Registration Nos. 33-57730
811-2441
As filed with the Commission on April 29, 1997
--------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ___ ___
Post-Effective Amendment No. 6 X
--- ---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 59 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: Continuous.
It is proposed that this filing will become effective (check appropriate box)
|_| Immediately upon filing pursuant to paragraph (b) of Rule 485
|X| On May 1, 1997 pursuant to paragraph (b) of Rule 485
<PAGE>
|_| 60 days after filing pursuant to paragraph (a)(1) of Rule 485
|_| On (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
|_| This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
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.
<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
<TABLE>
SHOWING LOCATION OF INFORMATION IN PROSPECTUS
<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; Selected
Accumulation Unit Data
5. General Description of Registrant,
Depositor and Portfolio Companies.............. AGL; Separate Account D; The Funds; 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; Transfer, Surrender
and Partial Withdrawal of Owner Account Value;
Owners, Annuitants and Beneficiaries;
Assignments; Rights Reserved by Us
</TABLE>
(i)
<PAGE>
<TABLE>
PART A
<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 Statement
of Additional Information...................... Contents of Statement of Additional Information
</TABLE>
(ii)
<PAGE>
PART B
<TABLE>
SHOWING LOCATION OF INFORMATION IN STATEMENT OF ADDITIONAL INFORMATION
<CAPTION>
Caption in
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................................... Not Applicable*
21. Calculation of Performance
Data........................................... Performance Data for the Divisions
22. Annuity Payments............................... Not Applicable*
23. Financial Statements........................... Financial Statements
- ---------------------------------------
<FN>
* All required information is included in 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 ADVANTAGE
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 flexible payment
deferred individual annuity contracts (the "Contracts").
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 portfolios of
The Sierra Variable Trust (the "Trust"): the Global Money Fund, Short-Term
High Quality Bond Fund, Short-Term Global Government Fund, U.S. Government
Fund, Corporate Income Fund, Growth and Income Fund, Growth Fund, Emerging
Growth Fund, and International Growth Fund (the "Funds").
You may also use AGL's guaranteed interest accumulation option. This option
has three different guarantee periods, each with its own guaranteed interest
rate.
This Prospectus is designed to provide information about the Contracts that
you ought to know before investing. Please read it carefully and keep it for
future reference. Information about certain aspects of the Contracts, in
addition to that found in this Prospectus, has been filed with the Securities
and Exchange Commission in the Statement of Additional Information (the
"Statement"). The Statement, dated May 1, 1997, is incorporated by reference
into this Prospectus. The "Table of Contents" of the Statement appears at page
42 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.
Prospectus dated May 1, 1997
<PAGE>
<TABLE>
CONTENTS
<S> <C>
Glossary................................................................. 4
Fee Table................................................................ 7
Synopsis of Contract Provisions.......................................... 11
Minimum Investment Requirements........................................ 11
Purchase Payment Accumulation.......................................... 11
Fixed and Variable Annuity Payments.................................... 11
Changes in Allocations Among Divisions and Guarantee Periods........... 12
Surrenders, Withdrawals and Cancellations.............................. 12
Death Proceeds......................................................... 12
Limitations Imposed by Retirement Plans and Employers.................. 12
Communications to Us................................................... 13
Financial and Performance Information.................................. 13
Selected Accumulation Unit Data ......................................... 14
AGL...................................................................... 17
Separate Account D....................................................... 17
The Funds................................................................ 17
Voting Privileges....................................................... 18
The Fixed Account........................................................ 19
Contract Issuance and Purchase Payments.................................. 20
Owner Account Value...................................................... 21
Variable Account Value................................................. 21
Fixed Account Value.................................................... 22
Transfer, Surrender and Partial Withdrawal of Owner Account Value........ 22
Transfers.............................................................. 22
Surrenders and Partial Withdrawals..................................... 24
Annuity Period and Annuity Payment Options............................... 25
Annuity Commencement Date.............................................. 25
Application of Owner Account Value..................................... 25
Fixed and Variable Annuity Payments.................................... 25
Annuity Payment Options................................................ 26
Transfers.............................................................. 28
Death Proceeds........................................................... 28
Death Proceeds Prior to the Annuity Commencement Date.................. 28
Death Proceeds After the Annuity Commencement Date..................... 29
Proof of Death......................................................... 30
Charges Under the Contracts.............................................. 30
Premium Taxes.......................................................... 30
Surrender Charge....................................................... 30
Transfer Charges....................................................... 32
Charge to Separate Account D........................................... 32
Miscellaneous.......................................................... 32
One-Time Reinstatement Privilege....................................... 33
Reduction in Surrender Charges or Administrative Charges............... 33
Long-Term Care and Terminal Illness...................................... 33
Long-Term Care......................................................... 33
2
<PAGE>
Terminal Illness....................................................... 33
Other Aspects of the Contracts........................................... 33
Owners, Annuitants and Beneficiaries; Assignments...................... 34
Reports................................................................ 34
Rights Reserved by Us.................................................. 34
Payment and Deferment.................................................. 35
Federal Income Tax Matters............................................... 35
General................................................................ 35
Non-Qualified Contracts................................................ 36
Individual Retirement Annuities ("IRAs")............................... 37
Simplified Employee Pension Plans...................................... 38
Simple Retirement Accounts............................................. 38
Other Qualified Plans.................................................. 39
Private Employer Unfunded Deferred Compensation
Plans................................................................ 39
Excess Distributions - 15% Tax......................................... 40
Federal Income Tax Withholding and Reporting........................... 40
Taxes Payable by AGL and Separate Account D............................ 40
Distribution Arrangements................................................ 41
Legal Matters............................................................ 41
Other Information on File................................................ 41
Contents of Statement of Additional Information.......................... 42
</TABLE>
3
<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.
4
<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.
FUND - an individual investment fund or portfolio available for investment
under the Contracts. Currently, each Fund is a part of The Sierra Variable
Trust.
GENERAL ACCOUNT - all assets of 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.
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.
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.
5
<PAGE>
VARIABLE ANNUITY PAYMENTS - annuity payments that vary in amount based on the
investment experience of one or more of the Divisions of Separate Account D.
VARIABLE ACCOUNT VALUE - the amount of your Account Value that is in Separate
Account D.
WRITTEN - signed, dated, in form and substance satisfactory to us and received
at our Home Office. See "Synopsis of Contract Provisions - Communications to
Us." You must use special forms provided by us or your sales representative to
authorize telephone transfers, elect an Annuity Option or exercise your
one-time reinstatement privilege.
6
<PAGE>
FEE TABLE
The purpose of this Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly pursuant
to a Contract and in connection with the Funds. The table reflects expenses of
Separate Account D as well as the Funds. Amounts for state premium taxes or
similar assessments may also be deducted, where applicable.
<TABLE>
PARTICIPANT TRANSACTION CHARGES
<S> <C>
Front-End Sales Charge Imposed on Purchases ...................... 0%
Maximum Surrender Charge (1)...................................... 7.0%
(computed as a percentage of purchase payments)
Transfer Fee...................................................... $ 0 (2)
ANNUAL MAINTENANCE CHARGE.............................................. $ 0
SEPARATE ACCOUNT D ANNUAL EXPENSES (as a percentage of average daily net asset
value)
Mortality and Expense Risk Charge................................. 1.20%
Administrative Expense Charge..................................... .30%
Total Separate Account D Annual Expenses........................ 1.50%
<FN>
(1) This charge does not apply or is reduced under certain circumstances. See
"Surrender Charge."
(2) This charge is $25 after the twelfth transfer (unless such transfer is
associated with the Sierra Asset Management Program; see "Transfers")
during each Contract Year prior to the Annuity Commencement Date.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
THE FUNDS' ANNUAL EXPENSES (1) (as a percentage of average net assets)
<CAPTION>
MANAGEMENT
FEES AFTER EXPENSE TOTAL FUND
REIMBURSEMENT OPERATING
AND WAIVER OTHER EXPENSES EXPENSES
------------------ -------------- -----------
<S> <C> <C> <C>
Global Money 0.47% 0.38% 0.85%
Short-Term High Quality Bond 0.44% 0.56% 1.00%
Short-Term Global Government 0.75% 0.50% 1.25%
U.S. Government 0.60% 0.30% 0.90%
Corporate Income 0.65% 0.30% 0.95%
Growth and Income 0.80% 0.30% 1.10%
Growth 0.89% 0.31% 1.20%
Emerging Growth 0.87% 0.33% 1.20%
International Growth 0.94% 0.41% 1.35%
<FN>
(1) Management fees and other expenses are derived from 1996 operating
experience, which have been restated to reflect current expenses, the
modification of certain voluntary fee waivers from the investment
adviser, and credits allowed by the custodian. The investment adviser and
the administrator may each, at its sole discretion, vary the level of or
eliminate its voluntary fee waivers at any time. In the absence of such
waivers, as modified, and credits allowed by the custodian, management
fees, other expenses, and total expenses would have been:
</FN>
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT FEES OTHER EXPENSES TOTAL EXPENSES
--------------- -------------- --------------
<S> <C> <C> <C>
Global Money 0.50% 0.38% 0.88%
Short-Term High Quality Bond 0.50% 0.56% 1.06%
Short-Term Global Government 0.75% 0.53% 1.28%
U.S. Government 0.60% 0.34% 0.94%
Corporate Income 0.65% 0.33% 0.98%
Growth and Income 0.80% 0.33% 1.13%
Growth 0.89% 0.33% 1.22%
Emerging Growth 0.87% 0.34% 1.21%
International Growth 0.94% 0.45% 1.39%
</TABLE>
EXAMPLE: If you surrender your Contract at the end of the applicable time
period, a $1,000 investment would be subject to the following
expenses, assuming a 5% annual return on assets:
If all amounts are invested in one of the following Funds:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Global Money $94 $127 $162 $269
Short-Term High Quality Bond $95 $132 $169 $284
Short-Term Global Government $98 $139 $181 $308
U.S. Government $94 $129 $164 $274
Corporate Income $95 $130 $167 $279
Growth and Income $96 $135 $174 $293
Growth $97 $138 $179 $303
Emerging Growth $97 $138 $179 $303
International Growth $99 $142 $186 $318
</TABLE>
8
<PAGE>
EXAMPLE: If you commence a life Annuity Payment Option following the end of
the applicable time period, a $1,000 investment would be subject to
the following expenses, assuming a 5% annual return on assets:
If all amounts are invested in one of the following Funds:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS (1,2) 5 YEARS (3) 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Global Money $78 $73 $126 $269
Short-Term High Quality Bond $79 $78 $133 $284
Short-Term Global Government $82 $85 $145 $308
U.S. Government $78 $75 $128 $274
Corporate Income $79 $76 $131 $279
Growth and Income $80 $81 $138 $293
Growth $81 $84 $143 $303
Emerging Growth $81 $84 $143 $303
International Growth $83 $88 $150 $318
</TABLE>
EXAMPLE: If you do NOT surrender your Contract or commence an Annuity Payment
Option, a $1,000 investment would be subject to the following
expenses, assuming a 5% annual return on assets:
If all amounts are invested in one of the following Funds:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEAR 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Global Money $24 $73 $126 $269
Short-Term High Quality Bond $25 $78 $133 $284
Short-Term Global Government $28 $85 $145 $308
U.S. Government $24 $75 $128 $274
Corporate Income $25 $76 $131 $279
Growth and Income $26 $81 $138 $293
Growth $27 $84 $143 $303
Emerging Growth $27 $84 $143 $303
International Growth $29 $88 $150 $318
<FN>
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. Similarly,
the assumed 5% annual rate of return is not an estimate or a guarantee of
future investment performance. The examples are based on the restated Fund
expenses set forth on the preceding page.
(1) If the Annuity Commencement Date under a life or non-life Annuity Payment
Option were the last day of the third Contract Year, the figures in this
column would be the same as those in the same column of the preceding
example.
9
<PAGE>
(2) If the Annuity Payment Option exercised following the third Contract Year
is not a life annuity, the figures in this column would be $9 less than
those in the same column of the preceding example due to the decrease in
the surrender charges from Contract Year 3 to Contract Year 4.
(3) If the Annuity Payment Option exercised following the fifth Contract Year
is not a life annuity, the figures in this column would be $18 less than
those in the same column of the preceding example due to the decrease in
the surrender charge from Contract Year 5 to Contract Year 6. If said
non-life annuity option had its Annuity Commencement Date on the last day
of the fifth Contract Year, the figures in this column would be the same
as those in the same column of the preceding example.
</FN>
</TABLE>
10
<PAGE>
SYNOPSIS OF CONTRACT PROVISIONS
This synopsis should be read together with the other information set forth in
this Prospectus. Variations due to requirements particular to your state are
described in supplements which are attached to this Prospectus, or in
endorsements to your Contract, as appropriate.
The Contracts are designed to provide retirement benefits through the
accumulation of purchase payments on a fixed or variable basis, and by the
application of such accumulations to provide Fixed or Variable Annuity
Payments.
MINIMUM INVESTMENT REQUIREMENTS
Your initial purchase payment must be at least $5,000 ($2,000 in the case of
an Individual Retirement Annuity ("IRA")). The amount of any subsequent
purchase payment that you make must be at least $100 ($50 for an IRA). If your
Account Value falls below $500, we may cancel your interest in the Contract
and treat it as a full surrender. See "Contract Issuance and Purchase
Payments."
PURCHASE PAYMENT ACCUMULATION
Purchase payments will be accumulated on a variable or fixed basis until the
Annuity Commencement Date. For variable accumulation, you may allocate part or
all of your Account Value to one or more of the nine available Divisions of
Separate Account D. Each such Division invests solely in shares of one of nine
corresponding Funds of the Trust. See "The Funds." As the value of the
investments in a Fund's shares increases or decreases, the value of
accumulated purchase payments allocated to the corresponding Division
increases or decreases, subject to applicable charges and deductions. See
"Variable Account Value."
For fixed accumulation, you may allocate part or all of your Account Value to
one or more of the three Guarantee Periods currently available in our Fixed
Account. Each Guarantee Period is for a different period of time and may have
a different Guaranteed Interest Rate. While allocated to a Guarantee Period,
the value of accumulated purchase payments increases at the Guaranteed
Interest Rate applicable to that Guarantee Period. See "The Fixed Account."
FIXED AND VARIABLE ANNUITY PAYMENTS
You may elect to receive Fixed or Variable Annuity Payments, or a combination
thereof, commencing on the Annuity Commencement Date. Fixed Annuity Payments
are periodic payments from 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."
11
<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 Guarantee Periods, without charge.
In addition, you may reallocate your Account Value among the Divisions and
Guarantee Periods prior to the Annuity Commencement Date. Transfers out of a
Guarantee Period, however, are subject to limitations as to amount. For these
and other terms and conditions of transfer, see "Transfer, Surrender and
Partial Withdrawal of Owner Account Value - Transfers."
After the Annuity Commencement Date, you may make transfers among the
Divisions or to a fixed Annuity Payment Option, but you may not make transfers
from a fixed Annuity Payment Option. See "Annuity Period and Annuity Payment
Options - Transfers."
SURRENDERS, WITHDRAWALS AND CANCELLATIONS
You may make a total surrender of or partial withdrawal from your Contract at
any time prior to the Annuity Commencement Date, by Written request to us. A
Surrender Charge may be assessed and some surrenders and withdrawals may
subject you to tax penalties. See "Surrenders and Partial Withdrawals."
You may cancel your Contract by delivering it or mailing it with a Written
cancellation request to our Home Office or to the sales representative through
whom it was purchased, before the close of business on the tenth day after you
receive the Contract. (In some cases, the Contract may provide for a 20 or
30-day, rather than a ten-day, period). If the foregoing items are sent by
mail, properly addressed and postage prepaid, they will be deemed to be
received by us on the date actually received.
Should you cancel your Contract, if permitted under state law, we will refund
to you the Owner Account Value plus any premium taxes that have been deducted.
In other states, however, we will refund (a) the greater of that amount or the
amount of your purchase payments, or (b) the amount of your purchase payments.
DEATH PROCEEDS
In the event that the Annuitant or Owner dies prior to the Annuity
Commencement Date, a benefit may be payable to the Beneficiary. See "Death
Proceeds Prior to the Annuity Commencement Date."
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
12
<PAGE>
yourself with these and all other aspects of any retirement plan in connection
with which a Contract is used. We are not responsible for monitoring or
assuring compliance with the provisions of any retirement plan.
COMMUNICATIONS TO US
All communications to us should include your Contract number, your name and,
if different, the Annuitant's name. Communications may be directed to the
addresses and phone numbers on the cover of this Prospectus.
Except as otherwise specified in this Prospectus, purchase payments or other
communications are deemed received at our Home Office on the actual date of
receipt there in proper form unless received (1) after the close of regular
trading on The New York Stock Exchange or (2) on a date that is not a
Valuation Date. In either of these two cases, the date of receipt will be
deemed to be the next Valuation Date.
FINANCIAL AND PERFORMANCE INFORMATION
Financial statements of Separate Account D and AGL are included in the
Statement. 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.
13
<PAGE>
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.
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.
SELECTED ACCUMULATION UNIT DATA
The table below shows the Accumulation Unit value for the below-listed
Divisions of Separate Account D on the date purchase payments were first
allocated to each Division, as well as the Accumulation Unit value and number
of Accumulation Units outstanding for the indicated date thereafter.
14
<PAGE>
SELECTED ACCUMULATION UNIT DATA (CONT.)
<TABLE>
<CAPTION>
SHORT TERM SHORT TERM
GLOBAL HIGH QUALITY GLOBAL U.S. CORPORATE
MONEY BOND GOVERNMENT GOVERNMENT INCOME
------ ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Accumulation
Unit Values
(Beginning
of Period)* $1 $1 $1 $1 $1
Accumulation
Unit Values
at 12/31/93 $1.006053 N/A $0.991639 $1.012669 $1.045867
Accumulation
Unit Values
at 12/31/94 $1.028063 $0.969705 $0.957146 $0.957302 $0.946638
Accumulation
Unit Values
at 12/31/95 $1.068122 $1.044070 $1.019136 $1.102324 $1.166536
Accumulation
Unit Values
at 12/31/96 $1.104596 $1.067037 $1.090434 $1.126013 $1.154101
Accumulation
Units out-
standing at
12/31/93 1,479,140.661 N/A 19,320,639.816 24,761,033.965 27,478,746.085
Accumulation
Units out-
standing at
at 12/31/94 5,990,768.122 16,054,361.321 31,104,117.951 45,519,220.818 57,776,195.507
Accumulation
Units out-
standing at
at 12/31/95 19,070,427.181 11,822,728.277 23,376,496.403 47,440,751.595 52,014,100.048
Accumulation
Units out-
standing at
at 12/31/96 21,051,065.909 11,613,016.642 20,093,503.244 59,114,942.951 51,843,333.618
</TABLE>
15
<PAGE>
SELECTED ACCUMULATION UNIT DATA (CONT.)
<TABLE>
<CAPTION>
GROWTH
AND EMERGING INTERNATIONAL
INCOME GROWTH GROWTH GROWTH
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Accumulation
Unit Values
(Beginning
of Period)* $1 $1 $1 $1
Accumulation
Unit Values
at 12/31/93 N/A $1.108093 N/A $1.119962
Accumulation
Unit Values
at 12/31/94 $0.968879 $1.121034 $1.037868 $1.124150
Accumulation
Unit Values
at 12/31/95 $1.263773 $1.516694 $1.339251 $1.180567
Accumulation
Unit Values
at 12/31/96 $1.516522 $1.735437 $1.451796 $1.268100
Accumulation
Units out-
standing at
12/31/93 N/A 20,576,053.109 N/A 9,502,246.682
Accumulation
Units out-
standing at
at 12/31/94 25,711,520.731 55,968,698.496 19,161,715.815 41,411,804.816
Accumulation
Units out-
standing at
at 12/31/95 36,675,025.766 65,732,670.354 34,379,287.120 38,882,135.444
Accumulation
Units out-
standing at
at 12/31/96 41,176,555.767 66,849,400.755 38,477,387.014 49,208,677.687
<FN>
* Purchase payments were first allocated to the Global Money Division on
May 7, 1993; to the Short-Term High Quality Bond Division on January 11,
1994; to the Short-Term Global Government Division on May 11, 1993; to
the U.S. Government Division on May 5, 1993; to the Corporate Income
Division on May 6, 1993; to the Growth and Income Division on January 11,
1994; to the Growth Division on May 6, 1993; to the Emerging Growth
Division on January 11, 1994; and to the International Growth Division on
May 6, 1993.
</FN>
</TABLE>
16
<PAGE>
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 forty-three Divisions, nine of which are available under the
Contracts offered by this Prospectus and thirty-four of which are available
under contracts funded through Separate Account D but not 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 FUNDS
The variable benefits under the Contracts are funded by nine Divisions of the
Separate Account. These Divisions invest in shares of nine of the fourteen
separate mutual fund portfolios of the Trust. Fund shares are sold, without
sales charges, exclusively to Separate Account D. Shares of the other five
mutual fund portfolios are also sold, without sales charges, exclusively to
Separate Account D. The Divisions of Separate Account D which invest in such
shares fund other contracts not offered by this Prospectus. In the future,
however, the Trust may offer Fund 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 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.
17
<PAGE>
The investment adviser to the Trust is Sierra Investment Advisors Corporation,
which is not affiliated with AGL.
Any dividends or capital gain distributions attributable to Contracts are
automatically reinvested in shares of the Portfolio from which they are
received at the Fund's net asset value on the date payable. Such dividends and
distributions will have the effect of reducing the net asset value of each
share of the corresponding Fund and increasing, by an equivalent value, the
number of shares outstanding of the Fund. However, the value of your interest
in the corresponding Division will not change as a result of any such
dividends and distributions.
The names of the Funds in which each available Division invests are as
follows:
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
Before selecting any Division, you should carefully read the Trust prospectus,
which is attached at the end of this Prospectus. The Trust prospectus includes
more complete information about the Funds in which each Division invests,
including investment objectives and policies, charges and expenses.
Lower rated securities such as those in which the Growth, Emerging Growth, and
the Short Term Global Government Funds may invest up to 35%, 35% and 10%,
respectively, of their total assets are subject to greater market fluctuations
and risk of loss of income and principal than investments in lower yielding
fixed-income securities. Potential investors in these Divisions should
carefully read the prospectus and related statement of additional information
that pertains to these Funds and consider their ability to assume the risks of
making an investment in these Divisions.
VOTING PRIVILEGES
The Owner prior to the Annuity Commencement Date and the Annuitant or other
payee during the Annuity Period will be entitled to give us instructions as to
how Fund shares held in the Divisions of Separate Account D attributable to
their Contract should be voted on matters pertaining to that Fund at meetings
of shareholders of the Fund. Those persons entitled to give voting
instructions and the number of votes for which they may give directions will
be determined as of the record date for a meeting. Separate Account D will
vote all shares of each Fund that it holds of record in accordance with
instructions received with respect to all AGL annuity contracts participating
in that Fund.
Prior to the Annuity Commencement Date, the number of votes each Owner is
entitled to direct with respect to a particular Fund is equal to (a) the
Owner's Variable Account Value attributable to that Fund divided by (b) the
net asset value of one share of that Fund. In determining the number of
18
<PAGE>
votes, fractional votes will be recognized. While a variable Annuity Payment
Option is in effect, the number of votes an Annuitant or payee is entitled to
direct with respect to a particular Fund will be computed in a comparable
manner, based on our liability for future Variable Annuity Payments with
respect to that Annuitant or payee as of the record date. Such liability for
future payments will be calculated on the basis of the mortality assumptions
and the assumed interest rate used in determining the number of Annuity Units
under a Contract and the applicable value of an Annuity Unit on the record
date.
Fund shares held by insurance company separate accounts other than Separate
Account D will generally be voted in accordance with instructions of
participants in such other separate accounts.
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.
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 a specific number of years selected by
the Owner from among the Guarantee Periods that we then offer. At the end of a
Guarantee Period, the Owner's Account Value in that Guarantee Period,
including interest accrued thereon, will be allocated to a new Guarantee
Period of the same length unless 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.
19
<PAGE>
We will notify the Owner at least 30 days and not more than 60 days prior to
the end of any Guarantee Period. If the Owner's Account Value in a Guarantee
Period is less than $500, we will, without charge, automatically transfer the
balance to the Global Money Division at the end of that Guarantee Period,
unless we have received in good order Written instructions to transfer such
balance to a different Division.
We declare the Guaranteed Interest Rates from time to time as market
conditions dictate. We advise an Owner of the Guaranteed Interest Rate for a
chosen Guarantee Period at the time a purchase payment is received, a transfer
is effectuated or a Guarantee Period is renewed. A different rate of interest
may be credited to one Guarantee Period than to another Guarantee Period that
is the same length but that began on a different date.
Currently we make available Guarantee Periods of one, three and five years.
Each Guarantee Period has its own Guaranteed Interest Rate, which may differ
from those for other Guarantee Periods. From time to time we will, at our
discretion, change the Guaranteed Interest Rate for future Guarantee Periods
of various lengths. These changes will not affect the Guaranteed Interest
Rates being paid on Guarantee Periods that have already commenced. Each
allocation or transfer of an amount to a Guarantee Period commences the
running of a new Guarantee Period with respect to that amount, which will earn
a Guaranteed Interest Rate that will continue unchanged until the end of that
period. The Guaranteed Interest Rate will never be less than an effective
annual rate of 3.5%. We reserve the right to change the Guarantee Periods that
we are making available at any time.
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 AN EFFECTIVE ANNUAL RATE OF 3.5%.
Information concerning the Guaranteed Interest Rates applicable to the various
Guarantee Periods at any time may be obtained from your sales representative
or from the addresses or phone numbers set forth on the cover page of this
Prospectus.
CONTRACT ISSUANCE AND PURCHASE PAYMENTS
The minimum initial purchase payment is $5,000 ($2000 in the case of an IRA ).
The amount of the first purchase payment or transfer that is allocated to any
Division or Guarantee Period must be at least $500. The amount of any
subsequent purchase payment allocated to any Division or Guarantee Period must
be at least $100 ($50 in the case of an IRA). We reserve the right to modify
these minimums, at our discretion.
An application to purchase a Contract must be made by using a signed written
application form provided by 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 in proper form and includes all necessary
information, either the application will be processed and the purchase payment
credited or the application will be rejected and the purchase payment returned
within two Valuation Dates after receipt of the application at the processing
center for Contract applications.
20
<PAGE>
If the application is not in a proper form or does not include all necessary
information, the applicant will be requested to provide additional materials
or information within five Valuation Dates after receipt of the application at
the processing center for Contract applications. If the application is not
made proper and complete within this five day period, the purchase payment
will be returned 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 at such processing center of the last
item required to process the application. Subsequent purchase payments are
credited as of the end of the Valuation Period in which they and any required
Written identifying information, are received at our Home Office. We reserve
the right to reject any application or purchase payment for any reason.
If the Owner's Account Value in any Division falls below $500, we reserve the
right to transfer, without charge, the remaining balance to the Global Money
Division. This right does not apply to the Account Value of a Division that
falls below $500 immediately following a transfer under the Sierra Asset
Management Program. See "Transfer, Surrender and Partial Withdrawal of Owner
Account Value." If the Owner's total Account Value falls below $500, we may
cancel the Contract. Such a cancellation would be considered a full surrender
of the Contract. We will provide you with 60 days' advance notice of any such
cancellation.
So long as the Account Value does not fall below $500, you need make no
further purchase payments. You may, however, elect to make subsequent purchase
payments at any time prior to the Annuity Commencement Date and while the
Owner and Annuitant are still living. Checks for subsequent purchase payments
should be made payable to American General Life Insurance Company and
forwarded directly to our Home Office. If we receive proper instructions, we
may also accept purchase payments by wire, by direct transfer from your
checking, savings or brokerage account, or by exchange from another insurance
company. You may obtain further information about how to make purchase
payments by any of these methods from your sales representative or from us at
the addresses and telephone numbers on the cover page of this Prospectus.
Purchase payments pursuant to salary reduction plans may be made only with our
agreement.
Your purchase payments begin to earn a return in the Divisions of Separate
Account D or the Guarantee Periods of the Fixed Account as of the date we
credit the purchase payments to your Contract. When you apply for a Contract,
you select (in whole percentages) the amount of each purchase payment that is
to be allocated to each Division and each Guarantee Period. You can change
these allocation percentages at any time by Written notice to us.
OWNER ACCOUNT VALUE
Prior to the Annuity Commencement Date, your Account Value under a Contract is
the sum of your Variable Account Value and Fixed Account Value, as discussed
below.
VARIABLE ACCOUNT VALUE
Your Variable Account Value as of any Valuation Date prior to the Annuity
Commencement Date is the sum of your Variable Account Values in each Division
of Separate Account D as of that date.
21
<PAGE>
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 cancelled to the extent you transfer or withdraw
amounts from a Division or to the extent necessary to pay certain charges
under the Contract. The crediting or cancellation of Accumulation Units is
based on the value of such Accumulation Units at the end of the Valuation Date
as of which the related amounts are being credited to or charged against your
Variable Account Value, as the case may be.
The value of an Accumulation Unit for a Division on any Valuation Date is
equal to the previous value of that Division's Accumulation Unit multiplied by
that Division's net investment factor for the Valuation Period ending on that
Valuation Date.
The net investment factor for a Division is determined by dividing (1) the net
asset value per share of the Fund shares held by the Division, determined at
the end of the current Valuation Period, plus the per share amount of any
dividend or capital gains distribution made with respect to the Fund shares
held by the Division during the current Valuation Period, by (2) the net asset
value per share of the Fund shares held in the Division as determined at the
end of the previous Valuation Period, and subtracting from that result a
factor representing the mortality risk, expense risk and administrative
expense charge.
FIXED ACCOUNT VALUE
Your Fixed Account Value as of any Valuation Date prior to the Annuity
Commencement Date is the sum of your Fixed Account Value in each Guarantee
Period as of that date. Your Fixed Account Value in any Guarantee Period is
equal to the following amounts, in each case increased by accrued interest at
the applicable Guaranteed Interest Rate: (1) the amount of purchase payments,
renewals and transferred amounts allocated to the Guarantee Period less (2)
the amount of any transfers or withdrawals out of the Guarantee Period,
including withdrawals to pay applicable charges.
Your Fixed Account Value is guaranteed by 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 3.5% effective annual minimum).
TRANSFER, SURRENDER AND PARTIAL WITHDRAWAL
OF OWNER ACCOUNT VALUE
TRANSFERS
Commencing 30 days after the Contract's date of issue and prior to the Annuity
Commencement Date, you may transfer your Account Value at any time among the
available Divisions of Separate
22
<PAGE>
Account D and Guarantee Periods, subject to the conditions described below.
Such transfers will be effective at the end of the Valuation Period in which
we receive your Written or telephone transfer request.
Each request to transfer from a Division or Guarantee Period must be at least
$500 or, if less, all of your Account Value in that Division or Guarantee
Period. If a transfer would cause your Account Value in any Division or
Guarantee Period to fall below $500, then the remaining balance in that
Division or Guarantee Period will also be transferred in the same proportions
as the transfer request. The minimum value requirements described in this
paragraph do not apply to transfer requests we receive in conjunction with the
Sierra Asset Management Program, described below.
Prior to the Annuity Commencement Date and after the first 30 days following
the date the Contract was issued, you may make up to twelve transfers each
Contract Year without charge, but each additional transfer will be subject to
a $25 charge. However, the charge for any additional transfers will not be
incurred if such transfer is associated with the Sierra Asset Management
Program, described below.
No more than 25% of the Account Value you allocated to a Guarantee Period at
its inception may be transferred during any Contract Year. This 25% limitation
does not apply to transfers within 15 days before or after the end of the
Guarantee Period in which the transferred amounts were being held.
Subject to the above general rules concerning transfers including transfer
charges, you may establish an automatic transfer plan, whereby amounts are
automatically transferred by us from the Global Money Division to one or more
other Divisions or Guarantee Periods on a monthly, quarterly, semi-annual or
annual basis. You may obtain additional information about how to establish an
automatic transfer program from your sales representative or from us at the
telephone numbers and addresses on the front cover of this Prospectus.
If the person or persons that are entitled to make transfers have properly
completed and signed a Sierra Asset Management Program Agreement and
Disclosure Statement that is on file with us, we will accept transfer requests
from Sierra Investment Services Corporation. The Sierra Asset Management
Program ("SAM Program") provides for Sierra Investment Services Corporation to
periodically reallocate your Variable Account Value among the Divisions in
light of your investment objectives and changing economic and market
conditions. Such transfers will be subject to the general terms and conditions
concerning transfers (except as noted above, transfer charges), as described
herein. Acceptance into the SAM Program is subject to approval by Sierra
Investment Services Corporation and a minimum Variable Account Value of
$10,000. For more information about the Program, please refer to "General
Information and History -- Purchase through the SAM Program" in the Trust
prospectus that is attached at the end of this Prospectus.
If the person or persons that are entitled to make transfers have properly
completed and signed a Telephone Transfer Authorization Form that is on file
with us, transfers may be made pursuant to telephone instructions, subject to
the above terms and the terms of the Telephone Transfer Authorization Form. We
will honor telephone transfer instructions from any person who provides
23
<PAGE>
the correct information, so there is a risk of possible loss to you if
unauthorized persons use this service in your name. Currently we generally
limit the availability of telephone transfer instructions only to the Owner of
the Contract for which instruction is received. The Telephone Transfer
Authorization Form provides that we are not liable for any acts or omissions
based upon instructions that we reasonably believe to be genuine, including
losses arising from errors in the communication of transfer instructions. We
have established procedures for accepting telephone transfer instructions,
which include verification of the Contract number, the identity of the caller,
both the annuitant's and Owner's names, and a form of personal identification
from the caller. We will send a written confirmation of the transaction. If
several persons seek to effect telephone transfers at or about the same time,
or if our recording equipment malfunctions, it may be impossible for you to
make a telephone transfer at the time you wish. If this occurs, you should
submit a Written transfer request. Also, if, due to malfunction or other
circumstances, the recording of your telephone request is incomplete or not
fully comprehensible, we will not process the transaction. The phone number
for telephone exchanges is 1-800-247-6584.
We reserve the right to restrict or terminate transfers at any time.
SURRENDERS AND PARTIAL WITHDRAWALS
At any time prior to the Annuity Commencement Date and while the Annuitant is
still living, the Owner may make a full surrender of or partial withdrawal
from his or her Contract.
The amount payable to the Owner upon full surrender is the Owner's Account
Value at the end of the Valuation Period in which we receive a Written
surrender request in good order, minus any applicable Surrender Charge. Our
current practice is to require that you return the Contract with any request
for a full surrender. After a full surrender, or if the Owner's Account Value
falls to zero, all rights of the Owner, Annuitant or any other person with
respect to the Contract will terminate. All collateral assignees of record
must consent to any full surrender or partial withdrawal.
Your Written request for a partial withdrawal should specify the Divisions of
Separate Account D, or the Guarantee Periods of the Fixed Account, from which
you wish the partial withdrawal to be made. If you do not specify, or if the
withdrawal cannot be made in accordance with your specification, the
withdrawal will be taken pro-rata from the Divisions and Guarantee Periods,
based on your Account Value in each. Partial withdrawal requests from any
Division or Guarantee Period must be for at least $500 or, if less, all of
your Account Value in that Division or Guarantee Period. If your remaining
Account Value in the Division or Guarantee Period would be less than $500, we
will automatically transfer, without charge, the remaining balance to the
Global Money Division. Unless you request otherwise, upon a partial
withdrawal, your Accumulation Units and Fixed Account interests that are
cancelled will have a total value equal to the amount of the withdrawal
request, plus any Surrender Charge, and premium tax, if applicable, payable
upon the partial withdrawal. The amount payable to you, therefore, will be the
amount of the withdrawal request.
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
24
<PAGE>
withdrawal program may be obtained from your sales representative or from us
at the addresses and phone numbers set forth on the cover page of this
Prospectus. We reserve the right to modify or terminate our procedures for
systematic withdrawals at any time.
The Code provides that a penalty tax will be imposed on certain premature
surrenders or withdrawals. For a discussion of this and other tax implications
of total surrenders and systematic and other partial withdrawals, including
withholding requirements, see "Federal Income Tax Matters."
ANNUITY PERIOD AND ANNUITY PAYMENT OPTIONS
ANNUITY COMMENCEMENT DATE
The Owner selects the Annuity Commencement Date when the Owner applies for a
Contract and may change a previously-selected date at any time prior to the
beginning of an Annuity Payment Option by submitting a written request,
subject to Company approval. The Annuity Commencement Date specified at the
time of application may be the first day of any month, but not later than the
Annuitant's 85th birthday or, if later, the tenth Contract Anniversary. Nor
may the Annuity Commencement Date be prior to the Annuitant's 50th birthday.
See "Federal Income Tax Matters" for a description of the penalties that may
attach to distributions prior to the Annuitant's attaining age 59 1/2 under
any Contract or after April 1 of the year following the calendar year in which
the Annuitant attains age 70 1/2 under Qualified Contracts.
APPLICATION OF OWNER ACCOUNT VALUE
We will automatically apply your Variable Account Value in any Division to
provide Variable Annuity Payments based on that Division and your Fixed
Account Value to provide Fixed Annuity Payments. However, if you give us other
Written instructions at least thirty days prior to the Annuity Commencement
Date, we will apply your Account Value in different proportions.
We deduct any applicable state and local premium taxes from the amount of
Account Value being applied to an Annuity Payment Option. In some cases, we
may deduct a Surrender Charge from the amount being applied. See "Surrender
Charge." Subject to any such adjustments, your Variable and Fixed Account
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.
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
25
<PAGE>
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
If the Owner does not specify otherwise at least ten days prior to the Annuity
Commencement Date, annuity payments are made in accordance with the second
option described below, with payments being guaranteed for a ten-year period,
or, to the extent the Code requires in the case of a Qualified Contract, the
third option described below. Among other things, the Code also imposes
minimum distribution requirements that have a bearing on the Annuity Payment
Option that should be chosen in connection with Qualified Contracts. See
"Federal Income Tax Matters." We are not responsible for monitoring or
advising Owners as to whether the minimum distribution requirements are being
met, unless we have received a specific Written request to do so.
No election of any Annuity Payment Option may be made unless an initial
annuity payment of at least $100 would be provided, where only a Fixed or only
Variable Annuity Payments are elected, and $50 on each basis when a
combination of Variable and Fixed Annuity Payments is elected. If these
minimums are not met, we will first reduce the frequency of annuity payments,
and if the minimums are still not met, we will make a lump-sum payment to the
Annuitant or other properly-designated payee in the amount of the Owner's
Account Value, less any applicable Surrender Charge.
Within 60 days after the death of the Owner or Annuitant, the Owner, or if the
Owner has not done so, the Beneficiary, may elect that any amount due to the
Beneficiary be applied under any option described below, subject to certain
tax law requirements. See "Death Proceeds." Thereafter, the Beneficiary will
have all the remaining rights and powers under the Contract and be subject to
all the terms and conditions thereof. The first annuity payment will be made
at the beginning of the second month following the month in which we approve
the settlement request. Annuity Units will be credited based on Annuity Unit
Values at the end of the Valuation Period that contains the tenth day prior to
the beginning of said second month.
26
<PAGE>
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 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."
27
<PAGE>
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. The
value transferred must be at least $500 or the payee's total value
attributable to a Division, if less. If a transfer would cause the value that
is attributable to a Contract in any Division to fall below $500, the
remaining balance in that Division also will be transferred in the same
proportion as the transfer request. Transfers will be effected at the end of
the Valuation Period in which we receive the Written transfer request at our
Home Office. We reserve the right to terminate or restrict transfers at any
time.
DEATH PROCEEDS
DEATH PROCEEDS PRIOR TO THE ANNUITY COMMENCEMENT DATE
The death proceeds described below are payable to the Beneficiary under the
Contract if, prior to the Annuity Commencement Date, any of the following
events occurs (a) the Annuitant dies and no Contingent Annuitant has been
named under a Non-Qualified Contract; (b) the Annuitant dies and
28
<PAGE>
we also receive proof of death of any named Contingent Annuitant; or (c) the
Owner (including the first to die in the case of joint owners) of a
Non-Qualified Contract dies, regardless of whether said deceased Owner was
also the Annuitant, except that a Beneficiary who is the Owner's surviving
spouse may elect to continue the Contract as described in the second paragraph
below. If the deceased Annuitant or Owner had not reached age 85 at his or her
death, as applicable, the death proceeds will equal the greatest of (1) the
sum of all purchase payments made (less any previously-deducted premium taxes
and all prior partial withdrawals), (2) the Owner's Account Value as of the
end of the Valuation Period in which we receive, at our Home Office, all
required proofs of death and the Written request as to the manner of payment,
or (3) the Owner's Account Value as of the most recent five-year Contract
Anniversary, less the amount of any subsequent partial withdrawals. THE AMOUNT
SPECIFIED IN (3) ABOVE IS NOT AN AVAILABLE OPTION IN ALL STATES, AND YOU
SHOULD THEREFORE CONSULT YOUR SALES REPRESENTATIVE OR OUR HOME OFFICE AS TO
WHETHER IT WILL APPLY TO YOU. IN THOSE STATES WHERE (3) IS NOT AVAILABLE, THE
DEATH PROCEEDS WILL EQUAL THE GREATER OF (1) OR (2) ABOVE. If the Annuitant or
Owner had attained age 85 at his or her death, as applicable, the death
proceeds will be the amount specified in (2) above.
We will pay the death proceeds to the Beneficiary as of the date the proceeds
become payable. Such date is the end of the Valuation Period in which we
receive proof of the Owner's or Annuitant's death and a Written request in
good order from the Beneficiary as to the manner of payment.
If the Owner has not already done so, the Beneficiary may, within sixty days
after the date the proceeds become payable, elect to receive the death
proceeds as a lump sum or in the form of one of the Annuity Payment Options
provided in the Contract. See "Annuity Payment Options." If we receive no
request as to the manner of payment, we will make a lump-sum payment, based on
values determined at that time.
If the Owner, including the first to die in the case of joint owners, under a
Non-Qualified Contract dies prior to the Annuity Commencement Date, the Code
requires that all amounts payable under the Contract be distributed (a) within
five years of the date of death or (b) as annuity payments beginning within
one year of the date of death and continuing over a period not extending
beyond the life expectancy of the Beneficiary. If the Beneficiary is the
Owner's surviving spouse, the spouse may elect to continue the Contract as the
new Owner and, if the original Owner was the Annuitant, as the new Annuitant.
If the Owner is not a natural person, these requirements apply upon the death
of the primary Annuitant within the meaning of the Code. Failure to satisfy
these Code distribution requirements may result in serious adverse tax
consequences. Under a parallel section of the Code, similar requirements apply
to retirement plans in connection with which Qualified Contracts are issued.
DEATH PROCEEDS AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies following the Annuity Commencement Date, the only
amounts payable to the Beneficiary or other properly-designated payee are any
continuing payments provided for under the Annuity Payment Option selected.
See "Annuity Payment Options." In such a case, the payee will have all the
remaining rights and powers under a Contract and be subject to all the terms
and conditions thereof. Also, if the Annuitant dies following the Annuity
Commencement Date, no Contingent Annuitant can become the Annuitant.
29
<PAGE>
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
In jurisdictions that impose premium taxes or similar assessments at the time
when purchase payments are made, we make a charge for these amounts at that
time. Where premium taxes or similar assessments are imposed by states or
other jurisdictions at the time annuity payments begin, we make a charge for
these amounts at that time.
Applicable premium tax rates depend upon the Owner's then-current place of
residence. Applicable rates currently range from 0% to 3.5% and are subject to
change by legislation, administrative interpretations or judicial acts. We
will not make a profit on this charge.
SURRENDER CHARGE
The Surrender Charge reimburses us for part of our expenses related to
distributing the Contracts. We believe, however, that the amount of such
expenses will exceed the amount of revenues generated by the Surrender Charge.
We will pay such excess out of our general surplus, which might include
profits from the charge for the assumption of mortality and expense risks.
Unless a withdrawal is exempt from the Surrender Charge (as discussed below),
the Surrender Charge is a percentage of the amount of each purchase payment
that is withdrawn during the six years after
30
<PAGE>
it was received. The percentage declines depending on how many years have
passed since the withdrawn purchase payment was originally credited to your
Account Value, as follows:
<TABLE>
<CAPTION>
SURRENDER CHARGE AS A
YEARS ELAPSED PERCENTAGE OF PURCHASE
SINCE RECEIVED PAYMENT WITHDRAWN
-------------- ----------------------
<S> <C>
Less than 1 7%
1 or more, but less than 3 6%
3 or more, but less than 4 5%
4 or more, but less than 5 4%
5 or more, but less than 6 2%
6 or more 0%
</TABLE>
Only for the purpose of computing the Surrender Charge, the earliest purchase
payments are deemed to be withdrawn first, and before any amounts in excess of
purchase payments are withdrawn from your Account Value. The following
transactions will be considered as withdrawals, for purposes of assessing the
Surrender Charge: total surrender, partial withdrawal, commencement of an
Annuity Payment Option, and termination due to insufficient Account Value.
Nevertheless, the Surrender Charge will NOT apply
o To the amount of withdrawals that exceeds the cumulative amount of
your purchase payments;
o If the Annuitant has been confined to a long-term care facility or
is subject to a terminal illness (to the extent that the rider for
these matters is available in your state), as set forth under
"Long-Term Care and Terminal Illness"; or
o Upon selection of an Annuity Payment Option that is based on life
contingencies, if the Annuity Commencement Date does not fall within
the first three Contract Years.
In the State of Washington, beginning after the Annuitant has attained age 63,
surrender charges which would otherwise be assessed against any withdrawal may
be reduced.
The Surrender Charge does NOT apply to the portion of your first withdrawal or
total surrender in any Contract Year that does not exceed 10% of the amount of
your purchase payments that (a) have not previously been withdrawn and (b)
have been credited to the Contract for at least one year, provided that this
one year requirement does not apply if the withdrawal is pursuant to an
automatic withdrawal arrangement established with us. Unused portions of this
10% free withdrawal amount are carried forward during the year ONLY in
connection with automatic withdrawal arrangements established with us. Any
unused portion of the 10% free withdrawal amount never carries forward from
one year to another. If an automatic withdrawal arrangement is established
with us after a non-automatic withdrawal of less than the full 10% free
withdrawal amount has been made in the same
31
<PAGE>
Contract Year, the balance of 10% will be available for automatic withdrawals
during the remainder of that Contract Year. However, once an automatic
withdrawal has been made during any Contract Year in reliance on the 10% free
withdrawal privilege, no non-automatic withdrawal may rely on that privilege
during the balance of that Contract Year.
The Surrender Charge will not apply to any amounts withdrawn which are in
excess of the amount permitted by the 10% free withdrawal privilege, described
above, if such amounts are required to be withdrawn to obtain or retain
favorable tax treatment. This exception is subject to our approval.
A free withdrawal pursuant to any of the foregoing Surrender Charge exceptions
is not deemed to be a withdrawal of purchase payments, except for purposes of
computing the 10% free withdrawal described in the preceding paragraph. See
"Penalty Tax on Premature Distributions."
TRANSFER CHARGES
The charges to defray the expense of effecting transfers are described under
"Transfer, Surrender and Partial Withdrawal of Owner Account Value -
Transfers" and "Annuity Period and Annuity Payment Options - Transfers." These
charges are designed not to yield a profit to us.
CHARGE TO SEPARATE ACCOUNT D
To cover administrative expenses and to compensate us for assuming mortality
and expense risks under the Contracts, Separate Account D will incur a daily
charge at an annualized rate of 1.50% of the average daily net asset value of
Separate Account D attributable to the Contracts. Of this amount, .30% is for
administrative expenses and 1.20% is for the assumption of mortality and
expense risks. We do not expect to earn a profit on that portion of the charge
which is for administrative expenses, but we do expect to derive a profit from
the portion which is for the assumption of mortality and expense risks. There
is no necessary relationship between the amount of administrative charges
imposed on a given Contract and the amount of expenses actually attributable
to that Contract.
In assuming the mortality risk, we are subject to the risk that our actuarial
estimate of mortality rates may prove erroneous and that Annuitants will live
longer than expected, or that more Owners or Annuitants than expected will die
at a time when the death benefit guaranteed by us is higher than the net
surrender value of their interests in the Contracts.
MISCELLANEOUS
Charges and expenses are paid out of the assets of each Fund as described in
the prospectus of the Trust that is attached at the end of this Prospectus. We
reserve the right to impose charges or establish reserves for any federal or
local taxes incurred or that may be incurred by us, and that may be deemed
attributable to the Contracts.
32
<PAGE>
ONE-TIME REINSTATEMENT PRIVILEGE
If you have made a full surrender of your Account Value, you may reinstate the
Contract if we receive the Written reinstatement request, together with a
return to us of the net proceeds of such surrender, not more than 30 days
after the date as of which the surrender was made. In such a case, your
Account Value will be restored to what it was at the time of the surrender and
any subsequent Surrender Charge will be computed as if the Contract had been
issued at the date of reinstatement in consideration of a Purchase Payment in
the amount of such net surrender proceeds. Unless you request otherwise, the
reinstated Account Value will be allocated among the Divisions and Guarantee
Periods in the same proportions as the prior surrender. You may use this
privilege only once.
REDUCTION IN SURRENDER CHARGES OR ADMINISTRATIVE CHARGES
We may reduce the surrender charges or administrative charges imposed under
certain Qualified Contracts in connection with employer-sponsored plans. Any
such reductions will reflect differences in costs or services (due to such
factors as reduced sales expenses or administrative efficiencies relating to
serving a large number of employees of a single employer and functions assumed
by the employer that we otherwise would have to perform) and will not be
unfairly discriminatory as to any person.
LONG-TERM CARE AND TERMINAL ILLNESS
THE RIDER DESCRIBED BELOW IS NOT AVAILABLE IN ALL STATES, AND YOU SHOULD
THEREFORE CONSULT YOUR SALES REPRESENTATIVE OR OUR HOME OFFICE AS TO WHETHER
IT WILL APPLY TO YOU. THERE IS NO SEPARATE CHARGE FOR THIS RIDER.
LONG-TERM CARE
Pursuant to a special Contract rider, no Surrender Charge will apply during
any period of time that the Annuitant is confined for 30 days or more in a
hospital or state-licensed in-patient nursing facility. We must receive
Written proof of such confinement that is satisfactory to us.
TERMINAL ILLNESS
The rider also provides that no Surrender Charge will apply if we have
received a physician's Written certification that the Annuitant is terminally
ill and not expected to live more than twelve months and have waived or
exercised our right to a second physician's opinion.
OTHER ASPECTS OF THE CONTRACTS
Only an officer of 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.
33
<PAGE>
OWNERS, ANNUITANTS, AND BENEFICIARIES; ASSIGNMENTS
The Owner of a Contract will be the same as the Annuitant, unless the
purchaser designates a different Owner when applying to purchase a Contract.
In the case of joint ownership, both Owners must join in the exercise of any
rights or privileges under the Contract. The Annuitant and any Contingent
Annuitant are designated by the purchaser when applying for a Contract and may
not thereafter be changed.
The Beneficiary and, under a Non-Qualified Contract, any Contingent
Beneficiary are designated by the purchaser when applying for a Contract. A
Beneficiary or Contingent Beneficiary may be changed by the Owner prior to the
Annuity Commencement Date, while the Annuitant is still alive, and by the
payee following the Annuity Commencement Date. Any designation of a new
Beneficiary or Contingent Beneficiary is effective as of the date it is
signed, but will not affect any payments we make or action we take before
receiving the Written request. We also need the Written consent of any
irrevocably-named Beneficiary or Contingent Beneficiary before making a
change. Under certain retirement programs, spousal consent may be required to
name a Beneficiary other than the spouse, or to change a Beneficiary to a
person other than the spouse. We are not responsible for the validity of any
designation of a Beneficiary or Contingent Beneficiary.
If no named Beneficiary or Contingent Beneficiary is living at the time any
payment is to be made, the Owner will be the Beneficiary, or if the Owner is
not then living, the Owner's estate will be the Beneficiary.
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 the shares of
34
<PAGE>
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. When required by law, we will
obtain your approval of changes and the approval of any appropriate regulatory
authority.
PAYMENT AND DEFERMENT
Amounts surrendered or withdrawn from a Contract will normally be paid within
seven calendar days after the end of the Valuation Period in which we receive
the Written surrender or withdrawal request in good order. If we do not
receive a Written request as to the method of payment within 60 days after the
death of the Owner or Annuitant, any death benefit proceeds will be paid as a
lump sum, normally within seven calendar days after the end of the Valuation
Period that contains the last day of said 60 day period. We reserve the right,
however, to defer payment or transfers of amounts out of the Fixed Account for
up to six months. Also, we reserve the right to defer payment of that portion
of your Account Value that is attributable to a purchase payment made by check
for a reasonable period of time (not to exceed 15 days) to allow the check to
clear the banking system.
Finally, we reserve the right to defer payment of any surrender and annuity
payment amounts or death benefit amounts of any portion of the Variable
Account Value if (a) the New York Stock Exchange is closed other than
customary weekend and holiday closings, or trading on the New York Stock
Exchange is restricted; (b) an emergency exists, as a result of which disposal
of securities is not reasonably practicable or it is not reasonably
practicable to fairly determine the Variable Account Value; or (c) the
Securities and Exchange Commission by order permits the delay for the
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.
35
<PAGE>
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 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
36
<PAGE>
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 includible in
income. The penalty tax will not apply, however, to (1) distributions made
after the recipient attains age 59 1/2, (2) distributions on account of the
recipient's becoming disabled, (3) distributions that are made after the death
of the Owner prior to the Annuity Commencement Date or the payee after the
Annuity Commencement Date (or if such person is not a natural person, that are
made after the death of the primary Annuitant, as defined in the Code), and
(4) distributions that are part of a series of substantially equal periodic
payments made over the life (or life expectancy) of the Annuitant or the joint
life (or joint life expectancies) of the Annuitant and the Beneficiary.
Premature distributions may result, for example, from an early Annuity
Commencement Date, an early surrender, partial withdrawal from or assignment
of a Contract, or the early death of an Annuitant, unless clause (3) above
applies.
PAYMENT OF DEATH PROCEEDS. Special rules apply to the distribution of any
death proceeds payable under the Contract. See "Death Proceeds."
ASSIGNMENTS AND LOANS. An assignment, loan, or pledge with respect to a
Non-Qualified Contract is taxed in the same manner as a partial withdrawal, as
described above. Repayment of a loan or release of an assignment or pledge is
treated as a new purchase payment.
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
37
<PAGE>
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.
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
38
<PAGE>
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.
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
39
<PAGE>
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.
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.
40
<PAGE>
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 Sierra Investment Services Corporation ("Sierra
Services") or other broker-dealer firms or representatives of other firms that
are exempt from broker-dealer regulation. Sierra Services has contracted with
American General Securities Incorporated ("AGSI"), the principal underwriter
of the Contracts, for Sierra Services to distribute the Contracts. AGSI is a
wholly-owned subsidiary of AGL. Sierra Services also provides certain
administrative services to AGL in connection with the processing of
applications for Contracts.
Sierra Services, AGSI, and other firms not exempt from broker-dealer
regulation are registered with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended ("1934 Act") as broker-dealers
and are members of the National Association of Securities Dealers, Inc.
("NASD"). The principal business address for AGSI is the same as that for our
Home Office. Sierra Services may also make arrangements to distribute
Contracts through registered representatives of other broker-dealer firms that
are registered as such under the 1934 Act and are members of the NASD. The
interests under the Contracts are offered on a continuous basis.
AGL compensates Sierra Services or other broker-dealers that sell the
Contracts at a rate that does not exceed 6% of purchase payments received
pursuant to the Contracts. This compensation must be wholly or partially
refunded if a Contract is cancelled or otherwise terminated within twelve
months after issuance. AGL may also pay additional compensation of up to .1%
of purchase payments attributed to Contracts sold by broker-dealers who meet
certain production goals.
LEGAL MATTERS
The legality of the Contracts described in this Prospectus has been passed
upon by Steven A. Glover, Esquire, Associate General Counsel of AGL. 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:
41
<PAGE>
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
General Information...................................................... 2
Regulation and Reserves.................................................. 2
Independent Auditors..................................................... 3
Services................................................................. 3
Principal Underwriter.................................................... 3
Annuity Payments......................................................... 3
Gender of Annuitant.................................................... 3
Misstatement of Age or Sex and Other Errors............................ 4
Change of Investment Adviser or Investment Policy........................ 4
Performance Data for the Divisions....................................... 4
Financial Statements..................................................... 9
Index to Financial Statements............................................ 10
42
<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
1
<PAGE>
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 (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
2
<PAGE>
You must round up the result to the next highest $10 level (the next highest
number which ends in zero). For example, if the result is $1,525, you must
round it up to $1,530. If the final result is below $200 but above zero, your
Deduction Limit is $200. Your Deduction Limit cannot, in any event, exceed
100% of your compensation.
EXAMPLE 1: Ms. Smith, a single person, is an active participant and has an
AGI of $31,619. She calculates her deductible IRA contribution as follows:
Her AGI is $31,619
Her 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.
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 (or up to $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 (or up to $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)
4
<PAGE>
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.
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
5
<PAGE>
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.
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.
6
<PAGE>
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 Owner to an IRA for that year
over the lesser of his or her taxable compensation or $2,000. (Different
limits apply in the case of a spousal IRA arrangement.) If the excess
contribution is not withdrawn by the due date of your tax return (including
extensions) you will be subject to the penalty.
IRS APPROVAL
Your contract and IRA endorsement have been approved by the Internal Revenue
Service as a tax qualified Individual Retirement Annuity. Such approval by the
Internal Revenue Service is a determination only as to the form of the annuity
and does not represent a determination of the merits of such annuity.
This disclosure statement is intended to provide an overview of the applicable
tax laws relating to Individual Retirement Arrangements. It is not intended to
constitute a comprehensive explanation as to the tax consequences of your IRA.
AS WITH ALL SIGNIFICANT TRANSACTIONS SUCH AS THE ESTABLISHMENT OR MAINTENANCE
OF, OR WITHDRAWAL FROM AN IRA, APPROPRIATE TAX AND LEGAL COUNSEL SHOULD BE
CONSULTED. Further information may also be acquired by contacting your IRS
District Office or consulting IRS Publication 590.
FINANCIAL DISCLOSURE
(SIERRA ADVANTAGE VARIABLE ANNUITY)
This Financial Disclosure is applicable to IRAs using the Sierra Advantage
Variable Annuity purchased from American General Life Insurance Company on or
after May 1, 1997.
Earnings under Variable Annuities are not guaranteed, and depend on the
performance of the investment options selected. As such, earnings cannot be
projected. Set forth below are the charges associated with these annuities.
7
<PAGE>
CHARGES:
(a) A maximum charge of $25 for each transfer, in excess of 12 free
transfers annually, of contract value between divisions of the
Separate Account.
(b) To compensate for mortality and expense risks assumed under the
contract, variable divisions only will incur a daily charge at an
annualized rate of 1.20% of the average Separate Account Value of the
contract during both the Accumulation and the Payout Phase.
(c) Premium taxes, if applicable, may be charged against Accumulation
Value at time of annuitization, a full or partial surrender or upon
the death of the Annuitant. If a jurisdiction imposes premium taxes
at the time purchase payments are made, the Company may deduct a
charge at that time.
(d) If the contract is surrendered, or if a withdrawal is made, there may
be a Surrender Charge. The Surrender Charge equals the sum of the
following:
7.0% of purchase payments for surrenders and withdrawals made
during the first contract year following receipt of the purchase
payments surrendered;
6.0% of purchase payments for surrenders and withdrawals made
during the second through third contract year following receipt
of the purchase payments surrendered;
5.0% of purchase payments for surrenders and withdrawals made
during the fourth contract year following receipt of the
purchase payments surrendered;
4.0% of purchase payments for surrenders and withdrawals made
during the fifth contract year following receipt of the purchase
payments surrendered;
2.0% of purchase payments for surrenders and withdrawals made
during the sixth contract year following receipt of the purchase
payments surrendered;
There will be no charge imposed for surrenders and withdrawals
in the seventh and subsequent contract years following receipt
of the purchase payments surrendered.
Under certain circumstances described in the contract, portions of a
partial withdrawal may be exempt from the Surrender Charge.
(e) To compensate for administrative expenses, a daily charge will be
incurred at an annualized rate of .30% of the average Separate
account Value of the contract during the Accumulation and the Payout
Phase.
(f) Each variable division will be charged a fee for asset management
deducted directly from the underlying fund during the Accumulation
and Payout Phase. The fee will range between .44% and .94% depending
on the division.
8
<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 Advantage Contracts ("Contracts")
investing in certain mutual fund portfolios 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 OF CONTENTS
General Information........................................................ 2
Regulation and Reserves.................................................... 2
Independent Auditors....................................................... 3
Services................................................................... 3
Principal Underwriter...................................................... 3
Annuity Payments........................................................... 3
Gender of Annuitant....................................................... 3
Misstatement of Age or Sex and Other Errors............................... 4
Change of Investment Advisor or Investment Policy.......................... 4
Performance Data for the Divisions......................................... 4
Financial Statements....................................................... 9
Index to Financial Statements.............................................. 10
1
<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.
2
<PAGE>
INDEPENDENT AUDITORS
The consolidated financial statements of AGL and the financial statements of
the Sierra Advantage Divisions 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 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.
3
<PAGE>
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
If the age or sex of an Annuitant has been misstated to us, any amount payable
will be that which the purchase payments paid would have purchased at the
correct age and sex. If we made any overpayments because of incorrect
information about age or sex, or any error or miscalculation, we will deduct
the overpayment from the next payment or payments due. We will add any
underpayments to the next payment. The amount of any adjustment will be
credited or charged with interest at the effective annual rate of 3.5% per
year.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise required by law or regulation, neither the investment adviser
to any Fund nor any investment policy may be changed without the consent of
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 are not an estimate or guarantee of
future investment performance, and do not represent the actual experience of
amounts invested by a particular Owner. Performance figures are carried to the
nearest one-hundredth of one percent and include the effect of voluntary fee
waivers and expense reimbursements in favor of the Funds from their investment
adviser and administrator. Modifications have been made in these waivers and
reimbursements which, had they been in effect for the entire period would
(except for the Global Money Division) have resulted in lower total returns
than those shown below.
AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
Each Division's average annual total return quotation is computed in
accordance with a standard method prescribed by the Securities and Exchange
Commission ("SEC"). The average annual total return for a Division for a
specific period is found by first taking a hypothetical $1,000 investment in
the Division's Accumulation Units on the first day of the period at the
then-applicable Accumulation Unit value per unit ("initial investment"), and
computing the ending redeemable value ("redeemable value") of that investment
at the end of the period. The redeemable value reflects the effect of the
applicable Surrender Charge that may be imposed at the end of the period as
well as all other recurring charges and fees applicable under the Contract to
all Owner accounts. Such other charges and fees include the mortality and
expense risk charge and the administrative expense charge, but do not include
the charges for any applicable premium taxes. The redeemable value is then
divided by the initial investment, and this quotient is taken to the Nth root
(N represents the number of years in the period) and 1 is subtracted from the
result, which is then expressed as a percentage. Average annual total return
quotations for the indicated periods ended December 31, 1996 are set forth in
the table below.
4
<PAGE>
<TABLE>
<CAPTION>
DIVISION ONE YEAR SINCE DIVISION INCEPTION*
-------- -------- -------------------------
<S> <C> <C>
Global Money Fund (3.59)% 1.60%
Short-Term High Quality Bond Fund (4.80)% 0.44%
Short-Term Global Government Fund 0.00% 1.23%
U.S. Government Fund (4.85)% 2.15%
Corporate Income Fund (8.07)% 2.87%
Growth and Income Fund 13.01% 13.65%
Growth Fund 7.42% 15.45%
Emerging Growth Fund 1.40% 11.93%
International Growth Fund 0.41% 5.66%
<FN>
* The U.S. Government Division commenced operations on May 5, 1993. The
Growth, International Growth and Corporate Income Divisions commenced
operations on May 6, 1993. The Global Money Division commenced operations
on May 7, 1993. The Short Term Global Government Division commenced
operations on May 11, 1993. The Growth and Income, Emerging Growth and
Short Term High Quality Bond Divisions commenced operations on January 11,
1994.
</FN>
</TABLE>
CUMULATIVE TOTAL RETURN CALCULATIONS (WITHOUT SURRENDER CHARGE)
No standard formula has been prescribed by the SEC for calculating
cumulative total return performance (without Surrender Charge). Total return
performance for a specific period is calculated by first taking an investment
(assumed to be $1,000) in a Division's Accumulation Units on the first day of
the period at the then-applicable Accumulation Unit value per unit ("initial
investment") and computing the ending value ("ending value") of that
investment at the end of the period. The ending value does not include the
effect of the applicable Surrender Charge that may be imposed at the end of
the period, since it is assumed that the Contract continues through the end of
each period, and does not include the charges for any applicable premium
taxes. The total return percentage (without Surrender Charge) is then
determined by subtracting the initial investment from the ending value and
dividing the remainder by the initial investment and expressing the result as
a percentage.
Cumulative total return quotations (without surrender charge) for the
indicated periods ended December 31, 1996 are set forth in the table below.
<TABLE>
<CAPTION>
DIVISION ONE YEAR SINCE DIVISION INCEPTION*
-------- -------- -------------------------
<S> <C> <C>
Global Money Fund 3.41% 2.76%
Short-Term High Quality Bond Fund 2.20% 2.21%
Short-Term Global Government Fund 7.00% 2.41%
U.S. Government Fund 2.15% 3.30%
Corporate Income Fund (1.07%) 4.00%
Growth and Income Fund 20.00% 15.05%
Growth Fund 14.42% 16.28%
Emerging Growth Fund 8.40% 13.37%
International Growth Fund 7.41% 6.71%
<FN>
* See footnote to previous table for dates when Divisions commenced
operations.
</FN>
</TABLE>
5
<PAGE>
AGGREGATE CUMULATIVE TOTAL RETURN CALCULATIONS
No standardized formula has been prescribed by the SEC for calculating
aggregate cumulative total return performance. Aggregate cumulative total
return performance is the cumulative rate of return on a hypothetical
investment (assumed to be $1,000) in a Division's Accumulation Units on the
first day of the period at the then-applicable Accumulation Unit value per
unit ("initial investment"). Aggregate cumulative total return quotations
reflect changes in Accumulation Unit value and are calculated by finding the
cumulative rates of return of the hypothetical initial investment over various
periods, according to the following formula, and then expressing that as a
percentage:
A = (ERV/P) - 1
Where:
A = Aggregate cumulative total return
P = A hypothetical initial investment of $1,000
ERV = Ending redeemable value: i.e., the value at the end of
the applicable period of a hypothetical $1,000 investment
made at the beginning of the applicable period. Ending
redeemable value for this purpose does not reflect the
charges for any applicable premium taxes, but does
reflect all other charges.
Aggregate cumulative total return quotations for the indicated periods ended
December 31, 1996 are set forth in the table below:
<TABLE>
<CAPTION>
DIVISION ONE YEAR SINCE DIVISION INCEPTION*
-------- -------- -------------------------
<S> <C> <C>
Global Money Fund 3.41% 10.46%
Short-Term High Quality Bond Fund 2.20% 6.70%
Short-Term Global Government Fund 7.00% 9.04%
U.S. Government Fund 2.15% 12.60%
Corporate Income Fund (1.07%) 15.41%
Growth and Income Fund 20.00% 51.65%
Growth Fund 14.42% 73.54%
Emerging Growth Fund 8.40% 45.18%
International Growth Fund 7.41% 26.81%
<FN>
* See footnote to previous table for dates when Divisions commenced
operations.
</FN>
</TABLE>
6
<PAGE>
YIELD CALCULATIONS
The yields for the U.S. Government, Short Term High Quality Bond,
Corporate Income, and Short Term Global Government Divisions are each computed
in accordance with a standard method prescribed by the SEC. The yields for the
U.S. Government, Short Term High Quality Bond, Corporate Income and Short Term
Global Government Divisions, based upon the one month period ended December
31, 1996, were 4.64%, 4.83%, 5.30% and 6.91, respectively. The yield quotation
is computed by dividing the net investment income per Accumulation Unit earned
during the specified one month or 30-day period by the Accumulation Unit value
on the last day of the period, according to the following formula that assumes
a semi-annual reinvestment of income:
a - b 6
YIELD = 2[(------- +1) - 1]
cd
Where:
a = Net dividends and interest earned during the period by the Fund
attributable to the Division.
b = Expenses accrued for the period (net of reimbursements).
c = The average daily number of Accumulation Units outstanding during
the period.
d = The Accumulation Unit value per unit on the last day of the period.
The yield of each Division reflects the deduction of all recurring fees and
charges applicable to each Division, such as the mortality and expense risk
charge and the administrative expense charge, but does not reflect the
deduction of Surrender Charges or the charge for any applicable premium taxes.
GLOBAL MONEY DIVISION YIELD AND EFFECTIVE YIELD CALCULATIONS
The Global Money Division's yield is computed in accordance with a
standard method prescribed by the SEC. Under that method, the current yield
quotation is based on a seven-day period and computed as follows: the net
change in the Accumulation Unit value during the period is divided by the
Accumulation Unit value at the beginning of the period to obtain the base
period return; the base period return is then multiplied by the fraction 365/7
to obtain the current yield figure. Realized capital gains or losses and
unrealized appreciation or depreciation of the Global Money Fund's assets are
not included in the calculation. The Global Money Division's yield for the
seven-day period ended December 31, 1996 was 2.80%.
The Global Money Division's effective yield is determined by taking the
base period return (computed as described above) and calculating the effect of
assumed compounding. The formula for
7
<PAGE>
the effective yield is: (base period return +1)365/7-1. The Global Money
Division's effective yield for the seven-day period ended December 31, 1996
was 2.83%.
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 ("VARDS(R)") 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.
VARDS(R) rankings compare only variable annuity issuers. The performance
analyses prepared by Lipper and VARDS(R) 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, VARDS(R) 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.
8
<PAGE>
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.
<TABLE>
<CAPTION>
5 Years 10 Years 20 Years
(7.125% earnings rate)
<S> <C> <C> <C>
Tax-Deferred................................. $141,076 $199,025 $396,111
Tax-Deferred (after taxes)................... $128,343 $168,327 $304,316
Taxable Investment........................... $127,120 $161,595 $261,129
</TABLE>
<TABLE>
<CAPTION>
(10.00% earnings rate)
<S> <C> <C> <C>
Tax-Deferred................................. $161,051 $259,374 $672,750
Tax-Deferred (after taxes)................... $142,125 $209,968 $495,197
Taxable Investment........................... $139,601 $194,884 $379,799
</TABLE>
These hypothetical charts assume a 31% tax rate. The charts also assume that
no fees or charges are deducted from any of the investments. In the case of
the Contracts, the annual mortality and expense risk charge is 1.20%, the
maximum surrender charge is 7% for withdrawals within the first six years, and
annual administrative expense is .30%. The currently taxable investments may
incur comparable fees and charges. The application of fees and charges would
reduce the performance of the Contracts or any other investment. Taxes are
payable upon withdrawal under the Contracts, either at one time in the case of
a lump sum withdrawal, or on each payment in the case of annuitization. An
additional 10% penalty may apply to withdrawals before age 59 1/2.
This information is for illustrative purposes only and is not a guarantee of
future return.
FINANCIAL STATEMENTS
The financial statements for Separate Account D that are included herein
relate to 9 of its Divisions. Separate Account D has 34 other Divisions for
which no financial statements are included because those Divisions are
available only pursuant to contracts other than the Contracts that are the
subject of this Statement .
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.
9
<PAGE>
INDEX TO
<TABLE>
FINANCIAL STATEMENTS
PAGE NO.
<S> <C>
I. Sierra Advantage Divisions of Separate Account D
Financial Statements
Report of Ernst & Young LLP, Independent Auditors.................. 11
Statement of Net Assets ........................................... 12
Statement of Operations............................................ 13
Statement of Changes in Net Assets................................. 14
Notes to Financial Statements...................................... 15
II. AGL Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors.................. 23
Consolidated Balance Sheets........................................ 24
Consolidated Statements of Income.................................. 26
Consolidated Statements of Shareholder's Equity.................... 27
Consolidated Statements of Cash Flows.............................. 28
Notes to Consolidated Financial Statements......................... 29
</TABLE>
10
<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
Sierra Advantage Divisions
of Separate Account D
We have audited the accompanying statement of net assets of the Sierra
Advantage Divisions 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 the Sierra
Advantage Divisions 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.
/s/ERNST & YOUNG
Houston, Texas
January 31, 1997
11
<PAGE>
American General Life Insurance Company
Sierra Advantage Divisions
SEPARATE ACCOUNT D
<TABLE>
STATEMENT OF NET ASSETS
December 31, 1996
<S> <C>
ASSETS:
Investment securities - at market (cost $429,484,209).......... $480,823,205
-------------
NET ASSETS................................................. $480,823,205
=============
CONTRACT OWNER RESERVES:
Reserves for redeemable annuity contracts.................... $480,672,635
Reserves for annuity contracts on benefit.................... 150,570
-------------
TOTAL CONTRACT OWNER RESERVES.............................. $480,823,205
=============
</TABLE>
12
<TABLE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1996
<S> <C>
INVESTMENT INCOME:
Dividends from mutual funds.................................. $ 12,623,149
EXPENSES:
Expense and mortality fee.................................... 6,689,446
-------------
NET INVESTMENT INCOME 5,933,703
-------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................. 8,253,869
Capital gain distributions from mutual funds................. 19,044,845
Net unrealized gain on investments........................... 1,870,223
-------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS................. 29,168,937
-------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 35,102,640
=============
See accompanying notes.
</TABLE>
13
<PAGE>
American General Life Insurance Company
Sierra Advantage Divisions
SEPARATE ACCOUNT D
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Year Ended December 31,
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income........................................ $ 5,933,703 $ 4,544,715
Net realized gain (loss) on investments...................... 8,253,869 (348,580)
Capital gain distributions from mutual funds................. 19,044,845 721,066
Net unrealized gain on investments........................... 1,870,223 59,082,619
------------- -------------
Increase in net assets resulting from operations 35,102,640 63,999,820
PRINCIPAL TRANSACTIONS:
Contract purchase payments, less sales and administrative
expenses and premium taxes................................. 62,319,889 66,850,917
Payments to contract owners:
Annuity benefits........................................... (5,806,546) (7,148,527)
Terminations and withdrawals............................... (18,340,373) (20,016,039)
------------- -------------
Increase in net assets resulting from principal transactions. 38,172,970 39,686,351
------------- -------------
TOTAL INCREASE IN NET ASSETS................................. 73,275,610 103,686,171
NET ASSETS:
Beginning of year............................................ 407,547,595 303,861,424
------------- -------------
End of year.................................................. $480,823,205 $407,547,595
============= =============
See accompanying notes.
</TABLE>
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
The Sierra Advantage Divisions (the "Divisions") of American General Life
Insurance Company Separate Account D (the "Separate Account") received their
first deposits in May, 1993. The Separate Account was established by
resolution of the Board of Directors of American General Life Insurance
Company (the "Company") on November 19, 1973. The Separate Account is
registered under the Investment Company Act of 1940 as a unit investment trust
and consisted of twenty-six Divisions at December 31, 1996. On January 27,
1997, eleven additional Divisions were added to the Separate Account and
became available to contract holders through an additional American General
annuity contract. The Divisions available from The Sierra Variable Trust
mutual funds to Sierra Advantage contract holders are as follows:
<TABLE>
<S> <C>
International Growth Fund Growth and Income Fund
Short Term Global Government Fund Corporate Income Fund
Growth Fund Short Term High Quality Bond Fund
Global Money Fund Emerging Growth Fund
U. S. Government 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 The Sierra Variable
Trust 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.
15
<PAGE>
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 Divisions and are paid to the Company. The annual rate
for the administrative expenses is 0.30% and the annual rate for the mortality
and expense risks is 1.20%. A surrender charge is applicable to certain
withdrawal amounts pursuant to the contract and is payable to the Company. The
total surrender charges collected for the period ended December 31, 1996 were
$ 663,624.
The funds pay their investment adviser, Sierra Investment Advisors
Corporation, a monthly management fee, based on each fund's average net asset
value. While the management fee is a significant component of each fund's
annual operating costs, each fund pays other expenses, such as legal and audit
fees. The funds also pay Sierra Fund Administration Corporation a monthly fee
based on each fund's average daily net assets.
Sierra Investment Advisors Corporation and/or Sierra Fund Administration
Corporation may, from time to time, agree to reimburse the funds for
management fees and other expenses above a certain limit.
ANNUITY RESERVES - Annuity reserves are computed for currently payable
contracts according to the 1983a Individual Annuity Mortality Table projected
under Scale G factors. The assumed interest rate is 3.5 percent. 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- FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the Internal
Revenue Code and includes the operations of the Separate Account in
determining its federal income tax liability. Under existing federal income
tax law, the investment income and capital gains from sale of investments
realized by the Separate Account are not taxable. Therefore, no federal income
tax provision has been made.
16
<PAGE>
NOTE D - 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.
<TABLE>
<CAPTION>
Net Value of Cost of
Asset Shares at Shares Unrealized
Fund Shares Value Market Held Appreciation
<S> <C> <C> <C> <C> <C>
International Growth Fund 4,790,516 $ 13.03 $ 62,420,425 $ 57,385,152 $ 5,035,273
Short Term Global Government Fund 8,843,198 2.48 21,931,132 21,676,032 255,100
Growth Fund 7,247,908 16.01 116,039,007 92,269,807 23,769,200
Global Money Fund 23,261,642 1.00 23,261,642 23,261,642 0
U.S. Government Fund 6,815,332 9.77 66,585,792 66,643,860 (58,068)
Growth and Income Fund 4,370,788 14.29 62,458,565 50,043,856 12,414,709
Corporate Income Fund 6,095,560 9.82 59,858,400 59,857,864 536
Short Term High Quality Bond Fund 5,099,390 2.43 12,391,519 12,583,492 (191,973)
Emerging Growth Fund 3,801,138 14.70 55,876,723 45,762,504 10,114,219
------------- ------------- -------------
$480,823,205 $429,484,209 $ 51,338,996
============= ============= =============
</TABLE>
The aggregate cost of purchases and proceeds from sales of investments
for the period ended December 31, 1996 were $122,772,093 and $59,620,556,
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 as of December 31,
1996 are $51,589,037 and $250,041 respectively.
17
<PAGE>
NOTE E - SUMMARY OF CHANGES IN UNITS
SUMMARY OF CHANGES IN UNITS FOR THE PERIOD ENDED DECEMBER 31, 1996
CONTRACTS IN ACCUMULATION PERIOD:
<TABLE>
<CAPTION>
Short Term
Global U. S.
International Government Global Government
Growth Fund Fund Growth Fund Money Fund Fund
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of period... 38,882,135 23,376,496 65,732,670 19,070,427 47,440,752
Purchase payments.................... 5,764,728 823,425 7,956,730 5,200,192 6,228,720
Surrenders........................... (2,265,550) (1,734,078) (3,016,816) (1,095,489) (3,518,538)
Transfers to annuity................. (15,963) (6,098) (12,789) (8,501) (20,673)
Transfers between funds.............. 6,843,328 (2,366,243) (3,810,396) (2,115,563) 8,984,682
----------- ----------- ----------- ----------- -----------
Outstanding at end of period......... 49,208,678 20,093,503 66,849,401 21,051,066 59,114,943
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Short Term
High
Growth and Corporate Quality Emerging
Income Fund Income Fund Bond Fund Growth Fund
<S> <C> <C> <C> <C>
Outstanding at beginning of period... 36,675,026 52,014,100 11,822,728 34,379,287
Purchase payments.................... 8,537,458 5,251,050 1,617,072 6,624,986
Surrenders........................... (1,751,987) (3,393,206) (545,484) (1,578,433)
Transfers to annuity................. (9,532) (8,123) 0 (11,326)
Transfers between funds.............. (2,274,409) (2,020,487) (1,281,300) (937,127)
----------- ----------- ----------- -----------
Outstanding at end of period......... 41,176,556 51,843,334 11,613,017 38,477,387
=========== =========== =========== ===========
</TABLE>
18
<PAGE>
NOTE E - SUMMARY OF CHANGES IN UNITS- CONTINUED
SUMMARY OF CHANGES IN UNITS FOR THE PERIOD ENDED DECEMBER 31, 1996 - CONTINUED
CONTRACTS IN ANNUITY PERIOD:
<TABLE>
<CAPTION>
Short Term
Global U. S.
International Government Global Government
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>
Growth and Corporate Emerging
Income Fund Income Fund Growth Fund
<S> <C> <C> <C>
Outstanding at beginning of period... 0.000 20,438.943 0.000
Transfers from accumulation.......... 9,531.916 8,122.761 11,325.843
Annuity payments..................... (687.964) (6,070.707) (714.000)
----------- ----------- -----------
Outstanding at end of period......... 8,843.952 22,490.997 10,611.843
=========== =========== ===========
</TABLE>
19
<PAGE>
SUMMARY OF CHANGES IN UNITS FOR THE PERIOD ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
CONTRACTS IN ACCUMULATION PERIOD:
Short Term
Global U. S.
International Government Global Government
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
High
Growth and Corporate 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>
<TABLE>
CONTRACTS IN ANNUITY PERIOD:
<CAPTION>
Short
Term
Global Corporate
Government Growth Income
Fund Fund 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>
20
<PAGE>
NOTE F - NET ASSETS REPRESENTED BY:
<TABLE>
December 31,1996
CONTRACTS IN ACCUMULATION PERIOD: 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
=============
CONTRACTS IN ANNUITY PERIOD:
International Growth Fund......................... 14,905.021 $ 1.268100 $ 18,901
Short Term Global 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
Emerging Growth Fund.............................. 10,611.843 1.451796 15,406
-------------
150,570
-------------
TOTAL CONTRACT OWNER RESERVES..................... $480,823,205
=============
</TABLE>
21
<PAGE>
<TABLE>
December 31,1995
CONTRACTS IN ACCUMULATION PERIOD: 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
US. 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
=============
CONTRACTS IN ANNUITY PERIOD:
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
-------------
TOTAL CONTRACT OWNER RESERVES.................. $407,547,595
=============
</TABLE>
22
<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.
23
<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>
24
<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.
25
<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.
26
<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>
27
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.
28
<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.
29
<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>
30
<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.
31
<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.
32
<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.
33
<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
34
<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.
35
<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.
36
<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.
37
<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.
38
<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.
39
<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>
40
<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>
41
<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>
42
<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.
43
<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>
44
<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>
45
<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>
46
<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>
47
<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>
48
<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>
49
<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>
50
<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.
51
<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.
52
<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>
53
<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.
54
<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>
55
<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.
56
<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.
57
<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>
58
<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.
59
<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.
60
<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.
61
<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>
62
<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.
63
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
PART A: None
PART B:
Financial Statements of the Sierra Advantage Divisions
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 Shareholders' 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) 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
C-1
<PAGE>
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) Selling/Master General Agent Agreement among American General Life
Insurance Company, American General Securities Incorporated and
Sierra Investment Services Corporation (5)
(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 indemnification given by Sierra
Investment Advisors Corporation and Sierra Investment Services
Corporation to American General Life Insurance Company and American
General Securities Incorporated (5)
(e) Form of Selling Group Agreement, by and among American General Life
Insurance Company, Sierra Investment Services Corporation, and
selling group members.
4(a) Specimen form of Combination Fixed and Variable Annuity Contract
(4)
(b) Form of Waiver of Surrender Charge Rider (6)
(c) Form of Qualified Contract Endorsement (6)
(d)(i) Specimen form of Individual Retirement Annuity Financial
Disclosure (7)
(ii) Specimen form of Individual Retirement Annuity Endorsement (4)
(iii) Specimen form of IRA Instruction Form (6)
(e) Form of Amendment to Combination Fixed and Variable Annuity
Contract (6)
5(a)(i) Specimen form of Application (8)
(ii) Specimen form of Application, revised October, 1993 (5)
(iii) Specimen form of SNAP Annuity Ticket application (6)
(iv) Specimen form of Application, revised April, 1995 (11)
(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)(A)Contract Service Request, including telephone transfer
authorization (5)
(c)(i)(B)Contract Service Request, including telephone transfer
authorization, revised January, 1996 (11)
(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 (9)
7 None
8 Form of Sierra Asset Management Program Agreement and Disclosure
Statement (10)
9 Opinion and consent of Counsel (l4)
10 Consent of Independent Auditors
11 None
12 None
13(a) Computations of Average Annual Total Returns for the Periods Ended
December 31, 1994 (6)
(b) Computations of Cumulative Total Returns (Without Surrender Charge)
for the Periods Ended December 31, 1994 (6)
(c) Computations of Aggregate Cumulative Total Returns for the Periods
Ended December 31, 1994 (6)
(d) Computations of 30 Day Yield for the U.S. Government, Short Term
High Quality Bond, Corporate Income and Short Term Global
Government Divisions for the Period Ended December 31, 19946
(e) Computation of 7 Day Yield for the Global Money Division for the
Period Ended December 31, 1994 (6)
14 A Financial Data Schedule for the Sierra Advantage Divisions
meeting the requirements of Rule 483(e) of the Securities Act of
1933 is being filed as Exhibit 27 hereof.
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)
C-3
<PAGE>
(b) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by Robert S. Cauthen, Jr. in his capacity
as a director and officer of American General Life Insurance
Company (6)
(c) Power of Attorney with respect to Registration Statements and
Amendments thereto signed by James R. Tuerff in his capacity as a
director of American General Life Insurance Company, filed as part
of Post-Effective Amendment No. 1 to this Form N-4 Registration
Statement on October 18, 1993 (5)
(d) 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)
(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. Kelley, Pulliam, and Young
(6)
(f) 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 (11)
(g) 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
(h) 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
16 Statement concerning applicable SEC Exemptive Order (8)
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 Separate
Account D'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
Separate Account D's Form N-4 Registration Statement (File No. 33-43390),
filed on December 31, 1991.
(4) Previously filed in Pre-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 33-57730), filed on March 29, 1993.
C-4
<PAGE>
(5) Previously filed in Post-Effective Amendment No. 1 to this Form N-4
Registration Statement (File No. 33-57730), filed on October 18, 1993.
(6) Previously filed in Post-Effective Amendment No. 3 to this 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) Previously filed as part of the initial filing of this Form N-4
Registration Statement (File No. 33-57730), filed on February 1, 1993.
(9) Incorporated herein by reference to Post-Effective Amendment No. 1 to
Separate Account D's Registration Statement (File No. 33-43390), filed on
April 30, 1992.
(10) Previously filed in Post-Effective Amendment No. 2 to this Form N-4
Registration Statement ( File No. 33-57730), filed on April 29, 1994.
(11) Previously filed in Post-Effective Amendment No. 4 to this Form N-4
Registration Statement (File No. 33-57730), filed on April 29, 1996.
</FN>
</TABLE>
C-5
<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. Polkingorn 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-6
<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. Subsidiaries of
subsidiaries are indicated by indentations and unless otherwise indicated, all
subsidiaries are wholly owned. Inactive subsidiaries are denoted by an (*).
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
----------------------------------------------------------------------------- -----------------
<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)
C-7
<PAGE>
American General Annuity Service Corporation ............................. Texas
American General Life Insurance Company of New York...................... New York
The Winchester Agency Ltd. ........................................... New York
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
C-8
<PAGE>
American General Realty Investment Corporation ................................. Texas
American General Mortgage Company............................................ Delaware
GDI Holding, Inc. (*8)....................................................... California
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
<FN>
American General Finance Foundation, Inc. is not included on this list. It is
a non-profit corporation.
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.
C-9
<PAGE>
(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.
(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:
C-10
<PAGE>
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.
(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.
All of the subsidiaries of AGL are included in its consolidated financial
statements, which are filed in Part B of this Registration Statement.
</FN>
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 1997 there were 9,668 owners of Contracts of the class covered
by this registration statement.
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
C-11
<PAGE>
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 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 filed as Exhibit
3(c)(i) to this Registration Statement is 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,
C-12
<PAGE>
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.
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-13
<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-14
<PAGE>
(c) None.
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 , 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 THE
REASONABLENESS OF AGGREGATE FEES AND CHARGES DEDUCTED UNDER THE CONTRACTS
PURSUANT TO SECTION 26(E)(2)(A) OF THE INVESTMENT COMPANY ACT OF 1940
AGL represents that the fees and charges deducted under the Contracts that are
identified as Contract Form No. 93011 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-15
<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, certifies that it meets the requirements of Securities Act Rule
485(b), for effectiveness of this Amendment to the Registration Statement and
has duly caused this Amendment to the Registration Statement to be signed on
its behalf, in the City of Houston, and State of Texas on this 24th 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 24, 1997
--------------------------
(Rodney O. Martin, Jr.)
ROBERT F. HERBERT, JR.* Principal Financial and April 24, 1997
-------------------------- Accounting Officer
(Robert F. Herbert, Jr.)
</TABLE>
<TABLE>
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 24, 1997
</TABLE>
<PAGE>
<TABLE>
EXHIBIT INDEX
<S> <C>
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
(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
(e) Form of Selling Group Agreement, by and among American General Life
Insurance Company, Sierra Investment Services Corporation, and
selling group member
10 Consent of Independent Auditors
15(g) 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
15(h) 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
</TABLE>
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
i
<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>
ii
<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:
1
<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.
2
<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.
3
<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
4
<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;
5
<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
6
<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;
7
<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,
(c) the Contracts comply in all material respects with all other
applicable federal and state laws and regulations,
(d) interests in each Account pursuant to the Contracts will be
registered under the 1933 Act to the extent required by the 1933 Act,
8
<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,
9
<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,
(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 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
10
<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
11
<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
12
<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
13
<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;
14
<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.
(c) This Agreement shall terminate at the option of AGL or AGSI, subject
to Section 7.3, in the event of:
(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,
15
<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
16
<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.
17
<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
18
<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.
19
<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
20
<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
21
<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:
22
<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.
(c) Customize and support state specific requirements where
administratively feasible.
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.
(c) Respond to written inquiries from Contract owners.
(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.
(c) Prepare updates and regulatory filings as warranted.
(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.
(c) Prepare Separate Account semiannual and annual reports .
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.
(c) Arrange for payment of appointment fees.
(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.).
(c) Provide sales reporting data to wholesalers.
(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.
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). Such commission
reduction is not applicable to trail commissions.
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):
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>
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. 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.
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(1),
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(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(c)(ii)
FIRST AMENDMENT
DATED AS OF APRIL ___, 1997
TO
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 3(e)
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
2
<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.
3
<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
4
<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.
5
<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.
(C) Independent Assignment
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.
6
<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:__________________________
7
<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
8
EXHIBIT 10
ERNST & YOUNG LLP One Houston Center Phone: 713 750 1500
Suite 2400 Fax: 713 750 1501
1221 McKinney Street
Houston, Texas 77010-2007
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" and to the use of our reports dated January 31, 1997, as to the
Sierra Advantage Divisions of American General Life Insurance Company Separate
Account D, and March 20, 1997, as to American General Life Insurance Company,
in Post-Effective Amendment No. 6 to the Registration Statement (Form N-4 No.
33-57730) of American General Life Insurance Company Separate Account D.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
April 25, 1997
EXHIBIT 15(g)
LIMITED POWER OF ATTORNEY
WHEREAS, American General Life Insurance Company, a Texas company (and
its successors, if applicable) ("Company"), intends from time to time to file
with the Securities and Exchange Commission ("Commission"), one or more Form
N-4 Registration Statement(s) under the Securities Act of 1933 and the
Investment Company Act of 1940, on behalf of the Company and the Separate
Account(s) maintained or to be maintained by the Company, with such amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents related thereto;
NOW, THEREFORE, each of the undersigned individuals, in his capacity as a
director or officer of the Company, hereby appoints Thomas B. Phillips and
Steven A. Glover, and each of them, either of whom may act without the joinder
of the other, his true and lawful attorney-in-fact and with full power of
substitution and resubstitution, to execute in his name, place, and stead, in
his capacity as a director or officer or both, as the case may be, of the
Company, any and all Form N-4 Registration Statements and any and all
amendments thereto as each said attorney-in-fact shall deem necessary or
appropriate, together with all instruments necessary or incidental in
connection therewith, and to file the same or cause the same to be filed with
the Commission. The above-named attorneys-in-fact shall each have full power
and authority to do and perform in the name and on behalf of the undersigned,
in any and all capacities, every act whatsoever necessary or desirable in
connection with any and all Form N-4 Registration Statements, and any and all
amendments thereto, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of each said attorney-in-fact.
EXECUTED this 6th day of February, 1997.
/s/RODNEY O. MARTIN /s/ROBERT F. HERBERT, JR.
-------------------- -------------------------
Rodney O. Martin Robert F. Herbert, Jr.
EXHIBIT 15(h)
LIMITED POWER OF ATTORNEY
WHEREAS, American General Life Insurance Company, a Texas company (and
its successors, if applicable) ("Company"), intends from time to time to file
with the Securities and Exchange Commission ("Commission"), one or more Form
N-4 Registration Statement(s) under the Securities Act of 1933 and the
Investment Company Act of 1940, on behalf of the Company and the Separate
Account(s) maintained or to be maintained by the Company, with such amendments
thereto as may be necessary or appropriate, together with any and all exhibits
and other documents related thereto;
NOW, THEREFORE, each of the undersigned individuals, in his capacity as a
director or officer of the Company, hereby appoints Thomas B. Phillips and
Steven A. Glover, and each of them, either of whom may act without the joinder
of the other, his true and lawful attorney-in-fact and with full power of
substitution and resubstitution, to execute in his name, place, and stead, in
his capacity as a director or officer or both, as the case may be, of the
Company, any and all Form N-4 Registration Statements and any and all
amendments thereto as each said attorney-in-fact shall deem necessary or
appropriate, together with all instruments necessary or incidental in
connection therewith, and to file the same or cause the same to be filed with
the Commission. The above-named attorneys-in-fact shall each have full power
and authority to do and perform in the name and on behalf of the undersigned,
in any and all capacities, every act whatsoever necessary or desirable in
connection with any and all Form N-4 Registration Statements, and any and all
amendments thereto, as fully and for all intents and purposes as the
undersigned might or could do in person, the undersigned hereby ratifying and
approving the acts of each said attorney-in-fact.
EXECUTED this 6th day of February, 1997.
/s/DAVID A. FRAVEL /s/JOHN V. LAGRASSE
------------------ -------------------
David A. Fravel John V. LaGrasse
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000089031
<NAME> AMERICAN GENERAL LIFE INSURANCE COMPANY SEPARATE ACCOUNT D
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 486,138,885
<INVESTMENTS-AT-VALUE> 541,986,780
<RECEIVABLES> (3,227)
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 541,983,553
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 541,983,553
<DIVIDEND-INCOME> 15,231,338
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 7,354,572
<NET-INVESTMENT-INCOME> 7,876,766
<REALIZED-GAINS-CURRENT> 31,149,171
<APPREC-INCREASE-CURRENT> 4,104,554
<NET-CHANGE-FROM-OPS> 43,130,491
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 76,995,780
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
