AMERICAN GENERAL LIFE INSURANCE CO SEPARATE ACCOUNT D, N-4 EL, 1997-04-21

AMERICAN GENERAL LIFE INSURANCE CO SEPARATE ACCOUNT D
N-4 EL, 1997-04-21

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Registration Nos. 33-_____
811-2441

As filed with the Commission on April 21, 1997
--------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
---
Pre-Effective Amendment No. ___ ___
Post-Effective Amendment No. ___ ___

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 58 [X]
---- ---

AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT D
(Exact Name of Registrant)

AMERICAN GENERAL LIFE INSURANCE COMPANY
(Name of Depositor)

2727-A Allen Parkway
Houston, Texas 77019-2191
(Address of Depositor's Principal Executive Officers) (Zip Code)
(713) 831-3632
(Depositor's Telephone Number, including Area Code)

Steven A. Glover, Esq.
Associate General Counsel and Assistant Secretary
American General Life Insurance Company
2727-A Allen Parkway, Houston, Texas 77019
(Name and Address of Agent for Service)

Copies of all communications to Freedman, Levy,
Kroll & Simonds 1050 Connecticut Avenue,
N.W., Suite 825
Washington, D.C. 20036
Attention: Gary O. Cohen, Esq.

---------------------

Approximate Date of Proposed Public Offering: May 1, 1997

<PAGE>

Pursuant to the provisions of Rule 24f-2 under the Investment Company Act of
1940, Registrant has elected to register an indefinite number or amount of its
securities under the Securities Act of 1933. That election was previously
filed in Registrant's Form N-4 registration statement (File No. 2-49805 and
File No. 811-2441). Registrant filed a Rule 24f-2 Notice on February 24, 1997,
for its fiscal year ended December 31, 1996.

Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file
another amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.

<PAGE>

AMERICAN GENERAL LIFE INSURANCE COMPANY
SEPARATE ACCOUNT D
FORM N-4

Cross Reference Sheet
Pursuant to Rule 495(a)
Under the Securities Act of 1933

PART A
SHOWING LOCATION OF INFORMATION IN PROSPECTUS

<TABLE>
<CAPTION>
Form N-4
Item No. Prospectus Caption
--------- -------------------
<S> <C>
1. Cover Page.................................... Cover Page

2. Definitions................................... Glossary

3. Synopsis...................................... Synopsis of Contract Provisions

4. Condensed Financial Information............... Synopsis of Contract Provisions -
Financial and Performance
Information; Cover Page

5. General Description of Registrant,
Depositor and Portfolio Companies............. AGL; Separate Account D; The Series;
Cover Page

6. Deductions and Expenses....................... Charges Under the Contracts;
Long-Term Care and Terminal Illness

7. General Description of Variable............... Annuity Contracts Synopsis of
Contract Provisions - Communications
to Us; Owner Account Value; Trans
fer, Surrender and Partial Withdrawal
of Owner Account Value; Owners,
Annuitants and Beneficiaries;
Assignments; Rights Reserved by Us
</TABLE>

(i)

<PAGE>

PART A

<TABLE>
<CAPTION>
Form N-4
Item No. Prospectus Caption
--------- -------------------
<S> <C>

8. Annuity Period................................ Annuity Period and Annuity Payment
Options

9. Death Benefit................................. Death Proceeds

10. Purchases and Contract Value.................. Contract Issuance and Purchase
Payments; Owner Account Value;
Distribution Arrangements; One-Time
Reinstatement Privilege

11. Redemptions................................... Transfer, Surrender and Partial
Withdrawal of Owner Account Value;
Annuity Payment Options; Contract
Issuance and Purchase Payments;
Synopsis of Contract Provisions -
Surrenders, Withdrawals and
Cancellations; Payment and Deferment

12. Taxes......................................... Federal Income Tax Matters; Synopsis
of Contract Provisions - Limitations
Imposed by Retirement Plans and
Employers

13. Legal Proceedings............................. Not Applicable

14. Table of Contents of the Statement
of Additional Information..................... Contents of Statement of Additional
Information
</TABLE>

(ii)

<PAGE>

PART B

Showing Location of Information in Statement of Additional Information
----------------------------------------------------------------------

Caption in
<TABLE>
<CAPTION>
Form N-4 Statement of
Item No. Additional Information
<S> <C>
15. Cover Page.................................... Cover Page

16. Table of Contents............................. Cover Page

17. General Information and
History....................................... General Information; Regulation and
Reserves

18. Services...................................... Independent Auditors; Services

19. Purchase of Securities
Being Offered................................. Not Applicable*

20. Underwriters.................................. Principal Underwriter

21. Calculation of Performance
Data.......................................... Performance Data for the Divisions

22. Annuity Payments.............................. Annuity Payments

23. Financial Statements.......................... Financial Statements

- ---------------------

<FN>
* All required information is included in the Prospectus.
</FN>
</TABLE>

(iii)

<PAGE>

PART C

Information required to be set forth in Part C is set forth under the
appropriate item, so numbered, in Part C of the Registration Statement.

(iv)

<PAGE>

SIERRA ASSET MANAGER
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 ("AGL") is offering the flexible
payment deferred individual annuity contracts (the "Contracts") described in
this Prospectus.

You may use AGL's Separate Account D for a variable investment return under
the Contracts based on one or more of the following mutual fund series of The
Sierra Variable Trust (the "Trust"): the Capital Growth Portfolio, the Growth
Portfolio, the Balanced Portfolio, the Value Portfolio, and the Income
Portfolio (the "Portfolios"), and the Global Money Fund (the "Fund").

You may also use AGL's guaranteed interest accumulation option. This option
has a one-year guarantee period with a 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, 1997, is incorporated by reference
into this Prospectus. The "Table of Contents" of the Statement appears at page
38 of this Prospectus. You may obtain a free copy of the Statement upon
written or oral request to AGL'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 AGL) 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 REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY THE CURRENT PROSPECTUS OF
THE SIERRA VARIABLE TRUST APPLICABLE TO THE FUND AND THE PORTFOLIOS.

Prospectus dated May 1, 1997

<PAGE>

CONTENTS

Glossary................................................................... 4
Fee Table.................................................................. 7
Synopsis of Contract Provisions............................................ 10
Minimum Investment Requirements.......................................... 10
Purchase Payment Accumulation............................................ 10
Fixed and Variable Annuity Payments...................................... 10
Changes in Allocations Among Divisions and Guarantee Periods............. 11
Surrenders, Withdrawals and Cancellations................................ 11
Death Proceeds........................................................... 11
Limitations Imposed by Retirement Plans and Employers.................... 11
Communications to Us..................................................... 12
Financial and Performance Information.................................... 12
AGL........................................................................ 13
Separate Account D......................................................... 13
The Series................................................................. 13
Voting Privileges........................................................ 15
The Fixed Account.......................................................... 15
Contract Issuance and Purchase Payments.................................... 17
Owner Account Value........................................................ 18
Variable Account Value................................................... 18
Fixed Account Value...................................................... 18
Transfer, Surrender and Partial Withdrawal of Owner Account Value.......... 19
Transfers................................................................ 19
Surrenders and Partial Withdrawals....................................... 20
Annuity Period and Annuity Payment Options................................. 21
Annuity Commencement Date................................................ 21
Application of Owner Account Value....................................... 21
Fixed and Variable Annuity Payments...................................... 21
Annuity Payment Options.................................................. 22
Transfers................................................................ 24
Death Proceeds............................................................. 25
Death Proceeds Prior to the Annuity Commencement Date.................... 25
Death Proceeds After the Annuity Commencement Date....................... 26
Proof of Death........................................................... 26
Charges Under the Contracts................................................ 26
Premium Taxes............................................................ 26
Surrender Charge......................................................... 27
Transfer Charges......................................................... 28
Annual Contract Fee...................................................... 28
Charge to Separate Account D............................................. 29
Miscellaneous............................................................ 29
Systematic Withdrawal Plan............................................... 29
One-Time Reinstatement Privilege......................................... 29
Reduction in Surrender Charges or Administrative Charges................. 30
Long-Term Care and Terminal Illness........................................ 30

<PAGE>

Long-Term Care........................................................... 30
Terminal Illness......................................................... 30
Other Aspects of the Contracts............................................. 30
Owners, Annuitants and Beneficiaries; Assignments........................ 30
Reports.................................................................. 31
Rights Reserved by Us.................................................... 31
Payment and Deferment.................................................... 31
Federal Income Tax Matters................................................. 32
General.................................................................. 32
Non-Qualified Contracts.................................................. 32
Individual Retirement Annuities ("IRAs")................................. 34
Simplified Employee Pension Plans........................................ 35
Simple Retirement Accounts............................................... 35
Other Qualified Plans.................................................... 35
Private Employer Unfunded Deferred Compensation
Plans.................................................................. 36
Excess Distributions - 15% Tax........................................... 36
Federal Income Tax Withholding and Reporting............................. 37
Taxes Payable by AGL and Separate Account D.............................. 37
Distribution Arrangements.................................................. 37
Legal Matters.............................................................. 38
Other Information on File.................................................. 38
Contents of Statement of Additional Information............................ 38

<PAGE>

GLOSSARY

WE, OUR AND US - American General Life Insurance Company ("AGL").

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.

DIVISION - one of the several different investment options into which Separate
Account D is divided.

<PAGE>

FIXED ACCOUNT - the name of the investment alternative under which purchase
payments are allocated to AGL'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.

GENERAL ACCOUNT - all assets of AGL other than those in Separate Account D or
any other legally-segregated separate account established by AGL.

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 713-831-3505.

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.

SERIES - An individual investment fund or portfolio available for investment
under the Contracts. Currently, the Series available under the Contracts are
the Fund and the Portfolios of The Sierra Variable Trust.

SURRENDER CHARGE - a charge for sales expenses that may be assessed upon
surrenders of and payments of certain other amounts from a Contract.

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.

<PAGE>

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.

<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 your Contract. The Fee Table reflects all expenses of Separate Account D,
the Portfolios and the Global Money Fund, but does not include state premium
taxes or similar assessments that may be imposed by your state. For a more
complete description of the expenses of Separate Account D, see "Charges Under
the Contracts." For a more complete description of the expenses of the
Portfolios and the Global Money Fund, see the prospectus for the Trust.

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 CONTRACT FEE (3) ........................................... $35

SEPARATE ACCOUNT D ANNUAL EXPENSES (as a percentage of average daily net asset
value)

Mortality and Expense Risk Charge.............................. 1.25%
Administrative Expense Charge.................................. .15%
Total Separate Account D Annual Expenses.................... 1.40%

- ---------------------

(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 dollar cost averaging program; see "Transfers") during
each Contract Year prior to the Annuity Commencement Date.

(3) This charge is waived for cumulative premiums of $50,000 or more and is
not imposed during the Annuity Period. See "Annual Contract Fee."

<PAGE>

PORTFOLIO AND UNDERLYING FUND EXPENSES

<TABLE>
ANNUAL OPERATING EXPENSES OF THE PORTFOLIOS AND THE GLOBAL MONEY FUND
(as a percentage of average net assets)

<CAPTION>
MANAGEMENT OTHER TOTAL OPERATING
PORTFOLIOS FEES EXPENSES(1) EXPENSES(1)
---------- ---------- ----------- ---------------
<S> <C> <C> <C>
Capital Growth Portfolio 0.10% 0.25% 0.35%
Growth Portfolio 0.10% 0.25% 0.35%
Balanced Portfolio 0.10% 0.25% 0.35%
Value Portfolio 0.10% 0.25% 0.35%
Income Portfolio 0.10% 0.25% 0.35%
---------------------

<FN>
(1) Because the Portfolios have no operating history, Other Expenses have been
estimated for the current year.
</FN>
</TABLE>

<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL OPERATING
FEES EXPENSES(1) EXPENSES(1)
AFTER FEE WAIVERS AFTER FEE WAIVERS
AND CREDITS(2) AND CREDITS(2)
---------- ---------- ----------------- -----------------
<S> <C> <C> <C>
Global Money Fund 0.47% 0.38% 0.85%
- ---------------------

<FN>
(2) The Other Expenses for the Global Money Fund are based on 1996 operating
experience, which have been restated to reflect current expenses, the
modification of certain voluntary fee waivers and credits allowed by the
custodian. Absent fee waivers and credits allowed by the custodian, the
total annual operating expenses for the Global Money Fund for the 1996
fiscal year would have been 0.88%.
</FN>
</TABLE>

PORTFOLIO AND UNDERLYING FUND EXPENSES COMBINED

Because each Portfolio will invest in Funds of the Trust, you will INDIRECTLY
bear certain expenses associated with those underlying Funds. The level of
these indirect expenses will vary depending on how each Portfolio allocates
its investment among the underlying Funds. Set out below are estimated ranges
of combined annual expenses for each Portfolio and the Funds in which that
Portfolio may invest. The ranges are based upon estimated expenses of each
Portfolio for the current year and actual expenses of the underlying Funds for
the fiscal year ended December 31, 1996, which have been restated to reflect
current expenses, the modifications of certain voluntary waivers and credits
allowed by the custodian. Please refer to the Trust prospectus for more
details.

<TABLE>
RANGES OF COMBINED ANNUAL EXPENSES3

<CAPTION>
MINIMUM TOTAL MAXIMUM TOTAL
PORTFOLIOS ANNUAL EXPENSES ANNUAL EXPENSES
- ---------- --------------- ---------------
<S> <C> <C>
Capital Growth Portfolio 1.43% to 1.63%
Growth Portfolio 1.38% to 1.62%
Balanced Portfolio 1.31% to 1.62%
Value Portfolio 1.27% to 1.50%
Income Portfolio 1.28% to 1.45%
- ---------------------
<FN>
(3) Without underlying Fund fee waivers and credits allowed by the custodian,
the ranges of combined annual expenses for each Portfolio, from minimum to
maximum, are estimated to be: Capital Growth Portfolio, 1.44% to 1.63%;
Growth Portfolio, 1.38% to 1.62%; Balanced Portfolio, 1.32% to 1.62%;
Value Portfolio, 1.28% to 1.50%; and Income Portfolio, 1.30% to 1.46%. The
range for the Growth Portfolio is the same with and without such waivers
and credits.
</FN>
</TABLE>

<PAGE>

EXAMPLES

If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses1 on a $1,000 investment in each of the Series
below, assuming a 5% annual return on assets:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS(2) 10 YEARS(2)
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Growth Portfolio $93 $138 N/A N/A
Growth Portfolio $94 $139 N/A N/A
Balanced Portfolio $93 $136 N/A N/A
Value Portfolio $92 $134 N/A N/A
Income Portfolio $92 $133 N/A N/A
Global Money Fund $87 $118 $161 $266
</TABLE>

If you do NOT surrender your Contract or commence an Annuity Payment Option,
you would pay the following expenses1 on a $1,000 investment in each of the
Series below, assuming a 5% annual return on assets:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS(2) 10 YEARS(2)
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Growth Portfolio $30 $93 N/A N/A
Growth Portfolio $31 $94 N/A N/A
Balanced Portfolio $30 $91 N/A N/A
Value Portfolio $29 $89 N/A N/A
Income Portfolio $29 $88 N/A N/A
Global Money Fund $24 $73 $125 $266

- ---------------------
<FN>
(1) The Examples use the midpoint of the estimated combined annual expense
ranges for the Portfolios, which invest in underlying Funds, but use
estimated expenses for the Global Money Fund (which have been restated to
reflect current expenses, the modification of certain voluntary waivers
and credits allowed by the custodian), which does not invest in other
Funds of the Trust.

(2) "N/A" indicates that SEC rules require that the Capital Growth, Growth,
Balanced, Value and Income Portfolios complete the Examples for only the
one and three year periods.
</FN>
</TABLE>

THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. IN
ADDITION, THE ASSUMED 5% ANNUAL RATE OF RETURN IS NOT AN ESTIMATE OR A
GUARANTEE OF FUTURE INVESTMENT PERFORMANCE.

<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. The amount of any
subsequent purchase payment that you make must be at least $100. We may also
transfer funds from a Division (other than the Global Money Division) or from
the Guarantee Period under your Contract without charge to the Global Money
Division if the Account Value of that Division or Guarantee Period falls below
$500. 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 six available Divisions of
Separate Account D. Each such Division invests solely in shares of one of six
corresponding Series of the Trust. See "The Series ." As the value of the
investments in a Series' 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
the Guarantee Period currently available in our Fixed Account. 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 AGL, the amount of which is fixed and guaranteed by
AGL. 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.

Variable Annuity Payments are similar to Fixed Annuity Payments, except that
the amount of each periodic payment from AGL 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."

<PAGE>

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 the Guarantee Period, without charge.

In addition, you may reallocate your Account Value among the Divisions and
Guarantee Period prior to the Annuity Commencement Date. Transfers out of the
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.

We will refund to you the Owner Account Value plus any premium taxes and
Annual Contract Fee that have been deducted. In states where the law so
requires, however, we will refund the greater of that amount or the amount of
your purchase payments, or, if the law permits, 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."

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.

<PAGE>

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 AGL and Separate Account D, including information
about the Divisions that invest in the Fund and the Portfolios of the Trust,
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.

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.

AGL 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.

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In addition, the claims-paying ability of AGL 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.

AGL 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.

The ratings from A. M. Best, Standard & Poors, and Duff & Phelps reflect the
claims paying ability and financial strength of AGL and are not a rating of
investment performance that purchasers of insurance products have experienced
or are likely to experience in the future.

AGL

AGL 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. AGL is an indirect,
wholly-owned subsidiary of American General Corporation (formerly American
General Insurance Company), a diversified financial services holding company
engaged primarily in the insurance business. The commitments under the
Contracts are AGL'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 43 Divisions, six 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 AGL's general business and the
assets of Separate Account D belong to AGL. 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 AGL may conduct, but will
be held exclusively to meet AGL'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 AGL.

THE SERIES

The variable benefits under the Contracts are funded by six Divisions of the
Separate Account. These Divisions invest in shares of six series (consisting
of the Fund and the five Portfolios) of the Trust. Series 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 AGL and to
separate accounts which fund variable life insurance or other variable funding
arrangements. We do not foresee any disadvantage to Owners of Contracts
arising out of these arrangements. Nevertheless, differences in treatment
under tax and

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other laws, as well as other considerations, could cause the interests of
various owners to conflict. For example, violation of the federal tax laws by
one separate account investing in the Trust could cause the contracts funded
through another separate account to lose their tax-deferred status, unless
remedial action were taken. If a material irreconcilable conflict arises
between separate accounts, a separate account may be required to withdraw its
participation in the Trust. If it becomes necessary for any separate account
to replace shares of the Trust with another investment, the Trust may have to
liquidate portfolio securities on a disadvantageous basis. At the same time,
the Trust's Board of Trustees and we will monitor events for any material
irreconcilable conflicts that may possibly arise and determine what action, if
any, should be taken to remedy or eliminate the conflict.

The investment adviser to the Fund is Sierra Investment Advisors Corporation.
("Sierra Advisors"). The investment adviser to the Portfolios is Sierra
Investment Services Corporation ("Sierra Services"). Neither Sierra Advisors
nor Sierra Services is affiliated with AGL.

Any dividends or capital gain distributions attributable to Contracts are
automatically reinvested in shares of the Series from which they are received
at the Series' 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 Series and increasing, by an equivalent value, the
number of shares outstanding of the Series. However, the value of your
interest in the corresponding Division will not change as a result of any such
dividends and distributions.

The names of the Series in which each available Division invests are as
follows:

o Capital Growth Portfolio
o Growth Portfolio
o Balanced Portfolio
o Value Portfolio
o Income Portfolio
o Global Money 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
detailed information about the Series in which each Division invests,
including investment objectives and policies, charges and expenses. The Trust
prospectus also includes detailed information about the Trust's allocation of
the assets of each Portfolio among the nine other series of the Trust (the
"Funds") and about the predetermined investment limits and the diversification
requirements of the Code that govern this allocation ("allocation
limitations"). Each Portfolio will invest in different combinations of the
nine other series of the Trust, namely the Fund, the Short Term High Quality
Bond Fund, the Short Term Global Government Fund, the U.S. Government Fund,
the Corporate Income Fund, the Growth and Income Fund, the Growth Fund, the
Emerging Growth Fund and the International Growth Fund. AGL understands that
the effect of the Portfolios' allocation limitations is that each Portfolio
will allocate its assets to at least five of the nine Funds. AGL also
understands that the effect of the Portfolios' voting procedures is that
owners will have the privilege of voting Portfolio shares and not Fund shares.
See "Voting Privileges." Please refer to the Trust prospectus for more
details. You may obtain additional copies of such a prospectus by contacting
AGL's Annuity Administration Department at the addresses and phone number set
forth on the cover page of this Prospectus. When making your request, please
specify the Series in which you are interested.

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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 Series shares held in the Divisions of Separate Account D attributable to
their Contract should be voted on matters pertaining to that Series at
meetings of shareholders of the Series. 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 Series that it holds of record in accordance with
instructions received with respect to all AGL annuity contracts participating
in that Series.

Prior to the Annuity Commencement Date, the number of votes each Owner is
entitled to direct with respect to a particular Series is equal to (a) the
Owner's Variable Account Value attributable to that Series divided by (b) the
net asset value of one share of that Series. 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 Series 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.

Series 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.

We believe that the foregoing voting instruction procedures comply with
current federal securities law requirements and interpretations thereof.
However, AGL reserves the right to modify these procedures in any manner
consistent with applicable legal requirements and interpretations as in effect
from time to time.

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.

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Our obligations with respect to the Fixed Account are legal obligations of AGL
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 AGL, 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 the length of the Guarantee Period. 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 AGL 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 reserve the right,
to 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 Rate from time to time as market conditions
dictate. We advise an Owner of the Guaranteed Interest Rate for a 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 began on a
different date. The minimum Guaranteed Interest Rate is an effective annual
rate of 3%.

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 the minimum
Guaranteed Interest Rate shown in your Contract. Currently we make available a
one-year Guarantee Period and no others. However, we reserve the right to
change the Guarantee Periods that we are making available at any time.

AGL'S MANAGEMENT MAKES THE FINAL DETERMINATION OF THE GUARANTEED INTEREST
RATES TO BE DECLARED. AGL CANNOT PREDICT OR ASSURE THE LEVEL OF ANY FUTURE
GUARANTEED INTEREST RATES IN EXCESS OF THE MINIMUM GUARANTEED INTEREST RATE
STATED IN YOUR CONTRACT.

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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 The amount of any subsequent
purchase payment must be at least $100. We reserve the right to modify these
minimums, at our discretion.

An application to purchase a Contract must be made by a signed written
application form provided by AGL or by such other medium or format as may be
agreed to by AGL 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 properly completed, we will either process
the application, credit the purchase payment, and issue the Contract, or
reject the application and return the purchase payment within two Valuation
Dates after receipt of the application at our Home Office.

If the application is not in a proper form or does not include all necessary
information, we will request additional documents or information within five
Valuation Dates after receipt of the application at our Home Office. If the
application is not made proper and complete within this five day period, we
will return the purchase payment immediately 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 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.

If the Owner's Account Value in any Division (except the Global Money
Division) falls below $500 because of a partial withdrawal from the Contract,
we reserve the right to transfer, without charge, the remaining balance to the
Global Money Division. If the Owner's Account Value in any Division falls
below $500 because of a transfer to another Division or to the Fixed Account,
we reserve the right to transfer the remaining balance in that Division,
without charge and pro rata, to the Division, Divisions or Fixed Account to
which the transfer was made. 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.

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Your purchase payments begin to earn a return in the Divisions of Separate
Account D or the Guarantee Period 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 the 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 Accumulation 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 canceled 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.

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 Series 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 Series shares
held by the Division during the current Valuation Period, by (2) the net asset
value per share of the Series 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 your Fixed Account Value in the Guarantee Period as of
that date. Your Fixed Account Value in the 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 net 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.

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Your Fixed Account Value is guaranteed by AGL. Therefore, AGL bears the
investment risk with respect to amounts allocated to the Fixed Account, except
to the extent that AGL may vary the Guaranteed Interest Rate for future
Guarantee Periods (subject to the 3% 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 the Guarantee Period, 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.

If a transfer would cause your Account Value in any Division or the Guarantee
Period to fall below $500, we reserve the right to also transfer the remaining
balance in that Division or the Guarantee Period 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.

No more than 25% of the Account Value you allocated to the 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 or the one-year
Guarantee Period to one or more other Divisions on a monthly, quarterly,
semi-annual or annual basis. Transfers under such automatic transfer plan will
not count toward the twelve free transfers each Contract Year nor incur the
$25 charge on additional transfers, nor will such transfers from the Guarantee
Period be subject to the 25% limitation or the Contract value minimum
requirement described above. 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 who are entitled to make transfers have provided a
Written request for Telephone Transfer Authorization 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. 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 attempt to limit the
availability of telephone transfer instructions only to the Owner of the
Contract for which instruction is received. Under a Telephone Transfer
Authorization 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

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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 mail to the Owner 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
incomplete or not fully comprehensible, we will not process the transaction.
The phone number for telephone exchanges is 1-800-247-6584.

The Contracts are not designed for professional market timing organizations or
other entities utilizing programmed and frequent transfers. We reserve the
right to restrict or terminate transfers at any time.

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 minus
the amount of any Contract Fee (See "Annual Contract Fee") and minus any
applicable premium tax. 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 subject to a
right to reinstate (See "One-Time Reinstatement Privilege"). 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 Period 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, to the extent
necessary the withdrawal will be taken pro-rata from the Divisions and the
Guarantee Period, based on your Account Value in each. Partial withdrawal
requests must be for at least $100 or, if less, all of your Account Value. If
your remaining Account Value in the Division or Guarantee Period would be less
than $500 (except for the Global Money Division), we reserve the right to
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 canceled 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, and
premium tax if applicable, 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.

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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 may elect to have annuity payments made beginning on the Annuity
Commencement Date under any one of the Annuity Payment Options described
below. We will notify the Owner 60 to 90 days prior to the scheduled Annuity
Commencement Date that the Contract is scheduled to mature, and request that
an Annuity Payment Option be selected. If the Owner has not selected an
Annuity Payment Option ten days prior to the Annuity Commencement Date, we
will proceed as follows: (1) if the scheduled Annuity Commencement Date is any
date prior to the Annuitant's one hundredth birthday, we will extend the
Annuity Commencement Date to the Annuitant's one hundredth birthday; or (2) if
the scheduled Annuity Commencement Date is the Annuitant's one hundredth
birthday, the Account Value less any applicable charges and premium taxes will
be paid in one sum to the Owner. This procedure is different in Pennsylvania
because the Annuity Commencement Date cannot exceed age 90. The Owner may
select the Annuity Commencement Date when applying to purchase 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 Date specified at the time of application
may be any day of any month up to Annuitant's one hundredth birthday
inclusive. (Pennsylvania has special limitations which may require the Annuity
Commencement Date to be as early as age 85 but in no event beyond age 90.) 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
Values 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.

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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.

ANNUITY PAYMENT OPTIONS

The Annuity Commencement Date will be extended to the Annuitant's age one
hundred unless otherwise requested. The Code 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 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, any uncollected Annual
Contract Fee, and any applicable premium tax.

<PAGE>

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. 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.

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

<PAGE>

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 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. If
a transfer would cause the value that is attributable to a Contract in any
Division to fall below $500, we reserve the right to transfer the remaining
balance in that Division 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.

<PAGE>

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 (however, if the Beneficiary is the Owner's surviving spouse, the
Beneficiary may elect to continue the Contract as described in the second
paragraph below). The death proceeds, prior to deduction of any applicable
premium taxes, will equal the greatest of (1) the sum of all net 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, proof of death and
the Written request as to the manner of payment, or (3) the Highest
Anniversary Value prior to the date of death, as defined below.

The Highest Anniversary Value prior to the date of death will be determined as
follows:

First, we will calculate the Account Values at the end of each of the
past Contract Anniversaries that occurred prior to the deceased's 81st
birthday;

Second, each of the Account Values will be increased by the amount of net
purchase payments made since the end of such Contract Years; and

Third, the result will be reduced by the amount of any withdrawals made
since the end of such Contract years.

The Highest Anniversary Value will be an amount equal to the highest of such
values. The Highest Anniversary Value will not be calculated after the 81st
birthday. Net purchase payments are purchase payments less applicable premium
tax.

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.

<PAGE>

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.

CHARGES UNDER THE CONTRACTS

PREMIUM TAXES

When applicable, we will deduct an amount to cover premium taxes imposed by
certain states. We may deduct such amount either at the time the tax is
imposed or later. Such deduction may be made, in accordance with applicable
state law:

(1) from purchase payment(s) when received: or
(2) from the Owner's Account Value at the time annuity payments begin; or
(3) from the amount of any partial withdrawal; or
(4) from proceeds payable upon termination of the Contract for any other
reason, including death of the Annuitant or Owner, or surrender of the
Contract.

If premium tax is paid, AGL may reimburse itself for such tax when deduction
is being made under items 2, 3, or 4 above calculated by multiplying the sum
of Purchase Payments being withdrawn by the applicable premium tax percentage.

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.

<PAGE>

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 seven 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 2 6%
2 or more, but less than 3 5%
3 or more, but less than 4 5%
4 or more, but less than 5 4%
5 or more, but less than 6 3%
6 or more, but less than 7 2%
7 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.

Nevertheless, the Surrender Charge will NOT apply:

To the amount of withdrawals that exceeds the cumulative amount of your
purchase payments;

Upon the death of the Annuitant, at any age, after the Annuity
Commencement Date;

Upon the death of the Annuitant, at any age, prior to the Annuity
Commencement Date, provided no Contingent Annuitant survives;

Upon the death of the Owner, including the first to die in the case of
joint Owners of a Non-Qualified Contract, unless the Contract is being
continued under the special rule for a surviving spouse as defined in the
Code.

Upon annuitization over at least 10 years, or life contingent
annuitization where the life expectancy is at least 10 years;

<PAGE>

Within the 30 day window under the One-Time Reinstatement Privilege;

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".

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. If multiple
withdrawals are made during a Contract Year, the amount eligible for the free
withdrawal will be recalculated at the time of each withdrawal. After the
first Contract Year, non-automatic and automatic withdrawals may be made in
the same Contract Year subject to the 10% limitation. For withdrawals under a
systematic withdrawal plan, Purchase Payments credited for 30 days or more are
eligible for the 10% free withdrawal.

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.

ANNUAL CONTRACT FEE

An Annual Contract Fee of $35 will be deducted from each Owner's Account Value
at the end of each Contract Year prior to the Annuity Commencement Date. This
Fee is waived on Contracts for cumulative premiums of $50,000 or more and is
not imposed during the Annuity Period. This Fee is for administrative expenses
(which do not include expenses of distributing the Contracts), and we do not
expect that the revenues we will derive from this Fee will exceed such
expenses. Unless paid directly, the Fee will be allocated among the Guarantee
Period and Divisions in proportion to your Account Value in each. The entire
Fee for the year will be deducted from the proceeds of any full surrender. We
reserve the right to waive the Fee.

<PAGE>

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 1.40% of the average daily net asset value of
Separate Account D attributable to the Contracts. Of this amount, .15% is for
administrative expenses and 1.25% 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.

We have entered into an arrangement with Sierra Services to provide certain
services and discharge certain obligations. Under the arrangement, Sierra
Services reimburses us on a monthly basis, for certain administrative and
contract and contract owner support expenses, up to an annual rate of 0.15% of
the average daily net asset value of shares of the Portfolios purchased by AGL
at the instruction of Owners.

SYSTEMATIC WITHDRAWAL PLAN

Automatic partial withdrawals, with minimum payments of $100, may be made at
periodic intervals through a systematic withdrawal program and the Contract
Owner may choose from payment schedules of monthly, quarterly, semi-annually,
or annually, and may start, stop, increase or decrease payments. The minimum
payment is $100. Withdrawals may start as early as 30 days after the issue
date of the Contract and may be taken from the Fixed Account or any Division,
as specified by the Owner. Systematic withdrawals are subject to the terms and
conditions applicable to other partial withdrawals, including Surrender
Charges and exceptions to Surrender Charges.

ONE-TIME REINSTATEMENT PRIVILEGE

If the Account Value is at least $500, the Owner may elect to reinvest all of
the proceeds that were previously liquidated from the Contract within the past
30 days and have the Surrender Charge and any Annual Contract Fee not then due
credited back to the Contract. The funds will be reinvested at the value next
following the date of receipt of the reinstated Account Value. Unless you
request otherwise, the reinstated Account Value will be allocated among the
Divisions and the Guarantee Period (or Guarantee Periods) in the same
proportions as the prior surrender. You may use this privilege only once.

<PAGE>

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.

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 to a
partial withdrawal or total surrender made during any period of time that the
Annuitant is confined for 30 days or more (or within 30 days after discharge)
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 to a partial
withdrawal or total surrender made 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 AGL 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 AGL.

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

<PAGE>

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.

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 or combine the Separate Account with another separate
account; (4) add, restrict or remove Guarantee Periods of the Fixed Account;
(5) make any new Division available to you on a basis to be determined by us;
(6) substitute, for the shares held in any Division, the shares of another
Fund or Portfolio or the shares of another investment company or any other
investment permitted by law; (7) 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; (8) commence deducting premium taxes
or adjust the amount of premium taxes deducted in accordance with applicable
state law; or (9) make any changes required to comply with the rules of any
Fund or Portfolio. 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. In the case of
payment of death proceeds, if we do not receive a Written request as to the
manner of payment within 60 days after the death of the Owner or Annuitant,
any death benefit

<PAGE>

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
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 the Fund and the Portfolios in
which it invests are "adequately diversified" in accordance with Treasury
Department regulations. Although we do not control the Fund or the Portfolios,
the investment advisers to the Fund and the Portfolios have undertaken to
operate the Fund and the Portfolios in compliance with these diversification
requirements. A Contract investing in a Fund or Portfolio that failed to meet
the diversification requirements would, unless and until the failure can be
corrected in a procedure

<PAGE>

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.

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 issued by us to the same Owner
during any calendar year are to be aggregated for purposes of determining the
amount of any distribution 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

<PAGE>

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.

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. In the case of married individuals filing a
joint return, the deduction will, in general, be the lesser of $4,000 or 100%
of the combined earned income of both spouses, reduced by any deduction for
any IRA purchase payment allowed to the spouse. 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, or, in the case of
married individuals filing a joint return, the lesser of $4,000 or 100% of the
combined earned income of both spouses.

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.

<PAGE>

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
withholding.

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.

SIMPLE RETIREMENT ACCOUNTS

Employees and employers may establish an IRA plan known as a simple retirement
account ("SRA"), if certain requirements are met. Under an SRA, the employer
contributes elective employee compensation deferrals up to a maximum of $6,000
a year. The employer must, in general, make a fully vested matching
contribution for employee deferrals up to 3% of compensation.

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.

<PAGE>

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 disability, 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, in connection with Variable Annuity Payments under "Non-Qualified
Contracts - Taxation of Annuity Payments", except that the number of expected
payments is determined under a provision in the Code. Distributions of minimum
amounts specified by the Code generally must commence by April 1 of the
calendar year following the calendar year in which the employee attains age 70
1/2 or retires, if later. 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 $160,000) or five times the annual limit for lump-sum
distributions. The additional tax on excess distributions does not apply to
distributions in 1997, 1998, and 1999.

<PAGE>

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, or retirement,
in appropriate circumstances, 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.

TAXES PAYABLE BY AGL AND SEPARATE ACCOUNT D

AGL is taxed as a life insurance company under the Code. The operations of
Separate Account D are part of the total operations of AGL and are not taxed
separately. Under existing federal income tax laws, AGL is not taxed on
investment income derived by Separate Account D (including realized and
unrealized capital gains) with respect to the Contracts. AGL 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 Series may make an election to pass through to AGL any taxes withheld
by foreign taxing jurisdictions on foreign source income. Such an election
will result in additional taxable income and income tax to AGL. The amount of
additional income tax, however, may be more than offset by credits for the
foreign taxes withheld, which are also passed through. These credits may
provide a benefit to AGL.

DISTRIBUTION ARRANGEMENTS

The Contracts will be sold by individuals who, in addition to being licensed
by state insurance authorities to sell the Contracts of AGL, are also
registered representatives of American General Securities Incorporated
("AGSI"), the principal underwriter of the Contracts, or 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. AGSI, Sierra Services and any such other
broker-dealer firms are registered with the Securities and Exchange Commission
under the Securities Exchange Act of 1934 as broker-dealers and are members of
the National Association of Securities Dealers, Inc. AGSI is a wholly-owned
subsidiary of AGL. AGSI's principal business address is the same as that of
our Home Office. The interests under the Contracts are offered on a continuous
basis. AGSI and Sierra Services have entered into certain revenue and
cost-sharing arrangements in connection with the marketing of the Contracts.

AGL compensates Sierra Services and other broker-dealers that sell the
Contracts according to one or more compensation schedules. The schedules
provide for commissions ranging from 3.50% up to 6.25% of first year purchase
payments received pursuant to the Contracts. In addition, depending on the
schedule selected, AGL may pay continuing "trail" commissions ranging from
0.25% to 0.50% of Contract Account Value. AGL also has agreed to pay Sierra
Services for its promotional activities

<PAGE>

such as the solicitation of selling group agreements between broker-dealers
and AGL, agent appointments with AGL, printing and development of sales
literature to be used by AGL appointed agents as well as related marketing
support and related special promotional campaigns. These distribution expenses
do not result in any additional charges under the Contracts that are not
described under "Charges under the Contracts."

LEGAL MATTERS

The legality of the Contracts described in this Prospectus has been passed
upon by Steven A. Glover, Esquire, Associate General Counsel of American
General Life Insurance Company. Freedman, Levy, Kroll & Simonds, Washington,
D.C., has advised AGL on certain federal securities law matters.

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.............................................. 2
Services.......................................................... 3
Principal Underwriter............................................. 3
Annuity Payments.................................................. 3
Gender of Annuitant............................................. 3
Misstatement of Age or Sex and Other Errors..................... 3
Change of Investment Adviser or Investment Policy................. 4
Performance Data for the Divisions................................ 4
Financial Statements.............................................. 8
Index to Financial Statements..................................... 9

<PAGE>
(THE FOLLOWING DOCUMENTS ARE NOT PART OF A PROSPECTUS)

SIERRA ASSET MANAGER VARIABLE ANNUITY
DISCLOSURES AND FORMS SECTION

<TABLE>
INDEX

<S> <C>
Individual Retirement Annuity Disclosure Statement
and Financial Disclosure.......................................... page 1
1035 Exchange Instructions.......................................... page 9
Qualified and Non Qualified Funds Transfer Instructions............. page 10
Absolute Assignment Form............................................ page 11
Qualified Funds Transfer Form....................................... page 13
Non-Qualified Funds Transfer Form................................... page 14
Change Request Form................................................. page 15
Systematic Withdrawals Request Form................................. page 17
Automatic Additional Purchase Form.................................. page 19
Change of Beneficiary Form.......................................... page 21
Statement of Additional Information Request Form.................... page 23
</TABLE>

<PAGE>

(THIS DOCUMENT IS NOT PART OF A PROSPECTUS)

INDIVIDUAL RETIREMENT ANNUITY DISCLOSURE STATEMENT

INTRODUCTION

THIS DISCLOSURE STATEMENT IS DESIGNED FOR OWNERS OF IRAS ISSUED BY AMERICAN
GENERAL LIFE INSURANCE COMPANY AFTER DECEMBER 31, 1996.

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 you are not an active
participant (see A. below), you may make a contribution of up to the lesser of
$2,000 or 100% of compensation and take a deduction for the entire amount
contributed. If you are a married individual filing a joint return, and your
compensation is less than your spouse's, the deduction will, in general, be
the lesser of $4,000 or 100% of the combined earned income of both spouses,
reduced by any deduction for an IRA purchase payment allowed to your spouse.
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 as a tax sheltered annuity arrangement or a 401(k) plan), a
Simplified Employee Pension program

Page 1

<PAGE>

(SEP), any Simple Retirement Account 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
$4,000 if you are married, file a joint return and earn less compensation than
your spouse). 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

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.

Page 2

<PAGE>

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 Threshold Level is $25,000
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,
each spouse may still contribute to an IRA and calculate their deductible
contribution to each IRA as in Example 2.

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
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.

Page 3

<PAGE>

NON-DEDUCTIBLE CONTRIBUTIONS TO IRAS

Even if you are above the Threshold Level and thus may not make a deductible
contribution of up to $2,000 (or up to $4,000 in the case of married
individuals filing a joint return), you may still contribute up to the lesser
of 100% of compensation or $2,000 to an IRA ($4,000 in the case of married
individuals filing a joint return). 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 ($4,000 in the case of married individuals
filing a joint return) at any time during the year, if your compensation for
the year will be at least $2,000 ($4,000 in the case of married individuals
filing a joint return), 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, 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.

Page 4

<PAGE>

EXAMPLE: An individual makes the following contributions to his or her IRA(s).

YEAR DEDUCTIBLE NON-DEDUCTIBLE

1987 $ 2,000
1988 1,800
1991 1,000 $ 1,000
1993 600 1,400
--------- --------
$ 5,400 $ 2,400

Deductible Contributions: $ 5,400
Non-Deductible Contributions: 2,400
Earnings on IRAs: 1,200
--------

Total Account Balance of IRA(s) as of 12/31/96: $ 9,000
(before distributions in 1996).

In 1996, the individual takes a distribution of $3,000. The total account
balance in the IRAs on 12/31/96 before 1996 distributions is $9,000. The
non-taxable portion of the distributions for 1996 is figured as follows:

Total non-deductible contributions $2,400
------ x $3,000 = $800
Total account balance in the IRAs, before distributions $9,000

Thus, $800 of the $3,000 distribution in 1996 will not be included in the
individual's taxable income. The remaining $2,200 will be taxable for 1996.

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 law, 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 Regulations ss.1.401(a)(31)-1, ss.1.402(c)-2T and
ss.31.3405(c)-1.

Page 5

<PAGE>

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 ss.72(t), unless the
distribution (a) occurs because of your death or disability, (b) is for
certain medical care expenses or to an unemployed individual for health
insurance premiums, (c) is received as a part of a series of substantially
equal payments over your life or life expectancy, (d) is received as a part of
a series of substantially equal payments over the lives or life expectancy of
you and your beneficiary, or (e) the distribution is contributed to a rollover
IRA.

MINIMUM DISTRIBUTIONS

Under the rules set forth in Code ss.408(b)(3) and ss.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.

If you do not satisfy the minimum distribution requirements, then, pursuant to
Code ss.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 ss.4975.

Borrowing any money from this IRA would, under Code ss.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 ss.408(e)(4), cause the portion so
used to be treated as a taxable distribution.

EXCESS CONTRIBUTIONS

Tax Code ss.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

Page 6

<PAGE>

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 filed for approval 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 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 ASSET MANAGER VARIABLE ANNUITY (FORM NOS. 97010 AND 97011 )

This Financial Disclosure is applicable to IRAs using a Sierra Asset Manager
Variable Annuity (contract form numbers 97010 or 97011 ) purchased from
American General Life Insurance Company on or after May 1, 1997.

Earnings under variable annuities are not guaranteed, and depend on the
performance of the investment option(s) selected. As such, earnings cannot be
projected. Set forth below are the charges associated with such annuities.

CHARGES:

(a) Annual contract maintenance charges of $35 deducted at the end of
each contract year (waived if cumulative contributions are $50,000 or
more).

(b) A maximum charge of $25 for each transfer, in excess of 12 free
transfers annually, of contract value between divisions of the
Separate Account.

(c) To compensate for mortality and expense risks assumed under the
contract, variable divisions only will incur a daily charge at an
annualized rate of 1.25% of the average Separate Account Value of the
contract during both the Accumulation and the Payout Phase.

(d) Premium taxes, if applicable, may be charged against Accumulation
Value at time of annuitization 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, or defer the
charge until the purchase payments are withdrawn, whether on account
of a full or partial surrender, annuitization, or death of the
Annuitant.

Page 7

<PAGE>

(e) 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% of purchase payments for surrenders and withdrawals made during
the first contract year following receipt of the purchase payments
surrendered;

6% of purchase payments for surrenders and withdrawals made during
the second contract year following receipt of the purchase payments
surrendered;

5% of purchase payments for surrenders and withdrawals made during
the third contract year following receipt of the purchase payments
surrendered;

5% of purchase payments for surrenders and withdrawals made during
the fourth contract year following receipt of the purchase payments
surrendered;

4% of purchase payments for surrenders and withdrawals made during
the fifth contract year following receipt of the purchase payments
surrendered;

3% of purchase payments for surrenders and withdrawals made during
the sixth contract year following receipt of the purchase payments
surrendered;

2% of purchase payments for surrenders and withdrawals made during
the seventh contract year following receipt of the purchase payments
surrendered.

There will be no charge imposed for surrenders and withdrawals made
during the eighth and subsequent contract years following receipt of the
purchase payments surrendered.

Under certain circumstances described in the contract, portions of a
partial withdrawal may be exempt from the Surrender Charge.

(f) To compensate for administrative expenses, a daily charge will be
incurred at an annualized rate of .15% of the average Separate
Account Value of the contract during the Accumulation and the Payout
Phase.

(g) Each variable division will be charged a fee for asset management and
other expenses deducted directly from the underlying fund during the
Accumulation and Payout Phase. Total fees will range between 0.85%
and 1.63%.

Page 8

<PAGE>

1035 EXCHANGE INSTRUCTIONS

-----------------------------------------------------------------------------

1. Processing Rules

A 1035 exchange is one that qualified under IRC Section 1035 guidelines.

A 1035 exchange is for non-qualified funds only.

The Home Office does not offer tax advice. Applicants and contractowners
should contact their own tax advisors.

To qualify as a 1035 exchange, the following contract types are required.

* An annuity or life insurance contract in exchange for an annuity contract.

In addition, the following contract types exchanges are required:

* Individual contract to an individual contract.
* Joint contract to joint contract, and
* Two individual contracts on same annuitant(s) with the same owner(s) to
individual or joint contract.

The annuitant and owner on the exchanged contract must be the same on the new
contract.

To qualify as a full 1035 exchange, all existing cash value must be
transferred to the new contract and none of the cash value can be refunded.

Money from a 1035 exchange cannot be added to an existing annuity contract, it
must fund a new contract.

-----------------------------------------------------------------------------

2. Forms Requirements

Annuity Application (form number which is approved in the state of
application).

Replacement form as required by state, if applicable.

Absolute Assignment form (L8714) for IRC Section 1035(A) Exchange.

External company's contract/policy or lost contract/policy statement.

-----------------------------------------------------------------------------

3. Signature Requirements

The annuitant of the new application (age 15 or older) must sign the Annuity
Application. The proposed owner of the new contract must sign the Annuity
Application and the Absolute Assignment form (L8714). If the owner is a trust,
the trustee must sign the application and Absolute Assignment Form (L8714)
along with the trustee's title.

Page 9

<PAGE>

QUALIFIED AND NON QUALIFIED FUNDS
TRANSFER INSTRUCTIONS

-----------------------------------------------------------------------------

1. PROCESSING RULES

A transfer occurs when an existing policy/contract or account is
liquidated and proceeds are forwarded to another company or to the client.

There are three types of transfers:

* Trustee-to-Trustee (or Custodian) transfer: Proceeds are sent from one
company directly to another company to fund a like plan (Example: TSA or
TSA, IRA to IRA, Nonqualified to Nonqualified).

* Direct Rollover: Proceeds are sent from one company directly to another
company to fund a different type of plan (Example: TXA to IRA, 401k to
IRA, etc.).

* Rollover: Proceeds are not sent from the original company to the owner.
The owner then forwards the check to the new company within 60 days.

Partial transfers are allowed.

Please consult a tax advisor for any tax consequences.

These types of transfers are not 1035 exchanges and do not qualify under
IRC Section 1035 guidelines.

A transfer may be qualified or nonqualified.

NOTE: The Home Office is responsible for qualified administration of
IRAs/SEPs only. Other than IRA's, qualified plans' administration is the
responsibility of the customer or plan administrator. The Home Office does
not provide a plan prototype.

-----------------------------------------------------------------------------

2. FORM REQUIREMENTS

Annuity Application (form number which is approved in the state of
application).

Replacement form as required by state, if applicable, and only when
another annuity contract is being replaced.

External company/institution's contract or lost contract/contract
statement.

Qualified Funds Transfer Form (L6742) if the funds are qualified and the
Home Office is to request the funds.

Non-Qualified Funds Transfer Authorization (L8190) if the funds are
non-qualified and coming from a non-insurance/annuity contract and the
Home Office is to request the funds.

If the plan type is IRA, refer the customer to the IRA disclosure attached
to the prospectus.

If the plan type is SEP, submit IRA Form 5305 with the application.

-----------------------------------------------------------------------------

3. SIGNATURE REQUIREMENTS

The annuitant/proposed owner of the new contract (age 15 or older) must
sign the Annuity Application (if different individuals, both must sign).

The owner must sign the Qualified Funds Transfer Form (L6742) or the
Non-Qualified Funds Transfer Authorization (L8190) (whichever is
applicable).

If the owner is a trust, then the trustee's signature and title is
required on all appropriate forms.

<PAGE>

[American General Logo]

AMERICAN GENERAL LIFE INSURANCE COMPANY
Subsidiaries of American General Corporation
P.O. Box 1401 Houston, Texas 77251-1401

SIERRA ASSET MANAGER
The Actively Managed Variable Annuity

ABSOLUTE ASSIGNMENT
TO EFFECT A SECTION 1035(a) EXCHANGE AND ROLLOVER OF
A LIFE INSURANCE OR AN ANNUITY CONTRACT

-----------------------------------------------------------------------------
TO BE COMPLETED ON THE EXISTING CONTRACT:

Contract No.:________________________ Cash Value:_________________________
Annuitant/Insured:___________________ Insurer:____________________________
Owner:_______________________________ Address_____________________________
of Insurer:_________________________
-----------------------------------------------------------------------------

I hereby assign and transfer to American General Life Insurance Company all
rights, title and interest of every nature and transfer to character in and
to the contract described above (contract) in an exchange intended to qualify
under Section 1035(a) of the Internal Revenue Code. In accordance with
Section 1035 and its regulations, the Owner and Annuitant on the contract
described above will be the same as on the contract to be issued.

I understand that if the Company underwrites, approves my application for,
and issues to me anew annuity contract which I accept on the life of the same
annuitant in the contract, then the Company intends to surrender the contract
for its cash value.

I UNDERSTAND THAT AS OF THE DATE OF SURRENDER OF THE CONTRACT BY THE COMPANY,
THE CONTRACT WILL NO LONGER PROVIDE ANY COVERAGE.

I UNDERSTAND THAT UPON RECEIPT OF THE SURRENDER VALUE BY THE COMPANY, THE
PROCEEDS WILL BE APPLIED AS AN INITIAL OR ADDITIONAL PREMIUM FOR THE NEW
ANNUITY CONTRACT. The first premium must be paid no later than when the new
contract is delivered. The contract assigned shall not be considered a
premium until the cash surrender value is actually received by the Company. A
contract will not be in effect until the first premium is paid while all
statements and answers in all parts of my application remain correct.

I understand that by executing this assignment, I irrevocably waive all
rights, claims and demands under the contract.

I represent and agree that the Company is furnished this form and is
participating in this transaction at my specific request and as an
accommodation to me.

I represent and warrant that no person, firm or corporation has a legal or
equitable interest in the contract, except the undersigned and that no
proceedings of either a legal or equitable nature have been instituted or are
pending against undersigned.

I UNDERSTAND THAT THE FIRST PREMIUM MUST BE PAID NO LATER THAN THE TIME THE
CONTRACT APPLIED FOR IS DELIVERED AND THAT THE CASH VALUE OF THE ASSIGNED
CONTRACT SHALL NOT BE CONSIDERED PART OF THE PREMIUM UNTIL THE CASH SURRENDER
VALUE IS ACTUALLY RECEIVED BY THE COMPANY. I FURTHER UNDERSTAND THAT AN
ANNUITY CONTRACT WILL NOT COME INTO FORCE AS A RESULT OF THIS ASSIGNMENT.

Signed this______day of___________, 19___ at_________________________________

___________________________________ _____________________________________
WITNESS SIGNATURE OF OWNER(ASSIGNEE)
___________________________________ _____________________________________
WITNESS SIGNATURE OF CO-OWNER
(IF APPLICABLE)
-----------------------------------------------------------------------------
HOME OFFICE USE ONLY

Received and duplicated filed at the Home Office of the Company at P.O. Box
1401 or 2727A Allen Parkway, Houston, Texas 77251-1401.

By________________________, ___________________________
(TITLE)

L8714 REV 9/96

Page 11

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

Page 12

<PAGE>
[American General Logo]

QUALIFIED FUNDS TRANSFER FORM

SIERRA ASSET MANAGER
The Actively Managed Variable Annuity

For use by customers transferring Qualified funds (IRA, 401(K), pension plan,
or other qualified deferred compensation) to American General Life Insurance
Company when funds to be invested are not in a life insurance contract or
policy - THIS FORM IS NOT TO BE USED FOR 1035 EXCHANGES. Disclosure forms
required of the Insurer must be delivered to the customer.
-----------------------------------------------------------------------------

CURRENT TRUSTEE OR CUSTODIAN

Name:______________________________________________________________

Address:___________________________________________________________

-----------------------------------------------------------------------------

PARTICIPANT

Name:______________________________________________________________

Account Number:____________________________________________________

Sum to be transferred: [ ]Full Account Balance [ ]Other___________

-----------------------------------------------------------------------------

NOTICE TO CURRENT TRUSTEE OR CUSTODIAN

You are directed to convert to cash the assets held for the Participant under
the IRC ss.408(a) Individual Retirement Annuity or Account) or other
qualified account indicated above and transfer the funds to American General
Life Insurance Company as described under "Transfer Information".

Signature--Participant:_______________________________________

-----------------------------------------------------------------------------

TRANSFER INFORMATION

Make check payable as follows: American General Life Insurance Company
for the benefit (FBO) of______________________________________
Print Name of Participant
P.O. Box 1401
Houston, TX 77251-1401

-----------------------------------------------------------------------------

ACCEPTANCE

American General Life Insurance Company will accept on behalf of the above
named Participant, the transfer of funds from the above account and deposit
said funds into an IRC Section 408(b) Individual Retirement Annuity or other
qualified account as directed with American General Life Insurance Company
subject to the terms and conditions of said annuity or account.

By:_____________________________________________/_________________
American General Life Insurance Company Date

-----------------------------------------------------------------------------
If this is a full account balance transfer, Participants who have reached
their required distribution age (701/2) or older must take any required
distribution prior to completing this transaction.

L6742 REV 394

Page 13

<PAGE>

[American General Logo]

NON-QUALIFIED FUND TRANSFER AUTHORIZATION

SIERRA ASSET MANAGER
The Actively Managed Variable Annuity

For use by customers transferring Non-Qualified funds from a Financial
Institution or Mutual Fund to American General Life Insurance Company. THIS
FORM IS NOT TO BE USED FOR 1035 EXCHANGES

-----------------------------------------------------------------------------

CURRENT FINANCIAL INSTITUTION
Name: ______________________________________________________________
Address: ___________________________________________________________
___________________________________________________________
Phone No.: _________________________________________________________

-----------------------------------------------------------------------------

ACCOUNT OWNER

Name: ______________________________________________________________
Account/Certificate Number(s): 1. __________________________________
2.______________________________________________
3.______________________________________________

-----------------------------------------------------------------------------

NOTICE TO CURRENT FINANCIAL INSTITUTION

I hereby request and direct the following action to be taken in order to
transfer the proceeds of the account/certificate identified above (Complete
number 1, 2, or 3 as appropriate):

1.[ ] Certificate of Deposit Withdrawal:
[ ] Full [ ] Partial $____________________
Indicate Amount
(Complete a or b)
a.[ ] On the Maturity date of___/___/___ .
b.[ ] Upon receipt of this request.
2. Fully liquidate Mutual Fund Account (copy of recent
statement attached).
3.[ ] Other type of Account (e.g. savings, checking)
[ ]Full [ ]Partial $____________________
Indicate Amount
Signature--Account Owner:_________________________________________

-----------------------------------------------------------------------------

TRANSFER INFORMATION

Make check payable as follows: American General Life Insurance Company

for the benefit(FBO) of_______________________________
Print name of Account Owner

Funds should be sent to:

P.O. Box 1401 OR 2727A Allen Parkway, 3-50
Houston, TX 77251-1401 Houston, TX 77019
(713) 522-1111
-----------------------------------------------------------------------------

ACCEPTANCE

American General Life Insurance Company will accept on behalf of the above
named Participant, the transfer of funds from the above account(s) and
deposit said funds in a flexible premium deferred annuity or other account as
directed with American General Life Insurance Company subject to the terms
and conditions of said annuity or account.

By:______________________________________________________________________
Authorized Representative of American General Life Insurance Company
___/___/___
DATE

L8190 REV 694

Page 14

<PAGE>

AMERICAN GENERAL LIFE INSURANCE COMPANY
--------------------------------------------
A Subsidiary of American General Corporation
--------------------------------------------
Houston, TX
CHANGE REQUEST

COMPLETE AND RETURN THIS REQUEST TO:
Annuity Administration
P.O. Box 1401
Houston, Texas 77251-1401
(800)247-6584

SIERRA ASSET MANAGER
The Actively Managed Variable Annuity

[X] CONTRACT IDENTIFICATION (COMPLETE SECTION 1 AND 6 FOR ALL REQUESTS.)
INDICATE CHANGE OR REQUEST DESIRED BELOW.

1. CONTRACT #:______________________ ANNUITANT:______________________

CONTRACT OWNER(S):_________________________________________________

(Name and__________________________________________________________
Address:)
__________________________________________________________

[ ] Check here if change of address

S.S. NO. OR TAX I.D. NO.:___/___/___ Phone Number:(___)___________

[ ] DOLLAR COST AVERAGING

2. Dollar-cost average [ ] $______ OR [ ] %______% (whole % only)
Begin Date:__/__/__
Taken from the [ ]Global Money Fund OR [ ]1 Year Guarantee Period
Frequency: [ ]Monthly [ ]Quarterly [ ]Semiannually [ ]Annually
Duration: [ ]12 months [ ]24 months [ ]36 months

to be allocated to the following division(s) as indicated. (Use only
dollars OR percentages)
<TABLE>
<S> <C>
(060) Capital Growth Portfolio _____ (063) Value Portfolio _____
(061) Growth Portfolio _____ (064) Income Portfolio _____
(062) Balanced Portfolio _____ (065) Global Money Fund _____
</TABLE>

3. [ ] CHANGE ALLOCATION OF FUTURE PURCHASE PAYMENTS
Use whole percentages. Total must equal 100%

4. [ ] TRANSFER OF ACCUMULATED VALUES
(Available by either $ or % allocation)
<TABLE>
<S> <C>
________ from Div.________ to Div. ________ ________ from Div.________ to Div.________
________ from Div.________ to Div. ________ ________ from Div.________ to Div.________
________ from Div.________ to Div. ________ ________ from Div.________ to Div.________
________ from Div.________ to Div. ________ ________ from Div.________ to Div.________
</TABLE>

5. [ ] AFFIRMATION/SIGNATURE
(COMPLETE THIS SECTION FOR ALL REQUESTS.)

CERTIFICATION: Under penalties of perjury, I certify (1) that the number
shown on this form is my correct taxpayer identification number and (2)
that I am not subject to backup withholding under Section 3406(a)(1)(c) of
the Internal Revenue Code.

The Internal Revenue Service does not require your consent to any
provision of this document other than the certifications required to avoid
backup withholding.

_________________ _____________________________________
DATE SIGNATURE OF OWNER(S)

L8878-SAM

Page 15

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

Page 16

<PAGE>

SIERRA ASSET MANAGER
The Actively Managed Variable Annuity

COMPLETE AND RETURN THIS REQUEST TO:
Annuity Administration
P.O. Box 1401
Houston, Texas 77251-1401
(800)247-6584

1. CONTRACT INDENTIFICATION (COMPLETE THIS SECTION FOR ALL REQUESTS.)

CONTRACT#:__________________________ ANNUITANT:___________________________

CONTRACT OWNER(S):________________________________________________________
(Name and
Address:) ________________________________________________________
[ ] Check here
if change ________________________________________________________
of address

S.S. NO. OR TAX I.D. NO.:____/____/____ Phone Number:____________________

2. SYSTEMATIC WITHDRAWAL ELECTION (Minimum check amount is $100)
(USE WHOLE PERCENTAGES. TOTAL MUST EQUAL 100%)

WITHDRAWALS PRIOR TO AGE 59 1/2 MAY BE SUBJECT TO AN IRS
PENALTY.
Consult your tax advisor for additional information.
HOW OFTEN SHOULD PAYMENTS BE MADE:
[ ]MONTHLY [ ]QUARTERLY [ ]SEMIANNUALLY [ ]ANNUALLY

First check to be processed on ____/____/____. Subsequent checks will be
MM DD YY
processed at the next payout dates. on the SAME DAY of the month elected
as your start date. (Date must be between the 5th and 24th of the month
and at least 30 days after issue date.)

SPECIFIED DOLLAR AMOUNT $_______________ (Not to be used for partial
withdrawal request)

Unless specified below, withdrawals will be taken from the divisions as
they are currently allocated in your contract.

[ ] Mail to owner at address in Section 1. [ ] Mail to name/address other
than owner (complete information below:

__________________________________________________________________________
Individual or Bank Name
__________________________________________________________________________
Address
__________________________________________________________________________
City/State/Zip
__________________________________________________________________________
If bank, provide account number to be referenced for deposit

4. NOTICE OF WITHHOLDING (COMPLETE THE SECTION FOR ALL REQUESTS.)

The taxable portion of the distribution you receive from your annuity
contract is subject to federal income tax withholding unless you elect not
to have withholding apply. Withholding of state income tax may also be
required by your state of residence. You may elect not to have withholding
apply by checking the appropriate box below. If you elect not to have
withholding apply to your distribution or if you do not have enough income
tax withheld, you may be responsible for payment of estimated tax. You may
incur penalties under the estimated tax rules if your withholding and
estimated tax are not sufficient.

[ ] I do NOT want income tax withheld from each distribution.

[ ] I do want _____% or [ ] 10% income tax withheld from each
distribution.

5. AFFIRMATION/SIGNATURE
(COMPLETE THIS SECTION FOR ALL REQUESTS)

CERTIFICATION: Under penalties of perjury, I certify that (1) the number
shown on this form is my correct taxpayer identification number; (2) that
I am not subject to backup withholding under Section 3406(a)(1)(c) of the
Internal Revenue Code; and (3) that the information provided on this form
is true, correct and complete.

Dated __________________ this ______ day of ___________ 19 ___________

____________________________
OWNER

_______________________________ ____________________________
WITNESS CO-OWNER (if applicable)

L8897-SAM

Page 17

<PAGE>

[THIS PAGE INTENTIONALLY LEFT BLANK]

Page 18

<PAGE>

SIERRA ASSET MANAGER
The Actively Managed Variable Annuity

COMPLETE AND RETURN THIS REQUEST TO:
Annuity Administration
P.O. Box 1401
Houston, Texas 77251-1401
(800)247-6584

Contract #:_______________________________________

Annuitant:___________________________________________________________________

Contract Owner(s):___________________________________________________________

(Name and ___________________________________________________________________
Address:)
___________________________________________________________________

Amount of Investment:_____________________________
(Minimum $100 per contract)

Frequency: [ ]Monthly [ ]Quarterly [ ]Semiannually [ ]Annually

Date of 1st withdrawal:_____/______/______

Name of Bank:_____________________________________________________

Account Number:___________________________________________________

ATTACH A VOIDED CHECK
___________________________________________________________________________
| |
| |
| |
| |
| |
| |
| |
| |
| |
|___________________________________________________________________________|

PLEASE SIGN AND DATE THE AUTHORIZATION BELOW.

I, the undersigned bank account owner, hereby authorize and request American
General Life Insurance Company ("Company") to initiate electronic or other
commercially accepted type debits against the indicated bank account in the
depository institution named above ("Depository") for purchase payments due
on the contract listed above. I hereby agree to indemnify and hold the
Company harmless from any loss, claim or liability of any kind by reason or
dishonor of any debit.

I agree that this Authorization may be terminated by me or the Company at any
time and for any reason by providing written notice of such termination to
the non-terminating party and may be terminated by the Company immediately if
any debit is not honored by the Depository named above for any reason.

______________________________________ __________________________
Signature of Bank Account Owner(s) Date

L8877-SAM

Page 19

<PAGE>

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Page 20

<PAGE>

AMERICAN GENERAL LIFE INSURANCE COMPANY
--------------------------------------------
A Subsidiary of American General Corporation
--------------------------------------------
Houston, Texas

SIERRA ASSET MANAGER
The Actively Managed Variable Annuity

COMPLETE AND RETURN THIS REQUEST TO:
Annuity Administration
P.O. Box 1401
Houston, Texas 77251-1401
(800)247-6584

CHANGE OF BENEFICIARY
(Before completing this form
please read instructions below and on reverse side.)
_____________________________________________________________________________
| |
| |
Contract No. | Contract Owner | Annuitant
____________________|______________________________|_________________________

METHOD OF PAYMENT: The death proceeds shall be payable in equal shares to the
designated beneficiaries as may be living, unless otherwise provided below.
In the event no beneficiary survives the Annuitant or Owner, and if this
form, or the Contract does not provide otherwise, the proceeds will be paid
to the executors or administrators of the deceased's Estate.
=============================================================================

PRIMARY BENEFICIARY:

Full Name Relationship to Annuitant Percentages (if applicable)
--------- ------------------------- ---------------------------
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________

If a living or non-testamentary trust is designated as a primary beneficiary,
complete the following:
____________________________________________ Dated:_________________________
Name of Trust

CONTINGENT BENEFICIARY (proceeds payable under this designation only if non
of the designated primary beneficiaries survive the deceased Annuitant or
Owner):

If a living or non-testamentary trust is designated as a contingent
beneficiary, complete the following:

____________________________________________ Dated:_________________________
Name of Trust
=============================================================================
The undersigned contract owner hereby revokes any previous beneficiary
designation and any optional mode of settlement with respect to any death
benefit proceeds payable at the death of the annuitant or owner.

I represent and certify that no insolvency or bankruptcy proceedings are now
pending against me.

Dated at___________________________this________day of_____________, 19_____.

_______________________________________ ___________________________________
WITNESS CONTRACT OWNER
_______________________________________ ___________________________________
WITNESS Additional Signature if Required
=============================================================================

This change of beneficiary and/or method of settlement has been approved by
the Company at its Home Office, and presentation of the Contracts for
endorsement has been waived.

AMERICAN GENERAL LIFE INSURANCE COMPANY

DATE OF APPROVAL:_____________ BY:___________________________________________

L8876-SAM

Page 21

<PAGE>

INSTRUCTIONS FOR DESIGNATING BENEFICIARY

1. All signatures must be in INK and should appear exactly as the name is
given in the contract. A separate election for change of beneficiary must
be completed for each contract.

2. The full name of the new Beneficiary, relationship to the Annuitant,
current mailing address and taxpayer identification number (S.S. No.)
should be given for all Beneficiaries. If Beneficiary is to receive
payment under life income option, give date of birth.

3. If a Beneficiary is a married woman, her full given name should be used.
For example, Mary E. Jones, not Mrs. J.F. Jones. If a Trustee is
designated, notification as to the type of trust created should be
furnished by the Company.

4. If two Beneficiaries are to share jointly, the last name entered should be
followed by the words "equally, or to the survivor," if three or more
Beneficiaries are to share jointly, the last name entered should be
followed by the words "equally, or to the survivors or survivor." If the
interest of one Beneficiary is to be contingent to the interest of
another, after the name of the first Beneficiary the following words
should be placed: "if living; otherwise to."

For you assistance, examples of the wording to be used in some of the more
common designations are set out below. In difficult cases where there is
doubt as to the proper wording, the Company will prepare a special form for
you signature on request.

<TABLE>
<S> <C>
1. One Beneficiary Jane Doe, wife of the Annuitant.

2. Two Primary Beneficiaries Jane Doe, wife of the Annuitant,
and John Doe, son, equally, or to the
survivor.

3. One Primary and Two Contingent Jane Doe, wife of the Annuitant,
Beneficiaries if living; otherwise to John Doe and
Mary Doe, children of the Annuitant,
equally, or to the survivor.

4. One Primary and One Contingent Jane Doe, wife of the Annuitant, if
Beneficiary living: otherwise to John Doe, son.

5. Two Primary and One Contingent John Doe and Mary Doe, parents of the
Beneficiaries Annuitant, equally, or to the
survivor; otherwise, to Jane Doe,
sister of the Annuitant.

6. Wife, Primary; Named and Jane Doe, wife of the Annuitant,
Un-named Children, if living; otherwise to Henry Doe,
Contingent Beneficiaries Barbara Doe, and Paul Doe, children
of the Annuitant, and any other
then living children born of the
marriage of the Annuitant and said
wife, equally, or to the survivors.

7. Wife, Primary; Children Mary doe, wife of the Annuitant,
and Step-Children if living; otherwise, Henry Doe,
Contingents son of the Annuitant, Mary Doe,
step-daughter of the Annuitant,
and any then living children born
of the marriage of the Annuitant and
said wife, equally, or to the
survivor.

8. Wife, Primary; Unnamed Children Jane Doe, wife of the Annuitant, if
with Second Contingents living; otherwise any then living
children born of the marriage of the
Annuitant and said wife, equally, or
to the survivor; otherwise to Harry
Doe and Mabel Doe, parents of the
Annuitant, equally, or to the
survivor.

9. Business Designations A. The Beacon Oil Company,
Incorporated, a Texas Corporation
Houston, Texas, employer (or
creditor), or its successors or
assigns.

B. John Doe, Business Partner.

C. Harry Doe, Employer (or employee).

10. Trustee - Written Trust The American General Bank, Houston,
Texas, as Trustee, or its successors
in Trust, under Trust Instrument dated
May 31, 1995.

Trustee-Testamentary Trust Trustee as provided in the Last
Will and Testament of the Annuitant,
or successors thereunder.

11. Estate The Executors, Administrators, or
Assigns of the Annuitant.
</TABLE>

Page 22

<PAGE>

AMERICAN GENERAL LIFE INSURANCE COMPANY
--------------------------------------------
A Subsidiary of American General Corporation
--------------------------------------------
Houston, Texas

SIERRA ASSET MANAGER
The Actively Managed Variable Annuity

To Obtain a Statement of Additional Information, please complete the form
below and mail to:

American General Life Insurance Company
Attn: Annuity Correspondence Unit
P.O. Box 1401
Houston, TX 77251-1401

Please send a Statement of Additional Information for the Sierra Asset Manager
Variable Annuity to me at the following address:

___________________________
Name
___________________________
Address
___________________________
City/State Zip Code

Page 23

<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, 1997

This Statement of Additional Information ("Statement") is not a
prospectus. It should be read with the Prospectus for American General Life
Insurance Company Separate Account D ("Separate Account D") concerning
flexible premium deferred annuity Sierra Asset Manager Contracts investing in
certain mutual fund Series of The Sierra Variable Trust, dated May 1, 1997.
You can obtain a copy of the Prospectus for the Contracts by contacting
American General Life Insurance Company ("AGL") at the address or telephone
numbers given above. You have the option of receiving benefits on a fixed
basis through AGL's Fixed Account or through AGL's Separate Account D. Terms
used in this Statement have the same meanings as are defined in the Prospectus
under the heading "Glossary."

<TABLE>
TABLE OF CONTENTS
<S> <C>
General Information.................................................... 2
Regulation and Reserves................................................ 2
Independent Auditors................................................... 2
Services............................................................... 3
Principal Underwriter.................................................. 3
Annuity Payments....................................................... 3
Gender of Annuitant................................................... 3
Misstatement of Age or Sex and Other Errors........................... 3
Change of Investment Adviser or Investment Policy...................... 4
Performance Data for the Divisions..................................... 4
Financial Statements................................................... 8
Index to Financial Statements.......................................... 9
</TABLE>

<PAGE>

GENERAL INFORMATION

AGL (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, AGL redomesticated as a
Texas insurer and changed its name to American General Life Insurance Company.
AGL 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

AGL 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. AGL'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 AGL 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 AGL would be.

Pursuant to state insurance laws and regulations, AGL 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 AGL 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.

INDEPENDENT AUDITORS

The consolidated financial statements of AGL and the financial statements of
Separate Account D appearing in this Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein. Such financial statements have been

<PAGE>

included in this Statement 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 AGL 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. AGL has contracted with
Continuum for the right to use Continuum's system. For these services AGL paid
Continuum $28,800 in 1996, $28,080 in 1995, and $78,840 in 1994.

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
AGL'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 AGL 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.

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 assumed interest rate used in the
Contract's annuity tables.

<PAGE>

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
AGL. 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.

PERFORMANCE DATA FOR THE DIVISIONS

Investment results for the available Divisions of Separate Account D may be
quoted from time to time. Such results will not be an estimate or guarantee of
future investment performance, and will not represent the actual experience of
amounts invested by a particular Owner. Performance figures will be carried to
the nearest one-hundredth of one percent and may include the effect of
voluntary fee waivers and expense reimbursements in favor of the Funds from
their investment adviser and administrator.

AVERAGE ANNUAL TOTAL RETURN CALCULATIONS

Each Division may advertise its average annual total return. 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, the administrative expense charge and the Annual Contract Fee, 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.

TOTAL RETURN CALCULATIONS (WITHOUT SURRENDER CHARGE OR ANNUAL CONTRACT FEE)

Each Division may also advertise its non-standardized total return, which is
calculated in the same manner and for the same time periods as the
standardized average annual total returns described immediately above, except
that the redeemable value does not reflect the deduction of any applicable
Surrender Charge that may be imposed at the end of the period, since it is
assumed that the Contract will continue through the end of each period, or the
deduction of the Annual Contract Fee. If reflected, these charges would reduce
the performance results presented.

CUMULATIVE TOTAL RETURN CALCULATIONS

No standardized formula has been prescribed by the SEC for calculating
cumulative total return performance. Cumulative total return performance is
the compound rate of return on a hypothetical initial investment of $1,000 in
each Division's Accumulation Units on the first day of the period at

<PAGE>

the maximum offering price, which is the Accumulation Unit value per unit
("initial investment"). Cumulative total return figures (and the related
"Growth of a $1,000 Investment" figures set forth below) do not include the
effect of any premium taxes or any applicable Surrender Charge or the Annual
Contract Fee. 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:

C = (ERV/P) - 1

Where:

C = 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.

HYPOTHETICAL PERFORMANCE

The tables below provide hypothetical performance information for the Global
Money Fund Division of Separate Account D based on the actual historical
performance of the corresponding Series in which the Division invests. This
information reflects all actual charges and deductions of the Series and all
Separate Account charges and deductions, with respect to the Contracts, that
hypothetically would have been made had the Separate Account, with respect to
the Contracts, been invested in the Series for all the periods indicated. This
information has been provided only with respect to the Global Money Fund
Division because the other Divisions available under the Contract had not
commenced operations as of the date of this Statement.

<TABLE>
HYPOTHETICAL HISTORICAL AVERAGE ANNUAL TOTAL RETURNS
(THROUGH DECEMBER 31, 1996)

Since
Series
Investment Division One Year Inception
------------------- -------- ---------
<S> <C> <C>
Global Money Fund (3.58)% 1.61%
</TABLE>

<TABLE>
HYPOTHETICAL HISTORICAL TOTAL RETURNS

(THROUGH DECEMBER 31, 1996)

<CAPTION>
Since
Series
Investment Division One Year Inception
------------------- -------- ---------
<S> <C> <C>
Global Money Fund 3.51% 2.87%
</TABLE>

<PAGE>

HYPOTHETICAL HISTORICAL CUMULATIVE TOTAL RETURNS

(THROUGH DECEMBER 31, 1996)

<TABLE>
<CAPTION>
Since
Series
Investment Division One Year Inception
------------------- -------- ---------
<S> <C> <C>
Global Money Fund 3.51% 10.86%
</TABLE>

<TABLE>
HYPOTHETICAL HISTORICAL GROWTH OF A $1,000 INVESTMENT IN THE DIVISION

(THROUGH DECEMBER 31, 1996)

<CAPTION>
Since
Series
Investment Division One Year Inception
------------------- -------- ---------
<S> <C> <C>
Global Money Fund $1,035.15 $1,108.58
</TABLE>

YIELD CALCULATIONS

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:

a - b
YIELD = 2[(------- +1)6 - 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 FUND DIVISION YIELD AND EFFECTIVE YIELD CALCULATIONS

The Global Money Fund Division's yield will be 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

<PAGE>

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 will not be included in the calculation.

The Global Money Fund Division's effective yield will be 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
365/7
period return +1) -1.

Yield and effective yield do not reflect the deduction of Surrender Charges or
the charges for any applicable premium taxes.

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.

<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>
(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 1.25 %, the
maximum surrender charge is 7% for withdrawals within the first seven years,
and annual administrative expense is .15%. 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

Separate Account D has a total of forty-three Divisions as of the date of this
Statement. Excepting the Global Money Fund Division, the other five Divisions
which are available under the Contracts that are the subject of this Statement
are not included in the December 31, 1996 financial statements for Separate
Account D, because none had commenced operations as of December 31, 1996. The
December 31, 1996 financial statements for Separate Account D that are
included herein relate only to the twenty-six Divisions which had operations
as of December 31, 1996. Because the Global Money Fund Division is also
available under a separate set of Contracts and had operations at December 31,
1996, it is one of the twenty-six Divisions included in the December 31, 1996
financial statements for Separate Account D. The remaining twelve Divisions of
Separate Account D had no operations as of December 31, 1996 and are not
available under the Contracts that are the subject of this Statement.

The financial statements of AGL that are included in this Statement should be
considered primarily as bearing on the ability of AGL to meet its obligations
under the Contracts.

<PAGE>

INDEX TO

<TABLE>
FINANCIAL STATEMENTS

PAGE NO.
<S> <C>
I. Financial Statements of American General Life Insurance Company
Separate Account D

Report of Ernst & Young LLP, Independent Auditors.................. 10

Statement of Net Assets ........................................... 11

Statement of Operations............................................ 11

Statement of Changes in Net Assets................................. 12

Notes to Financial Statements...................................... 13

II. AGL Consolidated Financial Statements

Report of Ernst & Young LLP, Independent Auditors.................. 27

Consolidated Balance Sheets........................................ 28

Consolidated Statements of Income.................................. 30

Consolidated Statements of Shareholder's Equity.................... 31

Consolidated Statements of Cash Flows.............................. 32

Notes to Consolidated Financial Statements......................... 33
</TABLE>

<PAGE>

ERNST & YOUNG LLP One Houston Center Phone: 713 750 1500
Suite 2400 Fax: 713 750 1501
1221 McKinney Street
Houston, Texas 77010-2007

Report of Independent Auditors

Board of Directors of
American General Life Insurance Company
and Contract Owners of
American General Life Insurance Company
Separate Account D

We have audited the accompanying statement of net assets of American General
Life Insurance Company (the "Company") Separate Account D as of December 31,
1996, the related statement of operations for the year then ended and the
statement of changes in net assets for each of the two years in the period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1996,
by correspondence with the transfer agents. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American General Life
Insurance Company Separate Account D at December 31, 1996, the results of its
operations for the year then ended and the changes in its net assets for each
of the two years in the period then ended, in conformity with generally
accepted accounting principles.

ERNST & YOUNG
/s/ERNST & YOUNG

Houston, Texas
January 31, 1997

<PAGE>

AMERICAN GENERAL LIFE INSURANCE COMPANY

SEPARATE ACCOUNT D

<TABLE>
STATEMENT OF NET ASSETS

DECEMBER 31, 1996

<CAPTION>
TOTAL Sierra VAriety All
ALL Advantage Plus Other
DIVISIONS Divisions Divisions Divisions
<S> <C> <C> <C> <C>
ASSETS:
Investment securities - at market
(cost $486,138,885)........................... $541,986,780 $480,823,205 $16,688,246 $44,475,329
Due to American General Life Insurance Company. (3,227) 0 (519) (2,708)
------------- ------------- ------------ ------------

NET ASSETS.................................. $541,983,553 $480,823,205 $16,687,727 $44,472,621
============= ============= ============ ============

CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts..... $539,723,717 $480,672,635 $16,687,727 $42,363,355
Reserves for annuity contracts on benefit..... 2,259,836 150,570 0 2,109,266
------------- ------------- ------------ ------------

TOTAL CONTRACT OWNER RESERVES............... $541,983,553 $480,823,205 $16,687,727 $44,472,621
============= ============= ============ ============
</TABLE>

<TABLE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996

<CAPTION>
TOTAL Sierra VAriety All
ALL Advantage Plus Other
DIVISIONS Divisions Divisions Divisions
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends from mutual funds................... $ 15,231,338 $ 12,623,149 $ 395,556 $ 2,212,633

EXPENSES:
Expense and mortality fee..................... 7,354,572 6,689,446 245,122 420,004
------------- ------------- ------------ ------------
NET INVESTMENT INCOME....................... 7,876,766 5,933,703 150,434 1,792,629
------------- ------------- ------------ ------------

REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:

Net realized gain (loss) on investments....... 8,687,632 8,253,869 170,962 262,801
Capital gain distributions from mutual funds.. 22,461,539 19,044,845 1,050,929 2,365,765
Net unrealized gain on investments............ 4,104,554 1,870,223 939,264 1,295,067
------------- ------------- ------------ ------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS................................ 35,253,725 29,168,937 2,161,155 3,923,633
------------- ------------- ------------ ------------

INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS............................... $ 43,130,491 $ 35,102,640 $ 2,311,589 $ 5,716,262
============= ============= ============ ============
</TABLE>

See accompanying notes.

<PAGE>

American General Life Insurance Company

SEPARATE ACCOUNT D

<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31, 1996

<CAPTION>
TOTAL Sierra VAriety All
ALL Advantage Plus Other
DIVISIONS Divisions Divisions Divisions
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income......................... $ 7,876,766 $ 5,933,703 $ 150,434 $ 1,792,629
Net realized gain (loss) on investments....... $ 8,687,632 8,253,869 170,962 262,801
Capital gain distributions from mutual funds.. 22,461,539 19,044,845 1,050,929 2,365,765
Net unrealized gain on investments............ 4,104,554 1,870,223 939,264 1,295,067
------------- ------------- ------------ ------------
Increase in net assets resulting from
operations................................. 43,130,491 35,102,640 2,311,589 5,716,262
------------- ------------- ------------ ------------

PRINCIPAL TRANSACTIONS:
Contract purchase payments, less sales and
administrative expenses and premium taxes.... 63,920,172 62,319,889 1,434,892 165,391
Mortality reserve transfer.................... 0 0 0 144,841
Payments to contract owners:
Annuity benefits............................ (6,848,545) (5,806,546) (4,946) (1,037,053)
Terminations and withdrawals................ (23,351,179) (18,340,373) (1,138,733) (3,872,073)
------------- ------------- ------------ ------------
Increase (Decrease) in net assets resulting
from principal transactions.................. 33,720,448 38,172,970 291,213 (4,598,894)
------------- ------------- ------------ ------------
TOTAL INCREASE IN NET ASSETS.................. 76,850,939 73,275,610 2,602,802 (1,117,368)

NET ASSETS:
Beginning of year............................. 464,987,773 407,547,595 14,084,925 43,355,253
End of year................................... $541,838,712 $480,823,205 $16,687,727 $44,472,621
============= ============= ============ ============
</TABLE>

STATEMENT OF CHANGES IN NET ASSETS
Year Ended December 31, 1995

<TABLE>
<CAPTION>
TOTAL Sierra VAriety All
ALL Advantage Plus Other
DIVISIONS Divisions Divisions Divisions
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income......................... 6,780,605 4,544,715 216,941 2,018,949
Net realized loss on investments.............. (623,550) (348,580) 6,817 (281,787)
Capital gain distributions from mutual funds.. 3,557,290 721,066 800,809 2,035,415
Net unrealized loss on investments............ 65,361,002 59,082,619 2,006,733 4,271,650
------------- ------------- ------------ ------------
Decrease in net assets resulting from
operations................................. 75,075,347 63,999,820 3,031,300 8,044,227
------------- ------------- ------------ ------------

PRINCIPAL TRANSACTIONS:
Contract purchase payments, less sales and
administrative expenses and premium taxes.... 67,939,767 66,850,917 1,000,953 87,897
Payments to contract owners:
Annuity benefits............................ (8,505,642) (7,148,527) (47,580) (1,309,535)
Terminations and withdrawals................ (25,014,962) (20,016,039) (1,260,750) (3,738,173)
------------- ------------- ------------ ------------
Increase (Decrease) in net assets resulting
from principal transactions.................. 34,419,163 39,686,351 (307,377) (4,959,811)
------------- ------------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS....... 109,494,510 103,686,171 2,723,923 3,084,416

NET ASSETS:
Beginning of year............................. 355,493,263 303,861,424 11,361,002 40,270,837
End of year................................... $464,987,773 407,547,595 14,084,925 43,355,253
============= ============= ============ ============
</TABLE>

See accompanying notes.

<PAGE>

NOTES TO FINANCIAL STATEMENTS

Note A - Organization

Separate Account D (the "Separate Account"), established by American
General Life Insurance Company (the "Company") on November 19, 1973, is
registered under the Investment Company Act of 1940 as a unit investment
trust. The Separate Account now consists of twenty-six Divisions which are
available to investors through four different American General annuity
contracts. The divisions available in each contract are as follows:

NOTES TO FINANCIAL STATEMENTS

Note A - Organization

<TABLE>
<S> <C>
SIERRA ADVANTAGE: VARIETY PLUS (CONTINUED)
Sierra Variable Trust Neuberger & Berman Advisors Management Trust ("AMT")
("Sierra") International Growth Fund Balanced Portfolio
Sierra Short Term Global Government Fund Neuberger & Berman AMT Partners Portfolio
Sierra Growth Fund American General Series Portfolio Company ("AGSPC")
Sierra Global Money Fund Stock Index Fund
Sierra U.S. Government Fund AGSPC Social Awareness Fund
Sierra Growth & Income Fund AGSPC International Equities Fund
Sierra Corporate Income Fund
Sierra Short Term High Quality Bond Fund
Sierra Emerging Growth Fund SEPARATE ACCOUNT D (DEFERRED LOAD):
Van Kampen LIT Money Market Fund
Van Kampen LIT Domestic Income Fund
(formerly LIT Domestic Strategic Income Fund)
VARIETY PLUS: Van Kampen LIT Enterprise Fund
Van Kampen American Capital ("Van Kampen") (formerly LIT Common Stock Fund)
Life Investment Trust ("LIT") Money Market Fund
Van Kampen LIT Domestic Income Fund ALL OTHER SEPARATE ACCOUNT D CONTRACTS:
(formerly LIT Domestic Strategic Income Fund) (Issued prior to January 1, 1982)
Van Kampen LIT Enterprise Fund Van Kampen Comstock Fund
(formerly LIT Common Stock Fund) Van Kampen Corporate Bond Fund
Van Kampen LIT Government Fund Van Kampen Reserve Fund
Van Kampen LIT Asset Allocation Fund Van Kampen High Income Corporate Bond Fund
(formerly Multiple Strategy Fund) Van Kampen LIT Money Market Fund
Fidelity Variable Insurance Product ("VIP") Van Kampen LIT Domestic Income Fund
Asset Manager Portfolio (formerly LIT Domestic Strategic Income Fund)
Fidelity VIP Overseas Portfolio Van Kampen LIT Enterprise Fund
Fidelity VIP Index 500 Portfolio (formerly LIT Common Stock Fund)
</TABLE>

Note B - Summary of Significant Accounting Policies & Basis of Presentation

The accompanying financial statements of the Divisions of the Separate
Account have been prepared on the basis of generally accepted accounting
principles ("GAAP"). The accounting principles followed by the Divisions and
the methods of applying those principles are presented below or in the
footnotes which follow:

SECURITY VALUATION - The investment in shares of Van Kampen, AGSPC,
Fidelity, Neuberger & Berman and Sierra mutual funds are valued at the closing
net asset value (market) per share as determined by the fund on the day of
measurement.

SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME - Security
transactions are accounted for on the date the order to buy or sell is
executed (trade date). Dividend income and distributions of capital gains are
recorded on the ex-dividend date and reinvested upon receipt. Realized gains
and losses from security transactions are determined on the basis of
identified cost.

ADMINISTRATIVE EXPENSES AND MORTALITY AND EXPENSE RISK CHARGE -
Deductions for administrative expenses and mortality and expense risks assumed
by the Company are calculated daily, at an annual rate, on the average daily
net asset value of the Separate Account and are paid to the Company.

An annual maintenance charge may be imposed on the last day of each
contract year during the accumulation period for administrative expenses with
respect to each contract. A surrender charge is applicable to certain
withdrawal amounts and is payable to the Company. The deductions are as
follows for the period ended December 31, 1996:

<TABLE>
<CAPTION>
Annual
Administrative Expenses, Annual Maintenance Surrender
Mortality & Expense Risk Maintenance Charges Charges
Contracts Annual Rate Charge Collected Collected
-------------------------------------- ------------------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Sierra Advantage...................... 1.50% N/A N/A 663,624
VAriety Plus.......................... 1.55% 36 $12,600 32,513
Separate Account D (deferred load).... 1.25% 30 $17,670 579
Separate Account D (Issued prior to
January 1, 1982)..................... 0.75% N/A N/A N/A
</TABLE>

<PAGE>

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES & BASIS OF PRESENTATION -
CONTINUED

ADMINISTRATIVE EXPENSES - CONTINUED - Sales and other administrative
charges are applicable to certain transaction amounts on contracts, excluding
Sierra Advantage and VAriety Plus contracts, and are payable to the Company.
The total sales and administrative charges collected for the period ended
December 31, 1996 were $2,349.

The funds pay their investment advisors, Van Kampen American Capital
Asset Management, Inc., The Variable Annuity Life Insurance Company ("VALIC"),
Fidelity Management & Research Company, Neuberger & Berman Management
Incorporated and Sierra Investment Advisors Corporation, a monthly fee based
on the fund's average net asset value.

ANNUITY RESERVES - Sierra Advantage and VAriety Plus annuity reserves are
computed for currently payable contracts according to the 1983a Individual
Annuity Mortality Table projected under Scale G factors at an assumed interest
rate of 3.5%. The other contracts annuity reserves are computed for currently
payable contracts according to the Progressive Annuity Mortality Table at an
assumed interest rate of 3%. Charges to annuity reserves for mortality and
expense risks experience are reimbursed to the Company if the reserves
required are less than originally estimated. If additional reserves are
required, the Company reimburses the separate account.

NOTE C - INVESTMENTS

Fund shares are purchased at net asset value with net contract payments
(contract purchase payments less surrenders and amounts payable to the Company
for administrative and surrender charges) and reinvestment of distributions
made by the funds. The following is a summary of fund shares owned as of
December 31, 1996.

Net Value of Cost of Unrealized
Asset Shares at Shares Appreciation
Fund Shares Value Market Held (Depreciation)

<S> <C> <C> <C> <C> <C>
Van Kampen Comstock Fund........................ 436,828 $ 14.78 $ 6,456,312 $ 6,520,659 $ (64,347)
Van Kampen Corporate Bond Fund.................. 77,146 6.88 530,766 532,315 (1,549)
Van Kampen Reserve Fund......................... 1,430,869 1.00 1,430,869 1,430,869 0
Van Kampen High Income Corporate Bond Fund...... 1,989,372 6.42 12,771,767 11,869,051 902,716
Van Kampen LIT Money Market Fund................ 5,356,820 1.00 5,356,820 5,356,820 0
Van Kampen LIT Domestic Income Fund............. 776,892 8.01 6,222,909 6,306,903 (83,994)
Van Kampen LIT Enterprise Fund.................. 1,153,699 16.26 18,759,145 16,100,742 2,658,403
Van Kampen LIT Government Fund.................. 121,169 8.66 1,049,323 1,068,570 (19,247)
Van Kampen LIT Asset Allocation Fund............ 265,504 11.35 3,013,475 3,077,842 (64,367)
Fidelity VIP Asset Manager Portfolio............ 40,818 16.93 691,048 590,412 100,636
Fidelity VIP Overseas Portfolio................. 14,960 18.84 281,840 241,925 39,915
Fidelity VIP Index 500 Portfolio................ 10,823 89.13 964,687 810,261 154,426
Neuberger & Berman AMT Balanced Portfolio....... 15,012 15.92 238,989 235,401 3,588
Neuberger & Berman AMT Partners Portfolio....... 86,200 16.48 1,420,576 1,061,178 359,398
AGSPC Stock Index Fund.......................... 69,162 22.76 1,574,119 1,074,396 499,723
AGSPC Social Awareness Fund..................... 7,051 15.53 109,508 94,044 15,464
AGSPC International Equities Fund............... 26,834 10.86 291,422 283,288 8,134
Sierra International Growth Fund................ 4,790,516 13.03 62,420,425 57,385,152 5,035,273
Sierra Short Term Global Government Fund........ 8,843,198 2.48 21,931,132 21,676,032 255,100
Sierra Growth Fund.............................. 7,247,908 16.01 116,039,007 92,269,807 23,769,200
Sierra Global Money Fund........................ 23,261,642 1.00 23,261,642 23,261,642 0
Sierra U.S. Government Fund..................... 6,815,332 9.77 66,585,792 66,643,860 (58,068)
Sierra Growth and Income Fund................... 4,370,788 14.29 62,458,565 50,043,856 12,414,709
Sierra Corporate Income Fund.................... 6,095,560 9.82 59,858,400 59,857,864 536
Sierra Short Term High Quality Bond Fund........ 5,099,390 2.43 12,391,519 12,583,492 (191,973)
Sierra Emerging Growth Fund..................... 3,801,138 14.70 55,876,723 45,762,504 10,114,219
------------ ------------ ----------
$541,986,780 $486,138,885 55,847,895
============ ============ ==========
</TABLE>

The aggregate cost of purchases and proceeds from sales of investments
for the period ended December 31, 1996 were $135,673,393 and $71,466,602
respectively. The cost of total investments owned at December 31, 1996 was the
same for both financial reporting and federal income tax purposes. Gross
unrealized appreciation and gross unrealized depreciation for the year ended
December 31,1996 are $56,331,440 and $483,545, respectively.

<PAGE>

Note E - Summary of Changes in Units

Changes in Units for the Year Ended December 31, 1996

<TABLE>
<CAPTION>
Sierra Advantage Short Term
Global
International Government Global U. S. Government
ACCUMULATION PERIOD Growth Fund Fund Growth Fund Money Fund Fund

<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period....... 38,882,135.444 23,376,496.403 65,732,670.354 19,070,427.181 47,440,751.595
Purchase payments........................ 5,764,727.855 823,425.493 7,956,730.419 5,200,191.953 6,228,720.252
Surrenders............................... (2,265,550.102) (1,734,078.214) (3,016,815.821) (1,095,488.892) (3,518,537.910)
Transfers to annuity..................... (15,963.133) (6,097.866) (12,788.652) (8,500.903) (20,672.538)
Transfers between funds.................. 6,843,327.623 (2,366,242.572) (3,810,395.545) (2,115,563.430) 8,984,681.552
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............. 49,208,677.687 20,093,503.244 66,849,400.755 21,051,065.909 59,114,942.951
=============== =============== =============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
Short Term
Growth and Corporate High Quality Emerging
Income Fund Income Fund Bond Fund Growth Fund
<S> <C> <C> <C> <C>
Outstanding at beginning of period...... 36,675,025.766 52,014,100.048 11,822,728.277 34,379,287.120
Purchase payments....................... 8,537,457.784 5,251,049.786 1,617,072.331 6,624,985.814
Surrenders.............................. (1,751,987.311) (3,393,206.396) (545,483.502) (1,578,433.352)
Transfers to annuity.................... *** (8,122.761) 0.000 (11,325.843)
Transfers between funds................. (2,274,408.556) (2,020,487.059) (1,281,300.464) (937,126.725)
--------------- --------------- --------------- ---------------
Outstanding at end of period............ 41,176,555.767 51,843,333.618 11,613,016.642 38,477,387.014
=============== =============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
VAriety Plus Van Kampen
Van Kampen LIT Domestic Van Kampen Van Kampen Van Kampen
LIT Money Income LIT Enterprise LIT Government LIT Asset
ACCUMULATION PERIOD Market Fund Fund Fund Fund Allocation Fund
<S> <C> <C> <C> <C> <C>
Non-Qualified Contracts:
Outstanding at beginning of period...... 31,023.098 643,469.587 2,193,267.495 648,110.420 1,387,133.759
Purchase payments....................... 2,564.198 49,958.499 111,360.191 18,542.595 48,895.083
Surrenders.............................. (123,953.182) (34,524.433) (85,025.999) (30,217.268) (69,659.359)
Transfers to annuity.................... 0.000 0.000 0.000 0.000 0.000
Transfers between funds................. 372,298.313 (139,382.337) (47,643.171) (30,111.032) (53,922.294)
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 281,932.427 519,521.316 2,171,958.516 606,324.715 1,312,447.189
=============== =============== =============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
Neuberger & Neuberger &
Fidelity VIP Fidelity VIP Fidelity VIP Berman Berman
Asset Manager Overseas Index 500 AMT Balanced AMT Partners
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... 368,506.813 150,156.224 255,919.568 126,436.941 573,999.606
Purchase payments....................... 78,232.603 22,650.982 192,419.319 34,995.016 197,533.041
Surrenders.............................. (25,254.384) (224.253) (2,405.849) (10,711.695) (35,249.198)
Transfers to annuity.................... 0.000 0.000 0.000 0.000 0.000
Transfers between funds................. (87,178.618) (18,029.434) 74,341.294 (10,216.976) 122,086.909
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 334,306.414 154,553.519 520,274.332 140,503.286 858,370.358
=============== =============== =============== =============== ===============
</TABLE>

<PAGE>

Note E - Summary of Changes in Units - Continued

Changes in Units for the Year Ended December 31, 1996

<TABLE>
<CAPTION>
VAriety Plus - Continued AGSPC Stock AGSPC
AGSPC Stock Social Awareness International
ACCUMULATION PERIOD Index Fund Fund Equities Fund
<S> <C> <C> <C>
Non-Qualified Contracts:
Outstanding at beginning of period...... 648,212.914 41,609.618 478,545.500
Purchase payments....................... 24,666.084 13,999.802 10,802.158
Surrenders.............................. (59,334.026) (5,159.837) (57,804.040)
Transfers to annuity.................... 0.000 0.000 0.000
Transfers between funds................. (30,385.988) 0.000 (182,963.525)
--------------- --------------- ---------------
Outstanding at end of period............ 583,158.984 50,449.583 248,580.093
=============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
OTHER CONTRACTS Van Kampen
Van Kampen High Income Van Kampen
Van Kampen Corporate Bond Van Kampen Corporate Bond LIT Money
ACCUMULATION PERIOD Comstock Fund Fund Reserve Fund Fund Market Fund
<S> <C> <C> <C> <C> <C>
Non-Qualified Contracts:
Outstanding at beginning of period...... 355,463.749 137,367.827 328,703.184 2,993,479.694 702,423.167
Purchase payments....................... 0.000 0.000 0.000 0.000 0.000
Surrenders.............................. 0.000 0.000 (32,775.708) (296,622.519) (32,384.793)
Transfers to annuity.................... 0.000 0.000 0.000 (3,929.146) 0.000
Transfers between funds................. 277.235 (17,884.290) 23,541.387 (67,079.066) 108,409.985
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 355,740.984 119,483.537 319,468.863 2,625,848.963 778,448.359
=============== =============== =============== =============== ===============

Qualified Contracts:
Outstanding at beginning of period...... 151,148.632 0.000 48,115.813 74,802.608 22,426.173
Purchase payments....................... 590.322 0.000 241.028 4,358.243 0.000
Surrenders.............................. (22,242.117) 0.000 0.000 (20,129.220) 0.000
Transfers to annuity.................... 0.000 0.000 0.000 0.000 0.000
Transfers between funds................. (226.461) 0.000 0.000 0.000 0.000
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 129,270.376 0.000 48,356.841 59,031.631 22,426.173
=============== =============== =============== =============== ===============
</TABLE>

<S> <C> <C> <C> <C> <C>
Non-Qualified Contracts:
Outstanding at beginning of period...... 848,950.504 584,683.467 951,382.221 288,310.619 1,596,083.456
Purchase payments....................... 23,268.333 0.000 3,410.320 0.000 0.000
Surrenders.............................. (162,081.382) (8,767.951) (90,790.215) (5,221.464) (128,193.870)
Transfers to annuity.................... 0.000 0.000 0.000 (11,131.252) 0.000
Transfers between funds................. 8,854.079 (75,552.029) (17,678.786) (3,801.608) (7,247.129)
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 718,991.534 500,363.487 846,323.540 268,156.295 1,460,642.457
=============== =============== =============== =============== ===============

Qualified Contracts:
Outstanding at beginning of period...... 371,366.831 41,117.046 238,660.088 4,202.245 766,615.798
Purchase payments....................... 15,504.335 0.000 829.118 0.000 8,853.705
Surrenders.............................. (36,762.279) 0.000 (50,551.636) 0.000 (53,865.084)
Transfers to annuity.................... 0.000 0.000 0.000 0.000 0.000
Transfers between funds................. 5,482.538 0.000 (1,255.480) 0.000 (1,828.605)
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 355,591.425 41,117.046 187,682.090 4,202.245 719,775.814
=============== =============== =============== =============== ===============
</TABLE>

<PAGE>

Note E - Summary of Changes in Units - Continued

Changes in Units for the Year Ended December 31, 1996

<TABLE>
<CAPTION>
Sierra Advantage Short Term
Global
International Government Global U. S. Government
ANNUITY PERIOD Growth Fund Fund Growth Fund Money Fund Fund
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... 0.000 17,801.266 4,198.762 0.000 0.000
Transfers from accumulation............. 15,963.133 6,097.866 12,788.652 8,500.903 20,672.538
Annuity payments........................ (1,058.112) (5,105.791) (1,957.282) (607.341) (1,491.985)
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 14,905.021 18,793.341 15,030.132 7,893.562 19,180.553
=============== =============== =============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
Short Term
Growth and Corporate High Quality Emerging
Income Fund Income Fund Bond Fund Growth Fund
<S> <C> <C> <C> <C>
Outstanding at beginning of period...... 0.000 20,438.943 0.000 0.000
Transfers from accumulation............. 9,531.916 8,122.761 0.000 11,325.843
Annuity payments........................ (687.964) (6,070.707) 0.000 (714.000)
--------------- --------------- --------------- ---------------
Outstanding at end of period............ 8,843.952 22,490.997 0.000 10,611.843
=============== =============== =============== ===============
</TABLE>

<TABLE>
OTHER CONTRACTS Van Kampen
Van Kampen High Income Van Kampen
Van Kampen Corporate Bond Van Kampen Corporate Bond LIT Money
ANNUITY PERIOD Comstock Fund Fund Reserve Fund Fund Market Fund
<S> <C> <C> <C> <C> <C>
Non-Qualified Contracts:
Outstanding at beginning of period...... 24,802.485 0.000 59,202.979 88,097.148 18,851.842
Transfers from accumulation............. 0.000 0.000 0.000 3,929.145 0.000
Mortality Reserve Transfer.............. 0.000 0.000 0.000 21,817.344 0.000
Annuity payments........................ (1,971.791) 0.000 (12,102.824) (26,262.854) (2,660.171)
Surrendered Contracts................... (16,755.476) 0.000 0.000 0.000 0.000
Transfers between funds................. 0.000 0.000 0.000 0.000 0.000
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 6,075.218 0.000 47,100.155 87,580.783 16,191.671
=============== =============== =============== =============== ===============

Qualified Contracts:
Outstanding at beginning of period...... 0.000 0.000 0.000 4,900.348 0.000
Transfers from accumulation............. 0.000 0.000 0.000 0.000 0.000
Mortality Reserve Transfer.............. 0.000 0.000 0.000 0.000 0.000
Annuity payments........................ 0.000 0.000 0.000 (692.082) 0.000
Surrendered Contracts................... 0.000 0.000 0.000 0.000 0.000
Transfers between funds................. 0.000 0.000 0.000 0.000 0.000
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 0.000 0.000 0.000 4,208.266 0.000
=============== =============== =============== =============== ===============
</TABLE>

<PAGE>

Note E - Summary of Changes in Units - Continued

Changes in Units for the Year Ended December 31, 1996

Other Contracts - Continued

Non-Qualified Contracts:
Outstanding at beginning of period...... 439,584.645 9,252.599 93,503.376 2,184.759 124,157.660
Transfers from accumulation............. 0.000 0.000 0.000 10,869.668 0.000
Mortality Reserve Transfer.............. 0.000 7,681.063 0.000 0.000 0.000
Annuity payments........................ (150,028.492) (5,496.672) (32,535.236) (1,545.789) (38,760.220)
Transfers between funds................. 0.000 0.000 0.000 0.000 0.000
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 289,556.153 11,436.990 60,968.140 11,508.638 85,397.440
=============== =============== =============== =============== ===============

Qualified Contracts:
Outstanding at beginning of period...... 4,816.161 89.380 17,309.669 0.000 4,098.540
Transfers from accumulation............. 0.000 0.000 0.000 0.000 0.000
Mortality Reserve Transfer.............. 0.000 0.000 0.000 0.000 0.000
Annuity payments........................ (2,534.452) 0.000 (4,818.887) 0.000 (2,593.604)
Transfers between funds................. 0.000 0.000 0.000 0.000 0.000
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 2,281.709 89.380 12,490.782 0.000 1,504.936
=============== =============== =============== =============== ===============
</TABLE>

Changes in Units for the Year Ended December 31, 1995

<TABLE>
<CAPTION>
Sierra Advantage Short Term
Global
International Government Global U. S. Government
ACCUMULATION PERIOD Growth Fund Fund Growth Fund Money Fund Fund
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... 41,411,804.816 31,104,117.951 55,968,698.496 5,990,768.122 45,519,220.818
Purchase payments....................... 6,282,094.793 1,812,247.957 10,358,765.174 6,190,469.801 5,994,381.877
Surrenders.............................. (2,694,405.713) (2,698,365.189) (3,773,253.685) (998,774.884) (4,016,271.339)
Transfers to annuity.................... 0.000 (23,165.130) (5,463.976) 0.000 0.000
Transfers between funds................. (6,117,358.452) (6,818,339.186) 3,183,924.345 7,887,964.142 (56,579.761)
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 38,882,135.444 23,376,496.403 65,732,670.354 19,070,427.181 47,440,751.595
=============== =============== =============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
Short Term
Growth and Corporate High Quality Emerging
Income Fund Income Fund Bond Fund Growth Fund
<S> <C> <C> <C> <C>
Outstanding at beginning of period...... 25,711,520.731 57,776,195.507 16,054,361.321 19,161,715.815
Purchase payments....................... 10,091,361.789 7,002,703.784 1,828,154.900 8,135,229.721
Surrenders.............................. (1,677,052.520) (4,392,921.746) (1,168,254.384) (1,459,588.916)
Transfers to annuity.................... 0.000 (26,597.560) 0.000 0.000
Transfers between funds................. 2,549,195.766 (8,345,279.937) (4,891,533.560) 8,541,930.500
--------------- --------------- --------------- ---------------
Outstanding at end of period............ 36,675,025.766 52,014,100.048 11,822,728.277 34,379,287.120
=============== =============== =============== ===============
</TABLE>

<PAGE>

Note E - Summary of Changes in Units - Continued

Changes in Units for the Year Ended December 31, 1995

<TABLE>
<CAPTION>
VAriety Plus Van Kampen
Van Kampen LIT Domestic Van Kampen Van Kampen Van Kampen
LIT Money Income LIT Enterprise LIT Government LIT Asset
ACCUMULATION PERIOD Market Fund Fund Fund Fund Allocation Fund
<S> <C> <C> <C> <C> <C>
Non-Qualified Contracts:
Outstanding at beginning of period...... 172,772.518 752,632.015 2,129,473.068 745,153.812 1,653,659.302
Purchase payments....................... 7,565.950 29,682.191 53,334.914 51,285.660 10,871.291
Surrenders.............................. (29,257.425) (58,883.265) (61,649.058) (68,410.031) (193,168.817)
Transfers to annuity.................... 0.000 0.000 0.000 0.000 0.000
Transfers between funds................. (120,057.945) (79,961.354) 72,108.571 (79,919.021) (84,228.017)
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 31,023.098 643,469.587 2,193,267.495 648,110.420 1,387,133.759
=============== =============== =============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
Neuberger & Neuberger &
Fidelity VIP Fidelity VIP Fidelity VIP Berman Berman
Asset Manager Overseas Index 500 AMT Balanced AMT Partners
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... 325,839.561 93,593.434 50,474.334 90,936.949 268,546.384
Purchase payments....................... 42,938.182 60,103.179 149,398.976 36,135.056 169,410.794
Surrenders.............................. (9,767.561) (93.893) (805.962) (4,199.243) (4,954.470)
Transfers to annuity.................... 0.000 0.000 0.000 0.000 0.000
Transfers between funds................. 9,496.631 (3,446.496) 56,852.220 3,564.179 140,996.898
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 368,506.813 150,156.224 255,919.568 126,436.941 573,999.606
=============== =============== =============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
AGSPC Stock AGSPC
AGSPC Stock Social Awareness International
Index Fund Fund Equities Fund
<S> <C> <C> <C>
Non-Qualified Contracts:
Outstanding at beginning of period...... 673,760.206 41,120.891 680,590.894
Purchase payment........................ 29,287.805 10,732.299 33,337.090
Surrenders.............................. (49,857.945) (8,661.175) (45,933.686)
Transfers to annuity.................... 0.000 0.000 0.000
Transfers between funds................. (4,977.152) (1,582.397) (189,448.798)
--------------- --------------- ---------------
Outstanding at end of period............ 648,212.914 41,609.618 478,545.500
=============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
OTHER CONTRACTS Van Kampen
Van Kampen High Income Van Kampen
Van Kampen Corporate Bond Van Kampen Corporate Bond LIT Money
ACCUMULATION PERIOD Comstock Fund Fund Reserve Fund Fund Market Fund
<S> <C> <C> <C> <C> <C>
Non-Qualified Contracts:
Outstanding at beginning of period...... 371,579.671 169,794.267 411,195.680 3,265,868.129 827,101.817
Purchase payments....................... 0.000 0.000 0.000 0.000 0.000
Surrenders.............................. (11,922.632) (32,929.866) (53,584.102) (287,888.359) (53,606.690)
Transfers to annuity.................... (1,422.004) 0.000 0.000 0.000 0.000
Transfers between funds................. (2,771.286) 503.426 (28,908.394) 15,499.924 (71,071.960)
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 355,463.749 137,367.827 328,703.184 2,993,479.694 702,423.167
=============== =============== =============== =============== ===============
</TABLE>

<PAGE>

Note E - Summary of Changes in Units - Continued

Changes in Units for the Year Ended December 31, 1995

<TABLE>
<CAPTION>
OTHER CONTRACTS - CONTINUED Van Kampen
Van Kampen High Income Van Kampen
Van Kampen Corporate Bond Van Kampen Corporate Bond LIT Money
ACCUMULATION PERIOD Comstock Fund Fund Reserve Fund Fund Market Fund
<S> <C> <C> <C> <C> <C>
Qualified Contracts:
Outstanding at beginning of period...... 164,204.905 0.000 78,075.084 73,443.858 30,159.958
Purchase payments....................... 536.521 0.000 199.421 1,358.750 0.000
Surrenders.............................. (13,592.794) 0.000 (30,158.692) 0.000 (7,733.785)
Transfers to annuity.................... 0.000 0.000 0.000 0.000 0.000
Transfers between funds................. 0.000 0.000 0.000 0.000 0.000
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 151,148.632 0.000 48,115.813 74,802.608 22,426.173
=============== =============== =============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
Van Kampen LIT Van Kampen Van Kampen
Money Market Van Kampen LIT Domestic Van Kampen LIT Enterprise
Fund LIT Domestic Income Fund LIT Enterprise Fund
(Deferred Load) Income Fund (Deferred Load) Fund (Deferred Load)
Annuity Period
<S> <C> <C> <C> <C> <C>
Non-Qualified Contracts:
Outstanding at beginning of period...... 1,223,781.737 575,240.379 1,069,872.228 291,228.921 1,786,702.024
Purchase payments....................... 586.468 0.000 0.000 0.000 0.000
Surrenders.............................. (197,634.925) (18,257.613) (94,843.512) (20,092.499) (303,559.749)
Transfers to annuity.................... 0.000 0.000 (11,088.000) 0.000 (8,357.577)
Transfers between funds................. (177,782.776) 27,700.701 (12,558.495) 17,174.197 121,298.758
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 848,950.504 584,683.467 951,382.221 288,310.619 1,596,083.456
=============== =============== =============== =============== ===============

Qualified Contracts:
Outstanding at beginning of period...... 426,837.882 58,279.672 271,027.407 4,202.245 818,076.293
Purchase payments....................... 14,302.609 0.000 388.105 0.000 12,584.870
Surrenders.............................. (47,564.306) (17,162.626) (40,747.940) 0.000 (70,354.102)
Transfers to annuity.................... 0.000 0.000 0.000 0.000 0.000
Transfers between funds................. (22,209.354) 0.000 7,992.516 0.000 6,308.737
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 371,366.831 41,117.046 238,660.088 4,202.245 766,615.798
=============== =============== =============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
Sierra Advantage Short Term
Global
Government Corporate
ANNUITY PERIOD Fund Growth Fund Income Fund
<S> <C> <C> <C>
Outstanding at beginning of period...... 0.000 0.000 0.000
Transfers from accumulation............. 23,165.130 5,463.976 26,597.560
Annuity payments........................ (5,363.864) (1,265.214) (6,158.617)
--------------- --------------- ---------------
Outstanding at end of period............ 17,801.266 4,198.762 20,438.943
=============== =============== ===============
</TABLE>

<PAGE>

Note E - Summary of Changes in Units - Continued

Changes in Units for the Year Ended December 31, 1995

<TABLE>
<CAPTION>
OTHER CONTRACTS - CONTINUED Van Kampen
Van Kampen Van Kampen High Income Van Kampen
Van Kampen Corporate Bond American Capital Corporate Bond LIT Money
ANNUITY PERIOD Comstock Fund Fund Reserve Fund Fund Market Fund
<S> <C> <C> <C> <C> <C>
Non-Qualified Contracts:
Outstanding at beginning of period...... 27,397.375 0.000 71,670.134 103,542.880 23,060.131
Annuity payments........................ 1,422.004 0.000 0.000 0.000 0.000
Transfers from accumulation............. (2,786.345) 0.000 (12,467.155) (15,445.732) (4,208.289)
Transfers between funds................. (1,230.549) 0.000 0.000 0.000 0.000
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 24,802.485 0.000 59,202.979 88,097.148 18,851.842
=============== =============== =============== =============== ===============

Qualified Contracts:
Outstanding at beginning of period...... 0.000 0.000 0.000 5,688.339 0.000
Annuity payments........................ 0.000 0.000 0.000 0.000
Transfers from accumulation............. 0.000 0.000 0.000 (787.991) 0.000
Transfers between funds................. 0.000 0.000 0.000 0.000 0.000
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 0.000 0.000 0.000 4,900.348 0.000
=============== =============== =============== =============== ===============
</TABLE>

<TABLE>
<CAPTION>
Van Kampen LIT Van Kampen Van Kampen
Money Market Van Kampen LIT Domestic Van Kampen LIT Enterprise
Fund LIT Domestic Income Fund LIT Enterprise Fund
(Deferred Load) Income Fund (Deferred Load) Fund (Deferred Load)
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period...... 594,477.542 14,952.887 116,752.801 2,820.817 156,484.254
Annuity payments........................ 0.000 0.000 11,088.000 0.000 8,357.577
Transfers from accumulation............. (154,892.897) (5,700.288) (33,337.425) (636.058) (40,684.171)
Transfers between funds................. 0.000 0.000 0.000 0.000 0.000
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 439,584.645 9,252.599 94,503.376 2,184.759 124,157.660
=============== =============== =============== =============== ===============

Qualified Contracts:
Outstanding at beginning of period...... 11,363.088 89.380 22,429.259 0.000 7,273.025
Annuity payments........................ 0.000 0.000 0.000 0.000 0.000
Transfers from accumulation............. (6,546.927) 0.000 (5,119.590) 0.000 (3,174.485)
Transfers between funds................. 0.000 0.000 0.000 0.000 0.000
--------------- --------------- --------------- --------------- ---------------
Outstanding at end of period............ 4,816.161 89.380 17,309.669 0.000 4,098.540
=============== =============== =============== =============== ===============
</TABLE>

<PAGE>

Note F - Assets Represented By:

December 31,1996

ACCUMULATION PERIOD:

<TABLE>
<CAPTION>
Sierra Advantage: Units Unit Value Amount
<S> <C> <C> <C>
International Growth Fund........................... 49,208,677.687 $ 1.268100 $ 62,401,524
Short Term Global Government Fund................... 20,093,503.244 1.090434 21,910,639
Growth Fund......................................... 66,849,400.755 1.735437 116,012,924
Global Money Fund................................... 21,051,065.909 1.104596 23,252,923
U.S. Government Fund................................ 59,114,942.951 1.126013 66,564,194
Growth and Income Fund.............................. 41,176,555.767 1.516522 62,445,153
Corporate Income Fund............................... 51,843,333.618 1.154101 59,832,443
Short Term High Quality Bond Fund................... 11,613,016.642 1.067037 12,391,518
Emerging Growth Fund................................ 38,477,387.014 1.451796 55,861,317
-------------
$480,672,635
-------------

VAriety Plus:

Van Kampen LIT Money Market Fund.................... 281,932.417 1.526177 430,279
Van Kampen LIT Domestic Income Fund................ 519,521.316 1.745051 906,591
Van Kampen LIT Enterprise Fund...................... 2,171,958.516 2.631841 5,716,250
Van Kampen LIT Government Fund...................... 606,324.715 1.730000 1,048,942
Van Kampen LIT Asset Allocation Fund................ 1,312,447.189 2.296074 3,013,476
Fidelity VIP Asset Manager Portfolio................ 334,306.414 2.067111 691,048
Fidelity VIP Overseas Portfolio..................... 154,553.519 1.823575 281,840
Fidelity VIP Index 500 Portfolio.................... 520,274.332 1.854189 964,687
Neuberger and Berman AMT Balanced Portfolio......... 140,503.286 1.700950 238,989
Neuberger and Berman AMT Partners Portfolio......... 858,370.358 1.654969 1,420,576
AGSPC Stock Index Fund.............................. 583,158.984 2.699296 1,574,119
AGSPC Social Awareness Fund......................... 50,449.583 2.170641 109,508
AGSPC International Equities Fund................... 248,580.093 1.172348 291,422
-------------
16,687,727
-------------
</TABLE>

<PAGE>

Note F - Assets Represented By: - Continued

December 31, 1996

ACCUMULATION PERIOD:

<TABLE>
<CAPTION>
Other Contracts: Units Unit Value Amount
<S> <C> <C> <C>
Non Qualified:

Van Kampen Comstock Fund............................ 355,740.984 $12.280239 4,368,584
Van Kampen Corporate Bond Fund...................... 119,483.537 4.442165 530,766
Van Kampen Reserve Fund............................. 319,468.863 3.446824 1,101,153
Van Kampen High Income Corporate Bond Fund.......... 2,625,848.963 4.599039 12,076,381
Van Kampen LIT Money Market Fund.................... 778,448.359 2.356167 1,834,154
Van Kampen LIT Money Market Fund (deferred load).... 718,991.534 2.194923 1,578,131
Van Kampen LIT Domestic Income Fund................. 500,363.487 3.371713 1,687,082
Van Kampen LIT Domestic Income Fund (deferred load). 846,323.540 3.077291 2,604,384
Van Kampen LIT Enterprise Fund...................... 268,156.295 5.443324 1,459,662
Van Kampen LIT Enterprise Fund (deferred load)...... 1,460,642.457 5.082117 7,423,155

Qualified:

Van Kampen Comstock Fund............................ 129,270.376 15.572965 2,013,123
Van Kampen Reserve Fund............................. 48,356.841 3.448038 166,736
Van Kampen High Income Corporate Bond Fund.......... 59,031.631 4.626772 273,126
Van Kampen LIT Money Market Fund.................... 22,426.173 2.356167 52,840
Van Kampen LIT Money Market Fund (deferred load).... 355,591.425 2.194923 780,496
Van Kampen LIT Domestic Income Fund................. 41,117.046 3.592272 147,704
Van Kampen LIT Domestic Income Fund (deferred load). 187,682.090 3.250419 610,045
Van Kampen LIT Enterprise Fund...................... 4,202.245 5.026041 21,121
Van Kampen LIT Enterprise Fund (deferred load)...... 719,775.814 5.049783 3,634,712
-------------
42,363,354
-------------
Total Accumulation Period $539,723,716
=============
</TABLE>

<PAGE>

Note F - Assets Represented By: - Continued

December 31, 1996

ANNUITY PERIOD:

<TABLE>
<CAPTION>
Sierra Advantage: Units Unit Value Amount
<S> <C> <C> <C>
International Growth Fund........................... 14,905.021 $ 1.268100 $ 18,901
ShortTerm Global Government Government Fund......... 18,793.341 1.090434 20,493
Growth Fund......................................... 15,030.132 1.735437 26,084
Global Money Fund................................... 7,893.562 1.104596 8,719
U.S. Government Fund................................ 19,180.553 1.126013 21,598
Growth and Income Fund.............................. 8,843.952 1.516522 13,412
Corporate Income Fund............................... 22,490.997 1.154101 25,957
Short Term High Quality Bond Fund................... 0.000 1.067037 0
Emerging Growth Fund................................ 10,611.843 1.451796 15,406
-------------
150,570
-------------

Other Contracts:

Non Qualified:

Van Kampen Comstock Fund............................ 6,075.218 12.280239 74,605
Van Kampen Corporate Bond Fund...................... 0.000 4.442165 0
Van Kampen Reserve Fund............................. 47,100.155 3.446824 162,346
Van Kampen High Income Corporate Bond Fund.......... 87,580.783 4.599039 402,788
Van Kampen LIT Money Market Fund.................... 16,191.671 2.356167 38,150
Van Kampen LIT Money Market Fund (deferred load).... 289,556.153 2.194923 635,553
Van Kampen LIT Domestic Income Fund................. 11,436.990 3.371713 38,562
Van Kampen LIT Domestic Income Fund (deferred load). 60,968.140 3.077291 187,617
Van Kampen LIT Enterprise Fund...................... 11,508.638 5.443324 62,645
Van Kampen LIT Enterprise Fund (deferred load)...... 85,397.440 5.082117 434,000

Qualified:

Van Kampen Comstock Fund............................ 0.000 15.572965 0
Van Kampen Corporate Bond Fund...................... 0.000 4.461594 0
Van Kampen Reserve Fund............................. 0.000 3.448038 0
Van Kampen High Income Corporate Bond Fund.......... 4,208.266 4.626772 19,471
Van Kampen LIT Money Market Fund.................... 0.000 2.356167 0
Van Kampen LIT Money Market Fund (deferred load).... 2,281.709 2.194923 5,008
Van Kampen LIT Domestic Income Fund................. 89.380 3.592272 321
Van Kampen LIT Domestic Income Fund (deferred load). 12,490.782 3.250419 40,600
Van Kampen LIT Enterprise Fund...................... 0.000 5.026041 0
Van Kampen LIT Enterprise Fund (deferred load)...... 1,504.936 5.049783 7,600
-------------
2,109,267
-------------

Total Annuity Period................................ 2,259,837
-------------

Total Contract Owner Reserves....................... $541,983,555
=============
</TABLE>

<PAGE>

Note F - Assets Represented By: - Continued

December 31, 1995

<TABLE>
ACCUMULATION PERIOD:

Sierra Advantage: Units Unit Value Amount
<S> <C> <C> <C>
International Growth Fund........................... 38,882,135.444 1.180567 45,902,966
Short Term Global Government Fund................... 23,376,496.403 1.019136 23,823,829
Growth Fund......................................... 65,732,670.354 1.516694 99,696,347
Global Money Fund................................... 19,070,427.181 1.068122 20,369,543
U.S. Government Fund................................ 47,440,751.595 1.102324 52,295,079
Growth and Income Fund.............................. 36,675,025.766 1.263773 46,348,907
Corporate Income Fund............................... 52,014,100.048 1.166536 60,676,320
Short Term High Quality Bond Fund................... 11,822,728.277 1.044070 12,343,756
Emerging Growth Fund................................ 34,379,287.120 1.339251 46,042,495
-------------
407,499,242
-------------

VAriety Plus:

Van Kampen LIT Money Market Fund.................... 31,023.098 1.477475 45,836
Van Kampen LIT Domestic Income Fund................. 643,469.587 1.661247 1,068,962
Van Kampen LIT Enterprise Fund...................... 2,193,267.495 2.141736 4,697,400
Van Kampen LIT Government Fund...................... 648,110.420 1.720968 1,115,377
Van Kampen LIT Asset Allocation Fund................ 1,387,133.759 2.047678 2,840,403
Fidelity VIP Asset Manager Portfolio................ 368,506.813 1.831737 675,008
Fidelity VIP Overseas Portfolio..................... 150,156.224 1.635732 245,615
Fidelity VIP Index 500 Portfolio.................... 255,919.568 1.533115 392,354
Neuberger and Berman AMT Balanced Portfolio......... 126,436.941 1.616129 204,338
Neuberger and Berman AMT Partners Portfolio......... 573,999.606 1.297141 744,558
AGSPC Stock Index Fund.............................. 648,212.914 2.233330 1,447,673
AGSPC Social Awareness Fund......................... 41,609.618 1.777926 73,979
AGSPC International Equities Fund................... 478,545.500 1.114674 533,422
-------------
14,084,925
-------------

OTHER CONTRACTS:

Non Qualified:
Van Kampen Comstock Fund............................ 355,463.749 10.114739 3,595,423
Van Kampen Corporate Bond Fund...................... 137,367.827 4.360496 598,992
Van Kampen Reserve Fund............................. 328,703.184 3.325272 1,093,027
Van Kampen High Income Corporate Bond Fund.......... 2,993,479.694 4.077748 12,206,656
Van Kampen LIT Money Market Fund.................... 702,423.167 2.263550 1,589,970
Van Kampen LIT Money Market Fund (deferred load).... 848,950.504 2.118700 1,798,671
Van Kampen LIT Domestic Income Fund................. 584,683.467 3.185024 1,862,231
Van Kampen LIT Domestic Income Fund (deferred load). 951,382.221 2.920774 2,778,772
Van Kampen LIT Enterprise Fund...................... 288,310.619 4.395486 1,267,265
Van Kampen LIT Enterprise Fund (deferred load)...... 1,596,083.456 4.123383 6,581,263

Qualified:

Van Kampen Comstock Fund............................ 151,148.632 12.826825 1,938,757
Van Kampen Reserve Fund............................. 48,115.813 3.326430 160,054
Van Kampen High Income Corporate Bond Fund.......... 74,802.608 4.102343 306,866
Van Kampen LIT Money Market Fund.................... 22,426.173 2.263550 50,763
Van Kampen LIT Money Market Fund (deferred load).... 371,366.831 2.118700 786,815
Van Kampen LIT Domestic Income Fund................. 41,117.046 3.393373 139,525
Van Kampen LIT Domestic Income Fund (deferred load). 238,660.088 3.085083 736,286
Van Kampen LIT Enterprise Fund...................... 4,202.245 4.058526 17,055
Van Kampen LIT Enterprise Fund (deferred load)...... 766,615.798 4.097147 3,140,938
-------------
40,649,329
-------------
Total Accumulation Period........................... $462,233,496
-------------
</TABLE>

<PAGE>

Note F - Assets Represented By: - Continued

December 31, 1995

ANNUITY PERIOD:

<TABLE>
<CAPTION>
Sierra Advantage: Units Unit Value Amount
<S> <C> <C> <C>
Short Term Global Government Fund................... 17,801.266 $ 1.019136 $ 18,142
Growth Fund......................................... 4,198.762 1.516694 6,368
Corporate Income Fund............................... 20,438.943 1.166536 23,843
-------------
48,353
-------------

Other Contracts:

Non Qualified:
Van Kampen Comstock Fund............................ 24,802.485 $10.114739 250,871
Van Kampen Corporate Bond Fund...................... 0.000 4.360496 0
Van Kampen Reserve Fund............................. 59,202.979 3.325272 196,866
Van Kampen High Income Corporate Bond Fund.......... 88,097.148 4.077748 359,238
Van Kampen LIT Money Market Fund.................... 18,851.842 2.263550 42,672
Van Kampen LIT Money Market Fund (deferred load).... 439,584.645 2.118700 931,348
Van Kampen LIT Domestic Income Fund................. 9,252.599 3.185024 29,470
Van Kampen LIT Domestic Income Fund (deferred load). 93,503.376 2.920774 273,102
Van Kampen LIT Enterprise Fund...................... 2,184.759 4.395486 9,603
Van Kampen LIT Enterprise Fund (deferred load)...... 124,157.660 4.123383 511,950

Van Kampen Comstock Fund............................ 0.000 12.826825 0
Van Kampen Corporate Bond Fund...................... 0.000 4.379575 0
Van Kampen Reserve Fund............................. 0.000 3.326430 0
Van Kampen High Income Corporate Bond Fund.......... 4,900.348 4.102343 20,103
Van Kampen LIT Money Market Fund.................... 0.000 2.263550 0
Van Kampen LIT Money Market Fund (deferred load).... 4,816.161 2.118700 10,204
Van Kampen LIT Domestic Income Fund................. 89.380 3.393373 303
Van Kampen LIT Domestic Income Fund (deferred load). 17,309.669 3.085083 53,402
Van Kampen LIT Enterprise Fund...................... 0.000 4.058526 0
Van Kampen LIT Enterprise Fund (deferred load)...... 4,098.540 4.097147 16,792
-------------
Total Annuity Period................................ 2,705,924
-------------
2,754,277
-------------
Total Contract Owner Reserves....................... $464,987,773
=============
</TABLE>

<PAGE>

ERNST & YOUNG LLP One Houston Center Phone: 713 750 1500
Suite 2400 Fax: 713 750 1501
1221 McKinney Street
Houston, Texas 77010-2007

Report of Independent Auditors

Board of Directors
American General Life Insurance Company

We have audited the accompanying consolidated balance sheets of American
General Life Insurance Company (an indirectly wholly owned subsidiary of
American General Corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American General
Life Insurance Company and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

/s/ERNST & YOUNG LLP
March 20, 1997

Ernst & Young LLP is a member of Ernst & Young International, Ltd.

<PAGE>

American General Life Insurance Company

Consolidated Balance Sheets

<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturity securities, at fair value (amortized cost -
$24,762,134 in 1996 and $23,349,517 in 1995) $ 25,395,381 $ 24,769,751
Equity securities, at fair value (cost - $17,642 in 1996 and
$72,443 in 1995) 20,555 92,318
Mortgage loans on real estate 1,707,843 1,790,110
Investment real estate 145,442 141,927
Policy loans 1,006,137 918,465
Other long-term investments 43,344 23,819
Short-term investments 94,882 65,262
------------------------------------
Total investments 28,413,584 27,801,652

Cash 33,550 43,944
Investment in Parent Company (cost - $8,597 in 1996 and 1995) 28,597 24,399
Indebtedness from affiliates 86,488 90,664
Accrued investment income 392,058 392,832
Accounts receivable 170,457 174,303
Deferred policy acquisition costs 1,042,783 605,501
Property and equipment 35,414 38,275
Other assets 134,289 124,919
Assets held in separate accounts 7,727,189 5,051,112
------------------------------------
Total assets $ 38,064,409 $ 34,347,601
====================================
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
(IN THOUSANDS)
<S> <C> <C>

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 26,558,538 $ 25,276,305
Other policy claims and benefits payable 41,679 43,175
Other policyholders' funds 376,675 445,801
Federal income taxes 402,361 560,538
Indebtedness to affiliates 3,376 3,120
Other liabilities 325,630 284,328
Liabilities related to separate accounts 7,727,189 5,051,112
------------------------------------
Total liabilities 35,435,448 31,664,379

Shareholders' equity:
Common stock, $10 par value, 600,000 shares authorized, issued, and
outstanding 6,000 6,000
Preferred stock, $100 par value, 8,500 shares authorized, issued,
and outstanding 850 850
Additional paid-in capital 933,342 858,075
Net unrealized investment gains 219,151 493,594
Retained earnings 1,469,618 1,324,703
------------------------------------
Total shareholders' equity 2,628,961 2,683,222

------------------------------------
Total liabilities and shareholders' equity $ 38,064,409 $ 34,347,601
====================================
</TABLE>

SEE ACCOMPANYING NOTES.

<PAGE>

American General Life Insurance Company

Consolidated Income Statements

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------------------------------------------------------
(IN THOUSANDS)

Revenues:
<S> <C> <C> <C>
Premiums and other considerations $ 382,923 $ 342,420 $ 324,521
Net investment income 2,095,072 2,011,088 1,874,323
Net realized investment gains (losses) 28,502 (1,942) (61,268)
Other 41,968 27,172 30,841
------------------------------------------------------
Total revenues 2,548,465 2,378,738 2,168,417

Benefits and expenses:
Benefits 1,689,011 1,641,206 1,514,544
Operating costs and expenses 347,369 309,110 297,498
Interest expense 830 2,180 1,254
------------------------------------------------------
Total benefits and expenses 2,037,210 1,952,496 1,813,296
------------------------------------------------------
Income before income tax expense 511,255 426,242 355,121

Income tax expense 176,660 143,947 128,188
------------------------------------------------------
Net income $ 334,595 $ 282,295 $ 226,933
======================================================
</TABLE>

SEE ACCOMPANYING NOTES.

<PAGE>

American General Life Insurance Company

Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------------------------------------------------------
(IN THOUSANDS)

<S> <C> <C> <C>
Common stock:
Balance at beginning of year $ 6,000 $ 6,000 $ 6,000
Change during year - - -
------------------------------------------------------
Balance at end of year 6,000 6,000 6,000

Preferred stock:
Balance at beginning of year 850 - -
Change during year - 850 -
------------------------------------------------------
Balance at end of year 850 850 -

Additional paid-in capital:
Balance at beginning of year 858,075 850,358 850,236
Capital contribution from Parent 75,000 - -
Other changes during year 267 7,717 122
------------------------------------------------------
Balance at end of year 933,342 858,075 850,358

Net unrealized investment gains (losses):
Balance at beginning of year 493,594 (730,900) 427,471
Change during year (274,443) 1,224,494 (1,158,371)
------------------------------------------------------
Balance at end of year 219,151 493,594 (730,900)

Retained earnings:
Balance at beginning of year 1,324,703 1,249,109 1,261,676
Net income 334,595 282,295 226,933
Dividends paid (189,680) (206,701) (239,500)
------------------------------------------------------
Balance at end of year 1,469,618 1,324,703 1,249,109
------------------------------------------------------
Total shareholders' equity $ 2,628,961 $ 2,683,222 $ 1,374,567
=======================================================
</TABLE>

SEE ACCOMPANYING NOTES.

<PAGE>

American General Life Insurance Company

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
-----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 334,595 $ 282,295 $ 226,933
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts receivable 3,846 (18,654) (8,942)
Change in future policy benefits and other policy
claims (543,193) (70,383) 120,756
Amortization of policy acquisition costs 102,189 68,295 56,662
Policy acquisition costs deferred (188,001) (203,607) (194,974)
Change in other policyholders' funds (69,126) 63,174 38,379
Provision for deferred income tax expense 12,388 (9,773) 24,043
Depreciation 16,993 18,119 18,412
Amortization (30,758) (35,825) (59,680)
Change in indebtedness to/from affiliates 4,432 7,596 (113,620)
Change in amounts payable to brokers (25,260) 30,964 23,806
Net (gain) loss on sale of investments (28,502) 1,942 61,268
Other, net 32,111 46,863 (61,093)
-----------------------------------------------------
Net cash (used in) provided by operating activities (378,286) 181,006 131,950

INVESTING ACTIVITIES
Purchases of investments and loans made (27,245,453) (14,573,323) (15,723,196)
Sales or maturities of investments and receipts from
repayment of loans 25,889,422 12,528,185 13,939,720
Sales and purchases of property and equipment, net (8,057) (12,114) (5,529)
-----------------------------------------------------
Net cash used in investing activities (1,364,088) (2,057,252) (1,789,005)

FINANCING ACTIVITIES
Policyholder account deposits 3,593,380 3,372,522 3,136,341
Policyholder account withdrawals (1,746,987) (1,258,560) (1,227,046)
Dividends paid (189,680) (206,701) (239,500)
Capital contribution from Parent 75,000 - -
Other 267 67 122
-----------------------------------------------------
Net cash provided by financing activities 1,731,980 1,907,328 1,669,917
-----------------------------------------------------
(Decrease) increase in cash (10,394) 31,082 12,862
Cash at beginning of year 43,944 12,862 -
-----------------------------------------------------
Cash at end of year $ 33,550 $ 43,944 $ 12,862
=====================================================

</TABLE>

Interest paid amounted to approximately $1,080,000, $1,933,000, and $1,207,000
in 1996, 1995, and 1994, respectively.

SEE ACCOMPANYING NOTES.

32
<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements

December 31, 1996

NATURE OF OPERATIONS

American General Life Insurance Company (the "Company") is a wholly owned
subsidiary of AGC Life Insurance Company, which is a wholly owned subsidiary
of American General Corporation (the "Parent Company"). The Company's wholly
owned life insurance subsidiaries are American General Life Insurance Company
of New York ("AGNY") and The Variable Annuity Life Insurance Company
("VALIC").

The Company offers a complete portfolio of the standard forms of universal
life, interest-sensitive whole life, term life, structured settlements, and
fixed and variable annuities throughout the United States. In addition, a
variety of equity products are sold through its broker/dealer, American
General Securities, Inc. The Company serves the estate planning needs of
middle- and upper-income households and the insurance needs of small- to
medium-size businesses. AGNY offers a broad array of traditional and
interest-sensitive insurance, in addition to individual annuity products.
VALIC provides tax-deferred retirement annuities and employer-sponsored
retirement plans to employees of health care, educational, public sector, and
other not-for-profit organizations throughout the United States.

1. ACCOUNTING POLICIES

1.1 PREPARATION OF FINANCIAL STATEMENTS

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") and include the accounts of
the Company and its wholly owned life insurance subsidiaries, AGNY and VALIC.
Transactions with the Parent Company and other subsidiaries of the Parent
Company are not eliminated from the financial statements of the Company. All
other material intercompany transactions have been eliminated in
consolidation.

The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
disclosures of contingent assets and liabilities. Ultimate results could
differ from those estimates.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

1.2 STATUTORY ACCOUNTING

The Company and its wholly owned life insurance subsidiaries are required to
file financial statements with state regulatory authorities. State insurance
laws and regulations prescribe accounting practices for calculating statutory
net income and equity. In addition, state regulators may permit statutory
accounting practices that differ from prescribed practices. The use of such
permitted practices by the Company and its wholly owned life insurance
subsidiaries did not have a material effect on statutory equity at December
31, 1996.

Statutory financial statements differ from GAAP. Significant differences were
as follows (in thousands):

<TABLE>
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Net income:
Statutory net income (1996 balance is
unaudited) $ 284,070 $ 197,769 $ 281,344
Deferred policy acquisition costs 85,812 135,312 138,312
Deferred income taxes (12,388) 9,773 (24,043)
Adjustments to policy reserves (19,954) (77,591) (76,458)
Goodwill amortization (2,169) (2,195) (2,200)
Net realized gain (loss) on investments 14,140 22,874 (19,654)
Gain (loss) on sale of subsidiary - 661 (41,956)
Other, net (14,916) (4,308) (28,412)
---------------------------------------------------
GAAP net income $ 334,595 $ 282,295 $ 226,933
===================================================

Shareholders' equity:
Statutory capital and surplus (1996 balance is
unaudited) $ 1,441,768 $ 1,298,323 $ 1,283,268
Deferred policy acquisition costs 1,042,783 605,501 1,479,115
Deferred income taxes (410,007) (549,663) (284,832)
Adjustments to policy reserves (297,434) (311,065) (208,913)
Acquisition-related goodwill 55,626 57,795 59,990
Asset valuation reserve ("AVR") 291,205 263,295 223,382
Interest maintenance reserve ("IMR") 63 3,114 (272)
Investment valuation differences 643,289 1,417,775 (1,115,921)
Benefit plans, pretax 6,749 6,023 4,421
Surplus from separate accounts (106,026) (76,645) (51,704)
Other, net (39,055) (31,231) (13,967)
---------------------------------------------------
Total GAAP shareholders' equity $ 2,628,961 $ 2,683,222 $ 1,374,567
===================================================
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

1.2 STATUTORY ACCOUNTING (CONTINUED)

The more significant differences between GAAP and statutory accounting
principles are that under GAAP: (a) acquisition costs related to acquiring new
business are deferred and amortized (generally in proportion to the present
value of expected gross profits from surrender charges and investment,
mortality, and expense margins), rather than being charged to operations as
incurred; (b) future policy benefits are based on estimates of mortality,
interest, and withdrawals generally representing the Company's experience,
which may differ from those based on statutory mortality and interest
requirements without consideration of withdrawals; (c) deferred federal income
taxes are provided for significant timing differences between income reported
for financial reporting purposes and income reported for federal income tax
purposes; (d) certain assets (principally furniture and equipment, agents'
debit balances, computer software, and certain other receivables) are reported
as assets rather than being charged to retained earnings; (e) acquisitions are
accounted for using the purchase method of accounting rather than being
accounted for as equity investments; and (f) fixed maturity investments are
carried at fair value rather than amortized cost. In addition, statutory
accounting principles require life insurance companies to establish an asset
valuation reserve ("AVR") and an interest maintenance reserve ("IMR"). The AVR
is designed to address the credit-related risk for bonds, preferred stocks,
derivative instruments, and mortgages and market risk for common stocks, real
estate, and other invested assets. The IMR is composed of investment- and
liability-related realized gains and losses that result from interest rate
fluctuations. These realized gains and losses, net of tax, are amortized into
income over the expected remaining life of the asset sold or the liability
released.

1.3 INSURANCE CONTRACTS

The insurance contracts accounted for in these financial statements include
primarily long-duration contracts. Long-duration contracts include traditional
whole life, endowment, guaranteed renewable term life, universal life, limited
payment, and investment contracts. Long-duration contracts generally require
the performance of various functions and services over a period of more than
one year. The contract provisions generally cannot be changed or canceled by
the insurer during the contract period. However, most new contracts written by
the Company allow the insurer to revise certain elements used in determining
premium rates or policy benefits, subject to guarantees stated in the
contracts.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

1.4 INVESTMENTS

FIXED MATURITY AND EQUITY SECURITIES

All fixed maturity and equity securities are currently classified as
available-for-sale and recorded at fair value. After adjusting related balance
sheet accounts as if the unrealized gains (losses) had been realized, the net
adjustment is recorded in net unrealized gains (losses) on securities within
shareholders' equity. If the fair value of a security classified as
available-for-sale declines below its cost and this decline is considered to
be other than temporary, the security is reduced to its fair value, and the
reduction is recorded as a realized loss.

MORTGAGE LOANS

Mortgage loans are reported at amortized cost, net of an allowance for losses.
The allowance for losses covers all non-performing loans, consisting of loans
restructured or delinquent 60 days or more, and loans for which management has
a concern based on its assessment of risk factors, such as potential
nonpayment or nonmonetary default. The allowance is based on a loan-specific
review and a formula that reflects past results and current trends.

Impaired loans, those for which the Company determines it is probable that all
amounts due under the contractual terms will not be collected, are reported at
the lower of amortized cost or fair value of the underlying collateral, less
estimated costs to sell.

POLICY LOANS

Policy loans are reported at unpaid principal balances adjusted periodically
for uncollectible amounts.

INVESTMENT REAL ESTATE

Investment real estate consists of income-producing real estate, foreclosed
real estate, and the American General Center, an office complex in Houston.
The Company classifies all investment real estate, except the American General
Center, as available-for-sale. Real estate available-for-sale is carried at
the lower of cost less accumulated depreciation, if applicable, or fair value
less costs to sell. Changes in estimates of fair value less costs to sell are
recognized as realized gains (losses) through a valuation allowance.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

1.4 INVESTMENTS (CONTINUED)

Real estate held-for-investment is carried at cost less accumulated
depreciation and impairment reserves and write-downs, if applicable.
Impairment losses are recorded whenever circumstances indicate that a property
might be impaired and the estimated undiscounted future cash flows of the
property are less than the carrying amount. In such event, the property is
written down to fair value, determined by market prices, third-party
appraisals, or expected future cash flows discounted at market rates. Any
write-down is recognized as a realized loss, and a new cost basis is
established.

INVESTMENT INCOME

Interest on fixed maturity securities, performing and restructured mortgage
loans, and policy loans is recorded as income when earned and is adjusted for
any amortization of premium or discount. Interest on delinquent mortgage loans
is recorded as income when received. Dividends are recorded as income on
ex-dividend dates.

REALIZED INVESTMENT GAINS (LOSSES)

Realized investment gains (losses) are recognized using the specific
identification method and include declines in fair value of investments below
cost that are considered to be other than temporary.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company's use of derivative financial instruments is limited to interest
rate and currency swap agreements. The difference between amounts paid and
received on swap agreements is recorded on an accrual basis as an adjustment
to investment income over the periods covered by the agreements. The related
amount payable to or receivable from counterparties is included in other
liabilities or other assets.

The fair values of the swap agreements are recognized in the consolidated
balance sheet if they hedge investment securities carried at fair value or
anticipated investment purchases. In this event, changes in the fair value of
a swap agreement are reported in net unrealized gains (losses) on securities
included in shareholders' equity, consistent with the treatment of the related
investment security.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

1.4 INVESTMENTS (CONTINUED)

For swap agreements hedging anticipated investment security purchases, the net
swap settlement amount or unrealized gain or loss is deferred and included in
the measurement of the anticipated transaction when it occurs.

Any gain or loss from early termination of a swap agreement is deferred and
amortized into income over the remaining term of the related investment. If
the underlying investment is extinguished or sold, any related gain or loss on
swap agreements is recognized in income.

1.5 SEPARATE ACCOUNTS

Separate accounts are assets and liabilities associated with certain
contracts, principally annuities; the investment risk lies solely with the
contract holder rather than the Company. Consequently, the Company's liability
for these accounts equals the value of the account assets. Investment income,
realized investment gains (losses), and policyholder account deposits and
withdrawals related to separate accounts are excluded from the consolidated
statements of income and cash flows. Assets held in separate accounts are
primarily shares in mutual funds, which are carried at fair value based on the
quoted net asset value per share.

1.6 DEFERRED POLICY ACQUISITION COSTS ("DPAC")

Certain costs of writing an insurance policy, including agents' commissions,
underwriting and marketing expenses, are deferred and reported as DPAC.

DPAC associated with interest-sensitive life insurance contracts, insurance
investment contracts, and participating life insurance contracts, to the
extent recoverable from expected future gross profits, is deferred and
amortized generally in proportion to the present value of expected future
gross profits from surrender charges and investment, mortality, and expense
margins. Expected future gross profits are adjusted to include the impact of
realized and unrealized gains (losses) as if net unrealized investment gains
(losses) had been realized at the balance sheet date. The impact of this
adjustment is included in the net unrealized gains (losses) on securities
within shareholders' equity. DPAC associated with all other insurance
contracts, to the extent recoverable from

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

1.6 DEFERRED POLICY ACQUISITION COSTS ("DPAC") (CONTINUED)

future policy revenues, is amortized over the premium-paying period of the
related contracts using assumptions that are consistent with those used in
computing policy benefit reserves.

The Company reviews the carrying value of DPAC on at least an annual basis. In
determining whether the carrying amount is appropriate, the Company considers
estimated future gross profits or future premiums, as applicable for the type
of contract. In all cases, the Company considers expected mortality, interest
earned and credited rates, persistency, and expenses.

1.7 PREMIUM RECOGNITION

Most receipts for annuities and interest-sensitive life insurance policies are
classified as deposits instead of revenue. Revenues for these contracts
consist of mortality, expense, and surrender charges assessed against the
account balance. Policy charges that compensate the Company for future
services are deferred and recognized in income over the period earned, using
the same assumptions used to amortize DPAC (see Note 1.6).

For limited-payment contracts, net premiums are recorded as revenue, and the
difference between the gross premium received and the net premium is deferred
and recognized in income in a constant relationship to insurance in force. For
all other contracts, premiums are recognized when due. When the revenue is
recorded, an estimate of the cost of the related benefit is recorded in the
future policy benefits account on the consolidated balance sheet. Also, this
cost is recorded in the consolidated statement of income as a benefit in the
current year and in all future years during which the policy is expected to be
renewed.

1.8 OTHER ASSETS

Acquisition-related goodwill, which is included in other assets, is charged to
expense in equal amounts over 40 years. The carrying value of goodwill is
regularly reviewed for indicators of impairment in value.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

1.9 DEPRECIATION

Provision for depreciation of American General Center, data processing
equipment, and furniture and fixtures is computed on the straight-line method
over the estimated useful lives of the assets.

1.10 POLICY AND CONTRACT CLAIMS RESERVES

Substantially all of the Company's insurance and annuity liabilities relate to
long-duration contracts which generally require performance over a period of
more than one year. The contract provisions normally cannot be changed or
canceled by the Company during the contract period.

For interest-sensitive and investment contracts, reserves equal the sum of the
policy account balance and deferred revenue charges. In establishing reserves
for limited payment and other long-duration contracts, an estimate is made of
the cost of future policy benefits to be paid as a result of present and
future claims due to death, disability, surrender of a policy, and payment of
an endowment. Reserves for traditional insurance products are determined using
the net level premium method. Based on past experience, consideration is given
to expected policyholder deaths, policy lapses, surrenders, and terminations.
Consideration is also given to the possibility that the Company's experience
with policyholders will be worse than expected. Interest assumptions used to
compute reserves ranged from 2.5% to 13.5% at December 31, 1996.

The claim reserves are determined using case-basis evaluation and statistical
analyses and represent estimates of the ultimate net cost of unpaid claims.
These estimates are reviewed; and as adjustments become necessary, such
adjustments are reflected in current operations. Since these reserves are
based on estimates, the ultimate settlement of claims may vary from the
amounts included in the accompanying financial statements. Although it is not
possible to measure the degree of variability inherent in such estimates,
management believes claim reserves are reasonable.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

1.11 REINSURANCE

The Company limits its exposure to loss on any single insured to $1.5 million
by ceding additional risks through reinsurance contracts with other insurers.
Ceded reinsurance becomes a liability of the reinsurer assuming the risk. The
Company diversifies its risk of exposure to reinsurance loss by using several
reinsurers that have strong claims-paying ability ratings. If a reinsurer
could not meet its obligations, the Company would reassume the liability. The
likelihood of a material reinsurance liability being reassumed by the Company
is considered to be remote.

Benefits paid and future policy benefits related to ceded reinsurance
contracts are recorded as reinsurance receivables. The cost of reinsurance is
recognized over the life of the underlying reinsured policies using
assumptions consistent with those used to account for the underlying policies.

1.12 PARTICIPATING POLICY CONTRACTS

Participating life insurance contracts contain dividend payment provisions
that entitle the policyholder to participate in the earnings of the contracts.
Participating life insurance contracts accounted for 2.47% and 2.48% of life
insurance in force at December 31, 1996 and 1995, respectively. Such business
is accounted for in accordance with SFAS 120.

1.13 INCOME TAXES

The Company and its life insurance subsidiaries, together with certain other
life insurance subsidiaries of the Parent Company, are included in a
life/nonlife consolidated tax return with the Parent Company and its
noninsurance subsidiaries. The Company participates in a tax-sharing agreement
with other companies included in the consolidated tax return. Under this
agreement, tax payments are made to the Parent Company as if the companies
filed separate tax returns; and companies incurring operating and/or capital
losses are reimbursed for the use of these losses by the consolidated return
group.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

1. ACCOUNTING POLICIES (CONTINUED)

1.13 INCOME TAXES (CONTINUED)

Income taxes are provided for in accordance with SFAS 109. Under this
standard, deferred tax assets and liabilities are calculated using the
differences between the financial reporting basis and the tax basis of assets
and liabilities, using the enacted tax rate. The effect of a tax rate change
is recognized in income in the period of enactment. Under SFAS 109, state
income taxes are included in income tax expense.

1.14 STOCK-BASED COMPENSATION

Certain officers of the Company participate in American General Corporation's
stock and incentive plans which provide for the award of stock options,
restricted stock awards, performance awards, and incentive awards to key
employees. Stock options constitute the majority of such awards. Expense
related to stock options is measured as the excess of the market price of the
stock at the measurement date over the exercise price. The measurement date is
the first date on which both the number of shares that the employee is
entitled to receive and the exercise price are known. Under the stock option
plans no expense is recognized, since the market price equals the exercise
price at the measurement date.

Under an alternative accounting method, compensation expense arising from
stock-based compensation plans would be measured at the estimated fair value
of the stock-based award at the date of grant. Use of this method would not
have a material impact on net income.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

2. INVESTMENTS

2.1 INVESTMENT INCOME

<TABLE>
Investment income by type of investment was as follows:
<CAPTION>

1996 1995 1994
------------------------------------------------------
(IN THOUSANDS)
Investment income:
<S> <C> <C> <C>
Fixed maturities $1,846,549 $1,759,358 $1,611,355
Equity securities 1,842 6,773 5,860
Mortgage loans on real estate 175,833 185,022 202,399
Investment real estate 22,752 16,397 15,049
Policy loans 58,211 52,939 48,973
Other long-term investments 2,328 1,996 1,389
Short-term investments 9,280 6,234 9,753
Investment income from affiliates 11,502 12,570 13,632
------------------------------------------------------
Gross investment income 2,128,297 2,041,289 1,908,410
Investment expenses 33,225 30,201 34,087
------------------------------------------------------
Net investment income $2,095,072 $2,011,088 $1,874,323
======================================================
</TABLE>

The carrying value of investments that have produced no investment income
during 1996 was less than 1% of total invested assets. The ultimate
disposition of these investments is not expected to have a material effect on
the Company's results of operations and financial position.

<PAGE>
American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

2. INVESTMENTS (CONTINUED)

2.2 NET REALIZED INVESTMENT GAINS (LOSSES)

Realized gains (losses) by type of investment were as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 46,498 $ 38,657 $ 21,780
Gross losses (47,293) (41,022) (116,217)
------------------------------------------------------
Total fixed maturities (795) (2,365) (94,437)
Equity securities 18,304 9,710 14,313
Other investments 10,993 (9,287) 18,856
------------------------------------------------------
Net realized investment gains (losses)
before tax 28,502 (1,942) (61,268)
Income tax expense (benefit) 9,976 547 (13,996)
======================================================
Net realized investment gains (losses)
after tax $ 18,526 $ (2,489) $ (47,272)
======================================================
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

2. INVESTMENTS (CONTINUED)

2.3 FIXED MATURITY AND EQUITY SECURITIES

All fixed maturity and equity securities are classified as available-for-sale
and reported at fair value (see Note 1.4). Amortized cost and fair value at
December 31, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
GROSS GROSS UNREALIZED
AMORTIZED COST UNREALIZED LOSS FAIR
GAIN VALUE
------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1996 Fixed maturity securities:
Corporate securities:
Investment grade $ 15,639,170 $ 528,602 $ 90,379 $ 16,077,393
Below investment grade 898,187 29,384 5,999 921,572
Mortgage-backed securities* 7,547,616 186,743 54,543 7,679,816
U.S. government obligations 313,759 26,597 1,050 339,306
Foreign governments 313,655 13,255 248 326,662
State and political subdivisions 48,553 1,003 226 49,330
Redeemable preferred stocks 1,194 108 - 1,302
------------------------------------------------------------------------
Total fixed maturity securities $ 24,762,134 $ 785,692 $ 152,445 $ 25,395,381
========================================================================

Equity securities $ 17,642 $ 3,021 $ 108 $ 20,555
========================================================================

Investment in Parent Company $ 8,597 $ 20,000 $ - $ 28,597
========================================================================
</TABLE>

45
<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

2. INVESTMENTS (CONTINUED)

2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
<TABLE>
<CAPTION>

GROSS GROSS UNREALIZED
AMORTIZED COST UNREALIZED LOSS FAIR
GAIN VALUE
------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1995 Fixed maturity securities:
Corporate securities:
Investment grade $ 13,368,369 $ 929,067 $ 20,649 $ 14,276,787
Below investment grade 939,223 41,325 5,215 975,333
Mortgage-backed securities* 8,459,110 412,700 5,182 8,866,628
U.S. government obligations 245,860 43,771 116 289,515
Foreign governments 294,619 22,854 - 317,473
State and political subdivisions 38,640 1,531 20 40,151
Redeemable preferred stocks 3,696 263 95 3,864
------------------------------------------------------------------------
Total fixed maturity securities $ 23,349,517 $ 1,451,511 $ 31,277 $ 24,769,751
========================================================================

Equity securities $ 72,443 $ 19,915 $ 40 $ 92,318
========================================================================

Investment in Parent Company $ 8,597 $ 15,802 $ - $ 24,399
========================================================================

<FN>

* Primarily includes pass-through securities guaranteed by and mortgage
obligations ("CMOs") collateralized by the U.S. government and government
agencies.
</FN>
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

2. INVESTMENTS (CONTINUED)

2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)

Net unrealized gains (losses) on securities included in shareholders' equity
at December 31 were as follows:

<TABLE>
<CAPTION>
1996 1995
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Gross unrealized gains $ 808,713 $ 1,487,228
Gross unrealized losses (152,553) (31,317)
DPAC and other fair value adjustments (315,117) (687,773)
Deferred federal income taxes (121,892) (274,544)
====================================
Net unrealized gains on securities $ 219,151 $ 493,594
====================================
</TABLE>

The contractual maturities of fixed maturity securities at December 31, 1996
were as follows:

<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Fixed maturity securities, excluding mortgage-backed securities:
Due in one year or less $ 410,953 $ 414,215
Due after one year through five years 3,523,441 3,649,205
Due after five years through ten years 9,316,775 9,575,258
Due after ten years 3,963,349 4,076,887
Mortgage-backed securities 7,547,616 7,679,816
====================================
Total fixed maturity securities $ 24,762,134 $ 25,395,381
====================================
</TABLE>

Actual maturities may differ from contractual maturities, since borrowers may
have the right to call or prepay obligations. In addition, corporate
requirements and investment strategies may result in the sale of investments
before maturity. Proceeds from sales of fixed maturities were $16.2 billion,
$7.3 billion, and $3.7 billion during 1996, 1995, and 1994, respectively.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

2. INVESTMENTS (CONTINUED)

2.4 MORTGAGE LOANS ON REAL ESTATE

Diversification of the geographic location and type of property
collateralizing mortgage loans reduces the concentration of credit risk. For
new loans, the Company requires loan-to-value ratios of 75% or less, based on
management's credit assessment of the borrower. The mortgage loan portfolio
was distributed as follows at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF TOTAL PERCENT
AMOUNT NONPERFORMING
----------------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
December 31, 1996 Geographic distribution:
South Atlantic $ 522 30.6% 8.1%
Pacific 407 23.8 8.1
Mid-Atlantic 231 13.5 -
East North Central 168 9.8 -
Mountain 153 9.0 2.8
West South Central 141 8.2 5.3
East South Central 109 6.4 -
West North Central 13 0.8 -
New England 13 0.8 -
Allowance for losses (49) (2.9) -
------------------------------------
Total $1,708 100.0% 5.0%
====================================

Property type:
Office $ 590 34.5% -%
Retail 502 29.4 2.5
Industrial 304 17.8 6.0
Apartments 264 15.5 8.3
Hotel/motel 54 3.2 -
Other 43 2.5 78.8
Allowance for losses (49) (2.9) -
====================================
Total $1,708 100.0% 5.0%
====================================
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

2. INVESTMENTS (CONTINUED)

2.4 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)

<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF TOTAL PERCENT
AMOUNT NONPERFORMING
----------------------------------------------------------
(IN MILLIONS)
<S> <C> <C> <C>

December 31, 1995 Geographic distribution:
South Atlantic $ 551 30.8% 7.8%
Pacific 491 27.4 8.9
Mid-Atlantic 220 12.3 -
East North Central 192 10.6 -
Mountain 81 4.5 5.3
West South Central 189 10.6 11.4
East South Central 112 6.3 -
West North Central 9 0.5 -
New England 9 0.5 -
Allowance for losses (64) (3.5) -
====================================
Total $1,790 100.0% 6.1%
====================================

Property type:
Office $ 591 33.0% 2.1%
Retail 520 29.0 3.2
Industrial 306 17.1 2.2
Apartments 315 17.6 12.4
Hotel/motel 21 1.2 -
Residential 56 3.1 6.9
Other 45 2.5 75.6
Allowance for losses (64) (3.5) -
====================================
Total $1,790 100.0% 6.1%
====================================
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

2. INVESTMENTS (CONTINUED)

2.4 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)

Impaired mortgage loans on real estate and related interest income were as
follows:

<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------------------------------
(IN MILLIONS)
<S> <C> <C>
Impaired loans:
With allowance* $ 60 $ 79
Without allowance - 4
------------------------------------
Total impaired loans $ 60 $ 83
====================================

<FN>
* Represents gross amounts before allowance for mortgage loan losses of $9
million and $22 million, respectively.
</FN>
</TABLE>

<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------
(IN MILLIONS)

<S> <C> <C> <C>
Average investment $ 72 $ 102 $ 100
Interest income earned $ 6 $ 8 $ 6
Interest income - cash basis $ 6 $ 8 $ 3
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

2. INVESTMENTS (CONTINUED)

2.5 INVESTMENT SUMMARY

Investments of the Company were as follows:
<TABLE>
<CAPTION>

December 31, 1996
------------------------------------------------------
AMOUNT AT
WHICH SHOWN IN
THE BALANCE SHEET
COST VALUE
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States government and government
agencies and authorities $ 313,759 $ 339,306 $ 339,306
States, municipalities, and political
subdivisions 48,553 49,330 49,330
Foreign governments 313,655 326,662 326,662
Public utilities 2,014,461 2,088,615 2,088,615
Mortgage-backed securities 7,547,616 7,679,816 7,679,816
All other corporate bonds 14,522,896 14,910,350 14,910,350
Redeemable preferred stocks 1,194 1,302 1,302
------------------------------------------------------
Total fixed maturities 24,762,134 25,395,381 25,395,381
Equity securities:
Common stocks:
Industrial, miscellaneous, and other 9,976 10,163 10,163
Nonredeemable preferred stocks 7,666 10,392 10,392
------------------------------------------------------
Total equity securities 17,642 20,555 20,555
Mortgage loans on real estate* 1,707,843 XXXXXXXXX 1,707,843
Investment real estate 145,442 XXXXXXXXX 145,442
Policy loans 1,006,137 XXXXXXXXX 1,006,137
Other long-term investments 43,344 XXXXXXXXX 43,344
Short-term investments 94,882 XXXXXXXXX 94,882
======================================================
Total investments $ 27,777,424 $ XXXXXXXXX $ 28,413,584
======================================================
<FN>
* Amount is net of a $49 million allowance for losses.
</FN>
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

3. DEFERRED POLICY ACQUISITION COSTS (DPAC)

The balance of DPAC at December 31 and the components of the change reported
in operating costs and expenses for the years then ended were as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1 $ 605,501 $ 1,479,115 $ 481,615
Capitalization 188,001 203,607 194,974
Amortization (102,189) (68,295) (56,662)
======================================================
BalancegatiDecemberf31t of SFAS 115 $ 1,042,783 ($605,501) $ 1,479,115
======================================================
</TABLE>

4. OTHER ASSETS

Other assets consisted of the following:

<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
(IN THOUSANDS)

<S> <C> <C>
Goodwill $ 55,626 $ 57,795
Other 78,663 67,124
------------------------------------
Total other assets $ 134,289 $ 124,919
====================================
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

5. FEDERAL INCOME TAXES

5.1 TAX LIABILITIES

Income tax liabilities were as follows:

<TABLE>
<CAPTION>
December 31
1996 1995
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Current tax (receivable) payable $ (7,646) $ 10,875
Deferred tax liabilities, applicable to:
Net income 288,115 275,119
Net unrealized investment gains 121,892 274,544
------------------------------------
Total deferred tax liabilities 410,007 549,663
------------------------------------
Total current and deferred tax liabilities $ 402,361 $ 560,538
====================================
</TABLE>

Components of deferred tax liabilities and assets at December 31 were as
follows:

<TABLE>
<CAPTION>
1996 1995
---------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 308,802 $ 163,017
Basis differential of investments 254,402 534,942
Other 130,423 117,436
---------------------------------------------
Total deferred tax liabilities 693,627 815,395

Deferred tax assets applicable to:
Policy reserves (219,677) (227,656)
Other (63,943) (38,076)
---------------------------------------------
Total deferred tax assets before valuation
allowance (283,620) (265,732)
Valuation allowance - -
---------------------------------------------
Total deferred tax assets, net of valuation
allowance (283,620) (265,732)
---------------------------------------------
Net deferred tax liabilities $ 410,007 $ 549,663
=============================================
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

5. FEDERAL INCOME TAXES (CONTINUED)

5.1 TAX LIABILITIES (CONTINUED)

A portion of life insurance income earned prior to 1984 is not taxable unless
it exceeds certain statutory limitations or is distributed as dividends. Such
income, accumulated in policyholders' surplus accounts, totaled $93.6 million
at December 31, 1996. At current corporate rates, the maximum amount of tax on
such income is approximately $32.8 million. Deferred income taxes on these
accumulations are not required because no distributions are expected.

5.2 TAX EXPENSE

Components of income tax expense for the year were as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current expense $ 164,272 $ 153,720 $ 104,145
Deferred expense (benefit):
Deferred policy acquisition cost 21,628 38,275 30,234
Policy reserves (27,460) (49,177) (42,302)
Basis differential of investments 4,129 3,710 23,482
Other, net 14,091 (2,581) 12,629
------------------------------------------------------
Total deferred 12,388 (9,773) 24,043
------------------------------------------------------
Income tax expense $ 176,660 $ 143,947 $ 128,188
======================================================
</TABLE>

A reconciliation between the income tax expense computed by applying the
federal income tax rate (35%) to income before taxes and the income tax
expense reported in the financial statement is presented below.

<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax at statutory percentage of GAAP pretax
income $ 178,939 $ 149,185 $ 124,292
Tax-exempt investment income (9,347) (10,185) (9,725)
Goodwill 759 768 770
Tax on sale of subsidiary - (661) 10,722
Other 6,309 4,840 2,129
------------------------------------------------------
Income tax expense $ 176,660 $ 143,947 $ 128,188
======================================================
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

5. FEDERAL INCOME TAXES (CONTINUED)

5.3 TAXES PAID

Income taxes paid amounted to approximately $182 million, $90 million, and
$181 million in 1996, 1995, and 1994, respectively.

5.4 TAX RETURN EXAMINATIONS

The Company and its life insurance subsidiaries, together with certain other
life insurance subsidiaries of the Parent Company, file a consolidated federal
income tax return. The Internal Revenue Service ("IRS") has completed
examinations of the consolidated returns through 1988. The IRS is continuing
to dispute the tax treatment of some items for the years 1977 through 1988.
Some of these issues will require litigation to resolve; and any amounts
ultimately settled with the IRS would also include interest. Although the
final outcome is uncertain, the Parent Company believes that the ultimate
liability, including interest, resulting from these issues will not exceed
amounts currently provided for in the consolidated financial statements. The
IRS is currently examining the consolidated tax returns for the years 1989
through 1992.

In April 1992, the IRS issued Notices of Deficiency for the 1977 - 1981 tax
years of certain insurance subsidiaries. The basis of the dispute was the tax
treatment of modified coinsurance agreements. The Parent Company elected to
pay all related assessments plus associated interest, totaling $59 million. A
claim for refund of tax and interest was disallowed by the IRS in January
1993. On June 30, 1993, a representative suit for refund was filed in the
United States Court of Federal Claims. On February 7, 1996, the court ruled in
favor of the Parent Company on all legal issues related to this contingency,
and a judgement was entered in favor of the Parent Company on July 9, 1996 for
the portion of the contingency related to the representative case. The IRS has
appealed this judgement; however, the Parent Company intends to pursue a full
refund of the amounts paid. Accordingly, no provision has been made in the
consolidated financial statements related to this contingency.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

6. TRANSACTIONS WITH AFFILIATES

Affiliated notes and accounts receivable were as follows:

<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-----------------------------------------------------------------------
PAR VALUE BOOK VALUE PAR VALUE BOOK VALUE
-----------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
American General Corporation,
9 3/8% due 2008 $ 4,725 $ 3,239 $ 4,725 $ 3,197
American General Corporation,
8 1/4%, due 2004 19,572 19,572 22,018 22,018
American General Corporation,
Restricted Subordinated Note,
13 1/2%, due 2002 33,550 33,550 35,608 35,608
-----------------------------------------------------------------------
Total notes receivable from affiliates
57,847 56,361 62,351 60,823
Accounts receivable from affiliates
- 30,127 - 29,841
-----------------------------------------------------------------------
Indebtedness from affiliates $ 57,847 $ 86,488 $ 62,351 $ 90,664
=======================================================================
</TABLE>

Various American General companies provide services to the Company,
principally mortgage servicing and investment advisory services. The Company
paid approximately $22,083,000, $21,006,000, and $21,161,000 for such services
in 1996, 1995, and 1994, respectively. Accounts payable for such services at
December 31, 1996 and 1995 were not material. In addition, the Company rents
facilities and provides services to various American General companies. The
Company received approximately $1,255,000, $2,086,000, and $2,486,000 for such
services and rent in 1996, 1995, and 1994, respectively. Accounts receivable
for rent and services at December 31, 1996 and 1995 were not material.

The Company has 8,500 shares of $100 par value cumulative preferred stock
authorized and outstanding with an $80 dividend rate, redeemable at $1,000 per
share after December 31, 2000. The holder of this stock, the Franklin Life
Insurance Company ("Franklin"), an affiliated company, is entitled to one vote
per share, voting together with the holders of common stock.

During 1996, the Company's residential mortgage loan portfolio of $42 million
was sold to American General Finance at carrying value plus accrued interest.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

7. BENEFIT PLANS

7.1 PENSION PLANS

The Company has non-contributory, defined benefit pension plans covering most
employees. Pension benefits are based on the participant's average monthly
compensation and length of credited service offset by an amount that complies
with federal regulations. The Company's funding policy is to contribute
annually no more than the maximum amount deductible for federal income tax
purposes. The Company uses the projected unit credit method for computing
pension expense.

The components of pension expense and underlying assumptions were as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during period $ 1,826 $ 1,346 $ 1,825
Interest cost on projected benefit obligation 2,660 2,215 2,007
Actual return on plan assets (9,087) (10,178) (523)
Amortization of unrecognized net asset (261) (888) (900)
Amortization of unrecognized prior service cost
197 197 222
Deferral of net asset gain (loss) 4,060 5,724 (3,586)
Amortization of gain 68 38 102
------------------------------------------------------
Total pension income $ (537) $ (1,546) $ (853)
======================================================

Assumptions:
Weighted-average discount rate on benefit
obligation 7.50% 7.25% 8.50%
Rate of increase in compensation levels 4.00% 4.00% 4.00%
Expected long-term rate of return on plan assets
10.00% 10.00% 10.00%
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

7. BENEFIT PLANS (CONTINUED)

7.1 PENSION PLANS (CONTINUED)

The funded status of the plans and the prepaid pension expenses included in
other assets at December 31 were as follows:

<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested $ 27,558 $ 24,972
Nonvested 4,000 3,933
Additional minimum liability 205 323
------------------------------------
Accumulated benefit obligation 31,763 29,228
Effect of increase in compensation levels 5,831 5,536
------------------------------------
Projected benefit obligation 37,594 34,764
Plan assets at fair value 65,159 56,598
------------------------------------
Plan assets in excess of projected benefit obligation 27,565 21,834
Unrecognized net gain (15,881) (9,715)
Unrecognized prior service cost 274 473
Unrecognized transition asset - (261)
------------------------------------
Prepaid pension expense $ 11,958 $ 12,331
====================================
</TABLE>

More than 95% of the plan assets were invested in fixed maturity and equity
securities at the plan's most recent balance sheet date.

7.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company and its life insurance subsidiaries, together with certain other
insurance subsidiaries of the Parent Company, have life, medical, supplemental
major medical, and dental plans for certain retired employees and agents. Most
plans are contributory, with retiree contributions adjusted annually to limit
employer contributions to predetermined amounts. The Company has reserved the
right to change or eliminate these benefits at any time.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

7. BENEFIT PLANS (CONTINUED)

7.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)

The life plans are fully insured. A portion of the retiree medical and dental
plans are funded through a voluntary employees' beneficiary association
("VEBA") established in 1994; the remainder is unfunded and self-insured. All
of the retiree medical and dental plans' assets held in the VEBA were invested
in readily marketable securities at its most recent balance sheet date.

The plans' combined funded status and the accrued postretirement benefit cost
included in other liabilities were as follows:

<TABLE>
<CAPTION>
DECEMBER 31
1996 1995
------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees $5,199 $ 6,242
Fully eligible active plan participants 251 143
Other active plan participants 2,465 2,580
------------------------------------
Accumulated postretirement benefit obligation 7,915 8,965
Plan assets at fair value 106 203
------------------------------------
Accumulated postretirement benefit obligation in excess
of plan assets at fair value 7,809 8,762
Unrecognized net gain (243) (1,855)
------------------------------------
Accrued postretirement benefit cost $7,566 $ 6,907
====================================

Weighted-average discount rate on postretirement benefit obligation
7.50% 7.25%
</TABLE>

The components of postretirement benefit expense were as follows:

<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned $218 $171 $208
Interest cost on accumulated postretirement benefit
obligation 626 638 527
------------------------------------------------------
Postretirement benefit expense $844 $809 $735
======================================================
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

7. BENEFIT PLANS (CONTINUED)

7.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)

For measurement purposes, a 9.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed in 1997; the rate was assumed
to decrease gradually to 5.0% in 2005 and remain at that level. A 1% increase
in the assumed annual rate of increase in per capita cost of health care
benefits results in a $337,894,000 increase in accumulated postretirement
benefit obligation and a $58,817,000 increase in postretirement benefit
expense.

8. DERIVATIVE FINANCIAL INSTRUMENTS

8.1 USE OF DERIVATIVE FINANCIAL INSTRUMENTS

The Company is neither a dealer nor a trader in derivative financial
instruments.

Interest rate swaps are occasionally used to effectively convert specific
investment securities from a floating- to a fixed-rate basis, or vice versa,
and to hedge against the risk of rising prices on anticipated investment
security purchases.

Currency swap agreements are infrequently used to effectively convert cash
flows from specific investment securities denominated in foreign currencies
into U.S. dollars at specified exchange rates and to hedge against currency
rate fluctuations on anticipated investment security purchases.

8.2 CREDIT AND MARKET RISK

The Company is exposed to credit risk in the event of nonperformance by
counterparties to swap agreements. The Company limits this exposure by
entering into swap agreements with counterparties having high credit ratings
and regularly monitoring the ratings.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

8. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

8.2 CREDIT AND MARKET RISK (CONTINUED)

The Company's credit exposure on swaps is limited to the fair value of swap
agreements that are favorable to the Company. The Company does not expect any
counterparty to fail to meet its obligation; however, nonperformance would not
have a material impact on the consolidated financial statements.

The Company's exposure to market risk is mitigated by the offsetting effects
of changes in the value of swap agreements and of the related investment
securities.

Derivative financial instruments related to investment securities did not have
a material effect on net investment income in 1996, 1995, or 1994.

8.3 TERMS OF DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments related to investment securities at
December 31 were as follows:

<TABLE>
<CAPTION>
1996 1995
------------------------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Interest rate swap agreements to pay fixed rate:
Notional amount $60 $45
Average receive rate 6.19% 5.82%
Average pay rate 6.42% 6.41%
Interest rate swap agreements to receive fixed rate:
Notional amount $44 $24
Average receive rate 6.84% 7.03%
Average pay rate 6.01% 6.82%
Currency swap agreements (receive U.S. dollars/pay Canadian dollars):
Notional amount (in U.S. dollars) $99 $72
Average exchange rate 1.57 1.62
</TABLE>

Average floating rates may change significantly, thereby affecting future cash
flows. Swap agreements generally have terms of two to ten years.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure of the fair value of financial instruments. This standard excludes
certain financial instruments and all nonfinancial instruments, including
policyholder liabilities, from its disclosure requirements. Care should be
exercised in drawing conclusions based on fair value, since (1) the fair
values presented do not include the value associated with all of the Company's
assets and liabilities and (2) the reporting of investments at fair value
without a corresponding revaluation of related policyholder liabilities can be
misinterpreted.

Carrying amounts and fair values for those financial instruments covered by
SFAS 107 at December 31, 1996 are presented below:

<TABLE>
<CAPTION>
FAIR CARRYING
VALUE AMOUNT
------------------------------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Fixed maturity and equity securities * $ 25,416 $ 25,416
Mortgage loans on real estate $ 1,716 $ 1,708
Policy loans $ 1,012 $ 1,006
Investment in parent company $ 29 $ 29
Indebtedness from affiliates $ 86 $ 86
Liabilities:
Insurance investment contracts $ 22,025 $ 23,416

<FN>

* Includes derivative financial instruments with negative fair value of
$10.8 million and $3.6 million and positive fair value of $.6 million and
$1.1 million at December 31, 1996 and 1995, respectively.
</FN>
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

9. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The following methods and assumptions were used to estimate the fair values of
financial instruments:

FIXED MATURITY AND EQUITY SECURITIES

Fair values of fixed maturity and equity securities were based on
quoted market prices, where available. For investments not actively
traded, fair values were estimated using values obtained from
independent pricing services or, in the case of some private
placements, by discounting expected future cash flows using a current
market rate applicable to yield, credit quality, and average life of
investments.

MORTGAGE LOANS ON REAL ESTATE

Fair value of mortgage loans was estimated primarily using discounted
cash flows based on contractual maturities and risk-adjusted discount
rates.

POLICY LOANS

Fair value of policy loans was estimated using discounted cash flows
and actuarially determined assumptions incorporating market rates.

INVESTMENT IN PARENT COMPANY

The fair value of the investment in Parent Company is based on quoted
market prices of American General Corporation common stock.

INSURANCE INVESTMENT CONTRACTS

Insurance investment contracts do not subject the Company to
significant risks arising from policyholder mortality or morbidity.
The majority of the Company's annuity products are considered
insurance investment contracts. Fair value of insurance investment
contracts was estimated using cash flows discounted at market
interest rates.

<PAGE>

9. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

INDEBTEDNESS FROM AFFILIATES

Indebtedness from affiliates is composed of accounts receivable and
notes receivable from affiliates. Due to the short-term nature of
accounts receivable, fair value is assumed to equal carrying value.
Fair value of notes receivable was estimated using discounted cash
flows based on contractual maturities and discount rates that were
based on U.S. Treasury rates for similar maturity ranges.

10. DIVIDENDS PAID

American General Life Insurance Company paid $189 million, $207 million, and
$240 million in dividends on common stock to AGC Life Insurance Company in
1996, 1995 and 1994, respectively. The 1995 dividends included $701 thousand
in the form of furniture and equipment. In addition, in 1996, the Company paid
$680 thousand in dividends on preferred stock to Franklin.

11. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES

The Company and its insurance subsidiaries are restricted by state insurance
laws as to the amounts they may pay as dividends without prior approval from
their respective state insurance departments. At December 31, 1996,
approximately $2.4 billion of consolidated shareholders' equity represents net
assets of the Company which cannot be transferred, in the form of dividends,
loans, or advances to the Parent Company. Approximately $1.7 billion of
consolidated shareholders' equity is similarly restricted as to transfer from
its subsidiaries to the Company.

Generally, the net assets of the Company's subsidiaries available for transfer
to the Parent are limited to the amounts that the subsidiaries' net assets, as
determined in accordance with statutory accounting practices, exceed minimum
statutory capital requirements. However, payments of such amounts as dividends
may be subject to approval by regulatory authorities and are generally limited
to the greater of 10% of policyholders' surplus or the previous year's
statutory net gain from operations.

The Company has various leases, substantially all of which are for office
space and facilities. Rentals under financing leases, contingent rentals, and
future minimum rental commitments and rental expense under operating leases
are not material.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

11. RESTRICTIONS, COMMITMENTS, AND CONTINGENCIES (CONTINUED)

The Company is party to various lawsuits arising in the ordinary course of
business. The Company believes that it has a valid and substantial defense to
each of these actions and is defending them vigorously. Further, it is the
Company's opinion and the opinion of counsel for the Company that the outcome
of these actions will not have a materially adverse effect on the financial
position or results of operations of the Company.

The Company is a defendant in lawsuits filed as purported class actions,
asserting claims related to sales practices of certain life insurance
products. Because these cases are in the early stages of litigation, it is
premature to address their materiality. The claims are being defended
vigorously by the Company.

The increase in the number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in increased
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated insurance companies. Those mandatory assessments
may be partially recovered through a reduction in future premium taxes in
certain states. At December 31, 1996 and 1995, the Company has accrued $16.1
million and $21.3 million, respectively, for guaranty fund assessments, net of
$4.1 million and $4.3 million, respectively, of premium tax deductions. The
Company has recorded receivables of $10.9 million and $7.4 million at December
31, 1996 and 1995, respectively, for expected recoveries against the payment
of future premium taxes. Expenses incurred for guaranty fund assessments were
$6.0 million, $22.4 million, and $8.7 million in 1996, 1995, and 1994,
respectively.

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

12. REINSURANCE

Reinsurance transactions for the years ended December 31, 1996, 1995, and 1994
were as follows:

<TABLE>
<CAPTION>
PERCENTAGE
CEDED TO OTHER ASSUMED FROM OF AMOUNT
GROSS AMOUNT COMPANIES OTHER COMPANIES NET AMOUNT ASSUMED TO NET
----------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1996
Life insurance in force $ 44,535,841 $ 8,625,465 $ 5,081 $ 35,915,457 .01%
=======================================================================
Premiums:
Life insurance and annuities
$ 104,225 $ 34,451 $ 36 $ 69,810 .05%
Accident and health insurance
1,426 64 - 1,362 .00%
-----------------------------------------------------------------------
Total premiums $ 105,651 $ 34,515 $ 36 $ 71,172 .05%
=======================================================================

December 31, 1995
Life insurance in force $ 44,637,599 $ 7,189,493 $ 5,771 $ 37,453,877 0.02%
=======================================================================
Premiums:
Life insurance and annuities
$ 103,780 $ 26,875 $ 171 $ 77,076 0.22%
Accident and health insurance
1,510 82 - 1,428 0.00%
-----------------------------------------------------------------------
Total premiums $ 105,290 $ 26,957 $ 171 $ 78,504 0.22%
=======================================================================

December 31, 1994
Life insurance in force $ 41,360,465 $ 4,519,564 $ 6,813 $ 36,847,714 0.02%
=======================================================================
Premiums:
Life insurance and annuities
$ 110,089 $ 26,390 $ 147 $ 83,846 0.18%
Accident and health insurance
1,723 146 - 1,577 0.00%
-----------------------------------------------------------------------
Total premiums $ 111,812 $ 26,536 $ 147 $ 85,423 0.17%
=======================================================================
</TABLE>

<PAGE>

American General Life Insurance Company

Notes to Consolidated Financial Statements (continued)

12. REINSURANCE (CONTINUED)

Reinsurance recoverable on paid losses was approximately $6,904,000,
$6,190,000 and $3,671,000 at December 31, 1996, 1995, and 1994, respectively.
Reinsurance recoverable on unpaid losses was approximately $4,282,000,
$2,775,000, and $5,371,000 at December 31, 1996, 1995, and 1994, respectively.

13. ACQUISITIONS

Effective December 31, 1995, the Company purchased Franklin United Life
Insurance Company, a subsidiary of Franklin, which is a wholly owned
subsidiary of the Parent Company. This purchase was effected through issuance
of $8.5 million in preferred stock to Franklin. The acquisition was accounted
for using the purchase method of accounting and is not material to the
operations of the Company.

<PAGE>

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) Financial Statements

PART A: None

PART B:

Financial Statements of American General Life Insurance Company
Separate Account D
Report of Ernst & Young LLP, independent auditors
Statement of Net Assets as of December 31, 1996
Statement of Operations for the year ended December 31, 1996
Statement of Changes in Net Assets for the years ended December
31, 1996 and 1995 Notes to Audited Financial Statements

Consolidated Financial Statements of American General Life
Insurance Company
Report of Ernst & Young LLP, independent auditors
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Shareholder's Equity for the years
ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994

Notes to Consolidated Financial Statements

PART C: None

<TABLE>
(b) Exhibits
<S> <C>
1(a) American General Life Insurance Company of Delaware Board of
Directors resolution authorizing the establishment of Separate
Account D (1)

(b) Resolution of the Board of Directors of American General Life
Insurance Company of Delaware authorizing, among other things, the
redomestication of that company in Texas and the renaming of that
company as American General Life Insurance Company (2)

C-1

<PAGE>

(c) Resolution of the Board of Directors of American General Life
Insurance Company of Delaware providing, INTER ALIA, for Registered
Separate Accounts' Standards of Conduct (3)

2 None

3(a)(i) Distribution Agreement dated March 24, 1993 between American
General Securities Incorporated and American General Life Insurance
Company (4)

(ii) Form of Master Marketing and Distribution Agreement, by and among
American General Life Insurance Company, American General
Securities Incorporated and Sierra Investment Services Corporation

(b) Form of Selling Group Agreement, by and among American General Life
Insurance Company, American General Securities Incorporated and
Sierra Investment Services Corporation

(c)(i) Trust Participation Agreement (5)

(ii) Form of First Amendment to the Trust Participation Agreement by and
among American General Life Insurance Company, American General
Securities Incorporated, The Sierra Variable Trust and Sierra
Investment Services Corporation

(d) Agreement respecting certain indemnifications given by Sierra
Investment Advisors Corporation and Sierra Investment Services
Corporation to American General Life Insurance Company and American
General Securities Incorporated (5)

4(a) Specimen form of Combination Fixed and Variable Annuity Contract
(Form No. 97010)

(b) Specimen form of Combination Fixed and Variable Annuity Contract
(Form No. 97011)

(d) Form of Qualified Contract Endorsement (6)

(e)(i) Specimen form of Individual Retirement Annuity Disclosure Statement
and additional specialized forms available under Contract Form
No.97010 and Contract Form No. 97011 (7)

(ii) Specimen form of Individual Retirement Annuity Endorsement(4)

(iii) Specimen form of IRA Instruction Form (6)

5(a)(i) Specimen form of Application for Contract Form No. 97010 and
Contract Form No. 97011

(ii) Specimen form of SNAP Annuity Ticket application

(b)(i) Election of Annuity Payment Option/Change Form (5)

C-2

<PAGE>

(ii) Specimen form of Absolute Assignment to Effect Section 1035(a)
Exchange and Rollover of a Life Insurance Policy or Annuity
Contract (6)

(c)(i) Contract Service Request, including telephone transfer
authorization for Contract Form No. 97010 and Contract Form No.
97011

(ii) Form of Authorization Limited to Execution of Transaction Requests
for Contract (4)

(iii) Form of Transaction Request Form (6)

6(a) Amended and Restated Articles of Incorporation of American General
Life Insurance Company, effective December 31, 1991 (2)

(b) Bylaws of American General Life Insurance Company, adopted January
22, 1992 (8)

7 None

8 Form of Letter Agreement between Sierra Investment Services
Corporation and American General Life Insurance Company regarding
expenses

9 Opinion and consent of Counsel

10 Consent of Independent Auditors

11 None

12 None

13(a)(i) Computations of hypothetical historical standardized average annual
total returns for the Global Money Fund Division, available under
Contract Form No. 97010 and Contract Form No. 97011 for the one
year period ended December 31, 1996

(ii) Computations of hypothetical historical non-standardized total
returns for the Global Money Fund Division, available under
Contract Form No. 97010 and Contract Form No. 97011 for the one
year period ended December 31, 1996, and since inception

(iii) Computations of hypothetical historical non-standardized cumulative
total returns for the Global Money Fund Division, available under
Contract Form No. 97010 and Contract Form No. 97011 for the one
year period ended December 31, 1996, and since inception

(iv) Computations of hypothetical historical seven day yield and
effective yield for the Global Money Fund Division, available under
Contract Form No. 97010 and Contract Form No. 97011 for the seven
day period ended December 31, 1996

14 A Financial Data Schedule for American General Life Insurance
Company Separate Account D meeting the requirements of Rule 483(e)
of the Securities Act of 1933 is being filed as Exhibit 27 hereof

C-3

<PAGE>

15(a) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their
capacities as directors and, where applicable, officers of American
General Life Insurance Company: Messrs. Devlin, Rashid, and Luther
(6)

(b) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by Peter V. Tuters in his capacity as a
director or officer of American General Life Insurance Company (6)

(c) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their
capacities as directors and, where applicable, officers of American
General Life Insurance Company: Messrs. Atnip and Newton

(d) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their
capacities as directors and where applicable, officers of American
General Life Insurance Company: Messrs. Martin and Herbert

(e) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their
capacities as directors and, where applicable, officers of American
General Life Insurance Company: Messrs. Fravel and LaGrasse

27 Financial Data Schedule

<FN>
(1) Incorporated herein by reference to the initial filing of Registrant's
Form S-6 Registration Statement (File No. 2-49805), filed on December 6,
1973.

(2) Incorporated herein by reference to the initial filing of Registrant's
Form N-4 Registration Statement (File No. 33-43390), filed on October 16,
1991.

(3) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Form N-4 Registration Statement (File No. 33-43390), filed on
December 31, 1991.

(4) Incorporated herein by reference to Pre-Effective Amendment No. 1 to
Registrant's Form N-4 Registration Statement (File No. 33-57730), filed on
March 29, 1993.

(5) Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Form N-4 Registration Statement (File No. 33-57730), filed on
October 18, 1993.

(6) Incorporated herein by reference to Post-Effective Amendment No. 3 to
Registrant's Form N-4 Registration Statement (File No. 33-57730), filed on
April 28, 1995.

(7) Filed as part of Part A of this Amendment.

(8) Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement (File No. 33-43390), filed on April
30, 1992.
</FN>
</TABLE>

C-4

<PAGE>

ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR

The directors, executive officers, and, to the extent responsible for
variable annuity operations, other officers of the depositor are listed
below.

<TABLE>
<CAPTION>
Name and Principal Positions and Offices
Business Address with the Depositor
------------------ ---------------------

<S> <C>
Robert M. Devlin Chairman
2929 Allen Parkway
Houston, TX 77019

Jon P. Newton Vice Chairman
2929 Allen Parkway
Houston, TX 77019

Rodney O. Martin, Jr. Director, President & Chief
2727-A Allen Parkway Executive Officer
Houston, TX 77019

Michael G. Atnip Director
2929 Allen Parkway
Houston, TX 77019

David A. Fravel Director & Senior Vice President,
2727-A Allen Parkway Insurance Operations
Houston, TX. 77019

Robert F. Herbert, Jr. Director, Senior Vice President
2727-A Allen Parkway Chief Financial
Houston, TX 77019 Officer, Treasurer & Controller

John V. LaGrasse Director, Senior Vice President &
2727-A Allen Parkway Chief Systems Officer
Houston, TX 77019

Peter V. Tuters Director, Vice President & Chief
2929 Allen Parkway Investment Officer
Houston, TX 77019

Philip K. Polkinghorn Senior Vice President & Chief
2727-A Allen Parkway Marketing Officer
Houston, TX 77019

Wayne A. Barnard Vice President & Chief Actuary
2727-A Allen Parkway
Houston, TX 77019

C-5

<PAGE>

Thomas B. Phillips Vice President, General Counsel
2727-A Allen Parkway & Secretary
Houston, TX 77019

Dennis H. Roberts Vice President
2727-A Allen Parkway
Houston, TX 77019

Timothy W. Still Vice President
2727-A Allen Parkway
Houston, TX 77019

Steven A. Glover Associate General Counsel &
2727-A Allen Parkway Assistant Secretary
Houston, TX 77019

Joyce R. Bilski Administrative Officer
2727-A Allen Parkway
Houston, TX 77019

Farideh Farrokhi Assistant Controller
2727-A Allen Parkway
Houston, TX 77019

Kenneth D. Nunley Associate Tax Officer
2727-A Allen Parkway
Houston, TX 77019
</TABLE>

ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT

The following is a list of American General Corporation's subsidiaries as of
March 31, 1997 . All subsidiaries listed are corporations, unless otherwise
indicated. Subsidiaries of subsidiaries are indicated by indentations and
unless otherwise indicated, all subsidiaries are wholly owned. Inactive
subsidiaries are denoted by an asterisk (*).
<TABLE>
<CAPTION>

Jurisdiction of
Name Incorporatiion
----------------------------------------------------------------------------- -----------------
<S> <C>
AGC Life Insurance Company (3).................................................. Missouri
American General Life and Accident Insurance Company (4)..................... Tennessee
American General Exchange, Inc. .......................................... Tennessee
Southern Educators Life Insurance Company................................. Georgia
American General Life Insurance Company (5).................................. Texas
(Registrant is a Separate Account of American General Life Insurance
Company, Depositor)
American General Annuity Service Corporation ............................. Texas
American General Life Insurance Company of New York...................... New York
The Winchester Agency Ltd. ........................................... New York

C-6

<PAGE>

The Variable Annuity Life Insurance Company .............................. Texas
The Variable Annuity Marketing Company ............................... Texas
VALIC Investment Services Company .................................... Texas
VALIC Retirement Services Company .................................... Texas
The Franklin Life Insurance Company ......................................... Illinois
The American Franklin Life Insurance Company ............................. Illinois
Franklin Financial Services Corporation .................................. Delaware
The Independent Life and Accident Insurance Company ......................... Florida
Independent Fire Insurance Company........................................ Florida
Independent Fire Insurance Company of Florida.......................... Florida
Old Faithful General Agency, Inc....................................... Texas
Thomas Jefferson Insurance Company..................................... Florida
Allen Property Company ......................................................... Delaware
Florida Westchase Corporation................................................ Delaware
Greatwood Development, Inc................................................... Delaware
Greatwood Golf Club, Inc. ................................................... Delaware
Highland Creek Golf Club, Inc. .............................................. No. Carolina
Hunter's Creek Communications Corporation ................................... Florida
Pebble Creek Corporation .................................................... Delaware
Pebble Creek Development Corporation ........................................ Florida
Westchase Development Corporation............................................ Delaware
Westchase Golf Corporation .................................................. Florida
American General Capital Services, Inc. ........................................ Delaware
American General Corporation (*)................................................ Delaware
American General Delaware Management Corporation (1)............................ Delaware
American General Finance, Inc. ................................................. Indiana
AGF Investment Corp. ........................................................ Indiana
American General Auto Finance, Inc. . ....................................... Delaware
American General Finance Corporation (6)..................................... Indiana
American General Finance Group, Inc. ..................................... Delaware
American General Financial Services, Inc. (7).......................... Delaware
The National Life and Accident Insurance Company .................. Texas
Merit Life Insurance Co. ................................................. Indiana
Yosemite Insurance Company ............................................... California
American General Finance, Inc................................................ Alabama
American General Financial Center ........................................... Utah
American General Financial Center, Inc. (*).................................. Indiana
American General Financial Center, Incorporated (*).......................... Indiana
American General Financial Center Thrift Company(*).......................... California
Thrift, Incorporated (*)..................................................... Indiana
American General Investment Advisory Services, Inc.(*).......................... Texas
American General Mortgage and Land Development, Inc. ........................... Delaware
American General Land Development, Inc. ..................................... Delaware
American General Realty Advisors, Inc. ...................................... Delaware
American General Realty Investment Corporation ................................. Texas
American General Mortgage Company............................................ Delaware
GDI Holding, Inc. (*)8....................................................... California

C-7

<PAGE>

Ontario Vineyard Corporation ................................................ Delaware
Pebble Creek Country Club Corporation ....................................... Florida
Pebble Creek Service Corporation ............................................ Florida
SR/HP/CM Corporation ........................................................ Texas
American General Property Insurance Company .................................... Tennessee
Bayou Property Company.......................................................... Delaware
AGLL Corporation (9)......................................................... Delaware
American General Land Holding Company ....................................... Delaware
AG Land Associates, LLC (9)............................................... California
Hunter's Creek Realty, Inc. (*)........................................... Florida
Summit Realty Company, Inc. .............................................. So. Carolina
Lincoln American Corporation................................................. Delaware
Financial Life Assurance Company of Canada ..................................... Canada
Florida GL Corporation ......................................................... Delaware
GPC Property Company ........................................................... Delaware
Cinco Ranch Development Corporation ......................................... Delaware
Cinco Ranch East Development, Inc. .......................................... Delaware
Cinco Ranch West Development, Inc. .......................................... Delaware
The Colonies Development, Inc. .............................................. Delaware
Fieldstone Farms Development, Inc. .......................................... Delaware
Hickory Downs Development, Inc. ............................................. Delaware
Lake Houston Development, Inc. .............................................. Delaware
South Padre Development, Inc. ............................................... Delaware
Green Hills Corporation ........................................................ Delaware
INFL Corporation ............................................................... Delaware
Knickerbocker Corporation ...................................................... Texas
American Athletic Club, Inc. ................................................ Texas
Pavilions Corporation........................................................... Delaware
Texas Stars Corporation......................................................... New York

American General Finance Foundation, Inc. is not included on this list. It is
a non-profit corporation.

<FN>
NOTES

(1) The following limited liability companies were formed in the State of
Delaware on March 28, 1995. The limited liability interests of each are
jointly owned by AGC and AGDMC and the business and affairs of each are
managed by AGDMC:

American General Capital, L.L.C.
American General Delaware, L.L.C.

(2) On November 26, 1996, American General Institutional Capital A ("AG Cap
Trust A"), a Delaware business trust, was created. On March 10, 1997,
American General Institutional Capital B ("AG Cap Trust B"), also a
Delaware business trust, was created. Both AG Cap Trust A's and AG Cap
Trust B's business and affairs are conducted through their trustees:
Bankers Trust Company and Bankers Trust (Delaware). Capital securities of
each are held by non-affiliated third party investors and common
securities of AG Cap Trust A and AG Cap Trust B are held by AGC.

C-8

<PAGE>

(3) On December 23, 1994, AGCL became the owner of approximately 40% of the
shares of common stock of Western National Corporation ("WNC") (the
percentage of ownership by the American General insurance holding company
system will increase to approximately 46% upon conversion of WNC's Series
A Convertible Preferred Stock which AGCL also owns). WNC, a Delaware
corporation, owns the following companies:

WNL Holding Corporation
Western National Life Insurance Company (TX)
WesternSave (401K Plan)
Independent Advantage Financial & Insurance Services, Inc.
WNL Investment Advisory Services, Inc.
Conseco Annuity Guarantee Corp.
WNL Brokerage Services, Inc.
WNL Insurance Services, Inc.

However, AGCL (1) holds the direct interest in WNC and the indirect
interests in WNC's subsidiaries for investment purposes; (2) does not
direct the operations of WNC or WNL; (3) has no representatives on the
Board of Directors of WNC; and (4) is restricted, pursuant to a
Shareholder's Agreement between WNC and AGCL, in its right to vote its
shares against the slate of directors proposed by WNC's Board of
Directors. Accordingly, although WNC and its subsidiaries technically are
members of the American General insurance holding company system under
insurance holding company laws, AGCL does not direct and control WNC or
its subsidiaries.

(4) AGLA owns approximately 20% of Mosher, Inc. ("Mosher") on a fully diluted
basis. AGLA owns approximately 11% of Whirlpool Financial Corp.
("Whirlpool") on a fully diluted basis. The total investment of AGLA in
Whirlpool represents approximately 3% of the voting power of the capital
stock of Whirlpool, but approximately 11% of the Whirlpool stock which has
voting rights. The interests in Mosher and Whirlpool (each of which are
corporations that are not associated with AGC) are held for investment
purposes only.

(5) AGL owns 100% of the common stock of American General Securities
Incorporated ("AGSI"), a full-service NASD broker-dealer. AGSI, in turn,
owns 100% of the stock of the following insurance agencies:

American General Insurance Agency, Inc. (Missouri)
American General Insurance Agency of Hawaii, Inc. (Hawaii)
American General Insurance Agency of Massachusetts, Inc. (Massachusetts)

In addition, the following agencies are indirectly related to AGSI, but
not owned or controlled by AGSI:

American General Insurance Agency of Ohio, Inc. (Ohio)
American General Insurance Agency of Texas, Inc. (Texas)
American General Insurance Agency of Oklahoma, Inc. (Oklahoma)
Insurance Masters Agency, Inc. (Texas)

AGSI and the foregoing agencies are not affiliates or subsidiaries of AGL
under applicable holding company laws, but they are part of the AGC group
of companies under other laws.

C-9

<PAGE>

(6) American General Finance Corporation is the parent of an additional 48
wholly owned subsidiaries incorporated in 30 states and Puerto Rico for
the purpose of conducting its consumer finance operations, INCLUDING those
noted in footnote 7 below.

(7) American General Financial Services, Inc. is the parent of an additional 7
wholly owned subsidiaries incorporated in 4 states and Puerto Rico for the
purpose of conducting its consumer finance operations.

(8) AGRI owns only a 75% interest in GDI Holding, Inc.

(9) AG Land Associates, LLC is jointly owned by AGLH and AGLL. AGLH holds a
98.75% managing interest and AGLL owns a 1.25% managing interest.
</FN>
</TABLE>

All of the subsidiaries of AGL are included in its consolidated financial
statements, which are filed in Part B of this Registration Statement.

ITEM 27. NUMBER OF CONTRACT OWNERS

As of March 31, 1997 there were no owners of the Contracts.

ITEM 28. INDEMNIFICATION

Article VII, section 1, of the Company's By-Laws provides, in part, that the
Company shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any proceeding (other than an action by or in
the right of the Company) by reason of the fact that such person is or was
serving at the request of the Company, against expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with such proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in the best interest of the Company and, in
the case of a criminal proceeding, had no reasonable cause to believe the
conduct of such person was unlawful.

Article VII, section 1 (in part), section 2, and section 3, provide that the
Company shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action
by or in the right of the Company to procure a judgment in its favor by reason
of the fact that such person is or was acting on behalf of the Company,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such action if such person acted in good
faith, in a manner such person believed to be in the best interests of the
Company, and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances.

No indemnification shall be made under Article VII, section 1: (a) in respect
of any claim, issue, or matter as to which such person shall have been
adjudged to be liable to the Company, unless and only to the extent that the
court in which such action was brought shall determine upon application that,
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for the expenses which such court shall
determine; (b) of amounts paid in settling or otherwise

C-10

<PAGE>

disposing of a threatened or pending action with or without court approval; or
(c) of expense incurred in defending a threatened or pending action which is
settled or otherwise disposed of without court approval.

Article VII, section 3, provides that, with certain exceptions, any
indemnification under Article VII shall be made by the Company only if
authorized in the specific case, upon a determination that indemnification of
the person is proper in the circumstances because the person has met the
applicable standard of conduct set forth in section 1 of Article VII by; (a) a
majority vote of a quorum consisting of directors who are not parties to such
proceeding; (b) approval of the shareholders, with the shares owned by the
person to be indemnified not being entitled to vote thereon; or (c) the court
in which such proceeding is or was pending upon application made by the
Company or the indemnified person or the attorney or other persons rendering
services in connection with the defense, whether or not such application by
the attorney or indemnified person is opposed by the Company.

Article VII, section 7, provides that for purposes of Article VII, those
persons subject to indemnification include any person who is or was a
director, officer, or employee of the Company, or is or was serving at the
request of the Company as a director, officer, or employee of another foreign
or domestic corporation which was a predecessor corporation of the Company or
of another enterprise at the request of such predecessor corporation.

Section 12 of the Trust Participation Agreement that is incorporated by
reference in Exhibit 3(c)(i) of this Registration Statement as amended by Form
of First Amendment to the Trust Participation Agreement that is filed as
Exhibit 3(c)(ii) to this Registration Statement are hereby incorporated by
reference in response to this item. Section 12.1 thereof provides that the
Company will indemnify The Sierra Variable Trust (the "Trust") and Sierra
Investment Services Corporation (the "Distributor") and their directors,
trustees, officers and controlling persons from losses and costs due to any
misstatements or omissions of material facts for which the Company is
responsible in this Registration Statement or otherwise or due to the
Company's failure to meet its obligations under the Trust Participation
Agreement. Section 12.2 thereof provides that the Distributor will indemnify
the Trust, the Company, American General Securities Incorporated ("AGSI") and
their officers, trustees, employees and controlling persons from losses and
costs due to any misstatements or omissions of material facts for which the
Distributor or its affiliates are responsible in this Registration Statement
or otherwise or as a result of any failure by the Trust or the Distributor to
meet its obligations under the Trust Participation Agreement.

Section 6 of the Master Marketing and Distribution Agreement that is filed as
Exhibit 3(a)(ii) to this Registration Statement is hereby incorporated by
reference in response to this item. Paragraph 5.1 thereof provides that the
Company and AGSI will indemnify the Distributor and any other broker-dealer
affiliated with the Distributor and contracted to sell the Contracts, and
their officers, directors and controlling persons from losses and costs due to
any misstatements or omissions of material facts for which the Company or AGSI
is responsible in this Registration Statement or due to any negligent, illegal
or fraudulent acts of the Company or AGSI. Paragraph 5.2 provides that the
Distributor will indemnify the Company and AGSI, and their officers, directors
and controlling persons from losses and costs due to any misstatements or
omissions of material facts for which the Distributor or its affiliates are
responsible in this Registration Statement, or as a result of any negligent,
illegal or fraudulent acts or omissions by the Distributor.

C-11

<PAGE>

The Agreement filed as Exhibit 3(d) to this Registration Statement is hereby
incorporated by reference in response to this item. Pursuant to that
Agreement, the Distributor and Sierra Investment Advisors Corporation ("SIAC")
agree to indemnify the Company and AGSI with respect to liabilities arising
out of the negligence or bad faith of the Distributor, SIAC or any
sub-investment adviser to the Trust in performing their obligations to the
Trust, including the obligations of SIAC and the sub-investment advisers to
operate the Trust in compliance with Sub-Chapter M and Section 817(h) of the
Internal Revenue Code of 1986, as amended. The Distributor and the Adviser
also agree to indemnify the Company and AGSI for 50% of any other liabilities
or costs that they incur as a result of any failure of the Trust to comply
with Sub-Chapter M or Section 817(h) that does not result from such negligence
or bad faith.

The Distribution Agreement filed as Exhibit 3(a)(i) to this Registration
Statement is hereby incorporated by reference in response to this item. Under
part EIGHTH of that agreement, the Company agrees to indemnify AGSI from
liabilities and costs that it may incur as a result of any misstatements or
omissions of material facts in this Registration Statement or otherwise for
which the Company is responsible; and AGSI agrees to indemnify the Company
against costs and liabilities that the Company may incur as a result of any
act of an employee of AGSI.

Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) Registrant's principal underwriter, American General Securities
Incorporated, also acts as principal underwriter for American
General Life Insurance Company of New York Separate Account E
and American General Life Insurance Company Separate Account A.

(b) The directors and principal officers of the principal
underwriter are:

<TABLE>
<CAPTION>
Name and Principal Position and Offices with Underwriter,
Business Address American General Securities Incorporated
------------------------ -------------------------------------------
<S> <C>
F. Paul Kovach, Jr. Director & President
American General Securities
Incorporated
2727 Allen Parkway
Houston, TX 77019

C-12

<PAGE>

Robert F. Herbert Director & Associate Tax Officer
American General Life
2727-A Allen Parkway
Houston, Texas 77019

John V. LaGrasse Director & Vice President
American General Life
2727-A Allen Parkway
Houston, TX 77019

Thomas B. Phillips Director & Secretary
American General Life
2727-A Allen Parkway
Houston, TX 77019

Rodney O. Martin, Jr. Director
American General Life
2727-A Allen Parkway
Houston, TX 77019

Fred G. Fram Vice President
American General Securities
Incorporated
2727 Allen Parkway
Houston, TX 77019

Steven A. Glover Assistant Secretary
American General Life
2727-A Allen Parkway
Houston, TX 77019

Carole D. Hlozek Administrative Officer
American General Securities
Incorporated
2727 Allen Parkway
Houston, TX 77019

J. Andrew Kalbaugh Administrative Officer
American General Securities
Incorporated
2727 Allen Parkway
Houston, TX 77019

Kenneth D. Nunley Associate Tax Officer
2727-A Allen Parkway
Houston, TX 77019
</TABLE>

C-13

<PAGE>

ITEM 30. LOCATION OF RECORDS

All records referenced under Section 31(a) of the 1940 Act, and Rules 31a-1
through 31a-3 thereunder, are maintained and in the custody of American
General Life Insurance Company at its principal executive office located at
2727-A Allen Parkway, Houston, TX 77019.

ITEM 31. MANAGEMENT SERVICES

None.

ITEM 32. UNDERTAKINGS

The Registrant undertakes: A) to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the
audited financial statements in the Registration Statement are never more than
16 months old for so long as payments under the Contracts may be accepted; B)
to include either (1) as part of any application to purchase a Contract
offered by these prospectuses, a space that an applicant can check to request
a Statement of Additional Information ("Statement"), or (2) a toll-free number
or a post card or similar written communication affixed to or included in the
applicable prospectus that the applicant can remove to send for a Statement ;
C) to deliver any Statement and any financial statements required to be made
available under this Form promptly upon written or oral request.

REPRESENTATION REGARDING REASONABLENESS OF AGGREGATE FEES AND CHARGES DEDUCTED
UNDER CONTRACTS PURSUANT SECTION 26(C)(2)(A) INVESTMENT COMPANY ACT 1940

AGL represents that the fees and charges deducted under the Contracts that are
identified as Contract Form No. 97010 and Contract Form No. 97011 and
described in this Registration Statement, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by AGL under the Contracts. AGL bases its representation on
its assessment of all of the facts and circumstances, including such relevant
factors as: the nature and extent of such services, expenses and risks; the
need for AGL to earn a profit; the degree to which the Contracts include
innovative features; and the regulatory standards for exemptive relief under
the Investment Company Act of 1940 used prior to October 1996, including the
range of industry practice.

C-14

<PAGE>

SIGNATURES

As required by the Securities Act of 1933 and the Investment Company Act
of 1940, the Registrant, American General Life Insurance Company Separate
Account D, has caused this Registration Statement to be signed on its behalf,
in the City of Houston, and State of Texas on this 18th day of April, 1997.

AMERICAN GENERAL LIFE INSURANCE AMERICAN GENERAL LIFE INSURANCE
COMPANY SEPARATE ACCOUNT D COMPANY
(Registrant) (Depositor)

By: /s/ROBERT F. HERBERT, JR. By:/s/ROBERT F. HERBERT, JR
------------------------------- -------------------------------
ROBERT F. HERBERT, JR. ROBERT F. HERBERT, JR.
Senior Vice President of Senior Vice President
American General Life
Insurance Company

As required by the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
Signature Title Date
----------- ------- ------
<S> <C> <C>
RODNEY O. MARTIN, JR.* Principal Executive Officer April 18, 1997
--------------------------
(Rodney O. Martin, Jr.)

ROBERT F. HERBERT, JR.* Principal Financial and April 18, 1997
-------------------------- Accounting Officer
(Robert F. Herbert, Jr.)
</TABLE>

<TABLE>
Directors
-------------
Directors
-----------

<S> <C>

ROBERT M. DEVLIN* JOHN V. LaGRASSE*
-------------------------- -------------------------
(Robert M. Devlin) (John V. LaGrasse)

MICHAEL G. ATNIP* RODNEY O. MARTIN, JR.*
-------------------------- -------------------------
(Michael G. Atnip) (Rodney O. Martin, Jr.)

DAVID A. FRAVEL* JON P. NEWTON*
-------------------------- -------------------------
(David A. Fravel) (Jon P. Newton)

ROBERT F. HERBERT, JR.* PETER V. TUTERS*
-------------------------- -------------------------
(Robert F. Herbert, Jr.) (Peter V. Tuters)

/s/ Steven A. Glover
--------------------------------------
*By Steven A. Glover, Attorney-in-Fact April 18, 1997
</TABLE>

<PAGE>

EXHIBIT INDEX

3(a)(ii) Form of Master Marketing and Distribution Agreement, by and among
American General Life Insurance Company, American General
Securities Incorporated and Sierra Investment Services Corporation

(b) Form of Selling Group Agreement, by and among American General
Life Insurance Company, American General Securities Incorporated
and Sierra Investment Services Corporation

(c)(ii) Form of First Amendment to the Trust Participation Agreement by
and among American General Life Insurance Company, American
General Securities Incorporated, The Sierra Variable Trust and
Sierra Investment Services Corporation

4(a) Specimen form of Combination Fixed and Variable Annuity Contract
(Form No. 97010)

(b) Specimen form of Combination Fixed and Variable Annuity Contract
(Form No. 97011)

5(a)(i) Specimen form of Application for Contract Form No. 97010 and
Contract Form No. 97011

(ii) Specimen form of SNAP Annuity Ticket application

(c)(i) Contract Service Request, including telephone transfer
authorization for Contract Form No. 97010 and Contract Form No.
97011

8 Form of Letter Agreement between Sierra Investment Services
Corporation and American General Life Insurance Company regarding
expenses

9 Opinion and consent of Counsel

10 Consent of Independent Auditors

13(a)(i) Computations of hypothetical historical standardized average
annual total returns for the Global Money Fund Division, available
under Contract Form No. 97010 and Contract Form No. 97011 for the
one year period ended December 31, 1996

(iii) Computations of hypothetical historical non-standardized
cumulative total returns for the Global Money Fund Division,
available under Contract Form No. 97010 and Contract Form No.
97011 for the one year period ended December 31, 1996, and since
inception

<PAGE>

(iv) Computations of hypothetical historical seven day yield and
effective yield for the Global Money Fund Division, available
under Contract Form No. 97010 and Contract Form No. 97011 for the
seven day period ended December 31, 1996

15(c) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their
capacities as directors and, where applicable, officers of
American General Life Insurance Company: Messrs. Atnip and Newton

(e) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by the following persons in their
capacities as directors and, where applicable, officers of
American General Life Insurance Company: Messrs. Fravel and
LaGrasse

27 Financial Data Schedule

EXHIBIT 3(a)(ii)

MASTER MARKETING AND DISTRIBUTION AGREEMENT

BY AND AMONG

AMERICAN GENERAL LIFE INSURANCE COMPANY,
AMERICAN GENERAL SECURITIES INCORPORATED,
AND SIERRA INVESTMENT SERVICES CORPORATION

<PAGE>

<TABLE>
TABLE OF CONTENTS

<CAPTION>
DESCRIPTION PAGE
<S> <C>
SECTION 1. AVAILABLE CONTRACTS..................................... 2
1.1 Availability...................................... 2
1.2 Modification of Contracts......................... 2
1.3 Suspension or Restriction of Sales. .............. 2
1.4 Reinsurance of Contracts.......................... 2

SECTION 2. CONTRACT DISTRIBUTION.................................... 2
2.1 Exclusive Appointment. ........................... 2
2.2 Best Efforts...................................... 3
2.3 Selling Groups. ................................. 3
2.4 Suitability Determinations........................ 3
2.5 Sales Persons/Associated Agencies................. 3
2.6 Insurance Agent Licensing......................... 3
2.7 Selection of Selling Group Members................ 4
2.8 Supervision by Selling Group Members.............. 4
2.9 Marketing Materials............................... 4
2.10 Marketing Services................................ 5
2.11 Non-Marketing Materials........................... 6
2.12 Information About AGL and DISTRIBUTOR............ 6
2.13 Complaints........................................ 7
2.14 Limitations on Authority.......................... 7
2.15 Independent Contractor............................ 8

SECTION 3. ADMINISTRATION.......................................... 8
3.1 Contract Administration........................... 8
3.2 Performance Standards............................. 8

SECTION 4. REPRESENTATIONS AND WARRANTIES.......................... 8
4.1 By AGL............................................ 8
4.2 By AGSI........................................... 9
4.3 By DISTRIBUTOR ...................................10

SECTION 5. COMPENSATION; COSTS AND EXPENSES........................11
5.1 Compensation......................................11
5.2 Each Party To Bear Own Costs......................11

SECTION 6. INDEMNIFICATION.........................................11
6.1 Indemnification by AGL and AGSI...................11
6.2 Indemnification by DISTRIBUTOR....................12
6.3 Limitation on Liability...........................14
6.4 Injunctive Relief.................................14

<PAGE>

SECTION 7. TERM AND TERMINATION....................................14
7.1 Term..............................................14
7.2 Events of Termination.............................14
7.3 Remedy of Events of Default.......................15
7.4 Parties to Cooperate Respecting Termination.......16

SECTION 8. ASSIGNMENT..............................................16

SECTION 9. CONTRACT LAPSE, TERMINATION, SURRENDER, ETC.............16
9.1 Responsibilities of DISTRIBUTOR...................16
9.2 Responsibilities of AGL and AGSI..................16

SECTION 10. CONFIDENTIALITY........................................16

SECTION 11. ARBITRATION OF DISPUTES................................17
11.1 Arbitration Binding. ............................17
11.2 Initiation of Arbitration. ......................17
11.3 Selection of Arbitrators..........................17
11.4 Impartiality......................................18
11.5 Hearing Date and Time.............................18

SECTION 12. TRADEMARKS.............................................18
12.1 DISTRIBUTOR Trademarks............................18
12.2 AGL Trademarks....................................18
12.3 Grant of License..................................18
12.4 Prior Approval....................................19
12.5 Sample Materials..................................19
12.6 Trademarks Valid and Enforceable. ................19

SECTION 13. BONDING AND INSURANCE..................................19

SECTION 14. NOTICES................................................20
14.1 Manner of Notices.................................20
14.2 Notice of Regulatory Proceedings..................20

SECTION 15. MISCELLANEOUS..........................................21
15.1 Amendment.........................................21
15.2 Governing Law.....................................21
15.3 Survival of Provisions............................21
15.4 Severability......................................21
15.5 Waiver............................................21
15.6 Force Majeure.....................................21
15.7 Parties to Cooperate..............................21
15.8 Entire Agreement..................................21
</TABLE>

<PAGE>

MASTER MARKETING AND DISTRIBUTION AGREEMENT

This Master Marketing and Distribution Agreement (the "Agreement") is
made on this ________ day of ___________________, 1996, by and among AMERICAN
GENERAL LIFE INSURANCE COMPANY, a Texas insurance company ("AGL"), on behalf
of itself and each of its separate accounts listed on Schedule A hereto, as
the same may be amended from time to time (each, an "Account"), AMERICAN
GENERAL SECURITIES INCORPORATED, a Texas corporation ("AGSI"), and SIERRA
INVESTMENT SERVICES CORPORATION, a Delaware corporation ("DISTRIBUTOR") (each,
a "Party," collectively, the "Parties").

RECITALS

WHEREAS, The Parties are jointly engaged in distribution of variable
annuity contracts described in Schedule A attached hereto ("Contract"), which
are issued by AGL and are funded through AGL's Separate Account D's ("Separate
Account D");

WHEREAS, AGL and DISTRIBUTOR (including certain affiliates of
DISTRIBUTOR) may in the future jointly develop other annuity and/or life
insurance contracts (collectively referred to, together with the Contract and
any certificates under any group contract, as the "Contracts") to be issued
through one or more separate accounts established by AGL for such purposes
(collectively referred to, together with Separate Account D, as the
"Accounts");

WHEREAS, AGL has appointed AGSI the principal underwriter of the Sierra
Advantage Variable Annuity Contract and currently intends to appoint AGSI the
principal underwriter of all Contracts described in Schedule A;

WHEREAS, AGL and AGSI have previously retained DISTRIBUTOR, on an
exclusive basis, to market and distribute the Contracts and DISTRIBUTOR
desires to provide such services;

NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and of the mutual expectations of benefit occurring from the
activities herein contemplated, the Parties hereto agree as follows:

<PAGE>

SECTION 1. AVAILABLE CONTRACTS

1.1 AVAILABILITY. AGL shall make the Contracts available to
Distributor for distribution pursuant to the terms and conditions of this
Agreement, as the Parties may amend from time to time by mutual agreement.

1.2 MODIFICATION OF CONTRACTS. AGL, in its sole discretion, may
modify or delete the terms of any Contract, to the extent permitted by the
Contracts and applicable law. DISTRIBUTOR may, from time to time, propose
modifications to the terms of any Contract, and AGL agrees to consider any
such proposed modification in good faith, provided, however, that any
implementation of such proposed modification shall remain in AGL's sole
discretion.

1.3 SUSPENSION OR RESTRICTION OF SALES. AGL, in its sole discretion,
may suspend or restrict the sale of any Contract in any state or other
jurisdiction upon 30 days' prior written notice to DISTRIBUTOR or upon such
shorter notice period as may be required by applicable law, without incurring
any liability or obligation to DISTRIBUTOR. Upon such notice, DISTRIBUTOR
agrees to immediately cease, and shall instruct all Selling Group Members (as
defined below) to immediately cease, all solicitation activity with respect to
the Contracts in those states or other jurisdictions where AGL has suspended
or restricted the sale of Contracts. In addition, notwithstanding any
provision herein to the contrary, AGL may refuse to sell any Contract to any
applicant for any reason.

1.4 REINSURANCE OF CONTRACTS. AGL may reinsure any of the Contracts with
a reinsurer of its choice at any time, to the extent permitted by applicable
law.

SECTION 2. CONTRACT DISTRIBUTION

2.1 EXCLUSIVE APPOINTMENT.

(a) AGL, as the issuer of the Contracts, and AGSI, as the principal
underwriter of the Contracts, hereby appoint DISTRIBUTOR the exclusive
distributor, during the term of this Agreement, for the marketing and
distribution of the Contracts.

(b) The foregoing appointment shall be limited to those states and other
jurisdictions in which the Contracts may lawfully be offered and sold and in
which DISTRIBUTOR and any Associated Agency (as defined below) are properly
licensed as provided in Section 2.5 below, registered or otherwise qualified
to offer and sell the Contracts under the applicable federal securities laws
and the applicable insurance and other laws and regulations of each such state
or other jurisdiction. AGL shall periodically provide DISTRIBUTOR with notice
pursuant to Section 14 hereof of all states and other jurisdictions in which
the Contracts may lawfully be offered and sold.

(c) As exclusive distributor for the Contracts, DISTRIBUTOR, along with
AGL, shall enter into agreements ("selling group agreements") with other
persons ("Selling Group Members"), pursuant to which such Selling Group
Members will offer, sell, and service Contracts in those states and other
jurisdictions where they and their Associated Agencies (as defined below) are
properly licensed, registered or otherwise qualified to offer and sell the
Contracts under the applicable insurance and other laws of each such state or
other jurisdiction.

<PAGE>

2.2 BEST EFFORTS. DISTRIBUTOR shall use its best efforts to recruit
Selling Group Members to offer, sell, and service Contracts.

2.3 SELLING GROUPS. Each Selling Group Member shall be registered with
the Securities and Exchange Commission ("SEC") as a broker-dealer under the
Securities Exchange Act of 1934 ("1934 Act") and shall be a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD"),
unless the Selling Group Member is exempt from the broker-dealer registration
requirements of the 1934 Act. In addition, each Selling Group Member, if
applicable, and Associated Agency (as defined below) shall have received an
appropriate appointment or license by or through AGL and, unless exempt, a
level of qualification with the NASD appropriate to enable it to offer and
sell Contracts. Each Selling Group Member shall enter into a selling group
agreement the form of which shall be as agreed to by the Parties from time to
time. The Parties shall not enter into any selling group agreement unless and
until AGL has given written approval of the Selling Group Member, which
approval shall be provided within ten calendar days after DISTRIBUTOR has
given notice of its intent to enter into the agreement.

2.4 SUITABILITY DETERMINATIONS. The Parties wish to ensure that the
Contracts, the applications for which will be solicited by Selling Group
Members and their respective registered sales representatives (Selling Group
Members and registered sales representatives may be referred to collectively
as "Sales Persons"; if the context so warrants, registered sales
representatives may be referred to as "Sales Persons.") will be issued to
persons for whom the Contracts will be suitable. Each Selling Group Member
shall take reasonable steps to ensure that neither it nor any other Sales
Person makes recommendations to an applicant to purchase any of the Contracts,
or to select any investment option thereunder, in the absence of reasonable
grounds to believe that the purchase of the Contracts or selection of that
option is suitable for such applicant in compliance with federal securities
law requirements governing suitability obligations. While not limited to the
following, a determination of suitability shall be based on information
furnished to Sales Persons after reasonable inquiry of such applicant
concerning the applicant's insurance and investment objectives and financial
situation and needs, including the likelihood that the applicant will make
sufficient premium payments to derive the benefits thereof, and tax status.
The responsibility of Sales Persons to take such reasonable steps and make
such determinations of suitability shall be a requirement of each selling
group agreement entered into by the Parties.

2.5 SALES PERSONS/ASSOCIATED AGENCIES. DISTRIBUTOR and AGL shall enter
into a separate selling agreement whereby Selling Group Members will represent
that such Selling Group Member and its Sales Persons are duly registered and
qualified pursuant to the 1934 Act, NASD regulations, and any other securities
regulatory requirements. DISTRIBUTOR shall assist in ensuring that any
insurance agency associated with DISTRIBUTOR and to whom it may assign certain
rights or obligations under this Agreement pursuant to Section 8 of this
Agreement is and remains properly licensed under the applicable insurance laws
and regulations of each state or jurisdiction in which the Associated Agency
is engaged in the offer or sale of the Contracts.

2.6 INSURANCE AGENT LICENSING.

(a) Neither DISTRIBUTOR nor any of its Sales Persons shall engage in any
activities with respect to the offer or sale of Contracts that would require
insurance agent licensing in the state or jurisdiction where such activities
are performed, unless and until such Sales Persons are properly licensed to
perform such services in the particular state or other jurisdiction.

<PAGE>

(b) DISTRIBUTOR shall immediately notify AGL if its license is revoked,
suspended, or terminated or if the license of any of its Sales Persons has
been revoked, suspended, or terminated.

(c) AGL agrees to take all actions necessary to effect the appointment of
the Sales Persons of Selling Group Members or their Associated Agency(ies) as
insurance agents of AGL, and to effect renewals thereof, all as required for
the business of this Agreement.

(d) DISTRIBUTOR shall, from time to time, advise AGL of the Sales Persons
of DISTRIBUTOR that DISTRIBUTOR wishes AGL to appoint as AGL insurance agents.
AGL shall forward all approved agent appointment forms that it receives in a
timely manner to the appropriate state insurance departments.

(e) DISTRIBUTOR and AGL shall cooperate in making arrangements with each
Selling Group Member in order to help to keep costs associated with the
appointment of Sales Persons at reasonable levels.

(f) Notwithstanding the foregoing, AGL, in its sole discretion, may
refuse to appoint or renew the appointment of any Sales Person, or may revoke
such appointment for any reason. AGL shall consult with DISTRIBUTOR prior to
refusing to appoint, renew appointment, or revoking an appointment, as to the
reasons for such decision. Neither AGL nor AGSI shall incur any obligation to
compensate or reimburse any expenses of DISTRIBUTOR as a result of any such
refusal to appoint or renew an appointment of a Sales Person.

2.7 SELECTION OF SELLING GROUP MEMBERS. DISTRIBUTOR shall exercise care
and diligence in selecting and recommending to AGL broker-dealers to serve as
Selling Group Members and in the marketing and distribution of the Contracts.

2.8 SUPERVISION BY SELLING GROUP MEMBERS. Selling Group Members shall be
responsible for the supervision of the Sales Persons in their solicitation of
applications for the Contracts and all of their activities relating to this
Agreement and that are provided for under the Selling Group Agreement.

2.9 MARKETING MATERIALS.

(a) DISTRIBUTOR, at its sole cost, shall be responsible for developing
(with the assistance of AGL), printing and distributing all marketing
materials to be used in connection with the offer and sale of the Contracts,
except for (i) any prospectus for the Contracts (for which responsibility is
described in Section 2.9(b), below), including any related statement of
additional information ("SAI"), and any amendments or supplements to the
foregoing (collectively, as the context requires, "Contract Prospectus") and
(ii) any annual or semi-annual reports for an Account ("Account Reports"), the
preparation of which shall be the sole responsibility of AGL. As used herein,
"marketing materials" shall mean any "advertisement" or "sales literature," as
those terms are defined in Section 35(a) of the NASD's Rules of Fair Practice,
as amended from time to time, including, without limitation, any so-called
"dealer only" materials.

(b) The responsibility for (i) printing and distributing Contract
Prospectuses (including any related SAI) and Account Reports used as marketing
materials and (ii) the costs of printing and distributing such Contract
Prospectuses and Account Reports is set forth in the Participation

<PAGE>

Agreement by and among AGL, DISTRIBUTOR, and other parties thereto
("Participation Agreement").

(c) AGL and DISTRIBUTOR shall submit by telecopy or overnight delivery
definitive copies of all marketing materials to the other for its approval,
which approval shall be provided within at least ten (10) business days of
receipt or such period to which the Parties may agree from time to time.

(d) DISTRIBUTOR shall, to the extent required, file in a timely manner
all marketing materials with the NASD, the SEC, and any other regulatory body
(other than state insurance regulatory bodies), as appropriate, and shall
obtain any necessary approval of these regulatory bodies of such marketing
materials. AGL shall, to the extent required, file in a timely manner all
marketing materials with the various state insurance regulatory bodies, as
appropriate, and shall obtain any necessary approval of these regulatory
bodies of such marketing materials.

(e) Notwithstanding the foregoing, AGL acknowledges that Selling Group
Members, at their own cost, may from time to time develop, print, and
distribute marketing materials that are not jointly developed by AGL and
DISTRIBUTOR ("supplemental marketing materials"). In no event shall
DISTRIBUTOR utilize, or give its consent to Selling Group Members to utilize,
any supplemental marketing materials unless AGL has provided its written
approval of such materials prior to their intended first use. The
responsibility of Selling Group Members to obtain AGL's prior written approval
of supplemental marketing materials shall be a requirement of each selling
group agreement entered into by the Parties.

2.10 MARKETING SERVICES. In connection with the offer and sale of
Contracts, DISTRIBUTOR agrees to:

(a) develop a marketing plan for the introduction and continuing sale of
the Contracts through Selling Group Members;

(b) provide AGL on an ongoing basis with information concerning the
marketability of the Contracts and the usefulness of the marketing materials
jointly prepared by AGL and DISTRIBUTOR or any other documents prepared by
AGL, and advise AGL with regard to the desirability of revising or redesigning
the same;

(c) provide AGL on an ongoing basis with comparative data regarding
products offered by other life insurance companies and mutual fund groups;

(d) initiate and maintain contact with existing and potential Selling
Group Members for purposes of advising AGL on the desirability of developing
and implementing new Contract features;

(e) receive written and oral inquiries from Selling Group Members with
respect to the Contracts and coordinate responses to the same with AGL;

(f) distribute to Selling Group Members copies of all marketing described
herein, that are approved or prepared by AGL pursuant to this Agreement;

(g) maintain a toll-free number and support and service unit to render
assistance to Selling Group Members in connection with the offer and sale of
Contracts;

<PAGE>

(h) provide such other marketing services and support as AGL may
reasonably request from time to time.

2.11 NON-MARKETING MATERIALS.

(a) AGL, at its sole cost, shall be responsible for preparing, printing
in quantity and delivering to Selling Group Members: (i) all Contract forms,
applications and related materials, (ii) all documents pertaining to the
processing of premium payments, refunds and other monies, and (iii) all
documents pertaining to transactions, claims, and other features available
under the Contracts, including, but not limited to, full or partial
surrenders, exchanges, transfers, loans, systematic purchases, death claims,
changes in premium allocations, and changes in beneficiary.

(b) AGL, at its sole cost, shall be responsible for preparing, printing,
and distributing all correspondence with Contract owners, except for
correspondence prepared, printed, and distributed by DISTRIBUTOR pursuant to
AGL's prior approval.

(c) The responsibility for printing and distributing Contract
Prospectuses to existing Contract owners shall be set forth in the
Participation Agreement.

(d) AGL, at its sole cost, shall be responsible for preparing, printing,
distributing to existing Contract owners, and, to the extent required, filing
with any appropriate regulatory body, in a timely manner, or causing the same
to be done: (i) all Contract owner account statements, (ii) Account Reports,
(iii) voting cards, as appropriate; and (iv) all reports, forms, and other
information necessary to comply with applicable federal and state tax law.

(e) AGL shall provide to DISTRIBUTOR or its designated agent at least one
complete copy of all SEC registration statements, Contract Prospectuses,
Account Reports, any preliminary and final voting instruction solicitation
material, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Account or the Contracts,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.

(f) AGL, as agent for AGSI and Selling Group Members shall, upon or prior
to the completion of each Contract transaction for which a confirmation is
legally required, send a written confirmation to the Contract owner for each
such transaction, in a form and manner which complies with the requirements of
the 1934 Act, state laws and regulations, and the disclosure requirements of
the NASD. Such confirmations shall be furnished to all Contract owners in
accordance with securities laws, shall reflect the facts of the transaction,
and, if applicable, shall show that they are being sent by AGL on behalf of
AGSI and Selling Group Members.

2.12 INFORMATION ABOUT AGL AND DISTRIBUTOR

(a) Neither AGL nor any of its affiliates will give any information or
make any representations or statements on behalf of or concerning DISTRIBUTOR
or its affiliates in connection with the sale of the Contracts other than the
information or representations provided by or on behalf of DISTRIBUTOR and its
affiliates that are contained (i) in the registration statement, including the
Contract Prospectus contained therein, as such registration statement and
Prospectus may be amended from time to time; (ii) in Account Reports or voting
instruction solicitation materials for each Account; or (iii) marketing
materials prepared, except with the express written permission

<PAGE>

of DISTRIBUTOR. As used herein, the term "affiliate" shall have the same
meaning as defined in Section 2(a)(3) of the Investment Company Act of 1940
("1940 Act").

(b) Neither DISTRIBUTOR nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning AGL, AGSI, or their respective affiliates in connection with the
sale of the Contracts other than the information or representations provided
by or on behalf of AGL, AGSI, or their respective affiliates that are
contained in (i) the registration statement, including the Contract Prospectus
contained therein, as such registration statement and Prospectus may be
amended from time to time; (ii) in Account Reports or voting instruction
solicitation materials for each Account; or (iii) in marketing material,
except with the express written permission of AGL.

2.13 COMPLAINTS.

In the case of an oral or written consumer or regulatory agency
complaint, AGL, AGSI, and Selling Group Member shall each promptly notify the
others and shall coordinate and fully cooperate in responding to such
complaints. AGL, AGSI, and Selling Group Member shall jointly develop
procedures to coordinate, investigate and respond to such complaints.

AGL, AGSI and Selling Group Member agree to consult with one another with
respect to the disposition of any complaints or grievances and Selling Group
Member shall use its best efforts to obtain the cooperation of any Sales
Person in the disposition thereof. AGSI and DISTRIBUTOR shall maintain
customer complaint files pursuant to applicable NASD rules.

2.14 LIMITATIONS ON AUTHORITY. DISTRIBUTOR and its Sales Persons shall
have no authority to, and shall not:

(a) alter or substitute AGL's Contract applications or forms in any
manner;

(b) guarantee the issuance of any Contract or the reinstatement of any
lapsed Contract (in the case of life insurance Contracts), or the reinvestment
of any Contract (in the case of annuity Contracts);

(c) add, alter, waive or discharge any Contract provision, including,
without limitation, any forfeiture provision, or represent that such can be
done by AGL;

(d) make any settlement of any claim or claims or bind AGL or any of its
affiliates in any way;

(e) extend the time of making any premium payments, or pay or allow any
inducement not specified in the Contracts to any Contract owner or applicant,
or rebate any portion of a premium payment, in any manner whatsoever;

(f) incur any indebtedness or liability on behalf of or expend or
contract for the expenditure of the funds by AGL;

(g) enter into legal proceedings in connection with any matter pertaining
to the business of AGL without the prior written consent of AGL, unless
DISTRIBUTOR or any Sales Person, as the case may be, is named in such
proceedings;

<PAGE>

(h) give or offer to give, on behalf of AGL, any tax or legal advice
related to the purchase of a Contract; or

(i) exercise any authority on behalf of AGL other than that expressly
conferred on DISTRIBUTOR or any Sales Person by this Agreement.

2.15 INDEPENDENT CONTRACTOR. DISTRIBUTOR shall at all times function as,
and be deemed to be, an independent contractor. Nothing contained herein shall
be construed as creating the relationship of employer and employee between or
among AGL, AGSI, and DISTRIBUTOR (or any Sales Person or Associated Agency
thereof).

SECTION 3. ADMINISTRATION

3.1 CONTRACT ADMINISTRATION. Each Party agrees to perform the
administrative duties assigned to such Party under Schedule B attached hereto
and incorporated by reference herein, as the Parties may amend from time to
time by mutual agreement. DISTRIBUTOR acknowledges that AGL may subcontract
its rights and responsibilities enumerated in Schedule B to one or more third
party vendors. Although such duties may be delegated, AGL agrees that it is
legally liable for the performance of the same.

3.2 PERFORMANCE STANDARDS. Each Party agrees to meet or exceed the
standards for performing the various administrative duties set out in Schedule
B attached hereto and incorporated by reference herein, as the Parties may
amend from time to time by mutual agreement.

SECTION 4. REPRESENTATIONS AND WARRANTIES

4.1 BY AGL.

AGL represents and warrants that:

(a) it is an insurance company duly organized, validly existing and in
good standing under the laws of the State of Texas and has full corporate
power, authority and legal right to execute, deliver and perform its duties
and comply with its obligations under this Agreement,

(b) it has legally and validly established and maintains each Account as
a segregated asset account under the Texas Insurance Code and the regulations
thereunder,

(d) interests in each Account pursuant to the Contracts will be
registered under the 1933 Act to the extent required by the 1933 Act,

<PAGE>

(e) the Contracts will be duly authorized for issuance and sold in
compliance with all applicable federal and state laws, including, without
limitation, the 1933 Act, the 1934 Act, the 1940 Act, Texas law, and the laws
of any other state in which the Contracts are offered and sold,

(f) each Account is and will remain registered under the 1940 Act, to the
extent required by the 1940 Act, and each Account does and will comply in all
material respects with the requirements of the 1940 Act and the rules
thereunder, to the extent required,

(g) each Account's 1933 Act registration statement relating to the
Contracts, together with any amendments thereto, will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder,

(h) AGL will amend the registration statement for its Contracts under the
1933 Act and for its Accounts under the 1940 Act from time to time as required
in order to effect the continuous offering of its Contracts or as may
otherwise be required by applicable law, and

(i) each Contract Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, but
excluding information contained or omitted in reliance upon and in conformity
with information furnished to AGL or AGSI by or on behalf of DISTRIBUTOR.

AGL further represents that:

(a) the Contracts currently are and will be treated as annuity,
endowment, or life insurance contracts under applicable provisions of the
Internal Revenue Code of 1986, as amended ("Code"), that it will use its best
efforts to maintain such treatment, and that it will notify DISTRIBUTOR
immediately upon having a reasonable basis for believing that any of the
Contracts have ceased to be so treated or that they might not be so treated in
the future, and

(b) that each Account is a "segregated asset account," that interests in
the Account are offered exclusively through the purchase of or transfer into a
"variable contract," within the meaning of such terms under Section 817 of the
Code and the regulations thereunder, that it will use its best efforts to
continue to meet such definitional requirements, and that it will notify
DISTRIBUTOR immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the
future.

4.2 BY AGSI.

AGSI represents and warrants that:

(a) it is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Texas and has full power, authority,
and legal right to execute, deliver, and perform its duties and comply with
its obligations under this Agreement,

(b) it is a member in good standing of the NASD and that it has obtained
all approvals necessary to offer the Contracts and otherwise enter into and
carry out all transactions contemplated by this Agreement, has obtained or
will obtain all approvals, licenses, authorizations, orders or consents, and
shall be duly registered or otherwise qualified under the securities laws of
any state or other jurisdiction where offers or sales of the Contracts may be
made,

<PAGE>

(c) it is bonded as required by all applicable laws and regulations and
that it will carry out its sales and underwriting obligations hereunder in
continued compliance with the NASD Rules of Fair Practice and federal and
state securities laws and regulations and state insurance laws and
regulations,

(d) it is duly registered with the SEC as a broker-dealer under the 1934
Act, and that the activities of DISTRIBUTOR and Sales Persons in connection
with the offer and sale of Contracts shall be in compliance with applicable
federal and state securities laws and regulations in all material respects,

(e) in its capacity as principal underwriter of the Contracts, it has
performed due diligence in order to discharge its obligations to all Selling
Group Members, and further that the Contracts are the subject of a bona fide
offering and that after a reasonable examination of the Contracts, it has
determined that the representations contained in the Contract prospectuses are
true and correct,

(f) it shall at all times provide appropriate supervision for those home
office employees of AGL who are registered representatives of AGSI and who are
required by AGL to execute duties on behalf of AGL which are related to the
Contracts, and

(g) it shall take all actions necessary to obtain and maintain all
regulatory approvals required to underwrite the Contracts for sale in all
states and jurisdictions in which the Contracts may be sold.

4.3 BY DISTRIBUTOR.

DISTRIBUTOR represents and warrants that:

(a) it is a corporation duly organized, validly existing, and in good
standing under the laws of the State of California and has full power,
authority, and legal right to execute, deliver, and perform its duties and
comply with its obligations under this Agreement,

(b) it is a member in good standing of the NASD and that it has obtained
all approvals necessary to offer the Contracts and otherwise enter into and
carry out all transactions contemplated by this Agreement, has obtained or
will obtain all approvals, licenses, authorizations, orders or consents, and
shall be duly registered or otherwise qualified under the securities and
insurance laws of any state or other jurisdiction where offers or sales of the
Contracts may be made,

(d) it is duly registered with the SEC as a broker-dealer under the 1934
Act, and that the activities of DISTRIBUTOR shall be in compliance with
applicable federal and state securities laws and regulations in all material
respects,

(e) neither it nor its Associated Agencies shall make any representations
concerning the Contracts, except those contained in or reasonably derived from
the Contract Prospectus, registration statements, annual or semi-annual
reports of each Account, or in other written materials prepared by or on
behalf of AGL, and

<PAGE>

(f) to the extent that DISTRIBUTOR assigns rights or obligations under
this Agreement to an Associated Agency pursuant to Section 8 hereof,
DISTRIBUTOR represents and warrants that such Associated Agency will have and
maintain all governmental approvals, licenses, authorizations, orders or
consents that are necessary for it to be assigned such rights and perform any
such obligations. In addition, the representations and warranties made by
DISTRIBUTOR in this Section 4.3 shall be read to apply to the Associated
Agency where the context so requires.

SECTION 5. COMPENSATION; COSTS AND EXPENSES

5.1 COMPENSATION.

AGL agrees to compensate DISTRIBUTOR for its services hereunder in
accordance with Schedule C attached hereto and incorporated herein by
reference, as the Parties may amend from time to time by mutual agreement.

5.2 EACH PARTY TO BEAR OWN COSTS. Except as otherwise expressly provided,
each Party to this Agreement shall bear all expenses of fulfilling its duties
and obligations hereunder. To the extent one Party initially bears any costs
or expenses that are the responsibility of another Party, that other Party
shall reimburse the Party that initially bore such expenses promptly upon
request.

SECTION 6. INDEMNIFICATION

6.1 INDEMNIFICATION BY AGL AND AGSI.

(a) Except as limited by and in accordance with the provisions of
Sections 6.1(c) and 6.1(d) below, AGL and AGSI shall indemnify and hold
harmless DISTRIBUTOR against any loss, claim, damage or liability (including
amounts paid in settlement with the written consent of AGL and AGSI), or
litigation (including reasonable counsel fees and other costs of investigating
or defending any alleged loss, claim, damage, or liability) to which
DISTRIBUTOR may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, or liabilities are related
to the sale of the Contracts and:

(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Contract, the
registration statement relating to the Contracts, the Contract
Prospectus, or in any published marketing materials or communications
with any Contract owner (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as
to any Indemnified Party, as defined below, if such statement or omission
or such alleged statement or omission was made in reliance upon and in
conformity with information furnished to AGL or AGSI by or on behalf of
DISTRIBUTOR or any Associated Agency of DISTRIBUTOR for use in the
foregoing materials; or

<PAGE>

(ii) arise out of the failure of AGL, AGSI, or any of their
respective affiliates, officers, directors, or employees, to comply with
any applicable securities or other laws and regulations in connection
with its rendering of Contract issue, recordkeeping, confirmation or
other services under this Agreement; or

(iii) arise out of AGL's or AGSI's negligence or misconduct, or that
of their respective affiliates, officers, directors, or employees in the
performance of its duties hereunder; or

(iv) arise as a result of any failure by AGL or AGSI to
substantially provide the services and furnish the materials under the
terms of this Agreement; or

(v) arise out of or result from any material breach of any
representation or warranty made by AGL or AGSI in this Agreement or arise
out of or result from any other material breach of this Agreement by AGL
or AGSI.

(b) The indemnities in this Section 6.1 shall, upon the same terms and
conditions, extend to and inure to the benefit of each director, officer, or
Sales Person of DISTRIBUTOR and any person controlling DISTRIBUTOR within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act (each an
"Indemnified Party").

(c) Neither AGL nor AGSI shall be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement.

(d) Neither AGL or AGSI shall be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified AGL and AGSI, if appropriate, in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to
notify AGL and AGSI of any such claim shall not relieve AGL and AGSI from any
liability which it may have to the Indemnified Party against whom such action
is brought otherwise than on account of this indemnification provision. In
case any such action is brought against an Indemnified Party, AGL and AGSI
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from AGL and AGSI to such party of
AGL's and AGSI's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
AGL will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.

6.2 INDEMNIFICATION BY DISTRIBUTOR.

(a) Except as limited by and in accordance with the provisions of
Sections 6.2(c) and 6.2(d) below, DISTRIBUTOR shall indemnify and hold
harmless AGL and AGSI against any loss, claim, damage or liability (including
amounts paid in settlement with the written consent of AGL and

<PAGE>

AGSI), or litigation (including reasonable counsel fees and other costs of
investigating or defending any alleged loss, claim, damage, or liability) to
which AGL or AGSI may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, or liabilities are
related to the sale of the Contracts and:

(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Contract, the
registration statement relating to the Contracts, the Contract
Prospectus, or in any published marketing materials or communications
with any Contract owner (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein or necessary to make the statements therein not
misleading, if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished to AGL or AGSI by or on behalf of DISTRIBUTOR or any Associated
Agency thereof for use in the foregoing materials; or

(ii) arise out of the failure of DISTRIBUTOR or any Associated
Agency of DISTRIBUTOR, including affiliates, officers, directors, or
employees of the foregoing, to comply with any applicable securities or
other laws and regulations in connection with its rendering of Contract
marketing and distribution under this Agreement; or

(iii) arise out of the negligence or misconduct of DISTRIBUTOR or
any Associated Agency of DISTRIBUTOR, or that of any affiliate, officer,
director, or employee of the foregoing, in the performance of its duties
hereunder; or

(iv) arise as a result of any failure by DISTRIBUTOR to
substantially provide the services and furnish the materials under the
terms of this Agreement; or

(v) arise out of or result from any material breach of any
representation or warranty made by DISTRIBUTOR in this Agreement or arise
out of or result from any other material breach of this Agreement by
DISTRIBUTOR.

(b) The indemnities in this Section 6.2 shall, upon the same terms and
conditions, extend to and inure to the benefit of each director, officer, and
affiliate of AGL or AGSI and any person controlling AGL or AGSI within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act (each an
"Indemnified Party").

(c) DISTRIBUTOR shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.

(d) DISTRIBUTOR shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified DISTRIBUTOR in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify DISTRIBUTOR of
any such claim shall not relieve DISTRIBUTOR from any liability

<PAGE>

which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against an Indemnified Party, DISTRIBUTOR shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from DISTRIBUTOR to such party of DISTRIBUTOR's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and DISTRIBUTOR
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.

6.3 LIMITATION ON LIABILITY. In no event shall any Party under this
Agreement be liable for lost profits or for exemplary, special, punitive or
consequential damages alleged to have been sustained by the other Party, as
opposed to a third party.

6.4 INJUNCTIVE RELIEF. The Parties each agree that monetary damages may
be an inadequate remedy in the event of a breach by any Party of any of the
covenants in this Agreement, and that any such breach by a Party may cause the
other Parties great and irreparable injury and damage. Accordingly, the
Parties agree that the non-breaching Parties shall be entitled, without
waiving any additional rights or remedies otherwise available to it at law or
in equity or by statute, to injunctive and other equitable relief in the event
of a breach or intended or threatened breach by any other Party of any of said
covenants.

SECTION 7. TERM AND TERMINATION

7.1 TERM. This Agreement shall be effective as of the date first above
written and shall, unless earlier terminated pursuant to Section 7.2 or 7.3,
remain in full force and effect thereafter with respect to all Contracts of
each particular form type until no Contracts of that particular form type
remain outstanding.

7.2 EVENTS OF TERMINATION.

(a) This Agreement shall terminate at any Party's option, without
penalty:

(i) with or without cause, on not less than 180 days' written notice
to the other Parties;

(ii) upon the mutual written consent of the Parties;

(iii) upon written notice of one Party to the other Parties in the
event of bankruptcy or insolvency of such party to which notice is given;
or

(iv) in the event of an assignment of this Agreement, subject to the
provisions of Section 8.

(b) This Agreement shall terminate at the option of DISTRIBUTOR, subject
to Section 7.3, in the event of:

(i) fraud, misrepresentation, conversion or unlawful withholding of
funds by AGL or AGSI;

<PAGE>

(ii) the dissolution or disqualification of AGL or AGSI to do
business under any applicable state or federal law where AGL or AGSI's
ability to perform is materially impaired; however, such termination
shall extend only to the jurisdiction(s) where AGL or AGSI is prohibited
from doing business;

(iii) the suspension or revocation of any material license or permit
held by AGL or AGSI by the appropriate governmental agency or authority;
however, such termination shall extend only to the jurisdiction(s) where
AGL or AGSI is prohibited from doing business;

(iv) the sale (without the prior written consent of DISTRIBUTOR,
which consent shall not be unreasonably withheld) of the AGL or AGSI
business relating to the Contracts, which sale is to an unaffiliated
person or entity, whether by merger, consolidation, or sale of
substantially all of AGL or AGSI's assets, during the term of, and any
extension of, this Agreement; or

(v) upon the institution of formal proceedings against AGL or AGSI
by the NASD, SEC, or any other regulatory body regarding AGL or AGSI's
duties under this Agreement, the sale of the Contracts, or the operation
of any Account, provided that such proceedings result in a finding of
material wrongdoing by AGL or AGSI.

(i) fraud, misrepresentation, conversion or unlawful withholding of
funds by DISTRIBUTOR;

(ii) the dissolution or disqualification of DISTRIBUTOR to do
business under any applicable state or federal law where DISTRIBUTOR's
ability to perform is materially impaired; however, such termination
shall extend only to the jurisdiction(s) where DISTRIBUTOR is prohibited
from doing business;

(iii) the suspension or revocation of any material license or permit
held by DISTRIBUTOR by the appropriate governmental agency or authority;
however, such termination shall extend only to the jurisdiction(s) where
DISTRIBUTOR is prohibited from doing business;

(iv) the sale (without the prior written consent of AGL, which
consent shall not be unreasonably withheld) of DISTRIBUTOR's business to
an unaffiliated person or entity, whether by merger, consolidation, or
sale of substantially all of DISTRIBUTOR'S assets during the term of, and
any extension of, this Agreement; or

(v) upon the institution of formal disciplinary proceedings against
DISTRIBUTOR by the NASD, SEC, or any other regulatory body, regarding
DISTRIBUTOR's duties under this Agreement or the sale of the Contracts,
provided that such proceedings result in a finding of material wrongdoing
by DISTRIBUTOR.

7.3 REMEDY OF EVENTS OF DEFAULT. If any Party breaches this Agreement or
is in default in the performance of any of its duties and obligations
hereunder (the "defaulting Party"), including,

<PAGE>

without limitation, a breach in any representation or warranty made by the
defaulting Party, the non-defaulting Parties may give written notice thereof
to the defaulting Party, and if such breach is not remedied within 30 days
after such written notice is given, then the non-defaulting Parties may
terminate this Agreement by giving 30 days' written notice of such termination
to the defaulting Party.

7.4 PARTIES TO COOPERATE RESPECTING TERMINATION. The Parties agree to
cooperate and give reasonable assistance to each other in effecting an orderly
transition following termination.

SECTION 8. ASSIGNMENT

This Agreement is not assignable by DISTRIBUTOR and shall terminate
automatically in the event of a purported assignment; provided, however, that
DISTRIBUTOR may, with the prior written consent of AGL (which shall not be
unreasonably withheld), assign its rights or obligations under this Agreement
to a company affiliated with DISTRIBUTOR.

SECTION 9. CONTRACT LAPSE, TERMINATION, SURRENDER, ETC.

9.1 RESPONSIBILITIES OF DISTRIBUTOR. During the term of this Agreement
and for five (5) years following the termination of this Agreement, neither
DISTRIBUTOR nor any of its Associated Agencies or Sales Persons, or any
affiliate, director, officer or employee of the foregoing, shall induce or
cause, or attempt to induce or cause, directly or indirectly, any Contract
owner (a) to lapse, terminate, surrender, exchange, or cancel his or her
Contract, (b) to cease or discontinue making premium payments thereunder, or
(c) to direct cash value or premium payments thereunder to any other financial
product without the prior written consent of AGL, unless such act is in
response to an enactment of federal or state legislation, order or decision of
any court or regulatory authority, or a change in circumstances that makes the
Contracts or insurance contracts of that type (E.G., annuity contracts or life
insurance contracts) an unsuitable investment for existing Contract owners.

9.2 RESPONSIBILITIES OF AGL AND AGSI. During the term of this Agreement
and for five (5) years following the termination of this Agreement, neither
AGL nor AGSI, or any affiliate, director, officer, employee or agent of the
foregoing, shall induce or cause, or attempt to induce or cause, directly or
indirectly, any Contract owner (a) to lapse, terminate, surrender, exchange,
or cancel his or her Contract, (b) to cease or discontinue making premium
payments thereunder, or (c) to direct cash value or premium payments
thereunder to any other financial product without the prior written consent of
DISTRIBUTOR, unless such act is in response to an enactment of federal or
state legislation, order or decision of any court or regulatory authority, or
a change in circumstances that makes the Contracts or insurance contracts of
that type (E.G., annuity contracts or life insurance contracts) an unsuitable
investment for existing Contract owners.

SECTION 10. CONFIDENTIALITY

Each Party to this Agreement shall keep confidential any information
about each other Party, or its operations obtained pursuant to this Agreement
or the transactions contemplated herein and

<PAGE>

shall disclose such information only if such other Party has authorized such
disclosure, or if such disclosure is required by federal or state regulatory
bodies. If any Party hereto receives a request from such regulatory body
requiring such disclosure, that Party shall immediately notify the other
Parties of the request.

SECTION 11. ARBITRATION OF DISPUTES

11.1 ARBITRATION BINDING. Any controversy or claim arising out of or
relating to this Agreement, or the breach hereof, shall be settled by
arbitration under the rules of the NASD in effect at that time. If the NASD
refuses jurisdiction, or the Parties mutually agree in writing, the
arbitration procedure described herein shall be used. In either event, the
decision of the arbitrator(s) shall be final and judgment upon the award
rendered may be entered in any court having jurisdiction thereof.

11.2 INITIATION OF ARBITRATION. To initiate arbitration, the Party
seeking arbitration ("Claimant") shall notify the Party(ies) (each, a
"Respondent") in writing of its desire to arbitrate, stating the nature of its
dispute and the remedy sought. The Respondent(s) shall respond to the
notification in writing within 10 days of its receipt.

11.3 SELECTION OF ARBITRATORS.

(a) The arbitration hearing shall be before a panel of three arbitrators,
each of whom must be (i) a present or former officer of a life insurance or
reinsurance company and/or (ii) an officer and principal of a registered
broker-dealer. The panel must contain at least one representative from each of
(i) and (ii). An arbitrator may not be a present or former affiliate,
director, officer, employee, attorney, or consultant of AGL, AGSI, and
DISTRIBUTOR (or any Associated Agency or Sales Person thereof).

(b) Claimant and Respondent shall each name five (5) candidates to serve
as an arbitrator. Claimant and Respondent shall each choose one candidate from
the other Party's list, and these two candidates shall serve as the first two
arbitrators. Claimant and Respondent shall each present their initial lists of
five (5) candidates by written notification to the other Party within 25 days
of the date of the mailing of the notification initiating the arbitration. Any
subsequent additions to the list that are required shall be presented within
10 days of the date the naming Party receives notice that a candidate that has
been chosen declines to serve.

(c) The two arbitrators shall then select the third arbitrator from the
eight (8) candidates remaining on the lists of the Claimant and Respondent
within 14 days of the acceptance of their positions as arbitrators. If the two
arbitrators cannot agree on the choice of a third, then this choice shall be
referred back to the Parties. Claimant and Respondent shall take turns
striking the name of one of the remaining candidates from the initial eight
(8) candidates until only one candidate remains. If the candidate so chosen
shall decline to serve as the third arbitrator, the candidate whose name was
stricken last shall be nominated as the third arbitrator. This process shall
continue until a candidate has been chosen and accepted. This candidate shall
serve as the third arbitrator. The first turn at striking the name of a
candidate shall belong to the Respondent. Once chosen, the arbitrators are
empowered to decide all substantive and procedural issues by a majority of
votes.

<PAGE>

11.4 IMPARTIALITY. The Parties agree that each of the three arbitrators
should be impartial regarding the dispute. Therefore, at no time will any
Party contact or otherwise communicate with any person who is to be or who has
been designated as a candidate to serve as an arbitrator concerning the
dispute, except upon the basis of jointly drafted communications provided by
the Parties to inform those candidates actually chosen as arbitrators of the
nature and facts of the dispute. Likewise, any written or oral arguments
provided to the arbitrators concerning the dispute shall be coordinated with
the other Party(ies) and shall be provided simultaneously to the other
Party(ies) or shall take place in the presence of the other Party(ies).
Further, at no time shall any arbitrator be informed that the arbitrator has
been named or chosen by one Party or another.

11.5 HEARING DATE AND TIME. The arbitration hearing shall be held on a
date fixed by the arbitrators. In no event shall this date be later than six
(6) months after the appointment of the third arbitrator. As soon as possible,
the arbitrators shall establish pre-arbitration procedures as warranted by the
facts and issues of the particular case. At least 10 days prior to the
arbitration hearing, each Party shall provide the other Party(ies) and the
arbitrators with a detailed statement of the facts and arguments that it will
present at the arbitration hearing. The arbitrators may consider any relevant
evidence; they shall give the evidence such weight as they deem it entitled to
after consideration of any objections raised concerning it. The Claimant shall
have the burden of proving its case by a preponderance of the evidence. Each
Party may examine any witnesses who testify at the arbitration hearing. Each
Party shall bear its own costs of arbitration, except that the arbitrators
shall apportion their own reasonable fees and expenses between or among the
Parties, as they deem appropriate.

SECTION 12. TRADEMARKS

12.1 DISTRIBUTOR TRADEMARKS. DISTRIBUTOR has filed for a service mark in
order to establish ownership to all right, title and interest in and to the
name, trademark and service mark "Sierra Advantage," and will file for a
service mark in order to establish ownership of all right, title, and interest
in the name, trademark and service mark "Sierra Asset Manager" and such other
tradenames, trademarks and service marks identified in Schedule D hereto, as
the Parties hereto may amend from time to time (the "DISTRIBUTOR licensed
marks" or the "licensor's licensed marks"). DISTRIBUTOR hereby grants to AGL
(including its affiliates) a non-exclusive license to use the DISTRIBUTOR
licensed marks in connection with AGL's performance of the services
contemplated under this Agreement, subject to the terms and conditions set
forth in this Section 12.

12.2 AGL TRADEMARKS. AGL owns all right, title and interest in and to the
tradename, trademarks and service mark "American General Life Insurance
Company," and such other tradenames, trademarks and service marks identified
in Schedule D hereto, as the Parties hereto may amend from time to time (the
"AGL licensed marks" or the "licensor's licensed marks"). AGL hereby grants to
DISTRIBUTOR (including its affiliates) a non-exclusive license to use the AGL
licensed marks in connection with DISTRIBUTOR's performance of the services
contemplated by this Agreement, subject to the terms and conditions set forth
in this Section 12.

12.3 GRANT OF LICENSE. The grant of license by DISTRIBUTOR and AGL (each,
a "licensor") to the other and affiliates thereof (the "licensees") shall
terminate automatically when the Contracts (or any particular form of
Contract) cease to be outstanding or by either Party at its election upon
termination of this Agreement. Upon automatic termination, each licensee shall
cease

<PAGE>

to use a licensor's licensed marks. Upon AGL's elective termination of this
license, DISTRIBUTOR (including its affiliates) shall immediately cease to
distribute marketing material relating to any Contract and shall likewise
cease any activity that suggests that it has any right under the AGL licensed
marks or that it has any association with AGL or any affiliate of AGL in
connection with any such Contracts. Similarly, upon DISTRIBUTOR's elective
termination of this license, AGL (including its affiliates) shall cease to
issue as soon as reasonably practicable, any new Contracts bearing any of the
DISTRIBUTOR licensed marks and shall likewise cease any activity which
suggests that it has any right under any of the DISTRIBUTOR licensed marks or
that it has any association with DISTRIBUTOR or any affiliate of DISTRIBUTOR,
except that AGL shall have the right to continue to administer any outstanding
Contracts bearing any of the DISTRIBUTOR licensed marks and in connection
therewith to use the DISTRIBUTOR licensed marks.

12.4 PRIOR APPROVAL. Notwithstanding any provision in this Agreement to
the contrary, a licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials bearing the
licensor's licensed marks. The licensor's approval shall not be unreasonably
withheld.

12.5 SAMPLE MATERIALS. During the term of this grant of license, a
licensor may request that a licensee submit samples of any materials bearing
any of the licensor's licensed marks that were previously approved by the
licensor but, due to changed circumstances, the licensor may wish to
reconsider, or that were not previously approved in the manner set forth
above. If, on the reconsideration or on initial review, respectively, any such
samples fail to meet with the written approval of the licensor, then the
licensee shall immediately cease distributing such disapproved materials. The
licensor's approval shall not be unreasonably withheld. The licensee shall
obtain the prior written approval of the licensor for the use of any new
materials developed to replace the disapproved materials, in the manner set
forth above.

12.6 TRADEMARKS VALID AND ENFORCEABLE. Each licensee hereunder: (a)
acknowledges and stipulates that the licensor's licensed marks are valid and
enforceable trademarks and/or service marks and that such licensee does not
own the licensor's licensed marks and claims no rights therein other than as a
licensee under this Agreement; (b) agrees never to contend otherwise in legal
proceedings or in other circumstances; and (c) acknowledges and agrees that
the use of the licensor's licensed marks pursuant to this grant of license
shall inure to the benefit of the licensor.

SECTION 13. BONDING AND INSURANCE

Each Party shall maintain sufficient fidelity bond coverage (including
coverage for larceny and embezzlement) and errors and omissions insurance
coverage as may be required by applicable law or as such Party seems necessary
in light of its obligations under this Agreement. DISTRIBUTOR shall maintain
errors and omissions coverage from a reputable insurance company in an amount
and form acceptable to AGL at all times during the term of this Agreement.

<PAGE>

SECTION 14. NOTICES

14.1 MANNER OF NOTICES. Unless otherwise provided in this Agreement, any
notice required or permitted to be sent under this Agreement shall be given to
the following persons at the following addresses and facsimile numbers, or
such other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:

American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019
Attn: Steven A. Glover
Telecopier: (713) 831-3071

American General Securities Incorporated
2727 Allen Parkway, Suite 290
Houston, Texas 77019
Attn: F. Paul Kovach, Jr.
Telecopier: (713) 831-3366

Sierra Investment Services Corporation

Attn: Keith B. Pipes
Telecopier: (818) 925-0269

14.2 NOTICE OF REGULATORY PROCEEDINGS.

(a) AGL and AGSI shall immediately notify DISTRIBUTOR of: (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to any Contract or to any Account's
registration statement under the 1933 Act relating to the Contracts or any
Contract Prospectus, (ii) any request by the SEC or other regulatory body for
any amendment to such registration statement or Contract Prospectus, (iii) the
initiation of any proceeding for that purpose or for any other purpose
relating to the offering of any Contract, or the registration or offering of
the Account's interests pursuant to the Contracts, or (iv) any other action or
circumstances that may prevent or otherwise materially affect the lawful offer
or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and,
in all material respects, issued and sold in accordance with applicable state
and federal law. AGL and AGSI shall make every reasonable effort to prevent
the issuance of any such stop order, cease and desist order or similar order
and, if any such order is issued, to obtain the lifting thereof at the
earliest possible time.

(b) After DISTRIBUTOR becomes aware of any of the following, DISTRIBUTOR
shall immediately notify AGL of: (i) the issuance by any court or regulatory
body of any order having a material effect with respect to DISTRIBUTOR's
ability to perform its obligations hereunder, (ii) the initiation of any
proceeding for any purpose relating to the sale of the Contracts, and (iii)
any other actions or circumstances that may prevent the lawful offer or sale
of any of the Contracts in any state or jurisdiction. DISTRIBUTOR shall also
immediately notify AGL if any of its Sales Persons or Associated Agencies is
or becomes subject to any proceedings or is sanctioned or suspended (i) by

<PAGE>

the SEC or NASD, (ii) by any court for securities law violations, or (iii) by
any state regulatory authority.

SECTION 15. MISCELLANEOUS

15.1 AMENDMENT. This Agreement may be amended at any time by a writing
executed by the parties.

15.2 GOVERNING LAW. This Agreement shall be interpreted in accordance
with and governed by the laws of the State of Texas.

15.3 SURVIVAL OF PROVISIONS. Upon termination of this Agreement, the
following provisions shall survive: Sections 2.4, 2.5, 2.6, , 2.11, 2.12,
2.13, 2.14, 3, 4, 5, 6, 8, 9, 10, 11, 12, 14, and 15.

15.4 SEVERABILITY. Should any provision of this Agreement be held or made
invalid by a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.

15.5 WAIVER. Any failure or delay by any Party to enforce at any time any
of the provisions of this Agreement, or to exercise any right or option which
is herein provided, or to require at any time the performance of any of the
provisions hereof, shall in no way be construed to be a waiver of such
provision of this Agreement. If any Party waives the breach of any provision
of this Agreement by another Party, the waiving Party still has the right to
require performance of that provision and its conduct shall not be construed
to waive succeeding breaches of that provision or any breaches of any other
provision.

15.6 FORCE MAJEURE. No Party shall be liable for damages due to delay or
failure to perform any obligation under this Agreement where such delay or
failure results directly or indirectly from circumstances beyond the control
and without the fault or negligence of such Party.

15.7 PARTIES TO COOPERATE.

(a) The Parties shall cooperate fully in any insurance or securities
regulatory examination, investigation, or proceeding or any judicial
proceeding with respect to AGL, AGSI, DISTRIBUTOR, and their respective
affiliates, agents and representatives to the extent that such examination,
investigation, or proceeding arises in connection with Contracts distributed
under this Agreement. The Parties shall furnish applicable federal and state
regulatory authorities with any information or reports in connection with its
services under this Agreement that authorities may request in order to
ascertain whether AGL's operations are being conducted in a manner consistent
with any applicable law or regulations.

(b) DISTRIBUTOR shall execute such papers and do such acts and things as
shall from time to time be reasonably requested by AGL for the purpose of
qualifying and maintaining qualification of the Contracts for sale under the
applicable laws of any state, and maintaining the registration of the
Contracts under the 1933 Act and any Account under the 1940 Act.

15.8 ENTIRE AGREEMENT. This Agreement shall be the sole and only
agreement among the Parties regarding the marketing and distribution of
Contracts, and it supersedes all prior and

<PAGE>

contemporaneous agreements. The Parties may be parties to other agreements,
the terms and conditions of which may pertain to their respective duties and
obligations under this Agreement. To the extent anything in those other
agreements contradicts the terms of this Agreement, this Agreement shall
control. This Agreement may not be amended, supplemented, or modified, except
as expressly permitted herein, without the written agreement of the Parties.

-------------------

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first written above.

AMERICAN GENERAL LIFE INSURANCE COMPANY
on behalf of itself and each Account
named in Schedule A hereto,
as amended from time to time

____________________________________
BY:

AMERICAN GENERAL SECURITIES INCORPORATED

____________________________________
BY:

SIERRA INVESTMENT SERVICES CORPORATION

____________________________________
BY:

<PAGE>

SCHEDULE A

NAMES OF SEPARATE ACCOUNTS

American General Life Insurance Company Separate Account D

AVAILABLE CONTRACTS (IDENTIFIED BY FORM NUMBER)

Registration Form and Numbers: Form N-4
Nos. 811-2441
33-57730

1. Sierra Advantage Variable Annuity

Contract form numbers: 93010
93011

2. Sierra Asset Manager Variable Annuity

Contract form numbers: 97010
97011

A-1

<PAGE>

SCHEDULE B

AGL ADMINISTRATIVE RESPONSIBILITIES

1. Contract Maintenance

(a) File and obtain state approvals for the Contracts being issued, and
any amendments thereof.

(b) Notify DISTRIBUTOR of the effective date for each state in which the
Contracts become available for issue.

2. Contract Servicing

(a) Issue and maintain master records for Contracts applied for and
accepted.

(b) Provide maintenance support for all Contract features:

(i) Purchase Payments (new issues, 1035 Exchanges, EFT, additions);

(ii) Withdrawals (systematic, partial, full, cancellations, and
death claims);

(iii) Exchanges among Divisions, change of allocations;

(iv) Title Changes (beneficiary, ownership, name, assignments);

(v) Dollar-Cost Averaging;

(vi) Annuitization.

3. Customer Correspondence

(a) Generate and provide various customer correspondence documents:

(i) Contract (with appropriate riders and endorsements);

(ii) Confirmations of financial transactions;

(iii) For Contracts issued prior to July 1, 1996, semi-annual
statements of account activity and balances;

(iv) For Contracts issued after June 30, 1996, quarterly statements
of account activity and balances;

(v) Billing forms, in a manner agreed to between Owner and AGL.

4. Customer Service Functions

(a) Provide a telephone staff or other medium to respond to customer
inquiries.

B-1

<PAGE>

(b) Prepare and update service forms necessary to support the Contract.

(d) Coordinate complaint resolution (formal and informal).

5. Compliance

(a) Coordinate the printing and mailing of the following documents:

(i) Separate Account semiannual and annual reports;

(ii) Evergreen prospectus.

(b) Coordinate proxy solicitations as outlined in the Participation
Agreement.

(d) Generate tax reporting for Contract owners as warranted by account
activity.

(e) Maintain appropriate books and records.

6. Financial

(a) Calculate unit values on business days of the separate account.

(b) Place trades with corresponding Trust funds and settle such trades as
defined in the Participation Agreement.

7. Licensing/Contracting and Compensation

(a) Establish the initial record and perform ongoing maintenance for
representatives appointed to sell the product.

(b) Maintain copies of all approved Selling Group Agreements.

(d) Pay compensation based on arrangements of marketing and Selling Group
Agreements.

8. Reporting

(a) Provide sales or other reports as mutually agreed upon by AGL and
Distributor or Selling Group Member.

9. Communications

(a) Provide review and feedback/approval for all marketing pieces
associated with the Contract.

B-2

<PAGE>

DISTRIBUTOR ADMINISTRATIVE RESPONSIBILITIES

1. Distribution

(a) Solicit and obtain Selling Group Agreements.

(b) Assist in selecting Selling Group Members.

2. Marketing Support

(a) Provide wholesaling support to prospective and current Selling Group
Members.

(b) Draft and distribute approved marketing and product literature as
well as all forms associated with the Contract (applications, service
forms, etc.).

(d) Provide training on Contract features and procedures to Selling Group
Members.

(e) Provide hypothetical data and illustrations for Fund performance.

B-3

<PAGE>

SCHEDULE C
CONTRACTS: SIERRA ADVANTAGE VARIABLE ANNUITY
EFFECTIVE DATE OF THIS SCHEDULE: MAY 1, 1997

This Schedule governs the compensation to be paid by AGL in connection
with the Contracts issued in accordance with the Agreement. The defined terms
used herein shall have the same meaning as in the Agreement to which this
Schedule C is attached or as in the Contracts, whichever is applicable.

1. DISTRIBUTION FEE TO DISTRIBUTOR.

AGL shall pay or cause to be paid to DISTRIBUTOR, each semi-monthly
period, a Distribution Fee ("Fee") equal to 0.50% of purchase payments
received by AGL, under the Contracts ("Purchase Payments") during such period
that are attributable to all Contracts issued by AGL, less any commission
reductions and chargebacks described in Section 3. All Purchase Payments upon
which the Fee may be based must be received by AGL in accordance with the
Selling Group Agreements and such other requirements that AGL and DISTRIBUTOR
may, from time to time, establish. The Fee shall constitute the sole and
exclusive payment by AGL to DISTRIBUTOR with respect to the Contracts
distributed pursuant to this Agreement and all services rendered under or in
contemplation of this Agreement.

2. COMPENSATION TO SELLING GROUP MEMBERS.

AGL shall remit, or cause to be remitted, Sales commissions in the amount
of 5.50% of all Purchase Payments, as compensation to the appropriate Selling
Group Members who have submitted applications for Contracts that AGL has
approved for issuance ("Sales Commissions").

Commissions shall be paid semi-monthly (unless otherwise agreed). As used
in the above schedules, the term "commission" refers to an amount equal to a
fixed percentage of Purchase Payments received by AGL during each semi-monthly
period that are attributable to Contracts solicited by Sales Persons. All
Purchase Payments upon which the commission may be based must be received by
AGL in accordance with the Selling Group Agreement and such other requirements
that AGL and DISTRIBUTOR may, from time to time, establish.

3. COMMISSION REDUCTIONS AND CHARGEBACKS.

Notwithstanding the foregoing, the following commission reductions shall
apply to all DISTRIBUTOR Fees and Selling Group Member Sales Commissions,
except as otherwise noted, under the circumstances described below.

a. REDUCTIONS FOR PURCHASE PAYMENTS AT AGE 81 AND LATER. A 50%
commission reduction shall apply with respect to Purchase Payments
made on or after the Annuitant's eighty-first birthday (regardless of
whether the Contract has a Contingent Annuitant).

b. CHARGEBACKS FOR WITHDRAWALS. The following commission chargebacks
shall apply with respect to full or partial withdrawals (excluding
withdrawals made pursuant to the Systematic Withdrawal Program that
are within the 10% Free Withdrawal Privilege):

C-1

<PAGE>

o 100% of original commissions paid with respect to the amount
of Purchase Payments up to the amount of the full or partial
withdrawal of a Purchase Payment made during the first six
months following its receipt; and

o 50% of original commissions paid with respect to the amount of
Purchase Payments up to the amount of the full or partial
withdrawal of a Purchase Payment made during the next six
months following its receipt.

c. CHARGEBACK FOR ANNUITIZATION IN FIRST TWO YEARS. A commission
chargeback of 50% of original commissions paid will be assessed if
the Contract is annuitized in the first two Contract Years.

The foregoing chargebacks shall not apply in the event of the death of
the Annuitant or Owner during the periods specified above.

4. NO COMPENSATION PAYABLE.

Notwithstanding the foregoing, no compensation shall be payable with
respect to a Purchase Payment, and any compensation already paid by AGL
hereunder shall either be promptly returned by check payable to AGL on request
or will be deducted by AGL from future payments due under this Schedule C,
under each of the following conditions:

(a) if AGL, in its sole discretion, determines not to issue the Contract
applied for or rescinds the Contract;

(b) if the Contract owner returns the Contract pursuant to the "Free
Look" provision of the Contract;

(c) if a Purchase Payment is received within 60 days following a prior
partial withdrawal, and such Purchase Payment is reasonably believed to be a
reinvestment of the prior partial withdrawal;

(d) if AGL refunds the Purchase Payment as a result of a complaint or
grievance;

(e) if AGL or AGSI determines that any Sales Person signing an
application or any person or entity receiving compensation for soliciting
purchases of the Contracts is not duly licensed to sell the Contracts in the
state or jurisdiction of such attempted sale and registered or otherwise
qualified under the 1934 Act and rules thereunder and any applicable state
laws and rules governing broker-dealers and their related persons.

In addition, if AGL determines that any Contract applied for is a
replacement of any insurance or annuity product issued by AGL or any of its
affiliates, AGL reserves the right not to pay any compensation and to require
the return of any compensation already paid.

5. MISCELLANEOUS.

The Parties agree that AGL will directly pay Sales Commissions to the
appropriate Selling Group Member.

C-2

<PAGE>

SCHEDULE C(1)
CONTRACTS: SIERRA ASSET MANAGER VARIABLE ANNUITY
EFFECTIVE DATE OF THIS SCHEDULE: MAY 1, 1997

This Schedule governs the compensation to be paid by AGL in connection
with the Contracts issued in accordance with the Agreement. The defined terms
used herein shall have the same meaning as in the Agreement to which this
Schedule C(1) is attached or as in the Contracts, whichever is applicable.

1. DISTRIBUTION FEE TO DISTRIBUTOR.

AGL shall pay or cause to be paid to DISTRIBUTOR, each semi-monthly
period, a Distribution Fee ("Fee") for all purchase payments received by AGL,
under the Contracts ("Purchase Payments") during such period that are
attributable to all Contracts issued by AGL, less any commission reductions
and chargebacks described in Section 3. The amount of the Fee that is payable
with respect to Purchase Payments made under a Contract sold by a Selling
Group Member is determined, as set forth below, in accordance with the Sales
Commission Schedule in effect for the Selling Group Member with respect to
such Contract.

<TABLE>
<CAPTION>
SALES COMMISSION SCHEDULE DISTRIBUTION FEE
------------------------- ----------------
<S> <C>
Schedules 1 and 3 0.75% of Purchase Payments received by AGL during such
period less any chargebacks described in Section 3.

Schedule 2 0.45%(1) of Purchase Payments
received by AGL during such period
less any chargebacks described in
Section 3.

<FN>

(1) For all Contracts issued in 1997 under Commission Schedule #2 and
additional Purchase Payments made under the Contracts, the Fee will be 0.25%
of all Purchase Payments received by AGL during such period less any
chargebacks described in section 3.
</FN>
</TABLE>

All Purchase Payments upon which the Fee may be based must be received by AGL
in accordance with the Selling Group Agreements and such other requirements
that AGL and DISTRIBUTOR may, from time to time, establish. The Fee shall
constitute the sole and exclusive payment by AGL to DISTRIBUTOR with respect
to the Contracts distributed pursuant to this Agreement and all services
rendered under or in contemplation of this Agreement.

2. COMPENSATION TO SELLING GROUP MEMBERS.

AGL shall remit, or cause to be remitted, the amounts set out in the
schedules below as compensation to the appropriate Selling Group Members who
have submitted applications for Contracts that AGL has approved for issuance
("Sales Commissions"). The Parties agree that more than one schedule may be in
effect at a time with respect to a Selling Group Member.

<TABLE>
Sales Commission Schedules
--------------------------
<S> <C>
Schedule 1: 6.25% commission, 0% trail commission

C(1)-1

<PAGE>

Schedule 2: 5.50% commission, plus 0.25% trail commission commencing
at the end of the twelfth(2) Contract month after receipt
of the Purchase Payment.

Schedule 3 3.50% commission plus 0.50% trail commission commencing at
the end of the third Contract month after receipt of the
Purchase Payment.

<FN>
(2) For all Contracts issued in 1997 under Commission Schedule #2, trail
commissions will commence at the end of the third Contract month after receipt
of the Purchase Payment and will be paid quarterly thereafter. Any additional
Purchase Payments credited to Contracts issued in 1997 will be included in
trail calculations beginning three months after receipt of such premiums. All
other trail provisions match the general trail provisions specified in this
document.
</FN>
</TABLE>

Commissions except trail commissions shall be paid semi-monthly (unless
otherwise agreed). As used in the above Schedules, the term "commission"
refers to an amount equal to a fixed percentage of Purchase Payments received
by AGL during each semi-monthly period that are attributable to Contracts
solicited by Sales Persons. All Purchase Payments upon which the commission
may be based must be received by AGL in accordance with the Selling Group
Agreement and such other requirements that AGL and DISTRIBUTOR may, from time
to time, establish.

As used in the above Schedules, the term "trail commission" refers to an
amount equal to an annual percentage of that portion of Contract Account Value
attributable to Purchase Payments eligible for a trail commission. Trail
commissions shall be computed by multiplying 0.0625% (in the case of a 0.25%
trail commission) or 0.125% (in the case of a 0.50% trail commission) and such
portion of Contract Account Value at the end of the relevant three month
period following receipt of the Purchase Payment. Trail commissions shall be
paid at the end of the calendar quarter immediately following the computation
of the trail commission. Trail commissions shall begin as of the date
specified in the above Schedules, and shall continue until annuitization,
surrender, or death which requires distribution of the Contract Account Value.

3. COMMISSION REDUCTIONS AND CHARGEBACKS.

Notwithstanding the foregoing, the following reductions shall apply to
all DISTRIBUTOR Fees and Selling Group Member Sales Commissions, except as
otherwise noted, under the circumstances described below.

o 100% of original commissions paid with respect to the amount of
Purchase Payments up to the amount of the full or partial
withdrawal of a Purchase Payment made during the first six
months following its receipt; and

C(1)-2

<PAGE>

c. CHARGEBACK FOR ANNUITIZATION IN FIRST TWO YEARS. A commission
chargeback of 50% of original commissions paid will be assessed if
the Contract is annuitized in the first two Contract Years. Such
commission chargeback is not applicable to trail commissions.

The foregoing chargebacks shall not apply in the event of the death of the
Annuitant or Owner during the periods specified above.

4. NO COMPENSATION PAYABLE.

(a) if AGL, in its sole discretion, determines not to issue the Contract
applied for or rescinds the Contract;

(b) if the Contract Owner returns the Contract pursuant to the "Free
Look" provision of the Contract;

(c) if a Purchase Payment is received within 60 days following a prior
partial withdrawal, and such Purchase Payment is reasonably believed to be a
reinvestment of the prior partial withdrawal;

(d) if AGL refunds the Purchase Payment as a result of a complaint or
grievance;

5. MISCELLANEOUS.

The Parties agree that AGL will directly pay Sales Commissions to the
appropriate Selling Group Member.

C(1)-3

<PAGE>

SCHEDULE D
(AS OF NOVEMBER 11, 1996)

DISTRIBUTOR TRADEMARKS

The product names: "Sierra Advantage" and "Sierra Asset Manager"

AGL TRADEMARKS

The name "American General Corporation"
The name "American General Life Insurance Company"
The American General logo

D-1

EXHIBIT 3(b)
SELLING GROUP AGREEMENT

SIERRA INVESTMENT SERVICES CORPORATION
AND AMERICAN GENERAL LIFE INSURANCE COMPANY

This Selling Group Agreement ("Agreement") is made by and among Sierra
Investment Services Corporation, a registered broker - dealer and the
distributor for the variable life insurance policies and/or annuity contracts
set forth in Schedule A ("Distributor"),

____________________________________________________________________________
("Selling Group Member")

____________________________________________________________________________
("Associated Agency")

and, as the fourth party, American General Life Insurance Company ("AGL").
Selling Group Member is registered with the Securities and Exchange Commission
("SEC") as a broker-dealer under the Securities Exchange Act of 1934 ("1934
Act"), as amended and under any appropriate regulatory requirements of state
law, and is a member in good standing of the National Association of
Securities Dealers, Inc. ("NASD"), unless Selling Group Member is exempt from
the broker-dealer registration requirements of the 1934 Act. Unless exempt,
Selling Group Member maintains a level of qualification with the NASD
appropriate to enable it to offer and sell the products set forth in Schedule
A. Selling Group Member is affiliated with Associated Agency, which is
properly licensed under the insurance laws of the state(s) in which Selling
Group Member will act under this Agreement.

This Agreement is for the purpose of providing for the distribution of certain
variable life insurance policies and/or annuity contracts set forth in
Schedule A and any successor or additional SEC registered insurance products
(as discussed in Part (1) "NEW PRODUCTS" of this Agreement) to be issued by
AGL and distributed through Distributor and sold by representatives who are
state insurance licensed and appointed agents of AGL and who are associated
with Associated Agency and are also NASD registered representatives of Selling
Group Member ("Sales Persons"). The policies and/or annuity contracts set
forth in Schedule A, along with any successor or additional SEC registered
insurance products, are referred to collectively herein as the "Contracts."
American General Securities Incorporated, a broker-dealer wholly owned by AGL,
shall be the principal underwriter of the Contracts, unless specifically
otherwise so stated.

In consideration of the mutual promises and covenants contained in this
Agreement, AGL and Distributor appoint Selling Group Member and those persons
associated with Associated Agency who are NASD registered representatives of
Selling Group Member and state insurance licensed agents of AGL to solicit and
procure applications for the Contracts. These appointments are not deemed to
be exclusive in any manner and only extend to those jurisdictions where the
Contracts have been approved for sale. Selling Group Member is authorized to
collect the first purchase payment

<PAGE>

or premium (collectively "Premiums") on the Contracts and, unless Selling
Group Member and AGL have otherwise agreed, shall remit such premiums in full
dollar amount to AGL. Unless Selling Group Member and AGL have otherwise
agreed, applications shall be taken only on preprinted application forms
supplied by AGL. All completed applications and supporting documents are the
sole property of AGL and must be promptly delivered to AGL. All applications
are subject to acceptance by AGL at its sole discretion.

(1) NEW PRODUCTS

AGL and Distributor may propose, and AGL may issue additional or successor
products, in which event Selling Group Member will be informed of the product
and will be provided with a Concession Schedule for the new product(s).. If
Selling Group Member does not agree to distribute the new product(s) on the
terms set forth, it must notify Distributor in writing within 30 days of
receipt of the Concession Schedule for such product(s). If Selling Group
Member does not provide such written notification, Selling Group Member will
be deemed to have thereby agreed to distribute such product(s) and agreed to
the related Concession Schedule which shall be attached to and made a part of
this Agreement.

(2) SALES PERSONS

Associated Agency is authorized to recommend Sales Persons for appointment by
AGL to solicit applications for the Contracts. Associated Agency warrants that
all such Sales Persons shall not commence solicitation nor aid, directly or
indirectly, in the solicitation of any application for any Contract until that
Sales Person is appropriately licensed for such product under applicable
insurance laws and is a currently NASD registered representative of Selling
Group Member. Associated Agency shall be responsible for all fees required to
obtain and/or maintain any licenses or registrations required by state or
federal law, for Associated Agency and its Sales Persons. From time to time,
AGL will provide Associated Agency and Selling Group Member with information
regarding the jurisdictions in which AGL is authorized to solicit applications
for the Contracts and any limitations on the availability of such Contracts in
any jurisdiction.

(3) SALES MATERIAL

Associated Agency and Selling Group Member shall not utilize in their efforts
to market the Contracts, any written brochure, prospectus, descriptive
literature, printed and published material, audio-visual material or standard
letters unless such material has been provided preprinted by AGL or
Distributor or unless AGL and Distributor have provided written approval for
the use of such literature. In accordance with the requirements of the laws of
the several states, Associated Agency and Selling Group Member shall maintain
complete records indicating the manner and extent of distribution of any such
solicitation material, shall make such records and files available to staffs
of AGL and/or Distributor in field inspections and shall make such material
available to personnel of state insurance departments, the NASD or other
regulatory agencies, including the SEC, which have regulatory authority over
AGL or Distributor. Associated Agency and Selling Group Member jointly and
severally hold AGL, Distributor and their affiliates, directors, officers and
employees harmless from and indemnify them for any liability arising from the
use of any material which either (a) has not

<PAGE>

been specifically approved in writing by AGL and Distributor, or (b) although
previously approved, has been disapproved by AGL or Distributor, in writing
for further use.

(4) PROSPECTUSES

Selling Group Member and Associated Agency warrant that solicitation of
applications for Contracts will be made by use of a currently effective
prospectus, that a prospectus will be delivered concurrently with each sales
presentation and that no statements shall be made to a client superseding or
controverting any statement made in the registration statement or prospectus.
AGL and Distributor shall furnish Selling Group Member and Associated Agency,
at no cost to Selling Group Member or Associated Agency, reasonable quantities
of prospectuses to aid in the solicitation of applications for Contracts.

(5) SELLING GROUP MEMBER COMPLIANCE

Selling Group Member shall be responsible for making suitability
determinations in compliance with federal and state securities laws and shall
supervise Associated Agency and Sales Persons in determining client
suitability.

Selling Group Member shall fully comply with the requirements of the NASD and
of the 1934 Act and such other applicable federal and state laws and will
establish rules, procedures, and supervisory and inspection techniques
necessary to diligently supervise the activities of its NASD registered
representatives who are state insurance licensed agents or solicitors of AGL,
in connection with offers and sales of the Contracts. Such supervision shall
include providing, or arranging for, initial and periodic training in the
provisions of and other information regarding the Contracts. Upon request by
Distributor or AGL, Selling Group Member will furnish appropriate records as
are necessary to establish diligent supervision and client suitability.

Selling Group Member shall fully cooperate in any insurance or securities
regulatory examination, investigation, or proceeding or any judicial
proceeding with respect to AGL, Distributor, Selling Group Member, and/or
Associated Agency and their respective affiliates, agents and representatives
to the extent that such examination, investigation, or proceeding arises in
connection with the Contracts. Selling Group Member shall immediately notify
Distributor and AGL if its broker-dealer registration or the registration of
any of its Sales Persons is revoked, suspended, or terminated.

(6) ASSOCIATED AGENCY AND SALES PERSON COMPLIANCE

Associated Agency shall fully comply with the requirements of state insurance
laws and applicable federal laws and will establish rules and procedures
necessary to diligently supervise the activities of the Sales Persons. Upon
request by Distributor or AGL, Selling Group Member will furnish appropriate
records as are necessary to establish such supervision. Associated Agency and
Sales Persons shall be responsible for making suitability determinations in
compliance with federal and state securities laws.

<PAGE>

Associated Agency shall fully cooperate in any insurance or securities
regulatory examination, investigation, or proceeding or any judicial
proceeding with respect to AGL, Distributor, Selling Group Member, and/or
Associated Agency and their respective affiliates, agents and representatives
to the extent that such examination, investigation, or proceeding arises in
connection with the Contracts. Associated Agency shall immediately notify
Distributor and AGL if its insurance license or the license of any of its
Sales Persons is revoked, suspended, or terminated.

(7) AGL COMPLIANCE

AGL represents that the prospectus(es) and registration statement(s) relating
to the Contracts contain no untrue statements of material fact or omission to
state a material fact, the omission of which makes any statement contained in
the prospectus and registration statement misleading. AGL agrees to indemnify
Distributor, Associated Agency and Selling Group Member from and against any
claims, liabilities and expenses which may be incurred by any of those parties
under the Securities Act of 1933, the 1934 Act, the Investment Company Act of
1940, common law or otherwise arising out of a breach of the representation in
this paragraph.

(8) COMPENSATION

AGL will remit to Associated Agency compensation as set forth in Schedule B
hereto.

(9) COMPLAINTS, INVESTIGATIONS AND PROCEEDINGS

Associated Agency and Selling Group Member shall cooperate with AGL and
Distributor in any regulatory investigation or proceeding or judicial
proceeding relating to the solicitation of applications for, or servicing of,
Contracts by Associated Agency and/or Selling Group Member and their Sales
Persons. Further, Associated Agency and Selling Group Member shall promptly
provide AGL and Distributor with a copy of any of the following relating to
the sale or servicing of any Contract: (i) any notice of claim against AGL or
Distributor, (ii) any notice of regulatory investigation or proceeding or
judicial proceeding, and (iii) all legal documents pertaining to the
foregoing.

(10) INDEMNIFICATION

Selling Group Member and Associated Agency agree to, jointly and severally,
hold harmless and indemnify AGL and Distributor and any of their respective
affiliates, employees, officers, agents and directors (collectively,
"Indemnified Persons") against any and all claims, liabilities and expenses
(including, without limitation, losses occasioned by an rescission of any
Contract pursuant to a "free look" provision or by any return of initial
purchase payment in connection with an incomplete application), and including
without limitation reasonable attorneys' fees and expenses and any loss
attributable to the investment experience under a Contract, that any
Indemnified Person may incur from liabilities resulting or arising out of or
based upon (a) any untrue or alleged untrue statement

<PAGE>

other than statements contained in the registration statement or prospectus
relating to any Contract, (b) (i) any inaccurate or misleading, or allegedly
inaccurate or misleading sales material used in connection with any marketing
or solicitation relating to any Contract, other than sales material provided
preprinted by AGL or Distributor, and (ii) any use of any sales material that
either has not been specifically approved in writing by AGL and Distributor or
that, although previously approved in writing by AGL and Distributor, has been
disapproved, in writing by either of them, for further use, or (c) any act or
omission of a Sales Person, director, officer or employee of Selling Group
Member and Associated Agency, including without limitation any failure of
Selling Group Member, Associated Agency or any Sales Person to be registered
as required as a broker-dealer under the 1934 Act, or licensed in accordance
with the rules of any applicable self regulatory organization or insurance
regulator.

AGL shall indemnify and hold harmless Selling Group Member, Associated Agency
and Distributor and their employees, officers, agents and directors against
any losses, claims, damages or liabilities, joint or several, including but
not limited to reasonable attorneys' fees and court costs, to which Selling
Group Member, Associated Agency or Distributor or such employee, officer,
agent or director, becomes subject under the Securities Act of 1933 or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue or alleged
statement in any registration statement or any post-effective amendment or any
supplement to the prospectus for a Contract, or in any sales material
preprinted by AGL and not subsequently disapproved by AGL, in writing, for
further use, or the omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein not
misleading.

(11) FIDELITY BOND

Associated Agency represents that all directors, officers, employees and Sales
Persons of Associated Agency licensed pursuant to this Agreement or who have
access to funds of AGL are and will continue to be covered by a blanket
fidelity bond including coverage for larceny, embezzlement and other
defalcation, issued by a reputable bonding company. This bond shall be
maintained at Associated Agency's expense. Such bond shall be at least
equivalent to the minimal coverage required under the NASD Rules of Fair
Practice, and endorsed to extend coverage to life insurance and annuity
transactions. Associated Agency acknowledges that AGL may require evidence
that such coverage is in force and Associated Agency shall promptly give
notice to AGL of any notice of cancellation or change of coverage.

Associated Agency assigns any proceeds received from the fidelity bond company
to AGL to the extent of AGL's loss due to activities covered by the bond. If
there is any deficiency, Associated Agency will promptly pay AGL that amount
on demand. Associated Agency indemnifies and holds harmless AGL from any
deficiency and from the cost of collection.

<PAGE>

(12) LIMITATIONS OF AUTHORITY

The Contract forms are the sole property of AGL. No person other than AGL has
the authority to make, alter or discharge any policy, Contract, certificate,
supplemental contract or form issued by AGL. No party has the right to waive
any provision with respect to any Contract or policy. No person has the
authority to enter into any proceeding in a court of law or before a
regulatory agency in the name of or on behalf of AGL.

(13) ARBITRATION

The parties agree that any controversy between or among them arising out of
their business or pursuant to this Agreement that cannot be settled by
agreement shall be taken to arbitration as set forth herein. Such arbitration
will be conducted in the forum, and according to the securities arbitration
rules then in effect, of the American Arbitration Association, NASD, or any
registered national securities exchange. Arbitration may be initiated by
serving or mailing a written notice. The notice must specify which forum and
rules will apply to the arbitration. This specification will be binding on all
parties.

Any award the arbitrator makes will be final, and judgment on it may be
entered in any court having jurisdiction. Any party to the arbitration may
request that the arbitrator's award include findings of fact and conclusions
of law. Each party shall bear its own costs of arbitration. This arbitration
agreement shall be enforced and interpreted exclusively in accordance with
applicable federal law, including the Federal Arbitration Act.

(14) GENERAL PROVISIONS

(A) Waiver

Failure of any of the parties to promptly insist upon strict
compliance with any of the obligations of any other party under this
Agreement will not be deemed to constitute a waiver of the right to
enforce strict compliance.

(B) Independent Contractors

Distributor, Selling Group Member and Associated Agency are
independent contractors and not employees or subsidiaries of AGL;
Selling Group Member and Associated Agency are independent
contractors and not employees or subsidiaries of Distributor.

No assignment of this Agreement or of commissions or other payments
under this Agreement shall be valid without prior written consent of
AGL and Distributor.

<PAGE>

(D) Notice

Any notice pursuant to this Agreement may be given electronically
(other than vocally by telephone) or by mail, postage paid,
transmitted to the last address communicated by the receiving party
to the other parties to this Agreement.

(E) Severability

To the extent this Agreement may be in conflict with any applicable
law or regulation, this Agreement shall be construed in a manner
consistent with such law or regulation. The invalidity or illegality
of any provisions of this Agreement shall not be deemed to affect the
validity or legality of any other provision of this Agreement.

(F) Amendment

This Agreement may be amended only in writing and signed by all
parties. No amendment will impair the right to receive commissions as
accrued with respect to Contracts issued and applications procured
prior to the amendment.

(G) Termination

This Agreement may be terminated by any party upon 30 days' prior
written notice. It may be terminated, for cause, by any party
immediately. Termination of this Agreement shall not impair the right
to receive commissions accrued with respect to applications procured
prior to the termination except as otherwise specifically provided in
Schedule B.

(H) GOVERNING LAW

THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA.

(I) This Agreement replaces and supersedes any other agreement or
understanding related to the Contracts, between or among the parties
to this Agreement.

By signing below, the undersigned agree to have read and be bound by the terms
and conditions of this Agreement.

Date:__________________________

<PAGE>

SIERRA INVESTMENT SERVICES CORPORATION

By:________________________________________________
Name and Title

Selling Group Member: ____________________________

Address: _________________________________________

_________________________________________

By: _________________________________________

_________________________________________

Associated Agency: _______________________________

Address: _________________________________________

_________________________________________

By: _________________________________________

American General Life Insurance Company
2727-A Allen Parkway
Houston, Texas 77019

By:________________________________________________
Name and Title

EXHIBIT 3(c)(ii)

FIRST AMENDMENT

DATED AS OF APRIL ___, 1997

PARTICIPATION AGREEMENT

DATED AS OF MAY 3, 1993

AMONG

AMERICAN GENERAL LIFE INSURANCE COMPANY

AMERICAN GENERAL SECURITIES INCORPORATED

THE SIERRA VARIABLE TRUST

AND

SIERRA INVESTMENT SERVICES CORPORATION

<PAGE>

THIS FIRST AMENDMENT, dated as of the day of April, 1997, to the
Participation Agreement (the "Agreement"), dated as of May 3, 1993, by and
among AMERICAN GENERAL LIFE INSURANCE COMPANY ("AGL"), a Texas life insurance
company, AMERICAN GENERAL SECURITIES INCORPORATED ("AGSI"), a Texas
corporation, THE SIERRA VARIABLE TRUST (the "Trust"), a Massachusetts business
trust, and SIERRA INVESTMENT SERVICES CORPORATION, a California corporation
(the "Distributor") (collectively, the "Parties"):

WITNESSETH:

WHEREAS, the Agreement provides that the Trust and the Distributor may
offer shares of investment funds of the Trust to AGL for its combination fixed
and variable annuity contracts (the "Contracts"), which are in addition to
those currently identified in the Agreement, and that AGL may purchase shares
of such additional investment funds for its Contracts;

WHEREAS, the Trust and the Distributor currently offer shares of four
investment funds of the Trust to AGL for its Contracts, which are in addition
to the investment funds currently identified in the Agreement, and AGL
currently purchases shares of such investment funds for its Contract; WHEREAS,
the Trust and the Distributor desire to offer shares of five new investment
funds to AGL for its Contracts and AGL desires to purchase shares of such new
investment funds for its Contracts;

-2-

<PAGE>

WHEREAS, the Parties desire to amend the Agreement to specifically
identify all investment funds of the Trust offered to AGL for its Contracts;
and

WHEREAS, the Parties also desire to amend the Agreement to include
certain representations concerning the new investment funds that the Trust and
the Distributor intend to offer to AGL for its Contract and that AGL intends
to purchase for its Contacts;

NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties agree as follows:
1. Section 1.1 of the Agreement entitled, "Availability of Separate
Account Divisions," is amended to provide as follows:

1.1 Availability of Separate Account Divisions.

AGL represents that American General Life Insurance Company Separate
Account D (the "Separate Account") is and will continue to be available
to serve as an investment vehicle for its Contracts. The Contracts
provide for the allocation of net amounts received by AGL to separate
series (the "Divisions"; reference herein to the "Separate Account"
includes reference to each Division to the extent the context requires)
of the Separate Account for investment in the shares of corresponding
investment funds of the Trust that are made available through the
Separate Account to act as underlying investment media. The Trust may
from time to time add additional investment funds, which will become
subject to this Agreement if they are made available as investment media
for the Contracts. The investment funds of the Trust which are subject to
this Agreement are set forth in Exhibit A to the Agreement. Exhibit A
shall be amended from time to time as necessary to identify all
investment funds offered under the Agreement. AGL will not unreasonably

-3-

<PAGE>

deny any request by the Distributor to create new Divisions corresponding
to such new Funds.

2. Paragraph (c) of Section 4.3 of the Agreement is amended to provide as
follows:

(c) The Trust represents and warrants that (i) the Trust does and
will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, including the exemptive order issued by the
Commission as Release No. IC-22047, which the Trust further represents
and warrants is applicable to the Trust, (ii) its 1933 Act registration
statement, together with any amendments thereto, will at all times comply
in all material respects with the requirements of the 1933 Act and rules
thereunder, and (iii) the Trust Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.

IN WITNESS WHEREOF, the Parties have caused this First Amendment to the
Agreement to be executed in their names and on their behalf by and through
their duly authorized officers signing below.

-4-

<PAGE>

AMERICAN GENERAL LIFE INSURANCE COMPANY
By ___________________________________________
Title ________________________________________

AMERICAN GENERAL SECURITIES INCORPORATED
By ___________________________________________
Title ________________________________________

THE SIERRA VARIABLE TRUST
By ___________________________________________
Title ________________________________________

SIERRA INVESTMENT SERVICES CORPORATION
By ___________________________________________
Title ________________________________________

-5-

<PAGE>

EXHIBIT A

INVESTMENT FUNDS OF THE TRUST
AS OF MAY 1, 1997

o Global Money Fund
o Short-Term High Quality Bond Fund
o Short-Term Global Government Fund
o U.S. Government Fund
o Corporate Income Fund
o Growth and Income Fund
o Growth Fund
o Emerging Growth Fund
o International Growth Fund
o Capital Growth Portfolio
o Growth Portfolio
o Balanced Portfolio
o Value Portfolio
o Income Portfolio

EXHIBIT 4(a)

AMERICAN GENERAL LIFE
INSURANCE COMPANY

Unless otherwise directed by the Owner, we will pay a monthly income to the
Annuitant if living on the Annuity Commencement Date. The dollar amounts of
such payments will be determined on the basis of the provisions of this
Contract. The first payment will be payable on the Annuity Commencement Date.
Subsequent payments will be payable on the corresponding day of each month
thereafter in accordance with the provisions of this Contract.

ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT ARE VARIABLE, MAY INCREASE OR
DECREASE AND ARE NOT GUARANTEED AS TO AMOUNT. SEE THE "SEPARATE ACCOUNT" AND
"VARIABLE ANNUITY PAYMENTS" PROVISIONS IN THIS CONTRACT.

CANCELLATION RIGHT. You may return this Contract for cancellation to us or to
the sales representative through whom it was purchased, within 10 days after
delivery. Upon surrender of this Contract within the 10 day period, we will
refund the sum of your Account Value at the end of the Valuation Period in
which your request is received, plus any premium taxes and Annual Contract Fee
that have been deducted.

This is a FLEXIBLE PAYMENT VARIABLE and FIXED INDIVIDUAL DEFERRED ANNUITY
CONTRACT. NONPARTICIPATING -- NOT ELIGIBLE FOR DIVIDENDS.

SIGNED AT THE HOME OFFICE ON THE DATE OF ISSUE.

/s/ /s/
--------------------- -----------------------
Secretary President

READ YOUR CONTRACT CAREFULLY

[American General Logo]
A STOCK COMPANY
---------------------------------------------
A Subsidiary of American General Corporation
---------------------------------------------
Home Office: Houston, Texas
2727-A Allen Parkway P.O. Box 1401 Houston, TX 77251-1401 (713) 831-3505

97010

<PAGE>

INDEX
PAGE

Account Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Allocation of Purchase Payments. . . . . . . . . . . . . . . . . . . . . . 7

Annuity Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Annuity Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Annuity Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Beneficiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Change of Investment Advisor or
Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Contingent Annuitant . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Contract Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Death Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Division Accumulation Units. . . . . . . . . . . . . . . . . . . . . . . . 11

Divisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Fixed Account Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

General Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Guaranteed Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . 10

Guarantee Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Net Investment Factor. . . . . . . . . . . . . . . . . . . . . . . . . . . 11

One-Time Reinstatement Privilege. . . . . . . . . . . . . . . . . . . . . 15

Ownership Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Payment of Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Premium Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Purchase Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Schedule Page. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Separate Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Surrenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Full Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Partial Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Surrender Charge Exceptions. . . . . . . . . . . . . . . . . . . . . . . . 14

Ten Percent Free Withdrawal Privilege. . . . . . . . . . . . . . . . . . . 15

Tax Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Variable Annuity Payments. . . . . . . . . . . . . . . . . . . . . . . . . 19

Page 2

<PAGE>

[Sierra Advantage II]
issued by
American General Life Insurance Company

SCHEDULE PAGE

INITIAL PURCHASE PAYMENT: $5,000

MINIMUM ADDITIONAL PURCHASE PAYMENTS: $ 100

ADDITIONAL BENEFITS: NONE

MAXIMUM ASSET CHARGE FACTORS (Separate Account Only) ANNUAL RATE: 1.40%

MAXIMUM ANNUAL CONTRACT FEE: $ 35

TRANSFER CHARGE (After first 12 in a Contract Year): $ 25

ISSUE AGE: 35

ANNUITY COMMENCEMENT DATE: JANUARY 1, 2027

[INITIAL ALLOCATION:
<TABLE>
<CAPTION>
NET DOLLAR
AMOUNT OF
PERCENTAGE ALLOCATIONS
<S> <C> <C>
Capital Growth Portfolio 100% $ 5,000
Growth Portfolio xx% $ xxx
Balanced Portfolio xx% $ xxx
Value Portfolio xx% $ xxx
Income Portfolio xx% $ xxx
Global Money Fund xx% $ xxx
Fixed Account
1 Year Guarantee Period xx% $ xxx
DCA Fixed Account xx% $ xxx
---- --------
TOTAL ALLOCATIONS 100% $ 5,000]
</TABLE>

ANNUITANT: JOHN DOE CONTRACT NUMBER: 123456

CONTRACT OWNER: JOHN DOE DATE OF ISSUE: JANUARY 1, 1997

CONTRACT JURISDICTION: (STATE NAME)

Page 3

<PAGE>
DEFINITIONS

"WE", "OUR", "US", OR "COMPANY". American General Life Insurance Company.

YOU, YOUR, OWNER. The Owner of this Contract. The "Owner" is the person,
persons or entity entitled to the ownership rights stated in this Contract.
The Owner may designate a trustee or custodian of a retirement plan which
meets the requirements of Section 401, Section 408(c), or Section 408(k) of
the Internal Revenue Code to serve as legal owner of assets of a retirement
plan, but the term "Owner" as used herein, shall refer to the organization
entering into this Contract.

ACCOUNT. Any of the Divisions or the Fixed Account.

Account Value. The sum of the Fixed Account Value and the Separate Account
Value after deduction of any fees. The Fixed Account Value is the sum of Net
Purchase Payments and transfers into the Fixed Account, plus accumulated
interest, less any partial withdrawals and transfers out of the Fixed Account.
The Separate Account Value is the sum of the values of the Separate Account
Divisions. The value of a Separate Account Division is the value of a
Division's Accumulation Unit multiplied by the number of Accumulation Units in
that Division.

ACCUMULATION PERIOD. The period during which Net Purchase Payments are
applied.

ACCUMULATION UNIT. An accounting unit of measure used to calculate the value
of a Division of this Contract before annuity payments begin.

AGE. Age last birthday unless otherwise stated.

ANNUITANT. The person upon whose date of birth income payments are based. The
Annuitant's name is shown on Page 3.

ANNUITY UNIT. A unit of measurement to calculate variable annuity payments.

BENEFICIARY. The person entitled to receive benefits in the event the Owner or
Annuitant dies. If no named Beneficiary is living at the time any payment is
to be made, the Owner shall be the Beneficiary, or if the Owner is not living,
the Owner's estate shall be the Beneficiary.

CONTINGENT ANNUITANT. A person named by the Owner of a Non-Qualified contract
to become the Annuitant if: (1) the Annuitant dies before the Annuity
Commencement Date; and (2) the Contingent Annuitant is then living. A
Contingent Annuitant may not be named except at the time of application. Once
named, the choice may not be revoked or replaced. If a Contingent Annuitant
dies, a new Contingent Annuitant may not be named. After Annuity Payments
start, a Contingent Annuitant may not become the Annuitant.

CONTINGENT BENEFICIARY. A person named by the Owner to receive benefits in the
event a designated Beneficiary is not living at the time of the Owner's or
Annuitant's death.

CONTRACT YEAR. A period of 12 consecutive months beginning on the Date of
Issue or any anniversary thereof.

CONTRACT ANNIVERSARY. Each anniversary of the Date of Issue of this Contract.

DATE OF ISSUE. The date on which this Contract becomes effective as shown on
Page 3.

DIVISION. The subdivisions of the Separate Account which are used to determine
how the Owner's Account is allocated among the Variable Funds.

FIXED ANNUITY OPTION. An Annuity Option with payments which do not vary with
investment performance as to dollar amount.

GUARANTEE PERIOD. The period for which a Guaranteed Interest Rate is
credited.

Page 4

<PAGE>

GUARANTEED INTEREST RATE. The minimum rate we may use to credit interest on an
effective annual basis during any Guarantee Period.

HOME OFFICE. Our office at 2727-A Allen Parkway, Houston, Texas 77019;
1-713-831-3505; Mailing Address P.O. Box 1401, Houston, Texas 77251-1401.

ISSUE AGE. Age last birthday on the Date of Issue. (If the Date of Issue
occurs on the Annuitant's birthday, "last birthday" will mean the birthday
occurring on the Date of Issue).

NET ASSET VALUE PER SHARE. The net assets of a Variable Fund divided by the
number of shares in the Variable Fund.

NET PURCHASE PAYMENT. The gross amount of a Purchase Payment less any Premium
Taxes deducted at the time a Purchase Payment is made.

NON-QUALIFIED CONTRACT. A Contract that does not qualify for the special
federal income tax treatment applicable in connection with certain retirement
plans.

OWNER'S ACCOUNT. An account established for each Owner to which each Purchase
Payment is credited.

PAYOUT PERIOD. The period, starting with the Annuity Commencement Date, during
which Annuity Payments are made by the Company.

PREMIUM TAX. The amount of tax, if any, charged by a state or municipality on
Purchase Payments or Contract values.

PURCHASE PAYMENT. An amount paid to the Company as consideration for the
benefits described herein.

QUALIFIED CONTRACT. A Contract that is qualified for the special federal
income tax treatment applicable in connection with certain retirement plans.

SEPARATE ACCOUNT. A segregated investment account entitled "Separate Account
D" established by the Company to separate the assets funding the variable
benefits for the class of contracts to which this Contract belongs from the
other assets of the Company. That portion of the assets of the Separate
Account equal to the reserves and other contract liabilities with respect to
the Separate Account shall not be chargeable with liabilities arising out of
any other business we may conduct. Income, gains and losses, whether or not
realized, from assets allocable to the Separate Account, are credited to or
charged against such account without regard to our other income, gains or
losses.

UNIT VALUE. The value of: (1) an Accumulation Unit as described in the
"Division Accumulation Units" provision; or (2) an Annuity Unit as described
in the "Annuity Units" provision.

VALUATION DATE. Any day on which we are open for business except, with respect
to any Division, a day on which the related Variable 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 Valuation Date.

VARIABLE ANNUITY OPTION. An Annuity Option under which we promise to pay the
Annuitant or other properly-designated Payee one or more payments which vary
in amount in accordance with the net investment experience of the applicable
Divisions selected to measure the value of this Contract.

VARIABLE FUND. An individual investment fund or series in which a Division
invests.

WRITTEN, IN WRITING. A written request or notice in acceptable form and
content, which is signed and dated, and received at our Home Office. 97010

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<PAGE>

GENERAL PROVISIONS

ENTIRE CONTRACT This Contract, endorsements if any, and a copy of the
Application, if attached, is the entire Contract. All
statements made by the Contract Owner or Annuitant
will be deemed representations and not warranties. No
statement will be used to reduce a claim under this
Contract unless it is in writing and made a part of
this Contract.

NOT CONTESTABLE This Contract is not contestable.

GUARANTEES Subject to the Net Investment Factor provision of
this Contract, we guarantee that the dollar amount of
Variable Annuity Payments made during the lifetime of
the Payee(s) will not be adversely affected by our
actual mortality experience or by the actual expenses
incurred by us in excess of the expense deductions
provided for in this Contract. Settlement All
benefits under this Contract are payable from our
Home Office.

NONPARTICIPATING This Contract is nonparticipating and does not share
in our surplus or earnings.

CHANGE OF INVESTMENT Unless otherwise required by law or regulation, the
ADVISOR OR INVESTMENT investment advisor or any investment policy may not
POLICY be changed without our consent. If required, approval
of or change of any investment objective will be
filed with the Insurance Department of the state
where this Contract is delivered. You will be
notified of any material investment policy change
which has been approved. Notification of an
investment policy change will be given in advance to
those Owners who have the right to comment on or vote
on such change.

Any substitution of the underlying investments of any
Division will comply with all applicable requirements
of the Investment Company Act of 1940 and rules
thereunder.

RIGHTS RESERVED Upon notice to you, this Contract may be modified by
BY US us, but only if such modification is necessary to:

(1) Operate the Separate Account in any form
permitted under the Investment Company Act of
1940 or in any other form permitted by law;

(2) Transfer any assets in any Division to another
Division, or to one or more other separate
accounts, or to the Fixed Account;

(3) Add, combine or remove Divisions in the Separate
Account, or combine the Separate Account with
another separate account;

(4) Add, restrict or remove Guarantee Periods of the
Fixed Account;

(5) Make any new Division available to you on a basis
to be determined by us;

(6) Substitute for the shares held in any Division,
the shares of another Variable Fund or the shares
of another investment company or any other
investment permitted by law;

(7) Make any changes as required by the Internal
Revenue Code or by any other applicable law,
regulation or interpretation in order to continue
treatment of this Contract as an annuity; or

(8) Make any changes required to comply with rules of
any Variable Fund.

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<PAGE>

When required by law, we will obtain your approval of
changes and we will gain approval from any
appropriate regulatory authority.

CHANGING THE TERMS Any change in your Contract must be approved by one
OF YOUR CONTRACT of our officers. No agent has the authority to make
any changes or waive any of the terms of your
Contract.

TERMINATION This Contract will remain in force until surrendered
for its full value, or all annuity payments have been
made, or the death proceeds have been paid, except as
follows:

If the Owner's Account Value is less than $500, We
may cancel this Contract upon 60 days' notice to the
Owner. Such cancellation would be considered a full
surrender of this Contract.

If the value of any Separate Account Division (except
the Global Money Fund) falls below $500, we reserve
the right to transfer the remaining balance, without
charge, to the Global Money Fund.

PURCHASE PAYMENTS

MINIMUM PAYMENTS The minimum amounts acceptable as Purchase Payments
are shown on Page 3. We reserve the right to modify
these minimums or to refuse a Purchase Payment for
any reason.

ALLOCATION OF The initial allocation for Net Purchase Payments is
PURCHASE PAYMENTS shown on Page 3 of this Contract and will remain in
effect until changed by Written notice. The
percentage allocation for future Net Purchase
Payments may be changed at any time by Written
notice.

Changes in the allocation will be effective on the
date we receive the Owner's notice. The allocation
may be 100% to any available Division or Guarantee
Period, or may be divided among these options in
whole percentage points totaling 100%.

The initial Purchase Payment will be credited to the
Owner's Account not more than two Valuation Periods
after we receive it, together with all other required
documentation, in good order at the office designated
by the Company for the processing of initial Purchase
Payments. Subsequent Purchase Payments will be
credited as of the end of the Valuation Period in
which they are so received. We reserve the right to
limit the total number of Fixed Account Guarantee
Periods and Separate Account Divisions that may be
chosen during the life of the Contract.

PREMIUM TAXES When applicable, we will deduct an amount to cover
premium taxes. Such deduction will be made:

(1) From Purchase Payment(s) when received; or

(2) From the Account Value at the time annuity
payments are to commence; or

(3) From the amount of any partial withdrawal; or

(4) From proceeds payable upon termination of the
Contract for any other reason, including death of
the Annuitant or Owner, or surrender of the
Contract.

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<PAGE>

If premium tax is paid, the Company may reimburse itself for such tax when
deduction is being made under paragraphs 2, 3, or 4 above calculated by
multiplying the sum of Purchase Payments being withdrawn by the applicable
premium tax percentage.
OWNERSHIP PROVISIONS

EXERCISE OF CONTRACT This Contract belongs to the Owner, who is entitled
to exercise all Rights rights and privileges in
connection with this Contract. Where a Contract is
jointly owned, both Owners must join in any request
to exercise the rights or privileges of an Owner.

In any case, such rights and privileges can be
exercised without the consent of the Beneficiary
(other than an irrevocably designated Beneficiary) or
any other person. Such rights and privileges may be
exercised only during the lifetime of the Annuitant
and prior to the Annuity Commencement Date, except as
otherwise provided in this Contract.

Unless the Owner specifies otherwise, the Annuitant
will become the Payee on the Annuity Commencement
Date. If the Owner or the Annuitant (without a
surviving Contingent Annuitant) dies prior to the
Annuity Commencement Date, the Beneficiary will
become the Payee. Such Payees may thereafter exercise
such rights and privileges of ownership which
continue.

BENEFICIARY The Owner named the Beneficiary and any Contingent
Beneficiary when applying for this Contract. By
Written notice to us, a non-irrevocable Beneficiary
or Contingent Beneficiary may be changed by the Owner
prior to the Annuity Commencement Date or by the
Annuitant or other properly-designated Payee after
the Annuity Commencement Date.

CHANGE OF OWNERSHIP Ownership of a Qualified Contract may not be
transferred except to: (1) the Annuitant; (2) a
trustee or successor trustee of a pension or profit
sharing trust which is qualified under Section 401 of
the Internal Revenue Code; (3) the employer of the
Annuitant, provided that the Qualified Contract after
transfer is maintained under the terms of a
retirement plan qualified under Section 403(a) of the
Internal Revenue Code for the benefit of the
Annuitant; (4) the trustee of an individual
retirement account plan qualified under Section 408
of the Internal Revenue Code; or (5) as otherwise
permitted from time to time by laws and regulations
governing the retirement or deferred compensation
plans for which a Qualified Contract may be issued.
In no other case may a Qualified Contract be sold,
assigned, transferred, discounted or pledged as
collateral.

During the lifetime of the Annuitant and prior to the
Annuity Commencement Date, the Owner may change the
ownership of a Non-Qualified Contract.

A change of ownership will not be binding upon us
until we receive Written notification at our Home
Office. When such notification is so received, the
change will be effective as of the date of the signed
request for change, but the change will be without
prejudice to us on account of any payment made, or
any action taken by us prior to receiving the change,
or on account of any tax consequence.

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<PAGE>

DISTRIBUTION OF If an Owner (including the first to die in the case
DEATH PROCEEDS of joint Contract owners) under a Non-Qualified
UNDER NON-QUALIFIED Contract dies prior to the Annuitant and before the
CONTRACTS Annuity Commencement Date, the death proceeds must be
distributed to the Beneficiary either (1) within five
years after the date of death of the Owner, or (2)
over the life of or a period not greater than the
life or expected life of the Beneficiary, with
annuity payments beginning within one year after the
date of death of the Owner. The Beneficiary shall be
considered the designated beneficiary for the
purposes of Section 72(s) of the Internal Revenue
Code. In all cases, any such designated beneficiary
will not be entitled to exercise any rights
prohibited by applicable federal income tax law.

These mandatory distribution requirements will not
apply when the designated Beneficiary is the spouse
of the deceased Owner, if the spouse elects to
continue this Contract in the spouse's own name, as
Owner. When the deceased Owner was also the
Annuitant, the surviving spouse (if the surviving
spouse is the designated Beneficiary) may elect to be
named as both Owner and Annuitant and continue this
Contract.

If the Payee under a Non-Qualified Contract dies
after the Annuity Commencement Date and before all of
the payments under the Annuity Option have been
distributed, the remaining amount payable, if any,
must be distributed at least as rapidly as under the
method of distribution then in effect.

If the Owner prior to the Annuity Commencement Date,
or the Payee thereafter, is not a natural person,
then the foregoing distribution requirements shall
apply upon the death of the primary Annuitant within
the meaning of the Internal Revenue Code.

PERIODIC REPORTS We will send to each Owner, at least once during each
Contract Year, a statement showing the Owner's
Account Value as of a date not more than two months
prior to the date of mailing. We will also send such
statements as may be required by applicable state and
federal laws, rules and regulations.

OWNER'S ACCOUNT We will establish an Owner's Account for the Owner
under this Contract and will maintain such account
during the Accumulation Period. The Owner's Account
Value for any Valuation Period will be equal to the
Owner's Separate Account Value, if any, plus the
Owner's Fixed Account Value, if any, for that
Valuation Period.

FIXED ACCOUNT

FIXED ACCOUNT VALUE That portion of a Net Purchase Payment which is
allocated to the Fixed Account will be credited to
the Owner's Account and allocated to the Guarantee
Period(s) selected. The Fixed Account Value of an
Owner's Account for any Valuation Period is equal to
the sum of the values in each of the Guarantee
Periods credited to the Owner's account for such
Valuation Period.

The value in any one Guarantee Period on a Valuation
Date is the accumulated value of the Net Purchase
Payments, renewals or transfers allocated to the
Guarantee Period at the Guaranteed Interest Rate,
minus the accumulated value of surrenders and
transfers out of that Guarantee Period and Contract
Fee allocated to that Guarantee Period, at the
Guaranteed Interest Rate.

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<PAGE>

GUARANTEE PERIODS There will always be at least one Fixed Account
Guarantee Period. At any given time, additional
Guarantee Periods may be available for selection by
the Owner. Subject to availability, the Owner may
select one or more Guarantee Period(s). The Guarantee
Period(s) selected will determine the Guaranteed
Interest Rates(s). The Net Purchase Payment or the
portion thereof (or amount transferred in accordance
with the transfer privilege provision described
below) allocated to a particular Guarantee Period
will earn interest at the Guaranteed Interest Rate
during the Guarantee Period. Guarantee Periods begin
on the date as of which we credit the Owner's Account
Value to that Guarantee Period or, in the case of a
transfer, on the effective date of the transfer. The
Guarantee Period is the number of years we credit the
Guaranteed Interest Rate. The expiration date of any
Guarantee Period is the last day of the Guarantee
Period. Subsequent Guarantee Periods begin on the
first day following the expiration date. As a result
of Guarantee Period renewals, additional Purchase
Payments and transfers of portions of the Owner's
Account Value, Guarantee Periods of the same duration
may have different expiration dates and Guaranteed
Interest Rates.

We will notify the Owner in writing at least 30 and
no more than 60 days prior to the expiration date of
any Guarantee Period. A new Guarantee Period of the
same duration as the previous Guarantee Period will
begin automatically unless we receive Written notice
to the contrary from the Owner at least 3 Valuation
Dates prior to the end of such Guarantee Period. The
Owner may elect to change to another Guarantee Period
or Division which we offer at such time.

If the amount of an Owner's Account Value in a
Guarantee Period is less than $500 at the end of such
Guarantee Period, we reserve the right to transfer
such amount, without charge, to the Global Money Fund
of the Separate Account. However, we will transfer
such amount to another available Division at the
Owner's request.

GUARANTEED INTEREST We will periodically establish an applicable Rate
RATES Guaranteed Interest for each Guarantee Period we
offer. These rates will be guaranteed for the
duration of the respective Guarantee Periods. The
Guarantee Periods that we make available at any time
will be determined in our discretion. No Guaranteed
Interest Rate shall be less than an effective annual
rate of 3.0% per year.

SEPARATE ACCOUNT

DIVISIONS The Separate Account has several Divisions, each
investing in a corresponding Variable Fund. Net
Purchase Payments will be allocated to the Divisions
and the Fixed Account as shown on Page 3, unless the
Owner changes the allocation.

We will use the Net Purchase Payments and any
transferred amounts to purchase Variable Fund shares
applicable to the Divisions at their net asset value.
We will be the owner of all Variable Fund shares
purchased with the Net Purchase Payments or
transferred amounts. 97010

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<PAGE>

DIVISION Net Purchase Payments and transferred amounts
ACCUMULATION allocated to the Separate Account will be credited to
UNITS the Owner's Account in the form of Division
Accumulation Units. The number of Division
Accumulation Units will be determined by dividing the
amount allocated to a Division by the Division
Accumulation Unit value as of the end of the
Valuation Period as of which the transaction is
credited. The value of each Division Accumulation
Unit was arbitrarily set as of the date the Division
first purchased Variable Fund shares. Subsequent
values on any Valuation Date are equal to the
previous Division Accumulation Unit value times the
Net Investment Factor for the Valuation Period ending
on that Valuation Date.

NET INVESTMENT The Net Investment Factor is an index applied to
FACTOR measure the investment performance of a Division from
one Valuation Period to the next. The Net Investment
Factor may be greater or less than or equal to one;
therefore, the value of an Accumulation Unit may
increase, decrease or remain the same.

The Net Investment Factor for a Division is
determined by dividing (1) by (2), and then
subtracting (3) from the result, where:

(1) Is the sum of:

(a) The Net Asset Value Per Share of the
Variable Fund shares held in the Division,
determined at the end of the current
Valuation Period; plus

(b) The per share amount of any dividend or
capital gain distributions made on the
Variable Fund shares held in the Division
during the current Valuation Period;

(2) Is the Net Asset Value Per Share of the Variable
Fund shares held in the Division, determined at
the beginning of the current Valuation Period;
and

(3) Is a factor representing the mortality risk,
expense risk, and administrative expense charge.
We will determine the daily asset charge factor
annually, but in no event may it exceed the
Maximum Asset Charge Factor as specified on Page
3.

SEPARATE ACCOUNT The Separate Account for any Valuation Period is the
total of the Value values in each Division credited
to the Owner's Account for such Valuation Period. The
value for each Division will be equal to:

(1) The number of Division Accumulation Units;
multiplied by

(2) The Division Accumulation Unit value for the
Valuation Period.

The Separate Account value will vary from Valuation
Date to Valuation Date reflecting the total value in
the Divisions.

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<PAGE>

TRANSFERS

TRANSFERS Transfers may be made at any time during the
Accumulation Period after the first 30 days following
the Date of Issue. A transfer will be effective at
the end of the Valuation Period in which we receive
the Owner's Written request for a transfer. Transfers
will be subject to the following restrictions:

(1) Prior to the Annuity Commencement Date, the Owner
may make up to 12 transfers each Contract Year
without charge.

(2) There will be a charge of $25.00 for each
transfer in excess of 12 in a Contract Year.

(3) Transfers under some asset management
arrangements approved by the Company may be
subject to the $25.00 charge and may count
towards the 12 free transfers.

(4) Not more than 25% of the Owner's Account Value
allocated to a Guarantee Period at its inception
may be transferred to the Variable Account during
any Contract Year. Transfers from a Guarantee
Period are made on a first in, first out basis.
The 25% limit does not apply to:

(a) Transfers within 15 days before or after the
end of the applicable Guarantee Period; or

(b) A renewal at the end of a Guarantee Period
to the same Guarantee Period.

(5) If a transfer would cause the Account Value in
any Division or Guarantee Period to fall below
$500, we reserve the right to also transfer the
remaining balance in that Division or Guarantee
Period in the same proportions as the transfer
request.

(6) We reserve the right to defer any transfer from
the Fixed Account to the Variable Divisions for
up to 6 months.

We reserve the right to restrict or terminate
transfers.

After the Annuity Commencement Date, the Owner may
make one transfer during any 180 day period; such
transfer is without charge. The Owner may not make
transfers from the fixed annuity account.

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<PAGE>

SURRENDERS

GENERAL SURRENDER The amount surrendered will normally be paid to the
PROVISIONS Owner within 5 Valuation Dates following our receipt
of:

(1) The Owner's Written request on a form acceptable
to us; and

(2) This Contract, if required. We reserve the right
to defer payment of surrenders from the Fixed
Account for up to 6 months from the date we
receive the request.

FULL SURRENDER At any time prior to the Annuity Commencement Date
and during the lifetime of the Annuitant, the Owner
may surrender this Contract by sending us a Written
request. The amount payable on surrender is:

(1) The Owner's Account Value at the end of the
Valuation Period in which we receive the Owner's
request on a form acceptable to us;

(2) Minus any applicable Surrender Charge;

(3) Minus any applicable Contract Fee; and

(4) Minus any applicable premium tax.

The amount payable upon surrender will not be less
than the amount required by state law.

Upon payment of the surrender amount, this Contract
will be terminated and the Company will have no
further obligation to the Owner.

All collateral assignees must consent to any
surrender or partial withdrawal. We may require that
this Contract be returned to our Home Office prior to
making payment.

PARTIAL WITHDRAWALS A portion of the Owner's Account Value may be
withdrawn at any time prior to the Annuity
Commencement Date. The Owner must send us a Written
request specifying the Divisions or Guarantee Periods
from which the Partial Withdrawal is to be made.
However, in cases where the Owner does not so
specify, or the withdrawal cannot be made in
accordance with the Owner's specification, we reserve
the right to implement the withdrawal pro rata from
each Division and Guarantee Period based on the
Owner's Account Value in each. Partial Withdrawals
will be made effective at the end of the Valuation
Period in which we receive the Written request.
Partial Withdrawals will be subject to the following
guidelines:

(1) The Partial Withdrawal amount must be at least
$100 or, if less, the Owner's entire Account
Value;

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<PAGE>

(2) We will surrender Division Accumulation Units
from the Separate Account or interests in a
Guarantee Period so that the total amount
withdrawn will be the sum of:

(a) The amount payable to the Owner;

(b) Plus any Surrender Charge and any applicable
premium tax;

(3) If a Partial Withdrawal would cause the Owner's
Account Value in any Division or Guarantee Period
(except the Global Money Fund) to fall below
$500, we reserve the right to transfer the
remaining balance without charge to the Global
Money Fund.

(4) If the Owner's Account Value is less than $500,
We may cancel this Contract upon 60 days' notice
to the Owner. Such cancellAtion would be
considered a full surrender of this Contract.

SURRENDER Except as noted under "Surrender Charge Exceptions,"
CHARGE a Surrender Charge will be applied to the amount of
FOR PARTIAL any Purchase Payment withdrawn during the first 7
WITHDRAWALS AND years after it was first credited, as follows:
FULL SURRENDERS
<TABLE>
<CAPTION>
SURRENDER CHARGE
YEAR OF AS A PERCENTAGE
PURCHASE PAYMENT OF PURCHASE
WITHDRAWAL PAYMENT WITHDRAWN
<S> <C> <C>
1st 7%
2nd 6%
3rd 5%
4th 5%
5th 4%
6th 3%
7th 2%
Thereafter 0%
</TABLE>

For purposes of computing the Surrender Charge, the
oldest Purchase Payments are deemed to be withdrawn
first, and before any amounts in excess of Purchase
Payments are withdrawn from an Owner's Account. The
following transactions will be considered as
withdrawals for purposes of computing the Surrender
Charge: total surrender, partial withdrawal,
commencement of an annuity payment option and
termination due to insufficient Owner Account Value.

SURRENDER CHARGE The Surrender Charge will not apply:
EXCEPTIONS
(1) To any amounts in excess of Purchase Payments
that are withdrawn from an Owner's Account; or

(2) To any amounts in excess of the amount permitted
by the 10% Free Withdrawal Privilege if such
amounts are required to be withdrawn to obtain or
retain favorable federal tax treatment; (The
granting of this exception is subject to our
approval);

(3) Upon the death of the Annuitant at any age during
the Payout Period;

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<PAGE>

(4) Upon the death of the Annuitant at any age during
the Accumulation Period if no Contingent
Annuitant survives;

(5) Upon the death of the Owner of a Non-Qualified
Contract, unless the Contract is being continued
under the special rule for a surviving spouse as
defined under Internal Revenue Code Section
(72)(s);

(6) Upon selection of an annuity payment option over
a period of at least 10 years;

(7) Upon selection of an annuity payment option based
on life contingencies if life expectancy is at
least 10 years.

10% FREE WITHDRAWAL The Surrender Charge does not apply to that portion
of each withdrawal or a total surrender in any
Contract Year that does not exceed:

(1) Ten Percent (10%) of the amount of Purchase
Payments not previously withdrawn that have been
credited to this Contract for at least one year,
but not more than 7 years; less

(2) The amount of any previous withdrawals made
during such Contract Year.

For withdrawals under a systematic withdrawal plan,
Purchase Payments credited for 30 days or more are
eligible for the 10% Free Withdrawal Privilege.

If multiple withdrawals are made during a Contract
Year, the amount eligible for the free withdrawal
will be recalculated at the time of each Partial
Withdrawal. After the first Contract Year,
non-automatic and automatic withdrawals may be made
in the same Contract Year subject to the 10%
limitation.

A free withdrawal pursuant to any of the foregoing
Surrender Charge Exceptions is not deemed a
withdrawal of Purchase Payments except for purposes
of computing the 10% free withdrawal privilege.
However the Surrender Charge will never be applied to
an amount greater than the Owner's Account Value.

CONTRACT FEE

MANNER OF An annual Contract Fee not to exceed $35.00 will be
DEDUCTING deducted at the end of each Contract Year prior to
the Annuity Commencement Date. Unless paid directly,
the fee will be allocated among the Guarantee Periods
and Divisions in proportion to the Owner's Account
Value in each. The entire fee for the year will be
deducted from the proceeds of any full surrender of
this Contract.

TAX CHARGE

RIGHT TO We reserve the right to impose additional charges or
IMPOSE 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

REINSTATEMENT OF If the Owner has made a full surrender of the Owner's
ACCOUNT VALUE Account Value, the Owner may reinstate the Contract,
if we receive the Written reinstatement request,
together with a return of the net surrender

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<PAGE>

proceeds, not more than 30 days after the date as of
which the surrender was made. In such a case, the
Owner's Account Value will be restored to what it was
at the time of the surrender (less any annual
Contract maintenance charge that has since become
payable), 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.
This one-time reinstatement privilege is available
only if the Owner's Account Value following the
reinstatement would be at least $500. Unless the
Owner requests otherwise in Writing, the Account
Value following the reinstatement will be allocated
among the Divisions and Guarantee Periods in the same
proportions as those prior to surrender.

DEATH PROCEEDS

DEATH PROCEEDS If the Annuitant dies before the Annuity Commencement
COMMENCEMENT DATE Date, and is survived by a Contingent Annuitant, the
BEFORE THE ANNUITY Contract will be continued with the Contingent
Annuitant being named the Annuitant. If this is a
Non-Qualified Contract, this Contract may qualify for
continuation under the "Distribution of Death
Proceeds under Non-Qualified Contracts" provision.
Otherwise, we will pay the death proceeds to the
Beneficiary if one of the following dies prior to the
Annuity Commencement Date:

(1) The Annuitant (provided that no Contingent
Annuitant survives); or

(2) The Owner of a Non-Qualified Contract (including
the first to die in the case of Joint Owners). If
the Annuitant or such Owner dies, the amount of
the death proceeds will be the greatest of the
following amounts, less any applicable Premium
Tax: (1) The sum of all Net Purchase Payments
less any prior Partial Withdrawals; (2) The
Owner's Account Value as of the end of the
Valuation Period in which we receive proof of the
Annuitant's or such Owner's death and a Written
request from the Beneficiary as to the form of
payment; or

(3) The Highest Anniversary Value prior to the date
of death, determined as follows:

(a) We will calculate the Account Values at the
end of each of the past Contract
Anniversaries that occurred prior to the de-
ceased's 81st birthday;

(b) Each of the Account Values will be increased
by the amount of Net Purchase Payments made
since the end of such Contract Years;

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<PAGE>

The Highest Anniversary Value will be an
amount equal to the highest of such values.
The death proceeds will not be less than the
amount payable on a full surrender at the
date used to value the death benefit.

The death proceeds will become payable when we
receive:

(1) Proof of the Owner's or Annuitant's Death; and

(2) A Written request from the Beneficiary for either
a single sum or payment under an Annuity Option.

If the Annuitant dies, and a Contingent Annuitant was
named but predeceased the Annuitant, we will require
proof of the Contingent Annuitant's death in addition
to proof of the death of the Annuitant.

We will pay a single sum to the Beneficiary unless an
Annuity Option is chosen within 60 days after the
death of the Owner or Annuitant.

DEATH PROCEEDS ON If the Annuitant dies on or after the Annuity
OR AFTER THE Commencement Date, the Beneficiary will receive the
ANNUITY death proceeds, if any, as provided by the annuity
COMMENCEMENT DATE form in effect.

PROOF OF DEATH We accept any of the following as proof of the
Annuitant's or Owner's death:

(1) A copy of a certified death certificate;

(2) A copy of a certified decree of a court of
competent jurisdiction as to the finding of
death;

(3) A written statement by a medical doctor who
attended the deceased at the time of death; or

(4) Any other proof satisfactory to us.

PAYMENT OF BENEFITS

APPLICATION OF Unless directed otherwise, we will apply the Fixed
ACCOUNT VALUE Account Value to provide a Fixed Annuity, and the
Separate Account Value to provide a Variable Annuity.
The Owner must tell us in writing at least 30 days
prior to the Annuity Commencement Date if Fixed and
Separate Account values are to be applied in
different proportions. Transfers and partial
withdrawals will be permitted within the 30-day
period.

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<PAGE>

Annuity The Annuity Commencement Date (Annuity Date) is shown
COMMENCEMENT DATE on page 3. The Owner of a qualified Contract may be
required to receive distributions after the
Annuitant's 70th birthday to comply with certain
federal tax requirements. The Annuity Date may be
changed by Written notice from the Owner, subject to
our approval.

OPTIONS AVAILABLE The Owner may elect to have annuity payments made
TO A CONTRACT beginning on the Annuity Commencement Date under any
OWNER one of the Annuity Options described in this
Contract. We will notify the Owner 60 to 90 days
prior to the scheduled Annuity Date that the Contract
is scheduled to mature, and request that an Annuity
Option be selected. If the Owner has not selected an
Annuity Option ten days prior to the Annuity
Commencement Date, we will proceed as follows:

If the scheduled Annuity Commencement Date is any
date prior to the Annuitant's 100th birthday, we will
extend the Annuity Commencement Date to the
Annuitant's 100th birthday.

If the scheduled Annuity Commencement Date is the
Annuitant's 100th birthday, the Account Value less
any applicable charges and premium taxes will be paid
in one sum to the Owner.

OPTIONS AVAILABLE The Owner may elect, in lieu of payment in one sum,
TO BENEFICIARY that any amount or part thereof due under this
Contract be applied under any of the options
described below. Within 60 days after the death of
the Annuitant or Owner, the Beneficiary may make such
election if the Owner has not done so. In such case,
the Beneficiary thereafter shall have all the rights
and options of the Owner.

The first annuity payment under any option shall be
made on the first day of the second month after
approval of the claim for settlement. Subsequent
payments shall be made periodically in accordance
with the manner of payment elected.

PAYMENT CONTRACT At such time as one of these options becomes
effective, this Contract shall be surrendered to the
Company in exchange for a payment contract providing
for the option elected.

FIXED ANNUITY Fixed Annuity Payments start on the Annuity
PAYMENTS Commencement Date. The amount of the first monthly
payment for the annuity selected will be at least as
favorable as that produced by the applicable annuity
tables of this Contract for each $1,000 applied as of
the end of the Valuation Period that contains the
tenth day prior to the Annuity Commencement Date.

The dollar amount of any payments after the first
payment is specified during the entire period of
annuity payments, according to the provisions of the
Annuity Option selected.

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<PAGE>

VARIABLE ANNUITY PAYMENTS

ANNUITY UNITS We convert the Division Accumulation Units into
Division Annuity Units at the values determined at
the end of the Valuation Period which contains the
tenth day prior to the Annuity Commencement Date. The
number of Division Annuity Units is obtained by
dividing the first monthly payment by the Division
Annuity Unit Value determined at the end of the above
Valuation Period (see following paragraph). The first
monthly payment is determined by applying the dollar
value of the Division Accumulation Units to the
applicable Annuity Table. The number of Division
Annuity Units remains constant as long as an annuity
remains in force and allocation among the Divisions
has not changed.

Each Division Annuity Unit Value was arbitrarily set
when the Division first converted Division
Accumulation Units into Division Annuity Units.
Subsequent values on any Valuation Date are equal to
the previous Division Annuity Unit Value times the
Net Investment Factor for that Division for the
Valuation Period ending on that Valuation Date, with
an offset for the 3 1/2% assumed interest rate used
in the annuity tables of this Contract.

Variable Annuity Payments start on the Annuity
Commencement Date. Payments will vary in amount and
are determined at the end of the Valuation Period
that contains the tenth day prior to each payment.

If the monthly payment under the annuity form
selected is based on a single Division, the monthly
payment is found by multiplying the Division Annuity
Unit Value on said date by the number of Division
Annuity Units. If the monthly payment under the
annuity form selected is based upon more than one
Division, the above procedure is repeated for each
applicable Division. The sum of these payments is the
Variable Annuity Payment.

We guarantee that the amount of each payment will not
be affected by variations in expense or mortality
experience.

ANNUITY OPTIONS FIRST OPTION - LIFE ANNUITY - An annuity payable
monthly during the lifetime of the Annuitant.

SECOND OPTION - LIFE ANNUITY WITH 120, 180 OR 240
MONTHLY PAYMENTS GUARANTEED - An annuity payable
monthly during the lifetime of the Annuitant,
including the guarantee that if, at the death of the
Annuitant, payments have been made for less than 120
months, 180 months or 240 months (as selected),
payments shall be continued during the remainder of
the selected period.

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<PAGE>

THIRD OPTION - JOINT AND LAST SURVIVOR LIFE ANNUITY -
An annuity payable monthly during the joint lifetime
of the Annuitant, and a secondary Annuitant, and
thereafter during the remaining lifetime of the
survivor, ceasing with the last payment prior to the
death of the survivor.

FOURTH OPTION - PAYMENTS FOR A DESIGNATED PERIOD - An
amount payable monthly for the number of years
selected which may be from 5 to 40 years. If this
option is selected on a variable basis, the number of
years may not exceed the life expectancy of the
Annuitant or other properly-designated Payee.

FIFTH OPTION - PAYMENTS OF A SPECIFIC DOLLAR AMOUNT -
The amount due may be 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. 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.

In lieu of monthly payments, payments may be elected
on a quarterly, semi-annual or annual basis, in which
cases the amount of each annuity payment will be
determined on a basis consistent with that described
in this Contract for monthly payments.

No election of any Annuity Option may be made in the
case where a Fixed or Variable Annuity is elected,
unless a minimum initial annuity payment of $100 will
be provided. No election of any Annuity Option may be
made in the case where a combination of a Fixed and a
Variable Annuity is elected, unless a minimum initial
annuity payment of $50 on each basis will be
provided. If the initial annuity payment does not
meet the minimum amount required for the Annuity
Option elected, the Company will provide a less
frequent payment schedule. If the minimum is still
not met, the Company will make a lump-sum payment of
the Account Value (less any Surrender Charge,
uncollected annual Maintenance Charge and applicable
premium tax) as of the date of this determination to
the Annuitant or other properly-designated Payee.

If the age of the Annuitant has been misstated to us,
any amount payable will be that which would have been
payable had the misstatement not occurred. We will
deduct any overpayment from the next payment or
payments due and add any underpayments to the next
payment due. Interest at an effective annual rate of
3.5% will be added to any such adjustment.

ANNUITY TABLES The tables that follow show the dollar amount of the
first monthly payment for each $1,000 applied under
the options. The tables are based on the 1983a Male
or Female Tables, adjusted by projection scale G for
9 years, with unisex rates based on 60% female and
40%

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<PAGE>

male, and interest at the rate of 3 1/2% per year.
Under the First or Second Options, the amount of each
payment will depend upon the Annuitant's adjusted age
at the time the first payment is due. Under the Third
Option, the amount of each payment will depend upon
both Annuitant's adjusted ages at the time the first
payment is due.

In using the table of annuity payment rates, the ages
of the Annuitants must be reduced by one year for
Annuity Commencement Dates occurring during the
decade 2000-2009, reduced two years for Annuity
Commencement Dates occurring during the decade 2010-
2019, and reduced an additional year for each decade
that follows. The age 70 rate is also used for ages
above 70.

ALTERNATE AMOUNT If a fixed life income option is elected, the Owner
OF INSTALLMENTS (or, if the Owner has not elected a payment option,
UNDER FIXED LIFE the Beneficiary) may elect life income payments equal
INCOME OPTIONS to those provided by those fixed single premium
immediate annuity option rates in use by the Company
when annuity payments begin.

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<PAGE>

ANNUITY TABLES
AMOUNT OF MONTHLY PAYMENT
FOR EACH $1,000 OF ANNUITY VALUE

Options 1 and 2 - Life Annuities

-----Monthly Payments Guaranteed-----
<TABLE>
<CAPTION>
Adjusted Unisex
Age Option 1 Option 2 Option 2 Option 2
None 120 180 240
<S> <C> <C> <C> <C>
50 4.18 4.15 4.12 4.07
51 4.24 4.21 4.18 4.12
52 4.31 4.28 4.24 4.17
53 4.38 4.34 4.30 4.23
54 4.45 4.41 4.36 4.28
55 4.53 4.48 4.43 4.34
56 4.61 4.56 4.50 4.40
57 4.70 4.64 4.57 4.46
58 4.79 4.73 4.65 4.52
59 4.89 4.82 4.72 4.59
60 5.00 4.91 4.81 4.65
61 5.11 5.02 4.89 4.71
62 5.23 5.12 4.98 4.78
63 5.36 5.23 5.07 4.85
64 5.49 5.35 5.17 4.91
65 5.64 5.48 5.26 4.98
66 5.80 5.61 5.36 5.04
67 5.96 5.74 5.46 5.10
68 6.14 5.88 5.57 5.16
69 6.34 6.03 5.67 5.21
70 and above 6.54 6.19 5.77 5.27
</TABLE>
Option 3 - Joint and Last Survivor Life Annuity
<TABLE>
Adjusted Age Adjusted Age of Secondary Annuitant
of Annuitant
<CAPTION>
Unisex 50 55 60 65 70
<S> <C> <C> <C> <C> <C>
50 3.75 3.85 3.94 4.01 4.07
55 3.85 4.00 4.13 4.24 4.33
60 3.94 4.13 4.32 4.49 4.65
65 4.01 4.24 4.49 4.75 5.00
70 4.07 4.33 4.65 5.00 5.36
</TABLE>
Option 4 - Payments for a Designated Period
<TABLE>
<CAPTION>
Years of Amount of Monthly Years Amount of Monthly
Payment Payment Payment Payment
<S> <C> <C> <C>

5 $18.12 23 $5.24
6 15.35 24 5.09
7 13.38 25 4.96
8 11.90 26 4.84
9 10.75 27 4.73
10 9.83 28 4.63
11 9.09 29 4.53
12 8.46 30 4.45
13 7.94 31 4.37
14 7.49 32 4.29
15 7.10 33 4.22
16 6.76 34 4.15
17 6.47 35 4.09
18 6.20 36 4.03
19 5.97 37 3.98
20 5.75 38 3.92
21 5.56 39 3.88
22 5.39 40 3.83
</TABLE>

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<PAGE>

AMERICAN GENERAL LIFE
INSURANCE COMPANY

This is a FLEXIBLE PAYMENT VARIABLE and FIXED INDIVIDUAL DEFERRED ANNUITY
CONTRACT. NONPARTICIPATING -- NOT ELIGIBLE FOR DIVIDENDS.

For Information, Service or to make a Complaint
Contact your Registered Representative,
or the Annuity Administration Department

American General Life
Insurance Company
2727-A Allen Parkway
P.O. Box 1401
Houston, Texas 77251-1401
(713) 831-3505

[American General Logo]
A STOCK COMPANY
---------------------------------------------
A Subsidiary of American General Corporation
---------------------------------------------

EXHIBIT 4(b)

AMERICAN GENERAL LIFE
INSURANCE COMPANY

This is a FLEXIBLE PAYMENT VARIABLE and FIXED INDIVIDUAL DEFERRED ANNUITY
CONTRACT. NONPARTICIPATING -- NOT ELIGIBLE FOR DIVIDENDS.

SIGNED AT THE HOME OFFICE ON THE DATE OF ISSUE.

/s/ /s/
--------------------- -----------------------
Secretary President

READ YOUR CONTRACT CAREFULLY

97011