COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
OFFERED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
ANNUITY ADMINISTRATION DEPARTMENT
P.O. BOX 1401, HOUSTON, TEXAS 77251-1401
1-800-247-6584 713/831-3505
American General Life Insurance Company ("AG Life") is offering flexible
payment deferred individual annuity contracts (the "Contracts").
You may use AG Life's Separate Account D for a variable investment return
under the Contracts based on one or more of the following mutual fund
portfolios of The Sierra Variable Trust (the "Trust"): the Global Money Fund,
Growth Fund, Growth and Income Fund, Emerging Growth Fund, International
Growth Fund, U.S. Government Fund, Short Term High Quality Bond Fund,
Corporate Income Fund, and Short Term Global Government Fund (the "Funds").
You may also use AG Life's guaranteed interest accumulation option. This
option has three different guarantee periods, each with its own guaranteed
interest rate.
This Prospectus is designed to provide information about the Contracts that
you ought to know before investing. Please read it carefully and keep it for
future reference. Information about certain aspects of the Contracts, in
addition to that found in this Prospectus, has been filed with the Securities
and Exchange Commission in the Statement of Additional Information (the
"Statement"). The Statement, dated May 1, 1996, as supplemented July 1, 1996,
is incorporated by reference into this Prospectus. The "Table of Contents" of
the Statement appears at page 39 of this Prospectus. You may obtain a free
copy of the Statement upon written or oral request to AG Life's Annuity
Administration Department in our Home Office, which is located at 2727-A Allen
Parkway, Houston, Texas 77019-2191. The mailing address and telephone numbers
are set forth above.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE RELATED
STATEMENT (OR ANY SALES LITERATURE APPROVED BY AG LIFE) IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THE
CONTRACTS ARE NOT AVAILABLE IN ALL STATES AND THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER WOULD
BE UNLAWFUL THEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTA TION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF
THE SIERRA VARIABLE TRUST.
Prospectus dated July 1, 1996
<PAGE>
CONTENTS
Glossary................................................................. 4
Fee Table................................................................ 7
Synopsis of Contract Provisions..........................................10
Selected Accumulation Unit Data..........................................13
AG Life..................................................................15
Separate Account D.......................................................15
The Funds................................................................15
The Fixed Account........................................................17
Contract Issuance and Purchase Payments..................................18
Owner Account Value......................................................19
Variable Account Value.................................................19
Fixed Account Value....................................................20
Transfer, Surrender and Partial Withdrawal of Owner Account Value........20
Transfers..............................................................20
Surrenders and Partial Withdrawals.....................................22
Annuity Period and Annuity Payment Options...............................22
Annuity Commencement Date..............................................22
Application of Owner Account Value.....................................23
Fixed and Variable Annuity Payments....................................23
Annuity Payment Options................................................24
Transfers..............................................................26
Death Proceeds...........................................................26
Death Proceeds Prior to the Annuity Commencement Date..................26
Death Proceeds After the Annuity Commencement Date.....................27
Proof of Death.........................................................27
Charges Under the Contracts..............................................28
Premium Taxes..........................................................28
Surrender Charge.......................................................28
Transfer Charges.......................................................29
Charge to Separate Account D...........................................30
Miscellaneous..........................................................30
One-Time Reinstatement Privilege.......................................30
Reduction in Surrender Charges or Administrative Charges...............30
Long-Term Care and Terminal Illness......................................31
Long-Term Care.........................................................31
Terminal Illness.......................................................31
Other Aspects of the Contracts...........................................31
Owners, Annuitants and Beneficiaries; Assignments......................31
Reports................................................................32
Rights Reserved by Us..................................................32
Payment and Deferment..................................................32
Federal Income Tax Matters...............................................33
General................................................................33
Non-Qualified Contracts................................................33
2
<PAGE>
Individual Retirement Annuities ("IRAs")...............................35
Simplified Employee Pension Plans......................................36
Other Qualified Plans..................................................36
Private Employer Unfunded Deferred Compensation
Plans................................................................37
Excess Distributions - 15% Tax.........................................37
Federal Income Tax Withholding and Reporting...........................37
Taxes Payable by AG Life and Separate Account D........................38
Distribution Arrangements................................................38
Legal Matters............................................................38
Other Information on File................................................39
Contents of Statement of Additional Information..........................39
3
<PAGE>
GLOSSARY
WE, OUR AND US - American General Life Insurance Company ("AG Life").
YOU AND YOUR - a reader of this Prospectus who is contemplating making
purchase payments or taking any other action in connection with a Contract.
This would generally be the Owner.
ACCOUNT VALUE - the sum of your Fixed Account Value and Variable Account
Value.
ACCUMULATION UNIT - a measuring unit used in calculating your interest in a
Division of Separate Account D prior to the Annuity Commencement Date.
ANNUITANT - the person named as such in the Contract and on whose life annuity
payments may be based.
ANNUITY COMMENCEMENT DATE - the date on which we begin making payments under
an Annuity Payment Option, unless a lump-sum distribution is elected instead.
ANNUITY PAYMENT OPTION - one of the several forms in which you can request us
to make annuity payments.
ANNUITY PERIOD - the period during which we make annuity payments under an
Annuity Payment Option.
ANNUITY UNIT - a measuring unit used in calculating the amount of Variable
Annuity Payments.
BENEFICIARY - the person that you designate to receive any proceeds due under
a Contract following the death of an Owner or an Annuitant.
CODE - the Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT - a person that you designate under a Non-Qualified
Contract to become the Annuitant if the Annuitant dies before the Annuity
Commencement Date and the Contingent Annuitant survives the Annuitant.
CONTINGENT BENEFICIARY - a person that you designate to receive any proceeds
due under a Contract following the death of an Owner or an Annuitant, if the
Beneficiary has died but the Contingent Beneficiary survives at the time such
proceeds become payable.
CONTRACT - an individual annuity Contract offered by this Prospectus.
CONTRACT ANNIVERSARY - each anniversary of the date of issue of the Contract.
CONTRACT YEAR - each year beginning with the date of issue of the Contract.
4
<PAGE>
DIVISION - one of the several different investment options into which Separate
Account D is divided.
FIXED ACCOUNT - the name of the investment alternative under which purchase
payments are allocated to AG Life's General Account.
FIXED ACCOUNT VALUE - the amount of your Account Value which is in the Fixed
Account.
FIXED ANNUITY PAYMENTS - annuity payments that are fixed in amount and do not
vary with the investment experience of any Division of Separate Account D.
FUND - an individual investment fund or portfolio available for investment
under the Contracts. Currently, each Fund is a part of The Sierra Variable
Trust.
GENERAL ACCOUNT - all assets of AG Life other than those in Separate Account D
or any other legally-segregated separate account established by AG Life.
GUARANTEED INTEREST RATE - the rate of interest we credit during any Guarantee
Period, on an effective annual basis.
GUARANTEE PERIOD - the period for which a Guaranteed Interest Rate is
credited.
HOME OFFICE - our office at the following addresses and phone numbers:
American General Life Insurance Company, Annuity Administration Department,
2727-A Allen Parkway, Houston, Texas 77019-2191; mailing address - P.O. Box
1401, Houston, Texas 77251-1401; 1-800-247-6584 or 713-
831-3102.
INVESTMENT COMPANY ACT OF 1940, AS AMENDED ("1940 ACT") - a federal law
governing the operations of investment companies such as the Trust and
Separate Account D.
NON-QUALIFIED - not eligible for the special federal income tax treatment
applicable in connection with retirement plans pursuant to Sections 401, 403,
or 408 of the Code.
OWNER - the holder of record of a Contract, except that the employer or
trustee may be the Owner of the Contract in connection with a retirement plan.
QUALIFIED - eligible for the special federal income tax treatment applicable
in connection with retirement plans pursuant to sections 401, 403, or 408 of
the Code.
SEPARATE ACCOUNT D - the segregated asset account referred to as American
General Life Insurance Company Separate Account D established to receive and
invest purchase payments allocated to the Divisions under the Contracts.
SURRENDER CHARGE - a charge for sales expenses that may be assessed upon
surrenders of and payments of certain other amounts from a Contract.
5
<PAGE>
VALUATION DATE - all days on which we are open for business except, with
respect to any Division, days on which the related Fund does not value its
shares.
VALUATION PERIOD - the period that starts at the close of regular trading on
the New York Stock Exchange on a Valuation Date and ends at the close of
regular trading on the exchange on the next succeeding Valuation Date.
VARIABLE ANNUITY PAYMENTS - annuity payments that vary in amount based on the
investment experience of one or more of the Divisions of Separate Account D.
VARIABLE ACCOUNT VALUE - the amount of your Account Value that is in Separate
Account D.
WRITTEN - signed, dated, in form and substance satisfactory to us and received
at our Home Office. See "Synopsis of Contract Provisions - Communications to
Us." You must use special forms provided by us or your sales representative to
authorize telephone transfers, elect an Annuity Option or exercise your
one-time reinstatement privilege.
6
<PAGE>
FEE TABLE
The purpose of this Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly pursuant
to a Contract and in connection with the Funds. The table reflects expenses of
Separate Account D as well as the Funds. Amounts for state premium taxes or
similar assessments may also be deducted, where applicable.
PARTICIPANT TRANSACTION CHARGES
Front-End Sales Charge Imposed on Purchases .................... 0%
Maximum Surrender Charge (1).................................... 7.0%
(computed as a percentage of purchase payments)
Transfer Fee...................................................$ 0 (2)
ANNUAL MAINTENANCE CHARGE...........................................$ 0
SEPARATE ACCOUNT D ANNUAL EXPENSES (as a percentage of average daily net asset
value)
Mortality and Expense Risk Charge.............................. 1.20%
Administrative Expense Charge.................................. .30%
------
Total Separate Account D Annual Expenses..................... 1.50%
======
- --------
(1) This charge does not apply or is reduced under certain circumstances. See
"Surrender Charge."
(2) This charge is $25 after the twelfth transfer (unless such transfer is
associated with the Sierra Asset Management Program; see "Transfers")
during each Contract Year prior to the Annuity Commencement Date.
7
<PAGE>
<TABLE>
THE FUNDS' ANNUAL EXPENSES (1) (as a percentage of average net assets)
<CAPTION>
Management
Fees After Expense Total Fund
Reimbursement Other Operating
and Waiver Expenses Expenses
<S> <C> <C> <C>
Global Money .15% .50% .65%
Growth .90% .30% 1.20%
Growth and Income .80% .35% 1.15%
Emerging Growth .90% .30% 1.20%
International Growth .95% .40% 1.35%
U.S. Government .60% .30% .90%
Short Term High Quality Bond .50% .45% .95%
Corporate Income .65% .30% .95%
Short Term Global Government .75% .50% 1.25%
</TABLE>
Example: If you surrender your Contract at the end of the applicable time
period, a $1,000 investment would be subject to the following
expenses, assuming a 5% annual return on assets:
<TABLE>
If all amounts are invested in one of the following Funds:
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Global Money $91 $121 $151 $248
Growth $97 $138 $179 $303
Growth and Income $97 $136 $177 $298
Emerging Growth $97 $138 $179 $303
International Growth $99 $142 $186 $318
U.S. Government $94 $129 $164 $274
Short Term High Quality Bond $95 $130 $167 $279
Corporate Income $95 $130 $167 $279
Short Term Global Government $98 $139 $181 $308
</TABLE>
- ----------------------
(1) Management fees and other expenses are derived from 1995 operating
experience, which have been restated to reflect current expenses, the
modification of certain voluntary fee waivers and expense reimbursements
from the investment adviser and the administrator, and credits allowed by
the custodian. The investment adviser and the administrator may each, at
its sole discretion, vary the level of or eliminate its voluntary fee
waivers and expense reimbursements at any time. In the absence of such
waivers and reimbursements, as modified, and credits allowed by the
custodian, management fees, other expenses, and total expenses would have
been:
<TABLE>
<CAPTION>
Management Fees Other Expenses Total Expenses
-------------------------------------------------------
<S> <C> <C> <C>
Global Money 0.50% 0.51% 1.01%
Growth 0.90% 0.34% 1.24%
Growth and Income 0.80% 0.36% 1.16%
Emerging Growth 0.89% 0.39% 1.28%
International Growth 0.95% 0.53% 1.48%
U.S. Government 0.60% 0.43% 1.03%
Short Term High Quality Bond 0.50% 0.51% 1.01%
Corporate Income 0.65% 0.34% 0.99%
Short Term Global Government 0.75% 0.51% 1.26%
</TABLE>
8
<PAGE>
Example: If you commence a life Annuity Payment Option following the end of
the applicable time period, a $1,000 investment would be subject to
the following expenses, assum ing a 5% annual return on assets:
<TABLE>
If all amounts are invested in one of the following Funds:
<CAPTION>
1 year 3 years(1),(2) 5 years(3) 10 years
<S> <C> <C> <C> <C>
Global Money $76 $67 $115 $248
Growth $81 $84 $143 $303
Growth and Income $81 $82 $141 $295
Emerging Growth $81 $84 $143 $303
International Growth $83 $88 $150 $318
U.S. Government $78 $75 $128 $274
Short Term High Quality Bond $79 $76 $131 $279
Corporate Income $79 $76 $131 $279
Short Term Global Government $82 $85 $145 $308
</TABLE>
Example: If you do not surrender your Contract or commence an Annuity Payment
Option, a $1,000 investment would be subject to the following
expenses, assuming a 5% annual return on assets:
<TABLE>
If all amounts are invested in one of the following Funds:
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Global Money $22 $67 $115 $248
Growth $27 $84 $143 $303
Growth and Income $27 $82 $141 $298
Emerging Growth $27 $84 $143 $303
International Growth $29 $88 $150 $318
U.S. Government $24 $75 $128 $274
Short Term High Quality Bond $25 $76 $131 $279
Corporate Income $25 $76 $131 $279
Short Term Global Government $28 $85 $145 $308
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Similarly,
the assumed 5% annual rate of return is not an estimate or a guarantee of
future investment performance. The examples are based on the restated Fund
expenses set forth on the preceding page.
<FN>
(1) If the Annuity Commencement Date under a life or non-life Annuity Payment
Option were the last day of the third Contract Year, the figures in this
column would be the same as those in the same column of the preceding
example.
(2) If the Annuity Payment Option exercised following the third Contract Year
is not a life annuity, the figures in this column would be $9 less than
those in the same column of the preceding example due to the decrease in
the surrender charges from Contract Year 3 to Contract Year 4.
(3) If the Annuity Payment Option exercised following the fifth Contract Year
is not a life annuity, the figures in this column would be $18 less than
those in the same column of the preceding example due to the decrease in
the surrender charge from Contract Year 5 to Contract Year 6. If said
non-life annuity option had its Annuity Commencement Date on the last day
of the fifth Contract Year, the figures in this column would be the same
as those in the same column of the preceding example.
</FN>
</TABLE>
9
<PAGE>
SYNOPSIS OF CONTRACT PROVISIONS
This synopsis should be read together with the other information set forth in
this Prospectus. Variations due to requirements particular to your state are
described in supplements which are attached to this Prospectus, or in
endorsements to your Contract, as appropriate.
The Contracts are designed to provide retirement benefits through the
accumulation of purchase payments on a fixed or variable basis, and by the
application of such accumulations to provide Fixed or Variable Annuity
Payments.
MINIMUM INVESTMENT REQUIREMENTS
Your initial purchase payment must be at least $5,000 ($2,000 in the case of
an Individual Retirement Annuity ("IRA") or $250 in the case of a Spousal IRA
acquired together with an IRA). The amount of any subsequent purchase payment
that you make must be at least $100 ($50 for an IRA). If your Account Value
falls below $500, we may cancel your interest in the Contract and treat it as
a full surrender. See "Contract Issuance and Purchase Payments."
PURCHASE PAYMENT ACCUMULATION
Purchase payments will be accumulated on a variable or fixed basis until the
Annuity Commencement Date. For variable accumulation, you may allocate part or
all of your Account Value to one or more of the nine available Divisions of
Separate Account D. Each such Division invests solely in shares of one of nine
corresponding Funds of the Trust. See "The Funds." As the value of the
investments in a Fund's shares increases or decreases, the value of
accumulated purchase payments allocated to the corresponding Division
increases or decreases, subject to applicable charges and deductions. See
"Variable Account Value."
For fixed accumulation, you may allocate part or all of your Account Value to
one or more of the three Guarantee Periods currently available in our Fixed
Account. Each Guarantee Period is for a different period of time and may have
a different Guaranteed Interest Rate. While allocated to a Guarantee Period,
the value of accumulated purchase payments increases at the Guaranteed
Interest Rate applicable to that Guarantee Period. See "The Fixed Account."
FIXED AND VARIABLE ANNUITY PAYMENTS
You may elect to receive Fixed or Variable Annuity Payments, or a combination
thereof, commencing on the Annuity Commencement Date. Fixed Annuity Payments
are periodic payments from AG Life, the amount of which is fixed and
guaranteed by AG Life. The amount of the payments will depend on the Annuity
Payment Option chosen, the age and, in some cases, sex of the Annuitant, and
the total amount of Account Value applied to the fixed Annuity Payment Option.
10
<PAGE>
Variable Annuity Payments are similar to Fixed Annuity Payments, except that
the amount of each periodic payment from AG Life will vary reflecting the net
investment return of the Division or Divisions chosen in connection with a
variable Annuity Payment Option. If the net investment return for a given
month exceeds an annual rate of 3.5%, the monthly payment will be greater than
the previous payment. If the net investment return for a month is less than
3.5%, the monthly payment will be less than the previous payment. See "Annuity
Period and Annuity Payment Options."
CHANGES IN ALLOCATIONS AMONG DIVISIONS AND GUARANTEE PERIODS
Prior to the Annuity Commencement Date, you may modify your election with
respect to the allocation of future purchase payments to each of the various
Divisions and Guarantee Periods, without charge.
In addition, you may reallocate your Account Value among the Divisions and
Guarantee Periods prior to the Annuity Commencement Date. Transfers out of a
Guarantee Period, however, are subject to limitations as to amount. For these
and other terms and conditions of transfer, see "Transfer, Surrender and
Partial Withdrawal of Owner Account Value - Transfers."
After the Annuity Commencement Date, you may make transfers among the
Divisions or to a fixed Annuity Payment Option, but you may not make transfers
from a fixed Annuity Payment Option. See "Annuity Period and Annuity Payment
Options - Transfers."
SURRENDERS, WITHDRAWALS AND CANCELLATIONS
You may make a total surrender of or partial withdrawal from your Contract at
any time prior to the Annuity Commencement Date, by Written request to us. A
Surrender Charge may be assessed and some surrenders and withdrawals may
subject you to tax penalties. See "Surrenders and Partial Withdrawals."
You may cancel your Contract by delivering it or mailing it with a Written
cancellation request to our Home Office or to the sales representative through
whom it was purchased, before the close of business on the tenth day after you
receive the Contract. (In some cases, the Contract may provide for a 20 or
30-day, rather than a ten-day, period). If the foregoing items are sent by
mail, properly addressed and postage prepaid, they will be deemed to be
received by us on the date actually received.
Should you cancel your Contract, if permitted under state law, we will refund
to you the Owner Account Value plus any premium taxes that have been deducted.
In other states, however, we will refund (a) the greater of that amount or the
amount of your purchase payments, or (b) the amount of your purchase payments.
DEATH PROCEEDS
In the event that the Annuitant or Owner dies prior to the Annuity
Commencement Date, a benefit may be payable to the Beneficiary. See "Death
Proceeds Prior to the Annuity Commencement Date."
11
<PAGE>
LIMITATIONS IMPOSED BY RETIREMENT PLANS AND EMPLOYERS
Certain rights you would otherwise have under a Contract may be limited by the
terms of any applicable employee benefit plan. These limitations may restrict
such things as total and partial surrenders, the amount or timing of purchase
payments that may be made, when annuity payments must start and the type of
annuity options that may be selected. Accordingly, you should familiarize
yourself with these and all other aspects of any retirement plan in connection
with which a Contract is used. We are not responsible for monitoring or
assuring compliance with the provisions of any retirement plan.
COMMUNICATIONS TO US
All communications to us should include your Contract number, your name and,
if different, the Annuitant's name. Communications may be directed to the
addresses and phone numbers on the cover of this Prospectus.
Except as otherwise specified in this Prospectus, purchase payments or other
communications are deemed received at our Home Office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange or (2) on a date that is not a
Valuation Date. In either of these two cases, the date of receipt will be
deemed to be the next Valuation Date.
FINANCIAL AND PERFORMANCE INFORMATION
Financial statements of Separate Account D and AG Life are included in the
Statement of Additional Information. See "Contents of Statement of Additional
Information."
Advertising and other sales materials may include yield and total return
figures for the Divisions of Separate Account D. These figures are based on
historical results and are not intended to indicate future performance.
"Yield" is the return generated by an investment in a Division over a period
of time specified in the advertisement, excluding capital changes in the
corresponding Fund's investments. This rate of return is assumed to be earned
over a full year and is shown as a percentage of the investment. "Effective
yield" may also be quoted for the Global Money Division.
"Effective yield" is higher than "yield" because it assumes weekly compounding
over the course of the year.
Total return is the total change in value of an investment in the Division
over a period of time specified in the advertisement. The rate of "average
annual total return" shown would produce that change in value over the
specified period, if compounded annually. The rate of "aggregate total return"
is the cumulative amount of such change over the specified period, expressed
as a percentage of the initial investment.
12
<PAGE>
Yield figures do not reflect the Surrender Charge, and yield and total return
figures do not reflect premium tax charges. Such total return figures may be
used together with total return figures that also exclude the Surrender
Charge. The exclusion of charges makes the performance shown more favorable. A
Fund's adviser may waive or reimburse certain fees or charges, which will
enhance the related Division's performance results. Additional information
concerning the Divisions' performance figures appears in the Statement of
Additional Information.
AG Life may also advertise or report to Owners its ratings as an insurance
company by the A. M. Best Company. Each year, A. M. Best reviews the financial
status of thousands of insurers, culminating in the assignment of Best's
Ratings. These ratings reflect their current opinion of the relative financial
strength and operating performance of an insurance company in comparison to
the norms of the life/health industry. Best's Ratings range from A++ to F. An
A++ rating means, in the opinion of A. M. Best, that the insurer has
demonstrated the strongest ability to meet its respective policyholder and
other contractual obligations. A. M. Best publishes Best's Insurance Reports,
Life-Health Edition. The 1995 Edition reconfirmed AG Life's rating of A++
(Superior), as of June 1995 for financial position and operating performance.
In addition, the claims-paying ability of AG Life as measured by the Standard
& Poor's Corporation may be referred to in advertisements or in reports to
Owners. A Standard & Poor's insurance claims-paying ability rating is an
assessment of an operating insurance company's financial capacity to meet the
obligations of its insurance policies in accordance with their terms. Standard
& Poor's ratings range from AAA to D. The Company's claims paying ability
rating is AAA (Superior), reconfirmed as of November 1995.
AG Life may additionally advertise its rating from Duff & Phelps Credit Rating
Co. A Duff & Phelps rating is an assessment of a company's insurance claims
paying ability. Duff & Phelps ratings range from AAA to CCC. Duff & Phelps
rates the claims paying ability of AG Life as AAA, the highest level,
reconfirmed as of July 1995.
The ratings from A. M. Best, Standard & Poors, and Duff & Phelps reflect the
claims paying ability and financial strength of AG Life and are not a rating
of investment performance that purchasers of insurance products have
experienced or are likely to experience in the future.
SELECTED ACCUMULATION UNIT DATA
The table below shows the Accumulation Unit value for the below-listed
Divisions of Separate Account D on the date purchase payments were first
allocated to each Division, as well as the Accumulation Unit value and number
of Accumulation Units outstanding for the indicated date thereafter.
13
<PAGE>
SELECTED ACCUMULATION UNIT DATA (CONT.)
<TABLE>
<CAPTION>
Growth
Global and Emerging International
Money Growth Income Growth Growth
------ ------ ------ -------- -------------
<S> <C> <C> <C> <C> <C>
Accumulation
Unit Values
(Beginning
of Period)* $1 $1 $1 $1 $1
Accumulation
Unit Values
at 12/31/93 $1.006053 $1.108093 N/A N/A $1.119962
Accumulation
Unit Values
at 12/31/94 $1.028063 $1.121034 $0.968879 $1.037868 $1.124150
Accumulation
Unit Values
at 12/31/95 $1.068122 $1.516694 $1.263773 $1.339251 $1.180567
Accumulation
Units out-
standing at
12/31/93 1,479,140.661 20,576,053.109 N/A N/A 9,502,246.682
Accumulation
Units out-
standing at
at 12/31/94 5,990,768.122 55,968,698.496 25,711,520.731 19,161,715.815 41,411,804.816
Accumulation
Units out-
standing at
at 12/31/95 19,070,427.181 65,732,670.354 36,675,025.766 34,379,287.120 38,882,135.444
</TABLE>
<TABLE>
<CAPTION>
Short Term Short Term
U.S. High Quality Corporate Global
Government Bond Income Government
---------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Accumulation
Unit Values
(Beginning
of Period)* $1 $1 $1 $1
Accumulation
Unit Values
at 12/31/93 $1.012669 N/A $1.045867 $0.991639
Accumulation
Unit Values
at 12/31/94 $0.957302 $0.969705 $0.946638 $0.957146
Accumulation
Unit Values
at 12/31/95 $1.102324 $1.044070 $1.166536 $1.019136
Accumulation
Units out-
standing at
12/31/93 24,761,033.965 N/A 27,478,746.085 19,320,639.816
Accumulation
Units out-
standing at
at 12/31/94 45,519,220.818 16,054,361.321 57,776,195.507 31,104,117.951
Accumulation
Units out-
standing at
at 12/31/95 47,440,751.595 11,822,728.277 52,014,100.048 23,376,496.403
- -------------------------
<FN>
* Purchase payments were first allocated to the Global Money Division on
May 7, 1993; to the Growth Division on May 6, 1993; to the Growth and
Income Division and the Emerging Growth Division on January 11, 1994; to
the International Growth Division on May 6, 1993; to the U.S. Government
Division on May 5, 1993; to the Short Term High Quality Bond Division on
January 11, 1994; to the Corporate Income Division on May 6, 1993; and to
the Short Term Global Government Division on May 11, 1993.
</FN>
</TABLE>
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<PAGE>
AG LIFE
AG Life is a stock life insurance company organized under the laws of the
State of Texas, which is a successor in interest to a company originally
organized under the laws of the State of Delaware in 1917. AG Life 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
Contracts are AG Life's, and American General Corporation has no legal
obligation to back those commitments.
SEPARATE ACCOUNT D
Separate Account D was originally established on November 19, 1973 and
consists of twenty-six Divisions, nine of which are available under the
Contracts offered by this Prospectus. Separate Account D is registered with
the Securities and Exchange Commission as a unit investment trust under the
1940 Act.
Each Division of Separate Account D is part of AG Life's general business and
the assets of Separate Account D belong to AG Life. Under Texas law and the
terms of the Contracts, the assets of Separate Account D will not be
chargeable with liabilities arising out of any other business which AG Life
may conduct, but will be held exclusively to meet AG Life's obligations under
variable annuity contracts. Furthermore, the income, gains, and losses,
whether or not realized, from assets allocated to Separate Account D are, in
accordance with the Contracts, credited to or charged against the Separate
Account without regard to other income, gains, or losses of AG Life.
THE FUNDS
The variable benefits under the Contracts are funded by nine Divisions of the
Separate Account. These Divisions invest in shares of the nine separate
investment Funds of the Trust. Fund shares are sold, without sales charges,
exclusively to Separate Account D. In the future, however, the Trust may offer
its shares to separate accounts funding variable annuities of insurance
companies affiliated or unaffiliated with AG Life and to separate accounts
which fund variable life insurance or other variable funding arrangements. We
do not see any conflict between Owners of Contracts and owners of variable
life insurance policies or variable annuity contracts issued by insurance
companies not affiliated with AG Life. Nevertheless, the Trust's Board of
Trustees will monitor to identify any material irreconcilable conflicts that
may develop and determine what, if any, action should be taken in response. If
it becomes necessary for any separate account to replace shares of any Fund
with another investment, the Fund may have to liquidate securities on a
disadvantageous basis.
The investment adviser to the Trust is Sierra Investment Advisors Corporation,
which is not affiliated with AG Life.
Any dividends or capital gain distributions attributable to Contracts are
automatically reinvested in shares of the Portfolio from which they are
received at the Fund's net asset value on the date payable. Such dividends and
distributions will have the effect of reducing the net asset value of each
share of the corresponding Fund and increasing, by an equivalent value, the
number of shares outstanding of the Fund. However, the value of your interest
in the corresponding Division will not change as a result of any such
dividends and distributions.
15
<PAGE>
The names of the Funds in which each available Division invests are as
follows:
o Global Money Fund
o Growth Fund
o Growth and Income Fund
o Emerging Growth Fund
o International Growth Fund
o U.S. Government Fund
o Short Term High Quality Bond Fund
o Corporate Income Fund
o Short Term Global Government Fund
Before selecting any Division, you should carefully read the Trust prospectus,
which is attached at the end of this Prospectus. The Trust prospectus includes
more complete information about the Funds in which each Division invests,
including investment objectives and policies, charges and expenses.
Lower rated securities such as those in which the Growth, Emerging Growth, and
the Short Term Global Government Funds may invest up to 35%, 35% and 10%,
respectively, of their total assets are subject to greater market fluctuations
and risk of loss of income and principal than investments in lower yielding
fixed-income securities. Potential investors in these Divisions should
carefully read the prospectus and related statement of additional information
that pertains to these Funds and consider their ability to assume the risks of
making an investment in these Divisions.
VOTING PRIVILEGES
The Owner prior to the Annuity Commencement Date and the Annuitant or other
payee during the Annuity Period will be entitled to give us instructions as to
how Fund shares held in the Divisions of Separate Account D attributable to
their Contract should be voted on matters pertaining to that Fund at meetings
of shareholders of the Fund. Those persons entitled to give voting
instructions and the number of votes for which they may give directions will
be determined as of the record date for a meeting. Separate Account D will
vote all shares of each Fund that it holds of record in accordance with
instructions received with respect to all AG Life annuity contracts
participating in that Fund.
Prior to the Annuity Commencement Date, the number of votes each Owner is
entitled to direct with respect to a particular Fund is equal to (a) the
Owner's Variable Account Value attributable to that Fund divided by (b) the
net asset value of one share of that Fund. In determining the number of votes,
fractional votes will be recognized. While a variable Annuity Payment Option
is in effect, the number of votes an Annuitant or payee is entitled to direct
with respect to a particular Fund will be computed in a comparable manner,
based on our liability for future Variable Annuity Payments with respect to
that Annuitant or payee as of the record date. Such liability for future
payments will be calculated on the basis of the mortality assumptions and the
assumed interest rate used in determining the number of Annuity Units under a
Contract and the applicable value of an Annuity Unit on the record date.
Fund shares held by insurance company separate accounts other than Separate
Account D will generally be voted in accordance with instructions of
participants in such other separate accounts.
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<PAGE>
We believe that the foregoing voting instruction procedures comply with
current federal securities law requirements and interpretations thereof.
However, AG Life reserves the right to modify these procedures in any manner
consistent with applicable legal requirements and interpretations as in effect
from time to time.
THE FIXED ACCOUNT
AMOUNTS IN THE FIXED ACCOUNT OR SUPPORTING FIXED ANNUITY PAYMENTS BECOME PART
OF OUR GENERAL ACCOUNT. BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS,
INTERESTS IN THE GENERAL ACCOUNT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, NOR IS THE GENERAL ACCOUNT REGISTERED AS AN INVESTMENT COMPANY
UNDER THE 1940 ACT. WE HAVE BEEN ADVISED THAT THE STAFF OF THE SECURITIES AND
EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURES IN THIS PROSPECTUS THAT
RELATE TO THE FIXED ACCOUNT OR FIXED ANNUITY PAYMENTS. DISCLOSURES REGARDING
THESE MATTERS, HOWEVER, MAY BE SUBJECT TO CERTAIN GENERALLY-APPLICABLE
PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING TO THE ACCURACY AND
COMPLETENESS OF STATEMENTS IN PROSPECTUSES.
Our obligations with respect to the Fixed Account are legal obligations of AG
Life and are supported by our General Account assets, which also support
obligations incurred by us under other insurance and annuity contracts.
Investments purchased with amounts allocated to the Fixed Account are the
property of AG Life, and Owners have no legal rights in such investments.
Account Value that is allocated by the Owner to the Fixed Account earns a
Guaranteed Interest Rate commencing with the date of such allocation. This
Guaranteed Interest Rate continues for a specific number of years selected by
the Owner from among the Guarantee Periods that we then offer. At the end of a
Guarantee Period, the Owner's Account Value in that Guarantee Period,
including interest accrued thereon, will be allocated to a new Guarantee
Period of the same length unless AG Life has received a Written request from
the Owner to allocate this amount to a different Guarantee Period or periods
or to one or more of the Divisions of Separate Account D. We must receive this
Written request at least three business days prior to the end of the Guarantee
Period. If the Owner has not provided such Written request and the renewed
Guarantee Period would extend beyond the scheduled Annuity Commencement Date,
we will nevertheless contact the Owner regarding the scheduled Annuity
Commencement Date. (See "Annuity Payment Options" and "Surrender Charge.") If
the Owner does not elect to annuitize on that scheduled date, the Annuity
Commencement Date will be extended to the earlier of (1) the end of the
renewed Guarantee Period or (2) the latest possible Annuity Commencement Date.
(See "Annuity Commencement Date.") The first day of the new Guarantee Period
(or other reallocation) will be the day after the end of the prior Guarantee
Period. We will notify the Owner at least 30 days and not more than 60 days
prior to the end of any Guarantee Period. If the Owner's Account Value in a
Guarantee Period is less than $500, we will, without charge, automatically
transfer the balance to the Global Money Division at the end of that Guarantee
Period, unless we have received in good order Written instructions to transfer
such balance to a different Division.
We declare the Guaranteed Interest Rates from time to time as market
conditions dictate. We advise an Owner of the Guaranteed Interest Rate for a
chosen Guarantee Period at the time a purchase payment is received, a transfer
is effectuated or a Guarantee Period is renewed. A different rate of interest
may be credited to one Guarantee Period than to another Guarantee Period that
is the same length but that began on a different date.
17
<PAGE>
Currently we make available Guarantee Periods of one, three and five years.
Each Guarantee Period has its own Guaranteed Interest Rate, which may differ
from those for other Guarantee Periods. From time to time we will, at our
discretion, change the Guaranteed Interest Rate for future Guarantee Periods
of various lengths. These changes will not affect the Guaranteed Interest
Rates being paid on Guarantee Periods that have already commenced. Each
allocation or transfer of an amount to a Guarantee Period commences the
running of a new Guarantee Period with respect to that amount, which will earn
a Guaranteed Interest Rate that will continue unchanged until the end of that
period. The Guaranteed Interest Rate will never be less than an effective
annual rate of 3.5%. We reserve the right to change the Guarantee Periods that
we are making available at any time.
AG LIFE'S MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED INTEREST
RATES TO BE DECLARED. AG LIFE CANNOT PREDICT OR ASSURE THE LEVEL OF ANY FUTURE
GUARANTEED INTEREST RATES IN EXCESS OF AN EFFECTIVE ANNUAL RATE OF 3.5%.
Information concerning the Guaranteed Interest Rates applicable to the various
Guarantee Periods at any time may be obtained from your sales representative
or from the addresses or phone numbers set forth on the cover page of this
Prospectus.
CONTRACT ISSUANCE AND PURCHASE PAYMENTS
The minimum initial purchase payment is $5,000 ($2000 in the case of an IRA or
$250 in the case of a Spousal IRA acquired together with an IRA). The amount
of the first purchase payment or transfer that is allocated to any Division or
Guarantee Period must be at least $500 ($250 in the case of a Spousal IRA
acquired together with an IRA). The amount of any subsequent purchase payment
allocated to any Division or Guarantee Period must be at least $100 ($50 in
the case of an IRA). We reserve the right to modify these minimums, at our
discretion.
An application to purchase a Contract must be made by using a signed written
application form provided by AG Life or by such other medium or format as may
be agreed to by AG Life and Sierra Investment Services Corporation, as
distributor of the Contracts. When a purchase payment accompanies an
application to purchase a Contract, and the application is in proper form and
includes all necessary information, either the application will be processed
and the purchase payment credited or the application will be rejected and the
purchase payment returned within two Valuation Dates after receipt of the
application at the processing center for Contract applications.
If the application is not in a proper form or does not include all necessary
information, the applicant will be requested to provide additional materials
or information within five Valuation Dates after receipt of the application at
the processing center for Contract applications. If the application is not
made proper and complete within this five day period, the purchase payment
will be returned immedi ately unless the prospective purchaser specifically
consents to retention of the purchase payment until the application is made
proper and complete, in which case the initial purchase payment is credited
within two Valuation Dates after receipt at such processing center of the last
item required to process the application. Subsequent purchase payments are
credited as of the end of the Valuation Period in which they and any required
Written identifying information, are received at our Home Office. We reserve
the right to reject any application or purchase payment for any reason.
18
<PAGE>
If the Owner's Account Value in any Division falls below $500, we reserve the
right to transfer, without charge, the remaining balance to the Global Money
Division. If the Owner's total Account Value falls below $500, we may cancel
the Contract. Such a cancellation would be considered a full surrender of the
Contract. We will provide you with 60 days' advance notice of any such
cancellation.
So long as the Account Value does not fall below $500, you need make no
further purchase payments. You may, however, elect to make subsequent purchase
payments at any time prior to the Annuity Commencement Date and while the
Owner and Annuitant are still living. Checks for subsequent purchase payments
should be made payable to American General Life Insurance Company and
forwarded directly to our Home Office. If we receive proper instructions, we
may also accept purchase payments by wire, by direct transfer from your
checking, savings or brokerage account, or by exchange from another insurance
company. You may obtain further information about how to make purchase
payments by any of these methods from your sales representative or from us at
the addresses and telephone numbers on the cover page of this Prospectus.
Purchase payments pursuant to salary reduction plans may be made only with our
agreement.
Your purchase payments begin to earn a return in the Divisions of Separate
Account D or the Guarantee Periods of the Fixed Account as of the date we
credit the purchase payments to your Contract. When you apply for a Contract,
you select (in whole percentages) the amount of each purchase payment that is
to be allocated to each Division and each Guarantee Period. You can change
these allocation percentages at any time by Written notice to us.
OWNER ACCOUNT VALUE
Prior to the Annuity Commencement Date, your Account Value under a Contract is
the sum of your Variable Account Value and Fixed Account Value, as discussed
below.
VARIABLE ACCOUNT VALUE
Your Variable Account Value as of any Valuation Date prior to the Annuity
Commencement Date is the sum of your Variable Account Values in each Division
of Separate Account D as of that date. Your Variable Account Value in any such
Division is the product of the number of your Accumula tion Units in that
Division multiplied by the value of one such Accumulation Unit as of that
Valuation Date. There is no guaranteed minimum Variable Account Value. To the
extent that your Account Value is allocated to Separate Account D, you bear
the entire risk of investment losses.
Accumulation Units in a Division are credited to you when you allocate
purchase payments or transferred amounts to that Division. Similarly, such
Accumulation Units are cancelled to the extent you transfer or withdraw
amounts from a Division or to the extent necessary to pay certain charges
under the Contract. The crediting or cancellation of Accumulation Units is
based on the value of such Accumulation Units at the end of the Valuation Date
as of which the related amounts are being credited to or charged against your
Variable Account Value, as the case may be.
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<PAGE>
The value of an Accumulation Unit for a Division on any Valuation Date is
equal to the previous value of that Division's Accumulation Unit multiplied by
that Division's net investment factor for the Valuation Period ending on that
Valuation Date.
The net investment factor for a Division is determined by dividing (1) the net
asset value per share of the Fund shares held by the Division, determined at
the end of the current Valuation Period, plus the per share amount of any
dividend or capital gains distribution made with respect to the Fund shares
held by the Division during the current Valuation Period, by (2) the net asset
value per share of the Fund shares held in the Division as determined at the
end of the previous Valuation Period, and subtracting from that result a
factor representing the mortality risk, expense risk and administrative
expense charge.
FIXED ACCOUNT VALUE
Your Fixed Account Value as of any Valuation Date prior to the Annuity
Commencement Date is the sum of your Fixed Account Value in each Guarantee
Period as of that date. Your Fixed Account Value in any Guarantee Period is
equal to the following amounts, in each case increased by accrued interest at
the applicable Guaranteed Interest Rate: (1) the amount of purchase payments,
renewals and transferred amounts allocated to the Guarantee Period less (2)
the amount of any transfers or withdrawals out of the Guarantee Period,
including withdrawals to pay applicable charges.
Your Fixed Account Value is guaranteed by AG Life. Therefore, AG Life bears
the investment risk with respect to amounts allocated to the Fixed Account,
except to the extent that AG Life may vary the Guaranteed Interest Rate for
future Guarantee Periods (subject to the 3.5% effective annual minimum).
TRANSFER, SURRENDER AND PARTIAL WITHDRAWAL OF OWNER ACCOUNT VALUE
TRANSFERS
Commencing 30 days after the Contract's date of issue and prior to the Annuity
Commencement Date, you may transfer your Account Value at any time among the
available Divisions of Separate Account D and Guarantee Periods, subject to
the conditions described below. Such transfers will be effective at the end of
the Valuation Period in which we receive your Written or telephone transfer
request.
Each request to transfer from a Division or Guarantee Period must be at least
$500 or, if less, all of your Account Value in that Division or Guarantee
Period. If a transfer would cause your Account Value in any Division or
Guarantee Period to fall below $500, then the remaining balance in that
Division or Guarantee Period will also be transferred in the same proportions
as the transfer request.
Prior to the Annuity Commencement Date and after the first 30 days following
the date the Contract was issued, you may make up to twelve transfers each
Contract Year without charge, but each additional transfer will be subject to
a $25 charge. However, the charge for any additional transfers will not be
incurred if such transfer is associated with the Sierra Asset Management
Program, described below.
20
<PAGE>
No more than 25% of the Account Value you allocated to a Guarantee Period at
its inception may be transferred during any Contract Year. This 25% limitation
does not apply to transfers within 15 days before or after the end of the
Guarantee Period in which the transferred amounts were being held.
Subject to the above general rules concerning transfers including transfer
charges, you may establish an automatic transfer plan, whereby amounts are
automatically transferred by us from the Global Money Division to one or more
other Divisions or Guarantee Periods on a monthly, quarterly, semi-annual or
annual basis. You may obtain additional information about how to establish an
automatic transfer program from your sales representative or from us at the
telephone numbers and addresses on the front cover of this Prospectus.
If the person or persons that are entitled to make transfers have properly
completed and signed a Sierra Asset Management Program Agreement and
Disclosure Statement that is on file with us, we will accept transfer requests
from Sierra Investment Services Corporation. The Sierra Asset Management
Program ("SAM Program") provides for Sierra Investment Services Corporation to
periodically reallocate your Variable Account Value among the Divisions in
light of your investment objectives and changing economic and market
conditions. Such transfers will be subject to the general terms and conditions
concerning transfers (except as noted above, transfer charges), as described
herein. Acceptance into the SAM Program is subject to approval by Sierra
Investment Services Corporation and a minimum Variable Account Value of
$40,000. For more information about the Program, please refer to "General
Information and History -- Purchase through the SAM Program" in the Trust
prospectus that is attached at the end of this Prospectus.
If the person or persons that are entitled to make transfers have properly
completed and signed a Telephone Transfer Authorization Form that is on file
with us, transfers may be made pursuant to telephone instructions, subject to
the above terms and the terms of the Telephone Transfer Authorization Form. We
will honor telephone transfer 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. Currently we generally
limit the availability of telephone transfer instructions only to the Owner of
the Contract for which instruction is received. The Telephone Transfer
Authorization Form provides that we are not liable for any acts or omissions
based upon instructions that we reasonably believe to be genuine, including
losses arising from errors in the communication of transfer instructions. We
have established procedures for accepting telephone transfer instructions,
which include verification of the Contract number, the identity of the caller,
both the annuitant's and Owner's names, and a form of personal identification
from the caller. We will send a written confirmation of the transaction. If
several persons seek to effect telephone transfers at or about the same time,
or if our recording equipment malfunctions, it may be impossible for you to
make a telephone transfer at the time you wish. If this occurs, you should
submit a Written transfer request. Also, if, due to malfunction or other
circumstances, the recording of your telephone request is incom plete or not
fully comprehensible, we will not process the transaction. The phone number
for telephone exchanges is 1-800-247-6584.
We reserve the right to restrict or terminate transfers at any time.
21
<PAGE>
SURRENDERS AND PARTIAL WITHDRAWALS
At any time prior to the Annuity Commencement Date and while the Annuitant is
still living, the Owner may make a full surrender of or partial withdrawal
from his or her Contract.
The amount payable to the Owner upon full surrender is the Owner's Account
Value at the end of the Valuation Period in which we receive a Written
surrender request in good order, minus any applicable Surrender Charge. Our
current practice is to require that you return the Contract with any request
for a full surrender. After a full surrender, or if the Owner's Account Value
falls to zero, all rights of the Owner, Annuitant or any other person with
respect to the Contract will terminate. All collateral assignees of record
must consent to any full surrender or partial withdrawal.
Your Written request for a partial withdrawal should specify the Divisions of
Separate Account D, or the Guarantee Periods of the Fixed Account, from which
you wish the partial withdrawal to be made. If you do not specify, or if the
withdrawal cannot be made in accordance with your specification, the
withdrawal will be taken pro-rata from the Divisions and Guarantee Periods,
based on your Account Value in each. Partial withdrawal requests from any
Division or Guarantee Period must be for at least $500 or, if less, all of
your Account Value in that Division or Guarantee Period. If your remaining
Account Value in the Division or Guarantee Period would be less than $500, we
will automatically transfer, without charge, the remaining balance to the
Global Money Division. Unless you request otherwise, upon a partial
withdrawal, your Accumulation Units and Fixed Account interests that are
cancelled will have a total value equal to the amount of the withdrawal
request, and the amount payable to you will be the amount of the withdrawal
request less any Surrender Charge payable upon the partial withdrawal.
We also make available a systematic withdrawal plan under which you may make
automatic partial withdrawals at periodic intervals in a specified amount,
subject to the terms and conditions applicable to other partial withdrawals.
Additional information about how to establish such a systematic withdrawal
program may be obtained from your sales representative or from us at the
addresses and phone numbers set forth on the cover page of this Prospectus. We
reserve the right to modify or terminate our procedures for systematic
withdrawals at any time.
The Code provides that a penalty tax will be imposed on certain premature
surrenders or withdrawals. For a discussion of this and other tax implications
of total surrenders and systematic and other partial withdrawals, including
withholding requirements, see "Federal Income Tax Matters."
ANNUITY PERIOD AND ANNUITY PAYMENT OPTIONS
ANNUITY COMMENCEMENT DATE
The Owner selects the Annuity Commencement Date when the Owner applies for a
Contract and may change a previously-selected date at any time prior to the
beginning of an Annuity Payment Option by submitting a written request,
subject to Company approval. The Annuity Commencement
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<PAGE>
Date specified at the time of application may be the first day of any month,
but not later than the Annuitant's 85th birthday or, if later, the tenth
Contract Anniversary. Nor may the Annuity Commencement Date be prior to the
Annuitant's 50th birthday. See "Federal Income Tax Matters" for a description
of the penalties that may attach to distributions prior to the Annuitant's
attaining age 59 1/2 under any Contract or after April 1 of the year following
the calendar year in which the Annuitant attains age 70 1/2 under Qualified
Contracts.
APPLICATION OF OWNER ACCOUNT VALUE
We will automatically apply your Variable Account Value in any Division to
provide Variable Annuity Payments based on that Division and your Fixed
Account Value to provide Fixed Annuity Payments. However, if you give us other
Written instructions at least thirty days prior to the Annuity Commencement
Date, we will apply your Account Value in different proportions.
We deduct any applicable state and local premium taxes from the amount of
Account Value being applied to an Annuity Payment Option. In some cases, we
may deduct a Surrender Charge from the amount being applied. See "Surrender
Charge." Subject to any such adjustments, your Variable and Fixed Account
Value are applied to an Annuity Payment Option, as discussed below, as of the
end of the Valuation Period that contains the tenth day prior to the Annuity
Commencement Date.
FIXED AND VARIABLE ANNUITY PAYMENTS
The amount of the first monthly Fixed or Variable Annuity Payment will be at
least as favorable as that produced by the annuity tables set forth in the
Contract, based on the amount of your Account Value that is applied to provide
the Fixed or Variable Annuity Payments. Thereafter, the amount of each monthly
Fixed Annuity Payment is fixed and specified by the terms of the Annuity
Payment Option selected.
Account Value that is applied to provide Variable Annuity Payments is
converted to a number of Annuity Units by dividing the amount of the first
Variable Annuity Payment by the value of an Annuity Unit of the relevant
Division as of the end of the Valuation Period that includes the tenth day
prior to the Annuity Commencement Date. This number of Annuity Units
thereafter remains constant with respect to any Annuitant, and the amount of
each subsequent Variable Annuity Payment is determined by multiplying this
number by the value of an Annuity Unit as of the end of the Valuation Period
that contains the tenth day prior to the date of each payment. If the Variable
Annuity Payments are based on more than one Division, these calculations are
performed separately for each Division. The value of an Annuity Unit at the
end of a Valuation Period is the value of the Annuity Unit at the end of the
previous Valuation Period, multiplied by the net investment factor (see
"Variable Account Value") for the Valuation Period, with an offset for the
3.5% assumed interest rate used in the Contract's annuity tables.
As a result of the foregoing computations, if the net investment return for a
Division for any month is at an annual rate of more than 3.5%, any Variable
Annuity Payment based on that Division will be greater than the Variable
Annuity Payment based on that Division for the previous month. If the net
investment return for a Division for any month is at an annual rate of less
than 3.5%, any variable annuity payment based on that Division will be less
than the Variable Annuity Payment based on that Division for the previous
month.
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<PAGE>
ANNUITY PAYMENT OPTIONS
If the Owner does not specify otherwise at least ten days prior to the Annuity
Commencement Date, annuity payments are made in accordance with the second
option described below, with payments being guaranteed for a ten-year period,
or, to the extent the Code requires in the case of a Qualified Contract, the
third option described below. Among other things, the Code also imposes
minimum distribution requirements that have a bearing on the Annuity Payment
Option that should be chosen in connection with Qualified Contracts. See
"Federal Income Tax Matters." We are not responsible for monitoring or
advising Owners as to whether the minimum distribution requirements are being
met, unless we have received a specific Written request to do so.
No election of any Annuity Payment Option may be made unless an initial
annuity payment of at least $100 would be provided, where only a Fixed or only
Variable Annuity Payments are elected, and $50 on each basis when a
combination of Variable and Fixed Annuity Payments is elected. If these
minimums are not met, we will first reduce the frequency of annuity payments,
and if the minimums are still not met, we will make a lump-sum payment to the
Annuitant or other properly-designated payee in the amount of the Owner's
Account Value, less any applicable Surrender Charge.
Within 60 days after the death of the Owner or Annuitant, the Owner, or if the
Owner has not done so, the Beneficiary, may elect that any amount due to the
Beneficiary be applied under any option described below, subject to certain
tax law requirements. See "Death Proceeds." Thereafter, the Beneficiary will
have all the remaining rights and powers under the Contract and be subject to
all the terms and conditions thereof. The first annuity payment will be made
at the beginning of the second month following the month in which we approve
the settlement request. Annuity Units will be credited based on Annuity Unit
Values at the end of the Valuation Period that contains the tenth day prior to
the beginning of said second month.
When an Annuity Payment Option becomes effective, the Contract must be
delivered to our Home Office, in exchange for a payment contract providing for
the option elected.
Information about the relationship between the Annuitant's sex and the amount
of annuity payments, including requirements for gender-neutral annuity rates
in certain states and in connection with certain employee benefit plans is set
forth under "Gender of Annuitant" in the Statement of Additional Infor mation.
See "Contents of Statement of Additional Information."
OPTION 1 - LIFE ANNUITY - Annuity payments are payable monthly during the
lifetime of the Annuitant, ceasing with the last payment due prior to the
death of the Annuitant. It would be possible under this arrangement for the
Annuitant or other payee to receive only one annuity payment if the Annuitant
died prior to the second annuity payment, since no minimum number of payments
is guaranteed.
OPTION 2 - LIFE ANNUITY WITH 120, 180, OR 240 MONTHLY PAYMENTS CERTAIN -
Annuity payments are payable monthly during the lifetime of an Annuitant;
provided, that if the Annuitant dies during the period certain, the
Beneficiary is entitled to receive monthly payments for the remainder of the
period certain.
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OPTION 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY - Annuity payments are payable
monthly during the lifetime of the Annuitant and another payee and continue
during the lifetime of the survivor, ceasing with the last payment prior to
the death of the survivor. It is possible under this option for the Annuitant
or other payee to receive only one annuity payment if both die before the
second annuity payment, since no minimum number of payments is guaranteed. If
one of these persons dies before the Annuity Commencement Date, the election
of this option is revoked, the survivor becomes the sole Annuitant, and no
death proceeds are payable by virtue of the death of the other Annuitant.
OPTION 4 - PAYMENTS FOR DESIGNATED PERIOD - Annuity payments are payable
monthly to an Annuitant or other properly-designated payee, or at his or her
death, the Beneficiary, for a selected number of years ranging from five to
forty. However, the designated period may not exceed the life expectancy of
such Annuitant or other properly-designated payee.
OPTION 5 - PAYMENTS OF A SPECIFIC DOLLAR AMOUNT - The amount due is paid in
equal monthly installments of a designated dollar amount (not less than $125
nor more than $200 per annum per $1,000 of the original amount due) until the
remaining balance is less than the amount of one installment. If the person
receiving these payments dies, the remaining payments continue to be made to
the Beneficiary. Payments under this option are available on a fixed basis
only. To determine the remaining balance at the end of any month, such balance
at the end of the previous month is decreased by the amount of any installment
paid during the month and the result will be accumulated at an interest rate
not less than 3.5% compounded annually. If the remaining balance at any time
is less than the amount of one installment, such balance will be paid and will
be the final payment under the option.
Under the fourth option there is no mortality guarantee by us, even though
Variable Annuity Payments will be reduced as a result of a charge to Separate
Account D which is partially for mortality risks. See "Charge to Separate
Account D."
A payee receiving Variable (but not Fixed) Annuity Payments under the fourth
option can elect at any time to commute (terminate) such option and receive
the current value of the annuity, which would be based on the values next
determined after the Written request for payment is received by us. The
current value of the annuity under the fourth option is the value of all
remaining annuity payments, assumed to be level, discounted to present value
at an annual rate of 3.5%. Other than by election of such a lump-sum payment
under the fourth option, an Annuity Payment Option may not be terminated once
annuity payments have commenced.
Under federal tax regulations, the election of the fourth or fifth options may
be treated in the same manner as a surrender of the total account. For tax
consequences of such treatment, see "Federal Income Tax Matters." Also, in
such a case, tax-deferred treatment of subsequent earnings may not be
available.
ALTERNATIVE AMOUNT UNDER FIXED LIFE ANNUITY OPTIONS - Each Contract provides
that when Fixed Annuity Payments are to be made under one of the first three
Annuity Payment Options described above, the Owner (or if the Owner has not
elected a payment option, the Beneficiary) may elect monthly payments to the
Annuitant or other properly-designated payee equal to the monthly payment
available under similar circumstances based on single payment immediate fixed
annuity
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rates then in use by us. The purpose of this provision is to assure the
Annuitant that, at retirement, if the fixed annuity purchase rate then offered
by us for new single payment immediate annuity contracts is more favorable
than the annuity rates guaranteed by the Contract, the Annuitant or other
properly-designated payee will be given the benefit of the new annuity rates.
In lieu of monthly payments, payments may be elected on a quarterly,
semi-annual or annual basis, in which case the amount of each annuity payment
will be determined on a basis consistent with that described above for monthly
payments.
TRANSFERS
After the Annuity Commencement Date, the Annuitant or other
properly-designated payee may make one transfer every 180 days among the
available Divisions of Separate Account D or from the Divisions to a fixed
Annuity Payment Option. No charge will be assessed for such transfer. No
transfers from a fixed to a variable Annuity Payment Option are permitted. The
value transferred must be at least $500 or the payee's total value
attributable to a Division, if less. If a transfer would cause the value that
is attributable to a Contract in any Division to fall below $500, the
remaining balance in that Division also will be transferred in the same
proportion as the transfer request. Transfers will be effected at the end of
the Valuation Period in which we receive the Written transfer request at our
Home Office. We reserve the right to terminate or restrict transfers at any
time.
DEATH PROCEEDS
DEATH PROCEEDS PRIOR TO THE ANNUITY COMMENCEMENT DATE
The death proceeds described below are payable to the Beneficiary under the
Contract if, prior to the Annuity Commencement Date, any of the following
events occurs (a) the Annuitant dies and no Contingent Annuitant has been
named under a Non-Qualified Contract; (b) the Annuitant dies and we also
receive proof of death of any named Contingent Annuitant; or (c) the Owner
(including the first to die in the case of joint owners) of a Non-Qualified
Contract dies, regardless of whether said deceased Owner was also the
Annuitant, except that a Beneficiary who is the Owner's surviving spouse may
elect to continue the Contract as described in the second paragraph below. If
the deceased Annuitant or Owner had not reached age 85 at his or her death, as
applicable, the death proceeds will equal the greatest of (1) the sum of all
purchase payments made (less any previously-deducted premium taxes and all
prior partial withdrawals), (2) the Owner's Account Value as of the end of the
Valuation Period in which we receive, at our Home Office, all required proofs
of death and the Written request as to the manner of payment, or (3) the
Owner's Account Value as of the most recent five-year Contract Anniversary,
less the amount of any subsequent partial withdrawals. THE AMOUNT SPECIFIED IN
(3) ABOVE IS NOT AN AVAILABLE OPTION IN ALL STATES, AND YOU SHOULD THEREFORE
CONSULT YOUR SALES REPRESENTATIVE OR OUR HOME OFFICE AS TO WHETHER IT WILL
APPLY TO YOU. IN THOSE STATES WHERE (3) IS NOT AVAILABLE, THE DEATH PROCEEDS
WILL EQUAL THE GREATER OF (1) OR (2) ABOVE. If the Annuitant or Owner had
attained age 85 at his or her death, as applicable, the death proceeds will be
the amount specified in (2) above.
We will pay the death proceeds to the Beneficiary as of the date the proceeds
become payable. Such date is the end of the Valuation Period in which we
receive proof of the Owner's or Annuitant's death and a Written request in
good order from the Beneficiary as to the manner of payment.
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If the Owner has not already done so, the Beneficiary may, within sixty days
after the date the proceeds become payable, elect to receive the death
proceeds as a lump sum or in the form of one of the Annuity Payment Options
provided in the Contract. See "Annuity Payment Options." If we receive no
request as to the manner of payment, we will make a lump-sum payment, based on
values determined at that time.
If the Owner, including the first to die in the case of joint owners, under a
Non-Qualified Contract dies prior to the Annuity Commencement Date, the Code
requires that all amounts payable under the Contract be distributed (a) within
five years of the date of death or (b) as annuity payments beginning within
one year of the date of death and continuing over a period not extending
beyond the life expectancy of the Beneficiary. If the Beneficiary is the
Owner's surviving spouse, the spouse may elect to continue the Contract as the
new Owner and, if the original Owner was the Annuitant, as the new Annuitant.
If the Owner is not a natural person, these requirements apply upon the death
of the primary Annuitant within the meaning of the Code. Failure to satisfy
these Code distribution requirements may result in serious adverse tax
consequences. Under a parallel section of the Code, similar requirements apply
to retirement plans in connection with which Qualified Contracts are issued.
DEATH PROCEEDS AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies following the Annuity Commencement Date, the only
amounts payable to the Beneficiary or other properly-designated payee are any
continuing payments provided for under the Annuity Payment Option selected.
See "Annuity Payment Options." In such a case, the payee will have all the
remaining rights and powers under a Contract and be subject to all the terms
and conditions thereof. Also, if the Annuitant dies following the Annuity
Commencement Date, no Contingent Annuitant can become the Annuitant.
If the payee under a Non-Qualified Contract dies after the Annuity
Commencement Date, any remaining amounts payable under the terms of the
Annuity Payment Option must be distributed at least as rapidly as under the
method of distribution then in effect. If the payee is not a natural person,
this requirement applies upon the death of the primary Annuitant within the
meaning of the Code. Failure to satisfy these requirements of the Code may
result in serious adverse tax consequences. Under a parallel section of the
Code, similar requirements apply to the retirement plans in connection with
which Qualified Contracts are issued.
PROOF OF DEATH
We accept the following as proof of any person's death: a copy of a certified
death certificate; a copy of a certified decree of a court of competent
jurisdiction as to the finding of death; a written statement by a medical
doctor who attended the deceased at the time of death; or any other proof
satisfactory to us.
Once we have paid the death proceeds, the Contract terminates and we have no
further obligations thereunder.
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CHARGES UNDER THE CONTRACTS
PREMIUM TAXES
In jurisdictions that impose premium taxes or similar assessments at the time
when purchase payments are made, we make a charge for these amounts at that
time. Where premium taxes or similar assessments are imposed by states or
other jurisdictions at the time annuity payments begin, we make a charge for
these amounts at that time.
Applicable premium tax rates depend upon the Owner's then-current place of
residence. Applicable rates currently range from 0% to 3.5% and are subject to
change by legislation, administrative interpretations or judicial acts. We
will not make a profit on this charge.
SURRENDER CHARGE
The Surrender Charge reimburses us for part of our expenses related to
distributing the Contracts. We believe, however, that the amount of such
expenses will exceed the amount of revenues generated by the Surrender Charge.
We will pay such excess out of our general surplus, which might include
profits from the charge for the assumption of mortality and expense risks.
Unless a withdrawal is exempt from the Surrender Charge (as discussed below),
the Surrender Charge is a percentage of the amount of each purchase payment
that is withdrawn during the six years after it was received. The percentage
declines depending on how many years have passed since the withdrawn purchase
payment was originally credited to your Account Value, as follows:
<TABLE>
<CAPTION>
Surrender Charge as a
Years Elapsed Percentage of Purchase
Since Received Payment Withdrawn
<S> <C>
Less than 1 7%
1 or more, but less than 3 6%
3 or more, but less than 4 5%
4 or more, but less than 5 4%
5 or more, but less than 6 2%
6 or more 0%
</TABLE>
Only for the purpose of computing the Surrender Charge, the earliest purchase
payments are deemed to be withdrawn first, and before any amounts in excess of
purchase payments are withdrawn from your Account Value. The following
transactions will be considered as withdrawals, for purposes of assessing the
Surrender Charge: total surrender, partial withdrawal, commencement of an
Annuity Payment Option, and termination due to insufficient Account Value.
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Nevertheless, the Surrender Charge will not apply
o To the amount of withdrawals that exceeds the cumulative amount of
your purchase pay ments;
o If the Annuitant has been confined to a long-term care facility or
is subject to a terminal illness (to the extent that the rider for
these matters is available in your state), as set forth under
"Long-Term Care and Terminal Illness"; or
o Upon selection of an Annuity Payment Option that is based on life
contingencies, if the Annuity Commencement Date does not fall within
the first three Contract Years.
In the State of Washington, beginning after the Annuitant has attained age 63,
surrender charges which would otherwise be assessed against any withdrawal may
be reduced.
The Surrender Charge does NOT apply to the portion of your first withdrawal or
total surrender in any Contract Year that does not exceed 10% of the amount of
your purchase payments that (a) have not previously been withdrawn and (b)
have been credited to the Contract for at least one year, provided that this
one year requirement does not apply if the withdrawal is pursuant to an
automatic withdrawal arrangement established with us. Unused portions of this
10% free withdrawal amount are carried forward during the year only in
connection with automatic withdrawal arrangements established with us. Any
unused portion of the 10% free withdrawal amount never carries forward from
one year to another. If an automatic withdrawal arrangement is established
with us after a non-automatic withdrawal of less than the full 10% free
withdrawal amount has been made in the same Contract Year, the balance of 10%
will be available for automatic withdrawals during the remainder of that
Contract Year. However, once an automatic withdrawal has been made during any
Contract Year in reliance on the 10% free withdrawal privilege, no
non-automatic withdrawal may rely on that privilege during the balance of that
Contract Year.
The Surrender Charge will not apply to any amounts withdrawn which are in
excess of the amount permitted by the 10% free withdrawal privilege, described
above, if such amounts are required to be withdrawn to obtain or retain
favorable tax treatment. This exception is subject to our approval.
A free withdrawal pursuant to any of the foregoing Surrender Charge exceptions
is not deemed to be a withdrawal of purchase payments, except for purposes of
computing the 10% free withdrawal described in the preceding paragraph. See
"Penalty Tax on Premature Distributions."
TRANSFER CHARGES
The charges to defray the expense of effecting transfers are described under
"Transfer, Surrender and Partial Withdrawal of Owner Account Value -
Transfers" and "Annuity Period and Annuity Payment Options - Transfers." These
charges are designed not to yield a profit to us.
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CHARGE TO SEPARATE ACCOUNT D
To cover administrative expenses and to compensate us for assuming mortality
and expense risks under the Contracts, Separate Account D will incur a daily
charge at an annualized rate of 1.50% of the average daily net asset value of
Separate Account D attributable to the Contracts. Of this amount, .30% is for
administrative expenses and 1.20% is for the assumption of mortality and
expense risks. We do not expect to earn a profit on that portion of the charge
which is for administrative expenses, but we do expect to derive a profit from
the portion which is for the assumption of mortality and expense risks. There
is no necessary relationship between the amount of administrative charges
imposed on a given Contract and the amount of expenses actually attributable
to that Contract.
In assuming the mortality risk, we are subject to the risk that our actuarial
estimate of mortality rates may prove erroneous and that Annuitants will live
longer than expected, or that more Owners or Annuitants than expected will die
at a time when the death benefit guaranteed by us is higher than the net
surrender value of their interests in the Contracts.
MISCELLANEOUS
Charges and expenses are paid out of the assets of each Fund as described in
the prospectus of the Trust that is attached at the end of this Prospectus. We
reserve the right to impose charges or establish reserves for any federal or
local taxes incurred or that may be incurred by us, and that may be deemed
attributable to the Contracts.
ONE-TIME REINSTATEMENT PRIVILEGE
If you have made a full surrender of your Account Value, you may reinstate the
Contract if we receive the Written reinstatement request, together with a
return to us of the net proceeds of such surrender, not more than 30 days
after the date as of which the surrender was made. In such a case, your
Account Value will be restored to what it was at the time of the surrender and
any subsequent Surrender Charge will be computed as if the Contract had been
issued at the date of reinstatement in consideration of a Purchase Payment in
the amount of such net surrender proceeds. Unless you request otherwise, the
reinstated Account Value will be allocated among the Divisions and Guarantee
Periods in the same proportions as the prior surrender. You may use this
privilege only once.
REDUCTION IN SURRENDER CHARGES OR ADMINISTRATIVE CHARGES
We may reduce the surrender charges or administrative charges imposed under
certain Qualified Contracts in connection with employer-sponsored plans. Any
such reductions will reflect differences in costs or services (due to such
factors as reduced sales expenses or administrative efficiencies relating to
serving a large number of employees of a single employer and functions assumed
by the employer that we otherwise would have to perform) and will not be
unfairly discriminatory as to any person.
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LONG-TERM CARE AND TERMINAL ILLNESS
THE RIDER DESCRIBED BELOW IS NOT AVAILABLE IN ALL STATES, AND YOU SHOULD
THEREFORE CONSULT YOUR SALES REPRESENTATIVE OR OUR HOME OFFICE AS TO WHETHER
IT WILL APPLY TO YOU. THERE IS NO SEPARATE CHARGE FOR THIS RIDER.
LONG-TERM CARE
Pursuant to a special Contract rider, no Surrender Charge will apply during
any period of time that the Annuitant is confined for 30 days or more in a
hospital or state-licensed in-patient nursing facility. We must receive
Written proof of such confinement that is satisfactory to us.
TERMINAL ILLNESS
The rider also provides that no Surrender Charge will apply if we have
received a physician's Written certification that the Annuitant is terminally
ill and not expected to live more than twelve months and have waived or
exercised our right to a second physician's opinion.
OTHER ASPECTS OF THE CONTRACTS
Only an officer of AG Life can agree to change or waive the provisions of any
Contract. The Contracts are non-participating and are not entitled to share in
any dividends, profits or surplus of AG Life.
OWNERS, ANNUITANTS, AND BENEFICIARIES; ASSIGNMENTS
The Owner of a Contract will be the same as the Annuitant, unless the
purchaser designates a different Owner when applying to purchase a Contract.
In the case of joint ownership, both Owners must join in the exercise of any
rights or privileges under the Contract. The Annuitant and any Contingent
Annuitant are designated by the purchaser when applying for a Contract and may
not thereafter be changed.
The Beneficiary and, under a Non-Qualified Contract, any Contingent
Beneficiary are designated by the purchaser when applying for a Contract. A
Beneficiary or Contingent Beneficiary may be changed by the Owner prior to the
Annuity Commencement Date, while the Annuitant is still alive, and by the
payee following the Annuity Commencement Date. Any designation of a new
Beneficiary or Contingent Beneficiary is effective as of the date it is
signed, but will not affect any payments we make or action we take before
receiving the Written request. We also need the Written consent of any
irrevocably-named Beneficiary or Contingent Beneficiary before making a
change. Under certain retirement programs, spousal consent may be required to
name a Beneficiary other than the spouse, or to change a Beneficiary to a
person other than the spouse. We are not responsible for the validity of any
designation of a Beneficiary or Contingent Beneficiary.
If no named Beneficiary or Contingent Beneficiary is living at the time any
payment is to be made, the Owner will be the Beneficiary, or if the Owner is
not then living, the Owner's estate will be the Beneficiary.
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Rights under a Qualified Contract may be assigned only in certain narrow
circumstances referred to therein. Owners and other payees may assign their
rights under Non-Qualified Contracts, including their ownership rights. We
take no responsibility for the validity of any assignment. A change in
ownership rights must be made in Writing and a copy must be sent to our Home
Office. The change will be effective on the date it was made, although we are
not bound by a change until the date we record it. The rights under a Contract
are subject to any assignment of record at our Home Office. An assignment or
pledge of a Contract may have adverse tax consequences. See "Federal Income
Tax Matters."
REPORTS
We will mail to Owners (or persons receiving payments following the Annuity
Commencement Date), at their last known address of record, any reports and
communications required by applicable law or regulation. You should therefore
give us prompt written notice of any address change.
RIGHTS RESERVED BY US
Upon notice to the Owner, a Contract may be modified by us, to the extent
necessary in order to (1) operate Separate Account D in any form permitted
under the 1940 Act or in any other form permitted by law; (2) transfer any
assets in any Division to another Division, or to one or more separate
accounts, or the Fixed Account; (3) add, combine or remove Divisions in
Separate Account D; (4) substitute, for the shares held in any Division, the
shares of another Fund or the shares of another investment company or any
other investment permitted by law; (5) make any changes required by the Code
or by any other applicable law, regulation or interpretation in order to
continue treatment of the Contract as an annuity; or (6) make any changes
required to comply with the rules of any Fund. When required by law, we will
obtain your approval of changes and the approval of any appropriate regulatory
authority.
PAYMENT AND DEFERMENT
Amounts surrendered or withdrawn from a Contract will normally be paid within
seven calendar days after the end of the Valuation Period in which we receive
the Written surrender or withdrawal request in good order. If we do not
receive a Written request as to the method of payment within 60 days after the
death of the Owner or Annuitant, any death benefit proceeds will be paid as a
lump sum, normally within seven calendar days after the end of the Valuation
Period that contains the last day of said 60 day period. We reserve the right,
however, to defer payment or transfers of amounts out of the Fixed Account for
up to six months. Also, we reserve the right to defer payment of that portion
of your Account Value that is attributable to a purchase payment made by check
for a reasonable period of time (not to exceed 15 days) to allow the check to
clear the banking system.
Finally, we reserve the right to defer payment of any surrender and annuity
payment amounts or death benefit amounts of any portion of the Variable
Account Value if (a) the New York Stock Exchange is closed other than
customary weekend and holiday closings, or trading on the New York Stock
Exchange is restricted; (b) an emergency exists, as a result of which disposal
of securities is not reasonably practicable or it is not reasonably
practicable to fairly determine the Variable Account Value; or (c) the
Securities and Exchange Commission by order permits the delay for the
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<PAGE>
protection of Owners. Transfers and allocations of Account Value among the
Divisions and the Fixed Account may also be postponed under these
circumstances.
FEDERAL INCOME TAX MATTERS
GENERAL
It is not possible to comment on all of the federal income tax consequences
associated with the Contracts. Federal income tax law is complex and its
application to a particular person may vary according to facts peculiar to
such person. Consequently, this discussion is not intended as tax advice, and
you should consult with a competent tax adviser before purchasing a Contract.
The discussion is based on the law, regulations and interpretations existing
on the date of this Prospectus. These authorities, however, are subject to
change by Congress, the Treasury Department and judicial decisions.
The discussion does not address state or local tax or estate and gift tax
consequences associated with the Contracts.
NON-QUALIFIED CONTRACTS
PURCHASE PAYMENTS. Purchasers of a Contract that does not qualify for special
tax treatment and is therefore "Non-Qualified" may not deduct from their gross
income the amount of purchase payments made.
TAX DEFERRAL PRIOR TO ANNUITY COMMENCEMENT DATE. Owners who are natural
persons are not taxed currently on increases in their Account Value resulting
from interest earned in the Fixed Account or, if certain diversification
requirements are met, the investment experience of Separate Account D. This
treatment applies to Separate Account D only if it invests in Funds that are
"adequately diversified" in accordance with Treasury Department regulations.
Although we do not control the Funds, the investment advisers to the Funds
have undertaken to operate the Funds in compliance with these diversification
requirements. A Contract investing in a Fund that failed to meet the
diversification requirements would, unless and until the failure can be
corrected in a procedure afforded by the Internal Revenue Service, subject
Owners to taxation of income in the Contract for that or any subsequent
period. Income means the excess of the Account Value over the Owner's
investment in the Contract (discussed below).
Current regulations do not provide guidance as to any circumstances in which
control over allocation of values among different investment alternatives may
cause Owners or persons receiving annuity payments to be treated as the owners
of Separate Account D assets for tax purposes. We reserve the right to amend
the Contracts in any way necessary to avoid any such result. The Treasury
Department has stated that it may establish standards in this regard through
regulations or rulings. Such standards may apply only prospectively, although
retroactive application is possible if such standards are considered not to
embody a new position.
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Owners that are not natural persons -- that is, Owners such as corporations --
are taxable currently on annual increases in their Account Value unless an
exception applies. Exceptions exist for, among other things, Owners that are
not natural persons but that hold the Contract as an agent for a natural
person.
TAXATION OF ANNUITY PAYMENTS. Each annuity payment received after the Annuity
Commencement Date is excludible from gross income in part. In the case of
Fixed Annuity Payments, the excludible portion is determined by multiplying
the amount paid by the ratio of the investment in the Contract (discussed
below) to the expected return under the fixed Annuity Payment Option. In the
case of Variable Annuity Payments, the amount paid is multiplied by the ratio
of the investment in the Contract to the number of expected payments. In both
cases, the remaining portion of each annuity payment, and all payments made
after the investment in the Contract has been reduced to zero, are included in
the payee's income. Should annuity payments cease on account of the death of
the Annuitant before the investment in the Contract has been fully recovered,
the payee is allowed a deduction for the unrecovered amount. If the payee is
the Annuitant, the deduction is taken on the final tax return. If the payee is
a Beneficiary, that Beneficiary may recover the balance of the total
investment as payments are made or on the Beneficiary's final tax return. An
Owner's "investment in the Contract" is the amount equal to the portions of
purchase payments made by or on behalf of the Owner that have not been
excluded or deducted from the individual's gross income, less amounts
previously received under the Contract that were not included in income.
TAXATION OF PARTIAL WITHDRAWALS AND TOTAL SURRENDERS. Partial withdrawals from
a Contract are includible in income to the extent that the Owner's Account
Value exceeds the investment in the Contract. In the event a Contract is
surrendered in its entirety, any amount received in excess of the investment
in the Contract is includible in income, and any remaining amount received is
excludible from income. All annuity contracts (or certificates thereunder)
issued by us to the same Owner during any calendar year are to be aggregated
for purposes of determining the amount of any distri bution that is includible
in gross income.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A penalty tax is imposed on
distributions under a Contract equal to 10% of the amount includable in
income. The penalty tax will not apply, however, to (1) distributions made
after the recipient attains age 59 1/2, (2) distributions on account of the
recipient's becoming disabled, (3) distributions that are made after the death
of the Owner prior to the Annuity Commencement Date or the payee after the
Annuity Commencement Date (or if such person is not a natural person, that are
made after the death of the primary Annuitant, as defined in the Code), and
(4) distributions that are part of a series of substantially equal periodic
payments made over the life (or life expectancy) of the Annuitant or the joint
life (or joint life expectancies) of the Annuitant and the Beneficiary.
Premature distributions may result, for example, from an early Annuity
Commencement Date, an early surrender, partial withdrawal from or assignment
of a Contract, or the early death of an Annuitant, unless clause (3) above
applies.
PAYMENT OF DEATH PROCEEDS. Special rules apply to the distribution of any
death proceeds payable under the Contract. See "Death Proceeds."
ASSIGNMENTS AND LOANS. An assignment, loan, or pledge with respect to a
Non-Qualified Contract is taxed in the same manner as a partial withdrawal, as
described above. Repayment of a loan or release of an assignment or pledge is
treated as a new purchase payment.
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INDIVIDUAL RETIREMENT ANNUITIES ("IRAS")
PURCHASE PAYMENTS. Individuals who are not active participants in a
tax-qualified retirement plan may, in any year, deduct from their taxable
income purchase payments for an IRA equal to the lesser of $2,000 or 100% of
the individual's earned income, plus $250 for the benefit of a noncompensated
spouse. No more than $2,000 may be contributed to either spouse's IRA for any
year. Single persons who participate in a tax-qualified retirement plan and
who have adjusted gross income not in excess of $25,000 may fully deduct their
IRA purchase payments. Those who have adjusted gross income in excess of
$35,000 will not be able to deduct purchase payments, and for those with
adjusted gross income between $25,000 and $35,000 the deduction is phased out
based on the amount of income. Similarly, the otherwise deductible portion of
an IRA purchase payment will be phased out, in the case of married individuals
filing joint tax returns, with adjusted gross income between $40,000 and
$50,000, and in the case of married individuals filing separately, with
adjusted gross income between $0 and $10,000. Individuals who are precluded
from deducting all or a portion of their purchase payments because of
participation in a tax-qualified retirement plan may still make non-deductible
contributions on which earnings will be tax deferred. The total of deductible
and non-deductible contributions may not exceed the lesser of $2,000 or 100%
of earned income, plus $250 for the benefit of a noncompensated spouse.
DISTRIBUTIONS FROM AN IRA. Amounts received under an IRA as annuity payments,
upon partial withdrawal or total surrender, or on the death of the Annuitant,
are included in the Annuitant's or other recipient's income. If nondeductible
purchase payments have been made, a pro rata portion of such distributions may
not be included in income. A 10% penalty tax is imposed on the amount
includible in gross income from distributions that occur before the Annuitant
attains age 59 1/2 and that are not made on account of death or disability,
with certain exceptions. These exceptions include distributions that are part
of a series of substantially equal periodic payments made over the life (or
life expectancy) of the Annuitant or the joint lives (or joint life
expectancies) of the Annuitant and the Beneficiary. Distributions of minimum
amounts specified by the Code must commence by April 1 of the calendar year
following the calendar year in which the Annuitant attains age 70 1/2.
Additional distribution rules apply after the death of the Annuitant. These
rules are similar to those governing distributions on the death of an Owner
(or other payee during the Annuity Period) under a Non-Qualified Contract. See
"Death Proceeds." Failure to comply with the minimum distribution rules will
result in the imposition of a penalty tax of 50% of the amount by which the
minimum distribution required exceeds the actual distribution.
TAX FREE ROLLOVERS. Amounts may be transferred in a tax-free rollover from a
tax-qualified plan to an IRA (and from one IRA to another IRA) if certain
conditions are met. All taxable distributions ("eligible rollover
distributions") from tax qualified plans are eligible to be rolled over with
the exception of (1) annuities paid over a life or life expectancy, (2)
installments for a period of ten years or more, and (3) required minimum
distributions under section 401(a)(9) of the Code.
Rollovers may be accomplished in two ways. First, an eligible rollover
distribution may be paid directly to an IRA (a "direct rollover"). Second, the
distribution may be paid directly to the Annuitant and then, within 60 days of
receipt, the amount may be rolled over to an IRA. However, any amount that was
not distributed as a direct rollover will be subject to 20% income tax
withhold ing.
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SIRAs. Spousal individual retirement annuities ("SIRAs") are subject to the
same federal income tax treatment and rules that are discussed above with
respect to IRAs generally.
SIMPLIFIED EMPLOYEE PENSION PLANS
Employees and employers may establish an IRA plan known as a simplified
employee pension plan ("SEP") if certain requirements are met. An employee may
make contributions to a SEP in accordance with the rules applicable to IRAs
discussed above. Employer contributions to an employee's SEP are deductible by
the employer and are not currently includible in the taxable income of the
employee. However, total employer contributions are limited to 15% of an
employee's compensation or $30,000, whichever is less.
OTHER QUALIFIED PLANS
PURCHASE PAYMENTS. Purchase payments made by an employer under a pension,
profit-sharing, or annuity plan qualified under section 401 or 403(a) of the
Code, not in excess of certain limits, are deductible by the employer. Such
purchase payments are also excluded from the current income of the employee.
DISTRIBUTIONS PRIOR TO THE ANNUITY COMMENCEMENT DATE. To the extent that
purchase payments are includible in an employee's taxable income, they (less
any amounts previously received that were not includible in the employee's
taxable income) represent his or her "investment in the Contract." Amounts
received prior to the Annuity Commencement Date under a Contract in connection
with a section 401 or 403(a) plan are generally allocated on a pro-rata basis
between the employee's investment in the Contract and other amounts. With
respect to the taxable portion of a lump-sum distribution (as defined in the
Code), an averaging rule may be applicable that allows computation of tax as
if the amount were received over a period of five years. A lump-sum
distribution will not be includible in income in the year of distribution if
the employee transfers, within 60 days of receipt, all amounts received, less
the employee's investment in the Contract, to another tax-qualified plan or to
an individual retirement account or an IRA in accordance with the rollover
rules under the Code. However, any amount that is not distributed as a direct
rollover will be subject to 20% income tax withholding. See "Tax Free
Rollovers." Special tax treatment may be available in the case of certain
lump-sum distributions that are not rolled over to another plan or IRA.
A 10% penalty tax is imposed on the amount includible in gross income from
distributions that occur before the employee's attaining age 59 1/2 and that
are not made on account of death or dis ability, with certain exceptions.
These exceptions include distributions that are (1) part of a series of
substantially equal periodic payments beginning after the employee separates
from service and made over the life (or life expectancy) of the employee or
the joint lives (or joint life expectancies) of the employee and the
Beneficiary, (2) made after the employee's separation from service on account
of early retirement after age 55, or (3) made to an alternate payee pursuant
to a qualified domestic relations order.
ANNUITY PAYMENTS. A portion of annuity payments received under Contracts in
connection with section 401 and 403(a) plans after the Annuity Commencement
Date may be excludible from the employee's income, in the manner discussed
above under "Non-Qualified Contracts - Taxation of Annuity Payments."
Distributions of minimum amounts specified by the Code generally must
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commence by April 1 of the calendar year following the calendar year in which
the employee attains age 70 1/2. Failure to comply with the minimum
distribution rules will result in the imposition of a penalty tax of 50% of
the amount by which the minimum distribution required exceeds the actual
distribution.
SELF-EMPLOYED INDIVIDUALS. Various special rules apply to tax-qualified plans
established by self-employed individuals.
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
PURCHASE PAYMENTS. Private taxable employers may establish unfunded,
Non-Qualified deferred compensation plans for a select group of management or
highly compensated employees and/or for independent contractors.
These types of programs allow individuals to defer receipt of up to 100% of
compensation that would otherwise be includible in income and therefore to
defer the payment of federal income taxes on such amounts, as well as earnings
thereon. Purchase payments made by the employer, however, are not immediately
deductible by the employer, and the employer is currently taxed on any
increase in Account Value.
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Contract is
owned by the employer and is subject to the claims of the employer's
creditors. The individual has no right or interest in the Contract and is
entitled only to payment from the employer's general assets in accordance with
plan provisions.
TAXATION OF DISTRIBUTIONS. Amounts received by an individual from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
EXCESS DISTRIBUTIONS - 15% TAX
Certain persons, particularly those who participate in more than one
tax-qualified retirement plan, may be subject to an additional tax of 15% on
certain excess aggregate distributions from those plans. In general, excess
distributions are taxable distributions for all tax qualified plans in excess
of a specified annual limit for payments made in the form of an annuity
(currently $150,000) or five times the annual limit for lump-sum
distributions.
FEDERAL INCOME TAX WITHHOLDING AND REPORTING
Amounts distributed from a Contract, to the extent includible in taxable
income, are subject to federal income tax withholding. The payee may, however,
elect to have no income tax withheld by submitting a withholding exemption
certificate to us.
In some cases, if you own more than one Qualified annuity contract, such
contracts may be aggregated for purposes of determining whether the federal
tax law requirement for minimum distributions after age 70 1/2 has been
satisfied. If, under this aggregation procedure, you are relying on
distributions pursuant to another annuity contract to satisfy the minimum
distribution requirement under a Qualified Contract issued by us, you must
sign a waiver releasing us from any liability to you for not calculating and
reporting the amount of taxes and penalties payable for failure to make
required minimum distributions under the Contract.
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TAXES PAYABLE BY AG LIFE AND SEPARATE ACCOUNT D
AG Life is taxed as a life insurance company under the Code. The operations of
Separate Account D are part of the total operations of AG Life and are not
taxed separately. Under existing federal income tax laws, AG Life is not taxed
on investment income derived by Separate Account D (including realized and
unrealized capital gains) with respect to the Contracts. AG Life reserves the
right to allocate to the Contracts any federal, state or other tax liability
that may result in the future from maintenance of Separate Account D or the
Contracts.
Certain Funds may make an election to pass through to AG Life any taxes
withheld by foreign taxing jurisdictions on foreign source income. Such an
election will result in additional taxable income and income tax to AG Life.
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 AG Life.
DISTRIBUTION ARRANGEMENTS
The Contracts will be sold by individuals who, in addition to being licensed
by state insurance authorities to sell the Contracts of AG Life, are also
registered representatives of Sierra Investment Services Corporation ("Sierra
Services") or other broker-dealer firms or representatives of other firms that
are exempt from broker-dealer regulation. Sierra Services has contracted with
American General Securities Incorporated ("AGSI"), the principal underwriter
of the Contracts, for Sierra Services to distribute the Contracts. AGSI is a
wholly-owned subsidiary of AG Life. Sierra Services also provides certain
administrative services to AG Life in connection with the processing of
applications for Contracts.
Sierra Services, and other firms not exempt from broker-dealer regulation AGSI
are registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended ("1934 Act") as broker-dealers and
are members of the National Association of Securities Dealers, Inc. ("NASD").
The principal business address for AGSI is the same as that for our Home
Office. Sierra Services may also make arrangements to distribute Contracts
through registered representatives of other broker-dealer firms that are
registered as such under the 1934 Act and are members of the NASD. The
interests under the Contracts are offered on a continuous basis.
AG Life compensates Sierra Services or other broker-dealers that sell the
Contracts at a rate that does not exceed 6% of purchase payments received
pursuant to the Contracts. This compensation must be wholly or partially
refunded if a Contract is cancelled or otherwise terminated within twenty-four
months after issuance. AG Life may also pay additional compensation of up to
.1% of purchase payments attributed to Contracts sold by broker-dealers who
meet certain production goals.
LEGAL MATTERS
The legality of the Contracts described in this Prospectus has been passed
upon by Steven A. Glover, Esquire, with the law department of AG Life.
Freedman, Levy, Kroll & Simonds, Washington, D.C., has advised AG Life on
certain federal securities law matters.
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OTHER INFORMATION ON FILE
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933 with respect to the Contracts
discussed in this Prospectus. Not all of the information set forth in the
Registration Statement and exhibits thereto has been included in this
Prospectus. Statements contained in this Prospectus concerning the Contracts
and other legal instruments are intended to be summaries. For a complete
statement of the terms of these documents, reference should be made to the
instruments filed with the Securities and Exchange Commission.
A Statement of Additional Information is available from us on request. Its
contents are as follows:
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
General Information..................................................... 2
Regulation and Reserves................................................. 2
Independent Auditors.................................................... 3
Services................................................................ 3
Principal Underwriter................................................... 3
Annuity Payments........................................................ 3
Gender of Annuitant................................................... 3
Misstatement of Age or Sex and Other Errors........................... 4
Change of Investment Adviser or Investment Policy....................... 4
Terms of Exemptive Relief in Connection with Mortality
and Expense Risk Charge............................................... 4
Performance Data for the Divisions...................................... 5
Financial Statements....................................................10
Index to Financial Statements...........................................11
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<PAGE>
(THIS DOCUMENT IS NOT PART OF A PROSPECTUS)
INDIVIDUAL RETIREMENT ANNUITY DISCLOSURE STATEMENT
INTRODUCTION
THIS DISCLOSURE STATEMENT IS DESIGNED FOR PRESENT OWNERS OF IRAS ISSUED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY.
This Disclosure Statement is not part of your contract but contains general
and standardized information which must be furnished to each person who is
issued an Individual Retirement Annuity. You must refer to your policy to
determine your specific rights and obligations thereunder.
REVOCATION
If you are purchasing a new or rollover IRA, then if for any reason you, as a
recipient of this Disclosure Statement, decide within 20 days from the date
your policy is delivered that you do not desire to retain your IRA, written
notification to the Company must be mailed, together with your policy, within
that period. If such notice is mailed within 20 days, all contributions,
without adjustments for any applicable sales commissions or administrative
expenses, will be refunded.
MAIL NOTIFICATION OF REVOCATION AND YOUR POLICY TO:
American General Life Insurance Company
Annuity Administration Department
P. O. Box 1401
Houston, Texas 77251-1401
(Phone No. (800) 247-6584).
ELIGIBILITY
Under Internal Revenue Code ("Code") Section 219, if neither you, nor your
spouse, is an active participant (see A. below), you may make a contribution
of up to the lesser of $2,000 (or $2,250 in the case of a Spousal IRA) or 100%
of compensation and take a deduction for the entire amount contributed. If you
are an active participant, but have an adjusted gross income (AGI) below a
certain level (see B. below), you may still make a deductible contribution.
If, however, you or your spouse is an active participant and your combined AGI
is above the specified level, the amount of the deductible contribution you
may make to an IRA will be phased down and eventually eliminated.
A. ACTIVE PARTICIPANT
You are an "active participant" for a year if you are covered by a retirement
plan. You are covered by a "retirement plan" for a year if your employer or
union has a retirement plan under which money is added to your account or you
are eligible to earn retirement credits. For example, if you are covered under
a profit-sharing plan, certain government plans, a salary reduction
arrangement (such
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as a tax sheltered annuity arrangement or a 401(k) plan), a Simplified
Employee Pension program (SEP) or a plan which promises you a retirement
benefit which is based upon the number of years of service you have with the
employer, you are likely to be an active participant. Your Form W-2 for the
year should indicate your participation status.
You are an active participant for a year even if you are not yet vested in
your retirement benefit. Also, if you make required contributions or voluntary
employee contributions to a retirement plan, you are an active participant. In
certain plans, you may be an active participant even if you were only with the
employer for part of the year.
You are not considered an active participant if you are covered in a plan only
because of your service as 1) an Armed Forces Reservist for less than 90 days
of active service, or 2) a volunteer firefighter covered for firefighting
service by a government plan. Of course, if you are covered in any other plan,
these exceptions do not apply.
If you are married, filed a separate tax return, and did not live with your
spouse at any time during the year, your spouse's active participation will
not affect your ability to make deductible contributions.
B. ADJUSTED GROSS INCOME (AGI)
If you are an active participant, you must look at your Adjusted Gross Income
for the year (if you and your spouse file a joint tax return, you use your
combined AGI) to determine whether you can make a deductible IRA contribution.
Your tax return will show you how to calculate your AGI for this purpose. If
you are at or below a certain AGI level, called the Threshold Level, you are
treated as if you were not an active participant and can make a deductible
contribution under the same rules as a person who is not an active
participant.
If you are single, your Threshold AGI Level is $25,000. The Threshold Level if
you are married and file a joint tax return is $40,000, and if you are married
but file a separate tax return, the Threshold Level is $0.
If your AGI is less than $10,000 above your Threshold Level, you will still be
able to make a deductible contribution, but it will be limited in amount. The
amount by which your AGI exceeds your Threshold Level (AGI - Threshold Level)
is called your Excess AGI. The Maximum Allowable Deduction is $2,000 (or
$2,250 for a Spousal IRA). You can estimate your Deduction Limit as follows:
(Your Deduction Limit may be slightly higher if you use this formula rather
than the table provided by the IRS.)
$10,000 - Excess AGI
-------------------- x Maximum Allowable Deduction = Deduction Limit
$10,000
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You must round up the result to the next highest $10 level (the next highest
number which ends in zero). For example, if the result is $1,525, you must
round it up to $1,530. If the final result is below $200 but above zero, your
Deduction Limit is $200. Your Deduction Limit cannot, in any event, exceed
100% of your compensation.
Example 1: Ms. Smith, a single person, is an active participant and has an
AGI of $31,619. She calculates her deductible IRA contribution
as follows:
Her AGI is $31,619
Her Excess AGI is (AGI - Threshold Level) or ($31,619-$25,000) =
$6,619
Her Maximum Allowable Deduction is $2,000
So, her IRA deduction limit is:
$10,000 - $6,619
---------------- x $2,000 = $676 (rounded to $680)
$10,000
Example 2: Mr. and Mrs. Young file a joint tax return. Each spouse earns
more than $2,000 and one is an active participant. They have a
combined AGI of $44,255. They may each contribute to an IRA and
calculate their deductible contributions to each IRA as follows:
Their AGI is $44,255
Their Threshold Level is $40,000
Their Excess AGI is (AGI - Threshold Level) or ($44,255 -
$40,000) = $4,255
The Maximum Allowable Deduction for each spouse is $2,000 So,
each spouse may compute his or her IRA deduction limit as
follows:
$10,000 - 4,255
--------------- x $2,000 = $1,149 (rounded to $1,150)
$10,000
Example 3: If, in Example 2, Mr. Young did not earn any compensation, or
elected to be treated as earning no compensation, Mrs. Young
could establish a Spousal IRA (consisting of an account for
herself and one for her husband). The amount of deductible
contributions which could be made to the two IRAs is calculated
using a Maximum Allowable Deduction of $2,250 rather than
$2,000.
$10,000 - $4,255
---------------- x $2,250 = $1,293 (rounded to $1,300)
$10,000
The $1,300 can be divided between the two accounts, but neither
IRA may receive a deductible contribution of more than $1,150.
Example 4: Mr. Jones, a married person, files a separate tax return and is
an active participant. He has $1,500 of compensation and wishes
to make a deductible contribution to an IRA.
His AGI is $1,500
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His Threshold Level is $0
His Excess AGI is (AGI - Threshold Level) or $1,500-$0) = $1,500
His Maximum Allowable Deduction is $2,000 So, his IRA deduction
limit is:
$10,000 - $1,500
---------------- x $2,000 = $1,700
$10,000
Even though his IRA deduction limit under the formula is $1,700,
Mr. Jones may not deduct an amount in excess of his
compensation, so, his actual deduction is limited to $1,500.
SPOUSAL IRAs
As noted in Example 3 above, under the Act you may contribute to a Spousal IRA
even if your spouse has earned some compensation during the year. Provided
your spouse does not make a contribution to an IRA, you may set up a Spousal
IRA consisting of an annuity for your spouse as well as an annuity for
yourself. The maximum deductible amount to your IRA and a Spousal IRA is the
lesser of $2,250 or 100% of compensation.
NON-DEDUCTIBLE CONTRIBUTIONS TO IRAs
Even if you are above the Threshold Level and thus may not make a deductible
contribution of $2,000 ($2,250 if a spousal IRA is involved), you may still
contribute up to the lesser of 100% of compensation or $2,000 to an IRA
($2,250 for a Spousal IRA). The amount of your contribution which is not
deductible will be a non-deductible contribution to the IRA. You may also
choose to make a contribution non-deductible even if you could have deducted
part or all of the contribution. Interest or other earnings on your IRA
contribution, whether from deductible or non-deductible contributions, will
not be taxed until taken out of your IRA and distributed to you.
If you make a non-deductible contribution to an IRA, you must report the
amount of the non-deductible contribution to the IRS on Form 8606 as a part of
your tax return for the year.
You may make a $2,000 contribution at any time during the year, if your
compensation for the year will be at least $2,000, without having to know how
much will be deductible. When you fill out your return, you may then figure
out how much is deductible.
You may withdraw an IRA contribution made for a year any time before April 15
of the following year. If you do so, you must also withdraw the earnings
attributable to that portion and report the earnings as income for the year
for which the contribution was made. If some portion of your contribution is
not deductible, you may decide either to withdraw the non-deductible amount,
or to leave it in the IRA and designate that portion as a non-deductible
contribution on your tax return.
IRA DISTRIBUTIONS
Generally, IRA distributions which are not rolled over (see "Rollover IRA
Rules", below) are included in your gross income in the year they are
received. Non-deductible IRA contributions,
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<PAGE>
however, are made using income which has already been taxed (that is, they are
not deductible contributions). Thus, the portion of the IRA distributions
consisting of non-deductible contributions will not be taxed again when
received by you. If you make any non-deductible IRA contributions, each
distribution from your IRA(s) will consist of a non-taxable portion (return of
deductible contributions, if any, and account earnings).
Thus, you may not take a distribution which is entirely tax-free. The
following formula is used to determine the non-taxable portion of your
distributions for a taxable year:
Remaining
Non-Deductible Contributions
---------------------------- x Total Distributions = Nontaxable Distributions
Year-End Total IRA Balances (for the year) (for the year)
To figure the year-end total IRA balance, you treat all of your IRAs as a
single IRA. This includes all regular IRAs (whether accounts or annuities), as
well as Simplified Employee Pension (SEP) IRAs, and Rollover IRAs. You also
add back the distributions taken during the year.
<TABLE>
Example: An individual makes the following contributions to his or her IRA(s).
<CAPTION>
Year Deductible Non-Deductible
---- ---------- --------------
<S> <C> <C>
1985 $ 2,000
1986 1,800
1989 1,000 $1,000
1991 600 1,400
$ 5,400 $2,400
</TABLE>
<TABLE>
<S> <C>
Deductible Contributions: $5,400
Non-Deductible Contributions: 2,400
Earnings on IRAs: 1,200
------
Total Account Balance of IRA(s) as of 12/31/95: $9,000
(including distributions in 1995).
</TABLE>
In 1995, the individual takes a distribution of $3,000. The total account
balance in the IRAs on 12/31/95 plus 1995 distributions is $9,000. The
non-taxable portion of the distributions for 1995 is figured as follows:
Total non-deductible contributions $2,400
------ x $3,000 = $800
Total account balance in the IRAs, plus distributions $9,000
Thus, $800 of the $3,000 distribution in 1995 will not be included in the
individual's taxable income. The remaining $2,200 will be taxable for 1995.
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<PAGE>
ROLLOVER IRA RULES
1. IRA TO IRA
You may withdraw, tax-free, all or part of the assets from an IRA and reinvest
them in one or more IRAs. The reinvestment must be completed within 60 days of
the withdrawal. No IRA deduction is allowed for the reinvestment. Amounts
required to be distributed because the individual has reached age 70 1/2 may
not be rolled over.
2. EMPLOYER PLAN DISTRIBUTIONS TO IRA
All taxable distributions (known as "eligible rollover distributions") from
qualified pension, profit-sharing, stock bonus and tax sheltered annuity plans
may be rolled over to an IRA, with the exception of (1) annuities paid over a
life or life expectancy, (2) installments for a period of ten years or more,
and (3) required minimum distributions under section 401(a)(9).
Rollovers may be accomplished in two ways. First, you may elect to have an
eligible rollover distribution paid directly to an IRA (a "direct rollover").
Second, you may receive the distribution directly and then, within 60 days of
receipt, roll the amount over to an IRA. Under the Act, however, any amount
that you elect not to have distributed as a direct rollover will be subject to
20 percent income tax withholding, and, if you are younger than age 59 1/2,
may result in a 10% excise tax on any amount of the distribution that is
included in income. Questions regarding distribution options under the Act
should be directed to your Plan Trustee or Plan Administrator, or may be
answered by consulting IRS Temporary Regulations Section 1.401(a)(31)-1T,
Section 1.402(c)-2T and Section 31.3405(c)-1T.
PENALTIES FOR PREMATURE DISTRIBUTIONS
If you receive a distribution from your IRA before you reach age 59 1/2, an
additional tax of 10 percent will be imposed under Code Section 72(t), unless
the distribution (a) occurs because of your death or disability, (b) is
received as a part of a series of substantially equal payments over your life
or life expectancy, (c) is received as a part of a series of substantially
equal payments over the lives or life expectancy of you and your beneficiary,
or (d) the distribution is contributed to a rollover IRA.
MINIMUM DISTRIBUTIONS
Under the rules set forth in Code Section 408(b)(3) and Section 401(a)(9), you
may not leave the funds in your contract indefinitely. Certain minimum
distributions are required. These required distributions may be taken in one
of two ways: (a) by withdrawing the balance of your contract by a "required
beginning date," usually April 1 of the year following the date at which you
reach age 70 1/2; or (b) by withdrawing periodic distributions of the balance
in your contract by the required beginning date. These periodic distributions
may be taken over (a) your life; (b) the lives of you and your named
beneficiary; (c) a period not extending beyond your life expectancy; or (d) a
period not extending beyond the joint life expectancy of you and your named
beneficiary.
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<PAGE>
If you do not satisfy the minimum distribution requirements, then, pursuant to
Code Section 4974, you may have to pay a 50% excise tax on the amount not
distributed as required that year.
The foregoing minimum distribution rules are discussed in detail in IRS
Publication 590, "Individual Retirement Arrangements."
REPORTING
You are required to report penalty taxes due on excess contributions, excess
accumulations, premature distributions, and prohibited transactions.
Currently, IRS Form 5329 is used to report such information to the Internal
Revenue Service.
PROHIBITED TRANSACTIONS
Neither you nor your beneficiary may engage in a prohibited transaction, as
that term is defined in Code Section 4975.
Borrowing any money from this IRA would, under Code Section 408(e)(3), cause
the contract to cease to be an Individual Retirement Annuity and would result
in the value of the annuity being included in the owner's gross income in the
taxable year in which such loan is made.
Use of this contract as security for a loan from the Company, if such loan
were otherwise permitted, would, under Code Section 408(e)(4), cause the
portion so used to be treated as a taxable distribution.
EXCESS CONTRIBUTIONS
Tax Code Section 4973 imposes a 6 percent excise tax as a penalty for an
excess contribution to an IRA. An excess contribution is the excess of the
deductible and nondeductible amounts contributed by the Owner to an IRA for
that year over the lesser of his or her taxable compensation or $2,000.
(Different limits apply in the case of a spousal IRA arrangement.) If the
excess contribution is not withdrawn by the due date of your tax return
(including extensions) you will be subject to the penalty.
IRS APPROVAL
Your contract and IRA endorsement have been approved by the Internal Revenue
Service as a tax qualified Individual Retirement Annuity. Such approval by the
Internal Revenue Service is a determination only as to the form of the annuity
and does not represent a determination of the merits of such annuity.
This disclosure statement is intended to provide an overview of the applicable
tax laws relating to Individual Retirement Arrangements. It is not intended to
constitute a comprehensive explanation as to the tax consequences of your IRA.
AS WITH ALL SIGNIFICANT TRANSACTIONS SUCH AS THE
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<PAGE>
ESTABLISHMENT OR MAINTENANCE OF, OR WITHDRAWAL FROM AN IRA, APPROPRIATE TAX
AND LEGAL COUNSEL SHOULD BE CONSULTED. Further information may also be
acquired by contacting your IRS District Office or consulting IRS Publication
590.
FINANCIAL DISCLOSURE
(SIERRA ADVANTAGE VARIABLE ANNUITY)
This Financial Disclosure is applicable to IRAs using the Sierra Advantage
Variable Annuity purchased from American General Life Insurance Company on or
after May 1, 1996.
Earnings under Variable Annuities are not guaranteed, and depend on the
performance of the investment options selected. As such, earnings cannot be
projected. Set forth below are the charges associated with these annuities.
CHARGES:
(a) A maximum charge of $25 for each transfer, in excess of 12 free
transfers annually, of contract value between divisions of the
Separate Account.
(b) To compensate for mortality and expense risks assumed under the
contract, variable divisions only will incur a daily charge at an
annualized rate of 1.20% of the average Separate Account Value of the
contract during both the Accumulation and the Payout Phase.
(c) Premium taxes, if applicable, may be charged against Accumulation
Value at time of annuitization, a full or partial surrender or upon
the death of the Annuitant. If a jurisdiction imposes premium taxes
at the time purchase payments are made, the Company may deduct a
charge at that time.
(d) If the contract is surrendered, or if a withdrawal is made, there may
be a Surrender Charge. The Surrender Charge equals the sum of the
following:
7.0% of purchase payments for surrenders and withdrawals made
during the first contract year following receipt of the purchase
payments surrendered;
6.0% of purchase payments for surrenders and withdrawals made
during the second through third contract year following receipt
of the purchase payments surrendered;
5.0% of purchase payments for surrenders and withdrawals made
during the fourth contract year following receipt of the
purchase payments surrendered;
4.0% of purchase payments for surrenders and withdrawals made
during the fifth contract year following receipt of the purchase
payments surrendered;
2.0% of purchase payments for surrenders and withdrawals made
during the sixth contract year following receipt of the purchase
payments surrendered;
There will be no charge imposed for surrenders and withdrawals
in the seventh and subsequent contract years following receipt
of the purchase payments surrendered.
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Under certain circumstances described in the contract, portions of a
partial withdrawal may be exempt from the Surrender Charge.
(e) To compensate for administrative expenses, a daily charge will be
incurred at an annualized rate of .30% of the average Separate
account Value of the contract during the Accumulation and the Payout
Phase.
(f) Each variable division will be charged a fee for asset management
deducted directly from the underlying fund during the Accumulation
and Payout Phase. The fee will range between .50% and 1.47% depending
on the division.
9
<PAGE>
AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACTS
OFFERED BY
AMERICAN GENERAL LIFE INSURANCE COMPANY
ANNUITY ADMINISTRATION DEPARTMENT
P.O. BOX 1401, HOUSTON, TEXAS 77251-1401
1-800-247-6584 713-831-3505
STATEMENT OF ADDITIONAL INFORMATION
Dated May 1, 1996
as Supplemented July 1, 1996
This Statement of Additional Information is not a prospectus. It should
be read with the Prospectuses for American General Life Insurance Company
Separate Account D ("Separate Account D") concerning flexible premium deferred
annuity Contracts investing in the mutual fund portfolios of The Sierra
Variable Trust, dated May 1, 1996 and July 1, 1996, respectively. You can
obtain a copy of the Prospectus for the Contracts by contacting American
General Life Insurance Company ("AG Life") at the address or telephone numbers
given above. You have the option of receiving benefits on a fixed basis
through AG Life's Fixed Account or through AG Life's Separate Account D. Terms
used in this Statement of Additional Information have the same meanings as are
defined in the Prospectus under the heading "Glossary."
TABLE OF CONTENTS
General Information...................................................... 2
Regulation and Reserves.................................................. 2
Independent Auditors..................................................... 3
Services................................................................. 3
Principal Underwriter.................................................... 3
Annuity Payments......................................................... 3
Gender of Annuitant..................................................... 3
Misstatement of Age or Sex and Other Errors............................. 4
Change of Investment Advisor or Investment Policy........................ 4
Terms of Exemptive Relief in Connection With Mortality
and Expense Risk Charge................................................. 4
Performance Data for the Divisions....................................... 5
Financial Statements.....................................................10
Index to Financial Statements............................................11
1
<PAGE>
GENERAL INFORMATION
AG Life (formerly American General Life Insurance Company of Delaware) is a
successor in interest to a company previously organized as a Delaware
corporation in 1917. Effective December 31, 1991, AG Life redomesticated as a
Texas insurer and changed its name to American General Life Insurance Company.
AG Life is a wholly-owned subsidiary of AGC Life Insurance Company, a Missouri
corporation ("AG Missouri") engaged primarily in the life insurance business
and annuity business. AG Missouri, in turn, is a wholly-owned subsidiary of
American General Corporation, a Texas holding corporation engaged primarily in
the insurance business.
REGULATION AND RESERVES
AG Life is subject to regulation and supervision by the insurance departments
of the states in which it is licensed to do business. This regulation covers a
variety of areas, including benefit reserve requirements, adequacy of
insurance company capital and surplus, various operational standards, and
accounting and financial reporting procedures. AG Life's operations and
accounts are subject to periodic examination by insurance regulatory
authorities.
Under insurance guaranty fund laws in most states, insurers doing business
therein can be assessed up to prescribed limits for insurance contract losses,
if covered, incurred by insolvent insurance companies. The amount of any
future assessments of AG Life under these laws cannot be reasonably estimated.
Most of these laws do provide, however, that an assessment may be excused or
deferred if it would threaten an insurer's own financial strength.
Although the federal government generally has not directly regulated the
business of insurance, federal initiatives often have an impact on the
business in a variety of ways. Federal measures that may adversely affect the
insurance business include employee benefit regulation, tax law changes
affecting the taxation of insurance companies or of insurance products,
changes in the relative desirability of various personal investment vehicles,
and removal of impediments on the entry of banking institutions into the
business of insurance. Also, both the executive and legislative branches of
the federal government have under consideration various insurance regulatory
matters, which could ultimately result in direct federal regulation of some
aspects of the insurance business. It is not possible to predict whether this
will occur or, if so, what the effect on AG Life would be.
Pursuant to state insurance laws and regulations, AG Life is obligated to
carry on its books, as liabilities, reserves to meet its obligations under
outstanding insurance contracts. These reserves are based on assumptions
about, among other things, future claims experience and investment returns.
Neither the reserve requirements nor the other aspects of state insurance
regulation provide absolute protection to holders of insurance contracts,
including the Contracts, if AG Life were to incur claims or expenses at rates
significantly higher than expected, for example, due to acquired immune
deficiency syndrome or other infectious diseases or catastrophes, or
significant unexpected losses on its investments.
2
<PAGE>
INDEPENDENT AUDITORS
The consolidated financial statements of AG Life and the financial statements
of the Sierra Advantage Divisions of Separate Account D appearing in this
Statement of Additional Information have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing
elsewhere herein. Such financial statements have been included in this
Statement of Additional Information in reliance upon such reports of Ernst &
Young LLP given upon the authority of such firm as experts in accounting and
auditing. Ernst & Young LLP is located at One Houston Center, Suite 2400, 1221
McKinney Street, Houston, TX 77010-2007.
SERVICES
A Service Agreement exists between AG Life and Continuum Computer Systems,
Inc. ("Continuum") to provide certain services in connection with Separate
Account D. Continuum has developed a computerized data processing record
keeping system for annuity accounting and has the necessary data processing
equipment and personnel to provide and support remote terminal access to its
system for the maintenance of annuity records, processing information, and the
generation of output with respect to the records and information. AG Life has
contracted with Continuum for the right to use Continuum's system. For these
services AG Life paid Continuum $28,080 in 1995, $78,840 in 1994, and $62,691
in 1993.
PRINCIPAL UNDERWRITER
American General Securities Incorporated ("AGSI") is the principal underwriter
with respect to the Contracts. AGSI also serves as principal underwriter to
American General Life Insurance Company of New York Separate Account E and AG
Life's Separate Account A, both of which are unit investment trusts registered
under the Investment Company Act of 1940, as amended.
As principal underwriter with respect to Separate Account D, AGSI has received
from AG Life less than $1,000 of compensation for each of the past three
years.
ANNUITY PAYMENTS
GENDER OF ANNUITANT
When annuity payments are based on life expectancy, the amount of each annuity
payment ordinarily will be higher if the Annuitant or other measuring life is
a male, as compared with a female under an otherwise identical Contract. This
is because, statistically, females tend to have longer life expectancies than
males.
However, there will be no differences between males and females in any
jurisdiction, including Montana, where such differences are not permitted. We
will also make available Contracts with no such differences in connection with
certain employer-sponsored benefit plans. Employers should be aware that,
under most such plans, Contracts that make distinctions based on gender are
prohibited by law.
3
<PAGE>
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the age or sex of an Annuitant has been misstated to us, any amount payable
will be that which the purchase payments paid would have purchased at the
correct age and sex. If we made any overpayments because of incorrect
information about age or sex, or any error or miscalculation, we will deduct
the overpayment from the next payment or payments due. We will add any
underpayments to the next payment. The amount of any adjustment will be
credited or charged with interest at the effective annual rate of 3.5% per
year.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise required by law or regulation, neither the investment adviser
to any Fund nor any investment policy may be changed without the consent of AG
Life. If required, approval of or change of any investment objective will be
filed with the insurance department of each state where a Contract has been
delivered. The Owner (or, after annuity payments start, the payee) will be
notified of any material investment policy change that has been approved. You
will be notified of any investment policy change prior to its implementation
by Separate Account D if your comment or vote is required for such change.
TERMS OF EXEMPTIVE RELIEF IN CONNECTION WITH MORTALITY
AND EXPENSE RISK CHARGE
AG Life and AGSI have obtained exemptive relief from the Securities and
Exchange Commission ("Commission") in connection with deducting the mortality
and expense risk charge pursuant to the Contracts. In the application for the
exemption, AG Life and AGSI have represented and undertaken, among other
things, that:
o The level of the mortality and expense risk charge is within the
range of industry practice for comparable annuity contracts;
o This conclusion is based upon a review that AG Life and AGSI have
conducted of publicly-available information regarding annuity
contracts of other companies which they will maintain at their Home
Office, and make available on request to the Commission or its
staff, a memorandum setting forth the variable annuity products
analyzed and the methodology and results of the comparative review;
o There is a reasonable likelihood that the proposed distribution
financing arrangements with respect to the Contracts will benefit
Separate Account D and investors in the Contracts, and the basis for
this conclusion is set forth in a memorandum which will be
maintained by AG Life at its Home Office and will be available to
the Commission or its staff on request.
4
<PAGE>
PERFORMANCE DATA FOR THE DIVISIONS
Investment results for the available Divisions of Separate Account D may
be quoted from time to time. Such results are not an estimate or guarantee of
future investment performance, and do not represent the actual experience of
amounts invested by a particular Owner. Performance figures are carried to the
nearest one-hundredth of one percent and include the effect of voluntary fee
waivers and expense reimbursements in favor of the Funds from their investment
adviser and administrator. Modifications have been made in these waivers and
reimbursements which, had they been in effect for the entire period would
(except for the Global Money Division) have resulted in lower total returns
than those shown below.
AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
Each Division's average annual total return quotation is computed in
accordance with a standard method prescribed by the Securities and Exchange
Commission ("SEC"). The average annual total return for a Division for a
specific period is found by first taking a hypothetical $1,000 investment in
the Division's Accumulation Units on the first day of the period at the
then-applicable Accumulation Unit value per unit ("initial investment"), and
computing the ending redeemable value ("redeemable value") of that investment
at the end of the period. The redeemable value reflects the effect of the
applicable Surrender Charge that may be imposed at the end of the period as
well as all other recurring charges and fees applicable under the Contract to
all Owner accounts. Such other charges and fees include the mortality and
expense risk charge and the administrative expense charge, but do not include
the charges for any applicable premium taxes. The redeemable value is then
divided by the initial investment, and this quotient is taken to the Nth root
(N represents the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. Average annual total return
quotations for the indicated periods ended December 31, 1995 are set forth in
the table below.
<TABLE>
<CAPTION>
Division One Year Since Division Inception*
-------- -------- -------------------------
<S> <C> <C>
Global Money -3.10% 0.53%
Growth 28.29 15.41
Growth and Income 23.45 10.16
Emerging Growth 22.06 13.60
International Growth -1.98 4.59
U.S. Government 8.15 1.79
Short Term High Quality Bond 0.67 -0.51
Corporate Income 16.23 4.10
Short Term Global Government -0.52 -1.34
<FN>
* The U.S. Government Division commenced operations on May 5, 1993. The
Growth, International Growth and Corporate Income Divisions commenced
operations on May 6, 1993. The Global Money Division commenced operations
on May 7, 1993. The Short Term Global Government Division commenced
operations on May 11, 1993. The Growth and Income, Emerging Growth and
Short Term High Quality Bond Divisions commenced operations on January
11, 1994.
</FN>
</TABLE>
5
<PAGE>
CUMULATIVE TOTAL RETURN CALCULATIONS (WITHOUT SURRENDER CHARGE)
No standard formula has been prescribed by the SEC for calculating
cumulative total return performance (without Surrender Charge). Total return
performance for a specific period is calculated by first taking an investment
(assumed to be $1,000) in a Division's Accumulation Units on the first day of
the period at the then-applicable Accumulation Unit value per unit ("initial
investment") and computing the ending value ("ending value") of that
investment at the end of the period. The ending value does not include the
effect of the applicable Surrender Charge that may be imposed at the end of
the period, since it is assumed that the Contract continues through the end of
each period, and does not include the charges for any applicable premium
taxes. The total return percentage (without Surrender Charge) is then
determined by subtracting the initial investment from the ending value and
dividing the remainder by the initial investment and expressing the result as
a percentage.
Cumulative total return quotations (without surrender charge) for the
indicated periods ended December 31, 1995 are set forth in the table below.
<TABLE>
<CAPTION>
Division One Year Since Division Inception*
-------- -------- -------------------------
<S> <C> <C>
Global Money 3.90% 2.52%
Growth 35.29 17.00
Growth and Income 30.44 12.63
Emerging Growth 29.04 16.00
International Growth 5.02 6.46
U.S. Government 15.15 3.74
Short Term High Quality Bond 7.67 2.21
Corporate Income 23.23 5.98
Short Term Global Government 6.48 0.72
<FN>
* See footnote to previous table for dates when Divisions commenced
operations.
</FN>
</TABLE>
AGGREGATE CUMULATIVE TOTAL RETURN CALCULATIONS
No standardized formula has been prescribed by the SEC for calculating
aggregate cumulative total return performance. Aggregate cumulative total
return performance is the cumulative rate of return on a hypothetical
investment (assumed to be $1,000) in a Division's Accumulation Units on the
first day of the period at the then-applicable Accumulation Unit value per
unit ("initial investment"). Aggregate cumulative total return quotations
reflect changes in Accumulation Unit value and are calculated by finding the
cumulative rates of return of the hypothetical initial investment over various
periods, according to the following formula, and then expressing that as a
percentage:
6
<PAGE>
A = (ERV/P) - 1
Where:
A = Aggregate cumulative total return.
P = A hypothetical initial investment of $1,000.
ERV = Ending redeemable value: i.e., the value at the end of the
applicable period of a hypothetical $1,000 investment made at
the beginning of the applicable period. Ending redeemable value
for this purpose does not reflect the charges for any
applicable premium taxes, but does reflect all other charges.
Aggregate cumulative total return quotations for the indicated periods
ended December 31, 1995 are set forth in the table below:
<TABLE>
<CAPTION>
Division One Year Since Division Inception*
-------- -------- -------------------------
<S> <C> <C>
Global Money 3.90% 6.81%
Growth 35.29 51.67
Growth and Income 30.44 26.38
Emerging Growth 29.04 33.93
International Growth 5.02 18.06
U.S. Government 15.15 10.23
Short Term High Quality Bond 7.67 4.41
Corporate Income 23.23 16.65
Short Term Global Government 6.48 1.91
<FN>
* See footnote to previous table for dates when Divisions commenced
operations.
</FN>
</TABLE>
YIELD CALCULATIONS
The yields for the U.S. Government, Short Term High Quality Bond,
Corporate Income, and Short Term Global Government Divisions are each computed
in accordance with a standard method prescribed by the SEC. The yields for the
U.S. Government, Short Term High Quality Bond, Corporate Income and Short Term
Global Government Divisions, based upon the one month period ended December
31, 1995, were 4.47%, 3.81%, 5.91% and 0.06%, respectively. The yield
quotation is computed by dividing the net investment income per Accumulation
Unit earned during the specified one month or 30-day period by the
Accumulation Unit value on the last day of the period, according to the
following formula that assumes a semi-annual reinvestment of income:
7
<PAGE>
a - b 6
YIELD = 2[(------- +1) - 1]
cd
Where:
a = Net dividends and interest earned during the period by the Fund
attributable to the Division.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding
during the period.
d = The Accumulation Unit value per unit on the last day of the
period.
The yield of each Division reflects the deduction of all recurring fees and
charges applicable to each Division, such as the mortality and expense risk
charge and the administrative expense charge, but does not reflect the
deduction of Surrender Charges or the charge for any applicable premium taxes.
GLOBAL MONEY DIVISION YIELD AND EFFECTIVE YIELD CALCULATIONS
The Global Money Division's yield is computed in accordance with a
standard method prescribed by the SEC. Under that method, the current yield
quotation is based on a seven-day period and computed as follows: the net
change in the Accumulation Unit value during the period is divided by the
Accumulation Unit value at the beginning of the period to obtain the base
period return; the base period return is then multiplied by the fraction 365/7
to obtain the current yield figure. Realized capital gains or losses and
unrealized appreciation or depreciation of the Global Money Fund's assets are
not included in the calculation. The Global Money Division's yield for the
seven-day period ended December 31, 1995 was 2.59%.
The Global Money Division's effective yield is determined by taking the
base period return (computed as described above) and calculating the effect of
assumed compounding. The formula for the effective yield is: (base period
return +1)365/7-1. The Global Money Division's effective yield for the
seven-day period ended December 31, 1995 was 2.63%.
Yield and effective yield do not reflect the deduction of Surrender Charges or
the charges for any applicable premium taxes.
8
<PAGE>
PERFORMANCE COMPARISONS
The performance of any or all of the Divisions of Separate Account D may
be compared in advertisements and sales literature to the performance of other
variable annuity issuers in general or to the performance of particular types
of variable annuities investing in mutual funds, or series of mutual funds,
with investment objectives similar to each of the Divisions of Separate
Account D. Lipper Analytical Services, Inc. ("Lipper") and the Variable
Annuity Research and Data Service ("VARDSr") are independent services which
monitor and rank the performance of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis. Lipper's
rankings include variable life issuers as well as variable annuity issuers.
VARDSR rankings compare only variable annuity issuers. The performance
analyses prepared by Lipper and VARDSr rank such issuers on the basis of total
return, assuming reinvestment of dividends and distributions, but do not take
sales charges, redemption fees or certain expense deductions at the separate
account level into consideration. In addition, VARDSr prepares risk adjusted
rankings, which consider the effects of market risk on total return
performance.
In addition, each Division's performance may be compared in
advertisements and sales literature to the following benchmarks: (1) the
Standard & Poor's 500 Composite Stock Price Index, an unmanaged weighted index
of 500 leading domestic companies that represents approximately 80% of the
market capitalization of the United States equity market; (2) the Dow Jones
Industrial Average, an unmanaged unweighted average of thirty blue chip
industrial corporations listed on the New York Stock Exchange and generally
considered representative of the United States stock market; (3) the Consumer
Price Index, published by the U.S. Bureau of Labor Statistics, a statistical
measure of change, over time, in the prices of goods and services in major
expenditure groups and generally considered to be a measure of inflation; (4)
the Lehman Brothers Government and Corporate Bond Index, the Salomon Brothers
High Grade Corporate Bond Index, and the Merrill Lynch Government/Corporate
Master Index, unmanaged indices that are generally considered to represent the
performance of intermediate and long term bonds during various market cycles;
and (5) the Morgan Stanley Capital International Europe Australia Far East
Index, an unmanaged index that is considered to be generally representative of
major non-United States stock markets.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The charts below compare accumulations attributable to a single initial
contribution of $100,000, compounded annually, to (1) investments on which
earnings are not taxed until withdrawn, and (2) investments on which earnings
are taxed currently.
9
<PAGE>
<TABLE>
<CAPTION>
5 YEARS 10 YEARS 20 YEARS
-------- -------- --------
(7.125% earnings rate)
<S> <C> <C> <C>
Tax-Deferred ....................... $141,076 $199,025 $396,111
Tax-Deferred (after taxes).......... $128,343 $168,327 $304,316
Taxable Investment ................. $127,120 $161,595 $261,129
</TABLE>
<TABLE>
<CAPTION>
(10.00% earnings rate)
<S> <C> <C> <C>
Tax-Deferred $161,051 $259,374 $672,750
Tax-Deferred (after taxes).......... $142,125 $209,968 $495,197
Taxable Investment.................. $139,601 $194,884 $379,799
</TABLE>
These hypothetical charts assume a 31% tax rate. The charts also assume that
no fees or charges are deducted from any of the investments. In the case of
the Contracts, the annual mortality and expense risk charge is 1.20%, the
maximum surrender charge is 7% for withdrawals within the first six years, and
annual administrative expense is .30%. The currently taxable investments may
incur comparable fees and charges. The application of fees and charges would
reduce the performance of the Contracts or any other investment. Taxes are
payable upon withdrawal under the Contracts, either at one time in the case of
a lump sum withdrawal, or on each payment in the case of annuitization. An
additional 10% penalty may apply to withdrawals before age 59-1/2.
This information is for illustrative purposes only and is not a guarantee of
future return.
FINANCIAL STATEMENTS
The financial statements for Separate Account D that are included herein
relate to 9 of its Divisions. Separate Account D has 17 other Divisions for
which no financial statements are included because those Divisions are
available only pursuant to contracts other than the Contracts that are the
subject of this Statement of Additional Information.
The financial statements of AG Life that are included in this Statement of
Additional Information should be considered primarily as bearing on the
ability of AG Life to meet its obligations under the Contracts.
10
<PAGE>
<TABLE>
INDEX TO
FINANCIAL STATEMENTS
<CAPTION>
Page No.
<S> <C>
I. Sierra Advantage Divisions of Separate Account D
Financial Statements
Report of Ernst & Young LLP, Independent Auditors................... 12
Statement of Net Assets ............................................ 13
Statement of Operations............................................. 13
Statement of Changes in Net Assets.................................. 14
Notes to Financial Statements....................................... 15
II. AG Life Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors................... 19
Consolidated Balance Sheets......................................... 20
Consolidated Statements of Income................................... 22
Consolidated Statements of Shareholder's Equity..................... 23
Consolidated Statements of Cash Flows............................... 24
Notes to Consolidated Financial Statements.......................... 25
</TABLE>
11
