or change the allocation of future
premium payments or deduction of charges, by telephone, subject to the terms of
the form. We will honor telephone instructions from any person who provides the
correct information, so there is a risk of possible loss to you if unauthorized
persons use this service in your name. Our current procedure is that only the
owner or your AGL representative may make a transfer request by phone. We are
not liable for any acts or omissions based upon instructions that we reasonably
believe to be genuine. Our procedures include verification of the Policy number,
the identity of the caller, both the insured person's and owner's names, and a
form of personal identification from the caller. We will mail you a prompt
written confirmation of the transaction. If (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 submit a written request if you cannot make a
telephone transfer. 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
1-888-436-5255.
19
<PAGE>
ILLUSTRATIONS OF HYPOTHETICAL POLICY BENEFITS
To help explain how our Policy works, we have prepared the following tables:
<TABLE>
<CAPTION>
Page to
see in this
Prospectus
----------
<S> <C>
Death Benefit Option 1 - Simplified Underwriting/Current Charges............................ 22
Death Benefit Option 1 - Full Underwriting/Current Charges.................................. 23
Death Benefit Option 1 - Simplified Underwriting/Guaranteed Maximum
Charges.................................................................................. 24
Death Benefit Option 1 - Full Underwriting/Guaranteed Maximum Charges....................... 25
</TABLE>
The tables show how death benefits, accumulation values, and cash surrender
values ("Policy benefits") under a sample The One VUL Solution Policy 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. A single premium payment
of $56,279 for an initial $250,000 or $250,001 of specified amount of coverage
is assumed to be paid at issue. The illustrations assume no Policy loan has been
taken. As illustrated, this Policy would be classified as a modified endowment
contract (See "Tax Effects" in Additional Information for further discussion).
Although the tables below do not include an example of a Policy with an
Option 2 death benefit, such a Policy would have higher death benefits and lower
cash surrender values.
Separate tables are included to show both current and guaranteed maximum
charges under both simplified underwriting and full underwriting. We have used
the maximum specified amount of $250,000 for the simplified underwriting table
and the minimum specified amount of $250,001 for the full underwriting table to
show the applicable investment results.
. The charges assumed in the current charge tables include a daily
charge at an annual effective rate of .75% for the first 10 Policy
years, .50% for Policy years 11 - 20, and .25% thereafter and current
monthly insurance charges.
. The guaranteed maximum charge tables assume that these charges will
include a daily charge at an annual effective rate of .90% for the
first 10 Policy years, .65% for Policy years 11 - 20, and .40%
thereafter, and an additional charge of 1.5% of every premium and
guaranteed maximum insurance charges.
The charges assumed by both the current and guaranteed maximum charge
tables also include Mutual Fund expenses of .91% of aggregate Mutual Fund
assets. This Percentage is the arithmetic 21 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
20
<PAGE>
after all reimbursements, as reflected on pages 9 -11 of this prospectus. We
expect the reimbursement arrangements to continue in the future. If the
reimbursement arrangements were not currently in effect, the arithmetic average
of Mutual Fund expenses would equal .93% of aggregate Mutual Fund assets.
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.
21
<PAGE>
The One VUL Solution
Single Premium $ 56,279 Initial Specified Amount $ 250,000
eath Benefit Option 1
Male Age 45
Simplified Underwriting
Nonsmoker
Assuming Current Charges
<TABLE>
<CAPTION>
End of Death Benefit Accumulation Value Cash Surrender Value
Policy Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Year Annual Investment Return of Annual Investment Return of Annual Investment Return of
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>
1 250,000 250,000 250,000 54,511 57,836 61,167 54,511 57,836 61,167
2 250,000 250,000 250,000 52,659 59,362 66,475 52,659 59,362 66,475
3 250,000 250,000 250,000 50,758 60,891 72,288 50,758 60,891 72,288
4 250,000 250,000 250,000 48,889 62,505 78,740 48,889 62,505 78,740
5 250,000 250,000 250,000 46,967 64,127 85,828 46,967 64,127 85,828
6 250,000 250,000 250,000 45,023 65,787 93,649 45,023 65,787 93,649
7 250,000 250,000 250,000 42,998 67,436 102,243 42,998 67,436 102,243
8 250,000 250,000 250,000 41,051 69,218 111,820 41,051 69,218 111,820
9 250,000 250,000 250,000 39,097 71,064 122,426 39,097 71,064 122,426
10 250,000 250,000 250,000 37,110 72,955 134,159 37,110 72,955 134,159
15 250,000 250,000 291,647 27,749 84,920 217,647 27,749 84,920 217,647
20 250,000 250,000 433,220 16,105 98,375 355,099 16,105 98,375 355,099
</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.
22
<PAGE>
The One VUL Solution
Single Premium $ 56,279 Initial Specified Amount $ 250,001
Death Benefit Option 1
Male Age 45
Full Underwriting
Nonsmoker
Assuming Current Charges
<TABLE>
<CAPTION>
End of Death Benefit Accumulation Value Cash Surrender Value
Policy Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Year Annual Investment Return of Annual Investment Return of Annual Investment Return of
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>
1 250,001 250,001 250,001 54,995 58,332 61,675 54,995 58,332 61,675
2 250,001 250,001 250,001 53,625 60,373 67,531 53,625 60,373 67,531
3 250,001 250,001 250,001 52,313 62,543 74,039 52,313 62,543 74,039
4 250,001 250,001 250,001 50,941 64,737 81,159 50,941 64,737 81,159
5 250,001 250,001 250,001 49,523 66,969 88,972 49,523 66,969 88,972
6 250,001 250,001 250,001 48,067 69,251 97,565 48,067 69,251 97,565
7 250,001 250,001 250,001 46,578 71,591 107,030 46,578 71,591 107,030
8 250,001 250,001 250,001 45,051 73,989 117,461 45,051 73,989 117,461
9 250,001 250,001 250,001 43,476 76,439 128,961 43,476 76,439 128,961
10 250,001 250,001 250,001 41,822 78,922 141,634 41,822 78,922 141,634
15 250,001 250,001 308,953 32,941 93,281 230,562 32,941 93,281 230,562
20 250,001 250,001 458,927 21,164 109,299 376,170 21,164 109,299 376,170
</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.
23
<PAGE>
The One VUL Solution
Single Premium $ 56,279 Initial Specified Amount $ 250,000
Death Benefit Option 1
Male Age 45
Simplified Underwriting
Nonsmoker
Assuming Guaranteed Charges
<TABLE>
<CAPTION>
End of Death Benefit Accumulation Value Cash Surrender Value
Policy Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Year Annual Investment Return of Annual Investment Return of Annual Investment Return of
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>
1 250,000 250,000 250,000 53,560 56,830 60,105 53,560 56,830 60,105
2 250,000 250,000 250,000 51,641 58,218 65,199 51,641 58,218 65,199
3 250,000 250,000 250,000 49,676 59,602 70,766 49,676 59,602 70,766
4 250,000 250,000 250,000 47,640 60,956 76,837 47,640 60,956 76,837
5 250,000 250,000 250,000 45,531 62,283 83,474 45,531 62,283 83,474
6 250,000 250,000 250,000 43,350 63,581 90,744 43,350 63,581 90,744
7 250,000 250,000 250,000 41,069 64,827 98,702 41,069 64,827 98,702
8 250,000 250,000 250,000 38,662 65,998 107,416 38,662 65,998 107,416
9 250,000 250,000 250,000 36,127 67,093 116,982 36,127 67,093 116,982
10 250,000 250,000 250,000 33,436 68,085 127,491 33,436 68,085 127,491
15 250,000 250,000 269,930 17,236 71,865 201,440 17,236 71,865 201,440
20 0 250,000 392,494 0 69,729 321,716 0 69,729 321,716
</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.
24
<PAGE>
The One VUL Solution
Single Premium $ 56,279 Initial Specified Amount $ 250,001
Death Benefit Option 1
Male Age 45
Full Underwriting
Nonsmoker
Assuming Guaranteed Charges
<TABLE>
<CAPTION>
End of Death Benefit Accumulation Value Cash Surrender Value
Policy Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Year Annual Investment Return of Annual Investment Return of Annual Investment Return of
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>
1 250,001 250,001 250,001 53,561 56,830 60,105 53,561 56,830 60,105
2 250,001 250,001 250,001 51,641 58,219 65,199 51,641 58,219 65,199
3 250,001 250,001 250,001 49,676 59,602 70,766 49,676 59,602 70,766
4 250,001 250,001 250,001 47,640 60,956 76,838 47,640 60,956 76,838
5 250,001 250,001 250,001 45,531 62,283 83,474 45,531 62,283 83,474
6 250,001 250,001 250,001 43,350 63,581 90,744 43,350 63,581 90,744
7 250,001 250,001 250,001 41,069 64,827 98,703 41,069 64,827 98,703
8 250,001 250,001 250,001 38,662 65,999 107,416 38,662 65,999 107,416
9 250,001 250,001 250,001 36,127 67,093 116,982 36,127 67,093 116,982
10 250,001 250,001 250,001 33,436 68,085 127,492 33,436 68,085 127,492
15 250,001 250,001 287,628 17,236 71,866 201,441 17,236 71,866 201,441
20 0 250,001 392,495 0 69,730 321,717 0 69,730 321,717
</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.
25
<PAGE>
ADDITIONAL INFORMATION
A general overview of the Policy appears at pages 1 - 25. The additional
information that follows gives more details, but generally does not repeat what
is set forth above.
<TABLE>
<CAPTION>
Page to
see in this
Contents of Additional Information Prospectus
---------------------------------- ----------
<S> <C>
AGL............................................................................................... 27
Separate Account VL-R............................................................................. 27
Tax Effects....................................................................................... 27
Voting Privileges................................................................................. 33
Your Beneficiary.................................................................................. 34
Assigning Your Policy............................................................................. 34
More About Policy Charges......................................................................... 34
Effective Date of Policy and Related Transactions................................................. 36
Distribution of the Policies...................................................................... 38
Payment of Policy Proceeds........................................................................ 39
Adjustments to Death Benefit...................................................................... 40
Additional Rights That We Have.................................................................... 41
Performance Information........................................................................... 42
Our Reports to Policy Owners...................................................................... 42
AGL's Management.................................................................................. 43
Principal Underwriter's Management................................................................ 46
Legal Matters..................................................................................... 47
Accounting and Auditing Experts................................................................... 48
Actuarial Expert.................................................................................. 48
Services Agreement................................................................................ 48
Certain Potential Conflicts....................................................................... 48
</TABLE>
Special words and phrases. If you want more information about any words or
phrases that you read in this prospectus, you may wish to refer to the Index of
Words and Phrases that appears at the end of this prospectus (page 50, 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.
26
<PAGE>
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 commitments under the Policies are AGL's, and American General Corporation
has no legal obligation to back those commitments.
AGL is a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA is a voluntary membership organization created by the life
insurance industry to promote ethical market conduct for individual life
insurance and annuity products. AGL's membership in IMSA applies only to AGL and
not its products.
Separate Account VL-R
We hold the Mutual Fund shares in which any of your accumulation value is
invested in Separate Account VL-R. Separate Account VL-R is a "separate
account," as defined by the SEC and is registered as a unit investment trust
with the SEC under the Investment Company Act of 1940, as amended. We created
Separate Account VL-R on May 6, 1997 under Texas law.
For record keeping and financial reporting purposes, Separate Account VL-R
is divided into 64 separate "divisions," 18 of which correspond to the 18
variable investment options available under the Policy. The remaining 46
divisions, and some of these 18 divisions, represent investment options
available under other variable life policies 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 Separate Account VL-R are our property. The assets in
Separate Account VL-R would be available only to satisfy the claims of owners of
the Policies, to the extent they have allocated their accumulation value to
Separate Account VL-R. Our other creditors could reach only those Separate
Account VL-R assets (if any) that are in excess of the amount of our reserves
and other contract liabilities under the Policies with respect to Separate
Account VL-R.
Tax Effects
This discussion is based on current federal income tax law and
interpretations. It assumes that the policy owner is a natural person who is a
U.S. citizen and resident. The tax effects on corporate taxpayers, non-U.S.
residents or non-U.S. citizens, may be different. This discussion is general in
nature, and should not be considered tax advice, for which you should consult a
qualified tax adviser.
27
<PAGE>
General. The One VUL Solution Policy will be treated as "life insurance"
for federal income tax purposes (a) if it meets the definition of life insurance
under Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code")
and (b) for as long as the investments made by the underlying Mutual Funds
satisfy certain investment diversification requirements under Section 817(h) of
the Code. We believe that the Policy will meet these requirements and that:
. the death benefit received by the beneficiary under your Policy will
not be subject to federal income tax; and
. increases in your Policy's accumulation value as a result of interest
or investment experience will not be subject to federal income tax
unless and until there is a distribution from your Policy, such as a
surrender or a partial surrender.
The federal income tax consequences of a distribution from your Policy can
be affected by whether your Policy is determined to be a "modified endowment
contract" (which is discussed below). In all cases, however, the character of
all income that is described below as taxable to the payee will be ordinary
income (as opposed to capital gain).
Testing for modified endowment contract status. Your Policy will be a
"modified endowment contract" if, at any time during the first seven Policy
years, you have paid a cumulative amount of premiums that exceeds the premiums
that would have been paid by that time under a similar fixed-benefit insurance
policy that was designed (based on certain assumptions mandated under the Code)
to provide for paid-up future benefits after the payment of seven level annual
premiums. This is called the "seven-pay" test.
Whenever there is a "material change" under a policy, the policy will
generally be (a) treated as a new contract for purposes of determining whether
the policy is a modified endowment contract and (b) subjected to a new seven-pay
period and a new seven-pay limit. The new seven-pay limit would be determined
taking into account, under a prescribed formula, the accumulation value of the
policy at the time of such change. A materially changed policy would be
considered a modified endowment contract if it failed to satisfy the new seven-
pay limit. A material change for these purposes could occur as a result of a
change in death benefit option. A material change will occur as a result of an
increase in your Policy's specified amount of coverage, and certain other
changes.
If your Policy's benefits are reduced during the first seven Policy years
(or within seven years after a material change), the calculated seven-pay
premium limit will be redetermined based on the reduced level of benefits and
applied retroactively for purposes of the seven-pay test. (Such a reduction in
benefits could include, for example, a decrease in the specified amount
resulting from a partial surrender). If the premiums previously paid are greater
than the recalculated seven-payment premium level limit, the Policy will become
a modified endowment
28
<PAGE>
contract. A life insurance policy that is 29 received in exchange for a modified
endowment contract will also be considered a modified endowment contract.
Other effects of Policy changes. Changes made to your Policy (for example,
a decrease in benefits or a lapse or reinstatement of your Policy) may also have
other effects on your Policy. Such effects may include impacting the maximum
amount of premiums that can be paid under your Policy, as well as the maximum
amount of accumulation value that may be maintained under your Policy.
Taxation of pre-death distributions if your Policy is not a modified
---
endowment contract. As long as your Policy remains in force during the insured
person's lifetime and not 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 Policy 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 Treasury Department has authority
to prescribe 30 additional rules to prevent avoidance of "income-first" taxation
on distributions from modified endowment contracts.
29
<PAGE>
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:
. 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 Policy 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.
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 to comply with these 31 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.
30
<PAGE>
In connection with the issuance of then temporary diversification
regulations, the Treasury Department stated that it anticipated the issuance of
guidelines prescribing the circumstances in which the ability of a policy owner
to direct his or her investment to particular Mutual Funds within Separate
Account VL-R may cause the policy owner, rather than the insurance company, to
be treated as the owner of the assets in the account. Due to the lack of
specific guidance on investor control, there is some uncertainty about when a
policy owner is considered the owner of the assets for tax purposes. If you were
considered the owner of the assets of Separate Account VL-R, income and gains
from the account would be included in your gross income for federal income tax
purposes. Under current law, however, we believe that AGL, and not the owner of
a Policy, would be considered the owner of the assets of Separate Account VL-R.
Estate and generation skipping taxes. If the insured person is the Policy's
owner, the death benefit under The One VUL Solution 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. The federal estate tax is integrated with the federal gift tax under
a unified rate schedule and unified credit. The Taxpayer Relief Act of 1997
gradually raises the value of the credit to $1,000,000. 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.
Life Insurance in Split Dollar Arrangements. The Internal Revenue Service
("IRS") has released a technical advice memorandum ("TAM") on the taxability of
the insurance policies used in certain split dollar arrangements. A TAM provides
advice as to the internal revenue laws, regulations, and related statutes with
respect to a specific set of facts and a specific taxpayer. In the TAM, among
other things, the IRS concluded that an employee was subject to current taxation
on the excess of the cash surrender value of the policy over the premiums to be
returned to the employer. Purchasers of life 32 insurance policies to be used in
split dollar arrangements are strongly advised to consult with a qualified tax
adviser to determine the tax treatment resulting from such an arrangement.
31
<PAGE>
Pension and profit-sharing plans. If a life insurance policy is purchased
by a trust or other entity that forms part of a pension or profit-sharing plan
qualified under Section 401(a) of the Code for the benefit of participants
covered under the plan, the federal income tax treatment of such policies will
be somewhat different from that described above.
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 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 Separate Account VL-R in our federal
income tax return, but we currently pay no income tax on Separate Account VL-R's
investment income and capital gains, because these items are, for tax purposes,
reflected in our variable life insurance policy reserves. We currently make no
charge to any Separate Account VL-R division for taxes. We reserve the right to
make a charge in the future for taxes incurred; for example, a charge to
Separate Account VL-R for income taxes we incur that are allocable to the
Policy.
We may have to pay state, local or other taxes in addition to applicable
taxes based on premiums. At present, these taxes are not substantial. If they
increase, we may make charges for such taxes when they are attributable to
Separate Account VL-R or allocable to the Policy.
32
<PAGE>
Certain Mutual Funds in which your accumulation value is invested may elect
to pass through to AGL taxes withheld by foreign taxing jurisdictions on foreign
source income. Such an election will result in additional taxable income and
income tax to AGL. The amount of additional income tax, however, may be more
than offset by credits for the foreign taxes withheld which are also passed
through. These credits may provide a benefit to AGL.
When we withhold income taxes. Generally, unless you provide us with an
election to the contrary before we make the distribution, we are required to
withhold income tax from any proceeds we distribute as part of a taxable
transaction under your Policy. In some cases, where generation skipping taxes
may apply, we may also be required to withhold for such taxes unless we are
provided satisfactory written notification that no such taxes are due.
In the case of non-resident aliens who own a policy, the withholding rules
may be different. With respect to distributions from modified endowment
contracts, nonresident aliens are generally subject to federal income tax
withholding at a statutory rate of 30% of the distributed amount. In some cases,
the non-resident alien may be subject to lower or even no withholding if the
United States has entered into a tax treaty with his or her country of
residence.
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 that are 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.
33
<PAGE>
If you are asked to give us voting instructions, you will be sent 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 before we
receive it. If no beneficiary is living when the insured person dies, we will
pay the insurance proceeds to the owner or the owner's estate.
Assigning Your Policy
You may assign (transfer) your rights in a Policy to someone else as
collateral for a loan or for some other reason. We will not be bound by an
assignment unless it is received in writing. 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 a complete notice of the assignment in good order. We
are also not responsible for the validity of the assignment. An absolute
assignment is a change of ownership. Because there may be unfavorable tax
consequences, including recognition of taxable income and the loss of income
tax-free treatment for any death benefit payable to the beneficiary, you should
consult a qualified tax adviser before making an assignment.
More About Policy Charges
Purpose of our charges. The charges under the Policy are designed to cover,
in total, our direct and indirect costs of selling, administering and providing
benefits under the Policy. They are also designed, in total, to compensate us
for the risks we assume and services that we provide under the Policy. These
include:
. mortality risks (such as the risk that insured persons will, on
average, die before we expect, thereby increasing the amount of claims
we must pay);
. investment risks (such as the risk that adverse investment performance
will make it more difficult for us to reduce the amount of our daily
charge for revenues below what we anticipate);
34
<PAGE>
. sales risks (such as the risk that the number of Policies we sell and
the premiums we receive net of withdrawals, are less than we expect,
thereby depriving us of expected economies of scale);
. regulatory risks (such as the risk that tax or other regulations may
be changed in ways adverse to issuers of variable life insurance
policies); and
. expense risks (such as the risk that the costs of administrative
services that the Policy requires us to provide will exceed what we
currently project).
If the charges that we collect from the Policy exceed our total costs in
connection with the Policy, we will earn a profit. Otherwise we will incur a
loss.
The current monthly insurance charge has been designed primarily to provide
funds out of which we can make payments of death benefits under the Policy as
insured persons die.
Any excess from the charges discussed above is 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 marketing and distribution
expenses for the Policies, and costs of paying death claims if the
mortality experience of insured persons is worse than we expect);
. compensate us for the risk we assume under the Policies; or
. otherwise be retained by us as profit.
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 Policy. Our cost of insurance charge rates in Montana will
not be greater than the comparable male rates illustrated in this prospectus.
Congress and the legislatures of various states have from time to time
considered legislation that would require insurance rates to be the same for
males and females of the same age, rating class and tobacco user status. In
addition, employers and employee organizations
35
<PAGE>
should consider, in consultation with counsel, the impact of Title VII of the
Civil Rights Act of 1964 on the purchase of life insurance policies in
connection with an employment-related insurance or benefit plan. In a 1983
decision, the United States Supreme Court held that, under Title VII, optional
annuity benefits under a deferred compensation plan could not vary on the basis
of gender.
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 7.
Certain arrangements. Most of the distributors or advisers of the Mutual
Funds listed on page 1 of this prospectus make certain payments to us, on a
quarterly basis, for certain administrative, Policy, and Policy owner support
expenses. These amounts will be reasonable for the services performed and are
not designed to result in a profit. These amounts are paid by the distributors
or the advisers, and will not be paid by the Mutual Funds, the divisions or
Policy owners. No payments have yet been made under these arrangements, because
the number of Policies issued does not require a payment.
Effective Date of Policy and Related Transactions
Valuation dates, times, and periods. We generally compute values under a
Policy on each day that the New York Stock Exchange is open for business. We
call each such day a "valuation date."
We compute policy values as of 3:00 p.m., Central time, on each valuation
date. We call this our "close of business." We call the time from the close of
business on one valuation date to the close of business of the next valuation
date a "valuation period."
Date of receipt. Generally we consider that we have received a premium
payment or another communication from you on the day we actually receive it in
full and proper order at our Home Office. If we receive it after the close of
business on any valuation date, however, we consider that we have received it on
the day following that valuation date.
Commencement of insurance coverage. After you apply for a Policy, it can
sometimes take up to several weeks for us to gather and evaluate all the
information we need to decide whether to issue a Policy to you and, if so, what
the insured person's insurance rate class should be. We will not pay a death
benefit under a Policy unless (a) it has been delivered to and accepted by the
owner and at least the initial premium has been paid, and (b) at the time of
such delivery and payment, there have been no adverse developments in the
insured person's health or risk of death. 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 $500,000 provided the
36
<PAGE>
insured person meets certain medical and risk requirements. The terms and
conditions of this coverage are described in our "Limited Temporary Life
Insurance Agreement." You can obtain a copy from our Home Office by writing to
the address shown on the first page of this prospectus or from your AGL
representative.
Date of issue; Policy months and years. 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 of the necessary premium. In the case of a
backdated 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 you request in the specified amount of insurance, and
reinstatements of a Policy that has lapsed take effect on the Policy's
monthly deduction day on or next following our approval of the
transaction;
. We may return premium payments if we determine that such premiums
would cause your Policy to become a modified endowment contract or to
cease to qualify as life insurance under federal income tax law or
exceed the maximum net amount at risk;
. If you exercise the right to return your Policy described on the
second page of this prospectus, your coverage will end when you mail
us your Policy or deliver it to your AGL representative; and
37
<PAGE>
. 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.
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 entered into an exclusive sales agreement with Banc One
Securities Corporation ("BOSC"). The Policies will be sold by registered
representatives of BOSC. These registered representatives are also required to
be authorized under applicable state regulations as life insurance agents to
sell variable life insurance and are appointed by AGL as an AGL representative
for the Policies. BOSC is a member of the NASD.
We pay compensation directly to BOSC for the promotion and sales of the
Policies. The compensation payable to BOSC for the sales of the Policies may
vary with the sales agreement, but is generally not expected to exceed the
amounts described below:
A. For a Policy issued based on simplified underwriting:
. 1.2% annually of the Policy's accumulation value (reduced by any
outstanding loan) in Policy years 1 through 10; and
. .95% annually of the Policy's accumulation value (reduced by any
outstanding loan) in Policy years 11 through 15.
38
<PAGE>
B. For a Policy issued based on full underwriting:
. 2.5% of the Policy's accumulation value (reduced by any outstanding
loan) in Policy year 1;
. 1.0% annually of the Policy's accumulation value (reduced by any
outstanding loan) in Policy years 2 through 10;
. 0.50% annually of the Policy's accumulation value (reduced by any
outstanding loan) in Policy years 11 through 20; and
. 0.25% annually of the Policy's accumulation value (reduced by any
outstanding loan) after Policy year 20.
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 BOSC compensation in a lump sum which will not exceed
the aggregate compensation described above.
We pay a comparable amount of compensation to BOSC with respect to any
increase in the specified amount of coverage that you request. In addition, we
may pay BOSC expense allowances, bonuses, wholesaler fees and training
allowances.
We pay the compensation directly to BOSC. We pay the compensation from our
own resources which does not result in any additional charge to you that is not
described on page ___ of the prospectus. BOSC may compensate its registered
representative or employee who acts as agent in selling you a Policy.
Payment of Policy Proceeds
General. We will pay any death benefit, maturity benefit, cash surrender
value or loan proceeds within seven days after we receive the last required form
or request (and any other documents that may be required for payment of a death
benefit). If we do not have information about the desired manner of payment
within 60 days after the date we receive notification of the insured person's
death, we will pay the proceeds as a single sum, normally within seven days
thereafter.
Delay 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.
39
<PAGE>
Delay of Separate Account VL-R 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 VL-R 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.
Adjustments to Death Benefit
Suicide. If the insured commits suicide during the first two Policy years,
we will limit the death benefit proceeds to the total of all premiums that have
been paid to the time of death minus any outstanding Policy loans (plus credit
for any unearned interest) and any partial surrenders. A new two year period
begins if you increase the specified amount. You can increase the specified
amount only if the insured is living at the time of the increase. In this case,
if the insured commits suicide during the first two years following the
increase, we will refund the monthly insurance deductions attributable to the
increase. The death benefit will then be based on the specified amount in effect
before the increase. Some states require that we compute differently these
periods for non-contestability following a suicide.
40
<PAGE>
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 in proportion 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 interest rates and charges, as long as we stay within the
minimum and maximum charges permitted in your Policy;
. change the underlying Mutual Fund that any investment option uses;
. add, delete or limit investment options, combine two or more
investment options, or withdraw assets relating to The One VUL
Solution 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;
. change our guidelines for the simplified and full underwriting
methods;
. operate Separate Account VL-R, or one or more investment options, in
any other form the law allows, including a form that allows us to make
direct investments. Separate Account VL-R may be charged an advisory
fee if its investments are made directly rather than through another
investment company. In that case, we may make any legal investments we
wish; or
41
<PAGE>
. 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 all applicable laws in making any changes and, if
necessary, we will seek Policy owner approval.
Performance Information
From time to time, we may quote performance information for the divisions
of Separate Account VL-R in advertisements, sales literature, or reports to
owners or prospective investors.
We may quote performance information in any manner permitted under
applicable law. We may, for example, present such information as a change in a
hypothetical owner's cash value or death benefit. We also may present the yield
or total return of the division based on a hypothetical investment in a Policy.
The performance information shown may cover various periods of time, including
periods beginning with the commencement of the operations of the division or the
Mutual Funds in which it invests. The performance information shown may reflect
the deduction of one or more charges, such as the premium charge, and we
generally expect to exclude costs of insurance charges because of the individual
nature of these charges.
We may compare a division's performance to that of other variable life
separate accounts or investment products, as well as to generally accepted
indices or analyses, such as those provided by research firms and rating
services. In addition, we may use performance ratings that may be reported
periodically in financial publications, such as Money Magazine, Forbes, Business
Week, Fortune, Financial Planning and The Wall Street Journal. We also may
advertise ratings of AGL's financial strength or claims-paying ability as
determined by firms that analyze and rate insurance companies and by nationally
recognized statistical rating organizations.
Performance information for any division reflects the performance of a
hypothetical Policy and are not illustrative of how actual investment
performance would affect the benefits under your Policy. You should not consider
such performance information to be an estimate or guarantee of future
performance.
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
42
<PAGE>
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
--------------------------------------------------------------------------------
Rodney O. Martin, Jr. Director of American General Life Insurance
Company since August 1996. Chairman of the
Board and CEO of American General Life
Insurance Company since April 2000. 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, Hartford, Connecticut
(1990-1995).
Donald W. Britton Director of the Board of American General
Life Insurance Company since April 1999.
President of American General Life Insurance
Company since April 2000. President of First
Colony Life, Lynchburg, Virginia (1996 -April
1999) and Executive Vice President of First
Colony Life (1992 - 1996).
David A. Fravel Director of American General Life Insurance
Company since November 1996. Elected
Executive Vice President in April 1998.
Previously held position of Senior Vice
President of American General Life Insurance
Company since November 1996. Senior Vice
President of Massachusetts Mutual,
Springfield, Missouri (March 1996-June 1996);
Vice President, New Business, Connecticut
Mutual Life Insurance Company, Hartford,
Connecticut (December 1978-March 1996).
David L. Herzog Director, Executive Vice President and Chief
Financial Officer of American General Life
Insurance Company since March 2000. Vice
President of General American, St. Louis,
Missouri (June 1991 -February 2000).
43
<PAGE>
Name Business Experience Within Past Five Years
--------------------------------------------------------------------------------
John V. LaGrasse Director of American General Life Insurance
Company since August 1996. Chief Technology
Officer of American General Life Insurance
Company since April, 2000. Elected Executive
Vice President in July 1998. Previously held
position of Senior Vice President of American
General Life Insurance Company since August
1996. Director of Citicorp Insurance Services,
Inc., Dover, Delaware (1986-1996).
Paul L. Mistretta Executive Vice President of American General
Life Insurance Company since July 1999. Senior
Vice President of First Colony Life Insurance,
Lynchburg, Virginia (1992 - July 1999).
Brian D. Murphy Executive Vice President of American General
Life Insurance Company since July 1999.
Previously held position of Senior Vice
President-Insurance Operations of American
General Life Insurance Company since April
1998. 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).
Don M. Ward Executive Vice President of American General
Life Insurance Company since April 2000.
Senior Vice President of American General Life
Insurance Company since February 1998. Vice
President of Pacific Life Insurance Company,
Newport Beach, CA (1991-February 1998).
Thomas M. Zurek Director and Executive Vice President of
American General Life Insurance Company since
April 1999. Elected General Counsel in
December 1998. Previously held various
positions with American General Life Insurance
Company including Senior Vice President since
December 1998 and Vice President since October
1998. 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).
44
<PAGE>
Name Business Experience Within Past Five Years
--------------------------------------------------------------------------------
Wayne A. Barnard Senior Vice President of American General
Life Insurance Company since November 1997.
Previously held various positions with
American General Life Insurance Company
including Vice President since February 1991.
Robert M. Beuerlein Senior Vice President and Chief Actuary of
American General Life Insurance Company since
September 1999. Previously held position of
Vice President of American General Life
Insurance Company since December 1998.
Director, Senior Vice President and Chief
Actuary of The Franklin Life Insurance
Company, Springfield, Illinois (January 1991
-June 1999).
David J. Dietz Senior Vice President - Corporate Markets
Group of American General Life Insurance
Company since January 1999. President and
Chief Executive Officer - Individual
Insurance Operations of The United States
Life Insurance Company in the City of New
York since September, 1997. President of
Prudential Select Life, Newark, New Jersey
(August 1990 - September 1997).
William Guterding Senior Vice President of American General
Life Insurance Company since April 1999.
Senior Vice President and Chief Underwriting
Officer of The United States Life Insurance
Company in the City of New York since
October, 1980.
Robert F. Herbert, Jr. Senior Vice President and Treasurer of
American General Life Insurance Company since
May 1996, and Controller since February 1991.
Simon J. Leech Senior Vice President for American General
Life Insurance Company since July 1997.
Previously held various positions with
American General Life Insurance Company since
1981, including Director of Policy Owners'
Service Department in 1993, and Vice
President-Policy Administration in 1995.
Royce G. Imhoff, II Director for American General Life Insurance
Company since November 1997. Previously held
various positions with American General Life
Insurance Company including Vice President
since August 1996 and Regional Director since
1992.
45
<PAGE>
The principal business address of each person listed above is our Home
Office; except that the street number for Messrs. Fravel, LaGrasse, Martin,
Herzog, Britton, Mistretta, Barnard and Zurek is 2929 Allen Parkway, the street
number for Mr. Ward is 2727 Allen Parkway, the street number for Mr. Guterding
is 125 Maiden Lane, New York, New York.
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
Rodney O. Martin, Jr. Director and Vice Chairman
American General Life Companies
2929 Allen Parkway
Houston, TX 77019
Donald W. Britton Director and Assistant
American General Life Companies Vice President
2929 Allen Parkway
Houston, TX 77019
Royce G. Imhoff, II Director
American General Life Companies
2727-A Allen Parkway
Houston, Texas 77019
Alice T. Kane Director
American General Retirement Services
125 Maiden Lane
New York, New York 10038
46
<PAGE>
Position and Offices
with Underwriter,
Name and Principal American General
Business Address Securities Incorporated
---------------- -----------------------
John A. Kalbaugh Vice President -
American General Life Companies Chief Marketing Officer
2727 Allen Parkway
Houston, TX 77019
Sander J. Ressler Vice President,
2727 Allen Parkway Chief Compliance Officer and
Houston, TX 77019 Secretary
Don M. Ward Vice President
American General Life Companies
2727 Allen Parkway
Houston, TX 77019
Pauletta P. Cohn Assistant Secretary
American General Life Companies
2727 Allen Parkway
Houston, TX 77019
Robert F. Herbert, Jr. Assistant Treasurer
American General Life Companies
2727-A Allen Parkway
Houston, Texas 77019
D. Lynne Walters Assistant Tax Officer
2929 Allen Parkway
Houston, TX 77019
Legal Matters
We are not involved in any legal proceedings that would be considered
material with respect to a policy owner's interest in Separate Account VL-R.
Pauletta P. Cohn, Esquire, Deputy General Counsel of the American General Life
Companies, an affiliate of AGL, has opined as to the validity of the Policies.
47
<PAGE>
Accounting and Auditing Experts
The consolidated balance sheets of AGL as of December 31, 1999 and 1998
and the related consolidated statements of income, statements of comprehensive
income, statements of shareholders' equity, and statements of cash flows for the
years ended December 31, 1999, 1998 and 1997 included in this prospectus have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere in this prospectus, and are included in this
prospectus in reliance upon such report of Ernst & Young LLP given on the
authority of such firm as experts in accounting and auditing. The address of
Ernst & Young LLP is One Houston Center, 1221 McKinney, Suite 2400, Houston,
Texas 77010-2007.
Actuarial Expert
Actuarial matters have been examined by Robert M. Beuerlein, who is
Senior Vice President and Chief Actuary of AGL. His opinion on actuarial matters
is filed as an exhibit to the registration statement we have filed with the SEC
in connection with the Policies.
Services 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 One VUL Solution Policies.
We have entered into various services agreements with most of 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?"
Certain Potential Conflicts
The Mutual Funds sell shares to separate accounts of insurance
companies (and may sell in the future, certain qualified plans), 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
48
<PAGE>
our policy owners, we will see to it that appropriate action is taken to do so
as well as report any material irreconcilable conflicts that we know exist to
each Mutual Fund as soon as a conflict arises. 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.
FINANCIAL STATEMENTS
The financial statements of AGL contained in this prospectus should be
considered to bear only upon the ability of AGL to meet its obligations under
The One VUL Solution Policies. They should not be considered as bearing upon the
investment experience of Separate Account VL-R. No financial statements of
Separate Account VL-R are included because, at December 31, 1999, none of the
Divisions of Separate Account VL-R were available under The One VUL Solution
Policies.
<TABLE>
<CAPTION>
Consolidated Financial Statements of Page to
American General Life Insurance Company See in this
--------------------------------------- Prospectus
----------
<S> <C>
Unaudited Balance Sheet as of June 30, 2000.............................................. Q-1
Unaudited Income Statement for the six months ended June 30, 2000........................ Q-3
Report of Ernst & Young, LLP Independent Auditors........................................ F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998............................. F-2
Consolidated Income Statements for the years ended
December 31, 1999, 1998 and 1997...................................................... F-4
Consolidated Statements of Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997.................................. F-5
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997................................................ F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997................................................ F-7
Notes to Consolidated Financial Statements............................................... F-8
</TABLE>
49
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheet
(Unaudited)
June 30
2000
------------
(In Thousands)
Assets
Investments:
Fixed maturity securities, at fair value (amortized cost -
$27,397,632) $ 26,486,802
Equity securities, at fair value (cost - $269,013) 276,251
Mortgage loans on real estate 1,955,401
Policy loans 1,262,556
Investment real estate 129,185
Other long-term investments 202,551
Short-term investments 1,036,782
------------
Total investments 31,349,528
Cash 62,715
Investment in Parent Company (cost - $7,958) 42,676
Indebtedness from affiliates 44,248
Accrued investment income 475,107
Accounts receivable 228,854
Deferred policy acquisition costs 2,120,995
Property and equipment 69,419
Other assets 251,246
Assets held in separate accounts 24,640,270
------------
Total assets $ 59,285,058
============
Q-1
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheet
(Unaudited)
June 30
2000
-------------
(In Thousands)
Liabilities and shareholders' equity
Liabilities:
Future policy benefits $ 29,527,010
Other policy claims and benefits payable 52,437
Other policyholders' funds 372,669
Federal income taxes 288,307
Indebtedness to affiliates 4,690
Other liabilities 1,473,684
Liabilities related to separate accounts 24,640,270
-------------
Total liabilities 56,359,067
Shareholders' equity:
Common stock, $10 par value, 600,000 shares authorized,
issued, and outstanding 6,000
Preferred stock, $100 par value, 8,500 shares authorized,
issued, and outstanding 850
Additional paid-in capital 1,372,378
Accumulated other comprehensive income/(loss) (428,386)
Retained earnings 1,975,149
-------------
Total shareholders' equity 2,925,991
-------------
Total liabilities and shareholders' equity $ 59,285,058
=============
Q-2
<PAGE>
American General Life Insurance Company
Consolidated Income Statement
(Unaudited)
Six months
ended June 30
2000
--------------
(In Thousands)
Revenues:
Premiums and other considerations $ 325,542
Net investment income 1,169,590
Net realized investment loss (62,863)
Other 65,461
--------------
Total revenues 1,497,730
Benefits and expenses:
Benefits 884,923
Operating costs and expenses 284,589
--------------
Total benefits and expenses 1,169,512
--------------
Income before income tax expense 328,218
Income tax expense 110,407
--------------
Net income $ 217,811
==============
Q-3
<PAGE>
[LETTERHEAD OF ERNST & YOUNG]
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, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American General
Life Insurance Company and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
------------------------------
Ernst & Young LLP
March 1,2000
F-1
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheets
DECEMBER 31
1999 1998
-----------------------------
(In Thousands)
ASSETS
Investments:
Fixed maturity securities, at fair value
(amortized cost - $27,725,167 in 1999 and $27,029,409 $28,906,261
$27,425,605 in 1998)
Equity securities, at fair value (cost -
$198,640 in 1999 and $193,368 in 1998) 237,065 211,684
Mortgage loans on real estate 1,918,956 1,557,268
Policy loans 1,234,729 1,170,686
Investment real estate 125,563 119,520
Other long-term investments 129,155 86,194
Short-term investments 123,779 222,949
----------------------------
Total investments 30,798,656 32,274,562
Cash 45,983 117,675
Investment in Parent Company (cost - $8,597 in
1999 and 1998) 53,083 54,570
Indebtedness from affiliates 75,195 161,096
Accrued investment income 482,652 459,961
Accounts receivable 186,592 196,596
Deferred policy acquisition costs 1,956,653 1,087,718
Property and equipment 78,908 66,197
Other assets 250,299 206,318
Assets held in separate accounts 23,232,419 15,616,020
----------------------------
Total assets $57,160,440 $50,240,713
============================
See accompanying notes.
F-2
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheets
DECEMBER 31
1999 1998
-----------------------------
(In Thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits $29,901,842 $29,353,022
Other policy claims and benefits payable 53,326 54,278
Other policyholders' funds 371,632 398,587
Federal income taxes 375,332 677,315
Indebtedness to affiliates 7,086 18,173
Other liabilities 372,416 554,783
Liabilities related to separate accounts 23,232,419 15,616,020
----------------------------
Total liabilities 54,314,053 46,672,178
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 1,371,687 1,368,089
Accumulated other comprehensive (loss) income (356,865) 679,107
Retained earnings 1,824,715 1,514,489
----------------------------
Total shareholder's equity 2,846,387 3,568,535
----------------------------
Total liabilities and shareholder's equity $57,160,440 $50,240,713
============================
See accompanying notes.
F-3
<PAGE>
American General Life Insurance Company
Consolidated Statements of Income
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------------------------------
(In Thousands)
Revenues:
Premiums and other considerations $ 540,029 $ 470,238 $ 428,721
Net investment income 2,348,196 2,316,933 2,198,623
Net realized investment gains 5,351 (33,785) 29,865
(losses)
Other 82,581 69,602 53,370
-----------------------------------------
Total revenues 2,976,157 2,822,988 2,710,579
Benefits and expenses:
Benefits 1,719,375 1,788,417 1,757,504
Operating costs and expenses 495,606 467,067 379,012
Interest expense 74 15 782
Litigation settlement - 97,096 -
-----------------------------------------
Total benefits and expenses 2,215,055 2,352,595 2,137,298
-----------------------------------------
Income before income tax expense 761,102 470,393 573,281
Income tax expense 263,196 153,719 198,724
------------------------------------------
Net income $ 497,906 $ 316,674 $ 374,557
==========================================
See accompanying notes.
F-4
<PAGE>
American General Life Insurance Company
Consolidated Statements of Comprehensive Income
YEAR ENDED DECEMBER 31
1999 1998 1997
----------------------------------------
(In Thousands)
Net income $ 497,906 $ 316,674 $ 374,557
Other comprehensive income:
Gross change in unrealized gains
(losses) on securities (pretax:
($1,581,500) $341,000; $318,700) (1,027,977) 222,245 207,124
Less: gains (losses) realized in 7,995 (29,336) (1,251)
net income
----------------------------------------
Change in net unrealized gains
(losses) on securities (pretax:
($1,593,800) $387,000; $320,600) (1,035,972) 251,581 208,375
----------------------------------------
Comprehensive (loss) income $ (538,066) $ 568,255 $ 582,932
========================================
See accompanying notes.
F-5
<PAGE>
American General Life Insurance Company
Consolidated Statements of Shareholder's Equity
YEAR ENDED DECEMBER 31
1999 1998 1997
-------------------------------------------
(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 1,368,089 1,184,743 933,342
Capital contribution from Parent
Company - 182,284 250,000
Other changes during year 3,598 1,062 1,401
-------------------------------------------
Balance at end of year 1,371,687 1,368,089 1,184,743
Accumulated other comprehensive
(loss) income:
Balance at beginning of year 679,107 427,526 219,151
Change in unrealized gains
(losses) on securities (1,035,972) 251,581 208,375
------------------------------------------
Balance at end of year (356,865) 679,107 427,526
Retained earnings:
Balance at beginning of year 1,514,489 1,442,495 1,469,618
Net income 497,906 316,674 374,557
Dividends paid (187,680) (244,680) (401,680)
------------------------------------------
Balance at end of year 1,824,715 1,514,489 1,442,495
-------------------------------------------
Total shareholder's equity $2,846,387 $3,568,535 $3,061,614
===========================================
See accompanying notes.
F-6
<PAGE>
American General Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
--------------------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
OPERATING ACTIVITIES
Net income $ 497,906 $ 316,674 $ 374,557
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts receivable 10,004 11,613 (37,752)
Change in future policy benefits and other
policy claims (2,422,221) (866,428) (1,143,736)
Amortization of policy acquisition costs 101,066 125,062 115,467
Policy acquisition costs deferred (307,854) (244,196) (219,339)
Change in other policyholders' funds (26,955) 273 21,639
Provision for deferred income tax expense 85,257 15,872 13,264
Depreciation 24,066 19,418 16,893
Amortization (30,894) (26,775) (28,276)
Change in indebtedness to/from affiliates 74,814 (51,116) (8,695)
Change in amounts payable to brokers (43,321) (894) 31,769
Net loss (gain) on sale of investments 45,379 37,016 (29,865)
Other, net (170,413) 57,307 30,409
--------------------------------------------------------------------
Net cash used in operating activities (2,163,166) (606,174) (863,665)
INVESTING ACTIVITIES
Purchases of investments and loans made (44,508,908) (28,231,615) (29,638,861)
Sales or maturities of investments and
receipts from repayment of loans 43,879,377 26,656,897 28,300,238
Sales and purchases of property, equipment,
and software, net (87,656) (105,907) (9,230)
--------------------------------------------------------------------
Net cash used in investing activities (717,187) (1,680,625) (1,347,853)
FINANCING ACTIVITIES
Policyholder account deposits 5,747,658 4,688,831 4,187,191
Policyholder account withdrawals (2,754,915) (2,322,307) (1,759,660)
Dividends paid (187,680) (244,680) (401,680)
Capital contribution from Parent - 182,284 250,000
Other 3,598 1,062 1,401
--------------------------------------------------------------------
Net cash provided by financing activities 2,808,661 2,305,190 2,277,252
--------------------------------------------------------------------
(Decrease) increase in cash (71,692) 18,391 65,734
Cash at beginning of year 117,675 99,284 33,550
--------------------------------------------------------------------
Cash at end of year $ 45,983 $ 117,675 $ 99,284
====================================================================
</TABLE>
Interest paid amounted to approximately $2,026,000, $420,000, and $1,004,000, in
1999, 1998, and 1997, respectively.
See accompanying notes.
F-7
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1999
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 life 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-8
<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,
1999.
Statutory financial statements differ from GAAP. Significant differences were as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------
Net income:
<S> <C> <C> <C>
Statutory net income (1999 balance is
unaudited) $ 350,294 $ 259,903 $ 327,813
Deferred policy acquisition costs and cost
of insurance purchased 200,285 116,597 103,872
Deferred income taxes (86,456) (53,358) (13,264)
Adjustments to policy reserves 23,110 52,445 (30,162)
Goodwill amortization (2,437) (2,033) (2,067)
Net realized gain on investments 2,246 41,488 20,139
Litigation settlement - (63,112) -
Other, net 10,864 (35,256) (31,774)
--------------------------------------------------------
GAAP net income $ 497,906 $ 316,674 $ 374,557
========================================================
Shareholders' equity:
Statutory capital and surplus (1999 balance
is unaudited) $1,753,570 $1,670,412 $1,636,327
Deferred policy acquisition costs and cost
of insurance purchased 1,975,667 1,109,831 835,031
Deferred income taxes (350,258) (698,350) (535,703)
Adjustments to policy reserves (202,150) (274,532) (319,680)
Acquisition-related goodwill 52,317 54,754 51,424
Asset valuation reserve ("AVR") 351,904 310,564 255,975
Interest maintenance reserve ("IMR") 53,226 27,323 9,596
Investment valuation differences (683,500) 1,487,658 1,272,339
Surplus from separate accounts (180,362) (174,447) (150,928)
Other, net 75,973 55,322 7,233
--------------------------------------------------------
Total GAAP shareholders' equity $2,846,387 $3,568,535 $3,061,614
========================================================
</TABLE>
F-9
<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. At
December 31, 1999 and 1998, insurance investment contracts of $25.9 million and
$24.1 million, respectively, were included in the Company's liabilities.
F-10
<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, 1999 and 1998. 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 1999, the Company maintained a trading portfolio of certain fixed
maturity securities. Trading securities are recorded at fair value. Unrealized
and realized gains (losses) are included in net investment income. The Company
held no trading securities at December 31, 1999, and trading securities did not
have a material effect on net investment income in 1999.
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-11
<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 and any amortization of premium or discount on
delinquent mortgage loans is recorded as income only when actual interest
payments are 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-12
<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, 1999, CIP
of $19.0 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-13
<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 insurance and 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, 1999.
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 $28 million, $63 million, and $25 million, during
1999, 1998, and 1997, 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. Benefits paid and future policy benefits
related to ceded insurance contracts are recorded as reinsurance receivables.
F-14
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.11 PARTICIPATING POLICY CONTRACTS
Participating life insurance accounted for approximately 1% and 2% of life
insurance in force at December 31, 1999 and 1998, respectively.
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 $4.6 million in 1999.
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.
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.
F-15
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (Continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.13 ACCOUNTING CHANGES
In 1998, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") 133, Accounting for Derivative
Instruments and Hedging Activities, which requires all derivative instruments to
be recognized at fair value in the balance sheet. Changes in the fair value of a
derivative instrument will be reported as earnings or other comprehensive
income, depending upon the intended use of the derivative instrument. The
Company will adopt SFAS 133 on January 1, 2001. The Company does not expect
adoption to have a material impact on the Company's results of operations and
financial position.
2. INVESTMENTS
2.1 INVESTMENT INCOME
Investment income by type of investment was as follows:
1999 1998 1997
-------------------------------------------
(In Thousands)
Investment income:
Fixed maturities $2,118,794 $2,101,730 $1,966,528
Equity securities 17,227 1,813 1,067
Mortgage loans on real estate 134,878 148,447 157,035
Investment real estate 20,553 23,139 22,157
Policy loans 69,684 66,573 62,939
Other long-term investments 7,539 3,837 3,135
Short-term investments 24,874 15,492 8,626
Investment income from affiliates 8,695 10,536 11,094
-------------------------------------------
Gross investment income 2,402,244 2,371,567 2,232,581
Investment expenses 54,048 54,634 33,958
-------------------------------------------
Net investment income $2,348,196 $2,316,933 $2,198,623
===========================================
The carrying value of investments that produced no investment income during 1999
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:
1999 1998 1997
-------------------------------------------
(In Thousands)
Fixed maturities:
Gross gains $ 118,427 $ 20,109 $ 42,966
Gross losses (102,299) (62,657) (34,456)
-------------------------------------------
Total fixed maturities 16,128 (42,548) 8,510
Equity securities 793 645 1,971
Other investments (11,570) 8,118 19,384
-------------------------------------------
Net realized investment gains
(losses) 5,351 (33,785) 29,865
before tax
Income tax expense (benefit) 1,874 (11,826) 10,452
Net realized investment gains
(losses) $ 3,477 $(21,959) $ 19,413
after tax
===========================================
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, 1999 and 1998 were as follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------------------------------------------------
(In Thousands)
DECEMBER 31, 1999
Fixed maturity securities:
Corporate securities:
Investment-grade $19,455,518 $134,003 $(704,194) $18,885,326
Below investment-grade 1,368,494 11,863 (114,260) 1,266,098
Mortgage-backed securities* 6,195,003 45,022 (74,746) 6,165,279
U.S. government obligations 276,621 15,217 (2,376) 289,462
Foreign governments 245,782 5,774 (1,767) 249,789
State and political 154,034 499 (10,836) 143,697
subdivisions
Redeemable preferred stocks 29,715 43 - 29,758
-------------------------------------------------
Total fixed maturity $27,725,167 $212,421 $(908,179) $27,029,409
securities
==================================================
Equity securities $ 198,640 $ 39,381 $ (956) $ 237,065
==================================================
Investment in Parent Company $ 8,597 $ 44,486 $ - $ 53,083
==================================================
* 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)
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
-------------------------------------------------
(In Thousands)
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 86,778 4,796 (187) 91,387
subdivisions
Redeemable preferred stocks 20,313 - (17) 20,296
-------------------------------------------------
Total fixed maturity $27,425,605 $1,556,487 $(75,831) $28,906,261
securities
=================================================
Equity securities $ 193,368 $ 19,426 $ (1,110) $ 211,684
=================================================
Investment in Parent Company $ 8,597 $ 45,973 $ - $ 54,570
=================================================
* 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:
1999 1998
-------------------------------
(In Thousands)
Gross unrealized gains $ 296,288 $1,621,883
Gross unrealized losses (909,135) (76,941)
DPAC and other fair value adjustments 200,353 (488,120)
Deferred federal income taxes 55,631 (377,718)
Net unrealized (losses) gains on securities $(356,863) $ 679,104
===============================
The contractual maturities of fixed maturity securities at December 31, 1999
were as follows:
1999 1998
--------------------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------------------------------------------------------
(In thousands) (In thousands)
Fixed maturity
securities, excluding
mortgage-backed
securities:
Due in one year or $ 810,124 $ 813,683 $ 531,496 $ 536,264
less
Due after one year
through five years 5,380,557 5,394,918 5,550,665 5,812,581
Due after five years
through ten years 8,350,207 8,080,065 9,229,980 9,747,761
Due after ten years 6,988,799 6,575,461 5,754,220 6,156,950
Mortgage-backed 6,195,480 6,165,282 6,359,244 6,652,705
securities
--------------------------------------------------------
Total fixed maturity $27,725,167 $27,029,409 $27,425,605 $28,906,261
securities
========================================================
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 $12.3 billion,
$5.4 billion, and $14.8 billion during 1999, 1998, and 1997, 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, 1999 and 1998:
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
----------------------------------------------
(In Millions)
DECEMBER 31, 1999
Geographic distribution:
South Atlantic $ 470 24.6% 0.2%
Pacific 363 18.9 7.8
West South Central 185 9.6 0.0
East South Central 144 7.5 0.0
East North Central 256 13.3 0.0
Mid-Atlantic 323 16.8 0.9
Mountain 107 5.6 13.8
West North Central 43 2.2 0.0
New England 44 2.3 0.0
Allowance for losses (16) (0.8) 0.0
-------------------------------
Total $1,919 100.0% 2.4%
===============================
Property type:
Retail $ 628 32.6% 2.5%
Office 746 38.9 4.2
Industrial 302 15.7 0.0
Apartments 189 9.9 0.0
Hotel/motel 46 2.4 0.0
Other 24 1.3 0.2
Allowance for losses (16) (0.8) 0.0
-------------------------------
Total $1,919 100.0% 2.4%
===============================
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)
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
----------------------------------------------
(In Millions)
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%
===============================
Impaired mortgage loans on real estate and related interest income is not
material.
F-22
<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, 1999 DECEMBER 31, 1998
-----------------------------------------------------------------------------------------
CARRYING CARRYING
COST FAIR VALUE AMOUNT COST FAIR VALUE AMOUNT
-----------------------------------------------------------------------------------------
(In Thousands) (In Thousands)
Fixed maturities:
Bonds:
<S> <C> <C> <C> <C> <C> <C>
United States
government and
government agencies $ 276,621 $ 289,462 $ 289,462 $ 417,822 $ 486,965 $ 486,965
and authorities
States, municipalities,
and political 154,034 143,697 143,697 86,778 91,387 91,387
subdivisions
Foreign governments 245,782 249,789 249,789 331,699 353,887 353,887
Public utilities 1,468,758 1,465,129 1,465,129 1,777,172 1,895,326 1,895,326
Mortgage-backed 6,195,003 6,165,279 6,165,279 6,359,242 6,652,703 6,652,703
securities
All other corporate 19,355,254 18,686,295 18,686,295 18,432,579 19,405,697 19,405,697
bonds**
Redeemable preferred 29,715 29,758 29,758 20,313 20,296 20,296
stocks
---------------------------------------------------------------------------------------------
Total fixed maturities 27,725,167 27,029,409 27,029,409 27,425,605 28,906,261 28,906,261
Equity securities:
Common stocks:
Banks, trust, and
insurance companies - - - - - -
Industrial,
miscellaneous, and 180,849 219,089 219,089 176,321 211,684 211,684
other
Nonredeemable preferred
stocks 17,791 17,976 17,976 17,047 - -
---------------------------------------------------------------------------------------------
Total equity securities 198,640 237,065 237,065 193,368 211,684 211,684
Mortgage loans on real 1,918,956 1,829,212 1,918,956 1,557,268 1,607,599 1,557,268
estate*
Investment real estate 125,563 XXXXXXX 125,563 119,520 xxxxxxx 119,520
Policy loans 1,234,729 1,205,056 1,234,729 1,170,686 1,252,409 1,170,686
Other long-term investments 129,155 XXXXXXX 129,155 86,194 xxxxxxx 86,194
Short-term investments 123,779 XXXXXXX 123,779 222,949 xxxxxxx 222,949
---------------------------------------------------------------------------------------------
Total investments $31,455,989 $ XXXXXXX $ 30,798,656 $ 30,775,590 $ xxxxxxx $ 32,274,562
============================================================================================
</TABLE>
* Amount is net of allowance for losses of $16 million and $13 million at
December 31, 1999 and 1998, respectively.
** Includes derivative financial instruments with negative fair values of $4.7
million and $1.0 million and positive fair values of $2.3 million and $24.3
million at December 31, 1999 and 1998, respectively.
F-23
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. DEFERRED POLICY ACQUISITIONS 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:
1999 1998 1997
--------------------------------------
(In Thousands)
Balance at January 1 $1,087,718 $ 835,031 $1,042,783
Capitalization 307,854 244,196 219,339
Amortization (101,066) (125,062) (115,467)
Effect of realized and unrealized
gains (losses) on securities 662,147 133,553 (311,624)
--------------------------------------
Balance at December 31 $1,956,653 $1,087,718 $ 835,031
=======================================
4. OTHER ASSETS
Other assets consisted of the following:
DECEMBER 31
1999 1998
------------------------------
(In Thousands)
Goodwill $ 52,317 $ 54,754
American General Corporation CBO (Collateralized
Bond Obligation) 98-1 Ltd. - 9,740
Cost of insurance purchased ("CIP") 19,014 22,113
Computer software 117,571 78,775
Other 61,397 40,936
------------------------------
Total other assets $250,299 $206,318
==============================
F-24
<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, 1999, was as follows:
1999
------------
(In
Thousands)
Balance at January 1 $ 22,113
Acquisition of business -
Accretion of interest at 5.02% 926
Amortization (4,025)
---------
Balance at December 31 $ 19,014
=========
5. FEDERAL INCOME TAXES
5.1 TAX LIABILITIES
Income tax liabilities were as follows:
DECEMBER 31
1999 1998
-----------------------------
(In Thousands)
Current tax (receivable) payable $ 25,074 $ (21,035)
Deferred tax liabilities, applicable to:
Net income 405,889 320,632
Net unrealized investment gains (55,631) 377,718
-----------------------------
Total deferred tax liabilities 350,258 698,350
-----------------------------
Total current and deferred tax liabilities $375,332 $677,315
=============================
F-25
<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:
1999 1998
--------------------------
(In Thousands)
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 601,678 $ 307,025
Basis differential of investments - 590,661
Other 171,763 150,189
---------------------------
Total deferred tax liabilities 773,441 1,047,875
Deferred tax assets applicable to:
Policy reserves (215,465) (212,459)
Basis differential of investments (158,421) -
Other (141,236) (137,066)
--------------------------
Total deferred tax assets before valuation
allowance (515,122) (349,525)
Valuation allowance 91,939 -
--------------------------
Total deferred tax assets, net of valuation
allowance (423,183) (349,525)
--------------------------
Net deferred tax liabilities $ 350,258 $ 698,350
==========================
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 $88.2 million at December 31, 1999. At current corporate rates, the
maximum amount of tax on such income is approximately $30.9 million. Deferred
income taxes on these accumulations are not required because no distributions
are expected.
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 income tax expense for the years were as follows:
1999 1998 1997
-------------------------------------
(In Thousands)
Current expense $176,725 $134,344 $185,460
Deferred expense (benefit):
Deferred policy acquisition cost 65,377 33,230 27,644
Policy reserves (22,654) 2,189 (27,496)
Basis differential of investments (4,729) 11,969 3,769
Litigation settlement 22,641 (33,983) -
Year 2000 - (9,653) -
Internally developed software 18,654 - -
Other, net 7,182 15,623 9,347
-------------------------------------
Total deferred expense 86,471 19,375 13,264
-------------------------------------
Income tax expense $263,196 $153,719 $198,724
=====================================
5.2 TAX EXPENSE
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.
1999 1998 1997
-------------------------------------
(In Thousands)
Income tax at statutory percentage
of GAAP pretax income $266,386 $164,638 $200,649
Tax-exempt investment income (16,423) (11,278) (9,493)
Goodwill 853 712 723
Other 12,380 (353) 6,845
-------------------------------------
Income tax expense $263,196 $153,719 $198,724
=====================================
F-27
<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 $126 million, $159 million, and $168
million in 1999, 1998, and 1997, 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 1992. The IRS is
currently examining tax returns for 1993 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, 1999 DECEMBER 31, 1998
------------------------------------------------------------
PAR VALUE BOOK VALUE PAR VALUE BOOK VALUE
------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
American General
Corporation, 9 3/8%, $ 4,725 $ 3,410 $ 4,725 $ 3,345
due 2008
American General
Corporation, Promissory
notes, due 2004 12,232 12,232 14,679 14,679
American General
Corporation, Restricted
Subordinated Note,
13 1/2%, due 2002 27,378 27,378 29,435 29,435
------------------------------------------------------------
Total notes receivable
from affiliates 44,335 43,020 48,839 47,459
Accounts receivable from
affiliates - 32,175 - 113,637
------------------------------------------------------------
Indebtedness from $44,335 $75,195 $48,839 $161,096
affiliates
============================================================
</TABLE>
F-28
<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 $55,318,000, $46,921,000, and $33,916,000 for such services in
1999, 1998, and 1997, respectively. Accounts payable for such services at
December 31, 1999 and 1998 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, to a number of American General Corporation's life
insurance subsidiaries. The Company received approximately $138,885,000,
$66,550,000, and $6,455,000 for such services and rent in 1999, 1998, and 1997,
respectively. Accounts receivable for rent and services at December 31, 1999 and
1998 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.
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. American
General Corporation follows the intrinsic value method of accounting for stock
options as prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Therefore, the 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-29
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. STOCK-BASED COMPENSATION (CONTINUED)
Under an alternative accounting method of accounting under Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
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>
1999 1998 1997
---------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net income as reported $497,906 $316,674 $374,557
Net income pro forma $495,331 $315,078 $373,328
</TABLE>
The average fair values of the options granted during 1999, 1998, and 1997 were
$17.06, $15.38, and $10.33, 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>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Dividend yield 2.5% 2.5% 3.0%
Expected volatility 24.4% 23.0% 22.0%
Risk-free interest rate 4.95% 5.76% 6.4%
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 71% and 26%, 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-30
<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 $59 million.
The components of pension expense and underlying assumptions were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost $ 3,575 $ 3,693 $ 1,891
Interest cost 7,440 6,289 2,929
Expected return on plan assets (12,670) (9,322) (5,469)
Amortization (820) (557) 195
Pension (income) expense $ (2,475) $ 103 $ (454)
===============================================
Discount rate on benefit obligation 7.75% 7.00% 7.25%
Rate of increase in compensation levels 4.25% 4.25% 4.00%
Expected long-term rate of return on
plan assets 10.35% 10.25% 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>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
Projected benefit obligation (PBO) $100,600 $ 96,554
Plan assets at fair value 145,863 120,898
-------------------------------
Plan assets at fair value in excess of PBO 45,263 24,344
Other unrecognized items, net (26,076) (10,176)
-------------------------------
Prepaid pension expense $ 19,187 $ 14,168
===============================
</TABLE>
F-31
<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>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
PBO at January 1 $ 96,554 $43,393
Service and interest costs 11,015 9,982
Benefits paid (4,919) (1,954)
Actuarial loss (12,036) 17,089
Amendments, transfers, and acquisitions 9,986 28,044
-------------------------------
PBO at December 31 $100,600 $96,554
===============================
</TABLE>
The change in the fair value of plan assets was as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
Fair value of plan assets at January 1 $120,898 $ 80,102
Actual return on plan assets 17,934 12,269
Benefits paid (4,919) (1,954)
Acquisitions and other 11,950 30,481
-------------------------------
Fair value of plan assets at December 31 $145,863 $120,898
===============================
</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, with retiree
contributions adjusted annually to limit employer contributions to predetermined
amounts. The Company has reserved the right to change or eliminate these
benefits at any time.
F-32
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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 1999, 1998, and 1997 was $254,000, $60,000,
and $601,000, respectively. The accrued liability for postretirement benefits
was $18.8 million and $19.2 million at December 31, 1999 and 1998, 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-33
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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
sheets 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-34
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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>
1999 1998
-------------------------------
(Dollars in Millions)
<S> <C> <C>
Interest rate swap agreements to receive fixed rate:
Notional amount $ 160 $ 369
Average receive rate 6.73% 6.06%
Average pay rate 6.55% 5.48%
Currency swap agreements (receive U.S.
dollars/pay Canadian dollars):
Notional amount (in U.S. dollars) $ 124 $ 124
Average exchange rate 1.50 1.50
Currency swap agreements (receive U.S. dollars/pay
Australian dollars):
Notional amount (in U.S. dollars) $ 23 $ -
Average exchange rate 0.65 -
</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.
F-35
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.3 CALL SWAPTIONS (CONTINUED)
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.
Swaptions at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------
(Dollars in Billions)
<S> <C> <C>
Call swaptions:
Notional amount $3.78 $1.76
Average strike rate 4.52% 3.97%
Put swaptions:
Notional amount $2.14 $1.05
Average strike rate 8.60% 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-36
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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.
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-37
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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 $187 million, $244 million, and
$401 million, in dividends on common stock to AGC Life Insurance Company in
1999, 1998, and 1997, respectively. The Company also paid $680 thousand per year
in dividends on preferred stock to an affiliate, The Franklin Life Insurance
Company, in 1999, 1998, and 1997.
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, 1999,
approximately $2.6 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 $1.9 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-38
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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.
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 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. All settlements
were finalized in 1999.
The Company is party to various other lawsuits and proceedings arising in the
ordinary course of business. Many of these lawsuits and proceedings, including
those filed by individuals who have excluded themselves from the market conduct
settlement, and lawsuits relating to policies not covered by the market conduct
settlements, 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-39
<PAGE>
American General Life Insurance Company
Notes to Consolidate 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, 1999 and 1998, the Company has accrued $8.6 million and
$6.0 million, respectively, for guaranty fund assessments, net of $3.4 million
and $3.7 million, respectively, of premium tax deductions. The Company has
recorded receivables of $4.4 million and $6.2 million at December 31, 1999 and
1998, respectively, for expected recoveries against the payment of future
premium taxes. Expenses incurred for guaranty fund assessments were $2.1
million, $3.6 million, and $2.1 million in 1999, 1998, and 1997, respectively.
F-40
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1999, 1998, and 1997
were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
---------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1999
Life insurance in force $50,060,334 $17,056,734 $524,062 $33,527,662 1.56%
==============================================================
Premiums:
Life insurance and annuities $ 101,900 $ 49,530 $ 252 $ 52,622 0.48%
Accident and health insurance 977 84 - 893 0.00%
--------------------------------------------------------------
Total premiums $ 102,877 $ 49,614 $ 252 $ 53,515 0.47%
===============================================================
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%
============================================================
</TABLE>
Reinsurance recoverable on paid losses was approximately $8.0 million, $7.7
million, and $2.3 million at December 31, 1999, 1998, and 1997, respectively.
Reinsurance recoverable on unpaid losses was approximately $10.5 million, $2.5
million, and $3.2 million at December 31, 1999, 1998, and 1997, respectively.
F-41
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED)
Currently, all of our major technology systems, programs, and applications,
including those which rely on third parties, are operating smoothly following
our transition into 2000. We have experienced no interruptions to normal
business operations, including the processing of customer account data and
transactions. We will continue to monitor our technology systems, including
critical third-party dependencies, as necessary to maintain our Year 2000
readiness. We do not expect any future disruptions, if they occur, to have a
material effect on the Company's results of operations, liquidity, or financial
condition.
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.
F-42
<PAGE>
American General Life Insurance Company
Notes to Consolidate Financial Statements (continued)
15. DIVISION OPERATIONS
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
----------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
----------------------------------------------------------------------------------------
In Millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retirement Services $2,088 $1,987 $1,859 $ 567 $ 469 $ 398 $ 374 $ 315 $ 261
Life Insurance 883 870 822 191 162 147 123 107 97
---------------------------------------------------------------------------------------
Total divisions 2,971 2,857 2,681 758 631 545 497 422 358
Goodwill
amortization - - - (2) (2) (2) (2) (2) (2)
RG (L) 5 (34) 30 5 (34) 30 3 (22) 19
Nonrecurring items - - - - (125)(a) - - (81)(a) -
----------------------------------------------------------------------------------------
Total consolidated $2,976 $2,823 $2,711 $ 761 $ 470 $ 573 $ 498 $ 317 $ 375
=======================================================================================
</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.
Division balance sheet information was as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
--------------------------------------------------------
December 31
--------------------------------------------------------
In millions 1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
Retirement Services $47,323 $41,347 $45,359 $38,841
Life Insurance 9,837 8,894 8,955 7,831
--------------------------------------------------------
Total consolidated $57,160 $50,241 $54,314 $46,672
========================================================
</TABLE>
F-43
<PAGE>
INDEX OF WORDS AND PHRASES
This index should help you to locate more information about some of the
terms and phrases used in this prospectus.
<TABLE>
<CAPTION>
Page to
See in this
Defined Term Prospectus
------------ -----------
<S> <C>
accumulation value.......................................................... 5
AGLC........................................................................ 48
AGL......................................................................... 1
amount at risk.............................................................. 8
automatic rebalancing....................................................... 5
basis....................................................................... 29
beneficiary................................................................. 34
cash surrender value........................................................ 14
close of business........................................................... 36
Code........................................................................ 28
cost of insurance rates..................................................... 8
daily charge................................................................ 7
date of issue............................................................... 37
death benefit............................................................... 6
dollar cost averaging....................................................... 5
full surrender.............................................................. 14
Fund........................................................................ 2
investment option........................................................... 1
lapse....................................................................... 12
The One VUL Solution........................................................ 1
loan, loan interest......................................................... 15
maturity, maturity date..................................................... 16
modified endowment contract................................................. 28
monthly deduction day....................................................... 37
monthly insurance charge.................................................... 8
Mutual Fund................................................................. 2
option 1, 2................................................................. 6
partial surrender........................................................... 14
payment option.............................................................. 16
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Page to
See in this
Defined Term Prospectus
------------ ----------
<S> <C>
planned periodic premium......................................... 12
Policy........................................................... 1
Policy loan...................................................... 15
Policy month, year............................................... 37
preferred loan interest.......................................... 15
premium payments................................................. 4
premiums......................................................... 4
prospectus....................................................... 1
reinstate, reinsurance........................................... 12
SEC.............................................................. 2
Separate Account................................................. 1
Separate Account VL-R............................................ 27
seven-pay test................................................... 28
specified amount................................................. 6
surrender........................................................ 14
telephone transactions........................................... 19
transfers........................................................ 12
valuation date, period........................................... 36
</TABLE>
We have filed a registration statement relating to Separate Account VL-R and the
Policy with the SEC. The registration statement, which is required by the
Securities Act of 1933, includes additional information that is not required in
this prospectus. If you would like the additional information, you may obtain it
from the SEC's 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.
51
<PAGE>
American General Life Insurance Company
Member American General Financial Group
2727-A Allen Parkway, Houston, TX 77019
IMSA LOGO
INSURANCE
The One VUL Solution MARKETPLACE
STANDARDS
Policy form number: 99615 ASSOCIATION
Issued by American General Life Insurance Company Membership in
IMSA applies to
American General Life,
not its product
Distributed by American General Securities Incorporated
Member NASD and SIPC
Member Amercian General Financial Group
American General Financial Group is the marketing name for
American General Corporation and its subsidiaries. The products of the
life insurance company identified above are separately underwritten
and independently supported by the life insurance company. American
General Corporation has no responsibility for the financial condition or
contractual obligations of this life insurance company.
life
<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 51 pages of text, plus 43 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:
(a) Pauletta P. Cohn, Deputy General Counsel of
American General Life Companies
(b) American General Life Insurance Company's actuary
(c) Independent Auditors
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. (1)
(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. (13)
(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.
II-2
<PAGE>
(5) Specimen form of the "One VUL Solution" Variable Universal
Life Insurance Policy (Policy Form No. 99615). (11)
(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)
(8)(a)(ii) Form of Amendment Three to 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 dated as of February 1, 2000. (13)
(8)(b)(i) Form of Participation Agreement by and between The Variable
Annuity Life Insurance Company, American General Series
Portfolio Company, American General Securities Incorporated
and American General Life Insurance Company. (10)
(8)(b)(ii) Amendment One to Participation Agreement by and between The
Variable Annuity Life Insurance Company, American General
Series Portfolio, American General Securities Incorporated and
American General Life Insurance Company dated as of July 21,
1998. (8)
(8)(c)(i) Form of Participation Agreement Among MFS Variable Insurance
Trust, American General Life Insurance Company and
Massachusetts Financial Services Company. (6)
(8)(c)(ii) Form of Amendment Three to Participation Agreement Among MFS
Variable Insurance Trust, American General Life Insurance
Company and Massachusetts Financial Services Company dated as
of February 1, 2000. (13)
(8)(d)(i) Form of Participation Agreement Among Putnam Variable Trust,
Putnam Mutual Funds Corp., and American General Life Insurance
Company. (6)
II-3
<PAGE>
(8)(d)(ii) Form of Amendment One to Participation Agreement among Putnam
Variable Trust, Putnam Mutual Funds Corp., and American
General Life Insurance Company. (13)
(8)(e)(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)(e)(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)(e)(iii) Form of Amendment Five 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 Funds Inc. (13)
(8)(f) Form of Participation Agreement by and among American General
Life Insurance Company, Kemper Variable Series, Scudder
Kemper Investments, Inc. and Kemper Distributors, Inc. (13)
(8)(g) Form of Participation Agreement by and among American General
Life Insurance Company, Oppenheimer Variable Account Funds,
and OppenheimerFunds, Inc. (13)
(8)(h) Form of Fund Participation Agreement by and among American
General Life Insurance Company, Banc One Investment Advisors
Corporation, One Group Investment Trust, and One Group
Administrative Services, Inc. dated February 1, 2000. (13)
(8)(i) Form of Participation Agreement by and among American General
Life Insurance Company, Franklin Templeton Variable Insurance
Products Trust and Franklin Templeton Distributors, Inc. (14)
(8)(j) Form of Administrative Services Agreement between American
General Life Insurance Company and fund distributor. (5)
(8)(k) Form of Administrative Services Agreement between American
General Life Insurance Company and Van Kampen Asset
Management Inc. dated January 1, 2000. (13)
II-4
<PAGE>
(8)(l) 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)(m) Administrative Services Agreement dated as of June 1, 1998,
between American General Life Insurance Company and AIM
Advisors, Inc. (4)
(8)(n) Form of Administrative Services Agreement by and between
American General Life Insurance Company and OppenheimerFunds,
Inc. (13).
(8)(o) Form of Administrative Services Agreement between American
General Life Insurance Company and Scudder Kemper
Investments. (13)
(8)(p) Form of Administrative Services Agreement by and between
American General Life Insurance Company and Franklin
Templeton Services, Inc., dated as of July 1, 1999. (Filed
herewith)
(9) Not applicable.
(10)(a) Single Insured Life Insurance Application - Part A. (12)
(10)(b) Single Insured Life Insurance Application - Part B. (12)
(10)(c) Medical Exam Form Life Insurance Application. (12)
(10)(d) Single Insured Simplified Life Insurance Application. (13)
(10)(e) Variable Universal Life Insurance Supplemental
Application. (13)
(10)(f) Service Request Form. (13)
Other Exhibits
2(a) Opinion and Consent of Pauletta P. Cohn, Deputy General
Counsel of American General Life Companies. (13)
2(b) Opinion and Consent of American General Life Insurance
Company's actuary. (13)
3 Not applicable.
4 Not applicable.
5 Financial Data Schedule. (Not applicable)
II-5
<PAGE>
6 Consent of Independent Auditors. (Filed herewith)
7 Powers of Attorney. (Filed on Signature Pages)
27 Financial Data Schedule. (Inapplicable, because no financial
statements of the Separate Account are being filed herewith)
/1/ Incorporated by reference to initial filing of Form S-6 Registration
Statement (File No. 333-42567) of American General Life Insurance Company
Separate Account VL-R filed on December 18, 1997.
/2/ Incorporated by reference to initial filing of Form N-4 Registration
Statement (File No. 33-43390) of American General Life Insurance Company
Separate Account D filed on October 16, 1991.
/3/ Incorporated by reference to Post-Effective Amendment No. 1 to Form N-4
Registration Statement (File No. 33-43390) of American General Life Insurance
Company Separate Account D filed on April 30, 1992.
/4/ Incorporated by reference to initial filing of Form N-4 Registration
Statement (File No. 333-70667) of American General Life Insurance Company
Separate Account D filed on January 15, 1999.
/5/ Incorporated by reference to Pre-Effective Amendment No. 3 to Form S-6
Registration Statement (File No. 333-53909) of American General Life Insurance
Company Separate Account VL-R filed on August 19, 1998.
/6/ Incorporated by reference to Pre-Effective Amendment No. 1 to Form S-6
Registration Statement (File No. 333-42567) of American General Life Insurance
Company Separate Account VL-R filed on March 23, 1998.
/7/ Incorporated by reference to Pre-Effective Amendment No. 23 to Form N-4
Registration Statement (File No. 33-44745) of American General Life Insurance
Company Separate Account A filed on April 24, 1998.
/8/ Incorporated by reference to Pre-Effective Amendment No. 1 to Form N-4
Registration Statement (File No. 333-70667) of American General Life Insurance
Company Separate Account D filed 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 Pre-Effective Amendment No. 1 to Form N-4
Registration Statement (File No. 333-40637) of American General Life Insurance
Company Separate Account D filed on February 12, 1998.
/11/ Incorporated by reference to initial filing of Form S-6 Registration
Statement (File No. 333-87307) of American General Life Insurance Company
Separate Account VL-R filed on September 17, 1999.
II-6
<PAGE>
/12/ Incorporated by reference to initial filing of Form S-6 Registration
Statement (File No. 333-89897) of American General Life Insurance Company
Separate Account VL-R filed on October 29, 1999.
/13/ Incorporated by reference to Pre-Effective Amendment No. 1 to Form S-6
Registration Statement (File No. 333-87307) of American General Life Insurance
Company Separate Account VL-R filed on January 20, 2000.
/14/ Incorporated by reference to Post-Effective Amendment No. 1 to Form S-6
Registration Statement (File No. 333-89897) of American General Life Insurance
Company Separate Account VL-R filed on April 26, 2000.
II-7
<PAGE>
POWERS OF ATTORNEY
Each person whose signature appears below hereby appoints Thomas M. Zurek,
Robert F. Herbert, Jr. and Pauletta P. Cohn and each of them, any one of whom
may act without the joinder of the others, as his/her attorney-in-fact to sign
on his/her behalf and in the capacity stated below and to file all amendments to
this Registration Statement, which amendment or amendments may make such changes
and additions to this Registration Statement as such attorney-in-fact may deem
necessary or appropriate.
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 the 9th day of
October, 2000.
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, Treasurer and
Controller
[SEAL]
ATTEST: /s/ LAUREN W. JONES
---------------------------
Lauren W. Jones
Assistant Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed by the following officers and directors
of American General Life Insurance Company in the capacities and on the dates
indicated.
Signature Title Date
--------- ----- ----
/s/ RODNEY O. MARTIN, JR. Director, Chairman and October 9, 2000
---------------------------- Chief Executive Officer
Rodney O. Martin, Jr.
/s/ DONALD W. BRITTON Director and President October 9, 2000
----------------------------
Donald W. Britton
/s/ DAVID L. HERZOG Director, Executive Vice October 9, 2000
---------------------------- President and Chief Financial
David L. Herzog Officer
/s/ DAVID A. FRAVEL Director October 9, 2000
----------------------------
David A. Fravel
/s/ ROYCE G. IMHOFF, II Director October 9, 2000
----------------------------
Royce G. Imhoff, II
/s/ JOHN V. LAGRASSE Director October 9, 2000
----------------------------
John V. LaGrasse
/s/ THOMAS M. ZUREK Director October 9, 2000
----------------------------
Thomas M. Zurek
<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. (1)
(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. (13)
(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) Specimen form of the "One VUL Solution" Variable Universal
Life Insurance Policy (Policy Form No. 99615). (11)
(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
E-1
<PAGE>
Company, on Behalf of Itself and its Separate Accounts, and
American General Securities Incorporated. (6)
(8)(a)(ii) Form of Amendment Three to 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 dated as of February 1, 2000. (13)
(8)(b)(i) Form of Participation Agreement by and between The Variable
Annuity Life Insurance Company, American General Series
Portfolio Company, American General Securities Incorporated
and American General Life Insurance Company. (10)
(8)(b)(ii) Amendment One to Participation Agreement by and between The
Variable Annuity Life Insurance Company, American General
Series Portfolio, American General Securities Incorporated
and American General Life Insurance Company dated as of July
21, 1998. (8)
(8)(c)(i) Form of Participation Agreement Among MFS Variable Insurance
Trust, American General Life Insurance Company and
Massachusetts Financial Services Company. (6)
(8)(c)(ii) Form of Amendment Three to Participation Agreement Among MFS
Variable Insurance Trust, American General Life Insurance
Company and Massachusetts Financial Services Company dated as
of February 1, 2000. (13)
(8)(d)(i) Form of Participation Agreement Among Putnam Variable Trust,
Putnam Mutual Funds Corp., and American General Life
Insurance Company. (6)
(8)(d)(ii) Form of Amendment One to Participation Agreement among Putnam
Variable Trust, Putnam Mutual Funds Corp., and American
General Life Insurance Company. (13)
(8)(e)(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)(e)(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
E-2
<PAGE>
Trust, Van Kampen American Capital Asset Management, Inc.,
and Van Kampen American Capital Distributors, Inc. (8)
(8)(e)(iii) Form of Amendment Five 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 Funds Inc. (13)
(8)(f) Form of Participation Agreement by and among American General
Life Insurance Company, Kemper Variable Series, Scudder
Kemper Investments, Inc. and Kemper Distributors, Inc. (13)
(8)(g) Form of Participation Agreement by and among American General
Life Insurance Company, Oppenheimer Variable Account Funds,
and OppenheimerFunds, Inc. (13)
(8)(h) Form of Fund Participation Agreement by and among American
General Life Insurance Company, Banc One Investment Advisors
Corporation, One Group Investment Trust, and One Group
Administrative Services, Inc. dated February 1, 2000. (13)
(8)(i) Form of Participation Agreement by and among American General
Life Insurance Company, Franklin Templeton Variable Insurance
Products Trust and Franklin Templeton Distributors, Inc. (14)
(8)(j) Form of Administrative Services Agreement between American
General Life Insurance Company and fund distributor. (5)
(8)(k) Form of Administrative Services Agreement between American
General Life Insurance Company and Van Kampen Asset
Management Inc. dated January 1, 2000. (13)
(8)(l) 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)(m) Administrative Services Agreement dated as of June 1, 1998,
between American General Life Insurance Company and AIM
Advisors, Inc. (4)
(8)(n) Form of Administrative Services Agreement by and between
American General Life Insurance Company and OppenheimerFunds,
Inc. (13).
E-3
<PAGE>
(8)(o) Form of Administrative Services Agreement between American
General Life Insurance Company and Scudder Kemper
Investments. (13)
(8)(p) Form of Administrative Services Agreement by and between
American General Life Insurance Company and Franklin
Templeton Services, Inc., dated as of July 1, 1999. (Filed
herewith)
(9) Not applicable.
(10)(a) Single Insured Life Insurance Application - Part A. (12)
(10)(b) Single Insured Life Insurance Application - Part B. (12)
(10)(c) Medical Exam Form Life Insurance Application. (12)
(10)(d) Single Insured Simplified Life Insurance Application. (13)
(10)(e) Variable Universal Life Insurance Supplemental
Application. (13)
(10)(f) Service Request Form. (13)
Other Exhibits
2(a) Opinion and Consent of Pauletta P. Cohn, Deputy General
Counsel of American General Life Companies. (13)
2(b) Opinion and Consent of American General Life Insurance
Company's actuary. (13)
3 Not applicable.
4 Not applicable.
5 Financial Data Schedule. (Not applicable)
6 Consent of Independent Auditors. (Filed herewith)
7 Powers of Attorney. (Filed on Signature Pages)
27 Financial Data Schedule. (Inapplicable, because no financial
statements of the Separate Account are being filed herewith)
E-4
<PAGE>
/1/ Incorporated by reference to initial filing of Form S-6 Registration
Statement (File No. 333-42567) of American General Life Insurance Company
Separate Account VL-R filed on December 18, 1997.
/2/ Incorporated by reference to initial filing of Form N-4 Registration
Statement (File No. 33-43390) of American General Life Insurance Company
Separate Account D filed on October 16, 1991.
/3/ Incorporated by reference to Post-Effective Amendment No. 1 to Form N-4
Registration Statement (File No. 33-43390) of American General Life Insurance
Company Separate Account D filed on April 30, 1992.
/4/ Incorporated by reference to initial filing of Form N-4 Registration
Statement (File No. 333-70667) of American General Life Insurance Company
Separate Account D filed on January 15, 1999.
/5/ Incorporated by reference to Pre-Effective Amendment No. 3 to Form S-6
Registration Statement (File No. 333-53909) of American General Life Insurance
Company Separate Account VL-R filed on August 19, 1998.
/6/ Incorporated by reference to Pre-Effective Amendment No. 1 to Form S-6
Registration Statement (File No. 333-42567) of American General Life Insurance
Company Separate Account VL-R filed on March 23, 1998.
/7/ Incorporated by reference to Pre-Effective Amendment No. 23 to Form N-4
Registration Statement (File No. 33-44745) of American General Life Insurance
Company Separate Account A filed on April 24, 1998.
/8/ Incorporated by reference to Pre-Effective Amendment No. 1 to Form N-4
Registration Statement (File No. 333-70667) of American General Life Insurance
Company Separate Account D filed 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 Pre-Effective Amendment No. 1 to Form N-4
Registration Statement (File No. 333-40637) of American General Life Insurance
Company Separate Account D filed on February 12, 1998.
/11/ Incorporated by reference to initial filing of Form S-6 Registration
Statement (File No. 333-87307) of American General Life Insurance Company
Separate Account VL-R filed on September 17, 1999.
/12/ Incorporated by reference to initial filing of Form S-6 Registration
Statement (File No. 333-89897) of American General Life Insurance Company
Separate Account VL-R filed on October 29, 1999.
E-5
<PAGE>
/13/ Incorporated by reference to Pre-Effective Amendment No. 1 to Form S-6
Registration Statement (File No. 333-87307) of American General Life Insurance
Company Separate Account VL-R filed on January 20, 2000.
/14/ Incorporated by reference to Post-Effective Amendment No. 1 to Form S-6
Registration Statement (File No. 333-89897) of American General Life Insurance
Company Separate Account VL-R filed on April 26, 2000.
E-6
