<PAGE>
Registration No. 333-89897
As filed with the Securities and Exchange Commission on January 21, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-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
2727 Allen Parkway
Houston, Texas 77019-2191
(Name and Complete Address of Agent for Service)
Securities Being Offered: Flexible Premium Variable Life Insurance Policies.
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or date as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT VL-R
RECONCILIATION AND TIE BETWEEN ITEMS IN FORM
N-8B-2 AND THE PROSPECTUS
(PURSUANT TO INSTRUCTION 4 OF FORM S-6)
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO. OF FORM N-8B-2* PROSPECTUS CAPTION
- -----------------------------------------------------------------------------------------------------
<S> <C>
1 Additional Information : Separate Account VL-R.
2 Additional Information: AGL.
3 Inapplicable.
4 Additional Information: Distribution of Policies.
5, 6 Additional Information: Separate Account VL-R.
7 Inapplicable.**
8 Inapplicable.**
9 Additional Information: Legal Matters.
10(a) Additional Information: Your Beneficiary, Assigning
Your Policy.
10(b) Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
10(c)(d) Basic Questions You May Have: How can I change
my Policy's insurance coverage? How can I access
my investment in a Policy? Can I choose the form
in which AGL pays out any proceeds from my
Policy? Additional Information: Payment of Policy
Proceeds.
10(e) Basic Questions You May Have: Must I invest any
minimum amount in a policy?
10(f) Additional Information: Voting Privileges.
10(g)(1), 10(g)(4), 10(h)(3), 10(h)(2) Basic Questions You May Have: To what extent will
AGL vary the terms and conditions of the Policies
in particular cases? Additional Information: Voting
Privileges; Additional Rights That We Have.
10(g)(3), 10(g)(4), 10(h)(3), 10(h)(4) Inapplicable.**
10(i) Additional Information: Separate Account VL-R; Tax
Effects.
11 Basic Questions You May Have: How will the value
of my investment in a Policy change over time?
Additional Information: Separate Account VL-R.
12(a) Additional Information: Separate Account VL-R;
Front Cover.
12(b) Inapplicable.**
12(c), 12(d) Inapplicable.**
12(e) Inapplicable, because the Separate Account did not
commence operations until 1998.
13(a) Basic Questions You May Have: What charges will
AGL deduct from my investment in a Policy? What
charges and expenses will the Mutual Funds
deduct from the amounts I invest through my Policy?
Additional Information: More About Policy
Charges.
13(b) Illustrations of Hypothetical Policy Benefits.
13(c) Inapplicable.**
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.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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.**
</TABLE>
* Registrant includes this Reconciliation and Tie in its Registration
Statement in compliance with Instruction 4 as to the Prospectus as set out
in Form S-6. Separate Account VL-R (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>
KEY LEGACY PLUS
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: 1-888-436-4963 P.O. Box 4880
or 1-713-831-3443 Houston, Texas 77210-4880
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>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Victory Variable Insurance Funds American General Series Portfolio Putnam Variable Trust
Company
. Investment Quality Bond Fund . Money Market Fund . Putnam VT Diversified Income
. Diversified Stock Fund Fund - Class IB
. Small Company Opportunity Fund
The Variable Annuity Life
Key Asset Management Inc.* Insurance Company * Putnam Investment Management, Inc.*
- ---------------------------------------------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds Templeton Variable Products American Century Variable
Series Fund Portfolios, Inc.
. Oppenheimer High Income Fund/VA . Templeton International Fund - . VP Value Fund
Class 2
OppenheimerFunds, Inc.* Templeton Investment Counsel,Inc.* American Century Investment
Management, Inc.*
- ---------------------------------------------------------------------------------------------------------------------------
Neuberger Berman Advisers Management Van Kampen Life Investment Trust AIM Variable Insurance Funds, Inc.
Trust
. Partners Portfolio . Emerging Growth Portfolio . AIM V.I. International Equity Fund
Neuberger Berman Management Inc.* Van Kampen Asset Management A I M Advisors, Inc.*
Inc.*
- ---------------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust Franklin Templeton Variable
Insurance Products Trust
. MFS Total Return Series . Franklin Small Cap Fund -
Class 2
Massachusetts Financial Services
Company* Franklin Advisers, 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 6.
Right to return. If for any reason you are not satisfied with your Policy,
you may return it to us and we will refund 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 above-listed
investment options as you have chosen. Any additional premium we receive during
the 15-day period will also be invested in the money market division and
allocated to the investment options at the same time as your initial net
premium.
We have designed this prospectus to provide you with information that you
should have before investing in the Policies. Please read the prospectus
carefully and keep it for future reference.
Neither the Securities and Exchange Commission ("SEC") 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 insured by the FDIC or any other agency. They are not
deposits or other obligations of any bank and are not bank guaranteed. They are
subject to investment risks and possible loss of principal invested.
This prospectus is dated _____________.
2
<PAGE>
GUIDE TO THIS PROSPECTUS
This prospectus contains information that you should know before you purchase
Key Legacy Plus policy ("Policy") or exercise any of your rights or privileges
under a Policy.
Basic Information. Here are the page numbers in this prospectus where you may
find answers to most of your questions:
<TABLE>
<CAPTION>
Page to
See in this
Basic Questions You May Have Prospectus
- ---------------------------- ----------
<S> <C>
. How can I invest money in a Policy?................................... 4
. How will the value of my investment in a Policy change over time?..... 5
. What is the basic amount of insurance ("death benefit")
that AGL pays when the insured person dies?.......................... 5
. What charges will AGL deduct from my investment in a Policy?.......... 6
. What charges and expenses will the Mutual Funds deduct from
amounts I invest through my Policy?.................................. 8
. Must I invest any minimum amount in a Policy?......................... 10
. How can I change my Policy's investment options?...................... 10
. How can I change my Policy's insurance coverage?...................... 11
. What additional rider benefits might I select?........................ 11
. How can I access my investment in a Policy?........................... 12
. Can I choose the form in which AGL pays out proceeds from my Policy?.. 13
. To what extent can AGL vary the terms and conditions of the Policy
in particular cases? 14
. How will my Policy be treated for income tax purposes?................ 15
. How do I communicate with AGL?........................................ 15
</TABLE>
Illustrations of a hypothetical Policy. Starting on page 17, 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 14.
Additional information. You may find the answers to any other questions you
have under "Additional Information" beginning on page 23 or in the form of our
Policy. A table of contents for the "Additional Information" portion of this
prospectus also appears on page 23. You can 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.
3
<PAGE>
BASIC QUESTIONS YOU MAY HAVE
How can I invest money in a Policy?
Premium payments. We call the investments you make in a Policy "premiums" or
"premium payments." The amount we require as your initial premium varies
depending on the specifics of your Policy and the insured person. We can refuse
to accept a subsequent premium payment that is less than $50. Otherwise, with a
few exceptions mentioned below, you can make premium payments at any time and in
any amount. 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 24.
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.
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 32. 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 service.
4
<PAGE>
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 6 under "Deductions from each premium
payment." We invest the rest in one or more of the investment options listed on
the first page of this prospectus. We call the amount that is at any time
invested under your Policy (including any loan collateral we are holding for
your Policy loans) your "accumulation value."
Your investment options. We invest the accumulation value that you have
allocated to any investment option in shares of a 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 certain charges that we deduct. We describe these charges beginning
on page 6 under "What charges will AGL deduct from my investment in a Policy?"
You can review other important information about the Mutual Funds that you can
choose in the separate prospectuses for those Funds. This includes information
about the investment performance that each Fund's investment manager has
achieved. You can request additional free copies of these prospectuses from your
AGL representative or from our Home Office 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 Key Legacy Plus
Policy, you will tell us how much life insurance coverage you want on the life
of the insured person. We call this the "specified amount" of insurance.
Your death benefit. The basic death benefit we will pay is reduced by any
outstanding Policy loans. You also choose whether the basic death benefit we
will pay is
. Option 1--The specified amount on the date of the insured person's death;
or
. Option 2--The specified amount plus the Policy's accumulation value on the
date of death.
5
<PAGE>
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:
TABLE OF ALTERNATIVE BASIC DEATH BENEFITS AS A PERCENTAGE MULTIPLE OF POLICY
ACCUMULATION VALUE
<TABLE>
<CAPTION>
Insured's Insured's
Age on % of Age on % of
Policy Accumulation Policy Accumulation
Anniversary* Value Anniversary Value
------------- ----- ----------- -----
<S> <C> <C> <C>
0-40 250 60 130
41 243 61 128
42 236 62 126
43 229 63 124
44 222 64 122
45 215 65 120
46 209 66 119
47 203 67 118
48 197 68 117
49 191 69 116
50 185 70 115
51 178 71 113
52 171 72 111
53 164 73 109
54 157 74 107
55 150 75-90 105
56 146 91 104
57 142 92 103
58 138 93 102
59 134 94 101
95+ 100
</TABLE>
________
* 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
6
<PAGE>
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. 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 are generally higher under a Policy that has
been in force for some period of time than they would be under an otherwise
identical Policy purchased more recently on the same insured person.
7
<PAGE>
Transaction 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.
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 you have chosen, 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 30.
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. Current and future fees
and expenses may vary from the fiscal year 1998 fees and expenses. The charges
and expenses for fiscal year 1998 are as follows:
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 Expense Expense
Name of Fund Reimbursement) 12b-1 Reimbursement) Reimbursement)
------------ -------------- ----- -------------- --------------
<S> <C> <C> <C> <C>
The following fund of
AIM Variable Insurance Funds, Inc./1/
AIM V.I. International Equity Fund...... 0.75% 0.16% 0.91%
The following fund of
American General Series Portfolio
Company/1/
Money Market Fund....................... 0.50% 0.04% 0.54%
</TABLE>
(footnotes begin on page 10)
8
<PAGE>
<TABLE>
<CAPTION>
Fund Other Fund Total Fund
Management Operating Operating
Fees (After Expenses( After Expenses (After
Expense Expense Expense
Name of Fund Reimbursement) 12b-1 Reimbursement) Reimbursement)
------------ -------------- ----- -------------- --------------
<S> <C> <C> <C> <C>
The following fund of
Neuberger Berman Advisers Management Trust/1/
Partners Portfolio............................. 0.78% 0.06% 0.84%
The following fund of
Putnam Variable Trust/1/
Putnam VT Diversified Income
Fund - Class IB/3/............................. 0.50% 0.11% 0.08% 0.69%
The following fund of
Templeton Variable Products Series Fund/1, 4/
Templeton International Fund - Class 2/3/...... 0.69% 0.25% 0.17% 1.11%
The following fund of
Oppenheimer Variable Account Funds/1/
Oppenheimer High Income Fund V/A............... 0.74% 0.04% 0.78%
The following funds of
Victory Variable Insurance Funds/1/
Investment Quality Bond Fund/2/................ 0.00% 0.60% 0.60%
Diversified Stock Fund/2/...................... 0.00% 0.75% 0.75%
Small Company Opportunity Fund/2/.............. 0.00% 0.75% 0.75%
The following fund of
American Century Variable Portfolios, Inc./1/
VP Value Fund.................................. 0.85% 0.15% 1.00%
The following fund of
MFS Variable Insurance Trust/1/
MFS Total Return Series........................ 0.75% 0.16% 0.91%
The following fund of
Van Kampen Life Investment Trust/1/...............
Emerging Growth Portfolio/2/................... 0.32% 0.53% 0.85%
The following fund of
Franklin Templeton Variable Insurance
Products Trust/1/
Franklin Small Cap Fund - Class 2/3/........... 0.75% 0.25% 0.02% 1.02%
</TABLE>
______________________
(footnotes on next page)
9
<PAGE>
/1/Certain of the Mutual Funds' advisers or administrators have entered into
service agreements with AGL. Under these arrangements, the advisers or
administrators pay fees to AGL for certain administrative services. The fees do
not have a direct relationship to the Mutual Funds' Annual Expenses. (See
"Miscellaneous" under "More About Policy Charges.")
/2/If certain voluntary expense reimbursements from the investment adviser were
terminated, management fees and other expenses for the fiscal year ended in 1998
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>
Victory Investment Quality Bond Fund.... 0.20% 3.80% 4.00%
Victory Diversified Stock Fund.......... 0.30% 3.70% 4.00%
Victory Small Company Opportunity Fund.. 0.30% 3.70% 4.00%
Van Kampen Emerging Growth Portfolio.... 0.70% 0.53% 1.23%
</TABLE>
/3/The prospectus for Putnam Variable Trust under "Distribution Plan" discusses
this fund's 12b-1 fee. The prospectuses for Templeton Variable Products Series
Fund and Franklin Templeton Variable Insurance Products Trust under
"Distribution and Services (12b-1) Fees" discuss each fund's 12b-1 fees.
/4/On February 8, 2000, a shareholders' meeting will be held to approve a
proposal to merge the funds of Templeton Variable Products Series Fund into
similar corresponding funds of Franklin Templeton Variable Insurance Product
Trust (the "Reorganization"). If approved, this Reorganization will be
completed around May 1, 2000.
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.
10
<PAGE>
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 36.
Market Timing. The Policy is not designed for professional market timing
organizations or other entities using programmed and frequent transfers. We
reserve the right at any time and without prior notice to any party to
terminate, suspend, or modify our policies or procedures regarding telephone
requests or to stop permitting telephone requests altogether.
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 24 of this prospectus to learn about possible tax consequences
of changing your insurance coverage under your Policy.
11
<PAGE>
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 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.
12
<PAGE>
Transaction 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.
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 an effective annual rate of 4%
(rather than any amount you could otherwise earn in one of our investment
options), and we will charge you interest on your loan at an effective annual
rate of 4.75%. Loan interest is payable annually, on the Policy anniversary, in
advance, at a rate of 4.54%. Any amount not paid by its due date will
automatically be added to the loan balance as an additional loan. Interest you
pay on Policy loans will not, in most cases, be deductible on your tax returns.
You may choose which of your investment options the loan will be taken from.
If you do not so specify, we will allocate the loan in the same way that charges
under your Policy are being allocated. If this is not possible, we will make the
loan pro-rata from each investment option that you then are using.
You may repay all or part (but not less than $500) 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 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 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.
13
<PAGE>
Can I choose the form in which AGL pays out the proceeds from my Policy?
Choosing a payment option. You may choose to receive the full proceeds from
the Policy as a single sum. This includes proceeds that become payable upon the
death of the insured person, full surrender or the maturity date. Alternatively,
you may elect that all or part of such proceeds be applied to one or more of the
following payment options:
. Option 1--Equal monthly payments for a specified period of time.
. Option 2--Equal monthly payments of a specified amount until all amounts
are paid out.
. Option 3--Equal monthly payments for the payee's life, but with payments
guaranteed for a specified number of years. These payments are based on
annuity rates that are set forth in the Policy or, at the payee's request,
the annuity rates that we then are using.
. Option 4--Proceeds left to accumulate with interest.
Additional payment options may also be available with our consent. We have the
right to veto any payment option, if the payee is a corporation or other entity.
You can read more about each of these options in our Policy form and in the
separate form of payment contract that we issue when any such option takes
effect.
Within 60 days after the insured person's death, any payee entitled to receive
proceeds as a single sum may elect one or more payment options.
Interest rates that we credit under each option will be at least 3%.
Change of payment option. You may change any payment option you have elected
at any time while the Policy is in force and before the start date of the
payment option.
Tax impact. If a payment option is chosen, you or your beneficiary may have
tax consequences. You should consult with a qualified tax adviser before
deciding whether to elect one or more payment options.
To what extent can AGL vary the terms and conditions of the 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
14
<PAGE>
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 Key Legacy Plus Policy. This is referred to as a
term conversion. Term conversions are available to owners of term life insurance
we have issued. Any right to a term conversion is stated in the term life
insurance policy. Again, our published rules about term conversions may be
changed from time to time, but are evenly applied to all our customers.
State law requirements. AGL is subject to the insurance laws and regulations
in every jurisdiction in which Key Legacy Plus Policies are sold. As a result,
various time periods and other terms and conditions described in this prospectus
may vary depending on where you reside. These variations will be reflected in
your Policy and related endorsements.
Variations in expenses or risks. AGL may vary the charges and other terms of
the Policy where special circumstances result in sales, administrative or other
expenses, mortality risks or other risks that are different from those normally
associated with the Policy.
How will my Policy be treated for income tax purposes?
Generally, death benefits paid under a Policy are not subject to income tax,
and earnings on your accumulation value are not subject to income tax as long as
we do not pay them out to you. If we do pay any amount of your Policy's
accumulation value upon surrender, partial surrender, or maturity of your
Policy, all or part of that distribution may be treated as a return of the
premiums you paid, 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 24.
15
<PAGE>
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;
. 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
16
<PAGE>
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
1-888-436-4963.
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................. 19
Death Benefit Option 1--Full Underwriting/Current Charges....................... 20
Death Benefit Option 1--Simplified Underwriting/Guaranteed Maximum Charges...... 21
Death Benefit Option 1--Full Underwriting/Guaranteed Maximum Charges............ 22
</TABLE>
The tables show how death benefits, accumulation values, and cash surrender
values ("Policy benefits") under a sample Key Legacy Plus 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.
17
<PAGE>
. 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 equal to .83% of aggregate Mutual Fund assets,
which is the arithmetic average of the advisory fees payable with respect to
each Mutual Fund, after all reimbursements, plus the arithmetic average of all
other operating expenses of each such Fund after all reimbursements, as
reflected on pages 8 - 10 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 1.91% 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.
18
<PAGE>
Key Legacy Plus
Single Premium $ 56,279 Initial Specified Amount $250,000
Death Benefit Option 1
Male Age 45
Simplified Underwriting
Nonsmoker
Assuming Current Charges
<TABLE>
<CAPTION>
Death Benefit Accumulation Value Cash Surrender Value
End of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Policy Annual Investment Return of Annual Investment Return of Annual Investment Return of
Year 0.0% 6.0% 12.0% 0.0% 6.0% 12.0% 0.0% 6.0% 12.0%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 250,000 250,000 250,000 54,549 57,880 61,212 54,549 57,880 61,212
2 250,000 250,000 250,000 52,735 59,454 66,573 52,735 59,454 66,573
3 250,000 250,000 250,000 50,869 61,034 72,448 50,869 61,034 72,448
4 250,000 250,000 250,000 49,034 62,703 78,976 49,034 62,703 78,976
5 250,000 250,000 250,000 47,145 64,385 86,151 47,145 64,385 86,151
6 250,000 250,000 250,000 45,231 66,108 94,076 45,231 66,108 94,076
7 250,000 250,000 250,000 43,235 67,826 102,791 43,235 67,826 102,791
8 250,000 250,000 250,000 41,315 69,680 112,510 41,315 69,680 112,510
9 250,000 250,000 250,000 39,386 71,604 123,280 39,386 71,604 123,280
10 250,000 250,000 200,000 37,424 73,579 135,205 37,424 73,579 135,205
15 250,000 250,000 295,062 28,164 86,069 220,195 28,164 86,069 220,195
20 250,000 250,000 439,874 16,589 100,281 360,552 16,589 100,281 360,552
</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.
19
<PAGE>
Key Legacy Plus
Single Premium $ 56,279 Initial Specified Amount $250,001
Death Benefit Option 1
Male Age 45
Full Underwriting
Nonsmoker
Assuming Current Charges
<TABLE>
<CAPTION>
Death Benefit Accumulation Value Cash Surrender Value
End of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Policy Annual Investment Return of Annual Investment Return of Annual Investment Return of
Year 0.0% 6.0% 12.0% 0.0% 6.0% 12.0% 0.0% 6.0% 12.0%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 250,001 250,001 250,001 55,034 58,376 61,719 55,034 58,376 61,719
2 250,001 250,001 250,001 53,702 60,466 67,629 53,702 60,466 67,629
3 250,001 250,001 250,001 52,425 62,688 74,201 52,425 62,688 74,201
4 250,001 250,001 250,001 51,088 64,938 81,397 51,088 64,938 81,397
5 250,001 250,001 250,001 49,703 67,231 89,300 49,703 67,231 89,300
6 250,001 250,001 250,001 48,280 69,578 97,999 48,280 69,578 97,999
7 250,001 250,001 250,001 46,821 71,988 107,587 46,821 71,988 107,587
8 250,001 250,001 250,001 45,324 74,462 118,163 45,324 74,462 118,163
9 250,001 250,001 250,001 43,775 76,994 129,831 43,775 76,994 129,831
10 250,001 250,001 250,001 42,149 79,564 142,702 42,149 79,564 142,702
15 250,001 250,001 312,452 33,385 94,482 233,173 33,385 94,482 233,173
20 250,001 250,001 465,799 21,694 111,315 381,803 21,694 111,315 381,803
</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.
20
<PAGE>
Key Legacy Plus
Single Premium $ 56,279 Initial Specified Amount $ 250,000
Death Benefit Option 1
Male Age 45
Simplified Underwriting
Nonsmoker
Assuming Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Accumulation Value Cash Surrender Value
End of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Policy Annual Investment Return of Annual Investment Return of Annual Investment Return of
Year 0.0% 6.0% 12.0% 0.0% 6.0% 12.0% 0.0% 6.0% 12.0%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 250,000 250,000 250,000 53,599 56,873 60,148 53,599 56,873 60,148
2 250,000 250,000 250,000 51,716 58,309 65,295 51,716 58,309 65,295
3 250,000 250,000 250,000 49,785 59,742 70,923 49,785 59,742 70,923
4 250,000 250,000 250,000 47,782 61,151 77,068 47,782 61,151 77,068
5 250,000 250,000 250,000 45,704 62,534 83,790 45,704 62,534 83,790
6 250,000 250,000 250,000 43,552 63,894 91,160 43,552 63,894 91,160
7 250,000 250,000 250,000 41,299 65,206 99,236 41,299 65,206 99,236
8 250,000 250,000 250,000 38,918 66,447 108,087 38,918 66,447 108,087
9 250,000 250,000 250,000 36,407 67,617 117,812 36,407 67,617 117,812
10 250,000 250,000 250,000 33,738 68,689 128,508 33,738 68,689 128,508
15 250,000 250,000 273,273 17,625 72,975 203,935 17,625 72,975 203,935
20 0 250,000 398,788 0 71,575 326,875 0 71,575 326,875
</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.
21
<PAGE>
Key Legacy Plus
Single Premium $ 56,279 Initial Specified Amount $ 250,001
Death Benefit Option 1
Male Age 45
Full Underwriting
Nonsmoker
Assuming Guaranteed Charges
<TABLE>
<CAPTION>
Death Benefit Accumulation Value Cash Surrender Value
End of Assuming Hypothetical Gross Assuming Hypothetical Gross Assuming Hypothetical Gross
Policy Annual Investment Return of Annual Investment Return of Annual Investment Return of
Year 0.0% 6.0% 12.0% 0.0% 6.0% 12.0% 0.0% 6.0% 12.0%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 250,001 250,001 250,001 53,599 56,873 60,149 53,599 56,873 60,149
2 250,001 250,001 250,001 51,716 58,309 65,295 51,716 58,309 65,295
3 250,001 250,001 250,001 49,785 59,742 70,923 49,785 59,742 70,923
4 250,001 250,001 250,001 47,782 61,151 77,068 47,782 61,151 77,068
5 250,001 250,001 250,001 45,704 62,535 83,790 45,704 62,535 83,790
6 250,001 250,001 250,001 43,552 63,894 91,160 43,552 63,894 91,160
7 250,001 250,001 250,001 41,299 65,206 99,236 41,299 65,206 99,236
8 250,001 250,001 250,001 38,918 66,448 108,087 38,918 66,448 108,087
9 250,001 250,001 250,001 36,407 67,617 117,813 36,407 67,617 117,813
10 250,001 250,001 250,001 33,738 68,689 128,508 33,738 68,689 128,508
15 250,001 250,001 273,274 17,625 72,976 203,936 17,625 72,976 203,936
20 0 250,001 398,790 0 71,576 326,877 0 71,576 326,877
</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>
ADDITIONAL INFORMATION
A general overview of the Policy appears at page 1 - 22. 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....................................................... 23
Separate Account VL-R..................................... 24
Tax Effects............................................... 24
Voting Privileges......................................... 29
Your Beneficiary.......................................... 30
Assigning Your Policy..................................... 30
More About Policy Charges................................. 30
Effective Date of Policy and Related Transactions......... 32
Distribution of the Policies.............................. 33
Payment of Policy Proceeds................................ 34
Adjustments to Death Benefit.............................. 35
Additional Rights That We Have............................ 36
Performance Information................................... 36
Our Reports to Policy Owners.............................. 37
AGL's Management.......................................... 37
Principal Underwriter's Management........................ 40
Legal Matters............................................. 42
Independent Auditors...................................... 42
Actuarial Expert.......................................... 42
Services Agreement........................................ 42
Certain Potential Conflicts............................... 42
Year 2000 Considerations.................................. 43
</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 46, which
follows all of the financial pages). That index will tell you on what page you
can read more about many of the words and phrases that we use.
AGL
We are American General Life Insurance Company ("AGL"). AGL is a stock life
insurance company organized under the laws of Texas. AGL is a successor in
interest to a company originally organized under the laws of Delaware on January
10, 1917. AGL is an indirect, wholly-owned subsidiary of American General
Corporation (formerly American General Insurance Company), a diversified
financial services holding company engaged primarily in the insurance business.
The commitments under the Policies are AGL's, and American General Corporation
has no legal obligation to back those commitments.
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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
the separate account on May 6, 1997 under Texas law.
For record keeping and financial reporting purposes, Separate Account VL-R
is divided into 41 separate "divisions," 13 of which correspond to the 13
variable investment options available since the inception of the Policy. The
remaining 28 divisions, and some of these 13 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.
General. Key Legacy Plus Policy will be treated as "life insurance" for
federal income tax purposes (a) if it meets the definition of life insurance
under Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code")
and (b) for as long as the investments made by the underlying Mutual Funds
satisfy certain investment diversification requirements under Section 817(h) of
the Code. We believe that the Policy will meet these requirements and that:
. the death benefit received by the beneficiary under your Policy will
not be subject to federal income tax; and
. increases in your Policy's accumulation value as a result of interest
or investment experience will not be subject to federal income tax
unless and until there is a distribution from your Policy, such as a
surrender or a partial surrender.
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The federal income tax consequences of a distribution from your Policy can
be affected by whether your Policy is determined to be a "modified endowment
contract" (which is discussed below). In all cases, however, the character of
all income that is described below as taxable to the payee will be ordinary
income (as opposed to capital gain).
Testing for modified endowment contract status. Your Policy will be a
"modified endowment contract" if, at any time during the first seven Policy
years, you have paid a cumulative amount of premiums that exceeds the premiums
that would have been paid by that time under a similar fixed-benefit insurance
policy that was designed (based on certain assumptions mandated under the Code)
to provide for paid-up future benefits after the payment of seven level annual
premiums. This is called the "seven-pay" test.
Whenever there is a "material change" under a policy, the policy will
generally be (a) treated as a new contract for purposes of determining whether
the policy is a modified endowment contract and (b) subjected to a new seven-pay
period and a new seven-pay limit. The new seven-pay limit would be determined
taking into account, under a prescribed formula, the accumulation value of the
policy at the time of such change. A materially changed policy would be
considered a modified endowment contract if it failed to satisfy the new seven-
pay limit. A material change for these purposes could occur as a result of a
change in death benefit option. A material change will occur as a result of an
increase in your Policy's specified amount of coverage, and certain other
changes.
If your Policy's benefits are reduced during the first seven Policy years
(or within seven years after a material change), the calculated seven-pay
premium limit will be redetermined based on the reduced level of benefits and
applied retroactively for purposes of the seven-pay test. (Such a reduction in
benefits could include, for example, a decrease in the specified amount
resulting from a partial surrender). If the premiums previously paid are greater
than the recalculated seven-payment premium level limit, the Policy will become
a modified endowment contract. A life insurance policy that is received in
exchange for a modified endowment contract will also be considered a modified
endowment contract.
Other effects of Policy changes. Changes made to your Policy (for example,
a decrease in benefits or a lapse or reinstatement of your Policy) may also have
other effects on your Policy. Such effects may include impacting the maximum
amount of premiums that can be paid under your Policy, as well as the maximum
amount of accumulation value that may be maintained under your Policy.
Taxation of pre-death distributions if your Policy is not a modified
endowment contract. As long as your Policy remains in force during the insured
person's lifetime, as a non-modified endowment contract, a Policy loan will be
treated as indebtedness, and no part of the loan proceeds will be subject to
current federal income tax. Interest on the loan generally will not be tax
deductible.
After the first 15 Policy years, the proceeds from a partial surrender will
not be subject to federal income tax except to the extent such proceeds exceed
your "basis" in your Policy. (Your basis generally will equal the premiums you
have paid, less the amount of any previous distributions from your Policy that
were not taxable.) During the first 15 Policy years, the proceeds from a partial
surrender could be subject to federal income tax, under a complex formula, to
the extent that your accumulation value exceeds your basis in your Policy.
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<PAGE>
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 additional rules to prevent avoidance of "income-first" taxation on
distributions from modified endowment contracts.
A 10% penalty tax also will apply to the taxable portion of most
distributions from a policy that is a modified endowment contract. The penalty
tax will not, however, apply to distributions:
. to taxpayers 59 1/2 years of age or older;
. in the case of a disability (as defined in the Code); or
. received as part of a series of substantially equal periodic annuity
payments for the life (or life expectancy) of the taxpayer or the
joint lives (or joint life expectancies) of the taxpayer and his or
her beneficiary.
If your Policy ends after a grace period while there is a Policy loan, the
cancellation of the loan will be treated as a distribution to the extent not
previously treated as such and could be subject to tax, including the 10%
penalty tax, as described above. In addition, on the maturity date or upon a
full surrender, any excess of the proceeds we pay (including any amounts we use
to discharge any loan) over your basis in the Policy, will be subject to federal
income tax and, unless an exception applies, the 10% penalty tax.
Distributions that occur during a Policy year in which your Policy becomes
a modified endowment contract, and during any subsequent Policy years, will be
taxed as described in the two preceding paragraphs. In addition, distributions
from a policy within two years before it becomes a modified endowment contract
also will be subject to tax in this manner. This means that a distribution made
from a policy that is not a modified endowment contract could later become
taxable as a distribution from a modified endowment contract. The Treasury
Department has been authorized to prescribe rules which would treat similarly
other distributions made in anticipation of a policy becoming a modified
endowment contract.
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<PAGE>
Policy lapses and reinstatements. A Policy which has lapsed may have the
tax consequences described above, even though you may be able to reinstate that
Policy. For tax purposes, some reinstatements may be treated as the purchase of
a new insurance contract.
Diversification. Under Section 817(h) of the Code, the Treasury Department
has issued regulations that implement investment diversification requirements.
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 requirements.
Although we do not have direct control over the investments or activities of the
Mutual Funds, we will enter into agreements with them requiring the Mutual Funds
to comply with the diversification requirements of the Section 817(h) Treasury
Regulations.
In connection with the issuance of then temporary diversification
regulations, the Treasury Department stated that it anticipated the issuance of
guidelines prescribing the circumstances in which the ability of a policy owner
to direct his or her investment to particular Mutual Funds within Separate
Account VL-R may cause the policy owner, rather than the insurance company, to
be treated as the owner of the assets in the account. 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 Key Legacy Plus Policy will generally be
includable in the owner's estate for purposes of federal estate tax. If the
owner is not the insured person, under certain conditions, only an amount
approximately equal to the cash surrender value of the Policy would be
includable. 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 credit over the next seven years 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
27
<PAGE>
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 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.
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.
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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.
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 and attributable to your Policy at meetings of shareholders
of the Funds. The number of votes for which you may give directions will be
determined as of the record date for the meeting. The number of votes that you
may direct related to a particular Fund is equal to (a) your accumulation value
invested in that Fund divided by (b) the net asset value of one share of that
Fund. Fractional votes will be recognized.
We will vote all shares of each Fund that we hold of record, including any
shares we own on our own behalf, in the same proportions as those shares for
which we have received instructions from owners participating in that Fund
through Separate Account VL-R.
If you are asked to give us voting instructions, we will send you the proxy
material and a form for providing such instructions. Should we determine that we
are no longer required to send the owner such materials, we will vote the shares
as we determine in our sole discretion.
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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);
. 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).
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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 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.
Miscellaneous. Certain of the distributors or advisers of the Mutual Funds
listed on page 8 of this prospectus reimburse us, on a quarterly basis, for
certain administrative, Policy, and policy owner support expenses. These
reimbursements will be reasonable for the services performed and are not
designed to result in a profit. These reimbursements are paid by the
distributors or the advisers, and will not be paid
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by the Mutual Funds, the divisions or the 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 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 back-
dated Policy, we do not credit an investment return to the accumulation value
resulting from your initial premium payment until the date stated in (b) above.
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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
. 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 sales agreements with various broker-dealers and banks
under which the Policies will be sold by registered representatives of the
broker-dealers or employees of the banks. These registered representatives and
employees are also required to be authorized under applicable state regulations
as life insurance agents to sell variable life insurance. The broker-dealers are
ordinarily required to be registered with the SEC and must be members of the
NASD.
We pay compensation directly to broker-dealers and banks for the promotion
and sales of the Policies. AGSI also has its own registered representatives who
will sell the Policies, and we will pay compensation to AGSI for these sales.
The compensation payable to broker-dealers or banks for the sales of the
Policies may vary with the sales agreement, but is generally not expected to
exceed the amounts described below:
33
<PAGE>
A. For a Policy issued based on simplified underwriting:
. 1.05% annually of the Policy's accumulation value (reduced by any
outstanding loan) in Policy years 1 through 10; and
. .85% annually of the Policy's accumulation value (reduced by any
outstanding loan) in Policy years 11 through 15.
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 a broker-dealer compensation in a lump sum which will
not exceed the aggregate compensation described above.
We pay a comparable amount of compensation to the broker-dealers or banks
with respect to any increase in the specified amount of coverage that you
request. In addition, we may pay the broker-dealers or banks expense allowances,
bonuses, wholesaler fees and training allowances.
We pay the compensation directly to AGSI or any other selling broker-dealer
firm or bank. We pay the compensation from our own resources which does not
result in any additional charge to you that is not described on page 6 of the
prospectus. Each broker-dealer or bank, in turn, 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.
34
<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 person commits suicide within two years after the
date on which the Policy was issued, the death benefit will be limited to the
total of all premiums that have been paid to the time of death minus any
outstanding Policy loans and any partial surrenders. If the insured person
commits suicide within two years after the effective date of an increase in
specified amount that you requested, we will pay the death benefit based on the
specified amount which was in effect before the increase, plus the monthly
insurance deductions for the increase. Some states require that we compute
differently these periods for non-contestability following a suicide.
Wrong age or 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.
35
<PAGE>
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 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 Key Legacy Plus from one investment
option and put them into another;
. operate Separate Account VL-R under the direction of a committee or
discharge such a committee at any time;
. 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
. 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
36
<PAGE>
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 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. Senior Chairman of the Board of American General Life
Insurance Company since April 1999 and a Director since
August 1996. President and CEO (August 1996-July 1998).
President of American General Life Insurance Company of
New York (November 1995-August 1996). Vice President
Agencies, with Connecticut Mutual Life Insurance
Company, Hartford, Connecticut (1990-1995).
Donald W. Britton Director and Vice Chairman of the Board of American
General Life Insurance Company since April 1999.
President of First Colony Life, Lynchburg, Virginia
(1996 - April 1997) and Executive Vice President of
First Colony Life (1992 - 1996).
Ronald H. Ridlehuber Director, President and Chief Executive Officer of
American General Life Insurance Company since July
1998. Senior Vice President and Chief
37
<PAGE>
Marketing Officer of Jefferson-Pilot Life Insurance
Company in Greensboro, North Carolina (1993-1998).
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).
Robert F. Herbert, Jr. Director, Senior Vice President and Treasurer of
American General Life Insurance Company since May 1996,
and Controller since February 1991.
Royce G. Imhoff, II Director, Senior Vice President and Chief Marketing
Officer 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.
John V. LaGrasse Director and Chief Systems Officer of American General
Life Insurance Company since August 1996. 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).
Gary D. Reddick Director of American General Life Insurance Company
since October 1998. Elected Executive Vice President in
April 1998. Vice Chairman since July 1997 and Executive
Vice President-Administration of The Franklin Life
Insurance Company since February 1995. Senior Vice
President-Administration of American General
Corporation (October 1994-February 1995). Senior Vice
President for American General Life Insurance Company
(September 1986-October 1994).
Thomas M. Zurek Director and Executive Vice President of American
General Life Insurance Company since April 1999.
Elected Secretary in July 1999 and 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).
38
<PAGE>
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).
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).
Barbara J. Fossum Senior Vice President of American General Life
Insurance Company since July 1999. Previously held
position of Vice President of American General Life
Insurance Company since 1988.
Ross D. Friend Senior Vice President and Chief Compliance Officer of
American General Life Insurance Company since July
1998. Senior Vice President and General Counsel of The
Franklin Life Insurance Company, Springfield, Illinois
(August 1996 - July 1998). Attorney-in-Charge for The
Prudential Insurance Company, Jacksonville, Florida
(July 1995 - August 1996). Chief Legal Officer for
Confederation Life Insurance, Atlanta, Georgia (1982 -
June 1995).
39
<PAGE>
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.
F. Paul Kovach, Jr. Senior Vice President-Broker Dealers for American
General Life Insurance Company since August 1997.
President and Director of American General Securities
Incorporated since October 1994. Vice President of
Chubb Securities Corporation, Concord, New Hampshire,
(February 1990-October 1994).
Simon J. Leech Senior Vice President-Houston Service Center 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.
JoAnn Waddell Senior Vice President - Human Resources for American
General Life Insurance Company since October 1998. Vice
President - Human Resources for American General
Corporation (1995 - October 1998) and Director,
Corporate Personnel of American General Corporation
(1993 -1995).
Don M. Ward Senior Vice President-Variable Products-Marketing of
American General Life Insurance Company since February
1998. Vice President of Pacific Life Insurance Company,
Newport Beach, CA (1991-February 1998).
The principal business address of each person listed above is our Home
Office; except that the street number for Messrs. Ridlehuber, Fravel, LaGrasse,
Martin, Reddick, Britton, Mistretta and Zurek is 2929 Allen Parkway, the street
number for Messrs. Kovach, Ward and Friend is 2727 Allen Parkway, the street
number for Messrs. Dietz and Guterding is 125 Maiden Lane, New York, New York
and the street number for Ms. Fossum is #1 Franklin Square, Springfield,
Illinois.
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 Officer
2727 Allen Parkway
Houston, TX 77019
40
<PAGE>
Royce G. Imhoff, II Director
American General Life Companies
2727-A Allen Parkway
Houston, Texas 77019
Rodney O. Martin, Jr. Director and Vice Chairman
American General Life Companies
2929 Allen Parkway
Houston, TX 77019
Donald W. Britton Director
American General Life Companies
2929 Allen Parkway
Houston, TX 77019
John A. Kalbaugh Vice President -
American General Life Companies Chief Marketing Officer
2727 Allen Parkway
Houston, TX 77019
Robert M. Roth Vice President -
American General Securities Incorporated Administration and Compliance,
2727 Allen Parkway Treasurer and Secretary
Houston, TX 77019
Don M. Ward Vice President
American General Life Companies
2727 Allen Parkway
Houston, TX 77019
Julie A. Cotton 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
K. David Nunley Assistant Associate Tax Officer
2727-A Allen Parkway
Houston, TX 77019
41
<PAGE>
Legal Matters
We are not involved in any legal proceedings that would be considered material
with respect to a policy owner's interest in Separate Account VL-R. 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.
Independent Auditors
The financial statements of AGL included in this prospectus have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere in this prospectus. Such financial statements have been
included in this prospectus in reliance upon the report of Ernst & Young LLP
given upon the authority of such firm as experts in accounting and auditing.
Ernst & Young LLP is located at One Houston Center, 1221 McKinney, Suite 2400,
Houston, Texas 77010-2007.
Actuarial Expert
Actuarial matters have been examined by 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 Agreement
American General Life Companies ("AGLC") is party to an existing general
services agreement with AGL. AGLC, an affiliate of AGL, is a corporation
incorporated in Delaware on November 24, 1997. Pursuant to this agreement, AGLC
provides services to AGL, including most of the administrative, data processing,
systems, customer services, product development, actuarial, auditing, accounting
and legal services for AGL and Key Legacy Plus Policies.
Certain Potential Conflicts
The Mutual Funds sell shares to separate accounts of insurance companies, both
affiliated and not affiliated with AGL. We currently do not foresee any
disadvantages to you arising out of such sales. Differences in treatment under
tax and other laws, as well as other considerations, could cause the interests
of various owners to conflict. For example, violation of the federal tax laws by
one separate account investing in the Funds could cause the contracts funded
through another separate account to lose their tax-deferred status, unless
remedial action were taken. However, each Mutual Fund has advised us that its
board of trustees (or directors) intends to monitor events to identify any
material irreconcilable conflicts that possibly may arise and to determine what
action, if any, should be taken in response. If we believe that a Fund's
response to any such event insufficiently protects our policy owners, we will
see to it that appropriate action is taken to do so. If it becomes necessary for
any separate account to replace shares of any Mutual Fund in which it invests,
that Fund may have to liquidate securities in its portfolio on a disadvantageous
basis.
42
<PAGE>
Year 2000 Considerations
Internal Systems. Our ultimate parent, American General Corporation ("AGC"),
- ----------------
has numerous technology and non-technology systems that are managed on a
decentralized basis. AGC's Year 2000 readiness efforts have been performed by
its key business units with centralized oversight. Each business unit,
including AGL, executed a plan to minimize the risk of a significant negative
impact on its operations.
While the specifics of the plans varied, the plans included the following
activities: (1) perform an inventory of the company's information technology and
non-information technology systems; (2) assess which items in the inventory may
expose us to business interruptions due to Year 2000 issues; (3) reprogram or
replace systems that are not Year 2000 ready; (4) test systems to prove that
they will function into the next century; and (5) return the systems to
operations. As of December 31, 1999, these activities have been completed,
making our critical systems Year 2000 ready.
We continued to test our systems throughout 1999 to maintain Year 2000
readiness. In addition, we implemented plans for the century transition. These
plans included a freeze on system modifications from November 1999 through
January 2000, the creation of rapid response teams to address problems and
limiting vacations for certain business and technical personnel and establishing
Y2K command centers. In addition, AGC established Y2K command centers in
Houston and each of its locations across the country. Each command center
monitored all major business processing activities during the century transition
and reported progress to the Houston command center which coordinated the
company's nationwide Year 2000 effort. The command centers continued to operate
24 hours a day until January 7, 2000.
On January 1, 2000, AGC announced that its Year 2000 command centers reported
that all major technology systems, programs, and applications were operating
smoothly following the transition into the 21st century. As of January 20,
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 and maintain quality customer service
throughout the transition period.
Third Party Relationships. We have relationships with various third parties who
- -------------------------
must also be Year 2000 ready. These third parties provide (or receive)
resources and services to (or from) us and include organizations with which we
exchange information. Third parties include vendors of hardware, software, and
information services; providers of infrastructure services such as voice and
data communications and utilities for office facilities; investors; customers;
distribution channels; and joint venture partners. Third parties differ from
internal systems in that we exercise less, or no, control over such parties'
Year 2000 readiness.
We developed plans to assess and mitigate the risks associated with the
potential failure of third parties to achieve Year 2000 readiness. These plans
included the following activities: (1) identify and classify third party
dependencies; (2) research, analyze, and document Year 2000 readiness for
critical third parties; and (3) test critical hardware and software products and
electronic interfaces, and, where feasible, we have taken reasonable precautions
to protect against the receipt of non-Year 2000 ready data. Where necessary,
critical third party dependencies have been included in our contingency
plans.
Contingency Plans. Our contingency planning process was designed to reduce the
- -----------------
risk of Year 2000-related business failures related to both internal systems and
third party relationships. The contingency
43
<PAGE>
plans included the following activities: (1) evaluate the consequences of
failure of critical business processes with significant exposure to Year 2000
risk; (2) determine the probability of a Year 2000-related failure for those
critical processes that have a high consequence of failure; (3) develop an
action plan to complete contingency plans for critical processes that rank high
in consequence and probability of failure; and (4) complete the applicable
contingency plans. The contingency plans were tested and updated throughout
1999.
Risks and Uncertainties. Based on the Year 2000 readiness of internal systems,
- -----------------------
century transition plans, plans to deal with third party relationships,
contingency plans and the reports from the AGC command centers described above,
we believe that we will experience at most isolated and minor disruptions of
business processes due to the Year 2000 transition. Such disruptions are not
expected to have a material effect on our future results of operations,
liquidity, or financial condition. However, due to the magnitude and complexity
of this project, risks and uncertainties exist and we are not able to predict a
most reasonably likely worst case scenario. If Year 2000 readiness is not
achieved due to our failure to maintain critical systems as Year 2000 ready,
failure of critical third parties to achieve Year 2000 readiness on a timely
basis, failure of contingency plans to reduce Year 2000-related business
failures, or other unforeseen circumstances in completing its plans, the Year
2000 issues could have a material adverse impact on our operations following the
turn of the century.
Costs. Through December 31, 1999, we have incurred, and anticipate that we
- -----
will continue to incur, costs relative to achieving and maintaining Year 2000
readiness. The cost of activities related to Year 2000 readiness has not had a
material adverse effect on our results of operations or financial condition. In
addition, we have elected to accelerate the planned replacement of certain
systems as part of the Year 2000 plans. Costs of the replacement systems are
being capitalized and amortized over their useful lives, in accordance with our
normal accounting policies. None of the costs associated with Year 2000
readiness are passed to divisions of the Separate Account.
44
<PAGE>
FINANCIAL STATEMENTS
The financial statements of AGL contained in this prospectus should be
considered to bear only upon the ability of AGL to meet its obligations under
Key Legacy Plus 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 the date of this prospectus, none
of the Divisions of Separate Account VL-R were available under Key Legacy Plus
Policy.
<TABLE>
<CAPTION>
Page to
Consolidated Financial Statements of See in this
American General Life Insurance Company Prospectus
- --------------------------------------- ----------
<S> <C>
Unaudited consolidated Balance Sheets as of September 30, 1999.............. Q-1
Unaudited consolidated Income Statements for the nine months
ended September 30, 1999................................................. Q-3
Report of Ernst & Young, LLP Independent Auditors........................... F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997................ F-2
Consolidated Income Statements for the years ended
December 31, 1998, 1997 and 1996....................................... F-3
Consolidated Statements of Comprehensive Income
for the years ended December 31, 1998, 1997, and 1996................... F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996................................ F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996................................. F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
45
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheet
(Unaudited)
September 30
1999
--------------
(In Thousands)
ASSETS
Investments:
Fixed maturity securities, at fair value (amortized
cost - $27,720,226) $27,539,065
Equity securities, at fair value (cost - $215,480) 245,837
Mortgage loans on real estate 1,703,850
Policy loans 1,224,130
Investment real estate 117,005
Other long-term investments 154,183
Short-term investments 484,721
-----------
Total investments 31,468,791
Cash 89,211
Investment in Parent Company (cost - $7,958) 44,254
Indebtedness from affiliates 53,756
Accrued investment income 477,429
Accounts receivable 505,368
Deferred policy acquisition costs 1,733,978
Property and equipment 74,683
Other assets 225,353
Assets held in separate accounts 18,734,868
-----------
Total assets $53,407,691
===========
Q-1
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheet
(Unaudited)
September 30
1999
--------------
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits $29,704,115
Other policy claims and benefits payable 45,955
Other policyholders' funds 379,623
Federal income taxes 414,324
Indebtedness to affiliates 3,053
Other liabilities 1,035,653
Liabilities related to separate accounts 18,734,868
-----------
Total liabilities 50,317,591
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 1,369,315
Accumulated other comprehensive income (15,046)
Retained earnings 1,728,981
-----------
Total shareholders' equity 3,090,100
-----------
Total liabilities and shareholders' equity $53,407,691
===========
Q-2
<PAGE>
American General Life Insurance Company
Consolidated Income Statement
(Unaudited)
Nine months
ended
September 30
1999
--------------
(In Thousands)
Revenues:
Premiums and other considerations $ 402,583
Net investment income 1,753,914
Net realized investment gains 3,899
Other 58,530
----------
Total revenues 2,218,926
Benefits and expenses:
Benefits 1,289,534
Operating costs and expenses 367,123
Total benefits and expenses 1,656,657
----------
Income before income tax expense 562,269
Income tax expense 190,143
----------
Net income $ 372,126
==========
Q-3
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD] . One Houston Center . Phone: 713 750 1500
Suite 2400 Fax: 713 750 1501
1221 McKinney
Houston, Texas 77010-2007
Report of Independent Auditors
Board of Directors and Stockholder
American General Life Insurance Company
We have audited the accompanying consolidated balance sheets of American General
Life Insurance Company (an indirectly wholly owned subsidiary of American
General Corporation) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, shareholder's
equity, and cash flows for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American General
Life Insurance Company and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/S/ ERNST & YOUNG LLP
---------------------
February 16, 1999
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
F-1
<PAGE>
American General Life Insurance Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
---------------------------------
<S> <C> <C>
(In Thousands)
ASSETS
Investments:
Fixed maturity securities, at fair value (amortized cost-
$27,425,605 in 1998 and $26,131,207 in 1997) $28,906,261 $27,386,715
Equity securities, at fair value (cost - $193,368 in 1998
and $19,208 in 1997) 211,684 21,114
Mortgage loans on real estate 1,557,268 1,659,921
Policy loans 1,170,686 1,093,694
Investment real estate 119,520 129,364
Other long-term investments 86,194 55,118
Short-term investments 222,949 100,061
---------------------------------
Total investments 32,274,562 30,445,987
Cash 117,675 99,284
Investment in Parent Company (cost - $8,597 in 1998
and 1997) 54,570 37,823
Indebtedness from affiliates 161,096 96,519
Accrued investment income 459,961 433,111
Accounts receivable 196,596 208,209
Deferred policy acquisition costs 1,087,718 835,031
Property and equipment 66,197 33,827
Other assets 206,318 132,659
Assets held in separate accounts 15,616,020 11,242,270
---------------------------------
Total assets $50,240,713 $43,564,720
=================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits $29,353,022 $27,849,893
Other policy claims and benefits payable 54,278 42,677
Other policyholders' funds 398,587 398,314
Federal income taxes 677,315 543,379
Indebtedness to affiliates 18,173 4,712
Other liabilities 554,783 421,861
Liabilities related to separate accounts 15,616,020 11,242,270
---------------------------------
Total liabilities 46,672,178 40,503,106
Shareholder's equity:
Common stock, $10 par value, 600,000 shares
authorized, issued, and outstanding 6,000 6,000
Preferred stock, $100 par value, 8,500 shares authorized,
issued, and outstanding 850 850
Additional paid-in capital 1,368,089 1,184,743
Accumulated other comprehensive income 679,107 427,526
Retained earnings 1,514,489 1,442,495
---------------------------------
Total shareholder's equity 3,568,535 3,061,614
---------------------------------
Total liabilities and shareholder's equity $50,240,713 $43,564,720
=================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
American General Life Insurance Company
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Revenues:
Premiums and other considerations $ 470,238 $ 428,721 $ 382,923
Net investment income 2,316,933 2,198,623 2,095,072
Net realized investment gains (losses) (33,785) 29,865 28,502
Other 69,602 53,370 41,968
----------------------------------------------------------
Total revenues 2,822,988 2,710,579 2,548,465
Benefits and expenses:
Benefits 1,788,417 1,757,504 1,689,011
Operating costs and expenses 467,067 379,012 347,369
Interest expense 15 782 830
Litigation settlement 97,096 - -
----------------------------------------------------------
Total benefits and expenses 2,352,595 2,137,298 2,037,210
----------------------------------------------------------
Income before income tax expense 470,393 573,281 511,255
Income tax expense 153,719 198,724 176,660
----------------------------------------------------------
Net income $ 316,674 $ 374,557 $ 334,595
==========================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
American General Life Insurance Company
Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Net income $316,674 $374,557 $ 334,595
Other comprehensive income:
Gross change in unrealized gains (losses)
on securities (pretax: $341,000;
$318,700; ($404,900)) 222,245 207,124 (263,181)
Less: gains (losses) realized in net income (29,336) (1,251) 11,262
--------------------------------------------------------
Change in net unrealized gains (losses) on
securities (pretax: $387,000; $320,600;
($422,200) 251,581 208,375 (274,443)
-------------------------------------------------------
Comprehensive income $568,255 $582,932 $ 60,152
========================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
American General Life Insurance Company
Consolidated Statements of Shareholder's Equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Common stock:
Balance at beginning of year $ 6,000 $ 6,000 $ 6,000
Change during year - - -
----------------------------------------------------------
Balance at end of year 6,000 6,000 6,000
Preferred stock:
Balance at beginning of year 850 850 850
Change during year - - -
----------------------------------------------------------
Balance at end of year 850 850 850
Additional paid-in capital:
Balance at beginning of year 1,184,743 933,342 858,075
Capital contribution from Parent
Company 182,284 250,000 75,000
Other changes during year 1,062 1,401 267
----------------------------------------------------------
Balance at end of year 1,368,089 1,184,743 933,342
Accumulated other comprehensive income:
Balance at beginning of year 427,526 219,151 493,594
Change in unrealized gains (losses) on
securities 251,581 208,375 (274,443)
----------------------------------------------------------
Balance at end of year 679,107 427,526 219,151
Retained earnings:
Balance at beginning of year 1,442,495 1,469,618 1,324,703
Net income 316,674 374,557 334,595
Dividends paid (244,680) (401,680) (189,680)
----------------------------------------------------------
Balance at end of year 1,514,489 1,442,495 1,469,618
----------------------------------------------------------
Total shareholder's equity $3,568,535 $3,061,614 $2,628,961
==========================================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
American General Life Insurance Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
OPERATING ACTIVITIES
Net income $ 316,674 $ 374,557 $ 334,595
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts receivable 11,613 (37,752) 3,846
Change in future policy benefits and other policy
claims (866,428) (1,143,736) (543,193)
Amortization of policy acquisition costs 125,062 115,467 102,189
Policy acquisition costs deferred (244,196) (219,339) (188,001)
Change in other policyholders' funds 273 21,639 (69,126)
Provision for deferred income tax expense 15,872 13,264 12,388
Depreciation 19,418 16,893 16,993
Amortization (26,775) (28,276) (30,758)
Change in indebtedness to/from affiliates (51,116) (8,695) 4,432
Change in amounts payable to brokers (894) 31,769 (25,260)
Net (gain) loss on sale of investments 37,016 (29,865) (28,502)
Other, net 57,307 30,409 32,111
--------------------------------------------------------------------
Net cash used in operating activities (606,174) (863,665) (378,286)
INVESTING ACTIVITIES
Purchases of investments and loans made (28,231,615) (29,638,861) (27,245,453)
Sales or maturities of investments and receipts from
repayment of loans 26,656,897 28,300,238 25,889,422
Sales and purchases of property, equipment, and
software, net (105,907) (9,230) (8,057)
--------------------------------------------------------------------
Net cash used in investing activities (1,680,625) (1,347,853) (1,364,088)
FINANCING ACTIVITIES
Policyholder account deposits 4,688,831 4,187,191 3,593,380
Policyholder account withdrawals (2,322,307) (1,759,660) (1,746,987)
Dividends paid (244,680) (401,680) (189,680)
Capital contribution from Parent 182,284 250,000 75,000
Other 1,062 1,401 267
--------------------------------------------------------------------
Net cash provided by financing activities 2,305,190 2,277,252 1,731,980
--------------------------------------------------------------------
Increase (decrease) in cash 18,391 65,734 (10,394)
Cash at beginning of year 99,284 33,550 43,944
--------------------------------------------------------------------
Cash at end of year $ 117,675 $ 99,284 $ 33,550
====================================================================
</TABLE>
Interest paid amounted to approximately $420,000, $1,004,000, and $1,080,000 in
1998, 1997, and 1996, respectively.
See accompanying notes.
F-6
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements
December 31, 1998
NATURE OF OPERATIONS
American General Life Insurance Company (the "Company") is a wholly owned
subsidiary of AGC Life Insurance Company, which is a wholly owned subsidiary of
American General Corporation (the "Parent Company"). The Company's wholly owned
life insurance subsidiaries are American General Life Insurance Company of New
York ("AGNY") and The Variable Annuity Life Insurance Company ("VALIC"). During
1998, the Company formed a new wholly owned subsidiary, American General Life
Companies (AGLC), to provide management services to certain life insurance
subsidiaries of the Parent Company.
The Company offers a complete portfolio of the standard forms of universal life,
variable universal life, interest-sensitive whole life, term life, structured
settlements, and fixed and variable annuities throughout the United States. In
addition, a variety of equity products is sold through its wholly owned
broker/dealer, American General Securities, Inc. The Company serves the estate
planning needs of middle- and upper-income households and the insurance needs of
small- to medium-sized businesses. AGNY offers a broad array of traditional and
interest-sensitive insurance, in addition to individual annuity products. VALIC
provides tax-deferred retirement annuities and employer-sponsored retirement
plans to employees of health care, educational, public sector, and other not-
for-profit organizations throughout the United States.
1. ACCOUNTING POLICIES
1.1 PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") and include the accounts of
the Company and its wholly owned subsidiaries. Transactions with the Parent
Company and other subsidiaries of the Parent Company are not eliminated from the
financial statements of the Company. All other material intercompany
transactions have been eliminated in consolidation.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
disclosures of contingent assets and liabilities. Ultimate results could differ
from those estimates.
F-7
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.2 STATUTORY ACCOUNTING
The Company and its wholly owned life insurance subsidiaries are required to
file financial statements with state regulatory authorities. State insurance
laws and regulations prescribe accounting practices for calculating statutory
net income and equity. In addition, state regulators may permit statutory
accounting practices that differ from prescribed practices. The use of such
permitted practices by the Company and its wholly owned life insurance
subsidiaries did not have a material effect on statutory equity at December 31,
1998.
Statutory financial statements differ from GAAP. Significant differences were as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------
<S> <C> <C> <C>
Net income:
Statutory net income (1998 balance is
unaudited) $ 259,903 $ 327,813 $ 284,070
Deferred policy acquisition costs and cost
of insurance purchased 116,597 103,872 85,812
Deferred income taxes (53,358) (13,264) (12,388)
Adjustments to policy reserves 52,445 (30,162) (19,954)
Goodwill amortization (2,033) (2,067) (2,169)
Net realized gain on investments 41,488 20,139 14,140
Litigation settlement (63,112) -- --
Other, net (35,256) (31,774) (14,916)
-------------------------------------------------------
GAAP net income $ 316,674 $ 374,557 $ 334,595
=======================================================
Shareholders' equity:
Statutory capital and surplus (1998 balance
is unaudited) $1,670,412 $1,636,327 $1,441,768
Deferred policy acquisition costs 1,109,831 835,031 1,042,783
Deferred income taxes (698,350) (535,703) (410,007)
Adjustments to policy reserves (274,532) (319,680) (297,434)
Acquisition-related goodwill 54,754 51,424 55,626
Asset valuation reserve ("AVR") 310,564 255,975 291,205
Interest maintenance reserve ("IMR") 27,323 9,596 63
Investment valuation differences 1,487,658 1,272,339 643,289
Surplus from separate accounts (174,447) (150,928) (106,026)
Other, net 55,322 7,233 (32,306)
-------------------------------------------------------
Total GAAP shareholders' equity $3,568,535 $3,061,614 $2,628,961
=======================================================
</TABLE>
F-8
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.2 STATUTORY ACCOUNTING (CONTINUED)
The more significant differences between GAAP and statutory accounting
principles are that under GAAP: (a) acquisition costs related to acquiring new
business are deferred and amortized (generally in proportion to the present
value of expected gross profits from surrender charges and investment,
mortality, and expense margins), rather than being charged to operations as
incurred; (b) future policy benefits are based on estimates of mortality,
interest, and withdrawals generally representing the Company's experience, which
may differ from those based on statutory mortality and interest requirements
without consideration of withdrawals; (c) deferred tax assets and liabilities
are established for temporary differences between the financial reporting basis
and the tax basis of assets and liabilities, at the enacted tax rates expected
to be in effect when the temporary differences reverse; (d) certain assets
(principally furniture and equipment, agents' debit balances, computer software,
and certain other receivables) are reported as assets rather than being charged
to retained earnings; (e) acquisitions are accounted for using the purchase
method of accounting rather than being accounted for as equity investments; and
(f) fixed maturity investments are carried at fair value rather than amortized
cost. In addition, statutory accounting principles require life insurance
companies to establish an AVR and an IMR. The AVR is designed to address the
credit-related risk for bonds, preferred stocks, derivative instruments, and
mortgages and market risk for common stocks, real estate, and other invested
assets. The IMR is composed of investment- and liability-related realized gains
and losses that result from interest rate fluctuations. These realized gains and
losses, net of tax, are amortized into income over the expected remaining life
of the asset sold or the liability released.
1.3 INSURANCE CONTRACTS
The insurance contracts accounted for in these financial statements include
primarily long-duration contracts. Long-duration contracts include traditional
whole life, endowment, guaranteed renewable term life, universal life, limited
payment, and investment contracts. Long-duration contracts generally require the
performance of various functions and services over a period of more than one
year. The contract provisions generally cannot be changed or canceled by the
insurer during the contract period; however, most new contracts written by the
Company allow the insurer to revise certain elements used in determining premium
rates or policy benefits, subject to guarantees stated in the contracts.
F-9
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities were classified as available-for-sale
and recorded at fair value at December 31, 1998, 1997, and 1996. After adjusting
related balance sheet accounts as if the unrealized gains (losses) had been
realized, the net adjustment is recorded in accumulated other comprehensive
income within shareholders' equity. If the fair value of a security classified
as available-for-sale declines below its cost and this decline is considered to
be other than temporary, the security is reduced to its fair value, and the
reduction is recorded as a realized loss.
During 1998, the Company maintained a trading portfolio of certain fixed
maturity securities. Trading securities are recorded at fair value. Unrealized
gains (losses), as well as realized gains (losses), are included in net
investment income. The Company held no trading securities at December 31, 1998,
and trading securities did not have a material effect on net investment income
in 1998.
MORTGAGE LOANS
Mortgage loans are reported at amortized cost, net of an allowance for losses.
The allowance for losses covers all non-performing loans and loans for which
management has a concern based on its assessment of risk factors, such as
potential non-payment or non-monetary default. The allowance is based on a loan-
specific review and a formula that reflects past results and current trends.
Loans for which the Company determines that collection of all amounts due under
the contractual terms is not probable are considered to be impaired. The Company
generally looks to the underlying collateral for repayment of impaired loans.
Therefore, impaired loans are considered to be collateral dependent and are
reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated cost to sell.
POLICY LOANS
Policy loans are reported at unpaid principal balance.
F-10
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.4 INVESTMENTS (CONTINUED)
INVESTMENT REAL ESTATE
Investment real estate is classified as held for investment or available for
sale, based on management's intent. Real estate held for investment is carried
at cost, less accumulated depreciation and impairment write-downs. Real estate
available for sale is carried at the lower of cost (less accumulated
depreciation, if applicable) or fair value less cost to sell.
INVESTMENT INCOME
Interest on fixed maturity securities and performing and restructured mortgage
loans is recorded as income when earned and is adjusted for any amortization of
premium or discount. Interest on delinquent mortgage loans is recorded as income
when received. Dividends are recorded as income on ex-dividend dates.
REALIZED INVESTMENT GAINS
Realized investment gains (losses) are recognized using the specific-
identification method.
1.5 SEPARATE ACCOUNTS
Separate Accounts are assets and liabilities associated with certain contracts,
principally annuities; for which the investment risk lies solely with the
contract holder. Therefore, the Company's liability for these accounts equals
the value of the account assets. Investment income, realized investment gains
(losses), and policyholder account deposits and withdrawals related to separate
accounts are excluded from the consolidated statements of income, comprehensive
income, and cash flows. Assets held in Separate Accounts are primarily shares in
mutual funds, which are carried at fair value based on the quoted net asset
value per share.
F-11
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.6 DEFERRED POLICY ACQUISITION COSTS ("DPAC") AND COST OF INSURANCE PURCHASED
("CIP")
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC.
CIP represents the cost assigned to insurance contracts in force that are
acquired through the purchase of a block of business. At December 31, 1998, CIP
of $22.1 million was reported within other assets.
DPAC and CIP associated with interest-sensitive life contracts, insurance
investment contracts, and participating life insurance contracts is charged to
expense in relation to the estimated gross profits of those contracts. DPAC and
CIP associated with all other insurance contracts is charged to expense over the
premium-paying period or as the premiums are earned over the life of the
contract.
DPAC and CIP are adjusted for the impact on estimated future gross profits as if
net unrealized gains (losses) on securities had been realized at the balance
sheet date. The impact of this adjustment is included in accumulated other
comprehensive income within shareholder's equity.
The Company reviews the carrying amount of DPAC and CIP on at least an annual
basis. Management considers estimated future gross profits or future premiums,
expected mortality, interest earned and credited rates, persistency, and
expenses in determining whether the carrying amount is recoverable.
1.7 PREMIUM RECOGNITION
Most receipts for annuities and interest-sensitive life insurance policies are
classified as deposits instead of revenue. Revenues for these contracts consist
of mortality, expense, and surrender charges. Policy charges that compensate the
Company for future services are deferred and recognized in income over the
period earned, using the same assumptions used to amortize DPAC (see Note 1.6).
For limited-payment contracts, net premiums are recorded as revenue, and the
difference between the gross premium received and the net premium is deferred
and recognized in a constant relationship to insurance in force. For all other
contracts, premiums are recognized when due.
F-12
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.8 OTHER ASSETS
Acquisition-related goodwill, which is included in other assets, is charged to
expense in equal amounts over 40 years. The carrying value of goodwill is
regularly reviewed by management for indicators of impairment in value. If facts
and circumstances suggest that goodwill is impaired, other than temporarily, the
Company assesses the fair value of the underlying assets and reduces goodwill
accordingly.
1.9 POLICY AND CONTRACT CLAIMS RESERVES
Substantially all of the Company's insurance and annuity liabilities relate to
long-duration contracts. The contracts normally cannot be changed or canceled by
the Company during the contract period.
For interest-sensitive life and insurance investment contracts, reserves equal
the sum of the policy account balance and deferred revenue charges. Reserves for
other contracts are based on estimates of the cost of future policy benefits.
Reserves are determined using the net level premium method. Interest assumptions
used to compute reserves ranged from 2.5% to 13.5% at December 31, 1998.
1.10 REINSURANCE
The Company limits its exposure to loss on any single insured to $2.5 million by
ceding additional risks through reinsurance contracts with other insurers. The
Company diversifies its risk of reinsurance loss by using a number of reinsurers
that have strong claims-paying ability ratings. If the reinsurer could not meet
its obligations, the Company would reassume the liability. The likelihood of a
material reinsurance liability being reassumed by the Company is considered to
be remote.
A receivable is recorded for the portion of benefits paid and insurance
liabilities that have been reinsured. Reinsurance recoveries on ceded
reinsurance contracts were $63 million, $25 million, and $24 million during
1998, 1997, and 1996, respectively. The cost of reinsurance is recognized over
the life of the reinsured policies using assumptions consistent with those used
to account for the underlying policies.
F-13
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.10 REINSURANCE
Benefits paid and future policy benefits related to ceded insurance contracts
are recorded as reinsurance receivables. The cost of reinsurance is recognized
over the life of the underlying reinsured policies using assumptions consistent
with those used to account for the underlying policies.
1.11 PARTICIPATING POLICY CONTRACTS
Participating life insurance accounted for approximately 2% of life insurance in
force at December 31, 1998 and 1997.
The portion of earnings allocated to participating policyholders that cannot be
expected to inure to shareholders is excluded from net income and shareholder's
equity. Dividends to be paid on participating life insurance contracts are
determined annually based on estimates of the contracts' earnings. Policyholder
dividends were $4.9 million in 1998.
1.12 INCOME TAXES
The Company and its life insurance subsidiaries, together with certain other
life insurance subsidiaries of the Parent Company, are included in a life/non-
life consolidated tax return with the Parent Company and its noninsurance
subsidiaries. The Company participates in a tax sharing agreement with other
companies included in the consolidated tax return. Under this agreement, tax
payments are made to the Parent Company as if the companies filed separate tax
returns; and companies incurring operating and/or capital losses are reimbursed
for the use of these losses by the consolidated return group.
Deferred tax assets and liabilities are established for temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities, at the enacted tax rates expected to be in effect when the
temporary differences reverse. The effect of a tax rate change is recognized in
income in the period of enactment. State income taxes are included in income tax
expense.
F-14
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.12 INCOME TAXES (CONTINUED)
A valuation allowance for deferred tax assets is provided if it is more likely
than not that some portion of the deferred tax asset will not be realized. An
increase or decrease in a valuation allowance that results from a change in
circumstances that causes a change in judgment about the realizability of the
related deferred tax asset is included in income. Changes related to
fluctuations in fair value of available-for-sale securities are included in the
consolidated statements of comprehensive income and accumulated other
comprehensive income in shareholder's equity.
1.13 ACCOUNTING CHANGES
During 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) 130, Reporting Comprehensive Income, which establishes standards for
reporting and displaying comprehensive income and its components in the
financial statements. The Company elected to report comprehensive income and its
components in a separate statement of comprehensive income. Adoption of this
statement did not change recognition or measurement of net income and,
therefore, did not impact the Company's consolidated results of operations or
financial position.
Effective December 31, 1998, the Company adopted SFAS 131, Disclosures about
Segments of an Enterprise and Related Information, which changes the way
companies report segment information. With the adoption of SFAS 131, the Company
reports division earnings exclusive of goodwill amortization, net realized
investment gains, and nonrecurring items. This methodology is consistent with
the manner in which management reviews division results. Adoption of this
statement did not impact the Company's consolidated results of operations or
financial position.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, which requires all
derivative instruments to be recognized at fair value as either assets or
liabilities in the balance sheet. Changes in the fair value of a derivative
instrument are to be reported as earnings or other comprehensive income,
depending upon the intended use of the derivative instrument. This statement is
effective for years beginning after June 15, 1999. Adoption of SFAS 133 is not
expected to have a material impact on the Company's consolidated results of
operations or financial position.
F-15
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS
2.1 INVESTMENT INCOME
Investment income by type of investment was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Investment income:
Fixed maturities $2,101,730 $1,966,528 $1,846,549
Equity securities 1,813 1,067 1,842
Mortgage loans on real estate 148,447 157,035 175,833
Investment real estate 23,139 22,157 22,752
Policy loans 66,573 62,939 58,211
Other long-term investments 3,837 3,135 2,328
Short-term investments 15,492 8,626 9,280
Investment income from affiliates 10,536 11,094 11,502
----------------------------------------------------------
Gross investment income 2,371,567 2,232,581 2,128,297
Investment expenses 54,634 33,958 33,225
----------------------------------------------------------
Net investment income $2,316,933 $2,198,623 $2,095,072
==========================================================
</TABLE>
The carrying value of investments that produced no investment income during 1998
was less than 0.2% of total invested assets. The ultimate disposition of these
investments is not expected to have a material effect on the Company's results
of operations and financial position.
F-16
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.2 NET REALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) by type of investment were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 20,109 $ 42,966 $ 46,498
Gross losses (62,657) (34,456) (47,293)
--------------------------------------------------------
Total fixed maturities (42,548) 8,510 (795)
Equity securities 645 1,971 18,304
Other investments 8,118 19,384 10,993
--------------------------------------------------------
Net realized investment gains (losses)
before tax (33,785) 29,865 28,502
Income tax expense (benefit) (11,826) 10,452 9,976
--------------------------------------------------------
Net realized investment gains (losses)
after tax $(21,959) $ 19,413 $ 18,526
========================================================
</TABLE>
F-17
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities are classified as available-for-sale
and reported at fair value (see Note 1.4). Amortized cost and fair value at
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Fixed maturity securities:
Corporate securities:
Investment-grade $18,800,553 $1,129,504 $(26,353) $19,903,703
Below investment-grade 1,409,198 33,910 (45,789) 1,397,320
Mortgage-backed securities* 6,359,242 294,331 (870) 6,652,703
U.S. government obligations 417,822 69,321 (178) 486,965
Foreign governments 331,699 24,625 (2,437) 353,887
State and political subdivisions 86,778 4,796 (187) 91,387
Redeemable preferred stocks 20,313 - (17) 20,296
------------------------------------------------------------------------------
Total fixed maturity securities $27,425,605 $1,556,487 $(75,831) $28,906,261
==============================================================================
Equity securities $ 193,368 $ 19,426 $ (1,110) $ 211,684
==============================================================================
Investment in Parent Company $ 8,597 $ 45,973 $ - $ 54,570
==============================================================================
</TABLE>
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and government
agencies.
F-18
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturity securities:
Corporate securities:
Investment-grade $17,913,942 $ 906,235 $(17,551) $18,802,626
Below investment-grade 950,438 34,290 (4,032) 980,696
Mortgage-backed securities* 6,614,704 278,143 (4,260) 6,888,587
U.S. government obligations 289,406 46,529 (74) 335,861
Foreign governments 318,212 18,076 (3,534) 332,754
State and political subdivisions 44,505 1,686 -- 46,191
------------------------------------------------------------------------------
Total fixed maturity securities $26,131,207 $1,284,959 $(29,451) $27,386,715
==============================================================================
Equity securities $ 19,208 $ 2,145 $ (239) $ 21,114
==============================================================================
Investment in Parent Company $ 8,597 $ 29,226 $ -- $ 37,823
==============================================================================
</TABLE>
* Primarily include pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and government
agencies.
F-19
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
Net unrealized gains (losses) on securities included in accumulated
comprehensive income in shareholders' equity at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------
(In Thousands)
<S> <C> <C>
Gross unrealized gains $1,621,886 $1,316,330
Gross unrealized losses (76,941) (29,690)
DPAC and other fair value adjustments (488,120) (621,867)
Deferred federal income taxes (377,718) (237,247)
--------------------------------------------
Net unrealized gains on securities $ 679,107 $ 427,526
============================================
</TABLE>
The contractual maturities of fixed maturity securities at December 31, 1998
were as follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
-----------------------------------------------------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity securities,
excluding mortgage-
backed securities:
Due in one year or less $ 531,496 $ 536,264 $ 205,719 $ 207,364
Due after one year
through five years 5,550,665 5,812,581 5,008,933 5,216,174
Due after five years
through ten years 9,229,980 9,747,761 9,163,681 9,604,447
Due after ten years 5,754,220 6,156,950 5,138,169 5,470,143
Mortgage-backed securities 6,359,244 6,652,705 6,614,705 6,888,587
-----------------------------------------------------------------------------
Total fixed maturity securities $27,425,605 $28,906,261 $26,131,207 $27,386,715
=============================================================================
</TABLE>
Actual maturities may differ from contractual maturities, since borrowers may
have the right to call or prepay obligations. In addition, corporate
requirements and investment strategies may result in the sale of investments
before maturity. Proceeds from sales of fixed maturities were $5.4 billion,
$14.8 billion, and $16.2 billion during 1998, 1997, and 1996, respectively.
F-20
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE
Diversification of the geographic location and type of property collateralizing
mortgage loans reduces the concentration of credit risk. For new loans, the
Company requires loan-to-value ratios of 75% or less, based on management's
credit assessment of the borrower. The mortgage loan portfolio was distributed
as follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
DECEMBER 31, 1998
Geographic distribution:
South Atlantic $ 429 27.6% 0.2%
Pacific 320 20.6 10.4
Mid-Atlantic 326 20.9 4.1
East North Central 178 11.4 -
Mountain 95 6.1 -
West South Central 118 7.5 -
East South Central 46 3.0 -
West North Central 33 2.1 -
New England 25 1.6 -
Allowance for losses (13) (0.8) -
-------------------------------------
Total $ 1,557 100.00% 3.1%
=====================================
Property type:
Office $ 593 38.1% 7.0%
Retail 423 27.1 0.2
Industrial 292 18.8 -
Apartments 178 11.4 2.9
Hotel/motel 38 2.4 -
Other 46 3.0 -
Allowance for losses (13) (0.8) -
-------------------------------------
Total $ 1,557 100% 3.1%
=====================================
</TABLE>
F-21
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
DECEMBER 31, 1997
Geographic distribution:
South Atlantic $ 456 27.5% 1.8%
Pacific 340 20.5 14.4
Mid-Atlantic 288 17.3 -
East North Central 186 11.2 -
Mountain 151 9.1 2.7
West South Central 132 7.9 .1
East South Central 94 5.7 -
West North Central 19 1.1 -
New England 17 1.1 -
Allowance for losses (23) (1.4) -
-------------------------------------
Total $1,660 100.0% 3.6%
=====================================
Property type:
Office $ 622 37.5% 4.6%
Retail 463 27.9 3.0
Industrial 324 19.5 1.8
Apartments 223 13.4 6.1
Hotel/motel 40 2.4 -
Other 11 .7 -
Allowance for losses (23) (1.4) -
-------------------------------------
Total $1,660 100.0% 3.6%
=====================================
</TABLE>
F-22
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
Impaired mortgage loans on real estate and related interest income were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-----------------------------------------
(In Millions)
<S> <C> <C>
Impaired loans:
With allowance* $ 13 $ 35
Without allowance - -
-----------------------------------------
Total impaired loans $ 13 $ 35
=========================================
</TABLE>
* Represents gross amounts before allowance for mortgage loan losses of $1.8
million and $10 million, respectively.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
Average investment $ 24 $ 48 $ 72
Interest income earned $ - $ 3 $ 6
Interest income - cash basis $ - $ - $ 6
</TABLE>
F-23
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.5 INVESTMENT SUMMARY
Investments of the Company were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------------------------------------------------------------------------------------
CARRYING CARRYING
COST FAIR VALUE AMOUNT COST FAIR VALUE AMOUNT
--------------------------------------------------------------------------------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities:
Bonds:
United States government
and government agencies
and authorities $ 417,822 $ 486,965 $ 486,965 $ 289,406 $ 335,861 $ 335,861
States, municipalities,
and political subdivisions 86,778 91,387 91,387 44,505 46,191 46,191
Foreign governments 331,699 353,887 353,887 318,212 332,754 332,754
Public utilities 1,777,172 1,895,326 1,895,326 1,848,546 1,952,724 1,952,724
Mortgage-backed securities 6,359,242 6,652,703 6,652,703 6,614,704 6,888,587 6,888,587
All other corporate bonds 18,432,579 19,405,697 19,405,697 17,015,834 17,830,598 17,830,598
Redeemable preferred stocks 20,313 20,296 20,296 - - -
--------------------------------------------------------------------------------------------------------
Total fixed maturities 27,425,605 28,906,261 28,906,261 26,131,207 27,386,715 27,386,715
Equity securities:
Common stocks:
Banks, trust, and insurance
companies - - - - - -
Industrial, miscellaneous,
and other 176,321 211,684 211,684 5,604 5,785 5,785
Nonredeemable preferred
stocks 17,047 - - 13,604 15,329 15,329
--------------------------------------------------------------------------------------------------------
Total equity securities 193,368 211,684 211,684 19,208 21,114 21,114
Mortgage loans on real
estate* 1,557,268 - 1,557,268 1,659,921 - 1,659,921
Investment real estate 119,520 - 119,520 129,364 - 129,364
Policy loans 1,170,686 - 1,170,686 1,093,694 - 1,093,694
Other long-term investments 86,194 - 86,194 55,118 - 55,118
Short-term investments 222,949 - 222,949 100,061 - 100,061
--------------------------------------------------------------------------------------------------------
Total investments $30,775,590 $ - $32,274,562 $29,188,573 $ - $30,445,987
========================================================================================================
</TABLE>
* Amount is net of allowance for losses of $13 million and $23 million at
December 31, 1996 and 1997, respectively.
F-24
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
3. DEFERRED POLICY ACQUISITION COSTS
The balance of DPAC at December 31 and the components of the change reported in
operating costs and expenses for the years then ended were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance at January 1 $ 835,031 $1,042,783 $ 605,501
Capitalization 244,196 219,339 188,001
Amortization (125,062) (115,467) (102,189)
Effect of unrealized gains (losses) on
securities 133,553 (311,624) 351,470
----------------------------------------------------------
Balance at December 31 $1,087,718 $ 835,031 $1,042,783
==========================================================
</TABLE>
4. OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------------
(In Thousands)
<S> <C> <C>
Goodwill $ 54,754 $ 51,424
American General Corporation CBO (Collateralized Bond
Obligation) 98-1 Ltd. 9,740 -
Cost of insurance purchased ("CIP") 22,113 -
Other 119,711 81,235
------------------------------------
Total other assets $206,318 $132,659
====================================
</TABLE>
F-25
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
4. OTHER ASSETS (CONTINUED)
A rollforward of CIP for the year ended December 31, 1998, was as follows:
<TABLE>
<CAPTION>
1998
--------------------
(In Thousands)
<S> <C>
Balance at January 1 $ --
Acquisition of business 23,915
Accretion of interest at 5.88% 733
Amortization (2,535)
--------------------
Balance at December 31 $ 22,113
====================
</TABLE>
5. FEDERAL INCOME TAXES
5.1 TAX LIABILITIES
Income tax liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------------------------
(In Thousands)
<S> <C> <C>
Current tax (receivable) payable $ (21,035) $ 7,676
Deferred tax liabilities, applicable to:
Net income 320,632 298,456
Net unrealized investment gains 377,718 237,247
-----------------------------------------
Total deferred tax liabilities 698,350 535,703
-----------------------------------------
Total current and deferred tax liabilities $ 677,315 $ 543,379
=========================================
</TABLE>
F-26
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.1 TAX LIABILITIES (CONTINUED)
Components of deferred tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------
(In Thousands)
<S> <C> <C>
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 307,025 $ 226,653
Basis differential of investments 590,661 486,194
Other 150,189 139,298
------------------------------------------
Total deferred tax liabilities 1,047,875 852,145
Deferred tax assets applicable to:
Policy reserves (212,459) (232,539)
Other (137,066) (83,903)
------------------------------------------
Total deferred tax assets before valuation
allowance (349,525) (316,442)
Valuation allowance - -
------------------------------------------
Total deferred tax assets, net of valuation
allowance (349,525) (316,442)
------------------------------------------
Net deferred tax liabilities $ 698,350 $ 535,703
==========================================
</TABLE>
A portion of life insurance income earned prior to 1984 is not taxable unless it
exceeds certain statutory limitations, is distributed as dividends, or unless
the income tax deferred status of such amount is modified by future tax
legislation. Such income, accumulated in policyholders' surplus accounts,
totaled $87.1 million at December 31, 1998. At current corporate rates, the
maximum amount of tax on such income is approximately $30.5 million. Deferred
income taxes on these accumulations are not required because no distributions
are expected.
F-27
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.2 TAX EXPENSE
Components of income tax expense for the years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Current expense $134,344 $185,460 $164,272
Deferred expense (benefit):
Deferred policy acquisition cost 33,230 27,644 21,628
Policy reserves 2,189 (27,496) (27,460)
Basis differential of investments 11,969 3,769 4,129
Litigation settlement (33,983) -- --
Year 2000 (9,653) -- --
Other, net 15,623 9,347 14,091
--------------------------------------------------------
Total deferred expense 19,375 13,264 12,388
--------------------------------------------------------
Income tax expense $153,719 $198,724 $176,660
========================================================
</TABLE>
A reconciliation between the income tax expense computed by applying the federal
income tax rate (35%) to income before taxes and the income tax expense reported
in the financial statement is presented below.
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Income tax at statutory percentage of GAAP
pretax income $164,638 $200,649 $178,939
Tax-exempt investment income (11,278) (9,493) (9,347)
Goodwill 712 723 759
Other (353) 6,845 6,309
--------------------------------------------------------
Income tax expense $153,719 $198,724 $176,660
========================================================
</TABLE>
F-28
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.3 TAXES PAID
Income taxes paid amounted to approximately $159 million, $168 million, and $182
million in 1998, 1997, and 1996, respectively.
5.4 TAX RETURN EXAMINATIONS
The Parent Company and the majority of its subsidiaries file a consolidated
federal income tax return. The Internal Revenue Service ("IRS") has completed
examinations of the Parent Company's tax returns through 1988. The IRS is
currently examining tax returns for 1989 through 1996. In addition, the tax
returns of companies recently acquired are also being examined. Although the
final outcome of any issues raised in examination is uncertain, the Parent
Company believes that the ultimate liability, including interest, will not
materially exceed amounts recorded in the consolidated financial statements.
6. TRANSACTIONS WITH AFFILIATES
Affiliated notes and accounts receivable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------------------------------------------
PAR VALUE BOOK VALUE PAR VALUE BOOK VALUE
------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
American General Corporation,
9-3/8%, due 2008 $ 4,725 $ 3,345 $ 4,725 $ 3,288
American General Corporation,
Promissory notes, due 2004 14,679 14,679 17,125 17,125
American General Corporation,
Restricted Subordinated
Note, 13-1/2%, due 2002 29,435 29,435 31,494 31,494
------------------------------------------------------------------------
Total notes receivable from
affiliates 48,839 47,459 53,344 51,907
Accounts receivable from
affiliates - 113,637 - 44,612
------------------------------------------------------------------------
Indebtedness from affiliates $48,839 $161,096 $53,344 $96,519
========================================================================
</TABLE>
F-29
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
6. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Various American General companies provide services to the Company, principally
mortgage servicing and investment management services, provided by American
General Investment Management Corporation on a fee basis. The Company paid
approximately $46,921,000, $33,916,000, and $22,083,000 for such services in
1998, 1997, and 1996, respectively. Accounts payable for such services at
December 31, 1998 and 1997 were not material. The Company rents facilities and
provides services on an allocated cost basis to various American General
companies. Beginning in 1998, amounts received by the Company from affiliates
include amounts received by its wholly-owned, non-life insurance subsidiary,
American General Life Companies (AGLC). AGLC provides shared services, including
technology and Year 2000-readiness, to a number of American General
Corporation's life insurance subsidiaries. The Company received approximately
$66,550,000, $6,455,000, and $1,255,000 for such services and rent in 1998,
1997, and 1996, respectively. Accounts receivable for rent and services at
December 31, 1998 and 1997 were not material.
The Company has 8,500 shares of $100 par value cumulative preferred stock
authorized and outstanding with an $80 dividend rate, redeemable at $1,000 per
share after December 31, 2000. The holder of this stock, The Franklin Life
Insurance Company ("Franklin"), an affiliated company, is entitled to one vote
per share, voting together with the holders of common stock.
During 1996, the Company's residential mortgage loan portfolio of $42 million
was sold to American General Finance, Inc., at carrying value plus accrued
interest.
7. STOCK-BASED COMPENSATION
Certain officers of the Company participate in American General Corporation's
stock and incentive plans which provide for the award of stock options,
restricted stock awards, performance awards, and incentive awards to key
employees. Stock options constitute the majority of such awards. Expense related
to stock options is measured as the excess of the market price of the stock at
the measurement date over the exercise price. The measurement date is the first
date on which both the number of shares that the employee is entitled to receive
and the exercise price are known. Under the stock option plans, no expense is
recognized, since the market price equals the exercise price at the measurement
date.
F-30
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
7. STOCK-BASED COMPENSATION (CONTINUED)
Under an alternative accounting method, compensation expense arising from stock
options would be measured at the estimated fair value of the options at the date
of grant. Had compensation expense for the stock options been determined using
this method, net income would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Net income as reported $316,674 $374,557 $334,595
Net income pro forma $315,078 $373,328 $334,029
</TABLE>
The average fair values of the options granted during 1998, 1997, and 1996 were
$15.38, $10.33, and $7.07, respectively. The fair value of each option was
estimated at the date of grant using a Black-Scholes option pricing model. The
weighted average assumptions used to estimate the fair value of the stock
options were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 2.5% 3.0% 4.0%
Expected volatility 23.0% 22.0% 22.3%
Risk-free interest rate 5.76% 6.4% 6.2%
Expected life 6 YEARS 6 years 6 years
</TABLE>
8. BENEFIT PLANS
8.1 PENSION PLANS
The Company has non-contributory defined benefit pension plans covering most
employees. Pension benefits are based on the participant's compensation and
length of credited service.
Equity and fixed maturity securities were 56% and 30%, respectively, of the
plans' assets at the plans' most recent balance sheet dates. Additionally, 1% of
plan assets were invested in general investment accounts of the Parent Company's
subsidiaries through deposit administration insurance contracts.
F-31
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The benefit plans have purchased annuity contracts from American General
Corporation's subsidiaries to provide benefits for certain retirees. These
contracts are expected to provide future annual benefits to certain retirees of
American General Corporation and its subsidiaries of approximately $52 million.
The components of pension expense and underlying assumptions were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost (benefits earned) $ 3,693 $ 1,891 $ 1,826
Interest cost 6,289 2,929 2,660
Expected return on plan assets (9,322) (5,469) (5,027)
Amortization (557) 195 4
--------------------------------------------------------
Pension (income) expense $ 103 $ (454) $ (537)
========================================================
Discount rate on benefit obligation 7.00% 7.25% 7.50%
Rate of increase in compensation levels 4.25% 4.00% 4.00%
Expected long-term rate of return on plan
assets 10.25% 10.00% 10.00%
</TABLE>
The Company's funding policy is to contribute annually no more than the maximum
deductible for federal income tax purposes. The funded status of the plans and
the prepaid pension expense included in other assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
(In Thousands)
<S> <C> <C>
Projected benefit obligation (PBO) $ 96,554 $ 43,393
Plan assets at fair value 120,898 80,102
Plan assets at fair value in excess of PBO 24,344 36,709
Other unrecognized items, net (10,176) (23,470)
-----------------------------------
Prepaid pension expense $ 14,168 $ 13,239
===================================
</TABLE>
F-32
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The change in PBO was as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------
(In Thousands)
<S> <C> <C>
PBO at January 1 $43,393 $37,389
Service and interest costs 9,982 4,820
Benefits paid (1,954) (673)
Actuarial loss 17,089 1,810
Amendments, transfers, and acquisitions 28,044 47
---------------------------------
PBO at December 31 $96,554 $43,393
=================================
</TABLE>
The change in the fair value of plan assets was as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
(In Thousands)
<S> <C> <C>
Fair value of plan assets at January 1 $ 80,102 $65,158
Actual return on plan assets 12,269 14,990
Benefits paid (1,954) (673)
Acquisitions and other 30,481 627
----------------------------------
Fair value of plan assets at December 31 $120,898 $80,102
==================================
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has life, medical, supplemental major medical, and dental plans for
certain retired employees and agents. Most plans are contributory, which retiree
contributions adjusted annually to limit employer contributions to predetermined
amounts. The Company has reserved the right to change or eliminate these
benefits at any time.
F-33
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The life plans are insured through December 31, 1999. A portion of the retiree
medical and dental plans is funded through a voluntary employees' beneficiary
association (VEBA); the remainder is unfunded and self-insured. All of the
retiree medical and dental plans' assets held in the VEBA were invested in
readily marketable securities at its most recent balance sheet date.
Postretirement benefit expense in 1998, 1997, and 1996 was $60,000, $601,000,
and $844,000, respectively. The accrued liability for postretirement benefits
was $19.2 million and $3.8 million at December 31, 1998 and 1997, respectively.
These liabilities were discounted at the same rates used for the pension plans.
9. DERIVATIVE FINANCIAL INSTRUMENTS
9.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company's use of derivative financial instruments is generally limited to
reducing its exposure to interest rate and currency exchange risk by utilizing
interest rate and currency swap agreements, and options to enter into interest
rate swap agreements (called swaptions). The Company accounts for these
derivative and financial instruments as hedges. Hedge accounting requires a high
correlation between changes in fair values or cash flows of the derivative
financial instrument and the specific item being hedged, both at inception and
throughout the life of the hedge.
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS
Interest rate swap agreements are used to convert specific investment securities
from a floating to a fixed rate basis, or vice versa, and to hedge against the
risk of declining interest rates on anticipated security purchases. Interest
rate swap agreements are also used to convert a portion of floating-rate
borrowings to a fixed rate and to hedge against the risk of rising interest
rates on anticipated debt issuances.
Currency swap agreements are used to convert cash flows from specific investment
securities denominated in foreign currencies into U.S. dollars at specific
exchange rates, and to hedge against currency rate fluctuation on anticipated
security purchases.
F-34
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS (CONTINUED)
The difference between amounts paid and received on swap agreements is recorded
on an accrual basis as an adjustment to net investment income or interest
expense, as appropriate, over the periods covered by the agreements. The related
amount payable to or receivable from counterparties is included in other
liabilities or assets.
The fair values of swap agreements are recognized in the consolidated balance
sheet if the hedge investments are carried at fair value or if they hedge
anticipated purchases of such investments. In this event, changes in the fair
value of a swap agreement are reported in net unrealized gains on securities
included in other accumulated comprehensive income in shareholders' equity,
consistent with the treatment of the related investment security. The fair
values of swap agreements hedging debt are not recognized in the consolidated
balance sheet.
For swap agreements hedging anticipated investment purchases or debt issuances,
the net swap settlement amount or unrealized gain or loss is deferred and
included in the measurement of the anticipated transaction when it occurs.
Swap agreements generally have terms of two to ten years. Any gain or loss from
early termination of a swap agreement is deferred and amortized into income over
the remaining term of the related investment or debt. If the underlying
investment or debt is extinguished or sold, any related gain or loss on swap
agreements is recognized in income.
F-35
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.2 INTEREST RATE AND CURRENCY SWAP AGREEMENTS (CONTINUED)
Interest rate and currency swap agreements related to investment securities at
December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
(Dollars in Millions)
<S> <C> <C>
Interest rate swap agreements to pay fixed rate:
Notional amount $ - $ 15
Average receive rate - 6.74%
Average pay rate - 6.48%
Interest rate swap agreements to receive fixed rate:
Notional amount $ 369 $ 144
Average receive rate 6.06% 6.89%
Average pay rate 5.48% 6.37%
Currency swap agreements (receive U.S. dollars/pay
Canadian dollars):
Notional amount (in U.S. dollars) $ 124 $ 139
Average exchange rate 1.50 1.50
</TABLE>
9.3 CALL SWAPTIONS
Options to enter into interest rate swap agreements are used to limit the
Company's exposure to reduced spreads between investment yields and interest
crediting rates should interest rates decline significantly over prolonged
periods. During such periods, the spread between investment yields and interest
crediting rates may be reduced as a result of certain limitations on the
Company's ability to manage interest crediting rates. Call swaptions allow the
Company to enter into interest rate swap agreements to receive fixed rates and
pay lower floating rates, effectively increasing the spread between investment
yields and interest crediting rates.
Premiums paid to purchase call swaptions are included in investments and are
amortized to net investment income over the exercise period of the swaptions. If
a call swaption is terminated, any gain is deferred and amortized to insurance
and annuity benefits over the expected life of the insurance and annuity
contracts and any unamortized premium is charged to income. If a call swaption
ceases to be an effective hedge, any related gain or loss is recognized in
income.
F-36
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
9. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
9.3 CALL SWAPTIONS (CONTINUED)
Swaptions at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
(Dollars in Billions)
<S> <C> <C>
Call swaptions:
Notional amount $1.76 $1.35
Average strike rate 3.97% 4.81%
Put swaptions:
Notional amount $1.05 $ -
Average strike rate 8.33% -
</TABLE>
9.4 CREDIT AND MARKET RISK
Derivative financial instruments expose the Company to credit risk in the event
of non-performance by counterparties. The Company limits this exposure by
entering into agreements with counterparties having high credit ratings and by
regularly monitoring the ratings. The Company does not expect any counterparty
to fail to meet its obligation; however, non-performance would not have a
material impact on the Company's consolidated results of operations or financial
position.
The Company's exposure to market risk is mitigated by the offsetting effects of
changes in the value of the agreements and the related items being hedged.
F-37
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and fair values for certain of the Company's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all the Company's assets and liabilities,
and (2) the reporting of investments at fair value without a corresponding
evaluation of related policyholders liabilities can be misinterpreted.
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
--------------------------------------------------------------------------------
(In Millions) (In Millions)
<S> <C> <C> <C> <C>
Assets:
Fixed maturity and equity
securities * $29,118 $29,118 $27,408 $27,408
Mortgage loans on real
estate $ 1,608 $ 1,557 $ 1,702 $ 1,660
Policy loans $ 1,252 $ 1,171 $ 1,127 $ 1,094
Investment in parent
company $ 55 $ 55 $ 38 $ 38
Indebtedness from
affiliates $ 161 $ 161 $ 97 $ 97
Liabilities:
Insurance investment
contracts $25,852 $25,675 $24,011 $24,497
</TABLE>
* Includes derivative financial instruments with negative fair values of $1.0
million and $4.2 million and positive fair values of $24.3 million and $7.2
million at December 31, 1998 and 1997, respectively.
F-38
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value of
financial instruments:
FIXED MATURITY AND EQUITY SECURITIES
Fair values of fixed maturity and equity securities were based on quoted
market prices, where available. For investments not actively traded, fair
values were estimated using values obtained from independent pricing
services or, in the case of some private placements, by discounting
expected future cash flows using a current market rate applicable to yield,
credit quality, and average life of investments.
MORTGAGE LOANS ON REAL ESTATE
Fair value of mortgage loans was estimated primarily using discounted cash
flows, based on contractual maturities and risk-adjusted discount rates.
POLICY LOANS
Fair value of policy loans was estimated using discounted cash flows and
actuarially determined assumptions, incorporating market rates.
INVESTMENT IN PARENT COMPANY
The fair value of the investment in Parent Company is based on quoted
market prices of American General Corporation common stock.
INSURANCE INVESTMENT CONTRACTS
Fair value of insurance investment contracts was estimated using cash flows
discounted at market interest rates.
F-39
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
INDEBTEDNESS FROM AFFILIATES
Indebtedness from affiliates is composed of accounts receivable and notes
receivable from affiliates. Due to the short-term nature of accounts
receivable, fair value is assumed to equal carrying value. Fair value of
notes receivable was estimated using discounted cash flows based on
contractual maturities and discount rates that were based on U.S. Treasury
rates for similar maturity ranges.
11. DIVIDENDS PAID
American General Life Insurance Company paid $244 million, $401 million, and
$189 million in dividends on common stock to AGC Life Insurance Company in 1998,
1997, and 1996, respectively. The Company also paid $680 thousand per year in
dividends on preferred stock to an affiliate, The Franklin Life Insurance
Company, in 1998, 1997, and 1996.
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES
The Company and its insurance subsidiaries are restricted by state insurance
laws as to the amounts they may pay as dividends without prior approval from
their respective state insurance departments. At December 31, 1998,
approximately $3.3 billion of consolidated shareholder's equity represents net
assets of the Company which cannot be transferred, in the form of dividends,
loans, or advances to the Parent Company. Approximately $2.5 billion of
consolidated shareholders' equity is similarly restricted as to transfer from
its subsidiaries to the Company.
Generally, the net assets of the Company's subsidiaries available for transfer
to the Parent are limited to the amounts that the subsidiaries' net assets, as
determined in accordance with statutory accounting practices, exceed minimum
statutory capital requirements. However, payments of such amounts as dividends
may be subject to approval by regulatory authorities and are generally limited
to the greater of 10% of policyholders' surplus or the previous year's statutory
net gain from operations.
The Company has various leases, substantially all of which are for office space
and facilities. Rentals under financing leases, contingent rentals, and future
minimum rental commitments and rental expense under operating leases are not
material.
F-40
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
In recent years, various life insurance companies have been named as defendants
in class action lawsuits relating to life insurance pricing and sales practices,
and a number of these lawsuits have resulted in substantial settlements. On
December 16, 1998, American General Corporation announced that certain of its
life insurance subsidiaries had entered into agreements to resolve all pending
market conduct class action lawsuits. The settlements are not final until
approved by the courts and any appeals are resolved. If court approvals are
obtained and appeals are not taken, it is expected the settlements will be final
in third quarter 1999.
In conjunction with the proposed settlements, the Company recorded a charge of
$97.1 million ($63.1 million after-tax) in the fourth quarter of 1998. The
charge covers the cost of policyholder benefits and other anticipated expenses
resulting from the proposed settlements, as well as other administrative and
legal costs.
On December 31, 1998, the Company entered into an agreement with the Parent
Company whereby the Company assigned, and the Parent Company assumed, $80.1
million of the liabilities of the Company related to the proposed resolution.
The liabilities of American General Life Insurance Company of New York, which
totaled $17.0 million, were not assumed by the Parent Company. As consideration
for the assumption of the liabilities, the Company paid the Parent Company an
amount equal to the liabilities recorded with respect to the proposed resolution
of the litigation. The assignment of the liabilities was not a novation, and
accordingly, the Company retains a contingent liability related to the
litigation. The litigation liabilities were reduced by payments of $2.7 million,
and the remaining balance of $94.4 million was included in other liabilities on
the Company's balance sheet at December 31, 1998.
The Company is party to various other lawsuits and proceedings arising in the
ordinary course of business. Many of these lawsuits and proceedings arise in
jurisdictions, such as Alabama and Mississippi, that permit damage awards
disproportionate to the actual economic damages incurred. Based upon information
presently available, the Company believes that the total amounts that will
ultimately be paid, if any, arising from these lawsuits and proceedings will not
have a material adverse effect on the Company's consolidated results of
operations and financial position. However, it should be noted that the
frequency of large damage awards, including large punitive damage awards, that
bear little or no relation to actual economic damages incurred by plaintiffs in
jurisdictions like Alabama and Mississippi continues to create the potential for
an unpredictable judgment in any given suit.
F-41
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
12. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)
The increase in the number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in increased
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated insurance companies. Those mandatory assessments may
be partially recovered through a reduction in future premium taxes in certain
states. At December 31, 1998 and 1997, the Company has accrued $6.0 million and
$7.6 million, respectively, for guaranty fund assessments, net of $3.7 million
and $4.3 million, respectively, of premium tax deductions. The Company has
recorded receivables of $6.2 million and $9.7 million at December 31, 1998 and
1997, respectively, for expected recoveries against the payment of future
premium taxes. Expenses incurred for guaranty fund assessments were $3.6
million, $2.1 million, and $6.0 million in 1998, 1997, and 1996, respectively.
F-42
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1998, 1997, and 1996
were as follows:
<TABLE>
<CAPTION>
CEDED TO ASSUMED PERCENTAGE OF
GROSS OTHER FROM OTHER AMOUNT
AMOUNT COMPANIES COMPANIES NET AMOUNT ASSUMED TO NET
----------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1998
Life insurance in force $46,057,031 $13,288,183 $629,791 $33,398,639 1.89%
====================================================================
Premiums:
Life insurance and annuities $ 90,298 $ 42,235 $ 117 $ 48,180 0.24%
Accident and health insurance 1,134 87 - 1,047 0.00%
--------------------------------------------------------------------
Total premiums $ 91,432 $ 42,322 $ 117 $ 49,227 0.24%
====================================================================
DECEMBER 31, 1997
Life insurance in force $45,963,710 $10,926,255 $ 4,997 $35,042,452 0.01%
====================================================================
Premiums:
Life insurance and annuities $ 100,357 $ 37,294 $ 75 $ 63,138 0.12%
Accident and health insurance 1,208 172 - 1,036 0.00%
--------------------------------------------------------------------
Total premiums $ 101,565 $ 37,466 $ 75 $ 64,174 0.12%
====================================================================
DECEMBER 31, 1996
Life insurance in force $44,535,841 $ 8,625,465 $ 5,081 $35,915,457 0.01%
====================================================================
Premiums:
Life insurance and annuities $ 104,225 $ 34,451 $ 36 $ 69,810 0.05%
Accident and health insurance 1,426 64 - 1,362 0.00%
--------------------------------------------------------------------
Total premiums $ 105,651 $ 34,515 $ 36 $ 71,172 0.05%
====================================================================
</TABLE>
Reinsurance recoverable on paid losses was approximately $7.7 million, $2.3
million, and $6.9 million at December 31, 1998, 1997, and 1996, respectively.
Reinsurance recoverable on unpaid losses was approximately $2.5 million, $3.2
million, and $4.3 million at December 31, 1998, 1997, and 1996, respectively.
F-43
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED)
INTERNAL SYSTEMS
The Company's ultimate parent, American General Corporation, ("AGC") has
numerous technology systems that are managed on a decentralized basis. AGC's
Year 2000 readiness efforts are therefore being undertaken by its key business
units with centralized oversight. Each business unit, including the Company, has
developed and is implementing a plan to minimize the risk of a significant
negative impact on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of the Company's information technology and
non-information technology systems; (2) assess which items in the inventory may
expose the Company to business interruptions due to Year 2000 issues; (3)
reprogram or replace systems that are not Year 2000 ready; (4) test systems to
prove that they will function into the next century as they do currently; and
(5) return the systems to operations. As of December 31, 1998, substantially all
of the Company's critical systems are Year 2000 ready and have been returned to
operations. However, activities (3) through (5) for certain systems are ongoing,
with vendor upgrades expected to be received during the first half of 1999.
THIRD PARTY RELATIONSHIPS
The Company has relationships with various third parties who must also be Year
2000 ready. These third parties provide, or receive resources and services to
(or from) the Company and include organizations with which the Company exchanges
information. Third parties include vendors of hardware, software, and
information services; providers of infrastructure services such as voice and
data communications and utilities for office facilities; investors, customers;
distribution channels; and joint venture partners. Third parties differ from
internal systems in that the Company exercises less, or no, control over Year
2000 readiness. The Company has developed a plan to assess and attempt to
mitigate the risks associated with the potential failure of third parties to
achieve Year 2000 readiness. The plan includes the following activities (1)
identify and classify third party dependencies; (2) research, analyze, and
document Year 2000 readiness for critical third parties; and (3) test critical
hardware and software products and electronic interfaces. As of December 31,
1998, AGC has identified and assessed more approximately 700 critical third
party dependencies, including those related to the Company. A more detailed
evaluation will be completed during the first quarter 1999 as part of the
Company's contingency planning efforts. Due to the various stages of third
parties' Year 2000 readiness, the Company's testing activities will extend
through 1999.
F-44
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED) (CONTINUED)
CONTINGENCY PLANS
The Company has commenced contingency planning to reduce the risk of Year 2000-
related business failures. The contingency plans, which address both internal
systems and third party relationships, include the following activities: (1)
evaluate the consequences of failure of business processes with significant
exposure to Year 2000 risk; (2) determine the probability of a Year 2000 related
failure for those processes that have a high consequence of failure; (3) develop
an action plan to complete contingency plans for those processes that rank high
in consequence and probability of failure; and (4) complete the applicable
actions plans. The Company is currently developing action plans and expects to
substantially complete all contingency planning activities by April 30, 1999.
RISKS AND UNCERTAINTIES
Based on its plans to make internal systems ready for Year 2000, to deal with
third party relationships, and to develop contingency action, the Company
believes that it will experience at most isolated and minor disruptions of
business processes following the turn of the century. Such disruptions are not
expected to have a material effect on the Company's future results of
operations, liquidity, or financial condition. However, due to the magnitude and
complexity of this project, risks and uncertainties exist and the Company is not
able to predict a most reasonably likely worst case scenario. If conversion of
the Company's internal systems is not completed on a timely basis (due to non-
performance by significant third party vendors, lack of qualified personnel to
perform the Year 2000 work, or other unforeseen circumstances in completing the
Company's plans), or if critical third parties fail to achieve Year 2000
readiness on a timely basis, the Year 2000 issue could have a material adverse
impact on the Company's operation following the turn of the century.
COSTS
Through December 31, 1998, the Company has incurred, and anticipates that it
will continue to incur, costs for internal staff, third-party vendors, and other
expenses to achieve Year 2000 readiness. The cost of activities related to Year
2000 readiness has not had a material adverse effect on the Company's results of
operations or financial condition. In addition, the Company has elected to
accelerate the planned replacement of certain systems as part of the Year 2000
plans. Costs of the replacement systems are being capitalized and amortized over
their useful lives, in accordance with the Company's normal accounting policies.
F-45
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
15. DIVISION OPERATIONS
15.1 NATURE OF OPERATIONS
The Company manages its business operation through two divisions, which are
based on products and services offered.
RETIREMENT SERVICES
The Retirement Services Division provides tax-deferred retirement annuities and
employer-sponsored retirement plans to employees of educational, health care,
public sector, and other not-for-profit organizations marketed nationwide
through exclusive sales representatives.
LIFE INSURANCE
The Life Insurance division provides traditional, interest-sensitive, and
variable life insurance and annuities to a broad spectrum of customers through
multiple distribution channels focused on specific market segments.
15.2 DIVISION RESULTS
Results of each division exclude goodwill amortization, net realized investment
gains, and non-recurring items.
Division earnings information was as follows:
<TABLE>
<CAPTION>
REVENUES INCOME BEFORE TAXES EARNINGS
------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------------------------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retirement Services $1,987 $1,859 $1,745 $ 469 $398 $343 $315 $261 $226
Life Insurance 870 822 774 162 147 141 107 97 92
------------------------------------------------------------------------------------------------------------
Total divisions 2,857 2,681 2,519 631 545 484 422 358 318
Goodwill
amortization - - - (2) (2) (2) (2) (2) (2)
RG (L) (34) 30 29 (34) 30 29 (22) 19 19
Nonrecurring items - - - (125)(a) - - (81)(a) - -
------------------------------------------------------------------------------------------------------------
Total consolidated $2,823 $2,711 $2,548 $ 470 $573 $511 $317 $375 $335
============================================================================================================
</TABLE>
(a) Includes $97 million pretax ($63 million after-tax) in litigation
settlements and $28 million pretax ($18 million after-tax) in Year 2000
costs.
F-46
<PAGE>
American General Life Insurance Company
Notes to Consolidated Financial Statements (continued)
15. DIVISION OPERATIONS (CONTINUED)
15.2 DIVISION RESULTS (CONTINUED)
Division balance sheet information was as follows:
<TABLE>
<CAPTION>
ASSETS LIABILITIES
-------------------------------------------------------------------
DECEMBER 31
-------------------------------------------------------------------
IN MILLIONS 1998 1997 1998 1997
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Retirement Services $41,347 $35,195 $38,841 $33,136
Life Insurance 8,894 8,370 7,831 7,367
-------------------------------------------------------------------
Total consolidated $50,241 $43,565 $46,672 $40,503
===================================================================
</TABLE>
F-47
<PAGE>
INDEX OF WORDS AND PHRASES
This index should help you to locate more information about some of the
terms and phrases used in this prospectus.
<TABLE>
<CAPTION>
Page to
See in this
Defined Term Prospectus
- ------------ ----------
<S> <C>
accumulation value 5
AGLC 42
AGL 1
amount at risk 7
automatic rebalancing 5
basis 25
beneficiary 30
cash surrender value 12
close of business 32
Code 24
cost of insurance rates 7
daily charge 7
date of issue 31
death benefit 5
dollar cost averaging 4
full surrender 12
Fund 2
investment option 1
Key Legacy Plus 1
lapse 10
loan, loan interest 13
maturity, maturity date 13
modified endowment contract 25
monthly deduction day 32
monthly insurance charge 7
Mutual Fund 2
option 1, 2 5
partial surrender 12
payment option 14
planned periodic premium 10
Policy 1
Policy loan 13
Policy month, year 32
preferred loan interest 13
premium payments 4
premiums 4
prospectus 1
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Page to
See in this
Defined Term Prospectus
- ------------ ----------
<S> <C>
reinstate, reinstatement 10
SEC 2
separate account 1
Separate Account VL-R 24
seven-pay test 25
specified amount 5
surrender 12
telephone transactions 17
transfers 11
valuation date, period 32
</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.
47
<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 47 pages of text, plus 50 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. (Filed herewith)
(3)(c) Schedule of Commissions (incorporated by reference from the
text included under the heading "Distribution of the Policies"
in the prospectus that is filed as part of this amended
Registration Statement).
(4) Not applicable.
(5) Specimen form of the "Key Legacy Plus" Variable Universal
Life Insurance Policy (Policy Form No. 99616). (11)
II-2
<PAGE>
(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., A I M
Distributors, Inc., American General Life Insurance
Company, on Behalf of Itself and its Separate Accounts, and
American General Securities Incorporated dated as of
February 1, 2000. (12)
(8)(b)(i) Form of Participation Agreement by and between The Variable
Annuity Life Insurance Company and American General Life
Insurance Company. (10)
(8)(b)(ii) Amendment One to Participation Agreement by and between The
Variable Annuity Life Insurance Company and American
General Life Insurance Company dated as of July 21, 1998.
(8)
(8)(c)(i) Form of Participation Agreement 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. (12)
(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 No. 1 to Participation Agreement among
Putnam Variable Trust, Putnam Mutual Funds Corp. and
American General Life Insurance Company. (12)
(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)
II-3
<PAGE>
(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. (12)
(8)(f) Form of Participation Agreement by and among American
General Life Insurance Company, Oppenheimer Variable
Account Funds, and OppenheimerFunds, Inc. (12)
(8)(g)(i) Participation Agreement by and among American General Life
Insurance Company, Templeton Variable Products Series
Fund, and Franklin Templeton Distributors, Inc. (8)
(8)(g)(ii) Form of Amendment to Participation Agreement by and among
American General Life Insurance Company, Templeton
Variable Products Series Fund, Franklin Templeton Variable
Insurance Products Trust, and Franklin Templeton
Distributors, Inc. dated February 1, 2000. (12)
(8)(h) Form of Participation Agreement by and between American
General Life Insurance Company, American General
Securities Incorporated, The Victory Variable Insurance
Funds and BISYS Fund Services Limited Partnership. (Filed
herewith)
(8)(i) Form of Shareholders Service Agreement by and between
American General Life Insurance Company and American
Century Investment Management, Inc. (Filed herewith)
(8)(j)(i) Sales Agreement by and between American General Life
Insurance Company and Neuberger & Berman Advisers
Management Trust, and Neuberger & Berman Management
Incorporated. (Filed herewith)
(8)(j)(ii) Form of Assignment and Modification Agreement by and
between Neuberger & Berman Advisers Management Trust,
Neuberger & Berman Management Incorporated, Neuberger &
Berman Advisers Management Trust, and American General
Life Insurance Company. (Filed herewith)
(8)(k) Form of Administrative Services Agreement between American
General Life Insurance Company and fund distributor. (5)
(8)(l) Administrative Services Agreement between American General
Life Insurance Company and Van Kampen Asset Management
Inc. dated December 1, 1998. (12)
II-4
<PAGE>
(8)(m) Form of services agreement dated July 31, 1975, (limited to
introduction and first two recitals, and sections 1-3) among
various affiliates of American General Corporation, including
American General Life Insurance Company and American General
Life Companies. (7)
(8)(n) Administrative Services Agreement dated as of June 1, 1998,
between American General Life Insurance Company and AIM
Advisors, Inc. (4)
(8)(o) Form of Administrative Services Agreement by and among
American General Life Insurance Company and OppenheimerFunds,
Inc. (12)
(8)(p) Administrative Services Agreement by and among American
General Life Insurance Company and Franklin Templeton
Services, Inc. dated as of March 9, 1999. (8)
(8)(q) Form of Administrative Services Agreement between Neuberger &
Berman Management Inc. and American General Life Insurance
Company. (Filed herewith)
(8)(r) Form of Administrative Services Agreement between Key Asset
Management, Inc. and American General Life Insurance Company.
(Filed herewith)
(9) Not applicable.
(10)(a) Single Insured Life Insurance Application - Part A. (11)
(10)(b) Single Insured Life Insurance Application - Part B. (11)
(10)(c) Medical Exam Form Life Insurance Application. (11)
(10)(d) Single Insured Simplified Life Insurance Application. (12)
(10)(e) Variable Universal Life Insurance Supplemental Application.
(Filed herewith)
(10)(f) Service Request Form. (Filed herewith)
Other Exhibits
2(a) Opinion and Consent of Pauletta P. Cohn, Deputy General
Counsel of American General Life Companies. (Filed herewith)
2(b) Opinion and Consent of American General Life Insurance
Company's actuary. (Filed herewith)
3 Not applicable.
4 Not applicable.
II-5
<PAGE>
5 Financial Data Schedule. (Not applicable)
6 Consent of Independent Auditors. (Filed herewith)
7 Powers of Attorney. (11)
27 Financial Data Schedule. (Inapplicable, because no financial
statements of the Separate Account are being filed herewith)
/1/ Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File No. 333-42567) of American General Life Insurance
Company Separate Account VL-R on December 18, 1997.
/2/ Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 33-43390) of Separate Account D of American
General Life Insurance Company on October 16, 1991.
/3/ Incorporated herein by reference to the filing of Post-Effective Amendment
No. 1 of the Form N-4 Registration Statement (File No. 33-43390) of Separate
Account D of American General Life Insurance Company on April 30, 1992.
/4/ Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 333-70667) of American General Life Insurance
Company Separate Account D on January 15, 1999.
/5/ Incorporated by reference to the filing of Pre-Effective Amendment No. 3 of
the Form S-6 Registration Statement (File No. 333-53909) of American General
Life Insurance Company Separate Account VL-R on August 19, 1998.
/6/ Incorporated by reference to the filing of Pre-Effective Amendment No. 1 of
the Form S-6 Registration Statement (File No. 333-42567) of American General
Life Insurance Company Separate Account VL-R on March 23, 1998.
/7/ Incorporated by reference to the filing of Pre-Effective Amendment No. 23
to the Form N-4 Registration Statement of American General Life Insurance
Company's Separate Account A (File No. 33-44745) on April 24, 1998.
/8/ Incorporated by reference to the filing of the Pre-Effective Amendment No.
1 to Form N-4 Registration Statement (File No. 333-70667) of American General
Life Insurance Company Separate Account D on March 18, 1999.
/9/ Incorporated by reference to Post-Effective Amendment No. 12 to
Registrant's Form N-4 Registration Statement (File No. 33-43390) filed on April
30, 1997.
/10/ Incorporated by reference to Pre-Effective Amendment No. 1 of the Form N-4
Registration Statement (File No. 333-40637) of Separate Account D of American
General Life Insurance Company filed on February 12, 1998.
II-6
<PAGE>
/11/ Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File No. 333-89897) of American General Life Insurance
Company Separate Account VL-R on October 29, 1999.
/12/ Incorporated herein by reference to the filing of Pre-effective Amendment
No. 1 of the Form S-6 Registration Statement. (File No. 333-87307) of American
General Life Insurance Company Separate Account VL-R on January 20, 2000.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
American General Life Insurance Company Separate Account VL-R, has duly caused
this amended registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Houston, and State of Texas, on the 20/th/ day of
January, 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
[SEAL]
ATTEST: /s/ JULIE A. COTTON
----------------------
Julie A. Cotton
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amended
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ RONALD H. RIDLEHUBER* Principal Executive Officer January 20, 2000
- ----------------------------
(Ronald H. Ridlehuber) and Director
/s/ ROBERT F. HERBERT, JR.* Principal Financial and January 20, 2000
- ----------------------------
(Robert F. Herbert, Jr.) Accounting Officer
and Director
II-8
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ DONALD W. BRITTON* Director January 20, 2000
- ------------------------------
(Donald W. Britton)
/s/ DAVID A. FRAVEL* Director January 20, 2000
- ------------------------------
(David A. Fravel)
/s/ ROYCE G. IMHOFF, II* Director January 20, 2000
- ------------------------------
(Royce G. Imhoff, II)
/s/ JOHN V. LAGRASSE* Director January 20, 2000
- ------------------------------
(John V. LaGrasse)
/s/ RODNEY O. MARTIN, JR.* Director January 20, 2000
- ------------------------------
(Rodney O. Martin, Jr.)
/s/ GARY D. REDDICK* Director January 20, 2000
- ------------------------------
(Gary D. Reddick)
/s/ THOMAS M. ZUREK* Director January 20, 2000
- ------------------------------
(Thomas M. Zurek)
*/s/ ROBERT F. HERBERT, JR.
- ------------------------------
By: Robert F. Herbert, Jr.
Attorney-In-Fact
II-9
<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. (Filed herewith)
(3)(c) Schedule of Commissions (incorporated by reference from the
text included under the heading "Distribution of the
Policies" in the prospectus that is filed as part of this
amended Registration Statement).
(4) Not applicable.
(5) Specimen form of the "Key Legacy Plus" Variable Universal
Life Insurance Policy (Policy Form No. 99616). (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., A I M
Distributors, Inc., American General Life Insurance
Company, on Behalf of Itself and its Separate Accounts,
and American General Securities Incorporated dated as of
February 1, 2000. (12)
(8)(b)(i) Form of Participation Agreement by and between The
Variable Annuity Life Insurance Company and American
General Life Insurance Company. (10)
(8)(b)(ii) Amendment One to Participation Agreement by and between
The Variable Annuity Life Insurance Company and American
General Life Insurance Company dated as of July 21, 1998.
(8)
(8)(c)(i) Form of Participation Agreement 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. (12)
(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 No. 1 to Participation Agreement among
Putnam Variable Trust, Putnam Mutual Funds Corp. and
American General Life Insurance Company. (12)
(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)
E-2
<PAGE>
(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. (12)
(8)(f) Form of Participation Agreement by and among American
General Life Insurance Company, Oppenheimer Variable
Account Funds, and OppenheimerFunds, Inc. (12)
(8)(g)(i) Participation Agreement by and among American General Life
Insurance Company, Templeton Variable Products Series
Fund, and Franklin Templeton Distributors, Inc. (8)
(8)(g)(ii) Form of Amendment to Participation Agreement by and among
American General Life Insurance Company, Templeton
Variable Products Series Fund, Franklin Templeton Variable
Insurance Products Trust, and Franklin Templeton
Distributors, Inc. dated February 1, 2000. (12)
(8)(h) Form of Participation Agreement by and between American
General Life Insurance Company, American General
Securities Incorporated, The Victory Variable Insurance
Funds and BISYS Fund Services Limited Partnership. (Filed
herewith)
(8)(i) Form of Shareholders Service Agreement by and between
American General Life Insurance Company and American
Century Investment Management, Inc. (Filed herewith)
(8)(j)(i) Sales Agreement by and between American General Life
Insurance Company and Neuberger & Berman Advisers
Management Trust, and Neuberger & Berman Management
Incorporated. (Filed herewith)
(8)(j)(ii) Form of Assignment and Modification Agreement by and
between Neuberger & Berman Advisers Management Trust,
Neuberger & Berman Management Incorporated, Neuberger &
Berman Advisers Management Trust, and American General
Life Insurance Company. (Filed herewith)
(8)(k) Form of Administrative Services Agreement between American
General Life Insurance Company and fund distributor. (5)
(8)(l) Administrative Services Agreement between American General
Life Insurance Company and Van Kampen Asset Management
Inc. dated December 1, 1998. (12)
E-3
<PAGE>
(8)(m) Form of services agreement dated July 31, 1975, (limited to
introduction and first two recitals, and sections 1-3) among
various affiliates of American General Corporation, including
American General Life Insurance Company and American General
Life Companies. (7)
(8)(n) Administrative Services Agreement dated as of June 1, 1998,
between American General Life Insurance Company and AIM
Advisors, Inc. (4)
(8)(o) Form of Administrative Services Agreement by and among
American General Life Insurance Company and OppenheimerFunds,
Inc. (12)
(8)(p) Administrative Services Agreement by and among American
General Life Insurance Company and Franklin Templeton
Services, Inc. dated as of March 9, 1999. (8)
(8)(q) Form of Administrative Services Agreement between Neuberger &
Berman Management Inc. and American General Life Insurance
Company. (Filed herewith)
(8)(r) Form of Administrative Services Agreement between Key Asset
Management, Inc. and American General Life Insurance Company.
(Filed herewith)
(9) Not applicable.
(10)(a) Single Insured Life Insurance Application - Part A. (11)
(10)(b) Single Insured Life Insurance Application - Part B. (11)
(10)(c) Medical Exam Form Life Insurance Application. (11)
(10)(d) Single Insured Simplified Life Insurance Application. (12)
(10)(e) Variable Universal Life Insurance Supplemental Application.
(Filed herewith)
(10)(f) Service Request Form. (Filed herewith)
Other Exhibits
2(a) Opinion and Consent of Pauletta P. Cohn, Deputy General
Counsel of American General Life Companies. (Filed herewith)
E-4
<PAGE>
2(b) Opinion and Consent of American General Life Insurance Company's
actuary. (Filed herewith)
3 Not applicable.
4 Not applicable.
5 Financial Data Schedule. (Not applicable)
6 Consent of Independent Auditors. (Filed herewith)
7 Powers of Attorney. (11)
27 Financial Data Schedule. (Inapplicable, because no financial
statements of the Separate Account are being filed herewith)
/1/ Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File No. 333-42567) of American General Life Insurance
Company Separate Account VL-R on December 18, 1997.
/2/ Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 33-43390) of Separate Account D of American
General Life Insurance Company on October 16, 1991.
/3/ Incorporated herein by reference to the filing of Post-Effective Amendment
No. 1 of the Form N-4 Registration Statement (File No. 33-43390) of Separate
Account D of American General Life Insurance Company on April 30, 1992.
/4/ Incorporated herein by reference to the initial filing of the Form N-4
Registration Statement (File No. 333-70667) of American General Life Insurance
Company Separate Account D on January 15, 1999.
/5/ Incorporated by reference to the filing of Pre-Effective Amendment No. 3 of
the Form S-6 Registration Statement (File No. 333-53909) of American General
Life Insurance Company Separate Account VL-R on August 19, 1998.
/6/ Incorporated by reference to the filing of Pre-Effective Amendment No. 1 of
the Form S-6 Registration Statement (File No. 333-42567) of American General
Life Insurance Company Separate Account VL-R on March 23, 1998.
/7/ Incorporated by reference to the filing of Pre-Effective Amendment No. 23
to the Form N-4 Registration Statement of American General Life Insurance
Company's Separate Account A (File No. 33-44745) on April 24, 1998.
E-5
<PAGE>
/8/ Incorporated by reference to the filing of the Pre-Effective Amendment No. 1
to Form N-4 Registration Statement (File No. 333-70667) of American General Life
Insurance Company Separate Account D on March 18, 1999.
/9/ Incorporated by reference to Post-Effective Amendment No. 12 to Registrant's
Form N-4 Registration Statement (File No. 33-43390) filed on April 30, 1997.
/10/ Incorporated by reference to Pre-Effective Amendment No. 1 of the Form N-4
Registration Statement (File No. 333-40637) of Separate Account D of American
General Life Insurance Company filed on February 12, 1998.
/11/ Incorporated herein by reference to the initial filing of the Form S-6
Registration Statement (File No. 333-89897) of American General Life Insurance
Company Separate Account VL-R on October 29, 1999.
/12/ Incorporated herein by reference to the filing of Pre-effective Amendment
No. 1 of the Form S-6 Registration Statement (File No. 333-87307) of American
General Life Insurance Company Separate Account VL-R on January 20, 2000.
E-6
<PAGE>
Exhibit (3)(b)
SELLING GROUP AGREEMENT
AMERICAN GENERAL SECURITIES INCORPORATED AND
AMERICAN GENERAL LIFE INSURANCE COMPANY
This Selling Group Agreement ("Agreement") is made among American General
Securities Incorporated, a registered broker - dealer and the distributor for
the variable life insurance policies and/or variable annuity contracts set forth
in Schedule A ("Distributor" or "AGSI"),
McDonald Investments, Inc.
- --------------------------------------------------------------------------------
("Selling Group Member")
KeyCorp Insurance Agency USA Inc., a Washington corporation
- --------------------------------------------------------------------------------
("Associated Agency")
and, as the fourth party, American General Life Insurance Company ("AGL").
Distributor is a wholly-owned subsidiary of AGL. Selling Group Member is
registered with the Securities and Exchange Commission ("SEC") as a broker-
dealer under the Securities Exchange Act of 1934 ("1934 Act") and under any
appropriate regulatory requirements of state law, and is a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD"),
unless Selling Group Member is exempt from the broker-dealer registration
requirements of the 1934 Act. Unless exempt, Selling Group Member maintains a
level of qualification with the NASD appropriate to enable it to offer and sell
the products set forth in Schedule A. Selling Group Member is affiliated with
Associated Agency, and Associated Agency's affiliated agencies as set forth in
Schedule C, which Schedule C may be amended from time to time (Associated Agency
and the Schedule C affiliated agencies are hereinafter collectively referred to
as "Associated Agency") which is properly licensed under the insurance laws of
the state(s) in which Selling Group Member will act under this Agreement.
This Agreement is for the purpose of providing for the distribution of certain
variable life insurance policies and/or annuity contracts set forth in Schedule
A and any successor or additional SEC registered insurance products (as
discussed in Part (1) "NEW PRODUCTS" of this Agreement) to be issued by AGL and
distributed through Distributor through representatives who are state insurance
licensed and appointed agents of AGL and associated with Associated Agency and
are also NASD registered representatives of Selling Group Member ("Sales
Persons"). The policies and/or annuity contracts set forth on Schedule A, along
with any
<PAGE>
successor or additional SEC registered insurance products, are referred to
collectively herein as the "Contracts" or "Policies."
In consideration of the mutual promises and covenants contained in this
Agreement, AGL and Distributor appoint Selling Group Member and those persons
associated with Associated Agency who are NASD registered representatives of
Selling Group Member and state insurance licensed agents of AGL to solicit and
procure applications for the Contracts. This appointment is not deemed to be
exclusive in any manner and only extends to those jurisdictions where the
Contracts have been approved for sale. Selling Group Member is authorized to
collect the first purchase payment or premium (collectively "Premiums") on the
Contracts and, unless Selling Group Member and AGL have otherwise agreed, must
remit such premiums in full dollar amount to AGL. Unless Selling Group Member
and AGL have otherwise agreed, applications shall be taken only on preprinted
application forms supplied by AGL. All completed applications and supporting
documents are the sole property of AGL and must be promptly delivered to AGL.
All applications are subject to acceptance by AGL at its sole discretion.
(1) NEW PRODUCTS
AGL and Distributor may propose, and AGL may issue additional or successor
products, in which event Selling Group Member will be informed of the product
and its related concession schedule. If Selling Group Member does not agree to
distribute such product(s), it must notify Distributor in writing within 10 days
of receipt of the Concession Schedule for such product(s). If Selling Group
Member does not indicate disapproval of the new product(s) or the terms
contained in the related Concession Schedule, Selling Group Member will be
deemed to have thereby agreed to distribute such product(s) and agreed to the
related Concession Schedule which shall be attached to and made a part of this
Agreement.
(2) SALES PERSONS
Associated Agency is authorized to recommend Sales Persons for appointment by
AGL to solicit sales of the Contracts. Associated Agency warrants that all such
Sales Persons shall not commence solicitation nor aid, directly or indirectly,
in the solicitation of any application for any Contract until that Sales Person
is appropriately licensed for such product under applicable insurance laws and
is a currently NASD registered representative of Selling Group Member.
Associated Agency shall be responsible for all fees required to obtain and/or
maintain any licenses or registrations required by state or federal law, for
Associated Agency and its Sales Persons. From time to time, AGL will provide
Associated Agency and Selling Group Member with information regarding the
jurisdictions in which AGL is authorized to solicit applications for the
Contracts and any limitations on the availability of such Contracts in any
jurisdiction.
(3) SALES MATERIAL
2
<PAGE>
Associated Agency and Selling Group Member shall not utilize in their efforts to
market the Contracts, any written brochure, prospectus, descriptive literature,
printed and published material, audio-visual material or standard letters unless
such material has been provided preprinted by AGL or Distributor or unless AGL
and Distributor have provided written approval for the use of such literature.
Associated Agency and Selling Group Member jointly and severally hold AGL,
Distributor and their affiliates harmless from any liability arising from the
use of any material which either (a) has not been specifically approved in
writing by AGL, or (b) although previously approved, has been disapproved by AGL
or Distributor, in writing for further use.
(4) PROSPECTUSES
Selling Group Member and Associated Agency warrant that solicitation for the
sale of SEC registered insurance products will be made by use of a currently
effective prospectus, that a prospectus will be delivered concurrently with each
sales presentation and that no statements shall be made to a client superseding
or controverting any statement made in the prospectus. AGL and Distributor
shall furnish Selling Group Member and Associated Agency, at no cost to Selling
Group Member or Associated Agency, reasonable quantities of prospectuses to aid
in the solicitation of Contracts.
(5) SELLING GROUP MEMBER COMPLIANCE
Selling Group Member shall be solely responsible for the approval of suitability
determinations for the purchase of any Contract or the selection of any
investment option thereunder, in compliance with federal and state securities
laws and shall supervise Associated Agency and Sales Persons in determining
client suitability. Selling Group Member shall hold AGL and Distributor
harmless from any financial claim resulting from improper suitability decisions.
Selling Group Member will fully comply with the requirements of the NASD and of
the 1934 Act and such other applicable federal and state laws and will establish
rules, procedures, and supervisory and inspection techniques necessary to
diligently supervise the activities of its NASD registered representatives who
are state insurance licensed agents or solicitors of AGL, in connection with
offers and sales of the Contracts. Such supervision shall include providing, or
arranging for, initial and periodic training in knowledge of the Contracts.
Upon request by Distributor or AGL, Selling Group Member will furnish
appropriate records as are necessary to establish diligent supervision and
client suitability.
Selling Group Member shall fully cooperate in any insurance or securities
regulatory examination, investigation, or proceeding or any judicial proceeding
with respect to AGL, Distributor, Selling Group Member, and Associated Agency
and their respective affiliates, agents and representatives to the extent that
such examination, investigation, or proceeding arises in connection with the
Contracts. Selling Group Member shall immediately notify Distributor if its
broker-dealer registration or the registration of any of its Sales Persons is
revoked, suspended, or terminated.
3
<PAGE>
(6) ASSOCIATED AGENCY AND SALES PERSON COMPLIANCE
Associated Agency will fully comply with the requirements of state insurance
laws and applicable federal laws and will establish rules and procedures
necessary to diligently supervise the activities of the Sales Persons. Upon
request by Distributor or AGL, Selling Group Member will furnish appropriate
records as are necessary to establish such supervision. Associated Agency and
Sales Persons shall be responsible for making suitability determinations for
the purchase of any Contract or the selection of any investment option
thereunder, in compliance with federal and state securities laws.
Associated Agency shall fully cooperate in any insurance or securities
regulatory examination, investigation, or proceeding or any judicial proceeding
with respect to AGL, Distributor, Selling Group Member, and Associated Agency
and their respective affiliates, agents and representatives to the extent that
such examination, investigation, or proceeding arises in connection with the
Contracts. Associated Agency shall immediately notify Distributor if its
insurance license or the license of any of its Sales Persons is revoked,
suspended, or terminated.
Associated Agency agrees to maintain documentation regarding the background
investigation of individuals conducted prior to appointment during the period
the individual is appointed by the Company and shall provide such information to
the Company as may be required by valid request of any regulatory authority.
(7) AGL COMPLIANCE
AGL represents that the prospectus(es) and registration statement(s) relating to
the Contracts contain no untrue statements of material fact or omission to state
a material fact, the omission of which makes any statement contained in the
prospectus and registration statement misleading. AGL agrees to indemnify
Associated Agency and Selling Group Member from and against any claims,
liabilities and expenses which may be incurred by any of those parties under the
Securities Act of 1933 ("1933 Act"), the 1934 Act, the Investment Company Act of
1940, common law, or otherwise, and that arises out of a breach of this
paragraph.
AGL further represents that:
(i) All contract forms, applications and other documents relating to the
Contracts offered or to be offered by AGL which are required by
applicable law to be filed with and/or approved by public officials
or governmental agencies have been or will be so filed and will not
be offered until necessary approvals have been received by AGL, and
all such Contracts, forms, applications and other documents do
comply and will comply in all material respects with the applicable
laws, rules and regulations of the jurisdictions in which the
Contracts will be offered.
4
<PAGE>
(ii) All promotional materials, instructional guides and training
materials issued or approved by AGL and provided to Selling Group
Member: (a) are and will, to the best of AGL's knowledge, be true,
accurate and complete in all material respects; (b) do not and will
not contain any false or misleading statements of material fact
known to AGL, or omit any material fact, known to AGL, necessary to
make the statements contained therein not misleading in light of the
circumstances under which they are made; (c) do and will fully and
adequately disclose all material terms and conditions, limitations
and restrictions, known to AGL; and (d) comply and will comply with
all applicable laws and regulations of those jurisdictions in which
the Contracts will be offered.
(iii) The Contracts set froth in Schedule A will qualify, at the time that
the Contracts are first offered, for treatment as insurance
contracts under applicable sections of the Internal Revenue Code
such that state and federal taxes due on the interest and earnings
on the Contracts will be deferred until withdrawal by the contract
owner, or other person so designated to make such withdrawal.
(iv) The Contracts, or any interest in the separate account of AGL
related thereto, which constitutes a "security" for purposes of the
of 1933 Act, will be duly registered with the SEC and any state
where such registration is required, prior to offering the related
Contracts and any interest in the separate account of AGL related
thereto, and AGL, and the separate account of AGL related to such
Contracts, will comply in all material respects with applicable
federal and state securities laws with respect to such Contracts or
any interests in the separate account related thereto.
(8) COMPENSATION
AGL will remit to Associated Agency compensation as set forth in Schedule B
hereto.
(9) CUSTOMER SERVICE, COMPLAINTS, AND INDEMNIFICATION
The parties agree that AGL may contact by mail or otherwise, any client, agent,
account executive, or employee of Associated Agency or other individual acting
in a similar capacity if deemed appropriate by AGL, in the course of normal
customer service for existing Contracts, in the investigation of complaints, or
as required by law. The parties agree to cooperate fully in the investigation
of any complaint.
Selling Group Member, Associated Agency, and Sales Persons agree to hold
harmless and indemnify Distributor and AGL against any and all claims,
liabilities and expenses incurred by either Distributor or AGL, and arising out
of or based upon any alleged or untrue statement of Selling Group Member,
Associated Agency or Sales Person other than statements contained in
5
<PAGE>
the approved sales material for any Contract, or in the registration statement
or prospectus for any Contract.
AGL hereby agrees to indemnify and hold harmless Selling Group Member,
Associated Agency, and each of their respective employees, controlling persons,
officers or directors against any losses, expenses (including reasonable
attorneys' fees and court costs), damages or liabilities to which Selling Group
Member or such affiliates, controlling persons, officers or directors become
subject, under the 1933 Act or otherwise, insofar as such losses, expenses,
damages or liabilities (or actions or inactions in respect thereof) arise out of
or are based upon AGL's performance, non-performance or breach of this
Agreement, or are based upon any untrue statement contained in, or material
omission from, the prospectus for any of the Contracts.
The provisions of this Section (9) shall survive the expiration or other
termination of this Agreement.
(10) FIDELITY BOND
Associated Agency represents that all directors, officers, employees and Sales
Persons of Associated Agency licensed pursuant to this Agreement or who have
access to funds of AGL are and will continue to be covered by a blanket fidelity
bond including coverage for larceny, embezzlement and other defalcation, issued
by a reputable bonding company. This bond shall be maintained at Associated
Agency's expense. Such bond shall be at least equivalent to the minimal
coverage required under the NASD Rules of Fair Practice, and endorsed to extend
coverage to life insurance and annuity transactions. Associated Agency
acknowledges that AGL may require evidence that such coverage is in force and
Associated Agency shall promptly give notice to AGL of any notice of
cancellation or change of coverage.
Associated Agency assigns any proceeds received from the fidelity bond company
to AGL to the extent of AGL's loss due to activities covered by the bond. If
there is any deficiency, Associated Agency will promptly pay AGL that amount on
demand. Associated Agency indemnifies and holds harmless AGL from any
deficiency and from the cost of collection.
(11) LIMITATIONS OF AUTHORITY
The Contract forms are the sole property of AGL. No person other than AGL has
the authority to make, alter or discharge any policy, Contract, certificate,
supplemental contract or form issued by AGL. No party, other than AGL, has the
right to waive any provision with respect to any Contract or policy; give or
offer to give, on behalf of AGL, any tax or legal advice related to the purchase
of a Contract or policy; or make any settlement of any claim or bind AGL or any
of its affiliates in any way. No person, other than AGL, has the authority to
enter into any proceeding in a court of law or before a regulatory agency in the
name of or on behalf of AGL.
(12) ARBITRATION AND AUDIT
6
<PAGE>
The parties agree that any controversy between or among them arising out of
their business or pursuant to this Agreement that cannot be settled by agreement
shall be taken to arbitration as set forth herein. Such arbitration will be
conducted according to the securities arbitration rules then in effect, of the
American Arbitration Association, NASD, or any registered national securities
exchange. Arbitration may be initiated by serving or mailing a written notice.
The notice must specify which rules will apply to the arbitration. This
specification will be binding on all parties.
The arbitrators shall render a written opinion, specifying the factual and legal
bases for the award, with a view to effecting the intent of this Agreement. The
written opinion shall be signed by a majority of the arbitrators. In rendering
the written opinion, the arbitrators shall determine the rights and obligations
of the parties according the substantive and procedural laws of the State of
Texas. Accordingly, the written opinion of the arbitrators will be determined
by the rule of law and not by equity. The decision of the majority of the
arbitrators shall be final and binding on the parties and shall be enforced by
any court of competent jurisdiction.
Each party shall, upon reasonable prior written notice to the other party, have
the right to audit the books and records of the other party regarding
information directly related to this Agreement, during the other party's normal
business hours or by appointment, at such times as the auditing party reasonably
deems necessary. The party being audited shall permit reasonable access to any
of its facilities or any of its affiliates' facilities in which information
pertaining to this Agreement is being processed or stored. Upon the auditing
party's request, the other party shall provide reasonable assistance in
performing the audit, including any audit required or requested by any federal,
state, or local regulatory authority having jurisdiction over the auditing
party's business. The auditing party shall reimburse the party being audited for
its reasonable out-of-pocket costs and expenses incurred in connection with the
audit. The provisions of this Section (12) shall survive the expiration or other
termination of this Agreement for a period of two years from the date of such
expiration or other termination of this Agreement.
(13) TRADEMARKS
Without prior written consent from the other party, neither party shall use, or
authorize any other person to use the other party's names, logos, trademarks,
tradenames, service marks or other intellectual property or those of its
affiliates. If such consent is granted, then the party which has received such
consent shall use only those names, logos, trademarks, tradenames, service marks
and other intellectual property that are specifically enumerated in the consent
and only in conjunction with the offer and sale of the Contracts pursuant to
this Agreement.
(14) CONFIDENTIALITY
(A) Each party agrees that, during the term of this Agreement and at
all times thereafter, neither party will disclose to any
unaffiliated person, firm, corporation or other entity, nor use for
its own account, any of the other party's trade secrets
7
<PAGE>
or confidential information, as defined below, including, without
limitation, the terms of this Agreement, non-public program
materials; member or customer lists; proprietary information;
information as to the other party's business methods, operations or
affairs, or the processes and systems used in its operations and
affairs; or the processes and systems used in any aspect of the
operation of its business; all whether now known or subsequently
learned by it. Nothing in this Agreement shall require either party
to keep confidential any information that:
(i) The party can prove was known to it prior to any disclosure
by the other;
(ii) Is or becomes publicly available through no fault of the
party;
(iii) The party can prove was independently developed by it outside
the scope of this Agreement and with no access to any
confidential or proprietary information of the other party;
(iv) Is required to be produced pursuant to judicial or
administrative process or subpoena; and/or
(v) Is mutually agreed upon by both parties to this Agreement.
(B) Notwithstanding the information above, "Confidential Information"
shall mean: (1) information regarding a party's, or such other
party's affiliates, financial condition, information systems,
business operations, plans and strategies, customers and
prospective customers, marketing and distribution plans, and
methods and techniques; (2) information that is marked
"confidential", "proprietary" or in like words, or that is
summarized in writing as being confidential prior to or promptly
after disclosure to the other party; (3) any and all related
research; and (4) any and all designs, ideas, concepts, and
technology embodied therein. Notwithstanding the information above,
Confidential Information shall specifically include any information
regarding customers that is provided to AGL hereunder and any
information concerning premium, losses, profitability, expiration
dates, and insured demographics
(C) Each party hereto acknowledges and agrees that monetary damages
would not be a sufficient or adequate remedy for any breach or
anticipated breach of this Section (14) and that, in addition to
any other legal or equitable remedies which may be available, each
party shall be entitled to specific performance and injunctive
relief for any breach or anticipated breach of this Section (14).
(D) If this Agreement expires or is terminated, each party within sixty
(60) days after such termination will return to the other party any
and all copies, in whatever form or medium, of any material
disclosing any of the other party's trade secrets or confidential
information as described above, then in its possession or control.
No such materials shall be used for any purpose outside the
performance or
8
<PAGE>
enforcement of this Agreement except to the extent required by law or
order of a court, by order of a regulatory or administrative agency,
or by order of an arbitrator appointed under this Agreement.
(E) The provisions of this Section (14) shall survive the expiration or
other termination of this Agreement.
(15) GENERAL PROVISIONS
(A) Waiver
Failure of any of the parties to promptly insist upon strict
compliance with any of the obligations of any other party under this
Agreement will not be deemed to constitute a waiver of the right to
enforce strict compliance.
(B) Independent Contractors
Selling Group Member and Associated Agency are independent
contractors and not employees or subsidiaries of AGL. AGSI is a
wholly - owned subsidiary of AGL. Selling Group Member and Associated
Agency are not employees or subsidiaries of Distributor.
(C) Independent Assignment
No assignment, other than to an affiliate, of this Agreement or of
commissions or other payments under this Agreement shall be valid
without prior written consent of AGL and Distributor. Notwithstanding
this provision, any assignment of this Agreement or of commissions or
other payments under this Agreement, shall not be valid without
notice given to the other parties to this Agreement within a
reasonable amount of time prior to the assignment.
(D) Notice
Any notice pursuant to this Agreement may be given electronically
(other than vocally by telephone) or by mail, postage paid,
transmitted to the last address communicated by the receiving party
to the other parties to this Agreement.
(E) Severability
To the extent this Agreement may be in conflict with any applicable
law or regulation, this Agreement shall be construed in a manner
consistent with such law or regulation. The invalidity or illegality
of any provisions of this Agreement shall not be deemed to affect the
validity or legality of any other provision of this Agreement.
9
<PAGE>
(F) Amendment
This Agreement may be amended only in writing and signed by all
parties. No amendment will impair the right to receive commissions as
accrued with respect to Contracts issued and applications procured
prior to the amendment.
(G) Termination
This Agreement may be terminated by any party upon 30 days' prior
written notice. It may be terminated, for cause, by any party
immediately. Termination of this Agreement shall not impair the right
to receive commissions accrued with respect to applications procured
prior to the termination except as otherwise specifically provided in
Schedule B.
(H) TEXAS LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
(I) This Agreement replaces and supersedes any other agreement or
understanding related to the Contracts, between or among the parties
to this Agreement.
By signing below, the undersigned agree to have read and be bound by the terms
and conditions of this Agreement.
Date:
----------------------
10
<PAGE>
Selling Group Member: McDonald Investments, Inc.
----------------------------------------------------
(broker-dealer)
Address: 800 Superior Avenue
----------------------------------------------------
Cleveland, Ohio 44114
----------------------------------------------------
Signature:
----------------------------------------------------
Name & Title:
----------------------------------------------------
Associated Agency: KeyCorp Insurance Agency USA Inc.
----------------------------------------------------
(primary insurance agency affiliation)
Address: 127 Public Square, 8/th/ Floor
----------------------------------------------------
Cleveland, Ohio 44114-1306
----------------------------------------------------
Signature:
----------------------------------------------------
Name & Title:
----------------------------------------------------
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Signature:
----------------------------------------------------
Name & Title:
----------------------------------------------------
American General Life Insurance Company
2727-A Allen Parkway
Houston Texas 77019
Signed By:
----------------------------------------------------
Name & Title
----------------------------------------------------
11
<PAGE>
Schedule A - PRODUCTS
Associated Agency's authority as a soliciting agent of AGL shall be for the
following product(s):
Key Legacy Plus
(Policy Form No. 99616)
12
<PAGE>
Schedule B - COMMISSIONS
The Commissions Schedule below is subject to the terms and conditions of the
Agreement to which it is attached. In no event shall AGL be liable for payment
of any commissions with respect to any solicitation made, in whole or in part,
by any person not appropriately licensed and appointed prior to the commencement
of the solicitation.
1. ANNUAL COMMISSIONS TO BE PAID TO INSURANCE AGENCY.
-------------------------------------------------
(a) For a Policy Issued Based on Simplified Underwriting.
----------------------------------------------------
For a Policy issued based on simplified underwriting, compensation
will be paid based on either (i) Percent of Premium, (ii) Policy
Accumulation Value (Trail) or (iii) a combination of Percent of
Premium and Policy Accumulation Value.
(i) Compensation based on Percent of Premium.
----------------------------------------
6% of premiums paid.
(ii) Compensation based on Accumulation Value.
----------------------------------------
. Non-Modified Endowment Contract Policies. Beginning with the
----------------------------------------
first Policy year, a trail commission of 1.05% of each
Policy's accumulation value (reduced by any outstanding loans)
in the variable investment options. The trail commission will
be reduced by 0.20% beginning in Policy Year 11. Thus, the
schedule in effect is as follows: (i) 1.05% of each Policy's
accumulation value (reduced by any outstanding loans) in the
variable investment options for Policy years 1 through 10; and
(2) 0.85% of each Policy's accumulation value (reduced by any
outstanding loans) in the variable investment options for
Policy years 11 through 15.
. Modified Endowment Contract Policies. Beginning with the first
------------------------------------
Policy year, a trail commission of 1.05% of each Policy's
accumulation value (reduced by any outstanding loans) in the
variable investment options. The trail commission will be
reduced by 0.10% beginning in Policy Year 6. Thus, the
schedule in effect is as follows: (i) 1.05% of each Policy's
accumulation value (reduced by any outstanding loans) in the
variable investment options for Policy years 1 through 5; and
(2) 0.95% of each Policy's accumulation value (reduced by any
outstanding loans) in the variable investment options for
Policy years 6 through 10.
(iii) Compensation based on a combination of Percent of Premium and
-------------------------------------------------------------
Accumulation Value.
------------------
13
<PAGE>
5% of premiums paid, plus a trail commission of 0.10% of each
Policy's accumulation value (reduced by any outstanding loans)
in the variable investment options;
(b) For a Policy Issued Based on Full Underwriting.
----------------------------------------------
For a Policy issued based on full underwriting, compensation will
be paid based on either (i) Percent of Premium or (ii) Policy
Accumulation Value (Trail).
(i) Compensation based on Percent of Premium.
----------------------------------------
. 6% of premiums paid in the first Policy year through
Policy Year 3 up to the Target Premium; and
. 3% of premiums paid in Policy years 4+ up to the Target
Premium.
(ii) Compensation based on Accumulation Value. Beginning with the
----------------------------------------
first Policy year, a trail commission of 2.50% of each
Policy's accumulation value (reduced by any outstanding
loans) in the variable investment options. The trail
commission will be reduced by 1.50% beginning in Policy year
2, with further reductions of 0.50% in Policy year 11 and
0.25% in Policy year 21. Thus, the schedule in effect is as
follows: (i) 2.50% of each Policy's accumulation value
(reduced by any outstanding loans) in the variable
investment options for Policy year 1; (ii) 1.00% of each
Policy's accumulation value (reduced by any outstanding
loans) in the variable investment options for Policy years 2
through 10; (iii) 0.50% of each Policy's accumulation value
(reduced by any outstanding loans) in the variable
investment options for Policy years 11 through 20; and (iv)
0.25% of each Policy's accumulation value (reduced by any
outstanding loans) in the variable investment options for
Policy years 21+.
2. TARGET PREMIUM.
--------------
The Target Premium is the maximum amount of premium to which the first year
commission rate applies. Commissions paid on premiums received in excess
of the Target Premium are paid at the excess rate. The Target Premium is
an amount calculated in accordance with the method of calculation and rates
from the American General Life Target Premium schedules. AGL may change the
Target Premium schedules from time to time. The Target Premium applicable
to a particular coverage shall be determined from the schedule in force
when the first premium for such coverage is entered as paid in accounting
records of AGL.
14
<PAGE>
3. TRAIL COMMISSIONS: WHEN PAID.
----------------------------
The annual trail commissions, as set forth in above, are calculated on a
quarterly basis and are applied to the entire unloaned accumulation value on
each quarterly Policy anniversary. Payment will be made at the end of the
calendar quarter immediately following the corresponding quarterly Policy
anniversary. For example, for Policies issued November 1, 1999, the first
trail payment is based on the unloaned accumulation value as of February 1,
2000, but is not payable until the calendar quarter ending March 31, 2000,
and mailed shortly thereafter.
4. CHARGEBACKS.
-----------
The following commission chargebacks shall apply on Policy surrenders:
(a) 100% of commissions paid on a Policy surrendered during the first
Policy year; and
(b) 50% of commissions paid on a Policy surrendered during the second
Policy year;
This commission chargeback schedule shall only apply to compensation
paid based on Percent of Premium.
5. CHANGE OF BROKER-DEALER.
-----------------------
A Policy owner may elect to change representation to another broker-dealer
subsequent to the sale of the Policy, solely in the Policy owner's
discretion. After such change, further compensation paid for the Policy will
be paid to the new broker-dealer.
6. GUIDELINES AND COMMISSIONS ON INTERNAL EXCHANGES.
------------------------------------------------
Generally, no commissions will be earned on the initial exchange of
any AGL contract or any contract issued by a company which is affiliated
with AGL's Key Legacy Plus. All subsequent premium payments will receive
commissions calculated in accordance with the administrative rules
established by AGL in its sole discretion and in effect at the time of
the exchange.
Schedule C - Affiliated Agencies
15
<PAGE>
. KeyCorp Insurance Agency USA Inc., an Ohio corporation
. KeyCorp Insurance Agency USA Inc., an Idaho corporation
. KeyCorp Insurance Agency, Inc., a New York corporation
. KIA (Ohio) Agency, Inc., an Ohio corporation
. McD Gradism Agency, Inc., an Ohio corporation
. McD Agency PA Inc., a Pennsylvania corporation
16
<PAGE>
Exhibit (8)(h)
PARTICIPATION AGREEMENT
AMONG
AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
THE VICTORY VARIABLE INSURANCE FUNDS
AND
BISYS FUND SERVICES LIMITED PARTNERSHIP
DATED AS OF
DECEMBER 9, 1999
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 9th day of DECEMBER, 1999
("Agreement"), by and among AMERICAN GENERAL LIFE INSURANCE COMPANY, a Texas
life insurance company ("AGL") (on behalf of itself and its "Separate Account,"
defined below), AMERICAN GENERAL SECURITIES INCORPORATED, a Texas corporation
("AGSI"), the principal underwriter and distributor with respect to the Policies
referred to below, __THE VICTORY VARIABLE INSURANCE FUNDS, an unincorporated
business trust organized under the laws of the state of Delaware, (the "Fund"),
and BISYS FUND SERVICES LIMITED PARTNERSHIP, an Ohio limited partnership, (the
"Distributor"), the Fund's principal underwriter (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS the Distributor and the Fund desire that shares of the Fund's
portfolios (the "Series"; reference herein to the "Fund" includes reference to
each of the Series of the Fund as to the extent the context requires) be made
available by the Distributor to serve as underlying investment media for those
variable insurance products (the "Policies") of AGL that are the subject of
AGL's Form N-4 and/or Form S-6 registration statement filed with the Securities
and Exchange Commission (the "SEC"), and to be offered through AGSI.
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Fund and the Distributor will make shares in the Series
available to AGL for this purpose at net asset value and with no sales charges,
all subject to the following provisions:
Section 1. Introduction
------------------------
1.1 Availability of Separate Account Divisions.
------------------------------------------
AGL represents that its Separate Account(s) (the "Separate Account(s)") is
and will continue to be available to serve as an investment vehicle for its
Policies. The Policies provide for the
<PAGE>
allocation of net amounts received by AGL to separate series (the "Divisions";
reference herein to the "Separate Account" includes reference to each Division
to the extent the context requires) of the Separate Account for investment in
the shares of corresponding Series of the Fund that are made available through
the Separate Account to act as underlying investment media. Other series of the
Fund may become subject to this Agreement, upon mutual agreement of the parties.
AGL will not unreasonably deny any request by the Distributor to create new
Divisions corresponding to such other Series.
1.2 Broker-Dealer Registration.
--------------------------
The Distributor and AGSI each represents and warrants that it is and will
remain duly registered as a broker-dealer with the SEC under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Section 2. Processing Transactions
-----------------------------------
2.1 The Fund agrees, as provided in its Registration Statement, to make
available to the Separate Account, and any Division, shares of the Series for
investment of purchase payments of the Policies allocated to the Separate
Account.
2.2 The Fund agrees to sell to AGL those shares of the Series which AGL
orders. Orders which are sent by AGL to the Fund and received by the Fund by
9:00 a.m. Central time, will be executed by the Fund at the net asset value
determined on the prior Business Day. Any orders received by the Fund after
9:00 a.m. and prior to 3:00 p.m. Central time, will be executed by the Fund at
the net asset value next computed pursuant to the rules of the SEC. For
purposes of this Section 2.2, the Fund hereby appoints AGL as its designee for
receipt of such orders from the Separate Account and receipt by such designee
shall constitute receipt by the Fund; provided that the Fund receives notice
from AGL by telephone or facsimile (or by such other means as the Fund and AGL
may agree in writing) of receipt of such orders by 9:00 a.m. Central time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock
2
<PAGE>
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the SEC.
2.3 The Fund agrees to redeem, on AGL's request, any full or fractional
shares of the Fund held by AGL, executing such requests on each Business Day at
the net asset value next computed after receipt by the Fund or its designee of
the request for redemption, in accordance with the provisions of this Agreement
and the Fund's Registration Statement. For purposes of this Section 2.3, the
Fund hereby appoints AGL as its designee for receipt of requests for redemption
from the Separate Account and receipt by such designee shall constitute receipt
by the Fund; provided that the Fund receives notice from AGL by telephone or
facsimile (or by such other means as the Fund and AGL may agree in writing) of
receipt of such request for redemption by 9:00 a.m. Central time on the next
following Business Day.
2.4 In the event that AGL's order results in a net purchase of Series
shares, AGL shall pay for Series shares on the same Business Day that the
notice of order to purchase the Fund shares is made in accordance with the
provisions of this section. If AGL's order requests a net redemption resulting
in a payment of redemption proceeds to AGL, the Fund shall normally pay and
transmit the proceeds of redemptions of Series shares on the same Business Day
that the notice of a redemption order is received in accordance with the
provisions of this Agreement, unless doing so would require the Fund to dispose
of Series securities or otherwise incur additional costs. In any event,
proceeds shall be wired to AGL within three (3) Business Days or such longer
period permitted by the Investment Company Act of 1940, as amended (the "1940
Act") or the rules, orders or regulations thereunder, and the Fund shall notify
the person designated in writing by AGL as the recipient for such notice of such
delay by 5:00 p.m. Central time the same Business Day that AGL transmits the
redemption order to the Fund. If AGL's order requests the application of
redemption proceeds from the redemption of shares to the purchase of shares of
another fund advised by Adviser (as defined below), the Fund shall so apply such
proceeds the same Business Day that AGL transmits such order to the Fund. Any
payment made pursuant to this Section 2.4 shall be in federal funds transmitted
by wire.
3
<PAGE>
2.5 The Fund will provide to AGL closing net asset value per share for the
Series after the close of trading each Business Day. In any event, the Fund
shall use its best efforts to make the net asset value per share for each Series
available by 6:00 p.m. Central time each Business Day, and as soon as reasonably
practicable after the net asset value per share for each Series is calculated,
and shall calculate such net asset value in accordance with the Fund's
Registration Statement. Any material error in the calculation of the net asset
value of the Series shall be reported immediately to AGL.
2.6 At the end of each Business Day, AGL shall use the information
described in Section 2.5 to calculate Separate Account unit values for the day.
Using these unit values, AGL shall process each such Business Day's Separate
Account transactions based on requests and premiums received by it by the
earlier of 4:00 p.m. Eastern time or the close of trading on the floor of the
New York Stock Exchange (currently 4:00 p.m. New York time) to determine the net
dollar amount of the Fund shares which shall be purchased or redeemed at that
day's closing net asset value per share. The net purchase or redemption orders
so determined shall be transmitted to the Fund by AGL by 9:00 a.m. Central time
on the Business Day next following AGL's receipt of such requests and premiums
in accordance with the terms of Sections 2.2 and 2.3 hereof. Orders will be
sent directly, via facsimile (or by such other means as the Fund and AGL may
agree in writing), to the Fund or such other person as the Fund may designate.
2.7 The Fund shall furnish, on or before the exdividend date, notice to
AGL of any income dividends or capital gain distributions payable on the shares
of any Series. AGL hereby elects to receive all such income dividends and
capital gain distributions as are payable on a Series' shares in additional
shares of the Series, but reserves the right to revoke the election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify AGL or its designee of the number of shares so issued as
payment of such dividends and distributions.
2.8 The Fund may refuse to sell shares of any Series to any person or
suspend or terminate the offering of the shares of or liquidate any Series if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board of Trustees of the Fund (the "Board
of Trustees"), acting in good faith and in light of its duties under federal and
any
4
<PAGE>
applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Series. The Fund further reserves the
right to pay any portion of a redemption in kind of portfolio securities of any
Series if the Fund's Board of Trustees determines that it would be detrimental
to the best interests of the shareholders to make a redemption wholly in cash.
2.9 Issuance and transfer of Series shares will be by book entry only.
Stock certificates will not be issued to AGL or the Separate Account. Shares
ordered from the Series will be recorded in appropriate book entry titles for
the Separate Account.
2.10 Each Party has the right to rely on information or confirmations
provided by each other Party (or by any affiliate of each other Party) and shall
not be liable in the event that an error is a result of any misinformation
supplied by any other Party or any such affiliate. If a mistake is caused in
supplying such information or confirmations, which results in a reconciliation
with incorrect information, the amount required to make a Policy owner's or
participant's account whole shall be borne by the Party providing the incorrect
information.
Section 3. Costs and Expenses
------------------------------
3.1 General.
-------
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 Expense allocations.
--------------------
(a) The Fund will pay the cost of keeping its registration of shares
under the Securities Act of 1933, as amended (the "1933 Act") and its
registration as a management investment company under the 1940 Act, current and
effective. AGL will pay the cost of registering the Separate Account as a unit
investment trust under the 1940 Act and registering units of interest under the
Policies under the 1933 Act and keeping such registrations current and
effective.
5
<PAGE>
(b) At least annually, the Fund or its designee shall provide AGL
with the current prospectus, statement of additional information and any
supplements thereto for the shares of the Series in the form of "camera ready"
copy as set in type or, at the request of AGL, as a diskette in the form sent to
the financial printer. The prospectuses provided by the Fund shall be limited to
only those Series of the Fund that are made available through the Separate
Account to serve as underlying investments. The Fund shall be responsible for
providing the prospectus and/or statement of additional information in the
format (i.e., "camera ready" or diskette) in which it is accustomed to
formatting prospectuses and/or statements of additional information. The
Distributor shall bear the expense of providing the prospectus and/or statement
of additional information, and any supplements thereto, in such format (e.g.
typesetting expenses), and AGL shall bear the expense of adjusting or changing
the format to conform with any of its prospectuses and/or statements of
additional information. At AGL's option and expense, once a year (or more
frequently if the prospectus and/or statement of additional information for the
shares is supplemented or amended), AGL may cause the Fund's prospectus and/or
statement of additional information to be printed separately and/or together in
one document with the prospectus and/or statement of additional information for
other investment companies and/or for the Policies. AGL shall be responsible for
the costs of printing the Fund's prospectus and/or statement of additional
information, either separately or in combination as aforesaid, and distribution
to existing Policy owners whose Policies are funded by such shares and to
prospective purchasers of Policies.
(c) The Fund and AGL will each bear one-half of the costs of
preparing, filing with the SEC and setting for printing the Fund's periodic
reports to shareholders, the Fund proxy material and other shareholder
communications (collectively "Fund Reports") provided to existing owners under
the Policies (collectively, "Participants") and AGL will bear the costs of
delivering the Fund Reports to Participants.
(d) AGL will bear the costs of preparing, filing with the SEC,
setting for printing, printing and delivering to Participants the Separate
Account's prospectus, statement of additional information and any supplements
thereto (collectively, the "Separate Account Prospectus"), periodic reports to
Participants, voting instruction solicitation material, and other Participant
6
<PAGE>
communications.
3.3 Parties to Cooperate.
--------------------
The Fund, AGL, AGSI and the Distributor each agrees to cooperate with the
others, as applicable, in arranging to print, mail and/or deliver combined or
coordinated prospectuses or other materials of the Fund and Separate Account.
Section 4. Legal Compliance
----------------------------
4.1 Tax Laws.
--------
(a) The Fund represents and warrants that each Series is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and represents that it
will make every effort to qualify and to maintain qualification of each Series
as a RIC. The Fund or the Distributor will notify AGL immediately upon having a
reasonable basis for believing that a Series has ceased to so qualify or that it
might not so qualify in the future.
(b) AGL represents and warrants that the Policies are currently and
at the time of issuance will be treated as life insurance policies under
applicable provisions of the Code and that it will make every effort to maintain
such treatment. AGL will notify the Fund and the Distributor immediately upon
having a reasonable basis for believing that any of the Policies have ceased to
be so treated or that they might not be so treated in the future.
(c) The Fund represents and warrants that each Series is currently
in compliance with the diversification requirements set forth in Section 817(h)
of the Code and Section 1.817-5 of the regulations under the Code, and the Fund
represents that it will make every effort to maintain each Series' compliance
with such diversification requirements. The Fund or the Distributor will notify
AGL immediately upon having a reasonable basis for believing that a Series has
ceased to so comply or that a Series might not so comply in the future.
7
<PAGE>
(d) AGL represents and warrants that the Separate Account is a
"segregated asset account" and that interests in the Separate Account are
offered exclusively through the purchase of or transfer into a "variable
contract," within the meaning of such terms under Section 817(h) of the Code and
the regulations thereunder. AGL will make every effort to continue to meet such
definitional requirements, and it will notify the Fund and the Distributor
immediately upon having a reasonable basis for believing that such requirements
have ceased to be met or that they might not be met in the future.
quarter.
(e) The Fund represents that, under the terms of its investment
advisory agreements with Key Asset Management Company (the "Adviser"), the
Adviser is and will be responsible for managing the Fund in compliance with the
Fund's investment objectives, policies and restrictions as set forth in the Fund
Prospectus. The Fund represents that these objectives, policies and
restrictions do and will include operating as a RIC in compliance with
Subchapter M of the Code and Section 817(h) of the Code and regulations
thereunder. The Fund has adopted and will maintain procedures for ensuring that
the Fund is managed in compliance with Subchapter M and Section 817(h) and
regulations thereunder. On request, the Fund shall also provide AGL with such
materials, cooperation and assistance as may be reasonably necessary for AGL or
any appropriate person designated by AGL to review from time to time the
procedures and practices of the Adviser or each sub-investment adviser to the
Fund for ensuring that the Fund is managed in compliance with Subchapter M and
Section 817(h) and regulations thereunder.
In the event of any noncompliance regarding its status as a RIC, the Fund will
pursue those efforts necessary to enable each affected Series to qualify once
again for treatment as a RIC in compliance with Subchapter M, including
cooperation in good faith with AGL. If the Fund does not so cure the
noncompliance regarding its status under Section 817(h), the Fund will cooperate
in good faith with AGL's efforts to obtain a ruling and closing agreement, as
provided in Revenue Procedure 92-25 issued by the Internal Revenue Service (or
any applicable ruling or procedure subsequently issued by the Internal Revenue
Service), that the Series satisfies Section 817(h) for the period or periods of
non-compliance.
8
<PAGE>
4.2 Insurance and Certain Other Laws.
--------------------------------
(a) The Distributor and the Fund make no representation as to
whether any aspect of the Fund's operations complies with the insurance laws or
regulations of the various states. The Fund will use reasonable efforts to
comply with any applicable state insurance laws or regulations, to the extent
specifically requested in writing by AGL.
(b) AGL represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the insurance laws
of the State of Texas and the regulations thereunder, and has full corporate
power, authority and legal right to execute, deliver and perform its duties and
comply with its obligations under this Agreement, (ii) it has legally and
validly established and maintains the Separate Account as a segregated asset
account under Article 3.75 of the Texas Insurance Code, and (iii) the Policies
comply in all material respects with all other applicable federal and state laws
and regulations.
(c) AGL and AGSI represent and warrant that AGSI is a business
corporation duly organized, validly existing, and in good standing under the
laws of the State of Texas and has full corporate power, authority and legal
right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
(d) The Distributor represents and warrants that it is a limited
partnership duly organized, validly existing, and in good standing under the
laws of the State of Ohio and has full power, authority and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
(e) The Fund represents and warrants that the Fund is a business
trust duly organized, validly existing, and in good standing under the laws of
the state of Delaware and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
4.3 Securities Laws.
---------------
9
<PAGE>
(a) AGL represents and warrants that (i) it has registered the
Separate Account as a unit investment trust in accordance with the provisions of
the 1940 Act to serve as a segregated investment account for its variable life
insurance policies, including the Policies, (ii) the Separate Account does and
will comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, (iii) the Separate Account's 1933 Act registration
statement relating to the Policies, together with any amendments thereto, will
at all times comply in all material respects with the requirements of the 1933
Act and the rules thereunder,(iv) the Separate Account Prospectus will at all
times comply in all material respects with the requirements of the 1933 Act and
the rules thereunder; and (v) interests in the Separate Account pursuant to the
Policies will be registered under the 1933 Act to the extent required by the
1933 Act and the Policies will be duly authorized for issuance and sold in
compliance with all applicable federal and state laws and that the sale of the
Policies will comply in all material respects with state insurance suitability
requirements.
(b) The Fund represents and warrants that (i) Fund shares sold
pursuant to this Agreement will be registered under the 1933 Act to the extent
required by the 1933 Act, (ii) the Fund is and will remain registered under the
1940 Act to the extent required by the 1940 Act, and (iii) the Fund will amend
the registration statement for its shares under the 1933 Act and itself under
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares.
(c) The Fund represents and warrants that (i) the Fund does and will
comply in all material respects with the requirements of the 1940 Act and the
rules thereunder, (ii) its 1933 Act registration statement, together with any
amendments thereto, will at all times comply in all material respects with the
requirements of the 1933 Act and rules thereunder, and (iii) the Fund Prospectus
will at all times comply in all material respects with the requirements of the
1933 Act and the rules thereunder.
(d) The Fund will register and qualify its shares for sale in
accordance with the laws of any state or other jurisdiction only if and to the
extent reasonably deemed advisable by the Fund, AGL or any other life insurance
company utilizing the Fund.
(e) AGL represents and warrants that its directors, officers, and
employees, if any, dealing with the money and/or securities of the Fund are and
shall continue to be at all times
10
<PAGE>
covered by a blanket fidelity bond or similar coverage in an amount not less
than $2 million. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
(f) The Fund represents and warrants that its directors, officers,
and employees, if any, dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage in an amount not less than the minimal coverage as required
currently by Rule 17g-1 of the 1940 Act or related provisions as may be
promulgated from time to time. The aforesaid bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding company.
4.4 Notice of Certain Proceedings and Other Circumstances.
-----------------------------------------------------
(a) The Fund shall promptly notify AGL of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to the Fund's registration statement under the 1933
Act or the Fund Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Fund Prospectus (other than SEC Staff comments on
filings received in the ordinary course of business), (iii) the initiation of
any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Fund's shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Fund shares in any
state or jurisdiction, including, without limitation, any circumstances in which
(x) the Fund's shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law or (y) such law
precludes the use of such shares as an underlying investment medium of the
Policies issued or to be issued by AGL. The Distributor and the Fund will make
every reasonable effort to prevent the issuance of any stop order, cease and
desist order or similar order and, if any such order is issued, to obtain the
lifting thereof at the earliest possible time.
(b) AGL or AGSI shall promptly notify the Fund of (i) the issuance
by any court or regulatory body of any stop order, cease and desist order, or
other similar order with respect to the Separate Account's registration
statement under the 1933 Act relating to the Policies or the
11
<PAGE>
Separate Account Prospectus, (ii) any request by the SEC for any amendment to
such registration statement or Separate Account prospectus, (iii) the initiation
of any proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Policies, (iv) any other action or circumstances that prevent the lawful offer
or sale of said interests in any state or jurisdiction, including without
limitation, any circumstances in which said interests are not registered and in
all material respects issued and sold in accordance with applicable state and
federal law. AGL and AGSI will make every reasonable effort to prevent the
issuance of any stop order, cease and desist order or similar order and, if any
such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 AGL to Provide Documents.
------------------------
AGL will provide to the Fund one complete copy of all SEC registration
statements, Separate Account Prospectuses, annual and semi-annual reports, any
preliminary and final voting instruction solicitation material, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Separate Account or the Policies, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6 Fund to Provide Documents.
-------------------------
The Fund will provide to AGL one complete copy of all SEC registration
statements, Fund Prospectuses, annual and semi-annual reports, any preliminary
and final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or its
shares, contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.7 Sales Literature
----------------
(a) AGL will furnish, or will cause to be furnished, to the Fund and
Distributor for review, each piece of sales literature or other promotional
material in which the Fund, or any Series thereof, or Adviser is named, before
such material is submitted to any regulatory body for review, and in any event,
at least fifteen (15) Business Days prior to its use. No such material will
12
<PAGE>
be used if the Fund or Distributor objects to its use in writing within fifteen
(15) Business Days after receipt of such material.
(b) Advertising and sales literature with respect to AGL, the Separate
Account and/or the Policies prepared by the Fund, Distributor or any affiliate
thereof will be submitted to AGL for review before such material is submitted to
any regulatory body for review, and in any event, at least fifteen (15) Business
Days prior to its use. No such material will be used if AGL objects to its use
in writing within fifteen (15) Business Days after receipt of such material.
(c) The Fund and its affiliates and agents shall not give any
information or make any representations on behalf of AGL or concerning AGL, the
Separate Account or the Policies issued by AGL, other than the information or
representations contained in a registration statement or prospectus for such
Policies, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports of the Separate Account or reports
prepared for distribution to owners of such Policies, or in sales literature or
other promotional material approved by AGL or its designee, without the written
permission of AGL.
(d) AGL and its affiliates and agents shall not give any information
or make any representations on behalf of the Fund or concerning the Fund other
than the information or representations contained in a Registration Statement or
prospectus for the Fund, as such Registration Statement and prospectus may be
amended or supplemented from time to time, or in reports of the Fund or reports
prepared for distribution to owners of shares of the Fund or for owners of the
Policies, or in sales literature or other promotional material approved by the
Fund or its designee, without the written permission of the Fund.
(e) For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for use, in
a newspaper, magazine or other periodical, radio, television, electronic media,
telephone or tape recording, videotape display, signs or billboards, motion
pictures or other public media), sales literature (such as any written
communication
13
<PAGE>
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, or reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees,
registration statements, prospectuses, statements of additional information,
shareholder reports and proxy materials, and any other material constituting
sales literature or advertising under National Association of Securities
Dealers, Inc. ("NASD") rules, the 1940 Act or the 1933 Act.
(f) AGL will bear the cost of printing and delivering to prospective
purchasers of the Policies Fund and Separate Account sales literature or other
promotional material and the cost of filing any such materials with, and
obtaining approval from, any state insurance regulatory authorities.
Section 5. Mixed and Shared Funding
------------------------------------
5.1 General.
-------
The Fund has obtained an order, and AGL has received and reviewed, a copy
of the amended and restated application for exemptive relief filed by the Fund
and certain affiliates on ________________, ________________ with the SEC and
the Exemptive Order issued by the SEC on ___________________________, _______ in
response thereto (Securities and Exchange Commission Release
No._________________ the "Mixed and Shared Funding Order") exempting it from
certain provisions of the 1940 Act and rules thereunder so that the Fund may be
available for investment by certain other entities, including, without
limitation, separate accounts funding variable life insurance policies and
variable annuity contracts, separate accounts of insurance companies
unaffiliated with AGL and trustees of qualified pension and retirement plans
("Mixed and Shared Funding"). The Parties recognize that the SEC has imposed
terms and conditions for such orders that are substantially identical to many of
the provisions of this Section 5. The Parties represent and warrant that they
will comply with the terms and conditions of the SEC order, whether or not
recited in this Section 5.
14
<PAGE>
5.2 Disinterested Directors.
-----------------------
The Fund agrees that the Board of Trustees shall at all times consist of
Trustees, a majority of whom (the "Disinterested Directors") are not interested
persons of the Adviser or the Distributor within the meaning of Section 2(a)(19)
of the 1940 Act and the rules thereunder and as modified by any applicable
orders of the SEC, except that if this condition is not met by reason of the
death, disqualification, or bona fide resignation of any Trustee or Trustees,
then the operation of this condition shall be suspended (a) for a period of 45
days if the vacancy or vacancies may be filled by the Board of Trustees; (b) for
a period of 60 days if a vote of shareholders is permitted to fill the vacancy
or vacancies; or (c) for such longer period as the SEC may permit.
5.3 Monitoring for Material Irreconcilable Conflicts.
------------------------------------------------
The Fund agrees that the Board of Trustees will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants of all separate accounts of life insurance companies utilizing the
Fund, including the Separate Account. The concept of a "material irreconcilable
conflict" is not defined by the 1940 Act or the rules thereunder, but the
Parties recognize that such a conflict may arise for a variety of reasons,
including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Series are being
managed;
(e) a difference in voting instructions given by variable insurance
life insurance policy and variable annuity contract participants or by
participants of different life insurance companies utilizing the Fund; or
15
<PAGE>
(f) a decision by a life insurance company utilizing the Fund to
disregard the voting instructions of participants. AGL will report any potential
or existing conflicts of which it becomes aware to the Fund's Board of Trustees.
AGL will assist the Board in carrying out its responsibilities under the Mixed
and Shared Funding Order by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This assistance shall
include, but is not limited to, an obligation by AGL to (i) inform the Board
whenever the voting instructions of the Policy owners or Participants are
disregarded, and (ii) to submit to the Board such reports, materials or data as
the Board may reasonably request so that the Board may fully carry out the
obligations imposed upon it by the Mixed and Shared Funding Order, and such
reports, materials and data shall be submitted more frequently if deemed
appropriate by the Board. AGL will carry out its responsibilities under this
paragraph with a view only to the interests of the Policy owners and
Participants.
5.4 Conflict Remedies.
-----------------
(a) It is agreed that if it is determined by a majority of the
members of the Board of Trustees or a majority of the Disinterested Trustees
that a material irreconcilable conflict exists affecting AGL, AGL will, at its
own expense and to the extent reasonably practicable (as determined by a
majority of the Disinterested Trustees), take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, which steps may
include, but are not limited to:
(i) withdrawing the assets allocable to the separate account
from the Fund or any series and reinvesting such assets in
a different investment medium, including another series of
the Fund or another investment company, or submitting the
question whether such segregation should be implemented to a
vote of all affected Participants and, as appropriate,
segregating the assets of any particular group (e.g.,
variable life insurance contract owners, variable annuity
contract owners or all variable contract owners and
participants of one or more life insurance companies
utilizing the Fund) that votes in favor of such segregation,
or offering to the
16
<PAGE>
affected variable contract owners or participants the option
of making such a change; and
(ii) establishing a new registered investment company of the type
defined as a "Management Company" in Section 4(3) of the
1940 Act or a new separate account that is operated as a
Management Company.
(b) If the material irreconcilable conflict arises because of AGL's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, AGL may be
required, at the Fund's election, to withdraw the Separate Account's investment
in the Fund. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal must take place within six months after the
Fund gives notice to AGL that this provision is being implemented, and until
such withdrawal the Distributor and Fund shall continue to accept and implement
orders by AGL for the purchase and redemption of shares of the Fund.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to AGL conflicts with the
majority of other state regulators, then AGL will withdraw the Separate
Account's investment in the Fund within six months after the Fund's Board of
Directors informs AGL that it has determined that such decision has created a
material irreconcilable conflict, and until such withdrawal the Distributor and
Fund shall continue to accept and implement orders by AGL for the purchase and
redemption of shares of the Fund.
(d) AGL agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will the Fund or the
Distributor be required to establish a new funding medium for
17
<PAGE>
any Policies. AGL will not be required by the terms hereof to establish a new
funding medium for any Policies if any offer to do so has been declined by vote
of a majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 Notice to AGL.
-------------
The Fund will promptly make known in writing to AGL the Board of Trustees'
determination of the existence of a material irreconcilable conflict, a
description of the facts that give rise to such conflict and the implications of
such conflict.
5.6 Information Requested by Board of Trustees.
------------------------------------------
AGL will at least annually submit to the Board of Trustees of the Fund such
reports, materials or data as the Board of Trustees may reasonably request so
that the Board of Trustees may fully carry out the obligations imposed upon it
by the provisions hereof, and said reports, materials and data will be submitted
at any reasonable time deemed appropriate by the Board of Trustees. All reports
received by the Board of Trustees of potential or existing conflicts, and all
Board of Trustees actions with regard to determining the existence of a
conflict, notifying life insurance companies utilizing the Fund of a conflict,
and determining whether any proposed action adequately remedies a conflict, will
be properly recorded in the minutes of the Board of Trustees or other
appropriate records, and such minutes or other records will be made available to
the SEC upon request.
5.7 Compliance with SEC Rules.
-------------------------
If, at any time during which the Fund is serving as an investment medium
for variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to mixed and shared funding, the Parties agree that they will comply
with the terms and conditions thereof and that the terms of this Section 5 shall
be deemed modified if and only to the extent required in order also to comply
with the terms and conditions of such exemptive relief that is afforded by any
of said rules that are applicable.
Section 6. Termination
-----------------------
18
<PAGE>
6.1 Events of Termination.
---------------------
Subject to Section 6.4 below, this Agreement will terminate as to a Series:
(a) at the option of AGL, the Distributor or the Fund upon (I) at
least six months' advance written notice to the other Parties unless a shorter
time period is agreed to by the parties,
(b)at the option of the Fund upon
(i) at least sixty days advance written notice to the other
parties, and
(ii) the approval by (x) a majority of the Disinterested
Directors or (y) a majority vote of the shares of the
affected Series that are held in the corresponding Divisions
of the Separate Account (pursuant to the procedures set
forth in Section 10 of this Agreement for voting Series
shares in accordance with Participant instructions);or
(c) at the option of the Fund upon written notice upon institution of
formal proceedings against AGL or AGSI by the SEC, the NASD, any state insurance
regulator or any other regulatory body regarding AGL's duties under this
Agreement or related to the sale of the Policies, the operation of the Separate
Account, or the purchase of the Fund shares, if, in each case, the Fund
reasonably determines that such proceedings, or the facts on which such
proceedings may be based, have a material likelihood of imposing material
adverse consequences on the Series to be terminated; or
(d) at the option of AGL upon written notice upon institution of
formal proceedings against the Fund, the Adviser or any sub-investment adviser
to the Fund, or the Distributor by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, if, in each case, AGL
reasonably determines that such proceedings, or the facts on which such
proceedings may be based, have a material likelihood of imposing material
adverse consequences on AGL, AGSI or the Division corresponding to the Series to
be terminated; or
(e) at the option of any Party upon occurrence without written notice
in the event that (i) the Series's shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law or (ii) such law precludes the use of such shares
19
<PAGE>
as an underlying investment medium of the Policies issued or to be issued by
AGL; or
(f) upon termination of the corresponding Division's investment in
the Series pursuant to Section 5 hereof; or
(g) at the option of AGL upon written notice if the Series ceases to
qualify as a RIC under Subchapter M of the Code or under successor or similar
provisions, or if AGL reasonably believes that the Series may fail to so
qualify; or
(h) at the option of AGL upon written notice if the Series fails to
comply with Section 817(h) of the Code or with successor or similar provisions,
or if AGL reasonably believes that the Series may fail to so comply.
(i) at the option of the Fund upon written notice if the Policies
cease to qualify as annuity contracts or life insurance contracts, as
applicable, under the Code, or if the Fund reasonably believes that the Policies
may fail to so qualify; or
(j) at the option of the Fund, upon AGL's breach of any material
provision of this Agreement, which breach has not been cured to the satisfaction
of the Fund within thirty (30) days after written notice of such breach is
delivered to AGL; or
(k) at the option of AGL, upon the Fund's breach of any material
provision of this Agreement, which breach has not been cured to the satisfaction
of AGL within thirty (30) days after written notice of such breach is delivered
to the Fund; or
(l) at the option of the Fund upon written notice, if the Policies
are not registered, issued or sold in accordance with applicable federal and/or
state law and any applicable rules and regulations thereunder; or
(m) effective immediately in the event the agreement is assigned
without the prior
20
<PAGE>
written consent of all parties; or
(n) effective immediately in the event the Distributor ceases to be
the distributor for the Funds, unless a successor distributor of the Fund agrees
to assume and perform all of the obligations of the Distributor hereunder.
6.2 Series to Remain Available.
--------------------------
Except (i) as necessary to implement Participant initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Series as
to which this Agreement has terminated, AGL shall not (x) redeem Fund shares
attributable to the Policies (as opposed to Fund shares attributable to AGL's
assets held in the Separate Account), or (y) prevent Participants from
allocating payments to or transferring amounts from a Series that was otherwise
available under the Policies, until, in either case, 90 calendar days after AGL
shall have notified the Fund or Distributor of its intention to do so.
6.3 Survival of Warranties and Indemnifications.
-------------------------------------------
All warranties and indemnifications will survive the termination of this
Agreement.
6.4 Continuance of Agreement for Certain Purposes.
---------------------------------------------
If any Party terminates this Agreement with respect to any Series pursuant
to Section 6.1 hereof, this Agreement shall nevertheless continue in effect as
to any shares of that Series that are outstanding as of the date of such
termination (the "Initial Termination Date"). This continuation shall extend to
the earlier of the date as of which the Separate Account owns no shares of the
affected Series or a date (the "Final Termination Date") six months following
the Initial Termination Date, except that (i) AGL may, by written notice to the
other Parties, shorten said six month period in the case of a termination
pursuant to Sections 6.1(d), 6.1(e) 6.1(g) 6.1(k) or 6.1(m); (ii) the Fund may,
by written notice to the other Parties, shorten said 6 month period in the case
of a termination pursuant to Sections 6.1(b), 6.1(c), 6.1(f), 6.1(h), 6.1(i),
6.1(j) 6.1(l) or 6.1(m); and (iii) the Distributor will no longer be deemed a
party to this Agreement after the Initial Termination Date in the case of a
termination pursuant to Section 6.1(n).
21
<PAGE>
Section 7. Parties to Cooperate Respecting Termination
-------------------------------------------------------
The Parties agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that the Separate Account owns no shares of a Series after the Final
Termination Date with respect thereto, or, in the case of a termination pursuant
to Section 6.1(a), the termination date specified in the notice of termination.
Section 8. Assignment
----------------------
This Agreement may not be assigned, except with the written consent of each
other Party.
Section 9. Notices
-------------------
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
American General Life Insurance
Company
2929 Allen Parkway
Houston, Texas
Attn: General Counsel
FAX: 713-831-1106
American General Securities
Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attn: F. Paul Kovach, Jr.
FAX: 713-831-3366
22
<PAGE>
The Victory Variable Insurance Funds
c/o BISYS Fund Services Limited Partnership
3435 Stelzer Road, Suite 1000
Columbus, Ohio 43219
Attn: William J. Tomko
FAX: 614-470-8715
With a copy to:
Key Asset Management
127 Public Square
Cleveland, Ohio 44114
Attn: Kathleen Dennis
FAX: 216-689-9193
BISYS Fund Services Limited Partnership
3435 Stelzer Road, Suite 1000
Columbus, Ohio 43219
Attn: William J. Tomko
FAX: 614-470-8715
Section 10. Voting Procedures
------------------------------
Subject to the cost allocation procedures set forth in Section 3 hereof,
AGL will distribute all proxy material furnished by the Fund to Participants and
will vote Fund shares in accordance with instructions received from
Participants. AGL will vote Fund shares that are (a) not attributable to
Participants or (b) attributable to Participants, but for which no instructions
have been received, in the same proportion as Fund shares for which said
instructions have been received from Participants. AGL agrees that it will
disregard Participant voting instructions only to the extent (i) it would be
permitted to do so pursuant to Rule 6e-3(T)(b)(15)(iii) under the 1940 Act if
the Policies were variable life insurance policies subject to that rule or (ii)
it is permitted under applicable state insurance laws affecting the Fund. AGL
will be responsible for assuring that the Separate Account calculates voting
privileges in a manner consistent with that of other participating life
insurance companies that utilize the Fund.
Section 11. Foreign Tax Credits
--------------------------------
The Fund agrees to consult in advance with AGL concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to
23
<PAGE>
its shareholders.
Section 12. Indemnification
----------------------------
12.1 Of Fund and Distributor by AGL.
------------------------------
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, AGL agrees to indemnify and hold harmless the Fund and the Distributor,
each of their respective affiliates, and each of their directors and officers,
employees and agents, and each person, if any, who controls the Fund or the
Distributor within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 12.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of AGL) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities, actions, or settlements
are related to the sale or acquisition of the Fund's shares or the Policies and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Separate Account's 1933 Act registration statement, the
Separate Account Prospectus, the Policies or, to the extent
prepared by AGL or AGSI, or agents thereof, sales literature
or advertising for the Policies (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished to AGL or AGSI,
or agents thereof by or on behalf of the Fund, the
Distributor or the Adviser for use in the Separate Account's
1933 Act registration statement, the Separate Account
Prospectus, the Policies, or sales literature or advertising
(or any amendment or supplement to
24
<PAGE>
any of the foregoing) or otherwise for use in connection
with the sale of the Policies or Fund shares; or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in the Fund's 1933 Act registration statement,
Fund Prospectus, sales literature or advertising of the
Fund, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of
AGL or AGSI) or wrongful conduct of AGL or AGSI or persons
under their control (including, without limitation, their
employees and "Associated Persons," as that term is defined
in paragraph (m) of Article I of the NASD's By-Laws), in
connection with the sale or distribution of the Policies or
Fund shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Fund's 1933 Act registration statement, Fund
Prospectus, sales literature or advertising of the Fund, or
any amendment or supplement to any of the foregoing, or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of AGL or
AGSI for use in the Fund's 1933 Act registration statement,
Fund Prospectus, sales literature or advertising of the
Fund, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by AGL or AGSI to perform
the obligations, provide the services and furnish the
materials required of them under the terms of this
Agreement, or any material breach of
25
<PAGE>
any representation and/or warranty made by AGL or AGSI in
this Agreement or arise out of or result from any other
material breach of this Agreement by AGL or AGSI.
(b) AGL shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of its reckless disregard of obligations or duties under
this Agreement or to the Distributor or to the Fund.
(c) AGL shall not be liable under this indemnification provision with
respect to any action against an Indemnified Party unless such Indemnified
Party shall have notified AGL in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify AGL of any such action shall not relieve AGL from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against an Indemnified Party, AGL shall be
entitled to participate, at its own expense, in the defense of such action. AGL
also shall be entitled to assume the defense thereof, with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AGL to such Indemnified Party of AGL's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with AGL and shall bear the fees and expenses of any additional counsel
retained by it, and AGL will not be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof, other
than reasonable costs of investigation.
12.2 Of AGL and AGSI by Distributor and Fund.
---------------------------------------
(a) Except to the extent provided in Sections 12.2(b) and 12.2 (c)
hereof, the Distributor (but only with respect to the matters described in
clauses (i), (ii) and (iii) below) and the
26
<PAGE>
Fund (but only with respect to the matters described in clause (iv) below) agree
to indemnify and hold harmless AGL, AGSI, each of their respective affiliates,
and each of their directors and officers, employees and agents, and each person,
if any, who controls AGL or AGSI, within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" for purposes of this Section 12.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Distributor) or actions in respect
thereof (including, to the extent reasonable, legal and other expenses) to which
the Indemnified Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities,
actions, or settlements are related to the sale or acquisition of the Fund's
shares or the Policies and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Fund's 1933 Act registration statement, Fund Prospectus,
sales literature or advertising of the Fund or, to the
extent not prepared by AGL or AGSI or agents thereof, sales
literature or advertising for the Policies (or any amendment
or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if
such statements or omission was made in relaince upon and in
conformity with information furnished by or on behalf of the
Distributor for use in the Fund's registration statement,
the Fund's Prospectus, Fund sales literature or advertising,
or sales literature or advertising covering the Policies or
any amendments or supplements to any of the foregoing.
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in the Separate Account's 1933 Act registration
statement, Separate Account Prospectus, sales literature or
advertising for the Policies, or any
27
<PAGE>
amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of the
Distributor, Fund or Adviser) or the wrongful conduct of
the Distributor, or persons under its control (including,
without limitation, their employees and Associated
Persons), in connection with the sale or distribution of
the Policies or Fund shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Separate Account's 1933 Act registration statement,
Separate Account Prospectus, sales literature or
advertising covering the Policies, or any amendment or
supplement to any of the foregoing, or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, if such statement or omission was
made in reliance upon and in conformity with information
furnished to AGL or AGSI by or on behalf of the Distributor
for use in the Separate Account's 1933 Act registration
statement, Separate Account Prospectus, sales literature or
advertising covering the Policies, or any amendment or
supplement to any of the foregoing; or arise as a result of
any failure by the Distributor to perform the obligations,
provide the services and furnish the materials required of
them under the terms of this Agreement, or any material
breach of any representation and/or warranty made by the
Distributor in this Agreement or arise out of or result
from any other material breach of this Agreement by the
Distributor;
(iv) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the prospectus covering the Policies, or any amendment or
supplement to any of the foregoing, or
28
<PAGE>
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with
information furnished to AGL or AGSI by or on behalf of the
Fund for use in the prospectus covering the Policies, or any
amendment or supplement to any of the foregoing; or arise as
a result of any failure by the Fund to perform the
obligations, provide the services and furnish the materials
required of it under the terms of this Agreement, or any
material breach of any representation and/or warranty made
by the Fund in this Agreement or arise out of or result from
any other material breach of this Agreement by the Fund.
(b) Except to the extent provided in Sections 12.2 (c) and 12.2(d)
hereof, the Fund agrees to indemnify and hold harmless the Indemnified Parties
from and against any and all losses, claims, damages, liabilities (including
amounts paid in settlement thereof with the written consent of the Fund) or
actions in respect thereof (including, to the extent reasonable, legal and other
expenses) to which the Indemnified Parties may become subject directly or
indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Series to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder or (ii) Section 817(h) of the Code and regulations
thereunder, including without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against AGL or AGSI pursuant to the Policies, the costs of
any ruling and closing agreement or other settlement with the IRS, and the cost
of any substitution by AGL of shares of another investment company or portfolio
for those of any adversely affected Series as a funding medium for each Separate
Account that AGL reasonably deems necessary or appropriate as a result of the
noncompliance.
(c) The Fund and the Distributor shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or actions to which an Indemnified Party would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or
29
<PAGE>
negligence in the performance by that Indemnified Party of its duties or by
reason of its reckless disregard of obligations and duties under this Agreement
or to AGL, AGSI or the Separate Account.
(d) The Fund and the Distributor shall not be liable under this
indemnification provision with respect to any action against an Indemnified
Party unless such Indemnified Party shall have notified the Fund and the
Distributor in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the action shall have been
served upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to notify
the Distributor of any such action shall not relieve the Distributor from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case
any such action is brought against an Indemnified Party, the Distributor will be
entitled to participate, at its own expense, in the defense of such action. The
Distributor also shall be entitled to assume the defense thereof, with counsel
approved by the Indemnified Party named in the action, which approval shall not
be unreasonably withheld. After notice from the Distributor to such Indemnified
Party of the Distributor's election to assume the defense thereof, the
Indemnified Party will cooperate fully with the Distributor and shall bear the
fees and expenses of any additional counsel retained by it, and the Distributor
will not be liable to such Indemnified Party under this Agreement for any legal
or other expenses subsequently incurred by such Indemnified Party independently
in connection with the defense thereof, other than reasonable costs of
investigation.
12.3 Effect of Notice.
----------------
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Section 12.1 or 12.2 above of participation in or control of any action by
the indemnifying Party will in no event be deemed to be an admission by the
indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 Successors.
----------
30
<PAGE>
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
Section 13. Applicable Law
---------------------------
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Texas law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
--------------------------------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
Section 15. Severability
-------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
------------------------------
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
Section 17. Headings
--------------------
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
Section 18. Limitation of Liability
-----------------------------------
It is understood and expressly stipulated that neither the shareholders of
shares of any Series nor the
31
<PAGE>
Trustees or officers of the Fund or any Series shall be personally liable
hereunder. No Series shall be liable for the liabilities of any other Series.
All persons dealing with the Fund or a Series must look solely to the property
of the Fund or that Series, respectively, for enforcement of any claims against
the Fund or that Series. It is also understood that each of the Series shall be
deemed to be entering into a separate Agreement with AGL so that it is as if
each of the Series had signed a separate Agreement with AGL and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
Section 19
----------
No provision of this Agreement may be amended or modified in any manner except
by a written agreement properly authorized and executed by all Parties.
32
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AMERICAN GENERAL LIFE INSURANCE COMPANY
By:_________________________________
Title:______________________________
AMERICAN GENERAL SECURITIES INCORPORATED
By:_________________________________
Title:______________________________
THE VICTORY VARIABLE INSURANCE FUNDS
By:_________________________________
Title:______________________________
BISYS FUND SERVICES LIMITED PARTNERSHIP
BISYS Fund Services, Inc.
Its General Partner
By:_________________________________
Title:______________________________
33
<PAGE>
Exhibit (8)(i)
SHAREHOLDER SERVICES AGREEMENT
THIS SHAREHOLDER SERVICES AGREEMENT is made and entered into as of February
1, 2000 by and between AMERICAN GENERAL LIFE INSURANCE COMPANY (the "Company"),
and AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. ("ACIM").
WHEREAS, the Company offers to the public certain group and individual
variable annuity and variable life insurance contracts (the "Contracts"); and
WHEREAS, the Company wishes to make available as investment options under
the Contracts VP Balanced, VP Income & Growth, VP International and VP Value
(the "Funds"), each of which is a series of mutual fund shares registered under
the Investment Company Act of 1940, as amended, and issued by American Century
Variable Portfolios, Inc. (the "Issuer"); and
WHEREAS, on the terms and conditions hereinafter set forth, ACIM desires to
make shares of the Funds available as investment options under the Contracts and
to retain the Company to perform certain administrative services on behalf of
the Funds, and the Company is willing and able to furnish such services;
NOW, THEREFORE, the Company and ACIM agree as follows:
1. Transactions in the Funds. Subject to the terms and conditions of this
Agreement, ACIM will cause the Issuer to make shares of the Funds available to
be purchased, exchanged, or redeemed, by or on behalf of the Accounts (defined
in Section 7(a) below) through a single account per Fund at the net asset value
applicable to each order. The Funds' shares shall be purchased and redeemed on a
net basis in such quantity and at such time as determined by the Company to
satisfy the requirements of the Contracts for which the Funds serve as
underlying investment media. Dividends and capital gains distributions will be
automatically reinvested in full and fractional shares of the Funds.
2. Administrative Services. The Company agrees to provide all
administrative services for the Contract owners, including but not limited to
those services specified in EXHIBIT A (the "Administrative Services"). Neither
ACIM nor the Issuer shall be required to provide Administrative Services for the
benefit of Contract owners. The Company agrees that it will maintain and
preserve all records as required by law to be maintained and preserved in
connection with providing the Administrative Services, and will otherwise comply
with all laws, rules and regulations applicable to the marketing of the
Contracts and the provision of the Administrative Services. Upon written
request, the Company will provide ACIM or its representatives reasonable
information regarding the quality of the Administrative Services being provided
and its compliance with the terms of this Agreement.
1
<PAGE>
3. Timing of Transactions. ACIM hereby appoints the Company as agent for
the Funds for the limited purpose of accepting purchase and redemption orders
for Fund shares from the Contract owners. On each day the New York Stock
Exchange (the "Exchange") is open for business (each, a "Business Day"), the
Company may receive instructions from the Contract owners for the purchase or
redemption of shares of the Funds ("Orders"). Orders received and accepted by
the Company prior to the close of regular trading on the Exchange (the "Close of
Trading") on any given Business Day (currently, 4:00 p.m. Eastern time) and
transmitted to the Funds' transfer agent by 10:00 a.m. Eastern time on the next
following Business Day will be executed at the net asset value determined as of
the Close of Trading on the Business Day on which the Orders are received and
accepted by the Company. The day as of which an Order is executed by the Funds'
transfer agent pursuant to the provisions set forth above is referred to herein
as the "Trade Date". All orders are subject to acceptance or rejection by ACIM
or the Funds in the sole discretion of either of them.
4. Processing of Transactions.
(a) If transactions in Fund shares are to be settled through the National
Securities Clearing Corporation's Mutual Fund Settlement, Entry, and
Registration Verification (Fund/SERV) system, the terms of the FUND/SERV
AGREEMENT, between Company and American Century Services Corporation, shall
apply.
(b) If transactions in Fund shares are to be settled directly with the
Funds' transfer agent, the following provisions shall apply:
(1) By 6:30 p.m. Eastern time on each Business Day, ACIM (or one of
its affiliates) will provide to the Company via facsimile or other electronic
transmission acceptable to the Company the Funds' net asset value, dividend and
capital gain information and, in the case of income funds, the daily accrual for
interest rate factor (mil rate), determined at the Close of Trading.
(2) By 10:00 a.m. Eastern time on each Business Day, the Company
will provide to ACIM via facsimile or other electronic transmission acceptable
to ACIM a report stating whether the instructions received by the Company from
Contract owners by the Close of Trading on the prior Business Day resulted in
the Accounts being a net purchaser or net seller of shares of the Funds. As used
in this Agreement, the phrase "other electronic transmission acceptable to ACIM"
includes the use of remote computer terminals located at the premises of the
Company, its agents or affiliates, which terminals may be linked electronically
to the computer system of ACIM, its agents or affiliates (hereinafter, "Remote
Computer Terminals").
(3) Upon the timely receipt from the Company of the report described
in (2) above, the Funds' transfer agent will execute the purchase or redemption
transactions (as the case may be) at the net asset value computed as of the
Close of Trading on the Trade Date. Payment for net purchase transactions shall
be made by wire transfer to the applicable Fund custodial account designated by
the Funds on the Business Day next following the Trade Date. Such wire transfers
shall be initiated by the Company's bank prior to 4:00 p.m. Eastern time and
received by the Funds prior to 6:00 p.m. Eastern time on the Business Day next
following the Trade Date ("T+1"). If payment for a purchase Order is not timely
received, such Order will be, at ACIM's option, either (i)
2
<PAGE>
executed at the net asset value determined on the Trade Date, and the Company
shall be responsible for all costs to ACIM or the Funds resulting from such
delay, or (ii) executed at the net asset value next computed following receipt
of payment. Payments for net redemption transaction s shall be made by wire
transfer by the Issuer to the account(s) designated by the Company on T+2;
provided, however, the Issuer reserves the right to settle redemption
- -------- -------
transactions within the time period set forth in the applicable Fund's then-
current prospectus. On any Business Day when the Federal Reserve Wire Transfer
System is closed, all communication and processing rules will be suspended for
the settlement of Orders. Orders will be settled on the next Business Day on
which the Federal Reserve Wire Transfer System is open and the original Trade
Date will apply.
(4) ACIM shall provide written confirmation to the Company of the
amount of shares traded and the associated cost per share (net asset value)
total trade amount and the outstanding share balances held by the Account
as of the end of each Business Day. Such information will be furnished by
1:00 p.m. Eastern time on the next Business Day.
(5) ACIM shall use its best efforts to furnish same day notice by
6:30 p.m. Eastern time (by wire or telephone, followed by written confirmation)
to the Company of any dividends or capital gain distributions payable on the
Fund's shares. The Company hereby elects to receive all such dividends and
capital gain distributions as are payable on the Fund shares in additional
shares of the Fund. The Company reserves the right to revoke this election and
to receive all such dividends and capital gain distributions in cash. ACIM shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions. ACIM shall use its best efforts to furnish the
Company with at least ten (10) business days' advance notice of the day such
dividend(s) and distribution(s) are expected to be paid.
(c) In the event adjustments are required to correct any error in
the computation of the net asset value of any Fund's shares at the
shareholder level as a result of a pricing error that is deemed to be
material under the pricing policy of the Fund's Board of Directors or which
ACIM otherwise deems necessary to correct at the shareholder level, ACIM
shall notify the Company as soon as practicable after discovering the need
for those adjustments which result in a reimbursement to the Accounts.
Notification shall be made by facsimile or by direct or indirect systems
access acceptable to the Company.
(1) If one or more of the Accounts received amounts from any Fund in
excess of the amounts to which it otherwise would have been entitled prior to an
adjustment for an error, the Company will use its best efforts to collect such
excess amounts from the applicable Accounts.
(2) If an adjustment is to be made in accordance with subsection (a)
above to correct an error which has caused an Account to receive an amount less
than that to which it is entitled, the Fund shall use its best efforts to make
all necessary adjustments to the number of shares owned in the account and/or
distribute to the Company the amount of such underpayment for credit to the
Accounts.
(3) For purposes of making adjustments as provided above, the Funds
will apply the same standards to all shareholders.
3
<PAGE>
5. Prospectus and Proxy Materials.
(a) ACIM shall provide the Company with copies of the Issuer's
prospectuses, proxy materials, periodic fund reports to shareholders and other
materials that are required by law to be sent to the Issuer's shareholders. In
addition, ACIM shall provide the Company with a sufficient quantity of
prospectuses of the Funds to be used in conjunction with the transactions
contemplated by this Agreement, together with such additional copies of the
Issuer's prospectuses as may be reasonably requested by Company. If the Company
provides for pass-through voting by the Contract owners, or if the Company
determines that pass-through voting is required by law, ACIM will provide the
Company with a sufficient quantity of proxy materials for each, as directed by
the Company.
(b) The cost of preparing, printing and shipping of the prospectuses,
proxy materials, periodic fund reports, statements of additional information and
other materials of the Issuer to the Company shall be paid by ACIM or its agents
or affiliates; provided, however, that if at any time ACIM or its agent
-------- -------
reasonably deems the usage by the Company of such items to be excessive, it may,
prior to the delivery of any quantity of materials in excess of what is deemed
reasonable, request in writing, no later than 15 business days prior to the date
that the Company and ACIM have agreed on for delivering such material to the
Company, that the Company demonstrate the reasonableness of such usage. If ACIM
believes, in good faith, that the reasonableness of such usage has not been
adequately demonstrated, it may request that the party responsible for such
excess usage pay the cost of printing (including press time) and delivery of any
excess copies of such materials. Unless the Company agrees to make such
payments, ACIM may refuse to supply such additional materials and ACIM shall be
deemed in compliance with this Section 5 if it delivers to the Company at least
the number of prospectuses and other materials as may be required by the Issuer
under applicable law.
(c) If requested by the Company, in lieu of providing printed copies of
the Fund prospectus and/or Fund reports, ACIM shall provide camera-ready film or
computer diskettes containing the Fund prospectus and/or Fund reports and such
other assistance as is reasonably necessary in order for the Company to have the
prospectus for the Contracts and the Fund prospectus printed together in one
document or separately or have the Fund prospectus printed in combination with
other fund companies' prospectuses and/or for the Company to have the reports
for the Contracts and the Fund reports printed together in one document or
separately or have the Fund reports printed in combination with other fund
companies' reports.
(d) The cost of any distribution of prospectuses, proxy materials,
periodic fund reports and other materials of the Issuer to the Contract owners
shall be paid by the Company and shall not be the responsibility of ACIM or the
Issuer.
6. Compensation and Expenses.
(a) The Accounts shall be the sole shareholder of Fund shares purchased
for the Contract owners pursuant to this Agreement (the "Record Owner"). The
Record Owner shall properly
4
<PAGE>
complete any applications or other forms required by ACIM or the Issuer from
time to time.
(b) ACIM acknowledges that it will derive a substantial savings in
administrative expenses, such as a reduction in expenses related to postage,
shareholder communications and recordkeeping, by virtue of having a single
shareholder account per Fund for the Accounts rather than having each Contract
owner as a shareholder. In consideration of the Administrative Services and
performance of all other obligations under this Agreement by the Company, ACIM
will pay the Company a fee (the "Administrative Services Fee") equal to 25 basis
points (0.25%) per annum of the average aggregate amount invested by the Company
under this Agreement.
(c) The payments received by the Company under this Agreement are for
administrative and shareholder services only and do not constitute payment in
any manner for investment advisory services or for costs of distribution.
(d) For the purposes of computing the payment to the Company contemplated
by this Section 6, the average aggregate amount invested by the Company on
behalf of the Accounts in the Funds over a one month period shall be computed by
totaling the Company's aggregate investment (share net asset value multiplied by
total number of shares of the Funds held by the Company) on each Business Day
during the month and dividing by the total number of Business Days during such
month.
(e) ACIM will calculate the amount of the payment to be made pursuant to
this Section 6 at the end of each calendar quarter and will make such payment to
the Company within 30 days thereafter. The check for such payment will be
accompanied by a statement showing the calculation of the amounts being paid by
ACIM for the relevant months and such other supporting data as may be reasonably
requested by the Company and shall be mailed to:
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Attention: Variable Products Accounting
Phone No.: (713) 831-3388
Fax No.: (713) 831-8269
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7. Representations.
(a) The Company represents and warrants that (i) this Agreement has been
duly authorized by all necessary corporate action and, when executed and
delivered, shall constitute the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms; (ii) it has established
Separate Account VL-R (the "Accounts"), each of which is a duly authorized and
established separate account under Texas Insurance law, and has registered each
Account as a unit investment trust under the Investment Company Act of 1940 (the
"1940 Act") to serve as an investment vehicle for the Contracts; (iii) each
Contract provides for the allocation of net amounts received by the Company to
an Account for investment in the shares of one or more specified investment
companies selected among those companies available through the Account to act as
underlying investment media; (iv) selection of a particular investment company
is made by the Contract owner under a particular Contract, who may change such
selection from time to time in accordance with the terms of the applicable
Contract; and (v) the activities of the Company contemplated by this Agreement
comply in all material respects with all provisions of federal and state
securities laws applicable to such activities.
(b) ACIM represents that (i) this Agreement has been duly authorized by
all necessary corporate action and, when executed and delivered, shall
constitute the legal, valid and binding obligation of ACIM, enforceable in
accordance with its terms; (ii) the prospectus of each Fund complies in all
material respects with federal and state securities laws, and (iii) shares of
the Issuer are registered and authorized for sale in accordance with all federal
and state securities laws.
(c) The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law.
(d) ACIM represents that the Funds are currently qualified as Regulated
Investment Companies under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
(e) Subject to the Fund's compliance with applicable diversification
requirements, the Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts, under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Fund and ACIM immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
(f) ACIM represents and warrants that all of its directors, officers,
employees,
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investment advisers, and other individuals/entities dealing with the money or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid Bond shall include coverage for larceny and embezzlement and shall
be issued by a reputable bonding company.
(g) The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other entities dealing with the
money or securities of the Fund are and shall continue to be at all times
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, in an amount not less than five million dollars ($5 million). The
aforesaid Bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
(h) ACIM represents and warrants that the Fund will at all times invest
money from the Contracts in such a manner as to ensure that the Contracts will
be treated as variable contracts under the Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, ACIM represents and
warrants that the Fund will at all times comply with Section 817(h) of the Code
of Treasury Regulation 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulations.
8. Additional Covenants and Agreements.
(a) Each party shall comply with all provisions of federal and state laws
applicable to its respective activities under this Agreement. All obligations of
each party under this Agreement are subject to compliance with applicable
federal and state laws.
(b) Each party shall promptly notify the other parties in the event that
it is, for any reason, unable to perform any of its obligations under this
Agreement.
(c) The Company covenants and agrees that all Orders accepted and
transmitted by it hereunder with respect to each Account on any Business Day
will be based upon instructions that it received from the Contract owners, in
proper form prior to the Close of Trading of the Exchange on that Business Day.
The Company shall time stamp all Orders or otherwise maintain records that will
enable the Company to demonstrate compliance with Section 8(c) hereof.
(d) The Company covenants and agrees that all Orders transmitted to the
Issuer, whether by telephone, telecopy, or other electronic transmission
acceptable to ACIM, shall be sent by or under the authority and direction of a
person designated by the Company as being duly authorized to act on behalf of
the owner of the Accounts. ACIM shall be entitled to rely on the existence of
such authority and to assume that any person transmitting Orders for the
purchase, redemption or transfer of Fund shares on behalf of the Company is "an
appropriate person" as used in Sections 8-107 and 8-401 of the Uniform
Commercial Code with respect to the transmission of instructions regarding Fund
shares on behalf of the owner of such Fund shares. The Company shall maintain
the
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confidentiality of all passwords and security procedures issued, installed
or otherwise put in place with respect to the use of Remote Computer Terminals
and assumes full responsibility for the security therefor. The Company further
agrees to be responsible for the accuracy, propriety and consequences of all
data transmitted to ACIM by the Company by telephone, telecopy or other
electronic transmission acceptable to ACIM.
(e) The Company agrees that, to the extent it is able to do so, it will
use its best efforts to give equal emphasis and promotion to shares of the Funds
as is given to other underlying investments of the Accounts, subject to
applicable Securities and Exchange Commission rules. In addition, the Company
shall not impose any fee, condition, or requirement for the use of the Funds as
investment options for the Contracts that operates to the specific prejudice of
the Funds vis-a-vis the other investment media made available for the Contracts
---------
by the Company.
(f) The Company shall not, without the written consent of ACIM, make
representations concerning the Issuer or the shares of the Funds except those
contained in the then-current prospectus for the Funds and in current printed
sales literature approved by ACIM or the Issuer.
(g) ACIM shall not, without the written consent of the Company, make
representations concerning the Company or the Contracts except those contained
in the then-current prospectus for the Contracts and any other current printed
sales literature approved by the Company.
(h) Advertising and sales literature with respect to the Issuer or the
Funds prepared by the Company or its agents, if any, for use in marketing shares
of the Funds as underlying investment media to Contract owners shall be
submitted to ACIM for review and approval before such material is used.
9. Use of Names. Except as otherwise expressly provided for in this
Agreement, neither ACIM nor any of its affiliates or the Funds shall use any
trademark, trade name, service mark or logo of the Company, or any variation of
any such trademark, trade name, service mark or logo, without the Company's
prior written consent, the granting of which shall be at the Company's sole
option. Except as otherwise expressly provided for in this Agreement, the
Company shall not use any trademark, trade name, service mark or logo of the
Issuer, ACIM or any of its affiliates or any variation of any such trademarks,
trade names, service marks, or logos, without the prior written consent of
either the Issuer or ACIM, as appropriate, the granting of which shall be at the
sole option of ACIM and/or the Issuer.
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<PAGE>
10. Proxy Voting.
(a) The Company shall provide pass-through voting privileges to all Contract
owners so long as the SEC continues to interpret the 1940 Act as requiring such
privileges. The Company reserves the right to vote Fund shares held in the
Accounts in its own right, to the extent permitted by law. Participating
companies (as defined in Section 12(a) below) shall be responsible for assuring
that each of their respective separate accounts participating in the Funds
calculate voting privileges as set forth herein.
(b) The Company will distribute to Contract owners all proxy material
furnished by ACIM and will vote shares in accordance with instructions received
from such Contract owners. The Company shall vote Fund shares for which no
voting instructions are received in the same proportion as shares for which such
instructions have been received. The Company and its agents shall not oppose or
interfere with the solicitation of proxies for Fund shares held for such
Contract owners.
11. Indemnity.
(a) ACIM agrees to indemnify and hold harmless the Company and its officers,
directors, employees, agents, affiliates and each person, if any, who controls
the Company within the meaning of the Securities Act of 1933 (collectively, the
"Indemnified Parties" for purposes of this Section 11(a)) against any losses,
claims, expenses, damages or liabilities (including amounts paid in settlement
thereof) or litigation expenses (including legal and other expenses)
(collectively, "Losses"), to which the Indemnified Parties may become subject,
insofar as such Losses result from a breach by ACIM of a material provision of
this Agreement. ACIM will reimburse any legal or other expenses reasonably
incurred by the Indemnified Parties in connection with investigating or
defending any such Losses. ACIM shall not be liable for indemnification
hereunder if such Losses are attributable to the gross negligence or misconduct
of the Company in performing its obligations under this Agreement.
(b) The Company agrees to indemnify and hold harmless ACIM and the Issuer,
and their respective officers, directors, employees, agents, affiliates and each
person, if any, who controls Issuer or ACIM within the meaning of the Securities
Act of 1933 (collectively, the "Indemnified Parties" for purposes of this
Section 11(b)) against any Losses to which the Indemnified Parties may become
subject, insofar as such Losses result from a breach by the Company of a
material provision of this Agreement or the use by any person of the Remote
Computer Terminals. The Company will reimburse any legal or other expenses
reasonably incurred by the Indemnified Parties in connection with investigating
or defending any such Losses. The Company shall not be liable for
indemnification hereunder if such Losses are attributable to the gross
negligence or misconduct of ACIM or the Issuer in performing their obligations
under this Agreement.
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(c) Promptly after receipt by an indemnified party hereunder of notice of the
commencement of action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party hereunder, notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 11. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish to, assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 11 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
(d) If the indemnifying party assumes the defense of any such action, the
indemnifying party shall not, without the prior written consent of the
indemnified parties in such action, settle or compromise the liability of the
indemnified parties in such action, or permit a default or consent to the entry
of any judgment in respect thereof, unless in connection with such settlement,
compromise or consent, each indemnified party receives from such claimant an
unconditional release from all liability in respect of such claim.
12. Potential Conflicts
(a) The Company has received a copy of an application for exemptive relief,
as amended, filed by the Issuer on December 21, 1987, with the SEC and the order
issued by the SEC in response thereto (the "Shared Funding Exemptive Order").
The Company has reviewed the conditions to the requested relief set forth in
such application for exemptive relief. As set forth in such application, the
Board of Directors of the Issuer (the "Board") will monitor the Issuer for the
existence of any material irreconcilable conflict between the interests of the
contract owners of all separate accounts ("Participating Companies") investing
in funds of the Issuer. An irreconcilable material conflict may arise for a
variety of reasons, including: (i) an action by any state insurance regulatory
authority; (ii) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar actions by insurance, tax or
securities regulatory authorities; (iii) an administrative or judicial decision
in any relevant proceeding; (iv) the manner in which the investments of any
portfolio are being managed; (v) a difference in voting instructions given by
variable annuity contract owners and variable life insurance contract owners; or
(vi) a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
(b) The Company will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order by providing the Board
with all information reasonably necessary for the Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Company to
inform the Board whenever contract owner voting instructions are disregarded.
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(c) If a majority of the Board, or a majority of its disinterested Board
members, determines that a material irreconcilable conflict exists with regard
to contract owner investments in a Fund, the Board shall give prompt notice to
all Participating Companies. If the Board determines that the Company is
responsible for causing or creating said conflict, the Company shall at its sole
cost and expense, and to the extent reasonably practicable (as determined by a
majority of the disinterested Board members), take such action as is necessary
to remedy or eliminate the irreconcilable material conflict. Such necessary
action may include but shall not be limited to:
(i) withdrawing the assets allocable to the Accounts from the Fund
and reinvesting such assets in a different investment medium or
submitting the question of whether such segregation should be
implemented to a vote of all affected contract owners and as
appropriate, segregating the assets of any appropriate group
(i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating
Companies) that votes in favor of such segregation, or offering
to the affected contract owners the option of making such a
change; and/or
(ii) establishing a new registered management investment company or
managed separate account.
(d) If a material irreconcilable conflict arises as a result of a decision by
the Company to disregard its contract owner voting instructions and said
decision represents a minority position or would preclude a majority vote by all
of its contract owners having an interest in the Issuer, the Company at its sole
cost, may be required, at the Board's election, to withdraw an Account's
investment in the Issuer and terminate this Agreement; provided, however, that
such withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
(e) For the purpose of this Section 12, a majority of the disinterested Board
members shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict, but in no event will the Issuer be
required to establish a new funding medium for any Contract. The Company shall
not be required by this Section 12 to establish a new funding medium for any
Contract if an offer to do so has been declined by vote of a majority of the
Contract owners materially adversely affected by the irreconcilable material
conflict.
13. Termination; Withdrawal of Offering. This Agreement may be terminated by
either party upon 180 days' prior written notice to the other parties.
Notwithstanding the above, the Issuer reserves the right, upon less than 180
days' prior written notice, to suspend sales of shares of any Fund, in whole or
in part, or to make a limited offering of shares of any of the Funds in the
event that (A) any regulatory body commences formal proceedings against the
Company, ACIM, affiliates of ACIM, or the Issuer, which proceedings ACIM
reasonably believes may have a material adverse impact on the ability of ACIM,
the Issuer or the Company to perform its obligations under this Agreement or (B)
in the judgment of ACIM, declining to accept any additional instructions for the
purchase or sale of shares of any such Fund is warranted by market, economic or
political conditions.
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Notwithstanding the foregoing, this Agreement may be terminated immediately (i)
by any party as a result of any other breach of this Agreement by another party,
which breach is not cured within 30 days after receipt of notice from the other
party, or (ii) by any party upon a determination that continuing to perform
under this Agreement would, in the reasonable opinion of the terminating party's
counsel, violate any applicable federal or state law, rule, regulation or
judicial order.
Notwithstanding the foregoing, the Company may terminate this Agreement
immediately: (1) upon written notice to ACIM based upon the Company's good
faith determination that shares of the Fund are not reasonably available to meet
the requirements of the Contracts; (ii) upon written notice to ACIM in the event
that the Fund ceases to qualify as a regulated investment company under
Subchapter M of the Code or under any successor or similar provision, or if the
Company reasonably believes that the Fund may fail to do so qualify; (iii) upon
written notice to ACIM in the event that the Fund fails to meet the
diversification requirements set forth in the Code; or (iv) upon 60 days'
written notice to ACIM that the Company will substitute Fund shares with the
shares of another investment company for the Contracts for which the Fund shares
have been selected to serve as the underlying investment medium, subject to
compliance with applicable regulations of the SEC.
Termination of this Agreement shall not affect the obligations of the
parties to make payments under Section 4 for Orders received by the Company
prior to such termination and shall not affect the Issuer's obligation to
maintain the Accounts as set forth by this Agreement. Following termination,
ACIM shall not have any Administrative Services payment obligation to the
Company (except for payment obligations accrued but not yet paid as of the
termination date).
14. Non-Exclusivity. Each of the parties acknowledges and agrees that this
Agreement and the arrangement described herein are intended to be non-exclusive
and that each of the parties is free to enter into similar agreements and
arrangements with other entities.
15. Survival. The provisions of Section 9 (use of names) and Section 11
(indemnity) of this Agreement shall survive termination of this Agreement.
16. Amendment. Neither this Agreement, nor any provision hereof, may be
amended, waived, discharged or terminated orally, but only by an instrument in
writing signed by all of the parties hereto.
17. Notices. All notices and other communications hereunder shall be given
or made in writing and shall be delivered personally, or sent by telex,
telecopier, express delivery or registered
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or certified mail, postage prepaid, return receipt requested, to the party or
parties to whom they are directed at the following addresses, or at such other
addresses as may be designated by notice from such party to all other parties.
To the Company:
American General Life Insurance Company
2929 Allen Parkway
Houston, Texas 77019
Attention: General Counsel
(713) 831-4754 (office number)
(713) 831-1106 (telecopy number)
To the Issuer or ACIM:
American Century Investment Management, Inc.
4500 Main Street
Kansas City, Missouri 64111
Attention: Charles A. Etherington, Esq.
(816) 340-4051 (office number)
(816) 340-4964 (telecopy number)
Any notice, demand or other communication given in a manner prescribed in this
Section 17 shall be deemed to have been delivered on receipt.
18. Successors and Assigns. This Agreement may not be assigned without the
written consent of all parties to the Agreement at the time of such assignment.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective permitted successors and assigns.
19. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Agreement by signing any such counterpart.
20. Severability. In case any one or more of the provisions contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
21. Entire Agreement. This Agreement, including the attachments hereto,
constitutes the entire agreement between the parties with respect to the matters
dealt with herein, and supersedes all previous agreements, written or oral, with
respect to such matters.
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22. Foreign Tax Credits. ACIM agrees to consult with the Company
concerning whether the Fund qualifies to provide a foreign tax credit pursuant
to Section 853 of the Code.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date set forth above.
AMERICAN GENERAL LIFE INSURANCE AMERICAN CENTURY INVESTMENT
COMPANY MANAGEMENT, INC.
By:___________________________ By:___________________________
Name:_________________________ William M. Lyons
Title:________________________ Executive Vice President
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EXHIBIT A
ADMINISTRATIVE SERVICES
Pursuant to the Agreement to which this is attached, the Company shall perform
all administrative and shareholder services required or requested under the
Contracts with respect to the Contract owners, including, but not limited to,
the following:
1. Maintain separate records for each Contract owner, which records shall
reflect the units purchased and redeemed and unit balances of such Contract
owners. The Company will maintain a single master account with each Fund on
behalf of the Contract owners and such account shall be in the name of the
Company (or its nominee) as the record owner of shares owned by the Contract
owners.
2. Disburse or credit to the Contract owners all proceeds of redemptions
of shares of the Funds and all dividends and other distributions not reinvested
in shares of the Funds.
3. Prepare and transmit to the Contract owners, as required by law or the
Contracts, periodic statements showing the total number of units owned by the
Contract owners as of the statement closing date, purchases and redemptions of
Fund shares by the Contract owners during the period covered by the statement
and the dividends and other distributions paid during the statement period
(whether paid in cash or reinvested in Fund shares), and such other information
as may be required, from time to time, by the Contracts.
4. Transmit purchase and redemption orders to the Funds on behalf of the
Contract owners in accordance with the procedures set forth in Section 4 to the
Agreement.
5. Distribute to the Contract owners copies of the Funds' prospectus,
proxy materials, periodic fund reports to shareholders and other materials that
the Funds are required by law or otherwise to provide to their shareholders or
prospective shareholders.
6. Maintain and preserve all records as required by law to be maintained
and preserved in connection with providing the Administrative Services for the
Contracts.
A-1
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Exhibit (8)(j)(i)
SALES AGREEMENT
THIS AGREEMENT is made by an between NEUBERGER & BERMAN ADVISERS MANAGEMENT
TRUST ("TRUST"), a Massachusetts business trust, NEUBERGER & BERMAN MANAGEMENT
INCORPORATED ("N&B MANAGEMENT"), a New York corporation, and AMERICAN GENERAL
LIFE INSURANCE COMPANY ("LIFE COMPANY"), a life insurance company organized
under the laws of the State of Texas.
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 ("'40 Act") as an open-end
diversified management investment company; and
WHEREAS, TRUST is organized as a series fund, comprised of several
Portfolios which are listed on Appendix A hereto; and
WHEREAS, TRUST was initially organized to act as the funding vehicle for
certain variable life insurance and/or variable annuity contracts ("variable
contracts") offered by life insurance companies through separate accounts of
such life insurance companies and now also offers its shares to certain
qualified pension and retirement plans; and
WHEREAS, N&B MANAGEMENT is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940 and as a broker-dealer under the
Securities Exchange Act of 1934, as amended; and
WHEREAS, N&B MANAGEMENT is the investment adviser to the TRUST and the
distributor of the shares of the TRUST; and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer variable contracts and is
desirous of having the TRUST as one of the underlying funding vehicles for such
variable contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the
aforementioned variable contracts and the TRUST is authorized to sell such
shares to LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST and N&B MANAGEMENT agree as follows:
1. TRUST will make available to the designated Separate Accounts of LIFE
COMPANY shares of the selected Portfolios for investment of purchase payments of
variable contracts allocated to the designated Separate Accounts as provided in
the TRUST's Prospectus.
2. TRUST represents and warrants that all shares of the Portfolios of
TRUST will be sold only to other insurance companies which have agreed to
participate in TRUST to fund their
<PAGE>
separate accounts and/or to certain qualified pension and other retirement
plans, all in accordance with the requirements of Section 817(h) of the Internal
Revenue Code of 1986, as amended ("Code") and Treasury Regulation 1.817-5.
Shares of the Portfolios of TRUST will not be sold directly to the general
public.
3. (a) TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section
3(a), LIFE COMPANY shall be the designee of TRUST for receipt of such orders
from LIFE COMPANY and receipt by such designee shall constitute receipt by
TRUST; provided that TRUST receives notice of such order by 9:30 a.m. New York
time on the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which TRUST
calculates its net asset value pursuant to the rules of the SEC.
(b) TRUST agrees to redeem for cash, on LIFE COMPANY's request, any
full or fractional shares of TRUST held by LIFE COMPANY, executing such requests
on a daily basis at the net asset value next computed after receipt by TRUST or
its designee of the request for redemption. For purposes of this Section 3(b),
LIFE COMPANY shall be the designee of TRUST for receipt of requests for
redemption from LIFE COMPANY and receipt by such designee shall constitute
receipt by TRUST; provided that TRUST receives notice of such request for
redemption by 9:30 a.m. New York time on the next following Business Day.
(c) TRUST shall make the net asset value per share for the selected
Portfolio)s) available to LIFE COMPANY on a daily basis as soon as reasonably
practical after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:15 p.m. New York time.
If the TRUST provides LIFE COMPANY with the incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any error in
the calculation of net asset value, dividend and capital gain information
greater than or equal to $.01 per share of the TRUST, shall be reported
immediately upon discovery to LIFE COMPANY. Any error of a lesser amount shall
be corrected in the next Business Day's net asset value per share for the TRUST.
(d) At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 3(c) to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of TRUST shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase of redemption orders so determined shall
be transmitted to the TRUST by LIFE COMPANY by 9:30 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and premiums
in accordance with the terms of Sections 3(a) and 3(b) hereof.
(e) If LIFE COMPANY's order requests the purchase of TRUST shares,
LIFE COMPANY shall pay for such purchase by wiring federal funds to the TRUST or
its designated
<PAGE>
custodial account on the day the order is transmitted by LIFE COMPANY. If LIFE
COMPANY's order requests a net redemption resulting in a payment of redemption
proceeds to LIFE COMPANY, the TRUST shall wire the redemption proceeds to LIFE
COMPANY by the next Business Day, unless doing so would require the TRUST to
dispose of portfolio securities or otherwise incur additional costs, but in such
event, proceeds shall be wired to LIFE COMPANY within seven days and the TRUST
shall notify the person designated in writing by LIFE COMPANY as the recipient
for such notice of such delay by 3:00 p.m. New York Time the same Business Day
that LIFE COMPANY transmits the redemption order to the TRUST. If LIFE COMPANY's
order requests the application of redemption proceeds from the redemption of
shares to the purchase of shares of another fund managed or distributed by N&B
MANAGEMENT, the TRUST shall so apply such proceeds the same Business Day that
LIFE COMPANY transmits such order to the TRUST.
4. (a) TRUST will bear the printing costs (or duplicating costs with
respect to the statement of additional information) and mailing costs associated
with the delivery of the following TRUST (or individual portfolio) documents,
and any supplements thereto, to existing variable contract owners of LIFE
COMPANY:
(i) prospectuses and statements of additional information;
(ii) annual and semi-annual reports; and
(iii) proxy materials.
LIFE COMPANY will submit any bills for printing, duplicating and/or mailing
costs, relating to the TRUST documents described above, to the TRUST for
reimbursement by the TRUST. LIFE COMPANY shall monitor such costs and shall use
its best efforts to control these costs. LIFE COMPANY will provide the TRUST on
a semi-annual basis, or more frequently as reasonably requested by the TRUST,
with a current tabulation of the number of existing variable contract owners of
LIFE COMPANY whose variable contract values are invested in the TRUST. This
tabulation will be sent to the TRUST in the form of a letter signed by a duly
authorized officer of LIFE COMPANY attesting to the accuracy of the information
contained in the letter.
(b) TRUST will provide LIFE COMPANY, with respect to prospective
variable contract owners of LIFE COMPANY, the following TRUST (or individual
Portfolio) documents, and any supplements thereto:
(i) camera ready copy of the current prospectus for printing by
the LIFE COMPANY;
(ii) a copy of the statement of additional information suitable
for duplication;
(iii) camera ready copy of proxy material suitable for printing;
and
(iv) camera ready copy of the annual and semi-annual reports for
printing by the LIFE COMPANY.
<PAGE>
5. (a) LIFE COMPANY will furnish, or will cause to be furnished, to the
TRUST and N&B MANAGEMENT, each piece of sales literature or other promotional
material in which the TRUST or N&B MANAGEMENT is named, at least 15 Business
Days prior to its intended use. No such material will be used if the TRUST or
N&B MANAGEMENT objects to its use in writing within 10 Business Days after
receipt of such material.
(b) The TRUST and N&B MANAGEMENT will furnish, or will cause to be
furnished, to LIFE COMPANY, each piece of sales literature or other promotional
material in which LIFE COMPANY is named, at least 15 Business Days prior to its
intended use. No such material will be used if LIFE COMPANY objects to its use
in writing within 10 Business Days after receipt of such material.
(c) For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for use, in
a newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures or other
public media), sales literature (such as any written communication distributed
or made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts, or
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports and proxy materials, and any other material constituting sales
literature or advertising under National Association of Securities Dealers, Inc.
rules, the Act or the Securities Act of 1933 ("'33 Act").
6. Each Portfolio of the TRUST will comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event the TRUST becomes aware that any Portfolio of the TRUST has failed to
comply, it will take all reasonable steps (a) to notify LIFE COMPANY of such
failure, and (b) to adequately diversify the Portfolio so as to achieve
compliance.
7.(a) LIFE COMPANY agrees to indemnify and hold harmless TRUST and N&B
MANAGEMENT and each trustee of the Board of Trustees of TRUST and officers and
each person, if any, who controls TRUST and each of the directors and officers
of N&B MANAGEMENT and each person, if any, who controls N&B MANAGEMENT within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of LIFE COMPANY, which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or holding of
TRUST's shares or the variable contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Registration Statement or
<PAGE>
prospectus for the variable contracts or contained in the
variable contracts or sales literature for the variable
contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission
or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to LIFE COMPANY by
or on behalf of TRUST or N&B MANAGEMENT for use in the
Registration Statement or prospectus for the variable
contracts or in the variable contracts or sales literature
(or any amendment or supplement) or otherwise for use in
connection with the sale of the variable contracts or TRUST
shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature of TRUST not supplied by LIFE COMPANY, or
persons under its control) or wrongful conduct of LIFE
COMPANY or persons under its control, with respect to the
sale or distribution of the variable contracts or TRUST
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of TRUST or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading if such statement or omission or
such alleged statement or omission was made in reliance
upon and in conformity with information furnished to TRUST
for inclusion therein by or on behalf of LIFE COMPANY; or
(iv) arise as a result of any failure by LIFE COMPANY to
substantially provide the services and furnish the
materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in this
Agreement or arise out of or result from any other material
breach of this Agreement by LIFE COMPANY, as limited by and
in accordance with the provisions of Sections 7(b) and 7(c)
hereof.
(b) LIFE COMPANY shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
TRUST, whichever is applicable.
<PAGE>
(c) LIFE COMPANY shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8. (a) N&B MANAGEMENT agrees to indemnify and hold harmless LIFE
COMPANY and each of its directors and officers and each person, if any, who
controls LIFE COMPANY within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of N&B MANAGEMENT, which consent shall not
be required with respect to any settlement pursuant to a "Procedure" referred to
in paragraph 8.(d) below), or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or holding of the TRUST's shares or the variable contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or sales
literature of TRUST (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance
upon and in conformity with information furnished to N&B
MANAGEMENT or TRUST by or on behalf of LIFE COMPANY for
use in the Registration Statement or prospectus for TRUST
or in sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the
variable contracts or TRUST shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the variable contracts not supplied
by N&B MANAGEMENT or persons under its control) or
wrongful conduct of
<PAGE>
TRUST, its adviser or N&B MANAGEMENT or persons under
their control, with respect to the sale or distribution
of the variable contracts or TRUST shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
variable contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to LIFE COMPANY for
inclusion therein by or on behalf of TRUST or N&B
MANAGEMENT; or
(iv) arise as a result of (a) a failure by TRUST to
substantially provide the services and furnish the
materials under the terms of this Agreement; or (b) a
failure by TRUST to comply with the diversification
requirements of Section 817(h) of the Code; or (c) a
failure by TRUST to qualify as a Regulated Investment
Company under Subchapter M of the Code;
(v) arise out of or result from any material breach of any
representation and/or warranty made by N&B MANAGEMENT in
this Agreement or arise out of or result from any other
material breach of this Agreement by N&B MANAGEMENT, as
limited by and in accordance with the provisions of
Sections 8(b) and 8(c) hereof.
(b) N&B MANAGEMENT shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
LIFE COMPANY.
(c) N&B MANAGEMENT shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified N&B MANAGEMENT in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify N&B MANAGEMENT of
any such claim shall not relieve N&B MANAGEMENT from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, N&B MANAGEMENT shall be entitled to participate
at its own expense in the defense thereof. N&B MANAGEMENT also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from N&B MANAGEMENT to such party of N&B MANAGEMENT's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and N&B MANAGEMENT
will not be liable to such party under this Agreement for
<PAGE>
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
(d) In the event of an occurrence described in (iv) (b) or (c) of
paragraph 8. (a) above, the parties hereto agree to cooperate fully in
connection with any efforts by LIFE COMPANY to comply with (a) procedures set
forth in Internal Revenue Service Revenue Procedure 92-25 by which LIFE COMPANY
may request the relief described in Section 1.817-5(a)(2) of the income tax
regulations, to the effect that the Internal Revenue Service treat the
investments of the Separate Account as satisfying the diversification
requirements of Section 817(h) of the Code and the regulations thereunder for
periods during which there was an inadvertent failure to satisfy those
requirements or (b) any modifications or alternatives to such procedures that
the Treasury Department implements in the future. (The procedures described in
clause (a) and (b) of the preceding sentence are referred to herein as the
"Procedures".) Such cooperation shall include, but not be limited to, a full
documentation of the actions that caused the diversification failure and any
reasons why the failure was inadvertent. LIFE COMPANY shall consult with N&B
MANAGEMENT as to how to minimize any liability that may arise as a result of the
Procedure, including, without limitation, demonstrating, pursuant to Section
1.817-5(a) (2) of the income tax regulations, to the Commissioner of the
Internal Revenue Service that such failure was inadvertent. LIFE COMPANY shall
permit N&B MANAGEMENT and its legal and accounting advisors to participate (at
N&B MANAGEMENT's Expense) in any conferences, settlement discussions or other
administrative proceedings with the Internal Revenue Service in connection with
the Procedure. Any written materials to be submitted by LIFE COMPANY to the
Internal Revenue Service in connection with the Procedure (including, without
limitation, any such materials to be submitted to the Internal Revenue Service
pursuant to Section 1.817-5(a)(2) of the income tax regulations), shall be
provided in draft by LIFE COMPANY to N&B MANAGEMENT (together with any
supporting information or analysis) prior to their submission. LIFE COMPANY
shall provide N&B MANAGEMENT and its advisors with such cooperation as N&B
MANAGEMENT shall reasonably request (including, without limitation, by
permitting N&B MANAGEMENT and its accounting and legal advisors to review the
relevant books and records of LIFE COMPANY) in order to facilitate N&B
MANAGEMENT's review of any written submissions provided to it pursuant to the
preceding clause or its assessment of the validity or amount of any claim
against it arising from the Procedure.
9.(a) LIFE COMPANY and its agents will not, in connection with the sale
of TRUST shares, give any information or make any representations on behalf of
the TRUST or concerning the TRUST or N&B MANAGEMENT other than the information
or representations contained in a registration statement or prospectus for the
TRUST, as it may be amended or supplemented from time to time, or in published
reports for the TRUST which are in the public domain or approved by the TRUST or
N&B MANAGEMENT for distribution, or in sales literature or other promotional
material approved by the TRUST or N&B MANAGEMENT.
(b) Neither TRUST nor N&B MANAGEMENT will give any information or
make any representations regarding LIFE COMPANY, or in connection with the sale
of the variable contracts, without the prior written approval of LIFE COMPANY.
10. TRUST represents and warrants that TRUST shares sold pursuant to
this Agreement
<PAGE>
shall be registered under the 1933 Act and duly authorized for issuance, and
shall be issued, in compliance in all material respects with applicable law, and
that TRUST is and shall remain registered under the '40 Act for so long as
required thereunder. TRUST further represents and warrants that TRUST currently
qualifies and will make every effort to continue to qualify as a Regulated
Investment Company under Subchapter M of the Code, and to maintain such
qualification (under Subchapter M or any successor or similar provision), and
that TRUST will notify LIFE COMPANY immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future. The TRUST will register and qualify its shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the TRUST or N&B MANAGEMENT.
11. TRUST will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide TRUST with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that related to a separate account promptly after the filing of each
such document with the SEC or other regulatory authority.
12. LIFE COMPANY agrees to inform the Board of Trustees of TRUST of the
existence of or any potential for any material irreconcilable conflict of
interest between the interests of the contract owners of the Separate Accounts
of LIFE COMPANY investing in the TRUST and/or any other separate account of any
other insurance company investing in TRUST upon LIFE COMPANY having knowledge of
same.
Any material irreconcilable conflict may arise for a variety of reasons,
including:
(a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities
laws or regulations, or a public ruling, private letter ruling, or any
similar action by insurance, tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being
managed;
(e) a difference in voting instructions given by variable annuity contract
owners and variable life insurance contract owners or by contract
owners of different life insurance companies utilizing TRUST; or
(f) a decision by a participating life insurance company to disregard the
voting instructions of contract owners.
<PAGE>
LIFE COMPANY will be responsible for assisting the Board of Trustees of
TRUST in carrying out its responsibilities by providing the Board with all
information reasonably necessary for the Board to consider any issue raised
including information as to a decision by LIFE COMPANY to disregard voting
instructions of contract owners.
It is agreed that if it is determined by a majority of the members of the
Board of Trustees of TRUST or a majority of its disinterested Trustees that a
material irreconcilable conflict exists affecting LIFE COMPANY, LIFE COMPANY
shall, at its own expense, take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, which steps may include, but are
not limited to,
(a) withdrawing the assets allocable to some or all of the Separate
Accounts from TRUST or any Portfolio and reinvesting such assets
in a different investment medium, including another Portfolio of
the TRUST or submitting the questions of whether such segregation
should be implemented to a vote of all affected contract owners
and, as appropriate, segregating the assets of any particular
group (i.e. annuity contract owners, life insurance contract
owners or qualified contract owners) that votes in favor of such
segregation, or offering to the affected contract owners the
option of making such a change;
(b) establishing a new registered management investment company or
managed separate account.
If a material irreconcilable conflict arises because of LIFE COMPANY's
decision to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the LIFE
COMPANY may be required, at the TRUST's election, to withdraw its Separate
Account's investment in TRUST. No charge or penalty will be imposed against a
Separate Account of LIFE COMPANY as a result of such a withdrawal. LIFE COMPANY
agrees that any remedial action taken by it in resolving any material conflicts
of interest will be carried out with a view only to the interests of contract
owners.
For purposes hereof, a majority of the disinterested members of the Board
of Trustees of TRUST shall determine whether or not any proposed action
adequately remedies any material irreconcilable conflict. In no event will TRUST
be required to establish a new funding medium for any variable contracts. LIFE
COMPANY shall not be required by the terms hereof to establish a new funding
medium for any variable contracts if an offer to do so has been declined by vote
of a majority of affected contract owners.
<PAGE>
TRUST agrees to inform LIFE COMPANY of the existence of or any potential
for any material irreconcilable conflict of interest between the interests of
the contractowners of the Separate Accounts of LIFE COMPANY investing in TRUST
and/or any other separate account of any other insurance company investing in
TRUST (upon TRUST having knowledge of same).
Any material irreconcilable conflict may arise for a variety of reasons,
including:
(a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities
laws or regulations, or a public ruling, private letter ruling, or
any similar action by insurance, tax, or securities regulatory
authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being
managed;
(e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by
contract owners of different participating life insurance companies
utilizing TRUST; or
(f) a decision by a participating life insurance company to disregard the
voting instructions of contract owners.
The Board of Trustees of TRUST shall promptly inform LIFE COMPANY if it
determines that an irreconcilable material conflict exists and the implications
thereof.
13. LIFE COMPANY shall provide pass-through voting privileges, as provided
in this paragraph, to all variable contract owners so long as the staff of the
SEC continues to interpret the '40 Act to require such pass-through voting
privileges for variable contract owners. LIFE COMPANY shall be responsible for
assuring that each of its Separate Accounts participating in TRUST calculates
voting privileges in a manner consistent with other life companies utilizing
TRUST provided that each participating life insurance company enters into an
agreement containing a provision or provisions, which do not vary in any
material respects, from the terms of Section 12 hereof. It is a condition of
this Agreement that LIFE COMPANY will vote shares for which it has not received
voting instructions as well as shares attributable to it in the same proportion
as it votes shares for which it has received instructions.
14. This Agreement shall terminate automatically in the event of its
assignment unless made with the written consent of LIFE COMPANY and TRUST.
15. (a) This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
(b) This Agreement shall terminate without penalty at the option of the
terminating party in accordance with the following provisions:
<PAGE>
(i) At the option of LIFE COMPANY or the TRUST at any time from
the date hereof upon 180 days' notice, unless a shorter
time is agreed to by the parties;
(ii) At the option of LIFE COMPANY, if TRUST shares are not
reasonably available to meet the requirements of the
variable contracts as determined by LIFE COMPANY. Prompt
notice of election to terminate shall be furnished by LIFE
COMPANY, said termination to be effective ten days after
receipt of notice unless the TRUST makes available a
sufficient number of shares to reasonably meet the
requirements of the variable contracts within said ten-day
period;
(iii) At the option of LIFE COMPANY, upon the institution of
formal proceedings against the TRUST by the SEC, the
National Association of Securities Dealers, Inc., or any
other regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in LIFE COMPANY's
reasonable judgment, materially impair the TRUST's ability
to meet and perform the TRUST's obligations and duties
hereunder. Prompt notice of election to terminate shall be
furnished by LIFE COMPANY with said termination to be
effective upon receipt of notice;
(iv) At the option of LIFE COMPANY, upon a good faith
determination, or at the option of the TRUST upon a
determination by a majority of the Board, or a majority of
disinterested Board members, that an irreconcilable
material conflict exists among the interests of (i) owners
of variable contacts issued by participating life insurance
companies; or (ii) the interest of participating life
insurance companies, with said termination to be effective
upon receipt of notice;
<PAGE>
(v) At the option of the TRUST, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the National
Association of Securities Dealers, Inc., or any other
regulatory body, the expected or anticipated ruling,
judgment or outcome which would, in the TRUST's reasonable
judgment, materially impair LIFE COMPANY's ability to meet
and perform its obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by the
TRUST with said termination to be effective upon receipt
of notice;
(vi) At the option of the TRUST, if the TRUST shall determine
in its sole judgment reasonably exercised in good faith,
that LIFE COMPANY has suffered a material adverse change
in its business or financial condition or is the subject
of material adverse publicity and such material adverse
change or material adverse publicity is likely to have a
material adverse impact upon the business and operation of
the TRUST and N&B MANAGEMENT, the TRUST shall have
notified LIFE COMPANY in writing of such determination and
its intent to terminate this Agreement, and, if after
consideration of the actions taken by LIFE COMPANY and any
other changes in circumstances since the giving of such
notice, the determination of the TRUST shall continue to
apply on the sixtieth (60/th/) day since giving of such
notice, then such sixtieth day shall be the effective date
of termination;
(vii) At the option of LIFE COMPANY after having been notified
by the TRUST of a termination or proposed termination of
the Investment Advisory Agreement between the TRUST and
N&B MANAGEMENT or its successors, which notice the TRUST
shall provide promptly to LIFE COMPANY, the effective date
of termination of the Agreement to be as determined by
LIFE COMPANY;
(viii) At the option of LIFE COMPANY, in the event the TRUST's
shares are not registered, issued or sold in accordance
with applicable federal law, or such law precludes the use
of such shares of the underlying investment medium of
variable contracts issued or to be issued by LIFE COMPANY.
Prompt notice of election to terminate shall be furnished
by LIFE COMPANY with said termination to be effective upon
receipt of notice;
<PAGE>
(ix) At the option of the TRUST upon a reasonable determination
by the Board in good faith that it is no longer advisable
and in the best interests of shareholders for the TRUST to
continue to operate pursuant to this Agreement. Prompt
notice of election to terminate shall be furnished by the
TRUST with said termination to be effective 90 days after
receipt of notice;
(x) At the option of the TRUST if the variable contracts cease
to qualify as annuity contracts or life insurance
contracts, as applicable, under the Code, or if the TRUST
reasonably believes that the variable contacts may fail to
so qualify, with said termination to be effective upon
receipt of notice;
(xi) At the option of LIFE COMPANY, upon the TRUST's breach of
any material provision of this Agreement, which breach has
not been cured to the satisfaction of LIFE COMPANY within
ten days after written notice of such breach is delivered
to the TRUST;
(xii) At the option of the TRUST, upon LIFE COMPANY's breach of
any material provision of this Agreement, which breach has
not been cured to the satisfaction of the TRUST within ten
days after written notice of such breach is delivered to
LIFE COMPANY;
(xiii) At the option of the TRUST, if the variable contracts are
not registered, issued or sold in accordance with
applicable federal and/or state law. Termination shall be
effective immediately upon such occurrence without notice;
or
(xiv) At the option of LIFE COMPANY, if LIFE COMPANY shall
determine, in its sole judgment reasonably exercised in
good faith, that the TRUST is the subject of material
adverse publicity and such material adverse publicity is
likely to have a material adverse impact on the sale of
the variable contracts and/or the operations or business
reputation of LIFE COMPANY, the LIFE COMPANY shall have
notified TRUST in writing of such determination and its
intent to terminate this Agreement, and, if after
consideration of the actions taken by TRUST and any other
changes in circumstances since the giving of such notice,
the determination of the LIFE COMPANY shall continue to
apply on the sixtieth (60/th/) day since giving of such
notice, then such sixtieth day shall be the effective date
of termination.
<PAGE>
(c) Notwithstanding any termination of this Agreement pursuant to Section
15(b) hereof, the TRUST at its option may elect to continue to make available
the TRUST's existing shares and additional TRUST shares, as provided below, for
so long as the TRUST desires pursuant to the terms and conditions of this
Agreement, for all variable contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if the TRUST so elects to make additional
TRUST shares available, the owners of the Existing Contracts or LIFE COMPANY,
whichever shall have legal authority to do so, shall be permitted to reallocate
investments in the TRUST, redeem investments in the TRUST and/or invest in the
TRUST upon the payment of additional premiums under the Existing Contracts. In
the event of a termination of this Agreement pursuant to Section 15(b) hereof,
the TRUST and N&B MANAGEMENT, as promptly as is practicable under the
circumstances, shall notify LIFE COMPANY whether the TRUST shall elect to
continue to make TRUST shares available after such termination. If TRUST shares
continue to be made available after such termination, the provisions of this
Agreement shall remain in effect and thereafter either the TRUST or LIFE COMPANY
may terminate the agreement, as so continued pursuant to this Section 15(c),
upon prior written notice to the other party such notice to be for a period that
is reasonable under the circumstances but, if given by the TRUST, need not be
for more than six months. In determining whether to elect to continue to make
available existing or additional TRUST shares, the TRUST shall act in good
faith, giving due consideration to the interests of existing shareholders,
including holders of Existing Contracts.
16. This Agreement shall be subject to the provisions of the '40 Act and
the rules and regulations thereunder, including any exemptive relief therefrom
and the orders of the SEC setting forth such relief.
<PAGE>
17. It is understood by the parties that this Agreement is not to be
deemed an exclusive arrangement.
18. This Agreement is made by TRUST pursuant to authority granted by the
Trustees, and the obligations created hereby are not binding on any of the
Trustees or shareholders of TRUST individually, but bind only the property of
TRUST.
Executed this 7/th/ day of July, 1994.
NEUBERGER & BERMAN
ADVISER MANAGEMENT TRUST
ATTEST: CLAUDIA A. BRANDON By: STANLEY EGENER
----------------------- --------------------------------
Stanley Egener, chairman
AMERICAN GENERAL LIFE INSURANCE COMPANY
ATTEST: STEVEN A. GLOVER By: LAWRENCE S. AUSTER
------------------------ --------------------------------
Lawrence S. Auster, Sr. Vice President
NEUBERGER & BERMAN MANAGEMENT
INCORPORATED
ATTEST: ELLEN METZGER By: MICHAEL J. WEINER
------------------------ --------------------------------
Michael J. Weiner
<PAGE>
APPENDIX A
Balanced Portfolio
Partners Portfolio
<PAGE>
Exhibit (8)(j)(ii)
ASSIGNMENT AND MODIFICATION AGREEMENT
This Agreement is made by and between Neuberger & Berman Advisers
Management Trust ("Trust"), a Massachusetts business trust, Neuberger & Berman
Management Incorporated ("N&B Management"), a New York corporation, Neuberger &
Berman Advisers Management Trust ("Successor Trust"), a Delaware business trust,
Advisers Managers Trust ("Managers Trust") and American General Life Insurance
Company ("Life Company"), a life insurance company organized under the laws of
the State of Texas.
WHEREAS, the Life Company has previously entered into a Sales Agreement
dated July 7, 1994 (the "Sales Agreement") with the Trust and N&B Management
regarding the purchase of shares of the Trust by Life Company; and
WHEREAS, as part of the reorganization into a "master-feeder" fund
structure (the "Reorganization"), the Trust will be converted into the Successor
Trust, a Delaware business trust; and
WHEREAS, as part of the Reorganization, each Portfolio of the Trust will
transfer all of its assets to the corresponding Portfolio of the Successor Trust
("Successor Portfolio") and each Successor Portfolio will invest all of its net
investable assets in a corresponding series of Managers Trust; and
WHEREAS, as part of the Reorganization, an Order under Section 6(c) of the
Investment Company Act of 1940 ("40 Act") is expected to be issued by the
Securities and Exchange Commission ("SEC") granting exemptions from Sections
9(a), 13(a), 15(a) and 15(b) of the `40 Act and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder; and
WHEREAS, the Order is expected to require that certain conditions (the
"Conditions") as set forth in the Notice (Investment Company Act Release No.
21003 (April 12, 1995)) be made a part of the Sales Agreement; and
WHEREAS, the parties hereto desire to assign the Sales Agreement from the
Trust to the Successor Trust, to modify the Sales Agreement to include the
Conditions and to rename the Sales Agreement; and
WHEREAS, Managers Trust will become a party to the Sales Agreement as
modified hereby, due to and for purposes of its obligations under the
Conditions.
NOW THEREFORE, in consideration of their mutual promises, Trust, N&B
Management, Successor Trust, Managers Trust and Life Company agree as follows:
1. The Sales Agreement is hereby assigned by the Trust to the Successor
Trust.
1
<PAGE>
2. Pursuant to such assignment, the Successor Trust hereby accepts all
rights and benefits of the Trust under the Sales Agreement and agrees to perform
all duties and obligations of the Trust under the Sales Agreement. Upon the
effectiveness of this Assignment and Modification Agreement, the Trust will be
released from all obligations and duties under the Sales Agreement.
3. The Sales Agreement is hereby modified to include the Conditions as
follows:
Sections 12 and 13 of the Sales Agreement are replaced by the following:
12. a) The Board of Trustees of each of the Successor Trust and Managers
Trust (the "Boards") will monitor the Successor Trust and Managers Trust,
respectively, (collectively the "Funds") for the existence of any material
irreconcilable conflict between the interest of the contract owners of all
insurance company separate accounts investing in the Funds. A material
irreconcilable conflict may arise for a variety of reasons, including: (a) state
insurance regulatory authority action; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, or any similar action by insurance, tax, or securities
regulatory authorities; c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Funds are
being managed; (e) a difference in voting instructions given by variable annuity
and variable life insurance contract owners or by contract owners of different
participating insurance companies; or (f) a decision by a participating
insurance company to disregard voting instructions of contract owners.
b) Life Company, other participating insurance companies, N&B
Management (or any other manager or administrator of the Funds), and any
qualified pension and retirement plan that executes a fund participation
agreement upon becoming an owner of 10% or more of the assets of the Funds
(collectively, "Participants") will report any potential or existing conflicts
to the Boards. Participants will be responsible for assisting the appropriate
Board in carrying out its responsibilities under these Conditions by providing
the Board with all information reasonably necessary for it to consider any
issues raised. This responsibility includes, but is not limited to, an
obligation by each Participant to inform the Board whenever variable contract
owner voting instructions are disregarded. These responsibilities will be
carried out with a view only to the interests of the contract owners.
c) If a majority of the Board of a Fund or a majority of its
disinterested trustees or directors, determines that a material irreconcilable
conflict exists, the relevant Participant, at its expense and to the extent
reasonably practicable (as determined by a majority of disinterested trustees or
directors), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including: (a) withdrawing the assets
allocable to some or all of the separate accounts from the Funds or any series
thereof and reinvesting those assets in a different investment medium, which may
include another series of the Successor Trust or Managers Trust, or another
investment company or submitting the question as to whether such segregation
should be implemented to a vote of all affected variable contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e., variable
annuity or variable annuity contract owners of one or more Participants) that
2
<PAGE>
votes in favor of such segregation, or offering to the affected variable
contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of a Participant's decision to
disregard contract owner voting instructions, and that decision represents a
minority position or would preclude a majority vote, the Participant may be
required, at the election of the relevant Fund, to withdraw its separate
account's investment in such Fund, and no charge or penalty will be imposed as a
result of such withdrawal.
The responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and to bear the cost of
such remedial action shall be a contractual obligation of all Participants under
their agreements governing their participation in the Funds. The responsibility
to take such remedial action shall be carried out with a view only to the
interests of the contract owners.
For the purposes of Condition (c), a majority of the disinterested
members of the applicable Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the relevant Fund or N&B Management (or any other investment adviser of the
Funds) be required to establish a new funding medium for any variable contract.
Further, no Participant shall be required by this condition (c) to establish a
new funding medium for any variable contract if any offer to do so has been
declined by a vote of a majority of contract owners materially affected by the
irreconcilable material conflict.
d) Any Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to all Participants.
13. a) Participants will provide pass-through voting privileges to
all contract owners so long as the SEC continues to interpret the `40 Act as
requiring pass-through voting privileges for variable contract owners. This
condition will apply to UIT-separate accounts investing in the Successor Trust
and to managed separate accounts investing in Managers Trust to the extent a
vote is required with respect to matters relating to Managers Trust.
Accordingly, the Participants, where applicable, will vote shares of a Fund held
in their separate accounts in a manner consistent with voting instructions
timely received from variable contract owners. Participants will be responsible
for assuring that each of their separate accounts that participates in the Funds
calculates voting privileges in a manner consistent with other Participants.
The obligation to calculate voting privileges in a manner consistent with all
other separate accounts investing in the Funds will be a contractual obligation
of all Participants under the agreements governing participation in the Funds.
Each Participant will vote shares for which it has not received timely voting
instructions, as well as shares it owns, in the same proportion as its votes
those shares for which it has received voting instructions.
b) If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the `40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any
3
<PAGE>
exemptions granted in the order requested, then the Successor Trust, Managers
Trust and/or the Participants, as appropriate, shall take such steps as may be
necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such Rules are applicable.
c) No less than annually, the Participants shall submit to the Boards
such reports, materials or data as such Boards may reasonably request so that
the Boards may fully carry out the obligations imposed upon them by these
Conditions. Such reports, materials, and data shall be submitted more frequently
if deemed appropriate by the applicable Boards.
4. The Sales Agreement shall be renamed Fund Participation Agreement.
5. This Assignment and Modification Agreement shall be effective on May 1,
1995, the closing date of the conversion. In the event of a conflict between
the terms of this Assignment and Modification Agreement and the terms of the
Sales Agreement, the terms of this Assignment and Modification Agreement shall
control.
6. All other terms and conditions of the Sales Agreement remain in full
force and effect.
Executed this 1st day of May, 1995.
Neuberger & Berman Advisers
Management Trust
(a Massachusetts business
trust)
Attest:/s/ CLAUDIA A. BRANDON By:/s/ STANLEY EGENER
------------------------ ----------------------------
Stanley Egener, Chairman
Neuberger & Berman Advisers
Management Trust
(a Delaware business trust)
Attest:/s/ CLAUDIA A. BRANDON By:/s/ STANLEY EGENER
------------------------ ---------------------------
Stanley Egener, Chairman
4
<PAGE>
Advisers Managers Trust
Attest:/s/ CLAUDIA A. BRANDON By:/s/ STANLEY EGENER
---------------------------- --------------------------
Neuberger & Berman Management
Incorporated
Attest:/s/ ELLEN METZGER By:/s/ MICHAEL J. WEINER
---------------------------- -------------------------
Michael J. Weiner
American General Life
Insurance Company
Attest:/s/ STEVEN A. GLOVER By:/s/ JAMES W. LOVERIDGE
---------------------------- -------------------------
Steven A. Glover James W. Loveridge
Assistant Secretary Vice President
5
<PAGE>
Exhibit (8)(q)
DRAFT MR 011100
- ---------------
February 1, 2000
Don Ward
Senior Vice President
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Re: AMT Services Agreement
Dear Mr. Ward:
This letter sets forth the terms and conditions of the services agreement
between Neuberger Berman Management Inc. ("NBMI") and American General Life
Insurance Company (the "Company"), effective as of the 1st day of February,
2000.
The Company, NBMI, Neuberger Berman Advisers Management Trust (the "Trust") and
Advisers Managers Trust have entered into a Sales Agreement, dated the 7th day
of July, 1994, as may be amended from time to time (the "Participation
Agreement"), pursuant to which the Company, on behalf of certain of its separate
accounts (the "Separate Accounts"), purchases shares ("Shares") of certain
Portfolios of the Trust ("Portfolios") to serve as an investment vehicle under
certain variable annuity and/or variable life insurance contracts ("Variable
Contracts") offered by the Company, which Portfolios may be one of several
investment options available under the Variable Contracts.
NBMI recognizes that in the course of soliciting applications for its Variable
Contracts and in servicing owners of the Variable Contracts, the Company and its
agents that are registered representatives of broker-dealers provide information
about the Trust and its Portfolios (and Series of Advisers Managers Trust) from
time to time, answer questions concerning the Trust and its Portfolios (and
Series), including questions respecting Variable Contract owners' interests in
one or more Portfolios, and provide services respecting investments in the
Portfolios.
NBMI desires that the efforts of the Company and its agents in providing written
and oral information and services regarding the Trust to current and prospective
Variable Contract owners shall continue.
Accordingly, the following represents the collective intention and understanding
of the services agreement between NBMI and the Company.
The Company and/or its affiliates agree to provide services ("Services") to
current and prospective owners
<PAGE>
Don Ward
02/02/2000
Page 2
of Variable Contracts including, but not limited to: teleservicing support in
connection with the Portfolios; delivery and responding to inquires respecting
Trust prospectuses, reports, notices, proxies and proxy statements and other
information respecting the Portfolios (but not including services paid for by
the Trust such as printing and mailing); facilitation of the tabulation of
Variable Contract owners' votes in the event of a meeting of Trust shareholders;
maintenance of Variable Contract records reflecting Shares purchased and
redeemed and Share balances, and the conveyance of that information to the
Trust, its transfer agent, or NBMI as may be reasonably requested; provision of
support services including providing information about the Trust and its
Portfolios (and Series of Advisers Managers Trust) and answering questions
concerning the Trust and its Portfolios (and Series), including questions
respecting Variable Contract owners' interests in one or more Portfolios;
provision and administration of Variable Contract features for the benefit of
Variable Contract owners participating in the Trust including fund transfers,
dollar cost averaging, asset allocation, portfolio rebalancing, earnings sweep,
and pre-authorized deposits and withdrawals; and provision of other services as
may be agreed upon from time to time.
In consideration of the Services, NBMI agrees to pay to the Company a service
fee at an annual rate equal to 15 basis points (0.15%) of the average daily
value of the shares of the Portfolios ("Shares") held in American General Life
Insurance Company Separate Account VL-R. For purposes of computing the payment
to the Company under this paragraph, the average daily value of Shares held in
Separate Accounts over a monthly period shall be computed by totaling such
Separate Accounts' aggregate investment (Share net asset value multiplied by
total number of Shares held by such Separate Accounts) on each business day
during the calendar month, and dividing by the total number of business days
during such month. NBMI shall calculate the payment to the Company under this
paragraph by at the end of each calendar month and pay all fees to the Company
within thirty (30) business days after the last day of each month. NBMI shall
send all payments to the attention of : Coyia Richter or Joyce Tang at the
-------
address for the Company listed above.
- -------------------------------------
In lieu of requesting that the Company indicate its Tax Identification Number
("TIN") on Form W-9, NBMI hereby requests that the Company furnish NBMI its TIN
and acknowledge that the number shown below in this Section 2.3 is its correct
TIN.
The Company acknowledges that the following number is its correct TIN:
25-0598210
Employer Identification Number: 25-0598210
This services agreement shall remain in full force and effect for an initial
term of one year, and shall automatically renew for successive one year periods.
The services agreement may be terminated by either
2
<PAGE>
Don Ward
02/02/2000
Page3
the Company or NBMI upon 60 days' written notice to the other, and shall
terminate automatically upon redemption of all Shares held in Separate Accounts,
upon termination of the Participation Agreement, or upon assignment of the
Participation Agreement by either the Company or NBMI, or if required by law.
Nothing in this services agreement shall amend, modify or supersede any
contractual terms, obligations or covenants among or between any of the Company,
NBMI, the Trust or Advisers Managers Trust previously or currently in effect,
including those contractual terms, obligations or covenants contained in the
Participation Agreement.
If this services agreement is consistent with your understanding of the matters
we discussed concerning the Company's provision of the Services, please sign
below, whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
NEUBERGER BERMAN MANAGEMENT INC.
By:__________________________
Name: Peter Sundman
Title: Senior Vice President
Acknowledged and Agreed to:
AMERICAN GENERAL LIFE INSURANCE COMPANY
By:____________________________
Name: Don Ward
Title: Senior Vice President
3
<PAGE>
Exhibit (8)(r)
AGREEMENT
THIS AGREEMENT ("Agreement") made as of _____________, 199_, is by and between
_________________________________________, a _________ corporation ("Adviser")
and AMERICAN GENERAL LIFE INSURANCE COMPANY, a Texas corporation ("AGL").
W I T N E S S E T H:
WHEREAS, each of the investment companies listed on Schedule One hereto
------------
("Schedule One," as the same may be amended from time to time), is registered as
------------
an open-end management investment company under the Investment Company Act of
1940, as amended (the "Act") (such investment companies are hereinafter
collectively called the "Funds," or each a "Fund"); and
WHEREAS, each of the Funds is available as an investment vehicle for AGL for its
separate account to fund variable life insurance and variable annuity contracts
("Contracts") listed on Schedule Two hereto ("Schedule Two," as the same may be
------------ ------------
amended from time to time); and
WHEREAS, AGL has entered into a participation agreement dated ___________, 199_,
among AGL, American General Securities Incorporated, Adviser, and the Funds (the
"Participation Agreement," as the same may be amended from time to time); and
WHEREAS, Adviser provides, among other things, investment advisory and/or
administrative services to the Funds; and
WHEREAS, Adviser desires AGL to provide the administrative services specified in
the attached Exhibit A ("Administrative Services"), in connection with the
---------
Contracts for the benefit of persons who maintain their ownership interests in
the separate account, whose interests are included in the master account
("Master Account") referred to in paragraph 1 of Exhibit A ("Shareholders"), and
---------
AGL is willing and able to provide such Administrative Services on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees as follows:
1. AGL agrees to perform the Administrative Services specified in Exhibit A
---------
hereto for the benefit of the Shareholders.
2. AGL represents and agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing
the Administrative Services, and will otherwise comply with all laws, rules
and regulations applicable to the Administrative Services.
3. AGL agrees to provide copies of all the historical records relating to
transactions between the
<PAGE>
Funds and Shareholders, and all written communications and other related
materials regarding the Fund(s) to or from such Shareholders, as reasonably
requested by Adviser or its representatives (which representatives, include,
without limitation, its auditors, legal counsel or the Underwriter, as the
case may be), to enable Adviser or its representatives to monitor and review
the Administrative Services performed by AGL, or comply with any request of
the board of directors, or trustees or general partners (collectively, the
"Directors") of any Fund, or of a governmental body, self-regulatory
organization or Shareholder.
In addition, AGL agrees that it will permit Adviser, the Funds or their
representatives, to have reasonable access to its personnel and records in
order to facilitate the monitoring of the quality of the Administrative
Services.
4. AGL may, with the consent of Adviser, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of AGL required by this Agreement, or the
Participation Agreement, provided that AGL shall be fully responsible for the
acts and omissions of such other parties.
5. AGL hereby agrees to notify Adviser promptly if for any reason it is unable
to perform fully and promptly any of its obligations under this Agreement.
6. AGL hereby represents and covenants that it does not, and will not, own or
hold or control with power to vote any shares of the Funds which are
registered in the name of AGL or the name of its nominee and which are
maintained in AGL variable annuity or variable life insurance accounts. AGL
represents further that it is not registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the"1934 Act"), and it is not
required to be so registered, including as a result of entering into this
Agreement and performing the Administrative Services, and other obligations
of AGL set forth in this Agreement.
7. The provisions of the Agreement shall in no way limit the authority of
Adviser, or any Fund or Underwriter to take such action as any of such
parties may deem appropriate or advisable in connection with all matters
relating to the operations of any of such Funds and/or sale of its shares.
8. In consideration of the performance of the Administrative Services by AGL
with respect to the Platinum Contracts, beginning on the date hereof and
during the term of the Participation Agreement, Adviser agrees to pay AGL an
annual fee which shall equal .20% of the value of each Fund's assets in the
Contracts maintained in the Master Account for the Shareholders (excluding
all assets invested during the guarantee periods available under the Platinum
Contracts). The determination of applicable assets shall be made by
averaging assets in applicable Funds as of the last Valuation Date (as
defined in the prospectus relating to the Platinum Contracts) of each month
falling within the applicable calendar year. The foregoing fee will be paid
by Adviser to AGL on a calendar year basis, and in this regard, payment of
such fee will be made by Adviser to AGL within thirty (30) days following the
end of each calendar year.
Notwithstanding anything in this Agreement or the Participation Agreement
appearing to the contrary, the payments by Adviser to AGL relate solely to
the performance by AGL of the Administrative Services described herein only,
and do not constitute payment in any manner
2
<PAGE>
for services provided by AGL to AGL policy or contract owners, or to any
separate account organized by AGL, or for any investment advisory services,
or for costs associated with the distribution of any variable annuity or
variable life insurance contracts.
9. AGL shall indemnify and hold harmless each of the Funds, Adviser and
Underwriter and each of their respective officers, Directors, employees and
agents from and against any and all losses, claims, damages, expenses, or
liabilities that any one or more of them may incur including without
limitation reasonable attorneys' fees, expenses and costs arising out of or
related to the performance or non-performance by AGL of the Administrative
Services under this Agreement.
10. This Agreement may be terminated without penalty at any time by AGL or by
Adviser as to one or more of the Funds collectively, upon one hundred and
eighty days (180) written notice to the other party. Notwithstanding the
foregoing, the provisions of paragraphs 2, 3, 9 and 11 of this Agreement,
shall continue in full force and effect after termination of this Agreement.
This Agreement shall not require AGL to preserve any records (in any medium
or format) relating to this Agreement beyond the time periods otherwise
required by the laws to which AGL or the Funds are subject provided that
such records shall be offered to the Funds in the event AGL decides to no
longer preserve such records following such time periods.
11. After the date of any termination of this Agreement in accordance with
paragraph 10 of this Agreement, no fee will be due with respect to any
amounts in the Platinum Contracts first placed in the Master Account for the
benefit of Shareholders after the date of such termination. However,
notwithstanding any such termination, Adviser will remain obligated to pay
AGL the fee specified in paragraph 8 of this Agreement, with respect to the
value of each Fund's average daily net assets maintained in the Master
Account with respect to the Platinum Contracts as of the date of such
termination, for so long as such amounts are held in the Master Account and
AGL continues to provide the Administrative Services with respect to such
amounts in conformity with this Agreement. This Agreement, or any provision
hereof, shall survive termination to the extent necessary for each party to
perform its obligations with respect to amounts for which a fee continues to
be due subsequent to such termination.
12. AGL understands and agrees that the obligations of Adviser under this
Agreement are not binding upon any of the Funds, upon any of their Board
members or upon any shareholder of any of the Funds.
13. It is understood and agreed that in performing the services under this
Agreement AGL, acting in its capacity described herein, shall at no time be
acting as an agent for Adviser, Underwriter or any of the Funds. AGL agrees,
and agrees to cause its agents, not to make any representations concerning a
Fund except those contained in the Fund's then-current prospectus; in
current sales literature furnished by the Fund, Adviser or Underwriter to
AGL; in the then current prospectus for a variable annuity contract or
variable life insurance policy issued by AGL or then current sales
literature with respect to such variable annuity contract or variable life
insurance policy, approved by Adviser.
3
<PAGE>
14. This Agreement, including the provisions set forth herein in paragraph 8,
may only be amended pursuant to a written instrument signed by the party to
be charged. This Agreement may not be assigned by a party hereto, by
operation of law or otherwise, without the prior written consent of the
other party.
15. This Agreement shall be governed by the laws of the State of Illinois,
without giving effect to the principles of conflicts of law of such
jurisdiction.
16. This Agreement, including Exhibit A, Schedule One and Schedule Two,
--------- ------------ ------------
constitutes the entire agreement between the parties with respect to the
matters dealt with herein and supersedes any previous agreements and
documents with respect to such matters. The parties agree that Schedule One
and/or Schedule Two may be replaced from time to time with a new Schedule
One and/or Schedule Two to accurately reflect any changes in the Funds
available as investment vehicles and/or the Contracts available, under the
Participation Agreement, respectively.
4
<PAGE>
IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement
as of the date first above written.
AMERICAN GENERAL LIFE INSURANCE COMPANY
By:_________________________
Authorized Signatory
_______________________
Print or Type Name
____________________________
By:_________________________
Authorized Signatory
_______________________
Print or Type Name
5
<PAGE>
SCHEDULE ONE
Investment Company Name: Fund Name(s):
- ----------------------- ------------
<PAGE>
SCHEDULE TWO
List of Contracts
. Key Legacy Plus, Form No. 99616
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, AGL shall perform the
following Administrative Services:
1. Maintain separate records for each Shareholder, which records shall reflect
shares purchased and redeemed for the benefit of the Shareholder and share
balances held for the benefit of the Shareholder. AGL shall maintain the
Master Account with the transfer agent of the Fund on behalf of Shareholders
and such Master Account shall be in the name of AGL or its nominee as the
record owner of the shares held for such Shareholders.
2. For each Fund, disburse or credit to Shareholders all proceeds of redemptions
of shares of the Fund and all dividends and other distributions not
reinvested in shares of the Fund or paid to the Separate Account holding the
Shareholders' interests.
3. Prepare and transmit to Shareholders periodic account statements showing the
total number of shares held for the benefit of the Shareholder as of the
statement closing date (converted to interests in the Separate Account),
purchases and redemptions of Fund shares for the benefit of the Shareholder
during the period covered by the statement, and the dividends and other
distributions paid for the benefit of the Shareholder during the statement
period (whether paid in cash or reinvested in Fund shares).
4. Transmit to Shareholders proxy materials and reports and other information
received by AGL from any of the Funds and required to be sent to Shareholders
under the federal securities laws and, upon request of the Fund's transfer
agent, transmit to Shareholders material Fund communications deemed by the
Fund, through its Board of Directors or other similar governing body, to be
necessary and proper for receipt by all Fund beneficial shareholders.
5. Transmit to the Fund's transfer agent purchase and redemption orders on
behalf of Shareholders.
6. Provide to the Funds, or to the transfer agent for any of the Funds, or any
of the agents designated by any of them, such periodic reports as shall
reasonably be concluded to be necessary to enable each of the Funds and its
Underwriter to comply with any applicable State Blue Sky requirements.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 10(e)
AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL")
Home Office: Houston, Texas
VARIABLE UNIVERSAL LIFE
INSURANCE SUPPLEMENTAL APPLICATION
(This supplement must accompany the appropriate application for life insurance.)
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PART 1. APPLICANT INFORMATION
- ------------------------------------------------------------------------------------------------------------------------------------
Supplement to the application on the life of ________________ JOHN DOE_______________________, dated _____________________________.
- ------------------------------------------------------------------------------------------------------------------------------------
PART 2. INITIAL ALLOCATION PERCENTAGES
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPTIONS: In the "Premium Allocation" column, indicate how each premium received is to be allocated. In the "Deduction
Allocation" column, indicate which investment options are to be used for the deduction of monthly account charges. Total allocations
in each column must equal 100%. Use whole percentages only.
Premium Deduction Premium Deduction
Divisions Allocation Allocation Divisions Allocation Allocation
- --------- ---------- ---------- --------- ---------- ----------
[AIM VARIABLE INSURANCE FUNDS, INC. PUTNAM VARIABLE TRUST
AIM V.I. International Equity (81) 100% 100% Putnam VT Diversified Income (87) ___% ___%
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. FRANKLIN TEMPLETON VARIABLE INSURANCE
VP Value (82) ___% ___% PRODUCTS TRUST
AMERICAN GENERAL SERIES PORTFOLIO CO. Franklin Small Cap (88) ___% ___%
Money Market (83) ___% ___% TEMPLETON VARIABLE PRODUCTS SERIES FUND
MFS(R) VARIABLE INSURANCE TRUST Templeton Inernational (89) ___% ___%
MFS Total Return (84) ___% ___% VAN KAMPEN LIFE INVESTMENT TRUST
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST Emerging Growth (90) ___% ___%
Partners Portfolio (85) ___% ___% VICTORY VARIABLE INSURANCE FUNDS
OPPENHEIMER VARIABLE ACCOUNT FUNDS Diversified Stock (91) ___% ___%
Oppeneimer High Income (86) ___% ___% Investment Quality Bond (92) ___% ___%
Small Cap Opportunity (93) ___% ___%
Other: ________________________________ ___% ___%]
- ------------------------------------------------------------------------------------------------------------------------------------
PART 3. DOLLAR COST AVERAGING
- ------------------------------------------------------------------------------------------------------------------------------------
DOLLAR COST AVERAGING: ($5,000 minimum beginning accumulation value) An amount can be systematically transferred from the [Money
Market (83)] and transferred to one or more of the investment divisions below. Please refer to the prospectus for more information
on the Dollar Cost Averaging option.
DAY OF THE MONTH FOR TRANSFERS: __________________________ (Choose a day of the month between 1-28.)
FREQUENCY OF TRANSFERS: [_] Monthly [_] Quarterly [_] Semiannually [_] Annually
TRANSFER $__________________ ($100 minimum, whole dollars only) from the [Money Market (83)] to the following division(s):
[AIM V.I. International Equity (81) $______ Templeton International (89) $______
VP Value (82) $______ Emerging Growth (90) $______
MFS Total Return (84) $______ Diversified Stock (91) $______
Partners Portfolio (85) $______ Investment Quality Bond (92) $______
Oppenheimer High Income (86) $______ Small Cap Opportunity (93) $______
Putnam VT Diversified Income (87) $______ Other: ________________________________ $______]
Franklin Small Cap (88) $______
- ------------------------------------------------------------------------------------------------------------------------------------
PART 4. AUTOMATIC REBALANCING
- ------------------------------------------------------------------------------------------------------------------------------------
AUTOMATIC REBALANCING: ($5,000 minimum beginning accumulation value) Variable division assets will be automatically rebalanced based
on the premium percentages designated in Part 2. Please refer to the prospectus for more information on the Automatic Rebalancing
option.
[_] CHECK HERE FOR AUTOMATIC REBALANCING.
FREQUENCY: [_] Quarterly [_] Semiannually [_] Annually
NOTE: Automatic Rebalancing is not available if the Dollar Cost Averaging option has been chosen.
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE 1 of 2
AGLC 0091
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
AMERICAN GENERAL LIFE INSURANCE COMPANY
Home Office: Houston, Texas
- ---------------------------------------------------------------------------------------------------------------------------------
PART 5. TELEPHONE AUTHORIZATION
- ---------------------------------------------------------------------------------------------------------------------------------
I (or we, if Joint Owners), hereby authorize American General Life Insurance Company ("AGL") to act on telephone instructions to
transfer values among the variable divisions and to change allocations for future purchase payments and monthly deductions given by:
(INITIAL APPROPRIATE BOX BELOW.)
[ ] Policy Owner(s) ONLY -- if Joint Owners, either of us acting independently.
[ ] Policy Owner(s) OR the Agent/Registered Representative who is appointed to represent AGL and the firm authorized to service my
policy.
AGL and any person designated by this authorization will not be responsible for any claim, loss or expense based upon telephone
instructions received and acted on in good faith, including losses due to telephone instruction communication errors. AGL's
liability for erroneous transfers and allocations, unless clearly contrary to instructions received, will be limited to correction
of the allocations on a current basis. If an error, objection or other claim arises due to a telephone transaction, I will notify
AGL in writing within five working days from receipt of confirmation of the transaction from AGL. I understand that this
authorization is subject to the terms and provisions of my variable universal life insurance policy and its related prospectus. This
authorization will remain in effect until my written notice of its revocation is received by AGL at its home office.
[ ] INITIAL HERE TO DECLINE THE ABOVE TELEPHONE AUTHORIZATION.
- ---------------------------------------------------------------------------------------------------------------------------------
PART 6. MODIFIED ENDOWMENT CONTRACT
- ---------------------------------------------------------------------------------------------------------------------------------
If any premium payment causes the policy to be classified as a modified endowment contract under Section 7702A of the United States
Internal Revenue Code, there may be potentially adverse U.S. tax consequences. Such consequences include: (1) withdrawals or loans
being taxed to the extent of gain; and (2) a 10% penalty tax on the taxable amount. In order to avoid modified endowment status, I
request any excess premium that could cause such status to be refunded. [ ] YES [ ] NO
- ---------------------------------------------------------------------------------------------------------------------------------
PART 7. SUITABILITY (All questions must be answered.)
- ---------------------------------------------------------------------------------------------------------------------------------
YES NO
--- --
1. Have you, the Proposed Insured or Owner (if different), received the variable universal life
insurance policy prospectus and the prospectuses describing the investment options? [ ] [ ]
(If "yes," please furnish the Prospectus dates.)
Variable Universal Life Insurance Policy Prospectus: ___________________
Supplements (if any): ___________________
2. Do you understand that under the Policy applied for:
a. THE AMOUNT OR DURATION OF THE DEATH BENEFIT MAY INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT? [ ] [ ]
b. THE POLICY VALUES MAY INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SEPARATE
ACCOUNT AND CERTAIN EXPENSE DEDUCTIONS? [ ] [ ]
c. The policy is designed to provide life insurance coverage and to allow for the accumulation of
values in the Separate Account? [ ] [ ]
3. Do you believe the Policy you selected meets your insurance and investment objectives and your
anticipated financial needs? [ ] [ ]
- ---------------------------------------------------------------------------------------------------------------------------------
Signed at: Any Town USA Date: 10/1/99
_________________________________________________________________________ ___________________________________
CITY STATE
John Doe
X______________________________________________________________ X______________________________________________________________
SIGNATURE OF PRIMARY PROPOSED INSURED SIGNATURE OF REGISTERED REPRESENTATIVE
X______________________________________________________________ ______________________________________________________________
SIGNATURE OF OWNER (if different from Proposed Insured) PRINT NAME OF BROKER/DEALER
X______________________________________________________________
SIGNATURE OF JOINT OWNER (if applicable)
- ----------------------------------------------------------------------------------------------------------------------------------
AGLC 0091 Page 2 of 2
</TABLE>
<PAGE>
EXHIBIT 10(f)
SERVICE REQUEST
K E Y
L E G A C Y
- ---------------------
Plus
- ---------------------
AMERICAN GENERAL LIFE
- --------------------------------------------------------------------------------
KEY LEGACY PLUS--VARIABLE DIVISIONS
AIM Variable Insurance Funds, Inc.
* Division 81 - AIM V.I. International Equity Fund
American Century Variable Portfolios, Inc.
* Division 82 - VP Value Fund
American General Series Portfolio Company
* Division 83 - Money Market Fund
MFS(R)-Variable Insurance Trust
* Division 84 - MFS Total Return Series
Neuberger Berman Advisers Management Trust
* Division 85 - Partners Portfolio
Oppenheimer Variable Account Funds
* Division 86 - Oppenheimer High Income Fund/VA
Putnam Variable Trust
* Division 87 - Putnam VT Diversified Income Fund
Franklin Templeton Variable Insurance Products Trust
* Division 88 - Franklin Small Cap Fund
Templeton Variable Products Series Fund
* Division 89 - Templeton International Fund
Van Kampen Life Investment Trust
* Division 90 - Emerging Growth Portfolio
Victory Variable Insurance Funds
* Division 91 - Diversified Stock Fund
* Division 92 - Investment Quality Bond Fund
* Division 93 - Small Cap Opportunity Fund
<PAGE>
<TABLE>
<CAPTION>
AMERICAN
AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL") | GENERAL
Complete and return this request to: ----------------------------------------------- | FINANCIAL GROUP
Variable Universal Life Operations A Subsidiary of American General Corporation
PO Box 4880 Houston, TX 77210-4880 -----------------------------------------------
(888) 436-4963 or Houston, Texas
Hearing Impaired (TDD): (888) 436-5258
Toll Free Fax: (877) 445-3098 VARIABLE UNIVERSAL LIFE INSURANCE SERVICE REQUEST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[ ] POLICY 1.| POLICY #:___________________________________________________ INSURED:_________________________________
IDENTIFICATION |
| ADDRESS:________________________________________________________________________ New Address (yes)(no)
COMPLETE THIS SECTION |
FOR ALL REQUESTS. | Primary Owner (If other than insured):__________________________________________
|
| Address:________________________________________________________________________ New Address (yes)(no)
|
| Primary Owner's S.S. No. or Tax I.D. No._____________________________ Phone Number: ( )____ - ______
|
| Joint Owner (If applicable):____________________________________________________
|
| Address:________________________________________________________________________ New Address (yes)(no)
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] NAME 2.|
CHANGE | Change Name Of: (Circle One) Insured Owner Payor Beneficiary
|
Complete this section if | Change Name From: (First, Middle, Last) Change Name To: (First, Middle, Last)
the name of the Insured, |
Owner, Payor or Beneficiary| _________________________________________ _________________________________________________
has changed. (Please note,|
this does not change the |
Insured, Owner, Payor or | Reason for Change: (Circle One) Marriage Divorce Correction Other (Attach copy of legal proof)
Beneficiary designation) |
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] MODE OF PREMIUM 3.|
PAYMENT/BILLING | Indicate frequency and premium amount desired: $______ Annual $______ Semi-Annual $_______ Quarterly
METHOD CHANGE |
| $______ Monthly (Bank Draft Only)
Use this section to change |
the billing frequence and/ | Indicate billing method desired:_____ Direct Bill ______ Pre-Authorized Bank Draft (attach a Bank Draft
or method of premium pay- | Authorization Form and "Void" Check)
ment. Note, however, that |
AGL will not bill you on a | Start Date: ______/______/_____
direct monthly basis. Refer|
to your policy and its |
related prospectus for |
further information |
concerning minimum premiums|
and billing options. |
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] LOST POLICY 4.|
CERTIFICATE | I/we hereby certify that the policy of insurance for the listed policy has been ____LOST_____DESTROYED
| _____OTHER.
Complete this section if | Unless I/we have directed cancellation of the policy, I/we request that a:
applying for a Certificate |
of Insurance or duplicate | _________ Certificate of Insurance at no charge
policy to replace a lost or|
misplaced policy. If a full| _________ Full duplicate policy at a charge of $25
duplicate policy is being |
requested, a check or money| be issued to me/us. If the original policy is located, I/we will return the Certificate or duplicate
order for $25 payable to | policy to AGL for cancellation.
AGL must be submitted with|
this request. |
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] DOLLAR COST 5.| Designate the day of the month for transfers:_________(choose a day from 1-28)
AVERAGING |
($5,000 minimum initial | Frequency of transfers (check one): _______Monthly _______Quarterly ______Semi-Annually _____Annually
accumulation value) An |
amount may be deducted | I want: $___________($100 minimum) taken from the Money Market Division (83) and transferred to the
periodically from the | following Division(s):
Money Market Division and |
placed in one or more of | AIM Variable Insurance Funds, Inc. Franklin Templeton Variable Insurance Products Trust
the Divisions listed. | $_________(81) AIM V.I. International Equity $________(88) Franklin Small Cap
Please refer to the pros- | American Century Variable Portfolios, Inc. Templeton Variable Products Series Fund
pectus for more infor- | $_________(82) VP Value $________(89) Templeton International
mation on the Dollar Cost | MFS(R) Variable Insurance Trust Van Kampen Life Investment Trust
Averaging Option. | $_________(84) MFS Total Return Series $________(90) Emerging Growth
This option is not | Neuberger Berman Advisers Management Trust Victory Variable Insurance Funds
available while the | $_________(85) Partners Portfolio $________(91) Diversified Stock
Automatic Rebalancing | Oppenheimer Variable Account Funds $________(92) Investment Quality Bond
option is in use. | $_________(86) Oppenheimer High Income $________(93) Small Cap Opportunity
| Putnam Variable Trust
| $_________(87) Putnam VT Diversified Income
|
| ________INITIAL HERE TO REVOKE DOLLAR COST AVERAGING ELECTION.
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE 2 OF 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[ ] TELEPHONE 6.| I(/we if Joint Owners) hereby authorize AGL to act on telephone instructions to transfer values among
PRIVILEGE | Divisions and to change allocations for future purchase payments and monthly deductions.
AUTHORIZATION |
|
Complete this section if | Initial the designation you prefer:
you are applying for or |
revoking current telephone| __________Policy Owner(s) only--If Joint Owners, either one acting independently.
privileges. |
| __________Policy Owner(s) or Agent/Registered Representative who is appointed to represent AGL and the
| firm authorized to service my policy.
|
| AGL and any person designated by this authorization will not be responsible for any claim, loss or
| expense based upon telephone transfer or allocation instructions received and acted upon in good faith,
| including losses due to telephone instruction communication errors. AGL's liability for erroneous
| transfers or allocations, unless clearly contrary to instructions received, will be limited to
| correction of the allocations on a current basis. If an error, objection or other claim arises due to a
| telephone transaction, I will notify AGL in writing within five working days from the receipt of the
| confirmation of the transaction from AGL. I understand that this authorization is subject to the terms
| and provisions of my policy and its related prospectus. This authorization will remain in effect until
| my written notice of its revocation is received by AGL at the address printed on the top of this
| service request form.
|
|___________INITIAL HERE TO REVOKE TELEPHONE PRIVILEGE AUTHORIZATION.
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] CORRECT AGE 7.|
| Name of Insured for whom this correction is submitted:___________________________________
|
Use this section to correct| Correct DOB: ________/________/________
the age of any person |
covered under this policy. |
Proof of the correct date |
of birth must accompany |
this request. |
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] TRANSFER OF 8.| (Division Name or Number) (Division Name or Number)
ACCUMULATED VALUES |
|
| Transfer $________ or ______% from_______________________________to__________________________________
Use this section if you |
want to move money between | Transfer $________ or ______% from_______________________________to__________________________________
divisions. If a transfer |
causes the balance in any | Transfer $________ or ______% from_______________________________to__________________________________
division to drop below |
$500, AGL reserves the | Transfer $________ or ______% from_______________________________to__________________________________
right to transfer the |
remaining balance. | Transfer $________ or ______% from_______________________________to__________________________________
Amounts to be transferred |
should be indicated in | Transfer $________ or ______% from_______________________________to__________________________________
dollar or percentage |
amounts, maintaining | Transfer $________ or ______% from_______________________________to__________________________________
consistency throughout. |
There is a $500 minimum | Transfer $________ or ______% from_______________________________to__________________________________
amount for division |
transfers. | Transfer $________ or ______% from_______________________________to__________________________________
|
| Transfer $________ or ______% from_______________________________to__________________________________
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] CHANGE IN 9.| INVESTMENT DIVISION PREM % DED % INVESTMENT DIVISION PREM % DED %
ALLOCATION | AIM Variable Insurance Funds, Inc. Putnam Variable Trust
PERCENTAGES | (81) AIM V.I. International Equity ______ ______ (87) Putnam VT Diversified Income
| American Century Variable Portfolios, Inc. ______ ______
Use this section to | (82) VP Value ______ ______ Franklin Templeton Variable Insurance
indicate how premiums or | American General Series Portfolio Company Products Trust
monthly deductions are to | (83) Money Market ______ ______ (88) Franklin Small Cap ______ ______
be allocated. Total | MFS(R) Variable Insurance Trust Templeton Variable Products Series Fund
allocation in each | (84) MFS Total Return Series ______ ______ (89) Templeton International ______ ______
column must equal 100%; | Neuberger Berman Advisers Management Trust Van Kampen Life Investment Trust
whole numbers only. | (85) Partners Portfolio ______ ______ (90) Emerging Growth ______ ______
| Oppenheimer Variable Account Funds Victory Variable Insurance Funds
| (86) Oppenheimer High Income ______ ______ (91) Diversified Stock ______ ______
(92) Investment Quality Bond ______ ______
(93) Small Cap Opportunity ______ ______
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE 3 OF 4
</TABLE>
AGLC 0092
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> |<C> <C>
[ ] AUTOMATIC 10.| Indicate frequency: _______ Quarterly ______ Semi-Annually ______ Annually
REBALANCING |
| (Division Name or Number) (Division Name or Number)
|
($5,000 minimum | _______% _______________________________________ : _________% __________________________________:
accumulation value) Use |
this section to apply for | _______% _______________________________________ : _________% __________________________________:
or make changes to |
Automatic Rebalancing of | _______% _______________________________________ : _________% __________________________________:
the divisions. |
Please refer to the | _______% _______________________________________ : _________% __________________________________:
prospectus for more |
information on the | _______% _______________________________________ : _________% __________________________________:
Automatic Rebalancing |
Option. This option is not | _______% _______________________________________ : _________% __________________________________:
available while the Dollar |
Cost Averaging Option is |
in use. | _________INITIAL HERE TO REVOKE AUTOMATIC REBALANCING ELECTION.
- -----------------------------------------------------------------------------------------------------------------------------------
[ ] REQUEST FOR 11.| _________I request a partial surrender of $_________ or ________% of the net cash surrender value.
PARTIAL |
SURRENDER/ | _________I request a loan in the amount of $________.
POLICY LOAN |
| _________I request the maximum loan amount available from my policy.
Use this section to apply |
for a partial surrender | Unless you direct otherwise below, proceeds are allocated according to the deduction allocation
or policy loan. If | percentages in effect, if available; otherwise they are taken pro-rata from the Variable Divisions
applying for a partial | in use.
surrender, be sure to |
complete the Notice of | ______________________________________________________________________________________________________
Withholding section of this|
Service Request in addition| ______________________________________________________________________________________________________
to this section. |
The minimum surrender | ______________________________________________________________________________________________________
amount is $500. There will |
be a charge not to exceed | ______________________________________________________________________________________________________
2% of the amount withdrawn |
or $25. | ______________________________________________________________________________________________________
Refer to your policy and |
its related prospectus for |
further information. |
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] NOTICE OF 12.| The taxable portion of the distribution you receive from your variable universal life insurance policy
WITHHOLDING | is subject to federal income tax withholding unless you elect not to have withholding apply.
| Withholding of state income tax may also be required by your state of residence. You may elect not to
Complete this section if | have withholding apply by checking the appropriate box below. If you elect not to have withholding
you have applied for a | apply to your distribution or if you do not have enough income tax withheld, you may be responsible for
partial surrender in | payment of estimated tax. You may incur penalties under the estimated tax rules, if your withholding
Section 11. | and estimated tax are not sufficient.
|
| Check one: _______ I do want income tax withheld from this distribution.
|
| _______ I do not want income tax withheld from this distribution.
|
- ------------------------------------------------------------------------------------------------------------------------------------
[ ] AFFIRMATION/ 13.| CERTIFICATION: Under penalties of perjury, I certify: (1) that the number shown on this form is my
SIGNATURE | correct taxpayer identification number and; (2) that I am not subject to backup withholding under
| Section 3406(a)(1)(C) of the Internal Revenue Code. The Internal Revenue Service does not require your
Complete this section for | consent to any provision of this document other than the certification required to avoid backup
ALL requests. | withholding.
|
| Dated at __________________________________ this _________ day of ________________________, __________.
| (MONTH) (YEAR)
|
| X_________________________________________________ X_____________________________________________
| SIGNATURE OF OWNER SIGNATURE OF WITNESS
|
| X_________________________________________________ X_____________________________________________
| SIGNATURE OF JOINT OWNER SIGNATURE OF WITNESS
|
| X_________________________________________________ X_____________________________________________
| SIGNATURE OF ASSIGNEE SIGNATURE OF WITNESS
|
|
|
- -----------------------------------------------------------------------------------------------------------------------------------
PAGE 4 OF 4
</TABLE>
AGLC 0092
<PAGE>
American Exhibit (2)(a)
General
LIFE COMPANIES
2929 Allen Parkway (A40-04), Houston, Texas 77019
Pauletta P. Cohn
Deputy General Counsel
Direct Line (713) 831-1230
FAX (713) 620-3878
E-mail: [email protected]
January 21, 2000
American General Life Insurance Company
2727-A Allen Parkway
Houston, TX 77019
Dear Ladies and Gentlemen:
As Deputy General Counsel of American General Life Companies, I have acted as
counsel to American General Life Insurance Company (the "Company") in connection
with the filing of Pre-effective Amendment No. 1 to the Registration Statement
on Form S-6, File Nos. 333-89897 and 811-08561 ("Registration Statement") for
Separate Account VL-R ("Separate Account VL-R") of the Company with the
Securities and Exchange Commission. The Registration Statement relates to the
proposed issuance of Key Legacy Plus - Variable (policy form No. 99616) flexible
premium variable life insurance policies by the Company ("Policies"). Net
premiums received under the Policies are allocated by the Company to Separate
Account VL-R to the extent directed by owners of the Policies. Net premiums
under other policies that may be issued by the Company may also be allocated to
Separate Account VL-R. The Policies are designed to provide retirement
protection and are to be offered in the manner described in the prospectus and
the prospectus supplements included in the Registration Statement. The Policies
will be sold only in jurisdictions authorizing such sales.
In connection with rendering this opinion, I have examined and am familiar with
originals or copies, certified or otherwise identified to my satisfaction, of
the corporate records of the Company and all such other documents as I have
deemed necessary or appropriate as a basis for the opinion expressed herein and
have assumed that prior to the issuance or sale of any Policies, the
Registration Statement, as finally amended, will be effective.
<PAGE>
American General Life Insurance Company
January 21, 2000
Page 2
Based on and subject to the foregoing and the limitations, qualifications,
exceptions and assumptions set forth herein, I am of the opinion that:
l. The Company is a corporation duly organized and validly existing under the
laws of the State of Texas.
2. Separate Account VL-R was duly established and is maintained by the Company
pursuant to the laws of the State of Texas, under which income, gains and
losses, whether or not realized, from assets allocated to Separate Account
VL-R, are, in accordance with the Policies, credited to or charged against
Separate Account VL-R without regard to other income, gains or losses of
the Company.
3. Assets allocated to Separate Account VL-R will be owned by the Company. The
Company is not a trustee with respect thereto. The Policies provide that
the portion of the assets of Separate Account VL-R equal to the reserves
and other Policy liabilities with respect to Separate Account VL-R will not
be chargeable with liabilities arising out of any other business the
Company may conduct. The Company reserves the right to transfer assets of
Separate Account VL-R in excess of such reserves and other Policy
liabilities to the general account of the Company.
4. When issued and sold as described above, the Policies (including any units
of Separate Account VL-R duly credited thereunder) will be duly authorized
and will constitute validly issued and binding obligations of the Company
in accordance with their terms.
I am admitted to the bar in the State of Texas, and I do not express any opinion
as to the laws of any other jurisprudence.
This opinion is being furnished in accordance with the requirements of Item
601(b)(5), Regulation S-K of the Securities Act of 1933 and I hereby consent to
the use of this opinion as an exhibit to the Registration Statement.
Sincerely,
/s/ PAULETTA P. COHN
---------------------------
PPC:mlc
<PAGE>
Exhibit 2(b)
Writer's Direct Number
(713) 831-2738
January 20, 2000
American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Dear Ladies and Gentlemen:
This opinion is furnished in connection with the Registration Statement on Form
S-6, File No. 333-89897 ("Registration Statement") of Separate Account VL-R
("Separate Account VL-R") of American General Life Insurance Company ("AGL")
covering an indefinite number of units of interest in Separate Account VL-R
under Key Legacy Plus (policy form No. 99616) flexible premium variable life
insurance policies ("Policies"). Net premiums received under the Policies may
be allocated to Separate Account VL-R as described in the prospectus included in
the Registration Statement.
I participated in the preparation of the Policies and I am familiar with their
provisions. I am also familiar with the description contained in the
prospectus. In my opinion:
The Illustrations of Hypothetical Policy Benefits appearing on page 17 of
the Prospectus (the "Illustrations") are consistent with the provisions of
the Policies. The assumptions upon which these Illustrations are based,
including the current charges and the currently planned .25% and .50%
reductions in the daily charges after a specified number of years, are
stated in the prospectus and are reasonable. The Policies have not been
designed so as to make the relationship between premiums and benefits, as
shown in the Illustrations, appear disproportionately more favorable to
prospective purchasers of Policies for preferred risk (the best risk class
offered by AGL) non-tobacco user males age 45, than to prospective
purchasers of Policies for males at other ages within this risk class or
any other risk class, or for females. The particular Illustrations shown
were not selected for the purpose of making the relationship appear more
favorable.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Accounting and
Actuarial Experts" in the prospectus.
/s/ ROBERT M.BEUERLEIN
----------------------------
Robert M. Beuerlein
Senior Vice President & Chief Actuary
<PAGE>
Exhibit 6
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" and to the use of our report dated February 16, 1999, as to American
General Life Insurance Company, in Pre-Effective Amendment No. 1 to the
Registration Statement (Form S-6, Nos. 333-89897 and 811-08561) of American
General Life Insurance Company.
/s/ ERNST & YOUNG LLP
--------------------
ERNST & YOUNG LLP
Houston, Texas
January 19, 2000
